Investor webchats

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.

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##

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.

On Thursday, September 5th 2013, the Polish Association of Individual Investors held an investor webchat.

Moderator: Visit our investor chat room for a chat with Mr Andrzej Skolmowski and Mr Marek Kapłucha, representing the Management Board of Grupa Azoty, to be held at 12:00 pm on September 5th (Thursday). You can post your questions in advance!

Moderator: 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 be answering your questions.

kosik: I see the Directors are very proud of the Group having joined WIG30. What does it mean to you?

Management Board of Grupa Azoty: Having joined WIG30 we have reached one of our three key strategic objectives announced in the Grupa Azoty Group Strategy for 2012−2020. It means recognition and prestige to the Group, and a guarantee of quality and high standards of communication to the investors. We are now on the radar of foreign investors, and have become part of the barometer of Poland’s economy.

Jerzyk_K: What imports are affected by the anti-dumping duty imposed by the European Union and for how long?

Management Board of Grupa Azoty: At present, there is still anti-dumping duty in force in the EU on imports of Russian nitrate, at EUR 47/tonne. It is the main product protected by ADD. Anti-dumping duty measures have been extended for another 15 months, during which the EC will review the situation and take a final decision. Representatives of the Grupa Azoty Group participate in the activities of Fertilizers Europe, an association which actively supports the European fertilizer industry in combating dumping.

##u.qtgcpi#at#de.ea##: Questions to Vice-President Andrzej Skolmowski. 1. When are development and investments going to start in Tarnów − I mean new products, new production capacities, new jobs? 2. Why are wages in Tarnów lower than in any other WIG30 company and how long will it take before they go up?

Management Board of Grupa Azoty: Answer to f.bernat: We are investing in Tarnów. In 2008−2013, we invested more than PLN 550m there. We are currently working on a project which may generate another PLN 500m within the next three years and includes expansion of the production capacity.

Management Board of Grupa Azoty: I am not familiar with an analysis of wages in WIG30 companies; we review wages in a different context. To note, WIG30 includes financial institutions. The issue of wages is under scrutiny by a joint consolidation team. We are soon going to open a public dialogue about long-term pay policy.

kremi: Has any workforce downsizing been planned or carried out as a result of the merger, and if so, could you give any figures?

Management Board of Grupa Azoty: The Company is not planning on downsizing as a result of the merger. There are many new investment plans, so we will be allocating employees to new projects. There is no need to downsize the workforce.

majster1: Is there a management stock option plan in place at the company? If so, what is its structure?

Management Board of Grupa Azoty: No, the Company does not run any management stock option plan.

Zdziasław: What is the Company’s short-term and long-term debt?

Management Board of Grupa Azoty: As at June 30th, the Group’s borrowings amounted to almost PLN 761m, of which PLN 219m were current borrowings and PLN 540m − non-current borrowings. Anticipating the next question about net debt: it was PLN 145m as at the end of June. However, in proportion to EBITDA for H1, the Group’s net debt is only 14%, showing a very good debt coverage ratio.

bjerre: How do you assess the current diversification of feedstock suppliers? Is the Management Board going to increase the diversification?

Management Board of Grupa Azoty: We constantly plan and implement the policy of supply source diversification. We strongly believe that with several suppliers of a given type of feedstock, we can take full advantage of the free market and negotiate the best prices.

węzłon: Is the Company planning on further acquisitions?

Management Board of Grupa Azoty: We are at the final stage of acquisition of Siarkopol (communicated on many occasions), Grupa Azoty Puławy has submitted a non-binding bid for Sarzyna, and quite recently Grupa Azoty Police has acquired a company in Senegal as part of an upstream project. All these projects are part of the Group Strategy. We have been quite open about the fact that we are watching the developments and taking advantage of acquisition opportunities as they arise. However, for now, there are no other major projects.

ziajka: Who are the Company’s major customers? Do they have long-term contracts signed with the Company?

Management Board of Grupa Azoty: The Company operates on the B2C market (accounting for ca. 60% of revenues). The key products on this market are mineral fertilizers. Our customers are fertilizer distributors and end users, both in Poland and the rest of Europe. The only exception is ammonium sulfate − this fertilizer is exported mainly to South America. The remaining 40% of revenues are generated on the B2B market, so our products are used as manufacturing components. In the B2B sector we sell our products to customers on all continents, in more than 50 countries.

Marcin Piec: Is the Company going to pay dividend?

Management Board of Grupa Azoty: Our dividend policy included in the Group Strategy for 2012−2020 provides for the distribution of dividends ranging from 40% to 60% of the Grupa Azoty’s net profit.

gpw_fan: Does the Company plan to publish forecasts in 2014?

Management Board of Grupa Azoty: In line with the rules adopted by the Management Board, Grupa Azoty does not publish forecasts.

Geniusz: What is going to be the key driver of the Group’s profitability in the coming quarters?

Management Board of Grupa Azoty: Grupa Azoty Group’s profitability is going to depend mostly on the performance of the Fertilizers segment. There are no indications of any major change of the trend in the chemicals segment

Mariusz: What is the chance of the acquisition of ZCh Organika-Sarzyna? What is the Company going to gain as a result?

Management Board of Grupa Azoty: There is still some chance. The process is in progress. We expect final decisions in the coming months. As a result of the acquisition, the Group will expand its product portfolio with plant protection products − a segment which has the same customers as fertilizers. For us this means synergies, while farmers get an opportunity to purchase a wide range of products from a single supplier. It is a win-win situation.

Mazankiewicz: The Q2 2013 performance is rather unsatisfactory. The Chemicals and Fertilizers segments did well. What drove the poor performance of the Plastics segment?

Management Board of Grupa Azoty: In Q2, key performance items were down relative to Q1. However, we must bear in mind the seasonality of our business and analyse the performance in comparable periods. To the question about the Plastics segment and its performance in the discussed period: the whole of 2013 saw high prices of strategic feedstocks (higher prices of benzene and phenol) and lower spreads underlying the structure of pricing paths for the polyamide range. Additionally, increased production capacities in China and dropping prices of caprolactam on the Asian market affected sales of caprolactam from Puławy, the subsidiary which is being consolidated within the Plastics segment.

Musiolilk_Marek: Hello! What drove the record high performance in Q1? Should it be attributed mainly to Puławy?

Management Board of Grupa Azoty: The Grupa Azoty Group closed Q1 2013 with EBIT of PLN 419,067,000 and net profit of PLN 410,447,000. These figures are significantly up on the corresponding period of 2012, mainly as a result of the fact that the consolidated data included the results of Grupa Azoty ZA Puławy S.A. from its acquisition on January 18th 2013. Breaking down the performance by key business segments, we can see that revenues surged (by almost 50%) in the Fertilizers segment, predominantly as a result of the acquisition. Other than that, steady prices and demand, especially in the segment of nitrogen fertilizers and intermediates, brought a higher EBITDA margin, at 21%, compared with 18% in the corresponding period of 2012. The Chemicals segment, which comprises the former OXO segment and mainly melamine products, reported revenues higher by nearly 60% y/y, and improved EBITDA margin to 9%, from 8% for Q1 2012. Apart from the acquisition, the improvement was brought by favourable developments on the melamine market, where low supply led to an almost 35% rise in prices. In the Plastics and Pigments segments, the trends seen in Q4 2012 continued. Further increase in the prices of key feedstocks and continuing pressure on prices for key products caused a sharp fall of the EBITDA margin, to -3% for plastics (17% in Q1 2012) and -2% for pigments (27% in Q1 2012). An important factor shaping the consolidated EBIT was the recognition of a gain from a bargain purchase of shares in the amount of PLN 174,252,000, which reflected the valuation of net assets of the acquired company at fair value.

Mazankiewicz: One more question, please. Mr Vice-President Andrzej Skolmowski mentioned that the Group needed external financing − probably no sooner than in 2014. What forms of financing is the Management Board considering?

Management Board of Grupa Azoty: We are considering both a credit facility and bonds. We will be communicating our decisions but first we need to agree on long-term CAPEX.

zeus: What made EBIT plummet on a separate basis?

Management Board of Grupa Azoty: The result is attributable to poor performance of the Chemicals segment (i.e. 50% of operations in Tarnów) due to high prices of feedstocks and lower prices of products.

Geniusz: Haven’t you found any ‘skeletons in the cupboard’ after the acquisition of big companies?

Management Board of Grupa Azoty: Ha ha, we don’t stroll through cemeteries or suck in dirt like a vacuum cleaner. All acquisitions were preceded by due diligence processes which involved profound analyses, including legal ones. In fact, we gave some of the projects up. This can’t really be called ‘skeletons’. The acquisitions speak for themselves.

tomson: The financial situation of farmers is deteriorating, owing chiefly to low crop purchase prices and reduced subsidies. This deterioration is reflected, for instance, in the poor results of Ursus. Is the Management Board taking into account a drop in fertilizer prices and analysing possible safeguards against its results?

Management Board of Grupa Azoty: The Management Board takes into account different scenarios, including a drop in fertilizer prices. However, based on our view of the developments in the market, we expect fertilizer prices to remain stable in the short term. We also assume that the low prices of crops are merely temporary and that they may partly result from speculations on international markets. Thus, we expect no adverse change to the favourable conditions for further development of the fertilizer industry, which is driven by high population growth and steadily increasing demand for food, with less and less possibility of expanding arable land globally.

igor: How do you estimate potential benefits from merging Azoty Tarnów and Puławy?

Management Board of Grupa Azoty: When the process commenced, we estimated synergies at no less than PLN 100m. Based on the work done so far, the actual synergies should be at least in line with these estimates, however, more work and more analyses will be needed before we arrive at any definite figures. The synergies are significant, and their full utilisation is a long-term process.

mmmaslov: What is your opinion on yesterday’s government revelations concerning pension funds?

Management Board of Grupa Azoty: We are going to wait for decisions. We have enough revelations.

zen: With hindsight, is the Management Board’s perception of the acquisition of Y by Acron positive? The course of events has turned into a positive scenario...

Management Board of Grupa Azoty: It certainly prompted an important and necessary decision on the consolidation of the Polish chemical sector. It will depend on the actors and well-prepared stage whether the play based on this scenario will be successful for many seasons.

Michał_Pol: What is the general geographical division of products sold? Are the US dollar and euro the settlement currencies?

Management Board of Grupa Azoty: In the case of fertilizers, accounting for approximately 63% of the Company’s revenues, we sell half of the production in Poland and the rest in other European countries. Ammonium sulphate, on the other hand, is particularly suitable for South American soil. Other chemical products (approximately 37% of revenues) are sold to over 50 countries on all continents. Settlement currencies for export sales are the euro for Europe and the US dollar for other countries.

dystrykt: What is the effect of currency movements on the Company’s results? Does the Company hedge against currency risk?

Management Board of Grupa Azoty: The Company has a positive currency exposure mainly to the euro. 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.

mmmaslov: I understand the issue is political, which makes it awkward for you to reply officially :)

Management Board of Grupa Azoty: Especially as the sun is shining in Krynica, as you can see.

komar: What is the planned CAPEX for 2013/2014?

Management Board of Grupa Azoty: We are still working on CAPEX for 2014, but replacement CAPEX should not exceed PLN 750m (CFO’s expectations :) )

mmmaslov: :) OK, I get it :) It must have been really hot yesterday :)

Management Board of Grupa Azoty: Do you know that Tarnów is the warmest town in Poland? Come to visit!

kondi: Could you please explain the following item in the statement of cash flows from operating activities: loss from investment activities of -PLN 462.8m.

Management Board of Grupa Azoty: Profit from a bargain purchase of Puławy is included in the CF under profit before tax. It is then eliminated under (profit) loss from investing activities. That is where this large negative figure comes from.

Michał_Pol: How does the Management Board rate global demand for Grupa Azoty’s products? Is it on an upward trend?

Management Board of Grupa Azoty: The Management Board believes there is a strong case for growth in demand for mineral fertilizers as it is necessary to intensify agricultural production. In Poland, for example, fertilizer consumption is still 20% lower than the European average (pure component per hectare). On the other hand, there has been significant growth of world population and continuous growth of demand for food, including high-protein food, which we are unable to produce in the required quantities and with the required quality without mineral fertilizers. In the case of other chemical products, these is a higher correlation with the general economic situation in Europe and globally. If the economic situation is relatively poor, demand for our products is stable but weaker. For us, any rebound after a period of recession means growth of demand. We hope Europe will return on the growth path soon, which will be reflected in our revenues.

waldi: Hardly any Polish companies succeeded in upstream investments in distant countries. Why should Police be successful?

Management Board of Grupa Azoty: Someone has to be first :) We have no choice - we need upstream acquisitions if we want to stabilise Police’s performance in the long term. Africa has rich raw material deposits, which triggered our decision to pursue an acquisition on this continent. We are prepared to manage this project.

jasiek76: How does the Company measure the effectiveness of its sports sponsorship activities? What are annual expenditures in this area?

Management Board of Grupa Azoty: We do not engage in sponsorship in the strict sense, but we undertake advertising activities to promote the Grupa Azoty brand. Our involvement with professional sports is part of these efforts. We employ specialist agencies to regularly conduct research and monitor effectiveness of our advertising activities in all media. We cannot, however, disclose the amount of expenditures on professional sports as it is a trade secret.

inny: The level of trade receivables has increased by nearly 100%. Is it mainly a result of the acquisitions?

Management Board of Grupa Azoty: Yes, it results chiefly from the acquisition of Grupa Azoty Puławy.

wiślak: Do you envisage any acquisitions abroad?

Management Board of Grupa Azoty: The Management Board is looking into all possible acquisition options, including the ones involving foreign companies. We don’t limit ourselves to the Polish market, as we sell almost 50% of our products outside of Poland. And since we are already present on foreign markets, we also take into account development through acquisitions. A case in point is our equity investment in Senegal announced last week (phosphate rock mines, with phosphate rock being a key raw material in the production of NPK fertilizers).

jasiek76: How does the Company measure the effectiveness of its sports sponsorship activities? What are annual expenditures in this area?

step: What were the costs of rebranding?

Management Board of Grupa Azoty: We did not publish the costs but I assure you that they were not significant.

kolumni: Isn’t Grupa Azoty too small for the Polish stock exchange after the merger? Have you considered listing on another European market?

Management Board of Grupa Azoty: We haven’t cooled down yet after joining WIG30, which we are so proud of. Another market that soon...??? Our market capitalisation is still around EUR 2bn, so we leave possible decisions on listing on foreign markets to the future. We have been included in the MSCI Emerging Markets index, which gives us better visibility with foreign investors. There is a lot of work, including organisational work, ahead of us. If we finish it, we will start thinking about that.

Bergu: What are the Management Board’s assumptions regarding key product prices next year?

Management Board of Grupa Azoty: The Management Board assumes that the prices of fertilizers will remain stable, supported by expected growth in crop prices following the current temporary drops, which are probably due to speculations on global markets. In the case of chemical products, their prices will depend on the general economic situation in Europe and globally, so the key question is whether, and if so when, we will see stronger growth rates in the main European and other countries.

mario: As at the end of June, the Company held PLN 545m in bank deposits maturing in three months. Can’t the Company invest its cash in other instruments, such as corporate bonds, or simply repay part of its credit facilities?

Management Board of Grupa Azoty: You are right. Nonetheless, we have some investment decisions to make, so the target balance sheet structure will be much different.

golum: What was the average cost of debt service in the first half of the year? Is it going up or down?

Management Board of Grupa Azoty: In terms of value, interest expense has increased y/y due to the higher amount of debt, including more expensive debt contracted to finance investments. However, given the Group’s very good financial standing and the low share of net debt in EBITDA, we are trying to implement an optimum financing structure, and, consequently, we will seek to lower our interest expense on a separate basis.

Jerzyk_K: Is profit of PLN 550-600m a pessimistic or optimistic estimate?

Management Board of Grupa Azoty: The Management Board has adopted a policy of not publishing forecasts. You can arrive at your own opinions on the basis of our results for the first half of the year and the market situation.

bjerre: Is it possible in your business to implement a policy of protecting against changes in the prices of raw materials, which are rather unique?

Management Board of Grupa Azoty: We seek to guarantee the best purchase terms to the Company in the long term by diversifying raw material supply sources on the basis of long-term agreements with key suppliers. We don’t use any financial instruments to hedge prices of raw materials.

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.