Grupa Azoty SA

WSE:ATT

Earnings Call Transcript 2018-Q3

[Unknown Executive]

Ladies and gentlemen, welcome to the conference, which will be devoted today to the results generated by Grupa Azoty Group in the third quarter of 2018.

Welcome to all of you present in the room and also to all our webcast viewers watching and listening to us live over the Internet.

The results generated by Grupa Azoty for the third quarter of 2018 will be delivered by Mr. Wojciech Wardacki, PhD, President of the Management Board of Grupa Azoty S.A. and President of the Management Board of Grupa Azoty Police; Mr. Pawel Lapinski, Vice President of the Management Board of Grupa Azoty S.A.; Izabela Swiderek, PhD, Vice President of the Board of Grupa Azoty Pulawy; Mr. Wlodzimierz Zasadzki, PhD, Vice President of the Board of Grupa Azoty Police; and last but not least, Mr. Artur Kaminski, Vice President of the Board of Grupa Azoty Kedzierzyn.

I will give the floor over now to Mr. Wojciech Wardacki.

[Wojciech Wardacki, executive]

Welcome to all of you, welcome to the conference, to the newest latest conference, which will be devoted to the presentation of our performance in the third quarter of 2018. The third quarter of the year came as no surprise to us. Given the trends in the markets and the market landscape in 2017 and 2018 had been signaled before towards the end of 2015 even back then and some of these trends, some of these signals, external signals, which were unfavorable to our business, we have managed to overcome and to generate success -- successful performance in 2017, breaking our all-time results.

2018, as we have mentioned time and again during our half year conference, resulted, especially towards the end of the first quarter of the year, in certain events as regard to which both you and certain analysts were not able to predict or had not been able to predict. I'm talking here specifically about the increase of the prices of our main energy carriers and the key carrier in our present structure, which has not been diversified yet, according to our strategy, namely, natural gas.

In March, rising prices of gas, due to both the weather conditions, limitation of supplies in gas production, the use of reserves and storage of gas, resulted in hikes of gas prices. So the rising trends in prices were maintained also in quarter 3, surprisingly, which is reflected in our performance. We will discuss it in more detail as we go on today. And the scale of that impact of the rising gas prices was quite considerable, especially in certain product groups, especially if we're talking about ammonia or urea, then the share of gas prices accounts for around 80%. And we have taken certain measures to offset that situation, to control that situation.

Year-on-year, if we compare our performance year-on-year or quarter-to-quarter versus 2017 as regards the prices of certain other energy carriers, for instance coal, we also experienced certain increases and also certificates, the price of certificates also went up, especially in quarter 3. After we have modified our approach to those allowances, they were considered -- started to be considered as an instrument, and the price changed from EUR 6 to nearly EUR 30 per 1 tonne of emissions allowance, which obviously naturally translated into rising prices of our operations -- our cost of our operations.

All those elements, all those unfavorable elements and the unfavorable factors in our business in quarter 3, have not weakened our determination and our resolve to deliver our strategy, which has been announced before, the strategy for the group until 2020. And we are consistently delivering those strategies. And this is reflected in the main event of quarter 3 2018.

On the one hand, we acquired COMPO EXPERT Group in quarter 3, we signed the agreement -- conditional agreement for the acquisition of that particular entity. And all the conditions precedent have been met right now. And we will move on to the final stage of that particular transaction in order to close it successfully.

The acquisition of COMPO EXPERT Group should, on the one hand, ensure rising revenues and also access to innovative technologies. We have defined certain synergies, which will be delivered due to -- or on the back of that particular asset acquired by our group. We have discussed it time and again before in more detail. However, if you do have certain questions, we can discuss it again. We can give you some more details about this particular acquisition process.

In quarter 3, we also closed our corporate financing. We have discussed it already. We discussed it during our half year conference. We finalized certain agreements which we had signed with financial institutions. And right now, I'm in a position to tell you that we have a number of agreements in order to ensure secure financing of our projects until 2026. We are talking about concrete agreements, hardcore -- agreements with, we're not talking about any conditional provisions, contractual provisions. All those conditions have been set in stone, so to speak. So we have signed all those agreements, and we are secure in order to -- we are secure that our corporate financing is guaranteed until 2026.

