Notes to individual items of the consolidated balance sheet

Intangible assets include industrial property rights, licenses and similar rights, goodwill, internally generated and developed assets, and advance payments on intangible assets. The net carrying amount increased from € 44.5 million to € 50.6 million in 2022. The change is mainly due to the acquisition of CO2 allowance certificates. Write-downs of € 0.2 million (previous year: € 0.2 million) were recognized in the reporting year and mainly relate to development costs. At the reporting date, there were restricted rights of disposal on intangible assets amounting to € 1.7 million (previous year: € 1.8 million).

Exploration and production activities are carried out at one subsidiary. The net carrying amount of this item included in intangible assets amounted to € 0.2 million as of the reporting date (previous year: € 0.2 million). There were no exploration activities in the past fiscal year. This item is not material for the PCC Group, and is therefore not presented separately in the reconciliation.

Any excess of the cost of acquisition over the fair value of identifiable net assets acquired during the initial consolidation of subsidiaries is recognized as goodwill in the consolidated balance sheet. This goodwill is not subject to amortization, but is tested for impairment at least once a year in accordance with IFRS 3.

The table shows all goodwill recognized within the Group as of December 31, 2022. It also includes the goodwill assumed from the individual financial statements of the US company PCC Chemax, Inc., Piedmont (South Carolina). As in the previous year, there were neither additions nor impairments in the year under review. The change in the goodwill of PCC Chemax, Inc. results from a currency translation effect, as the goodwill is carried in the currency of the cash-generating unit of the company, i.e. in US dollars. The annual impairment tests were carried out in the fourth quarter of the fiscal year and were based on the budgets approved by management for each of the three subsequent years. Using a perpetuity growth model, a terminal value was determined on the basis of the last budget year.

The recoverable amount was determined on the basis of value-in-use. As in the previous year, the growth rate assumed was 1.0 %. The budget assumptions derive from empirical values and estimates of the various business managements, taking into account centrally defined global positions such as exchange rates, estimates of economic development, market growth or commodity prices, for which purpose external sources were also consulted. The local tax rates assumed were 19.0 % for the Polish cash-generating units and 23.6 % for the US cash-generating unit. The tax rates were unchanged from the previous year. As in the previous year, the cost of capital was calculated on a region-specific basis. This was 7.40 % for Poland (previous year: 7.15 %) and 6.28 % for the USA (previous year: 6.48 %). Even taking into account a change in the weighted average cost of capital (WACC) of 10 %, there would be no impairment write-down requirement.

The net carrying amount of property, plant and equipment increased from € 886.9 million to € 928.2 million in the reporting year. This is mainly attributable to capital expenditure measures continued or completed within the PCC Group during the fiscal year under review, with ongoing replacement investments also a factor. Additions to property, plant and equipment amounted to € 89.6 million in fiscal 2022 (previous year: € 70.0 million). The investments were mainly allocated to the Logistics and Chlorine & Derivatives segments and to project developments in the Holding & Projects segment.

Additions to depreciation of property, plant and equipment amounted to € 57.6 million in the past fiscal year (previous year: € 53.1 million). Impairment losses on property, plant and equipment amounted to € 1.3 million (previous year: € 4.2 million) and relate mainly to property, plant and equipment in the Chlorine & Derivatives and Polyols & Derivatives segments. The reversals of impairment losses were not material in the reporting period, nor in the previous year.

Restrictions on the right to dispose of individual items of property, plant and equipment amounted to € 519.6 million as of year-end 2022 (previous year: € 516.6 million). These additionally serve as collateral for liabilities. As of December 31, 2022, there were total investment obligations of € 60.9 million (previous year: € 59.2 million) relating to investments already contractually agreed but not yet completed. In addition, insurance compensation of € 4.0 million (previous year: € 1.1 million) was received in the past fiscal year for property, plant and equipment.

Within the PCC Group, lease agreements exist particularly in the areas of developed and undeveloped land and buildings, plant and machinery, factory and office equipment, and vehicle fleet. To ensure flexibility, renewal and termination options are sometimes agreed. When determining the term of the lease, all circumstances and facts are considered which, based on the current state of knowledge, have an influence on the exercise of a renewal option or the non-exercise of a termination option. In determining lease liabilities and corresponding right-of-use assets, all sufficiently assured cash outflows are taken into account. The carrying amounts of right-of-use assets as of year-end amounted to € 58.3 million (previous year: € 55.1 million). The breakdown by underlying asset type reads as follows:

The underlying contractual terms for leases on land and buildings range from one to 28 years. Plant and machinery are leased for between one and three years, and other facilities, factory and office equipment, including our vehicle fleet, for between one and six years. Classified by underlying asset type, the depreciation expenses totaling € 13.7 million (previous year: € 12.7 million) on right-of-use assets in fiscal 2022 break down as follows:

Non-current financial assets include shares in affiliated companies that are not consolidated for reasons of materiality, investments in other entities, and securities held as financial assets. In addition, positive fair values of derivative financial instruments have been reported uniformly under this item since the past fiscal year. Non-current financial assets amounted to € 19.6 million at the reporting date (previous year: € 10.1 million) and are mainly attributable to non-consolidated entities.

Other non-current financial assets include loans to affiliated companies that are not consolidated for reasons of materiality, loans to joint ventures, and other loans. As of the reporting date, other non-current financial assets totaled € 16.8 million (previous year: € 16.4 million). This includes in particular loans to the joint venture OOO DME Aerosol in the amount of € 13.6 million (previous year: € 12.5 million).

Compared to the previous year, inventories increased from € 114.0 million to € 149.4 million at the reporting date. This is partly attributable to the sharp rise in raw material prices in the fiscal year and the associated increase in procurement costs, and partly to the fact that inventories were increased as a precautionary measure due to ongoing transport and supply chain problems. In both fiscal 2022 and the previous year, only insignificant write-ups were made to previously impaired inventories due to increased marketability. Impairment losses recognized amounted to € 0.7 million (previous year: € 0.9 million). Inventories of € 687.2 million (previous year: € 595.5 million) were expensed in the statement of income for full fiscal 2022.

Trade accounts receivable as of December 31, 2022 all had a remaining term of up to one year in their full amount. Their value increased by € 31.8 million or 29.0 % year on year to € 141.3 million as of the reporting date.

The expected future credit losses determined on the basis of the impairment model decreased by € 0.1 million in fiscal 2022. Additions to allowances due to losses already incurred increased year on year from € 0.2 million to € 0.5 million. Overall, the Group recognized value adjustments for trade accounts receivable amounting to € 2.1 million, € 0.5 million less than in the previous year.

The maturity structure of all unimpaired trade accounts receivable is shown opposite. Around 89.4 % of the Group’s receivables were neither impaired nor past due as of December 31, 2022 (previous year: 91.3 %). In addition, the default risks and the level of expected credit losses (ECL) are shown over the remaining term to maturity for each age group.

Individual companies within the PCC Group use factoring as a means of financing receivables. The volume of all receivables sold as of the reporting date amounted to € 3.3 million (previous year: € 5.3 million).

Accounts receivable from affiliated companies as of December 31, 2022 all have a remaining term of up to 1 year in their full amount. They comprise accounts receivable from affiliated, non-consolidated companies. Further information is also provided in the section on related parties, see Note (39). These are largely loan receivables from project companies. As in the previous year, no impairment losses were recognized on other assets or on accounts receivable from affiliated companies.

The subscribed capital of PCC SE is unchanged from the previous year, amounts to € 5.0 million and is fully paid up. It is divided into 5,000,000 no-par value shares with a nominal value of € 1 per share. Revenue reserves and other reserves as of December 31, 2022 include the following items:

The development of the Group’s equity is shown in the consolidated statement of changes in equity, which forms part of these consolidated financial statements.

