Earnings Call: Q4 2016

Mar 14, 2017

Dear ladies and gentlemen, welcome to the Wacker Chemie AG at the Full Results of twenty sixteen Telephone Conference. At our customers' request, this conference will be recorded. May I now hand you over to Joerg Hoffmann, who will lead you through this conference. Please go ahead, sir. Thank you, operator. Welcome to the Wacker Chemie AG full year twenty sixteen conference call. My name is Joerg Hoffmann, and I'm the Head of Investor Relations at Wacker. With me are Doctor. Lorch Staudigl, our CEO and Doctor. Tobias Ola, our CFO, who will take you through our presentation in a minute. The presentation is available on our webpage under www.bakkard.com under the caption Investor Relations. But before I begin, let me point you to our safe harbor statement, which you'll find at the beginning of the deck. With this, let me now hand you over to Doctor. Staudigl, our CEO. Doctor. Staudigl? Ladies and gentlemen, welcome to our full year twenty sixteen conference call. 2016 was a year of record for us. Silicones went through the EUR 2,000,000,000 sales level for the first time in history. Silicone's EBITDA contribution was at EUR360 million, the highest on record, testifying for the success of our combined specialty and cost focused strategy. Polymers alone contributed about as much EBITDA to the group as polysilicon following another year of very strong demand for its products. Our chemicals operations contributed 70% of group EBITDA excluding Siltronic and special income. 2016 ended the year with a strong quarter. Strong demand for semi wafers, silicones and for our polysilicon drove performance higher than we had expected at our last call. Current trading conditions suggest that these trends coupled with seasonal recovery in polymers will continue. But before we get there in detail, let's have a look at our results presentation. Starting on Page two, 2016 sales came in at €5,400,000,000 slightly over the prior year, mainly driven by strong demand for our products. Full year EBITDA excluding special income grew at 19 percent year over year, almost twice as fast as expected with the full year results coming in at EUR1.08 billion. As I just said, our chemicals operations saw very strong volumes, especially in silicones. Across all segments, we saw a very good cost performance last year also. Page three then shows how the year shaped up against prior year and our last guidance. You can also see that our net cash flow increased substantially to EUR400 million as CapEx declined to EUR428 million. As outlined Dear ladies and gentlemen, welcome to the Wacker Chemie AG at the Full Results of twenty sixteen Telephone Conference. At our customers' 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. May I now hand you over to Joerg Hoffmann, who will lead you through this conference. Please go ahead, sir. Thank you, operator. Welcome to the Wacker Chemie AG full year twenty sixteen conference call. My name is Joerg Hoffmann, and I'm the Head of Investor Relations at Wacker. With me are Doctor. Rolf Staudigl, our CEO and Doctor. Tobias Ola, our CFO, who will take you through our presentation in a minute. The presentation is available on our webpage under www.bakar.com under the caption Investor Relations. But before I begin, let me point you to our safe harbor statement, which you'll find at the beginning of the deck. With this, let me now hand you over to Doctor. Staudigl, our CEO. Doctor. Staudigl? Ladies and gentlemen, welcome to our full year twenty sixteen conference call. 2016 was a year of record for us. Silicones went through the EUR 2,000,000,000 sales level for the first time in history. Silicone's EBITDA contribution was at €360,000,000 the highest on record, testifying for the success of our combined specialty and cost focused strategy. Polymers alone contributed about as much EBITDA to the group as polysilicon following another year of very strong demand for its products. Our chemicals operations contributed 70% of group excluding Siltronic and special income. 2016 ended the year with a strong quarter. Strong demand for semi wafers, silicones and for our polysilicon drove performance higher than we had expected at our last call. Current trading conditions suggest that these trends coupled with seasonal recovery in polymers will continue. But before we get there in detail, let's have a look at our results presentation. Starting on Page two, 2016 sales came in at €5,400,000,000 slightly over the prior year, mainly driven by strong demand for our products. Full year EBITDA excluding special income grew at 19% year over year, almost twice as fast as expected with the full year results coming in at EUR1.08 billion. As I just said, our chemicals operations saw very strong volumes, especially in silicones. Across all segments, we saw a very good cost performance last year also. Page three then shows how the year shaped up against prior year and our last guidance. You can also see that our net cash flow increased substantially to EUR400 million as CapEx declined to EUR428 million. As outlined for the leverage phase of our growth path, we expect similar net cash flows in 2017. As you saw today, we have proposed a €2 per share dividend for 2016. This reflects about 53% of net earnings, just over the level we have set as a new target at our last Capital Markets Day in October. Looking into the full year 2017 for today, we are confident about our capabilities, but also somewhat concerned about macroeconomic impacts and some pricing trends. We are seeing raw material inflation in methanol, vinyl acetate monomer, ethylene and acetic acid, which will affect our chemicals businesses. We now expect full year 2017 sales to increase by mid single digits over last year with an EBITDA at the level of last year on a comparable basis. If current market conditions remain unchanged during the year, we definitely see additional upward potential for EBITDA over and above our present expectations. Let me now hand over to Tobias for more detail on our financials and an outlook into Q1. Looking at last year's P and L on Page four, sales were driven by volumes and overall performance was held back by price attrition. All segments show similar performance with the exception of Siltronic, where price, volume and exchange rate were balanced year over year. The increase in depreciation from €575,000,000 to €735,000,000 had an impact on gross margins and operating result. As a result, gross profit was down despite a better performance in underlying volume and a better cost performance than in the prior year. Over the next three years, we expect to see depreciation decline back to twenty fifteen levels. If you look at EBITDA performance and adjust for special income, EBITDA was up 19%. In light of top line pressure from lower prices, this figure shows impressively our underlying volume and cost performance. EBIT was lower due to the increase in depreciation. Other operating income improved by €62,000,000 despite lower special income. In 2015, we still booked pre operational expenses and currency losses