Wacker Chemie AG (WCHG), a global chemical company, reported a significant decline in its 2023 financial performance during its full-year earnings call, with CEO Christian Hartel citing weak demand for chemicals as the main driver. Sales plummeted by 22% to €6.4 billion, while EBITDA saw a 60% decrease to €824 million, and net income dropped to €327 million.
Despite these challenges, the company maintained a low net debt of €84 million and plans to propose a €3 per share dividend at the AGM on May 8. Wacker Chemie is also committed to sustainability, targeting a 50% reduction in CO2 emissions by 2030 and net zero emissions by 2025. For 2024, the company forecasts group sales between €6 million and €6.5 billion and EBITDA between €600 million and €800 million.
Key Takeaways
- Wacker Chemie AG's sales fell 22% to €6.4 billion in 2023.
- EBITDA decreased by 60% to €824 million, with net income at €327 million.
- The company ended the year with low net debt of €84 million.
- A €3 per share dividend is proposed for the upcoming AGM.
- Wacker Chemie aims for a 50% reduction in CO2 emissions by 2030 and net zero by 2025.
- Projected 2024 group sales are expected to be between €6 million and €6.5 billion, with EBITDA between €600 million and €800 million.
- The BioPharma and Biosolutions segments improved in the first quarter, while the Chemical segment lagged.
- A new mRNA facility is set to complete by mid-2024, enhancing the Bio Ingredients and BioPharma sectors.
- Polysilicon sales in 2023 were €1.6 billion, with EBITDA around €320 million.
- Polysilicon sales for 2024 are projected to be between €1.3 billion and €1.6 billion.
Company Outlook
- Wacker Chemie anticipates a 10% increase in sales in 2024 compared to 2023.
- Significant improvement in EBITDA is expected for 2024, driven by Bio Ingredients and BioPharma.
- Strategic investments will continue to support future growth.
Bearish Highlights
- Weak demand in the Chemical segment, silicones, and polymers continues.
- High energy costs in Germany have impacted the polysilicon segment.
Bullish Highlights
- Improvements in the BioPharma and Biosolutions segments noted in Q1.
- The company is strategically positioned for growth with ongoing investments.
Misses
- EBITDA in Q1 was impacted by costs for a new mRNA facility and acquisition integration.
- The silicones business is experiencing a weak period, expected to last through 2023 and 2024.
Q&A Highlights
- CEO Christian Hartel reported a better order book in March compared to February.
- CFO Tobias Ohler remains confident in the silicones market, despite current weakness.
- The company is hedged 80% for energy in 2024, and 50% for 2025.
- Polysilicon pricing is driven by supply and demand, with limited non-Chinese capacity.
- The mRNA competence center is expected to be operational by mid-year.
Wacker Chemie AG (WCHG) faces a challenging market environment, with decreased demand for chemicals affecting sales and profitability. However, the company's strong financial position and strategic focus on sustainability and growth sectors like BioPharma and Biosolutions provide a balanced outlook.
With a new mRNA facility on the horizon and a commitment to strategic investments, Wacker Chemie is navigating through a difficult period with a clear vision for the future. The next conference call is scheduled for April 25, with a Capital Markets Day set for September, where further updates on the company's progress will be provided.
Full transcript - Wacker Chemie AG (WCHG) Q4 2023:
Operator: The conference is now recorded. Welcome to the Wacker Chemie Conference Call Full Year 2023 Results. [Operator Instructions] Now, I hand over to Joerg Hoffmann, Head of Investor Relations.
Joerg Hoffmann: Thank you, operator. Welcome to the Wacker Chemie AG conference call on our full year 2023 results. Dr. Christian Hartel, our CEO; and Dr. Tobias Ohler, our CFO, will take you through our prepared slides momentarily. The press release, our IR presentation, the annual report for 2023 and detailed financial tables are 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 our recent annual report regarding risk factors. All documents mentioned are available on our website. Chris?
