Note

Operating segments

The Group realises its business goals through four reportable segments managed separately because they require different management strategies (including production, sales and marketing strategies).

The following summary describes the operations of each of the Group’s reportable segments:

• Fertilizers-Agro Segment includes manufacturing and sales of the following products:
  - nitrogenous fertilizers (Pulrea®, Saletrzak 27 Standard, Saletrzak with boron 27+B Standard, Salmag®, Slamag® with boron, ZAKsan® (Kędzierzyn ammonium nitrate), Ammonium nitrate 30 Macro, mocznik.pl®, granulated urea 46%, PULGRAN®, PULAN®, RSM®, PULREA®),
  - nitrogenous fertilizers with sulphur (ammonium sulphate AS21, Saletrosan®30, Saletrosan® 26, POLIFOSKA® 21, Salmag with sulphur®, Pulgran®S, Pulsar®, Pulaska®, RSM®S),
  -  compound fertilizers (POLIFOSKA® 4, POLIFOSKA® 5, POLIFOSKA® 6, POLIFOSKA® 8, POLIFOSKA® 12, POLIFOSKA® M, POLIFOSKA® TYTAN, POLIFOSKA® START, POLIFOSKA® Petroplon, POLIMAG® S, POLIFOSKA®PLUS, Amofoska® NPK 5-10-25 +0,1B, Amofoska® NPK 4-16-18, Amofoska® NPK 4-10-28 +2,5Mg+0,1B, Amofoska® NPK 4-12-20, Amofoska® NPKMg 4-12-12+2,5, Amofoska® NPK 4-14-32, Amofoska® Corn NPK 4-10-22 +2,5Mg+0,2Zn),
  -  phospho-nitrogenous fertilizers (POLIDAP® TYTAN, POLIDAP®, POLIDAP® light, Super FOS DAR 40™),
  - ammonia,
  - concentrated nitric acid,
  - technical gases;
• Plastics Segment includes manufacturing and sales of the following products:

- Tarnamid® (PA6) and its modified forms,
- Tarnoform® (POM) and its modified forms,
- alphalon™ (PA6),
- Tarnoprop C i H (PPC, modified PPH),
- Tarnodur A (modified PBT),
- Tarnamid® A (modified PA66),
- caprolactam,
- Polyamide 11 and 12 tubes, polyethylene tubes, Polyamide 6 tubes,
- Polyamide Casings FOOD GRADE;

• Chemicals Segment includes manufacturing and sales of the following products:
  • oxo alcohols (2- ethylhexanol, N-butanol, Izobutanol, Octyl alkohol F),
  • plasticizers (Oxoplast® O, Oxoviflex®, Oxoplast Medica, Oxoplast® PH),
  • pigments (Tytanpol®),
  • melamine,
  • Iron (II) sulphate (Fespol®),
  • special solutions based on urea and ammonia, including: water urea solution (NOXy®), 32.5%, 40% and 45% urea solution (PULNOx®), ammonia solution (LIKAM®);
• Energy Segment includes activities that concern production of electricity and heat for the purposes of chemical installations and selling electricity to customers connected to electric network, with whom the contracts were signed;

• Other Activities Segment comprising other activities, such as laboratory services, manufacturing of catalysts (iron-chromium catalysts, copper catalysts, iron catalysts), rental of properties and other activities which cannot be allocated to other segments. None of these activities met the quantitative criteria to be separated as reportable segment in 2016 and 2015.

Information regarding the results of each reportable segment is set out below. Performance of each segment is measured based on sales revenue, EBIT and EBITDA.

For each segment the Management Board of the Azoty Group reviews internal management reports on a monthly basis.

For internal purposes, the Azoty Group uses the management accounts focused on the following operating segments:

• Nitrogenous Fertilizers
• Compound Fertilizers
• Plastics
• OXO
• Melamine
• Pigments
• Chemicals
• Mining
• Energy
• Other Activities.

The above structure reflects the business areas managed from the perspective of the key entities forming the Group. The above areas were identified on the basis of the main areas of the core business which allow, by diversifying the product portfolio, to minimize market and business cycle risks and, consequently, maximize the results and cash flows. The division was based on the following parameters:

• target market (segment B2B or B2C), with regards to industries and, finally, customers;
• nature of the product and its final use (consumption or further processing);
• specific nature of production and production lines, including extension of the value chain.

For segment reporting purposes, the Group aggregated its operating segments based on business and for formal reasons.

Business reasons (sales and production)

• Agro-Fertilizers – aggregation of nitrogenous fertilizers and compound fertilizers and mining (phosphates). Reasons:

o   a common sales policy (prices, marketing) dedicated to the market for products based on the following elements: nitrogen (N), sulphur (S), phosphor (P), potassium chloride (K) and mixes thereof;

o   managing the production process in the Group from the perspective of using the key semi-finished products (ammonia/urea);

• Plastics - using the full value chain within the Benzene/Phenol - Caprolactam – Polyamide line, realised by the individual Group companies;
• Chemicals – the aggregation of the following areas: Melamine, Chemicals, Pigments, OXO and Mining (sulphur) as semi-finished goods for wide use in the chemical industry to be further processed into final products;
• Energy – similar nature of the production, product and its intended use in individual Group entities.

Formal reasons (IFRS 8 guidance)

• Chemicals – aggregation of the chemical part of the activities, i.e. Melamine, Chemicals, Pigments, OXO, and Mining also due to the fact that the quantitative thresholds specified in the standard are not met by each of the operating segments alone;
• Energy – as a supporting segment with significant quantitative parameters.

Other reasons:

• Other Activities which comprises an element of support for the core businesses and/or focusing on non-core business areas.

Description of impairment losses recognised by the Group was presented in Note 10, 12 and 17.