Wacker Chemie Ag Ord

Conference is now being recorded. Welcome to the Wacker Chemie AG conference call Q1 2023. At the moment, all participants have been placed in a listen-only mode. The floor will be open for questions following the presentation. I now hand the conference over to Jörg Hoffmann, Head of Investor Relations. Please go ahead.

Thank you, Operator. Welcome everybody to the Wacker Chemie AG conference call on our Q1 2023 results. Dr. Christian Hartl, our CEO, and Dr. Tobias Oller, 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 include forward-looking statements involving risks and uncertainties. We encourage you to review the safe harbor statement in today's press release, the presentation, and a recent annual report regarding risk factors. All documents mentioned are available on our website.

Chris? Welcome, everyone. Thank you for dialing in on this late Friday afternoon. As we discussed on our fiscal year 2022 call just a month or so ago, we saw low demand and significant destocking at the end of last year. These trends have eased somewhat, but remain defining factors in our chemical segments during the first quarter of 2023. In silicones and polymers, we are beginning to see moderate demand improvements. Volumes are somewhat higher quarter on quarter. This supported a markedly better performance in chemicals. Silicones operational EVDA is nearly twice as high at 96 million euros compared to the preceding quarter. Polymers reported EVDA is about 60% higher at 71 million euros, and our solution is largely unchanged, with results defined by upfront costs and investments. Polysilicon was held back by low demand at the beginning of the year against high volatility in the polysilicon price index and plant maintenance at our Charleston site in the U.S. Over the first quarter, polysilicon volumes improved and EBITDA came in just shy of 100 million euros. Bakker generated sales of 1.7 billion euros and an EBTA of 281 million euros in the first quarter. Earnings per share came in at 290 euros per share. Markets remain volatile, and Bakker is not insulated from these events. Inventory drawdowns by customers had a noticeable effect on our sales and earnings. Our teams reacted quickly to navigate these challenges successfully. Their efforts were instrumental in delivering what we consider a solid result in adverse conditions. Please allow me and on behalf of the entire Board to thank them for a job well done. So yes, the first quarter in chemicals shows some improvement compared to the preceding quarter. We are, however, not out of the woods yet. Energy prices remain elevated and are a significant headwind to chemicals and polysilicon. While customer destocking is slowing, we are not yet seeing firm signs of a recovery. Our customers communicate expectations of stronger demand in the year's second half, but their current order pattern remains focused on the short term. the much-expected recovery of the Chinese economy after Chinese New Year has not materialized so far. Based on our customers' views, we expect an improvement in demand for our products in the second half of the year. The first quarter was in line with our expectations and showed good progress towards our full-year expectations. We are therefore keeping our full guidance unchanged. We see full-year sales between 7 and 7.5 billion euros, generating an EBITDA between 1.1 and 1.4 billion euros. Since we released our full-year results, we have met with many of you, and most meetings followed a similar sequence. Typically, we covered our segment's ongoing performance and strategic position first, and then we would discuss the US IRA and its potential European counterpart. Many of you expect to hear more about these two topics today. Currently, we have nothing really new to report. We continue to see and meet politicians and speak to current and potential customers. We have clarified our positions toward the main question on capacity extensions to support solar reshoring. And as we have repeatedly said, we need competitive power prices. We need customers and we need prices reflecting the market conditions outside China. Only when these topics are addressed, we can build a solid economic case needed for future solar investments. To invest, we need compelling, solid and long-term economic conditions. This will be the basis for our decisions going forward. Over the last few months, I have had many constructive discussions in Europe and in the U.S., and I remain convinced that WACKER will be part of the solution in solar reshoring. Nevertheless, and again, as said before, we will not rush into new investments in solar and then sacrifice growth in chemicals and biosolutions. Our strategy for 2030 has clear targets, increasing growth, higher profitability and improved resilience in times of dynamic change. We want to grow our group sales by 2030 beyond 10 billion euros with an EBITDA margin of over 20%. To realize this strategy, higher investments are necessary. This year, we will invest around 650 million euros. We have defined more than 40 projects globally to reach these goals. We focus on our specialties in chemicals, biologics and bio-ingredients and bio-solutions, and increasing our semi-grade capabilities in polysilicon. A key part of our strategy is to improve our sustainability profile by lowering our emission footprint and offering innovative products and solutions which enable resource-saving technologies for our customers. We aim to achieve net zero emissions. Reducing scope three emissions is an important part of this equation. WACKER just held its first carbon footprint conference with key suppliers. We now ask them to report their product carbon footprint for certain materials. We see sustainability as a key value driver, and this is an important step forward in measuring and addressing our carbon impact. We showcase solutions addressing smart construction at the European Coding Show in Nuremberg. Smart construction is a key to both raw material savings and energy efficiency. In the appendix, you will find the ECS and the