2016 Business and Financial Performance March 23, 2017 Content 1. - - PowerPoint PPT Presentation

March 23, 2017

2016 Business and Financial Performance

Content 1. Introduction 2. Business Overview 3. Financials 4. 2017 Outlook 5. Financing and CAPEX

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Introduction

Speaker

Krzysztof Zoła

CFO Age – 45 15 years with the Company

3

Introduction

2016 Highlights

• Polish GDP growth at 2.9% down from 3.6% in 2015. Combined 1,5% GDP growth in the EU(28) down from 1,9%
• Polish steel production fell by 3.3%. In the EU (28) it decreased by 2.3%.
• Decrease of prices of scrap metal, billets and finished products. Compression of billet spreads. Imprvement of spreads for most of our
• products. Good demand; EU protectionist measures starting to work
• Rebound of iron ore and coking coal prices. BOF v EAF cost advantage reduced
• 0.9% decrease in revenues; shipments up by 8.6%
• Significant improvement of gross profit, EBIT and EBITDA
• Record capacities’ utilization:

ANNUAL CAPACITY UTYLIZATION RATE Tonnes 2016 2015 2014 2013 FERR 375 000 107% 97% 102% 87% HSJ 261 000 87% 84% 77% 70% COMBINED 636 000 99% 92% 92% 80%

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Business Overview

Crude steel production

source: World Steel Association

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CRUDE STEEL PRODUCTION 2016 % YoY 2015 m tonnes Europe 303

• 0.3%

304 Poland 8.9

• 3.3%

9.2 UE (28) 166

• 2.3%

166 CIS 101

• 0.8%

102 North America 111 0.1% 111 USA 79

• 0.3%

79 South America 39

• 10.7%

44 Africa / Middle East 45 3.5% 43 Asia 1125 1.6% 1108 China 804 1.2% 799 Japan 105

• 0.3%

105 Oceania 6 1.8% 6 Total 1629 0.8% 1615 Poland with the 3.3% production decrease and 2.5% demand increase China’s growing production v. local demand mismatch STEEL DEMAND 2016 % YoY 2015 mln tonnes Europe 248 1.5% 244 UE (28) 156 1.6% 153 Poland 13.1 2.5% 12.5 CIS 50

• 1.8%

51 North America 134

• 0.7%

135 USA 99 3.2% 96 South America 41

• 10.1%

45 Africa / Middle East 93 0.5% 92 Asia / Oceania 988 0.3% 985 China 645

• 4.0%

672 Japan 64 2.4% 63 Total 1501 0.6% 1493

Business Overview

BOF v EAF cost model comparison

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source: IMF. EIA, OECD, Steelonethenet, Cognor

• BOF cost model includes own coke and sinter plant
• BOF and EAF cost models and other cost estimates do not

represent any particular plant nor Cognor cost structure

Market Prices iron ore coking coal scrap metal USD / tonne 2011 168 200 389 2012 129 145 378 2013 135 122 347 2014 97 105 314 2015 55 89 229 2016 59 89 193 Feedstock Cost 2011 2012 2013 2014 2015 2016 Y 2016 Q1 Q2 Q3 Q4 USD / Tonne BOF 470 372 363 284 190 159 180 182 231 188 EAF 436 423 388 352 257 192 233 203 237 216 Difference 34

• 52
• 26
• 68
• 67
• 33
• 53
• 21
• 7
• 28

Feedstock Cost Model BOF EAF Tonne / Tonne of crude steel iron ore 1,60 coking coal 0,60 Scrap 0,21 1,12 100 200 300 400 500 Q1 Q2 Q3 Q4 2011 2012 2013 2014 2015 2016

USD / Tonne

Feedstock Cost

BOF EAF

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Business Overview

Prices & Spreads

scrap metal price down by 109 billet price down by 169 billet spread down by 60 finished product price down by 128 product spread down by 19 2016 2015 2014 2013 2012 2011 2010 (pln/ tonne) FERROSTAL SCRAP METAL - average purchase price 755 864 989 1 096 1 236 1 152 891 BILLETS - average sales price; 1 491 1 660 1 858 2 015 2 121 2 038 1 629

volume 85 337 104 113 169 904 160 898 214 489 252 239 178 857

BILLET SPREADS 736 796 869 919 885 885 738 FINISHED PRODUCTS - average sales price; 1 714 1 842 2 036 2 131 2 337 2 285 1 929

total volume 318 095 224 491 186 571 142 425 75 155 84 291 57 252

• plain bars

1 871 1 945 2 070 2 116 2 310 2 261 1 860

volume 29 304 32 331 35 714 36 557 25 562 33 301 20 209

• flat bars

1 902 1 967 2 073 2 131 2 315 2 303 1 985

volume 61 409 60 155 64 241 57 565 39 894 33 970 24 154

• squares

1 871 1 939 2 057 2 071 2 265 2 238 1 875

volume 7 726 11 029 13 709 16 823 5 724 7 276 4 851

• rebars

1 581 1 629 1 867

2 165 1 795 volume 188 134 82 461 41 642 3 092 2 565

• angles

1 918 1 951 2 111 2 132

2 290 1 977 volume 24 895 32 171 30 107 28 209 4 916 457

• other

2 108 2 180 2 721 2 619 2 906 2 428 2 072 volume

6 627 6 346 1 159 3 271 3 975 1 737 5 017

PRODUCT SPREADS 959 978 1 047 1 036 1 101 1 132 1 039

• plain bars

1 116 1 081 1 081 1 020 1 073 1 108 969

• flat bars

1 147 1 104 1 084 1 035 1 078 1 150 1 094

• squares

1 116 1 076 1 068 975 1 029 1 086 984

• rebars

826 766 880

• angles

1 164 1 087 1 122 1 036

• other

1 353 1 317 1 732 1 523 1 670 1 276 1 181

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Business Overview

Prices & Spreads

scrap metal price down by 72 billet price down by 200 billet spread down by 121 finished product price down by 128 product spread down by 161 2016 2015 2014 2013 2012 2011 2010 (pln/ tonne) HSJ SCRAP METAL - average purchase price 823 902 1 041 1 109 1 229 1 183 916 BILLETS - average sales price; 1 768 1 968 2 472 2 450

volume 40 479 28 148 18 149 9 120

BILLET SPREADS 945 1 066 1 431 1 341 FINISHED PRODUCTS - average sales price; 2 463 2 703 2 920 2 937 3 386 3 535 3 006

total volume 160 708 168 397 151 788 150 099 130 716 147 291 114 901

• SQ bars

2 337 2 584 2 788 2 825 3 201 3 317 2 810

volume 153 736 150 311 144 605 145 236 117 074 135 905 106 698

• thick sheets

2 740 2 427 2 954 3 942 3 503 4 124 3 176

volume 5 696 16 362 5 787 3 672 11 943 9 366 6 730

• thin sheets 11 147 10 820 11 090 11 593 11 177 12 034

9 032

volume 638 1 069 865 935 1 285 1 607 823

• other 21 547 23 529 25 277 20 586 28 412 28 860 25 871

volume

638 655 531 256 414 413 650

PRODUCT SPREADS 959 978 1 047 1 036 1 101 1 132 1 039

• plain bars

1 116 1 081 1 081 1 020 1 073 1 108 969

• thick sheets

1 147 1 104 1 084 1 035 1 078 1 150 1 094

• thin sheets

1 116 1 076 1 068 975 1 029 1 086 984

• other

826 766 880

Business Overview

Segments

ZLMET down by 4.8% Shipments down by 20.1% Sales down by 28.4% SCRAP METAL 2016 2015 2014 PURCHASES FROM EXTERNAL SUPPLIERS Tonnes FERR 358 383 269 155 245 487 ZLMET 306 145 321 631 361 078 HSJ 138 704 131 897 106 711 INTERNAL USE Tonnes FERR 412 345 408 941 423 865 HSJ 258 680 252 364 230 046 SALES TO EXTERNAL CUSTOMERS Tonnes ZLMET 95 047 118 994 100 059 OTHER SALES '000 PLN CONSOLIDATED 71 608 100 051 94 186 TOTAL PURCHASES in TONNES 803 232 722 683 713 276 TOTAL INTERNAL USE in TONNES 671 025 661 305 653 911 TOTAL SALES in TONNES 95 047 118 994 100 059 TOTAL SALES in '000 PLN 71 608 100 051 94 186

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Business Overview

Segments

Production up by 7.8% Shipments down by 18.0% Sales down by 12.9% BILLETS 2016 2015 2014 PURCHASES Tonnes FERR 26 PRODUCTION Tonnes FERR 402 676 363 492 381 477 HSJ 226 090 219 962 201 072 INTERNAL USE Tonnes FERR 311 048 259 379 211 573 HSJ 185 611 191 840 182 923 SALES TO EXTERNAL CUSTOMERS Tonnes FERR 85 337 104 113 169 904 HSJ 40 479 28 148 18 149 SALES '000 PLN CONSOLIDATED 198 790 228 178 360 524 TOTAL PURCHASES in TONNES 26 TOTAL PRODUCTION in TONNES 628 766 583 454 582 549 TOTAL INTERNAL USE in TONNES 496 659 451 219 394 496 TOTAL SALES in TONNES 125 816 132 261 188 053 TOTAL SALES in '000 PLN 198 790 228 178 360 524

