Wacker Chemie AG (WCH) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Wacker Chemie Conference Call Q2 2026. My name is Youssef, the Chorus Call operator. this conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Joerg Hoffmann, Head of Investor Relations. Please go ahead.

Thank you, operator. Welcome to the Wacker Chemie AG conference call on our second quarter 2026 results. Christian Hartel, our CEO; and Tobias Ohler, our CFO, will take you through the presentation. The press release, our IR presentation and the detailed financial tables are available on our website under Investor Relations. Management comments during this call include forward-looking statements involving risks and uncertainties. Please review the safe harbor statement in today's presentation and the 2025 annual report for information on the relevant risk factors. Chris?

Good afternoon, everyone. Thank you for joining us today. The market environment remained challenging in the second quarter. Demand was still subdued in many end markets, while geopolitical tensions added volatility to energy, raw materials and logistics costs. Against this backdrop, our focus was clear: strengthen competitiveness, improve operating performance and maintain financial discipline. That focus delivered results. Group sales increased to EUR 1.52 billion, up from EUR 1.41 billion a year ago. EBITDA before the pension accounting effect rose by 53% to EUR 175 million compared with the EUR 114 million in last year's result. PACE, our project on cost was the main driver of this improvement, supported by pricing, higher volumes and better operating performance in the chemicals sector. This was not the result of a broad market recovery. It was a result of actions within our control. Despite the uneven demand, volatile input costs and currency headwinds, we protected margins by driving cost savings and we adjusted prices when necessary to pass on higher cost. Reported EBITDA was EUR 211 million and includes a EUR 37 million noncash effect from introduction of a capital option in existing pension plans. So EBITDA before specials amounted to EUR 175 million. Included in the net income figure of EUR 350 million are significant nonoperating Siltronic-related effects totaling some EUR 243 million. Now looking at our operating performance in the second quarter and first half of this year, PACE remains central to our progress. We reduced expenditure through tighter budgets, procurement efficiencies, lower technical spending and structural measures. We also reached an important agreement with the workers' council on the reduction of 1,600 positions in Germany. The related personnel savings will become visible mainly from 2027 onwards, and we remain committed to achieve savings of more than EUR 300 million by 2028. Savings in the first half amounted to EUR 85 million with a EUR 45 million contribution from PACE in the second quarter. At the same time, we are streamlining our structures and processes and sharpening our business model. In our chemical divisions, we focus on specialty products in the Polysilicon division on the semiconductor market and in our life science division Biosolutions on innovative biotech applications. This will enable us to form the basis for future growth. Progress is visible across the businesses, and we are improving today's performance while focusing the portfolio on profitable growth. In chemicals, PACE-related savings, disciplined pricing and an improved mix strengthened the profitability. In Biosolutions, our priority is to convert the project pipeline, fill our capacity and improve cost performance. In Polysilicon, semiconductor-grade volumes continue to grow, while solar remained weak. We are managing that contrast with strict cost, inventory and capital discipline. We had expected greater clarity on U.S. trade policies for Polysilicon by now, but the process is taking longer than anticipated. This continued uncertainty is affecting customer purchasing decisions and is holding back volumes. It also limits our ability to take long-term strategic decisions. Before turning to the outlook, let me briefly mention some important customer recognition of our sustainability work. Wacker received L'Oreal's Energy Award in the raw materials category. By reducing the CO2 emissions from silicon metal production in Norway through renewable energy, biogenic carbon and potentially also carbon capture in the future, Wacker reduces financial risks and creates opportunities to grow with strategic customers. It also strengthens our value proposition for customers seeking differentiated lower carbon solutions. The award shows our sustainability and innovation go hand in hand. Now turning to the guidance. We updated our full year EBITDA range now to EUR 625 million to EUR 750 million. This improvement is driven by the good operating performance in the second quarter and the special effect from pensions. Our confidence is supported by visible operating improvements. PACE is delivering. Chemicals is performing well and semiconductor-grade polysilicon continues to grow. These are meaningful strengths as we enter the second half of this year. Nevertheless, we are realistic about the external environment. GDP and relevant end market dynamics still don't show a true recovery. Competition remains intense. Demand visibility is short and U.S. trade proceedings concerning Polysilicon remain unresolved. We will, therefore, continue to focus on cost control and self-help. Overall, our strategy is gaining traction. We are improving profitability, strengthening cash generation and positioning Wacker for sustainable profitable growth. On September 17, we will hold a Capital Markets Day in London. Since our last Capital Market Day, the environment has changed and Wacker has changed with it. We have reviewed the roles of our businesses, the way we allocate capital and the financial framework against which we manage the group. In London, we will introduce new group level targets. We have made substantial progress in strengthening our competitiveness, improving performance and sharpening our strategic priorities. It's therefore the right time to explain where Wacker is heading and how we intend to create value. With that, let me hand over to Tobias.

