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Investor webchats
10.06.2021
Investor webchat - WallStreet 25 on-line
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Marek Wadowski: Hello everyone. You may ask your questions now.

Rafał Toba: What conditions in the fertilizer segment do you expect to see in the second half of 2021 and in 2022?

Marek Wadowski: We expect our Fertilizers business will be driven by developments in the grain and rapeseed markets for the rest of the year, with grain and rapeseed prices projected to remain at the stable-to-high levels. We expect strong crop yields in Poland and the European Union. The situation is so dynamic that it’s difficult to make any meaningful predictions about 2022. However, we believe that, with increased grain exports, we will step into the upcoming 2021/2022 season with heavily depleted grain stocks, providing strong support to domestic grain prices. In other words, rising grain prices on global commodity markets coupled with low domestic grain supply will push up grain prices and, consequently, fertilizer prices at least for the remainder of the year.

Dawid M.: How has the COVID-19 pandemic affected your fertilizer business?

Marek Wadowski: The COVID-19 pandemic has had no major impact on the volumes of fertilizers placed on the domestic or European markets. Right now the pandemic is having a growing impact on commodity prices, which have entered an uptrend globally. For Grupa Azoty, what matters the most is the development of natural gas prices.

Feedstock prices will also be key during the period – natural gas prices in the case of nitrogen fertilizers and phosphate rock prices in the case of compound fertilizers. Unless gas prices in Europe experience steep falls, nitrogen fertilizer prices should follow an uptrend until the end of the year. The markets for ammonium phosphate and, consequently, for compound fertilizers will also stay in an upward trend.

Developments in Belarus will also play a role – restricted fertilizer imports from Belarus and possible problems with buying feedstock (potassium chloride) will give an additional boost to fertilizer prices in Poland and wider Europe.

Szczepek: To what extent will movements in the prices of natural gas and CO2 emission allowances affect your Q2 2021 results?

Marek Wadowski: The impact of rising gas prices is being offset by stronger fertilizer prices. As regards CO2 emission allowances, the Company has effectively hedged against any major adverse upwards price movements.

Anna - Anonim Have your plant operations changed relative to the pre-pandemic situation?

Marek Wadowski: During the pandemic, we used tools to maintain business continuity in line with a stringent sanitary regime, effectively preventing the spread of the disease. Some employees worked remotely, we eliminated employee movement around plants, and we isolated groups of production personnel. No major increase in sickness-related absences was recorded.

misiek: What are the most acute impacts of the coronavirus pandemic from the company’s perspective?

Marek Wadowski: The most acute impacts of the coronavirus pandemic for the Company are consumer uncertainty in plastics end-use industries and supply chain disruptions affecting availability of raw materials and components. It is important to note, however, that these adverse effects of the pandemic are being offset by rising product prices.

Guzera: What are the company’s investment plans for this year?

Marek Wadowski: This year we are continuing our largest project, Polimery Police, comprising a polypropylene plant located in Police, as well as our other capital investment projects, including both growth investments and investments seeking to ensure proper maintenance and/or timely replacement of the Group companies’ existing production assets. We are nearing completion of a mechanical granulation plant for our basic nitrate fertilizers.

Adam Analityk - Anonim: Does Grupa Azoty expect gas prices to keep going up in the second half of 2021?

Marek Wadowski: We believe the room for further gas price rises is slowly running out. EU gas stocks have started to expand at a rate exceeding the long-term average. LNG supplies to Europe should also be higher in the coming months compared with last year’s very low levels. As a result, we expect gas prices to show a downward trend in the third quarter of this year.

Izek - Anonim: How did the 2021 Suez Canal obstruction affect Grupa Azoty’s operations?

Marek Wadowski: The one-week obstruction had no immediate impacts on Grupa Azoty’s operations. However, it did cause delays in shipping of some petrochemical products from the Middle East, including benzene, and it contributed to the price rise seen at the beginning of the second quarter of this year.

BerMok - Anonim: What have been the effects of the coronavirus pandemic on the company’s operations?

Marek Wadowski: In addition to the impact on the market environment which I explained when answering a previous question, the pandemic primarily prompted a change in work organisation at the company. The measures taken to maintain the sanitary regime allowed us to keep work efficiency fully intact.

Blazej M.: What factors contributed to the revenue growth reported for the first quarter of 2021?

Marek Wadowski: Revenue growth was recorded across all key segments in the first quarter of 2021 (year on year).

In Fertilizers, the growth was led by higher prices supported by solid increases in fertilizer prices on global markets (driven by rising crop prices and increased purchasing power of farmers).

In Plastics, the revenue growth was driven both by prices (following the uptrend in feedstock prices) and increased demand resulting in higher volumes.

In Chemicals, the key drivers were rising prices of technical-grade urea (following the uptrend in urea prices on global markets) and surging demand for OXO products.

J GruneInvestor - Anonim: What are the benefits of the company joining the Clean Hydrogen Alliance.

Marek Wadowski: Being Poland’s largest producer of hydrogen, Grupa Azoty is vitally interested in developing new its applications. By joining the Clean Hydrogen Alliance, we will gain access to a platform dedicated to knowledge sharing and technology exchange, consulting ideas and concepts, and seeking partners for hydrogen projects.

Artur - Anonim: Is it certain that no dividend will be paid for the previous year?

Marek Wadowski: The Management Board of Grupa Azoty S.A. has recommended that the Company retain its entire net profit for 2020, mainly to secure the existence of a liquidity buffer for the implementation of further investment plans. However, the final dividend decision always rests with the General Meeting.

GruneInvestor - Anonim: Does the Company plan to invest in RES projects?

Marek Wadowski: Yes, of course! Power generation is an important element of Grupa Azoty’s production processes. The development and implementation of RES projects will also help reduce CO2 emissions.

Fundamentalista: How has the pandemic affected margins in each of the Company’s business segments?

Marek Wadowski: The impact of the pandemic on our business segments must be considered in terms of changes in demand. 

In the fertilizers segment, demand has remained very strong, but rising gas prices have had a limiting effect on margin growth.

In 2020, our pigments business reported strong profit margins, while the decline in demand for plastics and melamine resulted in negative operating margins.

At present, we are seeing a substantial recovery in demand, which has translated into improved margins on engineering plastics and melamine, with solid margins reported also on other products of the Chemicals segment (pigments and OXO).

Filip – Anonim:  Businesswise, what are your hopes for the new biodegradable polymers unit?

Marek Wadowski: The current production volumes of biodegradable polymers are low, however we expect their market to grow at a considerable pace in the future, not least thanks to their contribution to environmental protection.

Przemek: What progress has Grupa Azoty made toward developing a new strategy?

Marek Wadowski: As has been previously announced, work on the new strategy is well under way. We expect to publish it as soon as the necessary corporate approvals are secured.

Przemek: What segments will the Company focus on in the new strategy?

Marek Wadowski: This question has already been answered above.

Broker: When is the Company going to publish the new strategy until 2030?

Marek Wadowski: This question has already been answered above.

Maciej: Does Grupa Azoty expect to see changes in demand and feedstock prices following the easing of lockdown restrictions?

Marek Wadowski: A certain economic recovery was already noticeable when most of the lockdown restrictions were still in force. The plastics market has been on the rise since Q4 2020, and since early 2021 so has the fertilizers market, with demand driven by the spring application season. The third quarter of every year, which largely overlaps with summer holidays, usually sees a seasonal drop in demand for fertilizers, followed by a rebound in the autumn. However, given the current level of uncertainty due to the pandemic, it is difficult to project the market’s behaviour, which has recently been driven mostly by the balance of supply and demand. The supply and demand situation will continue to have a direct impact on feedstock prices, which will in turn affect product prices.

Restrictions and their easing tend to have the greatest effect on people’s mobility; as it increases, so does demand for transport fuels, which translates into improved performance of petrochemicals. A more balanced petrochemicals market should help stabilise prices.

Majki: What projects does the Company intend to pursue under the European Green Deal?

Marek Wadowski: Grupa Azoty has carried out a number of projects to support environmental protection, including launching new fertilizer lines which conform with the NEC Directive setting reduction targets for ammonia emissions, or getting involved in hydrogen projects to reduce CO2 emissions. Grupa Azoty has also developed new biodegradable plastics, with a new pilot production line for thermoplastic starch launched in May 2021. For more information of these and many other environmental protection measures that we take, see our reports; Grupa Azoty’s further plans related to the implementation of the European Green Deal will be presented in the new Strategy.

Marek Wadowski: Thank you for all your questions. Our first meeting has been a positive challenge for me. See you at our next chat session.

16.04.2021
Investor webchat 2020 results
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moderator: Welcome to our online Q&A chat session with Tomasz Hryniewicz, Vice President of the Grupa Azoty Management Board. The subject of the meeting will be the company’s 2020 results.

moderator: A quick reminder of the rules of our chat room. First, you send your questions to the moderator. The questions selected by our guest will be published together with the answers. You can see the order of questions at the bottom of the screen. The moderator has the right to reject questions which do not comply with the rules.

moderator: Information for journalists reporting our session: when citing today’s chat you are required to specify the source. If you have any questions or doubts, please contact: ##qxjgd#at#hidrzlpirw.ea##.

moderator: If you can’t see the answers, please refresh the page. Participants are also encouraged to share the chat and comment on it on social media using the #chatStockWatch hashtag.

moderator: Ladies and gentlemen, because Grupa Azoty’s earnings conference for analysts, attended by Mr Tomasz Hryniewicz, is attracting strong interest, it is taking longer than expected. For this reason, the start of the chat will be delayed by at least 15 minutes. Thank you for your patience.

Tomasz Hryniewicz: Dear guests, we are sorry about the minor delay caused by the prolonged conference for analysts. The chat will kick off in no time.

anty_teresa: What will be the raw material for the production of biodegradable plastics and what will be their price compared with normal plastics?

Tomasz Hryniewicz: Biodegradable plastics decompose when exposed to environmental factors such as temperature, fermentation, etc. The raw materials for their production can be either hard commodities such as crude oil and natural gas or bio-based materials, such as bioethanol made from plants. Recycled plastics converted into a form similar to crude oil will, of course, play an important role.

Michał: Have margins on plastics and chemicals improved significantly in recent weeks/months?

Tomasz Hryniewicz: Recent weeks have seen margins rise in the plastics market.

Michał: Have the recent significant increases in plastics segment’s margins been due to higher prices of polyamide? Given the simultaneous increase in the prices of benzene and phenol, shouldn’t we expect your results to improve in the near term?

Tomasz Hryniewicz: Plastics prices are rising mainly on the back of strong demand. The increases are accompanied by growing prices of raw materials.

Krystian Brymora (BDM): Did the company report any non-recurring events in the fourth quarter of 2020 apart from the compensation (PLN 69m) and financial support under the 4.0 Anti-Crisis Shield (PLN 9m)?

Tomasz Hryniewicz: At the consolidated level, there were no significant non-recurring events other than those specified in your question.

Szymon Struzik: Will Grupa Azoty be able to carry the burden of the Polyolefins investment project while fulfilling the objectives of the Green Deal, which will certainly involve huge investment outlays?

Tomasz Hryniewicz: Grupa Azoty has already made the entire required contribution to the Polimery Police project (equity contributions and subordinated loans), and has secured additional sources of financing (guarantees). Since at present the Group does not expect to make any additional spending on the project, the matters related to the Green Deal will be given priority as regards the Group’s capital expenditure in the coming periods. The Group intends to finance the required actions both with its own resources and with the EU and national funds for financing the energy transition. It can also carry out Green Deal-related projects together with other business partners.

Guest: Do you think that the rebound in titanium white prices in the fourth quarter is sustainable and low margins are now a thing of the past?

Tomasz Hryniewicz: Considering the results without the impact of the test, the situation on the titanium white market in the first quarter of 2021 provides grounds for improvement in performance. Demand for titanium white remains strong, and its prices are expected to grow in the first quarter of 2021.

Michał: Does the Company intend to remeasure provisions in the period from the second to the fourth quarter of 2021 due to rising CO2 prices? Will higher provisions related to CO2 emission allowances have a negative impact on EBITDA in that period?

Tomasz Hryniewicz: As the Company has already secured the required number of CO2 emission allowances for 2021 under futures, it is not expected that the higher market prices of emission allowances seen from the beginning of the year will have a negative impact on the Company’s results and EBITDA in 2021.

Guest: What was the share of Green Deal-compliant fertilizers in Grupa Azoty’s overall sales in the fourth quarter?

Tomasz Hryniewicz: In the Polish market, Grupa Azoty has started selling urea with an urease inhibitor (Pulrea), which is to reduce ammonia emissions to the air, and Fosfarm, a line of compound fertilizers which fit with the principles of circular economy. The Green Deal-compliant fertilizers had a small share in overall sales volumes in the fourth quarter, but it will be increased in 2021.

Guest: How does Grupa Azoty intend to compensate for the absence of subsidies for CO2 emission allowances in the coming years? It appears that the 2020 result was driven mainly by those subsidies.

Tomasz Hryniewicz: We mainly expect that the coming years will not be marred by market turbulence, which has significantly increased the risk of doing business, especially in our B2B segments (Plastics, Melamine), which were hit quite badly by the pandemic.

Michał: What is Grupa Azoty’s (including the consolidated Grupa Azoty Police’s) share of equity at Polimery Police?

Tomasz Hryniewicz: The joint share of Grupa Azoty and Grupa Azoty Police in the share capital of GA Polyolefins is 64.93%.

Guest: Is the construction of a coal-fired unit economically viable considering the current prices of CO2 emission allowances?

Tomasz Hryniewicz: Yes, it is now the only source that can supply power in the required amount to that location.

Michał: Do the costs of freight have a negative impact on any of the segments?

Tomasz Hryniewicz: By and large, the cost of sea transport is falling, with the costs of freight plummeting after a period of record hikes, in some parts of the world even to the levels seen in 2018 or 2019. I believe that their impact, if any, on the individual segments of the Group will be relatively low, if only due to the fact that Grupa Azoty Group’s relevant market is Europe.

Guest: What is the Group’s net debt to EBITDA ratio, including the debt financing for the Polimery Police project?

Tomasz Hryniewicz: In our opinion, providing this type of information is not meaningful as the Polimery Police project is being implemented on a project-finance basis with no recourse to the Group. The equity contribution and the amount of subordinated loans that Grupa Azoty extended to GA Polyolefins is reflected in that ratio, which – let me remind you – did not exceed 2.1 as at December 31st 2020.

Guest: When will the Plastics segment return to profitability at the operating profit level? Were the pricing deltas more favourable in the first quarter than in the fourth?

Tomasz Hryniewicz: The plastics segment has delivered significantly better results and we expect this situation to continue over a longer term. Spreads between selling prices and commodity prices in the first quarter of 2021 are higher than those observed in the fourth 2020.

Guest: Hello. What is the Management Board’s opinion about the current price of the Company shares? Are they currently undervalued given the sound performance figures for 2020 and favourable stock market conditions for other industrial companies?

Tomasz Hryniewicz: The Company’s Management Board spares no effort to build shareholder value. The good financial and operating results delivered in 2020 despite the extremely unfavourable macroeconomic environment are one of the results of those efforts. An update of the 2021–2030 strategy is currently at an advanced stage. The Management Board is of the opinion that the consistently applied measures should be reflected in the Company’s stock price.

Guest: Has the Company purchased all the CO2 emission allowances for 2021 yet? What is the approximate annual cost of purchasing additional emission allowances?

Tomasz Hryniewicz: Let me repeat my answer to an earlier question: the Company has already secured the required number of additional CO2 emission allowances for 2021 under futures. The costs of purchase of these allowances for 2021 (that is the cost of performance of the previously executed futures) will be above EUR 14m.

Guest: What will be the average annual EBITDA generated by Polimery Police after its launch in 2023?

Tomasz Hryniewicz: The average annual EBITDA generated by Polimery Police will largely depend on the effective spread between the raw material (propane) and the product (polypropylene), which are valued on a monthly basis, their prices depending on market conditions. The projections included in the company's financial model indicate that the Project has a solid footing and is capable of generating substantial positive cash flows.

inwestor_2k: The prices of feedstocks, materials and services are skyrocketing. Will the capital expenditure on Polimery Police be higher than originally planned?

Tomasz Hryniewicz: The Polimery Police project is being implemented on an Engineering, Procurement and Construction Lump Sum Turn Key (EPC LSTK) basis, which means, among other things, that the contractual provisions protect the company against any potential increase in the prices of feedstocks, materials and services.

Guest: Hello. Does the new strategy envisage consolidation of departments from the individual Group companies and potential workforce downsizing?

Tomasz Hryniewicz: The Grupa Azoty Group Strategy for 2021–2030 is still under development. It will encompass the strategies of the business segments and the functional strategies of the support areas. One of the key chapters of the functional strategies will be the chapter entitled ‘Grupa Azoty’s People’, which will address the development of human capital, human resources policy and personal data protection.

AT: Have the strategic EBIT and EBITDA profitability targets remained unchanged following the update of objectives and change of price paths associated with the COVID-19 pandemic?

Tomasz Hryniewicz: We adhere to our existing strategy as well as EBIT and EBITDA results. Changes, if any, will be announced in our new strategy.

le rom: ATT generates EPS of PLN (-0.6) – PLN 3.7. Its 2020 EPS was PLN 3.14. Will the results continue to depend on the weather and can we expect dividend of PLN 1.5, so that the share price of at least PLN 23 reflects the current market conditions?

Tomasz Hryniewicz: Grupa Azoty’s EPS was PLN 3.14 in 2020. Currently, Grupa Azoty’s stock trades at PLN 34.38, much above PLN 23.

guest: If you are optimistic about margins on plastics, chemicals and fertilizers, why did the Company, in today’s interview with the Polish Press Agency, speak about the negative outlook due to higher cost of raw materials?

Tomasz Hryniewicz: Or considerable challenges, to be more exact – yes, given the uncertainty over the impact of COVID-19 on both commodity prices and market turmoil.

Guest: If it hadn’t been for the drop in interest rates, would the company have been compelled to recognise impairment losses on the plastics facilities?

Tomasz Hryniewicz: We would like to note that in the period preceding the interest rate cuts we saw no need for impairment losses in the Plastics segment, either.

Guest: As regards the implementation of Green Deal projects, are you considering switching from coal to gas at the Puławy Power Plant, as PKN Orlen did at the Ostrołęka Power Plant?

Tomasz Hryniewicz: At present, there is no alternative for that location considering the required power supply – please refer to my earlier answer.

Guest: Why is ZAK developing its own R&D centre rather than conducting research at the Group level?

Tomasz Hryniewicz: The Group develops its R&D competencies in different locations according to different profiles depending on business needs as well as market and regulatory trends. The R&D centre in Tarnów specialises in research into plastics and fertilizers and, as a superior unit, coordinates research work across the Group. The R&D centre in Puławy focuses on developing biotechnology competencies, while the R&D centre in Kędzierzyn will be dedicated to ZAK-specific OXO products and alternative fuels, including hydrogen.

Guest: What is the new Management Board’s opinion about the decision made in previous years to expand the plastics production capacity?

Tomasz Hryniewicz: It was a very good decision.

Guest: What portion of emission allowances for 2022 and 2023 have you secured to date?

Tomasz Hryniewicz: Currently, the shortage of emission allowances for 2022 is covered in more than 30%, while the shortage for 2023 has not been covered so far.

Guest: How much higher, in percentage terms, are your margins on modified polyamide?

Tomasz Hryniewicz: Margins earned on modified polyamide are higher than in the fourth quarter of 2020.

Guest: Did I understand correctly during the conference that the company had reversed impairment losses? Is the reversal also reflected in the consolidated results?

Tomasz Hryniewicz: Grupa Azoty carried out impairment tests at the separate and consolidated levels, which indicated no need to recognise or reverse any impairment losses on property, plant and equipment or intangible assets. Impairment losses on property, plant and equipment were reversed at the subsidiaries Grupa Azoty Police and Grupa Azoty Puławy, as reported in their respective financial statements and current reports. Given the different values of assets at the level of the subsidiaries and at the consolidated level, resulting from asset valuations made on acquisition of subsidiaries, those events had no impact on the Grupa Azoty Group’s 2020 consolidated financial data.

Guest: Does the new strategy provide for any significant expenditure on environmentally-friendly solutions?

Tomasz Hryniewicz: We have every reason to believe that in 2021–2030 both EU and national laws will be even tighter with respect to industry, especially the chemical sector. Fortunately, they are consistent with the expectations of the general public in Europe, which means that the number of customers who are interested in eco-friendly products is also growing. This changes our not only our, but also our competitors’ way of thinking. Obviously, our investment plans envisage environmental spending, but not as high as it might have seemed at first glance.

Guest: In the fourth quarter, the prices of wheat, rapeseed and maize were the highest in many years. Why didn’t that drive up fertilizer prices?

Tomasz Hryniewicz: Fertilizer price increases always occur with a delay after increases in prices of agricultural produce, which is why they will be more significant in the first quarter of 2021.

Guest: Good morning. Did high prices of grains push up fertilizer prices in the first quarter? How did the prices change year on year and quarter on quarter? Did Grupa Azoty manage to seize this favourable opportunity and will it report robust performance figures in the fertilizers segment for the first – the most important – quarter of the year?

