Growing Chemical Business and Consolidation in the Solar Industry Mark WACKER’s Business Performance in Q3 2012

  • GROUP SALES REACH €1.20 BILLION IN Q3 2012, ABOUT 6 PERCENT BELOW THE PRIOR-YEAR PERIOD
  • EBITDA COMES IN AT €204 MILLION, DOWN 36 PERCENT YEAR ON YEAR DUE TO PRICE DECLINES
  • NET INCOME FOR Q3 2012 AMOUNTS TO €27 MILLION
  • CHEMICAL-BUSINESS REVENUE INCREASES BY 7 PERCENT THANKS TO STRONG DEMAND, WITH EBITDA UP BY 20 PERCENT YEAR ON YEAR
  • POLYSILICON BUSINESS SHOWS SIGNIFICANT DECLINES IN SALES AND EARNINGS
  • INVESTMENTS OF €291 MILLION FOR STRATEGIC EXPANSION OF POLYSILICON AND DISPERSION CAPACITIES
  • ANNUAL-FORECAST SPECIFIED: GROUP SALES OF BETWEEN €4.6 AND €4.7 BILLION EXPECTED FOR FULL-YEAR 2012, WITH EBITDA ANTICIPATED AT ABOUT €750 MILLION DUE TO PRICE PRESSURE

Munich, Oct 24, 2012

In the third quarter of 2012, Wacker Chemie AG’s business performance varied across its individual segments. The chemical divisions had higher sales and earnings compared with the previous year, thanks to satisfactory overall customer demand. Sales in the chemical business rose 7 percent, while earnings before interest, taxes, depreciation and amortization improved by 20 percent year on year. In contrast, sales and earnings in the polysilicon business decreased significantly because of sustained pressure on prices and high inventory levels in the solar industry. The Munich-based chemical group posted total sales of €1,200.9 million between July and September 2012 – down 6 percent from a year earlier (€1,280.6 million). WACKER almost matched its sales level of the preceding quarter (€1,222.5 million). Higher volumes than a year ago and favorable exchange-rate effects stemming from a stronger US dollar helped lift the Group’s sales in the quarter under review.

In the third quarter of 2012, WACKER generated earnings before interest, taxes, depreciation and amortization (EBITDA) of €204.3 million, 36 percent less than a year ago (€317.6 million) and 15 percent less than in Q2 2012 (€240.5 million). The main reasons for this downturn are lower prices for solar silicon and semiconductor wafers. The EBITDA margin for the third quarter of 2012 was 17.0 percent, compared with 24.8 percent a year ago and 19.7 percent in the preceding quarter. The Group’s earnings before interest and taxes (EBIT) fell to €70.7 million in the third quarter of 2012 (Q3 2011: €197.2 million), thereby yielding an EBIT margin of 5.9 percent (Q3 2011: 15.4 percent). Net income for the period amounted to €26.9 million (Q3 2011: €124.9 million), which corresponds to earnings per share of €0.50 (Q3 2011: €2.50).

The WACKER Group has specified its forecast for full-year 2012, and now expects to generate total sales of between €4.6 and €4.7 billion. EBITDA for this year is projected at approximately €750 million.

“The WACKER Group has performed respectably in a difficult third quarter despite a number of challenges,” said CEO Rudolf Staudigl on Wednesday in Munich. “Our chemical business developed well, with higher sales and earnings. However, the continued slowdown in global economic growth and the particular problems in the solar industry left their mark on our figures for Q3 2012. Sustained price competition, high inventories, the difficult financial situation of many market players and the anti-dumping proceedings against Chinese solar manufacturers currently characterize our polysilicon business. But, on the other hand, generating solar power is becoming steadily less expensive. We are confident that the photovoltaic market will continue to grow, and that we will ultimately benefit from the consolidation in the long term, because WACKER is a quality and cost leader in this business.”

Regions

During Q3 2012, WACKER profited primarily from good customer demand for silicone and polymer products in the USA and Asia. In Europe, chemical business was generally weak compared with the previous year. Many customers in Europe are currently rather cautious and hesitant about placing orders, given the economic uncertainties. From July through September 2012, the WACKER Group generated sales of €481.5 million in Asia, almost matching the prior-year level (€484.7 million).

In Germany and the rest of Europe, business was down significantly from the previous year. Third-quarter Group sales in Germany totaled €172.2 million – down almost 28 percent from a year earlier (€237.6 million). The ongoing shift of the solar industry to Asia remains a significant factor for WACKER’s lower sales in Germany. In Europe excluding Germany, sales for the three months from July through September 2012 fell 6 percent to €282.2 million (Q3 2011: €298.7 million).

In the Americas, the growing demand for chemicals completely offset the decline in polysilicon and semiconductor wafers. At €219.9 million, the Group’s third-quarter sales in this region exactly matched the prior-year level.

In the markets combined under “Other regions,” third-quarter sales reached €45.1 million, 14 percent higher than a year ago (€39.7 million). Overall, WACKER generated about 86 percent of its third-quarter 2012 sales with customers outside Germany (Q3 2011:81 percent).

Investments and Net Cash Flow

During Q3 2012, WACKER continued its expansion of production capacity in international markets, investing a total of €291.4 million, which is 3 percent less than a year ago (€299.1 million) due to project-related reasons, but 19 percent more than in Q2 2012 (€244.9 million). Over two-thirds of investments in the quarter went to the ongoing construction of polysilicon production facilities at Charleston in the USA. Another investment focus was on the expansion of production facilities for vinyl acetate-ethylene copolymer dispersions and polyvinyl acetate solid resins. WACKER is currently constructing a second reactor line for dispersions, with an annual capacity of 40,000 metric tons, at its site in Ulsan, South Korea. This will almost double WACKER’s South Korean production capacity. At Nanjing in China, construction of the new facilities for dispersions and polyvinyl acetate solid resins progressed as planned during the quarter under review.

WACKER’s net cash flow for the July-through-September 2012 period was €-90.4 million, compared with €23.2 million a year ago. This drop was mainly due to net income being substantially lower year on year.

Employees

WACKER’s workforce declined somewhat during the third quarter of 2012. On September 30, 2012, there were 16,433 employees worldwide (June 30, 2012, 16,759) at WACKER, 2 percent fewer than at the end of the preceding quarter. As of September 30, 2012, WACKER had 12,755 employees in Germany (June 30, 2012: 12,824) and 3,678 at its international sites (June 30, 2012: 3,935).

Business Divisions

WACKER SILICONES increased its total sales in Q3 2012. At €432.1 million, the figure was almost 7 percent higher than a year ago (€405.2 million). Higher volumes and favorable exchange-rate effects offset continuing price pressures on silicone products. Thanks to good customer demand and high plant-utilization rates, the division achieved EBITDA of €57.4 million in Q3 2012 amid lower prices for some of its products. That is an increase of over 10 percent from last year (€52.0 million), and corresponds to an EBITDA margin of 13.3 percent (Q3 2011: 12.8 percent).

WACKER POLYMERS increased its total third-quarter sales by over 6 percent to €274.0 million (Q3 2011: €257.9 million). Thanks to positive customer demand, sales volumes for dispersions and dispersible polymer powders were around 5 percent higher in the period under review than a year earlier. The division’s EBITDA grew 29 percent year on year to €50.5 million (Q3 2011: €39.2 million). This increase was supported by higher volumes and good production capacity utilization. Earnings also benefited from favorable exchange-rate effects. The third-quarter EBITDA margin rose to 18.4 percent (Q3 2011: 15.2 percent).

WACKER BIOSOLUTIONS generated total third-quarter sales of €40.1 million, posting a rise of close to 18 percent on the prior-year period (€34.1 million). Strong customer demand for polymers for gumbase was a key factor behind this growth. WACKER BIOSOLUTIONS increased its EBITDA to €5.5 million (Q3 2011: €3.1 million). The third-quarter EBITDA margin came in at 13.7 percent (Q3 2011: 9.1 percent).

WACKER POLYSILICON posted total sales of €269.1 million in Q3 2012, down about 29 percent from a year ago (€378.2 million). The division’s market environment remains challenging. Ongoing consolidation pressures in the solar industry, high inventory levels along the entire photovoltaic supply chain, and the financial difficulties facing many manufacturers of solar cells and modules are slowing down sales volumes and impacting prices for hyperpure polysilicon. Third-quarter solar-silicon prices were around 40 percent below their prior-year level. Sales volumes, however, were slightly higher both year on year and compared with Q2 2012, thanks to WACKER POLYSILICON’s broad-based customer portfolio and helped by bookings of delayed volumes from Q2. To bring production volumes in line with customer demand, the division partially curbed production in the third quarter. Plant utilization was about 80 percent during the July-through-September 2012 period. The situation in the solar market has also made its mark on WACKER POLYSILICON’s earnings development. EBITDA amounted to €78.8 million in the third quarter of 2012. That is a decrease of 56 percent from a year ago (€179.4 million), yielding an EBITDA margin of 29.3 percent (Q3 2011: 47.4 percent).

