Wacker Chemie AG

Thank you, operator. Welcome to the Wacker Chemie AG Conference Call on Full Year 2018 Results.

Dr. Rudolf Staudigl, our CEO; and Dr.

Tobias Ohler, our CFO, who will take you through our presentation in a minute. The presentation is available on our web page on www.wacker.com under the caption Investor Relations.

Before we begin, allow me to point you to our safe harbor statement, which you'll find at the end of our presentation deck. Dr.

Staudigl?

Ladies and gentlemen, welcome to our full year 2018 conference call. We reported full year sales of just under €5 billion, growing by 1%.

Key drivers were higher volume and better prices in chemicals, especially in silicones. These effects more than compensated headwinds from currency effects and lower prices and volumes for polysilicon.

Our EBITDA on the other hand, declined 8% to about €930 million. This is less than what we expected when we spoke the last time, as we did not book insurance compensation in 2018.

As polysilicon production at Charleston reached full capacity only in early December 2018, there was simply not enough time to conclude talks with the insurers for 2018. This year, we expect to receive insurance compensation covering both the repair work at the site and the business interruption loss.

Our chemicals business is the core growth driver for WACKER. Over the last 5 years, our 3 chemicals businesses increased sales by 35% to just over €4 billion.

Chemicals growth in EBITDA was even more impressive, climbing 15% year-over-year to €788 million and essentially, doubling the amount of 2014. Improved product mix recently stronger pricing and cost reductions are the primary drivers for this excellent development.

Our portfolio has improved significantly and we continue to invest in supporting our specialties growth. Our polysilicon business had to cope with multiple challenges last year.

At the end of May last year, news from China about feed and tariff reductions and restrictions on PV installations, created turbulence in the market. As a result, demand for solar modules in China and prices along the entire value chain corrected downwards shortly.

This affected us as well. We experienced significantly lower shipments and lower average prices.

Sales in the polysilicon segment declined therefore to €824 million. In addition the ramp up cost for the Charleston site, weighed on earnings in the segment.

We used the weaker market environment to cut delivery times for our products into the solar industry by nearly 2 months. This is a big step forward to maintaining and expanding our leading supply position in polysilicon.

Lower PV power costs triggered a demand response globally. In summary, the growth in PV markets outside China nearly compensated for the contraction of the Chinese market.

The net result was 5% global growth with installations of 105 gigawatts. Solar installations in Europe grew even by 70% last year.

This resurgence of installations in Europe is driven by much lower costs as witnessed by the latest results of competitive PV tenders in Germany, which closed at €0.0433 per kilowatt hour in line with German wholesale power prices. The transition to a modern more competitive auction based scheme for solar grid access in China results in a shift plus high-efficiency modules.

Market growth this year is expected between 10% and 20%, while the share of high-efficiency systems is expected to grow even faster. However, the new solar policy in the biggest market, China, has not been published yet.

Although, we saw a higher demand in the first months an upward movement of prices has not been seen yet. In the chemicals, we had a good start into the year and looks to solid volume growth for the full year but we'll not repeat last year's earnings performance due to lower prices in silicone standards.

Looking at the group level and to the full year 2019, we expect sales growth in the mid-single digits and see EBITDA contracting between 10% and 20% compared to last year, excluding insurance compensation. Tobias will now walk you through the financials and segment performance, and will provide some Q1 guidance.

Tobias?

Rudi, thank you. Welcome everyone to our full year 2018 call.

Let me take you through our financials and present the outlook of each segment. As Rudi said, we are currently working with our insurers to settle the claims.

Although we expect to complete this during the year, our guidance for 2019 excludes insurance compensation. Let's begin with our P&L on Page 4.

Sales improved as higher chemicals volumes compensated for the lower polysilicon volumes resulting from the plant rebuild. In pricing, the positive effects in chemicals more than compensated weakness in polysilicon.

Nevertheless, gross profits declined year-over-year by about €80 million, following higher raw material costs, FX effects and rent costs. As profit before tax decreased only slightly on the composition of taxable and nontaxable components shifted with a higher equity income from Siltronic.

This leads to our overall tax burden, which is lower and subsequently a higher income from continuing operations. The overall effect of this is that our earnings per share from continuing operations increased to €4.95 per share.

Moving on to Page 5 of our balance sheet. You see the increase in inventories, which translates into higher working capital at year-end.

Business growth in silicones and strategic stock building in polysilicon are the main drivers for this increase as Rudi flagged in his opening comments. Pensions went up slightly at the, as the discount rate decreased.

Looking at silicones. 2018 sales improved by 14% to €2.5 billion or more than half of group sales.

At the same time, EBITDA went up by 39% to €670 million. This reflects tight market conditions in most of 2018 in all product groups.

Operating at capacity limits, we benefited from positive mix and price effect. After Q3 however, markets in China started softening.

Pricing in China saw the biggest movements, both, up and down last year. Standard silicone prices there are now stabilizing at levels previously seen in early 2017.

For 2019, we see silicones sales moving up at low single-digit percentages, good volume growth and better pricing in specialties should help achieve an EBITDA margin of around 20% for the full year 2019, despite negative effects from standard silicone pricing. On Page 7, polymers.

The dominating theme in 2018 was the increase in raw material prices specifically in VAM. Sales grew at 3% to €1.28 billion on higher volumes for dispersions and powders.

EBITDA, however, declined to €148 million. Better pricing was not enough to compensate much higher raw materials.

In addition, around €50 million turnaround costs burdened our second quarter. For 2019, in polymers, we expect again mid-single-digit percentage sales growth with volume growth, slightly higher prices and lower average raw material costs, we see a full year EBITDA margin improving to around 14%.

BIOSOLUTIONS improved sales following strong growth in biopharmaceuticals and in pharma and agricultural products. Profitability in 2018 was held back by integration costs, mainly at the new site in Amsterdam.

With our acquired facilities, we are positioned well to rapidly grow our biopharmaceuticals business. First project successes at the new site here are promising.

For the full year 2019, we expect for BIOSOLUTIONS a mid-single-digit percentage sales growth with an EBITDA of about €30 million as new capacities ramp up and prepare for new customer campaigns. Rudi already covered market developments in polysilicon shown on Page 9.

With the plant repair, ramp and inventory build, we shipped about 60,000 tons last year, down from about 70,000 tons in 2017. We currently see strong shipment but with very weak pricing.

Looking into the full year 2019, we expect sales to grow at a low double-digit percentage. Given the dynamics of the market, rising energy costs and our own accelerated cost reduction efforts, we expect a neutral result in EBITDA for 2019 in this segment.

Moving on to page 10, cash flow. We achieved again a good gross cash flow of €510 million despite the ramp costs and the inventory build.

We invested well below overall depreciation again this year with group CapEx of €461 million. Gross CapEx is targeted for the chemical segments.

Cash flow from investing activities was €423 million. Our 2018 dividend payment was in line with our policy to pay out around 50% of net income from continuing operations.

Last year, we distributed a regular dividend of €2.50 per share with a bonus of €2 per share essentially, forwarding some benefits of the Siltronic controlling state disposal in 2017 and also honoring the low gearing at year-end 2017. Net debt at the end of 2018 was €610 million in line with our targeted leverage ratio of EBITDA to net financial debt between 0.5x and 1x.

Based on our 2018 performance, we will propose again a €2.50 a share dividend to the AGM on May 23. This continues our destruction policy and underlines our confidence in our businesses this year.

Looking at our detailed guidance for 2019. You see our guidance for sales and EBITDA as presented by Rudi.

In addition, we see net cash flow in 2019 substantially higher than last year, as we decreased CapEx to about €400 million and expect to work off some working capital. Net debt at year-end 2019 would be at prior year level, however, will be driven up by about €130 million from the application of the new IFRS 16.

Under IFRS 16, leasing liabilities are now classified as debt. Following lower earnings income from continuing operations will decline reducing ROCE substantially below prior year.

Now let's have a look into current trading conditions. Moving to the Q1 update on page 12.

In chemicals, we see a reasonable volumes but also some weak spots with pricing overall at about the same level as last year and somewhat lower raw material prices. For chemicals, this should result in a sales and EBITDA performance comparable to last year's Q1.

For others, we do not expect a meaningful change year-over-year as well. Polysilicon on the other hand, sees strong growth volumes but faces significantly lower prices.

Sales should come in close to Q1 last year with an EBITDA below the Q4 result of last year. On a group level, for Q1 2019, we now expect sales of about €1.2 billion with an EBITDA clearly below last year.

With this, let me hand you back to Rudi.

Thank you, Tobias. Ladies and gentlemen, 2019 is going to be certainly a challenging year for us.

We expect a good performance from our chemicals businesses. Our cost programs are yielding results and our overall strategic position is where we want it to be.

Specialty products, customer focus and market leadership define our market presence in chemicals. The situation in polysilicon, however, is more difficult.

With the solar power, as solar power becomes a serious contributor to the wealth of power needs, the industry needs to refocus from volumes to profitability and efficiency. Macroeconomic challenges are trade disputes, the impending Brexit with unknown ripple effects and risky energy policies in Germany.

Yet I have confidence and trust in our capabilities, beating cost performance where we operate some of the most efficient assets in the industry, through our strategic positioning and our collaborative approach to customers, which is second to none. Market is well-positioned to weather the uncertainty.

I firmly believe that some of today's challenges as difficult as they may be, will propel us and our industries into a better performance in years to come. We will continue to focus on innovation, growth and specialization in chemicals, while providing the semi and solar markets with benchmark quality products that provide our customers with superior yields.

Ultimately, this will translate into improving returns in capital and value creation for our shareholders. Thank you very much.

This concludes the presentation today. We will now commence with the Q&A session.

Operator?

Three questions, if I may. The first question is with regards to your guidance and the upper and the lower end of the range that you've provided.

Could you just identify, what is defining that upper end and lower end that will be very helpful? Secondly, on polysilicon, supply and the prices.

Obviously, we're expecting a lot of supply growth from Chinese new entrants. I was wondering if you thought that this was, we've seen all of the price damage in the market today, noting that, that will already happen before they start ramping up.

And thirdly, I guess this relates to folks on polysilicon, but if everything stayed the same as it is today, if you were to re-augment your cost base, how long would it be before you could be profitable? And is that, is it cost savings that are driving your neutral EBITDA expectation in polysilicons?

Those are my 3 questions.

Thomas, Tobias speaking. Maybe on the overall guidance at the upper end and lower end, I think, it's easy to calculate, if we have a total capacity of 80,000 tons of polysilicon, just the €1 change in average selling price.

As it actually drives you from the lower to the upper end. So there is the highest sensitivity in our full year guidance.

Maybe on the polysilicon supply side. If there are new capacities coming onstream, that certainly has an influence on market pricing.

This is, yes, maybe a common scheme with some, let's say, yes, new industries that some suppliers obviously, just don't see the limits. And so that's certainly a difficulty in this market.

On the other hand, we see some let's say, older capacities also being shut down, especially in the east of China. And we certainly see the industry growing.

So at a certain point in time, when exactly we do not know, there will be a balance again. This is on the supply side.

On the market side, we see growth, we again see a significant growth even in Europe and the growth, as I said, will be happening on the high quality side of the material. So we absolutely are the leading supplier for this type of the material and we will stay there.

In addition, we'll see further cost reductions through cost reductions in all segments of the production sequence as well as on automation, digitalization. So then of course as I said, we're focusing on the high end side of the material and this combination including even synergies with other divisions in our company.

We see an excellent chance to stay the leading supplier and we will definitely be successful in that market. There is no question in my mind about it.

Okay, and is this, sorry just to follow up my third question. In terms of the outlook for 2019 and the EBITDA neutral, is that obviously, a better second half than first half?

And is that price orientated? Or can you get there at current market prices?

Everybody in this industry is projecting a better half this year, a better second half this year. And we, certainly, figured that at the end to a certain extent, however, if it really gets, or will become a very good second half.

I think we see a significant upside potential. We are, as usual we are very careful with our prognosis for this year because I mean nobody can really say what's happening in the second half.

But there is optimism in a great part of the industry.

Just a follow-up to the polysilicon. Just to understand your strategy on sales, we've seen you building back inventories.

And now that you are at 80,000 tons, where are you selling, is this a real drive to sell outside China? Are you discounting to get into China?

Just to understand whether we can expect to see maybe more inventory build? Or you're really pushing now to really get material to your customers?