Thank you, Chris. Good afternoon, everyone. Second quarter sales increased 7% year-over-year to EUR 1.52 billion, driven by higher prices and volumes. EBITDA before special pension effects rose 53% to EUR 175 million. The strong improvement reflects both savings achieved in our PACE program and higher volumes. PACE contributed about EUR 45 million in the second quarter. Importantly, the quality of our earnings improved significantly. Cost of goods sold remained flat year-over-year despite higher volumes. SG&A expenses declined, demonstrating strong cost management across the organization. Reported EBITDA was EUR 211 million, including a EUR 37 million positive pension accounting effect recorded in the Others segment. This is due to a newly introduced capital option at payout mode, which lowers our required pension obligation. As a result, Others reported an EBITDA of just minus EUR 1 million. For the full year, we now expect the Others EBITDA to be minus EUR 15 million. This is an improvement from our previous guidance of minus EUR 50 million. After depreciation of EUR 115 million, EBIT reached EUR 96 million. Below EBIT, the sale of Siltronic shares and the revaluation of our remaining stake following Siltronic capital increase contributed EUR 243 million to the financial result. We have a slide on this in the appendix. And if you'd like a deep dive, please speak to Investor Relations. All told, net income reached EUR 350 million, equivalent to earnings per share of EUR 6.86. The second quarter demonstrates that we are structurally strengthening the resilience of the business, creating a stronger foundation for sustainable value creation. Our balance sheet remains very strong. At the end of June, shareholders' equity stood at EUR 4.18 billion, while liquidity remained robust at EUR 1.57 billion. Working capital increased by EUR 166 million versus year-end, primarily reflecting the seasonal build-up in trade receivables. At the same time, inventories decreased by EUR 26 million despite higher raw material costs, underscoring our continued discipline in inventory management. Pension provisions declined by EUR 58 million year-to-date to EUR 569 million. This reduction was driven by the new capital payout option and higher discount rates. Overall, our financial position remains solid with 48% equity ratio and a strong liquidity base. Now let's turn to the operating segments. At Silicones, second quarter sales reached EUR 757 million, an increase of 6% year-over-year. Stronger volumes and higher pricing more than offset currency effects. EBITDA increased to EUR 123 million. The strong performance was driven by PACE as well as higher volumes, mix effects and better pricing. The conflict in the Middle East prompted some customers to pull forward orders into the first quarter. This resulted in a significant moderation of order entry starting into the second quarter, and yet May and June came in above prior year. While orders remain very volatile, the order book is higher than a year ago. This supports our expectations for the second half of the year. Supported by ongoing PACE savings and strong operational performance in the first half, we are increasing our outlook for Silicones. For 2026, we now expect mid-single-digit percentage sales growth and an EBITDA margin above the prior year level. At the same time, we remain measured in our assessment of market environment. End markets continue to face headwinds, and we have not yet seen a broad-based improvement in underlying demand conditions. At Polymers, second quarter sales reached approximately EUR 406 million, an increase of 12% year-over-year. The growth was primarily driven by prices, while volumes grew slightly and the regional mix improved. EBITDA increased to EUR 69 million. The improvement was supported by PACE and a positive inventory effect. Polymers performance demonstrates the execution strength of our teams. Faced with a rapid increase in raw material costs, they successfully applied our proven playbook, enabling us to recover cost inflation quickly and effectively. This disciplined approach protected margins and allowed us to service our customers. As with Silicones, the conflict in the Middle East prompted customers, particularly in Asia, to push orders forward into the first quarter. As a result, order intake declined sequentially in the second quarter. However, our order book continues to be higher than a year ago, but it is short-term in nature. At the same time, market