Revenue reserves and other reserves comprise unappropriated earnings achieved in the reporting period by the subsidiaries included in the consolidated financial statements. The Group’s share of total comprehensive income for the previous year carried forward to revenue reserves amounted to € 65.6 million. In fiscal 2022, a distribution of € 4.75 million (previous year: € 2.75 million) was made to the shareholder of PCC SE from the profit carried forward of PCC SE. This corresponds to a dividend per share of € 0.95 (previous year: € 0.55). Differences arising from foreign currency translation are reported under other equity items. In the past fiscal year, these reduced consolidated equity by € 2.4 million to a total of € – 39.2 million (previous year: € – 36.6 million). The development of gains and losses recognized directly in equity is shown in the adjacent table:

German and international minority shareholders hold non-controlling interests in various entities of the PCC Group. The share of these non-controlling interests reported in Group equity as of December 31, 2022 was € 97.3 million, representing an increase of € 59.8 million compared to year-end 2021. Subsidiaries with significant non-controlling interests operate in various segments of the PCC Group. Information on the company name, registered office and capital shares of subsidiaries with significant non-controlling interests is provided in the list of shareholdings pursuant to Section 313 (2) HGB (German Commercial Code) in Note (44). There are no significant restrictions that go beyond the usual company law and contractual provisions.

As part of the restructuring of the financing of PCC BakkiSilicon hf. completed in April 2022, the bond granted to this subsidiary by the co-shareholder was converted into equity. As a result, the minority interest increased from 13.5 % to 34.6 %.

In April 2022, a comprehensive restructuring agreement was concluded for the financing of PCC BakkiSilicon hf. which operates a silicon metal plant in Iceland. This agreement encompassed, in addition to the conversion of shareholder loans and a bond into equity, a hybrid financing instrument with a volume of € 79.2 million, which was concluded with the financing bank KfW-IPEX. This instrument is classified as equity, i.e. as hybrid capital, in accordance with IAS 32. There is neither a contractual obligation to repay the principal nor to pay interest. Rather, repayment is subject to conditions which are dependent on the decision of the management of the company to make distributions to shareholders. As soon as resolutions are passed on distributions to shareholders, the hybrid capital will also be serviced on a pro rata basis.

Most of the employees of the Polish subsidiaries of the PCC Group are granted non-recurring benefits under statutory pension plans in addition to their statutory retirement pensions. The defined benefit plans are, as a rule, based on length of service and salary. Benefits under defined benefit plans are generally granted upon reaching retirement age or upon disability or death.

Defined contribution plans exist mainly in the form of statutory pension schemes in Germany and at the international subsidiaries. For employees of the German subsidiaries and the holding company, there may also be individual contributions to other defined contribution plans in addition to the statutory pension plan. Typical risk factors for defined benefit plans are longevity, nominal interest rate changes, and inflation and salary increases. The present value of the defined benefit obligation under a pension plan is determined based on the best estimate of the probability of death of the employees participating in the plan, both during the employment relationship and after its termination. An increase in the life expectancy of the beneficiary employees or a decrease in the bond interest rate leads in each case to an increase in the plan liability. Furthermore, the present value of the defined benefit obligation under a pension plan is determined on the basis of the future salaries of the beneficiary employees. Salary increases of the beneficiary employees lead to an increase in the plan liability. The defined benefit obligations are internally financed. Provisions for pensions and similar obligations amounted to € 1.1 million as of the reporting date of the past fiscal year and were thus € 0.2 million higher than in the previous year. Of this amount, € 1.0 million represented non-current provisions with a term of more than one year.

A total of 2,926 employees of PCC Group companies (previous year: 2,822) are covered by defined benefit plans, of which 74.7 % are male and 25.3 % female. The average age as of year-end 2022 was 40.3 years (previous year: 38.1 years). A uniform discount rate of 3.65 % (previous year: 1.1 %) was used to determine the pension obligations. The development of salaries was assumed to be 6.7 % (previous year: 5.4 %). The Polish 2021 mortality table of the Central Statistical Office, which serves as the basis for the calculation, assumes a life expectancy of 75.7 years (previous year: 76.7 years). An adjustment of the main actuarial parameters would have the following effects on the amount of the pension obligations:

The above sensitivity analysis may not be representative of the actual change in the defined benefit obligation as it is considered unlikely that deviations from the assumptions made will occur in isolation.

The pension obligations have the following profile of remaining terms to maturity:

The cash outflows for pension obligations are as follows:

The expense for fiscal 2022 includes € 8.2 million in employer contributions to the statutory pension scheme (previous year: € 7.1 million). In addition to contributions to the statutory pension scheme, expenses for defined contribution plans are included in the result for the current period in the amount of € 1.8 million (previous year: € 1.1 million).

Compared to the previous year, other provisions grew by € 19.9 million to € 57.1 million. The main reason for the increase is the € 7.9 million rise in provisions for the purchase of CO₂ certificates (previous year: € 13.6 million). The provisions for personnel expenses mainly relate to bonus and vacation entitlements; these also increased by € 6.5 million from € 12.0 million in the previous year to € 18.4 million as of the reporting date. Provisions for the purchase of energy efficiency certificates increased by € 1.7 million to € 3.0 million. These provisions result from the requirements of the Polish system regarding energy mix. A shortfall in the supply of energy from renewable sources to the production process must be offset either by the purchase of so-called green certificates or by compensation payments.

The following table shows the development of other provisions in fiscal 2022. Other changes mainly include currency translation effects.

The financial liabilities of the PCC Group are essentially composed of non-current and current liabilities arising from bonds, amounts owed to banks, lease liabilities and amounts owed to affiliated companies.

Financial liabilities decreased by € 119.6 million from € 981.7 million as of December 31, 2021 to € 862.0 million as of December 31, 2022. The largest absolute decrease of € 77.6 million to € 487.9 million was recorded in bond liabilities. Bank liabilities also decreased significantly by € 49.5 million to € 325.0 million. Liabilities from lease agreements increased by € 7.5 million to € 49.1 million.

Liabilities to banks bear interest at rates of between 0.4 % p.a. and 10.5 % p.a. The unutilized, secured credit lines within the PCC Group amounted to € 40.7 million at the reporting date (previous year: € 35.4 million). The financial liabilities existing within the PCC Group as of the reporting date have the maturity profile shown opposite.

The relevant factors when presenting the maturities of contractual cash flows from financial liabilities are interest payments and redemption of principal, plus other payments in respect of derivative financial instruments. The adjacent table shows non-discounted future cash flows. Derivatives are included on the basis of their net cash flows where they have negative fair values and thus represent liabilities. Derivatives with positive fair values are assets and are therefore not considered. Trade accounts payable are essentially non-interest-bearing and due within one year. The carrying amount of trade accounts payable therefore corresponds to the total of the future cash flows.

In 2022, the liabilities to banks and those from leases reported under financial liabilities were secured in their entirety by mortgages, land charges or similar liens, by the assignment of claims, by the assignment of property, plant and equipment as chattel mortgages or by other collateral assignments. At € 441.8 million, the total amount of collateral granted was € 35.4 million lower than in the previous year.

Bond liabilities result from the bond issuances of PCC SE and the international subsidiaries PCC Rokita SA and PCC Exol SA. The non-public bond issued by PCC BakkiSilicon hf. was a financing instrument for the Icelandic silicon metal plant and was converted into equity in the first half of 2022 as part of a refinancing package.

Bonds of the PCC Group are issued in the currencies euro and Polish złoty. The public bonds issued in euros (EUR) carry coupons of between 2.0 % and 5.0 % p.a., while those issued in złoty (PLN) carry coupons of 5.0 % or 5.5 % p.a. The following chart provides a tabular analysis of the bonds involved. The bonds issued in złoty with a total volume of PLN 227.0 million (previous year: PLN 252.0 million) had a value in euros of € 47.8 million at the reporting date (previous year: € 53.9 million).

Other liabilities increased by € 13.2 million from € 97.8 million as of December 31, 2021, to € 110.9 million as of December 31, 2022, with an increase in particular in liabilities for sales taxes, VAT, customs, excise and other duties, as well as in deferred income relating to subsidies and grants for investment projects. In the reporting year 2022, the result includes reversals of deferred income from subsidies totaling € 2.8 million (previous year: € 2.4 million). The rise in deferred income was accompanied by an increase in liabilities arising from investments as of the reporting date. These are liabilities from supplies or services provided by third parties resulting from the investment projects as of the reporting date. Liabilities from interest payment obligations mainly relate to interest on bonds which were due at the beginning of the following quarter, with the figure decreasing due to lower interest rates overall.