Christian Hartel: Thank you, Joerg. Welcome, everyone. 2023 was a challenging year. We saw a weak demand for most durable goods and in construction amid a wave of prolonged destocking at most of our customers. Early last year, there were hopes for a recovery in customer demand across the chemical industry, especially for the second half of the year but that did not materialize as we all know. Weak demand for chemicals has led to price competition in most markets. High energy prices in Germany, still overall high raw material costs and low asset utilization added burden to our business. All of this meant that our 2023 results were far below the record figures from 2022. As we disclosed in our prelims at the end of January, full year 2023 sales fell by 22% to €6.4 billion due to weak market environment. EBITDA amounted to €824 million, 60% less than the previous year and net income came in at €327 million. Even with the nearly €600 million dividend payment and the €77 million cash outflow for investments and acquisitions last year to drive growth in specialties and biotechnologies, we ended 2023 with a pretty low net debt of €84 million. Strong cost discipline and our ongoing efficiency programs as well as a release in working capital supported the high gross cash flow of approximately €940 million. Our net income and strong financial position are the basis for our dividend. In line with our stated dividend policy of distributing approximately 50% of earnings, we will propose a €3 per share dividend at our upcoming AGM on May 8. Looking at our sustainability initiatives. We have set ambitious targets and are making good progress towards achieving them. By 2030, we intend to cut our absolute CO2 emissions by half. And by 2025, we aim to achieve net zero emissions. I'm happy to report that our progress towards these targets is being recognized. SBDI validated our net zero target in early 2024, putting us among the first companies worldwide. Also, the CDP, carbon disclosure project recognized our efforts by avoiding us top scores in the climate change category. Wacker's rating confirms our leadership role in climate and environmental protection. The rating is the best performance in our corporate history so far. We are mining only 36 out of 21,000 companies worldwide to have received this top score. Sustainability is a strong business case for us. We see it as a key factor for differentiation in a competitive market. Our customers seek ways to lower their footprints and seek long-term partners to provide sustainable solutions. [Audit Starts] Now moving on to our guidance for this year. It's quite a challenge to predict exactly how economic trends will develop in 2024. Our main assumption on the guidance is that market conditions remain challenging which is exactly what we hear from our customers. Now let's have a look at our segments. Silicones sees an improved order intake and better asset utilization. However, at this point, it is difficult to determine whether this is a sustainable development or not. Polymers benefited from seasonal improvements in Q1 but still faces weak construction markets, especially in Europe. Consumer markets are better off, allowing some growth in dispersions. Biosolutions focuses on integrating the ADL facilities in Spain and is preparing to ramp up the new mRNA plant in Halle. For the silicon semi business continues strong but overcapacities in China are holding back solar pricing. Lower energy costs in polysilicon will benefit Q1 results. Now considering these factors, we expect group sales between €6 million and €6.5 billion and EBITDA between €600 million and €800 million. CapEx will be slightly below what we invested last year, that was €710 million. Although end markets are weak today, we continue investing to support future demand growth. We have confidence in our products and in our markets. The development work of customers continues at a strong pace. We need to invest today to support our customers' growth tomorrow. Our strategy is right and we are firmly committed to our strategic 2023 growth targets. Our sales should increase to over €10 billion with an EBITDA margin of over 20%. ROCE should be more than twice our cost of capital. Now looking to the next page. We continue to make strategic investments for future growth despite the current weak markets. Why do we have the confidence to do this today? Well, without Wacker, there would be no energy transition. Our polysilicon provides a starting material for high-efficiency solar systems. Wacker Polymers enables smart construction to make buildings more economical and sustainable. Wacker silicones are essential to e-mobility. They make electric vehicles more reliable, efficient and safer. Together with automobile manufacturers and Tier 1 suppliers, we constantly develop electromobility solutions. And with our Wacker polysilicon, there would be no artificial intelligence and no digitalization. Half of the world's computer chips contain our polysilicon. In Biosolutions, we enable advanced medicines. Our product range extends from pharmaceutical proteins to plasma DNA and mRNA-based ingredients to vaccines. With the investments detailed on this slide in silicones, polymers fire solutions and polysilicon, we are sending a clear message to our customers. We will be there to meet their future growth needs. People, markets and molecules are the basis of our success and foundation for future growth. We invest in people and continue to grow our global workforce. With our new colleagues in Spain and expanding our capacities worldwide, Wacker now has around 16,400 employees. Of these, 10,600 work in Germany and 5,800 at international locations. Last year was quite a challenge but despite strong headwinds, the team cooperated to achieve good results in challenging markets. I want to thank the entire team from Wacker for their outstanding work in 2023 on behalf of the entire Board. Great job. We invest in the regions for the regions. Our strategy is to stay close to our customers and capture growth opportunities worldwide. Our global production and technical centers setups are unique in the market. They allow us to interact daily with customers to develop solutions for individual market requirements and to drive our specialty business. We invest in molecules that enable sustainable solutions. We focus on specialties that enable resource-saving technologies to further strengthen our market position. Our investment focus is expanding capacities, developing new solutions for customers and enhancing our processes and procedures. To this end, we cooperate closely with customers, scientific institutes and universities. Our portfolio of patents contains about 3,300 active patients worldwide with 1,200 pending applications. Our investments in people, markets and molecules paved the way for sustainable and profitable growth. We remain the architect of our success with passion, spirit, speed and confidence. Now to Tobias for details of our results and additional segment guidance.
