Conference call on our Q2 2022 results. Dr. Christian Hartel, our CEO, and Dr. Tobias Ohler, our CFO, will take you through our prepared slides in a minute. The presentation is available on our webpage under the caption Investor Relations.
Please note that mentioned comments during this call will include forward-looking statements that involve risks and uncertainties. I encourage you to review the safe harbor statement in today's press release, the presentation, and/or any report regarding risk factors. All documents mentioned are available on the website. Chris?
Thank you, Joerg. Welcome, everyone. Q2 was another very strong quarter with solid demand in all of our segments. We reported sales of EUR 2.2 billion in Q2, which is up 45% year-over-year. EBITDA was at EUR 626 million, reflecting a strong performance across the entire portfolio. Silicones and Polymers again saw strong demand and delivered both year-over-year and consecutive sales growth.
Both divisions exhibited strong pricing power, enabling earnings growth despite unprecedented raw material and energy headwinds. Tobias will tell you more about that. Polysilicon stayed tight and benefited from higher prices, but earnings were held back by higher energy and silicon metal costs compared to the previous quarter. After a force majeure in Biosolutions at the start of the year, we are now back to full operations.
We successfully closed the SICO transaction during the quarter, which we announced last year. The joint venture is an important step in our strategy to expand the share of high-margin specialties in our silicones business worldwide. SICO Performance Materials operates very profitably. It closes the technological gap in our specialty silicones portfolio. The acquisition also helps to drive the regionalization of our business in fast-growing markets.
We welcome our new 500 employees to the silicones division at Wacker. Wacker has formulated new diversity targets. By 2030, women should hold one in three management positions. We are accelerating our growth outside of Germany, focusing on serving our customers in the regions. Therefore, we will have more international managers to ensure that we have the right local experts. Wacker plans to have every second management position outside of Germany.
We are convinced that diversity makes us more flexible, makes us more creative, makes us more successful, and creates an even stronger team than today. Looking at page 3. The ongoing war in Ukraine has triggered a geopolitical crisis. Uncertainties around the gas supply from Russia dominate the political agenda and are a reason for concern for the european chemical industry.
Gas supply disruptions have triggered the second level of the German gas emergency plan. Our production and our energy hedges are unaffected. However, the effects on the market prices for electricity and gas have been dramatic, as seen in the charts on the left-hand side of the slide. Wacker is prepared, w e are prepared. We have a long-standing energy hedging policy in place, which has shielded us so far from some market turbulence.
In February, we set up a task force team to examine operational and technical issues and to come up with solutions for various scenarios. Natural gas is critical to our chemical plants, which are used to produce both steam and electricity in our highly efficient co-generation plants. Should there be a gas shortage, we would reduce our gas consumption by only producing steam, not electricity.
We could offset the lower electricity production with higher purchases from the grid. Now, please note that the grid regulator considers our gas turbine in Burghausen as system relevant for the stability of the regional high-voltage power grid. Even if the gas shortage were to escalate, we expect to maintain the system relevance and receive sufficient gas to run our power plant. If there's a further necessity to reduce our gas consumption, we could use alternative fuels for steam production.
So, we do have some opportunities to compensate for the consequences of potentially lower gas supplies. It's also true, as with many other industrial companies, if there were to be a major supply restriction for natural gas, this would have an impact on our production.
Now, as a precautionary measure, or a measure of prudence, if you want, we therefore included an additional charge of EUR 200 million- 250 million at the lower end of our EBITDA forecast, in addition to the price increases already expected for energy and raw materials. Now, coming back to business again. We had a strong first half year, 2022, with new best marks, sales and earnings. Going forward, we remain optimistic despite the obvious challenges.
Therefore, we are increasing our full year guidance substantially. Our new group guidance for 2022 now looks for sales between EUR 8 billion and 8.5 billion. For EBITDA, we expect a range between EUR 2 billion and 2.3 billion based on our own operational performance, including the provisional charge for energy, the precautionary measure, and the raw material inflation in case of natural gas curtailment. The lower range of the guidance would be at EUR 1.8 billion.
Overall, EBITDA guidance up to EUR 1.8- 2.3 billion. Now let's look beyond today and focus on how we see our future shaping up. We have shown an outstanding performance this year, and we are delivering towards our strategic targets despite adverse conditions. Let me quickly recap our strategy and targets as presented at our last CMD in March.
We want to grow our business beyond sales of EUR 10 billion with an EBITDA margin of over 20%. We are focused on profitable growth and ROCE should be two times our cost of capital. We will focus on chemical specialties, delivering high value for our customers. We will expand our biotechnological capabilities, growing sales in this area with earnings above the group average. In polysilicon, we focus on high-quality applications in the semiconductor and high-efficiency solar markets.
Our recent CMD was about accelerating Wacker. In the past month, we made good progress towards our new 23 targets. In silicones, we opened a new production site in India, close to Calcutta, and we are expanding our capacities in Germany. In biosolutions, we broke ground on an mRNA competence center in Halle and on a dedicated research center for our biotechnology R&D activities in Munich.
