The future economic development of the PCC Group is heavily dependent
on further economic trends, not only in our main sales
markets in Europe but also worldwide. The further development of
energy prices and inflation as a whole will also play a major role.
Further details can be found in the section “Outlook for fiscal 2025
and beyond”.
The ongoing Russia-Ukraine war poses a not inconsiderable political risk for the PCC Group that lies outside our sphere of influence. A further escalation of the war could result in renewed transportation and supply chain problems. The continued existence of our remaining investments in Russia could also be jeopardized. However, this is not expected at the time of preparing this management report. In relation to the total assets of the PCC Group, the proportion of Russian assets is also only in the low single-digit percentage range. In addition to a further escalation of the Russia-Ukraine war, the Middle East conflict, which broke out again in October 2023 and is already causing transport and supply chain problems in the Suez Canal and the Red Sea, could likewise have a negative impact on the global economy. This also applies to a possible escalation of the conflict between China and Taiwan. Similar restrictions on global economic activity could also arise in the context of any new pandemics. Since January 2025, a new president has been in office in the USA, whose decisions, for example with regard to new tariffs, cannot yet be conclusively assessed at the time of preparing this management report. Due to the many current uncertainties, the overall financial impact on the PCC Group cannot be specifically estimated.
A new Bundestag (parliament) was elected in Germany in February 2025. With the swift formation of a new government, PCC believes that confidence in political decisions in Germany and clear communication on the part of the responsible politicians must again prevail. Immediate measures to stabilize the energy supply, a reduction in bureaucracy and measures to boost investment all need to be adopted. We welcome the balanced budget amendment known as Germany’s “debt brake” and thus the opportunity to invest a significant volume in German infrastructure over the next twelve years. At the same time, we demand that this additional debt be invested in a targeted and well-managed manner. This is because, supplemented by additional funds from the European Union, such measures might actually trigger a significant demand pull that could jeopardize the inflation targets.
The “European Green Deal” and the “Fit for 55” package of measures adopted by the EU Commission in July 2021 represent a further challenge. The aim of implementing these measures is to achieve the European climate targets by 2055. In addition, the new sustainability reporting obligations are to become mandatory for a large number of European companies from the 2025 financial year. The PCC Group welcomes the concessions and simplifications for reporting entities published in February 2025. We also welcome the postponement of the introduction of mandatory reporting. For the European chemical industry and thus for large parts of the PCC Group, the associated requirements represent a far-reaching transformation of their production processes, which will entail considerable additional costs that cannot yet be specifically estimated. This could also have a negative impact on the future dividend inflows of the Group holding company. At the same time, this transformation and the associated introduction of innovative processes, the development of which the PCC Group is working on at several levels, will open up further growth opportunities in the future. However, one of the main risks lies in the European Union going it alone, which would result in significant competitive disadvantages for producers in the EU with, for example, producers in the USA or Asia having to comply with fewer or no requirements or price regimes such as CO2 taxes.
PCC’s chemical-producing segments are also exposed to the risk of rising environmental protection costs as a result of the tightening of waste, wastewater and other environmental regulations across Europe. Potentially resulting investment obligations could in future have a negative impact on the earnings position of these segments and thus also on the PCC Group as a whole. The same applies to any additional expenses that may arise in connection with the EU’s REACH regulation (Regulation concerning the Registration, Evaluation and Authorization of Chemicals). REACH-like regulations are also currently being planned or are already being implemented by other countries. This applies to Türkiye, the USA and some Asian countries, among others. It remains to be seen what consequences this will have for the further development of the PCC Group.
Further risks exist relating to the supply of strategically important raw materials, particularly for the business areas in the chemical-producing and Silicon & Derivatives segments. The number of suppliers for these feedstocks has already fallen in recent time and is being further reduced by trade conflicts or sanctions. Fortunately, the PCC Group was able to conclude a long-term offtake agreement with the most important supplier of the key feedstock ethylene oxide as early as 2021, although this will entail considerable investments on the PCC side both now and in the coming fiscal year. In the long term, these investments will contribute to the further growth of our chemicals activities.
Other indirect factors that can affect the performance of our segments include price change and default risks. These risks should be eliminated as far as possible by taking out trade credit insurance. Price change risks are countered by concluding back-to-back transactions, by means of price formulas and / or by price hedging.
In addition, both PCC SE as a holding company and the operating business areas are exposed to interest rate and foreign exchange risks that can be at least partially reduced by hedging. The exchange rate and foreign currency risk of the PCC Group could be significantly reduced by the introduction of the euro as the official currency in Poland. However, this is not to be expected in the short term.
Further risks may arise from changes to legal or regulatory provisions. For example, current tax law is subject to constant change, including in its administrative application. Future changes to the law and deviating interpretations of the law by the tax authorities or courts cannot be ruled out. This could possibly result in higher tax burdens for the companies of the PCC Group in Germany and abroad.
Negative effects may also result from subsequent changes in the assessment of government support measures and any associated repayment claims. For example, the European Commission examined whether the financial assistance granted directly by the Polish government to PCC MCAA Sp. z o.o. in 2012 and 2013 amounting to the equivalent of around € 16 million was compatible with EU regulations on regional state aid. The financial assistance received was declared correct in February 2025, meaning there should be no clawback ruling against PCC. The matter is therefore considered closed. Similar scenarios cannot be ruled out in the future.
Some Group companies are also confronted with the increasing obsolescence of their assets. This applies in particular to the production facilities of PCC Synteza S.A. As their heavy-duty utilization continues, expenses for maintenance and repair increase, as does the risk of breakdowns and production stoppages.
In our financial planning, we assume that the holding company will continue to receive regular inflows of liquidity from the issuance of corporate bonds in the future. Any obstacles in the market segment for bonds in Germany could lead to liquidity bottlenecks, at least temporarily. We are therefore working continuously to replace the liquidity loans granted to subsidiaries with local bank loans. In addition, any new major projects will only be implemented if appropriate project financing can be secured. In addition to corporate bonds, the development of alternative sources of financing at the institutional level will also be considered in the long term. The latter requires a stable level of indebtedness. At Group level, the aim is to achieve and maintain a leverage ratio of less than 5.0, with ever lower values desirable.
In addition to the financing risk, there are various other risks associated with projects during the planning and construction phases, such as technical, rights ownership or approval risks. Furthermore, it cannot be ruled out that external market conditions may change during the implementation phase and that market developments may not pan out as originally expected. Despite the most careful analysis, an investment project can therefore be significantly delayed or generate a much lower return than planned. The complete failure of a project and thus a total loss of the capital invested by the Group holding company or one of its subsidiaries likewise cannot be ruled out. Depending on the size of the project, this could have a significant negative impact on the liquidity situation. For this reason, the Group holding company will continue to aim for project financing that is based on the viability of the respective project.
Last but not least, the PCC Group is also exposed to personnel risks. The possible departure of key individuals, including from management or from the research and development team, and the associated loss of, for example, long-standing contacts, industry experience or know-how, could potentially have at least a temporary negative impact on the continuation of business activities. In addition, the considerable influence of the sole shareholder of PCC SE may entail a higher risk of poor entrepreneurial decisions than would be the case with a more broadly diversified ownership structure. This risk was reduced in 2021 with the change from a monistic to a dualistic governance system in the Group holding company, thereby strengthening the position of the holding company’s operational management. Notwithstanding this reorganization, the sole shareholder, who is also Chairman of the Supervisory Board of PCC SE, remains in close and accessible proximity, thus maintaining the ability to react quickly and flexibly to new investment opportunities and to align activities in a timely fashion to the continued sustainable growth of the PCC Group.
The increasing focus on higher-value products and the diversification of sales markets currently being implemented represent, in the view of management, the main opportunities for the future growth of the PCC Group. In addition, there will be further investments in modernization and expansion aimed at both backward and forward integration. In this way, we aim firstly to further expand our market position in the individual segments, and secondly to enhance our sustainability and secure our future viability by investing in efficient and environmentally friendly production facilities. In the long term, the PCC Group should benefit from these investments in the form of rising profits. Additional earnings potential could arise from the sale of non-core activities or market-ready projects and affiliates.
The ongoing Russia-Ukraine war poses a not inconsiderable political risk for the PCC Group that lies outside our sphere of influence. A further escalation of the war could result in renewed transportation and supply chain problems. The continued existence of our remaining investments in Russia could also be jeopardized. However, this is not expected at the time of preparing this management report. In relation to the total assets of the PCC Group, the proportion of Russian assets is also only in the low single-digit percentage range. In addition to a further escalation of the Russia-Ukraine war, the Middle East conflict, which broke out again in October 2023 and is already causing transport and supply chain problems in the Suez Canal and the Red Sea, could likewise have a negative impact on the global economy. This also applies to a possible escalation of the conflict between China and Taiwan. Similar restrictions on global economic activity could also arise in the context of any new pandemics. Since January 2025, a new president has been in office in the USA, whose decisions, for example with regard to new tariffs, cannot yet be conclusively assessed at the time of preparing this management report. Due to the many current uncertainties, the overall financial impact on the PCC Group cannot be specifically estimated.
A new Bundestag (parliament) was elected in Germany in February 2025. With the swift formation of a new government, PCC believes that confidence in political decisions in Germany and clear communication on the part of the responsible politicians must again prevail. Immediate measures to stabilize the energy supply, a reduction in bureaucracy and measures to boost investment all need to be adopted. We welcome the balanced budget amendment known as Germany’s “debt brake” and thus the opportunity to invest a significant volume in German infrastructure over the next twelve years. At the same time, we demand that this additional debt be invested in a targeted and well-managed manner. This is because, supplemented by additional funds from the European Union, such measures might actually trigger a significant demand pull that could jeopardize the inflation targets.
The “European Green Deal” and the “Fit for 55” package of measures adopted by the EU Commission in July 2021 represent a further challenge. The aim of implementing these measures is to achieve the European climate targets by 2055. In addition, the new sustainability reporting obligations are to become mandatory for a large number of European companies from the 2025 financial year. The PCC Group welcomes the concessions and simplifications for reporting entities published in February 2025. We also welcome the postponement of the introduction of mandatory reporting. For the European chemical industry and thus for large parts of the PCC Group, the associated requirements represent a far-reaching transformation of their production processes, which will entail considerable additional costs that cannot yet be specifically estimated. This could also have a negative impact on the future dividend inflows of the Group holding company. At the same time, this transformation and the associated introduction of innovative processes, the development of which the PCC Group is working on at several levels, will open up further growth opportunities in the future. However, one of the main risks lies in the European Union going it alone, which would result in significant competitive disadvantages for producers in the EU with, for example, producers in the USA or Asia having to comply with fewer or no requirements or price regimes such as CO2 taxes.
PCC’s chemical-producing segments are also exposed to the risk of rising environmental protection costs as a result of the tightening of waste, wastewater and other environmental regulations across Europe. Potentially resulting investment obligations could in future have a negative impact on the earnings position of these segments and thus also on the PCC Group as a whole. The same applies to any additional expenses that may arise in connection with the EU’s REACH regulation (Regulation concerning the Registration, Evaluation and Authorization of Chemicals). REACH-like regulations are also currently being planned or are already being implemented by other countries. This applies to Türkiye, the USA and some Asian countries, among others. It remains to be seen what consequences this will have for the further development of the PCC Group.
Further risks exist relating to the supply of strategically important raw materials, particularly for the business areas in the chemical-producing and Silicon & Derivatives segments. The number of suppliers for these feedstocks has already fallen in recent time and is being further reduced by trade conflicts or sanctions. Fortunately, the PCC Group was able to conclude a long-term offtake agreement with the most important supplier of the key feedstock ethylene oxide as early as 2021, although this will entail considerable investments on the PCC side both now and in the coming fiscal year. In the long term, these investments will contribute to the further growth of our chemicals activities.
Other indirect factors that can affect the performance of our segments include price change and default risks. These risks should be eliminated as far as possible by taking out trade credit insurance. Price change risks are countered by concluding back-to-back transactions, by means of price formulas and / or by price hedging.
In addition, both PCC SE as a holding company and the operating business areas are exposed to interest rate and foreign exchange risks that can be at least partially reduced by hedging. The exchange rate and foreign currency risk of the PCC Group could be significantly reduced by the introduction of the euro as the official currency in Poland. However, this is not to be expected in the short term.
Further risks may arise from changes to legal or regulatory provisions. For example, current tax law is subject to constant change, including in its administrative application. Future changes to the law and deviating interpretations of the law by the tax authorities or courts cannot be ruled out. This could possibly result in higher tax burdens for the companies of the PCC Group in Germany and abroad.
Negative effects may also result from subsequent changes in the assessment of government support measures and any associated repayment claims. For example, the European Commission examined whether the financial assistance granted directly by the Polish government to PCC MCAA Sp. z o.o. in 2012 and 2013 amounting to the equivalent of around € 16 million was compatible with EU regulations on regional state aid. The financial assistance received was declared correct in February 2025, meaning there should be no clawback ruling against PCC. The matter is therefore considered closed. Similar scenarios cannot be ruled out in the future.
Some Group companies are also confronted with the increasing obsolescence of their assets. This applies in particular to the production facilities of PCC Synteza S.A. As their heavy-duty utilization continues, expenses for maintenance and repair increase, as does the risk of breakdowns and production stoppages.
In our financial planning, we assume that the holding company will continue to receive regular inflows of liquidity from the issuance of corporate bonds in the future. Any obstacles in the market segment for bonds in Germany could lead to liquidity bottlenecks, at least temporarily. We are therefore working continuously to replace the liquidity loans granted to subsidiaries with local bank loans. In addition, any new major projects will only be implemented if appropriate project financing can be secured. In addition to corporate bonds, the development of alternative sources of financing at the institutional level will also be considered in the long term. The latter requires a stable level of indebtedness. At Group level, the aim is to achieve and maintain a leverage ratio of less than 5.0, with ever lower values desirable.
In addition to the financing risk, there are various other risks associated with projects during the planning and construction phases, such as technical, rights ownership or approval risks. Furthermore, it cannot be ruled out that external market conditions may change during the implementation phase and that market developments may not pan out as originally expected. Despite the most careful analysis, an investment project can therefore be significantly delayed or generate a much lower return than planned. The complete failure of a project and thus a total loss of the capital invested by the Group holding company or one of its subsidiaries likewise cannot be ruled out. Depending on the size of the project, this could have a significant negative impact on the liquidity situation. For this reason, the Group holding company will continue to aim for project financing that is based on the viability of the respective project.
Last but not least, the PCC Group is also exposed to personnel risks. The possible departure of key individuals, including from management or from the research and development team, and the associated loss of, for example, long-standing contacts, industry experience or know-how, could potentially have at least a temporary negative impact on the continuation of business activities. In addition, the considerable influence of the sole shareholder of PCC SE may entail a higher risk of poor entrepreneurial decisions than would be the case with a more broadly diversified ownership structure. This risk was reduced in 2021 with the change from a monistic to a dualistic governance system in the Group holding company, thereby strengthening the position of the holding company’s operational management. Notwithstanding this reorganization, the sole shareholder, who is also Chairman of the Supervisory Board of PCC SE, remains in close and accessible proximity, thus maintaining the ability to react quickly and flexibly to new investment opportunities and to align activities in a timely fashion to the continued sustainable growth of the PCC Group.
The increasing focus on higher-value products and the diversification of sales markets currently being implemented represent, in the view of management, the main opportunities for the future growth of the PCC Group. In addition, there will be further investments in modernization and expansion aimed at both backward and forward integration. In this way, we aim firstly to further expand our market position in the individual segments, and secondly to enhance our sustainability and secure our future viability by investing in efficient and environmentally friendly production facilities. In the long term, the PCC Group should benefit from these investments in the form of rising profits. Additional earnings potential could arise from the sale of non-core activities or market-ready projects and affiliates.
