Current Report No.: 40/2019

Temporary suspension of production by a subsidiary of the Issuer.

Current Report No.: 40/2019

Date of preparation:

Abbreviated name of the Issuer: CIECH S.A.

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

Subject: Temporary suspension of production by a subsidiary of the Issuer.

Contents of the Report:

With reference to Current Report No. 32/2019 of 09.08.2019, the Management Board of CIECH S.A. with its registered office in Warsaw (the “Issuer” or “Company”) herewith informs that today the Board of Directors of CIECH Soda Romania S.A. based in Romania (“CSR”), due to: 

1. termination of the contract for the supply of process steam (the “Contract”) by CET Govora S.A. based in Romania in composition bankruptcy (“CET”), as a result of the expiry of the contract termination period, as informed by the Issuer in its Current Report No. 23/2019 of 18.06.2019;

2. failure to reach agreement between CSR and CET, as part of their Steam price negotiations, resulting in the absence of a new Steam supply contract;

3. suspension of the supply of process steam (the “Steam”) to the CSR plant by CET; 

4. CSR’s inability to conduct economically profitable operations based on the Steam price offered by CET, due to the negative impact of the proposed Steam price on CSR financial results,

- adopted a resolution on the temporary suspension of its soda ash production (the “Resolution”) leading to the reduction of CSR production operations. The adoption of the Resolution has its rationale in the business, legal and factual conditions existing at the time of its adoption.

In connection with the temporary suspension of the soda ash production at CSR, the Issuer and CSR will take measures concerning the ability to continue operations in Romania, including in particular: 

1. conducting talks with CET on the resumption of Steam supplies; 

2. conducting an analysis of the possibility of obtaining a new source of Steam at a reasonable cost and long-term cooperation in the supply of other raw materials necessary for production (guaranteeing cost predictability in subsequent years);

3. reviewing strategic options related to CSR.

In collaboration with the Issuer, CSR will continue work on preparing the concept of optimising the organisational and HR structure of CSR and the Romanian Branch of the Issuer, adapting it to the changed economic situation through, among others, a voluntary redundancy programme, outplacement activities and an offer to relocate some of the employees to other factories of the CIECH Group. In addition:

1. a maintenance procedure will be carried out and action plans and procedures related to the security of the technological process, production apparatus and equipment and other CSR assets will be implemented in order to make such resumption of production the simplest in technical terms;

2. a specialised technical analysis will be prepared concerning conditions for launching production in the event of prolonged outage;

3. necessary notifications and changes will be made, and necessary reports will be submitted, ensuing from the decision, redundancies and concessions.

In the opinion of the Issuer, the temporary suspension of soda ash production at the plant should not jeopardise the ability to achieve the (Adj.) EBITDA result of more than PLN 900 million in 2021, in accordance with the Strategy of the Group for 2019-2021, as announced by the Issuer on 5 December 2018 in its Current Report No. 34/2018. In the analyses, when developing the CIECH Group Strategy for 2019-2021, the share of (Adj.) EBITDA of the Romanian business was assumed to be less than 1% in the 2021 result of the CIECH Group. The Issuer assumed that the Romanian business would be able to generate (Adj.) EBITDA of approx. PLN 25 million in 2019, with negative cash flows. The temporary suspension of production at CSR will not result in the infringement of any obligations under the syndicated loans agreement, as announced by the Company, among others, in its Current Reports Nos. 38/2015 of 30.10.2015 and 1/2018 of 9.01.2018, and the revolving credit facilities agreements, as communicated by the Company in its Current Report No. 13/2019 of 18.04.2019.

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: 

Artur Osuchowski  – Member of the Management Board

Mirosław Skowron – Member of the Management Board

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