Grupa Azoty SA

WSE:ATT

Earnings Call Transcript 2022-Q3

[Operator]

Good morning, ladies and gentlemen. It is my pleasure to welcome you to the conference call of Grupa Azoty. Today's speakers include Marek Wadowski, Vice President of Grupa Azoty's Management Board; Mr. Tomasz Hryniewicz, Vice President of Grupa Azoty Pulawy Management Board; Michal Siewierski, Vice President of the Grupa Azoty Police Management Board. We also have Mr. Grzegorz Kuberski with us, Director of the corporate controlling department.

I'll give now the floor over to Mr. Marek Wadowski to open the conference call.

[Marek Wadowski, executive]

Welcome. Let us start with a summary of the key facts and figures and events in the reporting period. In the reporting period of Q3 2022, we extended our agreement with PGNiG for the supply of natural gas. Today, we still supply gas from PKN Orlen due to -- we could supply our suppliers PKN Orlen due to corporate structure ownership changes.

Our gas settlements are based on the stock exchange commodities market. High price of gas in a very difficult environment as well as high volatility in the gas market made us temporarily cut production in some of our companies across the group. At the same time, during these cuts of our production, we still continued our necessary work on maintenance and upgrades. Right now, we have restored production, achieving full production capacities again. At the same time, it is worth pointing out that after a very challenging period when we had to stop our production, after the relaunch of our production, we published a new price list for fertilizers with significant cuts on our price.

Thus the performance. The performance of Q3 alone, at EBITDA level, we have reported PLN 276 million, around 2% less year-on-year. At the same time, we should point out that this period, quarter 3 was an extraordinary period for us, when we faced a lot of uncertainties in our markets, as well as a period where, we have discussed before, we were first to cut our production.

At the same time, when we look at our performance for the 9 months of the year, our performance is quite solid, coming in at a very quite high level, which shows the diversification of our activities brings fruits.

What is very important in our analysis of the performance of quarter 3 alone are one-off events. This includes 2 events. Due to cuts on our production, we resold electricity which was -- had previously been purchased for our in-house purposes. This electricity has not been used for our purposes. Therefore, we decided to resell it and we reported a high positive figure as a one-off event in the -- for our power activities, for our energy activities.

And at the same time, we reduced our CO2 emissions due to cost of our production. Therefore, we decided to update our write-offs. As you can see in this third slide, the effect of one-offs was at PLN 65 million at the EBITDA level.

A couple of words on our macro environment, market environment. First of all, we need to emphasize that the third quarter of the year was still a quarter that was affected by Russia's military aggression against Ukraine, and this military aggression war in Ukraine has a number of implications in our macro environment, including high volatility, high uncertainty in the gas market. At the same time, sanctions imposed affect international relations. As a summary, it affects negatively both the fixed feedstocks area as well as the production of products area for us.

At the same time, third quarter was a quarter when we saw a considerable worsening of forecasts for economic growth, high inflation levels, not only in Poland, but around the world. A high inflation rate is a problem that is tackled all around the world across the board. This obviously affects the purchasing power of consumers. And at the same time, we still have to face certain risks related to COVID-19, especially in China. It also has a major effect on our performance where producers in the Adriatic Sea area are not able to direct their products in their own markets and sell their products in the markets they look at, Europe.

At the same time, we see that global economy faces a downturn. Therefore, third quarter was quite a challenging period for us, and this situation is faced by a number of companies, not only Grupa Azoty.

The most important externality that affected our performance quite significantly, both in the third quarter alone as well as for the entire period for 9 months of the year, year-to-date, are obviously gas prices. As you can see in this slide, there was a high volatility in the gas market. In the third quarter alone, the level -- the minimum level of -- was EUR 143.5 per megawatt hour or the maximum level was at EUR 342 per megawatt hour.

Therefore, you see that those levels are very high the prices are very high, and you can see that the average price of gas were why -- have increased quite significantly. And also, this was combined by high volatility. Therefore, we decided to cut our production even though we were the very -- one of the very last producers in Europe to do so. Other macroeconomic effects were externalities.

