WACKER Continues on its Upward Sales and Earnings Trend in Q2 2014

The increase in WACKER’s second-quarter earnings before interest, taxes, depreciation and amortization (EBITDA) clearly outpaced sales growth. It climbed to €229.5 million after €188.2 million in Q2 2013 – almost 22 percent more than a year earlier. Rising volumes, better prices for polysilicon and good coverage of fixed costs through high overall utilization of production facilities all contributed to this growth. Compared with the preceding quarter (€285.2 million), which was influenced by special income in the amount of €114.0 million, EBITDA was down almost 20 percent. In Q1 2014, WACKER had retained advance payments and received damages in connection with the restructuring of contractual relationships with a solar-sector customer. Adjusted for this special income, WACKER’s EBITDA grew by 34 percent quarter on quarter. There were no non-recurring effects in the April-through-June period of 2014. The EBITDA margin in the reporting quarter was 18.5 percent, after 16.4 percent a year earlier and 24.6 percent in Q1 2014.

The Group’s Q2 2014 earnings before interest and taxes (EBIT) amounted to €82.1 million (Q2 2013: €52.5 million). This is a year-on-year increase of around 56 percent that yielded an EBIT margin of 6.6 percent (Q2 2013: 4.6 percent). Net income for the quarter under review was €29.4 million (Q2 2013: €15.1 million) and earnings per share amounted to €0.64 (Q2 2013: €0.27).

WACKER has substantially upgraded its earnings forecast for full-year 2014. As already announced, full-year 2014 EBITDA is now expected to be at least one-third higher than in 2013 (€678.7 million). WACKER had previously assumed that it would exceed the prior-year figure by at least 10 percent. The company continues to expect to post a mid-single-digit percentage increase in Group sales (2013: €4.48 billion).

“Following a good start to the year, WACKER maintained and reinforced its positive sales and earnings trend in the April-through-June period,” said CEO Rudolf Staudigl in Munich on Friday. “Demand for solar silicon has continued to grow and prices have stabilized. The current business trend in our divisions and our order level for the second half of the year make us even more optimistic that 2014 will be a good year for WACKER.”

Regions

Asia continued to reinforce its position as WACKER’s largest market, with some 42 percent of the Group’s total sales being generated in this region during the reporting quarter (Q2 2013: 39 percent). At €525.2 million (Q2 2013: €448.3 million), sales in Asia were up about 17 percent year on year. The increase was particularly strong at WACKER POLYSILICON, which profited both from higher sales volumes and improved prices. Siltronic also had substantial sales gains in the region, an improvement mainly due to the consolidation of Siltronic Silicon Wafer Pte. Ltd. in the WACKER Group. Compared with the preceding quarter (€490.2 million), WACKER increased Group sales in Asia by about 7 percent.

In Europe, WACKER achieved sales of €300.8 million from April through June 2014 (Q2 2013: €289.2 million). This is 4 percent more than a year earlier and almost 10 percent more than in Q1 2014 (€274.1 million). Business in polysilicon and polymer products was especially good compared to the prior-year period. All of the divisions grew their European sales relative to Q1 2014.

In Germany, WACKER’s sales in the reporting quarter amounted to €161.6 million – down almost 2 percent year on year (€164.7 million) and over 3 percent on the preceding quarter (€167.3 million). Overall, chemical business grew by 3 percent relative to a year earlier. Sales generated in the other segments were at, or slightly below, the prior-year level.

Q2 Group sales in the Americas grew by nearly 3 percent to €207.2 million (Q2 2013: €201.9 million). Relative to the preceding quarter (€183.1 million), the increase was more than 13 percent. The main reasons for this growth were higher demand for silicone and polymer products along with seasonal effects.

Sales in the markets combined under “Other Regions” totaled €47.5 million in Q2 2014, after €46.2 million in Q2 2013 and €42.7 million in Q1 2014. Overall, the WACKER Group generated about 87 percent of its second-quarter sales with customers outside Germany (Q2 2013: 86 percent).

Investments and Net Cash Flow

The WACKER Group invested €101.0 million in the second quarter of 2014 (Q2 2013: €131.3 million). This represents a project-related decline of around 23 percent relative to Q2 2013, but an increase of some 13 percent on the preceding quarter (€89.3 million). The Group’s net cash flow in the second quarter of 2014 was €49.6 million (Q2 2013: €65.1 million).

Investing activities during the period under review remained centered on the construction of the new polysilicon production site in Charleston (Tennessee, USA). More than half of the Group’s investment spending in the April-through-June period was allocated to this project. The plant facilities are expected to be completed by the middle of next year, while commissioning is to begin in the second half of 2015.

WACKER is expanding its production capacities for dispersible polymer powders at its site in Burghausen (Germany), constructing a new spray dryer with an annual capacity of 50,000 metric tons. The facility is scheduled for completion in the first quarter of 2015 and will be one of the largest of its kind worldwide. Approximately €20 million has been budgeted for the project.

As already announced, there are also plans to expand dispersible polymer powder capacities at the Nanjing (China) site. A series of individual measures are intended to eliminate production bottlenecks at the site and, as a result, enhance productivity. Once these measures are completed, WACKER expects – depending on the product mix – to be able to produce up to 60,000 metric tons of dispersible polymer powder at Nanjing annually.

Employees

The number of WACKER employees worldwide was virtually unchanged in the reporting quarter. On June 30, 2014, the Group had 16,758 employees (March 31, 2014: 16,788). As of June 30, 2014, WACKER had 12,449 employees in Germany (March 31, 2014: 12,456) and 4,309 at its international sites (March 31, 2014: 4,332).

Business Divisions

WACKER SILICONES generated total second-quarter sales of €441.2 million (Q2 2013: €437.2 million), up 1 percent on the strong prior-year quarter and up nearly 4 percent relative to the preceding quarter (€425.3 million). Amid healthy demand for its products and higher volumes, the division more than offset not only the unfavorable exchange-rate effects caused by the weak US dollar, but also the year-on-year drop in prices in certain product segments. WACKER SILICONES’ EBITDA in the reporting quarter amounted to €57.4 million (Q2 2013: €66.3 million), a good 13 percent lower than a year earlier, but nearly 17 percent higher than in the preceding quarter (€49.1 million). The EBITDA margin for the second quarter of 2014 was 13.0 percent, after 15.2 percent in the prior-year period and 11.5 percent in Q1 2014. One reason for this year-on-year decrease in EBITDA at WACKER SILICONES was the scheduled shutdown of the Nünchritz site’s siloxane facilities for maintenance work, which led to an increase in average siloxane production costs.

At WACKER POLYMERS, the usual spring upturn in the construction sector, which made for a strong start to 2014, continued to spur customer demand in the second quarter as well. Between April and June, the division generated total sales of €285.5 million (Q2 2013: €273.4 million), up a good 4 percent compared with Q2 2013 and nearly 20 percent more than Q1 2014 (€238.7 million). Demand was particularly strong for dispersible polymer powders. Here, the division posted a double-digit increase in volumes both year on year and quarter on quarter. WACKER POLYMERS’ EBITDA in the April-through-June period amounted to €43.5 million (Q2 2013: €44.4 million). Due to substantially higher prices for vinyl acetate monomer (a raw material), that was around 2 percent less than a year earlier, but, thanks to higher volumes, 27 percent more than in the preceding quarter (€34.2 million). The EBITDA margin in the reporting quarter was therefore 15.2 percent, after 16.2 percent in Q2 2013 and 14.3 percent in Q1 2014.

WACKER BIOSOLUTIONS generated total second-quarter sales of €46.6 million (Q2 2013: €40.5 million), a rise of over 15 percent. Relative to the preceding quarter (€40.7 million), sales grew nearly 15 percent. The division’s EBITDA in the reporting quarter amounted to €8.2 million (Q2 2013: €5.9 million), up €2.3 million on the prior-year period and €2.8 million more than in Q1 2014 (€5.4 million). The EBITDA margin for the second quarter was 17.6 percent, compared with 14.6 percent a year ago and 13.3 percent in the preceding quarter. This growth in sales and earnings was mainly due to the acquisition at the start of the year of Scil Proteins Production GmbH, a company based in Halle (Germany) that produces pharmaceutical proteins.

