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 2023 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 Germany’s Company Register.

The combined management report includes all reporting elements pertaining to Wacker Chemie AG that are required by law. Further to our report on the WACKER Group, we explain here 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 51 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, financial instruments, 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.

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

In 2023, Wacker Chemie AG’s earnings performance was influenced by a marked decline in operating performance, mainly due to the sharp decline in sales in 2023. with lower prices and volumes the main factor behind the decline across all segments. At year-end, Wacker Chemie AG posted net income of €66.6 million (2022: €691.1 million). That was €624.5 million less than a year earlier.

Sales fell from €6.44 billion to €4.87 billion, down 24.4 percent. Sales were lower across all divisions. At WACKER SILICONES, sales of €1.90 billion were down 26.2 percent (2022: €2.57 billion). WACKER POLYMERS’ sales totaled €852.9 million (2022: €1.12 billion), a drop of 23.9 percent. Sales at WACKER BIOSOLUTIONS fell €35.3 million to €145.9 million (2022: €181.2 million). In 2023, WACKER POLYSILICON posted sales that were down 29.8 percent to €1.61 billion (2022: €2.29 billion).

The cost of materials decreased by €677.5 million in 2023 to €2.98 billion (2022: €3.66 billion), mainly due to lower volumes and procurement prices for strategic raw materials in 2023, with lower silicon metal and vinyl acetate monomer prices having the biggest impact. Prices for methanol, ethylene and acetic acid dropped as well. Energy costs were also slightly lower. Overall, however, costs for raw materials and energy remain at a high level. The material-to-sales ratio in 2023 increased to 61.8 percent (2022: 54.8 percent) due to the reduction in operating performance.

Personnel costs fell by 11.8 percent to €1.10 billion (2022: €1.25 billion). Wage increases due to collective-bargaining agreements were more than offset by the lower variable compensation component due for payment in 2024. Allocations to provisions for pensions were also lower. At year-end 2023, Wacker Chemie AG had 10,207 employees (Dec. 31, 2022: 10,073). The employee-expense ratio rose to 22.8 percent (2022: 18.7 percent).

Depreciation, amortization and impairments rose to €158.6 million on the back of the increase in capital expenditures (2022: €149.5 million), up by 6.1 percent.

The other operating result (other operating income less other operating expenses) rose by €83.3 million to €-642.2 million (2022: €-725.5 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. In particular, logistics costs and selling expenses were lower in 2023. This was offset by an increase in expenses for maintenance and other contractor work. The foreign currency result increased by €65.5 million to €19.3 million (2022: €-46.2 million). Provisions for contingent losses totaling €39.2 million were also recognized in 2023. The operating result was negative at €-61.2 million, down significantly on the prior-year level (2022: €897.2 million). In particular, the lower operating performance in 2023 was the main reason for this decline.

The result from investments largely includes expenses and income from profit-and-loss transfer agreements, dividend payments and impairment losses on investments. At €64.4 million, it was lower than the prior-year figure of €164.9 million. The dividend payments from subsidiaries and Siltronic AG included in this figure remained on par with the prior year. The figure also includes a dividend paid by Dow Siloxane (Zhangjiagang) Holding Co. Private Ltd., Singapore, in the amount of €17.7 million. An impairment loss in the amount of €32.1 million was recognized on the stake in Wacker Química do Brasil Ltda., Jandira – São Paulo, Brazil, in 2023 in connection with a capital increase. In the previous year, an impairment loss on the shares in Dow Siloxane (Zhangjiagang) Holding Co. Private Ltd., Singapore, had been reversed in the amount of around €70 million.

The net interest result improved, reaching €50.5 million (2022: €-46.1 million). This reflects the positive impact of income from the measurement of the plan assets for pension obligations in the amount of €31.1 million. In the previous year, this had resulted in expenses of €14.9 million. On the other hand, the compounding and discounting of the pension obligation produced expenses in the amount of €-13.2 million in 2023, as against €36.9 million a year earlier.

The income tax item was shaped by earnings in the reporting year. Wacker Chemie AG – including those German subsidiaries with which it has profit-and-loss transfer agreements – recognized tax income of €26.2 million in the reporting year. This income can be traced back to lower income tax provisions as well as refunds for previous years. In the prior year, the company had recognized tax expenses of €-305.8 million.

Net income came to €66.6 million. Retained profit for 2023 – calculated as the profit carried forward from the previous year less €596.1 million in dividends paid – totaled €1.50 billion (2022: €2.03 billion).

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

Wacker Chemie AG’s total assets fell 7.5 percent year over year to €7.34 billion (Dec. 31, 2022: €7.94 billion). The individual items in the statement of financial position did not develop uniformly.

In 2023, fixed assets increased to €4.38 billion (2022: €4.28 billion). Property, plant and equipment increased year over year, as capital expenditures in the amount of €356.0 million (Dec. 31, 2022: €293.3 million) exceeded depreciation of €155.5 million (Dec. 31, 2022: €146.1 million). Financial assets decreased from €3.12 billion to €3.03 billion due to the sale of noncurrent securities. Overall, fixed assets accounted for 59.7 percent of total assets, compared with 53.9 percent in the prior year. 

The level of inventories fell year over year. They amounted to €889.3 million (Dec. 31, 2022: €1,001.3 million), down 11.2 percent. This was due, on the one hand, to lower raw-material costs and, on the other, to lower inventory levels. Trade receivables were also lower year over year, falling 33.1 percent to €292.9 million as of the reporting date due to the lower business volume (Dec. 31, 2022: €438.1 million).

Other receivables and other assets amounted to €711.6 million as of the reporting date (Dec. 31, 2022: €692.6 million), up by 2.7 percent. They included receivables from affiliated companies in the amount of €553.8 million (Dec. 31, 2022: €515.7 million). Trade receivables fell by €81.4 million to €215.6 million (Dec. 31, 2022: €297.0 million). On the other hand, receivables from intra-Group financing rose by €119.5 million to €338.2 million (Dec. 31, 2022: €218.7 million) due to the construction of the mRNA Competence Center in Halle.

As of December 31, 2023, Wacker Chemie AG held €181.6 million in securities and fixed-term deposits with maturities of over three months (Dec. 31, 2022: €753.2 million). The drop is due primarily to the sale of fixed-term deposits and units in mutual funds. Wacker Chemie AG’s bank deposits amounted to €820.1 million as of December 31, 2023 (Dec. 31, 2022: €718.3 million). 

Equity came to €2.90 billion as of the reporting date (Dec. 31, 2022: €3.43 billion), yielding an equity ratio of 39.6 percent (Dec. 31, 2022: 43.3 percent). At Wacker Chemie AG’s annual shareholders’ meeting, a resolution was passed to distribute a dividend of €596.1 million from the retained profit for 2022. The remaining retained profit of €1,432.5 million was carried forward. As of December 31, 2023, retained profit totaled €1,499.1 million and mainly comprised current net income of €66.6 million for 2023 and the profit carried forward from the preceding year.

Provisions for pensions and similar obligations increased by €19.1 million year over year to €981.7 million (Dec. 31, 2022: €962.6 million) owing to pension adjustments. Other provisions – primarily comprising those for personnel, taxes and environmental protection – fell by €119.3 million in 2023, coming in at €491.0 million (Dec. 31, 2022: €610.3 million). The lower figure can be explained, in particular, by income tax provisions for variable salary components. This was offset in 2023 by additions to provisions for contingent losses from sales agreements in the amount of €39.2 million. Provisions accounted for around 20 percent of total equity and liabilities, unchanged over the prior year.

As of the reporting date, financial liabilities came to €1,890.8 million (Dec. 31, 2022: €1,818.5 million), This equates to an increase of 4.0 percent. Bank liabilities amounted to €1,194.2 million (Dec. 31, 2022: €1,048.6 million). Liabilities due to affiliated companies dropped by €75.7 million to €687.9 million as of the reporting date (Dec. 31, 2022: €763.6 million). Financial liabilities accounted for 25.8 percent of total equity and liabilities compared with 22.9 percent a year earlier.

Trade payables amounted to €597.0 million as of the reporting date (Dec. 31, 2022: €585.2 million). As of the reporting date, other liabilities amounted to €466.1 million (Dec. 31, 2022: €512.2 million). The decline in liabilities due to affiliated companies was the main factor in this decrease. They fell €51.5 million to €75.9 million (Dec. 31, 2012: €127.4 million) due to contract manufacturing with Wacker Polysilicon North America, LLC., Cleveland, Tennessee, USA.

Deferred income came to €13.1 million as of the reporting date (Dec. 31, 2022: €14.3 million), and mainly comprised a payment by Siltronic AG to Wacker Chemie AG for the transfer of employees.

Cash flow from operating activities declined year over year, from €584.6 million to €399.5 million, due mainly to the lower net income for the year.

Wacker Chemie AG generated a cash inflow of €312.3 million from its investing activities (2022: cash outflow of €-411.8 million). This is largely due to the sale and redemption of securities and fixed-term deposits worth €705.9 million. In the previous year, by contrast, the funds had been invested in securities and fixed-term deposits (€-175.6 million). 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) – decreased to €188.3 million in the reporting year (2022: €348.4 million). This was driven, in particular, by the negative impact of lower cash flow from operating activities. 

Cash flow from financing activities totaled €-610.0 million (2022: €-225.0 million). Intra-Group financing resulted in a cash outflow of €-162.4 million (2022: cash inflow of €178.3 million).  The dividend paid for 2022 led to a cash outflow of €596.1 million.

All in all, cash and cash equivalents increased by €101.8 million to €820.1 million (2022: €718.3 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.

Outlook

WACKER’s main planning assumptions relate to raw-material and energy costs, personnel expenses and exchange rates. For 2024, we anticipate a euro exchange rate of US$1.10. 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 2024. We currently expect Wacker Chemie AG’s sales this year to be slightly lower than last year. Net income for the year will be significantly lower than in the reporting year.

Publication

The annual financial statements of Wacker Chemie AG have been submitted to the publisher of Germany’s Company Register and can be viewed on the corresponding website. 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, Gisela-Stein-Straße 1, 81671 Munich, Germany. They are also available online.