Deferred taxes are recognized on temporary differences between the carrying amounts of assets, liabilities and accruals in the balance sheet and their tax base. For German subsidiaries, the tax rate applied is a uniform 30 %, as was the case in the previous year. For international entities, the relevant national tax rates are applied. Without exception, these remained constant year on year. The distribution of deferred taxes among the various balance sheet items is shown in the following table. Within the PCC Group, deferred tax assets and liabilities are offset and disclosed as netted balances where they relate to the same tax jurisdiction and where there is an enforceable right to the netting of tax liabilities and tax receivables. For fiscal 2022, this resulted in deferred tax assets of € 10.6 million (previous year: € 16.4 million) and deferred tax liabilities of € 11.1 million (previous year: € 9.4 million).

The table below shows the unnetted deferred taxes. Other deferred taxes include future tax benefits from a special economic zone. Deferred tax assets on tax loss carryforwards decreased in the past fiscal year by a total of € 3.6 million to € 15.1 million at the reporting date. This item includes a reversal of deferred tax assets on tax loss carryforwards at a subsidiary amounting to € 8.6 million due to reduced earnings prospects.

As an internationally active corporation, the PCC Group is exposed to financial risks in the course of its ordinary business operations. A major objective of the corporate policy is to generally restrict market, default and liquidity risks, in order both to secure enterprise value over the long term and to maintain the Group’s earning power and thus extensively cushion the negative impact of fluctuations in cash flow and earnings. The Group holding company and the individual subsidiaries cooperate in the management of interest rate and currency risks, and also default risks. Each individual operating entity is responsible for managing its own commodity or raw material price risks, while liquidity control is the responsibility of the holding company.

Currency risks: Changes in exchange rates can lead to losses in the value of financial instruments and also to disadvantageous changes in future cash flows from planned transactions. Currency risks in respect of financial instruments result from the translation of financial receivables, loans, securities, cash sums and financial liabilities in the functional currency of the companies concerned as of the reporting date. Currency risks arise both on the purchase side through the procurement of commodities and raw materials, and on the selling side as a result of the sale of end products. A potential change in the Polish złoty of 10 % would affect the equity and annual net earnings of the Group to the tune of € 0.2 million (previous year: € 0.6 million). A change in the exchange rate of the US dollar of likewise 10 % would result in these financials experiencing a change of € 0.1 million (previous year: € 0.1 million).

Interest rate risks: These risks arise as a result of potential changes in the market interest rate, causing fluctuations in the fair value of financial instruments bearing a fixed interest rate, and fluctuations in interest payments in the case of financial instruments bearing a floating interest rate. A potential change in interest rates of 100 basis points would affect the equity and annual net earnings of the Group to the tune of € 3.9 million (previous year: € 3.1 million).

Commodity price risks: These risks result from market price changes in relation to commodity / raw material purchases and sales, and also the purchase of electricity and gas. The general risk situation of the PCC Group is greatly affected by the availability and also the price-dependency of relevant raw materials, input products and intermediate products. Within this context, the dependency of important commodity prices on foreign exchange rates and market movements is especially relevant, particularly in the case of petrochemical raw materials. Price volatilities are smoothed out, for example, through the agreement of price escalator clauses with suppliers and customers. Moreover, commodity price risks are restricted by internationally aligned sourcing activities. Backward integration along the value chain or along the various production stages encountered in the segments operating in the chemicals sector provides for an additional, high degree of independence in the procurement of raw materials and commodities, thus reducing risk. The Commodity Trading business in the Trading and Services segment is exposed to major price fluctuations that can occur from time to time.

Default or credit risks arise when contractual partners are unable to meet their contractual obligations. Credit limits are granted based on the continuous monitoring of the creditworthiness of major debtors. Because of the international activity and the diversified customer structure of the PCC Group, there are no major regional or segment-specific clusters of default risks. In selecting short-term capital investments, various safeguarding criteria are considered (e.g. ratings, capital guarantees or safeguards afforded by deposit protection funds). Given the selection criteria applied and our regime of constantly monitoring our capital investments, the PCC Group does not envisage any unidentified default risk occurring in this domain. The financial asset amounts shown in the balance sheet essentially represent the maximum default risk. Such risks are regularly monitored and analyzed within the framework of a receivables and credit management regime and also by a Working Capital Management unit with responsibility at both the operational and Group levels. In all, receivables from customers are secured in an amount of € 110.6 million (previous year: € 75.3 million). Financial assets that are neither impaired nor overdue are categorized as collectable in line with the creditworthiness of the debtor.

