Consolidated financial statements of the Grupa Azoty Group

for the 12 months ended December 31st 2020

prepared in accordance with the International Financial Reporting Standards as endorsed by the European Union

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Contents

Consolidated statement of profit or loss and other comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in equity for the period ended December 31st 2020

Consolidated statement of changes in equity for the period ended December 31st 2019

Consolidated statement of cash flows

Notes to the consolidated financial statements

1. General information

1.1. Organisation of the Group

1.2. Composition of the Group

1.3. Changes in the Group’s structure

1.4. Management and Supervisory Boards of the Parent

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. Going concern assumption

2.7. Basis of consolidation

2.7.1. Subsidiaries

2.7.2. Associates and joint ventures

2.7.3. Consolidation procedures

2.7.4. Business combinations

2.7.5. Acquisition of non-controlling interests

2.7.6. Recognition of the rights and obligations related to repurchase of shares in Grupa Azoty POLYOLEFINS from non-controlling shareholders

2.7.7. Loss of control

2.8. Foreign currencies

3. Notes to the consolidated 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

Changes in temporary differences recognised in: (+/-)

Note 7.6 Unrecognised deferred tax assets/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 13.1 Goodwill

Note 14 Financial assets

Note 14.1 Shares

Note 14.2 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 Non-controlling interests

Note 21.5 Acquisition of non-controlling interests

Note 21.6 Obligation to repurchase shares in Grupa Azoty POLYOLEFINS from non-controlling shareholders

Note 21.7 Recognising a future obligation to repurchase shares in Grupa Azoty POLYOLEFINS from non-controlling shareholders for subsequent cancellation, involving a rate-of-return stabilisation mechanism

Note 21.8 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 Fair value of financial instruments

Note 30.5 Derivatives

Note 30.6 Hedge accounting

Note 31 Contingent liabilities, contingent assets, sureties and guarantees

Note 32 Related-party transactions

Note 33 Investment commitments

Note 34 Notes to the statement of cash flows

Note 35 Events after the reporting date

Note 36 Information on the effects of the COVID-19 pandemic

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Consolidated statement of profit or loss and other comprehensive income

(PLN ‘000 except for earnings per share)

The consolidated statement of profit or loss and other comprehensive income should be read conjunction with the notes, which constitute an integral part of the full-year consolidated financial statements.

Consolidated statement of financial position

(PLN ‘000)

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

Consolidated statement of financial position (continued)

(PLN ‘000)

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

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Consolidated statement of changes in equity for the period ended December 31st 2020

(PLN ‘000)

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Consolidated statement of changes in equity for the period ended December 31st 2019

(PLN ‘000)

The consolidated statement of changes in equity should be read in

conjunction with the notes, which constitute an integral part of the full-year consolidated financial statements.

 

 

Consolidated statement of cash flows

(PLN ‘000)

* as described in Section 2.2.c.

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

Notes to the consolidated financial statements

1. General information

1.1. Organisation of the Group

The Grupa Azoty Spółka Akcyjna Group (the “Grupa Azoty Group” or the “Group”) comprises Grupa Azoty Spółka Akcyjna (the “Parent”) and its subsidiaries.

Grupa Azoty Spółka Akcyjna is the ultimate Parent.

The Parent’s principal place of business is located in Tarnów and its registered office address is ul. Eugeniusza Kwiatkowskiego 8, 33-100 Tarnów, Poland.

The Parent is incorporated in Poland as a joint stock company (spółka akcyjna).

The principal place of business of the Grupa Azoty Group companies are the towns of the companies’ registered offices.

The Parent was entered in the Register of Businesses in the National Court Register (entry No. KRS 0000075450) on December 28th 2001, pursuant to a ruling of the District Court for Kraków-Śródmieście in Kraków, 12th Commercial Division of the National Court Register, dated December 28th 2001. The Parent’s REGON number for public statistics purposes is 850002268.

Since April 22nd 2013, the Parent has been trading under the name Grupa Azoty Spółka Akcyjna (abbreviated to Grupa Azoty S.A.). In 2020, the Parent’s name did not change.

The Group’s business includes in particular:

processing of nitrogen products,

manufacture and sale of fertilizers,

manufacture and sale of plastics,

manufacture and sale of OXO alcohols,

manufacture and sale of titanium white,

manufacture and sale of melamine,

production of sulfur and processing of sulfur-based products.

The Parent and the Group companies were incorporated for an indefinite period.

These consolidated financial statements, drawn up in accordance with International Financial Reporting Standards (“IFRS”), as endorsed by the European Union (“EU IFRS”), were authorised for issue by the Parent’s Management Board on April 12th 2021.

