Wacker Chemie AG (WCH:GR), a global chemical company, reported strong results for the second quarter of 2024, despite challenging market conditions. The company saw a 17% increase in Chemicals EBITDA to €149 million, buoyed by improved demand and higher volumes. Polysilicon earnings also improved, reaching €55 million, thanks to lower energy costs, although sales in this segment faced pressure from an oversupplied Chinese market. The company's focus on filling new capacities in biosolutions is showing promise, with growing interest in this area. With a commitment to sustainability, Wacker Chemie aims to achieve net zero by 2045 and is on track with its full-year guidance, expecting EBITDA to be in the upper half of the €600 million to €800 million range. The company is well positioned both financially and strategically, with nearly €100 million in EBITDA generated in the first half of 2024.
Key Takeaways
- Chemicals EBITDA rose by 17% to €149 million.
- Polysilicon earnings improved to €55 million despite sales decline.
- Biosolutions segment shows sales growth, particularly in biopharma.
- Full-year EBITDA guidance reaffirmed to be in the upper half of €600-€800 million.
- Company aims for net zero by 2045 and maintains a strong financial position.
Company Outlook
- Wacker Chemie expects a stronger second half of the year with potential boosts from biosolutions reservation fees, tax credits, polysilicon inventory markups, and CO2 compensation schemes.
- The company anticipates a slower demand in Q4 but improvement over the previous year.
- The next conference call on Q3 results is scheduled for October 29, with a Capital Market Day on September 18 and 19.
Bearish Highlights
- Polysilicon sales are challenged by an oversupplied Chinese market.
- Lower prices in polymers due to raw materials costs, despite higher volumes.
- Uncertainty persists in the polysilicon and silicones markets with patchy order intake.
- A large site shutdown in the second half of the year will impact volumes.
Bullish Highlights
- Strong demand for consumer-related binders and sequential improvements in construction-related polymers.
- Growing interest in biosolutions capabilities, with expected better results in the latter half of the year.
- The new facility in Halle is versatile, ready for both mRNA and plasmid DNA production.
Misses
- Polysilicon sales declined due to intense competition and oversupply.
- Lower polymer sales attributed to decreased prices.
- Slower order intake for silicones with a decent book for the summer.
Q&A Highlights
- Wacker Chemie is confident in the demand for U.S. compliant polysilicon and plans to continue production.
- The company will selectively increase prices for specialty silicones based on segment and region.
- There is a focus on filling capacities and improving profitability in the Biosolutions business.
- No detailed information on polysilicon production costs in the Middle East, but personnel, raw material supply, and electricity costs are key factors.
- Polysilicon can be stored indefinitely without quality deterioration; the company refrains from disclosing inventory details.
Wacker Chemie AG continues to navigate a complex market landscape with strategic focus and financial prudence. The company's dedication to sustainability and innovation in biosolutions, along with its positive financial outlook, positions it to weather market uncertainties and leverage opportunities for growth in the chemical industry.
Full transcript - None (WKCMF) Q2 2024:
Operator: Ladies and gentlemen, welcome to the Wacker Chemie Conference Call Q2 2024. I am George, the Chorus Call operator. I would like to remind you that all participants will be in listen-only till the conference is being recorded. The presentation will be followed by Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Joerg Hoffmann, Head of Investor Relations. Please go ahead.
Joerg Hoffmann: Thank you operator. Welcome to the Wacker Chemie AG conference call on the 2024 second quarter results. Dr. Christian Hartel, our CEO; and Dr. Tobias Ohler, our CFO, will take you through our prepared slides momentarily. The press release, our IR presentation, and detailed financial tables are available on our webpage under the caption Investor Relations. Please note that management's comments during this call include forward-looking statements involving risks and uncertainties. We encourage you to review the Safe Harbor statement in today's press release, the presentation, and our 2023 annual report regarding risk factors. All documents mentioned are available on our website. Chris?
Christian Hartel: Welcome everyone. Second quarter of 2024 saw a good result in chemicals and polysilicon and a successful cloud startup in Biosolutions. While overall market conditions remain challenging and some end markets, such as construction, stay weak, we see slowly improving conditions in a number of areas. It is still too early, to speak about a broad-based macroeconomic recovery. The strength of order intake still fluctuates, and varies from region- to-region and application-to-application. On the last earnings call, we mentioned that order intake began to weaken at the start of April. This slowdown did not continue. Activity picked up in our Chemical segments, supporting a better than expected performance in silicones. Group sales came in at about €1.5 billion. The combined EBITDA of the four operating segments was €205 million, up 11% on the previous quarter. Group EBITDA, however, was 7% lower quarter-on-quarter, due to the other segments. Sequentially, the other segment incurred higher costs while the CO2 charge was comparable. As explained before, the CO2 charge will be reversed, when we get reimbursed in the fourth quarter. Now, chemicals EBITDA came in at €149 million, which is up 17% and 9% year-over-year and quarter-over-quarter, respectively. Demand for chemicals shows signs of improvement, but low prices and overall cost inflation, continue to define our results. In silicones, we completed our planned turnaround ahead of schedule. The impact of this regular maintenance event, did not hold us back to the extent that we indicated on the last earnings call. Demand for specialty silicones developed positively in the second quarter, and we are now looking to raise prices for certain applications. Bio-polymers, we see seasonal quarter-on-quarter improvements. While demand for construction related binders is weak in Western Europe and China, we see good demands in other regions. Consumer related binders are performing well, with strong growth in packaging applications and coatings. In Biosolutions, we successfully opened a new mRNA facility in Halle at the beginning of June. Our colleagues did a great job and the site was completed ahead of time. I will provide some additional details on the next page. In the second quarter, polysilicon reported a sequential improvement in earnings on much lower sales. Supported by lower energy costs, EBITDA came in at €55 million, up from €43 million in the previous quarter. During the quarter, the plant in Tennessee was successfully ramped, and is now fully operational. Polysilicon sales declined quarter-over-quarter as we eliminated our exposure to domestic China solar prices. The intense competition in the oversupplied Chinese polysilicon market, resulted in unsatisfactory domestic pricing that hardly reaches local variable cash costs. The outside China market saw strong volumes and spot interest until the anti-dumping countervailing duties, AD/CVD petitions, targeting cell and module manufacturers in Southeast Asia, were filed in the U.S. As a result, the market for solar-grade polysilicon outside China is currently experiencing uncertainty. This may persist until there is clarity on the outcome of these investigations. Looking forward and regardless of the outcome of the AD/CVD investigations, PV solar installations in the U.S. will continue to grow. The monocrystalline modules for these new projects, will need to be produced with UFLPA-compliant polysilicon. Supply chains will adjust to any potential outcome to ensure access to the U.S. market. These investigations further strengthen our view that the U.S., will protect its domestic solar market. We continue to discuss with existing and new customers, about selling the volumes that are currently not contractually committed. We intend to have these volumes be the basis of long-term agreements, with customers who want to access to the premium U.S. market. Looking to sustainability. At Wacker, our efforts are targeted at lowering the footprint of our operations, and enabling and improving the performance of sustainable products. We've committed ourselves to reaching net zero by 2045, and have shown good progress towards reaching this target. SBTi validated our net zero target in early 2024, putting us among the first companies worldwide. There is a strong customer pull for sustainable products and solutions. In electromobility, there's a clear need to improve battery performance and safety. At this year's battery trade fairs, we presented new specialty silicone solutions. One product was specifically developed, to enhance the safety of lithium-ion batteries. Essentially, our silicone rubber compound, prevents fire from spreading in the event of a thermal runaway in a cell. Silicones play an important role in enabling electromobility, by improving the performance of batteries with this and other applications, such as thermal interface materials. With the completion of our new mRNA facility in Halle on June 3, we have achieved the key milestone in Biosolutions. This new production line more than triples our capacity at the site, which is now part of the German pandemic preparedness program. If needed, we can produce 80 million vaccine doses per annum for the German government. In return for keeping these capacities available, we will receive a standby fee until 2029. The new site provides Biosolutions with a strong foundation for further growth in biopharma. As a contract development and manufacturing organization, we will produce advanced therapies targeting multiple indications in areas such as oncology, and personalized medicine for our customers. We see growing interest from customers who are attracted to our pDNA and mRNA capabilities and larger capacities. We've already started acquiring the first customer projects, and the intent to gradually load the new site. Before I hand over to Tobias, I will first address our full year guidance. As you saw in this morning's press release, we confirmed our full year guidance. We now expect EBITDA, to be in the upper half of the €600 million to €800 million range. The range is defined by improving conditions in chemicals, and reflects current market conditions in polysilicon. In chemicals, we see room for price increases in certain applications as demand for specialty silicone improves, while other areas remain challenging. In polymers, our global setup provides us with an exposure to growing markets, helping us offset the weakness in certain construction markets. In Biosolutions, we are focused on filling our new capacities. In polysilicon, our semi-business provides a stable foundation. We continue to invest in our future and act on unique opportunities. We just closed a small acquisition to increase our silicone wound care capabilities in the U.S. Silicones offer best-in-class solutions for certain applications, due to its unmatched skin compatibility and tunable adhesive properties. People continue to look for add-ons to further strengthen our portfolio. Now, to Tobias for further details on our results.