were also higher in 2015 than in 2016. The net financial result decreased from minus €67,000,000 to minus €101,000,000 The key factor in the change was the lack of capitalized interest as we completed the Tennessee plant during 2016. This had an impact of €17,000,000 Full year tax rate came in as expected at just 28.5%. We suggest to model with 30% going forward. Looking at our balance sheet on Page five, you'll see that non current assets actually decreased over 2015 as we depreciated more than we added to assets. Pension liabilities are up year by year by about €500,000,000 to €2,110,000,000 as the pension discount rate declined from 2.75% for 2015 to 1.94 for 2016. However, compared to Q3 twenty sixteen, our pension liability actually came down by about €460,000,000 as the pension discount rate increased again towards year end 2016 to 1.94%, up from 1.38% at the end of Q3. In 2016, as announced, we advanced €50,000,000 cash as a top up into our pension schemes, which will be booked against pension liabilities in Q1 in 2017. Prepayment decreased by €182,000,000 to €271,000,000 as legacy contracts with prepayments are running out. For the next twelve months, we expect a decrease in these prepayment levels of about €100,000,000 Working capital increased year over year by 15.3% to €1,250,000,000 This reflects the strong operating performance in Q4, which drove up receivables combined with slightly higher inventories and lower payables. I'm now moving to Page six in the presentation. Silicone saw a strong demand for its product and benefited in the last weeks of 2016 from competitive outages. Demand was strong in all regions with an over proportional increase in specialty products. Silicones exceeded EUR2 billion of sales for the first time in history. EBITDA increased by 31% to EUR360 million following high plant loading, good cost performance and an improved product mix. The EBITDA margin in Silicone increased from 14.2 to 18.1% in 2016. Now looking into 2017, we expect a mid single digit increase in full year sales and slightly higher EBITDA headwinds come from sharply rising methanol costs. On the next page, sales in polymers were slightly up as price deflation nearly compensated strong volume growth. Sales reached about €1,200,000,000 Full year EBITDA came in at €261,000,000 17% up from last year. Biggest contributors to this increase were volume growth and a good cost performance including efficiency gains. The 2016 EBITDA margin was a record of 21.8%. 2017 is going to become more difficult in Polymers as then ethylene and acetic acid costs rise. As a result, we expect a significant decrease in EBITDA, but despite this full year EBITDA margin in Polymer should come in above our 16% long term target for the Chemicals segment with sales in Polymer up mid single digits. On next page, Polysilicon. Polysilicon reported sales of €1,100,000,000 as volume growth only slightly overcompensated for lower price and mix effects. Reported EBITDA was down 29 year over year as special income decreased. We also incurred ramp up costs and prices fluctuated substantially during the year. When adjusting for ramp costs and special income, EBITDA margin was 29% versus 33% in 2015. Shipments increased to 66 kilotons in 2016 as all plants including Tennessee were utilized at their respective capacity limits throughout the year. Looking into 2017, we expect sales at the level of 2016 and an EBITDA excluding special income slightly higher than in 2016. We expect volume growth year over year, yet the lower ASPs will largely compensate those gains. On next page, Siltronic reported their full year results today with sales at last year's level, EBITDA increased by 18% to €146,000,000 Key contributors were high plant loading combined with a good cost performance and lower hedging costs. For 2017, Siltronic expects sales over €1,000,000,000 with an EBITDA margin of at least 20%, if not significantly higher. For more detail, please contact Siltronic directly. Net financial debt on Page 11 decreased as guided to just under €1,000,000,000 as gross cash flows increased to €737,000,000 and net cash flow came in at €400,000,000 as cash outflow for investments decreased by about €300,000,000 to €517,000,000 The difference between cash outflow for investments and 2016 CapEx is in the timing of the cash flows. So some CapEx was booked in 2015, but the actual cash outflow happened shortly after the year end 2015. Looking into the first quarter on Page 12, we see strong demand for our chemical operations with order intake over the level of last year. While volumes look good, we are looking with some concern to the recent rise in raw materials, in particular to methanol and ethylene. Polysilicon operates at full utilization and Siltronic guided to a strong 2017. Overall, we expect Q1 group sales at about €1,400,000,000 with an EBITDA clearly above Q1 twenty sixteen. With this, let me hand you back to Rudi. Thank you, Tobias. As you heard, we think we are in good shape. We see some challenges going forward, but our course is clearly set. For the full year 2017 guidance on Page 12, we expect a mid single digit increase in sales and an EBITDA at the level of 2016 excluding special items. With CapEx discipline, our CapEx should stay at about the level of last year leading to net cash flow of about EUR 400,000,000. That said, we believe that the coming year can bring upsides and downsides to this guidance. Should current end market conditions persist, however, we would look to improving our guidance as we move on through the year. This concludes the presentation today, ladies and gentlemen. Thank you for your attention so far. We will now be happy to answer your questions. Operator? You. The first question is from Andreas Heine of MainFirst. Please go ahead. Yes, good afternoon. First, I would like to understand a little bit more what your assumptions are for polysilicon. You're addressing that the average selling price will be down year on year. And you addressed also that that might be due to the prepayments going down. So the contract volume having a lower percentage there. Could you shed some light what you can see right now in Q1? Will we see this already? Or is what we see on the spot market as quite nice price level something we will see also see in higher earnings and price in the first quarter? And maybe anything what you can say to us what you assume from today's point of view what the spot prices, the only thing we can see from the outside, you have put into your guidance assumption? That's on the polysilicon. And then polymers, basically the only thing but obviously a quite harsh impact comes from raw materials. Could you address how much of the raw material headwind you might be able to transfer by higher pricing? And as this is the only segment where you indicate that profits are going down, but that on group level earnings might be flat. It means that the substantial decline of this segment should be offset all of the increase of the three others, which would highlight really a quite significant decline. Could you shed some more light