Wacker Chemie AG (WCH) Earnings Call Transcript & Summary

The conference is now being recorded. Welcome to the Wacker Chemie AG Fiscal Year 2022 Results Conference Call. [Operator Instructions] Now I hand over to Joerg Hoffmann, Head of Investor Relations.

Thank you, operator. Welcome to the Wacker Chemie AG conference call on our full year 2022 results. Dr. Christian Hartel, our CEO; and Dr. Tobias Ohler, our CFO, will take you through our prepared slides in a minute. The presentation is available on our web page under the caption Investor Relations. Please note that management's comments during this call include forward-looking statements involving risks and uncertainties. We encourage you to review the safe harbor statement in today's press release, presentation and in our annual report regarding risk factors. All documents mentioned are available on our website. Chris?

Hi. Hello, everyone. We are reporting today on the best results in our over 100-year history. 2022 saw a very dynamic year delivering a record result with sales of over EUR 8 billion and an EBITDA of over EUR 2 billion. All our business divisions contributed with pricing being the primary driver of the significant sales and profit growth. During the first half of last year, our teams worked hard to keep up with customer requests, demand outstripped capacities, and we were on allocation for many of our specialty chemical products. We implemented dynamic pricing models, providing new tools to address the unprecedented volatility in raw materials and energy markets. As the year progressed, we faced many external headwinds, including the aftermath of the Russian attack in Ukraine, COVID-related lockdowns and sudden reopening in China, supply chain disruptions, massive inflation on raw materials and energy and a turning point in monetary policy driving up interest rates. All this weighed on our customer sentiment, concerns about an upcoming recession manifested, triggering an industry-wise destocking event towards year-end. Wacker was not insulated from these events. Inventory drawdowns by customers in the fourth quarter had a noticeable effect on our sales and earnings. Our teams reacted quickly to navigate these challenges successfully. Pricing management in chemicals and strong demand for solar polysilicon drove sales and earnings last year. Our long-standing hedging policies provided us with some relief from very high market prices for power and natural gas. Our efficiency and restructuring program, Shape the Future is on track and we continue to reap the benefits from this program, which we started in 2020. The actions taken since then supported our 2022 results with about EUR 200 million. Furthermore, the new leaner structure empowers our regional teams and help to create a more dynamic and responsive organization. The successful combination of factors played a decisive role in achieving a record EPS of over EUR 25 per share. This is our best result to date as the basis for our dividend proposal of EUR 12 per share. I am proud of the strong performance of our teams and their efforts. So please allow me and on behalf of the entire Board to thank them for a job well done. Sustainability is a key value driver at Wacker. We set ambitious 2030 targets covering our products, operations and supply chain. Last year, we reduced our CO2 emissions by 11% and are clearly on our way to achieving net zero by 2045. A critical factor in this was converting our power supply to silicon metal in Norway. We are now fully covered by certified hydro and wind power there, and we will take this further. We will switch to renewable reductions at Holla and plan to start the pilot plant this year to convert CO2 emissions into chemical products. There is a strong business rationale for sustainability. Sustainable products already find new markets and comprise over 2/3 of our portfolio. Tier 1 customers have set sustainability targets themselves, and Wacker is committed to being a long-term partner on this journey. Sustainability strengthens our ties to our customers. We have taken a big step in our sustainability disclosures reporting now on all KPIs in our annual reporting. This is a clear signal to all of our stakeholders, highlighting how important we take sustainability at Wacker. Now on the next slide, you can see the development of our dividend, reflecting last year's success and now we have stuck to our dividend policy of distributing half of our net income. Our proposed EUR 12 dividend underlines our commitment to sharing our excellent results with our shareholders. Regarding capital allocation, growth and dividends are our top priorities. At our CMD in March last year, we communicated our 2030 targets and updated our strategies. You should expect faster growth, bolder moves and high profitability in the future. We strive to almost double our growth, improve earnings and resilience and have prudent cash management with a clear investment strategy. To this intent, we -- to this end, we intend to focus on our Specialties and Chemicals at BIOSOLUTIONS's and increasing our semi grade capabilities in POLYSILICON. The chart on the right shows that we are not embarking on wishful thinking but building on our past successes. The development in our Chemicals businesses is industry-leading with best-in-class growth, margins and ROCE. We have demonstrated our ability to earn a clear premium on our cost of capital over this time, and our strategic growth projects will make us more resilient. The next page shows the headline projects worldwide. These projects will expand our regional depth and increase the competitive leadership in our businesses, expand capacities in both our German sites, and we opened a new specialty silicon site in India. The [indiscernible] investments follow our strategy of increasing our SILICONES business in North America to meet customer pull. The Nanjing POLYMERS investment addresses the strong underlying growth in demand for smart structure materials in China. At BIOSOLUTIONS, we invest for the German pandemic preparedness plan requirements and position ourselves as a leader in industrial biotechnology with a new research center investment in Munich. And finally, in POLYSILICON, we invest to meet strong global demand for our semiconductor grade POLYSILICON. Now looking at our full year guidance on the next page. As you know, critical challenges from last year still need to be resolved. Inflation weighs on customer sentiment and power costs are still significantly higher than in 2021. Demand in this year's first 2 months was substantially lower than last year across many industries. Looking further into the year, we expect businesses to improve as the year progresses. Overall, we see full year sales between EUR 7 billion and EUR 7.5 billion, generating an EBITDA of between EUR 1.1 billion and EUR 1.4 billion. Now regarding currency rating, the first quarter will see some depressed earnings compared to Q1 last year. Key drivers for last year's performance are reversing. We see lower volumes and higher costs with inventories moving into the P&L. In general, many customers are running down their inventories and remain cautious, even though they expect demand to pick up again later in the year. For the group, we see sales of EUR 1.7 billion with an EBITDA of EUR 250 million to EUR 280 million in Q1. We see Chemicals operationally better than in Q4 because volumes have dropped in December. POLYSILICON comes in clearly below Q4 due to plant maintenance and lower contract volumes. Before I pass on to Tobias, let me make a short statement on POLYSILICON, and I know that probably many of you have been waiting for this. You will have noticed that our communicated strategy for 2030 did not mention investments in solar POLYSILICON. At the time of our CMD in March last year, we did not have plans to invest there. But since then, many things have changed. On both sides of the Atlantic, we see quite some discussions of establishing or reestablishing a competitive solar industry. We appreciate these initiatives that they underline the strategic importance of these technologies and their relevance for fighting climate change globally. In POLYSILICON, we have the best technologies, product quality and most efficient processes. But many of our Eastern peers have attractive energy costs. Therefore, access to international competitively priced power is essential for reshoring to succeed. We have been advocating for a European industrial power price for years, together with leading industry associations like [indiscernible]. At Wacker, and throughout the chemical industry, even for the whole industry, the path to climate neutrality involves electrifying production processes. High electricity prices are hampering this transformation and are destroying Europe's competitiveness. Wacker will be part of the solution, but let me clarify. We will not rush into any new investments in solar and sacrifice growth in Chemicals and BIOSOLUTIONS. To invest, we need compelling, solid and long-term economic conditions, and this will be the basis for any of our decisions. Now to Tobias for details on financials of 2022 and 2023.

