Grupa Azoty SA

WSE:ATT

Earnings Call Transcript 2024-Q3

[Operator]

[Interpreted] Good morning, ladies and gentlemen, and welcome to the conference call of Grupa Azoty Group. Today's conference will be dedicated to the financial performance of the third quarter of 2024 and the new Azoty business program. The details will be discussed by Mr. Adam Leszkiewicz, President of the Management Board, CEO of Grupa Azoty; Andrzej Skolmowski, Vice President and CFO; Hubert Kamola, Vice President of Grupa Azoty, President of the Management Board of Grupa Azoty; Andrzej Dawidowski, Vice President of Grupa Azoty, President of the Management Board of Grupa Azoty Police.



Today's speakers also include Pawel Bielski, Vice President of Grupa Azoty, responsible for the strategy; as well as [ Miroslaw Ptasinski ], President of the Management Board of Grupa Azoty.



The floor is over to Mr. Adam Leszkiewicz, President of the Management Board. Thank you very much.

[Adam Leszkiewicz, executive]

[Interpreted] Good morning, ladies and gentlemen. I'll start with the words of gratitude to the analysts and experts and the journalists who work in the area of Grupa Azoty Group's business.



In the third quarter of 2024, all the comments are received by Grupa Azoty Group, and we're trying to use them as a motivation for us. And so please do continue.



The time flies. After November, we presented our financial performance of the second quarter and the first half of the year, we are now ready to present and discuss our financial performance of the third quarter of the year and year-to-date after 9 months of 2024.



We are very well aware of the fact that Grupa Azoty, despite a very challenging situation on the onset, we keep performing. We are still one of the very important elements of the food chain and the fertilizer chain in Poland. On the other hand, however, we are well aware of the fact that we don't have a lot of time to implement and deliver our turnaround program. So we have to catch up.



The financial performance and the details which we will present and discuss are well known to you after the forecast we have published before. They are a result of the work and hard work of all the employees and our partners -- and we keep emphasizing that this engagement, involvement and a partnership in this very difficult time is something that we need. So thank you very much to all the stakeholders involved.



And I'll now take this opportunity to thank all the Management Board members of the key subsidiaries of Grupa Azoty Group. As an example, as of March 20, we have started to implement all the necessary resolutions across Grupa Azoty Group, and they all have been adopted. So this is a result of our teamwork and the Management Board's work.



Let us start with the background and the turnaround plan and program, and then we'll move on to a discussion of our performance by segment and by all the subsidiaries that are public companies listed on the Warsaw Stock Exchange.



As far as our performance is concerned, it is not satisfactory neither to us nor to anybody else really in terms of our stakeholders despite our efforts across all the board. Compared to last year, we cannot be satisfied. The performance is better, but it's not satisfactory still. We have managed to reverse the negative trends in terms of our performance. We are also adding the financial benefits that come from restructuration efforts. We have launched system organizational changes necessary to improve the situation in the longer term. We have managed to implement the basics for the new restructuration. We are now in the process of implementing the new program based on segments. We will discuss it in more detail later on.



I'd like to emphasize one thing as a word of introduction. The Group does its best, takes all the necessary measures in order to improve our performance and to respond to the challenging environment that we operate. And I do believe that this is something you can see in our results in the measures that we are taking in order to improve the function of our business and the Group as a whole.



We believe that the consistent implementation of those measures in terms of the turnaround plan is something that we can believe in, in terms of something that we can share with you and our shareholders. The problem is the environment, the business environment. Standstill, especially in the automotive business. Imports and competition from the products that are manufactured in definitely different conditions in terms of the cost base as well as the growing cost of gas. These are the challenges that we have to face in our business environment.



And this is the context and the background in which we will discuss and present our financial performance for the third quarter of the year and also year-to-date after 9 months and all the measures that we are taking that will be part of the end-to-end Azoty business plan.



A couple of words on the challenges in the business environment that we have to function in the externalities and internal factors are still challenging and by which I mean our financial stability, liquidity as well as our performance in terms of revenue from sales, but also the external factors, something that we cannot have any influence on.



Every day, we have a lot of concerns on how we function in the chain and also in terms of our employment structure across the Group. The market is impacted by import volumes. We know that after the 8 months – during 8 months of the year, we received 2.8 million tonnes of fertilizers from abroad. We are still implementing our turnaround measures. The cost measures have been implemented as soon as possible. Right now, we are focusing on the quick wins. Right now, we're focusing on longer-term measures, something that we will see in terms of the effects in 2025 only. But they are very important as well.



Az of the business program is meant to emphasize and show our determination and resolve and how we want to change as a business or towards business in terms of business-oriented measures and especially in the CSR area. We are focusing on the business. We are focusing on financial performance. We're focusing on profitability of individual installations and also by segment. I'd like to emphasize the major role of all our employees and workforce as well as all the managers. So thank you to all of you for the performance, for the effects of your work.



We see a lot of understanding in terms of how you look at the challenging business environment and also the involvement of the social side, social stakeholders, especially in terms of the focus on cost elements in our structure. So we keep engaging in that dialogue with our stakeholders, and this is something that we will focus on. We are meeting our liabilities on an ongoing basis. We are building and strengthening our credibility in that area because we want to make sure that our financial market standing is stable with our financial performance is stable. So this is a path towards the return to financial stabilization.



In terms of our financial performance, obviously, we will discuss them in more details, but we see a major improvement in terms of net profit versus 2023 year-on-year. Obviously, there is a negative impact of import volumes, especially from Russia and Belarus. We're talking about 1 million tonnes of imports to Poland.



We see an increase in sales volumes in 2 segments in Chemicals and Plastics. But we also need to remember that the cost of gas in the third quarter went up significantly while the cost of our -- the price of our products went down. So most of our production raw materials as well as energy feedstocks went down. We see certain -- the effects of certain measures to reduce costs.



For instance, we do not have even a single sponsorship agreement in effect right now. We do not spend even penny on sponsorship. So we need to remember that this is something -- this is the measure that we have taken in the third quarter as well. All those measures are meant to strengthen our financial stability and liquidity and to increase and strengthen our credibility.



Looking at the performance for the third quarter, we're talking about nearly PLN 3 billion in terms of our revenues from sale. EBITDA -- EBITDA is negative, but it actually improved year-on-year by PLN 28 million. Net loss came in at PLN 226 million versus PLN 743 million last year.



I talked about an increase in the price of gas as well as a decrease in terms of raw material prices. And also, these results include the effects of certain measures that we have taken.



As far as our EBITDA, it went up by 65% or more than 65% and net profit nearly by 70%. Year-to-date, for the 9 months of the year, our consolidated revenue is more than PLN 9.8 billion. EBITDA at minus PLN 299 million, going up by over PLN 1 billion year-on-year. Net loss at PLN 975 million with a significant improvement year-on-year compared to over PLN 1.8 billion in 2023.



We must remember that the year-to-date performance includes the effects of one-off measures, especially the grants received by Grupa Azoty Group as an energy-intensive sector and also the rights of CO2 allowances. So this is something we need to consider as well.



In terms of our costs, cost optimization measures allowed us to drive down our fixed costs. And we're trying to keep the non-critical costs under control. We have reduced operating costs by 6.3% year-on-year. And the fixed cost base was reduced by PLN 104 million, mainly in terms of labor costs and other costs by type, especially advertising and sponsorship costs. As I said, we'll discuss it in more detail later on.



After this very general discussion of our performance, we'll discuss the background of the changes and the change process. Grupa Azoty found itself in a very difficult situation, caused by both internal drivers and also external factors. We have discussed it time and again. We are now under pressure, significant pressure due to high natural gas prices and at the same time, the ever-increasing fertilizer imports in the market.



The investment process delivered by the Group over the years increased our debt and the cost of debt way over the levels that we actually consider healthy in companies -- in Group such as ours. In order to survive, we need extensive end-to-end changes in our organizations and especially cost structure. This is something that we have no doubt about. We need to regain our market position and footing in key segments, and we need to modernize internal processes in order to achieve a financial standing and market standing necessary to compete with PLNopean and foreign competitors.



The next slide presents our financial situation compared to 2023. After the record-breaking revenue in 2022, 2023 saw a drop in sales volumes and the prices remained high. So the volume continued to go down, which obviously translated into lower revenue from sales in 2023, and continuing into 2024. The margins on main products and main segments went down and the volumes of sales went down as well. This is the reason of our lower operating performance, especially EBITDA ever since 2022. The CapEx spending, which obviously went up significantly, doubled or more than doubled after 2022, which led to high debt and debt servicing costs.



What have we managed to do in the previous months? What was key for us was that we stabilized the liquidity situation? We remember the situation that we've had at the end of March and at the beginning of April. What's very important is that the trend reversed. This trend is now heading towards the opposite direction. I mean the negative trend, of course, the improvement of sales and business results compared to the 3 quarters, we have an improvement of around 650 tonnes. We have plenty of anti-cost quick wins that are bringing savings yearly of around almost PLN 350 million. It's actually close to PLN 400 million Therefore, we have launched a complex program of Azoty business, which I'm going to present to you briefly. We have also a 10-point turnaround program.



