Grupa Azoty S.A.

Management Reports • Sep 5, 2019

Tarnów, September 5th 2019

LETTER FROM THE PRESIDENT OF THE MANAGEMENT BOARD OF GRUPA AZOTY S.A.

Ladies and Gentlemen,

On behalf of the Management Boards of the Grupa Azoty Group companies, I present the consolidated Directors' Report on the Group's operations in the first half of 2019.

The first six months of the year were an extremely important and fruitful period for the Grupa Azoty Group, not only in terms of its day-to-day operations, the results of which give us a reason for satisfaction, but also in terms of its growth projects.

In the period under analysis, the Grupa Azoty Group posted revenue of PLN 6,103m, a PLN 1,225m increase year on year. EBITDA came in at PLN 941m, PLN 412m more compared with the previous year. The results were driven not only by gas prices continuing at favourable levels, mainly on the back of the high supply of LNG from the US, but also by the growth projects undertaken in the previous years. The most notable of the projects is without doubt last year's acquisition of the Compo Expert Group, whose revenue and costs are for the first time fully disclosed in consolidated financial statements as of the beginning of 2019.

In the first half of 2019, our growth efforts focused mainly on our most important investment project, i.e. Polimery Police, whose total budget is estimated at approximately EUR 1.5bn. On April 26th 2019, we signed signed a letter of intent with Grupa Lotos S.A., opening negotiations on Grupa Lotos's potential participation in the financing of the Polimery Police project planned by PDH and specifying the maximum amount of financial contribution from Grupa Lotos at PLN 500m. On May 10th 2019, Grupa Azoty S.A., Grupa Azoty Zakłady Chemiczne POLICE S.A., and PDH Polska S.A. signed an investment cooperation agreement with Hyundai Engineering Co. and Korea Overseas Infrastructure & Urban Development Corporation, providing the basis for further talks on Hyundai's and KIND's potential participation in the financing of the Polimery Police project through the acquisition of new shares in the share capital of PDH and contribution of respectively USD 80m and USD 50m to the share capital. On May 11th 2019, PDH Polska S.A. and Hyundai Engineering Co., Ltd. signed a lump-sum turnkey contract for the execution of the Polimery Police project.

In addition to the Polimery Police project, other investment projects were continued at the Grupa Azoty Group, including the construction of the Compounding Plant in Tarnów.

We also continued our R&D efforts. A successful debut on the 3D printing material market was one of the outcomes of our R&D activity. Tarfuse, the product we launched on that market, has already won recognition among experts and received an award at PLASTPOL, the most important fair for the plastics industry. We are also carrying out a number of other R&D projects, which are opening up prospects for us to develop and market innovative products based on our proprietary know-how.

I would like to thank all employees of the Grupa Azoty Group companies for their efforts in transforming the Group into a modern, efficient and effective organisation. Let me also take this opportunity to express my thanks to the Management Boards of the Group companies for their collaborative efforts in running bold and ambitious projects, and to the Supervisory Boards of all Grupa Azoty Group companies for their cooperation.

Yours faithfully,

Wojciech Wardacki, PhD President of the Management Board of Grupa Azoty S.A.