Wacker’s Business Picks Up Noticeably in Q1 2012

Lower solar-silicon margins and non-recurring effects impacted WACKER’s profitability in the first quarter of 2012. The Group generated earnings before interest, taxes, depreciation and amortization (EBITDA) of €211.8 million in the period under review – down 40 percent from a year ago (€351.0 million). Compared with Q4 2011 (€110.8 million), however, the Group almost doubled its EBITDA. The EBITDA margin in the period reached 17.7 percent (Q1 2011: 27.2 percent). The Group’s first-quarter earnings before interest and taxes (EBIT) amounted to €82.4 million (Q1 2011: €245.9 million), which corresponds to an EBIT margin of 6.9 percent (Q1 2011: 19.0 percent). In the fourth quarter of 2011, EBIT had been €-55.0 million. Net income for the period was €40.0 million (Q1 2011: €168.0 million), which represents earnings per share of €0.84 (Q1 2011: €3.39).

Aside from the effect of lower prices on revenues, the continued high cost of raw materials and energy was also a key factor holding back earnings in the quarter. At Siltronic, non-recurring expenses relating primarily to the announced closure of the 150 mm wafer production line at Portland reduced EBITDA by some €15 million. Furthermore, higher depreciation resulting from additions to noncurrent assets also had a part in reducing both EBIT and net income for the period. The new polysilicon plant at Nünchritz was one of the contributing factors here. During the quarter, WACKER POLYSILICON received around €37 million in advance payments and damages from polysilicon customers exiting the solar business. This had a positive effect on earnings.

For full-year 2012, WACKER’s forecast for Group sales remains unchanged at approximately €5 billion. EBITDA for fiscal 2012 is expected to be well below the previous year’s figure of €1.1 billion.

“In view of the general situation, WACKER saw a good start into fiscal 2012,” said CEO Rudolf Staudigl on Friday in Munich. “Encouragingly, customer demand gained appreciable momentum in many business segments during the first quarter of 2012. Although the general economic environment remains challenging, especially in the first half of the year, it seems that the downward trend has now come to an end – a reassuring signal for the months ahead.”

Regions

In the period under review, WACKER’s business performance varied across individual regions. One of the major reasons for this divergence is the strong solar-industry shift toward Asia, where the Group increased sales by 3 percent. With first-quarter sales of €487.1 million (Q1 2011: €471.9 million), Asia is WACKER’s largest sales market.

Europe showed a significantly weaker business performance. Along with declining solar-sector sales, cautious customer ordering patterns also left their mark. In Germany, first-quarter sales were €184.6 million in 2012 – down 25 percent from a year ago (€247.2 million). Sales in the rest of Europe also contracted. At €276.3 million, they dropped over 11 percent against the prior-year period (€311.9 million).

In the Americas, WACKER’s chemical business grew during the quarter under review. However, semiconductor-wafer and polysilicon sales there posted declines. Total sales for the region from January through March 2012 amounted to €207.3 million – a drop of 6 percent from a year earlier (€220.5 million). In the markets combined under “Other regions,” first-quarter sales totaled €39.0 million (Q1 2011: €40.2 million). Overall, WACKER generated about 84 percent of its first-quarter sales with customers outside Germany (Q1 2011: 81 percent).

Investments and Net Cash Flow

WACKER invested a total of €186.1 million in January through March 2012 (Q1 2011: €136.6 million). Almost three-quarters of this amount related to the ongoing expansion of polysilicon production capacity, particularly the construction of the new Charleston site in the US state of Tennessee. Two expansion projects are underway at the production site in Nanjing (China). A new reactor with an annual capacity of 60,000 metric tons is being added to the site’s existing production facilities for vinyl acetate-ethylene copolymer dispersions. Moreover, a new plant is being built there for polyvinyl acetate solid resins, with an annual capacity of 20,000 metric tons. WACKER is investing a total of about €40 million in the two new facilities.

The Group’s net cash flow for January through March 2012 was €-41.5 million, compared with €97.5 million a year ago. The decline was due to lower first-quarter net income and to the high level of investment spending. Additionally, starting fiscal 2012, WACKER no longer reports advance payments for polysilicon deliveries within net cash flow. The Group has thus adapted its presentation of net cash flow to the method used by financial analysts, who consider these payments to be a form of financing. Applying this method to Q1 2011, WACKER would have had net cash flow of €97.5 million back then instead of the €286.3 million actually reported for that prior-year quarter.

Employees

Employee numbers at WACKER are changing as production capacity is transferred or shut down, and new production facilities and sites are constructed. On March 31, 2012, WACKER had 17,166 employees (Dec. 31, 2011: 17,168) worldwide, up by over 3 percent com¬pared with the end of Q1 2011. There was no change in the Group’s total workforce compared with year-end 2011. As of March 31, 2012, WACKER had 12,847 employees in Germany (Dec. 31, 2011: 12,813) and 4,319 at its international sites (Dec. 31, 2011: 4,355).

