Good morning, ladies and gentlemen, and everyone, to the conference call devoted to the financial performance of the Grupa after the first half of 2025. Today's speakers include Andrzej Skolmowski, President of the Management Board of Grupa , Mr. Paweł Bielski, Vice President of Grupa , and Mr. Andrzej Dawidowski, Vice President. Before I move on, I would like to remind you that you can ask questions to the conference call using the panel, and a link to the website with the earnings call. Now the floor is over to Mr. Andrzej Skolmowski.
Good morning, everyone, and welcome to the Earnings Call Devoted to the Presentation of our Performance after the First Half of the Year.
According to the recent report by Cefic, the European chemical sector deals with a deep crisis where the production figures are way below the average of recent years, and the utilization of production capacity is lower than 70%. As a sector, we need to face a lot of challenges related to regulation, high prices of energy, weak and dwindling demand, and the ever-growing dominance of China. We know that the most important problem we have to face in Europe is regulatory costs and electricity and energy costs. Between January and July 2025, the prices of gas in Europe were threefold the prices of those that are paid in the U.S., and China is strengthening its global contamination. In those conditions, it is important to discuss regulatory issues and framework and look for competitive energy sources.
Let us remind you that the chemical segment uses natural gas in the range between 25%- 50% as a feedstock, and the rest is used for the production scheme and electricity. We can expect that the difference in prices between Europe and our global competitors will remain significant until 2030, which additionally will weaken our position and standing in Europe. If we analyze our production data in the first half of 2025, we can see that production in European countries was up by only 1% year- on- year. However, the chemical sector in Europe has reported a major drop of 2.5%, and the businesses which we sell our products to, for instance, the automotive business, report a drop of over 4%. The production of chemicals in the European Union remains 20% lower compared to the pre-crisis times, and the price of chemicals remains at a level comparable to 2024.
Chemicals, their chemistry in general, is a mother of other sectors, but we need a brand new, more innovative approach in order not only to strengthen the position of the entire sector, but in order to stop the closing down of the chemical production facilities across Europe. Concerning the major restructuring program, turnaround program, we need to remember that the first half of the year was another challenging period for the Grupa Azoty Group. We operate in a very challenging market condition, but the consistent implementation of the Azoty Business Program is already bearing fruits. We are reporting a positive EBITDA in our core segment and core business segments. We'll talk about it later on. We continue negotiations with the banks in order to strike a long-term agreement. We have presented our proposals.
Negotiations are ongoing, and we are deeply convinced that we will, in the end, reach a compromise that will be satisfactory to all sides. We are paying our dues as they come, and we are keeping our liquidity level at a satisfactory level of liquidity. We are looking into the Polimery Police project concerning a new partner and a new owner, potentially. We have resumed the negotiations in order to find an agreement, and we do our best in order to stabilize the financial situation of GA Polyolefins and complete this project. We're looking at a potential transaction concerning the sale of all or a part of the shares of the company. We do not want to present some solutions that are not real.
We will not be able to solve these problems on our own because we do not have sufficient funds in order to complete this investment and commercialize it. In these very challenging conditions, we are ready to complete this project using the resources that we have at our disposal. We have the guarantee from the general contractor, and we are using this guarantee as it was intended for. We are keeping up with the work in order to enter the defense sector. We have signed letters of intent with the companies of Polska Grupa Zbrojeniowa (PGZ). We want to have a strong presence in the defense sector, and we know that without the Polish chemical sector, those projects would not be possible.
In those challenging conditions, we are arriving at very good agreements, including with Polska Grupa Górnicza for the supply of thermal coal with a value of PLN 350 million. As of July 1st this year, higher duties on fertilizer from Russia and Belarus were introduced. However, we need to wait for the results of these regulations coming into effect. To summarize this introduction, let's extend our heartfelt thanks to all our employees for their involvement, for their engagement, and for the cost they are actually bearing. Without their efforts, the improvements of our results across the group would not be or would not have been possible. Thank you very much. In recent time, last week specifically, the Supervisory Board announced changes in its composition. We have communicated the details in current reports. Last week, the Ministry of State Assets appointed a new representative to the Supervisory Board.