Tobias Ohler: Thank you, Chris. Welcome, everybody. Looking at the profit and loss, sales during the second quarter of 2024 came in at €1.5 billion, down 16% year-over-year. The year-over-year development in sales was driven, by several puts and takes in each of our segments. In chemicals, lower average selling prices were offset by higher volumes. On the other hand, the average higher selling prices in polysilicon came, with lower volumes sold for solar-grade applications. Although we benefited from higher specialties demand and lower energy prices, the effects of the lower solar volumes in polysilicon and lower prices in chemicals, left marks throughout our figures. Second quarter group EBITDA was €160 million, 37% lower year-over-year. As with the development of sales, several factors are at play here. The EBITDA contribution from polysilicon contracted by €100 million to €55 million. On the other hand, the chemicals EBITDA expanded by €21 million to €149 million. This was due to the improved demand, both year-over-year and sequentially. The other segment was minus €45 million in the second quarter. This primarily reflects the charges related, to the embedded cost of CO2 in our energy bills. Once we receive the CO2 refund in the fourth quarter, the cumulative charges, over the first three quarters of this year will be reversed. For the full year, there is no change in our expectations here. We expect the others EBITDA excluding the investment income, will be at approximately minus €20 million. Now looking at the last line items in the P&L, including the contribution from Siltronic, the results from investments was €5 million. Net income was €35 million, this equates to earnings per share of €0.58. Our balance sheet shows strong financials with €1.1 billion in liquidity and €4.6 billion in shareholder equity. Networking capital increased by about €278 million, compared to the end of last year and this primarily reflects the safe development in chemicals with respect to the accounts receivables, and higher inventory in polysilicon. At silicones sales in the second quarter were €719 million up 3% year-over-year and slightly ahead of the preceding quarter. At €90 million the second quarter EBITDA, was well above last year's result. This was primarily due to the higher specialty volumes, a good mix, lower raw material costs and a better plant loading. During the second quarter, we completed a turnaround and limited the availability of standards. We have updated our silicones outlook for 2024. We now expect a low double-digit percentage EBITDA margin up from high single-digit before. Overall specialty volumes are at a good level, but margins remain well below target. This is now primarily a function of price and raw material costs. As Chris mentioned, we do not see yet a broad-based recovery, but there is a good demand for certain specialty applications. For these applications we intend to benefit from the stronger market conditions. Sales in polymers were €389 million 7% below last year, mainly driven by lower prices led by raw materials. Average selling prices were comparable to the previous quarter, and higher volumes underpinned the 5% sequential sales growth. We see good demand for consumer related binders with volumes being clearly up, both year-over-year and quarter-over-quarter. Construction related polymers are comparable year-over-year and showed some sequential improvements, due to higher building activity in the summer. Higher acid utilization rates supported the second quarter's EBITDA, which came in at €59 million up 5% from the previous quarter. For 2024 our full year outlook is unchanged. As with silicones we see different demand patterns developing across the regions and applications in polymers. For construction polymers, we see good demand in Southeast Asia, Americas and Middle East, while Western Europe and China face headwinds. Consumer related applications see good growth in adhesives for paper packaging, driven in part by the plastic to paper trend. At Biosolutions sales during the second quarter, were €98 million up 8% year-over-year and 37% higher quarter-over-quarter. Sales were primarily supported by growth in biopharma. We opened the new mRNA facility at the beginning of June, and we booked one month of the annual reservation payment in the second quarter. The payment therefore only had a limited impact on the second quarter EBITDA, which came in at €1 million. Our full year outlook for Biosolutions is unchanged. Sales growth will be driven by both biopharma and bio-ingredients. We expect a significantly better result in the second half of 2024. Polysilicon reported €232 million during the second quarter, 23% lower quarter over quarter. The primary driver was the significantly lower solar grade volumes. Sequentially, EBITDA increased to €55 million up from €43 million on lower energy costs. We have updated our full year outlook for polysilicon. We now expect sales in the range of €1.1 billion to €1.4 billion with an EBITDA in the range of €200 million to €300 million. During the first half of 2024, we generated nearly €100 million in EBITDA. We are now halfway to the lower end of our full year guidance range. Charleston has successfully ramped, and we expect an improved operational performance in the second half of the year. Stable average selling prices and higher volumes sold in the second half of this year will define the higher end of the range. There is some uncertainty in the industry currently, but the guidance range addresses the most likely scenarios in our views. Now let's look at our net financial position. The first half of 2024, we generated a gross cash flow from - of €4 million. Gross cash flow was held back by investments in working capital following the development of chemical sales, and inventory in polysilicon during the second quarter. Cash flow from investing activities was €310 million, compared to the reported CapEx figure of €294 million during the first half of 2024. The difference between the two figures, is due to the timing of the investment cash payouts. After the dividend payment of €149 million during the second quarter, we ended the first half with a net debt of €661 million. Before we start with the Q&A, let me summarize. Wacker is well positioned financially and strategically. We have made good progress, towards reaching our full year targets. We continue to have a high focus on costs and strengthening our specialty businesses. Operator we're now ready to begin the Q&A.
Operator: [Operator Instructions] Our first question comes from Rikin Patel in BNB. Please go ahead.
