financial results for q1 2020 · 2020-05-31 · 3 q1 2020 –executive summary financial results...

Financial results for Q1 2020

Warsaw, 28 May 2020

2

Structure and division of powers of the Management BoardFinancial results for Q1 2020

*Managing Director – coordinates several departments and areas and reports to the President of the Management Board

HR and Administration Department

Corporate Supervision Department

Internal Communications Department

Controlling Department

Accounting Department

Finance Management Department

Branches (PL, DE, RO)

Purchasing Department

Risk Department

IT Department

Strategic Organisational Project Department

Tax Department

Jarosław RomanowskiMember of the Management Board

CIECH R&D

Logistics / S&OP Department

Operational Excellence

Investment Department (including PMO and Power Engineering)

Asset and Safety Management Department (including OHS)

Environmental Department

Quality Management Department

Strategic Investment Project Department

Mirosław SkowronMember of the Management Board

Strategy Department

Legal Department

Compliance Department

Internal Audit Department

MB Representative for Investor Relations

Public Relations Manager / Press Officer

Dawid JakubowiczPresident of the Management Board

Soda segment (soda, salt)

Organic segment (crop protection products, foams, resins)

Silicate and glass segment (silicates, glass packaging)

Transport segment (transport services)

Rafał Czubiński, Managing Director*

Appointed to the Management Board by the Supervisory Board of CIECH S.A. on 20 April 2020. At CIECH, he is in charge of finance and severalother departments. Manager with long-standing experience in management of global organizations. An expert in the field of international trade,financing and project development. For years, associated with the raw materials sector. In 2003-2006 and 2017-2020, he served as Vice-Presidentof the Management Board, Chief Financial Officer at Tele-Fonika Kable S.A. In 2002-2016, he worked for KGHM Polska Miedź S.A as: Chief FinancialOfficer, General Director for Sales and Hedging. First Vice President of the Management Board of KGHM Polska Miedź S.A. between 2013 and 2016.A graduate of the Faculty of Management at the Poznań University of Economics. He has completed a number of prestigious coursesin international finance, risk management and business valuation.

Jarosław Romanowski

new Member of theManagement Board

of CIECH S.A.

3

Q1 2020 – executive summaryFinancial results for Q1 2020

Stable performance in Q1 2020 and sound financial position

Key developments in Q1 2020

PLN 142m adj. EBITDA -11% y/y

17% adj. margin EBITDA [vs 17% in Q1 2019]

PLN 11m – improvement in operating cash flows [+ PLN 33m y/y]

PLN -58m – improvement in working

capital employment y/y [vs PLN -161m in Q1 2019]

PLN -152m – decrease in free cash flows

[-PLN 30m y/y]

2.6 net debt to EBITDA (A)

calculated based on covenants in the facility agreement

• A number of measures aimed at mitigating the impact ofthe coronavirus, such as ensuring staff safety, securing financial liquidity and ensuring continuity of operations

• Continued transformation of the Group

• Completion of contracting for soda for 2020

• Use of available financing – additional revolving facilities of PLN 500m

• Preparations for executing reverse factoring agreements of PLN 200 million – supplier financing agreements, aimed at securing risks related to the current market situation

• Signing letters of intent on cooperation in the construction of a waste incineration plant

• Implementation of the Voluntary Redundancy Programme at CIECH Soda Romania

• Continued construction of new saltworks in Germany

• Demerger of CIECH Sarzyna through the spin-off of CIECH Żywice

• Implementation of a new strategy for CIECH Sarzyna, introduction of systems for more effective management of sales of crop protection products

PLN 694m – cash as at the end of Q1 2019

[+PLN 564 m y/y]

1. Key developments in Q1 2020

2. Financial results for Q1 2020

3. Outlook

4. Appendices

5

COVID-19: support for employees and local communitiesKey developments in Q1 2020

Safety of employees

• 300 thousand masks for all employees

• 12.5 thousand liters of disinfecting fluids for workplace disinfection

• 1 thousand protective suits

• Medical care model extended to include psychological support package

• Infection insurance Visible disinfection of large facilities such as a reception area, entrance gate, cabinets, welfare facilities

• Safe commute to work (disinfected buses, rental of additional cars)

• Assistance in remote working – webinars, podcasts, tips on how to cooperate and deal with isolation

