Wacker Chemie AG

Thank you, operator. Welcome to the Wacker Chemie AG conference call on full year 2021 results.

First is Christian Harter, our CEO; Tobias Ohler, our CFO, who will take you through our prepared slides in a minute. The presentation is available on our web page under the caption Investor Relations.

Please note, the management comments during this call will include forward-looking statements that involve risks and uncertainties. I encourage you to review the Safe Harbor statement in today's press release and presentation and our annual report regarding risk factors.

All documents relating to our full year 2021 reporting are available on our website. Chris?

Thank you, Joerg. Ladies and gentlemen, before we begin with the presentation of our results, let me make a personal statement first.

I'm deeply shocked by the images and the news from Ukraine over the last few days and actually, 19 days now. My sympathy goes out to the suffering Ukrainian who struggle to survive.

The attack on Ukraine was a watershed moment. The war of aggression in the middle of Europe was unimaginable not long ago.

It's only a little more than 900 kilometers from the -- to the Western border of Ukraine, about the same distance as Munich to London. We've enjoyed peace and prosperity for many decades now and memories of war were just that fading memories.

The attack on Ukraine changes all of that. All Russian and CIS countries together account for less than 2% of group sales in 2021 for Wacker.

We have stopped our shipments to Russia and our two employees in Ukraine have left the country and they're safe now. So far, we have donated EUR 100,000 via the Wacker Relief Fund to support the refugees.

And in addition, we will match every donation made by our employees, so there will be more support to come. We hope that this war and the suffering it brings will end soon, very soon.

Now let me welcome you to our full year results report 2021. 2021 was the second year of the pandemic, putting a lot of strain on the global societies and the economy.

Wacker managed to navigate better through these challenges than expected. 2021 was a record year for Wacker.

I'm pleased to report our best annual results ever, with sales of EUR 6.2 billion, with an EBITDA of EUR 1.54 billion. Despite massive raw material cost increases, EBITDA more than doubled compared to 2020.

So 2021 was indeed an incredible year for us. As economies continue to open, strong demand in logistics and supply bottlenecks.

Raw material and energy prices surged to unprecedented levels. We had to work very hard to service our customers.

Considering these and other challenges, our teams across all businesses performed very well. So let me say thank you to all our employees for a well-done job on behalf of the entire Executive Board.

Demand for all of our products was strong last year. Across our entire product portfolio, we experienced a significant pull from our customers.

Last year, we ran at very high utilization rates to meet customer requests in all our businesses. Unfortunately, we could not keep up with the very strong demand in many cases, and we had to place some customers on allocation.

Our customers' growing businesses pull us ahead. We actively address capacity shortages by significantly increasing our CapEx to EUR 550 million to EUR 600 million in 2022.

With this increase in CapEx, we are switching gears towards strong growth, focused on high-return specialty products. We commit capital to product groups of solid market positions, a strong pull from our customers and a differentiated offering.

This includes specialty silicones, polymer powders, semi grade polysilicon and biotech products and capacities. We will detail our strategy, our midterm intentions and our long-term goals at our upcoming CMD at the end of March in London.

Looking into last year's results, our chemical businesses saw a strong demand and reported an EBITDA of EUR 844 million, the highest level ever achieved. In silicones, we saw sales driven by fast-growing specialty products, supporting the positive earnings development.

In polymers, we saw strong volume growth. Our pricing initiatives delivered a good full year results in a very challenging market.

In Biosolutions, we saw continued strong growth in biopharma. Polysilicon benefited from an ongoing tightness in solar, cost reductions and our mix to semi.

Our full year net income came in at EUR 830 million, we achieved an earnings per share of EUR 16.24 per share. So Wacker today stands on a solid financial foundation.

Our liquidity is high, ending 2021 with approximately EUR 550 million net financial assets. Our financial stability and our confidence in our businesses as we look ahead are the basis of our highest ever dividend proposal.

Now let's move to Page 3. Here, you see our dividend development.

We are committed to pay dividend as an essential part of our capital allocation strategy and policy. At the upcoming shareholders meeting, the Executive and Supervisory Board will propose a dividend of EUR 80 per share or a total dividend of EUR 400 million, which is the highest ever.

The proposed distribution aligns with our stated policy to distribute some 50% of our net income to our shareholders. This reflects also our confidence in our business and strategy going forward.

On Page 4, I would like to emphasize the importance of another important commitment of us. Our new sustainability targets presented at our last CMD in December.

At Wacker, we see sustainability both as a commitment and a value driver. We will significantly improve our ecological footprint.

We want to reduce our actual greenhouse gas emissions by 50% by 2030. We are now on a path to net 0 by 2045.

We have identified three important levers which we need to pull, we recall these parts doing our homework. In Norway, we produce silicon metal, an important raw material needed for silicone and polysilicon production.

