Introduction

Letter from the President of the Management Board

Ladies and Gentlemen,

we are pleased to present another integrated report of the Grupa Azoty Group.

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Ladies and Gentlemen,

we are pleased to present another integrated report of the Grupa Azoty Group. We would like to show you how each of our key companies has been creating value for themselves, the entire Group and the Polish economy. We believe in safe and useful chemicals, developed through innovation, helping mankind to confront the challenges of the 21st century. Never before has science opened such an array of exciting opportunities before our industry – at the Grupa Azoty Group, we know how to ride that wave, proving daily, with every our product, that modern chemicals can indeed make the world a better place to live in.

We are Poland’s largest chemical producer, our products finding applications across virtually all sectors of the economy. For the past two years we have been named among the world’s top chemical companies in the ‘Value Creation in Chemicals’ ranking. Being a leader does not mean, however, that we can afford to stop making progress – on the contrary, we are an organisation that wants and knows how to align its plans with the prevailing market conditions. That ability of ours was amply demonstrated in 2016 and 2017, as we responded to economic cycle changes, Industry 4.0 and big data solutions, new environmental regulations, and newly emerging trends in the labour market with our updated business strategy until 2020. The four key objectives to springboard our future growth are to complete the Group’s consolidation, strengthen our offering of agro-solutions, expand our non-fertilizer business, as well as generate and deploy innovations to accelerate advances in the chemical sector. Having updated the strategy, we also revised our corporate metrics, which provide an appropriate benchmark, reflecting current market conditions, to measure our performance against the strategic objectives and our progress in their delivery. For a detailed description of our new strategic approach, see further parts of this report.

We see investment as the main driver of the Group’s expansion. In recent years, we have changed the structure of funding sources to facilitate the delivery of key investment projects. I am confident that the measures we have taken will translate into long-term financial security for each of the Group’s key companies. We are consistently pursuing our investment plans, for which we allocated a budget of over PLN 2bn in 2016–2017. Another noteworthy fact is our safe debt level: with a net debt to EBITDA ratio of about 0.3 we can comfortably implement our growth plans while retaining high credit ratings from financial institutions.

 Either directly or indirectly, our fertilizer and non-fertilizer products are present in the life of every Pole, as well as many people from around Europe and the world. Meanwhile, the heavy chemicals sector – in addition to a wealth of opportunities it certainly offers – must entail a special degree of responsibility, an aspect to which our Group attaches strategic importance. Our activities and decisions prove that it is possible to combine business and economic value growth objectives with sustainable and safe production, operational and management excellence, development of a coherent value-based organisational culture and innovation, improving our social and economic impacts.

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As demonstrated by the Responsible Companies Ranking 2018, we are the industrial sector’s leader in responsibility. We have signed the declaration of partnership for the United Nations’ Sustainable Development Goals at the Ministry of Entrepreneurship and Technology. We regularly submit to assessment for the purposes of both Polish and foreign ratings of ESG (Environmental, Social and Governance) performance, confirming that we qualify for a range of prestigious indices, including Respect Index, MSCI ESG and FTSE4Good Emerging Index. The four key Group companies have been certified for conformity with the Product Stewardship Standard.

We are proud of the Group’s integrated approach to social, environmental and economic aspects, seeking to propagate it also among our customers. A case in point described in this report is our effort to promote precision agriculture. We share our knowledge accumulated over the years with students, scientists and farmers, for example through the ‘Grounded in Knowledge’ initiative. Every year we are encouraged thousands of farmers to produce safe, quality and profitable food, while taking measures to protect the environment, tailored to the needs of Polish agriculture.

The Group’s sustainable development would not be possible without innovative products. We aim to be an industry leader in implementing R&D projects. In this report, you will read about our new Research and Development Centre soon to be constructed in Tarnów, as a powerhouse of innovation delivering advanced materials, fertilizer products and environmentally-friendly solutions. The Group’s commitment to innovation is also manifest in its entry into Innovation Pitch competitions and launch of Idea4Azoty – our own acceleration project allowing innovative investors to receive the Group’s all-round support, from co-funding, through access to facilities, to advisory services.

Ladies and Gentlemen, the Grupa Azoty Group operates in a highly competitive global market. I am convinced we can maintain a strong footing in each area of our business, while winning new markets and bringing new clients. The ongoing integration of our Group with its synergic benefits is a source of major competitive advantage. At the same time, we are extending our value chain, investing in new products and technologies. Our ambition is to provide a growth stimulus to the Polish chemical industry and satellite sectors, while reducing Poland’s trade deficit in chemicals. You will find out from this report how we are working towards these goals. Have a good read!

Best regards,

Wojciech Wardacki, President of the Management Board

Awards and distinctions 2016-2017

Good business

‘Leader of Polish Export’ – Grupa Azoty S.A. received a Cup of the Leader of Polish Export, awarded by the Association of Polish Exporters.

‘200 Largest Polish Companies’ and ‘Polish Ambassadors’ – Grupa Azoty S.A. ranked high in the Wprost weekly’s list of ‘200 Largest Polish Companies’ (17th place) and secured the 4th position among Poland’s largest exporters in the ‘Polish Ambassadors’ ranking.

‘Business Powers 2016’ - Grupa Azoty S.A. was awarded the ‘Business Power 2016’ title in the 9th edition of the ‘Business Power’ awards organised by the European Business Institute.

‘Engine of the Polish Economy’ - Grupa Azoty S.A. was included among ‘Engines of the Polish Economy’ in a ranking by the Home & Market magazine, covering ten leading sectors of the economy. Among the ten winners – one winning representative from each sector – Grupa Azoty S.A. took the first place in the Chemical Industry category. The company was awarded “for its constant efforts to change the face of the Polish chemical industry”.

Grupa Azoty S.A. named the ‘Champion of Change of Polish Industry’
On January 20th 2016, during the ‘We Change Polish Industry’ Forum, Grupa Azoty S.A. was named the ‘Champion of Change of Polish Industry’. It was distinguished for its “unprecedented investment projects” and wide-ranging investment programme currently under way.

‘For Merit in Quality Culture’ medal – Grupa Azoty S.A. received a medal awarded to commemorate the POLSKIE FORUM ISO 9000 Club’s 25th anniversary: ‘For Merit in Quality Culture’. It was presented during the ‘Through Quality’ jubilee conference held at the Ministry of Development.

Companies of the Grupa Azoty Group listed among ‘Business Cheetahs’ of the chemical industry
In August 2016, out of nearly 35,000 enterprises whose financial performance was reviewed by the European Business Institute in July 2016, the title of the ‘Business Cheetah 2015’ was awarded to 265 companies of the chemical industry. Grupa Azoty S.A. and Grupa Azoty Police were again included in the prestigious list (ranking 90th and 116th, respectively).

Grupa Azoty Kędzierzyn – ‘Quality Award’
The Polish Chamber of Commerce awarded a ‘Quality Award’ to Grupa Azoty Kędzierzyn in the category of large manufacturing organisations.

‘Investor Friendly Company’ certificate
During a gala event marking the 20th anniversary of the WallStreet Conference in 2016, Grupa Azoty S.A. received an ‘Investor Friendly Company’ certificate under the ‘10 out of 10’ programme, dedicated to listed companies following best market practices in communication with retail investors.

‘Transparent Company 2016’ - Grupa Azoty S.A. was awarded the prestigious title of Transparent Company 2016 in the first edition of a ranking prepared by the Parkiet daily and the Institute of Accountancy and Taxes, with the support of the Warsaw Stock Exchange, ranking among the twenty most transparent companies included in the WIG20, WIG40 and WIG80 indices that agreed to have their transparency assessed.

Inclusion in 10 consecutive editions of the Respect Index
Grupa Azoty S.A. is among the select group of companies with outstanding social responsibility records included in the WSE’s RESPECT Index since its inception.

Innovation

PLASTPOL 2017 - at the 21st International Fair of Plastics and Rubber Processing PLASTPOL in Kielce, Grupa Azoty S.A. received a medal for the art of presentation and style of its appearance at the fair, and distinction for a new type of Tarnamid® designed for application in the railway industry.

‘Golden Crane of Agriculture’ for Grupa Azoty S.A. - the award was granted in recognition of the ‘Grounded in Knowledge’ research project.

Grupa Azoty S.A. with ‘Diamonds of the Polish Chemistry’ - the award in the Business Executive category went to the President of Grupa Azoty S.A. Management Board, and in the Investment of the Year category – to Grupa Azoty Puławy for its project to construct a new facility for production of granulated fertilizers based on ammonium nitrate.

Grupa Azoty S.A. ranked among the top ten names in the ‘2016 Environmentally-Minded Business’- ranking, published by the Gazeta Finansowa weekly. The report was to assess environmental strategies of Polish companies, highlighting the most attractive solutions.

Community involvement and contribution to the Group’s environment

Grupa Azoty S.A. as a ‘Golden Sponsor’ - Grupa Azoty S.A.’s long-standing partnership with the city of Tarnów was appreciated during the 10th edition of the Investment Forum. The company was honoured with a ‘Golden Sponsor’ statuette, as a token of appreciation for its support to the initiative.

Distinction in ‘Best Practices – Business, Education and Science’ - Grupa Azoty S.A. received a distinction in the competition promoting model examples of ties between industry and science.

Labour practices and decent work

Grupa Azoty Group companies as ‘Safe Work Leaders’
Grupa Azoty Group companies were recognised by the Safe Work Leaders’ Forum. Three strategic Group companies (Grupa Azoty S.A., Grupa Azoty Puławy and Grupa Azoty Police) received the highest distinction – the ‘Gold Card of Safe Work Leaders’ for their achievements in improving work conditions, safety and protection of people in the workplace.

Grupa Azoty S.A. as an ‘Icebreaker’
Social awareness and promoting the activity of the disabled in various spheres of life were the merits that earned Grupa Azoty S.A. the third place in this year’s ‘Icebreaker’ competition held by the Foundation for the Professional Inclusion of People with Disabilities.

We support the United Nations’ Global Sustainable Development Goals
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