conditions remain volatile. Raw material prices in Asia had largely retreated from the highs reached earlier this year, and we had begun to adjust accordingly. Against this backdrop, we have updated our outlook for Polymers. The situation in the Middle East is again more uncertain and energy and raws move up again. For the full year, we now expect polymer sales to increase by a mid-single-digit percentage. EBITDA margin is expected to be above the prior year level due to PACE-related savings and the strong operational performance during the first half of this year. That said, we remain cautious on demand. Construction markets continue to be weak, particularly in Europe and China, and customer order patterns remain short-term in nature. At Biosolutions, second quarter sales reached EUR 99 million, an increase of 13% year-over-year. Growth was driven by pricing measures to offset raw material inflation as well as higher biopharma project-related business. EBITDA came in at EUR 7 million, supported by disciplined cost management. Our full year outlook remains unchanged. We continue to expect high single-digit percentage sales growth and an EBITDA of around EUR 30 million. While market conditions remain competitive, we relentlessly work on converting the opportunity management pipeline into revenue, increasing utilization of available capacity and hence further improving our cost base. At Polysilicon, second quarter sales were approximately EUR 226 million, up 3% year-over-year. Growth was driven by higher semiconductor-grade sales volumes, which offset lower solar-grade polysilicon prices. EBITDA came in at EUR 11 million. Strong semiconductor demand and cost savings supported the result, but profitability remained impacted by lower solar pricing, higher energy costs and solar inventory destocking. The solar market remains challenging, characterized by weak demand and low capacity utilization across the value chain. In addition, ongoing regulatory uncertainty continues to limit visibility. Against this backdrop, we have updated our outlook for Polysilicon. For 2026, we now expect sales to increase by a high single-digit percentage year-over-year with an EBITDA close to the prior year level. Earnings will be clearly supported by double-digit percentage volume growth in semi and PACE-related savings. Both helped to offset the substantially higher energy costs this year. Now let me turn to the net financial debt and cash flow. In the first half, gross cash flow increased to EUR 193 million, reflecting the significant improvement in earnings. Working capital reduced gross cash flow by EUR 88 million, primarily due to the seasonal increase in trade receivables. At the same time, lower inventory levels released EUR 47 million in cash despite higher raw material costs. This highlights our continued focus on inventory management. Cash flow from investing activities before securities amounted to EUR 19 million. Proceeds from the sale of Siltronic shares contributed EUR 185 million of cash, offsetting capital expenditures of EUR 172 million during the period. Looking ahead, we continue to expect capital expenditures of approximately EUR 300 million for the full year 2026. With our major expansion projects now completed, our focus has shifted to filling capacities and operational efficiency. This allows us to run CapEx clearly below depreciation. At the end of June, net financial debt stood at EUR 722 million, supported by earnings, disciplined capital spending and continued cash generation in the second half of the year, we expect net financial debt to decline to around EUR 500 million by year-end. Before we begin with the Q&A, let me close with a few key messages. Our priorities remain clear: achieve PACE-related cost savings, improve capital efficiency and only allocate resources to differentiated businesses where Wacker can create sustainable value and profitable growth. The improvement in earnings this year has been driven by our execution as well as the pension effect. As we move into the second half of this year, we have the confidence in our ability to execute, but remain cautious on geopolitical developments. PACE, pricing actions and stronger operational performance have delivered tangible results. Reflecting on this progress, usual year-end seasonality and the special effect from the pensions, we raised our full year EBITDA guidance to a range of EUR 625 million to EUR 750 million. That concludes my part. We look forward to your questions.

Operator, we are now ready for the Q&A.

[Operator Instructions] Our first question is from Christian Faitz, Kepler Cheuvreux.

I understand you are doing a great job controlling the controllables, yet there are quite a few noncontrollable factors in the world these days. Hence, my 2 questions, please. First, your forecast of high double-digit percentage growth for Polysilicon for fiscal 2026, what kind of growth levels do you have to make this happen with a run rate growth of minus 2.6% at H1 and at least Q4 '25 having a relatively high base. The same would, by the way, be true for your EBITDA forecast for this division. What will make the segment significantly more profitable in H2 versus H1? And then my second, more broader question, what kind of demand trends are you currently seeing in your key customer industries, i.e., construction and electronics aside from solar?

Christian, Tobias here. I would start with the second question, then maybe start also with answering the first question. Demand trends in construction remain weak. If you look at our Silicones division and if you look for the stronger part, it's definitely around the electronics that we see growing strongly. It's health care, it's energy, it's coatings. But in general, construction, industrial applications, consumer applications are still muted. So no big momentum from there. I think it's mirrored in the polymers performance where construction is sort of okay in Europe, but we have seen still a very weak market in China, for example. So there's no turnaround from our perspective on the construction side. And I think that's for the chemicals. And I start with Polysilicon, the bridge into the second half. I mean, obviously, we have lowered our guidance given that there is still so much uncertainty around solar. I mean there's no tiny impulse to improvement, and that's why we get more cautious on that. And we have been doing everything now to work down our inventory running at low utilization, and that is definitely a drag to profitability. But I'm happy that our inventory is now, I mean, 20% lower than it was a year ago despite that very weak environment. What is growing nicely is our semiconductor business. We had seen roughly, I mean, a 10% increase in the first half of this year. And given our contract structures, we also see a sequential improvement into the second half, and that will support us also, yes, coming to that growth for the overall segment. We would need some solar sales. I mean, to be frank and clear on this, also in the fourth quarter, we would need to have some impact from 232. But as we are just working down our inventory, we wouldn't turn up the production run rate for any solar change unless there is a fundamental change in demand. I think majority of profitability and drive comes from our semiconductor business and the cost savings. And that's why we get a bit more cautious on the full year given that the first half has not seen any positive impact on the solar side.

The next question comes from Chetan Udeshi, JPMorgan.

The first one was on polymers. You mentioned in your presentation some inventory effect, which I suppose is the inventory revaluation of the existing stock. I mean, how are you thinking about -- firstly, can you quantify that? And second, can that become a possible headwind into Q3 that you don't see that repeating in terms of contribution? The second question is on Silicones. Just looking into Q3, if you probably can just help us how you see sequentially trends in terms of sales, EBITDA by division because we've seen quite a sharp pullback in silicone prices in China, for instance, in the last 1, 1.5 months. So do you think Silicones can see stable profitability? Or should we model something lower? Just general comment around how you see the third quarter dynamics?

Well, Chetan, it's Christian. Let me start with your last question. I mean we don't give specific guidance on the segments for the quarter. But as Tobias pointed out, we have this peak in order entry in March for both chemical divisions and since then, it's slowing down. And yet for Silicones, it's still above last year. But what you have to take into account is there's a typical kind of summer seasonality, especially in Europe, which might drag a little bit on the sales. So that will be definitely an effect for the third quarter. And -- but your comment on the pricing in China is correct. But keep in mind, this is only for standard products. So the DMC prices are falling. But standard products, majority of our portfolio today is very much in the specialties, which is not one-to-one affected by these effects.

Chetan, to the inventory question for polymers, you spotted it absolutely correctly from the raw material increase. There's a revaluation that has taken place in the second quarter. And I don't see that repeating. So I would take it out definitely and not triangulate now based on the second quarter for the rest of the year. And it will all depend on how raw materials develop further through the remainder of the year. But given that strong volatility, I mean, something like that can happen and the magnitude is low double-digit. So it is a portion that is, yes, sizable. It takes 2 to 3 percentage points of the margin that comes from the inventory valuation.

And if I can squeeze one more, which is a hypothetical question, but something that you have alluded, Chris, previously, which is if the Section 232 is not favorable, you may end up with a solar plant, which is probably one more than what you need. So in other words, you may have to shut some of your solar capacity. And I'm just curious from memory at least, except in the U.S., but both of your German plants for solar polysilicon are integrated with silicone production in the same site, does that limit your ability to shut a polysilicon plant permanently? Because I suppose there is some sort of a -- again, from my history, I remember there is a closed loop between polysilicon and silicones in terms of raw materials for -- or byproducts from polysilicon going into silicones or vice versa. So I'm just curious how easy is it for Wacker to shut one of the polysilicon plants, whether in Germany or U.S.?

Well, Chetan, very valid question. And it shows the complexity that we have to take into consideration. It's a very far-reaching decision to be taken. But of course, it all depends on what comes out of that regulatory discussion in the U.S. There could be different scenarios. And my former statement, which you correctly repeated was -- if there is no option for solar for us anymore, we would have kind of one plant too many. But it would depend on how the distinct ruling of this policy would be on 232 to make a final decision. And yes, in principle, what you say is correct. There is what we call the Verbundstruktur, which we have on the German side, which you don't have so much on the U.S. side. But again, we need all the facts on the table to take a decisive decision because it's far-reaching decision. And so far, we don't have all the necessary information. But also, I would like to say there's no predecision at this moment in time.

The next question comes from Anil Shenoy, Barclays.

Just the two, please. Just following up on the question before. The first question is, if you -- I mean, in a pessimistic scenario that the Section 232 outcome does not go your way and you have to shut down one of your plants, then if you could give us some color on what kind of cost savings could you make because of that? So that's the first question. And the second question is on semi-grade polysilicon. So with AI CapEx expected to increase by like, 25% or 30%, that's the kind of number we hear. And your direct customers, the wafer manufacturers are saying that they're seeing increased demand for 300-millimeter wafers for which Wacker is a supplier of semi-grade polysilicon. So I'm just trying to understand, could we expect that 25% to 30% kind of a growth number for semi-grade polysilicon somewhere in the future, maybe in 2027 or perhaps 2028? And if not, what stops the segment from growing that much?

Okay. I mean, maybe starting on your last question. I mean, yes, I mean, AI is obviously driving semiconductor growth and is also driving ultimately the area growth, the growth in wafers. Please keep in mind, there's always a time lag and inventory, which you can also hear when you talk to the wafer guys. So it's not one-to-one from the AI to the wafer, and there might be a delay of up to 1 or 2 years in some cases, what we heard from customers. Therefore, it takes some longer time. And second part, AI is, of course, only one part of AI and the data centers are just one part of the semiconductor growth. It's probably at the moment, the highest, but there are still segments which are growing not as strong. I think recently, the mobile phone sector was not growing strongly. But in essence, yes, we see growth in data centers. We see that the amount of polysilicon, which you need for data centers is also increasing. We did some analysis on this, and some numbers indicate that from a data center today to a new data center in 10 years ago, the amount of polysilicon might be 4x of that. And so we see a significant growth opportunity, and that's why we focus on semiconductor strategy going forward. But it's still -- I mean, I cannot really tell you by quarter when the volumes will come because it depends on our customers and the customers of our customers. So the first question was on...

232. I think the first question was on 232. I'll step in on that. Tobias here. I think you were trying to figure what -- I mean, measures we would take and how much would that impact and lift profitability in case of negative scenario and actions on our asset structure. I think it's too early. We don't have -- I mean, a decision on the outcome of that proceeding on the table, and we don't have a customer reaction to that. That also needs to be seen. And for that reason, we cannot give you a number on that today.

The next question comes from Sebastian Bray, Berenberg.

I have two, please. The first is on the Silicones segment. As far as I'm aware, Dow has started the final shutdown of the Barry production in the U.K. It's quite a big plant. I think over 200 people were working there. Is there any uplift or benefit that was visible in that in Q2? I'm a bit surprised that the mix was positive in silicones. But is there anything happening or to get excited about in European market in terms of the impact of capacity exits and Wacker being one of the last man standing in the siloxane industry in Europe? And my second question was on Polymers. I haven't quite understood why this segment did so well in Q2. I don't think there were huge issues with competitive raw material supply, maybe to a certain extent. But can you give some color on whether this was just take some cost out and people weren't anticipating it or there was a genuine expansion in price/cost spreads in the segment?