Wacker Chemie Ag Ord

conference call on our second quarter 2020 results. Dr. Christian Hartl, our CEO, and Dr. Tobias Hohler, 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 mentioned 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, the presentation, and any report regarding risk factors. All documents mentioned are available on the website. Thank you, Jörg.

Welcome, everyone. Q2 was another very strong quarter, with solid demand in all of our segments. We reported sales of 2.2 billion euros in Q2, which is up 45% year over year. EBDA was at 626 million euros, reflecting a strong performance across the entire portfolio. Silicones and polymers again saw strong demand and delivered both year-over-year and consecutive sales growth. Both divisions exhibited strong pricing power, enabling earnings growth despite unprecedented raw material and energy headwinds. Tobias will tell you more about that. Polysilicon stayed tight and benefited from higher prices, but earnings were held back by higher energy and silicon metal costs compared to the previous quarter. After a fourth measure in BioSolutions at the start of the year, we are now back to full operations. We successfully closed the Seco transaction during the quarter, which we announced last year. The joint venture is an important step in our strategy to expand the share of high-margin specialties in our silicones business worldwide. SICO Performance Materials operates very profitably. It closes the technological gap in our specialty silicones portfolio. The acquisition also helps to drive regionalization of our business in fast-growing markets. We welcome our new 500 employees to the silicones division at WACKER. WACKER has formulated new diversity targets. By 2030, women should hold one in three management positions. We are accelerating our growth outside of Germany, focusing on serving our customers in the regions. Therefore, we will have more international managers to ensure that we have the right local experts. WACKER plans to have every second management position outside of Germany. We are convinced that diversity makes us more flexible, makes us more creative, makes us more successful and creates an even stronger team than today. Looking at page three. The ongoing war on Ukraine has triggered a geopolitical crisis. Uncertainties around the gas supply from Russia dominate the political agenda and are a reason for concern for the European chemical industry. Gas supply disruptions have triggered the second level of the German gas emergency plan. Our production and our energy hedges are unaffected. However, the effects on the market prices for electricity and gas have been dramatic, as seen in the charts on the left-hand side of the slide. WACKER is prepared. We are prepared. We have a long-standing energy hedging policy in place. which has shielded us so far from some market tribunals. In February, we set up a task force team to examine operational and technical issues and to come up with solutions for various scenarios. Natural gas is critical to our chemical plants, which are used to produce both steam and electricity in our highly efficient cogeneration plants. Should there be a gas shortage, we would reduce our gas consumption by only producing steel, not electricity. We could offset the lower electricity production with higher purchases from the grid. Now, please note that the grid regulator considers our gas turbine in Burghausen as system relevant for the stability of the regional high-voltage power grid. Even if the gas shortage were to escalate, we expect to maintain the system relevance and receive sufficient gas to run our power plant. If there is a further necessity to reduce our gas consumption, we could use alternative fuels for steam production. So, we do have some opportunities to compensate for the consequences of potentially lower gas supplies. But it's also true, as with many other industrial companies, If there were to be a major supply restriction for natural gas, this would have an impact on our production. Now, as a precautionary measure, or a measure of prudence, if you want, we therefore included an additional charge of 200 to 250 million euros at the lower end of our EBTA forecast, in addition to the price increases already expected for energy and raw materials. Now coming back to business again. We had a strong first half year 2022 with new best marks, sales and earnings. Going forward, we remain optimistic despite the obvious challenges. Therefore, we are increasing our full year guidance substantially. Our new group guidance for 2022 now looks for sales between 8 and 8.5 billion euros. For EBITDA, we expect a range between 2 and 2.3 billion euros based on our own operational performance. Including the provisional charge for energy, the precautionary measure, and the raw material inflation in case of natural gas curtailment, the lower range of the guidance would be at 1.8 billion euros. So, overall EBITDA guidance up to 1.8 to 2.3. Now let's look beyond today and focus on how we see our future shaping up. We have shown an outstanding performance this year and we are delivering towards our strategic targets despite adverse conditions. Let me quickly recap our strategy and targets as presented at our last CMD in March. We want to grow our business beyond sales of 10 billion euros with an EBITDA margin of over 20%. We are focused on profitable growth and ROSI should be two times our cost of capital. We will focus on chemical facilities delivering high value for our customers. We will expand our