1.2. Composition of the Group

As at December 31st 2020, the Grupa Azoty Group (the „Group”) comprised: Grupa Azoty S.A. (the “Parent”), direct subsidiaries:

COMPO EXPERT Holding GmbH (“COMPO EXPERT”, formerly Goat TopCo GmbH) – wholly-owned,

Grupa Azoty ATT Polymers GmbH – wholly-owned,

Grupa Azoty Compounding Sp. z o.o. (“Grupa Azoty COMPOUNDING”) – wholly-owned,

Grupa Azoty Kopalnie i Zakłady Chemiczne Siarki Siarkopol S.A. (Grupa Azoty SIARKOPOL) – a 99.56% interest,

Grupa Azoty Zakłady Azotowe Puławy S.A. (Grupa Azoty PUŁAWY) – a 95.98% interest,

Grupa Azoty Zakłady Azotowe Kędzierzyn S.A. (Grupa Azoty KĘDZIERZYN) – a 93.48% interest,

Grupa Azoty Polskie Konsorcjum Chemiczne Sp. z o.o. (Grupa Azoty PKCh) – a 63.27% interest, with Grupa Azoty KĘDZIERZYN holding a 36.73% interest,

Grupa Azoty Zakłady Chemiczne Police S.A. (Grupa Azoty POLICE) – a 62.86% interest,

Grupa Azoty Koltar Sp. z o.o. (Grupa Azoty KOLTAR) – a 60% interest, with Grupa Azoty PUŁAWY and Grupa Azoty KĘDZIERZYN each holding a 20% interest,

as well as the indirect subsidiaries and associates presented in the tables below.

The Parent, Grupa Azoty ATT Polymers GmbH, Grupa Azoty COMPOUNDING, Grupa Azoty SIARKOPOL, and Grupa Azoty KOLTAR are fully consolidated.

Grupa Azoty PUŁAWY

1)Grupa Azoty POLICE holds 7.35% of shares in Prozap Sp. z o.o.

Grupa Azoty Zakłady Azotowe Puławy S.A. and the subsidiaries in which it holds equity interests of more than 50%, with the exception of STO-ZAP Sp. z o.o., are consolidated using the full method. Bałtycka Baza Masowa Sp. z o.o. is consolidated using the equity method. STO-ZAP Sp. z o.o. and Technochimserwis S.A. (closed joint-stock company) are excluded from consolidation due to immateriality.

Grupa Azoty POLICE

¹⁾The Parent holds 30.52% of shares in Grupa Azoty Polyolefins S.A.

²⁾Grupa Azoty PUŁAWY holds 78.86% of shares in Prozap Sp. z o.o.

³⁾XOF is the West African CFA franc.

 

Kemipol Sp. z o.o. and Budchem Sp. z o.o. are consolidated using the equity method. The other companies on which Grupa Azoty Zakłady Chemiczne Police S.A. holds equity interests are fully consolidated.

 

Grupa Azoty KĘDZIERZYN

1)Grupa Azoty KOLTAR Sp. z o.o holds 0.783% of shares in ZAKSA S.A.

All companies in which Grupa Azoty Zakłady Azotowe Kędzierzyn S.A. holds equity interests are fully consolidated.

Azoty PKCh Sp. z o.o.

¹⁾Grupa Azoty Jednostka Ratownictwa Chemicznego Sp. z o.o. holds 60% of shares in Konsorcjum EKO TECHNOLOGIES and 12% of shares in EKOTAR Sp. z o.o.

²⁾Grupa Azoty Prorem Sp. z o.o. holds 12% of shares in EKOTAR Sp. z o.o.

All companies in which Grupa Azoty PKCh holds equity interests are fully consolidated.

Compo Expert Holding GmbH Group

COMPO EXPERT International GmbH

¹⁾ 0.000003% of the share capital is held by COMPO EXPERT GmbH.

²⁾ 0.01% of the share capital is held by COMPO EXPERT GmbH.

³⁾ 0.0103% of the share capital is held by COMPO EXPERT GmbH.

⁴⁾ 0.000311% of the share capital is held by COMPO EXPERT GmbH.

⁵⁾ 0.1% of the share capital is held by COMPO EXPERT GmbH.

⁶⁾ 3.83% of the share capital is held by COMPO EXPERT GmbH.

⁷⁾ 10.000024% of the share capital is held by COMPO EXPERT GmbH.

In addition, COMPO EXPERT GmbH holds shares in:

The consolidated financial statements of the COMPO EXPERT Holding GmbH Group are fully consolidated.

1.3. Changes in the Group’s structure

Changes in the Group’s structure, including changes resulting from business combinations, acquisitions or disposals of Group entities, as well as long-term investments, demergers, restructuring or discontinuation of operations in the reporting period.

Deregistration of Infrapark Police S.A. w likwidacji (in liquidation)

On January 9th 2020, the District Court for Szczecin-Centrum in Szczecin, 13th Commercial Division of the National Court Register, deleted Infrapark Police S.A. w likwidacji (in liquidation) from the Business Register of the National Court Register. As the company was not consolidated and the value of its shares was zero, the event had no financial effect on the Group’s consolidated financial statements.

