Wacker Chemie Ag Ord

Welcome to the WACKER Chemi-AG conference call on a full year 2021 results. Dr. Christian Hartl, our CEO, and Dr. Tobias Ohler, 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 our new report regarding risk factors. All documents relating to our full year 2021 reporting are available on our website. Chris?

Thank you, Jörg. 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 Ukrainians who struggle to survive. The attack on Ukraine was a watershed moment. A war of aggression in the middle of Europe was unimaginable not long ago. It's only a little more than 900 kilometers 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 are safe now. So far, we have donated 100,000 euros via the VAKA 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 6.2 billion euros, with an EBITDA of 1.54 billion euros. 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 hit logistic 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 550 to 600 million euros in 2022. With this increase in CapEx, we are switching gears towards strong growth, focused on our high-return specialty products. We commit capital to product groups with solid market positions, a strong pull from our customers, and a differentiated offering. These include specialty silicones, polymer powders, semi-grade polysilicon, and biotech products and capacities. to detail our strategy, our mid-term 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 strong demand and reported an EBITDA of 844 million euros, 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 result 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 830 million euro. We achieved an earnings per share of 16.24 euros per share. So, Bakker today stands on a solid financial foundation. Our liquidity is high, ending 2021 with approximately 550 million euros 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 three. 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 boards will propose a dividend of 80 euros per share or total dividend of 400 million euro, 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 four, 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 WACKERS, we see sustainability both as a commitment and a value driver. We will significantly improve our ecological footprint. We want to reduce our absolute greenhouse gas emissions by 50% by 2030. We are now on a path to net zero by 2045. We have identified three important levers which we need to pull. We will call 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 RIME project. Here we will use an existing CO2 waste stream to produce green methanol. Innovative processes like these are needed to de-fossilize 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. More than 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 pool has carried us through the pandemic and continues 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 euros in 2022. We see full-year EBITDA in a range between 1.2 and 1.5 billion euros, despite much higher costs for raw materials and energy. So our EBITDA guidance reflects a combination of confidence, market uncertainties, and supply and geopolitical risks. As you will see, we are confident of 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 have 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 Zoltronic. Our strategy is unchanged. we will divest our holdings in Siltronic in the medium term. We have 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 takeover by Global Wafers. 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 two 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 roots in Europe. So we will pursue our strategy, yet there is no need for haste. There is 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, 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 Citronic transaction not going through as planned. We no longer account Citronic as an asset held for sale and we have reinstated the at 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 Excel file that we provide on our website. Now about the P&L. Group sales increased by 32% over 2020. Price improvements 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 euros, despite raw material headwinds of about 500 million euros 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 euros. Our share in Seltronic contributed about 60 million euros to our reported EBITDA for the full year after accounting purchase price allocation effect. Our operating result EBIT increased more than fourfold to over 1.1 billion euros up from 260 million euros in 2020. Our tax rate was 24% resulting in a net income of 828 million euros for the full year that computes to earnings per share to 16.24 euros. On page 7, the balance sheet. Cash and securities increased about 2 billion euros 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 euros to 1.8 billion euros. Net of the related deferred tax asset our total pension liability amounted to just below 1.5 billion euros at year end. We made progress on reforming our pension system. In a low interest rate environment, we repeatedly made special contributions to pension funds in recent years. Taking advantage of our strong financial position, we made a 250 million euro contribution to a newly established CTA to finance WACA'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 euros with an EBITDA of 553 million euros. Driven by price and mix improvements, the segment its 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 through 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 initiative, We aim to mitigate the inflation of raw materials energy logistics and thus protect our margins. We expect full-year sales of about 3 billion euros 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 Silence acquisition in China will provide additional impetus to our product offerings. Polymers on page 9 reached almost 1.7 billion euros, as demand stayed strong throughout last year. We faced unprecedented raw material price increases at the start of the year, forcing us to respond with 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 euros. 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 four-year sales of about 2 billion euros with an EBTA margin on par with prior year. Our solutions on page 10 generated sales of almost 300 million euros with an EBTA of 39 million euros. We continue to see strong demand for our biopharma and bioingredients products. Higher utilization rates and a good cost structure supported the EBTAs. 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 euros. Strong demand and tightness in semi- and high-end solar markets kept volumes and prices up throughout the year. Significantly higher prices for solar grids, higher semi-volumes, and our ongoing cost reductions helped increase EBITDA to 657 million euros. In 2022, we expect further strong growth in global PV, with annual installations growing beyond 200 gigawatt and on average higher prices for both semi and solar crates. The war on Ukraine with further acceleration of installations in Europe as we see 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 euros with an EBITDA between 330 and 500 million euros. 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 grades 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 547 million euros. Strong cash flow from operating activities was a primary driver. Net cash flow reached 761 million euros, even after contributing 250 million euros 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 7 billion euros with an EBITDA in the range of 1.2 to 1.5 billion euros. 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 continue into Q1. In Q1, both silicones and polymers continue 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 prices, but will bear significantly higher silicon metal and energy costs sequentially. And biosolutions see strong demand in biopharma and biogredients. However, the force majeure in life science chemicals will be clearly visible. That said, we expect first quarter sales of approximately 2 billion euros with an EBITDA growing faster than sales compared to Q1 last year. Yuan earnings benefit from trailing raw material prices and energy hedging effects in silicon and polysilicon. The attack on the Ukraine is upending energy and commodity markets. This will create further volatility and weigh on our results as the year progresses. Our guidance today assumes about 1 billion euros 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 ambitions at our upcoming CMD.

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

Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 on your telephone to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. And the first question is from Jaydeep Pandiyan on field research. Your line is now open. Please go ahead.

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 stiltronic 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 or quark is also a strategic asset, given Europe wants to become self-sufficient in solar manufacturing now. So I just want to understand, at a policy level, what sort of support would you guys require – to increase your investments in solar grade polysilicon? And are you having any such discussions right now on that note? And then my second question really is around silicones. I appreciate phenomenal results last year and also a very good outlook for this year. But if you compare 2021, 2022 to sort of the previous, 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 the cycle reverses? Thanks a lot.

Okay, Jaideep, thanks for your questions. first of all on the on the uh poly polysilicon side and the political landscape um so yeah i mean talking about soltronic um yes it was a disappointing uh result what what we saw that the german authorities did not approve the deal because i think there's so much rational behind it also for shaping a uh the european semiconductor industry but okay um 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 options in the U.S., And, you know, my answer would be we are there already. I mean, we are there already in Europe. We are there already in the U.S. So what's needed is customers producing the ingots, the wafers, and the modules. And, of course, we have talks with these guys so far. 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 had a question on silicones, on the strategy with specialties and the results impact. I would definitely say there is a difference to 2017, 2018, because today, I mean, almost everything we sell is a speciality and that it's much stronger than we had it in 17 and 18. We will talk about this also on the Capital Market Day. And so 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.

The next question is from Matthew Yates, Bank of America. Your line is now open. Please go on.

Matthew Yates, Bank of America. Hi. Good afternoon, everyone. The CapEx guidance today is perhaps a very strong signal that you're embarking on an investment phase to grow and reshape the business. And I don't want to take anything away from that upcoming capital markets day. 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 projects for 2022, I mean, it's essentially what we see in 2022, but also going to the next year. So we will see much more smaller projects, diversified projects in different regions, 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 risk because of that, or a very reduced risk of that.

And to follow up, obviously we know from the past and the subsequent impairments that were taken that CapEx has not historically always been deployed in a value-accretive manner. What is 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 very much true for silicones. We talked last time about investments in semiconductor polysilicon and also in polymers and biosolutions. Yeah. So we expect a high return from these investments.

Okay, thanks very much. The next question is from Andreas Heine, Stiefel. Your line is now open, please go ahead.

I have three, if I may. The first question is on the first quarter again. Well, March is not over and you might can comment whether you see anything what's going on in Chrysler affecting your business. But if I stick to what you said in your outlook on the trends and compared, you said it will be a 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 silicones will be much higher than in Q4. Polysilicon nose of 200 million. Polymers 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 is already anything negative you see from Ukraine. The second is on energy. While you have given an increase of a 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 to significantly higher amount. Maybe you can elaborate how you get to this 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 costs. 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 euros, which is significantly higher than what the Chinese producers would have. If you get into a situation where solar poly is oversupplied, what does that then mean for your competitiveness in a more difficult market? Thanks.

Andreas, Tobias here. I would take the first two questions. First was on Q1. As I said in my speech, we have strong trends in Q4 that continue into the first quarter. So we expect... sequentially 2 billion euro in sales up from 1.7 billion in prior quarter. And I mean, you mentioned silicones and yes, much higher than prior quarter. Why is that? We see higher volumes and we see higher prices. Please bear in mind that we had restricted production from force majeures and turnarounds in the last quarter. And now we are running full steam. Second, bear in mind that we had actively increased prices in silicones 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. For polymers, we see, I mean, that we are effective in our pricing. We definitely are better and we have the right mechanisms to pass it on to our customers. And in addition, and something that you might not have on the radar screen so much, you want significantly benefits from trailing raw material prices and energy hedging effects. I think that was your second question. So what happens in accounting, 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 is 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... yeah, 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 headwinds, I mean, we talked about the $1 billion that we see as headwinds that we are trying to pass on to 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 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 euros if you do the math. And yet, as Chris said, I mean, prices, I mean, for the first few months have been very high on the spot level and are extremely volatile. And you need to, yeah, 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 euros could double approximately. But I mean, we can be off of that number as you watch the markets develop so quickly. That is our assumption, one billion euro in energy and Roth, and for sure more of that headwind in the remaining quarters.

Yeah. Okay, Andreas, Chris, so I would take 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 a continuous effort on reducing our cost roadmaps. 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 DACU, 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.

The next question is from Sebastian Bray, Barenburg. Your line is now open. Please go ahead.

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. But I just want to check here. Is the VACA definition of specialty silicone 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 to 600 million euro just now the go-to number for the next four or five years? I appreciate you may have more comments on the CMD, but for modeling purposes, it would be helpful to get a handle. Thank you.

Okay, Brian. Chris, take your first question on the silicon specialties. That is also something which we will talk about during the CMD. 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, you know, in general, of course, you're right. It's, you know, these simple products made out of siloxane, which is just one more value step away that is typically a standard product. And everything which goes beyond And most of these products have a distinct location 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 to 600. I mean, this is for this year. And we will talk about the years going forward just in a couple of weeks. But I think you relate very much to Matthew's question. 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 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's something we would love to talk to you in just a few weeks and looking forward to it.

Thank you. If I 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. That's why we are so successful in passing on the we have substantial headwinds in our own pricing. But I don't have a view on the xyloxane supply-demand balance for the next couple of years.

And it's really, I mean, Sebastian, it's really what Tobias said. I mean, it's not really in our focus anymore, you can say, because we need these materials, we need xyloxane also to grow our specialty market. And the only investment we will do into xyloxane-related products products is because of making specialties out of this and well typically what you've seen in the past is that you know Chinese competitors when they wanted to enter silicones they made standard products because that'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 no, yeah, I mean, might be more availability of standard product, but no harm to us.

That's understood. Thank you for taking my questions.

The next question is from . Your line is now open. Please go ahead.

Yes. Good afternoon, everyone. I have two questions on polymers. Firstly, if I remember correctly, you churn 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 discuss 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 not a secret to say, I mean, of course, we would appreciate more getting the base price higher, but our customers... you know, 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 on 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 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.

The next question is from Jeff Hare, UBS. Your line is now open. Please go ahead.

Hello. I don't know if you could just answer two questions for me. First of all, in your silicons 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 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 to be asked for the first two questions on the pricing for silicon polymers, I mean, we are initiating prices. and price increases as soon as we see the headwind, and we need to react to this. And 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 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 in 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 yeah, 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 yeah, for sure, we also, in the next quarters, 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 capacity is announced from people who have 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, you know, 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, you know, with the announcements essentially in all the continents, in the 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 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 a high oversupply situation this year. Thank you.

The next question is from J.P. Morgan. Your line is now open. Please go ahead.

Yeah, hi. Thank you. I was just wondering your comment around strong demand across the board. Can you maybe help us understand different markets, different end markets? Where do you see maybe the strongest versus sort of weaker growth. I'm just trying to assess whether you think there is an element of maybe, you know, customers trying to, you know, let's say, is there an element of panic buying because of the situation that you see with, you know, energy prices and oil prices? And again, do you see any regional differences in terms of the demand strength across different divisions?