One more thing to add, we are showing you the slide again. We showed during our conference call when we discussed the first half of the year, the problem of reducing production of output does not apply to Grupa Azoty only. It applies to all the companies across the board in the European Union. You can see quite clearly that all producers face the same challenges and the same problems that I have already mentioned.

Other externalities and macroeconomic problems that are very important for us and in fact, our conditions are, first of all, price of electricity, CO2 emission allowances and, obviously, currency exchange rates and, of course, inflation rates, which is important for the consumers.

The rising inflation rate is tackled by the state by tightening monetary policy, therefore by increasing interest rates, and this affects obviously the purchasing power of consumers, and this naturally affects the demand for our products. This translates into our cost structure. You can see that our costs grew significantly in the third quarter alone year-on-year. The major increase applied to cost of gas. In our case, in this quarter, in the third quarter, it was at 162%.

At the same time, our revenue went up as well. However, this was based on cost increases. In other words, it was due to skyrocketing costs. This situation applies to the entire period of 9 months of 2022. We are talking about an increase in gas prices which was [ in the higher ]. The same applies to an increase in revenues, which was cost driven.

In the Agro segment, I'd like to point out here to a major element. That is the fact that the third quarter is always a period where we notice a decline in demand due to the harvest season and field work. At the same time, this period sees a decrease in the prices of agricultural products, and you can see it on this particular chart, the margin for NA fertilizers versus prices of gas went down. This is an effect of seasonality to a certain extent.

What was nonstandard in this period was the fact that volatility was very high and gas prices were extraordinarily high, which obviously made most European producers cut down their production, Grupa Azoty included. In terms of compound fertilizers, the situation is quite similar. However, there were certain other externalities that played a role. In addition to natural gas, other feedstocks used in production, for instance, phosphates, potassium chloride or sulfur, they also had a major impact on the level of production costs.

We can see that the European margin, for instance, NPK fertilizers was negative in the third quarter, which was due to high level of consumption of feedstocks used in the production of these fertilizers. Therefore, the situation here is still challenging in terms of macro effects.

A couple of words on the import of fertilizers to Poland. As you can see in this slide, the imports went down, especially in terms of AN or compound fertilizers compared to previous years. However, we should point out that we still see a higher import figures for urea, technical urea as well as urea used in agricultural production. In our weather conditions, however, this last fertilizer is not used that extensively. But concerning the price, looking at the price, you can see that the import level of this particular fertilizer went up.

Grupa Azoty, when we cut down our production, we focused on, obviously, Polish market. It is worth pointing out -- at this point, it should be noted that due to the focus on our Polish market, the access to fertilizers in Poland was not restricted even though we cut our production.

A couple of words on the Agro segment alone in terms of its market environment. As I said before, the situation was affected still by Russia's military aggression on Ukraine, which obviously brought a lot of challenges which we had to face. In the period under review, we were the one of the last producers in Europe to cut our production. At the same time, we face -- we had to face the lower imports of both nitrogen and compound fertilizers. And as I said before, we focused our activities on the Polish market.

In the Chemicals segment, we also had to face a number of challenges related to our macro environment. First of all, we saw quite clearly that the purchasing power of our consumers went down significantly. Therefore, the customers of our products decided to buy less products than before. And until the end of the first half of the year, the demand remained at a quite solid level. However, it went down in the third quarter alone, quite drastically.

We show you the margins reported in European markets. For titanium wide, the margin went up. However, I must point out that this was not reflected in the volumes. The margins were quite solid, but the volumes in our case were not that significant. Therefore, we generated a lower result for the sale of titanium white.

In terms of [ plastics ] [indiscernible], the situation is worsening as well. But at the same time, it's very important, we are facing the competition from Asian producers. In China, we see a number of problems in the construction market and the producers that produce both finished and semi-finished goods for this particular market. We look at Europe. And we have received a number of transports of products which we already produced as melamine. We need to, therefore, face this competition, and we see quite clearly that this situation is a major challenge for us, and this obviously translates into our performance.

