Investor webchats

Investor webchat - fundamental situation and results of the Azoty Group companies after the first three quarters of 2019 and the ongoing Public Offer with Pre-emptive Rights at the Azoty Police S.A.

On Thursday 14th of November 2019, an investor chat was held with Paweł Łapiński, Vice-President of Grupa Azoty S.A. and Włodzimierz Zasadzki, vice president of Grupa Azoty Zakłady Chemiczne "Police" S.A. The meeting was devoted to fundamental situation and results of the Azoty Group companies after the first three quarters of 2019 and the ongoing Public Offer with Pre-emptive Rights at the Azoty Police S.A.

Results of the Azoty Group companies after the first three quarters of 2019 and the ongoing Public Offer with Pre-emptive Rights at the Azoty Police S.A. PDF (133.54 KB)

At Thursday 10th of October 2019, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible i.a. for finance. The meeting was mainly devoted to financial results generated by the Azoty Group companies in the first half of 2019.

Investor webchat H1 2019 results PDF (88.40 KB)

At Tuesday 28th of May 2019, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible i.a. for finance. The meeting was devoted to financial results first quarter of 2019.

Investor webchat Q1 2019 results PDF (78.60 KB)

At Thursday 29th of November 2018, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible i.a. for finance. The meeting was devoted to financial results third quarter of 2018.

Investor webchat 3Q 2018 results PDF (156.43 KB)

At Tuesday 18th of Sptember 2018, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible i.a. for finance. The meeting was devoted to financial results first half of 2018.

1H 2018 financial results-investor webchat PDF (180.94 KB)

At Wednesday 25th of April 2018, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance. The meeting was devoted to financial results for the year 2017.

Q3 2017 financial results PDF (225.93 KB)

At Wedesday. 22nd of November, an investor chat was held with Mr Paweł Łapinski, Vice-President of Grupa Azoty S.A. responsible for finance. The meeting was devoted to financial results for the Q3 2017.

Q3 2017 financial results PDF (207.86 KB)

At Tuesday, 5th of September, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance. The meeting was devoted to financial results for the first half of 2017.

Grupa Azoty after the publication of its Q3 2016 financial results - webchat PDF (225.45 KB)

At Tuesday, 16th of May, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance. The meeting was devoted to financial results for the first quarter of 2017 and the 2013-2020 Strategy, updated by the Management Board.

Investor webchat Q1 2017 results and Strategy update - webchat PDF (67.51 KB)

At 14:00 on Monday, November 14th, an investor webchat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance.

Grupa Azoty after the publication of its Q3 2016 financial results PDF (155.32 KB)

At 12:00 on Thursday, September 8th, an investor webchat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance.

moderator: Welcome to our live Q&A chat session with Paweł Łapiński, Grupa Azoty’s Vice President for Finance. You may ask questions about the company’s current situation and growth prospects in the context of the recently published financial results for the first half of 2016.

moderator: Let me remind you about the rules of our chat room: you first send your questions to the moderator; the questions selected by our Guests will be published together with the answers; you can see the order of questions at the bottom of the screen; the moderator has the right to discard questions which do not comply with the rules.

moderator: Information for the journalists present in the chat room: citing today’s chat in your publications requires indicating the source. If you have any questions or doubts, please contact: biurostockwatch.pl

Paweł Łapiński: Welcome everyone to today’s investor chat with Grupa Azoty. I will do my best to answer all the questions you may have concerning the company’s current financial position and its growth prospects in the context of the H1 2016 earnings announcement. I am ready to take your questions now.

SW-fan: Mr Vice President, hello and thank you for holding this chat. You have been with the company for a long time now so, given the far-reaching changes on the board, it’s only appropriate and fair that it is you who is talking to us. Could you please update us on new management’s current strategy for the Group; what are your priorities, what has been retained from the previous strategy, and what changes have you made and why?

Paweł Łapiński: No major overhaul has been made with respect to the existing strategy. We aim to further consolidation within the Group, which will span procurement, sales, R&D and IT functions. We expect to see the first consolidation synergies in the second half of 2016.

Tworzywa: What do you think are the short- and long-term prospects for the plastics business, which sustained a more than PLN 50m loss in H1 2016?

Paweł Łapiński: The plastics market is facing pricing pressures from customers, mainly driven by the situation on the Chinese market (caprolactam oversupply), which feed through to profit margins on finished products. We share analysts’ positive outlook for the future. We operate at full capacities and we have no problems finding buyers for our plastics products. Current prices are unsatisfactory, but we are working to improve the formulas. Demand is driven by the automotive industry and ongoing composite materials projects.

Gość unconfirmed: Do you intend to move forward with your mining project in Senegal? Was the decision to launch the project reasonable in the context of the recent corporate announcements?

Paweł Łapiński: Our investment in production fields in Senegal has been a two-part project, covering a small operating mine (now depleted, as recently announced) and new exploration and production licences. We are about to enter the second stage of the project, requiring a costly exploration programme to precisely locate the deposits and evaluate their potential. Final decisions will be made only after the second-stage deposits and their economic viability have been reliably estimated.

Inwestor unconfirmed: Can you confirm with absolute certainty that the PDH unit will be completed on schedule?

Paweł Łapiński: By definition, large-scale capital investment projects are executed according to a plan, which needs to have a specific level of detail. So far, we have kept progress in line with the adopted schedule. I can see no reason why the decision making on the PDH project should depart from our proven, conservative approach to project management. If modifications to the project schedule prove economically justified, we will notify you accordingly.

kikan unconfirmed: What can you tell us about the coal gasification project in Kędzierzyn?

Paweł Łapiński: The project has entered the pre-FEED phase, which will permit us to make further specific decisions on the future process configuration of the coal gasification unit.

Gość unconfirmed: While the financial performance delivered by the Police and Puławy subsidiaries met consensus estimates, the Tarnów-based company missed consensus. What was missing from these estimates?

Paweł Łapiński: Unfortunately, the second-quarter results in Tarnów and in the other listed subsidiaries came below consensus estimates. For instance, Puławy reported consolidated EBIT of PLN 68m in the second quarter, compared with a consensus of PLN 104m.

The Group’s earnings deteriorated year on year mainly because of the weaker price environment, particularly in the fertilizers segment, which, given the last year’s high base (driven chiefly by a major reduction in gas prices which had no impact on sales prices) dragged down performance of all key fertilizers companies.

Tworzywa: What steps are you going to take to make plastics sales profitable again, considering the largely oversupplied PA6 market in Europe, extremely narrow margins realised by producers and tough conditions on the POM imports market?

Paweł Łapiński: The PA6 market is mainly facing an oversupply of natural polyamides. In line with its strategy, the Group is looking to expand its modified, specialty and custom plastics business, which offers wider margins and better market access thanks to its know-how.

Tworzywa: Are you seeking to get a foothold and expand business in the automotive industry as a supplier to automotive mould manufacturers?

Paweł Łapiński: We take a professional market approach, analysing potential threats and opportunities in various areas. We are in talks with partners in the most promising application segments, including automotive, but I can’t disclose any details as they constitute trade secret.

radiomoskfa: I have a question concerning your relations with one of your shareholders, Akron; it’s been some years now, we’ve recently heard about Akron’s attempt to put their man on the Supervisory Board; what are the relations between your two companies like right now, and where is this going?

Paweł Łapiński: Acting in compliance with the law, this shareholder notified in May of having reduced its shareholding below 20% of total voting rights. No formal notice of appointment to the Supervisory Board was submitted. Our relations with Akron do not differ from what we have with the other shareholders, as we make sure to treat all our shareholders on an equal footing.

migotkaa unconfirmed: What were your sales by volume in the second quarter compared with the same period last year? Why is it you don’t publish volume data specifically in the Directors’ Report, but limit the data to charts contained in presentations?

Paweł Łapiński: In line with the Group policy, volume data is limited to the data published in stock exchange presentations. As regards disclosures, we care to ensure equal access to information to all investors. Also, we need to remember that the data we release to the public domain is a source of knowledge on what we do for our competitors. Hence, restricting the level of detail of some data serves the interests of the Group and its shareholders.

Gość unconfirmed: Will any further impairment charges be recognised this year in respect of African Investment Group or the reporting errors identified in Police?

Paweł Łapiński: We have already recognised impairment losses with respect to receivables only. Further steps will be taken after we have received the results of additional analyses that have been ordered by the Management Board of Grupa Azoty Police. Right now, I can’t say whether more impairment losses will be recognised.

MZK: What is your current dividend policy and do you intend to modify or change it in any way?

Paweł Łapiński: The dividend policy adopted in the strategy remains unchanged. In line with the strategy, recommended dividend payouts equal 40-60% of the company’s non-consolidated net profit, depending, of course, on a number of factors relevant to the company’s business prospects, future profits, cash requirements, financial standing, business expansion plans and legal requirements.

Tworzywa: Over the past few years − due to economic reasons as can be inferred from the available materials − you have lost production of PVC Tarvinyl and PTFE Tarflen. Isn’t the dominant position of the AGRO segment in sales and earnings posted by the Group likely to cause the plastics business to be significantly marginalised and, considering current market conditions and reported financial metrics, the existing POM and PA production to be phased out/divested?

Paweł Łapiński: The Group’s business is divided into two areas, depending on customers’ specific circumstances and prevailing market conditions. These are B2C - fertilizers and B2B, covering plastics, oxo products, melamine, and other sales correlated with economic growth.

That each Group company has its business divided into those two areas is no coincidence, as this division offers business stability given that B2B and B2C sales cycles differ.

Accordingly, we don’t think the plastics segments could be marginalised, and capital projects in that segment are implemented as planned.

Gość unconfirmed: Is pressure on the demand side visibly growing on increasingly weaker grain prices?

Paweł Łapiński: We are witnessing a seasonal recovery in demand for both nitrogen and compound fertilizers. The high season has only just begun, and so we remain optimistic.

SW-fan: You talk about innovations a lot, and you want to be seen as an innovative company. What are these innovations exactly, and what is you annual spending on innovations? And one more thing. Is the widely advertised innovation support scheme authored by Development Minister Mateusz Morawiecki bringing any tangible benefits to your company and, if so, what are these benefits?

Paweł Łapiński: In line with the Government’s Responsible Development Plan and its own strategy, the Group intends to raise its innovation spending to around 1% of revenue.

Accordingly, the Group has launched a number of projects, including its own research and development centre in Tarnów, with its planned budget of PLN 88m, which will receive a PLN 20m grant under an agreement with the Development Ministry signed on September 2nd.

drobny inw: Good morning. I have an easy question. How long do you expect the deteriorating market trends to continue, and what steps are you taking to mitigate the effects of what is going on with fertilizer prices?

Paweł Łapiński: The adverse trends on the fertilizers market are not likely to reverse in the final quarter of the year. We are consolidating the sales area, which we hope will generate synergies. We are also reviewing our sales policy and may be introducing some changes soon.

Gość unconfirmed: Were there any maintenance shutdowns in the second quarter and, if so, what was their duration?

Paweł Łapiński: Maintenance shutdowns, planned as in previous years, were completed according to schedule, with no major setbacks encountered in the process.

kikan unconfirmed: Is the company likely to improve on its 2015 results?

Paweł Łapiński: We don’t publish guidance. 2015 was a record year in terms of earnings, and we will make every effort to keep profitability close to last year’s level.

Gość unconfirmed: Continuing the consolidation theme, what is your cost savings estimate for this year and 2017?

Paweł Łapiński: We strive to implement the consolidation process in the best and most efficient way possible, to maximise gains as quickly as practicable.

kikan unconfirmed: Why do you blame weaker performance on deteriorated purchasing power of farmers if sales volumes are on the rise?

Paweł Łapiński: Reduced purchasing power among farmers is of course one of the reasons behind weaker performance figures reported by the fertilizers business, but it’s not the only or even most important one. (Other factors I have in mind are, for instance, major declines in urea prices, reflected in the prices of nitrate fertilizers, to which we have to adapt as a participant in this market). Also, it’s important to note that a large proportion of our fertilizers are distributed through dealers. These dealers build up their product inventory ahead of the upcoming fertilizing season during the second quarter. Yet another vital factor is the fertilizers sales structure, where farmers’ purchasing power is particularly important. In periods of improved market conditions, customers in the agricultural sector buy larger volumes of more complex and expensive fertilizers.

inwestor: Will Grupa Azoty have to face an increase in the par value of its shares, as was the case with PGE?

Paweł Łapiński: We have no such knowledge or plans to do so.

inwestor: Good morning. What’s next with dividends? What is your policy on sharing profits with shareholders?

Paweł Łapiński: I’ve already answered this question. Let me add that we shared the 2015 profit with shareholders; in July 2016 we paid out over PLN 83m in dividends.

Gość unconfirmed: Has the cost estimate of the coal gasification project remained unchanged at PLN 300m? Would the key end products be methanol and hydrogen, and in what processes would they be used?

Paweł Łapiński: Clearly, it’s a misunderstanding. No one has ever said that a massive coal gasification project could cost so little. Our estimate is several times the figure you mentioned, and detailed data is being gathered.

The process technology could be configured to yield either ammonia or methanol. We have yet to make this decision. As I’ve said earlier, the project is in the pre-FEED phase, and we are in the process of evaluating both options in terms of their economic feasibility and pertinent business risks. Further processing is an option, as we wouldn’t necessarily want to end up with global primary products like methanol or ammonia.

Analyses are ongoing.

kikan unconfirmed: Is the reduction in CAPEX from PLN 2bn to PLN 1.6bn in 2016 a result of projects having been postponed or scrapped altogether? What is your planned CAPEX for 2017?

Paweł Łapiński: The contributing factors include cost savings achieved on completed projects, some projects having been postponed by several months (which in fact means their postponement to next year) and, thirdly, the need to run additional analyses on some projects. 2017 estimates will be given at a later date.

marek unconfirmed: What is the situation with Senegal? Does the country remain a viable source of feedstock, or have the Senegalese assets proven a pig in a poke bought by the previous Management Board?

Paweł Łapiński: Senegal remains a viable source of feedstock supply, as was announced by the Management Board of Grupa Azoty Police in August. We may also buy feedstock from other producers, but this would depend on the price. As I said before, our own deposits are being evaluated for size and quality. Further decisions will be made after we know the results of the evaluation.

kikan unconfirmed: Do you have a partner for the coal gasification project? What will be its equity share?

Paweł Łapiński: The project is in the design phase. It’s too early to say anything definite about ownership proportions as this depends on the unit’s process configuration.

gość unconfirmed: Have you definitely decided to abandon the coal gasification project in Kędzierzyn?

Paweł Łapiński: As I repeated several times today, we’re in the pre-FEED phase, with key decisions yet to be made. Once we make them, we will let you know.

Let me put this simply: ALL THE MORE SO you wouldn’t expect us to abandon the project.

SW-fan: Could you please comment on the current global balance of power among the US, Europe and Russia in terms of natural gas supply, FX rates, fertilizers demand and impact on fertilizer prices in the next six to twelve months. Give us your opinion on that.

Paweł Łapiński: As regards natural gas, we view the current balance of power as positive, since any gas market diversification is and will be good for Europe. Fertilizer prices are more heavily impacted by global grain stock levels and the oversupplied urea market in Asia. It’s important to note that the growing share of freight costs in the prices of urea should curb further price declines.

In the near term, we expect nitrogen and compound fertilizer prices to firm on a seasonal peak in demand. However, the prices will remain below the 2015 levels considering the low prices of fertilizer feedstocks.

kikan unconfirmed: For many quarters now the plastics business has recorded a negative EBITDA. When can we expect it to deliver profits?

Paweł Łapiński: Sadly, the commodities segment of the plastics market remains under pressure caused by product oversupply and a price war waged by producers. Our strategy in this segment is to shift to more complex products, which is why we have embarked on a project which will allow us to use the caprolactam made in Puławy to make PA6 and modify it for various applications that would meet the changing needs of the automotive, construction and textile industries. Building a new customer base to absorb the additional volumes will require hard work, but we are optimistic about this project considering global forecasts predicting a consistent growth in plastics consumption, which would give a boost to our plastics business performance.

MZK: What is the current market environment of each segment?

Paweł Łapiński: With the summer holidays over, we are seeing an increased activity and improved sentiment across the board, relative to the second quarter, of course.

kikan unconfirmed: What have been the trends in fertilizer prices in the third quarter?

Paweł Łapiński: As we had anticipated, the prices have been in an uptrend due to a seasonal rise in demand. The rise is relatively slow due to the overall situation on the global agricultural market.

olek unconfirmed: Do you plan any acquisitions this year?

Paweł Łapiński: Our 2014−2020 strategy identifies acquisitions as one of the pillars of the Group’s activities, so we are closely monitoring the market for investment opportunities. Any corporate decisions regarding this matter will be announced in compliance with applicable capital market regulations.

MZK: What caused the poor performance in the second quarter? Is it just one quarter or will the downtrend continue?

Paweł Łapiński: The reported second-quarter figures are significantly down year on year, reflecting deteriorating conditions on the fertilizers market (mainly due to falling prices) and plastics market (strong oversupply-driven pricing pressures). In fertilizers, we are dealing with a major oversupply of agricultural produce and declines in the prices of global products (urea) creating pricing pressures on key fertilizer products, which bear on the segment’s performance.

The current market environment should be viewed from a longer-term perspective, not just one quarter. Our task in the longer term will be to tackle the challenges posed by the market by diversifying our product mix and appropriately allocating resources to more profitable segments (e.g. increasing the volumes of urea used to make melamine as a product offering higher margins), ongoing cost-base control, and consistent implementation of capital projects. We hope our efforts will help mitigate the impact of adverse market trends on our performance in the future.

modest unconfirmed: Hello. What are your relations with your biggest privately-held shareholder, Acron?

Paweł Łapiński: All our shareholders are treated on an equal footing.

witek unconfirmed: Has the project to produce potash from deposits in the Bay of Puck, which was to be partnered by KGHM, been suspended or abandoned altogether?

Paweł Łapiński: Considering the expected oversupply of potassium compounds, which are used as feedstock by the Group, the project has been suspended. If new circumstances arise suggesting that the extraction of rarer feedstocks could be economically justified, we will announce that.

MZK: What are the current market conditions in your key fertilizers segment?

Paweł Łapiński: As you probably know, the fertilizers market is subject to business cycles. Due to a number of global factors, notably lower feedstock prices, shifts in demand patterns, and conditions prevailing in the agricultural sector, the market is more subdued compared with a year ago. We are looking for ways to bolster our financial performance. We are working to enhance product quality and expand our product mix, conducting field work, and testing various types of fertilizers. We are also optimising our export sales, supplying products to markets with different seasonal cycles.

Inwestor unconfirmed: What is the price you pay for natural gas, and how has it changed year on year?

Paweł Łapiński: The gas price we pay doesn’t materially deviate from the price trends published by generally available sources (TTF, GASPOOL).

Let me remind you that the market price of gas dropped by over 30% year on year.

Tworzywa: The French agency ANSES has proposed a new harmonised classification for Titanium Dioxide (TiO2) as potentially carcinogenic to humans when inhaled. What is your comment on this?

Paweł Łapiński: Some research, which constitutes a minority, has assessed titanium dioxide as being potentially carcinogenic to humans based on studies performed on rats, which are particularly sensitive to ‘lung overload’.

We have made titanium white in our plant in Police since 1977, with no TiO2-related cases of cancer reported over these four decades.

Our customers are very well acquainted with the physical and chemical properties of our product and the ‘potential carcinogenicity’ classifications.

kikan unconfirmed: At current capacities, what is the Group’s cycle average EBITDA? Last year the company reported PLN 1.21.3bn / 1.31bn, and it was a record year.

Paweł Łapiński: The 2015 result was an extraordinary achievement, driven by drops in feedstock prices, mainly gas. A boon like that doesn’t happen very often, and should not be expected to recur this year. Obviously, the financial performance of our Kędzierzyn subsidiary was bolstered by new capacities that have come on stream in the OXO section. New capacities launched at other Group companies should bring additional benefits in the coming years.

ela unconfirmed: What is the status of the project to build a petrochemical complex in partnership with LOTOS? Shelved or abandoned?

Paweł Łapiński: We have thoroughly analysed the huge PetroProject with Grupa Lotos and decided to shrink it to a series of smaller, yet still big, projects, with the PDH project being the largest one of them.

maciej unconfirmed: Could this year’s EBITDA be on a par with last year’s figure, or is the loss posted for H1 2016 unrecoverable?

Paweł Łapiński: As I said, we don’t provide guidance. Plus, the 2015 results were record high.

Please also note that how lower feedstock prices pass through to end-product prices should be viewed in percentage rather than nominal terms.

It’s only sensible to analyse percentage changes (profitability) rather than nominal changes.

monika unconfirmed: Are you on the lookout for alternative phosphate rock supply sources given the uncertainty surrounding the deposits in Senegal?

Paweł Łapiński: The African phosphates market is quite competitive, so there is no need to look for alternative supply sources.

gość unconfirmed: Why doesn’t the Group have its own distribution network, but instead has to share its profit margins with wholesalers?

Paweł Łapiński: This distribution model, adopted by the Group long ago, is no different from the models used by other producers around the world. It’s mainly driven by the seasonality of fertilizer application. To note, the Group has its own distribution subsidiary, Agrochem, which handles direct sales to customers in the north of Poland.

marek unconfirmed: What amount is the Group required to contribute to the Polish National Foundation?

Paweł Łapiński: Apart from our company, the founders of the Polish National Foundation are Poland’s leading players in the key sectors of economy: power, transport, logistics, mining, steel, fuels, insurance, chemicals, finance, property, as well as games of chance. The funding needed to implement the stated mission of the Foundation is to be provided by the founders, with the total budget estimated by the Ministry of State Treasury at roughly PLN 100m. We will certainly share in financing this initiative.

gość: Is the recent poor performance just a rough patch, or is the time of prosperity on your markets over and the Group has to brace for lean years?

Paweł Łapiński: I’ve repeated that the 2015 results were an extraordinary achievement that doesn’t happen often. This being said, we will make every effort to keep profitability at current levels, implementing consistent cost-cutting and efficiency improvement measures (consolidation, Azoty PRO scheme, etc.).

Gość unconfirmed: Is the new Management Board considering a business partnership with Acron in feedstock supply?

Paweł Łapiński: We have proven, long-standing suppliers. But we keep information on our trading partners confidential.

monika unconfirmed: Is Grupa Azoty continuing work to commercialise graphene? When can we expect the results of your work?

Paweł Łapiński: Yes, we are. The production of graphene and its various forms fit for chemical applications is on our research agenda for the next two years. We have some ideas, and we plan to step up the work. We are preparing graphene applications, securing partners, etc. We will disclose more details in due time.

Tworzywa: What do you think about Grupa Azoty’s share in the domestic PA6 market? Do you intend to secure the dominant position in the market and, if so, how are you going to make that happen?

Paweł Łapiński: With the available PA6 potential, Grupa Azoty ranks first in Poland and fifth among the EU’s integrated chemical producers.

We are not taking any steps to dominate the home market, as such steps could be considered illegal.

GOŚĆ unconfirmed: Why did you not publish an integrated report for 2015, contrary to the practice adopted by your predecessors?

Paweł Łapiński: I’m glad to hear that you are looking forward to the report. We did not decide to discontinue its publication. Work on the report is ongoing, and since we want it to be even better integrated and better aligned to stakeholder expectations and good market practice, it must take time. The report should be released soon.

GOŚĆ unconfirmed: I mean such reports as this one here: http://grupaazoty.com/pl/grupa/raport

Gość unconfirmed: Why do you think Grupa Azoty’s stock price has tumbled from PLN 113 in December to PLN 66 today? Do you think the stock is undervalued?

