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.