Wacker Chemie closed 2012 with lower sales and earnings, as already announced. In its annual report released today, the Munich-based chemical Group recorded sales of €4.63 billion, just under 6% below the previous year's €4.91 billion. The decline was chiefly due to weaker prices for solar-grade silicon and semiconductor wafers. Overall, price effects reduced last year's Group sales by around €700 million or over 14%. 2012's EBITDA - earnings before interest, taxes, depreciation and amortization - came in at €787 million (2011: €1.1 billion). The corresponding EBITDA margin was 17.0% (2011: 22.5%). EBITDA dropped 29% against 2011 mainly because of excess solar-sector capacity. Solar-silicon prices halved within one year. Wackers's chemical divisions, conversely, grew their EBITDA by some 15% relative to 2011, primarily due to accelerating demand for polymer products. Wacker's bottom line for 2012 shows net income of €107 million, €249 million lower than a year earlier (€356 million).

During the first two months of 2013, Wacker's chemical divisions continued to perform soundly, reporting satisfactory demand amid the usual seasonal effects of winter. At its polysilicon division, Wacker is currently selling much higher volumes than expected - with prices currently stable at a low level. At Siltronic, there is no indication yet of any fundamental turnaround. Demand for semiconductor wafers is still weak, and prices are low. In total, Wacker expects 2013's first-quarter sales to outperform Q4 2012, but to fall short of the 2012 first-quarter figure, since polysilicon prices back then were almost twice as high as today.

For full-year 2013, Wacker forecasts sales at the year-earlier level - providing that no major trade barriers are introduced in the solar industry and that semiconductor demand picks up in the second half. Volumes at every division are expected to grow further. In the chemical divisions, sales and EBITDA are projected to be above 2012. At the same time, the Group anticipates a year-over-year decline in average semiconductor prices. Assuming that polysilicon prices remain at their Q4 2012 level, Wacker expects Group EBITDA in 2013 to be below last year's figure.

"From today's perspective, 2013 will not be an easy year for WACKER," said CEO Rudolf Staudigl in Munich on Thursday. "The semiconductor market is currently moving sideways. Polysilicon prices are low, but have bottomed out. At the same time, demand growth is strong among our solar customers. Capacity utilization at our polysilicon plants is climbing fast. If this trend continues, there will be opportunities for higher prices. Our robust chemical business continues to be a key stabilizing factor for the Group."

Capital Expenditures

The Group's capital expenditures grew in 2012, up by almost 12% to €1.1 billion (2011: €981 million) - the highest amount in the Group's history. Funding primarily went toward further capacity expansion for hyperpure polycrystalline silicon.

In Q2 2012, expansion stage 9 at Nünchritz reached its full capacity of 15,000 metric tons per year. Last year, Wacker made good progress with constructing its new polysilicon site at Charleston in the US state of Tennessee. Numerous buildings are ready or are about to be completed. Amid the excess capacities currently facing polysilicon, however, Wacker decided last fall to slow down the pace of this project. Charleston's production start-up is now planned for mid-2015. With this decision, the chemical Group is aligning capacity growth with market demand and, at the same time, easing the burden on 2013's cash flow by a euro amount in the triple-digit-million range. Due to the longer timescale, investments in Charleston are expected to climb some 10% to around US$2 billion. At the same time, the site's total capacity will grow at least 10% to over 20,000 metric tons per year. Wacker is using the additional time to optimize production facilities and improve manufacturing processes there, so that yields are higher.

Wacker is also expanding its capacities for dispersions and polyvinyl acetate solid resins in Asia and the USA. At Nanjing (China), the Group is building two new production facilities. It is expanding its existing dispersions capacities by adding a new reactor with an annual output of 60,000 metric tons. The new facility is expected to start up in the middle of this year. At Nanjing, Wacker is also building a new plant to produce polyvinyl acetate solid resins, with an annual capacity of 20,000 metric tons. It is scheduled to go into operation by the end of this year. Early February, Wacker started up a new dispersions reactor - with an annual capacity of 40,000 metric tons - at its Ulsan site in South Korea. At its US polymers site in Calvert City, Wacker is also adding 30,000 metric tons. Capital expenditures for all four projects totaled some €40 million in 2012. These projects will strengthen the Munich-based Group's position as the world's leading manufacturer of polymers for dispersions and gumbase.

Additional funding flowed into expanding capacity at Siltronic Samsung Wafer, Wacker's Singapore joint venture for making 300 mm wafers for the semiconductor industry, as well as into financing its siloxane joint venture with Dow Corning in China.

Outlook

The risks of the economy remaining weak during 2013 are still present. The ongoing sovereign-debt crisis in Europe is weighing on EU economies. Wacker, though, anticipates that economic output in EU countries will not decrease very much further. In line with most economic experts, the Group expects the world economy to expand slightly in 2013. Growth will again be strongest in Asia.

In 2013, Wacker's polysilicon business will remain difficult. The consolidation process in the industry is not yet over, there is still excess capacity, and polysilicon prices are currently low. Additionally, the market faces the burden of anti-dumping investigations by the European Union and the Chinese Ministry of Commerce. If both sides impose punitive tariffs, the global photovoltaic market could suffer. At Wacker Polysilicon sales in 2013 are expected to be below the prior year. Downward pressure is chiefly due to average polysilicon prices being lower than a year earlier. Moreover, salt sales are now reported under "Other" and product responsibility for pyrogenic silicas has been transferred to Wacker Silicones. These two structural changes will reduce Wacker Polysilicon's total sales by some €100 million.

According to market researchers, the semiconductor sector will grow, chiefly in the second half of 2013. The year has started off sluggishly, though. Wacker expects Siltronic's sales to decline in full-year 2013 amid persistent price pressures. Market expansion will be driven mainly by 300 mm business.

Overall, Wacker expects sales in 2013 to be at the prior-year level - providing that trade barriers are not introduced in the solar industry and that semiconductor demand picks up in the second half.

Wacker intends to invest some €600 million both in 2013 and 2014, with the focus on completing its Charleston site (Tennessee, USA). Investments are unlikely to be covered fully by the anticipated cash flow from operating activities. Depreciation will amount to around €550 million in 2013 and also in 2014.

"Over the next two years, we will manage capital expenditures dynamically, aligning them with our earnings strength," said CFO Joachim Rauhut. "Our goal is that financial liabilities do not exceed €1 billion this year."