Q3 2016 Business and Financial Performance November 16, 2016 1 - - PowerPoint PPT Presentation

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Q3 2016 Business and Financial Performance November 16, 2016 1 - - PowerPoint PPT Presentation

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Q3 2016 Business and Financial Performance November 16, 2016 1 Content 1. Introduction 2. Business Overview 3. Financials 4. Q4 2016 Outlook 2 Introduction Speaker Krzysztof Zoa CFO Age 44 14 years with the Company 3

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1

November 16, 2016

Q3 2016 Business and Financial Performance

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2

Content 1. Introduction 2. Business Overview 3. Financials 4. Q4 2016 Outlook

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3

Introduction

Speaker Krzysztof Zoła

CFO Age – 44 14 years with the Company

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4

Introduction

  • Lower prices of scrap metal, billets and finished products. Stabilization of billet spreads and slight compression of product spreads. Fair

demand for finished products. Increase of billet and product and lower scrap metal prices as compared to Q2 2016.

  • 9.4% increase in revenues; overall shipments down by 4.3%
  • Increase of gross profit, EBIT, EBITDA and net result
  • Higher capacities’ utilization :
  • Polish GDP growth at 2.5% (yoy), down from Q3 2015 – 3.4% and from Q2 2016 – 3.3%. 1.6% (yoy) growth in the euro area [Germany

1.5%] and 1.8% in the EU(28)

  • Polish steel production fell by 14% and in the EU(28) by 2%

ANNUAL CAPACITY UTYLIZATION RATE Tonnes Q3 2016 Q3 2015 FERR 375 000 113% 82% HSJ 261 000 62% 73% COMBINED 636 000 92% 78%

Q3 2016 Highlights

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5

Business Overview

Environment

(1) Source: World Steel Association (2) Polish National Bank WORLD STEEL PRODUCTION (1) Q3 2016 % YoY Q3 2015 2015 % YoY 2014 mln tonnes Europe 73 0% 73 301

  • 3%

311 Poland 1.9

  • 14%

2.3 8.6 0% 8.6 UE (28) 38

  • 2%

39 166

  • 2%

169 CIS 25

  • 1%

26 101

  • 4%

105 North America 28

  • 4%

29 111

  • 9%

121 USA 20

  • 4%

21 79

  • 10%

88 South America 10

  • 7%

11 44

  • 2%

45 Africa / Middle East 10 3% 10 41

  • 6%

44 Asia 279 3% 270 1096

  • 2%

1121 China 204 3% 197 804

  • 2%

823 Japan 26 0% 26 105

  • 5%

111 Oceania 2 3% 2 6

  • 5%

5 TOTAL 401 2% 394 1 599

  • 3%

1 648 AVERAGE EXCHANGE RATES (2) Q3 2016 Q3 2015 PLN EUR/PLN 4.34 4.19 % change 3.6% USD/PLN 3.89 3.77 % change 3.2% EXCHANGE RATES (2) 30-Sep-2016 30-Jun-2016 30-Sep-2015 PLN EUR/PLN 4.31 4.43 4.24 % change

  • 2.7%

USD/PLN 3.86 3.98 3.78 % change

  • 3.0%

Poland’s production plummeting World’s production increasing

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Business Overview

BOF v EAF cost model comparison

Sources:

  • cost model: OECD, Steelonthenet, Cognor
  • Prices: iron ore – IMF, coking coal - EIA, scrap metal -

Cognor Notes:

  • 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

  • Q3 2016 coking coal prices - an estimate by Cognor

2015 BOF EAF price (usd/t) factor (t) cost (usd/t) factor (t) cost (usd/t) iron ore 55 1,60 88 coking coal 98 0,60 59 scrap 229 0,21 48 1,12 257 feedstock total 195 257 Q1 2016 BOF EAF price (usd/t) factor (t) cost (usd/t) factor (t) cost (usd/t) iron ore 48 1,60 76 coking coal 75 0,60 45 scrap 171 0,21 36 1,12 192 feedstock total 157 192 Q2 2016 BOF EAF price (usd/t) factor (t) cost (usd/t) factor (t) cost (usd/t) iron ore 55 1,60 88 coking coal 84 0,60 50 scrap 223 0,21 47 1,12 250 feedstock total 186 250 Feedstock Cost 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016 USD / Tonne BOF 473 385 366 287 195 157 178 186 EAF 436 423 388 352 257 192 233 208 difference 37

