Grupa Azoty S.A.

Quarterly Report • Sep 9, 2021

Interim condensed consolidated financial statements for the six months ended June 30th 2021 prepared in accordance with IAS 34 Interim Financial Reporting as endorsed by the European Union

Contents

Interim condensed consolidated statement of profit or loss and other comprehensive income 3
Interim condensed consolidated statement of financial position 5
Interim condensed consolidated statement of changes in equity7
Interim condensed consolidated statement of cash flows9
Supplementary information to the interim condensed consolidated financial statements 11 1. Description of the Group 11 1.1. Organisational structure of the Grupa Azoty Group 11 1.2. Changes in the Group's structure 15 1.3. Basis of preparation of the interim condensed consolidated financial statements 16 1.3.1. Statement of compliance and general basis of preparation 16 1.3.2. Corrections of errors or comparative data presentation 18 1.3.3. Accounting estimates and judgments 21 2. Selected notes and supplementary information 22 Business segment reporting 22 Note 1 Revenue from contracts with customers 29 Note 2 Operating expenses 32 Note 3 Other income 33 Note 4 Other expenses 34
Note 5 Finance income 35
Note 6 Finance costs 36
Note 7 Income tax 37
Note 7.1 Income tax disclosed in the statement of profit or loss 37
Note 7.2 Income tax disclosed in other comprehensive income 37
Note 7.3 Effective tax rate 38
Note 7.4 Deferred tax assets and liabilities 39
Note 8 Earnings per share 40
Note 9 Property, plant and equipment 40
Note 10 Right-of-use assets 43
Note 11 Intangible assets 43
Note 12 Property rights 43
Note 13 Trade and other receivables 44
Note 14Cash and cash equivalents 45
Note15 Borrowings 45
Note 16 Other financial liabilities 46
Note 17 Employee benefit obligations 48
Note 18 Provisions 48
Note 19 Grants 48
Note 20 Other material changes in the statement of financial position 48
Note 21 Financial instruments 49
Note 22 Contingent liabilities, contingent assets, sureties and guarantees 54
Note 23 Related-party transactions 56
Note 24 Investment commitments 56
Note 25 Accounting estimates and assumptions 57
Note 26 Events after the reporting date 58
Note 27 Dividends 58
Note 28 Seasonality 58
Note 29 Information on the effects of the COVID-19 pandemic 59

Interim condensed consolidated statement of profit or loss and other comprehensive income

		for the period	for the period	for the period	for the period
		Jan 1 −	Jan 1 −	Apr 1 −	Apr 1 −
	Note	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
Profit/loss		unaudited	unaudited	unaudited	unaudited
Revenue	1	6,534,655	5,372,618	3,172,673	2,268,898
Cost of sales	2	(5,244,064)	(4,193,867)	(2,550,193)	(1,782,592)
Gross profit		1,290,591	1,178,751	622,480	486,306
Selling expenses	2	(492,393)	(480,124)	(242,638)	(225,194)
Administrative expenses	2	(407,570)	(406,984)	(214,919)	(208,314)
Other income	3	29,536	108,302	21,028	87,994
Other expenses	4	(37,623)	(27,578)	(16,836)	(16,509)
Operating profit		382,541	372,367	169,115	124,283
Finance income	5	61,480	9,532	39,436	(7,695)
Finance costs	6	(110,463)	(71,974)	(3,592)	(20,965)
Net finance (cost)/income		(48,983)	(62,442)	35,844	(28,660)
Share of profit of equity
accounted investees		8,046	7,080	4,571	3,613
Profit before tax		341,604	317,005	209,530	99,236
Income tax	7	(87,888)	(94,900)	(41,691)	(42,185)
Net profit		253,716	222,105	167,839	57,051
Other comprehensive income Items that will not be reclassified to profit or loss Actuarial gains/(losses)
from defined benefit plans Tax on items that will not be reclassified to profit or		11,716	(16,479)	11,716	(16,484)
loss	7	(2,252)	3,155	(2,252)	3,156
		9,464	(13,324)	9,464	(13,328)

Interim condensed consolidated statement of profit or loss and other comprehensive income (continued)

		for the period	for the period	for the period	for the period
		Jan 1 −	Jan 1 −	Apr 1 −	Apr 1 −
	Note	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
		unaudited	unaudited	unaudited	unaudited
Items that are or may be reclassified to profit or loss Cash flow hedging – effective portion of fair
value changes Exchange differences on translating foreign		(12,537)	(40,156)	5,830	18,572
operations Income tax relating to items that are or will be		(21,869)	31,257	(33,591)	(23,549)
reclassified to profit or loss	7.2	(3,591)	7,630	(5,162)	(3,529)
		(37,997)	(1,269)	(32,923)	(8,506)
Total other comprehensive income		(28,533)	(14,593)	(23,459)	(21,834)
Comprehensive income for the period		225,183	207,512	144,380	35,217
Net profit attributable to:
Owners of the parent		230,645	195,224	143,075	44,115
Non-controlling interests Comprehensive income for the period attributable to:		23,071	26,881	24,764	12,936
Owners of the parent		207,568	182,431	123,051	24,054
Non-controlling interests		17,615	25,081	21,329	11,163
Earnings per share:	8
Basic (PLN)		2.33	1.97	1.44	0.44
Diluted (PLN)		2.33	1.97	1.44	0.44

Interim condensed consolidated statement of financial position

	Note	as at Jun 30 2021	as at Dec 31 2020
		unaudited	audited
Assets
Non-current assets
Property, plant and equipment	9	11,534,222	10,573,104
Right-of-use assets	10	835,115	834,690
Investment property		56,842	57,364
Intangible assets	11	1,004,230	1,027,310
Goodwill		320,620	331,683
Shares		9,168	9,168
Equity-accounted investees		85,103	91,461
Other financial assets		271	2,484
Other receivables	13	524,749	489,827
Deferred tax assets	7.4	92,315	94,125
Other assets		509	509
Total non-current assets		14,463,144	13,511,725
Current assets
Inventories		1,548,238	1,534,011
Property rights	12	81,455	529,199
Derivative financial instruments		3,132	43,471
Other financial assets		1,987	-
Current tax assets		29,901	19,621
Trade and other receivables	13	3,079,793	1,628,244
Cash and cash equivalents	14	972,038	923,328
Other assets		16,080	17,456
Assets held for sale		95	95
Total current assets		5,732,719	4,695,425
Total assets		20,195,863	18,207,150

Interim condensed consolidated statement of financial position (continued)

	Note	as at Jun 30 2021	as at Dec 31 2020
		unaudited	audited
Equity and liabilities
Equity
Share capital		495,977	495,977
Share premium		2,418,270	2,418,270
Hedging reserve		(58,481)	(48,540)
Translation reserve		41,481	63,311
Other capital reserves		(17,700)	(17,700)
Retained earnings		4,667,296	4,427,756
Equity attributable to owners of the parent		7,546,843	7,339,074
Non-controlling interests		962,326	949,828
Total equity		8,509,169	8,288,902
Liabilities
Borrowings	15	3,431,418	3,322,320
Lease liabilities		350,284	355,774
Derivative financial instruments		67,438	-
Other financial liabilities	16	596,876	579,438
Employee benefit obligations	17	477,899	490,864
Trade and other payables		21,515	18,609
Provisions	18	214,606	211,022
Government grants received	19	197,203	196,973
Deferred tax liabilities	7.4	540,570	529,419
Total non-current liabilities		5,897,809	5,704,419
Borrowings	15	414,611	193,443
Lease liabilities		61,746	71,422
Derivative financial instruments		356	6,086
Other financial liabilities	16	1,623,135	670,459
Employee benefit obligations	17	54,690	54,863
Current tax liabilities		59,430	70,013
Trade and other payables		2,915,492	3,092,693
Provisions	18	41,330	40,504
Government grants received	19	618,095	14,346
Total current liabilities		5,788,885	4,213,829
Total liabilities		11,686,694	9,918,248
Total equity and liabilities		20,195,863	18,207,150

Interim condensed consolidated statement of changes in equity

For the period ended June 30th 2021

	Share capital	Share premium	Hedging reserve	Translation reserve	Other capital reserves	Retained earnings	Equity attributable to owners of the parent	Non-controlling interests	Total equity
Balance as at Jan 1 2021	495,977	2,418,270	(48,540)	63,311	(17,700)	4,427,756	7,339,074	949,828	8,288,902
Profit or loss and other comprehensive income
Net profit	-	-	-		-	230,645	230,645	23,071	253,716
Other comprehensive income	-	-	(9,941)	(21,830)	-	8,694	(23,077)	(5,456)	(28,533)
Comprehensive income for the period	-	-	(9,941)	(21,830)	-	239,339	207,568	17,615	225,183
Transactions with owners, recognised directly in equity
Dividends	-	-	-	-	-	-	-	(5,119)	(5,119)
Total contributions by and distributions to owners	-	-	-	-	-	-	-	(5,119)	(5,119)
Other	-	-	-	-	-	201	201	2	203
Balance as at Jun 30 2021 (unaudited)	495,977	2,418,270	(58,481)	41,481	(17,700)	4,667,296	7,546,843	962,326	8,509,169

Interim condensed consolidated statement of changes in equity (continued)

for the period ended June 30th 2020

						Equity attributable
	Share capital	Share premium	Hedging reserve	Translation reserve	Retained earnings	to owners of the parent	Non-controlling interests	Total equity
Balance as at Jan 1 2020	495,977	2,418,270	5,872	(8,252)	4,124,507	7,036,374	657,573	7,693,947
Profit or loss and other comprehensive income
Net profit	-	-	-	-	195,224	195,224	26,881	222,105
Other comprehensive income	-	-	(32,526)	31,282	(11,549)	(12,793)	(1,800)	(14,593)
Total profit or loss and other comprehensive income	-	-	(32,526)	31,282	183,675	182,431	25,081	207,512
Transactions with owners, recognised directly in equity
Issue of ordinary shares	-	-	-	-	-	-	210,368	210,368
Dividends	-	-	-	-	-	-	(9,327)	(9,327)
Total contributions by and distributions to owners	-	-	-	-	-	-	201,041	201,041
Changes in the Group's structure	-	-			(8,475)	(8,475)	8,492	17
Total transactions with owners	-	-	-	-	(8,475)	(8,475)	8,492	17
Other	-	-	-	-	1,004	1,004	(964)	40
Balance as at Jun 30 2020 (unaudited)	495,977	2,418,270	(26,654)	23,030	4,300,711	7,211,334	891,223	8,102,557

Interim condensed consolidated statement of cash flows

	for the period	for the period
	Jan 1 −	Jan 1 −
	Jun 30 2021	Jun 30 2020
		unaudited
	unaudited	restated*
Cash flows from operating activities
Profit before tax	341,604	317,005
Adjustments for:
Depreciation and amortisation	383,798	380,424
(Reversal of)/impairment losses on assets	3,023	(662)
(Gain)/loss from investing activities	(7,795)	1,494
Gain on disposal of financial assets	(2)	(287)
Share of profit of equity-accounted investees	(8,046)	(7,080)
Interest, foreign exchange gains or losses	(9,106)	88,280
Dividends	(193)	-
Fair value (gain)/loss on financial assets at fair value	(76,981)	3,116
(Increase)/decrease in trade and other receivables	(1,389,784)	281,442
Decrease in inventories and property rights	426,385	100,531
Increase/(Decrease) in trade and other payables	1,992,464	(211,965)
Increase in provisions	13,670	6,138
Increase/(decrease) in employee benefit obligations	(8,105)	38,594
Increase in grants	589,720	227,593
Other adjustments	2,156	(1,875)
Income tax paid	(74,934)	(35,757)
Net cash from operating activities	2,177,874	1,186,991
*as described in Section 1.3.2.

Interim condensed consolidated statement of cash flows (continued)

	for the period Jan 1 −	for the period Jan 1 −
	Jun 30 2021	Jun 30 2020
	unaudited	unaudited restated*
Cash flows from investing activities
Proceeds from sale of property, plant and equipment, intangible assets and investment property	15,308	5,954
Purchase of property, plant and equipment, intangible
assets and investment property	(1,558,159)	(1,015,300)
Dividend received	193	-
Purchase of other financial assets	(1,997)	(80,667)
Proceeds from sale of other financial assets	-	203,651
Interest received	-	14,623
Government grants received	-	1,026
Repayments of loans advanced	9	56
Other proceeds/(disbursements)	(2,148)	(26,734)
Net cash from investing activities	(1,546,794)	(897,391)
Cash flows from financing activities Net proceeds from non-controlling interests on account of issue of shares in a subsidiary	-	205,172
Dividends paid	(80)	(9,327)
Proceeds from borrowings	1,000,415	661,708
Repayment of borrowings	(596,402)	(197,548)
Interest paid	(42,041)	(115,133)
Payment of lease liabilities	(36,375)	(32,085)
Repayment of reverse factoring liabilities	(912,875)	(681,686)
Other financing cash proceeds/(disbursements)	11,275	5,194
Net cash from financing activities	(576,083)	(163,705)
Total net cash flows	54,997	125,895
Cash and cash equivalents at beginning of period	923,328	770,087
Effect of exchange rate fluctuations on cash held	(6,287)	10,777
Cash and cash equivalents at end of period *as described in Section 1.3.2.	972,038	906,759

Supplementary information to the interim condensed consolidated financial statements

1. Description of the Group

1.1. Organisational structure of the Grupa Azoty Group

As at June 30th 2021, the Grupa Azoty Group (the Group) comprised Grupa Azoty Spółka Akcyjna (the Parent, Grupa Azoty S.A.) and its direct subsidiaries:

• COMPO EXPERT Holding GmbH (COMPO EXPERT) wholly-owned,
• Grupa Azoty ATT Polymers GmbH wholly-owned,
• Grupa Azoty Compounding Sp. z o.o. 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 Sp. z o.o.) 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 on the next pages.