Thank you, Chris. Welcome. I will walk you through our financials and provide a segment outlook for the year. Let's begin with the P&L. As Chris said, we reported sales of about EUR 8.2 billion with an EBITDA of over EUR 2 billion. The primary driver in this was price, supported by some currency. Gross profit improved despite the massive increase in costs for raws, energy and logistics. These increased by EUR 1.3 billion. Our restructuring program shape the future, not only supported earnings but cost saving measures, but also put nimble structures in place. This allowed us to react to rising input costs fast and decisively. We empowered regional management, accelerating our response time and improving our resilience. The operational performance against ongoing supply chain challenges drove a strong increase in net income and earnings per share. Last year, the most important change in our balance sheet was the increase of shareholder equity by almost EUR 2 billion. The higher equity resulted from the record earnings and the decline of our pension liabilities by EUR 1 billion. Higher discount rates mean pensions are EUR 2 billion lower from the end of 2020. Working capital stepped up, reflecting a strong increase in sales. The key feature here was the increase in inventories, reflecting raw material and energy inflation and bottlenecks in the supply chain. Our liquidity pool stayed at about EUR 2 billion. Our net financial asset position is over EUR 400 million. Moving on to SILICONES. EBITDA increased faster than sales as we actively increased prices amid strong demand. After our price initiatives in Q4 2021, we had specialty prices firm over 2022. On the other hand, commodity prices declined significantly in the second half as excess material from China hit the export market during weak domestic demand due to lockdowns. Destocking at our customers led to generally low utilization rates at the end of the year. The 25% margin that we achieved last year was exceptional. It reflected beneficial trailing raw material effect in the first half of last year at very strong silicon pricing at that time. Please note that our Q4 results also include a EUR 70 million write-up related to a share in a Chinese joint venture. Last year, we invested EUR 200 million, mostly inter-capacity for specialties as demanded by our customers. These projects include additional units for specialty silicones such as liquid silicone rubber, for example. We will benefit from these capacities and expect specialty volumes growth as customer demand improves throughout the year. Looking into the full year, we expect sales of EUR 3.1 billion to EUR 3.3 billion, a weaker first quarter with continued destocking unwinding higher raw material cost inventories and lower commodity prices weigh on earnings. We expect the full year EBITDA margin of about 15%. In POLYMERS, we used surcharges to change our pricing model effectively speeding up our response to raw material headwinds and other cost increases. This change allowed us to stabilize margins in a high volatility environment and to continue to invest in capacity expansion for our customers. While demand in the first half of last year was still strong, the second half saw lower order intake from destocking and a weaker demand in construction applications. We invested around EUR 100 million, mostly for new capacities in Nanjing in China. We continue to invest in the region for the regions. For 2023, we expect sales of EUR 1.8 billion with a slightly higher EBITDA margin than last year. While we expect no volume growth in construction, consumer and industrial applications should see some growth. We are confident to continue our pricing successfully. In some contract arrangements, lower raw material costs result in lower prices. In BIOSOLUTIONS, sales growth was driven by strong demand in BioIngredients. EBITDA declined following a force majeure in the first half investments in digitization and upfront costs in connection to our participation in the German government's pandemic preparedness plan. Furthermore, the contribution from our BioPharma activities were held back by a large customer not meeting their contractual obligations. We are actively working to resolve this matter. We are progressing our CDMO business in microbial and advanced pharma like mRNA and pDNA products. The construction of our biotechnology center in Munich and our mRNA competence center in Halle is on schedule. Our growth initiatives require continued investment and trigger higher upfront costs related to new business development and integration costs. For 2023, we expect a low double-digit percentage sales growth supported by BioPharma and BioIngredients. EBITDA will be backloaded to the second half of the year and should come in substantially higher than last year. POLYSILICON saw a strong demand for semi and solar products. Attractive prices for semi and solar grade polysilicon enabled us to achieve excellent results despite significantly higher costs for energy. EBITDA increased by over 25% year-over-year. We continue to invest in supporting the growth of our semiconductor business. Here, we see 2023 sales of EUR 1.6 billion to EUR 1.8 billion with a record EBITDA of EUR 300 million to EUR 500 million. The key changes from last year are potentially lower solar sales prices and lower volumes from plant maintenance and ongoing Semi shift. Continued higher energy costs in Germany weigh depending on how energy markets continue to develop. Our cash flow reflected the strong earnings in 2022. After cash flow from investment activities of close to EUR 700 million and to EUR 400 million dividend payment, we closed the year with a net financial debt of over EUR 400 million. In the past 3 years, we have generated a total cash flow of about EUR 2 billion, have a high liquidity of EUR 2 billion and [indiscernible]. Let me take you more background into how we see Q1 shaping up in our segments. For the group, we see approximately EUR 1.6 billion in sales with an EBITDA in range between EUR 250 million and EUR 280 million. It is fair to assume that Q1 will show customer destocking, slow demand in many chemical markets as well as planned maintenance and lower contract volumes in polysilicon. In SILICONE, we see a sequentially higher EBITDA in Q1, adjusting for the revaluation effect from Q4 despite trailing higher raw material costs and continued low utilization rates. In POLYMERS, we also see sequentially higher EBITDA in Q1. However, construction demand sees a slow start to the year. Upfront costs will burden BIOSOLUTIONS in Q1. EBITDA in 2023 is expected to be backloaded to the second half. POLYSILICON should see substantially lower sales in EBITDA in Q1 versus Q4. While our semi volumes continue to grow despite the overall semiconductor industry cycle, we see lower volumes in solar. Key reasons for this are plant maintenance and temporary lower contract volumes in Q1. All of the group full year guidance items are usually with some modeling help in our appendix. Before we get into the Q&A, let me say few words. We will certainly remember core messages from our CMD last year. We focus on growth pivoting more towards specialties while improving our result and sustainability profile. Looking back into the last years, we have already started to deliver on these promises. We have actively implemented measures to improve our resilience, our shape and future restructuring program is on track and will deliver EUR 250 million in gross savings in 2023. We stand on a strong financial foundation with a strong balance sheet. We have a net cash position of over EUR 400 million. Our equity is at EUR 5 billion. Our portfolio now focuses on higher value-add specialty products. We now have less exposure to volatile commodity markets than in previous economic slowdown. All said, I believe that we are well positioned. That is why I'm confident Wacker will remain successful, even amid the current tougher economic conditions. Thank you.

Operator, we're now ready to begin the Q&A.

[Operator Instructions] The first question is from the line of Sebastian Satz with Barclays.

You mentioned the need for a competitive power price, and it seems as if Germany is actively looking into this. If I'm not mistaken, historically, you've talked about a level of EUR 0.04 to EUR 0.05. The headlines in the press suggests that it's going to be something like EUR 0.05 to EUR 0.09. No, nothing is confirmed at this point. But assuming this would be right, would that be sufficient for you to be competitive. So how do you think about that would be my first question. And then the second one is on pricing. How confident are you that your pricing in solar can also decouple from the Chinese spot price? And is there any evidence that you can already show towards and point towards this is already happening?

Okay. Sebastian, this is Chris. I will start with the -- with your first question on the competitive power pricing. Yes, there was -- I think it was under an official press release, that a comment from Robert Habeck from BMWK on ideas of power pricing EUR 0.05 to EUR 0.09. I think that was very much focused on what renewables today in Germany are -- what the cost position is. So -- and I think it's right with the EUR 0.05 to EUR 0.09. I think that this concept is very much something on adding capacities for renewables for the future and that the industry could have a direct access to this power at this cost. Is it competitive? Well, it is different to the EUR 0.04, which we proposed also in the past. But we always said what we need is an internationally competitive power price, meaning if the world's power pricing is moving or fluctuating, there is no necessity to lock in the EUR 0.04 for, let's say, 10 years, although we would appreciate it, of course. So I think the EUR 0.05 to EUR 0.09 is something to start a conversation. Is it the ultimate signal for us to start investing? No, it's not. Because for us, to invest in solar, it's a threefold decision. First of all, it's the energy pricing, it's OpEx. And in Europe, it is really kind of a black and white thing, either it is in an attractive range, then we would continue to talk or it is not. The EUR 0.05 to EUR 0.09, especially the lower range, I would argue is something which is worthwhile to look at. But the second is CapEx. And depending on the size of the investment, this could be significant. And therefore, we would also then engage into discussions about CapEx support. And thirdly, also very important for us is we need customers with long-term commitments to buy the material from such a potentially new plant. And as you know, especially on the next value chain step, which is the ingots and the wafers, they are not really players in Europe at the moment. So they would need to be established first. And of course, they would need to have contracts with us long term on economically viable options. So in a nutshell, the EUR 0.05 to EUR 0.09 is not what we were aiming for. But I think the lower end of this is definitely something which would enable further discussions into the topic. But don't forget, CapEx is important and customers and contract is important. Second question you had was on our confidence about decoupling of Western solar prices to China. Well, I think question first, it's not so much about, is it really a kind of -- is it a decoupling? Or is it a stable and the correct pricing model for us. I mean what we've seen at the beginning of the year or December going into January, we saw extremely high volatility on the Chinese poly pricing. At the same time, the volumes sold in the market were pretty low. That means that this index is obviously not volume related and even small volumes can influence the pricing in the index. And that's the reason why we took the opportunity at the beginning of the year also to discuss with our customers about what is a better pricing model for us. I wouldn't exactly call it a decoupling now because decoupling has a different connotation I think, also in a political sense. For us, it's about looking for the right pricing model.

Very helpful. Can I just ask 1 quick follow-up. Coming back on the power pricing. Would you expect that to also apply to your existing capacity and not just new capacity?

Yes. Very good question, Sebastian. And the answer is, yes, that is what we are advocating for. Because, I mean, if you look at the -- and if you talk about reestablishing a solar supply chain in Europe, you have to clearly say that one player is already there and that is us, the rest needs to be built up to a large extent, whereas we are already there. So therefore, we advocate it's not only about new capacities, but also kind of securing the existing capacities applying an internationally competitive power pricing.

Next question is from the line of Charlie Webb with Morgan Stanley.

Maybe just first following up on that -- those price discussions you're having. I understand they're probably ongoing. But what does that price model look like to you as you move away from that volatile China index, how do you envisage that? And have you had any interested parties, your customers in China willing to discuss this, engaging in how to price your poly going forward? Maybe any kind of additional kind of sense on where that is leading would be helpful. I understand full disclosure is probably not there yet. And then just maybe on silicon, you talked about the destocking continuing in Q1. I mean how is that trending? Moving into March, have you seen any improvement? Or is this a specialty silicones market, does it still feel like your customers still have lots of inventory and kind of dovetailing into that. Are you confident that you get this business if standards stay where they are, you get this business margin back to that kind of 20% mark that you're looking for say in '24, once that destocking comes to an end? Or do you need standards to get better? Just trying to understand how much of this margin squeeze we have in '23 really relates to that specialty element, the destocking, the decremental effect versus the fact that standards have come down a lot?

Okay. Charlie, this is Chris. I would go for the first part of your question, the pricing for POLYSILICON in China. As I mentioned, we are currently in discussions with many of our customers, which shows, first of all, I think that there is an interest to engage in this discussion showing that, obviously, the material we produce has a good value. And I hope that you can accept that I cannot really share now the details what we are discussing with our customers. Yes, it is going away from this single index that we have. There is also an index on non-Chinese materials. And well, you can talk about maybe a fixed pricing component, but I would leave it with this. Customers are keen to discuss and, yes -- so makes me kind of optimistic that we find a solution there.

Charlie, this is Tobias speaking on your questions on silicon. So the destocking in SILICONES was most significant in the fourth quarter in December. So while October and November, we are already getting weaker, December was really very weak. And we see some improvement in January or February, I would say this looks more like October, November and March now looks better than January and February. So I would read this as destocking of our customers still ongoing. And especially if you ask them what the outlook for the second quarter is -- I mean, our order entry is still very short term. So we don't have much visibility. And if you look at other industries, have the destocking for half a year looks like something very normal. Also in comparison to our POLYMERS division where destocking started in summer, here, we read more like destocking is over. And now we see the true demand, I would expect that in SILICONES destocking effect Q4 and Q1 and maybe a little bit into Q2. But we are confident that we can sell additional, especially specialty volumes when our capacities are available because over the last 2 years, we have been -- yes, in bottlenecks in the supply chain. And we are really looking forward to this additional material that we can sell to customers, depending on how their demand shapes up. But customers are more confident that they have a stronger end market in the second half of this year. So with respect to the margin you mentioned, and do we get back to the margin target of 20% plus, I would say last year was sort of exceptional with 25% because of 2 reasons. The first half was super strong. We still had lower cost raw materials going into the P&L, while standard prices were at a very high level, and that flipped a bit in the second half. And then we had in the fourth quarter also that write-up in the joint venture, giving us an extra margin. We guide for around 15% for the full year '23. This is not a target margin, but we are starting in an inventory correction situation, and we have the reversal of raw materials that are at high cost now going from the stocks into the P&L. So the tailwind that we had in the first half of last year, we have a headwind in this year. And for that reason, I'm confident that in '24, the world can look completely different, and we are back towards our target margin. But I think it's a bit early to talk about '24 when you just have very limited order visibility for the second quarter.

Understood. That's helpful. But just to kind of clarify, I guess, that question more, if standards were to stay where they are, and then you don't make much money making standards, if just you see a more normal environment in specialties, you'd be back towards that 20%. Is that a fair assumption? Or do you need standards to improve?

I mean, at some point, standards needed to improve again. I mean what we have seen in the first half was super good. What we now see around Q4 and Q1 is not what standards can deliver. I mean it's also a profitable business, but it's more volatile than Specialties and that's why we focus on Specialties. But our portfolio is composed of the two, and I would also assume that supply/demand in standard products would improve, especially also when raw materials finally come down over time.

The next question is from the line of Mubasher Chaudhry with Citi.

Just coming back to -- sorry, the subsidized electricity prices. Could it move from the European Union to kind of bring down the electricity prices whether it's EUR 0.05 to EUR 0.09 or something else when whenever it gets agreed. Could that encourage a response from China again to kind of make sure that they remain very much at the bottom end of the cost curve. And therefore, my question is, do you need certainty on price of poly or returns rather than just electricity costs? And then related to that, do you think the customers will be willing to go into these kind of discussions where you're effectively given a fixed price of poly or a fixed return, when there's a potential available much, much cheaper Chinese polysilicon available without an outright ban from legislation, which says that you can't have Chinese polysilicon content in Europe or put Chinese polysilicon content in solar panels in Europe. So just some thoughts around kind of the moving dynamics of the subsidies and the response -- what the response could be like?

Okay. Mubasher, a very interesting question. Is there a response -- potential response from China if there would be European power pricing. To be honest, I give you my personal view. I think -- I think in Europe or in the European Commission, people look very much at China and think that everything that is done in China is done against somebody else. But in my view, I think many of the things we see in China are done in China for China. From that perspective, I doubt honestly, I don't know it, but I doubt that if there would be a competitive power pricing for the solar industry, which is on par or slightly higher than China, I wouldn't expect any reaction from China. It could be different if it would be half the price, but I think that is absolutely out of the ballpark in my view. So -- and also we were never educating for having the same or lower price than in China, but having it on a comparative level, meaning it could be slightly higher because we are more efficient. And so to answer your first question, I don't think there would be a response from China. If you talk about the European offtake of our material, and I understand your question in the respect that you mean if power would still be high, we could go for a fixed price of our customers. So -- and then just putting the higher electricity costs down through the value chain through our customers. Well, my answer would be, from our perspective, that might be okay, acceptable. But I have some doubts if that could be the great model for Europe because at the end of the day, these high power costs would go through the entire value chain and then the modules at the end would end up being not competitively priced internationally, where I would see -- I wouldn't see that as a great thing to do. And that's the reason, again, why we advocate for -- in the beginning of the value chain, put in a competitively priced power -- internationally competitively priced power, which would make the product on every value chain steps and also more internationally competitive that makes it much easier for us and our customers to engage in such a concept.

Sorry, just to come back on that because the 3 things that you talked about what you need is -- the third thing that you talked about was customers with long-term commitment to buy polysilicon from Wacker on long-term economically viable terms, right? So that's what I'm trying to kind of understand, those economically viable terms implies that you need a stable polysilicon price as well as a stable electricity price? Because if you've get a stable electricity price, the polysilicon can be very, very volatile. And therefore, despite being at EUR 0.05 to EUR 0.09 per kilowatt hour, you still could be loss making?

Yes. No, you're right. I mean, you're absolutely right. That implies more stable poly pricing and definitely not something which focuses on a Chinese -- the Chinese price reference point. Yes. Index -- that was the word index. I was looking for index.

The next question is from the line of Markus Mayer with Baader-Helvea.

Coming back to the customers and Charlie's question, are the indications that you see customers in Europe that there are projects of new customers? That's my first question. And then the second question is on the SILICONES business. You expect lower average selling pricing standards. What is the price expectation for Specialties? Do you expect here flat prices, maybe I missed this? And then the last question is on BIOSOLUTIONS, do you expect still a burdening coming from the upfront costs. Could you give an insight on the magnitude of the upfront costs which is still weighing on 2023 margin?

Okay. Markus, your first question, customers in Europe, yes, there are customers in Europe, although the volumes are at the moment still low. And as I mentioned, I mean, if you look at capacities for the next value chain step, which is ingot and wafers, this industry itself is in the process of being built up. So that means direct customers are still evolving. But you also see some customers which are actually some further steps down the value chain, producing sales and modules that want to have material, which has European origin. So they actually indirectly work together with us that the material which we produce is then shipped to another location for making the ingots and the wafers and then goes back to Europe to produce the modules. So yes, there are customers, demand is increasing, but there needs to be more to come.

So it's a still a question. I meant are there new wafer customers? Do you see projects of new wafer customers for Europe because so far this is basically what is listing for your business that was...

New wafer producers?

Yes.

No, we don't -- I mean the Norwegians are there, but that's about it.

No, that was my question.

Markus, Tobias here, on the silicones question with respect to Specialties pricing. In general, we are firm on Specialties pricing. But that does not mean that they stay unchanged. So we are not immune to supply-demand effect. But for the time being, specialty prices held up firmly. But it will very much depend also on how the demand will develop over the course of the year. And also as a side note, the definition between standard and specialty is a simplification. I mean, it's not black and white. There's also gray for some specialty products that are I mean closer to standards. I mean, the price pressure potentially also comes from standards becoming cheaper. But I think it's really a different picture for the time being. Why standard prices have really reduced significantly, specialty pricing has been holding up. On BIOSOLUTIONS, you have tried to get a number on the upfront cost on the magnitude. I don't want to disclose it precisely. But I think if you take a low double-digit number and see the size of the overall segment, you get a grasp on -- yes, that margins are, yes, depressed, especially in the first half of the year. Because the overall business, the BioPharma business really depends on when to get campaigns turned into revenue and sales. And there, we see much of the sales coming in the second half. So let's be a bit cautious on the first half, but also look at the optimistic and constant outlook for the full year that we will see a significant increase in -- also in profitability in this year in BIOSOLUTIONS.

The next question is from the line of Thomas Swoboda with Societe Generale.

I have 2 questions on POLYSILICON, please. I'm intrigued by your statement. You're saying temporary lower contract volumes in POLYSILICON. I'm wondering if you could expand on that. What does it mean? Does it mean you're walking away from business in the spot market, your customers ordering less within the existing contracts? Yes, I'm just wondering what that is? And the second question related to that is, could you comment on your year-end inventory level in POLYSILICON? How is it compared to the previous quarter. It's actually been increasing? And how do you look into inventories for the end of Q1, please?

Okay. Yes. Thank you, Thomas. And actually, these 2 questions are kind of related because -- let me start with the second one, inventory, actually in 2022, especially towards the year-end was pretty low because we had a very attractive pricing for POLYSILICON. So what we did is try to sell as much as possible. And also in December, we still had very attractive pricing. Now what I explained then before -- and now I turn to the first question, what I explained before is we saw this huge volatility in the pricing of POLYSILICON starting mid-December, reaching the low point kind of I think was calendar week 2 in January. But at the same time, the volumes in the market were pretty low. So from that perspective, both our customers and also on our side, the interest to sell volumes was limited, and that was meant as you know with temporary lower contract volumes. Because also on the -- on our customer side, many of the factories were closed because of the COVID infection rate, which was really skyrocketing. So we use the opportunities to talk with them, and we found agreement to lower these contracted volumes because for us, the volume was -- the pricing was too low. And for them, in many cases, they just didn't need the material. And for us, it was a good opportunity to restock our inventories. And keep in mind, this is a long logistics chain from our plants in Germany to our hubs in China. And in order to be competitive in the market, you need a certain inventory on the ground in the country. And that's why we took that opportunity just to also fill up our inventories in China.

Understood. But does it mean that this situation has already reversed? Or is this kind of a small standstill still ongoing?

Well, I wouldn't and I didn't call it a standstill. I think we are in negotiation with all our customers. And as you know, prices did change also dramatically, then they recovered quite a lot in the past, and that's also why we use our contracted volumes to be sold again to our customers.

Thomas, Tobias here. May I add March volumes are higher than in February, if that helps.

Next question is from the line of Andreas Heine with Stifel.

I have actually also 2 questions regarding poly. I'd like to understand a little bit more how you play solar and semi between the 2 locations, Germany and U.S. My understanding is that in the U.S., you have received subsidies for producing solar material, but that plant is more dedicated to semi. And on the other hand, producing solar material in Germany with higher electricity cost does not look safe driver. How you play this and you can elucidate on this. And then there's one peer who -- which reopens a plant in the U.S. saying that 20-kiloton plant is fully rented, they would be able to earn EUR 100 million to EUR 300 million EBITDA. I would assume with your higher exposure to semi and your technology lead that your profitability is higher than the EUR 100 million to EUR 300 million fully loaded. Could you comment on this piece as well?

Okay. Andreas, I would start to comment. The line was not as good. It was a little hard to understand. First question, I think you -- for the grade, so semiconductor and solar grade, how we switch that in the U.S. and how is it influenced by the electricity pricing. Well, first of all, the general statement, we are probably the only ones that can use both the capacities for solar and semiconductor because of the kind of technical setup that we have. And typically, what we do is, of course, we try to find an optimum, but we also try to make it in a way that is in line with our customers, especially on the semiconductor side because there are some of these customers definitely demanding to have 2 sites that are: a, qualified, and b, are delivering to give them more risk protection. But the solar -- the energy price itself doesn't make a huge difference, whether we produce poly or -- whether we produce solar or semi because at the end of the day, our aim is to run both -- all the plants at full capacity. So it's really not a decision so much on the electricity pricing. And then the second question?

Maybe add into this. How is it with the subsidies in the U.S. are only for solar, not for semi, and we don't have that in Europe, at least not by now. So how you can get access to disadvantage in the tax credits on the solar?

Yes. You mean for the IRA credit for POLYSILICON?

Yes.

But we assume -- Andreas, Tobias here, we assume that this is also applicable to -- as per definition of the high quality that we produce this -- I mean semi, is above solar quality, as we all know that tax credit would also be applicable to the semi. So -- but it's a tax credit. So we will not see it in the P&L in this year because I think it will also be paid out, yes, the next year.

