The future business performance of the PCC Group is heavily dependent on further economic developments, not only in our main sales markets in Europe but worldwide. The future development of energy prices and inflation as a whole will also play a major role. Further details on this can be found in the section “Outlook for fiscal 2026 and beyond.”
The ongoing war between Russia and Ukraine poses a significant political risk to the PCC Group that is beyond our control. A further escalation of the war could lead to renewed transportation and supply chain issues. Our remaining investments in Russia could also potentially be at risk. However, this is not expected at the time of writing this management report. Furthermore, Russian assets account for only a low single-digit percentage of the PCC Group’s total assets. In addition to a further escalation of the Russia-Ukraine war, worsening developments in the recent Iran conflict would pose risks. Depending on the intensity, duration, or scale of this crisis, the impact on the PCC Group’s financial results could vary significantly; while negative effects such as supply chain disruptions or shortages of raw materials are possible, opportunities could also arise. This likewise applies to potential escalations of the conflicts between China and Taiwan and others in the Middle East. Similar restrictions on global economic activity could also arise in the context of potential new pandemics. The sometimes contradictory tariff decisions of the US administration, which has been in office since January 2025, have also led to uncertainty and concern in international trade policy. Due to the many current imponderables, the financial impact on the PCC Group as a whole cannot currently be accurately estimated.
In Germany, the economic situation remained tense despite the reform efforts of the federal government in office since May 2025. In 2025, Germany recorded sluggish economic growth of 0.2 %, lagging behind many other industrialized nations. A decisive reduction in bureaucracy – and the more efficient administration that this would bring – as well as the rapid provision of special funds for investment in infrastructure and the economy are urgently needed. Supplemented by additional funds from the European Union, this could even trigger a significant surge in demand.
The so-called “European Green Deal” and the “Fit for 55” package of measures adopted by the European Commission in July 2021 pose a further challenge for the European economy. Their implementation is intended to ensure that European climate targets are met by 2055. In addition, the new sustainability reporting requirements are set to become mandatory for a large number of European companies starting in the 2025 fiscal year. While the PCC Group welcomes the relief and simplifications to reporting requirements published in February 2025, as well as their delayed implementation, these measures still entail a far-reaching transformation of production processes for the European chemical industry – and thus for large parts of the PCC Group – which will result in significant additional costs that cannot yet be precisely estimated. This could also have a negative impact on the Group holding company’s future dividend flows. At the same time, this transformation and the associated introduction of innovative processes – which the PCC Group is working to develop on multiple levels – will open up further growth opportunities in the future. One of the key risks, however, lies in the European Union acting unilaterally, which would result in significant competitive disadvantages for producers in the EU if, for example, producers in the USA or Asia were subject to fewer or no regulations or pricing regimes such as CO2 taxes.
Furthermore, the chemical-producing segments face the risk of rising environmental protection costs in the wake of increasingly stringent waste, wastewater, and other environmental regulations across Europe. Any resulting investment obligations could have a negative impact on the earnings of these businesses and, consequently, on the entire PCC Group in the future. The same applies to any additional expenses that may arise in connection with the EU’s REACH regulation (on the Registration, Evaluation, and Authorization of Chemicals). Regulations similar to REACH are currently being planned by other countries or are already being implemented. This applies, among others, to Türkiye, the USA, and several Asian countries. It remains to be seen what consequences this will have for the future development of the PCC Group.
In particular, the business areas of the chemical-producing segments and the Silicon & Derivatives segment also face risks regarding the supply of strategically important raw materials. The number of suppliers for these raw materials was already limited in the past and is being further reduced by trade conflicts or sanctions. Fortunately, the PCC Group was able to conclude a long-term supply contract as early as 2021 with the most important supplier of the key feedstock ethylene oxide. The PCC Group is also investing heavily in new chemical installations at its Brzeg Dolny site and in modernizing local production facilities to fulfill the associated offtake conditions. In the long term, these investments will contribute to the further growth of our chemical business activities.
Other indirect factors that could adversely affect the performance of our segments include price fluctuation and credit risks. We aim to eliminate these risks as far as possible through the purchase of trade credit insurance. Price fluctuation risks are mitigated through back-to-back transactions, price formulas, and/or price hedging.
In addition, both PCC SE as a holding company and the operating business units face interest rate and foreign exchange risks, which can be reduced, at least in part, through hedging. The foreign exchange risk within the PCC Group could be significantly reduced by the introduction of the euro as the official currency in Poland. However, this is not expected in the short term. The PCC Group primarily hedges its foreign currency positions using forwards.
Further risks may arise from changes in legal or regulatory frameworks. For example, current tax law, including its administrative application, is subject to constant change. Future legislative changes, as well as differing interpretations of the law by tax authorities or courts, cannot be ruled out. This could potentially result in higher tax burdens for the companies of the PCC Group both in Germany and abroad.
Negative effects may also arise from subsequent changes in the assessment of government subsidies and from any associated clawback demands. For example, the European Commission examined whether the financial assistance totaling the equivalent of approximately € 16 million granted directly to PCC MCAA Sp. z o.o. by the Polish government in 2012 and 2013 was compatible with EU regulations on state regional aid. The financial aid received was deemed correct in February 2025, meaning that there are no grounds for any repayment claim against PCC. The matter is therefore considered closed. However, similar scenarios cannot be ruled out in the future.
In addition, some Group companies are facing the increasing obsolescence of their assets. This applies in particular to the production facilities of PCC Synteza S.A. With continued intensive use, maintenance and repair costs rise, as does the risk of breakdowns and production downtime.
In our financial planning, we continue to anticipate regular cash inflows from the issuance of corporate bonds by the holding company. Any disruptions in the German bond market could potentially lead to liquidity bottlenecks, at least temporarily. Therefore, we are continuously working to replace the liquidity loans granted to affiliated companies with local bank loans. Furthermore, any new major projects are to be implemented only if appropriate project financing can be secured. In addition to corporate bonds, the development of alternative financing sources at the institutional level is also being considered for the long term. The latter requires a stable debt-to-equity ratio. At the Group level, the target is a ratio of less than 5.0, which is to be consistently achieved over the long term and serve as an upper limit.
In addition to financing risk, projects are subject to various other risks during the planning and construction phases, such as technical, property rights-related or regulatory risks. Furthermore, external market conditions may change during the implementation phase and market developments may not unfold as originally anticipated. Despite the most careful review, an investment project may therefore be significantly delayed or generate a substantially lower return than projected. A complete failure of a project and thus a total loss of the capital invested by the Group holding company or one of its affiliates can likewise not be ruled out. Depending on the size of the project, this could have significant negative effects on the liquidity situation. Therefore, the Group holding company will continue to strive for project financing that is based as far as possible on the viability of the respective project.
Last but not least, the PCC Group also faces personnel risks. The potential departure of key individuals, including those from management or the research and development team, and the associated loss of, for example, long-standing contacts, industry experience, or know-how could, under certain circumstances, have at least a temporary negative impact on the continuation of business operations. 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.
From the management’s perspective, the increasing focus on higher-value products and the ongoing diversification of sales markets represent the key opportunities for the future growth of the PCC Group. In addition, there are further modernization and expansion investments in the planning pipeline aimed at both backward and forward integration. Through these, we aim to further expand our market position in the individual segments, to increase our sustainability and to secure our future viability by investing in efficient and environmentally friendly production facilities. The PCC Group is expected to benefit from the revenue increases resulting from these investments in the long term, and thus to rising earnings. Additional earnings potential could also arise from the sale of non-core activities or market-ready projects and investments.
The ongoing war between Russia and Ukraine poses a significant political risk to the PCC Group that is beyond our control. A further escalation of the war could lead to renewed transportation and supply chain issues. Our remaining investments in Russia could also potentially be at risk. However, this is not expected at the time of writing this management report. Furthermore, Russian assets account for only a low single-digit percentage of the PCC Group’s total assets. In addition to a further escalation of the Russia-Ukraine war, worsening developments in the recent Iran conflict would pose risks. Depending on the intensity, duration, or scale of this crisis, the impact on the PCC Group’s financial results could vary significantly; while negative effects such as supply chain disruptions or shortages of raw materials are possible, opportunities could also arise. This likewise applies to potential escalations of the conflicts between China and Taiwan and others in the Middle East. Similar restrictions on global economic activity could also arise in the context of potential new pandemics. The sometimes contradictory tariff decisions of the US administration, which has been in office since January 2025, have also led to uncertainty and concern in international trade policy. Due to the many current imponderables, the financial impact on the PCC Group as a whole cannot currently be accurately estimated.
In Germany, the economic situation remained tense despite the reform efforts of the federal government in office since May 2025. In 2025, Germany recorded sluggish economic growth of 0.2 %, lagging behind many other industrialized nations. A decisive reduction in bureaucracy – and the more efficient administration that this would bring – as well as the rapid provision of special funds for investment in infrastructure and the economy are urgently needed. Supplemented by additional funds from the European Union, this could even trigger a significant surge in demand.
The so-called “European Green Deal” and the “Fit for 55” package of measures adopted by the European Commission in July 2021 pose a further challenge for the European economy. Their implementation is intended to ensure that European climate targets are met by 2055. In addition, the new sustainability reporting requirements are set to become mandatory for a large number of European companies starting in the 2025 fiscal year. While the PCC Group welcomes the relief and simplifications to reporting requirements published in February 2025, as well as their delayed implementation, these measures still entail a far-reaching transformation of production processes for the European chemical industry – and thus for large parts of the PCC Group – which will result in significant additional costs that cannot yet be precisely estimated. This could also have a negative impact on the Group holding company’s future dividend flows. At the same time, this transformation and the associated introduction of innovative processes – which the PCC Group is working to develop on multiple levels – will open up further growth opportunities in the future. One of the key risks, however, lies in the European Union acting unilaterally, which would result in significant competitive disadvantages for producers in the EU if, for example, producers in the USA or Asia were subject to fewer or no regulations or pricing regimes such as CO2 taxes.
