The focus of the PCC Group in fiscal 2024 will once again be on its predominanly 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 brown-field 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 2024 will again be heavily dependent on future global economic trends. Currently, both the German government and various institutes and banks are predicting that economic output in Germany will only grow very slightly in 2024. In contrast, stronger growth is expected for the European Union and the global economy as a whole, although the rate of rise is likely to be significantly lower than in 2021 and 2022. In its latest forecast
for the German economy in February, the OECD predicted that gross domestic product would only increase by 0.3 % in the current year. Meanwhile, growth of 0.6 % is predicted for the eurozone as a whole, with the USA expected to record a rise in GDP of 2.6 %. According to the OECD, the global economy is actually expected to grow by 2.9 % overall in 2024. Thus, the OECD has slightly increased its November 2023 outlook (2.7 %), at least for the global economy. However, these forecasts are subject to a high degree of uncertainty due to the current crises (including the Russia-Ukraine war, the new Middle East conflict and China’s Taiwan policy). Also highly relevant for our portfolio companies operating in the chemical and silicon metal sectors is the future development of commodity prices.

The IMF has also revised its original growth forecast for Germany downward from 0.9 % to 0.5 % for the current year. In contrast, economic growth of 2.1 % is forecasted for the USA and a rise of 4.6 % is predicted for China. In both cases, the IMF has raised its original forecasts for 2024, but still expects growth to be lower than in the previous year. The IMF’s forecast for the global economy for 2024 has also improved from 2.9 % to 3.1 %. However, this would still leave global economic growth well below the average figure of 3.8 % for recent years. Nevertheless, according to the IMF, the overall picture should be better in 2024 than in the previous year, as many industrialized and emerging countries are proving to be much more resilient than originally assumed.

In its forecast for Germany published in March 2024, the ifo Institute also predicted lower growth of 0.2 % for the current year than forecasted in mid-December 2023, citing the budget crisis as the main reason. The savings now agreed in the federal budget would place a greater burden on companies and households and reduce government spending. An economic recovery is not expected to set in until the second half of 2024. Rising real wage and salary levels and a further fall in inflation are then expected to boost the purchasing power of private households. The expected downturn in interest rates should also have a positive effect. Economic output in 2025 should then exhibit a somewhat stronger upswing. The ifo Institute thus shares the estimates of the OECD and the IMF, which are also forecasting slightly higher growth for the global economy as a whole in 2025.

The current Group budget planning for the years 2024 to 2026, which was prepared for the operating business of the Group companies and affiliates in the period from September to November 2023, assumes a 5 – 10 % increase in sales in 2024 compared to the previous year. This estimate is mainly based on higher sales volumes resulting from, among other things, the commissioning of new production capacities, and the prospect of almost year-round two-furnace silicon metal production operations. At Group level, total earnings before interest/financial result, taxes, depreciation and amortization (EBITDA) are anticipated to be 25 – 30 % higher than in 2023. Here too, the main driver will be volume growth. In contrast, only a moderate increase in selling prices is expected for the most part. Commodity and raw material prices are expected to remain stable in some cases, but a downward trend is also assumed in others. However, European energy prices are expected to remain at a high level. Overheads, including for personnel and external services, should continue to rise in 2024, but will be spread across higher sales volumes. The Chlorine & Derivatives segment is once again expected to make by far the largest contribution to Group EBITDA in 2024, benefiting from a renewed increase in production due to the expected rise in demand for chlorine. As a result, the volume of chlorine by-products will also increase again, although average selling prices, particularly for caustic soda / sodium hydroxide in its various forms, should continue to fall. Overall, earnings in the Chlorine & Derivatives segment will therefore remain below the level of the previous year.

For the Polyols & Derivatives segment, we anticipate a positive result in 2024 slightly exceeding that of the previous year. The expected ongoing competitive pressure from China and the commissioning of new production capacities by a European competitor (originally planned for 2023) are likely to have a negative impact on sales and earnings. However, the expected significant improvement in performance in the area of polyols-based specialty products will have an offsetting effect. By contrast, the Surfactants & Derivatives segment expects to improve on the previous year’s good performance in 2024 due to higher capacities coming on stream and the increasing proportion of products with higher margins, particularly for industrial applications. This applies in particular to PCC Exol SA. A positive result is also again anticipated for 2024 for the Consumer Products business managed within this segment – due, among other things, to the continuing high demand for private label products and the investments made in the past fiscal year in the increasing automation of production processes.

