Wielkopolskie, the farming voivodeship

| Polish Market |

Wielkopolskie is a region commonly associated with farming, and for a reason! The local tradition of agricultural production goes back centuries and makes the region stand out in a number of categories concerning livestock keeping and cultivation of plants.

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A revolution on the fertilizer market

| Prospects & Investment |

Fertilizer-chemical industry keeps an eye on changes in global agriculture. In particular, the Polish chemical companies analyze the situation of farms in Poland and other EU countries.

Polish agriculture vs the EU

The Polish agricultural market is relatively small if we consider its contribution to the national Gross Domestic Product. According to specialists, agricultural production accounts for c. 3% of GDP. In even more economically developed European countries the value is closer to 2%. And still, farming is an important and meaningful element of the EU economic market, with the fertilizer-chemical industry one of decisive factors in its growth.

In recent years we have observed increased awareness of chemical companies’ representatives, who have recognized the key role of European regulatory bodies is shaping the market rules. “PUŁAWY” participates actively in the proceedings of various international organizations, such as Fertilizers Europe. This associations is highly influential when is comes to decision-making processes in Brussels. Participation in organizations allows the fertilizer-chemical industry representatives to oversee the preparation of decisions concerning the energy & climate bill.

Changes in agriculture – changes in chemistry

Cooperation of chemical-fertilizer companies makes it possible to look at changes on distribution market. This market, which was quite underdeveloped in Poland in the previous decade, is now undergoing intensive professionalization process. The changes concern not only farming representatives, but also agricultural advisers and farmers themselves.

Reduction of greenhouse gases emissions

Let us consider an up-to-date issue of European emissions trade system. The share of complex fertilizers manufacturing in total greenhouse gases emissions is 1.2%, while farming itself contributes as much as 13.5% of those emissions. Consequently, the best farming practices about which we have been educating farmers have a decisive impact on the development of agriculture in coming years. The current expectation is to reduce greenhouse gases emissions by 50% by 2050! Is it possible? Our company is seriously interested, and we are examining the carbon footprint of our fertilizers. Norwegian fertilizer manufacturer Yara International has boasted about carbon footprint as low as 3.6 mg. Thanks to implementation of modern manufacturing methods, “PUŁAWY” is intending to reach similarly low level in its fertilizer production technology.

Boosting manufacturing efficiency

If we measure the quantity of gas used to manufacture a ton of ammonia, the efficiency of our installations is 830, while in Russia it is 1200, and in Europe on average 1000-1100. This is the best proof of the effort we put in improving the efficiency of our installations for the benefit of the Company as well as the natural environment. The greenery and animal population in the vicinity of the Works is the most credible reviewer of our activities. If a peregrine falcon settled and clutched on our premises, it must have liked the habitat, which confirms good results of our efforts.

Based on a talk by Zenon Pokojski Ph.D. at IFMA 19 Congress in Warsaw – July 26th 2013.

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Why do plants need fertilizing?

| Production & Resources |

As any living being, plants require nourishment for natural growth and development. The majority of us assume that what suffices is free access to minerals in the soil, to water and sunlight. Unfortunately, those elements are not enough.

Matter circulation in nature

Most minerals present in soil come from plants which have lived and died in the same location. Such biological recycling is genius from the natural viewpoint. And yet, the process is obviously interrupted if harvest is removed from the place where it grew. As a result, the soil becomes barren and acutely deficient in minerals. In order to hamper such results, crops are fertilized.

Use of fertilizers in Poland

At 86%, nitrogen fertilizers constitute the vast majority of such substances used by Polish farmers. On Polish farms, the average consumption of nitrogen in 2011/2012 season reached 72.7 kilograms of nitrogen per hectare of cultivated land. Consequently, efficient fertilizing and well-advised choice of ingredients provided for the plants is of crucial importance for the quality and quantity of crops.

Using high-quality fertilizers, such as those manufactured by Azoty Group “PUŁAWY”, increases the natural and economic efficiency of the process by 20%. What follows is that fertilizing helps reduce losses incurred by farmers and increases the efficiency of cultivated crops.

Key to profitable farming

Fertilized plants are healthier and sturdier. Thanks to chemical elements provided by fertilizers, plants gain access to nourishment which is lacking in the natural environment. Such elements include nitrogen, phosphorous, potassium, calcium, magnesium and sulfur. As a result, plants grow at a quicker pace, they are more resistant to rotting, attacks of insects, fungi and weed, at the same time plants preserve their natural nutritional value.

Manners of fertilization have evolved. Owing to modern technologies and wider access to specialized farming equipment, fertilizing has become not only easier, but also more effective.

In quest of efficient farming

Fertilizing is thus beneficial for the environment, as it maintains the fertility of the soil. Thanks to rational use of fertilizing products, farmers may gain higher efficiency, improve the structure of production and take care of the environment.

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Spring on fertilizers market

| Foreign Markets |

International Fertilizer Industry Association (IFA) has forecast that in the season ending July 1st ,2013 the global demand for fertilizers will have increased by 0.3%. In season 2013-2014, the consumption of potassium fertilizers will increase by 4.5% to 30 million tonnes, phosphorous – by 3.5%, to 42 million tonnes and nitrogen-based fertilizers by 1.5%, to 111 million tonnes. The largest growth will concern South-East Asia as well as North and Latin America, and also the Caribbean. Analysts believe that increased demand might stimulate an upward trend in prices of fertilizers.

Farmers, for whom fertilizers are an indispensable tool for improving efficiency, were trying to buy the product as early as possible, just like in the previous year. Representatives of the sector and market analysts believe that such behaviors of end users result from uncertainty related to continuing economic crisis. Unpredictable situation in the economy hampers more decisive moves by the farmers.

A sharp increase of demand is far from expected, especially in the current macroeconomic situation. A steady growth of interest in fertilizers is more probable and actually happening.

According to market analysts, despite fears concerning global economy, farmers manage to obtain resources for new investments, including fertilizers. One important source of financing are direct subsidies. Consequently, a growth of purchases by end users is quite certain.

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Our comment on company results

| About Us |

Public companies are now announcing annual financial results. As in “PUŁAWY” Group the financial year does not correspond to the calendar year, I have prepared a quick summary of 2012 on my own. It turns out that in this period “PUŁAWY” produced a net profit of 488 million PLN with annual revenue at 3,982 million PLN. The revenue from sales of products, goods and resources was 11% higher than in 2011.

How do we match up to the competition?

A comparison of company results with foreign enterprises from the sector is a humbling experience. Revenue of our company amounts to 8,5% of annual revenue of Yara, 10,7% of annual revenue of DSM and 21,0% of annual revenue of CF Industries. However, we may be satisfied about efficiency indicators, albeit slightly worse than in 2011. Return on Sales (ROS) of “PUŁAWY” in 2012 was 12% (as compared to 15% in 2011), but it was higher than in Yara Group (13% in 2012, 16% in 2011) and DSM (3% in 2012, 9% in 2011).

The best result was achieved by CF Industries with ROS at 32%, an increase from 29% in 2011. We ought to remember, however, that this American company has got access to natural gas which is four times less expensive that the price we pay in Poland.

In our company Return on Capital Employed (ROCE) was 19% in 2012. Yara’s ROCE was 17%, while in DSM this ratio stood at 5%.

For the first time in a long period, market value ratio exceeded the net worth of the company and reached 1,09.

The key to business efficiency

The results of the model of managing assets adopted in the company appear very effective. At the time when investors do not show much confidence in chemical sector companies from Central Eastern Europe, we are able to offer shareholders attractive return on investment as well as secure safe and good remuneration for our employees.

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