Dear ladies and gentlemen. Welcome to the conference call of Wacker Chemie. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May now hand you over to Mr. Jörg Hoffmann, Head of Investor Relations. Please go ahead, sir.
Thank you, operator. Welcome to the Wacker Chemie AG conference call on full-year 2018 results. Dr. Rudolf Staudigl, our CEO, and Dr. Tobias Ohler, our CFO, will take you through our presentation in a minute. The presentation is available on our webpage and at www.wacker.com under the caption Investor Relations. Before we begin, allow me to point you to our safe harbor statement, which you'll find at the end of our presentation deck. Dr. Staudigl.
Ladies and gentlemen, welcome to our full-year 2018 conference call. We reported full-year sales of just under EUR 5 billion, growing by 1%. Key drivers were higher volumes and better prices in chemicals, especially in silicones. These effects more than compensated headwinds from currency effects and lower prices and volumes for polysilicon. Our EBITDA, on the other hand, declined 8% to about EUR 930 million. This is less than what we expected when we spoke the last time, as we did not book insurance compensation in 2018. As polysilicon production at Charleston reached full capacity only in early December 2018, there was simply not enough time to conclude talks with the insurers for 2018. This year, we expect to receive insurance compensation covering both the repair work at the site and the business interruption loss. Our chemicals business is the core growth driver for Wacker.
Over the last five years, our three chemicals businesses increased sales by 35% to just over EUR 4 billion. Chemicals growth in EBITDA was even more impressive, climbing 15% year-over-year to EUR 788 million, and essentially doubling the amount of 2014. Improved product mix, recently stronger pricing, and cost reductions are the primary drivers for this excellent development. Our portfolio has improved significantly, and we continue to invest in supporting our specialties growth. Our polysilicon business had to cope with multiple challenges last year. At the end of May last year, news from China about feed-in tariff reductions and restrictions on PV installations created turbulence in the market. As a result, demand for solar modules in China and prices along the entire value chain corrected downwards sharply. This affected us as well. We experienced significantly lower shipments and lower average prices.
Sales in the polysilicon segment declined therefore to EUR 824 million. In addition, ramp-up costs for the Charleston site weighed on earnings in the segment. We used the weaker market environment to cut delivery times for our products into the solar industry by nearly two months. This is a big step forward to maintaining and expanding our leading supply position in polysilicon. Lower PV power costs triggered a demand response globally. In summary, the growth in PV markets outside China nearly compensated for the contraction of the Chinese market. The net result was 5% global growth with installations of 105 gigawatts. Solar installations in Europe grew even by 70% last year. This resurgence of installations in Europe is driven by much lower costs, as witnessed by the latest results of competitive PV tenders in Germany, which closed at EUR 0.0433 per kilowatt hour, in line with German wholesale power prices.
The transition to a modern, more competitive option-based scheme for solar grid access in China results in a shift towards high-efficiency modules. Market growth this year is expected between 10% and 20%, while the share of high-efficiency systems is expected to grow even faster. The new solar policy in the biggest market, China, has not been published yet. Although we saw higher demand in the first months, an upward movement of prices has not been seen yet. In chemicals, we had a good start into the year and look to solid volume growth for the full year, but will not repeat last year's earnings performance due to lower prices in silicones and VAE. Looking at the group level and to the full year 2019, we expect sales growth in the mid-single digits and see EBITDA contracting between 10% and 20% compared to last year, excluding insurance compensation.
Tobias will now walk you through the financials and segment performance and will provide some Q1 guidance. Tobias.
Rudi, thank you. Welcome everyone to our full year 2018 call. Let me take you through our financials and present the outlook of each segment.
As Rudi said, we are currently working with our insurers to settle the claim. Although we expect to complete this during the year, our guidance for 2019 excludes insurance compensation. Let's begin with our P&L on page four. Sales improved as higher chemicals volumes compensated for the lower polysilicon volumes resulting from the plant rebuild. In pricing, the positive effect in chemicals more than compensated weakness in polysilicon. Nevertheless, gross profits declined year-over-year by about EUR 80 million, following higher raw material costs, FX effects, and ramp costs. As profit before tax decreased only slightly, the composition of taxable and non-taxable components shifted with the higher equity income from Siltronic. This leads to an overall tax burden which is lower and subsequently a higher income from continuing operations. The overall effect of this is that our earnings per share from continuing operations increased to EUR 4.95 a share.