The main elements of the programs are aiming at restructurization and seeking for understanding with banks, long-term research for external capital improvement of business and also solving many key problems such as, for instance, launching a polymer installation in Police.



We have prepared a full catalog of developmental projects. We may not forget about it, and we still have to constantly expand the perspective for our stakeholders. It is not only about limiting and cutting costs, but there is a lot of hope of new income of the new EBITDA. It lies in what we are planning to do within 4 or 5 years. And that's what we have to prepare for already today.



Changes in organization, in personnel, decrease in number of management jobs, members of Board and it's worth to remember that we've decreased the number of positions. We have accumulated certain tasks. We've introduced new rules of rewards for the management. And we have also introduced in Azoty Group competition procedure for management positions and minus 1. We have launched strategic processes, meaning that till the end of the first quarter next year, we want to prepare an update of development strategy, and we still are claiming that by the end of the year, we want to prepare the decarbonization program plan.



We have formulated a proposal for certain regulatory activities, which are very important to us. And here, for example, I want to mention the question of preparing for Polish presidency in the European Union, where clearly, we communicate and officially, we do it. This discussion regarding directive RID free and all the duties that are provided by the directive when it comes to meeting via the industry the issues regarding to the greenery.



I want to remind you that our obligations are binding for the member states as of 2030. Project of Storage Act that the governmental administration is preparing right now it's related to the change of the model of functioning of the gas market in Poland and our activity with this respect. The change of act regarding fertilizers and fertilizing and last but not least, an important issue of tools regarding to duty. And those are elements which are important to us and that we participate in very actively.



Looking at the results of our 7 months activity as of the end of March or beginning of April. Here, we have limitations of costs compared to our plans of PLN 300 million. That is almost PLN 100 million on the cost of labor, limiting costs compared to the last year by PLN 104 million. We have decreased employment as of March. The decrease is right now 700 people, and we are going to continue this process. Right now, our Group is under 15,000 of employees.



We've launched plenty of optimization activities in key sectors. Here, it's about, for instance, new rules of sponsoring. We are not participating in it right now, but we still need to establish new roles. Same thing when it comes to logistics optimization, and this accounts to several million lot till the end of this year.



Improvement of financial results, that's something we already spoke about in decreasing CapEx and spending some renovations. It is something that we are and we will be working on. We are introducing a new system of central monitoring and control of the investments. I'm going to come back to that. We are launching activities related to capital strengthening and new businesses. And here, we are speaking of logistics that should be growing and it should be a bigger part of our business.



We also speak about entering the segment related to strengthening of our presence in the segment of explosive. We already are there but we still have logistical and resource-related infrastructural resources to strengthen our presence in there. What's also important to us is the civil side. All the key Groups have already done it. We are informing you on an ongoing basis about it. Those processes are also ongoing in smaller enterprises. Probably the value is lower when it comes to the numbers, but this is very important because we all participate in the turnaround plan in the process of recovery. We are preparing every single company has its own set. There are also collective agreements. We are preparing projects of unified collective agreements. We are going to begin negotiations and consultations in this respect.



Five times, we have come up with agreements with banks. We are full of hope because the standstill right now is binding till 29th of November, and we hope for further activities in this respect. I will talk about it later on, too.



And launching the systematic changes process. Maybe today, we are unable to mention the financial numbers related to it, but the changes in the system of work, the system of five brigades and possible changes that will optimize the costs. The question of limited production installations. It's a question of reducing not only the number of jobs, but only full-time jobs because this is a cost potential. There could be in class potential in it. But those hundreds, around 800 jobs are being deleted. So, the system of increasing the constant costs in the future should be very much limited. And therefore, we have an improve of financial situation.



Here, we have four results that are dispersed in several slides. I don't want to discuss it in detail. We have right now a financial model until the end of 2029. We still are working on it. There is also a model of dialogue and understanding with our banks, and we thank very much for multiple constructive approach and dialogue and the possibility of building solutions for the future that will stabilize financial situation in Azoty Group. This dialogue is still ongoing.



Andrzej Dawidowski even today morning has had yet another meeting with one of our creditors, one of our partners. This means that the dialogue is constant. We have also formulated certain paths related to an option of acquiring capital. We are working on different scenarios. We are going to inform you on an ongoing basis. Should there be any decisions we will be taking, we will be informing about it and the systematic changes that will impact our future.



When it comes to activities that are for development and strengthening of business, it's creating developmental program, introducing this investment process. Here, I can tell you that from what's ongoing and needs to be negotiated, and we need to see the financial proposals, but we are about to finish the first project in this respect. This is a new information, and I hope that within the next days, the situation is going to have a positive result.



Not core, not necessary assets are going to be moved to the market. We would like you to get interested. We would like the new investors to get interested in it. Preparing and introducing solutions in Polymer Police, my colleague is going to talk about it more, and this is very important. We have constructed a path towards the final transfer. We would like it to happen within the next weeks. We are in constant dialogue with the executor. We have technical aspects in the part of the installation is already done and some is still waiting for release. We are conducting negotiations and part of the market is aware of it because we are informing on an ongoing basis, and we are heading towards the final understanding.



And the goal is to launch as soon as possible production. But we also need to remember that we have already produced over 200,000 tonnes of polypropylene, and this is a big success in this respect. And I hope that this is also going to have its input into the future EBITDA of Azoty Group.



The new business sectors, update of strategy, plan of decarbonization proposals regarding duty and centralization of planning system and implementation of investments and renovations. I'm going to show you details in this respect soon. The goal is to build strong Azoty Group. And here, many activities that on an ongoing basis, we were not discussing those are internal, but today is an opportunity to speak about them. The main internal policies, the ones that are related to the rules of salaries, hiring, et cetera. It's all amended.



We have new rules of ownership monitoring, but I want to underline most of all, the fact that it is being signed by all the companies, but the management of Azoty Group has already signed an integration contract that combines all the subjects within the capital Group. which is putting a stress on consolidation and integration.



This is the direction that is going to be one of the keys in the process of repair and implementation of Azoty business program. The organizational structure that we are aiming for is already ready. We are copy pasting it in all the companies from the top to down to make a better cooperation. So, dialogue and understanding with the civil side, we don't talk about it on a regular basis, but permanently in this difficult time, what we need is cooperation and dialogue with the social side. We have rules of dialogue, which are signed by both Board members and union organization.



To give you an example, first day, last year, I've met with all the unions in Polita. This week, we've met with trade unions in -- this week, we've had a third meeting in Puławy on Friday. And we are about to have a complex, maybe seventh or eighth meeting in Tarnów. Here, I would like to thank my colleagues for the dialogue together jointly, we are talking, consulting and informing and we are making attempts, -- maybe not everything is as it should be, but we are doing our best to respect mutual roles, activities that we perform and to see the final goal, which is in the best interest of Azoty Group. That means a turnaround program, structurization program and aiming at functioning and competing on the market.



A couple of words now on the Azoty business program. So, let's move on to the timeline. We treated as the third phase of our program in the first months. We took quick win measures in order to drive down our costs and to improve our liquidity as well as to stabilize our business and undertaking dialogue in all the major stakeholders, including the employees and also the banks and also any other stakeholders that we find important such as distributors in the market, in the fertilizer market. This was important to us because the issue was neglected before.



In the second phase, we reviewed the strategy of our business. This was concluded with the report and the recommendations, what we should do in order to go back to stabilization. And right now, we are at the beginning of the third phase that is the formulation of a number of hundreds actually of initiatives, which will be in and we'll work on them broken down by teams across the Group and identify the areas of improvement and those teams are already working, the meetings have begun and only yesterday with meetings in terms of specific initiatives, and we will communicate the effects on an ongoing basis.

The program for us is key, is a key measure, key process.



We have started with cost measures. We have analyzed the situation. We improved our competencies as well as our business operations. Right now, it is time to present certain guidelines within which we will operate in the coming several months across the Azoty Group. This process of delivery initiatives takes place measures to take as of spring, we want to move on to the phase of complex, comprehensive delivery of the program and the effects we will see in mid-2025. So, this will be certain quick wins to see in order to improve our organization across the Group. So, the effects will be visible and obvious in the very peak of our maintenance season that is after the fertilizer season. But obviously, all the initiatives will have their own life cycle.



What is the program all about? Obviously, there's an effect of our re-structurization and transformation measures taken before, but it assumes a change in the business model and the model that assumes our operations based on segments and also on centralization of all the auxiliary or support operations in addition to our key products, be it in the plastics, fertilizer or chemicals or oxo alcohol segments.



This will be already made program for 24 months to come in order to improve the efficiency, but also profitability of our businesses. We are excluding and eliminating certain installations that are either unprofitable or they generate a lot of costs. What we want to leave in the organization are the installations that have been reviewed very deeply in terms of their profitability. We are now formulating certain formal and legal structures in order to react quickly to the ever-changing situation to make sure that we know whether or not the products or the installations or the units we're talking about actually bring profit. And this is the main assumption of the program, to create a new effective structure in terms of management, but also organization to optimize all costs because we still see some room for improvement, and we're looking for them as well to consolidate and improve efficiency of all our subsidiaries.



To combine all those measures, in terms of integration of all the companies with auxiliary operations. So all the companies that actually perform certain functions in terms of maintenance, automation, electricity or electrical systems or also the design work. So all these companies, all these additional auxiliary operators will also be integrated. Obviously, we'll focus on the logistics muscle across the Group, we are also analyzing our energy assets.



Improvement of our efficiency in terms of sales, strict and tight control of our spending and the so-called CapEx control tower. This is something that will strengthen our transformation efforts. We are right now operating in a system where we have a committee reviewing all the projects worth more than PLN 10 million. We are taking over control over the majority of costs and CapEx measures across the entire Group. We'll also continue divestments related not only to our subsidiaries and assets. We're talking about a number of units. We're looking for investors, but also in terms of properties, buildings and structures and so on.



As for our plans towards the end of the year, we want to continue cost optimization efforts. By the end of the year, we will adopt the recommended work organization system and we will begin consultations with our employees and community stakeholders. We keep reducing the workforce and headcount levels. We have internal goals adopted here. We will continue all the measures in order to make sure that every company across the Group, even the smallest one, takes the decisions in consultations with the trade unions based on the suspension of certain provisions relating to cost and collective bargaining agreements.



And we will obviously adopt time schedules, and we have taken first decisions, here we're talking about the time frame of 24 months. We'll obviously look for savings in key areas such as logistics. Obviously, investments are taken into account here. We're analyzing the provisions of agreements with our partners, we are talking about more than 100 such agreements in [indiscernible]. So this is a great number of agreements here. Obviously, we'll focus on tax costs and all the ancillary costs in this area.



We have launched the process of Group redundancies at Grupa Azoty Siarkopol, where the situation is the most difficult in terms of the business side, but also we need to remember about the increasing number of employees in this company. So we will do our best to keep the situation under control in this area, we have started those measures here. All the options are discussed -- are being discussed, they're on the table but we want to and need to take certain decisions. We have received recommendations in terms of integration of companies of auxiliary -- providing auxiliary services. These are the goals that we need to deliver by the end of the year as well.



A short summary here. We need to be aware of the fact that while managing this entire organization, we, in the meantime, keep operating to deliver all the performance goals. We are managing the Group while transforming it towards the new business model. So this all happens in parallel. All the new initiatives that were adopted and will be adopted will help us to achieve that goal. We will notify the market of the effects of those measures, obviously, on an ongoing basis. We want to achieve a long-term agreement with financing institutions and we do hope that in the months to come, we'll see a positive outcome of those measures. We want to build a strong capital Group with a very strong mandate to manage the entire organization based solely on business segments and not the location, local conditions, local influences impacts and so on. This is something that we'll no longer see in Grupa Azoty -- across the Grupa Azoty Group so we will implement a brand-new business model. This all will lead us towards a new better situation.



On my behalf and on behalf of the entire Management Board, I tried to show you the measures that we are taking in terms of both system organization and financial performance. But very honestly, and realistically speaking, we want to show you where we are, what we have managed to achieve, what is still ahead of us, maybe something should have or could have been done in a different way. But this is something we have achieved to date, we have new challenges ahead. But we see a common goal and we have a shared belief that the Grupa Azoty Group is a company that will operate in the Polish market on a permanent basis, be part of -- a stable part of the entire food chain and fertilization market.



And we do believe that within a short time, we will manage to see better performance in terms of operations and also financial performance and we will drive down costs, drive down debt and become and remain a permanent member of the market, not only in Poland, but also in Europe, to say the least.



We'll now move on to the discussion of our financial performance. The floor is over to Andrzej Skolmowski, CFO, to discuss our financial performance in the third quarter of 2024.

[Andrzej Skolmowski, executive]

[Interpreted] Despite the improvement of EBITDA by PLN 226 million year-on-year the results of key segments are not satisfactory. In the third quarter, EBITDA was negative. In the Plastics, Chemicals and Agro segment, minus PLN 89 million, minus PLN 85 million and minus PLN 37 million with a positive EBITDA reported in the Energy segment and in the Other segment, as you can see on the slide.



In the third quarter of 2024, we reported higher revenues from sales, especially with the contribution of the Plastics segment with Grupa Azoty Polyolefins and other segments reported lower revenue.

For the 3 quarters to date versus 2023, the Group reported negative EBITDA at minus 3%, in the Agro segment minus PLN 155 million, minus PLN 190 million in the Chemicals segment and minus PLN 182 million for the Plastics segment, whereas the Auxiliary segment, that is Energy and Others segment reported a positive EBITDA. Most of our segments reported lower revenues, except for the Plastics segment, which reported the revenues from the sales of Grupa Azoty Polyolefins, which is in the commissioning phase. In comparison with 2023 we received aid from the state program of support for energy-intensive sectors and obviously, we also had additional inflows from sales of CO2 emission allowances.



In the third quarter of the year, Grupa Azoty recorded higher petroleum-based raw materials going such as phenol, propylene, propane, which is a main feedstock for the production of Grupa Azoty polyolefins as well as the cost of gas, natural gas going up by PLN 182 million due to higher volume of consumption.



On the other hand, we had lower costs of energy carriers, that is coal and electricity as well as fossil -- minerals such as phosphate rock and potassium chloride. In the third quarter of the year, the share of gas in the consumption, cost of consumption of feedstocks was at 36%, going up year-on-year by 3 percentage points.



Year-to-date, for the 9 months, we reported lower natural gas costs going down by more than PLN 400 million as well as energy carriers, such as coal and energy and minerals, especially potassium chloride and phosphate rock.



In total, the reduction in the cost and prices of feedstocks combined with higher consumption. Higher costs of raw materials, especially petroleum base going up by PLN 207 million, such as phenol, propylene, and propane, which resulted from higher volume of consumption. The share of gas in terms of cost of gas was -- went down by 4 percentage points year-on-year in terms of our performance year-to-date.



We're now moving to the Agro segment. As far as the Agro segment is concerned and its business environment, despite major volatility over the past several years, the agriculture markets are showing signs of stabilization due to modernization and the agency for modernization and restructuring of agriculture informed that the total pool of support for both direct and transitional payments will amount to PLN 15.75 billion. The European Commission drove down the estimates in terms of production volumes for wheat across the European Union at currently 12.3 million tonnes going down compared to the previous season.



In terms of ammonia, it was the main source of disruptions in the market, especially in terms of major producers in Saudi Arabia and in Africa. The price of gas, as Mrs. Skolmowski has already mentioned, the prices went down year-on-year. However, they are still remaining at a higher level than before the war in Ukraine.



In addition, we had a major influence of the minimum prices of exports for agricultural produce from Ukraine and this will make it easier to secure the permits in this market, and this will have an impact on the situation in the Polish market. In terms of urea, which is the main nitrogen-based fertilizer, which is also a benchmark for all the other fertilizer products.



We have already reached the peak. We forecast expect another peak in 2027. One of the major players bought 23 million tonnes of urea going down by 600,000 tonnes year-on-year. And China, which is the main producer and exporter of urea, maintain strong discipline in terms of export restrictions in order to reduce internal domestic inflation and exported 136,000 tonnes of urea compared to as much as 1 million tonnes last year. So this is a major change.



Grupa Azoty is working on the development and formulation of new products. We're looking for market potential here and application potential. Towards the end of the year, we'll have a new product, which will be produced in Kędzierzyn in Puławy. We're also working on the new formula for a compound fertilizer for specialist fertilization of corn. This is a very interesting product, which will be offered in the market. And we also opened a brand-new fertilizer segment for bioproducts and bacteria-based products.



In terms of compound fertilizer market, let's move on to the next slide. Over the third quarter, our typical compound fertilizer reported a slight increase both quarter-on-quarter and year-on-year. And in terms of the raw materials that are the main driver for compound fertilizer are potassium chloride and phosphate rock we are working on new solutions here in terms of purchasing as well as framework agreements with the current and new suppliers in order to improve our cost position. We're working on the purification of our compound fertilizer portfolio, also including the new offering of blends and [indiscernible]. We want to take advantage of our logistic muscles in terms of potassium chloride, in terms of the port hub, which was supposed to be a hub for the region.



Talking about our import situation, it looks very difficult. The European Union after the 8 months of 2024 imported 11.6 million tonnes, going up by as much as 11%. These are record-breaking figures with the major share of nitrogen-based fertilizers, 50% and the major exporter here, that is Russia, which is overtaking Egypt and Algeria.



