Wacker’s Sales and Earnings Grow Quarter on Quarter in Q2 2012

Capacity at WACKER’s production facilities was utilized at higher rates in the second quarter of 2012 than during the first three months of the year. This has improved coverage of fixed costs and helped generate higher earnings for the Group compared with the first quarter. However, the substantial reduction in polysilicon prices was the main reason that the Q2 2011 earnings figures could not be matched in the quarter under review.

In the period from April to June 2012, WACKER achieved earnings before interest, taxes, depreciation and amortization (EBITDA) of €240.5 million (Q2 2011: €324.8 million) – thus down 26 percent on the strong prior-year period. But when compared with Q1 2012 (€211.8 million), EBITDA actually improved by 14 percent. The EBITDA margin for the second quarter of 2012 was 19.7 percent, compared with 17.7 percent in the preceding quarter and 24.5 percent a year ago. The EBITDA reported for the quarter under review contains €19.4 million in advance payments that WACKER retained due to the termination of polysilicon supply agreements. The Group’s Q2 2012 earnings before interest and taxes (EBIT) amounted to €110.3 million (Q2 2011: €215.1 million), down 49 percent from a year ago, but up 34 percent on Q1 2012 (€82.4 million). This represents an EBIT margin of 9.0 percent (Q2 2011: 16.2 percent). Net income for the period amounted to €60.6 million (Q2 2011: €142.7 million), which corresponds to earnings per share of €1.18 (Q2 2011: €2.87).

For the rest of the year, WACKER anticipates a general economic environment that will be challenging and marked by uncertainty. Europe’s financial and sovereign-debt crisis is intensifying the global economic risks. Moreover, ongoing consolidation and overcapacity in the solar industry are resulting in an extremely competitive market environment. Growing supply-chain inventories and financing difficulties among market participants could cause some polysilicon customers to not take full delivery or to delay taking delivery, or lead to the termination of contracts. This is why WACKER does not expect to reach its previous full-year sales projection of approximately €5 billion. 2012 sales for the Group are now expected to come in slightly below the figure reported for fiscal 2011 (€4.9 billion). EBITDA for fiscal 2012 is still likely to fall well short of the previous year’s figure of €1.1 billion.

Regions

WACKER’s performance in the second quarter of 2012 varied rather widely across the individual regions. One of the major reasons for this divergence is the ongoing shift of the solar industry to Asia. In Asia, WACKER generated sales of €489.3 million between April and June 2012 – down only slightly from the prior-year figure (€499.8 million).

In Germany and the other European countries, second-quarter sales were down substantially from their respective prior-year figures. In Germany, second-quarter Group sales totaled €173.0 million – thus 29 percent lower than a year earlier (€242.8 million). In Europe excluding Germany, sales for the three months from April through June 2012 fell 11 percent to €292.2 million (Q2 2011: €329.5 million).

The Group posted a 6-percent increase in sales in the Americas. The main contributor here was the polymer business, which benefited from rising customer demand. Total sales for this region amounted to €224.4 million in the quarter under review (Q2 2011: €211.8 million).

In the markets combined under “Other regions,” second-quarter 2012 sales totaled €43.6 million, also somewhat higher than a year ago (€41.9 million). Overall, WACKER generated about 86 percent of its second-quarter 2012 sales with customers outside Germany (Q1 2011: 82 percent).

Investments and Net Cash Flow

In Q2 2012, WACKER continued on its path of strategic production-capacity expansion, with a total investment of €244.9 million, 18 percent more than a year earlier (€208.3 million). Over two-thirds of the investments were for expanding polysilicon capacity, particularly for ongoing construction of the new production site in Charleston, Tennessee (USA). At the Nanjing (China) site, construction of the new facilities for vinyl acetate-ethylene copolymer dispersions and polyvinyl acetate solid resins progressed as planned in the quarter under review.

WACKER’s net cash flow from April through June 2012 totaled €-156.9 million, compared with €-81.3 million a year ago. The causes of this decline were increased investments, higher inventories, restructuring payments for the closure of the Hikari site in Japan, and the reduced net income for the period.

Employees

WACKER’s workforce declined in Q2 2012. On June 30, 2012, WACKER had 16,759 employees worldwide (March 31, 2012: 17,166). As of the end of the quarter, WACKER had 12,824 employees in Germany (March 31, 2012: 12,847) and 3,935 at its international sites (March 31, 2012: 4,319).

Outlook

For the rest of this year, WACKER anticipates a general economic environment that will be challenging and marked by uncertainty. The second quarter saw an intensification of the global economic risks arising from Europe’s financial and sovereign-debt crisis.

The photovoltaic market is likely to continue to grow worldwide in the years to come. That means customer demand for the high-quality solar silicon WACKER makes will continue to rise. But the solar-sector consolidation currently underway could also put WACKER customers in economic difficulty. This, in turn, could lead to the cancellation of individual supply contracts and failure to take full delivery of, or delayed taking delivery of, contracted quantities. Given the sustained pressure on prices all along the solar industry’s supply chain, WACKER POLYSILICON’s sales at the end of 2012 will fall short of last year’s levels.

In the semiconductor business, the slowdown in consumer activity could result in stagnant wafer volumes for the second half of 2012. From today’s perspective, the principal areas of growth for the division are in the 300 mm wafer segment and, regionally, in Asia. Accordingly, WACKER is proceeding with the announced production realignment for smaller wafer diameters and continues to concentrate on further optimizing its 300 mm wafer business.

At its chemical divisions, WACKER sees opportunities for additional growth this year, in spite of the economic uncertainties and the enduring high energy and raw-material costs.

WACKER now expects full-year 2012 sales for the Group to be slightly below the figure reported for fiscal 2011. Achievement of this goal will largely depend on developments in the world economy, competitive conditions in the solar industry and demand in the semiconductor market during the rest of the year. Earnings will be affected by the lower prices obtained for deliveries of solar silicon and by persistently high raw-material and energy prices. WACKER therefore reaffirms its view that earnings before interest, taxes, depreciation and amortization for full-year 2012 will fall well short of the previous year’s figure.