carbon footprint conference information. I invite you to look, and I'm sure you'll find it both impressive. Before I hand over to Tobias, We would both like to take this opportunity to thank our fellow board member, Guido Willems, who leaves us in a few days. You have met Guido at various Capital Market Days events over the last 16 years. Guido has been a great pillar of our company, and he has been a valued colleague and a dear friend. Guido Willems will be succeeded by Christian Kirsten, previously at Henkel Ateezes, responsible for the European activities. Christian brings a valuable customer perspective and deep experience in specialty chemicals to our executive board. And now to Tobias for details on Q1 financials. Thank you, Chris. Welcome. I will walk you through our Q1 performance. We reported sales of about 1.74 billion euros with an EBITDA of just over 280 million euros. The result was at the top of the range, which we communicated on the full year 2022 conference call. While the figures are clearly lower than last year, we see our first quarter performance being solid amid very challenging markets, as Chris said. The problem with a truly exceptional year like last is that it sets us up with difficult comps for this year. This will be particularly true during the first half of the year. Strong demand across the entire portfolio, high utilization rates, high prices, and some low-priced raw material stocks defined the first half of 2022. This year, the first quarter's performance was defined by low demand and trailing high energy costs. These effects worked through the P&L from top to bottom with EPS coming in at 290 euros. Our restructuring program, Shape the Future, is on track, clearly supporting earnings. This year, we expect to save around 250 million euros. We have done our homework, and we can now benefit from a more resilient setup with a more responsive organization. Our balance sheet on the next page shows very strong financials with over 2 billion euros in liquidity and shareholder equity of over 5 billion euros. Moving on to silicon, sales increased to When adjusting for the revaluation effect in the fourth quarter of last year, EBITDA increased from around 50 to 96 million euros. After a difficult end to last year with deep destocking following two years of tightness and allocation, we saw some volume improvements in the first quarter. Our utilization still lags well behind the very high loading we experienced during the first half of last year. While destocking appears to be slowing, it's not over yet. And order entry doesn't show a stronger demand yet. Also, the unwinding of high-cost inventories will burn silicones well into the second quarter of this year. Our silicones guidance for the full year is unchanged. We expect full year sales between 3.1 and 3.3 billion euros. we expect a full-year EBITDA margin of about 15%. Moving on to the next page, polymers. Polymers also reported a sequential improvement. Dates came in at €428 million, slightly higher than in the fourth quarter, owing largely to higher volumes. De-stocking began earlier in polymers. EBTA improved considerably in the first quarter as raw material costs decreased faster than our selling prices. You will recall that we implemented a surcharge model to address the recent unprecedented rise in raw material prices. This has proven to be a very effective tool in improving polymers' earnings profile and resilience. Looking to the full year, our guidance for polymers remains unchanged for 2023 We expect sales of 1.8 billion euros with a slightly higher EBTA margin than last year. In biosolutions, sales came in at 77 million euros. In biopharma, we are seeing some project wins, and these projects will first contribute to sales with a delay in the second half of the year. We remain focused on transforming biosolutions into a meaningful pillar here at WACA. Our growth initiatives require continued investments and trigger higher upfront costs. For example, we hire staff today for our new mRNA competence center in Halle, Germany, to generate revenue in next year, 2024. Looking to the full year in biosolutions, we continue to expect a low double-digit percentage sales growth supported by biopharma and bioingredients. EBDA will be backloaded to the second half and substantially higher than last year. In polysilicon, we reported first quarter sales of 441 million euros with an EVTA of around 100 million euros. Our semi-business continues strong, delivering both higher volumes and prices. The segment overall saw volumes decline due to significantly lower shipments of solar-grade silicon. This was driven by a slow start at customers at the beginning of the year due to volatile polysilicon prices, as well as our maintenance shutdown in Charleston and the subsequent ramp of the facility. We used this period to move material into hubs close to our customers. Towards the end of the quarter, we saw increasing solar volumes as the value chain ramped operations, again ahead of what looks to be another record year for PV solar installations. For 2023, we continue to see sales of 1.6 to 1.8 billion euros in polysilicon with an EBTA of 300 to 500 million euros. We are convinced that we will continue to achieve premium prices for solar-grade polysilicon with different market prices based on quality and origin. However, we expect regional and contract mix as well as new competitor capacities to have an impact on solar price levels and volatility. Now looking at our net financial position. We ended the quarter with net assets of nearly 450 million euros after generating a net cash flow of around 50 million euros during the quarter. Growth investments are our top priority for capital allocation. Our proposed 12 euros per share dividend will be paid out following our AGM in May. This has been a complicated quarter, and still we delivered over a quarter billion euros in EBITDA. I am proud of our progress, and we are working on further expanding the resilience on display here. In summary, our strategy works. We operate in a challenging environment,

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

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. In the interest of time, please limit yourself to two questions only. Anyone who has a question may press star and one at this time. The first question comes from Matthew Yates from Bank of America. Please go ahead.

Hey, good afternoon everyone. I apologize for joining late from a prior call that was overrunning. Can I just ask you about silicones? You've tried to emphasize in recent years how the product mix has evolved to become more specialty, yet the results are still pretty volatile, which paints the picture of perhaps still having some reasonable size commodity exposure there. I heard on the Dow call earlier this week, they were talking about 600,000 tons or so of new siloxane capacity that's coming into the market. So is there a risk here that the profitability of this business could actually come under more pressure rather than the recovery that you're expecting and is embedded into your guidance?

Yeah, Matthew, this is Chris.

Very good question on the announcement on siloxane capacity. Although, I have to say, this is also not new. I mean, competitors in China focusing on siloxane and the subsequent standard product steps is nothing really new to us. I mean, we have a clear strategy on focusing on the specialties, and we believe that it's absolutely the right strategy because you get a more attractive margin on it. You are less replaceable at your customers, and you just deliver more value. Is there an influence? And we said it also in the last call. Is there an influence on lower standard pricing, especially in China? Well, there is. First of all, what we see is that the standard pricing also is subsequently coming to other regions, like Europe, and then subsequently lowering the standard pricing there. Also, to some extent, we see that in the U.S. And also, what we also said in the past, the specialties are not to 100% immune to lowering pricing in standard products, but I believe with the strategy we have and really limited exposure to these standard products, we are on the right track. And at the moment, it is right that, you know, it's the specialties that really contribute to the profitability. of silicones. But we have seen in the past years also a chunk of profitability coming from the standard products. But again, clear strategy for us focusing on specialty products.

And sorry, just to follow up. So to get to the guidance you're talking about, is the key here that you get volume growth back into the business or do you need a recovery in standard pricing through the year?

Tobias here, Matthew. We definitely assume some opportunity to sell, again, higher volumes in the second half of 23. Because, as we mentioned also in the last conference call, we have invested over the past. I mean, as part of our strategy. And we have capacities available. But these capacities need to meet the demand. And for the very short term, Q1, we talked about continued destocking. And for Q2, we don't see a pickup in demand yet. So for the guidance, we definitely also include a slightly stronger second half. And right now, we don't have the visibility. But we are convinced that, as Chris said, that our strategy is absolutely right. and that we are, yeah, we have invested and we have capacities for very strong markets.

All right. Thanks very much for taking the questions.

The next question comes from Chodri Mushaber from Citi. Please go ahead.

Hi, thank you for taking my questions. Just coming back from the silicones for the second quarter, is it fair to assume, or sorry, do you expect the second quarter volumes to be better sequentially in silicones? I know you've talked about a weaker start or a weaker April. I just wanted to kind of understand your assumption with regards to the full quarter sequentially. And then secondly, similarly on volumes again, can you provide an update on the turnaround in polysilicon and what your volume outlook is for the second quarter, please? I understand the first quarter volumes are quite weak, so I just wanted to get an understanding of if there is a recovery to be expected and if yes, how much would be very helpful. Thank you.

I start with the first question on volumes in silicones, also looking very much at the short term in contrast to Matthew's question also for the second half. For today, we see no improvement in business trends. So April versus March, for example, April is even slightly lower due to the holidays and less working days in Europe. So order entry doesn't show a stronger demand yet, and all is bid on, I would call it on short notice. So if I just look at Monday of this week, so one week before May, we were just covered by roughly 50% for May. So it just gives you a little bit of a feeling for that. And for that, From our perspective, silicones, we also have some plant maintenance, which will lead to additional technical spending. We have continued negative effects of high trailing raw material costs, as we mentioned before. And as we discussed before, we also have low prices for standards. So if I put all together, silicones will only see a slight improvement in the second quarter over the first quarter. And, Jan, on your second question on the polysilicon, yes, so the turnaround in polysilicon, our Charleston plant is finished. It's running full capacity. So that's one of the reasons why we'll see more volumes in Q2 going forward. We don't disclose the exact loadings and capacities of our plants. And I hope you're fine with that statement. There will be more volume available in Q2 for polysilicon salt.

Thank you.

The next question comes on from JP Morgan. Please go ahead.

Yeah, thanks. Just following on your previous commentary on silicones, EBITDA may be slightly better than Q1. Can you help us understand how you think about the rest of the division in terms of sequential basis, in terms of development also for group? Should we be expecting more like stable EBITDA or do you think there's scope to improve EBITDA on a group basis in Q2 versus Q1? The second question is, I was curious in terms of the silicones business. You know, your production setup is very much European-centric in silicones. And I'm just curious, does the energy dynamics Given some of your competitors are either in the U.S. or Asia, does that have a structural impact on the competitiveness of WACR on standards or specialties, or do you have the flexibility to maybe source siloxane from other regions if it's more expensive to be produced in Europe versus the rest of the world? Thank you.

starting with your first question. I mean, I mentioned EBITDA for the second quarter in silicones was putting all together only slight improvement in second quarter over first quarter. And you asked if I got it right about the other divisions. So generally, we don't give group guidance for the quarter, but I'm happy to provide you with some additional color on the segments. First, polysilicon semiconductor will continue strong, and with the maintenance over, as we discussed, we should see some higher solar volumes. However, we also will see much larger solar volumes back to China, and in China, market prices are, as you know, much lower. And so we assume much lower prices in the second quarter than the first quarter. So these price mix effects will result in overall lower realized ASP in the second quarter as we see it today. But we definitely, we achieve pricing premium in all our markets. but you have to put it all together. And with some pricing success that we see, it takes time to work it through all the changes of our contract portfolio, which is, yeah, staggered, as you can imagine. And that said, we expect good progress in the second quarter towards our four-year expectations, but we are not expecting a significant improvement in EBITDA in the second quarter. So chemicals we covered, silicones. I think it's sort of uneventful. We see some benefit from seasonality and continue to benefit also from our own selling prices trailing the decreases in the raw material prices. And biosolutions is also uneventful. Biosolutions EBTA will be backloaded, as we said, to the second half of the year and substantially higher than last year, but the second quarter not materially different to the first quarter. And, I mean, no group guidance, but I think something to watch out is also others, the other segment. In the second quarter, we expect a negative contribution in others before siltronic, and the other segment that can swing quite a bit from quarter to quarter. Our four-year guidance is entirely unaffected. We always say low double-digit negative before Ziltronic equity contribution, but the second quarter overall, a negative contribution before Ziltronic. I think if you put that together, you get a little bit of how you can think about group for second quarter. Okay. And second question, Chita, and you asked on our silicones production setup, European focus. So if you talk about xyloxane, so the kind of the precursor materials for our specialties, that is true that these are the two plants in Germany, but also keep in mind we have this joint venture with Dow in in China for xyloxane production. You talked about the energy dynamics and does it have a structural impact on the competitiveness. Well, first of all, you have to see that, you know, the energy intensity of the xyloxane production is much lower compared to polysilicon production. And the second thing is that you cannot just see it on an isolated basis, because in Burghausen and also in Nuremberg, we have a highly integrated verbund structure, which means that also kind of excess energy or heat generated in the polysilicon process can be used in our silicones process. So it's not a kind of standalone competitiveness we talk about, but it's the benefit of the structural of these divisions that really generates an overall benefit for us. But of course, I mean, higher energy prices in Europe are not beneficial. That is true. Part of your question was, do we take the opportunity to source siloed steel from other regions? Also in the past, you know, from time to time, we took some opportunity also to swap material between the regions. primarily to save logistics costs. But again, in this context, you know, a high loading of your own plants in a highly integrated verbund structure gives you more benefits than, you know, running at low utilization and just buying material. So I hope that was kind of helpful.