biotechnological capabilities, growing sales in this area with earnings above the group average. In polysilicon, we focus on high quality applications in the semiconductor and high efficiency solar markets. Our recent CMD was about accelerating WACKER. In the past month, we made good progress towards our new 23 chargers. In silicones, we opened a new production site in India, close to Calcutta, and we are expanding our capacities in Germany. In biosolutions, we broke ground on an mRNA competence center in Halle, and on a dedicated research center for our biotechnology R&D activities in Munich. In Ann Arbor, we opened a new regional headquarter and innovation center. Here, we will develop future silicone and biotech specialties. And in polymers, we are doubling our capacities in Nanjing. Beyond these milestone projects, we have launched some highly promising projects. We have started a feasibility study to expand low-carbon silicon metal production capacity at our Norwegian site in Holland. And we are looking to expand our site in Charleston for a silicon specialties production complex. We will keep you posted on how these and other exciting projects are developing. These projects will allow us to strengthen our position in key markets and service our customers even better. I invite you to look at the appendix to today's presentation. It will give some additional details on a few of these milestones. Now, before I pass on to Tobias, let me provide another perspective. Sustainability is a very important pillar of our strategy. The massive inflation in power and gas costs has accelerated the drive for energy savings, smart construction, electrification, and power generation from renewables. These are all sectors where WACKER provides essential materials and is a leading solution provider. Now looking only to renewables, Europe now targets to increase PV solar installations to 600 gigawatts by 2030, requiring some 50 gigawatts per year. This is a step change, representing more than twice the level installed on average in the last three years in Europe. The current natural gas crisis has certainly increased the importance of energy independence in Europe and abroad. I am absolutely convinced that the response to the current crisis will trigger significant demand growth for our products today and into the future, supporting our ambitious 2030 targets. But in the very short term, the coming months may be challenging. Rising raw material and energy costs and stressed supply chains are already playing out. Potential demand uncertainty from inflation is expected by everyone, but hasn't really materialized yet. All of this puts a heavy strain on the global economy and will probably also demand a lot from us at WACKER. But we are convinced that with our strong WACKER team, our new sustainability and growth goals, and our demonstrated pricing power, we have found good long-term and viable answers to these challenges. Tobias?

Thank you, Chris. Welcome. I will now walk you through our Q2 performance and provide an outlook on the full year end on Q3. Let's begin with the P&L on page 5. Group sales increased by 45% over Q2 last year. Price was the single largest driver. Continued volume and mix improvements and the stronger U.S. dollar supported the positive sales trend. Cross-profit increased year-over-year to 646 million euros. The cross-profit margin came in at about 30%, reflecting firm pricing. The operating result increased to 507 million euros, more than twice as high as last year's. EBITDA was 626 million euros, Net income from the period was €391 million. Earnings per share amounted to €7.67. Moving on to page 6, the balance sheet. Our balance sheet came in with a higher equity ratio of over 50%. Shareholder's equity is now at €4.6 billion, up from €3.1 billion at the end of last year. This was primarily due to the strong earnings and the significantly lower pension deficit following a higher discount rate. Working capital increased due to high sales volumes and raw materials to 1.9 billion euros. On page 7, you see the significant change in our pension deficit. Our pension liabilities are now at 664 million euros. This is roughly 2 billion euros lower than what we saw at the end of 2020 and about 1.1 billion euros lower than at the end of 2021. Since the end of last year, our pension liability saw a decrease of over 23 euros per share. This is really significant and you may want to recognize this change in your valuation models. continued the strong performance shown in Q1. Q2 sales were 936 million euros, about 44% higher than last year. Sales were supported by strong specialty pricing. Silicon's EVTA in Q2 was 277 million euros, resulting in a 29.5% margin. We saw the strongest increases in health and care and consumer applications. The Q2 results include SICO, consolidated since May 1, contributing €23 million to sales and €8 million to EBITDA. Overall, H1 sales came in at over €1.8 million and EBITDA at about €560 million. Looking into G3, we continue to see pricing and volumes largely stable for specialties. However, some segments like construction or textiles see slowing demand. Given the strong performance in G2 and strong volumes and specialties, we now update our guidance for the full year. We now see sales at about 3.5 billion euros with an EBITDA between 900 million and 1 billion euros. Polymers achieved Q2 sales of €553 million, 37% over last year. We protected our margins with over 10 pricing rounds since the first quarter of 2021. EBITDA came in at €91 million, benefiting from