  • 38
  • 23
  • 65
  • 62
  • 34
  • 55
  • 23

150 250 350 450 2011 2012 2013 2014 2015 Q1 2016 Q2 2016 Q3 2016

usd / tonne

Feedstock Cost

BOF EAF

Q3 2016 BOF EAF price (usd/t) factor (t) cost (usd/t) factor (t) cost (usd/t) iron ore 65 1,60 104 coking coal 200 0,60 120 scrap 230 0,21 48 1,12 258 feedstock total 272 258

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Business Overview

Prices

PRICES AND SPREADS

Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 (pln/ tonne) FERROSTAL SCRAP METAL - all purchases 752 805 676 667 861 BILLETS - sales to external customers 1 582 1 516 1 337 1 442 1 677 vol 20 401 21 596 30 895 30 630 26 014 BILLET SPREAD 830 710 661 775 816 FINISHED PRODUCTS - sales to external customers 1 753 1 720 1 609 1 682 1 848

  • plain bars

1 890 1 927 1 828 1 887 1 950 vol 6 343 7 467 7 767 7 527 7 736

  • flat bars

1 924 1 950 1 864 1 899 1 965 vol 13 406 16 386 16 133 12 240 16 789

  • squares

1 906 1 919 1 832 1 886 1 951 vol 2 021 2 011 1 868 2 034 3 127

  • rebars

1 629 1 588 1 408 1 439 1 657 vol 43 562 58 311 43 880 27 948 23 190

  • angles

1 949 1 954 1 860 1 905 1 963 vol 5 437 5 787 6 752 7 153 8 036

  • other

2 521 2 119 1 954 2 079 2 094 vol 1 157 1 589 2 477 1 381 1 689 PRODUCT SPREADS 1 001 915 932 1 014 986

  • plain bars

1 138 1 122 1 152 1 220 1 089

  • flat bars

1 172 1 145 1 188 1 232 1 104

  • squares

1 154 1 113 1 156 1 219 1 090

  • rebars

877 783 732 772 796

  • angles

1 197 1 149 1 183 1 237 1 102

  • other

1 769 1 314 1 278 1 412 1 233

scrap metal price down by 109 billet price down by 95 billet spread up by 14 finished product price down by 95 product spread up by 15

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Business Overview

Prices

PRICES AND SPREADS Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 (pln/ tonne) HSJ SCRAP METAL - all purchases 772 841 722 712 881 BILLETS - sales to external customers 1 759 1 712 1 712 1 677 2 079 vol 10 461 9 611 7 781 10 164 4 860 BILLET SPREAD 987 871 990 965 1 198 FINISHED PRODUCTS - sales to external customers 2 555 2 426 2 433 2 647 2 688

  • big rounds

2 410 2 298 2 294 2 438 2 576 vol 33 326 43 322 44 540 30 427 35 423

  • thick sheets

2 606 2 663 2 765 2 765 2 218 vol 627 2 234 2 556 1 201 4 381

  • thin sheets

11 718 11 318 10 728 11 190 10 540 vol 64 243 252 201 265

  • other

34 203 15 567 17 557 26 841 20 052 vol 133 218 215 185 227 PRODUCT SPREADS 1 783 1 585 1 711 1 935 1 807

  • SQ bars

1 638 1 457 1 572 1 726 1 695

  • thick sheets

1 834 1 822 2 043 2 053 1 337

  • thin sheets

10 946 10 477 10 006 10 478 9 659

  • other

33 431 14 726 16 835 26 129 19 171

scrap metal price down by 109 billet price down by 320 billet spread down by 211 finished product price down by 133 product spread down by 24

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9

Business Overview

Estimated FIFO contribution

result of scrap metal cost in inventories 12.2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Y 2015 scrap cost

