Auditors’ Report

To Wacker Chemie AG, Munich

Report on the Audit of the Consolidated Financial Statements and of the Group Management Report

Opinions

We have audited the consolidated financial statements of Wacker Chemie AG and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2018, the consolidated income statement, the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the financial year from January 1 to December 31, 2018 and notes to the consolidated financial statements, including a summary of significant accounting policies. In addition, we have audited the report on the position of the Company and the Group for the financial year from January 1 to December 31, 2018.

In our opinion, on the basis of the knowledge obtained in the audit,

• the accompanying consolidated financial statements comply, in all material respects, with the IFRSs as adopted by the EU, and the additional requirements of German commercial law pursuant to Section 315e (1) HGB [Handelsgesetzbuch: German Commercial Code] and, in compliance with these requirements, give a true and fair view of the assets, liabilities, and financial position of the Group as at December 31, 2018, and of its financial performance for the financial year from January 1 to December 31, 2018, and
• the accompanying group management report as a whole provides an appropriate view of the Group’s position. In all material respects, this group management report is consistent with the consolidated financial statements, complies with German legal requirements and appropriately presents the opportunities and risks of future development. Our opinion on the group management report does not cover the content of the non-financial statement and the corporate governance statement mentioned above.

Pursuant to Section 322 (3) sentence 1 HGB, we declare that our audit has not led to any reservations relating to the legal compliance of the consolidated financial statements and of the group management report.

Basis for the Opinions

We conducted our audit of the consolidated financial statements and of the group management report in accordance with Section 317 HGB and the EU Audit Regulation No. 537/2014 (referred to subsequently as “EU Audit Regulation”) and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Our responsibilities under those requirements and principles are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report” section of our auditor’s report. We are independent of the group entities in accordance with the requirements of European law and German commercial and professional law, and we have fulfilled our other German professional responsibilities in accordance with these requirements. In addition, in accordance with Article 10 (2) point (f) of the EU Audit Regulation, we declare that we have not provided non-audit services prohibited under Article 5 (1) of the EU Audit Regulation. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinions on the consolidated financial statements and on the group management report.

Key Audit Matters in the Audit of the Consolidated Financial Statements

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the financial year January 1 to December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters.

Assessment on the evaluation of the insurance refund claim “Explosion at the Charleston production site”

Please refer to the explanatory notes to the financial statements for further information on this audit matter. Further explanations can be found in the notes to the financial statements (Note 16 “Contingent Liabilities, Contingent Assets, Other Financial Obligations and Other Risks”) and in the combined management report (sections “Key Events Affecting Business Performance” and “Comparing Actual with Forecast Performance”).

The Financial Statement Risk

There was an explosion at a production plant unit in Charleston, Tennessee, in September 2017. This plant, as well as the plants in Burghausen and Nünchritz – all of which are part of the WACKER Group (‘WACKER’) – produce polysilicon. The Charleston plant resumed production in 2018 and returned to full rated capacity starting in December 2018 once the facility had been restored. WACKER has insurance that covers damage to property and damage due to business interruption. Property damage insurance covers the costs to restore the plant to its original condition. The recognition of insurance refund claims requires judgement on the part of WACKER with regard to assessing the matter and an evaluation of whether the requirements for the recognition of an asset arising from insurance refund claims as a whole are fulfilled in accordance with financial reporting standards. Potential property damage refund claims were recognised as an asset as at 31 December 2018 and offset against the advance payment received from the insurance in financial year 2018. Regarding the claim for business interruption, a reliable estimation by Wacker Chemie AG according to the financial reporting requirements was not yet possible on the amount of damage at the date of preparation of financial statements. Meetings with the insurer did not result in a sufficiently specified claim due to the high complexity and short period of time since restoration to full production capacity until the date of financial statement preparation. As a result, no asset was recognised as at the reporting date based on business interruption insurance claims.

There is the risk for the consolidated financial statements that the insurance claims were not recognised in the correct amount.

Our Audit Approach

By talking with the management board, representatives of the WACKER POLYSILICON division, Corporate Accounting and Corporate Controlling as well as the legal and insurance departments and plant management in Charleston, among others, we particularly obtained information on the current status of discussions with the insurer. We also evaluated the communication with the insurer and the experts of WACKER involved. We assessed the expert’s opinion in face-to-face interviews and through a third party confirmation. We also gained an understanding of the current uncertainties with regard to the measurement and recognition of these insurance refund claims.

