Wacker Chemie AG: Weak demand in chemical business shapes WACKER’s sales and earnings performance in Q2 2023

July 27, 2023

  • Group sales of Q2 2023 down 19 percent year-on-year to €1.75 billion
  • EBITDA of €256 million down 59 percent year-on-year due to lower volumes and lower prices
  • Net profit for the 2nd quarter of 2023 amounts to €119 million
  • Net cash flow amounts to -€99 million, partly due to the acquisition of ADL BioPharma and higher investments
  • Full-year guidance adjusted: Group sales in 2023 expected to be in the range of €6.5 billion to €6.8 billion, EBITDA expected to be between €800 million and €1.0 billion

Wacker Chemie AG reports a decline in sales and earnings in Q2 2023 due to the ongoing difficult market environment. The chemical group generated sales revenue of €1.75 billion in the quarter under review (Q2 2022: €2.17 billion). This represents a decline of 19 percent. The main reason for this decline was lower selling prices and volumes. Currency effects also reduced sales. Compared with the previous quarter (€1.74 billion), however, sales increased by 1 percent.

Earnings before interest, taxes, depreciation and amortization (EBITDA) totaled €256 million in Q2 2023. This was 59 percent below the prior-year figure (€626 million). The main reasons for the decline were lower volumes and prices and, in some cases, lower capacity utilization at production facilities. The continuing high prices for energy and raw materials also had a negative impact. The WACKER Group’s EBITDA margin for the quarter under review was 14.6 percent (Q2 2022: 28.8 percent). In the previous quarter, it had been 16.1 percent.

Consolidated earnings before interest and taxes (EBIT) amounted to €153 million in the quarter under review. This is 71 percent less than a year ago (€529 million) and corresponds to an EBIT margin of 8.7 percent (Q2 2022: 24.3 percent). Net income for Q2 2023 totaled €119 million (Q2 2022: €391 million) and earnings per share amounted to €2.40 (Q2 2022: €7.67).

In view of persistently weak demand in numerous user industries, ongoing destocking on the customer side and lower year-on-year prices for many product groups, WACKER adjusted its expectations for fiscal 2023 on July 18. The company now expects sales in the range of €6.5 billion to €6.8 billion (previous forecast: €7 billion to €7.5 billion). EBITDA for the full year 2023 is expected to be between €800 million and €1.0 billion (previous forecast: €1.1 billion to €1.4 billion).

“Global economic momentum has weakened significantly in recent months. WACKER was unable to escape this trend. In the first half of the year, we failed to match our strong prior-year figures for both Group sales and EBITDA,” said Group CEO Christian Hartel in Munich on Thursday. Many market experts had expected stronger demand in the second half of 2023 – an assumption that was also part of WACKER’s forecast. So far, however, as is the case with numerous other chemical companies, there are no signs of a recovery.

“In the chemical business, the majority of our customers continue to face stagnating demand. In our solar business, volumes developed positively in the 2nd quarter after a weak start to the year, but at the same time we are currently observing a decline in prices for solar silicon in China. In the biotechnology business, earnings development this year will once again be impacted by high investments in further growth. For all divisions, high energy prices and inflation rates continue to slow down development,” Hartel continues.

In the medium and long term, however, WACKER is well positioned, Hartel stressed. “With our Strategy 2030, we have a clear goal in mind: more pace in growth, high profitability and increased resilience in times of permanent change.” An important building block in achieving these goals, he said, was investment in future growth. Here, the company continues to maintain a clear course, the Group CEO emphasized. “In the past quarter, we significantly increased our investments in the global expansion of our capacities compared to the previous year,” said Hartel.

For example, the construction of a new spray dryer and a new reactor for dispersions at the Nanjing site in China was completed in the reporting quarter. Production capacities in Nanjing more than doubled as a result. Expansion of the biotechnology business also continued. In May, WACKER acquired Spain’s León-based ADL BioPharma, a contract manufacturer for the food, pharmaceutical and consumer goods industries. “This acquisition brings us a decisive step closer to achieving the growth targets for our Life Science division,” Hartel said. “We are also investing in the polysilicon business. In Burghausen, we are building a new production line for the purification of semiconductor-grade polysilicon. As the only European manufacturer of high-purity polysilicon, we are proud to be making an important contribution to strengthening the European value chain in microelectronics with this project,” the Group CEO explained.

Regions

In Q2 2023, Group sales decreased mainly due to lower volumes and lower prices in all regions. In Asia, revenue decreased to €810 million. This is around 14 percent less than in the previous year (Q2 2022: €944 million). In the Americas, revenue totaled €268 million (Q2 2022: €348 million), a decrease of 23 percent. In Europe, Group revenue amounted to €598 million in the reporting quarter (Q2 2022: €767 million). This is a decrease of 22 percent compared to the previous year.

Capital expenditures and net cash flow

The Group’s capital expenditures amounted to €145 million in Q2 2023 (Q2 2022: €100 million), up 45 percent year-on-year. The funds went mainly into capacity expansion in the chemicals businesses, while further investments were made in expansion measures for biopharmaceuticals, among other things.

