Earnings

Group Sales of €4.98 Billion Up Slightly Over Prior Year’s €4.92 Billion

In 2018, the WACKER Group again lifted its sales, which rose 1 percent to €4.98 billion (2017: €4.92 billion). Higher volumes and prices in chemicals, especially silicones, were the main reason for this slight increase. This enabled WACKER to compensate for negative exchange-rate effects from the euro’s strength versus the US dollar and for lower polysilicon prices. WACKER SILICONES generated the strongest growth, with sales up 14 percent. WACKER POLYMERS grew its sales by 3 percent, while WACKER BIOSOLUTIONS posted an increase of 10 percent. At WACKER POLYSILICON, on the other hand, sales declined by 27 percent. Sales of solar-grade polysilicon weakened due to lower volumes and prices. China’s decision to curb the amount of new photovoltaic installations markedly slowed demand for solar modules from late May 2018 onward. WACKER POLYSILICON used this market situation for inventory rebuilding, enabling it to supply customers more quickly.

WACKER generated the majority of its sales outside Germany. International sales came in at €4.11 billion (2017: €4.10 billion), representing 82.5 percent of total sales. The US dollar’s depreciation against the euro dampened sales.

Year-over-Year Sales Comparison

Group EBITDA at €930.0 Million, with EBITDA Margin at 18.7 Percent

Group EBITDA declined 8 percent year over year, coming in at €930.0 million (2017: €1,014.1 million). The EBITDA margin of 18.7 percent was lower than the previous year (20.6 percent). This decrease was chiefly attributable to the costs of the business interruption at the Charleston plant and to the fact that insurance compensation for the loss event there is still outstanding. Following the loss event, we gradually ramped up production again at the site from May through December 2018. Higher raw-material and energy costs dampened earnings considerably.

EBITDA was lifted by the Group’s result from investments in joint ventures and associates, which came in at €131.7 million. It included income of €99.9 million from Siltronic (2017: €40.0 million) and positive remeasurements of other investments.

EBIT Substantially Lower

The Group’s earnings before interest and taxes (EBIT) totaled €389.6 million in the reporting period (2017: €423.7 million). That was 8 percent less than the year before and corresponded to an EBIT margin of 7.8 percent (2017: 8.6 percent). Lower depreciation than in the previous year improved EBIT: depreciation declined by 9 percent in 2018, in line with expectations.

Cost of Goods Sold Rises 3 Percent Year over Year

At €874.7 million, gross profit from sales was 8 percent lower than in the prior year (2017: €954.4 million). The cost of goods sold came in at €4.10 billion (2017: €3.97 billion). The gross margin was 17.6 percent (2017: 19.4 percent). On the one hand, it was lifted by increased sales. On the other, higher raw-material costs and the ongoing costs of the production shutdown at Charleston in September 2017 weighed on the gross margin. In 2018, no insurance compensation payments to be posted as income were received for Charleston. The Group’s cost-of-sales ratio rose from 81 percent to 82 percent.

Functional Costs Climb

Other functional costs (selling, R&D and general administrative expenses) were 6 percent higher year over year, climbing to €627.8 million (2017: €594.0 million). The rise was due not only to higher personnel expenses across all units, but also to increased research and development expenses.

Other Operating Income and Expenses

In 2018, the balance of other operating income and expenses was €11.0 million (2017: €19.4 million). Foreign currency losses of €-6.9 million (2017: €-9.7 million) lowered other operating income and expenses. Higher other operating expenses versus the year before also decreased the balance.

Result from Investments

Due to higher income from Siltronic AG, the result from investments in joint ventures and associates rose significantly. It amounted to €131.7 million (2017: €42.0 million). WACKER sold part of its stake in Siltronic AG at the end of Q1 2017 and has since accounted for the company using the equity method. Remeasurements of other investments also had a positive effect.

Financial and Net Interest Result

As expected, WACKER’s financial result improved year over year, amounting to €-65.2 million (2017: €-96.3 million). Interest income came in at €8.0 million (2017: €7.5 million) and interest expenses at €22.1 million (2017: €38.3 million). The net interest result was thus €-14.1 million (2017: €-30.8 million). Interest expense on bank loans decreased markedly due to the repayment of such loans in the course of 2018 and their refinancing at more favorable terms.

The other financial result was €-51.1 million (2017: €-65.5 million). It included not only the interest-rate effects of provisions for pensions and other provisions, but also exchange-rate effects and the costs of derivative financial instruments used to hedge Group loans.

Income Taxes

WACKER reported tax expenses of €64.3 million for 2018 (2017: €77.3 million). The Group’s effective tax rate was 19.8 percent (2017: 23.6 percent). This decrease was mainly due to high investment income from Siltronic AG, which was recognized after tax and formed part of pre-tax income.

Group Net Income

In part due to the effects mentioned, income from continuing operations rose, with net income for the year reaching €260.1 million. In the previous year, income from continuing operations was €250.1 million. Total net income for 2017, though, came in at €884.8 million, as it included income of €634.7 million from discontinued operations in connection with the deconsolidation of Siltronic as a WACKER segment.

Return on Capital Employed (ROCE)

The return on capital employed (ROCE) sets earnings before interest and taxes (EBIT) in relation to the capital employed for business activities. Since Q2 2017, investment income from Siltronic and the corresponding carrying amount in equity have no longer been included when calculating ROCE.

In the reporting year, ROCE was 5.9 percent (2017: 7.5 percent). The decline stemmed from a significant drop in EBIT. As a result of low capital expenditures and high depreciation, capital employed sank. It decreased from €5,138.3 million to €4,917.0 million in the year under review.