Tomasz Hryniewicz: Grain prices are just one in a host of factors we consider in our pricing policy. We cannot disclose any detailed data, but it should be stressed that grain prices supported fertilizer prices. Grain prices reached long-term highs and we hope that farmers themselves took advantage of those favourable conditions.

Guest: Are you experiencing any problems in transporting your products for exports?

Tomasz Hryniewicz: Only a few isolated cases.

Michał: Are margins/spreads on plastics for the first quarter of 2021 higher quarter on quarter?

Tomasz Hryniewicz: Yes, margins delivered in the first quarter of 2021 by the plastics business were higher than those in the fourth quarter of 2020.

Guest: What is the reason for the sharp decline in the Company’s revenue? According to the Management Board, the acquisition of Compo was to increase revenue to 12bn, while now it stands at 10.5bn.

Tomasz Hryniewicz: 40% of Grupa Azoty Group’s operations are based on B2B businesses, where product prices largely reflect the prices of raw materials, which – given the all-time low prices of crude oil – naturally led to a reduction of our prices. It should also be noted that those businesses experienced suppressed demand too, which translated into lower sales volumes of plastics and melamine.

Guest: How many of your employees are now on sick leaves or are quarantined/isolated? Are you experiencing any workforce shortages related to the third wave of the pandemic?

Tomasz Hryniewicz: To date, at the Grupa Azoty Group we have not recorded any major workforce shortages due to the third wave of the pandemic. The measures we have implemented to mitigate the risk of spreading coronavirus infections proved sufficient to ensure the continuity of production and continuity of support operations.

Guest: Have the prices of products manufactured at the polymer plant, projected for future years, changed due to the pandemic?

Tomasz Hryniewicz: As for the prices of polypropylene, the company relies on long-term forecasts prepared by reputable market advisors. At the moment, the company does not expect the long-term price trends to change significantly.

Guest: How much did you pay for the greenhouse gas emission allowances that will be accounted for this year? What percentage of those emission allowances did you receive for free and what do you expect the percentage of free allowances will be this year?

Tomasz Hryniewicz: The total cost of CO2 emission allowances for 2020 exceeded PLN 130m. We secured all the required emission allowances for 2020. The Group received just over a half of the required emission allowances for 2020 free of charge, with the balance purchased on the market. The Group pursues an active policy of hedging the costs of CO2 emissions, but since it does not publish any financial forecasts, information on the costs of emission allowances for 2021 cannot be disclosed.

Guest: Are fertilizer prices growing further in the second quarter or are they past their peak and now will stabilise or, possibly, go down?

Tomasz Hryniewicz: The prices of nitrogen fertilisers in the second quarter of the year in Europe and Poland always decrease. However, the extent of the decrease will depend, among other things, on gas and urea prices across global markets. The prices of compound fertilizers are expected to remain roughly unchanged due to the continuing high prices of DAP and NPK on global markets.

Raven: If we take into account external factors, such as prices of gas and CO2 emission allowances, is there any chance of improved performance in the first – the most important – quarter of the year, which has just ended?

Tomasz Hryniewicz: Gas prices were definitely not on our side in the first quarter. We are actively working to address this risk, though. We have signed contracts for most of the CO2 emission allowances for this year, which will have a neutral effect on our results if market prices rise.

Guest: Is the work on the Polimery Police project progressing as scheduled or is the pandemic getting in the way?

Tomasz Hryniewicz: The project is approximately 55% complete now (this includes design, procurement, deliveries and construction work). The stage of completion is consistent with the current project schedule.

Guest: Hello. How do you think the pandemic will affect your current and future results? The prolonged lockdown continues to weigh heavily on restaurants and the agricultural sector. Given the circumstances, will the demand for fertilizers and their prices have a strong negative impact on the company’s results this and next year? I am also curious when you expect a return on investment under the Polimery Police project. And my last question: besides Europe, does the company plan to expand into other continents? Aren’t you concerned about, for instance, stronger competition from Chinese manufacturers in Europe?

Tomasz Hryniewicz: Despite the pandemic, our 2020 financial performance deteriorated only slightly relative to the previous year. Earlier today, an earnings conference was held during which the impact of the pandemic was discussed at length. I invite you to read the investor presentation available on our website. You will also find there answers to questions about the progress of work on the Polimery Police project, as well as information about market situation, including in the fertilizers market.

Guest: How much assistance did the company receive under the various government support programmes?

Tomasz Hryniewicz: The amount received in 2020 was PLN 284m, including PLN 65m under the anti-crisis shield. The balance comprises compensation for rising prices of carbon emission allowances.

Guest: What is the margin generated by the compounding department? Did the Company increase its polyamide compound sales last year?

Tomasz Hryniewicz: The margin on modified plastics is higher than in the fourth quarter of 2020. Sales of PA6 compounds in 2020 rose year on year.

Guest: In the first quarter, gas prices on the Polish Power Exchange were nearly 70% higher y/y. Are such increases in the cost of gas to be expected in the Q1 report, or did you somehow hedge the price of gas to keep it lower?

Tomasz Hryniewicz: The increase in gas market prices in the first quarter of this year was attributable to the simultaneous impact of higher gas consumption in winter, as well as the parallel increase in the prices of raw materials and products due to the anticipated gradual easing of the COVID pandemic. Therefore, the Grupa Azoty Group is purchasing gas at market prices, but at the same time is it gradually raising the prices of fertilizers. Importantly, global gas consumption is expected to go down naturally once the winter season is over, leading to a gradual decrease in gas market prices.

Guest: Will the Group’s capital expenditure peak in 2021 (CAPEX of PLN 3.7bn) and gradually decline in the coming years?

Tomasz Hryniewicz: In 2021, we have an accumulation of expenditure: PLN 1.8bn under the Polimery Police project and more than PLN 0.5bn under the power generation project in Puławy. What remains after deducting those amounts is PLN 1.4bn, which is not much different from the total planned CAPEX in previous years.

Guest: Did you also hedge the prices of CO2 emission allowances for 2020? If so, why did the negative effect on that account in fourth quarter of 2020 was 19m and 59m for the entire 2020?

Tomasz Hryniewicz: Grupa Azoty pursues an active policy of hedging the costs of CO2 emissions, under which carbon emission allowances are purchased in advance and contracts are signed only for a portion of allowances during a given year. The differences are a consequence of the major increase in the prices of emission allowances in the second half of 2020.

Guest: Looking at the situation in the Company’s plastics segment, which regularly generates losses and has profitability issues, do you think that Polimery Police might share the same fate as the final product to be manufactured there is similar?

Tomasz Hryniewicz: Polypropylene is a versatile plastic with a wide range of applications in various market segments, which ensures greater resilience to demand fluctuations in particular industries. Moreover, market forecasts indicate a steady increase in demand for polypropylene from European customers, and Polimery Police is the only project of this type currently implemented in Europe.

Guest: If the performance of plastics and chemicals segments is to improve, why did you say the following words in an interview with the Polish Press Agency: ‘Grupa Azoty expects a significant increase in raw material prices, which will affect its margins’?

Tomasz Hryniewicz: Improvement in the plastics market is driven by higher demand. Market prices are determined by the current supply and demand dynamics. Higher prices of raw materials are not the only factor with effect on margins.

Guest: Will the new strategy envisage further acquisitions or just organic growth of the Group?

Tomasz Hryniewicz: We are working hard on the 2021–2030 strategy. What is important is that we think about the strategy segment-wise – about managing the Group through relatively independent business segments. We will see whether segment strategies will identify M&As as an important tool for strategy operationalisation in the future.

Guest: Were the prices under the electricity supply contracts you signed significantly higher? Do you somehow hedge those prices on the market, or is it your counterparty’s job?

Tomasz Hryniewicz: Since 2020, electricity prices in Poland have been subject to significant volatility of up to 20%. The increase in electricity prices is directly linked to prices of CO2 emission allowances.

Electricity is purchased as part of the Group companies’ joint procurement procedures based on their respective electricity requirements and using a procurement strategy providing for a partial purchase of electricity for the next three years. The prices are hedged by electricity suppliers.

Guest: Will the individual Group companies maintain their status of separate entities?

Tomasz Hryniewicz: I am not aware of any plans to change the status quo.

Tomasz Hryniewicz: Ladies and Gentlemen, our meeting today has come to an end. Thank you for all your questions – they came in abundance. See you again next time.

moderator: On behalf of StockWatch.pl, I would like to thank you for an interesting discussion and invite you to our future chat sessions.

03.12.2020
Investor webchat as part of the "My Investments Fair on-line". "WallStreet 2020" conference
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Tomasz Hryniewicz: Welcome everyone. We have just released our third quarter 2020 performance figures. You can ask your questions now.

bjerre: Has the Grupa Azoty Group benefited from any government assistance granted in connection with the epidemic?

Tomasz Hryniewicz: The total amount of employee wage subsidies received by the Grupa Azoty Group under the Anti-Crisis Shield 4.0 legislative package was PLN 59m.

Skibek: What full-year performance figures do you expect to see for 2020?

Tomasz Hryniewicz: As a rule, the Grupa Azoty Group does not publish any forecasts for subsequent reporting periods.

RvP: Are there any plans to distribute the 2020 net profit in 2021?

Tomasz Hryniewicz: You will need to wait a little bit longer for any declarations regarding dividend payment – the entire month of December is still ahead of us, and afterwards we will summarise the extremely challenging year 2020.

Ewa: How do you look back on your decision to acquire Compo Expert in 2018?

Tomasz Hryniewicz: We believe our decision to acquire COMPO EXPERT in 2018 was a good one. It enabled the Group to significantly expand its product portfolio, capture a new promising segment of speciality fertilizers, and considerably enhance its geographic diversification. The integration activities have also helped identify and achieve synergies both for the Grupa Azoty Group and for COMPO EXPERT.
The acquisition was also a good move in economic terms, as COMPO EXPERT’s financial performance remains solid despite the challenging year due to the pandemic.

inwest: Since the beginning of the year, Grupa Azoty’s capex has reached PLN 1.72bn. What projects has it been spent on?

Tomasz Hryniewicz: 55% of the amount has been spent on the Polimery Police project. 27% is the total capital investment made at Grupa Azoty Puławy, including on the construction of the CHP plant and ammonium nitrate-based granulated fertilizers unit. Overall the growth capex has amounted to PLN 1,158m, while the amounts spent on maintenance and replacement projects have been around PLN 200m in each case.

Mirek: Which segment will see the heaviest investment in the coming years?

Tomasz Hryniewicz: The Plastics segment including the Polimery Police project, which is the Group’s strategic investment and one of the largest petrochemical projects undertaken in recent years both in Poland and Europe. It will allow us to extend our product value chain and diversify revenue sources, making the Group more resilient to the fertilizer market volatility.

WSE_fan: What is your most promising business segment?

Tomasz Hryniewicz: Against the backdrop of the recent ‘Covid-19’ months, the Fertilizer business remains the Group’s most promising segment. It is part of the food production market, which has been least affected by the pandemic. Also, the acquisition of COMPO EXPERT has allowed the Grupa Azoty Group to expand its product portfolio and its foothold in new markets, such as Greece.

Nowy: What factors were the positive drivers of the Grupa Azoty Group’s performance in the third quarter of 2020?

Tomasz Hryniewicz: Our third quarter performance was driven mainly by the fertilizer product volumes, which increased year on year, and general stability in the agricultural sector with a limited impact of the pandemic.The compensation for higher prices of CO2 emission allowances and the financial support we received under the Anti-Crisis Shield 4.0 legislative package also made a difference. Some of the product categories in the Chemicals segment, such as OXO alcohols, also performed better year on year despite the pandemic.

Tomasz Stępień: When do you expect to sign contracts for the supply of propane for the Polimery Police project?

Tomasz Hryniewicz: Negotiations with propane suppliers are being held as we speak. The propane contracting strategy of Grupa Azoty Polyolefins S.A. is aimed at securing supplies under both short-term (1–2 year) contracts and spot contracts. The final contract negotiations are expected in the second half of 2021, which is long before production starts.

Tomasz Stępień: Could you comment on the current reality in the Polish fertilizer market and the market outlook for early 2021?

Tomasz Hryniewicz: The baseline situation is very promising. Farmers saw higher yields this year (up 15% according to preliminary estimates by Statistics Poland) and the grain prices in Q4 2020 are up 15-20% year on year. As a result, the purchasing power of Polish and European farmers is much higher than a year earlier. In general, we see prospects for an upward trend in nitrogen fertilizer prices in Q1 2021. In the case of compound fertilizers, price movements will be less pronounced and much will depend on the prices of fertilizers such as DAP (ammonium phosphate). The supply of fertilizers in the coming months will also depend on weather conditions (rainfall).

Piotr - Anonim: Hello. As a new senior executive, where do you discern a potential for cutting costs and boosting efficiency?

Tomasz Hryniewicz: In order to maintain a competitive edge in our business segments, we regularly analyse the efficiency of all key business areas driving the Company’s and the Group’s performance. The outcome of these analyses will certainly be reflected in our newly developed strategy, to be revealed in the first half of 2021.

Janek: What are the synergies between the Group’s and Compo Expert’s business?

Tomasz Hryniewicz: The main synergies between the Grupa Azoty Group and the COMPO EXPERT Group include:
- the use of some feedstocks coming from Polish units of the Grupa Azoty Group as components in fertilizer production at COMPO EXPERT,
- joint purchases of some feedstocks on global markets,
- joint commercial activities, especially in southern Europe,
- financing of the COMPO EXPERT Group’s operations out of cheaper sources of financing available to the Grupa Azoty Group,
- the use of the Grupa Azoty Group’s IT infrastructure at COMPO EXPERT,
- other operational savings resulting from the shared organisational structure and procurement of many support services.

biznes: What is your planned CAPEX for 2021?

Tomasz Hryniewicz: Once again, the Grupa Azoty Group has a policy of not publishing any forecasts. However, the two key investment projects that are still in progress, namely the Polimery Police and the Puławy CHP plant, will require the largest capex amounts under the total budget planned for 2021.

ABA - Anonim: Could you discuss the Company’s planned dividend policy for the coming years?

Tomasz Hryniewicz: In line with our dividend policy set out in the Grupa Azoty Strategy for 2013–2020, the Company may share up to 60% of its net profit with shareholders. Having said that, the dividend policy also assumes that the overriding objective of our financial structure is to ensure long-term financial security and internal coherence among all funding sources. The strategy also provides that, in justified cases such as the delivery of an extensive investment programme or the risk of a downturn, the Management Board may recommend against a dividend payment.
The Grupa Azoty Group’s planned dividend policy for the coming years will be set out in our new strategy until 2030, which is still in the works and is expected to be announced to the public in the first half of next year.

XYZ - Anonim: Are there any plans for new acquisitions in the coming years?

Tomasz Hryniewicz: We prefer to talk about successfully delivered projects rather than plans, especially that the coming years will see a large-scale investment programme at the Group. We believe the ongoing pandemic will not bring any acquisition opportunities in the Fertilizer segment of the chemical industry. It may bring minor ones in the Plastics segment and naturally prospects for mergers with technology start-ups.

Walet: What economic trends do you expect to see in the Fertilizers business in 2021?

Tomasz Hryniewicz: We have a very optimistic outlook on the first quarter of the year, but uncertainty will rise as the year unfolds. The economic trends will depend, as usual, on the prices of gas, potassium chloride, and phosphate rock. The weather conditions, especially rainfall, will be another decisive factor. In addition, the Polish legislation is changing so that, as of August 1st 2021, Polish farmers will be required to use urea with urease inhibitors (following implementation of the NEC Directive), which may change their approach to fertilization. However, the Group sees this change as an opportunity to increase the volumes of sales with higher margins.

Lukasz - Anonim: What is the outlook in terms of demand for the Group’s products?

Tomasz Hryniewicz: The Grupa Azoty Group has an extensive product portfolio, reaching many industries. As a result, the Group is able to offset any adverse market trends within individual business segments.
We are now experiencing a general crisis triggered by the pandemic and its economic impacts both in Poland and the Group’s other key markets. AGRO fertilizers, which are of key importance to food security, have proved to be our most resilient segment. We are currently expecting a rise in demand for fertilizers from the Polish agricultural sector, but the application season for nitrogen fertilizers in Poland will only begin on March 1st, in accordance with the applicable laws. Obviously, the weather conditions will also play a role. The other segments have been affected by pandemic-related restrictions to a lesser or greater extent. We are expecting the markets to bounce back, as the first signs of recovery are already visible. Still, this will depend on how the pandemic continues to play out.

Tobiasz: What is the Company’s position on the European Green Deal? How will it affect the Company’s cost and performance figures?
 
Tomasz Hryniewicz: The Company subscribes to the ideas behind the European Green Deal, especially that they are by no means novel, but have been compiled and structured as a single document, setting out the scope and often the time frames within which the European Commission plans to achieve its overriding objectives of climate neutrality. As regards costs, it would be difficult to quantify them at this point, even though it seems only logical that they should increase (e.g. in the case of R&D and mandatory investment costs), given that the European Green Deal is not only about ambitious environmental goals, but will also require funding to achieve them. Therefore, it seems that priority should be given to ‘green’ investment projects, meeting the state aid eligibility criteria.
However, it must be noted that the potential impact of the European Green Deal on both our costs and performance figures will be spread over a longer period of time, until 2030 and then until 2050.

Roman: The Grupa Azoty stock price is a far cry from last year’s quotations. Do you expect an increase in your stock price next year?

Tomasz Hryniewicz: The current price of Grupa Azoty shares is indeed not satisfactory. This is mainly attributable to the exceptionally weak performance of stocks listed on the Warsaw Stock Exchange relative to global indices, not only in the current year. We are keeping a close eye on the capital market, which has been badly affected this year, both locally and globally. Grupa Azoty has taken steps to build the Group’s value and deliver added value to shareholders, through ambitious investment projects such as Polimery Police, acquisitions such as COMPO EXPERT, and successful expansion of the product portfolio through M&As.

Merc: Do you think the current market valuation of the Company stock is accurate?

Tomasz Hryniewicz: I refer you to my answer above to a similar question.

Junior: Are you leaning more towards acquisitions or organic growth?

Tomasz Hryniewicz: I believe our track record says it all. We have behind us a consolidation process which created the Grupa Azoty Group in 2011–2013 and further strengthened the Group in 2014–2020. In 2019, we successfully acquired and integrated COMPO EXPERT, a large player in the market of speciality fertilizers with international business roots. At the same time, we are also able to implement a large-scale investment project, the most ambitious one we have undertaken to date, under the project finance model – namely, Polimery Police. Grupa Azoty will tap any opportunities to upscale its business, but it leans more towards capital investment, that is towards organic growth.

Lukasz - Anonim: What are your expectations regarding gas prices and their impact on the Group’s bottom line over the next five years?

Tomasz Hryniewicz: I believe the impact of gas prices on our profit figures over the next five years will be neutral. Just like any other European fertilizer producer, the Grupa Azoty Group purchases gas at market prices and is sensitive to any gas price volatility to the same extent as its competitors. There is a clear correlation between gas and fertilizer prices, albeit with a certain delay. In the coming years, we expect an oversupply of LNG and higher consumption of gas as a generation fuel, combined with a rising share of RES. This means that the increasingly volatile gas market will depend even more heavily on weather conditions. Therefore, we can expect gas prices to go up during exceptionally cold winters and hot summers, and then fall down when weather conditions improve. This will result in unexpected declines in our profit figures or in exceptionally high profits on our fertilizer sales, as the case may be.
On the other hand, the forecast oversupply in the liquefied gas market in the coming years will exert pressure on gas prices, keeping them at currently recorded levels across European markets, i.e. at EUR 12-15/MWh.

Paweł: In a nutshell, how would you encourage me to invest in the Grupa Azoty Group?

Tomasz Hryniewicz: The Group operates in attractive industries, significantly contributing to the entire economy, and its business is based on sound foundations. It is true that the Company’s current stock price is far from satisfactory. Generally speaking, the chemical industry has not recently enjoyed the best investor sentiment. However, as the pandemic subsides, we expect to see signs of economic recovery across the board and a more favourable climate for equity investments, also in the chemical sector.

Tomasz Hryniewicz: Thank you for all your questions, I am really glad to see your interest in Grupa Azoty. We’re out of time, so we must say goodbye. Thank you for be.

21.09.2020
Investor webchat H1 2020 results
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Moderator: On Monday September 21st 2020 at noon we will be hosting a live web chat with a representative of Grupa Azoty. You may ask questions concerning the financial perfomance delivered by Grupa Azoty Group companies in the first half of 2020.

Moderator: Hello. Welcome everyone. We will be happy to take your questions now. Paweł Łapiński, Vice President of the Grupa Azoty S.A. Management Board, will answer your questions concerning the financial performance, developments and market environment of the Grupa Azoty Group companies.

Kamil: How sensitive is the Company’s performance to movements in natural gas prices? What is the share of natural gas in total costs?

Paweł Łapiński: It’s no secret that we conduct a commodity feedstock-intensive business, and natural gas, as a key feedstock for fertilizer production, represents the largest share of our feedstock costs. In the first six months of 2020, for instance, natural gas accounted for some 11% of total operating costs and for 32% of variable costs.

Tomasz Stępień: COVID-19 has triggered certain shifts in the polymer market: a rise in demand for packaging and personal protection equipment rose and a collapse in automotive demand. Are these trends affecting Polimery Police’s sales plan? And my second question. What milestones (and when) do you expect to be delivered on the Polimery Police project, both on the construction front and in contracting feedstocks and products?

Paweł Łapiński: The current market conditions created by the COVID-19 pandemic are having no major impact on Grupa Azoty Polyolefins’ sales strategy. We believe that the auto market’s collapse is only transitory and the situation should improve and normalise before the products are brought to the market. Our sales strategy relies on a diversified product portfolio and market presence (food packaging, personal hygiene, automotive and construction industries).

On to the milestones.

The process to select the suppliers of strategic feedstocks (propane, ethylene) is scheduled for the third quarter of 2021, with final contracts to be signed in the first quarter of 2022.

As to finished products, the company has signed a number of Letters of Intent exceeding by far the target production capacity. Polypropylene supply contracts will be signed after production has been launched and after products from the new plant have undergone initial validation.

Tomasz Stępień: Could you comment on the situation in the nitrogen and compound fertilizers market in Poland in the third quarter and the outlook for the coming months?

Paweł Łapiński: The situation in the nitrogen fertilizers market remains stable despite the pandemic and temporary difficulties in the first six months of the year. We don’t expect any deviations from our previous assumptions for the coming months. Our compound fertilizers are under strong pricing pressures driven by the price war between Russian, Moroccan and other players. We are facing numerous challenges and a lot of work on this front in the coming months.

RvP: How do you expect the situation in your industry will develop in the second half of the year?

Paweł Łapiński: Let there be no mistake – a balance in the plastics market can only be restored if the leading European and global economies return to normal. Of key importance will be consumers’ propensity to buy, which is currently under great pressure given the prevailing job and income uncertainty. The melamine business also poses a challenge given a plunge in demand in the furniture and other markets. The fertilizers business should deliver as expected in the second half of the year, although sharp swings are occurring in the compound fertilizers market, where we can see strong pricing pressures and a ceiling to our price raising efforts. Price competition is also getting fiercer in the pigment business.

Marcinek: Do you hedge against foreign exchange risk?

Paweł Łapiński: Grupa Azoty hedges its planned FX exposure (mainly in the euro and US dollar) chiefly through natural hedging, entering into foreign currency or foreign currency-denominated contracts for the sale and purchase of products and feedstocks. Grupa Azoty also has long-term euro-denominated loans (including from the EIB) for which hedging links with future euro-denominated inflows have been established. There is also the umbrella overdraft facility linked to the cash pooling arrangement with PKO BP denominated in the euro, which allows us to effectively manage the euro exposure of the Group companies, including short-term mismatches between inflows and outflows in that currency. The remaining net foreign exchange exposures in the euro and US dollar are hedged with forward contracts concluded on a rollover basis for up to two years.

Karol: What is your opinion on the Company’s second-quarter results in the context of the coronavirus pandemic?

Paweł Łapiński: For a period of complete turmoil across markets, I think we delivered quite solid results. As you could see during our results presentation, many of our foreign peers reported greater variances in revenue and earnings for the period. Also, please remember we signalled the difficult situation of the plastics business long before the pandemic, when we were preparing the targets for 2020. The situation in this particular industry is closely correlated with macroeconomic conditions in key economies, which have been steadily deteriorating over the past few months.

bjerre: Have you seen any positive reversal in market trends, for instance in prices or in demand for NOXy, OXO alcohols and melamine, or is the current situation still unfavourable to the Group?

Paweł Łapiński: The COVID-19 situation has had a strong impact on markets. Some of them will need time to recover from the shock, but the first signs of recovery can already be seen. Feedstock and product prices are rising in step with the firming up of crude prices. The pandemic situation has been peculiar because a slump in demand due to lockdowns is considered one of the reasons. But demand is slowly recovering despite concerns around a possible second wave of the pandemic. At this point it’s difficult to predict how the market might develop in the light of the most recent measures taken to contain the spread of pandemic.

Kamil: Do you hedge against unfavourable movements in natural gas prices?

Paweł Łapiński: Yes. We can lock in gas prices through forward contracts. But this comes at a price. Statistical analysis shows the cost of supplies covered by monthly contracts exceeds that of supplies bought on the spot market by almost EUR 0.5 per MWh on average, and the more distant the delivery date, the higher the cost. Spot prices are currently at around EUR 11 per MWh, while gas deliveries for the entire 2021 and 2022 cost approximately EUR 14 per MWh and EUR 15 per MWh, respectively. But in periods of strong price volatility and side trends, particularly steady uptrends, hedging against price volatility, particularly around the short term end of the forward curve, makes economic sense. And we seek to use this option during such periods. Our team monitors the market on an ongoing basis and makes decisions according to future natural gas prices predictions.

Matt: Have you encountered any problems with payments from trading partners, or are the payments made on time like in the first half of 2020?

Paweł Łapiński: Grupa Azoty has global credit risk insurance policies with leading insurers (including KUKE, Euler Hermes and Atradius), allowing the Group to manage trade receivables from customers and to adjust credit limits according to their credit standing. Consequently, problems occurred only occasionally and involved customers in markets or sectors that were particularly hard hit by the pandemic. Please note, however, that no major problems with payments from trading partners are reported at this point.

Tomek: Were fertilizer sales figures for July and August consistent with the Company’s internal targets and the budget?

Paweł Łapiński: In terms of volumes, the answer is yes. Demand for nitrogen fertilizers was particularly strong. Some farms buy fertilizer early, in July and August, as investment. In the case of compound fertilizers, farmers deferred purchases, and demand has peaked since mid-September.

Warszawiak: How many coronavirus cases have been reported across the Group?

Paweł Łapiński: We had a few cases of coronavirus infection at the Group and in each case we took prompt action to minimise the risk of the disease spreading. These cases caused no disruption to our operations. Grupa Azoty has procedures in place to ensure prompt response of competent emergency services, and recommendations were issued to mitigate the risk of infection spreading among our employees, including specific guidelines for health monitoring, restrictions on business travel, and remote work.

Cam: Can you see any chance of the situation in Chemicals improving during the remainder of the year?

Paweł Łapiński: We all expect the situation will improve, and the first signs of recovery can already be seen. Demand across segments related to chemicals is rising slowly yet steadily. We are moderately optimistic about the coming months given the ongoing pandemic. A major factor influencing the near future will be restrictions imposed by countries, which affect consumer behaviour and, by extension, demand.

Kris: Has the COVID situation had any impact on your relationships with banks?

Paweł Łapiński: Grupa Azoty pursues a consistent disclosure policy, communicating all information on the potential impact of the COVID pandemic on its financial position in current and periodic reports. We believe these disclosures are satisfactory to our financing banks as well. Importantly, we meet all material covenants and maintain all financial ratios at the levels set in credit facility agreements, which promotes strong relationships with banks and bodes well for the future. Grupa Azoty maintains a strong liquidity position and has sufficient funds under the available lines of credit to fund its operations and key capital investment projects (including to fund its equity contribution to the Polimery Police project).

Stanek: What are your predictions about gas prices during the remainder of 2020 and in 2021?

Paweł Łapiński: I expect gas prices to hover at around EUR 10–EUR 12 per MWh until late October and early November, with sharp daily fluctuations depending on RES generation volumes. As the winter season approaches, gas prices will likely rise to EUR 14 or EUR 15 per MWh. In 2021, we expect the average price to stay close to EUR 12 per MWh, that is some 50% more than this year. We expect the upcoming winter will be normal, with inventory levels going down to usual levels after the winter season ends. Also, suppliers tested market stabilisation instruments during this year’s supply glut, and I seriously doubt they will do anything to drive oversupply and push down prices to the levels seen for several months of this year.

Ted: What is the capex planned for the Polimery Police project this year?

Paweł Łapiński: Unfortunately, we can’t provide details on this, but it’s important to note that capital expenditure is incurred based on the actual progress of work under project milestones.

Żeglarz: Why were sales prices realised by Compo Expert on each product category higher in the second quarter?

Paweł Łapiński: The Compo Expert Group realised higher sales prices in the second quarter across all product categories except for NPK fertilizers, where the average price fell 3.5% year on year due to strong competition and softer demand. As for the other product categories, the average sales price on foliar feed fertilizers rose 3.5%, on controlled-release fertilizers – 10.4% and on liquid fertilizers – 14.5%. The rise reflects our marketing strategy and focus on the specialty B2B segment, which sells specialty products at higher prices. The effect of higher prices on the Group’s consolidated financial statements is also attributable to the weakening of PLN against EUR and USD, the two currencies in which the Compo Expert Group sells its products in Europe and other markets.

Robson: Couldn’t the Company take advantage of the falling prices of feedstocks used in the production of alcohols and plasticizers, for example to increase the inventory of these feedstocks?

Paweł Łapiński: We are actively managing this area, of course. Our Kędzierzyn subsidiary buys as much propylene as possible when its price falls, with the maximum purchase volumes depending on the availability of free freight railcars. They are a warehouse on rails.

Kowalski: With the Chemicals business facing tough conditions, was it difficult to negotiate funding for Polimery Police with banks?

Paweł Łapiński: The key terms and conditions for financing of the Polimery Police project were agreed upon and confirmed before the end of 2019, that is before the outbreak of the COVID-19 pandemic, and the banks then issued commitment letters for the Project. Therefore, subsequent negotiations of project financing agreements had to take account of current market developments, but, importantly, the required debt finance had already been secured. This enabled the process of signing all debt and equity financing agreements for the Project to be completed by May 31st 2020, and the Group is on track to satisfy the conditions precedent to disbursement of the funds by Joint Sponsors and banks. Please note that the Sponsors and Financing Banks have been provided with the updated Project Financing Model, which upholds all material assumptions concerning the Project’s economic viability.

Tomek: What is your opinion on Grupa Azoty’s current stock price?

Paweł Łapiński: After a period of the COVID-related panic and capital flight, stock markets are slowly picking up, with stock prices rising in selected industries. Although chemical stocks were not popular with investors during this difficult time, with the ambitious EU climate policy goals additionally weighing on investor sentiment, earnings were buoyed by low gas prices in the first six months of 2020. A company’s market value is driven by a multitude of factors. What’s important is the strong fundamentals on which we build our business, but the current stock price is far from what I would call satisfactory.

ciekawy: Do prices of carbon emission allowances have a major impact on your performance?

Paweł Łapiński: They are not a critical factor but they do play a role in terms of performance. Their effect reported at the Group level in the first six months of 2020 was PLN +22m. But remember the unusual base effect reflecting the equipment failure in Police in 2019. Answering your question, with annual consumption of approximately 7.5 million tonnes, the effect of an increase in the price of carbon emission allowances by 1 EUR on profit or loss is approximately PLN 16–18m, including free allowances, of course.

ciekawy: Are you facing labour shortages? Has the COVID-19 situation helped the Company in this respect? Did you feel any wage pressures in the first and second quarters, or did the pandemic restrain pressures to raise pay?

Paweł Łapiński: There have been no wage pressures from our employees, who displayed a great sense of responsibility in this difficult time, taking a long-term perspective on the Group’s future. Where relevant conditions were met, Grupa Azoty Group companies applied for government support under the Shield 4.0 legislative package to counteract the impact of the coronavirus pandemic.

Moderator: Ladies and gentlemen, we are running out of time. Thank you very much for taking part in this chat and for your questions. We couldn’t meet in person at the WallStreet conference this year, for obvious reasons. I hope the event will be held soon in a changed format. I’ll see you there!

01.06.2020
Investor webchat 1Q 2020 results and „Polimery Police" project
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moderator: Welcome to an investor chat with Paweł Łapiński, Vice President of Grupa Azoty, and Marek Czyż, Vice President of Grupa Azoty Polyolefins SA. Our meeting will focus on Grupa Azoty companies’ first-quarter 2020 results and the Polimery Police project.

moderator: A quick reminder of the rules of our chat room. First, you send your questions to the moderator. The questions selected by our Guests will be published together with the answers. You can see the order of questions at the bottom of the screen. The moderator has the right to reject questions which do not comply with the rules. 


moderator: Information for journalists reporting our session: when citing today’s chat you are required to specify the source. If you have any questions or doubts, please contact: ##qxjgd#at#hidrzlpirw.ea## 
moderator: You may now ask your questions. Our Guests will start answering them at 2:00 pm. If you can’t see the answers, please refresh the page. Participants are also encouraged to share the chat and comment on it on social media using the #chatStockWatch hashtag. 

Grupa Azoty: Hello. Welcome everyone. We will be happy to take your questions now. Paweł Łapiński, Vice President of the Grupa Azoty S.A. Management Board, will answer your questions concerning the financial performance, developments and market environment of the Grupa Azoty Group companies. Marek Czyż, Vice President of Grupa Azoty Polyolefins S.A., will take your questions concerning Polimery Police. 

pasha: Hello. When will final agreements on equity financing of Polimery Police be signed? 

Paweł Łapiński: Yesterday, May 31st 2020, Grupa Azoty S.A. and Grupa Azoty Police proudly announced the signing of financing agreements for the Polimery Police project. These included credit facility agreements with a syndicate of Polish and international financial institutions and transaction documents setting out the terms of equity investment and financing with Grupa LOTOS S.A., Hyundai, and KIND.

With these agreements, we have secured full fundng for the project. 

shareholder: Hello. Will Police consolidate the Polimery Police SPV with the full method? In other words, will the company control the SPV, or exercise joint control and use the equity method? 

Paweł Łapiński: The equity method will be used from the time of entry by joint sponsors and reduction of our equity interest in Police to below 50%.

guest: Funding has been secured. What will the next step be? When do you expect turnkey delivery of the complete project? 

Marek Czyż: Having achieved the major milestone of signing debt and equity financing agreements, we can fully concentrate on the performance of the EPC contract. We are currently in the process of obtaining further building permits. Hyundai is hard at work on all subprojects.
The plant is to start commercial operation in the fourth quarter of 2022. 

inwestor_2k: Hello. Let me first congratulate you on securing full funding for Police. The deadline was the end of May, and you met it. I’m wondering, though, why part of the credit facility is denominated in the euro and the other part in US dollars? Has the general contractor requested to be paid in those two currencies? 

Paweł Łapiński: The currency structure of the financing was subject to an in-depth analysis and its current form reflects the conditions prevailing on the polypropylene market. 

Tomasz Stępień: Can you tell us something about the proposed propane purchasing structure: number of suppliers, contract duration, supply sources by geography? At what stage is the agreement signing process right now? 

Marek Czyż: We are negotiating commercial terms with propane suppliers. The potential feedstock suppliers to Grupa Azoty Polyolefins S.A. are leaders of the European, Asian and American markets. The negotiations have already led to the execution of letters of intent initially providing for the supply of propane in volumes significantly exceeding the Polimery Police production capacity. The propane contracting strategy of Grupa Azoty Polyolefins is aimed at securing supplies under short-term (1–2 year) contracts and spot contracts. The final contract negotiations are scheduled for 2021, which is long before production starts. 

Guest: Hello. The credit facilities are a Children’s day gift from you to us :) When are you finalising the financing from KIND, Hyundai and LOTOS? 

Paweł Łapiński: We are glad to see the financing transaction closed and our shareholders happy :)
The financing agreements have just been finalised. As previously announced, a credit facility agreement was concluded yesterday with a syndicate of Polish and international financial institutions, and that equity investment and financing agreements were signed with Grupa LOTOS, Hyundai and KIND in respect of the Polimery Police project. 

policki_inwestor: Will the port terminal under construction also be used to handle raw materials currently transported via the Mijanka terminal? 

Marek Czyż: Given the technology used, the planned propane and ethylene terminal will be used to handle only those particular feedstocks. 

Tomasz Stępień: What impact is Covid 19 having on the progress of work under the Polimery Police project? 

Marek Czyż: The company has not identified any significant impact of the coronavirus pandemic on the progress of Polimery Police. The company and the general contractor Hyundai Engineering are constantly monitoring the status of deliveries and purchase orders, particularly with respect to plant components with long delivery times. No delays are expected that could affect the project schedule.
The main challenge facing the general contractor will be to recruit highly qualified staff. Hyundai Engineering is thoroughly analysing the potential of the domestic labour market and establishing relationships with subcontractors, particularly local ones.
Since the beginning of the pandemic, Hyundai has implemented strict safety procedures, which have enabled construction work to be carried on all subprojects. 
Guest: How much are you going to spend on research this year? As I can see from your presentation, project budgets are quite sizeable. 

Paweł Łapiński: Our R&D plans are defined in the same way as budgets. First of all, we are driven by our goal of allocating up to 1% of the Group’s revenue to innovation (including research services and own research as well as pilot process units). Recently we have communicated success in obtaining grants from the National Centre for Research and Development for R&D projects. A month ago, as many as four of our grant applications received positive recognition. 

Guest: Propylene, plastics and OXO prices suggest your results should have been worse. Are the improved earnings reported by this segment at ZAK an effect of reconstruction of power generating assets or are there other factors at play? 

Paweł Łapiński: No, it’s not only that. The improved first-quarter performance delivered by the OXO segment came also as a result of higher volumes we managed to place on the market, as well as lower natural gas prices. We are very pleased with the earnings given the segment’s poor performance in 2019. 

Andy: Is it possible that the company will change its approach to the fuel used by the Puławy CHP Plant? Given the current prices of carbon allowances and natural gas prices, aren’t you reconsidering the technology? Or is the project one hundred percent sure to be coal-fired and any changes are out of the question? 

Paweł Łapiński: The Puławy CHP Plant project is already under way. No sufficient reasons exists to stop the project at this point. The production plant in Puławy needs energy independence and a balanced supply. And independence can only be achieved with competitive access to fuel. 

Guest: The company has recently brought a plastic compounding unit on stream, yet, looking at volumes, no year-on-year growth in sales of modified plastics can be seen. Why is that? 

Paweł Łapiński: Compound plastics sales volumes are growing at a rate lower than expected. The reasons are a drop in demand caused by COVID-19 and the continued downturn in the automotive industry. 

policki_inwestor: Will Grupa Azoty Polyolefins S.A. collaborate with 3D printing companies? 

Marek Czyż: As a rule, polypropylene is not commonly used in 3D printing, which primarily uses engineering plastics, such as ABS, PLA, PET, PVA, PA, etc. The company is now gauging market demand, and if there is any demand for polypropylene from 3D printing companies, it will consider cooperation with potential customers for the product.
 
Guest: Hello. In an interview for the Parkiet daily, Mr Wardacki mentioned the cost reduction measures. Can you specify the size (in millions or in percentage terms) of cost savings planned to be achieved this year as a result of those measures relative to the previous year? Will those savings be permanent or are they rather designed to cut administrative expenses? 

Paweł Łapiński: Such a question is very difficult to answer. The thing is: what is the benchmark? If it is the previous year, it should be remembered that in 2020 we have to deal with a number of costs which we refer to at the Group as mandatory ones, that is costs beyond our control, required by law. These are, for instance, higher costs of services brought about by an increase in the minimum wage, the introduction of occupational pension schemes (PPE) and employee capital plans (PPK), change in the basis of measuring some provisions, etc. As a result, the cost reduction we achieved relative to the adjusted previous year’s level has been cancelled out by mandatory costs. Nevertheless, we strive to effectively keep fixed costs at a reasonable level. 

Guest: Will the Management Board recommend retaining the profit at the company in the coming years as well? 

Paweł Łapiński: Each decision about profit distribution is preceded by a thorough analysis. The Management Board must seek to ensure long-term financial security and internal coherence between all funding sources of the Grupa Azoty Group.

Our dividend recommendations ultimately depend on the investment projects we are pursuing, prevailing market conditions and our plans concerning cash flows across the Group. As for now, a binding declaration on the allocation of the Grupa Azoty Group’s future profits would be premature. 

Guest: How long will it take you to pay off the credit facilities? What will be the maximum ratio of net debt to EBITDA? Will the banks which did not finance this project include this debt in the covenants or not? 

Paweł Łapiński: The senior credit facilities will be repaid by Grupa Azoty Polyolefins until December 2030, with the option to extend the period by five years with the bank syndicate’s consent, which will reduce the last repayment instalment (balloon payment).

The Grupa Azoty Group’s net debt to EBITDA (adjusted for the exclusion of Grupa Azoty Polyolefins) will be below 3.5. With regard to the Grupa Azoty Group’s corporate financing, the SPV’s net debt and EBITDA will be excluded from the calculation of covenants, which has been provided for in the loan agreements. 

anty_teresa: Has there been an increase in prices of compound fertilizers in the second quarter? 

Paweł Łapiński: As always, the prices of compound fertilizers in Poland go down in the second quarter of the year to go up in the following months, and this year is no different.
No significant price movements are seen on foreign markets, where the prices of DAP, now in a sideways trend, are the key driver. 

Misio: Gentlemen, we are pleased both with the results and the Polimery Police project, but the question is: what next? What does the situation in the Fertilizers segment look like now? When do you expect to bring the Plastics segment’s sales back to normal? 

Paweł Łapiński: The main reason behind declining sales in the Plastics segment is lower demand triggered mainly by consumer uncertainty in the end-user sectors. The situation should improve after the first signs of an economic rebound.
The Fertilizers segment has already entered a new season, starting in June and ending in May of the next year. To be more specific, we have just signed agreements with Authorized Distributors for the sale of nitrogen and compound fertilizers on the Polish market. We are also entering into short-term and spot contracts on foreign markets, mainly in the EU.
We are optimistic about the prices of nitrogen fertilisers and their projected movements in the coming months – it appears that the drought’s impact on agricultural production will be moderate, and the prices of grains and rapeseed look promising for the medium term. 

księgowy: Why did you decide to swap reverse factoring for a loan? If a loan is a cheaper form of financing, why didn’t you use it right from the start? 

