Wacker Chemie AG (WCH:GR), a global chemical company, announced strong results for the second quarter of 2024, despite facing challenging market conditions. The company reported a 17% increase in Chemicals EBITDA to €149 million, driven by improved demand and higher volumes. Polysilicon earnings also saw improvement, reaching €55 million, attributed to lower energy costs, although sales in this segment were impacted by oversupply in the Chinese market. The company’s focus on expanding capacities in biosolutions is showing promise, with growing interest in this area. With a commitment to sustainability, Wacker Chemie aims to achieve net zero by 2045 and is on track with its full-year guidance, expecting EBITDA to fall within the upper half of the €600 million to €800 million range. The company remains financially and strategically well-positioned, having generated nearly €100 million in EBITDA in the first half of 2024.
Key Takeaways:
– Chemicals EBITDA increased by 17% to €149 million.
– Polysilicon earnings improved to €55 million despite a decline in sales.
– Biosolutions segment shows sales growth, especially in biopharma.
– Full-year EBITDA guidance reaffirmed to be in the upper half of €600-€800 million.
– Company aims for net zero by 2045 and maintains a strong financial position.
Company Outlook:
Wacker Chemie anticipates a stronger second half of the year, with potential boosts from biosolutions reservation fees, tax credits, polysilicon inventory markups, and CO2 compensation schemes. The company expects slower demand in Q4 but anticipates improvement compared to the previous year. The next conference call on Q3 results is scheduled for October 29, with a Capital Market Day on September 18 and 19.
Bearish Highlights:
– Polysilicon sales face challenges from an oversupplied Chinese market.
– Lower polymer prices due to raw material costs, despite higher volumes.
– Uncertainty persists in polysilicon and silicones markets with patchy order intake.
– A large site shutdown in the second half of the year will impact volumes.
Bullish Highlights:
– Strong demand for consumer-related binders and sequential improvements in construction-related polymers.
– Growing interest in biosolutions capabilities, with expected better results in the latter half of the year.
– The new facility in Halle is versatile, ready for both mRNA and plasmid DNA production.
Misses:
– Polysilicon sales declined due to intense competition and oversupply.
– Lower polymer sales attributed to decreased prices.
– Slower order intake for silicones with a decent book for the summer.
Q&A Highlights:
– Wacker Chemie remains confident in the demand for U.S. compliant polysilicon and plans to continue production.
– Selective price increases for specialty silicones are planned based on segment and region.
– The focus is on filling capacities and improving profitability in the Biosolutions business.
– No detailed information provided on polysilicon production costs in the Middle East, but key factors include personnel, raw material supply, and electricity costs.
– Polysilicon can be stored indefinitely without quality deterioration; inventory details are not disclosed.
Wacker Chemie AG continues to navigate a complex market landscape with strategic focus and financial prudence. The company’s dedication to sustainability and innovation in biosolutions, along with its positive financial outlook, positions it to weather market uncertainties and leverage growth opportunities in the chemical industry. In the second quarter, polysilicon saw an improvement in earnings despite lower sales, with EBITDA reaching €55 million, up from €43 million in the previous quarter. The Tennessee plant is now fully operational, but sales declined due to the removal of exposure to domestic China solar prices. The U.S. market is facing uncertainty due to anti-dumping countervailing duties, impacting solar-grade polysilicon sales. However, the demand for PV solar installations in the U.S. is expected to continue growing, requiring UFLPA-compliant polysilicon. Wacker is committed to sustainability and has made progress towards reaching a net zero target by 2045. The company showcased new specialty silicone solutions at battery trade fairs, including a product that enhances the safety of lithium-ion batteries. The completion of a new mRNA facility in Halle triples capacity and supports the German pandemic preparedness program. EBITDA for the full year is expected to be in the upper half of the €600 million to €800 million range, with investments in future opportunities. Sales for the second quarter were €1.5 billion, down 16% year-over-year, with group EBITDA at €160 million, 37% lower year-over-year. Chemicals EBITDA expanded while polysilicon EBITDA contracted, impacting overall results. Net income for the quarter was €35 million, with earnings per share of €0.58. Our balance sheet reflects strong financials, with €1.1 billion in liquidity and €4.6 billion in shareholder equity. Networking capital has increased by approximately €278 million compared to the previous year, mainly due to safe developments in chemicals and higher inventory in polysilicon. In the second quarter, silicones sales were €719 million, showing a 3% increase year-over-year and slightly exceeding the previous quarter. The second quarter EBITDA of €90 million was significantly higher than last year, primarily driven by higher specialty volumes, favorable mix, lower raw material costs, and improved plant loading.
We completed a turnaround during the second quarter and adjusted our silicones outlook for 2024, now expecting a low double-digit percentage EBITDA margin. Polymers sales were €389 million, down 7% from last year, mainly due to lower prices driven by raw materials. However, higher volumes resulted in a 5% sequential sales growth. Consumer-related binders saw increased demand, while construction-related polymers showed some improvement due to higher building activity in the summer. EBITDA for polymers in the second quarter was €59 million, up 5% from the previous quarter.
Biosolutions sales in the second quarter were €98 million, an 8% increase year-over-year and a 37% increase quarter-over-quarter, primarily driven by growth in biopharma. Polysilicon reported sales of €232 million in the second quarter, a 23% decrease compared to the previous quarter, mainly due to lower solar grade volumes. EBITDA for polysilicon increased to €55 million, up from €43 million in the previous quarter.