Secondly, just wanted to understand on the insurance payments. I mean, is there any risk around the receipt of payments on the timing?

Is this a Q1/H1? And how could we think about anything possibly going wrong with that?

And thirdly, just on your drive to higher specialties mix in silicones, clearly, you are guiding for a significantly weaker margin this year. What is going to be the effect from a positive mix in silicones in 2019?

In terms of the markets for the polysilicon, it's inside and outside of China. And we are positioned to deliver to all markets.

We have been ensuring, we always had that function of the production shortfall, the ramp costs and the repair costs. And why did we not book it for 2018?

We just reached full capacity in December. And so now we are, and to conclude the amount of the business interruption loss.

I mean it was absolutely necessary to reach full capacity again. So we are in discussions right now and in discussions with the insurers and we are definitely talking big numbers.

So on both sides, everybody wants to go into details but we also said that we don't want to leave any money on the table. So our clear goal is that we get the right compensation to be made whole again we did not include it into the 2019 guidance, although, we expect into, it in 2019, we did not included it because it's not an operational effect.

It goes back to the year of 2018 and '17. So that's the only reason, there's no doubt that we will get compensation for our incident with the damage and repair cost and the business interruption.

Then there was a question on specialty growth in chemicals?

Yes, I mean the specialty part will certainly grow. But just as we pursue this specialized market as we did it in the past.

So yes, we will see some growth there.

So we had a stronger volume growth in specialties, in silicones especially in '18 than in standards. And we see that continuing into 2019.

Yes I'd like also to start with polysilicon. So coming towards you providing this guidance with 10% this increase in sales, bringing sales in total to €900 million and 80,000 kilo tons production, you at least with that gave an outlook that the average prices could be €11 for you and with break even in EBITDA, you basically have the same cost, which is according to my calculation, more on higher than lower than at the time when you had all 3 plants running last time in the first half of '17.

Maybe you can give me some update, how I can measure how your progress on the unit cost side was? And then one question on net working capital.

So you had this strong increase in this trade payables, which probably unwind into Q1 and on the other hand my understanding is that what you build up in inventories is strategically, so not expected to come down. Maybe you could shed a flavor on how net working capital can come down in '19?

Again, I'm more worried on these trade payables. And then in the total input costs.

So putting together electricity and falling raw material costs, what you would think is the balance of those? Is it the higher electricity cost more than off-setting the advantage of lower raw material cost?

Or more of the other way around?

Andreas, I think your question, number 1 was on your calculation on the, yes, specific cost of polysilicon. I think your calculation has a little flaw, I must say.

It doesn't account for the product mix that we have. That we have increased the semi part of the business successfully over the past years.

And then it does not account for nonmanufacturing costs, which are EBITDA, I mean general SG&A and R&D costs. So I hope for your understanding that we continue with our policy, not to disclose specific cost of our production as we did in the past.

The second question was cost payables, yes, you were rightly so depicting that they went up with the year-over-year comparison. But it is, has something to do with year-end.

But we also paid very strongly our builds in 2017. So it's more or less the unbinding also of this effect that shows up there.

With respect to the inventory assumption, that we have built strategic inventory. So you're right in assuming, that we do not want to unbind that immediately, but I can say, that we already sold, I mean, stronger in the first few months of the year because we take the inventory also to just improve our delivery time to our customers.

So we need to be really flexible in that. But we see some unwinding in inventory in silicones also, where with the business growth in last year we also had to run really all our supply chain very much output optimized and we have here some potential to improve that over the course of the year.

I think the last question, number 3 was on the balance of raw material cost changes and energy price changes. We see the raw material markets that they are giving us some headwinds in last year normalizing, but not to the same extent as they went to the higher levels in '18.

And we see energy prices up, specifically up since the second half of 2018. I would say on balance, it's a slight improvement for our lower raw material prices against higher energy cost.

Just first question is on chemical divisions, where you, I think, I heard you say the Q1 EBITDA in total for chemicals will be flat. So can you sort of help us understand why the full year number you've guided towards a decline because I would have thought given the decline in silicones prices in China already from Q4 onwards you might have seen some impact already in Q1?

Second question is on polysilicon. From memory I think you guys talked about or have talked about in the past of 7% cost reduction per year.

Is that something, which can be achieved even when the shipments or you know the volume production for you guys are probably not going to go up simply because you're not adding any new capacity in that business? There's enough for 2019 but just looking more into the midterm.

And last question would be, it would be helpful if you can give us some color on how you see demand trends in your chemical divisions by end markets or regions?

I hope I did get the first question right. I think it was about the price trend that we see and the guidance that we gave.

So silicones pricing for the first few months is on average stable. We have that effect that specialty prices did go up.

And while we, yes, we have pressure on standard prices. But on average, we have prices that are very similar to the level that we had in Q1 last year.

But for the full year, we expect that the overall, yes, standard prices would come in lower than the, for the full year 2018. And that mainly comes from, also from prices in China.

I think everybody is aware of that and more or less the regions are communicating a bit, I mean effects in Europe and U.S. are much more moderate.

But we would see on average lower standard prices for the full year and that's our guidance.

And on the polysilicon cost reductions. Of course, we aggressively pursue cost reductions.

There is no let up there. I think in some areas we even now can really work much harder on cost reduction since the plant is fully running in Tennessee.

And there, we were really handicapped last year there because of the reconstruction of the plant. So this will give us a boost and we see many opportunities.

And I mean our people are aggressive and optimistic there. And normally, this led to significant improvements.

And as I said, we are not letting up. And we will be successful in the end.

And for the growth drivers, yes? The growth drivers for the chemical business is, and our focus now on polymers and silicones, is the quality improvement for all kinds of applications in, especially in emerging markets.

Then, which need more silicones per capita because there is still a significant difference between the per capita use of silicones, for example, and also our polymers compared to industrialized nations. And this, certainly, overall will be the growth drivers.

And then of course in BIOSOLUTIONS, I mean, the application of more complex molecules in the pharmaceutical industry, certainly, drives the growth for our biological segment. So in other words, the growth drivers that we have seen in the past for these products will continue.

So they still apply.

And as we stated in the trading update, in chemicals, we see a reasonable volumes in the first couple of months. But we also flagged that we see some weaker spots and I think it's no surprise that for us also automotive is part of weaker spots but it's only 5% of our silicones phase.

Textile is also a little weaker but we also have stronger, much stronger segments like consumer care, electronic finance, we are in volumes up in construction, we're up also in health and wound care. And so it's, we are typically growing with GDP.

And we're coupled to GDP in general. But we have the same patchy development as all other chemical, other chemical suppliers have in the industry.

I have 2 on polysilicon and 1 on chemicals. Firstly on polysilicon, there has been substantial increase in Greenfield capacities in China this year.

My understanding is that these are currently mainly producing multi type of polysilicon but many players have the ambition to produce mono quality in near term. Could you possibly share your, if you have, already witnessed an increase in mono grade supply in China recently?

And what you think the chances are that the sufficient mono grade quality of these players will be reached given your experience in the past? And second question is also on polysilicon.

Given the weaker pricing for solar type polysilicon, is there a possibility to increasing new focus on producing semi grade polysilicon, where prices appear to be much more favorable? And the last question is on chemicals and especially on Chinese demand.

Could you please provide some additional color on how demands for your chemical products in China has developed following the end of Chinese New Year? And also, if you can comment on how much room you see for additional price increases in silicones and polymers especially in your specialty products?

Yes, there have been Greenfield capacities coming on stream. And the output has not been seen in the mono segment yet.

It's very hard to tell from our side, how long it will take? And so, it's, yes, it's very difficult.

But it certainly will take some time and adjustment. And yes, we are focusing a lot on semi grade.

And the increase in our market share in the semi grade. But this takes time.

But the focus is very clear and the path is set and we see successes. Actually we see, over the past years, increased sales into the semi grade and gain of market share.

The demand for chemicals, I mean, we certainly can see that the automotive segment is not growing that fast. But it's not the disastrous level at all.

And I think it's a solid start in the industry. And whether we can increase prices this year, probably not in the standard segments maybe in one of the other parts of the specialty segments.

Gentlemen, I have 3 questions. And I will try to take them 1 by 1, if I may.

I would like to start with the smallest unit with your big bioproducts. You're guiding for €30 million of EBITDA in 2019.

