Dear Shareholders, - ZT "Kruszwica · 2019. 4. 8. · drivers of the Group’s solid 2018 performance in the agri segment. In spite of a relatively high rapeseed production in 2017

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Dear Shareholders,

On behalf of the Management Board, I have the pleasure to present you with the annual

consolidated financial statements of the "Kruszwica" S.A. Capital Group (the Group) for the period

of twelve months ended on 31 December 2018.

The Group’s financial result in 2018 were generated mainly under the influence of the European

rapeseed and vegetable oil markets, livestock production, as well as dynamically changing trends

on consumer markets, driven by changes in lifestyles in Poland.

The Group’s agility to respond to dynamic changes in the commodity markets, operation efficiency

in rapeseed crushing, as well as the good situation in the European biofuels market were the main

drivers of the Group’s solid 2018 performance in the agri segment.

In spite of a relatively high rapeseed production in 2017 (ca. 30 per cent higher than in the previous

year), in the first half of 2018, the market saw very low fluidity in the seed supply as many local

producers remained sluggish sellers in anticipation for better prices. Under such circumstances, the

Group imported seeds from other EU countries. In spite of the high logistical costs, thanks to the

import we were able to fully utilise available production capacities, by achieving in 2018 the

Company’s highest-ever record for rapeseed crush.

Although the 2018 domestic rapeseed production was lower than anticipated (by ca. 2.3 million

metric tonnes), a surplus from the previous harvest, supported by imports, created a comfortable

supply position for the industry, which resulted in increased crush profitability in the second half of

the year. Thanks to this, the Group managed to grow its domestic market share in the oilseed

processing industry.

As regards the vegetable oils market, in 2018 the situation did not change considerably compared

with the preceding year.

In the food segment, we managed to achieve a good level of sales in branded bottled oils and a

stable position in consumer margarine. The sales of professional fats were lower than expected.

Throughout 2018, the Group sold a total of 119 thousand tonnes of bottled oils, 8 per cent more

than in 2017. Thanks to the consistent development of branded oils, the value of the sales in the

category grew by 3 per cent.

2018 was a consecutive year where the consumer margarine and mixes market considerably shrunk

in terms of the volume and value. In the period, the Group sold in total over 71 thousand tonnes of

margarine, 1 per cent less than a year ago. The lower total sales were mainly caused by a decline

in the volume of sales for private label products and an increased share of the Group’s brands in

the market.

In the professional product category, despite competitive pressures, thanks to a wide range of new

product formulas and close collaboration with the confectionery and baking industries, we

maintained a leadership position in the professional margarine segment. At the same time, a lower

than expected sale of fats in bulk was compensated by increased sales profitability of other products

in the category.

The Group’s stable consumer market position is owed to the consistent growth in the value of the

bottled oil category, supported by several consumer and commercial partner-driven initiatives. At

the same time, we continued the strategy of investing in the development of our consumer margarine

brands - Smakowita and Słynne MR, as well as in Maestra brand for professional margarine. We

believe that thanks to a forecast on consumer needs, in 2019 we will also be able to maintain the

position of those brands in the market.

Within the frame of consumer and professional product development, in 2018 we collaborated with

the Bunge Group’s Budapest Centre for Research and Development, as well as with external

scientific institutions, implementing about 60 research and development projects, all aimed to

optimise product formulas and develop new process technology.

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As in the previous years, in 2018 the Group was actively engaged in pro-employee initiatives of

which the biggest was the program “Acting Locally”, which is based on employee voluntary

movement. The purpose of the program is to release local community energy, with direct

engagement from our employees and the Group’s financial support. We are proud that wherever

we conduct our business, we are in close contact with local authorities on the matters of public

safety, health and sports education of the youth, as well as supporting charitable initiatives.

Looking forward, we should expect that in the first half of 2019 the structural margins on rapeseed

crushing should further improve, mainly due to the growing demand for biofuels. However, in view

of the growing demand for oils, we believe that by fully securing the raw material for own processing

would be the key to financial success in the period.

As far as the second half of the year is concerned, declining areas of rapeseed plantations in Poland

presents a challenge for the crop. On the other hand, the perspective for low rapeseed winterkilling,

thanks to a mild winter so far, permits looking forward with optimism to the market situation in the

second half of 2019.

Summarising, 2019 for the agri segment appears to be very strong, however, as in the case of

previous years, efficient management of risks related to rapeseed price and currency fluctuations in

Europe, supported by effective management of seed purchase and storage logistics for optimal

allocation of production capacity, are collectively the pre-conditions to financial success of the Group

this year.

As regards to the consumer market, in my opinion, the domestic bottled oil market will not change

significantly in 2019. It appears that the consumer margarine and mixes market will continue to

shrink, mainly due to the declining sales of own brands and value-type products. We can also

foresee that for the confectionery, bakery and food sectors, 2019 will be another year of growth

based on the expansion of value-added product expansion, which converts into higher demand for

our products.

Taking into account all of the above, I have the pleasure to inform you that the total net profit

generated by the Group in 2018 amounted to 99.7 Million PLN, providing the Shareholders with

return on capital at the level of 13.4 per cent.

Taking this opportunity, I would like to thank, on my behalf and on the behalf of the Management

Board, all the Shareholders for the trust they give us, the Supervisory Board for their substantive

support and supervision over activities of the Group, and the consumers for their loyalty towards the

brand of the “Kruszwica” Capital Group and its products.

With best regards,

Wojciech Jachimczyk

Chairman of the Management Board

In the case of differences between the language version of this document, Polish version is binding.

ANNUAL CONSOLIDATED FINANCIAL STATEMENTS

of ZT “Kruszwica” S.A. Capital Group

for the 12 months ended 31 December 2018

Kruszwica, 19 March 2019

akłady Tłuszczowe „Kruszwica” S.A. ZT „Kruszwica” S.A. Capital Group Consolidated financial statements for 2018

ne Sprawozdanie Finansowe

Page 2 of 78

CONTENTS:

SELECTED CONSOLIDATED FINANCIAL DATA ...................................................................................... 3 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ...................................................................... 6 CONSOLIDATED STATEMENT OF CASH FLOWS ................................................................................... 8 ADDITIONAL INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS ............................ 9 1. GENERAL INFORMATION .................................................................................................................. 9 2. IFRS AND ACCOUNTING PRINCIPLES USED ................................................................................ 11 3. REVENUE FROM SALES OF PRODUCTS AND GOODS ................................................................ 24 4. OPERATING SEGMENTS ................................................................................................................. 25 5. COSTS BY TYPE ............................................................................................................................... 30 6. OTHER OPERATING REVENUE....................................................................................................... 30 7. OTHER OPERATING EXPENSES .................................................................................................... 30 8. REVENUES AND FINANCIAL COSTS .............................................................................................. 31 9. GAIN/(LOSS) ON MEASUREMENT OF DERIVATIVES AND EXCHANGE DIFFERENCES ........... 31 10. GAIN/LOSS ON SALE OF FIXED ASSETS AND OTHER EXPENSES RELATED TO FIXED AND INTANGIBLE ASSETS ............................................................................................................................... 32 11. INCOME TAX...................................................................................................................................... 32 12. EARNINGS PER SHARE ................................................................................................................... 34 13. PROPERTY, PLANT AND EQUIPMENT ........................................................................................... 35 14. INVESTMENT PROPERTY ................................................................................................................ 36 15. GOODWILL ......................................................................................................................................... 37 16. INTANGIBLE ASSETS ....................................................................................................................... 38 17. FINANCIAL ASSETS .......................................................................................................................... 39 18. ACQUISITION OF SUBSIDIARIES .................................................................................................... 39 19. INVENTORIES.................................................................................................................................... 39 20. TRADE AND OTHER RECEIVABLES ............................................................................................... 40 21. CASH AND CASH EQUIVALENTS .................................................................................................... 42 22. PREPAYMENTS AND ACCRUALS ................................................................................................... 42 23. SHARE CAPITAL ............................................................................................................................... 43 24. RESERVE CAPITALS ........................................................................................................................ 43 25. OTHER CAPITALS ............................................................................................................................. 44 26. CAPITAL MANAGEMENT .................................................................................................................. 44 27. DIVIDENDS ........................................................................................................................................ 44 28. CREDIT FACILITIES AND LOANS .................................................................................................... 45 29. TRADE AND OTHER LIABILITIES..................................................................................................... 46 30. EMPLOYEE BENEFITS ..................................................................................................................... 46 31. PROVISIONS...................................................................................................................................... 48 32. OPERATING LEASES ........................................................................................................................ 49 33. FORECAST TRANSACTIONS ........................................................................................................... 50 34. RELATED PARTY TRANSACTIONS ................................................................................................. 51 35. FX DERIVATIVES .............................................................................................................................. 57 36. COMMODITY DERIVATIVES ............................................................................................................. 61 37. CLASSES OF FINANCIAL ASSETS AND LIABILITIES .................................................................... 65 38. FINANCIAL ACTIVITY IN CASH-FLOW STATEMENT...................................................................... 65 39. RISK FACTORS RELATED TO THE GROUP’S OPERATIONS ....................................................... 66 40. CHANGES IN CONTINGENT LIABILITIES OR CONTINGENT ASSETS ......................................... 76 41. REMUNERATION, BONUSES AND OTHER BENEFITS RECEIVED BY PERSONS RESPONSIBLE FOR MANAGEMENT AND SUPERVISION OF THE PARENT COMPANY ............................................. 77 42. LIABILITIES ARISING FROM PENSION AND SIMILAR BENEFITS. ............................................... 77 43. POST BALANCE SHEET EVENTS .................................................................................................... 77



Page 3 of 78

SELECTED CONSOLIDATED FINANCIAL DATA

(all figures are in PLN/EUR‘000, except for the number of shares and earnings per share)

For 12 months

ended 31-12-2018

For 12 months

ended 31-12-2017

For 12 months

ended 31-12-2018

For 12 months

ended 31-12-2017

PLN'000 EUR'000

Revenue from sales of products and goods 2,666,877 2,547,505 625,015 600,161

Operating profit / (loss) 124,944 51,884 29,282 12,223

Profit / (loss) before tax 123,704 51,316 28,992 12,089

Net profit / (loss) 99,747 41,276 23,377 9,724

Number of shares 22,986,949 22,986,949 22,986,949 22,986,949

Earnings/(loss) per ordinary share (in PLN/EUR) 4.34 1.80 1.02 0.42

Net cash flows from operating activities 85,913 38,044 20,135 8,963

Net cash flows from investing activities (1,159) (17,575) (272) (4,140)

Net cash flows from financing activities (35,062) (58,272) (8,217) (13,728)

Total net cash flows 49,692 (37,803) 11,646 (8,906)

Period ended 31/12/2018




PLN'000 EUR'000

Non-current assets 303,648 317,901 70,616 76,219

Current assets 788,008 679,574 183,258 162,932

Total assets 1,091,656 997,475 253,873 239,151

Non-current liabilities 5,629 7,488 1,309 1,795

Current liabilities 338,921 312,058 78,819 74,818

Equity 747,106 677,929 173,746 162,538

Share capital 185,076 185,076 43,041 44,373

Euro exchange rates applied for restatement of the “selected consolidated financial data”:

Individual assets and liabilities recognized in the Group’s consolidated statement of financial position as at 31 December 2018 and as at 31 December 2017 were translated at the average exchange rate of the National Bank of Poland valid for euro as at these dates.

Individual items recognized in the consolidated statement of comprehensive income, consolidated statement of changes in equity as well as in the consolidated statement of cash flows were translated using the arithmetic mean of average exchange rates of the National Bank of Poland valid on the last day of each month of the presented period.

Foreign currency exchange rates applied for restatement of the “selected consolidated financial data”:



Statement of financial position 4.3000 4.1709

Statement of comprehensive income For 12 months ended 31-12-2018

For 12 months ended 31-12-2017

Statement of changes in equity

Statement of cash flows 4.2669 4.2447

Statement of financial position



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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (all figures in PLN‘000, except for the number of shares and earnings per share)

Note For 12 months ended 31-12-2018


PLN'000 PLN'000

Revenue

Revenue from sales of products 3 2,426,193 2,344,814

Revenue from sales of goods 3 240,684 202,691

Other operating revenue 6 18,484 16,688

Total revenue 2,685,361 2,564,193

Expenses

Manufacturing cost of products sold 5 2,137,617 2,113,619

Cost of goods sold 220,239 180,343 Selling expenses 5 150,198 146,686

General and administrative expenses 5 37,773 33,795

(Gains)/losses on measurement of derivatives and exchange differences

9 (688) 21,490

(Gains)/losses on sale of fixed assets and other expenses related to fixed assets

10 (316) (2,438)

Other operating expenses 7 15,634 18,814

Total expenses 2,560,417 2,512,309

Operating profit/(loss) 124,944 51,884

Financial revenue 8 3,467 3,161

Financial expenses 8 4,707 3,729

Pre-tax profit/(loss) from continuing operations 123,704 51,316

Income tax 23,957 10,040

Current portion 11 22,270 15,480

Deferred portion 11 1,687 (5,440)

Net profit (loss) 99,747 41,276

Other comprehensive income to be reclassified to P&L when certain conditions have been met including:

- (6)

Hedge accounting - -

Income tax related to other items of comprehensive income

- (6)

Other comprehensive income not to be reclassified to P&L including:

2 421

Profit / (loss) on actuarial measurement of retirement and disability bonuses

(0) (80)

Income tax related to other items of comprehensive income

2 341

Total comprehensive income 99,749 41,611

Profit attributable:

to the shareholders of the Parent Company 99,747 41,276

to non-controlling shares -

-

Total comprehensive income attributable:

to the shareholders of the Parent Company 99,749 41,611

to non-controlling shares -

-

Basic and diluted earnings/(loss) per share attributable to the shareholders of the Parent Company

12 4.34 1.80

Weighted average number of ordinary shares 22,986,949 22,986,949



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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Note Period ended 31/12/2018


PLN'000 PLN'000

Non-current assets

Property, plant and equipment 13 197,623 207,792

Investment property 14 3,350 3,559

Goodwill 15 83,793 83,793

Intangible assets 16 7,076 9,245

Long-term financial assets 17 6 8

Deferred tax assets 11 10,767 12,453

Long-term prepayments 22 - 18

Long-term other receivables 20 1,033 1,033 303,648 317,901

Current assets

Property, plant and equipment held for trading 13 - 9,863

Inventories 19 450,152 278,957

Trade receivables 20 87,097 94,526

Income tax receivables - -

Other receivables 20 4,444 59,304

Current financial assets 17 12,152 51,574

Cash and cash equivalents 21 233,909 184,217

Short-term prepayments 22 254 1,133 788,008 679,574

Total assets 1,091,656 997,475

Note Period ended 31/12/2018


PLN'000 PLN'000

Equity

Share capital 23 185,076 185,076

Share premium 25 245,401 245,401

Reserve capital 24 151,481 141,382

Retained earnings 25 165,148 106,070

Equity attributable to non-controlling interests - - 747,106 677,929

Non-current liabilities

Deferred tax liability 11 - -

Liabilities due to employee benefits 30 5,349 5,188

Other provisions 31 260 2,286

Other non-current liabilities 29 20 14 5,629 7,488

Current liabilities

Provisions 31 5,325 1,012

Short-term credit facilities and loans 28 - -

Financial liabilities 29 8,926 72,585

Liabilities due to employee benefits 30 20,296 13,874

Trade liabilities 29 295,779 215,759

Current income tax liabilities 29 6,455 2,527

Other current liabilities 29 2,140 6,301 338,921 312,058

Total equity and liabilities 1,091,656 997,475

ZT „Kruszwica” S.A. Capital Group Consolidated financial statements for 2018

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Capital attributable to the shareholders of the Parent Company

Share capital Share

premium

Reserve capital for dividend

payment

Revaluation reserve related to derivatives instruments

Revaluation reserve – actuarial

measurement of retirement and

disability bonuses

Retained earnings

Total

Equity attributable to

non-controlling interests

Total equity

PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000

Equity as at 01/01/2017 185,076 245,401 131,209 5 (794) 130,130 691,027 - 691,027

Net comprehensive income for the period

- - - (5) 341 41,276 41,612 - 41,612

Dividend paid - - - - - (54,709) (54,709)

- (54,709)

Allocation of profit to other reserve capital

- - 10,627 - - (10,627) -

- -

Round figures - - - - - (1)

- (1)

Equity as at 31/12/2017 185,076 245,401 141,836 - (453) 106,070 677,929 - 677,929

Equity as at 01/01/2018 185,076 245,401 141,836 - (453) 106,070 677,929 - 677,929

Net comprehensive income for the period

- - - 2 99,747 99,749 - 99,749

Dividend paid - - - - - (30,573) (30,573)

- (30,573)

Allocation of profit to other reserve capital

- - 10,096 - - (10,096) -

- -

Equity as at 31/12/2018 185,076 245,401 151,932 - (451) 165,148 747,106 - 747,106


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CONSOLIDATED STATEMENT OF CASH FLOWS



PLN'000 PLN'000

Cash flows from operating activities

Net profit (loss) 99,747 41,276

Total adjustments (13,834) (3,232)

Depreciation and amortization 25,155 27,841

Gains/losses on measurement of derivatives (23,125) 13,910

Interest 2,077 1,531

Gain/loss on sale or liquidation of property, plant and equipment and intangible assets

(316) (2,441)

Change in the balance of provisions 2,459 (742)

Change in the balance of inventories (171,195) 77,975

Change in the balance of receivables 62,182 (38,526)

Change in the balance of current liabilities, except for credit facilities and loans

82,415 (73,880)

Change in the balance of prepayments/accruals 897 (2,541)

Income tax due 23,957 10,040

Income tax paid (18,342) (16,820)

Other adjustments 2 421

Net cash flows from operating activities 85,913 38,044

Cash flows from investing activities

Proceeds from sale of property, plant and equipment and intangible assets

10,180 2,609

Acquisition of intangible assets and property, plant and equipment

(7,626) (19,540)

Interest 2,413 2,143

(Originated) / repaid long-term loans (1,109) 3

Advance payments made for acquisition of fixed assets (5,017) (2,790)

Other adjustments - -

Net cash flows from investing activities (1,159) (17,575)

Cash flows from financing activities

Proceeds from loans / borrowings - 6

Repayment of loans / borrowings - -

Interest paid (4,489) (3,674)

Dividend paid (30,573) (54,709)

Other adjustmenta - 105

Net cash flows from financing activities (35,062) (58,272)

Total net cash flows 49,692 (37,803)

Balance sheet change in cash and cash equivalents

49,692 (37,803)

Cash and cash equivalents at the beginning of the period 184,217 222,020

Cash and cash equivalents at the end of the period 233,909 184,217


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ADDITIONAL INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL INFORMATION

Information about the Parent Company

Zakłady Tłuszczowe Kruszwica Spółka Akcyjna (“Parent Company” or ZT “Kruszwica” SA) operates in Poland based on the entry in the Commercial Register, Section B, under number 3698, pursuant to a decision of the District Court in Bydgoszcz - VIII Business Division of 21 December 1995.

On 12 June 2001 the Parent Company was recorded in the National Court Register in the District Court in Bydgoszcz, XIII Division of the National Court Register, under number KRS 0000019414.

Composition of the Company's management and supervisory bodies as at the date of preparation of the financial statements: Company’s Management Board:

1. Wojciech Jachimczyk – President of the Management Board

2. Wojciech Bauman – Member of the Management Board

3. Marcin Brodowski – Member of the Management Board

4. Jacek Michalak – Member of the Management Board

5. Piotr Piotrowski – Member of the Management Board

6. Tomasz Wika – Member of the Management Board

On 6 February 2019, the Management Board of the Company received the resignation of Mr. Dariusz Szymański from the position of a member of the Management Board, which is related to the termination of cooperation with the Company.

Mr. Dariusz Szymański was professionally associated with the Parent Company from August 2010, acting as the National Chief Operating Officer. Supervisory Board:

1. Tommy Jensen - Chairman of the Supervisory Board 2. Julie Hawkins - Deputy Chairperson of the Supervisory Board 3. George Allard - Member of the Supervisory Board 4. William Dujardin - Member of the Supervisory Board 5. Jean-Pierre Goullet - Member of the Supervisory Board 6. Roman Górny - Member of the Supervisory Board 7. Sławomir Ludwikowski - Member of the Supervisory Board 8. Jerzy Rajski - Member of the Supervisory Board 9. Markus Walter Sieger - Member of the Supervisory Board 10. Mariusz Szeliga - Member of the Supervisory Board

As at 31 December 2018, the Parent Company's shareholding structure is as follows:

Entity Registered office

Number of shares

% of capital % of voting rights

Koninklijke Bunge Besloten Vennootschap (KBBV)

Netherlands 14,763,313 64.22% 64.22%

Windstorm Trading& Investments Limited

Cyprus 5,805,485 25.26% 25.26%

ALTUS TFI S.A. Poland 1,013,327 4.41% 4.41%

Other 1,404,824 6.11% 6.11%

Total 22,986,949 100.00% 100.00%

The Parent Company is part of the Bunge Group, a world leader in the processing of oilseeds and the production of bottled vegetable oils.

The Parent Company's shares in the amount of 22,986,949 are publicly traded and are listed on the main market on


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the Warsaw Stock Exchange S.A. According to the classification of the Warsaw Stock Exchange in Warsaw S.A., ZT "Kruszwica" S.A. is qualified to the "food industry" sector.

Information about the Capital Group

As at the balance sheet date 31 December 2018 and 31 December 2017, Grupa Kapitałowa ZT "Kruszwica" SA (hereinafter: Capital Group or Group) includes , Zakłady Tłuszczowe "Kruszwica" S.A. as a Parent Company and a subsidiary of ZTK Property Management spółka z ograniczoną odpowiedzialnością.

ZTK Property Management spółka z ograniczoną odpowiedzialnością, with its registered office in Warsaw, ul. 17 stycznia 45 B, entered in the Register of Entrepreneurs of the National Court Register under number 0000485163 ("ZTK Property Management")

On 20 March 2014, the Parent Company acquired 100 shares in the share capital of Burgos sp. z o.o. for PLN 11,000. As at the date of the acquisition of shares in Burgos sp. z o.o., the Parent Company recognized goodwill in the amount of PLN 6,000, however, due to the immateriality of the above amount, it was referred directly to the costs of the reporting period.

On 11 November 2014, the Parent Company purchased 1,898 shares in the increased share capital of Burgos sp. z o.o. for the price of PLN 95 thousand.

On 10 December 2014, Burgos sp. z o.o. changed its name to ZTK Property Management spółka z ograniczona działalnością.

On 28 October 2015, the Parent Company acquired two shares in the share capital of ZTK Property Management with a nominal value of PLN 50.00 each and a total nominal value of PLN 100.00. As a result of the above transaction, the Parent Company is the sole shareholder of ZTK Property Management, holding 100% of shares in the company's share capital.

On 28 October 2015, the Parent Company, as the seller, and ZTK Property Management, as the buyer, concluded an agreement on the transfer of shares for the payment of a non-cash contribution to cover the increased share capital of ZTK Property Management (the "Agreement"). Pursuant to the Agreement, in exchange for shares acquired by the Parent Company in the increased share capital of ZTK Property Management, the Company transferred to ZTK Property Management 1,207,042 shares in the share capital of the company under the name Mauresa Consulting spółka z ograniczoną odpowiedzialnością in liquidation ("Mauresa Consulting") ), with a nominal value of PLN 50.00 each and a total nominal value of PLN 60,422,500.00, representing 100% of the share capital of Mauresa Consulting, entitling to 100% of votes at the Mauresa Consulting's Shareholders' Meeting ("Mauresa Consulting Shares").

The value of Mauresa Consulting Shares was set at PLN 75,317,000.00. In exchange for the transfer of the Mauresa Consulting Shares, the Parent Company acquired shares with a par value equal to the value of Mauresa Consulting Shares in the share capital of ZTK Property Management.

As at the balance sheet date, 31 December 2018, the shares of ZTK Property Management held by the Company show the book value of PLN 28,637 thousand PLN.

As at 31 December 2018, the share capital structure of the subsidiary ZTK Property Management is as follows:

Entity Registered office Number of shares

Total value of shares (in PLN)

% share in the share capital

Zakłady Tłuszczowe “Kruszwica” S.A.

ul. Niepodległości 42, Kruszwica

1,508,340 PLN 75,417,000 100.00%

Total 1,508,340 PLN 75,417,000 100.00%

Additional information on subordinated entities covered by the consolidated financial statements is included in Note 18. The duration of operations of individual entities comprising the Group is not limited. The financial year of the Parent Company and the subsidiary ZTK Property Management sp. z o.o. is a calendar year. The financial statements of the subsidiary ZTK Property Management, used to prepare the consolidated financial statements of the Group, were prepared as at 31 December 2018, similarly to the financial statements of the Parent Company, using consistent accounting principles.

The core business of the Group is the processing of oilseeds, production of bottled oils, production of margarines and edible fats as well as property management.


Page 11 of 78

2. IFRS AND ACCOUNTING PRINCIPLES USED Statement of compliance

The Consolidated Financial Statements have been prepared in accordance with the International Accounting Standard (IAS) 1 – Presentation of Financial Statements, and in compliance with relevant International Financial Reporting Standards (IFRS) applicable for annual financial reporting, as approved by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC), in the form approved by the European Union as of 31 December 2018.

The IFRS include the following regulations adopted by the International Accounting Standards Board (IASB):

- International Financial Reporting Standards (IFRS);

- International Accounting Standards (IAS);

- Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) or

by its predecessor – the Standing Interpretation Committee (SIC), which were accepted by the IASB.

These annual consolidated financial statements contain data for the following periods:

- consolidated statement of financial position as of the end of the current financial year and a comparative

statement as of the end of the prior financial year;

- consolidated statement of comprehensive income for the current financial year with a comparative statement

of comprehensive income for the prior financial year;

- consolidated statement of changes in equity presenting changes in equity for the current financial with

a comparative statement for the prior financial year;

- consolidated statement of cash flows for the current financial year with a comparative statement for the prior

financial year. Standards and interpretations applied for the first time in 2018 Amendments to existing standards applied for the first time in the Group's financial statements for 2018. The following amendments to the existing standards issued by the International Accounting Standards Board (IASB) and endorsed for use in the EU were applied for the first time to the Group’s financial statements for 2018:

• IFRS 9 "Financial Instruments" - endorsed in the EU on 22 November 2016 (applicable to annual periods beginning on January 1, 2018 or later),

• IFRS 15 “Revenue from Contracts with Customers” and amendments to IFRS 15 “Effective Date of IFRS 15” – endorsed by the EU on 22 September 2016 (applicable to annual periods beginning on or after 1 January 2018).

• Amendments to IFRS 2 “Share-based payments” – Classification and valuation of payments based on shares - endorsed by the EU on 27 February 2018 (applicable to annual periods beginning on or after 1 January 2018),

• Amendments to IFRS 4 “Insurance Contracts” – Applying IFRS 9 “Financial Instruments” with IFRS 4 “Insurance Contracts” - endorsed by the EU on 3 November 2017 (applicable to annual periods beginning on or after 1 January 2018 or at the time of adoption of IFRS 9 "Financial Instruments" for the first time);

• Amendments to IFRS 15 “Revenue from Contracts with Customers” – Clarifications to IFRS 15 “Revenue

from Contracts with Customers” - endorsed by the EU on 31 October 2017 (applicable to annual periods beginning on or after 1 January 2018);

• Amendments to IAS 40 “Investment Properties” – Transfer of investment properties – endorsed by the EU on 14 March 2018 (applicable to annual periods beginning on or after 1 January 2018)

• Amendments to IFRS 1 and IAS 28 as a result of the "Amendment to IFRS (cycle 2014 - 2016)" – amendments made as part of the procedure of introducing annual amendments to IFRS (IFRS 1, IFRS 12 and IAS 28) mainly focused on solving incompatibilities and refinement of vocabulary – endorsed by the EU on 7 February 2018 (amendments to IFRS 1 and IAS 28 applicable to annual periods beginning on or after 1 January 2018),

• Interpretation IFRIC 22 “Transactions in Foreign Currencies and Prepayments” – endorsed by the EU on

28 March 2018 (applicable to annual periods beginning on or after 1 January 2018).

The above-mentioned changes to the existing standards did not have a significant impact on the Group’s financial statements for 2018.


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New standards and amendments to the existing standards that have been issued by IASB and endorsed by the EU but are not yet effective As at the date of approval of these financial statements, the following new standards and amendments to the existing standards had been issued by IASB and endorsed by the EU but had not entered into force yet:

• IFRS 16 “Leasing” – endorsed by the EU on 31 October 2017 (applicable to annual periods beginning on or after 1 January 2019);

• Amendments to IFRS 9 "Financial Instruments" - Characteristics of the prepayment option with negative offset – endorsed by the EU on 22 March 2018 (applicable to annual periods beginning on or after 1 January 2019),

• Interpretation of IFRIC 23 "Uncertainty in income tax settlement" – endorsed by the EU on 23 October 2018 (applicable to annual periods beginning on or after 1 January 2019).

The Group decided not to exercise the possibility of earlier application of the above new standards and amendments to existing standards. The following is a detailed analysis, as of the day of approval of financial statements, of the IFRS 16 "Lease" standard to assess the potential impact on the financial statements. IFRS 16 “Leasing” IFRS 16 presents a general model of identification of lease agreements and their settlement in the financial statements of lessors and lessees. Valid for settlement periods beginning on or after January 1st, 2019 and replacing current leasing guidelines, including IAS 17 "Leases" and its interpretations: IFRIC 4 "Determining whether an agreement contains a lease", SIC 15 "Operating leasing - Incentives" and SIC 27 "Evaluating the substance of transactions involving the legal form of a lease”.

The purpose of the new standard is to facilitate the comparison of financial statements presenting both financial and operating leases in the lessee's financial statements and to provide users of financial statements with information about the risks associated with these forms of leasing. Unlike in the case of leasing rules for the lessee, the new standard repeats the requirements of IAS 17 regarding lessors.

On January 1st, 2019 the Group applied IFRS 16 for the first time.

The Group decided to apply a modified retrospective approach (with the combined effect of the first application) in accordance with IFRS 16:C5(b). Therefore, the Group will not convert comparative data.

The Group has analyzed current agreements, potentially bearing the characteristics of leasing agreements as defined by IFRS 16, i.e. agreements for leasing, letting, tooling and other purposes, to identify leasing components. For identification, the Group applied the control model described in the Standard: the lessee obtains economic benefits and decides on the manner of using a given asset, while the supplier has no right to exchange the given asset for another.

The new standard requires the recognition of the right to use an asset and lease obligations for all agreements concluded by the lessee, with the exception of short-term leases and low-value assets that are exempt from this requirement.

When applying IFRS 16 for the first time, in relation to identified contracts with a lease element, the Group recognizes the rights to use the assets and liabilities from the lease in the statement of financial position. Valuation methods that will be applied to these lease agreements are explained below.

At the time of applying IFRS 16, for the first time, the lease liability is measured at the current value of other lease payments discounted using the marginal interest rate of the lessee on the date of the first application. In addition, the Group decided to apply one discount rate to the portfolio of leasing agreements with similar features.

When applying IFRS 16, the right to use an asset for the first time is measured at the amount equal to the liability under the lease, adjusted by the amount of any prepayments or calculated lease payments relating to that lease, recognized in the statement of financial position, directly preceding the date of the first application.

Then the Group:

a) will recognize the depreciation of the right to use the asset and interest on the lease obligations in the

consolidated statement of comprehensive income;

b) the cash deposited (capital and interest) will be presented as part of the financial activity in the separate

statement of cash flows.

No changes are planned for lease agreements whose validity as of January 1st, 2019 is up to 12 months and for low-value assets. In such cases, the Group decided to apply simplifications permitted in accordance with IFRS 16, i.e. a linear representation of leasing costs.


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As at December 31st, 2018, the Group had irrevocable lease liabilities in the amount of PLN 28,872 thousand (detailed information is presented in Note 32). They relate to the following lease agreements:

a) rental of cars and forklifts,

b) perpetual usufruct rights to land,

c) rental of office space.

According to the preliminary assessment, the amount of PLN 28.872 thousand PLN for these agreements does not

apply to short-term leasing or leasing of low-value assets, therefore the Group recognizes the right to use an asset in

the amount of PLN 24,507 thousand (including the value of the initial direct cost: perpetual usufruct of land - PLN 8,245

thousand -, presented in the balance sheet item Tangible assets - Land) and the corresponding lease liability in the

amount of PLN 16,261, for all those leases. It is estimated that this will reduce the cost items (costs of products and

services sold, selling costs and overheads) by PLN 2,462 thousand, increase depreciation by PLN 2,158 thousand,

and increase interest costs by PLN 454 thousand.

In accordance with IAS 17, all lease payments related to operating leases were presented as cash flows from operating

activities. The impact of the changes introduced by IFRS 16: reduction of the balance of cash from operating activities

by PLN 2,462 thousand and increase by the same amount of net cash from financing activities.

A summary of the financial impact of the implementation of IFRS 16 is presented in the table below:

End of the

period 31/12/2018

End of the

period 31/12/2019

PLN'000 PLN'000

Right to use an asset 24,507 21,726

Leasing liability 16,261 13,500

Accumulated revenue recognized as an adjustment to equity as of the date of the first application of the standard

- -

Forecasted impact on the statement of comprehensive income:

- increase in depreciation 2,158 3,040

- increase of interest costs 454 478

- decrease in other costs 2,462 3,212

Forecasted impact on the cash flow statement:

- increase in net cash flows from operating activities 2,462 3,212

- decrease in net cash flows from financing activities 2,462 3,212

The implementation of IFRS 16 requires subjective assessments when making estimates and assumptions that affect

the measurement of lease liabilities and rights to use asset components. They relate, inter alia, to determining the

lessee's marginal interest rates used in discounting future cash flows.

New standards and amendments to the existing standards issued by IASB, but not yet endorsed by the EU Currently, IFRS in the form endorsed by the EU do not differ substantially from the regulations adopted by the International Accounting Standards Board (IASB), except the following new standards, amendments to standards and a new interpretation, which had not been endorsed by the EU as at 19 March 2019.

• IFRS 14 “Regulatory Deferral Accounts (applicable to annual periods beginning on or after 1 January 2016) – the European Commission has decided not to launch the endorsement process of this interim standard and to wait for the final version of IFRS 14;

• IFRS 17 “Insurance Contracts” (applicable to annual periods beginning on or after 1 January 2021),

• Amendments to IFRS 3 "Business Combinations" – definition of business (applicable to mergers in which the acquisition date falls at the beginning of the first annual period beginning on or after 1 January 2020 and with reference to the acquisition of assets that occurred on or after the day of commencement of the above-mentioned annual period),


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• Amendments to IFRS 10 “Consolidated Financial Statements” and IAS 28 “Investments in Associates and Joint Ventures” – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture and further amendments (effective date was deferred indefinitely until the research project on the equity method has been concluded);

• Amendments to IAS 1 "Presentation of Financial Statements" and IAS 8 "Accounting Principles (Policy), Changes in Estimates and Correcting Errors" – Definition of materiality (applicable to annual periods beginning on or after 1 January 2020),

• Amendments to IAS 19 "Employee Benefits" – Amendment, limitation or settlement of the plan (applicable to annual periods beginning on or after 1 January 2019),

• Amendments to IAS 28 “Investments in Associates and Joint Ventures” - Long-term Interests in Associates and Joint Ventures (applicable to annual periods beginning on or after 1 January 2019).

• Amendments to standards "IFRS Improvements (2015 - 2017)" – amendments made as part of the procedure of introducing annual amendments to IFRS (IFRS 3, IFRS 11, IAS 12 and IAS 23) mainly focused on solving incompatibilities and clarifying vocabulary (applicable to annual periods beginning on or after 1 January 2019),

• Amendments of references to conceptual assumptions contained in IFRS (applicable to annual periods beginning on or after 1 January 2020).

According to the Group’s estimates, the aforementioned standards and amendments to standards would not have had a significant effect on the financial statements, if they had been adopted by the Group as of the end of the reporting period.

At the same time, hedge accounting regarding the portfolio of financial assets and liabilities, whose principles have not been adopted by the EU, is still unregulated.

Basis for the preparation of the financial statements

These consolidated financial statements have been prepared in accordance with the historical cost basis, except for the measurement of derivatives and hedged items, recognized under hedge accounting that have been measured at fair value.

The consolidated financial statements have been prepared on the assumption the Group will continue as a going concern for at least 12 months after the balance sheet date. In the opinion of the Management Boards of the Parent Company and its subsidiary consider, there is no threat to the going concern in that period.

The consolidated financial statements have been prepared in the Polish zloty (PLN), which is the functional currency of the Company and in which all of the Group’s business operations are denominated. Figures are presented in PLN‘000, in accordance with the principle whereby amounts under PLN 500 are discarded, whereas amounts of PLN 500 and more are rounded up to the full thousand. Appropriate information is provided in case any data is presented in other currencies or units.

Basic accounting judgements and basis for estimating uncertainties

When applying the Group’s accounting policy, the management board has to make judgements, estimates and assumptions regarding the carrying amount of assets and liabilities that cannot be defined based on available sources of information. The estimates and assumptions are based on historical experience and other significant factors. Actual figures may differ from the estimated values. The estimates and assumptions are systematically verified. Any changes in the estimates are recognized in the period in which verification occurred, if it applies solely to this period, or in current and future periods, if the changes apply also to the future periods.

Presented below are the main assumptions regarding the future and other key sources of uncertainty as at the end of the reporting period, bearing the risk of material adjustment of the carrying amount of assets and liabilities in the next reporting period, as well as issues in the case of which professional judgement of the management, besides accounting estimates, had the key significance.

Impairment of assets (excluding goodwill)

Every year the Group analyses whether there are any indications of impairment of non-current assets justifying an impairment test. As at the end of 2018, the Group did not found any indications suggesting the need for an impairment test. Impairment of individual assets identified in 2018 has been recognized in the records of the Parent Company and its subsidiary.

Amortization / depreciation rates


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Amortization / depreciation rates are based on the expected useful life of property, plant and equipment and intangible assets. Every year the Group verifies the adopted useful lives based on the current management estimates.

Measurement of provisions

Provisions for retirement and disability benefits as well as jubilee benefits have been estimated by an actuary using the actuarial methods. The assumptions made for the measurement have been presented under “Employee benefits”.

Measurement of the provision for land reclamation is based on the best estimates of the management based on the present level of costs necessary to recover the value of contaminated usable land and green areas. The Management Board does not expect a significant increase in such costs in the future which could have a material impact on the change in the value of the provision.

Deferred tax asset

The Group recognizes the deferred tax asset based on the assumption that it will generate tax profit (income) sufficient to apply the asset. If the tax performance were to deteriorate in the future, the above assumption might prove groundless.

Goodwill

Goodwill recognized in the statement of financial position is measured at cost less accumulated impairment loss. Every year the Group tests goodwill for impairment. The description of the assumptions made for the test carried out in 2016 has been presented in note 15. The former goodwill tests did not indicate any necessity to recognize impairment.

Accounting principles

The key accounting principles applied by the Group have been presented below.

Basis of consolidation

The consolidated financial statements contain the financial statements of the Parent Company and the subsidiary. It is recognized that control occurs when the Parent Company is able to manage the entity's financial and operating policies to obtain economic benefits from its operations. Income and costs of subsidiaries acquired or sold during the year are included in the consolidated statement of comprehensive income from the date of the actual acquisition date of the entity and until the effective disposal date. The total income of subsidiaries is allocated to the owners of the Company and to non-controlling shares even if the effect of this assignment is a negative balance of non-controlling shares. If necessary, adjustments are made to the financial statements of subsidiaries, adjusting their accounting policy to the Group's policy. The financial statements were fully consolidated. All transactions made within the Group, mutual balances as well as revenues and costs of operations made between Group entities were fully excluded in consolidation. Business combinations

Acquisition of entities outside the Group’s control and separated parts of operations is settled using the acquisition method. The cost of business combination is measured as the aggregate of the fair value (at the date of payment) of transferred assets, incurred or assumed liabilities, and equity instruments issued by the parent in exchange for control over the acquiree. Identifiable assets, liabilities and contingent liabilities of the acquiree that meet the recognition conditions determined in IFRS 3 “Business Combination” are recognized at fair value as at the acquisition date, except from non-current assets (or disposal groups) classified as held for sale recognized at fair value less selling expenses.

Minority interest in the acquiree is initially measured as proportion (share) of minority interest in the net fair value of the recognized assets, liabilities and contingent liabilities, or at fair value as at the acquisition date.

Treasury shares in the acquired entities are measured at the cost determined as the fair value as of the acquisition date.

Goodwill Goodwill originated upon acquisition results from the excess of the payment, value of non-controlling interest and the fair value of previously held shares in the acquired entity as of the acquisition date over the Group’s shares in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized at the acquisition date. In the case of negative goodwill, the Group revises the determined fair value of individual items of acquired net assets. If the value remains negative, it is immediately charged to profit or loss.

Goodwill is initially recognized as an asset at cost and then measured at cost less accumulated impairment loss. For the purposes of impairment tests, the goodwill acquired as a result of a business combination is allocated to individual cash generating units (CGU) or CGU groups of the acquirer, which are expected to bring benefits from


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the synergy resulting from the combination, irrespective of the fact whether other assets or liabilities of the acquiree have been also allocated to such units.

Each CGU or CGU group which have been allocated goodwill should:

1) correspond to the lowest level at which the goodwill is monitored for internal management purposes, and 2) not be higher than an operating segment.

Upon disposal of a subsidiary or a jointly controlled entity the goodwill attributable to such entity is accounted for when calculating gain/loss on disposal. In certain circumstances, the fair values of recognized assets and liabilities may be recognized as of the business combination date on a preliminary basis. In such event, the Group settles the acquisition using preliminary values. Any adjustments of the values are determined within 12 months of the date of acquisition and recognized retrospectively as of the date of acquisition.

Goodwill is tested by the Group for impairment once a year or more frequently, if the impairment can be reliably determined. If the test shows that the recoverable amount of a cash generating unit is lower than its carrying amount, the impairment loss is initially allocated to the carrying amount of goodwill and then to other assets, proportionately to their carrying amount. The impairment loss recognized for goodwill is not reversed in the following period.

Non-current assets held for sale

Non-current assets (and groups of net assets held for sale) classified as held for sale are measured at the lower of the following values: carrying amount or fair value less selling expenses.

Non-current assets and groups of net assets are classified as held for sale, if their carrying amount will be recovered as a result of sale rather than as a result of their further continuous use. This condition is considered as fulfilled only when the occurrence of a sale is highly likely and an asset (or group of net assets held for sale) is currently available for immediate sale. When an asset is classified as held for sale, it is assumed that the management of Parent Company and the subsidiary intends to finalize the sales transaction within a year from reclassification.

Revenue from operations

The Group does not distinguish geographical segments. Production is located in two plants in: Kruszwica and Brzeg. A vast majority of sales (90%) takes place on the domestic market (structure of sales of products by territory and by product - see Note 3 “Revenue from sales”).

Recognition of revenues

The Group recognizes revenues from sales in accordance with the regulations of IFRS 15, recognizing the obligations to deliver goods or provide services when these obligations are fulfilled, i.e. when the promised goods/services are transferred to the customer, at transaction prices resulting from concluded agreements.

Transaction prices include (i) direct discounts (on the invoice), (ii) deferred discounts (paid after the customer meets certain conditions - quantity or value of sales) and (iii) the value of promotional or logistic services provided to the Group by its customers; items (i) to (iii) are due to the customers.

Revenue due to contracts to provide services is recognized by reference to the stage of completion of a given service. Revenue from time and material contracts are recognized based on the contractual rates based on labor hours and incurred direct costs.

Rental income related to investment property is recognized using the straight line method over the rent period.

The manufacturing cost of finished products comprises:

a) the cost of materials measured at the standard cost price adjusted for differences i.e.

the cost of raw materials;

the cost of direct and indirect packaging (cartons) of finished products;

the cost of other materials which are used directly in the production process (e.g. energy, chemicals, ancillary materials);

b) a portion of fixed indirect production costs (production overheads) corresponding to their level at the standard use of the production capacity.

Selling expenses

Selling expenses are expenses incurred in connection with sales transactions. They comprise: Direct selling expenses


Page 17 of 78

- costs of transport; - costs of handling; - costs of storage; - costs of agents’ fees; - sales commissions.

Indirect selling expenses

- costs of outsourced staff; - costs of customer service office; - costs of promotion and advertising; - other costs related to managing sales channels.

General and administrative expenses General and administrative expenses include other fixed costs incurred in the course of the Group’s operations, which have not been allocated to the manufacturing cost or selling expenses. They comprise:

- wages, including insurance, and other costs incurred on employees other than direct production staff; - costs of management services; - rental fees for the lease of premises, equipment and cars; - IT services; - consulting services and legal support; - costs of transport which is not related to sales; - depreciation of fixed assets which are not used directly in the production process; - insurance of cars and real property; - other fixed costs.

Lease

Leases are classified as finance leases, when the terms and conditions of the agreement transfer in principle all potential benefits as well as risk resulting from being the owner onto the lessee. All other forms of leases are operating leases.

As at the end of the reporting period, the Group was not a party to any material agreements meeting the criteria of a finance lease.

Payments due to operating leases are charged to profit or loss using the straight line method during the period resulting from the lease agreement. Contingent rent arising from operating leases is recognized as an expense in the period in which it is incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefits of such incentives are recognized as a reduction of rental expense using a straight-line method.

Foreign currencies

Transactions in currencies other than PLN are recognized at the average exchange rate of the NBP, published on the day preceding the transaction. As of the end of the reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the average exchange rate of the European Central Bank, valid as at that date. Non-monetary assets and liabilities measured at fair value and denominated in foreign currencies are translated at the average exchange rate valid on the date of fair value measurement.

Foreign exchange gains and losses are charged to profit or loss, except for measurement of financial instruments designated for hedge accounting, in the case of which changes in the fair value, once the effectiveness criteria have been met, are charged directly to equity or to change in the fair value of the hedged item (see below for the accounting principles used with respect to derivatives).

Borrowing costs

The Group capitalized material borrowing costs attributed to the qualifying assets.

The interest expense is calculated based on the average annual costs of the Group’s operations and the value of cash spent on purchases of the qualifying assets.

The Group does not capitalize the borrowing costs of the inventories of rapeseed assuming that the assets are used for recurring production of large volumes of finished goods.

In 2018 and 2017 there were no borrowing costs that would be capitalized.

Profit on business activities

Profit on business (operating) activities is calculated before the financial revenue and expenses have been recognized.


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Taxes

The statutory withholdings include: current corporate income tax (CIT) and deferred income tax.

The current tax liability is calculated based on the income (tax profit) for a given financial year. Tax profit (loss) differs from gross book profit (loss) due to the elimination of taxable revenue and expenses classified as tax-deductible in the following or prior years and items of expenses and revenue, which will never be subject to taxation/will not be tax-deductible expense. Tax liabilities are calculated on the basis of tax rates applicable in a given financial year.

Deferred tax is calculated based on the balance-sheet method as tax payable or refundable in the future. The basis for calculation of deferred tax is the value of temporary differences between the carrying amounts of assets and liabilities and their corresponding tax base used for the calculation of the current tax base.

Deferred tax liability is created on all taxable temporary differences, whereas deferred tax assets are recognized to the extent that it is probable that deductible tax differences will be able to be deducted from future income (tax profit).

Tax assets or liabilities do not occur if the temporary difference results from goodwill or the initial recognition of another asset or liability in a transaction that does not impact either tax profit/loss or accounting profit/loss.

The value of a deferred tax asset is analyzed as of each end of the reporting period. In the case when the expected future profits are not sufficient to recover the asset or its portion, an allowance is recognized on the tax asset.

Deferred tax is measured at tax rates that are expected to apply in the period in which the liability is due or the asset recovered, in line with the legal status as of the end of the reporting period.

Companies included in the Group offset deferred tax assets against deferred tax provisions and recognizes the net balance in the statement of financial position under assets or liabilities.

Companies included in the Group offset current income tax assets and liabilities if there is a legal title to carry out such offset and there is a possibility to pay net tax or be refunded net tax.

In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of acquisition.

Property, plant and equipment

Property, plant and equipment are presented in the statement of financial position at the historical cost (acquisition price), reduced by accumulated depreciation and accumulated impairment losses – year to date. The cost includes also the cost of replacement of the elements of machines and equipment at the time when it was incurred, if recognition criteria have been met.

The value of operating software of computers increases its value and is recognized under fixed assets (other fixed assets).

Fixed assets under construction are presented in the statement of financial position at cost, increased by material costs of borrowings and decreased by impairment. The value of fixed assets under construction includes also the advance payments for construction of the fixed assets.

The land perpetual usufruct right is recognized off the balance sheet as an operating lease liability except for acquired land perpetual usufruct rights which are balance sheet items and are amortized over their expected useful life, not longer than the period when the rights are available.

Fixed assets, except for land and fixed assets under construction are depreciated using the straight-line method over their expected useful life. Depreciation is calculated starting from the time of commissioning of the fixed asset.

A given item of property, plant and equipment may be derecognized from the statement of financial position when no economic benefits are expected from use or sale of such asset.

Gains or losses from sale / liquidation or discontinued use of fixed assets are presented in the statement of comprehensive income in (Gain)/loss on sale of fixed assets and other expenses related to fixed assets in the period when such derecognition was made.

Residual value and useful life of non-current assets are verified and, if necessary, adjusted at the end of each financial year.

Gains or losses from sale / liquidation or discontinued use of an item of property, plant and equipment are determined as the difference between sales revenue and the carrying amount of such items and are recognized in the statement of comprehensive income.

Investment property

Investment property includes items treated as a source of revenue from lease or maintained due to a potential value increase.

Investment property is measured as at the end of the reporting period at cost less depreciation accumulated as at the end of the reporting period and impairment loss.


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Investment property is depreciated over the economic useful life using the straight line method.

The Group has decided to measure its investment property based on the acquisition price model. As at the end of each year the Group evaluates indications for impairment and verifies the useful life and if necessary introduces appropriate adjustments.

Investment property is derecognized from the balance sheet, when it is disposed of or liquidated or when such property is decommissioned and no future benefits are expected from its sale. All gains and losses arising from liquidation or sale of investment property are charged to profit or loss of the period in which such an event took place.

Intangible assets

Intangible assets acquired in a separate transaction are initially measured at acquisition price or manufacturing cost.

Intangible assets acquired upon business combination are identified and recognized separately from goodwill, if they meet the definition of intangible assets. The cost of such assets is equal to their fair value as of the date of the combination.

After the initial recognition, intangible assets are recognized at cost, less accumulated amortization and impairment loss.

Intangible assets are amortized over their useful life using the straight-line method and tested for impairment each time the impairment is indicated. The amortization period is verified at the end of each financial year.

Trademarks and copyrights are recognized in the balance sheet at cost less amortization using the straight-line method over their useful life.

Computer software is presented together with the value of computers under property, plant and equipment.

Impairment of property, plant and equipment and intangible assets excluding goodwill

As of the end of the reporting period covered by the complete set of consolidated financial statements, the Group reviews the value of the property, plant and equipment and intangible assets to determine whether there are any indications that such assets have been impaired. If circumstances that indicate impairment occur, the recoverable amount of a given asset is estimated in order to determine the resulting impairment loss. When an asset does not generate cash flows that are highly independent of cash flows generated by other assets, the analysis is carried out for the cash flow generating group of assets, to which such an asset belongs.

Recoverable amount is determined as the higher of: fair value less selling expenses or value in use. The latter corresponds to the present value of estimated future cash flows discounted using a discount rate that reflects the current market time value of money and risks specific for a given asset.

If the recoverable amount of an asset (or a group of assets) is lower than its net book value, the book value is reduced to its recoverable amount. The impairment loss is recognized as an expense in the period, when the impairment occurred.

Upon the reversal of impairment, the net value of an asset (group of assets) is increased to the newly estimated recoverable amount, however, not higher than the net value of this asset that would have been determined, if impairment had not been recognized in prior years. Reversed impairment loss is recognized under other revenue.

Upon reversal of an impairment loss, in subsequent periods the depreciation charges on a given asset are adjusted so that during the remaining part of the useful life of the asset its verified carrying amount reduced by the recoverable amount can be systematically written down.

Inventories

The Group measures goods and materials at cost, which is the price of purchase excluding deductible VAT, less rebates, discounts and other reductions and increased by the customs duty and costs directly related to the purchase and adaptation of the material for use, i.e. costs of transport to the place of use, costs of loading and unloading, costs of insurance of the material during transport.

The value of inventory includes also the adjustment due to fair value measurement of the inventory - as a hedged item - as part of hedge accounting.

Finished goods are measured at cost; by-products, at the net realizable value.

The cost includes the costs of materials, i.e. supplies, packaging, costs of other materials used directly in the production (i.e. electricity, chemicals, and auxiliary materials) and part of fixed costs related to direct and general-production, corresponding to the costs at the standard use of production capacity.

Cash and cash equivalents

Cash and cash equivalents include cash in bank and other short-term highly liquid investments, such as bonds, debt securities, etc.


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Financial liabilities

Financial liabilities are classified to the following categories:

- Financial liabilities measured at fair value through profit or loss

- Other liabilities (including credit facilities and loans) valued at amortized cost

Classification of financial liabilities and equity instruments depends on the economic nature resulting from concluded

contracts.

The Group derecognizes financial liabilities only when they have been settled, cancelled or when they expired.

Financial liabilities measured at fair value through profit or loss

This category includes derivatives (forward, future and swap contracts) ) and (raw materials) purchase contracts with embedded financial instruments, measured at fair value through profit or loss, except for those which meet the effective hedge criteria under the applied hedge accounting. The fair value of financial instruments in the Group’s portfolio is determined based on the exchange rates and market prices valid as at the end of the reporting period or at the time of settlement of the derivative.

Liabilities measured at amortized cost

Credit facilities and loans are recognized as the value of proceeds less direct costs of securing the finance. Financial expenses, including commissions payable at the time of repayment or redemption and the direct costs of contracted loans are charged to the statement of comprehensive income using the effective interest rate method and they increase the book value of the instrument considering the repayments made in the current period, except for cases when the nominal value of the liability is close to the amortized cost, when such liabilities are carried at the amount due as of the end of the reporting period.

Overdraft facilities and loans with unspecified maturity are measured at the amount due as of the end of the reporting period, i.e. with interest due as of the end of the reporting period.

Trade liabilities bear no interest and they are recognized in the statement of financial position at their nominal value.

Derivative instruments

The Group uses derivatives to hedge against two key types of risk occurring in the course of business – FX risk and commodity risk. The Group 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 reduce the impact of fluctuations in the prices of commodity on the financial profit/loss, the Group uses commodity futures.

The Group does not use derivatives for speculation.

Derivatives used by the Group are classified as financial assets or liabilities measured at fair value through profit or loss, except for those which meet the effective hedge criteria under the applied hedge accounting. The Group recognized derivatives as at the date of conclusion at the fair value, which is zero, and then as at the date of settlement, however, not later than as of the end of the reporting period, at fair value, not reduced by the transaction costs.

The fair value of FX forwards is determined by reference to the current forward rates. The fair value of commodity derivatives is determined by reference to the current prices of commodities. Financial assets and liabilities may arise as a result of measurement of forwards to the fair value. Financial assets are the positive measurement to the fair value of the instrument; negative fair value of an instrument is a financial liability. The values of financial assets and liabilities thus estimated are the realizable values or amounts due as of the end of the reporting period.

Gains and losses on the changes in the fair value of derivatives, are charged to profit or loss in the period when they occurred.

Financial assets are derecognized from the balance sheet when the rights to cash flows from a given asset expired; financial liability is derecognized from the balance sheet when it expires, i.e. when the liability specified in the contract was settled, cancelled or when it expired.

Embedded derivatives or contracts which are not financial instruments are considered as separate derivatives, if the nature of the embedded instrument and the related risk are not closely related to the nature of the underlying contract and related risks and if the underlying contracts are not measured at fair value whose changes are recognized in profit or loss.

Hedge accounting

Pursuant to Paragraphs 7.2.21 of IFRS 9 "Financial Instruments", the Group decided to continue to apply the requirements for hedge accounting contained in IAS 39 "Financial Instruments".

The Group applies fair value hedge accounting.

The hedge against commodity risk related both to the inventories of rapeseed recognized in the balance sheet and firm commitments resulting from contracts for purchase of seed, is classified as a fair value hedge.


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The Group concludes futures to reduce the risk of fluctuations in the fair value of supplies. The purpose of the transaction is to adjust the value of purchased rape to the market price at a given point in future to the highest possible extent.

The hedging instruments lead to significant offset between the change in the value of the hedged item (inventories of rapeseed or firm commitment - contracts for delivery of rapeseed for a designated price) and the hedging instrument. The hedging translates into adjusting of the value of inventories purchased at a fixed price determined before to market prices.

The Group implemented hedge accounting of the above derivatives designated to hedge the fair value of specific items of inventories which are the source of commodity risk. Fair value hedging mitigates the risk of the impact of changes in the fair value of on-balance sheet assets or liabilities resulting from a specific risk or firm commitments on profit or loss.

Changes in the fair value of derivatives designated as fair value hedges are recognized in the financial profit/loss with all changes in the fair value of a hedged item.

At the beginning of the hedging relationship, the Group documents the relationship between the hedging instrument and the hedged item and the risk management objectives, as well as the hedging strategy. The Group also documents the effectiveness with which the hedging instrument offsets changes in the fair value or cash flows of the hedged item, both at the time of the link and on an ongoing basis in subsequent periods. The Group ceases to apply hedge accounting when the hedging instrument expires, is sold, terminated or realized, it does not meet the criteria of hedge accounting or or the hedged item ceases to exist.

Provisions

Provisions are recognized when the entity has current liabilities (legal or constructive) as a result of a past event, it is probable that the Company will be required to settle the liabilities (outflow of assets entailing economic benefits), and a reliable estimate can be made of the amount of the liabilities.

The amount recognized as a provision is the best estimate of the amount required to fulfil the present obligation as at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the estimated cash flows required fulfilling the present obligation, the carrying amount corresponds to the present value of such cash flows.

Restructuring

A provision for restructuring costs is recognized only when the Group has prepared a detailed and formal restructuring plan and communicated it or its main assumptions to those affected by it. Measurement of the restructuring provision includes only direct expenditures arising from the restructuring, i.e. amounts necessarily entailed by the restructuring and not associated with the ongoing activities of the Group.

Costs of pension, disability and jubilee benefits

Provision for retirement and disability benefits presented in the statement of financial position under employee benefits liabilities is measured at the fair value of liabilities due to future pension and disability benefits. The liability is calculated using the actuarial method. Actuarial gains and losses are recognized in the reserve capital of the Parent Company.

Change in accounting principles (policies)

In connection with the entry into force of IFRS 9 "Financial Instruments" ("Standard"), the Group changed the method of recognizing credit losses from the loss model for the expected loss model and introduced the following changes to the applied accounting principles:

Financial assets:

As at the balance sheet date, the Group carries out:

(i) a classification test involving the assessment of a business model in the area of financial asset management, i.e. determining whether expected cash flows will come from contractual cash flows (up to the date of collection) from contractual cash flows and from the sale of assets (intended for sale), and other

(ii) a contractual cash flow characteristic test (SPPI), i.e. checking if payments are solely payments of principal and interest.

Depending on the results of both tests, the valuation of financial assets is carried out as follows:

- at depreciated cost,

- at fair value, including the effects in other comprehensive income,

- at fair value, including the effects in profit or loss.

Cash and cash equivalents are measured at depreciated cost, i.e. including interest due as at the balance sheet date, less the estimated credit losses. The Group estimates cash write-offs based on the probability of insolvency in the


Page 22 of 78

agreement period, which is shorter than 3 months. This probability is determined based on credit losses in previous periods and based on external ratings. Credit risk is determined based on external ratings of counterparties / banks or country ratings.

As part of the portfolio of trade receivables, the Group distinguishes two categories:

1. Receivables for factoring

Under the signed full factoring agreement, the Group disposes of the right to its receivables in exchange for an earlier payment. As receivables from customers covered by the factoring agreement do not meet the criteria of the "maintained for recovery" model or "maintained for recovery and sale", they are classified as "measured at fair value through profit or loss". The effects of fair value measurement are recognized in profit or loss. These receivables are sold at a discount. The fair value is determined based on quotations in transactions with the factor, i.e. after deduction of the discount.

2. Receivables other than factoring

This category of receivables is maintained by the Group until collectability, and payments represent solely payment of principal and interest (SPPI passed), therefore receivables are subject to valuation at adjusted purchase price. These receivables are written down for impairment in accordance with the expected loss model. Receivables do not contain a significant element of financing; therefore the impairment loss is calculated based on expected loan losses over the entire lifetime of the receivables.

The Group uses a simplified matrix of write-offs in individual age ranges containing the “forward looking” adjustment. To calculate the default ratio, the Group divides the balances of receivables into homogeneous groups (sectors) based on the similarity, and customer behavior in the past. As a result of the analysis, the Group determined that there are the following sectors:

- traditional channel,

- modern channel,

- professional channel,

- agri,

- export,

- receivables from related entities,

- others.

The Group adopted the following „forward looking” adjustment ratios for age ranges: up to 30 days; from 30 to 60 days; from 60 to 90 days and over 90 days:

Receivables not paid after

Current and up to 30 days

30 60 90

days days days

Ratio value 0.2 % 0.3% 5.0% 10.0%

The ratios so determined were adjusted for the impact of historical credit losses in individual sectors. The sector-adjusted ratios are the sum of the default ratio and the quotient of loan losses and the value of sales in individual sectors for the analyzed period.

For credit losses, the Group adopted:

- overdue receivables over 1 year (according to information as at the balance sheet date),

- overdue receivables claimed at court etc. in the audited period,

- overdue receivables for which the Management Board decided to withdraw from their investigation.

In addition, the Company reviews receivables deemed non-performing. Receivables accepted for individual analysis due to premises of impairment (mainly receivables claimed at court and not paid after 180 days), are totally impaired.

The use of IFRS 15 „Revenues” IFRS 15 defined a new approach to the analysis of contracts with contractors by introducing a five-step model for measuring and recognizing sales revenues. The company implemented the above model for the analysis of contracts with clients. Based on the analysis, it was found that the implementation of the IFRS 15 standard does not affect the Company's financial statements.


Page 23 of 78

Presentation changes in the published financial statement for 2017. In the Statement of comprehensive income, the Group changed the presentation of derivatives (currency and commodity derivatives) and realized exchange differences that have been presented so far in the item "Production costs of sold products". Currently, these values are presented together with unrealized derivatives (currency and commodity) and unrealized foreign exchange differences, in (Profits) / losses from valuation of derivatives and exchange differences. Due to the above, comparative data for 2017 have been restated, in accordance with the table below

Statement of comprehensive income Published data for 2017

Adjusted data for 2017 Presentation change

PLN thousands PLN thousands PLN thousands

Production costs of sold products 2,134,660

2,113,619

(21,041)

(Profits) / losses from valuation of derivatives and exchange differences

449

21,490

21,041


Page 24 of 78

3. REVENUE FROM SALES OF PRODUCTS AND GOODS

Sales revenue:



Change %

PLN'000 PLN'000

Revenue from sales of products

Bulk oil 822,649 785,141 4.8%

Rapeseed meal 471,774 404,467 16.6%

Bottled oils 547,102 521,098 5.0%

Consumer margarines 294,290 299,878 -1.9%

Industrial margarines 103,683 108,880 -4.8%

Confectionery fat 169,714 210,957 -19.6%

Other 16,981 14,393 18.0%

Sales of products 2,426,193 2,344,814 3.5%

Revenue from sales of goods

Bulk oil 130,321 86,900 50.0%

Rapeseed meal - 474

Bottled oils 20,467 29,288 -30.1%

Consumer margarines 77,814 79,315 -1.9%

Rapeseed - 769 -100.0%

Other 12,082 5,945 103.2%

Sales of goods 240,684 202,691 18.7%

Total sales 2,666,877 2,547,505 4.7%

Sales of goods and products by territory:



Change %

PLN'000 PLN'000


Domestic 2,142,197 2,099 995 2.0%

Export 283,996 244,819 16.0%

Total sales of products 2,426,193 2,344,814 3.5%


Domestic 222,249 185,731 19.7%

Export 18,435 16,960 8.7%

Total sales of goods 240,684 202,691 18.7%

2,666,877 2,547,505 4.7%


Page 25 of 78

4. OPERATING SEGMENTS

Identified operating segments

Operating segments identified and disclosed as part of the Group’s operations result from the divisions introduced for internal management purposes of the Group as well as for the needs of consolidation with the Bunge Group. The Group has identified two main operating segments:

- Agricultural Commodities Segment (Agri)

- Food Products Segment (Food).

The Parent Company operates within the aforementioned segments. The subsidiary ZTK Property Management does

not perform production activities, therefore it has not been assigned to the above-mentioned operating segments.

The Agricultural Commodities Segment (Agri) includes:

- Rapeseed processing - purchases of rapeseed, sales of raw/desludged rapeseed oil, rapeseed meal, or resale

of rapeseed to external clients or to the Food segment

- Trading in other oils - purchases of other crude or refined oils (including rapeseed oil) from third parties for

the purpose of resale to external clients or to the Food segment.

The Food Segment (Food) involves purchases of crude and refined oils from the Agri segment (originally bought from third parties), sales of refined oils, bottled oils, consumer and industrial margarines, and confectionery fat to third parties. The Food segment does not sell any goods to the Agri segment.

Calculation of the volume, value and cost of intra-segment transactions in the Parent Company Due to their defined operationsin the Prent Company, the segments have to carry out intra-segment transactions, including sales from the Agri segment to the Food segment of crude rapeseed oil. The volume of intra-segment transactions, determined as at the end of each reporting period, is measured as the equivalent of production sold, i.e. as the amount of crude rape seed oil needed to produce a given quantity of finished goods sold by the Food segment in the reporting period.

The prices of crude rape seed oil as applied in the intra-segment sales (transfer prices) correspond to the market prices, determined based on market quotations for various periods depending on the assortment of finished goods of the Food segment.

In the case of refined rapeseed oil sold to external clients, the prices in sales from the Agri segment to the Food segment are determined by deducting a fixed refining bonus, applicable for a given period based on the market refining bonus (the difference between the market prices of refined oil and crude oil) from the actual prices achieved in external sales.

The cost of goods/raw materials sold in intra-segment transactions is measured as follows:

- For sales of self-produced crude rapeseed oil – the current standard price of rapeseed, adjusted by the actual

production gains and the selling price of rapeseed meal (main by-product obtained during production of crude

oil)

- For sales of other raw materials – at historical cost. Allocation of other operating items in profit or loss Production overheads – direct production costs (incurred by production departments) are allocated to the segments in line with the allocation of the types of products manufactured; indirect production costs (incurred by support departments and administration of production departments) are allocated to the segments using fixed allocation coefficients determined for a given financial year on the basis of the planned involvement of individual departments in the manufacturing of products for particular segments. Selling expenses are allocated to the segments in the same manner as the sale itself. All costs related to sales of products and goods attributable to the Agri segment are allocated to this segment. Similarly, all selling expenses related to sales of products and goods attributable to the Food segment are allocated to the Food segment. General and administrative expenses are allocated on the basis of attribution of particular operating departments to a given segment. The criterion for such attribution is the type of activities performed by each department. The costs of general administration departments that manage both areas of operations are attributed to both segments in the 1/1 ratio. Exchange differences: Differences relating to financial instruments are allocated to the Agri segment as follows:


Page 26 of 78

- All unrealized gains/losses on derivatives

- Realized gains/losses on derivatives in the portion relating to the realized hedges on the Agri segment and

subject to hedge accounting

- All realized exchange gains/losses on derivatives excluded from hedge accounting. A portion of gains/losses on hedging transactions, subject to hedge accounting, which are used to hedge the value of proceeds from sales of refined bulk oil is allocated to the Food segment.

Other exchange differences (resulting from measurement of on-balance sheet items or from made/received payments in foreign currencies) are allocated to the Agri segment. Items from the statement of comprehensive income are allocated to individual segments only up to the level of the operating profit.

On-balance sheet items

Inventories

The criteria for allocation of inventories coincide with the principles followed in recognition of the segment turnover, which enables detailed identification of inventories allocated to a given segment.

Settlements with suppliers/clients

Both suppliers and clients have been allocated to a given segment according to the type of materials/goods purchased or the type of products/goods sold, respectively. This enables identification of all liabilities/receivables pertaining to a given segment. Correctness of the allocations is reviewed once a year.

Fixed assets

Fixed assets are allocated to individual segments in accordance with the allocation of costs, i.e. by attribution of particular operating departments to a given segment.

Fixed assets under construction

Increases in the value of non-current assets in the Agri segment are recognized exclusively at the moment of commissioning of the fixed asset. Total outlays for fixed assets under construction are recognized in the Food segment.

Intangible assets

Intangible assets are allocated to individual segments based on their detailed identification with a given segment.

Goodwill Goodwill in the Parent Company arose from the business combination of 13 December 2006. The goodwill was calculated based on the net fair value of assets of individual acquired companies. The Group attributed the goodwill to both separated segments which correspond to the definition of the lowest level at which the goodwill is monitored for internal management purposes. Goodwill was allocated to both segments in accordance with the segment structure of the surplus of payments made over the Group’s interest in the net fair value of identifiable assets and liabilities of entities acquired as of the acquisition date. In 2012, the goodwill increased as a result of the acquisition of shares in a subsidiary. The goodwill recognized in the consolidated financial statements was assigned to the Food segment. Allocation of goodwill to the segments:

Agri Food Total

Goodwill (PLN'000) 28,544 55,249 83,793

Goodwill (%) 34.1% 65.9% 100% Debt

Debt is allocated to the segments in line with the structure of net assets.

Other on-balance sheet items

Any on-balance sheet items which are not included in the primary allocation are assigned to the Food segment. The allocation is based on the assumption that any settlements with third parties which do not result from sale or purchase transactions are recognized in that segment.

The Company uses two basic measures to assess its business segment performance:


Page 27 of 78

- EBIT, understood as the operating profit, i.e. before tax and financial expenses/revenue

- RONA (return on net assets). Return on net assets is based only on working capital, i.e. it is determined following elimination of fixed assets under construction from non-current assets. This assumption is important, since it eliminates outlays which also partially increase the value of non-current assets in the Agri segment from the Food segment.

Key financial data regarding the operating segments:

Segment assets and liabilities AGRI FOOD TOTAL

For 12 months

ended 31/12/2018

For 12 months ended

31/12/2017

For 12 months ended

31/12/2018

For 12 months ended

31/12/2017

For 12 months ended

31/12/2018

For 12 months ended

31/12/2017

PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000

Non-current assets 128,880 130,739 174,768 187,162 303,648 317,901

Current assets 434,337 347,476 353,671 332,098 788,008 679,574

Total assets 563,217 478,215 528,439 519,260 1,091,656 997,475

Non-current liabilities 1,819 1,804 3,810 5,684 5,629 7,488

Current liabilities (excluding credit facilities and loans)

261,162 170,415 77,759 141,643 338,921 312,058

Total liabilities (excluding credit facilities and loans)

262,981 172,219 81,569 147,327 344,550 319,546

Net assets (total assets less total liabilities, excluding credit facilities and loans)

300,236 305,996 446,870 371,933 747,106 677,929

Debt - - - - - -

ZT „Kruszwica” S.A. Capital Group Consolidated financial statements for 2018kłady Tłuszczowe „Kruszwica” S.A.czne Sprawozdanie Finansowe

Page 28 of 78

Segment revenue, profit/loss and other information AGRI FOOD ELIMINATIONS TOTAL

For 12 months ended 31-12-

2018


2017


2018


2017


2018


2017


2018


2017

PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000

Revenue

Sales to third parties 1,128,467 972,096 1,556,894 1,592,097 - - 2,685,361 2,564,193

Intra-segment sales 717,575 729,451 - - (717,575) (729,451) - -

Total revenue 1,846,042 1,701,547 1,556,894 1,592,097 (717,575) (729,451) 2,685,361 2,564,193

EBIT 51,134 (13,597) 73,810 65,481 - - 124,944 51,884

Other information

Capital expenditure (including changes in advance payments for fixed assets and intangible assets)

6,280 257 6,320 22,076 - - 12,600 22,333

Depreciation of fixed assets 10,249 9,432 12,362 14,972 - - 22,611 24,404

Amortization of intangible assets 2 2 2,334 3,238 - - 2,336 3,240

Depreciation of investment property 86 79 122 118 - - 208 197

Impairment loss on fixed assets and intangible assets - - 3,475 3,475 - - 3,475 3,475

Share of the subsidiary ZTK Property Management in operating profit (EBIT) for 2018: profit in the amount of PLN 242 thousand PLN (for 2017: profit in the amount of PLN 607 thousand).


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Page 29 of 78

Revenue from sales of key products and services (excluding intra-segment transactions) AGRI FOOD TOTAL


2018


2017


2018


2017


2018


2017



Bulk oil 527,184 478,305 295,465 306,836 822,649 785,141

Rapeseed meal 471,774 404,467 - - 471,774 404,467

Bottled oils - - 547,102 521,098 547,102 521,098

Consumer margarines - - 294,290 299,878 294,290 299,878

Industrial margarines - - 103,683 108,880 103,683 108,880

Confectionery fat - - 169,714 210,957 169,714 210,957

Other 119 1,769 16,862 12,624 16,981 14,393

Sales of products 999,077 884,541 1,427,116 1,460,273 2,426,193 2,344,814


Bulk oil 125,053 83,261 5,268 3,639 130,321 86,900

Rapeseed meal - 474 - - - 474

Bottled oils - - 20,467 29,288 20,467 29,288

Consumer margarines - - 77,814 79,315 77,814 79,315

Rapeseed - 769 - - - 769

Other - - 12,082 5,945 12,082 5,945

Sales of goods 125,053 84,504 115,631 118,187 240,684 202,691

Total sales 1,124,130 969,045 1,542,747 1,578,460 2,666,877 2,547,505

Return on net assets AGRI FOOD TOTAL


2018


2017


2018


2017


2018


2017


Average balance of assets (excluding average assets under construction)

515,000 459,134 548,504 565,976 1,063,504 1,025,110

Average balance of liabilities (excluding credit facilities and loans)

171,285 181,348 165,311 154,139 336,596 335,487

Average balance of net assets 343,715 277,786 383,193 411,837 726,908 689,623

Operating profit/(loss) 51,134 (13,597) 73,810 65,481 124,944 51,884

Income tax (on operating profit)

(9,715) 2,583 (14,024) (12,441) (23,739) (9,858)

Operating profit / (loss) after tax

41,419 (11,014) 59,786 53,040 101,205 42,026

Return on net assets 12.1% -4.0% 15.6% 12.9% 13.9% 6.1%

Key accounts

The Group’s revenue from sales to external customers is not subject to concentration where a single client would generate 10 or more per cent of the Group’s total sales revenue in the presented period.


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5. COSTS BY TYPE



PLN'000 PLN'000

Depreciation and amortization 24,939 27,623

Consumption of materials and energy 2,036,003 2,029,637

External services 172,383 155,364

Taxes and charges 6,363 5,928

Payroll 69,780 67,123

Social insurance 11,308 11,038

Other employee benefits 5,380 5,483

Other costs by type (business trips, maintenance of social facilities and other)

1,707 2,238

Total expenses by type 2,327,863 2,304,434

Change in inventories, products and prepayments/accruals (2 31,5) (10,334)

Selling expenses (150,198) (146,686)

General and administrative expenses (37,733) (33,795)

Manufacturing cost of products sold 2,137,617 2,113,619

6. OTHER OPERATING REVENUE



PLN'000 PLN'000

Sales of services 13,473 11,979

Contractual penalties due 705 549

Reversal of impairment of receivables 1,087 -

Release of the provision from previous years 1,000 -

Release of the land reclamation provision in Warsaw 1,616 -

Release of the Piast provision - 527

Release of the provision for WUG - 2,373

Sales revenue from ST - Kołobrzeg - 679

Other revenue 603 581 18,484 16,688

7. OTHER OPERATING EXPENSES



PLN'000 PLN'000

Cost of services sold 11,199 7,521

Costs of contract for production of edible oils 219 219

Impairment loss on receivables 252 123

Impairment loss on inventories 831 262

Disposal of packaging - 235

Selling expenses related to purchased materials - 215

Provisions for claims 260 -

Provision for expenses related to copyright infringement - 400

Oil reclassification expenses 440 -

Provision for WUG - 3,054

Settlement of overpayment of property tax - 1,696

Maintenance costs – liquidated Gdańsk plant 272 1,545

Maintenance costs – leased buildings 216 882

Taxes and charges relating to leased buildings - 1,114

Rental expenses of carriages 643 -

Penalties, damages 614 -

Donations - 221

Other expenses 688 1,327 15,634 18,814


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8. REVENUES AND FINANCIAL COSTS



PLN'000 PLN'000

Financial revenue

Default interest 135 54

Interest received from loans 24 943

Interest on cash, deposits 3,308 2,162

Other - 2

3,467 3,161

Financial expenses

Interest expense – credit facilities and loans 982 308

Default interest paid 16 29

Factoring costs 3,635 3,369

Other 74 23

4,707 3,729

9. GAIN/(LOSS) ON MEASUREMENT OF DERIVATIVES AND EXCHANGE DIFFERENCES

For 12 months ended 31/12/2018


PLN'000 PLN'000

Unrealized gain/loss on FX derivatives

- Gain 6,630 23,033

- Loss 6,444 37,484

Realized gain/loss on FX derivatives

- Gain 34,939 56,008

- Loss 28,377 62,152

Unrealized gain/loss on commodity hedging instruments

- Gain 4,243 44,747

- Loss 2,270 35,100

Realized gain/loss on commodity hedging instruments

- Gain 66,880 3,444

- Loss 74,444 13,435

Unrealized gain/loss on hedged item recognized as inventories adjustment

- Gain 3,404 91

- Loss 2,114 -

Realized gain/loss on hedged item recognized as inventories adjustment

- Gain - -

- Loss 91 3,094

Unrealized exchange differences

- Gain 4,322 5,406

- Loss 958 1,047

Realized exchange differences

- Gain 1,336 4,557

- Loss 6,368 6,464

688 (21,490)

* Unrealized hedged items - items still recognized under the Parent’s assets (inventories).


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10. GAIN/LOSS ON SALE OF FIXED ASSETS AND OTHER EXPENSES RELATED TO FIXED AND INTANGIBLE ASSETS



PLN'000 PLN'000

Liquidation and disassembly (13,000) (3,646)

Profit / loss on the sale of fixed assets and intangible assets 10,170 2,609

Impairment loss on property, plant and equipment and intangible assets

3,146 3,475

316 2,438

11. INCOME TAX



PLN'000 PLN'000

Income tax recognized in the statement of comprehensive income

Current tax:

Current income tax 22,248 15,465

Prior year adjustments 22 15

Total current tax 22,270 15,480

Deferred tax:

Deferred income tax 1,687 (5,440)

Prior year adjustments - -

Total deferred tax 1,687 (5,440)

Total income tax 23,957 10,040

The income tax has been based on the 19% rate effective for 2018 (19% for 2017).

Reconciliation of the effective tax rate



PLN'000 PLN'000

Gross profit (loss) 122,088 51,316

Statutory tax rate (weighted average) 19.00% 19.00%

Tax using the statutory rate 23,197 9,750

Tax effect of differences between profit/loss before tax and the tax base

(504) 5,203

Change of deferred tax asset recognized in the result 1,658 (5,440)

Use of tax losses from previous periods - -

Recognized deferred tax assets with respect to tax losses from the previous period

- 303

Adjustment recognized in current and deferred tax from the previous period (393) 224

Tax expense charged to profit or loss 23,958 10,040

Current income tax 22,270 15,480

Deferred income tax 1,687 (5,440)

Effective tax rate 19.62% 19.57%


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Page 33 of 78

Change in net deferred tax asset (liability)



PLN'000 PLN'000

Balance at the beginning of period 12,453 7,093

Deferred tax recognized in profit or loss (1,687) 5,440

Deferred income tax recognized in other comprehensive income (arising from the application of hedge accounting)

- -

Deferred income tax recognized in other comprehensive income (arising from actuarial measurement of retirement and disability bonuses)

- (80)

Balance at end of period 10,766 12,453

Deferred income tax as at 31 December 2018 results from the following items:

Period ended

31/12/2017

2017 adjustments Charge (+) / crediting (-) the result

Period ended

31/12/2016 after

adjustments

Period ended

31/12/2018

Charge (+) / crediting (-) the result

Charge (+) / crediting (-) the capital


Deferred income tax provisions arising from:

Differences in the balance sheet and tax value of non-current assets

6,485 421 6,906 6,929 23 -

Charged, unearned/unpaid interest on deposits and factoring

- - - - - -

Revaluation of fair value of currency contracts - financial instruments

- - - 564 564 -

Total provisions for deferred income tax: 6,485 421 6,906 7,493 587 -

Deferred income tax assets arising from:


3,975 - 3,975 - (3,975) -

Impairment losses on uncollectible amounts 58 - 58 84 26 -

Provisions 1,851 (82) 1,769 1,968 199 -

Accrued expenses and other deferred costs 11,533 469 12,002 15,502 3,500 -


38 - 38 48 10 -

Tax loss 1,383 - 1,383 549 (834)

Other 101 (2) 99 109 10 -

Total deferred income tax assets: 18,939 385 19,323 18,260 (1,064) -

Deferred income tax liability/benefit (1,687) -

On balance

Deferred tax provisions -

Deferred tax assets 12,454 (36) 12,417 10,767

The Group has no tax liabilities on positive temporary differences related to investments in subsidiaries, branches, affiliates or interests in joint ventures.


S.A.

Page 34 of 78

Deferred income tax as at 31 December 2017 results from the following items:


2016 adjustments Charge (+) / crediting (-) the result


after adjustments


Charge (+) / crediting (-) the result

Charge (+) / crediting (-) the capital


Deferred tax provisions arising from:

Difference in carrying and tax amounts of non-current assets

7,045 - 7,045 6,485 (559) -

Total deferred tax provisions: 7,045 - 7,045 6,485 (559) -

Deferred tax assets arising from:


760 - 760 3,975 3,215 -

Impairment losses on uncollectible amounts

36 - 36 58 22 -

Provisions 2,070 (426) 1,644 1,851 287 (80)

Accrued expenses and other deferred costs

10,054 111 10,165 11,533 1,368 -


34 - 34 38 4 -

Tax loss 1,080 - 1,080 1,383 303

Other 104 (2) 102 101 (1) -

Total deferred tax assets: 14,138 (317) 13,821 18,938 5,198 (80)

Deferred income tax liability/benefit 5,440 (80)

On balance

Deferred tax provisions -

Deferred tax assets 12,453

In the statement of financial position, deferred income tax assets and liabilities were presented together for assets and liabilities as the excess of assets over liabilities. The Parent Company has a legally enforceable right to set off assets and liabilities, and the assets and liabilities refer to income tax imposed exclusively by the Polish tax authorities. The assets and liabilities of the subsidiary, due to their immateriality, were offset against the assets of the Parent Company. 12. EARNINGS PER SHARE

Earnings per share were calculated based on the following information:



PLN'000 PLN'000

Earnings

Net earnings to calculate earnings per share 99,747 41,276

Number of issued shares

Weighted average number of shares recognized to calculate ordinary earnings per share

22,986,949 22,986,949

Earnings per share

Earnings per share 4.34 2.69

The Parent Company does not dilute its earnings.


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13. PROPERTY, PLANT AND EQUIPMENT

Land, buildings and structures

Fixed assets under

construction

Machines and equipment

Other fixed assets

Total

PLN'000 PLN'000 PLN'000 PLN'000 PLN'000

INITIAL AMOUNT

As at 1/1/2017 202,493 42,051 317,387 25,238 587,169

Increases 16,195 22,251 30,546 693 69,685

Decreases (1,577) (47,434) (6,620) (1,298) (56,929)

Reclassification (3,884) - 4 (4) (3,884)

As at 31/12/2017 213,227 16,868 341,317 24,629 596,041

As at 1/1/2018 213,227 16,868 341,317 24,629 596,041

Increases 1,055 12,235 9,041 239 22,570

Decreases (3) (10,501) (4,556) (415) (15,475)

Reclassification 31 - - - 31

As at 31/12/2018 214,310 18,602 345,802 24,453 603,167

DEPRECIATION AND IMPAIRMENT

As at 1/1/2017 99,093 - 256,690 19,950 375,733

Amortization for the period 8,609 - 14,581 1,214 24,404

Depreciation - - - - -

Decreases, due to liquidation or sale

(724) - (6,589) (1,297) (8,610)

ST reclassification - for sale (953) - 4 (4) (953)

As at 31/12/2017 106,025 - 264,686 19,863 390,574

As at 1/1/2018 106,025 - 264,686 19,863 390,574

Amortization for the period 8,686 - 12,847 1,078 22,611

Depreciation - - - - -

Decreases, due to liquidation or sale

(3) - (4,540) (409) (4,952)

As at 31/12/2018 114,708 - 272,993 20,532 408,233

NET VALUE

As at 31/12/2017 107,202 16,868 76,631 4,766 205,467

Advance payments made - 2,325 - - 2,325 207 792

As at 31/12/2018 99,602 18,602 72,809 3,921 194,934

Advance payments made 2,689 - 2,689 197,623

Useful life of fixed assets in the Group: Buildings - from 25 to 40 years Machines and equipment - from 3 to 20 years Other fixed assets - from 4 to 12 years.. Fixed assets are depreciated based on the straight line method. Property, plant and equipment are not encumbered with restrictions of the legal title held by the Parent Company and subsidiary. The Group assesses economic wear and tear of fixed assets for business purposes on annual basis in order to verify economic benefits derived from these assets disclosed by the Group. Impairment losses are recognized if the Group does not expect any future economic benefits from the continued use of items of property, plant and equipment.


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PROPERTY, PLANT AND EQUIPMENT AVAILABLE FOR SALE

The Management Board of the Parent Company decided to classify property, plant and equipment located in the closed production plant in Gdańsk as available for sale in November 2014. On 15 January 2018, the Port of Gdańsk Authority S.A., with its registered office in Gdańsk, used the statutory pre-emptive right to purchase from ZT "Kruszwica" S.A. the right of perpetual usufruct of real estate located in Gdańsk for gross price of PLN 11,651,000.

Land, buildings and structures

Machines and equipment

Other fixed assets

Total

PLN'000 PLN'000 PLN'000 PLN'000

As at 1/1/2017 12,723 (2,821) 56 9,958

Increases - - - -

Depreciation and impairment - 3,476 - 3,476

Sale and liquidation - (3,571) - (3,571)

As at 31/12/2017 12,723 (2,916) 56 9,863

As at 1/1/2018 12,723 (2,916) 56 9,863

Increases - - - -

Depreciation and impairment - - - -

Sale and liquidation (12,723) 2,916 (56) (9,863)

As at 31/12/2018 - - - -

14. INVESTMENT PROPERTY

PLN'000

WARTOŚĆ POCZĄTKOWA

As at 1/1/2017 1,637

Increases -

Decreases -

Reclassifications 3,885

As at 31/12/2017 5,522

As at 1/1/2018 5,522

Increases -

Decreases -

Reclassifications -

As at 31/12/2018 5,522


As at 1/1/2017 812

Amortization for the period 197

Decreases -

Raclassifications 954

As at 31/12/2017 1,963

As at 1/1/2018 1,963

Amortization for the period 209

Decreases -

Raclassifications -

As at 31/12/2018 2,172

NET VALUE

As at 31/12/2017 3,559

Advances granted 2

As at 31/12/2018 3,350


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Advances granted -

Information about revenue and proceeds from rental of investment property has been presented in Note 31 “Operating lease”.

Real property is depreciated based on the straight line method. Adopted depreciation rates:

- Buildings – 2.5%

- Structures – 4%

- Technical equipment – 8.5%

- Machines and other equipment - 4%

The Group did not measure the fair value of investment property required by IAS 40 as the item is insignificant in the total assets of the Group . The costs of estimating the fair value would be disproportionately high in relation to the expected benefits for the financial statements.

15. GOODWILL The goodwill originated from business combination with “Ewico” sp. z o.o., ZPT Olvit sp. z o.o. and Olvit-pro sp. z o.o. performed on 13 December 2006. The goodwill was calculated based on the net fair value of assets of individual acquired companies.

PLN'000

Balance as at 31 December 2018

Acquisition price 277,218

Acquisition cost 311

Fair value of acquired assets (193,736) 83,793

Balance as at 31 December 2017

Acquisition price 277,218

Acquisition cost 311

Fair value of acquired assets (193,736)

83,793

Initially, the goodwill was not attributed to any operating segment of the Parent Company. In 2009, due to the change of IAS 36, the Parent Company attributed the goodwill to both separated segments which correspond to the definition of the lowest level at which the goodwill is monitored for internal management purposes. Goodwill was allocated to both segments in accordance with the segment structure of the surplus of payments made over the Parent Company’s interest in the net fair value of identifiable assets and liabilities of entities acquired as of the acquisition date. A detailed description of the Parent Company’s goodwill allocation is provided in Note 4 Operating Segments

Goodwill impairment test

At the end of 2018, the Management Board of the Parent Company assessed that there is no indication of impairment of any of the assets.

At the end of 2018, obligatory impairment tests were carried out in relation to goodwill. The tests were carried out separately for the Agri and Food segment, using the method of free cash flow discounting, with the following assumptions:

5-year forecast period (2019- 2023);

One scenario – realistic;

The volume of rapeseed processing and margins on the processing of rapeseeds at a constant level throughout the forecast period;

Volume and margins on refined oil and margarines remained constant throughout the forecast period;

Discount rates were set at the level of the weighted average capital cost (WACC) – 6.0%;

growth rate – 0%;

In both segments, the tests did not show the need to recognize goodwill impairment.

The key assumptions for the measurement of the recoverable amount of the Parent Company's operating segments were adopted for the tests in question on reasonable assumptions, reflecting the best assessment of the Parent Company's management regarding the total economic conditions expected during the remaining useful life of the assets.


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In the opinion of the Group’s management, there is no justification for changes in the assumptions, as a result of which the recoverable amount of the assets in question would be below their balance sheet value.

16. INTANGIBLE ASSETS

Trademarks Copyrights Know-how Total

PLN'000 PLN'000 PLN'000 PLN'000

INITIAL AMOUNT

As at 1/1/2017 33,253 519 8,866 42,638

Increases - - - -

Decreases, due to liquidation - - - -

As at 31/12/2017 33,253 519 8,866 42,638

As at 1/1/2018 33,253 519 8,866 42,638

Increases - 167 - 167

Decreases - (126) - (126)

As at 31/12/2018 33,253 560 8,866 42,679


As at 1/1/2017 21,798 391 7,964 30,153

Amortisation for the period 2,310 31 899 3,240

Impairment - - - -

Decreases, due to liquidation - - - -

As at 31/12/2017 24,108 422 8,863 33,393

As at 1/1/2018 24,108 422 8,863 33,393

Amortisation for the period 2,286 45 4 2,335

Impairment - - - -

Decreases, due to liquidation - - (125) (125)

As at 31/12/2018 26,394 467 8,742 35,603

NET VALUE

As at 31 December 2017 9,145 97 3 9,245

As at 31 December 2018 6,859 93 124 7,076

All intangible assets have determined useful lives and are amortised with the straight line method. Amortisation of intangible assets is recognised in the following items of the statement of comprehensive income:

a) Selling expenses b) General and administrative expenses

Intangible assets of the Parent Company include trademarks of brands acquired under the business combination with Zakłady Tłuszczowe w Warszawie in February 2009. As at the balance sheet date 31 December 2018, the two key items of the trademarks were the “Smakowita” brand with a net carrying amount of PLN 3,158 thousand and the remaining amortisation period of four years, and the “Masło Roślinne” brand with a net carrying amount of PLN 3,602 thousand and the remaining amortisation period of three years.


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17. FINANCIAL ASSETS

Period ended 31/12/2018 Period ended 31/12/2017

PLN'000 PLN'000

Fair value of unrealized FX derivatives 6,798 23,058

Fair value of unrealized commodity derivatives 4,243 28,516

Originated loans 1,117 8

Shares - -

Total financial assets 12,158 51,582

By period:

- short-term 12,152 51,574

- long-term 6 8

Total financial assets 12,158 51,582

The fair value of derivatives is determined based on the current exchange rates (FX derivatives) and current prices of goods (commodity derivatives). Derivatives are financial assets measured at fair value through profit or loss (see also “FX derivatives” and “Commodity derivatives”).

As at 31 December 2018, the fair value of derivatives held by the Company disclosed assets of PLN 11,041 thousand and liabilities of PLN 8,926 thousand (31/12/2017: assets PLN 51,574 thousand, liabilities PLN 72,585 thousand). Financial liabilities - see “Trade and other liabilities”.

Originated loans are recognized at the amounts due which do not differ significantly from the adjusted cost.

18. ACQUISITION OF SUBSIDIARIES

In 2018, there were no acquisitions of subsidiaries.

19. INVENTORIES

Value of the Group’s inventories:

Period ended 31/12/2018 Period ended 31/12/2017 PLN'000 PLN'000

Materials and supplies 323,526 164,181

Semi-finished and finished goods 122,749 110,937

Goods 3,877 3,839

Total inventories, after impairment 450,152 278,957

Change in impairment loss for inventories to net realizable values

Opening balance 1,186 942

Impairment loss for: 3,027 2,705

- Auxiliary consumables and packaging 406 526

- Value of rapeseed meal 87 392

- Finished products 704 1,787

Impairment loss applied due to: - 2,461

- Liquidation or sale of finished products 1,777 22

- Wear of spare parts 2 80

- Liquidation of auxiliary consumables and packaging 1,307 579

- Remeasurement of rapeseed meal 142 1,186

Closing balance 4,213 1,186


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20. TRADE AND OTHER RECEIVABLES

Trade and other receivables bear no interest. The average credit period calculated as the amount of receivables multiplied by sales revenue and by 365 is 12 days. The Group charges penalty interest on receivables that are past due once it has been confirmed that charging interest from specific clients is justified, considering earlier cooperation, days in default, reasons for the delay and plans for further contacts with the clients.


PLN'000 PLN'000

Trade receivables from related parties 19,518 14,659

Trade receivables from other entities 67,579 79,867

Current income tax receivables - -

Other receivables 5,477 60,337

- short-term 4,444 59,493

- long-term 1,033 1,033

92,574 154,863

Transactions with related parties have been described in Note 34 “Related-party transactions”.

All receivables that are past due as at the end of the reporting period, except for those with guarantees or security, have been impaired in line with the Group’s accounting policy.

The estimated impairment losses on uncollectible trade receivables as at 31 December 2018 were PLN 798 thousand (as at 31 December 2017: PLN 3,759 thousand).

Boards of the Parent Company and subsidiary believe that the net book value of receivables is close to their fair value.

Change in impairment loss on receivables:


PLN'000 PLN'000

Opening balance 3,759 3,636

Impairment loss for: 394 196

Trade receivables 252 123

Default interest 142 73

Receivables claimed at court, in bankruptcy and composition proceedings

- -

Legal expenses - -

Impairment loss applied due to payment of: 107 59

Interest 105 54

Receivables claimed at court, in bankruptcy and composition proceedings

2 5

Trade and other receivables - -

Impairment loss applied due to cancellation of: 3,248 14

Interest 7 80

Rreceivables claimed in court 3,241 328

Trade and other receivables - -

Closing balance 798 3,759

In 2018 the Group did not disclose any impairment of revenue on financial assets.


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Calculation of expected credit losses as at 31 December 2018

Ratio calculated based on credit

losses

"Forward looking"

adjustment

Amount of expected credit

loss

PLN'000 PLN'000 PLN'000

Portfolio approach - segments:

Traditional channel 0.03% 40 55

Modern channel 0.09% 111 157

Professional channel 0.01% 33 45

Agri 0.05% 84 110

Export 0.00% 32 43

Receivables from related entities 0.00% 39 50

Other 0.73% 2 16

342 477

Individual approach - - 321

- - 798

Calculation of expected credit losses as at 31 December 2017

Ratio calculated based on credit

losses

"Forward looking"

adjustment

Amount of expected credit

loss

PLN'000 PLN'000 PLN'000

Portfolio approach - segments:

Traditional channel 0.00% 20 20

Modern channel 0.00% 87 87

Professional channel 0.00% 33 33

Agri 0.003% 29 30

Export 0.02% 33 35

Receivables from related entities 0.00% 19 19

Other 0.00% 2 2

222 225

Individual approach - - 3,534

- - 3,759

Receivables in factoring

On 14 December 2011 the Parent Company signed a factoring agreement with Pekao FAKTORING Sp. z o. o. with the registered office in Lublin at Lubartowska 74A (”Agreement”, “Factor”). The Agreement was concluded for the period of 12 months with an option to be extended for another 12-month period. In order to secure performance of the provision of the agreement, the Parent Company undertook to issue a blank promissory note with a promissory note agreement and transfer rights under the insurance policy concluded with Coface Austria Kreditversicherung AG Branch in Poland. The Factor is entitled to a fee calculated based on market prices for factoring services, including operating fees and costs of financing based on market interest rates plus margin Pursuant to Annex no. 16 dated 14 November 2018, the maximum exposure of the Factor resulting from the financing provided to the Company was agreed at PLN 200,000,000, to be used until 31 January 2019.


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As at 31 December 2018 the Parent Company was still a party to the factoring agreement.

Receivables recognized in the Group’s statement of financial position do not include amounts due which are subject to non-recourse factoring.

As at 31 December 2018, the receivables sold totaled PLN 172,384 thousand, including PLN 169,951 thousand and EUR 566 thousand, i.e. PLN 2,436 thousand.

As at 31 December 2017, the receivables sold totaled PLN 163,480 thousand, including PLN 161,843 thousand and EUR 392 thousand, i.e. PLN 1,637 thousand.

21. CASH AND CASH EQUIVALENTS

Cash and cash equivalents held by the Grpup as of the end of the reporting period comprise cash on current bank accounts.

The book value of cash corresponds to its fair value.


PLN'000 PLN'000

Cash in hand - -

Cash at bank 233,909 184,217

Short-term bank deposits - -

Cash in transit - -

Total cash and cash equivalents 233,909 184,217

22. PREPAYMENTS AND ACCRUALS


PLN'000 PLN'000

Long-term prepayments

Settlement of oil sales contract costs - 18

- 18

Short-term prepayments

Property insurance 35 35

IT services 185 146

Settlement of oil sales contract costs 18 219

Insurance of receivables - 642

Other 16 91

254 1,133


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23. SHARE CAPITAL


PLN'000 PLN'000

Issued and paid up share capital:

22,986,949 ordinary shares with the face value of PLN 7.48 each

171,942 171,942

Hyperinflation adjustment 13,134 13,134

Total share capital 185,076 185,076

Due to the hyperinflation in Poland until the end of 1996, the Parent Company restated the equity for 1996, i.e. for the period when the Parent Company became a joint-stock company (the transformation took place on 21 December 1995) until the end of 1996. The restatement was carried out at the inflation rate for 1996, i.e. 19.9%. The effect of restatement of the equity using the inflation rates has been recognized in the undistributed profit / uncovered loss for the prior years. The amount of share capital as at 31 December 1996 in the Parent Company’s balance sheet was PLN 66,000 thousand; after the restatement it was PLN 79,134 thousand which is an increase by PLN 13,134 thousand.

As at the end of the reporting period, i.e. 31/12/2018, the share capital of the Parent Company was PLN 171,942 thousand and was divided into 22,986,949 shares with the face value of PLN 7.48 each. All shares issued are ordinary shares with no preference as to eligibility for profit distribution. Each share gives the right to one vote which gives in total 22,986,949 votes at the Shareholders’ Meeting of the Parent Comapny.

The Parent Company’s main shareholder is Koninklijke Bunge Besloten Vennootschap (KBBV), a company incorporated under the laws of the Netherlands, with its registered office in Rotterdam, the Netherlands, holding directly 14,763,313 shares, which accounts for 64.22 percent of its share capital and the same share in the total number of votes at the 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 Shareholders’ Meeting). Bunge Ltd with its registered office in Bermuda and headquartered in White Plains, NY in the United States is the parent of Bunge Europe SA, which directly and indirectly holds 100% of its shares and has the right to 100% of votes at the Shareholders’ Meeting.

Another significant shareholder is Windstorm Trading & Investments Limited, a subsidiary of Jerzy Starak, established in Cyprus, with its registered office at Thasou 3, DADLAW House, P.C. 1520 Nicosia, Cyprus, which (based on the representation of the General Shareholders’ Meeting of 11 June 2014) holds 5,805,485 shares, which account for 25.26% of its share capital and give the right to 25.26% of votes at the Shareholders’ Meeting.

On 30 August 2016, the Parent Company was informed by ALTUS Towarzystwo Funduszy Inwestycyjnych S.A. (hereinafter: ALTUS TFI S.A.), acting on behalf of the investment funds managed by ALTUS TFI S.A., according to which the investment funds managed by ALTUS TFI S.A. exceeded the 5% threshold of votes in the total number of votes in ZT "Kruszwica" S.A.

On 7 December 2018, the Parent Company was informed by ALTUS TFI S.A. on reducing the share of investment funds managed by ALTUS TFI S.A. below the 5% threshold in the total number of votes in the Parent Company.

After changing the share in the total number of votes in the Parent Company, investment funds managed by ALTUS TFI S.A. hold in total 1,013,327 shares of the Parent Company, constituting 4.41% of the share capital of the Parent Company, entitling them to exercise 1,013,327 votes, which constitutes 4.41% of the total number of votes in the Parent Company.

24. RESERVE CAPITALS


PLN'000 PLN'000

Reserve capital appropriated for dividend payment 151,932 141,835

Revaluation reserve - -

Revaluation reserve – actuarial measurement of retirement and disability bonuses

(451) (453)

Total reserve capitals 151,481 141,382

The Parent Company creates the reserve capital appropriated for dividend payment. In 2018 the reserve capital was increased by PLN 10,096 thousand from profit distribution for 2017.


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Moreover, the Parent Company creates a revaluation reserve for the effective portion of the change in the fair value of (FX) derivatives designated for hedge accounting and the reserve from actuarial revaluation of retirement and disability bonuses.

Reserve capital appropriated for dividend payment is divisible.

Revaluation reserve is indivisible.

25. OTHER CAPITALS

Other capitals include the profit/loss for the current year and share capital.



PLN'000 PLN'000

Supplementary capital 271,352 271,352

Undistributed previous year profit / uncovered previous year loss

39,450 38,843

Current year profit 99,747 41,276

Total other capitals 410,549 351,471

The supplementary capital comprises:

- Retained prior year earnings of PLN 25,951 thousand,

- The surplus of the selling price of issued shares over their nominal value (share premium) of PLN 245,401 thousand which includes the costs of issue.

The share premium is indivisible. Current year profit is divisible.

26. CAPITAL MANAGEMENT

Capital management is to ensure the Group’s capability of securing its operations, maintaining its credit rating and ensuring a return rate on the capital invested by its shareholders. The capital management policy applied by the Group involves the principles of maintaining the level of equity sufficient to cover the value of fixed assets. The Group monitors the capital level and structure analyzing the following ratios: 1. Return on equity (ROE); 2. The share of equity in the financing of the Group’s assets. The Group is not subject to external capital requirements.

27. DIVIDENDS

On 6 June 2017, the General Shareholders’ Meeting decided to allocate the net profit for 2017 of PLN 40,669 thousand to dividend of PLN 30,573 thousand and to the reserve capital of PLN 10,096 thousand. The record date was 20 July 2018 and the dividend was paid on 7 August 2018.

Financial year Net profit Dividend paid for the financial year

Dividend paid per share

Dividend payment date

PLN'000 PLN'000

2016 65,336 54,709 2.38 09/08/2017

2017 40,669 30,573 1.33 07/08/2018


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28. CREDIT FACILITIES AND LOANS

As at 31 December 2018 the Group used the following loans and credit facilities:

A loan agreement (“Revolving credit facility agreement”) of 7 July 2014 concluded with Bunge Finance B.V. with the registered office in Rotterdam, the Netherlands. Pursuant to the agreement Bunge Finance provided the Parent Company with a short-term loan of USD 350 million to finance the Parent Company’s working capital; however, the Parent Company may take out the loan in a different currency. The interest on the loan is equal to the LIBOR or, in the case of currencies other than USD, to an appropriate inter-bank interest rate, increased by margin. The term of the loan is 1 year. 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 Parent Company has been using the automated extension clause.

Under the account management agreement of 5 June 2014, daily settlement of the loan has been introduced. The positive closing balances of the key bank accounts of the Parent Company are automatically transferred to the bank account of the lender to reduce the debt as at the end of the same day. The objective is to reduce the financial expenses as well as use the cash resources more effectively. In the case of a surplus of outflows over inflows, the balance of the Parent Company’s key accounts automatically becomes the amount of the drawdown which increases the Parent Company’s outstanding loan. During the periods preceding the purchase of rapeseed, when the Parent Company has the lowest resources of working capital in a whole year, pursuant to the same agreement and the Deposit Agreement, the Parent may make deposits in USD or other currencies bearing a LIBOR interest rate or other reference rate for a different currency less margin.

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.

The loan agreement ("Long-term Revolving Credit Facility Agreement and Deposit Agreement") of 6 December 2016 concluded with Koninklijke Bunge B.V, with its registered office in Rotterdam, the Netherlands. On the basis of this agreement, Koninklijke Bunge B.V. granted ZTK Property Menagement sp. o.o. the loan in the amount of USD 1 million to be used to finance the Company's working capital, with the subsidiary being able to obtain a loan in PLN currency. The loan is interest-bearing at Ibor's rate, increased by a margin. The term of the loan agreement has been agreed for the period from 1 December 2016 until 1 January 2018 year. The loan agreement will be automatically extended for a period of three months, unless the parties agree to terminate the terms thereof in writing within 30 days before the agreement expires. The subsidiary uses the automatic extension clause.

As at 31.12.2018, the Group had not the outstanding loan, while the deposit of cash with receivable interest was PLN 233,130 thousand.

Guarantees to the Parent Company as at the end of the reporting period:

Name of bank Registered office Guarantee

number Guarantee amount Valid until

PLN Currency

Bank Handlowy w Warszawie S.A

Warsaw GK18-1100012 782,250.00 PLN 23/03/2020

Bank Handlowy w Warszawie S.A

Warsaw GK15-1820020 264,207.00 PLN 06/08/2019

Razem 1,046,457.00 PLN

In the period covered by these financial statements, the principal and interest were paid in time and no terms and conditions of the loan agreements were breached.


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29. TRADE AND OTHER LIABILITIES


PLN'000 PLN'000

Trade liabilities to related entities 39,198 33,161

Trade liabilities to other entities 256,581 182,598

Financial liabilities 8,926 72,585

Current tax liabilities 6,455 2,527

Other liabilities 2,160 6,315

- current 2,140 6,296

- non-current 20 19

311,160 290,871

The liabilities balance includes mainly trade liabilities. On average trade liabilities fall due following 35 days (calculated as the relation between trade liabilities and the total value of sales). Trade and other liabilities bear no interest.

Transactions with related parties have been described in Note 34 “Related-party transactions”.

Financial liabilities refer to deferred losses on FX and commodity derivatives measured at fair value.

Information about financial liabilities has been also presented in Note 35 “FX derivatives” and Note 36 “Commodity derivatives”.

Financial liabilities are measured at fair value. According to the Management Board, book value of other liability classes is close to their fair value.

30. EMPLOYEE BENEFITS

Employment structure Employment (including the Management Board):

Headcount as at 31/12/2018

Headcount as at 31/12/2017

Key employee groups

Key production employees 285 290

Commercial, marketing and logistic employees

228 240

Administrative and technical employees 161 172

Other employees in auxiliary departments 166 165

840 867

Employment costs

The Group incurred the following employment costs:



Payroll 68,018 65,857

Social insurance premiums 11,308 11,038

Retirement, disability and severance benefits 1,762 1,266

Other employee benefits 5,380 5,488

86,468 83,649


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Other employee expenses include training, recovery meals and other employee benefits, jubilee bonuses and provisions for unused paid vacation.

Liabilities due to employee benefits

Salaries, wages and insurance

Annual leave Retirement,

disability benefits

Separation benefits

Annual bonuses

Total


As at 1/1/2017 4,078 3,115 5,900 77 5,160 18,330

Recognized 3,900 3,522 132 356 6,276 14,186

Derecognized 4,078 3,515 700 - 5,160 13,453

As at 31/12/2017 3,899 3,122 5,332 433 6,276 19,062

As at 1/1/2018 3 887 3 122 5 332 433 6 276 19 050

Recognized 4 202 2 896 186 1 025 11 227 19 536

Derecognized 3 887 2 228 - 550 6 276 12 941

As at 31/12/2018 4 202 3 790 5 518 908 11 227 25 645

The current value of liabilities due to other employee benefits, i.e. due to unused holidays, wages and annual bonuses, was estimated in amounts not undiscounted due to employees of the Group as at the balance sheet date.

By maturity:


PLN'000 PLN'000

Up to 1 year 20,296 13,874

Over 1 year 5,349 5,188

25,645 19,062

Liabilities due to retirement and disability benefits and jubilee benefits are estimated using the actuarial methods.. The latest measurement of the current value of future liabilities was carried out as at 31 December 2018. The key assumptions made by the actuary to estimate the Company’s liabilities as at the end of the reporting period:

- Discount rate – 3.00 %,

- Salary growth rate – 4.00 %.

Liabilities due to disability and pension benefits of the Parent Company totalled PLN 5,518 thousand as at 31 December 2018 (versus PLN 5,332 thousand as at 31 December 2016).

Actuarial loses of PLN 2 thousand were charged to revaluation reserve. Capitalized actuarial loses were reduced by deferred income tax of PLN 0.2 thousand.

As at the end of the reporting period, i.e. 31 December 2018, the revaluation reserve arising from measurement of provisions for retirement and disability benefits amounted to PLN 451 thousand (PLN 453 thousand as at 31 December 2017).

Reconciliation of the opening and closing balance of employee benefit items estimated with actuarial methods

PLN '000

Retirement and disability benefits

2018 opening balance of liability 5,332

Current employment costs 349

Interest expense 171

Payroll paid (334)

Actuarial losses -

2018 closing balance of liability 5,518


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PLN '000

Retirement

and disability benefits

2017 opening balance of liability 5,900

Current employment costs 370

Interest expense 174

Payroll paid (716)

Actuarial losses (396)

2017 closing balance of liability 5,332

31. PROVISIONS



PLN'000 PLN'000

Opening balance 1,682 3,461

Provisions recognized during the year 5,455 30

Provisions derecognized 1,552 193

5,585 3,298

Provisions over 1 year: 260 2,286

- Provision for land reclamation - 2,216

- provision for disputes with contractors and employees of the Parent Company

260 70

Provisions up to 1 year: 5,325 1,012

- provision for perpetual usufruct of land 5,325 1,012

Total provisions 5,585 3,298

As at 31 December 2018, the Company recognized long-term provisions for litigation in the amount of PLN 260 thousand.


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32. OPERATING LEASES

Group as a lessee As of the end of the reporting period, the Parent Company had a number of lease agreements on passenger cars and forklifts. A vast majority of the cars were used by sales representatives. The Parent Company classified the leases of cars and forklifts as operating lease. The lease period for cars is 3 years, and for forklifts, from 3 to 5 years. Moreover, the Group used land which has been leased from the State Treasury as perpetual usufruct. The land has not been presented in the balance sheet as assets, except for the land perpetual usufruct right assumed from entities acquired under a business combination. Such land has been recognized in the statement of financial position under property, plant and equipment and depreciated over the period of the usufruct right. The Parent Company is also a lessee of office space in Warsaw used by the Marketing and Sales Offices. In 2016, the term of the lease was extended until 2021. Payments incurred in 2018 due to the land perpetual usufruct, lease of passenger cars, forklifts and lease of office space, recognized in the statement of comprehensive income for the current period:


PLN'000 PLN'000

- Minimum lease fees - passenger cars and forklifts 3,591 5,140

- Land perpetual usufruct right 485 554

- Lease of office space 1,110 1,025

5,186 6,719

As at the end of the reporting period, the total amount of future payments (lease fee and service fee) arising from operating leases for passenger cars and forklifts in the non-cancellable period by maturity:


PLN'000 PLN'000

Up to one year 2,654 2,903

From 2 to 5 years 3,845 2,374

Over 5 years - -

6,499 5,277

The remaining period of the availability of the right to the used land ranges from 71 to 77 years. As at 31 December 2018, the face value of related future liabilities was PLN 19,775 thousand. The liabilities by maturity:


PLN'000 PLN'000

Up to one year 271 436

From 2 to 5 years 1,124 888

Over 5 years 18,380 14,935

19,775 16,259


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Total value of future payments due to the lease of the office space during the non-cancellable period, as of the end of the reporting period, by maturity:


PLN'000 PLN'000


From 2 to 5 years 1,778 1,723

Over 5 years - -

2,598 2,518

Company as a lessor

The Parent Company (the Lessor) has several agreements for rental of unused production and office property, including equipment, classified as investment property (Statement of financial position, Investment property). Revenue from rental of the real property in 2018 was PLN 906 thousand (as at 31 December 2017: PLN 977 thousand). The face value of the Parent Company’s receivables due to operating lease, during the non-cancellable period, as of the end of the reporting period, by maturity:


PLN'000 PLN'000


From 2 to 5 years - -

Over 5 years - -

221 248

33. FORECAST TRANSACTIONS

At the end of 2018, the Parent Company was a party to contracts for the purchase of rapeseed, edible oils and rapeseed meal, and for the sale of edible oils, rapeseed meal, by-products and consumer products (bottled oils and margarines), which had not been performed. The contracts are to be performed in 2019. Value and structure of concluded contracts (contracts denominated in foreign currencies translated using the average exchange rate of the National Bank of Poland as at 31 December 2018):

2019

PLN'000

PURCHASES

Bulk oil 142,860

Rapeseed 251,056

Rapeseed meal 1,968

TOTAL PURCHASES 395,884

SALES

Bulk oil 179,951

Rapeseed meal 141,396

Bottled oils 59,106

Consumer margarines 21,491

Industrial fats and margarines 72,147

Other by-products 1,408

TOTAL SALES 475,499


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34. RELATED PARTY TRANSACTIONS

Related parties of the Group:

Bunge Group companies

Spółka Wodno-Ściekowa with its registered office in Kruszwica - a company incorporated under the provisions of the Water Law, dealing with waste discharge and treatment. The Company holds 1/5 of the voting rights at the General Meeting of Spółka Wodno-Ściekowa.

A vast majority of transactions with related parties were concluded with the Bunge Group companies. It is the policy of the Bunge Group to use arm’s length transfer prices in its intra-group contracts. All related-party transactions are settled in cash or in the form of offset of receivables and liabilities. Pursuant to IAS 24, by providing a description of such transactions, the Group intends to ensure access to information necessary to draw attention to the probability of its financial position or profit/loss being affected by the existence of related parties and presented transactions, unsettled balances of receivables or liabilities between such parties. As at the balance sheet date, the Group had not made any provisions for doubtful receivables in respect of unsettled balances and during the reporting period it did not incur any expenses in respect of irrecoverable or doubtful receivables from related parties. The Group does not hedge related party transactions, and settles them by making mutual payments. As at the end of the reporting period, the Group had not received or given any guarantees in respect of unsettled receivables or liabilities.

The tables below present total amounts of transactions concluded with related parties in 2018. Purchases and sales of products, goods and services from/to related parties

Sales of products and goods

Sales of services Purchase of goods and

services

For 12 months

ended 31-12-2018

For 12 months

ended 31-12-2017

For 12 months

ended 31-12-2018

For 12 months

ended 31-12-2017

For 12 months

ended 31-12-2018

For 12 months ended

31-12-2017


Jednostki z Grupy Bunge

Bunge Asia Singapore 509 207 - - - -

Bunge Austria - - - - 89,414 60,517

Bunge CIS LLC Russia 594 1,679 3 - - -

Bunge Deutschland Gmbh - - - - 877 -

Bunge Finlandia Raisio 343 320 129 143 1,429 -

Bunge Francja SAS 7,828 2,442 - 1 - -

Bunge Global Agribusiness - - 551 541 - -

Bunge Handelsgesellschaft 181,504 141,122 1 22 71 838

Bunge Iberica Spain - 5,320 - 2 - -

Bunge Istanbul - 422 417 - -

Bunge Italia 7,529 4,017 - 1 191 -

Bunge Loders Croklaan Oils - - - - 41,641 -

Bunge Loders Croklaan Netherlands - - - - 104 -

Bunge Management Services - - 642 704 39 -

Bunge Poland 27,869 29,228 1,891 4,501 108,821 107,791

Bunge Romania 145 118 533 258 19,369 23,259

Bunge SA Switzerland - - 5,162 3,647 28,296 51,251

Bunge Shanghai - 381 - - - -

Bunge Zrt. Hungary 1,181 139 1,554 1,233 100,907 57,288

ETSC Ltd Liability - - 104 -

Koninklijke Bunge BV 1,732 1,711 3 2 216 211

Natura Margarin KFT Hungary - 35 - - - -

Walter Rau Lebensmittelwerke Gmbh Germany

343 62 - 8 937 1,483

Walter Rau NEUSSER 82 11

Warsaw Mathematical Institute - - - - 25 48

Other related parties -

Akpol Sp. z o.o. - - - - - 135


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Spółka Wodno-Ściekowa Kruszwica - - - - 1,446 1,356

229,577 186,781 10,891 11,480 393,969 304,188

Related-party receivables and liabilities

Receivables from related parties Liabilities to related parties

Period ended 31-12-2018




PLN'000 PLN'000 PLN'000 PLN'000

Jednostki z Grupy Bunge

Bunge Austria - - 3,639 10,027

Bunge CIS LLC Russia 3 - - -

Bunge Finlandia Raisio 20 10 135 -

Bunge Francja SAS 13 - - -

Bunge Global Agribusiness NY 36 52 - -

Bunge Handelsgesellschaft 10,733 8,768 2,002 3,395

Bunge Istanbul Turkey 49 71 - -

Bunge Italia - 793 - -

Bunge Loders Croklaan Oils B.V. Netherlands - - 3,325 -

Bunge Management Services 51 - - -

Bunge Poland 4,040 3,695 11,133 7,436

Bunge Romania 517 88 167 2,701

Bunge SA Switzerland 2,383 564 13,747 8,302

Bunge Shanghai 89 202 - -

Bunge Zrt. Hungary 1,513 239 4,688 1,165

Koninklijke Bunge BV 233,219 184,375 104 -

Walter Rau Lebensmittelwerke Gmbh Germany

- 20 - -

Walter Rau Poland - - 119 -

Other related parties

Spółka Wodno-Ściekowa Kruszwica - - 155 149

252,666 198,877 39,214 33,175

Financial revenue and expenses arising from related party transactions

Financial revenue Financial expenses


2018


2017


2018


2017

PLN'000 PLN'000 PLN'000 PLN'000

Interest accrued/due

Koninklijke Bunge B.V. 3,309 3,116 821 275

3,309 3,116 821 275

Interest paid/received

Koninklijke Bunge B.V. 3,389 3,046 854 246

3,389 3,046 854 246


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Profit/loss on transactions in derivatives, classified as related-party transactions

Gain on derivatives Loss on derivatives

For 12

months ended 31-12-2018

For 12 months ended

31-12-2017

For 12 months ended

31-12-2018

For 12 months ended

31-12-2017

PLN'000 PLN'000 PLN'000 PLN'000

Koninklijke Bunge B.V. 64,626 92,819 72,306 109,084

Bunge Handelsgesellschaft mbH 16,084 11,900 15,141 15,063

Bunge SA 1,732 - 2,517 130

Bunge Zrt. 30 66 - -

Bunge France SAS 13 - 0 -

Bunge Italia - 30 170 -

82,485 104,815 89,964 124,277

Gain/loss on derivatives includes realized gains/losses and unrealized gain/loss on measurement of FX derivatives and commodity derivatives. Transactions with Bunge Asia Singapore In the periods presented, the Parent Company sold bottled oils to Bunge Asia Singapore. Transactions with Bunge Austria GmbH In the periods presented, the Parent Company imported refined sunflower oil and sapled rapeseed oil from Bunge Austria GmbH. Transactions with Bunge CIS LLC Russia

In the periods presented, the Parent Company sold to Bunge CIS LLC Russia bottled oils with the addition of herbs. Transactions with Bunge Deutschland Gmbh In 2018, the Parent Company imported refined rapeseed oil from Bunge Deutschland GmbH. Transactions with Bunge Finland Raisio

In the periods presented, the Parent Company sold bottled oils with added herbs and the purchase of consumer margarines. The Parent Company also charged Bunge Finland Raisio with the costs of agency services Transactions with Bunge France SAS

In the periods presented, the Parent Company sold rapeseed meal to Bunge France SAS. Transactions with Bunge Global Agribusiness NY In the periods presented, the Parent Company charged Bunge Global Agribusiness with the costs of managing technology platforms for data warehousing and analysis of global agribusiness markets. Transactions with Bunge Handelsgesellschaft mbH (Niemcy) The Parent Company concluded with Bunge Handelsgesellschaft mbH a series of contracts regarding sales of rapeseed meal and crude rapeseed oil. Some of these transactions were to hedge the Parent Company against changes in the prices of commodities and products, so they are settled without an actual supply, through exchange of cash in the amount equal to the difference between the contracted price and the market price as at the transaction settlement date (wash-out transactions). As at the end of the reporting period, unrealized hedging transactions were measured at fair value and the results of the measurement and along with realized hedging and similar transactions concluded with other entities, have been presented in Note 11 “Commodity derivatives”.


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Both the Parent Company and Bunge Handelsgesellschaft mbH use transport services (land or sea) for the mutual supplies of goods. In the case of ordering transport services by the party that is not contractually obliged to pay such cost, this party charges the other party to the agreement for the transport costs incurred. In addition, Bunge Handelsgesellschaft mbH recharges the sea freight costs to the Parent Company. Transactions with Bunge Istanbul In the periods presented, the Parent Company charged Bunge Istanbul with the costs of marketing services. Transactions with Bunge Italia

In the periods presented, the Parent Company sold rapeseed meal in bulk. Transactions with Bunge Loders Croklaan Oils B.V. Netherlands

In 2018, the Parent Company purchased refined palm oil, palm stearin and palm olein. Transactions with Bunge Loders Croklaan Netherlands

In 2018, the Parent Company purchased refined palm oil. Transactions with Bunge Management Services Inc. (USA) In the periods presented, the Parent Company charged Bunge Management Services with the costs of the project for optimization and standardization of business processes. Transactions with Bunge Poland Kruszwica

On 10 June 2016, Bunge Polska sp. z o.o. with its registered office in Karczew was combined with Bunge Trade Polska sp. z o.o. with its registered office in Kruszwica (BTP). The business combination was carried out under Article 492.1.1 of the Code of Commercial Companies, i.e. all the assets, equity and liabilities of the acquiree (Bunge Polska sp. z o.o.) were transferred onto the acquirer (Bunge Trade Polska sp. z o.o.) (merger by acquisition).

Therefore, as of the business combination date, BTP assumed all the rights and obligations of Bunge Polska sp. z o.o. with its registered office in Karczew.

As a result of the combination, the name of the acquirer was changed to Bunge Polska sp. z o.o. with its registered office in Kruszwica.

In the periods presented, the Parent Company sold refined rapeseed oil, food lecithin and refined esterified fats to Bunge Polska.

On September 1st, 2010 the Parent Company and Bunge Poland concluded a set of agreements – distribution agreement, agreement on cooperation during the transitory period, marketing agreement and license and sub-license agreement (jointly “license agreements”). Based on the agreements the trading, distribution and marketing of Bunge Poland and the Parent Company were integrated for the purpose of sales of the products of Bunge Poland. Following the transitory period, when Bunge Polska had performed contracts with its customers, the Parent Company became the sole distributor of the products of Bunge Polska. The value of purchases made by the Parent Company in 2018 amounted to PLN 61,757 thousand (2017: PLN 64,084 thousand)

In the presented period, the companies exercised an agreement based on which Bunge Poland provided the Parent Company with services involving margarine manufacturing based on entrusted materials and related logistic services. In 2018, the value of provided services amounted to PLN 43,244 thousand (in 2017: PLN 40.946 thousand).

On 20 June 2013 the Parent Company and Bunge Trade Polska Sp. z o.o. concluded an open-ended contract to provide BTP with business management services within the scope resulting from the company's scope of business, in the following areas: (I) management functions; (II) organization of purchases and sales and market research; (III) coordination and optimization of Quality Assurance Systems; (IV) accounting and taxes; (V) internal control and banking operations; (VI) transport; (VII) management of sales and purchases; (VIII) legal services; (IX) HR management; (X) administration; (XI) occupational health and safety; (XII) environmental protection; (XIII) investment project management.

As part of remuneration payable to the Parent Company, BTP is also obligated to reimburse any expenses incurred in performance of this agreement.

In addition, under the rental agreement of 10 February 2005, the Parent Company leases out office space to BTP.

On 17 January 2014, the Parent Company concluded an agreement with Bunge Trade Polska Sp. z o.o. to provide IT services to BTP. BTP loads the Parent Company’s goods to vessels in its own port terminal in Świnoujście.. Transactions with Bunge Romania In the periods, the Parent Company sold bottled oils to Bunge Romania and purchased rapeseed from that company.