The dominant company in the Silicon & Derivatives segment, PCC BakkiSilicon hf., expects to be operating both its furnaces virtually throughout 2024. Due to the current market situation already described in the segment report, average selling prices have shown an upward trend in recent months. By contrast, raw material purchase prices, including the price of coal, have fallen. This also applies to the fixed costs per ton of silicon metal, as only slightly more personnel are required for a two-furnace operation. It is difficult to predict how sustainable this positive trend will be. Nevertheless, PCC BakkiSilicon hf. should be able to significantly improve its results in 2024 compared to the past fiscal year and generate at least marginal cash surpluses in the course of the year.

The commodity trading business managed in the Trading & Services segment is expected to generate positive earnings, with sales revenues remaining flat in 2024. The intermodal transport business should be able to improve its results again in 2024 as a consequence of rising transport and transshipment volumes. Taking these developments into account, it should be possible to increase Group EBITDA by 25 – 30 % year on year.

Based on higher EBITDA, consolidated earnings before taxes (EBT) are expected to improve by a low double-digit million euro figure compared to the previous year. Overall, however, EBT is unlikely to pass the break-even point in this current fiscal year. This is because depreciation, amortization and the interest burden will continue to increase in 2024 compared to the previous year as a result of the planned investments and the general rise in interest rates.

This analysis does not include the negative effects of a further escalation of the Russia-Ukraine war or the Middle East conflict, as these eventualities cannot be adequately assessed at present. This also applies to the potential impact of any renewed transportation and supply chain problems resulting from these conflicts.

For subsequent years, we anticipate rising expenses for personnel and external services, among other costs. In contrast, a normalization and thus a decline in prices is anticipated for the energy market. Depreciation will increase again due to the realization of further investments. Assuming that the economy continues to pick up, we expect demand to increase and selling prices to rise again in 2025. Sales volumes should also continue to rise as a result of the capacity expansions that will have been implemented by then. Earnings at EBITDA and EBT level should therefore be appreciably higher in 2025. It is likely, therefore, that PCC SE can expect dividend payments in the double-digit million euro range beyond 2025, with little significant change in its net debt. However, a temporary increase in the EBITDA to net debt leverage ratio above the target level of 5.0 is expected for the PCC Group in 2024 due to planned capital expenditures. The leverage target is unlikely to be hit until 2025 when Group EBITDA is expected to exhibit a substantial rise.

Both in 2024 and in subsequent years, PCC SE’s business activities will be aligned primarily to long-term corporate investment and development. One focus will again be on supporting PCC BakkiSilicon hf. in optimizing its production process and further improving its earnings situation. In addition, in collaboration with the Fraunhofer Institute for Solar Energy Systems ISE, among others, alternative higher-value applications for silicon metal, particularly in lithium-ion batteries for electric cars, are being investigated that could lead to further growth in the Silicon & Derivatives segment in the future. To secure the long-term success of the Silicon & Derivatives segment, work is also now underway on the backward integration of PCC BakkiSilicon hf. through, for example, the increasing use of sustainable charcoal. This is because charcoal is more effective than the hard coal that has been predominantly used to date. It also reduces the CO2 footprint of silicon metal production and increases the attractiveness of our silicon metal as an additional climate protection factor. Together with its Icelandic electricity supplier, PCC Bakki-Silicon hf. is also investigating the establishment of a green methanol production facility based on the CO2 generated during silicon metal production, together with a green hydrogen production capability.

In its chemical-producing segments, the PCC Group will continue to realign across all businesses to the development of higher-value products for customer-specific applications. The Group is also focusing on geographical expansion in respect of its core business. With the start of the commissioning phase of the production plant in Malaysia in 2023, an important milestone was reached in the growth region of Southeast Asia. In addition, the PCC Group will be examining further investment projects in the future, with both backward and forward integration in mind, thus meeting the twin aims of securing the long-term supply of raw materials and of extending the value chain as a further basis for growth. Geographically, the focus will also be on the USA going forward.

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 29, 2024
PCC SE

The Executive Board

Dr. Peter Wenzel

Ulrike Warnecke

Dr. rer. oec. (BY) Alfred Pelzer