This is an important matter to us because, as you know, those financial institutions need to define and analyze all the risks. They are analyzing all our models, all our plans, all our returns and strategies, all our efforts and measures that we are taking. This is a time-consuming process, and declarations are fine. However, we are looking for and we are happy to tell you that we have already arrived at a very concrete level of those agreements. And those agreements are favorable to us -- very favorable to us, and so our corporate financing is guaranteed until 2026 right now. This is very satisfactory to us, and this is also a singular proof that we -- that both our measures that we have been taking and our prospects for the future -- for future are fruitful, and we are looking forward to that.

The research and development center in Tarnów is now brought on stream. We are talking about the research, development and innovation center. This is not a newfangled fashion, so to speak. This is something that we really need. This is a very modern state-of-the-art center, R&D center.

When we started this project in August last year, there was nothing there, and we told you that we had -- we would be bringing that center on stream by the end of 2018. Nobody believed us. You decided that this is not possible. However, we did achieve that. And the center will be in operation as planned. We are reviewing the schedules. We are defining our next steps in terms of our research and development activities. There are a number of projects that are already in progress at a very advanced stage, at the semi-industrial stage. And this is a huge center. This is a huge hall. And this is the place where we will be delivering all those projects.

Given the acquisition of the COMPO EXPERT Group, there will be -- it will be necessary for us to review certain projects and maybe drop some of them, because the COMPO EXPERT Group has kind of changed the situation. Maybe some of those projects will be not necessary anymore. And we will move or transfer those funds to other goals or projects.

We're talking about -- we have mentioned the rising prices of energy carriers. This is something that is out of our control. However, we can assume that this will be coupled in the rising prices of our products and to certain extent, those rising prices of energy carriers will be transferred to our clients.

In certain other industries or sectors, this is easier to transfer or offset certain -- rising prices of certain energy carriers to the prices of final products. We have analyzed the rising prices of our energy carriers in quarter 3. You have to remember that our potential in that particular area is limited. First of all, we had a difficult weather conditions. We had drought in Poland, and our main production segment, which is Agro Fertilizers, the situation changed for the worse.

During our half year conference, we also talked about the situation in terms of the storage levels of our distributors. This is something we have to remember about as well. On the other hand, however, we have taken a lot of measures and a lot of steps in order to reduce the imports of fertilizers and I can tell you that the commitment that we gave you during our half year conference has been met. And the data which will be discussed shortly by Mr. Pawel Lapinski are proof that we have managed to deliver that promise.

This required certain flexibility in terms of our prices so as to make sure that if we calculate the risk of certain fertilizer imports for certain distributors, we needed to be sure that this will not be the last transaction in the history of our corporation with certain distributors. So we needed to be flexible here in terms of the cooperation with our distributors.

On the other hand, however, we have certain provisions in our agreements that allow us to increase our prices to a certain extent. Some of those events were very short-term horizon events, and we needed to be very flexible in order to act very, very -- with a great result and very quickly.

We do not want to transfer or move all the cost to our clients. We have taken a number of measures to rationalize our costs to tap the synergy effects, to leverage the benefits, which come from the fact that we are a group of entities and this will be clear when Mr. Pawel Lapinski will be discussing -- will discuss this specific data for 2016, 2017 and 2018.

A number of costs went down. So whatever our operations are on the safe side, and the quality of our production is on the safe side, we are cutting costs consistently due to the effect of scale and synergies. We are consistently delivering that promise. And we are reducing certain cost items which are under our control. This is a process that we are delivering with a great resolve, but also comfortably enough, and we are able to show you the results today.

Obviously, there are certain elements that -- or certain events that make us very satisfied. And we are receiving certain signals that our actions, our measures, are appreciated. I'm talking about awards, especially the award for being the most attractive employer and the employer that takes greatest care of the social dialogue. Those questionnaires were taken by a number of students from a number of universities. And Grupa Azoty has been listed as the most attractive and desirable employer for those students. This comes as no surprise because this is the result of our programs, of our cooperation with the universities. This is -- this was welcomed by us with great satisfaction because this is our commitment. This is something that we need to deliver. We have made certain promises, and we will be delivering on them in order to make sure that we have a new generation of employees in the future.

In September, we were also listed as one of 30 companies listed in the developed market index. This comes as a great satisfaction for us as well. However, on the other hand, there are certain consequences to it, and we will discuss it later on. So on the one hand, this is a great satisfaction, this is an award, this is an appreciation, but it also could have certain negative effects, certain negative consequences, and I'm talking about the share price.