• Purchase of additional laptops for employees who work with desktop computers

Support for healthcare

Support for employees and their

families

• 100 mattresses for a camp hospital in the Kujawsko-Pomorskie Province

• 80 protective visors for the emergency centre in Żagań printed on a 3D printer by CIECH Vitrosilicon

• 250 protective visors purchased for Isolation Hospital in Łańcut and Leżajsk

• 200 protective visors and 100 protective suits purchased for Isolation Hospital in Bydgoszcz

• 400 protective visors purchased for the County Hospital and Fire Brigade in Inowrocław, and for Isolation Hospital in Grudziądz

• PLN 42 thousand for the purchase of a specialist bed in Leżajsk Hospital and suits for local authorities

• 100 medical suits for a hospital of Madrid

• 7 thousand liters of disinfecting fluids produced by CIECH Sarzyna for all employees and their families

• 2.8 thousand packages for employees with sweets and games for Easter

• 300 tablets for employees’ children –suport for e-school

• Additional gigabytes of Internet for employees

• Payment of a special award for stationary employees for the period from 16 to 31 March 2020

6Key developments in Q1 2020

Key measures at the Group level and in segments

Continuation of measures focused on many areas at the CIECH Group level

Organic segment Silicates and Glass segmentSoda segment

Organisation adjustment Carrying out investment projects

Review of the organizational structure

Digital transformation

Finance

Energy and production efficiency

Purchases

HR Strategy

IT

R&D/ innovations

Product development

Development projects

Day-to-day operations in businesses

7

Completion of soda contracting for 2020Key developments in Q1 2020

67%

33%

Annual Longer than 1 year

Stable client base over the last 10 years – solid relationships with customers

Long-term relationships and business predictability are the priorities for CIECH

Type of sodium carbonate contracts

2020

8

CIECH's exposure to sectors in key businessesKey developments in Q1 2020

Detailed analysis of exposure to end markets of CIECH customers

Salt: customers’ end marketsSoda: customers’ end markets

38%

27%

9%

8%

8%

9%

Container glass,including economic

Construction Automotive -flat glass

Automotive -other*

Detergents Other

39%

37%

11%

10%3%

Households Food industry,including agriculture

Chemicalindustry

Services, including horeca, swimmingpools

Other

* Including: silicates, phosphoric acid; pigments; water treatment, insulation materials

Customer diversification as an opportunity to mitigate the negative effects of the pandemic

9

Market environment: hedging and contracts at CIECHKey developments in Q1 2020

*The amount contracted may increase depending on the level of sales contracting; ** At CSD – hedging of sales of surplus electricity generation; *** Due to the current market situation and production efficiency, CIECH prefers to purchase coke rather than anthracite.

Market quotations allow us to assess the trend, not the actual contract prices of CIECH. In the first instance, we use up our stocks

Hedging: a long-term hedging strategy aimed at achieving minimum levels of hedging (a simplified overview of the approach to hedging at CIECH):

Contracts: hedging strategy for key raw materials (simplified overview of the approach to contracts at CIECH):

Power coal

Coke

Anthracite

A strategy for long-term hedging of power coal supply conditions (volumes and prices), providing for different levels of exposure hedging depending on the materialisation of market scenarios adopted in the strategy

A strategy for annual hedging of coke supplies (volumes and prices), providing for different levels of contracting in subsequent quarters of the year, depending on the materialisation of market scenarios adopted in the strategy

Purchase under contracts negotiated on a quarterly/ semi-annual basis (volumes and prices)

Up to 75% Up to 50% Up to 25%`

Possible levels of hedging* in the base year for a given period n:

n n+1 n+2

EUR/PLN

EUA

Natural gas

Electricty at CSD**

To reduce the volatility of cash flows and increase the predictability of the Group's financial performance, the Group applies a market risk hedging strategy.



3. Outlook

4. Appendices

11

[PLNm] Q1 2020 Q1 2019 y/y

Revenues 854.4 952.7 -10.3%

Gross profit on sales

178.8 192.8 -7.3%

Gross marginon sales

20.9% 20.2% 0.7 p.p.

EBITDA 144.9 160.3 -9.6%

EBITDA margin 17.0% 16.8% 0.2 p.p.

EBITDA (A) 142.1 159.6 -11.0%

EBITDA (A) margin 16.6% 16.7% -0.1 p.p.

EBIT 63.3 83.4 -24.0%

EBIT margin 7.4% 8.8% -1.4 p.p.

Net profit/(loss) 39.4 61.8 -35.0%

Net margin 4.6% 6.5% -1.9 p.p.

