Central Risk Areas

Defining the Probability and Impact of Risk Occurrence

We have defined categories to describe the probability that risks we identify will occur. This provides a framework for understanding our assessment of individual areas of risk. In percentage terms, our categories define the range of probability as follows:

• Unlikely: under 25 percent
• Possible: 25 to 75 percent
• Likely: over 75 percent

We also use categories to describe how the occurrence of the risks listed might affect the Group’s earnings, net assets or financial position. We assess the possible effect on earnings using the net method, i.e. after taking appropriate countermeasures, such as establishing provisions or hedging. The following categories define the ranges:

• Low: up to €25 million
• Medium: over €25 million up to €100 million
• High: over €100 million

The table shows our estimation of the probability of risks and of how the occurrence of those risks might affect the Group’s earnings, net assets or financial position. The statements refer to the forecast period, i.e. 2024.

Overall Economic Risks

Scenario: Economic slowdown.

Impact on WACKER: Production-capacity utilization drops, specific manufacturing costs rise, and the Group’s sales and earnings decline.

Measures: We counter this risk by continuously observing economic trends in our key sales markets. If we detect economic weakness, we take early precautions to flexibly realign production capacities, resources and inventories in line with customer demand. In such a case, we concentrate capacity utilization on production locations with the best cost position, for example.

Evaluation and Risk Assessment: High inflation rates worldwide, high interest rates, high energy prices in Europe and consumers’ ongoing reluctance to spend have been a considerable drag on the economy since 2022. Economists expect to see only weak global economic growth in 2024. We have already included these possibilities in our planning. Due to the continuing risks, we consider it possible that the global economy will fall short of current expectations for 2024. Should global economic activity prove much weaker than currently anticipated, that would potentially have a high impact on WACKER’s earnings.

Sales-Market Risks

Scenario 1: Chemical-segment overcapacity.

Impact on WACKER: Price and volume pressure on our products.

Measures: We minimize this risk by adjusting our production capacity and by ensuring plant utilization through volume control and the intense cultivation of growth markets. It remains our goal to increase the share of cyclically resilient product lines in our portfolio and to rank among the global leaders in those lines.

Evaluation and Risk Assessment: WACKER noted a drop in orders in a number of segments, especially in the construction industry, as early as summer 2022. Prices of standard silicones are very low in China and Europe, and in some segments, like the textile industry, demand is weak. This makes it more difficult to keep prices for our products at a good level. In view of current economic forecasts, we expect this trend to continue at least in the first half of 2024.

Overall, we consider it possible that specific areas of our chemical business will face overcapacity and weak demand, with further price pressure as a result, in 2024. Should such a scenario materialize, it would likely have a medium impact on the Group’s earnings.

Scenario 2: Overcapacity and very low prices for solar-grade polysilicon, growing market power of major solar-wafer manufacturers, difficult market conditions due to the paring back of programs to expand the use of photovoltaics, potential financial difficulties for solar-industry customers following a market slump.

Impact on WACKER: Volume risks arise if excessive and hurried cuts to governments’ solar-incentive programs negatively impact photovoltaic market growth. Massive excess capacity in China in the coming years at all points in the solar industry’s value chain and, in particular, as regards polysilicon could result in intense price competition, putting pressure on margins. Both factors could lower sales and earnings.

Measures: We counter this risk by continuously improving our cost positions and by optimizing our product and customer portfolio in line with market developments, for example by expanding our market share for semiconductor-grade polysilicon. Regions such as the USA, India and Europe are looking to promote the establishment of new local photovoltaic production capacities. This will potentially open up new solar-industry markets for WACKER outside of China as well. We respond to customers’ potential liquidity problems by requesting security.

Evaluation and Risk Assessment: Prices of solar-grade polysilicon decreased markedly compared with 2022. Demand for our particularly high-quality polysilicon remains high in both the semiconductor and solar sectors. Chinese competitors are investing heavily in new polysilicon capacity. As a result, polysilicon prices might remain under pressure again during 2024. Such a development has been factored into our planning and forecasts. Should demand for solar-grade polysilicon clearly exceed supply, this would presumably lift WACKER POLYSILICON’s earnings. Conversely, overcapacity or a slump in demand for WACKER’s solar-grade polysilicon would probably have a medium impact on earnings in this business. In our view, there is a possible risk that prices will decline.

Procurement-Market Risks

Scenario: Higher raw-material and energy prices; bottlenecks in the supply of certain raw materials; change to key relief regulations for energy-intensive industries.

Impact on WACKER: Earnings dampened by higher raw-material and energy prices. Supply bottlenecks could lead to longer customer delivery times and reduce the volumes sold.

Measures: Close cooperation between Procurement and our business divisions helps ensure that higher procurement costs are for the most part passed on to our customers, so that WACKER’s margins remain stable. For strategic raw materials and energy, we prepare systematic annual procurement plans, which include an evaluation of the procurement risk. Wherever possible, we take appropriate countermeasures for any procurement risk classed as relevant. Such countermeasures include: long-term supply contracts; structured procurement policies for multiple suppliers under contracts of differing lengths; a wider supplier base; a higher level of safety stocks. We reduce our dependence on external suppliers by means of partial vertical integration, for example by producing our own silicon metal and vinyl acetate. As far as energy procurement is concerned, we endeavor to protect ourselves against extreme price hikes by deploying a rolling hedging strategy and utilizing all possible relief options. Moreover, WACKER is advocating a Europe-wide industrial electricity price.

Evaluation and Risk Assessment: Our good position for raw-material and energy procurement means we are now able to effectively manage the risks inherent in both economic upturns and downturns. If the world economy were to weaken significantly, our purchasing terms for key raw materials would allow us to adjust contractual volumes flexibly and – wherever possible – to benefit from price decreases through appropriate pricing models. Should global growth become unexpectedly strong, our volume guarantees are so extensive that we do not see any major risks to raw-material security.

As regards electricity costs, current German law partially exempts energy-intensive companies from paying various levies and surcharges. WACKER, too, benefits from these rules. Any restriction on the exemption rules would significantly reduce the competitiveness of specific business activities. In general, energy price trends (wholesale prices, infrastructure costs and ancillary costs) will remain heavily dependent on how German and European policymakers organize the energy transition. Further factors that could influence future energy price trends are the effects of the war in Ukraine and falling energy production capacity in Germany due to plant shutdowns triggered by the energy transformation. Both these factors could lead to higher energy prices again.

In 2023, raw material and energy prices decreased again after the sharp rise seen in 2022. Electricity and gas prices in particular remain significantly higher than the long-term average. The intermittent risk of gas shortages in Germany has now decreased due to the high levels in the country’s gas reservoirs and stable supply based on liquefied natural gas (LNG), yet the situation could become more critical again in the course of 2024. There is a high probability that energy prices will be significantly higher than their long-term average in 2024 as well. We are endeavoring to counter this by raising the selling prices of our products wherever possible. Our planning is based on this scenario. Experience has shown, however, that the opportunities for raising market prices during an economic downturn are limited. If we do not succeed in passing on at least part of our higher energy costs through higher selling prices, this could have a high impact on earnings.

Investment Risks

Scenario: Bad investments, higher-than-expected investment costs, postponed plant start-ups, deterioration of original market projections, and the assumption of risks from investments in joint ventures and associates.

Impact on WACKER: Bad investments could lead to idle-capacity expenses and/or impairments of assets and investments. The possible effect on earnings could be substantial. Higher investment costs mean higher cash outflows and, in the future, will lead to higher expenses for depreciation/amortization and impairments in our operating result. Postponed start-ups expose us to the risk of being unable to fulfill supply contracts and of posting lower sales and earnings. Should Siltronic AG’s market capitalization fall substantially, WACKER might have to recognize a corresponding impairment on the carrying amount of its equity-accounted investment, which could negatively affect WACKER’s earnings.

Measures: WACKER has numerous measures in place for countering investment risks. Investment projects are subject to a risk management process and their planning is thoroughly checked for completeness and plausibility. Economic feasibility is assessed using comparative studies that look at other projects, including those of competitors. Major capital expenditure is approved in stages only. Stringent project-budget management helps minimize or prevent delays.

Evaluation and Risk Assessment: Our investment spending in 2024 will be slightly below the prior-year level. We will be investing in capacity-expansion projects across all divisions. The currently high level of inflation could make the construction of production facilities more expensive. The risk that investment spending will be higher than expected is currently considered to be possible. If this risk were to materialize, the impact on our earnings, net assets and financial position would probably be in the medium range. We currently consider it unlikely that any negative trend in Siltronic AG’s market capitalization will pose a risk to our financial position. Overall, we consider it possible that investment risks could materialize. Were these risks to materialize, they would probably have a medium impact on our earnings, net assets and financial position.

