Current Report No.: 32/2019

Date of preparation: 09.08.2019

Abbreviated name of the Issuer: CIECH S.A.

Legal basis: Art. 17.1 of the MAR – inside information

Subject: Beginning of preparations in the event of the need to suspend production by a subsidiary of the Issuer

Contents of the Report:

The Management Board of CIECH S.A. with its registered office in Warsaw (the “Issuer” or “Company”), informs that today the Board of Directors of a subsidiary of the Issuer - CIECH Soda Romania S.A. based in Romania (“CSR") decided to begin preparations in the event of the need to suspend its production due to the cessation of the supply of process steam by its sole steam supplier - S.C. CET Govora S.A. based in Romania in composition bankruptcy ("CET"). The Issuer informed about the termination of the contract for the supply of process steam by CET (the "Contract") in Current Report No. 23/2019 of 18 June 2019. According to the provisions of the Contract, the supply of process steam may cease after the expiry of the notice period, i.e. 18 September 2019.

The aforementioned decision is the result of termination of the Contract by CET, the assessment of the course of negotiations with CET to date on the determination of the new Contract terms, and the effect of an in-depth analysis of economic effects on CSR. If the price proposed by CET were accepted, the price of steam, including CO2 certificates, would increase by approx. 135%, as compared to the price of steam with CO2 certificates prevailing in 2018. CSR’s acceptance of the new steam price would result in permanent lack of profitability of production at the CSR factory. 

CSR will take all necessary and adequate preventive measures in order to protect CSR’s interests in the event that CSR is not able to continue production, including among others:

1. renegotiating or terminating contracts which, due to a change in the economic situation, cannot be continued on the existing basis;
2. preparing the concept of optimising the organisational and personnel structure, including its adaptation to the CSR’s new economic situation;
3. preparing procedures and action plans related to the security of the technological process, production apparatus and equipment, as well as other CSR’s assets, after the cessation of production at the CSR factory;
4. review of issued decisions, permits and concessions in terms of making the necessary notifications and changes at the time of the cessation of production at the CSR factory.

The Issuer, in cooperation with CSR, is analysing all possible action scenarios, including hibernation of the Romanian plant. The Issuer and CSR have begun work on the preparation of a comprehensive cover package for employees of CSR and the Issuer's Romanian Branch located at CSR (the “Branch”), including in particular the voluntary redundancy programme, outplacement activities and possible relocation of a number of employees to other factories of the CIECH Group. 

In the opinion of the Issuer, the possible hibernation of the Romanian plant should not threaten the achievement of the goal of over PLN 900 M (Adj.) EBITDA in 2021, in accordance with the CIECH Group Strategy for 2019-2021, which was communicated by the Issuer in Current Report No. 34/2018 of 5 December 2018. In the analyses, when developing the CIECH Group Strategy for 2019-2021, it was assumed that in 2021, the Romanian business’ share in the CIECH Group’s (Adj.) EBITDA would be less than 1%. The Issuer assumed that the Romanian business could generate in 2019 (Adj.) EBITDA of approx. PLN 25 million, given the negative cash flows.

Bearing in mind the decision made by the Board of Directors of CSR, the Management Board of the Issuer has decided today by the resolution, to initiate adequate preventive measure at the Branch, in order to protect the interests of the Branch - in the event that CSR is not able to continue its production. 

Legal basis: article 17.1 of the Regulation of the European Parliament and of the Council (EU) No. 596/2014 of 16 April 2014 on Market Abuse (the Market Abuse Regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (Official Journal of the European Union L No. 173, p. 1).

Signatures of the persons representing the Company: