Dear ladies and gentlemen, welcome to the Wacker Chemie Q2 Results 2018 conference call. 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 difficulty hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Jörg Hoffmann, Head of Investor Relations of Wacker Chemie, who will lead you through this conference. Please go ahead, sir.
Thank you, operator. Welcome to the Wacker Chemie AG conference call on Q2 2018 results. With me are Dr. Rudolf Staudigl, our CEO, and Dr. Tobias Ohler, our CFO, who will take you through our presentation in a minute. The presentation is available on our webpage under www.wacker.com under the caption Investor Relations. Before they begin, however, allow me to point you to a safe harbor statement, which you will find at the beginning of the deck. With this, let me now hand you over to Dr. Staudigl. CEO Dr. Staudigl.
Ladies and gentlemen, welcome to our Q2 2018 conference call. Our Q2 sales came in strong at EUR 1.3 billion. This is 9% better than last year and Q1. Group sales saw strong support from silicones, which grew by 19% over last year. Q2 EBITDA on group level was at EUR 261 million, 3% up over last year and 2% up over Q1. Our silicones division showed a great performance. The division runs at capacity limits. Q2 EBITDA climbed to EUR 177 million, which is 59% higher than last year. Strong growth in specialty products supports this development. Demand for silicones is strong across all industry segments, and global markets are tight. Not all orders can be fulfilled. Given the size of the imbalance between supply and demand, we do not believe that de-bottlenecking actions alone will be sufficient to bridge the supply gap.
Currently, I do not see short-term relief coming from new capacity additions. In this difficult situation, we try to serve our customers as best as possible. Polymers saw growing volumes in sales, but it was not enough to offset other effects. The VAM turnaround in Germany added further costs to the quarter. In addition, effects of environmental reforms in China and an unforeseen series of force majeure declarations by acetic acid producers drove up the cost of vinyl acetate monomer to new historical highs. We continue to work hard to adjust prices to meet rising raw material costs. Polysilicon sold sequentially higher volumes in Q2. Sales were slightly below last year as prices declined towards the end of the quarter. This was due to policy changes for the solar market in China implemented by the regulators. Against this background, Q2 EBITDA came in at EUR 39 million.
Bear in mind that this result contains no insurance reimbursement and is held back by ramp costs from the Tennessee plant restart. We are ramping as fast as possible and are very satisfied with the material quality that's coming out of the plant. Presently, we see many polysilicon plants in maintenance shutdowns. Such a reaction is in line with historical precedent. We have seen similar patterns in the past when markets slumped as a consequence of changes to feed-in tariffs. Every time, these reactions have been followed by fairly quick recoveries. In my view, the announced policy changes in China are ultimately positive for the growth of solar installations. They help to speed up the arrival of subsidy-free solar power. In addition, the recent price adjustments for modules have stimulated exports from China into new markets. This is an excellent base for extended future solar PV growth.
We see a shift to higher efficiency technologies using more high-quality polysilicon. Across the group, we continue to push for productivity and efficiency improvements. Our initiative for digital transformation is a logical extension of these efforts. We systematically assess digitalization options in core operations along the supply chains, R&D, and in customer-interacting applications. We see great opportunities for enhanced IT capabilities across business functions. Looking at the full year, we confirm our previous guidance for the group. We continue to see a low single-digit % increase in sales and expect a mid-single-digit % increase in full-year group EBITDA. Since our last guidance, we have made a few adjustments on the segment level, which Tobias will explain now.
Welcome to our call, ladies and gentlemen. Let me walk you through our financials and present you the outlook for each segment. Starting with the P&L on page three. Sales went up by 9% over prior year and quarter, following 7% volume and mix effects. Overall, prices increased by 5%. Polysilicon is the only segment with price decline. Currency slowed the development on a group level by around 3%. Gross profit was up by around 6%, despite some EUR 30 million higher costs for raw materials and energy year-over-year. Our results benefited from the at equity contribution of Siltronic at EUR 23.9 million after purchase price allocation effects. Our tax rate came in at 23.7%. Earnings per share from continuing operations went up 36% year-over-year to EUR 1.59 per share. Moving on to the balance sheet on page four. The balance sheet shows no significant changes to prior quarter.
This is not evident here, we refinanced debt in 2018 at lower interest rates, which helped reduce our reported interest expenses. Silicones on page five expanded its Q1 record margin now to 27% in Q2. Sales in the quarter were up 19%, driven both by volume mix and price, and held back by currency effects. With continued tightness in the market and a good operating performance at capacity limits, we have upgraded our guidance. We now expect sales of EUR 2.5 billion with an EBITDA of around EUR 600 million. This guidance assumes a seasonally somewhat weaker Q4. Polymers on page six reported positive pricing and very strong seasonal volume effect. A number of factors held performance back and resulted in an EBITDA of EUR 33 million. A series of supply interruption and force majeure declarations for acetic acid and VAM contributed to tightness, driving up raw material pricing.
In addition, the Q2 turnaround of our VAM plant weighed on EBITDA with about EUR 15 million. For the full year, we continue to see mid-single digit % sales growth based on volume growth and better pricing, despite currency headwinds. Our earnings expectations have become more muted for the rest of 2018. We now see higher raw material costs for longer than previously expected. We adjust our full year EBITDA guidance to about EUR 150 million with the second half year performance being similar to the first half with the typical fourth quarter seasonality. On page seven, Biosolutions. Our guidance on sales is unchanged, but the integration and ramp costs as we begin the loading of the latest capacity additions from recent M&A weigh on EBITDA. With a mid-single digit % sales growth, we now see EBITDA at about EUR 25 million for the full year 2018.
Polysilicon on page eight, saw excellent Q2 performance in our German plant, but ramp costs and no insurance payment being recognized for the business interruption at the Tennessee site weighed significantly on the results. As such, our reported EBITDA does not accurately reflect the strength of our underlying business. While polysilicon sales volume were overall slightly higher than in Q1, the quarter ended with soft pricing. The recent changes to Chinese solar policy resulted in a period of uncertainty with industry-wide inventory clearance and widespread capacity shutdowns. In contrast to this, we keep our facilities running at the capacity limits and use the opportunity to rebuild inventories as we want to improve customer service. Overall, the temporary slowdown results initially in lower growth in global installation for 2018.
As other markets outside China benefit from the lower cost of solar installation, we expect global PV solar installations now to be in the range of 100-115 gigawatts in 2018. The ramp of the Tennessee plant continues in Q3 with its effects on costs. Full capacity should be available again in Q4. We also expect to conclude the claim discussion with our insurance provider in Q4. Following all of this, our guidance for polysilicon changes. We now see sales down by a low double-digit %, while we see EBITDA now around 10% below last year. Relating to the Other segment, we now see a low double-digit negative EBITDA for the full year Before adjusting for the Siltronic earnings effect. Our volume growth over the last two years put a lot of strain on our logistics infrastructure, from material handling to warehousing and loading facilities.
As a result, we are stepping up technical spend to ensure smooth operations to our customers. In addition, we reinforce our efforts on productivity and efficiency and spend more to support our initiative for digital transformation. On page nine, we see how our net financial debt increased to about EUR 640 million in the quarter. Operating cash flow came down following seasonal effects, like variable compensation payments and higher tax payouts. In addition, we deployed some funds received from the insurance companies in Q1 to pay for the repairs of our Tennessee plant. Other items affecting cash flow were the 30% higher CapEx in the first six months than last year and the SynCo acquisition. Net financial debt was also impacted by our dividend payout in May, which was more than twice as much as last year.
Including working capital and currency effects, we now see our net financial debt at year-end slightly higher than previously forecasted at about EUR 500 million. With this, let me hand you back to Rudi.
Thank you, Tobias. Ladies and gentlemen, let me wrap up. The highlight in this quarter's numbers, as you know, is clearly our Silicones Division, which performed exceptionally well. While we certainly benefit from the global tightness, the bulk of the improvements tracks back to the hard work done here to drive specialty growth and our uncompromising approach to cost reductions. This helped us sustain a period of pricing in the past, which was not attractive for reinvestment. Now we can look again into financially sound brownfield expansion economics. As we always said, silicones provide a properties-driven growth trajectory above other chemistries. We're happy to support our customers' growth and demand. Our Polymers Division, in general, is in a great business position, but currently squeezed by a series of unfortunate events. It started with the effect of Hurricane Harvey and was followed by a number of unexpected shutdowns of suppliers.
