Wacker Chemie Ag Ord

Welcome to the WACKER Chemi-AG conference call on our Q2 2023 results. Dr. Christian Hartl, our CEO, and Dr. Tobias Oller, our CFO, will take you through our prepared slides in a moment. The half-year report, Q2 presentation, and detailed financial tables are 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 our recent annual report regarding risk factors. All documents mentioned are available on our website.

Chris? Welcome, everyone. You saw us pre-releasing our Q2 results and updating our full year guidance a week ago. We see the same challenges as our peers. Weak markets are holding back the chemical industry As the pandemic driven supply shortages turn, global economy softens, rising interest rates mute growth in interest sensitive sectors such as construction and international political risks increase. The OECD sees global economic growth lower than the average growth rate in the decade before the pandemic. As a result, the chemical industry sees overcapacities and production curtailments in some areas. While WACKER has consistently improved its resilience, we are not immune to these general trends. In Germany, the chemical industry continues to be held back by very high energy costs. Given that energy prices declined from their peak values last year, energy costs in Germany are still significantly higher than in other regions like the US or China. The government is clearly aware of this and is actively discussing possible solutions to ensure that Germany remains attractive for future investments. While the solutions being discussed may be complex, they are not impossible, and we believe they provide an attractive business case for Germany and Europe. Despite these headwinds, WACKER reported a good overall second quarter performance. Our diversified setup provides us with a resilient and solid foundation. Group sales reached 1.75 billion euros, essentially at the preceding quarter's level. EBITDA was 256 million euros, somewhat lower sequentially and clearly lower than last year. While we expected softer results following the exceptional performance last year, The gradual recovery we expected when we spoke last time did not materialize during the second quarter. The absence of an economic recovery particularly hit silicones. On the other hand, polymers and polysilicon showed a better performance sequentially. In silicones, we faced weak demand for specialties, resulting in adverse mixed effects as we kept the utilization at economic levels. These factors helped the segment's results back noticeably. In polymers, we benefited from some seasonal recovery in volumes, but saw lower prices against the backdrop of declining raw materials. Overall, we expanded the EBDA compared to the first quarter as we worked to defend our margins. In biosolutions, we are investing in our foundation to support growth in biopharma and bio-ingredients. As expected, Costs for the upcoming mRNA facility in Halle and digitalization held back earnings. In polysilicon, we saw higher solar grade volumes, but lower average selling prices than in the preceding quarter. Semi remained resilient. The strong operating performance for poly, higher volumes, and lower energy costs in the second quarter had to drive this substantial quarter-on-quarter increase in earnings. WACKER's long-term success depends on providing our customers with innovative solutions and best-in-class chemical processes. This year, for the WACKER Innovation Prize, we awarded a new smart reactor process in polysilicon for advanced process control. Real-time large data processing allows us to further optimize the polysilicon deposition. It increases efficiency, reduces costs, and overall improves process stability. Furthermore, it makes an important contribution towards our CO2 reduction targets. With this really super intelligent technology, we have strengthened our leading position in the production of hyperpure polysilicon for semi and high efficiency solar systems. Looking to the next page, our updated guidance. As you will recall, The first quarter of this year showed some improvements versus the fourth quarter of last year. When we last spoke, we expected this growth trend to continue. As the second quarter progressed, more and more customers started to question the expected recovery. Still today, our customers remain cautious. Order intake is not showing improvements and patterns remain short. This order pattern provides limited visibility into the year's third and fourth quarters. To reflect this ongoing demand uncertainty, we have updated our guidance. We now expect full year sales of 6.5 to 6.8 billion euros. We see EBITDA coming in between 800 million and 1 billion euros. Besides ROSI, the other main KPIs are unchanged. Cutting the guidance is unfortunate, but we cannot change the economic environment. In light of this, we focus on what is within our control, primarily efficiency and cost discipline. We do everything in our power here to leverage our potential systematically. Even though we currently face considerable headwinds, I'm confident that we will successfully tackle the challenges ahead. We have an excellent team at WACKER that sets itself apart due to each individual's commitment, dedication and resourcefulness. What's more, we are well-placed strategically. Our strategy 2030 provides us with goals, faster growth, high profitability and better resilience in light of constant change. Investment in our future growth is vital to achieving these objectives. And despite the cost discipline that the current situation requires, we continue to drive our business sustainable development forward. We further increased our investment spending in the first half of 2023. We allocated most of our capital expenditures to our silicones and polymers division. To meet customer needs locally and continue to grow the coming years, we are expanding our capacities worldwide, as you see with new dispersions and powder capacities in China. We are also investing in our polysilicon business. We are building a whole new production line, our Oakhausen site, for world best and highest purity electronic grade polysilicon. Here we are increasing our downstream etching capacities by 50% till 2025. As the only European producer of hyperpure polysilicon, we are proud to be making an important contribution strengthening Europe's microelectronics value chain through this project. In May, we acquired ADL Biopharma, a contract manufacturing organization for the food, pharmaceuticals, and consumer goods industries based in Leon, northern Spain. Moving on to the next slide, let me show you more details on this milestone deal for us. Development at ADL has been quite good in recent years, and their sales have grown considerably. The tripling of our fermentation capacities provides us the foundation for growth, sustainably produced dietary and food ingredients. This acquisition will take us one decisive step closer to meeting the growth objective of our life science businesses, which we expect to generate a billion euros in sales in 2030. Before I hand over to Tobias, let me say in closing, 2023 will be a challenging year for WACKER. 2024 will likely to be one too. Nonetheless, we have the right team and strategy to tackle these challenges, embodying spirit, speed and confidence. And that's how we will do it. Now to Tobias for further details on the Q2 results.

