In fiscal 2011, WACKER posted a good result again despite having originally set out to achieve even more. The year began well and, through to the end of the third quarter, it still looked as though we would perform even better than in 2010, our most successful year to date. But, during the last three months of the year, severe turbulence on the photovoltaic (PV) market put a significant damper on our sales and earnings, which had been excellent up until then. Weaker demand in our semiconductor business had an additional impact on our performance. All in all, we raised sales by 3.4 percent to €4.91 billion. EBITDA declined by 7.6 percent to €1.1 billion, just short of the previous year’s high level.
The debate surrounding subsidies for renewable energies and the costs they entail, along with the consolidation taking place in the international PV market, are leading many to question whether the photovoltaic industry will be able to continue its success in the coming years. As one of the world’s leading suppliers of polysilicon, we are well acquainted with the market and can assess its mechanisms.
The year 2011 marked a turning point in the development of this highly dynamic and continuously growing market. On the back of high growth rates and attractive market parameters, many new competitors – especially from China – have entered the market at all points along the supply chain, rapidly building up production capacities. Even a market with average growth rates of sometimes over 50 percent cannot fully absorb all this additional capacity. Initially, fierce price competition arose in the downstream segment of the supply chain – among producers of solar wafers, cells and modules – and some suppliers are unlikely to survive. Today, a solar module costs half of what it did just five years ago. Even though the number of photovoltaic systems installed was again higher in 2011, supply exceeded demand. As a result, our customers built up high inventories in the course of the year. Reduction of these inventories led to both lower polysilicon prices and demand, which is reflected in our fourth-quarter figures. During that period, we approached all our customers and, together with them, worked out individualized solutions here.
We have previously already pointed out that EBITDA margins of 50 percent and above could not be maintained in a chemical business in the long term. Strong market growth combined with a scarcity of the raw material polysilicon produced an exceptional situation, which benefited us to a high degree for several years. Thus, it does not surprise us that the high margins are now declining. What is surprising is the pace of this change.
Polysilicon Business Retains Its Attractiveness
The business of providing polysilicon to the photovoltaic industry is set to remain attractive in the future and will continue delivering high margins. Those margins are necessary, too, if we are going to drive forward the capital-intensive expansion of production capacity and meet further PV-sector growth.
We made very good progress here this year by commissioning expansion stage 9 of our polysilicon production facilities at Nünchritz. The new polysilicon production plant in Tennessee, which is the biggest investment project in WACKER’s history, is making very good strides, too. For WACKER, the new U.S. production site is a project of strategic importance as it will enable us to establish an integrated production facility there, from which the Group will profit in the long term.
Our high level of capital expenditures – in 2011 alone we invested approx. €980 million – shows our expectation of continued PV growth as a key energy source and WACKER’s intention to remain a leading manufacturer of polysilicon for the PV market. As a cost and quality leader, we even stand to profit in the long run from the necessary consolidation of the market. Indeed, WACKER is excellently positioned to reap the benefits.
In Germany, the decision to switch to renewable energy sources has already been made. It is a venture that harbors many risks, but also promises numerous opportunities. We intend to utilize these opportunities to deliver the products and services required for the transition and successfully market them worldwide.
We must take fast and decisive action when a business consistently does not deliver the returns the company expects. The fact is that the market for 200 mm silicon wafers will continue to decline, which is why we decided to realign our production capacities for this wafer diameter to match market demand. Ultimately, the decision was taken to shut down our Japanese site at Hikari by mid-2012, as painful as that certainly is for our Japanese employees. But it is one of the tasks of the Executive Board to stay in touch with the realities of the market and to adjust the company’s strategic direction when necessary. The strategy of lead sites initiated in 2009 will allow us to shift production volumes for 200 mm wafers to Singapore and Portland – a move that will serve to improve both plant utilization and fixed-cost structures at those locations. This measure will lower our costs by €30 million annually.
The year 2011 showed that one of WACKER’s strengths lies in the combination, and the risk profile, of our various lines of business. Despite strong headwinds from the raw-material side, our three chemical business divisions performed well. WACKER POLYMERS, in particular, achieved a substantial increase in sales. The replacement of styrene butadiene with our VAE dispersions was one of the main spurs for growth, and we intend to repeat that growth in 2012.