Net cash flow for the quarter under review amounted to € -99 million, compared with € 96 million in Q2 2022, primarily reflecting higher capital expenditures and the acquisition of ADL BioPharma in León, Spain.

Employees

The number of WACKER employees worldwide rose during the quarter under review. As of June 30, 2023, the Group had 16,358 employees (March 30, 2023: 15,877). At the end of the quarter under review, WACKER’s German sites employed 10,569 people (March 31, 2023: 10,490), while its international sites had 5,789 employees (March 31, 2023: 5,387).

Business divisions

WACKER SILICONES generated total sales of €699 million in Q2 2023. This is 25 percent less than in the previous year (€936 million). Lower prices and lower volumes were the main factors holding back sales. Compared to the previous quarter (€760 million), sales were down 8 percent. WACKER SILICONES’ EBITDA in the quarter under review amounted to €52 million. This is 81 percent less than in the prior-year period (€276 million) and 46 percent less than in the previous quarter (€96 million). In addition to lower prices, particularly for standard products, the significantly lower capacity utilization of production facilities compared to the previous year had a negative impact on the earnings trend. Continuing high energy and raw material prices also held back the earnings trend. The EBITDA margin came to 7.4 percent in Q2 2023, down from 29.5 percent in Q2 2022 and 12.6 percent in the previous quarter.

WACKER POLYMERS’ total sales in the quarter under review came to €417 million, down 25 percent year-on-year (€553 million). The main reasons for this decline were lower prices and lower volumes. Compared to the previous quarter (€428 million), sales were down 3 percent. WACKER POLYMERS’ Q2 2023 EBITDA totaled €76 million, 16 percent lower than a year ago (€91 million). In addition to declining prices, lower year-on-year plant utilization reduced EBITDA. Earnings were also held back by the continuing high cost of energy. By contrast, EBITDA increased by 7 percent compared with the previous quarter (€71 million). The EBITDA margin for the quarter under review was 18.1 percent, up from 16.5 percent a year ago and 16.6 percent in the previous quarter.

WACKER BIOSOLUTIONS generated total sales of €91 million in Q2 2023. This is 8 percent more than in the previous year (€84 million). Compared to the previous quarter (€77 million), the division’s sales grew by 18 percent. During the quarter under review, WACKER BIOSOLUTIONS’ EBITDA totaled
-0.5 million, down €8.4 million from the year-earlier €7.9 million. Among other things, the upfront expenditures for the establishment of the mRNA competence center in Halle reduced EBITDA. In contrast, EBITDA improved by € 1.1 million compared to the previous quarter (€ -1.6 million). The EBITDA margin came to -0.6 percent, down from 9.4 percent a year earlier and -2.1 percent in Q1 2023.

WACKER POLYSILICON generated total sales of €513 million in the quarter under review. This is 10 percent less than in the prior-year period (€568 million). The main reasons for this decline were lower average prices for solar silicon year-on-year and slightly lower volumes overall. By contrast, prices for polysilicon for semiconductor applications were higher in the reporting quarter than a year ago. Compared with the 1st quarter of 2023 (€441 million), sales grew by 16 percent. This was primarily due to significantly higher volumes compared with the previous quarter. WACKER POLYSILICON’s EBITDA amounted to €156 million in the quarter under review. This is 27 percent less than in the prior-year period (€214 million). In addition to the aforementioned price and volume effects, earnings were held back by persistently high energy costs and the high cost of silicon metal. By contrast, EBITDA increased by 59 percent compared with the previous quarter (€98 million). From April to June 2023, the business unit’s EBITDA margin is expected to be 30.5 percent, compared with 37.6 percent in the second quarter of 2022 and 22.2 percent in the first quarter of 2023.

Outlook

WACKER detailed its assessments of the company’s likely performance in the current year in the forecast report of the 2022 Annual Report.

In view of persistently weak customer demand in numerous user industries, ongoing destocking on the customer side and lower year-on-year prices for many products, WACKER adjusted its forecast for the current fiscal year on July 18, 2023.

As previously reported, the company expects key financial performance indicators in fiscal 2023 to be weaker than previously forecast. Many market experts had expected stronger demand in the second half of the year – an assumption that was also part of Wacker Chemie AG’s previous forecasts. So far, however, there are no signs of a recovery.

WACKER now expects fiscal 2023 Group sales to be in the range of €6.5 billion to €6.8 billion (previous forecast: €7 billion to €7.5 billion). Full-year EBITDA is now expected to be between EUR 800 million and EUR 1.0 billion (previous forecast: EUR 1.1 billion to EUR 1.4 billion). The Group continues to expect the EBITDA margin to be significantly below the previous year. ROCE is now expected to be below the cost of capital (previous forecast: above the cost of capital, but significantly lower than in the previous year). The forecasts for capital expenditures, net cash flow, net financial debt and depreciation and amortization have not changed.

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