what your assumptions for this segment are? Thanks. Yes, Andreas. Let me talk first on the conditions of the polysilicon market. I think we have seen this last year, this up and down, which was represented by the PV Insights price fluctuation. And within the last few weeks, there was a little bit of a downward trend. And for the year, we simply assume decreasing prices just to be on the safe side because we don't know what will happen. Whether we will see something like last year or not, I mean, if conditions are getting good, of course, we see upside. It's just very difficult to read right now. But looking on Q1 is what we see in this PV Insight, is that something which should come through in the sense of higher prices? Or is the lower percentage of contract volume offsetting this? So basically, I look on what we have seen last year, it was around €60 per kilogram in the first quarter, if my math is right. And looking on what we see right now on the spot market is similar, but probably volume through the semiconductor industry has higher prices and your contract volume has also higher prices. So what is the mix out of this what you can should have clearly already seen in your pocket for Q1? Just to get a flavor on import this contract mix is. I mean, there's a lot going on if you compare Q1 to the prior year, but also if you compare Q1 to Q4. I mean, definitely see that increase in prices if you compare especially the first month of Q4 to the first month of Q1. But on the other hand, I mean, we also had for example higher electricity prices in January. And so I would be a little cautious on just extrapolate that price index into our results. So I think that is a simplification that I mean many would love to use. But I mean our result is basically coming from a strong volume and then our continuous cost improvement. And so everything is going according to plan as we see it. But the mathematics not entirely predict maybe the what we see today. Okay. Thanks. With respect to raw materials, your key question was on how do we pass it on to our customers. I mean, we continuously said, we do have in polymers roughly 25%, which is 50% of the liquid business or 25% of the total business indexed. For this, we pass it on. For the rest, it's more or less value based pricing. And then it very much depends on the competitive situation that we have. So we assume overall for polymers still despite the formula pricing and overall slight price decline, but less than in 2016. But we see significant headwind in ethylene and van and also acetic acid. I mean that more or less comes from higher naphtha pricing which goes back to oil prices, but it also comes from higher coal prices which almost doubled since the trough that we had seen in 2016. So that's why we guide for significantly lower absolute EBITDA, but we are very confident that we will be above our target margin of 16%. Thank you. The next question is from Peter Mackey of Exane BNP Paribas. Please go ahead. Good afternoon, everybody. A couple of questions, if I can, please. First, I wonder I wanted to ask some questions about the volume number in Polysilicon. I was a little bit surprised, by the 66,000 tons that you suggest you shipped last year. I was sort of under the impression that at the nine month stage volumes were something in the low 40s, which suggests a very significant shipment in the fourth quarter, above your production rate. So I wonder if you could just confirm that. And if so, and given the pricing points that we saw, the shift in pricing in the fourth quarter and the fact that you had put inventory strategically into the system, I think, during the third quarter, Just wonder about your thought process of effectively selling out of apparently selling out of those inventories at what were pretty low prices in the early point of the fourth quarter. And the second question was on the just coming back to the prepayments question. So I note, you're talking about prepayment amortization of around $100,000,000 Presume, I think around $20,000,000 of that is Siltronic, so around 80,000,000 for the polysilicon business. Should we read that basically as a lower for longer prepayment amortization program? So you expect now to have some prepayment benefits or some to pricing into 2018 and probably 2019 as well? Thanks very much. Peter, maybe I start with the first two, which are more or less, as I understand them linked. I mean, we reported that we had in September with a dry up in demand built some strategic inventory at our Asian hubs closest customers. So for Q4, there was no big change in that. So basically, we kept this strategic inventory. And so our sales was you could argue close to our production level. And we ran Tennessee as high as we could close to the total capacity. And going forward, see that I mean with the lead time that we have to our customers that we would take the opportunity to again build strategic inventory if prices are low. And that's what we have as clear intention. So I wonder could you apologies, I apologize for interrupting, but could you then confirm were volumes around 20,000 tons in the fourth quarter? And so my assumption of the nine month was wrong. As a matter of principle, we do not comment on quarterly volumes. So I can't help you on that. Sorry. Okay. Thank you. Maybe on the prepayments, yes, there is some prolongation of the prepayments. And there is even on certain contracts, even an inflow of prepayments, although on a much lower basis than in the past. Thank you very much. The next question is from Oliver Schwarz of Warburg Research. Please go ahead. Good afternoon. Thank you for taking my three questions in that case. Firstly, sorry to labor that, back to Polymers, please. You're saying that you're looking for a volume increase in 2017 as well as maybe some price declines, if I heard that correctly, in spite of the higher raw material prices, but you are still looking to beat the 16% EBITDA margin. So all in all, the the pressure from pricing can't be can't be too bad. But if we compare that to 02/2016, where saw lower pricing but favorable volume growth leading to the growth that you just communicated, how can volume growth in 2017 be only in the mid range of single digit percentage if we'll see favorable volume growth and, let's say, only slight movements in the price? That will be my first question. And polysilicon, just to to verify what what I just heard. Is it true that you're basically sold out and and is it that you're, at the moment, currently selling basically what you produce without having, let's say, a sizable inventory that would enable you to give customers, let's say, better trading conditions from their point of view. So basically, you're able to ship at once, not only four weeks after the contract with the customer has been placed. And lastly, could you fill me in the gap between the cash flow from long term investment activities before securities? So the almost €517,000,000 and the CapEx you highlighted, euros $428,000,000, what is that related to? Thank you. Pretty long list Oliver. I would love to start with the last one. I think the key difference between the CapEx and cash outflow is that we had some CapEx booked in 2015, which led to cash outflow in 2016. That's why there's that deviation. It's typically if you have a large project at tenancy, you run very high and intense on year end and then you pay bills in the beginning of next year. For Polymers, as I just indicated, mean, we guide for mid single digit sales growth, but we in that forecast, we include a slight price decline. But as I said, this price decline is actually lower than the price decline that we saw in 2016. And to give you a little bit flavor, I mean, it means it depends on how the market also develops. We just recently we have seen some price increases in China and also for the Dispersal Powder business, Europe is getting tighter. So we try to pass on any cost increase if it makes sense to our customers and if the competitive situation allows. And that's why we are really confident that we are above our target margin. May I jump in there? Just to label the point, is expected volume growth more or less on the level of 2016 or 2017, would that be a fair assumption? It's broadly right. I would say we assume a stronger year for Dispersible Powder as we had really a terrific year for Dispersions last year. Could be the other way. So dispersal powder stronger than dispersions. Okay. And maybe on the polysilicon. Basically, we sell what we produce. But as Tobias already mentioned, we sort of reserve the right to put some material in inventory rather than selling it just to reduce shipment time, the future shipment time to some Asian customers. Thank you. The next question is from Gurpreet Guthral of Macquarie Securities. Please go ahead. Hello, guys. I've got three questions. Firstly, how should we think Wacker's stake in Siltronic? I know in the past, you've indicated a complete exit at some point in time. Can you give us an update on the timing of this? And I'll follow on after that, please. Okay. Our strategy definitely is to reduce our stake to go to a minority position. And yes, that's certainly the next step, which we'll follow at the right time. Okay. Fair enough. Secondly, question on your Slide two of your global PV forecast. I'm quite curious to know about your rest of the world forecast. It seems relatively large compared to previous The key difference between the CapEx and cash outflow is that we had some CapEx booked in 2015, which led to cash outflow in 2016. That's why there's that deviation. And typically, if you have a large project at tenancy, you run very high and intense on year end and then you pay bills in the beginning of next year. For polymers, as I just indicated, mean, guide for mid single digit sales growth, but we in that forecast, we include a slight price decline. But as I said, this price decline is actually lower than the price decline that we saw in 2016. And to give you a little bit flavor, I mean, it means it depends on how the market also develops. We just recently we have seen some price increases in China and also for the Dispersal Powder business, Europe is getting tighter. So we try to pass on any cost increase if it makes sense to our customers and if the competitive situation allows. And that's why we are really confident that we are above our target margin. May I jump in there? Just to label the point, is expected volume growth more or less on the level of 2016 for 2017, would that be a fair assumption? It's broadly right. I would say we assume a stronger year for Dispersible Powder as we had really a terrific year for Dispersions last year. It could be the other way. So dispersal powder stronger than dispersions. Thank you. Okay. And maybe on the polysilicon. Basically, we sell what we produce. But as Tobias already mentioned, we sort of reserve the right to put some material in inventory rather than selling it just to reduce shipment time, the future shipment time to some Asian customers. Thank you. A complete exit at some point in time. Can you give us an update on the timing of this? And I'll follow on after that, please. Okay. Our strategy definitely is to reduce our stake to go to a minority position. And yes, that's certainly the next step, which will follow at the right time. Okay. Fair enough. Secondly, question on your Slide two of your global PV forecast. I'm quite curious to know about your rest of the world forecast. It seems relatively large compared to previous years. Can you give us a bit more clarity on this line, please? Yes. Our I'm looking it up right now. We do really extensive research on country basis. And so the rest of the world, basically the biggest part of the rest of the world is South America. And there are significant projects going on in South America. Okay. And any specific countries within South America? Chile, for example, Brazil. Yeah. Okay. All right. And my final question is about the poly price right now. I'd like to just get a bit more of an understanding on the differential between the spot price in China versus international market and how you guys see that going forward? Is the spread wide now? I know from one of your competitors, they have talked about that spread widening. They just wanted to get a feel for what you think will happen in that dynamic this year. Well, certainly, you can see that on the PV inside price. The polysilicon price outside of China is or tends to be lower than in China. And this is due to the significant pressure outside of China because there are capacities that cannot be sold in China. That's the reason. The next question is from Nerfur Neisser of Deutsche Bank. Please go ahead. Hi, thank you for taking my question. Just a couple more around polysilicon. Could you just tell us what the competitive environment is like? Are you seeing significant additions or capacity additions for polysilicon in markets such as China, which may impact your ability to sell there going forward? And previously, you had mentioned that for 2017, you expected to sell volumes of around 80,000 metric tons. Is that kind of like a guidance that we can look for 2017 in terms of the volumes you expect to sell? And also if you can give us an update on the preferential agreement you have with MOFCOM and how that sort of update is proceeding, that would be great. First of all, we did not say that we will sell 80,000 tons. We said our capacity this year is 80,000 tons. It's just the 20,000 in The U. S. And the 60,000 in Germany. And of course, amount which we sell also depends on the product mix. There are some products that eat up a little bit more capacity than others. And this is why we cannot be more specific at this point in time. To previous years, can you give us a bit more clarity on this line, please? Yes. Our I'm just looking it up right now. We do really extensive research on country basis. And so the rest of the world, basically the biggest part of the rest of the world is South America. And there are significant projects going on in South America. Okay. And any specific countries within South America? Chile, for example, Brazil. Yes. Okay. All right. And my final question is about the poly price right now. I'd like to just get a bit more of an understanding on the differential between the spot price in China versus the international market and how you guys see that going forward. Is the spread wide now? I know from one of your competitors, they have talked about that spread widening. They just wanted to get a feel for what you think will happen in that dynamic this year. Well, certainly you can see that on the PV inside price, the polysilicon price outside of China is or tends to be lower than in China. And this is due to significant the pressure outside of China because there are capacities that cannot be sold in China. That's the reason. Okay. All right. Thank you, guys. The next question is from Nerfur Neisser of Deutsche Bank. Please go ahead. Hi, thank you for taking my question. Just a couple more around polysilicon. Could you just tell us what the competitive environment is like? Are you seeing significant additions or capacity additions for polysilicon in markets such China, which may impact your ability to sell there going forward? And previously, you had mentioned that for 2017, you expected to sell volumes of around 80,000 metric tons. Is that kind of like a guidance that we can look for 2017 in terms of the volumes you expect to sell? And also if you can give us an update on the preferential agreement you have with MOFCOM and how that sort of update is proceeding, that would be great. First of all, we did not say that we will sell 80,000 tons. We said our capacity this year is 80,000 tons. It's just the 20,000 in The U. S. And the 60,000 in Germany. And of course, the amount which we sell also depends on the product mix. There are some products that eat up a little bit more capacity than others. And this is why we cannot be more specific at this point in time. In terms of capacity additions, there are several pieces of information that there will come additional capacities over time, especially in China. And we are watching that and we'll see what's coming. But it does not give us sleepless nights at this point in time. In terms of MOFCOM, I have to start with the European deal first. As you probably know, this trade dispute between China and Europe on modules and cells has been almost resolved. I mean, it's the so called minimum import price for Chinese modules has been reduced by 20% beginning of the year for Chinese producers. And so called interim review has been started that takes about six to nine months. And then the intent of the European Commission is to consecutively reduce the minimum input price to ultimately get to world price level for modules and sales. And I think this is from our point of view a great development. We think that Europe made a mistake in putting up such high barriers. And it's not only our view, there's a whole industry here in Europe that shares that view. But since China always said they would mirror what Europe is doing, would mirror that on polysilicon, our assumption at this point in time is that the import hurdles for us would be reduced as well in China. Great. Thanks. Sure. The next question is from Patrick Rafaisz of UBS. Please go ahead. Thank you and good afternoon. Three questions please. First, again circling back to raw materials, I'm afraid, in polymers, would you then agree that your total raw material bill as you budget today will increase by something around 10% to 15% in 2017 based on the guidance you're giving? And then similarly, at silicones, you mentioned methanol being an issue. But I understand you've also locked in some lower price contracts for silicon metals. So how does that pan out? How does that offset each other? What's the room for bill increase year on year? And lastly, on VAM, from memory, I thought you had a net long position in VIM, especially in The U. S. In terms of capacity additions, there are several pieces of information that there will come additional capacities over time, especially in China. And we are watching that and we'll see what's coming. But it does not give us sleepless nights at this point in time. In terms of NOFCOM, I have to start with the European deal first. As you probably know, this trade dispute between China and Europe on modules and sales has been almost resolved. I mean, it's the so called minimum import price for Chinese modules has been reduced by 20% beginning of the year for Chinese producers. And so called interim review has been started that takes about six to nine months. And then the intent of the European Commission is to consecutively reduce the minimum input price to ultimately get to world price level for modules and sales. And I think this is from our point of view a great development. We think that Europe made a mistake in putting up such high barriers. And it's not only our view, there's a whole industry here in Europe that shares that view. But since China always said they would mirror what Europe is doing, would mirror that on polysilicon, our assumption at this point in time is that the import hurdles for us would be reduced as well in China. Great. Thanks. Sure. The next question is from Patrick Rafaisz of UBS. Please go ahead. Thank you and good afternoon. Three questions please. First, again circling back to raw materials, I'm afraid, in polymers, would you then agree that your total raw material bill as you budget today will increase by something around 10% to 15% in 2017 based on the guidance you're giving? And then similarly, at silicones, you mentioned methanol being an issue. But I understand you've also locked in some lower price contracts for silicon metals. So how does that pan out? How does that offset each other? What's the wrongful bill increase year on year? And lastly, on VAM, from memory, I thought you had a net long position in VIM, especially in The U. S. And China. Wouldn't that mitigate the impact from increasing raw material costs for you? Or am I mistaken here? Thank you. Patrick, I think your raw materials assumption in polymers is sort of okay. I wouldn't debate that. There's a substantial increase in raw materials for polymers. For the second question, methanol. Methanol is largely traded at an index. So there we see a substantial impact immediately on our bill if we procure the methanol based on the index with a discount. So that is what we are seeing as significant impact to the silicones. But asking the question about silicon metal, you are right. Given our contract structure, we also see at the silicon metal price indices, we see increases, but that is largely mitigated by our contract structure. So the impact is mainly from methanol for the silicones business. And for the WAM, I think we are not long in WAM, but we are net buyer in WAM. So we only have production capacity for our German demand and we procure WAM in addition to the capacity also in Europe, to 100% in The Americas and Asia. Understand. Thank you very much. The next question is from Andrew Benson of Citi. Please go ahead. Yes. Thanks very much. You talked about the European position. I was wondering if you could give us