Wacker Chemie's Q1 net income up 1,158.8% year-over-year to €64.2M mainly due to special income recognized at Wacker Polysilicon business division as well as high volumes, better solar-silicon prices; net sales up 7.5% to €1.16B

In addition to high volumes and better solar-silicon prices, the principal factor in this strong increase was special income recognized at the WACKER POLYSILICON business division, where the Group restructured its contractual relationships with a solar-sector customer in the quarter under review. As part of that agreement, WACKER retained advance payments and received damages totaling €114.0 million (Q1 2013: €32.2 million). Adjusted for this special income, EBITDA grew by approximately 29 percent year on year.

WACKER’s full-year 2014 forecast remains unchanged. The com-pany expects Group sales in 2014 to increase by a mid-single-digit percentage (2013: €4.48 billion). Fiscal 2014’s EBITDA is expected to be at least 10 percent higher than in 2013 (€679 million). Group net income should also rise compared to the previous year.

“WACKER had a good start to the new fiscal year in Q1 2014,” said CEO Rudolf Staudigl in Munich on Monday. “Customer demand for our products rose noticeably throughout all divisions in the first quarter. At the same time, price pressures have eased in a number of segments. Especially for solar silicon, we are seeing better prices than a year ago. Our sales and earnings trend in Q1 and our current order level are supporting our optimistic view on the coming months.”

Regions

Asia continued to reinforce its position as the WACKER Group’s most significant sales region by far in the reporting quarter, with the Group generating some 42 percent (Q1 2013: 40 percent) of total sales in Asia. At €490.2 million (Q1 2013: €434.7 million), sales there were up almost 13 percent year on year. All business divisions exceeded their respective prior-year sales. The increase was particularly strong at Siltronic, where the first-time consolidation of Siltronic Silicon Wafer Pte. Ltd. in the WACKER Group contributed positively to the sales trend. WACKER SILICONES’ and WACKER POLYMERS’ sales in Asia saw double-digit growth as well. Relative to the preceding quarter (€472.8 million), WACKER increased total Group sales in Asia by almost 4 percent.

In Europe, WACKER generated sales of €274.1 million from January through March 2014 (Q1 2013: €256.7 million). This is almost 7 percent more than a year ago and just over 10 percent more than in Q4 2013 (€248.3 million). Apart from Siltronic, all business divisions grew their sales in Europe – both year on year and quarter on quarter. Alongside the usual seasonal effects, the mild winter and the upturn in the economy contributed positively to the chemical-business trend in this region. Sales of semiconductor wafers, on the other hand, did not reach prior-year or prior-quarter levels due to negative price effects.

In Germany, WACKER’s first-quarter sales in 2014 amounted to €167.3 million (Q1 2013: €159.9 million). This was a year-on-year rise of nearly 5 percent and almost 10 percent up on the final quarter of 2013 (€152.2 million). As in the rest of Europe, this sales growth was mainly driven by higher volumes of chemicals.

In the Americas, sales of €183.1 million reached the level of a year ago (€183.7 million). Exchange-rate effects had noticeably slowed the sales trend. Relative to Q4 2013 (€173.3 million), sales grew by 6 percent.

Sales in the markets combined under “Other Regions” totaled €42.7 million from January through March, after €41.3 million a year earlier and €40.3 million in Q4 2013. Overall, the WACKER Group generated about 86 percent of its first-quarter sales with customers outside Germany (Q1 2013: 85 percent).

Investments and Net Cash Flow

The WACKER Group invested €89.3 million in the first quarter of 2014 (Q1 2013: €121.2 million). This decline of some 26 percent was due to project-related factors. Relative to Q4 2013 (€153.0 million), investment spending was down by nearly 42 percent. The Group’s net cash flow in the first quarter of 2014 was €104.5 million, compared with €-39.0 million a year ago. The main causes of this increase were the higher net income and reduced investment spending for the period.

Investments in the reporting quarter remained focused on completing the new polysilicon site in Charleston, Tennessee (USA), which accounted for over half of the Group’s capital expenditures in the quarter under review.

At the WACKER BIOSOLUTIONS division, the Group bolstered its pharmaceutical-protein business by acquiring a production plant in Halle, Germany. The acquisition of Scil Proteins Production GmbH – a biotechnology company – had been announced in November 2013 and was completed in early 2014.

The start of the year also saw Siltronic acquiring a majority stake in the former joint venture with Samsung for the production of 300 millimeter wafers in Singapore. Siltronic subscribed for new shares in a capital increase and now owns 78 percent of the company, which has been renamed Siltronic Silicon Wafer Pte. Ltd. The company is now a consolidated subsidiary.