With regard to the property damage refund claims recognised, we examined the costs which WACKER considered refundable on a sample basis and assessed whether the costs are directly associated with restoration of the damaged plant and therefore covered by insurance.

We audited whether the management board’s assessment on the basis of communication with the expert and the insurer is reasonable with regard to potential business disruption claims.

Based on our knowledge and experience, we assessed application of the relevant financial reporting standards with regard to recognition and the reliability of estimates of the amount of property damage insurance and business disruption insurance refund claims.

Our Observations

WACKER’s assumptions with regard to recognition and assessment of the requirements for financial reporting of the anticipated refund claims are appropriate.

Impairment testing of property, plant and equipment in the WACKER POLYSILICON segment

For further information on the presentation of the WACKER POLYSILICON division in the reporting year, please refer to ‘Segment Information by Division’ in the consolidated financial statements and ‘Segments’ reporting in the combined management report. Please refer to the presentation in the notes (‘Accounting and Valuation Principles’) for information on the accounting policies applied.

The Financial Statement Risk

The carrying amount of the assets in the WACKER POLYSILICON segment was EUR 2.3 billion as at the reporting date. Business performance of the WACKER POLYSILICON segment was influenced in the past by fluctuating market prices for polysilicon and in financial year 2018 by a decline in market prices for polysilicon. In financial year 2018, the decision of China to curb further construction of photovoltaic plants slowed the demand for solar panels. This decision had an impact on earnings of the WACKER POLYSILICON segment. The production plants in Burghausen, Nünchritz and Charleston are assigned to this segment. An impairment loss on property, plant and equipment of the WACKER POLYSILICON segment was not recognised in the reporting year.

Property, plant and equipment must be tested for impairment if there are specific indications of potential impairment. The recoverable amount of the item of property, plant and equipment (asset) concerned has to be estimated, i. e. the higher of its fair value less costs to sell and its value in use.

An indicator of potential impairment could be the current level of prices for polysilicon, which has a significant impact on the development of the division’s anticipated cash inflows and outflows according to the adopted operational plans. Operational planning and, thus, the assessment of whether property, plant and equipment of the WACKER POLYSILICON segment are impaired requires judgement and numerous forward-looking estimates – e. g. regarding the future demand of volumes based on the anticipated further construction of photovoltaic plants and development of the semiconductor market, price developments, global expansion of polysilicon production capacities and the cash inflows and outflows anticipated as a result. Against this background and due to the high level of investment, the risk of impaired property, plant and equipment in the WACKER POLYSILICON segment was of material significance during our audit.

Our Audit Approach

We obtained an understanding of the Company’s process for the identification of indications of impairment as well as for the determination of recoverable amount based on explanations provided by staff of Corporate Accounting. We analysed the indications of impairment identified by the Company and, on the basis of information obtained within the scope of our audit, assessed whether there are any indications of further impairment not identified by the Company. We received the impairment test prepared by the Company for the WACKER POLYSILICON segment. By talking with the management board, representatives of the WACKER POLYSILICON segment and Corporate Accounting, among others, we obtained an understanding of the assumptions and parameters used for measurement. By involving our valuation experts, we assessed the Company’s valuation model for compliance with IFRS in addition to computational accuracy. In addition, we compared the appropriateness of the assumptions underlying the anticipated cash inflows and outflows of the WACKER POLYSILICON segment, together with the business plan approved by the supervisory board, with general and sector-specific market expectations (peer group comparison), especially the volume and price developments in the area of photovoltaics and semiconductors. Among other approaches, we used information from prior periods as well as current interim results to analyse adherence to budget.

Our Observations

The assumptions and parameters used by the Company for impairment testing of property, plant and equipment in the WACKER POLYSILICON segment, and the conclusions drawn therefrom, are appropriate

Other Information

Management is responsible for the other information. The other information comprises the separate non-financial report and corporate governance statement which we obtained prior to the date of this independent auditor’s report, and the remaining parts of the annual report which will presumably be submitted to us after this date, with the exception of the audited consolidated financial statements and the report on the position of the Company and the Group and our auditor’s report.

Our opinions on the consolidated financial statements and on the group management report do not cover the other information, and consequently we do not express an opinion or any other form of assurance conclusion thereon.

In connection with our audit, our responsibility is to read the other information and, in so doing, to consider whether the other information

• is materially inconsistent with the consolidated financial statements, with the group management report or our knowledge obtained in the audit, or
• otherwise appears to be materially misstated.

Responsibilities of Management and the Supervisory Board for the Consolidated Financial Statements and the Group Management Report

Management is responsible for the preparation of the consolidated financial statements that comply, in all material respects, with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB and that the consolidated financial statements, in compliance with these requirements, give a true and fair view of the assets, liabilities, financial position, and financial performance of the Group. In addition, management is responsible for such internal control as they have determined necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern. They also have the responsibility for disclosing, as applicable, matters related to going concern. In addition, they are responsible for financial reporting based on the going concern basis of accounting unless there is an intention to liquidate the Group or to cease operations, or there is no realistic alternative but to do so.

Furthermore, management is responsible for the preparation of the group management report that, as a whole, provides an appropriate view of the Group’s position and is, in all material respects, consistent with the consolidated financial statements, complies with German legal requirements, and appropriately presents the opportunities and risks of future development. In addition, management is responsible for such arrangements and measures (systems) as they have considered necessary to enable the preparation of a group management report that is in accordance with the applicable German legal requirements, and to be able to provide sufficient appropriate evidence for the assertions in the group management report.

The supervisory board is responsible for overseeing the Group’s financial reporting process for the preparation of the consolidated financial statements and of the group management report.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements and of the Group Management Report

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and whether the group management report as a whole provides an appropriate view of the Group’s position and, in all material respects, is consistent with the consolidated financial statements and the knowledge obtained in the audit, complies with the German legal requirements and appropriately presents the opportunities and risks of future development, as well as to issue an auditor’s report that includes our opinions on the consolidated financial statements and on the group management report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Section 317 HGB and the EU Audit Regulation and in compliance with German Generally Accepted Standards for Financial Statement Audits promulgated by the Institut der Wirtschaftsprüfer (IDW) will always detect a material misstatement. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements and this group management report.

We exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements and of the group management report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit of the consolidated financial statements and of arrangements and measures (systems) relevant to the audit of the group management report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of these systems.
• Evaluate the appropriateness of accounting policies used by management and the reasonableness of estimates made by management and related disclosures.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report to the related disclosures in the consolidated financial statements and in the group management report or, if such disclosures are inadequate, to modify our respective opinions. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to be able to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements present the underlying transactions and events in a manner that the consolidated financial statements give a true and fair view of the assets, liabilities, financial position and financial performance of the Group in compliance with IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to Section 315e (1) HGB.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express opinions on the consolidated financial statements and on the group management report. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions.
• Evaluate the consistency of the group management report with the consolidated financial statements, its conformity with [German] law, and the view of the Group’s position it provides.
• Perform audit procedures on the prospective information presented by management in the group management report. On the basis of sufficient appropriate audit evidence we evaluate, in particular, the significant assumptions used by management as a basis for the prospective information, and evaluate the proper derivation of the prospective information from these assumptions. We do not express a separate opinion on the prospective information and on the assumptions used as a basis. There is a substantial unavoidable risk that future events will differ materially from the prospective information.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with the relevant independence requirements, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, the related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter.

Other Legal and Regulatory Requirements

Further Information pursuant to Article 10 of the EU Audit Regulation

We were elected as group auditor by the annual general meeting on May 9, 2018. We were engaged by the supervisory board on December 15, 2018. We have been the group auditor of the Wacker Chemie AG without interruption since the financial year 2006.

We declare that the opinions expressed in this auditor’s report are consistent with the additional report to the audit committee pursuant to Article 11 of the EU Audit Regulation (long-form audit report).

German Public Auditor Responsible for the Engagement

The German Public Auditor responsible for the engagement is Johannes Hanshen.

Munich, 5th March 2019
KPMG AG Wirtschaftsprüfungsgesellschaft

Original German version signed by: