Trends: Equity and Liabilities

Equity Ratio at 44.2 Percent

Group equity was virtually unchanged year over year. On December 31, 2018, it amounted to €3.15 billion (Dec. 31, 2017: €3.17 billion). The resulting equity ratio was 44.2 percent (Dec. 31, 2017: 46.4 percent). Net income for the year increased retained earnings by €260.1 million. Prior-year equity had included the high net income figure of €884.8 million, which reflected the gain generated by the deconsolidation of Siltronic AG. The dividend payment of Wacker Chemie AG reduced retained earnings by €223.6 million. The change in provisions for pensions, which was recognized in other comprehensive income, lowered other equity items by €112.6 million. Currency translation effects lifted equity by €64.3 million. The share of equity attributable to non-controlling interests amounted to €58.3 million as of the reporting date (Dec. 31, 2017: €50.1 million).

Liabilities Up Due to Higher Provisions for Pensions and Higher Trade Payables

Compared with the previous year, WACKER’s liabilities increased by €306.8 million – or 8 percent – to €3.97 billion. Provisions for pensions were €176.7 million higher year over year and totaled €1.80 billion. The applicable discount rates declined on balance, increasing provisions for pensions by €67.6 million. Further, actuarial assumptions were adjusted as regards the mortality tables for Germany. Application of the new Heubeck 2018G tables led to an increase of €62.6 million in provisions for pensions. The discount rates were 1.98 percent in Germany (Dec. 31, 2017: 2.09 percent) and 4.12 percent in the USA (Dec. 31, 2017: 3.50 percent). On balance, other noncurrent liabilities were lower at €74.3 million (Dec. 31, 2017: €117.3 million). That was due to the reclassification of noncurrent advance payments as current.

Trade payables increased markedly to €470.6 million (Dec. 31, 2017: €268.5 million). This change was attributable to a rise in business volumes and higher investment spending as of year-end 2018. The inverse effects of prepayments made at year-end 2017 were another influencing factor.

Other current provisions and liabilities fell 14 percent to €327.7 million (Dec. 31, 2017: €379.6 million). Current advance payments received amounted to €71.7 million at the reporting date (Dec. 31, 2017: €61.8 million). Current provisions for income taxes were lower year over year, due both to payments made and to reclassifications to other provisions. Provisions for interest and penalties related to income taxes were reclassified, falling from €71.1 million to €21.7 million. Personnel liabilities – including those relating to vacation, flextime and performance-related compensation – were down 8 percent on balance at the reporting date.

Financial Liabilities Almost Unchanged

At the end of the reporting period, current and noncurrent financial liabilities were €4.4 million lower at €997.2 million (Dec. 31, 2017: €1.0 billion). Changes in exchange rates had only a marginal impact on financial liabilities. In Q1 2018, WACKER repaid loans totaling US$250 million ahead of schedule. At the same time, the company issued a promissory note (German Schuldschein) for €300 million at favorable conditions, taking advantage of the prevailing low interest rates. The majority of WACKER’s financial liabilities are recognized in euros or US dollars. To a minor extent the company assumed financial liabilities in Chinese renminbi. Fixed interest is payable on most of the financial liabilities.

For further information on our financial liabilities, please refer to Note 14 in the Notes to the Consolidated Financial Statements. For further information on the principles and goals of financial management, please refer to Note 11 in the Notes to the Consolidated Financial Statements.

Unrecognized Assets and Off-Balance-Sheet Financing Instruments

An important asset that does not appear in our statement of financial position is the value of the WACKER brand and other Group trademarks. We consider the high profile and reputation of our trademarks to be the key factor influencing customer acceptance of our products and solutions. But there are other intangible assets that are vital for success and that benefit our business. They include well-established customer relationships and our customers’ trust in our expertise in supplying products and solutions. Just as important are our employees’ know-how and experience, and our wealth of profound knowledge in R&D, product design, business and manufacturing processes, and project management. In particular, our integrated production system gives us an edge over our rivals. Another key success factor is WACKER’s sales network, which has evolved over many years. It enables the Group to market and sell its range of products and services locally to customers. Various rented and leased goods (operating leases) reported on in Note 16 are also items that do not appear in the statement of financial position. The same applies to other self-constructed assets. WACKER does not use any off-balance-sheet financing instruments.