Moving on to page five, our balance sheet. You see the increase in inventories, which translates into higher working capital at year-end. Business growth in silicones and strategic stock building in polysilicon are the main drivers for this increase, as Rudi flagged in his opening comments. Pensions went up slightly as the discount rate decreased. Looking at silicones, 2018 sales improved by 14% to EUR 2.5 billion, or more than half of group sales. At the same time, EBITDA went up by 39% to EUR 617 million. This reflects tight market conditions in most of 2018 in all product groups. Operating at capacity limits, we benefited from positive mix and price effects. After Q3, however, markets in China started softening. Pricing in China saw the biggest movements both up and down last year. Standard silicone prices there are now stabilizing at levels previously seen in early 2017.
For 2019, we see silicone sales moving up at low single-digit percent. Good volume growth and better pricing in specialties should help achieve an EBITDA margin of around 20% for the full year 2019, despite negative effects from standard silicone pricing. On page seven, Polymers. The dominating theme in 2018 was the increase in raw material prices, specifically in VAM. Sales grew at 3% to EUR 1.28 billion on higher volumes for dispersions and powders. EBITDA, however, declined to EUR 148 million. Better pricing was not enough to compensate much higher raw materials. In addition, around EUR 50 million turnaround costs burdened our second quarter. For 2019 in Polymers, we expect again mid-single-digit percent sales growth with volume growth, slightly higher prices, and lower average raw material costs. We see a full year EBITDA margin improving to around 14%.
Biosolutions improved sales following strong growth in biopharmaceuticals and in pharma and agricultural products. Profitability in 2018 was held back by integration costs, mainly at the new site in Amsterdam. With our acquired facilities, we are positioned well to rapidly grow our biopharmaceuticals business. First project successes at the new site here are promising. For the full year 2019, we expect for Biosolutions a mid-single-digit percent sales growth with an EBITDA of about EUR 30 million as new capacities ramp up and prepare for new customer campaigns. Rudi already covered market developments in polysilicon, shown on page nine. With a plant repair, ramp, and inventory build, we shipped about 60,000 tons last year, down from about 70,000 tons in 2017. We currently see strong shipments, but with very weak pricing. Looking into the full year 2019, we expect sales to grow at a low double-digit percent.
Given the dynamics of the market, rising energy costs, and our own accelerated cost reduction efforts, we expect a neutral result in EBITDA for 2019 in this segment. Moving on to page 10, cash flow. We achieved again a good gross cash flow of EUR 510 million, despite the ramp costs and the inventory build. We invested well below overall depreciation again this year with group CapEx of EUR 461 million. Gross CapEx is targeted for the chemical segments. Cash flow from investing activities was EUR 423 million. Our 2018 dividend payment was in line with our policy to pay out around 50% of net income from continuing operations. Last year, we distributed a regular dividend of EUR 2.50 per share with a bonus of EUR 2 per share, essentially forwarding some benefits of the Siltronic controlling stake disposal in 2017, and also honoring the low gearing at year-end 2017.
Net debt at the end of 2018 was EUR 610 million, in line with our targeted leverage ratio of EBITDA to net financial debt between 0.5 and 1 times. Based on our 2018 performance, we will propose again a EUR 2.50 a share dividend to the AGM on May 23. This continues our distribution policy and underlines our confidence in our businesses this year. Looking at our detailed guidance for 2019, you see our guidance for sales and EBITDA as presented by Rudi. In addition, we see net cash flow in 2019 substantially higher than last year, as we decrease CapEx to about EUR 400 million and expect to work off some working capital. Net debt at year-end 2019 would be at prior year level. It will be driven up by about EUR 130 million from the application of the new IFRS 16. Under IFRS 16, leasing liabilities are now classified as debt.
Following lower earnings, income from continuing operations will decline, reducing ROCE substantially below prior year. Let's have a look into current trading conditions. Moving to the Q1 update on page 12. In Chemicals, we see reasonable volumes but also some weak spots, with pricing overall at about the same level as last year and somewhat lower raw material prices. For Chemicals, this should result in a sales and EBITDA performance comparable to last year's Q1. For others, we do not expect a meaningful change year-over-year as well. Polysilicon, on the other hand, sees strong growth volumes but faces significantly lower prices. Sales should come in close to Q1 last year with an EBITDA below the Q4 result of last year. On a group level for Q1 2019, we now expect sales of about EUR 1.2 billion with an EBITDA clearly below last year.
With this, let me hand you back to Rudi.
Thank you, Tobias. Ladies and gentlemen, 2019 is going to be certainly a challenging year for us. We expect a good performance from our chemical businesses. Our cost programs are yielding results, and our overall strategic position is where we want it to be. Specialty products, customer focus, and market leadership define our market presence in chemicals. The situation in polysilicon, however, is more difficult. As solar power becomes a serious contributor to the world's power needs, the industry needs to refocus from volumes to profitability and efficiency. Macroeconomic challenges are trade disputes and impending Brexit with unknown ripple effects and risky energy policies in Germany. Yet, I have confidence and trust in our capabilities, be it in cost performance, where we operate some of the most efficient assets in the industry, to our strategic positioning and our collaborative approach to customers, which are second to none.
Wacker is well-positioned to weather the uncertainty. I firmly believe that some of today's challenges, as difficult as they may be, will propel us and our industries into a better performance in years to come. We will continue to focus on innovation, growth, and specialization in chemicals while providing the semi and solar markets with benchmark quality products that provide our customers with superior yields. Ultimately, this will translate into improving returns on capital and value creation for our shareholders. Thank you very much.
This concludes the presentation today. We will now commence with the Q&A session. Operator?
If you have a question for our speakers, please dial 01 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask the question. If you find your question is answered before it is your turn to speak, you can dial 02 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. First question is from Thomas Wrigglesworth of the Group. Please go ahead.
Thank you very much, gentlemen. Three questions, if I may. The first question is with regards to your guidance, and the upper and the lower end of the range that you've provided. Could you just identify what is defining that upper end and lower end? That'd be very helpful. Secondly, on polysilicon supply and the prices. Obviously, we're expecting a lot of supply growth from Chinese new entrants. I was wondering if you thought that we'd seen all of the price damage in the market today, noting that that would probably happen before they start ramping up. Thirdly, I guess, sorry to focus on polysilicon, but if everything stayed the same as it is today, if you were to re-augment your cost base, how long would it be before you could be profitable? Is it cost savings that are driving your neutral EBITDA expectation in polysilicon? Thank you.
Those are my three questions.
Thomas Tobias speaking. On the overall guidance, the upper and the lower end, I think it's easy to calculate if we have a total capacity of 80,000 tons in polysilicon, just the EUR 1 change in average selling price assumption actually drives you from the lower to the upper end. There is the highest sensitivity also in our full-year guidance.
On the polysilicon supply side, yes, there are new capacities coming on stream. That certainly has an influence on market pricing. This is a common scheme with some, let's say, new industries that some suppliers obviously just don't see the limits. That's certainly a difficulty in this market. On the other hand, we see some, let's say, older capacities also being shut down, especially in the east of China. We certainly see the industry growing. At a certain point in time, when exactly we do not know, there will be a balance again. This is on the supply side. On the market side, we see growth. We again see significant growth even in Europe. The growth, as I said, will happen on the high-quality side of the material.
We absolutely are the leading supplier for this type of material, and we will stay that. In addition, we will see further cost reductions through cost reductions on all segments of the production sequence, as well as on automation, digitalization. Of course, as I said, we are focusing on the high-end side of the material, and this combination, including even synergies with other divisions in our company, we see an excellent chance to stay the leading supplier, and we will definitely be successful in that market. There is no question in my mind about it.
Okay. Sorry, just to follow up my third question, in terms of the outlook for 2019 and the EBITDA neutral, is that obviously a better second half than first half? Is that price-orientated, or can you get there at current market prices?
Everybody in this industry is projecting a better second half this year, and we certainly figured that in to a certain extent. However, if it really gets or will become a very good second half, I think we see significant upside potential.
Okay, brilliant. Very clear.
We are, as usual, very careful with our prognosis for this year because nobody can really say what's happening in the second half. There is optimism.
Okay. Understood.
A great part in the industry.
Thank you very much.
The next question is from Sean McLoughlin of HSBC. Please go ahead.
Good afternoon. Thank you. Just a follow-up to the polysilicon, just to understand your strategy on sales. We've seen you building back inventories. Now that you are at 80,000 tons, where are you selling? Is this a real drive to sell outside China? Are you discounting to get into China? Just to understand whether we can expect to see maybe more inventory build or you're really pushing now to really get material to your customers. Secondly, just wanted to understand on the insurance payment. Is there any risk around the receipt of payment, on the timing? Is this a Q1/H1? How could we think about anything possibly going wrong with that? Thirdly, just on your drive to higher specialties mix in silicones. Clearly, you're guiding for a significantly weaker margin this year. What is going to be the effect from a positive mix in silicones in 2019? Thank you.
In terms of the markets for the polysilicon, it's inside and outside of China. We are positioned to deliver to all markets.
The insurance. We always said that it's a function of the production shortfall, the ramp cost, and the repair costs. Why did we not book it for 2018? We just reached full capacity in December. To conclude the amount of the business interruption loss, it was absolutely necessary to reach full capacity again. We are in discussions right now. In discussions with the insurance, and we are definitely talking big numbers. On both sides, everybody wants to go into details. We also said that we don't want to leave any money on the table. Our clear goal is that we get the right compensation to be made whole again. We did not include it into the 2019 guidance, although we expected it in 2019. We did not include it because it's not an operational effect.
It goes back to the year of 2018 and 2017. That's the only reason there's no doubt that we will get compensation for our incident, with the damage and repair costs and the business interruption. There was a question on specialty growth in chemicals.
The specialty part will certainly grow. Just as we pursue this specialist market as we did it in the past. We will see some growth there.
We had a stronger volume growth in specialties in silicones, especially in 2018, than in standards. We see that continuing into 2019.
Thank you.
The next question is from Andreas Heine of MainFirst. Please go ahead.
Yes, I'd like also to start with polysilicon. Coming to what you provided as guidance with 10%, this increase in sales, bringing sales in total to EUR 900 million and 80 kilotons production. You at least with that give an outlook that the average prices could be EUR 11 for you. With break-even in EBITDA, you basically have the same costs, which is according to my calculation, more on higher than lower than at the time when you had all three plants running last time in the first half of 2017. Maybe you can give me some update how I can measure how your progress on the unit cost side was. One question on net working capital. We had this strong increase in these trade payables, which probably unwind in Q1.
On the other hand, my understanding is that what you build up in inventories is strategically, not expected to come down. Maybe you could shed a flavor on how net working capital then can come down in 2019. Again, I'm worried on these trade payables. In the total input costs, putting together electricity and falling raw material costs, what you would think is the balance of those? Is it the higher electricity costs more than offsetting the advantage of lower raw material costs or more the other way around? Thanks.
Andreas, I take your questions. Number one was on your calculation on the specific cost of polysilicon. I think your calculation has a little flaw, I must say. It doesn't account for the product mix that we have. We have increased the semi part of the business successfully over the past year. It does not account for non-manufacturing costs, which are in EBITDA, I mean, general SG&A and R&D costs. I hope for your understanding that we continue with our policy not to disclose specific cost of our production as we did the past. The second question was about trade payables. Yes, you were rightly so depicting that they went up with the year-over-year comparison. It has something to do with year-end. We also paid very strongly our bills in 2017. It's more or less the unbinding also of this effect that shows up there.
With respect to the inventory assumption, you said that we have built strategic inventory. You are right in assuming that we do not want to unbind that immediately, I can say that we already sold stronger in the first few months of the year because we take the inventory also to just improve our delivery time to our customers. We need to be really flexible in that. We see some unbinding in inventory in silicones also, where with the business growth in last year, we also had to run really all our supply chain, very much output optimized. We have here some potential to improve that over the course of the year. I think the last question, number three, was on the balance of raw material cost changes and energy price changes.
We see the raw material markets that were giving us some headwinds in last year normalizing, but not to the same extent as they went to the higher levels in 2018. We see energy prices up, specifically up since the second half of 2018. I would say on balance, it's a slight improvement for lower raw material prices against higher energy costs.