Moving on to market environment. From our perspective, the Grupa Azoty Group's perspectives, the key feedstocks and energy feedstocks were stable in terms of the prices or reported higher prices. For instance, as far as gas is concerned, the 12% increase was mainly due to ongoing conflicts in the Middle East and Ukraine, and there were some problems with LNG transport and higher freight costs, which translated into higher gas costs across Europe. Actions by the European Commission aimed at a complete stop or ban on gas imports from Russia also translate into an unstable situation and high gas prices. At the end of the period, we also saw a lower demand from Asia, which in the last quarter of this period, that is the second quarter of 2025, resulted in a slight decrease in gas prices across the period compared to last year's data.
We are talking about an increase of gas prices by 12%. In terms of coal, due to lower demand across Europe and lower production in the chemical segment, reported a drop of 12%. Electricity reported stable prices, and the same applies to CO2 emission allowances. In terms of our key market environment, I'm talking about our consumers, our farmers. The first half of the year reported an increase in terms of the agricultural sector. I'm talking about an increase of 1.5 percentage points quarter- on- quarter. This is mainly due to higher prices of agricultural produce. We know that it was only temporary because the next quarter, quarter three, already showed major drops in terms of prices, mainly the prices of wheat, which reported record low prices.
What's important for the Grupa Azoty Group are higher prices of fertilizers in the world, which allowed us to increase the spread between gas prices and products by 21%, which allowed us to rebuild the profitability of fertilizer products across Europe, which will translate into the performance of our fertilizer segment. In terms of compound fertilizers, the spread between feedstocks and final products and end products was eroded, going down by 3% in the second quarter of 2025 compared to the second quarter of 2024. Also, in comparison with other quarters, for instance, the first quarter of 2025, the drop in spread was even higher. The only products that reported a positive increase in the spread and higher profitability were the key NP products or DAP, in which case the spread went up by 30%, which was due to a major increase in prices in Europe.
The Agro segment is looking at major increases and challenges in the future. First, July 2025, customs duties were imposed on imports of products from Russia and Belarus. However, we did not see any significant effect of those measures for European producers. The increase in the first half of the year was very high, 7% year-on-year. Imports from Russia and Belarus in the first half of the year were also up by 83%. We're looking at it as we look into the future. Obviously, the introduction of customs duties was positive for European producers. However, we can expect the results to be seen only in the fourth quarter of 2025 and the first quarter of 2026.
A major increase in imports in the first half of 2025 was mainly due to building high storage stocks in ports, terminals, and also in warehouses in Poland before we have built the stocks. As far as the market environment in the chemicals segment, we are looking at a very difficult situation. Exports of alcohol to the spread has dropped a lot by 43%. The profitability of this business remains to be very challenging. The prospects for the second quarter of 2025 and the third quarter of 2025 were a little bit better. The spread was rebuilt. However, the demand remains very low, and the oversupply across the European markets means that it will be very difficult to be back to what we saw in 2023 and 2024. The situation in titanium white is a bit different.
The introduction of customs duties on Chinese products, the imports of Chinese products, translated into higher spreads between feedstock prices and product prices. The upward trend has been reported until the first quarter of 2025. It was very stable. However, the increase of the spread was seen in the second quarter of 2025 after we let go of the stocks brought to Europe still in 2024.
In all the market situation in the plastics industry, low spread since the first quarter of 2023 has continued ever since. A slight increase in the profitability of this business and the spread between the raw materials in the second quarter of 2025, mostly attributable to the low, fast decreasing prices of raw materials and slower price adjustment of end products. For raw materials, the decreases were stronger in Europe than in Asia, which increased profitability in Europe on the sales of polyamide-6. From a semi-finished products perspective, caprolactam had very similar levels. As I mentioned, this decrease in the European market, polyamide 6 versus raw material or benzene, that was lower at 23% versus 47% in the decrease of benzene prices. The results in the plastics segment were mostly influenced by the effect of Azoty Polyolefins.
Now, the financial performance we are about to present for the first six months is consistent with our estimates published a few days ago. Azoty Group delivered PLN 3.3 billion revenues, and that was comparable to the second quarter of 2024. We had somewhat lower revenues in chemicals and energy and higher revenues in our key segment, that is Agro. We reduced our EBITDA losses from -PLN 128 million- -PLN 71 million. These results are strongly influenced by the loss of our daughter company, Azoty Polyolefins. Without that item, the group's EBITDA would have been positive at the level of PLN 73 million compared to a comparable figure in the year before. Sorry, in the year before, that would -PLN 113 million. Revenues for the first six months compared to the last year went up by 6% to PLN 7.139 million.
That's comparable to the first quarter of 2023. At the same time, we improved our EBITDA in the first quarter. Group-wide, including polyolefins, EBITDA is negative, -PLN 79 million. Again, if we adjust this by excluding polyolefins, then our core business delivered a positive EBITDA of PLN 160 million. In the first half of the year, our EBITDA went up by PLN 100 million compared to the similar period in the year before. That's attributable to our restructuring efforts, mostly on the cost side. We started that initiative in March 2024. We can see that the actual impact of our cost-cutting measures, and these remedies have been delivering consistent EBITDA growth quarter after quarter. However, despite the strong negative impact of imported fertilizers from the east, in the first quarter of 2025, we sold more fertilizers compared to the similar period one year earlier.
However, we struggled with growing gas prices. Our fixed costs in the first quarter of, in the first six months of 2025, considered comparatively year-on-year in a normalized way, is lower by PLN 93 million, mostly in terms of labor, which reflects lower employment across the group. Also, we terminated all our sponsoring and PR agreements, which reduced our other costs by type. We have lower material and repair costs, and that's attributable to the improved performance of our renovation companies. Depreciation costs included in the Polyolefins business was PLN 123 million. In the first half of the year, the raw material situation of the group was strongly affected by the growing natural gas prices. They were 43% higher than in the similar period of 2024. Per unit, the cost of coal consumption was definitely lower.
The total cost of raw material was PLN 185 million higher than the year before, and PLN 590 million in gas alone. We had lower costs of oil derivatives, PLN 276 million less for phenol and propane, and we had lower fossil fuel costs. We also had lower coal consumption. We used less coal, and prices were lower as well. In the first quarter, the share of gas in raw material was 41%, 12 percentage points more than in the year before. It has been 18 months of intense and demanding negotiations with financing institutions. We've been consistently implementing our remedy program in agreement with financing institutions. This program is monitored and updated if necessary. As a result of these negotiations, we have a green light to continue our stabilization agreement, which now terminates on the 30th of September.
In mid-September, we received a waiver from financing institutions not to reach our debts to EBITDA ratios. The solutions we're currently working on are aimed at switching from the stage of technical agreements with financing institutions, and those agreements sometimes continue for weeks or months. We want to switch from the technical stage to a long-term understanding. We regularly and timely pay our obligations, our liabilities under those agreements and any other agreements with financing institutions. Financing institutions provide credit facilities, defer payments, and the facilities we have secure financing for the A zoty Group. In the first six months of the year, we used 234 million more credits and factoring facilities. In total, available funds at the end of June was PLN 1.3 billion. A vast majority of the leading companies within the group have improved their performance in the first half of the year compared with 2024.
For Puławy, EBITDA is at the zero level. In Police, it's 0+ . However, you can see significant improvement over strongly negative figures last year. For Police, it's important to note that the company is back on a positive EBITDA track. Azoty Engineering doubled its last year's EBITDA. It's still not satisfactory, but for COMPO EXPERT, our EBITDA went up by 32%, and the company consistently delivers a positive net result. However, we still have Grupa Azoty Polyolefins, which still has a negative effect on the group. Just on technical downtime and incomplete use of capacity, as well as low demand for polypropylene, coupled with low spreads attributable to macroeconomic situation, all of that caused the poor performance of Polyolefins. In the Agro sector, we've seen improvement in two areas, growing sales volume and growing revenues.
Sales volumes went up in all product categories, which allowed us to deliver positive EBITDA at the level of PLN 119 million in the first half of the year. That's +PLN 193 million if we compare the first half of 2025 to the first half of 2024. The key factor here was obviously the growing imports in the first half of the year. It still keeps us far from standard margins that we used to have in Europe, even though those margins are improving. We have more intense imports of products from outside Russia and Belarus. Importantly, from the group's perspective, we have some protective measures that reduce expansion into the Polish market, and those efforts will continue. EBITDA from the first half of the year was at the level of 2.5%, which is 4.3 percentage points more than in the first half of 2024.
In chemicals, the group struggled with structural problems of the European market, limited growth possibilities in terms of production volume, and strong pressure caused by high gas and energy prices. As a result, the European market as a whole, this segment has been struggling with lower profitability for the last couple of quarters. We've had shrinking sales and production volumes recorded by most European producers. In the Azoty Group, all figures in chemicals went down with the exception of oxo alcohols. Across the sector, EBITDA has improved, but it's still negative at the level of -PLN 82 million in the first half of 2025. It's a major improvement over the previous year by PLN 71 million in 2024. In the first half, we had -PLN 53 million.
In the plastics segment, we saw higher volumes of production, higher volume of sales, and polyamide segment. However, in the polypropylene segment, there was a drop, which was mainly due to underutilization of our production capacities, Grupa Polyolefins at Police, production facilities, and also problems with maintaining a constant level of production. EBITDA for the first six months of the year was mainly driven by the impact of sales of polypropylene going down versus the level reported in 2024, which was at minus 91, which represents a drop of nearly PLN 200 million year-on-year. The entire segment continued to be under the pressure of ever-growing imports of end products from the Asian market. We're talking about the automotive market and the construction market, which were affected by higher imports of products from Asia, and as a result, lower consumption of polyamides in the European market.
I'm sorry, I cannot hear the speaker.
We are talking about CapEx Control Tower, which analyzed in detail the entire investment portfolio across the group. At the very beginning, the analysis of the portfolio was made in order to select objectively, select the key investments and CapEx projects from a number of angles: technical, legal, market, and business angle, as well as regulatory angle, because we need to remember that this analysis needed to be comprehensive. Based on that, we analyzed the effects for the entire group at the group level. We are continuing this process so as by the end of the year, we will have a brand new CapEx management model. As I said at the beginning, CapEx spending was limited to the minimum necessary level. We are keeping key investments which are of major importance for the group's business.
Let me remind you that we have four major investments across the group: two in Tarnów and Puławy. I believe that in terms of the CapEx figure, the major one is the construction of a coal-based unit in Puławy. Right now, we are performing stocking and inventory take, and we are analyzing the major elements of this investment in order to finalize it. After the contract was terminated due to default on the side of the general contractor, that is, Mostostal. As far as the Polimery Police is concerned, three major areas in terms of this company and the project. First of all, a stabilization agreement with the banks was extended until September 30th, 2025. We are in touch with our financing institutions in order to make sure that the extension process for the stabilization agreement is ongoing. Secondly, we are working with one of the shareholders, Orlen.
As far as the MOU is concerned, the memorandum of understanding was signed and then extended by an annex to include potentially the takeover of not only our port-based assets, but also all or part of the shares, acquisition of all or part of the shares, which are held by Grupa a nd Grupa Azoty Police. Thirdly, the relationship with the general contractor, the termination of the agreement, contractual penalties, and also the payment of a guarantee and the effects for the company taking the next steps as part of the Polimery Police project. First of all, we have prepared an end-to-end plan for the completion of this project and relaunch of this installation. According to this plan, the funds or the resources that we received under the guarantee payment for the proper performance of the agreement will be used to finalize this investment.
Right now, we are negotiating the agreement with the financing institutions on how to use the funds under this guarantee. We will move on to complete the project and relaunch the unit. It's a wrap-up of the presentation, and we can now move on to the Q&A session. First question, where will we see the effect of the imposition of customs duties on the imports of fertilizers? As Grupa Azoty Group, we are very grateful to the European Commission, but also to the Polish MPs who have supported the measures taken by Polish fertilizer producers and were also very active in the legislation process in order to impose additional duties on imported products from Russia and Ukraine. We see the first effects of lower imports. We saw them in the months of July and August.
What we presented shows that after the very strong period, we are after the very strong period. In terms of the stock levels, we will see the effects in the fourth quarter of 2025 or the first quarter of 2026 in terms of the first measurable effects for European producers. Second question, can you tell us a little bit more about your plans in the defense sector? A question to Mr. Bielski. Yes, we are consistently keeping our interest in these projects. We are taking steps to be present. We are in touch with the suppliers. We are negotiating it. We are defining our plans, but we have also launched first tenders. On the other hand, we need to secure the financing. As we said before, we have applied to FIC, and this application is now being analyzed.
We are keeping our fingers crossed that we will be ready to launch the investments shortly. Moving back to fertilizers, what are the prospects for the spreads in the Agro segment in the quarters to come? As we look at nitrogen-based fertilizer prices, they are stable, especially in Europe. What can be seen as a transitory period in terms of gas prices? Winter and fourth quarter is when we can expect a correction of gas prices. Our stocks, gas levels in Poland and across Europe are high. Storage facilities are filled up to the brim or almost filled up. The demand can be limited, and the effect can be limited as well.
We can expect the spreads this year to be stable this year, and the upward trend can only be seen in 2026 as a result probably of the imposition of customs duties on the fertilizer products from Russia and Belarus. In terms of compound fertilizer, the situation is a little bit different because the sulfur prices, as well as potassium chloride prices, have an effect there. The spread went down a little bit in the second quarter of 2025. I believe that the decrease or stabilization of the spread can be expected in the quarters to come. I'm talking about the fourth and the third quarter of 2025 for compound fertilizers. What are the savings generated by the Azoty Business Program? Are you satisfied with this program and its implementation?
We have talked about the effects of this program already today, especially in terms of costs by type going down by PLN 93 million , which was mainly due to the implementation of the Grupa Azoty new Azoty Business Product, where we cut our costs. However, the structural approach to cost savings, cost reduction, and improvement of our efficiency has another dimension because our goal is to resume the measures we're taking to consolidate the group and to share best experiences and best practices across the group. This is an additional goal. In addition to reduction of costs and improvement of our efficiency, this is yet another major objective of this program. What is the level or the climate in terms of negotiations with the banks? Are they difficult or are they promising? Those negotiations are always difficult. Yes, let me put it straightforwardly here. These negotiations are difficult.
We have been discussing it for many months. All sides of these negotiations or parties involved in these negotiations must present, motivate, and defend their interests. Grupa Azoty has taken out a significant debt level, which is mismatched with our business and financial capacities over the long term. This is why those negotiations are so challenging. We need to analyze a lot of versions and options with the financing institutions, a lot of models based on the prospects for our business for the future. We need to consider regulatory issues. We need to consider our capacities, but also the macro environment and our market environment at the global level as well. This is very difficult. In terms of our internal discussions or the prospects of our business in Europe and in this part of the world, we see it as well.
When we are discussing it with the financing institutions, we're also verifying our approach we took a couple of years ago. I'm not talking about only our approach, but the approach taken by a lot of businesses. It needs to be verified because it dates back to years, years ago. We are sharing these takeaways with the financing institutions. This is why those negotiations are challenging and they are really difficult. You asked whether the financing institutions are ready and willing to be helpful. This would mean that they are actually ready to take a compromise and meet us halfway. I believe that concerning the future interests of the group and potentially a client of the financing institutions, this must be taken into account.
A question about PDH. Poland has in fact been removed. When will it be, or will it resume? When we looked at PDH and PP, we assumed that the renovation will take three years, and this is what we aimed at. After we resumed the plans of operation, we noticed that the first interval will be shorter than three years. After two years, the PDH plant had to stop. That was in July 2025. The company has a plan to repair the plant and to finish the Polimery Police project. We secured financing for that project by using the good workmanship bond from the general contractor. Importantly, PDH, when it has a downtime, the whole plant can keep working. That is propane, a terminal, and a PP plant. If the market situation in polypropylene improves, then the company will be able to resume PP production without a PDH.
We will shorten the manufacturing chain. We are now preparing for PDH renovation. The whole planning process is now over. The cost estimate is also complete. Right now, all we have to do is to negotiate with financing institutions on how to use the good workmanship bond money, which is in our account. Next question. What is the current status of talks with Orlen on the sales of your stock in polyolefins and when some outcome can be expected? Tonight, last night, we just signed an annex to this agreement. It is a very recent development. We're working hard on possible scenarios, and we hope that both parties, without undue delay, will continue talks over the next week or two. Whose initiative was it to sign a new annex? That's the effect of bilateral analyses.
We constantly analyzed and modeled the group's forecasts, and we also look at alternative ways to use our assets, including our ports. That is a bilateral effort, and perhaps it's going to be a fresh look, a fresh perspective on the assets held by Polimery Police . The last question, financial question again, why is your debt growing quarter on quarter, taking into account leasing despite the strong CV growth? The growing debt is directly caused by the fact that cash flows were worse in the first quarter. Sorry, in the second quarter. In the second quarter, we had a lot of expenses on the renovation projects, preparing the plans for the new season. We also have some renovation downtime. A question now. President Skolmowski will give us the prospects for the few months to come. We've been consistently driving our Azoty Business project.
In a structural perspective, this includes all measures aimed at long-term performance improvement in Azoty Group. We are happy to see improved performance in Kędzierzyn, and we are very close to positive zero in Puławy. We have positive EBITDA in COMPO EXPERT. However, we frankly say, as we've always had in the past, we need to be back on the track of positive EBITDA. This is our objective for the quarters to come. This is why we are very serious about the situation in the Agro sector. As we said, the duties, the customs duties will not change the situation overnight. Warehouses are full of Russian and Belarusian fertilizers, and it's going to take months for these warehouses to empty. However, we've seen some first symptoms that give us more optimism about Agro. Agro represents a fast maturity of our core business.
We've been repairing and solving the problem of Polimery Police. This is why we have consistently presented solutions that may provide a multifaceted response to that challenge. We have just signed an annex to the MOU with Orlen, and we are also talking to financial institutions. This is a multilateral discussion, and it has to be multilateral because a solution that solves the problem has to be accepted by many of the stakeholders. We've been talking to financing institutions. We are frank and open in our communication. We present our results regularly. We discuss the outputs, the results of Azoty Business, looking at many scenarios that could solve the problem of restructuring our debt. We hope that these negotiations will take us to a place where we will be able to finalize them in the last quarter of this year.
The solutions proposed in the course of these negotiations and the counter proposals, looking at many other additional factors, will eventually work out a compromise. We will be consistently pursuing our goals, and these goals include getting the group back on the growth track, the growth track of positive results. The market environment is not easy. The European chemical industry is struggling, which includes our direct competitors. On top of that, our investment program weighs heavy on us. On top of that, we have another expensive project, namely the Puławy HCP. All that motivates us to work harder to improve performance with the help of our staff who are involved in the repair program and in searching for new initiatives that will respond to the problem that the group has been facing for years, namely deeper consolidation of many processes and reorganizing these processes segment by segment.
We have some tough negotiations ahead of us at the group level and at the project company level. However, we are sure that agreements will be reached in both of these processes. Thank you very much, and please take an in-depth look at our results and ask questions if necessary. I will be available on the chat facility today, and look forward to seeing you at the next call.