Liquidity risks result from income stream fluctuations. Current liquidity is monitored and controlled by a treasury reporting system implemented across the Group based on an IT-supported solution (Treasury Information Platform). In mediumand long-term liquidity planning, liquidity risks are identified and managed at their inception on the basis of simulations of various scenarios. Obstacles that may arise within the SME bonds market segment could possibly – at least temporarily – lead to liquidity bottlenecks. This risk is to be countered over the long term through the development of alternative financing sources at the institutional level. Preparations are also being made for the partial replacement of the liquidity loans granted to the affiliated companies by bank loans.

Subsidiaries use forward contracts to hedge transactions in foreign currencies. Forward contracts in existence as of December 31, 2022 carried a nominal value of € – 1.2 million (previous year: € – 0.6 million). The immaterial fair values are recognized as assets or liabilities. Within the PCC Group, interest rate swaps and interest rate options are used in order to hedge interest rates and their long-term development. At year-end, the nominal value of existing derivatives amounted to € 95.7 million (previous year: € 124.4 million), with a fair value of € 9.9 million recognized as an asset as of the reporting date (previous year: liability of € – 2.4 million).

In the case of trade accounts receivable, receivables from affiliated companies or investments, other financial assets, cash and cash equivalents, trade accounts payable and other liabilities, the carrying amounts are regarded as realistic estimates of their fair values due to the shortness of their remaining terms. Assets that are not quoted on an active market and for which the fair value cannot therefore be reliably determined, are measured at cost.

1
FAaC = Financial assets measured at amortized cost
FLaC = Financial liabilities measured at amortized cost
FVtOCI = Fair value through other comprehensive income
FVtPL = Fair value through profit or loss

Individual liabilities from bonds issued by subsidiaries include sales commissions and are accounted for using the effective interest method. The fair value stated in this section corresponds to market quotations.

Net gains and net losses from financial instruments include valuation results, the amortization of premiums and discounts, the recognition and reversal of impairment losses, results from foreign currency translation, as well as interest, dividends and all other effects on earnings from financial instruments. Financial instruments at fair value through profit or loss only include results from those instruments that are not designated as hedging instruments in a hedging relationship in accordance with IFRS 9. Net gains and losses on financial assets measured at amortized cost include net interest income of € 1.7 million (previous year: € 1.8 million) and net foreign exchange income of € 5.7 million (previous year: € 0.2 million). Net gains and losses on financial liabilities measured at amortized cost include a net interest expense of € – 33.7 million (previous year: € – 33.7 million) and a net currency translation expense of € – 5.9 million (previous year: gain of € 0.7 million).

Financial assets and liabilities measured at fair value are shown opposite. These relate to shares measured at the stock market price (Level 1) and to derivatives. The fair value of derivative financial instruments depends on the development of the underlying market factors. The respective fair values are determined and monitored at regular intervals. The fair value determined for all derivative financial instruments is the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between independent market participants at the measurement date.

The subsidiaries of the PCC Group use derivative financial instruments to hedge interest rate and foreign currency risks. The valuation methods and assumptions underlying the valuation of the derivative financial instruments employed can be summarized as follows: Foreign exchange transactions and swaps are valued individually at their forward rate or price on the reporting date. The forward rates or prices are based, as far as possible, on market quotations, taking into account forward premiums and discounts where appropriate.

A cash flow hedge was in place in the previous year to hedge future revenues in foreign currencies. The valuation adjustments at the respective reporting date during the term of the hedge were recognized directly in equity. The termination of the cash flow hedge resulted in income of € 0.2 million in fiscal 2022.

Leases in which the PCC Group is the lessee are accounted for using the rights-of-use model in accordance with IFRS 16. A tabular presentation of the rights of use for the year under review can be found in Note (21) Right-of-use Assets. Right-of-use assets amounting to € 58.3 million were countervailed by lease liabilities of € 49.1 million as of the reporting date. The latter are reported under financial liabilities. Please refer to Note (32) Financial Liabilities. The maturity structure of payment obligations under leases is shown in the adjacent table.

Compliant with the exemptions allowed, no right-of-use assets have been recognized in the balance sheet where the underlying leased asset is of minor value or where the contractual term is less than twelve months. Instead, the lease is expensed. The table opposite shows the amounts recognized in the statement of income in connection with leases.

There was no income from subleases. The total cash outflow from leases in the past fiscal year amounted to € 21.3 million (previous year: € 19.5 million). In addition to the leases, the PCC Group also has minor obligations arising from rental agreements. A corresponding maturity profile is presented in Note (37) below.

The contingent liabilities mainly result from guarantees given to the financing banks of associated companies of the PCC Group. They also relate to guarantees issued for non-consolidated entities in favor of third parties in respect of leases and obligations to the public sector. The change in other contingent liabilities results from the inclusion of investment grants, some of which may still be subject to claims for repayment in the event that contractually agreed conditions are not met. The PCC Group currently expects that no claims will be made in respect of any such contingent liabilities.

As of December 31, 2022, the PCC Group had other financial obligations arising from investment commitments, rental obligations and other obligations amounting to € 61.9 million (previous year: € 60.6 million). The obligations arising from rental agreements with a remaining term of up to one year include commitments of € 0.4 million attributable to shortterm leases.

The statement of cash flows shows the changes in cash and cash equivalents that took place in the year under review and has been drawn up in accordance with IAS 7. The cash flows are broken down according to cash flow from operating activities, cash flow from investing activities and cash flow from financing activities.

Interest received and taxes paid on income are recognized as cash flow from operating activities. Interest paid is disclosed under cash flow from financing activities. Dividends paid are a component of the financing activities category. Dividends paid within the Group from income attributable to the previous year are eliminated. Dividend payments to the shareholder of PCC SE and dividend payments to co-shareholders at subsidiaries are separately disclosed in cash flow from financing activities. Financial funds disclosed equate to the total of cash and cash equivalents (cash on hand, credit balances at banks, and checks) shown in the balance sheet.

In the event of changes in the scope of consolidation arising from the purchase or sale of entities (loss of control), the purchase price paid or received, adjusted for the financial funds acquired or sold, is recognized under cash flow from investing activities. If the acquisition or disposal of shares in a subsidiary takes place without a change in the control status, such transactions are disclosed as financing activities.

The conclusion of a lease agreement per IFRS 16 essentially constitutes a non-cash transaction. Payments made for investments in property, plant and equipment are netted against lease proceeds. 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. These are almost entirely attributable to finance already designated for investment projects.

The following reconciliation shows changes in financial liabilities that are reported as cash inflows or outflows under cash flow from financing activities. The cash-effective changes amounted to € 13.0 million as of the reporting date (previous year: € 23.3 million).

The purpose of capital structure management is to remain financially flexible so that the business portfolio can be effectively further developed and strategic options exploited. The object of the financial policy of the Group is to secure its liquidity and solvency, limit financial risks and optimize the cost of capital. The control metric adopted in this context is the net debt / EBITDA leverage ratio. This metric shows the relationship between net borrowings, including current and non-current pension provisions, current and non-current financial liabilities, cash and cash equivalents and current securities, and earnings before interest/financial result, taxes, depreciation and amortization (EBITDA), and is therefore a dynamic indebtedness indicator.

With net debt at € 699.4 million (previous year: € 888.9 million) and reported EBITDA at € 292.0 million (previous year: € 197.5 million), the net debt / EBITDA ratio for the past fiscal year improved significantly by 2.1 points to 2.4 (previous year: 4.5). Our goal of keeping this ratio below 5.0 was thus achieved.

Under financing agreements, individual subsidiaries are subject to external minimum capital requirements, which are reflected in the form of customary financial covenants, i.e. obligations to comply with specified financial requirements. These include standard market requirements for minimum equity ratios and maximum debt-to-equity ratios. Compliance with these requirements is also taken into account in the annual budget planning for the following year. According to the information provided by the consolidated entities for the preparation of the consolidated financial statements, there was one case of failure to comply with mandatory covenants in fiscal 2022. This has not led to any adjustments to credit terms or similar measures imposed by the lender. The case relates to typical financial ratios for loan agreements which a subsidiary failed to achieve.