Paweł Łapiński: The current price of Grupa Azoty shares is in line with the trends prevailing in the chemical companies sector. Our company’s valuation is based on the multiple of roughly x6, which is comparable to our peers. Please note also the share sale transaction that has been completed by one of our shareholders, which may prompt market concerns that similar transactions in the future could increase free float and affect the value of the stock.

Personally, I believe that the company has strong fundamentals, which should deliver expected shareholder value in the longer term.

Gość unconfirmed: Can shareholders expect a higher dividend next year?

Paweł Łapiński: As I said earlier, our dividend policy dictates that we distribute between 40% and 60% of the company’s non-consolidated profit as dividend. Having analysed all factors with a bearing on the company’s standing, notably its funding requirements and implemented processes, the Management Board issues a relevant recommendation, with the final decision in the hands of the Annual General Meeting.

Gość unconfirmed: When is the new polyamide plant in Tarnów scheduled for launch?

Paweł Łapiński: Its launch is scheduled for next year.

migotkaa unconfirmed: The Group had generated decent operating cash flows over the past few years. In the second quarter something went wrong, though. Can you tell us what it was?

Paweł Łapiński: In the second quarter we faced deteriorated net profit metrics, which − with working capital remaining broadly flat − were the key reason behind the decline in operating cash flow. A downtrend in prices affecting mainly the fertilizers segment towards the end of the fertilizer application season (second quarter) drove down profitability and, consequently, eroded the net margin, which had an impact on net operating cash flow.

franek unconfirmed: What caused the major decline in sales of technical grade urea? Is it because the company has lost a significant contract?

Paweł Łapiński: The decline is largely due to implemented measures aimed to optimise our portfolio of urea-based products, which help us build a market for the UAN in Kędzierzyn and increase output of melamine, which offers a higher percentage margin compared with fertilizer products.

Gość unconfirmed: What are the cost savings you have achieved to date under the Azoty Pro operational excellence programme?

Paweł Łapiński: We continue with the Azoty PRO programme and will announce its results in due time.

migotkaa unconfirmed: What was the key factor contributing to the improved performance in Kędzierzyn?

Paweł Łapiński: I must praise Kędzierzyn for improved performance in the OXO segment (achieved mainly through higher sales volumes of the new product Oxoviflex and improved propylene delta) and tight cost discipline. A year-on-year increase in capacity utilisation also played a role.

kikan unconfirmed: Why was the Q2 2016 non-consolidated EBITDA negative?

Paweł Łapiński: The negative EBITDA reported by our Tarnów-based parent came as a result of a challenging market environment in the plastics segment (which accounts for around 50% of total revenue) and the deteriorating market conditions in the fertilizers segment. In prior periods, the adverse conditions in the plastics segment were more than offset by profit margins generated on fertilizer products. At present, with market prices down and little manoeuvring room for changes in the fertilizer product portfolio, we have to swallow the bitter pill of negative EBITDA. Also remember that as the parent company, we have to bear a major share of fixed costs associated with corporate functions involved in managing the Group.

We count on the implemented capital projects (mechanical granulation and Tarnamids 80 tonnes) to remedy this situation, discerning the opportunities offered by complex products with higher margins.

Paweł Łapiński: Thank you for all your questions! Our first meeting has been a positive challenge for me. Join us for the next chat!

moderator: On behalf of StockWatch.pl thank you all for making this meeting interesting, and I encourage you to participate in our chat sessions in the future.

At 13:13 on Friday, May 13th, an investor webchat was held with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. for Finance.

Moderator: Join our investor webchat with Andrzej Skolmowski, Vice-President of Grupa Azoty S.A., which is scheduled to start at 1:13 pm on Friday, May 13th. You can post your questions off-line today.

Moderator: Welcome to the investor webchat with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. We will discuss the financial performance of the Grupa Azoty Group in the first quarter of 2016. We are ready to take your questions now.

Elle: Hello

Andrzej Skolmowski: Hello

rolnik: The chat starts at 1:13 pm, or 13:13, on Friday the 13th - does this mean you will only take 13 questions today?

Andrzej Skolmowski: Yes, I will answer 13 nice questions. Your nickname is ‘farmer’ - so what’s going on at your farm, have you bought Grupa Azoty’s fertilizers yet?

Elle: Are you in a good mood after the Q1 2016 results have come in?

Andrzej Skolmowski: As I have already commented, I think the results are sound, so I am in a good mood indeed. A spring mood :-)

analityk: What was the depreciation and amortisation figure? Is it expected to increase?

Andrzej Skolmowski: Consolidated depreciation and amortisation was PLN 127,437 thousand. The Group is currently running a number of investment projects, which should drive that figure up.

rolnik: :-) I’m not sure if I should answer your question - I could get banned for advertising!

Andrzej Skolmowski: Quite the opposite - you’ll get a bonus for a good advertisement :-) (as long as we are talking about Grupy Azoty’s fertilizers, of course!)

Janusz: Will you pay out dividends for 2015?

Andrzej Skolmowski: The Management Board has recommended dividend payout of PLN 0.84 per share. So now it’s your call - the final decision will be taken by our shareholders at the nearest General Meeting.

Jan Ciechowski: What is the proportion of gas costs in overall costs?

Andrzej Skolmowski: In 2015, gas costs accounted for 40% of raw materials and consumables used. However, this share will definitely go down reflecting the recent price declines - albeit not in equal measure.

Emeryt: How much CAPEX are you planning for 2016?

Andrzej Skolmowski: Our 2016 CAPEX is expected to reach nearly PLN 2 billion.

olek: Why did the Management Board propose such a ridiculously low dividend yield of less than 1%? And why aren’t the dividends being paid from the Group’s consolidated profit?

Andrzej Skolmowski: Dividends are determined based on separate profit, in accordance with the Polish Commercial Companies Code. The dividends recommended by the Management Board are within the range proposed in the Strategy and represent 40% of Grupa Azoty S.A.’s separate profit. Please bear in mind that the final decision on dividend payment is to be taken by the General Meeting on June 6th 2016.

analityk: Why is there a difference between net profit and net profit attributable to owners of the parent?

Andrzej Skolmowski: The Group is composed of a number companies in which the parent’s shareholding is less than 100%. Therefore, we need to break down net profit into a portion attributable to owners of the parent and minority interests.

Robson: Will the Group implement a cost cutting programme? What kind of costs may be cut?

Andrzej Skolmowski: For nearly two years now, Grupa Azoty has been running a cost efficiency programme - ‘Azoty PRO’. We have already identified PLN 400m in cost savings and additional revenue per year, but more opportunities are still out there. We have often mentioned Azoty PRO in public, as it covers virtually all areas of the Group’s activity.

RvP: Will you continue your investments in Africa?

Andrzej Skolmowski: Actually, it is Police that is investing in Africa. The audit is under way as we speak, so I will be able to answer your question after it is completed. Before it moves on, Police’s new Management Board must know the current state of affairs.

olek: What is wrong with the Senegal project? The former CEOs, Mr Jałosiński and Mr Jarczewski, hailed the acquisition as a great investment, while the new CEO has mentioned scarce resources and other bad signals. So what has happened over the course of just six months? Why have you taken a U-turn on that project?

Andrzej Skolmowski: Like I said before - it is Police that is investing in Africa. The audit is under way as we speak, so I will be able to answer your question after it is completed. Before it moves on, Police’s new Management Board must know the current state of affairs.

Macher: What is your current net debt and net debt to EBITDA ratio?

Andrzej Skolmowski: As at the end of Q1 2016, our consolidated net debt was negative (PLN -43m), with cash and current financial assets exceeding total financial liabilities. As a result, the net debt to EBITDA ratio was also negative (-0.03)

uber: You are a sponsor of a number of sport disciplines. What is the total expenditure on sport-related sponsorship across the Group? Do you measure its impact on sales?

Andrzej Skolmowski: Sport sponsorship is one of the key building blocks in raising our brand awareness, both in terms of our activities (taking into account its impact on our business) and CSR (corporate social responsibility). The selection of sport disciplines has been established for years, and is closely related to the location of our key businesses. However, as sponsorship contracts are confidential, we cannot disclose the related costs.

Plastyk: What has driven down the sales value?

Andrzej Skolmowski: The main drivers behind the decline in sales value are lower sales volumes and falling prices of our products.

witek: Is the 2016 EBITDA expected to improve on 2015?

Andrzej Skolmowski: I am sorry, but it is our policy not to publish any performance forecasts.

witek: Why has Puławy modified its power plant project from gas-fired to coal-fired? Are there any pressures \also known as the ‘good change’\?

Andrzej Skolmowski: The current audit of our key CAPEX and development projects across the Group is also covering the Puławy Power Plant project. In the scenarios considered, we are looking into different sources of energy.

zalogowany: Why is your stock price falling sharply, even though your profit remains more or less flat year on year?

Andrzej Skolmowski: The recent stock price dive (which also includes Grupa Azoty stock) is caused by the very same factors which have affected the Polish currency and boosted the yield on Polish debt instruments, namely a lower risk appetite among foreign investors. The fundamental factors seem to matter less now.

walterW: How low may your net profit be in 2016?

Andrzej Skolmowski: As I have said before – Grupa Azoty does not publish any performance forecasts.

leszek: What is happening to the Grupa Azoty stock price? When we last met in the chat room, you talked about all-time highs, and now the price is hitting the year’s lows... So, ‘don’t count your chickens before they’re hatched’, right? :) Do you think the Company stock is currently underpriced?

Andrzej Skolmowski: God moves in a mysterious way... and so does the market sentiment. We are looking closely at our stock price − of course, the recent price slump is by no means good news. The earlier stock price levels indicate that the current sentiment towards our region and sector is clearly against us.

znajomy: Does the Q1 bottom line include any one-offs?

Andrzej Skolmowski: There are no one-off items in our Q1 results.

walterW: Why does the Management Board believe that 2016 will be more challenging than the previous year?

Andrzej Skolmowski: We have adopted a cautious approach, mainly based on our analysis of market drivers, especially the price trends in fertilizers and plastics. The market has priced in the falling feedstock prices and growing supply of products; as a result, there will be pressure on squeezing margins. We will be responding to these trends and will discuss the outcome of our efforts at future conference calls.

witek: What about the coal gasification project? Have any decisions been taken yet?

Andrzej Skolmowski: Clean coal technologies, including production of base chemicals through coal gasification, are large-scale investment projects, and they need to be approached with prudence. We are currently working on an extended feasibility study from the market and technical perspectives, both on the feedstock and product sides. The financing model is also being analysed.

olek: Does this mean that imports of phosphorites from Senegal have been put on hold?

Andrzej Skolmowski: By no means! Phosphorites continue to be sourced also from Senegal!

olek: When can we expect any acquisitions? It’s been three years since you acquired Puławy.

Andrzej Skolmowski: We do not communicate any future acquisition plans, and the same applies to any ongoing negotiations. But let me remind you that the scale of our business has grown hugely over the past several years.

Pati: The average gas price has dropped - by how much?

Andrzej Skolmowski: Please refer to the gas prices included in our Q1 2016 presentation. If we compare the market prices, we are looking at a drop of more than 30% in Q1 2016 vs Q1 2015.

marcus: But why is your stock price going down, is the Company facing any specific problems? A drop of over 40% since December is quite a drop.

Andrzej Skolmowski: Please look at the stock market trends - the WIG index has gone down 30% over the past year, while the Grupa Azoty stock price started falling only in December, following a spell of a strong upward trend. Our stock price is more or less flat year on year.

LionKing: What are the investment plans for Puławy?

Andrzej Skolmowski: We want to expand our production capacities and upgrade the nitric acid unit, which produces a key semi-product for nitrate fertilizers. We will also invest in the nitrate granulation plant, which will enhance our flexibility and product range in the fertilizers market. We are looking at a number of options for the new power plant project. In addition, our project portfolio includes a number of minor modernisation and development projects. We will keep you posted at our quarterly conference calls.

Ewa_71: What are the prospects for fertilizer prices in Q2?

Andrzej Skolmowski: We need to consider the seasonality of fertilizer application, namely reduced application as the end of the fertilizer season draws nearer. This will obviously impact the prices of our products, and it does every year. After a period of maintenance shutdowns at the close of the season, we will begin our pricing work ahead of the new season.

Pogromca nawozów: At the conference call you said that if fertilizer trends do not improve Grupa Azoty’s performance may deteriorate year on year. Meanwhile, the market expects a 15% growth in EBITDA. Was there a misunderstanding or do you believe that scenario is plausible?

Andrzej Skolmowski: Your nickname is ‘Fertilizer Buster’, so I feel very uneasy as a fertilizer manufacturer :-) We have highlighted our potential for quite some time now. Feedstock costs are down, but the pressure on product prices is growing. All around Europe, prices of nitrogen fertilizers have gone down 15%-20%, which has a direct impact on our margins. Therefore, as I said before, we need to take a cautious approach to earnings estimates.

marcus: Looking at Company valuations proposed by various analysts, we can see significant discrepancies: Societe has set your stock price at PLN 56, Pekao at PLN 67, but ING and BOS at more than PLN 120. So how much is the Group actually worth, in your opinion?

Andrzej Skolmowski: Valuations are prepared by analysts based on their own models, but their recommendations are easily verifiable. You also need to look at the actual price level that a given recommendation was based on. As for me, I cannot publish any valuation of my own. But it shows in our actual results; and our performance in Q1 makes us happy. The rest lies in the hands of our shareholders.

Andrzej Skolmowski: Thank you very much for your questions! I hope that Friday the 13th was not a ‘bad luck day’ in the investors chat room, but maybe we have the head of our Investor Relations to thank for that, because she has brought her black cat to the office today, just to be on the safe side :-) You are most welcome to participate in the next chat, and also in the WallStreet conference in Karpacz!

At 12:00 am on Friday, March 18th, an investor webchat was held with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. for Finance.

Moderator: Join our investor webchat with Andrzej Skolmowski, Vice-President of Grupa Azoty S.A., which is scheduled to start at noon on Friday, March 18th. You can post your questions off-line today.

Moderator: Welcome to the investor webchat with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. We will discuss the 2015 financial performance of the Grupa Azoty Group. We are ready to take your questions now.

Weronika: Good day to you!

Andrzej Skolmowski: Welcome! It’s almost spring now, and a wonderful sunny day today! It’s green outside − let’s hope we see a lot of green on the trading board, too. Let’s start!

inwest: Do you expect to improve on your 2015 performance in 2016? What are the forecasts?

Andrzej Skolmowski: We do not publish any performance forecasts. It’s too early to answer your question at this point, in quarter one. Still, we would be happy to report at least the same results as in 2015, if not better.

ola: Can we expect payment of dividends for 2015, or will we be disappointed again - like we were last year?

Andrzej Skolmowski: The decision lies with the Annual General Meeting, which is to be held in June at the latest. The dividend policy assumes distribution of 40%–60% of net profit, subject to a number of factors. The Management Board’s recommendation regarding payment of this year’s dividends will be communicated soon.

rolnik: Which types of fertilizers account for the Group’s highest sales volumes?

Andrzej Skolmowski: Our highest sales volumes are achieved with nitrogen fertilizers. They are our core product.

Ewa_71: Are you planning any acquisitions in 2016?

Andrzej Skolmowski: Any attractive acquisition opportunities we have going will be immediately announced and commented on.

marcus: Hello. Are there any acquisitions in the pipeline? The strategy speaks of growth through acquisitions, but none have been made since 2014, although a short list of 10 prospective targets was revealed at some point. Is Anwil still on the bill, or maybe some foreign company?

Andrzej Skolmowski: We never announce any FUTURE acquisition projects in advance. We are working on it, and such work is better done out of the limelight. Any attractive acquisition opportunities we have going will be immediately announced and commented on.

antek: Are you planning to support Poland’s mining industry in terms of capital involvement?

Andrzej Skolmowski: Of course! We buy Polish coal for our CHP plants!

Adam_Nowacki: Will you publish an updated strategy?

Andrzej Skolmowski: The ‘2013-2020 Strategy’ is still in effect. It has now entered its third year, at which point its implementation and operationalisation are being reviewed. The ‘2013-2020 Strategy’ is based on a strong footing and we aren’t working on any ‘new’ strategy. As we have announced before, we will review the key projects and largest investments, such as coal gasification and the PDH project. As a rule, such projects are reviewed at different stages of preparation and implementation. In addition, we perform a review of our entire project portfolio and verify the economic viability of each project whenever possible. It’s just work as usual.

Jurek: What was the key reason for a more evident slowdown of revenue growth?

Andrzej Skolmowski: This question may give rise to uncertainty as to how it should be answered; I assume the expression ‘a more evident slowdown of revenue growth’ simply means that our 2015 revenue growth was lower compared with 2014. This trend was driven mainly by the situation in the Plastics segment, and partially by OXO in the Chemicals segment, where prices followed the declining prices of petroleum products.

Jaro: Is Acron still buying your stock?

Andrzej Skolmowski: As at April 24th 2015, when we received the most recent notification from Acron, Acron’s direct and indirect holding of Grupa Azoty shares stood at 20.0026%. And it has not changed since – to the best of our knowledge.

antek: In connection with the announced revision of the Group’s strategy, do you intend to abandon the PDH project at Police and the CCGT unit at Puławy?

Andrzej Skolmowski: We have not announced any revision of our ‘2013-2020 Strategy’. We only informed the market that we routinely review our large investment projects, both at the preparation and implementation stage. This, however, does not disrupt any work in progress. Such review of our project portfolio is also in keeping with the expectations of our key Shareholder.

Góral: What about the coal gasification project? What is its current status?

Andrzej Skolmowski: The coal gasification project is currently at the preparatory stage. We are working on a feasibility study, after revamping the concept in terms of scope, and we are expanding the group of Partners for this project.

Ola: What is your average depreciation and amortisation period?

Andrzej Skolmowski: It feels like an accounting exam!  The depreciation and amortisation periods for property, plant and equipment and for intangible assets are determined over their useful economic lives. Our financial statements include tables with depreciation and amortisation periods for specific asset groups.

ola: What are the results of Siarkopol against the Group’s overall performance, in terms of EBITDA and revenue?

Andrzej Skolmowski: Siarkopol’s performance must be viewed primarily in terms of value added to the entire production line of nitrogen fertilizers (with a sulfur content) which, as we know, reported very good overall performance in 2015. Unfortunately, we do not publish Siarkopol’s separate results.

Lincoln: You seem to be in a very good mood! :-)

Andrzej Skolmowski: Very good, indeed! The sun is shining, our Shareholders are on TV... What more can you ask for? :-)

El Nino: Which Polish chemical plants are the potential acquisition targets for Grupa Azoty?

Andrzej Skolmowski: We have said that time and again during our investor chats. We are always on the lookout for acquisition opportunities, both in Poland and abroad, especially those that would boost out EBITDA.

Jan_W: What is your current net debt and net debt to EBITDA ratio?

Andrzej Skolmowski: As at the end of 2015, our consolidated net debt was PLN -74m, and the consolidated net debt to EBITDA ratio stood at -0.06. Just to make clear, our net debt includes bank and non-bank borrowings (PLN 1,166m) less cash and cash equivalents (PLN 753m) and other current financial assets, namely deposits maturing in over 3 months up to 1 year (PLN 487m). Until today, these figures have not changed significantly.

Kasko: :-)

Andrzej Skolmowski: :-)

antek: What is the reason behind the recent decline in Azoty share price, considering that you have reported record high results?

Andrzej Skolmowski: Our reported results were just above the analyst consensus, and have already been priced into the Company shares. I believe this is the reason why our share price did not go up. In my opinion, the recent decline is rather moderate compared with the performance of the broad market, which – as we know very well – has been on a steep downward trend since the beginning of the year. I believe this is proof of the Group’s solid foundations.

inwest: Will the recent strengthening of the Polish currency against the dollar and the euro have any negative impact on the Q1 results?

Andrzej Skolmowski: If anything, the recent upward trend of PLN vs USD and EUR is a sign that the situation is returning back to normal, after an earlier major weakening of the Polish currency, which hit its lows at the end of January. However, the macroeconomic assumptions for Grupa Azoty’s Q1 plan in relation to those exchange rates are in line with the actual average exchange rates of PLN vs EUR and USD; therefore, the overall effect of the depreciation followed by appreciation of PLN vs EUR and USD will be mitigated and shouldn’t have a significant impact on our Q1 performance.

Emeryt: What is the carrying amount of your goodwill and intangible assets? What do these items include?

Andrzej Skolmowski: It seems we are back to the accounting exam, after a couple of other questions. :) Our consolidated financial statements show the amount of PLN 532,798 thousand under intangible assets. The largest items include: trademarks and a corporate mark recognised on acquisition of Companies, patents and licences, the client portfolio, exploration and evaluation assets, as well as software. As to the other part of your question, goodwill stands at PLN 12,550 thousand and is related to the accounting for the acquisitions of Police, ZAKSA S.A. and Unibaltic Agro.

rolnik: What was the trend for soda prices in 2015?

Andrzej Skolmowski: Soda is not our business.  You should ask this question to our colleagues at Ciech. Actually, I will ask them myself after today’s chat.

witek: Is the former CEO, Paweł Jarczewski, still with the Group after his dismissal from office?

Andrzej Skolmowski: He’s serving out his notice period, in accordance with the Polish Labour Code.

marcus: Why did you report a decline in sales of caprolactam and OXO alcohols?

Andrzej Skolmowski: It was mainly due to the downward price trends on the crude oil market, which sets the price levels for our feedstocks (benzene, phenol), which, in turn, are one of the key drivers for our product prices. As the prices of our feedstocks declined, we reported a noticeable fall in revenue.

Iwan: What is the average salary at Grupa Azoty?

Andrzej Skolmowski: We do not publish information on average salaries, but you are welcome to read our financial statements, where you will find our employment costs and average headcount.

##1967ypr#at#vbpxa.rdb##: The stock market’s reaction to the Group’s 2015 results was rather neutral. Can we expect anything in the coming months to make us optimistic about the future?

Andrzej Skolmowski: Yes, there is: our investment plans, with some projects already in progress, and the Azoty Pro initiative, which will generate savings at all levels of our activities. These are key drivers of the Group’s future growth. We are also looking for savings in feedstocks.

Toni: What were the results of the Plastics segment for 2015?

Andrzej Skolmowski: Unfortunately, they were on the negative side, with EBITDA at PLN -10,400 thousand.

witek: Having reported such a low net debt, you have no option now but to share your profits with the shareholders :)

Andrzej Skolmowski: True, our net debt is very low now, but we need to bear in mind that the Group has launched an ambitious investment programme, including SPV-based projects (such as construction of a PDH plant at Police), which will be driving up our net debt in 2016 -2018. Therefore, we need to take a very cautious approach to any profit distributions (including dividends), so as not to exceed the net debt to EBITDA ratios agreed with the financing banks, which could happen in the event of an economic downturn triggering a temporary decline in EBIT.

analizator: Do you expect any impairment losses in the coming quarters?

Andrzej Skolmowski: There are currently no indications of impairment to be recognised by the Group in the coming quarters.

marta: Does Acron have any influence on the Company’s strategy and management?

Andrzej Skolmowski: Acron has no direct influence on the Company’s strategy and management. Grupa Azoty is managed as a corporation, and the Group’s strategy is implemented in line with the relevant guidelines related to innovation, operating and commercial activities, and financial policy, taking into account the key strategic plans for major products. The best interest of our Shareholders is always top of mind!

Nowy: What kind of innovations can you focus on?

Andrzej Skolmowski: According to our strategy, the Group has a green light to invest up to 1% of revenue in innovative projects within the scope of our current business or projects aimed to diversify our business into new areas. We are investing in innovative solutions to support our traditional business (fertilizer formulas, plastics, pigments), but are also paving the way for new areas of activity. Diversification of the Group’s business is always in the back of our heads. However, it’s too early for any announcements.

edeka: In 2016, the Group wants to invest much more than in 2015. Can you specify what investment projects are planned for 2016?

Andrzej Skolmowski: The PLN 2bn CAPEX projects planned for 2016 will include the polyamide and mechanical granulation plants at Tarnów, the new CHP plant at Kędzierzyn, upgrade of the ammonia unit at Police, and production unit for granulated fertilizers based on ammonium nitrate at Puławy.

mmmaslov: What about my question about the dividend payment? Have I missed the answer?

Andrzej Skolmowski: I have already answered your question, but let me repeat again – the decision is in the hands of the Annual General Meeting. Our dividend policy is to distribute 40%–60% of net profit, but we need to consider a number of factors, including our financial ratios, financial standing and capital necessary to fuel further growth. We will make the Management Board’s recommendation known in due time.

antek: Will a representative of Puławy join the Group’s Management Board?

Andrzej Skolmowski: I’ll refer this question to the Supervisory Board. :-)

pol: Are you considering an equity issue to finance your extensive investment plans?

Andrzej Skolmowski: We have secured sufficient financing to go ahead with our investment plans. We have a very good rating with commercial and non-commercial banks, both in Poland and abroad. Our perception by Investors is equally favourable. The Group has also gained significant experience in capital raising. All in all, we are secure in terms of financing at this point.

antek: The press has recently reported the ‘product piracy’ affair with Polifoska. Have you incurred high losses?

Andrzej Skolmowski: Good products have been ‘pirated’ for ages. But a counterfeit product is never as good as the original, and farmers will always recognise a fake. The case is currently being investigated by competent authorities.

Lincoln: What will be your CAPEX in 2016?

Andrzej Skolmowski: PLN 2bn.

mmmaslov: I know your dividend policy, of course. What I was sounding you out for was the Management Board’s recommendation... I understand it will be communicated later on?

Andrzej Skolmowski: Exactly – we will publish the recommendation in due course, as prescribed by law.

piotrek: Is it possible that Grupa Azoty will be taken over by PGNiG, as hinted at by the Treasury Ministry?

Andrzej Skolmowski: We are not aware of any such plans.

Walet: How do you want to achieve stronger consolidation within the Group?

Andrzej Skolmowski: This was dealt with in detail by the Management Board President at the latest conference. The performance of individual Companies has benefited from integration with the Group, and we see potential for further synergies. Effects of the AZOTY Pro also confirm that belief. The subject will be back on the table soon.

olimpia: Have you launched graphene production yet?

Andrzej Skolmowski: We have launched the construction of a pilot plant, and this means a lot in the graphene business. We are working on extension of the project by attracting new partners, also based on Polish and European innovation support schemes, such as INNOCHEM.

inwest: When can we expect the Management Board’s recommendation regarding the payment of dividends (I assume they will be paid) for 2015?

Andrzej Skolmowski: It is only natural that dividends are so important to our Shareholders. We are currently working on the Management Board’s recommendation, which will be published in due course, in accordance with law. Soon, I hope.

michał: Don’t you think that the Group’s dividend policy is inconsistent, considering that Police and Puławy pay dividends regularly at 3%-5%, while Tarnów pays minimum dividends, or no dividends at all like in 2015?

Andrzej Skolmowski: We must remember that in previous years Grupa Azoty financed its acquisitions, partially at the expense of rising debt with banks. Importantly, dividends paid by subsidiaries were used to service the debt incurred to consolidate them with Grupa Azoty. In 2015, Grupa Azoty had not yet finalised the New Financing package, but was already launching its long-term CAPEX programme. Therefore, in agreement with the lending banks, the Group did not recommend any dividend payment, so as to secure a sufficient share of own funds in the programme’s financing structure. What is important, under our consolidated financing model, Grupa Azoty plays the role of an internal ‘bank’ for other Group companies: on the one hand, it collects surplus funds; on the other, it redistributes them to companies which need more financing.

olimpia: What is the current status of the joint project of Grupa Azoty and KGHM to mine potassium chloride in the Bay of Puck? Is it still on the table?

Andrzej Skolmowski: On KGHM’s side the project is very challenging, and it would be equally difficult to adapt it to Grupy Azoty’s technology-related requirements and market needs. At this point, we have access to reliable, commercially viable and well-diversified sources of potassium, which better cater to our needs.

Ciekawy: Why did you decide to buy more gas from PGNiG, contrary to your drive towards diversification?

Andrzej Skolmowski: The idea behind diversification of gas sources was primarily price-related – we have been clear about that. To make sure our products remain competitive, in a situation where our competitors have access to much cheaper gas, we took measures to reduce the average price of gas purchased by the Group. The decision to buy gas from PGNiG or from other sources will always be based on a cost-to-benefit analysis. The terms offered by PGNiG were appreciated by the Group, and we are happy with our relationship with that supplier. Moreover, their new tariff sounds even more promising.

mmmaslov: One more question from me: has the Minister of Treasury already given you very important tasks to rescue the country’s economy, not necessarily in the best interests of all shareholders? ;)

Andrzej Skolmowski: He has set our goal: to contribute to Poland’s economic growth, and we are fully committed to that goal. The chemical segment has a major impact on the country’s economy, and so our activities and growth plans will also play a part in that process. We are working on several innovative projects that will require state support, and the government has expressed interest in these initiatives. There are a lot of synergies out there. If we increase our value, we will contribute to Poland’s GDP growth.

mmmaslov: You plan to produce graphene?!? OMG!

Andrzej Skolmowski: NPBB! And what if we actually make it happen?

mmmaslov: You are a natural born diplomat ;)

Andrzej Skolmowski: :-)

mmmaslov: I have just remembered I had another question! Will you attend the WallStreet conference in Karpacz? I always look forward to your presentations (they tend to be a bit complicated, but I do my best to follow).

Andrzej Skolmowski: Of course, we will be there. Please come over to say hello! :-)

Andrzej Skolmowski: Thank you for all the questions, you have reminded me that we are celebrating the European Brain Day today :) A web chat with you is always a challenge, but also a source of positive emotions. It’s been a pleasure chatting with you! I wish you a Happy Easter!

At 11:00 am on Wednesday, November 21st, a webchat was held with Andrzej Skolmowski, Vice-President of the Management Board of Grupa Azoty S.A. responsible for finance.

moderator: Welcome to the investor webchat with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. The subject is the financial performance in Q1, the prospects of the Company and the industry, and the current situation of the chemical industry in Poland and abroad.

Andrzej Skolmowski: Welcome to another webchat of Grupa Azoty. Unlike before, today I’ll be chatting with you from Warsaw. We’ve seen many things going on recently. We have discussed our Q1 2015 results, investment plans and the financial structure for our strategy. We have many things to talk about.

SW-fan: Good afternoon. After a nice ride upward before the publication of results, the share price has seen a correction. Does that mean that the remaining part of the year will be weaker? What’s your opinion from a fundamental perspective?

Andrzej Skolmowski: A nice ride is what you will see next weekend – the first Grupa Azoty biker rally will be held and I will be there:) From a fundamental perspective, given the environment, this year our performance will be stable, and even strong. We expect that this will contribute to a positive assessment of our activities and be reflected in the share price. We hope that the scale of our investment projects will also meet with appreciation.

Guest unverified: You plan to construct a new propylene unit at Police for PLN 1.7bn. What is the purpose of the project and how will it be financed?

Andrzej Skolmowski: The purpose of the project to construct a propane dehydrogenation (PDH) unit with an annual capacity of 400,000 tonnes is to:

1. Secure raw materials for internal consumption – one of Grupa Azoty Group’s companies is Grupa Azoty ZAK S.A. of Kędzierzyn-Koźle, whose annual consumption of propylene is 140,000-150,000 tonnes.

2. Diversify the structure of revenue (from sale of propylene and new products we will be able to develop using propylene as the raw material); Grupa Azoty will thus enter new business segments and markets with different economic cycles (for the new plastics complex).

3. Sell propylene, which is in short supply in Europe, to external customers.

As regards the financing of the project, we have consistently planned it to be an SPV, whose shareholders would be Grupa Azoty Group companies and external partners, both commercial industry partners and non-commercial entities (Polskie Inwestycje Rozwojowe - PIR). The final decision on the structure of capital and financing (debt/equity) will be made next year, after the Basic Engineering Package is completed.

łodzianin: Good afternoon. What is the status of financing of the project at Police?

Andrzej Skolmowski: You will find my answer above.

Guest unverified: Hello! When it comes to the company’s development and the planned construction of a propylene production unit − when are you going to request for bids for this project?

Andrzej Skolmowski: As we have announced before, right now we are at the Basic Engineering Package stage, which means that we are carrying out the initial phase of the engineering design under a licence purchased from UOP. Based on the results, a number of decisions will be made late in 2015 and in Q1 2016, including the decisions concerning the procurement strategy and the structure of investment execution. We will inform you in current reports about further steps taken in this respect.

MZK: Recently, a significant rise in the prices of wheat has been seen on the world’s markets. Will this have a positive effect on the prices of fertilizers?

Andrzej Skolmowski: We are expecting a seasonal correction of prices of nitrogen fertilizers, as is always the case before the new season (July/June), so the demand for fertilizers is about to fall. However, the growth in the prices of wheat should boost the farmers’ purchasing power, which is a good thing for our industry.

Guest unverified: Hello. What steps is the Group going to take regarding the distribution network? Does it plan to create its own distribution network based on its own companies (Agrochem Puławy etc.)?

Andrzej Skolmowski: The opportunity to acquire Agrochem arose when Grupa Azoty Puławy was acquiring GZNF Fosfory Sp. z o.o. I understand that you are asking about our fertilizer distribution channels. We prefer a sustainable model of managing fertilizer distribution channels, as envisaged by our Strategy and its 2014 Operationalisation. We are interested in building strong relationships with both distributors and end customers. We do not intend to replace the existing, independent distribution network with our own. Agrochem complements the network. However we admit that we do closely monitor the integration processes in the industry, and we are also taking measures to facilitate access to our products by building and expanding the logistics network for our liquid fertilizers.

Investor unverified: Will the Group ever acquire all of Anwil, not just a part of it? Is it possible at all?

Andrzej Skolmowski: Well... We’ve proved many times that where there’s a will there’s a way:)

Anwil is a very good company, but at the moment it is owned by the ORLEN Group, and it up to ORLEN to decide whether it wants to sell it or not.

MZK: In Q1 2015, the Company posted a considerable increase in net profit, however, on the issue date of the quarterly report the share price fell strongly. Why such discrepancy?

Andrzej Skolmowski: Our excellent results for Q1 2015 (substantially above the market consensus) are very uplifting to us, especially when we think of extensive investment projects requiring large expenditure. As regards the share price, it is always very difficult for us to comment on short-term price changes since we always look at the Group’s performance from a long-term perspective.

SW-fan: Could you comment on the current situation with Akron? It is still one of the shareholders. Will there be any moves to the right or to the left? Any squabbles over this matter?

Andrzej Skolmowski: If we look at the map, there is some movement on the left, that is in the West: in Luxembourg and Cyprus:) Acron’s subsidiaries reported that at the end of April they executed an intragroup transaction. However, this transaction did not change the indirect holdings of Acron, which remain at 20.0026%. We haven’t had any new information since that moment.

Guest unverified: How are your relations with Acron, the Russian shareholder, at the moment?

Andrzej Skolmowski: You will find my answer above.

Guest unverified: Has the plan to construct a power plant at Puławy been shelved for good?

Andrzej Skolmowski: This plan has been suspended since our partner withdrew from the project.The partner is gone, however, the need is still there, even if not so big. But we haven’t given up on the project yet. As soon as we are ready with a new concept, we will let you know.

SW-fan: How did the turbulence with the złoty and eurodollar affect your results? Do you use any hedging instruments, or resort to natural hedging?

Andrzej Skolmowski: In Q1 2015, the strengthening of the US dollar against Polish złoty was related to the continued strengthening of the US dollar against the euro. As a result, Polish złoty strengthened against the euro.

Given the similar positive net exposure to both currencies in Q1 2015, the exchange rate movements had a positive effect on the Group’s results given the exchange gain in the US dollar, and a negative effect given the exchange gain in the euro, therefore the changes had an offsetting effect.

However, since the strengthening of USD was more significant than the PLN’s weakening against EUR, the general effect on the Group’s results was positive.

In compliance with the adopted Currency Risk Management Policy, Grupa Azoty uses forward contracts as hedging, up to 80% of the planned foreign currency exposure within up to six months, and up to 50% of the planned foreign currency exposure for the period of 6-12 months, thus mitigating the impact of exchange rate fluctuations on the Group’s financial performance.

Guest unverified: Apart from the investment project pursued in Police, do you plan other projects, similar in size and cost? When can we expect the first acquisitions? What is the stage the negotiations concerning the acquisitions? There are less than five years until the strategy’s period ends, yet we have seen no acquisitions :)

Andrzej Skolmowski: Four questions is one sentence is quite a lot, so let me address them one by one :)

First: some general information. Just like other prudent market operators, we do not make our acquisition plans public. We prefer to talk about finished projects rather than future ones.

Second: our operationalised Strategy is based on three pillars underlying the Group’s value growth: organic growth, operational excellence and mergers and acquisitions (M&A), which are ways of reaching the objective rather than an end in itself.

Third: investment projects such as the PDH fall within the area of organic growth based on their own technical infrastructure and not as a result of acquiring existing entities. We intend to spend over PLN 6bn under our CAPEX plans for 2014-2020, which we do implement. I am not sure if this is general knowledge that a typical growth-oriented project in our branch of the chemical industry usually takes more than three years to complete, including the time needed to prepare documentation in the beginning and the start-up of a technological unit at the end.

Fourth: M&A projects have two characteristic features – they are very long-term as a rule and their schedules cannot be reliably determined until the final specific contract is signed and conditions precedent, if any, are satisfied (e.g. official approvals).

Chiefmike: What are the Company’s long-term plans? How do you plan to build value for minority shareholders? Does the Company plan to continue paying high dividends?

Andrzej Skolmowski: Our long-term plans are widely discussed in the Grupa Azoty Group’s Strategy. We take steps to build the Company’s value across three key areas: investments, M&A planning and operational excellence. We are pursuing this strategy consistently.

In the Strategy, we have also presented a dividend policy in which we promised dividends in the range of 40% to 60% of the Company’s separate net profit for a given financial year. However, we have also stressed that consideration would be given to a range of factors concerning the Company and the Grupa Azoty Group, including prospects for its further operations and earnings, cash requirements, financial position, expansion plans, and applicable regulations, which should explain the Management Board’s current position on dividend for the previous year, i.e. using the profits to finance or co-finance the projects specified in the Strategy for 2014-2020.

Guest unverified: When will the Annual General Meeting and the vote on dividend be held?

Andrzej Skolmowski: In June, as there is not enough time left in May:)

Maja unverified: Stable and strong performance warrants an optimistic outlook, but stability often entails stagnation. Will we see a roller coaster in the fourth quarter?

Andrzej Skolmowski: And the roller coaster is supposed to go down with everyone screaming? We are not in such a bad situation.

We expect no deviations other than seasonal fluctuations usually seen in individual quarters.

The seasonality, however, does have an impact on financial performance. The first quarter is always the best.

merol: What is Grupa Azoty’s policy towards foreign investor’s purchasing more of its stock?

Andrzej Skolmowski: As a listed company, Grupa Azoty S.A. is subject to capital market regulations, and our shareholders hail from all over the world. However, if I understand correctly, the question is about the possibility of a hostile takeover. Our articles of association stipulate that as long as the State Treasury is the Company’s shareholder, the remaining shareholders’ right to vote at the General Meeting is limited to 20%.

The State Treasury has recognised Grupa Azoty’s importance to Poland and has placed it on the list of strategic enterprises in 2014.

Guest unverified: In the first quarter, the Group reported a significant increase in compound fertilizer sales volumes. How high an increase in volumes do you expect to achieve in the whole year?

Andrzej Skolmowski: Our production strategy aims to maximise the utilisation of our production capacities by choosing an appropriate policy for trading in fertilizers, including compound fertilizers. On the NPK market, the period between January and March and the autumn months see increased application of potassium and phosphorus fertilizers, which we try to leverage every year. However, we also keep a close eye on prices. As favourable USD/PLN exchange rates in Q1 considerably improved the profitability of NPK fertilizers, particularly DAP fertilizers, we decided to maximise production and wish to maintain the trend until the year’s end (taking into account seasonal fluctuations in sales and planned maintenance shutdowns).

Guest unverified: Given the high supply of NPK fertilizers on the market and Grupa Azoty Police’s leading role, do you consider stopping production at the Fosfory plant in Gdańsk? Second question: is Grupa Azoty interested in acquiring Siarkopol? Do you have plans to acquire other plants, also foreign ones?

Andrzej Skolmowski: Police has always played a leading role on the NPK market. We are also working on new ideas for the Fosfory plant. We have already discussed this on a few occasions. Siarkopol is already part of the Group’s structure.

Guest unverified: Mr Skolmowski, don’t you think that the recent declines have been a result of your comment that the Company will be unwilling to pay dividend as investments are the current priority? This might have spurred some investors to sell their shares.

Andrzej Skolmowski: This was not a comment, but a direct answer to a question about the Management Board’s proposal. Someone had to answer it :) Maybe some expected us to present a different opinion during the conference. Most analysts have already got over this issue. The decline seen last week was a price correction down to the region of PLN 80. Considering the scale of the investment, anticipated effects and the environment, profit accumulation has to be factored in when discussing financing.

Guest unverified: What has caused the near 100% increase in EBIT and net profit quarter on quarter?

Andrzej Skolmowski: The increase in EBIT was reported mainly in the fertilizer segment as a result of significantly higher revenue (up by close to 13%, or PLN 202m yoy). The growth was fuelled by increased volumes of compound fertilizers sold (notably NPK and DAP), and was further supported by higher prices of two-component fertilizers (DAP) and nitrate fertilizers on the domestic (good weather conditions and a high level of direct subsidies) and international markets (favourable currency exchange rates and nitrate fertilizer production constraints in Western Europe – France). These trends, coupled with positive trends in energy prices (gas and coal), facilitated higher margins.

Guest unverified: Hello. Why is your strategy different from those of the largest chemical companies, that is BASF and Yara, which would rather suspend investments and sell unprofitable businesses in this time of economic stagnation in the EU, while the Azoty Group invests heavily (polyamide, propylene, phosphate rock mine).

Andrzej Skolmowski: Comparing and understanding incomparable strategies of large business organisations deserves more space than this chat room allows;-)

In a nutshell:

Let us see it globally – our respected competitors conduct large-scale operations practically on all continents. We do not compete with everybody for everything − it would not benefit our shareholders. On the other hand, we compete not only with the giants named in the question, but also with smaller chemical groups. We consider specific investment directions, and not general investment ideas.

As regards the examples given:

Polyamides – we are integrating our plastics segment vertically, reducing our exposure to the unstable and unpromising caprolactam market. We will process the entire caprolactam manufactured by the Group not only into the basic polyamide 6, but also its compounds, with a significantly higher value added. In the plastics industry, it is increasingly more important to precisely customise a product. The market is always the key criterion and the Grupa Azoty Group has competencies and long-standing relations with customers on the Central European market.

Propylene, or PDH, is a model example of a behaviour observed globally. Production units for on-purpose propylene, tailored to satisfy local requirements, will dominate the market over the next decade, especially in Europe, where the demand for propylene is by far larger than the production capacity of the unit designed to be built in Police.

Several questions and answers concerned the PDH project earlier during this chat.

Phosphate rock mine – I suspect a misunderstanding here. It is just our production project in Senegal that, in addition to being the first ever successful project of this type executed by a Polish company, meets global needs and requirements. We have acquired our own source of the key feedstock for the production of compound (NPK) fertilizers, guaranteeing stable supply volumes and prices. We treat it as a bonus that through this project we gather expertise in international expansion, without which it would be hard to build the long-term value of the Grupa Azoty Group.

So, the three cases mentioned in the question show that the Group’s strategy is appropriate given both the market environment and our competitors. What is more, we are making the most of our unique advantages rather than thoughtlessly copying others. Let me also ensure you that we are closely watching the actions of the ‘others’.

Guest unverified: Why does Grupa Azoty S.A. take in the dividends from the Puławy, Police and Kędzierzyn companies, but does not share the profits with its shareholders as promised in its dividend policy (40-60% of separate profit). Don’t you think that someone who has exchanged Grupa Azoty Puławy shares for Grupa Azoty shares might feel, to put it mildly, cheated since Grupa Azoty Puławy has been paying a regular dividend of 5%, while Grupa Azoty only offered a paltry PLN 0.2 per share last year and nothing altogether this year.

Andrzej Skolmowski: Given the announcement of the Strategy until 2020 and a capex programme worth more than PLN 7bn, the Group’s financial standing must be monitored particularly closely, taking into consideration the significantly rising debt. As the Management Board, we are therefore careful when making dividend recommendations, aware of the financial requirements of these investment projects. We believe that current share exchange rates should be viewed from a long-term perspective and that they will eventually prove beneficial to all parties involved.

Guest unverified: Does the change in property rights in Puławy pertain to sale or redemption? Are these emission allowances or certificates of origin?

Andrzej Skolmowski: It pertains to redemption. The property rights include both emission allowances and certificates of origin.

merol: The colleague meant Zakłady Chemiczne Siarkopol Tarnobrzeg. Do you plan an acquisition here?

Andrzej Skolmowski: So I thought, but hoped to wriggle out somehow. I am impressed by your vigilance:)

Siarkopol Tarnobrzeg is undergoing liquidation; it is not on our short list. However, we do monitor what is going on there.

Guest unverified: How much do you expect to save this year on the back of lower gas prices?

Andrzej Skolmowski: We seek to implement our gas purchase strategy by diversifying supply sources and increasing the share of imports with a view to achieving measurable benefits. In this area, we also achieved savings in Q1, given the lower market prices of gas and the PGNIG tariff reductions between January and April, in the year-to-year terms. Until the year’s end, we will also carefully look for further opportunities to reduce gas-related expenses, in particular by taking part in the PGNIG discount scheme for the largest gas buyers.

MZK: Is the good Q1 performance to be seen as the harbinger of further improvement?

Andrzej Skolmowski: We recorded very good performance in Q1, but we are aware of the risks still present on the market, I mean the still difficult situation in the Plastics and OXO segments, as well as the drops in global urea prices, which all pose major challenges compelling us to look for new ways of generating additional margin (I mean here the gas supply diversification efforts, investment decisions etc.).

Guest unverified: Are Russian fertilizer imports a significant threat to Polish producers? The current strong US dollar is good for blocking imports. What if the US dollar weakens?

Andrzej Skolmowski: All imports (not only from Russia) represent a threat to us, but also an opportunity to improve our product portfolio.

We respond to the imports of cheaper fertilizers by constantly striving to improve the efficiency of our production units (especially our ammonia lines that are much more efficient than the production units of our competitors from the countries east of Poland), which ultimately affects the production cost.

We also try to look for new markets for our products (South America, Africa), which is a natural reaction to the threat of the inflow of products to the domestic market.

Guest unverified: Why were higher fertilizer revenues not distributed equally between Tarnów, ZAK, Police and Puławy?

Andrzej Skolmowski: This situation was determined by the production capacities of the individual plants and their product offers.

Guest unverified: Are you considering a bond issue? The President of the Management Board recently said that this option is also being contemplated. Can you comment on this? What would be the size of the issue? When? Denominated in the Polish złoty or euro?

Andrzej Skolmowski: The Group is currently finalising the implementation of the New Financing Model in the form of a package of corporate credit facility agreements. Stage one of that process was completed on April 23rd and involved signing a PLN 1.5bn syndicated revolving credit facility.

A bond issue is planned to be carried out first among our Group companies as a redistribution instrument for the New Financing proceeds.

Next, we will consider a corporate bond issue for external investors, or a eurobond issue in the event of a sharp increase in our financing needs.

AM unverified: How is the work on the phosphate rock mine in Senegal going on, and are there any more African projects in the pipeline?

Andrzej Skolmowski: As I mentioned earlier, we are the leader of SUCCESSFUL mining projects on the African continent.

The strategic objectives of our Senegal project are to:

• obtain phosphate rock from Senegal at stable and low prices;

• achieve a lasting improvement in the profitability of our fertilizers segment;

• become able to produce phosphoric acid in Senegal.

The project has been re-defined. An exploration licence was obtained, a concept of phosphate rock production from the licence area was developed, several drilling campaigns were carried out showing large phosphate rock reserves, a legal analysis relating to the licence award procedure was carried out.

Work in progress includes work on a mine construction feasibility study and an environmental impact report,

- exploration work on an extended licence area to increase the phosphate rock reserves that have been discovered so far.

The next steps will first of all include the completion of the feasibility study, which will be the basis for our business decision to be made in the middle of 2015.

Guest unverified: Are the available production capacities in the individual segments growing at the moment in Europe? What are the investments of your competitors around the world?

Andrzej Skolmowski: I understand this question in the context of Grupa Azoty’s reaction to market environment, so I’m answering this question in this context:

Grupa Azoty operates and creates value in five business segments.

Fertilizers – in this segment we are strong in Europe. Our strength relative to our competitors does not result from expanding the volume of nutrients, but from offering our Customers, thanks to our investments, new product blends (mechanically granulated nitrate fertilizers, which gives us a new ability of nearly unlimited freedom in compounding our products), as well as from increasing market penetration as a result of consolidation of nitrogen plants and from the strength guaranteed by the scale of our operations in Poland and geographically close markets. To put it more simple – we are building ever closer relations with our Customers − large, increasingly more advanced farms. To our knowledge, our European competitors will not add any significant new net production capacities in the years to come.

Plastics – in this segment, given our position of the fifth-largest integrated manufacturer of polyamide in Europe, we are not afraid of any investments by our competitors. We see our strength in customising our polyamide composite offer for ever more demanding customers. Given the scale of our operations, we are not threatened by any new production capacities in Europe.

Oxo alcohols and plasticizers – in this segment, our strategic position and expectations are founded on investments in non-phthalate plasticizers. I am particularly pleased to mention our new unit producing Oxoviflex, an advanced non-phthalic plasticiser, that was recently officially commissioned at the ZAK plant. We remain a European leader in plasticiser quality. Our products satisfy the ever growing requirements not only of the market, but also EU regulators.

Melamine, Pigments – here we consider consolidation opportunities, as strategically in these segments we see creating slightly stronger organisations as an efficient solution. We also respond to the strengths of our competitors by building competencies in raw materials.

Guest unverified: Do you expect any acquisition this year?

Andrzej Skolmowski: In the Strategy, which sets forth our intended acquisitions until 2020, we discuss ten entities, carefully selected and matching the Group’s business profile. We scan the market and choose the best investment opportunities, as we have already proved more than once. We do not discuss a timetable, but stick to the time horizon until 2020. We will certainly announce an acquisition in due time.

Investor unverified: Please say something more about the acquisitions. We know that ten entities have been selected. How do the negotiations proceed and when could we expect an acquisition?

Andrzej Skolmowski: I will stick to what I have already said: Just like other prudent market operators, we do not make our acquisition plans public. We prefer to talk about finished projected rather than future ones.

M&A projects have two characteristic features – they are very long-term as a rule and their schedules cannot be reliably determined until the final specific contract is signed and conditions precedent, if any, are satisfied (e.g. official approvals). And besides, some sellers would not like information on negotiations which sometimes come to nothing to be made public.

Investor unverified: How about other acquisitions? The Group analysed the possibility of acquiring more than ten companies.

Andrzej Skolmowski: As I have answered before, just like other prudent market operators, we do not make our acquisition plans public.

We prefer to talk about finished projected rather than future ones.

Guest unverified: Will the plastics segment be profitable this year? What is the current market situation in terms of prices and raw material-product spreads?

Andrzej Skolmowski: We seek to optimise the PA6 benzene delta by diversifying target markets (not only the German market, but also Asia). However, our efforts to improve profitability focus largely on optimising the cost of operating our production units. It remains to be seen whether the planned measures will bring fruit as soon as this year. However, in a longer horizon, processing caprolactam manufactured in Puławy into PA 6 should bring measurable benefits to the Group.

Andrzej Skolmowski: Thank you very much for your insightful questions. It is always an opportunity to learn and exchange information. I say goodbye to you with the chorus of the song I have attached: “Goodbye, I already know I won’t settle all urgent matters.” I hope to meet some of you in a couple of days at the next retail investor conference in Karpacz. Come, whoever can. See you there!

Moderator: Let me, too, thank you for another chat bursting with energy. Meetings with Grupa Azoty have already become a legend, and a chat with Mr Skolmowski even brightens the sky. Join us for the next chat!

At 10:00am on Friday, March 27th, StockWatch held a webchat with representatives of Grupa Azoty S.A. The participants’ questions were answered by Mr Andrzej Skolmowski, Vice-President of the Management Board of Grupa Azoty S.A. responsible for finance.

moderator: Welcome to today’s chat with a representative of Grupa Azoty. We meet to discuss the Company’s financial performance, its prospects and the current situation in the fast-changing chemical industry.

moderator: I remind you of our chat rules: you send your questions to the moderator; the questions are selected by our Guest and published together with answers; you can see the line-up of your questions at the bottom of the screen; the moderator may delete a question if it doesn’t comply with the rules.

moderator: Information for journalists reporting on the chat session: using any information from today’s chat session in your materials requires citing the source. If you have any questions or doubts, please contact: ##qxjgd#at#hidrzlpirw.ea##

Andrzej Skolmowski: Hello everybody! It’s a great pleasure to meet you again for a webchat hosted by StockWatch.pl. The weather is beautiful – it’s always sunny when we meet. On a cloudy day we will think about our investors to brighten up our thoughts and skies.

moderator: Just quick housekeeping information to our English-language speaking users: feel free to post your questions in English. They will be answered bilingually.

ynwestor: I have read recently that the Azoty Pro programme will deliver savings 30% higher than originally projected. What has caused this improvement, and is it possible that savings will exceed estimates even further?

Andrzej Skolmowski: We have adopted a very conservative approach to estimating efficiency gains. After two quarters of working with the Azoty PRO programme, we accumulated new knowledge that allowed us to raise savings estimates in the Annual Plan for 2015 by 30% (i.e. PLN 15m) relative to what we assumed at the programme’s kick-off. If we identify more savings opportunities, we’ll exploit them.

Guest unverified: Will Grupa Azoty pay dividend for the 2014 financial year?

Andrzej Skolmowski: We have yet to issue a final recommendation to the Supervisory Board. We will publish more information on that soon.

MZK: What is the Company’s dividend policy and is it linked to Police and Puławy?

Andrzej Skolmowski: In line with the Strategy until 2020, recommended dividend payouts equal 40-60% of the Company’s non-consolidated profit, depending, however, on a number of factors relevant to the Company and the Group, such as business prospects, future profits, cash requirements, financial standing, business expansion plans and legal requirements.

Our dividend policy assumptions are the same across the Group.

Ilya Popov, Acron unverified: Hi, I’m Ilya Popov and I’m Head of Investor Relations at the Acron Group. We are Grupa Azoty’s second largest shareholder after the Polish State Treasury. We would like to congratulate you on your financial performance in 2014. And thank you for organising this webchat. It’s a pity, however, that it is in Polish rather than English. I would like to ask you a few questions. Question 1. We are glad to see that since we first became the Company’s shareholder Grupa Azoty has grown and its capitalisation has increased. But despite the high capitalisation, the Company’s profitability remains poor. At just 8%, EBITDA margin is below what most competitors have to offer. We are afraid that a potential crisis might push the financial result into negative territory, causing a dramatic drop in capitalisation. What steps do you plan to take to make your business more profitable and effective?

Andrzej Skolmowski: Hello and good day to you. We are happy to talk to all shareholders. As you know, Grupa Azoty Group’s profitability, which depends on its business structure, is driven down by our non-fertilizer operations. Our plastics, OXO alcohols and other chemical businesses deliver EBIT comparable to EBIT posted by our competitors, that is after taking into account the prevailing market conditions and the prices of raw materials.

Naturally, those buying gas several times cheaper than Grupa Azoty enjoy a noticeable advantage. We worked on that aspect very hard last year, consistently improving the efficiency of our process units, especially the ammonia lines, which will translate into higher EBIT. We are implementing the Azoty Pro operational efficiency programme, which is designed to improve EBITDA. Stable performance is also one of the objectives under the announced capex programme until 2020.

Guest unverified: How was Q1 2015 for the fertilizer segment? Is the downward pressure on prices persisting?

Andrzej Skolmowski: The Management Board of Grupa Azoty doesn’t issue financial forecasts. Of course, the pressure is significant and likely to remain so given the situation in eastern Europe and around the world. However, we do not envisage any deterioration in the fertilizer segment’s performance.

Obserwator: What are the key challenges that the Grupa Azoty Management Board will face in 2015?

Andrzej Skolmowski: The biggest challenges ahead include putting the announced capex and growth programme into motion, effective implementation of the Azoty Pro programme, further process integration within the Group, and pursuit of the objectives aimed to strengthen the Group’s market position. In the fertilizer segment, we are launching new projects to expand our product portfolio, including our B2C offering. Raw materials and further diversification of gas supplies will also play a key role.

SW-fan: Are you planning to withdraw your subsidiaries from the stock exchange as part of the Group’s reorganisation? It’s a trend we have seen recently.

Andrzej Skolmowski: You often ask this question, and I can understand why. But it’s not the most urgent matter for us right now. The Group is undergoing consolidation, and we are currently focusing on maximising post-merger synergies and achieving, or even overachieving, our efficiency targets, as demonstrated by a higher than originally estimated level of savings under the Azoty Pro scheme. No final corporate decisions in this respect have been made yet.

MZK: Can you tell us more about the PLN 1.68bn propylene unit construction project? Where will the money come from and what are the expected benefits?

Andrzej Skolmowski: The propane dehydrogenation (PDH) unit is a business expansion project. Its annual capacity is currently expected in the range of 400,000–500,000 tonnes.

The project’s objectives are to diversify the revenue structure, secure a stable supply of propylene (previously in short supply) for our Kędzierzyn plant, which consumes significant quantities of propylene to make plasticisers, and sell surplus propylene on the external market. As regards the Central European markets, there is a shortage of propylene, which local sources fail to cover, amounting to 850,000 tonnes a year in Germany alone, and to 150,000 tonnes a year in Poland.

As the PDH unit is a project with a large budget, at least by Polish standards, we must act prudently. A feasibility study has been completed, with promising results in terms of NPV, expected EBIT and EBITDA margins, and resilience to changes in key assumptions. We are about to commence the development of the Basic Engineering Package, which will provide us with detailed engineering documentation by the end of the year and will allow us to make further decisions about our participation in the project structuring, final arrangements with potential customers, and the financing structure – we are currently considering financing the project from our own pocket or establishing an SPV with a key potential customer.

Ilya Popov, Acron unverified: Do you plan to acquire any new chemical assets in the near term? What options are you considering?

Andrzej Skolmowski: As we have said, we are open to M&As, but only those that will improve the Group’s EBITDA and are consistent with our business profile.

Guest unverified: Will the Company make any foreign acquisitions this year?

Andrzej Skolmowski: We don’t announce potential future acquisition projects in advance. Of course, we consider acquisitions abroad in line with our Strategy. Details will be released in accordance with capital market requirements.

Guest unverified: Hello. Could you tell us more about the propylene assets purchased by Police? Are they located in Poland or abroad?

Andrzej Skolmowski: Grupa Azoty Zakłady Chemiczne Police decided to finance the documentation for the propane dehydrogenation (PDH) unit mentioned earlier. The project is to be located in Police. We are in the process of acquiring licences for the technology and preparing an engineering package before we move onto the next stages of decision-making, project execution and fund raising.

Guest unverified: Is Grupa Azoty interested only in Anwil’s fertilizer segment or is it interested in its PCV business as well?

Andrzej Skolmowski: Asked the same question by a journalist, I said I could not comment. Speculations are rife. Similar questions crop up in almost every webchat we hold. I have said on many occasions that there is a belief in the chemical industry that unity is strength. As for the question you have asked me, I have no choice but to tell you what I said in the first sentence. I’m sorry. Since both companies are listed on the stock exchange (or otherwise present on the capital market), any speculation would be out of place. Unless we take the question as a recommendation, of course :)

Agronom unverified: Why are the domestic sales of Polidar and Polifoska lower?

Andrzej Skolmowski: Unfortunately, this is an effect of intensified imports, which we seek to mitigate by increasing our export sales and leveraging advantageous foreign exchange rates.

Agronom unverified: Are there any technology-related problems with using Senegalese phosphate rock in fertilizer production at the Police plant?

Andrzej Skolmowski: Our production engineers at the Police plant know what they are doing. They have been using various types of phosphate rock to produce fertilizers for a long time, and the phosphate rock sourced from Senegal is no mystery to us nor a barrier in fertilizer production. There are problems, of course, but they are immediately attended to by our specialists.

aparatowy unverified: Is Grupa Azoty planning any acquisitions in 2015? Will you increase the number of investment projects from the current 69?

Andrzej Skolmowski: We have already answered this question in our earlier webchats. The topic isn’t new. Let me repeat that we are keeping a close eye on investment opportunities and have prepared a list of potential acquisition targets.

SW-fan: Can you comment on the current pricing situation on the gas market and the resulting influx of cheap nitrogen fertilizers from the US? Do you think that the strategy you have chosen is working?

Andrzej Skolmowski: The principal objective of our natural gas strategy is to diversify our gas supply sources. We are keeping a close eye on everything that is happening on the market. It’s not yet clear what the imports will be exactly: raw materials, intermediates or finished fertilizer products. As for now, the US remains an importer of fertilizers. But I agree that this may change in the future.

SW-fan: Congratulations on the Company’s growth and the recovery in its market value. Technically, there’s a triple top ahead, which I’m counting on. But I want to ask you something else. It seems that your company has been receiving less media coverage recently. Is there nothing interesting happening or are things not going according to plan?

Andrzej Skolmowski: Thank you for your congratulations.

This is a surprising question. We communicate with the market on a regular basis. A press conference is being as we speak, and last week we published our 2014 results, which attracted significant media coverage. We update our website and newsletters on a regular basis. We try really hard. Perhaps the media are not interested in our hard day-to-day work :)

If you need more information, you are free to contact us at any time!

Ilya Popov, Acron unverified: We know that in line with the dividend policy you try to pay out 40−60% of your non-consolidated profit. But this translates into a very modest dividend yield, as non-consolidated profit tends to be low. Do you plan to increase the amount of dividend in 2015 or the following years? The Company is not burdened with debt. So, we think it would be reasonable to distribute at least 50% of the Group’s consolidated net profit as dividends.

Andrzej Skolmowski: Our dividend policy has not changed. However, in your assessment you should take into consideration the fact that the Company has announced a multibillion investment programme. You can expect a dividend announcement soon.

Ilya Popov, Acron unverified: Do you use intermediaries in purchasing key feedstocks and selling your products? What percentage of your customer base do final consumers represent? Apart from PGNiG, what are the Company’s largest suppliers of key feedstock?

Andrzej Skolmowski: We have to keep our trade secrets, so we don’t publish the names of our suppliers or customers unless the trading volumes trigger a disclosure obligation. What I can say, though, is that in each segment of our business we sell products to final consumers.

user: I’ve noticed that you have stepped up your marketing efforts in the media, as well as your sponsorship activities (ski jumpers). Have you changed your mind about this type of promotion? What effects do you expect these efforts will have?

Andrzej Skolmowski: We have been sponsoring ski jumpers for the last three seasons, so it’s hardly a recent step-up. What you may have noticed is our campaign designed to reach final consumers with our fertilizer products. We expect the campaign to bring measurable effects in the form of increased sales.

MZK: Will the early spring this year affect your performance in the fertilizers segment? What do you think of the first quarter results?

Andrzej Skolmowski: The weather conditions have significantly accelerated crop planting and, consequently, fertilizer application. The impact of mild weather conditions on our performance in the fertilizers segment is definitely favourable, if only because warm weather is one of the factors determining the supply/demand situation of the gas market, which is reflected in price trends for this strategic feedstock. But we should keep in mind that our customers also monitor the weather and assess its possible impacts, exerting increased pressure to reduce the prices of final products.

Ilya Popov, Acron unverified: What was the cost of CO2 emission allowances in 2014 and what do you expect the cost to be in 2015?

Andrzej Skolmowski: We do not disclose the cost in our financial statements. We disclose the volumes in the notes on inventories and the value of all emission units. Information on CO2 emissions is also included in the notes on Provisions and Government Grants, as well as in the section devoted to financial instruments.

Guest unverified: Does the syndicated financing for the Grupa Azoty Group, whose arrangement process began in the second half of 2014, cover the capital expenditure for Zakłady Chemiczne Police to acquire non-current assets under the ‘PDH unit with infrastructure’ project?

Andrzej Skolmowski: As you have mentioned, the arrangement process is ongoing. As the final stage of negotiations is still ongoing, we can’t reveal any information on how it is progressing or what is being discussed. I can assure you that in any imaginable scenario we have surplus financing capacity to fund future investment projects, including large ones.

Ilya Popov, Acron unverified: What was the capacity utilization rate in 2014 for main products (ammonia, compound fert., CAN, urea, etc.)

Andrzej Skolmowski: Sorry, but we don’t publish any detailed information about our capacity utilization per every product. We can say that so far we don’t have any problems with utilization capacity. All relevant information you can find in our Annual Report. Information about our production structure are available also in our presentation for investors.

MZK: How do falling gas prices affect your performance?

Andrzej Skolmowski: I think I answered this question when we discussed weather conditions. Lower gas prices may improve EBITDA provided that they don’t cause price pressures, which depress EBITDA. As you can see, the marketplace is an endless tug-of-war.

obligatariusz: In recent years, retail bond issues have become increasingly popular, as they provide a source of financing and also help raise brand awareness. Large companies, such as Orlen, use them. Is Grupa Azoty considering such an option?

Andrzej Skolmowski: At present, Grupa Azoty is busy restructuring its bank debt, trying to leverage its position as a strong corporate group. At the initial stage, it is important to secure long-term corporate financing from a group of leading, stable banks operating on the Polish and European market.

As a next step, we consider issuing bonds for corporate and retail investors, including our fertilizer customers, primarily with a view to building our corporate image and long-term relations with our key customer group.

Agronom unverified: Will ROE reach 10% by 2020?

Andrzej Skolmowski: In line with the 2014-2020 Strategy, we intend to exceed 10% by 2020.

Ilya Popov, Acron unverified: How much phosphate rock do you use and what part of that was covered by your Senegal company for 2014. What was the average purchase price for phosphate rock?

Andrzej Skolmowski: Due to our internal policy aiming at securing our market position we do not publish information on prices and quantity of feedstock usage.

What we can say in subject of Senegal delivery of phosphates is that we are in line with our goals for the year 2014.

MZK: Perhaps you could publish financial forecasts for different market scenarios?

Andrzej Skolmowski: We don’t issue financial forecasts, as stated in the prospectus.

Guest unverified: How will you finance the PHD project at Grupa Azoty Zakłady Chemiczne Police? Do you want to use bank debt, own funds or a mix of debt and equity?

Andrzej Skolmowski: I have mentioned twice already that at present we are considering own/bank/debt financing, as well as mixed financing − a joint SPV with a downstream partner. A final decision will be made in early 2016, when all the documents are ready.

SW-fan: Are there any technology-related problems with using Senegalese phosphate rock in fertilizer production at the Police plant?

Andrzej Skolmowski: We have ambitious plans! And one direction − we want to continue to increase the volumes of phosphate rock produced from our own mines in Senegal and used as feedstock in fertilizer production in Police.

Our production engineers at the Police plant know what they are doing. They have been using various types of phosphate rock to produce fertilizers for a long time, and the phosphate rock sourced from Senegal is no mystery to us nor a barrier in fertilizer production. There are problems, of course, but they are immediately attended to by our specialists. These questions seem to have a double meaning. Please just ask me what you want to know.

The raw material is good and both the Company and the Group are satisfied with the acquisition. We think this investment gives us - and will continue to give us - a competitive edge. We know that some of our competitors have expressed ... dissatisfaction with the fact that we have purchased a mine in Senegal, but it’s not our job to make our competitors happy!

Various issues and problems are an inevitable part of life in the chemical industry. The only problem we don’t have is ... a lack of problems. But we have specialists to fix our problems. We can manage just fine.

SW-fan: You have just admitted that the Company has problems in Senegal. Could you tell us more about them? How will they affect the schedule and performance?

Andrzej Skolmowski: The previous question was about the quality of phosphates produced from our Senegalese mine and brought to Police. We have the technical aspects under control.

In Senegal, we are analysing possibilities for increasing production (e.g. the size of resources to be mined next and the order of production). Each of the available options will only *improve* the current conditions and forecasts of supply of phosphate rock as the key feedstock for NPK fertilizer production.

Andrzej Skolmowski: Dear everyone! Thank you for your participation in the chat. Our meeting has come to an end and, from what I can see outside the window, sun is giving way to clouds :) Thank you for your questions. I apologise if some of you are not fully satisfied with my answers, but I must keep a balance between investors’ curiosity and the Company’s best interest. We analyse every webchat from the perspective of our strategy of communicating with investors. We have a very interesting yet difficult year ahead of us. We have to face various challenges in the fertilizers business, and we have to look for performance improvement opportunities in the chemicals segment. Fortunately, we have many interesting ideas. I hope that most of you will be satisfied with the outcome. Easter is next week, so for those of you who celebrate it, I say: Happy Easter!

moderator: Happy Easter on behalf of our team at StockWatch.pl. Thank you for the great turnout, good atmosphere and your insightful questions, as usual. Please join us for more investor webchats at StockWatch.pl

At 12:00 noon on Friday, November 21st, a webchat was held with Andrzej Skolmowski, Vice-President of the Management Board of Grupa Azoty S.A. responsible for finance.

moderator: Welcome to the online chat with Vice-President of the Management Board of Grupa Azoty S.A. Today we want to focus on the current state of the industry, the Company’s performance and its development plans. The latter are particularly important in the face of gas prices retreating on global markets, a trend that supports profit margins, but can also create competitive pressure on prices. I’m sure we’ll have an informed and meaningful discussion. Feel invited to take part.

Andrzej Skolmowski: Hello everybody! It’s a great pleasure to meet you again for a webchat hosted by StockWatch.pl. Last time we were very pleasantly surprised by the number of people participating. I hope to see a great turnout this time as well.

SW-fan: So, the US is producing and exporting ever bigger volumes of cheap gas. A considerable risk exists that their chemical companies will start to dump cheap fertilizers on the global market. How real is this threat for Grupa Azoty?

Andrzej Skolmowski: The matter is quite complex. We could argue that cheaper gas from the US will also exert pressure on other gas suppliers to lower prices. Of course, we are analysing this risk and its potential long-term impacts, and we will be prepared to face it. For the time being, the US fertilizer market is not yet balanced. We are analysing this issue very thoroughly.

mm unverified: Hello. Why did the Company mislead investors by stating in its Q3 report and on its website that ING OFE holds 9.96% of its shares when in fact it holds 6.96%, as shown in the list of shareholders present at the General Meeting on June 10th 2014? The correct number of shares is also given on the Stooq website (http://stooq.pl/q/h/?s=att).

Andrzej Skolmowski: The Company presents data concerning its shareholder structure based on notifications received from shareholders. The last official notification from ING was received on February 14th 2013, and relevant information was published in a current report.

SW-fan: What is the current situation with ACRON? Could you update us on that?

Andrzej Skolmowski: As previously reported, our Russian shareholder owns around 20% of Grupa Azoty shares. The company also notified us that a significant block of shares was transferred to one of its subsidiaries registered in Cyprus. Otherwise, it’s been quiet.

Guest unverified: Can we expect Q4 results to be another pleasant surprise?

Andrzej Skolmowski: Well, you are always trying to drag these estimates out of us... Unfortunately, we can’t publish forecasts (even the new President of the Warsaw Stock Exchange is against that).

Guest unverified: How is the current situation in countries east of Poland affecting Grupa Azoty’s business?

Andrzej Skolmowski: The situation is clearly having an impact on the European fertilizer market, where we operate. But it has had no direct impact on Grupa Azoty’s performance, because we don’t sell our products there.

Guest unverified: Is Grupa Azoty prepared in case gas supplies are cut off in winter?

Andrzej Skolmowski: I’m sorry to say this, but no chemical company in Europe is prepared for such an event. Having said that, Poland is much better prepared now than it was a few years ago to cope with reductions in Russian gas supplies (for instance resulting from a halt in transit via Ukraine), having expanded and filled its gas storage facilities, developed an extensive network of interconnections with Western European gas networks and secured access to reverse flow on the Yamal Pipeline. In line with its strategy, Grupa Azoty is expanding the share of gas contracted from sources alternative to PGNiG, including under contracts with major Western European suppliers and through direct purchases on commodity exchanges. Our diversification target is to have up to 50% of our gas requirement covered with gas purchased from alternative sources.

drobny_inwestor: Grupa Azoty has recently had a rough patch with stock analysts − they all tell investors to sell your stock. Why is that?

Andrzej Skolmowski: Analysts’ recommendations are always thoroughly analysed by the Company. You ask me about why there are so many negative recommendations − you can’t argue with valuation models. But we should also consider the question of whether the operationalisation of the Strategy is really only about the costs − which is what is stressed in stock analyst reports − or maybe we should look at Grupa Azoty’s development plans from a longer-term perspective as a value creation driver. Besides, the chemical industry has been generally getting bad press in Europe in terms of its prospects. Most of them are of a short-term nature: if grain prices fall in September, fertilizer prices are expected to fall in October. We believe in our business long-term, even if others have different, short-lived opinions, which we respect by the way.

AGRONOM unverified: Is there any threat to domestic fertilizer sales? Are products sold under contracts with Police and Fosfory across the distribution network?

Andrzej Skolmowski: We all very well know that the compound fertilizers market is not easy. Most distributors would certainly prefer to sell only nitrogen fertilizers. We work hard with our partners in the market, so I don’t see any serious threats.

mm unverified: But ING OFE informed the Company during the General Meeting on June 10th that it held a 6.96% interest, which was announced in a current report.

Andrzej Skolmowski: A list of shareholders eligible to attend a General Meeting states the number of shares REGISTERED for the GM. Shareholders may register any number of the shares they hold.

Guest unverified: Good day. When will the prices of fertilizers sold by Grupa Azoty stop falling? The first three quarters showed a downtrend because of the challenging market climate, but the Q4 2013 base was very low so the declines could be slowing down on the market...

Andrzej Skolmowski: Fertilizer prices have been rising steadily since July. We have said on many occasions that in 2014 the average annualised prices are down by approximately 5−7%.

MZK: Will a dividend be paid out of this year’s profit?

Andrzej Skolmowski: I understand that this is very important to all of you. When presenting the operationalisation of the Strategy, which I have mentioned several times today, we clearly stated our acquisition plans, without identifying any geographical limits. And the temporal limit has been set for 2020 :) These are the plans − and this information has to suffice for now. Once the plans become reality, we will certainly keep you informed.

SW-fan: What about the situation on the Polish chemical market? Are you feeling pressure from Ciech after it has been acquired by Kulczyk? What about further consolidation? Do you want to make more acquisitions?

Andrzej Skolmowski: The situation on the Polish chemical market is stable.

We have said many times that we closely monitor the market and will analyse any viable investment opportunity. We are not feeling pressure, because Ciech, as well as other chemical majors, operate in segments different from ours (soda, crop protection products etc.). Of course, we are open to further consolidation.

rybka: In Q3 Grupa Azoty posted a profit instead of the expected loss. What did help the Company to deliver such a solid performance?

Andrzej Skolmowski: Normally the third quarter tends to be worse than the other quarters of the year because it’s a planned maintenance shutdown period. But performance was better than expected mainly because of key feedstock prices, including energy. The synergies identified during consolidation have also had a boosting effect on Grupa Azoty’s performance.

MZK: Hello. What can you tell us about cooperation between the Management Board and your Russian shareholder, Acron?

Andrzej Skolmowski: The only time we meet with Acron is at General Meetings and we always take a respectful, business-like approach :)

Guest unverified: Do you expect the supply of fertilizers on the European market to decrease (I mean as a result of capacity shutdowns by your competitors), which would improve producers’ margins that are quite low at the moment?

Andrzej Skolmowski: Anything is possible, of course, but I don’t expect any significant reductions in supply. Closures in Western Europe are very unlikely. Unless you meant plants in Ukraine. Obviously, supply cuts improve margins, albeit temporarily. But remember that nature abhors a vacuum.

Guest unverified: Have you assumed that no dividends for 2014 will be distributed to shareholders given the extensive capex programme?

Andrzej Skolmowski: In line with the adopted dividend policy the Management Board has declared it would recommend dividend payments of between 40% and 60% of non-consolidated net profit for a given financial year. We close the year and analyse our financial standing in the context of the capex programme. Let me remind you that when we talked about the operationalisation of the Strategy we specifically said that the financing of our investment projects was also well thought-out.

ola unverified: How much phosphate rock has been delivered from Senegal this year? Has Police already reached the target volume of 400,000 tonnes, announced earlier by Mr Jałosiński?

Andrzej Skolmowski: Mr Jałosiński never said that the target was 400,000 tonnes. If a number was given, it was half that figure. The deliveries of phosphate rock from Senegal are going as planned.

Guest unverified: Are you looking for acquisition targets east of Poland?

Andrzej Skolmowski: As I said earlier, we will consider every viable investment opportunity that comes our way, but the east is a difficult subject.

Timon: You are contemplating the construction of a phosphoric acid plant in Africa. What savings could be generated from this investment, and when can we expect a final decision on the project?

Andrzej Skolmowski: The construction of a phosphoric acid production plant is a very interesting project because it envisages savings along the production chain, so we consider it a project that could help us deliver the aims of our Strategy. The project is at a stage where analyses are being prepared to confirm the size of potential economic gains, before any corporate decisions can be made concerning the scope and start date of the project.

Puławy unverified: Hello :-) How likely is a merger with Agrofert? Are there any other mergers planned in the near term? If so, at what stage are they now?

Andrzej Skolmowski: There have been quite a lot of questions about mergers today :) Let me stress once again that we consider all viable investment opportunities that emerge. The information reported in the media did not come from us. We believe in the saying: “Don’t count your chickens before they’re hatched”. We don’t boast about an acquisition before we have even started it.

MZK: Good harvests don’t favour grain prices, which in turn has a dampening effect on fertilizer prices. What trends in the fertilizer market do you expect to see next year?

Andrzej Skolmowski: We would be happy to see the prices stay at this year’s levels. The trend this year has been in line with what we planned.

Guest unverified: When will you announce a new acquisition, and will the target be from the Polish or European market?

Andrzej Skolmowski: The Polish market is also a European market... Since you insist, we will get down to work. But seriously − we have been hard at work analysing things. As soon as something interesting happens, we will let you know.

Don unverified: One word − graphene. Is it true that Grupa Azoty has in any way been involved in the invention?

Andrzej Skolmowski: Not in the invention, but we are taking part in the work on its possible applications.

Guest unverified: What is the situation like in POM production? Does the Company still make this product or was the impairment loss recognised last year equivalent to closing the installation?

Andrzej Skolmowski: The impairment loss does not mean that the installation has to be shut down. The POM installation continues to operate, with its capacity utilisation rates depending on current demand.

Kantor unverified: Is there a possibility to negotiate and purchase gas directly from suppliers, for instance Gazprom, bypassing intermediaries? In the past, Ukrainian chemical companies successfully secured such contracts and obtained prices that didn’t include the ‘political’ margin.

Andrzej Skolmowski: For many months now Grupa Azoty has been successfully strengthening the diversification of its natural gas supply sources. We buy gas from other international suppliers. But PGNIG is and will continue to be our key supplier, and the gas supplied by PGNIG includes gas from the company you named in the question. We have stepped up our activity on gas exchange markets. As to the Ukrainian companies that successfully secured gas contracts ... please allow me not to comment.

mm unverified: Just to close the subject of ING OFE, please check the current number of shares they hold. It’s published on their website.

Andrzej Skolmowski: As a listed company, we rely solely on official information obtained from our shareholders in accordance with applicable laws. The number of shares held by shareholders may change. And no such information has been made available to us. I’m aware, though, you may not be fully satisfied with my answer.

MZK: When it was setting up a chemical conglomerate, the Company announced that it had the ambition to become listed in the WIG20 index. When could you be joining the index?

Andrzej Skolmowski: We haven’t given up these ambitions. One of the objectives stated in the Strategy is our inclusion in the Warsaw Stock Exchange’s blue-chip index. The inclusion of Grupa Azoty in the WIG30 index is a great honour. We believe we have achieved our first strategic goal.

SW-fan: Grupa Azoty’s becoming a global company means it’s ever more exposed to currency risk. We remember that many companies lost big on FX fluctuations, and still not every company knows how to hedge against that risk effectively. In Poland, KGHM is the best at it. And how do you hedge against the risk?

Andrzej Skolmowski: In managing currency risk, Grupa Azoty relies on the Currency Risk Committee, which operates on the Group level and in the key companies exposed to the risk. In the fourth quarter, the Management Board adopted a Currency and Interest Rate Risk Management Policy, which aims to centralise long-term strategic risk management, while still allowing the key companies to optimally use their competencies to effectively manage operating risks in the short term. The important thing is that at present the only FX contracts that the Group companies enter into are those that meet the criteria of hedging instruments and limit value at risk according to the VAR methodology.

ynwestor: The Group has grown bigger recently. What is your assessment of the synergies that have been achieved so far and those that could be achieved in the future? Is there much potential left?

Andrzej Skolmowski: The synergy targets for the Group were identified during consolidation. From the very beginning the synergies have delivered the expected financial benefits, which we constantly monitor. These benefits have been the biggest in the upstream segment: the year 2014 has demonstrated that the work done within the Group related to operating on an effective gas market yields good results.

Guest unverified: Will the Company’s non-consolidated net profit, which reached PLN 238m after the first three quarters of the year, increase or decrease at the end of 2014?

Andrzej Skolmowski: Let me repeat once again that Grupa Azoty doesn’t issue forecasts, so we can’t answer questions regarding quarter-on-quarter changes in non-consolidated net profit for Q4.

Guest unverified: Is the Company planning any new share issues to fund acquisitions? More shares would improve the stock’s liquidity, which is rather low for a WIG30 company.

Andrzej Skolmowski: A lot has been said today about our potential M&A moves. Of course, if we decide to go for a really large acquisition, raising funds through a share issue is an option.

Guest unverified: And what is the status of the Puławy Power Plant project? Will it be implemented or not?

Andrzej Skolmowski: This project is still being analysed. Grupa Azoty Puławy keeps the market up to date on the project. No final corporate decisions have been made as yet.

Guest unverified: What amount of savings will be generated in 2014 under the Azoty Pro programme?

Andrzej Skolmowski: Azoty Pro is a long-term initiative, and it only started in the second half of this year.

ola unverified: Grupa Azoty intends to expand its business activities in Senegal. "We want to extend our exploration and production licence areas by adding adjacent plots. We have also received a proposal to acquire new licences. The licences we have been awarded so far are sufficient to meet the current needs of our plants. As we have previously announced, next year we want to produce and deliver to Police 400,000 tonnes of phosphate rock extracted under the existing licences," Mr Jałosiński added.

Andrzej Skolmowski: Probably the statement you have quoted was made just after the acquisition of our Senegalese subsidiary. After a detailed analysis, our plans for 2014 were revised down relative to the figure you quoted. But the plans for 2014 are being implemented.

Varia unverified: If the east is a difficult subject, for political and geographical reasons, what is your view on the north and south?

Andrzej Skolmowski: Our principal market is the EU market. This is where we want to consolidate our position. We have gained a foothold in the south (Senegal), and we are present in the west (ATT Polymers), while the south is also a difficult subject. Our goal is to improve or maintain EBITDA. However, the world is a global village, and we can’t rule out any move in any direction whatsoever. And the questions regarding acquisitions we treat as "spiritual support".

Andrzej Skolmowski: Thank you for taking part in the chat. Your questions are always a source of inspiration. I apologise for the answers. Some of them may seem too short, but I tried to answer each and every question. Today is the World Hello Day. We have exchanged some great deal of hello’s. You were kind to me and I offer you my warmest regards :) See you at our next chat!

moderator: Thank you for today’s meeting. There was some chemistry among the participants! Join us for more investor chats. Best regards.

At 12:00 noon on Monday, September 22nd, a webchat was held with Andrzej Skolmowski, Vice-President of the Management Board of Grupa Azoty S.A., hosted by the Polish Association of Individual Investors.

Moderator: Visit our investor chat room for a chat with Andrzej Skolmowski, Vice-President of the Management Board of Grupa Azoty S.A., to be held at 12:00 noon on September 22nd 2014. You can ask your questions today.

Moderator: Welcome to today's webchat with a representative of Grupa Azoty. Mr Andrzej Skolmowski, Vice-President of the Management Board of Grupa Azoty S.A. for Finance, will take your questions. I would like to use this opportunity to express our sincere thanks to all those who recognised our commitment to building strong investor relations and awarded us the Equity Market Champion title. We will be happy to take your questions now.

Łukasz: Greetings to my favourite 'chatty' CEO!

Andrzej Skolmowski: Hello, and a warm welcome to all volleyball fans! I am not entirely sure if we can handle this chat today...

Krystian: Hello, Champions!

Andrzej Skolmowski: Hello!

szef!: Absolutely! We have been waiting forty years to get the gold!

Andrzej Skolmowski: !

Krystian: Do you feel threatened by a Russian joining the Supervisory Board? The company already owns over 20% of your shares.

Andrzej Skolmowski: We are prepared for any scenario!

mk: What is your opinion on Grupa Azoty's inclusion in the list of the State Treasury's strategic enterprises?

Andrzej Skolmowski: It's a positive development. It highlights Grupa Azoty's important role in the national economy. It also clears up the privatisation issue. The State Treasury has asserted its role as an active shareholder. As for other matters, we will work on them.

Łukasz: Acron is strengthening its position as Grupa Azoty's shareholder. Does the company interfere with your operations?

Andrzej Skolmowski: No, we maintain no contact other than during General Meetings. And of course there have been interviews in various media.

NN: Shouldn't you be in the US, taking part in gas talks? :)

Andrzej Skolmowski: No, I stayed in Poland to take part in this chat. And to see the volleyball game...

david: What caused distribution expenses to rise?

Andrzej Skolmowski: Hi. A year-on-year comparison shows that distribution expenses in H1 2014 rose mainly on the back of the acquisition of Siarkopol (no results disclosed for H1 2014) and Puławy (Puławy has been consolidated as of January 18th, that's why H1 2014 expenses are for the full period, whereas the 2013 figure covers a period that was some 18 days shorter).

NN: Will recent cuts in gas supplies to PGNiG affect the Company's performance?

Andrzej Skolmowski: No, our gas supplies have not been reduced.

Bronek: How will cooperation with Malaysian companies impact Grupa Azoty's performance? When can we expect to see the effects of the cooperation?

Andrzej Skolmowski: The MOUs signed by Grupa Azoty Puławy with PETRONAS Chemical Group Berhad and Sipitang Oil & Gas Development Corporation mark the beginning of cooperation between the partners in the production of urea and other ammonia-based products in Malaysia. Negotiations are still at an early stage, but we expect a lot from these agreements. We see it as an opportunity for melamine and derivatives. It's too early to talk about financing or other details. The project is consistent with our growth strategy.

wątły: The Group has forged a partnership with Malaysian companies. Could you tell us more about it? What are the potential benefits for the Group?

NN: Will the third quarter results again be the worst quarterly performance of the year?

Andrzej Skolmowski: Unfortunately, we don't publish forecasts. All we can say is that we don't expect any major changes in the cyclical patterns of revenues and performance delivered by our key business lines.

##u.qtgcpi#at#de.ea##: 3. What are the prospects for the plastics business in Tarnów? Could you give us specific examples of R&D and investment projects being implemented there? F. Bernat

Andrzej Skolmowski: I think someone is trying to impersonate Mr Bernat. It's hard to believe that the real Mr Bernat has missed several conferences devoted to planned investments in Tarnów.

sprzedawca: Do customers abroad find your products attractive?

Andrzej Skolmowski: Yes, exports account for 40% of our sales!

wp: What is the reason behind the recent falls in the price of Grupa Azoty shares?

Andrzej Skolmowski: To understand the reason behind the falls you first need to analyse the reasons behind the sudden price spikes. We strongly believe in the Company's fundamentals and its growth potential, but the cause of the recent swings in our share price lies, let's put it diplomatically, in our shareholding structure.

lis: How did the conflict between Russia and Ukraine impact the Company's H1 performance?

Andrzej Skolmowski: The impact was minimal. Obviously, production stoppages at Ukrainian plants had a slight impact on Southern European markets, but our own income statement remained unaffected.

melo: What items did you disclose under other financial assets?

Andrzej Skolmowski: As at June 30th 2014, the largest items of other financial assets were fixed-term deposits placed by Group companies, including PLN 9m in deposits of more than one year (non-current financial assets) and PLN 32.5m in deposits of over three months to one year (current financial assets).

wp: Will the 2014 dividend yield be higher than the 2013 figure?

Andrzej Skolmowski: In line with Grupa Azoty's strategy, recommended dividend payouts equal 40-60% of the Company's non-consolidated profit, depending, however, on a number of factors relevant to the Company and the Group, such as business prospects, future profits, cash requirements, financial standing, business expansion plans and legal requirements. While these provisions remain valid, shareholders will be provided with details after the end of the reporting period.

Paweł: Could you tell us more about your investment in Africa? How will it impact the Company's operations and results?

Andrzej Skolmowski: To us, it's a long-term investment. A primary objective of the project is to reduce the cost of raw materials and secure an internal source of supplies. We are now implementing this objective.

mel: Can you reveal the identity of the person related to two Supervisory Board Members who reports trades in Grupa Azoty shares almost daily?

Andrzej Skolmowski: As each of these reports says, the notifying persons have not consented to the publication of their personal data. But I ensure you that the reports are published in compliance with the Polish Act on Trading in Financial Instruments, as intended by the legislator. It's the law... Let me add that they are legal persons closely related to Supervisory Board members. All is clear now, I think.

Damian: What are your near-term investment objectives? Where can I find details of your investment plan?

Andrzej Skolmowski: We regularly publish information on the investment projects approved by the corporate bodies under the Operationalisation of the Strategy for 2014−2020 (these include the construction of the Fertilizer Granulation Plant and Polyamide Plant II). But since we don't want our competitors to know too much about projects that are still under analysis and/or undergoing project approval process, we are not going to publish the details of our investment plan. We report on our material investments in due time.

ronn: What are the expected full-year results? Have you published any guidance?

Andrzej Skolmowski: No financial guidance is published by the Grupa Azoty Management Board, so we have to wait until the publication of the next annual report to answer your question. In the meantime, you can take a look at our interim report scheduled for publication in mid-November. It looks promising.

Darko: When will the Senegalese investment start generating profit?

Andrzej Skolmowski: Answering the question on Senegal − our objective is to reduce the cost of raw materials and diversify our supply base, not to make the Senegalese subsidiary a source of dividend income.

troll: What is the status of potential future acquisitions?

Andrzej Skolmowski: We are exploring various opportunities.

wp: Why is your net margin so low (2-3%)? With revenue of PLN 10bn, profit of PLN 200-250m is disappointing, and the P/E ratio of 42 is one of the highest in the WIG30 index.

Andrzej Skolmowski: Answering your question on the high P/E ratio - you need to remember that one of the reasons behind the recent share price rises was a series of buy transactions by one of our shareholders, which may have pushed up the value of our stock. As regards our performance and net margin, let me stress the fact that net margin for H1 2014 was 5% (on the reported net profit), and last year it was 7% (even though it was partially attributable to a large one-off gain from the Puławy acquisition, the effects of financing these equity transactions affect current performance as interest. Still, our results are only slightly below margins posted by other chemical companies (BASF − 7%, Yara − 7%)

samson: What are your plans for expanding the upstream segment?

Andrzej Skolmowski: Apart from the mines in Senegal and in Grzybów, we are working on several projects designed to reduce the consumption and costs of raw materials. Some of them are really interesting. But we don't plan any acquisitions in this area.

mel: Have you launched production from the second deposit in Senegal?

Andrzej Skolmowski: We are still busy with the first one.

Kokosz: Compared with Yara, the largest European company, Grupa Azoty's headcount is substantially higher. Why is that? Do you really need all those employees to keep your business running?

Andrzej Skolmowski: We don't shy away from difficult questions. I understand you are asking about revenue per employee?

Janecki: How are you protecting Grupa Azoty against a hostile takeover?

Andrzej Skolmowski: A new provision was added to the Grupa Azoty Articles of Association, stipulating that as long as the State Treasury is the Company's shareholder, the remaining shareholders' right to vote is limited to 20%. Besides, for us a hostile takeover is where a shareholder takes operational control over a company, making changes on its supervisory and management boards to gain influence over its operations. We have identified no such threat, but we are prepared for a range of scenarios.

Jasiek: What were the reasons behind Police's strong performance, which was the best in a year?

Andrzej Skolmowski: The figures published by the Police Group show that with a marked decline in revenue profit fell only slightly (H1 yoy figures). This means that with each passing year we learn how to use our assets and market opportunities in a more efficient way (deposits in Senegal reflected in phosphate prices, focus on diversification of gas sources and increased use of spot contracts).

MIKA!: Where do you see the Company's growth potential?

Andrzej Skolmowski: One of the sources of Grupa Azoty's growth potential is the programme of BAT-compliant key growth-oriented investment projects, which will consolidate our market position in core business areas. In fertilizers, they will serve to increase output of granulated fertilizers in Tarnów and Puławy (including high-sulfur fertilizers), and improve the parameters of ammonia production through modernisation of existing units. In plastics, the investments will include a new Polyamide Plant II, which will help fully balance caprolactam processing within the Group, as well as projects implemented jointly with our customers to extend the value chain, which are located within the Special Economic Zone of the Kraków Technology Park in Tarnów.

czatowy: How fast are fertilizer imports from China growing year on year? Are they a big threat to the Company?

Andrzej Skolmowski: So far, this concerns Europe, not Poland. The most important factor here is urea trade balance between China and India.

łyygułygułygu: What is the outlook for the Company for the coming quarters? H1 results are down yoy.

Andrzej Skolmowski: Please note that trading conditions in 2014 are much more challenging, so the results are only slightly weaker compared with last year. As for the outlook, we can't comment on our future performance.

mel: Will you make any acquisitions this year? If so, will they involve raising financing from external sources?

Andrzej Skolmowski: This is highly unlikely, given that today is September 22nd (day one after the volleyball championship!). As for debt financing, it is not a problem for us.

Bartosz: Is the Grupa Azoty Management Board in talks on a merger with PGNiG?

Andrzej Skolmowski: No, not a merger. We have been looking into different forms of cooperation for years, with mixed results.

stas: Why do you think Acron has invested over USD 400m in Grupa Azoty shares?

Andrzej Skolmowski: Well... It's an interesting question. But, as a Management Board member, I'm not in the position to comment on our shareholders' investment decisions. Even if we consider their takeover bid as hostile.

Andrzej Inwestor: What do you think about Grupa Azoty's H1 performance?

Andrzej Skolmowski: We are satisfied with our H1 2014 performance, also in the context of market expectations (we performed above analyst consensus).

cygan: Do you have any contingency plans in case gas supplies are suspended? How much does downtime of a gas-fired unit cost per day?

Andrzej Skolmowski: Grupa Azoty diversifies its gas suppliers, increasing the volume of gas taken from alternative sources. At present, gas supplied from non-key sources, including locally-sourced gas, represents approximately 40% of the Group's gas consumption. Our target is to raise this proportion to around 50%. Today, we are much better prepared for a gas supply crisis. We also have ammonia storage facilities in place, which will provide us with feedstock should supplies be temporarily reduced.

siatkarz: Are collective redundancies planned at any Group companies?

Andrzej Skolmowski: We are not planning for any collective redundancies.

Irek: Is the Company having problems with getting adequate gas volumes from PGNiG?

Andrzej Skolmowski: We have no such problems. Gas supplied by PGNiG under relevant agreements fully meets our needs. The volumes of gas purchased under the grid gas supply contract with PGNiG are coordinated with the volumes of gas purchased from alternative sources (spot contracts with Western European suppliers, power exchange, local sources). PGNiG is also interested in selling higher volumes of gas to Grupa Azoty.

Marysia: Does the Company's strategy envisage any foreign acquisitions? If so, what markets is it interested in?

Andrzej Skolmowski: In the Operationalisation of the Strategy, we have outlined the selection criteria for possible mergers and acquisitions. We have been analysing the Company's business tree in terms of potential synergies with suppliers, customers and competitors, but we are also considering new directions. Geography is not an obstacle, we analyse our opportunities globally.

mk: What is the progress on the petrochemical project implemented jointly with Grupa LOTOS?

Andrzej Skolmowski: We are still working on the feasibility study and waiting for the final results of the analyses.

Edi: The operating loss in the Plastics segment is lower than the year before. What is the segment's situation?

Andrzej Skolmowski: The segment's performance improved mainly due to lower energy prices (coal, gas). Market conditions remain difficult, especially for caprolactam, so we have launched projects (planned construction of a polyamide production unit) to utilise caprolactam from Puławy as feedstock for more complex products (polyamide) that generate higher margins.

zenon: Is Organika off the table after Kulczyk acquired Ciech?

Andrzej Skolmowski: In connection with the change of the majority shareholder, negotiations with CIECH S.A. on acquisition by Grupa Azoty PUŁAWY of a 99,64% interest in Zakłady Chemiczne Organika-Sarzyna S.A. of Nowa Sarzyna were not finalised. This is what the official report said. Nothing has changed since its publication.

beniek: Even adjusted for one-off events, H1 2014 performance deteriorated year on year. Why?

Andrzej Skolmowski: Our H1 2014 results deteriorated year on year mainly because of 5-7% declines in fertilizer prices on the global markets during the period, and also due to the unfavourable benzene supply situation in Europe relative to caprolactam and polyamide prices.

Rafał22: Services are rising. Why?

Andrzej Skolmowski: The comparability of expense items was distorted by equity transactions involving Siarkopol (the company was not included in the H1 2013 results as the acquisition wasn't closed until Q4 2013) and Puławy (consolidated until January 18th 2013, hence expenses were not full-period figures). Also, we need to take into account distribution (logistics) expenses, which grew on 2013 also due to sales volumes being higher in H1 2014.

zenon: What is the situation in the Plastics segment? Is it still running at a loss?

Andrzej Skolmowski: I have discussed this matter earlier when I answered previous questions concerning the plastics segment.

mk: What is your comment on the Bayer Group's decision to spin off this segment? Is the Company likely to follow its example the long- or short term?

Andrzej Skolmowski: Are you referring to the establishment of Lanxess several years ago? Grupa Azoty is busy with integrating its processes − we have just developed an integrated plastics business structure. Of course, we are analysing our competitors' (including Bayer's) moves as they happen :-)! On September 19th, Marijn Dekkers, Bayer CEO, talked about restructuring business areas in which our companies are not direct competitors. Having said that, we will continue to monitor our rivals.

stas: How much phosphate is produced in Senegal? Has the Company reached its target of 500,000 tonnes?

Andrzej Skolmowski: We have reported production volumes of approximately 200,000 tonnes.

Nowicjiusz: Is the State Treasury planning to sell shareholdings in Grupa Azoty in the near future, as was the case with the recent sale of PGE shares?

Andrzej Skolmowski: We have no knowledge of any such plans. But given the recent decision to include Grupa Azoty in the list of strategic enterprises, this seems highly unlikely.

marian: Considering challenging market conditions, why isn't the Company reducing its headcount like its competitors BASF, Lanxess and Yara?

Andrzej Skolmowski: We focus on comprehensive optimisation of fixed costs, including payroll. We are implementing an operational excellence programme, which is expected to deliver efficiency gains of approximately PLN 300m per year.

marian: Now that Orlen has commenced construction of its new petrochemical unit, does your joint project with LOTOS still make sense?

Andrzej Skolmowski: As I have said before, once the feasibility study is ready, we will be able to answer this question. Together with LOTOS.

trader: What are the long-term prospects for compound fertilizers?

Andrzej Skolmowski: We should look at official demographic forecasts which predict that the world's population will rise by several dozen per cent over the next twenty years. This means increased food consumption in a situation where arable land is dwindling due to the development of infrastructure in the developed countries and desertification of land in subtropics. The only way to meet this growing demand for food is to use more of complex fertilizers, such as compound fertilizers.

investor: In H1 2014, the Energy segment reported positive EBIT. What is the segment's situation?

Andrzej Skolmowski: The Energy segment is a supporting segment with small external sales, which generated positive EBIT in 2014 chiefly on the back of lower coal prices, which translated into lower cost of products sold to external customers.

Moderator: Thank you for participating in the chat. As always, it was a great pleasure, even though sometimes the game was intense! See you next time!

At 11:30 am on Monday, May 26th, a webchat was held with Andrzej Skolmowski, Vice-President of the Management Board of Grupa Azoty S.A., hosted by the Polish Association of Individual Investors.

Moderator: Welcome to today’s webchat with a representative of Grupa Azoty. Mr Andrzej Skolmowski, Vice-President of the Management Board of Grupa Azoty S.A. for Finance, will take your questions.

Paulina Błaszczyk: Hello

Andrzej Skolmowski: Good day to you. Welcome to our online meeting.

Michał_twardy: Hello!

Andrzej Skolmowski: Hello!

morning: Revenue improved but margin deteriorated. Why?

Andrzej Skolmowski: Revenue improved mainly as a result of higher volumes of products sold at much lower prices.

Michał_twardy: I would like to know whether the Management Board consults Norica Holdings, which holds 15% of the Company’s shares, before making strategic decisions?

Andrzej Skolmowski: No, we don’t. If we need to, we consult the Supervisory Board before we reach a decision.

gosc: Grupa Azoty pays a dividend yield of 0.3%, the lowest of any WIG30 company. Why?

Andrzej Skolmowski: The dividend payout ratio was determined in line with the Strategy adopted by the Management Board, which means it is within the range between 40% and 60% of the Company’s non-consolidated net profit for FY 2013.

indyvidualny: What is the reason for such a marked increase in selling and distribution expenses and administrative expenses?

Andrzej Skolmowski: Higher administrative expenses are related to the acquisitions of new subsidiaries during 2013. The base is Q1 2013, and Puławy was included in consolidation only during the period. The rise in selling and distribution expenses resulted from higher sales.

co z tym rynkiem?: What is the cause of the significant deterioration in Grupa Azoty’s net profit compared with the previous year?

Andrzej Skolmowski: Grupa Azoty closed the first quarter of 2014 with EBIT of PLN 181,922 thousand and a net profit of PLN 149,542 thousand, with revenue at PLN 2,702,789 thousand. Year on year, EBIT was down by over PLN 237m and net profit by almost PLN 261m (with sales broadly flat). These declines mainly stemmed from a high base of comparison in Q1 2013, chiefly inflated by one-off items, including: * recognition of an estimated gain from the bargain purchase of ZA Puławy of PLN 174m (reflected in EBIT); * recognition of additional finance income from fair value measurement of the first block (10.3%) of Puławy shares measured through profit or loss prior to the acquisition of the controlling interest (PLN 27m) and a dividend paid on the shares of PLN 18.5m (dividends are now eliminated on consolidation of ZA Puławy’s accounts), which was reflected in net profit. Adjusted for these transactions, EBITDA margin was only slightly below last year’s figure (down from 13.2% in Q1 2013 to 12%), which, given a more challenging business environment (price pressures in the fertilizers segment, continuing difficult market conditions in the plastics segment) only proves that the measures taken to optimise our earnings (by increasing sales volumes and implementing operational excellence measures, supported by positive market trends in the prices of key raw materials) were the right thing to do.

gosc: Does the Management Board know who’s behind the recent large-scale purchases of Grupa Azoty shares?

Andrzej Skolmowski: The Management Board has received no official notifications of any changes in holdings of the Company’s shares.

brother: Was the Company’s performance affected by impairment losses associated with the acquisition of new subsidiaries?

Andrzej Skolmowski: No.

chemik: What is the current status of negotiations on the acquisition of Organika-Sarzyna S.A.?

Andrzej Skolmowski: The project has been postponed pending the result of the tender offer for Ciech shares.

inwestor: Not all segments deliver a positive EBIT, or EBITDA for that matter. The Plastics segment sells mostly to external customers, so why did it generate a loss?

Andrzej Skolmowski: The Plastics segment was affected by the falling prices of caprolactam, driven by the launch of new production capacities in China, demand being almost fully balanced on the internal caprolactam market, and rising benzene prices. Our open position in caprolactam increases the risk of poorer performance. We have a plan to extend the value chain, which is being expeditiously implemented. [I understand that by external customers you mean customers outside Poland]

ciepłownia: When are you going to officially announce your new strategy?

Andrzej Skolmowski: The Strategy for 2013-2020 was announced last year. Intensive work is currently under way on its operationalisation. Please be patient.

crunch: With the Q1 2013 gain from a bargain purchase excluded, net profit for Q1 2014 is lower any way. What happened there?

Andrzej Skolmowski: I have already answered a similar question on 2014 results.

Marek G.: What amount of dividend will you pay this year?

Andrzej Skolmowski: The dividend amount will be in line with the adopted strategy. The Management Board recommended a dividend for 2013 of PLN 0.20 per share.

gosc: Can you confirm the statement by the Chairwoman of Grupa Azoty’s Supervisory Board, who said that the Company is analysing potential synergies with Ciech and is considering the acquisition of the entire company, not just Organika Sarzyna?

Andrzej Skolmowski: To my knowledge, the Chairwoman said that Grupa Azoty was analysing many potential targets, not Ciech specifically. She didn’t say we were analysing the acquisition of that specific company. May I remind you that a tender offer for Ciech shares is currently in progress. We are interested in Organika Nowa Sarzyna, but the project has been suspended pending the tender offer.

Marek G.: I assume that potential acquisition targets are scarce on the Polish market. Are you looking for opportunities abroad?

Andrzej Skolmowski: As we have stressed on many occasions, we are ready to consider various investment opportunities, which doesn’t mean we will indiscriminately buy anything that comes our way. Potential targets are always thoroughly analysed to assess their potential impact on the individual business segments’ EBITDA and ROCE.

owca: How did the exchange rate movements caused by the Ukraine crisis affect the Company? How big were the movements?

Andrzej Skolmowski: In the period coinciding with the Ukraine crisis the euro appreciated against the złoty and US dollar (lower value of USD versus EUR and depreciation of USD against PLN). The currency movements had no material bearing on the Company’s performance given its positive net currency exposure in EUR and USD (the effects of the appreciating euro were partly offset by the depreciating US dollar).

tarnowianin: According to the entry in the National Court Register, the Company’s registered office is in Tarnów. Do you plan to move it to Warsaw, for instance to benefit from a more prestigious address?

Andrzej Skolmowski: It’s precisely as you said – our registered office, as shown in the National Court Register and our Articles of Association, is in Tarnów. We feel at home here.

czat_Kaz: In my opinion, services soared compared with Q1 2013. What are these expenses?

Andrzej Skolmowski: The rise in services is mainly the effect of a low base (please bear in mind that in 2013 Puławy wasn’t consolidated until January 18th; also, Siarkopol, which was consolidated in the Q1 2014 accounts, was not included in the consolidated financial statements for Q1 2013 for obvious reasons).

ciepłownia: The old CHP plant is to remain in operation until 2019. By how much will the costs of operating two CHP plants rise?

Andrzej Skolmowski: The existing CHP plant will remain operational until 2019/2020 or longer, depending on the number of hours run during the derogation period. The operating costs of the new boiler will be considerably lower compared with the existing boilerhouse. In winter, we will run both boilerhouses, but their combined operating costs will not exceed the annual operating costs of the old boilerhouse. The operating costs of the turbine generator set will not change, as the new turbine will be located in the existing building next to the other turbines.

gosc: Is Grupa Azoty considering the acquisition of Anwil?

Andrzej Skolmowski: Always :) This dream of many nitrogen producers is as old as the hills – to make a union of Włocławek and the heavy chemicals sector come true. But for this to happen, the buyer must be willing to buy and, more importantly, the seller must be willing to sell.

Heniek: Grupa Azoty is said to be willing to make further investments in Africa. What investments are you considering?

Andrzej Skolmowski: Phosphoric acid and sales of the Group’s fertilizers.

dzwon: Have you had any problems doing business in Senegal? Is cooperation with local authorities going smoothly?

Andrzej Skolmowski: It’s going great. Some of these officials even speak Polish. There are problems, of course, but they are operational in nature, and we can handle them.

dzwon: hahah :D I can see you are in top shape!

Andrzej Skolmowski: I trained the whole weekend!

Ivan: The upcoming WallStreet 18 conference in Karpacz is a good opportunity to meet. Will the Company be represented by someone from the Management Board?

Andrzej Skolmowski: We have met with our shareholders at WallStreet conferences every year since our debut in 2008. This year, I will have the pleasure to meet with you in person on Friday, you are most welcome.

##epjaxcp.qaphoronz#at#de.ea##: What are your plans to cut costs and waste in the coming period?

Andrzej Skolmowski: Waste?!!!! It’s not our policy. In many areas we realise the available synergies, cut energy generation costs and diversify natural gas suppliers. But for some our efforts will never be enough.

gosc: Does the Russian shareholder have any influence on the Company’s strategy and operations?

Andrzej Skolmowski: You always ask this question. It’s a hot topic. Has been for over two years! In formulating the strategy and in day-to-day management, the Management Board makes independent decisions. In important matters we ask the Supervisory Board for approval. The Russian shareholder has no influence over the decision-making process.

Ivan: Why is the dividend so small? What percentage of profit is it? What does the Company intend to do with the remaining profit?

Andrzej Skolmowski: The dividend is within the 40-60% range, and the remaining amount has been recommended to be transferred to statutory reserve funds. The final decision rests with the General Meeting, of course.

Ivan: You have served on the Management Board for a long time now. What do you think about how the Company has changed from the time it was a large enterprise compared with now, when it is a very large enterprise? How do you feel as a member of the Management Board of a WIG30 company?

Andrzej Skolmowski: I get the hint... It’s been too long. :-( I’m proud we belong to the elite club of WIG30 companies, but I am also proud that we managed to achieve such an ambitious goal. All the more so because back in 2009 the goal was ... beyond our reach! With a great team anything is possible!

iron: The company reported PLN 96m in proceeds from sale of financial assets. What assets were they?

Andrzej Skolmowski: The PLN 96m is a long-term deposit, which in Q1 2014 was reclassified as cash and cash equivalents.

Ivan: Does the threat of Russian companies taking over control of the Company or increasing their shareholdings still exist?

Andrzej Skolmowski: The equity market is a level playing field. At present, Norica holds 15.34% of Grupa Azoty shares. We don’t know anything about the investor’s current plans with respect to the Company.

inwestor: This is exactly what I couldn’t fully understand. In the report you distinguish between ‘internal’ and ‘external’ customers. I thought that by internal customers you meant intragroup companies and by external customers all the other customers.

Andrzej Skolmowski: That’s right, internal customers mean companies within the Group. Due to technical problems at GUBIN lower volumes of caprolactam from Tarnów were collected (leading to lower internal sales), which is the reason why sales of caprolactam to external customers were up.

xyz: How are you going to expand the Group’s asset base? What acquisitions do you envisage? What are Minister Karpiński’s plans?

Andrzej Skolmowski: It’s a question to Mr Karpiński, really... What we can say is that we are well aware of being one of the State Treasury’s strategic companies.

Jaqub: What is the forecast for Q2 2014?

Andrzej Skolmowski: The Company doesn’t publish forecasts, so I’ll be able to answer your question after our financial results are official.

ramos: Why did cash flows from investing activities decline?

Andrzej Skolmowski: Lower cash flows from investing activities resulted from the sale of financial assets (a long-term deposit was reclassified as cash and cash equivalents in Q1).

trzymam akcje: Operating profit dropped by more than a dozen million. Which expense items contributed to the decline in particular?

Andrzej Skolmowski: The main item which adversely affected our performance was selling and distribution expenses (resulting chiefly from increased volumes). Our operating profit should be analysed in the context of revenue and, also, year-on-year declines in selling prices, which had a slight (as they were offset on the revenue level by sales volumes) adverse impact on our performance.

Zbigniew: How likely is it that Europe will open its markets to competing products from the US, which would undoubtedly hurt Grupa Azoty’s performance?

Andrzej Skolmowski: Before that happens we will make every effort to turn the threat to our advantage. Before US-made products are brought here, we can work on raw materials and semi-finished products to improve our performance. Of course, we assume that TTIP will protect the interests of both parties and that it will take into account that in terms of raw materials and energy sources our part of Europe is at a disadvantage.

janecki: The Company has signed a letter of intent with KGHM. Can you tell us more about it? What is the status of the cooperation at the moment?

Andrzej Skolmowski: At present, the project is at the concept development stage, covering several areas, including phosphogypsum processing, exploration for potassium chloride, phosphate rock and access to natural gas sources. We are also analysing a project involving the construction of a polygeneration power plant.

czat_Kaz: In Q1 2014, profitability declined compared with Q1 2013. Are profitability ratios likely to improve in the future?

Andrzej Skolmowski: The Company doesn’t publish forecasts.

Marek G.: What major investments are you planning to make in the near future?

Andrzej Skolmowski: We will announce our long-term investment plans/projects soon. We are nearing completion of the operationalisation of our strategy.

xyz: What investment projects at Puławy do you plan to implement next? When will you announce your investment plans? We are proud of you!

Andrzej Skolmowski: It’s a project of an entirely different scale and significance. We will give you more information in due course. Work on the project is under way.

Marek G.: Grupa Azoty’s acquisitions are one thing, but what if it’s the Company that becomes an acquisition target? Have you secured strong support from the State Treasury and a clear declaration that Grupa Azoty is to remain in Polish hands?

Andrzej Skolmowski: We have had the support for two years now. We are included in the State Treasury’s Strategic Projects, overseen personally by the Minister of the State Treasury. Remember that we are a public company, so the government support and the way we communicate must comply with the requirements of the Act on Trading in Financial Instruments. So far we have been successful in that area. How about your support?

study: What is the current status of the litigation involving Grupa Azoty ATT Polymers GmbH?

Andrzej Skolmowski: We expect the final ruling to be passed in the coming weeks. We maintain our opinion on the validity of the Grupa Azoty ATT Polymers GmbH share sale agreement and we still believe that there are no circumstances justifying reverse transfer of ownership of the shares to any entity. However, the risk exists, even if it’s low.

risk: Assets as well as equity and liabilities decreased. Why?

Andrzej Skolmowski: Lower equity and liabilities mainly resulted from the repayment of bank and other borrowings. The decrease in assets was attributable to lower non-current assets (depreciation and amortisation) and inventories.

adik: Revenue fell in South America and other countries. Why?

Andrzej Skolmowski: In South America, sales of ammonium sulfate declined, hence the lower revenue. We raise the value of ammonium sulfate by increasing sales in Europe and adding it to ammonium sulfate nitrate. Also, sales of fertilizers on some Latin American markets were down. But this is only temporary.

##epjaxcp.qaphoronz#at#de.ea##: I want to ask you about your development plans for the coming period. What growth prospects does the Company have? What is your strategy to realise them?

Andrzej Skolmowski: We are doing our best to make sure our prospects remain strong! We operate in line with the announced Strategy for 2013-2020, approved by the Management Board, whose objectives were well received by the market when it was first published. The operationalisation of the Strategy, which is currently being developed, aims to add more detail to how these objectives will be attained.

##epjaxcp.qaphoronz#at#de.ea##: What are the Company’s growth prospects?

Andrzej Skolmowski: Have a good read! Please share your opinion. http://tarnow.grupaazoty.com/pl/relacje/informacje/a

Jaca: What goals have you set yourselves for this year?

Andrzej Skolmowski: Integration, operationalisation of our strategy, agreeing long-term investment objectives, continued optimisation of our performance, consolidation of the Group’s financial management... I will finish the list in our next webchat.

mpk: When do you think the Plastics segment will become competitive again? Will the new investment project in Tarnów change anything?

Andrzej Skolmowski: With our new investment in Tarnów we want to improve the efficiency and, hence, profitability of the entire consolidated polyamide chain. The project will increase our capacity by 80,000 tonnes, allowing us to expand our market share for more processed (higher margin) products and to slowly withdraw from the caprolactam market, which offers very low profitability. The investment project is scheduled for completion in 2016.

gosc: Why is there such a big difference in dividends year on year? Last year, it was PLN 150m and this year you recommend a mere PLN 19m. After all, the Company improved its performance and acquired Puławy and Siarkopol.

Andrzej Skolmowski: Grupa Azoty S.A.’s net profit for 2013 was PLN 44m, and this amount was apportioned. As regards the acquisition of Puławy and Siarkopol, it had an impact on our consolidated financial statements.

iza: What is the reason behind the steep fall in profit, which occurred despite higher revenue?

Andrzej Skolmowski: Please read my comments on the Q1 2014 results that I provided earlier in this webchat.

inwestor.: Could you please briefly summarise the Company’s ongoing projects and their status?

Andrzej Skolmowski: At present, we are engaged in several projects, at various stages of progress. We are working with partners, including as KGHM, Lotos, Ciech, PGE, and PGNiG, on various upstream, power and business development projects. They are at different stages of implementation, but be assured that each such project is thoroughly analysed before it is given a go-ahead. Only projects which are sure to have a positive effect on our financial performance qualify for implementation.

Ivan: How about EU funds? A significant amount is to be allocated to the chemicals sector. Has Grupa Azoty S.A. already applied for / secured any EU funds? How do you intend to use them?

Andrzej Skolmowski: We are working hard to that end. We also exchange ideas with Polish research institutions. There are plenty of interesting ideas! All we need is ... a sizeable budget.

the beściak: Why did selling and distribution expenses grow by nearly PLN 40m year on year while revenue stayed almost unchanged?

Andrzej Skolmowski: Higher volumes of products sold at lower prices caused selling and distribution expenses to rise in the statement of profit or loss despite flat sales (by value).

mariusz: Has the fair value of African Investment Group S.A. been determined yet?

Andrzej Skolmowski: The acquisition of African Investment Group S.A. has been accounted for based on preliminary estimates. At present, Grupa Azoty is in the process of determining the fair value of the acquired assets, equity and liabilities.

gosc: How is the second quarter business-wise? Is it better than the first quarter?

Andrzej Skolmowski: HA! We don’t publish forecasts. But. The most attentive of you know that in the second quarter maintenance shutdowns and overhauls begin. If we don’t produce, we don’t sell... You know the rest.

grafen: Do you have time to answer a question about graphene? Grupa Azoty is committed to its development. What are your plans, vision and hopes related to the product?

Andrzej Skolmowski: All I can say is that we are working closely with R&D centres. We have ambitious plans and high hopes as we are aware that this may be the material of the future.

dzienny: The parent company managed to earn higher net profit on slightly lower revenue. Why was finance income so high?

Andrzej Skolmowski: Finance income included dividend received from Puławy.

gosc: Are you considering a share issue to finance your acquisitions or do you want to use a bank loan?

Andrzej Skolmowski: A bank loan, for sure. If a need arises, we will consult a potential share capital increase with our shareholders.

Ivan: I didn’t mean that you’ve been a member for too long ;) The right person in the right place.

Andrzej Skolmowski: Thank you! A praise from an investor is more valuable than any medal!

damian: Were there any disruptions in gas supplies to Group companies in Q1?

Andrzej Skolmowski: No.

TOmys: How are your margins doing? Sales are good, but earnings could be better.

Andrzej Skolmowski: Net of non-recurring events, EBITDA is slightly (around 1%) down year on year.

Akcjonariusz: One question about the Russians... Does the Management Board have any plans to protect the Company against Russian entities increasing their shareholdings?

Andrzej Skolmowski: We do. We have been ready to defend against a hostile takeover for a long time.

gosc: Are you still considering raising debt financing in the form of eurobonds?

Andrzej Skolmowski: Every financing source is a viable option, but as for eurobonds a lot remains to be done (obtaining a rating, etc.), so if it’s possible to secure financing that is acceptable in terms of its cost in the Polish market, we will try to do so.

bankowiec: What’s your opinion on the work of the Grupa Azoty Council, which is an advisory, opinion-making and project-initiating body?

Andrzej Skolmowski: We’ve just started. We’ve held our first meeting and are planning a second one. Council members will have plenty of work.

tarder: In Q1 2013, operating costs in Germany exceeded revenue. It’s different in Q1 2014. What is your target profitability on this market?

Andrzej Skolmowski: We want the results (profitability) to be at least the same as last year.

I mean results adjusted for one-off items.

szymek: What proportion of gas supplies is covered by price hedging?

Andrzej Skolmowski: We are entering the area of trade secrets. We don’t want to disclose everything to everybody. Unless we treat gas purchases at PGNiG tariff prices as hedging :-)

forsal: Are there plans for further acquisitions and including new entities in the Group?

Andrzej Skolmowski: The only acquisition target known to the public was Organika Sarzyna.

Akcjonariusz: This webchat is great!

Andrzej Skolmowski: Thank you for taking part in our webchat. Join us next time! Unfortunately, I didn’t have enough time to answer all your questions, but I encourage you to ask more on the forum. See you next time!!!!!!!!!!!!!!!!!!!!!!!

At 1:30pm on Friday, April 4th, StockWatch held a webchat with representatives of Grupa Azoty S.A.

moderator: Welcome to our chat session with members of the Management Board of Grupa Azoty S.A. We meet to discuss the 2013 results and the Company’s current position, plans and projects. It’s also an opportunity to discuss in more detail the most interesting points brought up in a recent interview published on StockWatch.pl. You can ask your questions now, and our Guests will join us to answer them at 1:30 pm.

moderator: I remind you of our chat rules: you send your questions to the moderator; the questions are selected by our Guests and published together with answers; you can see the line-up of your questions at the bottom of the screen; the moderator may delete a question if it doesn’t comply with the rules.

Grupa Azoty: Welcome to today’s chat with representatives of the Management Board of Grupa Azoty. Mr Andrzej Skolmowski, Vice-President of the Management Board in charge of finances, and Mr Marek Kapłucha, Vice-President of the Management Board in charge of the supply chain management, will answer your questions.

MZK: Hello. What is the Management Board’s position on paying a dividend from last year’s profit?

Andrzej Skolmowski: The official Management Board’s decision on the payment of a dividend will be made soon. In the Strategy for 2013-2020, the Management Board declared that 40-60% of the Company’s profits would be distributed as dividends.

łodzianin: What can you say about the equity involvement of the Russian company Akron in Grupa Azoty? The issue has long been forgotten. Have you received any signals or information regarding their plans to either increase or reduce their shareholding?

Andrzej Skolmowski: A subsidiary of Akron still holds over 15% of shares in Grupa Azoty S.A. We have no knowledge of any recent declarations as to the future of the shareholder’s equity stake in the Company, and the results reported by Akron give no grounds for predicting the future, either. Perhaps the current price discourages a potential sale.

Gość unconfirmed: How is the acquisition of Organika Sarzyna going?

Andrzej Skolmowski: The transaction depends on whether the tender offer for Ciech shares is completed successfully. We are waiting for the outcome.

Gość unconfirmed: What are your predictions regarding raw material prices?

Marek Kapłucha: At the Company we have a general rule not to comment on the future or forecasts. Having said that, Grupa Azoty operates on global markets and is subject to fluctuations in global market prices, which are not showing any clear signs of moving into an uptrend or a downtrend right now, as the economic environment remains uncertain, with strong price cycles, many of which are hard to explain. In the fertilizers segment, which contributes some 60% of total revenue, we focus our attention on global urea and grain markets. Grain prices are expected to rise in the medium term, which is a good sign for the fertilizers market, as higher incomes will encourage farmers to spend more on fertilizers.

SW-fan: Would you consider a share buy-back instead of a dividend payment? The Company is not significantly undervalued, but it’s still something. Unlike dividends, buybacks are not taxed at a flat rate, but investors make their own tax calculations. This may be more tax effective.

Andrzej Skolmowski: Our dividend policy was presented in the strategy adopted by the Management Board. As we have said on many occasions, we are finalising our long-term investment programme. Believe me, having own cash helps a lot.

Gość unconfirmed: Hello. What steps is the Group planning to take in connection with the potential acquisition of Organika Sarzyna? The process has been going on for a long time now. Has the recent tender offer for Ciech shares changed Grupa Azoty’s negotiating position? Does the tender offer mean that the transaction will be abandoned?

Andrzej Skolmowski: We are waiting for the results of the tender offer for Ciech shares.

Anna unconfirmed: Hello. What are your plans for the Tarnoform Division? Is it true that it will operate only until the end of the year?

Andrzej Skolmowski: Recognition of an impairment loss does not mean the unit has to be closed. We have no plans of closing the Tarnoform Division.

monika unconfirmed: How much money are you going to spend on investments in the near term, and how much debt are you going to incur in the process?

Andrzej Skolmowski: Since we don’t publish forecasts, we can’t publish capex data, either. What we can say is that in line with our stated strategy we plan to build the Group’s value through organic growth (supported by capital expenditure) and, possibly, through M&A transactions, provided that a given project fits with our core business. We plan to finance our investments from external sources (credit facilities, bonds in the future) and internal funds, in such proportions so as not to exceed the EBITDA to debt ratio of 2.5x. We are now finalising our long-term investment programme at the Group, based on the criteria set out in the strategy.

Gość unconfirmed: Hello. Are you considering buying the ‘residual stakes’ in your controlled subsidiaries Puławy and Police? Why are these companies still listed on the WSE? What is the rationale behind not acquiring 100% of the shares in the subsidiaries and withdrawing them from stock exchange listing? This could strengthen Grupa Azoty and the liquidity of its shares in the long run.

Andrzej Skolmowski: We have no such plans. We have decided to give priority to the financing of our large-scale investment programme.

InwestorGPW unconfirmed: Will Puławy be withdrawn from listing on the WSE?

Andrzej Skolmowski: The Management Board currently has no plans to withdraw the listing of Grupa Azoty ZA Puławy SA shares from the stock exchange.

SW-fan: Integration of business operations. This is the key theme for me today. It is common knowledge that 80% of M&A transactions don’t work out, and you have just completed a series of mergers. Could you give us some more insight on that? I mean how do you solve problems arising from the fact that entire teams that used to compete with each other are now forced to cooperate, and they just do not know which side they are on, because the situation is the same at the top level.

Marek Kapłucha: Indeed, it is one of the Group’s top priorities. We are currently running the Operational Excellence programme, which is being implemented jointly with The Boston Consulting Group. There are many areas in which we have decided to continue our efforts towards greater integration. These include production, logistics and procurement. At the corporate level, there is still a lot of work to be done to achieve effective Group-wide integration. We have recently reported approximately PLN 90m in synergies generated by the end of 2013 from the Azoty/Puławy merger, and more synergies are expected from the Operational Excellence programme currently under way.

KOVfan unconfirmed: What is your take on the tender offer for Ciech shares? Will the acquisition of Ciech impact your operations?

Andrzej Skolmowski: We are watching the process very closely and waiting to see how the market reacts to it. The outcome of the tender offer will determine what happens to Sarzyna. There is no overlap between Ciech’s operations and ours. Ciech’s future growth is definitely important for the Polish chemical sector, so we are keeping our fingers crossed that it happens.

MZK: Are economic problems in Ukraine affecting the country’s fertilizers output?

Andrzej Skolmowski: Of course they are. As you know, the key feedstock in fertilizer production is natural gas. If Ukraine has or will have in the future any ‘gas problems’, this will definitely affect fertilizers production. Russia rising the gas price was the first negative sign for Ukraine. The country’s situation is not enviable.

mk unconfirmed: What will be the tangible benefits of the planned construction of a new PA6 plant?

Andrzej Skolmowski: We expect the investment in additional PA6 production capacities to bring us a number of benefits. In particular, it will enable us to utilise caprolactam made in Puławy, which, due to rising competitive pressures from China, will no longer be able to generate a positive margin for the Group as a separate product. We also expect tax benefits as the plant is to be built within a special economic zone (the project will be implemented provided that approval is obtained for extending the Kraków economic zone to cover the project site).

SW-fan: We’ve had a very mild winter this year, almost no winter at all, and the vegetation period has started earlier than usual. Do you expect any impact on the seasonal structure of fertilizer sales? Do you expect them to be higher, lower, different than in a typical year in this part of the world?

Marek Kapłucha: It’s true that warm weather prompts earlier application of fertilizers, and we have noticed that fertilizer application has started early this year, which will also accelerate the crop production cycle, unless the weather changes significantly in coming weeks. The previous year was not the best year for compound fertilizers, especially considering low grain prices in the second half of the year. However, the trend has reversed (grain prices are rising), and we should see a positive change in the fertilizer application structure, with higher consumption of NPK fertilizers vs. nitrogen fertilizers. It’s also important to note that the Group is promoting its liquid fertilizers, including RSM and the new RSMS product containing sulphur, both produced by Puławy. We expect farmers to continue to shift from solid to liquid fertilizers.

Gość unconfirmed: Is the payment of an interim dividend from the 2014 profit possible, considering the low profit posted by the parent company of just PLN 44m, compared with PLN 250m last year?

Andrzej Skolmowski: This is certainly a hot, topical issue. We have given it a lot of thought, but an interim dividend would not be in line with the Management Board’s dividend policy.

Having said that, the final decision lies with the General Meeting.

sasky: Hello. What are your projections of fertilizer prices this year?

Andrzej Skolmowski: Considering the slight oversupply, the Company expects fertilizer prices to be lower compared with last year.

Gość unconfirmed: Hello. Are you going to distribute between 40% and 60% of your consolidated profit for the previous year, which was approximately PLN 700m?

Andrzej Skolmowski: PLN 700m is our consolidated profit. In accordance with the Polish Commercial Companies Code, it’s the parent company’s profit that may be and will be distributed.

Pi unconfirmed: When will a real consolidation of the Group begin? What I mean is product and marketing integration, elimination of double cost items, launch of a Group-wide purchasing centre, etc. What amount of savings in PLN do you think these measures could bring?

Marek Kapłucha: The consolidation process at the Group has been under way for a year now. It started in March 2013. Let me remind you that we have recently informed the public of approximately PLN 90m in synergies generated by the end of 2013, which resulted from measures taken in the areas you have just mentioned. In past weeks, we have launched the Operational Excellence programme, which aims at augmenting the Group-wide consolidation processes and achieving cost efficiencies and/or revenue growth. In fertilizers, for one, those savings and upsides will be achieved by significantly expanding the product portfolio offered to clients by the Group-wide sales force.

Grzegr unconfirmed: Do you plan to acquire new clients from non-EU countries?

Andrzej Skolmowski: We are doing it on a regular basis, in line with our operational strategy adopted for individual Business Segments. We have already established our foothold on other continents. Europe still remains our ‘home market’, accounting for 90% of our sales, and we are determined to maintain good relations with our European customers. However, new prospects have opened up before us on other continents, including Africa.

Gość unconfirmed: Does Grupa Azoty plan to announce a tender offer for 100% of shares in Police? Last year, the Management Board mentioned that the option was under consideration.

Andrzej Skolmowski: As we have said before – that option is now off the table. We give priority to the financing of our large-scale investment programme.

Gość unconfirmed: A question concerning your dividend policy. Will the planned dividend at 40-60% be distributed from the Group’s consolidated profit (approximately PLN 700m) or Grupa Azoty’s stand-alone profit (about PLN 100m)?

Andrzej Skolmowski: Under the adopted strategy, the Management Board will recommend to the General Meeting dividend distributions of 40% to 60% of the Company’s net profit for a given financial year. Any decisions on dividend payment will take account of a number of factors concerning the Company and the Grupa Azoty Group, including business outlook, future profits, cash needs, financial standing, growth plans, and legal requirements.

FunkyKoval unconfirmed: Hello. How do you plan to maintain the 2013 performance in 2014?

Andrzej Skolmowski: Given that our 2013 performance was largely impacted by non-recurrent events (mainly related to acquisitions), we believe that our financial results should be compared based on figures adjusted for the effects of one-off events. We are of the opinion that favourable weather conditions (with an impact on fertilizer sales), a good outlook for Poland’s and EU’s economic growth (which is important for the chemicals segment), and absence of unplanned events (accidents, downtimes, etc.) will allow us to achieve our production and commercial targets, while internal operational excellence projects and the gradual ‘consumption’ of synergies will enable us to cut our costs and boost EBITDA in 2014.

mk unconfirmed: Which firms are putting the greatest competitive pressure on Grupa Azoty in the plastics segment?

Andrzej Skolmowski: There are a number of them – all Champions League players:

BASF, Lanxess, Domo, and DSM.

Gość unconfirmed: Isn’t the recent gas price hike for Ukraine beneficial to Grupa Azoty, given that higher gas prices will weaken the position of competitors east of the Polish border? Will it drive fertilizer prices in Europe and, consequently, Grupa Azoty’s profits higher?

Marek Kapłucha: Ukraine is a neighbouring market and therefore we are watching the situation east of our border very closely. However, changes in gas prices for Ukraine do not pose a direct threat or opportunity for our market, as we do not know the price at which gas is bought by companies owned by Mr Firtash (which account for 70% of Ukraine’s fertilizer assets). We have not identified any particular threats arising from those developments, other than potentially lower crop yields in Ukraine due to social unrest. This might negatively affect grain supply and drive up grain prices, as Ukraine is one of world’s leading grain exporters. Higher grain prices could drive up revenues of Polish and European farmers, and more money would be spent on fertilizers.

mk unconfirmed: What does the future hold for the POM plant? How exactly are you going to improve its efficiency?

Andrzej Skolmowski: At present we have no plans to close the POM plant. Efficiency of that installation will be improved mainly through reduced consumption of feedstocks and energy. Market considerations are also important, and we are working on this aspect.

dm unconfirmed: Is your petrochemical project a real deal or just a PR stunt? Why hasn’t the primary product been specified yet? Who is the leader of the petrochemical project in Gdańsk? It seems that no one wants to assume responsibility for the project and both parties (Azoty and Lotos) are reluctant to invest any money in it (which probably means they have no money).

Andrzej Skolmowski: We are considering constructing a steam cracker unit to handle the production of light olefins, such as ethylene, propylene and butadiene, which are the key feedstocks in plastics production, as well as new chemical installations at Grupa Azoty plants to handle their further processing. However, a final decision will be made only after a feasibility study has been completed. At this stage, it is too early to discuss financing sources. Considering our balance sheet and corporate strategy it seems rather clear that we will not finance the project on our own. As regards the performance of project-related tasks under our leadership, as agreed with Lotos, I can assure you that the project is progressing as scheduled, with only minor delays, and we have no problems with the division of responsibilities.

mk unconfirmed: What caused the downward correction in Grupa Azoty share price in Q4 2013?

Andrzej Skolmowski: The price of shares in public companies is regulated by the capital market, and is determined by a number of factors beyond the issuer’s control. The end of the year had a strong negative impact on the market, including the chemical sector, and the turmoil related to open-ended pension funds (OFE) additionally undermined market sentiment.

FunkyKoval unconfirmed: To what extent was the Company impacted by the falling chemical index?

Andrzej Skolmowski: You can see the effect clearly on the price chart. Once again, it turns out that we are better off in the Group! :)

Gość unconfirmed: Can you give us more insight on the project with Lotos. What NPV is expected for this project? Is the investment attractive for shareholders?

Andrzej Skolmowski: You people are very inquisitive... It is much too early to publish such information, as we are still working on the feasibility study. As far as the financing of the project is concerned, there exist financing sources other than the Group’s balance sheet.

mk unconfirmed: Why was Grupa Azoty’s offer for the acquisition of Petrokemija Kutina turned down? Do you plan any other foreign acquisitions this year?

Andrzej Skolmowski: According to the seller, our price was too low. However, the price was in line with our valuation of that company, and the information published recently by Kutina only proves us right.

Gość unconfirmed: Is the Management Board or are you personally considering purchasing Grupa Azoty shares? At Synthos, you can definitely feel the Management Board’s firm confidence in the company lately, but there have been no such signals from Grupa Azoty so far, which is curious from a shareholder’s perspective...

Andrzej Skolmowski: We do have a firm belief in the Company. However, we cannot inform you of any decisions or plans other than by official channels, as this would fall under market manipulation.

Gość unconfirmed: Do you think that Grupa Azoty’s current share price accurately reflects the Company’s value, or is the Company undervalued?

Andrzej Skolmowski: In our opinion, which is substantiated by recent Bloomberg forecasts, the shares are underpriced.

SW-fan: The fertilizer business is to a large extent based on gas processing. What is the potential or actual impact of the gas tensions between Russia and Ukraine on your performance and business risks?

Marek Kapłucha: A lot will depend on whether the amounts owed to Russia for gas already sold to Ukraine are settled or not. If those payments are not made (and that scenario seems very possible), Russia may cut its gas supplies to Ukraine. This, in turn, may affect the Polish fertilizer business, as the lion’s share of gas flowing to Europe from the eastern direction passes through Ukraine. However, there is still hope that the European and American loans for Ukraine will allow that country to settle at least some of its payables towards Russia. Meanwhile Grupa Azoty is working to diversify its gas sources. Currently we buy approximately 30% of gas from companies other than our key/strategic supplier, PGNIG. We will continue those efforts to achieve the ultimate goal and cut our reliance on a single source of gas supplies. Obviously, a lot will depend not so much on our ability to purchase gas from alternative suppliers but on the availability of transmission capacities, that is gas interconnectors on Poland’s borders and the LNG terminal. We hope that these projects will progress as planned. Diversification of gas suppliers is our response to the rising tensions in Ukraine and the risk of closing off taps on the gas pipeline running through Ukraine.

Gość unconfirmed: Has your negotiating position in Grupa Azoty/PGNiG gas price negotiations changed after the acquisition of Puławy? Do recent gas contracts provide for any price discounts given that with all its facilities the Group has definitely become a major customer for natural gas?

Andrzej Skolmowski: We have just been told there are about a thousand of us in the chat room today... Luckily, the US President is not holding a press conference today. He would have some hard competition. Coming back to your question. We have always emphasised that the Group’s gas strategy may not stand in opposition to our national gas distributor. Of course, there is no denying that the growing scale of our business has strengthened our bargaining position, and we are leveraging that effect in negotiations. We are consistently implementing our strategy, with the highest priority assigned to diversification of gas sources. We can already see effects of our efforts.

Gość unconfirmed: Will there be any pay rise for Grupa Azoty employees this year?

Andrzej Skolmowski: Under an agreement signed with Company trade unions, pay will be raised for Grupa Azoty SA employees in 2014.

Gość unconfirmed: Are you considering commercial cooperation with Acron in purchasing feedstocks for fertilizer production? There were reports in the press last year saying that the Russians would be willing to cooperate in this area.

Andrzej Skolmowski: We said on many occasions that we have long-standing business relationships with Russian partners. We haven’t worked with Acron, though. We have yet to complete a project launched by that company in May 2012. Only then can commercial negotiations begin. Doing business under pressure is anything but comfortable.

Gość unconfirmed: The investment programme you have mentioned earlier is capital-intensive. Is a significant improvement in operating performance going forward one of its objectives? Are you implementing the most profitable projects only?

Andrzej Skolmowski: Our plan is to implement projects offering the highest rates of return. Projects will be short-listed based on their potential to achieve the financial indicators specified in the strategy – including ROCE of 14%.

T.P. unconfirmed: Is Azoty still a partner in a project to establish the International Centre for Chemical Safety and Security? If so, when will the Centre open?

Andrzej Skolmowski: We have a strong commitment to chemical safety and security, and we remain involved in the project as one of the partners. In our CSR strategy, the Company has firmly stated its dedication to environmental protection.

Gość unconfirmed: How did you arrive at PLN 90m? Does this mean that the combined result of Puławy and Grupa Azoty would have been lower by as much as PLN 90m if it weren’t for the acquisition?

Marek Kapłucha: The PLN 90m-worth of synergies from the Puławy/Grupa Azoty merger are reflected both in our revenue (broader portfolio of products sold to a larger number of clients or on new markets, such as NPK fertilizers sold to customers in the US and South America) and costs (lower prices of energy and other key feedstocks purchased by the Group as a whole, not as individual companies).

Sławek unconfirmed: I understand from what you said that the dividend payout will be 40%-60% of PLN 0.45. Or maybe I got something wrong? I think many small investors are interested to know the answer.

Andrzej Skolmowski: As you know very well, the final decision lies with the General Meeting. The Management Board’s recommendation will be issued in due time.

Gość unconfirmed: What are the parameters of the polyamide 6 project in Tarnów (caprolactam processing). Does the Management Board have the specific parameters for this investment, including NPV and IRR? It’s a major project that’s why I’m asking about its profitability.

Andrzej Skolmowski: We are confident that an in-depth analysis of the project based on a feasibility study and its planned outcomes are fully in line with the Group’s efficiency (profitability) targets adopted in the strategy.

Gość unconfirmed: What is the forecast dividend yield for 2014 and 2015? Is a DY of 7-8% realistic in the case of Puławy?

Andrzej Skolmowski: The Company does not publish any forecasts.

Gość unconfirmed: Petrokemija is not running at a profit. Would a potential closure of that plant open up an opportunity for you enter a new market in the south? Or is the closure unlikely?

Marek Kapłucha: We don’t want to go as far as to comment on possible scenarios for Petrokemija. We have recently expressed our interest in the acquisition of that company, but our offer was turned down at an initial stage. One of the reasons behind our interest in the Croatian company was the potential access to new markets. But the value of these markets depends on whether you have your production located there or you have to sell your products from a country far away. Logistics costs would probably have a negative impact on sales.

Agronom unconfirmed: Is Grupa Azoty ready to face the pressure from increased supply of imported NPK and nitrogen fertilizers? Is the current structure of distribution companies, with many of them selling high volumes of imported fertilizers, efficient enough to weather more challenging times? Can loyal distributors who sell only fertilizers manufactured at home (with Grupa Azoty accounting for a high 80% of total sales) count on priority treatment in terms of quantities in contracts?

Andrzej Skolmowski: Well, it’s a difficult question. I’m sorry, but I cannot discuss the Company’s sales policy and commercial relations with clients in an online chat.

Gość unconfirmed: Do you expect a year-on-year improvement in Q1 2014 vs.

Q1 2013?

Andrzej Skolmowski: As I said, we do not publish forecasts, but we certainly hope so. The weather has accelerated the natural farm work cycle, for sure. As for the effects, you will have to wait until May 15th 2014.

Gość unconfirmed: Have you resumed production at ATT Polymers in Germany?

Andrzej Skolmowski: ATT still produces PA6. Only a small part of the production plant was shut down, but sales volumes have not changed as the processing of caprolactam into PA6 was outsourced. We had to do it to maintain our market share.

Gość unconfirmed: What are your plans regarding purchases of natural gas as the Group’s key feedstock and key cost driver? Given the current high efficiency of your installations, you will probably not be able to further drive down costs to improve your operating performance, so what will you do to secure lower gas prices?

Marek Kapłucha: Indeed, we have significantly increased the efficiency of our fertilizer production plants, and we now need approximately 850-900 cubic metres of gas to make one tonne of ammonia. It’s around 35% less than Russian or Ukrainian production plants. Therefore, the only way to reduce the cost of gas is to participate in the liberalisation of the Polish/European gas market and to diversify gas suppliers. At present, around 30% of our gas purchases are sourced from suppliers other than PGNiG, and we plan to increase that share, especially in the context of the Ukraine crisis.

Gość unconfirmed: Does Grupa Azoty plan to start making graphene?

Andrzej Skolmowski: We are working closely with R&D centres. Graphene definitely has a future!

dm unconfirmed: Why is the Company investing in polyamide in Tarnów, where most of its caprolactam is processed, rather than in Puławy where the plant is not integrated at all? Will this involve additional transport costs?

Andrzej Skolmowski: Several key factors influenced our decision to go ahead with the project in Tarnów:

- production know how based in Tarnów

- location of the project in a Special Economic Zone

- operational synergies with the Tarnów plant in the area of lab services, storage, production, and power generation.

Andrzej Skolmowski and Marek Kapłucha: Thank you for participating in the chat. It’s been a pleasure! Unfortunately, we did not have enough time to answer all your questions. You are most welcome to participate in the next chat. Until then, good-bye!

moderator: Thank you for such a great turnout. We have broken the record today with more than 1,100 investors in the chat room! I would also like to thank Grupa Azoty. See you next time!

On Thursday, December 3rd 2013, the Polish Association of Individual Investors held an investor webchat.

Moderator: Visit our investor chat room for a chat with Andrzej Skolmowski and Marek Kapłucha, representing the Grupa Azoty Management Board S.A., to be held at 12:00 pm on December 3rd (Tuesday). You can post your questions in advance!

Moderator: Welcome to today’s chat with representatives of the Grupa Azoty Management Board. Mr Andrzej Skolmowski, Vice-President of the Management Board in charge of finances, and Mr Marek Kapłucha, Vice-President of the Management Board in charge of the supply chain management, will be answering your questions.

Ewa74: Has the chat begun?

Grupa Azoty Management Board: Welcome to the chat.

Geremi: Why did administrative expenses increase so much in Q3? Is this just a result of consolidation of newly acquired companies?

Grupa Azoty Management Board: The year-on-year increase in administrative expenses results from the acquisition of Grupa Azoty Puławy S.A. and implementation of projects related to the consolidation of the Grupa Azoty Group.

Mariusz86: Is there any Acron’s representative on the Supervisory Board of Grupa Azoty?

Grupa Azoty Management Board: No, the Shareholders have not appointed any Acron representative to the Company’s Supervisory Board, and no such candidate was proposed.

gruby: Hello! Are there any estimates of the financial results for the entire year 2013?

Grupa Azoty Management Board: We do not publish any forecasts so we cannot provide such information.

f.bernat: What are the reasons of the declining performance of Grupa Azoty?

Grupa Azoty Management Board: The decline results chiefly from the downturn on the markets of some of the Group’s key products (such as caprolactam) due to the global economic deceleration and China’s increasing production capacity. In the last quarter, we also reported some negative trends in fertilizers due to low prices of agricultural produce, which was related to increased production output in the agricultural sector (approximately 8% in Europe compared with the previous season). The 15-20% year-on-year drop in prices of agricultural produce resulted in lower incomes and, consequently, lower expenditure on fertilizers. Furthermore, the third quarter is the overhaul period, which has a major impact on the performance in the quarter.

gpw_fan: How are you going to finance the acquisitions of such companies as Siarkopol, Organika Szarzyna, and other? Do you consider issuing shares or bonds?

Grupa Azoty Management Board: We have already acquired Siarkopol. The financing comprised a credit facility (75%) and our own funds (25%). The decision to acquire Organika Szarzyna has not been made yet, the financing structure may be similar. We have said many times that we are considering issuing bonds, but the financing sources will be decided after our CAPEX has been approved.

Stefan: What is the value of Grupa Azoty’s capital expenditure planned for 2014? What will be the sources of financing?

Grupa Azoty Management Board: As the budget is still awaiting approval, we do not want to reveal any details right now. However, we can assume that the value of capital expenditure will not differ significantly from this year’s level. Naturally, I am not speaking here about large development projects or acquisitions.

BruceLee: Could you say something more about the investment project to be carried out with Grupa Lotos?

Grupa Azoty Management Board: Today, we signed an agreement on the formation of a special purpose vehicle to conduct a comprehensive feasibility study on the construction of a new petrochemical complex, to be located in the vicinity of both Grupa LOTOS’ and Grupa Azoty’s existing installations. The two companies also have signed a preliminary agreement with Polskie Inwestycje Rozwojowe S.A., as a potential financial investor in the project. The project’s value is estimated at approximately PLN 12bn, making it the largest investment in the Polish industrial sector in recent years. The project is at an initial stage, and the decision on whether to proceed will be made based on its profitability.

profesor: Was Grupa Azoty required to obtain approval from the local trade unions (e.g. by granting them job security) in order to acquire Siarkopol?

Grupa Azoty Management Board: Prior to the acquisition of Siarkopol, an agreement was concluded with the trade unions.

f.bernat: Have you arranged financing sources for Grupa Azoty’s investments and development prospects planned for the coming years?

Grupa Azoty Management Board: As soon as the Group’s CAPEX is ready, we will arrange the financing for future investments.

Pawel73: How does the results of Grupa Azoty ZAK S.A. compare with the performance of the whole Group?

Grupa Azoty Management Board: The performance of Grupa Azoty ZAK S.A. is very good (in Q3 2013, its share in the Group’s EBITDA was 12-13%; net of non-recurring events, the share would be approximately 20%). Despite the difficult situation in one of our key segments (the OXO segment), the year-on-year drop in EBITDA was not significant and amounting to PLN 156m (compared with PLN 177m in the first nine months of the previous year), due to stimulation of the OXO alcohols market and stable situation in the Fertilizers segment.

inwestor_ka: What are Grupa Azoty’s development prospects for 2014? Can we expect a recovery in the industry and revenue growth?

Grupa Azoty Management Board: We expect to see a recovery in the Fertilizers segment (representing approximately 60% of the Company’s revenue) following successful consolidation of production and sale in this segment. We concentrated on increasing exports already in 2013. We are going to continue this trend in the next year. Our new paths of development include re-entering the North American market and increasing sales in South America (including a significant contract with NITRON). However, the situation in the Chemicals segment (representing 40% of the Group’s revenue) is less optimistic. The segment’s revenue is adversely affected by the slowdown in the EU economy, in particular in the construction and automotive industries. In 2014, we expect better results, compared with 2013, on the markets of pigments and OXO alcohols, as well as a continuation of the favourable climate on the melamine market observed at the end of 2013.

Damianek: Does the company use currency hedging? If so, what percentage of its exposure does it hedge?

Grupa Azoty Management Board: The Company has a positive currency exposure, both for the euro and the US dollar. At the same time, as part of risk management we apply a currency hedging policy whereby up to 50% of our exposure is hedged in a six months’ horizon, which makes it possible to stabilise the effect of currency fluctuations on the Company’s results.

Brucelee: Could you say something more about the new petrochemical complex? What will it produce?

Grupa Azoty Management Board: The agreement concerns a feasibility study for the potential construction of a steam cracker complex. The materials produced at the complex would be further processed by our Organic Chemistry and Plastics segments.

JurekM: What are the reasons of lower revenue and the loss in the Plastics segment next year?

Grupa Azoty Management Board: The results of the Plastics Segment should be analysed in the context of the raw materials markets (benzene and phenol), and the sale market in Asia (caprolactam produced at the Puławy plant). The loss is also a consequence of high prices of these raw materials, whose increase has not been fully accepted by the polyamide market. Moreover, the growing price competition in Asia, related to the growth of Asia’s caprolactam production capacities, puts strong pressure on prices, tightening the margins on caprolactam from the Puławy plant.

Junior: Why does the company not publish any forecasts? Will there be no forecasts in 2014?

Grupa Azoty Management Board: Over the last three years we have made acquisitions which have expanded the Group’s business scale five times. Being responsible to our shareholders, we choose to publish only reliable reports on our actual performance. Given the unstable situation on the market, we are not going to publish any 2014 forecasts.

Zed: Is the possibility of importing cheaper gas from the US realistic, and if so, what is the earliest date we could see that happen?

Grupa Azoty Management Board: Such a possibility exists, of course, but not earlier than in a time horizon of 2-3 years, however in my opinion it is rather unrealistic, due to the fact that the US economy focuses rather on processing shale gas and possibly selling the processed products for which gas is the production input. The currently negotiated agreement between the US and the EU to lift protective customs duties may help achieve that end (export of finished products). However, with increasing deregulation of the gas market in Poland, we are expecting a growth in the share of gas from sources other than PGNiG (interconnectors, reverse flow on the Yamal pipeline).

shareholder: In Q3, Grupa Azoty spent PLN 34m on mandatory investments. What does this stand for?

Grupa Azoty Management Board: The mandatory expenditure we made included mostly spending on the investment project “Flue gas treatment unit and upgrade of the EC II CHP plant at Zakłady Chemiczne Police S.A.,” in the amount of approximately PLN 30m.

misioo: What is the current share of PUŁAWY in the consolidated sales of the Group?

Grupa Azoty Management Board: Assuming that your question relates to the share of revenue of Grupa Azoty Zakłady Azotowe Puławy SA in the consolidated revenue of the Grupa Azoty Group, at the end of September that share was 35% (revenue net of the intra-group transactions, eliminated on consolidation).

##plcjz.wdbt#at#vbpxa.rdb##: Shares held by the employees of the Tarnów company are admitted to stock-exchange trading, while those held by the employees of the Kędzierzyn-Koźle plant are not. What would be the effect of ZAK going public or of exchanging ZAK shares for shares in Grupa Azoty on the quarterly or annual performance figures? Are any such measures planned?

Grupa Azoty Management Board: As we have said before, we decided not to take any steps to buy back the shares held by minority shareholders. This issue has been raised, among others, by private investors who purchased ZAK shares at a price in some cases vastly exceeding their current value, expecting quick profits. But we will come back to this subject at some point in the future, after completing the projects which are very urgent.

PC: Does the Company use any hedging in relation to its foreign exchange or commodity risk exposure?

Grupa Azoty Management Board: A similar question has already been asked (and answered) in this chat by chat user Damianek.

inwestor_chemia: What are the estimated savings that could be generated within the Group in 2014 thanks to cost synergies?

Grupa Azoty Management Board: We estimated synergies from the consolidation project at PLN 100m or more in 2013-2014. At the end of Q3, we announced synergy-related savings of PLN 72m. This value comprises both revenue synergies (e.g. exports of fertilizers to new markets, broader product portfolio, etc.), as well as cost synergies. We continue working on synergies. The values originally planned in March-April are being gradually achieved, some of the synergy effects are recurring in nature, so they are expected to be generated in the next year, too. We will regularly report on synergies in our quarterly reports.

##plcjz.wdbt#at#vbpxa.rdb##: In current report 119/2013, the Management Board provided a very evasive answer to questions asked by a shareholder (employee) of Zakłady Azotowe Kędzierzyn SA, a Group company. Among other things, the current report includes information that the Management Board was considering buying back ZAK shares from the employees. What would be the effect of such buy-back on the financial performance of the Group? What would be the cost of such operation at Group level?

Grupa Azoty Management Board: The answer is provided in the current report you just mentioned, as well as below. The amount is significant enough to have a potential effect on mandatory investments.

Mędrzec: How do you see the chance of acquiring Petrokemija, in percentage terms? Who is your main competitor in the acquisition process?

Grupa Azoty Management Board: The process has been launched by the Croatian government only recently and this is a really early phase. We expect that other key European fertilizer market players will join in.

inwestor_chemia: Why is the Company investing in such installations as caprolactam plant, that is in chemical products with respect to which global oversupply and price decline are forecast?

Grupa Azoty Management Board: The purpose of the investment projects we are implementing is not to increase caprolactam production capacities, but rather to maintain them. With our production capacities of 170,000 tonnes per year, we want to make capital expenditure on more processed products (compounds) to be manufactured using our own feedstock.

bjerre: To what extent is the Management Board aware of the situation inside Petrokemija? Have you done your own audit already?

Grupa Azoty Management Board: It wouldn’t be appropriate to reveal what we know about our competitors to the general public. The due diligence is scheduled for a later date.

inwestor_chemia: What was the amount of the one-off costs incurred in 2013 in connection with the consolidation and synergy-building processes within the Group?

Grupa Azoty Management Board: The costs related to the consolidation and building synergies within the Group are insignificant compared with the synergy effects that have already been reported (PLN 72m at the end of Q3). These costs are mostly connected with an increased number of meetings involving key managers of Grupa Azoty and travel. As a result of those meetings, synergy plans are being developed and implemented. At the same time, we have increasingly been opting for conference calls and video conferences, which seem to be the most effective form of communication. The most important effect of those meetings/contacts is breaking the ice and achieving better collaboration. Managers see clearly the need to work together within the framework of the Group that has been created.

Inwestor: Is the takeover of Anwil currently viable?

Grupa Azoty Management Board: Before Christmas? We won’t make it! :) But seriously, this is an important question, not so much about the acquisition of Anwil as about a deeper integration of the chemical and petrochemical industries. More time is needed to give an answer. At the present moment, it is the Seller that must show readiness to sell.

Kolikom: Is the chemical industry affected by economic cycles? Is performance closely dependent on the macroeconomic environment?

Grupa Azoty Management Board: Changes in the macroeconomic environment have a considerable impact on the Company’s performance – consider for instance the scale of our currency risk exposure, the relation between our production feedstocks and market prices, etc. We try to prevent adverse trends, for instance by implementing a currency risk hedging policy or expanding our own base of raw materials. As far as economic cycles are concerned, looking back we may find some, in particular in the Plastics and Chemicals segments, but this cyclicality varies and covers different time spans.

Solimon: Will the fourth quarter be better than the third quarter?

Grupa Azoty Management Board: We do not publish performance forecasts, so also in this case we cannot provide you with a forecast of our fourth quarter results.

suchar: Besides phosphate rock and sulfur, what other raw materials would need to be “secured” to further diversify supplies?

Grupa Azoty Management Board: Among other things, the project we are pursuing jointly with Lotos relates to that area. It is about supplies of propylene, benzene, phenol. The issue of gas supplies is also important.

Iross: What is the current workforce at the Group? Is the workforce growth trend gaining or losing speed?

Grupa Azoty Management Board: The Group has about 13,100 employees. The acquisition of Siarkopol will further increase the staff numbers. The Group has optimum staffing levels and a number of Group companies have already undergone deep workforce restructuring.

PC: Does the Company use any hedging in relation to its foreign exchange or commodity risk exposure?

Grupa Azoty Management Board: A similar question has already been asked (and answered) in this chat by chat user Damianek.

mk: The Ciech CEO does not rule out retaining Organika-Sarzyna in the Ciech Group if they are not offered a satisfactory price. Does Grupa Azoty take such a scenario into consideration?

Grupa Azoty Management Board: Negotiations are under way. Any scenario is possible. Grupa Azoty Puławy will not make the acquisition at any price.

Mistrzu: Do trade unions play an important role in the Company? Recently, they have had more and more to say at many companies, particularly at JSW, and in addition they are a source of cost pressure. What does this look like at Grupa Azoty?

Grupa Azoty Management Board: There are trade unions active at Grupa Azoty Group companies. The role of the trade unions is regulated by appropriate laws, and both sides observe these laws. The Management Board keeps the trade unions informed of the initiatives in undertakes and of the current situation at Group companies in order to work out optimum solutions for both parties. Taking the ongoing consolidation process as an example, the cooperation between the Management Board and the trade unions is very good.

Inwestor: I have a question regarding acquisitions in the upstream programme. Is this single acquisition of a phosphate rock mine sufficient to meet the Group’s needs to diversify the sources of supply of this raw material?

Grupa Azoty Management Board: As far as phosphate rock is concerned, the Group is not working on any other upstream project. However, for instance in the case of sylvinite, a cooperation agreement providing for joint exploration for sylvinite in Poland and abroad has been signed. These projects are an important element of our strategy and we plan to continue them.

dero: The Group includes a number of companies which can easily be classified as non-core business simply judging by their names, for instance Zakład Opieki Zdrowotnej Medical (Medical Healthcare Clinic) or Zarząd Portu Morskiego Police (Police Port Authority). Would it not be better to consolidate such entities or to get rid of them rather than keep their management boards and administration?

Grupa Azoty Management Board: The necessity to keep some companies is determined by law – the port authority, for instance. As far as other companies are concerned, we have been gradually selling or liquidating them – for instance the hotels.

Tom: From the point of view of revenue generation, the fertilizer segment is the most important one. What percentage of the fertilizer segment’s sales is generated on the domestic market? Are the segment’s margins higher in the case of domestic or export sales?

Grupa Azoty Management Board: The Group has no choice but to export because the demand on the domestic market is lower than the Group’s production capacities. We export fertilizers to regions with different vegetation cycles, which may have an impact on the margins we generate. In addition, margins are affected by changes in foreign exchange rates, therefore the profitability of export and domestic sales should be analysed in relation to the entire segment.

agronom: Does the Grupa Azoty Management Board have any plans to increase sales of its own brands of NPK fertilizers on the domestic market?

Grupa Azoty Management Board: The Management Board considers any possibility to increase sales, not only of NPK fertilizers, but also of other products from our vast portfolio. We have been analysing our plans to increase sales of compound fertilizers from the perspective of the Polish market (in conjunction with sales of nitrogen fertilizers) but also by expanding our foreign customer base (Senegal, South America).

tarnowianin: Is Grupa Azoty planning to move its registered office from Tarnów to another city?

Grupa Azoty Management Board: The Management Board is not planning to move the Company’s registered office from Tarnów to any other city. We invite everyone to come to our beautiful historic city of Tarnów.

BruceLee: How would the Management Board comment on the draft act on the State Treasury retaining special powers at Grupa Azoty.

Grupa Azoty Management Board: Grupa Azoty operates under the supervision of the Department of Key Companies of the Ministry of State Treasury, just like KGHM and PZU. We will not comment on the legislative process at this stage.

PC: What is your opinion on the plans concerning the draft act on the State Treasury retaining special powers at Grupa Azoty and at its subsidiary Zakłady Azotowe Puławy. Are you not concerned that such an act will in the future make it difficult for the Company to raise capital through share issues? Are you not afraid that the Company will be perceived less favourably by investors as a result?

Grupa Azoty Management Board: Without quoting names, there are also other companies in which the State Treasury holds special powers, and that does not prevent them from implementing their development plans. Because this is just the beginning of the legislative process, and the Grupa Azoty Management Board is not its initiator, please understand that we will not comment.

gomels: Mr Skolmowski has mentioned various options of raising external financing for an implemented project, hinting shares, bonds, etc. When can any concrete information on this subject be available?

Grupa Azoty Management Board: As I have said, the basis here is the Group’s long-term capex programme, and this programme is yet to be approved. We will inform you of the details in due time, of course.

Ewa74: What is your assessment of the prospects of the Polish agricultural market (the downward trend in the prices of agricultural produce) in the context of the fertilizer segment?

Grupa Azoty Management Board: We are looking closely at the situation in the fertilizer segment: we are evaluating not only the prices of raw materials and our products, but also the prices of agricultural produce, and we are reacting to various signals coming from the market. We believe, however, that given the level of direct subsidies, further intensification of agricultural production, and consolidation of the agricultural market, prospects for the Polish agricultural market remain optimistic.

mk: Is the Group planning any activity in the area of bioplastics?

Grupa Azoty Management Board: We have been conducting some research in the area of biotechnologies, but this is primary research. Such activities are not a core area of the Company’s operations.

Jeremiasz: What savings (in percentage terms) is the Management Board expecting to make in connection with negotiating the price of gas supplies?

Grupa Azoty Management Board: The Management Board looks closely at each element in any area under its management to identify any savings that can improve the efficiency of the Group’s business. Things are not different in the case of gas. We try to negotiate with our partners (suppliers) to obtain better prices, as well as to improve diversification of our supplies, and such negotiations translate into reduced production costs (for instance, the growing share of local gas for the Tarnów plant).

Zenit: Are you planning any acquisitions? What are the ideas for fostering the Company’s further growth? Have you been expanding the product portfolio?

Grupa Azoty Management Board: You know about all acquisitions which are at an advanced stage. Of course, we are watching and analysing the environment and we will take advantage of any emerging opportunities. Our strategy includes one key sentence: “We want to act as a single company”. This will be one of the most important tasks for us in the nearest future. We want to enhance our management model and capitalize on the synergies generated in the consolidation process while improving our services and product portfolio. We are facing the challenge of implementing our investment plans, including the mandatory investments projects which – unfortunately – will not add to our EBITDA. We have our plate full!

Moderator: Thank you for participating in the chat. It’s been a very interesting experience, as always. See you next time! Best regards from the Heat Pole.