Earnings

Changes in Earnings, Net Assets and Financial Position Due to Deconsolidation of Siltronic

In 2017, WACKER relinquished its majority stake in Siltronic AG. Early in the year, WACKER sold an initial 1.8 million shares of its stake in Siltronic AG on the stock exchange. On March 15, 2017, the Group sold a further 6.3 million Siltronic shares in a bookbuilding offering to institutional investors. As a result, WACKER’s stake in Siltronic was reduced to 30.8 percent. WACKER had held 57.8 percent of Siltronic on December 31, 2016.

As stipulated by IFRS 5 (Non-Current Assets Held for Sale and Discontinued Operations), WACKER is retrospectively reporting the net income of Siltronic AG and its subsidiaries for 2016 as “Income from discontinued operations.” The gain associated with the loss of control of Siltronic is calculated as the sum of the cash inflow from the bookbuilding offering and remeasurement of the remaining shares (at the transaction price) – less the net assets of Siltronic attributable to WACKER and the transaction costs. Both this gain and Siltronic’s net income for the period are included in the “Income from discontinued operations” line item.

The loss of control over Siltronic means that its assets and liabilities are no longer recognized within the Group. The deconsolidation of Siltronic caused the Group’s total balance sheet to contract only marginally because the cash inflow from the two transactions and remeasurement of the remaining shares compensated for the deconsolidation of Siltronic’s assets.

Since March 15, 2017, Siltronic has been accounted for using the equity method and the Siltronic Group’s pro rata net income for the period is included in the result from investments in joint ventures and associates. The figures listed in the statement of income as continuing operations for 2017 are comparable with the previous year. For further information on the deconsolidation of Siltronic, please refer to the Scope of Consolidation section of the Notes to the Consolidated Financial Statements.

Year-over-Year Sales Comparison

Group Sales Climb 6.3 Percent Year over Year to €4.92 Billion

In 2017, the WACKER Group again lifted its sales, which rose by 6.3 percent to €4.92 billion (2016: €4.63 billion). This growth was mainly generated by higher volumes for silicones, polymer products and polysilicon. WACKER more than compensated for negative exchange-rate effects from the euro’s strength against the US dollar and for prices that, on balance, were somewhat lower. WACKER SILICONES posted particularly strong sales, up 10 percent. Sales at WACKER POLYMERS rose by more than 4 percent. In a market environment still characterized by volatility and lower average prices, WACKER POLYSILICON grew its sales by over 2 percent. For further information on the business divisions, please refer to the Segments section.

WACKER generated the majority of its sales outside Germany. International sales were €4.10 billion (2016: €3.86 billion), representing 83.3 percent of total sales. The depreciation of the US dollar against the euro dampened sales. For further information, please refer to the Regions section.

Group EBITDA at €1.01 Billion – EBITDA Margin at 20.6 Percent

Group EBITDA rose 6.1 percent year over year, to €1,014.1 million (2016: €955.5 million). At 20.6 percent, the EBITDA margin was on par with the previous year (2016: 20.6 percent). In 2017, WACKER reported no further income from advance payments retained and damages received. In the prior year, the company had posted special income of €20.3 million from contract terminations. Adjusted for this effect, EBITDA was 8 percent higher than the previous year (€935.5 million).

This growth was chiefly due to higher sales, very good operating performance and the €40.0 million in investment income from Siltronic. As a result, WACKER more than compensated for the year-over-year increase in raw-material prices. For further information on the business divisions, please refer to the Segments section.

EBIT Rises Markedly

The Group’s earnings before interest and taxes (EBIT) totaled €423.7 million in the reporting period (2016: €337.5 million). That was a year-over-year increase of 26 percent and yielded an EBIT margin of 8.6 percent (2016: 7.3 percent). Lower depreciation versus a year earlier enhanced EBIT. In 2017, depreciation declined by 5 percent, in line with expectations.

Cost of Goods Sold Rises 4 Percent Year over Year

At €954.4 million, gross profit from sales was 16 percent higher than in the prior year (2016: €822.8 million). The cost of goods sold came in at €3.97 billion (2016: €3.81 billion). The gross margin was 19.4 percent (2016: 17.8 percent). Higher sales were a positive factor. On the other hand, higher raw-material prices and the ongoing costs following the production shutdown at Charleston (USA) in September 2017 weighed on the gross margin. No significant income from insurance compensation expected for the Charleston incident was recognized in profit or loss in 2017. The Group’s cost-of-sales ratio declined from 82 percent to 81 percent.

Functional Costs Climb

Other functional costs (selling, R&D and general administrative expenses) were 10 percent higher year over year, rising to €594.0 million (2016: €537.8 million). Alongside higher selling expenses, the increase in personnel costs in all functional areas prompted this rise.

Other Operating Income and Expenses

In 2017, the balance of other operating income and expenses was €19.4 million (2016: €51.4 million). In the previous year, income of €20.3 million from advance payments retained had had a positive effect on this balance. Foreign currency losses of € –9.7 million (2016: €3.4 million) weighed on other operating income.

Result from Investments in Joint Ventures and Associates

The balance of income from investments in joint ventures and associates and other investment income was markedly higher due to income from Siltronic. The total was €43.9 million (2016: €1.1 million).

Financial and Net Interest Result

As expected, WACKER’s financial result improved year over year and amounted to € –88.7 million (2016: € –91.1 million). Interest income came in at €7.5 million (2016: €4.7 million) and interest expenses at €38.3 million (2016: €39.9 million). The net interest result amounted to € –30.8 million (2016: € –35.2 million). Interest expense on bank loans decreased slightly due to the refinancing of such loans in the course of 2017.

The other financial result was € –57.9 million (2016: € –55.9 million). It primarily comprised interest-bearing components of pension and other noncurrent provisions. It also included income and expenses from the exchange-rate effects of financial investments. Exchange-rate effects from intra-Group financing (including the effects of concluded foreign currency derivatives) were recognized for the first time under other financial result in the reporting period.

Income Taxes

For 2017, WACKER reported tax expenses of €84.9 million (2016: €68.3 million). The Group’s effective tax rate was 25.3 percent (2016: 27.7 percent). This decrease was due the high investment income from Siltronic, which was recognized after tax and forms part of pre-tax income.

Consolidated Net Income

Partly as a result of the effects mentioned, consolidated net income rose to €884.8 million (2016: €189.3 million). It included income from discontinued operations in the amount of €634.7 million from Q1 2017. Siltronic posted net income of €17.7 million for January through March 2017, after €11.2 million in 2016. In addition, the deconsolidation of Siltronic as a segment of WACKER resulted in a gain of €617.0 million. Income from continuing operations rose to €250.1 million in the reporting period (2016: €178.1 million), up 40 percent.

The table shows the individual components of income from discontinued operations:

Return on Capital Employed (ROCE)

The return on capital employed (ROCE) sets earnings before interest and taxes (EBIT) in relation to the capital employed for business activities. Investment income from Siltronic and the corresponding carrying amount in equity are not included in the calculation for ROCE.

In the reporting year, ROCE was 7.5 percent (2016: 6.4 percent). Low capital expenditures and high levels of depreciation were the main reasons for the decline in capital employed, which decreased from €5,300.4 million to €5,138.3 million in the year under review.