Integrated Report of Grupa Azoty 2022

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Our products find applications in agriculture, as well as the food, automotive, electrical engineering and furniture industries. Our chemicals are used to manufacture a range of products, including household appliances, sports equipment, paints and varnishes. In accordance with the Strategy, the Strategic Business Area – Energy has been separated within the Group’s organisational structure.

The Agro Fertilizers, Plastics and Chemicals areas have been further divided into six business segments.

Complementing our business is the provision of services, mainly within the Group, which include environmental protection, research and infrastructure management. Services procured outside the Group include maintenance (automation, design, repair, etc.), logistics (road transport, rail transport, port facilities), and catalyst manufacturing.

Contribution to the Grupa Azoty Group’s revenue in 2022

Agro Fertilizers

The principal and largest area of the Group’s business is the manufacture of mineral fertilizers, comprising nitrogen fertilizers, compound fertilizers containing at least two of the key nutrients: nitrogen (N), phosphorus (P) or potassium (K), as well as speciality fertilizers. They facilitate modern, efficient and sustainable crop cultivation, which improves the profitability of agricultural business and makes food prices affordable. We produce fertilizers satisfying the requirements of specific plant species in variable climate and soil conditions. The fertilizer manufacturing activities are conducted by our companies based in Tarnów, Puławy, Kędzierzyn-Koźle, Police, Gdańsk, Chorzów, as well as in Germany and Spain. Our Group is Poland’s largest and the European Union’s second largest manufacturer of mineral fertilizers.

Product portfolio of the Agro Fertilizers segment:

nitrogen fertilizers,
nitrogen-sulfur fertilizers,
two-component fertilizers (NP, NK, PK),
compound fertilizers,
speciality fertilizers (COMPO EXPERT).

In addition, Agro products include ammonia and other nitrogen-based intermediates.

Financial highlights

(PLNm)	2021	2022	CHANGE
REVENUE	8,767	15,104	72%
EBITDA	777	1,361	75%
EBITDA MARGIN	8.9%	9%	0.1 pp

Grupa Azoty Group’s production capacities vs competition (Mineral fertilizers)

Urea

is a fertilizer with a 46% nitrogen content. It is produced by our plants in Puławy, Police and Kędzierzyn-Koźle. Whether in granular form or as a solution, it can be used for all types of crops during different growth phases, which makes it a universal fertilizer. Urea also finds applications outside of agriculture, for instance in the production of adhesive resins for the wood-based panel industry. It can be used to produce other chemicals, such as the liquid fertilizer UAN (urea-ammonium nitrate solution, RSM®) or melamine. Natural gas is the main feedstock in manufacturing nitrogen fertilizers.

We offer nitrate fertilizers in three forms:

Ammonium nitrate – a fertilizer easily dissolved in water, with a 28% to 34% nitrogen content.
Calcium ammonium nitrate (CAN) – a fertilizer with a nitrogen content of up to 28%. It is a universal product, suitable for all types of soil. Its easy solubility makes it readily absorbable by plants.
Urea-ammonium nitrate solution – a liquid nitrogen fertilizer coming in three varieties: with a 32%, 30% and 28% nitrogen content. Thanks to its form, it is easily absorbed by plants. It is also produced with an admixture of sulfur.

Sulfur-nitrogen fertilizers

substances improving the sulfur content in soil, enhancing the ability of crop plants to absorb nitrogen, and thus increasing the quality and volume of crops.

Compound fertilizers

universal products which, depending on composition, can be applied to various types of crops and soil. Apart from primary components, that is nitrogen, phosphorus and potassium, they also contain magnesium, sulfur and calcium, and may contain microelements such as boron or zinc. The Group's current portfolio includes more than 40 types of compound fertilizers. We also manufacture fertilizers customised to meet specific needs.

Speciality fertilizers

products tailored to the requirements of fruit and vegetable production, horticulture and maintenance of green areas. Apart from the primary components, they contain secondary nutrients and microelements, as well as inhibitors to reduce nutrient leaching.

Over the years, we have cultivated strong partnerships with Polish farmers, gaining an understanding of their needs, expectations, and the challenges faced by food producers. In 2022, we participated in the 17th edition of the AFCOME International Meetings, the event organised by AFCOME, a professional association of agricultural supply companies, cooperatives and private companies engaged in the distribution and manufacture of mixed fertilizers in France. The conference was structured around three thematic sessions focusing on innovation and agronomics, agriculture and the fertilizer market in the international context, and in the economic and regulatory context. Emphasis was placed on decarbonisation of the plant nutrition sector, with discussions spanning a broad spectrum of topics. The event drew a diverse audience, including farmers, fertilizer distributors and producers, and a wide group of scientists. The detailed programme of the AFCOME International Meeting is outlined below. Our representatives from Grupa Azoty shared insights into the landscape of the agricultural and fertilizer sectors in Poland, elucidating the unique characteristics of these markets and their participants.

Percentage of farms using Grupa Azoty fertilizer products in the past 12 months

Percentage of farms using Grupa Azoty fertilizer advisory services

In 2022, Grupa Azoty was a co-organiser of the Argus Fertilizers East Europe 2022 conference, where our speakers delivered a paper entitled ‘Urea with inhibitors – Polish point of view’.

Plastics

We produce engineering plastics, which exhibit high thermal resistance and good mechanical properties. They are successfully applied across the automotive, construction, electrical engineering, food and textile industries. In addition, they can be found in household appliances. Engineering plastics include mainly polyamide 6 (PA6) and modified plastics, as well as auxiliary products, such as caprolactam and other chemicals. The Group is the leading manufacturer of PA6 in Poland and the third largest producer of this polyamide in the European Union.

Financial highlights

(PLN MILLION)	2021	2022	CHANGE
REVENUE	1,829	2,083	13.9%
EBITDA	200	-46	-23%
EBITDA MARGIN	10.9%	-2.2%	-13.1 pp

Grupa Azoty Group’s production capacities vs competition (Polyamide 6)

The Plastics area is divided into two segments: polyamide plastics and polyolefins¹.

Product portfolio of the polyamide plastics segment:

polyamide 6,
caprolactam,
compounds based on PA6, PP, PBT and PA6.6 polyamides,
sulfuric acid,
oleum,
cyclohexanone oxime (Tarnoks),
cyclohexanol.

Planned product portfolio of the polyolefins segment:

polypropylene:
- PP homopolymers,
- PP copolymers.

¹ Production of plastics in the polyolefins segment will begin after the launch of production by Grupa Azoty Polyolefins (scheduled for 2023).

Chemicals

The third key area of our business is the Chemicals segment. It comprises three units: Pigments, Oxoplast™ and Tech Grade Urea. Our Group is a leading producer of melamine, ranking third in the European Union, and the sole Polish manufacturer of OXO alcohols, holding the fourth and fifth position, respectively, on the EU market in the production of OXO alcohols and plasticizers. Grupa Azoty ranks as the European Union’s largest manufacturer of DOTP plasticizer, marketed under the Oxoviflex™ brand. The Group is also Poland’s only producer of titanium white.

Product portfolio of the Chemicals segment:

titanium white,
iron sulfate III,
aldehydes,
OXO alcohols,
Oxoviflex™ general-purpose plasticizers,
Oxofine™ speciality plasticizers,
technical grade urea,
RedNOx products,
melamine,
technical grade nitric acid,
concentrated nitric acid,
mixed acids,
ammonium nitrate solution.

Financial highlights

(PLN MILLION)	2021	2022	CHANGE
REVENUE	4,630	6,413	38.5%
EBITDA	674	773	14.7%
EBITDA MARGIN	14.6%	12.1%	-2.5 pp

OXO alcohols are used in the manufacturing processes across various industries: plasticizers, paints and varnishes, textiles and refining products, and as solvents of vegetable oils, animal fats, resins, waxes and petrochemical products.
Plasticizers are a key additive to PVC, whose incorporation enhances the elasticity and flexibility of the material, but their applications extend far beyond this role. Plasticizers can be introduced to other polymers and products, enhancing their overall performance. The choice of plasticizer can significantly influence the physical and chemical properties of an end product. Presently, over 90% of plasticizers on the European market are utilised by the soft PVC sector. The remaining 10% encompass a broad spectrum of applications that impact the daily lives of many people. Key applications include electrical cables and wires, film, PVC flooring, paints, hoses and profiles, wallpaper, footwear soles, upholstery, food contact materials, toys, and various others such as seals, roofing, inks, sealants, adhesives, and paints.
Mined sulfur is used in the production of sulfuric acid applied in the chemical industry.
Melamine is a non-toxic and non-flammable white powder used, among other applications, in the production of synthetic resins, thermosetting plastics, adhesives, paints, varnishes and fire retardants.
Titanium white is the most widespread category of inorganic pigments characterised by the highest refractive index. Its other properties include the capacity to absorb harmful ultraviolet radiation. Industrial applications of titanium white include the manufacture of paints and varnishes, plastics, paper products, synthetic fibres, ceramics, rubber, cosmetics, pharmaceuticals and food products.
Technical grade nitric acid finds its applications in nitrogenation processes, in cleaning of apparatus and equipment made of acid-resistant steel, in horticulture for substrate acidification, in metal treatment processes and in the plastics industry.

See the location of our production plants

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A diversified supplier base and ongoing quest for alternative sources of supply ensure the Group’s security in the procurement of strategic raw materials. Through the centralisation of large-scale purchases, we effectively minimise the costs associated with acquiring and transporting raw materials to our plants in Poland, Germany, and Spain. Furthermore, we are exploring the possibility of establishing equity links with our raw material suppliers.

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See the markets to which we sell our products

While our products find their way into markets worldwide, Poland remains our largest and most significant market, where we sell fertilizers and products of the Chemicals segment. Internationally, the largest volumes are sold in Germany, the United Kingdom, the Czech Republic, Italy, France and Belgium. Our export portfolio includes mainly fertilizers, plastics, and OXO alcohols sold to Europe, and polyamide 6 sold to Asia. Additionally, our fertilizers reach customers in South America, North America, and Africa.

A crucial aspect of the Oxoplast™ business strategy is regional diversification, exemplified by our ongoing expansion of warehouse facilities on the east coast of the US. Presently, we boast a storage capacity of 2,500 tonnes for 2-EH alcohol and 1,500 tonnes for the Oxoviflex™ plasticizer. Our ambitious goal is to sell more than ten thousand tonnes of both products annually in the US market.

Downstream, our value chain includes customers, distributors and end users. The Group’s customer base comprises mainly producers and processors across various industries such as agricultural, food, chemical, automotive, transport, construction, paper, textiles, plastics, energy, mining and medical, as well as scientific and research institutions.

In 2022, there were no significant changes in the Grupa Azoty Group’s operating sectors, value chain or material business links relative to the previous reporting period. Furthermore, the Company and its subsidiaries do not hold any material assets in Ukraine, Russia or Belarus, and sales to those markets before the outbreak of the war in February of 2022 were immaterial, accounting for less than 2.5% of total sales. Since the outbreak of the war in Ukraine, sales of products to entities from Russia and Belarus have been suspended. Sales to the Ukrainian market, on the other hand, have been significantly reduced due to the unavailability of trade credit insurance and deteriorating financial condition of the buyers. Accordingly, the outbreak of the war in Ukraine did not have a material effect on the Group’s sales or value of its assets.