management board s report on the activities · 15. evaluation of the ... marketing activities of...

MANAGEMENT BOARD’S REPORT

ON THE ACTIVITIES

of Zakłady Tłuszczowe “Kruszwica” S.A. Capital Group

for the 12 months ended 31 December 2017

Kruszwica, 16 March 2018

Zakłady Tłuszczowe „Kruszwica” S.A. Capital Group

Management Board’s report on the activities


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CONTENTS:

1. GOODS AND PRODUCTS SOLD BY THE GROUP .......................................................................................... 3

2. SALES MARKETS AND SUPPLY SOURCES .................................................................................................... 7

3. MAJOR R&D ACHIEVEMENTS .......................................................................................................................... 8

4. CURRENT AND FORECAST FINANCIAL POSITION OF THE GROUP ......................................................... 10

5. ORGANIZATIONAL OR CAPITAL RELATIONS OF THE GROUP................................................................... 12

6. TRANSACTIONS WITH RELATED PARTIES NOT CARRIED OUT ON AN ARM'S LENGTH BASIS............. 12

7. CONTRACTS MATERIAL FOR THE GROUP’S BUSINESS OPERATIONS ................................................... 13

8. LOAN AND CREDIT FACILITY AGREEMENTS CONCLUDED AND TERMINATED ...................................... 13

9. ORIGINATED LOANS ...................................................................................................................................... 14

10. GUARANTEES AND SURETIES GRANTED AND RECEIVED........................................................................ 14

11. PROCEEDS FROM ISSUES OF SHARES....................................................................................................... 14

12. EXPLANATION OF DIFFERENCES BETWEEN ACTUAL FINANCIAL PERFORMANCE AND PREVIOUSLY PUBLISHED PROJECTIONS FOR THE GIVEN FINANCIAL YEAR ........................................ 14

13. RISKS AND THREATS ..................................................................................................................................... 14

14. MANAGEMENT OF FINANCIAL ASSETS AND DEFINING OF POSSIBLE THREATS ................................... 14

15. EVALUATION OF THE FEASIBILITY OF INVESTMENT PROJECTS, INCLUDING CAPITAL INVESTMENTS ................................................................................................................................................ 15

16. NON-TYPICAL EVENTS THAT AFFECTED 2017 PERFORMANCE AND THE RANGE OF THEIR IMPACT ............................................................................................................................................................ 15

17. FACTORS MATERIAL FOR THE GROUP'S GROWTH AND BUSINESS DEVELOPMENT PERSPECTIVES .............................................................................................................................................. 16

18. CHANGES IN KEY BUSINESS MANAGEMENT PRINCIPLES........................................................................ 17

19. AGREEMENTS CONCLUDED BY THE GROUP WITH MEMBERS OF ITS MANAGEMENT, PROJECTING COMPENSATION IN CASES THEY RESIGN OR ARE DISMISSED WITHOUT A VALID REASON OR WHEN DISMISSED OR LAID OFF DUE TO COMBINATION THROUGH ACQUISITION ........ 17

20. REMUNERATION, BONUSES AND OTHER BENEFITS RECEIVED BY PERSONS RESPONSIBLE FOR MANAGEMENT AND SUPERVISION OF THE COMPANY ............................................................................. 17

21. TOTAL NUMBER AND FACE VALUE OF ALL SHARES IN THE COMPANY AND ITS RELATED PARTIES HELD BY THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES ..................................... 17

22. CONTRACTS KNOWN TO THE COMPANY THAT MAY RESULT IN FUTURE CHANGES IN ITS SHARE CAPITAL/BONDS STRUCTURE ...................................................................................................................... 17

23. EMPLOYEE STOCK OWNERSHIP PLAN CONTROL SYSTEM ..................................................................... 17

24. PROCEEDINGS PENDING BEFORE COURT, ARBITRATION AUTHORITY OR PUBLIC ADMINISTRATION AUTHORITY ...................................................................................................................... 17

25. ACQUISITION OF TREASURY SHARES ........................................................................................................ 18

26. INFORMATION ON GROUP’S PLANTS .......................................................................................................... 18

27. RISK HEDGING INSTRUMENTS, FINANCIAL RISK MANAGEMENT OBJECTIVES AND METHODS ADOPTED BY THE GROUP............................................................................................................................. 18

28. DESCRIPTION OF THE STRUCTURE OF ASSETS, EQUITY AND LIABILITIES IN THE CONSOLIDATED BALANCE SHEET, ALSO IN THE CONTEXT OF LIQUIDITY OF THE CAPITAL GROUP ............................. 18

29. MAJOR EVENTS EXERTING A SIGNIFICANT EFFECT ON THE ISSUER’S CAPITAL GROUP’S OPERATIONS AND FINANCIAL PERFORMANCE IN THE FINANCIAL YEAR .............................................. 20

30. STRUCTURE OF KEY CAPITAL DEPOSITS OR INVESTMENTS WITHIN THE ISSUER’S CAPITAL GROUP The Group does not hold any capital investments. ............................................................................. 20

31. DESCRIPTION OF THE ORGANIZATIONAL STRUCTURE OF THE ISSUER’S CAPITAL GROUP, SPECIFYING THE CONSOLIDATED ENTITIES, AND OF CHANGES IN THE ABOVE STRUCTURE, ALONG WITH THEIR REASONS ..................................................................................................................... 21

32. DEVELOPMENT OBJECTIVES OF THE ISSUER’S CAPITAL GROUP .......................................................... 21

33. MATERIAL OFF-BALANCE SHEET ITEMS BY ENTITY, SUBJECT MATTER AND VALUE .......................... 21

34. CONTRACTS CONCLUDED BY THE PARENT COMPANY WITH AN ENTITY AUTHORIZED TO AUDIT FINANCIAL STATEMENTS .............................................................................................................................. 21




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As at the balance sheet date of 31 December 2017 and as at 31 December 2016, the ZT “Kruszwica” S.A. Capital Group ( Capital Group or Group) comprised Zakłady Tłuszczowe “Kruszwica” S.A. as parent and ZTK Property Management spółka z ograniczoną odpowiedzialnością as subsidiary.

GOODS AND PRODUCTS SOLD BY THE GROUP

(By volume and by value with share of each product, good or service [if material l] or their groups in total sales

and the related changes)

Information on products, goods and services offered by the Group

Zakłady Tłuszczowe „Kruszwica” S.A. (hereinafter referred to as the “ZT Kruszwica”, the “Company” or the

“Parent”) is a vertically integrated manufacturer of vegetable oil-based products. Its core business includes extraction of rapeseed oil, refining (purification) of vegetable oil produced and purchased by the plant, processing of vegetable oils and fats aimed at modification of their physical and chemical characteristics (hydrogenation, esterification) and manufacturing of margarine, vegetable fats and oils. The Company sells products manufactured in all processing stages, as well as by-products and goods purchased from other manufacturers.

Key products manufactured by the ZT Kruszwica:

Bottled oils Bottled vegetable oils sold in unit packaging up to 10 l for individual users (consumers).

Consumer margarines Edible fat and water emulsions with 20-82% fat contents to be used in households, wrapped in plastic film or cups up to 1 kg of weight.

Industrial margarines Fat emulsions with 60-83% fat contents for further processing in the confectionery and baking, packed in 10-20 kg slabs or blocks.

Industrial fats 100% fats (refined, fractionated, esterified, hydrogenated and mixtures thereof) of different features and applications, dedicated mainly for the food, confectionery and dairy industry, supplied as bulk in tanks or in 10-20 kg blocks.