Paweł Łapiński: The Grupa Azoty Group uses various forms of working capital financing, including overdraft facilities, receivables factoring and reverse factoring. The financing costs are comparable. The Group uses this mechanism depending on current conditions. 

Marek: Why should the financing by Grupa Azoty, KIND or LOTOS be partly provided in the form of subordinated loans and not only with equity and share issues? What will be the proportions of these two forms of financing in the case of external partners? 

Marek Czyż: The Polimery Police project financing structure is a result of arrangements between all the entities involved in its financing. A partial share of subordinated loans in this structure is typical of the project finance model and was preferred by some of the parties to the transaction, for instance due to a high flexibility in distributing free funds to the investors. In the case of LOTOS, the subordinated loan amounts to PLN 200m, that is 40% of the total investment amount (PLN 500m). In the case of KIND, the loan amount will be USD 52m; KIND will buy shares for USD 5m. Hyundai will invest USD 73m exclusively in the share capital of Grupa Azoty Polyolefins.
 
Guest: What is the capacity utilisation rate of the new compound line? 

Paweł Łapiński: At present, production of various types of plastics is being tested on the new compound line, which involves frequent changes in the production structure and changeover of the line. It will be possible to determine the capacity utilisation rate only after the end of the year. 

Guest: Let me then put it in a different way. Is it reasonable to expect that there will be no dividend distribution before the Polimery Police project is completed? 

Paweł Łapiński: All scenarios are possible. 

Guest: Mr Łapiński, how can you explain such poor performance of Police given that gas prices are so low? 

Paweł Łapiński: Police’s performance was largely affected by the result on compound fertilizers. Please bear in mind that, unlike in the case of nitrogen fertilizers, gas is not a major performance driver in the NPK segment. Additionally, the NPK market, and the DAP (phosphate fertilizer) market in particular, were flooded with imported fertilizers, which suppressed not only their prices (significant price cuts already in October 2019), but also their volumes (in fact, the volume effect had the largest bearing on the NPK result year on year). Also, the prices of phosphate rock and potassium chloride (key feedstocks in the compound fertilizers segment) increased by 11% and 3%, respectively. 

brutalp: What do you think demand for fertilizers in Q2 2020 will be? Is the Chemicals segment still experiencing a major slump in demand? 

Paweł Łapiński: We have a good starting position for compound fertilizers and a very good one for nitrogen fertilizers.

Rainfall in May improved the condition of crops in Poland and the EU. Farmers are still applying nitrogen fertilizers for maize crops, grassland and winter grains (third dose).

By and large, stock levels are low, which should prompt farmers to buy fertilizers for the next season.

The PLN/EUR and PLN/USD exchange rates have also been supportive to our business, making export sales of fertilizers more profitable.
 
Andy: The poor performance delivered by Police in the high-season quarter is a bit worrying. Is the post-financial-crisis situation from years ago likely to occur again? Will the company need assistance, particularly that it has to partially support a project like Polimery Police? 

Paweł Łapiński: The results posted by Police were dragged down by the performance in compound fertilizers. Large volumes of goods, mainly DAP, were imported to Poland in the first quarter of 2020, significantly dampening our sales prices and volumes. We also recorded an increase in the cost base, reflecting rising prices of key raw materials: potassium salt and phosphate rock. On the other hand, strong results in nitrogen (ammonia and urea) made a positive contribution. Demand is strong and profit margins are wide in the segment, particularly thanks to very low natural gas prices. Obviously, we are monitoring performance on an ongoing basis, but no serious disruptions in the company’s full-year performance are expected. 

Guest: Tell me again why Police was chosen as the site for the Polimery Police project? What are the synergies with Police? 

Marek Czyż: The project’s location in Police offers strategic advantages in terms of supplies (feedstocks delivered by sea) and the proximity of and easy product distribution to key sales markets.

The project site being close to the existing plant of GA ZCh Police (one of the original shareholders in GA Polyolefins responsible for implementing the project) will create a number of synergies with GA ZCh Police’s infrastructure, including with respect to the supply of process media (electricity, steam, demi water, etc.) and services (wastewater treatment, etc.). GA ZCh Police will also receive hydrogen, a by-product of the propane dehydrogenation process from the PDH unit. 

brutalp: Hello. What will be the capex spending on the PDH project this year, and what amount of capex can we expect to be spent by the entire group? Has the overall project budget been revised versus original assumptions (can you tell us again what is the expected total expenditure on the PDH project)? 

Marek Czyż: Total capex planned to be spent on Police Polimery (PDH+PP) by the end of 2020 will exceed EUR 600m, out of ca. EUR 1.5bn of total estimated costs. There were no major revisions in the Polimery Police budget.
 
Guest: What is your average locked-in price of CO2 emission allowances? 

Paweł Łapiński: It’s a trade secret. Hedging transactions with respect to the purchases of CO2 emission allowances are entered into regularly in line with the applied hedging policy, so the purchase prices factor in the average market price for a given period. 

Guest: Are you going to recognise any electricity price adjustments/subsidies this year? How much income from subsidies did you book last year? 

Paweł Łapiński: Grupa Azoty Group companies are entitled to receive public aid on account of the pass-through of emission costs to the prices of electricity used to make products in energy-intensive sectors and subsectors. No compensation income was recognised given the uncertainty surrounding the allocation of compensation payments in 2019. The total amount of compensation to be received for 2019 is estimated at about PLN 83.4m, and it was recognised as a contingent asset (an off-balance sheet item). If the President of the Energy Regulatory Office grants the applications filed by the Group companies, this amount will be paid to them in the second quarter of this year. The companies may also receive compensation for 2020 in a similar amount in 2021. If the payment of these amounts is considered probable, the Group will recognise them on an accrual basis in the 2020 statement of profit or loss. 

Guest: When do you expect growth in plastics? How do orders compare to last year? 

Paweł Łapiński: The situation in the plastics industry is strongly linked to the overall economic conditions. Orders dropped significantly. It’s hard to predict right now when deliveries will again be taken regularly. We expect this to happen when the economy recovers. 

Guest: What proportion of compound fertilizer do you place on the home market, and how much do you export? Are these proportions different for nitrogen fertilizers? 

Paweł Łapiński: Generally speaking, Poland is our priority market, accounting for ca. 70% of total nitrogen and compound fertilizer sales.

We export more nitrogen than compound fertilizers, which is directly linked to production capacities. 

Guest: Why doesn’t ZA Puławy pay a higher dividend if it holds so much cash? 

Paweł Łapiński: The dividend recommended by the Management Board of Azoty Puławy Group equals 36.7% of profit earned in 2019. The dividend policy set in Grupa Azoty’s corporate strategy provides for sharing up to 60% of its net profit with shareholders. However, the company’s capex programmes and financing needs must be taken into account. 
 
Guest: Where do you plan to sell your products, given the market in Poland is already highly saturated: large imports virtually from all around the world + BOP’s dominating position. 

Marek Czyż: According to Grupa Azoty Polyolefins’ data, global demand for polypropylene in 2017 was 80 million tonnes, with ca. 10 million tonnes in Europe alone. Market advisers estimate that demand reachable by the company in Europe (including Turkey) will exceed 12 million tonnes of PP in 2022. PP imports from outside Europe to the target market in the same year are estimated at ca. 3 million tonnes. The target market comprises Poland, Germany, Austria, Switzerland, Scandinavian countries, Czech Republic, Slovakia, and Hungary. According to advisors, PP demand in this market will exceed 4.3 million tonnes in 2022. The size of the domestic polypropylene market in 2017 was 700,000 tonnes, of which about two-thirds were imports.

The predominance of PP imports to Poland and Europe from distant markets creates conditions for the product being marketed by Grupa Azoty Polyolefins as a local producer based in the heart of Europe.
 
księgowy: As Puławy has changed its segmentation to bring it in line with the rest of the Group, melamine is now recognised in Agro revenue. Shouldn’t it be shown separately to increase transparency? 

Paweł Łapiński: The change was introduced as part of yet another stage of implementing segmental management at the Grupa Azoty Group. The melamine business was moved to the Agro Segment as a result of the existing process links, including the use of the same feedstocks for production, and the melamine sales function being part of the Agro Segment. Pursuant to IFRS 8, the presentation of operating segments should reflect how management monitors the particular business activities, and the change addresses this requirement. 

Alone in the Dark: Has the company already held talks with customers for the plastics from the new line? 

Paweł Łapiński: The company has its own customer base. Also, talks are held with new partners. 

Guest: How many jobs will be created under the Polimery Police project? 

Marek Czyż: Once the units are launched, Grupa Azoty Polyolefins, the SPV responsible for the Polimery Police project, will employ up to 400 people.

The company also expects that the construction of new units may create three times as many new jobs in its environment. 

Guest: Current reports published yesterday mention call and put options for Polyolefins shares held by Hyundai and KIND. Which of the Grupa Azoty Group companies has a liability under the put option? I understand that this is not an equity investment on the part of the Koreans since the option exercise price (in USD) is equal to the price originally paid. 

Marek Czyż: The liability under the put option is shared by Grupa Azoty and Grupa Azoty ZCh Police. It does not apply to all of the shares held by Hyundai and KIND, but to the shares with an aggregate original value of up to USD 70m. The exercise of the call or put option is one of the ways in which our Korean partners can exit the investment; another way of doing so, provided for in the documentation, is the option to carry out a public offering. In addition to investing in GA Polyolefins shares, KIND will also extend a subordinated loan to that company, also understood by the entities financing the Project as an equity investment. 

Alone in the Dark: Dou you think it is possible for the Grupa Azoty Group to deliver results exceeding the five-year average this year? 

Paweł Łapiński: It will hardly come as a surprise if I say that this year will be a challenging one for us. The pandemic does have a bearing on some of our segments. We won’t be able to avoid the consequences of the downturn in the automotive market (dragging down the Plastics segment’s performance) or in the furniture market (with adverse effect on melamine). Nevertheless, the Management Board is taking steps to achieve the best possible economic results, as demonstrated by our Q1 performance. Can we outperform the five-year average? It will certainly be a feat, but it is still doable.
 
księgowy: Are you considering acquisitions? Isn’t it now an opportune moment (as prices are low) to acquire such companies as Compo? 

Paweł Łapiński: Following the acquisition of COMPO EXPERT, specialty fertilizers were added to the Grupa Azoty Group’s product mix, so now we can now offer a broad fertilizer portfolio. Irrespective of the bold investment programme pursued by the Grupa Azoty Group, we are closely monitoring market developments, also in the context of potential investment opportunities. For now though, we are focusing on the implementation of our investment programme, including on the Polimery Police project, which we have discussed in detail today. 

Guest: Hello. The project implemented by GA Polyolefins was supposed to be financed under the project finance model, but from what I see you had to issue a subordinated loan guarantee for more than EUR 100m. 

Paweł Łapiński: The Polimery Police project is financed under a project finance formula and is excluded from the Grupa Azoty Group’s corporate financing.

The Group’s financial exposure is strictly defined and may not exceed PLN 1,832m, as announced in the current report of May 31st 2020. The EUR 105m relates to the guarantee of contingency financing secured through the conclusion of a guarantee agreement for granting a support loan, which can be disbursed in specific circumstances, in particular in the event of an unforeseen increase in capital outlays, additional working capital requirement or the SPV’s difficulties in payment of financial liabilities. At present, the Polimery Police project’s financial model does not provide for the need to use this amount. The guarantee you are referring to was required by the financial institutions providing senior financing. 

Guest: How much did you spend in total on counteracting the pandemic and supporting local hospitals? I’m asking about one-off costs in Q1 and the costs you have incurred so far in Q2. 

Paweł Łapiński: Our support was not always of a monetary nature (for instance, we lent vehicles, provided assistance in purchasing the equipment), but if you’re asking about the exact amount we have so far directly allocated to fighting the pandemic, it is PLN 3.2m. 

Guest: Gentlemen, what do you think was the key reason for the mismatch between analysts’ expectations and the Group’s actual performance? 

Paweł Łapiński: I think that most analysts did not expect the nitrogen fertilizers segment to deliver such impressive sales volumes. Also Compo Expert posted much better results on its product mix. We should also keep in mind our Chemicals segment’s performance, especially in terms of OXO sales. These are the key drivers of what I believe to be a welcome discrepancy between our actual performance and market expectations. 

Guest: To my mind, it takes a chemist to grasp the nature of the Grupa Azoty Group’s business. Perhaps it would be a good idea to make a presentation during a conference of what you manufacture on individual lines, what feedstocks and semi-finished products are used and in what quantities? 

Paweł Łapiński: Thank you for your suggestion. We'll try and show you the ins and outs of our chemical business. Our investor presentations contain a slide showing the path from the raw material to the product – a production diagram. It is, of course, a simplified version. 

Guest: Who is the region’s largest propylene and polypropylene manufacturer? 

Marek Czyż: If the region is understood as the domestic market, the largest and currently the only manufacturer of polypropylene is Basell Orlen Polyolefins and of propylene – PKN Orlen. If the region is understood as Europe, the three largest polypropylene manufacturers are Lyondell Basell, Borealis, and Total. The leading propylene producers include BASF, Sabic, Naphtachimie, and Shell. 

Guest: Will the Pigments segment report a loss in Q2 due to the pandemic in Italy? 

Paweł Łapiński: The titanium white segment is certainly under pressure from current market conditions due to the pandemic, but it is unlikely that it should post a loss for the second quarter. 

Guest: Which do you think is the most undervalued and overvalued company on the market? 

Paweł Łapiński: Generally speaking, the recent months were far from ideal for the capital market, including for the Warsaw Stock Exchange, hence the stock performance of companies was way below expectations. In recent weeks, as stock exchanges start to get used to the pandemic crisis, also the chemical sector has been showing signs of recovery. Keep your fingers crossed for us, please. 

Guest: Will the propane contracts (with terms of 1–2 years) have fixed or variable delivery prices, depending on market prices? 

Marek Czyż: The market price of propane (and all petroleum products) is variable. Therefore, no fixed price contracts for propane are concluded on the market. 

Guest: Is there any construction work in progress on the key project? 

Marek Czyż: The general contractor has already begun construction work on all sub-projects, concentrating mainly on foundation work, such as preparation of screeds and reinforcement (the PDH unit and the port). Earthwork has already started on the site of the future polypropylene unit.

Most headway has been made in the port terminal: reinforcement of foundation slabs for propane and ethylene tanks has already been completed. 

Paweł Łapiński and Marek Czyż: Ladies and gentlemen, our meeting today has come to an end. Thank you very much for taking part in this chat and for your questions. We wish everyone good health. See you at our next chat session. 
moderator: On behalf of StockWatch.pl, I would like to thank you for an interesting discussion and invite you to our future chat sessions. 

23.04.2020
Investor webchat 2019 results
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moderator: Welcome to our Q&A chat session with Paweł Łapiński, Vice President of the Grupa Azoty Management Board in charge of, among others, Investor Relations and Finance. The main topic of the meeting will be the company’s 2019 financial results.
moderator: A quick reminder of the rules of our chat room. First, you send your questions to the moderator. The questions selected by our guest will be published together with the answers. You can see the order of questions at the bottom of the screen. The moderator has the right to reject questions which do not comply with the rules.

moderator: Information for journalists reporting our session: when citing today’s chat you are required to specify the source. If you have any questions or doubts, please contact: ##qxjgd#at#hidrzlpirw.ea##.
moderator: You may ask your questions now. Our guest will start answering them at 10:00. If you can’t see the answers, please refresh the page. Participants are also encouraged to share the chat and comment on it on social media using the #chatStockWatch hashtag.

Paweł Łapiński: Hello. I’m glad to be able to talk to you again, this time via an online chat. I will be happy to answer your questions and provide you with information on the Group’s business and current market environment. All previous chats held via StockWatch.pl attracted strong interest. I hope this one will, too. You can ask your questions now.

abcabc: Hello. How is the drought affecting the company? Is it driving fertilizer consumption up or down? Is the company likely to benefit from low natural gas prices?
Paweł Łapiński: The current drought is having an adverse impact on the market for fertilizers, particularly nitrogen fertilizers. We can already see that in Poland today. Farmers have stopped applying fertilizer for winter cereals (2nd or 3rd dose) and are wondering which fertilizer application technology to choose for corn. The Group can benefit from that if farmers replace urea with the liquid fertilizer UAN. We have other crops in Poland, too, such as grassland, sugar beets. Rainfall in May and June could dramatically improve the situation here. The Group’s fertilizer business has moderately benefitted from low gas prices as prices of nitrogen fertilizers fell by over 10% in Poland and in the main markets of the European Union in late 2019 and early 2020.

inwestor_2k: Hello! What are the prices of fertilizers in Poland in the first quarter of the year?
Paweł Łapiński: Prices of nitrogen and compound fertilizers in the first quarter of 2020 were about 8%–15% lower year on year. The largest drops were recorded for Pulan and Zaksan nitrate fertilizers, and the smallest drops for Saletrosan nitrogen fertilizers with sulfur. As for the reasons for the declines, I would like to emphasise our position was completely different in terms of cost of natural gas – despite lower prices realised in the first quarter of 2020 no erosion in margins was reported.

Guest: Will a profit-sharing bonus be paid for 2019 to employees of Grupa Azoty S.A. of Tarnów? If so, when?
Paweł Łapiński: Last year’s performance was satisfactory, so I don’t see any reasons why the Management Board should not pass a resolution to pay an annual bonus to Grupa Azoty employees.

shareholder: Hello. Have you changed the budget assumptions for your project in Police given the current economic downturn?
Paweł Łapiński: Eleven financial institutions have agreed to lend us over one billion dollars for the Polimery Police project. We want all agreements to be signed within weeks. A positive lending decision issued by so many banks, who have analysed the investment model and all risks involved in the project, including those associated with the epidemic, is the answer to all those who would want to question the project and doubt it can be implemented. We are now negotiating the final terms of investment agreements with all the investors.
I would like to point out that construction of the units is to take just over two more years. The Polimery Police Project is currently progressing on schedule. Work on the fuel terminal (the port) and preparatory work on the main unit is bring carried out on a large scale.

PJ: Hello. First, I would like to wish you and all participants good health in this time. I’d like to talk about the natural gas market. Does Grupa Azoty plan to diversify its gas supplies any time soon and take advantage of the oversupply of US LNG, for instance by importing liquefied natural gas from the US via Świnoujście or Lithuania? Also, is Grupa Azoty taking measures to exploit the low price environment and lock in the price for future supplies?
Paweł Łapiński: Thank you very much wishing us health as we all need it. Let me wish the same for you.

Now moving on to your question. Grupa Azoty does not plan to diversify its gas supplies or import LNG from the US independently any time soon. Despite high consumption, an LNG ship and the speed of the regasification process would exceed our current capabilities. We’d have to store a large part of the gas, which would make the whole operation much more expensive. Secondly, all capacities at the Świnoujście terminal are booked. Importing LNG through Lithuania would entail the obligation to hold mandatory stocks, which would further increase the cost of the gas. Finally, cheap LNG reaching Europe directly influences prices on commodity exchanges, which serve as a benchmark in our pricing formulas. So, we are indirectly benefitting from the oversupply on the LNG market.

As for locking in prices for the coming years, natural gas is now cheap on the spot market, but not on the futures market. Prices of gas in futures contracts for next year delivery are about twice the spot price. Besides, locking in the price involves the obligation to take deliveries of the gas over the entire contract term, which poses considerable risks. We hedge against fluctuations in gas prices, but over shorter time horizons.

pasha: Will the Management Board recommend dividend payment, or is this unrealistic in the light of the massive investment outlays?
Paweł Łapiński: The Management Board is yet to issue a recommendation concerning the distribution of Grupa Azoty’s net profit for 2019. A relevant resolution should be passed in May, and we will promptly inform you about it in a current report. Having said that, I would like to remind you that the update of Grupa Azoty’s strategy for 2013–2020 states that the overriding objective of our financial structure is to ensure long-term financial security and internal coherence among all funding sources. The strategy also provides that, in justified cases like the implementation of an extensive investment programme or the risk of a downturn, the Management Board may recommend against a dividend payment. Of course, the final decision on the amount of a dividend always rests with the General Meeting.

Guest: Did the compounds unit generate any revenue in the fourth quarter, or was it a drag on performance, if only because of the depreciation expense?Paweł Łapiński: Revenue was recorded in the fourth quarter. The depreciation started in January 2020.

Picasso797: I have a question about export sales. Are there any problems with logistics?
Paweł Łapiński: Land logistics operators are working properly, and maritime logistics operations are also maintained, although some short delays occur. Logistics service fees are rising.

Guest: Was the sharp growth in salaries seen in the fourth quarter a result of employee bonuses, an increase in actuarial provisions or a pay rise?
Paweł Łapiński: Labour costs rose in the fourth quarter of 2019 chiefly on the back of an agreement signed with respect to length-of-service awards and retirement and disability severance payments in Grupa Azoty Police and an increase in actuarial and holiday provisions. The provision for annual bonus payments also increased given the strong performance delivered by the Group.