Our smelter is a major source of our emissions today despite highly efficient processes. By adapting our processes to use different feedstock, we will produce CO2-neutral silicon metal.

The second area of focus is on process transformation and using CO2 as a feedstock. We are actively pursuing our Orion project.

Here, we will use an existing CO2 waste stream to produce green methanol. Innovative processes like these are needed to defossilize the chemical industry.

And the third area of focus is sourcing renewable energy. Over 60% of our processes are electrified already.

This puts us in a great position to benefit from cleaner power mix. These initiatives will require investments.

And yes, we do see them as investments and not as costs. With these actions, we address climate-related risks and, more importantly, open future opportunities for Wacker.

We see sustainability as the key value driver at Wacker. Only two-thirds of our sales are from products that either enable or support the performance of CO2 abatement technologies.

Our product portfolios see strong demand from strong trends in smart construction, resource savings, e-mobility, digitalization and renewable energy. And what is really important, we feel a strong pull from our customers for these products and solutions.

With our global footprint close to customers and innovative strength, Wacker is excellently positioned to be our customers' preferred growth partner. This strong demand pull has carried us through the pandemic and continuous to define our profile.

Ladies and gentlemen, we had a strong start, a very strong start into 2022. Tobias will give you more details on that.

But now let me address our guidance for the full year on Page five. We are confident of increasing sales to about €7 billion in 2022.

We see full year EBITDA in a range between €1.2 billion and €1.5 billion, despite much higher costs for raw materials and energy. So our EBITDA guidance reflects the combination of confidence, market uncertainties and supply and geopolitical risks.

As you will see, we are confident about our chemicals, biotech and semi grade polysilicon performance. On the other hand, our full year guidance recognizes uncertainty in solar PV and macro-level risks.

We cannot reliably estimate the full range of medium and long-term political and economic consequences of Russia's attack on Ukraine at this point. So far, we've already seen a massive increase in the cost of gas, natural gas and power on the spot markets with a high day-to-day fluctuation.

We also feel these price increases with a bigger impact on the following quarters and the full year. Before we move on the financial detail and outlook, let me comment on Siltronic.

Our strategy is unchanged. We will divest our holdings in Siltronic in the medium term.

We've been pursuing this goal since the Siltronic IPO in 2015, because we want to focus on accelerating the expansion of our core business. As you know, we have been in strong support for selling our shares for the proposed Siltronic take over by Global vapors.

Regrettably, and I really have to say that, regrettably, this deal has not been approved by the German authorities, although there would have been a very strong industrial rationale behind it forming the global number 2 in semiconductor wafers. In my view, it would have been a great success for all parties involved and also from my perspective, for Europe, forming a global champion with strong routes in Europe.

So we will pursue our strategy. Yes, there is no need for haste.

There's no need to rush for us. We have a clear strategy, and we will wait for the right moment to execute it.

Why is that? Well, first, Siltronic has developed very well, it is excellently positioned and operates very profitably.

So our investment in Siltronic creates value. And second, to be very clear here, Wacker has sufficient resources and liquidity to address and to implement our accelerated growth targets.

With this, I would like to say thank you and would like to hand over to Tobias who will give you some more details through the full year financials and a more detailed outlook.

Thank you, Chris. Welcome, everybody.

Before I start, let me quickly point out an accounting change due to the Siltronic transaction not going through as planned. We no longer account Siltronic as an asset held for sale and we have reinstated the equity method for the entire year 2021.

This change primarily affects the other segment in the quarterly P&Ls and the fixed asset position in our balance sheet. You will find the restated figures in the AXL file that we provide on our website.

Now about the P&L. Group sales increased by 32% over 2020.

Price improvement contributed 21%, while volume and especially mix contributed to sales growth of 12%. Our full year gross profit almost doubled to about €1.7 billion, despite raw material headwinds of about €500 million last year.

The main drivers to this margin improvement were price and volume effects, supported by strict cost control. We also made progress on our Shape the Future program.

This efficiency program helped results by about €160 million. Our share in Siltronic contributed about €60 million to our reported EBITDA for the full year after accounting purchase price allocation effects.

Our operating result, EBIT increased more than fourfold to over €1.1 billion, up from €260 million in 2020. Our tax rate was 24%, resulting in a net income of €828 million for the full year that computes the earnings per share to €16.24.

On Page 7, the balance sheet. Cash and securities increased about €2 billion, supported by our earnings and strong cash conversion.

The equity ratio increased from 24% to 38%. Strong earnings and the higher discount rates in group pensions were the main drivers.

Our overall pension liabilities decreased by about €900 million to €1.8 billion. Net of the related deferred tax asset our total pension liability amounted to just below €1.5 billion at year-end.

We made progress on reforming our pension system. In a low interest rate environment, we repeatedly made special contributions to pension fund in recent years.

Taking advantage of our strong financial position, we made a €250 million contribution to a newly established CTA to finance Wacker's so far, unfunded pension obligations partially. The new plan asset will ease the future burden from pension commitments.

Now let's look at Silicones on Page 8. The segment increased sales by 16% over last year.

Full year sales came in at €2.6 billion, with an EBITDA of €553 million, driven by price and mix improvements, the segment margin came in at 21.3%. We saw very strong demand across a broad range of industries throughout the year.

Towards year-end, we saw silicon metal prices soaring to previously unseen levels in a very short period. We immediately announced price increases to meet rising costs from silicon metal and energy in response.

Our price increases in silicones aim to protect our overall profitability, enabling us to invest further to meet the demand pool we see in our businesses. As we proceed for the first few months of 2022.

Silicon metal prices have come down somewhat from their peaks, but prices are still at extremely high levels. In addition, energy prices have shot up and are very volatile.

We are confident that we will continue to grow for the full year. With our pricing initiatives, we aim to mitigate the inflation of raw materials, energy, logistics and thus protect our margins.

We expect full year sales of about EUR 3 billion for silicones with an EBITDA margin on par with prior year. Specialty volume growth and higher prices should compensate for higher costs.

The closing of the SICO silanes acquisition in China will provide additional impetus to our product offering. Polymers on Page 9, reached almost €1.7 billion, as demand stayed strong throughout last year.

We faced unprecedented raw material price increase at this part of the year, forcing us to respond to surcharges and price increases to protect our financial results. These pricing initiatives, coupled with volume growth and strict cost discipline allowed us to generate a full year EBITDA of approximately €250 million.

We will continue to adjust prices to compensate for raw materials, energy and logistics costs. We have introduced more flexible structures into our contracts, allowing us to respond quicker in dynamic markets.

In addition, we see new capacities coming online in the second half as we are doubling our managing capacities. For the full year of 2022, we see higher volumes in all regions.

For polymers, we expect full year sales of about EUR 2 billion with an EBITDA margin on par with prior year. File Solutions on Page 10, generated sales of almost €300 million, with an EBITDA of EUR 39 million.

We continue to see strong demand for our biopharma and bioingredients product. Higher utilization rates and a good cost structure supported the EBITDA.

Ramp and integration costs held back results. In Biosolutions, we pursue our announced strategy.

Our enhanced capacities in Amsterdam are under construction. We are busy integrating our businesses globally and filling our CDMO pipeline.

We are spending on digitizing our global biopharma business, strengthening our position and improving our profile to pharmaceutical customers. But we also saw a force majeure situation in a life science chemicals intermediate at the start of the year.

Both events will hold back earnings significantly in the full year 2022. In the full year, we see a low double-digit percentage increase in sales with an EBITDA margin slightly below last year.

Sales in polysilicon on Page 11 came in just over €1.5 billion. Strong demand and tightness in semi and high-end solar markets kept volumes and prices up throughout the year, significantly higher prices for solar grade, higher semi volumes and our ongoing cost reductions helped increase EBITDA to €657 million.

In 2022, we expect further strong growth in global PV with annual installations growing beyond 200 gigawatts and on average, higher prices for both semi and solar grades. The war on Ukraine with further acceleration of installations in Europe as we see in the European Union now supporting renewables as a means to reduce fossil fuel dependency from Russia.

For the full year in polysilicon, we see sales of about €1.6 billion, with an EBITDA between €330 million and €500 million. This year, we see much higher energy and silicon metal costs holding back performance.

While we have good visibility around our semiconductor businesses, we always model solar grade with a degree of uncertainty. Moving on to the net financial position on Page 12.

We ended the year with a net financial asset of EUR 547 million. Strong cash flow from operating activities was a primary driver.

Net cash flow reached EUR 761 million, even after contributing EUR 250 million to the CTA for the previously unfunded pension liabilities. On Page 13, we summarize our group guidance for the year.

As Chris pointed out, we expect sales of approximately EUR 7 billion with an EBITDA in the range of EUR 1.2 billion to EUR 1.5 billion. Our confidence in maintaining margins in silicones and polymers is a clear sign of our pricing power in our specialty chemical businesses.

On Page 14, you'll find our first quarter trading update. The trend manifests in Q4 continued into Q1.

In Q1, both silicon and polymers continued to see strong demand growth. In silicones, we already see the impact of our price initiatives, but still benefit in the first months from trailing input purchase prices.

In polymers, prices higher than the previous year compensate for higher raws and energy costs. Polysilicon continues with strong price but will bear significantly higher silicon metal and energy costs sequentially.

And Biosolutions see strong demand in biopharma and bio-ingredients. However, the force majeure in lifetime chemicals will be clearly visible.

That said, we expect first quarter sales €2 billion with an EBITDA growing faster than sales compared to Q1 last year. Q1 earnings benefit from trailing raw material prices and energy hedging effects in silicones and polysilicon.

The attack on the Ukraine is a pending energy in commodity markets. This will create further volatility and weigh on our results as the year progresses.

Our guidance today assumes about €1 billion in headwinds from raw materials and energy costs compared to last year. Our ongoing pricing initiatives are necessary to compensate for these.

Looking at our business setup and the dynamic development of demand for our product, we are confident to face these challenges. Yes, it will get more challenging, but we have what it takes to succeed.

So all told, we have a great setup. Our teams are performing exceptionally well.

And we look forward to sharing our 2030 ambition at our upcoming CMD. Operator, we're now ready to begin the Q&A.

Thank you. The first question really is around -- Chris around polysilicon, but I sort of want to ask in light of what you sort of mentioned about Siltronic as well.

In terms of the political landscape, I suppose Europe blocks or rather Germany has blocked Siltronic as a deal, which at least technically would suggest that polysilicon of Wacker is also a strategic asset, given Europe wants to self-sufficient in solar manufacturing now. So just want to understand at a -- like at a policy level, what sort of support would you guys require to increase your investments in solar grade polysilicon?

And are you have such discussions right now on that note on that? And then my second question really is around silicon -- I mean, appreciate, phenomenal results last year and also a very good outlook for this year.

But if you compare 2021, 2022, the obvious let's say, peak year of '17, '18, would we say that this time around, the strength is much more because of strength in the specialty grade demand? Or are you also actually having very strong earnings in the standard grade, which, if I may say so, could fall off if cycle reverses?

Thanks a lot.

Okay. Jaideep, thanks for your questions.

First of all, on the polysilicon side and the political landscape. So yes.

I mean talking about Siltronic, yes, it was disappointing results what we saw that the German authorities did not approve the deal because I think there's somewhat behind it. Also for shaping the European semiconductor industry.

But okay, if you talk about the solar supply chain, yes, there have been many talks going on in the EU. And they also just recently, I think it was last week, they published their goals for installing PV supply chain, installing more capacities, which, of course, we appreciate.

What impact does it have on us, well, I remember I think it was the last conference call, we talked about the auctions in the U.S. And my answer would be we are there already.

I mean, we are there already in Europe, we are already in the U.S. So what's needed is customers producing the ingots, the wafers and the modules.

So -- and of course, we have talked with these guys. So far, it's -- I have to say it is smaller volumes.

There are some ideas about bigger projects. But we could all fuel this with the material we have.

And once more material is needed, then we talk about next steps, but we definitely don't see this in the next year or so. You have any question on silicones on the strategy with specialties and the results impact.

I will definitely say there is a difference to 2017, 2018 because today, I mean, almost everything we sell is a specialty and that is much stronger than we had it in the '17 and '18. We will talk about this also at the Capital Market Day.

And so that, yes, that is a difference. And so it's much healthier and more stable the margin we see in the specialties from silicones coming today.

Okay. Thanks a lot.

Hi, good afternoon everyone. The CapEx guide is perhaps a very strong signal that you're embarking on investment phase to grow and reshape the business.

And I don't want to take anything away from that upcoming Capital Markets Day. But can you discuss a little bit more the risks and returns of some of the bigger projects that you're putting that CapEx into over the course of 2022?

For the project for 2022, I mean, it's essentially what we see in 2022, but also going to the next years, we will see much more smaller projects diversified project in different regions and essentially none of big greenfield investments. So it's a much more diversified portfolio and I guess you maybe ask for is there a cluster risk?

No, there would be no cluster is because of that or a very reduced risk of that.

And to follow up, obviously, we know from the past and some payments that were taken that CapEx has not historically always been deployed in a value-accretive manner. Was it about your investments now in terms of the profile of those investments that you're confident will ultimately create value for shareholders?

Well, I mean we invest into our specialty businesses. That is a very much true for silicon.

We talk last time about investments in semiconductor, polysilicon and also in polymers and biosolutions. Yes.

So we expect a higher return from these investments.

Okay, thanks very much.

I have three, if I may. The first question is on the first quarter again.

While March is not over, and you might can comment whether you see anything what's going on in fiber affecting your business. But if I stick to what you said in your outlook on the trends and compared you said, it will be stronger increase in sales, which would be north of €370 million.

But if I take what you have given as comments, I would rather think that silicon’s will be much higher than in Q4. Polysilicon north of €200 million.

Polymer certainly not worse than it was last year. And if I put this together, plus the earnings of Siltronic I would get close to €500 million.

Maybe you can be a little bit more specific as we are at the end of the quarter, how far you can get there and whether there’s already anything negative you see from the trend? The second is on energy.