Raw and refined oils Vegetable oils (mainly rapeseed oil) of various refinement, sold as bulk for manufacturers of food and bio-components

Rapeseed meal By-product of oil seed processing, a component of animal feed. The main recipients of rapeseed meal on the domestic market are animal feed producers and breeding farms; the main customers on foreign markets are predominantly trade companies.

ZTK Property Management sp. z o.o. does not carry out production activities. Its core business includes real

estate management.




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Sales performance analysis 2017

2017 Chenge compared to

the previous year

* segment’s share in total sales PLN ‘ 000 Tonnes

[k] Share in volume PLN ‘ 000 Tonnes [k]

Raw and refined oils 872,042 248 24% 56,920 2

Rapeseed meal 404,940 491 48% 11,488 32

Rapeseed 769 0 0% -902 -1

Bottled oils 550,386 110 11% 41,802 4

Consumer margarines 379,193 72 7% -5,454 -7

Industrial margarines 108,881 28 3% 3,468 0

Industrial fats 210,957 47 5% 48,030 9

Other 20,336 24 2% 5,641 8

Total sales 2,547,504 1,021 100% 160,995 47

Including domestic sales

Raw and refined oils 740,077 211 21% 16,924 -8

Rapeseed meal 330,839 403 39% 2,932 16

Bottled oils 473,095 94 9% 40,687 3



Industrial fats 179,086 41 4% 41,193 8

Other 12,613 23 2% 2,495 8

Total domestic sales 2,099,995 850 83% 100,267 22

Including export


Rapeseed meal 73,628 88 9% 9,332 16

Bottled oils 48,003 9 1% -6,017 -1



Industrial fats 31,871 7 1% 6,837 1

Other 1,778 0 0% 28 0

Total export sales 244,819 130 13% 18,928 18

Including sales of goods


Rapeseed meal 473 1 0% -776 -1

Rapeseed 769 0 0% -902 -1

Bottled oils 29,288 7 1% 7,132 2

Consumer margarines 79,315 8 1% 4,896 0

Other 5,945 1 0% 3,118 0

Total sale of goods 202,690 41 4% 41,799 6

* category’s share in total sales




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Bottled oils

In 2017 the Parent sold 110,000 tonnes of packed oils, i.e. about 3 per cent more compared with the previous year. The sales value of bottled oils increased by 8% in 2017. The rise was a greater volume and increase of average sales prices, mainly in the first half of 2017, due to the situation of raw materials in the Polish and European markets where, as a result of reduced supplies, the prices of rapeseed oil went up.

The volume share of the Company's bottled oils market in 2017 was 34.3%, compared with 33.4% in 2016 (increase by 0.9 p.p.).

The Parent continued activities aimed at the strengthening of the market standing in the bottled oils category:

a) Kujawski - brand value enhancement through:

A new advertising campaign on TV,

Developing the premium sales offer of Kujawski - oils with herbs, cold pressed oils - through the development of distribution, activities in retail outlets, on-line campaigns,

Continuation of CSR campaign "Z Kujawskim Pomagamy Pszczołom" aimed at educating consumers with regard to protection of bees,

Enhancing brand identification on the Internet, in particular:

- Implementing and promoting FOODER application (at www.fooder.pl and through a mobile application) allowing the building of customized cooking books through adding of recipes from various sources,

- Development of the cuisine portal for Kujawski.

Kujawski is the strongest brand in the oil category (acc. to IPSOS; November 2017).

b) Oliwier – building the market position through:

Building consumer awareness and culinary context through TV presence and sponsoring,

Initiatives targeting trade clients, aiming to increase the presence of Oliwier oil in shops.

In 2017, the Parent extended the sale of products designed for the Polish market and other European and Asian markets.

The Parent continued participation in the “Fall in Love with Rapeseed Oil” programme carried out by the Polish Association of Oil Producers of which the Parent is a member. The second edition of the programme was launched in mid-2015. The Programme has been run for 3 years in the Polish and Slovakian markets. The objective of the Programme is to develop consumer awareness of nutritional value and health benefits of rapeseed oil.

According to ACNielsen (ACN), in the period from November 2016 to November 2017, the packed oil market in Poland (including olive oil) did not change significantly in terms of volume, while its value increased by about 7% year-on-year. The market value increase was related to a rise in retail prices, caused by a global rise of prices of supplies. In 2017, the Parent’s share on bolted oil market was 34% (according to ACN, volume data), and increased by one percentage point compared to 2016.

Consumer margarines

In 2017 the Parent sold a total of 72,000 tonnes of consumer margarines, i.e. 7,000 tonnes less compared with the previous year. About 87 per cent of the total sale of products and goods in this segment took place on the domestic market. Exports of products amounted to 8,400 tonnes. The key sales markets were Georgia, Hungary, Slovakia, Macedonia and the Baltic States.

Consumer margarines portfolio of the Company, in addition to own brands and Privet Label (brands of key retail chains), also includes the brands belonging to the sister company Bunge Polska sp. z o. o. (“Bunge Polska”. Under the agreement, concluded in 2010, under which the integration of the commercial, distribution and marketing activities of both companies in the sale of Bunge Polska products took place. The main brands of Bunge Polska distributed by the Company are Optima, Masmix, Pyszny Duet and Finuu.

The volume share of the Company's consumer margarines market in 2017 was 27.1%, compared with 26.3% in 2016 (increase by 0.8 p.p.).

The main reason for the drop in the sales of consumer margarines was a slump in the margarine and vegetable mix market and a considerable drop in the importance of private brands.

The Parent's strategy in the table margarine segment was based on continuation of development of two strategic margarine brands from the mainstream segment: Smakowita and Słynne MR and two brands from the premium segment: Optima and Finuu.




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As the value of the products continued to grow, the Parent revived the entire Smakowita brand: recipes were improved, the product’s benefits were emphasized (Omega-3 fatty acids, lack of preservatives, vitamins) and packages were redesigned.

Słynne MR is the most dynamically developing brand on the market. In 2017 it had its 45th anniversary. It was

an opportunity to strengthen communication with the consumer - the design of the packaging was changed. We carried out several competitions, consumer campaigns dedicated to retail chains customers.

In 2017 we continued to develop the health-promoting margarines segment. The sale of Optima Cardio Potas + margarine, supported by a TV campaign, increased. At the end of 2017 we launched Optima D i K margarine.

The Parent focused also on the development of Finuu, being a response to the growing needs of consumers

related to the purchase of natural, unprocessed food products.

In 2017 the Parent also sold own brand products to key retail chains in Poland and abroad.

Based on price as the key criterion, the domestic market of margarines and vegetable mixes may be divided into three segments:

a) Premium segment to include: Optima, Finuu

Optima – functional margarines (with health-promoting properties, reducing cholesterol, maintaining proper blood pressure), such as Optima Cardio and Optima Cardio Potas + and preventive products Optima Omega 3, Optima DHA, Optima D i K. Optima was accompanied with a new edition of the promotion

campaign carried out on TV, on the Internet and in POS materials and actively supported by trade-marketing actions.

Finuu - a mix of butter and natural oils (rapeseed and camelina), combining the quality of butter with Omega-3 fatty acids, the first of the type in the margarine portfolio. In 2017 the Finuu brand was strongly

advertised on the Internet and in POS materials and was present in numerous trading promotions.

b) Mainstream segment, where the Company offers to the consumer such brands as: Smakowita, Słynne MR, Pyszny Duet and “Z Kruszwicy” margarine blocks. In this segment, marketing activities focused on development of Smakowita, which is the leading brand in the Company’s product portfolio. In 2017 the

advertising campaign promoting product attributes (Omega3, vitamins, lack of preservatives) was continued. These activities were strengthened in points of sale with a number of promotions. The Słynne MR brand

grows dynamically, being distributed in the discount store channel but also develops in hypermarkets and supermarkets.

c) Economy segment, offering products for which the price is the key selection criterion. This segment included among others Ola, Ewa, Marcysia margarines.

In terms of consumer use, the domestic table margarine and mix market is divided into two categories:

a) Bread spreads in cups, including products such as Smakowita, Optima, Masmix, Słynne MR, Pyszny Duet, Finuu, Naturima, Ekstra Pomorski, Ola, Marcysia, Ewa;

b) Cooking margarines (in blocks) used for baking, frying and cooking, including Palma z Kruszwicy, Mleczna z Kruszwicy and Zwykła z Kruszwicy.

According to ACN, during the cumulative period from October 2016 to November 2017, the table margarine and mix market in Poland decreased by approx. 2% in terms of volume and increased by 5% in terms of value year on year. The total share of brands offered by ZT „Kruszwica” S.A. and Bunge Polska sp. z o. o. (ZT “Kruszwica” is the sole distributor of this company’s products) in the margarine and mix market approximated 27.2% in the period from October 2016 to November 2017 (ACN, volume data). Our market position improved by 0.7 p.p. as compared with an analogous period in the previous year.

Industrial fats and margarines

In 2017 the Parent supplied the market with 75 thousand tonnes of margarines and fats for industrial clients, which was more than 13% more than in the preceding year. Export amounted to almost 11 thousand tonnes (+22%).

The performance results from high marketing and trading activity, maintaining of high quality of products and developing of new ones in line with global nutrition trends and customers' expectations.

The Company continues to strengthen its position of the top provider of industrial margarines to the baking industry, by developing the programme dedicated to the bakery and confectionery circles – Akademia Mistrza. The Parent actively builds its position and develops sales in the HoReCa channel (hotels, restaurants, catering) and in 2017 expanded the range of industrial frying fats offered to restaurants by 2 new products.

Raw and refined oils

In 2017 the Parent sold a total of 248,100 tonnes of raw and refined oil which is a 2,000 tonnes increase compared with 2016, with a rise in export of 3,000 tonnes and domestic sales dropped by 1,000 tonnes. Growth in sales resulted mainly from an increase in processed seeds in 2017, of which only a small portion of oil reached




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the market in raw or refined bulk form. A significant portion of the oil was sold in the form of consumer products. Still, a vast majority of raw and refined oil is sold to domestic clients.

Domestic demand for refined and raw oil maintained in 2017 at a stable level.

Rapeseed meal

Sales of rapeseed meal in 2017 amounted to 491.04 thousand tonnes and were 32,000 tonnes higher than in 2016. The increase in the sales of rapeseed meal was mainly the effect of considerably higher levels of processed seeds in 2017.

SALES MARKETS AND SUPPLY SOURCES

Sales markets

(Divided into domestic and foreign markets, defining dependence on one or more clients, names (companies), shares in sales, formal relations between clients with at least 10 percent share in the total sales revenue and the Company)

Consumer products

In 2017 the Parent sold its oils and margarines on the domestic market through all key distribution channels, both indirect (distributors) and direct (sales networks).

Sales of packed oils (including own products supplied to trade networks) were mostly performed in the modern channel. In 2017 the oils manufactured by the Parent were available in 95% of shops in Poland. According to AC Nielsen, the most available brand was Olej Kujawski.

The Parent also sold bottled oils in Latvia, Lithuania and Estonia, as well as Israel, both as own brands and other brands of the Bunge companies in Europe.

Industrial products

The sales of industrial margarines and industrial fats in Poland were performed by a network of approx. 65 specialized distributors delivering products to bakeries, small and medium-sized food manufacturing plants (38 distributors). The sales to the HoReCa market were carried out via 25 distributors.

Large food manufacturers bought these products directly from the Company.

Export of industrial margarines and other fats was performed through a shared distribution channel with deliveries to approx. 40 clients in Europe. In 2017, the Parent became more active on the markets in the Czech Republic, Slovakia and Hungary. in the Czech Republic, Slovakia, Hungary, Nulgaria, Romania and Baltic Countries.

The Parent took over control of the sales of industrial products (B2B) in Central and Eastern Europe.

Raw and refined rapeseed oils

In 2017 the Company supplied raw oils to domestic and foreign manufacturers of bio-components. A small amount of raw oil was sold to Germany.

In 2017, the Parent remained the leading supplier of oil for the domestic bio-fuel industry.

Most bulk refined oils were sold on the domestic market, mainly to the food industry. Small amounts of refined oils were exported to Lithuania and Latvia.

Rapeseed meal

Despite a stable domestic demand for rapeseed meal, the Company managed to achieve a sales growth on this market. In 2017 the Parent continued to increase the diversification of directions of sales through sale to the Czech and Italian market. Germany, Denmark and Sweden remained the main export directions.

The animal feed industry remained the key domestic customer for rapeseed meal in 2017.

Supply sources

(Information regarding sources of supply in production materials, dependence on one or more clients, names (companies), shares in supply, formal relations between clients with at least 10 percent share in the total sales revenue and the Company)




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Rapeseed

The Parent bought rapeseed, which is the basic supply in the manufacturing of oils, margarines and vegetable fats, under sales agreements concluded both with rapeseed producers and trade companies. In 2017, rapeseed was purchased throughout Poland. In 2017, the Company additionally purchased rapeseed from Austria, the Czech Republic, Lithuania, Romania, Hungary and Slovakia.

Other Vegetable oils

Tropical oils are the main supply used by the Parent in production of margarines and fats offered by the Parent.

In 2017, the Parent purchased refined tropical oils, such as refined palm oil, stearin and palm olein, coconut oil and palm seed oil from European refineries located in the Netherlands and Germany. It also imported sunflower seed oil from Ukraine, Hungary and Austria.

MAJOR R&D ACHIEVEMENTS

As in previous years, in 2017 the Company relied on the experience of the Bunge Group R&D Centre in Budapest. Project works performed included both table and industrial product development. Measures taken in all of the above areas were supervised by the following units:

The R&D, RBC Department and Application and B2B Technical Support Department carried out research and development projects on: new products, modifications of existing products, services, maintenance technical and technological support offered to the Company and other Bunge Group entities.

R&D projects included:

a) New Product Development and RENO projects (modification/improvement of current products to add new value to the product or/and reduce costs). Project teams are interdisciplinary, comprising local or/and European human resources.

2017 project portfolio:

margarine segment projects portfolio (B2C): 15 projects,

oil category projects portfolio (B2C): 16 projects,

B2B category projects portfolio: 8 projects,

b) Cooperation with Bunge Polska sp. z o. o. on broadly defined engineering and process issues, to include:

modification of recipes for the new technical solutions,

verification of technical and technological solutions, production process (mainly optimization of the cold oil processing (linseed oil, sunflower oil),

lecithin specification,

production monitoring.

c) Harmonising consumer product manufacturing, modification and optimisation of recipes and packaging to improve the economic effect in the capital group

d) Cooperation with discount networks with regard to the existing and new products and packaging

e) Cooperation on the research carried out by a sensory expert panel for new projects (storage tests, palatability profiling, sensory product diversification, identification of key sensory attributes in products and many more).