Yeah, thank you.

The next question comes from Charlie Webb from Morgan Stanley. Please go ahead.

Yep, thank you very much for taking the time. Maybe just first on the raw materials. You obviously talk about these kind of lagging high raw materials that you're still working through. Can you give us any sense on at what point you'll be through much of that and you'll be at a more normalized kind of run rate to where those raw materials are today? Kind of first question, is that a second half story? Is that kind of latter part of Q2? It feels like we've been working through them for a bit of time now. And then maybe just kind of polysilicon tying a few of the questions that have come before me, but on that price premium and the timeline for getting those through and realizing those based on your contract structures, I mean, is there any way you can help us understand a little bit more or examples of how you're thinking about that price premium. Is it simply just a flat premium over the index? I understand it's going to vary customer to customer, but just holistically how you're approaching it would be helpful. And just another one on poly, apologies, and that's one more than the two, but just on the turnaround impact in the first quarter, can you give us a sense on magnitude in terms of maybe high double-digit million, triple-digit million, what kind of magnitude of an impact was that to the first quarter results would be helpful.

Sorry, Tobias here. I'm starting with the first question, the lagging effect in raw materials. It is more or less the reversal of what happened last year. We talked, I think, the entire first half of last year about those benefits, And depending on the magnitude of the change, if there's a step change, I would always say it's one to two quarters until you will see it in the P&L. But in addition to that, you have always lagging effects if your raw material prices move in one direction or the other. So if you have a continuous decline, you will always see that you are not, yeah, realizing spot prices because of the structure of the raw material contract. So there is a delay in the P&L, and I think you should consider that. If you look at energy prices, I mean, we talked about our hedging strategy, which goes one, two, three years out with declining ratios. Those lagging or the lagging effects are even longer. That's why, as everyone knows, spot prices right now for gas and electricity are rather back to where they were before, but given the long-term hedging strategy, we communicated that our energy prices would be more or less at the level of last year. Definitely we had in the first quarter energy prices at the level of the prior quarter, and we will see benefits going forward. So there is also a time delay until it shows up in the P&L. And maybe, Charlie, some comments on your second question on the polysilicon, on the price premium. And maybe, you know, if we go back in time a couple of years ago, the main discussion at that time was about a premium for quality. So, with a higher quality material, you were able to produce higher efficiency solar cells, especially if you talk about these N-type cells. Now, if you, for example, if you today look at premium pricing, there are some additional factors coming up, and Tobias mentioned them in his speech also. It's the origin of the material, which, plays a role due to geopolitical constraints, especially if you talk about material for the US. But also, you see the destination where the material goes. And these are totally new things which came up essentially in the last, let's say, six to eight months. And they are, to some extent, seen in these new indices. So if you look for the PV Insights, We always had in the past the 9N and the 12N for the quality, but now you also have that inside and outside of China, which is primarily on the destination of the material, and the third aspect is the origin of the material, which plays an important role today. And all this, you know, if you talk about our contract structure, and, I mean, we have many contracts with many customers, and what we do with customer contracts, and I cannot disclose any details on single customers, but what we did and what we also do in other divisions is we have a staggered portfolio, meaning all these contracts don't start and end at the same time, because that is also some sort of hedging strategy on the customer side for us. So there is no definite point where you could say, you know, from that point on, all these contracts are different. And the second is, The price formulas we have in the contracts are typically also not exactly the same. It's often a combination of indices, sometimes a combination with a fixed cost aspect. And as we go, as I mentioned, the last six to eight months to these new, you know, really new terms that define premium, we are in the process of talking to our customers, renewing contracts, definitely renewing the contracts which are terminated, and that will give us a gradual improvement in that premium portfolio structure.

