Earnings Performance of Wacker Chemie AG as per German Commercial Code

Only a limited comparison is possible between 2010’s earnings performance and the previous year’s because Wacker Polymer Systems GmbH & Co. KG (WPS) was merged into Wacker Chemie AG on July 1, 2009. As a consequence, Wacker Chemie AG’s 2009 statement of income only recognized WPS for six months. Another limiting factor was the first-time application, effective January 1, 2010, of the German Accounting Law Modernization Act. 2009’s figures have not been adjusted.

Wacker Chemie AG’s earnings reflected the positive trend at the whole Group. Whereas high non-recurring impairments had dampened earnings in the crisis year of 2009, every business division posted new records in 2010. Net income climbed strongly to €301.5 million (2009: €45.8 million).

Sales also grew substantially at every division. Up 26 percent, Wacker Chemie AG’s sales reached €3.42 billion (2009: €2.72 billion). At WACKER POLYMERS, sales soared 49 percent to €558.5 million, partly due to the integration of WPS. WACKER SILICONES increased its sales by 24 percent to €1.29 billion. WACKER POLYSILICON’s sales rose 24 percent to €1.31 billion. At WACKER BIOSOLUTIONS, sales also climbed, up 37 percent to €104.0 million. Operating performance rose to €3.47 billion (2009: €2.77 billion). This item was influenced by an inventory build-up of €14.1 million (2009: €5.5 million) due to the need to hold higher inventories on the reporting date.

Cost of materials increased 31 percent to €1.22 billion (2009: €927.5 million), pushed up by the integration of WPS, by substantial production-volume growth and by higher prices for energy and raw materials.

Personnel expenses were up from 2009’s €678.9 million to €706.9 million in 2010 amid a series of sometimes divergent effects. While the WPS merger and higher variable compensation led to an increase, expenses for pension provisions were, in contrast, lower than in 2009 because the interest component was reclassified as interest cost. Similarly, expenses fell for severance payments and pension plans – for which non-recurring items of €41.2 million had been recognized as personnel expenses in 2009.

At €307.4 million, depreciation rose against 2009 (€267.8 million), primarily due to the first-time depreciation of Burghausen’s polysilicon expansion stage 8, which came on stream in 2010.

Other operating income grew slightly from 2009’s €97.9 million to €104.7 million. Other operating expenses of €595.8 million also showed little change year on year (2009: €588.4 million). Exchange-rate gains increased substantially, from €48.8 million in 2009 to €66.8 million in 2010. Exchange-rate losses under other operating expenses likewise rose, reaching €55.1 million (2009: €40.5 million). In both cases, the higher figures stemmed from increased sales in foreign currencies. The currency translation result was positive at €11.7 million (2009: €8.3 million). Additional effects influencing other operating income were a fall in reversals of customer advance payments, which dropped to €8.5 million (2009: €19.7 million), and reversals of provisions, which rose to €16.1 million (2009: €6.9 million). As for other operating expenses, additional effects were: foreign-freight expenses, customs duties, other selling expenses, other contractor work, and repair and maintenance. In 2009, this line item had been negatively impacted by losses of €70.8 million, relating to the sale of our stake in WACKER SCHOTT Solar. Other operating expenses also include provisions for environmental protection and for damages relating to onerous contracts. These items rose amid business-volume growth and the integration of WPS.

In 2010, Wacker Chemie AG posted an operating result of €749.6 million (2009: €409.9 million), a rise of 83 percent, spurred mainly by the above effects. The integration of WPS – which, in 2009, had already led to a gain of €42.5 million – also had a positive impact on 2010’s operating result.

The result from investments in joint ventures and associates amounted to
€-134.3 million (2009: €-203.6 million). It contains the net losses from profit and loss transfers of €64.5 million (2009: €-211.8 million), resulting mainly from the two-stage profit-and-loss transfer agreement of €96.6 million between Wacker Chemie AG, Wacker Dritte Venture GmbH and Siltronic AG. In 2010, Wacker Chemie AG lowered the value of its investment in Wacker Chemicals (China) Company Ltd. (Holding), Shanghai, by €78.9 million. This decision was due to a long-term purchase obligation involving high, long-term transfer prices, agreed between WACKER’s Chinese subsidiaries and the siloxane-production joint venture with Dow Corning.

Net interest income fell by €39.0 million to €-38.7 million (2009: €0.3 million). The decrease stemmed from interest effects relating to noncurrent provisions, especially pension provisions, which were reclassified from operating result to interest cost. Other interest income and expenses remained at the prior-year level.

The extraordinary result posted in 2010 mainly comprised the effects of accounting changes due to the first-time application of the German Accounting Law Modernization Act. These effects amounted to €97.0 million. The greatest impact here came from changes in the valuation of pension provisions. In 2009, the extraordinary result had carried a merger loss arising from the integration of WPS.

Income tax expenses climbed from €95.6 million in 2009 to €178.7 million in 2010, yielding a tax rate of 31 percent.

Net income amounted to €301.5 million. After adding profit carried forward from 2009 and deducting €59.6 million in dividends paid, Wacker Chemie AG posted a retained profit of €775.2 million.

In 2010, the company’s R&D expenses amounted to €87.3 million (2009: €88.8 million).