Comparing Actual with Forecast Performance

WACKER fell short of its target of generating some €5 billion in sales. EBITDA, as predicted in March 2012, remained significantly below 2011’s level. These outcomes were caused not only by slower polysilicon and silicon-wafer business, but also by continued weakness in the global economy. Persistent price pressure, high inventory levels and the difficult financial situation of many customers had a noticeable impact, especially on polysilicon activities in the second half of 2012. Additionally, silicon-wafer business performed below expectations in the fourth quarter.

Despite the adverse economic environment, operations at our three chemical divisions – WACKER SILICONES, WACKER POLYMERS and WACKER BIOSOLUTIONS – developed positively. All three divisions achieved both sales and EBITDA growth, but not enough to offset declines at WACKER POLYSILICON and Siltronic, the other two divisions. Raw-material and energy costs stayed within expectations – in contrast to 2011, when they had been an additional burden. WACKER benefited from positive exchange-rate effects.

Sales Projections Adjusted after Second Quarter

In its second-quarter report published in July 2012, WACKER revised downward its forecast that sales would exceed €5 billion. This revision was mainly prompted by indications that polysilicon business would be weaker in the second half of 2012. Sales are now expected to be slightly lower than in the previous year, with EBITDA remaining substantially below prior year. Investments should come in at €1.1 billion, some €100 million higher than the figure published in March.

On publishing our third-quarter figures, we specified our expectations. The sales target was again adjusted downward and sales were expected to be between €4.6 and €4.7 billion, with EBITDA anticipated at about €750 million. These projected values corresponded to the final results for 2012.

All in all, 2012’s sales and earnings generally underperformed capital-market expectations because WACKER POLYSILICON’s and Siltronic’s sales and earnings were much lower than anticipated.

Full-year sales for 2012 were €4.63 billion, 5.6 percent below the previous year due to weaker sales at WACKER POLYSILICON and Siltronic. The positive sales trend at the three chemicals divisions – WACKER SILICONES, WACKER POLYMERS and WACKER BIOSOLUTIONS – did not make up for the decline. We missed our original sales target of around €5 billion.

With regard to EBITDA, we anticipated from the outset that our performance would be well below 2011. 2012’s EBITDA came in at €786.8 million, down 28.7 percent compared with the previous year. Our chemical divisions – WACKER POLYMERS, WACKER BIOSOLUTIONS and WACKER SILICONES – increased their EBITDA. WACKER POLYSILICON and Siltronic posted substantial year-on-year declines. The Group’s lower EBITDA primarily stemmed from intense price competition for solar-grade polysilicon. Due to the termination of supply agreements by customers exiting the photovoltaic business, we retained advance payments and received damages totaling €113.1 million. The closure of Portland’s 150 mm silicon-wafer line reduced EBITDA by €14.8 million.

Investments – excluding acquisitions – were initially projected at about €1 billion for 2012. We raised this projection to €1.10 billion in our Q2 2012 report. Coming in at €1.10 billion, investments were within our target corridor. Most capital expenditures flowed into the ongoing expansion of our polysilicon production facilities.

As anticipated in early 2012, R&D expenditures – for developing tomorrow’s products and solutions – edged higher to €174.5 million.

The number of employees did not increase as planned. As per the reporting date, WACKER had 16,292 employees, 876 fewer than the year before. Restructuring measures at Siltronic were mainly responsible for the decline in employee numbers – there were more than 900 job reductions due to the closure of the Hikari (Japan) site, the ending of 150 mm silicon-wafer production at Portland and a number of other productivity measures.

The Executive and Supervisory Boards’ 2012 dividend proposal to be announced at the Annual Shareholders’ Meeting reflects that year’s earnings trend and the Group’s financial position. The proposal to the annual shareholders’ meeting for the 2012 dividend is €0.60 per share (2011: €2.20).

Deviations from Projected Expenses

Personnel expenses – as a percentage of sales – stayed at last year’s level, and were slightly above our planned value. As an absolute figure, they declined 6 percent compared with the previous year. This was due to layoffs at Siltronic and slower hiring at WACKER POLYSILICON. Overall employee numbers declined in 2012. Additionally, we paid higher variable compensation in 2011. Medium term, we expect personnel expenses (excluding non-recurring effects) to be about 25 percent of sales.

Raw-material costs rose slightly, both as a percentage of sales and in absolute terms. The prices of our raw materials stayed roughly at the year-earlier level. The cost-to-sales ratio was higher because our product mix was less favorable and because our sales prices declined, especially for polysilicon. Medium term, we anticipate a moderate increase in raw-material prices.

Our energy costs were slightly lower than planned, primarily due to electricity being less expensive to procure. Regulatory effects (e.g. costs relating to Germany’s renewable-energy legislation) and a less favorable product mix incurred additional costs.

Depreciation, in absolute figures, was exactly on target and amounted to €528.8 million. Because of the slight decline in sales, it rose as a percentage against both the prior-year and our plan. Most of the depreciation concerned our polysilicon facilities. WACKER did not post any material impairments in 2012. Depreciation will continue rising in the medium term, due to the investments made in new polysilicon production facilities over the past few years.