Slajd 1 - Grupa Azoty SA

Announcement of a Tender Offer for 32% shares in Zakłady Azotowe
“Puławy” S.A. and intention for a consolidation with Azoty Tarnów Group
July 13, 2012
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Agenda
1.
2.
3.
4.
5.
Overview of key terms of the offer
History and strategy of Azoty Tarnów Group’s market consolidation initiative
Transaction rationale
Timeline of the ZAP’s offer
Creation of the largest Polish chemical and fertilizer company
Overview of key offer terms proposed to ZAP shareholders
Stage 1: All cash offer for 32%




Price per share: PLN110
Total value: ca PLN673m
Subscription period: August 2-16, 2012
Sources of funds: own funds and bank
guarantee received from Societe Generale
ATT’s offer is highly attractive
ATT bid
110
Analyst 12m target
price ¹
106.9
Synthos bid
102.5
Stage 2: Issue of ZAT’s new shares
 Objective: increase the ATT’s share in ZAP
up to 100% of the total number of votes
at the AGM
 Exchange ratio: 2.5 ATT’s new shares
for 1 ZAP’s share contributed to ATT
3m VWAP
6m VWAP
101
96
Current price as of July 12, 2012
PLN 101.3
Source: FactSet as of July 12, 2012
¹ 12m analysts target as average of Trigon (April 20, 2012) of PLN100.6, PKO (March 14, 2012) of PLN123.5 and BRE (May 31, 2012) of PLN96.6
4/21
Azoty Tarnow Group has transformed itself through acquisitions…
Consolidated sales in (PLNbn)
2011
 Acquisition of a 66%
stake in Zaklady
Chemiczne Police S.A.
 Acquisition of a 41%
stake in ZAK S.A.
+52%
7.0
30%
2
5.3
25%
2010
 Acquisition of ATT
Polymers GmbH
 Acquisition of a 53%
stake in ZAK S.A.
20%
15%
2
1.9
1.3
1.4
10%
1.2
2
5%
0%
2007
2008
2009
2010
2011
Source: Company information, Capital IQ
1 Peers‘ historical information based on Capital IQ; 2 Pro Forma sales CAGR shown for Arkema, Solvay and Yule Catto
2011PF
CAGR 2007-20111,2
5/21
… into one of leading European chemical groups
1
Leading Polish chemical
company
2
Among largest chemical
companies in the EU
3
Global trends
drive underlying
market growth
4
Value creation through
successful acquisition
strategy
5
Sustained profitability
through the cycle
Fertilizers

No. 1 in compound fertilizers¹

No. 1 in mineral fertilizers²

No. 1 in fertilizers containing sulphur

No. 2 in nitrogen fertilizers
Chemicals

No. 1 in Polyamide

No. 1 in oxo alcohols and plasticizers

No. 1 in titanium white
Fertilizers

No. 3 in compound fertilizers

No. 2 in mineral fertilizers
Chemicals

No. 4 in plasticizers

No. 7 in oxo alcohols

No. 4 in Polyamide³
Fertilizers:

Increasing global population and food consumption faced a shrinking land and water resource

Growth in environmental friendly segments such as biofuels and AdBlue
Chemicals:

Increased urbanization and middle class development

Greater focus on efficiency e.g. lightweight engineering plastics find increasing applications in automotive and
electronic applications




Track record of strategic and successfully executed acquisitions
Company appears as an industry consolidator
Implementation of synergies enables to draw up profitability
Strongly diversified market segments make business resistant to cyclicality od market outlook


Group EBITDA increasing from PLN150m in 2007 to PLN770m in 20114
Integration of acquired companies and substantial investment in equiptment has improved overall margin levels
Note: ¹ Compound fertilizers in total (AP, NPK, PK) ; ² Compound fertilizers + nitrogen fertilizers
³ Among integrated producers; 4 Based on reported numbers (no pro forma)
6/21
Successful acquisition strategy has created value by generating
meaningful synergies
Target
Transaction Rationale
Synergies
 Increases scope of fertilizer portfolio adding multi-
 Reduction in raw materials and energy costs by
component mineral fertilizers
 Strengthens leadership position in nitrogen fertilizers
 Diversifies portfolio of chemical products (e.g. Titanium
white)
integrating purchasing structures e.g. sulfur (4%), coal
(3%), electricity (2%)
 Improved operational efficiency with reduced logistics
costs
 Greater operational efficiency from increased utilization
of basic chemical intermediates
 Strengthens leadership position in nitrogen fertilizers
 Diversifies portfolio of chemical intermediates by adding
capabilities in oxo alcohols, plasticisers and other
industrial chemicals
 Reduction in raw materials and energy costs by
integrating purchasing structures e.g. oxylene (4%),
propylene (4%), coal (3%), electricity (2%)
 Improved operational efficiency with reduced logistics
costs
 Downstream integration
 Increases weight of value added engineering plastics in
 Greater operational efficiency from increased utilization
of basic chemical intermediates
the portfolio
 Strengthens position and market share within integrated
polyamide 6 producers in EU
7/21
Consolidation of ATT and ZAP creates a regional champion…
 The largest Polish fertilizers/chemicals operator
Creates regional
champion
 Strong position in a consolidating industry
– No. 3 in European nitrogen fertilizer (ca 7% market share in ammonia capacity, the key feedstock used in the production
of nitrogen fertilizers)
 Excellent fit with ATT strategy to grow in fertilizers
– Strong underlying fundamentals (increase in food consumption, decrease in arable land per capita, consistent growth and
Strong business fit
earnings trajectory)
– Highly complementary product offering generates synergies and reduces earnings volatility
 Increased scale and broadened portfolio of nitrogen products in commodity chemicals
– ZAP is No. 3 globally in melamine
 Geographic fit of businesses
Complementary
geographic footprint
– Poland and EU countries as core businesses, with ZAP offering an inroad to Asia
 Combination of strong local and regional distribution networks with good brand image and long established downstream
relationships
 Cost synergies
Significant value
creation potential
through synergies
– Potential for cost efficiencies given similarity of businesses and combined size
– Stronger bargaining position enabling cost savings in purchases
 Potential revenue synergies
– Optimization of sales network to expand combined distribution reach
 Potential for market rerating on the back of an attractive consolidation story
Platform for further
consolidation
 The Polish industry is relatively fragmented
 ATT + ZAP would constitute a natural platform for further consolidation of the industry
 Strong financial flexibility
8/21
... and by far the largest fertilizers/chemicals operator in Poland
in terms of sales
Polish chemical industry (2011 Sales)¹ (PLNm)
10 544
6 942
5 441
3 992
3 602
2 525
Pro-forma
Synthos
Ciech
Anwil
+
¹ Figures as of December 31st, 2011 (PF for ATT); Figures as of 2010 for Anwil
9/21
Highly complementary business profile …
+
PLNm
Revenues
2011
EBITDA
2011
(Data based on business plan)
6,942
58%
Asia
5%
Breakdown
by geography
42%
Others
58%8%
Germany
15%
Asia
14%
Poland
48%
EU
countries
24%
Pigments
3%
Breakdown
by business
34%
66%
1,040
OXO
20%
42%
Energy
3%
Plastics
23%
Others
9%
Plastics
37%
3,602
10,544
750
1,790
Others
8%
Poland
59%
EU
countries
18%
Others
6%
Fertilizers
48%
Pro-forma
(Data based on market consensus)
Asia
8%
Germany
10%
EU
Countries
22%
Pigments Others
5%
2%
Oxo
13%
Others
2%
Poland
52%
Energy
1%
Fertilizers
58%
Plastics
28%
Fertilziers
51%
Source: Company data, FactSet; Capital IQ
Note: Data for 2011 for ATT based on pro-forma figures and data for ZAP calendarized to December YE
Breakdowns by business for ATT as reported (no pro-forma breakdown available as at 31/12/2011)
10/21
... supported by significant synergy generation …
Synergy area
Sales structures
integration &
common fertilisers
pricing
Increased bargaining
power and scale
effects
Logistics
Intra-group ammonia
management
Technology
efficiencies
Overview