In Ann Arbor, we opened a new regional headquarters and innovation center. Here we will develop future silicone and biotech specialties. In polymers, we are doubling our capacities in Nanjing. Beyond these milestone projects, we have launched some highly promising projects. We've started a feasibility study to expand low-carbon silicon metal production capacity at our Norwegian site in Holla . We are looking to expand our site in Charleston for our silicone specialties production complex.
We will keep you posted on how these and other exciting projects are developing. These projects will allow us to strengthen our position in key markets and service our customers even better. I invite you to look at the appendix to today's presentation. Here we give some additional details on a few of these milestones. Now, before I pass on to Tobias, let me provide another perspective.
Sustainability is a very important pillar of our strategy. The massive inflation in power and gas costs has accelerated the drive for energy savings, smart construction, electrification, and power generation from renewables. These are all sectors where Wacker provides essential materials and is a leading solution provider. Now, looking only to renewables, Europe now targets to increase PV solar installations to 600 gigawatts by 2030, requiring some 50 gigawatts per year.
This is a step change, representing more than twice the level installed on average in the last three years in Europe. The current natural gas crisis has certainly increased the importance of energy independence in Europe and abroad. I'm absolutely convinced that the response to the current crisis will trigger significant demand growth for our products today and into the future, supporting our ambitious 2030 targets. In the very short term, the coming months may be challenging.
Rising raw material and energy costs and stressed supply chains are already playing out. Potential demand uncertainty from inflation is expected by everyone, but hasn't really materialized yet. All of this puts a heavy strain on the global economy and will probably also demand a lot from us at Wacker. We are convinced that with our strong Wacker team, our new sustainability and growth goals, and our demonstrated pricing power, we have found good long-term and viable answers to these challenges. Tobias?
Thank you, Chris. Welcome. I will now walk you through our Q2 performance and provide an outlook on the full year and on Q3. Let's begin with the P&L on page 5. Group sales increased by 45% over Q2 last year. Price was the single largest driver. Continued volume and mix improvements and the stronger U.S. dollar supported the positive sales trend. Gross profit increased year-over-year to EUR 646 million.
The gross profit margin came in at about 30%, reflecting firm pricing. The operating result increased to EUR 507 million, more than twice as high as last year's. EBITDA was EUR 626 million. Net income from the period was EUR 391 million. Earnings per share amounted to EUR 7.67.
Moving on to page 6, the balance sheet. It came in with a higher equity ratio of over 50%. Shareholder equity is now at EUR 4.6 billion, up from EUR 3.1 billion at the end of last year. This was primarily due to the strong earnings and the significantly lower pension deficit following a higher discount rate.
Working capital increased due to high sales volumes and raw materials to EUR 1.9 billion. On page 7, you see the significant change in our pension deficit. Our pension liabilities are now at EUR 664 million. This is roughly EUR 2 billion lower than what we saw at the end of 2020 and about EUR 1.1 billion lower than at the end of 2021.
Since the end of last year, our pension liability saw a decrease of over EUR 23 per share. This is really significant and you may want to recognize this change in your valuation models. Silicones continued the strong performance shown in Q1. Q2 sales were EUR 906.36 million, about 44% higher than last year. Sales were supported by strong specialty pricing.
Silicones EBITDA in Q2 was EUR 277 million, resulting in a 29.5% margin. We saw the strongest increases in health care and consumer applications. The Q2 results include SICO, consolidated since May first, contributing EUR 23 million to sales and EUR 8 million to EBITDA. Overall, H1 sales came in at over EUR 1.8 billion and EBITDA at about EUR 560 million.
Looking into Q3, we continue to see pricing and volumes largely stable for specialties. However, some segments like construction or textiles see slowing demand. Given the strong performance in Q2 and strong volumes and specialties, we now update our guidance for the full year. We now see sales at about EUR 3.5 billion with an EBITDA between EUR 900 million and EUR 1 billion.
Polymers achieved Q2 sales of EUR 553 million, 37% over last year. We protected our margins with over ten pricing rounds since the Q1 of 2021. EBITDA came in at EUR 91 million, benefiting from a good cost performance, strong demand and our pricing efforts. Looking at H1, polymers came in with sales of close to EUR 1.1 billion and an EBITDA of about EUR 180 million.
Today, we see some signs of weakening demand, particularly in Europe and China, as well as some destocking at our customers. Despite this, we keep our guidance for Polymers unchanged. We see sales at EUR 2.1 billion with margins at last year's level. Polymers benefits from higher volumes in all regions, p olymers will continue to raise prices matching input cost inflation as demonstrated last year.
Please note that the Q3 performance will be held back by a scheduled turnaround at our plant in Burghausen. Biosolutions reported sales of EUR 84 million with sales in bio-ingredients accelerating. EBITDA came in at EUR 8 million with a force majeure situation holding us back through May. Biosolutions achieved EUR 161 million in H1 with an EBITDA of EUR 8 million. For the full year, our Biosolutions forecast needs adjustments.
We continue to see a low double-digit percent increase in sales. Segment EBITDA will now be significantly lower at about EUR 25 million. Here we adjust our last guidance for a customer not servicing its contractual obligations. Polysilicon reported Q2 sales of EUR 568 million or 60% higher than last year.