Ladies and gentlemen, all our measures that we are taking are delivered consistently with a great resolve and with great effect. And all the tweets and all the press releases are also a proof of that. We showed you a longer time perspective, longer period, back to 2010, especially in terms of the Agro Fertilizers segment, you can see that this is a -- that there is an effect of a cyclical business. And we can also see certain events, which we need to learn how to live with. We need to learn how to work efficiently despite those events and despite the cyclical nature of our business and very specific structure of our revenues.

This is why we are diversifying the resources of our revenues. We are trying to reach certain new areas, certain new sources of our revenues in order to minimize the negative effect of the cyclical nature of our business and make sure that the group is always on the safe side regardless of the market situation, the market landscape in specific product groups.

All in all, all our measures are delivered, consistently and successfully. When we move on to discuss -- to discussing the specific results and performance of quarter 3, we will be referring those results to the 9 months of the year -- of the previous year. I want you to remember that you need to compare our -- this year's performance to our performance in terms of comparable items. There are certain data that are used and published by some analysts that are -- that is -- this data is already outdated. So I will encourage you to review or refer to the report of the qualified auditor for 2017 and focus on 2 sentences that are talking about the quality of our previous reports and financial statements for 2013 and '14, for instance. And the qualified auditor was sure that this data is absolutely outdated and is not something that we should compare our performance to.

During our press conference, this issue came up. We are sometimes referring to our predecessors, for instance to Police, and the consequences of this infamous investment in Senegal. Considering our financial position, the accounting records, this issue comes up again and again, and this has affected our performance, our results in 2018, whether we want it or not.

This is a process that we need to continue and it is continued in line with all the highest standards that are in effect that we need to stick to. And the Polish Financial Supervision Authority has never suspended the listing of our shares. There is no administrative proceedings in progress against us. Everything has been explained. Everything is under control and this process is accurate and in line with all the rules and all the regulations and with utmost diligence.

We will move on now to the discussion of our key financial performance for Q3 2018. On this particular, Slide #3, you can see our highlights in terms of our consolidated revenue, consolidated EBITDA, consolidated EBIT and net profit or loss. And if we look at the cyclical nature of our business, there is a certain phase that we are at right now, and more specifically, which -- this will be discussed in more detail later on. There are certain events that are absolutely beyond our control. And despite those events and despite major challenges from the external environment of our business, we are delivering great performance with confidence.

I will now give the floor over to Mr. Pawel Lapinski, Vice President of the Management Board of Grupa Azoty, to continue the presentation.

[Pawel Lapinski, executive]

I will start with our performance for 3 quarters of 2018. The revenue came in at PLN 7.2 billion, EBITDA was lower, down by more than PLN 400 million year-on-year. I will discuss the reasons shortly, but first, I would like to show you the structure and the share of the Fertilizers business, which is below 50% right now. This trend will be continued. This is something that we had planned, and we are delivering consistently so as to make sure that the impact of this particular segment, this particular business, is more controlled and is lower.

In terms of EBITDA by segment for quarter 3, you can see that all our segments had a negative effect on our EBITDA delivered in quarter 3, and mainly, the Agro segment, which is obviously the effect of the rising prices of gas and other energy carriers and also CO2 emission allowances.

Also, the Chemicals segment had a great negative impact, especially in terms of melamine and technical-grade urea. And also, the situation on the titanium white market changed for the worse.

And the Plastics segment, we had a certain cooldown in terms of the demand for those products. But the negative effect is mainly due to -- it's mainly generated by our Agro Fertilizers business. Other segments had a negative effect on the EBITDA level, but not as much.

Moving on to quarter 3 and sales volumes. Sales volumes resulted in lower EBITDA. Sales prices had a positive effect. However, the prices of our raw materials and energy supplies had a negative effect, which offset the positive effect of the other items. To date, year-to-date, sales volumes generated PLN 48 million and the prices of energy carriers accounted for nearly PLN 0.5 billion.

Moving on to a more detailed analysis. You can see that the prices rose, especially for the CO2 emission allowances, which -- the price of those allowances doubled over a couple of months. Luckily for us, this price has been stabilizing for some time now. And the group bought those allowances on a regular basis month after month. So the rising prices of this particular item, cost item, is not as bad. We are talking about the weighted average increase for the couple of months.

