Wacker Chemie AG (WKCMF) Q4 2022 Earnings Call Transcript

Wacker Chemie AG (OTC:WKCMF) Q4 2022 Earnings Conference Call March 14, 2023 11:00 AM ET

Company Participants

Joerg Hoffmann - Head of Investor Relations

Christian Hartel - Chief Executive Officer

Tobias Ohler - Chief Financial Officer

Conference Call Participants

Sebastian Satz - Barclays

Charlie Webb - Morgan Stanley

Mubasher Chaudhry - Citi

Markus Mayer - Baader Helvea

Thomas Swoboda - Societe Generale

Andreas Heine - Stifel

Chetan Udeshi - JPMorgan

Sebastian Bray - Berenberg

Sean Meakim Loveland - HSBC

Jeff Harry - UBS

Jaideep Pandya - On Field Research

Operator

Welcome to the Wacker Chemie AG Fiscal Year 2022 Results Conference Call. At the moment, all participants have been placed on a listen-only mode. The floor will be opened for questions, following the presentation.

Now, I hand over to Joerg Hoffmann, Head of Investor Relations.

Joerg Hoffmann

Thank you, operator. Welcome to the Wacker Chemie AG conference call on our full-year 2022 results. Dr. Christian Hartel, our CEO, and Dr. Tobias Ohler, our CFO, will take you through our prepared slides in a minute. The presentation is available on our webpage under the caption, Investor Relations.

Please note that management 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, presentation, and in our Annual Report regarding risk factors. All documents mentioned are available on our website. Chris?

Christian Hartel

Hi. Hello, everyone. We are reporting today on the best results in over 100-year history. 2022 saw a very dynamic year delivering a record result with sales of over EUR8 billion and an EBITDA of over EUR2 billion. All our business divisions contributed with pricing being the primary driver of the significant sales and profit growth.

During the first-half of last year, our teams worked hard to keep up with customer requests, demand outstrip capacities, as we were on allocation for many of our specialty chemical products. We implemented dynamic pricing models providing new tools to address the unprecedented volatility in raw materials and energy markets. As the year progressed, we faced many external headwinds, including the aftermath of the Russian attack in Ukraine, COVID-related lockdowns, and sudden reopening in China, supply chain disruptions, massive inflation on raw materials and energy, and a turning point in monetary policy driving up interest rates. All this weighed on our customer sentiment. Concerns about an upcoming recession manifested, triggering an industry-wide destocking event towards year-end. Wacker was not insulated from these events.

Inventory drawdown at customers in the fourth quarter had a noticeable effect on our sales and earnings. Our teams reacted quickly to navigate these challenges successfully. Pricing management in chemicals and strong demand for solar polysilicon drove sales and earnings last year. Our long-standing hedging policies provided us with some relief from very high market prices for power and natural gas.

Our efficiency and restructuring program shape the future is on track and we continue to reap the benefits from this program, which we started in 2020. The actions taken since then supported our 2022 results was about EUR200 million. Furthermore, the new leaner structure empowers our regional teams and help to create a more dynamic and responsive organization. This successful combination of factors played a decisive role in achieving a record EPS of over EUR25 per share. This is our best result to-date at the basis for our dividend proposal of EUR12 per share.

I am proud of the strong performance of our teams and their efforts, so please allow me and on behalf of the entire Board to thank them for a job well done. Sustainability is a key value driver at Wacker. We set ambitious 2030 targets covering our products, operations, and supply chain. Last year, we reduced our CO2 emissions by 11% and are clearly on our way to achieving Net Zero by 2045. A critical factor in this was converting our power supply for silicon metal in Norway. We are now fully covered by certified hydro and wind power there. And we will take this further. We will switch to renewable reductants at Holla and plan to start a pilot plant this year to convert CO2 emissions into chemical products.

There is a strong business rationale for sustainability. Sustainable products already find new markets and comprise over two-thirds of our portfolio. Tier 1 customers have set sustainability targets themselves and Wacker is committed to being a long-term partner on this journey. Sustainability, strengthens our ties to our customers. We have taken a big step in our sustainability disclosures reporting now on all KPIs in our annual report. This is a clear signal to all of our stakeholders highlighting how important we take sustainability at Wacker.

Now on the next slide, you can see the development of our dividends, reflecting last year's success and now we have stuck to our dividend policy of distributing half of our net income. Our proposed 12-year dividend underlines our commitment to sharing our excellent results with our shareholders. Regarding capital allocation, growth and dividends are our top priorities.

