Half Year 2019 Grupa Azoty SA Earnings Presentation
Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of Grupa Azoty SA earnings conference call or presentation Thursday, September 5, 2019 at 8:30:00am GMT
TEXT version of Transcript
* Artur Rafal Kaminski;Vice President of the Management Board
* Izabela Malgorzata Swiderek
Zaklady Azotowe Pulawy S.A. - Vice-President of Management Board
* Joanna Barnas
Grupa Azoty S.A. - IR Manager
* Pawel Andrzej Lapinski
Grupa Azoty S.A. - Vice-President of Management Board
* Wlodzimierz Zasadzki
Grupa Azoty Zaklady Chemiczne Police S.A. - VP of the Management Board
* Wojciech Piotr Wardacki
Grupa Azoty S.A. - President of Management Board
Joanna Barnas, Grupa Azoty S.A. - IR Manager 
Good morning, ladies and gentlemen. I have the pleasure of welcoming you, all of you gathered with us in the room and also webcast viewers who are watching and listening to us online at the conference at which we'll present the performance of the Grupa Azoty group in the first quarter of -- of the third quarter 2019.
Joining us today are Wojciech Wardacki, President of the Management Board of Grupa Azoty S.A.; Pawel Lapinski , Vice President of the Management Board of Grupa Azoty S.A.; Wlodzimierz Zasadzki, Vice President of the Board, Grupa Azoty Zaklady Chemiczne Police; Mrs. Izabela Swiderek, Vice President the Board of Grupa Azoty Pulawy; and Mr. Artur Kaminski, Vice President of Board of Grupa Azoty Kedzierzyn.
Wojciech Piotr Wardacki, Grupa Azoty S.A. - President of Management Board 
Welcome all of you at our -- another meeting at which we'll present and discuss and summarize the first half of the year 2019. The period was full of interesting events. On the one hand, we had certain actions and measures and events which derive from our normal and standard business operations. On the other hand, the first half of the year required intensive measures on our part related to the implementation of our main investment, which is progressing as planned, by which I mean Polimery Police project.
The first half of the year 2019 will be summarized today and I have to say that I'm really satisfied to discuss and present our revenue for this year, for the first half of this year because our revenue in the first half of the year were record-breaking, exceeding PLN 6 billion. To be more specific, PLN 6.100 billion. This has been our highest result in terms of revenue ever and it results also from the consolidation -- full consolidation of our group with -- integration within our group of Compo Expert. So as you can the effects of last year's acquisition, major acquisition, are visible.
Looking at revenue and also at our other performance, and this is across the board, we can see that our EBITDA margin went up considerably as well, reaching -- in terms of adjusted EBITDA, reaching almost PLN 1 billion per 6 months of the year for the entire group. And the EBITDA margin went up considerably as well. The same applies to the net profit figure, which stood at nearly PLN 400 million -- actually exceeding more than PLN 220 million if we consider adjusted results.
These figures came from a number of factors and drivers. I have mentioned certain drivers, which are effects of our measures and actions that we have taken. We were involved in a number of measures aimed at the full integration of certain areas, a number of areas, especially one area which has never been integrated by our predecessor, namely the entire Agro segment, which still is our main source of revenue.
2019 -- first half of 2019, the performance in the period is also -- was also driven by the corporate department of the Agro segment under one agreement, under one contract, the entire commercial policy of the Agro segment. Our Agro muscle, so to speak, has been integrated and is fully unified.
Another factor or driver of our good performance for the first half of the year were -- was the fact that the prices of natural gas were falling, especially in reference to the previous year which was an exceptional year in terms of major hikes of gas prices, which obviously affected the performance of all companies operating in our Agro -- in our Fertilizers segment, also for the entire Grupa Azoty group. Right now, we are witnessing a period of gradual decrease of gas prices.
Speaking of gas, we continued and extended or prolonged the contract with PGNiG, Polish Oil and Gas Company, in looking at our gas supply structure and the gas supply chain. We know that PGNiG is the entity that provides 96% of our gas supplies. And we, by the way, are the biggest PGNiG client as well.
And let me stop at that, I would not like to dwell into too much detail on this particular topic. We would expect PGNiG to always consider us as the biggest client, as their biggest client in their strategies. And sometimes, as we -- as you all might know, well know, they do not.
It gives us a lot of satisfaction as the group to receive a number of distinctions and awards, especially those given by private individual investors and from you. Thank you very much for this and we will do our best to continue shaping the best possible Investor Relations.
Among the distinctions and awards that we have received, you might know that we received an award at the PLASTPOL trade fair, the 3D printing filament was awarded that distinction. This is a result of the entry of the Grupa Azoty group into the brand-new segment of the market, which is the 3D printing segment. One of our products, the filament, did receive an award.
In the first half of the year, we put a lot of focus on the integration of Compo Expert within the entire -- with the group, and this process has been progressing as planned without any interruptions and problems. Also in terms of the integration of the accounting system and the financing system, we have developed the business segments in which we strive to extend our product chain in -- especially in terms of compounds and plastics.
Our target -- our company compounded is working on a major investment. It should be brought onstream. The project should be brought onstream by the end of the year, and we're talking about more than 40,000 tonnes of products. The production line should be launched by the end of the year.
The major project, the key project, which also is progressing as planned is the Polimery Police project. This is a brand-new project in terms of its nature. It differs from -- it's a different project compared to the project that was launched by our predecessors. This project has been revamped in terms of its scale, in terms of its profitability figures and targets, in terms of its importance as well. And our predecessors -- and I'm speaking with confidence here, some of our predecessors claimed otherwise.
This is a different scale. This is a different project. This is a different profit margin figures we're talking about. These are the different figures we're talking. And this project, our project, is progressing as we have planned in line with the schedule consistently and on a timely basis. We secured approvals through the decisions of our shareholders for individual phases of implementation of that project.
In terms of polypropylene and propylene production technologies, these required certain decisions because they involved considerable costs and outlays. This is why we needed to make sure that this project is fully approved by our shareholders so as not to spend, for instance, PLN 400 million to PLN 600 million in vain.
There are certain opposing factors and people who oppose that project and have been criticizing that project heavily. We are well aware of that. They would voice and publish and disseminate certain false information relating to the process of financing of that project and its profitability. I need to stress and emphasize quite clearly that this project is not a competitive project to our great business partner, ORLEN. Our cooperation with ORLEN is smooth sailing. This project is being implemented as scheduled.
As I said before, in the first half of the year, we had a number of projects steps which we implemented on a timely basis. One project phase has been postponed. However, for reasons beyond our control, externalities -- certain externalities which we -- of which we have informed you, we needed to put this particular project step on hold.
However, we can assure you that these factories, these obstacles, will be removed in the third quarter of the year. And the general shareholders' meeting, which is scheduled for September 23, will be -- will confirm that. We have a schedule which we will follow, so that -- just to make sure that this project will be progressing as we have planned.
On May 11, our company, PDH Polska, which had before secured the shareholders' approval, they selected the general contractor for the turnkey project for the lump sum price, and the contractor is Hyundai Engineering. And on May 11, as I said, the contract was signed. On August 1, contract works were launched in order to prepare the company for the issue of a full notice to proceed.
On August 1, again, the protocol was signed for an integrity test in which the parties agreed that the integrity -- that the project will be commissioned within 40 months from the commencement date, which means that we are talking about the third/fourth quarter of 2020 for bringing that project onstream.
We are considering and it is quite -- it's very possible that we will launch and bring onstream the polypropylene unit before we launch the propylene unit so as to use that material and proceed with pre-marketing measures and actions. Because our clients, with whom we have already signed some contracts, want to test polypropylene from our plants because, as you might know, each unit and each installation, production installation, has its own specific -- has its own specificity.
And also Hyundai did not want to wait for certain production inputs so as not to postpone or put any obstacles to the timely implementation of the entire project. Therefore, our general contractor has signed contracts for the supply of a number of various production inputs as well, which made it possible for them to -- for Grupa Azoty and Grupa Azoty Police to issue certain approvals.
In terms of the project implementation and the progress of the project, you probably have you -- you did receive -- and to use to confirm that the project is progressing in line with the schedule. In terms of financing structure, looking at our equity for that -- for the project equity, the main element of the financing for that project will include SPO of Police, and I did not expect and foresee any obstacles to the financing.
The shareholding structure is also very stable. And our shareholders in the past, throughout the years, took decisions which resulted in major outlays in financial costs. However, they did issue their approvals for the group to implement certain very costly projects. And also project schedules have been accepted before without any problems. Therefore, project finance formula from the shareholders' point of view has never been questioned. And also this year, our major, important decisions, for instance to increase PDH Polska capital were approved by the shareholders. We have a stable decision -- situation.
Also in terms of our shares, looking at free float, there are on movements which could raise our concerns. Let me remind you that among the shareholders, we have the treasury -- State Treasury and the OFE-PZU fund, also the industry development agency and also Grupa Azoty. We, as Grupa Azoty, are ready to issue new shares. And I cannot imagine, it is beyond any doubt that the industry development agency or PZU or the State Treasury would decide to opt out of that project and do not use their preemptive rights.
These are the funds, which will be targeted and used for our project equity. We have signed letters of intent. We have declarations of commitment from our general contractor, Hyundai Engineering, and also the governmental -- the Korean governmental agency, KIND, is also involved in the project financing. After the study of that project, they decided, without any hesitation, to get involved in that project. And I am sure that the industry development agency would never get involved into any project with any entity who could -- that which could pose any threat to successful implementation of a project, such a major project.
In terms of the details of our cooperation with Hyundai and KIND in terms of the specific provisions of those agreements, those details have been set in stone, practically. We are also involved in intensive negotiations concerning the details of Lotos, Lotos' involvement in the project equity. Lotos has declared the contribution of PLN 500 million on condition that the declared terms and conditions for all involved parties are the same.
We have a certain framework within which we need to maneuver, and the Koreans have shown that we can step up on our efforts to implement that project. We might consider to have 2 -- 1 or 2 more participants within the project on a smaller scale. We do not exclude that option. In terms of the financing of the project, it is also progressing as planned. We have the consortium leader that oversees all the actions taken, and there are no threats in this area as well.
We do have alternatives. I want to stress that. However, those alternatives are not that desirable. I'm talking about alternatives for financing sources. As I have mentioned before, there are a number -- there were a number of entities which, first of all, wanted to close that project or put that project on hold. Then they were trying to get involved in the project and stop our project at the propylene phase, not moving towards polypropylene. They also tried to disseminate certain fake news. However, we are sure and we are well aware of the fact that if we had given a green light to them, they would have been very happy to get involved in that project.
So the question remains, "Is there any window for the cooperation of the so-called less-desirable participants?" Well, we do have certain alternatives for the project because this is a major product, and this is the key project for both Grupa Azoty group and also for the Polish economy. Therefore, we need to have certain alternatives. However, we will do our best and we will focus on the most desirable partners of that project.
Moving over -- moving on, I will give the floor over to Mr. Pawel Lapinski to discuss specific financial performance in more detail.
Pawel Andrzej Lapinski, Grupa Azoty S.A. - Vice-President of Management Board 
Let me start by discussing our EBITDA figures for the first half of the year, both for the second quarter and the second -- the first half of the year, our EBITDA was record-breaking. Even if we adjust the EBITDA figure by the integration of the Compo Expert Group, still the EBITDA level would be the highest ever recorded by the group.
In terms of EBITDA versus -- in terms of EBITDA for the first half of 2019 versus the previous year, the main drivers for EBITDA growth were the positive changes in the prices of specialty fertilizers, which gave us additional PLN 400 million in terms of the EBITDA figure. Another major driver -- the second major driver was related to the consolidation of the Compo Expert Group, adding PLN 86 million to EBITDA. And also the prices of raw materials.
In terms of the price of raw materials, I'll discuss them later on in a little bit in more detail. However, I'd like to mention that the contribution stood at around PLN 800 million. The negative factors were one-off events and also the cost of CO2. We are talking about the write-down of the Zaklady Chemiczne Chorzów. And also the write-off of the ammonia unit at Police.
Moving on, as I've mentioned before to the prices of raw materials, our balance is positive, and it was a positive contribution to our EBITDA figure in general. However, I need to stress that apart from natural gas prices, all other energy commodity prices or production inputs in terms of the prices, they went up. It concerns both phosphate rock, potassium chloride, propylene as well as electricity.
As you know, the prices of gas are quite low and we expect that the oversupply will still drive those prices down. We expect that in the winter period, towards the end of the year, those prices might go up. This is in line with the market expectations especially -- and it is also confirmed by the prices of derivative instruments going up by several euro. We do not expect any major decreases for our commodities. Quite the opposite, we would rather expect small increases towards the end of the year.
I'd like to stress that our traditional Fertilizers segment share went down to 33% or 34%. This is in line with our strategy with the strategy of diversification across the group. Revenue from specialized -- sales of specialized fertilizers provided by Compo Expert added additional 13% to our EBITDA margin. In terms of the Chemicals, the contribution was at 10% and at 7% for Plastics.
The area or the footprint of our geographical business to date, before we had very stable contribution in terms of our footprint in Europe, it changed this year because we expanded our operation to other continents. We no longer have the sales in Europe at 99%. You can see on the map where our logistic centers, where our sales units and our main business representatives and branches are operating
months especially in the Western part of Poland, as you can see on the map on this particular slide. This results in not only lower yields from fields but also lower quality of agricultural products and they have less potential -- there's less potential and buying power.
The prices has gone down also. We are currently in the harvest period, which is -- and as a result of which, it is naturally lower in terms of the demand. Farmers would buy fertilizers very late, in line with their specific needs. However, at the end of the month -- towards the end of the month, those figures should go up. The governmental agency -- agricultural agency mentioned that the direct payments will be faster than planned in October last year, just as it was in 2018. Towards the end of October, direct payments were made or launched, which meant an additional injection of capital for farmers and the agricultural market in general.
We need to also mention that certain farmers who were affected by drought were supported and aided by the government, and the aid should reach around PLN 0.5 billion. Therefore, we expect that in quarter 3 and quarter 4, we will see additional cash injection which should fuel demand and demand should go up.
The import figures went down or are going down for more -- in terms of the majority of fertilizers. This does not apply, for instance, the urea, in which case the situation is quite reversed or quite the opposite. From the perspective of gas prices, which as I have mentioned, are not that different in Europe from the price
the slowdown of European economies, Western European economies, especially in terms of the automotive segment and also construction chemicals.
In terms of our outlook for the second half of the year, we do not expect the situation to pick up. The situation should remain the same or largely the same. Obviously, it could look different for different product groups. But in general, we expect the situation to remain largely unchanged.
In terms of our Plastics business, the slowdown is also visible in the Plastics business, which was driven by the construction segment and automotive segment. Obviously, the revenues and EBITDA figures are given on the slide. EBITDA went up -- it went down by 33%.
We can clearly see a slowdown. At the beginning of the year, we worked intensively to have satisfactory margins. However, we saw a major -- a steady decline in demand and we expect that situation to continue for a couple of months even until the half of the next year -- until the end of the first half of the next year.
I'd like to mention the new unit, the Compounding unit, it should be brought onstream with the next 2 or 3 months. That unit will enrich or enhance our production capacities by 46,000 tonnes. Right now, our capacities are at 12,000 tonnes, which means that our capacity will be at around 60,000 tonnes or more than 60,000 tonnes. Most of the raw materials used in compounding, the production inputs will be -- will come from the polyamide 6 unit, our own production unit.
We are also talking about a 10,000 square meters of storage and production capacity. We have 4 big silos. We have 4 complete lines -- production lines and we also have room for extension to add additional 4 production lines. The sales contracts are -- have been signed and we expect the effects of those measures to be visible next year. When the first 4 lines to be launched in the fourth quarter of the year reach their full capacity, we expect to be working -- we will work on new additional lines and the plant at Tarnów will reach their full compounding production capacities.
We are also working with our partners from Western Europe in that particular project. And as I said before, our production capacity should shortly reach full target levels and we will see tangible results in terms of financial profits -- financing -- financials.
In terms of our major CapEx projects, it is similar to last year's figures. We are talking about PLN 439 million with a breakdown into growth CapEx at PLN 202 million, maintenance CapEx at PLN 60 million and mandatory CapEx at PLN 22 million.
We managed to secure better terms and conditions for investment project implementation and plan. If we were to update our CapEx figures, we will probably do it when we publish and discuss the results of -- after the third quarter of the year. And very shortly, about our financing parameters. Our net debt-to-EBITDA at 2.09, going down year-on-year. Our limits are at more than PLN 3 billion. Additional limits, which you can still use.
You can see also a breakdown into a net debt bridge between the 30th of June 2018 versus the 30th of June of this year. As you can see, the major increase was related to the acquisition of Compo Expert, plus the restructuring and refinancing of our debts with a tangible effect of EUR 4.5 million per year.
We spent PLN 1.08 million in terms of our capital expenditure and the contribution of EBITDA at more than PLN 1.1 million. We also had additional PLN 400 million -- more than PLN 400 million for the recognition of operating leases.
This will be all from -- on my part. I'll now give the floor over to Mrs. Izabela Swiderek, who will discuss the performance of Grupa Azoty Zaklady Azotowe Pulawy Group.
Izabela Malgorzata Swiderek, Zaklady Azotowe Pulawy S.A. - Vice-President of Management Board 
Good morning, ladies and gentlemen. Let me discuss in a nutshell the performance of Pulawy and the Pulawy Group, both in the second quarter of the year and also in the first half of the year.
Just as my colleagues have already mentioned, the first half of the year and the second quarter of the year has been a -- were the periods of good performance. Our revenue went up year-on-year. We closed the first half of the year at -- with a revenue of PLN 1.759 billion. And the major drivers of our revenue were Agro products or products used from the Agro segment. In comparison with the last year figure, we are talking about an increase of 23%.
Lower performance was reported for the Chemicals segment. I'll discuss it shortly. Of course, our revenue figures translated into our Other results. Our EBITDA figure went up considerably year-on-year, both for the second half -- second quarter and also the first half of the year 2019. We're talking about an increase of 1.5x versus 2018.
Obviously, our figures were driven by the factors, which my colleagues have discussed before, the prices of raw materials, the price of commodities. And for Grupa Azoty Pulawy Group, we mainly talking about natural gas prices, it was reflected in our operating costs.
Cost of sales in this first half of the year went down as a result by more than PLN 45 million. This obviously is visible in our margin figures and also our net profit figure, which went up considerably as well year-on-year, even considering the fact that we had certain one-offs, one-off events, which affected our write-off levels.
Our EBITDA changed considerably versus last year's figures. Let me discuss it in more details in terms of the drivers -- EBITDA drivers by segment. In terms of the second half -- second quarter of the year, the major driver of our EBITDA figure was the Agro segment going up by more than PLN 130 million versus last year for the second quarter, and by more than PLN 238 million if we consider the entire half of the year and all the 6 months.
Obviously, EBITDA margin went up as well by more than 23% year-on-year. Obviously, both segments in terms of our costs reported -- considered benefits in terms of falling prices of our strategic commodities also including benzene, which is very important for our operations. However, these declines were offset slightly by increasing coal prices, growing prices of coal and electricity.
As we have mentioned before and I have mentioned before, the Fertilizers segment is the major contributor to our performance in the first half of the year and also the second quarter of the year. Practically all fertilizer products were sold at higher prices compared to the previous years -- periods. Therefore, the contribution of individual fertilizer groups in our structure were higher, especially in terms of natural fertilizers and also considering the very scale of our business, compound fertilizers as well.
We are, in general, talking about an increase in revenue at around 23% in the Agro segment in the first half of the year. We also reported considerable increase in costs -- or decrease in costs. I'm talking about the decrease of around PLN 80 million.
In the Chemicals segment, the situation is quite different considering the fact that the prices of our key chemical products, namely caprolactam and melamine, changed considerably, which obviously affected our figures and the performance in the first half of the year. The Chemicals segment reported lower -- slightly lower performance in terms of revenue year-on-year. However, the urea figures went up considerably at 30 -- going up by 13%.
Moving on, both the Zaklady Pulawy and the entire Pulawy Group implemented CapEx projects worth more than PLN 184 million and our main CapEx projects in terms of outlays included those projects that were a continuation of our previous efforts and they were mainly growth projects. These included modernization or upgrade of the nitric acid unit. This investment generated CapEx at nearly PLN 40 million in the first half of the year. This project is supposed to be brought onstream in 2024 and the overall involvement, financial involvement or outlays is at around PLN 130 million.
Other major investments, equally major investments or important investments is the unit -- production unit for granulated fertilizers. The outlays made in the first half of the year are nearly -- stood nearly at PLN 40 million. There are also growth projects. And the same applies to a project that was finished or completed at the turn of the first and the second half of the year. I'm talking about a project of increasing the volume of CO2 production. The overall outlays for that project were more than PLN 35 million. As a result, we have more production capacities of CO2.
In addition to those, we also worked on other projects and implemented other projects. These were implemented by our subsidiaries. And the main CapEx figure here in terms of our subsidiaries projects are related to Gdanskie Zaklady Nawozów Fosforowych, which is the production of nitric unit -- nitric acid unit, nitric fertilizers unit. They were mainly related to the upgrades and extension of the infrastructure for the loading and handling. Other subsidiaries are also implementing their production with their CapEx projects as planned.
The first half of the year was a situation -- was a period where we had a stable situation in terms of the financing, which is also related to the fact that our net debt is still negative. Of course, our financing resources were increased, both those targeted to finance or earmarked to finance our investments and day-to-day operations.
We expect that the second half of the year will see equally stable situation in terms of our performance, in terms of fertilizers. And in terms of our Chemicals business, where as I said our 2 main products are sold at lower prices, we expect the second half of the year to see a more stable situation. We expect that situation to pick up. There are no signs of more declines in terms of the price levels.
Thank you very much for your attention. And now, I will give the floor over to Mr. Wlodzimierz Zasadzki, who will discuss the situation of Grupa Azoty Police.
Wlodzimierz Zasadzki, Grupa Azoty Zaklady Chemiczne Police S.A. - VP of the Management Board 
Well, our performance was shaped mainly or determined mainly by externalities -- certain externalities, which were to the benefit of our business despite certain price movements, for instance for potassium chloride. But we also saw very positive contribution of falling natural gas prices.
On the other hand, we had certain internal factors that determined our performance. I'm talking mainly about a breakdown of our production units in April/May. Well, it is difficult for me to even refer to as to a breakdown because during the May -- the scheduled annual overhaul, we noticed certain inconsistencies in terms of the performance of our boilers and later turned on that the steel which should not contain certain elements, but it did contain -- it does contain certain elements -- chemical elements.
What's the reason? We needed to look for new technologies. We used to consider new welding technologies and methods. This was the reason for a stopover of our production lines. It did not affect considerably our financial results and performance. We did lose margins. But despite those internal factors, still our performance in terms of the revenue figure in 2019 in the first half of the year went up by 5% and our EBITDA went up by nearly 20%. Our net profit increased considerably, reaching PLN 53 million.
We could obviously think what would have happened if we had not had the breakdown or those technological problems, I do believe that we would see -- we would have seen an additional contribution of PLN 20-something million, which means that in that case, we would have seen a record-breaking result for Grupa -- for Police, even higher than the record-breaking year of 2015.
You can see on -- you can see the result of the breakdown of our production units. If we consider and analyze the performance by our centers or the individual production centers, in terms of our segments, you can see clearly better results for compound fertilizers. We're talking about a change or a movement of 25% for the entire half of the year. In terms of both revenue and EBITDA, actually EBITDA went up by more than that level. However, you will see lower results and [group] results even for urea and nitrogen-based fertilizers. This is a result of the breakdown I have mentioned.
We clearly see a decline in terms of the performance for the entire half of the year by 20% -- by nearly 20%. Still, the results of our Fertilizers business are better year-on-year with EBITDA going up several times. And EBITDA margin standing at 9% for the entire half of the year.
The second major segment of our business, the pigments segment, reported lower results or weaker results year-on-year. However, we need to remember that 2018 was an exceptional year. And the 2019 performance were also determined by the fact that -- not in Europe, in Finland, they had fires in one of the plants.
And on the other hand, we saw a trade war -- we see a trade war and if -- between the U.S.A. and China, which means that considerable volumes of titanium white come to Europe from China. And as a result, the prices of titanium white go down. Therefore, our result in that segment, titanium white segment, are considerably lower.
For instance, our EBITDA margin went down by 10%, which means it was 3x lower year-on-year in the second quarter of the year and the same applies to the half of the year. Still, our performance is above zero. It's positive. Our profitability might be lower, however, we are still on the safe side despite those externalities and those negative contributing factors.
I'd like to say a couple of words about our investments and CapEx projects in addition to the major investments finalized in Police as we speak and we're talking mainly here about an upgrade or change in the production of assets, nitric assets, which should considerably improve the productivity figures.
In addition to that, Police are preparing to -- the implementation of the Polimery project -- Polimery Police Project because it is an integral part of our business. We are technological and technically connected -- closely connected. And this means that we need to plan precisely and schedule precisely and also implement on a timely basis certain key projects in order to prepare ourselves for the Polimery Police Project.
We're talking about GPZ, first of all. That means a transformer station, which should be a -- which will be a source of electricity supply to Polimery Police. We are talking also about the water unit, which is an essential input -- production input for polymers. We're always talking also about logistic projects because we need to remember that the Polimery Police Project will be located within our site. And also the hydrogen units which will replace -- hydrogen will replace gas, and it should lower the demand for the certificates.
The Polimery Police investment project from the perspective of the entire group and also from our own perspective at Police is a major product -- project. The importance for the entire Polish economy, whether or not it is desirable, important, considerable and will guarantee a stable economy,
I would recommend that you have a case study or perform a case study based on the data and the performance that is clearly available, that is widely available for 2018. Please do so. Considering the production volume figures for polypropylene, which you all know; the prices of propane, which you know as well; and the price of polypropylene as well, the market prices, you can easily define and determine the margins. And you can see for yourselves the effects.
In terms of operating costs, OpEx, it is not difficult to determine as well. The main OpEx item is depreciation and amortization for 12 -- 10, 12 years, labor costs and overheads, plus certain logistic costs. I do believe that it will not be a problem to determine financial costs as well.
Well, we have performed such a case study. Please do so I encourage you to do so for yourselves. You will see clearly that this project is both necessary and beneficial and will bring considerable advantages.
We will now give the floor over to Mr. Artur Kaminski to discuss the performance of Grupa Azoty Kedzierzyn.
Artur Rafal Kaminski;Vice President of the Management Board, 
Thank you very much. To conclude the discussion of our financial results, in a nutshell, I'll try to present our financial figures, both for the second quarter and for the first half of 2019. Discussing the 3 main figures: revenue, EBITDA and net profit.
In terms of revenue, it is quite clear why -- it is quite clear when you look at our figures you will see that the first half of year and also the second quarter of the year was a good period for us at Kedzierzyn. And we increased our revenue from PLN 929 million in 2018 to PLN 983 million a year after, in the second half of this year. This was the reason why our EBITDA went up as well from PLN 92 million in 2018 first half to PLN 148 million in the first half of this year.
The same applies to net -- the same applies to the second quarter of 2018 versus 2019. And our net profit went up in the second quarter to PLN 17 million. And if we consider the entire half of the year, you will see that net profit stood at PLN 63 million, which means that increased by almost 100%.
Our revenue went up in this first half of the year, year-on-year. And the main drivers of revenue increase were the prices of our products for both segments, Fertilizers and OXO segment, with certain slight differences, which I will discuss shortly.
We also need to remember that the prices of natural gas went down year-on-year if we compare our figures with the first half of 2018, which was driven by the situation at the gas market. It was the main driver of our performance with similar figures in terms of our volumes year-on-year.
In terms of our EBITDA figure, this present slide will show you the main drivers of our EBITDA, both negative and positive drivers, both in the second half of -- second quarter of the year and also the first half of the year on a year-on-year basis. You can see quite easily and clearly that we saw an increase both for the quarter -- for the second quarter of the year and for the first half of the year, which was driven mainly by rising prices of our products and also the volumes of our, sales as well as the prices of our inputs and raw materials, especially energy commodities, which we used to produce our products, especially in terms of natural gas prices.
I'd like to -- I would not like to dwell in too much detail because it has been discussed before by my colleagues. In Kedzierzyn as well, this is one of the main drivers of our performance.
Production or sales volumes were a negative contributor, mainly in terms of Oxoplast or OXO products because in the Fertilizers segments, we saw rising prices and rising volumes. However, the OXO segment was a negative contributor to our EBITDA level.
A good economic situation was also driven by -- was also visible if we consider certain profitability figures with EBITDA margin going up from 10% to 15% and the return on equity went up from 3% to 5%. And the same applies to return on capital employed, from 2% to 5%; while our net debt went down from PLN 142 million to PLN 119 million if we disregard the effect of certain externalities, which should be or must be considered. For instance, relating to lease -- operating leases, rentals and so on. This was not considered in 2018, therefore, we need to adjust that figure.
Discussing our 2 key segments in more detail, mainly the Fertilizers segment and the OXO alcohols segment. You can see quite clearly on the slide that the Fertilizers segment, both in terms of production figures and financial figures and also breaking down into nitrogen fertilizers or RedNOx products, you can see quite clearly that we have reported increases across the board compared to our figures reported for the previous year.
The major factors and major contributors included favorable macroeconomic conditions, increasing volumes in terms of sales and falling prices of the main energy commodity, namely natural gas, even though other major commodities -- energy commodities, for instance coal or electricity prices or CO2 emission allowances, went up slightly. However, the sheer scale of the decline of natural gas prices was such that it was a major positive contributor to our performance in the Fertilizers segment.
Moving onto the OXO alcohols segment. In general, the entire segment as a whole reported lower results, weaker results, both in terms of revenue in general and also in terms of EBITDA. Only a subsegment, the plasticizers segment, reported better result. However, the scale of that subsegment is not enough, it's not sufficient to be a contributor -- positive contributor to the segment as a whole.
We have already mentioned -- my colleagues have already mentioned in terms of our Chemicals segment performance. I'd like to repeat that the major driver here was a very difficult market situation. And need to remember that considering the scale of our operations and the structure of our sales, we were affected by this difficult situation. We, quite clearly, were affected by a economic -- the economic slowdown especially in terms of the construction segment and also the automotive business.
Also the flooring business production -- flooring production business. All those segments that use our OXO products were facing a very difficult situation this year in the beginning of this year, in the first half. We saw quite clearly that the demand was affected. We also saw certain oversupply of certain products.
We also saw a trade war and a price war. This has been mentioned by my colleagues. We also saw huge supply of certain products from Russia and China or Turkey. This all affected our performance and this all drove down prices of our products if we compare those prices to the levels reported in the year 2008 (sic) .
All those negative elements, all those negative drivers affecting our OXO alcohols segment resulted in our lower performance in that particular segment. However, this very scale of business is lower than the scale of positive factors and increases in our fertilizers business. So generally speaking, our performance at Kedzierzyn is still on the -- is still good.
In terms of major developments and ongoing CapEx projects, we had main investments in the first half of the year. That is completion of special esters project (sic) [Specialty Esters Project], the new multifunction unit -- production unit for special esters with a capacity of 10,000 tonnes per year. We completed all the works for the start-up and also the -- and the special esters unit was -- is now operating. We produced 2 new products, Adoflex and Oxovilen. Obviously, the production volumes are still at a very low level, but it still was sold on the market.
So we are in the process of extending our market prices, our footprint, which means that the volume of our sales of both those 2 products and also other new products will increase as the time goes by. This means that our production portfolio -- products portfolio will be extended as well. This will also improve our complementarity figures, especially considering -- this will be a good sign and makes us optimistic in terms of our outlook for the future.
And another major investment was the upgrade of the synthesis gas compression unit. It was also a major investment. It will be used by the ammonia unit. We are currently selecting the general contractor and the work on that project is progressing as planned, in line with the schedule.
Another investment concern the adaptation of continuous FDO unit for the periodic production of Oxoviflex, which is aimed at intensification of our main plasticizer product, Oxoviflex, and to reach -- to secure additional 13,000 tonnes per year in terms of production capacities. This production is almost complete. It has reached its final stages.
We will have upgraded our energy supply or energy source concepts and we completed the first stage of the CHP unit with a capacity of production capacity as planned at 140 tonnes per hour. This is a brand-new outlook for us in terms of our energy structure at Grupa Azoty Kedzierzyn. This is an effective alternative for the planned project for the entire general energy supply concept.
We built -- we constructed the first boiler for the CHP plant 1. We planned to build another boiler. And on the basis of a very detailed analysis and the analysis in general of our consumption of thermal energy and steam, we decided to progress with that project, to continue that project.
We are planning a number of investments and projects to upgrade and change that -- the structure in order to use thermal energy more effectively so as to secure a very stable source of steam. And as a result, to resign from the construction of that second boiler I have mentioned. At that point, we decided to opt out of that project, of the construction of the second boiler.
In terms of the CapEx figure and the OpEx figure, the costs related to that project -- all those projects, we're talking about PLN 228 million. But if we opt out of the second boiler, we will save PLN 200 million. This is the money that we would have spent on that particular unit.
As a result, we will see lower consumption of coal -- of pulverized coal and also we will need less CO2 emission allowances. On the other hand, we will see higher consumption of electricity. But in general, our analysis, both internal analysis and also some analysis by some external entities, show that all in all, we will be able to reduce our OpEx figure by PLN 30 million as a result of those major measures and the new approach to the investment in terms of energy. Therefore, we decided to upgrade and change our -- revamp our energy concept.
Thank you very much for your attention.
Pawel Andrzej Lapinski, Grupa Azoty S.A. - Vice-President of Management Board 
Well, I read something online. People are counting on good results and solid and robust results for both Fertilizers and the Chemicals. I would like to tell you at that point that the Chemicals segment is facing a difficult situation. I do believe that our situation at that segment for 2019, both the first and second half of the year, will be weaker year-on-year as opposed to Fertilizers.
Thank you very much for your attention. Thanks to also all the webcast viewers who are watching and listening to us live. And I would like to see you again at the next presentation, at the next conference, at which we'll discuss and present our performance after the third quarter of the year.
Thank you very much, and you are now very much welcome to ask questions if you have.
[Statements in English on this transcript is spoken by an interpreter present on the live call.]