Financial results for Q3 2018 - CIECH · CIECH Group Management Board Financial results for Q3 2018...

Financial results for Q3 2018

Warsaw, 22 November 2018

2

CIECH Group Management BoardFinancial results for Q3 2018

Dawid JakubowiczPresident of the

Management Board

An expert with the international operational experience in building the value ofcompanies from the chemical, mining, energy, automotive and new technologiessectors. Since 2010 he has been associated with Kulczyk Investments, where managesthe investment portfolio. He worked for the international KPMG Audyt company.He has been a member of the Supervisory Board of CIECH S.A. since June 2018.

Artur OsuchowskiMember of the

Management Board

He was responsible for the development of services in the scope of strategic projects,reorganization of companies’ operations and projects related to the financing ofoperations, as well as the support of direct investments in KPMG Advisory. Previously,he was a senior consultant at Corporate Finance in EY and participated in M&A projectson the capital and strategic market as well as in restructuring projects.

Krzysztof SzlagaMember of the

Management Board

He has the long experience in conducting the complex restructuring processes in theheavy industry. Until 2018 associated with LW Bogdanka S.A. where held the positionof the President and earlier Deputy President of the Management Board for Purchasesand Investments. Also held the management functions at Ruch S.A., CTL Logistics S.A.Previously associated with the corporate finance and the restructuring projects atRoland Berger.

Mirosław SkowronMember of the

Management Board

An expert in the energy and construction industry. He has experience in creating thestrategy and organizational transformation, project and risk management. For manyyears he was associated with energy projects. He held the management functions,including at PeBeKa S.A. (Grupa KGHM), Polimex-Energetyka Sp. z o.o., EnergaElektrownie Ostrołęka S.A., Energa Invest S.A., PGE Elektrownia Opole S.A.

3

Q3 2018 - executive summary

Adj. EBITDA - adjusted for untypical one-off events


PLN 883 m revenues

(Q1-Q3: PLN 2 702 m)

Stable demand in soda ash on the global markets.

Growing prices of energy raw materials and furnace fuel, an increase in the price of CO2 certificates.

Implemented planned downtime in Romania.

Continuation of the investment of a production plant for sodium bicarbonate and a plant of evaporated salt in Germany.

Commencement of business integration with Proplanand the intensification of foreign sales of AGRO products.

Higher sales of silicates thanks to the new installation.

Dividend payment.

15.0%adj. EBITDA margin

(Q1-Q3: 17.5%)

PLN 132 madj. EBITDA

(Q1-Q3: PLN 472 m)

1. Most important events of Q3 2018

2. Financial results for Q3 2018

3. Outlook

4. Appendix

10

14

18

22

26

30

34

5

15.94

40

50

60

70

80

90

100

110

ARA (cal. 25 GJ/t)

PSCMI1 (cal. 25 GJ/t)

Coal prices[USD/t]

2016 20182017

Source: Bloomberg, IHS, www.polskirynekwegla.pl * Australia Premium Coking Coal

2016 20182017

Average value for Q3

2016 201820174

9

14

19

24

CO2 emission allowances[EUR/t]


18.81

5.894.55

2016 20182017

Most important events of Q3 2018

Coking coal - spot

Coking coal - benchmark

Coking coal and coke prices [USD/t]

German Gaspool (GLP) Natural Gas - 1M Forwards[EUR/MWh]

24.54

13.35

Market environment: raw materials

60

100

140

180

220

260

300

340

Coke - ARA ports

3,4

3,9

4,4

USD/RON

6

4,1

4,3

4,5

EUR/PLN

4.26

4.34

3.993.90

4.00

4.30

2016 20182017

2016 20182017

The depreciation of PLN and RON, respectively in relation to EUR and USD,

has a positive effect on the Group's financial results.

Annual net exposure of the Group (revenues in foreign currency

vs. costs in foreign currency) in 2017: EUR 100 m

and USD 60 m.

The Group applies natural hedgingand instruments securing it against

foreign currency changes, according to the adopted policy.




Market environment: currency situation

7

Continuation of works on the construction of a new production line of sodium bicarbonate of the pharmaceutical quality in Germany

Focus on sale of high-margin, specialty salt products

Further exposure and increase in market shares on foreign markets in PPP, including overseas markets

Effective management of the raw material situation for production of resins, foams and PPP

Preparation for the pre-seasonal PPP sales

Exploitation of demand for precipitated silica

Commencement of business integration with Proplan

Continuation of works on the construction of a new factory of evaporated salt in Germany

Continuation of foreign expansion, especially in the North America and Asia

Effective management of energy raw materials and furnace fuel

Commencement of soda price negotiations for 2019


Finalization of the denitrification and desulphurisation investment

Implementation of seasonal sales in packaging

Sales diversification on the key Asian markets

Implemented planned overhaul downtime in Romania

SODA SEGMENT ORGANIC SEGMENT SILICATES & GLASS SEGMENT SEGMENT

Business activities



3. Outlook

4. Appendix

9

[PLN m] Q3 2018 Q3 2017 yoy Q1-Q3 2018 Q1-Q3 2017 yoy

Revenue 882.7 836.3 5.6% 2 701.9 2 617.7 3.2%

Gross profit on sales 165.7 196.0 -15.4% 580.0 635.5 -8.7%

Gross profit on sales margin 18.8% 23.4% -4.7 p.p. 21.5% 24.3% -2.8 p.p.

EBITDA 131.0 185.5 -29.4% 484.6 563.2 -14.0%

EBITDA margin 14.8% 22.2% -7.3 p.p. 17.9% 21.5% -3.6 p.p.

Adj. EBITDA 132.1 178.4 -26.0% 471.9 557.0 -15.3%

Adj. EBITDA margin 15.0% 21.3% -6.4 p.p. 17.5% 21.3% -3.8 p.p.

EBIT 60.3 122.9 -50.9% 286.6 381.4 -24.9%

EBIT margin 6.8% 14.7% -7.9 p.p. 10.6% 14.6% -4.0 p.p.

Net result 26.9 85.2 -68.4% 199.7 256.3 -22.1%

Net margin 3.0% 10.2% -7.1 p.p. 7.4% 9.8% -2.4 p.p.

Adj. EBITDA - adjusted for untypical one-off events


Profit and loss account

10

[PLN m] Q3 2018 Consensus Q3 2018 Range of forecasts

Revenues 882.7 857.5 836.5 - 907.5

EBITDA 131.0 135.6 117.4 - 160.0

EBITDA margin 14.8% 15.8% -

Adj. EBITDA 132.1 135.6 117.4 - 160.0

Adj. EBITDA margin 14.9% 15.8% -

EBIT 60.3 69.7 52.9 - 95.1

EBIT margin 6.8% 8.1% -

Net result 26.9 48.4 28.3 - 75.1

Net margin 3.1% 5.6% -

Consensus PAP based on 8 analysts’ forecasts


Results vs. consensus

11

39%

43%

9%

7%

Poland European Union(excluding Poland)

OtherEuropean Countries

Asia Africa Otherregions

Revenues Q3 2018

42%

42%

8%5%

Revenues Q3 2017


30% increase

in revenue from sales to Asia by

in Q3 2018 (yoy)

Geographical structure of sale markets

619 595

590 621

587 585

2017 2018

161 147

164 154

161114

2017 2018

12

Revenue[PLN m]

Q1 Q2 Q3 Q4

Adj. EBITDA [PLN m]

Q3: the upside yoy

• stable revenues due to the sustained demand for soda on global markets;

• higher prices on Asian markets;

• higher energy result in CSD;

• increase in prices of dry salt.

Q3: the downside yoy

• lower than expected volumes of soda ash production due to planned production downtime in CSR and minor failures on production installations - impact on production costs;

• higher prices of energy raw materials and furnace fuel and CO2 certificates;

• lower sales of salt.

Comments yoy


-29,2%

-0,3%

Soda segment

13

217 211

226 216

179 203

2017 2018

21,2 16,3

20,215,6

10,913,7

2017 2018

Q3: the upside yoy

• AGRO - consolidation of Proplan's results;

• resins - sales increase in epoxy resins;

• foams - stable business.


• AGRO - lower sales of plant protection products: PPP market decline in Poland by 6.4% (in glyphosate -29%, in herbicides -9.5%)*, and drought in Australia;

• resins - growing prices of raw materials.

Q1 Q2 Q3 Q4

Comments yoySource: PAMS


+25,6%

+13,1%

Revenue[PLN m]

Adj. EBITDA [PLN m]

Organic segment

14

48,9 62,9

58,257,4

60,663,8

2017 2018

6,7 7,3

8,911,0

10,69,9

2017 2018

Q3: the upside yoy

• silicates - higher volumes of sales: increase in demand, mainly related to the development of precipitated silica industries;

• packaging - higher prices as a result of optimisationof the product portfolio, and high sales in relation to the high season in lanterns.