While you have given an increase of €1 billion, you might see in energy and raw materials, quite frankly, if I look on my screen and use what you post in the annual report on your energy intensity, then I would get significantly higher amount. Maybe you can elaborate how you get to this €1 billion, and whether you have some hedges in your energy I might not be aware of.

And in the context of energy also in polysilicon, you have given guidance in sales and in earnings and the difference, of course, is cost. And if I split that down and say that the costs in the U.S.

are probably not moving that much, then I would get to poly cost per kilogram for the German science of €15 to €18, which is significantly higher than what the Chinese producers would have. If we get into a situation where solar poly is oversupplied, what does that then mean for your competitiveness in -- yes, in a more digital market?

Thanks.

So Andreas, Tobias here. I will take the first two questions.

First one on Q1. As I said in my speech, I mean we have strong trends in Q4 that continue into the first quarter.

So we expect sequentially €2 billion in sales, up from €1.7 billion in prior quarter. And I mean you mentioned silicones.

And yes, much higher than prior quarter, while we see higher volumes, and we see higher prices. Please bear in mind that we had restricted production from force majeures and turnaround in the last quarter, and now we are running full steam.

Second, bear in mind that we had actively increase prices in silicone in Q4. Your comment on polysilicon, I would say, was not too far off.

I mean we see sequentially even slightly better prices. Yes, we have headwind from silicon metal and energy, but sequentially slightly better prices.

So your number was, I think, a good one. And we -- for polymers, we see -- I mean that we are effective in our pricing.

We definitely are better, and we have the right mechanisms to, yes, pass it on to our customers. And in addition, it's something that you might not have on the radar screen so much, Q1 significantly benefits from trailing raw material prices in energy hedging effects, I think that was your second question.

So what happens in accounting, you still have some, I would call them, moderate unit costs for the product going then from stock through the operating cycle into the P&L. And that's an additional effect in the first quarter.

So if I put all together, I mean, there's still a big caveat and some risk from the war. I mean, yes, assuming no gas embargo or some similar crisis in the next couple of weeks, I think Q1 could be approaching a strong margin that we had seen end of last year in the fourth quarter.

So as Chris said at the beginning, we are heading off for a very good start. So your question on the raw material and energy headwind, I mean we talked about the €1 billion that we see as headwinds that we are trying to pass on to the customers as much as possible with pricing initiatives, especially in silicones and polymers.

Your specific question on energy. Yes, we do have a rolling hedging program in place for many years.

And we do this with three years in advance with lower hedge rates from the next year to the over next year to the third year. So roughly two-thirds of our exposure is already hedged for the current year and less for next and less for over next.

That means that if you look to our P&L, our overall energy cost is 7% on sales in last year. This is €450 million if you do the math.

And yes, as Chris said, I mean prices -- I mean, for the first few months have very high on the spot level and are extremely volatile. And you need to, yes, make a guess what could happen through the rest of the year, but you can be wrong.

So what we did that we looked at the future for the rest of the year and took an average over some days. I mean we don't look at just one day, and we could see that the €450 million could double, approximately.

But I mean, we can be off of that number as you watch the market develop so quickly. So that is our assumption, €1 billion in energy and raw and for sure, more of that headwind in the remaining quarters.

Okay, Andreas, Chris. So I would take your first -- your third question on poly.

You mentioned that the poly cost getting higher than the Chinese, what does it mean for your competitiveness when solar is oversupplied. Well, I mean, first of all, of course, if electricity prices go up, there is an impact on the cost structure on polysilicon.

I think that's kind of obvious. I don't want to comment on the exact cost and the numbers you mentioned.

I can tell you what we do. I mean we definitely focus on our continuous effort on reducing our cost road maps, so we work very diligently on that even in times where the margin is much higher than in previous years.

We also heard from some of the competition in China. I think that's also something to keep in mind that obviously, there seems to be also an increase on power pricing.

For us now, hard to judge how much that is. But I think there was a report from Dakoo [ph], who also mentioned higher electricity pricing and also on new investments in China, sometimes it seems that there is a difficulty in getting power contracts.

And we keep with our strategy focusing on high end solar grades and shifting our material more to the semiconductor industry. And we see a strong demand there.

Thanks.

Hello, good afternoon. And thank you for taking my questions.

Congratulations on a good set of results. I had two, please.

The first would be on the definition of specialties within silicones because I can understand qualitatively how the business mix has improved as the plant has been filled with higher-margin products. I just want to check here, is the Wacker definition of specialty silicon, the same thing as it was 8 or 10 years ago?

And how does the company define this? Is it everything effectively that is not siloxane?

The second question is on the CapEx. Is €500 million to €600 million, just now the go-to number for the next four or five years.

I appreciate you may have more comments on the CMD, the modeling purposes. It would be helpful to get a handle?

Thank you.

Okay, Brain, this Chris, take your question on the silicon specialties. That is also something which we will talk about during the CMD.

And well -- I think this is something which is not static. I mean this is something which improves over the years, as we see also our demand structure with our customers and what kind of products they require.

But in general of course, you are right, it's the simple product made out of siloxane, which is just one more value step away that is typically a standard product, and every [indiscernible] which goes beyond. And most of these products have a distinct allocation to certain customers.

These are specialties. But we will give you more detailed guidance on this topic during the CMD.

Sebastian, on the CapEx, you mentioned the €550 million to €600 million. I mean this is for this year, and we will talk about in the years going forward just in a couple of weeks.

But I think you relate very much to Matthew's question. I mean, in what are we investing?

I can definitely tell you that we are investing for the demand pool of our customers into highly profitable business, and we will watch out for the return requirements of these projects. And as Chris mentioned, we have a portfolio of many projects.

So we have, I mean, the liberty to select and to make the right choices and not to make one big decision and then continue on executing that project for many years. So I think that mean something we would love to talk to you in just a few weeks.

And yes, I'm looking forward to it.

Understood. May just quickly follow up on the CapEx question.

If I might take a step back and just look at the wider market for siloxane more generally, is your expectation of a broadly balanced, a tight market or a loosening market on the commodity silicon side for the next three years?

I think as Chris said, I mean, our focus on specialties, we are not so much looking into the balance of the standard product I mean, right now standards are tight. I mean there has been a rush after the huge spike in the silicon metal prices also and the energy curtailments in China end of last year.

But I think right now, all the specialty markets are tight, and that's why we are so successful in passing on the substantial headwinds in our own pricing. But I don't have a view on the siloxane supply demand for the next couple of years.

And it's really -- I mean, Sebastian is really what we’ve said. I mean it's not in our focus anymore, you can say, because we need these materials, we need siloxane also to grow our specialty market.

And the only investment we will do into siloxane related products is because of making specialties out of this. And well, typically, what you've seen in the past is that Chinese competitors when they wanted to enter silicones, they made standard products because it's the only thing you can kind of buy the equipment and then you make it.

But all the know-how you need, the capabilities, the R&D expertise, the customer proximity. That's all you need if you want to do specialties.

And that's our strategy since now, 10 years, and I think it really pays off and we will continue on this path. So now yes, I mean, might be more valuability of standard product, but no harm to us.

Understood. Thank you for taking my questions.

Yes, good afternoon everyone. I have two questions on polymers.

Virtually, if I remember correctly, you churned quite a chunk of your contracts toward the end of the year. And I'm interested whether you were able to implement price increases permanently?

Or are you still continuing with the temporary energy surcharges also in 2022? And the second question, again, on polymers, you have direct exposure to the Chinese residential construction market.

Can you tell us what you see in terms of demand development? Is there any change you note following the issues this market has been experiencing in 2021?

Thank you.

Okay, thank you, Thomas for your questions. The first question on the pricing structure for polymers.

Yes. I mean most of the contracts we have are also on an annual basis.

And what the teams discussed with our customers is essentially a combination of both the things you mentioned. So some permanent price increases, but also something on the surcharge side.

And I mean, I think it's sort of secret to say. I mean, of course, we would appreciate more getting the base price higher, but our customers don't want to have the base price higher.

So there's always a struggle between that. And so overall, it's a combination of temporary surcharges and an increase in the base price.

The China residential construction market. I mean, as you know, I mean, we are not only into the newly built construction, we are also into renovation.

And typically, if the newly built is struggling more, there is a tendency towards more renovation. So overall, this gives us some -- gives us more flexibility for our markets.

And to be honest, we haven't really seen an impact on our side on our business because of the events you mentioned.

This is helpful. Thank you.

I don’t know if you could just answer two questions for me. First of all, in your silicon and polymers business, obviously, you're commenting that you expect the raw material energy price increases to be offset with higher pricing.

How much of that is already have you already achieved, particularly for the first half of the year? And then secondly, I was just wondering if you could talk a little bit about what your expectations are for new supply in polysilicon to come online as we go through this year and probably into next year.

What are the issues that you're seeing in that area?

So for the first two questions on the pricing for silicon and polymers. I mean we are initiating prices and price increases as soon as we see, I mean, the headwind, and we need to react to that.

This is what we did in polymers. Chris just talked about it.

So we have a combination of base price increases and surcharges now. And these wouldn't -- the surcharges would move up with raw materials.

So if raw materials continue to be high or even go higher, our prices would move up with this in polymers. In silicones, we reacted the fourth quarter already to the spike in silicon metal prices and then later also to the energy inflation.

And there, we have moved up and established a strong pricing, I would say, even as a pricing leader to the industry, and yes, as I mentioned to Andrea's question, in the first quarter, we still benefit from trailing effects from lower raw material costs that we still have in our stock, but yes, for sure, we also in the next quarter, we see then the headwind from the higher purchase prices for silicon metal and energy.

Okay. Jeff, on your second question on the supply of polysilicon coming online.

I mean, we can all read all these reports about Chinese capacities, a lot of capacities announced, also a lot of capacities announced from people who never been in that sort of business. Typically, what we see is that the announcements typically take much longer than communicated.

For this year, we see a very strong demand as Tobias also pointed out on the PV demand installations, 200 plus gigawatts, that's what we see. So installations are growing substantially.

And we also see them growing in the high-end sector, high-efficiency sales. And that’s the area where we have a competitive advantage.

And I think especially in this area, newcomers would struggle on the quality side. And with the announcements in -- let's -- essentially in all the continents in EU, in China and the U.S.

on installing new capacities for PV, I think there is a need for more polysilicon capacities. And it just takes -- typically -- and if you talk about the past, typically, it takes -- took much longer between an announcement and the actual capacity being on stream and delivering a high-quality material that is needed by the customers.

So I would not see high oversupply situation in this year.

Thank you.

Yes, thank you. I was just wondering your comment around strong demand across the board.

Could you maybe help us understand different market, different end markets, where do you see maybe the strongest versus weaker growth? I'm just trying to assess whether you think there is an element of maybe customers trying to -- let's say, is there an element of panic buying because of the situation that you see with energy prices and oil prices.

And again, do you see any regional differences in terms of the demand strength of different divisions?

Chetan yes, it's a very good question you're asking. And -- but I will have to say -- I mean we see it really the demand across the board.

We haven’t seen much of pending buying, I would say. But I think that is more the reason -- because all these supply chains globally and I mean, I don't mean the Wacker supply chains.

I mean all the supply chains in the industry, are so distorted in the last months and maybe even to say years, that I think everybody is looking for kind of what's a normal situation. And we see spikes in raw material prices and -- but the demand is -- yes, I mean, there's not a single area where I would say the demand is low or significantly lower.

We see it in all the areas where we deliver our products.

Understood. And then I was also intrigued by your announcement of applying for government funding for the RISE project in Germany for green methanol I think it is based on green hydrogen.

I think the first application was not successful or rejected. And I'm just wondering how does the system work?

And like why was your application rejected in the first instance? And what have you done differently, if anything, in terms of applying for funding again?

What I'm trying to assess is, is there clearly decarbonizing or decarbonization, sorry, is a theme for most companies. And I think clearly, for some of these projects, government funding will be needed.

And I'm just wondering is there different benchmark that governments are using to decide which project they fund versus the other?

Well, Chetan, first of all, I'd also love to have the answer why the government chose other projects. What we know is the European Innovation Fund, and that's the -- where we applied for the funding last year, they signed finally, seven projects, and none of these projects was coming from Germany, I think, which is also a very interesting observation to make.

And many of these projects also included a CCS, so a carbon storage, CO2 storage in the process, which is something which is currently not allowed in Germany. And one of the metrics they used for selecting a project is how much money do you need?

How much euro do you need per molecule of CO2? And if you -- I mean to give you -- to be maybe a little blunt, you just press it in the soil, of course, it is cheaper than making methanol out of it.

I think that was one of the reasons why bigger projects got the approval. What we did now in the second phase -- first of all, we made -- we talked to a lot of politicians and said, I mean, if the EU innovation fund, I mean, are you focusing on innovative technologies?

Or are you just focusing on storage technologies, then maybe you have to rephrase your title. So that's one of the reasons why I expect that innovative projects like this get a better chance in this second round.

And also, I mean, we got more details on how could we improve the cost position, how could we improve the efficiency of the processes. So we also got better because we did some of the homework.

And therefore, we hope, and we remain confident that maybe this time we get an approval.

That’s clear. Thank you very much.

Thank you. A couple of questions, if I can.

Firstly, on polymers, your key competitor last year was very keen on selling asset and VAM. So just wanted to understand, have you grabbed any market share from them because, obviously, a lot of your suppliers -- sorry, a lot of your customers were really complaining about product shortages last year.

So any comments you can say on that? Second question really is around BioSolutions.

I appreciate utilization investments. But what is the update now?

Because we had a big CMD with long-term targets and then unfortunately, whatever happened with CureVac. So I just want to understand what is the growth plan of BioSolutions?

Will we hear anything interesting this year? Or is this really more about '23 and beyond pipeline?

And just finally sorry, just -- it's a bit of a philosophical question on polysilicon again. China essentially produces polysilicon through coal.

So Chris, do you think that we need between, say, $5 to $10 of protection in Europe as per carbon leakage, if I may use that term, for you guys to be comfortable in terms of thinking about reinvesting again? Thanks a lot.