Yes. And the mechanism, I mean, I think it's not yet fully defined, how do they actually want to do it.

And then I think your second question was on -- yes, you were referring to...

You are as good or better than your competitor in your plant in Tennessee actually.

No, I think the question was also on some potential EBITDA contribution from an investment. I think it's far too early to speculate about that.

No. I was just thinking the plan of the peer is as big as your ones, and they're saying that it can earn EUR 100 million to EUR 300 million EBITDA. So you have the same size. And I would assume that your tenancy plan should be at least as good if not better?

I think we shouldn't comment on that, sorry.

Sorry, Andreas, the line was kind of a little bad.

The next question is from the line of Chetan Udeshi with JPMorgan.

I had a couple. So first is just on the guidance that you're talking about net cash of EUR 400 million going to a low net financial debt. I mean I'm assuming there's a EUR 600 million of dividend payment, but it would imply that essentially you are assuming free cash flow to be EUR 0 to EUR 100 million. Is that a fair assumption? And why is the free cash flow so low in 2023? Can you maybe shed some light? The second question was, clearly, I think the whole -- most of the conversation today on the call has been on solar and polysilicon, which is quite interesting. But just from a philosophy point of view for management team, how comfortable are you to take or make investment decision based on subsidies? Because in theory, subsidies can be there for 2 years, they may not be there after 2 years. So like what sort of mechanism will you take into account in terms of making an investment case around subsidies?

Chetan, on your cash flow question, Tobias here. I think you need to equate that our guidance has, number one, a lower EBITDA. And then secondly, we have a higher invest. And if you potentially also include a bit of a buffer for, yes, say, a small bolt-on acquisition. It's even beyond the EUR 650 million that we have as a capital expenditure in our plans organically. Right now, we don't -- I mean we don't assume a big unwinding of working capital. Definitely, we would expect inventories to come down a bit also with lower raw material costs and yes, supply chain bottlenecks to get dissolved. But I think your calculation was not that far off. And especially if you account for the EUR 600 million in dividend payment, that would come after the shareholder meeting.

Okay. And Chetan, on your second question, a very good question on the part of the subsidies. And well, to be fairly blunt, we prefer a business where we are the sole architect of our own success. That's the way I would like to phrase it because we are an entrepreneurial company and we don't want to rely on subsidies. I think when we talk about this reestablishing the solar supply chain in Europe, for me, this is more -- it's not so much about subsidies. It's really about setting the right framework, setting the right structural changes within Europe. I mean, if Europe wants to be competitive in the future for the chemical industry for many other industries, I think competitive power pricing is something which is just essential to keep industry and to keep employment at an attractive level. And from that perspective, I don't think you can just subsidize it. You can subsidize something for 5 years, but you need to make this structural change. And that's also what we advocate in politics saying that the -- the buildup of renewables needs to be much faster, the infrastructure for renewables. And all the processes to get them running needs to be faster because that's a structural difference, a structural change for the country that makes it more competitive. And this is what we are really aiming for because I agree with you, I don't feel very comfortable building something just on subsidies. And just in subsidies, we will definitely not do.

The next question is from the line of Sebastian Bray with Berenberg.

I would have 2, please. The first is on the starting point the power prices at Wacker relative to the proposed EUR 0.05 to EUR 0.09 per kilowatt hour. I took a look at the energy costs and some of the historical data of about 4,000 gigawatt hours per year electricity consumption. Am I right in saying -- am I warm in saying that the realized price paid for power at Wacker was somewhere in the mid-teens per kilowatt hour in the year 2022? That's my first question.

Sebastian, we have always been shy of commenting on specific power prices and items on that level of detail. What we always referred to is that we benefited from the hedging approach. So we did not -- definitely did not pay the super high spot prices in third quarter of last year. And that was a value that generated hundreds of millions in benefit against the spot price from our hedging strategy. But you observe the prices. And yes, we have seen also forwards coming down in mid-teens prices that were available at some parts of -- or in some phases of last year. And this reference point is to the energy cost that we always are happy to give you is that our energy costs in global market almost doubled last year going to a number of slightly above EUR 800 million in total for the group.

That's helpful. I don't want to push this too hard, but am I at least look warm with that figure. Or am I pushing too hard?

I think we could go to the next question.

The next question is on BIOSOLUTIONS segment. Are we going to have a period in '25 when we wake up the capacity is fully utilized and EBITDA margins are over 20%. Because I look at the margins now, and I think, well -- let's say, the figure is EUR 20 million of upfront costs that go in there. How much visibility do you have on these facilities being filled? And can you remind me of when the new RNA facility under the pandemic preparedness plan is done?

Yes. For your second part of the question, the pandemic preparedness plan requires the plant to be operational in mid of '24 and that's the plan, and that's what we aim for. As we stated and Tobias repeated that again, I mean, 2023 will be a year of transition for BIOSOLUTIONS where we ramp capacities, where we build new capacities, and also -- we don't talk often about it, but I can tell you the teams are pretty successful in getting new projects on the road. And as most of them are in the pharmaceutical space, that just takes some time. It is not something which you can do from today to tomorrow. So from that perspective, we will see an absolutely gradual improvement, and I'm pretty optimistic already in 2024 looking for BIOSOLUTIONS. So to keep your picture in 2025, do we wake up and are happily surprised, I think we will see a gradual -- definitely a gradual improvement. And starting in 2024, it will be already a good year.