  • pening

volume scrap cost result

  • pening

volume scrap cost result

  • pening

volume scrap cost result

  • pening

volume scrap cost result result PLN/T T PLN/T 000 PLN T PLN/T 000 PLN T PLN/T 000 PLN T PLN/T 000 PLN 000 PLN HSJ billets & products 1 032 35 257 998

  • 1 204

27 720 1 035 1 041 32 103 901

  • 4 301

29 051 757

  • 4 191
  • 8 655

FERR billets & products 944 59 540 909

  • 2 057

69 779 916 452 93 223 895

  • 1 959

78 990 720

  • 13 767
  • 17 330

TOTAL

  • 3 261

1 493

  • 6 260
  • 17 958
  • 25 985

Notes:

  • Scrap cost is an average price of scrap metal used in production of billets and finished products and contained in inventories as of the end of a period
  • As compared to the disclosure in the 2015 Annual Report MD&A, Cognor decided to alter the way of establishing the scrap metal cost which results in the change of

the previously reported 2015 FIFO contribution amount. The 2015 FIFO estimation contained herein represents the calculation based on the new formula. The calculation methodology of FIFO result remains unchanged - the difference between the actual and the preceding scrap cost is multiplied by the inventories volume as

  • f the beginning of a period

result related to scrap metal cost in inventories Q4 2015 Q1 2016 Q2 2016 Q3 2016 scrap

  • pening

volume scrap cost result

  • pening

volume scrap cost result

  • pening

volume scrap cost result PLN/T T PLN/T 000 PLN T PLN/T 000 PLN T PLN/T 000 PLN HSJ billets & products 757 31 059 724

  • 1 034

25 755 898 4 490 29 694 795

  • 3 063

FERR billets & products 720 77 246 664

  • 4 344

64 542 816 9 785 55 583 736

  • 4 413

TOTAL

  • 5 378

14 275

  • 7 476
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Business Overview

Segments

ZLMET purchases down by 5.7% shipments down by 37.7% sales down by 46.8% internal use up by 16.8%

SCRAP METAL Q3 2016 Q2 2016 Q3 2015 PURCHASES FROM EXTERNAL SUPPLIERS Tonnes FERR 77 169 98 486 56 167 ZLMET 69 354 83 673 73 509 HSJ 26 561 38 194 29 129 INTERNAL USE Tonnes FERR 117 926 118 723 85 865 HSJ 46 178 72 532 54 683 SALES TO EXTERNAL CUSTOMERS Tonnes ZLMET 20 319 24 019 32 615 SALES '000 PLN CONSOLIDATED 14 678 18 621 27 604 TOTAL PURCHASES in TONNES 173 084 220 353 158 805 TOTAL INTERNAL USE in TONNES 164 104 191 255 140 548 TOTAL SALES in TONNES 20 319 24 019 32 615 TOTAL SALES in '000 PLN 14 678 18 621 27 604

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Business Overview

Segments

BILLETS Q3 2016 Q2 2016 Q3 2015 PURCHASES Tonnes FERR 26 PRODUCTION Tonnes FERR 105 457 105 683 76 640 HSJ 40 203 63 786 47 639 INTERNAL USE Tonnes FERR 78 748 95 059 64 837 HSJ 29 742 54 175 42 805 SALES TO EXTERNAL CUSTOMERS Tonnes FERR 20 401 21 596 26 014 HSJ 10 461 9 611 4 860 SALES '000 PLN CONSOLIDATED 50 672 49 188 53 738 TOTAL PURCHASES in TONNES 26 TOTAL PRODUCTION in TONNES 145 660 169 469 124 279 TOTAL INTERNAL USE in TONNES 108 490 149 234 107 642 TOTAL SALES in TONNES 30 832 31 207 30 874 TOTAL SALES in '000 PLN 50 672 49 188 53 738

production up by 17.2% shipments down by 0.1% sales down by 5.7% internal use up by 0.8%

