Wacker Chemie AG — Earnings Release 2013

Oct 31, 2013

News Details

Corporate | 31 October 2013 07:14

SURGE IN POLYSILICON DEMAND AND LOWER PRODUCT PRICES SHAPE THIRD QUARTER AT WACKER

Wacker Chemie AG / Key word(s): Quarter Results

31.10.2013 / 07:14

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– THIRD-QUARTER GROUP SALES REACH EUR1.17 BILLION, 1 PERCENT ABOVE Q2 2013 AND 3 PERCENT BELOW Q3 2012

– AT EUR168 MILLION, THIRD-QUARTER EBITDA COMES IN 19 PERCENT LOWER THAN LAST YEAR DUE TO PRICE DECLINES AND, AMID POLYSILICON-INVENTORY REDUCTIONS, 11 PERCENT BELOW Q2 2013

– PRICE PRESSURE AND CURRENCY EFFECTS SLOW DOWN CHEMICALS BUSINESS, WHILE SOLAR-SILICON VOLUMES SHOW SUBSTANTIAL GROWTH

– NET INCOME FOR Q3 2013 AMOUNTS TO EUR5 MILLION

– SALES AND EARNINGS FORECAST UNCHANGED: WACKER EXPECTS FULL-YEAR 2013 GROUP SALES OF SOME EUR4.5 BILLION, WITH EBITDA DOWN YEAR ON YEAR AND A SMALL POSITIVE NET INCOME

– FULL-YEAR NET CASH FLOW NOW EXPECTED TO BE POSITIVE

Munich, October 31, 2013 – Wacker Chemie AG posted slight quarter-on-quarter sales growth between July and September 2013, thanks especially to the surging demand for solar silicon. As already expected, however, the Munich-based chemical group did not match the prior-year’s Q3 sales figure. WACKER achieved sales of EUR1,165.4 million between July and September 2013 – down 3 percent from a year ago (EUR1,200.9 million). Volume growth increased sales by about EUR112 million during the quarter under review, while lower prices, especially in solar silicon and semiconductor wafers, reduced sales by some EUR109 million. Exchange-rate effects resulting from the strong euro also slowed the sales trend. Relative to the preceding quarter (EUR1,150.3 million), however, sales were up more than 1 percent.

WACKER’s earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to EUR167.9 million in the third quarter of 2013 (Q3 2012: EUR206.1 million), almost 19 percent less than a year ago and almost 11 percent less than in the preceding quarter (EUR188.2 million). The EBITDA margin was 14.4 percent, compared to 17.2 percent in Q3 2012 and 16.4 percent in Q2 2013. The Group’s earnings before interest and taxes (EBIT) from July through September 2013 totaled EUR35.1 million (Q3 2012: EUR72.5 million). The corresponding EBIT margin was 3.0 percent (Q3 2012: 6.0 percent). Net income for the quarter under review was EUR5.4 million (Q3 2012: EUR28.8 million) and earnings per share amounted to EUR0.09 (Q3 2012: EUR0.54).

The main factor holding back WACKER’s July-through-September sales performance in 2013 was the unaltered low price level for solar silicon. Prices were down about one-third from their prior-year levels. The sale of solar silicon from inventories diminished earnings, too. Silicon-wafer prices in the third quarter of 2013 were about 15 percent lower than a year ago. At EUR109.6 million, the combined EBITDA of the three chemical divisions was about 3 percent down on the prior-year period (EUR113.4 million) and about 6 percent below Q2 2013 (EUR116.6 million). Lower prices for some product lines, especially in standard products, were the reason for the decrease. Unfavorable exchange-rate effects played a part as well. Included in third-quarter EBITDA are EUR13.2 million (Q3 2012: EUR2.1 million) in advance payments retained and damages received stemming from terminated contracts with polysilicon customers.

