As expected, 2019 was a challenging year for WACKER. The main factors dampening our operating performance were substantially lower average prices for solar-grade polysilicon and price declines for standard silicones. These trends noticeably slowed Group sales and EBITDA (earnings before interest, taxes, depreciation/amortization and impairments). On balance, price effects reduced Group sales by €365 million. Sales came in at €4.93 billion, down 1 percent versus the previous year. EBITDA was 16 percent lower at €783.4 million. It included insurance compensation of €112.5 million for the damage related to the incident at our Charleston plant (USA) in 2017.
Contrary to our assumption at the beginning of 2019, solar-grade polysilicon prices did not recover in the second half-year. After adjusting our price outlook accordingly, we recognized an impairment charge of €760 million on our facilities. This not only impacted EBIT (earnings before interest and taxes), but also weighed on the Group’s net result, where we posted a loss of €630 million.
Net cash flow in 2019 was positive at around €185 million and included about €100 million in insurance compensation. At the same time, we made a special payment of €70 million to the Wacker Chemie pension fund to help counter the low interest and discount rates that burden our pension obligations.
Net financial debt was influenced by the new accounting standard IFRS 16, which regulates the accounting of leases. This was the sole reason why net financial debt rose by €120 million to around €715 million.
On balance, 2019 was a year of weaker economic momentum. At WACKER SILICONES, business normalized after the market shortages of 2018. The division saw prices for standard silicones come under pressure. In addition, the inventory policies of customers slowed demand markedly. As a result, sales and EBITDA contracted. At WACKER POLYMERS and WACKER BIOSOLUTIONS, performance was good given the challenging economic conditions. Both divisions generated sales and EBITDA growth.
In 2019, we brought two key investment projects to a successful conclusion. At Charleston in the USA, we started up a new facility for pyrogenic silica. The additional capacity strengthens our market position as a leading global producer of pyrogenic silica and meets our customers’ growing demand. This investment is a first step in creating a fully integrated production site in the USA, the world’s second-largest chemical market.
The second project was at Holla in Norway. Our new, ultra-modern furnace there produces silicon metal, a raw material for our silicones business. The new furnace increases the site’s capacity by 40 percent. The expansion of our captive production capacity there makes us more independent of price fluctuations on raw-material markets and, at the same time, enhances our supply security.
In polysilicon, business was difficult – for several reasons. All stages of the supply chain face excess capacity and China’s polysilicon manufacturers are subsidized by the state. Prices for solar-grade polysilicon continued to fall as a result. On top of this, Germany’s higher electricity costs impeded earnings. We did not offset this trend fully, even though we sold more volume and cut production costs further.
Despite the unsatisfactory market situation, important signals point to a bright future for photovoltaics. First, the market will continue growing, with the number of newly installed solar arrays climbing worldwide. Second, the photovoltaic industry is indispensable for reducing global CO2 emissions.
Irrespective of the Group’s negative net result, the Supervisory and Executive Boards will propose a moderate dividend of 0.50 euros per share to the Annual Shareholders’ Meeting in May. This proposal is a sign of our confidence in the company’s future.
For WACKER, 2020 will be another very challenging year. It is too early to say whether world economic growth will gather momentum during the year. Nor can we reliably estimate, at present, to what degree growth will be slowed by the coronavirus outbreak in China. In the polysilicon market, conditions will remain difficult. We do not expect prices of solar-grade polysilicon to trend upward anytime soon. All these underlying factors hamper our business prospects.
Given the realities of the market, our overriding priority is to make WACKER more competitive for the future. Our “Shape the Future” project focuses on cutting costs significantly and on making our business structures and processes leaner and more flexible. We have set ourselves targets through to the end of 2022. Overall, we want to save around €250 million in costs. To achieve this, we are concentrating not only on lowering non-personnel costs, but also on cutting more than 1,000 jobs, mainly in the non-operational areas of the company. Most job losses will occur in Germany, which will account for around 80 percent of the total.
In 2020, we do not yet expect any noticeable improvements from this program. The one-off costs for implementing the measures involved are not included in our forecast, as they cannot yet be quantified.
In 2020, our operations are likely to benefit from slightly lower raw-material and energy costs. Overall, we expect sales to rise by a low-single-digit percentage. For EBITDA, though, we anticipate a decline. Earnings will again be affected by lower average prices for polysilicon and price declines for standard chemical products. Our earnings forecast also reflects the uncertainties of the general economic trend. Another reason for the projected EBITDA decline is a non-recurring effect from last year. In 2019, we received a one-off payment of insurance compensation for the damage incurred at our Charleston plant. In 2020, we expect Group net income to be positive again, after last year’s loss. At the end of February 2020, we rated the risk of a coronavirus pandemic as likely, with a potentially high impact on WACKER’s earnings and financial position.
Although the economic environment currently poses major challenges, we look ahead to the future, thinking and acting for the long term. That is reflected in our capital expenditures. At around €350 million, they will be on par with last year. The spending focus is on expanding our plants for intermediate and downstream products at our chemical divisions, particularly for specialties business.
We are doing everything we can to achieve a substantial reduction in our polysilicon production costs. At the same time, we intend not only to grow our market share with semiconductor-sector customers, but also to increase our polysilicon volumes for monocrystalline solar wafers.
We have many advantages: an attractive portfolio, a strong presence in the world’s key markets, divisions with leading market positions, and our innovative new products and technologies. We intend to use these strengths to drive the company’s growth in the years ahead.
Innovation guides our business, enabling us to continue growing. Our ability to innovate is a key factor in securing a successful future, which is why we continue to invest in research and development. In 2019 alone, our R&D expenditure totaled more than €170 million.
Our employees are crucial to WACKER’s future success. And they are responsible for our past successes. I would like to thank them all – also on behalf of the entire Executive Board.
We thank all our customers and suppliers for working with us closely and reliably. And I would also like to express my thanks to our shareholders for their open dialog with us and for the trust they place in our company. This trust is important to us, especially in difficult times. It is what motivates us to do everything in our power to ensure WACKER’s long-term success.
Munich, March 2020
Dr. Rudolf Staudigl
President and CEO of Wacker Chemie AG