Hello everyone! And welcome to Siltronic's conference call on its full year 2021 results. Please note that this call is being recorded and streamed on Siltronic's website. The call will be available as an on-demand version later today. Your participation on this call implies your consent with this. At this time, I would like to turn the conference over to Rupert Krautbauer, Head of Investor Relations and Communications of Siltronic AG.
Thank you, operator. Welcome everybody to our full year 2021 results presentation. This call is also being broadcast live over the internet on siltronic.com, and a replay of the call will be available on our website shortly after the conclusion of this call. Joining me on today's call are our CEO, Dr. Christoph von Plotho, and our CFO, Rainer Irle. Following our usual procedure, Chris will start with some general remarks and Rainer will provide more detail of our key financials, followed by Chris again, updating you on our guidance and current market developments. After the introduction, we will be happy to take your questions. Please note that management comments during this call will include forward-looking statements which involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation and in our annual report.
All documents relating to our full year 2021 reporting are also available on our website. I now turn the call over to Chris for introductory remarks.
Thank you, Rupert. Welcome everyone, and thank you for joining us for our full year 2021 result call. I hope all of you and your families are healthy and safe. Before talking about Siltronic, I would like to send our compassion to the people of Ukraine. We are shocked about the development that already caused many civilian casualties. Our thoughts are with those affected by this horrible war. Now, let's shift to Siltronic's development in the year 2021. The year 2021 was dominated by strong market demand and significant volume growth, exceeding market predictions from early 2021 by far. The whole semiconductor industry experienced an exceptional growth year, with demand exceeding supply in several areas. This also drove Siltronic sales and margins. All our production plants have been fully loaded since mid-2021, and demand continues to grow, especially for 300mm wafers.
In order to meet future growth, we made the strategic decision to build a new greenfield fab in Singapore. Throughout the year, we were waiting for regulatory approvals for the tender offer by GlobalWafers, which unfortunately did not materialize. All of this made 2021 an exceptional year for Siltronic. Now, let's have a look at our key financials before Rainer leads you through the Q4 development in more detail. Compared to the year 2020, our sales were up by more than 16% to EUR 1.4 billion. Overall, ASP in 2021 was slightly down compared to 2020 due to exchange rates. Wafer prices started to recover in the H2 of the year. The headwind on FX, caused by stronger euro, also eased in the H2. Our EBITDA came in at EUR 466 million.
EBIT was up 65% at EUR 317 million. Margin development in the later part of the year started to be hampered by inflation effects on COGS, mostly due to rising energy costs. CapEx of EUR 426 million was significantly up year-over-year. The investments are mostly related to the construction of our new 300 mm fab in Singapore and the expansion of the crystal pulling hall in Freiberg, as well as additional EPI capacities and capabilities. Our net financial assets were EUR 573 million at the year-end. Silicon wafers are the basis for almost all electronic applications. Demand growth for wafers is driven by the growing use of semiconductors in all types of electronic applications. Continued growth for the worldwide electronics market will continue to drive demand for our wafers.
Semiconductor demand grows due to new applications, for example, digitalization, as well as due to unit and content growth in existing applications. In 2021, we started major expansion projects. Most important is the construction of our new factory FabNext in Singapore. In Germany, we are building a new crystal growing hall in Freiberg, and we are investing in EPI reactors. As you can see on the picture, we have made good progress with the construction. Both projects are well on track. Supply timelines for key equipment have been firmed up, and we have great project teams on site. Now it's all about the smooth execution. I now hand over to Rainer.
Yeah, thank you, Chris, and good morning, everybody. Before we go into the details of the financials, I would like to talk about another important topic. Before, Siltronic decided to kick off a new climate action program and committed to the Science Based Targets initiative. Basically, we want to cut our CO2 emissions in half by end of this decade with a long-term goal to become net zero until 2045. These are ambitious goals for an energy-intensive company like Siltronic.
We are convinced that accelerating climate action is important for us and for the future of our planet. We will do so by improving energy efficiency, generating renewable energy ourselves, and by buying renewables. Now let's move on to the financials. Sales increased quarter-on-quarter every quarter last year, mostly driven by volume growth. The first half of the year, we saw significant headwind from FX. In the H2 of the year, the US dollar exchange rate improved. COGS 2021 went up mainly due to higher wafer area sold and higher depreciation of around EUR 10 million. Excluding depreciation, cost per wafer area declined significantly in 2021 compared to 2020 due to fixed cost dilution and productivity improvements. In Q4, COGS came in at EUR 248 million, in line with wafer area sold.
Rising electricity prices and FX effects had a negative cost impact in H2. Our gross profit rose to EUR 128 million in Q4. Gross margin went up quarter on quarter to 34%, driven by ASP and stronger US dollar. Currency effects were dominated by a weak dollar in the first half of the year. We recorded therefore positive hedging results for Q1 through Q3 and a slightly negative hedging result in Q4 due to a stronger US dollar. Our currency effects accounted in total for EUR 9.5 million in 2021, up by EUR 3.6 million in 2020. The GlobalWafers tender offer and its impact. Siltronic had legal expenses as part of admin expenses in 2020 and 2021. The impact of some concluded contracts were contingent on the closure of the transaction.
This means the actual cost depended on whether all necessary approvals for the acquisition by GlobalWafers were granted. Admin costs of EUR 12.1 million were charged in 2020 as a reserve and EUR 3.6 million in 2021. Now, last year in Q1 to Q3, we assumed that the tender offer would be completed. Therefore, the costs increased admin expenses by EUR 2.1 million in Q1, EUR 2.7 million in Q2, and EUR 1.3 million in Q3. As the offer, as you know, was finally unsuccessful, we reversed the reserve in Q4. This resulted in a EUR 3 million reduction in admin expenses and a EUR 9.9 million other operating income in Q4. In line with our increasing gross profit, EBITDA was up to EUR 144 million in Q4, a 17% increase versus prior quarter.
This was driven by higher gross profit and the positive one-time effect caused by the tender offer. EBITDA margin was 38% after 33% in Q3. Excluding the effect from the tender offer, EBITDA margin would have been 35% in Q4. EBIT in Q4 came in EUR 109 million with an EBIT margin of 29% compared to 23% in Q3. For the full year 2021, the higher wafer area sold and the reduced cost per wafer area more than overcompensated the negative burdens from increasing costs that we experienced since late Q4. Net profit was EUR 94 million in Q4 versus EUR 74 million in Q3. Earnings per share came in at EUR 2.15 versus EUR 2.79 in Q3. In the financial year 2021, net profit was EUR 290 million.
Excluding minorities, obviously, earnings per share was EUR 8.44 compared to EUR 5.36 in 2020. A nice increase, and we will therefore also propose to increase the dividend to EUR 3 per share, and we propose that to the AGM meeting in May. Working capital in 2021 was flattish year-over-year with EUR 230 million in Q4, mainly driven by an increase in inventories, contract assets, and trade receivables due to higher wafer area sold. Trade liabilities also went up, also particularly due to higher CapEx. Looking at our balance sheet, equity rose to EUR 1.3 billion at the end of December. Equity ratio was nicely up to 54%. The increase is based on the strong profit minus the dividend payment, as well as a decrease in pension obligations.
The pension provision in Germany was discounted at 1.23% as of December 2021, versus 0.69% at the end of prior year. In the U.S., interest rate also went up from 2.07% to 2.51%. All this together caused our pension provision to decline significantly to EUR 405 million and to increase equity. Net financial assets increased to EUR 573 million, despite high CapEx and EUR 60 million dividend payment. This was mostly due to the very good cash flow from operating activities and customer prepayments received in Q4. CapEx in Q4 jumped to EUR 282 million due to the ongoing expansion projects. Namely the expansion of the 300mm crystal pulling hall and EPI in Freiberg, and of course, the green light for FabNext in Singapore.
For 2022, a CapEx of EUR 1.1 billion is planned, with about two-thirds of this going into FabNext. In financing FabNext, we will take a conservative approach. The majority of the investments will be financed by existing liquidity, future cash flows, and prepayments from key customers. Furthermore, we also consider a moderate amount of debt financing. This should bring us to about 0.5 times net debt to EBITDA. We will definitely not raise new equity in 2022. Operating cash flow in Q4 was EUR 197 million, following EUR 123 million in Q3. Due to high CapEx, net cash flow in Q4 was negative at -EUR 140 million. As expected, the net cash flow of about EUR 2 million in 2021 was positive, but significantly below previous year.
Net prepayments for customer LTAs amounted to EUR 93 million in Q4. With that, I would like to hand over to Chris for an update.
Well, thank you, Rainer. Now let's have a look at the outlook in the year 2022. Siltronic had a good start in the year 2022. We continue to see strong demand from customers. Since our production lines have already been running with high utilization, there is only little room for growth volumes in 2022. We do expect our revenue to grow due to significant price increases, but margin development will be hampered by cost increase of about EUR 120 million, with about 50% of that being for energy. Fundamentals of our industry are strong, but news are currently dominated by uncertainties that may affect the global economy. The COVID pandemic is not yet over. Disruptions in the global supply chain persist. U.S.-China trade tensions continue, and now there is even a war in Ukraine.
The growth drivers for our industry remain strong. Growing digitalization in all areas of life will continue to drive the demand for semiconductors and hence for silicon wafers. Siltronic's focus is now on smooth execution of our 300-millimeter expansion projects to participate in future growth markets. This implies a very high CapEx, which we'll manage to manage without an increase in capital share in 2022. Despite all challenges, we see ourselves in an excellent position to continue our growth sustainability. Silicon area demand did grow approximately by 14% in the year 2021. Siltronic expects continued demand growth for 300-millimeter wafers at a CAGR of around 6% for the next few years. Silicon wafer demand for smartphones continue to grow despite stagnant unit sales because of increasing functionality and semiconductor content. The trend to more cameras and more memory continues.
Automotive supply chains are still disrupted, but the trend to more semiconductor content per car remains strong. This is due to the growing share of electric vehicles, wider use of assistance systems for the driver, and more semiconductor content for infotainment systems. All these trends sum up to structural demand growth for silicon wafers. Siltronic's production lines continue to operate at very high loading, and wafer prices are expected to grow significantly in the year 2022. All this leads to our outlook for the year 2022. We currently expect only slight increase of wafer areas sold of less than 4% compared to the year 2021. Assuming continued high fab loading and significant price increases in invoice currency, we expect sales to grow by 15%-22%.
Our EBITDA margin should increase to between 34%-37%, including the termination fee paid from the terminated tender of GlobalWafers. Raising unit costs, particularly for electricity and supplies, will have a total negative impact of around EUR 120 million. Depreciation will increase to approximately EUR 185 million. EBIT should increase significantly despite higher depreciation. Our tax rate is expected to be between 10%-15%. We plan to invest around EUR 1.1 billion in 2022, two-thirds of which will go into the construction of FabNext in Singapore. Further investments will focus on the expansion of the crystal pulling hall in Freiberg and 300mm EPI capabilities to meet future customer requirements. Due to the high CapEx, our net cash flow will be significantly negative. Earnings per share will increase significantly.
With this, we close our presentation and we are now available for your questions. Operator, please open the Q&A session.
Thank you. We will now begin our question-and-answer session. If you have a question for our speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero and two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. We have a first question. It's from François-Xavier Bouvignies, UBS. The line is now open for you.
Hi, good morning, gentlemen. Thank you for taking the question. I have two quick ones, if I may. The first one is on your guidance for 2022. You mentioned the volume of less than 4% for this year. The clarification that I wanted to check with you is, do you take into account this global uncertainty to this less than 4%? Or is it based on your maximum supply that you can, you know, do this year on the volume term? That's my first question. The second one is on the clarification on equity raise. I mean, you mentioned, you know, you don't want to do one in 2022, and you will lose other kind of metrics. What does it mean for 2023 and 2024?
Because it seems that you are very specific on 2022, or do I read too much into it? In other words, what is the likelihood of a capital, you know, equity raise, in 2023 or beyond? Thank you.
Well, thank you for your questions, François. I think you're reading too much, a little bit too much into it, but Rainer will later answer the second part of your question. Let me try to give a quick answer on the first one. Less than 4%, this is simply due to our high capacity utilization that we already had in the H2 of last year. This is basically capped by capacity of Siltronic.
Sorry, go ahead.
On an equity side, François, I mean, we wanted to make it very clear that we are not doing it this year because obviously we see overhang in this year. We also see that it is unlikely that we will do an equity increase in the years to come, but we don't wanna rule it out completely, so to give us some room to maneuver. I think it's very unlikely.
Okay, great. Thank you. Maybe since it was a short answer, if I may add one quick one. I mean, what's the situation that you are seeing on the raw wafers and of course, finished good issue? If you have any insight, that would be nice to share. Thank you.
Well, you know, again, we only have little information regarding raw wafer inventory at customers. We have a good view at two of the four memory players. One is relatively stable at around 30-35 days. It's okay from my perspective, from our perspective. The other one is slightly decreasing. It's still at an okay level, but if it continues to decrease, one day they might come into some challenges. Apart from that, I want to remind you that inventory challenges typically do not start at raw wafer. They start somewhere in the value chain between the products that our customers could use and the product which is finally sold to the end consumer. This is proven by all the inventory adjustments that we did see in the past.
At the end of the day, you know, we come back to demand for end products. Demand for end products in all areas and in all geographies is still very, very strong. There are no signs that this will slow down, and customers continue to ask for more wafers than we deliver to them based on contracts that we have with them. They are willing even to pay premium prices for spot quantities.
Great. Thank you, Chris.
Thank you, Rainer.
You're welcome.
The next question is by Gustav Froberg, Berenberg. The line is now open for you.
Thank you very much for taking my questions as well. I have a couple. I'll do them one after the other. Firstly, just how do you view your customers' ability and willingness to stock up, more on wafer inventory in light of supply shortages of critical materials, elsewhere in the value chain, potentially limiting your customers' output? A second question on guidance. You've given a rather wide range for guidance for 2022. Could you talk us through the different scenarios you expect for the year and what you think needs to happen to either reach the top or the bottom end of your guidance, please?
Yeah, let me try to answer the first part of your question regarding customers. I think customers in the moment do not have the possibility to pile up a raw wafer inventory because the offer to the market is limited by capacity, not only at Siltronic, but also at our competitors. I think this will continue to be so. We already said that we cannot see any possibility to have more volume growth than 4%. It will be low 4%. We do believe that demand might be higher than plus 4%. If that's the case, this additional demand can only be fulfilled if competitors of Siltronic have more available capacity, and we do not have any signs to go in our thoughts in that direction.
For the second part of your question, you know, you said it's a wide range. Wide is not really defined. If at the very beginning of a year in a challenging environment like we presented in our presentation, we say lower limit is 34%, higher limit is 37%. I think this is for sure not wide. Rainer will try to explain to you and give you a little bit more detail about the bottom and the top portion.
Yeah. Because I mean, there's a lot of volatility in all over the place. The first one is exchange rates. I mean, we have seen a huge range of the U.S. dollar to euro already this year. This is kind of reflected in the top line range. I mean, as Chris said, I mean, volume is very much fixed by production capacity. A lot of price increases have already been concluded. There might be a little bit more to come. I mean, in exchange rates for the average of the year, I mean, we can probably expect anywhere between 1.08-1.16, so that's a very wide range. When it comes to the bottom line, in addition, you see currently panic in the electricity markets.
It is obviously the war. It is also currently the drought in Central Europe and zero wind generation. I mean, there's really absolutely no wind currently, and wind is typically 10% of the generation. Electricity prices, I mean, we saw them last week shooting up to 250 EUR, which is five times the normal. You know, depending on the negotiations in Ukraine and also depending on the weather pattern going forward, it could easily come down. That is included in the EUR 120 million cost increase. I mean, most of that obviously from electricity, but also from raw materials and supplies. There is just a huge variation in commodity markets and exchange rates and everywhere.
That's the reason why the range in our guidance is a little wider than usual.
All right. Good stuff. Thank you very much.
The next question is by Holger Schmidt, Metzler. The line is now open for you.
Yeah, good morning. Thanks for taking my questions. The first one is with regard to CapEx. I mean, we have EUR 1.1 billion this year. How should we think about the CapEx spending volume in 2023? The second question is around prepayments. You have signed obviously a lot of LTAs for your next fab in Singapore. How should we think about the prepayments coming in over the course of the next two to three years? The third question is with regard to the cost-cutting program. You mentioned it in your press release this morning. What amount of cost savings is incorporated in your guidance, and what measures are behind the program?
Well, first of all, on the CapEx, we always said that the building of FabNext is somehow front-loaded. Therefore, you see a very high figure for the current year. You know that we also said that we will spend for FabNext EUR 2 billion till 2024. Of course, you know, a larger portion of that will be in 2023, but we are not in a position to talk today about CapEx that will happen in 2023. Again, you know, we gave you the total figure. We said two-thirds of the EUR 1.1 billion is for FabNext. We continue to say and we insist on the point that it's front-loaded. I think this is a nice set of information that you can use for your model.
The LTAs, well, the prepayment, some of them already came in, some of them will come in during this year, and a very little portion will come in in 2023. Cost reductions, you know, we continue to focus on what we successfully always implemented in prior years. Most of it is driven by productivity and yield. It's about payroll costs, mostly in Germany, where the payroll costs are relatively high. On the other hand, you know, we already saw it last year, we were on a very good track for cost reductions. At the end of the year, cost reductions were not as much as we thought because we already saw in the last four months of 2021 higher cost for energy related things.
Okay, there's one follow-up question. You mentioned the EUR 2 billion CapEx envelope for the next step. Against the background of a rather inflationary environment, do you think the EUR 2 billion will be sufficient now?
Yes, we think so. Most of that is negotiated. We have finalized for all major equipment the contracts with the suppliers. We do not, I think, have any reason to believe that EUR 2 billion till the end of 2024 will not be sufficient.
Okay, excellent. Thank you very much.
You're welcome.
The next question is from Robert Sanders, Deutsche Bank. The line is now open for you.
Yeah, hi. Can you just maybe remind us a bit about when the volume's coming on stream with FabNext, and at what sort of rate of growth? Then I have a couple follows.
Yeah, that's a good question. I can remind you that we said that the first wafers for qualification will be shipped in early 2024 to customers. At the end of the day, you know, the biggest influence is coming from customers. How much time will it take to qualify these products out of FabNext? From today's perspective, customers are talking today about the willingness to shorten that time as much as possible. Maybe even the first wafers might be shipped in late 2023 for qualification. Needs to be seen. Siltronic does not have any experience with the fastest possible ramp of a fab.
You know, the first wafers out of the last 300mm investment in Singapore were brought to the market in 2008, and full build-out was realized something like 12 years later. It was never the idea to ramp this fab in 12 years, but the market did not allow to ramp it faster. This time it looked different. It looks more like Siltronic cannot ramp fast enough for the market development. Therefore, our assumption is that we will ramp at the speed of between 130 and 150K per year. Whether fast as possible needs to be seen. But again, you know, when we talk about which quantity of wafers will come to the market, a lot depends on qualification made by the customers.
If the market continues like it looks today, I think there are good reasons to make the qualification time shorter than they typically did in the past.
What is the typical time from qualification to revenue? Also what is the typical time to get the fab to the level of quality of the existing site?
Well, you know, that depends a little bit also on the design rules. Design rules are getting tighter. I think the most challenging qualification, internal qualification is final clean, that will need some time. Typical qualification time is between 3 and 6 months, as I would say, for polished wafers. In the past, epi wafers sometimes took even up to a year. Qualification of the customer.
Got it. The question for Rainer Irle, I just heard you mention some FX rates. Is it correct to say that your revenue guidance for 2022 assumes a range of FX 1.08-1.16? I was just surprised by that, given where the spot rate is, if that was your assumption. Does that mean the midpoint of the guidance is 1.12, based on that?
No, it's a bit rough. It's a bit higher. I just said that we saw 1.08. You know, we believe that's not sustainable, so it reflects more range, I would say, between 1.12 and 1.18.
Okay. You've taken a view on the FX rate. Okay. That implies that the constant-dollar apples to apples ASP is up much more than 10% and basically year-on-year. Is that correct? There's nothing else I'm missing, right?
The ASP in invoice currency is not up much more than 10%. I wouldn't say that.
Okay. In the ballpark. Got it. Okay. Thanks for that. I'll jump out.
The next question is by Jürgen Wagner, Stifel. The line is now open for you.
Yeah, good morning. Thank you for taking my question. On your product strategy, historically, you said that silicon carbide is not something you look at. Has that changed now as you are staying independent? Also, would solar wafers be a long-term opportunity you are looking at? On China, how has the quality of Chinese raw wafer supply changed or improved, let's say, over the last two years? Thank you.
