The focus of the PCC Group in fiscal 2023 will once again be on its predominantly long-term strategy of portfolio company investment and development. This will, as ever, include enhancing the core activities and competitiveness of the PCC Group through further capital expenditures. Green-field and brownfield projects will also be given due consideration as opportunities arise. This applies, in particular, with respect to the possible in-company production of strategically important raw materials. Beyond this, the future issues of sustainability and climate protection and the associated transformation of all production processes will increasingly come to the fore. This will inevitably bring further investments in highly efficient and environmentally friendly production facilities, which in turn will decisively strengthen the future viability of the PCC Group. Essentially, the strategy of proactive investment portfolio management accompanied by ongoing portfolio optimization measures is likewise to be continued in the coming years. The primary objective remains to continuously and sustainably increase our enterprise value.

The business performance of the PCC Group in 2023 will again be heavily dependent on future global economic trends. At present, forecasts emanating from both political sources and various banks and other institutions indicate a slight degree of growth in the German economy in 2023. Meanwhile, rather stronger growth is expected for the European Union and for the global economy as a whole, but at a much lower rate than in 2021 and 2022. For example, in its latest forecast from March 2023, the OECD predicts an increase in gross domestic product of 0.3 % for the German economy in the current year, while growth of 0.8 % is predicted for the euro zone as a whole, and with 1.5 % expected for the USA. Also according to the OECD, the global economy is likely to grow by as much as 2.6 % overall in 2023. However, these forecasts are subject to a high degree of uncertainty as a result of the current crises (including the Ukraine war, the energy crisis, and possibly renewed transport and supply chain problems). Added to this is the specter of high inflation, which could have a dampening effect on consumption. Additional risks for the global economy as a whole could also arise from a renewed coronavirus outbreak in China, and from China’s Taiwan policy. The situation has been further complicated by the changes in the monetary policy of the central banks and problems in the financial and banking sectors. In addition, the future development of raw material prices is bound to heavily impact our subsidiaries operating in the chemicals and silicon metal sectors.

Similarly, in its spring forecast of March 2023, the ifo Institute states that it expects stagnation for Germany in the current year, with bottlenecks in energy supply and intermediate products as well as the shortage of skilled labor impeding industrial production. The same source identifies the high level of demand for goods and services still prevailing at year-end 2022 as having the effect of driving up inflation in general. While the gas and electricity price brakes, for example, should have a dampening effect on inflation in Germany in the coming months, economic output is still expected to decline in the first quarter of 2023. The ifo Institute then expects the German economy to recover from spring 2023, with further improvement in the second half of the year, due among other things to anticipated high wage settlements bringing an upswing in purchasing power. The ifo Institute also expects economic output in the euro zone to contract in the first quarter of 2023 due to the aforementioned supply bottlenecks and high inflation. However, slight growth of 0.6 % is expected here for 2023 as a whole. The ifo Institute forecasts a small degree of overall global economic growth, reflecting also the assessments of the OECD and the IMF.

The current Group budget planning for the years 2023 to 2025, which was prepared for the operating businesses of the Group companies and affiliates in the period from September to November 2022, foresees sales in 2023 remaining at the level of the previous year. At Group level, this is based on the assumption that total earnings before interest / financial result, taxes, depreciation and amortization (EBITDA) will be 20 to 25 percent lower than in the record year of 2022, but will at least match the EBITDA of the good post-coronavirus year of 2021. Compared to 2022, earnings are expected to be adversely affected, in particular, by rising energy prices and higher costs for personnel and external services. The Chlorine & Derivatives segment is again expected to make by far the largest contribution to Group EBITDA in 2023. However, due to rising overheads, results are bound to fall short of the historically good prior-year figures. In addition, average selling prices are likely to fall short of the exceptionally high level of the previous year. Earnings in the Polyols & Derivatives segment are also expected to be clearly positive, but likewise below the prior-year level. Increased competitive pressure from China and the start-up of new production capacities by a European competitor are predicted to have a negative impact on sales and earnings. By contrast, the Surfactants & Derivatives segment anticipates a further increase in its already strong prior-year performance in 2023, due to higher capacities coming on stream and an increasing proportion of higher-margin products, particularly for industrial applications. This applies especially to PCC Exol SA. The Consumer Products business, which has been integrated in the Surfactants & Derivatives segment since 2022, is expected to achieve a turnaround in 2023, partly due to the successful implementation of strong price increases on the sales side. The first positive effects already became apparent in the second half of 2022.

For PCC BakkiSilicon hf., the dominant company in the Silicon & Derivatives segment, the market environment will remain challenging in 2023 due, among other things, to high energy prices in Europe and strong competitive pressures emanating from China and Brazil. Since the end of 2022, this affiliate has only been producing with one furnace as a means of restricting inventory build-up and to keep costs under control. There are, however, signs of a revival in demand. At the same time, purchase prices for some raw materials are again showing a downward trend. Nevertheless, this affiliate and thus the Silicon & Derivatives segment as a whole is expected to close fiscal 2023 with earnings below those of fiscal 2022, the first half of which produced very strong results. This also applies to the Commodity Trading business managed within the Trading & Services segment, for which lower sales and lower, but still clearly positive earnings are expected in 2023 due to the discontinuation of raw material supplies from Russia. By contrast, the Intermodal Transport business unit should be able to further improve its results in 2023 in the wake of further increases in transport and handling volumes. Taking all these developments into account, Group EBITDA remains unlikely to reach the record level of the previous year overall, but should at least match the good post-coronavirus year of 2021.

Based on lower EBITDA coupled with increasing depreciation and amortization expenses and a likewise rising interest burden as a result of the planned investments, consolidated earnings before taxes (EBT) are expected to roughly halve year on year, although still remaining in the high double-digit million range.

This analysis does not include the negative effects of any further escalation of the war in Ukraine, due to the impossibility of adequate assessment at present. This also applies to any impact of renewed transportation and supply chain issues that may result from the war effort.

We expect expenses for such items as personnel and external services to rise in subsequent years. For the energy market, by contrast, the expectation is for increasing normalization and thus a decline in prices. Depreciation and amortization will again increase as a result of the implementation of further investments. Although earnings at the EBITDA and also at EBT level are likely to decline slightly overall in 2024, they should remain reasonably high, provided that the economy continues to pick up. PCC SE therefore anticipates receiving further dividend payments in the double-digit million range beyond 2023, with no significant change in the level of its indebtedness. For the PCC Group as a whole, however, net debt is expected to rise as a result of the planned capital expenditures. With a strong EBITDA result expected, it should nevertheless be possible to keep the leverage ratio of the PCC Group below the target level of less than 5 %.

In 2023 and also in the years to follow, the focus of PCC SE’s activities will be on corporate investment and business development, predominantly aligned to the long-term perspective. Particular priority will be assigned to providing support to PCC BakkiSilicon hf. in optimizing its production process and further improving its earnings situation. Moreover, in cooperation with – among others – the Fraunhofer Institute for Solar Energy Systems ISE, alternative higher-value applications for silicon metal are also being investigated, especially in lithiumion batteries for electric vehicles, which could lead to further growth in the Silicon Metal business unit going forward.

PCC SE will likewise continue to focus across its chemical-producing segments on the development of higher-value products for customer-specific applications. The holding company is also endeavoring to drive geographic expansion in respect of its core businesses. The commissioning of the production plant of PCG PCC Oxyalkylates in Malaysia in the growth region of Southeast Asia, scheduled for the third quarter, will mark an important milestone for 2023 in this respect. In addition, PCC SE will be examining further investment projects in the future, aligned to both backward and forward integration, the purpose being both to better secure raw material supplies for the PCC Group over the long term, and to extend the value chain as the basis for further growth. The geographic focus going forward is destined to also encompass the USA.

Beyond this, the future issues of sustainability and climate protection and the associated long-term transformation of all production processes will increasingly come to the fore. This will inevitably bring further investments in highly efficient and environmentally friendly production facilities, which in turn will decisively strengthen the future viability of the PCC Group.

As a fundamental principle, PCC SE will continue to pursue its strategy of proactive investment portfolio management and ongoing portfolio optimization. As part of this approach, activities that are not regarded as part of our core business will be gradually divested, with sustainable growth and a continuous increase in enterprise value remaining the key criteria guiding our corporate decision-making.

Duisburg, April 27, 2023
PCC SE

The Executive Board

Dr. Peter Wenzel

Ulrike Warnecke

Dr. rer. oec. (BY) Alfred Pelzer