Siltronic had total sales of €234.7 million from July through September 2012, 8 percent lower than a year earlier (€255.3 million). Lower prices were the main factor behind the decrease. Third-quarter plant utilization at Siltronic ranged from 70 to 90 percent, depending on wafer diameter. As part of its capacity consolidation for smaller-diameter wafers, Siltronic closed down the 150 mm wafer production line at the Portland site in the USA in the third quarter, as announced. The 200 mm wafer plant at Hikari (Japan) had already been shut down in the preceding quarter. The consolidation measures benefited capacity utilization at the remaining facilities for these wafer diameters. Siltronic’s EBITDA was €9.9 million in the third quarter of 2012 (Q3 2011: €33.6 million). This is equivalent to an EBITDA margin of 4.2 percent (Q3 2011: 13.2 percent).

Outlook

WACKER believes that the economic situation will continue to be challenging in the months ahead. The extent to which the world economy will slow remains uncertain. Nevertheless, the Group sees growth prospects, especially for its chemical business, in markets outside Europe.

In the polysilicon business, there are particular challenges and risks arising from the ongoing consolidation process in the solar industry and from the unpredictable political climate. WACKER expects that new photovoltaic capacity will exceed 30 gigawatts this year, and that this upward trend will continue next year toward 40 gigawatts. Inven¬tory levels are very high at every stage of the supply chain, however. These inventories will first have to be reduced, which is likely to affect the solar industry’s demand for polysilicon. WACKER is adapting to this market environment, and has therefore made the decision to delay the completion of the polysilicon facility at its US site in Charleston, Tennessee. At this time, the company expects to start production at Charleston by mid-2015, some 18 months later than originally planned. Lower volumes and lower prices will keep WACKER POLYSILICON’s full-year 2012 revenues below the levels of the previous year, in line with the trend reported for the first nine months.

In the semiconductor industry, the prospects for the coming months have deteriorated. Important customers have in recent weeks reduced their own outlooks through the end of the year. Supply-chain inventories are high, and weak demand is further pushing down silicon-wafer prices. At Siltronic, this is expected to result in significantly weaker wafer sales volumes for the fourth quarter of 2012, with revenues also substantially lower during the remainder of 2012.

In its chemical divisions, WACKER sees good opportunities for further growth in the remaining months of 2012 and beyond, even though raw-material and energy costs remain relatively high. Rising living standards, particularly in Asia, are fueling demand for high-quality products containing silicones. In its polymer business, WACKER anticipates higher volumes for full-year 2012, with growth for construction applications driven by the markets of Asia and South America. Dispersions are experiencing additional demand, especially from the carpeting and packaging industries in the USA. The WACKER BIOSOLUTIONS division is also anticipating higher sales for 2012. WACKER intends to continue strengthening this division’s market leadership in polyvinyl acetate solid resins for use in gumbase.

For full-year 2012, the WACKER Group expects to generate total sales of between €4.6 and €4.7 billion. Earnings performance will be affected especially by the lower prices obtained for deliveries of solar silicon. As a result, the Group’s earnings before interest, taxes, depreciation and amortization in 2012 will fall well short of the 2011 figure and, from today’s perspective, are estimated to come in at €750 million.

Note to editors: The Q3 2012 report is available for download on the WACKER website (www.wacker.com) under Investor Relations.

WACKER’s Key Figures
€ million Q3 2012 Q3 20110 Change
in %
Sales 1,200.9 1,280.6 -6.2
EBITDA 204.3 317.6 -35.7
EBITDA margin (%) 17.0 24.8 -
EBIT 70.7 197.2 -64.1
EBIT margin (%) 5.9 15.4 -
 
Financial result -15.3 -9.3 64.5
Income before taxes 55.4 187.9 -70.5
Net income for the period 26.9 124.9 -78.5
 
Earnings per share (€)
0.50 2.50 -80.0
 
Investments (incl. financial assets) 291.4 299.1 -2.6
Net cash flow -90.4 23.2 n.a.
 
€ million Sept. 30, 2012 Sept. 30, 2011 Dec. 31, 2011
Equity 2,651.5 2,698.9 2,629.7
Financial liabilities 1,177.4 593.1 777.9
Net financial receivables/liabilities -411.3 364.0 95.7
Total assets 6,563.4 6,125.7 6,237.0
 
Employees (number at end of period) 16,433 17,133 17,168

This press release contains forward-looking statements based on assumptions and estimates of WACKER’s Executive Board. Although we assume the expectations in these forward-looking statements are realistic, we cannot guarantee they will prove to be correct. The assumptions may harbor risks and uncertainties that may cause the actual figures to differ considerably from the forward-looking statements. Factors that may cause such discrepancies include, among other things, changes in the economic and business environment, variations in exchange and interest rates, the introduction of competing products, lack of acceptance for new products or services, and changes in corporate strategy. WACKER does not plan to update the forward-looking statements, nor does it assume the obligation to do so.

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Wacker Chemie AG
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