Risk management

• The Group will have to bring its production facilities into compliance with the new regulations. The Group companies will be required to undertake specific adaptation work, and bear its costs.

Mitigation measures:

• Grupa Azoty keeps monitoring all proposed and actually enacted changes in the legal environment which could affect its operations. Investments necessary in the light of new regulations are included in the Group’s investment plans.

• Every year, the allocation of GHG emission allowances decreases by several per cent. If the Group’s actual CO₂ emissions are not fully covered by the free allowances, the Group may need to incur additional capital expenditure on projects designed to reduce its emissions of nitrous oxide and carbon dioxide.

Mitigation measures:

• In order to mitigate that risk, the Group companies have been taking steps to reduce the energy intensity of their processes, bringing down greenhouse gas emissions. Implementation of the adopted energy policy has been confirmed by a certificate of the Energy Management System's compliance with ISO 50001. When increasing production volumes or launching new installations covered by the EU ETS, the companies apply to the Ministry of the Environment for allocation of additional greenhouse gas emission allowances from the MSR on an as-needed basis.

• Following a scheduled review of the regulations regarding the Best Available Techniques for the Manufacture of Large Volume Inorganic Chemicals: ammonia, acids & fertilizers, there is a risk that stricter and more extensive requirements could be implemented in relation to pollutant emissions into the environment.
• There is a risk that new BATs could be defined for installations for which so far no BATs have been specified. The deadline for adapting production facilities to the emission requirements contained in BAT conclusions is four years.

Mitigation measures:

• Reviewing the effectiveness of technologies used in the context of development trends prevailing in the competitive environment.
• Planning and implementing projects designed to bring the production facilities in line with BAT/BREEF standards.
• Searching for new process solutions, particularly to improve efficiency and reduce energy intensity in the context of regulations currently in place and state-of-the-art technologies.
• Developing and extending the product range by adding new fertilizers based on components produced by existing facilities.

• The Group is taking steps to ensure compliance with the requirements of the IED Directive (on industrial emissions), which entered into force as of January 1st 2016 defining new emission standards for fuel combustion installations, including permissible levels of sulfur dioxide, NOx and particulate matter emissions.

Mitigation measures:

• Grupa Azoty Kędzierzyn – construction of a new coal-fired power generating unit.
• Grupa Azoty – construction of a flue gas desulfurisation system based on the wet magnesium oxide process.
• Grupa Azoty Police – construction of a flue gas desulfurisation system based on the wet ammonia process.

• Amendments to EU directives and regulations applicable to the Group's key manufacturing and trading activities give rise to a potential risk that the use of the Group's products by customers in the EU countries may be restricted.

Mitigation measures:

• The Group monitors and implements new requirements on an ongoing basis. It is actively involved in the work of registration consortia and European associations to be informed in advance of any upcoming changes in legislation.
• The Group reviews the impact of new regulations on its products.
• The Group is now in the process of identifying threats associated with the draft new fertilizer regulation of the European Parliament and of the Council designed to implement the principles of the Circular Economy package.
• Additionally, the Group monitors other aspects of EU regulations, such as free trade agreements (DCFTA Ukraine, TTIP). It also takes steps to ensure that its entire manufacturing and distribution processes meet the safety requirements applicable to trading in its products.

BEST PRACTICE

Our Group no longer manufactures DEHP plasticizer. Over the last decade, this substance was gradually losing its share in the European market. The decision to discontinue DEHP production was prompted first by expert opinions on its potentially harmful effects and subsequently by restrictions imposed on its manufacturers. The turning point was the entry into force of REACH , imposing the obligation of registration, evaluation and authorisation of chemicals. We have replaced DEHP with non-phthalic plasticizers.

In the Fertilizers segment, risks related to:

• Increased imports of nitrogen and compound fertilizers, produced based on cheaper raw materials, to Poland and the EU, and consequently persisting oversupply and aggressive pricing policies pursued by importers struggling to maintain their shares in the fertilizers market.
• Competition growing stronger as new products are marketed and more effective technologies are applied.

In the Plastics segment, risks related to:

• Global oversupply of caprolactam and polyamide. Excess volumes from the Far East are shipped to Europe, as a result of which traditional export markets of EU manufacturers begin to shrink and prices decline to unsatisfactory levels.

In the Chemicals segment, risks related to:

• Weaker demand for titanium white from paint and varnish manufacturers, higher quality requirements in the plastics and paper industries, significant increase in the production capacities of Chinese manufacturers, and plans to classify titanium white as a carcinogen.
• Higher supply of OXO alcohols on balanced European markets, driven by heavy inflows of cheaper alcohols, especially from the Russian market.

Mitigation measures:

• Adapting the product mix to market needs and requirements, e.g. by beginning to offer a non-phthalic plasticizer, ensuring high purity of OXO alcohols, exploring market niches (for instance by improving the DEHP plasticizer for medical applications), and arranging deliveries tailored to the needs of end users (flexitanks for deep-sea freight of small product volumes).
• Efforts to minimise the manufacturing costs of individual products.
• Active participation in public affairs marketing and trade associations.

• The Group has reliable safety systems and preventive measures in place across all organisational and technological levels, including occupational health and safety as well as protection against industrial accidents, but there can be no assurance that they will completely eliminate the risk of such accidents.

Mitigation measures:

• Identification of hazards inherent in the technological processes, storage and transport, and implementation of technical solutions and organisational measures to minimise the risk of an accident.
• Ongoing monitoring of the operation of machinery and equipment and evaluation of their technical condition.
• Fitting of plants and units with safety and protection systems to minimise the risk of major accidents and environmental contamination, as well as risks to human life and health.
• Continuous improvement of staff qualifications through training courses, etc.

• As an employer we face the challenge of finding the right candidates with extensive knowledge of the chemical industry and specialist skills. On the one hand, the market is not able to provide specialists who can quickly understand our organisation and processes, and – on the other hand – potential employees have high pay expectations.

Mitigation measures:

• In the pursuance of the Grupa Azoty Group strategy for 2013–2020, Grupa Azoty has implemented a scholarship policy across the Group, covering junior and senior high school students as well as university undergraduates (doing master’s or engineer’s programmes) to build lasting competitive advantage based on employees’ knowledge and high individual competences.