In 2008, we seized the opportunity to acquire full ownership in two joint ventures that we had previously run together with Air Products. This move has strengthened our polymer business. Today, we have access to a complete supply chain for dispersions and dispersible polymer powders in the Americas, Asia and Europe. We have been able to substantially expand our position in North America. Furthermore, the polymers segment is proving to be relatively immune to crises, and regularly generates a healthy cash flow.
WACKER Shows a Solid Financial Position
A strong balance sheet and sound finances have always been WACKER hallmarks, and we will put a special focus on them going forward. As always, our goal is to maintain a sound equity base and sufficient liquidity. All of our capital expenditures, which were again very high in 2011, were financed from our own cash flow and through customers’ advance payments. Our cash and cash equivalents exceed our financial liabilities by almost €100 million. This situation will change in the coming years. Our net financial liabilities are set to grow because our capital expenditures will remain high while the level of advance payments received from our customers for future polysilicon deliveries will gradually begin to come down as our deliveries are made. Despite the planned increase in debt, we will continue our sound financial policies.
We set a high benchmark for our balance sheet and finances, and the same goes for our dividend policy. That policy is geared toward offering our shareholders an appropriate and sustainable share in our economic success – one that neither depletes the funds needed for future growth, nor impairs the company’s financial foundation. At the Annual Shareholders’ Meeting in May, the Supervisory and Executive Boards will propose a dividend of €2.20 per share entitled to dividends for 2011. That equates to a distribution ratio of 31 percent, based on the net income allocable to Wacker Chemie AG’s shareholders, and is thus above the minimum distribution ratio of 25 percent.
WACKER’s share price performed well until mid-2011, but after hitting a high of €172.80 in May, it underperformed for the rest of the year relative to the MDAX. The combination of high sovereign debt in several eurozone countries and fears of an economic downturn caused share prices to tumble. The capital market’s negative forecast for the photovoltaic industry had an additional impact and proved to be a key factor influencing the performance of WACKER shares in the course of 2011. Needless to say, we are not satisfied with our share price performance.
As you are well aware, many of the problems also surrounding the financial and sovereign debt crises remain unsolved and therefore, in large part, the economic climate will remain challenging for us in 2012. Nevertheless, we are optimistic that 2012 can turn out to be a positive fiscal year for WACKER, with rising sales and a good operating result.
Growing through Our Own Resources
The Group’s strategic focus is to continue growing through our own resources. That remains evident in our capital expenditures, where we will continue to concentrate on our new polysilicon site in Tennessee, set for completion by the end of 2013. But our expansion projects for WACKER POLYMERS and WACKER BIOSOLUTIONS in Nanjing, too, underscore the opportunities we have to grow in the Chinese market.
As for WACKER SILICONES, we will expand our business in the emerging economies of Brazil, China and India since demand for higher-quality products in these markets is set to increase as living standards rise. Our product portfolio enables us to cater to this demand outstandingly. The focus of the WACKER POLYMERS division is on consolidating its leadership position in the construction industry in our established sales markets and on aspiring to leadership in the growth markets of Brazil, China and India. As far as dispersions are concerned, we will press ahead with the substitution of styrene-butadiene polymers with our products. At WACKER POLYSILICON, we want to firmly defend our position as a quality and cost leader. Siltronic will continue to implement the measures taken to enhance efficiency and increase productivity in this division. We intend to further expand our business with 300 mm silicon wafers, and are focusing our attention here on ramping up capacity at our joint venture Siltronic Samsung Wafer in Singapore.
Our broad portfolio, our strong presence in the world’s key economic regions, and our status as a market and technology leader together form a solid foundation for driving forward WACKER’s growth in the years ahead.
In all that we undertake, we rely on the high level of commitment and profound expertise of our employees, who have been responsible for WACKER’s success to date. That is why my colleagues and I on the Executive Board wish to express our thanks to the entire WACKER workforce.
In the same measure, our thanks go to our customers and suppliers around the world for our successful working relationships, which are based on reliability and mutual trust. I would like to express my gratitude to you, our shareholders, for the open dialog we enjoy with you and for the trust you have placed in our company.
Munich, Germany, March 2012
Dr. Rudolf Staudigl
President & CEO of Wacker Chemie AG