Electricity prices went up as well. However, we're still on the safe side here because we had purchased our electricity in the past, which was a forward-looking action. So certain contracts have been -- were signed 3 years ago and the rest were signed 2 years ago and last year. Therefore, we are secure in that respect. So the rising prices of electricity will be not as high as on the market right now.

And last, but not least, the rising prices of natural gas. You can see very clearly the difference between 2017 and 2018, where the prices were abnormally high compared with the previous year. It usually went down during the summer period. Right now, it went up in the summer, which is not regular. The prices in the summer were higher than in the wintertime, especially in quarter 3, which was related to the level of temperature in Europe, where the cooling systems in nuclear plants failed to operate efficiently due to the abnormal weather conditions. This obviously had an impact on the prices of gas and the rising prices of gas were a consequence. We are talking about PLN 350 million in terms of concrete monetary effect and around PLN 24 million.

Our Fertilizers business were hit the most by the external macro environment. We have increased our prices for a couple of months now and those prices are -- those hikes in prices are considerable. So we have increased our prices by several dozen percent. We are setting our prices a couple of days prior to the first day of the month. We cannot transfer the rising prices on the price of our products. And this is something that happened, especially in September, for fertilizer prices in quarter 3. This situation is now more stable. It is more under control. And in the future, if we see a great decline in prices, in gas prices, then we will have a certain effect, positive effect for us and I believe that our performance will be increasing -- will be rising.

So the main driver in terms of our performance are the prices of gas and this will continue in the future.

In terms of the volumes, the volumes have been corrected. We're talking about around 170,000 tonnes and the structure is diversified, some of the prices -- some of the volumes went down, some of -- other volumes went up. So if we are talking about 100,000 tonnes, then the main part, the lion's share of that figure is ammonia. And the level of costs, and the level of gas prices -- impact of the gas prices is the highest for ammonia. And the market was not able to accept the rising prices of ammonia. So we could not offset the rising prices of gas by increasing the prices of ammonia products. The market did not accept that.

But if we are talking about the volumes except ammonia, then those price -- those differences are not as considerable.

A glance, a couple of words about the deltas. The deltas are rising. We need to remember that our market environment and the benchmarks are not European benchmarks. We are talking about certain borderline between Europe and Asia, therefore, they do not reflect the European level of gas prices because what has happened with gas is a specificity of our European market. And those benchmarks are not purely European. However, the prices were increasing all across the board, and we need to also remember about the negative balance for urea, especially in China in terms of the level of supply and demand. And this was also a main driver, and this will be the main driver in the future as well.

In terms of compound fertilizers, the situation is -- in terms of price volatility, the situation is not as bad. That market, that specific market is more stable. However, the situation was still very challenging and difficult over the past couple of -- especially in the past 2 quarters.

A couple of words about import figures. There were considerable changes in terms of the imports of fertilizer products, especially for 2 major products, which are competitive to our products, namely urea, where imports went down; and ammonium sulfate, where the situation practically has stabilized and the rising imports -- the imports are not going up, or if they are, they're not going up considerably. The measures that we have taken to reduce imports are fruitful and successful -- we are able to successfully deliver that process and will continue it.

A couple of words about the Chemicals segment, which will be discussed in more detail later on. I would like to point out at this time that for alcohols, OXO alcohols and plasticizers, we saw a considerable growth in propylene prices. For urea and melamine, we had a certain situation -- certain problematic situation due to rising gas prices, which were not -- which we were not able to transfer to the product prices. In terms of titanium white, there was a major inflow of titanium white products from Asia after the U.S. market had closed. Mr. Zasadzki will probably discuss it in more detail.

All in all, as a result, our revenue for the 3 quarters are as shown on the screen and third quarter went down year-on-year for the reasons that I have discussed before, with falling EBITDA and EBITDA margin.

In terms of our market environment, we have discussed it already. We are talking -- we are seeing increasing prices of titanium white, but this is offset by imported titanium white product from, especially Asia. Propylene is going up. You can see that those deltas have flattened out. And as a consequence, our profitability in this segment of OXO alcohols is lower.

And last, but not least, Plastics. The situation in Plastics is more or less stable, especially in terms of the structure of the demand, especially in the automotive business. This is a slight reaction -- this is a reaction of our customers. Decisions are changing in the automotive business. However, 2 other businesses, 2 other segments of our clients, saw rising demands, especially in terms of foils and construction plastics. The situation in those 2 segments is improving considerably, and we are also taking certain measures to change that structure -- change the sales structure. We have a new plant, a new unit. This will come as a great help for us. This is the unit where we will be able to produce foil more efficiently, and this market is very promising at this particular time.