Prices through the quarter sequentially were higher with very strong demand in both solar and semi. Q2 EBITDA came in at EUR 240 million. Results were held back by substantially higher energy and silicon metal costs. In H1, Polysilicon achieved sales of about EUR 1.1 billion and EBITDA of about EUR 440 million. Solar pricing is firmer for longer than initially expected. With continued strong demand for solar and semiconductor products, we update our forecast for Polysilicon.
We now expect sales of about EUR 2.1 billion. Given the strong pricing into Q3 and with higher energy and silicon metal costs, we guide to an EBITDA between EUR 700 million- 850 million. Moving on to the net financial position on page 12. We recorded a net financial asset of EUR 119 million at the end of June. Free cash flow year over year was somewhat lower as working capital increased.
Cash flow for long-term investing activities reduced our cash balance by about EUR 340 million, reflecting our strategy of investing in growth and mix improvements. This position also includes a payout of EUR 165 million for 60% of SICO Performance Materials and our share in their working capital. Please bear in mind that M&A comes on top of our full-year CapEx guidance.
A significant factor in cash outflows in the quarter was our dividend payment of 8 EUR per share. This reduced our cash balance by about EUR 400 million. Lease liabilities increased as we opened our new regional headquarters and innovation center in North America. On page 13, our updated group guidance for 2022.
First, let's recap our energy hedging and raw material situation. We have a long-standing policy in place. We typically hedge our energy exposure on a rolling forward basis for the next 36 months, with a decreasing coverage over this period. Today, we are largely hedged for the remainder of 2022. For 2023, we are about 2/3 covered and for 2024, about a quarter. Last year, we spent about 7% of sales on gas and electricity, which was about EUR 450 million.
In 2022, we now expect our energy bill to slightly more than double. Adding the raw material cost increases, we now expect our total raw material and energy bill to increase in the order of EUR 1.5 billion over last year and this is incorporated into our full-year guidance. Let me repeat what Chris said about our guidance. We see full-year sales between EUR 8 billion and 8.5 billion.
Following a strong operational performance, we expect to reach EUR 2 billion- 2.3 billion in EBITDA before any potential gas shortages, which we estimate could have an impact in the range of EUR 200 million 250 million. Taking also this into consideration, our full-year EBITDA guidance range is EUR 1.8 billion- 2.3 billion.
Other changes to our guidance are on the net income, which we now see clearly above last year and on the EBITDA margin. The margin is now expected to be on par with last year. Looking at Q3, we see our businesses largely continuing their performance into Q3. In silicones, we are seeing some slowdown in demand and in certain segments, especially in construction and textile.
Pricing is firm in specialties, and we have a strong order book for specialties. Polymers report some signs of weakening demand in Europe and China and some de-stocking at our customers. The teams continue with their pricing strategy, effectively sharing cost inflation. Polysilicon continues to move ahead with very strong demand from both its key end markets, semiconductor and solar. Biosolutions makes good progress in bio-ingredients and biopharma.
Putting all this together on Q3, we see a strong performance in July and expect a good Q3. Looking to our balance sheet, we are soundly financed. Our businesses are highly cash generative, and our CapEx drives growth and value. We have shown with the biopharma and SICO transactions that we can move swiftly and decisively on selected M&A opportunities, and we continue to screen such bolt-on opportunities.
Summarizing, we have leading market positions, great technologies, and the right strategies to convert these strengths into better service for our customers. We continue to do our homework, and we are well prepared to address near-term challenges and to reach our aspiring targets for 2030. With that, operator, we're ready to take questions.
Thank you. So will now begin our question and answer session. If you have a question for our speakers, please dial 0 and 1 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 0 and 2 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. The first question is from Matthew Yates of Bank of America. Your line is now open.
Hey, good afternoon, everyone. A couple of questions then, please. Firstly, another exceptionally strong quarter in your silicones business. Perhaps you heard some of the comments from Dow expecting a slightly softer Q3 due to some supply additions in China and weaker demand generally in Europe.
I know you've worked very hard over recent years to improve the mix of the portfolio into more specialty products, but as you look at the back half of the year and what seems to be a broad economic slowdown, how do you think about the resilience of your specialty products, both from a volume and a price perspective? My second question on polysilicon. Not sure if you and the team have had the chance to read all 700 pages of the bill proposed by the U.S. Senate overnight.
Is your interpretation that Wacker will now be getting a $3 per kilogram tax credit on its domestic production? If so, does that make you think in any way about extra CapEx investments to expand capacity? Would you stick really with the strategy of just allocating capital on those areas where you've got fundamentally good market shares and pricing power? Thank you.
Matthew, Tobias here. On your first question on silicones. As I said, we are seeing a strong continuation into July. Yes, we also see some slower order entry, also for specialty, but especially there we have a very strong order book. We have largely a rollover of pricing into Q3.
I think we will continue to benefit from mega trend that silicones I mean play a critical role in. We would see some softening and it very much depends on that softening in overall demand. For the time being, we are working from a very strong order book and prices are firm.