Rikin Patel: Hi thanks for taking my questions. Firstly, I just wanted to dig a bit deeper on outlook. It'd be great if you could give us a bit of color on each segment into Q3. I suppose on silicones, in particular, you pointed towards pricing increases. So does that mean that we can assume EBITDA will be up sequentially? And then secondly, maybe just on cash flows. So I suppose in the first half, you've invested in working capital. And I appreciate the dynamics are a little bit different in chemicals and polysilicon. But maybe if you could just give us, a bit of color on how you expect working capital as well within the second half? Thank you.
Tobias Ohler: Rikin, Tobias speaking here. Thanks for your question. On the trading update, I assume you are not only interested in silicones. But starting with silicones that you're stuck, you were trying to see the movement from Q2 into Q3. As we have it also in our PowerPoint notes, there is an un-order - uneven order pattern that is still sort of defining the picture. We have seen a very strong Q2 for specialties. And order entry is now again cooling down somewhat, compared to the last few months. And it looks a bit like restocking being over. But don't forget that August, at least in Europe, usually runs slower. And I think what we see is quite in parallel to what many other industries see. They're not as optimistic as they had been at the beginning of Q2. But if I look at input cost, if I look at prices, I think everything should be sort of comparable Q3 against Q2. So if you summarize, EBITDA also will likely be comparable quarter-over-quarter. But it will be clearly up year-over-year. I think it really depends on how orders shape up over the summer, over the coming weeks and months. For polymers, we also see stable demand into Q3. Europe is stable year-over-year. U.S. a bit better, construction in China is still under pressure. So, we also expect Q3 to have a continuation of the first half with a moderate development in the construction-related businesses, and a good demand in the consumer-related businesses. Sales prices broadly stable, but also raw material stable. So no change from that perspective. Biosolutions, we have the standby payment that will support Q3 results. And then I think we should look at the second half being stronger EBITDA wise, than the first half. If you put altogether, and for polysilicon, the third quarter is, clearly, semi is very resilient, both in price and volumes. And as you know, we have successfully moved away from the China selling price. So, we expect the outside China volumes also to be comparable at similar prices. So if you put altogether, also Q3 should continue similar to the Q2 level. And yes, I think the second question, Rikin, was on cash flow. You had spotted that yes, we had quite a working capital build in the first half that that, should not repeat in the second half to make it short. Typically, we have some seasonality. And for that reason, cash flow in the second half should be better than in the first.
Rikin Patel: Okay. Thank you, Tobias.
Operator: Our next question comes from Andreas Heine in Stiefel. Please go ahead.
Andreas Heine: Thank you. Two questions, if I may. First is, again on polysilicon. So with the situation you face now in Southeast Asia. What is your production plan in Q3. Currently, I understand that your own plants are fully available and running at high utilization rate, do you continue to do that? Or do you change this given the uncertainty in Q3 that's the first question. And the second one, could you go, in a little bit more detail in Biosolutions. There are various different businesses and looking into the Q2 outcome, it seems that not everything is doing very well. When can we expect that this business is getting back to normal, which I would say is a 15% EBITDA margin? Thanks
Christian Hartel: Okay Andreas, this is Christian. Thank you for your questions. I will start with the first one on the on the polysilicon business. And as you said, I mean, currently, there is a window of opportunity which opened, because of these anti-dumping countervailing duty discussions preliminary findings to our knowledge should be filed in September, at least for the countervailing duties. But the key message is that, that window of uncertainty will also close some time. It is now in the market. What does it - how does it affect us? That was your question. Our expectations, we will plan for production in Q3 at a similar level to Q2. And second part of your question was on Biosolutions. Yes, as we mentioned in the past, obviously, we had some upfront payments an integration cost to cover. And I think a big milestone has been achieved now on the third of June, and we are all very proud about this, with the pandemic preparedness of plants. Being faster on time than expected, going full green light from the government, and also with the payments now coming in from the beginning of June. That will definitely give some tailwind on the results for the second half. And we saw also strong sales and growth in the biopharma business. Bio-ingredients, which is also with the new site in Leon [ph], the custom manufacturing business, still facing integration costs. And also, we do have some legacy products in the Life Science segment that see decline as Tobias mentioned. A much better second half of this year for Biosolutions, and then gradually improving from that.
Andreas Heine: Is it improvement in the second half, only the Halle plant or the other parts of the business also improving in the same half?
Christian Hartel: No, we also see an improvement in the other plants. Yes.
Andreas Heine: Okay. Yes, thanks a lot.
Operator: Our next question comes from the line of Chetan Udeshi in JPMorgan (NYSE:JPM). Please go ahead.
Chetan Udeshi: Yes. Hi thanks for taking the questions. Just looking at your cash flow statement, I noticed in first six months, and this is mainly in second quarter, I think - you are showing a change in contract liabilities of minus 20, which I remember from the past used to have these advanced payments from customers in polysilicon, which you used to recognize as income from time-to-time, especially when customers don't honor the volume commitments. So just curious, if polysilicon numbers today are partly supported by these advanced payments coming through the P&L, because some of these customers might not be taking their contractual volumes. And if that's the case, how long will that continue? Is it in the numbers even in Q3? The second question was - at what point do you stop building inventory in polysilicon? Is there a threshold beyond, which if you can't agree to new volume contracts with existing, or new customers on ex China price? At what point do you have like a threshold okay, you need to get that by end of the year. Otherwise, you will stop producing at full run rate? Or you're not at the moment, contemplating any time frame for that? And last question on silicones is - you mentioned the order books are still volatile. Is there any particular end markets where you see more, let's say, more or stronger demand versus weaker demand within silicones, anything noticeable by end markets?
Tobias Ohler: Chetan, Tobias here, I'll start with - first hand over to Chris for the second and then I'll take the third again. I mean there is no special in the second quarter in polysilicon. So that has nothing to do what you spotted in the cash flow. So yes, I think that's it.
Christian Hartel: Yes. Chetan, let me answer the second question. Well, on polysilicon, well, first of all, I think what we need to be clear about as Tobias also pointed out, semi business, which is a clear strategy of ours growing very consistently, both in volumes and profitability. That being said, there is no uncertainty, because of the CVD/AD investigations from the U.S. side. But we also see continued growth of the PV systems in the U.S., and these projects require materials, which is compliant with U.S. regulation. And therefore, we are absolutely confident that there will be demand for material that we can produce, which is U.S. compliant polysilicon to continue the growth. At this moment, it is definitely too early to talk about reduction in our production. We continue to produce, because we believe this window of uncertainty will close. And we will be able to sell more of this volume, which is in high demand in the U.S. market.
Tobias Ohler: Chetan, to the third question on silicones, looking at the segment, we see in the third - in the second quarter, stronger demand in some industrial applications and coatings in other consumer applications like textile. But if you are asking also for the weak spots, definitely the automotive industry, there we had seen a decline in demand. So, it's a bit patchy that picture as we described it.
Chetan Udeshi: Understood. Thank you.
Operator: Our next question comes from Matthew Yates in Bank of America (NYSE:BAC). Please go ahead.
Matthew Yates: Hi, good afternoon, gentlemen. To follow-up really on the last that you made there. I wanted to ask about how the practicality, of pricing works in specialty silicones. I noticed some headlines from some of your peers announcing price rises. But given you make - if I'm not mistaken, literally thousands of products in that business, do you do and across the board price increase? Or given what you're saying about the patchiness, do you have to go product-by-product and how easy is that to do in reality? Thank you.
Christian Hartel: Okay, Matthew, this is Chris. Thank you question, which definitely is a good question. So - this year, we have seen good demand for specialties. And that's also the reason why we say we are looking to raise prices in certain applications. We've seen comments from competitors for increasing prices. Obviously, we appreciate these comments. Because it is a little bit patchy, as Tobias pointed out. And also if you look at our order book, and also what we stated in our press release, it is not yet a broad-based recovery of demand, which, of course, would make it more, easy or more straightforward, to increase prices on a broad rate level. And therefore, it is more like what you also mentioned, you need to be specific, at least specific by segment and also specific by region, because of the different competitive landscape. So it is a tedious process. But nevertheless, we've shown in recent years that we are able to do this and the teams are working really with high priority, on selectively increasing prices where it's possible.
Matthew Yates: Okay. And can you talk a little bit about the supply side, of the more commodity grade products? Are we through with the capacity additions in the industry? Are we seeing any rationalization? Or are you still having to contend with badly oversupplied market there with not much traction of tightness?
Christian Hartel: Well, I mean, first of all, the standard side is really not our core. We look at specialties. We see a good picking up demand there. There are some announcements on Chinese capacities, as you can imagine, as for all chemical products in the world. And I guess, at the same time, we will see some sort of consolidation will there be enough to be -- to have an even supply-demand side question mark, I would say. But again, it's not so much of a concern to us. Because - the core of our business and the strategy goes into the specialty segment.
Matthew Yates: Okay. Thanks very much.
Operator: Our last question comes from Sean McLoughlin in HSBC. Please go ahead.
Sean McLoughlin: Thank you for taking my questions. Just firstly on - you said various scenarios are baked into the policy. Could you maybe just elaborate a little bit more on what scenarios these might be and what is your base case assumption at this point? Second question is on Biosolutions, I mean understand that you've got improvement coming in the second half, but you're still way below, I suppose, what you're targeting. I mean to what extent do you intend to actually slow CapEx and maybe hold back on M&A until you're able to demonstrate stably higher profitability? Or is that not the way we should be thinking about this business? Thank you.