European Union received more than 4 million tonnes of urea, representing a major increase, a record-breaking figure as well. Poland is also the main customer for the Russian urea. This is where we saw more than 500 million tonnes of these products importing to Poland, which is way higher year-on-year, especially from Russia and Belarus, 1.1 billion tonnes were received by Poland. So, an unprecedented increase year-on-year.



In terms of the results in the Agro segment, the main driver here is the exposure to imported fertilizers and the ever-increasing polarization in the domestic market. The purchasing power of our farmers, which is a relation of the prices of wheat versus the prices of nitrogen that is ammonia nitrate, which is a major feedstock in Poland, we're talking about the decrease in purchasing power by 20%, 25% versus the period from before the war in Ukraine, that is 2021. Despite our work in terms of cost reduction and technical production costs, we have not been able to compensate for those differences in terms of prices and costs. So we are looking at a negative effect here.



The lower effect was due to the seasonal increase in our inventory level. We are expecting the level to go down in the last quarter of the year and the revenue go up. Year-to-date, for the 9 months, we're talking about a level that is higher in terms of EBITDA, and we reported a higher EBITDA in the quarter for the 9 months of the year, going up by 81%. We are obviously working in this area to improve the situation.



In terms of the Chemicals segment, we are talking here about 3 main products, oxo, melamine and pigments. In terms of oxo alcohols, we saw a continuing actually reduction in terms of demand for oxo alcohols due to production standstills. In September, we saw that the demand was more sluggish, was lower than expected. And obviously, import volumes from Asia, which remained on an average level, mainly due to high cost of freight. But obviously, the impact of imports is still there.



In terms of melamine, we have 3 melamine installations that are not operating as we speak due to maintenance work. We are also seeing antidumping measures. We expect that towards the end of the year, this will be in effect. Discussions are ongoing in terms of reduction of the minimum price from China, and we are awaiting for the European Commission's decisions by the end of the year. As I said, the import duties against melamine imported from China were extended for the next periods by 2028.



In terms of pigments, the average prices of titanium white went down by around 2% year-on-year, going up by 2% quarter-on-quarter. The main driver here was the introduction of import duties, customs duties from China, which transferred our sources towards Western European suppliers. We're waiting for final decisions in January 2025 in terms of import series for titanium white. It all depends on the decisions taken by the European Commission. We are looking at [ directly related Annex ] #5 that is analyzing -- that is devoted to trade and countervailing import [indiscernible] customs duties. So we are weighing those decisions.



In terms of our performance in the Chemicals segment, the key driver here in terms of our improvement of our performance was the cost reduction measures, delivering quarter-on-quarter increase and improvement, especially in terms of the rising volumes in the third quarter and also over the 9 months of the year in terms of urea, especially technical grade urea and oxo alcohol is going up by 61%.



Under the pressure of lack of demand for automotive markets and in the segment of construction, this is a trend that has been maintaining for quite a time, but the demand has stabilized on the level of 75% of what we've had before COVID. Taking into account the spread between polymers 6 and benzene, we see a slight improvement in the third quarter of 2024. The spread has increased by 22%. This had a positive impact on the situation of a producer of polyamide 6.



The differences between European and markets in Russia, the prices are very high, EUR 524 that encourage to increase import of the product from Asia.



Looking at details when it comes to comparing benzene prices and prices of polyamide 6, we've observed in the third quarter a quicker decrease of the prices of the resources compared to the final products.



Results of the segment. In the scope of volume, we've increased sale of polyamide 6. We've also increased the sales of polypropylene. Of course, here, the comparison year-by-year is not something that shows the reality because polypropylene has launched an intense production only in 2024. The whole result of the Plastics segment quarter-to-quarter are on a similar level with a higher negative contribution of polypropylene product.



The EBITDA on a scale of 9 months improved from minus PLN 317 million by 42%. Azoty Group has been implementing the payments of debt in the period of 9 months this year. It was EUR 10 million in accordance with the stabilization agreement that we've had as of 2nd of February this year. Repayments of capital installments were suspended, including the loans with a consortium of banks and ADR. The Group, in addition, has a multipurpose credit limit agreement up to PLN 1 billion and another loan by 29 -- 2025, we have to pay it down.



The Group has a contract of multipurpose loan with PKO BP up to PLN 1 billion and up to its equivalent in euro or in American dollars for the period up to 30 September 2025 and a related cash pooling agreement in Polish currency, euro and USD for the period until 30 September 2025.



In turn, the limits of the reverse factoring agreements as at 30th September totaled to PLN 2.372 billion and the factoring agreement liabilities were at EUR 750 million. These agreements increased the use of multipurpose credit limits and the factoring limits by EUR 486 million.



The Group has signed with financial institutions on the 2nd of February, stabilizing agreement that ensured maintaining accessibility of limits of financial contracts. And according to this agreement, as of 11th October, it's binding till 29th November 2024. Besides for that, we have signed waiver letters with financial institutions that have accepted not keeping the levels of net debt to EBITDA for June 2024. The credit limits amounted to EUR 1.7 billion. And out of that limits of company for Polimery Police amounted to EUR 1 billion something and the rest was I want to add that the factoring of Group and factoring of credibility of the Group.

So together, the limits of financial resources of the Group were the cash that amounted to PLN 382 million. Out of this in the Azoty, we've had PLN 382 million. In total, the financial resources as on 30th of November were PLN 2.372 billion. All the obligations because of the loans and credits in the third quarter of this year have been on realized up to date.



And at the end of September this year compared to the end of the previous year, we've increased short obligations because of short-term loans and other financial obligations with a lower level of deliveries and services, we have noted a considerable decrease of the emission capital.



When it comes to investments, in the third quarter this year for acquisition of the intangible assets and property, plant and equipment, we have, it has amounted to PLN 264,738,000. And the largest capital expenditures in Q3 were incurred on the Police Polymers investment. And the construction of participation neutralization unit and the ammonium nitrate unit in Police, the exchange of the absorption tower in the sulfuric acid department in Puławy construction of power unit based on coal.



The difference in the quarter-to-quarter outlay is mainly due to a reduction in outlets on investments activities caused by the difficult financial situation of the capital Group Grupa Azoty. A decision has been taken to limit expenditure in this respect.



The Group is incurred expenditures on the acquisition of intangible and tangible fixed assets in the amount of PLN 844 million, PLN 396,000. Similar as in the biggest projects for investments were the ones that I have already mentioned previously.



When it comes to separate companies. Andrzej is going to say something?

[Andrzej Dawidowski, executive]

Yes, of course. The key investments of Azoty Group, Polymer Police at the last stage of implementation of the investments, 99.98%. Practically, what is left are the aspects related to getting rid of all the faults and making sure that the documentation is complete. The units are already functioning, producing and delivering products for sale.



Third quarter is the level of production, 74% when it comes to propylene. So this PDH unit, the angle of polypropylene, the level of production achieved is 84% sales, 60,000 tons in the third quarter. Taking into account the process of production and logistics sales, it is all very fluent. So we don't see any risks when it comes to delays in sale.



Polimery Police, as I said, in the final phase of implementation of the investment, we have the conditional temporary permission for the Terminal and polypropylene plant. There's a key element in the scope of creating solution without a general provider. So this means management of product delivery and the polypropylene produced. So those are the products that allow us to build our margin and are the products that the market is expecting from us. We can product them and we can steer the wheel in an individual manner.



Then at the angle of negotiation with the general contractor, we are now implementing a process of finalizing the negotiations. We assume that it's not going to take longer until the end of this year, and it should finish with an Annex #5 to the whole of an EPC contract.



In the scope of launching market cooperation of gest, we are implementing first deliveries of propylene. This is what allows the group to optimize the financial flow between the companies. The company has signed a stabilizing contract valid till 29th of November 2024.



In Tarnów, we have amongst the key projects, unit that we've mentioned, the one of participation and neutralization. Those are in the ammonia unit. Those are related to the energy and climate transformation and via better use of heat that comes from chemical reactions, they are aiming at lowering the use of heat energy and improvement of cost competitiveness.



In the scope ending of the investment is planned to 2026 in conjunction within the framework of new energy concept that is in line with the strategic assumptions of Azoty Group. We are implementing now the seventh element of the project. Those are aimed to be finished by the end of December 2024. The implementation is going to have its input on decrease of use of coal by around 130 tonnes per year. At the end of September, the state was 99%. The remaining investments I will mention also Puławy. So if we discuss the company, I will be happy to tell about it.



Yes, a difficult situation of Azoty Group is mirrored also in the results of related companies, thanks to the stabilizing activities that we've been undertaking despite for unfavorable market, the negative results are noting an improvement in relationship to the results that we've achieved in last year. And positive EBITDA in the third quarter, we should underline the positive Azoty Police net result, but the detailed results of Puławy Police will be discussed by Mr. Chairman.



Yes. When it comes to Puławy, several important elements regarding import and the pressure. We've already discussed it. Let me add that we are working on 3 levels. First level is consultations with parliamentary members in Poland. This is about the act. There is an act on fertilizers, which is being reviewed right now, we are expecting an amendment. So we are very active in participating in suggesting provisions to civilize the mineral fertilizers on the Polish market.