In terms of our net financial position, we generated a gross cash flow of €4 million in the first half of 2024, with cash flow from investing activities amounting to €310 million. After a dividend payment of €149 million in the second quarter, we ended the first half with a net debt of €661 million. We remain focused on cost management and strengthening our specialty businesses to achieve our full-year targets. Chetan Udeshi: Hi, thank you for addressing my questions. I noticed a change in contract liabilities of minus 20 in the cash flow statement for the first six months, particularly in the second quarter. In the past, this has been related to advanced payments from customers in the polysilicon business. Are these advanced payments supporting the polysilicon numbers in the financials, especially if customers are not meeting their volume commitments? And if so, how long will this support continue? Will it be reflected in Q3 numbers as well? Secondly, at what point do you plan to stop building inventory in the polysilicon business? Is there a threshold where if new volume contracts at desired prices are not secured with existing or new customers, production will be scaled back? Lastly, regarding silicones, you mentioned that the order books are still volatile. Sean, in response to your second question regarding Biosolutions, we acknowledge that there is room for improvement in the second half of the year. While we are below our target profitability, we remain committed to the growth and development of this segment. Our strategy involves a careful balance of CapEx investments and potential M&A opportunities to drive sustainable profitability. We are continuously evaluating our approach to ensure long-term success in the Biosolutions business. Biosolutions is currently not where they want to be, and they are holding back on further investments and M&A, especially with new sites or acquisitions with the Halle inauguration. The acquisition of Leon was a major milestone in their growth plan, and their strategy now focuses on filling capacities and improving profitability. They are investing in current business for maintenance and selective investments in sites to improve profitability and drive new growth. They have successfully renegotiated contracts to move away from inside China pricing, which has been a significant achievement for them. The uncertainty in the market has affected volumes sold in Q2, but they expect demand for compliant polysilicon to the U.S. market to increase volumes again in the future.
In discussions with customers, the main focus is on the antidumping and countervailing duties issue, rather than capacity additions in the Middle East. Despite potential capacity additions, they believe there will be strong demand for compliant polysilicon in the U.S. market due to expected growth. Customers may be cautious in negotiations due to uncertainty but once that window closes, volumes are expected to increase.
The key for customers to regain confidence in entering new contracts is clarity on antidumping and countervailing duties. In terms of inventory, the risk of potential write-downs exists if customers are not willing to enter new contracts, but the company believes the market will stabilize and volumes will increase in the future.
Regarding the cost of producing polysilicon in the Middle East, there is uncertainty around the exact cost, but the company believes that with strong demand in the U.S. market, there will be opportunities for international polysilicon producers to meet the demand at a competitive cost. And of course, there is a significant difference between a 10% difference and a 100% or more difference. Customers need a clear ruling on what they can expect so they can adjust their production planning accordingly.
Tobias Ohler: Sebastian, this is Tobias. We have booked inventories at the lower of cost or market price, and currently, we do not anticipate a need to write down our inventories.
Christian Hartel: Regarding the cost position of the Middle East plants, it would be best to speak with the people directly involved in building them for a more accurate insight. Our decision to build in Tennessee was based on various factors including personnel costs, availability of resources, raw material supply, and electricity. We do not have detailed information on the new plants in the Middle East.
Sebastian Satz: Thank you.
Sebastian Bray: Hello, thank you for taking my questions. I’m curious about the factors that could potentially lead to higher earnings in the second half of the year compared to the first half. Are there any other factors besides the ones you mentioned that could contribute to this?
Tobias Ohler: Sebastian, Tobias here. We are not including the tax credit from inflation reduction or the potential mark-up on polysilicon in our guidance. Additionally, the CO2 compensation scheme will only impact the fourth quarter, potentially making the second half stronger than the first half.
Sebastian Bray: Thank you for clarifying. Has there been any changes in order books for the Silicone segment in recent weeks?
Tobias Ohler: Order intake has been a bit slower recently, but we have a decent book for the summer. The second quarter was stronger than expected, so we are prepared to handle uneven demand patterns.
Sebastian Bray: Thank you. Lastly, I have a question about the Biosolutions segment and the new facility in Halle. Is the capacity at the facility currently filled, and is it capable of switching between RNA production and other types of production?
Christian Hartel: The Halle facility is primarily focused on mRNA production, but it has the potential to be versatile and switch to other types of production if needed. The demand for mRNA products is expected to remain strong due to ongoing clinical studies and developments in various therapies. Jaideep Pandya: Thank you for the clarification. I have a few follow-up questions. Firstly, regarding the polysilicon inventory, is there an expiry date or quality issue timeframe for storing the material? Can it be stored for more than a year? Additionally, can you provide information on the volume of polysilicon being stored without disclosing the price? Historically, you mentioned that a third is semi, a third is international, and a third is China-linked to the China price at the beginning of the year. Thank you for ceasing the sale of China-linked products. In terms of inventory in the second half, if a new customer is not found, the level of volume should remain stable. Polysilicon can be stored indefinitely without deterioration, so there is no need for concern. Let’s not speculate on inventory build details until the case is resolved and uncertainty is removed. Thank you for your interest in Wacker Chemie, and feel free to reach out to the IR department with any further questions. Goodbye.