In addition, as was the case in the previous years, in 2017 the Company also continued daily cooperation with renowned external R&D intuitions, such as the Institute of Biotechnology of the Agricultural and Food Industry, the Fat Processing Branch in Warsaw; University of Technology in Gdansk; Nicolaus Copernicus University in Toruń, the Institute of Plant Breeding and Acclimatization, Institute of Animal Reproduction and Food Research of Polish Academy of Sciences in Olsztyn, University of Economy in Poznań, Warsaw University of Life Sciences. In 2017 the Company also identified and compared scientific units (Universities, Universities of Technology, research units) in terms of human resources, research infrastructure and innovative research, in search for new inspiration and scientific partners for cooperation with business.

In 2017, the Company continued B2B recipe optimization projects focusing on low-trans, non-hydrogenated, non-palm oil and the so-called "Clean label" products, as well as launched new products and packaging, offered technical and technological support to chosen key customers of the Company. In 2017 the Company also intensified works on the development of export markets.

B2B projects in 2017:

a) Launch of products made of certified materials,




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b) Development of the group of professional margarines dedicated to large domestic clients,

c) Preparation of products designed for export,

d) Cold pressed oils.




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CURRENT AND FORECAST FINANCIAL POSITION OF THE GROUP

Key business items

2017 2016

Change

PLN’000 %

Sales volume (tonnes [k]) 1,021 975 46 5%

Revenue from sales of products and goods 2,547,505 2,386,509 160,996 7%

Manufacturing cost of products and costs of goods sold

2,315,003 2,120,925 194,078 9%

Selling expenses 146,686 143,196 3,490 2%

General and administrative expenses 33,795 39,987 (6,192) (15%)

(Gains)/losses on derivatives and exchange differences

449 4,069 (3,620) -3%

Gross profit on sales 232,502 265,584 (33,082) (12%)

Gross sales margin 9.1% 11.1% -2.0% (18%)

Profit from continuing operations 51,884 122,862 (70,978) (58%)

% of sales 2.0% 5.1% -3.1% (61%)

EBITDA (1)

79,725 151,911 (72,186) (48%)

% of sales 3.1% 6.4% -3.3% (52%)

Profit before tax 51,316 124,273 (72,957) (59%)

Gross profit margin 2.0% 5.2% -3.2% (62%)

Net profit 41,276 107,581 (66,305) (62%)

Net profit margin 1.6% 4.5% -2.9% (64%)

Net cash flows from operating activities 38,044 177,787 (139,743) (79%)

Closing balance of non-current assets 317,901 317,754 147 0%

Closing balance of current assets 679,574 727,629 (48,055) (7%)

Closing balance of equity 677,929 691,027 (13,098) (2%)

Average working capital (2)

360,279 482,368 (122,089) (25%)

Days of sales (3)

52 74 (22) (30%)

Closing balance of credit facilities and loans (4)

0 0 0

ROA (5)

4.0% 10.5% -6.50% (62%)

ROE (6)

6.0% 14.1% -8.10% (57%)

Legend:

(1) Profit from continuing operations + Depreciation

(2) Average balance based on quarterly data: Current assets – Current liabilities + Current

liabilities due to credit facilities and loans

(3) Average working capital / Revenue from sales of products and goods *365 days /

(4) Current liabilities due to credit facilities and loans + Long-term credit facilities and loans

(5) Net profit/ average balance of assets (opening balance, closing balance)

(6) Net profit/average balance of equity (opening balance, closing balance)




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In 2017 the value of revenue from sales of goods and products increased by PLN 161.0 million (+7%) year on year. The increase was mainly a result of an increase in the sales of raw and refined oils, bottled oils and industrial fats, which combined resulted in a rise in sales of PLN 150.2 million.

However, the sales of consumer margarines dropped (-1%). In 2017 the Parent managed to sell 1,021,000 tonnes of its products, i.e. 5 per cent more than in the previous year.

The rise in the value of sales was accompanied by an increase in the total manufacturing costs of products sold and cost of goods sold (+9%), which enabled the Company to earn a gross profit on sales of PLN 232.5 million and a gross margin of 9.1% (2016: PLN 265.6 million and 11.1%, respectively). This disproportionate rise in the manufacturing costs of products and costs of goods sold with respect to the increase in sales revenue results from the fact that the rise in the prices of raw materials (mainly rape seeds) was not covered by a rise in the prices of products sold.

In 2017 the costs of sales amounted to PLN 146.7 million and were at a similar level as compared to 2016 (increase by 2%). General and administrative expenses also went slightly down from PLN 40.0 million to PLN 33.8 million.

In 2017, the Group disclosed a loss on unrealized currency and commodity derivatives and unrealized FX differences of PLN 0.4 million (in 2016: a loss of PLN 4.1 million). The said result includes a gain on unrealized exchange differences of PLN 4.4 million (2016: gain of PLN 3.3 million), a gain of PLN 9.6 million on commodity hedging instruments and hedged item (2016: a loss of PLN 11.7 million) and a loss of PLN 14.4 million on currency hedging instruments (2016: a gain of PLN 4.3 million).

A description of the purpose of hedging instruments and their recording is presented in Note 35 and Note 36 of the Financial Statements.

In 2017, the operating profit amounted to PLN 51.9 million and was PLN 71 million (-58%) lower than the operating profit for 2016. EBITDA saw a similar decrease from PLN 151.9 million to PLN 80.0 million. Consequently, the EBITDA/sales revenue decreased by 3.3 p.p. year-on-year (from 6.4% in 2016 to 3.1% in 2017).

A significant impact on the financial result of 2017 was the valuation of commodity risk hedging instruments. At the end of 2017 losses in this respect were recognized in the financial result amounting to PLN 30.2 million.

These losses will be compensated in the following year at the time of implementation of firm commitments hedged with the above-mentioned instruments concerning oil and meal, which, in accordance with IAS, are not subject to measurement to fair value at the end of 2017.

The following events affected the financial result for 2016:

a) sale of white certificates – a profit of PLN 5.5 million;

b) refund of property tax – a profit of PLN 1.5 million;

c) refund of accident insurance contribution – a profit of PLN 0.5 million;

d) write-off for assets held for sale – a loss of PLN 4.5 million;

e) sale of the right of perpetual usufruct and ownership of the property located in Warsaw by the subsidiary ZTK Property Management sp. z o. o. – a profit of PLN 43.2 million.

In 2017 the Group made a partial restructuring of positions in the industrial and sales area. 10 employees were affected by restructuring in 2017. The total restructuring costs in 2017 totalled PLN 638 thousand.

In 2017, operating cash flows were positive and amounted to PLN 39.7 million. (2016: PLN 179.2 million). In 2017, cash flows from operating activities were affected especially by the following events:

a) decrease in inventories by PLN 78 million concerns mainly rapeseed; the decrease is due to a lower price of rapeseed as compare to the previous year, which resulted in lower supply,

b) decrease in short-term liabilities (except for credit facilities and loans) by PLN 73.9 million,

c) Generating a net profit of PLN 41.3 million,

d) Increase in receivables by PLN 38.5 million.

The cash flows from other, i.e. investing and financing activities were negative and amounted to PLN 17.6 million and PLN 58.3 million, respectively. They resulted mainly from investments (PLN 19.5 million) and a dividend payment (PLN 54.7 million), respectively.

Positive cash flows from operating did not offset the negative balance from other activities and in effect, as at the end of the reporting period, the Group presented negative net cash flow of PLN 37.8 million, i.e. PLN 7.1 million higher that at the end of 2016.

As at the end 2017, the Group’s non-current assets was at a similar level as at the end of 2016 (increase of PLN 147 thousand).