Thank you, Chris. Welcome, everybody. For the second quarter, we reported sales of 1.75 billion euros, down by 19% over last year. We continue to see weak end-market conditions, low demand, and customer destocking weigh on utilization rates, particularly in chemicals. Polysilicon still faces high energy prices and sees lower average selling prices. These effects work their way through the P&L from top to bottom. The gross profit margin was 19% down from almost 30% last year. EBITDA contracted to 200%. 56 million euros earnings per share came in at 2.38 euros. Our efforts to improve resilience support us today in these challenging market conditions. Constant process innovation drives efficiency in chemical production. So, we are not looking at discrete and limited efforts, we do self-help activities daily. Back in 2019, we initiated our restructuring program, Shape the Future, targeting overhead costs and indirect spend. The program is on track, provides savings of 250 million euros, and enables us with a more responsive organizational setup. We stay focused on controlling costs and completing maintenance. I'm convinced that these ongoing improvement activities will allow us to be better prepared to service our customers once demand recovers. But in a slow business environment, we must consider options to adapt our capacities flexibly. To reflect limited visibility, we updated our group guidance and the outlook for each segment. I will address these shortly after looking at the balance sheet. Our balance sheet shows strong financials with about 1.3 billion euros in liquidity and about 4.6 billion euros in shareholder equity. Since we last reported, the most significant change occurred from the nearly 600 million euro dividend payment following our AGM in May. Our net working capital position has been unchanged since the year's start. Reductions in inventory are largely offset by lower accounts payable. We invested a lot in working capital over the last two years. We expect this to unwind going forward, supporting future cash flows. Moving on to silicones. Sales decreased to 700 million euros, down 8% sequentially, mainly due to lower specialty volumes and significantly lower prices in standards. The expected demand recovery did not materialize in the second quarter. Silicon EVDA decreased from around 96 million euros in the first quarter to 52 million euros in the second quarter. Low output and high silicon metal costs held back earnings. With low demand and specialties, our product mix adversely moved towards a higher share of standards. We have updated our silicon outlook. We now expect sales between 2.7 and 2.9 billion euros, with an EBITDA margin of about 10%. While destocking appears to be slowing, order entry doesn't show a stronger demand yet. From today's perspective, we do not see signs of demand recovery in the second half. Polymers reported a sequential improvement in the second quarter. Sales came in at 417 million euros, benefiting from seasonally higher volumes, but held back by lower prices. Despite demand remaining particularly weak in Europe, the EBITDA improved since the end of last year. In the second quarter, EBITDA was 76 million euros with an 18% margin. For the full year, we have updated our polymer outlook. We now expect sales between 1.6 and 1.7 billion euros with an EBITDA margin of around 17%. This guidance implies that our absolute full year EBITDA will be comparable to last year's record result despite considerably lower volumes. In a difficult environment, this is a solid achievement. As with silicones, there are no signs today which would point to a demand recovery in the second half of 2023. In biosolutions, sales increased to 91 million euros, reflecting strong biopharma growth and ADL's first consolidation. While biopharma grew nicely, we see weaker demand for some of the established products. As in our chemical businesses, there is ongoing inventory management of our customers. EBITDA in the quarter was slightly negative. The result continues to be burdened by upfront costs related to the German pandemic preparedness plan and digitalization. We have hired some 100 additional employees for our new MR&A facility in Halle. So we carry substantial costs already today, and we will not see any revenue until mid-next year when we are good for order at the new site in Halle. Given the weakness in some established products and the ongoing upfront costs, we reduced the outlook for the full year and buy a solution. We now expect a high single-digit percentage sales growth driven by continued growth in biopharma and EADR acquisition. We see full-year EBITDA below the prior year. In polysilicon, we reported second quarter sales of €530 million, up 16% on higher volumes. EBITDA in the second quarter was €156 million, The polysilicon performance was markedly higher sequentially from higher volumes and lower factor cost, despite the lower average selling prices. The solar market is increasingly differentiating products by region and quality. This trend supports our pricing strategy and improves the resilience of the business. We have updated our polysilicon outlook We see a slightly lower sales range of 1.6 to 1.7 billion euros and an EBITDA between 300 million and 400 million euros, reflecting lower solar prices in the second half. Our assumptions for the second half is that we will achieve lower average selling prices for solar-grade policy again than in the first half. However, we expect to achieve prices higher than the China domestic prices. Looking at our net financial debt. Through the first six months of 2023, we generated 352 million euros from cash flow from operations. Our cash conversion improved markedly compared to last year, where inflationary pressures resulted in significant investments in working capital. We are just beginning to see these unwind with raw material prices declining. As I just mentioned, this should support future cash flow. After cash flow from investing activities of in total 400 million euros, including the ADL acquisition and the dividend payment of 596 million euros in May, we ended the first half with a net debt of 270 million euros. Although the second quarter was another complicated quarter, we still delivered over 537 million euros in EBITDA during the first half of 2023. So, to wrap it up before we start the Q&A, we continue to see challenging markets. The anticipated H2 recovery has been delayed and our visibility remains low. While we have done a lot to improve our resilience, we are not immune to the larger economy. With our diversified portfolio, we have a strong foundation. We have the right strategy in place to capitalize on strategic opportunities in all our operating segments.