Comparing Actual with Forecast Performance

WACKER did not meet its goal of exceeding its very successful 2010 fiscal year. Sales revenue and EBITDA remained below our March 2011 forecast. The significantly weaker development of the global economy in the second half of the year impacted WACKER, above all in its polysilicon and silicon-wafer businesses. Consistently high raw-material costs throughout 2011 slowed revenue and earnings development, too.

Forecast Reduced in Q3

In its annual report published in March 2011, WACKER forecast that sales would increase to more than €5 billion and EBITDA would exceed 2010’s €1.19 billion. Investments would total about €900 million. We planned our R&D costs to be slightly above the prior year (2010: €165.1 million). The number of employees was expected to increase significantly to more than 17,000. The Executive Board confirmed this forecast at the end of July when the half-year figures were published.

Once the Q3 2011 figures had been published, sales and EBITDA estimates were revised downward. At that time, the Executive Board estimated that sales would be approximately €5 billion and EBITDA was expected to come in not over, but rather at, the 2010 level. The weaker-than-expected polysilicon business in the fourth quarter and lower orders in the wafer business were primarily responsible for these developments. The announcement in early December 2011 to shut down wafer production at our Hikari site in 2012 led to a further downward revision of our EBITDA forecast. With reported sales revenue and earnings being much weaker than expected at WACKER POLYSILICON and Siltronic, sales and EBITDA in 2011 came in below consensus.

2011’s sales revenue was €4.91 billion, a year-over-year rise of 3.4 percent. Apart from Siltronic, the other four divisions (WACKER POLYMERS, WACKER SILICONES, WACKER BIOSOLUTIONS and WACKER POLYSILICON) saw sales grow. Even so, we did not achieve our original sales target of over €5 billion.

Originally, we had forecast that EBITDA would exceed the prior-year figure of €1.19 billion. 2011’s EBITDA came in at €1.10 billion, down 7.6 percent compared to the previous year. Apart from WACKER POLYSILICON, the other divisions generated lower year-over-year EBITDA. Rising raw-material prices and energy costs held back earnings. On average, the prices of our four key raw materials – silicon, ethylene, vinyl acetate monomer and methanol – were 23 percent up against the prior year. As a result of higher prices and volumes, we spent about €240 million more on energy and raw materials in 2011 than in 2010. Several non-recurring effects impacted EBITDA. Due to the termination of supply agreements by customers exiting the photovoltaic business, we collected advance payments and indemnity payments of €66.2 million. The announced closure of the Hikari wafer plant reduced EBITDA by €49.6 million. Moreover, an addition to pension provisions lowered earnings by €29.9 million. WACKER is thus taking account of the higher life expectancy among the Group’s pension-fund beneficiaries.

Excluding acquisitions, investments of about €900 million were forecast in 2011. At €981.2 million, investments were slightly above this target. Most capital expenditures flowed into the ongoing expansion of our polysilicon production facilities. As projected in early 2011, R&D expenses – for developing tomorrow’s products and solutions – climbed slightly to €172.9 million.

The number of employees increased as planned. As per the reporting date, WACKER had 17,168 employees, 854 more than in 2010. The rise stemmed primarily from expansion projects at WACKER POLYSILICON.

The Executive and Supervisory Boards’ 2011 dividend proposal to be announced at the Annual Shareholders’ Meeting reflects that year’s business trends and the Group’s strong financial position. The proposal to the annual shareholders’ meeting for the 2011 dividend is €2.20 per share (2010: €3.20).

Deviations from Projected Expenses

Payroll expenses rose clearly as a percentage of sales and are slightly above our expectations. The rise is due to the obligations for the severance packages for staff at the Hikari site and to the one-time expenditures for demographic adjustments. Medium term, we expect payroll expenses (excluding non-recurring effects) to return to below 25 percent of sales.

Raw-material costs, as a percentage of sales, also climbed. As expected, the prices of our key raw materials rose strongly in 2011. Overall, WACKER had to absorb over €150 million in price adjustments, only some of which could be passed on to our customers through higher sales prices. In the medium term, we expect prices of raw materials to increase further, so that the share of raw-material costs in sales will continue to rise.

Energy costs rose as well. Two factors played a role here. The prices of natural gas and electricity went up slightly. The rise in sales volumes from polysilicon production caused our energy consumption to increase. The energy that WACKER needs for its Poly 11 expansion stage in Tennessee can be purchased much more cost-effectively.

At 10.2 percent, depreciation was higher than planned. It rose somewhat because new polysilicon facilities came on stream in 2010 and 2011. Additionally, there were write-downs on fixed assets totaling €41.4 million. In the medium term, we anticipate depreciation to account for more than 10 percent of sales.