Tobias Ohler: Thank you, Chris. Welcome, everybody. Looking to the profit and loss; 2023 sales came in at €6.4 billion, down 22% year-over-year. The main drivers for this decline were lower prices as well as volume and mix effect. Prices alone resulted in lower sales of over €1 billion. High energy and raw material costs, combined with destocking and the effect of underutilization left their mark through the figures. Gross profit half compared to last year and the margin decreased to about 17%. EBITDA declined to €824 million in a continued weak demand environment. Earnings per share contracted to just over €6. We are responding to these headwinds with increased cost discipline. We are reviewing new hires very carefully, implementing measures to reduce overall costs and streamlining processes. Our balance sheet shows strong financials with about €1.4 billion in liquidity. Our net working capital position in the balance sheet decreased by approximately €330 million through 2023. Last year, we achieved a meaningful reduction in inventory, mostly driven by our efforts to reduce stock levels. In addition, lower prices from raw materials also supported. Shareholder equity was €4.6 billion after a record dividend payment of about €600 million in 2023 and net income of nearly €330 million. At Silicon Full year sales decreased to about €2.7 billion, down 21% year-over-year. The sales development primarily reflects lower ASPs and weak demand for specialties. Silicone's EBITDA came in at €236 million, roughly 1/4 of our results in 2022. The key headwinds were the low prices, demand-driven adverse mix effects, asset underutilization and high trailing raw material costs. For 2024, we expect sales in silicones to be similar to last year with all regions at the prior year level. We see volumes for specialties increasing with the headwinds from destocking coming to an end. ASPs, however, will be lower year-over-year following the low exit rate in Q4 2023. Silicon has seen an improved order intake so far supporting sales and asset utilization. Later in the presentation, I will address current trading and expectations for the first quarter. Polymers reported full year sales of about €1.6 billion, down 21%, mainly driven by lower prices and volumes. ASPs followed a decline in raw materials last year as end market conditions, particularly in Europe, remained weak. Against this backdrop of declining raw materials, EBITDA was supported by positive net pricing benefits. This enabled us to expand our margin to 16% last year and report an EBITDA of €253 million. For 2024, we see sales in polymers declining by a high single-digit percentage. Volumes in these persons are expected to be slightly higher while powders should be stable. Average selling prices will be lower than last year. Regionally, we expect growth in Asia, while Europe will remain under pressure. While net pricing was a benefit last year, it may turn negative this year. All told, the EBITDA margin should come in at approximately 15%. Beyond the seasonal volume improvements in the first quarter, polymers has not seen a pronounced demand recovery in construction-related applications. At Biosolutions, sales were slightly up at €337 million, driven by strong growth in BioPharma and the first time consolidation of ADL. We continue to see weak demand for our established products as seen in our Chemical segment, silicones and polymers. EBITDA came in at €7 million and continues to be held back by upfront costs from the new mRNA facility in Halle and integration costs from the ADL acquisition in Spain. For 2024, we see sales about 10% higher than in 2023 with a significant improvement in EBITDA. Bio Ingredients and BioPharma will drive change growth. The new mRNA facility will be ready by midyear. This will trigger the reservation payment as part of the German pandemic preparedness program. The new mRNA facility drove the step-up in CapEx in Biosolutions last year and this year, CapEx will be lower with its scheduled completion by midyear. Polysilicon saw full year sales of €1.6 billion with an EBITDA of approximately €320 million. Sales declined by 30%, while EBITDA decreased by some 60%. The key driver here was lower solar-related sales. Throughout 2023, we saw production-related volume declines and falling prices for solar grade material. In addition, persistently high energy costs in Germany continue to burn our results despite some yearly improvements. Volumes in semi are resilient despite higher prices. Our investments in polysilicon will increase our semi-edging capacities by well over 50% when the new facility is completed in 2025. We see an ongoing price differentiation based on product origin in the solar market. About half of our solar volumes today reflect the outside China price. The other half is priced at legacy contract terms related to the Chinese domestic price. As a reminder, these contracts run out by the end of the year. We have been working to convert these legacy contracts to the outside China price. This would allow us to participate in the higher module prices achieved with our material. In 2024, we expect polysilicon sales to be between €1.3 billion and €1.6 billion. We expect volumes to be above the prior year's level, while the selling prices for solar grades will be lower on average. EBITDA is expected to be between €200 million and €400 million, mix and, as we all know, from history, pricing will drive our results while we focus on continued