an update on The U. S. And whether you indicated historically the tendency could be part of the tariff regime and just how that's panning out. And on the prepayments, you said that it changed and you said you're actually starting to get some incoming. I wondered if you could give some more color on the prepayments and how you see, that evolving over the medium term and how that could affect, your volumes over the medium term as well? And what was the cause of the change in the sort of the aggression of all the use of those prepayments? Thanks. On the tariff regimes, yes, I mean, as an American producer, at this point in time, we cannot export to China, which I think is a problem for our Chinese customers because it's a new and very high quality, very productive facility. But that's a fact. And so we are selling the material outside of China. In terms of the prepayments, as I said, there's only very little there's no prepayment incoming, but nothing compared to the times when heavy prepayments were paid in order to reserve capacity. But it just demonstrates that our high quality polysilicon is very there is a high demand for that and some very high quality customers want to make sure that they get enough of that material. And then there is the fact that some of the prepayment contracts are prolonged into the future. So the existing prepayment sort of is distributed over more years. And this altogether determines the lower prepayment reduction within a year and that is distributed over more years. And how much of your business can you just give us more color why what was the provocation for the changes? Is it customer led or is it Yes, it's individual customers. But I really want to emphasize that it's by far not to that extent as in the past. And as I always stressed even for a long time, the basically polysilicon will be a normal chemical business. And in a normal chemical business, you do not get prepayments for future deliveries. In some instances, you get it to make sure that customers or customers want to make sure that they really get enough quantity of high quality material. But you should not look at the polysilicon business globally as a business where there is a change in trend towards more prepayments again. These are very customer specific issues. Okay. And just one last question. Am I right in thinking that it's simply you being cautious. And what the and I don't understand what wide is your saying that what you're seeing currently is you don't believe will be a trend for the full year or you're not prepared to assert that it's going to be a trend for the full year? Is that just natural conservatism on the part of Wacker? It might be part of it, absolutely. But what we saw in polysilicon last year, I mean, this significant decline in demand and pricing mid of the year was certainly to an extent that nobody had expected throughout the first half of the year. And we just with our first guidance of the year, we just do not want to mislead anybody. So it's just careful. I think it's the way we do business. Okay. Thank you very much. The next question is from Matthew Hemshire Waugh of Credit Suisse. Please go ahead. Hi, thanks for taking my question. Just sorry, one more on the polysilicon guidance. Can you just clarify, so you're guiding to flat sales with volumes up but offset by lower prices and then somewhat higher EBITDA. And then this also includes the $50,000,000 lower costs as you don't have the ramp up costs for Tennessee, if I'm correct. So the math on this would imply that you're expecting volume growth at 5% or below, which seems pretty low to me. Is that correct? Or am I missing something? Matthew, we're not commenting on the assumption of volume growth. But I mean, overall, we do see volume growth. As we already said, we do have the capacity available. And but as Rudi said, we also have the effect of a demanding product mix. And if you take this together, lower ASP also coming from the product mix and maybe a cautious market price outlook, I mean, you see that the mean, price effects go one to one into our profitability to the bottom line, while adding volume just increases the contribution margin over your variable costs. And what I also mentioned for the question on the first quarter, electricity prices were up. So I mean, basically as we see it today, it's a fair guidance for the segment. We see revenue at the level and EBITDA slightly above prior year if you exclude the special effects from prepayment. You. But of course, we also do everything to reduce our costs as well over the year. The next question is from Sean McLaughlin of HSBC. Please go ahead. Thank you. Good afternoon. Two questions. Firstly, on group CapEx. I noticed this is slightly up year on year. You saw a number of large projects both at the Charleston plant, Boerthausen in Brazil. Was 2016 a CapEx trough? Are we likely to stay on an upward trajectory? Is my first question. Secondly, on polysilicon, just to clarify, are you confirming that 80,000 tonnes is not a production target for 2017? It is a production target, no question. But we do not comment on how much we sell, how much we put potentially in inventory. There is an influence of product mix specifications, how much goes to semiconductor, how much goes into multi crystalline solar wafers, how much goes into monocrystalline solar wafers. So there is this multitude of influences and that's just very hard to predict at this time. But our nameplate capacity is 80,000 and we certainly always try to exceed that. One more on the polysilicon guidance. Can you just clarify, so you're guiding to flat sales with volumes up but offset by lower prices, and then somewhat higher EBITDA. And then this also includes the €50,000,000 lower costs as you don't have the ramp up costs for Tennessee, if I'm correct. So the math on this would imply that you're expecting volume growth at 5% or below, which seems pretty low to me. Is correct? Or am I missing something? Thank you. Matthew, we're not commenting on the assumption of volume growth. But I mean, overall, we do see volume growth. As we already said, we do have the capacity available. And but as Woody said, we also have the effect of a demanding product mix. And if you take this together, lower ASP also coming from the product mix and maybe a cautious market price outlook, I mean, you see that the price effects go one to one into our profitability to the bottom line, while adding volume just increases the contribution margin over your variable cost. And what I also mentioned for the question on the first quarter, electricity prices were up. So I mean, basically as we see it today, it's a fair guidance for the segment. We see revenue at the level and EBITDA slightly above prior year if you exclude the special effects from prepayment. Thank you. But of course, we also do everything to reduce our costs as well over the year. The next question is from Sean McLoughlin of HSBC. Please go ahead. Thank you. Good afternoon. Two questions. Firstly, on group CapEx. I noticed this is slightly up year on year. You saw a number of large projects both at the Charleston plant, Borghausen in Brazil. Was 2016 a CapEx trough? Are we likely to stay on an upward trajectory? This is my first question. Secondly, on polysilicon, just to clarify, are you confirming that 80,000 tons is not a production target for 2017? It is a production target, no question. But we do not comment on how much we sell, how much we put potentially in inventory. There is an influence of product mix specifications, how much goes to semiconductor, how much goes into multi crystalline solar wafers, how much goes into monocrystalline solar wafers. So there is this multitude of influences and that's just very hard to predict at this time. But our nameplate capacity is 80,000 and we certainly always try to exceed that. And with respect to CapEx, I think the $450,000,000 number that we have for 2017 is there's no trend in comparison to prior year, but we always said that we would invest below depreciation. And so take a number between $450,000,000 to 500,000,000 and we have sufficient CapEx also to have larger projects. As we announced, we have included Humptilica in Tennessee. We have included the silicon metal expansion in Norway. So yes, and I think that's the level of CapEx that we see. And don't forget that depreciation will also come down over time. So the peak that we had in last year was €735,000,000 we will see below 600,000,000 in I would say in 2020. And €450,000,000 per year is a lot to work with. Very clear. Thank you. The next question is from Oliver Schwarz of Warburg Research. Please go ahead. Thank you for taking my follow on questions. Firstly, silicones, you are expecting a good product mix, some raw material price increases, but think you are still able to raise your EBITDA. Firstly, your market position in silicones as you're number two in the market is weaker than in polymers. It seems like you'll be more successful passing on a higher raw material prices in silicones compared to your polymers franchise. Why is that the case? Secondly, in that context with good product mix, we should see some higher prices, which leaves little room for volume increases. Would that be a fair assumption? And lastly, just a housekeeping number. The 80,000 tons or 80 kilotons in polysilicon, is that as good as it gets for the time being? Or will we see some more debottlenecking already in 2017? Thank you. We are always working on debottlenecking projects. This is very important for cost reduction. But we said the 80,000 is a nameplate capacity number. And yes, we do not want to speculate on anything we achieve through debottlenecking. In polymers and silicones, a significant difference between the two is that the percentage of raw material influence on total polymer cost is much higher than on silicones. That's important to know. But in silicones, the clear strategy is and is successful to go more and more into higher value added products. And with higher value added products, the pricing power is also And with respect to CapEx, I think the $450,000,000 number that we have for 2017 is there's no trend in comparison to prior year, but we always said that we would invest below depreciation. And so take a number between $450,000,000 to 500,000,000 and we have sufficient CapEx also to have larger projects. As we announced, we have included Fumetillica in Tennessee. We have included a silicon metal expansion in Norway. So, yes, and I think that's the level of CapEx that we see. And don't forget that depreciation will also come down over time. So the peak that we had in last year was €735,000,000 we will see below 600,000,000 in I would say in 2020. And €450,000,000 per year is a lot to work with. Very clear. Thank you. The next question is from Oliver Schwarz of Warburg Research. Please go ahead. Thank you for taking my follow on questions. Firstly, silicones, you're expecting a good product mix, some raw material price increases, but you think you are still able to raise your EBITDA. Firstly, your market position in silicones as you're number two in the market is weaker than in polymers. It seems like you'll be more successful passing on a higher raw material prices in silicon compared to your polymers franchise. Why is that the case? Secondly, in that context with good product mix, we should see some higher prices, which leaves little room for volume increases. Would that be a fair assumption? And lastly, just a housekeeping number. The 80,000 tons or 80 kilotons in polysilicon, is that as good as it gets for the time being? Or will we see some more debottlenecking already in 2017? Thank you. We are always working on debottlenecking projects. This is very important for cost reduction. But we said the 80,000 is a nameplate capacity number. And yes, we do not want to speculate on anything we achieve through debottlenecking. In polymers and silicones, a significant difference between the two is that the percentage of raw material influence on total polymer cost is much higher than on silicones. That's important to know. But in silicones, the clear strategy is and is successful to go more and more into higher value added products. And with higher value added products the pricing power is also much better. And but on the other hand, our market position as you rightfully said in polymers is better because we are number one. And you can rest assured that we are trying to pass on additional costs that we have as much as we can. Okay. Thank you. The next question is from Chetan Udeshi of JPMorgan. Please go ahead. Yeah, hi, thanks for letting me ask questions. I had a follow-up question on polymer business. I'm seeing one of your major competitor announced multiple price increases over the last six months in products that they compete with you. And so I was just wondering why do you think your pricing will still be down? So is it more a function of more competitive or the competitive environment becoming more fiercer or tougher this year versus, say, last year? And the second question would be, historically, if you've seen over the past eight to ten years, we've always seen a big volatility in your Chemicals business margin because of raw materials price changes. So is there a way that you could lower that in the future by maybe structurally changing some of your selling prices, how you define your contracts with pricing, etcetera? Thank you. To the question on the price increase of our competitors, you can rest assured that we will also increase prices in those products and in those regions. So it always depends on the very specific competitive situation that you have. And as I mentioned in a previous answer, we do see price increases for example in China and we still see very strong demand. And that's what's going on in the polymers business. It really depends on which product and which region. And with respect to the volatility and passing on more of the raw materials to our customers, as we said, we try to do that, but most of the business as we are a specialty chemicals company, we are value adding very much to the processes or to the product of our customers. So with that, we always