EBITDA (A) – EBITDA adjusted for untypical one-off events; *Settlement of foreign exchange differences related to debt issued in EUR, previously designated as a hedge of revenues in EUR as of 2020. This settlement will be continued in subsequent quarters until the accumulated negative principal amount from revenues hedging is fully covered. The total value of principal on this account is PLN -22.5m, of which PLN -5.0m was settled for the first quarter. PLN -3.8m is the CIRS settlement of the principal amount.


EBITDA (A) margin has remained stable

Revenues:

• lower soda volumes – shutdown of the Romanian plant (-);

• higher soda and salt prices (+);

• settlement of HY and CIRS debt (PLN -8.8m)* (-);

• higher sales of crop protection products – change of the sales model (+);

• lower sales of foams (-).

EBITDA (A):

• higher prices of coal and CO2 certificates(-);

• effect of shutdown of CSR (-);

• settlement of HY and CIRS debt (PLN -8.8m) (-);

• provision for LTIP (PLN -3.9m) (-);

• other factors are discussed in a slide, broken down by segment.

Net profit (loss):

• provision for LTIP;

• negative valuations of financial instruments.

12

Performance vs consensus

PAP consensus based on projections from 8 brokerage houses.


[PLNm] Q1 2020 Performance Q1 2020 Consensus Range of projections

Revenues 854.4 858.1 800.7 - 930.0

EBITDA 144.9 159.3 149.0 - 177.0

EBITDA margin 17.0% 18.6% -

EBITDA (A) 142.1 159.3 149.0 - 177.0

EBITDA (A) margin 16.6% 18.6% -

EBIT 63.3 74.2 61.0 - 86.8

EBIT margin 7.4% 8.6% -

Net profit/(loss) 39.4 47.4 33.0 - 68.0

Net margin 4.6% 5.5% -

159,6

142,1

174,6

-9,3

2,7 0,9 0,2

-12,0

32,5

1+2+3+4

13

23% adj. EBITDA margin in the soda segmentFinancial results for Q1 2020

EBITDA (A)Q1 2019

Silicates and Glass

segment

EBITDA (A)Q1 2020

Organic segment

Soda segment

Y/y improvement in EBITDA (A) margin in Q1 2020 in all operating segments

Transport segment

Other

EBITDA (A) y/y [PLNm], EBITDA (A) margin

• (2) Provision for LTIP(PLN -3.9m) (-)

• (3) R&D settlement(PLN -3.7m) (-)

• Eliminations (-)

23.2% 9.7% 15.9%

• Increase in soda and salt prices (+)• Decrease in volumes, mainly due to the suspension of production at CSR (-)• Effect of shutdown of the CIECH Soda Romania plant [PLN -16.1m] (-)• Higher coal prices(-), lower prices of furnace fuel and gas (+)• Weakening of PLN against EUR (+)

EBITDA (A) margin:

• Crop protection products: higher sales volumes, higher gross margin (+)

• Foams: lower figures due to the slowdown in the German furniture market caused by COVID-19 (-)

• Resins: stable business

• Higher prices (+)• Lower volumes (-)• Higher prices of raw

materials(-)• Lower fixed costs (+)

(1settlement of HY and CIRS debt (PLN -8.8m) (-);

Events not related to principal business

12.5%

14

CAPEXFinancial results for Q1 2020

2017 2018 2019 Q1 2019 Q1 2020

Acquisitions**

Developmental

Environmental

Replacement

R&D

Other

CAPEX* [PLNm]

*As reported in the statement of cash flows** Acquisition of shares in Proplan Plant Protection Company, S.L. for PLN 173m, of which 10% was a deferred payment

410

514

The y/y difference in CAPEXresults primarily from the

ongoing development and replacement investment project programme.

670

412

101

165

Simplified layout*Due to the sale of real property in CIECH Nieruchomości

15

Increase in operating cash flows by PLN 33m y/y

[PLNm] Q1 2020 Q1 2019

EBITDA (A) 142 160

Working capital -58 -161

Interest paid -2 -2

Tax paid -1 -15

Other -70 -3

Cash flows from operating activities 11 -22

CAPEX -165 -101

Other 2 1

Cash flows from investing activities -163 -100

Free cash flow -152 -122

Debt financing 549 67

Other -8 -7

Cash flows from financing activities 541 60

Total net cash flows 389 -62

Cash at end of period 694 130

Operating activities:• improvement in working capital

as a result of optimisation measures, including Operational Excellence (S&OP);

• lower other operating cash flows are mainly due to the valuation of financial instruments (PLN -55m).

Investing activities:

• y/y increase in expenditure incurred as part of the investment project programme; y/y decrease in expenditure on CO2 certificates.

Financing activities:

• balance of drawdowns and repayments of available facilities, mainly RCF and overdraft.


Cash flow

937

1 502 1 522

1 789

1,2

2,42,3

2,8

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

2017 2018 2019 Q1 2020

Net debt [PLNm] Net debt/EBITDA (A)

Net debt/ EBITDA (A)

The Net debt/ EBITDA (A) ratio remains at a safe level – under the facility agreements, the Group's primary covenant is net debt/EBITDA (Z) ratio ≤ 4.00x.

For the purposes of covenants set out in the facility agreement, net debt is calculated according to the pre-IFRS 16 rules – the net debt/EBITDA (Z) ratio

calculated in this way is 2.6 as at the end of Q1 2020.

Net debt / adj. EBITDA ratio at a higher level than at the end of 2019 due to:• decrease in adj. EBITDA by 11% y/y;• higher margin in connection with negative net

valuation of derivative financial liabilities;• higher CAPEX.

In 2018, the ratio was higher than in 2017 mainly due to:• dividend payment (PLN 395m);• acquisition of shares in Proplan

(PLN 156m).

16

The Group's debt remains at a safe levelFinancial results for Q1 2020



3. Outlook

4. Appendices

18

COVID-19: situation in operating segmentsOutlook

Given the nature of the crisis, estimating the full impact of the pandemic is a challenge for many companies

Soda segment Organic segment Silicates and Glass segment

soda salt agro foams resins silicates packaging

Demand

Key markets, sectors, industry exposure

• Packaging (food)• Detergents• Construction• Automotive

• Food• Agriculture• Households• Chemicals

• Agriculture• Furniture and

mattresses

• Sanitary• Construction and

industrial

• Detergents• Automotive• Paper mills

• Jars• Vigil lights

ManufacturingRaw materials

Logistics

Employees

Outlook assessment of the situation in individual CIECH businesses*

* Assessment as at 27 May 2020

A number of measures have been taken to ensure continuity of operations and continued preparation of the Group for the future



3. Outlook

4. Appendices

60

100

140

180

220

260

300

340

380

Koks - porty ARA

Coking coal – spot*

Coking coal – benchmark

Coking coal and coke prices[USD/t]

6

10

14

18

22

26

30

20

Market environment: raw material situation

19.97

20

30

40

50

60

70

80

90

100

110

ARA (kal. 25 GJ/t)

PSCMI1 (kal. 25 GJ/t)

Power coal prices[USD/t]

Source: Reuters, IHS, www.polskirynekwegla.pl * Coking coal Premium from Australia

Average value 4

9

14

19

24

29

34

CO2 emission allowances[EUR/t]

Average value

22.7922.09

9.77

Appendices

German Gaspool (GPL) Natural Gas – 1M forwards[EUR/MWh]

11.06

18.74

Q1 2018 Q1 2020Q1 2019 Q1 2018 Q1 2020Q1 2019

Q1 2018 Q1 2020Q1 2019 Q1 2018 Q1 2020Q1 2019

3,6

4,1

4,6USD/RON

21

Market environment: currency situation

4,1

4,3

4,5

EUR/PLN

4.30

4.18

4.35

4.17

3.79

4.32

Q1 2018 Q1 2020Q1 2019

Average value

Average value

Appendices

Source: ReutersQ1 2018 Q1 2020Q1 2019

22

Statement of profit or loss

[PLN '000] Q1 2020 Q1 2019 y/y

Net sales revenues 854,381 952,705 (10.3%)

Cost of sales (675,626) (759,947) (11.1%)

Gross profit/(loss) on sales 178,755 192,758 (7.3%)

Other operating income 12,017 15,626 (23.1%)

Selling costs (42,985) (67,560) (36.4%)

General and administrative expenses (58,551) (46,298) 26.5%

Other operating expenses (25,911) (11,151) 132.4%

Operating profit/(loss) 63,325 83,375 (24.0%)

Finance income 29,165 5,262 454.3%

Finance costs (26,098) (16,466) 58.5%

Net finance income/(costs) 3,067 (11,204) -

Profit/(loss) before tax 66,713 72,493 (8.0%)