Registration of an increase in Grupa Azoty POLICE’s share capital

On January 10th 2020, the District Court for Szczecin-Centrum of Szczecin, 13th Commercial Division of the National Court Register, registered an increase in the share capital and amendments to the Articles of Association of Grupa Azoty POLICE. The share capital was increased from PLN 750,000,000 to PLN 1,241,757,680 through an issue of 49,175,768 Series C ordinary bearer shares with a par value of PLN 10.00 and issue price of PLN 10.20 per share.

After the registration of the increase, the share capital of Grupa Azoty POLICE amounts to PLN 1,241,757,680 and is divided into 124,175,768 shares with a par value of PLN 10.00 per share, including:

60,000,000 Series A shares,

15,000,000 Series B shares,

49,175,768 Series C shares.

The total number of voting rights attached to all the shares in issue is 124,175,768.

Grupa Azoty POLICE raised capital of PLN 501,592,833.60. The purpose of the share issue is to raise proceeds to support the implementation of the Group’s strategy in the coming years, in particular to diversify revenue streams and increase profitability, and to step up the efforts to expand the non-fertilizer business lines. The key task undertaken in the pursuit of these strategic goals is the Polimery Police project.

As a result of its participation in the public offering of new shares in Grupa Azoty POLICE, the Parent acquired 28,551,500 shares and now holds in aggregate 78,051,500 shares in Grupa Azoty POLICE, representing 62.86% of its share capital. Prior to the issue, the Parent’s holding in Grupa Azoty POLICE represented 66% of its share capital.

Increase in Grupa Azoty Polyolefins S.A’s share capital

On January 24th 2020, an Extraordinary General Meeting of Grupa Azoty POLICE, and on February 17th 2020 – an Extraordinary General Meeting of the Parent approved the purchase by the companies of the shares, for the issue price specified by the General Meeting of Grupa Azoty POLYOLEFINS, by way of a private placement, within the meaning of Art. 431.2.1 of the Commercial Companies Code, in a number ensuring that the current percentage shareholdings of the Parent and of Grupa Azoty POLICE in Grupa Azoty POLYOLEFINS are maintained.

On February 18th 2020, an Extraordinary General Meeting of Grupa Azoty POLYOLEFINS passed a resolution to increase the share capital by PLN 131,944,310.00 through the issue of 13,194,431 new Series F registered shares with a par value of PLN 10.00 per share. The issue price of each Series F share was PLN 47.90.

The new shares were to be acquired in a private placement by Grupa Azoty POLICE, which was to acquire 6,993,048 shares for a total issue price of PLN 334,968 thousand, and the Parent, which was to acquire 6,201,383 shares for a total issue price of PLN 297,046 thousand.

The share subscription agreements should be executed and payments for the shares should be made by April 30th 2020.

On March 18th 2020, the Parent’s Management Board passed a resolution to acquire 6,201,383 shares in Grupa Azoty POLYOLEFINS as part of the issue of Series F shares, for the issue price of PLN 47.90 per share (total consideration of PLN 297,046,245.70). In order to implement the resolution, the Management Board requested the Supervisory Board to grant consent for the above actions.

On April 7th 2020, the Supervisory Board of the Parent approved the execution of an agreement to acquire Grupa Azoty POLYOLEFINS shares.

As Grupa Azoty POLYOLEFINS’ requirement for funds was deferred in time, the above equity contributions were not made and on April 30th 2020 the Extraordinary General Meeting of Grupa Azoty POLYOLEFINS resolved to amend the resolutions and postpone the deadline for payment in respect of Grupa Azoty POLYOLEFINS’ share issue until July 31st 2020. These payments were made by July 21st 2020. On August 3rd 2020, the District Court for Szczecin-Centrum in Szczecin, 13th Commercial Division of the National Court Register, registered an increase in the share capital of Grupa Azoty POLYOLEFINS from PLN 467,339,000.00 to PLN 599,283,310.00. The percentage interests in Grupa Azoty POLYOLEFINS’ share capital held by its existing shareholders (the Parent and Grupa Azoty POLICE) remained unchanged at 47% and 53%, respectively.

On November 16th 2020, the Annual General Meeting of Grupa Azoty POLYOLEFINS passed a resolution to issue new shares and increase the company’s share capital by PLN 323,684,990 to PLN 922,968,300. Under contractual provisions, the new shares were subscribed for by Hyundai Engineering Co., Ltd (Hyundai) – 15,348,963 shares, Korea Overseas Infrastructure & Urban Development Corporation (KIND) – 1,052,184 shares, and Grupa LOTOS S.A. (Grupa LOTOS) – 15,967,352 shares.