Data of the Parent and its direct and indirect subsidiaries is consolidated using the full method.

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.).

The principal business of the Grupa Azoty Group companies comprises in particular:

• processing of nitrogen products,
• manufacture and sale of mineral 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 other Group companies were incorporated for an indefinite period.

These interim condensed consolidated financial statements were authorised for issue by the Parent's Management Board on September 9th 2021.

Grupa Azoty PUŁAWY

Company	Ownership interest (%)	Share capital
Agrochem Puławy Sp. z o.o.	100.00	PLN 68,639 thousand
SCF Natural Sp. z o.o.	99.99	PLN 15,001 thousand
Grupa Azoty Zakłady Fosforowe Gdańsk Sp. z o.o.	99.19	PLN 59,003 thousand
Grupa Azoty Zakłady Azotowe Chorzów S.A.	96.48	PLN 94,700 thousand
STO-ZAP Sp. z o.o.	96.15	PLN 1,117 thousand
Remzap Sp. z o.o.	94.61	PLN 1,812 thousand
Prozap Sp. z o.o.1)	78.86	PLN 892 thousand
Bałtycka Baza Masowa Sp. z o.o.	50.00	PLN 19,500 thousand
Grupa Azoty KOLTAR Sp. z o.o.	20.00	PLN 54,600 thousand
Technochimserwis S.A. (closed joint-stock company), Russian Federation	25.00	RUB 800 thousand

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. STO-ZAP Sp. z o.o. and Technochimserwis S.A. (closed joint-stock company) are excluded from consolidation due to immateriality. Bałtycka Baza Masowa Sp. z o.o. is consolidated using the equity method.

Grupa Azoty POLICE

Company	Ownership interest (%)	Share capital
Supra Agrochemia Sp. z o.o.	100.00	PLN 19,721 thousand
Grupa Azoty Transtech Sp. z o.o.	100.00	PLN 9,783 thousand
Grupa Azoty Police Serwis Sp. z o.o.	100.00	PLN 9,618 thousand
Grupa Azoty Africa S.A. w likwidacji (in liquidation)	99.99	XOF3) 132,000 thousand
Zarząd Morskiego Portu Police Sp. z o.o.	99.91	PLN 32,642 thousand
Budchem Sp. z o.o. w upadłości likwidacyjnej (in liquidation bankruptcy)	48.96	PLN 1,201 thousand
Grupa Azoty Polyolefins S.A.1)(Grupa Azoty POLYOLEFINS)	34.41	PLN 922,968 thousand
Kemipol Sp. z o.o.	33.99	PLN 3,445 thousand
Prozap Sp. z o.o.2)	7.35	PLN 892 thousand

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 accounted for using the equity method. The other subsidiaries of Grupa Azoty Zakłady Chemiczne Police S.A. are fully consolidated.

Grupa Azoty KĘDZIERZYN

Company	Ownership interest (%)	Share capital
ZAKSA S.A.1)	91.67	PLN 6,000 thousand
Grupa Azoty Polskie Konsorcjum Chemiczne Sp. z o.o.	36.73	PLN 85,631 thousand
Grupa Azoty KOLTAR Sp. z o.o.	20.00	PLN 54,600 thousand

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

The subsidiary and associates of Grupa Azoty Zakłady Azotowe Kędzierzyn S.A. are fully consolidated as all of them are subsidiaries of Grupa Azoty S.A.

Grupa Azoty PKCh Sp. z o.o.

Company	Ownership interest (%)	Share capital
Grupa Azoty Jednostka Ratownictwa		PLN 21,749
Chemicznego Sp. z o.o.1)	100.00	thousand
		PLN 11,567
Grupa Azoty Prorem Sp. z o.o.2)	100.00	thousand
		PLN 4,654
Grupa Azoty Automatyka Sp. z o.o.	77.86	thousand

1) Grupa Azoty Jednostka Ratownictwa Chemicznego Sp. z o.o. holds 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 subsidiaries of Grupa Azoty PKCh are fully consolidated.

Compo Expert Holding GmbH Group

	Ownership
Company	interest (%)	Share capital
COMPO EXPERT International GmbH	100	EUR 25 thousand
COMPO EXPERT International GmbH
	Ownership interest
Company	(%)	Share capital
COMPO EXPERT GmbH	100.00	EUR 25 thousand
COMPO EXPERT Italia S.r.l.	100.00	EUR 10 thousand
COMPO EXPERT Spain S.L.	100.00	EUR 3 thousand
COMPO EXPERT Portugal, Unipessoal Lda.	100.00	EUR 2 thousand
COMPO EXPERT France SAS	100.00	EUR 524 thousand
COMPO EXPERT Polska Sp. z o.o.	100.00	PLN 6 thousand
COMPO EXPERT Hellas S.A.	100.00	EUR 60 thousand
COMPO EXPERT UK Ltd.	100.00	1 GBP
		CNY 2,810
COMPO EXPERT Techn. (Shenzhen) Co. Ltd.	100.00	thousand
COMPO EXPERT Asia Pacific Sdn. Bhd.	100.00	MYR 500 thousand
COMPO EXPERT USA&CANADA Inc.	100.00	USD 1
		BRL 26,199
COMPO EXPERT Brasil Fertilizantes Ltda.1)	99.99	thousand

		CLP 1,528,560
COMPO EXPERT Chile Fertilizantes Ltda.2)	99.99	thousand
		INR 2,500
COMPO EXPERT India Private Limited	99.99	thousand
		EUR 7,965
COMPO EXPERT Benelux N.V.3)	99.99	thousand
COMPO EXPERT Mexico S.A. de C.V.4)	99.99	MXN 100 thousand
COMPO EXPERT Egypt LLC5)	99.90	EGP 100 thousand
COMPO EXPERT Turkey Tarim Sanai ve Ticaret Ltd.
Şirketi6)	96.17	TRY 264,375
		ARS 41,199
COMPO EXPERT Argentina SRL7)	90.00	thousand

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:

	Ownership interest
Company	(%)	Share capital
COMPO EXPERT South Africa (Pty) Ltd.	100.00	ZAR 100
COMPO EXPERT Austria GmbH	100.00	EUR 35 thousand

All companies of the COMPO EXPERT Holding GmbH Group are fully consolidated.

1.2. Changes in the Group's structure

Changes in the Group's structure in the first half of 2021

Cancellation of Prozap Sp. z o.o. shares

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.

Cancellation of Remzap Sp. z o.o. shares

On March 29th 2021, 18 shares of former employees of the company were cancelled. As a result, the percentage of voting rights held by Grupa Azoty PUŁAWY at the General Meeting of Remzap Sp. z o.o. increased from 97.05% to 97.12%.

Exit from EKO TECHNOLOGIES Consortium

With effect from April 21st 2021, Grupa Azoty Jednostka Ratownictwa Chemicznego Sp. z o.o. effectively exited the EKO TECHNOLOGIES Consortium on the basis of Art. 11.5 of the Consortium's Articles of Association.

Resolution to increase the share capital of COMPO EXPERT Turkey Tarim Sanai ve Ticaret Ltd. Şirketi

On May 25th 2021, the General Meeting of COMPO EXPERT Turkey Tarim Sanai ve Ticaret Ltd. Şirketi passed a resolution to increase the company's share capital from TL 264,375.00 to TL 8,375,000.00 and to amend its Articles of Association accordingly.

Merger of subsidiaries

In the first half of 2021, Grupa Azoty POLICE and Supra Agrochemia Sp. z o.o. published on their websites a merger plan providing for the acquisition of Supra Agrochemia Sp. z o.o. by Grupa Azoty POLICE.

The merger required relevant resolutions of the General Meetings of the merging companies. The acquiree was dissolved, without liquidation proceedings, in accordance with the procedure provided for in Art. 493.1 of the Commercial Companies Code on the day of its deletion from the Register of Businessed in the National Court Register.

On July 6th 2021, the District Court for Szczecin-Centrum of Szczecin, 13th Commercial Division of the National Court Register, being the court with jurisdiction over the acquirer, registered the merger of Grupa Azoty POLICE with Supra Agrochemia Sp. z o.o.

The merger was effected in accordance with Art. 492.1.1 of the Commercial Companies Code, i.e. by transferring to Grupa Azoty POLICE, as the sole shareholder of Supra Agrochemia Sp. z o.o., all assets of the acquiree (merger by acquisition) without increasing the share capital of Grupa Azoty POLICE since all the shares in the share capital of the acquiree were held by Grupa Azoty POLICE.

Following the merger, Grupa Azoty POLICE, pursuant to Art. 494.1 of the Commercial Companies Code, assumed all rights and obligations of Supra Agrochemia Sp. z o.o. as of the merger date.

Repurchase of Grupa Azoty SIARKOPOL shares

On July 27th 2021, the Annual General Meeting of the Company passed a resolution on repurchase of 120 Series A registered shares under Art. 418¹ of the Commercial Companies Code. The Parent is the shareholder obliged to repurchase the shares.

1.3. Basis of preparation of the interim condensed consolidated financial statements

1.3.1. Statement of compliance and general basis of preparation

These interim condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. These interim condensed consolidated financial statements of the Group cover the six months ended June 30th 2021 and contain comparative data for the six months ended June 30th 2020 and as at December 31st 2020.

The interim condensed consolidated statement of profit or loss and other comprehensive income as well as notes to the interim condensed consolidated statement of profit or loss and other comprehensive income for the six months ended June 30th 2021 as well as the comparative data for the six months ended June 30th 2020 have not been reviewed by an auditor.

Interim condensed consolidated financial statements do not include all the information and disclosures required in full-year financial statements and should be read in conjunction with the consolidated financial statements of the Group for the year ended December 31st 2020, which were authorised for issue on April 12th 2021.

The Company's interim financial results may not be indicative of its potential full-year financial results.

All amounts in these interim condensed consolidated financial statements are presented in thousands of złoty.

These interim condensed consolidated financial statements have been prepared on the assumption that the Group companies will continue as going concerns in the foreseeable future. As at the date of authorisation of these condensed interim consolidated financial statements, no circumstances were identified which would indicate any threat to the Group companies continuing as going concerns.

For information on the impact of the COVID-19 pandemic on the Group companies' business, see Note 29 to these condensed interim consolidated financial statements.

a) Changes in International Financial Reporting Standards

The amendments to International Financial Reporting Standards ("IFRSs") presented below have been applied in these interim condensed consolidated financial statements as of their effective dates, however, they had no material effect on the disclosed data:

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16: Interest Rate Benchmark Reform – Phase II.

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).

Furthermore, as of January 1st 2021, following endorsement by the European Commission in October 2020, the Group applies 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 in the event of any changes in lease payments occurring (by June 30th 2021) as a consequence of the COVID-19 pandemic or lessees are granted other concessions changing the original financial terms of leases due the pandemic. No such events occurred in the case of the Group.

January 1st 2021 is the effective date of amendments to IFRS 4, issued on June 25th 2020, to defer the effective date of IFRS 9 Financial Instruments for insurers until January 1st 2023, in accordance with the deferred effective date of IFRS 17 Insurance Contracts.

The application of the above standards had no material effect on the financial statements.

b) New standards and interpretations which have been issued but are not yet effective

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.

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.

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.

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.

Amendment to IFRS 16 Leases – COVID-19-Related Rent Concessions granted after June 30th 2021

The amendment to IFRS 16 was issued on March 31st 2021 and is effective for annual periods beginning on or after April 1st 2021. The only purpose of the amendment is to extend by one year (until June 30th 2022) the period in which the granting of COVID-19-related rent concessions does not need to involve a modification of the lease contract. This amendment is closely related to the already effective amendment to IFRS 16, issued in May 2020.

Amendment to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

The amendment to IAS 12 was issued on May 7th 2021 and is effective for annual periods beginning on or after April 1st 2023. The amendments clarify that the exemption relating to initial recognition of deferred tax does not apply to transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences and entities are required to recognise deferred tax on such transactions. The amendments thus address the emerging doubts as to whether the exemption applies to transactions such as leases and decommissioning obligations.

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 condensed interim consolidated 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 IAS 1 Disclosure Initiative and IAS 8 Definition of Accounting Estimates, issued on February 12th 2021.
• Amendment to IFRS 16 Leases COVID-19-Related Rent Concessions granted after June 30th 2021, issued on March 31st 2021,
• Amendment to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction, issued on May 7th 2021.

The Group will apply the amended standards as of their effective dates set by the EU. As at the date of these interim condensed consolidated financial statements, the Group did not complete its assessment of the effect of applying the amended standards on its financial statements.

