and ensure that these terms could be changed by linking them to the current level of their prices. By doing so, the Group naturally hedged its transactions
against the risk of further price fluctuations, passing the effects of rising production costs on to them.
Thanks to this approach, in the case of the soda segment, where fluctuations in raw material prices were most pronounced, and owing to the favourable
demand situation in the soda market, the segment achieved a good performance and was able to meet the orders of its customers despite ever higher raw
material prices.
Other segments, which were also affected by the increase in the prices of raw materials and consumables, followed a similar pattern.
The impact of increases in the prices of raw materials, consumables, utilities and services on the CIECH Group's business segments is presented in detail
below:
• Soda Segment – the segment faced an increase in coal prices from the supplier, despite the fact that a forward contract was in force, which
guaranteed that the purchase price of the raw material would remain unchanged. Negotiations with the supplier succeeded in minimising the
level of the increase, whereas in the first half of the year there were problems with availability. Coal stocks at the Kujawy plant fell to minimal
levels. It was only towards the end of the year, due to the relatively stable situation on the raw materials market, that safe stocks were rebuilt.
In May, the soda segment, as a result of the embargo imposed on the import of anthracite from Russia, was forced to switch to coke, which was
more expensive. Despite the higher price of coke (by approximately 20%), the raw material was available and sourced from Polish producers.
In the first half of the year, the risk of disruption to gas supplies to the soda plant in Stassfurt and concerns about the availability of gas in the
autumn and winter increased. In this situation, the priority for the plant was to ensure continuity of production and the ability to fulfill customer
orders. For this purpose, emergency scenarios have been prepared assuming limited availability of energy resources resulting in the need to
reduce the level of production (up to a complete suspension of production in the event of a suspension of gas supplies). These scenarios assumed
the continuation of deliveries of soda products to key customers from the plants in Inowrocław and Janikowo. Ultimately, the risk in relation to
the Stassfurt plant did not materialize, and at the end of 2022 gas prices stabilized, but remained at a higher level than at the beginning of 2022.
Despite the described difficulties, all 3 soda plants of the Group in 2022 operated continuously, without interrupting production.
• Agro Segment – the segment has seen an increase in the price of raw materials imported from Asian manufacturers of active substances. Based
on the experience from the pandemic period of 2020-21 when difficulties were experienced with the availability of raw materials, the New
Sarzyna company built up stocks of active substances, which resulted in the effects of the increase in raw material prices being slightly
postponed. The weakening of demand for crop protection products in the spring additionally resulted in the demand for raw materials being
lower than expected, due to lower than planned production levels. The resumption of production at previously assumed levels involved the
need to purchase raw materials at new, higher prices. However, the increase in raw material prices was factored into the prices of final crop
protection products.
• Silicates Segment – An unfavorable phenomenon for the silicates segment was a significant increase in production costs caused by the increase
in gas prices. The effects of the risk of rising gas prices were mitigated by a pricing policy consisting in renegotiating the commercial terms of
concluded contracts and introducing price increases corresponding to the increase in raw material prices (in addition to the increase in gas
prices, the company was also affected by the increase in soda prices). In this way, CIECH Vitrosilicon translated the effects of rising costs onto
customers. The risk that materialized at the end of 2022, and which the company was afraid of with subsequent increases announced, was
reaching a level of silicate prices that would not be accepted by customers. This risk partially materialized in the fourth quarter of 2022, when
some customers postponed their orders to the first quarter of 2023, hoping for a reduction in silicate prices. As a mitigation measure, the
company initiated a project consisting in the possibility of supplying its glass furnaces with alternative fuel, in the form of LPG, the prices of
which turned out to be more resistant to price fluctuations.
• Packaging Segment - this segment was also adversely affected by the increase in gas prices. Unlike in the silicates segment, the plant in Iłowa
was less able to pass on rising gas prices to customers. As a result of rising gas prices, CIECH Vitro increased the prices of its products, which did
not fully cover the growing production costs. As an action to mitigate the risk of rising gas prices, the packaging segment, similarly to the silicates
segment, launched a project consisting in the possibility of supplying the glass furnace with LPG, which is an alternative to the gas used so far.
• The segment least adversely affected by the rising prices of raw materials, consumables and services was the Foams Segment. With regard to
this segment, an increase in the prices of raw materials necessary for foam production was also noticed in 2022, but these increases were not
as large as in 2020 and 2021. However, a decline in demand for upholstered furniture and price competition from other foam manufacturers
was a problem for the Foams segment. The segment has focused its efforts on meeting revenue targets and maintaining margin levels.
The coming year will continue to be characterised by high unpredictability and concerns about further increases in raw material prices. In addition, the
economic downturn, as a result of which demand for the products of the Group's various segments may begin to decline, is a major threat. The potential
for accepting further increases in the prices of the Group's products is also limited, especially as a slight decrease and stabilisation in the prices of energy
inputs was observed at the end of the fourth quarter of 2022, resulting in customers expecting reductions in the prices of the Group's products.
In addition, the Group and individual segments continue to take proactive measures to minimise the adverse effects of the increase in raw material prices,
by using alternative raw material specifications, improving the efficiency of production processes or seeking new sources of supply.