Matan: Why no reverse factoring inflows and only outflows are disclosed in the statement of cash flows?
Paweł Łapiński: Reverse factoring is presented separately in the statement of cash flows, with outflows (repayments) disclosed in cash flows used in financing activities and inflows disclosed in cash provided by operating activities.

Ludwix: When do you expect prices on the titanium white market to rebound?
Paweł Łapiński: The titanium white market is subject to seasonality and if normal market factors were in play this is what we would expect in the second quarter. But due to the current situation and the related volatility and market uncertainty we expect prices will rebound in the third quarter, assuming the pandemic will ease.

Totmes: Does Grupa Azoty hedge against fluctuations in energy prices using contracts on POLPX and if so to what extent?
Paweł Łapiński: Grupa Azoty has secured electricity supply for all companies in 2020. Its main electricity suppliers are Poland’s leading energy trading companies. Electricity is purchased on POLPX in small quantities as needed in order to adjust daily purchasing requirements.

PJ: Do you expect Covid-19 to have a negative impact on performance in the fertilizer business? Local authorities are looking for savings, and some have already announced cuts to spending on the maintenance of green areas. Should a major or a minor drop in demand be expected as a result of that?
Paweł Łapiński: Grupa Azoty’s fertilizers segment mainly serves farms engaged in growing basic crops: winter and spring cereals, oilseed rape, maize, sugar beet, potato and forage crops. We also serve the vegetable and fruit markets through Compo Expert. The maintenance of green areas is of marginal importance to Grupa Azoty.

Miron: What is the cost of the photovoltaic power station in Osiek?
Paweł Łapiński: The same as for most state-of-the-art professional photovoltaic micro-farms (an approximately 5 MW power station with an annual output of about 5 GWh built to meet the needs of a single industrial customer Grupa Azoty Kopalnie i Zakłady Chemiczne Siarki Siarkopol S.A.). Given the current status of the project, it is too early to share any details without consulting the project partner PGE Energia Odnawialna.

Miron: Hello. When do you expect the coal gasification project will be completed and commence commercial operation?
Paweł Łapiński: The coal gasification project has been a high-priority chemical, not energy, project, but we need an energy partner with a stable source of hard coal as the fuel. The energy partner is Tauron Polska Energia. Given the EU’s regulatory restrictions and uncertainty in the energy commodities market, I can’t tell you anything sure about the project’s time frame.

Pedro: Will the new power plant in Puławy just replace the existing capacities or will it also contribute to reducing the volumes of energy purchased on the market?
Paweł Łapiński: The new CHP plant at GA ZA Puławy is designed and balanced to meet the needs of our production plant in Puławy. We have repeatedly stated that we have no plans to enter the commercial power market or compete with energy companies. We may purchase small quantities of energy from time to time or sell energy ‘to the grid’.

Pedro: Do you think gas prices will remain low over the remainder of the year? Have the falling prices somewhat reduced the risk of fertilizers being imported from the east?
Paweł Łapiński: Current gas prices are favourable and, if the strong impact of these factors continues, the prices should remain at relatively low levels in 2020. However, the current situation in the oil market and geopolitical factors are creating uncertainty.

Guest: How much gas is used to make about one tonne of urea and how much urea is used to make melamine? Does unit consumption of natural gas significantly differ between NPK and nitrogen fertilizers?
Paweł Łapiński: The operating parameters of fertilizer units at Grupa Azoty are within the ranges provided for in BAT (Best Available Techniques).

In our production processes, we strive to maximise cost efficiencies by upgrading and increasing capacity utilisation of key units while optimising feedstock consumption.

Guest: Has Compo opened any new sales markets for Polish fertilizer plants?
Paweł Łapiński: Yes. Collaboration with the Compo Expert sales organisation has allowed us to acquire many new foreign customers who buy, either directly or indirectly, the Group’s fertilizer products made in Poland. This wouldn’t have been possible without the Compo Expert Group’s existing customer relationships and its international presence.

Guest: Did the company apply for subsidy payments in respect of energy costs under the electricity law and if so where are they disclosed in the financial statements?
Paweł Łapiński: Grupa Azoty did apply for energy price subsidies. They are presented as revenue.

Guest: Oil prices have recently slumped into negative territory. This situation has no precedent, so I would like to ask if and how the conditions in the oil market are affecting your business. Thank you.
Paweł Łapiński: Oil market swings are heavily affecting the plastic products chain. In April, we recorded a sharp drop in benzene and phenol prices. Contract prices fell by over EUR 400 per tonne on March. Spot prices of PA6 also declined significantly.

Guest: Hello. Expenditure incurred on the granulated fertilizer unit has almost reached budget (363/385) although the project is not due for completion until 2021. Do you expect the budget will be exceeded or the unit will start commercial operation ahead of schedule?
Paweł Łapiński: We are building two lines of mechanical granulation of nitrate fertilizers and shared logistics infrastructure in Puławy. So the project is a multi-stage process. We are considering building an additional unit, so extending the completion deadline and increasing the budget would be reasonable.

Trawiak: The strategy mentions completion of the Group’s consolidation process. Six years have passed since the Puławy acquisition and the consolidation and synergy implementation process has not yet been completed? Why is this taking so long?
Paweł Łapiński: By all means the consolidation process has been completed and synergies have been achieved, as communicated to the market in our reports. We have appetite for more and since the time horizon of our current strategy is 2020 it shouldn’t come as a surprise that, being a forward-looking organisation, we have started work on the Group’s strategy until 2030.

Guest: How is the company functioning during the epidemic? Have you reduced the number of employees per shift? Is this affecting performance? Have any employees contracted the coronavirus?
Paweł Łapiński: Grupa Azoty is operating without major disruptions and has implemented all safety measures and actions designed to prevent the spread of the coronavirus. No major employee absenteeism has been reported that could affect production efficiency. We have had three cases of COVID-19 but with no significant impact on the Group’s operations. Where possible, work is performed remotely.

Paweł Łapiński: Thank you for interesting questions. I am glad to see you’re interested in Grupa Azoty. We’re out of time, so we must say goodbye. I wish everyone good health. Thank you for being here with me today. See you again next time.

moderator: On behalf of StockWatch.pl, I would like to thank you for an interesting discussion and invite you to our future chat sessions.

14.11.2019
Results of the Azoty Group companies after the 3Q of 2019 and the ongoing Public Offer with Pre-emptive Rights at the Grupa Azoty Police
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Investor webchat - fundamental situation and results of the Azoty Group companies after the first three quarters of 2019 and the ongoing Public Offer with Pre-emptive Rights at the Azoty Police S.A.

On Thursday 14th of November 2019, an investor chat was held with Paweł Łapiński, Vice-President of Grupa Azoty S.A. and Włodzimierz Zasadzki, vice president of Grupa Azoty Zakłady Chemiczne "Police" S.A. The meeting was devoted to fundamental situation and results of the Azoty Group companies after the first three quarters of 2019 and the ongoing Public Offer with Pre-emptive Rights at the Azoty Police S.A.
10.10.2019
Investor webchat H1 2019 results
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At Thursday 10th of October 2019, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible i.a. for finance. The meeting was mainly devoted to financial results generated by the Azoty Group companies in the first half of 2019.

28.05.2019
Investor webchat Q1 2019 results
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At Tuesday 28th of May 2019, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible i.a. for finance. The meeting was devoted to financial results first quarter of 2019.

29.11.2018
Investor webchat 3Q 2018 results
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At Thursday 29th of November 2018, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible i.a. for finance. The meeting was devoted to financial results third quarter of 2018.
 
18.09.2018
Investor webchat 1H 2018 results
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At Tuesday 18th of Sptember 2018, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible i.a. for finance. The meeting was devoted to financial results first half of 2018.

25.04.2018
Grupa Azoty after the publication of its 2017 financial results
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At Wednesday 25th of April 2018, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance. The meeting was devoted to financial results for the year 2017.

22.11.2017
Grupa Azoty after the publication of its Q3 2017 financial results
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At Wedesday. 22nd of November, an investor chat was held with Mr Paweł Łapinski, Vice-President of Grupa Azoty S.A. responsible for finance. The meeting was devoted to financial results for the Q3 2017.

05.09.2017
Investor webchat 1H 2017 results
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At Tuesday, 5th of September, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance. The meeting was devoted to financial results for the first half of 2017.

16.05.2017
Investor webchat Q1 2017 results and Strategy update
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At Tuesday, 16th of May, an investor chat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance. The meeting was devoted to financial results for the first quarter of 2017 and the 2013-2020 Strategy, updated by the Management Board.

14.11.2016
Grupa Azoty after the publication of its Q3 2016 financial results
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At 14:00 on Monday, November 14th, an investor webchat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance.

08.09.2016
Grupa Azoty after the publication of its H1 2016 financial results
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At 12:00 on Thursday, September 8th, an investor webchat was held with Mr Paweł Łapiński, Vice-President of Grupa Azoty S.A. responsible for finance.

moderator: Welcome to our live Q&A chat session with Paweł Łapiński, Grupa Azoty’s Vice President for Finance. You may ask questions about the company’s current situation and growth prospects in the context of the recently published financial results for the first half of 2016. 
 
moderator: Let me remind you about the rules of our chat room: you first send your questions to the moderator; the questions selected by our Guests will be published together with the answers; you can see the order of questions at the bottom of the screen; the moderator has the right to discard questions which do not comply with the rules. 
 
moderator: Information for the journalists present in the chat room: citing today’s chat in your publications requires indicating the source. If you have any questions or doubts, please contact: biurostockwatch.pl 
 
Paweł Łapiński: Welcome everyone to today’s investor chat with Grupa Azoty. I will do my best to answer all the questions you may have concerning the company’s current financial position and its growth prospects in the context of the H1 2016 earnings announcement. I am ready to take your questions now.
 
SW-fan: Mr Vice President, hello and thank you for holding this chat. You have been with the company for a long time now so, given the far-reaching changes on the board, it’s only appropriate and fair that it is you who is talking to us. Could you please update us on new management’s current strategy for the Group; what are your priorities, what has been retained from the previous strategy, and what changes have you made and why? 
Paweł Łapiński: No major overhaul has been made with respect to the existing strategy. We aim to further consolidation within the Group, which will span procurement, sales, R&D and IT functions. We expect to see the first consolidation synergies in the second half of 2016. 
 
Tworzywa: What do you think are the short- and long-term prospects for the plastics business, which sustained a more than PLN 50m loss in H1 2016? 
Paweł Łapiński: The plastics market is facing pricing pressures from customers, mainly driven by the situation on the Chinese market (caprolactam oversupply), which feed through to profit margins on finished products. We share analysts’ positive outlook for the future. We operate at full capacities and we have no problems finding buyers for our plastics products. Current prices are unsatisfactory, but we are working to improve the formulas. Demand is driven by the automotive industry and ongoing composite materials projects. 
 
Gość unconfirmed: Do you intend to move forward with your mining project in Senegal? Was the decision to launch the project reasonable in the context of the recent corporate announcements? 
Paweł Łapiński: Our investment in production fields in Senegal has been a two-part project, covering a small operating mine (now depleted, as recently announced) and new exploration and production licences. We are about to enter the second stage of the project, requiring a costly exploration programme to precisely locate the deposits and evaluate their potential. Final decisions will be made only after the second-stage deposits and their economic viability have been reliably estimated. 
 
Inwestor unconfirmed: Can you confirm with absolute certainty that the PDH unit will be completed on schedule? 
Paweł Łapiński: By definition, large-scale capital investment projects are executed according to a plan, which needs to have a specific level of detail. So far, we have kept progress in line with the adopted schedule. I can see no reason why the decision making on the PDH project should depart from our proven, conservative approach to project management. If modifications to the project schedule prove economically justified, we will notify you accordingly. 
 
kikan unconfirmed: What can you tell us about the coal gasification project in Kędzierzyn? 
Paweł Łapiński: The project has entered the pre-FEED phase, which will permit us to make further specific decisions on the future process configuration of the coal gasification unit. 
 
Gość unconfirmed: While the financial performance delivered by the Police and Puławy subsidiaries met consensus estimates, the Tarnów-based company missed consensus. What was missing from these estimates? 
Paweł Łapiński: Unfortunately, the second-quarter results in Tarnów and in the other listed subsidiaries came below consensus estimates. For instance, Puławy reported consolidated EBIT of PLN 68m in the second quarter, compared with a consensus of PLN 104m.
The Group’s earnings deteriorated year on year mainly because of the weaker price environment, particularly in the fertilizers segment, which, given the last year’s high base (driven chiefly by a major reduction in gas prices which had no impact on sales prices) dragged down performance of all key fertilizers companies. 
 
Tworzywa: What steps are you going to take to make plastics sales profitable again, considering the largely oversupplied PA6 market in Europe, extremely narrow margins realised by producers and tough conditions on the POM imports market? 
Paweł Łapiński: The PA6 market is mainly facing an oversupply of natural polyamides. In line with its strategy, the Group is looking to expand its modified, specialty and custom plastics business, which offers wider margins and better market access thanks to its know-how. 
 
Tworzywa: Are you seeking to get a foothold and expand business in the automotive industry as a supplier to automotive mould manufacturers? 
Paweł Łapiński: We take a professional market approach, analysing potential threats and opportunities in various areas. We are in talks with partners in the most promising application segments, including automotive, but I can’t disclose any details as they constitute trade secret. 
 
radiomoskfa: I have a question concerning your relations with one of your shareholders, Akron; it’s been some years now, we’ve recently heard about Akron’s attempt to put their man on the Supervisory Board; what are the relations between your two companies like right now, and where is this going? 
Paweł Łapiński: Acting in compliance with the law, this shareholder notified in May of having reduced its shareholding below 20% of total voting rights. No formal notice of appointment to the Supervisory Board was submitted. Our relations with Akron do not differ from what we have with the other shareholders, as we make sure to treat all our shareholders on an equal footing. 
 
migotkaa unconfirmed: What were your sales by volume in the second quarter compared with the same period last year? Why is it you don’t publish volume data specifically in the Directors’ Report, but limit the data to charts contained in presentations? 
Paweł Łapiński: In line with the Group policy, volume data is limited to the data published in stock exchange presentations. As regards disclosures, we care to ensure equal access to information to all investors. Also, we need to remember that the data we release to the public domain is a source of knowledge on what we do for our competitors. Hence, restricting the level of detail of some data serves the interests of the Group and its shareholders. 
 
Gość unconfirmed: Will any further impairment charges be recognised this year in respect of African Investment Group or the reporting errors identified in Police? 
Paweł Łapiński: We have already recognised impairment losses with respect to receivables only. Further steps will be taken after we have received the results of additional analyses that have been ordered by the Management Board of Grupa Azoty Police. Right now, I can’t say whether more impairment losses will be recognised. 
 
MZK: What is your current dividend policy and do you intend to modify or change it in any way? 
Paweł Łapiński: The dividend policy adopted in the strategy remains unchanged. In line with the strategy, recommended dividend payouts equal 40-60% of the company’s non-consolidated net profit, depending, of course, on a number of factors relevant to the company’s business prospects, future profits, cash requirements, financial standing, business expansion plans and legal requirements. 
 
Tworzywa: Over the past few years − due to economic reasons as can be inferred from the available materials − you have lost production of PVC Tarvinyl and PTFE Tarflen. Isn’t the dominant position of the AGRO segment in sales and earnings posted by the Group likely to cause the plastics business to be significantly marginalised and, considering current market conditions and reported financial metrics, the existing POM and PA production to be phased out/divested? 
Paweł Łapiński: The Group’s business is divided into two areas, depending on customers’ specific circumstances and prevailing market conditions. These are B2C - fertilizers and B2B, covering plastics, oxo products, melamine, and other sales correlated with economic growth. 
That each Group company has its business divided into those two areas is no coincidence, as this division offers business stability given that B2B and B2C sales cycles differ.
Accordingly, we don’t think the plastics segments could be marginalised, and capital projects in that segment are implemented as planned. 
 
Gość unconfirmed: Is pressure on the demand side visibly growing on increasingly weaker grain prices? 
Paweł Łapiński: We are witnessing a seasonal recovery in demand for both nitrogen and compound fertilizers. The high season has only just begun, and so we remain optimistic. 
 
SW-fan: You talk about innovations a lot, and you want to be seen as an innovative company. What are these innovations exactly, and what is you annual spending on innovations? And one more thing. Is the widely advertised innovation support scheme authored by Development Minister Mateusz Morawiecki bringing any tangible benefits to your company and, if so, what are these benefits? 
Paweł Łapiński: In line with the Government’s Responsible Development Plan and its own strategy, the Group intends to raise its innovation spending to around 1% of revenue.
Accordingly, the Group has launched a number of projects, including its own research and development centre in Tarnów, with its planned budget of PLN 88m, which will receive a PLN 20m grant under an agreement with the Development Ministry signed on September 2nd. 
 
drobny inw: Good morning. I have an easy question. How long do you expect the deteriorating market trends to continue, and what steps are you taking to mitigate the effects of what is going on with fertilizer prices? 
Paweł Łapiński: The adverse trends on the fertilizers market are not likely to reverse in the final quarter of the year. We are consolidating the sales area, which we hope will generate synergies. We are also reviewing our sales policy and may be introducing some changes soon. 
 
Gość unconfirmed: Were there any maintenance shutdowns in the second quarter and, if so, what was their duration? 
Paweł Łapiński: Maintenance shutdowns, planned as in previous years, were completed according to schedule, with no major setbacks encountered in the process. 
 
kikan unconfirmed: Is the company likely to improve on its 2015 results? 
Paweł Łapiński: We don’t publish guidance. 2015 was a record year in terms of earnings, and we will make every effort to keep profitability close to last year’s level. 
 
Gość unconfirmed: Continuing the consolidation theme, what is your cost savings estimate for this year and 2017? 
Paweł Łapiński: We strive to implement the consolidation process in the best and most efficient way possible, to maximise gains as quickly as practicable. 
 
kikan unconfirmed: Why do you blame weaker performance on deteriorated purchasing power of farmers if sales volumes are on the rise? 
Paweł Łapiński: Reduced purchasing power among farmers is of course one of the reasons behind weaker performance figures reported by the fertilizers business, but it’s not the only or even most important one. (Other factors I have in mind are, for instance, major declines in urea prices, reflected in the prices of nitrate fertilizers, to which we have to adapt as a participant in this market). Also, it’s important to note that a large proportion of our fertilizers are distributed through dealers. These dealers build up their product inventory ahead of the upcoming fertilizing season during the second quarter. Yet another vital factor is the fertilizers sales structure, where farmers’ purchasing power is particularly important. In periods of improved market conditions, customers in the agricultural sector buy larger volumes of more complex and expensive fertilizers. 
 
inwestor: Will Grupa Azoty have to face an increase in the par value of its shares, as was the case with PGE? 
Paweł Łapiński: We have no such knowledge or plans to do so. 
 
inwestor: Good morning. What’s next with dividends? What is your policy on sharing profits with shareholders? 
Paweł Łapiński: I’ve already answered this question. Let me add that we shared the 2015 profit with shareholders; in July 2016 we paid out over PLN 83m in dividends. 
 
Gość unconfirmed: Has the cost estimate of the coal gasification project remained unchanged at PLN 300m? Would the key end products be methanol and hydrogen, and in what processes would they be used? 
Paweł Łapiński: Clearly, it’s a misunderstanding. No one has ever said that a massive coal gasification project could cost so little. Our estimate is several times the figure you mentioned, and detailed data is being gathered.
The process technology could be configured to yield either ammonia or methanol. We have yet to make this decision. As I’ve said earlier, the project is in the pre-FEED phase, and we are in the process of evaluating both options in terms of their economic feasibility and pertinent business risks. Further processing is an option, as we wouldn’t necessarily want to end up with global primary products like methanol or ammonia.
Analyses are ongoing. 
 
kikan unconfirmed: Is the reduction in CAPEX from PLN 2bn to PLN 1.6bn in 2016 a result of projects having been postponed or scrapped altogether? What is your planned CAPEX for 2017? 
Paweł Łapiński: The contributing factors include cost savings achieved on completed projects, some projects having been postponed by several months (which in fact means their postponement to next year) and, thirdly, the need to run additional analyses on some projects. 2017 estimates will be given at a later date. 
 
marek unconfirmed: What is the situation with Senegal? Does the country remain a viable source of feedstock, or have the Senegalese assets proven a pig in a poke bought by the previous Management Board? 
Paweł Łapiński: Senegal remains a viable source of feedstock supply, as was announced by the Management Board of Grupa Azoty Police in August. We may also buy feedstock from other producers, but this would depend on the price. As I said before, our own deposits are being evaluated for size and quality. Further decisions will be made after we know the results of the evaluation. 
 
kikan unconfirmed: Do you have a partner for the coal gasification project? What will be its equity share? 
Paweł Łapiński: The project is in the design phase. It’s too early to say anything definite about ownership proportions as this depends on the unit’s process configuration. 
 
gość unconfirmed: Have you definitely decided to abandon the coal gasification project in Kędzierzyn?
Paweł Łapiński: As I repeated several times today, we’re in the pre-FEED phase, with key decisions yet to be made. Once we make them, we will let you know. 
Let me put this simply: ALL THE MORE SO you wouldn’t expect us to abandon the project. 
 