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The Parent Company also re-invoices to Bunge Romania the costs of the Food segment management services in Central Europe, provided by the Parent Company’s managers. Transactions with Bunge S.A. (Switzerland) The Parent Company charges Bunge SA for participation of its employees in services provided to other Bunge Group companies as part of projects coordinated by Bunge SA. The services consisted in consulting services and involved mainly internal audit of the Group, implementation of the SAP software as well as participation in miscellaneous projects for the companies in the Group. The Parent Company is a party to a management services agreement with Bunge SA, which, since January 2004, has been responsible for provision of business development support to all companies in the Bunge Group. The services include advisory, training and consulting services in the following areas: (i) improvement of production processes; (ii) investments; (iii) research and development; (iv) insurance; (v) finance; (vi) marketing; (vii) information technology; (viii) human resources management; (ix) law and taxes; and (x) improvement of purchasing processes. R&D services are provided by the main research center located in Hungary, as well as local centers in Finland and Germany. The R&D centers operate as cost-share centers. The task of Bunge SA is to coordinate services performed by the employees of the above research centers and the research center in Kruszwica. Specific costs incurred by the R&D centers are allocated to individual Bunge Group companies with the use of a pre-defined allocation key. As regards information technology services, the Parent Company incurs fees for the access to and maintenance of the Group’s IT network, participates in the costs of licenses to use software (Lotus Notes, anti-spam and antivirus software) and the costs of centrally coordinated projects aimed at development of business applications and ensuring security of their operation. In line with the policy of Bunge SA, some insurance contracts are concluded for the entire Bunge Group, which enables it to benefit from economies of scale. The Parent Company uses, among other things, insurance against risks involved in transportation of goods, use of the natural environment or liability arising from sales of products. Insurance costs are recharged to individual Bunge Group companies. Additionally, Bunge SA charges the Parent Company with the costs of fire protection audit carried out by Global Risk Consultants under a contract concluded centrally by Bunge SA. Transactions with Bunge Zrt. (Hungary) In the periods presented, the Parent Company purchased from Bunge Zrt. bottled sunflower oil for sale in the Baltic States (Lithuania, Latvia, and Estonia) and bulk refined sunflower oil. In the periods presented, the Parent Company also included the sale of services provided by the local research and development office to entities within the Bunge Group. In addition, the Parent Company re-invoices Bunge Hungary for the costs of managing the Food segment in central Europe by the Parent Company's managers.. Transactions with ETSC Ltd Liability (Ukraine) In 2018, ETSC Ltd charged the Parent Company with the costs of consultancy services in the field of industrial safety. Transactions with Koninklijke Bunge BV (Netherlands) Following the acquisition of Bunge Finance B.V. by Koninklijke Bunge B.V. completed on 01.01.2016, the Parent Company has been concluding forward and swap transactions hedging against currency risk of future cash flows related to receivable or payable balances in the balance sheet and to forecast transactions or firm commitments with Koninklijke Bunge B.V. Since 01.01.2016 Koninklijke Bunge B.V. has been a party to a revolving credit facility agreement. As at 31 December 2018 the Parent Company recognized a deposit with Koninklijke Bunge B.V. with interest accrued, presented in the financial statements under cash in the amount of PLN 164,809 thousand. In 2018, the Parent Company incurred expenses related to the management of a current account used for intragroup transactions in the amount of PLN 216 thousand. In the reporting periods presented, the Parent Company sold rapeseed lecithin to Koninklijke Bunge B.V. Transactions with Walter Rau Lebensmittelwerke GmbH & Co KG (Germany) In the periods presented, the Parent Company sold bulk confectionery fats to Walter Rau Lebensmittelwerke GmbH & Co KG. In the periods presented, the Parent Company imported margarine tubs with added herbs from Walter Rau Lebensmittelwerke GmbH & Co KG. Transactions with Walter Rau NEUSSER (Germany) In the periods presented, the Parent Company incurred the costs of margarine test. Transactions with Warsaw Mathematical Institute Sp. z o.o. (Poland)


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In the presented periods, the Parent Company incurred the costs of office space lease from Warsaw Mathematical Institute. Transactions with Property Management Sp. z o.o. (Poland) On 30 June 2017, the Parent Company concluded with ZTK Property Management:

• IT services agreement,

• property management services agreement,

• services agreement within the scope arising from the activity of ZTK Property Management, in the following fields: accounting and taxes, internal control and banking operations, staff management, administration, purchase and sale transactions handling.

The above agreements have been concluded for an indefinite period.

On August 21st, 2017, the Parent Company concluded with ZTK Property Management an office space sublease agreement. Pursuant to this agreement, as part of the rent, the Parent Company is entitled to a non-exclusive right to use the office space and parking spaces. All organizational units of the Parent Company located in Warsaw are seated in this office space. The agreement was concluded for a definite period until August 1st, 2011.

On August 21st, 2017, the Parent Company concluded with ZTK Property Management a service agreement. Pursuant to the above agreement, ZTK Property Management undertook to provide to the Parent Company services related to office management and administration. The agreement was concluded for an indefinite period, with the reservation that the agreement expires upon the expiration of the Sublease agreement.

On September 27th, 2017, the Parent Company concluded with ZTK Property Management an agreement for the provision of services related to the management and administration of the Head Office in Kruszwica.

Transactions with Spółka Wodno-Ściekowa (Poland) Spółka Wodno-Ściekowa in Kruszwica charges the Parent Company with the costs of post-production waste management.


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35. FX DERIVATIVES

As the selling prices of crude oil, refined oil and rapeseed meal are determined by European market prices quoted in the euro and due to the fact that the cost of the key supply used for the production of margarines (palm oil and its derivatives) is conditional on the prices quoted in the US dollar on commodity exchanges worldwide, the Group is exposed to the currency risk related to fluctuations in the aforementioned FX rates.

In order to hedge against the above risk, the Group concludes FX forwards for the sale or purchase of currencies. The Group does not engage in speculative trading in derivatives and it enters into hedging transactions only in connection with the concluded contracts for the purchase of supplies, contracts for the sale of products, or the net exposure to a certain currency. The idea behind the FX hedging contracts is to hedge the Group’s future cash flows relating to supply purchases and sales of products, whose prices are denominated in foreign currencies (the euro or US dollar) as well as the balances of its receivables and liabilities resulting from the performance of such contracts against the currency risk.

The Group is not engaged in any FX derivative transactions other than forwards and swaps, which are used exclusively to hedge its FX exposure. The objective of swaps is to change the maturity date of forwards or, occasionally, to convert the foreign currency of such a contract.

Until the derivative instruments are executed, their fair value is recognized in the balance sheet as financial assets (gain on measurement) or as financial liabilities (loss on measurement) in correspondence with the reserve capital – in the case of the effective measurement of derivative instruments identified as hedging transactions, or in the financial profit or loss (exchange gains/losses in the statement of comprehensive income) – in the case of any other derivatives measured at fair value through profit or loss.

In accordance with the 3-level hierarchy of fair value based on the materiality of the input data to the measurement, the Group classifies the measurement of fair value of FX derivatives to Level 2. In the reporting period and in the comparable period, the Group did not report any changes in the fair value of FX derivatives.

The following input data is used for measurement of fair value of derivatives.

1. FX exposures which are contracts denominated in a foreign currency with a fixed maturity date;

2. FX spot, i.e. FX rate of a transaction in the form of delivery of currency two business days after the transaction at FX rate agreed on the transaction date;

3. Forward points are the difference between the forward and spot rates taking into account maturity of the FX contract. Forward points reflect the disparity between interest rates of different currencies.

The fair value of financial instruments is determined at the end of each reporting period (calendar month) on the basis of differences between FX rates applicable on the date of a contract and on the last day of a month. As regards other contracts (not subject to hedge accounting) – the deference between future and forward rates.

The fair values of receivables, liabilities, loans and borrowings do not differ significantly from their carrying amounts presented in the Statement of financial position because they are short-term and the underlying contracts were entered into on arm's length terms.

As the Parent Company enters into FX forward and swap transactions via Koninklijke Bunge B.V., a specialized entity within the Bunge Group, the credit risk is considered immaterial.

The fair value of FX derivatives included in the classification is as follows:

As at 31.12.2018r. As at 31.12.2017r.

Category Level 1 Level 2 Level 1 Level 2

Financial assets and liabilities measured at fair value through profit or loss

- 215 - (14,427)

Hedge accounting

-

-

-

-


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Nominal value of unrealized FX derivatives (net values of the instruments are presented as the difference between the value of currency purchase and sale contracts) Period ended 31/12/2018

EUR'000 USD'000 PLN'000

Instruments excluded from hedge accounting

CURRENCY SALE

Forwards 241,182 882 1,049,932

Swaps 32,810 65 142,965

273,992 947 1,192,897

CURRENCY PURCHASE

Forwards 268,141 2,925 1,175,038

Swaps 11,890 3,214 63,364

280,031 6,139 1,238,402

Net value 6,039 5,192 45,505

Total net value 6 039 5 192 45 505

Nominal value


EUR'000 USD'000 PLN'000


CURRENCY SALE

Forwards 223,924 223 957,756

Swaps 24,487 23 103,374 248,411 246 1,061,130

CURRENCY PURCHASE

Forwards 361,781 5,344 1,567,137

Swaps 9,916 2,100 49,525

371,697 7,444 1,616,662

Net value 123,286 7,198 555,532

Total net value 123,286 7,198 555,532

Gains/losses on fair value measurement of FX derivatives, recognized in profit or loss



PLN'000 PLN'000

Deferred gains 6,630 23,057

Deferred losses (6,444) (37,509)

186 (14,451)

Realized gains 34,939 56,008

Realized losses (28,377) (62,152)

6,562 (6,144)

6,748 (20,595)


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Unrealized losses on measurement of FX derivatives recognized as at the end of the reporting period will be offset in the following periods by a corresponding increase in sales revenue upon execution of the sales contracts which were hedged with the aforementioned FX contracts.

Fair value of currency derivatives as at 31 December 2018


PLN'000 PLN'000


Financial assets 6,798 23,058

Financial liabilities (6,583) (37,485)

215 (14,427)

215 (14,427)

Exercise dates of FX derivatives, on a quarterly basis, as at 31 December 2018

Nominal value Fair value

recognized in equity

Fair value recognized in profit or loss

EUR`000 USD`000 PLN'000 PLN'000 PLN'000


CURRENCY SALE

Forwards – Q1 2019 180,135 947 784,186 - 4,531

Forwards – Q2 2019 62,341 - 270,636 - 590

Forwards – Q3 2019 21,217 - 92,859 - 461

Forwards – Q4 2019 10,299 - 45,216 - 142

273,992 947 1,192,897 - 5,724

CURRENCY PURCHASE

Forwards – Q1 2019 182,651 6,139 813,493 - (3,575)

Forwards – Q2 2019 56,688 - 246,855 - (1,248)

Forwards – Q3 2019 32,146 - 140,464 - (486)

Forwards – Q4 2019 7,509 - 33,009 - (173)

Forwards – Q1 2020 1,037 - 4,581 - (27)

280,031 6,139 1,238,402 - (5,509)

NET VALUE 6,039 5,192 45,505 - 215

TOTAL NET VALUE 6,039 5,192 45,505 - 215

Exercise dates of FX derivatives, on a quarterly basis, as at 31 December 2017


recognized in equity

Fair value recognized in profit

or loss

EUR`000 USD`000 PLN'000 PLN'000 PLN'000


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CURRENCY SALE

Forwards – Q1 2018 182,379 246 776,372 - 15,598

Forwards – Q2 2018 43,058 - 185,268 - 4,920

Forwards – Q3 2018 14,594 - 63,101 - 1,662

Forwards – Q4 2018 6,609 - 28,695 - 710

Forwards – Q1 2019 1,762 - 7,655 - 167

Forwards – Q2 2019 9 39 1

248,411 246 1,061,130 - 23,058

CURRENCY PURCHASE

Forwards – Q1 2018 202,027 6,206 887,260 - (24,004)

Forwards – Q2 2018 136,622 582,047 - (9,851)

Forwards – Q3 2018 21,066 - 90,844 - (2,121)

Forwards – Q4 2018 10,659 1,238 50,746 - (1,370)

Forwards – Q1 2019 1,252 5,457 (135)

Forwards – Q2 2019 62 268 (3)

Forwards – Q3 2019 9 - 40 - (1)

371,697 7,444 1,616,662 - (37,485)

NET VALUE 123,286 7,198 555,532 - (14,427)

TOTAL NET VALUE 123,286 7,198 555,532 - (14,427)

The Group expects that all planned transactions which have been subject to hedge accounting will be realized.


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36. COMMODITY DERIVATIVES

Significant type of market risk the Company is exposed to in the course of its business is the commodity price risk. The Company's exposure to commodity risk arises primarily as a result of the purchase of rapeseeds on dates that take into account the demand for this raw material and the current market situation.

The contracts are both spot contracts and future contracts (delivery in several months of the date of signing the contract or distributed over several months forward).

Rapeseed is purchased at prices based on the actual quotations of the commodity, determined in line with MATIF regulations. Due to the method of determining the price, the Company applies two main types of agreements, i.e. agreements with fixed prices - prices are determined in PLN or EUR currency, based on the current quotations from the MATIF market, and (ii) agreements with variable prices, i.e. such agreements in which the initial price is determined based on quotations from the MATIF market and the final price is determined by the supplier, by indicating the quotation of prices from the MATIF market from the previous day, in a period of several months specified in the agreement.

From the moment of purchasing the raw material, the Company is exposed to the risk of changes in the value of stocks as a result of changes in the market prices of rapeseeds (commodity risk).

The objective of the Company in the area of freight risk management is to ensure that the market operating margin is achieved by limiting the impact on its level caused by changes in commodity prices occurring in the period from the acquisition of rapeseeds to the conclusion of agreements for the sale of products derived from their processing (oil, meal).

Fulfilling the above objective, the Company seeks to avoid excessive risk associated with a change in the market value of rapeseed stocks, maintaining the commodity exposure in the limit specified by the Bunge Group.

The Company actively manages the commodity risk and employs techniques to mitigate it based on (i) natural hedging, i.e. entering into agreements with an actual delivery, offsetting changes in costs/revenues, and (ii) derivative instruments.

As far as securing the value of rapeseed stocks is concerned, the Company tries to adapt the risk profile resulting from this exposure in a way that guarantees the effect of offsetting the purchase price of these goods in relation to their current market price in the future. In the case of a purchase at a fixed price, the hedging strategy consists in concluding a derivative transaction for the sale of the same volume of rapeseeds, or their equivalent, i.e. rapeseed oil and/or rapeseed meal, at a fixed price and redemption at the price to be applied at a certain point in the future. This does not mean, however, that the Company will obtain the same fixed price in the derivative contract as when purchasing the physical item. This is due to e.g. market conditions being different than those at the time of entering into a hedging transaction, including the current structure of forward prices. The effect of this transaction is to adjust the purchase price of the inventory to the maximum possible extent to the market price at a given time in the future.

The Company does not conclude speculative transactions. In connection with the above, in order to reduce the mismatch, which translates into the volatility of the presented accounting results, the Company applies hedge accounting for the derivatives described above (hereinafter referred to as derivative instruments) designated for hedging the fair value of rapeseeds, which are the source of commodity risk. Fair value hedge is a limitation of the risk of changes in the fair value of the asset recognized in the balance sheet as a result of a certain risk or probable future liabilities.

The commodity risk of the Company ceases at the moment of concluding the transaction of sale of rapeseed processing products (rapeseed oil and meal) at a fixed price, ensuring a given operating margin.

In 2018, the Company also concluded agreements for the supply of rapeseeds with the so-called variable price. The Company treats these agreements as derivative contracts.

In order to hedge commodity risk for variable price contracts, the Company concludes futures contracts at the time of sale of finished products from the sale of these seeds.

In 2018, derivative instruments that hedge commodity risk were concluded by the Company with Bunge Handelsgesellschaft mbH (Germany), Bunge SA (Switzerland) or via its JP Morgan Securities LCC broker on the Euronext (MATIF) commodity exchange. In view of the above, in the Company's opinion, the estimated credit risk to which the Company is exposed is insignificant.

According to the 3-level hierarchy of fair value, based on the materiality of input data for its valuation, the Company classifies the fair value of commodity derivative instruments as:

- Level 2 – agreements concluded with Bunge Handelsgesellschaft, Bunge SA and variable price contracts

- Level 1 – commodity contracts concluded on the Euronext commodity exchange,


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The following input data is used to measure the fair value of commodity derivative instruments:

1. forward prices on the MATIF Rapeseed commodity exchange

2. forward prices on the over-the-counter (OTC) market:

a. FOB Lower Rhine,

b. FOB Dutch Mill

c. FOB 6-Ports In 2018, the Company did not change the way (method) of determining the fair value of commodity derivatives. The fair value of commodity financial instruments is determined at the end of each reporting period (calendar month) based on the difference in forward prices from the date of concluding the contract and end of the month, taking into account the contract maturity dates. In 2018, the Company did not change the way (method) of determining the fair value of commodity derivatives. The fair value of commodity financial instruments is determined at the end of each reporting period (calendar month) based on the difference in forward prices from the date of concluding the contract and end of the month, taking into account the contract maturity dates. The fair value of commodity derivatives included in the classification is as follows:

As at 31.12.2018r. As at 31.12.2017r.

Category Level 1 Level 2 Level 1 Level 2

Financial assets and liabilities measured at fair value through profit or loss

(767)

1,123

(33,320)

26,737

Hedge accounting

1,617

-

-

-

Gains/losses on fair value measurement of Futures commodity derivatives, recognized in profit or loss



PLN'000 PLN'000


Deferred losses (2,270) (35,100)

850 (30,385)

Realized gains 66,799 3,444

Realized losses (57,593) (13,435)

9,206 (9,991)

Gains / losses on the fair value measurement of commodity derivatives - contracts with variable price included in profit or loss



PLN'000 PLN'000


Deferred losses - -

1,123 40,032

Realized gains 81 -

Realized losses (16,851) -

(16,770) -


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Fair value of Futures commodity derivatives as at the end of the reporting period



PLN'000 PLN'000

Instruments subject to hedge accounting

Financial assets 1,619 -

Financial liabilities (2) -

1,617 -



Financial liabilities (2,268) (35,100)

(767) (30,369)

850 (30,369)

Fair value of commodity derivative instruments - contracts with a variable price as at the end of the reporting period



PLN'000 PLN'000



Financial liabilities (73) -

1,050 23,786

1,050 23,786

Gains/losses on fair value measurement of hedged items recognized as adjustment of the value of inventories



PLN'000 PLN'000

Deferred gains 3,404 91

Deferred losses (2,114) -

1,290 91

Realized gains - -

Realized losses (91) (3,094)

(91) (3,094)


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Exercise dates of Futures commodity derivatives, on a quarterly basis



USD'000 EUR`000 PLN'000 PLN'000


Futures – Q1 2019 2,200 (4,193) (17,858) 236

Futures – Q2 2019 - (28,023) (119,365) 1,360

Futures – Q3 2019 - (276) (1,178) 21

Futures – Q4 2019 - - - -

2,200 (32,492) (138,401) 1,617


Futures – Q1 2019 - (840) 4,606 (398)

Futures – Q2 2019 - 14,500 61,763 (288)

Futures – Q3 2019 - 12,003 51,128 (132)

Futures – Q4 2019 - 2,596 11,058 53

Futures – Q1 2020 - 54 230 (2)

- 28,313 128,785 (767)

NET VALUE 2,200 (4,179) (9,616) 850


Nominal value Fair value EUR`000 PLN'000 PLN'000


Futures – Q1 2018 - 33,430 138,969 (10,413)

Futures – Q2 2018 - 98,846 410,905 (18,258)

Futures – Q3 2018 - 11,395 47,368 (1,068)

Futures – Q4 2018 1,238 5,980 29,148 (729)

Futures – Q1 2019 - (482) (2,003) 99

1,238 149,169 624,387 (30,369)

NET VALUE 1,238 149,169 624,387 (30,369)

Exercise dates of commodity derivatives – variable price contracts on a quarterly basis



USD'000 EUR`000 PLN'000 PLN'000


Variable price contracts – Q1 2019 - 2,693 73,871 1,123

- 2,693 73,871 1,123


Nominal value Fair value EUR`000 PLN'000 PLN'000


Variable price contracts – Q2 2018 - 7,995 300,239 23,786


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- 7,995 300,239 23,786

Hedging contracts by type of sold goods: Tonnes [k]

Net sales of rapeseeds 41.0

Net purchase of rapeseed oil 33.0

Net purchase of rapeseed meal 26.0

Net purchases of sunflower oil 3.0

37. CLASSES OF FINANCIAL ASSETS AND LIABILITIES

Change in the classification of financial assets and liabilities as a result of the implementation of IFRS 9.

Category acc. to IAS 39

Category acc. to IFRS 9



PLN'000

PLN'000

Trade receivables Loans and

receivables Amortized cost 87,097

94,526

Loans granted Loans and


8

Derivatives

Designated to be measured at fair

value through profit or loss

The fair value accounted for through profit or loss

11,041

51,574

Margin deposit. Loans and


57,956

Cash Loans and


184,217

Financial assets

337,205

388,281

Category acc. to IAS 39

Category acc. to IFRS 9



PLN'000 PLN'000

Trade receivables Other financial

liabilities Amortized cost 295,779

215,759

Derivatives

Designated to be measured at fair

value through profit or loss

The fair value accounted for through profit or loss

8,926

72,585


304,705

288,344

In the statement of financial position, the aforementioned assets and liabilities are presented in amounts as above.

38. FINANCIAL ACTIVITY IN CASH-FLOW STATEMENT

The Group revealed the following changes in Liabilities in the Cash-flow Statement:

1. settlement of interest from factoring ………………………………….………..(-) 3,633 KPLN; 2. settlement of interest (PLN, USD and EUR currency) on loans ..................... (-) 854 KPLN; 3. repayment of loan from a debtor ………………………………………………. (+) 2 KPLN; 4. dividend payment …………………………………………………...………. (-) 30,573 KPLN

Settlement of interest in foreign currency amounted to :

1. 58 KEUR, presented in functional currency in the amount of 244 KPLN; 2. 11 KUSD, presented in functional currency in the amount of 39 KPLN


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Except for the effects of the currency rate changes on the interest settled in foreign currencies, which are insignificant, all other changes, presented in the Company’s financial activity, were strictly related with cash flows, i.e. did not include changes of non-cash operations.

39. RISK FACTORS RELATED TO THE GROUP’S OPERATIONS

Risks factors related to production and trading

Risk related to the supply and price of rapeseed.

Every year the Group acquires 25-30% of the domestic rapeseed crop, which is the basic raw material used for production purposes. In line with the settlement system, it is necessary to consider the world prices of rapeseed and other oilseed and vegetable oils when determining the price of purchase of rape offered to the Polish producers. The supplies are quoted on international commodity markets.

European and Polish legal regulations which order that the requirements concerning gradual increase in the use of biofuels in the general balance of energy fuels be met lead to an increased demand for rape in Poland and abroad. As the planted acreage has its limits, increased demand may lead to more price pressure on rapeseed which may affect the future financial performance of the Group.

In order to hedge against unexpected fluctuations in the price of rapeseed, the Group tries to diversify supplies - rapeseed may be delivered also from abroad, mainly from Austria, the Czech Republic and Romania. However, it is not certain that the said steps will facilitate complete elimination of the risk of increases in the prices of rapeseed which is the most important supply used by the Parent Company.

The Group conducted a sensitivity test of commodity derivatives liquidated for the purpose of hedge accounting and those unrelated to hedge accounting. As at 31 December 2018, the Company’s net profit would be higher/lower by PLN 5,069 thousand as a result of a 10 per cent decrease/increase in the commodity prices with all the other variables unchanged.

Risk related to extraordinary events

The Group’s key activity is processing of agricultural produce and therefore the natural risk for its business is potential temporary shortage in the supply resulting from frost, drought, rain and hailstorm. Moreover, none of the Group’s production facilities has excessive production capacity to maintain continued production and ensure appropriate stock of finished products in case of any unexpected events which are outside the Group’s control.

Nevertheless, in order to limit the potential effects of such events, the Group takes steps to prevent or identify them early enough. For example, in order to detect lower rape crop well in advance, the employees of the Parent Company’s agro technical services systematically monitor the situation of the rape fields (during vegetation and just before harvest) owned by the producers which are parties to agricultural procurement agreements.

Risk related to the financing of purchases of rapeseed

One of the characteristics of the Polish rape market is the fact that it is short-term. Purchases of rapeseed take place mainly during harvest and shortly after it (July, August). As a result, it is necessary to ensure that appropriate amount of funds is accumulated to carry out the purchases.

Currently, the Group uses only loans obtained under a multilateral agreement entered into by the Bunge Group companies. This entails a risk of potential modification of the loan agreement resulting from the Bunge Group lending policy, which means that all such changes may have an adverse effect on the Company’s operations and its financial performance.

Risk related to acquisition of other supplies

Tropical oils are the second most important raw material used by the Group in its production. In the current year, the Group purchased refined tropical oils mainly in Germany and in the Netherlands. With a view to avoiding short-term fluctuations of prices and the risk of non-availability of the raw material, the Group enters into future supply contracts, which guarantees availability of raw materials in the longer term (typically 2 to 9 months). Although the supply chain risk is considerably limited by the contractual clauses, the Group is unable to guarantee that its sourcing policy will eliminate the price risk related to raw materials in whole, which, in turn, may have an adverse effect on its operations and financial performance.

Risk related to speculative activity on commodity markets

For many years, the Group has identified a high risk related to speculative activity on commodity markets which leads to more significant and more frequent fluctuations in the prices of supplies. One of the reasons for such situation is the increasing global significance of commodity investment funds, including funds investing in cereal, vegetable oils and oilseed crops, in the general trading of the key global commodity markets. As the major part of commercial contracts set the purchase price of rapeseed by reference to the spot prices quoted on MATIF, considerable fluctuations of the raw material prices on commodity exchanges distort the actual picture of demand and supply, which may result in wrong business decisions being taken by the Group.


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Globalization of commodity markets makes various commodity prices (also those not traded by the Group) affect the prices of rapeseed quoted with MATIF, which may also result in incorrect purchase and commodity risk management decisions.

Risk related to the management and key employees

In order to function properly, the Group needs highly-qualified management personnel and experienced technical personnel as its production process is technically advanced and the markets where it operates are highly competitive. One may not exclude a possibility that a part of the key personnel leaves for the competition which in effect could lead to worse financial performance. The Group sees the risk and takes precautionary measures, in particular by developing a system for back-up planning for top management.

The system is based on yearly evaluation of the achievements and the potential of selected employees and delegating them to training schemes. The system is to ensure the possibility of replacing higher-level management personnel with own resources. Additionally, the Group has introduced a policy to differentiate salaries depending on the nature of the labor market which allows minimizing the risk of an outflow of mid- and higher-level staff and develops attractive professional development programs as part of global Bunge structures.

Risk related to the increase in the prices of electricity

Decreasing global resources of energy supplies and growing demand have a negative impact on the economic and geopolitical situation in many parts of the world. Limited access to fossil fuels and natural gas resources are more and more often the reason for political and military conflicts. Renewable sources of energy, such as solar energy, wind energy and thermal energy become an alternative for diminishing fossil fuels. However, as the cost of investments is high, their share in the energy balance - though increasing - is still marginal.

Sharp increases in the prices of oil result in a significant increase in the prices of other energy carriers, in particular natural gas and heating oil, which in every-day operations are used by the Parent Company for production of process steam and feeding production processes.

In order to minimize the risk, the Group carries out technical and organizational activity to reduce the costs of energy production and, on the other hand, limit its consumption per each ton of end-product.

However, further increase in the price of energy supplies; in particular natural gas and hard coal, and resulting increase in the prices of energy may have a negative impact on the future financial performance of the Group.

Risk related to environmental protection

The Group’s operation may have a negative impact on the environment even though it is carried out based on permits required by the provisions of law. However, it may not be excluded that the environmental protection standards, in particular the terms and conditions of installation maintenance specified in the integrated permit, will be breached by the activities of the Group’s plants. Any case of a breach may be the basis for compensation liability for damages to the environment. Moreover, in specific circumstances, it may serve as the basis for a decision of a relevant Regional Environmental Protection Inspector ordering that the operations of the installation causing the breach be stopped.

The Group carries out large-scale activities to limit its impact on the environment. However, it may not be excluded that the steps taken will not be sufficient to wholly eliminate the risk of breaching the environmental protection standards in the course of the Group’s operations.

B. Risk factors related to the Group’s business environment

Risk related to the general macroeconomic condition

The risk factor which may have an impact on the Group’s operations is its dependence on the economic situation in Poland and in the world. The key elements which are outside the influence of the Group and depend on the general macroeconomic condition are: fluctuations in GDP, inflation, increase in interest rates, migration of Poles related to new labor markets and the general condition of the Polish economy. Unfavorable changes in the macroeconomic indicators and the trends in the economic growth of Poland which are not wholly predictable may have a negative impact on future revenue and profits of the Group.

This is becoming more significant due to fluctuations in the global financial market which may make it more difficult for the Group to finance its operations with bank loans and increase the costs of a loan. As a result, the Group may encounter problems with financing the purchases of rapeseed in planned volumes which in effect may have a negative impact on its financial performance.

Competition risk

In 2018, the rapeseed purchase and processing market remained highly competitive, mainly due to incommensurately high processing capacity of plants both in Poland and in the neighboring countries as compared to rapeseed production in the region. Undoubtedly, such a situation has an adverse effect on the seed processing margins that may be achieved. The effects of the measures taken on the Polish rapeseed market by competitors, mainly from the neighboring countries, were offset by the Group by higher prices and purchases of imported seeds


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The risk related to the decreasing market of vegetable fats

Following the drop in consumption of vegetable fats for consumers in the domestic market, the amount of used products stabilized. The consumption of rapeseed oil is 5 kg per person which places Poland on an average European level. The Group, in 2018, carried out an education campaign concerning the way consumers see rapeseed oil to improve its image and provide information about the nutritional value of the oil. In the next 3-5 years, the Group does not expect any major changes in the bottled oil market. Consumption in terms of quantity on the margarine and mix market maintains a downward trend. In the accumulated period from October 2017 to November 2018, the market of margarines and consumer mixes in Poland decreased by about 5% in terms of quantity and 3% in terms of value, in relation to the comparable previous period. The Group expects that the pace of decline in the consumption of margarines will slow down in the upcoming months, which should be followed by a period of stabilization or even modest growth of consumption

Risk related to changes in the provisions of law and their interpretation

The Polish legal system is characteristic of frequent changes in regulations which for the Group mean a risk of outdated forecasts as regards its business operations and deteriorating financial position. These regulations include in particular the commercial law, tax law, regulations governing business activity - also environmental protection, labor and social security law and regulations concerning securities. The risk also results from interpretations of the legal regulations, which are often ambiguous and contradictory, by courts and other bodies. The provisions of the Polish law are also frequently changed because of harmonization of law among EU member states.

Such changes may also entail problems resulting from inconsistent application and interpretation of law which currently occurs not only in the domestic courts and public administration bodies but also in EU courts.

In practice, Polish courts rarely apply the EU regulations. Though, formally, the decisions of the Court of Justice of the European Union are binding only for the parties to the proceedings and do not set precedence, the decisions made by the Polish courts should be consistent with the EU decisions. The decisions of the Court are considered a significant source of law, in particular when treaties, regulations or decisions cannot be construed explicitly. In some cases, this may lead to challenging the decision of a Polish court, which is said to be issued based on a provision in breach of the EU law.

In view of the above, the Polish system of law is inconsistent, not uniform and unstable which significantly reduces predictability and the ability to make plans in the economic and business decisions made by the Management Boards of the Group’s companies. This may have a significant impact on the Group’s legal environment and its financial performance leading to higher operating expenses and delaying revenue in a given product group or limiting it considerably.

Tax policy risk

The Polish tax system is characteristic of frequent changes in its regulations which have not been specified with sufficient precision and have not been interpreted explicitly. This applies, in particular, to a situation when tax authorities interpret tax regulations providing the basis for tax liability differently than the Company which may have a significant adverse impact on its operations, financial position and its development prospects.

At the same time, interpretations of tax regulations are frequently changed and the conduct of tax authorities and court decisions as regards taxation are not uniform. As a result, a Polish company is exposed to more risk related to business operations than a company operating in more stable tax systems.

The Group may be also adversely affected by highly formalized tax regulations concerning its scope of business and strict and often ambiguous regulations which lead to uncertainty as regards the effects of business decisions and diminish the efficiency of operations which may lead to a fall in competitiveness.

Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations towards the Group’s companies and expose it to financial loss. In order to hedge against the risk, the Group insured its receivables. The insurance applies to nearly the entire merchant loan, except when the Group has asset collateral to secure the receivables. In the cases when the insurer refuses to insure receivables from a given counterparty, the Group demands a prepayment. The amount of receivables is regularly monitored and orders made by a given client may not exceed its credit limits. The client may also have no receivables that are past due. In the case of receivables that are past due, the sales are suspended and debt collection proceedings are instigated in line with applicable internal procedures. Debt collection process is supported by specialized institutions.

In the opinion of the Management Boards of Parent Company and subsidiaries, there is no significant credit risk at the Group.


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Carrying amounts of net financial assets represent the maximum credit exposure which as of the end of the reporting period was:



PLN'000 PLN'000

Derivatives measured at fair value through profit or loss

9,918 51,575

Derivatives designated for hedge accounting

- -

Cash 233,909 184,217

Loans and receivables 91,541 153,830

335,368 389,622

A significant part of contracts, which are derivatives, are concluded by the Group with Bunge Group entities and therefore the credit risk related to such financial assets is considered very low.

Credit risk concentration due to 5 key receivables from clients:



PLN'000 PLN'000

Trade receivables 87,097 94,526

Receivables from 5 key clients 27,686 34,381

Concentration degree of receivables 32% 36%

In the opinion of the Management Board, there is no significant credit risk concentration at the Company.

Credit risk – ageing analysis

Ageing analysis of trade receivables:

Gross value Impairment





PLN'000 PLN'000 PLN'000 PLN'000

Current 59,706 59,808 24 -

Past due from 1 to 30 days 23,503 32,876 3 4

Past due from 31 to 120 days

2,872 1,764 200 78

Past due from 120 to 360 days

1,440 95 149 38

Past due over 1 year 373 3,742 421 3,639

87,894 98,285 797 3,759

Liquidity risk

Careful management of the liquidity risk assumes maintenance of an appropriate level of cash, availability of funds thanks to sufficient amounts of loans and the ability to close positions. The Group believes that the present balance of cash, availability of funds and cash generated on operating activities should be sufficient to finance its current needs. As at 31 December 2018, the Group’s cash amounted to PLN 233,130 thousand.

The Group does not have any problems with financing current operations thanks to the revolving loans granted by Koninklijke Bunge B.V. (BUNGE Group related party) of total amount USD 351 million. The details of the short-term loans have been presented in Note 28 “Credit facilities and loans".

As at the balance sheet date, 31 December 2018, the Group had no loan debt.


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Contractual maturity of financial liabilities as at 31 December 2018

Contractual maturity until the end of the reporting period

Up to 3 months

3-12

months 1-3 years 3-5 years

Over 5 years


Trade liabilities 295,779 - - - - 295,779

Contracted credit facilities and loans

- - - - - -

FX derivatives 330 6,226 27 - - 6,583

Commodity derivatives 1,353 988 2 - - 2,343

Other financial liabilities 2,140 - - - - 2,140

299,602 7,214 29 - - 306,845

Contractual maturity of financial liabilities as at 31 December 2017


Up to 3 months

3-12

months 1-3 years

3-5 years

Over 5 years


Trade liabilities 215,759 - - - - 215,759

Contracted credit facilities and loans

- - - - - -

FX derivatives 24,004 13,342 139 - - 37,485

Commodity derivatives 13,260 21,840 - - - 35,100

Other liabilities 6,301 - - - - 6,301

259,324 35,182 139 - - 294,645

Liquidity risk - ageing analysis.

Ageing analysis of trade liabilities:

Gross value



PLN'000 PLN'000

Current 200,607 200,829

Past due from 1 to 30 days 94,205 14,487

Past due from 31 to 120 days 699 194

Past due from 120 to 360 days - 26

Past due over 1 year 268 223

295,779 215,759

Currency risk

A considerable portion of trading is carried out with foreign entities or as part of contracts based on the quotation of supplies on foreign markets. Such tradings are the key factor exposing the Group to currency risk. The Group conducts ongoing analyses of the currency risk by identifying all assets and liabilities and off-balance sheet items denominated in foreign currencies. In order to minimize the currency risk, the Group uses transactions in the currency market (forwards). Pursuant to its internal policy, the Group should not have unhedged foreign currency positions above the materiality threshold which has been earlier defined.


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Trade receivables and liabilities by currency:


PLN (PLN'000)

EUR (EUR'000)

USD (USD'000)

Total (PLN'000)

Trade receivables 32,964 49,906 4,227 87,097

Trade liabilities 196,890 83,952 14,937 295,779

Trade receivables and liabilities by currency as at 31 December 2017:


PLN (PLN'000)

EUR (EUR'000)

USD (USD'000)

Total (PLN'000)

Trade receivables 62,695 28,839 2,992 94,526

Trade liabilities 200,632 12,640 2,487 215,759

The Group carried out a sensitivity analysis of its financial assets and liabilities in foreign currencies in order to measure the potential impact of changes in exchange rates on its financial statements. As at 31 December 2018, the Group’s net profit would be lower/higher by PLN 2,607 thousand, had the Group’s functional currency (PLN) gone down/up by 10% with respect to other foreign currencies (USD, EUR) and had all other variables remained unchanged.

Detailed results of the sensitivity analysis of the Group’s financial assets and liabilities to fluctuations in foreign exchange rates have been presented in the table below "Sensitivity analysis of the Group’s financial assets and liabilities".

Interest rate risk

The Group needs to finance purchases of rapeseed based on external sources of funds. This means that it needs to contract significant credit facilities and loans during the purchasing campaign.

Interest on such credit facilities/loans is based on current market rates (e.g. WIBOR). Any increase in the interest rates increased the financial expenses which may have a negative impact on the Group’s financial performance.

A sensitivity analysis of the Group’s financial assets and liabilities exposed to the interest rate risk showed that as at 31 December 2018, the Group’s net profit would have by higher/lower by PLN 13 thousand, had the market interest rates in PLN been higher/lower by 25 basis points and the market interest rates in USD and EUR been higher/lower by 60 basis points, and had all other variables remained unchanged. This would have been mainly the effect of higher/lower costs of interest on loans denominated in PLN with floating interest.

The table below shows the results of the sensitivity analysis of the Group’s financial assets and liabilities disclosed in the consolidated statement of financial position as at 31 December 2018.


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Sensitivity analysis of the Group’s financial assets and liabilities as at 31 December 2018 (PLN’000)

Interest rate risk Currency risk Price risk

Effect on

profit Changes in equity

Effect on profit

Changes in equity

Effect on profit

Changes in equity

Effect on profit

Changes in equity

Effect on profit

Changes in

inventories

Effect on profit

Changes in

inventories

+25 pb IR in PLN +60 pb IR in USD,

EUR and GBP

-25 pb IR in PLN -60 pb IR in USD,

EUR and GBP +10% -10% +10% -10%

PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000

Carrying amount

Financial assets

Cash and cash Equivalents in PLN

233,909 649 - (649) - 1,836 - (1,836) - - - - -

Trade receivables in PLN 87,097 414 - (414) - 5,620 - (5,620) - - - - -

Originated loans in PLN 5 0 - (0) - - - - - - - -

Effect on financial assets before tax

1,064 - (1,064) - 7,457 - (7,457) - - - - -

19% tax 202 - (202) - (1,417) - 1,417 - - - - -

Effect on financial assets after tax

861 - (861) - 6,040 - (6,040) - - - - -


Credit facilities and loans in PLN - - - - - - - - - - - - -

Trade liabilities in PLN

(295,779) (1,047) - 1,047 - (8,788) - 8,788 - - - - -

Effect on financial liabilities before tax

(1,047) - 1,047 - (8,788) - 8 ,88 - - - - -

19% tax 199 - (199) - 1,670 - (1,670) - - - - -

Effect on financial liabilities after tax (848) - 848 - (7,118) - 7,118 - - - - -


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Sensitivity analysis of the Group’s financial assets and liabilities as at 31 December 2018 (PLN’000) - cont.


Effect on


Effect on profit

Changes in equity

Effect on profit

Changes in equity

Effect on profit

Changes in equity

Effect on profit

Changes in

inventories

Effect on profit

Changes in

inventories


EUR and GBP

-25 pb IR in PLN -60 pb IR in USD,

EUR and GBP +10% -10% +10% -10%

Nominal

value


Derivatives excluded from hedge accounting (FX contracts) in PLN

45,505 - - - - 4,551 - (4,551) -

Derivatives measured at fair value through profit or loss (commodity contracts) in PLN

64,255 - - - - - - - 6,426 (6,426)

Change in the value of inventory * (commodity contracts) in PLN

(1,675) - - - - - - - - (168) 168 168 (168)

Effect on derivatives before tax

- - - - 4,551 - (4,551) - 6,258 168 (6,258) (168)

19% tax - - - - (865) - 865 - (1,189) (32) 1,189 32

Effect on derivatives after tax

- - - - 3,686 - (3,686) - 5,069 136 (5,069) (136)

Total increases/decreases - 13 - (13) - 2,607 - (2,607) - 5,069 136 (5,069) (136)

* Change in the value of the hedged item as of the date of designation of the hedging relationship


Page 74 of 78

Sensitivity analysis of the Group’s financial assets and liabilities as at 31 December 2017 (PLN’000)


Effect on

profit Changes in

equity Effect on

profit Changes in

equity Effect on


Effect on profit

Changes in equity

Effect on profit

Changes in

inventories

Effect on profit

Changes in inventories

+25 pb IR in PLN

+60 pb IR in USD, EUR and GBP

-25 pb IR in PLN -60 pb IR in USD, EUR

and GBP +10% -10% +10% -10%

PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000 PLN'000

Carrying amount

Financial assets

Cash and cash Equivalents in PLN

184,217 463 - (463) - 71 - (71) - - - - -

Trade receivables in PLN 94,526 348 - (348) - 3,183 - (3,183) - - - - -

Originated loans in PLN 7 0 - (0) - - - - - - - -

Effect on financial assets before tax

811 - (811) - 3,254 - (3,254) - - - - -

19% tax 154 - (154) - (618) - 618 - - - - -

Effect on financial assets after tax

657 - (657) - 2,636 - (2,636) - - - - -


Credit facilities and loans in PLN - - - - - - - - - - - - -

Trade liabilities in PLN (215,759) (755) - 755 - (6,165) - 6,165 - - - - -

Effect on financial liabilities before tax

(755) - 755 - (6,165) - 6,165 - - - - -

19% tax 143 - (143) - 1,171 - (1,171) - - - - -

Effect on financial libilities after tax

(612) - 612 - (4,993) - 4,993 - - - - -


Page 75 of 78

Sensitivity analysis of the Company’s financial assets and liabilities as at 31 December 2017 (PLN’000) - cont.


