Outlook for 2018

WACKER’s main planning assumptions relate to raw-material and energy costs, personnel expenses and exchange rates. For 2018, we anticipate a euro exchange rate of US$1.25 (2017: US$1.10). We expect the average prices of our key raw materials to increase significantly. Prices of natural gas and electricity are also likely to be slightly above the prior-year level. Our raw-material and energy supplies are largely secured for 2018. The markets in which we source our raw materials are sufficiently liquid, making bottlenecks unlikely.

Performance Indicators and Value-Based Management

WACKER’s key financial performance indicators are the same as last year.

WACKER’s 2018 Sales Will Reflect Volume Growth

In 2018, WACKER expects its chemical divisions to see volume growth and, in some cases, higher product prices. At the polysilicon division, volumes will be at last year’s level, while average polysilicon prices will be below it. On balance, Group sales are projected to rise by a low-single-digit percentage. Sales growth will be constrained by revised IFRS 15 “Revenue from Contracts with Customers.” Due to these amendments, certain supply contracts with companies can no longer be recognized as revenue. That will reduce sales performance by a euro amount in the mid-double-digit millions. Sales growth will also be dampened by the increased strength of the euro against the us dollar compared with last year.

Economic uncertainties may cause the actual performance of the WACKER Group and its divisions to diverge from our assumptions, either positively or negatively.

In 2019, sales are expected to continue growing versus the year before – provided that the world economy remains on its upward trajectory, as economic research institutes predict, and there are not any unforeseen slumps in WACKER’s key regions and industries.

Outlook for Key Performance Indicators at the Group Level

From today’s perspective, the key performance indicators at the Group level will develop as follows.

EBITDA margin and EBITDA: the EBITDA margin is likely to be slightly higher than a year ago (2017: 20.6 percent), while EBITDA will increase by a mid-single-digit percentage. The earnings trend will be lifted by continuing volume growth, by generally higher selling prices, by operating performance, and by further improvements in income from investments. Exchange-rate effects and rising raw-material prices, on the other hand, will hold back earnings. With an effective tax rate of about 25 percent, Group net income from continuing operations should rise markedly compared with last year.

ROCE: due to the decline in capital intensity, ROCE will be substantially above the prior-year level (2017: 7.5 percent).

Net cash flow: we expect net cash flow to be clearly positive in 2018, but substantially below last year’s figure due to higher investment spending.

Outlook for Supplementary Performance Indicators at the Group Level

Capital expenditures: in 2018, capital expenditures will reach about €470 million, which is a substantial year-over-year rise. But they will remain below depreciation. At around €550 million, depreciation in 2018 will be significantly below last year’s level. Investment projects include the construction of a pyrogenic-silica plant at Charleston in the USA and a silicon-metal plant at Holla in Norway.

Net financial debt: net financial debt will be on par with last year (2017: €454.4 million).

Divisional Sales and EBITDA Trends

At WACKER SILICONES, we expect to increase sales in 2018 by a low-single-digit percentage versus last year. Performance will reflect the impact of the IFRS 15 amendments. Sales growth will be fueled by a rise in volumes and by higher prices at every WACKER SILICONES business unit. Exchange-rate effects, on the other hand, will dampen the sales trend. We expect sales to rise in all regions. Amid high capacity utilization, our aim is for specialty products to account for a higher proportion of sales volume. EBITDA should rise by a mid-single-digit percentage year over year, amid higher prices for some raw materials.

At WACKER POLYMERS, sales are projected to climb by a mid-single-digit percentage versus last year. Dispersions and dispersible polymer powders will both contribute to this growth. EBITDA is anticipated to be at last year’s level, amid further price increases for raw materials and with a scheduled plant shutdown in Q2.

At WACKER BIOSOLUTIONS, we expect sales to climb by a mid-single-digit percentage in 2018. Food and nutritional supplements will be the main growth drivers. Integration costs for the new site in Spain will impact the 2018 EBITDA trend. Compared with last year, EBITDA will decrease significantly.

In our polysilicon business, our 2018 forecast is that volumes will stay unchanged – given the present shutdown at Charleston – amid lower average prices for polysilicon. As a result, we expect sales to be lower versus a year ago, declining by a high-single-digit percentage. EBITDA is projected to climb slightly year over year, supported by the continued success of cost-cutting measures, and taking account of insurance compensation.

Future Dividends

Our goal is to distribute about half of Group net income to shareholders, provided that the business situation permits this and the decision-making bodies agree.

Financing

The main features of our financing policy remain in place. We are confident that we have a strong financial profile with a sound capital structure and healthy maturities for our debt. As of December 31, 2017, WACKER had at its disposal unused lines of credit with residual maturities of over one year totaling some €900 million.

Executive Board Statement on Overall Business Expectations

The economic and political risks for 2018 have not changed significantly versus last year. At present, the global economy is performing robustly, both in advanced and emerging economies. In Europe, though, the stronger euro could dampen the pace of corporate growth there. At WACKER, we expect the world economy to continue growing in 2018.

We anticipate that our business will experience higher raw-material prices and headwinds from a stronger euro against the US dollar in 2018. Given these underlying conditions, Group sales are expected to increase by a low-single-digit percentage overall. Our chemical divisions are likely to lift their sales. At WACKER POLYSILICON, sales are projected to be lower than last year, declining by a high-single-digit percentage. A key factor here is the production shutdown at Charleston.

EBITDA growth should continue – increasing by a mid-single-digit percentage versus last year. We expect the EBITDA margin to be slightly higher than a year ago. Group net income from continuing operations is expected to rise markedly.

At around €470 million, capital expenditures will rise substantially year over year, with the main focus on supporting growth at WACKER SILICONES. Depreciation of about €550 million will be significantly lower than a year ago. We expect net cash flow to be clearly positive, but substantially below last year’s figure, due to higher capital expenditures. Net financial debt will be on par with last year.

We have excellent products, which are in demand among customers all over the world. Given our innovative strength and solid presence in key markets, we are confident about reinforcing and expanding our market positions.

We see good opportunities to lift our sales again in 2018 and to continue growing our EBITDA despite higher raw-material prices and exchange-rate effects. Our increased capital expenditures will help us actively seize growth opportunities in our chemical divisions.

As of the date when these financial statements were prepared, no changes had been made to our forecast.