cost reductions. Polysilicon sees in Q1 some relief on energy costs, supporting earnings while sales should stay at Q4 level. Let's move on to others on Page 12. Some details on accounting for the CO2 compensation. Please note that the CO2 compensation scheme leads to lower quarterly group EBITDA during the first year's three quarters. Since the compensation payment issued only after the government has budgeted them, we cannot account for them as receivables before Q4. Nevertheless, we credit the expected compensation to the segment through the 3 quarters to provide a true and fair view of the actual segment performance. Offsetting this is a debit in others and this gets cleared in Q4 when the payment arrived. Now a word to modeling the full year 2024 in others. An EBITDA of minus €20 million seems reasonable. According to the 2024 consensus figures for [indiscernible]. We do not expect a meaningful equity contribution from them in this year. Now let's look at our net financial debt. We generated a gross cash flow of €936 million in 2023, substantially higher than our reported EBITDA due to a release from working capital. Following strong investments, the ADL acquisition and a historically high dividend payment, we ended the year with a very low net debt of €84 million. As usual, we provide a trading update on the first quarter when we present our annual report. For Q1, we expect sales to be about €1.5 billion with an EBITDA at the level of Q4 2023. That means at about €135 million. In detail, we see sales and EBITDA in silicones coming in sequentially higher, driven by better order intake, higher volumes and better asset utilization. Bear in mind that our upcoming plant turnaround in Nunchritz will be holding back results in the second quarter. Now to Polymers. Sales and EBITDA are both expected to be sequentially higher, driven by seasonality. At Biosolutions, our work towards the start-up of the new mRNA facility continues to generate upfront costs. We see lower customer project finalizations in Q1 in BioPharma, impacting sales and earnings. At polysilicon, sales are expected to be comparable to the preceding quarter but with a higher EBITDA as we see benefits from lower energy costs. Before we start with the Q&A, let me summarize. Wacker is well positioned, financially and strategically. Our development work with customers continues as we expand and improve our specialties portfolio. We are investing in growth now to increase capacity once the cycle improves. We look to the future with open view. Operator, we are now ready to begin the Q&A.
Operator: [Operator Instructions] The first question comes from the line of Jaideep Pandya with On Field Research.
Jaideep Pandya: Just on polysilicon, I just want to understand the underlying assumptions here for the China for China price and then how is your negotiations going on with your customers to shift them to the international price? And then on the semi grade, what is the outlook or expectation for you to gain some of the volumes which one of your key competitors in Canada might not be able to service given they're shutting the plant. So what is the outlook for semi grade this year, both on price and volume? That's my first question. And the second question is on silicones. Can you just give us your assumptions on utilization this year and also what do you expect for specialties in terms of pricing volume? How do you think the spread is because your guidance implies a decline in EBITDA but your start to the year is still pretty positive. So just wondering to square that because obviously, the market in China is actually improving. Do you expect actually the market to go down in the second half? So if you can just clarify your guidance in silicones.
Christian Hartel: Jaideep, this is Chris. I will start with the first question on the polysilicon. You asked for the differentiation in China and outside China, pricing in our negotiations. So as we stated also last time, that we converted about half of the contracts in the solar space to a non-China pricing. And the remaining 50%, these contracted customers are running out by the end of this year. We are in negotiations with our customers to file an agreement before the time frame. But as you can imagine, these are lengthy and intense discussions and there's actually nothing to report today already on any news. The pricing difference, you can see the differentiation between the non-China and inside China is significantly I assume that there will stay the differentiation between these pricing. In exactly how big that will be I think that's always the challenge on the polysilicon pricing itself which is, by the way, also one of the reasons why we have that range in our EBITDA for the guidance on polysilicon. On the semi grade, you asked for the outlook. We are positive. We are very positive on the outlook on polysilicon. We got also a lot of requests for new volumes for contracts even beyond 2030 as we ramp our new capacity in Wacker [ph] for the edge material, so positive on this. And then specifically there was a comment press release from a competitor shutting down facility. It's a certain material for the float zone where we have also high share in the market. The material is well sought after in the market. So from that perspective, also a positive outlook for us. I cannot comment on our competitor, what are the reasons for shutting down the plants. But overall, I think this is also a positive aspect for us.
