In addition to robust demand for nearly all of our products during the first half of 2022, we also benefitted – significantly – from what we had termed “opportunistic” margins, which resulted from the time lag between rising sales prices and raw material cost resets. At the same time, we cautioned throughout the first and second quarters that our high earnings and EBITDA were not the “new normal.” Although we were happy to capitalise on this profitable period, we also knew that this would be a temporary phenomenon.

As expected, in the third quarter – after eight consecutive periods of increased revenue and EBITDA – the opportunity margins began to shrink as our raw material costs began to catch up with the price of our finished products. In addition, the gradual reduction of natural gas supplies by Russia through the Nord Stream pipeline resulted in rising energy costs across Western Europe.

Perhaps the hardest hit by the energy situation were European aluminium smelters that do not have access to low-cost hydroelectric power. The rising cost of fossil-fired electricity – coupled with rapidly falling London Metal Exchange (LME) prices for aluminium led to a number of smelter shutdowns and curtailments. As the world’s largest producer of coal tar pitch (CTP) and second-largest producer of calcined petroleum coke (CPC), two essential materials for the anodes required for aluminium smelting, reduced production in Europe began to impact demand for our CTP and (to a certain extent) CPC.

The situation in Europe also impacted us in several other ways during the second half of 2022. First, a continuation of high energy prices increased our production costs and led to margin erosion for many products. It also forced us to make the difficult-but-prudent decision in September to temporarily shut down our energy-intensive units in Germany until energy costs return to more normal levels.

Elsewhere, inflation motivated many European consumers to curb discretionary spending, causing a domino effect of reduced demand across the production chain. The falloff in demand also resulted in layoffs in various industries in Europe, elevating concerns about regional job security, which then further eroded demand for a range of manufactured goods that included our distillation and advanced materials products. And in North America, we ended the year with the usual seasonality as sales of products such as creosote and sealer base were winding down heading into winter. Finally, in India, while demand for our Priya cement products remained reasonably strong, the profitability of the segment was impacted by increased fuel prices leading to higher production costs.

While that sounds like a dismal ending to what started out as a promising year, our fourth-quarter EBITDA of
` 6,895 million was squarely within our historical normal range. For the year, we finished 2022 with:

• Revenue of ` 210,110 million, which represented an increase of more than 45% compared with ` 145,268 million in 2021
• Operating profit (or adjusted EBITDA) of ` 37,545 million, which was up more than 49% compared with
  ` 25,174 million in the previous year
• Strong safety performance with our fourth-consecutive year with a total recordable injury rate below 0.2, ranking us as a "best-in-class" company compared with our industry peers

Looking ahead, things are returning to the "old normal," and we anticipate that our near-term performance will be within the typical operating range we have guided to in the past. While fears of an economic recession have subsided a bit in the early months of 2023, it remains a possibility. Similarly, while China has finally reopened for business following months of Zero COVID Policyrelated lockdowns, its near-term outlook remains a question mark. And, of course, as long as high energy costs, inflation and layoffs continue to impact Europe, demand by our customers in the region will remain soft.

We are responding to these challenges in a number of ways. First, given the energy-intensive nature of our advanced materials production, we are doing all we can to optimise our energy consumption and maximise our output, thus reducing our production cost per tonne of material.

We also believe that all the work we have done in recent years to cut costs, improve efficiencies, increase our capacity utilisation and plant reliability, and secure affordable, reliable and more-sustainable supplies of raw materials will play an important role in helping to preserve earnings, margins to a certain extent and our sustainability standing despite changing economic conditions.

Another priority for us in 2023 is restoring our Advanced Materials business to sustained profitability. During 2022, the segment experienced two quarters of negative EBITDA, caused by a variety of factors including high energy and raw material costs, reduced demand for advanced-materials products as consumers postponed discretionary purchases, and the temporary closure of our energyintensive units. By discontinuing some of our most energy-intensive products, while increasing the production of PETRORES^®, CARBORES^® and other products with healthy margins, we expect to see improved performance from our Advanced Materials segment in 2023 – assuming that we see some stabilisation of energy costs.

Elsewhere, we are continuing to work on commercialising our proprietary anhydrous carbon pellets (ACP). While commercial adoption is a marathon rather than a sprint, and the aluminium industry is slow to adapt to new technologies and processes, we have received positive feedback from several smelter customers that have taken ACP shipments for industrial tests. Ultimately, we believe ACP will offer energy-saving benefits for aluminium producers, and it will help us by reducing the GPC fines that are currently combusted during the calcination process. If ACP can reduce our GPC loss by approximately 10%, the cost savings would be significant, especially when GPC prices are high. Just as important, the resulting reduction in CO₂ and SO₂ emissions would provide us and our customers with a very tangible sustainability benefit.

In India, we continue to work with regulatory authorities to gain relief from GPC-import restrictions for our new vertical-shaft calciner in the Andhra Pradesh Special Economic Zone, Visakhapatnam, as it is meant for catering to export markets. Moreover, RAIN’s CPC plants are the only calcination facilities in India with continuous operating flue-gas desulphurisation systems that remove 98-99% of our plants’ SO₂ emissions and waste-heat recovery systems that enable our plants to generate clean electricity. This is important because these investments in sustainability have made us the best-positioned company in our industry to drive the government’s pollution-reduction goals while providing the anode-grade CPC that is needed to support continued growth of India’s aluminium industry.

Speaking of sustainability, rest assured that our commitment is unwavering, and our work will continue in 2023 and beyond. As you explore this annual report, you will read about a number of recent activities and accomplishments across the RAIN landscape that are reducing our carbon footprint, preserving natural resources, and developing new products and processes that will help our customers to attain their sustainability goals. Examples include the expansion of the solar power installations at our cement plants in India and the increased use of alternative raw materials by our carbon distillation business, which is resulting in products with a lower emissions profile than those typically produced with coal tar.

As we move forward into 2023, it is tempting to look in the rear-view mirror and bask in the successful year, but the fact is, the high demand and margins that we enjoyed during much of last year was abnormal, not a transition to a "new normal". At RAIN, our management team and employees around the world fully understand that we have reverted to the "old normal" and that uncertainty and new challenges lie ahead.

The good news is that the team at RAIN is resilient and resourceful, and we have successfully weathered many challenges over the years. In the process, we have learned from those experiences, and as a result we are reasonably well positioned to manage situations that come our way during 2023 and beyond.

On behalf of the 2,640 employees at RAIN, we appreciate your ongoing support, and we are committed to retaining your trust and confidence in the year ahead.

Sincerely,

Jagan Reddy Nellore
Vice Chairman
February 27, 2023