A short summary for the Chemicals segment. As I said before, quarter 3 was a period when we had to face a number of challenges in this particular area as well, mainly due to this macroeconomic situation as well as the lower purchasing power of consumers.

In the Plastics segment, the segment is clearly dependent on the macroeconomic conditions. And on the market, we see quite clearly that in the third quarter, we saw major declines in demand across the board from all the segments of applications of these products. The situation improved a little bit in the automotive segment, but it was not enough to offset the declining demand across the board. At the same time, we are facing, again, growing competition from Asian producers, supplies to polyamide, for instance.

This high uncertainty in the market is also reflected in the prices of feedstocks, as example. As an example, we show you average price of benzene, but they did not reflect the market entirely. We are facing major volatility and major challenges here. For instance, at the beginning of the third quarter, the price was at EUR 1,788 per tonne, but it went down drastically during the quarter. So we have a lot of uncertainties, a lot of volatility. This does not -- it's not visible at first sight, but we are -- now though we are facing these challenges also in the Plastics segment.

A short summary. In terms of the Plastics segment, obviously, this market is still impacted by the very unstable and geopolitical situation, which obviously is due to military aggression of Russia against Ukraine as well as high volatility in terms of product costs and high product cost in general, combined with the weakening demand from our consumers. All in all, these are major challenges that we had to face in the Plastics segment.

Moving on to the performance by segment. As a general summary, I need to point out that in 2 areas of our business, they contributed positively to our performance in the third quarter of the year. We're talking about the Energy segment. As I said before, we resold electricity which we had not used for our in-house production purposes. And secondly, the positive contributor was -- COMPO EXPERT was another positive contributor, the company that sells their products across the world, all over the world, and we must point out that this positive contribution was generated in both Americas, especially in Mexico and in Brazil.

Moving on to our performance for the 9 months of the year, the situation here is quite different than for the third quarter alone. However, we must point out that throughout the 9 months of the year, year-to-date, there was a major positive contributor, and this was Chemicals segment. The Agro segment, as I said before, was under a lot of exposure and risks in terms of continuing the production. Therefore, we were forced to cut our production. This is quite clear when you look at the chart on the right-hand side, the decline in sales volumes year-on-year. This was obviously due to the cuts of our production.

In the Chemicals segment, it should be noted that the major contributor -- positive contributor to our performance in this particular segment was the sale of urea used for technical purposes as well as the solutions, urea solutions. Almost half of EBITDA generated for the 9 months was due to -- was generated in this area. There is the sale of urea and urea solutions.

As I mentioned before, in the third quarter alone, we faced a lot of challenges, both in terms of our production and our customers as well as in terms of the feedstocks and products and the growing competition from Asian producers. All in all, we saw a major pressure in terms of our price.

In the Plastics segment, the situation was quite similar to the Chemicals segment. Again, a number of challenges in terms of the demand, the customers, the consumers as well as the weakening, declining and combined with high volatility uncertainty in terms of feedstock prices. However, I'd like to point out that our performance, especially for the 9 months of the year, year-to-date in the Plastics segment is quite solid still.

Moving on to our financial standing at the end of September. It should be pointed out that the net debt-to-EBITDA ratio, our main indicators that is used in ratio is used in our financing agreements was at 0.5. That is at a very low level. Our situation was solid, stable. We have secured funding for our investment program. Especially this applies to the funding for our flagship investment at Polimery Police.

Moving on to our investments. In the third quarter of 2022, investment figure was at PLN 436 million, less than compared to the previous year. However, this was due to the schedule of investment program. This is not something that you should be concerned about and that we should comment on. In the 9 months of the year, our investments were at PLN 1.773 million, of which 1/2 was spent on Polimery Police. Again, spending was lower year-on-year. However, this was, as I said before, the progress of work in accordance with the schedule.

