Profitability

In 2009, WACKER’s sales and earnings did not reach the prior-year levels although demand recovered noticeably starting April 2009. With the global economic crisis clearly impacting WACKER’s business environment, our results also reflected several non-recurring charges.

Sales and EBITDA Down Year over Year

Sales amounted to €3.72 billion, down 13.5% from the previous year (2008: €4.30 billion), primarily due to weaker customer demand for our products in key target industries. Our performance was impeded not only by volume declines, but also by partially lower product prices. The volume drop amounted to €80.0 million and that of prices to €575.6 million. In contrast, exchange-rate fluctuations boosted sales by €76.8 million or 2.1%. The main contributor here was the improved US dollar exchange rate, which averaged $1.39 per euro in 2009 (2008: $1.47 per euro).

Siltronic reported the largest sales decrease. At €637.5 million, sales fell 53.2% (2008: €1.36 billion), reflecting the harsh semiconductor climate and solar-sector sales erosion through 2009. In comparison, WACKER SILICONES – our largest division – fared much better. It saw demand for silicone products stabilize during the year, but was unable to attain 2008’s level in any product segment. It posted sales of €1.24 billion, 12.1% below the previous year (2008: €1.41 billion). In 2009, WACKER POLYMERS generated total sales of €743.8 million (2008: €867.9 million) – a drop of 14.3% against 2008. This was primarily due to lower full-year demand for dispersions and dispersible polymer powders.

At WACKER FINE CHEMICALS, sales rose to €104.9 million, up 7.4% compared to 2008 (€97.7 million). Growth was mainly driven by the transfer of chewing gum base from WACKER POLYMERS to WACKER FINE CHEMICALS, where this business has been controlled and accounted for since July 1, 2009. WACKER POLYSILICON continued to develop well – boosting total sales by 35.4% to €1.12 billion (2008: €828.1 million) amid higher volumes from newly-commissioned hyperpure-polysilicon production facilities. Solar-industry polysilicon demand remained robust despite the global economic crisis.

The WACKER Group generates by far the largest share of its sales outside Germany. In 2009, international sales reached €2.95 billion, or 79.2% of the consolidated amount. In 2008, the figure was €3.35 billion or 77.9% of the total. Asia clearly remains our biggest market. In 2009, WACKER reported Asian sales of €1.25 billion. Although this was 8.1% lower than a year earlier (2008: €1.36 billion), gains were made in the Greater China region (China including Taiwan), where sales reached €732.9 million, up 4.0% (2008: €704.8 million). In the Americas, sales amounted to €636.3 million (2008: €852.9 million) – a drop of 25.4% against 2008. In Germany, year-over-year sales declined by 18.3% to €774.6 million (2008: €948.6 million). At €944.1 million, sales in the rest of Europe were also below the prior-year level – down 6.4% (2008: €1.01 billion).

EBITDA (earnings before interest, taxes, depreciation and amortization) fell by €448.5 million to €606.7 million – a 42.5% decline (2008: €1.06 billion). As a result, the EBITDA margin dropped from 24.6% in 2008 to 16.3% in 2009. This was mainly because of the weak trend at our semiconductor segment, where EBITDA fell €519.7 million against the previous year. Additionally, non-recurring charges reduced 2009’s EBITDA by a total of €159.9 million. These charges comprised the following items: €51.9 million in investment expenses due to our exit from the WACKER SCHOTT Solar joint venture; an addition of €47.9 million to pension provisions (shown in the “Other” segment) to take account of the higher average life expectancy of the Group’s pension-fund beneficiaries; provisions of €39.6 million for additional phased-early-retirement quotas and working-life accounts; plus, further provisions of €20.5 million for personnel measures at WACKER SILICONES and Siltronic.

Non-Recurring Charges Reduce 2009’s EBITDA

Earnings before interest and taxes (EBIT) amounted to €26.8 million (2008: €647.9 million). In addition to the non-recurring charges already mentioned, EBIT was affected by impairments on fixed assets of €182.1 million, including €139.2 million at Siltronic and €36.8 million at WACKER SILICONES. Several production facilities were closed or written down in the USA, Germany and Asia amid diminished earnings prospects for their products.

Gross profit from sales declined €344.5 million to €843.5 million (2008: €1.19 billion). The ratio of cost-of-sales to sales was 77.3% (2008: 72.4%). Whereas additions to provisions weighed on gross profit, productivity gains and lower raw-material and energy costs had a positive effect.

We reported functional costs (selling, R&D, and general administrative expenses) of €505.9 million, 4.6% lower than 2008’s €530.3 million. The main reduction was in general administrative expenses, which dropped 12.8% or €14.0 million compared to 2008. Contributory factors were lower performance-related compensation and structural improvements at WACKER POLYMERS, which merged several of its subsidiaries. The Group’s R&D costs in 2009 remained constant at €164.0 million (2008: €163.2 million) and the operating result amounted to €154.1 million (2008: €681.3 million).

In 2009, the balance of other operating income and expenses was €-183.5 million (2008: €23.6 million). This figure includes impairments on property, plant, and equipment of €182.1 million. The balance of exchange-rate gains and losses totaled €-27.0 million for the year (2008: €23.5 million), mainly because of the US dollar’s higher valuation in the first half, which stood in contrast to WACKER’s unfavorable hedging position. Other operating income comprised retained advance payments of €19.7 million stemming from polysilicon contracts.

The investment result – the total income from investments in joint ventures and associates and other income from participations – was clearly negative at €-127.3 million (2008: €-33.4 million). The decline was caused by investment losses from our WACKER SCHOTT Solar (WSS) joint venture totaling €74.8 million – mainly ongoing WSS losses, plus a capital contribution that we made upon exiting the joint venture. The investment result also contains pro rata start-up losses at Asian joint ventures – namely our investments (accounted for using the equity method) in Siltronic Samsung Wafer and our joint venture (a siloxane production plant) with Dow Corning at Zhangjiagang (China).

The interest and other financial result amounted to €-23.5 million (2008: €-5.2 million). The following effects influenced this result: 2009’s interest income from investment positions was appreciably lower than a year earlier and the interest cost from external financing rose because WACKER took out two long-term loans in June. 2009 was the first time (as per IAS 23) that external interest was recognized as borrowing costs during the construction period and capitalized – to the amount of €12.9 million – in property, plant, and equipment. This improved the interest result. The other financial result primarily contains expenses from accrued interest on pension provisions.

In 2009, tax expenses decreased to €77.8 million (2008: €203.5 million). This decline was mainly due to the Group’s lower pre-tax result. Tax expenses were relatively high, though, compared to the pre-tax result because of high losses from companies accounted for using the equity method, losses at foreign companies, and non-tax-deductible expenses. Deferred tax assets were only partially recognized in line with their probability of realization. Adjusted for these effects, the tax rate was around 30%.

In total, the net result dropped by €512.8 million from 2008’s €438.3 million to €-74.5 million in 2009.