Business Divisions

WACKER SILICONES generated total sales of €401.0 million in the first quarter of 2012, compared with €410.5 million a year earlier. Thus, the division did not quite match (-2 percent) the prior-year quarter’s very high level. This was mainly due to a slight drop in year-on-year volumes in Europe and to lower prices. Compared with the previous quarter (€357.0 million), however, sales rose 12 percent. WACKER SILICONES’ EBITDA for January through March 2012 mainly reflected the influence of two factors when compared with Q1 2011. Pricing for the division’s products was weaker, and fixed-cost coverage was not quite as high as in Q1 2011, due to slightly lower capacity utilization than in the prior-year period. At €49.4 million, EBITDA for Q1 2012 was down 34 percent from the prior-year figure (€75.1 million), but many times higher than in the previous quarter (€5.7 million). The EBITDA margin in the period under review reached 12.3 percent (Q1 2011: 18.3 percent).

In Q1 2012, WACKER POLYMERS benefited from a robust market environment and continuing high customer demand, especially for dispersions. Total sales climbed 14 percent to €233.8 million, compared with €205.4 million in Q1 2011. Influenced by seasonal effects, sales were almost 9 percent up on the preceding quarter (€215.1 million). Sales growth was driven by both higher volumes and better prices. These two factors – coupled with the high fixed-cost coverage achieved through well-utilized plant capacity – have also helped lift WACKER POLYMERS’ profitability. The division improved its EBITDA to €34.1 million in the three months from January through March 2012 – a rise of around 31 percent on the prior-year period (€26.0 million). The first-quarter EBITDA margin climbed to 14.6 percent (Q1 2011: 12.7 percent).

WACKER BIOSOLUTIONS’ first-quarter sales totaled €41.2 million (Q1 2011: €37.7 million). Every product group contributed to this 9-percent increase. Sales rose 22 percent compared with Q4 2011 (€33.7 million). WACKER BIOSOLUTIONS also improved its EBITDA, which climbed to €7.9 million in the first quarter of 2012 (Q1 2011: €5.2 million). The corresponding EBITDA margin was 19.2 percent (Q1 2011: 13.8 percent).

WACKER POLYSILICON posted total sales of €366.6 million in Q1 2012, as against €414.4 million in Q1 2011 – a year-on-year decrease of almost 12 percent. However, the selling prices of hyperpure polysilicon fell much more considerably during the same period. The division has been supplying its contract customers with additional quantities. In this way, it has compensated somewhat for the price-driven decline by pushing up volumes. WACKER POLYSILICON sold almost 50 percent more hyperpure polysilicon in Q1 2012 than in the corresponding prior-year period. Compared with Q4 2011 (€255.9 million), sales were up 43 percent in the quarter under review. WACKER POLYSILICON is currently running all its production facilities at full capacity in order to meet its customers’ demand for polysilicon. The price decline in polysilicon for the solar industry, which takes around 90 percent of WACKER POLYSILICON’s volume, has had a major impact on the division’s profitability. First-quarter EBITDA reached €150.1 million (Q1 2011: €214.7 million), down some 30 percent year on year. Measured against Q4 2011 (€165.0 million), EBITDA was down by 9 percent. The EBITDA margin for WACKER POLYSILICON reached 40.9 percent in the quarter under review (Q1 2011: 51.8 percent). It is important to remember that the figures both for the quarter under review and for the final quarter of 2011 include special income from advance payments and damages from customers withdrawing from the solar business. These effects amounted to around €37 million in the first quarter of 2012, and to some €66 million in Q4 2011.

Siltronic achieved total sales of €201.1 million in Q1 2012, down 28 percent from the prior-year quarter’s €280.2 million. This drop was mainly due to the lower volumes sold, although weaker prices also played a role. Compared with Q4 2011 (€179.7 million), however, sales were up by approximately 12 percent. Siltronic’s first-quarter EBITDA came in at €-25.7 million (Q1 2011: €36.8 million). This fall of almost €63 million mainly stemmed from the weaker market prices for silicon wafers and the poorer fixed-cost coverage due to lower year-on-year production capacity utilization. Non-recurring expenses – incurred mainly in connection with the announced closure of Portland’s 150 millimeter wafer line – reduced EBITDA by around €15 million. The EBITDA margin for the quarter under review was -12.8 percent, compared with 13.1 percent in Q1 2011 and -32.6 percent in Q4 2011.

Outlook

The global economy appears to have overcome the weak phase of the second half of 2011. Initial signs of a recovery emerged since the start of 2012, and economists believe the trend will gain momentum in the second half of the year, even if marked regional differences are likely. However, the risks stemming essentially from Europe’s financial and sovereign-debt crisis have not gone away.

From today’s perspective, the photovoltaic market will grow further this year. WACKER expects that newly installed photovoltaic capacity will reach between 30 and 35 gigawatts. Volumes and plant utilization will thus remain high, but prices for solar silicon will not reach last year’s levels. For semiconductors, the Group anticipates that customer demand will rise over the next few months. In the chemical divisions, WACKER expects sales to grow during the current fiscal year as a result of higher volumes.

For 2012 as a whole, the Group targets sales of around €5 billion. Full-year earnings before interest, taxes, depreciation and amortization are expected to be well below the prior-year level, mainly due to the lower prices obtained from photovoltaic customers for polysilicon deliveries.