The new unit has been brought on stream and it operates almost at its full capacity. We are going -- we are driving down the share of, we're reducing the share of caprolactam as planned. We are building the compounding unit, which will increase our production capacity sixfold and around 70% or 80% of the capacities of the new unit has already been contracted. So the offtake is there, and this new unit will be brought on stream and will be launched with considerable capacity -- at considerable capacity levels.

You can also see certain price deltas and pricing trends. We're talking about slight weakening of that particular -- in that particular area. However, as I told you before, we are trying to modify our sales structure, the client structure, the customer structure, in order to respond to those market trends.

There are also certain synergy effects for especially fixed costs, and this is especially visible in our fixed costs. This is the result of the measures of synergies that we achieved over the couple of years. This helped us to survive this very challenging or difficult market situation as a group. And we reduced our costs, especially for external services. And this is a permanent trend. Those prices have been -- those costs have been falling steadily for a number of years now. And we are talking about PLN 80 million in savings.

In terms of our financials, the situation has not changed considerably versus the previous quarter, with 2 differences. In the last week, we managed to guarantee the cash pooling -- the currency cash pooling with the bank, PKO BP. So our group cash pooling will include -- will also include ATT Polymers and the new group, which we have acquired. We're talking about German businesses right now. And as I told you before during the previous conference, we are trying, and we're doing our best, to deliver those synergy effects, especially in the financials area. And we estimate that the synergy effect will deliver a number of -- a couple of million of euros next year.

Our net debt went up, and you need to consider this difference and we're talking about around PLN 400 million. If it had not been for that particular difference, this particular ratio will look quite differently. However, all in all, our debt went up. We are doing our best to drive it down.

And in terms of our investments, our EBITDA went down by PLN 400 million. Therefore, we needed to review our CapEx plans and schedules for our investments. We are planning to spend around PLN 1.1 billion for investments -- PLN 1.3 billion. That was the plan, and the forecast for 2018 is PLN 1.1 billion. We are sure that we will be able to deliver that particular forecast.

And a couple of words about our price shares. We have received a number of questions concerning the prices of our shares. It is obvious for you that the share price is impacted by our performance, by the situation in the fertilizers markets, especially driven by rising gas prices and also electricity and CO2 emission allowances. These are the factors that have a considerable effect on our share price. For [ KGHM ], it's always copper prices. For us, it's always gas prices. And they have an automatic impact on our share price. However, you need to also remember about the get-back affair, the get-back problem. We are talking about a number of investment funds where people deposited their money or invested their money. This was also a negative factor for us for our -- and it had a negative impact on the share price.

The dividend level versus our CapEx. This is also an issue that has been brought up time and again, especially in the context of our -- and also, you have mentioned that we are not showing you the concrete results of our investments. This is also something that can impact the share price at the stock exchange. However, sometimes we often cannot show you all the details of our investments, of our CapEx projects. We would -- this way, we would reveal our plans to our competitors. Therefore, there are certain details that we need to hide from the market in order to efficiently continue our business and achieve growth and success.

In terms of our FTSE, the change in price, share price, due to reallocation between the FTSE and the advanced markets index, there are certain investment funds that focus on the developed markets segments. There is a certain gap right now because those funds have not determined their position yet in terms of the reallocation. All in all, all those factors had an impact on our share price, and we can also -- we need to also remember about low free float. When the situation is reversed, then the low free float level will be to our benefit. We have to remember about that.

We are talking about the group right now, but if we focus on Pulawy and Police only, then the situation looks quite differently. In Pulawy, free float is at around 3% and at Police, it is around 4% or 5%. Therefore, if we consider certain market conditions which are specific to Police and Pulawy, then those 2 companies have a very different situation or face a very different situation. Therefore, to have specific comments on the capitalization, on share price volatility or share price changes, you need to be cautious in that approach. You need to remember about the group and also specifically about the particular situation in Police and Pulawy.

The effect -- the negative impact of those factors that I have mentioned is not -- it doesn't -- will not continue forever and it's being kind of extinguished as time goes by and this trend is likely to reverse, and this low free float level could actually work to our benefit.