The cash contributions made to cover all the shares totalled PLN 594,699,600. Hyundai made a payment of USD 73,000,000 (equivalent to PLN 275,808,600), KIND made a payment of USD 5,000,000 (equivalent to PLN 18,891,000), and Grupa LOTOS made a payment of PLN 300,000,000. The share premium of PLN 271,014,610 will be allocated to the statutory reserve funds of Grupa Azoty POLYOLEFINS.

As a result, the respective equity interests in the company are 34.41% for Grupa Azoty POLICE, 30.52% for the Parent, 17.3% for Grupa LOTOS, 16.63% for Hyundai and 1.14% for KIND.

On November 27th 2020, the District Court for Szczecin-Centrum in Szczecin, 13th Commercial Division of the National Court Register, registered the increase in the share capital of Grupa Azoty POLYOLEFINS.

Koncept Sp. z o.o. and Prozap Sp. z o.o. merger registration

The merger was entered with the National Court Register on January 29th 2020. Following the merger of Prozap Sp. z o.o. (acquirer) and Koncept Sp. z o.o. (acquiree), Grupa Azoty POLICE received, in exchange for 1,023 shares in Koncept Sp. z o.o., 131 shares in Prozap Sp. z o.o.

As of January 29th 2020, the registered office of Koncept Sp. z o.o. in Police was transformed into a branch of Prozap Sp. z o.o. in Police, with the status of a separate employer.

In addition, on June 23rd 2020 3 shares in PROZAP Sp. z o.o., previously held by a former employee, were cancelled, and on December 3rd 2020 Grupa Azoty PUŁAWY acquired 7 shares from the other shareholders.

As a result, Grupa Azoty PUŁAWY and Grupa Azoty POLICE hold, respectively, 78.86% and 7.35% of shares in Prozap Sp. z o.o.

Repurchase of minority interests in Grupa Azoty SIARKOPOL

On March 26th 2020, an entry was made in the share register concerning acquisition by the Parent of 2,159 shares, by way of repurchase in accordance with Art. 418¹ of the Commercial Companies Code.

On March 27th 2020, the Parent received a declaration of the State Treasury’s acceptance of a repurchase offer for 7,604 employee-stock shares in Grupa Azoty SIARKOPOL which had not been acquired by that company’s eligible employees or their heirs. On May 8th 2020, a global certificate for the shares was delivered against a transfer report; accordingly, the Parent’s interest in the share capital of Grupa Azoty SIARKOPOL increased to 99.56%.

On July 31st 2020, the Annual General Meeting of Grupa Azoty SIARKOPOL passed a resolution to repurchase the shares under Art. 418¹ of the Commercial Companies Code. Based on the resolution, the Parent will repurchase 463 shares for PLN 46.83 per share. On August 21st 2020, the Parent paid for the 463 registered shares.

The shareholder entitled under the resolution to sell the shares did not submit the share certificate to Grupa Azoty SIARKOPOL within the statutory deadline in order to sell them, and notified the company of its decision not to sell the shares.

Therefore, Grupa Azoty SIARKOPOL returned the amount transferred to repurchase the registered shares to the Parent.

Change of name of Zakłady Azotowe Chorzów S.A.

On May 26th 2020, a change of the name of Zakłady Azotowe Chorzów S.A. to Grupa Azoty Zakłady Azotowe Chorzów S.A. (Grupa Azoty CHORZÓW) was registered in the National Court Register.

Cancellation of Remzap Sp. z o.o. shares

In 2020, 56 shares in Remzap Sp. z o.o., previously held by its former employees, were cancelled. As a result, the percentage of total voting rights at the General Meeting of Remzap Sp. z o.o. held by Grupa Azoty PUŁAWY increased from 96.83% to 97.05%.

Registration of COMPO EXPERT Egypt LLC

On August 10th 2020, a new company under the name of COMPO EXPERT Egypt LLC was registered (with a share capital of EGP 100,000.00 owned in 99.9% by COMPO EXPERT International GmbH, and in 0.1% – by COMPO EXPERT GmbH). The company’s objects are to strengthen the presence on the Egyptian market and protect intellectual property.

Winding up of Grupa Azoty Folie Sp. z o.o. w likwidacji (in liquidation)

On November 20th 2020, the General Meeting of Grupa Azoty Folie Sp. z o.o. w likwidacji (in liquidation) passed resolutions to review the Liquidator’s report on the company’s operations between January 1st 2020 and October 19th 2020 (the day preceding distribution among shareholders of assets left after creditor claims had been satisfied or secured), review the financial statements (liquidation report) as at October 19th 2020 (the day preceding distribution among shareholders of assets left after creditor claims had been satisfied or secured), approve the Liquidator’s statement on the performance of necessary actions to wind up the company, distribute its assets and complete the liquidation process, review the financial statements as at October 21st 2020 (the date of completing the liquidation process), and select the place for archiving documents.

On December 10th 2020, Grupa Azoty Folie Sp. z o.o. w likwidacji (in liquidation) was deleted from the National Court Register.

Registration of Grupa Azoty FOSFORY Sp. z o.o. name change

On December 15th 2020, a change of the name of Gdańskie Zakłady Nawozów Fosforowych Fosfory Sp. z o.o. to Grupa Azoty Zakłady Fosforowe Gdańsk Sp. z o.o. (abbreviated to Grupa Azoty FOSFORY Sp. z o.o.) was registered.

Events after the reporting date

On February 9th 2021 two shares in Prozap Sp. z o.o., previously held by a deceased shareholder (employee of the company) were cancelled.

As a result, the percentage of voting rights held by Grupa Azoty PUŁAWY at the General Meeting of Prozap Sp. z o.o. rose from 80.30% to 80.39%. The share in the capital did not change.

1.4. Management and Supervisory Boards of the Parent

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 meet the requirements under the Act on Statutory Auditors, Audit Firms, and Public Oversight of May 11th 2017 (Dz.U. of 2017, item 1089, as amended), 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.

After Marcin Pawlicki had resigned from the position of Chair of the Supervisory Board, the Audit Committee no longer met the requirements relating to a minimum number of members.

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 a resolution 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 consolidated financial statements are consistent with those applied to draw up the Group’s consolidated 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 Group’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 Group’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 Group has not elected to apply them early:

In these financial statements, the Group 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 Group 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 Group 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 of any proceeds from selling items produced while the entity is developing/preparing the asset for its intended use.

The Group 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 Group 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 Group 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 Group 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’, previously presented under equity attributable to owners of the Parent, was deleted from the statement of financial position.

 

 

 

2.3. Basis of accounting

These consolidated 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 consolidated financial statements are presented in the Polish złoty, rounded off to the nearest thousand, unless stated otherwise. The Polish zloty is the functional currency of the Group companies, except for the COMPO EXPERT Group companies, for which the functional currencies are presented in section 2.8 of these financial statements.

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 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 useful lives of property, plant and equipment, perpetual 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 recoverable amounts of goodwill and intangible assets with indefinite useful lives are presented in Note 13.1,

estimates concerning the impairment of intangible assets related to the exploration for and evaluation of mineral deposits are presented in Note 13,

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 Note 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 30.5.

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 of tax settlements 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 Group recognises and measures current and deferred tax assets and liabilities in accordance with the requirements of IAS 12 Income Taxes and IFRIC 23 Uncertainty over Income Tax Treatments based on a tax base determined in accordance with the relevant tax regulations, taking into account tax loss offsetting and the use of tax credits, if the relevant circumstances exist, using the applicable tax rates and taking into account the assessment of uncertainties related to the tax settlements of individual Group companies.

The Group companies are aware of the obligations to report MDR tax schedules under the Tax Law of August 29th 1997.

With the exception of COMPO EXPERT Holding GmbH, COMPO EXPERT International GmbH and COMPO EXPERT GmbH of Münster, Germany, which constitute a tax group for the purposes of income tax settlements in Germany, the Group does not have any corporate tax groups within the meaning of the corporate income tax law.

The Group companies treat all tax settlements with special care and diligence, in particular with respect to classification of expenses as tax-deductible and with respect to deduction of VAT.

If the Group companies conclude that it is probable that a taxation authority will accept an uncertain tax treatment, the Group companies determine the taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used in their income tax filings. In assessing whether and how an uncertain tax treatment affects the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, the Group companies assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information.

If the Group companies conclude it is not probable that the taxation authority will accept an uncertain tax treatment, they reflect the effect of uncertainty in the period when such determination is made. The Group companies recognise an income tax liability using either of the following methods, depending on which method they expect to better predict the resolution of the uncertainty:

they determine the most likely amount – the single most likely amount in a range of possible outcomes; or

they recognise the expected value – the sum of the probability-weighted amounts in a range of possible outcomes.

2.6. Going concern assumption

The consolidated full-year financial statements were prepared under the assumption that the Group 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 Group’s situation, see Note 36 Information on the effects of the COVID-19 pandemic. Considering the above circumstances, the Parent’s Management Board concluded that they did not pose any threat to the Parent or any of the material Group subsidiaries continuing as going concerns.

2.7. Basis of consolidation

2.7.1. Subsidiaries

Subsidiaries are entities controlled by the Parent or subsidiaries of the Parent. The Parent controls a subsidiary when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the subsidiary. The degree of control is assessed based on existing and potential voting rights that are exercisable or convertible as at the reporting date.

Subsidiaries are consolidated starting from the date when the Parent obtains control and cease to be consolidated when that control is lost.

2.7.2. Associates and joint ventures

An associate is an entity over whose financial and operating policy the Parent has significant influence but not control.

Joint ventures are arrangements under which two or more parties undertake a jointly controlled economic activity.

These consolidated financial statements disclose the Group’s share in equity-accounted associates’ aggregate profits or losses and other comprehensive income from the moment of obtaining significant influence to its loss or reclassification of an associate to assets held for sale.