Tobias Ohler: Sean, Tobias here on your first question on polysilicon and our expectations for the remainder of the year. And as you have seen, we had changed the guidance to now €200 million to €300 million EBITDA. First half of the year, we are at - yes, at €100 million. And our basic assumption is that Q3 would be similar to Q2. And then the final quarter would define where we end in the range. And - that's how we look at it, but the uncertainty Chris talked about, we don't see a big change in the third quarter. But as those uncertainties go away, we could - yes, grow with additional volumes, and that could bring us to the upper end of the range. Okay
Christian Hartel: And Sean, on your - on the second question. Biosolutions, yes, we are currently not where we want to be. And therefore, we exactly go the way that you pointed out, we will definitely hold back on further investments and M&A, especially regarding new sites or new acquisitions with the Halle inauguration. And also with the acquisition of Leon, we achieved two major milestones in our growth plan. And now the strategy is really all about filling the capacities, and improving profitability. That being said, of course, you do need to invest in current business to, for maintenance of the business and some selective investments in the sites, to improve profitability there and have a new growth. But very clear focus now on acquiring new business and improving profitability.
Sean McLoughlin: Thank you. If I could just follow-up on the prior question. So I mean, do you have a base case timing on when you expect to complete renegotiation of projects at this end Q3.
Christian Hartel: Which projects do you mean now?
Sean McLoughlin: Sorry, the non-China poly volumes.
Christian Hartel: So I mean - maybe we didn't point it out clearly enough. We said in the last 18 months, our clear target is to achieve changing all contracts from the inside China to, or getting away from the inside China pricing, we did achieve that. And that's a big success story for us. We have no contracts at the moment, which is linked to the inside China price. So we are definitely not selling, to the inside China price anymore. As we have some uncertainty now in the market, the volumes we sold in Q2, were not as high as they could have been. But I think, as I said before, this window of uncertainty will close again, because there is demand for compliant polysilicon to the U.S. market and then volumes also will go up again.
Sean McLoughlin: Thank you.
Operator: Our next question comes from Wiechert Konstantin in Baader Helvea. Please go ahead.
Konstantin Wiechert: Yes, hi. Thanks for taking my questions as well. Also maybe again on the polysilicon part, and where you said also that you're no longer selling under the Chinese prices. But I guess you've also started the negotiations with your customers. And I was just wondering, I know you could give a bit more color, on really what the feedback from your customers were. You touched, I mean, on the uncertainty from the AD/CVD currently. But maybe you could also shed some light on, how your discussion with customers were about the capacity additions in the Middle East. I think you said already in the last call that, you think '25 or end of '25 is maybe a bit optimistic. Is that also the view of your customers? Or are they a bit more maybe optimistic on that time line? And could that be a reason for them also, to be a bit more cautious in negotiations with you?
Christian Hartel: Well, Konstantin I would really say at the moment, it is majority really about this antidumping countervailing duty story. Obviously, there is some interest in new plants coming up, which have to prove that they can produce the right material in the right volume. But that's really not the essence of the talks that we have in the moment. And regardless of that. I would say, if you look at the U.S. solar market, there is a lot of growth expected and I really believe in that growth. And if you talk about maybe next year already 55, 60 gigawatts, that's a lot of compliant polysilicon, which you need in a very tight market. So therefore, I'm not that concerned about any additions of capacity, which have to prove to be the right material.
Konstantin Wiechert: And maybe one follow-up. I think speaking of the tight market, which is tied with obviously - without your capacities and maybe becoming also tied with your capacities, depending on whether the Middle East come on time early or later. However, do you really see that the customers are also here, than willing to take the full volume or maybe wait just a bit, and take then maybe more growth in '25 or '26 onwards when the market is not tight anymore, and maybe then the prices are lower?
Christian Hartel: Well, Konstantin I mean it's actually a lot of speculation. And obviously, not all the customers have the same thinking. Again, my message would be, there is no uncertainty and everybody is kind of a little wait and see, and that window of uncertainty will definitely close. And from that, there will be more volumes to be sold.
Konstantin Wiechert: All right, thanks.
Operator: Our next question comes from Sebastian Satz in Citi. Please go ahead.
Sebastian Satz: Yes, thank you very much. I've got a couple of follow-ups on polysilicon as well. So just talking about this window of uncertainty. What do you think needs to happen for your customers, to have sufficient confidence again to enter into new contracts? And then, the second question would be thinking of different scenarios. What do you think is the risk that you need, to potentially write-down some of the inventories that you're producing at the moment, if indeed customers are not willing to enter new contracts. So, if you could help us understand the technicalities, around that that would be great. And then lastly, again, thinking of supply for non-Chinese international polysilicon and the Middle East has just been mentioned. Just wondering if you could comment on the cost of producing polysilicon in the Middle East. I'm not sure if you had looked into it yourself, but maybe if you could just tell us what you think - what the cost is likely going to be? Just trying to better understand, what the marginal cost of production for international polysilicon is going to be? Thank you very much.
Christian Hartel: Okay, Sebastian. I would start with the first question. The main topic is uncertainty. Uncertainty means you don't know what comes. And I think what our customers would need is, at least assigned with a preliminary ruling on countervailing duties and antidumping duties, because then you can factor it in. And of course, it's obviously a difference if it's 10%, or if it's 100% or it's more. And therefore, that's really what customers need, first and foremost, a clear ruling what they can expect, and they can adjust their production planning on that.