Tobias Ohler: On silicones, Tobias here and our assumptions with respect to guidance in 2024, basically, we assume some increase in specialty volumes. And we assume also that average selling prices year-over-year will be lower. And that comes simply from the low exit rates that we see in Q4. Both for standard products and for specialties as well. And that equates to the revenue despite the volume growth to be at a similar level compared to last year. With respect to the momentum that we see in the market, yes, we see an uptick in demand in the first quarter but that uptick has not been that even. So January was better than February, now March again better than February. But to remind you, last year January, February and March increased sequentially. And then it was completely different. So we don't have customers telling us much about the second half of the year. But as I said also in the speech, yes, Q1 is a good start for silicones again. But in the second quarter, we have a turnaround. And in general, we have, as we said, flat economic development as an underlying assumption. And I think no one really is bullish about GDP improvement and we haven't read anything in the press about better end markets and we are not getting that feedback from our customers. So that's why, yes, we have that baked into our numbers.
Jaideep Pandya: Just one follow-up, if I can. Just on the 400 million upper end polysilicon guidance, Chris, are you expecting any improvement in the domestic China price to hit that number? Or that domestic China price around the $10 mark or $8 to $10 mark remains the same, irrespective for your 200 or your 400 lower or upper end of the range?
Christian Hartel: As I said, Jaideep, the main lever for having this range is on the pricing but we're actually not really predicting the poly prices. I hope you can understand that as you've seen in the past, it's so volatile. It will be the biggest lever overall. And it could be both of these prices, as you mentioned. And that's the reason for that upper range.
Operator: The next question is from the line of Chetan Udeshi from JPMorgan.
Chetan Udeshi: I was just wanting to talk about your silicon margin assumption for '24. I think you're guiding to about mid-single-digit margin for full year. And this is despite the fact that you're actually saying the specialties volumes will improve. So in theory, the mix should be getting better. Maybe there's a level of conservatism, as Tobias, you mentioned previously. But I'm just curious how much of this is structural because we've seen 2 years of very tough margin in silicones. Last year, we thought some of that was temporary because of the lagging benefit from raw material prices or higher raw material prices and now that should be clearly getting better but yet the margin guidance is weaker. So I'm just curious how are you thinking about the structural dynamics in the silicones market, given that clearly, as we can see, you are not putting any brakes on your strategic capital expenditures in this business? And the second question was just looking into your order books, you mentioned some comparison to last year. But does your order book today suggest that things will worsen into Q2? Any color as to how you see your order book at the moment, especially for the month of April because you might be starting to fill your order book now for Q2 slowly.
Christian Hartel: I would start with the second question and then go back to the first. The order book, as I said, in March is better than in February. So that is not only orders for March but also for April. But we still see customers ordering very short term. We don't have any view on how our orders or how is demand in general in the second quarter. That's point number one. Second is to your margin guidance and what we convey with our mid-single-digit margin. Just remember in fourth quarter and third quarter, we had 6% to 7% EBITDA margin. As we described the guidance, we see an uptick in specialty demand but we do not get back to full utilization of specialties. We have been running full for 2 years and we are investing for more demand but this volume that we account for is not full utilization. So we are not back to normal with the year 2024, by far not. But we believe in the market. And that's why we continue to invest to get out of bottlenecks in the intermediate products, get out of bottlenecks in the downstream and silicones CapEx will be similar or even a little bit higher than last year. So we have full confidence in the overall prospects of our business.
Tobias Ohler: And also in respect to the margins that comes out of the silicon business where we are clearly stating a 20% rate. And I think we have to keep in mind now that 2021 and 2022 has been exceptional years, especially for the silicones business. And now '23 was a weak one and '24 also looks like a weak one. If you take the average of that, I think that really shows that we don't talk about a structural change in the silicon business. It's just a very long time of very low demand in the end markets that results in a single-digit margin for us.
Operator: The next question is from Andreas Heine with Stifel.
Andreas Heine: I will start with polysilicon. If I take the lower end of sales and the lower end of the EBITDA, then cost, give or take, go down by roughly €200 million. How much of that is cost efficiency? And how much is the silicon metal and electricity price? Or in other words, do you expect that it can go down even lower going into 2025, when you have on the full year base, hopefully lower electricity prices? And also on polysilicon, have you baked in into your guidance the IRA support you get for the $3 per kilogram. That's on polyisilicon. And in silicones, I just want to confirm the increase you have in capacities in basically all the 3 regions, mostly in downstream. That is still able to be fulfilled with the upstream capacities you have. So you don't need any additional investments in your upstream. And maybe then the last also -- sorry, that's the third one. CapEx. You are now running at a high CapEx level of €700 million. Most of the projects you mentioned are coming to '24 and '25. Well, after these 2 years, CapEx drop again to a level, let's say, €400 million or is to reach the 2030 target run rate in this magnitude of €200 million to €700 million necessary.
