Siltronic AG (WAF) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Siltronic's conference call on a full year 2021 results. Please note that this call is being recorded and streamed on Siltronic's website. The call will be available as an on-demand version later today. Your participation on this call implies your consent with this. At this time, I would like to turn the conference over to Rupert Krautbauer, Head of Investor Relations and Communications of Siltronic AG.

Thank you, operator. Welcome, everybody, to our full year 2021 results presentation. This call is also being broadcast live with the Internet on siltronic.com, and a replay of the call will be available on our website shortly after the conclusion of this call. Joining me on today's call are our CEO, Dr. Christoph von Plotho; and our CFO, Rainer Irle. Following our usual procedure, Chris will start with some general remarks, and Rainer will provide more detail of our key financials, followed by Chris again, updating you on our guidance and current market developments. After the introduction, we will be happy to take your questions. Please note that management's comments during this call will include forward-looking statements, which involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation and in our annual report. All documents relating to our full year 2021 reporting are also available on our website. I now turn the call over to Chris for introductory remarks.

Thank you, Rupert. Welcome, everyone, and thank you for joining us for our full year '21 results call. I hope all of you and your families are healthy and safe. Before talking about Siltronic, I would like to send our compassion to the people of Ukraine. We are shocked about the development that already caused many civilian causalities. Our thoughts are with those affected by this horrible war. Now let's shift to Siltronic development in the year 2021. The year 2021 was dominated by strong market demand and significant volume growth exceeding market predictions from early '21 by far. The whole semiconductor industry experienced an exceptional growth year with demand exceeding supply in several areas. This also drove Siltronic sales and margins. All our production lines have been fully loaded since mid-'21 and demand continues to grow, especially for 300-millimeter wafer. In order to meet future growth, we made strategic decision to build a new greenfield fab in Singapore. And throughout the year, we are waiting for regulatory approvals for the tender offer by GlobalWafers, which unfortunately did not materialize. All of this made 2021 an exceptional year for Siltronic. Now let's have a look at our key financials before Rainer lead you through the Q4 development in more detail. Compared to the year 2020, our sales were up by more than 16% to EUR 1.4 billion. Overall, ASP in '21 was slightly down compared to 2020 due to exchange rates. Wafer prices started to recover in the second half of the year. The headwind on FX caused by stronger euro also eased in the second half. Our EBITDA came in at EUR 466 million. EBIT was up 65% at EUR 317 million, margin development in the later part of the year started to be hampered by inflation effects on COGS, mostly due to rising energy costs. CapEx of EUR 426 million were significantly up year-over-year. The investments are mostly related to the construction of our new 300-millimeter fab in Singapore and the expansion of the crystal-pulling hall in Freiberg as well as additional EPI capacities and capabilities. Our net financial assets were EUR 573 million at the year-end. Silicon wafers are the basis for almost all electronic applications. Demand growth for wafers is driven by the growing use of semiconductors in all types of electronic applications, continued growth for the worldwide electronics market will continue to drive demand for our wafers. Semiconductor demand growth due to new applications, for example, digitalization as well as due to unit and content growth in existing applications. In '21, we started major expansion projects. Most important is the construction of our new factory FabNext in Singapore. In Germany, we are building a new crystal drawing hall in Freiberg and we are investing in EPI reactors. As you can see on the picture, we have made good progress with construction. Both projects are well on track. Supply time lines for key equipment have been firmed up and we have great project teams on site. Now it's all about a smooth execution. I now hand over to Rainer.

Yes. Thank you, Chris, and good morning, everybody. Before we go into the details of the financials, I would like to talk about another important topic. Before, Siltronic decided to kick off a new climate action program and committed to the science-based target initiative. Basically, we want to cut our CO2 emissions in half by end of this decade with a long-term goal to become net 0 until 2045. These are ambitious goals for an energy-intensive company like Siltronic. But we are convinced that accelerating climate action is important for us and for the future of our planet. We will do so by improving energy efficiency, generating renewable energy ourselves and by buying renewables. But now let's move on to the financials. Sales increased quarter-on-quarter every quarter last year, mostly driven by volume growth. In the first half of the year, we saw a significant headwind from FX. In the second half of the year, the U.S. dollar exchange rate improved. COGS 2021 went up mainly due to higher wafer area sold and higher depreciation of around EUR 10 million. Excluding depreciation, cost per wafer area declined significantly in 2021 compared to 2020 due to fixed cost dilution and productivity improvements. In Q4, COGS came in at EUR 248 million, in line with wafer area sold. Rising electricity prices and FX effects had a negative cost impact in H2. Our gross profit rose to EUR 128 million in Q4. Gross margin went up quarter-on-quarter to 34%, driven by ASP and stronger U.S. dollar. Currency effects were dominated by a weak dollar in the first half of the year. We recorded therefore positive hedging results for Q1 through Q3 and a slightly negative hedging result in Q4 due to a stronger U.S. dollar. Our currency effects accounted in total for EUR 9.5 million in 2021, up to EUR 3.6 million in 2020. Now the GlobalWafers tender offer and its impact. Siltronic had legal expenses as part of admin expenses in 2020 and 2021. The impact of some controlled contracts were contingent on the closure of the transaction. This means the actual cost dependent on whether all necessary approvals for the acquisition by GlobalWafers were granted. Admin costs of EUR 12.1 million were charged in 2020 as a reserve and EUR 3.6 million in 2021. Now last year, in Q1 to Q3, we assumed that the tender offer would be completed. Therefore, the costs increased admin expenses by EUR 2.1 million in Q1, EUR 2.7 million in Q2 and EUR 1.3 million in Q3. As a offer, as you know, was finally unsuccessful, we reversed the reserve in Q4. This resulted in a EUR 3 million reduction in admin expenses and EUR 9.9 million other operating income in Q4. In line with our increase in gross profit, EBITDA was up to EUR 144 million in Q4, a 17% increase versus prior quarter. This was driven by higher gross profit and the positive onetime effect caused by the tender offer. EBITDA margin was 38% after 33% in Q3. Excluding the effect from the tender offer, EBITDA margin would have been 35% in Q4. EBIT in Q4 came in at EUR 109 million with an EBIT margin of 29% compared to 23% in Q3. For the full year 2021, the higher wafer area sold and the reduced cost per wafer area more than overcompensated, the negative burdens from increase in costs that we experienced since late Q4. Net profit was EUR 94 million in Q4 versus EUR 74 million in Q3. Earnings per share came in at EUR 2.15 versus EUR 2.79 in Q3. In the financial year 2021 net profit was EUR 290 million. And excluding minorities, obviously, earnings per share was EUR 8.44 compared to EUR 5.36 in 2020, a nice increase, and we will, therefore, also increase -- propose to increase the dividend to EUR 3 per share, and we proposed that to the AGM meeting in May. Working capital in 2021 was flattish year-over-year with EUR 230 million in Q4, mainly driven by an increase in inventories, contract assets and trade receivables due to higher wafer area sold. Trade liabilities also went up, also particularly due to higher CapEx. Looking at our balance sheet, equity rose to EUR 1.3 billion at the end of December. Equity ratio was nicely up to 54%. The increase is based on the strong profit minus the dividend payment as well as a decrease in pension obligations. The pension provision in Germany was discounted at 1.23% as of December 2021 versus 0.69% at the end of prior year. In the U.S., interest rate also went up from 2.07% to 2.51%. All this together caused our pension provision to decline significantly to EUR 405 million and to increase equity. Net financial assets increased to EUR 573 million despite high CapEx and EUR 60 million dividend payment. This was mostly due to the very good cash flow from operating activities and customer prepayments received in Q4. CapEx in Q4 jumped to EUR 282 million due to the ongoing expansion projects. Namely, the expansion of the 300-millimeter crystal pulling hall and EPI and Freiberg and of course, the green light for FabNext in Singapore. For 2022, a CapEx of EUR 1.1 billion is planned with about 2/3 of this going into FabNext. In financing FabNext, we will take a conservative approach. The majority of the investments will be financed by existing liquidity, future cash flows and prepayments from key customers. Furthermore, we also consider a moderate amount of debt financing. This should bring us to about 0.5x net debt to EBITDA. We will definitely not raise new equity in 2022. Operating cash flow in Q4 was EUR 197 million, following EUR 123 million in Q3. Due to high CapEx, net cash flow in Q4 was negative at minus EUR 140 million. As expected, the net cash flow of about EUR 2 million in 2021 was positive, but significantly below previous year. Net prepayments for customer LTAs amounted to EUR 93 million in Q4. And with that, I would like to hand over to Chris for an outlook.

Well, thank you, Rainer. Now let's have a look at the outlook in the year 2022. Siltronic had a good start in the year '22. We continue to see strong demand from customers. Since our production lines have already been running with high utilization, there is only a little room for growth volume -- for grow volumes in 2022. We do expect our revenue to grow due to significant price increases, but margin development will be hampered by cost increase of about EUR 120 million, with about 50% of that being for energy. Fundamentals of our industry are strong, but news are currently dominated by uncertainties that may affect the global economy. The COVID pandemic is not yet over. disruptions in the global supply chain persist, U.S.-China trade tensions continue, and now there's even a war in Ukraine, but the growth drivers for our industry remain strong, growing digitalization in all areas of life will continue to drive the demand for semiconductors and hence for silicon wafers. Siltronic's focus is now on smooth execution of our 300-millimeter expansion project to participate in future growth markets. This implies a very high CapEx which we will manage to -- which we willl manage without an increase in capital share in '22. Despite all challenges, we see ourselves in excellent position to continue our growth sustainability. Silicon area demand will grow by -- did grow approximately by 14% in the year 2021. Siltronic expects continued demand growth for 300-millimeter wafers at a CAGR of around 6% for the next few years. Silicon wafer demand for smartphones continued to grow despite stagnant unit sales because of increasing functionality and semiconductor content. The trend to more cameras and more memory continues. Automotive supply chains are still disrupted, but the trend to more semiconductor content per car remains strong. This is due to the growing share of electric vehicles wider use of assistance systems for the driver and more semiconductor content for infotainment systems. All these trends sum up to structural demand growth for silicon wafers. Siltronic production lines continue to operate at very high loading and wafer prices are expected to grow significantly in the year 2022. All this leads to our outlook for the year '22. We currently expect only slight increase of wafer area sold of less than 4% compared to the year '21. Assuming continued high fab loading and significant price increases in invoice currency, we expect sales to grow by 15% to 22%. Our EBITDA margin should increase to between 34% and 37%, including the termination fees paid from the terminated tender of GlobalWafers. Raising unit costs, particularly for electricity and supplies will have a total negative impact of around EUR 120 million. Depreciation will increase to approximately EUR 185 million. EBIT should increase significantly despite higher depreciation. Our tax rate is expected to be between 10% and 15%. We plan to invest around EUR 1.1 billion in '22, 2/3 of which will go into the construction of FabNext in Singapore. Further investments will focus on the expansion of the crystal-pulling hall in Freiberg and 300-millimeter EPI and capabilities to meet future customer requirements. Due to the high CapEx, our net cash flow will be significantly negative. Earnings per share will increase significantly. With this, we close our presentation, and we are now available for your questions. Operator, please open the Q&A session.

[Operator Instructions] We have a first question is from Francois Bouvignies, UBS.

So I have 2 quick ones, if I may. The first 1 is on your guidance for 2022. So you mentioned a volume of less than 4% for this year? And the clarification that I wanted to check with you is, do you take into account this global uncertainty to this less than 4%? Or is it based on your maximum supply that you can do this year on the volume term? So that's my first question. And the second one is on the clarification on the equity raise. I mean you mentioned you don't want to do 1 in '22 and you will lose other kind of metrics. But what does it mean for '23 and '24, because it seems that you are very specific on '22? Or should I read -- do I read too much into it? In other words, what is the likelihood of capital equity raise in '23 or beyond?

Well, thank you for your question, Francois. I think you're reading a little bit too much into it, but Rainer will later answer the second part of your question. Let me try to give a quick answer on the first one, less than 4%. This is simply due to our high capacity utilization that we already had in the second half of last year. So this is basically kept by capacity of Siltronic. .