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At the end of 2017, the Group’s current assets amounted to PLN 679.6 million and were PLN 48.1 million lower as compared to 2016. The key changes in the structure of current assets related to cash (down PLN 37.8 million) and inventory (up PLN 78 million). The changes in the balance of inventory were mainly due to a decrease in the inventory of rapeseed.

In 2017, the Group’s ROA decreased by 6.5 p.p. year-on-year and amounted to 4.0%, while ROE dropped by 8.1 p.p. amounting to 6.0%.

In the consolidated financial statements of the Group for 2017 no significant changes in each class of assets and liabilities occurred as a result of events other than described above.

In the nearest future, the Group does not anticipate any significant changes to its assets and liabilities other than those resulting from the current operations.

In 2017 the Group paid its liabilities within the determined deadlines and carried out investments as planned.

ORGANIZATIONAL OR CAPITAL RELATIONS OF THE GROUP

(Information regarding organizational or capital relations of the Group with other entities; defining key domestic and foreign investments (securities, financial instruments, intangible assets and real property) including capital investments beyond the capital group with description of funding methods)

As at 31 December 2017, Koninklijke Bunge Besloten Vennootschap (henceforth "KBBV") with the registered office in Rotterdam, the Netherlands, was the major shareholder of the ZT Kruszwica. KBBV is a direct holder of 14,763,313 shares in the Company, accounting for 64.22% of its share capital. The shares give the shareholder the title to 64.22% of votes at the General Shareholders Meeting. KBBV is a wholly-owned subsidiary of Bunge Europe SA with its registered office in Luxembourg (holding 100% of shares and having the right to 100% of votes at the General Shareholders’ Meeting). Bunge Limited with the registered office in the U.S. (White Plains, N.Y.) is the parent of Bunge Europe S.A. Bunge Limited has been listed on the New York Stock Exchange since 2001.

The scope of the Bunge Group’s activities includes:

The Bunge Group operates in over 40 countries around the world and has 33,000 employees. The scope of its business operations includes:

a) purchase of oil seeds and grain;

b) processing oilseeds for the production of oils for food and bio-fuel industries as well as meal for animal feed industry;

c) production of bottled oils, mayonnaise, margarines and other consumer goods;

d) production of animal feed;

e) trading in grain and oilseeds;

f) processing wheat and corn for the food and brewing industry;

g) processing of sugar cane and biomass for the purpose of power generation;

h) sales of fertilizers for agricultural producers.

As at 31 December 2017 the share capital of subsidiary ZTK Property Management sp. z o.o. did not change. It totalled PLN 75,417,000 and was divided into 1,508,340 shares with the nominal value of PLN 50 each. The Parent of ZTK Property Management is ZT Kruszwica which holds 1,508,340 shares accounting for 100.00% interest in the share capital.

Detailed information regarding related party transactions is presented in Note 34 to the Group’s Financial Statements for 2017.

TRANSACTIONS WITH RELATED PARTIES NOT CARRIED OUT ON AN ARM'S LENGTH BASIS

(Information regarding transactions with related parties on non-arm's length basis with amounts and information on their nature)

In 2017, the Group did not conclude non-arm's length transactions with related parties.




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CONTRACTS MATERIAL FOR THE GROUP’S BUSINESS OPERATIONS

(Information regarding contracts that are material for the Group’s business operations, concluded between shareholders, as well as insurance and cooperation agreements) For the purpose of this chapter, the following contract materiality criteria have been adopted:

a) Value in excess of ten percent of net revenue on sales of goods and products in 2017 financial year, i.e. PLN 254.8 million for trade contracts (purchase of supplies, consumables, sales of goods and products) concluded in the course of regular business operations;

b) Value in excess of ten percent of equity as at 31 December 2017 for other types of contracts. As at the end of 2017 the Parent’s equity amounted to PLN 677.9 million.

In light of the above criteria, the Group did not conclude any material contracts in 2017.

LOAN AND CREDIT FACILITY AGREEMENTS CONCLUDED AND TERMINATED

As at 31 December 2017, the Group had no outstanding balance of credit facilities.

Agreement of Koninklijke Bunge B.V.z with the Parent

On 7 July 2014, a loan agreement (“Revolving credit facility agreement”) was concluded by and between the Parent Company (the debtor) and Bunge Finance B.V. with the registered office in Rotterdam, the Netherlands (the creditor). The agreement anticipates the maximum debt level of USD 350 million, whereas the loan can be withdrawn in the following currencies: PLN, USD and EUR. The interest is equal to a relevant interbank interest rate plus margin. The term of the loan agreement is until the end of 2014, and it will be automatically extended for 3 months, unless the parties terminate the agreement in writing 30 days before its expiry date. The Parent has been using the automated extension clause. The loan is to fund current operations of the Parent Company, mainly the purchase of rapeseed being the key edible oil production supply.

In 2017, the interest on the loan was based mainly on WIBOR increased by a margin. The average effective interest rate is approx. 3.70% per annum.

The loan has been settled on a daily basis. The closing balances of the key bank accounts of the Company are automatically transferred to the bank account of Bunge Finance to reduce the debt as of the end of the same day. The objective is to reduce the financial expenses and use the cash resources more effectively. In the case of a surplus of payments over proceeds, the debit balance of the Parent’s key accounts automatically becomes the amount of the drawdown which increases the Parent’s outstanding loan.

Since on 1 January 2016 Bunge Finance B.V. was acquired by Koninklijke Bunge B.V. the party to this agreement is Koninklijke Bunge B.V. with its registered office in Rotterdam, the Netherlands.

Agreement of Konklijke Bunge B.V. with ZTK Property Management sp. z o. o.

On 6 December 2016, a „Revolving credit facility agreement and deposit agreement” was concluded by and between ZTK Property Management (the debtor) and Koninklijke Bunge B.V. with the registered office in Rotterdam, the Netherlands (the creditor). Pursuant to the agreement Koninklijke Bunge B.V. provided ZTK Property Menagement sp. z o.o. with a loan of USD 1 million to finance the Company’s working capital; however, the Company may take out the loan in PLN. The interest is equal to the LIBOR rate plus margin. The term of the loan was agreed for the period from 1 December 2018 to 1 January 2018. The loan agreement will be automatically extended for 3 months, unless the parties terminate the agreement in writing 30 days before the expiry of the agreement. The Company has been using the automated extension clause.

Liabilities due to loans

Creditor Registered office

amount Debt

Contractual As at 31 December

2017

In thousand Currency Maturity

date PLN ‘ 000

Koninklijke Bunge B.V. Rotterdam,

The Netherlands 350,000

USD or equivalent

01/03/2018 0

Koninklijke Bunge B.V. Rotterdam,

The Netherlands 1,000

USD or equivalent

01/04/2018 0

Total 351,000 USD

or equivalent 0




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ORIGINATED LOANS

(Information on loans originated by the Group with special focus on those granted to its related parties, including the amount, nature and amount of interest, currency and maturity date)

As at 31 December 2017, the Group had no receivables due to originated loans.

GUARANTEES AND SURETIES GRANTED AND RECEIVED

In 2017, per Parent's order, its cooperating banks issued the following guarantees:

Name of bank

Registered

office

Guarantee number

Guarantee amount Expiry date

Amount Currency

Bank Handlowy w Warszawie S.A.

Warsaw GK15-1050009 782.250,00 000 20.05.2018

Bank Handlowy w Warszawie S.A.

Warsaw GK15-1820020 264,207.00 000 20.05.2018

Guarantees GK15-1050009 and GK15-1820020 were issued for Agencja Rezerw Materiałowych.

PROCEEDS FROM ISSUES OF SHARES

(Description how the Company used proceeds from issues of shares until the date of the report on activities)

In 2017, the Group did not issue any shares.

EXPLANATION OF DIFFERENCES BETWEEN ACTUAL FINANCIAL PERFORMANCE AND PREVIOUSLY PUBLISHED PROJECTIONS FOR THE GIVEN FINANCIAL YEAR

In 2017, the Group did not publish any financial projections.

RISKS AND THREATS

Risks and threats have been described in the Group’s financial statements for 2017, in Note 37.

MANAGEMENT OF FINANCIAL ASSETS AND DEFINING OF POSSIBLE THREATS

(Evaluation of financial asset management with special focus on solvency and definition of possible threats and measures initiated or planned by the Company in order to counteract the threats)

Sources of funding of the Group’s business operations

Source 31/12/2017 31/12/2016 Change

PLN ‘ 000 % PLN ‘ 000 % PLN ‘ 000 p.p.

Equity 677,929 67.96% 691,027 66.10% -13,098 1.86

Non-current liabilities 7,488 0.75% 8,549 0.82% -1,061 -0.07

Short-term loans and credit facilities

0 0.00% 0 0.00% 0 0.00

Current liabilities 312,058 31.28% 345,807 33.08% -33,749 -1.80

TOTAL 997,475 100.00% 1,045,383 100% -47,908

Equity accounted for 68% of the sources of funding of the Parent’s business operations in 2017 (in 2016: 66%). Non-current liabilities did not change materially. Current liabilities accounted for 31% of the sources of funding of




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the Group’s business operations, as compared to 34% in 2016. In 2017, the structure of the Group's funding sources did not change considerably as compared to 2016.

At the end of 2017 and 2016 the Group had no credit facilities and loans, financing its working capital with own funds and liabilities.

As in previous years, the receivables recognized in the Company's balance sheet did not include those covered with full factoring (without the risk recourse). At the end of 2017, these receivables amounted to PLN 163 million and were PLN 4 million higher as compared to 2016. Factoring as the operations funding source allows the improvement of the Group’s liquidity and merchant risk reduction.

The Group is fully capable of satisfying its obligations. The Group paid its liabilities to related parties, banks and suppliers, as well as those under public law, within specified deadlines. There is no indication of potential threats in this respect.

EVALUATION OF THE FEASIBILITY OF INVESTMENT PROJECTS, INCLUDING CAPITAL INVESTMENTS

(Evaluation of feasibility of investments, including capital ones, in lights of funds held, including possible changes in the funding structure)

In 2017, improvement of production infrastructure in the consumer product and oilseed processing segments was the key element of the Company's investment strategy. Investment projects performed were focused on the maintaining and improving of technical reliability and manufacturing costs reduction. Fulfilling of new legislation requirements, as well as improving of OSH and environmental protection were among key objectives of these investments. Investments in non-current assets except from capital investments amounted to PLN 22.12 million.

Investments carried out in the financial year included among others:

a) In the Plant in Brzeg:

modernization of the pressing system through replacement of screw presses and disassembly of vertical roasting machines and assembly of horizontal ones with the required infrastructure,

assembly of a new line of coconut oil pouring line,

replacement of the railroad scale,

implementation of a new radio communication system through the use of mobile radiotelephones,

b) in the Kobylniki Plant:

assembly of a new AERZEN air compressor,

production, delivery and assembly of automation, electrical and mechanical components in order to implement the energy savings projects in the boiler room,

extension of the Delta process control in the Refinery,

modernization of the oil neutralization line in order to reduce the consumption of phosphoric acid and lye and reduce oil loss, as well as improve the quality of oil,

optimization of energy use in technical systems in buildings through modernization and replacement of equipment with more efficient and energy-saving ones,

modernization of the esterification system in terms of reduction of harmful substances to improve the quality of oil.

In the coming years the Company will invest mainly in improvement and replacement of its property, plant and equipment; its plans do not include direct capital investments in other entities.

The investment plans will be funded mostly with profit from previous years and depreciation charges. Regardless of using own funds, the Company may obtain borrowings in the form of unused loan and credit facility limits, although these sources may only be treated as ad-hoc funding measures. The Company's strategy involves a financial balance obtained through absorbing of long-term assets with adequate equity and/or long-term liabilities. At present, the balance is maintained and there are no indications that it may be lost.

NON-TYPICAL EVENTS THAT AFFECTED 2017 PERFORMANCE AND THE RANGE OF THEIR IMPACT

No material changes in the structure of the Group’s revenue from sales of goods and products occurred in 2017, except for the increase in the volumes of industrial margarines and fats by over 13%. A decrease in the sales volume of raw and refined oils was offset by an increase in their prices. As a result, the sales value was PLN 161 million higher than in the previous year.




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Rapeseed harvest in Poland and the adjacent countries is a material factor affecting the Group’s operating performance. The volume harvested determines the raw material price, thus materially impacting the realized margin on sales, mostly of consumer products.

The financial result for first half of 2017 to reflect of the low production of rape from 2016 (about 2.2 million tons). As a result of the seed deficit on the Polish market, the Company has implemented a seed import program from other European Union countries. However, the additional cost connected with the logistics of seeds, affect the margins generated by the Company in the first half of 2017.

In the second half of 2017, the rape seed harvest (2.7 million tons), due to unfavorable weather conditions during and just after harvest, were lower than expected. This influenced the sales decisions of producers who, expecting higher prices, suspended the sale of this raw material until the first half of 2018. Thus, the low supply of rapeseed did not allow for the completion of the Company's purchase intentions.

The Group still implements the provisions of the agreements concluded in September 2010 with Bunge Poland, pursuant to which trade, distribution and marketing activities have been integrated (sale onsolidation agreement) of the entities in term of the sale of consumer products. In 2012, the Group took over all the agreements for sale of products of Bunge Polska, thus becoming its sole distributor.

The Group uses derivatives to hedge against two key types of risk occurring in the course of business – FX risk and the commodity risk on international markets. The Company uses FX forwards to hedge against the FX risk related to future cash flows due to purchases and sales presented or denominated in foreign currencies as well as the balances of receivables and liabilities. In order to limit the commodity risk, and therefore ensure the planned margin is realized, the Group concludes commodity forwards to hedge against the exposure.

In 2017 the Group concluded commodity derivative contracts with rape seed suppliers. The underlying instruments were MATIF prices. Over the period determined in the contract Suppliers may choose the MATIF trading day and this way set the final price of the seeds.

The above instruments allow mitigating the effects of volatility of prices of products and supplies as well as forex rates on the financial result.

No other factors or untypical events occurred that would significantly impact the financial performance of the Group in 2017 reporting period.

FACTORS MATERIAL FOR THE GROUP'S GROWTH AND BUSINESS DEVELOPMENT PERSPECTIVES

(Internal and external factors of material importance for development and description of business development perspectives at least until the end of the financial year following the year covered by the financial statements, including market strategy elements)

The key factors that determine the financial performance of the Group include:

a) Cost of supplies – rapeseed and tropical oils,

b) Availability of rapeseed,

c) Selling prices of bulk rapeseed oil,

d) Growing prices of supplies being offset with prices of the final products,

e) Selling prices of rapeseed meal,

f) Core production sales volume,

g) Foreign exchange rates.

