Business development and financial performance

Rounding differences possible.
1 EBITDA (Earnings before Interest / financial result, Taxes, Depreciation and Amortization)
2 EBIT (Earnings before Interest / financial result and Taxes) = Operating profit = EBITDA – Depreciation and amortization
3 EBT (Earnings before Taxes) = EBIT – Interest / financial result
4 Gross cash flow = Net result adjusted for non-cash income and expenses
5 ROCE (Return on Capital Employed) = EBIT / (Average equity + Average interest-bearing borrowings)
6 Net debt = Interest-bearing borrowings – Liquid funds – Other current securities
7 Equity ratio = Equity capital / Total assets
8 Return on equity = Net result for the year / Average equity
9 Change in percentage points

Fiscal 2022 was overshadowed right at the start by Russia’s war of aggression on Ukraine. The result was supply chain bottlenecks and a developing energy crisis in Europe due to dependence on Russian natural gas. Sanction packages imposed by the European Union and the USA, and counter-sanctions by Russia, had negatively impacted the development of the global economy. Force majeure-related production stoppages and also international logistics bottlenecks further impaired economic performance. In this challenging environment, the business activities of the PCC Group developed exceptionally well in almost all segments, especially in the first half of the year. At the beginning of the second half of the year, the outlook became gloomier, with a decline in demand and with prices falling. Nevertheless, the PCC Group closed the fiscal year as a whole with the best net income result in the Group’s history.

Restrictions in the wake of the coronavirus pandemic, which had characterized the previous two years, eased in Europe as a result of decreasing regulation. However, there were renewed coronavirus-related impediments to global economic development, in particular due to lockdowns in China. In some cases, primary input or intermediate products were not available in sufficient quantities and, as a result, sectors such as the automotive industry had to cut back their capacities due – in their case – to a lack of electronic components from Chinese manufacturers. However, Chinese domestic value-added also declined, so that at times large volumes of chemical products and silicon metal were exported, leading to a temporary oversupply in Europe and falling prices in some market segments.

Nevertheless, demand for chemical products was high overall, supporting the positive economic development of the majority of PCC companies. Raw materials remained scarce, and some producers cut back or even ceased production as a result of the energy crisis. In addition, there were force-majeure-related congestion problems, with the result that some prices rose to historic highs, especially in the second half of the year for the chlorine co-products caustic soda flakes and caustic soda lye.

PCC’s silicon metal production in Iceland, which was temporarily shut down in the previous year, was almost fully operational in fiscal 2022 until the end of the year, with stable high grades being manufactured. However, the energy crisis in Europe led to competitors significantly reducing or even discontinuing their production capacities in the course of the year. Increased quantities of silicon metal from China and Brazil were imported, in some cases at dumping prices. As a result of this, the overall market price level declined sharply, while full warehouses and increasing customer restraint led to PCC BakkiSilicon hf. also temporarily taking one of its two furnaces out of operation at the end of the year.

Overall, the PCC Group ended fiscal 2022 with earnings before interest / financial result, taxes, depreciation and amortization (EBITDA) of € 292.0 million, up € 94.5 million or 47.9 % on the prior year’s result of € 197.5 million. Consolidated sales in 2022 amounted to € 1,324.7 million, an increase of € 345.0 million or 35.2 % compared to the € 979.6 million of the previous year. This very positive earnings and sales performance was due both to the continued high commodity prices, as mentioned above, and to the first full year of production at the silicon metal plant.

At € 179.4 million, most of this increase in sales was attributable to the Chlorine & Derivatives segment, followed by the Surfactants & Derivatives segment with an increase in sales of € 73.7 million. The Silicon & Derivatives segment recorded an increase in sales of € 64.3 million and the Logistics segment a rise in revenues of € 20.7 million. There were no significant effects on sales due to changes in the scope of consolidation in 2022.

