Letter from the CEO

A number of global developments led to the world economy weakening significantly in fiscal 2023. Russia’s ongoing inhumane attack on Ukraine, the conflicts in the Middle East, and China’s increasing economic and geopolitical aggression have had a particularly strong impact on Europe’s economy and thus PCC’s most important market – with inflation, interest rate and energy cost movements adding to the continent’s woes.

After record results in 2021 and 2022, PCC – like so many other market protagonists – was unable to avoid the impact of such developments. With
sales coming in at 993.6 million euros, operating profit before and after depreciation and amortization at 112.3 and 33.4 million euros respectively,
and with a negative pre-tax earnings result of – 20.8 million euros, all our key financials were appreciably lower year on year, keeping PCC “on trend” with the industries and markets in which we operate.

Such a challenging environment inevitably demands considerable additional
effort from our highly qualified and motivated employees. So, on behalf of the management of PCC SE, I would like to express my heartfelt thanks to our entire workforce. We can be proud of the high levels of energy and creativity that we are investing in constantly developing our company while preparing for the future with efficiency gains, innovations and strategic foresight.

With the exception of the Trading & Services segment, the results of all PCC segments were down on the record year 2022. The Chlorine business saw its EBITDA halved to 100.0 million euros. The fact that a significant contribution to earnings was made here despite the high energy costs is attributable to the systematic restructuring and expansion of our chlor-alkali electrolysis capability into a thoroughly efficient and environmentally compatible plant technology.

Energy, raw materials and labor are expensive in Europe by global standards, and high regulatory requirements are currently leading to further competitive disadvantages. PCC is counteracting this through continuous cost and efficiency optimization programs, as well as through the ongoing further development of our portfolio of basic and specialty chemicals, which already comprises over 1,300 products. Our aim is to create greater customer benefit and thus stronger customer loyalty combined with a gradual move away from competitive commodity markets.

In view of intensifying, sometimes unfair competition from the Far East, there is increasing public concern that Europe’s domestic industries need protection against such influences. PCC is particularly affected in the silicon business, where cheap imports from China based on incomparable occupational safety, environmental and social standards continue to determine the price level in Europe. However, we are also observing enormous export pressure for polyols and ethoxylates, with the massive overcapacities being built up in China, in some cases as a result of government support, coupled with weak domestic demand, unleashing a sometimes ruinous price war. The parallels with the automotive and photovoltaic industries are obvious.

PCC is calling for an industrial policy that is more closely aligned with our values, for example through much stricter regulation to prevent human rights violations in supply chains. In this respect, Europe is clearly lagging behind the USA, where, for example, targeted import bans have been imposed on solar modules and other products from the north-western Chinese province of Xinjiang due to the forced labor observed there.

In special cases, even the imposition of punitive tariffs appears unavoidable. Our Phosphorus & Derivatives business unit has succeeded in an elaborate process lasting several years, conducted together with other European producers, in ensuring that import duties of 45 to 68 percent are now levied at EU level on certain products (TCPP and TEC) from various Chinese manufacturers.

In some areas, such measures are necessary in order to avoid the deindustrialization of Europe and the associated increase in our society’s dependence on certain export regions. For example, it is incomprehensible to us that up to 98 percent of the photovoltaic production that is so important for implementing the energy transition takes place in China. Electricity is part of the strategic infrastructure and will increasingly be generated from solar energy in the future. The investments in this sector will be immense, but the value creation it entails will largely elude Europe. With its highly efficient silicon plant in Iceland, PCC can offer a cornerstone for building this industry, but it is virtually unprotected against competition from China. There is an urgent need for a level playing field and a more strategic orientation of European economic policy.

The Icelandic company PCC BakkiSilicon hf. has been producing at full capacity again since January 2024, while due to the demand situation only one of the two electric arc furnaces was in operation for more than ten months in 2023. The aim in the second half of 2024 is to cover production costs, to be achieved through continuous optimization of silicon yield and our cost position.

PCC’s forward-looking approach is also reflected in another 23-percent year-on-year increase in capex to a total of 142.5 million euros for fiscal 2023. The value of our investment portfolio of affiliates amounted to 1.2 billion euros as at December 31, 2023 – around 7 percent higher than in the previous year.