Production and Environmental Risks

Scenario: Risks relating to the production, storage, filling and transport of raw materials, products and waste.

Impact on WACKER: Potential personal injury, property damage, environmental impairment, production downtimes and operational interruptions, and the obligation to pay damages.

Measures: WACKER coordinates its operational processes through its integrated management system (IMS). This system regulates workflows and responsibilities, taking into account productivity and quality as well as the environment, and health and safety. The IMS is based on statutory regulations, and on national and international standards, such as Responsible Care^® and the UN Global Compact, which go far beyond legally prescribed standards. We focus on securing the highest possible level of operational safety at our production sites by monitoring maintenance extensively and by performing regular plant inspections. We conduct thorough safety and risk analyses, from the design stage through to commissioning, to ensure the safety of our plants. We regularly hold seminars on plant and workplace safety, and protection against explosion damage. Every WACKER site has an emergency response plan in place to regulate cooperation between internal and external emergency response teams, and with the authorities. We are insured against loss events at our plants and the potential consequences of such events. Our insurance cover is in line with customary chemical-industry standards. When we work with logistics providers, we ensure that shipments of hazardous goods are always checked prior to loading. Any deficiencies are systematically recorded and tracked.

Evaluation and Risk Assessment: Experience has shown that risks stemming from the production, storage, filling and transport of raw materials, products and waste can never be completely ruled out. Although there is a general possibility that such risks will occur, we currently consider a serious loss event to be unlikely. Should such an event occur, though, it could have a medium impact on WACKER’s earnings.

Financial Risks

WACKER’s ongoing operations and financing expose it to financial risks. These include credit, market-price, financing and liquidity risks. The Notes to the Consolidated Financial Statements provide extensive information about risk hedging with derivative financial instruments.

Credit Risk

Scenario: Customers or business partners fail to meet their payment obligations.

Impact on WACKER: Losses on trade receivables, and failure of banks to fulfill their obligations to WACKER.

Measures: We use a variety of instruments to reduce the risk of any loss on receivables. Depending on the nature of the product or service provided and the amount involved, we require security. Our preventive measures range from obtaining references and performing credit checks to evaluating payment histories. We limit default risks by granting internal credit lines and also by using credit insurance, advance payments and guarantees, e.g. from banks. We reduce counterparty risk with respect to banks and contractual partners by carefully selecting these partners. We usually transact cash investments and derivative dealings with banks that have at least a defined minimum rating.

Evaluation and Risk Assessment: We consider it unlikely that credit risks stemming from customer business will occur. We consider our risk concentration with regard to bank failures to be low, given our approach to counterparty risk. If, contrary to expectations, bank failures were to occur, their impact on WACKER’s earnings would probably be low.

Currency-Exchange and Interest-Rate Risks

Scenario: Fluctuations in exchange rates and interest rates.

Impact on WACKER: Effect on earnings, liquidity, and financial assets and liabilities.

Measures: Currency risks arise mainly from exchange-rate fluctuations for receivables, liabilities, cash and cash equivalents, and financial liabilities not held in euros. The currency risk with respect to the US dollar is of particular importance. WACKER hedges any net exposure above a certain level by using derivative financial instruments. Foreign exchange hedging is carried out mainly for the US dollar. We also counter exchange-rate risks through production sites that are not in the eurozone.

Interest-rate risks arise due to changes in market rates. Such changes affect future interest payments for variable-rate loans and investments. We currently have adequate interest-rate hedges in place in this area.

The use of derivative financial instruments requires an underlying operating transaction and is governed by internal regulations.

Evaluation and Risk Assessment: We hedge part of our US-dollar business. Possible gains or losses from exchange-rate fluctuations are partially cushioned by hedges. At the present time, we consider it possible that exchange-rate and interest-rate changes in 2024 will differ substantially from our planning assumptions. We believe that this would have a medium impact on Group earnings.

Liquidity Risk

Scenario: Lack of funds for payments, and tougher access to credit markets.

Impact on WACKER: Higher financing costs, and modifications to further investment projects.

Measures: Liquidity risk is managed centrally at WACKER. Our Corporate Finance and Insurance department employs efficient systems for both cash management and rolling liquidity planning. To counter financing risks, WACKER holds adequate, contractually agreed long-term lines of credit, and has set aside sufficient liquidity. We invest liquid funds only in issuers or banks that have a solid investment-grade credit rating. Cash pooling means liquid funds are passed on internally within the Group as required.

Evaluation and Risk Assessment: WACKER’s liquidity totaled €1.42 billion as of the reporting date. At the same time, there were unused lines of credit with terms of over one year totaling around €750 million. We consider the occurrence of financing and liquidity risks to be unlikely. At the moment, we see no risks relating to financial-covenant infringements. If financing or liquidity bottlenecks did occur, their impact on Group earnings would be low. If unused lines of credit were tapped, net financial debt would rise.

Pensions

Scenario: Rising life expectancy of those entitled to a pension; pay and pension adjustments; falling discount rates; significant changes in the composition of invested fund assets and in capital-market interest rates.

Impact on WACKER: A rise in pension obligations, a decline in plan assets, and a possible injection of financial resources into the pension fund or into the plan assets will affect the financial position and earnings of the Group. Further factors with a substantial impact on WACKER’s equity and earnings are the higher life expectancy of pension-fund beneficiaries, adjustments to pay and pensions, and the discount rate (used to calculate the present value of future cash flows).

Measures: The majority of WACKER’s pension guarantees are covered by the Wacker Chemie VVaG pension fund, by other pension-related funds, special-purpose assets, and by insurance plans. The investment portfolio is diversified to ensure a sufficient rate of return and to limit investment risks. The pension fund optimizes all asset items so that it attains the required return within specified risk limits. As one of the sponsoring entities, WACKER makes payments to the fund when necessary, thereby ensuring sufficient coverage for pension obligations. We periodically adjust the calculation parameters (e.g. life expectancy) for the other defined-benefit pension commitments. Since 2022, WACKER has been offering new employees in Germany a company pension in the form of direct commitments on a funded basis. These commitments are secured via a contractual trust arrangement (CTA), from which the company’s pension obligations are funded. These measures have already substantially reduced WACKER’s provisions for pensions. The drop in the discount rates to be used during the year under review led to an increase in provisions for pensions.

Evaluation and Risk Assessment: Employee and retiree beneficiaries of the pension fund are steadily getting older and capital-market interest rates have been very low in recent years. By adopting the above-mentioned measures to reform our company pension system, we are countering the effects of these trends on our financial position. We do not assume that special payments to the pension fund will be necessary in 2024. For the foreseeable future, however, the existing plans will continue to dominate WACKER’s company pension arrangements. In consequence, we consider it possible that more special payments to the fund will be needed in the next few years, that pension expenses and pension payments will rise further, and that higher provisions for pensions will weigh on the company’s financial position. This would probably have a medium impact on WACKER’s earnings, net assets and financial position.

Legal Risks

Scenario: Diverse legal risks related to tax, trademarks, patents, competition, antitrust proceedings, the environment, labor and contracts could arise from our international business.

Impact on WACKER: Drawn-out legal disputes that could impact our company’s operations, image and reputation, and could be costly.

Measures: We limit legal risks via centralized contract management and via legal review by our legal department. Where necessary, we also have recourse to external legal experts.

Our Intellectual Property department protects and monitors patents, trademarks and licenses. Before launching R&D projects, we conduct searches to determine whether existing third-party patents and intellectual property rights could obstruct these projects.

We use compliance programs to limit risks arising from possible legal infringements. WACKER’s Code of Conduct defines and stipulates binding rules of behavior for all employees. We raise awareness of these issues through target group-specific and also general mandatory training sessions.

Evaluation and Risk Assessment: Due to the varied nature of our business activities, it is always conceivable that legal risks could arise. We currently do not foresee any legal disputes, patent infringements or other legal risks that could significantly influence our business, and consider the probability of such risks materializing to be fundamentally unlikely. Should such an individual case occur, we would expect its impact on WACKER’s earnings to be low.

Regulatory Risks

Energy Transition in Germany

Scenario: The transformation of Germany’s energy supply system that is necessary to achieve the CO₂-reduction targets set for 2030–2050 will likely lead to extensive and repeated legislative amendments to the regulatory framework. This will affect not only the electricity sector, the mainstay of future energy supplies, but also natural gas and the hydrogen economy. We expect to see major changes from revisions of energy legislation, regulations and aid, for example as regards Germany’s Energy Financing Act, grid fee regulations (including individual grid fees) and the regulations governing national and European emissions trading.

Impact on WACKER: Increased energy-cost burden due to higher government-regulated charges and levies, unless energy-intensive industries exposed to global competition are exempted to the same extent as before or such exemptions are expanded appropriately, as well as substantial additional effort to comply with new administrative reporting, implementation and certification obligations.

Measures: We continually monitor regulatory activity in Germany and in the EU. Whenever we anticipate changes in the current legal situation, we try to introduce our viewpoint into legislative procedures through discussions with policymakers and by participating in the work of trade associations.

Evaluation and Risk Assessment: Legislation on energy supply and the transformation of the economy toward achieving net zero is subject to constant change. While the German government’s electricity-price package published in November 2023 provides stability regarding some of the relief options, the ruling by the Federal Constitutional Court a week later declaring the Second Supplementary Budget Act 2021 null and void fundamentally calls into question the financing of the government’s plans for decarbonization in the industrial sector, among other things. Terms and conditions for the energy subsidies were changed in 2022. We consider it possible, albeit not very likely, that, in certain circumstances, this could result in WACKER being obligated to repay, at a later date, subsidies it has already received. Should this be the case, the impact on WACKER’s earnings would probably be high.

Polysilicon Trade Restrictions

Scenario: On January 20, 2020, the Chinese Ministry of Commerce decided (following an expiry review) to extend the existing anti-dumping and anti-subsidy tariffs on US-made solar-grade polysilicon for another five years. As a result, the USA imposed tariffs on solar modules and cells (Section 201) and ultimately on almost all imports from China to the USA (Section 301). The negotiations to resolve this conflict led to a trade agreement in 2020 that also included regulations for solar-grade silicon produced in the USA. Nonetheless, China did not rescind its tariffs on US solar-grade silicon. This means that WACKER is still unable to export solar-grade silicon from its Charleston plant in the USA to China at competitive conditions. In 2022, the US Department of Commerce announced a review of its tariffs on Chinese goods and extended them for another four years until 2026. In addition, in 2023, the US administration imposed export restrictions on China for semiconductor materials and production technologies used to manufacture advanced chips. These restrictions could possibly also impact polysilicon for semiconductor applications.

Impact on WACKER: Due to China’s high tariffs on US-produced solar-grade polysilicon, Chinese solar-industry customers are not buying any such product from WACKER’s Charleston site for their production plants in China. The USA’s anti-dumping tariffs and countervailing duties, as well as its restrictions on exports to China’s semiconductor sector, could possibly have an unfavorable impact on the company’s earnings, net assets and financial position and a negative impact on sales volumes and long-term customer relations.

Measures: It is difficult to assess the odds of an amicable settlement in this trade dispute. In the meantime, however, most of the major wafer producers outside of China have qualified the semiconductor-grade polysilicon from our Charleston site. As a result, we have achieved a substantial increase in the proportion of our sales volume accounted for by semiconductor-grade polysilicon. What is more, new opportunities to sell solar-grade silicon in countries other than China are constantly emerging. This trend is also being strengthened by programs incentivizing the expansion of local photovoltaic value chains in the USA, Europe, India and Southeast Asia.

Evaluation and Risk Assessment: Demand for solar-grade polysilicon outside of China is constantly increasing. On top of that, many countries and regions are promoting the development of their own photovoltaic value chains in order to increase their independence and resilience. We can therefore assume that the coming years will see growth in new capacity for solar wafers, which we will be able to supply with our US-produced polysilicon. This will result in additional opportunities for WACKER to increase its sales volumes and, potentially, to largely mitigate the effects of China’s trade restrictions on US-produced solar-grade polysilicon. Given our broad customer and product portfolio, we also do not currently expect the USA’s export restrictions on semiconductor products to have any notable effects on our business in electronic-grade silicon. However, we do consider it possible that ongoing trade disputes worldwide and increasing geopolitical tensions could have consequences for WACKER’s polysilicon business. The potential impact on our 2024 earnings would then probably be high.

New Regulations for Production Processes, Products and Their Applications

Scenario: New legal provisions in the production and use of chemical substances or groups of substances mean greater restrictions or even bans. New regulations or the elimination of specific materials in the supply chain make it necessary to modify our production processes or reformulate our products. They also impose more extensive information requirements on us and, in some cases, on our customers as well. Additional legal provisions in individual countries mean more effort is required for the necessary registrations internationally.

Impact on WACKER: Additional investments in production facilities, conversion costs, revenue losses in individual or entire application fields, plus extra costs for the required audits and registrations.

Measures: WACKER continually monitors the regulatory environment surrounding its products and production processes so that it can react promptly to impending changes. This also includes any potential relocation of production. We are continuously optimizing our production processes and regularly review our product portfolio. Any other necessary measures will be aligned with the changed regulatory environment in each specific situation.

Evaluation and Risk Assessment: In principle, it is always possible that new legal regulations will make it necessary to modify our product portfolio or production processes. We consider it likely that new legal provisions will require additional investment in our production facilities or changes to our product portfolio. Should such changes occur, their short-term impact on WACKER’s earnings in 2024 would probably be low. In the medium term, though, they could have a medium to large impact.

IT Risks

Scenario: Attacks, system errors and unauthorized access to our IT systems and our production plants and networks, resulting in a threat to data confidentiality, integrity or security.

Impact on WACKER: Negative impact on the company’s earnings, net assets and financial position, on production processes and on workflows, on its reputation, plus loss of know-how.

Measures: WACKER constantly monitors the information technology it uses and also invests in protecting its IT systems and applications, thereby safeguarding the functionality and stability of its computer-based business processes. Our IT-security and risk-management specialists are responsible for handling hazards in a cost-efficient way. They achieve this through the operation and continuous improvement of our Information Security Management System (ISMS) in line with the ISO 27001 standard. It is also reviewed externally at regular intervals (e.g. in the course of a TISAX Label Assessment). Reliable backup and recovery processes are an essential element in safeguarding the availability of our systems. In order to cope with emergencies, processes and procedures in the shape of regularly tested emergency plans (IT service continuity management) have been put in place. We minimize project-related IT risks by applying uniform project/quality management methods. These ensure that project outcomes and possible changes to IT services are integrated into our system landscape in a controlled manner and in accordance with defined processes.

We log any operations-related risks that arise during the IT risk management process, which is based on international standards. We evaluate them and take appropriate technical and organizational countermeasures. The Executive Board is briefed by the Chief Information Security Officer (CISO) on the current cyber-risk status and ongoing IT and information security projects at least once a quarter. Our Cyber Defense Center (CDC) continually monitors the security of our IT landscape and our applications. If the CDC identifies any vulnerabilities, it has them rectified in a timely manner. Our authorization systems, which are regularly updated to meet new requirements and technologies, are based on the need-to-know and least-privilege principles. We protect our IT systems against attacks by means of various state-of-the-art IT security systems, which are continuously adapted and expanded in response to emerging threats. We have set up an international security team that takes organizational and technical measures to counter risks to the confidentiality, integrity and availability of information and systems. We increase employee awareness through events and training on information security and a campaign involving continuous anti-phishing tests. In addition, we regularly conduct comprehensive penetration tests, audits and assessments at our German and international sites. We continually observe and evaluate the techniques of potential attackers and, where necessary, realign our defense strategies accordingly. In addition, we constantly exchange information with other companies and interest groups on the subjects of cyber and data security.

Evaluation and Risk Assessment: A long-term failure of IT systems or a major loss of data could considerably impair WACKER’s operations. As in previous years, there were a large number of attempted attacks on our IT systems and infrastructure in 2023. It cannot be ruled out that such attacks could succeed in certain cases despite the precautions we have taken. We thus consider such events to be possible. If, as a result of such an event, any of our IT systems faced downtime and service disruption that affected a significant number of users or lasted for a substantial period, the impact on WACKER’s earnings would be of medium scale.

Personnel-Related Risks

Scenario: Demographic change, lack of qualified technical and managerial employees, and problems in filling executive positions.

Impact on WACKER: The lack of technical and managerial employees could dampen our continued growth and lead to the loss of our technological edge.

Measures: We limit these risks through our personnel policies. In particular, we have a talent management process in place, which we use to draw up development plans for our employees. In addition, we offer a wide variety of training programs, attractive social benefits and performance-oriented compensation. We also offer our employees in Germany a wide range of working-time models and arrangements to better balance career demands with the different phases of their lives.

WACKER has a detailed, groupwide succession planning process in place for all key positions in the company, including all positions held by senior executives (OFKs). WACKER’s succession planning process distinguishes between short-term needs (up to two years) and medium-term needs (two to four years). In addition, WACKER has appointed deputies for senior executives in the event of a lengthy absence or illness.

Evaluation and Risk Assessment: Demographic change will increase the risk of not being able to find sufficiently qualified personnel for technical and managerial positions in the medium to long term. We consider it unlikely that risks to our personnel needs will arise in 2024. Should these risks materialize, the impact on Group earnings would probably be low. We are expanding our hub in Plzeň (Czech Republic), allowing us to tap into another pool of skilled employees.

External Risks

Scenario: Pandemic, natural catastrophe, war or civil war.

Impact on WACKER: Impairment of our company’s capacity to act; supply bottlenecks; production outages; supply-chain disruptions; loss of trade receivables; impact on sales and earnings.

Measures: Our management entities and our sites have prepared and communicated plans and measures to minimize the effects of a pandemic on the health of our employees and on our business processes. Our pandemic-preparedness plan ensures a uniform, coordinated approach. The financial impact of damage to our production plants due to natural disasters is partly covered by insurance. As WACKER has production sites on various continents, it can always ensure a certain degree of manufacturing and delivery capability even if individual plants fail.

Evaluation and Risk Assessment: Risks from pandemics, natural disasters, acts of war or civil war can never be ruled out entirely. The coronavirus pandemic and the wars in Ukraine and the Middle East are clear evidence of this. Their impact and the government measures taken when such scenarios arise could have a medium impact on WACKER’s earnings.

Climate Risks

Scenario 1: Acute physical climate risks are caused by certain hazards, in particular weather-related events such as gale-force winds, floods, fires or heat waves. Chronic physical risks arise from longer-term changes in the climate, such as temperature changes and their impact on rising sea levels, as well as reduced water availability, loss of biodiversity and changes in soil productivity.

Impact on WACKER: Personal injury, property damage and environmental impairment due to damage to production facilities; impact on sales and earnings due to production downtimes, supply bottlenecks, supply-chain disruptions and the obligation to pay damages. If water availability is low, there is a risk of operational interruption. 

Measures: The financial impact of damage to our production plants due to natural disasters is partly covered by insurance. As WACKER has production sites on various continents, it can always ensure a certain degree of manufacturing and delivery capability even if individual plants fail. We deal with supply bottlenecks and supply-chain disruptions by way of structured procurement from multiple suppliers. WACKER regularly conducts risk analyses for its sites. Climate-change risks are taken into account in the assessment of investments. 

Evaluation and Risk Assessment: Physical risks from climate change cannot be ruled out. The choice of our sites, together with regular risk analyses and precautionary measures, provides partial protection against the impact of acute and chronic events. If such a scenario were to occur, it could have a major impact on the Group’s earnings.

Scenario 2: Transition climate risks resulting from the transition to a low-carbon and climate-resilient economy. They include political, legal and technological risks as well as market and reputational risks. What can be expected is persistent regulatory and social pressure with the aim of achieving net-zero energy generation, net-zero energy consumption and a net-zero resource and raw-material base.

Impact on WACKER: In Europe in particular, we expect measures with a consistently high level of regulation and detail, including adjustments to regulations relating to chemicals and industry. These measures have the potential to significantly impact the competitiveness of WACKER’s business activities and product portfolio, as well as those of our customers. Changes in market prices for raw materials and energy due to stricter regulation cannot be passed on to customers. More favorable raw-material and energy prices outside Germany affect WACKER’s international competitiveness. One result of banning certain chemicals might be to discontinue production. WACKER’s growth and investments could be negatively impacted. Production technologies and product segments based on fossil fuels are becoming less important as the market shifts toward lower-emission, resource-saving technologies and products. The costs of transitioning to lower-emission technologies influence our earnings trend. WACKER may be exposed to litigation risks, e.g. in the event of non-compliance with legal regulations.

Measures: We limit the risks arising from increasingly complex regulation by constantly monitoring the regulatory environment. Our broad range of activities and strong internationalization enable us to counter short-term risks. In order to strengthen our competitiveness, we are continuously improving our production processes, streamlining our administration and simplifying workflows and processes. We consistently implement our strategic decisions to electrify production and reduce costs. Our product portfolio helps us support key climate-change issues. We believe WACKER is in a strong position to supply new technologies, innovative products and processes, and solutions that contribute to the UN’s sustainable development goals, particularly with regard to achieving net zero.

Evaluation and Risk Assessment: In principle, new political conditions and stricter climate-policy regulations might make it necessary to adjust our production processes or product portfolio. We consider it highly likely that we will have to react to changes in market conditions and the legal framework. Should such changes occur, their impact on WACKER’s earnings in 2024 would probably be low. In the medium term, there might be a medium or major impact.