At our CMD in March last year, we communicated our 2030 targets and updated our strategies. You should expect faster growth, bolder moves and high profitability in the future. We strive to almost double our growth, improve earnings and resilience and have prudent cash management with a clear investment strategy. To this intent we -- to this end, we intend to focus on our specialties in chemicals and BIOSOLUTIONS and increasing our semi grade capabilities in polysilicon.

The chart on the right shows that we are not embarking on wishful thinking, but building on our past successes. The development in our chemicals businesses is industry-leading with best-in-class growth, margins, and ROCE. We have demonstrated our ability to earn a clear premium on our cost of capital over this time and our strategic growth projects will make us more resilient.

The next page shows the headline projects worldwide. This project will expand our regional depth and increase the competitive leadership in our businesses, expand capacities in both our German sites, and we opened a new specialty silicones site in India. The chart investments follow our strategy of increasing our SILICONES business in North America to meet customer pool. The Nanjing polymers investment addresses the strong underlying growth and demand for smart construction materials in China. At BIOSOLUTIONS, we invest for the German pandemic preparedness plan requirements and position ourselves as the leader in industrial biotechnology with the new research center investment in Munich. Finally in polysilicon, we invest to meet strong global demand for our semiconductor grade polysilicon.

Now looking at our full-year guidance on the next page. As you know, critical challenges from last year still need to be resolved. Inflation weighs on customer sentiment and power costs are still significantly higher than in 2021. Demand in this year's first two months was substantially lower than last year across many industries. Looking further into the year, we expect businesses to improve as the year progresses. Overall, we see full-year sales between EUR7 billion and EUR7.5 billion, generating an EBITDA of between EUR1.1 billion and EUR1.4 billion.

Now regarding current trading, the first-quarter will see some depressed earnings, compared to Q1 last year. Key drivers for last year's performance are reversing. We see lower volumes and higher costs with inventories moving into the P&L. In general, many customers are running down their inventories and remain cautious even though they expect demand to pick up again later in the year. For the group, we see sales of EUR1.7 billion with an EBITDA of EUR250 million to EUR280 million in Q1. We see chemicals operationally better than in Q4, because volumes have dropped in December. Polysilicon comes in clearly below Q4 due to plant maintenance and lower contract volumes.

Before I pass on to Tobias, let me make a short statement on polysilicon and I know that probably many of you have been waiting for this. You will have noticed that our communicated strategy for 2030 did not mention investments in solar polysilicon. At the time of our CMD in March last year, we did not have plans to invest here. But since then, many things have changed. On both sides of the Atlantic, we see quite some discussions of establishing or reestablishing a competitive solar industry. We appreciate these initiatives, but they underline the strategic importance of these technologies and their relevance for fighting climate change globally.

In Polysilicon, we have the best technologies, product quality, and most efficient processes. But many of our Eastern peers at attractive energy costs. Therefore access to international competitively priced power is essential for re-shoring to succeed. We have been advocating for European industrial power price for years. Together with leading-industry associations, like [CII] (ph). At Wacker and throughout the chemical industry even for the whole industry, the path to climate neutrality involves electrifying production processes. High electricity prices are hampering this transformation and that is showing Europe's competitiveness.

Wacker will be part of the solution. But let me clarify. We will not rush into any new investments in solar and sacrifice growth in chemicals and BIOSOLUTIONS. To invest, we need compelling, solid, and long-term economic conditions and this will be the basis for any of our decisions.

Now to Tobias for details on financials of 2022 and 2023.

Tobias Ohler

Thank you, Chris. Welcome, I will walk you through our financials and provide a segment outlook for the year. Let's begin with the P&L. As Chris said, we reported sales of about EUR8.2 billion with an EBITDA of over EUR2 billion. The primary driver of this was price supported by some currency effects. Gross profit improved despite the massive increase in costs for raw, energy, and logistics, these increased by EUR1.3 billion.

Our restructuring program Shape the Future not only supported earnings with cost saving measures, but also put nimble structures in place. This allowed us to react to rising input costs fast, and decisively. We empowered regional management, accelerating our response times and improving our resilience. The operational performance against ongoing supply chain challenges drove a strong increase in net income and earnings per share.

Last year, the most important changes in our balance sheet was the increase of shareholder equity by almost EUR2 billion. The higher equity resulted from the record earnings and the decline of our pension liabilities by EUR1 billion. Higher discount rates mean pensions at EUR2 billion lower from the end of 2020. Working capital stepped up reflecting a strong increase in sales, a key feature here was the increase in inventories reflecting raw material, and energy inflation and bottlenecks in the supply chain. Our liquidity pool stayed at about EUR2 billion, our net financial asset position is over EUR400 million.