SW-fan: Could you please comment on the current global balance of power among the US, Europe and Russia in terms of natural gas supply, FX rates, fertilizers demand and impact on fertilizer prices in the next six to twelve months. Give us your opinion on that. 
Paweł Łapiński: As regards natural gas, we view the current balance of power as positive, since any gas market diversification is and will be good for Europe. Fertilizer prices are more heavily impacted by global grain stock levels and the oversupplied urea market in Asia. It’s important to note that the growing share of freight costs in the prices of urea should curb further price declines.
In the near term, we expect nitrogen and compound fertilizer prices to firm on a seasonal peak in demand. However, the prices will remain below the 2015 levels considering the low prices of fertilizer feedstocks. 
 
kikan unconfirmed: For many quarters now the plastics business has recorded a negative EBITDA. When can we expect it to deliver profits? 
Paweł Łapiński: Sadly, the commodities segment of the plastics market remains under pressure caused by product oversupply and a price war waged by producers. Our strategy in this segment is to shift to more complex products, which is why we have embarked on a project which will allow us to use the caprolactam made in Puławy to make PA6 and modify it for various applications that would meet the changing needs of the automotive, construction and textile industries. Building a new customer base to absorb the additional volumes will require hard work, but we are optimistic about this project considering global forecasts predicting a consistent growth in plastics consumption, which would give a boost to our plastics business performance. 
 
MZK: What is the current market environment of each segment? 
Paweł Łapiński: With the summer holidays over, we are seeing an increased activity and improved sentiment across the board, relative to the second quarter, of course. 
 
kikan unconfirmed: What have been the trends in fertilizer prices in the third quarter? 
Paweł Łapiński: As we had anticipated, the prices have been in an uptrend due to a seasonal rise in demand. The rise is relatively slow due to the overall situation on the global agricultural market. 
 
olek unconfirmed: Do you plan any acquisitions this year?
Paweł Łapiński: Our 2014−2020 strategy identifies acquisitions as one of the pillars of the Group’s activities, so we are closely monitoring the market for investment opportunities. Any corporate decisions regarding this matter will be announced in compliance with applicable capital market regulations. 
 
MZK: What caused the poor performance in the second quarter? Is it just one quarter or will the downtrend continue? 
Paweł Łapiński: The reported second-quarter figures are significantly down year on year, reflecting deteriorating conditions on the fertilizers market (mainly due to falling prices) and plastics market (strong oversupply-driven pricing pressures). In fertilizers, we are dealing with a major oversupply of agricultural produce and declines in the prices of global products (urea) creating pricing pressures on key fertilizer products, which bear on the segment’s performance.
 
The current market environment should be viewed from a longer-term perspective, not just one quarter. Our task in the longer term will be to tackle the challenges posed by the market by diversifying our product mix and appropriately allocating resources to more profitable segments (e.g. increasing the volumes of urea used to make melamine as a product offering higher margins), ongoing cost-base control, and consistent implementation of capital projects. We hope our efforts will help mitigate the impact of adverse market trends on our performance in the future. 
 
modest unconfirmed: Hello. What are your relations with your biggest privately-held shareholder, Acron? 
Paweł Łapiński: All our shareholders are treated on an equal footing. 
 
witek unconfirmed: Has the project to produce potash from deposits in the Bay of Puck, which was to be partnered by KGHM, been suspended or abandoned altogether? 
Paweł Łapiński: Considering the expected oversupply of potassium compounds, which are used as feedstock by the Group, the project has been suspended. If new circumstances arise suggesting that the extraction of rarer feedstocks could be economically justified, we will announce that. 
 
MZK: What are the current market conditions in your key fertilizers segment? 
Paweł Łapiński: As you probably know, the fertilizers market is subject to business cycles. Due to a number of global factors, notably lower feedstock prices, shifts in demand patterns, and conditions prevailing in the agricultural sector, the market is more subdued compared with a year ago. We are looking for ways to bolster our financial performance. We are working to enhance product quality and expand our product mix, conducting field work, and testing various types of fertilizers. We are also optimising our export sales, supplying products to markets with different seasonal cycles. 
 
Inwestor unconfirmed: What is the price you pay for natural gas, and how has it changed year on year? 
Paweł Łapiński: The gas price we pay doesn’t materially deviate from the price trends published by generally available sources (TTF, GASPOOL).
Let me remind you that the market price of gas dropped by over 30% year on year. 
 
Tworzywa: The French agency ANSES has proposed a new harmonised classification for Titanium Dioxide (TiO2) as potentially carcinogenic to humans when inhaled. What is your comment on this? 
Paweł Łapiński: Some research, which constitutes a minority, has assessed titanium dioxide as being potentially carcinogenic to humans based on studies performed on rats, which are particularly sensitive to ‘lung overload’.
We have made titanium white in our plant in Police since 1977, with no TiO2-related cases of cancer reported over these four decades.
Our customers are very well acquainted with the physical and chemical properties of our product and the ‘potential carcinogenicity’ classifications. 
 
kikan unconfirmed: At current capacities, what is the Group’s cycle average EBITDA? Last year the company reported PLN 1.21.3bn / 1.31bn, and it was a record year. 
Paweł Łapiński: The 2015 result was an extraordinary achievement, driven by drops in feedstock prices, mainly gas. A boon like that doesn’t happen very often, and should not be expected to recur this year. Obviously, the financial performance of our Kędzierzyn subsidiary was bolstered by new capacities that have come on stream in the OXO section. New capacities launched at other Group companies should bring additional benefits in the coming years. 
 
ela unconfirmed: What is the status of the project to build a petrochemical complex in partnership with LOTOS? Shelved or abandoned? 
Paweł Łapiński: We have thoroughly analysed the huge PetroProject with Grupa Lotos and decided to shrink it to a series of smaller, yet still big, projects, with the PDH project being the largest one of them. 
 
maciej unconfirmed: Could this year’s EBITDA be on a par with last year’s figure, or is the loss posted for H1 2016 unrecoverable? 
Paweł Łapiński: As I said, we don’t provide guidance. Plus, the 2015 results were record high.
Please also note that how lower feedstock prices pass through to end-product prices should be viewed in percentage rather than nominal terms.
It’s only sensible to analyse percentage changes (profitability) rather than nominal changes. 
 
monika unconfirmed: Are you on the lookout for alternative phosphate rock supply sources given the uncertainty surrounding the deposits in Senegal?
Paweł Łapiński: The African phosphates market is quite competitive, so there is no need to look for alternative supply sources. 
 
gość unconfirmed: Why doesn’t the Group have its own distribution network, but instead has to share its profit margins with wholesalers? 
Paweł Łapiński: This distribution model, adopted by the Group long ago, is no different from the models used by other producers around the world. It’s mainly driven by the seasonality of fertilizer application. To note, the Group has its own distribution subsidiary, Agrochem, which handles direct sales to customers in the north of Poland. 
 
marek unconfirmed: What amount is the Group required to contribute to the Polish National Foundation? 
Paweł Łapiński: Apart from our company, the founders of the Polish National Foundation are Poland’s leading players in the key sectors of economy: power, transport, logistics, mining, steel, fuels, insurance, chemicals, finance, property, as well as games of chance. The funding needed to implement the stated mission of the Foundation is to be provided by the founders, with the total budget estimated by the Ministry of State Treasury at roughly PLN 100m. We will certainly share in financing this initiative. 
 
gość: Is the recent poor performance just a rough patch, or is the time of prosperity on your markets over and the Group has to brace for lean years? 
Paweł Łapiński: I’ve repeated that the 2015 results were an extraordinary achievement that doesn’t happen often. This being said, we will make every effort to keep profitability at current levels, implementing consistent cost-cutting and efficiency improvement measures (consolidation, Azoty PRO scheme, etc.). 
 
Gość unconfirmed: Is the new Management Board considering a business partnership with Acron in feedstock supply? 
Paweł Łapiński: We have proven, long-standing suppliers. But we keep information on our trading partners confidential. 
 
monika unconfirmed: Is Grupa Azoty continuing work to commercialise graphene? When can we expect the results of your work? 
Paweł Łapiński: Yes, we are. The production of graphene and its various forms fit for chemical applications is on our research agenda for the next two years. We have some ideas, and we plan to step up the work. We are preparing graphene applications, securing partners, etc. We will disclose more details in due time. 
 
Tworzywa: What do you think about Grupa Azoty’s share in the domestic PA6 market? Do you intend to secure the dominant position in the market and, if so, how are you going to make that happen? 
Paweł Łapiński: With the available PA6 potential, Grupa Azoty ranks first in Poland and fifth among the EU’s integrated chemical producers.
We are not taking any steps to dominate the home market, as such steps could be considered illegal. 
 
GOŚĆ unconfirmed: Why did you not publish an integrated report for 2015, contrary to the practice adopted by your predecessors? 
Paweł Łapiński: I’m glad to hear that you are looking forward to the report. We did not decide to discontinue its publication. Work on the report is ongoing, and since we want it to be even better integrated and better aligned to stakeholder expectations and good market practice, it must take time. The report should be released soon. 
 
GOŚĆ unconfirmed: I mean such reports as this one here: http://grupaazoty.com/pl/grupa/raport 
Paweł Łapiński: I’m glad to hear that you are looking forward to the report. We did not decide to discontinue its publication. Work on the report is ongoing, and since we want it to be even better integrated and better aligned to stakeholder expectations and good market practice, it must take time. The report should be released soon. 
 
Gość unconfirmed: Why do you think Grupa Azoty’s stock price has tumbled from PLN 113 in December to PLN 66 today? Do you think the stock is undervalued? 
Paweł Łapiński: The current price of Grupa Azoty shares is in line with the trends prevailing in the chemical companies sector. Our company’s valuation is based on the multiple of roughly x6, which is comparable to our peers. Please note also the share sale transaction that has been completed by one of our shareholders, which may prompt market concerns that similar transactions in the future could increase free float and affect the value of the stock.
Personally, I believe that the company has strong fundamentals, which should deliver expected shareholder value in the longer term. 
 
Gość unconfirmed: Can shareholders expect a higher dividend next year? 
Paweł Łapiński: As I said earlier, our dividend policy dictates that we distribute between 40% and 60% of the company’s non-consolidated profit as dividend. Having analysed all factors with a bearing on the company’s standing, notably its funding requirements and implemented processes, the Management Board issues a relevant recommendation, with the final decision in the hands of the Annual General Meeting. 
 
Gość unconfirmed: When is the new polyamide plant in Tarnów scheduled for launch? 
Paweł Łapiński: Its launch is scheduled for next year. 
 
migotkaa unconfirmed: The Group had generated decent operating cash flows over the past few years. In the second quarter something went wrong, though. Can you tell us what it was? 
Paweł Łapiński: In the second quarter we faced deteriorated net profit metrics, which − with working capital remaining broadly flat − were the key reason behind the decline in operating cash flow. A downtrend in prices affecting mainly the fertilizers segment towards the end of the fertilizer application season (second quarter) drove down profitability and, consequently, eroded the net margin, which had an impact on net operating cash flow. 
 
franek unconfirmed: What caused the major decline in sales of technical grade urea? Is it because the company has lost a significant contract? 
Paweł Łapiński: The decline is largely due to implemented measures aimed to optimise our portfolio of urea-based products, which help us build a market for the UAN in Kędzierzyn and increase output of melamine, which offers a higher percentage margin compared with fertilizer products. 
 
Gość unconfirmed: What are the cost savings you have achieved to date under the Azoty Pro operational excellence programme? 
Paweł Łapiński: We continue with the Azoty PRO programme and will announce its results in due time. 
 
migotkaa unconfirmed: What was the key factor contributing to the improved performance in Kędzierzyn? 
Paweł Łapiński: I must praise Kędzierzyn for improved performance in the OXO segment (achieved mainly through higher sales volumes of the new product Oxoviflex and improved propylene delta) and tight cost discipline. A year-on-year increase in capacity utilisation also played a role. 
 
kikan unconfirmed: Why was the Q2 2016 non-consolidated EBITDA negative? 
Paweł Łapiński: The negative EBITDA reported by our Tarnów-based parent came as a result of a challenging market environment in the plastics segment (which accounts for around 50% of total revenue) and the deteriorating market conditions in the fertilizers segment. In prior periods, the adverse conditions in the plastics segment were more than offset by profit margins generated on fertilizer products. At present, with market prices down and little manoeuvring room for changes in the fertilizer product portfolio, we have to swallow the bitter pill of negative EBITDA. Also remember that as the parent company, we have to bear a major share of fixed costs associated with corporate functions involved in managing the Group.
We count on the implemented capital projects (mechanical granulation and Tarnamids 80 tonnes) to remedy this situation, discerning the opportunities offered by complex products with higher margins. 
 
Paweł Łapiński: Thank you for all your questions! Our first meeting has been a positive challenge for me. Join us for the next chat! 

moderator: On behalf of StockWatch.pl thank you all for making this meeting interesting, and I encourage you to participate in our chat sessions in the future. 
19.05.2016
Grupa Azoty after the publication of its Q1 2016 financial results
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At 13:13 on Friday, May 13th, an investor webchat was held with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. for Finance.

Moderator: Join our investor webchat with Andrzej Skolmowski, Vice-President of Grupa Azoty S.A., which is scheduled to start at 1:13 pm on Friday, May 13th. You can post your questions off-line today.
 
Moderator: Welcome to the investor webchat with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. We will discuss the financial performance of the Grupa Azoty Group in the first quarter of 2016. We are ready to take your questions now.
 
Elle: Hello
Andrzej Skolmowski: Hello
 
rolnik: The chat starts at 1:13 pm, or 13:13, on Friday the 13th - does this mean you will only take 13 questions today? 
Andrzej Skolmowski: Yes, I will answer 13 nice questions. Your nickname is ‘farmer’ - so what’s going on at your farm, have you bought Grupa Azoty’s fertilizers yet?
 
Elle: Are you in a good mood after the Q1 2016 results have come in?
Andrzej Skolmowski: As I have already commented, I think the results are sound, so I am in a good mood indeed. A spring mood :-)
 
analityk: What was the depreciation and amortisation figure? Is it expected to increase?
Andrzej Skolmowski: Consolidated depreciation and amortisation was PLN 127,437 thousand. The Group is currently running a number of investment projects, which should drive that figure up.
 
rolnik: :-) I’m not sure if I should answer your question - I could get banned for advertising!
Andrzej Skolmowski: Quite the opposite - you’ll get a bonus for a good advertisement :-) (as long as we are talking about Grupy Azoty’s fertilizers, of course!) 
 
Janusz: Will you pay out dividends for 2015?
Andrzej Skolmowski: The Management Board has recommended dividend payout of PLN 0.84 per share. So now it’s your call - the final decision will be taken by our shareholders at the nearest General Meeting. 
 
Jan Ciechowski: What is the proportion of gas costs in overall costs?
Andrzej Skolmowski: In 2015, gas costs accounted for 40% of raw materials and consumables used. However, this share will definitely go down reflecting the recent price declines - albeit not in equal measure.
 
Emeryt: How much CAPEX are you planning for 2016?
Andrzej Skolmowski: Our 2016 CAPEX is expected to reach nearly PLN 2 billion.
 
olek: Why did the Management Board propose such a ridiculously low dividend yield of less than 1%? And why aren’t the dividends being paid from the Group’s consolidated profit?
Andrzej Skolmowski: Dividends are determined based on separate profit, in accordance with the Polish Commercial Companies Code. The dividends recommended by the Management Board are within the range proposed in the Strategy and represent 40% of Grupa Azoty S.A.’s separate profit. Please bear in mind that the final decision on dividend payment is to be taken by the General Meeting on June 6th 2016.
 
analityk: Why is there a difference between net profit and net profit attributable to owners of the parent?
Andrzej Skolmowski: The Group is composed of a number companies in which the parent’s shareholding is less than 100%. Therefore, we need to break down net profit into a portion attributable to owners of the parent and minority interests. 
 
Robson: Will the Group implement a cost cutting programme? What kind of costs may be cut?
Andrzej Skolmowski: For nearly two years now, Grupa Azoty has been running a cost efficiency programme - ‘Azoty PRO’. We have already identified PLN 400m in cost savings and additional revenue per year, but more opportunities are still out there. We have often mentioned Azoty PRO in public, as it covers virtually all areas of the Group’s activity.
 
RvP: Will you continue your investments in Africa?
Andrzej Skolmowski: Actually, it is Police that is investing in Africa. The audit is under way as we speak, so I will be able to answer your question after it is completed. Before it moves on, Police’s new Management Board must know the current state of affairs.
 
olek: What is wrong with the Senegal project? The former CEOs, Mr Jałosiński and Mr Jarczewski, hailed the acquisition as a great investment, while the new CEO has mentioned scarce resources and other bad signals. So what has happened over the course of just six months? Why have you taken a U-turn on that project?
Andrzej Skolmowski: Like I said before - it is Police that is investing in Africa. The audit is under way as we speak, so I will be able to answer your question after it is completed. Before it moves on, Police’s new Management Board must know the current state of affairs.
 
Macher: What is your current net debt and net debt to EBITDA ratio?
Andrzej Skolmowski: As at the end of Q1 2016, our consolidated net debt was negative (PLN -43m), with cash and current financial assets exceeding total financial liabilities. As a result, the net debt to EBITDA ratio was also negative (-0.03)
 
uber: You are a sponsor of a number of sport disciplines. What is the total expenditure on sport-related sponsorship across the Group? Do you measure its impact on sales?
Andrzej Skolmowski: Sport sponsorship is one of the key building blocks in raising our brand awareness, both in terms of our activities (taking into account its impact on our business) and CSR (corporate social responsibility). The selection of sport disciplines has been established for years, and is closely related to the location of our key businesses. However, as sponsorship contracts are confidential, we cannot disclose the related costs.
 
Plastyk: What has driven down the sales value?
Andrzej Skolmowski: The main drivers behind the decline in sales value are lower sales volumes and falling prices of our products.
 
witek: Is the 2016 EBITDA expected to improve on 2015?
Andrzej Skolmowski: I am sorry, but it is our policy not to publish any performance forecasts. 
 
witek: Why has Puławy modified its power plant project from gas-fired to coal-fired? Are there any pressures \also known as the ‘good change’\?
Andrzej Skolmowski: The current audit of our key CAPEX and development projects across the Group is also covering the Puławy Power Plant project. In the scenarios considered, we are looking into different sources of energy. 
 
zalogowany: Why is your stock price falling sharply, even though your profit remains more or less flat year on year?
Andrzej Skolmowski: The recent stock price dive (which also includes Grupa Azoty stock) is caused by the very same factors which have affected the Polish currency and boosted the yield on Polish debt instruments, namely a lower risk appetite among foreign investors. The fundamental factors seem to matter less now. 
 
walterW: How low may your net profit be in 2016?
Andrzej Skolmowski: As I have said before – Grupa Azoty does not publish any performance forecasts. 
 
leszek: What is happening to the Grupa Azoty stock price? When we last met in the chat room, you talked about all-time highs, and now the price is hitting the year’s lows... So, ‘don’t count your chickens before they’re hatched’, right? :) Do you think the Company stock is currently underpriced?
Andrzej Skolmowski: God moves in a mysterious way... and so does the market sentiment. We are looking closely at our stock price − of course, the recent price slump is by no means good news. The earlier stock price levels indicate that the current sentiment towards our region and sector is clearly against us.
 
znajomy: Does the Q1 bottom line include any one-offs?
Andrzej Skolmowski: There are no one-off items in our Q1 results. 
 
walterW: Why does the Management Board believe that 2016 will be more challenging than the previous year?
Andrzej Skolmowski: We have adopted a cautious approach, mainly based on our analysis of market drivers, especially the price trends in fertilizers and plastics. The market has priced in the falling feedstock prices and growing supply of products; as a result, there will be pressure on squeezing margins. We will be responding to these trends and will discuss the outcome of our efforts at future conference calls. 
 
witek: What about the coal gasification project? Have any decisions been taken yet?
Andrzej Skolmowski: Clean coal technologies, including production of base chemicals through coal gasification, are large-scale investment projects, and they need to be approached with prudence. We are currently working on an extended feasibility study from the market and technical perspectives, both on the feedstock and product sides. The financing model is also being analysed.
 
olek: Does this mean that imports of phosphorites from Senegal have been put on hold?
Andrzej Skolmowski: By no means! Phosphorites continue to be sourced also from Senegal!
 
olek: When can we expect any acquisitions? It’s been three years since you acquired Puławy.
Andrzej Skolmowski: We do not communicate any future acquisition plans, and the same applies to any ongoing negotiations. But let me remind you that the scale of our business has grown hugely over the past several years.
 
Pati: The average gas price has dropped - by how much?
Andrzej Skolmowski: Please refer to the gas prices included in our Q1 2016 presentation. If we compare the market prices, we are looking at a drop of more than 30% in Q1 2016 vs Q1 2015.
 
marcus: But why is your stock price going down, is the Company facing any specific problems? A drop of over 40% since December is quite a drop. 
Andrzej Skolmowski: Please look at the stock market trends - the WIG index has gone down 30% over the past year, while the Grupa Azoty stock price started falling only in December, following a spell of a strong upward trend. Our stock price is more or less flat year on year.
 
LionKing: What are the investment plans for Puławy?
Andrzej Skolmowski: We want to expand our production capacities and upgrade the nitric acid unit, which produces a key semi-product for nitrate fertilizers. We will also invest in the nitrate granulation plant, which will enhance our flexibility and product range in the fertilizers market. We are looking at a number of options for the new power plant project. In addition, our project portfolio includes a number of minor modernisation and development projects. We will keep you posted at our quarterly conference calls.
 