I will now move -- I will now give the floor over to Ms. Izabela Swiderek, who will discuss the performance of Grupa Azoty Pulawy.

[Izabela Swiderek, executive]

In reference to the performance in quarter 3 this year and for the 9 months of this year, all those factors that we have already discussed were important to us as well. However, both for quarter 3 and for 9 months of the year, our revenue went up year-on-year, which was unfortunately considerably offset by the rising prices of our strategic carriers and raw materials, especially natural gas, coal, electricity. Those rising prices increased our costs, operating costs, which was obviously reflected in the level of our EBITDA and net profit.

If I were to refer to certain positive items, or more specifically, segments, then the third quarter of the year was the period where we saw a positive performance in 3 segments, namely, Chemicals segment, which had a positive impact on our EBITDA at -- I'm sorry, Chemicals, we are talking about PLN 27 million; Agro at PLN 11 million; and also our energy segment.

Unfortunately, for the 9 months of the year, the situation is quite different. We reported Chemical -- we reported a positive impact of the energy and Chemicals segment. However, Agro weighted heavily on our performance, reducing our results by PLN 70 million.

The main Fertilizers segment -- I mean, the main product segment, which is Fertilizers, accounts for 55% of our business. This level has been changing over time, but all in all, we're talking about 55%. And the revenues of that particular segment were lower year-on-year. EBITDA went down by PLN 63 million for quarter 3 and went down by more than PLN 150 million for 9 months. And the costs of our operations were rising, mainly due to the rising prices of gas and other energy carriers. So we are talking about PLN 85 million of additional costs in quarter 3 and more than PLN 150 million over 9 months. And this is only due to the rising gas prices.

In terms of coal, we are talking about a 17% increase, which weighed down on our performance by more than PLN 8 million in quarter 3 and by more than PLN 16 million in 9 months of the year. And despite our measures to cut costs, for instance, selling costs and other cost items, we were not able to offset that particular trend.

If I were to refer to the structure of our product segments, then the lion's share of our sales is generated in the sales of Fertilizers products. And we are talking about PLN 1.1 billion of an effect -- of a positive effect on our revenues, which went down slightly year-on-year. We're talking about a decrease of 15%. For phosphate and compound fertilizers, the situation is quite different. This trend is going up. And we had a positive effect of nearly PLN 160 million of an increase in revenues.

In quarter 3, we saw an increase in prices for most of the products sold by Grupa Azoty Pulawy. However, those prices -- in quarter 3, however, for 9 months of the year, those prices were lower year-on-year.

The Chemicals segment is the second main segment of our business. The Chemicals segment fared well, reporting an increase in revenues, both in quarter 3 and also for the 9 months of the year, year-on-year. We are generally speaking about -- we are talking about an increase in revenues at about 40%.

In addition to our flagship product, which is melamine, we are building our sales volumes on the remaining 2 main products, namely, urea, which generated PLN 213 million in revenue, going up by nearly 20% versus the previous year, and the last, but not least, the other product that had a positive impact was caprolactam, we are talking about nearly PLN 330 million; and melamine, which increased our revenues by PLN 390 million, both in quarter 3 and in the 9 months of the year. The revenue for that particular product went up considerably. We are talking about around -- an increase of around 38%.

In addition to those segments, we obviously focus on other -- a range of investment projects. And the total CapEx spending came in at nearly PLN 330 million, which was spent on our investments in progress. Those projects are listed on this particular slide. We spent more than PLN 30 million on the construction of granulated prilled fertilizers based on ammonium nitrate. This project is in progress and will be delivered by 2020.

We also had a number of other cost-intensive projects, especially the upgrade of the production unit of the nitrate asset. This project is to be completed in 2024. And obviously, our flagship project, which has been launched, the construction of our power generating unit at Pulawy, a power-generating block. We are selecting the general contractor for that particular investment, and we are talking about the spending of PLN 890 million. This project is to be brought on stream by 2021.

What's also important is the fact that the situation of Grupa Azoty Pulawy is stable, is under control. All our ratios, especially liquidity ratio, is still very high -- are still very high, exceeding the level of the -- for the 3 quarters of the year. Our net debt is negative, at minus PLN 515 million. And our debt ratio is also negative at minus 1.54.

As you can see, our situation, our financial situation, is stable, although -- even despite certain negative factors, which drive up our costs.

