2020 was an extraordinary year. The coronavirus pandemic caught the economy unawares and with considerable force. Public life ground to a halt in many countries around the world and, today, the pandemic still poses enormous economic, political and social challenges for us all. To overcome this exceptional situation, we focused – and continue to focus – on three priorities:
- Protecting the health of our employees
- Keeping production running and supplying our customers
- Safeguarding the company’s long-term future
A year has passed since the initial shock wave and, today, we can see that we have steered WACKER soundly amid the pandemic turmoil. Our ability to keep the company operating without interruptions under these critical conditions is due to the efforts of our employees. They delivered a strong performance. On behalf of the entire Executive Board, I would like to thank each of them for their exceptional commitment and flexibility, and for their self-discipline and sense of responsibility in dealing with coronavirus.
When the world comes to a virtual standstill, WACKER cannot expect to emerge unscathed. Our sales of €4.69 billion were 4.8 percent lower than the year before. The sales downturn was strongest in Q2 2020. In the second half of the year, we made up for most of that decline thanks to growing demand for our products. At €666.3 million, EBITDA (earnings before interest, taxes, depreciation and amortization) fell 14.9 percent year over year. However, in 2019, our EBITDA had included special income of €112.5 million in insurance compensation. Adjusted for that income, EBITDA declined by a slight 0.7 percent year over year despite coronavirus. A very positive fact is that WACKER has returned to profit, posting net income of €202.3 million, after a loss in 2019.
Various other key financial indicators also show how well we weathered the adversities of 2020. WACKER has always paid particular attention to having stable finances. They are the basis for investments and profitable growth – the foundation on which the company’s future is built. In the reporting year, we aligned our investment budget with the financially challenging situation, paring back our capital expenditures to roughly €225 million, though not at the expense of future opportunities. In addition, we systematically reduced our inventories, which lowered current assets significantly. Both actions bolstered our net cash flow, which almost quadrupled to roughly €700 million. High cash inflows from operating activities coupled with sufficient liquidity were the key factors in bringing our net financial debt down to only about €68 million.
The company’s financial stability is the basis of our dividend policy, which is to distribute some 50 percent of our net income to you, our shareholders. Consequently, at the Annual Shareholders’ Meeting in May 2021, the Supervisory Board and Executive Board will propose a dividend payment of €2.00 per share. This corresponds to more than half of our net income for 2020.
WACKER’s chemical business is our sales and earnings engine. That remains true even though WACKER did not post sales growth in 2020. Lower average prices for standard silicones and reduced volumes due to the pandemic slowed sales and earnings at WACKER SILICONES. WACKER POLYMERS raised its EBITDA amid robust demand from the construction industry and lower raw-material prices. At WACKER BIOSOLUTIONS, both sales and EBITDA grew.
After two difficult years, our polysilicon business stabilized in 2020, for several reasons.
First: average prices for solar-grade polysilicon stopped falling.
Second: we expanded our market share with semiconductor-sector customers.
Third: we significantly reduced our production costs.
As a result, EBITDA – measured on a comparable basis – improved by roughly €60 million and came in slightly positive.
Aside from the coronavirus pandemic, the second major topic at WACKER in 2020 was our Shape the Future program. Its objectives are clearly defined: leaner business processes and structures, stronger regional responsibility and markedly lower costs. We aim to save €250 million per year by the end of 2022. Non-personnel costs will account for about half of this amount and personnel costs for the other half. Worldwide, a total of around 1,200 jobs will go, some 1,000 of them in Germany. Following intensive negotiations with employee representatives, we signed an agreement to that end in late October 2020. This company agreement provides for a socially responsible reduction in the workforce by means of phased early retirement, voluntary severance packages and natural employee turnover. I am certain that this program will help us effectively counter the intense competition facing our business and the cost pressures.
The third major issue in 2020 was the sale of our Siltronic shares to Taiwan’s GlobalWafers. After the successful IPO of Siltronic AG in 2015, the disposal of our remaining 30.8 percent stake in the company now marks the end of an association spanning more than 50 years. We are convinced that the planned merger of the two companies will secure them a strong top-three position in the silicon-wafer market.
Coronavirus has shown that our world has become even more unpredictable, even more volatile. That volatility will remain with us. Permanent change has become the new normal. WACKER is skilled at transformative change and proved this once again in 2020. Our courage to embrace change has made us stronger and is exactly what is needed in challenging times.
We have entered 2021 with optimism while taking all the precautions necessary against coronavirus. The new organizational structure for our business divisions and corporate departments has been in place since the start of the year.
Our acquisition of plasmid DNA manufacturer Genopis, Inc. gives us our own production site in the all-important US biologics market. It also complements the product portfolio of WACKER BIOSOLUTIONS in the field of microbial technologies. It is precisely in this area that biotech company CureVac relies on our expertise and has contracted us to produce part of its mRNA-based Covid-19 vaccine candidate once it receives regulatory approval.
We also got off to a dynamic start in the new year in operational terms. All our business divisions generated sales growth in the first few weeks. We expect full-year sales to grow by a mid-single-digit percentage. Headwinds will come especially from raw-material prices. They are rising markedly at the moment, which dampens EBITDA. Year over year, EBITDA should climb between 10 and 20 percent. If the economy gains further impetus during the year, there will be additional opportunities for us. After deliberately cutting back our capital expenditures in the previous year, we intend to invest more again this year. Our investment focus will be on our chemical divisions and on polysilicon for semiconductor applications.
One issue of particular concern is our pension obligations. Accounting for almost 40 percent of total equity and liabilities, they now amount to roughly €2.7 billion. You all know the reason: the European Central Bank’s zero-interest policy. In the past two years alone, we had to additionally pay some €150 million into the WACKER pension fund. That is money we cannot use for capital-spending projects for our company’s future growth. For this reason, we are currently working on a fundamental reform of our company pension system.
With our Shape the Future program, we have created the framework for WACKER’s continued success. We have a clear strategy and know where we want to go. We strongly believe in sustainable solutions – for our products, in our production processes, and in the supply chain. We have the right products and we maintain close relations with our customers. Without chemicals, it will not be possible to solve the problems of our time – whether the coronavirus battle, climate change or the digital transformation. That is what drives us. That is what we work for every single day.
In closing, allow me to say a few words concerning myself. This time next year, my fellow board member Dr. Christian Hartel will be the one reporting to you on 2021 and explaining the company’s prospects. For more than five years now, it has been my pleasure to work closely with Christian Hartel. I know that he will keep WACKER firmly on its successful course. At the end of the Annual Shareholders’ Meeting on May 12, 2021, I will be retiring from the company after more than 38 years. It has been an honor for me to lead WACKER for 13 of those years. It has been both my duty and my passion.
Leading a company effectively can’t be accomplished by one person alone. A CEO is only as good as his or her team – and the WACKER team is an outstanding one. I sincerely thank all our employees for their support. With their skills, dedication and achievements, they have been crucial to the company’s success. For everything they have contributed, I owe them my utmost respect and recognition. My thanks also go to our customers and suppliers, for their trust in me during my time as president and CEO. I am also grateful to you, our shareholders, for the confidence you have placed in me. And last, but by no means least, my thanks to the Supervisory Board and the Wacker family shareholders. Your commitment to WACKER and your long-term thinking and actions for the company are truly unique.
There will be much to shape in the future – by my successor and by the entire team.
I am certain that WACKER will move forward on this path successfully.
Munich, March 2021
Dr. Rudolf Staudigl
President & CEO of Wacker Chemie AG