For most PCC Group companies, the euro is not the functional currency. Consequently, exchange rate effects in the translation of sales and earnings figures have an impact on the consolidated statement of income. On the basis of constant exchange rates versus the previous year, sales of the PCC Group would have amounted to € 1,349.4 million and would therefore have been € 24.7 million or 1.9 % higher than the nominal figure reported. The reason for the difference lies in the exchange rate developments of the currencies of relevance to the PCC Group, primarily the Polish złoty and the US dollar.

The gross profit of the PCC Group also increased significantly in 2022, rising by 41.4 % to € 503.2 million (previous year: € 355.9 million), with the gross margin rising to 38.0 % (previous year: 36.3 %). Higher procurement costs on the raw material side were passed on to the revenue side with a slight time lag. This also largely applies to the increased energy costs for electricity and gas. Since the start of the coronavirus pandemic in the second quarter of 2020, there has been very high volatility in all commodity prices, with ongoing developments also characterized by uncertainty and forecasting difficult at present due to continuing high inflation, ongoing supply chain issues and the war in Ukraine.

Year on year, personnel expenses rose by 27.6 % from € 112.5 million to € 143.6 million, with wage and salary increases coupled with higher variable compensation components as the primary drivers. The number of employees in the Group rose by 2.4 % from 3,311 to 3,391 as of the reporting date. Most of this increase was attributable to the Trading & Services segment, to which various service units were transferred. Employee numbers also increased due to growth in the Logistics segment in the field of intermodal transport. In the regional analysis, Poland accounted for 104 new jobs. There were 18 job cuts in the Rest of Europe region and nine in Germany.

At € 31.6 million, other operating income was € 1.8 million higher than the previous year’s figure of € 29.8 million. There were two major contributory factors in this development. One is the insurance compensation payment arising from the fire at our tanker cleaning facility at the Brzeg Dolny site in Poland; the other is an increase in the income streams from both costs recharged to affiliates and the disposal of property, plant and equipment.

Research and development work aimed at creating new products, processes and technologies, and at further improving existing customer solutions, is a permanent feature of the business activities of the PCC Group. Cross-company project teams are also formed for this purpose. In the past fiscal year, the PCC Group recognized expenditures of € 14.3 million for research and development (R&D), thus underlining its commitment in this area (previous year: € 5.1 million).

Capital expenditures totaled € 116.3 million in 2022, 4.9 % above the prior-year level of € 110.9 million. After capital expenditure was reduced to a minimum in 2020 as a Covid-19 safeguarding measure, major investment projects resumed in 2021 and continued unabated in 2022. In the reporting year, such expenditure was primarily allocated to the Logistics and Chlorine & Derivatives segments, and project development work in the Holding & Projects segment, with primarily long-term infrastructure investments being implemented. In addition to expenditure on container terminals, this also included investments in locomotives and platforms. Major progress was also made in the establishment of the new research and development center at the Brzeg Dolny site – all supplemented by ongoing replacement investments. In addition, the holding company PCC SE implemented a number of capital measures involving its subsidiaries. Further funds were invested in the construction of the production facility in Southeast Asia of PCG PCC Oxyalkylates Sdn. Bhd., this joint venture being included in the consolidation as of the reporting date using the equity method. All investments are expected to contribute to future sales and earnings growth of the Group. At the same time, capital expenditures mean for the consolidated statement of income an increase in depreciation, amortization and interest expenses, which continue to be capitalized for investments not yet completed. These effects are reflected in the balance sheet as of December 31, 2022, in the increase in non-current assets and on the liabilities side in the increase in non-current financial liabilities. Amortization of intangible assets, depreciation of property, plant and equipment, and depreciation of right-of-use assets increased only slightly year on year to € 74.7 million (previous year: € 72.2 million).

Interest and similar expenses resulted mainly from bond liabilities, liabilities to banks and lease liabilities. These expenses decreased by 4.3 % from € 35.4 million to € 33.9 million in the fiscal year under review. This reduction was mainly due to more favorable financing and refinancing costs. Both the holding company and other Group companies were able to benefit from the initially favorable market interest rate environment in 2022 and finance or refinance debt accordingly. In the course of the fiscal year, key interest rates were raised in stages both in the euro zone and in Poland. In the case of financial liabilities subject to floating interest rates, this resulted in rising interest expenses. The PCC Group neutralizes such interest rate increases with appropriate hedging transactions. The weighted interest rate of all interest-bearing liabilities increased from 3.6 % in the previous year to 4.3 % in fiscal 2022. Financial liabilities decreased by a total of € 119.6 million or 12.2 % year on year. Interest attributable to the creation of a qualifying asset is capitalized until final completion of the construction period.

Income and expenses from exchange rate differences are reported in financial result under foreign currency translation result. In fiscal 2022, this increased earnings by € 2.1 million (previous year: € 0.9 million). The effective tax rate of the PCC Group in the year under review was 25.3 % (previous year: 17.8 %).

Compared to the previous year, earnings before taxes (EBT) increased by € 100.9 million from € 91.7 million to € 192.6 million. Total consolidated comprehensive income of the PCC Group rose by € 62.0 million from € 79.3 million to € 141.3 million, largely as a result of the aforementioned effects.

Year on year, total assets increased by € 200.0 million, or 14.4 %, to € 1,592.2 million as of December 31, 2022. This increase was spread over both non-current and current assets. Intangible assets increased by € 6.0 million to € 50.6 million. The net carrying amount of property, plant and equipment increased by € 41.3 million or 4.7 % to a total of € 928.2 million. Right-of-use assets increased by € 3.1 million or 5.7 % to € 58.3 million. Investments accounted for using the equity method decreased only marginally, by € –0.3 million to € 15.3 million, largely reflecting the valuation of the Malaysian joint venture PCG PCC Oxyalkylates Sdn. Bhd. In addition, this balance sheet item includes the pro rata allocation of earnings of the Thai joint venture IRPC Polyol Company Ltd. and the Russian joint venture OOO DME Aerosol. Where accumulated losses exceed the equity value, the latter is carried at an amortized equity value of zero. This was still the case at OOO DME Aerosol as of the reporting date of the past fiscal year.

Current assets amounted to € 492.2 million as of the balance sheet date, up € 145.3 million on the previous year (€ 346.9 million), thus representing the largest increase in value terms. Inventories in particular increased by € 35.4 million from € 114.0 million to € 149.4 million. Trade accounts receivable rose by € 31.8 million to € 141.3 million. For both items, the high average commodity price level is reflected on both the purchasing and the selling side. In addition, inventories of strategically critical input materials were increased in fiscal 2022 to counter potential supply chain issues or production bottlenecks at suppliers. Other receivables and other assets increased from € 29.1 million to € 31.1 million. Cash and cash equivalents increased by € 70.0 million or 74.7 % to € 163.8 million due to the increase in cash flow from operating activities. Cash and cash equivalents disclosed in the balance sheet include an amount as of December 31, 2022 of € 3.8 million (previous year: € 2.2 million) in funds not freely available for use. These are almost entirely attributable to financing already earmarked for investment projects.

The equity of the PCC Group increased by € 274.6 million from € 144.6 million in the previous year to € 419.2 million in the fiscal year just ended. This development is mainly attributable to net income and the issue of hybrid capital. This latter new item relates to an equity instrument introduced as part of the restructuring of PCC BakkiSilicon hf. In accordance with IAS 32, this is classified as equity, as there is neither a contractual obligation to repay the nominal amount nor to pay interest. Instead, the repayment is subject to conditions that depend on the decision of the management of the company to make distributions to its shareholders. As soon as resolutions are passed on such distributions, the hybrid capital will also be serviced on a pro rata basis. Revenue reserves / other reserves increased by € 138.3 million to € 276.8 million, mainly as a result of consolidated net income for the year. Minority interests rose by € 59.8 million to € 97.3 million. This increase also results from the restructuring of the financing of PCC BakkiSilicon hf., as shareholder loans were converted into equity in the course of this process, resulting in a change in partner shareholdings. Other equity items decreased slightly by € 2.6 million to € –39.2 million, mainly as a result of differences from currency translation effects recognized directly in equity. By contrast, the remeasurement of defined benefit pension obligations as of the reporting date did not give rise to any appreciable absolute change versus the previous year. As a result of the aforementioned effects, the equity ratio rose from 10.4 % in the previous year to 26.3 % in the year under review.

