Wacker Posts Very Good Third Quarter Figures

Wacker’s earnings performance did not match the strong prior-year level. In Q3 2011, earnings before interest, taxes, depreciation and amortization (EBITDA) fell 7 percent year-on-year to €317.6 million (Q3 2010: €340.0 million). The third-quarter EBITDA margin was 24.8 percent, down from 26.8 percent in Q3 2010. Earnings before interest and taxes (EBIT) declined 16 percent to €197.2 million (Q3 2010: €234.3 million). The EBIT margin for the July-through-September quarter was 15.4 percent (Q3 2010: 18.5 percent). Net income for the period came in at €124.9 million (Q3 2010: €155.8 million). As a result, earnings per share reached €2.50 (Q3 2010: €3.13).

The main reason why earnings were down against Q3 2010 was the higher price level for key raw materials and starting materials. Ethylene, for example, was nearly 20 percent more expensive in Q3 2011 than a year ago. Silicon metal prices increased almost 30 percent. Vinyl acetate monomer, a key starting material in the manufacture of dispersions and dispersible polymer powders, went up by more than 30 percent compared with Q3 2010. In addition, start-up costs for commissioning the new polysilicon production facility at Nünchritz (Germany) reduced third-quarter EBITDA.

For Q4 2011, Wacker estimates that a weaker global economy and the resultant decline in momentum will slow demand for its products and affect customer ordering patterns. In the semiconductor sector, leading market experts have revised downward their growth projections for the coming months. As a result, Wacker expects Siltronic’s fourth-quarter sales volumes to be lower than anticipated at mid-year. In its solar business, price and consolidation pressures are intensifying on the photovoltaic market due to high customer inventories. Consequently, WACKER POLYSILICON’s sales revenues and margins will be lower in Q4 2011 than in the quarter under review. Amid these developments, Wacker may not quite achieve the sales and earnings figures forecast earlier. Wacker now expects to generate sales of about €5 billion in 2011. According to its current estimates, Group EBITDA will be at last year’s level (€1.19 billion).

“Despite the tougher economic climate, business was good in the third quarter,” said CEO Rudolf Staudigl in Munich on Friday. “Given the economic uncertainties, our customers are being more cautious with their orders, while prices for our key raw materials remain very high. The demand for our products, however, is as strong as ever in many areas. Even if the fourth quarter turns out to be weaker than originally anticipated, 2011 will be comparable to last year’s record results.”

Regions

In Q3 2011, Wacker posted slight year-on-year sales increases in all regions – apart from Europe excluding Germany. Asia once again provided the largest share of consolidated sales from July through September 2011. The Group generated some 38 percent of its total third-quarter sales in this region (Q3 2010: 37 percent). At €484.7 million, Asian sales climbed 4 percent (Q3 2010: €466.6 million). The quarter also saw further business growth in Germany, where Wacker achieved sales of €237.6 million (Q3 2010: 228.9 million), up some 4 percent year on year. In the rest of Europe, however, sales slipped 7 percent to €298.7 million (Q3 2010: €319.8 million). In the Americas, the Wacker Group posted third-quarter sales of €219.9 million (Q3 2010: €218.2 million) – an increase of one percent, even though the US dollar was considerably weaker than during the comparable quarter last year. In the other regions, sales totaled €39.7 million (Q3 2010: €36.0 million). Overall, WACKER generated about 81 percent of its third-quarter sales with customers outside Germany (Q3 2010: 82 percent).

Investments and Net Cash Flow

In Q3 2011, Wacker invested a total of €299.1 million (Q3 2010: €215.5 million), almost 40 percent more than a year ago. Capital expenditures in Q3 2011 continued to focus on the expansion and construction of new hyperpure-polysilicon production facilities. More than half of the Group’s third-quarter investments were for this segment. The scheduled ramp-up of polysilicon facilities at Nünchritz (Germany) is progressing well. Q3 2011 saw the first deposition reactors coming on stream and the first quantities produced for sale. Full nominal capacity of 15,000 metric tons per year is expected in the second quarter of 2012. In the US state of Tennessee, construction of the new Charleston polysilicon facility continues at full swing.

Wacker’s net cash flow from July through September 2011 amounted to €34.5 million (Q3 2010: €192.4 million). Third-quarter cash flow reflected the continued high level of investments in polysilicon-capacity expansion and a decline in advance payments received. Cash inflow from operating activities totaled €296.9 million, over 30 percent less than a year ago (Q3 2010: €441.3 million). This decrease was due, among other things, to higher inventories and to lower year-on-year net income.

Employees

With production capacity and sales structures continuing to expand, Wacker’s workforce has grown. As of September 30, 2011, WACKER had 17,133 employees worldwide (June 30, 2011: 16,834). Employee numbers were 2 percent higher than on June 30, 2011. On September 30, 2011, Wacker had 12,778 employees in Germany (June 30, 2011: 12,572) and 4,355 at its international sites (June 30, 2011: 4,262).

Business Divisions

In the third quarter of 2011, WACKER SILICONES reported total sales of €405.2 million, almost 4 percent less than a year ago (Q3 2010: €421.3 million). The weak US dollar was a major factor in sales not quite matching the prior-year figure. Additionally, slightly lower prices left their mark on some market segments. Customer demand edged down slightly in the third quarter. Silicones for the energy, electronic and medical sectors put in a good market performance, as did pyrogenic silica for coatings and adhesives. However, customers ordered more cautiously and at shorter notice in the third quarter than during the first half of 2011. As a result, the book-to-bill ratio decreased. In Q3 2011, WACKER SILICONES was only able to partly counter the strong year-on-year rise in raw-material costs by increasing its prices. Consequently, EBITDA declined by just over 33 percent to €52.0 million (Q3 2010: €77.9 million). The corresponding EBITDA margin was 12.8 percent (Q3 2010: 18.5 percent).

Due to robust demand for dispersions and dispersible polymer powders, total third-quarter sales at WACKER POLYMERS climbed by 14 percent to €257.9 million (Q3 2010: €225.8 million). Business benefited from a strong increase in sales volumes and higher product prices. The division’s third-quarter EBITDA amounted to €39.2 million, about one percent below Q3 2010 (€39.7 million). Profitability was held back by significantly higher prices for ethylene and vinyl acetate monomer. The July-through-September EBITDA margin was 15.2 percent (Q3 2010: 17.6 percent).

WACKER BIOSOLUTIONS achieved total sales of €34.1 million in Q3 2011, down about 8 percent from Q3 2010 (€37.0 million). The main reason for the year-on-year decline was low capacity utilization at several production facilities, in line with business levels. The specialty silanes business for pharmaceutical applications made good progress during the quarter under review. In contrast, demand for acetylacetone and gumbase slackened. Due to the underutilization of several plants, WACKER BIOSOLUTIONS’ third-quarter EBITDA of €3.1 million was well below the prior-year figure (€5.5 million). The division’s third-quarter EBITDA margin fell correspondingly to 9.1 percent (Q3 2010: 14.9 percent).

At WACKER POLYSILICON, higher production and sales volumes increased total third-quarter sales to €378.2 million – up 8 percent against Q3 2010 (€349.5 million). Despite extreme overcapacity and initial consolidation in the downstream value-added stages of the solar industry (wafers, cells, modules), demand for the division’s high-quality polysilicon remained very strong in the period under review. In particular, the volumes supplied to customers in Asia under multiyear contracts rose substantially. Spot market prices remained largely stable from July to mid-September 2011, following a marked downturn in the first half-year. WACKER POLYSILICON generated third-quarter EBITDA of €179.4 million, down 6 percent from Q3 2010 (€189.9 million). The decline mainly stems from start-up costs for the expansion of production capacity at Nünchritz. The third-quarter EBITDA margin was 47.4 percent (Q3 2010: 54.3 percent).

Siltronic posted total sales of €255.3 million from July through September 2011, a drop of 9 percent (Q3 2010: €280.4 million). Third-quarter business was influenced by weaker sales volumes, which were some 5 percent lower than a year ago, and by the unfavorable strength of the euro against the US dollar. Customer orders edged down in the period under review. Japan’s semiconductor manufacturers managed to get their plants up and running again faster than had at first been expected following the March 2011 earthquake. As a result, the supply situation on world markets has returned to normal. The positive demand and price effects that benefited Siltronic in the first half of 2011 thus no longer apply. Production capacity utilization at Siltronic declined during the quarter, in line with the ordering patterns of its customers. At the end of the quarter, Siltronic’s plants were generally operating at around two-thirds of capacity. Siltronic’s EBITDA, though, improved in the third quarter to €33.6 million, rising 6 percent (Q3 2010: €31.6 million). The EBITDA margin for the July-through-September quarter was 13.2 percent (Q3 2010: 11.3 percent).

Outlook

In the first three quarters of 2011, Wacker kept its sales performance high, and enhanced it in some divisions. Weaker business trends and the resultant decline in momentum, though, are slowing demand for the Group’s products and affecting customer ordering patterns. As a result, it is difficult to predict exactly how business will develop during the remaining months of fiscal 2011.

For the fourth quarter, the Group anticipates substantially lower sales volumes and revenues, especially in its semiconductor business, coupled with declining plant utilization. This will have an appreciable impact on Siltronic’s earnings in Q4 2011. In the Group’s polysilicon business, fourth-quarter sales revenues and margins will fall short of the preceding quarter’s figures as customers tighten their inventories. In silicones, the Group anticipates that some segments are likely to see a decline in incoming orders. Additionally, the Group’s chemical divisions will experience the normal seasonal effects of their business with, for example, the construction sector. Seasonality will hold back sales volumes and revenues, though no more than usual.

Due mainly to the trends expected in its semiconductor and polysilicon business during Q4 2011, Wacker may not quite achieve the sales and earnings figures previously forecast for full-year 2011. Wacker now expects to generate sales of about €5 billion in 2011. According to its latest estimates, EBITDA will be at last year’s level (€1.19 billion).