Purchase prices of key supplies used by the Group are determined on world's commodity exchanges. Prices of mass products (bulk oil and rapeseed meal) are closely correlated to the prices of supplies, which allows offsetting their increase. Prices of table and industrial products are much less sensitive to changes in the prices of supplies on commodity exchanges. This results in a delay in compensation of growing prices of supplies with an increase in the prices of the final products, since consumer markets have a limited ability to accept end user price increases. If prices of supplies decrease, the Group may discount the effect of reduced sensitivity of product sales prices on changes in prices of supplies.

Price and availability of rapeseed and changes in the prices of tropical oils will be the key factors determining the Group's financial performance in the years to come.

Currency exchange rates are another material factor that impacts the future financial performance of the Group. Growing or decreasing exchange rate of PLN improves or deteriorates competitiveness of the Group's products on foreign markets. Since prices of key supplies are determined by world's commodity markets, any changes in prices are enhanced with possible forex fluctuations. Assuming that changes in prices of the packed products offered by the Parent on the domestic market are not rapid or material, failure to promptly respond to current forex fluctuations and the related final product price adjustments poses a material risk for the Group.




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Since the need for borrowings has decreased over last years, the effects of monetary policy on the Group’s performance has been weakening.

The Company has been attempting to minimize its working capital, mainly in order to reduce demand for borrowings, improve effectiveness and profitability ratios, and reduce its exposure to interest rate fluctuations on the interbank market.

CHANGES IN KEY BUSINESS MANAGEMENT PRINCIPLES

None occurred.

AGREEMENTS CONCLUDED BY THE GROUP WITH MEMBERS OF ITS MANAGEMENT, PROJECTING COMPENSATION IN CASES THEY RESIGN OR ARE DISMISSED WITHOUT A VALID REASON OR WHEN DISMISSED OR LAID OFF DUE TO COMBINATION THROUGH ACQUISITION

The Group did not conclude any agreements projecting compensation in the case its management members resign or are dismissed without a valid reason or if the dismissal/layoff is caused by business combination through acquisition.

REMUNERATION, BONUSES AND OTHER BENEFITS RECEIVED BY PERSONS RESPONSIBLE FOR MANAGEMENT AND SUPERVISION OF THE COMPANY

(Amount of remuneration, bonuses or benefits, including those arising from incentive or bonus schemes based on the Group's equity, such as bonds with pre-emptive right, convertible bonds, subscription warrants (in cash, in kind or any other form) paid, due or potentially due, individually for each individual managing and supervising the Group in its enterprise, regardless whether they are included in expenses or arise from profit distribution; if the Group is a parent of a major investor, information regarding amount of remuneration and awards obtained for management of controlled entities should be provided; if relevant information has been included in the financial statements, the obligation is fulfilled if the report indicates the chapter/heading under which it is presented in the financial statements)

Remuneration, awards and other benefits received by members of the Group's management and supervisory bodies are presented in Note 39 to the financial statements of the Group for 2017.

TOTAL NUMBER AND FACE VALUE OF ALL SHARES IN THE COMPANY AND ITS RELATED PARTIES HELD BY THE MEMBERS OF THE MANAGEMENT AND SUPERVISORY BODIES

According to information obtained by the Group, as at the date of publication of this report, none of the Members of the Management Board or Supervisory Board held any shares in ZT “Kruszwica” S.A. or in its related entities.

CONTRACTS KNOWN TO THE COMPANY THAT MAY RESULT IN FUTURE CHANGES IN ITS SHARE CAPITAL/BONDS STRUCTURE

(Information regarding contracts known to the Group (including those concluded after the balance sheet date) that may in future result in changes in its shareholding/bonds structure)

According to information obtained by the Group, as at the date of the report, the no contracts existed that could in future result in changes in the shareholding structure.

EMPLOYEE STOCK OWNERSHIP PLAN CONTROL SYSTEM

The Group has no employee stock ownership plan.

PROCEEDINGS PENDING BEFORE COURT, ARBITRATION AUTHORITY OR PUBLIC ADMINISTRATION AUTHORITY

(Including information on: (i) proceedings regarding receivables or liabilities of the Group or its subsidiary, totalling to at least ten percent of its equity; (ii) two or more proceedings regarding liabilities and receivables totalling to at least ten percent of the Group 's equity, respectively.)

In 2017 no such proceedings occurred.




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ACQUISITION OF TREASURY SHARES

(Information regarding purchase of treasury shares, in particular the purpose of the acquisition, the number and face value of shares and indication, which part of the share capital they represent, the purchase and selling price of these shares if disposed of)

In 2017, the Parent purchased no treasury shares.

INFORMATION ON GROUP’S PLANTS

In 2017, the Group performed its operations in two production plants located in Poland:

a) Kobylniki plant near Kruszwica;

b) Brzeg plant.

Business operations of Kobylniki plant included rapeseed proceeding, refining and packing of vegetable oils, manufacturing of industrial margarines and fats as well as margarine components.

Business operations of Brzeg plant included rapeseed proceeding, refining and packing of vegetable oils.

RISK HEDGING INSTRUMENTS, FINANCIAL RISK MANAGEMENT OBJECTIVES AND METHODS ADOPTED BY THE GROUP

(Information on financial instruments regarding:

a) pricing and credit risk, the risk of substantial disruptions of cash flows, liquidity risk of the entity;

b) financial risk management objectives and methods adopted by the Company, including hedging of significant planned transaction types included in hedge accounting).

Information regarding risk hedging instruments, financial risk management methods and objectives adopted by the Group has been presented in Notes 35 and 36 to the consolidated financial statements of the Group for 2017.

DESCRIPTION OF THE STRUCTURE OF ASSETS, EQUITY AND LIABILITIES IN THE CONSOLIDATED BALANCE SHEET, ALSO IN THE CONTEXT OF LIQUIDITY OF THE CAPITAL GROUP

At the end of December 2017, the structure of assets and liabilities did not materially change compared to December 2016. At the end of 2017, the balance sheet total in the consolidated statement of financial position of the Group decreased by PLN 47.9 million, i.e. 4.6% compared to the previous year.




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Consolidated Statement of Financial Position – Assets

Year ended

31/12/2017

Year ended

31/12/2016

Share in assets 2017

Share in assets 2016 Change

Non-current assets

Property, plant and equipment 207,792 212,867 20.8% 20.4% -5,075

Investment property 3,559 825 0.4% 0.1% 2,734

Goodwill 83,793 83,793 8.4% 8.0% 0

Intangible assets 9,245 12,485 0.9% 1.2% -3,240

Long-term financial assets 8 11 0.0% 0.0% -3

Deferred tax assets 12,453 7,093 1.2% 0.7% 5,360

Long-term prepayments 18 237 0.0% 0.0% -219

Long-term other receivables 1,033 443 0.1% 0.0% 590

317,901 317,754 31.9% 30.4% 147

Current assets

Property, plant and equipment held for trading 9,863 9,958 1.0% 1.0% -95

Inventories 278,957 356,932 28.0% 34.1% -77,975

Trade receivables 94,526 96,205 9.5% 9.2% -1,679

Other receivables 59,304 19,689 5.9% 1.9% 39,615

Current financial assets 51,574 22,087 5.2% 2.1% 29,487

Cash and cash equivalents 184,217 222,020 18.5% 21.2% -37,803

Short-term prepayments 1133 738 0.1% 0.1% 395

679,574 727,629 68.1% 69.6% -48,055

Total assets 997,475 1,045,383 100.0% 100.0% -47,908

Group’s assets are dominated by the assets of the Parent.