WACKER’s full-year 2013 forecast remains unchanged: the Group expects to post sales in the region of EUR4.5 billion, after EUR4.63 billion last year. EBITDA for fiscal 2013 is projected to fall short of the previous year’s figure (EUR795 million), while net income will be in slightly positive territory from today’s perspective.

‘Demand for polysilicon continued to surge in the third quarter, lifted not only by the compromise reached in the solar dispute between the European Union and China, but also by mounting global interest in solar power,’ said CEO Rudolf Staudigl on Thursday in Munich. ‘In turn, demand from our customers climbed strongly in the third quarter. The prices for solar silicon remain a challenge. They were about one-third lower than a year ago. In the chemical divisions, the continued weakness of the economy – especially in Europe – is slowing our business and driving down prices in many of our product lines. Now that construction of our capital-intensive large-scale plants is nearing completion, we have markedly scaled back our investment activity – this has had a very positive impact on our cash flow and our debt level.’

Regions

Asia remained by far the most significant market for the WACKER Group in Q3 2013. Sales in the region totaled EUR470.3 million (Q3 2012: EUR481.5 million), down roughly 2 percent from a year ago. Overall, the chemical divisions maintained sales in Asia at last year’s levels. Amid strong volume increases, WACKER POLYSILICON more than offset lower price levels and generated sales growth. On the other hand, significant price declines in particular have left their mark on Siltronic’s semiconductor business in the region, and the weak yen is pushing silicon-wafer prices even lower. Relative to the preceding quarter (EUR448.3 million), WACKER increased its Asian sales by some 5 percent.

In Europe, WACKER achieved July-through-September sales of EUR279.6 million, just under 1 percent less than a year ago (EUR282.2 million). Overall, the chemical divisions achieved slightly higher sales in Europe. Semiconductor wafers and solar silicon, though, saw sales fall well short of the respective prior-year figures, mainly due to lower prices. The continued weak economic situation also dampened business in Europe. Relative to Q2 2013 (EUR289.2 million), the Group’s sales in the region were down more than 3 percent.

In Germany, WACKER’s third-quarter sales amounted to EUR170.2 million – down just under 1 percent from a year ago (EUR172.2 million), but up more than 3 percent on Q2 2013 (EUR164.7 million). These figures reflect, among other things, the fact that the German economy has performed comparatively well in a European context.

In the Americas, sales of EUR202.1 million were down 8 percent from a year ago (EUR219.9 million). Most of this decline stemmed from substantially weaker semiconductor-wafer sales. Exchange-rate effects also had a significant impact on the sales trend. Sales held steady relative to Q2 2013 (EUR201.9 million).

Sales in the markets combined under ‘Other Regions’ totaled EUR43.2 million from July through September, after EUR45.1 million in Q3 2012 and EUR46.2 million in Q2 2013. Overall, the WACKER Group generated about 85 percent of its sales with customers outside Germany in the quarter under review (Q3 2012: 86 percent).

Investments and Net Cash Flow

In Q3 2013, WACKER invested EUR98.2 million (Q3 2012: EUR291.4 million) to expand production capacity. This decline of some 66 percent was due to project-related factors. Relative to Q2 2013 (EUR131.3 million), investment spending was down by about 25 percent – a sign that WACKER has largely completed, or extended the timeline for, its capital-intensive large-scale investments in new upstream facilities.

Investment activities continued to center on the construction of the new polysilicon site at Charleston, Tennessee (USA), which accounted for more than half of the Group’s capital expenditures in the quarter under review. The facilities are scheduled for completion by mid-2015. At its Nanjing site in China, WACKER is currently building a new plant to produce polyvinyl acetate solid resins, which will have an annual capacity of 20,000 metric tons. Construction of the new plant is expected to be completed toward year-end. This new capacity will allow WACKER to meet rising demand from its Asian customers.

In the third quarter of 2013, WACKER generated net cash flow of EUR164.7 million (Q3 2012: EUR-90.4 million). This significant increase is the result of lower investment spending and higher inflows of cash from operating activities, for example through the reduction of polysilicon inventories.

Employees

The workforce at WACKER declined by 1 percent during the third quarter of 2013. As of September 30, 2013, the WACKER Group had 16,074 employees worldwide (June 30, 2013: 16,203) – 12,399 in Germany (June 30, 2013: 12,501) and 3,675 at its international sites (June 30, 2013: 3,702).

Business Divisions

WACKER SILICONES posted total Q3 2013 sales of EUR429.4 million, almost matching the comparable prior-year period (EUR432.1 million). Business benefited from higher volumes, but growth was slowed by persistent price pressure, particularly on standard products, and by unfavorable exchange-rate effects due to the stronger euro. Consequently, sales dropped by almost 2 percent relative to the second quarter (EUR437.2 million). EBITDA at WACKER SILICONES amounted to EUR59.2 million in the quarter under review (Q3 2012: EUR57.4 million), roughly 3 percent more than a year ago and almost 11 percent less than in the second quarter (EUR66.3 million). The EBITDA margin for July through September 2013 was 13.8 percent, after 13.3 percent last year and 15.2 percent in the second quarter.

WACKER POLYMERS achieved sales of EUR265.4 million from July through September 2013 (Q3 2012: EUR274.0 million) – about 3 percent down on both last year and Q2 2013 (EUR273.4 million). The main reasons for the decline were lower average prices and unfavorable exchange-rate effects. These factors also caused the division’s EBITDA to decrease relative to last year’s third quarter by almost 11 percent to EUR45.1 million (Q3 2012: EUR50.5 million). The division maintained the preceding quarter’s level (EUR44.4 million) despite slightly weaker prices. The EBITDA margin for the three months through September 2013 was 17.0 percent compared with 18.4 percent in the same quarter last year. In Q2 2013, the EBITDA margin was 16.2 percent.

WACKER BIOSOLUTIONS posted total third-quarter sales of EUR38.1 million in 2013, after EUR40.1 million a year ago. Sales at the division were thus about EUR2 million lower than both last year and in the preceding quarter (EUR40.5 million). WACKER BIOSOLUTIONS sold higher volumes of both gumbase polymers and cyclodextrins. The fine chemical acetylacetone, on the other hand, saw business slow. EBITDA at the division amounted to EUR5.3 million in the quarter under review (Q3 2012: EUR5.5 million), yielding an EBITDA margin of 13.9 percent compared with 13.7 percent last year. In Q2 2013, the division had achieved EBITDA of EUR5.9 million and an EBITDA margin of 14.6 percent.

WACKER POLYSILICON ‘s total Q3 2013 sales of EUR235.7 million were down by over 12 percent on last year (EUR269.1 million), but around 16 percent higher than in Q2 2013 (EUR203.3 million). The division benefited from China and the European Union reaching a compromise in their solar dispute and not imposing punitive tariffs, at least for the time being. As a result, confidence has grown among market participants and demand for solar silicon has picked up significantly. In this environment, WACKER POLYSILICON sold much more polysilicon in Q3 2013 than in both the preceding quarter and the prior-year quarter. To reduce its solar-silicon inventories, the division somewhat lowered production output early on in the third quarter. Thanks to strong demand, capacity utilization then increased markedly during the quarter. Toward late September, facilities were running at almost full capacity. Overall, third-quarter sales volumes clearly surpassed production output. Prices for solar silicon were essentially unchanged compared with the preceding quarter. However, they remain at a very low level. EBITDA at WACKER POLYSILICON amounted to EUR46.6 million in the quarter under review (Q3 2012: EUR78.8 million). Earnings were thus around 41 percent lower than in Q3 2012 and down some 27 percent from Q2 2013 (EUR64.0 million). Beside low prices, earnings were also reduced by the sale of solar-silicon inventories and the quarter’s overall low fixed-cost coverage. Additionally, in the third quarter, fewer advance payments were retained and damages received by the division compared with April through June 2013. Third-quarter EBITDA included EUR13.2 million (Q3 2012: EUR2.1 million) in advance payments retained and damages received stemming from terminated contracts with polysilicon customers. In the preceding quarter, the division had posted EUR23.8 million here. The EBITDA margin declined to 19.8 percent, compared with 29.3 percent in Q3 2012 and 31.5 percent in Q2 2013.