There are 2 commissions in the parliament. First is for the chemical industry. And second is for management of the state budget. And here, we've shared all the important elements related to the problem. On the European level of Belarus, we are communicating via our fertilizers in Europe.

I have the pleasure of representing Azoty Group and actively, I am having the meetings with European Commission representatives. Also, MEPs from our country are very active in all those consultations and are making sure that we would have positive results for us. Of course, the key ministries are included in that, too.



Additionally, we have consultations with Ministry of Agriculture, Ministry of Finance and of course, Ministry of Technology and Development, which is the ministry that speeds up the protection of market in the Puławy company, we are implementing different types of initiatives when it comes to savings and also procedures of management of non-critical costs.



We've submitted requests when it comes to the Polimex-Mostostal and the additional costs related to the use of media and other auxiliary materials. We have also implemented a guarantee in 2 banks of PLN 275 million plus a deposit of PLN 10 million. Finally, we've achieved an understanding with trade unions in the company. As of June, it's been very challenging, plenty of emotions. Thank you to the employees for the final understanding that gives realistic savings in the forecast of the next 2 years.



We've signed an intention letter. We've communicated it already. When it comes to polyamide, it relates [ interalia ] to the option of caprolactam. And here, we have different types of proposals. And same thing when it comes to [ phosphate ], should we need any to communicate any details we will be informing the market. There are also projects in the scope of renewable ammonia. We are beginning to have initiatives in our country in Poland. When it comes to green hydrogen, green ammonia, we have signed first intention letter with one of the partners of company [ Skodoski ], and we've declared that Azoty Group is intending to actively integrate all those initiatives related to the green hydrogen in the context of transformation and all the projects are aiming in the future system of cooperation.



When it comes to results, the main performance drivers were in terms of cost of production and volumes were negative in the third quarter. As I said, we saw an increase in inventory levels in August, September. We expect that those will be sold in the fourth quarter. As a reminder, for fertilizer, peak season is spring season as of March. So we don't have a lot of time now until the application season. So we are communicating here the growing pressure in this area. The value of unused production capacity is at PLN 675 million, especially applying to 3 melamine installations as well as caprolactam units that are currently in a standstill.



In terms of the technical cost of production, we are reporting an increase of around PLN 100 million, mainly in terms of the sales volumes and the prices of main feedstocks. For the year-to-date, 9 months, we are showing the adjusted EBITDA for the 9 months of the year year-on-year. We're talking about PLN 272 million. This was something that mirrored the support for energy-intensive sector. This was a one-off event improving the performance of Grupa Azoty Pulawy for 9 months. So this was impressive. But as I said, we are talking about the performance of EUR 271 million for 3 million for the 3 quarters. This is something that we cannot expect.



In terms of the third quarter of the year, the contribution by segment, obviously, in terms of sales was contributed by the Agro segment, especially in terms of year-on-year, the Agro segment in the third quarter delivered the revenue at PLN 742 million, going down year-on-year, mainly due to lower volumes and lower prices.



In terms of the Plastics segment, we're talking about PLN 28 million, going slightly up year-on-year, mainly on the back of higher sales of caprolactam. We communicated that we decided to revive caprolactam production in the short term in order to make sure that all the inventories and semi products that were kept in that unit were cashed out. We're talking about equivalent of 100 tons.



In terms of the Energy segment, the revenue represented around 3% across the group. In the others segment, we're talking about 3.5% in terms of contribution, especially in terms of Åšrodowiska, a subsidiary of Grupa Azoty Pulawy.



In the 9 months year-to-date, we are seeing an improvement in terms of our performance in the Agro segment year-on-year with the sales revenues going up despite and satisfactory prices to cover all the production costs. And the investments, as Mr. Skolmowski has mentioned, 3 major investments. First of monetization of the nitric acid unit and the extension of the nitric acid production neutralization and production of new fertilizers. We're talking about the time frame of November this year. So we are right on the verge of technological commission, and we do not expect any surprises here. And in the end, we are looking at a commissioning by the end of the year, final commission. We're talking about 2 mechanical granulation units, obviously, as well.



The second major CapEx project is the construction of the new power generating unit based on coal. We went back to technological commissioning also in terms of the combustion process. The power unit operated in different configurations of combustion units. And in September this year, the leader of the consortium Mostostal notified us of the problems in terms of the commissioning process, especially in terms of combustion processes. We need to revise the time frame for the commissioning of the entire unit.



The latter proposed a new time frame for this process, April 14, 2025. This is a major delay. I would also like to inform you that in this area, we have not signed any annex to this agreement. But yesterday, we met with the Management Board of Polimex Mostostal, and we agreed on the major milestones, especially in terms of the restructuring program in this area, specifying all the additional costs related to all the investment process.



An extension of the contract with the general contractor all the additional costs in terms of insurance and new raw materials. We are working on those issues. We have agreed on the shared goal that is the finalization and effective commissioning of the new coal-based fire generating unit.



In terms of the third project, we're talking about the flue gas desulfurization unit is practically completed as we speak. Thank you very much for your attention.



Moving on to Grupa Azoty Police and the major facts and figures. First of all, we're focusing on the main turnaround measures in order to improve our financial operations and the structure of sales as well as the condition of the technical condition of our units and the utilization of our capacities in order to make sure that all the installations that are currently operating at a very weak level will generate solid and stable revenue in the months to come and in the periods to come.



We're also focusing on the improvement of our production efficiency in terms of utilization of both feedstocks and also electricity as well as the optimization of fixed costs. It all translates into our performance in the third quarter, which reported positive EBITDA levels and all those restructuring measures have a major impact on our performance in this area.



In terms of letter of intent we signed with ORLEN relating to Police. It applies to Grupa Azoty Police. We are taking part in this process. The future of the company will also depend on the framework agreement, which was signed and grant agreement, which was signed with the Port Authority, Seaport Authority in Police. This is the future of Police in terms of our logistics capabilities. The terminal is being developed and extended. This is the key project, not only for Police, but for, in general, the entire group, not only in terms of the imports of our products, but also cement products that can be used in production of our products across the group.



We're also signing the stabilization agreements. And we're looking for more synergies between Grupa Azoty Polyolefins, that is polyamide 6 project and Grupa Azoty Police. All those measures we are taking translate into our financial performance figures, which were better year-on-year, plus PLN 50 million in terms of EBITDA and PLN 5 million on the plus side, which was mainly due to the technical production costs, lower costs of production and lower prices of energy carriers.



In terms of our performance in other sales, especially in terms of iron sulfides and also gas, anything that we sell to our external customers across the year, year-to-date for the 9 months over the 3 quarters, Grupa Azoty Police generated EBITDA margin at minus PLN 33 million, improving almost 70% year-on-year versus our standard performance if we include one-off events with a positive contribution of PLN 150 million. So we are talking about an improvement at the EBITDA level.



The main contributors here include improvement in sales in the others business, so other sales, the technical production costs related to lower costs of raw materials and also restructuration measures in general management costs as well as higher general overall volume of sales. The main problem is the technical condition of our installations. This is a major hurdle for us in order to achieve full speed here. And the third quarter was devoted to the improvement of the technical condition of our installations in order to have a better position in the coming quarters.



Performance by segment. In the third quarter, we are talking about a better performance across the segment, especially for pigments which reported a positive performance at EUR 2 million at the EBITDA level. We have 2 contributors here, our efforts in terms of the production structure, but also increasing the prices of titanium white in Europe, which was due to countervailing customs duties on the importers from China. Obviously, it had an impact on the others segment at the EBITDA level, as I mentioned before. The negative contribution in EBITDA came from the Fertilizer segment, but we see a major improvement versus 2023.



In terms of sales volumes, compound fertilizers saw an increase in production volumes and also the same applies to titanium white. In nitrogen fertilizers and urea, we unfortunately saw a lower production performance. Year-to-date for the 9 months of the year, we saw a negative contribution here across all the segments. We are seeing the efforts and the result of the efforts to improve our performance. This contributes to our overall performance, but the only negative contributor of EBITDA is the area of urea. We are looking at a negative contribution of fertilizers at minus PLN 52 million, minus PLN 8 million for pigments and on the plus side, PLN 27 million for the other segment.



In terms of our key investments at Police, we are extending our logistics base for fertilizers and pigments. We're talking about projects that are nearing the completion or practically completed in terms of distribution of bulk titanium white, and also the extension of the logistics base for fertilizers is nearing the completion Phase 2.



Other projects are proceeding as planned, especially in terms of automation systems and upgrades and modernization of the units. What's important is that Police needs to go on a faster path in terms of repairs and maintenance of the units that we are currently using in our production cycles.



The maintenance standstill shutdowns are longer right now, especially in the third quarter, but the CapEx we are spending here in terms of maintenance CapEx will allow us to go back to the previous production levels.



Thank you very much, and we are now moving on to the Q&A session. Do we have any questions from the participants in the room?