1.3.2. Corrections of errors or comparative data presentation

Following changes in the presentation of data on the effect of changes in items of the statement of financial position in the consolidated statement of cash flows as at December 31st 2020, in order to provide more detailed information the Company presents below the relevant restatements as at June 30th 2020 relating to the interim statement of cash flows.

Interim condensed consolidated statement of cash flows

	for the period Jan 1 − Jun 30 2020	Change	for the period Jan 1 − Jun 30 2020 restated
Cash flows from operating activities
Profit before tax	317,005		317,005
Adjustments for:
Depreciation and amortisation	380,424	-	380,424
Reversal of impairment losses	(662)	-	(662)
(Gain)/loss from investing activities	1,494	-	1,494
Gain on disposal of financial assets	(287)		(287)
Share of profit of equity-accounted investees	(7,080)	-	(7,080)
Interest, foreign exchange gains or losses	88,280	-	88,280
Fair value (gain)/loss on financial assets at fair value	3,116	-	3,116
(Increase)/decrease in trade and other receivables	269,568	11,874	281,442
Decrease in inventories and property rights	100,531	-	100,531
Increase/(Decrease) in trade and other payables	55,386	(267,351)	(211,965)
Increase in provisions, accruals and government grants	16,848	(16,848)	-
Increase in provisions	-	6,138	6,138
Increase in employee benefit obligations	-	38,594	38,594
Increase in grants	-	227,593	227,593
Other adjustments	(1,875)	-	(1,875)
Income tax paid	(35,757)	-	(35,757)
Net cash from operating activities	1,186,991	-	1,186,991

	for the period Jan 1 − Jun 30 2020	Change	for the period Jan 1 − Jun 30 2020 restated
Cash flows from investing activities
Proceeds from sale of property, plant and equipment, intangible assets and investment property	5,954	-	5,954
Purchase of property, plant and equipment, intangible assets and investment property	(1,015,300)	-	(1,015,300)
Purchase of other financial assets	(80,667)	-	(80,667)
Proceeds from sale of other financial assets	203,651	-	203,651
Interest received	14,623	-	14,623
Government grants received	1,026	-	1,026
Repayments of loans	56	-	56
Other proceeds/(disbursements)	(26,734)	-	(26,734)
Net cash from investing activities	(897,391)	-	(897,391)
Cash flows from financing activities
Net share capital issue proceeds	205,172	-	205,172
Dividends paid	(9,327)	-	(9,327)
Proceeds from borrowings	661,708	-	661,708
Repayment of borrowings	(197,548)	-	(197,548)
Interest paid	(115,133)	-	(115,133)
Payment of lease liabilities	(32,085)	-	(32,085)
Repayment of reverse factoring liabilities	(681,686)	-	(681,686)
Other cash provided by financing activities	5,580	(5,580)	-
Other cash used in financing activities	(386)	386	-
Other financing cash proceeds/(disbursements)	-	5,194	5,194
Net cash from financing activities	(163,705)	-	(163,705)
Total net cash flows	125,895	-	125,895
Cash and cash equivalents at beginning of period	770,087	-	770,087
Effect of exchange rate fluctuations on cash held	10,777	-	10,777
Cash and cash equivalents at end of period	906,759	-	906,759

1.3.3. Accounting estimates and judgments

The preparation of these interim condensed consolidated financial statements requires the Management Board to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates and underlying assumptions are based on historical experience and other factors deemed reasonable under the circumstances, and their results provide a basis for judgements regarding the net carrying amounts of assets and liabilities, where they are not directly available from other sources. Actual results may differ from these 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 key judgements and estimates made by the Management Board in preparing these interim condensed consolidated financial statements, especially with respect to amortisation/depreciation periods, analysis of impairment and provisions, were not materially different from those made in preparing the consolidated financial statements for the financial year ended December 31st 2020.

CO² emission allowances

The Group expects to receive free CO2 emission allowances. This expectation is confirmed by a nonfinal decision issued by the Ministry of Climate and Environment. The final size of the free allocation of CO² emission allowances will be adjusted on the basis of the average production volume in the two years preceding the year for which the emission allowances will be granted. For this reason the Group revised the estimate of the amount of free CO² emission allowances allocated. For detailed information, see Note 13 to these interim condensed consolidated financial statements.

2. Selected notes and supplementary information

Business segment reporting

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: o Speciality (fertilizing/fertilizer) products (liquid fertilizers for foliar feeding and fertigation,
  • biostimulants, SRF and CRF fertilizers for precise fertilization, dedicated NPK fertilizers),
  • o Compound fertilizers (NPK: Polifoska® and Amofoska®; NP: DAP; PK),
  • o Nitrogen fertilizers with sulfur (solid: ammonium sulfate, ammonium sulfonitrite, ureaammonium sulfate, calcium nitrate with sulfur; liquid: liquid: UAN- urea-ammonium nitrate solution, urea solution and ammonium sulfate solution,
  • o Nitrogen fertilizers,
  • o ammonia,
  • o Technical-grade and concentrated nitric acid,
  • o Industrial gases;
• Plastics segment comprises the manufacturing and marketing of the following products:
  • o Caprolactam (an intermediate product used to manufacture polyamide 6 (PA6),
  • o Natural engineering plastics (PA 6, POM polyacetal),
  • o Modified plastics based on PA6 and other engineering resins (POM, PA66, PPC polypropylene, PPH, PBT - polybutylene terephthalate),
  • o Plastic products (PA pipes, PE pipes, polyamide casings),
  • o Grupa Azoty POLYOLEFINS;
• Chemicals segment comprises the manufacturing and marketing of the following products: o Melamine,
  • o OXO products (OXO alcohols, plasticizers),
  • o Sulfur,
  • o Titanium white,
  • o Iron sulfate,
  • o Solutions 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:
  • o Research and Development Centre,
  • o laboratory services,
  • o Catalyst production (iron-chromium catalyst, copper catalysts, iron catalysts),
  • o rental of real estate, and
  • o other activities not allocated to any of the segments specified above.

Presentation change – transfer of Grupa Azoty POLYOLEFINS from Other Activities to the Plastics segment

As at December 31st 2020, given significant progress on the Polimery Police project, operations of Grupa Azoty POLYOLEFINS were transferred from Other Activities to the Plastics segment. Data for the six months ended June 30th 2020 were restated accordingly.

Operating segments

Operating segments' revenue, expenses and financial results for the six months ended June 30th 2021 (unaudited)

	Agro				Other
	Fertilizers	Plastics	Chemicals	Energy	Activities	Total
External revenue	3,660,581	842,155	1,711,716	167,927	152,276	6,534,655
Intersegment revenue	1,609,849	191,537	591,764	1,849,948	467,433	4,710,531
Total revenue	5,270,430	1,033,692	2,303,480	2,017,875	619,709	11,245,186
Operating expenses, including: (-)	(5,020,261)	(1,032,477)	(2,174,484)	(2,019,158)	(608,178)	(10,854,558)
selling and distribution expenses (-)	(370,321)	(33,365)	(87,293)	(80)	(1,334)	(492,393)
administrative expenses (-)	(190,886)	(90,785)	(98,634)	(9,390)	(17,875)	(407,570)
Other income	4,319	2,844	4,243	2,946	15,184	29,536
Other expenses (-)	(4,568)	(9,236)	(2,171)	(2,442)	(19,206)	(37,623)
Segment's EBIT*	249,920	(5,177)	131,068	(779)	7,509	382,541
Finance income	-	-	-	-	-	61,480
Finance costs (-)	-	-	-	-	-	(110,463)
Share of profit of equity-accounted investees	-	-	-	-	-	8,046
Profit before tax	-	-	-	-	-	341,604
Income tax	-	-	-	-	-	(87,888)
Net profit	-	-	-	-	-	253,716
EBIT	249,920	(5,177)	131,068	(779)	7,509	382,541
Depreciation and amortisation	165,540	38,445	50,285	56,491	57,688	368,449
Unallocated depreciation and amortisation	-	-	-	-	-	15,349
EBITDA	415,460	33,268	181,353	55,712	65,197	766,339

* EBIT is calculated as operating profit (loss) as disclosed in the statement of profit or loss.

Operating segments' revenue, expenses and financial results for the six months ended June 30th 2020 (unaudited) restated

	Agro				Other
	Fertilizers	Plastics	Chemicals	Energy	Activities	Total
External revenue	3,327,892	591,609	1,216,118	123,710	113,289	5,372,618
Intersegment revenue	973,124	160,049	415,638	1,313,359	431,026	3,293,196
Total revenue	4,301,016	751,658	1,631,756	1,437,069	544,315	8,665,814
Operating expenses, including: (-)	(4,052,882)	(819,216)	(1,510,703)	(1,451,732)	(539,638)	(8,374,171)
selling and distribution expenses (-)	(383,757)	(31,818)	(63,419)	(96)	(1,034)	(480,124)
administrative expenses (-)	(202,390)	(76,322)	(87,926)	(10,482)	(29,864)	(406,984)
Other income	47,716	10,017	29,211	10,049	11,309	108,302
Other expenses (-)	(4,328)	(979)	(1,488)	(7,165)	(13,618)	(27,578)
Segment's EBIT*	291,522	(58,520)	148,776	(11,779)	2,368	372,367
Finance income	-	-	-	-	-	9,532
Finance costs (-)	-	-	-	-	-	(71,974)
Share of profit of equity-accounted investees	-	-	-	-	-	7,080
Profit before tax	-	-	-	-	-	317,005
Income tax	-	-	-		-	(94,900)
Net profit	-	-	-	-	-	222,105
EBIT	291,522	(58,520)	148,776	(11,779)	2,368	372,367
Depreciation and amortisation	162,269	36,884	53,526	54,946	55,305	362,930
Unallocated depreciation and amortisation	-	-	-	-	-	17,494
EBITDA	453,791	(21,636)	202,302	43,167	57,673	752,791

* EBIT is calculated as operating profit (loss) as disclosed in the statement of profit or loss.

Operating segments' revenue, expenses and financial results for the three months ended June 30th 2021 (unaudited)

	Agro				Other
	Fertilizers	Plastics	Chemicals	Energy	Activities	Total
External revenue	1,641,753	455,538	896,422	83,344	95,616	3,172,673
Intersegment revenue	848,740	101,245	292,502	944,616	262,982	2,450,085
Total revenue	2,490,493	556,783	1,188,924	1,027,960	358,598	5,622,758
Operating expenses, including: (-)	(2,418,037)	(552,012)	(1,115,571)	(1,029,286)	(342,929)	(5,457,835)
selling and distribution expenses (-)	(182,295)	(16,572)	(43,169)	(55)	(547)	(242,638)
administrative expenses (-)	(97,109)	(52,956)	(53,691)	(4,750)	(6,413)	(214,919)
Other income	2,014	1,788	1,986	1,845	13,395	21,028
Other expenses (-)	(3,062)	(441)	714	(841)	(13,206)	(16,836)
Segment's EBIT*	71,408	6,118	76,053	(322)	15,858	169,115
Finance income	-	-	-	-	-	39,436
Finance costs (-)	-	-	-	-	-	(3,592)
Share of profit of equity-accounted investees	-	-	-	-	-	4,571
Profit before tax	-	-	-	-	-	209,530
Income tax	-	-	-		-	(41,691)
Net profit	-	-	-	-	-	167,839
EBIT	71,408	6,118	76,053	(322)	15,858	169,115
Depreciation and amortisation	82,517	19,315	25,332	28,468	28,720	184,352
Unallocated depreciation and amortisation	-	-	-	-	-	7,786
EBITDA	153,925	25,433	101,385	28,146	44,578	361,253

* EBIT is calculated as operating profit (loss) as disclosed in the statement of profit or loss.

Operating segments' revenue, expenses and financial results for the three months ended June 30th 2020 (unaudited) restated

	Agro				Other
	Fertilizers	Plastics	Chemicals	Energy	Activities	Total
External revenue	1,400,596	218,217	530,658	57,815	61,612	2,268,898
Intersegment revenue	421,295	74,641	169,759	592,387	228,353	1,486,435
Total revenue	1,821,891	292,858	700,417	650,202	289,965	3,755,333
Operating expenses, including: (-)	(1,777,599)	(337,872)	(645,416)	(659,661)	(281,987)	(3,702,535)
selling and distribution expenses (-)	(185,774)	(12,829)	(26,097)	139	(633)	(225,194)
administrative expenses (-)	(101,527)	(38,446)	(46,120)	(6,118)	(16,103)	(208,314)
Other income	40,027	7,807	27,815	5,349	6,996	87,994
Other expenses (-)	(3,429)	(821)	(1,093)	(4,497)	(6,669)	(16,509)
Segment's EBIT*	80,890	(38,028)	81,723	(8,607)	8,305	124,283
Finance income	-	-	-	-	-	(7,695)
Finance costs (-)	-	-	-	-	-	(20,965)
Share of profit of equity-accounted investees	-	-	-	-	-	3,613
Profit before tax	-	-	-	-	-	99,236
Income tax	-	-	-		-	(42,185)
Net profit	-	-	-	-	-	57,051
EBIT	80,890	(38,028)	81,723	(8,607)	8,305	124,283
Depreciation and amortisation	80,615	18,422	26,860	27,331	28,448	181,676
Unallocated depreciation and amortisation	-	-	-	-	-	9,145
EBITDA	161,505	(19,606)	108,583	18,724	36,753	315,104

* EBIT is calculated as operating profit (loss) as disclosed in the statement of profit or loss.

Operating segments' assets and liabilities as at June 30th 2021 (unaudited)

	Agro Fertilizers	Plastics	Chemicals	Energy	Other Activities	Total
Segment's assets	7,472,639	4,514,385	1,573,863	2,751,027	1,421,187	17,733,101
Unallocated assets	-	-	-	-	-	2,377,659
Investments in associates	-	-	-	-	-	85,103
Total assets	7,472,639	4,514,385	1,573,863	2,751,027	1,421,187	20,195,863
Segment's liabilities	3,933,824	2,307,518	426,660	1,719,346	480,713	8,868,061
Unallocated liabilities	-	-	-	-	-	2,818,633
Total liabilities	3,933,824	2,307,518	426,660	1,719,346	480,713	11,686,694

Operating segments' assets and liabilities as at December 31st 2020 (audited)

	Agro				Other
	Fertilizers	Plastics	Chemicals	Energy	Activities	Total
Segment's assets	6,830,793	4,280,618	1,518,531	2,311,387	1,366,135	16,307,464
Unallocated assets	-	-	-	-	-	1,808,225
Investments in associates	-	-	-	-	-	91,461
Total assets	6,830,793	4,280,618	1,518,531	2,311,387	1,366,135	18,207,150
Segment's liabilities	3,201,045	2,134,096	365,360	1,366,281	552,482	7,619,264
Unallocated liabilities	-	-	-	-	-	2,298,984
Total liabilities	3,201,045	2,134,096	365,360	1,366,281	552,482	9,918,248

Other segmental information for the six months ended June 30th 2021 (unaudited)

	Agro				Other
	Fertilizers	Plastics	Chemicals	Energy	Activities	Total
Expenditure on property, plant and equipment	246,164	623,702	44,430	410,352	39,742	1,364,390
Expenditure on intangible assets	-	-	-	-	3	3
Expenditure on investment property	697	1,048	136	10,242	701	12,824
Unallocated expenditure	-	-	-	-	-	10,928
Total expenditure	246,861	624,750	44,566	420,594	40,446	1,388,145
Segment's depreciation and amortisation	165,540	38,445	50,285	56,491	57,688	368,449
Unallocated depreciation and amortisation	-	-	-	-	-	15,349
Total depreciation and amortisation	165,540	38,445	50,285	56,491	57,688	383,798

Other segmental information for the six months ended June 30th 2020 (unaudited)

	Agro			Other
	Fertilizers	Plastics	Chemicals	Energy	Activities	Total
Expenditure on property, plant and equipment	223,229	561,975	42,812	64,007	23,596	915,619
Expenditure on intangible assets	2,290	1,882	355	816	1,490	6,833
Expenditure on investment property	55	1	-	-	32	88
Unallocated expenditure	-	-	-	-	-	11,081
Total expenditure	225,574	563,858	43,167	64,823	25,118	933,621
Segment's depreciation and amortisation	162,269	36,884	53,526	54,946	55,305	362,930
Unallocated depreciation and amortisation	-	-	-	-	-	17,494
Total depreciation and amortisation	162,269	36,884	53,526	54,946	55,305	380,424

Geographical areas

Revenue split by geographical areas is determined based on the location of customers.

Revenue

	for the period	for the period	for the period	for the period
	Jan 1 −	Jan 1 −	Apr 1 −	Apr 1 −
	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Poland	3,051,260	2,543,911	1,418,065	1,063,378
Germany	751,946	405,665	389,597	175,389
Other EU countries	1,682,498	1,475,769	831,958	561,879
Asia	162,366	196,394	74,551	114,243
South America	149,724	105,741	90,671	55,654
Other countries	736,861	645,138	367,831	298,355
Total	6,534,655	5,372,618	3,172,673	2,268,898

No single trading partner accounted for more than 10% of revenue in the first half of 2021 or the first half of 2020.

Note 1 Revenue from contracts with customers

	for the period	for the period	for the period	for the period
	Jan 1 −	Jan 1 −	Apr 1 −	Apr 1 −
	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Revenue from sale of
products and services	6,383,637	5,244,353	3,103,491	2,215,371
Revenue from sale of
merchandise and materials	146,305	125,110	64,801	51,781
Revenue from sale of
property rights	2,880	1,427	2,758	339
Revenue from sale of
licences	1,833	1,728	1,623	1,407
Total	6,534,655	5,372,618	3,172,673	2,268,898

For the six months ended June 30th 2021 (unaudited)

	Agro				Other
	Fertilizers	Plastics	Chemicals	Energy	Activities	Total
Main product lines
Revenue from sale of products and services	3,574,970	842,078	1,701,873	130,027	134,689	6,383,637
Revenue from sale of merchandise and materials	83,778	-	9,843	35,097	17,587	146,305
Revenue from sale of property rights	-	77	-	2,803	-	2,880
Revenue from sale of licences	1,833	-	-	-	-	1,833
Total	3,660,581	842,155	1,711,716	167,927	152,276	6,534,655
Geographical regions
Poland	1,942,715	109,982	700,342	167,927	130,294	3,051,260
Germany	246,884	318,804	183,780	-	2,478	751,946
Other EU countries	762,364	312,696	594,673	-	12,765	1,682,498
Asia	112,893	45,185	4,225	-	63	162,366
South America	132,773	10,536	6,415	-	-	149,724
Other countries	462,952	44,952	222,281	-	6,676	736,861
Total	3,660,581	842,155	1,711,716	167,927	152,276	6,534,655
Customer type
Legal persons	3,643,834	842,155	1,711,619	167,465	150,167	6,515,240
Individuals	16,747	-	97	462	2,109	19,415
Total	3,660,581	842,155	1,711,716	167,927	152,276	6,534,655
Agreement type
Fixed-price contracts	912,472	216,150	294,390	78,989	64,870	1,566,871
Time-and-materials contracts	-	606,465	-	-	56,850	663,315
Other	2,748,109	19,540	1,417,326	88,938	30,556	4,304,469
Total	3,660,581	842,155	1,711,716	167,927	152,276	6,534,655
Customer relations
Long-term	1,291,922	327,887	548,131	129,844	47,232	2,345,016
Short-term	2,368,659	514,268	1,163,585	38,083	105,044	4,189,639
Total	3,660,581	842,155	1,711,716	167,927	152,276	6,534,655
Revenue recognition timing
Revenue recognised at a point in time	3,660,581	842,155	1,711,716	167,927	78,971	6,461,350
Revenue recognised over time	-	-	-	-	73,305	73,305
Total	3,660,581	842,155	1,711,716	167,927	152,276	6,534,655
Sale channels
Direct sales	1,409,657	621,490	1,584,423	159,831	147,277	3,922,678
Intermediated sales	2,250,924	220,665	127,293	8,096	4,999	2,611,977
Total	3,660,581	842,155	1,711,716	167,927	152,276	6,534,655

For the six months ended June 30th 2020 (unaudited)

	Agro				Other
	Fertilizers	Plastics	Chemicals	Energy	Activities	Total
Main product lines
Revenue from sale of products and services	3,248,420	591,248	1,202,383	103,098	99,204	5,244,353
Revenue from sale of merchandise and materials	77,744	-	13,735	19,546	14,085	125,110
Revenue from sale of property rights	-	361	-	1,066	-	1,427
Revenue from sale of licences	1,728	-	-	-	-	1,728
Total	3,327,892	591,609	1,216,118	123,710	113,289	5,372,618
Geographical regions
Poland	1,751,295	70,910	498,981	123,710	99,015	2,543,911
Germany	233,743	30,506	138,793	-	2,623	405,665
Other EU countries	693,115	335,750	436,376	-	10,528	1,475,769
Asia	114,349	81,430	504	-	111	196,394
South America	95,990	8,487	1,264	-	-	105,741
Other countries	439,400	64,526	140,200	-	1,012	645,138
Total	3,327,892	591,609	1,216,118	123,710	113,289	5,372,618
Customer type
Legal persons	3,313,148	591,609	1,216,007	123,355	111,276	5,355,395
Individuals	14,744	-	111	355	2,013	17,223
Total	3,327,892	591,609	1,216,118	123,710	113,289	5,372,618
Agreement type
Fixed-price contracts	1,843,752	171,614	203,488	60,050	51,548	2,330,452
Time-and-materials contracts	364,626	417,451	448,505	63,558	40,953	1,335,093
Other	1,119,514	2,544	564,125	102	20,788	1,707,073
Total	3,327,892	591,609	1,216,118	123,710	113,289	5,372,618
Customer relations
Long-term	1,265,282	276,986	332,856	113,583	31,419	2,020,126
Short-term	2,062,610	314,623	883,262	10,127	81,870	3,352,492
Total	3,327,892	591,609	1,216,118	123,710	113,289	5,372,618
Revenue recognition timing
Revenue recognised at a point in time	3,327,892	591,609	1,216,118	122,166	67,902	5,325,687
Revenue recognised over time	-	-	-	1,544	45,387	46,931
Total	3,327,892	591,609	1,216,118	123,710	113,289	5,372,618
Sale channels
Direct sales	1,316,582	388,334	1,112,439	121,826	113,289	3,052,470
Intermediated sales	2,011,310	203,275	103,679	1,884	-	2,320,148
Total	3,327,892	591,609	1,216,118	123,710	113,289	5,372,618

The increase in revenue was mainly attributable to higher prices across all operating segments, with a concurrent increase in sales volumes.

Note 2 Operating expenses

	for the period Jan 1 −	for the period Jan 1 −	for the period Apr 1 −	for the period Apr 1 −
	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Depreciation and amortisation Raw materials and	381,460	378,047	190,946	189,636
consumables used	3,871,695	2,710,860	1,950,689	1,164,264
Services	639,788	581,239	330,329	292,369
Taxes and charges	294,261	275,825	100,138	130,551
Salaries and wages Social security and other	758,838	741,046	408,050	397,184
employee benefits	198,297	191,557	102,544	96,065
Other expenses	78,698	83,835	47,544	42,377
Costs by nature of expense	6,223,037	4,962,409	3,130,240	2,312,446
Change in products (+/-) Work performed by the	(137,063)	80,223	(144,877)	(100,536)
entity and capitalised (-) Selling and distribution	(53,206)	(64,210)	(22,866)	(37,610)
expenses (-)	(492,393)	(480,124)	(242,638)	(225,194)
Administrative expenses (-) Cost of merchandise and	(407,570)	(406,984)	(214,919)	(208,314)
materials sold	111,259	102,553	45,253	41,800
Cost of sales	5,244,064	4,193,867	2,550,193	1,782,592
including excise duty	2,566	2,680	1,209	1,299

The individual items of operating expenses changed year on year mainly as a result of:

• raw materials and consumables used increase in prices and consumption volumes of gas and petroleum products,
• services increase in transport costs as a result of a higher weight of products sold, higher R&D expenditure, and higher spending on subcontractors engaged to carry out maintenance works,
• salaries and wages increase caused mainly by hiring staff to execute new investment projects,
• taxes and charges increase in prices of CO² emission allowances,
• other expenses decrease in business travel expenses as well as advertising and entertainment costs.

Note 3 Other income

	for the period Jan 1 − Jun 30 2021	for the period Jan 1 − Jun 30 2020	for the period Apr 1 − Jun 30 2021	for the period Apr 1 − Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Reversed impairment losses on:
Other receivables	282	112	142	63
Other	-	11	-	10
	282	123	142	73
Other income: Compensation for the increase in electricity prices due to higher prices of CO2
emission allowances Income from lease of	-	79,593	-	72,959
investment property	6,443	7,653	3,342	4,308
Received compensation	5,080	1,583	3,276	737
Provisions reversed	1,501	7,309	1,422	3,839
Government grants received	7,292	6,961	3,851	3,447
Other	8,938	5,080	8,995	2,631
	29,254	108,179	20,886	87,921
	29,536	108,302	21,028	87,994

As at June 30th 2020, the Group recognised in other income compensation of PLN 79,593 thousand for the increase in electricity prices due to higher prices of CO² emission allowances for 2019. As at June 30th 2021, the expected compensation amounts for the current period of PLN 7,827 thousand were recognised as a decrease in current costs of electricity used. Compensation amounts for the first half of 2020, which reduced costs of electricity used by PLN 44,556 thousand, were recognised in the same manner.

Note 4Other expenses

	for the period Jan 1 −	for the period for the period Jan 1 − Apr 1 −		for the period Apr 1 −
	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Loss on disposal of assets: Loss on disposal of property, plant and
equipment Loss on sale of intangible	7,929	2,122	(725)	573
assets.	218	-	218	-
	8,147	2,122	(507)	573
Recognised impairment losses on:
Property, plant and
equipment	859	1,011	224	1,011
Investment property	131	-	131	-
Other receivables	571	662	398	1,760
Other	-	88	-	26
	1,561	1,761	753	2,797
Other expenses: Investment property
maintenance costs	6,816	6,253	3,617	3,179
Fines and compensations	1,684	211	1,224	180
Plant outages	833	929	413	456
Failure recovery costs	4,138	3,763	1,705	2,501
Recognised provisions	5,318	4,592	2,553	3,109
Other	9,126	7,947	7,078	3,714
	27,915	23,695	16,590	13,139
	37,623	27,578	16,836	16,509

Note 5 Finance income

	for the period Jan 1 − Jun 30 2021	for the period Jan 1 − Jun 30 2020	for the period Apr 1 − Jun 30 2021	for the period Apr 1 − Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Interest income:
Interest on bank deposits Interest on cash pooling,	-	2,057	-	1,397
loans Interest on trade	-	2,148	-	436
receivables	1,183	1,133	670	797
Other interest income	209	832	145	14
	1,392	6,170	815	2,644
Profit from sale of financial investments:
Gains on sale of financial investments	-	287	-	287
	-	287	-	287
Gains on measurement of financial assets and liabilities: Gains on measurement of financial assets at fair value
through profit or loss	-	-	-	(12,732)
	-	-	-	(12,732)
Other finance income:
Foreign exchange gains	57,327	-	38,232	-
Dividends received	193	-	193	-
Discounting of liabilities	729	237	696	10
Other finance income	1,839	2,838	(500)	2,096
	60,088	3,075	38,621	2,106
	61,480	9,532	39,436	(7,695)

Foreign exchange gains of PLN 57,327 thousand (first half of 2020: foreign exchange losses of PLN 18,536 thousand) comprised:

• net realised foreign exchange gains of PLN 12,609 thousand (first half of 2020: net realised foreign exchange gains of PLN 3,400 thousand),
• net foreign exchange gains on realised transactions in currency derivatives of PLN 34,879 thousand (first half of 2020: net foreign exchange losses on realised transactions in currency derivatives of PLN 2,875 thousand),
• net foreign exchange gains on measurement of receivables and liabilities denominated in foreign currencies of PLN 12,432 thousand as at the reporting date (first half of 2020: net foreign exchange losses on measurement of receivables and liabilities denominated in foreign currencies of PLN 16,393 thousand as at the reporting date),
• net foreign exchange losses on measurement of other items of PLN 2,593 thousand as at the reporting date (first half of 2020: net foreign exchange losses on measurement of other items of PLN 2,668 thousand as at the reporting date).

Note 6 Finance costs

	for the period Jan 1 −	for the period Jan 1 −	for the period Apr 1 −	for the period Apr 1 −
	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Interest expense:
Interest on bank borrowings and overdraft facilities	24,021	28,089	13,586	11,676
Interest on cash pooling,
loans	928	3,171	415	1,256
Interest on liabilities under
leases, factoring, discount
of receivables	9,755	9,583	5,211	4,209
Interest on trade payables	599	11	620	-
Interest on public charges	178	113	85	87
Other interest expense	3,148	2,384	2,880	2,058
	38,629	43,351	22,797	19,286
Loss on measurement of financial assets and liabilities: Loss on measurement of financial assets at fair value through profit or loss	70,286	2,021	(17,160)	2,021
Loss on measurement of
financial liabilities at fair
value through profit or loss	-	537	(977)	537
	70,286	2,558	(18,137)	2,558
Other finance costs:
Foreign exchange losses Unwind of discount on	-	18,536	-	(5,227)
provisions and loans	558	2,495	467	2,412
Sureties	602	712	602	712
Other finance costs:	388	4,322	(2,137)	1,224
	1,548	26,065	(1,068)	(879)
	110,463	71,974	3,592	20,965

Losses on measurement of financial assets carried at fair value through profit or loss include a loss of PLN 79,444 thousand recorded by Grupa Azoty POLYOLEFINS on measurement of open forwards to purchase EUR and IRS contracts with a floor to hedge interest rates, and a gain of PLN 9,158 thousand on open hedging transactions and unrealised foreign exchange differences of other Group companies.

Note 7 Income tax

							Note 7.1 Income tax disclosed in the statement of profit or loss
--	--	--	--	--	--	--	------------------------------------------------------------------	--	--	--	--

	for the period Jan 1 − Jun 30 2021	for the period Jan 1 − Jun 30 2020	for the period Apr 1 − Jun 30 2021	for the period Apr 1 − Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Current income tax:
Current income tax expense Adjustments to current income tax for previous	64,758	42,264	18,469	3,471
years	(3,834)	3,875	(3,834)	-
	60,924	46,139	14,635	3,471
Deferred income tax: Deferred income tax associated with origination and reversal of temporary
differences	26,964	48,761	27,056	38,714
	26,964	48,761	27,056	38,714
Income tax disclosed in the statement of profit or loss	87,888	94,900	41,691	42,185

Note 7.2 Income tax disclosed in other comprehensive income

	for the period	for the period	for the period	for the period
	Jan 1 −	Jan 1 −	Apr 1 −	Apr 1 −
	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Tax on items that will not be
reclassified to profit or loss
(+/-)	2,252	(3,155)	2,252	(3,156)
Remeasurement of net
defined benefit
obligation/asset	2,252	(3,155)	2,252	(3,156)
Tax on items that are or may
be reclassified to profit or
loss (+/-)	3,591	(7,630)	5,162	3,529
Cash flow hedging –
effective portion of fair
value changes	3,591	(7,630)	5,162	3,529
Income tax disclosed in other
comprehensive income	5,843	(10,785)	7,414	373

Note 7.3 Effective tax rate

	for the period	for the period	for the period	for the period
	Jan 1 − Jun 30 2021	Jan 1 − Jun 30 2020	Apr 1 − Jun 30 2021	Apr 1 − Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Profit before tax	341,604	317,005	209,530	99,236
Tax calculated at the
applicable tax rate	64,905	60,230	39,811	18,854
Effect of tax rates in foreign
jurisdictions	6,557	4,539	3,278	2,269
Effect of tax-exempt income
(+/-)	(8,978)	9,528	(4,489)	11,272
Effect of non tax-deductible
expenses (+/-)	12,308	(7,017)	6,154	(3,508)
Tax effect of inclusion of
property, plant and
equipment into operations in
Special Economic Zone (+/-)	951	937	475	468
Tax effect of tax losses
deducted in the period (+/-)	37	(165)	18	(82)
Recognition of state aid
deductible in future periods
(+/-)	333	(397)	167	(198)
Other (+/-)	11,775	27,245	(3,723)	13,110
Income tax disclosed in the
statement of profit or loss	87,888	94,900	41,691	42,185
Effective tax rate	25.7%	29.9%	19.9%	42.5%

Note 7.4 Deferred tax assets and liabilities

	Assets (-)		Liabilities (+)
	Jun 30 2021	Dec 31 2020	Jun 30 2021	Dec 31 2020
	unaudited	audited	unaudited	audited
Property, plant and equipment	(83,104)	(70,867)	436,183	432,702
Right-of-use assets	(8,210)	(236)	136,728	131,666
Investment property	(1,725)	(1,778)	8,676	8,866
Intangible assets	(15,995)	(3,873)	248,567	257,703
Financial assets	(968)	(1,043)	107	3,126
Inventories and property rights	(13,633)	(17,820)	51,024	54,428
Trade and other receivables	(13,106)	(8,147)	86,859	29,548
Trade and other payables	(152,530)	(135,825)	13,724	995
Other assets	(113)	(34)	1,399	94
Employee benefits	(114,333)	(113,060)	535	592
Provisions	(55,780)	(58,692)	4,613	6,252
Borrowings	(1,787)	(2,182)	183	110
Other financial liabilities, including leases	(56,289)	(58,052)	1,287	16
Derivative financial instruments	(68)	-	8,739	-
Measurement of hedging instruments through hedge accounting	(7,548)	(11,483)	-	8,258
State aid deductible in future periods	(10,118)	(12,581)	-	-
Tax losses	(3,510)	(3,051)	-	-
Other	(19,358)	(6,509)	7,806	6,171
Deferred tax assets (-)/liabilities (+)	(558,175)	(505,233)	1,006,430	940,527
Offset	465,860	411,108	(465,860)	(411,108)
Deferred tax assets (-)/liabilities (+) recognised in the statement of
financial position	(92,315)	(94,125)	540,570	529,419

Note 8 Earnings per share

Basic earnings per share were calculated based on net profit attributable to owners of the Parent and the weighted average number of shares outstanding in the reporting period. The amounts were determined as follows:

	for the period	for the period	for the period	for the period
	Jan 1 −	Jan 1 −	Apr 1 −	Apr 1 −
	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
Net profit	230,645	195,224	143,075	44,115
Number of shares at
beginning of period	99,195,484	99,195,484	99,195,484	99,195,484
Number of shares at end of
period	99,195,484	99,195,484	99,195,484	99,195,484
Weighted average number
of shares in the period	99,195,484	99,195,484	99,195,484	99,195,484
Earnings per share:
Basic (PLN)	2.33	1.97	1.44	0.44
Diluted (PLN)	2.33	1.97	1.44	0.44

Diluted earnings per share

There are no potentially dilutive shares which would cause dilution of earnings per share.

Note 9 Property, plant and equipment

Carrying amount

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Land	58,722	59,391
Mineral deposits	5,822	6,655
Buildings and structures	2,743,828	2,777,833
Plant and equipment	3,589,642	3,679,994
Vehicles	120,303	120,712
Other property, plant and equipment	158,071	162,216
	6,676,388	6,806,801
Property, plant and equipment under construction	4,857,834	3,766,303
	11,534,222	10,573,104

The increase in property, plant and equipment under construction reflected mainly the expenditure made on strategic investment projects, in particular Polimery Police, as well as capex projects undertaken by Grupa Azoty PUŁAWY.

	Land	Mineral deposits	Buildings and structures	Plant and equipment	Vehicles	Other property, plant and equipmen t	Property, plant and equipmen t under constructi on	Total
As at Jun 30 2021
Gross carrying amount	67,399	49,022	4,317,149 (1,511,261	7,542,177	311,536	407,561	4,930,931	17,625,775
Accumulated depreciation (-)	-	(6,991)	)	(3,847,933)	(145,308)	(248,602)	-	(5,760,095)
Impairment (-)	(8,677)	(36,209)	(62,060)	(104,602)	(45,925)	(888)	(73,097)	(331,458)
Net carrying amount as at Jun 30 2021 (unaudited)	58,722	5,822	2,743,828	3,589,642	120,303	158,071	4,857,834	11,534,222
As at Dec 31 2020
Gross carrying amount	68,076	49,022	4,272,937 (1,432,822	7,413,026	300,258	397,657	3,839,069	16,340,045
Accumulated depreciation (-)	-	(6,158)	)	(3,628,218)	(133,621)	(234,556)	-	(5,435,375)
Impairment (-)	(8,685)	(36,209)	(62,282)	(104,814)	(45,925)	(885)	(72,766)	(331,566)
Net carrying amount as at Dec 31 2020 (audited)	59,391	6,655	2,777,833	3,679,994	120,712	162,216	3,766,303	10,573,104

In the six months ended June 30th 2021, the Group purchased property, plant and equipment with a value of PLN 1,327,228 thousand (six months ended June 30th 2020: PLN 923,098 thousand). In the six months ended June 30th 2021, the Group sold property, plant and equipment with a total value of PLN 1,437 thousand (six months ended June 30th 2020: PLN 1,875 thousand).

Loss on disposal of property, plant and equipment was presented in Note 4.

The value of property, plant and equipment is also affected by changes in the EUR exchange rate in the case of assets located abroad, particularly in the European Union. In the six months ended June 30th 2021, exchange differences resulted in a PLN 12,016 thousand decrease in property, plant and equipment (six months ended June 30th 2020: PLN 26,988 thousand increase in property, plant and equipment).

Impairment testing

As at June 30th 2021, one of the triggers listed in paragraph 12d of IAS 36 Impairment of Assets occurred in respect of all of the Group's non-current assets – the carrying amount of the Group's net assets was higher than the market capitalisation of the Parent. Therefore, the Parent and the key subsidiaries analysed the validity of the assumptions adopted for the previous impairment tests as at December 31st 2020, and the results of those tests. The analysis showed that:

• the adopted operating strategy and the key assumptions did not change,
• the definition of cash generating units (CGUs) within the Group and the value of assets of each CGU did not change materially relative to the respective amounts as at December 31st 2020,
• the Group's EBITDA and cash flows for the six months to June 30th 2021 with respect to the major part of the tested CGUs were higher than those assumed in the impairment tests as at the end of 2020,
• the projected financial results for 2021 for the majority of the Group's CGUs were also higher than the planned results for the period underlying the impairment tests at the end of 2020,
• the risk-free interest rate (yield on 10-year Treasury bonds) rose from 1.23% at the end of 2020 to 1.63% at the end of June 2021, driving up the weighted average cost of capital for the Grupa Azoty Group, but the discount rate increase does not materially reduce the recoverable amount of individual CGUs,
• the gas cost dynamics were to a large extent reflected on the income side,
• simulations performed for the CGUs at the Parent and the key subsidiaries, based on the assumptions of the test carried out at the end of 2020, updated to reflect current price forecasts for products and raw materials (including prices of CO² emission allowances) and a higher discount rate, show that the recoverable amounts of the tested CGUs' assets exceed their carrying amounts.

Given the above, it was concluded that the recoverable amount estimates resulting from the previous tests remained valid as at June 30th 2021, and therefore no additional impairment losses needed to be recognised and no indicators existed that any impairment losses on assets recognised in prior periods should be reversed.

For detailed information on the impairment tests and their results, see Note 10 to the consolidated financial statements of the Grupa Azoty Group for the 12 months ended December 31st 2020.

Grupa Azoty POLYOLEFINS, the subsidiary responsible for the implementation of the strategic capex project Polimery Police, monitors the projected profitability of its investment using a financial model for the project developed in cooperation with reputable advisory firms. The key assumptions developed for the purposes of the financial model, including technological assumptions and market forecasts, are based on independent studies, such as technical documentation provided by recognised engineering companies (including technology licensors) and market advisor reports.

Grupa Azoty POLYOLEFINS reviews the need to update the key model assumptions and parameters on an ongoing basis. February 25th 2021 saw the financial closing, for the purpose of which the Company provided an updated financial model to the financing institutions. The scope of the updates was primarily related to the effect of transactions hedging the currency and interest rate risks.

Based on the updated, positive findings of the economic feasibility study resulting from the financial model referred to above, which Grupa Azoty POLYOLEFINS uses as a recoverable amount estimate for the purposes of asset impairment testing, the determination that assets of the Polimery Police project were not impaired was upheld as at June 30th 2021.

Note 10 Right-of-use assets

Carrying amount

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Perpetual usufruct of land	662,534	645,621
Land	561	478
Buildings and structures	32,543	35,564
Plant and equipment	90,074	94,756
Vehicles	48,580	57,882
Other fixtures and fittings, tools and equipment	262	303
	834,554	834,604
Right-of-use assets under construction	561	86

835,115 834,690

1,004,230 1,027,310

Note 11 Intangible assets

Carrying amount

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Trade marks	280,470	284,456
Corporate logo	125,064	127,659
Customer portfolio	315,810	332,456
Patents and licences	78,045	81,292
Software	27,997	30,094
Development costs	4,001	2,595
Other intangible assets	52,265	57,085
Intangible assets under development	120,578	111,673

Note 12 Property rights

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Emission allowances	79,170	518,469
Energy certificates	-	5,725
Other	2,285	5,005
Total property rights, including:	81,455	529,199
carrying amount of property rights at fair value less cost to sell	-	-

CO² emission allowances held (number of units)

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Balance at beginning of period (units held)	4,742,055	5,391,682
Settled for the previous year	(7,129,415)	(6,990,365)
Free allocation of CO2 emission allowances granted during the reporting period	-	4,400,993
Purchased	2,769,121	1,939,745
Balance at end of period (units held)	381,761	4,742,055
Free allocation of CO2 emission allowances expected to be received for 2021 (recognised as receivables)	4,723,167	-
Emissions in the reporting period	3,795,319	7,199,159

By June 30th 2021, no free CO² emission allowances due to the Group for 2021 were credited to the EU ETS installation accounts. For detailed information on estimating the amounts due, see Note 13 to these interim condensed consolidated financial statements.

Note 13 Trade and other receivables

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Trade receivables – related parties	1,626	2,101
Trade receivables – other entities	1,231,528	974,979
Receivables from state budget, except for income tax	295,103	402,710
Receivables under construction contracts – other entities	15,574	11,943
Prepayments for deliveries of property, plant and equipment and intangible assets – other entities	272,628	304,976
Prepayments for deliveries of materials, goods and services – other entities	28,532	5,685
Accrued expenses	315,545	204,631
Other receivables – related parties	14,212	-
Other receivables – other entities	1,429,794	211,046
	3,604,542	2,118,071
including
Long-term	524,749	489,827
Short-term	3,079,793	1,628,244
	3,604,542	2,118,071

The increase in short-term receivables is attributable to higher sales volumes with deferred payment dates, with a concurrent increase in selling prices of products, and is an effect of recognising receivables from CO2 emission allowances expected to be received.

Free allocation of CO² emission allowances expected to be received is recognised under other receivables from other entities, in the amount of PLN 1,203,575 thousand (December 31st 2020: PLN 0 thousand), as they have been credit to the installations' accounts. The need to recognise estimated amounts follows from the fact that no free CO² emission allowances for 2021 were allocated by the reporting date. On July 7th 2021, the Ministry of Climate and Environment published a list of installations together with an annual number of emission allowances allocated for 2021-2025. The list contains expected free allocations of CO² emission allowances to eligible companies of the Grupa Azoty Group. The final size of the free allocation of CO² emission allowances for individual installations will be adjusted on the basis of the average production volume in the two years preceding the year for which the emission allowances will be allocated. In the first half of 2021, the Grupa Azoty

Group companies submitted to the National Centre for Emissions Balancing and Management reports on actual emissions from their respective installations in 2019-2020, specifying the requested allocation for 2021-2025. The information contained in these reports will be the basis for adjusting free allocations of CO² emission allowances to the maximum level defined for each eligible installation in the published list referred to above. In view of the above, the expected allocation of free CO² emission allowances for 2021 was determined in accordance with the applications submitted.

Note 14Cash and cash equivalents

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Cash in hand	421	215
Bank balances in PLN	662,448	502,145
Bank balances in foreign currencies (translated to PLN)	204,206	341,385
Bank deposits − up to 3 months	102,367	63,537
Other bank deposits	2,554	15,897
Other	42	149
	972,038	923,328
Cash and cash equivalents in the statement of financial
position	972,038	923,328
Cash and cash equivalents in the statement of cash flows	972,038	923,328

As at June 30th 2021, the amount of funds in the VAT account (split payment) was PLN 95,463 thousand (December 31st 2020: PLN 32,293 thousand).

Note15 Borrowings

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Bank borrowings	3,380,581	3,097,555
Loans	465,448	418,208
	3,846,029	3,515,763
including
Long-term	3,431,418	3,322,320
Short-term	414,611	193,443
	3,846,029	3,515,763

At the beginning of 2021, the Group drew down a PLN 350m loan under the term facility advanced by a bank syndicate under the Credit Facility Agreement of April 23rd 2015 (as amended), in order to refinance its full contribution made previously to the Polimery Police project. On June 29th 2021, the Group drew down a loan of PLN 650m remaining under the credit facility in view of the approaching end date of the facility's availability, while repaying a loan of PLN 720m under the revolving credit facility.

As at June 30th 2021, the amounts available to be drawn by the Group totalled approximately PLN 7,434m, of which undrawn amounts under Grupa Azoty POLYOLEFINS' special purpose credit facilities for the financing of the Polimery Police project were PLN 4,984m, and the other undrawn amounts available to the Grupa Azoty Group amounted to PLN 2,450m (PLN 2,743m as at December 31st 2020 excluding Grupa Azoty POLYOLEFINS' special purpose credit facilities made available in the first quarter of 2021).

	As at Jun 30 2021 (unaudited)
Currency	Reference rate	Amount as at the reporting date		Up to 1 year	1−2 years	2−5 years	Over 5 years
		in foreign currency	in PLN
PLN	variable / fixed	1,983,731	1,983,731	229,932	318,516	1,186,245	249,038
	variable /
EUR	fixed	414,756	1,604,271	166,424	161,599	1,094,817	181,431
USD	variable	84,411	239,772	-	-	-	239,772
BLR	fixed	23,834	18,255	18,255	-	-	-
			3,846,02
			9	414,611	480,115	2,281,062	670,241

Maturities and currencies of borrowings

As at Dec 31 2020 (audited)

Currency	Reference rate	Amount as at the reporting date		Up to 1 year	1−2 years	2−5 years	Over 5 years
		in foreign currency	in PLN
	variable /
PLN	fixed	1,639,599	1,639,599	41,223	138,393	1,220,503	239,480
	variable /
EUR	fixed	386,829	1,666,873	139,368	169,718	1,171,606	186,181
USD	variable	52,000	196,439	-	-	-	196,439
BLR	fixed	17,735	12,852	12,852	-	-	-
			3,515,76
			3	193,443	308,111	2,392,109	622,100

As part of debt under borrowings maturing in up to one year from the reporting date, i.e. by June 30th 2022, the Group presented PLN and EUR-denominated debt under umbrella working capital facilities as at June 30th 2021, of PLN 1 thousand (December 31st 2020: PLN 202,131 thousand). The umbrella working capital facility agreements are effective until September 30th 2022. However, the related liabilities are classified as current, because they are used to finance the Group's day-today operations and because of their half-yearly allocation and availability periods. The Group expects to refinance or extend these instruments in the following periods.

Note 16 Other financial liabilities

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Liabilities under sale of receivables	113,017	110,012
Liabilities under reverse factoring agreements	1,506,618	556,362
Other obligations	600,376	583,523
	2,220,011	1,249,897
including
Long-term	596,876	579,438
Short-term	1,623,135	670,459
	2,220,011	1,249,897

The increase in other financial liabilities was mainly attributable to an increase in reverse factoring liabilities of PLN 950,256 thousand and reflects the valuation of financial liabilities resulting from the equity contributions made to Grupa Azoty POLYOLEFINS, taken up by Grupa LOTOS, Hyundai and KIND (increase of PLN 20,032 thousand).

Note 17 Employee benefit obligations

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Pension benefit obligations	234,352	236,820
Jubilee benefit obligations	258,545	256,705
Pensioner Social Fund benefit obligations	25,054	28,227
Other obligations	14,638	23,975
	532,589	545,727
including
Long-term	477,899	490,864
Short-term	54,690	54,863
	532,589	545,727

The decrease in employee benefit obligations follows from changes in actuarial assumptions, and mainly from an increase in the discount rate (to 1.63%) (December 31st 2020: 1.24%).

Note 18 Provisions

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Provision for litigation	17,736	16,245
Provision for environmental protection	203,557	203,562
Other provisions	34,643	31,719
	255,936	251,526
including
Long-term	214,606	211,022
Short-term	41,330	40,504
	255,936	251,526

Note 19 Grants

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Government grants received	815,298	211,319
including
Long-term	197,203	196,973
Short-term	618,095	14,346
	815,298	211,319

The increase in government grants received is attributable to the recognition by the Group of free CO2 emission allowances due but not received for 2021, which are accounted for as a reduction in cost of sales (taxes and charges) during the year in proportion to estimated CO² emissions. As at June 30th 2021, the outstanding grant of free CO² emission allowances was PLN 600,875 thousand.

Note 20 Other material changes in the statement of financial position

The PLN 177,201 thousand decrease in short-term trade and other payables was attributable to repayment of amounts payable under purchase of non-financial non-current assets.

Note 21 Financial instruments

Categories of financial instruments

Financial assets

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
At fair value through profit or loss	50,038	43,471
At amortised cost	3,544,990	2,120,172
At fair value through other comprehensive income	84,296	14,871
	3,679,324	2,178,514
Recognised in the statement of financial position as:
Derivative financial instruments	3,132	43,471
Shares	9,168	9,168
Trade and other receivables	2,692,728	1,200,063
Cash and cash equivalents	972,038	923,328
Other financial assets	2,258	2,484
	3,679,324	2,178,514
Financial liabilities
	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
At fair value through profit or loss	651,161	569,497
At amortised cost	7,625,329	6,556,519
	8,276,490	7,126,016
Recognised in the statement of financial position as:
Long-term borrowings	3,431,418	3,322,320
Short-term borrowings	414,611	193,443
Derivative financial instruments	67,794	6,086
Trade and other payables	1,730,626	1,927,074
Non-current ease liabilities	350,284	355,774
Current lease liabilities	61,746	71,422
Other non-current financial liabilities	596,876	579,438
Other current financial liabilities	1,623,135	670,459

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is exposed to credit risk principally in connection with its trade receivables, loans advanced, short-term bank deposits, cash at bank, including cash under the cash pooling facility.

With respect to trade receivables, it is expected that historical payment data reflects credit risk that will be incurred in future periods. Expected credit losses for this group of counterparties have been estimated using a provision matrix and percentage ratios assigned to specific aging ranges of trade receivables (e.g. receivables claimed in court, receivables from insolvent counterparties) that make it possible to estimate the value of trade receivables that are not expected to be repaid.

If a receivable from a given counterparty is past due by more than 90 days, the Group assumes that the counterparty has probably defaulted on its obligation and recognises an impairment loss for the full amount of the receivable.

For financial assets included in the estimation of expected losses other than trade receivables, the Group measures the risk of default of the counterparties based on ratings assigned by credit rating

agencies (e.g. to financial institutions) or ratings assigned using an internal credit rating model (e.g. for intra-group loans granted) that is appropriately converted to reflect the probability of default. In accordance with IFRS 9, the expected credit loss was calculated taking into account estimates of potential recoveries from collateral obtained and the time value of money.

Trade receivables

The credit risk structure of trade receivables by the Group's product groups is presented in the table below:

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Agro Fertilizers	551,559	476,724
Plastics	248,778	184,810
Chemicals	349,177	273,364
Energy	31,703	31,105
Other Activities	51,937	11,077
	1,233,154	977,080

The Group's trade receivables from third parties are in the first place insured under a trade credit insurance policy, which limits the Group's credit risk exposure to the deductible amount (i.e. 5–10% of the amount of insured receivables). The policy ensures that customers' financial condition is monitored on a ongoing basis and enables debt recovery when required. Upon a customer's insolvency, the Company receives compensation equal to 90–95% of the amount of the insured receivables.

A part of the Group companies' trade receivables from third parties, not covered by the policy, is secured with letters of credit and guarantees or other forms of security acceptable to the Group companies.

Trade credit limit is granted primarily on the basis of the insurance company's decision, but also taking into account positive trading history with the customer and the customer's creditworthiness (assessed based on business intelligence reports), financial statements and payment history.

If there is no positive history of trading between the Group and a customer, or where transactions are occasional and the credit limit cannot be insured, the customer is required to make a prepayment or provide security.

Credit risk exposure is defined as the total of unpaid receivables, monitored on an ongoing basis by the Group's internal financial staff (individually for each trading partner) and, if a receivable is insured, also by insurance companies' credit analysts.

Fair value of financial instruments

Detailed information on the fair value of financial instruments whose fair value can be estimated is presented below:

• cash and cash equivalents, short-term bank deposits and short-term bank borrowings, factoring and reverse factoring transactions, and sale and discount of receivables – the carrying amount of the instruments approximates their fair value due to their short maturities,
• trade receivables, other receivables and trade payables the carrying amount of the instruments approximates their fair value due to their short-term nature,
• long-term variable rate borrowings the carrying amount of the instruments approximates their fair value due to the variable nature of their interest rates.
• long-term fixed rate borrowings the carrying amount of the instruments amounts to PLN 780,112 thousand, and their fair value is about PLN 803,406 thousand (Level 2 in the hierarchy),
• foreign currency derivatives the carrying amount of the instruments equals their fair value.

The table below presents Grupa Azoty's financial instruments, carried at fair value, by levels in the fair value hierarchy, as at June 30th 2021 (unaudited):

Hierarchy level	Level 1	Level 2	Level 3
Financial assets at fair value, including:	24	50,038	84,296
at fair value through profit or loss	-	17,471	39,213
measured at fair value through other comprehensive income, including:	24	32,567	45,083
shares	-	-	6,625
trade receivables	-	-	38,458
derivative financial instruments	24	32,567	-
Financial liabilities at fair value, including:	-	67,794	583,367
at fair value through profit or loss	-	67,794	583,367
derivative financial instruments	-	67,794	-
other financial liabilities	-	-	583,367

The table below presents Grupa Azoty's financial instruments, carried at fair value, by levels in the fair value hierarchy, as at December 31st 2020 (audited):

Hierarchy level	Level 2	Level 3
Financial assets at fair value, including:	43,471	14,871
measured at fair value through other comprehensive income, including:	43,471	14,871
shares	-	6,625
trade receivables	-	6,737
derivative financial instruments	-	1,509
Financial liabilities at fair value, including:	6,086	563,411
at fair value through profit or loss, including:	6,086	563,411
derivative financial instruments	6,086	-
other financial liabilities	-	563,411

There were no transfers between the levels in the first half of 2021 or in 2020.

The fair value hierarchy presented in the tables above is as follows:

Level 1 – price quoted in an active market for the same asset or liability,

Level 2 – values based on inputs other than quoted Level 1 prices that are either directly or indirectly observable or determined on the basis of market data,

Level 3 – values based on input data that are not based on observable market data.

In H1 2021 and 2020, no financial instruments were transferred between Level 2 and Level 3 of the classification of financial instruments measured at fair value.

The fair value of foreign currency contracts presented in Level 2 is determined on the basis of a valuation carried out by brokers or banks with which the relevant contracts have been concluded. The valuations are verified by discounting the expected cash flows from the contracts at market interest rates effective as at the reporting date.

The fair value of the shares (equity investments) was measured using the discounted cash flow method.

Foreign currency derivatives

The fair value of foreign currency contracts presented in Level 2 is determined on the basis of a valuation carried out by brokers or banks with which the relevant contracts have been concluded. The valuations are verified by discounting the expected cash flows from the contracts at market interest rates effective as at the reporting date.

As at June 30th 2021, the nominal value of Grupa Azoty's unrealised foreign currency derivatives (FX Forward) was EUR 66.5m (maturing in the periods until November 2021) and EUR 5m under options, maturing in the period July to December 2021, entered into by Grupa Azoty POLICE.

The total notional amount of Grupa Azoty's currency derivatives was EUR 71.5m.

In addition, Grupa Azoty POLICE held open currency derivatives (FX forwards) to exchange EUR 3m for USD, to be settled between July and September 2021.

In the case of USD, the notional amount of Grupa Azoty's unrealised FX forwards was USD 8m (with maturities until December 2021).

The above foreign currency derivatives include forward contracts to sell an expected excess cash in EUR or, to a lesser extent, USD.

In the six months ended June 30th 2021, Grupa Azoty POLYOLEFINS entered into FX forward contracts to buy EUR for USD and PLN for USD to hedge the expected expenditure in EUR and PLN under contractual payments for the Polimery Police project, to be covered from disbursements under the term facility. The FX forwards were the target security required under the Credit Facilities Agreement. They are a continuation of the temporary security executed in 2020.

As at June 30th 2021, Grupa Azoty POLYOLEFINS had the following open contracts:

• FX forward to buy approximately EUR 227m for USD (hedging expenditure planned to the covered with proceeds from the term facility made available under the Credit Facilities Agreement in USD),
• FX forward to buy approximately PLN 213m for USD (hedging expenditure planned to be covered with proceeds from the term facility made available under the Credit Facilities Agreement in USD).

The FX forwards to purchase PLN for USD were designated for the purpose of cash flow hedge accounting.

As at June 30th 2021, the total result on the measurement of open FX forwards executed by Grupa Azoty POLYOLEFINS was PLN (41,249) thousand, including PLN (7,370) thousand attributable to the measurement of transactions designated as hedges for accounting purposes.

Such contracts are only entered into with reliable banks under master agreements. All the contracts reflect actual cash flows in foreign currencies. Currency forwards and derivative contracts are executed to match the Group's currency exposure and their purpose is to limit the effect of exchange rate fluctuations on profit or loss.

Obligation to repurchase shares in Grupa Azoty POLYOLEFINS from non-controlling shareholders On May 31st 2020, the Parent, Grupa Azoty POLICE (jointly referred to as the "Original Sponsors") and Grupa Azoty POLYOLEFINS entered into agreements with Grupa LOTOS, Hyundai and KIND (where Grupa LOTOS, Hyundai and KIND are referred to jointly as the "Co-Sponsors", and together with the Original Sponsors and Grupa Azoty POLYOLEFINS as the "Parties") concerning the terms and conditions of an equity investment and subordinated debt financing ("Transaction Documents") in connection with Grupa Azoty's strategic Polimery Police project implemented by Grupa Azoty POLYOLEFINS.

As part of the Transaction Documentation, investment agreements, loan agreements, shareholders' agreement between all of the Parties (the "Shareholders' Agreement") were signed.

In the Shareholders' Agreement, the Parties agreed that the lock-up period during which Hyundai and KIND would not be able, as a rule, to dispose of their Grupa Azoty POLYOLEFINS shares would last until the expiry of three years from the date of the Polimery Police project completion, and in the case of LOTOS – until full repayment of all liabilities under the Debt Financing Agreement, but not longer than until December 15th 2035. The Parties also agreed on a procedure for sale of Grupa Azoty POLYOLEFINS shares by the Co-Sponsors after expiry of the lock-up periods.

The Transaction Documents provide that the Original Sponsors may carry out a public offering of Grupa Azoty POLYOLEFINS shares after the expiry of the lock-up period. In addition, the Parties agreed on a put option for Hyundai and KIND towards the Original Sponsors and a call option for the Original Sponsors towards Hyundai, in each case with respect to Grupa Azoty POLYOLEFINS shares, with a total value (calculated based on the price originally paid by Hyundai and KIND for the shares) of up to USD 70,000,000, for the same amount expressed in USD, and in the case of the put option – additionally reduced by any dividends paid to Hyundai and KIND by the put option exercise date. The Parties agreed that the options would expire on or before December 31st 2035.

On November 16th 2020, each Co-Sponsor entered into a subscription agreement with Grupa Azoty POLYOLEFINS under which Hyundai acquired 15,348,963 Series G shares, KIND acquired 1,052,184 Series G shares, and Grupa LOTOS acquired 15,967,352 Series G shares. Following the execution of the subscription agreements, the Co-Sponsors made cash contributions to pay for the new shares in Grupa Azoty POLYOLEFINS as follows: Hyundai paid USD 73,000,000 (equivalent to PLN 275,808,600, as translated at the NBP rate for November 16th 2020 (Table 223/A/NBP/2020 of November 16th 2020)), KIND paid USD 5,000,000 (equivalent to PLN 18,891,000, as translated at the NBP rate for November 16th 2020 (Table 223/A/NBP/2020 of November 16th 2020)), and Grupa LOTOS paid PLN 300,000,000.

As at November 16th 2020, the share of non-controlling interests on account of the shares covered by the put option was reduced by PLN 212,426 thousand and the other financial liabilities were increased by PLN 230,126 thousand, with PLN 17,700 thousand recognised in other capital reserves. Subsequent measurement of the recognised liability as at December 31st 2020 was partly charged to property, plant and equipment under construction and partly to profit or loss.

As at June 30th 2021, the Group continued to measure the recognised liability, charging it partly to property, plant and equipment under construction and partly to profit or loss.

The amount of the liability is PLN 234,739 thousand.

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.

For details regarding repurchase of Grupa Azoty POLYOLEFINS shares from non-controlling shareholders, see Note 21.6 to the consolidated financial statements of the Grupa Azoty Group for the 12 months ended December 31st 2020.

Recognition of a future obligation to repurchase shares in Grupa Azoty POLYOLEFINS from noncontrolling shareholders for subsequent cancellation, involving a rate-of-return stabilisation mechanism

The Shareholders' Agreement provides for additional exit mechanisms for the Co-Sponsors as shareholders of Grupa Azoty POLYOLEFINS. In particular, these mechanisms include a public issue of Grupa Azoty POLYOLEFINS shares; joint sale of Grupa Azoty POLYOLEFINS shares to third-party investors; first refusal rights over Grupa Azoty POLYOLEFINS shares granted to the Original Sponsors; an option for Grupa LOTOS to acquire a majority interest in Grupa Azoty POLYOLEFINS if the cofinancing necessary to complete the Polimery Police project is not possible; and the exit mechanism for Grupa LOTOS, Hyundai and KIND, with respect to the shares not covered by the put option and the call option, through repurchase of such shares by Grupa Azoty POLYOLEFINS at fair value for subsequent cancellation. The shares should be repurchased using funds generated and accumulated by Grupa Azoty POLYOLEFINS once the senior debt financing has been fully repaid. The share repurchase is expected after 2035, in line with the current financial model adopted for the Polimery Police project. The repurchase price based on the future fair value of Grupa Azoty POLYOLEFINS shares as at the repurchase date, taking into account earlier dividend payments, will ensure that the Co-Sponsors receive the rate of return specified in the Shareholders' Agreement with respect to the contribution made on November 16th 2020 towards the Grupa Azoty POLYOLEFINS share capital increase, covered by the mechanism. If the rate of return is lower than agreed, the Original Sponsors will be jointly and severally obliged to make supplementary payments to the Co-Sponsors so as to increase the rate of return on the Co-Sponsors' investments covered by the share repurchase-based exit mechanism to the agreed level, but in any case by no more than a specified number of percentage points. Similarly, if the rate of return on the Co-Sponsors' investments in the shares covered by the share repurchase-based exit mechanism exceeds the level expected by the Co-Sponsors, they will be obliged to make payments to the Original Sponsors so as to reduce the rate of return on the Co-Sponsors' investments to the agreed level, but in any case by no more than a specified number of percentage points (the same as in the above-mentioned case where the rate of return on the Co-Sponsors' investments is increased by the Original Sponsors).

Therefore, Grupa Azoty POLYOLEFINS shares acquired by Grupa LOTOS, Hyundai and KIND, which may be repurchased in the future for subsequent cancellation in accordance with the Shareholders' Agreement, are recognised as a financial liability. As at June 30th 2021, the liability was initially measured at the carrying amount equal to the rate of return expected by the Co-Sponsors for the period from the contribution date to June 30th 2021. The liability is subsequently measured at fair value, taking into account the rate of return required by the Co-Sponsors. The amount of the liability is PLN 348,628 thousand.

The mechanism described above, intended to stabilise the rate of return on the Co-Sponsors' investments in Grupa Azoty POLYOLEFINS shares covered by the share repurchase-based exit mechanism, results in the creation of a financial instrument at the Original Sponsors, whose value may be either positive (i.e. may become a financial asset if the Co-Sponsors anticipate a rate of return higher than agreed in the Shareholders' Agreement and, consequently, return payments to be made

to the Original Sponsors) or negative (i.e. may become a financial liability if supplementary payments from the Original Sponsors to the Co-Sponsors are anticipated following the share repurchase).

Under the current baseline financial model of the Polimery Police project, which served as the basis for investment and credit decisions, it is expected that the Co-Sponsors will achieve a rate of return not lower than specified in the Shareholders' Agreement. Therefore, no supplementary payments are currently expected to be made by the Original Sponsors to the Co-Sponsors after the shares are repurchased for cancellation following repayment of the senior debt financing.

