Wacker Chemie's sales, earnings margins fall in Q3

MUNICH—Lower prices and sales volumes, as well as a drop in demand, caused a 29-percent decrease in net sales year-over-year for Wacker Chemie A.G., according to third quarter financial results for the German chemical company.

According to Wacker, net sales for the third quarter of 2023 for the group—which comprises four separate chemical divisions—came in at about $1.6 billion, against $2.24 billion in net sales for the third quarter of 2022.

"In the third quarter, the economic environment for Wacker—as it was for the entire chemical industry—remained challenging," Wacker CEO Christian Hartel said during a financial call with investors Oct. 26.

Sales revenue for the third quarter also came in about 13 percent lower than the sales revenue for the second quarter of 2023, which registered about $1.85 billion.

Hartel said there is "still no sign of a recovery in demand," as many market experts had predicted for the second half of 2023.

"That's why after the first nine months of the current financial year, our sales and earnings are well below our strong previous year's figures," Hartel said.

Wacker Group EBITDA for the third quarter of this year tallied $160.2 million, a 67-percent drop in earnings before interest, taxes, depreciation and amortization, against the third quarter of 2022, which was about $481.7 million.

In the second quarter of this year, EBITDA came in at about $270.1 million (EBITDA margin of 14.6 percent), about 41 percent higher than the third quarter of 2023 (EBITDA margin of 10 percent).

"The main reasons for the decline were lower prices and sales volumes, as well as lower utilization of production facilities (in some cases)," Hartel said.

The drop in net sales and overall revenue for the most recent financial quarter was not unique to any one region, either, as sales fell in Asia ($678.2 million, down 33 percent against $1.02 billion in Q3 2022); North America ($264.1 million, down 28 percent against $366.6 million in Q3 2022); and Europe ($582.1 million, down 23 percent against $755.4 million in Q3 2022).

China is Wacker's largest market, at about 30 percent of group sales ($2.64 billion in 2022), the company told Rubber News earlier this year.

Hartel noted that headwinds also came in the form of high energy prices in Germany, a familiar refrain for many industrial businesses there over the last several years.

"To strengthen the competitiveness of Germany as an industrial location and maintain it in the long term, the timely introduction of an industrial or bridge electricity price in this country would be a logical and far-sighted step," Hartel said.

As of Sept. 30, Wacker had 16,391 employees (about two-thirds of whom are in Germany), a steady count for the chemical giant over the last year, according to 2023 third quarter financial results.

Like the entirety of its geographic regions, Wacker's four business units saw net sales decline year-over-year as well.

Wacker Silicones, typically the largest revenue-generating unit for Wacker Group, saw sales drop by about 24 percent in Q3 2023, against Q3 2022.

The silicone division achieved total net sales of about $710.8 million for the third quarter of this year, against about $940 million in Q3 2022.

"Above all, lower prices, but also lower sales volumes for specialties, as well as currency effects, have slowed down sales development," Hartel said.

EBITDA margins came in at 7.6 percent for this quarter; 7.2 percent for Q2 2023; and 22.2 percent for Q3 2022.

Wacker Polymers saw net sales of about $415 million in the most recent financial quarter, a drop of about 22 percent against the $532.1 million that Wacker Polymers achieved in Q3 2022.

Sales volumes in polymers, unlike the lower year-over-year sales volumes witnessed in the other three divisions, were at the previous year's levels, Hartel said.

EBITDA in Q3 2023 also was more promising, registering $79.2 million, a 24-percent increase over Q3 2022's EBITDA of $63.3 million.

"The increased utilization of the production facilities also had a positive impact here," Hartel said. "In the previous year, a planned plant shutdown at the Burghausen location reduced capacity utilization."

Significantly lower prices for solar silicon—the highest-purity polysilicon on the market—caused a 45-percent drop year-over-year for Wacker Polysilicon.

The division saw total net sales for Q3 2023 of about $361 million, against $653.3 million in net sales for Q3 2022.

"The reasons for this decline are primarily the significantly lower average prices for solar silicon both year-on-year and quarter-on-quarter, as well as the overall lower sales volumes due to maintenance-related capacity restrictions," Hartel said.

EBITDA margins were down in this business unit as well, coming in at 13.5 percent in the most recent financial quarter against 30.8 percent for Q3 2022.

Finally, Wacker Biosolutions achieved total net sales of about $81.3 million, a 13-percent drop against net sales of $94 million in the third quarter of last year.

Again, lower sales volumes and prices in the fine chemicals business caused much of the decrease, according to Wacker officials.

"Sales of biopharmaceuticals, on the other hand, grew slightly year-on-year," Hartel said. "Currency influences also reduced revenue somewhat."

EBITDA margin for Q3 2023 fell to minus-4 percent, against an EBITDA margin of 5 percent in the third quarter of last year.

Investments in Wacker facilities have been significant over the past several years, especially in China, Germany and the U.S.

Group investments came in at about $163.6 million for the third quarter of this year, against about $138.3 million in the third quarter of last year, an 18-percent increase.

"The funds were primarily used to expand the production capacities of the chemical divisions; further investments were made, among other things, in expansion measures for biopharmaceuticals and semiconductor polysilicon," Hartel said.

In the last year alone, Wacker China has seen a capital infusion of close to $260 million, as sites in Nanjing (powders and dispersions, as well as polyvinyl acetate solid resins) and Zhangjiagang (specialty silicones and fumed silica) are adding capacity.

For 25 years, Wacker's silicone and polysilicon production site along the banks of the Elbe River in Germany has been the focus of both investments and expansions.

At the quarter-century mark, Wacker Chemie has tallied about $1.84 billion in investments at the site. And with about 1,500 employees today, the production site represents the largest employer in Saxony, the state in which the facility sits in eastern Germany.

A $328 million expansion—expected to come online in 2025—will add 100 jobs in Burghausen, Germany, according to Wacker.

The expansion there is intended to increase surface-cleaning capacity for semiconductor-grade polysilicon.

The company also has made major investments at its site in Nunchritz, Germany.

And in Charleston, Tenn., Wacker is investing $200 million in an expansion at its Tennessee Valley location.

The expansion, which will see new silicone production facilities built in phases over the next several years, is expected to create 200 jobs.

A feasibility study is ongoing for the project.

Hartel concluded the financial presentation with an outlook for the company, saying consolidated sales revenue in 2023 is expected to be around $6.89 billion, with an EBITDA for the full year of between $843.8 million and $949.3 million.

"This assessment is made in view of the persistently weak demand in numerous user sectors without a noticeable trend reversal and the lower prices for many product groups year-on-year," Hartel said.