Having successfully added capacity for vinyl acetate-ethylene copolymer dispersions at the Nanjing site in China, WACKER is now expanding its production facilities for dispersible polymer powders at the same site. A series of individual measures has been planned to eliminate bottlenecks in the production process and consequently enhance productivity. Once these measures are completed, WACKER expects to be able to produce up to 60,000 metric tons of dispersible polymer powder at Nanjing annually.

Employees

The number of employees at WACKER worldwide rose by 779 in the reporting quarter – an increase of nearly 5 percent. On March 31, 2014, the Group had 16,788 employees (Dec. 31, 2013: 16,009). This increase is attributable to the first-time consolidation of Siltronic Silicon Wafer Pte. Ltd. in the WACKER Group and to the acquisition of Scil Proteins Production GmbH. As of March 31, 2014, WACKER had 12,456 employees in Germany (Dec. 31, 2013: 12,322) and 4,332 at its international sites (Dec. 31, 2013: 3,687).

Business Divisions

In Q1 2014, WACKER SILICONES achieved total sales of €425.3 million (Q1 2013: €402.1 million). The figure was close to 6 percent higher than in the comparable year-earlier quarter and a good 5 percent above last year’s closing quarter (€403.5 million). Thanks to higher volumes, the division more than compensated for unfavorable exchange-rate effects arising from the weaker US dollar. WACKER SILICONES’ first-quarter EBITDA came in at €49.1 million (Q1 2013: €53.7 million). That was almost 9 percent lower than a year ago and nearly 4 percent below the preceding quarter (€51.0 million). The corresponding EBITDA margin for the reporting quarter was 11.5 percent, after 13.4 percent in Q1 2013 and 12.6 percent in Q4 2013. Significantly higher methanol prices were the main factor weighing on earnings. Higher year-on-year personnel expenses also played a role.

At WACKER POLYMERS, Europe’s mild winter and the usual seasonal customer-demand recovery in the construction sector benefited business in the first quarter of 2014. Volumes grew noticeably compared with both Q1 2013 and Q4 2013. The division generated total sales of €238.7 million from January through March 2014 (Q1 2013: €226.7 million), a rise of over 5 percent. Relative to the preceding quarter (€213.2 million), sales were up some 12 percent. Higher prices for raw materials and increased personnel costs somewhat slowed WACKER POLYMERS’ earnings in the reporting quarter. The division’s January-through-March EBITDA amounted to €34.2 million (Q1 2013: €35.7 million). That is about 4 percent lower than a year ago, but 51 percent higher than in the preceding quarter (€22.6 million). The strong rise compared with Q4 2013 stemmed not only from seasonal effects, but also mainly from the temporary shutdown of a production plant in the fourth quarter for scheduled maintenance. The EBITDA margin in the reporting quarter was 14.3 percent, after 15.7 percent in Q1 2013 and 10.6 percent in Q4 2013.

With total sales of €40.7 million in Q1 2014, WACKER BIOSOLUTIONS improved its performance slightly compared with both the prior year (€40.5 million) and the preceding quarter (€39.3 million). The cysteine business grew year-on-year and quarter-on-quarter. Sales of gumbase polymers were also higher than in Q4 2013. Pharmaceutical proteins posted strong percentage growth. Here, sales were lifted by the acquisition of Scil Proteins Production GmbH, consolidated for the first time in Q1 2014. The division’s EBITDA amounted to €5.4 million from January through March (Q1 2013: €6.9 million). This corresponds to an EBITDA margin of 13.3 percent (Q1 2013: 17.0 percent). Exchange-rate effects and higher personnel expenses were among the factors that somewhat dampened earnings. In Q4 2013, WACKER BIOSOLUTIONS had posted EBITDA of €5.5 million and generated an EBITDA margin of 14.0 percent.

WACKER POLYSILICON benefited from higher volumes and better product prices in the first quarter of 2014. The prospects for strong growth in newly-installed photovoltaic systems around the world are stimulating solar-silicon demand. The division increased its total sales by a good 11 percent to €262.0 million compared with the year-earlier figure of €235.4 million. Relative to the preceding quarter (€249.8 million), sales were up nearly 5 percent. WACKER POLYSILICON more than tripled its EBITDA to €180.0 million in Q1 2014 compared with the prior year’s figure of €52.5 million. This resulted in an EBITDA margin of 68.7 percent after 22.3 percent a year earlier. The main reason for this jump was the amount of €114.0 million posted for advance payments retained and damages received (Q1 2013: €32.2 million). In operational terms, higher sales volumes and considerably higher production output, as well as better prices than a year ago had a positive effect on earnings. Without the special income earned in the reporting quarter and the comparable prior-year quarter, WACKER POLYSILICON’s EBITDA more than tripled year on year. Adjusted for special income, the EBITDA margin in Q1 2014 was 25.2 percent. In Q4 2013, WACKER POLYSILICON had posted EBITDA of €70.8 million and an EBITDA margin, adjusted for non-recurring effects, of 25.0 percent.

