Earnings

Group Sales of €4.98 Billion Up Slightly Over Prior Year’s €4.92 Billion

In 2018, the WACKER Group again lifted its sales, which rose 1 percent to €4.98 billion (2017: €4.92 billion). Higher volumes and prices in chemicals, especially , were the main reason for this slight increase. This enabled WACKER to compensate for negative exchange-rate effects from the euro’s strength versus the US dollar and for lower prices. WACKER SILICONES generated the strongest growth, with sales up 14 percent. WACKER POLYMERS grew its sales by 3 percent, while WACKER BIOSOLUTIONS posted an increase of 10 percent. At WACKER POLYSILICON, on the other hand, sales declined by 27 percent. Sales of solar-grade polysilicon weakened due to lower volumes and prices. China’s decision to curb the amount of new photovoltaic installations markedly slowed demand for solar modules from late May 2018 onward. WACKER POLYSILICON used this market situation for inventory rebuilding, enabling it to supply customers more quickly.

For further information on the business divisions, please refer to the Segments section.

WACKER generated the majority of its sales outside Germany. International sales came in at €4.11 billion (2017: €4.10 billion), representing 82.5 percent of total sales. The US dollar’s depreciation against the euro dampened sales.

For further information, please refer to the Regions section.

Year-over-Year Sales Comparison

Year-over-Year Sales Comparison (bar chart)

Group EBITDA at €930.0 Million, with EBITDA Margin at 18.7 Percent

Group declined 8 percent year over year, coming in at €930.0 million (2017: €1,014.1 million). The EBITDA margin of 18.7 percent was lower than the previous year (20.6 percent). This decrease was chiefly attributable to the costs of the business interruption at the Charleston plant and to the fact that insurance compensation for the loss event there is still outstanding. Following the loss event, we gradually ramped up production again at the site from May through December 2018. Higher raw-material and energy costs dampened earnings considerably.

EBITDA was lifted by the Group’s result from investments in joint ventures and associates, which came in at €131.7 million. It included income of €99.9 million from Siltronic (2017: €40.0 million) and positive remeasurements of other investments.

For further information on the business divisions, please refer to the Segments section.

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Reconciliation of EBITDA to EBIT

 

 

 

 

 

 

 

€ million

 

2018

 

2017

 

Change in %

 

 

 

 

 

 

 

EBITDA

 

930.0

 

1,014.1

 

-8.3

Depreciation / appreciation of fixed assets

 

-540.4

 

-590.4

 

-8.5

EBIT

 

389.6

 

423.7

 

-8.0

EBIT Substantially Lower

The Group’s earnings before interest and taxes () totaled €389.6 million in the reporting period (2017: €423.7 million). That was 8 percent less than the year before and corresponded to an EBIT margin of 7.8 percent (2017: 8.6 percent). Lower depreciation than in the previous year improved EBIT: depreciation declined by 9 percent in 2018, in line with expectations.

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Reconciliation of EBIT to Net Income for the Period

 

 

 

 

 

 

 

€ million

 

2018

 

2017

 

Change in %

 

 

 

 

 

 

 

EBIT

 

389.6

 

423.7

 

-8.0

Financial result

 

-65.2

 

-96.3

 

-32.3

Income from continuing operations before income taxes

 

324.4

 

327.4

 

-0.9

Income taxes

 

-64.3

 

-77.3

 

-16.8

Net income from continuing operations

 

260.1

 

250.1

 

4.0

Net income from discontinued operations

 

 

634.7

 

-100.0

Net income for the year

 

260.1

 

884.8

 

-70.6

Of which

 

 

 

 

 

 

Attributable to Wacker Chemie AG shareholders

 

246.1

 

866.7

 

-71.6

Attributable to non-controlling interests

 

14.0

 

18.1

 

-22.7

Earnings per common share (€) (basic / diluted)

 

4.95

 

17.45

 

-71.6

 

 

 

 

 

 

 

Earnings per common share (€) from continuing operations

 

4.95

 

4.85

 

2.2

Earnings per common share (€) from discontinued operations

 

 

12.60

 

-100.0

Average number of shares outstanding (weighted)

 

49,677,983

 

49,677,983

 

Cost of Goods Sold Rises 3 Percent Year over Year

At €874.7 million, gross profit from sales was 8 percent lower than in the prior year (2017: €954.4 million). The cost of goods sold came in at €4.10 billion (2017: €3.97 billion). The gross margin was 17.6 percent (2017: 19.4 percent). On the one hand, it was lifted by increased sales. On the other, higher raw-material costs and the ongoing costs of the production shutdown at Charleston in September 2017 weighed on the gross margin. In 2018, no insurance compensation payments to be posted as income were received for Charleston. The Group’s cost-of-sales ratio rose from 81 percent to 82 percent.

