Separate financial statements of Grupa Azoty Spółka Akcyjna

for the 12 months ended December 31st 2020

prepared in accordance with International Financial Reporting Standards

as endorsed by the European Union

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Contents

Separate statement of profit or loss and other comprehensive income

Separate statement of financial position

Separate statement of changes in equity for the period ended Dec 31 2020

Separate statement of changes in equity for the period ended Dec 31 2019

Separate statement of cash flows

Notes to the separate financial statements

1. General information

1.1. Organisation of the Company

1.2. Composition of the Management Board and Supervisory Board of the Company

2. Significant accounting policies

2.1. Compliance statement

2.2. Changes in applied accounting policies and data presentation

2.3. Basis of accounting

2.4. Functional currency and presentation currency

2.5. Professional judgement and estimates

2.6. Foreign currencies

3. Notes to the separate financial statements

Business segment reporting

Note 1 Revenue from contracts with customers

Note 2 Operating expenses

Note 2.1 Cost of sales

Note 2.2 Employee benefit expenses

Note 2.3 Reconciliation of lease costs

Note 3 Other income

Note 4 Other expenses

Note 5 Finance income

Note 6 Finance costs

Note 7 Income tax

Note 7.1 Income tax disclosed in the statement of profit or loss

Note 7.2 Effective tax rate

Note 7.3 Income tax disclosed in other comprehensive income

Note 7.4 Deferred tax assets and liabilities

Note 7.5 Change in temporary differences

Note 7.6 Unrecognised deferred tax assets and liabilities

Note 8 Discontinued operations

Note 9 Earnings per share

Note 10 Property, plant and equipment

Note 11 Right-of-use assets

Note 12 Investment property

Note 13 Intangible assets

Note 14 Financial assets

Note 14.1 Shares

Note 14.2 Impairment of investments

Note 14.3 Other financial assets

Note 15 Inventories

Note 16 Property rights

Note 16.1 CO₂ emission allowances

Note 17 Trade and other receivables

Note 17.1 Prepayments

Note 18 Cash

Note 19 Other assets

Note 20 Assets held for sale

Note 21 Equity

Note 21.1 Share capital

Note 21.2 Share premium

Note 21.3 Hedging reserve

Note 21.4 Dividends

Note 22 Borrowings

Note 23 Lease liabilities

Note 24 Other financial liabilities

Note 25 Change in liabilities arising from financing activities

Note 26 Employee benefit obligations

Note 27 Trade and other payables

Note 27.1 Accrued expenses

Note 28 Provisions

Note 29 Grants

Note 30 Financial instruments

Note 30.1 Capital management

Note 30.2 Categories of financial instruments

Note 30.3 Financial risk management

Note 30.3.1 Credit risk

Note 30.3.2 Liquidity risk

Note 30.3.3 Market risk

Note 30.4 Changes in terms or classification of financial assets

Note 30.5 Fair value of financial instruments

Note 30.6 Derivatives

Note 30.7 Hedge accounting

Note 31 The Company as a lessor

Note 32 Contingent liabilities, contingent assets, sureties and guarantees

Note 33 Related-party transactions

Note 34 Investment commitments

Note 35 Notes to the statement of cash flows

Note 36 Regulatory financial information by type of activity, in accordance with Art. 44 of the Energy Law

Note 37 Events after the reporting date

Note 38 Information on the effects of the COVID-19 pandemic

 

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Separate statement of profit or loss and other comprehensive income

(in PLN ‘000, except for Earnings per share)

The separate statement of profit or loss and other comprehensive income should be read in conjunction with the notes to these full-year separate financial statements, which form their integral part.

Separate statement of financial position

(PLN ‘000)

The separate statement of financial position should be read in conjunction with the notes, which constitute an integral part of the full-year separate financial statements.

Separate statement of financial position (continued)

(PLN ‘000)

The separate statement of financial position should be read in conjunction with the notes, which constitute an integral part of the full-year separate financial statements.

Separate statement of changes in equity

for the period ended Dec 31 2020 (PLN ‘000)

Separate statement of changes in equity

for the period ended Dec 31 2019 (PLN ‘000)

The separate statement of changes in equity should be read in conjunction with the notes, which constitute an integral part of the full-year separate financial statements.

Separate statement of cash flows

(PLN ‘000)

* as described in Section 2.2.c.

The separate statement of cash flows should be read in conjunction with the notes to these full-year separate financial statements, which form their integral part.

 

 

Notes to the separate financial statements

1. General information

1.1. Organisation of the Company

Grupa Azoty Spółka Akcyjna (the “Company”), with its registered office in Tarnów, was established as Zakłady Azotowe w Tarnowie-Mościcach Spółka Akcyjna on February 21st 1991 by Notary Deed A No. 910/91. Since April 22nd 2013, when relevant amendments to the Company’s Articles of Association were registered, the Company has been trading under the name Grupa Azoty Spółka Akcyjna (abbreviated to Grupa Azoty S.A.).

The Company operates in Poland under the Polish Commercial Companies Code. The Company is entered in the Register of Businesses in the National Court Register maintained by the District Court in Kraków, 12th Commercial Division of the National Court Register, under entry No. KRS 0000075450. The Company’s REGON number for public statistics purposes is 850002268. The Company has been established for an indefinite term.

The Company is the parent of the Grupa Azoty Group (the “Group”) and also prepares consolidated financial statements of the Group in accordance with International Financial Reporting Standards as endorsed by the European Union.

The consolidated financial statements were authorised for issue on April 12th 2021.

The Company’s business includes in particular:

Manufacture of basic chemicals,

Manufacture of fertilizers and nitrogen compounds,

Manufacture of plastics and synthetic rubber in primary forms,

Manufacture of plastics.

These financial statements were authorised for issue by the Company’s Management Board on April 12th 2021.

These financial statements cover the year ended on December 31st 2020 and include comparative data for the year ended December 31st 2019.

1.2. Composition of the Management Board and Supervisory Board of the Company

Management Board

As at January 1st 2020, the Management Board was composed of:

Wojciech Wardacki – President of the Management Board,

Witold Szczypiński – Vice President of the Management Board,

Mariusz Grab – Vice President of the Management Board,

Tomasz Hryniewicz – Vice President of the Management Board,

Grzegorz Kądzielawski – Vice President of the Management Board,

Paweł Łapiński − Vice President of the Management Board,

Artur Kopeć – Member of the Management Board.

At its meeting held on October 22nd 2020, the Company’s Supervisory Board resolved to remove the following persons from the Management Board:

Wojciech Wardacki – President of the Management Board,

Paweł Łapiński − Vice President of the Management Board.

The Supervisory Board further resolved to appoint Mariusz Grab, previously serving as Vice President of the Management Board, as acting President of the Management Board until appointment to the position of a person selected through the recruitment and selection procedure for members of the Management Board. The Supervisory Board’s resolutions concerning changes in the composition of the Company’s Management Board became effective as of their dates.

On November 13th 2020, the Supervisory Board of the Parent appointed Tomasz Hinc,

with effect from December 1st 2020, as Member of the Company’s Management Board of the 11th term of office to serve in the position of President of the Management Board. Following the appointment of Tomasz Hinc to the Management Board to serve in the position of President of the Management Board, Mariusz Grab ceased to serve in that capacity, with effect from November 30th 2020.

On December 4th 2020, the Supervisory Board appointed Filip Grzegorczyk, PhD, as Vice President of the Management Board of the 11th term of office, with effect from December 15th 2020.

As at December 31st 2020, the Management Board was composed of:

Tomasz Hinc – President of the Management Board,

Witold Szczypiński – Vice President of the Management Board,

Mariusz Grab – Vice President of the Management Board,

Filip Grzegorczyk, PhD – Vice President of the Management Board,

Tomasz Hryniewicz – Vice President of the Management Board,

Grzegorz Kądzielawski – Vice President of the Management Board,

Artur Kopeć – Member of the Management Board.

The Supervisory Board

As at January 1st 2020, the Supervisory Board was composed of:

Marcin Pawlicki – Chair of the Supervisory Board,

Michał Gabryel – Deputy Chair of the Supervisory Board,

Zbigniew Paprocki – Secretary of the Supervisory Board,

Paweł Bielski − Member of the Supervisory Board,

Piotr Czajkowski – Member of the Supervisory Board,

Monika Fill – Member of the Supervisory Board,

Robert Kapka – Member of the Supervisory Board,

Bartłomiej Litwińczuk – Member of the Supervisory Board,

Roman Romaniszyn – Member of the Supervisory Board.

On June 29th 2020, pursuant to resolutions of the Company’s Annual General Meeting, the following persons were appointed as members to the Company’s Supervisory Board of the 11th joint term of office:

Marcin Pawlicki – Chair of the Supervisory Board,

Monika Fill – Member of the Supervisory Board,

Robert Kapka – Member of the Supervisory Board,

Wojciech Krysztofik – Member of the Supervisory Board,

Bartłomiej Litwińczuk – Member of the Supervisory Board,

Michał Maziarka – Member of the Supervisory Board,

Zbigniew Paprocki – Member of the Supervisory Board,

Roman Romaniszyn – Member of the Supervisory Board.

On July 23rd 2020, the Supervisory Board appointed Wojciech Krysztofik as Deputy Chair and Zbigniew Paprocki as Secretary of the Supervisory Board of the 11th term of office.

On November 30th 2020, Marcin Pawlicki resigned as Chair and Member of the Supervisory Board.

On December 29th 2020, the Company was notified by the Minister of State Assets of the appointment of Marcin Mauer to the Supervisory Board, with effect from December 28th 2020.

As at December 31st 2020, the Supervisory Board was composed of:

Wojciech Krysztofik – Deputy Chair of the Supervisory Board,

Zbigniew Paprocki – Secretary of the Supervisory Board,

Monika Fill – Member of the Supervisory Board,

Robert Kapka – Member of the Supervisory Board,

Bartłomiej Litwińczuk – Member of the Supervisory Board,

Michał Maziarka – Member of the Supervisory Board,

Marcin Mauer – Member of the Supervisory Board,

Roman Romaniszyn – Member of the Supervisory Board.

On January 8th 2021, by resolution of the Extraordinary General Meeting, Magdalena Butrymowicz, PhD, was appointed to the Company’s Supervisory Board.

At the same time, the Extraordinary General Meeting appointed Magdalena Butrymowicz as Chair of the Company’s Supervisory Board of the 11th term of office. The resolutions became effective upon adoption.

As at the date of this report, the Supervisory Board consisted of:

Magdalena Butrymowicz – Chair of the Supervisory Board,

Wojciech Krysztofik – Deputy Chair of the Supervisory Board,

Zbigniew Paprocki – Secretary of the Supervisory Board,

Monika Fill – Member of the Supervisory Board,

Robert Kapka – Member of the Supervisory Board,

Bartłomiej Litwińczuk – Member of the Supervisory Board,

Marcin Mauer – Member of the Supervisory Board,

Michał Maziarka – Member of the Supervisory Board,

Roman Romaniszyn – Member of the Supervisory Board.

Supervisory Board’s Audit Committee

The Audit Committee was appointed on July 4th 2013 by resolution of the Supervisory Board in order to streamline the work of the Supervisory Board and improve control of the Parent and the Group.

Composition of the Audit Committee as at January 1st 2020:

Michał Gabryel – Chair,

Marcin Pawlicki – Member,

Paweł Bielski − Member.

Following the appointment of new persons to the Supervisory Board of the 11th joint term of office, which took place on June 29th 2020 by resolutions of the Company’s Annual General Meeting, the composition of the Audit Committee was changed.

Composition of the Audit Committee as at July 23rd 2020:

Marcin Pawlicki – Chair,

Zbigniew Paprocki – Member,

Michał Maziarka – Member.

The composition of the Audit Committee changed following Marcin Pawlicki’s resignation from the position of Chair of the Supervisory Board.

As at December 31st 2020, the Audit Committee was composed of:

Michał Maziarka – Member,

Zbigniew Paprocki – Member.

On December 29th 2020, the Company was notified by the Minister of State Assets of the appointment of Marcin Mauer to the Supervisory Board, with effect from December 28th 2020. On January 4th 2021, the Supervisory Board passed a resolution to appoint Marcin Mauer as Chair of the Audit Committee.

On February 1st 2021 the Supervisory Board passed resolutions on supplementing the composition of the Audit Committee, appointing Monika Fill to the Committee.

As at the date of this report, the Company’s Audit Committee consisted of:

Marcin Mauer - Chair,

Monika Fill – Member,

Michał Maziarka – Member,

Zbigniew Paprocki – Member.

Responsibilities of the Audit Committee

The Audit Committee operated pursuant to the Rules of Procedure for the Audit Committee, adopted by the Supervisory Board by way of a resolution of July 4th 2013. On March 8th 2021, the Supervisory Board passed a resolution to approve the consolidated text of the Rules of Procedure for the Audit Committee adopted by a resolution of the Supervisory Board’s Audit Committee of February 11th 2021.

The Committee’s main tasks are those provided for the Audit Committee in the Act on Statutory Auditors, Audit Firms, and Public Oversight of May 1st 2017, the Company’s Articles of Association, and resolutions of the Supervisory Board.

The Committee has the right to demand from the Company’s Management Board any information, materials and explanations required for the performance of the Committee’s tasks.

Other committees of the Supervisory Board

Within the Supervisory Board, a Strategy and Development Committee and a Nomination and Remuneration Committee were established.

As at December 31st 2020, the Strategy and Development Committee was composed of:

Robert Kapka – Chair,

Zbigniew Paprocki – Member,

Wojciech Krysztofik – Member.

As at December 31st 2020, the Nomination and Remuneration Committee was composed of:

Michał Maziarka – Chair,

Wojciech Krysztofik – Member,

Roman Romaniszyn – Member.

On February 1st 2021, the Supervisory Board passed resolutions on supplementing the composition of the Committees,

appointing Bartłomiej Litwińczuk to the Strategy and Development Committee and Wojciech Krysztofik as Chair of that Committee.

As at the date of these financial statements, the Company’s Strategy and Development Committee consisted of:

Wojciech Krysztofik – Chair,

Zbigniew Paprocki – Member,

Robert Kapka – Member,

Bartłomiej Litwińczuk – Member.

At the same time, Magdalena Butrymowicz was appointed to the Nomination and Remuneration Committee.

As at the date of these financial statements, the Company’s Nomination and Remuneration Committee consisted of:

Michał Maziarka – Chair,

Magdalena Butrymowicz – Member,

Wojciech Krysztofik – Member,

Roman Romaniszyn – Member.

2. Significant accounting policies

2.1. Compliance statement

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as endorsed by the EU (“EU IFRS”). As at the date of authorisation of these financial statements for issue, given the ongoing process of implementing IFRS in the EU, the IFRS applicable to these financial statements did not differ from the EU IFRS.

The EU IFRS comprise standards and interpretations approved by the International Accounting Standards Board (“IASB”).

2.2. Changes in applied accounting policies and data presentation

The accounting policies applied to prepare these separate financial statements are consistent with those applied to draw up the Company’s financial statements for the year ended December 31st 2019, save for presentation changes in the statement of cash flows discussed in item c.

a)Changes in International Financial Reporting Standards

The following standards effective as of 2020 have no material impact on the Company’s operations or its financial reporting:

Amendment to IFRS 3 Business Combinations

The amendment to IFRS 3 was issued on October 22nd 2018 and is effective for annual periods beginning on or after January 1st 2020.

The purpose of the amendment was to clarify the definition of a ‘business’ and to make it easier to distinguish between acquisitions of ‘businesses’ and groups of assets for the purpose of accounting for business combinations. An optional ‘screening test’ was also added to the standard to facilitate the assessment of whether the acquired set of assets and activities constitute a business.

Amendments to IAS 1 and IAS 8: Definition of Material.

Amendments to IAS 1 and IAS 8 were issued on October 31st 2018 and are effective for annual periods beginning on or after January 1st 2020.

The purpose of the amendments was to clarify the definition of “material” and to provide guidance on its practical application.

Interest Rate Benchmark Reform – Amendments to IFRS 9, IAS 39 and IFRS 7

Amendments to IFRS 9, IAS 39 and IFRS 7 were issued on September 26th 2019 and are effective for annual periods beginning on or after January 1st 2020.

The amendments modify the specific hedge accounting requirements in order to minimise (eliminate) the potential effects of the uncertainty caused by the reform of interest rate benchmarks (such as interbank offered rates). In addition, companies will be required to provide additional disclosures regarding hedging relationships directly affected by the uncertainties related to the reform.

Furthermore, as of June 1st 2020, following endorsement by the European Commission in October 2020, the Group has applied the Amendment to IFRS 16 Leases: Covid-19-Related Rent Concessions. The amendment was issued on May 28th 2020 and is effective for annual periods beginning on or after June 1st 2020, with earlier application permitted. The amendment to IFRS 16 introduces a practical expedient permitting a lease modification not to be recognised e.g. in the event of any changes in lease payments occurring as a consequence of the Covid-19 pandemic.

The implementation of the standards listed above has no material effect on the Company’s financial statements.

b)New standards and interpretations

The standards and interpretations which have been issued but are not yet effective as they have not been endorsed by the EU, or have been endorsed but the Company has not elected to apply them early:

In these financial statements, the Company has not opted to early apply any standards or interpretations which have been issued but are not yet effective.

The following standards and interpretations have been issued by the International Accounting Standards Board or the International Financial Reporting Interpretations Committee but are not effective as at the reporting date:

IFRS 17 Insurance Contracts

The new standard was issued on May 18th 2017 and subsequently amended on June 25th 2020, and is effective for annual periods beginning on or after January 1st 2023. Early application is permitted as long as IFRS 15 and IFRS 9 are also applied. The standard supersedes earlier regulations on insurance contracts (IFRS 4). On June 25th 2020, IFRS 4 was also amended to defer the effective date of IFRS 9 Financial Instruments for insurers until January 1st 2023.

The Company will apply the new standard as of January 1st 2023. As at the date of these financial statements, it is not possible to reliably estimate the effects of the application of the new standard.

Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current

Amendments to IAS 1 were issued on January 23rd 2020 with its effective date subsequently modified in July 2020, and are effective for annual periods beginning on or after January 1st 2023.

The amendment redefines the criteria for classifying liabilities as current. The amendment may affect the presentation of liabilities and their reclassification between current and non-current.

The Company will apply the amended standard as of January 1st 2023. As at the date of these financial statements, it is not possible to reliably estimate the effects of the application of the new standard.

Amendments to IFRS 3, IAS 16, IAS 37 and Annual Improvements to IFRS Standards 2018–2020.

The amendments were issued on May 14th 2020, and are effective for annual periods beginning on or after January 1st 2022. One of the amendments prohibits deducting from the cost of property, plant and equipment ofany proceeds from selling items produced while the entity is developing/preparing the asset for its intended use.

The Company will apply the amended standards as of January 1st 2022. As at the date of these financial statements, it is not possible to reliably estimate the effects of the application of the amended standards.

Interest Rate Benchmark Reform Phase II – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

The amendments to these standards were issued on August 27th 2020 to complement the first phase of reporting amendments resulting from the reform of interbank reference rates of September 2019. The amendments are effective for annual periods beginning on or after January 1st 2021. Phase II amendments address issues that might affect financial reporting, e.g. relating to valuation of financial instruments and lease liabilities, when an existing interest rate benchmark is replaced with a new benchmark (i.e. replacement issues).

Amendments to IAS 1 Disclosure of Accounting Policies and IAS 8 Definition of Accounting Estimates

The amendments were issued on February 12th 2021, and are effective for annual periods beginning on or after January 1st 2023. The purpose of these amendments is to place greater emphasis on the disclosure of material accounting policies and to clarify how companies should distinguish between changes in accounting policies and changes in accounting estimates.

The Company will apply the amended standards as of January 1st 2023. As at the date of these financial statements, it is not possible to reliably estimate the effects of the application of the amended standards. 

The IFRSs as endorsed by the EU do not differ materially from the regulations adopted by the International Accounting Standards Board (IASB), save for the following standards, interpretations and amendments thereto, which were not yet adopted by EU Member States as at the date of authorisation of these financial statements for issue. 

IFRS 17 Insurance Contracts issued on May 18th 2017, as amended on June 25th 2020, 

Amendments to IAS 1 Presentation of Financial Statements: Classification of liabilities as current and non-current, issued on January 23rd 2020, as amended on July 15th 2020,

Amendments to IFRS 3, IAS 16, IAS 37 and Annual Improvements to IFRS Standards 2018–2020, issued on May 14th 2020,

Amendments to IAS 1 Disclosure Initiative and IAS 8 Definition of Accounting Estimates, issued on February 12th 2021.

The Company will apply the amended standards as of their effective dates. As at the date of these financial statements, it is not possible to reliably estimate the effects of the application of the amended standards.

c)Presentation changes

In order to improve the clarity of presentation of the effects of amendments/adjustments, the Company changed the presentation of its statement of cash flows. The restated comparative data for 2019 is presented below.

Additionally, the item ‘Net profit for the period’ was deleted from the statement of financial position. Previously presented under equity attributable to owners of the parent, the item could be misleading.

 

 

 

 

2.3. Basis of accounting

These separate financial statements have been prepared on the historical cost basis except for assets and liabilities measured at fair value, i.e.:

derivatives measured at fair value through profit or loss,

financial instruments at fair value through profit or loss,

financial instruments measured at fair value through other comprehensive income.

2.4. Functional currency and presentation currency

These separate financial statements are presented in the Polish złoty, rounded off to the nearest thousand, unless stated otherwise. The Polish złoty is the Company’s functional currency.

2.5. Professional judgement and estimates

The preparation of the financial statements in conformity with IFRS EU requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and the related assumptions are based on historical experience and other factors that are considered reasonable under the circumstances, and their results provide the basis for judgement as to the carrying amount of the assets and liabilities that does not arise directly from other sources. The actual values of the assets and liabilities may differ from the estimates.

Estimates and the underlying assumptions are subject to ongoing verification. A change in accounting estimates is recognised in the period in which the change is made or in current and future periods if the change in estimates affects both the current period and the future periods.

The main accounting estimates and assumptions are presented in the relevant notes to the financial statements:

 estimates of impairment losses on shares are presented in Note 14.1,

estimates and assumptions concerning the feasibility of realising deferred tax assets, in particular with respect to the change in recognition of assets arising from the activities conducted in the Special Economic Zone, are presented in Note 7.4,

estimates concerning recognition of lease contracts and the lessee’s incremental borrowing rate are presented in Note 11,

estimates concerning useful lives of property, plant and equipment, usufruct right, intangible assets and investment property are presented in Notes 10, 11, 12, 13,

estimates of impairment losses on property, plant and equipment are presented in Note 10,

estimates of write-downs of inventories to net realisable value are presented in Note 15,

estimates and assumptions regarding impairment losses on receivables are presented in Note 17,

judgement regarding reclassification of a trade liability to financial liabilities with respect to liabilities settled through reverse factoring are presented in Note 24;

estimates of employee benefits are presented in Note 26,

estimates of recognised provisions for liabilities are presented in Notes 27–28.

estimates of recognised compensation under the Act on the Compensation Scheme for Energy-Intensive Sectors and Subsectors are presented in Note 3,

estimates of the measurement of derivative instruments are presented in Note 30.6.

Uncertainty related to tax settlements

The regulations on value added tax, corporate income tax, and social security contributions are subject to frequent changes and amendments, Furthermore, the applicable tax laws lack clarity, which leads to differing opinions and diverse interpretations, both between various public authorities and between public authorities and businesses.

Tax settlements and other regulated areas of activity (e.g. customs or foreign exchange control) are subject to inspection by administrative bodies, which are authorised to impose high penalties and fines, and any additional tax liabilities arising from such inspections must be paid with high interest. Consequently, the tax risk in Poland is higher than in countries with more mature tax systems.

The amounts presented and disclosed in the financial statements may therefore change in the future as a result of a decision by an inspection authority.

On July 15th 2016, the tax legislation was amended to reflect the provisions of the General Anti-Abuse Rule (“GAAR”). GAAR is intended to prevent the creation and use of artificial legal structures designed to avoid paying taxes in Poland. GAAR defines tax avoidance as an act performed primarily for the purpose of obtaining a tax advantage which, in given circumstances, is contrary to the objective and purpose of the tax law. Under GAAR, such an activity does not result in a tax advantage if the legal structure used was artificial. Any arrangements involving (i) separation of transactions or operations without sufficient rationale, (ii) engaging intermediaries where no business or economic rationale exists, (iii) any offsetting elements, and (iv) any arrangements operating in a similar way, may be viewed as an indication of the existence of an artificial scheme subject to GAAR. The new regulations will require much more judgement when assessing the tax consequences of particular transactions.

The GAAR clause should be applied with respect to arrangements made after its effective date as well as arrangements that were made before its effective date but the benefit of the tax advantage obtained through the arrangement continued or still continues after that date. Implementation of the above regulations will provide Polish tax inspection authorities with grounds to challenge certain legal arrangements made by taxpayers, including restructuring or reorganisation of corporate groups.

The Management Board is aware of the obligations to report MDR tax schedules under the Tax Law of August 29th 1997.

The Company recognises and measures current and deferred tax assets or liabilities in accordance with IAS 12 Income Taxes and IFRIC 23 Uncertainty over Income Tax Treatments based on tax profit (loss), tax base, unused tax losses, unused tax credits and tax rates, taking into account the assessment of uncertainties related to tax settlements.

The Company treats all tax settlements with a high degree of care, in particular with respect to classification of expenses as tax-deductible costs and with respect to deduction of VAT. For further information, see Note 7 Income Tax

Going concern assumption

These full-year separate financial statements have been prepared on the assumption that the Company will continue as a going concern in the foreseeable future.

For information on changes in working capital and the financing structure as at December 31st 2020, see Note 30 Financial instruments. For information on the impact of the COVID-19 pandemic on the Company’s situation, see Note 38 Information on the effects of the COVID-19 pandemic. In view of the above, the Company’s Management Board concludes that these circumstances do not indicate any threat to the Company continuing as a going concern.

2.6. Foreign currencies

Transactions denominated in foreign currencies are translated into the Polish złoty using the exchange rate from the transaction date.

At the reporting date, monetary assets and liabilities denominated in foreign currencies are translated into the Polish złoty at the average exchange rate published for a given currency on the reporting date by the National Bank of Poland. Non-monetary assets and liabilities measured at historical cost in a foreign currency are translated at the exchange rate from the transaction date. Non-monetary items measured at fair value in a foreign currency are translated at the exchange rate from the date on which the fair value was determined.

Foreign exchange gains/(losses) are recognised in the statement of profit or loss as finance income or costs, except for differences arising on translation of equity instruments and qualifying cash flow hedges, which are recognised as other comprehensive income.

The following exchange rates were used for measurement purposes:

3. Notes to the separate financial statements

Accounting policy

The Company identifies operating segments based on internal reports. Operating results of each segment are reviewed on a regular basis by the Company’s chief operating decision maker, who decides about the allocation of resources to different segments and analyses their results. Separate information prepared for each segment is available.

The Company identifies the following operating segments:

Agro Fertilizers

Plastics

Energy

Other Activities segment, comprising other activities, such as laboratory services, property rental and other activities that cannot be allocated to other segments.

None of the Company’s operating segments has been combined with another segment to create reportable segments.

The Company presents administrative, selling and distribution expenses and other income and expenses allocated to the segments. Performance of each segment is measured based on its revenue, EBIT and EBITDA. The Company’s financing (including finance costs and finance income) and income tax are monitored at the level of the Company and are not allocated to the segments.

Transaction prices applied in transactions between operating segments are established on an arm’s length basis, similarly as in transactions with unrelated parties.

The Company identifies the following geographical areas:

Poland

Germany

Other EU countries

Asia

South America

Business segment reporting

Operating segments

The Company pursues its business objectives through three reportable segments, which offer different products and services, and are managed separately because they require different technologies and marketing strategies. For each segment, the Management Board reviews internal management reports on a monthly basis.

The operations of each of the Company’s reportable segments comprise:

Agro Fertilizers segment comprises the manufacturing and marketing of the following products:

nitrogen fertilizers (nitro-chalk, ammonium nitrate),

nitrogen fertilizers with sulfur (ammonium sulfate, ammonium sulfonitrite),

ammonia,

concentrated nitric acid;

Plastics segment comprises the manufacturing and marketing of the following products and goods:

Caprolactam,

Engineering plastics (PA 6, POM) and their modifications,

modified plastics (PPC, PPH, PBT, PA66),

Plastic products (PA pipes, PE pipes, polyamide casings);

Energy segment includes the production of energy carriers (electricity, heat, water, process and instrument air, nitrogen) for the purposes of chemical units and, to a lesser extent, for resale (mainly of electricity) to external customers. As part of its operations, the segment also purchases and distributes natural gas for process needs;

Other Activities segment comprises the remaining activities:

laboratory services,

catalyst production (iron-chromium catalyst, copper catalysts, iron catalysts),

rental of real estate, and

property rental, and other activities not allocated to any of the segments specified above.

Key financial results and performance of each of the segments are discussed below. The key performance metrics for each segment are revenue, EBIT and EBITDA.

 

 

Operating segments’ income, expenses and net profit (loss) for the 12 months ended December 31st 2020

* EBIT is calculated as operating profit (loss) as disclosed in the statement of profit or loss.

** EBITDA is calculated as operating profit (loss) before depreciation and amortisation.

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Operating segments’ income, expenses and net profit (loss) for the 12 months ended December 31st 2019

* EBIT is calculated as operating profit (loss) as disclosed in the statement of profit or loss.

** EBITDA is calculated as operating profit (loss) before depreciation and amortisation.

Revenues from intersegment transactions are eliminated. Segments’ operating profit excludes finance income of PLN 244,284 thousand (2019: PLN 124,961 thousand) and finance costs of PLN 133,856 thousand (2019: PLN 108,540 thousand).

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Operating segments’ assets and liabilities as at December 31st 2020

Operating segments’ assets and liabilities as at December 31st 2019

As at December 31st 2020, unallocated assets include deferred tax assets of PLN 3,959 thousand (December 31st 2019: none), loans of PLN 1,321,478 thousand (December 31st 2019: PLN 352,438 thousand), shares of PLN 5,706,230 thousand (December 31st 2019: PLN 5,410,006 thousand), measurement of foreign exchange derivatives – none (December 31st 2019: PLN 1,025 thousand), and cash and cash equivalents of PLN 464,174 thousand (December 31st 2019: PLN 1,158,379 thousand), current tax assets of PLN 10,283 thousand (December 31st 2019: none), as the assets are managed at the Company level.

As at December 31st 2020, the segment’s unallocated liabilities included income tax liabilities – none (December 31st 2019: PLN 1,168 thousand), liabilities under borrowings of PLN 4,061,205 thousand (December 31st 2019: PLN 3,532,517 thousand), deferred tax liabilities – none (December 31st 2019: PLN 1,426 thousand), as these liabilities are managed at the Company level.

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Other segmental information for the 12 months ended December 31st 2020

Other segmental information for the 12 months ended December 31st 2019

Capital expenditure is made to purchase property, plant and equipment and intangible assets.

 

 

Geographical areas

Revenue split by geographical areas is determined based on the location of customers. Assets allocated to a geographical area are identified on the basis of their geographical location.

Revenue

Non-current assets

The Company’s non-current assets, totalling PLN 6,445,883 thousand (December 31st 2019: PLN 6,174,813 thousand) are located in Poland.

The non-current assets include property, plant and equipment, intangible assets, investment property, right-of-use assets and shares.

The non-current assets do not include other financial assets, other receivables or deferred tax assets.

Material customers

In the Plastics segment revenue from the subsidiary Grupa Azoty ATT Polymers GmbH of Guben, Germany, was PLN 571,577 thousand (2019: PLN 688,990 thousand). The company plays an important role in the manufacturing and trading chain of the Plastics segment. No other trading partner accounts for a separately significant part of the Company’s revenue.

Note 1 Revenue from contracts with customers

Accounting policy

Revenue comprises revenue under contracts with customers. Recognition of revenue represents a transfer of goods or services to a customer in the amount that reflects the amount of consideration the Company expects to receive in exchange for those goods or services. A key criterion for revenue recognition is the time when the Entity satisfies the performance obligation, that is the time when the control of the asset is transferred to the customer.

Identifying the contract

Revenue from sale of products, services, merchandise and materials

The key categories of products, services, merchandise and materials sold by the Company are listed in the Operating segments section.

Revenue from sale of products, services, merchandise and materials is recognised in accordance with IFRS 15 Revenue from Contracts with Customers in a manner that reflects transfer of control to the customer. As a rule, revenue from sale of products, merchandise and materials is recognised by the Company at a specific point in time, in accordance with the Incoterms rules set forth in the agreement (usually upon release from the warehouse or upon delivery to the point indicated by the customer). In the case of deliveries effected in accordance with selected Incoterms (CIF, CIP, CFR, CPT), the Company identifies the transport service or the transport and insurance service as a separate performance obligation towards a customer after passing control of the good / product to the customer. Revenue from sale of services is recognised at a specific point in time when the performance of the service is completed.

When recognising revenue, the Company takes into account specific issues, such as: determination whether the Company is acting as the principal or an agent in the transaction, product return rights, recognition of discounts being part of variable consideration, recognition of discounts representing a material right, bill-and-hold arrangements, and recognition of revenue from take-or-pay contracts. For most of the contracts containing discounts that are part of variable consideration, the estimated amount of the discount is fully recognised in liabilities under bonuses, a component of trade and other payables.

As a rule, the customary payment terms for this revenue stream are 30 days.

The Company enters into comprehensive contracts with customers for sale of electricity (supplied by third parties) and electricity distribution services provided over its own network. The Company believes that it acts as the principal under such contracts, and identifies two separate performance obligations: for the sale of electricity, which is recognised under revenue from sale of merchandise and materials, and for the distribution service, which is recognised under revenue from sale of products and services.

The Company also enters into comprehensive contracts with customers for the sale of electricity and electricity distribution services, where the Group purchases high-voltage electricity and sells it after conversion over medium and low-voltage grids. Also in this case the Company believes that under such contracts, which contain two performance obligations, the Group acts as the principal, and recognises both the sale of electricity and the distribution service under revenue from sale of products and services.

In the case of electricity sale contracts, the payment terms average 17 days.

Contract costs

Incremental costs of obtaining a contract

The Company incurs incremental costs of obtaining a contract, i.e. costs it would not have incurred if the contract had not been obtained. The incremental costs of obtaining a contract are recognised by the Company as an asset in trade and other receivables if the Group expects to recover those costs. As a practical expedient, the Company recognises incremental costs to obtain a contract as an expense when they are incurred if the amortisation period of the asset that the Company otherwise would have recognised is one year or less.

Costs to fulfil a contract

If the costs incurred in fulfilling a contract with a customer are not within the scope of a standard other than IFRS 15, the Company recognises an asset (in trade and other receivables) from the costs incurred to fulfil the contract only if those costs meet all of the following criteria:

the costs relate directly to a contract or to an anticipated contract that the Company can specifically identify;

the costs generate or enhance resources of the Company that will be used in satisfying (or in continuing to satisfy) performance obligations in the future; and

The costs are expected to be recovered.

Receivables and liabilities under contracts with customers are presented as follows:

receivables – Note 17 Trade and other receivables,

liabilities – Note 27 Trade and other payables.

 

 

For the period Jan 1 – Dec 31 2020

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For the period Jan 1 – Dec 31 2019

 

 

Fixed-price contracts include revenue from contracts where prices are not determined on a time-and-materials basis.

The breakdown of customers into short- and long-term accounts is based on the duration of contract.

Note 2 Operating expenses

Accounting policy

Cost of sales

Cost of sales includes all expenses related to the Company’s principal business, except for selling and distribution expenses, administrative expenses, other expenses and finance costs. Production cost includes direct costs and an appropriate share of production overheads based on normal operating capacity.

Selling and distribution expenses

Selling and distribution expenses comprise recognised costs related to sales, such as:

cost of packaging,

transport, loading and unloading costs,

customs duties and trade fees,

carriage insurance cost,

recognition/reversal of impairment losses on trade receivables, excluding impairment losses on receivables under lease of investment property (presented in other income/expenses) and interest on receivables (presented in finance income/costs).

Administrative expenses

Administrative expenses comprise:

general and administration expenses associated with the management of the Group,

general production overheads (related to the production, including maintenance and functioning of general departments, not associated with the direct production).

Raw materials and consumables used fell by as much as PLN 243,815 thousand mainly as a result of a drop in consumption of key raw materials, attributable to lower prices and consumption volumes, and recognition of compensation of PLN 21,828 thousand under the Act on the Compensation Scheme for Energy-Intensive Sectors and Subsectors.

The PLN 16,063 thousand decrease in services was mainly attributable to lower spending on advisory, legal and IT services.

Salaries and wages fell by PLN 17,850 thousand mainly in connection with the financial support received under the anti-crisis shield legislative package introduced in connection with the COVID-19 pandemic.

The PLN 31,857 thousand increase in change in inventories of finished goods was related to a drop in inventories.

The PLN 18,343 thousand decrease in administrative expenses was attributable to a drop in costs of (consultancy) services and advertising expenses and to secondary settlement as part of IT transformation.

Cost of merchandise and materials sold fell by PLN 44,738 thousand as a result of lower sales of caprolactam and lower sales of materials held in inventory.

Depreciation and amortisation are presented in the following proportions in particular items of the statement of profit or loss and other comprehensive income:

Note 2.1 Cost of sales

Note 2.2 Employee benefit expenses

Note 2.3 Reconciliation of lease costs

Depreciation and amortisation costs, short-term lease costs, and costs related to variable lease payments are recognised mainly in cost of products and services. Interest expense is recognised in finance costs.

Note 3 Other income

Accounting policy

Other income includes income that has not been classified as operating income or finance income.

 

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Note 4 Other expenses

Accounting policy

Other expenses include costs that are not classified as operating expenses and finance costs.

Investment property maintenance costs include depreciation of investment property, which amounted to PLN 1,609 thousand in 2020 (2019: PLN 1,408 thousand).

The amount of PLN 7,342 thousand comprises in particular costs of remedying the consequences of the following technical failures:

failure of general-purpose industrial pipe bridges in the Energy segment (PLN 2,298 thousand),

failure of the central water unit supplying water to the cooling tower in the Plastics segment (PLN 1,343 thousand).

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Note 5 Finance income

Accounting policy

Finance income comprises the interest on funds invested by the Company, loans and other interest-bearing instruments, dividends receivable, gains on disposal of available-for-sale financial assets, fair value gains on financial instruments at fair value through profit or loss, foreign exchange gains and such gains on derivatives which are recognised in the statement of profit or loss.

Interest income is recognised as it accrues in the statement of profit or loss, using the effective interest rate method. Dividend income is recognised in the statement of profit or loss on the date that the Company’s right to receive the dividend is established.

Gains on measurement of financial assets and liabilities include the effect of valuation of the call and put options over shares in Grupa Azoty POLYOLEFINS, totalling PLN 24,304 thousand. For detailed information on these financial instruments, see Note 30.6.
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Note 6 Finance costs

Accounting policy

Finance costs comprise interest expense on borrowings, leases, unwinding of the discount on provisions, net foreign exchange losses, fair value losses on financial instruments through profit or loss and impairment losses recognised on financial assets. Interest expense is recognised using the effective interest rate method.

Finance costs that are directly attributable to acquisition, construction or production of a qualifying asset are capitalised. Other borrowing costs that are not directly attributable to acquisition, construction or production of a qualifying asset are recognised in profit or loss when incurred.

Foreign exchange losses of PLN 48,997 thousand (2019: PLN 10,787 thousand of foreign exchange gains) comprised:

net realised foreign exchange losses of PLN 323 thousand (2019: net realised foreign exchange gains of PLN 6,626 thousand),

net foreign exchange losses on realised transactions in currency derivatives of PLN 815 thousand (2019: net foreign exchange gains of PLN 1,533 thousand),

net foreign exchange losses on measurement of receivables and liabilities denominated in foreign currencies as at the reporting date of PLN 47,833 thousand (2019: net foreign exchange gains of PLN 2,309 thousand),

net foreign exchange losses on measurement of other items as at the reporting date of PLN 26 thousand (2019: net foreign exchange gains of PLN 319 thousand).

Interest capitalised as initial cost of property, plant and equipment and intangible assets in 2020 was PLN 489 thousand (2019: PLN 1,196 thousand).

Note 7 Income tax

Note 7.1 Income tax disclosed in the statement of profit or loss

Accounting policies

Tax expense comprises current and deferred tax. Current tax and deferred tax is recognised in the statement of profit or loss for the current period except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income.

Current tax is the expected tax payable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable is calculated based on taxable profit (tax base) for the period. Taxable profit differs from profit (loss) before tax because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items that are never taxable or deductible.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes. Deferred tax is not recognised for: 1) temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, 2) temporary differences related to investments in subsidiaries and jointly controlled entities to the extent it is probable that they will not be realised in the foreseeable future, 3) temporary differences arising on initial recognition of goodwill.

Taxable income on activities in special economic zones may be tax exempt up to the amount determined in the applicable rules governing the operation of special economic zones. Future benefits resulting from tax exemption are treated as investment tax credits and recognised, by analogy, as deferred tax assets, in accordance with IAS 12.

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured using tax rates enacted or substantively enacted at the reporting date.

Deferred tax assets are recognised only to the extent that it is probable that future taxable income will be available against which the temporary differences can be utilised. Deferred tax assets are not recognised to the extent it is not probable that taxable income will be available to utilise all temporary differences or their part. Such assets are subsequently recognised if it becomes probable that sufficient taxable income will be available.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to taxes levied by the same tax authority. Deferred tax assets and liabilities are not discounted and are presented in the statement of financial position as non-current assets or liabilities.

In accordance with IAS 12 Income taxes, the Company recognises a deferred tax asset for the carry forward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised. When assessing whether any available future taxable income is likely to be sufficient, the Company considers the nature, origin, schedule and probability of such income.

Note 7.2 Effective tax rate

The effective tax rate of 8.37% in 2020 is mainly attributable to the tax effect of dividends received, which are exempt from tax.

The effective tax rate of 44.86% in 2019 was mainly due to the decrease in the tax asset recognised in previous periods on the activities conducted in the Special Economic Zone, as it is not certain that the tax asset would be offset against future income due to the loss incurred on the activities in 2019.

In connection with a project involving construction of Polyamide Plant II, the Company obtained a permit to operate in the Krakowski Park Technologiczny Special Economic Zone (“SEZ”). Pursuant to the terms of the licence, the Company was obliged to incur a minimum expenditure of PLN 203,000 thousand, to increase employment by 34 staff, and to maintain the headcount at least until June 30th 2020. The conditions specified in the licence were satisfied in the course of 2017 and, in line with the current plans, the Company has satisfied the condition concerning the staffing level until June 30th 2020.

Upon completion of the project, the Company’s eligible capital expenditure totalled PLN 222,603 thousand, which may allow it to realise tax savings on its operations in the zone of ca. PLN 107m (net of the discount).

As at December 31st 2019, due to the losses incurred in the Special Economic Zone in recent periods and the resulting uncertainty as to the possibility of realizing tax benefits on this account, the Company decided to discontinue recognition of the deferred tax asset. As at December 31st 2020, the Company continues not to recognise the deferred tax asset.

 

 

Note 7.3 Income tax disclosed in other comprehensive income