As at the end of 2017 the main item of the Group’s assets was inventory (28%), primarily rape seeds valued at PLN 90 million (as at 31 December 2016 PLN 229 million). A decrease in inventory of rape seeds is due to the lower price of rapeseed as compared to the previous year, which resulted in lower supply.

Another important item in the Group’s assets is property, plant and equipment (20.8% share) the value of which went down by PLN 5.1 million.

Trade receivables did not change considerably year-on-year.

As at 31 December 2017 the Group’s cash deposit totalled PLN 184.2 million, down by PLN 37.8 million compared to the end of 2016. Cash accounts for 18.5% of the Group’s assets.

As 31 December 2017 the fair value of derivatives held by the Group, disclosed under short-term financial assets, was PLN 51.6 million (as at 31 December 2016: PLN 22.1 million).




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Consolidated Statement of Financial Position – Liabilities and Equity

Year ended

31/12/2017

Year ended

31/12/2016

Share in assets 2017

Share in assets 2016 Change

PLN ’000 PLN ’000 % % PLN ’000

Equity

Share capital 185,076 185,076 18.6% 17.7% 0

Share premium 245,401 245,401 24.6% 23.5% 0

Reserve capital 141,382 130,420 14.2% 12.5% 10,962

Retained earnings 106,070 130,130 10.6% 12.4% -24,060

Equity attributable to non-controlling interest - -

677,929 691,027 68.0% 66.1% -13,098

Non-current liabilities

Liabilities due to employee benefits 5,188 5,767 0.5% 0.6% -579

Other provisions 2,286 2,782 0.2% 0.3% -496

Other non-current liabilities 14 0.0% 14

7,488 8,549 0.8% 0.8% -1,061

Current liabilities

Provisions 1,012 3,052 0.1% 0.3% -2,040

Short-term credit facilities and loans 0 - 0.0% - 0

Financial liabilities 72,585 29,175 7.3% 2.8% 43,410

Liabilities due to employee benefits 13,874 12,563 1.4% 1.2% 1,311

Trade liabilities 215,759 279,256 21.6% 26.7% -63,497

Current income tax liabilities 2,527 3,867 0.3% 0.4% -1,340

Other current liabilities 6,301 17,894 0.6% 1.7% -11,593

312,058 345,807 31.3% 33.1% -33,749

Total equity and liabilities 997,475 1,045,383 100.0% 100.0% -47,908

Group’s equity and liabilities are dominated by the equity and liabilities of the Parent.

The change in the Group’s equity is the result of PLN 54.7 million of dividend paid out by the Parent and PLN 41.3 million of net profit generated by the Group.

As at the end of December 2017 the Group’s share of non-current liabilities did not change year-on-year.

Financial liabilities as at the end of 2017 include liabilities due to fair value measurement of FX and commodity derivatives which exceeded the value for 2016 by PLN 43.4 million.

As at the end of December 2017 trade liabilities went down by PLN 63.5 million compared to the end of December 2016.

MAJOR EVENTS EXERTING A SIGNIFICANT EFFECT ON THE ISSUER’S CAPITAL GROUP’S OPERATIONS

AND FINANCIAL PERFORMANCE IN THE FINANCIAL YEAR

Events exerting significant effects on the operations and financial performance of the Group in 2017 have been presented in point 16 hereof.

STRUCTURE OF KEY CAPITAL DEPOSITS OR INVESTMENTS WITHIN THE ISSUER’S CAPITAL GROUP The

Group does not hold any capital investments.

The Groups deposits free cash flows on a cash pool account.




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Available funds of the Group are deposited on a designated bank account and bear interest in line with the Revolving Credit Facility Agreement concluded with Koninklijke Bunge B.V.

DESCRIPTION OF THE ORGANIZATIONAL STRUCTURE OF THE ISSUER’S CAPITAL GROUP, SPECIFYING

THE CONSOLIDATED ENTITIES, AND OF CHANGES IN THE ABOVE STRUCTURE, ALONG WITH THEIR REASONS

A detailed description of the Group’s organization has been presented in Notes 1 and 18 to the consolidated financial statements for 2017.

DEVELOPMENT OBJECTIVES OF THE ISSUER’S CAPITAL GROUP

Development objectives of the issuer’s capital group have been presented in point 17 hereof.

MATERIAL OFF-BALANCE SHEET ITEMS BY ENTITY, SUBJECT MATTER AND VALUE

Did not occur.

CONTRACTS CONCLUDED BY THE PARENT COMPANY WITH AN ENTITY AUTHORIZED TO AUDIT FINANCIAL STATEMENTS

a) Date of concluding an agreement with an entity authorized to audit financial statements with regard to audit or review of separate or consolidated financial statements and the term of the agreement.

An agreement regarding review of the mid-year consolidated and separate financial statements for the six months ended 30 June 2017 with Deloitte Polska Sp. z o. o. Sp. k. with the registered office in Warsaw was concluded on 19 May 2017. The scope of the review includes the separate and consolidated financial statements prepared in line with IFRS/IAS.

The agreement regarding an audit of the annual separate and consolidated financial statements for the 12 months ended 31 December 2017 with Deloitte Polska Sp. z o. o. Sp. k. with the registered office in Warsaw was concluded on 19 May 2017. The scope of the audit includes the full separate and consolidated financial statements prepared in line with IFRS/IAS.

The agreement regarding an audit of the consolidated package prepared in line with US GAAP and Bunge Group principles for the 12 months ended 31 December 2016 with Deloitte Polska Sp. z o. o. Sp. k. with the registered office in Warsaw was concluded on 05 January 2018.

b) The total contractual fee payable or paid to the entity authorized to audit financial statements for a review and audit of the financial statements, and, if the company prepares consolidated financial statements, for a review and audit of the consolidated financial statements for the given financial year.

The total fee payable for the review of the consolidated and separate financial statements for the first half of 2017 has been determined as an equivalent of EUR 20,000.

The total fee payable for the audit of separate and consolidated financial statements and the consolidated package for 2016 has been determined as an equivalent of EUR 154,138.

Pursuant to the above agreements, the Company shall reimburse all costs incurred by the Auditor in the course of performing the agreement (i.e. travels, accommodation, phone calls, translation of the financial statements into English, etc.).

c) The remaining total contractual fee payable or paid to the entity authorized to audit financial statements for other services than listed in point b in relation to the given financial year.

In 2017, there was no fee for other services than listed in point b.

d) Information included in points b and c regarding the previous financial year

The total fee payable for the review of the separate and consolidated financial statements for the first half of 2016 has been determined as an equivalent of EUR 20,000.

The total fee payable for the audit of separate and consolidated financial statements of the parent, separate financial statements of a subsidiary and the consolidated package for 2016 had been determined as an equivalent of EUR 165,000.

Pursuant to the concluded agreements, the Company was obliged to reimburse all costs incurred by the Auditor in the course of performing the agreement (i.e. travels, accommodation, phone calls, translation of the financial statements into English, etc.). The total fee payable for other services than listed in point b in relation to 2016 had been determined as PLN 7,000.




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The Management Board’s Report was prepared on 16 March 2018.

Signatures of all Members of the Management Board:

Wojciech Jachimczyk – President of the Management Board ..................................

Wojciech Bauman – Member of the Management Board ..................................

Marcin Brodowski – Member of the Management Board ..................................

Jacek Michalak – Member of the Management Board ..................................

Piotr Piotrowski – Member of the Management Board ..................................

Dariusz Szymański – Member of the Management Board ..................................

Tomasz Wika – Member of the Management Board ..................................

management board s report on the activities · 15. evaluation of the ... marketing activities of...

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