Okay. Matthew, I will answer on the second question you asked on polysilicon. Well, I haven't read all the 700 pages, but rest assured that our team, they are of course heavily into that. Well, in general, it's, I would say, a positive message if the solar supply chain gets additional support regional wise.
You also know that program in the EU, REPowerEU, is, you know, a similar thing. What both have in common is, I think we are at a preliminary stage at the moment. It's really hard to judge. It's not yet a law. It's not yet in place. We have to very diligently look into this. The trend of reshoring, definitely we see that.
I think what the challenge might be for the market is that today wafering especially and the ingots are made in China, and I don't think it's a quick fix to bring them to Europe and also to the U.S. So again, in a nutshell, it's an interesting opportunity but w e'll also look at it. At the current stage, would that change anything in our investment strategy? No, definitely not. As you said, we keep focusing on projects where we have a high market share and a good return and a high power of pricing.
Thanks, Christian. Thanks, Tobias.
The next question is from Jaideep Pandya of On Field Investment Research. Your line is now open.
Thanks. The first question really is around the whole energy debate in Europe. Chris, when you're discussing with the governments in Europe, how aware are they of the situation in the solar value chain, which is basically a repeat potentially of the gas situation where Europe or rather rest of the world is very heavily dependent on China.
And so, how willing are they to sort of provide you with support and the solar industry rather with support on whether it is tech subsidies or whether it is, you know, whatever carbon credits or what have you, to really ensure that the elaborate solar plan that they have actually materializes and they're not importing everything just from China.
The second question I have related to this is we're seeing a lot of vertical integration in China with investments in silicon metal from, you know, non-silicon metal players. Is your view structurally that in the longer run, silicon metal is gonna be a bottleneck for the solar polysilicon and silicone business?
Then the third question really is on Biosolutions. Could you provide us with sort of more 2023, 2024 pipeline update in terms of what you expect from Genopis, you know, in terms of contribution from the, you know, German government and the Wacker pipeline, excluding all of this. You know, should Biosolutions go towards the EUR 75-80 million level in EBITDA on a 12 to 18-month view, or is there something blocking that? Thanks a lot.
Okay, Jaideep, thank you for your questions. Let me start with the first one on the energy debate in Europe, and I mentioned this program on REPowerEU. Yes, we want to take an active role and also we talk to the government and, you know, our message is, you know, in the solar supply chain, we are already here.
If you talk to us, you talk to the guys that are already have capacities in the ground. I think the German government is well aware that the reshoring debate is getting difficult if you don't have the right setup or, you know, conditions. We have been lobbying for many years about a competitive industry power price.
I think that is still, for me, the essential part if you want to reshore the solar supply chain into Europe. The positive message is that, you know, in the program of the German government, the current German government, you see that industrial power price has been taken up as a measure.
We also got reconfirmation from the government that in the fall of this year, there will be some industrial power prices, or I think they call it, industry contracts, which they want to develop for different industries. We haven't seen more details on that, but we keep a close touch on that, definitely. Then your second question was on China and silicon metal. Will that be a bottleneck going forward?
I mean, what we see is that there are different projects on silicon metal taking place both in China but also globally. The key is of course having competitive power pricing. There are some expansions also in Indonesia, which we have seen lately. We published that we closely look into options for expanding our Holla site.
From that perspective, I don't think that the world will be running out of silicon metal. Again, it needs the right setup and competitive power is the key driver for that. Then your third question that was on the Biosolutions pipeline update, CMO, I think specifically also PD&A.
Well, I cannot disclose any details on these projects, but I can tell you we do have a good pipeline filling up with projects from different stages for clinical trials. That also the team, the new team in San Diego, which is on board since the beginning of the year, is very strong in acquiring new projects.
You also know in the pharmaceutical industry, not every project is successful, and it takes some time. We will definitely keep you updated if there are progress to report. In many cases also, our customers are the ones who don't want us to speak about specific projects.
All right. Thank you.
The next question is from Chetan Udeshi of JP Morgan. Your line is now open. Chetan Udeshi.
Hi. Sorry. Just a few questions. I'm just looking at slide number 6 of the presentation, which gives the sales bridge. I see there, you know, there is a EUR 538 million price benefit. On the bullet upstairs, you talk about EUR 600 million of cost increase.
It suggests the net pricing is negative, which I don't think is the case. Can you help us understand that bridge and the raw material number that you have provided? That's the first question. The second question was just around the hedging impact. Clearly, in this environment, you know, having that long-term hedging is proving beneficial.
Can you help us understand what is the average hedging rate that you have for 2022, both for gas and electricity in Germany? As we think about rolling it forward into 23 and 2024, what is you know, the average rate that you think we should be using for next two years? Thanks.
Chetan, on your first question on the page with the bridge in our price increase by sales price increase by EUR 538 million in comparison to the EUR 600 million in raw material and energy input inflation. This number 600 is for the first half of the year, not for the quarter.
In the bridge, you see just the Q2 . We definitely have a net pricing benefit in the Q2 . The 600 million in the first half, I mean, we also talked in the last conference call about trading effects from some beneficial costs from the last year that we have rolled into the first half. I mean, this would go away in the second half, obviously.