Our largest investment project and CapEx project, the state of the Polimery Police project, the stage of completion at the end of September was at 97%. At the same time, we introduced our brand, our commercial name that's been used to sell polypropylene. That is Gryfilen. That's the name of the brand. This name relates to the geographical tradition of this region, the region where we operate where the Polimery Police project is located. I'd like to point out that the polypropylene to be sold by -- under the Gryfilen brand, that will include around 30 products, including 3 main product families depending on the final application: homopolymers, copolymers with higher impact resistance as well as the random polymers -- the randomized polymers. These products will be used to produce packaging, white goods as well as in the automotive or pharma business.

This is important because the applications of these products, which will be produced by the Polimery Police project is diversified. This will reduce our exposure, the risk we have to face in terms of one market or a single market, which could undergo a certain breakdown. This risk is hedged and reduced. This investment is progressing as planned, and the expected launch of commercialized use is 2023. The budget of this project is 1.8 billion. And the spending to date, USD 1.8 billion, and the spending to date is [ for Q1 ]. The financing structure is shown on this slide. The assumption was that, and we are delivering on that assumption. It was that the capital brought by our partner is 40%, and the debt financing was at 60% and the shareholding structure was updated slightly. LOTOS was replaced by PKN Orlen due to the capital ownership structure at LOTOS.

Moving on to our other CapEx projects and investments in progress. We focus on one of these investments, and Pulawy will comment on other investments. I'd like to point out too that we have a new energy concept at Kedzierzyn, which assumes that process heat will be used -- from ammonia facility will be used to produce electricity, and this project is -- the stage of completion of this project is almost 90%.

Moving on to our performance by company. I would not like to comment on that because I will give the floor over the respective speakers. However, I'd like to point out that the performance by company, looking at this table and considering the major challenges in our environment in the market, the performance is at a very satisfactory level. How is this satisfactory? It's quite solid. However, we can see quite clearly that the third quarter was quite a challenge for our companies across the board.

Moving on to discussing and commenting on the performance of Grupa Azoty Pulawy.

[Tomasz Hryniewicz, executive]

Thank you very much for this introduction. Good morning. I would like to discuss the consolidated performance of Grupa Azoty Pulawy for the third quarter and for the 9 months of the year. Third quarter was a specific quarter, a very special quarter for the group. We had to take a very difficult decision to cut on our production and stop most of our production facilities. This decision was due to, first of all, the situation in the feedstock market and other externalities as well.

In the third quarter, we saw a major increase trends as well as high price volatility of most of our energy feedstocks and petrochemical feedstocks that we use in our production, mainly as applies to the price of natural gas. This quarter started with the price levels of gas at EUR 140 per 1 megawatt hour. And in August, we saw a drastic increase in gas prices up to EUR 220, EUR 230 per megawatt hour. And we ended the quarter at EUR 100 per 1 megawatt hour. Considering this unprecedented growth in gas prices at the beginning of July, we decided to cut our production of melamine in the Agro segment down to 20% of our capacity, vertical capacity. And 1 month later, we decided to stop melamine production altogether on August 20.

Second, we were forced to cut our ammonia production to 10% of our capacity. As a result, we stopped our production in the Plastics segment as well as most of our products in the Agro segment. This production plan, we decided to proceed with that until October, where we decided to relaunch our production and our fertilizer units. And on the second -- on the 22nd of October, we decided to relaunch our melamine production up to 30% of our capacity as well as to relaunch our caprolactam production. Those decisions that we were forced to make as well as the situation in the feedstock market as well as the seasonality of our product determined, to a major extent, our performance in the third quarter of the year as well as our performance in terms of economic and financial ratios for the first half of the year -- compared to the first half of the year.

Our performance throughout the period is still positive. Our liquidity and our financial standing are still on the safe side. In terms of our infrastructure, we continued our upgrades and maintenance work in accordance with the schedule during the -- during while we stopped the production as well.

Moving on to our key financial parameters from the perspective of the third quarter. I have to say that despite the cuts on production, our consolidated revenue from sales of our products at the capital group of Grupa Azoty Pulawy came in at PLN 0.25 million, going up by 6% year-on-year. And the major contributor -- positive contributor into that situation were the increase -- was the increase in prices. And at the same time, we saw declining sales volumes.

