Wacker Chemie AG (WCH) Earnings Call Transcript & Summary

Thank you, Chris. Hello, everyone. I will present to you the actions we are taking on structure and bases. Our priority here is straightforward, make Wacker leaner, faster and more efficient. Obviously, over time, as time goes, complexity has increased with growth, new businesses and expanding global operations, refocus addresses this by streamlining structures, reorganizing processes and improving accountability. A key element is our past cost and efficiency program. The program is on track with Q4 last year. And in Q1 this year, we already started with the implementation of FirstMerit, especially nonpersonnel measures, and for the organizational restructuring, we moved here step by step, and we started in Q3 2026 and expect to have all the restructuring done completed by the end of 2027. The teams spread over 8 distinct work streams are working really hard and with great help implementing all the fine items and all measures are to be completed in '28. PACE targets, both nonpersonnel and personnel costs. As things move faster on the nonpersonnel side, the first visible savings are already being delivered. We reduced expenditures through lower technical spending, structural savings and procurement and tighter budgets, and we are controlling and monitoring that will be very tightly on a monthly basis. For personnel costs, benefits will begin to materialize from '27 onwards. In the second quarter of this year, we reached an agreement with the works council in Germany to reduce around 1,600 positions. This is truly a milestone achievement and that's the time line for a stringent implementation going forward. Paste makes Wacker, leaner, faster and more efficient. Therefore, a [indiscernible] of pace is simplifying how we operate and just an example. We are merging operating into larger functional units and centralizing support teams to improve efficiency and accountability. Another example, we are reorganizing our entire engineering processes to align around 44 departments with clear roles and responsibilities and integrated functions. The goal is not just to have fewer organizational boxes. The goal is faster execution, better performance and stronger accountability. And PACE is on track. In 2026, we will achieve around EUR 200 million in savings and gross savings, of which EUR 85 million were already saved in the first half. That means for the second half, there are EUR 115 million to save. Annual gross savings will expand to more than EUR 300 million in 2028, and as we stated before, more than 50% will remain EBITDA relevant as net savings after accounting for inflation. The structural impact of PACE is important. It lowers our breakeven point and increases again resilience of the company. This creates an additional leeway to invest in innovation, technology and attractive markets. PACE is not just about cost cutting. It's making Wacker leaner, faster and more efficient and such laser foundation for focused growth. And be on pace, there is obviously much more. Our advanced digital foundation enables AI scaling for greater impact. Over the past couple of years, we have built a strong digital foundation. Just as a highlight, Wacker has just 1 single ERP, and we are running on [indiscernible] our digital organization has been established and is up and operating. Gen AI tools and data layers have been implemented. And all this was a big effort and now we can scale up for greater impact by implementing AI capabilities across Wacker. This is a fascinating do to me per and definitely for the company as a whole. And with this, back to Chris.

Thanks, Tobias. While actions taken on structure and processes help us to become leaner and faster and more efficient, they are only 1 part of refocus. But they are integral and important part of the process and also worth to mention, they are real. The PACE savings are real and they work. Another priority is to elevate our business model and value proposition. So now let's talk about another important ingredient of success talk about growth. We are coming from an environment defined by broad-based growth, especially when I look back at our 2022 CMD here at TATE. Today, the environment is clearly different, and not all the opportunities offer the same potential. That is why we are implementing a new work for portfolio management with differentiated steering. We will become more selective, much more selective about where we invest, where we innovate and also where we allocate our resources. Now how does the playbook look like? We have implemented 4 different portfolio roads to steer each business. Now let me briefly go through these categories, accelerate growth businesses, they have substantial upside with high innovation potential and value-based pricing for very attractive margins. [indiscernible] we are focused on leveraging our established market positions to generate resilient cash flow. And turnaround is about 5% of sales. Here, targeted actions are required to unlock the future potential. If transformation is successful, they will move to accelerate growth and would receive additional resources. Now let's have a look at -- closer look at Accelerate growth, and you can see here some of these fast-growing end markets on the slide. Our portfolio approach means more focused innovation. We had direct resources towards markets with strong structural demand growth that aligns with our strength. You see a lot of good examples here, and we let me focus on the hypersonics AI and high-end chips are driving demand for powerful and densely packaged semiconductor devices. So they run hot. They require advanced thermal management and we partner with customers to solve these critical challenges. Our thermal interface material is improve the heat transfer, the long-term reliability and the energy efficiency. And with the massive investments in data centers, we expect to see continued structural demand growth in these applications. As you can see, there are many examples of backer solution, which we introduced recently. Now let's have a look at the optimized return category. Again, not at good exact here. But let's focus on the ultra-ultrahigh pure polysilicon. We are the leader in our material is critical for the highest-performing semiconductor. The market is for strong long-term growth, and we have just expanded our hedging capacity for the highest quality Therefore, our focus is on operational excellence, on yield improvement and on cost. This strengthened profitability while reinforcing our technology and market leadership. As you can see, optimized return has very attractive businesses where we can undervalue without major new investments. The VAE powder of power sales [indiscernible]. Our segment's strategies reflect individual portfolio growth. Now starting with Silicon. We provide a right range of products from upstream standards to bespoke high-end specialty solutions. In Silicon, 17 out of these 25 units, you can find -- some of the most attractive growth opportunities also allocated in this segment. We are well positioned with our expanded debt base, which I mentioned before with the recent additions in downstream capabilities. So we will drive selective asset light, downstream expansion to capture opportunities in fast-growing markets. Polymers, on the other hand, are less complex. As you know, we serve the adhesion and coatings market from a shorter value chain, dispersion powder [indiscernible] so just 3 portfolio units. The latter 2, powders and resins, higher differentiation potential, stronger profitability and returns by our cost by capital discipline. BioSolutions has 3 portfolio units. Biopharma, bioingredients and Life Science Chemicals. Today, we are focused on commercial excellence to exploit the full potential of cutting-edge biocide. At Polysilicon, last but not least, have 2 portfolio units. Our focus is on semi, and we will expand our same leadership while maintaining the U.S. solar option for the time being. And in each segment, we are pursuing specific priorities. So different actions, but 1 common objectives are not the full potential. The next 3 focused priorities excelling with our people and our culture. And that's often a miss, I would say, but it's integral part if you want to proceed in our executing the strategy. The success of implementing our portfolio roles ultimately depends on our teams. So it's about having the right capabilities, leadership and culture throughout the organization. And as our business models evolve, the skills required to also evolve. That's why we're investing in our people and make sure that we have a long-term winning teams. So different portfolio roles, obviously also train capabilities. Now for the accelerated growth, we need teams with proactive business hunting mindset, coupled with disciplined execution to drive faster commercialization. For optimize return, we need rigorous performance and efficiency management skills to improve margins and return on capital. For maximize cash, you again need a different mindset. We need to embed cash and cost culture as a daily management position. So you don't talk so much about growth in that category. But you talk about how can you increase the cash generation. And for turnaround, finally, we need range relationships with key customers and follow strict milestones to process to real growth. So my responsibility instead of the entire board to ensure that each team has what it needs to succeed in their specific mission. We've already launched a program to build long-term winning teams. The one [indiscernible] promotes collaboration across functions, businesses and geographies and essentially fibers teams. Leading at Wacker has strengthened the leadership capabilities throughout the organization and at the same time, we are investing in AI and digital skills to prepare our workforce for the future. Together, all these initiatives help build the culture and capabilities needed to deliver refocus successfully. So let me briefly summarize before I hand over to Tobias. We have taken bold steps to a more and much more challenging market environment. We have a comprehensive program running. We have defined a holistic approach where the strategic priorities for structure and processes, business and value position and people and culture. And we have implemented and we are running, the cost and efficiency program pace, and we are on track to save EUR 300 million annually. Building on our success in pace, now Ignite if you want the next level of selective growth with a new playbook for port management and differentiated steering. Importantly, we see distinct value creation potential across all 4 segments. With clear portfolio roles anchored in the organization, we will drive the spirit and the commercial success. Together, these actions are creating a leaner a more efficient organization, which will strengthen our long-term competitiveness. We are absolutely confident that we focus will unlock our full potential within our 3 strategic priorities. It's the foundation of new financial entity year. Tobias?