Our investments are focused on the expansion of our core businesses involving polyols, surfactants and chlor-alkali electrolysis in Europe, Asia and North America. In Poland, our most important affiliates PCC Rokita SA and PCC Exol SA are investing in the doubling of their ethylene oxide- and propylene oxide-based production capacities. This will significantly improve purchasing conditions and our market positions in our domestic markets. The capacity of our chlor-alkali plant in Brzeg Dolny (Poland) is also currently being increased with an investment in two additional electrolyzers, which will enable more variable production and thus intensify our participation in the lucrative electricity balancing market.

The oxyalkylates plant of our joint venture with PETRONAS Chemicals Group in Kerteh (Malaysia) was completed almost without any schedule or cost overruns. The only minor delays related to the provision of two primary input products at the site. On the market side, however, it can also be seen here that Southeast Asia in particular is affected by dumping exports from China, which is why sales are currently being focused on higher-margin markets.

It has long been apparent that the North American economy is becoming more resilient to the global influences described above due to favorable energy and raw material costs, as well as an economic policy that is more clearly focused on the needs of domestic industry. For this reason, we are paying particular attention to expanding our activities in this region. In addition to PCC Chemicals Corporation, which is responsible for the development of oxyalkylate production, we established a further US project company on February 29, 2024: PCC GulfChem Corporation. Its aim is to expand PCC’s successful integrated chlorine chemicals business into North America. A potential production site in the US Gulf Coast region with excellent infrastructure has been secured for this purpose. We are already expanding our sales activities with new local experts, and our products from Europe and Asia are currently being pre-marketed there in preparation for our planned local capacity expansion. This brings us closer to our goal of being able to offer our global business partners the high product quality and service standards of the PCC companies in the world’s most important markets.

We are particularly proud of the evolution of our research and development activities and the enormous commitment with which the more than 300 employees in our various quality assurance and R&D laboratories, together with their colleagues from the business units, are driving forward a wide range of product innovations. PCC Rokita SA and PCC Exol SA alone launched over 60 new products onto the market in 2023, with a further 150 under development. The successful commissioning of the new R&D center at our Brzeg Dolny site with state-of-the-art equipment on an area of over 6,000 m² is a significant milestone for this business domain and a flagship for the entire PCC Group.

In the important battery business, too, our affiliate PCC Thorion GmbH is working in cooperation with various research institutes, including Fraunhofer ISE in Freiburg (Germany), to develop a highly efficient nanosilicon-carbon anode material and the electrolyte additives tailored to it. The newly founded PCC ChloroSilanes Sp. z o.o. will also be playing a role here with its parallel research into the production of silicon nanopowders in a plasma process based on chlorosilanes. In December 2023, this company acquired the technology and plant components for chlorosilane production. The production plant is to be built at our main site in Poland and will combine our expertise in chlorine and silicon production.

It is our duty to shape the growth of PCC’s various businesses in a responsible and sustainable manner. Our investment projects therefore always make use of advanced, resource-efficient technology. We are also developing climate protection projects, for example for the production of green methanol from locally produced, climate-neutral hydrogen and the CO2 content of the waste gas stream from our silicon plant in Iceland, as well as various products based on biogenic raw materials. However, the feasibility of such projects depends on the willingness of potential customers to accept certain additional costs for climate-neutral production, and this willingness is still limited in the currently constrained economic climate.

Our affiliate PCC Intermodal S.A. with its environmentally friendly intermodal container transportation business is also very much at the forefront of the trend toward sustainability. With currently five transshipment terminals in Poland and Germany, and its own container freight cars and locomotives, it is facilitating the shift of transportation from road to rail, thereby making a significant contribution to reducing CO2 emissions in the transport sector. And the company is also pushing forward with its investment in three new container terminals.

We at PCC see it as our responsibility to harness the opportunities arising in our business environment in an agile and creative manner – always combined with conservative risk management, a resource-conserving approach and reliable, honest cooperation with our partners.

I would like to thank our investors and business partners for the trust they have placed in us – a valuable asset, not only in business life, which fills us with pride and confidence as we countenance the challenges ahead!

Sincerely yours,

Peter Wenzel
Chief Executive Officer of PCC SE