Growth remained subdued in Siltronic ‘s semiconductor business during Q3 2013. Amid weaker demand for computers, tablet PCs and smartphones, silicon-wafer business was also restrained across the entire industry. Siltronic reported total sales of EUR197.1 million for July through September 2013, after EUR234.7 million last year. The sales decline was 16 percent year on year and just under 2 percent on Q2 2013 (EUR200.1 million). Third-quarter volumes at Siltronic were around 1 percent higher than a year ago. Compared with the preceding quarter, volumes were up by about 2 percent. The slight volume growth, though, could not make up for price declines. Silicon-wafer prices in July through September 2013 were about 15 percent lower than a year ago. Relative to the preceding quarter, wafer prices edged down a little further. The measures taken by Siltronic to reduce production costs and enhance plant utilization are proving effective. As a result, the division again posted positive EBITDA for the quarter under review despite the continued price declines. EBITDA came in at EUR5.2 million, after EUR9.9 million a year ago and EUR9.1 million in the preceding quarter. The third-quarter EBITDA margin was 2.6 percent, compared with 4.2 percent in Q3 2012 and 4.5 percent in Q2 2013.

Outlook

The world economy is expected to grow this year and, according to the latest estimates of economic experts, momentum will increase further in 2014. Still, the European financial and sovereign-debt crisis and the public-sector deficit in the USA continue to pose substantial risks to the stability of the global economy.

At its chemical divisions, WACKER continues to see attractive growth opportunities in diverse sectors, ranging from construction and electrical engineering to cosmetics and textiles. Demand for WACKER’s chemical products is fueled by rising affluence and mobility, and by infrastructure expansion in many of the world’s major cities and market regions. For full-year 2013, the chemical divisions anticipate slightly stronger overall year-on-year sales. Growth, however, will not be as high as expected mid-year due to increased price pressure on standard products and the continued weakness of Europe’s economy.

Amid a generally subdued semiconductor market, Siltronic does not expect its 2013 sales to reach the prior-year figure. Although third-quarter volumes edged higher both year on year and quarter on quarter, sales are being dampened by persistent price pressure in the marketplace and unfavorable exchange-rate effects relating to the US dollar and Japanese yen. In line with market trends, Siltronic anticipates a noticeable decline in volumes in the fourth quarter.

During Q3 2013, WACKER’s polysilicon business benefited from the fact that China and the EU resolved their trade dispute about solar products for the time being, and that China has so far abstained from imposing punitive tariffs on European solar silicon. As a result, confidence grew among market participants and demand increased significantly for WACKER POLYSILICON’s solar silicon. A final decision about imposing punitive tariffs on imports of Chinese solar products to Europe is expected in early December. In the medium and long term, the photovoltaic industry will remain a global growth industry. Weak momentum in Europe will be more than offset by the potential for growth in China, Japan and the USA. Solar-silicon prices will remain a key challenge despite production-capacity consolidation. Prices in the third quarter remained essentially unchanged compared with Q2 2013, but they are still at a very low level. As a result, WACKER POLYSILICON’s full-year sales for 2013 are likely to be lower than in 2012.

From today’s perspective, WACKER’s capital expenditures for full-year 2013 will be about EUR500 million, some EUR50 million below mid-year expectations. Depreciation is likely to reach EUR550 million this year. Until recently, WACKER assumed that net cash flow would be slightly negative at around EUR-50 million. Now, according to the latest estimates, net cash flow will be positive – reflecting the positive impact both of lower investments and reduced inventories. WACKER had previously targeted net financial debt at a level of not over EUR1 billion. Net financial debt is now expected to be below EUR900 million at year-end.

Although third-quarter growth in chemicals was slightly lower than had been expected mid-year, WACKER’s Executive Board reiterates its forecast that full-year sales for 2013 will come in at about EUR4.5 billion (2012: EUR4.63 billion). For this projection, it is essential that the mutual solution reached in the solar dispute between China and the European Union proves lasting.

As already forecast in the 2012 Annual Report, Group EBITDA at year-end 2013 will fall short of the previous year’s figure of EUR795.4 million. Total EBITDA for the chemical divisions is expected to be slightly higher than in 2012. WACKER POLYSILICON will make a substantial EBITDA contribution. However, it will be well below last year’s level, based on the polysilicon prices used by WACKER in its estimates. At Siltronic, today’s perspective does not offer any signs of a major improvement in EBITDA on the prior-year period.

WACKER’s Group net income, in line with previous projections, is expected to remain slightly positive.

Information for editorial offices: The Q3 2013 report is available for download on the WACKER website (www.wacker.com) under Investor Relations.

WACKER’s Key Figures

EUR million	Q3 2013	Q3 2012*	Change in %	9M 2013	9M 2012*	Change in %
Sales	1,165.4	1,200.9	-3.0	3,392.0	3,617.7	-6.2
EBITDA 1	167.9	206.1	-18.5	520.6	661.5	-21.3
EBITDA margin 2 (%)	14.4	17.2	–	15.3	18.3	–
EBIT 3	35.1	72.5	-51.6	119.8	268.3	-55.3
EBIT margin 2 (%)	3.0	6.0	–	3.5	7.4	–
Financial result	-23.4	-14.8	58.1	-59.1	-42.9	37.8
Income before taxes	11.7	57.7	-79.7	60.7	225.4	-73.1
Net income for the period	5.4	28.8	-81.3	25.6	131.7	-80.6
Earnings per share (EUR)	0.09	0.54	-83.3	0.45	2.60	-82.3
Capital expenditures (including financial assets)	98.2	291.4	-66.3	350.7	722.4	-51.5
Net cash flow 4	164.7	-90.4	n.a.	190.8	-294.9	n.a.

EUR million	Sept. 30, 2013	Sept. 30, 2012*	Dec. 31, 2012*
Equity	2,167.4	2,081.7	2,121.3
Financial liabilities	1,476.4	1,177.4	1,197.2
Net financial debt 5	688.1	411.3	700.5
Total assets	6,589.7	6,748.1	6,492.8
Employees (number at end of period)	16,074	16,433	16,292

1 EBITDA is EBIT before depreciation and amortization.

2 Margins are calculated based on sales.

3 EBIT is the result from continuing operations for the period before interest and other financial results, and income taxes.

4 Sum of cash flow from operating activities (excluding changes in advance payments) and cash flow from noncurrent investment activities (before securities), including additions due to finance leases.

5 Sum of cash and cash equivalents, noncurrent and current securities, and noncurrent and current financial liabilities.

* Adjusted for the effects of the adoption of IAS 19 (revised); see Changes in Accounting and Valuation Methods in the Notes section of the Q3 2013 interim report.

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.

For further information, please contact:

Wacker Chemie AG

Media Relations & Information

Christof Bachmair

Tel. +49 89 6279-1830

Fax +49 89 6279-1239

christof.bachmair@wacker.com

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Language:	English
Company:	Wacker Chemie AG
	Hanns-Seidel-Platz 4
	81737 München
	Germany
Phone:	0049-89-6279-1633
Fax:	0049-89-6279-2933
E-mail:	investor.relations@wacker.com
Internet:	www.wacker.com
ISIN:	DE000WCH8881
WKN:	WCH888
Listed:	Regulierter Markt in Frankfurt (Prime Standard); Freiverkehr in Berlin, Düsseldorf, Hamburg, Hannover, München, Stuttgart

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