Thank you.
The next question is from Chetan Udeshi of JPMorgan. Please go ahead.
Yeah. Hi, thanks. First question is on chemical divisions where I think I heard you say the Q1 EBITDA in total for chemicals will be flat. Can you sort of help us understand why the full year number you've guided to a decline? I would have thought, given the decline in silicone prices in China already from Q4 onwards, you might have seen some impact already in Q1. Second question is on polysilicon. From memory, I think you guys talked about or have talked about in the past of 7% cost reduction per year. Is that something which can be achieved even when the shipments or the volume production for you guys are probably not going to go up simply because you're not adding any new capacity in that business? This is not for 2019, but just looking more into the midterm.
Last question would be, it would be helpful if you can give us some color on how you see demand trends in your chemical divisions by end markets or regions. Thank you.
I hope I did get the first question right. I think it was about the price trend that we see, and the guidance that we give. Silicone pricing, for the first few months, is on average stable. We have that effect that specialty prices still go up. While we have, yes, we have pressure on standard prices. On average, we have prices that are very similar to the level that we had in Q1 last year. For the full year, we expect that the overall standard prices would come in lower than for the full year 2018. That mainly comes from prices in China. I think everybody is aware of that. More or less the regions are communicating a bit.
Effects in Europe and U.S. are much more moderate, we would see on average lower standard prices for the full year, that's our guidance.
On the polysilicon cost reductions, of course, we aggressively pursue cost reductions. There is no letup there. I think in some areas, we even now can really work much harder on cost reduction since the plant is fully running in Tennessee. We were really handicapped last year there because of the reconstruction of the plant. This will give us a boost. We see many opportunities, and our people are aggressive and optimistic there. Normally this led to significant improvements. As I said, we are not letting up, and we will be successful in the end. The growth drivers.
The growth drivers for the chemical businesses, and I focus now on Polymers and Silicones, is the quality improvement for all kinds of applications, especially in emerging markets, which need more Silicones per capita, because there is still a significant difference between the per capita use of Silicones, for example, and also Polymers, compared to industrialized nations. This certainly, overall, will be the growth drivers. Then, of course, in Biosolutions, the application of more complex molecules in the pharmaceutical industry certainly drives growth for our biological segment. In other words, the growth drivers that we have seen in the past for these products will continue. They still apply.
As we stated in the trading update in chemicals, we see reasonable volumes in the first couple of months. We also flagged that we see some weaker spots. I think it's no surprise that for us also, automotive is part of the weaker spots, but it's only 5% of our Silicones sales. Textiles is also a little weaker. We also have much stronger segments like consumer care, electronic silicones. We are in volumes up in construction. We are up also in health and wound care. We are typically growing with GDP, and we are coupled to GDP in general. We have the same patchy development as all other chemical suppliers have in the industry.
Thank you.
The next question is from Martin Jungfleisch of Kepler Cheuvreux. Please go ahead.
Yes, good afternoon. Thanks for taking my questions. I have two on polysilicon and one on chemicals. Firstly, on polysilicon, there has been a substantial increase in greenfield capacities in China this year. My understanding is that these are currently mainly producing multi-type polysilicon, but many players have the ambition to produce mono quality in the near term. Could you possibly share if you have already witnessed an increase in mono-grade supply in China recently? What do you think the chances are that the sufficient mono-grade quality of these players will be reached, given your experience in the past? Second question is also on polysilicon. Given the weaker pricing for solar-type polysilicon, is it a possibility to increasingly focus on producing semi-grade polysilicon, where prices appear to be much more favorable? The last question is on chemicals and especially on Chinese demand.
Could you please provide some additional color on how demand for your chemical products in China has developed following the end of Chinese New Year? Also, if you can comment on how much room you see for additional price increases in silicones and polymers, especially in your specialty products. Thank you.
There have been greenfield capacities coming on stream, and the output has not been seen in the mono segment yet. It is very hard to tell from outside how long it will take. It is very difficult, but it certainly will take some time and adjustment. Yes, we are focusing a lot on semi-grade. We increase even our market share in the semi-grade. This takes time. The focus is very clear, and the path is set. We see successes. Actually, we see, over the past years, increased sales into the semi-grade and gain of market share.