try to seek the best solution. Raw material price index contracts are for that reason not so much common. The next question is from Andreas Heine of MainFirst. Two I have. The first is the efficiency gains you mentioned you're striving for the polysilicon segment. Are they able from today's point of view to outstrip what you have at higher cost for electricity? That's the first question. And the second is on CapEx. You said that the €450,000,000 is enough even to have gross projects and you have mentioned some. If Siltronic wants to go for capacity additions and it probably needs more than doubling what they spend right now, which is focused on maintenance only. Would Wacker support? Much better. And but on the other hand, our market position, as you rightfully said, in polymers is better because we are number one. And you can rest assured that we are trying to pass on additional costs that we have as much as we can. Okay, thank you. The next question is from Chetan Udeshi of JPMorgan. Please go ahead. Yeah, hi. Thanks for letting me ask questions. I had a follow-up question on Polymer business. I'm seeing one of your major competitor announced multiple price increases over the last six months in products that they compete with you. And so I was just wondering why do you think your pricing will still be down? So is it more a function of more competitive or the competitive environment becoming more fiercer or tougher this year versus, say, last year? And the second question would be, historically, if you've seen over the past eight to ten years, we've always seen a big volatility in your Chemicals business margin because of raw materials price changes. So is there a way that you could lower that in the future by maybe structurally changing some of your selling prices, how you define your contracts with pricing, etcetera? Thank you. To the question on the price increase of our competitors, you can rest assured that we will also increase prices in those products and in those regions. So it always depends on the very specific competitive situation that you have. And as I mentioned in a previous answer, we do see price increases, for example, in China. And we still see very strong demand. And that's what's going on in the polymers business. It really depends on which product and which region. And with respect to the volatility and passing on more of the raw materials to our customers, I mean, as we said, we try to do that, but most of the business as we are a specialty chemicals company, we are value adding very much to the processes or to the products of our customers. So with that, we always try to seek the best solution. Raw material price index contract for that reason not so much common. Okay. Thank you. The next question is from Andreas Heine of MainFirst. Please go ahead. Thank you for taking my follow-up questions. Two I have. The first is the efficiency gains. You mentioned you're striving for the polysilicon segment. Are they able from today's point of view to outstrip what you have at higher cost for electricity? That's the first question. And the second is on CapEx. You said that the four fifty million euros is enough even to have growth projects and you have mentioned some. If Siltronic wants to go for capacity additions and it probably needs more than doubling what they spend right now, which is focused on maintenance only. Would Wacker support this investment ideas going forward for Siltronic or is the $450,000,000 budget more important? Well, I think within the $450,000,000 there is already significant budget for Siltronic. But of course, there's no budget for an additional fab. But as you know, Siltronic does not need an additional fab for 300 millimeters because in case additional capacity is needed, they could do it within the existing buildings. With respect to the question on efficiency gains and the electricity cost increase, I mean, I would like to emphasize that the cost increase that we saw was in the beginning of the year. So markets also seem to have normalized. And I would definitely assume that efficiency gains would be more than what we see as a cost increase in the first quarter. Thank you. The last question is from Please go ahead. For having me again. Could you please is it possible to quantify the increase in the electricity price you're paying? No. I'm sorry. We don't do this on such a detailed level. But I would like to explain the rationale why it increased. I mean, it really comes back to, in January, a situation where the coal price was very high, as I mentioned initially. And then suddenly, you had French, which is a typical producer of energy having their nuclear power plants down and have a very strong demand of electricity in winter. So they needed to import electricity, which made coal fired power plants run even higher. And added to this, we had some low level of rainwater and all this led to higher electricity prices in the beginning of the year. Thank you for joining us today and for your interest in Wacker Chemie. We're looking forward to further discussions with you as the quarter progresses. We will be back again with a conference call on Q1 on April 27. Goodbye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now. Is investment ideas going forward for Siltronic? Or is the €450,000,000 budget more important? Well, I think within the $450,000,000 there is already significant budget for Siltronic. But of course, there's no budget for an additional fab. But as you know, Siltronic does not need an additional fab for 300 millimeters because in case additional capacity is needed, they could do it within the existing buildings. With respect to the question on efficiency gains and the electricity cost increase, I mean, I would like to emphasize that the cost increase that we saw was in the beginning of the year. So markets also seem to have normalized. And I would definitely assume that efficiency gains would be more than what we see as a cost increase in the first quarter. Thank you. The last question is from Oliver Schwarz of Warburg Research. Please go ahead. Sorry for having me again. Could you please is it possible to quantify the increase in the electricity price you're paying? No, I'm sorry. We don't do this on such a detailed level. I would like to explain the rationale why it increased. I mean, it really comes back to, in January, a situation where the coal price was very high, as I mentioned initially. And then suddenly, you had French, which is a typical producer of energy having their nuclear power plants down and have a very strong demand of electricity in winter. So they needed to import electricity, which made coal fired power plants run even higher. And added to this, we had some low level of rainwater and all this led to higher electricity prices in the beginning of the year. Thank you for joining us today and for your interest in Wacker Chemie. We're looking forward to further discussions with you as the quarter progresses. We will be back again with a conference call on Q1 on April 27. Goodbye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.