Annual Report 2021

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Management Report of Wacker Chemie AG

(Additional Information Pursuant to the German Commercial Code)

The management report of Wacker Chemie AG and the Group management report for 2021 are combined in accordance with Section 315 (5) in connection with Section 298 (2) of the German Commercial Code (HGB). The annual financial statements of Wacker Chemie AG (prepared in accordance with the German Commercial Code) and the combined management report are published simultaneously in the electronic version of Germany’s Federal Gazette.

The combined management report includes a separate section covering all reporting elements pertaining to Wacker Chemie AG that are required by law. Further to our report on the WACKER Group, we explain developments at Wacker Chemie AG.

Wacker Chemie AG is the parent company of the WACKER Group and has its headquarters in Munich, Germany. The parent company operates through four business divisions – WACKER SILICONES, WACKER POLYMERS, WACKER BIOSOLUTIONS and WACKER POLYSILICON – which generate a substantial portion of the Group’s sales. Wacker Chemie AG’s directly and indirectly held subsidiaries and investments located in Germany and abroad have a strong influence on its business. The company has a total of 48 subsidiaries, joint ventures and associated companies, and also provides the Group with corporate functions. Wacker Chemie AG’s Executive Board exercises key management functions for the Group as a whole, which include determining the Group’s strategy, allocating resources (such as funds for investment spending), and bearing responsibility for managing executive personnel and corporate finances. Wacker Chemie AG’s Executive Board also oversees communications with the company’s key stakeholders, especially with the capital markets and shareholders.

The key performance indicators used in corporate management are implemented groupwide in the business divisions. Corporate goals are defined and reported for the divisions on a groupwide basis. Even though Wacker Chemie AG is an independent entity, no separate key performance indicators are defined or reported for it. For more information, please refer to the respective details provided for the WACKER Group as a whole. The general business conditions of Wacker Chemie AG are essentially the same as those of the Group.

The annual financial statements of Wacker Chemie AG were prepared in accordance with the German Commercial Code (HGB) and the German Stock Corporation Act (AktG). These statements differ substantially from the IFRS figures in relation to fixed assets, depreciation/amortization and impairments, right-of-use assets and financial liabilities in connection with lease accounting, provisions for pensions, and deferred taxes. As regards EBITDA, there are only slight differences between IFRS and HGB figures.

Statement of Income

 

 

 

 

 

€ million

 

2021

 

2020

 

 

 

 

 

Sales

 

4,811.6

 

3,579.1

Changes in inventories

 

86.7

 

-65.3

Other capitalized self-constructed assets

 

36.9

 

32.7

Gross profit from sales

 

4,935.2

 

3,546.5

 

 

 

 

 

Other operating income

 

180.1

 

183.5

Cost of materials

 

-2,341.5

 

-1,819.6

Personnel expenses

 

-1,079.7

 

-1,067.5

Depreciation/amortization

 

-149.9

 

-169.6

Other operating expenses

 

-721.6

 

-722.8

Operating result

 

822.6

 

-49.5

 

 

 

 

 

Result from investments in subsidiaries, joint ventures and associates
(incl. (reversals of) impairments)

 

99.2

 

63.8

Net interest result

 

-105.1

 

-92.4

Other financial result

 

21.5

 

-31.6

Financial result

 

15.6

 

-60.2

 

 

 

 

 

Income before income taxes

 

838.2

 

-109.7

 

 

 

 

 

Income taxes

 

-202.5

 

8.2

Net result

 

635.7

 

-101.5

 

 

 

 

 

EBITDA1

 

972.5

 

120.1

1

EBITDA is the operating result before depreciation/amortization and (reversals of) impairments of fixed assets.

Wacker Chemie AG’s Earnings Pursuant to the German Commercial Code

Wacker Chemie AG’s earnings developed well in 2021, marked by a significant increase in operating performance and EBITDA. At year-end, Wacker Chemie AG posted net income of €635.7 million, compared with a net loss of €-101.5 million a year earlier. That was a year-over-year increase of €737.2 million.

Wacker Chemie AG’s sales rose by a substantial 34 percent to €4.81 billion (2020: €3.58 billion). All of the business divisions contributed toward this growth. At WACKER SILICONES, sales of €1.95 billion were up 15 percent (2020: €1.70 billion). WACKER POLYMERS’ sales grew to €1.0 billion (2020: €780.1 million), an increase of 28 percent. Sales at WACKER BIOSOLUTIONS increased by €10.3 million to €155.9 million (2020: €145.6 million). In 2021, WACKER POLYSILICON posted significant growth in sales, with an increase of 93 percent to €1.53 billion (2020: €794.2 million). Overall operating performance rose by €1.39 billion to €4.94 billion.

The cost of materials increased by €521.9 million in 2021 to €2.34 billion (2020: €1.82 billion), with expenses rising in particular for strategic raw materials procured. Above all, higher prices and volumes for vinyl acetate monomer had a negative impact on earnings. Prices for methanol, ethylene and acetic acid increased as well. Expenses for energy also went up in 2021 compared with the previous year. The material-to-sales ratio for 2021 was 47.4 percent (2020: 51.3 percent).

Personnel costs rose slightly, increasing by 1 percent to €1.08 billion (2020: €1.07 billion). This increase was due not only to collective bargaining wage and salary increases, but in particular to higher variable compensation components, which will be paid out in 2022. In the prior year, personnel expenses also included non-recurring expenses to secure financing of the pension fund (Pensionskasse der Wacker Chemie VVaG) as well as for the Shape the Future restructuring program. As of December 31, 2021, Wacker Chemie AG had 9,724 employees (Dec. 31, 2020: 9,823). The employee-expense ratio dropped to 21.9 percent (2020: 30.1 percent).

Depreciation and amortization decreased again, falling to €149.9 million (2020: €169.6 million), a drop of 12 percent.

The other operating result (other operating income less other operating expenses) of €-541.5 million remained at the prior-year level (2020: €-539.3 million). Other operating expenses include not only exchange-rate losses, but also selling expenses, maintenance, other contractor work, rents, servicing costs, R&D costs and costs assumed on behalf of subsidiaries. Expenses for maintenance and other contractor work increased slightly in 2021. In the prior year, restructuring charges of €48.9 million were posted in connection with the Shape the Future project. The foreign currency result declined by €52.6 million to €-25.5 million (2020: €27.1 million).

The operating result came in at €822.6 million and thus clearly exceeded the prior-year level of €-49.5 million. In particular, higher sales in 2021 were the main reason for this growth.

The result from investments in subsidiaries, joint ventures and associates mainly comprised income from profit-and-loss transfer agreements and dividend payments. This income of €99.2 million was higher than the prior-year figure of €63.8 million. In 2021, subsidiaries made higher dividend payments. On the other hand, dividend income from the investment in Siltronic AG was lower. In addition, impairment losses were reversed in the total amount of €24.0 million on the shares in Wacker Química do Brasil Ltda., Jandira – São Paulo, Brazil, and in Dow Siloxane (Zhangjiagang) Holding Co. Private Ltd., Singapore.

The net interest result declined to €-105.1 million (2020: €-92.4 million). The primary reason was an increase in interest expense for pension obligations to €93.8 million (2020: €85.4 million).

Income tax expenses amounted to €202.5 million (2020: €-8.2 million). The effective tax rate was 24.9 percent.

The fiscal year ended with net income of €635.7 million. Retained profit for 2021 – adjusted for the loss carried forward from a year earlier and the €99.4 million in dividend payments – totaled €1.73 billion (2020: €1.20 billion).

Net Assets and Financial Position of Wacker Chemie AG Pursuant to the German Commercial Code

Wacker Chemie AG’s total assets increased 16 percent year over year to €6.99 billion (Dec. 31, 2020: €6.04 billion). The individual balance-sheet items did not develop uniformly.

Statement of Financial Position

 

 

 

 

 

€ million

 

2021

 

2020

 

 

 

 

 

Assets

 

 

 

 

Intangible assets

 

5.2

 

5.5

Property, plant and equipment

 

1,015.7

 

982.3

Financial assets

 

2,940.8

 

2,665.1

Fixed assets

 

3,961.7

 

3,652.9

 

 

 

 

 

Inventories

 

663.7

 

562.6

Trade receivables

 

438.6

 

346.8

Other receivables and other assets

 

391.8

 

322.5

Receivables and other assets

 

830.4

 

669.3

Securities and fixed-term deposits

 

712.9

 

680.6

Cash on hand and bank deposits

 

770.5

 

463.4

Current assets

 

2,977.5

 

2,375.9

 

 

 

 

 

Prepaid expenses

 

54.5

 

6.7

Total assets

 

6,993.7

 

6,035.5

 

 

 

 

 

Equity and Liabilities

 

 

 

 

Subscribed capital

 

260.8

 

260.8

Less nominal value of treasury shares

 

-12.4

 

-12.4

Issued capital

 

248.4

 

248.4

Capital reserves

 

157.4

 

157.4

Other retained earnings

 

1,000.0

 

1,000.0

Retained profit

 

1,734.9

 

1,198.6

Equity

 

3,140.7

 

2,604.4

 

 

 

 

 

Provisions for pensions and similar obligations

 

828.5

 

980.0

Other provisions

 

568.2

 

473.0

Provisions

 

1,396.7

 

1,453.0

Financing liabilities

 

1,632.8

 

1,507.3

Trade payables

 

446.4

 