Tobias Ohler: On the second question, Sebastian, Tobias here. As you know, we booked inventories at the lower of the cost or the market price. And from today's perspective, we don't see that as a likely scenario that we have to write-down on the inventories.
Christian Hartel: And Chris, again, on your question - on your third question, on the cost position of the guys in the Middle East. Well obviously, you should ask these people first who are building, because they have obviously a much better insight than we have. I can tell you that we scouted the areas some time ago, before building the Tennessee plant. And it's always at least what we did, it is a mixture of what our factor cost regarding personnel But it's also availability and capability of people. Its raw material supply. It is electricity, of course. And at that time, our decision was to go to the - to Tennessee and not to the Middle East. I'm not saying that maybe something's changed in recent years. But I mean, we are not in the details of these new plants, and the framework of the conditions. So very hard to judge for us.
Sebastian Satz: Thank you very much.
Operator: Our next question comes from Sebastian Bray in Berenberg. Please go ahead.
Sebastian Bray: Hello, hello. Good afternoon and thank you for taking my questions. The first one is in principle question on half one versus half two. If I think about the balance and the implied step up at the midpoint of guidance, I can think of three or four factors that would mean that H2 would have some benefits. You got the reservation fee from the Biosolutions business, you potentially get a tax credit from inflation reduction active. I'm not quite sure if I as baked into guidance, or not from memory it wasn't for U.S. production of polysilicon. And if you - if things develop according to plan, to potentially get to mark up the polysilicon that's now gone into inventory at the point of sale at higher price. Is there anything else other than those three that in principle would mean that H2 would be higher than H1? Oh I forgot the reversal of the up provision in the other line. But I just want to check with that list is reasonably exhaustive? Thank you.
Tobias Ohler: Sebastian, Tobias here, actually, I'm not entirely sure whether I have followed all of your items, but I see your point on the reservation fee ticked off. I think that's part of our Biosolutions guidance. On the polysilicon side, we had discussed about the range, €200 million to €300 million in EBITDA, depending on how the market develops. That is not including the tax credit, as we said, we are not putting that into the guidance. I think one large step-up was on the silicon side in comparison to our Q1 guidance, but also that assumes that we have some seasonality in the fourth quarter, and that's why second half, not as strong if you do the math at first half, we need to see whether there's momentum, we are happy to take it. But we usually experience some Q4 inventory management from customers, depending on the market situation. And one point I think you missed, and didn't mention is the CO2 compensation scheme that, we can only account for in the fourth quarter. And that will yes make the second quarter - the second - in the fourth quarter, that will make the second half stronger than the first half. If you put altogether, I mean, we feel comfortable in yes, moving up our view on the range, as we said, to the upper half, but there is uncertainty. And yes, it's better than we expected at the beginning of the year.
Sebastian Bray: That's helpful. Thank you. Just the second one I think has been touched on, but I want to clarify. For the most recent weeks of trading, where there is visibility there have been any changes to the order books in the Silicone segment?
Tobias Ohler: Yes, a bit slower order intake, but there is a decent book for summer and as I said before, it depends on the summer, how it develops. But I mean, second quarter was stronger than expected. So, I think we have to be flexible, and we have to cope with some uneven demand patterns.
Sebastian Bray: That's helpful. Thank you. My final one is on Biosolutions. The segment that has just been finished the segment, the facility that has just been finished in Halle, I believe, making RNA I remember last year when Lonza ended its contract with Moderna (NASDAQ:MRNA), it shuts the RNA facility that it was using presumably, because it couldn't readily reallocate the capacity. Can I ask two things? The first is, is the - leaving aside the reservation fee, is the capacity that Wacker has available actually filled at this stage? Or is it still waiting to be contracted? And the second question is, is this a dual-use facility in the sense that it can switch between RNA and other production, be it a bacteria produced biologics or that type of thing? Or it's purely an RNA production facility? Thank you.
Christian Hartel: Okay. Sebastian, a good question on the Halle facility. Now as you mentioned in your comment on mRNA, I mean the big business in the last year was obviously huge volumes for COVID vaccination. And this will not be replaced by one day to the other. I think this is common knowledge also in the industry. But don't forget, there are more than 1,000 clinical studies working on mRNA products. Only a small part of actually vaccination, most of them are therapies like in oncology. So therefore, we do see a lot of development going on in this part of new medicine - and I think what you need for that is rather kind of flexible capacities are not kind of the super, super huge capacities, which you would need for COVID vaccination. I'm not in the detail with the side of Moderna, so I cannot comment on this. But what I can tell you is that our site can be used both for medium, larger scale, but also for smaller medium-scale production. And as you pointed out, it is not purely for mRNA. We're actually also working on some plasmid DNA projects at the moment. So, there is multiple use for this capacity, which also helps to fill the capacities.
Sebastian Bray: That's helpful. Thank you for taking my questions.
Christian Hartel: Sure.
Operator: Our last question comes from Jaideep Pandya at On Field Research. Please go ahead.
