01 Revenue from Contracts with Customers

Revenues from sales comprise those from contracts with customers and those from other sources:

In principle, WACKER recognizes sales at a point in time. WACKER’s customary business model is to sell chemical products on the basis of binding individual orders from customers with or without framework agreements. Customer orders usually result in one specific performance obligation, which is to be satisfied at a certain point in time. Revenue is recognized when economic control has been transferred to the customer in accordance with Incoterms. WACKER POLYSILICON also has medium- and long-term supply contracts for predefined purchase quantities. Revenues are recognized at a point in time here, too.

In the case of customer-specific orders at WACKER BIOSOLUTIONS, sales are recognized over time. The business model entails providing development services to the pharmaceutical industry under service contracts that are fulfilled and documented using milestones. The right to payment arises when a milestone is achieved. The Group also manufactures customer-specific products in connection with supply contracts for drug-related intermediates. The right to payment in this case arises on acceptance by the customer. In certain cases, customers effect payment before a product is delivered or provision of a service commences. WACKER BIOSOLUTIONS also concludes medium-term contracts.

No long-term payment terms exist that could qualify as a financing component. As a general rule, the right to payment falls due within 30 days. Deliveries to customers with poor credit ratings are contingent upon advance payment or provision of a bank guarantee. The statutory warranty obligations for quality defects apply at WACKER, and exact specifications are defined in framework agreements with customers.

Services are mainly posted under the segment “other” and comprise the supply of media to, and the administration of, chemical-industry parks on behalf of third-party companies, particularly at the site in Burghausen, Germany. Sales of salt and lye are another component of the revenues recognized under other. For both media supply and deliveries of salt and lye, revenues are recognized at a point in time. Revenue recognition takes place at the time of delivery.

At WACKER, the sales revenue per segment corresponds to the Group’s different product categories. The differences between chemical products, and also between market and customer groups, are evident in the segments. The particular region to which WACKER supplies its products also has a major impact on revenue.

The following table shows the breakdown of revenues:

Trade receivables consist entirely of receivables from contracts with customers. See Note No. 9. At WACKER BIOSOLUTIONS, service contracts with the pharmaceutical industry result in only an insignificant amount of contract assets representing services not charged. WACKER continues to recognize these under inventories. As of the reporting date, these assets amounted to €1.4 million and concern services that fall due in the short term.

The contract liabilities recognized by WACKER in its statement of financial position include advance payments by customers for polysilicon deliveries and by WACKER BIOSOLUTIONS customers. Upon individual delivery to the customer, a specified share of advance payments received by WACKER POLYSILICON is recognized as revenue, thereby reducing the liability. At WACKER BIOSOLUTIONS, customer advance payments are recognized upon the achievement of designated milestones. Advance payments received mainly concern those by customers for polysilicon deliveries taking place over periods of up to 6 years. The major changes result from the reduction of advance payments for polysilicon deliveries.

Moreover, discount accruals that were included in other provisions in 2017 are now reported as contract liabilities. Discount accruals are contractually agreed discounts, granted when certain thresholds are exceeded, that reduce sales in the current period. These accruals are estimated on the basis of past experience and usually settled in the following period at the latest.

Under multi-year framework agreements, WACKER guarantees some customers the availability of specific quantities per year. The actual quantities and prices are usually set for a maximum period of one year only and are agreed in detailed negotiations that take place during the year. Minimum purchase quantities result in future performance obligations (orders on hand) with terms as shown in the following table: