Financial results for Q3 2017 - CIECH · Financial results for Q3 2017 PLN 836 m revenues ......

Financial results for Q3 2017

Warsaw, 13th November 2017

2

Q3 2017 – executive summaryFinancial results for Q3 2017

PLN 836 mrevenues

Slightly lower sales prices of soda ash yoy(contracts signed at the beginning of the year)

Higher costs of energy sources and furnace fuel yoy and of raw materials for resin and foam production

Very good season (ended 3Q2017) in crop protection chemicals– significant increase in sales and market share

Demanding situation in the glass packaging and silicate market

Further development of product portfolio (including salt, sodium bicarbonate, resins and crop protectionchemicals)

21.3%adj. EBITDA margin

PLN 178 madj. EBITDA

EBITDA (Z) – adjusted for untypical one-off events commentary yoy

1. Most important events of Q3 2017

2. Financial results for Q3 2017

3. Outlook for the nearest future

4. Appendix

60

100

140

180

220

260

300

Coking coal - spot*Coking coal - benchmark

Q3 2016 Q3 2017Coke - ARA ports

5,0

9,0

13,0

17,0

21,0

25,0

Q3 2016 Q3 2017

4

Market environment: raw materialsMost important events of Q3 2017

30

40

50

60

70

80

90

100

110 ARA (cal. 25 GJ/t)PMSCI1 -Polish coal (average cal. 22 GJ/t)

Q3 2016 Q3 2017

The CIECH Group purchases coke, anthracite and part of coal on the basis of contracts each timenegotiated (volumes and prices). Thus, market listings help to estimate the trend but not the actual contract prices of CIECH. Moreover, the Group usesits stocks firstly.

The formula of gas prices is generally based on market listings (the Group applies partial hedging).

16.00

13.26

Coking coal and coke prices [USD/t] Coal prices [USD/t]

German Gaspool (GLP) Natural Gas – 1M Forwards

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

5

Business: successful season in crop protection chemicalsMost important events of Q3 2017

Season 2015 Season 2016 Season 2017

2 7642 612 2 556

Sezon 2015 Sezon 2016 Sezon 2017

Polish crop protection chemicals market value* [PLN million]

-5%-2%

CIECH Group revenues from cropprotection chemicals sales

[PLN million]

+9%+20%

+35% in cereal herbicides

+89% in glyphosates

CIECH Sarzyna = over 40% share in glyphosate products, over 20% in the cereal herbicides**in the Polish market

Season = Q4 of the preceding year + Q1-Q3 of the current year * source: PAMS ** Kleffmann

6

Business: other important eventsMost important events of Q3 2017

Increase in sales of salt tablets and salt in 25 kg packaging

Obtaining GMP+ certificate for feed salt –the first volumes of the certified product sales

Introduction of a new product group to our portfolio – specialist fertilizers

Increase in sales of regenerated foams and foams for scouring sponges

Price increase of raw materials for the production of foams and problems with TDI availability

Higher sales of foams –taking advantage of rising demand and winning new customers

Still very strong competition in the glass packaging market

New products within the ZIEMOVIT brand (Autumn and BIO)

5 further foreign registrations of fungicides (Belgium, Czech Republic, France, Greece)

Continuation of sodiumbicarbonate investment in Germany – beginningof the second stage




4. Appendix

8

Profit and loss accountFinancial results for Q3 2017

[PLN million] Q3 2017 Q3 2016 yoy

Revenue 836.3 853.9 -2.1%

EBIT 122.9 153.8 -20.1%

EBIT margin 14.7% 18.0% -3.3 p.p.

EBITDA 185.5 208.4 -11.0%

EBITDA margin 22.2% 24.4% -2.2 p.p.

Adj. EBITDA 178.4 212.8 -16.2%

Adj. EBITDA margin 21.3% 24.9% -3.6 p.p.

Net result 85.2 155.6 -45.3%

Net margin 10.2% 18.2% -8.0 p.p.

Adj. EBITDA – EBITDA adjusted for untypical one-off EventsCommentary is regarding to Q3

EBIT:

Busieness issues (described on next slidessegment by segment)

Higher other operational revenues by 148,5% yoy mainly due to the sales of CO2 certificates and release of reserves for liabilities

Lower other operational costs by 58,5% yoymainly associated with non-use of assets and production capabilities

Net result:

Lower financial costs by 33,1% yoy mainly due to advantageous currency exchange rates

Higher financial revenues – mainly interests, received dividends and reversal of impairment allowances on loans

High base of comparative quarter due to operational result and positive income tax (a deferred tax asset due to tax relief in Special Economic Zone)

9

Results by segmentsFinancial results for Q3 2017

70% 21% 7% 4%

-10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Soda segment Organic segment

Silicates & glass segments Transport segment

Others

90% 6% 6% 2%

-10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Revenues for Q3 Q2017

Adj. EBITDA for Q3 2017

10

Results vs. consensusFinancial results for Q3 2017

[PLN million] Q3 2017 Consensus Q3 2017 Range of forecasts

Revenues 836.3 855.0 843.8 – 874.5

EBIT 122.9 116.5 107.6 – 125.9

EBIT margin 14.7% 13.6% -

EBITDA 185.5 176.5 167.3 – 184.5

EBITDA margin 22.2% 20.7% -

Adjusted EBITDA 178.4 176.5 167.3 – 184.5

Adjusted EBITDA margin 21.3% 20.7% -

Net result 85.2 83.8 78.1 – 89.4

Net margin 10.2% 9.8% -

Consensus PAP from 13/09/2017 based on 6 analyst’s forecasts

181 161

207164

198

161

208

2016 2017

11

Soda segmentFinancial results for Q3 2017

Q1 Q2 Q3 Q4

590 619

614 590

606 587

637

2016 2017

Q3: the upside yoy

Higher soda sales volume

Higher average price of salt due to changes in the product mix (higher sales of packed dry salt, mainly salt tablets and 25 kg salt, lower sales of wet salt)

Q3: the downside yoy

Lower soda sales prices

Higher furnace fuel prices and coal

Strengthening of PLN in relations to EUR and of RON in relations to USD (partly offset by currency hedging)

-3.2%

Commentary yoy

-18.8%

Revenue [PLN million] Adj. EBITDA [PLN million]

12

Organic segmentFinancial results for Q3 2017

185 217

202226

175179

204

2016 2017

19,8 21,2

18,7 20,2

10,510,9

30,5

2016 2017

Q3: the upside yoy

Resins – higher profitability of sales (change in customer and product portfolio towards higher margins)

Foams – increase in sales volume due to higher demand from upholstered furniture and mattress manufacturers; further increase in production efficiency; development of new products


Crop protection chemicals – slightly lower sales (shift of sales to H1 due to advantageous weather conditions in the first half of the year)

Resins – slightly lower sales volume due to lower demand and stronger competition; problems with the availability of raw materials and their price increase

Foams – higher prices of basic raw materials (TDI, polyols); growing competition in the market

Q1 Q2 Q3 Q4

+2.4%

+3.4%


Commentary yoy

13

Silicates and glass segmentFinancial results for Q3 2017

37,5 48,9

35,9

58,2

62,9

60,6

53,8

2016 2017

6,3 6,7

8,1 8,9

12,7 10,6

7,6

2016 2017

Q3: the upside yoy

Silicates – slightly higher sales volume of sodium silicates

Glass packaging – development of portfolio towards individual patterns; higher sales volume


Silicates – high price pressure from the competition, lower sales prices

Glass packaging – intensified competitor activity and further price pressure; lower demand for lanterns from individual customers

Q1 Q2 Q3 Q4

-3.6% -16.4%


Commentary yoy

14

Transport segmentFinancial results for Q3 2017

32,3 29,5

31,0 31,7

24,9 30,8

31,0

2016 2017

3,92,2

2,7 5,3

4,8 3,1

2,6

2016 2017

Q3: the upside yoy

Higher volume of Group external shipments and higher prices

Good market situation – higher demand for transport and transport rates (mainly due to large infrastructuralinvestments)


A lot of shutdowns on the railways and a high demandat the same time; lower commercial speed

Q1 Q2 Q3 Q4

+23.8% -35.6%


Commentary yoy

15

Permanent deleveraging

1 261

1 479

1 213 1 182

1 361

1 1961 0633,85

3,50

2,722,30

1,82

1,36 1,35

2011 2012 2013 2014 2015 2016 3Q2017

Net debt Net debt / Adj. EBITDA

[thousand PLN] At the end of Q3 2017 At the end of 2016

Debt ratio 55.8% 60.8%

Long-term debt ratio 35.3% 37.7%

Equity capital debt ratio 126.4% 155.3%

Gross financial liabilities 1 584 492 1 610 867

Net financial liabilities 1 062 627 1 196 498


Q4 2017

Signing annex to the current Loan Agreement (mainly change in term and schedule of repayment)

Repayment of PLN 160 million bonds (December)

Methodology of calculated ratios consistent with the financial statement

16

Cash flow – 1-3Q2017

[mln PLN] 1-3Q2017 1-3Q2016

EBITDA 563 662

Working capital -121 -6

Interest paid -26 -27

Taxes paid -32 -36

Others -18 -44

Cash flow from operating activities 367 549

CAPEX -276 -381

Other 20 43

Cash flow from investment activities -256 -338

Free cash flow 111 211

Debt financing -6 -5

Dividends 0 -150

Cash flow from financial activities -6 -155

Total net flow 105 57

Closing balance of cash 522 259


Operating activities:

• Change in trade working capital mainlydue to increase in inventories(production of crop protectionchemicals dedicated to pre-seasonsale, increase of trading products inventories and increase of some rawmaterials), increase of receivables(mainly higher sales of crop protectionchemicals, resins and foams) and decrease in the level of trade liabilities

Investment activities:

• Expenses connected with the implemented investment programmewere a little bit lower than in the previous year

• Others – mainly sell of non-currentassets and inflows from loanrepayments

Financial activities:

• Flows connected mainly with payments of finance lease liabilities

Simplified




4. Appendix

18

Uncertainty regarding soda prices in 2018 Outlook for the future

Demand for soda ash will grow in the following years

Excluding China and India, no significant additional production capacity projects are planned in the immediate future*

Chinese exports (about 2 M t/y*) may be limited – probable further power shutdown due to the government environmental policy

56.6

64.562.7

71.8

global demand global capacity

2016 2021

Global demand and capacityof soda ash* [million tonnes]

CIECH is present in the fastest growing markets

Indian subcontinent: +6.4%*Africa: +3.2%*

Central Europe: +1.6%*CIS&Baltics: +2.1%*

There are still many uncertainties regarding new Turkish production capacity – the actual supply that will enter the market and the sales

strategy

Increase in soda supply on the market due to the new investment of CINER Group in Turkey but…

*Source: IHS, increase = CAGR 2016-2020

19

Continuing the key investmentsOutlook for the future

Sodium bicarbonate pharmaceutical grade, including dialysis use:• Phase I – possibility of manufacturing product of the highest quality (for dialysis)• Phase II – increasing pharmaceutical grade sodium bicarbonate production capacity

First effects:2018 r.

New salt products• Widening the product portfolio with dishwasher salt and salt licks for animals


Registration processes and product development in crop protection chemicals• New generic and innovative products• Increasing overseas exposure• Access to new active substances


Selected investments executed by CIECH Group

20

Continuing the key investmentsOutlook for the future

Wybrane inwestycje realizowane przez Grupę CIECH

R&D activities in the area of resins• Development of products precisely adapted to clients’ needs within joint projects• Development of specialist, innovative products (e.g. chemoresistant coatings, incombustible

resins for the railway and automotive industry)• Comprehensive offer of resins and gelcoats for particular sectors (e.g. sanitary, boatbuilding)


Long block warehouse• Increasing the efficiency and capacity of foam production


High storage capacity warehouse• Improvement of internal logistics in the production plants and the potential for further

development of our portfolio


Desulphurisation and degassing in heat power plants in Poland

Implementation of SAP ERP




4. Appendix

22

Profit and loss account – 9 monthsAppendix

[PLN thousand] 1-3Q2017 1-3Q2016 yoy

Sales revenues 2 617 650 2 547 533 2,8%

Cost of sales (1 982 180) (1 788 683) 10,8%

Gross profit/(loss) on sales 635 470 758 850 -16,3%

Other operating income 61 575 56 424 9,1%

Selling costs (189 497) (169 798) 11,6%

General and administrative expenses (98 445) (106 247) -7,3%

Other operating expenses (27 660) (41 023) -32,6%

Operating profit/(loss) 381 443 498 206 -23,4%

Financial income 6 372 9 086 -29,9%

Financial expenses (55 309) (39 211) 41,1%

Net financial income/(expenses) (48 937) (30 125) 62,4%

Profit/(loss) before tax 332 668 468 509 -29,0%

Income tax (76 359) (48 622) 57,0%

Net profit/(loss) on continuing operations 256 309 419 887 -39,0%

23

Profit and loss account – 3 months Appendix

[PLN thousand] 3Q2017 3Q2016 yoy

Sales revenues 836 290 853 937 -2,1%

Cost of sales (640 340) (596 315) 7,4%

Gross profit/(loss) on sales 195 950 257 622 -23,9%

Other operating income 29 126 11 721 148,5%

Selling costs (60 089) (56 574) 6,2%

General and administrative expenses (33 247) (37 582) -11,5%

Other operating expenses (8 874) (21 392) -58,5%

Operating profit/(loss) 122 866 153 795 -20,1%

Financial income 3 023 (2 837) -

Financial expenses (11 220) (16 764) -33,1%

Net financial income/(expenses) (8 197) (19 601) -58,2%

Profit/(loss) before tax 114 657 134 153 -14,5%

Income tax (29 502) 21 417 -

Net profit/(loss) on continuing operations 85 155 155 570 -45,3%

24

Results by segments – 9 monthsAppendix

[PLN thousand]Soda

segment

Organic

segment

Silicates and

glass

Transport

segment

Other

operations

Corporate

functions

Elimina-

tionsTOTAL*

1-3Q2017

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)

Gross profit /(loss) on sales 537 532 94 143 35 526 10 840 24 001 - (66 572) 635 470

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

1-3Q2016

Total sales revenues 1 810 056 561 944 136 328 88 218 79 519 - (128 532) 2 547 533

Cost of sales (1 160 721) (469 113) (99 513) (76 471) (54 858) - 71 993 (1 788 683)


Operating profit /(loss) 461 859 26 968 16 603 8 594 29 032 (43 575) (1 275) 498 206

Profit /(loss) before tax 453 048 15 322 16 752 8 357 31 269 (54 964) (1 275) 468 509

Amortization/depreciation 122 842 22 610 10 487 4 336 277 3 375 - 163 927

EBITDA 584 701 49 578 27 090 12 930 29 309 (40 200) (1 275) 662 133

Adjusted EBITDA 585 760 49 045 27 083 11 387 14 626 (39 781) (1 253) 646 867

* 2016 = Restated data, description of changes is provided in item 2.2 in report for Q3 2017

25

Results by segments – 3 monthsAppendix

[PLN thousand]Soda

segment

Organic

segment

Silicates and

glass

Transport

segment

Other

operations

Corporate

functions

Elimina-

tionsTOTAL*

3Q2017

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


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

Adjusted EBITDA 161 009 10 907 10 615 3 095 3 566 (9 902) (871) 178 419

3Q2016

Total sales revenues 606 206 174 869 62 850 24 903 25 769 - (40 660) 853 937

Cost of sales (388 342) (151 869) (45 195) (19 479) (17 950) - 26 520 (596 315)


Operating profit /(loss) 152 660 3 473 9 884 3 014 3 059 (18 252) (43) 153 795

Profit /(loss) before tax 148 155 1 315 9 793 2 980 3 336 (31 383) (43) 134 153


EBITDA 194 639 10 693 12 705 4 381 3 154 (17 151) (43) 208 378

Adjusted EBITDA 198 240 10 544 12 700 4 805 3 407 (16 813) (63) 212 820

* 2016 = Restated data, description of changes is provided in item 2.2 in report for Q3 2017

26

Abbreviated balance sheetAppendix

[PLN thousand] 30 September 2017 30 September 2016

ASSETS

Total non-current assets 3 188 934 3 209 515

Total current assets 1 415 742 1 292 377

Total assets 4 604 676 4 501 892

EQUITY AND LIABILITIES

Equity attributable to shareholders of the parent 2 036 651 1 766 827

Total equity 2 033 631 1 763 492

Total non-current liabilities 1 625 200 1 695 514

Total current liabilities 945 845 1 042 886

Total liabilities 2 571 045 2 738 400

Total equity and liabilities 4 604 676 4 501 892

27

Working capitalAppendix

[PLN thousand] 30.09.2017 31.12.2016

1. Current assets, including: 1 415 742 1 292 377

Inventory 345 251 299 265

Trade receivables and services and advances for deliveries 319 249 298 449

2. Cash and cash equivalents and short-term investments 578 637 474 340

3. Adjusted current assets (1-2) 837 105 818 037

4. Current liabilities, including: 945 845 1 042 886

Trade liabilities and advances taken 312 672 368 937

5. Short-term credits and other current financial liabilities* 204 645 199 067

6. Adjusted current liabilities (4-5) 741 200 843 819

7. Working capital including short-term credits(1-4) 469 897 249 491

8. Working capital (3-6) 95 905 (25 782)

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

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 or implicit) 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 or irregularities 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 document does 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 any responsibility 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 or distributing it requires prior written consent of CIECH S.A.

CONTACT FOR INVESTORS:Joanna SiedlaczekManagement 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 2017 - CIECH · Financial results for Q3 2017 PLN 836 m revenues ......

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