Prices for raw materials increased fast in a very short period of time. The underlying trends for long-term growth in the business, however, are unchanged as we see the market transformation and regional growth trends uninterrupted. Biosolutions is busy with integrating and starting up the recently acquired capacities. I expect loading these capacities will take some time, so we'll most likely see positive effects of it in the next year. At polysilicon, the immediate outlook is somewhat uncertain, as the main market in China adjusts itself to the policy change implemented during the quarter. The temporary slowdown adds pressure to pricing, but will also act as a catalyst to accelerate the transition to high-performance technologies, which is a benefit for us. Solar is already competitive now to other forms of power generation.
We believe that economic forces will drive the recovery in this market as it just makes sense to add solar power to the overall power mix. All our businesses did well in Q2. Silicones saw an exceptional performance. Each of our other businesses shouldered challenges in the quarter that were special. Polymers digested the cost of a turnaround amid a market tightness. Biosolutions starts filling up new capacities and integrates two organizations. Polysilicon not only faced sudden changes in demand, but also carried ramp costs and the fixed costs of a full site without relief from insurance payments yet. In light of this, I am proud of the underlying strength of our businesses. As far as the rest of the year is concerned, we continue to see the biggest risk to our performance in a potential slowdown of the global economy as a result of general protectionism.
To a certain extent, we have tried to take those macroeconomic risk factors already into account. However, assuming a continued positive development of the global economy, I'm convinced that we have a good chance to beat our full-year guidance. Operator, we're ready to take questions now.
Thank you. Ladies and gentlemen, we will now begin our question and answer session. 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 a 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 are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question.
Operator, the first question is from Mr. Patrick Rafaisz at UBS.
On the fumed silica expansion in Tennessee you were talking about, can you remind us about when this will happen? Can you give us also a rough indication of the size versus your current capacities in this area? That's the first question.
Okay. The answer is the startup will be next year, as scheduled. The project is going very well. This will add about 13,000 tons of capacity.
Okay. On top of what kind of capacity do you have currently?
Well, we do not publish exact numbers there, but it adds a significant percentage amount.
Okay, good. Thank you. The second question on polymers. You're growing actually still in that business, right? You get severely punished by these swings in raw materials. Do you have any plans here to maybe rethink your pricing policy? Have you approached your customers about maybe quarterly pricing instead of annual pricing you still have in some parts of that business? Second question. Thank you.
Well, we have different pricing schemes with different customers. Of course, when there are fast upward changes in the material costs, we try to adjust as fast as possible. So that's a standard way of performing this business. However, sometimes, like this time, it simply was not possible to adjust the prices upwards as fast as the material costs went up. These periods, we have experienced these things in the past, just as we have experienced times when material costs or raw material costs came down much faster than we had to reduce our prices. So we really have to have a long-term look on this business, and even with its actual performance, it's definitely still a great business.
Okay, good. Then a last question on polysilicon. Can you talk a bit about the inventory build you're seeing currently? We know from the past that you use the environments as we're seeing now to build up some strategic inventories. Can you give us some more color here? Is that still ongoing? When do you expect that to reverse again and customers to draw down inventories? Sorry, just sneaking in another one here on polysilicon. What's your average price assumption underlying the guidance for polysilicon in the second half? Thanks.
Well, there is certainly building of inventory happening right now because we simply do not sell it at any price. It's also healthy to build up inventory to serve our customers better. The question, how long this period of depressed pricing will last is, of course, very difficult to predict. In the past, these periods of sudden price drops were followed by also nice increases of the prices. We certainly see some uptick in demand right now. The question is whether this is already a sign of an overall acceleration of the market and how that can be sustained. There are certainly some slight positive signs on the horizon.
Yeah, as I said, we will see how sustainable that is. Yeah, as I said, of course, short-term, it's unfortunate, but long-term, I think it guides the market in the right direction.
Okay. Yeah. The average price assumption for the guidance in poly?
We do not give specifics there. However, I just want to remind you that in the beginning of the year, when we gave out our first guidance, we already predicted a lower pricing average than last year. We did not believe that this market simply goes on continuously over the year. I think something like that effect in China, the handwriting was already on the wall, I would say.
Okay. Thank you very much.
The next question is from Andreas Heinemann, MainFirst. Your line is now open.
Good afternoon. Yeah, I have a couple of polysilicons and one on silicon, please. I'd like to start with what you said about your PV installation you expect for this year, which is quite an upbeat number, with 100- 105 GW, so at least flat up to 15% increase. According to what I read, China might go down from 50 to 35, and the U.S. is going down maybe 4 to 5, so that would mean 20 gigawatt less from these two countries. Where do you see the growth, and what gives you the confidence that we will see then a very strong Q4? That's the first. Related to this, maybe, according to what I read, the mono share last year was about 25% in the installation.