Ewa_71: What are the prospects for fertilizer prices in Q2?
Andrzej Skolmowski: We need to consider the seasonality of fertilizer application, namely reduced application as the end of the fertilizer season draws nearer. This will obviously impact the prices of our products, and it does every year. After a period of maintenance shutdowns at the close of the season, we will begin our pricing work ahead of the new season.
 
Pogromca nawozów: At the conference call you said that if fertilizer trends do not improve Grupa Azoty’s performance may deteriorate year on year. Meanwhile, the market expects a 15% growth in EBITDA. Was there a misunderstanding or do you believe that scenario is plausible?
Andrzej Skolmowski: Your nickname is ‘Fertilizer Buster’, so I feel very uneasy as a fertilizer manufacturer :-) We have highlighted our potential for quite some time now. Feedstock costs are down, but the pressure on product prices is growing. All around Europe, prices of nitrogen fertilizers have gone down 15%-20%, which has a direct impact on our margins. Therefore, as I said before, we need to take a cautious approach to earnings estimates. 
 
marcus: Looking at Company valuations proposed by various analysts, we can see significant discrepancies: Societe has set your stock price at PLN 56, Pekao at PLN 67, but ING and BOS at more than PLN 120. So how much is the Group actually worth, in your opinion?
Andrzej Skolmowski: Valuations are prepared by analysts based on their own models, but their recommendations are easily verifiable. You also need to look at the actual price level that a given recommendation was based on. As for me, I cannot publish any valuation of my own. But it shows in our actual results; and our performance in Q1 makes us happy. The rest lies in the hands of our shareholders. 
 
Andrzej Skolmowski: Thank you very much for your questions! I hope that Friday the 13th was not a ‘bad luck day’ in the investors chat room, but maybe we have the head of our Investor Relations to thank for that, because she has brought her black cat to the office today, just to be on the safe side :-) You are most welcome to participate in the next chat, and also in the WallStreet conference in Karpacz!
18.03.2016
Grupa Azoty after the publication of its 2015Y financial results
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At 12:00 am on Friday, March 18th, an investor webchat was held with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. for Finance.

Moderator: Join our investor webchat with Andrzej Skolmowski, Vice-President of Grupa Azoty S.A., which is scheduled to start at noon on Friday, March 18th. You can post your questions off-line today.
 
Moderator: Welcome to the investor webchat with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. We will discuss the 2015 financial performance of the Grupa Azoty Group. We are ready to take your questions now.
 
Weronika: Good day to you!
Andrzej Skolmowski: Welcome! It’s almost spring now, and a wonderful sunny day today! It’s green outside − let’s hope we see a lot of green on the trading board, too. Let’s start!
 
inwest: Do you expect to improve on your 2015 performance in 2016? What are the forecasts?
Andrzej Skolmowski: We do not publish any performance forecasts. It’s too early to answer your question at this point, in quarter one. Still, we would be happy to report at least the same results as in 2015, if not better. 
 
ola: Can we expect payment of dividends for 2015, or will we be disappointed again - like we were last year?
Andrzej Skolmowski: The decision lies with the Annual General Meeting, which is to be held in June at the latest. The dividend policy assumes distribution of 40%–60% of net profit, subject to a number of factors. The Management Board’s recommendation regarding payment of this year’s dividends will be communicated soon.
 
rolnik: Which types of fertilizers account for the Group’s highest sales volumes?
Andrzej Skolmowski: Our highest sales volumes are achieved with nitrogen fertilizers. They are our core product. 
 
Ewa_71: Are you planning any acquisitions in 2016?
Andrzej Skolmowski: Any attractive acquisition opportunities we have going will be immediately announced and commented on.
 
marcus: Hello. Are there any acquisitions in the pipeline? The strategy speaks of growth through acquisitions, but none have been made since 2014, although a short list of 10 prospective targets was revealed at some point. Is Anwil still on the bill, or maybe some foreign company?
Andrzej Skolmowski: We never announce any FUTURE acquisition projects in advance. We are working on it, and such work is better done out of the limelight. Any attractive acquisition opportunities we have going will be immediately announced and commented on. 
 
antek: Are you planning to support Poland’s mining industry in terms of capital involvement?
Andrzej Skolmowski: Of course! We buy Polish coal for our CHP plants!
 
Adam_Nowacki: Will you publish an updated strategy?
Andrzej Skolmowski: The ‘2013-2020 Strategy’ is still in effect. It has now entered its third year, at which point its implementation and operationalisation are being reviewed. The ‘2013-2020 Strategy’ is based on a strong footing and we aren’t working on any ‘new’ strategy. As we have announced before, we will review the key projects and largest investments, such as coal gasification and the PDH project. As a rule, such projects are reviewed at different stages of preparation and implementation. In addition, we perform a review of our entire project portfolio and verify the economic viability of each project whenever possible. It’s just work as usual. 
 
Jurek: What was the key reason for a more evident slowdown of revenue growth?
Andrzej Skolmowski: This question may give rise to uncertainty as to how it should be answered; I assume the expression ‘a more evident slowdown of revenue growth’ simply means that our 2015 revenue growth was lower compared with 2014. This trend was driven mainly by the situation in the Plastics segment, and partially by OXO in the Chemicals segment, where prices followed the declining prices of petroleum products.
 
Jaro: Is Acron still buying your stock?
Andrzej Skolmowski: As at April 24th 2015, when we received the most recent notification from Acron, Acron’s direct and indirect holding of Grupa Azoty shares stood at 20.0026%. And it has not changed since – to the best of our knowledge.
 
antek: In connection with the announced revision of the Group’s strategy, do you intend to abandon the PDH project at Police and the CCGT unit at Puławy?
Andrzej Skolmowski: We have not announced any revision of our ‘2013-2020 Strategy’. We only informed the market that we routinely review our large investment projects, both at the preparation and implementation stage. This, however, does not disrupt any work in progress. Such review of our project portfolio is also in keeping with the expectations of our key Shareholder. 
 
Góral: What about the coal gasification project? What is its current status?
Andrzej Skolmowski: The coal gasification project is currently at the preparatory stage. We are working on a feasibility study, after revamping the concept in terms of scope, and we are expanding the group of Partners for this project. 
 
Ola: What is your average depreciation and amortisation period?
Andrzej Skolmowski: It feels like an accounting exam!  The depreciation and amortisation periods for property, plant and equipment and for intangible assets are determined over their useful economic lives. Our financial statements include tables with depreciation and amortisation periods for specific asset groups. 
 
ola: What are the results of Siarkopol against the Group’s overall performance, in terms of EBITDA and revenue?
Andrzej Skolmowski: Siarkopol’s performance must be viewed primarily in terms of value added to the entire production line of nitrogen fertilizers (with a sulfur content) which, as we know, reported very good overall performance in 2015. Unfortunately, we do not publish Siarkopol’s separate results.
 
Lincoln: You seem to be in a very good mood! :-)
Andrzej Skolmowski: Very good, indeed! The sun is shining, our Shareholders are on TV... What more can you ask for? :-) 
 
El Nino: Which Polish chemical plants are the potential acquisition targets for Grupa Azoty?
Andrzej Skolmowski: We have said that time and again during our investor chats. We are always on the lookout for acquisition opportunities, both in Poland and abroad, especially those that would boost out EBITDA.
 
Jan_W: What is your current net debt and net debt to EBITDA ratio?
Andrzej Skolmowski: As at the end of 2015, our consolidated net debt was PLN -74m, and the consolidated net debt to EBITDA ratio stood at -0.06. Just to make clear, our net debt includes bank and non-bank borrowings (PLN 1,166m) less cash and cash equivalents (PLN 753m) and other current financial assets, namely deposits maturing in over 3 months up to 1 year (PLN 487m). Until today, these figures have not changed significantly. 
 
Kasko: :-)
Andrzej Skolmowski: :-)
 
antek: What is the reason behind the recent decline in Azoty share price, considering that you have reported record high results?
Andrzej Skolmowski: Our reported results were just above the analyst consensus, and have already been priced into the Company shares. I believe this is the reason why our share price did not go up. In my opinion, the recent decline is rather moderate compared with the performance of the broad market, which – as we know very well – has been on a steep downward trend since the beginning of the year. I believe this is proof of the Group’s solid foundations.
 
inwest: Will the recent strengthening of the Polish currency against the dollar and the euro have any negative impact on the Q1 results?
Andrzej Skolmowski: If anything, the recent upward trend of PLN vs USD and EUR is a sign that the situation is returning back to normal, after an earlier major weakening of the Polish currency, which hit its lows at the end of January. However, the macroeconomic assumptions for Grupa Azoty’s Q1 plan in relation to those exchange rates are in line with the actual average exchange rates of PLN vs EUR and USD; therefore, the overall effect of the depreciation followed by appreciation of PLN vs EUR and USD will be mitigated and shouldn’t have a significant impact on our Q1 performance. 
 
Emeryt: What is the carrying amount of your goodwill and intangible assets? What do these items include?
Andrzej Skolmowski: It seems we are back to the accounting exam, after a couple of other questions. :) Our consolidated financial statements show the amount of PLN 532,798 thousand under intangible assets. The largest items include: trademarks and a corporate mark recognised on acquisition of Companies, patents and licences, the client portfolio, exploration and evaluation assets, as well as software. As to the other part of your question, goodwill stands at PLN 12,550 thousand and is related to the accounting for the acquisitions of Police, ZAKSA S.A. and Unibaltic Agro.
 
rolnik: What was the trend for soda prices in 2015?
Andrzej Skolmowski: Soda is not our business.  You should ask this question to our colleagues at Ciech. Actually, I will ask them myself after today’s chat.
 
witek: Is the former CEO, Paweł Jarczewski, still with the Group after his dismissal from office?
Andrzej Skolmowski: He’s serving out his notice period, in accordance with the Polish Labour Code.
 
marcus: Why did you report a decline in sales of caprolactam and OXO alcohols?
Andrzej Skolmowski: It was mainly due to the downward price trends on the crude oil market, which sets the price levels for our feedstocks (benzene, phenol), which, in turn, are one of the key drivers for our product prices. As the prices of our feedstocks declined, we reported a noticeable fall in revenue.
 
Iwan: What is the average salary at Grupa Azoty?
Andrzej Skolmowski: We do not publish information on average salaries, but you are welcome to read our financial statements, where you will find our employment costs and average headcount.
 
##1967ypr#at#vbpxa.rdb##: The stock market’s reaction to the Group’s 2015 results was rather neutral. Can we expect anything in the coming months to make us optimistic about the future?
Andrzej Skolmowski: Yes, there is: our investment plans, with some projects already in progress, and the Azoty Pro initiative, which will generate savings at all levels of our activities. These are key drivers of the Group’s future growth. We are also looking for savings in feedstocks. 
 
Toni: What were the results of the Plastics segment for 2015?
Andrzej Skolmowski: Unfortunately, they were on the negative side, with EBITDA at PLN -10,400 thousand. 
 
witek: Having reported such a low net debt, you have no option now but to share your profits with the shareholders :)
Andrzej Skolmowski: True, our net debt is very low now, but we need to bear in mind that the Group has launched an ambitious investment programme, including SPV-based projects (such as construction of a PDH plant at Police), which will be driving up our net debt in 2016 -2018. Therefore, we need to take a very cautious approach to any profit distributions (including dividends), so as not to exceed the net debt to EBITDA ratios agreed with the financing banks, which could happen in the event of an economic downturn triggering a temporary decline in EBIT. 
 
analizator: Do you expect any impairment losses in the coming quarters?
Andrzej Skolmowski: There are currently no indications of impairment to be recognised by the Group in the coming quarters.
 
marta: Does Acron have any influence on the Company’s strategy and management?
Andrzej Skolmowski: Acron has no direct influence on the Company’s strategy and management. Grupa Azoty is managed as a corporation, and the Group’s strategy is implemented in line with the relevant guidelines related to innovation, operating and commercial activities, and financial policy, taking into account the key strategic plans for major products. The best interest of our Shareholders is always top of mind!
 
Nowy: What kind of innovations can you focus on?
Andrzej Skolmowski: According to our strategy, the Group has a green light to invest up to 1% of revenue in innovative projects within the scope of our current business or projects aimed to diversify our business into new areas. We are investing in innovative solutions to support our traditional business (fertilizer formulas, plastics, pigments), but are also paving the way for new areas of activity. Diversification of the Group’s business is always in the back of our heads. However, it’s too early for any announcements. 
 
edeka: In 2016, the Group wants to invest much more than in 2015. Can you specify what investment projects are planned for 2016?
Andrzej Skolmowski: The PLN 2bn CAPEX projects planned for 2016 will include the polyamide and mechanical granulation plants at Tarnów, the new CHP plant at Kędzierzyn, upgrade of the ammonia unit at Police, and production unit for granulated fertilizers based on ammonium nitrate at Puławy. 
 
mmmaslov: What about my question about the dividend payment? Have I missed the answer?
Andrzej Skolmowski: I have already answered your question, but let me repeat again – the decision is in the hands of the Annual General Meeting. Our dividend policy is to distribute 40%–60% of net profit, but we need to consider a number of factors, including our financial ratios, financial standing and capital necessary to fuel further growth. We will make the Management Board’s recommendation known in due time.
 
antek: Will a representative of Puławy join the Group’s Management Board?
Andrzej Skolmowski: I’ll refer this question to the Supervisory Board. :-)
 
pol: Are you considering an equity issue to finance your extensive investment plans?
Andrzej Skolmowski: We have secured sufficient financing to go ahead with our investment plans. We have a very good rating with commercial and non-commercial banks, both in Poland and abroad. Our perception by Investors is equally favourable. The Group has also gained significant experience in capital raising. All in all, we are secure in terms of financing at this point. 
 
antek: The press has recently reported the ‘product piracy’ affair with Polifoska. Have you incurred high losses?
Andrzej Skolmowski: Good products have been ‘pirated’ for ages. But a counterfeit product is never as good as the original, and farmers will always recognise a fake. The case is currently being investigated by competent authorities. 
 
Lincoln: What will be your CAPEX in 2016?
Andrzej Skolmowski: PLN 2bn. 
 
 
mmmaslov: I know your dividend policy, of course. What I was sounding you out for was the Management Board’s recommendation... I understand it will be communicated later on?
Andrzej Skolmowski: Exactly – we will publish the recommendation in due course, as prescribed by law. 
 
piotrek: Is it possible that Grupa Azoty will be taken over by PGNiG, as hinted at by the Treasury Ministry?
Andrzej Skolmowski: We are not aware of any such plans. 
 
Walet: How do you want to achieve stronger consolidation within the Group?
Andrzej Skolmowski: This was dealt with in detail by the Management Board President at the latest conference. The performance of individual Companies has benefited from integration with the Group, and we see potential for further synergies. Effects of the AZOTY Pro also confirm that belief. The subject will be back on the table soon. 
 
olimpia: Have you launched graphene production yet?
Andrzej Skolmowski: We have launched the construction of a pilot plant, and this means a lot in the graphene business. We are working on extension of the project by attracting new partners, also based on Polish and European innovation support schemes, such as INNOCHEM. 
 
inwest: When can we expect the Management Board’s recommendation regarding the payment of dividends (I assume they will be paid) for 2015?
Andrzej Skolmowski: It is only natural that dividends are so important to our Shareholders. We are currently working on the Management Board’s recommendation, which will be published in due course, in accordance with law. Soon, I hope.
 
michał: Don’t you think that the Group’s dividend policy is inconsistent, considering that Police and Puławy pay dividends regularly at 3%-5%, while Tarnów pays minimum dividends, or no dividends at all like in 2015?
Andrzej Skolmowski: We must remember that in previous years Grupa Azoty financed its acquisitions, partially at the expense of rising debt with banks. Importantly, dividends paid by subsidiaries were used to service the debt incurred to consolidate them with Grupa Azoty. In 2015, Grupa Azoty had not yet finalised the New Financing package, but was already launching its long-term CAPEX programme. Therefore, in agreement with the lending banks, the Group did not recommend any dividend payment, so as to secure a sufficient share of own funds in the programme’s financing structure. What is important, under our consolidated financing model, Grupa Azoty plays the role of an internal ‘bank’ for other Group companies: on the one hand, it collects surplus funds; on the other, it redistributes them to companies which need more financing.
 
olimpia: What is the current status of the joint project of Grupa Azoty and KGHM to mine potassium chloride in the Bay of Puck? Is it still on the table?
Andrzej Skolmowski: On KGHM’s side the project is very challenging, and it would be equally difficult to adapt it to Grupy Azoty’s technology-related requirements and market needs. At this point, we have access to reliable, commercially viable and well-diversified sources of potassium, which better cater to our needs. 
 
Ciekawy: Why did you decide to buy more gas from PGNiG, contrary to your drive towards diversification?
Andrzej Skolmowski: The idea behind diversification of gas sources was primarily price-related – we have been clear about that. To make sure our products remain competitive, in a situation where our competitors have access to much cheaper gas, we took measures to reduce the average price of gas purchased by the Group. The decision to buy gas from PGNiG or from other sources will always be based on a cost-to-benefit analysis. The terms offered by PGNiG were appreciated by the Group, and we are happy with our relationship with that supplier. Moreover, their new tariff sounds even more promising.
 
mmmaslov: One more question from me: has the Minister of Treasury already given you very important tasks to rescue the country’s economy, not necessarily in the best interests of all shareholders? ;)
Andrzej Skolmowski: He has set our goal: to contribute to Poland’s economic growth, and we are fully committed to that goal. The chemical segment has a major impact on the country’s economy, and so our activities and growth plans will also play a part in that process. We are working on several innovative projects that will require state support, and the government has expressed interest in these initiatives. There are a lot of synergies out there. If we increase our value, we will contribute to Poland’s GDP growth. 
 
mmmaslov: You plan to produce graphene?!? OMG!
Andrzej Skolmowski: NPBB! And what if we actually make it happen?
 
mmmaslov: You are a natural born diplomat ;)
Andrzej Skolmowski: :-)
 
mmmaslov: I have just remembered I had another question! Will you attend the WallStreet conference in Karpacz? I always look forward to your presentations (they tend to be a bit complicated, but I do my best to follow).
Andrzej Skolmowski: Of course, we will be there. Please come over to say hello! :-)
 
Andrzej Skolmowski: Thank you for all the questions, you have reminded me that we are celebrating the European Brain Day today :) A web chat with you is always a challenge, but also a source of positive emotions. It’s been a pleasure chatting with you! I wish you a Happy Easter!
20.05.2015
Grupa Azoty after publication of Q1 2015 financial results
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At 11:00 am on Wednesday, November 21st, a webchat was held with Andrzej Skolmowski, Vice-President of the Management Board of Grupa Azoty S.A. responsible for finance. 

moderator: Welcome to the investor webchat with Mr Andrzej Skolmowski, Vice-President of Grupa Azoty S.A. The subject is the financial performance in Q1, the prospects of the Company and the industry, and the current situation of the chemical industry in Poland and abroad. 
 
moderator: Let me remind you about the rules of our chat room: you first send your questions to the moderator; the questions selected by our Guests will be published together with the answers; you can see the order of questions at the bottom of the screen; the moderator has the right to discard questions which do not comply with the rules.
 
moderator: Information for the journalists present in the chat room: citing today’s chat in your publications requires indicating the source. If you have any questions or doubts, please contact: ##qxjgd#at#hidrzlpirw.ea##
 
Andrzej Skolmowski: Welcome to another webchat of Grupa Azoty. Unlike before, today I’ll be chatting with you from Warsaw. We’ve seen many things going on recently. We have discussed our Q1 2015 results, investment plans and the financial structure for our strategy. We have many things to talk about. 
 
SW-fan: Good afternoon. After a nice ride upward before the publication of results, the share price has seen a correction. Does that mean that the remaining part of the year will be weaker? What’s your opinion from a fundamental perspective? 
Andrzej Skolmowski: A nice ride is what you will see next weekend – the first Grupa Azoty biker rally will be held and I will be there:) From a fundamental perspective, given the environment, this year our performance will be stable, and even strong. We expect that this will contribute to a positive assessment of our activities and be reflected in the share price. We hope that the scale of our investment projects will also meet with appreciation. 
 
Guest unverified: You plan to construct a new propylene unit at Police for PLN 1.7bn. What is the purpose of the project and how will it be financed? 
Andrzej Skolmowski: The purpose of the project to construct a propane dehydrogenation (PDH) unit with an annual capacity of 400,000 tonnes is to: 
1. Secure raw materials for internal consumption – one of Grupa Azoty Group’s companies is Grupa Azoty ZAK S.A. of Kędzierzyn-Koźle, whose annual consumption of propylene is 140,000-150,000 tonnes. 
2. Diversify the structure of revenue (from sale of propylene and new products we will be able to develop using propylene as the raw material); Grupa Azoty will thus enter new business segments and markets with different economic cycles (for the new plastics complex).
3. Sell propylene, which is in short supply in Europe, to external customers.
 
As regards the financing of the project, we have consistently planned it to be an SPV, whose shareholders would be Grupa Azoty Group companies and external partners, both commercial industry partners and non-commercial entities (Polskie Inwestycje Rozwojowe - PIR). The final decision on the structure of capital and financing (debt/equity) will be made next year, after the Basic Engineering Package is completed. 
 