Thanks, Chris. Let me briefly outline what I will cover over the next few slides. First, I will review our performance and how we maintain solid financials and improve resilience side all the headwinds. I would then show how we focus drives our ambitions for growth, profitability and ROCE and obviously also touch on current trading and order with probably government where we intend to go. The last several years have been defined by excess market volatility. Post-COVID gave way the headwinds across many customer end markets. And despite this, our chemical specialties businesses continued to grow and expanded our global leadership positions. In Polysilicon, we have seen strong semi demand growth, and we grew double digit from peer, which was above market. Unfortunately, this development is not visible at first look, as these wins are being offset by solar beer volumes have contracted due to overcapacities in China. BioSolutions, our new [indiscernible] Competence Center, which is part of the German [indiscernible] preparedness program strengthened our position in advanced [indiscernible] back to Chris' comment about products that we had shown at the last CMD in Wacker in the [indiscernible]. We talked about our new hedging line. We talked about the silicon hybrid polymers plant our new mRNA competence center as well as about our electronics and health care silicon specialties. These businesses taken together now generates more than EUR 500 million more sales than a few years ago. So we have achieved strong growth in some focus areas and our recent investments are the foundations for future growth. Despite the headwinds and the high investment period, we maintained solid financials around for key balance sheet items. First, we increased our already strong liquidity position that was clearly reported by cash flow generation and disciplined working capital agents. Second, we kept financial debt low. This year, it comes in around EUR 100 million at the end of the year, which equates to a comfortable leverage level of below 1x EBITDA. Third, and almost forgotten, we reduced the pension deficit, a big topic a few years ago by modernizing our [indiscernible] system. We also into use the capital option. But we also did voluntary top-up and we funded through a CPA, the unfunded portion of the liabilities with more than EUR 250 million -- EUR 250 million PTA, which likely over the last for with the Stockholm. Higher in count rates were also supportive. We increased overall shareholder [indiscernible] EUR 4.2 billion despite returning EUR 1.5 billion dividends to shareholders during that period. Our solid foundation is a basis for everything we do and it allows us to invest in selective growth while navigating also under the market. So now looking forward, our ambition is clear. structural EBITDA margin of 15%, plus/minus 2 percentage points. We have delivered this performance before. However, our performance has fallen short of this over the past couple of years. That is why we are taking decisive both actions through refocus. We will achieve our margin ambition by calling never first, drive growth. We will focus our resources to drive selective specialties growth. And we will leverage our existing assets and expertise into commercial success. Second, as cost, we will deliver annual paid cost savings of more than EUR 300 million in 2028 of which more than 50% will be retained in EBITDA. And as we talked about, we will invest in cash and cost culture as part of some portfolio units to maximize cash. Third, improved resilience. We will protect margins with our focused pricing playbook to optimize returns. This is so important to can take volatile and dynamic market environment. And taken together, these actions will allow to consistently deliver on our structural margin and et side -- for the more we that our ambition is that regardless of which scenario plays out which system. Refocus changes how we prioritize capital allocation. Over the recent years, we have invested our global footprint, and we have invested in capabilities. That investment phase is now behind us. Those assets provide a strong foundation for future growth. Going forward, our priority is to leverage existing assets and expertise to drive commercial success. We will keep our CapEx below depreciation and in edge EUR 300 million to EUR 400 million, of which maintenance is some EUR 200 million. Despite lower investments, we will accelerate growth by focal resources on the most effective opportunity. Our ambition is to gain ROC back to more than 10% as net cost growth, get it back to more than 10%. That means above our cost of capital. We have shown this in the past but recent performance has been well below that. The combination of progressive and margin decline led to insufficient capital returns. And there are 3 main levers to get us back on track. First, raise EBITDA through growth and cost cutting, obviously; second, strict capital discipline with a focus on leveraging our existing efforts and third, optimize and continue to optimize working capital management. Together, these actions will drive the nominator and the denominator down to achieve a rose to changes lead at last and time. Going forward location priorities are clear. Growth and maintenance of business, #1. #2, to maintain the financials. #3, will make, as we said, selective growth investments while maintaining assets to insurance sales and reliable operations. At the same time, we will leverage our already existing assets and expertise to drive commercial success. Our driven policy is unchanged. We aim to distribute roughly 50% of net income. That's number three, maintain solid financials with a financial leverage target of 1x EBITDA, also allowing for some flexibility. Putting it all together, our capital allocation part to reflect our well-balanced approach to selected growth, shareholder return and financial results. Sustainability remains in several part of our strategy. Going forward, we will realize selective growth opportunities, and we will remain on our pathway to net row by 2014. Our target is to reduce our footprint and strengthen partnerships with the customers. Our pathway to Net Zero, there are 3 principles to it. Number 1 is green silicon, number 2 is process transformation, and number three, a switch to renewable energy. For us, sustainable sustainability is an investment and it should also be a good bits. In our last earnings call, we highlighted that Baker recently received L'Oreal's Energy Award in the raw materials category. By reducing CO2 emissions from silicon metal production in Norway, we reduced our financial risk and create opportunities to grow with strategic customers. So that part shows how sustainability and innovation go and Refocus is a holistic approach to go, how we operate, how we compete and how we create value. We have defined clear strategic priorities to be. And these 3 priorities we complement each other. Together, they will unlock our full potential are the foundation for our financial position. on this slide, we also drive GDP plus growth by making selective growth investments and improving mix. We aim to raise our structural EBITDA margin to 15% plus/minus 2 percentage points by delivering on our growth on our cost and efficiency program. And number three, we aim to get ROCE back as soon as possible is up 10% in terms of our cost of capital. So these 3 targets, ambitions drives all that we have in our refocus setup basically on self-help by the company. Before I hand you back to Chris, let me address trading. Our strong performance continued in the third quarter. Group EBITDA will likely be at the same level as in the second quarter. Chemicals see stable to slightly better EBITDA performance. Biosolutions roughly similar to the prior quarter. Polysilicon will be approximately EBITDA in the quarter, including a special income of approximately EUR 3 billion from the solar contract resolution. But operational and polysilicon performance is held back by a disappointing 2-3-2 decision. Despite this, if you look at the 3 quarters, the group earnings are up driven by execution pace, pricing actions and strong operational performance have delivered tangible results year-over-year and with this, I will pass to Chris.