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Business Overview

Segments

FINISHED PRODUCTS Q3 2016 Q2 2016 Q3 2015 PURCHASES Tonnes FERR 36 17 86 PRODUCTION Tonnes ZWWB 20 046 22 790 21 265 HSJ 31 512 47 635 37 433 PROFIL 54 467 66 372 38 475 SALES TO EXTERNAL CUSTOMERS Tonnes FERR 71 926 91 571 60 567 HSJ 34 150 46 017 40 296 SALES '000 PLN CONSOLIDATED 213 367 266 944 220 219 TOTAL PURCHASES in TONNES 36 17 86 TOTAL PRODUCTION in TONNES 106 025 136 797 97 173 TOTAL BULK PRODUCT SALES in TONNES 106 076 137 588 100 863 TOTAL SALES in '000 PLN 213 367 266 944 220 219

production up by 9.1% shipments up by 5.2% sales down by 3.1%

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Financials

revenues down by 9.4% gross profit up by 106.8% Estimated FIFO result: Q3 2015 PLN - 6.3m Q3 2016 PLN - 7.5m EBIT up and positve adjusted net result PLN 0.3m PLN -10.3 in Q3 2015 EBITDA up by 203.0% adjusted EBITDA PLN 24.5m PLN 6.4m in Q3 2015

INCOME STATEMENT Q3 2016 Q2 2016 Q3 2015 '000 PLN Revenue 309 745 369 507 341 788 Cost of sales

  • 273 480
  • 323 780
  • 324 249

Gross profit 36 265 45 727 17 539 Other income 1 939 1 148 1 328 Distribution expenses

  • 12 893
  • 13 557
  • 11 426

Administrative expenses

  • 8 322
  • 8 574
  • 8 288

Other gains/(losses) – net

  • 577

555 1 645 Other expenses

  • 1 070
  • 1 197
  • 1 375

EBIT 15 342 24 102

  • 577

Financial income 333 2 138

  • 5 466

Financial expenses

  • 2 376
  • 29 804
  • 13 011

Net financing costs

  • 2 043
  • 27 666
  • 18 477

Share of profits of associates 47 50

  • 86

Excess in the net fair value of acquired assets over cost Profit before tax 13 346

  • 3 514
  • 19 140

Income tax expense

  • 1 575

4 052 4 889 Profit/loss for the period from discontinued operations Profit for the period 11 771 538

  • 14 251

Depreciation and amortization

  • 9 644
  • 9 316
  • 8 824

EBITDA 24 986 33 418 8 247

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Financials

non -current assets stable current assets down by 20.8% decrease of inventories by 13.3% receivables down by 35.6 % sale of receivables at PLN 66.6 cash position increased

ASSETS Q3 2016 Q2 2016 Q3 2015 '000 PLN

  • A. TOTAL NON-CURRENT ASSETS

417 363 421 829 417 572

  • I. Intangible assets

11 520 11 051 10 826

  • II. Property, plant and equipment

284 281 288 308 280 856

  • III. Other receivables

106 33 85

  • IV. Investment property and other investments

12 859 12 812 16 683

  • V. Prepaid perpetual usufruct of land

20 077 20 180 22 314

  • VI. Deferred tax assets

88 520 89 445 86 808

  • B. TOTAL CURRENT ASSETS

429 310 450 944 542 251

  • I. Inventories

240 958 248 099 277 839

  • II. Receivables

157 541 176 128 244 767

  • 1. Trade receivables

153 029 171 686 240 081

  • 2. Current income tax receivable

47 47 10

  • 3. Other investments

4 465 4 395 4 676

  • III. Cash and cash equivalents

24 799 20 705 14 097

  • IV. Assets classified as held for sale

6 012 6 012 5 548 TOTAL ASSETS 846 673 872 773 959 823

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Financials

EQUITY AND LIABILITIES Q3 2016 Q2 2016 Q3 2015 '000 PLN

  • A. EQUITY

169 214 159 967 169 356

  • I. Issued share capital

141 439 139 702 133 542

  • II. Reserves and retained earnings

7 035 240 14 153

  • III. Minority interest

20 740 20 025 21 661

  • B. LIABILITIES

677 459 712 806 790 467

  • I. Non-current liabilities

440 143 446 089 454 968

  • 1. Employee benefits obligation

9 064 9 079 9 597

  • 2. Interest-bearing loans and borrowings

391 997 399 551 397 390

  • 3. Other

39 082 37 459 47 981

  • II. Current liabilities

237 316 266 717 335 499

  • 1. Interest-bearing loans and borrowings

41 425 42 745 94 997

  • 2. Bank overdraft

22 677 8 069 23 493

  • 3. Trade payables

166 839 210 464 209 682

  • 4. Deferred government grants

117 117 117

  • 5. Employee benefits obligation

2 855 2 613 3 244

  • 6. Current income tax payable

468 89

  • 7. Provisions for payables

2 935 2 709 3 877 TOTAL EQUITY AND LIABILITIES 846 673 872 773 959 823

equity unchanged liabilities down by 14.3% gross debt down by 11.5% net debt down by 12.6% FX debt increment at PLN 6.3m non-recourse factoring at PLN 66.6m

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Financials

working capital outflow of PLN 7.0m due to trade liabilities decrease liquidity ratios good turnover ratios fair profitability improving leverage reduced to 5.6

CASH FLOW Q3 2016 Q2 2016 Q3 2015 '000 PLN

  • A. OPERATING ACTIVITIES

17 227 25 279 15 673

  • B. INVESTING ACTIVITIES
  • 4 486
  • 6 735
  • 1 304
  • C. FINANCING ACTIVITIES
  • 23 255
  • 24 762
  • 39 164

NET INCREASE IN CASH

  • 10 514
  • 6 218
  • 24 795

MAIN METRICS Q3 2016 Q2 2016 Q3 2015 Liquidity ratio 1.81 1.69 1.62 Quick ratio 0.79 0.76 0.79 Inventories turnover (days) 79 69 77 Receivables turnover (days) 44 42 63 EBITDA margin 8.1% 9.0% 2.4% Net profit margin 3.8% 0.1%

  • 4.2%

Equity 169 214 159 967 169 356 Net debt 431 300 429 660 501 783 Net debt / LTM EBITDA 5.6 7.1 7.1

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Financials

FACTORING LIMIT

RECEIVABLES

ADVANCES PAID LIQUIDITY BANK LINES LIMIT DRAWN LIQUIDITY AVAILABLE FINANCED '000 PLN '000 PLN RECOURSE FACTORING BANK FACILITIES mFaktoring – Zlomrex Metal 18 000 7 285 7 285 6 133 423 mBank – Cognor 25 000 22 677 2 323 Total 18 000 7 285 7 285 6 133 423 mBank – Ferrostal 15 000 12 499 2 501 PeKaO - Ferrostal 5 000 5 000 NON- RECOURSE FACTORING Total 45 000 35 176 9 824 Coface Factoring Metal 5 000 2 600 2 600 2 179 161 mFaktoring – HSJ 20 000 11 264 10 229 9 332 806 mFaktoring - Ferrostal 15 000 10 962 10 111 9 035 830 PekaO Factoring - HSJ 5 000 7 373 3 260 2 721 3 915 Coface Factoring - Ferrostal 35 000 20 663 13 723 10 242 8 355 Coface Factoring - HSJ 35 000 17 399 14 375 13 220 2 438 Kuke Finnace - Ferrostal 35 000 36 023 22 276 19 833 12 588 Total 175 000 106 283 76 574 66 562 29 093 TOTAL 193 000 113 568 83 859 72 695 29 515

total lines available PLN 39.3m

Liquidity as of 30.09.2016

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Q4 2016 Outlook

Main factors – as compared to Q3 2016

  • Weaker GPD growth in Poland and stable in the EU(28)
  • World’s and the EU(28) steel production lower. Polish output to increase
  • Demand and sales similar. Product prices to increase. Scrap metal to follow
  • Correction in metallurgical coal market. Further BOF v. EAF improvement
  • Inventory FIFO gains; stabilization of conversion spreads
  • EBITDA profit expected to exceed Q4 2015 and similar to Q3 2016
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2012-05-18 19

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