Current Report No.: 16/2020

Date of preparation: 02.04.2020

Abbreviated name of the Issuer: CIECH S.A.

Subject: Conclusion of an agreement for implementation of an important investment

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

Report:

With reference to current reports No. 07/2018 of 27 April 2018 and No. 19/2017 of 23 November 2017, the Management Board of CIECH S.A. with its registered office in Warsaw (the “Issuer”), informs that on 02.04.2020, as part of a significant investment, involving the construction of an evaporated salt production plant in Stassfurt, Germany (the “Investment”), a subsidiary of the Issuer – CIECH Salz Deutschland GmbH (“CSD”) signed an agreement with Adamietz Sp. z o.o. with its registered office in Strzelce Opolskie, for the execution of design, construction and assembly works aimed at constructing the facilities composing the Investment (the “Agreement”). The total value of the Agreement is EUR 44,100,000. CSD is a special purpose vehicle and a wholly-owned subsidiary of the Issuer, which took over the salt business in Germany from CIECH Soda Deutschland GmbH & Co.KG.

The Agreement provides for the execution of all design work (including detailed designs), as well as construction and assembly, which, in accordance with laws and good construction practice should be performed and are required for the construction of fully functional facilities enabling production. The Agreement also provides for optimisation, the purpose of which is a reduction in the value of the work.

In the opinion of the Management Board of the Issuer, the spread of the SARS-CoV-19 coronavirus, causing a disease called COVID-19, may pose the potential risk of disruption in the timely implementation of the Investment due to possible difficulties or limited availability of contractors, possible delays in the supply of materials and equipment and acts of public administration authorities in terms of issuing decisions in administrative procedures, in particular, to close the Polish border for Poles working in Germany. In order to mitigate this potential risk, the Agreement grants both parties the right to suspend its performance, in whole or in part, as a result of events related to the COVID-19 pandemic, preventing the performance of the Agreement, in whole or in part, which can be neither predicted nor prevented (the “Force Majeure”). The Agreement stipulates that such suspension of implementation of the Agreement, if any, due to Force Majeure may not exceed 11 months in total. 

The remaining terms and conditions of the Agreement do not deviate from those commonly applied in business for this type of agreement.

The estimated production capacity of the plant, which should operate as of 1 January 2021, is approximately 450 thousand tons of salt per annum. The effects of the implemented Investment will have a significant impact on the consolidated financial results of the CIECH Group and may generate approx. EUR 25 million EBITDA per year. 

At the same time, the Issuer informs that CSD has received the vast majority of binding bid offers related to the performance of other tasks under the implemented Investment. As a result of the bid process, and taking into account the remuneration arising from these offers and concluded contracts (including the Agreement), the Issuer is forced to correct the estimates relating to the value of the Investment published in November 2017 (Current Report No. 19/2017) and April 2018 (Current Report No. 07/2018). The preliminary estimates, as at the date of publication of this report, amount to approximately EUR 140 million. The increase in costs is mainly due to a higher amount of remuneration for the construction and assembly work, as compared to the assumptions of the Issuer, and an increase in the costs of materials necessary for the implementation of the Investment. The Issuer assumes that the costs of the Investment could be reduced in the course of negotiating other contracts and implementing the Agreement. 

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 Company’s representatives:

Dawid Jakubowicz – President of the Management Board 

Mirosław Skowron - Member of the Management Board