Cost savings from salesforce integration, improved efficiency and common pricing

Successfully delivered already in the ZAK acquisition

Achievable within a year after acquisition

Electricity purchases

Petrochem raw materials

Carbon purchases

Other raw materials and other materials

Engineering equipment etc.

Cost savings from use of rail transportation by the Azoty Tarnow Group

ZAP has significant ammonia inventory needed by Azoty Tarnow

Currently ammonia is supplied by ZChP which results in high transportation costs

Closer location of ZAP generates cost savings

Use of Cyklopol BIS technology in ZAP
ATT’s management expects ca PLN100m synergies to be generated predominantly in the first year
after completion of the acquisition
Further analysis requires involvement of both management teams and is likely to identify additional synergies
11/21
… as well as significant investment savings while maintaining high
production efficiency
 ATT and ZAP run complementary operations which when combined can generate significant capex savings on both sides
 ATT’s management has identified several investment projects that can be eliminated as a result of ATT/ZAP consolidation
 Further analysis will have to be done for ZAP and is likely to identify additional savings
RSM production facility construction at ZAK

Standalone investment programme of ATT assumes construction of new RSM
facility in ZAK

ZAP has spare capacities sufficient for ATT needs
Urea production facilities modernization

Standalone investment programme assumes
-
Modernization of urea production facilities at ZAK and ZChP to comply with
environmental policies
-
Production capacities expansion by 80kt

ZAP has spare capacities which can be deployed to ATT

Environmental investments would still be conducted
ZAT’s management expects the consolidation with ZAP to generate one-off investment savings of ca PLN220m at ATT – further
savings potential to be estimated jointly with ZAP management
12/21
Combination of ATT and ZAP will create a candidate for WIG20
inclusion
A strong candidate for the WIG20 inclusion
1
Much higher trading liquidity
2
Increased interest by investors in the international financial markets
3
Coverage by a larger number of research analysts
13/21
Proposed management model for the combined group (1/2)
1 Management Board of Azoty Tarnow will perform management
Zakłady Azotowe w TarnowieMościcach S.A. (ATT)
functions within combined capital group established as a result of
acquisition of ATT by ZAP: consolidation of management functions of
capital group and parent company
– Management model assumes to maintain, in general current
structure, locations and legal independence of subsidiaries
(local taxes, meeting expectations of local stakeholders)
– Proposed expansion of the current composition of the ATT’s
Management Board to ensure appropriate representation
of the current board of ZAP in the consolidated Azoty Group
ZAP S.A
Shared Service Centre
Consolidation
of management
functions within the
Company and Capital
Group
33%-100%
93,48%
ZAK S.A.
66%
ZCh Police S.A.
100%
ATT Polymers Gmbh
63,27%
Polskie Konsorcjum
Chemiczne Sp. z o.o.
100%
PTK Koltar Sp. z o.o.
2 Strategic functions will be performed by Management Board of Capital Group while operational functions by Management
Boards of subsidiaries
Split of strategic and
operational functions
– It assumes that Management Board of the Parent Company will consist of deputy CEOs performing as well CEO’s functions
of ZCh Police S.A., ZAP S.A. and ZAK S.A.
– Coordination of management functions related to particular economic processes that will have impact on subsidiaries’
activity, will be supported by special committees such as: strategy and development, finance, sales and prices, IT, HR.
Members of the Management Board of Capital Group consisted of Members of the Management Board of subsidiaries,
will perform functions of Chairmen of such committees
Coordination of
management functions
related to main
economic processes
3 Management system focused on economic processes within the whole Capital Group.
– Members of the Management Board of Capital Group will perform leader functions with regards to main economic
processes and their tasks will consist of supervising of such processes, errors monitoring, taking decision on correcting
actions in case of variations detected
– Management model does not assume to establish holding company to manage Capital Group, but it gives dual functions
to corporate departments of the Parent Company, i.e. management functions related to internal areas within the Parent
Company as well as corporate functions through processes’ management
14/21
Proposed management model for the combined group (2/2)
4 Synergies to be achieved through centralization of management functions related to common processes / areas,
Synergies
including:
– Sale of fertilizers, caprolactam and derivatives, purchase of strategic raw materials, power , including natural gas,
organization of investment and logistics processes within Capital Group
5 Based on valid agreements and Labour Law regulations, i.e. social agreements concluded between social partners
Cooperation with
social partners
and Management Board of ATT
6 Reductions of operating expenses within Capital Group through management of common processes by Shared
Establishment of
Shared Services Center
Services Center and common IT platform within Capital Group
7 Services such as: maintenance, repairs, organization of investment process as well as logistics will be performed
Supporting services
within Capital Group
Cooperation
principles between
subsidiaries and
Parent Company
by subsidiaries supporting Capital Group
8 Based on cooperation framework agreement currently implemented in ATT, ZAK and ZCH Police as well as on
procedures and standards resulting from this agreement
15/21
Combination of ATT and ZAP is a solid platform for tangible
social benefits supporting existing relationships with
employees and trade unions
 Achieving benefits for companies and their employees through creation of the Azoty Group comprising ZAK, ZCH Police and ZAP
 Maintaining existing and creating new jobs by improving the market position of the combined group
 Maintaining the same structure of tax inflows to the current regions post transaction due to the needs of local communities and
regions in which the companies are tax payers
 Driven mainly by the needs of local communities and local regions, the current headquarters of both companies to be maintained
 Azoty Tarnow Group is not only the largest employer in the regions where the headquarters of each group company are based,
but also an organizer, creator and partner for activities that are designed to protect the environment, local community integration
and the development of the particular regions
 Regional activities: the Group supports educational institutions, cultural institutions, organizations and sport clubs
 Business partner aware of corporate social responsibility
 The Group is in constant dialogue with social partners and solves local problems (e.g. joint development and implementation
of an employees pension scheme)
 Azoty Group declares a guarantee of employment for employees and maintenance of solutions within the employment law which
have been developed by the social partners and employer at ZAP
 The level and procedures of the ZAP’s training regulations, retraining of the employees and training grants will be maintained
 ATT is a member of the elite group of 23 listed companies in the RESPECT index since its inception. Its presence in the index
confirms that the company is stable and trustworthy company managed according to the highest standards
16/21
Timeline of the ZAP’s offer
Implementation time: 40 days
July 13, 2012

Announcement of all
cash Tender Offer for
33% shares in ZAP
(after closing of WSE
session)
Aug, 24 2012

Settlement of
the Tender
Offer
July 30, 2012

Publication of
the ZAP’s
Management
Board and Trade
Union’s opinion
regarding the
Tender Offer¹
August
July
Subscription period
Aug, 2-16, 2012
July 16, 2012

Presentation of the
content of the
Tender Offer to the
ZAP’s management
board and social
organizations in
ZAP
1) No later than two working days before the start of subscriptions for shares in the Tender Offer
17/21
Creation of the largest fertilizer/chemicals operator in Poland – key
investment highlights
Regional champion
 Creates the largest Polish fertilizer/chemicals group
 Excellent strategic fit with complementary product offering and geographic
footprint
 Significant synergy potential and reduced impact of seasonal and macro cycles
Significant
synergies
Further
consolidation
on earnings through broader and more diversified offering
 Significant cost saving potential from combined operations and stronger
bargaining position in purchases
 ATT and ZAP combo will be a well-established and experienced platform
for further consolidation of Polish industry
 Strong financial flexibility
 EPS accretive even pre-synergies
Value creation
 Potential re-rating due to increased liquidity (inclusion in the WIG20 index)
and Group’s credibility and attractiveness in the international financial markets
18/21
Appendix
Ownership structure
Other 29.3%
ZAP is a leading Polish fertiliser company...
Polish State
Treasury
50.7%
ING OFE 5.0%
Z.Jakubas 5.2%
Kompania Weglowa
9.9%
Business overview
Select financials as reported (PLNm)
 Zaklady Azotowe Puławy (‘ZAP’), a producer of fertilizers and chemical products,
FYE Jun 30
has been a leader of the Polish fertilizers sector for over 40 years and is currently
one of the 20 largest exporters domestically with ca 50% of production designated
for export
 ZAP, which is increasingly shifting focus to chemical products, now accounting for
the construction industry) producer worldwide with annual capacity of 92,000
tons/year supplying 10% of the world demand and 20% of the European demand
Product
2010
2011
2,205
2,504
2,237
2,062
2,882
8.6%
13.5%
(10.7%)
(7.8%)
39.8%
252
433
242
78
414
11.4%
17.3%
10.8%
3.8%
14.3%
EBITDA
% margin
151
359
184
10
328
6.9%
14.3%
8.2%
0.5%
11.4%
130
331
187
31
279
5.9%
13.2%
8.4%
1.5%
9.7%
Net income
% margin
Production capacity
2009
% growth
EBIT
 The company with over 4,200 employees, is also the 3rd largest Melamine (used in
2008
Revenues
% margin
ca 40% of production is a the leading producer of caprolactam (used primarily in
textile industry) and nitrogen fertilizers in Poland
2007
Export markets
Annual production capacity (‘000 tons)
Ammonium nitrate (dilution)
1,104
Ammonium nitrate (granuled)
919
UAN
1,000
Urea
1,215
Melamine
92
Caprolactam
70
Ammonium sulphate
156
Hydrogen peroxide
10
Liquid carbon dioxide
74
Exports to over 50 countries across all continents
Source: Company information; ¹ Financials of Fosfory consolidated since May 2011
20/21
Other countries 16.0%
China 8.8%
...with a growing presence in chemicals
Poland
52.7%
EU countries 22.5%
Revenues FY11A = PLN2.882m
Share in FY11
revenues¹
54%
Agro segment
Energy segment
 Main commercial products:
 Main commercial products:
– Nitrogen fertilizers
– Melamine
– Electricity
– Phosphorus fertilizers
– Caprolactam
– Heat
– Fertilizer blends
– Hydrogen peroxide
– Carrier
 Other commercial products
– Ammonia water, ammonia, hydrogen,
nitric acid etc.
services
Other operations
 Cargo handling services
 Other revenues including products,
materials and goods for resale, own
services
 Other commercial products
– Urea
– AdBlue (Urea solution)
– Sulphuric acid/sodim bisulphite
 Other: Goods for resale, materials,
3%
3%
Chemical segment
 Main commercial products:
Key products
41%
 Other commercial products
 Other: Goods for resale, materials (incl.
– Other utilities
 Other: property rights (certificates of
origin for electricity from cogeneration)
and services
catalytic gauzes), services
PLN985m²
Intra-segment
PLN1.825m²
Other
Other
Ammonium sulphate
Urea
Melamine
Urea nitrate solution
Caprolactam
Ammonium nitrate
EBITDA (PLNm)
FY 2011 EBITDA = PLN414m³
126
50
8
230
Agro
Chemical
Energy
Source: Company information; FY 2011 ending June 30, 2011
¹ Excluding ca PLN40m of unallocated revenues; ² Based on 9m 2011/2012; ³ EBITDA split on unconsolidated basis before intercompany eliminations
Other
21/21
Thank you very much
for your kind attention