a good cost performance, strong demand and our pricing efforts. Looking at H1, Polymers came in with sales of close to 1.1 billion euros and an EBITDA of about 180 million euros. Today, we see some signs of weakening demand, particularly in Europe and China, as well as some destocking at our customers. Despite this, we keep our guidance for polymers unchanged. We see sales at 2.1 billion euros with margins at last year's level. Polymers benefit from higher volumes in oil reach. Polymers will continue to raise prices matching input cost inflation, as demonstrated last year. Please note that the third quarter performance will be held back by a scheduled turnaround at our plant in Burghausen. BioSolutions reported sales of 84 million euros with sales in bio-infrared accelerating EBITDA came in at 8 million euros, with the fourth major situation holding us back through May. BioSolutions achieved 161 million euros in H1, with an EBITDA of 8 million euros. For the full year, our BioSolutions forecast needs adjustments. We continue to see a low double-digit percentage increase in sales, Segment EBTA will now be significantly lower at about 25 million euros. Here we adjust our last guidance for a customer not servicing its contractual obligations. Polycylicon reported Q2 sales of 568 million euros or 60% higher than last year. Prices through the quarter sequentially were higher with very strong demand in both solar and semi. Q2 EBITDA came in at 240 million euros. Results were held back by substantially higher energy and silicon metal costs. In H1, policies can achieve sales of about 1.1 billion euros and EBITDA of about 440 million euros. Solar pricing is firmer for longer than initially expected. With continued strong demand for solar and semiconductor products, we update our forecast for polysilicon. We now expect sales of about 2.1 billion euros. Given the strong pricing into Q3 and with higher energy and silicon metal costs, we guide to an EBITDA between 700 and 850 million euros. Moving on to the net financial position on page 12. We recorded a net financial asset of €119 million at the end of June. Gross cash flow year-over-year was somewhat lower as working capital decreased. Cash flow for long-term investing activities reduced our cash balance by about €340 million, reflecting our strategy of investing in growth and mix improvements. This position also includes a payout of €165 million for 60% of FICO performance materials and our share in their working capital. Please bear in mind that M&A comes on top of our full-year capex guidance. A significant factor in cash outflows in the quarter was our dividend payment of €8 per share. This reduced our cash balance by about 400 million euros. These liabilities increased as we opened our new regional headquarter innovation center in North America. On page 13, our updated group guidance for 2022. First, let's recap our energy hedging and raw material situation. We have a long-standing policy in place. We typically hedge our energy exposure on a rolling-forward basis for the next 36 months with a decreasing coverage for this period. Today, we are largely hedged for the remainder of 2022. For 2023, we are about two-thirds covered, and for 2024, about a quarter. Last year, we spent about 7% of sales on gas and electricity, which was about 450 million euros. In 2022, we now expect our energy bill to slightly more than double. Adding the raw material cost increases, we now expect our total raw material and energy bill to increase in the order of 1.5 billion euros over last year. This is incorporated into our full-year guidance. Let me repeat what Chris said about our guidance. We see full-year sales between 8 and 8.5 billion euros. Following a strong operational performance, we expect to reach 2 to 2.3 billion euros in EBITDA before any potential gas shortages, which we estimate could have an impact in the range of 200 to 250 million euros. Taking also this into consideration, our full year EBITDA guidance range is 1.8 to 2.3 billion euros. Other changes to our guidance are on the net income, which we now see clearly above last year, and on the EBITDA margin. The margin is now expected to be on par with last year. Looking at Q3, we see our businesses largely continuing their performance into Q4. of Q2. In silicones, we are seeing some slowdown in demand and in certain segments, especially in construction and textile. Pricing is firm in specialties and we have a strong order hook for specialties. Polymers report some signs of weakening demand in Europe and China and some destocking at our customers. The teams continue with their pricing strategy, effectively sharing cost inflation. Polysilicon continues to move ahead with very strong demand from both its key end markets, semiconductor and solar. BioSolutions makes good progress in bio-ingredients and bio-pharma. So putting all this together on Q3, we see a strong performance in July and expect a good Q3. Looking to our balance sheet, we are soundly financed. Our businesses are highly cash-generated, and our capex drives growth and value. We have shown with the Biopharma and SICO transactions that we can move swiftly and decisively on selected M&A opportunities, and we continue to stream such vote-on opportunities. Summarizing, we have leading market positions great technologies and the right strategies to convert these strengths into better service for our customers. We continue to do our homework, and we are well prepared to address near-term challenges and to reach our aspiring targets for 2030.