łodzianin: Good afternoon. What is the status of financing of the project at Police? 
Andrzej Skolmowski: You will find my answer above. 
 
Guest unverified: Hello! When it comes to the company’s development and the planned construction of a propylene production unit − when are you going to request for bids for this project? 
Andrzej Skolmowski: As we have announced before, right now we are at the Basic Engineering Package stage, which means that we are carrying out the initial phase of the engineering design under a licence purchased from UOP. Based on the results, a number of decisions will be made late in 2015 and in Q1 2016, including the decisions concerning the procurement strategy and the structure of investment execution. We will inform you in current reports about further steps taken in this respect. 
 
MZK: Recently, a significant rise in the prices of wheat has been seen on the world’s markets. Will this have a positive effect on the prices of fertilizers? 
Andrzej Skolmowski: We are expecting a seasonal correction of prices of nitrogen fertilizers, as is always the case before the new season (July/June), so the demand for fertilizers is about to fall. However, the growth in the prices of wheat should boost the farmers’ purchasing power, which is a good thing for our industry. 
 
Guest unverified: Hello. What steps is the Group going to take regarding the distribution network? Does it plan to create its own distribution network based on its own companies (Agrochem Puławy etc.)? 
Andrzej Skolmowski: The opportunity to acquire Agrochem arose when Grupa Azoty Puławy was acquiring GZNF Fosfory Sp. z o.o. I understand that you are asking about our fertilizer distribution channels. We prefer a sustainable model of managing fertilizer distribution channels, as envisaged by our Strategy and its 2014 Operationalisation. We are interested in building strong relationships with both distributors and end customers. We do not intend to replace the existing, independent distribution network with our own. Agrochem complements the network. However we admit that we do closely monitor the integration processes in the industry, and we are also taking measures to facilitate access to our products by building and expanding the logistics network for our liquid fertilizers. 
 
Investor unverified: Will the Group ever acquire all of Anwil, not just a part of it? Is it possible at all? 
Andrzej Skolmowski: Well... We’ve proved many times that where there’s a will there’s a way:) 
Anwil is a very good company, but at the moment it is owned by the ORLEN Group, and it up to ORLEN to decide whether it wants to sell it or not. 
 
MZK: In Q1 2015, the Company posted a considerable increase in net profit, however, on the issue date of the quarterly report the share price fell strongly. Why such discrepancy? 
Andrzej Skolmowski: Our excellent results for Q1 2015 (substantially above the market consensus) are very uplifting to us, especially when we think of extensive investment projects requiring large expenditure. As regards the share price, it is always very difficult for us to comment on short-term price changes since we always look at the Group’s performance from a long-term perspective. 
 
SW-fan: Could you comment on the current situation with Akron? It is still one of the shareholders. Will there be any moves to the right or to the left? Any squabbles over this matter?
Andrzej Skolmowski: If we look at the map, there is some movement on the left, that is in the West: in Luxembourg and Cyprus:) Acron’s subsidiaries reported that at the end of April they executed an intragroup transaction. However, this transaction did not change the indirect holdings of Acron, which remain at 20.0026%. We haven’t had any new information since that moment. 
 
Guest unverified: How are your relations with Acron, the Russian shareholder, at the moment? 
Andrzej Skolmowski: You will find my answer above. 
 
Guest unverified: Has the plan to construct a power plant at Puławy been shelved for good? 
Andrzej Skolmowski: This plan has been suspended since our partner withdrew from the project.The partner is gone, however, the need is still there, even if not so big. But we haven’t given up on the project yet. As soon as we are ready with a new concept, we will let you know. 
 
SW-fan: How did the turbulence with the złoty and eurodollar affect your results? Do you use any hedging instruments, or resort to natural hedging? 
Andrzej Skolmowski: In Q1 2015, the strengthening of the US dollar against Polish złoty was related to the continued strengthening of the US dollar against the euro. As a result, Polish złoty strengthened against the euro. 
 
Given the similar positive net exposure to both currencies in Q1 2015, the exchange rate movements had a positive effect on the Group’s results given the exchange gain in the US dollar, and a negative effect given the exchange gain in the euro, therefore the changes had an offsetting effect. 
 
However, since the strengthening of USD was more significant than the PLN’s weakening against EUR, the general effect on the Group’s results was positive.
 
In compliance with the adopted Currency Risk Management Policy, Grupa Azoty uses forward contracts as hedging, up to 80% of the planned foreign currency exposure within up to six months, and up to 50% of the planned foreign currency exposure for the period of 6-12 months, thus mitigating the impact of exchange rate fluctuations on the Group’s financial performance. 
 
 
Guest unverified: Apart from the investment project pursued in Police, do you plan other projects, similar in size and cost? When can we expect the first acquisitions? What is the stage the negotiations concerning the acquisitions? There are less than five years until the strategy’s period ends, yet we have seen no acquisitions :)
Andrzej Skolmowski: Four questions is one sentence is quite a lot, so let me address them one by one :) 
 
First: some general information. Just like other prudent market operators, we do not make our acquisition plans public. We prefer to talk about finished projects rather than future ones.
 
Second: our operationalised Strategy is based on three pillars underlying the Group’s value growth: organic growth, operational excellence and mergers and acquisitions (M&A), which are ways of reaching the objective rather than an end in itself.
 
Third: investment projects such as the PDH fall within the area of organic growth based on their own technical infrastructure and not as a result of acquiring existing entities. We intend to spend over PLN 6bn under our CAPEX plans for 2014-2020, which we do implement. I am not sure if this is general knowledge that a typical growth-oriented project in our branch of the chemical industry usually takes more than three years to complete, including the time needed to prepare documentation in the beginning and the start-up of a technological unit at the end.
 
Fourth: M&A projects have two characteristic features – they are very long-term as a rule and their schedules cannot be reliably determined until the final specific contract is signed and conditions precedent, if any, are satisfied (e.g. official approvals). 
 
 
Chiefmike: What are the Company’s long-term plans? How do you plan to build value for minority shareholders? Does the Company plan to continue paying high dividends? 
Andrzej Skolmowski: Our long-term plans are widely discussed in the Grupa Azoty Group’s Strategy. We take steps to build the Company’s value across three key areas: investments, M&A planning and operational excellence. We are pursuing this strategy consistently.
 
In the Strategy, we have also presented a dividend policy in which we promised dividends in the range of 40% to 60% of the Company’s separate net profit for a given financial year. However, we have also stressed that consideration would be given to a range of factors concerning the Company and the Grupa Azoty Group, including prospects for its further operations and earnings, cash requirements, financial position, expansion plans, and applicable regulations, which should explain the Management Board’s current position on dividend for the previous year, i.e. using the profits to finance or co-finance the projects specified in the Strategy for 2014-2020. 
 
 
Guest unverified: When will the Annual General Meeting and the vote on dividend be held? 
Andrzej Skolmowski: In June, as there is not enough time left in May:) 
 
Maja unverified: Stable and strong performance warrants an optimistic outlook, but stability often entails stagnation. Will we see a roller coaster in the fourth quarter? 
Andrzej Skolmowski: And the roller coaster is supposed to go down with everyone screaming? We are not in such a bad situation.
We expect no deviations other than seasonal fluctuations usually seen in individual quarters.
The seasonality, however, does have an impact on financial performance. The first quarter is always the best. 
 
merol: What is Grupa Azoty’s policy towards foreign investor’s purchasing more of its stock? 
Andrzej Skolmowski: As a listed company, Grupa Azoty S.A. is subject to capital market regulations, and our shareholders hail from all over the world. However, if I understand correctly, the question is about the possibility of a hostile takeover. Our articles of association stipulate that as long as the State Treasury is the Company’s shareholder, the remaining shareholders’ right to vote at the General Meeting is limited to 20%.
 
The State Treasury has recognised Grupa Azoty’s importance to Poland and has placed it on the list of strategic enterprises in 2014. 
 
Guest unverified: In the first quarter, the Group reported a significant increase in compound fertilizer sales volumes. How high an increase in volumes do you expect to achieve in the whole year? 
Andrzej Skolmowski: Our production strategy aims to maximise the utilisation of our production capacities by choosing an appropriate policy for trading in fertilizers, including compound fertilizers. On the NPK market, the period between January and March and the autumn months see increased application of potassium and phosphorus fertilizers, which we try to leverage every year. However, we also keep a close eye on prices. As favourable USD/PLN exchange rates in Q1 considerably improved the profitability of NPK fertilizers, particularly DAP fertilizers, we decided to maximise production and wish to maintain the trend until the year’s end (taking into account seasonal fluctuations in sales and planned maintenance shutdowns). 
 
 
Guest unverified: Given the high supply of NPK fertilizers on the market and Grupa Azoty Police’s leading role, do you consider stopping production at the Fosfory plant in Gdańsk? Second question: is Grupa Azoty interested in acquiring Siarkopol? Do you have plans to acquire other plants, also foreign ones? 
Andrzej Skolmowski: Police has always played a leading role on the NPK market. We are also working on new ideas for the Fosfory plant. We have already discussed this on a few occasions. Siarkopol is already part of the Group’s structure. 
 
Guest unverified: Mr Skolmowski, don’t you think that the recent declines have been a result of your comment that the Company will be unwilling to pay dividend as investments are the current priority? This might have spurred some investors to sell their shares. 
Andrzej Skolmowski: This was not a comment, but a direct answer to a question about the Management Board’s proposal. Someone had to answer it :) Maybe some expected us to present a different opinion during the conference. Most analysts have already got over this issue. The decline seen last week was a price correction down to the region of PLN 80. Considering the scale of the investment, anticipated effects and the environment, profit accumulation has to be factored in when discussing financing. 
 
Guest unverified: What has caused the near 100% increase in EBIT and net profit quarter on quarter? 
Andrzej Skolmowski: The increase in EBIT was reported mainly in the fertilizer segment as a result of significantly higher revenue (up by close to 13%, or PLN 202m yoy). The growth was fuelled by increased volumes of compound fertilizers sold (notably NPK and DAP), and was further supported by higher prices of two-component fertilizers (DAP) and nitrate fertilizers on the domestic (good weather conditions and a high level of direct subsidies) and international markets (favourable currency exchange rates and nitrate fertilizer production constraints in Western Europe – France). These trends, coupled with positive trends in energy prices (gas and coal), facilitated higher margins. 
 
Guest unverified: Hello. Why is your strategy different from those of the largest chemical companies, that is BASF and Yara, which would rather suspend investments and sell unprofitable businesses in this time of economic stagnation in the EU, while the Azoty Group invests heavily (polyamide, propylene, phosphate rock mine). 
Andrzej Skolmowski: Comparing and understanding incomparable strategies of large business organisations deserves more space than this chat room allows;-)
 
In a nutshell:
Let us see it globally – our respected competitors conduct large-scale operations practically on all continents. We do not compete with everybody for everything − it would not benefit our shareholders. On the other hand, we compete not only with the giants named in the question, but also with smaller chemical groups. We consider specific investment directions, and not general investment ideas.
 
As regards the examples given:
Polyamides – we are integrating our plastics segment vertically, reducing our exposure to the unstable and unpromising caprolactam market. We will process the entire caprolactam manufactured by the Group not only into the basic polyamide 6, but also its compounds, with a significantly higher value added. In the plastics industry, it is increasingly more important to precisely customise a product. The market is always the key criterion and the Grupa Azoty Group has competencies and long-standing relations with customers on the Central European market.
 
Propylene, or PDH, is a model example of a behaviour observed globally. Production units for on-purpose propylene, tailored to satisfy local requirements, will dominate the market over the next decade, especially in Europe, where the demand for propylene is by far larger than the production capacity of the unit designed to be built in Police.
 
Several questions and answers concerned the PDH project earlier during this chat.
Phosphate rock mine – I suspect a misunderstanding here. It is just our production project in Senegal that, in addition to being the first ever successful project of this type executed by a Polish company, meets global needs and requirements. We have acquired our own source of the key feedstock for the production of compound (NPK) fertilizers, guaranteeing stable supply volumes and prices. We treat it as a bonus that through this project we gather expertise in international expansion, without which it would be hard to build the long-term value of the Grupa Azoty Group.
 
So, the three cases mentioned in the question show that the Group’s strategy is appropriate given both the market environment and our competitors. What is more, we are making the most of our unique advantages rather than thoughtlessly copying others. Let me also ensure you that we are closely watching the actions of the ‘others’.
 
Guest unverified: Why does Grupa Azoty S.A. take in the dividends from the Puławy, Police and Kędzierzyn companies, but does not share the profits with its shareholders as promised in its dividend policy (40-60% of separate profit). Don’t you think that someone who has exchanged Grupa Azoty Puławy shares for Grupa Azoty shares might feel, to put it mildly, cheated since Grupa Azoty Puławy has been paying a regular dividend of 5%, while Grupa Azoty only offered a paltry PLN 0.2 per share last year and nothing altogether this year. 
Andrzej Skolmowski: Given the announcement of the Strategy until 2020 and a capex programme worth more than PLN 7bn, the Group’s financial standing must be monitored particularly closely, taking into consideration the significantly rising debt. As the Management Board, we are therefore careful when making dividend recommendations, aware of the financial requirements of these investment projects. We believe that current share exchange rates should be viewed from a long-term perspective and that they will eventually prove beneficial to all parties involved.
 
Guest unverified: Does the change in property rights in Puławy pertain to sale or redemption? Are these emission allowances or certificates of origin? 
Andrzej Skolmowski: It pertains to redemption. The property rights include both emission allowances and certificates of origin. 
 
merol: The colleague meant Zakłady Chemiczne Siarkopol Tarnobrzeg. Do you plan an acquisition here? 
Andrzej Skolmowski: So I thought, but hoped to wriggle out somehow. I am impressed by your vigilance:)
Siarkopol Tarnobrzeg is undergoing liquidation; it is not on our short list. However, we do monitor what is going on there. 
 
Guest unverified: How much do you expect to save this year on the back of lower gas prices? 
Andrzej Skolmowski: We seek to implement our gas purchase strategy by diversifying supply sources and increasing the share of imports with a view to achieving measurable benefits. In this area, we also achieved savings in Q1, given the lower market prices of gas and the PGNIG tariff reductions between January and April, in the year-to-year terms. Until the year’s end, we will also carefully look for further opportunities to reduce gas-related expenses, in particular by taking part in the PGNIG discount scheme for the largest gas buyers. 
 
MZK: Is the good Q1 performance to be seen as the harbinger of further improvement? 
Andrzej Skolmowski: We recorded very good performance in Q1, but we are aware of the risks still present on the market, I mean the still difficult situation in the Plastics and OXO segments, as well as the drops in global urea prices, which all pose major challenges compelling us to look for new ways of generating additional margin (I mean here the gas supply diversification efforts, investment decisions etc.). 
 
Guest unverified: Are Russian fertilizer imports a significant threat to Polish producers? The current strong US dollar is good for blocking imports. What if the US dollar weakens? 
Andrzej Skolmowski: All imports (not only from Russia) represent a threat to us, but also an opportunity to improve our product portfolio.
We respond to the imports of cheaper fertilizers by constantly striving to improve the efficiency of our production units (especially our ammonia lines that are much more efficient than the production units of our competitors from the countries east of Poland), which ultimately affects the production cost. 
 
We also try to look for new markets for our products (South America, Africa), which is a natural reaction to the threat of the inflow of products to the domestic market. 
 
Guest unverified: Why were higher fertilizer revenues not distributed equally between Tarnów, ZAK, Police and Puławy? 
Andrzej Skolmowski: This situation was determined by the production capacities of the individual plants and their product offers. 
 
Guest unverified: Are you considering a bond issue? The President of the Management Board recently said that this option is also being contemplated. Can you comment on this? What would be the size of the issue? When? Denominated in the Polish złoty or euro? 
Andrzej Skolmowski: The Group is currently finalising the implementation of the New Financing Model in the form of a package of corporate credit facility agreements. Stage one of that process was completed on April 23rd and involved signing a PLN 1.5bn syndicated revolving credit facility.
 
A bond issue is planned to be carried out first among our Group companies as a redistribution instrument for the New Financing proceeds.
Next, we will consider a corporate bond issue for external investors, or a eurobond issue in the event of a sharp increase in our financing needs. 
AM unverified: How is the work on the phosphate rock mine in Senegal going on, and are there any more African projects in the pipeline? 
Andrzej Skolmowski: As I mentioned earlier, we are the leader of SUCCESSFUL mining projects on the African continent.
The strategic objectives of our Senegal project are to: 
• obtain phosphate rock from Senegal at stable and low prices;
• achieve a lasting improvement in the profitability of our fertilizers segment; 
• become able to produce phosphoric acid in Senegal. 
 
The project has been re-defined. An exploration licence was obtained, a concept of phosphate rock production from the licence area was developed, several drilling campaigns were carried out showing large phosphate rock reserves, a legal analysis relating to the licence award procedure was carried out.
Work in progress includes work on a mine construction feasibility study and an environmental impact report,
- exploration work on an extended licence area to increase the phosphate rock reserves that have been discovered so far.
The next steps will first of all include the completion of the feasibility study, which will be the basis for our business decision to be made in the middle of 2015. 
 
Guest unverified: Are the available production capacities in the individual segments growing at the moment in Europe? What are the investments of your competitors around the world? 
Andrzej Skolmowski: I understand this question in the context of Grupa Azoty’s reaction to market environment, so I’m answering this question in this context:
Grupa Azoty operates and creates value in five business segments.
 
Fertilizers – in this segment we are strong in Europe. Our strength relative to our competitors does not result from expanding the volume of nutrients, but from offering our Customers, thanks to our investments, new product blends (mechanically granulated nitrate fertilizers, which gives us a new ability of nearly unlimited freedom in compounding our products), as well as from increasing market penetration as a result of consolidation of nitrogen plants and from the strength guaranteed by the scale of our operations in Poland and geographically close markets. To put it more simple – we are building ever closer relations with our Customers − large, increasingly more advanced farms. To our knowledge, our European competitors will not add any significant new net production capacities in the years to come.
 
Plastics – in this segment, given our position of the fifth-largest integrated manufacturer of polyamide in Europe, we are not afraid of any investments by our competitors. We see our strength in customising our polyamide composite offer for ever more demanding customers. Given the scale of our operations, we are not threatened by any new production capacities in Europe.
 
Oxo alcohols and plasticizers – in this segment, our strategic position and expectations are founded on investments in non-phthalate plasticizers. I am particularly pleased to mention our new unit producing Oxoviflex, an advanced non-phthalic plasticiser, that was recently officially commissioned at the ZAK plant. We remain a European leader in plasticiser quality. Our products satisfy the ever growing requirements not only of the market, but also EU regulators.
 
Melamine, Pigments – here we consider consolidation opportunities, as strategically in these segments we see creating slightly stronger organisations as an efficient solution. We also respond to the strengths of our competitors by building competencies in raw materials. 
Guest unverified: Do you expect any acquisition this year? 
Andrzej Skolmowski: In the Strategy, which sets forth our intended acquisitions until 2020, we discuss ten entities, carefully selected and matching the Group’s business profile. We scan the market and choose the best investment opportunities, as we have already proved more than once. We do not discuss a timetable, but stick to the time horizon until 2020. We will certainly announce an acquisition in due time. 
 
Investor unverified: Please say something more about the acquisitions. We know that ten entities have been selected. How do the negotiations proceed and when could we expect an acquisition? 
Andrzej Skolmowski: I will stick to what I have already said: Just like other prudent market operators, we do not make our acquisition plans public. We prefer to talk about finished projected rather than future ones. 
M&A projects have two characteristic features – they are very long-term as a rule and their schedules cannot be reliably determined until the final specific contract is signed and conditions precedent, if any, are satisfied (e.g. official approvals). And besides, some sellers would not like information on negotiations which sometimes come to nothing to be made public. 
 
Investor unverified: How about other acquisitions? The Group analysed the possibility of acquiring more than ten companies. 
Andrzej Skolmowski: As I have answered before, just like other prudent market operators, we do not make our acquisition plans public.
We prefer to talk about finished projected rather than future ones. 
M&A projects have two characteristic features – they are very long-term as a rule and their schedules cannot be reliably determined until the final specific contract is signed and conditions precedent, if any, are satisfied (e.g. official approvals). 
 
Guest unverified: Will the plastics segment be profitable this year? What is the current market situation in terms of prices and raw material-product spreads? 
Andrzej Skolmowski: We seek to optimise the PA6 benzene delta by diversifying target markets (not only the German market, but also Asia). However, our efforts to improve profitability focus largely on optimising the cost of operating our production units. It remains to be seen whether the planned measures will bring fruit as soon as this year. However, in a longer horizon, processing caprolactam manufactured in Puławy into PA 6 should bring measurable benefits to the Group. 
 
Andrzej Skolmowski: Thank you very much for your insightful questions. It is always an opportunity to learn and exchange information. I say goodbye to you with the chorus of the song I have attached: “Goodbye, I already know I won’t settle all urgent matters.” I hope to meet some of you in a couple of days at the next retail investor conference in Karpacz. Come, whoever can. See you there! 
 
Moderator: Let me, too, thank you for another chat bursting with energy. Meetings with Grupa Azoty have already become a legend, and a chat with Mr Skolmowski even brightens the sky. Join us for the next chat!
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