We have a total number on input cost inflation in the magnitude of EUR 1.5 billion. Approximately EUR 1.5 billion means EUR 600 million in the first half, so some 50% more in the second half. This is also an idea how we come to our guidance.
On the second question, hedging, we have this hedging policy in place for many years, and we do it in a rolling manner and f or the remainder of the year 2022, we are largely hedged, which is good news. I mean, we have some open business still, but I think it's at a very high level. For the next year, we are hedged at about 2/3 of our energy requirements and f or 2024 at a quarter. I cannot provide you with the prices that we fixed, but I think you can come up with an idea from us doing this on a rolling basis. I think this is a good way to think about it.
Thank you.
The next question is from Thomas Swoboda of Société Générale. Your line is now open.
Yes, good afternoon. I have two questions, please. Firstly, two questions actually on the energy situation. Coming back on the issue of increasing prices, there is apparently a decision in Germany on surcharges on gas prices from October. Could you give us an indication what headwind this decision would mean to you for the remainder of the year and if possible for next year?
The second question is, I simply would like to understand what is in your buffer of EUR 200-250 million you included at the low end of your EBITDA guidance. If I understood you correctly, in case of gas rationing in Burghausen, you would basically just need to pay up for the electricity, whatever the price will be. Is this? Am I getting this right? Secondly, I was missing Nünchritz. What would happen to Nünchritz, in such a case, in rough terms, obviously, and is this included in the EUR 200-250 million? Thank you.
Thomas, on the headwind of a potential surcharge for gas that was discussed, I think I will come back to the 2-50 million question that you also had, that second one. This would be part of that scenario. The order of magnitude is about 15-25 EUR/MWh that would be rolled on all gas customers.
Also on us, and also on us with the high hedging level that we have. If you take our total consumption of gas, which is about 4 TWh a year, take this maybe for the remainder of the year, this is 1 TWh, and multiply it by 20, you come to EUR 20 million. This is the amount that you can calculate and i f you take it for the full year, it's obviously 4 times that number.
Thomas, let me make a general remark again before we talk more in detail on that EUR 200 million-250 million buffer. It is, you know, to be very clear, we included that as a precautionary measure, as a measure of prudence. The key point is that our biggest site, which is Burghausen, with their co-gen plants, this is regarded as system-relevant for supporting the high-voltage power grid in that region. We have clear signs that this also will be the case in a situation of gas curtailment.
Nevertheless, as I said, if there's a gas shortage, we could use gas consumption and not produce electricity or less electricity, and as you rightly said, we would buy it from the grid. But again, this is not the scenario which we would consider as the most likely. We did this calculation, and Tobias can give you some more light into that.
Thomas, we did the calculation and thinking through potential scenarios of gas curtailment. You came up with many different ones, and we tried to pick one and use some assumptions. For example, we assumed that there's a true gas curtailment also for Wacker, in contrast to what Chris just said, of 20%-25%, starting from September first so 4 months of the year and t hen we did the calculation.
We said, okay, we would then as Chris said, we would produce less electricity with our own power plant and purchase more, definitely at much higher price. We have assumed price escalation because we are in a situation of true curtailment of gas, which goes beyond today's price levels. I would not disclose those, I mean, because it's just numbers.
The majority of the impact is definitely from this additional cost and price escalation. The majority of the impact is from Burghausen, but Nünchritz is also included in that calculation. We also included about EUR 20 million surcharge that could happen in the gas market. I think it is definitely a cost estimate for a serious situation, but it's not worst case.
It's really hard to assess because no one can really foresee what a gas curtailment would mean to customer demand and or the network effect. It's such a complicated model and w hat we also did not include in that, I mean, we are working with a strong team on preparing countermeasures.
We do have something in place also to mitigate potential gas curtailment, but we assume that calculation that maybe it doesn't work from the first day because we already started in September first with the scenario calculation. It is definitely that there's many open questions. I think I would strongly argue against using that number and taking it by 3 times 3 because it's 4 months, and then you extrapolate it to 12 months because no one really talks about a gas curtailment of 20%-25% for industrial users for a full year.
I think in such a situation, you would definitely also have to include much better network effects on the supply side and on the demand side, and I think no one can really do this today. So again, this is a measure of prudence, this scenario, which we calculated. It is not the most likely scenario, definitely not. Also for both sides, Nünchritz and Burghausen, as Tobias pointed out, the task force teams are working on also using alternative fuels for steam production. That's another option which we obviously also include and evaluate.
This is all very helpful. Thank you very much.
The next question is from Sebastian Bray of Berenberg. Your line is now open.
Hello, good afternoon and thank you for taking my questions. I have three, please. The first one is on the other segment. Is there something going on here in Q2 that wasn't just to do with Siltronic? The reason that I ask is that if I take the Siltronic pro rata income for Wacker, there appears the underlying result appears to have been more favorable for Wacker than in previous quarters.
My second question is just to clarify a number of the statements that have been made related to power costs and other figures for Wacker. Can I confirm that the EUR 450 million mentioned for 2021 refers to the global natural gas and power cost and not just the component as it relates to Germany that would be at risk, if the gas is cut off?