Well, let's start with the last question. We always said that the Chinese players will not play a major role in the next 5 years for prime wafers. I think this is still true, but we also said that they will catch up. We did not see anything in leading-edge design rule. We hear from time to time that they have maybe a 28- to 22-nanometer capability, but this is not really proven. The major concern that I have today regarding China is that for 300 millimeter, there is an undersupply in the market, not taking into account the Chinese capacities, and our customers suffer from that. This shortage of 300 millimeter wafers will open doors to the Chinese, which wouldn't have opened in another market scenario.
This is my major concern regarding China. It's not so much about their capability, it's much more about possibilities that they will get to collaborate with, let's say, leading semiconductor industries outside of China. Silicon-
Would that be more memory? Sorry, would it be more memory then?
Well, I think it's like always, you know, we have leading edge is typically epi, it's not polished. So let's say a state-of-the-art memory wafer is easier to accomplish than a state-of-the-art epi wafer when we talk about leading edge. On the other hand, you know, we have in the epi market, you have big consumers of epi wafers, but you also have quite a number of smaller foundries which are not using leading edge, which opens the door in that sense.
When we talk about polished wafers, you know, the major consumer of polished wafers are the memory players, and the memory players, specifically the two Koreans and but also the Japanese and the North American one, they basically switch when they go to the next design rule, not everything, but a large portion to the next design rule. Therefore, polished is less demanding, but the share of our customers is much more based on leading edge when you compare it to epi. There is no clear answer. It's more this, it's more that. At the end of the day, you know, it's the entrance door is also monitor wafers. Monitor wafers, I think we are pretty sure that they have the capability to supply monitor wafers.
You know, you see the investment plans of our customers, and you know, every additional investment, every additional capacity translates into significant more monitor demand. You know, we had periods where we produced monitor wafers. Today, monitor is not only at Siltronic, but also at our competitors, the by-products, which you can't avoid. As prices for prime wafers are higher than the one for monitor wafers, you know, there is a quantity that we cannot avoid, which will be shipped to the market as a monitor wafer, but we will not produce monitor wafers. Yeah, then silicon carbide. No, you know, we will not review a strategic decision every year. You know, once we simply have to say we are done with it, that's it.
I think the growth rates of silicon carbide are impressive, but it's from a very low level. It's a completely different kind of product. It's a completely different chemistry, I would say, to grow such a crystal. No, we will not look into that again. By the way, you know, three years ago, people talked about a shortage of silicon carbide. Today, we talk more about overcapacities which are in the market. I do not see any reason to go there. Solar wafers. I think Siltronic never looked into solar wafers, but Wacker did in the past. There was a joint venture with SCHOTT, and this was not a very successful experience, let's put it that way. They stepped out of it relatively quickly within a 12-month period.
You know, solar is still a business where the success depends a lot on by how much solar industry is supported by tax advantages or financial support, whatever you wanna call it. Therefore, we will see very high fluctuation over there. Siltronic is dedicated to our customers, and our customers are semiconductor customers, and we are completely fully loaded, so we don't have any room even to think about solar wafers. Also that is, I think, a relatively clear no.
Okay. Understood. Thank you.
You're welcome.
The next question is by Johannes Ries, APUS Capital. The line is now also open for you.
Yes, hello. Maybe only to make a question regarding the actual situation. You mentioned the EUR 20 million additional costs for energy. How much, maybe how flexible you can pass higher energy prices to your customers? Is there a time lag or can you immediately pass it if energy moves up? Because nobody knows how the energy price will develop in the future. In the worst case, how fast you can react? That's the first question.
Well, first of all, the EUR 120 million is not only energy, it's to a large extent energy, but not all. This is total cost. You know, we stick to the idea that we execute contracts. I'm not a big believer in trying to pass additional energy cost to customers, because as soon as the cost will go down, they will come to see you, open their hands and ask for a price reduction. I think the only area where it's relatively typical that you use index prices is for products which are truly related to crude oil, like in some organic chemistry that I also know from Wacker. I'm not a big believer in when you have significant additional cost that you directly hand it over to customers.
The other way around, we wouldn't like that customer come to see us and say, "This product that you use is becoming cheaper, therefore I wanna have a price reduction." I want to remind you that Siltronic was, is, and will be in the future, completely convinced that pricing is done by the market and not by cost.
Very, very clear answer. Thanks. On the other side, maybe given your guidance, how much you have included, maybe set through those bad things which happen in Ukraine, maybe. World economy could get a real hit, for maybe the worst case could go to something like a recession or maybe flat, only flattish development. How much this risk you have included in your guidance and how much feedback you get from your semi customers, how much they see maybe demand if their own demand could be affected by a weaker economic development?
Well, I think the weaker economic development is a possibility for the future. No customer up to now translated that into reduced volume request that they have. It's like I said before, the other way around, they are still looking for additional quantities and willing to pay more for it. You know, I think the output that we gave is a relatively positive one. Of course it does not include a worst case scenario. How do you want to define a worst case scenario? I think there is no reason to be so pessimistic to include in an outlook a worst case scenario.
Even in some slowdown, you still think there is strong demand from the semi side given the structural growth?
Right.
Finally, maybe only remind us, after the GlobalWafers deals didn't happen, GlobalWafers announced also additional investments and even your Japanese competitors build greenfield new fabs. Is there any point in the future there could be a risk there could be overcapacity again, from all these greenfields? To your own market view, is what all now is announced, even the additional investments of GlobalWafers, it's not to an effect that we could see a phase mainly of over-supply-chain-driven overcapacity?
No. The way you ask the question, I can't answer, you know. You basically ask whether I can exclude that in the future, there won't be overcapacity.
Okay. No.
This is something that I cannot exclude. What we say since quite some time, when we were talking about greenfield before we made the decision, we say based on the assumptions that we have for the market and the ramp speed and the growth of the market, the industry needs 3 Fab Max. I always gave this calculation to you. You know, we have the 7.8 million wafers, which were the quantities of Q4 last year. We compare it to a fab of 600K. This is something like 6%-8%. This fab will ramp in a phase of 4 years, so it's 2% per year. We assume that the market demand will grow by 6%.
Consequently, the industry needs three FabNext, and they need it now and not in 2024. I would be very, very surprised to see overcapacities before 2025, 2026, because, you know, then you need to know already the ramp phase of the greenfield investments. What we see up to now, you know, the announcement of SUMCO is relatively comparable to what we said. GlobalWafers is not so precise about the quantities. No. If there is no change in the market environment for the midterm future, I can exclude overcapacities.
Okay. It was a great answer.
The next question is by Lukas Glamza, Jefferies. The line is now open for you.
Hi. Just a few quick questions to start with. How much do you expect for financial charges this year? Also on the tax rate, why is the tax rate higher this year? On the CapEx, outside of the FabNext, is the remaining third all Germany?
Well, first of all, on the CapEx, it's mostly Germany, but not all of it is Germany because, like I said in my talk, it's driven by the growing hall and EPI reactors, and that's all Germany. For the tax rate, the major reason is that we are becoming more profitable and the tax rates are higher in Germany than in other areas. Consequently, you know, the tax rate will go up.
And the break, the break-
The breakup fee is taxable at a rate which is significantly higher than the guidance of 10%-15%.
Just on the financial charges for this year, how much do you expect on that?
I mean, it's usually we have expenses due to the interest-bearing reserves, particularly pension expenses, of some EUR 5 million. Then we have some EUR 6 million in liquidity under management that usually brings us some return. Last year we had a very good financial. This year it's probably a bit early to say. I mean, the markets are in turmoil. It's difficult to give a guidance for the return on those investments. And finally, we will raise that, though, kind of, you know, this is something that will probably not be in effect till mid of the year. We will have some interest expense for that debt. As that only kicks in in the H2 of the year, that should be moderate.
Okay, perfect. Just to clarify on the margin increase, yeah, just wanted to clarify where that exactly comes from. Is that just from higher prices or is there anything else other than that?
I mean, first of all, we expect GlobalWafers to pay us the agreed break fee likely in Q1. That is EUR 50 million extra income that is obviously included in the guidance. You know, we have tailwind from higher prices and we have headwind from higher costs.
Okay, perfect. Makes sense. Thank you.
The next question is by Stephan Ury, ODDO BHF.
Yes, good morning, actually. I had two questions, but the first one has been asked by Jonas. In fact, I just wanted to understand the way you have calculated the impact of the energy cost, if you took the spot price of energy or if you took a harsher assumption, looking at how the situation is evolving. That's the first question. The second question was about the volumes. I understand that you are very limited today by the volumes by your production capacity. Does it mean that we should take the assumption that you will be limited by capacity until 2024, when you will have the new plant running?
The question behind is, are you, let's say, pushing the walls to try to invest a little bit to increase the capacity for 2023 without this new plant? Thank you very much.
Well, I will start to answer the second question. Yes, we are limited by capacity. There will be a little additional coming on stream in the later part of this year for 200 mm, which will have an effect on 2023 because it will be fully available for the year 2023. But there's nothing for 300 mm. You ask whether we consider to do something against it. No, we do not. Because we always said, you know, brownfield is done. There is no additional equipment that we can put into ourselves. I feel sorry for the market. I feel sorry for our customers. We would like it to be different, but it's not. The first question that you asked on spot prices, energy and so forth, I would-
Yeah.
Rainer Irle to answer that one.
Sure. Stephan, I mean, electricity buying is a mix of forwards and shorter term spot or months plus one. So we also have several production locations that are affected differently. I mean, the U.S. electricity prices are up only a little. In Singapore, they are up significantly. In Germany, I would say, they are currently panicking. We have at all locations a good percentage already locked in forwards, though usually at quite a bit higher prices because you know, prices were already high last winter with a shortage in gas supply and the non- or below average production of wind energy.
Some of that is still open and we are following spot prices carefully, trying to make sure that we get a good timing.
Okay. Thank you very much.
The next question is by Robert Sanders, Deutsche Bank. The line is now open for you.
Yeah, I was just gonna ask a follow-up question about utilities as well, actually. Just to understand, I remember utilities used to be the fifth-largest part of your cost of goods sold. I assume now it's probably second behind labor. Is that correct? And, you know, is it roughly speaking, the utilities was EUR 120 million last year, will be EUR 180 million in the current year? Is that in the ballpark?
Yeah. Rob, I mean, first of all, you're right, it was number five and it's moving up. It's not moving up to number two yet. It will be up, I mean, if you say EUR 120 million impact total, you know, a good half of that is electricity, you can do the math. We never disclose fully what exactly the amount of energy cost is and, we don't wanna do that going forward.
I think the top three are unchanged. We have labor, we have supplies, and we have depreciation.
Got it. It was true that polysilicon, which was from Wacker, which was the fourth largest at 12%, is up substantially this year as well. Is that correct?
It is correct. We signed a new polysilicon supply contract, which is a five-year contract, which sees in the first year, which is this year, a low double-digit % price increase, but then stable prices going forward. That we always talk about going forward. I mean, it's really a question of how much of that inflation that we are currently seeing this year, how that will sustain into next year. Definitely too early to talk about it, but that will be a very interesting question going forward.
Just my last question would just be on wafer pricing. You said 10%, on average. Is there a big difference by diameter in 2022? What are you thinking for pricing into 2023, just indicatively?
Well, that's a nice try to find out price increase per diameter. This question was asked basically in every call that we had that I can remember, and we never answered it, and we won't change it today. The impact, of course, is by far the largest from 300mm because two-thirds of the quantity in the market are 300mm, and the other ones are only smaller. Price increases were possible in all diameters. Like I said in previous calls, since beginning of April last year, there was no negotiation concluded with customers without price increases.
Any thoughts on 2023 or too early to say?
Well, you know, there are contracts which are so-called long-term contracts and long-term contracts that we concluded or finalized in the H2 of 2021. Of course, they also cover 2023, but I will not give you guidance on pricing for 2023. You know, talk to SUMCO. SUMCO mentioned it. 10% in 2022, 10% in 2023, 10% in 2024. That's what they said. In the past, SUMCO was never good in giving outlook for price increases. Maybe this time it's different. I don't know.
Thanks. Very helpful, Christian. Bye.
There are no further questions for the moment and so I hand back to Rupert Krautbauer.
Thank you very much, everybody. This concludes our Q&A session. Thank you for joining us today. We hope you will join us again for our Q1 release in May 2022. Goodbye, and stay safe and healthy. Thanks, everybody.
Goodbye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.