Economic and Legislative Factors

WACKER sells its products and services to virtually every industry. Although economic fluctuations cannot be avoided in individual business divisions, their impact and onset may vary greatly. We are able, however, to mitigate the impact of these fluctuations thanks to our product range and our broad portfolio of customers.

Early Operational Indicators as Measures for Future Developments

By using specific, early operational indicators, we try to anticipate potential developments in our business plans and to allocate capacities accordingly. Since we are at home in diverse businesses and markets, we consult a number of early indicators to gain insights into potential developments at each of our business divisions.

Economic Factors Impacting Our Business

WACKER’s business has remained subject to the same key economic factors. Energy and raw-material costs, at more than 40 percent of production costs, had the largest impact in 2011.

• Energy and raw-material costs
  As a chemical company, we belong to an energy-intensive industry and require diverse raw materials to manufacture our products. Consequently, higher energy and raw-material costs impact our cost structure. We have taken a variety of steps to increase our independence from this factor. Measures include generating our own energy at the Burghausen and Nünchritz sites. This reduces our energy-procurement needs and costs. Backward integration at WACKER SILICONES in 2010 has enabled us to secure part of our long-term silicon-metal needs, thus gaining us more independence from price fluctuations. At the same time, we enhanced supply reliability during demand peaks.
  
  
• Exchange-rate fluctuations
  Our business is influenced by currency fluctuations against the euro. We have used currency hedging (derivatives) to secure at least half of our dollar exposures for the next year. The hedging ratio for 2012 is currently around 60 percent. Without hedging, a one US-cent increase in the euro-dollar exchange rate lowers EBITDA by some €4 million.
  
  
• State-regulated incentives and compensation systems for
  renewable energy sources
  As one of the world’s leading suppliers of hyperpure polycrystalline silicon, we are affected by regulatory changes to incentives and compensation systems for renewable energy sources. Various countries reduced the incentive for photovoltaic systems during 2011, including Germany (the world’s key photovoltaic market), Italy, Belgium, France and Japan. Through continuous productivity improvements, however, we are in a position to maintain our competitiveness amid the altered landscape. Our cost leadership, product quality, international orientation, customer structure and our medium to long-term supplier contracts all offer us competitive advantages over other producers.

Legal Factors Impacting Our Business

Overall, the legislative framework for WACKER did not change substantially in 2011. As a result, no additional conditions were imposed on our business operations.

120 Registration Dossiers Submitted as Part of REACH

Since June 2008, we have been obligated to register all substances on the European market – and classify them by property – if annual quantities exceed one metric ton. The exact conditions of use must be taken into account: Registration is governed by the EU-wide REACH regulation (Registration, Evaluation, Authorization and Restriction of Chemical Substances). By late 2011, WACKER had submitted 120 registration dossiers to the European Chemicals Agency (ECHA).

We registered all relevant substances with the EU’s classification and labeling inventory in 2011, as part of the EU Commission’s GHS (Globally Harmonized System of Classification and Labeling of Chemicals). By 2015, all mixtures will have been reclassified pursuant to GHS (7,000 mixtures).