This is still significantly below the level you were achieving before the acquisitions. So 2 kinds of questions.

Firstly, what is holding back the results in BIOSOLUTIONS? And what is the normalized EBITDA level in this division thinking 2 to 3 years out?

Okay, what is holding us back? It's, I mean, we have acquired this plant in Amsterdam.

We had to retrofit it and we had to acquire the orders in the industry. And now we need to successively fill it.

And this is not something that can be done completely within 1 year. It's a continuous task, but we are moving along very nicely.

And the same is true for the fermentation plant in Spain. And this is why, we see an improvement this year.

But we will not be at the top level, where we want to be once these plants are fully running. And hopefully, we come close to the top level next year.

But we will see, we will certainly continue to make significant improvements.

Tobias here. And just adding to your midterm modeling.

I mean we definitely target an EBITDA margin of about 16% for all the other chemical segments as well.

But is it a €50 million plus EBITDA business? Or will it kind of stay smallish around €30 million, €40 million?

I mean you have made those acquisitions for a reason I think. And I was just interested what the midterm potential in absolute terms is, if this is possible?

I mean such a plant like in Amsterdam will certainly bring us, in terms of sales for the whole, including Halle and Jena for the whole business to a level of €100 million in sales. And let's say it is the target, for example.

And of course, the profitability of the therapeutic proteins or biologicals certainly has to have a, an EBITDA significantly above this chemicals growth of 16%. So we expect a significant growth in profitability.

On the other hand, we have to develop this business organically over time. Because it does not make sense for us to acquire whole companies for these incredibly high multiples that are paid in this business.

We just don't want to do that and we see significant chances just by organically growing the business and this is our target.

So if I may, I would like to move to siloxane. And why or you signaled that you might be interested in investing in Brownfield siloxane capacity?

We haven't heard on this for quite a while and there has been capacity addition at least enough capacity additions by your competitors? Are you still interested in expanding in siloxane?

And if yes, how much CapEx you would think to invest?

Well one competitor was very precise in the announcement. And they, as far as we understand, are going ahead and we understand that for them to really have growth scale siloxane facilities, another competitor made a big announcement and then scaled it back significantly because of the change to pricing and market environment.

There have been incredible announcements by some Chinese companies. But we don't see anything, any movement there at all.

Because these incredible additional capacities are really not needed in the market yet. Yes, we have talked about and we actually, we have planned a Brownfield investment.

We don't see the need, right now, to really kick it off in a full-scale. On the other hand, we are, we have lots of opportunities to de-bottleneck our existing facilities, maybe even faster than we did in the past, and we are making these decisions without big announcement, only if we have a big project.

And or we would have a big project, we would make an announcement there. So you can count on us, really, keeping our market share in silicones and improving our share in specialties, just as we said in our explanation of our strategy, we are consistently moving along this path.

All right. And if I still can ask you on polysilicon, please.

I mean, looking back to the last 2 conference calls, I think we've all been a little bit more upbeat on the speed with, which the polysilicon market and the solar market overall should recover with the, from the Chinese cuts. Now as we stand here, that the speed of recovery is much much slower.

If I can ask you, what do you think is holding back the market from recovering? And why we should still be optimistic that something could change to the positive in H2?

Well, as I said, because we are not very certain about the market development in H2, we are not forecasting or making our forecast on the basis of a significant, let's say, a rush into the market. However, just from talking to players in this market, also regulators in China.

There can be a reason for optimism or could be a reason for optimism because many people simply are waiting for these policy announcement that, or announcements that should propel the Chinese market. And what makes us overall positive in the long term, I mean even last year with this downturn in the market in China, there was still an implementation of, I think, something like 42.4 gigawatts in China, that means the affordable tag is becoming more and more competitive.

And as it becomes more and more competitive, not only the Chinese market will keep its level or grow, the overall markets in all over the world will continue to grow. And this is why we are forecasting this year installations of 110 to 130 gigawatts.

And there are competitors that even increase these numbers all the way to 140, some 150 gigawatts. So there is, I mean, there's simply the opportunity to generate electricity in a renewable mode.

And these opportunities will be taken in the road because the energy will be needed.

So can you please give us an update on the expansion project that are coming onstream in 2019? And do you have some new capacities on polymers in South Korea?