Tobias Ohler: A very complex one at the start with polysilicon. I think we always shy away to give you a precise cost deviations because then you can easily then equate to the assumed selling prices. I can confirm that we have lower energy cost which will support. But as Chris said, we are hesitant to give any outlook on polysilicon prices. For the IRA, that has been a very specific question, I can say we have not baked that into our guidance. When it really had confirmation from the tax authorities after we would be filing later in the year. As you know, it's a new program and we will report and keep you updated. I'll jump back to the third question on CapEx. So we have seen the €700 million in last year. We say this year would be slightly below that level. But as you rightly said, there's a lot of larger projects ongoing that come to completion. So we have the potential to reduce it from 2025 onwards but I'm not there yet to have a number for that. I would not go that low, as you said, the €400 million that sounds not right. For our plant to really come to the 2030 target, it's more in the range of, say, at least 500.
Christian Hartel: And your third question then on the silicones. And as you rightfully said, there are a lot of capacities coming on the downstream side, so the specialty business in essentially all the regions. And really key of that strategy that we follow in silicones to conversion to specialties is that we do not need an additional upstream investment. And we are looking to convert more and more of siloxane into specialties. And that's the reason for these investments also next to the customer demand, obviously. But so therefore, clear answer here, there is no need for an additional upstream investments to fill these downstream capacities.
Operator: Our next question is from the line of Sean McLoughlin with HSBC.
Sean McLoughlin: Two questions from me. Firstly, just on polymers. You sound quite comfortable with a 15% margin guidance despite the higher input costs. How material could this headwind become? And more importantly, how quickly could that become material? And I know that polymers is not just an asset intensive. So is it just a question that actually, you're already quite shielded from some cost increases?
Tobias Ohler: Sean, we assume that the raw materials don't move that much from current levels. So we do not see with a strong demand recovery, our inputs, yes, going up. I think we have some protection in some part of the business with the formula pricing. In others, we don't have that and then we would need to come back to the practice, again, that we had shown and demonstrated in '21 when we hiked prices. But I think this needs to be connected and also to a demand environment that allows price increases again. So from today's perspective, we assume no significant pickup in demand. We also assume no significant change from raw materials. But yes, with the environment, some price decline against last year with a net spread. And yes, this is how we come to the 15% margin for 2024.
Sean McLoughlin: And secondly, on polysilicon. Just thinking about some of the outages you've had through the last year. Should we assume that we are now at a full capacity utilization through the year, both German and U.S. sites.
Christian Hartel: Well, John, this is Chris. So typically, you have plant maintenance in that complex polysilicon space on an annual basis. And so therefore, this is something which is quite normal. Last year, we did not have a full utilization and we had some outages, especially on the U.S. side. We are working on these and are making good progress. And so therefore, we expect from today's perspective to have also slightly higher volumes available. [Audit Starts]
Operator: The next question is from the line of Sebastian Bray with Berenberg.
Sebastian Bray: My first one would just be on energy costs. Where are we in 2024 relative to pre-pandemic group energy costs for Wacker? And how much incremental tailwinds could arise for 2025 if current hedging rates prevail. If you cannot tell me the absolute energy assumption for 2024, could you please let me know what the historical energy cost was in 2023? My second question is on the U.S. plant issues in polysilicon. Can I just confirm the base case assumption of the company is that the reliability issues will be fixed by the end of March? And when we talk about reliability issues at the moment, I'd assume that the plant is producing something. It's just operating at a markedly reduced rate. Is that right?
Christian Hartel: Maybe I'll start with the last question. As we just talked about the plant. And as I said last year we had some outages that was also weather-related, especially in the first quarter. We are fixing these and we saw good progress last year. Fix issues by end of March, I don't know why you come to that exact date. I think this is something ongoing. As I said, there are regular maintenance shutdowns and such a plant is a complex thing. And we do everything to run at a reasonable rate at these sites and the other sites, not only specifically in the U.S. On your question on the power pricing, maybe let me start and then maybe Tobias to jump in. Now if you talk about 2024 or what happened since this is crisis and the war in Ukraine which mainly drove the energy cost in Europe. So what happened in 2022, we had roughly about 3x the energy cost compared to the Pre-War, so to speak, level, so 3x. Now last year was more about price to the Pre-War costs. And this year, we see another decline but we are definitely not on the Pre-War energy costs in 2024. You may refer with your question to some comments in some German magazines like the Andes who said prices on electricity came down to Pre-War levels. But if you read that article carefully, you will find out it is more based on a small to medium-sized consumer of electricity and in that case, the equation is right because, as you know, the EEG energy tax was stopped last year and that gave a big benefit to all the consumers of electricity. We as Wacker and other high-energy-intensive companies, we have been anyhow we are not paying this EEG. So therefore, we haven't had that benefit of abolishing it. And that's the reason why today, we still don't have the same or the low electricity pricing as we had before the board. And second, not to forget, people when they talk about electricity pricing in Germany, often look only at the wholesale price. And there, we saw definitely a decline and that especially also something which is beneficial to us. But this is only part of the equation. There are other parts of the electricity bill like the grid fees where there have been some increases in this year and other positions. So therefore, that means, as I said at the beginning, in 2024, not yet on the level before the war. You asked for hedging, we are actually hedged about 80% for energy in 2024 and about 50% for next year.