What do you expect the mono share will be this year and next year, as you highlighted that you expect a higher shift to the higher efficiency mono technology?
Well, as you know, we have published our expectations for the various countries, and we have quite a number of people working on these forecasts. In the past, these forecasts were pretty reliable. This gives us the confidence we are not too far away from the reality with our forecasts or with our expectations, I would say. Nobody knows, of course, but I think at least a flat development this year compared to last year is, in my opinion, a very reasonable assumption, with opportunities to even growth. Simply because of the fact that the module prices dropped down so fast, and there's a lot of willingness, and actually significant needs to install power generation, especially in countries like India, South America, et cetera.
In the meantime, I think the world realized that it just makes a lot of sense to generate the power for air conditioning by solar. As you can see in the market right now, the ones that really continue to operate, at least at the highest level, are the mono-silicon producers, because of the continuing demand for high-quality cells and modules. Of course, there are also very high-quality multi-crystalline-based cells and modules. Those high quality, multi-crystalline, as well as mono, are in the highest demand, and we expect the highest growth in that segment. What exactly it will be this year, I cannot predict, especially. The trend is in line of our expectation since many years. The demand for high-quality polysilicon certainly is getting higher and higher.
Thank you. Maybe one question on Q3. You build up inventories. Could you explain a little bit what that means for the P&L if you build up inventories? I guess it obviously has not a negative EBITDA impact. What do we have to expect in a period where you cannot sell too much, as the market is said to be very quiet right now, on the P&L impact?
Andreas, this is Tobias speaking. We typically do not go into that kind of detail with respect to P&L effect of inventory. I can say, yes, we build, and we would also expect for the remainder of the year to add to our hubs in Asia. As in previous situations, we really take those opportunities when the market is a little bit slower, that we try to get closer to our customers. I think we shouldn't talk about the P&L here.
Okay. Thank you. Maybe the last question on my side on silicones. You said the market is very tight. It is basically tightened with two effects. One was the closure of one of your competitor's plant in Germany, and the other was a net cut in capacities in China, not least due to environmental reasons. Is there any chance that those capacity come back? Do you have visibility whether there are any Chinese player coming up with plans to build a new greenfield or brownfield expansion?
There are certainly ideas and projects, not really concrete capacities that are coming up very soon. Of course, the question is, I think it's absolutely the right consideration, what happens to the plants that have been shut down for environmental reasons? I think some of them might be able to be upgraded. That certainly adds significant costs to these plants. Most of these plants are under critical in terms of capacities. If they really have to come forward with their real costs, I do not see a big threat to the overall price level for silicones because of that.
Thanks. These were my questions.
The next question is from Chetan Udeshi, JP Morgan, your line is now open.
Yeah. Hi. Thanks for taking my questions. I have a few actually. Maybe I'll start with silicones first. Your sales were up 19%, and correct me if I'm wrong, but there was supposed to be some impact from IFRS 15 on reported sales. Can you just help us understand how much of the 19% is actually just pricing and how much is actually driven by volumes? The second question on silicones is, given that the tightness has lasted longer than expected and you think it will continue, what is stopping you from beginning the brownfield capacity expansion just yet? In the sense, why I'm not taking the call just now. Maybe I have a couple of questions on polysilicon, which probably I'll ask after your response to these questions.
Chetan, Tobias speaking on the silicones question and the 19% sales increase. Yes, at the beginning of the year, we highlighted with the IFRS changes some EUR 30 million would go out, for the full year, not being any more reported as sales according to the new standard. I think with the 19%, this is just a very small number in comparison. The 19% basic stems from a very good performance in growing volume for specialties and that leads to a much better mix. Price increases, which are much stronger for the standard product than for the specialty product, where we have more annual contracts.
In terms of capacity additions, of course, something like that, if we do, let's say, a big debottlenecking, or a big not only debottlenecking, but addition of capacity in an existing plant. Careful planning in the beginning will speed up the investment later on. That's the answer. We simply are very meticulously planning all the individual steps that have to be taken to add the capacity in an existing, let's say, brownfield environment.
Understood. Till that capacity comes online, whenever you decide to add the expansion, is there room for you to grow your volumes from existing capacity? Because you guys have been running in Silicones at 100% for last three, four years at least. Still yet you've been able to grow the volumes. Is there more flexibility to grow volumes, you think for the next 18 months, before your new brownfield expansion happen in Silicones?
Yeah. There is always a way to add a little bit of volume by small debottlenecking activities. On the other hand, of course, we, especially at these times, just have to be very much detailed in getting the highest value out of the volume you have available.
Understood. Maybe just a question on Polysilicon. I know you did not say. There was a question previously on what is the assumption prices, which you didn't give. Is it fair to assume, or at least understand that you think the market, in terms of both volumes and prices, will recover in the second half of this year? Is that what-
We are convinced about it.
Okay. One question I had was, I think, Tobias, you mentioned earlier in the call that there was some insurance payment, which was used to rebuild the plant. Did I hear that correctly? Can you just, if possible, give a split of how much of the insurance is going to be between what goes in P&L and what goes into the cash flow line? I think maybe it is related to some extent is there was a big material decline in the other liabilities line, in the balance sheet. I was just wondering whether part of that was related to the recognition of insurance payment in cash flow. Sorry. Thank you.
Yes. We received $100 million payment from the insurance in the first quarter, and we take this account of payment in order to take care of the spend that we have on rebuilding the damaged plant. That is why that does not burden our P&L right now. That is also what you have seen in the cash flow statement and in the balance sheet. That is exactly the effect that is taking place there. For the business interruption, it is, as we said before, we did not book anything so far. We expect that we book that in the fourth quarter when the plant is running at full steam again.
The next question is from Paul Walsh, Morgan Stanley. Your line is now open.
Thanks. Afternoon, guys. Two questions for me, please. Can we just go back over the math around the insurance payment? I'm particularly interested in how much you are assuming in your new guidance for the polysilicon business for this year. The quantum you mentioned around Q4, but how much is included in that guidance? My second question around the silicones business. Obviously, this is a chemical chain that is incredibly tight at the moment. Why should we not assume that these are deeply cyclical dynamics that are inflating profits in the silicones chain at the moment, versus just simply structurally better margins in the industry, i.e., how much of this do you think is temporary versus sustainable? Which I know is a tough question to answer, but I think you get the gist of my question. Thank you.
On the insurance payment, our assumption for the business interruption is unchanged. We said before that we do not disclose that number, but the guidance is not changed by that. I want to highlight one thing, because I think at some market participants, there's a misunderstanding with respect to insurance. It just puts us as if the plant was running, and we would have run the plant if we hadn't had that incident in September last year. It's not a special that you need to take out of our performance in 2018. For that reason, it's part of our guidance, and it also compensates the burden that we have right now in ramping the plant in the second quarter and also in the third quarter.
Just on that point, what you're saying is that the plant will ramp back up and add those EBITDA EUR anyway. The insurance payment just mitigates for the gap that's been left in the meantime.
Exactly.
Okay. On the silicones business, please.
Yeah. I already mentioned in one of the previous calls that the total market size for silicones is about 2 million tons, if we assume a growth rate of 5% per year, which I think is fairly reasonable, plus or minus in this business, an additional capacity of 100,000 tons per year is needed anyway, just even under present market circumstances. In order to drive the prices down significantly, we would need an addition of capacity of more than 100,000 tons per year, potentially sequentially, for maybe two years. This is, at this point in time, hard to imagine, let's say, for the next two or three years. In the past, if we look at the past 10 years, significant capacity was established. On the one side, we, for example, together with Dow Corning, built the, let's say, roughly 200,000 ton plant in China.
There were many smaller plants coming up in China with capacities somewhere between 10,000 and 50,000 tons. Many of these had to be taken down because of, or shut down for environmental effects. I cannot foresee at this point in time that for profitability reasons, many small plants that are environmentally sound will come up soon in this new environment in China. This is why there is this sort of lack of capacity that potentially is sustained for at least some time. I mean, nobody is able to predict what happens after three, four, five years. These considerations lead us to the assumption that there is no, let's say, short-term drop of pricing for silicones.
That's very clear. Just to understand, the 2 million tons, you're talking about siloxane capacity rather than downstream specialties.
Yes.
Okay.
Every downstream specialty needs siloxane.
Right. Sorry.
Every commodity material also needs some siloxane. In terms of percentage-wise, even more.
I should not assume that you've been selling merchant volumes of siloxane, given the tightness specifically in that part of the chain, that you are capturing the value in the downstream specialties?
