MUNICH - Wacker Chemie AG ended 2013 with lower sales and earnings compared to 2012. When presenting its 2013 annual report on March 18, the Munich-based chemical company announced that group sales totaled €4.48 billion, some 3% down on 2012 (€4.63 billion). The decline was chiefly due to weaker prices, particularly for solar-grade silicon and semiconductor wafers. All in all, price effects reduced group sales by €366 million or about 8% last year. EBITDA – earnings before interest, taxes, depreciation and amortization – for 2013 came in at €678.7 million (2012: €795.4 million). The corresponding EBITDA margin was 15.2% (2012: 17.2%). EBITDA dropped almost 15% against 2012 mainly because of persistently low solar-silicon prices. Although more or less stable from the start of 2013, annual solar-silicon prices were about a third lower on average than in 2012. Exchange-rate effects resulting from the stronger euro also slowed the earnings trend. WACKER’s chemical divisions, though, increased their EBITDA by over 11% compared to the previous year, thanks mainly to higher volumes. Looking at the bottom line, WACKER ended 2013 with group net income of €6.3 million (2012: €114.7 million), €109 million lower than a year earlier.

During the first two months of 2014, WACKER experienced healthy demand across all business divisions. Over the same period, sales were above the comparable prior-year figures, especially for polysilicon, and also for chemicals and semiconductors. Overall, WACKER anticipates generating first-quarter 2014 sales of more than €1.1 billion, compared to first-quarter sales for 2013 of €1.08 billion.

For full-year 2014, WACKER forecasts that both sales and earnings will be above the prior-year figures. Based on company projections, sales will rise by a mid-single-digit percentage. Every division is expected to surpass the volumes and sales achieved in 2013. Earnings before interest, taxes, depreciation and amortization (EBITDA) are forecast to be at least 10% above the prior-year figure. Group net income, too, is expected to improve compared with 2013.

“After two challenging years, I am more optimistic about 2014,” said CEO Rudolf Staudigl. “We anticipate that our polysilicon business will increase its sales. This trend will not only be supported by higher volumes, we also see chances for a slight recovery in prices. Price pressure in semiconductors is very likely to continue this year. Nevertheless, our assumption for the full year is that Siltronic will post an increase in both sales and EBITDA. At our chemical divisions, we also see good chances for further growth.”

Group investments in 2013 more than halved year-on-year, dropping 54% to €503.7 million (2012: €1.1 billion). This decline shows that WACKER has largely completed, or extended the timeline for, its capital-intensive, large-scale investments in new upstream product facilities.

Last year, WACKER’s investing activities remained centered on the construction of the new polysilicon site at Charleston, TN. At some €250 million, this project accounted for approximately half of all investments in 2013. The construction work continued on schedule last year. The start of production is planned during the second half of 2015.

Investing activity in 2013 additionally focused on production-capacity expansion for dispersions in Asia and the United States. At Ulsan (South Korea), WACKER officially opened a new production facility for vinyl acetate-ethylene copolymer dispersions with an annual capacity of 40,000 metric tons. At WACKER’s polymer site in Nanjing, China, the existing production plants for dispersions were enlarged by a new reactor with an annual output of 60,000 metric tons. Nanjing also saw the completion of a new plant for polyvinyl acetate solid resins. It has an annual capacity of 20,000 metric tons. In the United States, the polymers site at Calvert City also expanded, adding 30,000 metric tons of dispersions capacity per year. In 2013, these projects involved a total of €25.1 million in additions to property, plant and equipment.

Business Divisions

Lagging silicon-wafer demand and lower prices resulted in a sales decline at Siltronic. Sales decreased over 14% to €743.0 million (2012: €867.9 million). While 300 mm silicon-wafer business grew slightly during full-year 2013, 200 mm wafer volumes remained at the prior-year level and small-diameter wafers saw a further slowdown. EBITDA improved against the prior year, rising to €26.5 million (2012: €0.7 million).

In 2013, WACKER SILICONES increased its sales by almost 2% to €1.67 billion (2012: €1.65 billion). Higher volumes compensated for the lower prices of standard products and for unfavorable exchange-rate effects. EBITDA outpaced sales growth. It came in at €230.2 million, up nearly 22% on 2012 (€189.3 million). Higher utilization of capacity resulted in better fixed-cost coverage in production. In addition, during the fourth quarter of 2013, the reversal of provisions that had been set up in the past for contingent losses from future purchase obligations from the joint venture with Dow Corning in China had a positive impact of €13.7 million on divisional EBITDA.

In 2013, WACKER POLYMERS’ sales fell slightly – down over 2% to €978.7 million (2012: €1.0 billion). Weaker dispersions business was the reason for this decrease. The substitution business with VAE dispersions, especially in the packaging industry, did not develop as positively as it had in 2012. In dispersible polymer powders, sales growth from higher volumes was held back by lower average selling prices and negative exchange-rate effects. EBITDA remained constant at €147.8 million (2012: €147.4 million).

WACKER BIOSOLUTIONS posted slightly higher sales. They rose 0.5% to €158.4 million (2012: €157.6 million), with the increase stemming from higher volumes. Sales growth was impeded by negative exchange-rate effects and lower prices. EBITDA amounted to €23.6 million, down almost 4% against 2012 (€24.5 million). Negative exchange-rate effects were the main reason for the decline.

As expected, WACKER POLYSILICON’s sales declined in 2013, down almost 19% to €924.2 million (2012: €1.14 billion). Although WACKER POLYSILICON sold more polysilicon than ever before, with 49,000 metric tons shipped, its 2013 sales were lower than a year ago due to the marked drop in average prices for hyperpure polysilicon. Fiscal 2013 was shaped by continued photovoltaic-market growth, by persistent overcapacity throughout the supply chain and by price pressure. The uncertainties in the anti-dumping dispute on solar modules between the EU and China curbed production, especially in the third quarter. Following an agreement in the anti-dumping dispute, polysilicon volumes picked up in the fourth quarter of 2013. EBITDA dropped 45% to €233.9 million (2012: €427.5 million), dampened primarily by prices that were, on average, markedly lower than in the previous year. Terminations of supply contracts with customers who exited the solar business and payment of damages added a total of €77.6 million to EBITDA (2012: €113.1 million).

In accordance with German Commercial Code accounting rules, Wacker Chemie AG posted a retained profit of €636.1 million in 2013. The Executive and Supervisory Boards will propose a dividend of €0.50 (2012: €0.60) per share at the Annual Shareholders’ Meeting. Based on the number of dividend-bearing shares as per December 31, 2013, the cash dividend corresponds to a payout of €24.8 million. Calculated in relation to WACKER’s average share price in 2013, the dividend yield is 0.8%.

Outlook

Key market data suggest stronger growth for the global economy over the next two years. For the first time since 2011, market researchers anticipate a slight rise in Europe’s economic output. The United States should see its economic output rise relative to the past year. China and other emerging countries will continue their economic expansion in 2014, broadly matching the growth rates of 2013. WACKER, in its scenario, assumes that the global economy will expand slightly in 2014.

In WACKER’s polysilicon business, both volumes and sales are projected to rise in 2014. The company’s assumption is that the photovoltaic market will continue on its growth trajectory. Nevertheless, overcapacity is still a feature of the entire supply chain. WACKER expects a slight recovery in polysilicon prices for photovoltaic applications. WACKER and the Chinese Ministry of Commerce have now come to an agreement that enables WACKER to supply its customers in China with polysilicon at competitive prices also in the future.

In its semiconductor business, WACKER expects substantial sales growth in 2014, fueled primarily by the full consolidation of Siltronic Silicon Wafer Pte. Ltd., the joint venture that is now 78% owned by Siltronic. Siltronic anticipates that 2014 will see persistent price pressure impeding sales growth. Full consolidation of this joint venture is expected to entail a considerable increase in EBITDA year on year.

The Group’s chemical divisions offer good prospects for further growth in 2014. Sales at WACKER SILICONES are expected to increase, though the price pressure on standard products will remain. Growth will primarily come from Asia. WACKER POLYMERS aims to increase its sales considerably. The regions with the highest sales gains are likely to be China, India and the Americas. In Europe, projections are for only a slight sales increase. WACKER BIOSOLUTIONS, too, expects sales to continue to rise. The division aims to step up its biologics business as a result of the takeover of Scil Proteins Production.

Overall, WACKER expects Group sales to increase by a mid-single-digit percentage in 2014. Earnings before interest, taxes, depreciation and amortization are projected to grow by at least 10%, which will improve the EBITDA margin as well. Amid higher depreciation of some €600 million and a tax rate of over 50%, group net income is expected to improve against the prior-year figure. Excluding the acquisition of the majority stake in the joint venture Siltronic Silicon Wafer, investments will be somewhat above the prior-year level at about €550 million. WACKER is aiming to achieve a balanced net cash flow. Net financial debt will climb by about €300 – 400 million.