Thank you very much. Now Mr. Wlodzimierz Zasadzki will discuss the situation at Grupa Azoty Zaklady Chemiczne Police.

[Wlodzimierz Zasadzki, executive]

First of all, I will try to speak in a nutshell, because most of the major information that have already been -- has already been discussed by Mr. Lapinski. I would like to focus on certain specificity -- specific nature of our business at Police. There are 2 slides for our consolidated result and are individual separate results.

And if we're talking -- and as you can see, our consolidated results are positive. I did it on purpose, because we're still suffering due to the effect of the infamous Senegalese investment. And it had a negative effect on the consolidated performance at minus PLN 44 million. This is a purely accounting measure. This is a purely accounting exercise, so to speak. We needed to account for that particular effect. It has nothing to do with our cash flows. You need to remember about that.

Our separate results are quite different, and the effect of the Senegalese project on our separate result is actually positive, due to the reversal of the -- due to the buyback of the shares, we received PLN 11 million. This was a positive effect. And we are looking at certain injections in the future as well, cash injections.

In terms of our separate results, it was -- they were impacted heavily by the external situation in the market, the macro situation. Obviously, I'm talking about the rising price of gas. At Police, it has a major effect. The Agro segment at Police could be regarded on a twofold basis. I'm talking about compound fertilizers, and the volume of sales of compound fertilizers went up by 5%, while the prices of those products did not catch up with the rising prices of gas. It still went up. All in all, the financial situation in the compound fertilizer business is not very much different from the previous years. I would like to emphasize that.

However, the effect on the Agro business, in general -- the Agro business in general was impacted by the production of urea and ammonia. And this slide shows clearly that those volumes went down. Urea went down by nearly 30 million and -- 30% and for ammonia, we're talking about the decrease at around 63%. We are using ammonia to produce compound fertilizers, but only partially. A considerable share of ammonia is sold to external customers. Therefore, at a certain point, we decided to switch off one ammonia production line in order to meet our in-house purposes only to produce compound fertilizers, because the market price of ammonia sold to external customers was not high enough to cover our costs, our variable costs. Therefore, all those changes in prices that we were talking about before, prices of natural gas, prices of CO2 emission allowances, impacted us as well, but only for certain products and not for compound fertilizers.

In terms of titanium white, I would like to explain a certain issue. The results generated in quarter 3 are lower than the year before, which is due mainly to the difficult market situation, especially lack of imports or reduced -- or closed American market, and obviously, imports of titanium white from China. However, quarter 3 was not a decisive quarter in terms of the -- our performance in that segment, because the financial performance -- our financial performance for titanium white went up versus the last year for 9 months of the year and the margin went up from 21% to 28%.

I'd like to emphasize also the fact that neither our financial liquidity nor our other financial performance ratios are under any threat. Our liquidity is comparable to our previous years' results. Our net debt went down and the EBITDA -- our net debt-to-EBITDA ratio is also comparable year-on-year.

A couple of words about investments. If you have further questions, we will discuss them during the Q&A session, but I would like to tell you at this point that our main investment in project, which we called Polymers Police is progressing as planned. And I believe that in quarter 4, we will be able to report certain major developments for this particular project. But we have also completed another significant investment project, upgrade of sulfur assets production units, which will change the structure of our production and which will improve our efficiency in that particular area and drive down the costs of production of compound fertilizers.

Last but not least, I do believe that this will be important because in the context of very challenging and difficult market condition and its negative impact on our financials, we have not resigned from our upgrade projects. We are -- we spent more than -- we have -- we spent PLN 40 million more than in 2015 or 2014, which were very good years. We are spending more on the upgrade of our units, and we are talking about the spending at the level of PLN 120 million -- around PLN 120 million. Our units, our production units, need those upgrades and we will always have the money to spend on that.

Thank you very much for listening. And now Mr. Artur Kaminski will discuss the situation at Grupa Azoty Zaklady Azotowe Kedzierzyn.

[Artur Kaminski, executive]

Thank you very much, ladies and gentlemen, welcome. To wrap up the presentation, I will discuss the situation at Kedzierzyn in a nutshell, in quarter 3 of 2018 and year-to-date for the 9 months of the year.