Gitan, yeah, that's a very good question you're asking. But I really have to say, I mean, we see it really, the demand across the board. We haven't seen much of panic buying, I would say. But I think this is more the reason, because all these supply chains globally, and I don't mean the bucket supply chains, I mean all the supply chains in the industry, are so distorted in the last month and maybe even to say years that I think everybody is looking for a kind of what's the normal situation. And we see spikes in raw material prices, but the demand is, yeah, 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 recent announcement of applying for government funding for the wine 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, because clearly decarbonizing, or decarbonization, sorry, is a theme for most companies, and I think clearly for some of these projects, you know, government funding will be needed, and I'm just wondering Is there a different benchmark that governments are using to decide which project they fund versus the other?

Well, Citan, first of all, I would also love to have the answer why the government chose other projects. What we know is the European Innovation Fund, and that's where we applied for the funding last year, they assigned 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 You know, 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, if 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 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 you know, how could we improve our, you know, 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.

And we have a follow-up from J.D. Padilla on the line of my open. Please go ahead.

Thank you. A couple of questions, if I can. Firstly, on polymers, you know, your key competitor last year was very keen on selling acid and van. So I 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 bio solutions. I appreciate the digitalization investment, but what is the update now? Because, you know, we had a big CMD with long-term targets, and then unfortunately whatever happened with Curovax. So I just want to understand, you know, what is the growth plan of bio solutions? Will we hear anything interesting this year, or is this really more about you know, 2023 and beyond pipeline. And just finally, sorry, it's a bit of a philosophical question on polysilicon again. You know, 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, Jandi, thanks for your questions. First question on polymers. Did we grow our market share compared to one, 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 on the investor side on VAM and acetic acid and the margins they got there. I think that's 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 bio solutions well I mean we published these numbers of 1 billion from bio and we definitely stick to that we also said it's you know it's a marathon it's nothing it's not a sprint where we can have great results you know the day after tomorrow we are remaining confident we are expanding capacities in Amsterdam we have a interesting pipeline of projects coming for the biopharma business coming up. Replacing CureVac, I think we always said that, is not an easy thing if you just replace from one day to another a big commercial pharmaceutical project with some phase one, phase two, phase three projects. So I think that just takes a little bit more time, but we still remain as confident as as we have always been on that business, and also on the bio-ingredients 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 Susanne on our Capital Market Day in London coming up. And the third question is, There's also a very interesting question on polysilicon and the Chinese energy footprint. And yes, you're right. It's also our understanding that most of the polysilicon in China is produced from coal, or even worse, from lignite coal, with an even worse CO2 footprint. So from that perspective, you could argue that 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 co-convent this border adjustment tax. 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 ours, like the chemical industry, by providing an attractive electricity pricing. It would be much more helpful, I think, for growing the business and also to not to start the next trade war with China.

All right. Thanks a lot.

And the next question is from Oliver Schwartz, Marburg Research. Your line is now open.

Please go ahead. Thank you for taking my questions, gentlemen. I'd like to challenge your guidance from a more top-down view, if I may. So basically, sales are going to increase by, say, $800 million to around about $7 billion, but costs are bound to increase by $1 billion. Hence, you seem to be willing but unable to pass on $200 million of those costs to customers, which would 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 of the case that you are looking for a conversion rate of 115 to the dollar after 120 for the previous year. And even that seems to be rather conservative given the current FX trading. So is the $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 top-down calculations much easier if you, yeah, apply a range, I would say. I think we 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 the 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 P&L being 266 million. Am I correct to think that this year we'll see a cash tax much closer to the P&L tax?

Yes, that makes sense.

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

We're guided for a strongly positive cash flow. And I would say with growing business, see some working capital effect. And we have a higher capex. And I think what you should also have on the radar screen, we are heading towards closing the cycle acquisition. The specialty silicones player in China that we acquired for some 120 million euros. 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 the dividend proposal of eight euros a share, we have a payout amount of about 400 million euros.

Thank you for the clarification. My number of the 450, by the way, was before the effect of acquisitions. But just to come back to the upcoming acquisition, I thought it was 120 million in US dollars. Now you were stating it was 120 million in euros. Can you clarify, please, and when do you expect the transaction to close?

we are expecting closing in the second quarter and it's euros and not US dollars.

Thank you for the clarification. Thank you for your answers. Very clear. Thank you, gentlemen.

Welcome. 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 AR department if you have further questions. Thank you.