The demand for chemicals, we certainly can see that the automotive segment is not growing that fast. It's not a disastrous level at all. I think it's a solid start in the industry. Whether we can increase prices this year, probably not in the standard segment. Maybe in one or the other parts of the specialty segments.
Okay. Thank you very much.
The next question is from Thomas Swoboda of Société Générale Securities. Please go ahead.
Yes. Good afternoon, gentlemen. I have three questions. I will try to take them one by one, if I may. I would like to start with the smallest unit, with your bioproducts. You're guiding for EUR 30 million of EBITDA in 2019. This is still significantly below the level you were achieving before the acquisitions. Two kinds of question. Firstly, what is holding back the results in Biosolutions, and what is the normalized EBITDA level in this division, thinking two to three years out?
Okay. What is holding us back? We have acquired this plant in Amsterdam. We had to retrofit it. We had to acquire the orders in the industry, and now we need to successively fill it. This is not something that can be done completely within one year. It's a continuous task. We are moving along very nicely. The same is true for the fermentation plant in Spain. This is why we see an improvement this year. We will not be at the top level where we want to be once these plants are fully running. Hopefully, we come close to the top level next year. We will see. We will certainly continue to make significant improvements.
Yeah. Tobias here. Just adding to your midterm modeling, we definitely target an EBITDA margin of above 16% as for all the other chemical segments as well.
Is this a EUR 50 million-plus EBITDA business, or will it stay smallish around EUR 30 million, EUR 40 million? You have made those acquisitions for a reason, I think. I would just be interested what the midterm potential in absolute terms is, if this is possible.
Such a plant like in Amsterdam will certainly bring us, in terms of sales for the whole, including Halle and Jena, for the whole business, to a level of EUR 100 million in sales as a target, for example. Of course, the profitability of the therapeutic proteins or biologicals certainly has to have an EBITDA significantly above this chemicals goals of 16%. We expect a significant growth in profitability. On the other hand, we have to develop this business organically over time because it does not make sense for us to acquire whole companies for these incredibly high multiples that are paid in this business. We just don't want to do that. We see significant chances just by organically growing the business. This is our target.
If I may, I would like to move to siloxane. A while ago, you signaled that you might be interested in investing in brownfield siloxane capacity. We haven't heard on this for quite a while, and there have been capacity additions, at least announced capacity additions by your competitors. Are you still interested in expanding in siloxane? If yes, how much CapEx you would think here to invest?
Well, one competitor was very precise in the announcement, they, as far as we understand, are going ahead. We understand that for them to really have world-scale siloxane facilities. Another competitor made a big announcement and then scaled it back significantly because of the changed pricing and market environment. There have been incredible announcements by some Chinese companies, we don't see anything, any movement there at all, because these incredible additional capacities are really not needed in the market yet. We have talked about, and we actually have planned a brownfield investment. We don't see the need right now to really kick it off in a full scale. On the other hand, we have lots of opportunities to debottleneck our existing facilities, maybe even faster than we did in the past, and we are making these decisions without a big announcement.
Only if we have a big project, or we would have a big project, we would make an announcement there. You can count on us really keeping our market share in silicones and improving our share in specialties, just as we said in our explanation of our strategy. We are consistently moving along this path.
Right. If I still can ask you on polysilicon, please. Looking back to the last two conference calls, I think we've all been a little bit more upbeat on the speed with which the polysilicon market and the solar market overall should recover from the Chinese cuts. Now, as we stand here, the speed of recovery is much, much slower. If I can ask you, what do you think is holding back the market from recovering, and why we should still be optimistic that something could change to the positive in H2?
Well, as I said, because we are not very certain about the market development in H2, we are not forecasting or making our forecast on the basis of a significant, let's say, rush into the market. However, just from talking to players in this market, also regulators in China, there can be reason for optimism, or could be a reason for optimism, because many people simply are waiting for these policy announcements that should propel the Chinese market. What makes us overall positive in the long term, even last year, with this downturn in the market in China, there was still an implementation of, I think, something like 42.4 gigawatts in China. That means the photovoltaic is becoming more and more competitive. As it becomes more and more competitive, not only the Chinese market will keep its level or grow.