The main highlights, main performance parameters, are presented on that slide that you can see right now. We are talking about EBITDA, revenue and net debt -- and net profit, I'm sorry. We improved our revenues up by PLN 14 million in quarter 3 of 2018 from PLN 44 million to -- from PLN 440 million to PLN 450 million (sic) [ PLN 444 million to PLN 458 million ]. The same for our performance year-to-date for the 9 months of the year, we are talking about PLN 1.3 billion going up by PLN 63 million year-on-year for the 9 months of 2017.

I'd like to mention at this point that the improvement in this particular area, I'm talking about revenue, was due to much higher prices of our products in OXO alcohols versus the last year and also positive differences for OXO alcohols and fertilizers.

We have discussed it before and despite the fact that our revenue went up, I will not discuss all those negative factors again, because all those factors impacted our company as well, just as the other companies in the group. However, we expected the situation. It came as no surprise for us. We knew what the macro environment looked like, especially the record-breaking prices of gas and also considerable increase in the prices of CO2 emission allowances and also electricity and coal. At Kedzierzyn, we need to also remember about high prices of propylene, and a negative effect on our EBITDA was also due to the summertime maintenance shutdown of our installation. Last year, this maintenance shutdown was planned for June. This year, it was in quarter 3. Therefore, we had a negative impact of that particular factor at minus PLN 25 million.

This next slide shows the correlation between our EBITDA to-date in the first 9 months of the year versus the previous year. You can see that the level is at PLN 73 million -- nearly PLN 73 million versus PLN 161 million in 2017. This was mainly due to the situation in the Fertilizers business, which went down by around PLN 75 million and also OXO alcohols, which went down by PLN 10 million, which was obviously coupled by the high prices of gas.

Our Fertilizers business in quarter 3 2018 delivered EBITDA at minus PLN 24.7 million and revenue at PLN 208 million. Year-to-date after 9 months of the year, EBITDA came in at nearly PLN 13 million and revenue came in at PLN 617 million. Obviously, all those negative factors which we have mentioned time and again apply also to that particular business at Kedzierzyn, but the volumes are going up in our Fertilizers business.

And if we compare 2017 and 2018, we generated higher volumes of nitrogen fertilizers, going up from 162 tonnes to 178 tonnes year-on-year and this increase by volume was due to our storage levels of our products, which were accumulated before this maintenance shutdown. And we have great capacity, storage capacity at Kedzierzyn, and therefore, we were able to improve, all in all, our volumes. However, we had a major decrease for other products in terms of volumes. But you need to remember that other products cannot be stored in such great amounts, in such big amounts as nitrogen fertilizers.

In terms of our revenue structure, nothing has changed here. Nearly 70% of our revenues are generated by nitrogen fertilizer sales and 30% for other products.

Our OXO alcohols business also faced certain problems and needed to struggle with the rising prices of gas and the difficult macro situation. Therefore, we saw EBITDA at minus PLN 4.3 million, while EBITDA for the 9 months of the year came in at PLN 25 million -- or nearly PLN 26 million and revenue at PLN 670 million (sic) [ PLN 689.8 million ], while in quarter 3, it was PLN 226 million.

In terms of volumes, volumes went down slightly, which was due to the fact that we had a maintenance shutdown in a different period than before. And our storage capacities were much lower for OXO alcohols than for fertilizers.

Our flagship product is still Oxoviflex. It sells very well and the sales volumes for the 9 months of the year were very high.

In terms of our financials, our profitability ratios, first of all, were impacted by the market situation. Both our EBIT and EBITDA went down because all those factors, negative factors we're talking about had a -- have a direct effect on these particular ratios -- profitability ratios.

In terms of liquidity ratios, our current ratio went down slightly, but still, its level is safe. And in terms of our debt ratios, we're talking about total debt ratio and net debt. They went up slightly or stayed flat, more or less. And in terms of net debt-to-EBITDA ratio, quarter-on-quarter, it increased due to lower operating results, that is EBITDA, but still, we are on the safe side. I'd like to emphasize this again. We are still on the safe side here.

[Unknown Executive]

Thank you very much. Thank you for your attention. Thank you for delivering the presentation. Our presentation is brought on stream -- online. I forgot to greet them as well. Welcome, ladies and gentlemen who are watching and listening to us live. I did not forget about you. I'd like to thank you for your patience. I'd like to thank you for your participation in our presentation. Thank you very much to all of you in the room and to all webcast viewers and listeners. I'd like to encourage you to take part in our future presentations as well. Thank you.