Earnings Performance of Wacker Chemie AG as per German Commercial Code

Wacker Chemie AG’s earnings performance was good in 2011. Net income climbed from €301.5 million in 2010 to €502.2 million in the year under review. This result was positively impacted by both the development of operations and by advance payments received that were collected as part of indemnity payments totaling €66.2 million. In contrast, write-downs of €23.0 million and pension-provision adjustments of €19.3 million had a negative effect. In 2010, however, non-recurring charges due to write-downs of investments were higher, at €78.9 million. In particular, accounting changes due to the first-time application of the German Accounting Law Modernization Act had a negative impact of €97.0 million on the prior-year result. Pre-tax income rose from €574.9 million to €681.2 million.

Sales increased slightly by just under 4 percent from €3.42 billion to €3.54 billion. Sales at WACKER SILICONES dropped year over year from €1.29 billion to €1.26 billion, down 2 percent from a year earlier. WACKER POLYSILICON sales rose by 5 percent to €1.37 billion (2010: €1.31 billion). WACKER POLYMERS increased its sales by 12 percent to €625.7 million (2010: €558.5 million). WACKER BIOSOLUTIONS generated stable total sales of €103.4 million (2010: €104.0 million). Sales not explicitly allocated amounted to €180.1 million (2010: €153.9 million). Operating performance rose to €3.71 billion (2010: €3.47 billion), and was influenced by an inventory build-up of €124.7 million (2010: €14.1 million) due to the need to hold higher inventories on the reporting date.

The cost of materials climbed 21 percent to €1.47 billion (2010: €1.22 billion). Higher energy and raw-material costs were the main reason for this increase in 2011. In particular, strategic raw materials such as silicon, ethylene and vinyl acetate monomers were 20 to 30 percent more expensive on average.

Personnel expenses rose 10 percent from €706.9 million in 2010 to €777.2 million in 2011. The main factors here were the start-up of Nünchritz’s Poly 9 expansion stage and overall high capacity utilization, which caused the number of employees to climb to 9,551 in 2011 (2010: 8,866) and led to rising ongoing personnel expenses. As in 2009, WACKER accounted for the higher life expectancy of the Group’s pension-fund beneficiaries in its pension-obligation estimates in 2011. Beside the ongoing expenditures for pension provisions, this realignment resulted in a non-recurring expense of €19.3 million.

In 2011, Wacker Chemie AG’s R&D expenses amounted to €96.0 million (2010: €87.3 million). Higher personnel expenses were the main reason for the increase.

Depreciation and amortization of €330.1 million (2010: €307.4 million) contain a write-down of €23.0 million on a pilot plant to produce granular polysilicon. Some capacity sections of the plant were shut down.

The other operating result, consisting of other operating income less other operating expenses, improved 9 percent (on balance) to €-447.2 million (2010: €-491.1 million). This figure includes the foreign currency gain from operations of €19.2 million (2010: €11.7 million). Under other operating income, the Group posted reversals of provisions of €12.1 million (2010: €16.1 million). A major factor affecting other operating income stemmed from the retention of advance payments for polysilicon totaling €66.2 million in connection with indemnity payments and the termination of individual polysilicon supply agreements. In the fourth quarter of 2011, we concluded dissolution contracts with customers exiting the solar business. As for other operating expenses, major effects beside the foreign currency gain were: outgoing-freight expenses, customs duties, other selling expenses, other contractor work, and repair and maintenance.

In 2011, Wacker Chemie AG posted an operating result of €680.8 million (2010: €749.6 million). This 9-percent decline is primarily due to the higher cost of materials and to higher personnel expenses. In particular, the material-cost ratio rose year over year by 4.7 percentage points to 39.7 percent. The personnel-cost ratio increased only marginally by 0.6 percentage points to 21.0 percent of operating performance.

The result from investments in joint ventures and associates was positive in 2011 at €18.8 million (2010: €-134.3 million), and contains, for example, the net profits from profit and loss transfers. Loss transfers of €20.4 million, mainly stemming from Siltronic AG, stood in contrast to combined earnings from chemical subsidiaries totaling €39.2 million. In 2010, the result from investments in joint ventures and associates contained a €78.9 write-off in the company’s investment in Wacker Chemicals (China) Company Ltd. (Holding), Shanghai.

Net interest income climbed by €28.0 million to €-10.7 million (2010: €-38.7 million). Compared to 2010, investments in securities and demand deposits generated significantly higher interest income, coming in at €30.3 million (2010: €8.6 million). The finance expense for banks and as a result of accrued interest on provisions declined slightly to €41.0 million (2010: €47.3 million).

At €179.0 million, income tax expenses remained almost constant, resulting in a tax rate of 26 percent.

Net income amounted to €502.2 million. After adding profit carried forward from 2010 and allocations to retained earnings, less €158.9 million in dividends paid, Wacker Chemie AG posted a retained profit of €978.7 million.