Wacker Chemie Ag Ord

Dear ladies and gentlemen, welcome to the conference call of Vakashimi AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties here in the conference, please press star keys followed by the zero on the telephone for operator assistance. May I now hand you over to Jörg Hoffmann, who will lead you through this conference. Please go ahead.

Thank you, Operator. Welcome to the WACKER ChemEAG conference call on our first quarter 2022 results. Dr. Christian Hartl, our CEO, and Dr. Tobias Ohl, our CFO, will take you through our prepared slides in a minute. The presentation is available on our webpage under the caption Investor Relations. Please note that 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 any report regarding risk factors. All documents mentioned are available on our webpage. Chris?

Welcome, everyone. Good to be with you again. The war in Eastern Europe is now lasting for more than two months. Our thoughts are with the victims of this aggression. While the war has led to unspeakable suffering, It has also impacted global energy and commodity markets. We are feeling the effects already. Energy prices are up to levels previously unseen. All our raw materials charts spike up. If left unchanged, this development, especially in energy pricing, challenges the very fabric of Germany's industrial base. For the first quarter of 2022, we report sales of 2.1 billion euros, up 53% year over year. Higher prices in chemicals and polysilicon were the primary drivers for this. In addition, volume growth and mixed improvements in chemicals supported our performance as well. EBITDA more than doubled to 644 million euros year over year and showed strong growth over our record Q4 results. Polysilicon stayed tight and benefited from higher prices but was held back by higher energy and silicon metal costs compared to the previous quarter. Both silicones and polymers saw strong demand and delivered both year-over-year and consecutive growth. Both divisions benefited from higher prices. As we spoke about on the last call, silicones as well as polysilicon benefited from trailing raw material costs. Although our first quarter results are ahead of plan, risks for the remainder of 2022 are much higher today. On the input side, we now expect material and energy costs to be 100 million euros higher than our initial estimate. For the full year, we see them at over 1.1 billion euros higher. Global supply chains continue to struggle to normalize. All our segments are reporting logistics issues. From freight container availability to congested ports, shipping has become more difficult and logistics costs are going up. On the other hand, we see the availability of silicon metal on the global markets somewhat improving and prices are beginning to moderate from peaks seen at the end of last year. To counter cost headwinds, we have actively raised prices in our chemical segments. We have announced 30% price increase in silicones in the fourth quarter of last year. Beginning April, we raised once again our prices in polymers. We appreciate that price increases are hard on our customers, but we see them as necessary. Only by sharing this burden with our customers will we be able to invest in much-needed new capacities to support their growth. Demand is at a high level, and our pricing initiatives have been fast and very effective. Today, we raise our full-year sales forecasts from 7 to approximately 7.5 billion euros. Pricing initiatives and chemicals will allow us to grow faster sales while maintaining margins at the prior year's level. This should allow us to deliver significant, absolute EBDA growth in chemicals year over year. We reconfirm our group EBDA in the range of 1.2 to 1.5 billion euros for the full year, and we see our results trending towards the upper end of that range. And despite the significant headwinds from raw material and energy costs, we confirm our EBDA range. in light of the largely debated demand uncertainty for the remainder of the year arising from geopolitics, the pandemic and inflation. The first quarter was exceptional. While the strong performance reflects the strength of our businesses, it does not show the extent to which raw materials and higher energy costs will hold us back as the year progresses. Nevertheless, we have excellent and resilient businesses, the right strategies, and the right products, and we are investing in the means to serve our customers' growth even better. Our teams continue to deliver and are doing a tremendous job. Ladies and gentlemen, at our CMD in March, we introduced new 2030 targets. We enjoyed seeing our covering analysts and the in-depth discussions we held following these events while on our first physical roadshow since the beginning