264.2

Other liabilities

 

361.4

 

189.1

Liabilities

 

2,440.6

 

1,960.6

 

 

 

 

 

Deferred income

 

15.7

 

17.5

Total equity and liabilities

 

6,993.7

 

6,035.5

At €3.96 billion, fixed assets for 2021 were higher year over year (2020: €3.65 billion). Property, plant and equipment increased slightly year over year, as capital expenditures in the amount of €183.1 million (Dec. 31, 2020: €155.3 million) exceeded depreciation of €146.6 million (Dec. 31, 2020: €164.0 million). Financial assets also increased, from €2.67 billion to €2.94 billion. Noncurrent securities in the amount of €113.8 million and shares in a closed-end securities fund in the amount of €200.0 million were acquired in 2021. The scheduled repayment of a loan issued to Dow Siloxane (Zhangjiagang), Co. Ltd., China had the opposite effect. Effective January 1, 2021, seven shelf companies were merged into Wacker Chemie AG. The merger-related gain/loss was insignificant. Overall, fixed assets accounted for 57 percent of total assets, compared with 61 percent in the prior year.

Inventories increased year over year. They amounted to €663.7 million (Dec. 31, 2020: €562.6 million), an increase of 18 percent. This was primarily due to higher raw-material costs. Trade receivables increased by 26 percent, from €346.8 million to €438.6 million.

Other receivables and other assets amounted to €391.8 million as of the reporting date (Dec. 31, 2020: €322.5 million), an increase of 21 percent. They included receivables from affiliated companies in the amount of €291.0 million (Dec. 31, 2020: €246.8 million).

As of December 31, 2021, Wacker Chemie AG held €712.9 million in securities and fixed-term deposits with maturities of over three months (Dec. 31, 2020: €680.6 million). Wacker Chemie AG’s bank deposits amounted to €770.5 million as of December 31, 2021 (Dec. 31, 2020: €463.4 million).

Equity came to €3.14 billion as of the reporting date (Dec. 31, 2020: €2.60 billion), yielding an equity ratio of 44.9 percent (Dec. 31, 2020: 43.2 percent). At Wacker Chemie AG’s annual shareholders’ meeting, a resolution was passed to distribute a dividend of €99.4 million from the retained profit for 2020. The remaining retained profit of €1,099.2 million was carried forward. As of December 31, 2021, retained profit totaled €1,734.9 million and mainly comprised current net income of €635.7 million for 2021 and the profit carried forward from the preceding year.

Provisions for pensions and similar obligations declined by €151.5 million year over year to €828.5 million (Dec. 31, 2020: €980.0 million). In December 2021, a contractual trust arrangement (CTA) was set up with trust assets of €250 million and was netted against pension obligations. Lower discount rates and further additions had a contrary effect. Other provisions – primarily comprising those for personnel, taxes and environmental protection – increased in 2021, amounting to €568.2 million (Dec. 31, 2020: €473.0 million). Income tax provisions and provisions for variable salary components were the main reason for this rise of €95.2 million. Provisions accounted for 20 percent of total equity and liabilities (Dec. 31, 2020: 24 percent).

As of the reporting date, financial liabilities were €1,632.8 million (Dec. 31, 2020: €1,507.3 million), up 8 percent. Bank loans amounted to €1,054.5 million (Dec. 31, 2020: €1,057.5 million). Liabilities due to affiliated companies grew by €127.4 million to €571.8 million as of the reporting date (Dec. 31, 2020: €444.4 million). Overall, the share of financial liabilities in total equity and liabilities declined to 23 percent (Dec. 31, 2020: 25 percent).

Trade payables grew year over year by €182.2 million to €446.4 million (Dec. 31, 2020: €264.2 million), due largely to sharp increases in procurement prices for raw materials. As of the reporting date, other liabilities amounted to €361.4 million (Dec. 31, 2020: €189.1 million). The main reason for the increase was advance payments received, especially for polysilicon, which went up by €91.7 million to €203.7 million (Dec. 31, 2020: €112.0 million).

Deferred income came to €15.7 million as of the reporting date (Dec. 31, 2020: €17.5 million). It mainly comprised a payment by Siltronic AG to Wacker Chemie AG for the transfer of employees.

Cash flow from operating activities rose year over year, from €351.9 million to €702.6 million – due mainly to the higher net income for the year. The contribution of €250 million to a CTA to partially finance pension obligations with trust assets had a negative impact on cash flow from operating activities.

Wacker Chemie AG’s cash outflow from investing activities amounted to €-453.4 million (2020: €-703.2 million). Available funds were invested in securities and fixed-term deposits in the amount of €348.8 million (2020: €589.4 million). Of this amount, €200 million was used to set up a closed-end fund. Cash inflow included the full repayment of a loan issued to Dow Siloxane (Zhangjiagang), Co. Ltd., China. Net cash flow – defined as the sum of cash flow from operating activities and cash flow from long-term investing activities (excluding securities and fixed-term deposits) – increased to €598.0 million in the reporting year (2020: €222.8 million).