• higher raw material costs (gas and energy).

Q1 Q2 Q3 Q4

Comments yoy

+5,3%


-6,7%

Revenue[PLN m]

Adj. EBITDA [PLN m]

Silicates & glass segment

15

29,5 34,8

31,737,6

30,8

36,0

2017 2018

2,24,4

5,3 2,1

3,12,2

2017 2018

Q1 Q2 Q3 Q4

Comments yoy


-28,9%

Revenue[PLN m]

Adj. EBITDA [PLN m]

Q3: the upside yoy

• focus on transport handling within the Group.


• lower volume of transport outside the Group due to moving of rolling stock to transport handling within the Group.

+16,8%

Transport segment

16

Cash flow - Q1-Q3 2018

[PLN m] Q1-Q3 2018 Q1-Q3 2017

Adj. EBITDA 472 557

Working capital -146 -115

Interest paid -20 -26

Taxes paid -31 -37

Others 78 -12

Cash flow from operating activities 353 367

CAPEX -332 -274

Acquisition -160 0

Other 24 19

Cash flow from investment activities -468 -256

Free cash flow -115 111

Debt financing 188 -5

Dividends -395 0

Cash flow from financial activities -208 -6

Total net flow -323 105

Closing balance of cash 168 522

Operating activities:

• change in working capital mainly as a result of increased revenues, and as a result of this, higher level of receivables, less use of factoring compared to December 2017, increase in stocks (mainly raw materials and finished products in AGRO).

Investment activities:

• expenses related to the implemented investment program in the CIECH Group at a higher level than in the previous year;

• other expenses mainly for the acquisitionof Proplan (PLN 160 m), reduced by the proceeds from the sale of fixed assets.

Financial activities:

• paid dividend (PLN 395 m) and surplus of loan funds.

Simplified


17Financial results for Q3 2018

2015 2016 2017 Q1-Q3 2017 Q1-Q3 2018

Proplan

Development

Environmental

Stay in business

R&D

Other

CAPEX* [PLN m]

504490

411

332

*According to statement of cash flows

274

492

CAPEX - Q1-Q3 2018

18

[PLN thousand] At the end of Q3 2018 At the end of 2017

Debt ratio 57.2% 53.0%

Long-term debt ratio 34.6% 29.5%

Equity capital debt ratio 133.4% 112.6%

Equity to assets ratio 42.8% 47.0%

Gross financial liabilities 1 607 253 1 426 428

Net financial liabilities 1 438 942 936 674

Methodology of calculated ratios consistent with the financial statement


Net debt/ Adj. EBITDA ratio at a higher level than at the end of 2017.

Net debt has changed mainly as a result of higher interest debt and lower cash balance (dividend payment, the acquisitionof Proplan).

1 2611 479

1 213 1 182

1 3611 196

937

1 439

3,9

3,5

2,72,3

1,8

1,41,2

2,0

2011 2012 2013 2014 2015 2016 2017 Q3 2018

Net debt [PLN m] Net debt/Adj. EBITDA

Net debt/ Adj. EBITDA

Debt



3. Outlook

4. Appendix

20

Market and prices of soda ash in 2019

In the following years demandfor soda ash will grow

No significant additional production capacity projects are planned in the coming years, excluding China and India

Potential further closure of Chinese soda factories due to environmental policy -Chinese exports may still be constrained

(in 2017 it amounted to 1.5 m t/y, which means a decrease by 23% y/y)

Global demand and production capacityof soda ash*

[m tons]

CIECH is present in the fastest growing markets

Indian Subcontinent: +4.5%*Africa: +3.1%*

Central Europe: +2.1%*Middle East: +1.9%*

Growth potential of soda ash prices in 2019 due to the favorable market environment

Outlook

58,1

67,564,4

73,4

Global demand Global capacity

2017 2023

Stable increases in the business of soda ash recipients globally

Flat glass: +2.1%*Packaging glass: +1.8%*Detergents: +1.6%*

Chemical industry: +1.5%*Other glass: +2.3%*Metallurgy: +1.9%*

Persisting, booming soda ash market, despite new production capacities in Turkey

Expected maintenance of a high growth rate of the global economy, also in 2019 (according to the IMF, the GDP dynamics at 3.7% level)

Source: IHS , *CAGR 2017-2023

21

Sodium bicarbonate of pharmaceutical gradeThe possibility of producing the highest quality (for dialysis) and increasing the capacity of sodium bicarbonate with pharmaceutical quality (+50 t/y)

First effects: H1 2019

New salt productsExtension of the product portfolio with salt for dishwashers (granules) and salt licks for animals

First effects: Q1 2019

Evaporated salt in GermanyIncrease in production capacities (+450 t/y) by high-margin products, business expansion in Western European markets

First effects: 2020

Outlook

The desulphurization and denitrification investment in JanikowoObtaining the appropriate NOx and SOx emission levels


Selected investments carried out by the CIECH Group

Registration processes and product development in the area of plant protection products New generic and innovative products, an increase in foreign exposure, an access to new active substances


R&D activities in the field of resins Development of specialized products precisely tailored to the customer needs, developed as part of joint projects, the comprehensive offer of resins and gel coats for the growing industries


Continuation of the key investments



3. Outlook

4. Appendix

23

[PLN thousand] Q1-Q3 2018 Q1-Q32017 yoy Q3 2018 Q3 2017 yoy

Sales revenues 2 701 906 2 617 650 3.2% 882 731 836 290 5.6%

Cost of sales -2 121 926 -1 982 180 7.1% -717 006 -640 340 12.0%

Gross profit/(loss) on sales 579 980 635 470 -8.7% 165 725 195 950 -15.4%

Other operating income 59 948 64 575 -7.2% 12 803 29 126 -56.0%

Selling costs -204 878 -189 497 8.1% -70 792 -60 089 17.8%

General and administrative expenses -113 720 -98 445 15.5% -34 371 -33 247 3.4%

Other operating expenses -34 722 -27 660 25.5% -13 034 -8 874 46.9%

Operating profit/(loss) 286 608 381 443 -24.9% 60 331 122 866 -50.9%

Financial income 14 203 6 372 122.9% -7 113 3 023 -

Financial expenses -38 266 -55 309 -30.8% -13 741 -11 220 22.5%

Net financial income/(expenses) -24 063 -48 937 -50.8% -20 854 -8 197 154.4%

Profit/(loss) before tax 262 736 332 668 -21.0% 39 655 114 657 -65.4%

Income tax -63 012 -76 359 -17.5% -12 740 -29 502 -56.8%

Net profit/(loss) on continuing operations 199 724 256 309 -22.1% 26 915 85 155 -68.4%

Appendix

Profit and loss account

24

[PLN thousand]Soda

segment

Organic

segment

Silicates

and glass

Transport

segment

Other

operations

Corporate

functions

Elimina-

tionsTOTAL

Q1-Q3 2018

Total sales revenues 1 801 410 629 682 184 094 108 380 143 414 - -165 074 2 701 906

Cost of sales -1 332 597 -530 015 -142 310 -97 619 -116 926 - 97 541 -2 121 926

Gross profit /(loss) on sales 468 813 99 667 41 784 10 761 26 488 - -67 533 579 980

Operating profit /(loss) 262 773 22 195 13 184 4 150 29 422 -45 968 852 286 608

Profit /(loss) before tax 259 513 7 940 13 353 3 869 28 292 -51 083 852 262 736

Amortization/depreciation 149 626 23 176 14 876 4 328 2 166 3 830 - 198 002

EBITDA 412 399 45 371 28 060 8 478 31 588 -42 138 852 484 610

Adjusted EBITDA 415 116 45 554 28 231 8 668 18 051 -44 604 850 471 866

Q1-Q3 2017

Total sales revenues 1 795 685 622 035 167 721 92 045 86 840 - -146 676 2 617 650

Cost of sales -1 258 153 -527 892 -132 195 -81 205 -62 839 - 80 104 -1 982 180


Operating profit /(loss) 356 153 29 988 11 690 6 247 13 257 -34 234 -1 658 381 443

Profit /(loss) before tax 343 719 21 341 11 511 6 127 13 503 -61 875 -1 658 332 668

Amortization/depreciation 134 823 22 475 14 569 4 423 1 820 3 667 - 181 777

EBITDA 490 976 52 463 26 259 10 670 15 077 -30 567 -1 658 563 220

Adjusted EBITDA 485 909 52 276 26 180 10 581 14 318 -30 611 -1 656 556 997

Appendix

Results by segments - Q1-Q3

25

[PLN thousand]Soda

segment

Organic

segment

Silicates

and glass

Transport

segment

Other

operations

Corporate

functions

Elimina-

tionsTOTAL

Q3 2018

Total sales revenues 585 119 202 902 63 806 35 958 54 602 - -59 656 882 731

Cost of sales -457 024 -173 345 -50 396 -33 452 -43 794 - 41 005 -717 006


Operating profit /(loss) 60 792 4 599 4 599 732 3 380 -14 458 687 60 331

Profit /(loss) before tax 57 560 2 334 4 476 667 3 205 -29 274 687 39 655

Amortization/depreciation 52 992 8 863 5 248 1 426 786 1 319 - 70 634

EBITDA 113 784 13 462 9 847 2 158 4 166 -13 139 687 130 965

Adjusted EBITDA 114 035 13 689 9 929 2 149 4 820 -13 156 684 132 150

Q3 2017

Total sales revenues 587 032 179 137 60 584 30 829 26 493 - -47 785 836 290

Cost of sales -419 643 -154 766 -46 200 -27 326 -18 724 - 26 319 -640 340


Operating profit /(loss) 121 251 3 818 5 557 1 615 2 908 -11 410 -873 122 866

Profit /(loss) before tax 120 354 -761 5 569 1 577 2 790 -13 999 -873 114 657

Amortization/depreciation 46 611 7 409 5 083 1 477 611 1 432 - 62 623

EBITDA 167 862 11 227 10 640 3 092 3 519 -9 978 -873 185 489

Adjusted EBITDA 161 009 10 907 10 616 3 095 3 566 -9 902 -871 178 419

Appendix

Results by segments - Q3

26

[PLN thousand] 30 September 2018 30 September 2018

ASSETS

Total non-current assets 3 431 668 3 204 963

Total current assets 1 240 603 1 438 548

Total assets 4 672 271 4 643 511

EQUITY AND LIABILITIES

Equity attributable to shareholders of the parent 2 004 009 2 187 596

Non-controlling interests -2 443 (2 951)

Total equity 2 001 566 2 184 645

Total non-current liabilities 1 614 365 1 369 282

Total current liabilities 1 056 340 1 089 584

Total liabilities 2 670 705 2 458 866

Total equity and liabilities 4 672 271 4 643 511

Appendix

Abbreviated balance sheet

27

[PLN thousand] 30 September 2018 30 September 2018

1. Current assets. including: 1 240 603 1 438 548

Inventory 404 957 364 517

Trade receivables and services and advances for deliveries 396 119 339 092

2. Cash and cash equivalents and short-term investments 231 283 547 733

3. Adjusted current assets (1-2) 1 009 320 890 815

4. Current liabilities. including: 1 056 340 1 089 584

Trade liabilities and advances taken 368 839 387 331

5. Short-term credits and other current financial liabilities* 241 240 234 483

6. Adjusted current liabilities (4-5) 815 100 855 101

7. Working capital including short-term credits (1-4) 184 263 348 964

8. Working capital (3-6) 194 220 35 714

* Other current financial liabilities include current bond liabilities. current finance lease liabilities + current derivative liabilities + factoring liabilities.

Appendix

Working capital

This document has been prepared solely for informational purposes. It includes only summary information, is not exhaustive, and may not be used as a sole basis for any assessment or analysis. CIECH S.A. makes no guarantees (explicit orimplicit) regarding information presented herein and such information, including forecasts, estimates and opinions, should not be unduly relied upon. CIECH S.A. does not accept any responsibility for possible mistakes, omissions orirregularities found herein. The document is based on sources of information which CIECH S.A. deems to be reliable and accurate, however, it does not guarantee them to be exhaustive nor to fully reflect the actual situation. This documentdoes not constitute an advertisement or a public offer of securities. It may include forward-looking statements that involve investment risks or uncertainties and may significantly differ from actual results. CIECH S.A does not accept anyresponsibility for consequences of decisions made based on this document. The responsibility lies exclusively with the party using the document. This document is protected by the Copyright and Related Rights Act. Copying, publishing ordistributing it requires prior written consent of CIECH S.A.

CONTACT FOR INVESTORS:Małgorzata MłynarskaManagement Board Representative for Investor Relations +48 669 600 567, [email protected]

Modern and diversified chemical group on a stable path of growth

Financial results for Q3 2018 - CIECH · CIECH Group Management Board Financial results for Q3 2018...

Documents

Transcript of Financial results for Q3 2018 - CIECH · CIECH Group Management Board Financial results for Q3 2018...