The long-term investments are financed with long-term borrowings. Non-current provisions and liabilities decreased by 12.7 % to € 780.3 million as of December 31, 2022 (previous year: € 893.4 million). This was mainly due to the decrease in non-current financial liabilities, which fell by € 119.8 million or 14.5 % year on year. Deferred tax liabilities increased to € 11.1 million (previous year: € 9.4 million). Other liabilities rose by € 5.8 million or 11.7 % from € 49.3 million in the previous year to € 55.1 million in the year under review.

Turning to bond liabilities, the holding company PCC SE redeemed in full and on schedule five bonds with a total volume of € 90.2 million in the course of 2022 (previous year: € 65.6 million). The volume placed by the end of the year totaled € 75.2 million (previous year: € 63.4 million) spread over four new bond issuances. These funds were used in the past fiscal year both to partially refinance liabilities due in 2022 and to finance investments and subsidiaries. Aside from PCC SE, of which the bonds are denominated in euros, other Group companies also issue bonds. Those issued by PCC Rokita SA and PCC Exol SA in Poland, denominated in złoty, had a value of € 47.8 million as of year-end 2022 (previous year: € 53.9 million). The bond issued in US dollars by the Icelandic affiliate PCC BakkiSilicon hf. is no longer disclosed as of the balance sheet date 2022 due to it having been converted into equity shares as part of the restructuring process. Its prior-year value was € 76.6 million. Secured credit lines within the PCC Group not utilized as of the reporting date amounted to € 40.7 million (previous year: € 35.4 million).

Current provisions and liabilities increased by € 38.5 million to € 392.8 million. At € 98.9 million, trade accounts payable were virtually on a par with the item balance of € 100.6 million reported as of year-end 2021. At € 154.3 million, financial liabilities also remained at roughly the previous year’s level of € 154.1 million. Other liabilities increased by € 7.4 million to € 55.9 million. This was mainly the result of increased value-added tax and payroll tax liabilities.

Provisions for pensions and similar obligations and other provisions increased by € 20.1 million to € 58.3 million (previous year: € 38.2 million). This is primarily due to the increase in provisions for emission allowances.

The net debt of the PCC Group decreased in the past fiscal year by € 189.5 million or 21.3 % from € 888.9 million in 2021 to € 699.4 million this time. This was due not only to repayments but also to the conversion of debt financing into equity instruments as part of the restructuring of PCC BakkiSilicon hf. In addition, there was a significant increase of € 70.0 million in cash and cash equivalents. As a result of the likewise significant year-on-year increase in earnings before interest / financial result, taxes, depreciation and amortization (EBITDA), the leverage ratio of net debt to EBITDA improved from 4.5 to 2.4 as of year-end 2022. Our target of steering this indicator to a value below 5.0 has thus been met by some considerable margin.

Seen as a whole, management views the development of our net assets, financial position and results of operations in fiscal 2022 as thoroughly satisfactory. Our core business activities in the segments of the chemicals sector as well as in the Logistics segment proved to be robust and crisis-resistant in view of the volatilities on the raw material and commodity price markets. Our diversified businesses were able to respond promptly to changing market conditions in order to maintain or even expand their respective competitive positions. As a result, the expectations documented in the previous year’s reporting were met and, in some cases, even exceeded in almost all areas. For this reason, and due to the events detailed above, the sales increase of 10 % to 15 % forecasted in the previous year’s guidance was significantly exceeded. The PCC Group was also able to exceed its prior-year forecast for EBITDA by a multiple of the expected figure. With the silicon metal plant having recorded a full year of production in 2022, another important milestone was reached for the long-term improvement of the net assets, financial position, results of operations and enterprise value of the company.