Functional Costs Climb

Other functional costs (selling, R&D and general administrative expenses) were 6 percent higher year over year, climbing to €627.8 million (2017: €594.0 million). The rise was due not only to higher personnel expenses across all units, but also to increased research and development expenses.

Other Operating Income and Expenses

In 2018, the balance of other operating income and expenses was €11.0 million (2017: €19.4 million). Foreign currency losses of €-6.9 million (2017: €-9.7 million) lowered other operating income and expenses. Higher other operating expenses versus the year before also decreased the balance.

Result from Investments

Due to higher income from Siltronic AG, the result from investments in joint ventures and associates rose significantly. It amounted to €131.7 million (2017: €42.0 million). WACKER sold part of its stake in Siltronic AG at the end of Q1 2017 and has since accounted for the company using the equity method. Remeasurements of other investments also had a positive effect.

Financial and Net Interest Result

As expected, WACKER’s financial result improved year over year, amounting to €-65.2 million (2017: €-96.3 million). Interest income came in at €8.0 million (2017: €7.5 million) and interest expenses at €22.1 million (2017: €38.3 million). The net interest result was thus €-14.1 million (2017: €-30.8 million). Interest expense on bank loans decreased markedly due to the repayment of such loans in the course of 2018 and their refinancing at more favorable terms.

The other financial result was €-51.1 million (2017: €-65.5 million). It included not only the interest-rate effects of provisions for pensions and other provisions, but also exchange-rate effects and the costs of derivative financial instruments used to hedge Group loans.

Income Taxes

WACKER reported tax expenses of €64.3 million for 2018 (2017: €77.3 million). The Group’s effective tax rate was 19.8 percent (2017: 23.6 percent). This decrease was mainly due to high investment income from Siltronic AG, which was recognized after tax and formed part of pre-tax income.

Group Net Income

In part due to the effects mentioned, income from continuing operations rose, with net income for the year reaching €260.1 million. In the previous year, income from continuing operations was €250.1 million. Total net income for 2017, though, came in at €884.8 million, as it included income of €634.7 million from discontinued operations in connection with the deconsolidation of Siltronic as a WACKER segment.

Return on Capital Employed (ROCE)

The return on () sets earnings before interest and taxes () in relation to the capital employed for business activities. Since Q2 2017, investment income from Siltronic and the corresponding carrying amount in equity have no longer been included when calculating ROCE.

In the reporting year, ROCE was 5.9 percent (2017: 7.5 percent). The decline stemmed from a significant drop in EBIT. As a result of low capital expenditures and high depreciation, capital employed sank. It decreased from €5,138.3 million to €4,917.0 million in the year under review.

Silicones
General term used to describe compounds of organic molecules and silicon. According to their areas of application, silicones can be classified as fluids, resins or rubber grades. Silicones are characterized by a myriad of outstanding properties. Typical areas of application include construction, the electrical and electronics industries, shipping and transportation, textiles and paper coatings.
Polysilicon
Hyperpure polycrystalline silicon from WACKER POLYSILICON is used for manufacturing wafers for the electronics and solar industries. To produce it, metallurgical-grade silicon is converted into liquid trichlorosilane, highly distilled and deposited in hyperpure form at 1,000 ° C.
EBITDA
Earnings before interest, taxes, depreciation and amortization.
EBIT
Earnings before interest and taxes: EBIT is a good indicator for comparing companies’ profitability, since it is widely used across the corporate world.
Capital Employed (CE)
Capital employed is the sum of average noncurrent assets (less noncurrent securities and deferred tax assets), plus inventories and trade receivables (less trade payables). It is the variable used in calculating the cost of capital.
Return on Capital Employed (ROCE)
Return on capital employed is the profitability ratio relating to the capital employed. It is defined as earnings before interest and taxes (EBIT) divided by capital employed. Investment income from Siltronic AG and the corresponding carrying amount in equity are not included when calculating ROCE. ROCE is a clear indicator of how profitably the capital required for business operations is being employed. It is influenced not only by profitability, but also by capital intensity with regard to noncurrent assets required for business operations and to working capital. ROCE is reviewed annually as part of our planning process and is a key criterion for managing our capital expenditure budget.
EBIT
Earnings before interest and taxes: EBIT is a good indicator for comparing companies’ profitability, since it is widely used across the corporate world.

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