Higher revenue, this did not come -- offset, unfortunately, higher cost of our activities. And as a result, our capital group reported a loss in the third quarter all across our result levels. This unfavorable relationship between revenue and costs translated into our performance, and it was due to high costs in terms of the volumes of our both energy and petrochemical feedstocks consumption. We are talking about 56%, up to 60% of consumption year-on-year as a comparison. However, in terms of value, the costs were twice as high as compared to the previous year.

Our consolidated EBITDA was at minus PLN 1 million, going down by PLN 36 million year-on-year. Our consolidated net result was at minus PLN 50 million, going down by PLN 25 million.

Moving on to the key financial parameters year-on-year for year-to-date for the 9 months. Consolidated revenue for 9 months came in at PLN 7 billion, going up by PLN 3.7 billion year-on-year. The main contributor to the revenue was obviously were the changes in prices combined with lower revenue from lower sales in terms of volumes.

Our performance traditionally were affected by the feedstock markets as well as changes in cost structure which was observed in 2022. The consumption of major energy and petrochemical feedstock was at around 85% for the 9 months of 2022. However, in terms of value, it went up by almost 3x. The structure of costs was affected because 1 year ago, our feedstock costs represented around 70% of our production. However, this year, we are talking about a contribution of around 80%.

Our consolidated EBITDA for the 9 months of 2022 was at PLN 1 billion, going up by more than PLN 800 million year on year in terms of 9 months of 2021. Our consolidated net result, net profit was at PLN 883 million, going up year-on-year, which considering our overall performance is a very positive result. And we need to point to a high increase in EBITDA for our chemical products, more than 3x year-on-year. Our chemical products obviously include technical urea as well as urea solutions.

What makes us happy at the same time is a very profitable melamine and plastics business. In the 9 months of 2021, those businesses reported a loss. Right now, they are profitable. And these results are very strong, both in the third quarter of the year, and in the fourth quarter of the year, already, we are operating in the context of limited demands. Across the board, we are operating in a very unstable and volatile market situation. And we are under a lot of pressure in terms of imports from Asia.

Moving on to our performance by segment as well as the composition of the financial performance by segment and their contribution. Agro segment at Grupa Azoty Pulawy Capital Group, we're talking about the production of ammonia and urea and urea solutions. In addition to fertilizers, we also have a range of other products, mainly technical urea, melamine, NOxs, [ nickum ] as well as other products. In our Plastics segment, we have the production and sale of benzene derivatives, especially caprolactam, and the Energy segment is where we produce and sell our energy products.

And let me start with this segment because it was the only segment that reported a positive result, financial results at the level in the third quarter of the year. In the third quarter of the year, the revenue was at PLN 100 million in the Energy segment, going up by over PLN 100 million year-on-year. Our EBITDA was at PLN 68 million, going up by PLN 53 million. This is due directly to the to resale of electricity which had been contracted in previous years, but was not used due to the decision to stop our production facilities in this particular quarter.

In terms of Agro segment, our revenue was at PLN 1.8 billion, going up year-on-year. The main contributor here was an increase in cost of sales, especially for our certain products, and the negative contributor was the lower sales volumes due to the decision to stop our production.

In terms of cost of our production in the Agro segment, they went up by more than PLN 100 million, mainly due to an increase, a major increase in natural gas prices and the unfavorable revenue to cost relation. We saw a decline in EBITDA down to PLN 85 million versus last year, and we reported a loss in EBITDA level at minus PLN 56 million.

In terms of the Plastics segment, the revenue came in at PLN 128 million, going down year-on-year, which was due to reduced production of caprolactam, which was partially offset by higher prices of our products. In the third quarter of the year, the Plastics segment reported a loss at the EBITDA level at minus PLN 13 million versus PLN 5 million reported as a loss last year.