Yes, exactly. This is what I meant when I said before that we are carefully considering to get the highest value out of our raw material.
Of course, if somebody out of the need pays an appropriate price for a standard type or a commodity type material, then, of course, if the value we create is higher than if we would sell a certain specialty, then of course, a certain percentage, we always consider selling so-called standard.
That's right.
It's really a question of creating the highest value for us, but also, of course, keeping the customer needs in our mind.
Okay. Thank you very much.
You're very welcome.
The next question is from Thomas Wigglesworth, Citigroup. Your line is now open.
Thank you very much. A few questions, if I may. Thank you for your presentation. Just firstly, you mentioned ramp-up costs at the Tennessee facility. I'd just be interested to, obviously noting that you will be paid insurance, but I'm just interested to know what those ramp-up costs are. If you could provide any color there. Then, as you talk about the silicones market, of that 19% growth in sales, could you provide the split of how much was mix versus volume within that? That would be very helpful. Lastly, on silicones, as we think into 2019, obviously you've given us a very explicit forecast for profit for this year.
In a blue sky scenario, as you optimize that value, what do you think that blue sky scenario would be if you could really maximize the business, given that we seem to be in somewhat uncharted territories versus history in terms of your margin performance here? It'd be just nice to know what you think the very maximum would be. Thank you.
Well, we have some competitors that talk about sustainable EBITDA margins of 30%. As you rightfully said, it's uncharted territory. That's why I think we do not want to add to the speculation.
Fair enough.
Excuse me?
Sorry, I didn't mean to interrupt you. I was just trying to remind you of my previous questions.
I was still aware of your question about the ramp-up costs. Ramp-up costs simply are inefficiencies that you have in the beginning in the whole production chain. The production of polysilicon is a sequence of production steps that all have to perform extremely well. You have to make sure that your yields are high, that the contamination is as low as possible. In order to clean all the equipment again before you really produce a final product, that all needs additional efforts that you don't have in a normally running production. Personnel costs, material costs, maintenance costs, analytical costs, all of these are ramp-up costs.
Sorry.
Thomas, for your question on silicones, the 19% growth against prior year quarter. What's the split between volume mix and price? You know that we don't disclose that at that level, but we have in the wording of our release, not a great differentiation between the two. Maybe that helps you a little bit in your modeling.
Okay. Understood. Thank you very much.
The next question is from Sebastian Bray, Berenberg. Your line is now open.
Good afternoon, thank you for taking my questions. My first one would be on polysilicon. I think it was mentioned in a previous answer that in some respects, this insurance should not be treated as a one-off charge because it essentially makes Wacker whole for volumes it could have achieved in that year. Of course, there is the fact that this plant, I think, came offline September last year. Am I right in saying that relative to the guidance currently for polysilicon, which in my view, I think implies about EUR 260 million of EBITDA for the current year, we should deduct off about EUR 20 million to EUR 25 million to get an underlying run rate. That's million EUR EBITDA that would have been made by Tennessee, to get an underlying run rate for this segment? That's my first question. The second question is on the potential for earnings growth in 2019.
Apologies, there's a bit of an overlap with previously asked questions. If I look at the silicones segment, it's making all-time high margins, and it looks as if the scope for debottlenecking much beyond, let's say, 1%-2.5% next year is rather limited. Is there any scope? Are you starting to reach the stage where pricing increases beyond current levels are either not plausible or start to destroy demand or generally have unintended consequences? Finally, my last question is on phrasing earlier during the call. I think it was mentioned that Wacker is hopeful of beating guidance in 2018. To clarify, does this mean the guidance of adding up the individual segments, which takes you to about EUR 1.15 billion in EBITDA, or the guidance for mid-single-digit % EBITDA growth in the year? Thank you.
Sebastian, on the insurance question, you are right. I stated you shouldn't take that out as a special effect, I can confirm that. You are right, assuming that a portion of that is from 2017, from last year when the plant went down. I think you can do your assumption on how much is that.
Yeah. On the silicones, 2019, of course, it's impossible at this point in time to really predict anything there. I just would like to refer back to what I said earlier that, of course, in times of tight raw material supply, we try to optimize the value. There is still a considerable amount of so-called standard business that either has to comply with the demand on pricing or is replaced by higher margin specialty material. This is the way, of course, as I said before, always also keeping mid- and long-term customer demands in consideration. Along these terms, we will certainly optimize the performance of the division.