of 2020. Looking to the next pages in the presentation deck, please allow me to recap on the key takeaways before I hand over to Tobias. Our key message was that we strive to accelerate proven successes while maintaining resilience. We started our presentation with a summary of what we have achieved so far. We completed the leverage phase in which we promised to invest below depreciation, earn attractive margins, and focus on cash generation. We have done our homework. In chemicals, that is the transformation of our business to a specialty focus, demonstrating strong profitability and leveraging regional presence and focused investments. For silicones, which I believe is the best and the most versatile product on the planet, success comes from performance and our innovative strength. We have truly transformed ourselves to be the fully integrated specialty player in the market. In Polymers, we advance the transformation to smart construction. We support our customers in the regions like no other player and offer customized solutions. Essentially, we are deploying a specialty strategy. In BioSolutions, we set the foundation for a leading microbial and advanced medicines CDMO. In Polysilicon, we focus on high-end applications, achieving a leading market position as a key supplier to the semiconductor industry. And we did our homework on costs. The next slide, page four, now speaks about our way forward. we will accelerate growth in chemicals. The key growth drivers we are addressing here are sustainability, close customer interaction, as well as regional growth. In biosolutions, we will grow our biotechnology business and leverage innovation. A combination of demand pool, innovation, and some M&A gets us there. In polysilicon, we seek to solidify and expand our leading position in the semi-market, benefiting from strong growth in the market segments where we perform best, our intense cooperation with customers and the leading sustainability profile. You can see our respective 2030 targets. These targets are ambitious. We have demonstrated in the past and today that we can perform at this level and we will continue to do so. Page 5 breaks down our long-term targets into shorter-range targets until 2026. Here you see our key initiatives, our scheduled CapEx to achieve our targets, and capital-based return targets at the top range of our industry. To meet our customers' growing demands, we need to invest more than in the past in chemicals. We will increase CapEx in chemicals to more than €400 million per year globally. This will create an even more resilient portfolio. On page 6, you see that maintaining resilience is key to us. Our team pursues sourcing and pricing strategies to protect our margins. We keep working on our cost base, both structurally and from an efficiency perspective. Our foundation for resilient growth is our very strong balance sheet. Page 7 then covers our capital allocation priorities. Clear number one is growth. Given our strong growth opportunities, we need to invest in organic and inorganic growth. In chemicals, we will accelerate capacity growth, focusing on downstream, more specialized parts of the value chain with balanced upstream support only for specialty growth. We are talking about a portfolio of many mid-sized projects and no major greenfield investments. M&A in biosolutions will be most likely what we've done in the past, early stage investments with a strong view on synergies with our portfolio. In chemicals, we watch out for value chain extensions, like the acquisition of SECO, which we will close in the second quarter of this year. Number two of our priorities for capital allocation is shareholder returns. We are a shareholder-oriented company and pledge to pay out about half of our net income to our shareholders. In line with this policy, we propose an €8 per share dividend to the AGM next month. And lastly, we are making progress on pension reform. switching new entrants to a fully funded defined contribution system. Things here are underway and you will hear more once we have the required regulatory and administrative approvals. Coming to page eight, that summarizes it all. And we have the means to get to our 2030 targets. We will grow through volume and mix at almost twice our historic rate. We will earn two times our pre-tax cost of capital, which we estimated 10%. We strive for EBITDA margins above 20%. And we will reduce our CO2 equivalent emissions to half by 2030. You see, we have set ourselves both ambitious targets and attractive targets. Going forward, you should expect faster growth, bolder moves, and higher profitability while maintaining resilience. WACKER is a great company with a great future, and with this, I would like to hand over to Tobias.

Thank you, Chris. Welcome, everybody. I will now walk you through our Q1 performance and will provide an outlook as much as possible into Q2. Let's begin with the P&L. Group sales increased by 53% over Q1 2021. The dominating factor here was pricing with 43%, while volume and mix contributed 6% to sales growth. Cross-profit more than doubled to about 670 million euros, despite raw material and energy headwinds of more than 250 million euros in Q1 alone. Our share in Cetronic contributed 29 million euros to EBITDA. First quarter EBITDA was 644 million euros following price increases, positive mixed effects and trailing raw material costs. Net income for the period was 403 million euros. Earnings per share amounted to 7.92 euros. Moving on to page 10, the balance sheet. You see here an even improved balance sheet with a higher equity ratio of now about 46%. Rather big changes in pensions. Our liabilities decreased by over 450 million euros to 1.4 billion euros from German discount rates moving from 1.24 to 1.87%. Net of the related deferred tax asset, our pension liabilities amounted to about 1.1 billion euros at the end of Q1. Now let's look at silicones on page 11. Silicones achieved an outstanding quarter, with very strong demand across all sectors. Sales came in at 921 million euros, 50% higher than last year. Benefiting from price, volume and mix, and significant trailing raw materials, the EBTA margin exceeded 30%. While the strong demand will support our business into the year. We do not expect to maintain margins at this level as escalating raw material and energy costs catch up with us. For the full year, we see sales now higher than before at 3.3 billion euros with margins on par with last year. While we see robust demand for our specialties, we account for increasing macroeconomic risks going forward. On page 12, Polymers recorded Q1 sales of 518 million euros on continued strong demand. Pricing initiatives addressed rises in raw materials, energies and logistics. EBITDA came in at 93 million euros, recouping some of the lost margin from last year. Looking into the rest of the year, we now see sales higher than before at 2.1 billion euros, with margins at last year's level. Polymers should benefit from higher volumes in all regions and capacity availability in China later in the year. Polymers will seek to compensate to further cost increases with higher prices, as demonstrated last year. On page 13, BioSolutions recorded sales of 77 million euros, with especially bio-ingredients contributing. EBTA was held back by a forced merger in life science chemicals and integration costs of our new site in San Diego. During the quarter, the German government awarded WACKER and Cordon Pharma a contract to provide up to 100 million doses of mRNA vaccines as part of their federal pandemic preparedness plans. This contract testifies our abilities and helps us to increase our capacities for mRNA medicines. For the full year, our forecast is unchanged. We continue to see a low double-digit percentage increase in sales, with an EBITDA margin slightly below last year. Key drivers here are the effects of the force majeure in life science chemicals and investments in biopharma digitalizations. Polysilicon on page 14 achieved sales of 525 million euros on the back of sequentially higher prices. EBITDA was 225 million euros. Results were affected by substantially higher energy and silicon metal costs. Given the operating cycle, trailing raw material costs still provided some protection. We increased our sales target for the full year in Polysilicon. We now see sales higher than before at about 1.8 billion euros with an EBITDA trending towards the upper end of our range between 330 and 500 million euros. As said before, we see this year much higher energy and silicon metal costs holding back our performance. Moving on to the net financial position on page 15. We ended the first quarter with a net financial asset of 521 million euros. This is at about the level of the end of last year. With strong cash flow generation from operating activities, we were able to fully fund not only investments in our operations with the required higher working capital, but also the SICO acquisition announced last year. We expect to close soon and consolidate the business in the second quarter. SICO will be immediately earnings accretive and expand our specialty portfolio and strategic position in the Chinese market. On page 16, we summarize our group guidance for 2022. As Chris pointed out, we now expect sales of approximately 7.5 billion euros with an EBITDA trending towards the upper end of the range of 1.2 to 1.5 billion euros. Looking at the start of Q2, we see our businesses continuing steadily. In chemicals, we are seeing some moderation in demand against a very strong Q1, as well as massive logistics issues and some pandemic effects. Headwinds from energy and raw materials keep mounting. Trailing raw material costs, which benefited silicones and polysilicon businesses, are waning. As you are all aware, At this time, it is difficult to forecast, given the massive geopolitical uncertainties, unknown impacts from consumer price inflation, and an unclear path of the world economy looking to recover from COVID, with impacts still ongoing from Chinese lockdowns. The underlying trends in our business remain intact, and demand remains at a high level. We will have to look at our forecast again towards the end of Q2 when visibility is hopefully better than today.

Operator, we're now ready to begin the Q&A.

Dear ladies and gentlemen, we will now start the Q&A session. If you have a question for our speakers, please dial 0 and 1 on the telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial 0 and 2 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. We have a first question. It's from Charlie Webb of Morgan Stanley. The line is now open for you.

Morning, or afternoon, sorry, not morning. Afternoon, everyone. Thank you very much for taking the question. Maybe just a couple from me to kick things off. So first, just on how we think about, I guess, demand looking through the year. Obviously, you talk about lots of uncertainties in terms of the geopolitical side of things. I guess also we have the China lockdown issues that seem to be escalating a little bit through China. So just trying to understand how do you see the demand today and Are there any pockets where you're seeing some uncertainty at your customer side, or is it all still, as you say, very strong, people still filling up the channels or demand underlying that is still strong? So just some thoughts there, and in particular, I think, yeah, the China lockdown's given, I guess, an important market for silicones, is Asia, is China. So that's question number one, just what you're seeing there and expectations. And then just maybe secondly, just thinking about The guidance, EBITDA, when we think about Q1 will probably represent something of the peak, given that lag effect you mentioned in silica inside versus the ROAS. But just how do we think about it for the full year? I mean, clearly, to get to your guidance, even the upper end, we have to assume quite a significant deterioration in profitability. So what has to happen for that to be the case? I mean, you've put through these price increases. but what has to happen to see that real deterioration into the second half? Do you anticipate any of that? Can you see any line of sight on any of that, or is it just we want to be cautious, it should happen, and therefore this is where we come out?

Okay. Thank you, Charlie. This is Chris. I would take the first question on what you said about the demand throughout the year. So, well, we started with an exceptional Q1, and we also see a very high order entry for almost all our businesses, you can say. And we see that also going into the Q2. If you talk about the second half of this year, And of course, we are aware that if you look at customer confidence, for example, these numbers really go down. We see our customers more talking about it to us. But if you look at our order book and that what customers order at the moment is still at a very high level. And China, yeah, well, China lockdown. Sorry, I forgot that one. At the moment... Similar answer. We see the China lockdown. We see the effect on the logistics. But so far, we don't see anything on the demand side from the China lockdown. Still strong also in China.

Yeah, for the full year, maybe I thought it was the second quarter first. I mean, as Chris said, we see... demand continuing strong across our portfolio, but we see some moderation against the exceptionally strong Q1. In addition, we also see sequentially higher raw material and energy costs. Don't forget about that we won't see any further trailing effect, and in addition, we have higher prices. But we are often talking just about raw material and energy, but there's more inflation in all other cost lines, going from maintenance to logistics. So I think we have demonstrating pricing power, and we have demonstrating that our chemicals and our overall setup is resilient. Just take the example of polymers raising prices at the beginning of April, which will become effective beginning of May. So there's a little bit of a lag, but there's continued pricing power. So that means that group EBTA in the second quarter should be lower sequentially. But for the full year, as Chris pointed out, I mean, we had a much stronger start to the year than expected, but we also have much higher risk today than expected. So we, in addition to the inflation on the cost side, we really account for some uncertainty from the consumer sentiment that we cannot really grasp right now from our customers' behavior, but which is talked so much about. We reflect this moderation in the second half, and that's why we come up with the guidance, which clearly points to the upper end of the range. But we will look into it when we progress to the second quarter and when we see how things develop over time. And hopefully we will have better visibility in the second quarter.

And maybe just kind of really, really quick following up on your first point, all very helpful, but when you have your clients talking about a slowdown in demand, but obviously continuing to order at a decent pace. Are there any other periods of time where that's been like it is today? I think, can you look back to other years, other periods where you've had that situation where your customers have kind of, and we live in a world where obviously we're worried that demand might slow down, but obviously demand has remained fairly firm in the order books. And in those situations, what typically happens? Is there any kind of reference point or kind of historical context you can give us where you're using to model and think about that kind of caution for the second half?

Well, I mean, Charlie, maybe to be a little bit more precise on what I meant with our customers keep talking or start talking about it, they don't see it themselves, right? So they see also the numbers that the customer confidence is getting down, but they also don't see it yet in their books. And that's the reason why also we don't see it in our books. You asked for a historical context. I think we are in a situation that we've never seen before with a war going on in Europe. And I think the comparison with the financial crisis is just, well, it's a crisis, but I think the crisis we have now is to a much higher extent. So therefore, I would say it's really difficult to make any comparison with these two.

Okay, I know, a very difficult question. We're all trying to feel our way forward. But no, that's helpful. Thank you very much.

Sure, you're welcome.

The next question is by Markus Meyer of Bada Hevia. The line is now open for you.

Good afternoon, gentlemen. My question is, the first one is on the supply situation, gas supply situation, which is obviously highly discussed in Europe. Could you walk us through what are your kind of worst case scenarios and what are the kind of plans you have in the West to cope with this kind of worst-case situation as the gas supply would come down? That would be my first question, please.

Okay, so I have a second question, or should I start? Okay, I'm sorry.

I was going to ask you a second question. I thought I asked a question one by one.