Moving onto SILICONES. EBITDA increased faster than sales as we actively increased prices amidst strong demand. After our price initiatives in Q4 2021, we had specialty prices firm over 2022. On the other hand, commodity prices declined significantly in the second-half as excess material from China hit the export markets during weak domestic demands due to lockdowns. Destocking at our customers led to generally low utilization rates at the end of the year. The 25% margin that we achieved last year was exceptional. It reflected beneficial trailing raw material effects in the first-half of last year at a very strong SILICONES pricing at that time.

Please note that our Q4 results also included a EUR70 million, write-up related to a share in the Chinese joint venture. Last year, we invested EUR200 million mostly inter capacities for specialties, as demanded by our customers. These projects include additional units for specialty SILICONE, such as liquid SILICONE rubber for example. We will benefit from these capacities and expect specialty volume growth as customer demand improves throughout the year.

Looking into the full-year, we expect sales of EUR3.1 billion to EUR3.3 billion. The weaker first quarter with continued destocking, unwinding higher raw material cost inventories, and lower commodity prices weigh on earnings. We expect the full-year EBITDA margin of about 15%.

In POLYMERS, we used surcharges to change our pricing models effectively speeding up our response to raw material headwinds and other cost increases. This change allowed us to stabilize margins in a high volatility environment and to continue to invest in capacity expansion for our customers. Demands in the first-half of last year was still strong the second-half saw a lower order intake from destocking and a weaker demand in construction applications. We invested around EUR100 million mostly for new capacities in Nanjing in China. We continue to invest in the region for the regions.

For 2023, we expect sales of EUR1.8 billion with a slightly higher EBITDA margin than last year. While we expect no volume growth in construction, consumer and industrial applications should see some growth. We are confident to continue our pricing successfully. In some contract arrangements, lower raw material costs result in lower prices. In BIOSOLUTIONS, sales growth was driven by strong demand in Bio Ingredients. EBITDA declined following a force majeure at the first-half investments in digitization and upfront costs in connection to our participation in the German Government's Pandemic Preparedness Plan.

Furthermore, the contribution from our BioPharma activities, warehouse backed by a large customer not meeting their construct -- contractual obligations. We are actively working to resolve this matter. We’re testing our CDMO business in microbial and advanced pharma like mRNA and pDNA products. The construction of our biotechnology center in Munich and our mRNA Competence Center in Halle are scheduled. Our growth initiatives require continued investments and trigger higher upfront costs related to new business development and integration costs.

For 2023, we expect low-double-digit percentage sales growth supported by BioPharma, and Bio Ingredients. EBITDA will be back loaded to the second-half of the year and should come in substantially higher than last year. Polysilicon saw a strong demand for semi, and solar products. Attractive prices for semi and solar grade polysilicon enabled us to achieve excellent results, despite significantly higher costs for energy.

EBITDA increased by over 25% year-over-year. We continue to invest in supporting the growth of our [Technical Difficulty]. The year we see 2023 sales of EUR1.6 billion to EUR1.8 billion [Technical Difficulty] of EUR300 million to EUR500 million. The key changes last year are potentially lower [Technical Difficulty] our volumes from plant maintenance and the ongoing installations. Continued higher energy costs in Germany weighed depending upon how the energy market [Technical Difficulty] to develop.

Our cash flow reflected the strong earnings in 2022. Our cash flow from investment activities are close to EUR700 million and EUR400 million. Dividend payment, we closed the year with a net financial debt [Technical Difficulty] EUR400 million. In the past three years, we have generated total cash flow of about EUR2 billion [Technical Difficulty] of EUR2 billion and [Technical Difficulty]

Let me give more background into how we see Q1 shaping up in our segments. For the Group, we see approximately EUR1.6 million in sales, with an EBITDA in the range between EUR250 million and EUR280 million. It is fair to assume that Q1 will show customer destocking, slow demand in many chemical markets, as well as the plant maintenance, and lower contract volumes in polysilicon.

In SILICONES, we see sequentially higher EBITDA in Q1 adjusting for the revaluation effects from Q4, despite trailing higher raw material costs and continued low utilization rates. In POLYMERS, we also see sequentially higher EBITDA in Q1. However, construction demand see its slow starts to the year. Upfront costs will burn BIOSOLUTIONS in Q1 EBITDA in 2023 is expected to be backloaded to the second-half. Polysilicon should see substantially lower sales and EBITDA in Q1 versus Q4.