Where the Group’s share in the loss of an associate exceeds the carrying amount of the investment, it is assumed that the share in aggregate profit or loss and other comprehensive income of associates is zero, and the Group recognises other losses up to the amount of contracted liabilities, if any.

2.7.3. Consolidation procedures

The following consolidation procedures are applied in preparing consolidated financial statements:

elimination, as at the acquisition date, of the carrying amount of the Parent’s investment in each subsidiary and of that portion of equity of each subsidiary which represents the Parent’s interest,

identification of non-controlling interests in the equity of subsidiaries and the profit or loss of individual subsidiaries attributable to non-controlling interests, as such profit or loss is disclosed in the consolidated financial statements for a given reporting period,

elimination of intra-Group settlements,

elimination of any unrealised profits on intra-Group transactions,

elimination of unrealised losses on intra-Group transactions, but only in the absence of impairment indicators,

elimination of income from and expenses relating to intra-Group transactions.

elimination of the effects of other intra-Group transactions which do not affect third parties.

2.7.4. Business combinations

Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which the Group obtains control of the acquiree. The Group recognises goodwill as at the acquisition date as the fair value of the payment made

oplus the recognised value of the non-controlling interest in the acquiree;

oif the business combination is achieved in stages – plus the fair value of the equity interest in the acquiree held by the Group prior to the acquisition;

oless the recognised net amount (fair value) of the identifiable assets acquired and the liabilities and contingent liabilities assumed.

Where the difference is negative, gain on a bargain purchase is recognised in the statement of profit or loss as at the acquisition date, under other income.

The fair value of the transferred payment does not include amounts related to the settlement of previously existing relationships. As a rule, such amounts are recognised in the statement of profit or loss for the current period.

Acquisition costs (other than costs of issuing debt or equity instruments) which the Group incurs in connection with a business combination are accounted for as costs of the period in which the costs are incurred, and are disclosed under administrative expenses.

Contingent consideration is recognised at fair value as at the acquisition date. If contingent consideration is classified as equity, it is not subject to remeasurement and its settlement is recognised in equity. Otherwise, subsequent changes in the fair value of contingent consideration are recognised in profit or loss for the period.

2.7.5. Acquisition of non-controlling interests

Acquisition of non-controlling interests is disclosed as a transaction with owners. Accordingly, no goodwill is recognised for such transaction. Adjustments to non-controlling interests are made pro-rata to the carrying amount of acquired net assets of the subsidiary.

2.7.6. Recognition of the rights and obligations related to repurchase of shares in Grupa Azoty POLYOLEFINS from non-controlling shareholders

For a detailed description of the rights of non-controlling shareholders of Grupa Azoty POLYOLEFINS under their put option, see Note 21.6. Representing an obligation to purchase its own equity instruments, the put option is recognised under the Group’s liabilities, given the possible future obligation to repurchase the shares covered by the put option. Considering that under the terms of the put option all material ownership rights would be transferred to the Group, in particular the right to dividend (by reducing the put option strike price by the amount of dividends paid by Grupa Azoty POLYOLEFINS until the put option is exercised), the related liability is recognised with a corresponding entry made to reduce those non-controlling interests, taking into account the need to ensure that the current percentage shareholdings of the Parent and of Grupa Azoty POLICE in Grupa Azoty POLYOLEFINS are maintained. Following initial recognition of the liability at the present value of the estimated put option strike price, the liability is subsequently carried at fair value with any changes taken to profit or loss. The fair value of the liability arising from the exercise of the put option is the best estimate of the discounted future settlement of the put option.

 

The call option over Grupa Azoty POLYOLEFINS shares granted to the Parent and Grupa Azoty POLICE is a derivative instrument relating to the entity’s own equity instrument from the perspective of the Group’s consolidated financial statements, and is therefore excluded from the scope of IFRS 9 Financial Instruments and not recognised in the financial statements.

In addition, as described in Note 21.7, upon full repayment of senior debt financing, the non-controlling shareholders of Grupa Azoty POLYOLEFINS will obtain the right whereby Grupa Azoty POLYOLEFINS will be able to repurchase the remaining shares not covered by the above options for cancellation. The right results in the recognition of the amount contributed by the non-controlling shareholders to subscribe for the shares not covered by the above options as a long-term financial liability, thus reducing the non-controlling interests.

2.7.7. Loss of control

Upon loss of control, the Group derecognises the subsidiary’s assets and liabilities, the non-controlling interest and the other components of equity related to the subsidiary. Any surplus or deficit arising from loss of control is recognised in the statement of profit or loss for the current period. If the Group retains any interest in the subsidiary, such interest is measured at fair value at the date of losing control of the subsidiary. Subsequently such retained interest is accounted for as an equity-accounted investee or other financial asset, depending on the level of influence retained.

2.8. 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 remeasurement of financial instruments measured at fair value, and qualifying cash flow hedges, which are recognised as other comprehensive income.

The following exchange rates were used for measurement purposes:

Assets and liabilities of foreign operations, including goodwill and adjustments made upon consolidation to bring the carrying amounts to fair value as at the acquisition date, are translated at the mid rate quoted by the National Bank of Poland at the end of the reporting period. Income and expenses of foreign operations are translated at the average exchange rate quoted by the National Bank of Poland in the reporting period.

Any translation differences are recognised as other comprehensive income and presented as exchange differences on translating foreign operations. However, if the Group does not hold all the shares in a foreign operation, the proportional part of exchange differences on translating the operation is recognised under non-controlling interests. When significant influence on or control or joint control of a foreign operation is lost, accumulated translation differences are recognised in gain or loss on the sale of that operation. If the Group only partially disinvests from a foreign operation but retains control of the entity, the relevant portion of accumulated value is recognised as non-controlling interest.

The functional currencies of companies of the COMPO EXPERT Group, acquired in November 2018, are presented in the table below. The exchange rates are in relation to the euro.

Financial data of the COMPO EXPERT Group companies have been translated into the euro at the exchange rates given in the table above, applied for IFRS reporting purposes in Germany, and then translated into PLN using the applicable exchange rates quoted by the National Bank of Poland.

3. Notes to the consolidated financial statements

Business segment reporting

The Group identifies operating segments based on internal reports. Operating results of each segment are reviewed on a regular basis by the Group’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 Group identifies the following operating segments:

Agro Fertilizers

Plastics

Chemicals

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 Group’s operating segments has been combined with another segment to create reportable segments.

The Group 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 Group’s financing (including finance costs and finance income) and income tax are monitored at the level of the Group 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 Group identifies the following geographical areas:

Poland

Germany

Other EU countries

Asia

South America

Other countries

Operating segments

The Group’s business objectives are delivered through four main reportable segments, identified based on separate management strategies (production, sales, and marketing) adopted in each of the segments.

Operations of the Company’s reportable segments:

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

oSpeciality (fertilizing/fertilizer) products (liquid fertilizers for foliar feeding and fertigation, biostimulants, SRF and CRF fertilizers for precise fertilization, dedicated NPK fertilizers),

oCompound fertilizers (NPK: Polifoski® and Amofoski®; NP: DAP; PK),

oNitrogen fertilizers with sulfur (solid: ammonium sulfate, ammonium sulfonitrite, urea-ammonium sulfate, calcium nitrate with sulfur; liquid: liquid: UAN- urea-ammonium nitrate solution, urea solution and ammonium sulfate solution,

oNitrogen fertilizers,

oammonia,

oTechnical-grade and concentrated nitric acid,

oIndustrial gases;

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

oCaprolactam (an intermediate product used to manufacture polyamide 6 (PA6),

oNatural engineering plastics (PA 6, POM – polyacetal),

oModified plastics based on PA6 and other engineering resins (POM, PA66, PPC - polypropylene, PPH, PBT - polybutylene terephthalate),

oPlastic products (PA pipes, PE pipes, polyamide casings);

oGrupa Azoty Polyolefins

Chemicals segment comprises the manufacturing and marketing of the following products:

oMelamine,

oOXO products (OXO alcohols, plasticizers),

oSulfur,

oTitanium white,

oIron sulfate,

oSolutions based on urea and ammonia;

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:

oResearch and Development Centre

olaboratory services,

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

orental of real estate, and

oother 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.

The internal management reports of each segment are reviewed by the Management Board on a monthly basis.

In 2020, for its internal purposes, the Group prepared and used management information focusing on the following management segments:

Nitrogen fertilizers

Compound fertilizers

Plastics (PA)

Polymers (PP)

OXO

Melamine

Pigments

Chemicals

Minerals extraction

Energy

Other Activities

This structure reflects business areas managed from the perspective of the Group’s principal companies. The areas were identified based on the key core business areas which make it possible – through diversification of the product portfolio − to mitigate market and economic cycle risks, thus maximising profits and cash flows. The division was made based on the following parameters:

Target market (B2B or B2C segments), including with respect to industries and, ultimately, customers,

Nature of the product and its final use (consumption or further processing),

Nature of the manufacturing process and production lines, including extension of the value chain.

For the purposes of reportable segments, the Group has aggregated the operating segments based on the following business and formal rationale.

Business rationale (sales- and production-related)

Agro Fertilizers: aggregation of nitrogen fertilizers and compound fertilizers

Rationale:

oCommon sales policy (pricing, marketing) dedicated to the markets for products based on nitrogen (N), sulfur (S), phosphorus (P), potassium chloride (K) and their mixtures,

oManagement of Group-wide manufacturing process taking into account the use of key intermediate products (ammonia/urea),

Plastics: end-to-end use of the Benzene/Phenol – Caprolactam – Polyamide value chain of individual Group companies,

Chemicals: aggregation of the melamine, chemicals, pigments, OXO, minerals extraction (sulfur) areas as intermediate products used in a broad range of applications in the chemical sector for their further processing into finished products,

Energy: similar nature of the manufacturing process, the product and its use at individual Group companies.