Furthermore, the chemical-producing segments face the risk of rising environmental protection costs in the wake of increasingly stringent waste, wastewater, and other environmental regulations across Europe. Any resulting investment obligations could have a negative impact on the earnings of these businesses and, consequently, on the entire PCC Group in the future. The same applies to any additional expenses that may arise in connection with the EU’s REACH regulation (on the Registration, Evaluation, and Authorization of Chemicals). Regulations similar to REACH are currently being planned by other countries or are already being implemented. This applies, among others, to Türkiye, the USA, and several Asian countries. It remains to be seen what consequences this will have for the future development of the PCC Group.
In particular, the business areas of the chemical-producing segments and the Silicon & Derivatives segment also face risks regarding the supply of strategically important raw materials. The number of suppliers for these raw materials was already limited in the past and is being further reduced by trade conflicts or sanctions. Fortunately, the PCC Group was able to conclude a long-term supply contract as early as 2021 with the most important supplier of the key feedstock ethylene oxide. The PCC Group is also investing heavily in new chemical installations at its Brzeg Dolny site and in modernizing local production facilities to fulfill the associated offtake conditions. In the long term, these investments will contribute to the further growth of our chemical business activities.
Other indirect factors that could adversely affect the performance of our segments include price fluctuation and credit risks. We aim to eliminate these risks as far as possible through the purchase of trade credit insurance. Price fluctuation risks are mitigated through back-to-back transactions, price formulas, and/or price hedging.
In addition, both PCC SE as a holding company and the operating business units face interest rate and foreign exchange risks, which can be reduced, at least in part, through hedging. The foreign exchange risk within the PCC Group could be significantly reduced by the introduction of the euro as the official currency in Poland. However, this is not expected in the short term. The PCC Group primarily hedges its foreign currency positions using forwards.
Further risks may arise from changes in legal or regulatory frameworks. For example, current tax law, including its administrative application, is subject to constant change. Future legislative changes, as well as differing interpretations of the law by tax authorities or courts, cannot be ruled out. This could potentially result in higher tax burdens for the companies of the PCC Group both in Germany and abroad.
Negative effects may also arise from subsequent changes in the assessment of government subsidies and from any associated clawback demands. For example, the European Commission examined whether the financial assistance totaling the equivalent of approximately € 16 million granted directly to PCC MCAA Sp. z o.o. by the Polish government in 2012 and 2013 was compatible with EU regulations on state regional aid. The financial aid received was deemed correct in February 2025, meaning that there are no grounds for any repayment claim against PCC. The matter is therefore considered closed. However, similar scenarios cannot be ruled out in the future.
In addition, some Group companies are facing the increasing obsolescence of their assets. This applies in particular to the production facilities of PCC Synteza S.A. With continued intensive use, maintenance and repair costs rise, as does the risk of breakdowns and production downtime.
In our financial planning, we continue to anticipate regular cash inflows from the issuance of corporate bonds by the holding company. Any disruptions in the German bond market could potentially lead to liquidity bottlenecks, at least temporarily. Therefore, we are continuously working to replace the liquidity loans granted to affiliated companies with local bank loans. Furthermore, any new major projects are to be implemented only if appropriate project financing can be secured. In addition to corporate bonds, the development of alternative financing sources at the institutional level is also being considered for the long term. The latter requires a stable debt-to-equity ratio. At the Group level, the target is a ratio of less than 5.0, which is to be consistently achieved over the long term and serve as an upper limit.
In addition to financing risk, projects are subject to various other risks during the planning and construction phases, such as technical, property rights-related or regulatory risks. Furthermore, external market conditions may change during the implementation phase and market developments may not unfold as originally anticipated. Despite the most careful review, an investment project may therefore be significantly delayed or generate a substantially lower return than projected. A complete failure of a project and thus a total loss of the capital invested by the Group holding company or one of its affiliates can likewise not be ruled out. Depending on the size of the project, this could have significant negative effects on the liquidity situation. Therefore, the Group holding company will continue to strive for project financing that is based as far as possible on the viability of the respective project.
Last but not least, the PCC Group also faces personnel risks. The potential departure of key individuals, including those from management or the research and development team, and the associated loss of, for example, long-standing contacts, industry experience, or know-how could, under certain circumstances, have at least a temporary negative impact on the continuation of business operations. 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.
From the management’s perspective, the increasing focus on higher-value products and the ongoing diversification of sales markets represent the key opportunities for the future growth of the PCC Group. In addition, there are further modernization and expansion investments in the planning pipeline aimed at both backward and forward integration. Through these, we aim to further expand our market position in the individual segments, to increase our sustainability and to secure our future viability by investing in efficient and environmentally friendly production facilities. The PCC Group is expected to benefit from the revenue increases resulting from these investments in the long term, and thus to rising earnings. Additional earnings potential could also arise from the sale of non-core activities or market-ready projects and investments.