Finally, a quick question on following on from Matt's earlier on the potential solar tax credit legislation in the U.S. I appreciate it's early days, but my understanding is that a large portion of the volume at Tennessee goes to the semiconductor industry. Would the credit as it stands apply to everything, semi and solar, or just solar? Thank you.
Sebastian, on the first question on the others result, I think it's mainly Siltronic, but there's another effect, and it is also connected to energy. We do have our own hydropower plant in Germany, and this runs at market prices.
As we had a strong deviation between planned prices and market prices that showed up in the quarter, I'm actually not sure whether this gets rolled into the divisions as energy consumers at the year-end. This an uplift in the Q2 and first half. To your second question, the EUR 450 million in energy costs, this is truly a global number. It's not just Germany.
Bear in mind that we have also Norway, where we run on hydropower for our silicon metal production, and we have the Tennessee, where we also have a significant power consumption for our polysilicon production.
Your third question was on the polysilicon credit in the U.S. so my understanding of that program is, it's currently focused on solar.
That is helpful.
Although the U.S. government, I think, is also trying to bring in more semiconductor stuff in the industry. But so far from our understanding, early stage is that this is focused on solar.
That is helpful. Thank you. Just to follow up on the point of clarification, the EUR 450 million refers to global natural gas and energy consumption. Does the 1 TWh refer to global or German natural gas consumption on an annual basis?
I mean, it's mostly Germany. I mean, there's not so much gas consumption outside because we operate here in Burghausen, our cogen plant is producing electricity and steam. In Nünchritz, we produce steam. As we don't have any silicon upstream production outside of Germany, besides our joint venture in China, that 1 TWh is mainly Germany.
That's understood. Thank you for taking my questions and congratulations on a good set of results.
Thank you, Sebastian.
The next question is from Geoff Haire of UBS. Your line is now open.
Hi. Good afternoon, I apologize for going back to energy again. Could I just clarify, the 1.5 billion that you're saying energy will cost for and raw materials will cost for 2022, does that include the EUR 200 million- 250 million that you're putting in as a buffer? And then secondly.
No.
No, it doesn't.
Simple answer, no, Geoff Haire. No.
Okay.
As we described, the 2-50 is a scenario which really goes beyond to what we see today. It means that there would be 20%-25% actual curtailment to the industry also affecting Wacker. We do not believe that with our position of our cogen plant for the grid stability that it would hit us, but we just made the numbers in order to also give you a hint what magnitude would be expected.
Okay, thanks. Could I just ask, obviously the mitigating points that you'd make if gas was curtailed, do you expect that to increase your cost base as well? Is that captured in the number?
Uh.
As in unit cost.
No, it wouldn't increase our costs necessarily. The mitigating measures are mainly running our steam production on other fuels, which is basically oil. Right now, oil is even at a lower price than gas, if you take it by a MWh .
Okay.
It could also move in such a scenario, you could expect also oil prices going up as a substitute fuel. On the other hand, there's not so much additional demand if you consider the overall oil market, that this should have a I mean, there's a moderating effect because not everything can go from gas to oil.
Yeah. Okay. Thank you.
The next question is from Andreas Heine of Stifel . Your line is now open.
Yeah. The first question is on silicon. First off, thanks for the promising guidance for this segment. Usually, you always underestimate this, and this sounds now really promising. Thanks for that.
Looking into the silicon and on the sales bridge you have, if I add the volume impact in the first and Q2 on this level, that's just EUR 100 million, and the price increase is EUR 1 billion, and that's probably not much different for silicon so t hat volume is not the main driver, but prices. Here, specifically the specialties, you mentioned as being a driver for earnings increases.
As they have increased that much, is it possible that if you see a softening, then this volume impact, again, it was not the driver, that the price effect reverses and that you see a normalization in these specialty margins as well? Or is that too negative view on this? Second, on polysilicon only on Q3, if I look on the prices we can follow every week, and having in mind what the US dollar did, being so strong, we will see a quite tremendous increase in polysilicon prices from Q2 to Q3.
Is that what you expect as electricity price increase, what you have anyhow hedged, really that high, that will all offset this price and FX increase, or is that some caution you have put in there for, let's say, the last months of prices you might not see from today's perspective? These are my two questions.
I go first for the silicones and then I start with polysilicon 'cause I just wanna add something. We see our specialty pricing in the quarter. We will do everything, I mean, as we have increased prices successfully to hold them a nd until there's really an ease on the demand side and also an ease on the input side, I mean, we want to defend that position.
In our guidance, we have assumed two things. First half of the year had the benefit of trailing raw material effect, t hese go away in silicones. This will, I mean, not be repeated in the second half and then have assumed a slower Q4 .
Although we are 85% specialties, and this is where we focus on, we have a 15% business which might get affected also by lower pricing. It's a combination of volume and prices, but definitely we would continue to defend our specialty margins. For polysilicon, I think similar question. Again, here the trading effect helped the first half.
We now see sequentially higher costs, a little bit on silicon metal, but also on electricity, even including our hedging. Then we have some open volume. We are not entirely hedged, and this will come in at higher prices. Here also again, we have assumed some moderation in the Q4 .
Yeah, depending on the view, I mean, everyone can have an opinion on that. If it goes straight and if it even increases further, I mean, we could come to higher numbers. But right now, I mean, we see a strong supply-demand. We don't see any signs of change. If you want to have that view that it goes in a straight line, feel free to do it.
Thanks.
Yeah. There's not much more to add from my side, Andreas. I think it's really. Just coming right to your question, do we think it will completely offset? No, we don't see that at the moment. That's the reason why we have the guidance where it is EUR 5,700- 850 because of less trading. Less trading effect and higher raw materials is the second.
Just take a little bit of a deduction from the EUR 440 that we had in the first half year for the trading effect.
I mean, you are at similar level in the second half, if you go to the upper end of the guidance, you have the benefit of potentially higher prices, but also you have higher input costs. I think that's how those numbers make sense.
Makes sense. Thanks.
The next question is from Markus Mayer of Baader Bank. Your line is now open.
Hi, good afternoon, gentlemen, and also two questions on polysilicon and one on biosolutions. On polysilicon, you also mentioned in your press release that the semi-grade polysilicon there have been price increases. I know there are mainly long-term contracts, but for their contracts which have been renewed, was the price increase similar than for the PV polysilicon?
Also, what should we expect then, how this delayed effect of price increases should be? Is this then something that we should expect the semi-grade polysilicon prices to have the same price level or have caught up the price level in 2023 compared to the solar grade? That was my first question.
My second question is more a long-term question, also on the semi part of polysilicon. I saw a research article from the MIT and also University of Houston on gallium arsenide as a competitive product for polysilicon for the semi industry. Is this something which worries you long term as this semi part should grow further in your portfolio?
Then my last question would be on biosolutions. Here you mentioned a former customer not servicing their contractual obligations. In this respect, I wanted to ask, have you already received the payment of CureVac or is this still outstanding?
Markus, I start with the first one on your questions around semi pricing for our polysilicon. I mean, fundamentally, this is a different business. This is a specialty business which we focus on highest quality standards. That's why we also have in this business long-term contracts also with firm pricing.
Nevertheless, we see sequentially higher prices because also in this area, we are sharing cost inflation with our customers. We are also with a new contract that come in because we are increasing in volume, we just go at a higher price. If we have very limited additional volume that we can supply to our customers, we can sell it at higher price. It is by far not the same dynamic as the solar market.
For that question, I mean, you should not try to mimic the semi business with the solar PV business right now. We are in that business for very good reasons. Every second chip in the world runs on Wacker Polysilicon. We are investing there also to the benefit of our customers. But we are not tracing the solar PV market as the reference for our semi business. Okay then, Markus, I would go for the second question. You asked for, I think it was competing technologies for semiconductor, right?
Yeah, exactly.
Yes.
For arsenide.
Correct. Actually, the answer is pretty similar if you would have asked for PV. I mean, yes, we definitely look at these technologies and what they bring to the market. I think both PV, solar, and semiconductor is relying today so much on the technology based on silicon, high-pure silicon, that all new applications, whatever it will be in PV, we talked, I think last time also about perovskites or thin-film, these will be niche applications, and they will not replace the main technology which is based on silicon.
I think we heard about these technologies, what you're referring to, which might lead to some benefits, e.g., in the auto motive sector, I think. For me it will only be an addition. Also keep in mind how much capacities there are already there in the market for these existing capacities. I mean, there are billions and billions invested in these capacities, and you cannot just only switch them, and they have very efficient production processes and supply chains.
For us, silicon will be the industry workhorse for the next decades or maybe even more than decades, a century to come. Your third question was on Biosolutions, with the customer not playing with the rules and not paying the contracts. As you know, we don't disclose name of customers or suppliers. Unless both sides agree on publishing something on that. I cannot disclose the name here, but I can tell you it was a substantial contract that is involved here.
Okay. Thank you so much. And th e last question, t his customer is not yet in Chapter 11 or any kind of situation where you would then expect not to get finally the money you deserve. This is correct?
We don't expect to get money this year, but we are working hard on and also in the process of arbitration, and we think that it might be settled then in the beginning of next year or middle of next year.
Okay, perfect. Thank you.
The next question is from Charlie Webb of Morgan Stanley. Your line is now open.
Brilliant. Afternoon, everyone. Thank you for taking my questions. I know we're running up against time. Maybe just two quick ones. First just off on polymers. You obviously note some signs of weakening demand in Europe and in China, some destocking from customers. Can you just kind of provide a little bit of color, kind of where you're seeing that, and what. You know, is there any pressure on pricing?
Obviously, you put through lots of surcharges and done a fantastic job recovering, you know, very sharp raw material inflation. Just wondering if there's any kind of, you know, kind of reversal of that as your customers look to destock, or do you still see a, you know, still a pretty supportive environment even with a bit of destocking? Just second on silicon metal.
Obviously kind of going into Q3, we saw a kind of very tight situation in China with kind of power availability issues for the Chinese producers. I know we've obviously had capacity closures also here in Europe, that you know given where the costs sit in Spain and some off pulling I think in France as well.
Any kind of sense on whether there's a risk that we get a similar situation in silicon metal kind of heading into the winter period in China? You know how we should think about that for possible further inflation and availability of silicon metal into the end of the year, start of next year.
Charlie, on polymers, as we mentioned, we see a slowdown in order entry from some customers, especially in Europe and China. As this business is linked to construction, I think it's obvious that there's a bit of uncertainty in construction right now, but there's also overstocking from our customers. Apparently, they're trying to correct, and it is construction and the coatings industry. There is no pricing discussion. We are successful in rolling the input inflation to our customers, and we are firm on that.
Okay.
Yeah. Only, Charlie, only on the second question on the silicon metal, do we see a shortage going on at the end of the year? I think, I mean, in general, you know, it's based on the most abundant or second most abundant element on the planet. So I don't think from that perspective there shouldn't be a shortage.
The main driver is more electricity, but you also mentioned this. We don't see signs currently that there should be a shortage of power, and I think you specifically referred to China. So, from that perspective, we do not see a running into a shortage of silicon metal at the end of the year.
Yes. No, I guess more the question is, you know, last year, we saw kind of extreme moves in the silicon metal price. We obviously had some, I know there was some concern around a vailability or procurement into Q4. It didn't end up materializing, right? It was fine. You know, capacity, you know, ramped up a bit more. I know there were obviously CO2 targets and other things on a local basis that kind of led to some of that.
I'm just trying to. Is there any sense that we get a similar kind of a replay again this year? I guess the only difference this time around is, you know, maybe some of the other capacities are out, you know, or most pulled in the West, and that could lead to a more tricky situation. Yeah, that was more the kind of direction of the question.
Yeah. Of course, very good question. Would the same thing repeat again this year? So far, we do not see any signs of that. Keep in mind, I think the power volatility last year in China was mainly driven more by regulatory acts of some provincial governments. We have no sign that this will repeat this year. Of course, I cannot speak for the Chinese provinces. We don't see that at the moment.
Okay. No, that's helpful. Okay. Thank you.
You're welcome.
The next question is from Jaideep Pandya of On Field Investment Research. Your line is now open again.
Yes. Oh, thank you for allowing me to follow up. It's really on polysilicon. It's a bit of a philosophical question really, but I mean, you guys have 80 KT capacity or rather 65 in solar in the Western world, and your biggest customer is China, which you're shipping around 50 KT annually.
You know, if Europe and US actually become serious on reshoring and you're encouraged to keep these capacities in the Western world, how concerned are your Chinese customers that, you know, N-type, which is the next generation product, which you, Tongwei and Daqo are probably the only ones that can manufacture right now, they're difficult to sort of get hands-on for the next 3 years.
In the same light, how much incoming are you getting from your big wafer customers to actually think about expansions and, you know, talk about good old days of prepayments. Just 'cause there's a lot of news flow around this theme in Asia right now, just wanted to check your views on this.
Well, I mean, you're talking, Jaideep, on what you started our talk with on REPowerEU and also solar initiatives in the US and the topic of reshoring. My statement was that I think we will see something on that. We believe this could also be a positive opportunity for us.
Our message always has been, we are on the ground already with the capacities with you, what you just mentioned. Do we need to expand our capacities? Well, I think we have also been very clear on that. We will consider expanding our capacities if there is good business case behind it.
That means there are attractive conditions, especially on power and on raw materials, and also attractive on a contractual basis, so that we would be able to, you know, have a good margin and cover our costs going forward. That's also what we tell our customers all over the world.
Should I understand or should we understand that from the customer side, there is a lot of demand 'cause even, you know, the likes of OCI, which are smaller players and on the upper end of the cost curve, are increasing capacity, whereas you guys are, on an overall basis, not. should we understand that from the customer side, you have a lot of demand, but you really are waiting for support from, you know, getting attractive power price to actually make that decision to invest more in polysilicon?
Well, it's both. It's the customer pull, and the right framework conditions that we would need. That could also, as you mentioned, include some prepayments. I can tell you that we have regular weekly calls with people that want to buy material from us. Again, we are there. We are happy to talk about contracts. We wait for the good combination of having a good contract and good framework conditions for even considering expansion of our capacities.
Thank you. Just one small final follow-up. In Q2, there was a lot of logistics issues with regards to shipments from Germany to China on polysilicon. Imports were down. Do you expect a rebound in Q3 and Q4? Or actually you did not see so Silicon Association in China was sort of suggesting, where imports actually on a country level were down.
Jaideep, we had challenges in logistics and our teams have made everything possible. There's a little bit of a rush always at the month end. I think I would not imply any impact on the import statistics from our side. We are sold out. Our inventory is at zero, and we ship everything with all the challenges to our customers.
Thanks a lot for the opportunity.
Is there no further questions? I hand back for the conclusion.
Thank you for joining us today and for your interest in Wacker Chemie. Our next quarterly conference call is scheduled for October 28th, so in 3 months. Don't hesitate to contact the IR department if you have further questions. Thank you.
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