[Unknown Analyst]

[Interpreted] A couple of questions, if I may. A question about the pricing in terms of inputs for the production of PDH. Considering the sanctions for Russian LPG. Do you see any problems with the PDH margins in terms of the production? Is it lower than expected?

[Adam Leszkiewicz, executive]

[Interpreted] Polypropylene is currently in the commissioning phase in terms of the units. So it's difficult to expect a target margin and any differences, variations between polypropylene and propylene. So based on the quotations that we see, the spreads are growing. So we do not take a short-term approach here. We do not have full utilization here, and we cannot achieve all the margins that can be expected here.

[Unknown Analyst]

[Interpreted] Another question will concern the sales trends. Considering your sales performance in the third quarter, can we expect a year-on-year improvement because we saw a slight drop in terms of volumes?

[Adam Leszkiewicz, executive]

[Interpreted] We are nearing the application season. So the inventory levels in the market is way lower compared to previous periods, even over the period of 3 years. We are waiting for the purchasing decisions. This has a negative impact on our logistics so we are expecting a stable trend, mainly in terms of -- or maybe even a growing trend here.

[Unknown Analyst]

[Interpreted] Are you switching off your old installations? Are you switching on the new boilers or will we have a parallel replacement of the new installations, CO2 versus coal-based energy sources?

[Adam Leszkiewicz, executive]

[Interpreted] Our energy muscle is based on 5 boilers. 2 of these will be switched off, 3 will remain and based on this configuration, we have prepared a system based on the new coal-based unit depending on the needs and the configuration of the entire system, obviously, assuming that everything goes as planned, we will have a new coal-fired unit and will be supported by old boilers. I will not give you the final answer here because we don't know what the actual target situation will look like.

[Unknown Analyst]

[Interpreted] You said at the very beginning that you have a financing model until 2029, when we, as the capital market analysts, will be able to see that model? Because as far as I understand, the work is complete from the company or not? Are you still working on it?

[Adam Leszkiewicz, executive]

[Interpreted] As far as I understand, the credit banks, the loan, and the financing institutions are not ready to accept it. So the negotiation is still ongoing as far as I understand. We said that the model is there, the model is there. But until we are ready to communicate the details and the effects of this model we still need to complete the process of negotiations with the banks, and they're still ongoing.

[Unknown Analyst]

[Interpreted] Can you please give us any ballpark date so that the capital market analysts, when we will be able to see that model?

[Adam Leszkiewicz, executive]

[Interpreted] The first date we can drop is actually after we have finished the negotiations and we have signed a preliminary agreement with the banks. These are the details of the negotiating process. We are discussing a lot of aspects of the model. We're not talking about the model only, we are talking about the entire financing structure of the group, the scope of financing. So this is an element of the negotiation process with the banks. So we have to complete negotiations first.

[Unknown Analyst]

[Interpreted] You mentioned the grants for the energy-intensive sectors as a one-off event. Do you assume any such events towards the end of the year and the beginning of the next year?

[Adam Leszkiewicz, executive]

[Interpreted] We have applied for the grant. We applied for it in the fourth quarter so we are expecting the grants here as well, but only for the energy-intensive sector, right? If we're talking about CO2, the consumption was lower year-on-year as we see so maybe you will have an additional sales of excess CO2 emission allowances as a one-off event. Is that right? We can talk about it as a forecast, but we are analyzing it as we speak. This is all related to the liquidity situation of the group.

[Unknown Analyst]

[Interpreted] A final question about the PDH unit. From the presentation, you might have an impression that the performance between the first, second and the third quarter was quite different. And looking at the loss reported for the quarter I do believe that it is higher. So the question is where -- when will we see a positive contribution from this project to your performance as a group? And do you have -- do you see any problems? Is it difficulties in production or maybe excessive prices or maybe other problems related to the production process? Could you please give us some more details on this?

[Adam Leszkiewicz, executive]

[Interpreted] The main problem or the reason or condition -- precondition for profitability in this project is to maximize our utilization of our production capacities. This is the main goal if we and when we have achieved those levels in terms of profitability combined with solid spreads, we will be able to generate positive results. As Mr. Dawidowski has just said, the installation is still at the phase -- in the phase of final acceptance and negotiations, and this has an impact on the production cycle. Solid stable production requires ongoing work at every level. This is the first reason. And we also need to remember that we need to have stable supplies of raw materials and feedstocks. So we need to consider the financial situation of the group so we are organizing, securing the financing for the stable permanent supply of raw materials and feedstocks, and we are negotiating here very intensively, more intensively than before with the potential suppliers.

[Unknown Analyst]

[Interpreted] I have a question. What stage are you at when it comes to the understanding of the general contractor of polymer because it seems to me that the contractor from time to time was requesting -- was coming up with a financial request? And another question regards a project that you have together with [indiscernible] Company so this means acquiring the green hydrogen from ammonia. What stage is the project on? And is it in line with the RED III directive related to decarbonization?

[Adam Leszkiewicz, executive]

[Interpreted] So on Polymer Police and Grupa Azoty, this is what I want to begin with. In the scope of negotiations, the time frame, which has been planned, it has been delayed because of the request that you've mentioned that were on the side of the main contractor. Today, we are finalizing the assessment of those requests and we are negotiating with the general contractor the scope of Annex #5 and the implementation of those aspects of the faults and the effects that will be implemented after we sign the Annex. As I mentioned during the presentation, we are estimating that by the end of the year, we are going to finalize all the elements related to the Annex and we will begin the process of signing.



When it comes to green hydrogen and ammonia, there are plenty of initiatives, which we are beneficiaries of right now. Different companies are approaching [indiscernible] Company today in Poland, in our understanding it is a couple of steps ahead. They have prepared studies with certain assumptions, they are planning to build photovoltaic farms and wind turbines, finally, this will mean electrolyzers and green hydrogen production. We are interested in every project which every entrepreneur is planning and we are able to focus on such a green hydrogen to our installations.

[Unknown Analyst]

[Interpreted] I have a question whether Azoty Group is going to increase ammonia import in relation to the limitations of use of gas? And the very last question regarding duty. Is there a chance for the time of the Polish presidency to limit the import from the East?

[Adam Leszkiewicz, executive]

[Interpreted] Second question briefly, yes. Second -- third question, can you repeat it, please? Ammonia? We are active, we've declared it already. Gray conventional ammonia is meeting the economic criteria. So we can purchase it at a lower price to fill out the gaps that we temporarily have. After that we are adding green ammonia in a certain time frame, adding to it the blue ammonia which fulfills certain conditions of lower CO2 exposition. So we are already -- we have been active on the market as of October, we've been actively cooperating with potential delivery companies in Police, we've already renovated and modernized our fueling station. This is how we are ready to operate on this market and we are there.

[Unknown Analyst]

[Interpreted] I have several questions. So maybe I'll ask them all at once. First is related to the market of gas. How much gas are you purchasing right now from ORLEN and can you compare it with the amount of gas that you're buying directly from other providers? And when it comes to the change of act regarding the gas in the remarks that the Polish Chamber of Chemical Industry has listed certain list numbers, Polish industry is paying more for gas than the European industry. Therefore, I want to ask what activities do you expect from the government in order to increase competitiveness on the gas market?



So no questions regarding fertilizers. Do you have any data regarding what number of Russian and Belarusian fertilizers are really being dispersed on Polish fields? And so what number of those are transported further away? Because I have information that part of them are being re-exported to Ukraine. Do you have such data?



And my third question relates to actual heating plant constructed by Polimery. Will it ever be or do you have such forecasts? What are the parameters that will ensure its rentability? Will it be rentable if we launch it with the current prices of CO2 and with the current prices of coal, will you get a return on investment ever, assuming that the process of compensation will be very lengthy, will take here. So what is the forecast of yours for 5 years?

[Adam Leszkiewicz, executive]

[Interpreted] So the first block of questions when it comes to gas, Azoty Group consumes around 20, 25 kilowatts per hour of gas. Our main provider is ORLEN. We are making attempts so that our purchasing position would be the best possible. We know from the public report how much our competition pays. We know that there is a certain distance that we need to catch up with. We are providing arguments to our provider and to potential providers. We are working on having a wider range of providers.



What are our expectations when it comes to regulations? We are right now having discussions regarding the Storage Act. We are not against because we are using gas for chemical processes. We have regular use of gas and the ideal solution would be for the chemical industry to be taken aside from the obligatory supplies.



When it comes to import from our analysis, we see that most of imported fertilizers from Russia are staying in Poland. When it comes to export to Ukraine, we don't know about it. Should there be such a procedure, then it wouldn't be legal because Ukraine ever since the war has started, Ukraine has introduced an embargo to import of many resources and products from the Russian Federation.



When it comes to the third question, just like one of the Euro 4 speakers asked, we don't know what finally be the product that we obtain at the end of investment process. We have not shared yet with the public market our comments yet. So I'm not going to comment right now either. But what we expect is to finalize the investment at the beginning of second quarter. This is what the main contractor informed us, but we still have not formalized the path.