Okay, yeah, on the gas supply situation, obviously this is a very important topic for the whole industry in Germany, but also in Europe and for the whole economy. Of course, what we do is we look at different scenarios at our sites in Germany, what a reduction in gas supply would have. You know, I don't want to discuss the details on that, but we are very much working on these different options. What we also mentioned in some talks is that we have a situation in our largest site in Burghausen with a CPH plant, which means we have some sort of flexibility between using gas, between using electricity, between alternative forms of steam generation, and this flexibility pays on to our resilience Again, I would say in the setup we have. If there is a massive shortage of gas, a worst case scenario would surely be that the total Russian supply of gas would be stopped. That would definitely have a huge impact on the total economy within Germany and after that also within Europe. And of course, we would be part of that, And therefore, we are very supportive that the German government has a very clear stand here saying that an embargo on Russian gas from our side would be really something which is a huge risk to the economy. And this is what we strongly support, that position.

Okay, thank you. And my second question would be, again on this strong demand also in the second quarter. Can you, of course, it's extremely hard for this question to answer most likely, but can you assess if most of this demand will underline demand or is it more kind of a restocking that the customers try to have a security stocking in the case of the cases or that they anyway have low inventories over the last quarters due to supply chain issues, etc.? ?

Markus, to be honest, I would not talk about restocking. As I mentioned before, I think we see some moderation from the very high order entry in the first quarter, but we don't see anything like demand destruction, as we mentioned. We see still a pattern of more volatile demand entry, order entry day by day, but on a high and robust level for our specialty businesses.

Okay. Thank you so much.

Operator, the next question.

The next question is by Andreas Heine of Stiefel. The line is now open for you.

A couple of questions, please. The first is on the second quarter again. So you said costs increased in the first quarter by $250 million, which is actually in line with what you expect as an increase for the full year, so $1.1 billion over the whole year, $250 in the first quarter. There are some trailing effects, as you have lined up, but how much can that be? So if I look on the top line where demand is still high, you have additional FX tailwind. One peer of you said that specialty silicon prices will go up sequentially in the second quarter. The same is what we see in Foley if you follow the market prices. So from the top line, I would expect Q2 to be a notch higher. And then if costs increase, that cannot be hundreds of millions. So I would still look for an EBITDA noose of 500 million in the second quarter. That's my first question to give some highlights on what the cost increases might be sequentially. Secondly, in silicones, I guess I get that one was exceptionally strong and is not a base of what we should expect going forward. And the 30% margin clearly also not. What is kind of new normal? So you have delivered most of 20% margins in recent years. You have improved the mix continuously, and now you achieved 30% and stretched, of course. But that is on very much inflated . So the unit margin has increased substantially. What you would expect the silicons with the specialty portion you have to deliver in, let's say, normal time?

I take the first one from the second quarter. Thinking about the second quarter sequentially as you are doing it, I think you should be aware of that we are missing the trailing effect, and we are seeing additional cost increases in raw materials. This is van, so all the polymers, raw materials, and this is energy. So I would come to a number of about 100 million euros sequentially up. In addition, there's more inflation, as I mentioned before, from maintenance to logistics. So there is some headwind. On the sales side, definitely, as we have discussed, we have some moderation in demand, but still a strong order book. And we are confident on our pricing and on the resilience of our pricing. But I would say we are, as you mentioned, some of the competition, we are ahead of the curve, and we do not see sequential increases in that segment. And this is silicones. I think that's where you had your comment. And in polymers, our approach is, and this is also transparent, we announced price increases starting in May. but we also had some of the headwind ahead of that, so there's a bit of a time lag also in the effectiveness. And yeah, that leads to a second quarter which is strong, but sequentially lower than the first quarter.

Okay, and Chris here, the second part, you said on the, what are the margins or in normal times or normalized margins for First of all, as I mentioned before, I think silicone is the best performance material on the planet. We will see many more applications compared to today where silicone will be used. That's the reason why we say there is a lot of opportunities for us for growing this market. At the Capital Market Day, we said the margins are definitely above 20% for our businesses. And that means something, you know, beyond 20% is what I would estimate, so to speak, as a minimum normal for silicones specialties.

Thanks. The next question is by Jaideep Pandya of Ownfield. The line is now open for you.

Thanks. The first question is on PolySilicon, really, on what you hear on the back of the Easter package that was announced in Europe with regards to sort of insourcing or building the supply chain for the solar industry. I mean, you know, you guys have obviously a decent amount of capacity, which could be directed towards building a solar value chain in Europe. So Would be very curious to hear your thoughts, especially post the sharp sort of focus on solar in the Easter package. That's my first question. The second question is on silicones. Could you just give us some color of, you know, regional profitability difference between North America, Europe, and Asia? And, you know, as you increase your share in North America versus your strongest competitor, How should we think about, you know, to Andreas' question, actually, the margin progression, given it feels like structurally North America is the highest margin region? And then the third question really is, it's a bit of a weird question, but do you think in your sort of, you know, models on a longer-term basis, that China starts to have a restrictive policy with regards to silicon metal exports. Thanks a lot.

Okay, this is Chris. I would start with the first question and the Easter package. On a typical egg hunt, I'm not sure whether I found all the eggs in the basket. At least I read about most of them. No, I think, to be serious here, I think it's a clear signal and it's a clear commitment from the German government to move into a new world and a new scale of renewable energy. And part of that package is with the taxation, with the EEG taxation that will be abolished. I think this is a great step forward for Europe. for new investments into that and also for the existing ones. There's a clear commitment for a buildup of capacity both on the wind side, but even more so on the solar side. They talk about more than 200 gigawatts by the year 2030. They talk about having 80% renewable share in 2030, and that would equate to more than 20 gigawatt installation of solar modules within Germany alone, which is, you know, kind of three times the number which we saw in the last years. So I think that is extremely positive, which we also appreciate. To your question, what's, you know, do we see that European supply chain for that already? And as we have said also in our, when we talked in March We do see some smaller capacities coming up, popping up. They don't talk about gigawatt capacities at the moment, but I can tell you that we get monthly, sometimes even weekly calls from customers asking for a potential supply of polysilicon produced in the EU, in Germany. And you probably also know our answer to that question. Our answer is we are here already. We have two sites in Germany, in Burghausen and in Nürnstedt, where we today produce solar-grade polysilicon. So it's not us that needs to do a next step of investment. We are here, and we are supporting definitely all the newcomers or existing players within building up and strengthening the solar supply chain. So it is definitely an opportunity. If you want to install... have 22 gigawatts installed per year, you know, beginning now. There need to be still a lot of imports, but it is a great opportunity for building up this supply chain. But again, we are here and want capacities for modules in Europe in the range of several gigawatts. I think then it is the right time to talk with us about potential expansion of capacities, but definitely not at the moment.

Your second and third question, Tobias. On the regional profit story that we can't give you there, that transparency, this is below our disclosure level on the segment, but You can definitely be sure that there are attractive margins in all regions. And just take the example of our SQL acquisition in China. That's something value accretive right from the first quarter of consolidating that business. And if you are looking towards the Americas or the U.S., in particular North America, That will be an area where we are still underrepresented with our market presence, and we are about to change that, investing at the site in the specialty setup for silicones in Charleston. So we are looking into a balanced setup for silicones as I think profitability is attractive in all regions. Third question on silicon metal export from China. I mean, this debate is coming back from time to time. I haven't heard anything about that recently, to be frank. But our strategy is also unchanged. We are a third backward integrated with our plant in Norway, as you know. And the majority of the external supply comes from Europe. number one, and then more from South America and Asia, only limited from China. And we could expand our own capacities and that we would definitely also do in the regions that I just mentioned, so in Norway or somewhere else. So it's not that I have heard anything recently about the debate of China not exporting any more silicon metal to the Western Hemisphere.

Good afternoon everybody.

Thank you for your helpful comments. These are certainly difficult times. I have three questions, please. Firstly, on your visibility, I understand your hesitation to give a to give more concrete guidance for Q2. But I'm just wondering, what is the order book visibility and the visibility on the costs into Q2? I guess it must be already relatively high. The second question is your comment on the energy cost increase of $100 million in Q2. That was very helpful. Can I risk asking you if you could give us an indication of how that should develop in Q3 and Q4 based on current prices? That would be very helpful. And thirdly, coming back to the demand issue, I'm just wondering what visibility on your customers' inventory levels you have. Coming back to the previous questions, I'm just wondering if you see a pre-buying. I wouldn't call it restocking, but it's a pre-buying ahead of potential cost increases. Is it possible that there is an element of that explaining why demand is still so strong as we see it? Thank you.