In terms of our performance by segment year-to-date, for the 9 months of the year, a major contributor in this period was the Agro segment, accounting for almost 90% of our consolidated total revenue at Pulawy, and the revenue of the Agro segment for the 9 months of the year was at PLN 6.2 billion, going up year-on-year.

We'll proceed to the breakdown of this very extensive segment that Agro is. We need to point to the share of non-nitrogen fertilizers of the segment, which were a major constructor to the revenue on the Agro segment. This was mainly due to higher costs of sales of technical urea, which was not used for fertilizers, as well as higher cost of melamine, even though sales volumes were lower.

The contribution of the Agro segment is also at the level of 90% at the EBITDA level, and the EBITDA of the Agro segment came in at PLN 942 million for the 9 months of the year, going up by nearly PLN 700 million year-on-year.

In terms of the Plastics segment, the revenue in this segment came in at PLN 519 million, reported higher revenue year-on-year by PLN 135 million. This was directly related to higher costs of caprolactam sales -- higher caprolactam prices.

At the EBITDA level, we reported a positive figure of PLN 11 million compared to minus PLN 19 million last year. We reported a loss for the 9 months of 2021. Let me emphasize at this point that this is especially satisfactory considering that we were under a lot of cost pressures and a very unfavorable cost to demand relationship in this segment.

In terms of the Energy segment, again, thanks to resale of surplus electricity combined with high prices in the market, the Energy segment reported revenue from sale at over PLN 200 million, going up by PLN 131 million year-on-year. Our EBITDA performance in the Energy segment came in at PLN 89 million, going up by PLN 57 million year-on-year.

Moving on to our CapEx projects, investments at Grupa Azoty Pulawy. As I said, we proceed with our investment program as planned according to the schedule. And in the third quarter, we spent a lot on the project to upgrade our steam boiler unit as well as the power generation unit. For this last investment, we are talking about the stage of completion at 88%. However, I'd like to point to another project, the granulated fertilizers facility. The budget is at PLN 430 million.

We launched or brought onstream the first line for the granulation of -- for the main mechanical granulation of fertilizers. In the third half of October this year, we had successfully performed a start-up of the second line for mechanical translation, and we are planning to complete the entire investment in the project this year.

Moving on to our global CapEx and total CapEx. Our spending, investment spending was at PLN 126 million for the third quarter. Year-to-date, we have reported PLN 254 million for the 9 months of 2022. This figure was -- is closely related to the schedule -- investment schedule.

So compared to 2021, you will see a difference, but this is due to the fact that most spending, or major spending related mainly to the power generation unit was attributed to 2021 and not to 2022. In terms of our perspective of future projects, we are continuing advanced analysis for the application of environmentally friendly sources of energy in relation to or in accordance with the directions of our growth adopted by that group.

[Marek Wadowski, executive]

Thank you very much for your commentary on the group. Let me move on to the performance of Grupa Azoty Police. So I'll give the floor over to Mr. Michal Siewierski to discuss the situation at Grupa Azoty Police.

[Michal Siewierski, executive]

Very good morning to all of you. My present -- I will start my presentation with a short summary of major events of the third quarter of 2022. First of all, the adoption of the strategy for 2020 to 2023. We published a current report in this particular area. We decided to extend our agreement with PGNiG for the supply of natural gas. We signed an annex with PKO for the agreement of credit agreement of a multipurpose credit as well as a cash pooling service, and our Police port project was -- received cofinancing from the European Union.

Moving on to our performance for the third quarter of 2022. It must be pointed out that our consolidated EBITDA was at PLN 28 million. Our EBITDA margin was at 2.1%. That is going up by 6.4 percentage points, down compared to the margin last year. Our net profit came in at PLN 39 million, significantly lower year-on-year.

Those results were obviously generated in the context of high volatility and high uncertainty, which was due to, obviously, a sharp increase of feedstock prices as well as the volatility of their commodity exchange prices as well as the effects of military aggression of Russia against Ukraine.

This obviously affected our performance, both of the company and the group in the reporting period. Our operations in the third quarter of [ 2021 ] was also -- were also determined by high increases of our major feedstocks that are used in our production processes for -- to produce the products sold by the parent company.

In relation to the third quarter of [ 2021 ], we reported, among others, an increase in the prices of natural gas, potation chloride, phosphate sulfur ilmenite as well as titanium slag. As a result, we saw a major decline in margins. And I'd like to also point out that our CapEx spending in the third quarter were comparable to our last year's spending.

In terms of our performance for the 9 months, our consolidated EBITDA was at PLN 370 million. Our net debt -- net profit -- excuse me, net profit was at PLN 165 million, below -- significantly below the results for the 9 months of 2021. Our operations was affected by very dynamic changes in our market environment, mainly due to geopolitical situation. This growth trend for a number of feedstocks was also important, especially in terms of natural gas, phosphates, ilmenite, sulfur, potassium chloride and titanium slag affected our revenues.

Our EBITDA margin for the 9 -- for the 3 months of the year was comparable to the one reported for the last year. We must, of course, point out that most of our performance, a major part of our performance was generated in the second quarter of 2022 and not the third quarter. Obviously, the main contributor into our operating results for the 9 months of 2022 was the sales of nitrogen products used for technical applications. And also our performance was also affected by the volumes of the sales of our products, especially due to a breakdown of our boilers at the energy, our power generation center.

Moving on to especially the Fertilizers and the Pigments segment, we had to say that our performance was lower year-on-year. In terms of our Fertilizers segment, the EBITDA came in at PLN 16 million and the EBITDA margin was at 1.3%. In the Fertilizers segment, this reporting quarter was a period when we saw continuing increases of feedstock prices, the feedstocks that are used in our production processes, especially we're talking about potassium chloride, phosphate and natural gas, which was obviously a consequence of the ongoing military aggression of Russia against Ukraine.

The average market price of natural gas year-on-year was higher than -- it was higher over 300%. And in relation to the third quarter of 2021, the prices of phosphates and potassium chloride increased, respectively, by 161% and 238%. The price of phosphates and potassium chloride also increased in relation to the second quarter of 2022, so quarter-on-quarter. This high dynamic of increases in production costs translated into an average margin, EBITDA margin for the segment which was quite lower and significantly lower year-on-year.

In terms of the Pigments segment, in the third quarter of [ 2021 ], we generated an EBITDA margin at minus 4.3%, and the EBITDA level was at minus PLN 5 million. We saw a declining demand, which affected of course, the sales of titanium white. In the third quarter of 2022, we saw a major negative effect of higher prices of both feedstocks and energy [ feedstocks ], and this affected our performance, obviously. Our margins on sales was quite lower -- was significantly lower. At the end of the third quarter, the demand went down across the board, especially in terms of titanium white and also we had a surplus of titanium white in the European market and the production was cut by a number of major producers.

In terms of our performance year-to-date in the Fertilizers segment, we saw the level of PLN 321 million, which was significantly higher year-on-year. The revenue in the Fertilizer segment represented 89% of revenue across the entire group. The Fertilizer segment was mainly affected by the dynamic increases in the feedstock prices, especially as concerns the prices of natural gas phosphates, potassium chloride and sulfur. Due to these trends as well as the externalities in the market, we obviously saw higher revenue.

The main contributor to the performance of the Fertilizer segment was obviously the sales of nitrogen products used for technical applications. And the increase in margins was offset by the growing -- ever-growing cost of feedstocks as well as sales.

In terms of this Pigments segment, for the 9 months of 2022, we reported EBITDA at PLN 20 million, going down by PLN 36 million year-on-year. The revenue of the Pigments segment represented 8% of total revenue across the entire capital group.

Our operations faced higher prices or growing prices of all feedstocks, especially natural gas, ilmenite and titanium slag. At the end of the second quarter of 2022, and more specifically, in the third quarter of the year, the situation in the European market of titanium white had begun to change, and we saw major reductions of -- in terms of demand as well as margins. In terms of the volumes of sales of titanium white for 9 months of 2022, it was lower than in last year due to a noticeable decrease of demand for titanium white as well as, as I said before, a breakdown of boilers in our power generation center or units.

In terms of our investments, our priority flagship investment at Police and for Grupa Azoty in general, that is Polimery Police, the stage of completion for this project as at 30th September 2022 is at more than 96% or almost 97%. In the third quarter of the year, we continued supply of all imperatives and facilities as well as equipment. We continued assembly and tests for all our projects, as well as automation systems. In terms of the progress of our work, it was, at 27th of September, it was at more than 99.99%.

It is worth pointing out that we have a number of upgrades. That is, first of all, the upgrade of a power generation station, which is currently at 97%. The second such project is the use of hydrogen from polypropylene -- or propylene, I'm sorry, production to be used in the ammonia production unit with the stage of completion at around 69%.

One other major investment project carried out by the company is the project in which we want to make the production of demineralized water independent of the variable salinity in the Oder River and to increase the possibility of producing special waters. The budget is at -- of this project is at PLN 108 million, and the stage of completion has exceeded 96%.

For the 3 months of 2022, our spending on both tangible and intangible assets exceeded PLN 107 million, and this spending included investments related to growth of our business at PLN 43.7 million and maintenance investments at PLN 39.6 million. In the reporting period of 2022, the parent company completed the total of 73 investment projects, both continued and new projects. Thank you very much for your attention.

[Marek Wadowski, executive]

Thank you very much for these presentations. And now I would like to summarize, put in a nutshell our performance and our presentation, and we'll move on to the Q&A session.

As we said time and again, our performance in the third quarter were determined to a major extent by the effects of the military aggression of Russia against Ukraine, which translated into high prices and higher prices as well as high volatility on feedstock prices. As a result, we were forced in the reporting period to cut our production due to high, significantly higher feedstock prices and costs. At the same time, we should point out that we were one of the last European producers to take such a decision in the European Union.

Right now, we have relaunched our production across all our facilities. In terms of melamine, we produce at the capacity of 30%, but for other products, we are producing our main products as planned. In this very difficult and volatile period, quarter 3, when we faced a number of major challenges in terms of both demand and production as well as volatility in terms of feedstock prices, we reported still a very satisfactory level of our financial performance while maintaining a very stable and solid financial situation.

[Operator]

Thank you very much to all of you for this exhaustive summary of the third quarter of the year. We received a number of questions. Thank you very much for the questions. On the 17th of September, around 70% of your production capacities were off. What is the situation right now? Could you give an estimate? And where have you relaunched your production?

[Marek Wadowski, executive]

According to our estimates right now, the production costs relate to around 30% of our production capacities the Fertilizer segment in the European Union. However, this situation is quite dynamic. It is changing dynamically and so this number can be different. However, these cuts, these reductions are still maintained -- and due to the situation in the gas market, but the -- also due to the improving situation, as the price levels of gas go down, production is relaunched, but you have to remember that there is a major uncertainty in the gas market. And you have to remember about that.

[Operator]

The next question, what is the value of one-off events related to the resale of electricity? And what was the number related to CO2?

[Marek Wadowski, executive]

[indiscernible] will answer the question.

[Unknown Executive]

The effect of one-offs was in total at PLN 202 million, of which PLN 125 million for the resale of electricity, which was allocated to the Power segment or Energy segment. And the rest, that is around PLN 170 million, was allocated to CO2.

[Operator]

What is the final date of completion for the power generation unit at Pulawy? What is the stage of negotiations with the general contractor for that project?

[Tomasz Hryniewicz, executive]

In accordance to the current report that we published, our partner in this project, that is Polimex Mostostal, said -- informed us of the expected increase of the entire -- of the total value of this contract as well as the extension of the period for the completion of this project. Right now, together with Polimex, we are analyzing this project. And after we have analyzed those elements, we will inform you of the results of those analyses in the current report.

[Operator]

Thank you very much. We are running out of time. So thank you for participating in today's conference call. We -- you will have a chance to take part in an investor chat with Mr. Wadowski later.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]