The contract formally finished at the end of October. So we are not having talks. We have not shared it. There are paths related to gas, coal and CO2 exposition because all those 3 elements have a meaning. Therefore, I believe that we will be able to answer your question once we know what parameter -- what coal parameter it will be possible to work.

[Michal Kozak, analyst]

[Interpreted] I have several questions. Do you prefer to hear them all at once? Okay. So I'll ask them separately. So the first question regarding duty. The intervention of Mr. Chairman today morning was very delicate that we will need time that there is the European Union administration. What is the risk that the duty finally is not going to be introduced into the first quarter of next year, meaning before the strongest or the heaviest season?

[Adam Leszkiewicz, executive]

[Interpreted] I will answer it briefly. From what I know, we are analyzing and researching positions of separate member states. We know that in order to introduce duty, we need a consent of a certain number of member states or rather and a particular population of society of the European Union society. So right now, we are researching which member states could support such a solution. And as far as I'm concerned, this survey very soon, probably in November, we will get some knowledge regarding what support we will have when it comes to this topic.

[Michal Kozak, analyst]

[Interpreted] My next question the intervention of Mr. Chairman suggested that's how I understood it, that biggest scope of this investment can be a Compo Expert, judging by what has been said regarding first, searching for synergies and then strategic directions. Am I correct that it might be out of PDH? It could be the second point of sale.

[Adam Leszkiewicz, executive]

[Interpreted] When it comes to Compo Expert, we spoke about it a lot. This is a company which directly is not building synergy with Azoty Group because it operates in a sector of different fertilizers that our current fertilizers.



But on the other hand side, it's combined somewhat in the scope of fertilizers with Azoty Group. I want to say clearly that we are analyzing different scenarios, and we are ready for different scenarios related to both potential disinvestments and strengthening synergies and participation of Compo Expert to a bigger degree in the operational results of the whole group. Right now, we don't have a clear recommendation of the direction that we are heading on an ongoing basis, we are going to analyze it, and then we are going to take a decision.

[Michal Kozak, analyst]

[Interpreted] Another question of mine regarding fertilizers. When we take a look at the position of compound fertilizers and urea in Azoty Group, and we take into account the cost curve, those lines are at the very end of the curve. That means that there is a risk of closing in short or medium time frame. This is why I want to ask what is the scale of investments when it comes to fertilizers to keep position on the market and to be able to come back to a cyclic EBITDA, not looking at the import from the East, assuming that the duty will be there.

[Adam Leszkiewicz, executive]

[Interpreted] We confirm that production of urea, the most basic fertilizer in the world is not luckily located for Poland. We are reaching further. We are working strongly on the development of different solutions that fertilizers. We are working on alternative mixtures and new products that could be aside from the typical path of competing. We have 3 units of urea in our capital group in [indiscernible]. Every of those have already a pretty strong solution compound, and we want to underline that we are producing solution fertilizers in Kędzierzyn Police.



In the world, there's around 360, 380 units that produce urea all over the world in the countries where they have low gas resources, there are new initiatives of urea, but we have to underline that urea is not the best way of fertilizing in Poland or in our climate group. This is an amid form, which requires a certain pH and humidity. We are promoting the ammonium nitrate fertilizers, which are for classical agriculture that we are doing in Poland, such as wheat corn and beetroot and so on and so forth. So we are aware of the cost curve. We know where we are, and this is not a comfortable place to be, and we are doing all our might from the point of view of our production profile and our offer to make sure we escape the curve as soon as possible.

[Michal Kozak, analyst]

[Interpreted] Okay. Another question. An issue that we still are looking at the longer term and the longer-term perspective. But if you are not able to cash out the PDH unit and the emissions will be necessary, what are your statutory conditions at Grupa Azoty Group and especially in the context of the Russian scenario and the blocking of the act of law? What do we need in terms of your operations?

[Adam Leszkiewicz, executive]

[Interpreted] As far as our Articles of Association, this is something that is provided, and you can review that. It is well known in terms of the volumes of emission as well as the share or the lack of contribution of the Russian scenario, it is difficult to discuss it right now. But to date, we have not seen or reported any such measures from this particular site. We have not had any negotiations so far. We are talking about so-called rescue measures.



But in the context of our turnaround plan and in the context of the Azoty business program presented today, we're talking about the restructuring phase where we will move on fluently towards the development phase. We are looking at major challenges also in terms of our CapEx spending investments in order to adjust ourselves to the challenges and requirements for the years to come. So we can call it a rescue measure, but we can also consider it to be a normal standard emission issue that will provide us financing for the new projects.



We are in the final phase of our analysis. This is related to our negotiation process with the banks, which, as you know, is ongoing.

[Unknown Analyst]

[Interpreted] A couple of questions from me as well. The first question relates to the building of the portfolio for Polymer Police. Is it already finished? Do we have or does it involve long-term contracts or maybe it's based on spread purchases? What does it look like?

[Adam Leszkiewicz, executive]

[Interpreted] This is the first year of production and sales. So the customer portfolio is already there in terms of the volumes that we place in the market. We do not have any gaps here with any limitations in terms of storage, for instance, that will prevent us from producing. So anything that we produce is placed on the market on an ongoing basis. But the structure of products is not the target structure.



So the structure of the process of qualification of our final users or customers will be necessary to make sure that we place our products with our target customers. So we assume that it will reach full scale in the future. But as of now, we are using our distribution network that was built before and also the traders that sell our products, both in Europe and outside of Europe.

[Unknown Analyst]

[Interpreted] And if Polymer Police and when it reaches its full production capacity, will we be able to sell the excess of those production? Or do we have any limitations here?

[Adam Leszkiewicz, executive]

[Interpreted] Looking from the perspective of our operations and logistics, we are ready, more than ready. We have 60 silos. So this is a major investment looking at the scale of such projects across Europe. So 60 silos for each of the products. We're talking about several truckloads per day. So we have the entire storage based on palletized products and the loading capacity of the vehicles. So we see no risk here.



From the point of view of the market, there is a lot of interest in the strengthening of our position in terms of the customers to partially accept products from local as European producers, considering the volatility and the disruptions in terms of the transport of containers and bulk products from China as well as the situation mainly in the Middle East. As a result, all the customers want to secure their supplies in Europe at a level of at least 40% to 50%. So this is all -- this all contributes to the development of our polypropylene and propylene operations at the European level.

[Unknown Analyst]

[Interpreted] The question about the improvement of your financial performance. Today, we are talking about around EUR 10 million in net loss. Considering your revenue from sales, you would need to have a lot more net profit to compensate for it. So how can you bridge that gap via your restructuring measures or maybe optimization of the current business operations or maybe you'll need some new investments in new projects. You are starting to control your CapEx spending, and this can be clearly seen. What is the path towards a more optimized financial performance then?

[Adam Leszkiewicz, executive]

[Interpreted] We do not have PLN 1 billion in terms of our loss. We are talking about PLN 300 million. Obviously, it is a loss, but it's not a major loss, as you said. In a nutshell, we are focusing on the achievable goals. That is mainly cost optimization. This is something that we have partially managed to achieve. We are controlling our spending. This obviously has an impact on our cash flow and more than even our cost position. But we are also taking a lot of measures to intensify our sales operations in the context of a very challenging market situation.



2025 is the period which we will see our financial performance based on our revenue structure and also the contribution in EBITDA level from different segments. And this very difficult situation also related to customs duties and regulations. The contribution will be expected from the Agro segment. We are analyzing on an ongoing basis, the situation related to the plastics and oxo alcohols segments in terms of the revenue.



A more positive contribution to our financial performance is expected from the new project that is polyolefins. The situation in the raw materials and feedstocks market is very volatile. We started our work towards the end of the first quarter at '25, '26 in terms of the price of gas, we forecast a change in the prices at lower levels than current levels and the levels we are expecting in the first quarter of the year. However, all the cost savings and optimization measures and also all the measures we have taken to intensify our sales will bear fruit in 2025, especially from the reduction of costs and spending on our CapEx projects, but also improvement in our performance in the Agro segment.

[Unknown Analyst]

[Interpreted] And the last question relates to the assets that are going to be eliminated in the short or midterm. How many assets are we talking about versus your revenue, for instance, that in the midterm could prove unprofitable. How many assets we're talking about? Could be, as you said. Did you use that word?

[Adam Leszkiewicz, executive]

[Interpreted] Yes, we are trying to look at the situation from different angles and leave some room for improvement. Well, we have several groups here. The first group we're talking about right now are the assets or installations for which we are talking about a permanent shutdown or elimination. After our analysis and reviews, we saw that these will never be profitable or have not been profitable for the past several years or they call for major investments, financial injections because their technical conditions is such that they cannot perform. We're talking about the workforce of around 600 people working in these units. So this will also call for certain social employee-related measures, but those installations are; this is a closed list. And over the next months, they will be eliminated on an ongoing basis.