Effect

on profit Changes in equity

Effect on profit

Changes in equity

Effect on profit

Changes in equity

Effect on profit

Changes in equity

Effect on profit

Changes in

inventories

Effect on profit

Changes in

inventories


EUR and GBP

-25 pb IR in PLN -60 pb IR in USD, EUR

and GBP +10% -10% +10% -10%

Nominal

value


Derivatives excluded from hedge accounting (FX contracts) in PLN

555,532 - - - - 55,553 - (55,553) -

Derivatives designated for hedge accounting (FX contracts) in PLN

- - - - - - - -


624 387 - - - - - - - 62,010 (62,010)


- - - - - - - - - - - - -

Effect on derivatives before tax - - - - 55,553 - (55,553) - 62,010 - (62,010) -

19% tax - - - - (10,555) - 10,555 - (11,782) - 11,782 -

Effect on derivatives after tax - - - - 44,998 - (44,998) - 50,228 - (50,228) -

Total increases/decreases - 45 - (45) - 42,641 - (42,641) - 50,228 - (50,228) -

* Change in the value of the hedged item as of the date of designation of the hedging relationship

Zakłady Tłuszczowe „Kruszwica” S.A. Roczne Sprawozdanie Finansowe



Page 76 of 78

40. CHANGES IN CONTINGENT LIABILITIES OR CONTINGENT ASSETS

As at 31 December 2018 and December 31, 2017, the Parent Company disclosed the following contingent liabilities:

Promissory note for Pekao FAKTORING Sp. z o.o. On 14 December 2011 the Parent Company signed a factoring agreement with Pekao FAKTORING Sp. z o. o. with the registered office in Lublin at Lubartowska 74A (hereandafter, respectively “Agreement”, “Factor”) The agreement was concluded for the period of 12 months with an option to be extended for another 12-month period. As at 31 December 2016 and 31 December 2015 the Parent Company was still a party to the factoring agreement. In order to secure performance of the provision of the Agreement, the Company undertook to issue a blank promissory note with a promissory note agreement and transfer rights under the insurance policy concluded with Coface Austria Kreditversicherung AG Branch in Poland. The Factor is entitled to a fee calculated based on market prices for factoring services, including operating fees and costs of financing based on market interest rates plus margin. Pursuant to Annex no. 16 dated 14 December 2018, the maximum exposure of the Factor resulting from the financing provided to the Company was agreed at PLN 200,000,000, to be used until 31 January 2019.

Surety bond issued for ZTK Property Management sp. z o.o. On 17 November 2016, the Parent Company issued a surety bond to guarantee the payment of the potential reprivatization liabilities of ZTK Property Management sp. z o.o. (a subsidiary) which may arise under agreements for sale of real properties located at ul. Radzymińska in Warsaw, up to the maximum limit of PLN 5.5 million. The surety bond is valid until 31 December 2022. On 11 August 2017, the Parent Company provided a surety to subsidiary ZTK Property Management sp. z o.o. up to the amount of PLN 600 thousand for the subsidiary’s fulfilment of its obligations arising from the Lease agreement for office premises in Warsaw. The surety is valid throughout the term of the Lease agreement, concluded for a definite period until 01 August 2021 or until termination thereof.

Potential tax liability to the Tax Office In 2016, the audit of the Parent Company's tax returns relating to corporate income tax for 2012, conducted by the Tax Inspection Office in Bydgoszcz, was closed. As a result, the Tax Inspection Office issued a decision stating that the Parent Company had underestimated its revenue (income) from sales of rapeseed meal to related parties by PLN 5.3 million (a potential tax liability of PLN 1.0 million). The Parent Company is of the opinion that the rapeseed meal sales prices charged in related-party transactions in 2012 were set on arm's length terms and the position taken by the Tax Inspection Office is unjustified as it is based on a benchmarking analysis of prices which was performed incorrectly and in violation of the applicable legal regulations. In connection with the above, the Parent Company appealed against the decision of the Tax Office and then filed a complaint to the Provincial Administrative Court (WSA). The Provincial Administrative Court issued a ruling unfavorable to the Company, against which the Company appealed to the Supreme Administrative Court.

Zakłady Tłuszczowe „Kruszwica” S.A. Roczne Sprawozdanie Finansowe



Page 77 of 78

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

Management Board

Remuneration paid and payable to members of the Management Board of the Parent Company for 12 months of 2018 and 2017

Name Position 12 months of 2018 12 months of 2017

Jachimczyk Wojciech President of

the Management Board

PLN 1,008,383.15 PLN 1,073,820.05

Bauman Wojciech Member of


PLN 1,007,663.33

PLN

PLN 1,055,412.86

PLN Brodowski Marcin Member of


PLN 420,211.00 PLN 445,600.00

Michalak Jacek Member of


PLN 740,962.09 PLN 821,689.73

Piotrowski Piotr Member of


PLN 464,335.57 PLN 403,916.39

Szymański Dariusz Member of


PLN 628,432.56 PLN 668,992.72

Wika Tomasz Member of


PLN 858,246.53

PLN

PLN 871,433.43

PLN

Supervisory Board

In resolution No. 28/2018 of June 6th, 2018, the Ordinary General Meeting of ZT "Kruszwica" S.A. determined

remuneration in the amount of PLN 90,000 gross for an independent member of the Supervisory Board who will

act as the Chairman of the Audit Committee, for each calendar year of acting as a member of the Supervisory

Board and the Chairman of the Audit Committee, as well as remuneration in the amount of PLN 80,000 gross for

an independent a member of the Supervisory Board who will act as a Member of the Audit Committee, for each

calendar year of acting as a member of the Company's Supervisory Board and a Member of the Audit Committee.

It was agreed that other members of the Supervisory Board will perform their duties in the Supervisory Board

without remuneration.

In 2018 Jerzy Rajski received remuneration of PLN 75,588.62 and Sławomir Ludwikowski of PLN 78,282.62 in relation to their positions in the Supervisory Board of the Company.

42. LIABILITIES ARISING FROM PENSION AND SIMILAR BENEFITS.

As at 31 December 2018, the Group did not report any liabilities arising from pension or similar benefits due to individuals performing management or supervisory functions in the past or to former members of its administrative bodies.

43. POST BALANCE SHEET EVENTS

Did not occur.


Page 78 of 78


The consolidated financial statements were prepared on 19 March 2019 and approved by the Management Board of

the Parent Company.

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

Tomasz Wika – Member of the Management Board

Signature of the person responsible for keeping the accounting records:

Sławomir Werbiński – Chief Accountant

Page 1 of 39

MANAGEMENT BOARD’S REPORT ON THE ACTIVITIES

of Zakłady Tłuszczowe „Kruszwica” S.A.

Capital Group

for the period of 12 months ended 31 December 2018

Zakłady Tłuszczowe „Kruszwica” S.A. Capital Group

Management Board’s report on the activities for the period of 12 months ended 31 December 2018

Page 2 of 39

CONTENTS:

1. GOODS AND PRODUCTS SOLD BY THE GROUP .................................................................................................... 4

2. SALES MARKETS AND SUPPLY SOURCES............................................................................................................... 8

3. MAJOR R&D ACHIEVEMENTS ....................................................................................................................................... 9

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 ......................................................... 12

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 2018 PERFORMANCE AND THE RANGE OF THEIR

IMPACT ............................................................................................................................................................................. 16

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

18. CAPITAL GROUP’S GROWTH STRATEGY AND THE ACTIVITIES TAKEN WITHIN ITS REALIZATION ....... 17

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

20. 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

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

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

23. CONTRACTS KNOWN TO THE COMPANY THAT MAY RESULT IN FUTURE CHANGES IN ITS SHARE CAPITAL/BONDS STRUCTURE ................................................................................................................................... 18

24. EMPLOYEE STOCK OWNERSHIP PLAN CONTROL SYSTEM ............................................................................. 18

25. PROCEEDINGS PENDING BEFORE COURT, ARBITRATION AUTHORITY OR PUBLIC ADMINISTRATION AUTHORITY................................................................................................................................... 18

26. ACQUISITION OF TREASURY SHARES .................................................................................................................... 18

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

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

29. STRUCTURE OF ASSETS AND LIABILITIES OF THE CONSOLIDATED BALANCE SHEET, INCLUDING IN TERMS OF LIQUIDITY OF THE GROUP ............................................................................................................... 18

30. MAJOR EVENTS WITH A SIGNIFICANT IMPACT ON THE BUSINESS AND FINANCIAL RESULTS OF THE ISSUER'S CAPITAL GROUP IN THE FISCAL YEAR ....................................................................................... 20

31. STRUCTURE OF MAJOR CAPITAL INVESTMENTS OR MAJOR EQUITY INVESTMENTS WITHIN THE GROUP .............................................................................................................................................................................. 20

32. ISSUER'S CAPITAL ORGANIZATION WITH THE INDICATION OF ENTITIES SUBJECT TO CONSOLIDATION AND CHANGES IN THE ORGANIZATION OF THE ISSUER'S CAPITAL GROUP, INCLUDING THEIR REASONS ..................................................................................................................................... 21

33. POLICY IN THE AREA OF DEVELOPMENT DIRECTIONS OF THE ISSUER'S CAPITAL GROUP ................. 21

34. OFF-BALANCE SHEET ITEMS BY COUNTERPART ................................................................................................ 21

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



Page 3 of 39

As at the balance sheet date 31 December 2018 as well as 31 December 2017, Grupa Kapitałowa ZT "Kruszwica" S.A. (hereinafter: Capital Group or Group) includes Zakłady Tłuszczowe "Kruszwica" S.A. as a dominant entity, and a subsidiary, ZTK Property Management spółka z ograniczoną odpowiedzialnością.

ZTK Property Management Sp. z o. o. operates only in the field of property management services.

ZTK Property Management Sp. z o. o. financial data is presented below.

Statement of financial position 2018-12-31 2017-12-31

PLN ‘ 000 PLN ‘ 000

Property, plant and equipment 739 758

Deferred tax assets 546 1 380

Non-current assets 1 285 2 138

Trade receivables 196 189

Other receivables 37 -

Cash and cash equivalents 68 321 67 073

Current assets 68 554 67 262

Total assets 69 839 69 400

Share capital 75 417 75 417

Retained earnings (5 868) (6 190)

Equity 69 549 69 227

Other provisions 115 105

Non-current liabilities 115 105

Liabilities due to employee benefits 12 12

Trade liabilities 163 51

Other current liabilities - 5

Current liabilities 175 68

Total equity and liabilities 69 839 69 400

Statement of comprehensive income

For 12 months ended

2018-12-31

For 12 months ended

2017-12-31

PLN ‘ 000 PLN ‘ 000

Other operating revenue 1 950 3 011

Total revenue 1 950 3 011

General and administrative expenses 518 523

Other operating expenses 1 189 2 752

Total expenses 1 707 3 275

Operating profit/(loss) 243 (264)

Financial revenue 988 1 047

Financial expenses 74 23

Pre-tax profit/(loss) from continuing operations 1 157 760

Income tax 835 153

Net profit (loss) 322 607

Total comprehensive income 322 607



Page 4 of 39

Due to the insignificant impact of ZTK Property Management Sp. z o. o. for data and financial ratios presented in this Management Board’s report of the activities, the Management Board has decided to present data in a consolidated manner. The Management Board believes that the presented financial information meets the presentations requirements in accordance with the Accounting Act and paragraph 70 of the Ordinance of the Minister of Finance on current and periodic information provided by issuers of securities and conditions for recognizing as equivalent information required by the law of a non-member state of 29 March 2018. Pursuant to Para. 71, item 8 of the Ordinance of the Minister of Finance on current and periodic information provided by issuers of securities and conditions for recognizing as equivalent information required by the law of a non-member state of 29 March 2018, this report covers within its scope (i) the Management Board's report on the activities of Zakłady Tłuszczowe "Kruszwica" S.A. and (ii) the Management Board's report on the activities of Grupa Kapitałowa “Kruszwica” and contains consolidated financial data with the full method for the ZT "Kruszwica" S.A. Capital Group. Based on Article. 55 sec. 2c of the Accounting Act, the Management Board of the Parent Company prepares a separate report of the Capital Group on non-financial information.

1. 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, services and goods offered by the Group.

Zakłady Tłuszczowe „Kruszwica” S.A. (hereinafter referred to as: ZT Kruszwica, Parent Company or Company) 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 and by-products from each production stage as well as conducts the sale of goods purchased from other manufacturers.

Key products and by-products manufactured by 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.



Page 5 of 39

Sales performance analysis 2018

2018 Change compared to the

previous year

PLN ‘ 000 Tonnes

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

Raw and refined oils 952,970 300 27% 80,928 52

Rapeseed meal 471,774 542 48% 66,834 51

Rapeseed 0 0 0% -769 0

Bottled oils 567,569 119 11% 17,183 9

Consumer margarines 372,100 71 6% -7,093 -1

Industrial margarines 103,683 27 2% -5,198 0

Industrial fats 169,714 39 3% -41,243 -8

Other 29,068 31 3% 8,727 7

Total sales 2,666,877 1,131 100% 119,369 109

Including domestic sales


Rapeseed meal 367,620 425 38% 36,781 23

Bottled oils 499,167 104 9% 26,072 11

Consumer margarines 259,707 54 5% -11,806 -2


Industrial fats 141,290 33 3% -37,796 -7

Other 14,930 29 3% 2,328 6

Total domestic sales 2,142,197 911 81% 42,212 61

Including export


Rapeseed meal 104,154 117 10% 30,526 29

Bottled oils 47,935 10 1% -69 0

Consumer margarines 34,583 10 1% 6,218 2


Industrial fats 28,424 6 1% -3,447 -1

Other 2,052 1 0% 273 0

Total export sales 283,997 164 14% 39,177 34

Including sales of goods


Rapeseed meal 0 0 0% -473 -1

Rapeseed 0 0 0% -769 -1

Bottled oils 20,467 5 0% -8,821 2

Consumer margarines 77,810 7 1% -1,505 0

Other 12,086 1 0% 6,127 0

Total sale of goods 240,684 55 5% 37,980 6



Page 6 of 39

Bottled oils

In 2018, the company sold a total of 119,000 tonnes of packaged oils, 8% more compared with the previous year, as a result of which the sales value of this product category increased by 3%. The main increase in volume occurred in brand products, which translates into an increase in the Company’s market share. The Company’s share in the domestic market of bottled oils in 2018 was at 37.5% (ACN data, by volume) and increased by 3.4 p.p. compared to 2017.

The Company continued activities aimed at the strengthening of the market standing of two packed oil brands:

a) Kujawski - strengthening brand value by:

➢ continuation of advertising campaigns on TV,

➢ developing the premium 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 2018).

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 2018 the Company continued participation in the “Fall in Love with Rapeseed Oil” programme carried out by the Polish Association of Oil Producers of which the Company is a member. The second edition of the programme was launched in mid-2015 and ended in mid-2018. The Programme has been run 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 2017 to November 2018, the packed oil market in Poland (including olive oil) did not change significantly. In terms of volume, the market increased by 1%, and in terms of value, decreased by 1%, compared to the comparable previous period. Average retail prices in 2018 were 2% lower than in 2017.

Consumer margarines

In 2018 the Company sold a total of 71,000 tonnes of consumer margarines, which in comparison to last year is a decrease by less than 1,000 tonnes. About 85% of the total sale of products and goods in this segment took place on the domestic market. Exports of products amounted to 10,400 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 at the end of 2018 was 28.1%, compared with 27.1% in 2017 (increase by 1.0 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 Company'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.

As the value of the products continued to grow, the company consistently develops and revitalizes the portfolio of the Smakowita brand: in 2018 introduced a unique product concept to the market, margarine with the addition of four roasted beans: Smakowita 4 Ziarna, improved recipes, indicating favorable product attributes (rapeseed oil from the first pressing).

Słynne MR is the most dynamically developing brand on the margarines market. Thanks to its traditional, unchanged recipe for generations, it not only strengthens its quality among loyal consumers, but also consistently



Page 7 of 39

acquires new ones. In 2018, the Company strengthened the relationship between the brand and the consumer by organizing competitions and consumer campaigns dedicated to retail chains customers.

In 2018 we continued to develop the health-promoting margarines segment. Every year, the sales of Optima Cardio and Optima Cardio Potas+ increased. The Optima brand, thanks to its effectiveness and communication with the consumer, gains new consumers every year and strengthens its position on the market.

The Company 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 2018 the Company 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 2018, there were activities communicating in the media a new variant of the brand - Smakowita 4 Ziarna. These activities were strengthened in points of sale with a number of promotions. The Słynne MR brand is dynamically growing, gaining customers in all sales channels.

c) Economy segment, offering products for which the price is the key selection criterion. In this segment, the Company delivered Ewa margarine to the market.

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, 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 2017 to November 2018, the table margarine and mix market in Poland decreased by approx. 5% in terms of volume and by 3% 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 27.8% in the period from October 2017 to November 2018 (ACN, volume data). Our market position improved by 0.8 p.p. as compared with an analogous period in the previous year.

Industrial fats and margarines

In 2018 the Company supplied the domestic market with 66.8 thousand tonnes of margarines and fats for industrial clients, which was 10% percent less than in the preceding year.

The lower result than in the previous year was recorded also in the category of fat, which is caused by a decrease in sales to the dairy sector.

In the category of industrial margarines, the Company maintains sales at the level of the previous year. 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, which in 2018 celebrated the tenth anniversary of its activity. The Company actively builds its position and develops sales in the HoReCa channel (hotels, restaurants, catering), educating and supporting market development through the "smazymy.com" communication platform.

Raw and refined oils

In 2018 the Company sold a total of 299,800 tonnes of raw and refined oil which is a 52,000 tonnes increase compared with 2017, with a rise in export of 10,000 tonnes and in domestic sales by 42,000 tonnes. Growth in sales resulted mainly from an increase in processed seeds in 2017 and purchases of oils from other entities. A



Page 8 of 39

significant part of the oil (about 72%) hit the market in raw or refined bulk, while the remaining amount was sold in the form of consumer products. Still, a vast majority of raw and refined oil is sold to domestic clients.

The domestic demand for vegetable oils in bulk has slightly increased, mainly due to the increased demand for raw oil.

Rapeseed meal

Sales of rapeseed meal in 2018 amounted to 524.4 thousand tonnes and were 51,000 tonnes higher than in 2017. The increase in the sales of rapeseed meal was mainly the effect of considerably higher levels of processed seeds in 2018.

2. 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 2018 the Company 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 2018 the products manufactured by the Company were available in 95% of shops in Poland. According to AC Nielsen, the most available brand was Olej Kujawski.

The Company 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 2018, the Company became more active on the markets in the Czech Republic, Slovakia, Hungary, Bulgaria, Romania and Baltic Countries.

Raw oils and refined rapeseed

In 2018 the Company supplied raw oils to domestic and foreign manufacturers of bio-components. A small amount of raw oil was sold to Germany.

In 2018, the Company 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

Due to the growing domestic demand for rapeseed meal, the value and volume of sales in this market increased. In 2018, the Company continued to increase the diversification of sales directions and the value of sales through an increase in market share in countries directly bordering Poland. Germany, Denmark and Sweden remained the main export directions.

The animal feed industry remained the key domestic customer for rapeseed meal in 2018.

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)



Page 9 of 39

Rapeseed

The Company 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, Romania, Hungary and Slovakia.

Other Vegetable oils

Tropical oils are the second most important supply used by the Company in production of margarines and fats offered by the Company.

In 2018, the Company 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.

3. MAJOR R&D ACHIEVEMENTS

Project works performed included both table and industrial product development. The implementation of works in each of these areas was supervised by the organizational structures in the Company.

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, and 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.

2018 project portfolio:

➢ margarine segment projects portfolio (B2C): 15 projects,

➢ oil category projects portfolio (B2C): 16 projects,

➢ B2B category projects portfolio: 28 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

➢ 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 2018 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

In 2018, 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 2018 the Company also intensified works on the development of export markets.

In 2018, the company continued B2C projects in the area of creating new products (Kujawski with herbs - 2 new variants, Kujawski cold pressed - new variants, Smakowita with grains, coconut oil) and improvements in current margarine and oil portfolio products (Kujawski - strengthening the aspect of naturalness, Kujawski cold pressed - new variants and technological improvements, work on new flavours for Wawrzyniec and optimizing the recipes of baking cubes).

Moreover, the Company cooperates with external subcontractors to develop new flavour variants for the Wawrzyniec brand (new taste and packaging variants).



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4. CURRENT AND FORECAST FINANCIAL POSITION OF THE GROUP

Key business items

2018 2017

Change

PLN'000 %

Sales volume (tonnes [k]) 1,131 1,021 110 11%

Revenue from sales of products and goods

2,666,877 2,547,505 119,372 5%

Manufacturing cost of products and costs of goods sold

2,357 856 2,293 962 63,894 3%

Selling expenses 150,198 146,686 3,512 2%

General and administrative expenses

37,733 33,795 3,938 12%

(Gains)/losses on derivatives and exchange differences

(688) 21,490 (22,178) (103%)

Gross profit on sales 309,021 253,543 55,478 22%

Gross sales margin 11.6% 10.0% 1.60% 16%

Profit from continuing operations 124,944 51,884 73,060 141%

% of sales 4.7% 2.0% 2.70% 135%

EBITDA (1) 150,099 79,725 70,374 88%

% of sales 5.6% 3.1% 2.50% 81%

Profit before tax 123,704 51,316 72,388 141%

Gross profit margin 4.6% 2.0% 2.60% 130%

Net profit 99,747 41,276 58,471 142%

Net profit margin 3.7% 1.6% 2.10% 131%

Net cash flows from operating activities

85,913 38,044 47,869 126%

Closing balance of non-current assets

303,648 317,901 (14,253) (4%)

Closing balance of current assets 788,008 679,574 108,434 16%

Closing balance of equity 747,106 677,929 69,177 10%

Average working capital (2) 430,650 360,279 70,372 20%

Days of sales (3) 59 52 7 14%

Closing balance of credit facilities and loans (4)

0 0 0

ROA (5) 9.5% 4.0% 5.50% 138%

ROE (6) 14.0% 6.0% 8.00% 133%

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)



Page 11 of 39

The financial result of ZTK Property Management sp. z o. o. does not significantly affect the statement of comprehensive income of the Group.

The Group's financial result in 2018 is influenced by the result of the Agri segment, where the margin on the processing of this raw material was significantly above the results achieved in the previous year. The main reason for this is the relatively good supply of rape seeds, resulting from the high harvest in Poland in 2017 and the high import of seeds.

In 2018 the value of revenues from the sale of products and goods, as compared to the previous year, increased by PLN 119.4 million (+ 5%). The increase was mainly a result of an increase in sales volumes of raw and refined oils and rapeseed meal, which together caused an increase in the value of sales by PLN 147.8 million.

The decrease in sales value was noted for industrial fats (-20%), industrial margarines (-4%) and consumer margarines (-2%), for a total amount of PLN 52 million.

Throughout 2018, the Company managed to sell 1,131 thousand tonnes of their products, i.e. 11% 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 (+3%), which enabled the Group to earn a gross profit on sales of PLN 309.0 million and a gross margin of 11.6% (2017: PLN 253.5 million and 10.0%, respectively). The disproportionate increase in manufacturing costs and costs of goods sold with respect to the increase in sales revenues results from the decrease in the prices of rape seeds in 2018, as compared to the previous year.

Selling costs in 2018 amounted to PLN 151.2 million and increased by PLN 4.5 million, which results from the increase in sales volume. A slight increase was recorded in administrative expenses, from PLN 33.3 million to PLN 37.2 million.

In the reporting period of 2018, the Group disclosed a profit from the valuation of derivatives and exchange differences in the amount of PLN 0.7 million (PLN 21.5 million in 2017). This result includes: PLN 1.7 million loss on unrealized and realized exchange differences (PLN 2.5 million in 2017), PLN 4.4 million loss on commodity hedging instruments and hedged item (PLN 3.3 million loss in 2017) and PLN 6.8 million profit on currency hedging instruments (PLN 20.7 million in 2017).

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

The operating profit in 2018 amounted to PLN 124.9 million and was PLN 73.1 million higher (141%) than in the operating profit for 2017. Similarly, EBITDA increased from PLN 79.7 million to PLN 150.1 million. Consequently, the EBITDA/sales revenue increased by 2.5 p.p. year-on-year (from 3.1% in 2017 to 5.6% in 2018).

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 were compensated in 2018, 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.

In 2017 the Group made a partial restructuring of positions in the industrial and sales area. Ten employees were affected by restructuring in 2017. The total restructuring costs in 2017 totalled PLN 638 thousand. In 2018, the Group did not incur any restructuring costs.

Cash flows from operating activities in 2018 were positive and amounted to PLN 84.7 million. (2017: PLN 39.7 million). In 2018, cash flows from operating activities were affected especially by the following events:

a) increase in inventories by PLN 171.2 million relates mainly to rape seeds;

b) increase in short-term liabilities (except for credit facilities and loans) by PLN 82.4 million,

c) generating a net profit of PLN 98.1 million,

d) decrease in receivables by PLN 62.2 million.

The cash flows from other, i.e. investing and financing activities were negative and amounted to PLN 1.2 million and PLN 35.1 million, respectively. They resulted mainly from investments (PLN 7.6 million) and a dividend payment (PLN 30.6 million), respectively.

Positive cash flow from operating activities managed to cover the negative balances from other activities, as a result of which, as at the balance sheet date, the Group showed positive net cash flow in the amount of PLN 49.7 million, i.e. PLN 92.7 million higher than at the end of 2017.

The value of the Group’s fixed assets at the end of 2018 amounted to PLN 303.6 million and was lower by PLN 14.3 million as compared to the end of 2017, mainly due to current depreciation write-offs.

The Group’s current assets at the end of 2018 amounted to PLN 788.0 million and were PLN 108.4 million higher than in the end of 2017. The key changes in the structure of current assets relate to cash (increase by PLN 49.7



Page 12 of 39

million) and inventories (increase by PLN 171.2 million). Changes in the value of inventories are mainly caused by the increase in stocks of rape seeds.

In 2018, the Group’s ROA increased by 5.5 p.p. year-on-year and amounted to 9.5%, while ROE increased by 8.0 p.p. amounting to 14.0%.

In the consolidated financial statements of the Group for 2018, there were no significant changes in individual categories of assets and liabilities that would result from events other than those 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 2018 the Group paid its liabilities within the determined deadlines and carried out investments as planned.

5. 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 2018, Koninklijke Bunge Besloten Vennootschap (henceforth "KBBV") with the registered office in Rotterdam, the Netherlands, was the major shareholder of 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 activities of the Bunge Group include:

The Bunge Group operates in over 40 countries around the world and has more than 33,000 employees. The scope of the Bunge Group’s activities 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 2018, the share capital of the subsidiary ZTK Property Management sp. z o.o. did not change and amounted to PLN 75,417,000 and was divided into 1,503,840 shares with a nominal value of PLN 50 each. The parent company of ZTK Property Management is ZT Kruszwica, which owns 1,383,840 shares, which constitutes 100.00% of the share capital.

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

6. 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 2018, the Group did not conclude non-arm's length transactions with related parties.

7. 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:



Page 13 of 39

a) Value in excess of ten percent of net revenue on sales of goods and products in 2018 financial year, i.e. PLN 266.7 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 2018 for other types of contracts. The Parent Company's equity at the end of December 2018 amounted to PLN 747.1 million.

According to the above criteria, the Company concluded on 11 July 2018 a significant agreement with LOTOS Biopaliwa sp. z o.o.. for a period of 3 years, for a total value of approx. PLN 545 million.

8. LOAN AND CREDIT FACILITY AGREEMENTS CONCLUDED AND TERMINATED

As at 31 December 2018, the Group had no outstanding balance of credit facilities.

Agreement with Koninklijke Bunge B.V. with the Parent Company

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 Company 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 2018, 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 the creditor 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 Company’s key accounts automatically becomes the amount of the drawdown which increases the Parent Company’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 with Koninklijke Bunge B.V. with ZTK Property Management sp. z o. o.

On 6 December 2016, a short-term loan agreement was concluded („Revolving credit facility agreement and deposit agreement”) by and between ZTK Property Management (the debtor) and Koninklijke Bunge B.V., with registered office in Rotterdam, the Netherlands (the creditor). On the basis of this agreement, Koninklijke Bunge B.V. granted ZTK Property Menagement sp. o.o. the loan in the amount of USD 1 million to be used to finance the Company's working capital, whereby the Company may obtain a loan in PLN currency. The loan is interest-bearing at the Libor rate, plus a margin. The loan agreement term was agreed for the period from 1 December 2016 to 1 January 2018. The loan agreement will be automatically extended for a period of three months, unless the parties agree to terminate the terms of the agreement in writing within 30 days before the said agreement expires. The Company uses the automatic extension clause.

Liabilities due to loans

Creditor Registered office

Contractual Debt

amount as at 31 December

2017

In thousand Currency Maturity

date PLN ‘ 000

Koninklijke Bunge B.V.

Rotterdam, the Netherlands

350,000 USD

or equivalent 01.03.2019 0


Rotterdam, the Netherlands

1,000 USD

or equivalent 01.04.2018 0

Total 351,000 USD

or equivalent 0



Page 14 of 39

9. 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 2018, the Group had no receivables due to originated loans.

10. GUARANTEES AND SURETIES GRANTED AND RECEIVED

In 2018, per the Parent Company'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 GK18-1100012 782,250.00 PLN 23.03.2020

Bank Handlowy w Warszawie S.A. Warsaw GK15-1820020 264,207.00 PLN 06.08.2019

Guarantees GK18-1100012 and GK15-1820020 were issued for Agencja Rezerw Materiałowych.

On 17 November 2016 the Company guaranteed potential reprivatisation liabilities of ZTK Property Management sp. z o.o., resulting from the agreement to sell real property located in Warsaw at ul. Radzymińska concluded by ZTK Property Management, up to the total cap amount of PLN 5.5 million. The guarantee remains valid until 31 December 2022.

On 11 August 2017, the Company provided a surety to subsidiary ZTK Property Management sp. z o.o. up to the amount of PLN 600 thousand for the subsidiary’s fulfilment of its obligations arising from the Lease agreement for office premises in Warsaw. The surety is valid throughout the term of the Lease agreement, concluded for a definite period until 1 August 2021 or until termination thereof.

On 21 December 2018, the Company provided a surety to its subsidiary, Bunge Polska sp. z o.o. up to PLN 15.1 million, for the subsidiary's fulfilment of its obligations under the Agreement of 21 December 2018, which provides for payment for termination of the agreement. The surety was granted until 31 March 2019.

11. 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.

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

In 2018, the Group did not publish any financial projections.

13. RISKS AND THREATS

Risks and threats have been described in the Consolidated Financial Statements of the Group for 2018, in Note 38.

14. 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)



Page 15 of 39

Sources of funding of the Group’s business operations

Source 2018-12-31 2017-12-31 Change

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

Equity 747,106 68.44% 677,929 67.96% 69,177 0.47

Non-current liabilities 5,629 0.52% 7,488 0.75% -1,859 -0.24

Short-term loans and credit facilities

0 0.00% 0 0.00% 0 0.00

Current liabilities 338,921 31,05% 312,058 31.28% 26,863 -0.24

T o t a l 1,091,656 100.00% 997,475 100.00% 94,181

In the structure of sources of financing the Group's operations in 2018, equity in 68.4% was the source of financing the Group's operations (2017: 68.0%). Non-current and current liabilities did not show significant changes. In 2018, the structure of the Group's financing sources did not change significantly compared to 2017.

Both at the end of 2018 and 2017, the Group did not disclose loans and credits, financing its capital working with its own cash and liabilities.

As in previous years, the receivables recognized in the Group’s balance sheet did not include those covered with full factoring (without the risk recourse). At the end of 2018, these receivables amounted to PLN 172 million and were PLN 9 million higher as compared to 2017. 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.

15. 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 2018, 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 12.24 million.

Investments carried out in the financial year included among others:

a) In the Plant in Brzeg:

➢ purchase of a new line for filling coconut oil and other marinades with herbs, ➢ assembly of automatic wrapping machine, ➢ replacement of the compensator and modernization of the barometric water system, ➢ optimization of electricity consumption through modernization and replacement of devices, ➢ modernization of the flax seed processing line to achieve greater efficiency and better oil quality,

b) In the Kobylniki Plant:

➢ replacement of the steam generator and modification of the steam installation, ➢ installation of new chain conveyors along with the modernization of steering and pneumatic systems, ➢ replacement of condensers, ➢ modernization of the oil refining line, ➢ execution of a new technological line for cleaning and grinding waste, ➢ installation of emergency-evacuation lighting.

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.



Page 16 of 39

16. NON-TYPICAL EVENTS THAT AFFECTED 2018 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 2018, except for the increase in the volumes of industrial margarines and fats by over 10%. A decrease in the sales volume of raw and refined oils was offset by the increase in sales volumes of these products. As a result, the sales value was PLN 119 million higher than in the previous year.

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 the first half of 2018 was a reflection of high rape production from 2017 (about 2.8 million tonnes). In the second half of 2018, the rape seed harvest (2.3 million tons) was lower than in 2017 mainly due to smaller crops. Due to the relatively high supply of rapeseed, the Group had no difficulties with obtaining raw material on the domestic market.

The Group continues to implement the provisions of agreements concluded in September 2010 with Bunge Polska, under which the integration of commercial, distribution and marketing activities (sales consolidation agreements) of both entities in the scope of sales of consumer products took place. In 2012, the Group took over all the agreements for sale of products of Bunge Poland, 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 Group 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 2018 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.

Due to the above instruments, the Group mitigates the impact of fluctuations in the prices of products and raw materials as well as exchange rates on the financial result.

No other factors or untypical events occurred that would significantly impact the financial performance of the Group in 2018 reporting period.

17. 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



Page 17 of 39

offered by the Parent Company 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.

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

The Group 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.

18. CAPITAL GROUP’S GROWTH STRATEGY AND THE ACTIVITIES TAKEN WITHIN ITS REALIZATION

The Group's growth strategy focuses on the qualitative and quantitative development of two business segments, i.e.:

AGRI - within this segment, the Group intends to strengthen its market position in hitherto existing businesses on

the domestic market, i.e. biofuel production and sale of rapeseed meal, with simultaneous investments in the

development of production capacity, ensuring the increase of their operational efficiency. The Group will continue its efforts aimed at strengthening its competitive advantage in terms of quality and ensuring timely deliveries.

FOOD - further investments in key brands of the Group are planned (among others Kujawski, Oliwier, Smakowita, Vegetable Butter, Optima), development of new products, including functional ones, which aims to strengthen the strong market position in consumer oils and increase the share in domestic margarines and mixes market. In the field of professional products, the Group's activities will focus on the development of the domestic and foreign market and on the involvement in the development of their distribution system.

In 2018, the Group undertook activities aimed at implementing growth strategies in all of the above-mentioned areas.

19. CHANGES IN KEY BUSINESS MANAGEMENT PRINCIPLES

Did not occur.

20. 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.

21. REMUNERATION, BONUSES AND OTHER BENEFITS RECEIVED BY PERSONS RESPONSIBLE FOR MANAGEMENT AND SUPERVISION OF THE GROUP

(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 40 to the Consolidated Financial Statements of the Group for 2018.

22. TOTAL NUMBER AND FACE VALUE OF ALL SHARES IN THE GROUP AND ITS RELATED PARTIES HELD BY THE MEMBERS OF THE ISSUER MANAGEMENT AND SUPERVISORY BODIES

To the best of the Group’s knowledge, as at the date of publication of this report, none of the Members of the Issuer Management Board or Supervisory Board held any shares in ZT “Kruszwica”. or in related entities of ZT Kruszwica.



Page 18 of 39

23. 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.

24. EMPLOYEE STOCK OWNERSHIP PLAN CONTROL SYSTEM

The Group has no employee stock ownership plan.

25. 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 2018 no such proceedings occurred.

26. 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 Company purchased no treasury shares.

27. 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.

28. 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 on risk financial instruments and the objectives and methods of financial risk management adopted by the Group are described in Notes No. 35 and No. 36 of the Group’s Consolidated Financial Statements for 2018.

29. STRUCTURE OF ASSETS AND LIABILITIES OF THE CONSOLIDATED BALANCE SHEET, INCLUDING IN TERMS OF LIQUIDITY OF THE GROUP

The structure of both assets and liabilities at the end of December 2018 did not change significantly compared to December 2017. At the end of 2018, the balance sheet total in the consolidated statement of financial position of the Group, compared to the end of the previous year, decreased by PLN 94.2 million, i.e. by 9.4%.



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Consolidated statement of financial position - Assets of the Group

Period ended

31/12/2018

Period ended

31/12/2017

Share in assets 2018

Share in assets 2017 Change

Non-current assets

Property, plant and equipment 197,623 207,792 18.1% 20.8% -10,169

Investment property 3,350 3,559 0.3% 0.4% -209

Goodwill 83,793 83,793 7.7% 8.4% 0

Intangible assets 7,076 9,245 0.6% 0.9% -2,169

Long-term financial assets 6 8 0.0% 0.0% -2

Deferred tax assets 10,767 12,453 1.0% 1.2% -1,686

Long-term prepayments 0 18 0.0% 0.0% -18

Long-term other receivables 1,033 1,033 0.1% 0.1% 0

303,648 317,901 27.8% 31.9% -14,253

Current assets

Property, plant and equipment held for trading 0 9,863 0.0% 1.0% -9,863

Inventories 450,152 278,957 41.2% 28.0% 171,195

Trade receivables 87,097 94,526 8.0% 9.5% -7,429

Other receivables 4,444 59,304 0.4% 5.9% -54,860

Current financial assets 12,152 51,574 1.1% 5.2% -39,422

Cash and cash equivalents 233,909 184,217 21.4% 18.5% 49,692

Short-term prepayments 254 1,133 0.0% 0.1% -879

788,008 679,574 72.2% 68.1% 108,434

Total assets 1,091,656 997,475 100.0% 100.0% 94,181

The financial data of ZTK Property Management Sp. z o. o. do not significantly affect the assets in the statement of financial position of the Group.

At the end of 2018, the main item in the Group’s assets is inventories (41%), including primarily rape seeds, PLN 298 million (as at 31 December 2017: PLN 90 million). The increase in rapeseed oil stocks was due to the higher availability of raw material.

Another material item in the Group's assets are tangible fixed assets (18.1%), their value decreased by PLN 10.2 million.

Trade receivables remained at a similar level as in the previous year.

As at the balance sheet date, 31 December 2018, the Group recognized a cash deposit of PLN 233.1 million, an increase of PLN 49.7 million compared to the end of 2017. The share of cash in the Group's assets is 21.4%.

As at 31 December 2018, the fair value of derivatives held by the Group, presented in short-term financial assets, was PLN 11.1 million (as at 31 December 2017: PLN 51.6 million).



Page 20 of 39

Consolidated statement of financial position - Liabilities of the Group

Period ended

31/12/2018

Period ended

31/12/2017

Share in assets 2018

Share in assets 2017 Change

PLN ’000 PLN ’000 % % PLN ’000

Equity

Share capital 185,076 185,076 17.0% 18.6% 0

Share premium 245,401 245,401 22.5% 24.6% 0

Reserve capital 151,481 141,382 13.9% 14.2% 10,099

Retained earnings 165,148 106,070 15.1% 10.6% 59,078

Capital attributable to non-controlling interests

747,106 677,929 68.4% 68.0% 69,177

Non-current liabilities

Liabilities due to employee benefits 5,349 5,188 0.5% 0.5% 161

Other provisions 260 2,286 0.0% 0.2% -2,026

Other non-current liabilities 20 14 0.0% 0.0% 6

5,629 7,488 0.5% 0.8% -1,859

Current liabilities

Provisions 5,325 1,012 0.5% 0.1% 4,313

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

Financial liabilities 8,926 72,585 0.8% 7.3% -63,659

Liabilities due to employee benefits 20,296 13,874 1.9% 1.4% 6,422

Trade liabilities 295,779 215,759 27.1% 21.6% 80,020

Current income tax liabilities 6,455 2,527 0.6% 0.3% 3,928

Other current liabilities 2,140 6,301 0.2% 0.6% -4,161

338,921 312,058 31.0% 31.3% 26,863

Total equity and liabilities 1,091,656 997,475 100.0% 100.0% 94,181

The financial data of ZTK Property Management Sp. z o. o. do not significantly affect the equity and liabilities in the statement of financial position of the Group.

The change in the Group's equity stems from the dividend paid in 2018 by the Parent Company in the amount of PLN 30.6 million, from the generated net profit of the Group in the amount of PLN 98.1 million and the adjustment of retained earnings PLN 1.6 million.

At the end of December 2018, the share of non-current liabilities of the Group remained at a similar level year-to-year.

Under financial liabilities, at the end of 2018, the Group recognized liabilities due to the valuation of the fair value of currency and commodity derivatives, PLN 63.7 million lower than in 2017.

At the end of December 2018, trade liabilities increased by PLN 80.0 million compared to the end of December 2017.

30. MAJOR EVENTS WITH A SIGNIFICANT IMPACT ON THE BUSINESS AND FINANCIAL RESULTS OF THE ISSUER'S CAPITAL GROUP IN THE FISCAL YEAR

Events having a significant impact on the Group’s operations and financial results in 2018 are described in item 16 of this Report.

31. STRUCTURE OF MAJOR CAPITAL INVESTMENTS OR MAJOR EQUITY INVESTMENTS WITHIN THE GROUP

The Group has no equity investments. The Group’s free cash funds are deposited in a separate bank account and are subject to interest according to the Revolving Credit Facility Agreement with Koninklijke Bunge B.V.



Page 21 of 39

32. ISSUER'S CAPITAL ORGANIZATION WITH THE INDICATION OF ENTITIES SUBJECT TO CONSOLIDATION AND CHANGES IN THE ORGANIZATION OF THE ISSUER'S CAPITAL GROUP, INCLUDING THEIR REASONS

A detailed description of the Group’s organization is included in notes No. 1 and 18 of the Group’s Consolidated Financial Statements for 2018.

33. POLICY IN THE AREA OF DEVELOPMENT DIRECTIONS OF THE ISSUER'S CAPITAL GROUP

The policy description of the Group's development directions is included in item 18 hereof.

34. OFF-BALANCE SHEET ITEMS BY COUNTERPART

Significant off-balance sheet items did not occur.

35. 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 201 with Deloitte Audyt Sp. z o. o. Sp. k. with the registered office in Warsaw was concluded on 13 July 2019. 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 2018 with Deloitte Audyt Sp. z o. o. Sp. k. with the registered office in Warsaw was concluded on 3 January 2019. The scope of the audit includes the full separate and consolidated financial statements prepared in line with IFRS/IAS.

b) The body that selected the auditing company.

The Supervisory Board of the Company, on April 18, 2018, adopted Resolution No. 10/2018 on the selection of an auditing company for the audit of the Company's separate financial statements and consolidated financial statements of the Capital Group for the financial years 2018 and 2019.

c) 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 Group 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 2018 has been determined as an equivalent of EUR 20,000.

The total fee payable for the audit of separate and consolidated financial statements for 2018 has been determined as an equivalent of EUR 70,000.

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, etc.)

d) 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.

The total fee payable for the audit of consolidated package for 2018 has been determined as an equivalent of EUR 73,292.

e) 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 2017 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 2017 had been determined as an equivalent of EUR 70,000.

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 etc.

The total fee payable for the audit of consolidated package for 2017 has been determined as an equivalent of EUR 84,138.

Page 22 of 39

Representation letter of the ZT „Kruszwica” S.A. Group

regarding the use of corporate governance in 2018

I. The rules of the Issuer’s corporate governance and the source text where the set of rules is publicly available

Pursuant to Article 29.2 of the Warsaw Stock Exchange Rules in the meaning adopted by the Supervisory

Board by Resolution No. 1/1110/2006 of 4 January 2006, as amended, ZT “Kruszwica” S.A. in 2017

(“Parent Company”, “Issuer” or “ZT Kruszwica”) should apply the rules of corporate governance specified

in “Best Practices of WSE Listed Companies 2016”, which constitute an Appendix to Resolution No.

26/1413/2015 of the Supervisory Board of 13 October 2015 (“Good Practices”), available at

http://www.corp-gov.gpw.pl.

II. How much the Issuer has strayed from the rules of corporate governance, what rules the Issuer has omitted and for what reason

In 2018, the Parent observed all the rules regarding Good Practices, with the exception of the following:

- recommendations from section I of the Good Practices (Information policy and communication

with investors):

1. I.Z.1.3. “A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the legislation: a chart showing the division of duties and responsibilities among members of the management board drawn up according to principle II.Z.1” This principle is not complied with by the Parent. There is no formal chart showing the division of duties

and responsibilities among members of the Management Board in place at the Parent. Such a chart will be

published by the Parent if it is adopted.

2. I.Z.1.10. “A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the legislation: financial projections, if the company has decided to publish them, published at least in the last 5 years, including information about the degree of their implementation.” This principle is not complied with by the Parent. As no financial projections are published by the Parent,

they will not be published on the corporate website, either.

http://www.corp-gov.gpw.pl/



Page 23 of 39

3. I.Z.1.15. “A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the legislation: information about the company’s diversity policy applicable to the company’s governing bodies and key managers; the description should cover the following elements of the diversity policy: gender, education, age, professional experience, and specify the goals of the diversity policy and its implementation in the reporting period; where the company has not drafted and implemented a diversity policy, it should publish the explanation of its decision on its website.” This principle is not complied with by ZT Kruszwica in quantitative terms as only one woman is among

members of the Management Board and the Supervisory Board. However, in selecting individuals

for the position of members of the Management Board and Supervisory Board, the Parent invariably follows

the highest standards and does not use any gender differentiation or other non-technical criteria. The key

criterion for appointment of members of the Parent’s governing bodies is the competencies, skills and

professionalism of the candidates.

4. I.Z.1.16. “A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the legislation: information about the planned transmission of a general meeting, not later than 7 days before the date of the general meeting.” This principle is not complied with by the Parent. As the Parent does not broadcast its General Meetings

(see: explanation relating to principle IV.Z.2), it will not publish such information on its corporate website.

5. I.Z.1.19. “A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the legislation: shareholders’ questions asked to the management board pursuant to Article 428 § 1 or § 6 of the Commercial Companies Code together with answers of the management board to those questions, or a detailed explanation of the reasons why no answer is provided, pursuant to principle IV.Z.13.” This principle is not complied with by the Parent. As communicated before, the course of General Meetings

is documented only in the minutes taken by a notary public. Decisions to include certain issues in the

minutes are taken by the Chairman of the General Meeting in compliance with the applicable laws and the

corporate documents of the Parent. In line with the Regulations of the General Meeting, the shareholders

have the right to make written statements which are subsequently attached to the minutes. Minutes of the

Parent’s General Meetings are available to the shareholders for information purposes at the registered

office of the Parent, in accordance with the Commercial Companies Code.

6. I.Z.1.20. “A company should operate a corporate website and publish on it, in a legible form and in a separate section, in addition to information required under the legislation: an audio or video recording of a general meeting.” This principle is not complied with by the Parent. As the Parent does not make audio or video recordings

of its General Meetings, they are not published on its corporate website. As communicated before, thus far

it has not been necessary to record the General Meetings at ZT Kruszwica and publish such recordings on

the corporate website. The General Meetings are held in Warsaw, so access to them has not been limited

for the interested shareholders in any way. In addition, in accordance with the applicable laws, details of

the General Meetings are recorded in the form of minutes taken by a notary public. Finally, the shareholders

have access to all material information concerning the General Meetings as the Parent publishes current

reports and the relevant data on its corporate website. These practices guarantee transparency of the

General Meetings in addition to protecting the Parent against possible claims of those shareholders who

do not want their image or statements to be published by the Parent.

7. I.Z.2. “A company whose shares participate in the exchange index WIG20 or mWIG40 should ensure that its website is also available in English, at least to the extent described in principle I.Z.1. This principle should also be followed by companies not participating in these indices if so required by the structure of their shareholders or the nature and scope of their activity.” This principle is complied with by the Parent in part. The Parent’s shares do not participate in the exchange

index WIG20 or mWIG40, and the structure of the Company’s shareholders or the nature and scope of its

activity do not require that the principle be complied with in whole. The Parent’s website is also available in

English insofar as it is necessary to fulfil the needs of its stakeholders.



Page 24 of 39

- as regards the detailed principles laid down in Part II of the Best Practice (Management Board,

Supervisory Board):

8. II.Z.1. “The internal division of responsibilities for individual areas of the company’s activity among

management board members should be clear and transparent, and a chart describing that division should

be available on the company’s website.”

This principle is complied with by the Parent in part. Although there is no formal chart showing the division

of duties and responsibilities among members of the Management Board in place at the Parent, their areas

of competence are defined in a clear and transparent way. Therefore, a lack of a formal chart does not

have any adverse effect on the Parent’s governance practices. Such a chart will be published by the Parent

if it is adopted.

9. II.Z.2. “A company’s management board members may sit on the management board or supervisory board of companies other than members of its group subject to the approval of the supervisory board.” This principle is not complied with by the Parent. The Parent’s internal regulations do not impose the

obligation to obtain such an approval from the Supervisory Board. Notwithstanding the above, the Parent

complies with Article 380 of the Commercial Companies Code, which applies to the engagement of

members of the Management Board in competitive activities.

- as regards the recommendations and detailed principles laid down in Part III of the Best Practice

(Internal Systems and Functions):

10. III.R.1. “The company’s structure should include separate units responsible for the performance of

tasks in individual systems or functions, unless the separation of such units is not justified by the size or

type of the company’s activity.”

This recommendation has been implemented by the Parent in part. The Parent operates within the Bunge

Group and its parent has its registered office in the United States. The Company is obliged to comply with

the internal regulations adopted by the governing bodies of the Bunge Group and internal audit functions

are performed at the Group level.

11. III.Z.2. “Subject to principle III.Z.3, persons responsible for risk management, internal audit and compliance should report directly to the president or other member of the management board and should be allowed to report directly to the supervisory board or the audit committee.” This principle is complied with by the Parent in part. The Parent operates within the Bunge Group and its

parent has its registered office in the United States. The Parent is obliged to comply with the internal

regulations adopted by the governing bodies of the Bunge Group and internal audit functions are performed

at the Group level.

- as regards the recommendations and detailed principles laid down in Part IV of the Best Practice

(General Meeting, Shareholder Relations)



Page 25 of 39

12. IV.R.2. “If justified by the structure of shareholders or expectations of shareholders notified to the

company, and if the company is in a position to provide the technical infrastructure necessary for a general

meeting to proceed efficiently using electronic communication means, the company should enable its

shareholders to participate in a general meeting using such means, in particular through:

1) real-life broadcast of the general meeting; 2) real-time bilateral communication where shareholders may take the floor during a general meeting

from a location other than the general meeting; 3) exercise of the right to vote during a general meeting either in person or through a plenipotentiary.”

This recommendation is not followed by the Parent. In the opinion of the Management Board, there has

been no need to implement the recommendation thus far. The General Meetings have been held

in Warsaw, so access to them has not been limited in any way for shareholders interested in their course,

expressing opinions or exercising the voting rights (in person or through a plenipotentiary). The Parent is

also of the opinion that despite technological advancement there is always the risk that for some reasons,

including reasons that are beyond the control of the Parent, its Shareholders or third parties, technical and

legal security of real-time bilateral communication or exercising the voting right using electronic

communication means cannot be guaranteed and potential damages resulting from any interference in this

respect can generate unreasonable operating expenses for the Parent.

13. IV.R.3. “Where securities issued by a company are traded in different countries (or in different

markets) and in different legal systems, the company should strive to ensure that corporate events related

to the acquisition of rights by shareholders take place on the same dates in all the countries where such

securities are traded.”

This recommendation is not followed by the Parent. The Parent’s securities are not traded on other markets.

14. IV.Z.2. “If justified by the structure of shareholders, companies should ensure publicly available real-time broadcasts of general meetings.” This principle is not complied with by the Parent. As communicated before, thus far it has not been

necessary to broadcast the General Meetings at ZT Kruszwica. It is not justified by the structure

of shareholders, either (typically, more than 90% of shareholders are represented at General Meetings).

- as regards the detailed principles laid down in Part V of the Best Practice (Conflict of Interest,

Related Party Transactions):

15. V.Z.5. “Before the company concludes a significant agreement with a shareholder who holds

at least 5% of the total vote in the company or with a related party, the management board should request

the supervisory board’s approval of the transaction. Before giving its approval, the supervisory board should

evaluate the impact of the transaction on the interest of the company. The foregoing does not apply to

typical transactions and transactions at arm’s-length made as part of the company’s operations between

the company and members of its group.

If the decision concerning the company’s significant agreement with a related party is made by the general meeting, the company should give all shareholders access to information necessary to assess the impact of the transaction on the interest of the company before the decision is made.” This principle is complied with by the Parent to a limited extent. The Management Board requests the

Supervisory Board’s approval of specific transactions, as defined in Section 16.2 of the Articles

of Association (5 categories of agreements) whether or not a shareholder or another related party

of the Parent is the other party to the transaction. Beyond the scope defined in Section 16.2 of the Articles

of Association, the Management Board of the Issuer typically does not request the Supervisory Board’s

approval of the entry into an agreement. Furthermore, in accordance with Section 10 of the Regulations of

the Management Board of the Company, the transactions specified therein (9 categories of agreements),

entered into with related parties (shareholders whose shares account for more than 10% of all the Parent’s



Page 26 of 39

shares) are beyond the ordinary course of business of the Parent and require a resolution of the

Management Board.

16. V.Z.6. “In its internal regulations, the company should define the criteria and circumstances under which a conflict of interest may arise in the company, as well as the rules of conduct where a conflict of interest has arisen or may arise. The company’s internal regulations should among others provide for ways to prevent, identify and resolve conflicts of interest, as well as rules of excluding members of the management board or the supervisory board from participation in reviewing matters subject to a conflict of interest which has arisen or may arise.” This principle is complied with by the Parent in part. The Parent operates within the Bunge Group. All

employees of the Group, including members of the Parent’s governing bodies, are obliged to comply with

the Code of Ethics, which governs conflicts of interest. Thus far it has not been necessary to adopt any

other regulations in this regard.

- as regards the recommendations and detailed principles laid down in Part VI of the Best Practice

(Remuneration):

17. VI.R.1. “The remuneration of members of the company’s governing bodies and key managers should follow the approved remuneration policy.” This recommendation is not followed by the Parent. In accordance with Section 17.2 of the Articles of

Association, the remuneration paid to members of the Supervisory Board is determined by the General

Meeting. In accordance with Section 12 of the Articles of Association, the remuneration paid to members

of the Management Board is determined by a representative of the Supervisory Board delegated by the

Supervisory Board or a plenipotentiary appointed by the General Meeting. It should not be forgotten that

the Parent operates within the Bunge Group and its parent has its registered office in the United States.

The Parent has to adhere to internal guidelines developed by the governing bodies of the Bunge Group,

which make direct reference to the good practices followed by US companies. Therefore, the Company

complies with the European Commission’s recommendations as to the policy applicable to members of the

Management Board, the structure of their remuneration, incentive schemes and annual bonuses, only to a

limited extent. In this respect, the Parent observes internal regulations of the Bunge Group. Hence, the

Company may not implement this recommendation in whole due to the differences between the legal

systems and standards applicable in the European Union and the Bunge Group’s internal regulations.

18. VI.R.2. “The remuneration policy should be closely tied to the company’s strategy, its short-

and long-term goals, long-term interests and results, taking into account solutions necessary to avoid

discrimination on whatever grounds.”

This recommendation is not followed by the Parent as linked to VI.R.1.

19. VI.R.3. “If the supervisory board has a remuneration committee, principle II.Z.7 applies

to its operations.”

This recommendation is not followed by the Parent. There is no remuneration committee at the Supervisory

Board.



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20. VI.R.4. “The remuneration levels of members of the management board and the supervisory board

and key managers should be sufficient to attract, retain and motivate persons with skills necessary for

proper management and supervision of the company. Remuneration should be adequate to the scope of

tasks delegated to individuals, taking into account additional functions, for instance on supervisory board

committees.”

This recommendation has been implemented by the Parent in part, namely with respect to the remuneration

of members of the Management Board. During the present term of office, under Resolution No. 34/2013 of

the General Meeting of 20 June 2013 only independent members of the Supervisory Board are

remunerated. Other members of the Supervisory Board have not received any remuneration for their

functions.

21. VI.Z.1. “Incentive schemes should be constructed in a way necessary among others to tie the level

of remuneration of members of the company’s management board and key managers to the actual long-

term financial standing of the company and long-term shareholder value creation as well as the company’s

stability.”

This principle is complied with by the Parent in part. The Parent has an annual bonus system in place,

which depends, to a considerable extent, on the financial performance of the Parent.

22. VI.Z.2. “To tie the remuneration of members of the management board and key managers

to the company’s long-term business and financial goals, the period between the allocation of options or

other instruments linked to the company’s shares under the incentive scheme and their exercisability should

be no less than two years.”

This principle is not complied with by the Parent. It does not apply to the Parent. Currently, there are no

incentive schemes in place.

23. VI.Z.4. “In this activity report, the company should report on the remuneration policy including at least the following: 1) general information about the company’s remuneration system; 2) information about the conditions and amounts of remuneration of each management board member

broken down by fixed and variable remuneration components, including the key parameters of setting the variable remuneration components and the terms of payment of severance allowances and other amounts due on termination of employment, contract or other similar legal relationship, separately for the company and each member of its group;

3) information about non-financial remuneration components due to each management board member and key manager;

4) significant amendments of the remuneration policy in the last financial year or information about their absence;

5) assessment of the implementation of the remuneration policy in terms of achievement of its goals, in particular long-term shareholder value creation and the company’s stability.”

This principle is not complied with by the Parent. Detailed explanations have been provided in Section

VI.R.1.

III. A description of the key characteristics of Parent Company’s internal control and risk

management systems in correspondence with the process of preparation of the financial statements

The Parent Company’s Management Board is responsible for the Parent’s system of internal control and

its efficient operation in the process of preparation of the financial statements and periodical reports,

published in accordance with the Ordinance of the Minister of Finance of 19 February 2009, on current and



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periodical information provided by issuers of securities and the conditions for regarding information required

by the law of a non-member state as equivalent.

The finance department headed by the Director of Finance – Member of the Management Board is

responsible for preparation of the financial statements and periodical reports of the Parent. Mr. Jacek

Michalak held the position as at the date of this document.

The financial data on which the financial statements and periodical reports are based is derived from

the Parent Company’s monthly financial and management reports. The process of preparing monthly

financial reports is subject to internal regulations to ensure correctness and completeness of

the information.

The internal control model used by the Parent comprises reviews of the following:

- results of operations (monitoring) in correspondence with the plans, budget or operational information from individual departments;

- methods used for data processing, in particular application controls used for ensuring accuracy, completeness and validity of the transactional data processed;

- physical security of the assets that are in the Parent’s physical possession;

- division of duties to eliminate potential errors or adverse actions.

All material fragmentary data which has an impact on individual components of the financial statements are

subject to multiple verifications. Verification is always carried out by independent individuals who are in

charge of preparation of given data or parts of the financial statements. Internal controls and their

effectiveness are verified by especially appointed employees and external consultants hired by

the Management Board of the Parent Company.

The financial statements are analysed by middle and senior management from the finance department

headed by Director of Finance – Member of the Management Board, after the closing of each accounting

period (a calendar month). Any errors identified are immediately corrected in the Parent’s accounting

records, in accordance with the accounting policy adopted.

Semi-annual financial statements are reviewed by the Parent’s auditor. The review applies mainly to

the adequacy of the financial data and the scope on necessary disclosures. The auditor presents results of

the semi-annual reviews and audits of the annual financial statements to the management of the Parent’s

finance department during regular meetings. The auditors provide the Parent’s Management Board with

information about deficiencies in the control mechanisms identified during the audit of the financial

statements. All reasonable recommendations resulting from the review of risk management procedures

and internal control mechanisms have been implemented gradually.

ZT Kruszwica uses internal control systems because, among other things, it belongs to the Bunge Capital

Group whose holding company is Bunge Ltd. listed on the New York Stock Exchange. Listed public

companies on the American market are under the obligation to use internal control systems to ensure

compliance with the provisions of the Sarbanes-Oxley Act.

IV. Information about shareholders directly or indirectly holding a significant block of stock, including the number of shares held, percentage interest in the share capital, number of votes and percentage of total number of votes a the General Shareholders’ Meeting.



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As at 31 December 2018, the following entities had at least 5% votes in the Total number of votes at

the General Shareholders’ Meeting of ZT Kruszwica:

Name of the entity Number of

shares held

Percentage in

the Company’s

share capital

Number of

votes at

the General

Shareholders'

Meeting

Percentage

of votes at

the General

Shareholders

' Meeting


with its registered Office in Rotterdam

(hereinafter referred to as “KBBV”)

14,763,313 64.23 14,763,313 64.22

Windstorm Trading & Investments

Limited with its registered office in

Thasou

5,805,485 25.26 5,805,485 25.26

Bunge Europe S.A., with its registered office in Luxembourg, is KBBV’s holding company with 100% shares

and votes at its General Shareholders' Meeting. Bunge Ltd., with its registered office in the Bermudas and

headquarters in White Plains, NY, USA, is KBBV’s holding company of Bunge Europe S.A., holding directly

and indirectly 100% shares and votes at its General Shareholders' Meeting.

The aforesaid information is based on statements about the shares held in the Parent and information

provided by National Depository of Securities (Krajowy Depozyt Papierów Wartościowych S.A.) under

the shareholder registration procedure preceding General Meetings.

V. Holders of any preference shares and a description of the preference

The Parent did not have any preferred securities, in particular preference shares, and the Parent’s Articles

of Association do not grant its shareholders any personal privileges within the meaning of Art. 354 of

the Commercial Companies’ Code. The Parent’s Articles of Association give shareholders privileges

resulting from holding a given percentage of the total number of votes. In particular under Art. 13.2. of

the Parent’s Articles of Association, shareholders have the right to appoint members of the Supervisory

Board at the General Shareholders’ Meeting in the following way:

a) Each shareholder participating in the General Shareholders’ Meeting who holds at least 60% in

the total number of shares in the Company has the right to appoint eight members of the Supervisory

Board;

b) Each shareholder participating in the General Shareholders’ Meeting who holds at least 17.5% in

the total number of shares in the Company has the right to appoint two members of the Supervisory

Board;

c) Each shareholder participating in the General Shareholders’ Meeting who holds at least 10% in

the total number of shares in the Company has the right to appoint one member of the Supervisory

Board;

d) in the event there are no shareholders entitled to appoint members of the Supervisory Board in

accordance with Article 13. 2(a)-(c) of the Articles of Association, or for any other reason all members

of the Supervisory Board that were to be elected by the General Meeting pursuant to the provisions

of Article 13 were not elected, the General Meeting appoints a relevant number of members of

the Supervisory Board by way of a resolution to be passed by a simple majority of votes.



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VI. Any limitations regarding the ability to exercise the voting rights such as limitations regarding the ability to exercise voting rights by holders of a given part or a number of votes, time limitations in respect of exercising the voting rights or provisions whereby equity rights related to securities are separated from the fact of possession of securities.

The Parent’s Articles of Association do not provide such limitations. On the other hand, a ban to exercise

the voting right can result from Art. 89 of the Act of 29 July 2005, on public offering and conditions of

introducing financial instruments to organized trading, and public companies (hereinafter referred to as

the “Public Offering Act”) if a shareholder breaches given provisions of Chapter 4 of the Public Offering

Act. On the other hand, in accordance with Art. 6.1 of the Commercial Companies’ Code, if a parent does

not notify its daughter company that it has become the parent within two weeks from the date when such

a relationship took place, the voting right based on shares in the parent constituting over 33% of the share

capital of the subsidiary is suspended.

VII. Limitations regarding transfer of the ownership right to the Issuer’s securities

The Parent Company’s Articles of Association do not provide such limitations. Such limitations result from

the provisions of law, including the aforementioned Chapter 4 of the Public Offering Act, Art. 11 and 19 and

Section VI of the Act of 29 July 2005, on trade in financial instruments, Act of 16 February 2007, on

the consumer and competition protection and the Council Regulation (EC) No. 139/2004 of 20 January

2004, on the control of concentrations between undertakings.

VIII. Description of the rules of appointment and dismissal of management personnel and their rights, especially the right to make decisions regarding issue or redemption of shares

Articles 9.1 and 9.2 of the Parent Company’s Articles of Association provide that the Management Board

comprises from four to nine people appointed by the Supervisory Board for a joint term of two years.

The number of members is determined by the Supervisory Board. Pursuant to Article 9.3. of the Company’s

Articles of Association, the Supervisory Board appoints and dismisses members of the Management Board

or the whole Management Board at its own discretion or at the request of the General Shareholders’

Meeting, subject to the following conditions: (i) at least one member of the Management Board composed

of not more than four persons, or (ii) at least two members of the Management Board composed of more

than four persons should be appointed from among candidates proposed by members of the Supervisory

Board appointed by shareholders in accordance with Art. 13.2 (b) of the Articles of Association (unless

members of the Supervisory Board have already been appointed in accordance with Art. 13.2 of the Articles

of Association).

The Management Board’s responsibilities include all matters that are not the exclusive authority of

the General Shareholders’ Meeting and the Supervisory Board; the Management Board runs and

represents the Company. Each member of the Management Board has the right and duty to attend to

the Company’s matters and without a prior consent of the Management Board, they can attend to

the ordinary matters of the Company without breaching the provisions of law, the Company’s Articles of

Association, resolutions and rules of the Company’s bodies and the rules of corporate governance to which

the Company has committed. In the case of issues exceeding the scope of the Company’s ordinary

business, a resolution of the Management Board is necessary (see description in section XI.A below).

Resolutions of the Management Board are adopted with absolute majority of votes of the members present

at the meeting. Each member of the Management Board may demand that any issue concerning

the Company be resolved by a resolution, even if it did not exceed the ordinary scope of business.

The Management Board may adopt organizational regulations which would specify the detailed

organizational structure of the Company and other organizational issues. Members of the Management



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Board may be directors of organizational divisions, functional units or hold other positions in the Company,

based on resolutions of the Management Board. The right to make a decision about redemption of shares

or an increase in the share capital requires a resolution of the General Meeting adopted by 83% majority

of cast votes.

IX. Changes in the Parent Company’s Articles of Association

Changes of the following provisions of the Parent Company’s Articles of Association: Article 9.3, Article 13

and Article 23.1 5, Article 23.1.7 to 10 (inclusive) require a resolution of the General Shareholders’ Meeting

adopted by a 83% majority of votes cast.

Changes of any other provisions of the Parent Company’s Articles of Associations (including those in

the previous sentence) require a resolution of the General Shareholders’ Meeting adopted in the presence

of at least half of the Parent Company’s share capital.

X. Procedures concerning the General Shareholders’ Meeting, its basic rights, shareholders’ rights and the way they are exercised

A. Procedures concerning the General Shareholders’ Meeting and its basic rights

Procedures concerning the General Meeting and its basic rights are governed by the provisions of law

which have been partly included in the Articles of Association and the Regulations. Document is available

at the Parent’s web site (www.ztkruszwica.pl), tab “Investor Relations”.

The General Shareholders’ Meeting may be attended by the members of the Management Board and

Supervisory Board, the statutory auditor if the meeting will be devoted to the Parent’s financial affairs,

experts invited by the body summoning the General Shareholders’ Meeting, the notary public taking

the minutes during the General Shareholders’ Meeting, media representatives and other persons, upon

the consent of the person opening the General Shareholders’ Meeting or the chairman of the General

Shareholders’ Meeting.

Pursuant to the Parent Company’s Articles of Association, the following actions in particular require

a resolution of the General Shareholders’ Meeting:

a) analysis and approval of the report of the Company’s Management Board, financial statements of the Company and a report on the activity of the Supervisory Board for the prior financial year as well as a vote of approval for members of the Company’s bodies to perform their obligations;

b) distribution of profit or coverage of loss;

c) changes in the Company’s scope of business;

d) changes in the Company’s Articles of Association;

e) increase or decrease in the share capital, excluding the situation referred to in Article 455.3 of the Code of Commercial Companies;

f) use of supplementary and reserve capitals;

g) redemption of shares;

h) business combination (excluding the situation referred to in Article 516 of the Code of Commercial Companies), division or transformation of the Company;

i) dissolution or liquidation of the Company;

j) issues of convertible bonds and bonds with priority rights;

k) disposal and lease of a company or its organized part and establishment of a limited property right;

l) all resolutions concerning claims for redress for losses caused upon incorporation of the Company or upon management or supervision.

http://www.ztkruszwica.pl/



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The General Shareholders’ Meeting may adopt resolution in the presence of at least half of the Company’s

share capital. The General Shareholders’ Meeting adopts resolutions by a simple majority of votes, unless

the provisions of the Articles of Association of the provisions of law require a qualified majority. Changes in

the following provisions of the Articles of Association of ZT Kruszwica: Article 9.3, Article 13 and Article

23.1.5, Article 23.1.7 to 10 (inclusive) require a resolution of the General Shareholders’ Meeting adopted

by 83% majority of cast votes.

B. Shareholders’ rights and the way they are exercised

The shareholders’ rights and the way they are exercised are generally governed by the provisions of law

which have been partly included in the Articles of Association. Please note that according to Article 13.2 of

the Articles of Association, shareholders with a specific share in the number of votes at the General

Meeting, have the right to appoint Members of the Supervisory Board (see section V above).

Pursuant to Article 18.3 and 18.4 of the Articles of Association, shareholders representing at least a half of

the share capital or at least a half of votes in the Company are entitled to convene the Extraordinary

Shareholders’ Meeting. A shareholder of shareholders representing at least 1/20 of the share capital may

demand that the Extraordinary Shareholders’ Meeting be summoned and that specific issues be included

in the agenda of the Meeting. The demand should be submitted to the Management Board in writing or

electronically to [email protected], with a justification.

Pursuant to the provision of Article 19.3 of the Parent Company’s Articles of Association, the shareholder

or shareholders representing at least 1/20 of the share capital may:

a) demand that specific issues be included in the agenda of the forthcoming General Meeting; the demand should be submitted to the Management Board in writing or electronically to [email protected], not later than twenty one days ahead of the date of the General Meeting and should contain a justification of a draft of the resolution concerning the proposed issue on the agenda;

b) before the date of the General Meeting, submit to the Parent drafts of the resolution concerning the issues introduced to the agenda of the General Meeting or issues which are to be introduced to the agenda, in writing or electronically to [email protected].

XI. Composition of the managing and supervisory bodies and its changes during the financial year; description of the activities of the bodies and their committees

A. Management Board

The Management Board manages the Parent Company’s business and represents its. Two members of

the Board or one member and a proxy are required to make statements of will and sign documents on

behalf of the Parent Company’s. The Board is managed by the Chairman in liaison with the Vice Chairman,

in particular when preparing its work plan, calling and presiding over its meetings.

The activity of the Management Board is governed by the Regulations of the Management Board, adopted

by the Management Board and approved by the Supervisory Board. The present version of the Regulations

of the Management Board is available at www.ztkruszwica.pl, tab “Investor Relations”.

Issues exceeding the ordinary management require a resolution of the Management Board. Pursuant to

Article 10 of the Regulations of the Management Board, such issues include in particular:

a) adoption of a long-term operational plan for the Company;

b) adoption of the annual financial statements and Management Report on the activities of the Company in the prior financial year;

c) approval of the annual budget of the Company;

mailto:[email protected]

mailto:[email protected]




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d) internal reorganization of the Company’s business;

e) establishing or joining a consortium;

f) approval of acquisition or disposal of shares in companies or acquisition of branches;

g) appointment of proxies and plenipotentiaries of the Company except from the following capacity:

(i) representing the Company before common courts, Supreme Court and administrative courts;

(ii) representing the Company in other matters determined in a resolution of the Management Board, in which it has authorized its two appointed members to grant the power of proxy without an additional resolution of the Management Board;

h) concluding loan and borrowing agreements as a lender or borrower (including amendments to such agreements) and decisions regarding resignation from a granted loan or borrowing, earlier maturity or repayment;

i) approval of acquisition of disposal of the right of perpetual usufruct of real property or a share therein, or a share in the perpetual usufruct of real property;

j) activities related to discontinuing operations of branches or the Company as a whole;

k) in cooperation with trade unions, accepting the collective labor agreement, employment by-laws and remuneration principles;

l) approval of establishment of patent companies or conclusion of license agreements or long-term cooperation contracts in the amount exceeding a PLN equivalent of EUR 1,000,000;

m) acquisition or disposal of non-current assets in the amount exceeding a PLN equivalent of EUR 100,000 (a hundred thousand);

n) approval of encumbering the Company's assets in excess of a PLN equivalent of EUR 50,000 (fifty thousand) or granting guarantees exceeding the above amount for longer than 12 (twelve) subsequent months;

o) other transactions or concluding other agreements with unrelated parties for the amount exceeding an equivalent of EUR 1,000,000 (one million) within one year of the conclusion date;

p) the Company concluding the following agreements with its shareholders, entities from its capital group (as defined in the Accounting Act of 29 September 1994) or other related parties (henceforth: "Related Parties"): (i) service agreements;

(ii) real estate transactions;

(iii) agreements regarding the selling or licensing of a trademark;

(iv) framework agreements for deliveries of goods and services that do not determine prices;

(v) framework agreements whose total annual value exceeds EUR 250,000 (two hundred fifty thousand) or whose term exceeds six months;

(vi) disposal and acquisition of non-current assets exceeding a PLN equivalent of EUR 50,000, (fifty thousand) and if the total amount of the transaction involving non-current assets with entities from a single shareholder’s group exceeds an equivalent of EUR 250,000 (two hundred and fifty thousand) in a given calendar year - each transaction with entities from this shareholder’s group involving non-current assets regardless of its amount;

(vii) agreements on manufacturing with the total value of finished products exceeding EUR 1,500,000 (one million five hundred thousand) or with the term exceeding six months;

(viii) sale and license agreement regarding know-how, technologies and other intellectual property rights (except from trademarks) whose value exceeds a PLN equivalent of EUR 50,000 (fifty thousand) with regard to an agreement, and if the total value of such agreements exceeds EUR 250,000 (two hundred and fifty thousand) in a given financial year, each agreement of this nature, regardless of its value;

(ix) agreements regarding disposal and purchase of services that had not been planned but prove necessary during the financial year, if the total value of such services in a calendar year exceeds an equivalent of EUR 250,000 (two hundred fifty thousand) or if their term exceeds six months;

q) issues included in the Management Board’s motion to the General Meeting.

All members of the Management Board must be informed about the meeting i and at least 2/3 of

the Members must be present at the meeting for the resolutions of the Management Board to be valid.



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Resolutions of the Management Board are adopted with absolute majority of votes of the members present

at the meeting and are recorded in the form of minutes. In case of equal distribution of votes for and against

a resolution, the Chairman or (in his/her absence) the Vice-Chairman has the casting vote.

In urgent matters, the Board may pass resolutions by means of a circular letter, provided that all

the members have been duly notified about the resolution and its contents. Resolutions passed according

to this procedure are valid if 2/3 of the Board members participate in the vote. In such case, resolutions are

passed with the absolute majority of votes.

From 1 January to 31 December 2018, the composition of the Management Board was as follows:

Wojciech Jachimczyk – Chairman, Marcin Brodowski, Piotr Piotrowski, Tomasz Wika, Wojciech Bauman,

Dariusz Szymański, Jacek Michalak – Members.

B. Supervisory Board

The Supervisory Board is composed of 9 to 11 members. Its members are appointed by the General

Meeting for a joint five–year term of office in line with the provisions of Article 13.2 to 4 of the Parent

Company’s Articles of Association. The number of members of the Supervisory Board is determined by

the General Shareholders’ Meeting in the form of a resolution allowing the shareholders to execute their

rights granted based on Article 13. 2 to 4 of the Articles of Association. The procedure regarding

appointment of the members of the Supervisory Board is specified in Article 13.2 of the Articles of

Association and discussed in Section V above.

Pursuant to Article 14.1 and 14.3 of the Articles of Association, the Supervisory Board appoints its chairman

and vice-chairman from among its members. The Supervisory Board can also dismiss the Chairman and

Vice Chairman from their positions.

The Supervisory Board supervises the Parent Company’s operations on a continuous basis. Pursuant to

Article 16 clause 2 of the Articles of Association of ZT Kruszwica, competencies of the Supervisory Board

include in particular:

a) assessment of the Company’s financial statements;

b) assessment of the Management Report and conclusions regarding distribution of net profit and coverage of loss;

c) submission of a written report on assessment of the Company’s financial statements, Management Board Report and conclusions regarding distribution of net profit and coverage of loss to the General Shareholders’ Meeting;

d) approval of the annual budget prepared by the Management Board;

e) approval of establishment or joining a venture or consortium;

f) approval of acquisition or disposal of shares in companies or acquisition of branches;

g) approval of acquisition or disposal of the right of perpetual usufruct of real property or a share therein, or a share in the perpetual usufruct of real property (i.e. a resolution of the General Shareholders’ Meeting is not required in such cases);

h) approval of establishment of patent companies or conclusion of license agreements or long-term cooperation contracts in the amount exceeding a PLN equivalent of EUR 1,000,000;

i) approval of encumbering the Company's assets in excess of a PLN equivalent of EUR 50,000 or granting guarantees exceeding the above amount for longer than 12 subsequent months;

j) determination of remuneration for members of Supervisory Board temporarily delegated to act as members of the Management Board;

k) suspension of members of the Management Board or the entire Management Board for important reasons;

l) delegation of a member (members) of the Supervisory Board to temporarily act as members of the Management Board if individual members of the Management Board or the entire Board have been suspended or otherwise disallowed to perform their duties;



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m) approval of the Regulations of the Management Board;

n) selection of the statutory auditor to audit the Company’s financial statements.

Resolutions of the Supervisory Board are passed with the absolute majority of votes of its present

members. Members of the Supervisory Board perform their duties in person, but they may pass resolutions

by voting in writing through another member of the Supervisory Board. If the number of votes for and

against a resolution is equal, the Chairman or (in his/her absence) the Vice Chairman has the casting vote.

The Supervisory Board may pass resolutions via circular letter or using other remote communication

devices. A resolution is effective if all members of the Board have been informed about the contents of

the draft resolution and it has been supported by the absolute majority of members.

Detailed operational procedures of the Supervisory Board are defined in the Regulations of the Supervisory

Board. The present version of the Regulations of the Supervisory Board is available at www.ztkruszwica.pl,

tab “Investor Relations”.

In the period from 1 January to 23 January 2018, the composition of the Supervisory Board was as follows:

Tommy Jensen – Chairman, Vesselina Shaleva – Vice Chairwoman, George Allard, William Dujardin,

Roman Górny, Sławomir Ludwikowski, Jerzy Rajski, Andrzej Różycki, Markus Sieger and Mariusz Szeliga

– Members.

On the 23rd of January 2018, Andrzej Różycki submitted his resignation from the position of a member of

the Supervisory Board. Following this event, on the 1st of March 2018. The Extraordinary General Meeting

of Shareholders appointed Pierre Mauger to the Supervisory Board.

In connection with the expiry of the term of office of the Supervisory Board on the 6th of June 2018. The

Ordinary General Meeting of Shareholders elected members of the Supervisory Board for a new term of

office. The following people were appointed to the Supervisory Board: Tommy Jensen, Chairman of the

Supervisory Board, Julie Hawkins, Deputy Chairman of the Supervisory Board, George Allard, William

Dujardin, Roman Górny, Sławomir Ludwikowski, Jerzy Rajski, Jean-Pierre Goullet, Markus Sieger and

Mariusz Szeliga — Members of the Supervisory Board. As of the 31st of December 2018, the membership

in the Supervisory Board remained unchanged.

Sławomir Ludwikowski and professor Jerzy Rajski meet the independence requirements provided for in

the Best Practices.

C. Audit Committee

Pursuant to Article 14.2 of the Regulations of the Supervisory Board, the Audit Committee which has

operated in the Company since 5 December 2009, comprises 3 (three) members, appointed (from among

members of the Supervisory Board) and dismissed via resolution of the Supervisory Board. The

Supervisory Board adopts a resolution to elect the chairman of the Audit Committee.

Pursuant to Article 14.3 of the Regulations of the Supervisory Board, at least one member of the Audit

Committee has the knowledge and skills in the field of accounting or auditing financial statements and at

least one member of the Audit Committee has the knowledge and skills in the industry in which the Parent

operate, or its individual members, in specific areas, have the knowledge and skills in the industry in which

the Parent operates.

Pursuant to Article 14.5 of the Regulations of the Supervisory Board, the responsibilities of the Audit

Committee include:

(i) control of:




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a. the financial reporting process;

b. the effectiveness of the internal control and risk management systems and internal audit in the Company, including concerning financial reporting; and

c. carrying out financial auditing activities, in particular carrying out an audit by an auditing company, taking account of any findings and conclusions of the Polish Financial Supervision Authority resulting from the audit carried out in the auditing company;

(ii) control and monitoring of the independence of the statutory auditor and the auditing company, in particular when services other than the audit are provided by the auditing company to the Company;

(iii) informing the Supervisory Board of the results of the audit and explaining how this audit has contributed to the reliability of financial reporting in the Company and what was the role of the Audit Committee in the audit process;

(iv) evaluation of the independence of the statutory auditor and approving the provision by it of permitted non-audit services;

(v) development of the policy of selection of the auditing company to carry out the audit;

(vi) development of the policy of provision by the auditing company carrying out the audit, by the entities related to this auditing company and by a member of the network of the auditing company the permitted non-audit services;

(vii) defining the auditing company selection procedure;

(viii) submission to the Supervisory Board of the recommendations of the Audit Committee on the appointment of the auditing company, in accordance with the policies referred to in item (v) and (vi) above; and

(ix) submission to competent authorities or organisational units of the Company (including in particular to the Management Board) recommendations designed to ensure the reliability of the financial reporting process.

As of the 1st of January 2018. the Audit Committee comprised Sławomir Ludwikowski - Chairman of the

Audit Committee, George Allard and Jerzy Rajski - Members of the Audit Committee.

On the 6th of June 2018, following the election of the Supervisory Board for a new term of office,

members of the newly appointed Supervisory Board appointed members of the Audit Committee. As a

result, Sławomir Ludwikowski was appointed the Chairman of the Audit Committee, while George Allard

and Jerzy Rajski were appointed Members of the Audit Committee.