Cash inflows from financing activities amounted to €57.9 million (2020: €475.3 million). Intra-Group financing resulted in a cash inflow of €161.1 million (2020: €210.6 million), mainly attributable to existing cash pooling with US subsidiaries. The dividend paid for 2020 led to a cash outflow of €-99.4 million.

Liquidity – defined as the sum of securities, the fund WMM Universal Fonds, and cash on hand and bank deposits – increased to €1,799.2 million as of December 31, 2021. A year earlier, liquidity had amounted to €1,144.0 million. Net financial receivables – the balance of liquidity and liabilities to financial institutions – increased to €744.7 million as a result. A year earlier, the company had net financial debt of €86.5 million.

Risks and Opportunities

Wacker Chemie AG’s business performance is subject to essentially the same risks and opportunities as the WACKER Group. Wacker Chemie AG’s exposure to the risks associated with its subsidiaries and investments depends on the size of its stakes in the respective entities. The measurement of holdings is affected in particular by the risks specified in the Risk Management Report. Through our subsidiaries and investments, we could face impairments arising from legal or contractual contingencies (especially financing). These contingencies are explained in the Notes to the financial statements of Wacker Chemie AG. As the parent company of the WACKER Group, Wacker Chemie AG is integrated in the groupwide risk management system.

For further details, see the Financial Instruments section of this Annual Report. A description of the internal control system for Wacker Chemie AG, as mandated by Section 289 (5) of the German Commercial Code (HGB), can be found in the section on the Internal Control System (ICS) and the Internal Control System for Accounting.

Outlook

WACKER’s main planning assumptions relate to raw-material and energy costs, personnel expenses and exchange rates. For 2022, we anticipate a euro exchange rate of US$1.15. The expectations for Wacker Chemie AG’s business performance in the year ahead are essentially the same as those for the WACKER Group, which are explained in full in the Group’s Outlook section.

The risks to the economy will continue in 2022. The progress made in containing the coronavirus pandemic will continue to influence global growth. We currently expect Wacker Chemie AG’s sales this year to be substantially higher than last year. Net income for the year should be slightly lower than last year.

Publication

The annual financial statements of Wacker Chemie AG have been submitted to the publisher of the German Federal Gazette and can be viewed on the website of the German register of companies. KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, audited the annual financial statements and issued an unqualified audit certificate for them. The statement of financial position and statement of income are the main parts of the annual financial statements published in this Annual Report. Wacker Chemie AG’s annual financial statements are published together with those of the WACKER Group. The annual financial statements can be requested from Wacker Chemie AG, Hanns-Seidel-Platz 4, 81737 Munich, Germany. They are also available online.

EBITDA
Earnings before interest, taxes, depreciation and amortization.
Equity Ratio
The equity ratio is equity as a percentage of a company’s total assets. It is a measure of a company’s economic and financial stability.
Ethylene
A colorless, slightly sweet-smelling gas that, under normal conditions, is lighter than air. It is needed as a chemical starting product for a great many synthetic materials, including polyethylene and polystyrene. It is used to make products for the household, agricultural, automotive and construction sectors, among others.
IFRS
The International Financial Reporting Standards (until 2001 International Accounting Standards, IAS) are compiled and published by the London-based International Accounting Standards Board (IASB). Since 2005, publicly listed EU-based companies have been required to use IFRS in accordance with IAS regulations.
Net Cash Flow
Net cash flow is defined as the sum of cash flow from operating activities and cash flow from long-term investing activities (excluding securities).
Polymer
A polymer is a large molecule made up of smaller molecular units (monomers). It contains between 10,000 and 100,000 monomers. Polymers can be long or ball-shaped.
Polysilicon
Hyperpure polycrystalline silicon from WACKER POLYSILICON is used for manufacturing wafers for the electronics and solar industries. To produce it, metallurgical-grade silicon is converted into liquid trichlorosilane, highly distilled and deposited in hyperpure form at 1,000 degrees Celsius.
Silicones
General term used to describe compounds of organic molecules and silicon. According to their areas of application, silicones can be classified as fluids, resins or rubber grades. Silicones are characterized by a myriad of outstanding properties. Typical areas of application include construction, the electrical and electronics industries, shipping and transportation, textiles and paper coatings.
Siloxanes
Systematic name given to compounds comprising silicon atoms linked together via oxygen atoms and with the remaining valences occupied by hydrogen or organic groups. Siloxanes are the building blocks for the polymers (polysiloxane and polyorganosiloxane) that form silicones.