Income tax (27,292) (10,663) 156.0%

Net profit/(loss) from continuing operations 39,421 61,830 (36.2%)

Appendices

23

Results by segment

[PLN '000]Soda

segment

Organic

segment

S&G

segment

Transport

segment

Other

activities

Corporate

functionsEliminations TOTAL

Q1 2020

Total sales revenues 531,923 261,379 63,325 35,584 24,956 - (62,786) 854,381

Cost of sales (400,392) (217,274) (46,465) (33,809) (18,214) - 40,528 (675,626)

Gross profit /(loss) on sales 131,531 44,105 16,860 1,775 6,742 - (22,258) 178,755

Operating profit/(loss) 67,964 14,439 5,445 (358) (682) (21,238) (2,245) 63,325

Profit/(loss) before tax 67,975 12,094 5,935 (445) (1,510) (15,091) (2,245) 66,713

Amortisation and depreciation 57,446 11,010 4,669 4,755 184 3,514 - 81,578

EBITDA 125,410 25,449 10,114 4,397 (498) (17,724) (2,245) 144,903

Adjusted EBITDA 123,312 25,295 10,093 4,465 (1,273) (17,549) (2,246) 142,098

Q1 2019

Total sales revenues 639,694 237,827 59,622 35,848 38,571 - (58,857) 952,705

Cost of sales (492,110) (190,585) (46,318) (33,064) (30,219) - 32,349 (759,947)

Gross profit /(loss) on sales 147,584 47,242 13,304 2,784 8,352 - (26,508) 192,758

Operating profit/(loss) 78,242 12,120 5,125 614 3,769 (16,077) (418) 83,375

Profit/(loss) before tax 76,569 12,372 5,174 518 3,493 (25,215) (418) 72,493

Amortisation and depreciation 55,276 10,372 5,118 3,673 563 1,927 - 76,929

EBITDA 133,518 22,492 10,243 4,287 4,332 (14,150) (418) 160,304

Adjusted EBITDA 132,568 22,637 9,150 4,263 4,296 (14,122) 778 159,570

Appendices

24

Condensed balance sheet

[PLN '000] 31 March 2020 31 December 2019

ASSETS

Total non-current assets 3,941,022 3,734,188

Total current assets 1,770,410 1,312,254

Total assets 5,711,432 5,046,442

EQUITY AND LIABILITIES

Equity attributable to shareholders of the parent 1,952,668 1,978,234

Non-controlling interest (1,025) (1,017)

Total equity 1,951,643 1,977,217

Total long-term liabilities 2,174,089 1,947,307

Total short-term liabilities 1,585,700 1,121,918

Total liabilities3,759,789 3,069,225

Total equity and liabilities 5,711,432 5,046,442

Appendices

25

Working capital

[PLN '000] 31.03.2020 31.12.2019

1. Current assets, including: 1,770,410 1,312,254

Inventories 429,765 455,704

Trade receivables and advances for deliveries 346,790 295,534

2. Cash and other short-term investments 704,885 316,862

3. Adjusted current assets (1-2) 1,065,525 995,392

4. Short-term liabilities, including: 1,585,700 1,121,918

Trade liabilities and advances received for deliveries 333,422 397,426

5. Short-term credits and other current financial liabilities* 584,584 133,737

6. Adjusted current liabilities (4-5) 1,001,116 988,181

7. Working capital including short-term credits (1-4) 184,710 190,336

8. Working capital (3-6) 64,409 7,211

* Other short-term financial liabilities include current finance lease liabilities + current derivative liabilities + factoringliabilities.

Appendices

This document has been prepared solely for informational purposes. It includes only summary of information and 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 relief upon. CIECH S.A. assume no responsibility for potential mistakes, omission 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 doe not constitute an advertisement or a public offer of securities. This document may contain forward-looking statements. These statements involve investment risk or are a source of uncertainty and may materially differ from actual results or performance. CIECH S.A. shall not be held liable for the consequences of any decisions made on the basis of this analysis. Responsibility rests solely with the user. This document is protected under the Polish Act on Copyright and Neighbouring Rights. Any copying, publication or dissemination of this analysis is subject to CIECH S.A.’s written consent.

CONTACT FOR INVESTORS:Małgorzata MłynarskaRepresentative of the Management Board for Investor Relations+48 669 600 567, [email protected]

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financial results for q1 2020 · 2020-05-31 · 3 q1 2020 –executive summary financial results...

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