Okay. So we don't take into account? Sorry, go ahead, Rainer.

Yes. On an equity side, Francois, I mean, we wanted to make it very clear that we are not doing it this year because obviously, we see overhang in this year. We also see that it is unlikely that we will do an equity increase in the years to come, but we don't want to rule it out completely. So to give us some room to maneuver. I think it's very unlikely.

Okay. Great. And maybe since it was a short answer, if I may add 1 quick one. What do you think on the inventory side at your customers? I mean, what's the situation that you are seeing on the raw wafers and of course, finished good, if you have any insight that would be nice to share?

Well, again, we only have little information regarding raw wafer inventory at customers. We have a good view at 2 of the 4 memory players, one is relatively stable at around 30 to 35 days. It's okay from my perspective, from our perspective. The other 1 is slightly decreasing. And yes -- and it's still at an okay level. But if it continues to decrease, 1 day, they might come into some challenges. A part of that, I want to remind you that inventory challenges typically do not start at raw wafer. They start somewhere in the value chain between the products that our customers produce and the product, which is finally sold to the end consumer. This is proven by all the inventory adjustment that we did see in the past. But at the end of the day, we come back to demand for end products demand for end products in all areas and in all geographies is still very, very strong. There are no signs that this will slow down. And customers continue to ask for more wafers than we deliver to them based on contracts that we have with them, and they are willing even to pay premium prices for spot quantities.

The next question is by Gustav Froberg, Berenberg.

I have a couple. I'll do them 1 after the other. Firstly, just how do you view your customers' ability and willingness to stock up more on wafer inventory in light of supply shortages of critical materials elsewhere in the value chain, potentially limiting your customers' output, and then a second question on guidance. Given a rather wide range of guidance for '22, could you talk us through the different scenarios you expect for the year and what you think needs to happen to either reach the top or the bottom end of your guidance, please?

Let me try to answer the first part of your question regarding customers. I think customers in the moment, do not have the possibility to pile up, to pile up raw wafer inventory because the offer to the market is limited by capacity, not only at Siltronic, but also at our competitors. And I think this will continue to be so. We already said that we cannot see any possibility to have more volume growth than 4%. It will be low 4%. We do believe that demand might be higher than plus 4%. And if that's the case, this additional demand can only be fulfilled if competitors of Siltronic have more available capacity, and we do not have any signs to go in our thoughts in that direction. So for the second part of your question, you said it's a wide range. Wide is not really defined. So if at the very beginning of the year in a challenging environment like we presented in our presentation, we say lower limit is 34%, higher limited is 37%. I think this is, for sure, not wide, but Rainer will try to explain you and give you a little bit more detail about the bottom and the top portion.

Yes. Gustav, I mean there's a lot of volatility in all over the place. And the first 1 is exchange rates. I mean we have seen a huge range of the U.S. dollar to your -- already this year. So this is kind of reflected in the top line range. I mean, as Chris said, I mean, volume is very much fixed by production capacity a lot of price increases have already been concluded. There might be a little bit more to come. But then, I mean, in the exchange rates for the average of the year, I mean, we can probably expect anywhere between 1.08 and 1.16, so that's a very wide range. And when it comes to the bottom line, in addition you see currently a panic in the electricity markets. It is obviously the war. It is also currently the drought in Central Europe and 0 wind generation. I mean there's really absolutely no wind currently. And wind is typically 10% of the generation. So I mean, electricity prices, I mean we saw them last week shooting up to EUR 250, which is 5x the normal now depending on the negotiations in premium and also depending on the weather pattern going forward, it could easily come down. So I mean, that is included in the EUR 120 million cost increase, I mean, most of that obviously from electricity, but also from raw materials and supplies. So there is just a huge variation in commodity markets and exchange rates and everywhere. And that's the reason why the range in our guidance is a little wider than usual.

The next question is by Holger Schmidt, Metzler.

The first 1 is with regard to CapEx. I mean, we have EUR 1.1 billion this year. How should we think about the CapEx spending volume in 2023? And the second question is around prepayments. You have signed obviously, a lot of LTAs for your next fab in Singapore. How should we think about the prepayments coming in over the course of the next 2 to 3 years? And then the third question is with regard to the cost-cutting program. You mentioned in your press release this morning, what amount of cost savings is incorporated in your guidance? And what measures are behind the program?