That is helpful. Thank you. Sorry, the last question on the being hopeful to beat guidance. Is this for the sum of the individual guidances or the current group guidance as a whole for group EBITDA?
Sebastian, on the individual guidance, you should take into account that we've, for the first time, guided also to a low double-digit negative others. Then I would like to hint you again to the speech of Dr. Staudigl when he highlighted that we continue to see the biggest risk of our performance in the potential slowdown of the global economy, also including general protectionism. We have tried to put that into our guidance. The statement is on the group level, that if that doesn't materialize, and the global economy is developing nicely also in the second half, that we are convinced that we have a good chance to beat our full-year guidance.
All right. Thank you very much.
Maybe one more comment on the pricing of the silicones, the standards as well as specialties. I think we all, the producers as well as especially the customers, have to keep in mind that for an extended period of time in the past, pricing for silicones simply was too low in order to justify the investments that have been made in the past as well as to justify investments to be made in the future. It's just a normal correction now that is due simply to the real value of this material. In other words, the silicone producers are not trying to rip off anybody. I think it's just to really be able to long-term keep this market growing and produce the value for the customers as well as their customers that is necessary.
All right. Thank you very much.
The next question is from Laura Lopez Buesa. Your line is now open.
Good afternoon, thanks for taking my questions. First on polymers, I just wanted to get your view. Is there a structural supply-demand imbalance in acetic acid, or is this tightness only driven by continuous unplanned interruptions? Is it the need of new capacities also? If that's not the case, should we expect a sharp recovery when the capacities come back into the market? That would be the first one, and the second one in silicones. Can you also give us an indication how your contracts work here? How is it for standard silicones, if it's more in a monthly or just spot and maybe in the more specialized grades? The last one, how good is your visibility to know how the capacity utilization rates will improve in the new plant in Spain and in the Netherlands for Wacker Biosolutions?
I remember that in 2017 you also faced some pricing pressure due to competition in cysteine and gum base. How have these developed in 2018? Thank you.
On the contracts and silicones. In standards, contracts are shorter terms. In these times, there is the wish of customers also to get longer term contracts and stability and specialty. In general, in specialties, the contracts are longer terms. These terms and conditions are adjusted to the markets, the applications and the customer demands, et cetera. That's fairly valuable. In general, for standards, it's shorter term, and for specialties, it's longer term.
Sorry, in specialties, let's say in a normalized market, would that mean, I don't know, quarterly or more like half year contracts?
More like half year or annual.
For your question on polymers and the acetic acid situation, it has basically been a series of force majeure and that in a short period of time that led to this tightness. I would say acetic acid is a general commodity, and it behaves like a general commodity, which means that if prices allow for reinvestment, then there will be new capacity added. So I definitely do not see this current level that pushed also VAM prices up sustainable. But we have muted our guidance in polymers because we see it continuing into the second half. That is reality. So we face it.
Okay.
Your question on the new biotechnology facilities in Spain and in Holland. Of course, we presently upgrade these facilities so that they have the capability of producing our materials. This, of course, takes some investment expenditures as well as just higher production costs in the beginning. But, as I said also in the beginning, these effects, we will try to compensate or reduce these effects as fast as possible. But for this year, we definitely have a negative overall effect. But that is taken into account with our guidance.
Okay. Sorry, the last one, just housekeeping. In your guidance today, did you change your Forex assumption? In the past you had 1.25 for U.S. dollar/euro change. Did you change that?
Yes, we did. We did change it to a 1.20 now.
Okay. Thank you.
The next question is from Thomas Swoboda from Societe Generale. Your line is now open.
Yes, good afternoon, gentlemen. This is Thomas Swoboda from Société Générale. I have, hopefully, two quick questions on polysilicon. Firstly, on your cost roadmap, could you give us a hint, if possible, how much of the costs reduction potential you have been expecting from your plant in the U.S., and how much from the German plants? The follow-up on this, is it fair to assume that once the Tennessee plant is back producing at full capacity, that it will come back with much lower production costs versus the status quo before the accident? Thank you.
Let me put it this way. Our cost reduction efforts are on track with the roadmap. Once Tennessee is at full swing, it also will be back on the roadmap.
That's fair enough. Thank you very much.
There's a follow-up question of Andreas Heinemann first. Your line is now open.
Thanks. Yes, again, on silicones. You have two big investments running. One is the silicon metal expansion hub and the other one the silica plant, both starting up next year. On the EBITDA level, are these already contributing in a positive or a negative way in their start-up year?
