Wacker braces for tougher H1 as energy, war, recessionary pressures bite
LONDON (ICIS)–Wacker Chemie is bracing for a more bearish 2023 as economic headwinds continue to bite, with a slowdown in demand noticeable since Q4 last year and despite a record financial performance in 2022, CEO Christian Hartel said on Tuesday.
The Germany-headquartered silicones, specialty polymers and polysilicon producer is projecting sales of €7bn this year and earnings before interest, taxes, depreciation and amortisation (EBITDA) of €1.1bn-1.4bn compared with €8.2bn and €2.1bn respectively last year.
“2023 will not be an easy year. The global economy faces considerable risks, above all due to the war in Ukraine, energy prices, rising interest rates and rampant inflation,” Hartel said, speaking at a press conference on Tuesday.
Wacker saw its strongest ever revenue growth in 2022 even though many of those factors persisted through much of the year, with higher selling prices, currency conversion tailwinds and demand for some products driving stronger sales across its portfolio.
Sales price momentum is expected to dissipate this year, Hartel said.
Wacker is the largest producer of semiconductor chips in the west and has shifted its polysilicon operations further toward that space in the wake of longstanding shortages due to supply chain disruptions. Demand and pricing are expected to slow this year, according to the company.
Although economic conditions in Q1 of this year have not been as tepid as economists had feared at the tail end of 2022, sentiment has cooled and there has been perceptible slowdown in the pace of the post-COVID recovery because interest rates are rising and this has affected customer demand.
“Since Q4 last year we have noticed in many application areas how the weaker economy has been impacting customer demand,” Hartel said.
For some divisions, particularly silicones, customer orders have trended more to hand-to-mouth as customers run down inventories, and more players placing orders at short notice, Hartel added.
Wacker CFO Tobias Ohler estimated that the combined cost increases of energy, inflation and logistics stood at €1.3bn in 2022 compared to 2021, but that strong pricing had helped to blunt the impact of those headwinds.
Ongoing efficiency measures drove savings of €200m last year which also helped to offset higher costs, but they will not be enough year to offset lower demand and prevailing elevated operating expenses this year.
“Greater efficiency alone will not close that price gap,” Hartel said.
Q1 sales have been noticeably weaker this year than last so far, according to Hartel, and are expected to stand at €1.7bn, with EBITDA also expected lower for the period at €250m-280m. The company reported sales of €2.1bn and EBITDA of €643.7m in Q1 2022.
The slowdown in the European economy is most apparent at present, but US and Japanese growth is also trending weaker, with Asia and India in particular expected to see substantially stronger in 2023, according to Hartel.
60% of the company’s revenues in 2022 were derived outside Europe, with 85% outside Germany.
“The war in Europe is an acid test for the entire world and it has thrown the global economy off balance,” Hartel said. “We all know the consequences, exploding energy prices, inflation rates the likes of which we haven’t seen in decades, and… COVID 19 [measures] have impacted supply chains.
Focus article by Tom Brown.
Thumbnail shows silicon wafer semiconductors (image credit: RITCHIE B TONGO/EPA-EFE/Shutterstock)
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