Sławomir Ludwikowski and Jerzy Rajski meet the criteria regarding independence, thus the Audit

Committee meets the requirements regarding independence of the majority of its members.

Sławomir Ludwikowski has the required knowledge and skills in accounting or auditing financial statements.

According to his biography, Sławomir Ludwikowski has an education in economics (MA in economics,

Faculty of Foreign Trade, Main School of Planning and Statistics in Warsaw, following 2 years of studies in

the USA, Columbia University and City University of New York — Baruch College). He is also a graduate

of the Doctoral Study of World Economy at the Main School of Planning and Statistics in Warsaw. Sławomir

Ludwikowski has experience in banking — 33 years, including 24 years in investment banking. He served

twice as the Vice President of the Management Board and Chairman of the Credit Committee of Bank

Gospodarstwa Krajowego, as well as Vice President of the Management Board and Chairman of the Credit

Committee of Prosper Bank S.A. (the first private bank in Poland opened after World War II). He also has

experience in managing investment funds: National Investment Fund No. 7 (4 years) — Vice President of

the Management Board, restructuring of 31 portfolio companies, including 2 in the food industry, Bancroft

International Private Equity Fund (8 years) — Representative, investments in companies from the food

industry.



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George Allard has knowledge and skills in the industry in which the Company operates. George Allard holds

a degree in economics (bachelor's degree in economics from the University of Kentucky, a master's degree

in international studies from The John Hopkins University). George Allard has been associated with Bunge,

a food corporation (which holds a majority stake in the Company) for more than a decade now. Since the

beginning of 2015 he has been working as the Financial Director of Bunge for Europe, Middle East and

Africa; earlier, since 2013 he was the Financial Director of Bunge for North America. George Allard joined

Bunge in 2004 as Head of Financial Operations in North America, then worked as a Chief Financial Officer

of Bunge in Canada and Latin America, and then returned to North America, where he headed the grain

processing business at Bunge North America. Before joining Bunge, he worked for Eridania Beghin-Say, a

sugar producer, among many others.

The main principles of the audit firm's selection policy and the audit firm's policy of providing audit services

by entities affiliated with the audit firm and by a member of the audit firm's network of permitted non-audit

services applicable to the Company are set out in the Audit Firm's Selection and Permitted Services Policy,

which was adopted by the Audit Committee on the 3rd of October 2017. (“Policy”).

In accordance with the Policy, the audit firm shall be selected on the basis of the following criteria:

1. reputation and experience of an audit firm guaranteeing high-quality audit services;

2. previous experience (positive or negative) regarding cooperation with the audit firm (if any);

3. audit costs;

4. experience of the audit firm in auditing entities operating in an industry similar to the one in

which the Company operates; and

5. additional circumstances allowing for reducing costs and organisational outlays on the part of

the Company.

None of the above criteria is prevailing.

A statutory auditor or audit firm carrying out an audit and a member of the network to which the statutory

auditor or audit firm belongs during the prohibited period may provide non-audit services only if they are

not prohibited (i.e. they constitute permitted non-audit services) and if all requirements set out in the Policy,

Regulation and Act on statutory auditors concerning the provision of such services have been met and

there is no risk that the provision of such services will affect the statutory auditor's or audit firm's

independence. The Company applies the following criteria when making a decision to commission the

permitted services, which do not constitute an audit, to the above-mentioned entities:

1. reputation and experience of the audit firm in providing each of the categories of permitted

non-audit services, assessed on a category-by-category basis;

2. previous experience (positive or negative) in cooperation with the audit firm (if any);

3. costs of providing permitted non-audit services;

4. the scope of the proposed permitted non-audit services;

5. timeframe during which the permitted non-audit services can be provided (carried out);

6. additional circumstances allowing for reducing costs and organisational outlays on the part

of the Company.

None of the above criteria is prevailing.

The recommendation concerning the selection of an audit firm to carry out the audit was adopted by the

Audit Committee in Resolution No. 2/2018 of the 19th of March 2018 and met the applicable conditions.

In accordance with the adopted Resolution No. 2/2018, the Audit Committee, acting according to Article

130, Section 1, Item 8 and Section 2 of the Act of the 11th of May 2017 on statutory auditors, audit firms

and public supervision (“Act on Statutory Auditors”), as well as § 14 (5) (viii) of the Regulations of the

Supervisory Board of the Company, recommended to entrust the audit firm used to date — Deloitte Polska



Page 38 of 39

spółka z ograniczoną odpowiedzialnością sp. k., with its registered office in Warsaw, at Al. Jana Pawła II

19, entered in the list of entities authorised to audit financial statements, maintained by the National

Chamber of Statutory Auditors under the registration number 73 (“Audit Firm”) — with the audit of the

Company's individual financial statements and consolidated financial statements of the ZT “Kruszwica” S.A.

Capital Group for the financial years 2018 and 2019.

The Audit Committee stated that the recommendation is free from third party influence and stated that the

Company did not enter into agreements containing clauses referred to in Article 66 (5a) of the Accounting

Act of the 29th of September 1994, i.e. contractual clauses that would restrict the selection of an audit firm

by the body selecting an audit firm for the purpose of carrying out the statutory audit of the Company's

financial statements to certain categories or lists of audit firms.

Moreover, the Audit Committee stated that the preparation of the recommendation did not require a prior

selection procedure meeting the criteria indicated in Article 130, Section 3, Item 2 of the Act on Statutory

Auditors, due to the recommendation to select and extend the audit agreement with Audit Firm, whose

services were used previously. The recommendation was drawn up in accordance with the Company's

procedure for selecting an audit firm and the policy for selecting an audit firm to carry out the audit.

In 2018 The Audit Committee held two meetings in total — on the 19th of March and on the 14th of

November.

XII. A description of the diversity policy adopted for the Issuer’s administration, management and supervisory bodies and addressing such issues as age, gender or education and professional experience, the objectives of the diversity policy, the method of its implementation and the effects in the reporting period; if no such policy is in place, an explanation should be provided by the Issuer in its representation letter

No diversity policy has been adopted by the Issuer. Nevertheless, in selecting individuals for the position

of members of the Management Board and Supervisory Board, the Parent invariably follows the highest

standards and does not use any gender differentiation or other non-technical criteria. The key criterion for

appointment of members of the Parent’s governing bodies is the competencies, skills and professionalism

of the candidates.



Page 39 of 39


Signatures of all Members of the Management Board:

Wojciech Jachimczyk – Chairman of the Management Board




Piotr Piotrowski - Member of the Management Board


1

REPORT ON

NON-FINANCIAL INFORMATION

of Zakłady Tłuszczowe „Kruszwica” Spółka Akcyjna Capital Group

for the year ended 31 December 2018

2

As at 31 December 2018 and as at 31 December 2017, 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.

Company activity

Zakłady Tłuszczowe „Kruszwica” Spółka Akcyjna [GRI 102-5] (hereinafter referred to as ZT “Kruszwica” S.A., the “Company” or the “Parent”)[GRI 102-1] is the biggest processor of oil seeds and manufacturer of vegetable fats in Poland and one of the biggest in Central Europe. Its registered office is at ul. Niepodległości 42 Kruszwica [GRI 102-3]. The Company’s majority shareholder is Bunge, a global agricultural and food corporation [GRI 102-5].

The management structure in the Company is as follows [GRI 102-18]:

President of the Management Board: Wojciech Grzegorz Jachimczyk

Members of the Management Board as at December 31, 2018:

Wojciech Kazimierz Bauman

Marcin Tomasz Brodowski

Jacek Bogusław Michalak

Piotr Tomasz Piotrowski

Dariusz Cezary Szymański

Tomasz Stanisław Wika

ZT „Kruszwica” S.A. specialises in the production of bottled oils, margarines, fats for bakeries and confectionaries, and products for the biofuel and feed industry [GRI 102-2].

The Company’s production activity is based on a fully integrated business model spanning all the links in the chain of oil plant processing: from sourcing the raw materials through processing to packing and distribution to final customers. The model ensures full control of the top quality of commodities used for production as well as the final products.

ZT “Kruszwica” S.A. builds its market position based on:

• use of natural plant-based raw materials,

• reliable and safe manufacturing processes, and

• delivery of top quality products.

The Company continuously strives to upgrade the production process by investing in new technologies and expanding the capacity of its production plants. The Company is also an innovator in development of the product offer, providing customers with an constantly expanding product range.

The business philosophy of ZT “Kruszwica” S.A. relies on responsible and sustainable development. This is reflected in relations with interested parties, social responsibility, fair market practices, care for consumers and the environment.

The major groups of interested parties include the following: [GRI 102-40]:

• shareholders,

• financial institutions,

• clients,

• suppliers,

• employees and trade unions,

• local communities.

Sourcing of raw materials for production

ZT „Kruszwica” S.A. takes as a basis for its production the use of natural vegetable raw materials.

To ensure the supply of the highest quality of products to its clients, the Company firstly applies a high standard to the purchased and processed rape seeds, thereby expecting its rape seed suppliers to apply the best practices in terms of fertilisation and using means of protection for cultivation plants.

Based on the applicable law, in commercial contracts concluded with suppliers of ZT "Kruszwica" S.A. specific requirements regarding the characteristics of purchased rape seeds were specified. The Company also uses an internal control system, within which the composition of the supplied raw material is monitored as well as the

3

presence of impurities in it, e.g. in terms of the presence of pesticide residues. This allows to identify and properly manage seed deliveries that do not meet the quality requirements at an early stage.

For the purpose of its activity, ZT “Kruszwica” S.A. mostly processes rape seeds deriving from Polish crops, acquired mainly from the Kujawsko-Pomorskie, Opolskie, Lower Silesia, Pomeranian and Wielkopolskie Voivodeships. The Company purchases rape seeds from EU states only in case of market shortages in the domestic raw product. In any case, it is essential to supply the highest quality of raw materials. For production purposes, the Company also imports sunflower oil, mainly from Ukraine, Hungary and Austria.

An important group of raw materials used by ZT “Kruszwica” S.A. in the production of margarines and fats includes tropical vegetable oils, such as refined palm oil, stearin and palm olein, coconut oil and palm seed oil. The Company acquires these raw materials from European refineries located in the Netherlands and Germany. All suppliers of ZT „Kruszwica” S.A. are members of the RSPO (Roundtable on Sustainable Palm Oil).

ZT „Kruszwica” S.A. applies a policy of supplying its consumers with non-GMO products, hence the Company excludes the purchase and processing of this type of raw materials. [GRI 102-9]

Production

The production activity of ZT “Kruszwica” S.A. is conducted in two plants: in Kobylniki near Kruszwica and Brzeg [GRI 102-4]. The concentration of the production capacity in two locations provides the Company with the ability of effective production specialisation and measurable control over the product range’s quality and costs. This allows the Company to better fulfil its social responsibilities and take care of the environment.

The ZT “Kruszwica” S.A. offer includes: packed oils – bottled oils, bulk vegetable oils intended for individual clients, marinades, consumer and professional margarines, vegetable pastes, professional fats, raw and refined oils as well as feed products [GRI 102-2].

The ZT “Kruszwica” S.A. portfolio features brands with highest popularity among the Polish consumers. This is confirmed by independent study results and awards achieved in prestigious competitions and ratings. The Kujawski Oil produced by the Company was awarded 1st place among the most valuable Polish food brands in the ranking organised by the Rzeczpospolita journal (2016). Consumers also appreciate such brands as, e.g. Oliwier, Smakowita or Optima.

The quality of ZT "Kruszwica" S.A. is also appreciated by experts in the nutrition industry. Kujawski oil with herbs was awarded by the jury of the "Doceń Polskie" (Appreciate Polish Products) program and gained the TOP Product certificate. Awarded variants are the product novelties of ZT Kruszwica S.A.: oil with rosemary, oregano and basil as well as with oregano, tomatoes and onions. The main purpose of this program is to promote the best quality products available on the Polish market. All groceries that take part in the Audit of the “Doceń Polskie” program are evaluated by the Experts' Lodge in terms of taste, appearance and value for money. The jury consists of specialists professionally associated with food and nutrition technology, including members of the Chefs' Club. The Minister of Agriculture and Rural Development is the patron of the event.

Distribution

The products offered by ZT “Kruszwica” S.A. are sold domestically and abroad. The value of sales on the domestic market in 2018 amounted to 88%. For comparison, in 2017, it was 90% of total production sales. The Company distributes its products, among others, to key commercial networks, including Biedronka, Lidl, Tesco, thereby maintaining its leadership in the consumer vegetable fats market. The recipients of ZT “Kruszwica” S.A.’s products also include bakeries and confectioneries as well as food processing companies. The Company also maintains the key role of supplier for the domestic market of biofuels and feed. [GRI 102-6]

Product R&D

ZT “Kruszwica” S.A. strengthens its market position by undertaking activities that modernise the production process and expand the product range. The Company employs a team of specialists to work on product quality, continuous improvement of formulae and creating new innovative products.

4

Employees

The Capital Group perceives its employees as its highest value. For this reason, the Company always puts employee needs first, understanding that business success largely depends on their workplace satisfaction and engagement shown by them. In relation to employee needs, the Group strives to create the best possible working conditions for its current employees. The Group also prepares attractive offers of employment for persons that are potentially interested in joining its team.

The Capital Group encourages its employees to participate in projects devoted to strengthening their occupational potential. The Group’s main objective is to create working conditions in which employees feel respected and can fully develop their potential, regardless of their sex, age, (dis)ability, race, ethnic origin and other aspects of diversity. In this scope, he Group acts based on the Code of Conduct of its majority shareholder, Bunge.

• All policies and procedures applied in the Group are compliant with the BUNGE Code of Conduct and the Labour Code;

• Candidates have equal opportunity during recruitment;

• Employees also have equal opportunity for promotion and appointment;

• The Group takes into consideration the opinions of its employees, expressed, e.g. in the Employee Questionnaire and thematic questionnaires (employee surveying).

Work conditions

The Capital Group cares for its employees in a complex manner. Each employee has guaranteed medical care in the plant’s Infirmary (occupational medicine doctor, practitioner, specialists, dentist) and full or partial reimbursement of treatment costs (after presenting relevant documents or a positive opinion of the occupational medicine doctor, e.g. MRI, tomography) from the Company’s medical care fund.

The Group also offers its employees an insurance package sponsored and paid by the Employer and an attractive financial offer from the Social Fund. Some employees are also covered by the medical package in the LUXMED and MEDICOVER network outlets. [GRI 401-2].

As part of health promotion programs, the employer allows all employees to vaccinate against influenza. For women, examinations by a gynaecologist are provided. Employees have the opportunity to participate in specialized training in the field of pre-medical aid. In special cases, justified by the opinion of the attending physician, an employee may apply for a grant intended for further treatment, medication and health improvement. The employer provides employees with a partial reimbursement for the glasses required to work on the screen monitor whenever eye sight deterioration is confirmed by an ophthalmologist. [403-6]

OHS – “Stand for Safety” activities

The Capital Group ZT “Kruszwica” S.A. makes every effort to ensure that the working environment is as safe as possible. The Company’s aim is to strive for an accident-free work culture, in which the employees fulfil their everyday obligations without worrying for their safety. The “Stand for Safety” campaign organised in the Capital Group plants helps to achieve this aim. Is it a global information campaign of Bunge, the aim of which is to raise awareness in the area of safety in the workplace. Thanks to the campaign, all Bunge employees in the world are able to better recognise and control, and even eliminate high potential risk events (HPE), thereby making them more safe in the work place. The implementation of this objective is supported by internal procedures that ensure, inter alia:

• Each head of plant is obliged to conduct periodical job training courses for employees and permanent subcontractors;

• All directors, managers and head of industrial departments are obliged to participate in and pass training courses in the scope of safety, conducted in thematic modules: “Workplace trainings”, “Leadership in terms of safety” and “Coaching for safety purposes”. Directors and managers of non-industrial departments are obliged to participate in and pass the following modules: “Leadership in terms of safety” and “Coaching for safety purposes”;

• All employees on the day of employment are trained in health and safety - general training, then the head of the department organizes workplace health and safety training. At the right time, employees are sent to periodic training depending on the workplace and activities performed. The company also has a training matrix, which is supervised by the personnel department. [GRI 403-5]

• Each new employee and permanent subcontractor working at a Bunge plant – both in industrial and non-industrial departments – is obliged to get acquainted with the “Safety at Bunge” module as part of standard preparation for starting work in the Group.

5

Employees are familiarized with the current occupational risk assessment at the workplace. This assessment is carried out in accordance with the hazard identification and risk assessment procedure by specialist teams. In addition, operational activities are described in the workplace health and safety procedures. Employees and subcontractors regularly report dangerous situations in accordance with corporate requirements (safety pyramid - safety indicators). All employees are familiarized with the mobbing procedure. The main motto of the company is: "No work is so urgent that it cannot be done safely". Employees are also familiarized with the policy "STOP. THINK. SECURE", which guarantees the possibility of stopping work when an employee decides that the conditions for performing a given job are dangerous in his/her opinion. [GRI 403-2]

In 2016-2018 there were no fatalities as a result of work-related injury reported in the ZT “Kruszwica” S.A. plants. The information concerning the number and rate of work-related injury in 2017 - 2018 are presented in the table below.

Accidents and days lost

Plant in Kobylniki near Kruszwica

Plant in Brzeg Warsaw

Women Men Women Men Women Men

2018

Recordable work-related injuries

1 3 0 0 0 0

Rate of recordable work-related injuries

0,8 1,3 - - - -

Number of hours worked 265.148 450.103 95.338 238.346 41.216 30.464

2017


0 2 0 0 1 3


0,5 1,6 - - - -


2016


1 6 0 3 0 0


0,5 1,9 - - - -


Furthermore, there were 2 work-related injury of workers who are not employees but whose work and/or workplace is controlled by the organization (woman and man) reported in the production plant in Kobylniki near Kruszwica in 2017. The rate of recordable work-related injuries accident was calculated based on 200,000 hours of work [GRI 403-9].

In 2018-2017 no case of work-related ill health was reported. For comparison, a single case of work-related ill health was reported in 2016. [GRI 403-10]

The OHS Committees acting in ZT “Kruszwica” S.A. with a common representation of employees and the management staff facilitate the organisation of a favourable working environment in terms of OHS. The activities of these committees constitute one of the ways of engaging employees in the improvement of occupational health and safety. Employees take part in daily security meetings organized in departments. In addition, there is a system for reporting ideas to improve work safety "Take part, leave Your mark". Trade unions operate actively on the premises of the Plants, whose representatives as social labour inspectors actively participate in the monthly meetings of the Health and Safety Committee. Occupational safety issues are consulted with the trade unions and the Company Social Labour Inspector. [GRI 403-4]

ZT “Kruszwica” S.A. has a certificate granted by Bureau Veritas, which officially confirms the implementation of the Health & Safety Management System acc. to OHSAS 18001:2007. The OHS policy includes the organisation’s obligation to prevent accidents at work and occupational diseases, strive for continuous improvement of OHS, meet the requirements of legal regulations, continuous improvement of OHS activities, ensure sufficient resources to incorporate the policy and improve employee competencies. The OHSAS 18001:2007 OHS system has a book that contains standard points and corresponding company documents (including procedures and instructions). The system covers all employees of Z.T. "Kruszwica" S.A. and subcontractors performing work on the premises of the Plant. [GRI 403-1] In addition, active members of the monthly OHS commission are occupational physicians who take care of the Plants. They participate in determining safe working conditions. [GRI 403-3]

6

“Engage and act”

The “Engage and act” program functioning in the Capital Group encourages employees to be creative in undertaking activities in the organisation. It inspires them to look at business from a different perspective, gather ideas and share them with the management of companies in the Capital Group. Each employee has the right to seek new methods of improving one’s activity.

The “Engage and act” program encourages employees to undertake initiatives directed at:

• Eliminating obstacles by identifying the factors that hinder effectiveness;

• Using new opportunities by continuously seeking new, better and more effective methods of executing tasks and developing existing products and creating new products;

• Working as a single team by giving co-workers a hand, sharing ideas, challenging one another and common search for new solutions (over and above divisions resulting from organisational membership or place in the position hierarchy);

• Reinforcing the sense of urgency to always strive at quick decision-making and undertaking of activities, thereby providing the Company with the opportunity of a competitive advantage.

As part of the “Engage and act” program, in 2017 there were over 40 employee initiatives submitted within the Group, 90% of which were implemented (among others, installation of smart contactless taps in all restrooms, improvement of safety of working with hazardous substances or improvement of ventilation effectiveness).

In 2018, the employees of the Group submitted 100 initiatives, of which 60% were implemented (including reconstruction of the railway ramp or drainage system), and the remaining 40% are in the process of finalization (e.g. reconstruction of the bleaching earth dosing system).

Employee development

The Capital Group cares for each Company employee’s occupational development opportunities, including access to relevant training courses.

Every year the Group conducts a periodical assessment process (described in the form of a procedure), during which it is essential to collect feedback and organise a developmental conversation between an employee and his or her superior officer. The periodical assessment embraces all employees working in the Group’s companies [GRI 404-3].

The assessment process is supported by a dedicated global Bunge app named “People & Bunge” or a standardised Assessment Form. In the first stage of the process the employees make a self-assessment, including determination of the status of execution of their objectives. The self-assessments are then analysed by their superior officers, followed by a conversation between the superior officer and the employee, during which the employee’s final annual assessment is determined.

The Capital Group focuses on the development of its employees and their personal engagement supported by their superior officers. Therefore, the development of employees takes place as part of a partnership between the employee, superior office and the Group’s companies. One of the elements of the employee assessment process is the recommendation concerning the employee development plan (usually with specification of participation in a specific type of training courses). The assessment process can be executed by way of assessing the achieved objectives for the previous year and determining new objectives for the next year, or with consideration of the employee development plan, including the specification of participation in a specific scope of training courses.

As part of the training courses offer, employees have access to internal and external training courses as well as a wide range of e-training courses.

External training courses

ZT „Kruszwica” S.A. conducts three training course programs for three various groups of employees:

• “Mature Leadership” – competencies development program for experienced medium and high-level managers who want to refine a new, inspiring leadership style. The purpose of the program is to provide the participants with opportunities to reflect and build self-awareness in terms of their own method of building relations (so-called life positions), managing own life energy, vigilance and leader intuition. Furthermore, the program improves the skills of a coaching style of management, having mature conversations, providing developmental feedback, highest level of listening and appreciation.

• “Effective Manager” - competencies development program for managers who for the first time take on a team of subordinates, specialists intended for a managerial position in the near future and managers that

7

want to improve their knowledge and skills in terms of team management. The program embraces the provision of knowledge and improvement of skills related to team management: understanding the manager role, building authority, planning and organising team work, effective communication and feedback (including having an assessment conversation), management styles, delegation and enforcement, motivating and the manager’s personal effectiveness.

• “On the way to influence” - competencies development program dedicated to specialists from various Company areas, the role of which requires close cooperation with internal and external clients as well as coordination of projects and tasks. The program provides the participants with opportunities to reflect and build self-awareness in terms of their own method of building relations, communication, cooperation and improving the skills of solving conflicts and misunderstandings, delegation, enforcement, management of own and clients’ (both internal and external) time and moderating informative or problem-related meetings

/ discussions.

Aside from the aforementioned programs, in 2016 ZT “Kruszwica” S.A. conducted, among others, the following training courses: “The Art of Presentation”, “Client Service via Telephone”, “Advanced Negotiations”, “Annual Talks”, MS Excel at different levels of advancement, “Negotiations in Sales”, “Joint Business Planning”, “Optimal Negotiation Process”, “Financial Control”, “Category Management”. On the other hand, in 2017 the Company conducted, among others, the following training courses: “Developmental conversations”, “Negotiations”, “Auto-presentation”, “Engaging Leader” and “Effective Business Meetings”, and in 2018 „Effective communication (DDI)”, „MS Excel” and „MS Outlook”.

Internal training courses

The training courses conducted for the Capital Group employees in the scope necessary for working on the position held feature the following internal training courses: [GRI 404-2]

• energy training course, Supervision and Service;

• supervision training course on principles of safe unloading of hazardous substances;

• training course for operators of fork lifts and high lifters;

• training course on operation of goods and passenger elevators and handling equipment;

• supervision training course and operation of heating systems and equipment;

• training course on safe gas cylinder replacement;

• training course on safe work on height;

• training in safe work in a confined space;

• training courses for fire fighters – rescuers,

• training course on granting first aid;

The process of improving employee competencies is specified in the Collective Labour Agreement, which covers approx. 80% of all employees [GRI 102-41]

Employment in the Capital Group

There are three labour unions in the Company. The unions include:

• “Solidarność” Independent Self-Governing Labour Union,

• “Kruszwica” Independent Self-Governing Labour Union of Fat Processing Plants Employees,

• “Alternatywa” Independent Self-Governing Labour Union.

The percentage share of employees who are members of labour unions in the total number of employed persons in 2018 amounted to 22,45%. For comparison, in 2017 it was 23,72%, and in 2016 - 23,93%.

The Group cares for young parents among its employees. The use of maternity leave does not affect the employees’ safety of employment, remuneration and opportunity to develop their occupational career. Data regarding returning to work and maintaining employment can be found in the table below:

ZT "Kruszwica" S.A. 2018 2017 2016

Number % Number % Number %

Number of female employees who were entitled to maternity leave.

24 100% 24 100% 20 100%

8

Number of female employees who took advantage of maternity leave.

24 100% 24 100% 20 100%

Number of female employees who returned to work after using maternity leave.

10 91% 14 100% 7 100%

Number of female employees who returned to work after using maternity leave and worked on min. 12 months

9 69% 14 100% 5 71%

Return to work indicator 91% 100% 71%

Employment maintenance indicator 69% 100% 71%

In 2016-2018 no man employed in the Company decided to use paternity leave. [GRI 401-3]

Employment in ZT “Kruszwica” S.A. at the end of 2018 amounted to 824 persons [GRI 102-7]. For comparison, 839 persons were employed in 2017, and in 2016 - 894 persons. Specific employment data, including the employment of new workers and the employee turnover ratio are presented in the tables below [GRI 401-1]:


2018 2017

Number of persons

employed

Number of persons newly

employed

Employee turnover

ratio

Number of persons

employed


employed

Employee turnover

ratio

women up to the age of 30 37 12 1% 40 5 0,12%

women at the age of 30-50 112 9 1% 110 3 0,83%

women above the age of 50 56 2 0% 56 1,07%

men up to the age of 30 22 7 1% 29 3 0,60%

men at the age of 30-50 188 16 2% 194 4 1,07%

men over the age of 50 138 1 2% 134 1,43%

Plant in Brzeg

2018 2017

Number of persons

employed


employed

Employee turnover

ratio

Number of persons

employed


employed

Employee turnover

ratio

women up to the age of 30 6 5 0% 3 0,12%

women at the age of 30-50 32 5 0% 30 0,12%

women above the age of 50 28 3 0% 26 1 0,60%

men up to the age of 30 14 8 1% 13 3 0,24%

men at the age of 30-50 60 5 1% 65 3 1,07%


Sales and Administration

2018 2017

Number of persons

employed


employed

Employee turnover

ratio

Number of persons

employed


employed

Employee turnover

ratio

women up to the age of 30 0 0 0% 1 1 0,24%

women at the age of 30-50 21 2 0% 19 0,36%

9

women above the age of 50 2 0 0% 1 0,12%

men up to the age of 30 0 1 0% 0 0,00%

men at the age of 30-50 12 0 0% 13 1 0,00%


Products

The entire production process in ZT “Kruszwica” S.A., starting with seed acquisition and ending with the final result in the form of a ready-to-use product, is conducted in a manner compliant with very strict qualitative and safety requirements.

We care for the highest quality of our products. We identified the problems concerning food safety as the main source of risk of reputation loss for our activity. Qualitative problems can potentially lead to withdrawal of products from the market and imposition of penalties which can have substantial impact on our activity. We implemented a rigorous quality control code to limit the risks related to food safety. We also have a training courses and audits program in terms of food hygiene, which is to ensure the compliance with our high quality standards.

Safety and product quality related activities are executed in the Company in a systemic manner, which is demonstrated by certification. The field of quality assurance consists, among others, of carefully developed product technologies, adequate selection of suppliers and subcontractors, strict supervision over the production and distribution processes. The quality management systems implemented and certified by ZT “Kruszwica” S.A. allow exercising the principle of safe and qualitatively stable production conducted by raw material acquisition, its processing and production of popular product brands. The Company executes a training courses and audits program in terms of food hygiene, which is to ensure the compliance with our high quality standards.

The ZT “Kruszwica” S.A. production plants are certified by Bureau Veritas and SGS, which officially confirm the implementation of the following [GRI 102-12]:

• Environmental Management System acc. to ISO 14001:2015;

• Food Safety Management System including ISO 22000:2005 in the plant in Kobylniki, FSSC 22000 (certificate valid to 17.11.2018) in the plant in Brzeg (due to the equivalent value of FSSC 22000 and IFS systems for customers buying products from Brzeg, we decided to keep only IFS certification in Brzeg);

• International Food Standard acc. to IFS v.6.1;

• Health & Safety Management System acc. to OHSAS 18001:2007.

ZT „Kruszwica” SA is certified by SGS (Société Générale de Surveillance), officially confirming the implementation of the European Feeds Ingredients Safety Certification and registered its facilities in the QS database.

The Company’s signature product, i.e. KUJAWSKI OIL received the “Q” quality mark confirmed by certification granted by the Polish Centre for Research and Certification (“PCBC”). The blue and red “Q” quality mark is granted to domestic and foreign products that maintain constant quality parameters. Products designated with this mark stand out as the highest grade and safe products. Certification and supervision are conducted according to specific procedures and in compliance with the “Food products certification program” developed by PCBC.

In addition, Kujawski from the first press, Kujawski Oil 3 grains, eight proposals from the Kujawski line with herbs and four oils from the Kujawski cold pressed series were awarded by the jury of the "Doceń Polskie" program and gained the TOP Product certificate. The main goal of the "Doceń Polskie" program is to promote the best quality products available on the Polish market. Food products are evaluated in terms of taste, appearance and value for money by professionals associated with food and nutrition technology, including members of the Chefs' Club. The Minister of Agriculture and Rural Development is the patron of the event.

Palm oil

Palm oil is commonly used in the food industry. ZT “Kruszwica” S.A. uses it to produce some of the products offered by it, according to customers' preferences. For an increasing part of production, the Company uses a raw material that meets the RSPO Supply Chain Certification criteria. In this case, suppliers are required to provide a RSPO certified raw material, which means that it has been produced in a sustainable way for the benefit of people and the environment. It should be emphasized that all suppliers of ZT Kruszwica S.A. are RSPO members.

In 2013, ZT “Kruszwica” S.A. has successfully passed the RSPO SCCS certification process conducted by the Control Union Certifications, which confirms the Company's commitment to the protection of resources and social responsibility for the conditions of employment of employees in countries obtaining palm oil. The RSPO certificate is issued for 5 years and can be renewed. Every year the Company features a verification audit with the purpose of checking whether it functions in compliance with the requirements implemented at the beginning of the process.

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The Bunge Group, one of the biggest capital groups in the agricultural and food industry in the world, a majority shareholder of ZT Kruszwica S.A., believes that sustainable palm oil should be produced in a manner that excludes transformation of areas with high natural and ecologic value, minimises greenhouse gas emission, uses responsible agricultural practices and protects the rights of employees and local communities.

Trans fats

Poles want to eat healthy, which also means avoiding foods containing trans fats. Institutions dealing with healthy nutrition in Poland and in the world (e.g., IŻŻ (Institute of Food and Nutrition), WHO) emphasize the health benefits resulting from the intake of more unsaturated fatty acids, at the expense of saturated fats and trans fats. Trans fats occur naturally in dairy products, ruminant meat (e.g. cows and sheep) or derive from partially compacted/hydrogenised vegetable oils. Consumption of excessively large quantities of trans fats raises the concentration of the LDL bad cholesterol in blood and increases the risk of cardiovascular diseases. In response to this need and for the sake of consumers' health, ZT "Kruszwica" S.A. offers a wide range of bread spreads that are rich in unsaturated fatty acids and practically contain no trans isomers. According to the latest studies on the fatty acid composition of bread spreads, margarines in cups available in Poland in terms of trans fat content are in line with IMACE (European Margarine Association) recommendations and even exceed them. 95% of all soft margarines in cups have practically no trans fats, which means that their amount in the product does not exceed 1%. ZT "Kruszwica" S.A. is a producer of spreads, which confirms that all spreads from its offer contain less than 1% trans fats. The use of vegetable oils and innovative technologies devoid of partially compacted fats makes consumer margarines offered by ZT “Kruszwica” S.A. bereft of trans isomers and rich in mono- and polyunsaturated fatty acids.

“Get to know the fats” campaign

ZT „Kruszwica S.A.” focuses on the education of its consumers. The Company conducts the “Get to know the fats” campaign from 2015. Its purpose is to educate people on what fats are, explain the differences between particular fatty acids and their significance for human health. We raise the knowledge of Poles in terms of healthy nutrition with emphasis on well thought out selection of products including beneficial fatty acids.

In 2015-2018 campaign allowed for obtaining the following results:

• almost 16 thousand fans of the Facebook campaign,

• more than 5 million women have seen the FB posts,

• the campaign’s website published 133 articles,

• 550 thousand people were engaged in the discussion under the campaign’s FB posts,

• approx. 46 million views of the Facebook campaign.

“Love rape oil” campaign

As part of its membership in the Polish Association of Oil Producers, ZT “Kruszwica” S.A. is engaged in conducting a long-lasting education campaign named “Love rape oil”. The purpose of the campaign is to raise consumer awareness on the nutritional and health-related properties of rape oil and its significance in everyday diet and disease prevention.

Consumer health and safety

The most important objective for ZT “Kruszwica” S.A. is the supply of adequate, safe products that meet client expectations.

For this purpose, the Company implemented the Code of Good Practice in Production and Hygiene, the compliance with which guarantees the production of consumer-safe food. For many years, the Company features a certified Quality System that guarantees the stable quality and safety of its products.

ZT “Kruszwica” S.A. makes every effort to maintain the highest safety and quality standards during the entire life cycle of its products and their packaging. Each implemented and produced good must meet the legal requirements in terms of food/feed safety [G4-PR1].

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The basis for the quality system is compliance with the requirements of the Polish and EU law as well as the HACCP, IFS and EFISC systems. In 2018, as well as as in previous years, the Company has reported no non-compliances with the regulations and voluntarily applied codes on the impact of products and services on health and safety. [GRI 416-02] Due to the above, there were no financial penalties or non-financial sanctions on non-compliance with the law and regulations imposed. [GRI 419-01].

The quality system implemented by ZT “Kruszwica” S.A. embraces all types of Company activities and all stages of a product’s life cycle. Starting with consumer expectation studies through product development, acquisition of raw materials and packaging, production and distribution of our products and ending with purchaser satisfaction assessment. All unit packaging of the Company’s products, in accordance with the food marking regulations, include the following information:

• food product name,

• list of ingredients,

• net quantity,

• expiry date,

• storage conditions,

• producer name and address,

• nutritional value information.

In the case of many products, the packaging also includes information about the product’s intended use. [GRI 417-01]

ZT ”Kruszwica” S.A. attaches great importance to the control of standards of the raw material used in production. Based on the current legal regulations, the commercial agreements concluded with our suppliers specify the concrete requirements on the features of the purchased rape seeds. The Company also utilises an internal system intended for verifying the composition of the delivered raw material in terms of, among others, possible presence of pesticide residue. This allows to identify and block supplies of seed that do not meet the required quality standards early.

ZT „Kruszwica” S.A. conducts an annual assessment of client satisfaction among its business partners. The last such study was conducted in January 2019 and concerned the year 2018. The study was conducted with the use of the Net Promoter Score method (NPS).

The test was conducted in the following areas: oils, consumer margarines, professional margarines, bulk products, for the following processes, among others: placing orders, easiness and quality of contact with employees, quality of order fulfilment or punctuality of deliveries.

According to the Reichheld’s test, the average NPS value for ZT “Kruszwica” S.A. amounts to 10-15.

The customer service process requires continuous improvement, therefore the Company will focus its activities in 2019 in areas:

• delivery of the order within the required day and time,

• active cooperation with Planning Department and key clients to forecast in advance the promotional volume well in advance,

• improving communication with key clients to solve current problems and identify customer expectations.

Local communities

As a significant player on the local market, ZT „Kruszwica” S.A. makes all efforts to contribute and support the development of the community in which it operates. The Company cooperates with local government organisations by supporting the development of talented youth and promoting a healthy life style by promoting sports. In the last years, resources from the ZT “Kruszwica” S.A.’s budget were allocated to various charity projects or direct financial support for local clubs and associations acting at the location of the Company’s production plants. This type of activity included, among others: financial support for the youth section of the local KP “Gopło” football club. Being a part of the local communities in which it conducts its activity, ZT “Kruszwica” S.A. strives to improve the quality of life of their residents. As part of these activities, the Company has sponsored events promoting physical activity, organised by local government authorities for local residents, e.g. organisation of Aquathlon in Kruszwica in 2017 – 2018. The money given in the reporting period, in both Company locations, i.e. Kruszwica and Brzeg, amounted to approx. PLN 50,000, in the previous year it was PLN 100,000 [GRI 413-1]. As a leading food producer which wants to approach the shelf life of its products in a responsible manner, the Company also regularly gives a part of its quality products to Food Banks. In 2018, ZT „Kruszwica” S.A. donated over 44 tons of products from the Company's offer to Food Banks.

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Employee Volunteering - "I act locally" program

In 2018, ZT "Kruszwica" S.A. initiated a program to support its employees in the implementation of employee volunteering activities resulting from the local needs of communities gathered around the Company's production facilities. As part of the program, employees - volunteers, can provide various types of work for the needy, using their skills and abilities, while the Company enables them to undertake such initiatives and supports their activities financially or organizationally.

The concept of the program was co-created from the scratch by employees of ZT "Kruszwica" S.A. For its development, a strategic workshop was organized with the participation of key managers and employees engaging in social actions. During the workshop, the key principles of the program's operation, regulations and criteria for selecting projects for implementation were created. In the next step, the program "I act locally" was promoted in internal communication among employees. The communication included information materials in the internal newsletter as well as posters, leaflets and dedicated stands in locations. Finally, over 20 projects to help local communities were submitted for evaluation by the Committee.

Based on the decision of the Commission with the participation of Wojciech Jachimczyk, President of the Board, the co-financing under the employee volunteering program was received by the following projects:

• Execution of the driveway at the gate for the Polish Association for People with Intellectual Disability,

• "Do not ignore dog" - help for the Dog’s Voice Association,

• "You can get to know the world with the Niezapominajka" - support for the sociotherapeutic social room of the TKOPD Inowrocław,

• Support for local angling school for children - support for the Karaś fishing club,

• "Equal opportunities" - help for the Primary School in Markowice,

• Help for the "Przytul Psisko" animal shelter.

The Commission, while awarding the funding, appreciated the following features of selected projects: a concrete and real action with positive long-term results, meeting the real need and helping the needy, involving employees and dedicating their time to implementation.

All projects were completed by the end of 2018, and thank you letters were received by the Board of ZT "Kruszwica" S.A. from the entities that received support of the Company's employees.

“Master Academy”

In 2018, ZT „Kruszwica” S.A. celebrated the 10th anniversary of the Master Academy. Within 10 years of the Academy's existence, specific areas of activity emerged from the activities and programs that were implemented as part of the entire project:

• support for business,

• development of craft skills,

• education of young confectioners.

Business Master Academy

These are cyclical business trainings that respond to the changing economic reality with which confectioners had to face: low discount prices, staff shortages, changes in law, lack of promotion skills, advertising, establishing and maintaining relationships with customers or business partners. The aim of the program was to provide business knowledge that was not previously necessary to run a confectionery or a bakery. Since 2014, the program has been run as part of the "Tea-time with Master Academy", which has already been attended by over 600 people. In 2017, an e-learning educational platform was launched. It is a modern educational tool that offers reliable, top-quality, practical business knowledge, precisely tailored to the needs of representatives of this professional group in the areas of: law, leadership, team, finance, sales, marketing. Trainees have access to the platform 24 hours a day, 7 days a week, from anywhere in the world. About 100 establishments are currently using this form of training.

Master Academy - confectionary training

In parallel with business training, a number of activities are carried out aimed at improving craft skills: confectionary training, workshops, shows and fairs. The flagship project in this area are meetings with confectioners from around the world - "Meetings with a Master". So far, three world-renowned masters have visited Poland at our invitation: Leonardo Di Carlo, Walter Vogt and Jordi Bordas. About 300 Polish confectioners participated in inspiring meetings with masters. These meetings are intended to inspire, present new techniques and global confectionary trends.

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Master Academy - education of young confectioners

ZT „Kruszwica” S.A. does not forget about the youngest participants in the industry - young students of confectionery and pupils. As part of raising the youngest people's qualifications and infecting them with confectionery bacilli, various projects are implemented:

• Bake & Play competition, where more than 70 young confectioners took part in the last edition;

• preparation of young confectioners for the Polish Confectionery Schools Championship held at the Expo Sweet fair, where the protégés of the Master Academy twice won the main prize;

• visits of cooperating specialists: Jacek Zięba and Mieczysław Chojnowski in confectionery schools throughout Poland, enabling students to participate in professional vocational training;

• a special internet base of confectionery schools, where all education centres can boast about their successes, present the educational offer and achievements of their students. 20 schools have already joined the project.

Business for Biodiversity Forum

In 2018, ZT "Kruszwica" S.A. organized the first Business for Biodiversity Forum, which was held in parallel with the celebration of the World Bee Day. The company, as an initiator of one of the first and largest programs for biodiversity - "We help bees with Kujawski", invited representatives of business, science and non-governmental organizations who are already implementing or planning to take action to protect and preserve biodiversity. The Forum was a space for discussion on topics related to nature protection, an opportunity to exchange experiences and present Polish and international business practices. The event was also attended by experts who pointed out the challenges related to the protection of biodiversity. During the Forum the first in Poland report "Business for biodiversity" with expert articles and descriptions of practices from Poland and abroad was presented. The substantive partners of the Forum were: University Centre for Environmental Studies and Sustainable Development of the University of Warsaw and Institute for Sustainable Development.