Well, first of all, on the CapEx, we always said that building FabNext is somehow front-loaded. Therefore, you see a very high figure for the current year. And you know that we also said that we will spend for FabNext EUR 2 billion till '24. And of course, a larger portion of that will be in '23, but we are not in a position to talk today about CapEx that will happen in '23. But again, we gave you the total figure. We said 2/3 of the EUR 1.1 billion is for FabNext, and we continue to say and we insist on the point that it's front loaded. So I think this is a nice set of information that you can use for your model. The LTAs, well, the prepayments, some of them already came in. Some of them will come in during this year and a very little portion will come in, in '23. And cost reductions, we continue to focus on what we successfully always implemented in prior years. Most of it is driven by productivity and yields. So it's about payroll costs, mostly in Germany, where the payroll costs are relatively high. On the other hand, we already saw it last year, we were on a very good track for cost reductions. But at the end of the year, cost reductions were not as much as we thought because we already saw in the last 4 months of '21 higher cost for energy related things.

Okay. There's 1 follow-up question. You mentioned the EUR 2 billion CapEx envelope for the next fab. Against the background of a rather inflationary environment. Do you think the EUR 2 billion will be sufficient now?

Yes, we think so. Most of that is negotiated. We have finalized for all major equipment, the contracts with the suppliers. So we do not have any reason to believe that this EUR 2 billion till the end of '24 will not be sufficient.

The next question is from Robert Sanders, Deutsche Bank.

Can you just maybe remind us a bit about when the volume is coming on stream with FabNext? And what sort of rate of growth? And then I have a couple of follow-ups.

That's a good question. I can remind you that we said that the first wafer for qualification will be shipped in early '24 to customers. At the end of the day, the biggest influence is coming from customers, how much time will it take to qualify these products out of that next. From today's perspective, customers are talking today about the willingness to shorten that time as much as possible. So maybe even the first wafers might be shifting in late '23 for qualification needs to be seen. Siltronic does not have any experience with the fastest possible ramp of the fab. When we -- the first wafers out of the last 300-millimeter investment in Singapore were brought to the market in 2008 and full build-out was realized something like 12 years later, so it was never the idea to ramp this fab in 12 years. But the market did not allow to ramp it faster. So this time, it looks different. It looks more like Siltronic cannot ramp fast enough for the market development. Therefore, our assumption is that we will ramp at the speed of between 130,000 and 150,000 per year, whether fast as possible needs to be seen, but again, when we talk about which quantity of wafers, which will come to the market, a lot depends on qualification made by the customers. And if the market continues like it looks today, I think there are good reasons to make the qualification time shorter than they typically did in the past.

So what is the typical time from qualification to revenue? And also what is the typical time to get the fab to the level of quality of the existing side?

Well, that depends a little bit also on the design rules. Design rules are getting tighter. I think the most challenging qualification, internal qualification is final clean that will need some time and typical qualification time is between 3 and 6 months as I would say, for polished wafers. And in the past EPI wafers sometimes took even up to a year qualification with the customer.

Got it. And the question for Rainer. Just -- I heard you mentioned some FX rates. Is it correct to say that your revenue guidance for '22 assumes a range of FX from 1.08 to 1.16? I was just surprised by that given where the spot rate is, if that was your assumption. So does that mean the midpoint of the guidance is 1.12 based on that?

No, it's a bit rapid -- it's a bit higher. I just said that we saw 1.08, we believe that's not sustainable. So it reflects more range, I would say, between 1.12 and 1.18.

Okay. Given where the -- okay, you've taken a view on the FX rate. Okay. So then that implies that the dollar apples-to-apples ASP is up much more than 10% and basically year-on-year. Is that correct? Is there nothing else I'm missing, right?

The ASP and invoice currency is not up much more than 10%. I wouldn't say that.

The next question is by Jürgen Wagner, Stifel.

On your product strategy, historically, you said that silicon carbide is not something you look at. Has that changed now? As you are staying independent, also would solar wafers be a long-term opportunity you are looking at? And on China, how has the quality of Chinese raw wafer supply changed or improved, let's say, over the last 2 years?

Well, let's start with the last question. We always said that the Chinese players will not play a major role in the next 5 years for primary ever or I think this is still true. But we also said that it will catch up. We did not see anything in leading edge design rules. We hear from time to time that they have maybe a 28 to 22-nanometer capability but this is not really proven. The major concern that I have today regarding China is that for 300-millimeter, there is undersupply in the market, not taking into account the Chinese capacities and our customers suffer from that. So the shortage of 300-millimeter wafers will open doors to the Chinese, which wouldn't have opened in another market scenario. So this is my major concern regarding China. So it's not so much about their capability. It's much more about possibilities that they will get to collaborate with, let's say, leading semiconductor industries outside of China.

So sorry, will it be more memory then?

Well, I think it's like always we have, leading edge is typically EPI. It's not polished. So let's say, a state-of-the-art memory wafer is easier to accomplish than a state-of-the-art EPI wafer when we talk about leading edge. On the other hand, we have in the EPI market, you have big consumers of EPI wafers, but you also have quite a number of smaller foundries, which are not using leading edge, which opens the door in that sense. And when we talk about polished wafers, the major consumer of polished wafers are the memory players and the memory players, specifically the 2 Koreans and -- but also the Japanese in the North American one. They basically switch when they go to the next design rule not everything, but a large portion to the next design rule. So therefore, polish is less demanding, but the share of our customers is much more based on leading edge when you compare it to EPI. So there is no clear answer. It's more deep, it's more depth. But at the end of the day, it's -- the entrance store is also monitor wafers. And monitor wafers, I think we are pretty sure that they have the capability to supply monitor wafers, and you see the investment plans of our customers. And every additional investment, every additional capacity translates into significant more monitor demand and we have periods that will produce monitor wafers. Today, monitor is not only at Siltronic, but also at our competitors, the byproducts, which you can't avoid, but as prices for prime wafers are higher than the 1 for monitor wafers, there's a quantity that we cannot avoid, which will be shipped to the market as a monitor wafer, but we will not produce monitor wafers, so. Yes, then silicon carbide. We will not review our strategic decision every year. Once we simply have to say we are done with it, that's it. I think the growth rates of silicon carbide are impressive, but it's from a very, very low level. It's a completely different kind of product. It's a completely different chemistry, I would say, to grow such a crystal. No, we will not look into that again. And by the way, 3 years ago, people talked about the shortage of silicon carbide today, we talk more about overcapacities which are in the market. So I do not see any reason to go there. Solar wafers, I think Siltronic never looked into solar wafers, but Wacker did in the past, there was a joint venture with fab and this was not a very successful experience as per that way. They stepped out of it relatively quickly within a 12-month period. And solar is still a business where the success depends a lot on by how much solar industry is supported by tax advantages or financial support, whatever you want to call it. Therefore, we will see very high fluctuation over there. Siltronic is dedicated to our customers and our customers our semiconductor customers, and we are completely fully loaded, so we don't have any room even to think about solar wafers. So also that is, I think, a relatively clear no.

The next question is by Johannes Weiss, Apple Capital.

Maybe only to make a question regarding the actual situation, you mentioned the EUR 120 million additional cost for energy. How much maybe how flexible you can past higher energy prices to your customers? Is there a time lag? Or can you immediately pass it if energy moves up because nobody knows how the energy price will develop in the future. So for in the worst case, how fast you can react, that's the first question.

Well, first of all, the EUR 120 million is not only energy, it's to a large extent, energy, but not all. This is total cost. And we stick to the idea that we execute contracts. I'm not a big believer in trying to pass additional energy cost to customers because as soon as customer, as the costs will go down, they will come to see you open their hands and ask for a price reduction. I think the only area where it's relatively typical that you use index prices is for products, which are truly related to crude oil like in some organic chemistry that I also know from background, but I'm not a big believer in when you have significant additional costs that you directly hand it over to customers. The other way around, we wouldn't like that customer come to see us and say, this product that you use is becoming cheaper, therefore, I want to have a price reduction. And I want to remind you that Siltronic was is and will be in the future, completely convinced that pricing is done by the market and not by cost.

Very clear answer. On the other side, maybe given your guidance, how much you have included maybe said through bad things that happened in Ukraine, maybe so world economy could get a real hit for maybe the worst case could go to something like a recession or maybe flat -- only flattish development. How much this risk have included in your guidance? And how much feedback you get from your semi customers, how much they see maybe demand -- their own demand could be affected by a weaker economic development?

Well, I think the weaker economic development is a possibility for the future. No customer up till now translate that into reduced volume request that they have. It's like I said before, the other way around, they are still looking for additional quantities and willing to pay more for it, that -- and I think the outlook that we gave is a relatively positive one. And of course, it does not include the worst case scenario. But how do you want to define a worst-case scenario. And I think there is no reason to be so pessimistic to include in an outlook or worst case scenario.

So for even in some slowdown, you still think there is strong demand from the semi side given the structural growth.

Right.

Finally, maybe only remind us after the GlobalWafer deals didn't happen. GlobalWafer announced also additional investments and even your Japanese competitors with greenfield new fabs, is there any point in the future there could be a risk, there could be overcapacity again from all the greenfields to your own market view is what all now it's announced even the additional investments of GlobalWafers, it's not to an effect that we could see a phasing and a supply chain driven capacity.

No. The way you asked the question, I can't answer. You basically asked whether I can exclude that in the future, there won't be overhead. This is something that I cannot exclude. But what we say since quite some time, when we were talking about greenfield before we made the decision, we say based on the assumptions that we have for the market and the ramp speed and the growth of the market, the industry needs 3 FabNext. And I always gave this calculation to you. We have the 7.8 million wafers, which were the quantities of Q4 last year. We compare it to a fab of 600,000. So this is something like 6%, 8%. But this fab will ramp in a phase of 4 years. So it's 2% per year. And we assume that the market demand will grow by 6%. So consequently, the industry needs 3 FabNext, and they need it now and not in '24. So therefore, I would be very, very surprised to see overcapacities before '25, '26 because then you need to know already the ramp phase of the greenfield investments. And what we see up to now, the announcement of Sumco's relatively comparable to what we said, GlobalWafers is not so precise about the quantities. So therefore, no, if there is no change in the market environment, for the midterm future, I can exclude overcapacities.

The next question is by Lucas Glemser, Jefferies.

Just a few quick questions to start with. How much do you expect financial charges this year? Why -- and also on the tax rate, why is the tax rate higher this year. And then on the CapEx outside of the FabNext is the remaining 1/3 is that all Germany?

Well, first of all, on the CapEx, it's mostly Germany, but not all of it is Germany because it isn't like I said in my talk, it's driven by the growing hall and EPI reactors, and that's all Germany. And for the tax rate, the major reason is that we have -- we are becoming more profitable and the tax rates are higher in Germany than in other areas. And consequently, the tax rate will go up. And the breakup fee is taxable. And the breakup fee is taxable at a rate which is significantly higher than the guidance of 10% to 15%.

And just on the financial charges for this year, how much do you expect on that?

So I mean, it's usually we have expenses due to the interest-bearing reserves, particularly pension expenses of some EUR 5 million, then we have some EUR 6 million liquidity under management that usually brings some return. Last year, we had a very good financial -- this year, it's probably a bit early to say. I mean the markets are in turmoil. So difficult to give a guidance for the return on those investments. And finally, we will raise that though kind of this is something that will probably not be in effect until mid of the year. So we will have some interest expense for that debt. But as that only kicks in, in the second half of the year, that should be moderate.

Okay. Perfect. And then just to clarify on the margin increase. Just want to clarify where that exactly comes from? Is that just from higher prices? Or is there anything else other than that?

So I mean, first of all, we expect GlobalWafers to pay us the agreed break fee likely in Q1. So that is a EUR 50 million extra income that is obviously included in the guidance. And then we have a tailwind from higher prices, and we have headwinds from higher cost.

The next question is by Stephane Houri, ODDO BHF.