Thank you, Tobias. Next step for Wacker is refocus. Refocus, as you said, it's a holistic approach to improve how we operate, how we compete and how we create value. Refocus is built on our 3 strategic priorities that reinforce one another. Our business priorities are clear. It's about profitability. It's our ROCE and it's for selected growth in the tract market, and we have a clear plan for refocus. The new playbook for portfolio management as defeating has been defined and in and is now ready for execution. Past cost savings are full swing in execution. For the next 3 years, our agenda is set. In Polysilicon, we will lead the way in the next generation of semiconductors and optimize our performance by focusing on automation, technology and yield improvement. In BioSolutions, we will leverage our cutting-edge technologies and focus on commercial excellence and customer partnerships to fill our assets. For polymers, we will leverage our unmatched footprint and leading application expertise and optimize to improve margins and return on capital. And it will leverage our own excellence centers close to customers to our selective growth. Before we discuss [indiscernible] leave you with one key message. Wacker enters this next phase from a position of strength. We have leading technologies, we have strong market positions, and we have high-quality assets, built 3 years of targeted investment. The focus is now on execution. -- through refocus, we are concentrating on the opportunities that are within our control to improve profitability, increase returns and accelerate value creation. And we are confident that it will unlock upside in earnings and strengthen buckets competitiveness for the long term. So thank you for the attention. And Tobias and I are happy now to take your questions and comments. Thank you.

Technical issues with the Internet [indiscernible] land line solution. So we want to do, we have the question. I'll give you my mobile for the question, and then I'll run back and forth. You probably didn't notice it. So who would like to have the first question. [Operator Instructions].

-I'm Katie [indiscernible] from Barclays and asking on behalf of the covering analyst, Anil Shenoy. You talked to your Wacker polysilicon. We'd just be interested to get your talking through the upside in both of those areas. What do you think the EBITDA potential could be in a successful Section 232 environment? And you also spoke about closing down the U.S. sites, what kind of savings do you think we've achieved from this?

Okay. Yes, as I mentioned before, if actually we do what the aim to revitalize the U.S. market for solar and on silicon and in its current reading, it does not provide the support which is which is a deposit Yes, we keep engaged in very constructive to with the U.S. government, and we found on the ongoing commitment the government to support domestic poly production in the U.S. So therefore, it is too early to speculate what will be the outcome of this you say more at the moment. But I may be testament on the either scenario is that none, which would be presented 1 or the semi-only scenarios we see better than the situation of uncertainty that we have today. The same you mentioned, yes, there will be structural gross in trading the early to us because it's still open.

Tristan Lamotte from Deutsche Bank. I just wanted to go a little bit further on that question around Section 232. But what specifically is it in Section 232 that is not incentivizing the behavior that you expected. Is it specifically the lack of protection around U.S. Polysilicon? Or what are the kind of clauses that you look at and you think maybe that could be tweaked to make it a little bit more beneficial and had the effect that it was intended to have?

At the current reading definitely incentivize the use of domestic U.S.-made Polysilicon, just leaves something for import pricing. But as you also know, there's not a big import of Polysilicon actually going into the U.S. right now. Therefore, this concept with the minimum input price itself is not incentivized in the use of U.S. made Polysilicon silicon. And therefore, we keep on talks with the U.S. government.

Two questions, please. First of all, on [indiscernible] [Technical Difficulty] your rating phase for seasonally 1 of your biggest properties that action. So we have and will the last month for the year. Next, on your solution segment. It's a very broad portfolio for a very small technique to segment contracts. Can you give us are product lines for condoning business.

[indiscernible] give you an update for Q3 and you're asking for Q4. You're very good. So let me start with some details on Q3. So as I said, chemicals have performed nicely. We have seen summer dip in August, but September, there is a good order pattern that might also be a dedication on how to look at Q4 by solution move sideways, then they can obviously had the disappointing to effect we talked about, and I think we can't talk much more about it. I mean there's no good solar demand from the ruling, obviously. But I mean, looking for the -- I mean, to the full year, obviously, after 3 quarters, -- and on third quarter left, we see us more in the upper half of the guidance range. So we expect typical seasonality in chemicals and see that there's no, yes, positive effect on solar. So from that perspective, that should give you a little bit of a of an idea how we see Q4. I can only agree to that. We don't see a positive spend from the market. Our performance, especially in the Polymers division is managing the volatility. As we described, we have a pricing playbook in place, but we have ups and downs in the raw materials just on a weekly basis depending on what happens in the Middle East. And our teams are really managing moving through that in a very bad way. But there's no end market demand uptick growth in the polymers division.

You add to this in the bottom was portion area. What we see now is that in many areas, the aspect of supply security becomes more important for customers. And I would say also traditionally more conservative reasons like let Europe versus Asia. So -- and that's another lever which we now see and can do also in respect to the pricing pay. You have a question on the Solutions business. So they have 3 business units. I wouldn't rather call them too complex because all of them -- I mean, the bioflur very much faced on hydro CDMO activities and RNA ingredients selective ingredients by fermentation. So we see it as a very clear portfolio unit here. All of these units also the Lifescience Chemicals contribute today -- and the 2 of them are, let's call it, turnarounds, which means we believe in the underlying growth that is reachable in these segments. And therefore, we have a very clear milestone plan to turn it around and to move into accelerated now. So from today's perspective, there's no more point in questioning that, but the teams have to deliver on undivided goals for the next 2 years.

[indiscernible] JPMorgan. I have a few questions. I'll ask with the top ones. You mentioned this refocused ambition, what is the time frame to it. [indiscernible] that time frame. Second, just coming back to the policy question, please that we see the back -- it seems like the whole strategy...

Strategy on solar is just based on hope. And I mean at what point do we go from that pace to just taking action because when your Q3, you're actually losing customers because that's why you got that special income, when we thought you should be gaining customers. So how do anybody get us concur that a turnaround in this business is even possible. And in your scenario of setting or taking cost actions -- and I asked this question so I don't know if you have a bit in terms of what impact does it have on your [indiscernible]. All of this at a rate typically in 1 time. So how even related to the switch off for the solar without [indiscernible].

I'll start with a question on the time frame in the repo women we have it on website at is 268 the refocus above action. And our ambition, obviously, is to get these at the end of the year time frame to the corridor. And -- but we're not giving guidance now for '26, '27 and 2028 for the fiscal year. Refocus is about satellite growth, and we mentioned that we can pursue tractive markets work with innovation even in a changing environment. So we have delivered also as we assume the growth session last year on those projects, we really can grow. As we deliver on the pain of savings and power. And that should bring us into that port. And obviously, we do a if you reach 15% and if you take depreciation at the employee and their capital on slow over time because of the lower investment depreciation will have added some working capital. But in terms of the denomination go down. So if we reach the 15%. We will also rapidly start of that term that in the speech, we want to get there as quickly as possible but there is no guidance [indiscernible].

But I would not say that our strategy for our ports at all. It's based on opportunities. It is a rise from [indiscernible] so is the greatest thing that -- so we need to look for opportunities for the company and shutting something down on an excel opportunity this production plan. So therefore, we thought then yes, I would open have a better outcome already. So I would have lost out already a year ago. But we talked about polite world. It is more specifically than. So we are in the situation we are now because we still see that opportunity. And we keep on tracking for our opportunities. I think it would not divide now a decision before a private ruling is now say, I'm set up and we get out of everything. And it is old. So we keep that opportunity and we work on it. And if there is here clarity and certainty at what there's clear uncertainty, you can be sure that you will take the action. And so it's not so we don't want to be division. It is more about because they're still in the morat which we could pursue. Second part of your question was on the integrated site scenario as a public scenario that would not need to set up that we have today. Today, we can introduce at all our sites semiconductor of silicon. And Again, it has to rely decide what to do because it is far ruling on 2, but because essentially all the sites for semiconductor [indiscernible] a lot of positive outcome for the incentive for protection of volatile than to a position now. And yes, on the integrated side, it is our [indiscernible].

Three questions from my side. I think you mentioned that the maximizing cash activity or accounting roughly 4 and we said it currently. I wonder whether you can shed a bit more light on the other part of it looks like these days? Second question is on your -- one of the ports was about focus pricing achievement which you want to use the can you give us a bit more color on where you think you are payable in the environmental focus achieved. And the third one is to the tax to precede December basically the implementation date. We reached that by December, there is no basically entrance in play, which is union that we may hear more about the topic on the I think the last question. As much as I would love to say yes I don't know what [indiscernible] it won't be on a I think that's helpful -- your question on the port units, the accelerate growth is around 10% to 15%. The optimized return is also similar to the maximized cash around 40% and 50% will be the remaining. Question on the pricing actions, I think, the key success [indiscernible] action is that you have a table, which is based on different customer segments and regional. Of course, we see a very extent difference in talking to customers in the construction forces in Europe. And therefore, the either needs also their needs regarding supply security. We also have to make a kind of ipackage which helps on the past. And also in China, the speed of reaction much faster for the customer lotion and the raw material goes up today for the crude oil. And they call you today because tomorrow prices will be higher. [indiscernible] actual group for longer term more on a weekly basis. And I think the best thing we can react to what the customer was its needs are better but also integrated that's 3 questions. First, on price books. You talked about focusing on the mono accident, I could explain a little bit what the impact -- and then also I hope you think about salmon were contributed to the other parents going forward and a little bit of overtime that we -- and second is for the selling business in foil all many of the competitors lean China development. And then [indiscernible]?