Integrated Report of Grupa Azoty 2022

TABLE OF CONTENT

[IR - Business model] [IR - Presentation of results]

Our global efforts mitigate the domestic trade deficit in chemicals, contributing to a more balanced economic landscape. In our commitment to staying responsive to market needs, innovation stands at the forefront, strategically transforming our revenue structure in a deliberate shift towards a higher proportion of high-margin, fine speciality chemicals.

Grupa azoty s.a.

Value creation model

OPERATIONAL EXCELLENCE STRATEGY

We will improve our operations based on three pillars: Logistics, Capital assets management, and IT.

INNOVATION STRATEGY

Our goal is to deliver new and improved products of high quality and maintain our competitive advantage in the long term.

FEEDSTOCK STRATEGY

Our key strategic goal in the feedstock area is to ensure the security and continuity of supplies. We also intend to continue efforts aimed at more efficient utilisation of our own feedstock assets.

MANAGEMENT STRATEGY BASED ON BUSINESS SEGMENTS

We plan the introduction of a new organisational model to fully realise the synergies between our companies that we have been consistently unlocking. We will completely integrate some support functions and introduce a management approach based on key business segments.

FINANCIAL STRATEGY

One of our strategic financial objectives is to continue the consolidation of the finance function, which will improve the management of the Grupa Azoty Group at the level of individual business segments.

ESG STRATEGY

We will develop the Grupa Azoty Group sustainably, meaning that we will consider environmental protection, concern for the society and responsible corporate governance (ESG aspects) in the process. The Group will continue to support the implementation of the United Nations 2030 Sustainable Development Goals.

At Grupa Azoty S.A., we regularly identify, assess and control business risks, covering ESG risks (related to environmental, social and governance issues, including climate-related risks) and regulatory risks.
In 2022, our total assets amounted to PLN 25,865,644 thousand, of which PLN 16,948,753 thousand were non-current assets.
Financing sources in 2022:

-The Group’s equity comprises retained earnings, share premium and share capital. Equity amounted to PLN 9,956,367 thousand.

-The Group’s external sources of finance comprised mainly bank borrowings of PLN 5,063,544 thousand, other borrowings of PLN 597,900 thousand and reverse factoring liabilities of PLN 1,287,442 thousand.

-The Net Debt to EBITDA ratio was 0.86.
The Group received over PLN 1,873,811 thousand in financial assistance from the government [201-4].
Three Group companies (Grupa Azoty S.A., Grupa Azoty Zakłady Azotowe Puławy S.A. and Grupa Azoty Zakłady Chemiczne Police S.A.) are listed on the Warsaw Stock Exchange.
Stable management of our Group is based on market standards – in quality, environment and safety management, we align with globally recognised ISO standards (including ISO 9001, ISO 14001, ISO 45001) and applicable industry systems.
The Grupa Azoty Group has been taking numerous measures to prevent and offset its negative impacts on natural resources. We measure our Scope 1 and 2 carbon footprint, seeking to mitigate our impact on the climate, e.g. by implementing the TCFD recommendations (since 2020) and by analysing risks and opportunities that arise from climate change.

OUTPUTS AND RESULTS

Improved operating performance of the Grupa Azoty Group in 2022:

-Consolidated revenue reached PLN 24,657,853 thousand (up PLN 8,756,594 thousand on 2021).

-EBITDA came in at PLN 2,545,495 thousand (up PLN 598,181 thousand year on year).

-EBITDA margin was maintained at 10.3% in 2022, to reach the >16% target by the end of 2030.

-Consolidated net profit posted by the Group was PLN 583,820 thousand.
The Group paid PLN 104,866 thousand in income tax for 2022.
In its ongoing commitment to financial security and continued funding of green investments, the Grupa Azoty Group is engaged in various initiatives. For instance, as part of our New Energy Concept, Grupa Azoty Kędzierzyn successfully completed the construction of a 1 MW solar PV system, with an investment value of PLN 3,500 thousand.
The Grupa Azoty Group is consistent in its efforts to mitigate emissions by reducing coal usage, decarbonising the business and developing renewable energy and carbon-free sources.
Looking ahead to 2030, the Group will pursue its innovation strategy, focusing on the creation of new and improved products. This strategic approach not only ensures sustained profitability, but also positions us to gain a competitive advantage.

¹The Net Debt to EBITDA ratio was calculated in accordance with the definition set out in the financing agreements of the Grupa Azoty Group.

OUR INPUTS

The Grupa Azoty Group is comprised of more than fifty companies.
We have production plants in various locations, including Poland, Germany and Spain.
We operate within three segments: Agro Fertilizers, Plastics and Chemicals.
In 2022, our investments totalled PLN 2,746,326 thousand, of which business growth CapEx accounted for approximately 65% (up from 50% in 2021).
In 2022, the four key Group companies undertook 152 investment projects. 120 investment projects were carried through to increase efficiency and improve production quality.
In 2022, we established a new company under the name Grupa Azoty Energia.
We are continuing capital projects started in recent years. In 2022, we allocated over PLN 1,533,925 thousand (PLN 705,320 thousand more than in 2021) to our largest project, Polimery Police, aimed to construct an integrated chemical complex that would comprise a marine gas handling and storage terminal, a propane dehydrogenation (PDH) unit, a polypropylene production unit with logistics infrastructure, auxiliary facilities and interconnections.

OUTPUTS AND RESULTS

The Grupa Azoty Group plays a significant role as one of the principal consumers of raw materials in Central and Eastern Europe, contributing to the region’s dynamic development. In 2022, the cost of raw materials consumed by the Group totalled PLN 18,066,049 thousand (up PLN 7,676,042 thousand year on year).
The Grupa Azoty Group remains Poland’s largest and European Union’s second largest manufacturer of mineral fertilizers.
The Group contributes to strengthening Poland’s position on the European plastics market, including through the addition of biodegradable plastics into its product mix. Furthermore, during 2022 the Plastics segment secured the ISCC Plus certification for polyamide 6.

OUR INPUTS

The amount of research and development work expensed by the Grupa Azoty Group in 2022 was PLN 23,346 thousand (relative to PLN 19,524 thousand in 2021, up by 20%).
In line with our innovation strategy, we will allocate up to 2–3% of the Group’s total revenue to research and development until 2030.
In 2022, we commenced work on the Strategic Research Agenda for the Grupa Azoty Group, a comprehensive document outlining the Group’s research and development needs. Setting out directions for the Group’s development, it also serves as a strategic plan to bridge the gap between the present and the envisioned future.
In 2022, we successfully expanded our digital repository of R&D projects spanning the last 23 years. Two new modules – Market Analyses and Patents and Licences – were introduced, offering a digital collection of all licences and patents held by the four key Group companies.
Work was completed to transform the existing Plastics Laboratory into the Plastics Application Design and Development Centre. The Centre operates under a certified integrated quality, environmental, and safety management system (ISO 9001, 14001, 45001) and implements the IATF 16949 automotive system.
2022 was also the year when the Research and Development Centre of Grupa Azoty Kędzierzyn was officially launched. The PLN 39 million project will allow the company to expand the scale and scope of its current research, especially in the Oxoplast™ segment.
We have long-standing collaborative partnerships with several dozen leading universities and member institutes of the Łukasiewicz Research Network. We jointly run both commercial projects and projects partly financed with European funds, granted via the National Centre for Research and Development under the Smart Growth Operational Programme.

OUTPUTS AND RESULTS

In 2022, the four key companies of the Grupa Azoty Group were awarded 10 patents.
The Grupa Azoty Group mitigates its adverse environmental impacts through pro-environmental investments, including in flue gas desulfurisation, industrial wastewater treatment, and reduction of water and electricity consumption. Compared with 2021:

-we cut down the consumption of fine coal and thermal coal by nearly 18%,

-we reduced sulfur dioxide emissions by 14%,

-our carbon footprint (Scopes 1 and 2) was reduced by 1,440 thousand Mg CO2e, or approximately 18% in relative terms.
Agricultural innovations:

Grupa Azoty Police is considering the market launch of Polist, a liquid foliar fertilizer with an 18% amide acid content. Polist is a universal nitrogen fertilizer in liquid form recommended for all species of crop plants, including winter and spring cereals, winter rape, maize, potatoes, grassland, as well as vegetables and fruit.

In 2022, we implemented into our business the production of humic acids for Tohumus® (the main product). The new line was developed through research work carried out at the Grupa Azoty Research and Development Centre in Tarnów. We continue to work on further products, and we have confirmed that Tohumus® can be applied with Polist foliar fertilizers containing selected microelements.
Green innovations:

Other innovations:

OUR INPUTS

In 2022, our Group’s procurement platform registered approximately 27,000 local and international suppliers (an increase of 2,000 compared with the previous year).
The Grupa Azoty Group’s reach extends to customers in 110 countries, with a focus on developing distribution in five regions: the European Union and other European countries, Asia, North America, South America, and Africa.
The Group is an active member of industry organisations and initiatives, including those dedicated to promoting sustainability. In 2022, it expanded its involvement by joining Hydrogen Europe and ERCST.

OUTPUTS AND RESULTS

In 2022, the four key Group companies gained new client accounts and customers: Grupa Azoty S.A. – 1,013 clients and 582 customers, Grupa Azoty Police – 704 clients and 310 customers, Grupa Azoty Kędzierzyn-Koźle – 596 clients and 249 customers, Grupa Azoty Puławy – a total of 325 suppliers and customers. Net margin, calculated as net profit or loss to revenue, posted by the Grupa Azoty Group in 2022 stood at 2.4% (compared with 4% in 2021).
We kept expanding on new markets, leveraging COMPO EXPERT’s distribution network and business links with traders on distant markets.
The Grupa Azoty Group is Poland’s largest producer of:

- mineral fertilizers (No. 1 producer in Poland and No. 2 producer in the EU),

- polyamides (No. 1 producer in Poland and No. 3 producer in the EU),

- OXO alcohols (No. 1 producer in Poland and No. 4 producer in the EU),

- plasticizers (No. 1 producer in Poland and No. 5 producer in the EU),

- melamine (No. 1 producer in Poland and No. 3 producer in the EU).

OUR INPUTS

The continually expanding infrastructure empowers the research and development staff at each of our Group companies to test new technological solutions and undertake research into plastics and fertilizers.
In 2022, the Grupa Azoty Group’s expenditure related directly to product development (CapEx) amounted to PLN 1,788,074 thousand.
We are responsible for our products along the entire supply chain. We operate the Product Stewardship Programme as a member of Fertilizers Europe.

OUTPUTS AND RESULTS

The Grupa Azoty Group is CEE’s first producer to offer fully biodegradable plastics.
We are expanding the product portfolio to include new speciality plastics such as AZOVILEN® S and AZOVILEN® G, developed in the ‘Research to develop new formulas for preparations based on urease inhibitor’ project, carried out in collaboration with the Research and Development Centre of Grupa Azoty S.A.
We use efficient fertilizer formulas that help reduce greenhouse gas emissions, such as Fosfarm, which perfectly fits with the ambitions outlined in the EU’s Farm-to-Fork strategy.
The Group’s intention is to measure the carbon footprint of all its products.
Our ambition is to maintain the lead in fertilizer production on the Polish market by identifying and addressing the evolving needs of farmers and consumers. Some examples of our farmer support programmes include Grounded in Knowledge, Nawozy.eu, SatAgro, etc.

OUR INPUTS

The Grupa Azoty Group employs over 15,000 staff (almost 10,000 at the four key companies), maintaining an unwavering commitment to employee development.
In 2022, the four main companies of the Grupa Azoty Group spent nearly PLN 3 million on employee training and development.
We have run the Grupa Azoty Brand Ambassador programme through successive editions to build lasting relations between the academic community and industry. In 2022, the Group worked with six students promoting the Grupa Azoty brand within academic and scientific communities.

OUTPUTS AND RESULTS

The Grupa Azoty Group is the largest employer in the regions where it operates.
In 2022, female employees represented 33% of all managers and 24% of our senior management personnel [405-1].
We expand our intellectual capital by investing in employee development.
In 2022, the average number of training hours per employee was 7.06 for women and 9.63 for men [404-1].

OUR INPUTS

We have implemented the Grupa Azoty Group Social and Sponsorship Policy (since 2013), the CSR Policy for Grupa Azoty Group Companies (since 2020), and the Charitable Policy (since 2022). Through charitable donations, the Grupa Azoty Group seeks to actively respond to the needs of its local communities, while its CSR Policy provides a framework for CSR activities.
The total amount of donations to social causes made across the Grupa Azoty Group in 2022 exceeded PLN 4,490 thousand.
In 2022, we paid into the economy approximately PLN 132,440 thousand of local taxes related to the operations of our largest companies [203-2].
2022 saw the first edition of our Employee Volunteering Programme, delivering 10 projects focused on various environmental issues, with more than 100 people involved in the campaign.
In 2022, we also engaged together with our employees in providing aid to refugees fleeing the war and Ukrainians who were forced or chose to stay in Ukraine. Our initiatives included financial support of PLN 1 million to given to charities (Caritas Polska and the Polish Red Cross), as well as blood donor sessions hosted by the Group’s Clubs of Honorary Blood Donors.
In association with Europe’s volleyball champions Grupa Azoty ZAKSA Kędzierzyn-Koźle, we ran the Champion the Decision campaign to promote widespread COVID-19 vaccination, continuing our support to local communities in their fight against the pandemic.

OUTPUTS AND RESULTS

We seek to make the regions where the Group operates more attractive as places to live, work, pursue passions and fulfil ambitions. In 2022, our significant infrastructure investments and services supported with a positive community impact amounted to more than PLN 616 thousand [203-1]. In addition, we announced the first edition of our Grupa Azoty START programme, aimed to develop future generations of athletes. Financial support totalling over PLN 370 thousand went to 33 entities in six provinces.
The Grupa Azoty Group is a key partner to many nationwide sports, educational and charitable projects promoting physical activity, entrepreneurship and innovation, and helping those in need.
We foster relationships with the Group’s neighbours and customers.

About the Grupa Azoty Group

Our products