Okay.

On the last question with respect to the turnaround, we typically don't give precise numbers, but it was significant enough that we wanted to talk about in the first quarter. I think from there you can estimate the magnitude as you like.

Okay, thank you very much.

The next question comes from J.D. Pandya from Onfield Research. Please go ahead.

Thanks.

I want to go to the discussion in the press right now on the electricity price of four to nine cents and just understand what, in your view, is the timeline for this discussion. And then tie that in with your discussions with your customers to expand polysilicon capacity in the U.S. and in Europe because it seems like some Chinese players are now even looking outside China to invest. So how do you see investments in polysilicon in light of electricity costs? And then also just as a sort of small follow-up, there is a bit of a talk of, local content requirements in the value chain, even in the U.S. So if you can just comment on that as well, that would be great.

Thanks a lot. Okay. So I take the triple P questions, power, poly, politics. And your first one is probably the toughest one, which is on what's the timing for an industrial power price. I mean, again, We have been advocating this for many, many years because we truly believe it's an essential part of the competitiveness of the whole chemical industry, if you like, in Europe, which is really at stake at the moment. So it's not only about polysilicon. Of course, it's our business and where we focus on. But I think this is really crucial for having and keeping the competitiveness of the really great chemical industry within Europe. Second comment would be I think what we've heard in the last one to two weeks was probably the most we had ever heard about, you know, concrete talks about an industrial power price, especially in Germany, which we, you know, which we advocated and which we appreciate. The very difficult thing for us, and also for other companies, is to really judge when it will come. And also, I mean, if you've read the news in recent hours and days, it's still unclear what is the range of this pricing. It somehow starts with four, it goes up to nine cents. A big question is about who is the accessible group of companies. Is it the only, the true kind of energy intensive. And I mean, the more guys you would have into that bucket, probably the higher the price would be. And also, it is still not yet clear the duration. We've heard some people recently talk about, let's do two years. We always said we need at least five to seven years until there is sufficient renewable energy at competitive pricing. So, which means It is still kind of in a process of discussion in the political area, I think. And then to give you my view on the timing, I think what needs to be done first is, you know, the Ministry of Economy needs to say this is the concept. Second step would be the German government itself agrees on that concept. And I think it's a political process, which might also take time. And then you need to make it a law. And then the third or final step would be you somehow have to align it with the European policies. And as much as we push for a quick solution, this could still take months to be implemented. But again, I don't want to be pessimistic about it. I believe the chance has never been better than than ever in history, and so we keep advocating for it. And it goes again with the second part of your question, how do we see that investment? For us, a clear statement and a reliable commitment on the power pricing for us is really the entry ticket, the mandatory entry ticket to talk about the potential expansion of polysilicon next to having offtake agreements, long-term offtake agreements with customers. These are progressing, but we can do it because we already have capacity on the ground. Even without investing, we engage in talks with customers on supply in the U.S. and in Europe. And the third part of your question comments on, you know, potential local content requirements, especially in the U.S. Yes, that's also what we hear. And we give also here in the U.S. a clear statement. We are already on the ground. We have material that can be used for a reshoring initiative. And if you want us to invest more, Again, it needs to be a compelling business case, and typically the investment costs in the U.S. are higher than in Europe, so the topic of CAPEX support plays a vital role here for us to take a decision.

Just, sorry, Chris, to ask you one follow-up.

How much as a percentage of your time are you spending with the politicians right now, and how important are you in Germany?

Well, I mean, the second question, I actually... You have to ask other guys for the second part of the question. How much time I use for this topic, for the politics? Sometimes it feels like 120% of my time.

Okay. Thanks a lot. I hope they're better compensating you for it. Thank you.

The next question comes from Geoff Hare from UBS. Please go ahead.

Oh, hello and good afternoon.

I just wanted to ask, in recent days we've seen that Germany is, and German politicians, I should say, are considering banning the export of chemicals to the semiconductor industry to China. I just wondered, what impact would that have on WACKER if that did come to pass?