Jaideep Pandya: Thanks a lot. I have a few questions, please. Firstly, I want to clarify. So if we talk about polysilicon for Q2 versus sort of Q1. When you put this material inventory, what have you used as a cost base to account for it? Because I think we understood earlier it was at cost. But I think, Tobias, you also just mentioned it's low risk of inventory write-down, which means is accounted a China product. So which one of the two is it?
Tobias Ohler: Sorry Jaideep, I was jumping…
Jaideep Pandya: No please.
Tobias Ohler: Too quickly. I mean it's - we account for the lower of the two costs and its selling price - but it's our selling price. It has nothing to do with the China domestic price.
Jaideep Pandya: Okay. But is your - I presume that given the provision you took end of 2023, because the prices were too low. I presume even your selling price is lower than your cost price? Or is it...?
Tobias Ohler: No, no, no - not at all. That was specific to some of the contracts that we had.
Jaideep Pandya: Okay. So your selling price that you're accounting for is higher than your cost price. That's how we should understand? Just to be very clear.
Tobias Ohler: Clearly, we are profitable with the solar business as we strive for the outside China market, as Chris mentioned. Yes.
Christian Hartel: And we are not selling to the China price anymore.
Jaideep Pandya: Okay. All right. That's very clear. The second point is I appreciate the uncertainty for the new customers, but I presume a lot of the volume for outside China is also going to the U.S. at international prices. So have you seen any weakness in volumes for those customers? Because I presume they would also face that uncertainty - so can you define how is the demand, or mentality of your current customers versus some of the conversations, you're having with your new customers? That's my second question. And then the third question is, I think you participated in Intersolar after a very, very long time. So I want to understand how was the response from that? And is this international price only going to be relevant for the U.S.? Or is there appetite also building in Europe for, let's say, non-Chinese material for the through and through value chain. And then my last question, sorry for this it's on silicones. I understand the seasonality point and the patchy outlook. But from - if I compare what you published today versus what you gave as outlook at Q1. Clearly, things have improved meaningfully. And your competitors are saying the same thing. So given there is no turnaround in Q3, why would EBITDA Q-on-Q? Thanks a lot.
Christian Hartel: Maybe one thing to jump in here. I mean I think we didn't say patchy outlook, we said patchy order intake.
Jaideep Pandya: Sorry, patchy order intake…?
Christian Hartel: I wouldn't call it the outlook, I'm rather positive on the outlook, but the order pattern is not just every month, it's the same. I think that was the remark regarding the patchiness of the business.
Tobias Ohler: And Jaideep, if I add - to the silicones question, we do have a shutdown also in the second half at the other large site. So there is a bit of a drag on volumes again. And then we are - yes, normally facing a slower demand in the fourth quarter, but still fourth quarter would be up against prior year. And I think that confirms the overall positive sentiment that we see in the silicones business.
Christian Hartel: Okay. And Jaideep and look at your second question that was on the polysilicon. And the uncertainty from as for current customers and other market players. Well, my simple answer would be, I mean, everybody in the market is currently affected by the uncertainty actually, we don't see a big difference between existing customers and new cases. And therefore, I hope that this uncertainty will be closed soon. It will definitely be closed. Now the next timing should be September for the CVD preliminary findings on that. And second question was the international price thing only relevant for the U.S. and also in Europe, well, at the moment, it is mostly on the U.S. side. Again, there are some political discussions in Europe going on, should we do something similar. But as always, with European politics takes time and more efforts to achieve something. So not much to report on that.
Jaideep Pandya: Great. If I may just ask one follow-up and ask Chetan's question in a slightly different way. Is there like expiry date, or some kind of a quality issue time frame when you produce polysilicon and storage? Or can you use and store the material for more than a year. And then on the volume of how much you're storing if you don't want to disclose the price, historically, at the beginning of the year, you told us a third is semi, a third is international and a third is China linked to the China price. Now that you've stopped selling China linked to China price, should we think then that mechanically speaking, in the second half, that's the level of volume that you would inventory, if you don't find a new customer? Thanks a lot.
Christian Hartel: Let me start with the durability or how long you can store polysilicon. You can actually store it indefinitely, so it doesn't get worse also in the way it's packaged by us. So that shouldn't be of any concern. And we have done this before.
Tobias Ohler: And with respect to the details on the inventory build, I think let's not engage in the speculations. The case will be resolved and then the uncertainty is away. And yes, that's it.
Jaideep Pandya: Okay. Perfect. Thanks a lot.
Operator: Ladies and gentlemen, there are no further questions. Back over to the management for any closing remarks.
Christian Hartel: Thank you, operator. Thank you all for joining us today, and for your interest in Wacker Chemie. Our next conference call on the Q3 results is scheduled for October 29. In the interim, we will hold our 2024 Capital Market Day on September 18 and 19 at our main site in Burghausen, Germany. As always, don't hesitate to contact the IR department if you have further questions. Thank you.
Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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