60 people participated in the Forum - representatives of business, NGOs, the media and other institutions. 19 lecturers and panellists shared knowledge about the latest research, trends and good practices in business in the preservation and protection of biodiversity. The report includes 13 Polish practices and 5 international business practices related to nature conservation. As part of the open formula of the conference, the participants created three thematic tables, where specific ideas for activities and initiatives for companies and other institutions were developed.

Suppliers

Activities related to the selection of suppliers are regulated in the Capital Group by the Bunge Procedure for Purchase of Goods and Services in Poland, which assumes a wide survey of the market and fair competition between bidders. The manager of the Group’s purchase processes is the Purchase Department established in 2013, which places great emphasis on the development of competencies and professionalization of the team, which is mainly guided by transparency in everyday cooperation, honesty and conscientiousness in the tender process.

The Company conducts its purchase proceedings by using state-of-the-art online tools in the form of a purchase platform which ensures process transparency, clear criteria of selecting suppliers and a broad database of potential partners. Aside from basic commercial factors, the Group highly values the widely understood qualitative criteria, safety of its employees and of its partners’ employees, as well as care for the environment. When selecting its suppliers, the Group eagerly supports the local communities neighbouring its plants. In 2017-2018 20% of purchases (except for purchases of mass goods) were made at local suppliers [GRI 204-1]. The Company selected local suppliers from the Inowrocław and Brzeg Poviats. The Declaration of counteracting corruption is included in the Company’s General Conditions of Cooperation with Suppliers (“OWD”). In 2017-2018 approx. 38% of essential suppliers has signed the OWD (essential suppliers are suppliers, the annual turnover with which exceeds PLN 50 000).

The Group’s companies are reliable trade partner which offers its suppliers attractive cooperation conditions in exchange for the supply of the highest quality raw material.

The Company attaches great importance to the control of standards of the raw material used in production. Based on the current legal regulations, the commercial agreements concluded with ZT “Kruszwica” S.A.’s suppliers specify the concrete requirements on the features of the purchased rape seeds.

As a member of the Polish Association of Oil Producers, ZT “Kruszwica” S.A. is engaged in educational initiatives intended for rape producers, the purpose of which is to provide them with the knowledge and tools ensuring rape production in accordance with the environmental protection principles. The Company took part, among others, in the development of the educational brochure titled “Using means of rape crops protection with care for honeybees and other pollinators”, as well as other elaborations, e.g. “Code of Good Practice for Rape Producers” specifying

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the plant protection means to be used to ensure crop profitability with simultaneous prevention of damage to bees. Materials developed in cooperation with experts of leading universities and research institutes in Poland: The Institute of Plant Protection – National Research Institute in Poznań, Research Institute of Horticulture in Skierniewice – Apiculture Division in Puławy. The materials are regularly distributed during agricultural events and topical conferences, including those organised by the Polish Association of Rapeseed and Protein Plants Producers.

In the reporting period, the Company purchased 949 517 tons of rapeseed (in 2017 – 854 193 tons, and in 2016 – 806 810 tons) and 29 379 tons of refined palm oil (in 2017 – 1633 tons, and in 2016 – 41 375 tons) [GRI 301-1].

Natural environment

ZT “Kruszwica” S.A. conducts broad production activity, thereby materially impacting the environment. The Company continuously undertakes activities to limit this impact by focusing on modifying/improving its production processes to lower the consumption of energy and other media. In consequence, this results, among others, in lowering the emission of pollutants into the air and waters, decreasing the quantity of generated wastes with simultaneous increase in recycling. This is especially important in times when climactic changes have an increasing impact on the natural environment by affecting the conditions of executing environmental activities by the Company’s business partners, especially farmers.

Environmental policies

ZT „Kruszwica” SA is guided by a sense of responsibility for the environment. In its policies and programs, the Company consequently declares and executes activities aimed at reducing environmental impact resulting from the conducted activity. As part of the ISO 14001: 2015 system and in accordance with the recommendations of the Bunge Group, the plants in Kobylniki near Kruszwica and Brzeg have implemented Environmental policies which focus on the following aspects:

• Conduct in accordance with the current legal requirements in terms of the executed processes, products, services and projects;

• Continuous improvement of activity in terms of environmental protection by applying the environmental management principles, environmental risk assessment and monitoring of the effects of impact on the environment in relation to plants, processes, products, services and projects;

• Striving for sustainable development in environmental terms by preventing contamination of the environment, minimisation of the quantity of wastes, seeking opportunities of their repeated use and recycling as part of processes, products, services and projects;

• Demonstrating social responsibility by striving to satisfy environmental needs in communities in which the Company conducts its activity and promoting natural resources economy;

• Engagement of employees in environmentally friendly activities and organisation of employee training courses supporting environmental management practices.

Energy

The ZT “Kruszwica” S.A. plants in Brzeg and Kobylniki near Kruszwica utilise the following sources of energy: electricity and gas, coal and oil (only Brzeg). The consumption of energy deriving from the aforementioned sources in the reporting period and in two previous years is presented in the table below [GRI 302-1].

Energy consumption Plant in Brzeg

Unit YEAR

2018 2017 2016

Coal T 26 844 27 368 26 604

Oil T 577 498 546

Gas Nm3 1 205 200 1 602 475 48 161

Electricity* MWh 21 316 25 286 27 052

* purchase + own production

Energy consumption Plant in Kruszwica

Unit YEAR

2018 2017 2016

Coal T 0 0 0

15

Oil T 0 6 0

Gas Nm3 11 252 033 10 707 213 10 576 906

Electricity MWh 33 359 32 058 31 375

In the reporting period, the energy consumption intensity measured in relation to production amounted in the Brzeg Plant to 1.13 GJ/T. For comparison, in 2017 this factor amounted to 1.20 GJ/T, and in 2016 – 1,24 GJ/T. In the Plant in Kobylniki near Kruszwica the energy consumption intensity amounted in 2018 and 2017 to 0.72 GJ/T. In 2016 it was higher and amounted to 0.75 GJ/T. Lowering the consumption of energy used for producing a ton of product is an important long-term objective of the Company.

As result of a series of activities related to environmental protection and power performance programs, ZT “Kruszwica” S.A. continuously lowers its electricity and water steam consumption. In previous years, in the Brzeg Plant such activities were taken as: modernising the steam system and fixtures, heating insulation and optimising the power receiver operation time. On the other hand, the reduction in energy and water steam consumption in the Kobylniki near Kruszwica Plant was possible as result of process changes in the scope of electricity, i.e. replacement of plant lighting to LED and replacement of refrigeration equipment in the refinery department. The Company does not stop taking actions in this area. In 2018, the Plant in Brzeg analysed the quality of coal and developed a new specification for the raw material, which should ensure optimization of the combustion process. On the other hand, the production Plant in Kobylniki near Kruszwica in 2018 took steps to reduce the consumption of electricity and gas. It was assumed that the effect of these activities should be visible at the end of 2019. The abovementioned measures allowed for reduction of energy and water steam consumption in 2018 by 11580 GJ in the Plant in Brzeg and by 6135 GJ in the Plant in Kobylniki near Kruszwica.

According to the Company’s environmental policy, the plants feature propagation of energy savings principles which undoubtedly contributed to consumption reduction in the reporting year [GRI 302-4].

Water

Water is extremely valuable for the environment, particularly since its shortages can lead to social, environmental and business problems. Consequently, savings and efficient water economy are in the interests of all entities. Areas on which ZT "Kruszwica" S.A. industrial plants are located do not belong to areas where there is a shortage of water. Water is supplied to the Company's Plants from municipal water supply systems. Additionally, in the Brzeg plant, surface waters are used (collection from the Odra river), and at the plant in Kobylniki near Kruszwica - from own intakes (deep wells). The quantity of utilised water is determined based on flow meters located in each plant. The established capabilities to measure water consumption allow the Company for continuous control and quick reaction in case of excessive values. The water consumption in 2018-2016 is presented in the table below [GRI 303-3]:

Water source Unit Plant in Brzeg


2018 2017 2016 2018 2017 2016

surface waters M3 204 846 155 738 182 786

ground waters M3 304 187 287 820 296 584

water from third parties (water companies)

M3 241 358 226 028 246 865 2 501 3 173 10 843

TOTAL M3 687 562 381 766 429 651 306 688 290 993 307 427

Wastewater

The quantity and quality of wastewater generated by the ZT “Kruszwica” S.A. production plants is fully monitored, because the potential effects of uncontrolled water contamination can be very hazardous for the environment and irreversible. A flagship principle of each of the Company’s plants is to treat the production wastewater before discharging them into the environment.

Below we present the ratios on wastewater volumes and its target destination [GRI 303-4]:

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Destination Wastewater type Unit Plant in Brzeg

2018 2017 2016

Surface water – Odra river

Post-cooling water, rainwater, from the water treatment station

M3 181 849 188 804 195 994

Local sewage system

Third-party water M3 134 747 119 088 134 724

TOTAL 316 596 307 892 330 718

Destination Wastewater type Unit Plant in Kobylniki near Kruszwica

2018 2017 2016

Surface water – Gopło lake*

rainwater, from the water treatment station

M3 34 597 37 415 25 022

Local sewage system

Third-party water M3 171 610 157 628 159 619

TOTAL 206 207 195 043 184 641

* The water law permit defines the detailed place of dumps - RL4 ditch (the Gopło Lake catchment). The rainwater and sewage from the water treatment plant goes to the ditch, where it practically evaporates and permeates the soil.

The amount and type of substances that pose a threat to the aquatic environment, which are removed from wastewater (treated), have been precisely defined in the documents issued for each Company Plant:

Plant in Kobylniki near Kruszwica:

- Decision of the Head of Inowrocław District OSR.6222.1.44.2012 dated 2013-07-26 (integrated permit); - Decision of the Head of Inowrocław District OSR.6341.157.2016 dated 10.11.2016 (water law permit).

Plant in Brzeg:

- Decision of the Head of Brzeg District no. OŚ.7644/6/06 dated 29.11.2006 (integrated permit); - Decision of the Head of Brzeg District no. OŚ.6341.66.2015.MS dated 17.12.2015 (water law permit for the introduction of industrial wastewater into the sewage system)

ZT „Kruszwica” S.A. strictly adheres to specific norms set out in water law permits, where the parameters of sewage discharged have been determined.

Emissions of pollutants into the atmosphere

The energy used is a source of emission of carbon dioxide into the atmosphere. When limiting the direct emission and monitoring electricity consumption in all plants, the Company takes into consideration the carbon dioxide emission factor, which is the subject of regular analyses.

In ZT “Kruszwica” S.A., we continuously monitor the direct and indirect emission of carbon dioxide. Direct emissions are generated by both plants as result of consuming fossil fuels and estimated based on the quantity of consumed fuel and emission factors. Indirect emissions, concerning electricity consumption, are also estimated based on consumed electricity and the factors adopted for Poland.

Below we present the data on carbon dioxide emission by the Brzeg and Kobylniki near Kruszwica plants in the reporting period and in 2018, 2017 and 2016 [GRI 305-1, 305-2 and 305-4]:

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Greenhouse gases Unit

Plant in Brzeg

Plant in Kobylniki near

Kruszwica

2018

2017 2016 2018

2017

2016

Emission

direct T 58 044

61 830 60 037 23 266

21 804

21 317

indirect T 16 937

16 424 18 556 26 614

25 583

25 477

Production T 650 684

586 594 579 353 744 012

699 942

658 305

Intensity ratio

for direct emission

kg/T 89,20

105,40 103,63 31,27

31,15

32,38

for indirect emission

kg/T 26,03

28,00 32,03 35,77

36,55

38,70

Packaging and waste economy

Providing consumers with the highest quality of products depends not only on the raw materials used in their production, but also on the used packaging. The method of its designing affects the protection of the food inside before its opening and its storage and wastage during use. The quantity and type of packaging in circulation after the consumption of products by consumers determine its recovery and recycling, which is extremely important for environmental protection. The volume of packaging introduced into the market is presented in the table below [GRI 301-1]:

Packaging introduced into the market (kg)

2018 2017 Change %

(2018/2017) 2016

Change % (2017/2016)

Plastic packaging 4 918 924,01 4 652 198,34 9% 4 248 630,77 9%

Paper and paperboard packaging 5 519 957,90 5 031 085,71 3% 4 904 590,56 3%

Aluminium packaging 105 268,12 86 752,51 11% 78 291,25 11%

Glass 1 668 012,01 1 292 061,85 34% 965 319,70 34%

Metals 19 235,45 18 028,57 2109% 816,01 2109%

Multi-material packaging 219 669,27 189 928,26 -11% 214 111,15 -11%

Wood 40 400,00 35 160,00 35% 26 140,00 35%

The by-products generated during production conducted by the Company include the following:

• rapeseed meal, i.e. grain leftover after pressing oil from rapeseeds, includes 2-4% fat with high protein content.

• rapeseed cake is a feed material leftover after deep pressing of oil from rapeseeds, includes 9-18% fat.

From a 1 thousand tons of rapeseed, after oil pressing, we obtain approx. 580-620 tons of meal or 630-700 tons of rapeseed cake. These products are nearly 100% reused in agriculture for direct feeding of breeding animals or preparing feed mixtures. The product is used mainly for feeding ruminants, pigs and poultry.

An important element of the activities undertaken by ZT “Kruszwica” S.A. is the Zero Waste strategy, i.e. preventing handing over of wastes to disposal sites. Wastes are segregated into various categories, which allows waste disposal companies to administer them properly. We pay attention to the sorting correctness, homogeneity of the collected waste and careful selection of authorised waste disposal companies in order to enable them to fully use the handed over wastes.

The Company undertakes activities aimed at reducing the mass of generated sewage sludge and their utilisation. We also search for new applications for the wastes generated in the plants. For example, we use sewage sludge in agriculture to improve and enrich the structure and composition of the soil.

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In 2018, the Brzeg Plant has recycled 25,05 tons of hazardous wastes; in 2017 – 6,63 tons, and in 2016 - 3,29 tons. In the Kobylniki near Kruszwica Plant in 2018 no hazardous wastes were recycled; in 2017 – 2,47 tons, and in 2016 – 10,21 tons. The volume of non-hazardous wastes, with division to the methods of procedure, is presented in the table below [GRI 306-2]:

Weight of safe wastes (T) Plant in Brzeg Plant in Kobylniki near Kruszwica

2018 2017 2016 2018 2017 2016

recycling 7 888 8 616 6 888 280 241 266

composting; biogases; soil improver 1 559 1 227 1 288 0 160,98 525,76

recovery, including energy recovery; 88,26 60,49 0 1 993 1 701 1 847

combustion (mass combustion); 2,81 0 2,53 0 1,07 10,21

disposal at waste disposal sites; 15,24 28,12 62,98 10,21 8,841 12,35

The generated wastes are mainly handed over for recycling or recovery. Furthermore, the persons employed in the production plants undergo mandatory training courses on environmental protection to get acquainted with the waste economy principles, including their selection at source, i.e. at the location of work. The Company also conducts educational activities for its employees (environmental picnics, local events), thereby encouraging waste segregation in private households.

Below we present the list of expenses incurred by ZT “Kruszwica” S.A. in relation to environmental protection and the related educational activity:

Costs of waste disposal, environmental remediation and remedial action (PLN)

Plant in Brzeg Plant in Kobylniki near Kruszwica

2018 2017 2016 2018 2017 2016

treatment and recycling of wastes; 1 887 063 1 978 059 1 973 113 2 258 982 1 936 935 2 289 709

emission remediation (e.g. expenses for filters, factors);

107 120 0 0

expenses for the purchase and use of emission certificates;

3 910 085 640 600 792 382 1 458 804 38 083 22 323

expenses for the purchase of equipment, maintenance, materials and services as well as related staff costs;

831 007 614 553 1 005 070 976 539 430 895 470 458

environmental damage insurance; 7 309 7 309 - 7 309 7 309 0

costs of remediation, including costs of reclamation related to spillage

874 743 717 598 664 636 380 409 735 526 759 491

Costs of preventing damage and environmental protection management (PLN)

Plant in Brzeg Plant in Kobylniki near Kruszwica

2018

2017 2016

2018 2017 2016

training courses in terms of environmental protection;

15 683 - 15 985

10 153 8 200 6 780

external services related to environmental protection management;

1 500 62 889 56 876

3 491 12 123 13 085

external management system certificates;

6 890 17 459 7 711

50 315 18 982 12 513

additional expenses for the environmental protection-related purchases;

192 549 344 698 6 743 106

234 104 158 698 558 774

In 2017 and 2016, there were no reported complaints on environmental impact, submitted as part of formal complaint mechanisms. In 2018, one complaint was lodged and concerned the Plant in Brzeg. The subject of the complaint were unpleasant odours [GRI 307-1]. ZT „Kruszwica” S.A. effectively engages in activity aimed at environmental protection.

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“Helping bees with Kujawski oil” program – 2018 edition

In 2018, as many as 212 local governments signed the Bee Friendly Municipalities Manifest – the initiative within the Helping bees with Kujawski oil” program. Last year 80 municipalities were with us. ZT „Kruszwica” S.A. is delighted with the increasing involvement of local governments in activities to protect pollinators. The communes, together with residents and local organizations, created on the squares, in parks, gardens and on balconies almost 8,000 “bee canteens”. In addition, as part of the education of the residents, outdoor events were organized, such as festivities, picnics, educational activities in schools and kindergartens, training for gardeners and farmers. All this to improve the living conditions of bees in Poland.

The 10 municipalities, that have taken the most interesting activities, were awarded by the Company with a special prize in the form of an education board. Thanks to it, residents will learn how to take care of these beneficial insects and get to know the species of bees and flowers that provide them with food.

ZT "Kruszwica" S.A. as part of running the program "We help bees with Kujawski" has set a goal - to create 50 thousand Bee-Friendly Places, i.e. those in which nectar and pollen plants give food to the bees. This task was more than completed. At the end of 2018, the counter on the program's website indicated 69,000 “bee canteens”. This result was created in cooperation with partners invited by the Company to the program. Social organizations, municipalities, schools, garden centres, national and landscape parks, botanical gardens and employees have become involved in activities for the benefit of bees.

In 2018, the program of the Great Bee Day was organized for the sixth time as part of the program. This all-Poland event combining fun and education was initiated by the program "We help bees with Kujawski". This year, the celebrations were organized in Warsaw and four holiday resorts: Władysławowo, Jastrzębia Góra, Mrągowo and Giżycko. Also 37 institutions from all over the country joined in celebration of the bee festival - landscape and national parks as well as museums. Based on the materials and scenarios prepared by ZT „Kruszwica” S.A. these institutions have conducted, inter alia, an educational field game.

In Warsaw, children from the "Summer in the City" program learned about different bee species, the dependence between pollination, bees, and what we eat, for example, for breakfast. They also learned how to care for these insects. The program included common flower planting and field game. The children also learned to recognize the species of nectar and pollen plants on the rebate that we created specifically for this event. During the event in the 3rd Jordan Garden, the inauguration of the flower meadow took place. The ceremony was attended by the Mayor of the Ochota District, Katarzyna Łęgiewicz and Sławomir Sendzielski, the chief specialist of the Green Board of the Capital City of Warsaw. The flower meadow is a perfect example of how to create a public space that is friendly to both humans and pollinators.

In the other four cities, educational city games were held, the main character of which was the tawny mining-bee, which is one of the 470 species of bees that persistently work for our good all season. Participants solved logic tasks and puzzles using educational boards and took part in motion games. The most important point of the game was the creation of Bee-Friendly Places.

The goal of the program is not only to protect bees, but also to promote the responsible use of our planet's natural resources. ZT Kruszwica S.A. in the next years plans to be active and effective in this area.

Human rights

The Capital Group conducts its activity with full respect of human rights by committing to comply with the international standards included in the UN Guidelines on business and human rights as well as in the International Labour Organisation Declaration on Fundamental Principles and Rights at Work. The Group’s aim is to make respect for human rights visible in all areas of its activity by treating the rights as the foundation of social relations.

On the other hand, disregard for human rights can negatively affect the Group’s reputation, thus causing the necessity to take remedial action.

Respect for human rights should not only be viewed in categories of using child labour or persecution of human rights advocates. Human rights also regard everyday Company operating activity. Employee occupational health and safety, ensuring at least the legal requirements related to the work place and protective equipment, transparent principles of assessing and paying remuneration, right to rest or social security are only some of the aspects related to the respect for human rights met by the Group.

The Capital Group has not developed a separate policy concerning the respect for human rights. Some of the aforementioned aspects are regulated in the internal Code of Conduct applicable in the Group. The part on Respect in the Work Place specified the following aspects:

• Diversity in business - reference to creating an atmosphere of openness, trust and integration by respecting the diversity of talent, capabilities and skills, origin and experiences of each person;

• Objection to discrimination - decisions related to employment, promotion and compensation must be made regardless of any legally protected features,

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• Objection to harassment at the work place - conduct related to legally protected features of a person who is creating a hostile or offensive working environment.

In 2017, ZT “Kruszwica” S.A. has successfully passed the Sedex Members Ethical Trade Audit (SMETA). The SMETA procedure is based on the ETI Base Code (code of conduct of the Ethical Trading Initiative association). SMETA applies to 4 areas: employment conditions, occupational health and safety, environmental protection and responsible methods of conducting activity. The previous SMETA audit took place in 2013. As result of the SMETA procedure, the Company is awarded with the social responsibility certificate and the results of the audit are published in the Sedex database. The current certificate maintains its validity until February 22, 2020 (the validity period is three years). The certificate constitutes confirmation that ZT “Kruszwica” S.A. operates in accordance with the current legal regulations concerning employment conditions as well as occupational health and safety.

Counteracting corruption and bribery

Honest, open and ethical conduct is the basic condition for effective market activity. The Capital Group aims at conducting and conducts its activity in accordance with the highest ethical standards. For this reason, the Group has implemented the Code of Conduct, which applies globally in Bunge. The code is intended as a guidebook for proceeding in an ethical and legal manner during the execution of everyday occupational activities. It includes a values system to be applied by the employees when making each decision – starting with compliance with the regulations and business ethics, through relations in the work place and ending with cooperation with business partners, consumers and local communities. The Code promotes standards that should be commonly applied, including specific acts, regulations and policies that apply to the Capital Group’s activity.

The Code of Conduct specifies, among others, the following issues:

• Group assets protection;

• refusal to accept a bribe and corruption;

• respect in the work place;

• conflicts of interest.

Each employee is able to report his or her suspicions about practices in discordance with occupational ethics via the following channels:

• to his or her manager or other manager trusted by the employee;

• to the Personal Affairs Department;

• to the Legal Service Department;

• on the Global Ethics and Compliance ("GEC”) website;

• on the Bunge Hotline.

It is important that the no retaliation policy applied in the Capital Group protects anyone who makes a report in good faith, even if it later turns out that he or she was wrong.

Problems related to corruption and bribery were identified as a serious source of risk of reputation losses for ZT “Kruszwica” S.A. There is a risk that an infringement of our anti-corruption policy can negatively affect our activity.

In 2017-2018 all employees have undergone training on the Code of Conduct. Employees with e-mail accounts accepted the principles specified in the Code of Conduct in an electronic form (including the execution of enclosed exercises on recognising accepting a bribe and corruption), whereas employees without an e-mail account have undergone standard training courses on this topic [205-2].

Problems related to corruption and bribery were identified as a serious source of risk of reputation losses for the Capital Group. Due to the above, aside from the Code of Conduct, the Group also applies the Anti-corruption Compliance Policy and the Handbook on corruption prevention procedures. The handbook includes the principles of conduct and practical advice concerning the following aspects:

• gifts, entertainment and other expressions of business courtesy;

• travels of foreign officials;

• contributions for political, charitable and sponsorship purposes;

• selection and employment of representatives;

• issues related to mergers and takeovers.

The guidelines concerning corruption prevention apply to all employees, including fixed-term employees and contract employees. In 2016-2018, as part of compliance with the related standards, we organised a survey titled Fraud and Compliance Risk Assessment. It is conducted annually on a group of randomly selected employees (approx. 80 people in Companies belonging to the Bunge Group in Poland). Based on the survey’s results, we annually conduct an embezzlement risk analysis in various areas important for the entire Company (regardless of the location).

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No confirmed corruption activity cases were reported in the reporting period [205-3].

Summary

The Report on non-financial information is the second report of this type developed by the Capital Group. The first Report was prepared for 2017. Both Reports were developed based on the internal reporting model. In order to determine the key non-financial indicators we relied on the Global Reporting Initiative Standards guidelines. The indicators were highlighted by adding a square bracket including the indicator according to the standard. The Report does not however meet all the required reporting aspects according to the GRI Standard, which is why it cannot be treated as a Core-level sustainable development report.

The Report was prepared for the period between 1 January to 31 December 2018. It also includes comparative information for 2017 and 2016.

The numerical and qualitative data presented in this Report are derived from the internal systems of Group’s companies, which constitute a part of the reporting process and data validation with participation of internal experts.


Signatures of Members of the Management Board:







REPRESENTATION OF THE MANAGEMENT BOARD OF ZAKŁADY TŁUSZCZOWE “KRUSZWICA” SPÓŁKA AKCYJNA

Pursuant to the Ordinance of the Minister of Finance of 29 March 2018 on current and periodic information published by issuers of securities and the rules of equal treatment of the information required by the laws of non-member states (Journal of Laws of 2018, item 757) Article 71.1.6, the Management Board of Zakłady Tłuszczowe “Kruszwica” Spółka Akcyjna (“Company”) comprising:







states that to the best of their knowledge, the consolidated annual financial statements of the ZT "Kruszwica" S.A. Capital Group and the comparative data have been prepared in compliance with the valid accounting principles, and they give a true, fair and clear picture of the economic and financial position of the Company.

The financial performance, and that the annual report on the activities of the ZT “Kruszwica” S.A. Capital Group presents a true picture of the Capital Group’s development and achievements, including key threats and risks.

INFORMATION OF THE MANAGEMENT BOARD OF ZAKŁADY TŁUSZCZOWE “KRUSZWICA” SPÓŁKA AKCYJNA BASED ON REPRESENTATION OF THE SUPERVISORY BOARD

Pursuant to the Ordinance of the Minister of Finance of 29 March 2018 on current and periodic information published by issuers of securities and the rules of equal treatment of the information required by the laws of non-member states (Journal of Laws of 2018, item 757) Article 71.1.7, the Management Board of Capital Group ZT "Kruszwica" S.A. (“Capital Group”), based on Resolution of the Supervisory Board No. 1/2019 of 15 February 2019, informs that:

the auditing company Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k. [a limited liability

company limited partnership] auditing the consolidated financial statements of the ZT "Kruszwica" S.A. Capital

Group for 2018 was selected in accordance with relevant regulations, including those concerning the selection

and procedure of selecting an auditing company;

the auditing company Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k. [a limited liability

company limited partnership] and members of the audit team met the conditions for preparing an impartial and

independent report on the audit of the consolidated financial statements of the ZT "Kruszwica" S.A. Capital

Group for 2018 in accordance with applicable regulations, professional standards and principles of

professional ethics;

the company complies with the applicable regulations related to the rotation of the auditing company and the

key statutory auditor, and the mandatory grace periods;

the company has in place a policy regarding the selection of an auditing company and a policy regarding the

provision, to the Company, by an auditing company, or an entity related to the auditing company, or by a

member of its network, of additional non-audit services, including those services the prohibition on the

provision of which has been conditionally lifted.


Signatures of Members of the Management Board:







Deloitte Audyt

Spółka z ograniczoną odpowiedzialnością Sp. k.

al. Jana Pawła II 22

00-133 Warszawa Polska

Tel.: +48 22 511 08 11

Fax: +48 22 511 08 13

www.deloitte.com/pl

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/pl/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Member of Deloitte Touche Tohmatsu Limited District Court for the city of Warsaw, XII Business Division of the National Court Register, KRS No. 0000446833, NIP: 527-020-07-86, REGON: 010076870

INDEPENDENT AUDITOR’S REPORT

To and the Supervisory Board of Zakłady Tłuszczowe Kruszwica S.A.

Report on the Audit of the Annual Consolidated Financial Statements

Opinion

We have audited the annual consolidated financial statements of the group (the “Group”)

with Zakłady Tłuszczowe Kruszwica S.A. as the parent (the “Parent”), which comprise

the consolidated statement of financial position as at December 31, 2018, and the consolidated

statement of comprehensive income, consolidated statement of changes in equity and consolidated

statement of cash flows for the year then ended, and notes to the consolidated financial statements,

including a summary of significant accounting policies and other explanatory information

(the “consolidated financial statements”).

In our opinion, the accompanying consolidated financial statements:

give a true and fair view of the economic and financial position of the Group as at December

31, 2018, and of its financial performance and its cash flows for the year then ended

in accordance with the applicable International Financial Reporting Standards, as endorsed

by the European Union, and the adopted accounting policies;

comply, as regards their form and content, with the applicable laws and the articles

of association of the Parent.

Our opinion is consistent with the Additional Report to the Audit Committee, which we issued

on 25 March 2019.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”) in a version

adopted by the National Council of Statutory Auditors as the Polish Standards on Auditing (“PSAs”)

and in compliance with the Act on Statutory Auditors, Audit Firms and Public Oversight of 11 May

2017 (the “Act on Statutory Auditors”, Journal of Laws of 2017, item 1089, as amended) as well

as Regulation (EU) No 537/2014 of the European Parliament and of the Council of 16 April 2014

on specific requirements regarding statutory audit of public-interest entities (“EU Regulation”,

Official Journal of the European Union L158). Our responsibilities under those standards are further

described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

section of our report.

We are independent of the Group in accordance with the International Federation of Accountants’

Code of Ethics for Professional Accountants (“IFAC Code”), adopted by resolution of the National

Council of Statutory Auditors, together with the ethical requirements that are relevant to the audit

of the financial statements in Poland, and we have fulfilled our other ethical responsibilities

in accordance with these requirements and the IFAC Code. Throughout the audit, both the key

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statutory auditor and the audit firm remained independent of the Group in accordance

with the independence requirements set out in the Act on Statutory Auditors and in the EU

Regulation.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance

in our audit of the consolidated financial statements of the current period. They encompass the most

significant assessed risks of material misstatement, including assessed risks of material

misstatement due to fraud. These matters were addressed in the context of our audit

of the consolidated financial statements as a whole, and in forming our opinion thereon.

We summarized our response to those risks and, where appropriate, we presented the key findings

related to those risks. We do not provide a separate opinion on these matters.

Key Audit Matter How the matter was addressed in the audit

Inventory measurement risk

In Note 19 of other explanatory

information the Group disclosed

inventories of PLN 450,152 thousand.

An impairment loss on these

inventories was PLN 985 thousand.

The inventories measurement matter

has been considered of key

importance for the financial

statements of the Capital Group due

to the materiality of the amount

presented in the consolidated

financial statements and

management’s estimates based on

judgement in relation to the inventory

measurement. Measurement of

financial instruments hedging

designated raw material purchase

transactions was an additional

element included in the inventory

measurement.

In order to address the risk, our audit procedures

included in particular:

understanding the process of ensuring the right

internal control level by the management, aimed

at prevention of material errors in the consolidated

financial statements, among others in the form

of credibility tests regarding material controls;

analysis of the Group’s accounting policies in relation

to initial recognition of inventories, as well

as recognition of impairment and of measurement

of realized financial instruments that hedged

inventory purchase transactions;

confirming the physical existence of inventories

through participation in the stocktaking process

and verification of documentation;

tests of using prior years’ impairment losses and

verification of historical data with regard to prior

years’ losses on liquidation of inventories;

verification whether standard cost prices comply with

the actual sales prices (testing a selected sample);

analysis of the treatment of manufacturing costs

deviating from standard cost prices;

analysis and assessment of the correctness

of recognizing in inventories the measurement

of realized instruments hedging raw material

transactions.

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Revenue recognition - the risk of misstatement resulting from recognition of transactions with

override of controls

In response to the requirements

of National Auditing Standard 240 we

assessed the characteristics of

revenue recognition in the Capital

Group. Following an analysis, the risk

of potential revenue misstatement,

including due to fraud, was

pinpointed to recognition of

unauthorized revenue postings.

In the course of the audit, we documented our

understanding and assessment of the internal control

environment, in particular with regard to recognition

of manual revenue postings.

Our procedures implemented in response to

the identified audit risk included in particular:

analysis of the accounting policy regarding revenue

recognition and rebates affecting the revenue

amount;

substantive tests on a selected sample of manual

postings;

detailed tests regarding selected records on revenue

accounts;

monthly assessment of trends and correlation

between revenue and costs of sales;

analytical tests regarding calculated rebates and

their correlation with revenue amount;

verification of invoices issued after year-end.

Derivatives - correctness of measurement, completeness of disclosure

As described in Notes 35 and 36 of

other explanatory information,

the Capital Group concluded a large

number of transactions related to

currency and commodity derivatives.

In light of the material volume of

transactions concluded and high

complexity of fair value measurement

of derivative-related transactions,

including hedge accounting, in this

respect we recognize a risk of

misstatement of the consolidated

financial statements.

In the course of the audit, we documented our

understanding of the recognition and measurement

of transactions, as well as of hedge accounting used

by the Capital Group, along with the assessment

of the process of managing derivatives and

the implemented controls.

Additionally, in response to the identified risk:

we analyzed the methods adopted by the Capital

Group to measure and record financial instruments;

we assessed the completeness of the instruments

recognition;

using a sample of transactions, we analyzed

the correctness of measurement of financial

instruments, including the parameters underlying

the measurement;

using a sample of hedging transactions, we assessed

whether the parameters (among others, currency,

maturity date) correspond to the hedged

transactions;

4


we assessed the completeness and correctness

of disclosures provided in the financial statements

in line with IFRS 9.

Responsibilities of the Management Board and the Supervisory Board of the Parent

for the Consolidated Financial Statements

The Parent’s Management Board is responsible for the preparation of consolidated financial

statements which give a true and fair view of the economic and financial position of the Group

and of its financial performance in accordance with the applicable International Financial Reporting

Standards, as endorsed by the European Union, the adopted accounting policies as well

as the applicable laws and articles of association of the Parent, and for such internal control

as the Parent’s Management Board determines is necessary to enable the preparation

of consolidated financial statements that are free from material misstatement, whether due to fraud

or error.

In preparing the consolidated financial statements, the Parent’s Management Board is responsible

for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters

related to going concern and using the going concern basis of accounting unless the Parent’s

Management Board either intends to liquidate the Group or to cease operations, or has no realistic

alternative but to do so.

The Management Board and members of the Supervisory Board of the Parent are obliged to ensure

that the consolidated financial statements meet the requirements of the Accounting Act

of 29 September 1994 (the “Accounting Act”, Journal of Laws of 2019, item 351). Members of the

Parent’s Supervisory Board are responsible for overseeing the financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial

statements as a whole are free from material misstatement, whether due to fraud or error,

and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level

of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always

detect a material misstatement when it exists. Misstatements can arise from fraud or error and are

considered material if, individually or in the aggregate, they could reasonably be expected

to influence the economic decisions of users taken on the basis of these consolidated financial

statements.

The scope of an audit does not include an assurance about the future profitability of the Group

or the effectiveness or efficiency of the Parent’s Management Board in managing the Group’s affairs

at present or in the future.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain

professional skepticism throughout the audit. We also:

identify and assess the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks,

and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one

resulting from error, as fraud may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal control;

5

obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Group’s internal control;

evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by the Parent’s Management Board;

conclude on the appropriateness of the Parent’s Management Board’s use of the going concern

basis of accounting and, based on the audit evidence obtained, whether a material uncertainty

exists related to events or conditions that may cast significant doubt on the Group’s ability

to continue as a going concern. If we conclude that a material uncertainty exists, we are

required to draw attention in our auditor’s report to the related disclosures in the consolidated

financial statements or, if such disclosures are inadequate, to modify our opinion.

Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.

However, future events or conditions may cause the Group to cease to continue as a going

concern;

evaluate the overall presentation, structure and content of the consolidated financial

statements, including the disclosures, and whether the consolidated financial statements

represent the underlying transactions and events in a manner that achieves fair presentation;

obtain sufficient appropriate audit evidence regarding the financial information of the entities

or business activities within the Group to express an opinion on the consolidated financial

statements. We are responsible for the direction, supervision and performance of the Group

audit. We remain solely responsible for our audit opinion.

We communicate with the Parent’s Supervisory Board regarding, among other matters, the planned

scope and timing of the audit and significant audit findings, including any significant deficiencies

in internal control that we identify during our audit.

We also provide the Parent’s Supervisory Board with a statement that we have complied

with relevant ethical requirements regarding independence, and that we will communicate with it all

relationships and other matters that may reasonably be thought to bear on our independence,

and where applicable, related safeguards.

From the matters communicated with the Parent’s Supervisory Board, we determined those matters

that were of most significance in the audit of the consolidated financial statements of the current

period and are therefore the key audit matters. We describe these matters in our auditor’s report

unless law or regulation precludes public disclosure about the matter or when, in extremely rare

circumstances, we determine that a matter should not be communicated in our report because

the adverse consequences of doing so would reasonably be expected to outweigh the public interest

benefits of such communication.

Other Information, Including the Report on the Activities

Other information includes a report on the Group’s activities in the financial year ended December

31, 2018 (the “Report on the Activities”), together with a statement of compliance with corporate

governance principles, which constitute separate parts of the Report (together: the “Other

Information”).

Report of the activities of Zakłady Tłuszczowe “Kruszwica” Group and Zakłądy Tłuszczowe

“Kruszwica” S.A. for the year 2018, in accordance with art. 55 sec. 2a of the Accounting Act has

been prepared jointly.

6

Responsibilities of the Management Board and the Supervisory Board

The Parent’s Management Board is responsible for the preparation of the Other Information

in accordance with the applicable laws.

The Management Board and members of the Supervisory Board of the Parent are obliged to ensure

that the Report on the Activities, along with the separate parts, meet the requirements

of the Accounting Act.

Auditor’s Responsibilities

Our opinion on the consolidated financial statements does not cover the Other Information.

In connection with our audit of the consolidated financial statements, our responsibility is to read

the Other Information and, in doing so, consider whether the Other Information is materially

inconsistent with the consolidated financial statements or our knowledge obtained in the audit

or otherwise appears to be materially misstated. If, based on the work we have performed,

we conclude that there is a material misstatement of this Other Information, we are required to

report that fact in our auditor’s report. Additionally, under the Act on Statutory Auditors we are

obliged to express an opinion on whether the Report on the Activities has been prepared

in accordance with the applicable laws and whether it is consistent with the information contained

in the consolidated financial statements. Furthermore, we are obliged to state whether a non-

financial information statement has been prepared by the Group and to express an opinion

on whether the Group has included the necessary information in the statement of compliance with

corporate governance principles.

Opinion on the Report on the Activities

Based on our work performed during the audit, we are of the opinion that the Report

on the Activities:

has been prepared in accordance with Article 49 of the Accounting Act and par. 71

of the Regulation of the Minister of Finance of 29 March 2018 on current and periodic

information published by issuers of securities and the rules of equal treatment of the information

required by the laws of non-member states (the “Current Information Regulation”, Journal

of Laws of 2018, item 757);

is consistent with the information contained in the consolidated financial statements.

Furthermore, in the light of the knowledge and understanding of the Group and its environment

obtained in the course of the audit, we have not identified any material misstatements of the Report

on the Activities.

Opinion on the Statement of Compliance with Corporate Governance Principles

In our opinion, the statement of compliance with corporate governance principles contains

the information referred to in par. 70.6.5 of the Current Information Regulation. We are also

of the opinion that the information referred to in par. 70.6.5(c)-(f), (h) and (i) of the Regulation,

as contained in the statement of compliance with corporate governance principles, is in accordance

with the applicable laws and consistent with the information included in the consolidated financial

statements.

Information on Non-Financial Information

In accordance with the requirements of the Act on Statutory Auditors, we would like to inform you

that the Group does not prepare a non-financial information statement, relying on the exemption

under Article 55.2c of the Accounting Act. In the Report on the Activities, the Group included

information concerning the preparation of a separate non-financial report. By the date of this report,

7

the Group had prepared a separate non-financial report, as referred to in Article 49b. 1 of the

Accounting Act.

We have not performed any assurance services relating to the separate non-financial report and

we do not express any form of assurance conclusion thereon.

Report on Other Legal and Regulatory Requirements

Statement Concerning Provision of Non-Audit Services

To the best of our knowledge and belief, we represent that non-audit services which we have

provided to the Parent and to its subsidiaries are in accordance with the laws and regulations

applicable in Poland and that we have not provided any non-audit services which are prohibited

under Article 5.1 of the EU Regulation and Article 136 of the Act on Statutory Auditors.

The non-audit services which we provided to the Parent and to its subsidiaries in the audited period

have been listed in Note 35 in the Report on the Activities.

Appointment of the Auditor

We were appointed as the auditor of the Group’s consolidated financial statements by resolution

No 10/2018 of the Parent’s Supervisory Board of 18 April 2018. Our total uninterrupted period

of engagement to audit the Group’s consolidated financial statements is twenty two consecutive

financial years, i.e. starting from the financial year ended 31 December 1997.

The key statutory auditor on the audit resulting in this independent auditor’s report is

Anita Karaś-Kulicka.

Acting on behalf of Deloitte Audyt Spółka z ograniczoną odpowiedzialnością Sp. k. with its registered

seat in Warsaw, entered under number 73 on the list of audit firms, in the name of which

the consolidated financial statements have been audited by the key statutory auditor:

Anita Karaś-Kulicka

Registered under number 10145

Warsaw, 25 March 2019

This Report is an English version of the original Polish version. In case of any

discrepancies between the Polish and English version, the Polish version shall prevail.

Documents

Dear Shareholders, - ZT "Kruszwica · 2019. 4. 8. · drivers of the Group’s solid 2018 performance in the agri segment. In spite of a relatively high rapeseed production in 2017