Well, Jeff, that's an interesting question that came on the tickers just a few days ago. For us, we have a good view that it sounds like a rumor which just came out of politics or from somebody else. We were surprised to hear that. I can give you a general statement. I think all these talks about banning exports of any specific product groups, which are vital for, you know, for the global economy, in my view, would result in, you know, in massive negative impact on both sides, on all sides of global economy. And yeah, I mean, if we would sell that to China, yes, we would sell that to China, but I think that's only the tip of the iceberg, because then somebody else wouldn't get material and wouldn't be able to produce other material, which is then used not only in China, but in the rest of the world, and it's all interlinked. So therefore, this is also something which we address when we talk to politics on the energy topic, saying, Don't talk about decoupling with China because it doesn't make sense. And we always made a clear statement that we believe in free trade and fair competition. So, yeah, that's what I have to say to that.

Okay, thanks.

The next question comes from Andreas Heine vom Stiefel. Please go ahead.

Yeah, three, two questions I basically have. The first is on silicons. You said that the volume is not really progressing from Q1 to Q2 due to the stocking, due to ongoing destocking. What visibility do you have whether this is still destocking or whether what you see right now is just low underlying demand? And the second question is on silicon, try to get the head around on what you mean with premium. So if I look on what massive capacities come in for the silicon and what the price outlook from some surveys are for what the prices might end on the Chinese spot market at the end. That might be clearly below your unit cost you have here in Germany. So a percentage premium or any premium on such a low price would not really help you. Is this premium really decoupling from what's going on in the spot market or would it be just somewhat more on a very low price we might end up with at the end of this year.

Andreas, to the destocking question in silicones, unfortunately we do not have full transparency on that. We sell over 3,000 products to as many customers. So we normally try to work through it segment by segment. And here the story is that segments that started first in destocking are out of the woods But there's more segments that we cover, so there are still some segments late in this process that are continuing to destock. And if I look at the order pattern, it continues, I think, very short term. And that signals to me that in general, our customers do not have great visibility on their own end markets. And we need to live with that. And that's why also the momentum into the second quarter hasn't shown the improvement yet. And also not in China. I mean, everyone was expecting at the beginning of the year that China would show stellar improvement already starting just after Chinese New Year. That hasn't happened. There is slight improvement. So there, April is a little bit stronger than March. But overall, we cannot confirm this for silicon volumes globally. And Andreas, on the premium pricing question, I mean, this is a pretty complex agenda to talk about. And as I said, I mean, the pricing we see today or premium pricing depends on questions like what's the origin of the material, what's the quality, what's the destination of the material. And therefore, I think I cannot give you a simple answer to this because I think if you, for example, if you talk about quality, probably this could be something which is just an adder on a market price. If you talk about origin of the material, this is not an adder on the Chinese price because if the material needs to be non-Chinese, then the adder to a Chinese price doesn't make, you know, it's not, you know, it's not the important step. The important step is that you have a material which is coming outside of China. Therefore, I would envision that these are just different pricing mechanisms which come there. And, you know, if you talk about quality also, a third of the installations this year will be N-type. That's what we believe. And therefore, the demand for high-quality material, which we produce, should be pretty healthy. And, yeah, so it's an ongoing discussion we have here with our customers on these pricing, and it's a dynamic market.

Maybe adding to this, if I go back to the last cycle, There, your profitability in polysilicon was at zero, assuming that semi was always profitable, then solar was below the waterline. Is your pricing power now strong enough that you could definitely avoid this situation to come again?

Well, I think what we should also not forget in the overall equation is the overall demand-supply situation. I think demand is strong. overall for solar, and it will remain strong. But you always have these announcements from a lot of Chinese competitors. And, you know, to give you here a very clear statement about it will never happen like it happened a few years ago, I think it's just extremely difficult to do. Our strategy was always, and regarding auto semiconductor, focus on high-quality material with a high reliability. And that's what we also continue.

Fair enough. Thanks a lot. Sure.

The next question comes from Sebastian Bray from Burenberg. Please go ahead.