The second group is a part of our core business, but we can imagine that we can function without them or maybe we will do something about them in terms of divestments. And the third group are the core assets, which will be located or grouped into in the 3 segments, agrochemicals and oxo and plastics. So for these installations, we need to have a holistic approach. We're talking about the entire segment. If we're talking about a plastic segment, we need to consider 2 caprolactam lines at KarTarnównov and Pulawy and also polyamide in Tarnów, polyamide 2 in this case and also Guben [indiscernible].



In this context, looking at the entire segment as a whole, we will integrate all the operation in this segment, and we will look at the situation with a holistic approach. And based on that, we will take decisions on these investments or maybe the introduction of new spending CapEx projects in order to make sure that these units become profitable if it's possible considering the market conditions. This is something that we are doing, and this is something that we want to -- this is the way we are looking at our investments and our installations.



And obviously, we have auxiliary infrastructure. We have not communicated this directly to date, but I want to emphasize that we intend, let me use that word, to take a different approach to that infrastructure that does not contribute directly to our production units. That is land, that is plots of land that can be used in a different way. We want to approach this infrastructure, auxiliary infrastructure as if they were, for instance, technological parks, maybe install the necessary systems and maybe place them on the market as an offer for the investors who have certain systems prepared, for instance, the electricity supply, plumbing and whatnot or waste treatment plants, and they are prepared to use those properties. So we want to prepare those properties, plots of land for the investors.

[Unknown Analyst]

[Interpreted] What is the value of this portfolio? So we are talking about assets for sale. Do we have a set value here? Can you share with us or maybe it's too early?

[Adam Leszkiewicz, executive]

[Interpreted] No, the evaluations are ongoing in terms of individual units, individual installations, but we cannot communicate it directly. It's too early to do that in terms of the actual value. The analysis are still ongoing. They're not related to the value itself if these investments take place, but this is related to the analysis of their potential profitability. Let's take titanium white unit at Police.



This is an interesting installation, but it calls for injections, capital injections. So this is not a yes or no decision. We need to analyze it versus the market situation. And to a certain extent, this product might be promising, might be profitable. It is important in our portfolio of products. It's not that important or as important as fertilizers or plastics. So we need to take it into consideration what will be profitable, what will be the best solution for us and the best path to take.

[Operator]

[Interpreted] Moving on to our online questions. Can you tell us the stage of your negotiations with ORLEN with the letter of intent? Do you have any preliminary decisions?

[Adam Leszkiewicz, executive]

[Interpreted] Yes. Very briefly. intention letter that we've signed and we've communicated on the 12th of September has a 2-month currency period. So before 12th of November, we should communicate jointly with our partner, what's the next step. And such a communicate is going to be released within the next days.

[Operator]

[Interpreted] Does the update of strategy -- will the update be implemented along with the decarbonization program?

[Unknown Executive]

[Interpreted] Yes. Briefly, very much so. I'm repeating what we've said half a year ago when we were presenting last year's results. The carbonization plan is a result of the strategy. Therefore, we first have decarbonization plan, which will be included or will be a part of the whole strategy. So both will be done in the deadline that were mentioned by Mr. Leszkiewicz at the beginning of the presentation.

[Operator]

[Interpreted] How has the structure of jobs in the group has changed? Are there any data from the end of October?

[Unknown Executive]

[Interpreted] Yes, I can update the data in this scope, and I can share with you that at the end of October, the number of jobs has decreased by another group of jobs. Therefore, we've decreased as of March by around 820 people hired in the capital group, and this is going to be continued. We are planning to continue on reductions till the end of the year.

[Operator]

[Interpreted] What savings have been achieved on renovations?

[Unknown Executive]

[Interpreted] Here, a brief question. We are analyzing this issue all the time. On the one hand side, we are trying to cusp and prepare a new system of renovation management. But as far as I understand the question, it relates to how today we are making savings. And this is in 2 groups. When we came to Azoty Group, there were certain plans regarding renovations. For instance, for 2024, those plans have, we've adapted them and we've decreased the designed input by large amount of money. Today, the answer is regards the performance that we've assumed, and I can give you an example of Tarnów. I think it's a Gemini to the other companies, production companies in our capital group. So it's a dozen of percent of savings on renovations.



Here, we always need to look at it at the angle of durability and safety, ensuring safety of functioning of the units. So it's not black and white that we are cutting and it's going to be nice ever since. So we have to look at it at the angle of making, being aware of the fact that our units require certain investments. In the last years, we've been saving in this respect because of financial needs in polymers.



So some of our installations, some of our units really need plenty of renovations, but we are trying to plan our spendings in such a way not to add, but rather to save also in this scope, but very gently because we want to maintain the basic safety norms.



Adding to the words of Mr. Chairman, I want to add numbers. Our activity in this scope has started in April, 1.5 months before the beginning of the whole renovation. In this cost category, the savings on renovations for 9 months has been PLN 35 million. And by the end of the year, it's going to be around PLN 55 million.

[Operator]

[Interpreted] Another question. Mr. Leszkiewicz spoke about the possibility of engaging A Group into explosives and military industry. What else could the company produce?

[Unknown Executive]

[Interpreted] I think that already today, we are producers of compounds for explosives. So we are producing after all, or we are operating in the in the respect of condensed nitrogen acid. We are using those projects for both civil and military use. Having experience in those, we want to develop the scope of our activity, and we want to be in line with different programs of development of explosives in different scopes, both civil and military in our plants and particularly in our plant in Tarnów.

[Operator]

[Interpreted] We have one more question. When precisely is the Management Board expecting as the business results? And what is going to be the role played by this program in the turnaround plan in the process of restucturization? I understand this is the last question so summarizing.

[Unknown Executive]

[Interpreted] We want to say clearly that we've been operating for 7 months and a couple of days. Within this time frame, our activities were based on several stages. First was diagnosis, a very quick one, but also immediate decision regarding [indiscernible] of costs. I want to remind you that we've been functioning as of 20th of March. And at the end of March, we have resigned or on all sorts of, we have terminated all sorts of sponsoring contracts. It's important to build awareness so that all of us in the company would be convinced that we are in a difficult situation and that every single one of us on different levels is responsible. It depends on us how the group is going to react to this difficult situation.



So the awareness being aware of the fact that we are in a difficult situation. And it's not because in the, in our plants, we've had such a belief that there is, it's seasonal. We have, for instance, conversion. We have oxo and fertilizers. In history, the way it worked is that when one segment was doing better than another worse, it was very brief periods of times that it was great in both.



So we've been aware in our plans that there is a short time of stagnation or economic crisis, so automotive construction industry is slowing down, but then fertilizers are doing better. Right now, we have a completely different situation and being aware of it, especially on the side of employees. It's an important element to the whole repair turnaround plan. Then we have launched systematic changes that require a longer time period and will give us benefits soon, but it's not easy to introduce those.



Let's take into account the system of work of jobs in several of our companies. Five brigades are in line with the trade unions. So it's not about management Board. It's not Chairman's decision, it's not administrative decision. It's a matter of negotiations, procedures, consultations and finding understanding with the employees when it comes to how the future model would look like in order to change the collective agreement. And this is defined by the labor code and in the legal framework. So we have to take it all into account.



In the last weeks, we have formulated the program after many discussions and analysis. We have formulated a final idea of the Azoty Group. How is it supposed to look like? We have already Azoty business program that we want to introduce so that the group will look like in this and that way in 24 or 36 months.



Our business model is already in our heads. We have it. We have adapted it. And now we want to implement it via hundreds of initiatives and the implementation. We will be explaining it to the market very carefully. We are not going to change something in such a way that we will close a unit or close a department or an office. But at the end of every initiative, we have a precise financial effect that we are expecting. And the whole is supposed to be reflected in numbers that are not several millions of zlotys because the situation is that we have to look for operational savings at the level of hundreds of millions or over PLN 1 billion. This is our goal for the next months.



And now Azoty program. This is a complex vision of the whole restructurization and transformation. I want to put a stress on transformation because limiting structurization are very important. We will be continuing this activity with all our efforts. We are seeking for new places. We are identifying new reserves, all those elements that can imply improve of cash flow and financial fluidity of our group.



But at the same time, we want to transform into such business formulas that for our stakeholders, especially asset holders will be --and also for our creditors will be a forecast -- a good forecast for to see that the group in the future, sometime soon in the future, is going to earn and bring positive operational results that will actually allow us to function, invest and to reduce and pay down the debt because all those processes are ahead of us, and we are actually, and those are actually ongoing at the moment. Thank you.

[Operator]

[Interpreted] Thank you very much, ladies and gentlemen. This is where we finish our conference today. I would like to invite you today to 2:00 p.m. to our investor chat with Andrzej Skolmowski, Vice President of Azoty Group. The details are published on our website. Thank you very much for your kind attention and see you there. Thank you.

[Unknown Executive]

[Interpreted] Thank you very much very warmly.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]