Operator: The next question is from the line of Thomas Swoboda with Societe Generale (OTC:SCGLY). The next question is from Mr. Rikin Patel with BNP.
Rikin Patel: Just had one left. Could you possibly confirm whether you included the payment from the German pandemic prepares plant in your guidance and possibly quantify roughly what that payment may be if so.
Christian Hartel: Eric, this is Chris. So yes, so the reservation payment for the second half of the year is included in the guidance. It covers our costs and also provides a margin. But I hope you can understand we are not able to disclose the exact amount.
Operator: Our next question is from the line of Sam Perry with UBS.
Sam Perry: Just one question, please. In Polymers, you just mentioned you're assuming no significant pickup in demand and also no significant change in raw materials. So the margin guidance of 15% on a full year basis is it fair to assume the best net pricing is going to come in the first quarter because of indexation lag and therefore, one key margin will be above that of 15% of the annual guidance.
Tobias Ohler: Sean, this is Tobias. No, the net pricing is not just the loan in the first quarter. We see that throughout the year, that overall weak demand environment, if you consider the construction industry, that there will be price pressure. And what was positive in last year would be negative in this year. For the first quarter, we see some seasonality. So we had seen that uptick but we have no view beyond the first quarter so far. We do see volume growth outside Europe. While Europe seems to be most under pressure, we are convinced that our product portfolio that we have opportunities in Asia and also in the U.S. And 15% is a ballpark that is in such an environment, a positive result. I'm talking very much now about the dispersion powder business. If I now move to the dispersion. Here, we see some better volumes in the consumer business, driven by paints and adhesives. And there, we do indeed have some contract structures that our pricing follows the raw material movement.
Operator: The next question is from the line of Sebastian Satz with Citi.
Sebastian Satz: We've got a couple left on polysilicon actually. First one is a high level one; I would be interested to hear how you think about the state of reshoring of the European solar industry. Is it all over in your view? You got the CO2 compensation from the German government, that's pretty much it? Or are there still any hopes that Wacker might either directly or indirectly benefit from any financial support that could be an offer here. And then secondly is on the pricing outside of China and I was wondering whether you could talk a little bit about the mechanism here. Is it all just supply/demand? Or are there any benchmarks that the price would be referring to? And then lastly, where do you think is the risk of the U.S. potentially changing its stance on letting in material from China. And if such a scenario was to play out, would that actually imply some downside to your poly guide.
Christian Hartel: This is Chris. Let me start with your questions on polysilicon, the high level on the EU solar reshoring. Well, actually, you are right. If you look in the media, it's a less pronounced topic today. I think a big change [indiscernible] in Germany, that put a lot of pressure on the funding of all of these government projects. Nevertheless and that's what we hear. There are still talks going on, on a solar package or solar kit. In Germany, there is some talk on the resilience bonus scheme which means that instead of -- the idea would be instead of subsidies or CapEx support, it would mean that if there is a module with a fully-fledged European footprint produced, including the polysilicon that these modules will get higher prices for the energy generated. And therefore, they can have a higher price in the production process, meaning that people would also buy polysilicon or wafers from Europe. So therefore, it is still ongoing. Our situation or our position is very clear on that. What's missing now in the value chain is not so much the poly but more the wafer guys, the second step. And as long as there is no demand or customers investing in this technology, I think there's also no need for us to expand on capacities. But on our capacity, we always made a clear comment; key point would be an attractive plannable internationally competitive power price. And that is something which currently we don't see in the market. So a long story short, I think there is still going on, something also on the European level, especially on the aspect of resilience but it did not materialize so far in attractive conditions for us. Second question you had on the pricing outside China price, what are the drivers for this? Yes, it is mainly supply and demand. As we know, there is a lot of capacity for polysilicon in the world but very limited capacity for non-Chinese polysilicon. And that is driven by the U.S. regulation, namely the UFLPA Uyghur Labor Act, where you need to prove that our material 3 or 4 labor. One of the best ways to do it today is that you show that essentially the module never touched Chinese ground by buying polysilicon from the Western world and producing it somewhere in Southeast Asia. And that's limited and that's the reason for this price differentiation.
Sebastian Satz: Just on the risk that the U.S. might potentially change its stance on letting --
Christian Hartel: Essentially, that would be a risk. Now the question is more how likely is it? And to be honest, I think if you look at U.S. politics and also between the discussions with Democrats and Republicans, I think there's just one topic where they are united and that is being somehow against China. And therefore, I think the likelihood that they would make it easier for Chinese material to come into the U.S., in my view, is not very high.
Operator: We also have a follow-up question from the line of Jaideep Pandya with On Field Research.
Jaideep Pandya: I would like to take a second stab at what Sebastian Bray was trying to ask on the energy costs. I think last year, you had, if I'm not wrong, energy cost still of €653 million and the previous year was around €830 million. And the stance you had, if I'm not wrong, in Q2 and Q3 was the hedging markets were pretty much shut. And now you say that you've hedged 80%. So I'm assuming you bought a lot of hedges in Q4. So just want to understand, if we are modeling a blended cost should be used roughly Q4 averages. And therefore, it will be a meaningful drop year-on-year? And then just for 2025, again, are you aggressively hedging right now to fill 2025? Or how are the hedging markets in that regard? And the second question just on Biosolutions and taking a bit of a step back and thinking what's -- I understand you've put a lot of investments here but when will we actually see the fruits of it because something or the other has been going wrong. And we are ever since you had that CMD on it, things have actually just gone the other way around. So where is this business going to go back to making €50 million, €60 million and then is there a path in the near term, when I say near term, the next 2 years to get to $100 million? Or do you think really it is about life beyond 2025 for this division?
Tobias Ohler: Tobias. On the energy, you asked very specifically and I don't have the Q4 numbers in front of me. But I can tell you with the 80% hedging that we have for 2024. And if you just take the open portion at today's prices, I can confirm that we would see a meaningful reduction against the €650 million that we had in 2023. I think if you just take the ratio that was 10% on sales, I think we could, yes, come lower by 1 or 2 digit percentage points. But I think it very much depends on how markets develop. For 2025, we have hedged 50% but we never take aggressive yes, approach now to hedge more nor do we stop. So we have a tradition to do the hedging to smooth out huge spikes. Yes, we do have an opinion also and we stopped hedging when the market was very high. But we will see how '25 developed. It could give another relief against '24 if those conditions prevail.
Christian Hartel: Jaideep, Chris here on your Biosolutions question, when we will see the fruits of the investments. But I think the first milestone we will see by mid of this year when the mRNA competence center is up and running and getting the fees from the pandemic preparedness plan. On the other business, I think we have been a little bit more optimistic, I have to say that in the past. What we see now is that in some instances, the Biotech business is also facing some headwinds which haven't been so much in the past. There are a lot of smaller Biotech that face financing issues which leads to a less pronounced pipeline. But we truly believe in the capabilities which we invested in. And therefore, we believe it's a compelling business case. It might take a little bit longer. But again, as I said, we are also inpatient for the profitability that comes out of that business. And by mid of this year, we should really see a first step change.
Jaideep Pandya: If I can just ask on raw materials or other. If I'm not wrong, you said flat for the year, year-on-year. And again, that confuses me because I remember at least for silicon metal, you are sitting on very expensive inventory through the year you hadn't bought last year. So silicon metal prices have come down quite meaningfully. So is it you're accounting for inflation in VAM and ethylene and therefore, you're sort of trying to be conservative and saying flat? Just wanted to confirm that.
Christian Hartel: I was talking about segment polymers just about those robust ethylene is the asset and ban. Yes, we do see a decline year-over-year in silicon metal.
Operator: That was the last question. I would now to turn the conference over back to Mr. Joerg Hoffman for any closing comments.
Joerg Hoffmann: Wonderful, operator. Thank you. Thank you all for joining us today and for your interest in Wacker Chemie. Our next conference call on the Q1 results scheduled for April 25. Our Capital Markets Day will be held in September at our main site in Boca in Germany. We'll get more information about this later as the year progresses. As always, don't hesitate to contact the IR department if you have further questions. Thank you.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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