Hello, and thank you for taking my questions. I would have two, please. The first is on BioSolutions. Could you give some indication of how the underlying profitability X ramp-up pandemic preparedness facility or one-offs of this business has developed? The reason I'm asking is that this was going at a run rate somewhere in the low teens of EBITDA on a sales base of something like 320-ish. And it looks as if in Q1 and Q2, this business is going to have zero million of EBITDA. When exactly do these ramp-up costs stop? And is this going to really rip from profitability perspective once the new facilities start to be filled sometime in 24? That's my first question.

Sebastian, it's quite a complicated one, to be frank. But to give you the timeline, just look at that we are generating revenue from the mRNA Compton Center starting in the second quarter next year. And until then, we need to ramp the entire staff. And we have already, I think, an additional almost 100 on board. And this gives you a little bit the magnitude of the personnel costs that already come without revenue. Once we have the revenue of the contract, we generate profits, for sure. That is one effect on BioSolutions, which is a drag on the first half. But there's another drag on the first half, because we have some project successes in biopharma. where we already start producing material, but it won't get shipped before the second half of the year. So we have, in addition to labor costs, we have material costs that doesn't generate revenue yet. And that's why second, I mean, and you were perfectly right that the second quarter doesn't look too much different from the first quarter. So first half is, to be frank, close to break, even EBITDA and profitability comes in the second half.

That is helpful. Thank you. And the second one is just a question on underlying profitability by subsegment in polysilicon. I appreciate that you can't really say, well, the number was this for semiconductor and it was this for solar. But is the level of semiconductor profitability today similar to the level at the same time last year, or has it changed noticeably?

As I said before, we do not comment below subsegment. below segment level on different applications. You have the moving factors. We have higher volumes, we have higher prices, but we also have higher energy costs against last year. So for that, not too different, I would say.

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

The next question comes from Marcus Meyer from Bader Helvea. Please go ahead.

Thank you. Only one question left, and that's also linked to the Dustin's question on bio-solutions. I know that the saving of your ambitious plan until 2030 was not back-end loaded, but where do you see yourself on your internal plan to reach your ambitious 2030 targets regarding top-line but also profitability?

Okay, I mean, Marcus, the line was not too good. I hope I fully got your question on biosolutions performance, you know, ambitious targets, top-line profitability, and we always said it's not back-end loaded. And, yes, it's true. You know, and I think Tobias just gave a good example of that you will see a gradual growth in sales and in profitability if the mRNA preparedness plans ramping up in the second, in 2024, starting in Q4. We will see a definite step up there. And we also talked about ongoing M&A pipeline. There's, you know, nothing concrete to talk about today, but we will see this also coming up, you know, in due time. And this will be part of how to reach the 1 billion. So we feel pretty much confident and on track with this target.

Okay, thank you.

The next question comes from Patrick from BB&E. Please go ahead.

Yeah, hi, thanks for taking my questions. Just one follow-up on silicones. You mentioned earlier that specialties aren't immune to seeing pressure on pricing. I just wondered if you could give us an indication of what the percentage of specialties is in your portfolio at the moment and how stable or resilient pricing has been, again, in specialties year to date.

Thanks. Tobias, here are mixed questions. So, I mean, we mentioned also at the Capital Market Day that we continue to focus on specialties and did want to grow this share, but we do have standard products in our portfolio just also for balancing the system. I think percentage-wise there's not a big change. And as we emphasized also in the last conference call, I mean, that definition, I mean, it's also not black and white, but for simplification reasons, you need to do it. So your question now moving towards the pricing in specialties, I would answer in the sense that the more special the product, the stronger your position also to continue with value-based pricing. The closer you are at this differentiating line between standards and specialties, there comes some pressure. So it's not black and white. And we guide for specialty pricing to not come under the same pressure as standard pricing. And I think we continue exactly our pricing policy to go for the value that we create for our customers. But we will see slightly lower prices. This is obvious. The longer destocking and weak demand environment takes and volumes are not picking up again, by nature in supply and demand, there is more pressure on your prices.

Sure. Thanks. Thank you.

There are no further questions at this time. I hand back to Jörg Hoffmann for closing comments.

Thank you, Operator. And thank you all for joining us for today and for your interest in Waka Kameen. Our Q2 conference call is scheduled for July 27th. Until then, don't hesitate to contact the IAR department if you have further questions.

Thank you for your interest in Waka.

Ladies and gentlemen, the conference is now concluded. You may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.