Yes. I have 2 questions, but the first 1 has been asked by Johannes. So I just wanted to understand the way you have calculated your -- the impact of the energy cost if you took the, let's say, the spot price of energies or if you took harsher, let's say, assumption, looking at how the situation is evolving? That's the first question. And the second question was about the volumes. So I understand that you are very limited today by the volumes, by your production capacity. Does it mean that we should take the assumption that will be limited by capacity until 2024 when you have the new plant running. And the question behind is, are you, let's say, pushing the walls to try to invest a little bit to increase the capacity for 2023 without this new plan?

Well, I will start to answer the second question. Yes, we are limited by capacity. There will be a little additional coming on stream in the later part of this year for 200-millimeter, which will have an impact on '23 because it will be fully available for the year '23, but there's nothing for 300-millimeter. And you asked whether we consider to do something again said, no, we do not, because we always said brownfield is done. There is no additional equipment that we can put into our shelves. So I feel sorry for the market. I feel sorry for our customers. We would like it to be different, but it's not -- and the first question that you asked on spot prices, energy and so forth. I would -- Rainer, will answer that one.

Sure. Stephane, I mean, electricity buying is a mix of forwards and shorter-term spot or one plus one. So -- and we also have several production locations that are affected differently. I mean the U.S., the electricity prices are up only a little in Singapore, they are up significantly in Germany, I would say they are currently panicking. We have at all locations, a good percentage or we locked in, in forwards, though usually at quite a bit higher prices because prices were really high in last winter with a shortage in gas supply and the non -- or the below average production of wind energy. Some of that is still open and we are following spot prices carefully, trying to make sure that we get a good timing.

The next question is by Robert Sanders, Deutsche Bank.

Yes. I was just going to ask a follow-up question about utilities as well, actually. Just to understand, I remember utilities used to be the fifth largest part of your cost of goods sold. I assume now it's probably second behind labor. Is that correct? And is it roughly speaking, the utilities was EUR 120 million last year would be EUR 180 million in the current year? Is that in the ballpark?

Yes, Rob, I mean, first of all, you're right. It was #5, and it's moving up. It's not moving up to #2 yet. It will be up, if you say EUR 120 million impact total, a good half of that is electricity. You can do the math. We never disclose fully what exactly the demand of energy cost is in that, we don't want to do that going forward.

But I think the top 3 are unchanged. We have labor, we have supplies and we have depreciation.

Got it. And it was true that polysilicon, which was from Wacker, which was the fourth largest at 12% is up substantially this year as well. Is that correct?

It is correct. We signed a new polysilicon supply contract, which is a 5-year contract, which sees in the first year, which is this year, a low double-digit percentage price increase, but then stable prices going forward. And that we talk about going forward, I mean it's really a question of how much of that inflation that we are currently seeing this year, how that will sustain into next year, definitely too early to talk about it, but that will be a very interesting question going forward.

Just my last question would just be on wafer pricing. You said 10% on average. Is there a big difference by diameter in '22? And what are you thinking for pricing into '23 just indicatively?

Well, that's a nice try to find out price increase per diameter. This question was asked basically in every call that we had, that I can remember, and we never answered it and we won't tell you today. But the impact, of course, is by far rather from 300-millimeter because 2/3 of the quantity in the market a 300-millimeter and the other ones are only small. But price increases were possible in all diameters. And like I said in previous calls, since beginning of April last year, there was no negotiation concluded with customers without price increases.

And any thoughts on '23 or is it too early to say?

Well, there are contracts which are so-called long-term contracts and long-term contracts that we concluded or finalized in the second half of 2021, of course, they also cover '23. But I will not give you guidance on pricing for '23. I talk to Sumco, Sumco mentioned it, 10% in '22, 10% in '23, 10% in '24. That's what they said. In the past, Sumco was never good in giving outlook for price increases. Maybe this time it's different, I don't know.

There are no further questions for the moment. And so I hand back to Robert Krautbauer.

Thank you very much, everybody. So this concludes our Q&A session. Thank you for joining us today. We hope you will join us again for our Q1 release in May 2022. Goodbye, and stay safe and healthy. Thanks, everybody.

Goodbye.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.