Wacker Continues to Focus on Growth

19-Mar-2012 - Germany

Wacker Chemie AG finished fiscal 2011 with sales-revenue and sales-volume gains. As announced by the Munich-based chemical group upon presenting its Annual Report, consolidated sales rose by just over 3 percent to €4.91 billion (2010: €4.75 billion). The main factor behind this increase was strong demand for Wacker products – particularly in the first nine months of the year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to €1.1 billion (2010: €1.19 billion). High raw-material costs, weak fourth-quarter business with polysilicon, start-up costs for commissioning the new production facilities at Wacker’s Nünchritz site (Germany) and various non-recurring effects were the reasons for the decline of 8 percent in EBITDA year over year. The EBITDA margin was 22.5 percent (2010: 25.2 percent). Looking at the bottom line, Wacker ended 2011 with net income of €356 million (2010: €497 million) – a drop of €141 million compared to a year earlier. This amount contains structural costs of some €50 million, relating to the announced closure of the Group’s semi¬conductor site in Hikari, Japan.

Following a weak final quarter last year, Wacker’s business is starting to recover. In Q1, 2012, the company expects to surpass prior quarter’s sales, though it will not reach the level of the strong Q1 2011.

In the current fiscal year, Wacker intends to increase sales slightly – with a consolidated-sales target of approximately €5 billion. In doing so, Wacker does expect the economic situation to remain challenging until at least midyear. The Munich-based chemical company foresees polysilicon prices considerably below their prior-year level, as well as continued high raw-material costs. For these reasons, 2012 EBITDA is forecast to be markedly below the prior-year level.

“Our strategic focus is to continue growing organically,” said CEO Rudolf Staudigl in Munich on Wednesday. “This year, we are investing around €1 billion – with a focus on production-capacity expansion to meet rising customer demand. Even though substantial economic uncertainties exist and underlying conditions are not easy, I am optimistic that 2012 can be a successful year for Wacker.”

Capital Expenditures

The Group’s investments grew markedly in fiscal 2011, climbing by 41 percent to €981 million (2010: €695 million). Capital expenditures primarily went toward capacity expansion for hyperpure polycrystalline silicon.

Last October, Wacker ramped up “Expansion Stage 9” of polysilicon production at its Nünchritz site. The planned nominal capacity of 15,000 metric tons per year is expected to be reached in Q2 2012. In 2011, considerable progress was made with the construction of the Group’s new polysilicon site at Charleston, Tennessee (USA). The underground engineering work there is largely finished and construction of the buildings is in full swing. The new site, with an annual capacity of 18,000 metric tons, is scheduled for completion by late 2013. The overall investment in this large-scale project amounts to some $1.8 billion.

Wacker also expanded its production capacities for silicones in Germany and Asia last year. At Burghausen, WACKER SILICONES invested in a new plant for hyperpure silicone elastomers. The silicone manufactured there is intended for applications in the medical and electronics industries, for example. In Zhangjiagang, China, the Group started up a further pyrogenic-silica production facility. And in Kolkata, India, a new compounding plant for ready-to-use silicone elastomers came on stream. India is one of the Group’s fastest growing sales markets for silicone products. The silicone compounds produced in Kolkata are supplied to the electrical, electronics and automotive industries.

Further funds were invested in capacity expansion of the Siltronic Samsung Wafer joint venture in Singapore, which manufactures 300 mm silicon wafers for the semiconductor industry.

Employees

As per year-end 2011, Wacker had 17,168 employees worldwide (2010: 16,314) – up 854 year over year related to polysilicon and silicone expansion activities. At year-end, Wacker’s German sites had 12,813 employees (2010: 12,235) and its international sites 4,355 (2010: 4,079).

Net Cash Flow, Net Financial Liabilities and Equity Ratio

Despite substantially higher investments, net cash flow was positive in 2011 at €6 million (2010: €422 million). Alongside cash inflow from operating activities, Wacker benefited from advance customer payments of over 150 million euros. In terms of net financial liabilities (the balance of liquidity and financial liabilities), Wacker posted a surplus of €96 million as per December 31, 2011 (2010: €264 million). Wacker’s total assets had continued to rise to €6.2 billion by year-end 2011 (2010: €5.5 billion). This 13-percent increase was due to asset additions, higher inventories and trade receivables stemming from stronger business volumes as well as exchange-rate effects. On the balance-sheet date, equity amounted to €2.63 billion (2010: €2.45 billion), resulting in an equity ratio of 42.2 percent (2010: 44.5 percent).

Business Divisions

Siltronic posted a year-on-year total sales decline due mainly to 2011’s weak fourth quarter. Sales dropped 3 percent to €992 million (2010: €1.02 billion). In Q4 2011, inventory-reduction measures by customers and weak demand for silicon wafers impacted sales volumes. While 300 mm wafer business grew during full-year 2011, there was a slowdown in the 200 mm market and, above all, in the small-diameter wafer segment. EBITDA, too, declined against 2010, coming in 44 percent lower, at €49 million (2010: €88 million). The figure includes expenses for the closure of the Hikari site, which reduced EBITDA by some €50 million. Without this charge, Siltronic’s EBITDA would have shown a year-on-year rise of €11 million.

After 2010’s strong gain, 2011’s sales at WACKER SILICONES were up again slightly by just under 1 percent to €1.59 billion (2010: €1.58 billion). Higher sales volumes and prices were responsible for this sales gain. Negative exchange-rate effects, though, dampened business. Considerably higher raw-material costs, coupled with ex¬change-rate effects, prevented EBITDA from matching the previous year’s level. At €183 million, it was 20 percent below the 2010 figure (€230 million). Silicon-metal prices alone were 29 percent higher than in 2010, while methanol prices climbed 18 percent.

WACKER POLYMERS’ total sales rose significantly last year – pri¬marily due to the construction-industry recovery and the substitution of other technologies by vinyl acetate ethylene dispersions in the carpet and packaging industries. Total sales climbed 15 percent to €928 million (2010: €810 million). Despite the marked increase in sales, EBITDA of €112 fell 9 percent short of the 2010 figure (€123 million). Higher prices for ethylene and vinyl acetate monomer (VAM) held back the division’s profitability in 2011. Compared to the pre¬vious year, the cost of ethylene rose by almost 20 percent and VAM by more than 30 percent.

In 2011, WACKER BIOSOLUTIONS slightly increased total sales by just under 2 percent to €145 million (2010: €142 million). Higher prices compensated for lower volumes and negative exchange-rate effects. WACKER BIOSOLUTIONS saw a decline in volumes for gumbase resins and cyclodextrins. In contrast, biopharmaceutical business grew. EBITDA was down 18 percent year on year to €20 million (2010: €25 million).

In 2011, WACKER POLYSILICON rised total sales by 6 percent to €1.45 billion (2010: €1.37 billion) as a result of higher sales volumes. Demand for high-quality polysilicon was very strong in the first nine months, with plants running at full capacity. In 2011’s fourth quarter, though, there was a marked drop in demand. This reversal was prompted by extreme overcapacity along the photovoltaic industry’s supply chain and by initial consolidation within the sector. In 2011, the division sold a total of 32,000 metric tons of polysilicon. EBITDA grew 2 percent to €747 million (2010: €733 million), held back by a weak fourth quarter and start-up costs for ramping up production capacities at Nünchritz’s “Poly 9” expansion stage. In contrast, EBITDA benefited from retained advance payments and indemnity payments totaling €66 million resulting from terminated agreements with customers withdrawing from the solar business.

Proposal on Appropriation of Profits

In accordance with German Commercial Code accounting rules, Wacker Chemie AG posted a retained profit of €978.7 million in 2011. The Executive and Supervisory Boards will propose a dividend of €2.20 (2010: €3.20) per share at the Annual Shareholders’ Meeting. Based on the number dividend-bearing shares as per December 31, 2011, the cash dividend corresponds to a payout of €109.3 million. Based on the net income allocable to Wacker Chemie AG’s shareholders, the resultant distribution ratio is 31 percent.

Outlook

The risks of an economic slowdown still exist. Assuming that the sovereign-debt crisis does not worsen further, the company anticipates global economic growth this year – with the strongest impetus stemming from Asia again.

Wacker is currently experiencing sales-volume increases at its polysilicon business. However, prices are well below the 2011 level. For full-year 2012, WACKER POLYSILICON’s sales revenue are expected to come in slightly lower year over year.

At its semiconductor division Siltronic, Wacker expects sales volumes for 300 mm wafers to continue growing. That is why the Group intends to further expand its capacity for this wafer diameter. Business for smaller wafer diameters is likely to decline in the future. Thus, Siltronic will realign production capacity for wafer diameters of 150 mm and 200 mm to suit market demand.

Turning to its chemical divisions, Wacker sees good prospects for further growth in 2012, even though raw-material and energy costs remain high. The rise in living standards in Asia is fueling demand for high-quality products containing silicones. At its polymer business, the Group expects higher sales volumes and prices during 2012. On the construction-applications front, growth is being driven by Asian and South American markets. Dispersions are experiencing additional demand, especially from the paper and carpet industries in the USA. At WACKER BIOSOLUTIONS, too, sales are expected to rise this year. The Group intends to strengthen this division’s market leadership in polyvinyl acetate solid resins for use in gumbase.

Wacker intends to invest approximately €1 billion during the current year to lay the foundation for its future growth.

Overall, Wacker is planning with the goal to generate sales of some €5 billion in fiscal 2012. Its earnings performance will be impacted by lower prices for solar-grade polysilicon, as well as by the continued high cost of raw materials. This is why earnings before interest, taxes, depreciation and amortization (EBITDA) in the current fiscal year will probably be markedly below 2011’s level.

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