Thomas, I would start with the second question to be asked here about the sequential increase in raw materials and energy. First, I need to point out that about 100 million euros sequentially up is not only energy, it's raw materials and energy. And if I don't have on hand how that develops into Q3 and Q4, I'd rather have data on how does it compare to prior year. And there I can say that the comparison to prior year is highest in the second quarter. But I mean, as things are moving, I'm hesitant to say, I mean, Q3 is completely different from the second quarter. If you compare then to the final quarter, Q4, I mean, definitely there we had already much higher raw material costs already, but not yet on the energy side. So I would not calculate now from Q2 into Q3, but the Q2 message is about 100 million cost increases from energy and raw materials and further inflation in all other cost lines. On the third question, demand visibility, As we mentioned, we have still a good order entry. It has become more volatile, but we have overall a strong order book. And book-to-bill ratio was still around one. So it is, I think, no restocking. I think... Everybody is a bit challenged by the logistics issues that you have, so there's no big inventory anywhere. And for silicones, I can say, as we had our price increases already implemented at the start of the year, there is definitely no pre-buying ahead of further cost increases as we are thinking more about rolling the prices into the technical order.

Yeah, and Thomas, on the first question on the order book and the visibility, but again, I mean, what we said, of course, there is a good visibility. We have now into Q2 order book typically differs between the different segments on how customers order material, but we have a good overview of the Q1, of course. And as you mentioned, we have just repeated that, we had an exceptional order Q1, we had an exceptional order entry in Q1, and we see this getting more moderating a little bit, but still being on a high level. And as Q2 progresses, we will refine our view for the remainder of the year. Again, order book at a high level at the moment, book to bill around one. That's how we see it.

This is helpful. Thank you so much.

You're welcome.

The next question is by Chetan Udishi of J.P. Morgan. The line is now open for you.

Yeah, hi. Thanks for letting me ask a couple of questions. The first one was just follow-up. I think, Tobias, you mentioned 100 million incremental cost from energy and raw materials in second quarter versus Q1. So should we say as a base case, you know, second quarter earnings will be $100 million lower than Q1? Because typically there is also a sequential increase in sort of volumes and demand in your chemical businesses. So can you just help us sort of think about how incremental volumes, et cetera, compensate for the incremental earnings? Or should we just take 644 minus 100 as the sort of base case second quarter earnings for you guys? And the second question was, can you remind us, I think from my memory, maybe it's 60% or something, but how much of your global production setup is actually based out of Germany in terms of capacity or volumes? I mean, just any sort of high-level number there will be useful.

Chidan, on the... Question, 100 million euros sequentially up. I mean, again, repeat, there's more inflation in other lines. And for the volume component, as we said before, we have strong, but a more moderating volume and order entry. So I would assume there's, yeah, similar volume second quarter to first quarter. from today's perspective. And pricing, I talked about polymers seeing some time lags also with the raw material increases and pricing kicking in then later. So I think if you do all the numbers, I think you would, I mean, there's a small, I mean, element also in others always, which is the equity contribution from Citronic, which was high. There was a 29 million euros line item. So we will need to see how that develops in the second quarter. And from this, you can model the second quarter.

And Gitan, on your second question on the volumes, global production volumes and the share of Of Germany, I mean, as you know, we have, especially in silicones, you know, multi-step production processes. Some are starting even in Norway with the silicon metal. So it's all, you know, depends a little bit on how you make that calculation and how you come up to the number. But I think, you know, just to give you a feeling, I would guess we are in the range of about two-thirds. I think that would be a good assumption that two-thirds of these volumes is about Germany.

Understood. Thank you. You're welcome.

There are no further questions, and so I hand back to you.

Thank you, operator. Thank you all for joining us today and for your interest in Wacker Chemie. Our next quarterly conference call is scheduled for July 28th in three months' time. Don't hesitate to contact the IR department if you have further questions.

Thank you. Ladies and gentlemen, thank you for your attendance. This call has been concluded.