Andreas, I don't have the detail in front of me, but the start-up is late or in the second half of the year. It's not a significant effect that you should bake into an early modeling of next year.
Is the ramp-up something which takes time? If I take the Tennessee plant, which took more than a half a year to be fully ramped, how will that be with the silicon metal expansion and the silica plant?
Well, the silica plant will certainly be faster than half a year. I would be really surprised if it would take a half a year. With the metallurgical silicon plant, we do not have a lot of experience in getting it up, so it's hard to say.
It's one furnace, so I would expect that you can't even run it at half capacity. I would expect it to be a very fast ramp in silicon.
Okay. Yeah, probably.
Thanks. Have fun.
There's a next follow-up question from Tom Wrigglesworth for Citigroup. Your line is now open.
Thank you, gentlemen. Forgive me for a kind of housekeeping question. polysilicon prices. Do you mark to market your inventories each quarter? If you are building inventories in China, should we expect more fluctuations there? Are there any of the long-term assets that may be changing with the volatility, given the decline in the polysilicon price? Just wondering about the. If not, should we take that to mean that there's no material change in the medium-term profit outlook for these businesses?
The inventory is definitely valued according to all IFRS standards, and that's market to market.
Okay. Thank you. Long-term assets, like the profitability of the Tennessee plant, does that have to go through a market review with your auditors in terms of asset carrying book value?
No, not that we see that. We definitely look at all three plants, as we always said, as we have a production system of three sites, two in Germany, one in the U.S., that we are selling to one big market globally.
Okay. Thank you very much.
The next question is from Sean McLoughlin, HSBC. Your line is now open.
Thank you for taking my questions. Just around the Tennessee plant. You say you've sold your first volumes in the market already in Q2. I'm wondering, can you share with us by when you expect to be at full capacity production of this plant?
At the latest, by the end of this year.
What level of capacity utilization did you exit the quarter? I'm just wondering if you may have further ramp costs and how these are built into your poly guidance.
Yes, we do have further ramp costs because we are still waiting for equipment for the repair. That's why we're not running full yet, not in July and not throughout the third quarter, as Dr. Staudigl said. I'm sure bake into your quarterly assumptions that we still have the ramp effect in the third quarter.
Super. Okay. Just thinking about the inventory build, it feels a little bit like a rerun of last year, where you use a lot of the early volumes from Tennessee to build inventories. At which point do you think you will be selling openly into the market, full volumes from Tennessee without inventory build?
Depends on the recovery of the market, I would say. As I said before, I think the market will recover again in the second half.
Great. Thank you.
The next question is from Michael Schaefer, Commerzbank. Sorry for interrupting.
This was not us.
Mr. McLoughlin, are your questions answered? I will go further to Mike Schaefer, Commerzbank, your line is now open.
Thanks for taking my two questions. Keep it short. On the polymers side, back in mid-June, you announced a 10% price increase effective July 2018. My question is, do you think that this is sufficient in order to cover what you now assume as the cost run rate for the second half? It looks like. This would be my first question. The second one is on silicones. You mentioned in the call early on that basically the primarily standard grades have been showing very strong price increases, while specialties are still lagging, basically, on the back of your terms of the contract. Is it fair to assume, basically, that looking into specialties and heading into 2019, that the bulk of price increases may come from there heading into 2019? These are my two questions. Thank you.
For the pricing reasons, I said that, yes, standards are much stronger, but that's part of the nature of that business. I highlighted that specialties haven't moved so much, but they are also priced at a different logic. It's more value-based pricing, while the standard prices are commodity-driven. It's supply-demand, and the value is created by the customers. They need to face the prices that are possible in a specific market environment to then pass it on, as we do need to pass on raw material price increases to our customers. That basically leads me to your first question on polymers. We suffered a tremendous price hike along the raw materials in this year that was much bigger than we originally expected. We pushed out the assumption for easing of raw material prices further and further.
That's why we see the second half of polymers from its performance similar to the first half, although we don't have the plant turnaround as in the second quarter. Overall, it's a challenging year, but we will see different times, and we push hard to increase the prices for our products to pass it on as far as possible.
Okay. Thank you.
Operator, ladies and gentlemen, this concludes our conference call today. We will be back on October 25th with our Q3 call. If you have questions until then, please contact the IR department. Thank you.
Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.