Siltronic achieved total sales of €203.8 million in Q1 2014 (Q1 2013: €171.2 million), a year-on-year increase of 19 percent. Compared with Q4 2013 (€174.6 million), Siltronic’s sales grew almost 17 percent. Significantly higher volumes, primarily due to first-time consolidation of Siltronic Silicon Wafer Pte. Ltd. within the WACKER Group, were the reason behind this rise. On the other hand, lower prices and negative exchange-rate effects from the weaker US dollar and yen held back sales growth. Siltronic’s measures to reduce its costs and increase productivity largely compensated for persistent price pressure and negative exchange-rate effects. Good plant utilization also had a positive influence. EBITDA totaled €15.0 million from January through March 2014 (Q1 2013: €0.7 million). In Q4 2013, Siltronic had posted EBITDA of €11.5 million. Its EBITDA margin for the quarter under review was 7.4 percent, compared with 0.4 percent in Q1 2013 and 6.6 percent in Q4 2013.

Outlook

According to the latest forecasts, the global economy will remain on its growth trajectory during 2014 and beyond, increasingly gaining momentum. The political unrest in Ukraine and the Middle East currently poses the biggest risks to further global growth.

WACKER SILICONES expects sales to increase in 2014. Growth will be generated mainly in Asia, where the rising standard of living is prompting higher per-capita consumption of silicone products. Additionally, ever increasing quality demands are accelerating the process of substituting simple products with high-end versions that incorporate silicones. EBITDA is projected to be slightly lower than last year, due to the fact that the prior-year figure included a non-recurring effect in the amount of €13.7 million (for utilization of a provision for purchase contract obligations in China).

WACKER POLYMERS expects sales to climb substantially compared with last year, with the percentage increase probably being higher than the average for the Group. In dispersions, one growth driver remains the shift away from styrene-butadiene toward VAE dispersions in the US and Western Europe carpet sectors. In construction applications, WACKER POLYMERS expects to see further growth in emerging-market economies, especially for interior paints. The division foresees a slight year-on-year increase in EBITDA.

WACKER BIOSOLUTIONS is also projecting substantial sales growth above the Group average in 2014. The division aims to step up its biologics business following the takeover of Scil Proteins Production GmbH. EBITDA at WACKER BIOSOLUTIONS is expected to come in at the prior-year level.

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. WACKER POLYSILICON anticipates a slight recovery in polysilicon prices for photovoltaic applications. As for EBITDA, the division expects a substantial year-on-year increase, fueled partly by special income posted in the reporting quarter. As announced earlier, WACKER and the Chinese Ministry of Commerce found an amicable solution in mid-March concerning the export of European-produced polysilicon to China. In the agreement, WACKER undertakes not to sell solar silicon produced at its European plants to China below a specific minimum price. China, in turn, will refrain from imposing anti-dumping and anti-subsidy tariffs on polysilicon from WACKER. The agreement has provided the Munich-based chemical company and its Chinese customers with legal and planning certainty. It enables WACKER to continue offering its solar silicon in China at standard market conditions.

Siltronic expects sales to grow in 2014. The percentage gain should be higher than the Group’s sales increase. This will be fueled primarily by the first-time consolidation of Siltronic Silicon Wafer Pte. Ltd., which is now 78 percent owned by Siltronic. Price pressure is expected to continue and impede sales growth. EBITDA should be considerably higher than in 2013 owing to the inclusion of Siltronic Silicon Wafer in WACKER’s consolidated financial statements.

Overall, WACKER expects Group sales to increase by a mid-single-digit percentage in 2014. On the EBITDA front, the company’s forecast is for substantial year-on year growth of more than 10 percent, which will improve the EBITDA margin. Return on capital employed (ROCE) will edge up relative to last year. Investments will be somewhat above the prior-year level at about €550 million. Depreciation will be slightly above that figure at around €600 million and thus higher than in the previous year. WACKER is aiming to achieve a balanced net cash flow. Net financial debt will climb by about €300 to 400 million. Group net income should be higher than in the previous year.

Information for editorial offices: The Q1 2014 report is available for download on the WACKER website (www.wacker.com) under Investor Relations.