The next question is from the line of Sean McLoughlin with HSBC.

Just a follow-up on the U.S. versus Europe and POLYSILICON. I sense that there's been a reprioritization of Europe in your thinking around where you will be investing CapEx, if you do choose to invest CapEx in solar expansion. I'd just like to kind of understand what are the main moving parts in that thought process? And the second question is just a confirmation on Siltronic. I believe I saw that you're still -- it's still to say you're waiting for a combination of buyer and price. If you could just comment a little bit about what those boundary conditions might be and maybe how the environment has changed since GlobalWafer?

Okay. Sean, a quick answer on your first question. There is no reprioritization on our side, whether it's the U.S. or Europe for a potential solar investment. As we stated in our Capital Market Day, we have no decision on investing in solar. Since then, there's a lot of discussion going on, on both sides of the Atlantic. But on both sides of the Atlantic, there is not yet a scheme which would allow us for a long-term and feasible and economically feasible model to invest. And therefore, we have to wait on both sides, what comes up. And of course, we do not only wait, we engage in these discussions, but I can't really tell you today which is more attractive. I think we would probably need some more weeks or months to wait on this. On the Siltronic, well, also really nothing new on this front. We always said we want to reinvest these -- the remaining share that we have, 30%. We want to look for the right partner. And of course, we are interested in an attractive pricing, which values the money -- which values -- sorry, which values the company at the right value. And that's the way we go forward. So really nothing to comment more on.

I suppose just more broadly around I think -- if we think about the political environment, I mean is the sale effectively restricted to a local player?

I don't know. I don't know. I mean geopolitical situation at the moment doesn't seem to be easier than 2 years ago. I think that's a fair statement to make. But again, we are not in a rush. We are not in a hurry. We are financially pretty stable, and we can do all the investments in our growth strategy going forward also without these proceedings.

The next question is from the line of Geff Haire with UBS.

I just had 2 questions. First of all, on POLYSILICON, but this time on semiconductors, Clearly, there's a lot of capacity being built in Europe and North America with onshoring as we go through the next sort of 4 to 5 years. When would you expect to be tendering for contracts with the Intel and all the other companies that are adding new capacity in the coming decade?

Well, to answer your question, actually, we are not directly tendering to the Intels and the Samsungs, but we are tendering to the wafer producers like Siltronic, like Shin-Etsu, like GlobalWafers. And of course, they are also ramping up their capacities. And we are in constant negotiations on expanding long-term contracts. And I can tell you that we have a -- well, we have a pretty good pipeline on expansion projects with them.

Okay. My second question was just back to Siltronic. Clearly, you've got the largest shareholder, but also GW still have a substantial shareholding. Do you have to agree on who you sell the shares to? Or is there -- or can you both operate completely separately?

No. I mean we can sell the shares. I mean, our shares our shares and GlobalWafer shares are GlobalWafer shares. There's no restriction on that.

These final questions come from the line of Jaideep Pandya with On Field Research.

The first question is on POLYSILICON on the n-type market. What is your view of this market this year? Industry experts are saying around 100 gigawatts? A couple of your Chinese competitors can produce this. So can you actually produce the 60, 65 kt all of n-type, and do you think there is a price premium for this product? That's my first question. The second question is really around your raw material energy bill. What is your expectation for this overall this year? Because when I look at your guidance, basically, you're dropping EBITDA by EUR 900 million year-on-year, and you're dropping sales by about EUR 1 billion year-on-year. So it's a pretty hefty drop-through from sales to EBITDA. So just curious whether you're baking in a flat raw material energy environment in that?

Okay. Jaideep, first part of the question, the n-type, I mean, we always said that n-type will be the prevailing technology because its such better performance. And so I would agree with you that there is a big potential going up. And it's a good number, I think, to work with. Can we produce with our 60 kt referring to our solar capacity for that. Well, it's clear, yes, as I mentioned before, we could use our capacities both for solar and semi. And if you can make semi, you can definitely make n-type for poly, yes.

Jaideep, on raw materials and energy, it is pretty tough to actually come up with forecast for these items. If I wind back the clock to our planning season in fall, I think we had assumed that raw materials would be sort of flat and energy would still increase a lot. In our annual report, we have baked into the forecast that raw materials are down and that energy slightly increases against prior year. If I look at most recent development from the last couple of weeks, I would see also the potential that energy comes in at the same level as last year because we are already roughly 80% hedged. So there are some remaining volume to be bought and very much depends on then how the second half of the year develops. But overall, lower raw material and energy is slightly up or at the same level as last year.

I just want to make one comment to just, Chris, and to IR team as well, given the lovely commodity you are in, polysilicon and the volatility we bring to their lives have been super helpful last year.

This concludes the Q&A session, and I hand back to Joerg Hoffmann.

Thank you, everybody, for joining us today and for your interest in Wacker Chemie. Our Q1 conference call is scheduled for April 28. Don't hesitate to contact the IR department if you have further questions. Thank you.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.