The overall markets all over the world will continue to grow. This is why we are forecasting this year installations of 110-130 gigawatts, and there are competitors that even increase these numbers all the way to 140-150 gigawatts. There's simply the opportunity to generate electricity in a renewable mode, these opportunities will be taken in the world because the energy will be needed.
Thank you.
The next question is from Laura Lopez Pineda of Baader Bank. Please go ahead.
Hi, good afternoon. Can you please give us an update on the expansion projects that are coming on stream on 2019? I think you have some new capacities on polymers in South Korea and also your backward integration in silicon metal and also the Fumed Silica in Tennessee. Maybe an update on those, how are they going, and will they have already an impact in 2019? Secondly, you already mentioned a little bit, but can you give us your outlook or how do you see the construction market developing and the demand for your polymers products? On electricity cost, in your press release and also in the report, you mentioned a lot higher electricity cost. How much has that increased? You also mentioned a risk as policy changes in Germany.
Can you maybe elaborate a little bit on that and what could be the negative impact if that's only a 2019 thing, or do you see that as a risk ongoing? The last one, maybe on financials. IFRS, will it have also an impact on the P&L?
The impact of the IFRS change on the P&L. Yes. It's already in the forecast.
I can start with the IFRS impact. If you want to have more details, you have some pages in the annual report. I think it's around page 119. What has changed is we have to account for the lease now as liability, as net debt. This is on the liability side of the balance sheet, some EUR 155 million that we have there starting 2019. On the asset side, we have the right of use assets in the order of EUR 145 million. From this change, net financial debt will increase by about EUR 130 million. What happens to the lease that we pay, it used to be a cost in EBITDA in the order of magnitude of EUR 35 million.
EBITDA improves, and that is included in the guidance. But the EUR 35 million lease turns into a EUR 30 million depreciation on the right of use assets, and it turns into EUR 5 million interest. It doesn't dissolve the P&L. The effect on that profit from that accounting change of IFRS 16 is absolutely neutral.
I might continue with your first questions on our big investment projects. The Fumed Silica in Tennessee is going to start in the second half of this year, so it's coming online soon. The silicon metal furnace capacity expansion in Norway is to come into production in the latter part of the year, so end of 2019. In Korea, we are going to start up our dispersion powder dryer also in the second half of this year.
We have significant capacity expansion and CapEx projects completed for our chemicals growth. I think the EBITDA impact in 2019 is not meaningful, and anyhow, it's included in our overall guidance. It doesn't make much sense to add something on top of it from the individual projects. With respect to your second question on the overall construction market, we have a, with the polymer segment, a strong focus on construction. We like to call it also a focus on smart construction. We are, with our polymer binders, adding to quality increases in the construction market. In general, we depend on the overall construction sentiment. This is from what we see overall healthy. A big part of our business is in renovation. 50% of what we sell into construction goes into renovation. In renovation, quality upgrades are more than typical.
In quality upgrades, typically, then the demand for our products also increases. We have, in the polymer segment, a healthy outlook for the industry with good volume growth.
You have the question on the electricity costs. Yes, of course. Electricity costs or cost increases certainly have an input that can be felt. The problem is, compared to our Chinese competitors, we do not get subsidies. They get subsidies from regional government overall, but also subsidized electricity costs. It just increases our necessity and drive to reduce our costs or the amount of electricity we use for our products. It increases also our efforts for automation and everything we have in the plan for cost reduction.
Okay. Thank you very much. Maybe just another add-on on the polymers. I think you guided for an EBITDA margin around 14%. Raw material prices have significantly gone down in Asia and also in the U.S. I was expecting this to be a little higher, again, to come more towards the 15 or 16 that you guide for the division. What is holding back also in this year? Last year, you also had the negative impact from the big turnaround you had in the second quarter. Can you maybe elaborate there a little bit? Do you maybe expect also some negative pricing in that part of the business?
The pricing that we see is a slight uptick. With raw materials coming down also, we will see pressure again on our own sales prices. I would say we have also, as you mentioned, the turnaround in last year. We have a smaller turnaround again in this year, which is planned. A typical progression back to target margin levels takes more than just a year. We were at 12% last year. The target margin is at 16. With our guidance of 14%, we are just right in the middle.
Okay. Thank you very much.
As there are no further questions, I hand back to the speakers.
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