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Directors' Report on the Operations of Grupa Azoty

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Directors' Report on the Operations of Grupa Azoty Directors’ Report on the operations of Grupa Azoty Zakłady Chemiczne Police S.A. for the 12 months ended December 31st 2015 Directors’ Report on the operations of Grupa Azoty Zakłady Chemiczne Police S.A. for the 12 months ended December 31st 2015 (all figures in PLN ‘000 unless otherwise stated) Contents 1. General information on the Company ........................................................................ 4 1.1. Organisation ...................................................................................................... 4 1.2. Company organisational and equity ties ..................................................................... 5 1.3. Company’s branches (divisions) ............................................................................... 5 2. Management of the Company ................................................................................... 6 2.1. Organisational chart ............................................................................................. 6 2.2. Changes in key management policies ........................................................................ 6 2.3. Organisational changes ......................................................................................... 6 2.4. Workforce ......................................................................................................... 6 3. Business overview ................................................................................................. 7 3.1. Basic information ................................................................................................ 7 3.2. Overview of key products, goods and services ............................................................. 9 3.3. Sales markets and supply sources ........................................................................... 10 3.4. Significant agreements ........................................................................................ 12 3.5. Material related-party transactions on non-arm’s length terms....................................... 12 3.6. Significant events .............................................................................................. 12 4. Strategy and development policy ............................................................................ 14 4.1. Strategy .......................................................................................................... 14 4.2. Directions of development ................................................................................... 14 4.3. Growth prospects and market strategy .................................................................... 15 4.4. Key investments in Poland and abroad ..................................................................... 16 4.5. Key equity investments ....................................................................................... 16 4.6. Feasibility of investment plans .............................................................................. 16 4.7. Significant R&D achievements ............................................................................... 17 4.8. Corporate Social Responsibility Policy ..................................................................... 17 5. Company’s current financial position ...................................................................... 17 5.1. Assessment of factors and non-typical events having a material impact on operations and financial performance ...................................................................................... 17 5.2. Market overview ............................................................................................... 18 5.3. Key financial and economic data ........................................................................... 20 5.3.1. Financial performance ...................................................................................... 20 5.3.2. Segment results .............................................................................................. 21 5.3.3. Operating expenses ......................................................................................... 23 5.3.4. Structure of assets, equity and liabilities ............................................................... 24 5.4. Financial ratios ................................................................................................. 26 5.5. Explanation of differences between actual performance and financial forecasts for 2015 ...... 28 5.6. Management of capital and assets .......................................................................... 28 5.7. Bank deposits ................................................................................................... 29 5.8. Borrowing agreements concluded or terminated during the financial year ......................... 29 5.9. Loans advanced ................................................................................................ 30 5.10. Sureties and guarantees received and issued ........................................................... 31 5.11. Material off-balance-sheet items .......................................................................... 31 5.12. Financial instruments ........................................................................................ 31 5.13. Forecast financial position .................................................................................. 32 6. Risks, threats and growth prospects ........................................................................ 32 6.1. Significant risk factors and threats ......................................................................... 32 6.1.1. Strategic management ..................................................................................... 32 6.1.2. Technical and environmental safety ..................................................................... 32 6.1.3. Comprehensive customer support ........................................................................ 34 6.1.4. Availability of feedstocks and materials ................................................................ 35 6.2. External and internal factors material to the Company’s growth ..................................... 36 6.2.1. External factors .............................................................................................. 36 6.2.2. External factors .............................................................................................. 36 7. Company shares and other securities and its major shareholders ................................... 38 7.1. Total number and par value of Company shares, holdings of Company shares by supervisory and management personnel and interests of such persons in related entities ................... 38 7.2. Agreements known to the Company which may cause future changes in share percentages of existing shareholders and bondholders .................................................................. 39 Grupa Azoty Zakłady Chemiczne Police S.A. Page 2 of 59 Directors’ Report on the operations of Grupa Azoty Zakłady Chemiczne Police S.A. for the 12 months ended December 31st 2015 (all figures in PLN ‘000 unless otherwise stated) 7.3. Control systems for employee share ownership plans ................................................... 39 7.4. Treasury shares held by the Company and persons acting on its behalf ............................. 39 7.5. Issue, redemption, and repayment of debt and equity securities .................................... 39 7.6. Use of proceeds from share issues .......................................................................... 39 7.7. Company shares ................................................................................................ 39 8. Statement of compliance with corporate governance principles .................................... 41 8.1. Corporate governance code applicable to the Company and availability of the text of the code to the public ........................................................................................... 41 8.2. Degree of the Company’s non-compliance with the corporate governance rules, specification of the rules not complied with, and reasons for the non-compliance .............................. 41 8.3. Internal control and risk management systems .......................................................... 43 8.4. Shareholding structure ........................................................................................ 44 8.5. Special control powers of security holders ................................................................ 45 8.6. Restrictions on voting rights ................................................................................. 45 8.7. Restrictions on the transferability of securities .......................................................... 45 8.8. Rules governing appointment and removal from office of management personnel; powers of such personnel, including their authority to decide on the issue or buy-back of shares ....... 46 8.9. Rules governing amendments to the Company’s Articles of Association ............................. 47 8.10. Operation of the General Meeting ......................................................................... 47 8.11. Composition, changes and operation of the Company’s management and supervisory bodies . 49 8.12. Remuneration and additional benefits ................................................................... 52 8.13. Agreements between the Company and Management Board members ............................. 53 8.14.
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