Earnings

WACKER closed 2011 with sales slightly ahead of last year’s figure. EBITDA, however, was 7.6 percent lower than in 2010 because of higher raw-material and energy costs. Although we raised our product prices, this was not enough to fully make up for the increase in raw-material costs. In Q4 2011, falling prices and volumes led to declines in both sales and earnings at WACKER POLYSILICON and Siltronic. As a result, fourth-quarter sales and earnings fell short of our expectations. The Group’s net income for the year fell €140.9 million to €356.1 million (2010: €497.0 million).

Sales Up €161.3 Million to €4.91 Billion

At €4.91 billion, WACKER’s sales revenues in 2011 were 3.4 percent above the prior-year figure (2010: €4.75 billion), growth being driven by strong customer demand for our products, especially in the first nine months of the year. WACKER POLYMERS saw the biggest year-over-year jump in sales, posting an increase of 14 percent compared to the previous year. This was mainly due to the construction industry’s recovery and the substitution of styrene butadiene with VAE dispersions in the carpet and packaging sectors. All regions saw a healthy rise in sales revenues. WACKER POLYSILICON increased its sales slightly compared with the previous year. Higher production and sales volumes helped grow revenues by 5.8 percent to €1.23 billion (2010: €1.18 billion). Substantial overcapacity throughout the photovoltaic sector’s supply chain, together with initial consolidation within this sector, had a negative impact on the division’s fourth-quarter business. After 2010’s strong rise, sales at WACKER SILICONES edged up only slightly in 2011, climbing 0.8 percent to €1.58 billion (2010: €1.56 billion). Siltronic was the only division unable to reach its prior-year sales figure. Sales fell 3.3 percent to €985.1 million (2010: €1.02 billion). In Q4 2011, inventory adjustments by customers and slack demand for silicon wafers impacted our sales volumes.

While higher volumes added €93 million to sales revenue, this was countered by exchange-rate effects of €-69 million. A key contributor here was the US dollar-euro exchange rate. The average rate in 2011 was 1.39 dollars to the euro (2010: 1.33). Higher prices increased Group sales by €137 million.

Detailed information on each division’s sales figures and earnings before interest, taxes, depreciation and amortization (EBITDA) is contained in the Segments section.

The WACKER Group generates by far the largest share of its sales outside Germany. In 2011, international sales reached €4.01 billion, or 82 percent of consolidated sales. The prior-year figure was €3.86 billion or 81 percent of the total. Asia remained the Group’s biggest market by far in 2011.

Detailed information on domestic and international sales is contained in the Regions section.

EBITDA Down 7.6 Percent Year Over Year

Earnings before interest, taxes, depreciation and amortization (EBITDA) amounted to €1.10 billion in 2011, down 7.6 percent from a year earlier (2010: €1.19 billion). The EBITDA margin reached 22.5 percent (2010: 25.2 percent). The decline is attributable to various factors, including higher energy and raw-material costs, and project-specific start-up costs for polysilicon facilities. EBIT for the year amounted to €603.2 million (2010: €764.6 million) – a 21-percent decrease. Depreciation and amortization for full-year 2011 totaled €501.0 million (2010: €429.9 million). This figure includes €41.4 million in impairment losses (2010: €12.7 million). The EBIT margin for 2011 was 12.3 percent (2010: 16.1 percent). Both EBIT and EBITDA were affected by the non-recurring effects shown in the table.

Higher Cost of Sales Weighing on Gross Profit from Sales

Gross profit from sales fell €183.8 million to €1.16 billion (2010: €1.35 billion) – down 14 percent from a year earlier. The 10-percent increase in the cost of sales resulted in a reduced gross margin of 24 percent (2010: 28 percent). Specific production costs reached €3.75 billion (2010: €3.40 billion) and have thus grown at a disproportionately higher rate than sales. The principal causes are the much higher prices of silicon, ethylene, vinyl acetate monomer and energy, as well as the polysilicon-production start-up costs at Nünchritz. Price increases in energy and raw materials reduced gross profit by approximately €190 million. The cost-of-sales ratio for the full year stood at 76 percent in 2011 (2010: 72 percent). Capacity utilization at most of our production facilities was good on average during the year, which resulted in high fixed-cost coverage. Cost of goods sold include major portions of one-time additions to pension provisions. WACKER is thus taking account of the higher life expectancy of the Group’s pension-fund beneficiaries – a process begun in 2009.

Functional Costs Higher

Other functional costs (selling, R&D and general administrative expenses) increased year over year by 5 percent to €577.7 million in 2011 (2010: €548.0 million). The rise is mostly due to higher personnel expenses in all functional areas. These expenses reflected continued growth in business volume throughout the Group during 2011.

Rising R&D Costs

The Group’s R&D costs came in at €172.9 million, slightly higher than in 2010 (€165.1 million). Measured as a percentage of sales, this represents an unchanged R&D ratio of 3.5 percent (2010: 3.5 percent).

Other Operating Income and Expenses

In 2011, the balance of other operating income and expenses was €26.1 million (2010: €4.3 million). This amount includes a net exchange-rate gain of €39.8 million, as opposed to a negative balance of exchange-rate gains and losses of €6.2 million for 2010. Other operating income includes €66.2 million in receipts from advance payments and indemnity payments due to customers’ terminating individual supply agreements. Other operating expenses contain expenditures relating to obligations recognized as part of the closure of Siltronic’s Hikari plant. These amount to €49.6 million. Noncurrent assets were written down by €14.8 million to account for this closure, planned for mid-2012. An impairment loss of €23.6 million was recognized for the partial shutdown of a granular polysilicon production plant at Burghausen.

Operating Result

Due to the effects explained above, the operating result fell to €610.9 million (2010: €802.6 million) – a drop of 24 percent compared with the prior year.

Result from Investments in Joint Ventures and Associates

The investment result – the total income from investments in joint ventures and associates and other income from participations – was negative in 2011, as it had been in 2010. Now that the joint venture with Dow Corning in China is fully on stream, the associated negative result from investments in joint ventures and associates was reduced substantially. This result was €-7.7 million, which amounts to an 80-percent year-over-year improvement (2010: €-38.0 million). The joint venture with Samsung for the production of 300 mm wafers generated investment losses due to high levels of depreciation.

Financial and Interest Result

At €-35.8 million, the financial result edged down compared to the prior year (2010: €-32.3 million) under the influence of divergent effects. While the interest result was slightly positive at €3.4 million, the gross impact of the effects was greater than in 2010. This was due to the high level of available liquidity invested in securities and money market instruments, which generated interest income of €16.9 million. In contrast, the loans we raised for capital expenditures increased interest expenses to €13.5 million. Construction-related borrowing costs capitalized in 2011 and amounting to €11.3 million (2010: €13.5 million) had a positive effect. The other financial result was €-39.2 million (2010: €-30.3 million). This amount consisted primarily of the unwinding of discounted pension and other provisions and of the hedging of financial investments.

Income Taxes

Tax expenses for 2011 amounted to €211.3 million (2010: €235.3 million), representing a tax rate of 37.2 percent (2010: 32.1 percent) for the Group. In particular, the Hikari closure costs, which are not tax deductible, have had a negative effect on the tax rate. The tax expenses reported consist mainly of the Group’s current income taxes.

Net Income

In total, net income for 2011 was €356.1 million (2010: €497.0 million).