Okay, Jaideep, thanks for your questions. First question on polymers, did we grow our market share?

Compared to one -- is specifically one competitor. Well, I would say, definitely, we grew market share because we had a very strong volume growth, and that was also part of the success story on the profit side for polymers last year.

And yes, this competitor was -- you could read a lot in the news and the press and investor side on VAM and acetic acid, and the margins they got there. I think they had a very strong focus on their business.

But we have to ask them. I think the capacity increases on the polymer side were rather low compared to what we could offer.

On the BioSolutions. Well, I mean, we published these numbers, the €1 billion from value, we definitely stick to that.

We also said it's a marathon. It's nothing.

It's not a sprint, where we can have great results the day after tomorrow. We are remaining confident we are expanding capacities in Amsterdam, we have an interesting pipeline of projects coming for the biopharma business coming up.

Replacing CureVac, I think we always said that it's not an easy thing if you just replace from one day to another big commercial pharmaceutical project with some Phase I, Phase II, Phase III projects. So I think that just takes a little bit more time, but we still remain as confident as we have always been on that business and also on the value ingredient side.

And yes, M&A also plays a part there, but there's nothing today to report on. We will certainly give you an update, and you have the discussion there with Susan on the -- on our Capital Markets Day in London coming up.

And third question, it's also a very interesting question on polysilicon and the Chinese energy footprint. And yes, you are right.

It's also our understanding that most of the polysilicon in China is produced from coal or even worse from lignite coal even worse CO2 footprint. So from that perspective, you could argue that a carbon border adjustment tax in Europe would be helpful.

We have always been very reluctant on these sort of measures because I think they can really fire back. And just imagine the case that China would allocate green electricity, which they definitely produce, not to a huge extent, percentage-wise, if they would allocate it to certain industries, then you can kind of convince its board adjustment taxes.

So therefore, we don't really think that's a great idea, and it would be much more helpful if you would support the German or the European export-oriented industry like our select chemical industry by providing an attractive electricity pricing. It would be much more helpful, I think, for growing the business and also not to start the next trade war with China.

Alright. Thanks a lot.

Thank you for taking my questions. I'd like to challenge your guidance from a more top view, if I may.

So basically, sales are going to increase by, let's say, €800 million to around about €7 billion bounce to increase by €1 billion. Hence, you seem to be willing, but unable to pass on €200 million of those costs to customers, should easily bring us to the midpoint of your guidance and case closed.

Is it really that simplistic? No volume effects, no FX effects in spite the case that you are looking at a conversion rate of €1.15 to the dollar after the previous year.

And even that seems to be rather conservative given the current FX. So is €7 billion -- around €7 billion, how closely to €7 billion are we talking here?

Thank you. That would be my first question.

Oliver, you're hitting the nail, I mean it's about around €7 billion, and that makes your calculation much easier if you, yes, apply a range, I would say. I think we’re definitely beyond our price initiatives.

We definitely see volume growth in the chemical businesses. But we don't have volume growth in poly because we can't repeat sell off of our stock of our inventory that we had last year.

And I think if you apply a range, I think your math is pretty good.

Okay. Secondly, I saw that the cash taxes were only €150 million, despite the NL at being €266 million.

Am I correct to think that this year, we'll see a cash tax closer to the P&L tax?

Yes, that makes sense.

Okay. So if I'm looking from the midpoint of your EBITDA guidance to both the -- to CapEx to cash taxes to likely movements and working capital, would you be looking free cash flow of around €450 million, would that be, let's say, a likely ballpark number?

We guided for a strongly part of cash flow. And I would say with the growing business, we do see some working capital effects and we have a higher CapEx.

And I think what you should also have on the radar screen, we are heading towards closing the SICO acquisition, the specialty silicones player in China that we acquired for some €120 million. So I think that would bring you a bit lower.

But as a reference point, we also mentioned that we would still end the year with a net financial asset position. So I think from that, you can do your numbers.

In the net financial asset position, I mean, you need to bear in mind that the dividend shows up here, which is not included in free cash flow. And as Chris mentioned, we have with a dividend proposal of €8 a share, we have a payout amount of about €400 million.

Thank you for the clarification. My number of the €450 million, by the way, was before the effect of acquisitions.

But just to come back to the upcoming acquisition. I thought it was $120 million.

Now you were stating it was €120 million. Can you clarify please?

And when do you expect the transactions close?

We are expecting closing in the second quarter, and its euros and not U.S. dollars.

Thank you for the clarification. Thank you for your answers, very clear.

Ladies and gentlemen, this concludes today's Q&A session. Thank you very much for joining us today and for your interest in Wacker Chemie.

Don't hesitate to contact the IR department if you have further questions. Thank you.