Dear Shareholders,

As expected, 2012 was a challenging year for our company.

The key factor influencing WACKER’s performance was solar-grade polysilicon. Although we supplied customers with more polysilicon than ever before in 2012, the marked price decline -50 percent within one year – significantly dampened Group sales and EBITDA. Additionally, lower volumes and prices held back our semiconductor business. Overall, price effects reduced Group sales by more than €700 million. Growth and increased profitability in chemicals, which remained stable throughout the year, could not fully offset this price impact. Group sales of €4.63 billion were 6 percent below the prior-year period, with EBITDA coming in at €787 million, down 29 percent.

At this point last year, I explained to you in detail the trends seen in the global photovoltaic market over the past two years. The consolidation process – continuing in 2012 – produced all the negative side effects that are inevitable in such a situation: high inventories, strong price pressure, customers in financial difficulties, company insolvencies, and excess capacity along the entire value-added chain.

We responded to this critical market situation with a number of measures. The key decision was to postpone the start-up of our new polysilicon plant in the US state of Tennessee until 2015.

Anti-dumping proceedings additionally weighed on the photovoltaic market and undermined confidence. The European Union is investigating whether to impose punitive duties against Chinese solar companies on the grounds of illegal subsidies. In turn, the Chinese Ministry of Commerce has launched an investigation about levying punitive tariffs on foreign polysilicon manufacturers. Should these proceedings lead to punitive tariffs, photovoltaic-industry momentum would slow globally and the cost of switching to renewable-energy sources would increase. From the start, WACKER took a firm stance in this matter, and we have made our viewpoint clear to the political decision makers. We are strongly in favor of free trade and reject restrictions. The past demonstrates that intervention, be it political or regulatory, has never helped to protect industries from market trends. As a cost and quality leader, we will continue to lower our costs and, in our opinion, are well positioned to remain a leading polysilicon manufacturer.

Positive Signals from the Photovoltaic Market

Although photovoltaics is currently a difficult business field, there are a number of positive developments, which tend to be overlooked amid all the negative news in that sector.

The crucial signal for the future of photovoltaics is that solar energy’s competitiveness has increased over other energy sources, due to a marked decline in system prices. In Germany, solar power costs less than 10 cents per kilowatt hour, making it as inexpensive as electricity from gas-fired power plants.

A second piece of good news is that the market is continuing to grow. The installation of new solar systems increased to over 32 gigawatts last year.

And there is a third encouraging signal: newly installed capacity is rising in ever more countries around the world. Photovoltaics is no longer solely dependent on Germany and Italy, so far the largest individual markets. Countries such as China, France, India, Japan, South Africa and the USA are increasingly turning to solar energy. Some of them have launched incentive programs or defined clear expansion targets for the coming years. In China alone, there are plans to install around 35 gigawatts by 2015. Moreover, an increasing number of projects are being realized without incentives.

We are sure that photovoltaics will carry on growing, firmly establishing its position as an indispensable energy source. Consequently, we have continued with our investments, even during this critical phase.

In semiconductors, business is expanding for 300 mm wafers, but not for smaller diameters. As a result, we implemented a number of structural measures for smaller diameters over the past two years – which led to job cuts. Additionally, we took a policy decision to end our work on developing 450 mm wafers. We are concentrating on our existing 300 mm business, which is continuing to grow. Our aim is to improve our cost position there and generate positive cash flow.

In 2012, WACKER’s three chemical divisions performed very well, with sales rising 5 percent on the year-earlier period. EBITDA performance in chemicals was even stronger, climbing 15 percent. Across every major region, we invested in new production facilities and reinforced our global presence.

Our silicones business developed particularly strongly in the personal-care sector and in textiles and packaging. In polymers, we achieved growth not only in the construction sector, but also in the carpet and packaging industries, where dispersions can replace other chemical products.

From the start, our policy on dividends has been oriented toward offering our shareholders an appropriate share in the company’s economic success, without negatively impacting future growth. The dividend yield should equate to at least 25 percent of the allocable net income. At the Annual Shareholders’ Meeting in May, the Supervisory and Executive Boards will propose a dividend of 0.60 cents per dividend-bearing share. The resulting distribution ratio is 26 percent, based on Wacker Chemie AG’s net allocable income.

We are dissatisfied with the performance of WACKER’s stock, which is mainly impacted by the difficult photovoltaic-market situation. WACKER’s share price in 2012 was strongly linked to the development of polysilicon prices, which declined appreciably during the year. We shall renew our efforts to communicate to the capital market that WACKER is a well-positioned chemical company with numerous growth prospects. The emphasis here lies on the word “chemical” – the area that is by far our largest and most profitable sales driver.

Chemical Business Increases in Importance

From today’s perspective, 2013 will not be an easy year for us. In the photovoltaic market, consolidation will continue – though with the positive prospect of polysilicon prices not declining any further. The anti-dumping issue poses significant risks for the entire solar sector. The semiconductor market is moving sideways. These factors still dampen our business outlook. If this complex situation is resolved in our favor, there will be a positive impact on sales and earnings.

We are much more optimistic about our chemical business, where we expect to post sales and earnings increases again this year. We see opportunities for further growth in polymers, especially in the area of construction applications. In silicones, we aim to increase our market share with higher-quality products. We will strengthen our global presence, so that we can seize our market opportunities in key growth countries and regions. In the years ahead, we will intensify our focus on expanding our chemical business and on increasing its share of total sales.

A firm basis for pursuing this strategy is now in place. In previous years, WACKER spent very substantial sums on expanding production capacity. The peak level for capital expenditures was reached in 2012. We invested €1.1 billion – more than ever before in the company’s history. We will benefit from these large strategic expenditures in the future. Our high investments will now decrease. This year, capital expenditures will be almost 50 percent lower than in 2012.

The main aspects of our financing policy remain valid. Even amid higher liabilities in 2013, we will stay focused on a strong financial profile, with a sound capital structure and a healthy maturity schedule for our debt.

At the start of the year, Dr. Tobias Ohler joined the Executive Board of Wacker Chemie AG. Taking over as Personnel Director, he succeeded Dr. Wilhelm Sittenthaler, who left the Executive Board on December 31, 2012, after 30 years at the Group.

WACKER is well positioned to continue expanding through its own resources during 2013 and beyond. Our growth opportunities are underpinned by our divisions’ leading market and technology positions, by our strong presence in key markets and by our innovative strength.

Our employees shape this growth. Highly committed and very skilled, they worked hard for WACKER in 2012. That is why I and my colleagues on the Executive Board wish to express our thanks to the entire WACKER workforce.

We would also like to thank all our customers and suppliers for our trusting and reliable relationship, and our shareholders for our open dialogue. Our aim is to work together with all of them in shaping WACKER’s future and to reinforce their confidence in their company’s strengths.

Munich, Germany, March 2013

Dr. Rudolf Staudigl
President & CEO of Wacker Chemie AG