Earnings Call: Q3 2019

Oct 24, 2019

Dear ladies and gentlemen, welcome to the conference call of Fakashimi. At our customer's request, this conference will be recorded. Call. Maya now hand you over to Joerg Hoffman, Head of Investor Relations, who will lead you through this conference. Please go ahead. Thank you, operator. Welcome to the Vaca Kimi AG conference call on our Q3 2019 results. Doctor. Ola Staudigl, our CEO Doctor. Tobias Ola, our CFO, We'll take you through a presentation in a minute. The presentation is available on our web page under www.vacker.com under the caption Investor Relations. Before we begin, allow me to point you to our safe harbor statement, which you will find at the beginning of the deck. Doctor. Staudigl? Ladies and gentlemen, welcome to our conference call. For the third quarter of this year, we reported group sales of 1,000,000,000 and an EBITDA of 1,000,000. This result includes insurance compensation. Last week, we for the full year remain extremely low. Many market experts anticipated a price recovery for solar grade polysilicon in the second half year. Our previous Instead, they fell further in the third quarter due to overcapacities created by Chinese competitors. Also, a weaker macro environment, macroeconomic environment holds back our chemicals businesses somewhat. Sertronics results reported as an equity position are also lower compared to last year. As a result, we now expect EBITDA of 10% to 20% below last year. Our chemical businesses silicones, polymers and bio solutions are all performing well silicones reported an EBITDA margin of 20%, benefiting from growing specialty sales. Absolute EBITDA is less than last year due to lower prices and challenging market conditions and standards. However, the steady and consistent focus in our specialties business supports the positive earnings trend over the last couple of years. Polymers reported an EBITDA margin of 15%. We continue to see robust volume growth, especially in China, offsetting some weakness in the European markets. The trends towards higher standards for building materials continues. With our global setup, we are excellently positioned to benefit from this development. BioSolutions saw a pickup in its biopharmaceutical business ahead of our plans. We completed 3 major CapEx projects during the quarter. Our HDK or fumed silica plant is now up and running in Tennessee. This new plant leverages existing site infrastructure and logistics and provides us with valuable material for both captive use in the merchant market. At our silicon metal site in Norway, We completed the world's largest and most efficient silicon metal smelter. Startup in October was very smooth Overall, the sites benefits from low cost hydroelectric power in Norway. Consequently, the carbon dioxide footprint of our silicon metal is also much lower compared to material from coal based power in China. This also translates into probably the smallest carbon dioxide footprint of our polysilicon and silicones compared to the rest of the industry. In Korea, We completed our 80,000 tons spray dryer for VIE disposable powders. This dryer is by far the largest of its kind and provides us substantial economies of scale versus our competition. Looking forward, we are going to spend more of our CapEx on the downstream and intermediate parts of the business. These investments will increase the capacity needed for further growth and at the same per year mostly on growth. We will grow silicones and enhance the quality and size of the specialties business. Right now, we have enough upstream capacities to support our growth. As new opportunities arise when capacity growth in China continues, In polymers, we will continually invest in supporting industry growth. Construction at our new Dispersions reactor in Ulsan Korea is underway. In BioSolutions, the project pipeline builds and the Amsterdam facilities will soon be fully loaded. We are looking already With a strong business in chemicals supporting us, we are taking every step to improve polysilicon. While this presents challenges we are working relentlessly to improve the business. Tobias will now walk you through the financials segment's performance and updated guidance. Good afternoon. I will begin with our P and L on page 3. Sales held up year over year despite much lower prices for polysilicon and silicone standards. Much stronger polysilicon volumes, better volume and mix in chemicals and some positive FX contributed. Gross profit increased by 24%. The key driver to this improvement was the insurance compensation which was booked into COGS. IFRS standards required to use the same P and L line which was affected by the incident. The at equity income declined year over year as sales at Siltronic declined. Net income during the quarter was 1,000,000 equating to an EPS of versus versus last year. Looking at our balance sheet on page 4, reported pension liabilities climbed by 1,000,000 since the end of the second quarter. These are effects from quantitative easing and negative returns on the 10 year bonds. Under IFRS, we are required to use historically ultra low discount rates for our pension obligations. As discussed last quarter, we are actively taking steps to reduce working capital. Although our working capital is up over the year, we now released about 1,000,000 during this third quarter. We are working with suppliers and customers to reduce this further. Including typical seasonality, we expect another working capital release in Q4. On page 5, we show the effects of the insurance compensation on our accounts. As stated before, it tax it with the German statutory tax rate. In the balance sheet, the insurance compensation has increased the line of other We expect the cash inflow from this in the fourth quarter. Because the insurance compensation reflects earnings from prior years all our 2019 guidance statements continue to exclude insurance compensation. Our reported figures will include the insurance compensation, but our guidance does not for major items, we will make this transparent. Looking to page 6, silicones achieved sales of 1,000,000 This is at the level of the significant price declines. Stream. Since then, standard prices have reverted to levels seen in early 2017. Thus, The lower prices and standards are the primary cause of lower profitability compared to last year. Like Q2, efforts to reduce working capital influenced margins and utilization rates. EBITDA in the 3rd quarter came in at 1,000,000. For the full year 2019, we now see silicones close to last year sales despite significantly lower prices for standards. Based on good demand occasions. We also observed shorter order patterns reflecting the overall economic uncertainty. On a slightly lower sales base, we expect to achieve an EBITDA margin of around 19% for the full year 2019. This is slightly lower than achieved sales of 1,000,000. This is at the level of last year, but sequentially lower than in second quarter. Year over year construction demand was good overall, but we observed some weakening in industrial segment. Positive exchange rate effects did compensate for lower average prices. 1,000,000, about 5% better than last year, but trailing the second quarter. The sector in Q3 was the force majeure declaration of an ethylene supplier. For the full year 2019 we now see a low single digit percentage sales growth. Our margin expectation in polymers are unchanged. Biosolutions achieved sales of 6 C1 million with an EBITDA of 1,000,000. Sales of biopharmaceutical products saw a substantial increase during the quarter as our Amsterdam unit began producing for customers. We have a good pipeline of projects lined up that should lead to full utilization of the facility already next year. Our guidance for BIOSolutions remains unchanged. As Rudi said on polysilicon, we did not see price recovery that many market experts had expected to materialize. Nevertheless, the demand improved considerably with much higher volumes. This led sales to increase by about 20% over the second quarter. EBITDA came in at 1,000,000, including insurance compensation of 1000000. Operationally though, results declined sequentially. In addition to lower average selling prices, Inventory effects reduced the results beyond the last quarter. Cost performance was comparable to the 2nd quarter and we continue our efforts to reduce costs further while not compromising on our industry leadership in quality. Considering the delayed price improvements, we adjusted our segment guidance for the full year. Now we expect a low single digit decrease in sales compared to last year. EBITDA in the 4th quarter should continue at about the average run rate of the prior three quarters excluding the effect of the insurance compensation. In others, we expect an EBITDA before Siltronic at levels around last year, which Moving to the overall group again. Gross cash flow in the quarter was healthy. Good results in chemicals and cash release from working capital drove the improvement. Net debt was at 1000000 about 1,000,000 lower than at the end of the second quarter. The increase since the end of last year is mostly due to silicon and as a result of adverse trade and economic effects on our chemicals businesses. Overall, we now expect a versus the million achieved last year. With this, let me hand you back to Rudi. Thank you, Tobias. Ladies and gentlemen, we are looking at fundamental changes in the way the chemical industry operates. China has emerged as the world's largest chemical market. This bigger now than Europe and North America combined. For us, but also for our European chemical peers, this poses substantial challenges mainly due to over capacities that have been built up. It is no more access to technology and assets that define success. Success today and tomorrow depends on both the fast application of innovations and a comprehensive service offer. Let me give you We are showcasing where we have been showcasing a number of innovations in silicones. One particularly exciting development is our elastasil LR5040 series. This is a high purity liquid silicone rubber that does not need post turing to meet strict standards such as in food, baby care, and medical applications. This avoids costly and lengthy processing after extrusion, thus allowing automated production. Strategy development at Walker over the last years was aimed to address emerging issues caused by the change and have broadened our product range. In all activities, we have also stepped up our efforts to contribute to the success of our customers with technology, specialty products, and development services. Continuous improvement in efficiency and costs is crucial to our success. Cost discipline is a characteristic of our business. Given the strategic direction and the developing competitive environment in the chemical industry, we must adapt and change to stay ahead. Bucker has always prioritized continuous efficiency improvements and good cost discipline. But the measures That is why we have started to work on a comprehensive program that will prepare Wacker for future challenges. This program will make Wacker more efficient and capable and achieve substantial cost savings. In the coming weeks, we will examine the whole company together with external experts supporting us. We will find out where to and organize processes even better. It is already clear that small isolated measures are not the answer. What we need is a comprehensive holistic approach. We must and will effectively counter the increasingly difficult conditions facing our business. We know that we are supplying the right markets with the right technologies Thanks to our core competencies in Silicon And Polymer chemistry And Biotechnology, we offer our customers a wide range of products, both tried and tested in cutting edge. We contribute to global trends such as sustainability, renewable energy and digitalization. We also help solving problems arising from urbanization in the world's population growth. Such such a strong portfolio secures leading market positions in multiple key industries and is the envy of many of our competitors. We intend to make even better use of this potential in Catvaca on the track for long term sales and earnings growth. Our presentation ends here. We will now commence with the Q And A session. Thank you very you. Session. And we've received the first question. It is from Patrick Rafais of UBS. Hi, and good afternoon, everyone. Three questions please. The first one is on polysilicon. And if we assume current selling prices remain constant, how long do you think would it take you to take out sufficient costs to break even again on EBITDA? I think it's hard to say precisely, but we are working on it, very, very focused. And, I would say it's not probably not too far off, but I'm I'm not committing a certain timeline here. On the other hand, I think we should not be pessimistic because as we said, we already have seen strong volumes in Q3. Up further following the Chinese Golden Week and typically strong volume growth precedes price improvements. So we need to do both. I mean, we, we need to cut our costs as much as possible. And work with quality and in the markets in the other direction. Okay, thank you. Second question is around CapEx. I remember, it must have been 3 years ago at the Capital Markets Day are you committed to maintaining CapEx below D And A until 2021, I believe? With your comments today and enough upstream capacities, both internally and in China coming up you think you can, you can extend that commitment beyond 2021? I mean, we are, at this point, we are not forecasting beyond 2021, but you can be assured of extreme capital discipline. Okay. Good. And then the 3rd question around the last point you made during the presentation. Around this comprehensive program you're working on over the next few weeks. To what extent does this program also include you looking at strategic options for parts of your businesses? Or is that just focused on the operational setup? This program definitely focuses, I would say more on the cost, than anything else. I mean, anything else in the strategic program, that's a constant, let's say, constant discussion and it's constantly on the table. Patrick, to be adding here, the focus of the program will be on overhead and indirect costs and indirect spend as well. And so we will go through the entire organization. Okay. Okay. Good. Understood. Thank you very much, gentlemen. Thank you. The next question is from chetan Udeshi of JP Morgan. Your line is now open. Please go ahead. Just following up on the previous question. So is it fair to say that we should rule out any strategic changes in the way the polysilicon business is is structured within a walker as part of this strategic or whatever review that you guys are doing. That's number 1 and number 2. In silicones, there is a question, there was a comment around having a flat sales, 19% EBITDA margin, I mean, typically in the past, you guys have seen quite a big sequential decline in silicones Q3 to Q4. Is there a reason to believe this time it will be different? Okay. So may I start with the second question, Chetan? Yes, typically we have some seasonality in Q4, from customers destocking. And given the macroeconomic uncertainty, which is higher than the normal, I think that is pretty difficult to forecast. And in addition to that, we also see some softer order intake, especially in industrial applications such as automotive, plastics, textile. So, putting all that together we definitely see some, seasonality in Q4. Another first question, of course, we don't rule out anything. But I think we need to really focus on what the true issue is, especially in public silicon. And it's, this overcapacity, the state subsidies, in China, for competition, but that's the nature of this type of competition. On the other hand, let's look into the future. I mean, what will happen with the solar industry, see of the modules will continuously arise. I think it's a very similar process that we have seen in the semiconductor industry the demands on quality, efficiency, etcetera, will go up And, so the future certainly is not only mono, the future is to a high degree, n type mono. And, so far, we are the only supplier for, N type, capable, polysilicon. And as others, you know, work themselves into that, they have to upgrade their facilities at, you know, with substantial costs and, and, you know, we, we just, turn the switch to make material for that type of quality. So I'm you know, I don't agree to the pessimism, that is around to a certain degree. I think we have seen the same issues, for example, in 300 millimeter wafers as long as Siltronic was a division of Wacker. There were some guys who wanted to be by far the world's leaders in the best and the greatest and the biggest. And they couldn't sustain it either. I mean, and in the meantime, prices were 300 millimeter wave, that's twice as high as labor 5 years ago. So I think the industry will mature. And, it will take obviously it takes some time, but on the other hand, we do not give up on that business, definitely not. Okay, understood. I think the reason for pessimism probably comparing to 300 millimeter wafer at least there I would say probably the number of competitors were much smaller here in polysilicon. I think it's even difficult to know exactly how many companies are producing in China these days. So I think, but I got your gist of your response there, Rudi. Other question I had as a follow-up, you know, I've sort of, what are your income? We know exactly how many producers there are in China. And I think we have a very good, understanding of their capabilities. And from all our know how we have we do not agree to pessimism. Okay. Understood. Just on polymers, one of your key competitors in that business has been talking about moving some of their upstream volume from EAM into VA. Do you see that in your sort of competition side of thing or you've probably not seen an impact from that at all? I think we see that in a very narrow scope. This is yeah, capacities in Asia, in Southeast Asia, that we see facing our capacities we are very proud that we are now in operations with a new powder dryer in Korea, which we put into operations in October. And there's a dispersion reactor in, in the first half of next year, which will come on stream. So, this will improve our competitiveness. Beyond that, we don't see any big movements our competition. And according, I mean to our competitiveness in that industry, we are not afraid of competition. I would just like to add We have Okay, then we'll go to the next question. It is from Tom Rodiswirth of Tucci Group. Your line is now open. Please go ahead. Good afternoon, gentlemen. Thanks for the opportunity to ask questions. I'm focusing on the polysilicon business. Can you give us a little bit of color about the developments in China? We're obviously expecting new highlights a pickup in demand. But it looks to us that maybe not all of the to the, had been on offer. How do you see the Chinese market developing going forwards into 2020, where do you think we are on inventories, right? And both in the market and and Wacker inventories. Obviously, you built a position there. Is that a position that you're still sustaining? And so when we see when you talk about high volume sales, is that kind of virgin production that you're selling or is there an inventory component within that the third question, sorry, to focus on, by the second, but, the inventory valuation effect negative, if I look at has there been much change in the underlying profitability from 2Q? Because obviously if I back out the insurance compensation, that was made deeply negative for the quarter, but, you know, I'm wondering what those, you know, how those inventory effects, has impacted profitability. Thank you. Maybe on the Chinese market, of course, there was, this delay in publication of the new policy in China certainly has delayed the market development for 2020, as far as I know, there also have not been new policies published so far. But on the other hand, I mean, this is what our customers are telling us that basically their customers and installers are because of the downward trend in pricing also for modules, that, projects have been pushed out at least for a few months because the installers expect lower prices or still lower prices for modules. But as soon as this trend is stopped, I think there will be a significant increase in installations and demand. And so the Chinese market will certainly be at a high level next year But we also see significant growth in demand in all other regions in the world. Just looking at, at Europe. I mean, the the European market can can easily double, for next year. But we we will see that. We will, looking at that very carefully. So far, our rough estimates for next year on demand is something between $125,000,000 $160,000,000 gigawatts. But it's it's a wide range, so far. But there is a lot of optimism for renewable energies in the market. And on, on the inventory questions, the second and third one, Thomas, As we said, we always run full. So, we are running flat out at our capacity. So the pickup in volume in Q3 versus Q2 also included some volume from our inventories. With respect to the operating EBITDA, if you exclude the insurance compensation, And there's basically 2 effects. We continue on our cost road map in Powersilicon and we are seeing good progress But as we reported, that is not each and every quarter at the same progression. And 3rd was pretty much at the same level as the 2nd quarter. But, the effect on operating EBITDA was mainly from the slightly lower average selling prices still in the market. And that has the effect on sales and profitability but also in addition to that on the inventory valuation. And if you put that together, you will come up to our, and 10% was the price. I was just trying to get a split between those 2 factors, the lower price on the inventory valuation negative. Oh, it's much more balanced, Thomas. The next question is from Thomas Swoboda of Societe Generale. Your line is now open. Please go ahead. Yes. Good afternoon, gentlemen. I have I have two questions. Both on polysilicon, first is a quick one. In terms of the guidance you have given for Q4 for polysilicon, do you include any inventory valuation changes in this guidance This is really difficult because the inventory valuations can go both ways. So we are, as Rudi described, I mean, there was no price, pick up yet. But we see strong volume growth in Q3 and after golden week, also the demand was very strong for our product. But it's very difficult to bake in any assumptions on inventory valuation effects. So you have made none. So this is this is without inventory changes? Yes, none to minor. None to minor. Perfect. And my second question is a little bit more complicated and it pushes towards strategy and towards what Mr. Is set on Siltronic before. I mean, since Siltronic was spun off, the chemicals businesses have have really showed a lot of strengths, but the tubal lenses in the polysilicon market are just just recurring and are distorting the markets the financial markets attention towards polysilicon repeatedly. Mr. Snagadel, you have drawn parallel between polysilicon and Siltronic several times during this call. So my question would be strategically, and in the midterm, obviously, does polysilicon need to be 100% controlled by Wacker or is is a solution, like the one you have chosen for Siltronic, something you could imagine also for polysilicon in the midterm? Is it even feasible at all? Well, let me, 1st of all, say, the fact that the chemical businesses is, is, are training is not a result of the fact that we spun off Siltronic. And so The chemical businesses are spending their own and are performing really well. And as I said before, I mean, not ruling out anything, on polysilicon, but on the other hand, it simply would be wrong to focus on the wrong issues. We need to focus on improving the business as it is because whatever you do is strategically is most important to have a well running polysilicon business. Business. And as I said, we do not give up on the development of this business and especially the markets. And because we see so many opportunities, also for improvement that we should focus on Thank you. The next question is from Sean McLoughlin of HSBC. Please go ahead. Your line is now open. Thank you. My first question, just continuing on the strategic review, you've talked about cost disadvantages versus China based on electricity prices. I'm wondering would the strategic review or how would the review impact, this, this thought process? And ultimately, what optionality do you have today in relocating capacity to lower electricity cost centers? Well, actually, the costs in Tennessee are certainly lower, than than in Germany. And nobody says that electricity costs in Germany need to rise. We have, especially together with the other partners in the chemical industry, major efforts, running, in talking to to the government, and agencies, to make them aware that, actually lowering electricity prices and generating electricity, renewable reduces the, the carbon dioxide emissions, in Germany and in Europe, significantly. So there is a lot of interest, in, in Germany and in Brussels on, ways to reduce the carbon dioxide and thus to reduce electricity prices. So I'm also, not pessimistic there. We just need to work on the right things and not give up Not at all. Understood. And specifically on polysilicon, you now don't expect do you have of a price recovery into 2020? Of course, we don't have a visibility there. But, as we already said, we see strong volume. And unfortunately, in the past, I mentioned that there were slight indications for price increases when it didn't really materialize. So we are very cautious, to predict anything there. But what we can report is strong demand. Thank you. The next question is from Sebastian Bray of Berenberg. Thank you for taking my questions. I would have 3, please. 2 brief and one a bit more involved. When I look at the change in pension liability at Wacker. Am I right in saying that next year there will be about an additional 1,000,000 to 1,000,000 costs within the EBITDA? That is my first one. My second question is as follows: commodities are lock same price are still substantially higher now than and seemingly stable than when Vaca added loxane capacity in 2014 2015 for many of its peers who are also doing so. Why step away now from a more capital intense commitment to a business that seems to have held up reasonably well. And my third is a question related to the comments made on potential solar demand of 1.25 to 60 gigawatts next year. On my numbers, this would equate to an incremental increase in polysilicon demand of potentially 80 kilo tons plus what would your supply expectations be from 2020 if your preliminary demand patients are that there are 80 kilo tons plus or so of polysilicon incremental demand next year? Well, I mean, as I said, this is a rough estimate. We don't have, precise numbers now. Obviously, we just try to simulate the markets and come up with a range. And I think our, you know, our polysilicon capacities overall, it's 80,000 plus, you know, whatever we do or we can do on the bottlenecking, and this with this capacity, we would supply the semiconductor market as well as the the highest quality demands for solar. Sebastian, to the first two questions. On the pension liabilities, yes, the discount rates that are ultra low do not only have any effect on the balance sheet, but also on the P and L. Because service costs will go up next year. This will very much depend on the discount rate at the end of 2019. But it's fair to assume that this will be a double digit million number. In additional personnel costs. To the second question on investments in Upstream. As we always said, we will focus and this is a clear priority our sales on specialties. And we see plenty of opportunities there to, to support this And, yes, we did increase our upstream capacity also in the years, after 2014, but this was a very limited investment also very efficient debottlenecking. And, from today's perspective, our clear priority is specialties business. And just a quick follow-up. I appreciate if you cannot necessarily give me a number, but on the base case that you set out all as preliminary let's call it that of 125 to 160 gigawatts of solar demand next year. Do you think that the polysilicon market will tighten remain at the same level of utilization or fall further into overcapacity? I do not want to speculate on that yet. Understood. Thank you. Thank you. The next question is from Andreas Heine of MainFirst. Line is now open. Please go ahead. Yeah, one small question only on polysilicon at the beginning and then some on the silicones segment. In political and looking on the CapEx you had spend in the 1st 9 months, I think it was 1,000,000. I was assuming that this division for running down costs needs an investment of 1,000,000 to 1,000,000 a year. Is that coming down? So it's more, let's say, 1,000,000, what you might need? That's the first question. Maybe asking to be on the generator? Yes. I think the run rate indicate that our CapEx for poly is more around 1,000,000 than what you had with the 1,000,000 to 1,000,000. Okay. And then on the silicon your silica plant is now up and running and you sell it. You use it internally, but also externally, do you see any price impact already on the U. S. Market this capacity. Silica usually stays in the region for the U. S. Market is that having any impact on the pricing? I mean, we are about to start it in Q4, but it's not having any price impact. It basically replaces imports, but as you said, it's a very lightweight materials. So, there's not much, intra regional, efficient, transportation of the product. I was thinking if it, if it substitutes external supply and has some merchant impact, whether that might have then a negative impact on prices on this rather high margin product? Allows us, I mean, as we are a consumer in our own production of fumed silica that we today need to ship from Europe to America. It allows us to substitute that with local production. Okay, understood. And then in silicon, the, you usually have, some years ago, given some indication what the split between specialties and standard product is with the focus on specialties and lower demand on the standard products, would you be able to share with us what current split between these 2 risks and these specialties? If it really depends on the definition, but I mean, using the definition that we had a few years ago, it certainly has increased. I mean, we have been successful in growing our specialty, right? Is it significantly more than 50% now? Is it, not that big? I think the last number I was aware of Rosalindevos, I think 60, 40, and the 62 of them, to the standard products rather than to the specialty. I think the positive presentation from 2015. I I would rather focus on the growth, and it certainly has grown. And the standard products have a significantly lower margin is fair to assume that the very vast majority of all the EBITDA is now from special teams, given the low prices you have? I was thinking maybe 85% to 90% on specialties. No, no, it's not that simple. But as we described in last year, I mean, majority of the strong improvement in 2018 was from the price increases that were in the standard business. Yes, and that is washed away. And now specialties have grown nicely. Any idea what, is it still on EBITDA level, a significant portion from standard darns, so. We have done a lot of cost improvements ahead of the tightness in 2017 2019. So we are very, competitive in the standard business still today. Okay. Good to know. I could give you this one indication. We certainly have a much lower standards portion than some of the competitors. Thanks. Thank you. The next question is Laura Lopez of Pada Bank. Your line is now open. Please go ahead. Hi, good afternoon. So I have three questions. Now that polysilicon prices have reached lower levels than expected. Do you see an impairment risk for the plant in Tennessee? And secondly, on polymers, you mentioned that you had a significant or robust volume growth in Asia, but there were some weakness in Europe And how do you see that developing? And also in the U S, there has been also some signs of weakening in the construction industry. So maybe how do you see that developing or what are the first signs that you're seeing now starting the fourth quarter? And lastly, on BioSolo I was surprised to hear that you will achieve already full capacity utilization next year of the plan that you just recently acquired. And does that mean that next year, we could potentially see significantly double digit top line growth because if I remember correctly, you doubled your capacities in the biopharmaceutical business with that acquisition last year. That's all. Thanks. Okay. And by solution, we certainly expect significant growth there. How much it is, it's, I do not want to speculate in, on the polymers, yes, we see very nice growth in demand in Asia, especially in China. And we see a weakening, as we said, in Europe, but also in the United States, just with the slower economic development. With respect to your first question, Laura, The review of asset value is always standard practice. And as you can see, there's nothing in the accounts. But as we stated before, we are in that business really for the long term and we do not run this business just for in a single quarter. Okay. Thank you very much. Thank you. The next question is from Martin Jungplash of Kepler Cheuvreux. Your line is now open. Please go ahead. For taking my questions off 2 remaining ones. First one is on polysilicon inventory. Again, can you confirm that you have sold inventory in the third quarter. So had a net decrease. And also can you remind me again what the impact is on E the margins when you sell inventory? That's the first one. And the second one is on silicones and your acquisition of this British battery specialist. Can you provide some more detail on the strategic reasons of this transaction and how this fits in your silicon A node battery? R and D? And also if you can provide an update here what your midterm ambitions are in this area and what you think of when this when this thing can come to the market more in volume terms? So I'll start with the first question on inventory. The simple answer is that, yes, we had a slight decrease in inventory. And, from the volume perspective, it decrease always means, margin compression. On the acquisition of Nexion, I think it's just an excellent add on to our existing activities for for battery materials. And, I think, they have been very successful with what they were doing. And we are successful with what we are doing and, you know, sort of combining the strategies, I think it's, certainly, very valuable. And if I I think about what, in our automobile or a specific automobile company, was paying for a competitor of ours and of Nexeon's, in the United States So that means the valuation of this company will be around $1,000,000,000 I think, we really, I mean, if we compare that, we made a significant contribution to the value of our company by, you know, setting up this, Yes, the joint venture more or less. Can you comment on what kind of sales this company or this silicon a note business contributes? Not very much at all. It's really mean at this point in time. Thank you. The next question is from Jody Pender of Millennium. Your line is open. Please ahead. Two questions. Can you just tell us, on the Tennessee plant, when will this become more or less 100% semi grade? And the second question, sorry, on polysilicon is, when you look at the supply landscape in China today, how much percentage of the low cost supply is basically benefiting electricity from cheap coal, which in principle is fundamentally yeah, in the long run, it's a policy question mark really. Did I understand that right? What portion of the Chinese production of polysilicon is based on cheap coal? Indeed. Okay. I would say maybe at least 80% There is some hydro power for some producers, but most of them in that Chinese policy to to sort of price all the businesses with high electricity demand to the west and in the west. There is simply, on the, I mean, in the Far West, Qingjang Province, there and in Mongolia, there is basically only coal based. So it's very high carbon dioxide emission business. There's no question about it. And your first question on Tennessee, Well, it certainly takes some time until, we, can fully load it, semiconductor material, but we we will always have a portion of, also solar material out of Tennessee. Sorry, just a follow-up. We are starting to finally see offshore wind pickup in sort of a meaningful way. Do you feel that there is a kicker effect? Because you sort of need solar for offshore wind to work in terms of the power distribution. Do you feel that in 2 years' time, solar gets a fill up because of offshore wind or that's nonsense? In my opinion, excuse me, but it's nonsense, because you need the combination of wind and solar in order to supply, you know, constant energy And then of course, not only wind and solar, but I think you always will need a certain portion of gas fired power plants to stabilize the grid, to stabilize the supply of electricity And, yeah, I mean, to have the best renewable energy production and supply. And by the way, we are also producing lots of chemicals that are used in, for wind power generation. Great. There is no wind blade without the fumed silica, for example. Thank you. Thank you. The next question is from Charlie Webb of Morgan Stanley. Your line Please go ahead. Good afternoon, gentlemen. And thank you for taking my couple of questions. First off is just around polysilicon. I know you've been depreciating these assets fairly aggressively as you always do. But is there any impairment risk given the current economic environment or for those assets as we think about into the end of the year? First question, and then secondly on silicones, kind of given we're talking about lower cost energy and with, I guess, some capacity additions set to come online in China through end of year and through next year. Utilizing some of that lower cost. How are you guys thinking about that cost curve in China? And do you see any kind of further downside to I guess standard pricing into 2020 given that I guess the cost curve looks like it's flat your views on that would be very interesting. Thank you. I didn't get the connection with standard silicones and power prices? I'm sorry acoustically, it's really Can you hear me now? Is that better? Yes, now it's much better. Okay. So the question was around obviously the capacity additions in the west of China. In standard grade or kind of upstream silicones coming online next year are likely to benefit from cheap energy, similar to what we see in polysilicon So I'm just wondering how you see the cost curve for silicones for the standard grades, for the commodity grades next year versus year in China, and what effect that could have? That was the question. Well, now I understood, but I mean, energy supply is not so important for the silic homes for the, let's say, the siloxane production. As far as I understand, the reason why these plants are located in the West is because, the, they produce metallurgical silicon, also there, and they want to have direct supply from a metallurgical silicon into the sell out same facilities. Although, you know, from our experience, the transportation of metallurgical silicon is, is not so expensive. It does not add such a tremendous portion of costs for siloxane. I think it's more a convenience issue rather than a transportation cost issue. So in other words, as they expand siloxane capacity in the west of China, it's fine with us. You know, we, we can also, use, a purchased siloxane for specialty for our specialty silicones. So, you know, it's it's fine with us, I would say. Charlie, to the first question, as I said before, a review of asset values is always standard practice. And there's nothing in the accounts. And, to confirm again, we always look at a at the long term perspective of the business as we discussed extensively also in the call. Okay. Thank you. Just coming back on the first one a little bit just a bit more clarity. So if we think about the flattening of the cost curve, if there is to be a flattening COSCO given, I guess, I don't know what exact numbers you have, but let's say there's 10% additional supply of siloxane for next year and let's say demand running at 5%, 6%. How do you see that spending risk of that increased supply addition beyond demand. What do you think that's going to do to the silicones market across, I guess, the upstream piece, but also perhaps some of the kind of midstream. I understand specialty has been somewhat protected, maybe even benefiting. But I'm just trying to understand your views on upstream silicones profitability as well as perhaps some of the midstream from the additional capacities. And I think arguably they are coming at a lower position than historically. So just your views on that, as it relates to kind of silicones profitability? I think it creates more opportunities than threats. You know, if if, low cost that oxide is available, you know, we we we can, purchase it. Since we have a fairly low volume of standards, it's really not affecting us so much. Thank you. And the next question is from Raghav Bagalai of Exane BNP Paribas. Your line open. Please go ahead. Hi, thanks for taking my question. I just have a very quick one on regulation. You know, I know Wacker along with some of the other U. S. Based polysilicon producers presented to the U. S. Manufacturing focus regarding the need to end Chinese tariffs. Could you give us a sense for what realistic outcomes you see from these efforts and maybe where the regulation could actually change the status quo in the market today? That would be really speculative, but we are, following certain Twitter accounts on an hourly basis. In other words, we cannot predict anything there because I think in my opinion nobody can predict developments in the trade talks between China and U. S. Everybody can be surprised by the minute. Okay, thanks. Okay, everybody. Thank you for joining us today and for your Bakakimi. We are looking forward to further discussions with you with the quarter progress. We will be back with a conference call on the full year results on March 17th next year. Goodbye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.