And also your backwarding division in silicon metal and also the fumed silica in Tennessee, so maybe an update on those? How are they going and will they have already an impact in 2019?

And secondly, can, you already mentioned a little bit, but can you give us a, your outlook or how do you see the construction market developing? And the demand for your polymers products?

And then on the electricity costs, in your press release and also in the report, you mentioned a lot higher electricity costs. How much is that increase?

And you also mentioned a risk of a policy changes in Germany. So can you maybe elaborate a little bit on that?

And what could be the negative impact and if that's only a 2019 thing? Or do you see that as a risk ongoing?

And the last one, maybe, on financials. So IFRS, will it have also an impact on the P&L?

The impact of the IFRS change on the P&L, yes, but it's already in the forecast.

I mean, I can start with the IFRS impact. If you want to have more detail, you have some pages in the annual report, I think it's around Page 119.

So what has changed is, we have to account for the lease now as liability, as net debt. This is on the liability side of balance sheet.

Some €155 million that we have there, starting 2019. And on the asset side, we have the right of used assets in the order of €145 million.

From this change, net financial debt will increase by about €130 million. What happens to the lease that we pay, it used to be a cost in EBITDA in the order of magnitude of €35 million.

So EBITDA improves and that is included in the guidance. But it turns, so the €35 million lease turns into a €30 million depreciation on the write-off used assets and it turns into €5 million interest.

So it doesn't dissolve the P&L. So the effect on net profit from that accounting change of IFRS 16 is absolutely neutral.

I might continue with your third question on our big investment project. The fumed silica in Tennessee is going to start in the second half of this year.

So it's coming online soon. The furnace, silicon metals furnace capacity expansion in Norway is to come into production in the latter part of the year.

So end of 2019 and in Korea, we are going to start up our dispersion powder dryer in, also in the second half of this year. So we have significant, yes, capacity expansion and CapEx projects completed for our chemicals growth.

But I think the EBITDA impact in 2019 is not meaningful. And anyhow it's included in our overall guidance.

So it doesn't make much sense to add something on top of it from the individual projects. With respect to your second question on the overall construction market, and you know we have a, with the polymer segment a strong focus on construction.

But we like to call it also a focus on smart construction. So are with our polymer binders adding to quality increases in the construction market.

So in general, it depends on the overall construction sentiments. And this is from what we see, overall healthy, but big part of our business is in renovation.

50% of what we sell into construction goes into renovation. And in the renovation quality upgrades are more than typical.

And in quality upgrades typically the vendor, the demand for our products also increases. So we have, in the polymers segment, the healthy outlook for the industry with good volume growth.

And you had a question on the electricity cost. Yes, of course, electricity costs or cost increases certainly have an input that can be felt.

The problem is compared to our Chinese competitors, we do not get subsidies. I mean, they get subsidies from regional government, overall, but also subsidized electricity costs.

So it just increases our necessity and then drive to, yes, to reduce our cost, so the amount of electricity we use for our products. And the increase is also our efforts to, for automation and everything we have in the plan for cost reduction.

Okay. And then maybe just another, on the polymers.

So I think, you'd guided for an EBITDA margin around 14%. So when prices have significantly go down in Asia also in the U.S.

And I was expecting this to be a little higher again, to come more towards the 15% or 16% that you guided for the division. What is holding back?

Also in this year, so I mean, last year you also had the negative impact from the big turnaround you have in the second quarter. So can you maybe elaborate there a little bit, do you maybe expect also some negative pricing in that part of the business?

The pricing that we see is slight uptick. But with raw materials coming down also we will see pressure again on our own sales prices.

But I would say we have, as you mentioned the turnaround in last year, we had a smaller turn around again this year, which is planned. So the, a typical progression back to target margin levels takes more than just a year.

So we were at 12% last year, the target margin is at 16%. So with our guidance of 14% we're just right in the middle.

Thank you, operator. Thank you all for joining us today and for interest in Wacker Chemie.

We're looking forward to further discussions with you as the quarter progresses. If you'd like to meet with us next time we're in this, in your city, please send us a message directly or register your interest with our corporate access partner.

We will be back again with a conference call on the Q1 results on April 25. Goodbye.