Formal rationale (IFRS 8 guidelines)

Plastics – aggregation of the Plastics (PA) and Polymers (PP) segments

Chemicals: aggregation of the chemical operations: melamine, chemicals, pigments, OXO, mineral extraction (sulfur), partly because none of the segments separately meets the quantitative thresholds set out in IFRS 8,

Energy: as a support segment with significant quantitative parameters.

Other rationale:

Other Activities, supporting the core business and/or focusing on non-core business areas.

 

Recognition of the transfer of Grupa Azoty POLYOLEFINS from Other Activities to the Plastics segment

Given significant progress on the Polimery Police project, operations of Grupa Azoty POLYOLEFINS were transferred from Other Activities to the Plastics segment. The decision was prompted by a considerable increase in assets, representing more than 10% of the Group’s total assets. Aggregation with the Plastics segment was effected in accordance with IFRS 8 with respect to the sales market, including in terms of the business sectors and customers, as well as the nature of the product and its end-use.

 

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, adjusted for gain on a bargain purchase.

** EBITDA is calculated as operating profit/(loss) before depreciation and amortisation, adjusted for gain on a bargain purchase.

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

* In accordance with the information provided in the note on business segment reporting.

**EBIT is calculated as operating profit/(loss) as disclosed in the statement of profit or loss, adjusted for gain on a bargain purchase.

*** EBITDA is calculated as operating profit/(loss) before depreciation and amortisation, adjusted for gain on a bargain purchase.

‎ Segment assets and liabilities

 

* In accordance with the information provided in the note on business segment reporting.
‎

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

 

 

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

No single customer accounted for more than 10% of revenue in 2020 and 2019.

Non-current assets

The non-current assets include property, plant and equipment, intangible assets, right-to-use assets, investment property, goodwill, shares, equity-accounted investments, and other assets.

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 Group 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 Group 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 Group 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 Group 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 Group takes into account specific issues, such as: determination whether the Group 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 Group enters into comprehensive contracts with customers for sale of electricity (supplied by third parties) and electricity distribution services provided over its own network. The Group 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 Group 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 Group 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.

Revenue recognised over time, including revenue from construction contracts

Contracts recognised over time executed by the Group are contracts with customers providing for the construction of an asset or a group of interrelated assets. Such contracts include in particular turn-key construction contracts, maintenance contracts, upgrade and redevelopment contracts. Contract revenue is recognised in a manner that reflects transfer of control to the customer. In particular, any variable consideration component (e.g. contractual penalty, discount, claim) is recognised by the Group in an amount which is highly probable not to be reversed and which can be reliably measured.

For each construction contract the Group assesses whether contract revenue is to be recognised over a period of time or at a point in time; but in the case of most of its construction contracts, the Group recognises revenue over the period of time during which contractual work is performed. For construction contracts in the case of which revenue is recognised over a period of time, the Group selects a method to measure progress in satisfying the performance obligation which faithfully depicts (represents) the Group’s performance in transferring control of the goods or services promised to the customer under the contract. Methods usually used by the Group which meet the objective described in the previous sentence include:

an input method in which the percentage of completion is determined as the proportion that contract costs incurred for work performed to date bear to the estimated (budgeted) total costs required to complete the contract;

an output method in which the progress towards completion is measured based on surveys of performance completed to date.

If the Group is not able to reasonably measure the outcome of a performance obligation, but expects to recover the costs incurred in satisfying the performance obligation, the Group recognises revenue only to the extent of the costs incurred until such time that it can reasonably measure the outcome of the performance obligation (i.e. using the zero profit margin method).

The Group presents:

an excess of revenue accrued based on progress towards completion (using an appropriate method) over invoiced receivables – as assets in the statement of financial position, under trade and other receivables;

an excess of invoiced receivables over revenue accrued based on progress towards completion (using an appropriate method) – as liabilities in the statement of financial position, under trade and other payables.

In the case of construction contracts, the payment terms are usually 30 days. Under a construction contract the customer may retain a specified percentage of payments, however, the purpose of such retention is to secure proper performance of the contract by the Group, which means the absence of a significant financing component. Under construction contracts, the Group provides to its customers performance bonds, for which it creates a provision in accordance with IAS 37.

Contract costs

Incremental costs of obtaining a contract

The Group 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 Group as an asset in trade and other receivables if the Group expects to recover those costs. As a practical expedient, the Group recognises incremental costs to obtain a contract as an expense when they are incurred if the amortisation period of the asset that the Group 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 Group 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 Group can specifically identify;

the costs generate or enhance resources of the Group 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

For the period Jan 1 – Dec 31 2019