WACKER POLYSILICON expanded its business substantially in Q2 2014. Thanks to markedly higher volumes and better prices than a year ago, the division’s total second-quarter sales rose a good 34 percent to €273.2 million (Q2 2013: €203.3 million). The division beat its Q1 2014 sales figure (€262.0 million) by over 4 percent because polysilicon prices again rose slightly quarter on quarter. The division’s EBITDA in Q2 2014 amounted to €87.9 million (Q2 2013: €64.0 million), up 37 percent. The first-quarter EBITDA figure of €180.0 million had included income of €114.0 million from retained advance payments and damages received. If this non-recurring effect is disregarded, WACKER POLYSILICON’s EBITDA in Q2 2014 rose some 33 percent quarter on quarter. No special income was posted during the reporting quarter. During Q2 2013, the division had recognized special income of €23.8 million from retained advance payments and damages received. WACKER POLYSILICON’s second-quarter EBITDA margin rose to 32.2 percent, after 31.5 percent in Q2 2013. In Q1 2014, non-recurring effects prompted an EBITDA margin of 68.7 percent.

Siltronic posted total second-quarter sales of €210.4 million (Q2 2013: €200.1 million). This increase of around 5 percent was mainly due to substantially higher volumes. Relative to the preceding quarter (€203.8 million), sales rose by a good 3 percent. Despite persistent price pressure, Siltronic significantly increased its EBITDA. Second-quarter EBITDA of €28.1 million was more than three times the prior-year figure (€9.1 million). Relative to Q1 2014 (€15.0 million), EBITDA nearly doubled. The EBITDA margin rose accordingly, from 4.5 percent in Q2 2013 and 7.4 percent in Q1 2014 to 13.4 percent in the reporting quarter. The main reason for this increase over the prior-year period was the consolidation of Siltronic Silicon Wafer Pte. Ltd. in the Group’s financial statements. In addition, the measures taken by Siltronic to reduce its production costs are showing results.

Outlook

According to the latest forecasts, global activity will strengthen during the second half of 2014 and accelerate slightly in 2015, though the risks to world trade posed by the ongoing political and military conflicts in Ukraine and the Middle East persist.

Sales at WACKER SILICONES are expected to increase slightly in 2014. Growth will be generated mainly in Asia, where rising affluence is prompting higher per-capita consumption of silicone products. Additionally, ever increasing quality demands are accelerating the process of substituting simple products with high-end versions that incorporate silicones. EBITDA is likely to be slightly lower than last year. One reason is the fact that the prior-year figure included a positive non-recurring effect of €13.7 million, stemming from the utilization of provisions for purchase contract obligations in China.

Sales at WACKER POLYMERS are expected to climb compared with the previous year. The percentage increase is likely to be slightly above the average for the Group. Adhesive and coating applications are among the main growth drivers of dispersions business. In emerging-market economies, the division expects further growth with its polymer products for the construction industry. EBITDA is likely to be slightly lower than last year, mainly because of the higher cost of vinyl acetate monomer (a raw material).

For full-year 2014, WACKER BIOSOLUTIONS expects sales to grow at a percentage rate well above the Group average. The main reason for this increase is the acquisition of Scil Proteins Production GmbH, which has enabled the division to expand its biologics business. WACKER BIOSOLUTIONS’ EBITDA is projected to come in at roughly the prior-year level.

In WACKER’s polysilicon business, both volumes and sales are expected to rise in 2014. The company assumes that the photovoltaic market will continue on its growth trajectory in the second half of 2014. With demand rising, WACKER POLYSILICON expects the price environment for solar silicon to remain positive in the months ahead. The division’s full-year 2014 EBITDA forecast is for substantial growth compared with the previous year. EBITDA performance will be supported by special-income items from retained advance payments and damages received. The operating EBITDA margin is also likely to improve relative to the prior year.

Siltronic expects its sales in 2014 to grow at a percentage rate higher than the Group average. This growth is due primarily to the first-time consolidation of Siltronic Silicon Wafer Pte. Ltd. (SSW), which is now 78 percent owned by Siltronic. Price pressure is likely to persist, impeding sales growth. Siltronic sees opportunities to increase prices selectively in individual product families. Siltronic’s EBITDA is expected to be substantially higher than last year due to the consolidation of SSW in the WACKER Group.

Overall, WACKER continues to expect its full-year 2014 sales to rise by a mid-single-digit percentage. As for EBITDA, the company now expects to achieve a substantial increase of at least one third, which will also considerably improve the EBITDA margin. The EBITDA trend will be markedly influenced by special-income items from polysilicon business. Investments will edge up year on year, reaching about €550 million. Depreciation will be slightly above that figure, coming in at around €600 million – somewhat higher than last year. WACKER aims to achieve a positive net cash flow. Net financial debt will climb by about €300 million. Group net income is expected to be higher than the previous year.