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Business Overview

Segments

Production up by 14.6% Shipments up by 21.9% Sales up by 8.3% FINISHED PRODUCTS 2016 2015 2014 PURCHASES Tonnes FERR 132 582 PRODUCTION Tonnes ZWWB 80 480 78 441 79 627 HSJ 156 858 172 937 160 053 PROFIL 223 029 150 402 108 656 SALES TO EXTERNAL CUSTOMERS Tonnes FERR 318 095 224 491 186 571 HSJ 160 708 168 397 151 788 SALES '000 PLN CONSOLIDATED 941 127 868 672 823 098 TOTAL PURCHASES in TONNES 132 582 TOTAL PRODUCTION in TONNES 460 367 401 780 348 336 TOTAL SALES TO EXTERNAL CUSTOMERS in TONNES 478 803 392 888 338 359 TOTAL SALES in '000 PLN 941 127 868 672 823 098

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Business Overview

Geographical & Industry Breakdowns (bilets and products)

12 69% 12% 4% 2% 1% 1% 0% 0% 11%

Geograpfical Breakdown

Poland Germany Czech Republic Italy Hungary Austria Slovakia Romania

• ther

23% 27% 12% 14% 7% 4% 4% 1% 8%

Industry Breakdown

auto construction mechanical mining railway agriculture steel defence

• ther

Financials

Revenues down by 0.9% Gross profit up by 48.9% EBIT up by 329.9% Adjusted net result: PLN 11.4m EBITDA up by 93.5 % Adjusted EBITDA: PLN 91.4m STATEMENT OF PROFIT OR LOSS 2016 2015 2014 '000 PLN Sales revenue 1 352 393 1 364 804 1 422 546 Cost of sales

• 1 209 687
• 1 268 982
• 1 275 863

Gross profit 142 706 95 822 146 683 Other income 5 727 4 717 11 383 Distribution expenses

• 49 970
• 47 791
• 43 033

Administrative expenses

• 37 918
• 34 640
• 38 496

Other gains/(losses) – net 2 697 2 952 647 Other expenses

• 6 724
• 7 913
• 11 159

EBIT 56 518 13 147 66 025 Financial income 5 216 26 678 1 789 Financial expenses

• 68 212
• 57 009
• 69 092

Net financing costs

• 62 996
• 30 331
• 67 303

Share of profits of associates 103

• 85
• 626

Excess in fair value of acquired assets over cost 5 859 Profit before tax

• 6 375
• 17 269

3 955 Income tax expense 7 901 3 324 5 790 Profit/loss for the period from discontinued operations

• 4 047

Profit for the period 1 526

• 13 945

5 698 Depreciation and amortization

• 38 320
• 35 863
• 35 072

EBITDA 94 838 49 010 101 097

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Financials

CAPEX at PLN 56.7m; disposals at PLN 11.7m Current assets increased by 7.4% with 13.0% increase of inventories and 7.4% increase of receivables. Sale of PLN 89.3 m of receivables under the non-recourse arrangements. ASSETS 2016 2015 2014 '000 PLN

• A. TOTAL NON-CURRENT ASSETS

424 942 408 497 422 663

• I. Intangible assets

11 938 10 834 11 338

• II. Property, plant and equipment

292 821 278 043 289 565

• III. Other receivables

126 49 34

• IV. Investment property and other investments

8 055 16 725 17 000

• V. Prepaid perpetual usufruct of land

19 944 20 828 22 794

• VI. Deferred tax assets

92 058 82 018 81 932

• B. TOTAL CURRENT ASSETS

470 359 437 814 517 854

• I. Inventories

297 741 263 476 283 058

• II. Receivables

141 626 131 904 192 038

• 1. Trade receivables

136 997 127 378 187 421

• 2. Current income tax receivable

1 908 290 10

• 3. Other investments

2 721 4 236 4 607

• III. Cash and cash equivalents

24 980 36 928 35 648

• IV. Prepayments
• V. Assets classified as held for sale

6 012 5 506 7 110 Total 895 301 846 311 940 517

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Financials

Indebtedness net of cash up by PLN 15.7m due to FX losses at 15.7 EQUITY AND LIABILITIES 2016 2015 2014 '000 PLN

• A. EQUITY

155 903 168 691 187 286

• I. Issued share capital

150 532 139 702 132 444

• II. Reserves and retained earnings
• 8 404

7 420 33 579

• III. Minority interest

13 775 21 569 21 263

• B. LIABILITIES

739 398 677 620 753 231

• I. Non-current liabilities

416 808 439 447 463 798

• 1. Employee benefits obligation

9 058 9 113 9 597

• 2. Interest-bearing loans and borrowings

376 398 386 446 408 896

• 3. Other

31 352 43 888 45 305

• II. Current liabilities

322 590 238 173 289 433

• 1. Interest-bearing loans and borrowings

72 451 48 873 87 402

• 2. Bank overdraft

23 154 15 846 6 969

• 3. Trade payables

218 824 164 768 183 717

• 4. Deferred government grants

117 117 117

• 5. Employee benefits obligation

4 914 4 867 4 588

• 6. Current income tax payable

5 105

• 7. Provisions for payables

3 130 3 697 6 535 Total 895 301 846 311 940 517

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Financials

Working capital inflow of PLN 6.3m Cash flows related to CAPEX at PLN (-) 32.7 partially offset by flows from asset sales at PLN 3.1m Incurrence of credit facilities at PLN 20.9m minus repayments at PLN (-) 49.1m; PLN (-) 55.6 of interest service, Liquidity ratios worsened but fair Inventory ratio up by 14 days Receivable ratio up by 3 days Profitability ratios increased Leverage down to 4.7 times CASH FLOW 2016 2015 2014 '000 PLN

• A. OPERATING ACTIVITIES

91 632 101 309 51 795

• B. INVESTING ACTIVITIES
• 27 121
• 3 146

628

• C. FINANCING ACTIVITIES
• 83 767
• 105 746
• 38 543

Net increase in cash

• 19 256
• 7 583

13 880 MAIN METRICS 2016 2015 2014 Liquidity ratio 1.46 1.84 1.79 Quick ratio 0.54 0.73 0.81 Inventories turnover days 90 76 81 Receivables turnover days 37 34 48 EBITDA margin 7.0% 3.6% 7.1% Net profit margin 0.1%

• 1.0%

0.4% Equity ’000 PLN 155 903 168 691 187 286 Net debt ’000 PLN 447 023 414 237 467 619 Net debt / EBITDA 4.7 8.5 4.6

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2017 Outlook

Main factors

• Positive GPD growth for the EU (28) at between 1.0% and 1.5%
• Polish GDP growth at between 3.0% and 3.5%
• Chinese overcapacity pressure and EU anti-dumping tariffs
• Increase in Polish crude steel production and steel consumption. EU steel demand to increase
• Increase of prices of scrap metal, billets and finished products; further recovery of product spreads.
• Further improvement of EAF cost model versus BOF

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Financing and CAPEX

Financing

In February 2014 Cognor has closed the restructuring transaction by issuing:

• EUR 100m of senior notes maturing February 2020; coupon 7,5% years 1-2; 10% year 3; 12,5% years 4-6
• EUR 25m of exchangeable notes February 2021; coupon 5%. The notes are exchanged mandatorily into Cognor’s shares at maturity or earlier

at the demand of a holder. Exchange price PLN 2.35 per share. These notes form part of our equity. Due to repurchases and cancellation of the senior notes as well the conversion of the exchangeable notes the actual outstanding amounts are the following:

• EUR 80.9m of senior notes maturing February 2020; coupon 7,5% years 1-2; 10% year 3; 12,5% years 4-6
• EUR 20.1m of exchangeable notes February 2021; coupon 5%. The notes are exchanged mandatorily into Cognor’s shares at maturity or

earlier With the new short-term facilities we regard the access to short-term financing as adequate and sustainable. We undertook efforts in order to examine feasibility of the refinancing of the Group’s indebtedness. With the favorable sentiment in capital markets we believe there is potential to extend the maturity of the currently used financing sources, reduce the overall indebtedness and

• ptimize its cost. However, as of the date of this report no decisions nor any commitments have been made in connection with the contemplated

refinancing.

CAPEX

In 2017 we intend to spend approximately PLN 20m for the upgrade of our machinery and equipment. Any more significant CAPEX plans are contingent to the success of the refinancing plan. 18

COGNOR SA

• ul. Zielona 26, 42 - 360 Poraj
• tel. +48 34 316 01 10, fax +48 34 316 01 12

cognor@cognor.eu, www.cognor,pl

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