As at June 30th 2021, given the status of the Polimery Police project, i.e. the stage of completion of approximately 67.6%, there are no indications of any material risks to the expected rate of return relative to the baseline scenario, a number of micro- and macroeconomic factors affecting the delivery and profitability of the Polimery Police project, as well as a distant date for the exercise of rights or discharge of obligations under the said rate-of-return stabilisation mechanism, which makes the estimation of final settlement highly uncertain, the Parent decided not to recognise a financial asset on that account. This decision will be reviewed and revised in subsequent periods, in keeping with the progress of the Polimery Police project.

On August 27th 2021, Grupa Azoty POLYOLEFINS received a letter from Hyundai Engineering Co., Ltd., the general contractor for the Polimery Police project, concerning the initiation of a procedure to amend the contract of May 11th 2019 for turnkey execution of the Polimery Police project. For details of the proposed amendments to the contract, see Note 26.

Hedge accounting

The Group applies cash flow hedge accounting. The hedged item are highly probable future proceeds from sale transactions in the euro, which will be recognised in profit or loss in the period from July 2021 to September 2028. The hedging covers currency risk. The hedge are two euro-denominated credit facilities of:

• EUR 72,648 thousand as at June 30th 2021 (December 31st 2020: EUR 81,729 thousand), repayable in the period from December 2018 to June 2025 in 14 equal half-yearly instalments of EUR 9,081 thousand each;
• EUR 100,000 thousand as at June 30th 2021 (December 31st 2020: EUR 100,000 thousand), repayable from September 2021 to September 2028 in 15 equal half-yearly instalments of EUR 6,666 thousand each.

As at June 30th 2021, the carrying amount of both these credit facilities was PLN 780,112 thousand (December 31st 2020: PLN 838,187 thousand). As at June 30th 2021, the hedging reserve included PLN (39,725) thousand (December 31st 2020: PLN (58,626) thousand) on account of the effective hedge. In the first half of 2021, the Group reclassified PLN 1,799 thousand from other comprehensive income to the statement of profit or loss in connection with the settlement of a hedging relationship with respect to payment of currency loan instalments against proceeds from sales in the euro.

Grupa Azoty POLYOLEFINS applies cash flow hedge accounting with respect to currency risk and interest rate risk. In currency risk hedges, the hedged position are future highly probable cash flows related to capital expenditure and costs in PLN, attributable to the execution of the Project, financed with drawdowns under the USD-denominated credit facility. In interest rate risk hedges, the hedged position are future highly probable cash flows arising from interest on the term loan denominated in EUR and USD.

As at June 30th 2021, the cash flow hedge reserve included PLN (7,370) thousand (December 31st 2020: no transactions designated for hedge accounting), PLN 18 thousand under settled foreign exchange hedging transactions for which the hedged item has not yet been realised, and PLN (25,704) thousand as a result of measurement of interest rate risk hedging transactions.

Note 22 Contingent liabilities, contingent assets, sureties and guarantees

Contingent assets

	as at Jun 30 2021	as at Dec 31 2020
	unaudited	audited
Contingent receivables	30,095	29,960
Contingent liabilities and guarantees/sureties

as at as at

Interim condensed consolidated financial statements for the six months ended June 30th 2021 (all amounts in PLN '000 unless indicated otherwise)

	Jun 30 2021	Dec 31 2020
	unaudited	audited
Other contingent liabilities, including guarantees	45,569	34,064

Note 23 Related-party transactions

Transactions with associates and jointly-controlled entities Trade transactions

	Revenue	Receivables	Purchases	Liabilities
In the six months ended June 30th 2021 and as at that date (unaudited)
Related parties of Grupa Azoty POLICE	7,317	15,803	4,210	1,204
Related parties of Grupa Azoty PUŁAWY	123	38	7,326	722
	7,440	15,841	11,536	1,926
			Revenue	Purchases
In the six months ended June 30th 2020 (unaudited)
Related parties of Grupa Azoty POLICE			9,493	4,644
Related parties of Grupa Azoty PUŁAWY			99	8,359
			9,592	13,003
			Receivables	Liabilities
As at Dec 31 2020 (audited)
Related parties of Grupa Azoty POLICE			2,053	1,394
Related parties of Grupa Azoty PUŁAWY			50	2,102
			2,103	3,496
Other transactions		In the six months ended June 30th 2021 (unaudited)		In the six months ended June 30th 2020 (unaudited)
Other income
Related parties of Grupa Azoty POLICE			1	-
Related parties of Grupa Azoty PUŁAWY		422		27

Note 24 Investment commitments

In the period ended June 30th 2021, the Group signed contracts for new investment projects and for continuation of ongoing projects. The projects involve mainly the provision of chemical, construction, mechanical and electrical services, design services, and project supervision. The estimated value of these liabilities was PLN 3,495,305 thousand (December 31st 2020: PLN 3,694,683 thousand).

The largest capital commitments are as follows:

	as at Jun 30 2021	as at Dec 31 2020
Propane dehydrogenation (PDH) and polypropylene unit at
Grupa Azoty POLICE	2,419,532	2,016,029
Construction of CHP plant at Grupa Azoty PUŁAWY	426,302	771,981
Modernisation of existing and construction of new nitric
acid units at Grupa Azoty PUŁAWY	104,368	112,568

Note 25 Accounting estimates and assumptions

Changes in impairment losses on property, plant and equipment

	for the period Jan 1 − Jun 30 2021	for the period Jan 1 − Jun 30 2020	for the period Apr 1 − Jun 30 2021	for the period Apr 1 − Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
At beginning of period	331,566	333,085	332,187	332,507
Recognised	861	1,011	226	1,011
Reversed (-)	(3)	(213)	-	-
Used (-)	(966)	(999)	(955)	(634)
At end of period	331,458	332,884	331,458	332,884

Changes in inventory write-downs

	for the period	for the period	for the period	for the period
	Jan 1 −	Jan 1 −	Apr 1 −	Apr 1 −
	Jun 30 2021	Jun 30 2020	Jun 30 2021	Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
At beginning of period	62,619	59,731	61,957	56,715
Recognised	19,471	22,495	12,236	19,131
Acquisition of companies	127	-	127	-
Reversed (-)	(3,592)	(4,915)	(1,653)	(2,198)
Used (-)	(11,456)	(14,305)	(5,347)	(10,610)
Exchange differences	(343)	328	(494)	296
At end of period	66,826	63,334	66,826	63,334

Changes in impairment losses on receivables

	for the period Jan 1 − Jun 30 2021	for the period Jan 1 − Jun 30 2020	for the period Apr 1 − Jun 30 2021	for the period Apr 1 − Jun 30 2020
	unaudited	unaudited	unaudited	unaudited
At beginning of period	86,252	84,477	86,043	87,208
Recognised	5,062	12,263	3,838	6,714
Reversed (-)	(3,638)	(3,838)	(2,151)	(2,809)
Used (-)	(1,720)	(2,103)	(1,646)	(1,358)
Exchange differences	(209)	(576)	(337)	468
At end of period	85,747	90,223	85,747	90,223

For information on estimated amounts due under free CO² emission allowances expected to be received, see Note 13 to these interim condensed consolidated financial statements.

Note 26 Events after the reporting date

Discontinuation of polyoxymethylene (POM) business

On June 9th 2021, the Management Board of the Parent decided that the Parent's activity in the polyoxymethylene business would be discontinued.

The analysis revealed that the POM business would not be economically viable in the foreseeable future, which is an indication that the Plastics Segment's POM business should be discontinued and its selected assets should be sold.

Consolidated revenue from sales of POM products to external customers in the first half of 2021 amounted to PLN 34.6m, accounting for 0.5% of the Group's total revenue (compared with PLN 54.1m, or 0.5%, in the first half of 2020). The discontinuation of the POM business will improve operating performance and reduce the Company's total CO2 emissions.

The decision to exit the POM business will have no material impact on any other operations of the Plastics Segment.

The agreement to sell the POM business, comprising technology, customer relations, inventories and selected property, plant and equipment, was executed on July 9th 2021. Consequently, the POM business was discontinued as of August 2021 and its assets are being gradually disposed of or utilised otherwise.

Announcement of a list of installations and annual number of emission allowances

On July 7th 2021, acting pursuant to Art. 26e.3 of the Act on a Trading System for Greenhouse Gas Emissions Allowances of June 12th 2015 (Dz.U. of 2021, items 332 and 1047), the Ministry of Climate and Environment announced the list of installations and the number of emission allowances allocated for 2021-2025.

Hyundai's proposal to amend the EPC Contract

On August 27th 2021, the Company's Management Board announced that on August 27th 2021 Grupa Azoty POLYOLEFINS received a letter from Hyundai Engineering Co., Ltd., the general contractor for the Polimery Police project (the "Contractor"), concerning the initiation of a procedure to amend (the "Amendment Proposal") the contract of May 11th 2019 for turnkey execution of the Polimery Police project (the "EPC Contract").

The Contractor proposes to amend the EPC Contract by:

• increasing the Contractor's fee by a total amount of EUR 127.4m,
• changing the Polimery Police project execution schedule through extension of the project's execution period by 181 days.
• amending an appendix to the EPC Contract where it relates to, among others, the scope of work provided for in the EPC Contract.

In the Contractor's opinion, the reason for submitting the Amendment Proposal is, in particular, the impact of the COVID-19 pandemic on the Polimery Police project.

The Amendment Proposal will be thoroughly reviewed and verified in terms of its appropriateness under the EPC Contract, in accordance with the procedure provided for in the EPC Contract, and under other agreements between Grupa Azoty POLYOLEFINS and the Contractor, as well as in the light of facts.

Note 27 Dividends

On June 30th 2021, the Company's Annual General Meeting passed a resolution to allocate the entire amount of the Parent's net profit for the financial year 2020, of PLN 125,628 thousand, to the Company's reserve funds.

Note 28 Seasonality

Seasonality of operations is seen mainly in the markets for mineral fertilizers.

Mineral fertilizers

The seasonality in the fertilizer segment in the first quarter of 2021 followed its usual pattern. It is typically a period of growing demand for fertilizers, driven by the spring application season that starts in March. The key factor is still the development of weather conditions. In the first half of 2021, it was characterised by periods of dynamic changes, which affected the timing of application of the first doses of nitrogen. The Group follows a policy of mitigating seasonality through optimum volume allocation:

• as part of all-year supplies to the distribution network, and
• by partial sales of products on geographical markets with different seasonality patterns.

Titanium white market

Because of its chief application (as a component of paints and varnishes), titanium white is a seasonal product used in structural construction. The demand for titanium white depends on the situation on the application markets, especially the construction market. It usually starts to rise at the end of the first quarter and falls as the construction season ends in autumn. The first quarter is typically classified as a low season, a run-up to the slow beginning of a high season. However, in 2020 and 2021 buying patterns were slightly distorted due to the coronavirus pandemic and market conditions.

In the case of other Grupa Azoty Group's products, seasonality does not have a material effect on the Group's performance as they represent a small proportion of total output.

Note 29 Information on the effects of the COVID-19 pandemic

The Group is constantly monitoring the epidemic situation in Poland and analysing various scenarios relating to the current and projected consequences of the public health emergency which may affect its operations. The analyses and forecasts consider the introduced legislative changes and changes in the market environment.

In order to enable the Company and other Group companies to operate in a possibly smooth manner, procedures have been put in place to mitigate the risk of employees being infected and to ensure appropriate response in case of infection.

The pandemic situation led to changes in the work organisation systems, designed to limit physical contacts between employees in order to minimise the risk of infection.

The Grupa Azoty Group companies provided additional protective and hygienic materials for the employees of the Group companies, and also enabled employees to do rapid COVID-19 tests in cases of suspected infection or contact with an infected person.

In June 2021, the Grupa Azoty Group organised preventive vaccinations against COVID-19 for employees of the Company and its subsidiaries and for their families.

In the six months to June 30th 2021, the Group was not affected by an increase in employee sick absence rates which would disrupt operations.

The Grupa Azoty Group is taking steps to minimise the impact of the COVID-19 pandemic on its operations, for instance by using solutions available on the market to support working capital management, optimise the costs of feedstock procurement and adjust the production volumes to sales opportunities.

In the reporting period, no significant disruptions were recorded in the supply chain of raw materials and products.

In the first half of 2021, the Group did not report any material adverse effects of the COVID-19 pandemic on its financial results.

In the opinion of the Parent's Management Board, the preventive measures in place help minimise the economic consequences of the COVID-19 pandemic, mitigate the risk of business disruption, and allow the Group to maintain its market position, financial liquidity and ability to implement strategic investment projects.

Signatures of members of the Management Board

……………………………… ……………………………… Tomasz Hinc Mariusz Grab

……………………………… ……………………………… Filip Grzegorczyk, PhD Tomasz Hryniewicz Vice President of the Management Board Vice President of the Management Board

……………………………… ……………………………… Grzegorz Kądzielawski, PhD Marek Wadowski

President of the Management Board Vice President of the Management Board

Vice President of the Management Board Vice President of the Management Board

……………………………… Zbigniew Paprocki Member of the Management Board Director General

Person responsible for maintaining accounting records

……………………………… Piotr Kołodziej Head of the Corporate Finance Department

Tarnów, September 9th 2021