While our semi volumes continued to grow despite the overall semiconductor industry cycle, we see lower volumes in solar. The key reasons for this are plant maintenance and temporary lower contract volumes in Q1. All of the group full-year guidance are usually with some modeling help in our appendix.

Before we get into the Q&A, let me say [Technical Difficulty] We'll certainly remember the core messages from our team in the last year. We focus on growth, pivoting more towards specialties, while improving our resilience and sustainability profile. Looking back into the last years, we have already started to deliver on these promises. We have actively implemented measures to improve our resilience, our Shape and Future restructuring program is on track and will deliver EUR250 million in gross savings in 2023.

We stand on a strong financial foundation with a strong balance sheet. We have a net cash position of over $400 million. Our equity is at EUR5 billion. Our portfolio now focuses on higher value-add specialty products. We now have less exposure to volatile commodity markets than in previous economic slowdowns.

With that, I believe that we are well positioned. That is why I am confident Wacker will remain successful in even amidst the current tougher economic conditions. Thank you.

Joerg Hoffmann

Operator, we're now ready to begin the Q&A.

Question-and-Answer Session

Operator

Ladies, and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] The first question is from the line of Sebastian Satz with Barclays. Your question, please.

Sebastian Satz

Yes. Thank you very much. You mentioned the need for a competitive power price, and it seems as if Germany is actively looking into this. If I am not mistaken, historically you've talked about a level of EUR0.04 to EUR0.05, but the headlines in the press suggest that it's going to be something like EUR0.05 to EUR0.09. I know, nothing has confirmed at this point, but assuming this would be right? Would that be sufficient for you to be competitive? So how do you think about, that would be my first question.

And the second one is on pricing. How confident are you that your pricing in solar can also decouple from the Chinese spot price? Is there any evidence that you can already show towards and point towards this is already happening? Thank you very much.

Christian Hartel

Okay, Sebastian. This is Chris, I will start with your first question on the competitive power pricing. Yes, there wasn't -- I think it was under an official press release that a comment from Robert Harvick from BMWK on ideas of power pricing EUR0.05 to EUR0.09. I think this was very much focused on what renewables today in Germany are, what the cost position is. So -- and I think it's right with the EUR0.05 to EUR0.09. I think that this concept is very much something on adding a capacities for renewables for the future and that the industry could have a direct access to these power at this cost.

Is it competitive? Well, it is different to the EUR0.04, which we proposed also in the past, but we always said, what we need is an internationally competitive power price, meaning if the world power pricing is moving or fluctuating, there is no necessity to lock in a EUR0.04 for let's say 10-years. Although we would appreciate that, of course. So I think the EUR0.05 to EUR0.09 is something to start the conversation, is it the ultimate signal for us to start investing? No, it's not because for us to invest in solar, it's a three-fold decision. First of all it's the energy pricing, it's OpEx, and in Europe, it is really kind of a black and white thing, either it is in an attractive range, then we would continue to talk, or it is not. The EUR0.05 to EUR0.09, especially the lower range, I would argue is something which is worthwhile to look at.

But the second is CapEx and depending on the size of the investment this could be significant, and therefore we would also then engage into discussions about CapEx support. And thirdly, also very important for us is, we need customers with long-term commitments to buy the material from such a potentially new plants. And as you know, especially on the next value chain step, which is the ingots and the wafers, they are not really players in Europe at the moment. So they would need to be established first, and of course, they would need to have contracts of us long-term on economically viable options. So in a nutshell, the EUR0.05 to EUR0.09 is not what we were aiming for. But I think the lower end of this is definitely something which would enable further discussions into the topic. But don't forget, CapEx is important and customers and contract is important.

Second question you had was on the -- our confidence about decoupling of Western solar prices to China. Well, I think the question first, it's not so much about, is it really a kind of -- is it a decoupling or is it a stable and the correct pricing model for us? I mean, what we've seen at the beginning of the year or December going into January, we saw an extremely high volatility on the Chinese poly pricing. At the same time, the volumes sold in the market pretty low. That means that this index is obviously not volume related and even small volumes can influence the pricing in the index.

And that's the reason why we took the opportunity at the beginning of the year also to discuss with our customers about what is a better pricing model for us. I wouldn't exactly call it the decoupling now, because decoupling has a different connotation, I think also in a political sense. For us, it's about looking for the right pricing model.

