Market conditions drive sales, EBITDA down for Wacker in 2023

MUNICH—Due in part to spiking raw material costs in the first half of 2023, lower volumes and persistent high energy costs locally, Wacker Chemie A.G. saw a 22-percent drop in net sales in 2023 compared to the record high mark achieved in 2022.

As a group, the chemical company brought in about $7 billion in net sales in 2023, against just less than $9 billion in 2022.

EBITDA dropped by 60 percent to $901.3 million in 2023 (12.9 percent), from a record high margin of $2.28 billion in 2022 (25.2 percent).

"The global industrial engine began to stutter in 2023 and the chemical industry in particular faced strong headwinds. We were not immune to this," Christian Hartel, president and CEO of Wacker Group, said during a March 12 investor call. "There were hopes early in the year for a demand recovery in the second half, but it did not materialize."

Inflation rates remained high and price pressure increased throughout the year, Hartel said. This resulted in lower prices and lower net sales volumes.

Lower net sales volumes, in turn, led to lower plant-utilization rates, according to Wacker.

"Compared internationally, energy prices in Germany were still high," Hartel said. "High raw-material costs worldwide had an additional impact on the industry.

"As a result, we did not match our record figures of 2022."

Savings from the company's "ongoing efficiency programs" did help earnings, Hartel said.

"Cost discipline" continues to be the response from Wacker in this weak economic environment.

"We will first pursue a restrictive personnel policy, streamline processes and cut non-personnel costs," Hartel said. "We are confident about the future in the medium to long term. Wacker is well-positioned strategically and financially (and) we remain committed to our 2030 growth targets."

Unfortunately, the coming year is not expected to produce marked improvement, Wacker officials said March 12.

The company expects a "slight decline" in net sales once again to between $6.6 billion and $7.1 billion "amid weak market conditions."

EBITDA in 2024 is expected to be between $656.7 million and $875.6 million.

"If the economy recovers in the course of the year, Wacker will have further potential to achieve higher sales volumes," Hartel said.

Lower selling prices are the main factor holding back the earnings trend, he said.

The company does expect volume growth in the coming year, specifically in Wacker Polysilicon and Wacker Biosolutions.

"The weak economy continues to affect customer order trends in numerous application fields," Hartel said. "While demand for silicones picked up in some customer sectors at the start of the year, there is still some constraint, particularly in the construction industry.

"There is no lasting turnaround in demand currently in sight."

The cash payout to stockholders for 2023 corresponded to about $163 million, according to Wacker's 2023 financial report.

In 2023, Wacker generated 85 percent of its sales internationally and 15 percent in Germany, said Tobias Ohler, chief financial officer for Wacker.

Across all regions and three of four business segments, 2023 net sales were lower than 2022 net sales.

Only Wacker Biosolutions—the group's smallest business unit, historically by net sales—saw an increase in net sales against the prior year, as the unit was up 2 percent.

By geographic region, Wacker was paced by net sales in Asia of just over $3 billion, a 26-percent drop against net sales of about $4.04 billion in 2022.

Sales dropped 19 percent in the Americas to $1.14 billion in 2023, against net sales of about $1.4 billion in 2022.

In Europe, Wacker posted net sales of $2.52 billion in 2023, a decline of 19 percent against 2022 net sales of $3.1 billion.

Wacker Silicones again paced the full group with net sales for 2023, generating just less than $3 billion, a 21-percent drop against net sales of $3.8 billion in 2022.

"The decline in EBITDA was even more pronounced," Ohler said.

EBITDA for Wacker Silicones fell by 73 percent to $258.2 million.

"This sharp decrease was due to lower prices, especially for standard products, and lower volumes for specialty products," Hartel said. "EBITDA was also dampened by reduced plant utilization rates and the continued high cost of raw materials."

Net sales for Wacker Polysilicon dropped by 30 percent in 2023 to $1.75 billion, against 2022 net sales of $2.5 billion.

Negative factors in the polysilicon division included production-related declines in solar-grade polysilicon volumes and prices, as well as Germany's "persistently high energy prices."

"This decline was prompted primarily by lower volumes and prices," Hartel said.

Wacker Polysilicon trended upward in the last half of 2023, according to Wacker.

Wacker Polymers brought in about $1.73 billion in net sales in 2023, a 21-percent decrease against the full year for 2022.

Here, lower raw material prices benefited EBITDA, which recorded a 12-percent drop in margin against the full year EBITDA for 2022.

And as stated, Wacker Biosolutions increased its net sales by 2 percent year-over-year, coming in at about $369 million for 2023.

While biopharmaceuticals saw "particularly strong growth," Ohler said, sales slowed for established products amid lower prices and volumes.

EBITDA in the biosolutions division was down 59 percent year-over-year.

"This was mainly attributable to integration and upfront costs at the Leon and Halle sites," Hartel said.

Capital expenditures are expected to be "slightly lower" in 2024, down from the $776.5 million that Wacker spent in 2023 at locations across the globe.

Wacker's chief investments have gone toward capacity expansions in its four business divisions: Wacker Silicones, Wacker Polysilicon, Wacker Biosolutions and Wacker Polymers.

At its Burghausen, Germany, polysilicon site, Wacker has announced capacity increases in semiconductor-grade polysilicon.

Investments also are ongoing in extra capacity for ultrapure hydrogen chloride production, an essential material in semiconductor manufacturing.

Further, Wacker is investing in production capacity increases for specialty silicones in Nunchritz, Germany; organo-functional silanes in Jining, China; and in specialty silicones in Zhangjiagang, China.

The firm also announced an increase in the production of dispersions and dispersible polymer powders in Nanjing, China, last year.

In biotechnology, Wacker is building an mRNA "competence center" in Halle, Germany, a facility that will be integral for Germany's pandemic preparedness plan in the future.

The competence center is set to open by the middle of this year, according to Hartel.

Wacker Biosolutions also will leverage ADL BioPharma, a Spanish contract manufacturer (based in Leon) that Wacker acquired for $100 million in May 2023. ADL works in the food, pharmaceuticals and consumer goods spaces.

"Thanks to the new site in Spain and the mRNA center in Halle, Wacker reached key strategic milestones at Biosolutions in 2023," Hartel said.

Wacker has about 16,400 employees across the world (with more than 10,000 in Germany), a number that increased by about 650 people in 2023.

"They are the ones who constantly develop our products, drive the expansion of our production network worldwide and work on our sustainability," Hartel said. "They form the foundation for our future success."