Sebastian Satz

Very helpful. Thank you very much. Can I just ask one quick follow-up. Coming back on the power pricing. Would you expect that to also apply to your existing capacity and not just new capacity? Thank you.

Christian Hartel

Yes. Very good question, Sebastian. And the answer is, yes, that is what we are educating for. Because, I mean, if you look at the -- and if you talk about reestablishing a solar supply chain in Europe, you have to clearly say that one player is already there and that is us, the rest needs to be built up to a large extent, whereas we are already there. So therefore, we advocate it's not only about new capacities, but also kind of securing the existing capacities applying an internationally competitive power pricing.

Sebastian Satz

Very helpful. Thank you very much.

Operator

Next question is from the line of Charlie Webb with Morgan Stanley. Your question, please.

Charlie Webb

Good afternoon, gentlemen. Maybe just first following up on that -- those price discussions you're having. I understand they're probably ongoing. But what does that price model look like to you as you move away from that volatile China index and how do you envisage that? And have you had any interested parties, your customers in China willing to discuss this, engaging in how to price your poly going forward? Maybe any kind of additional kind of sense on where that is leading would be helpful and full disclosure is probably not there yet?

And then just maybe on SILICONES, you talked about the destocking continuing in Q1. I mean how is that trending? Moving into March, have you seen any improvement? Or is this a specialty SILICONES market, does it still feel like your customers still have lots of inventory and kind of dovetailing into that? Are you confident that you get this business if standards stay where they are, you get this business margin back to that kind of 20% mark you're looking for stay in ‘24, once that destocking comes to an end? Or do you need standards to get better? Just trying to understand how much of this margin squeeze we have in ‘23 really relates to that specialty element, the destocking, the decremental effect versus the fact that standards have come down a lot? Thank you.

Christian Hartel

Okay. Charlie, this is Chris. I would go for the first part of your question, the pricing for polysilicon in China. As I mentioned, we are currently in discussions with many of our customers, which shows, first of all, I think that there is an interest to engage in this discussion showing that, obviously, the material we produce has a good value. And I hope that you can accept that I cannot really share now the details what we are discussing with our customers. Yes, it is going away from this single index that we have. There is also an index on non-Chinese materials. And well, you can talk about maybe a fixed pricing component, but I would leave it with this, customers are clean to discuss and yes, so makes me kind of optimistic that we find to -- find the solution there.

Tobias Ohler

Charlie, this is Tobias speaking on your questions on SILICONES. So the destocking in SILICONES was most significant in the fourth quarter in December. So while October and November, we are already getting weaker December was really very weak. And we see some improvement in January or February, I would say this -- looks more like October, November and March now looks better than January and February. So I would read this as destocking of our customers still ongoing. And especially if you ask them what the outlook for the second quarter is, I mean, our order entry is still very short-term, so we don't have much visibility. And if you look at other industries have the destocking for half a year looks like something very normal also in comparison to our POLYMERS division where destocking started in summer. Here, we read more like destocking is over. And now we see the true demand I would expect that in SILICONES destocking effect Q4 and Q1 and maybe a little bit into Q2.

But we are confident that we can sell additional, especially specialty volumes when our capacities are available, because over the last two years, we have been -- yes, in bottlenecks in the supply chain. And we are really looking forward to this additional material that we can sell to customers, depending on how their demand shapes up, but customers are more confident that they have a stronger end market in the second-half of this year.

So with respect to the margin you mentioned, and do we get back to the margin target of 20% plus. I would say the last year was sort of exceptional with the 25%, because of two reasons. The first-half was super strong. We still had lower cost raw materials going into the P&L, while standard prices were at a very high level, and that flipped a bit in the second half. And then we had in the fourth quarter also that write-up in the joint venture, giving us an extra margin -- we guide for around 15% for the full-year ‘23. This is not a target margin, but we are starting in an inventory correction situation, and we have the reversal of raw materials that are at high cost now going from the stocks into the P&L.

So the tailwind that we had in the first-half of last year, we have a headwind in this year. And for that reason, I'm confident that in ‘24, the world can look completely different, and we are back towards our target margin. But I think it's a bit early to talk about ’24 when you just have very limited order visibility for the second quarter.

Charlie Webb

Understood. That's helpful. But just to kind of clarify, I guess, that question was if standards were to stay where they are, and then you don't make us money making standards, if just you see a more normal environment in specialties, you'd be back towards that 20%. Is that a fair assumption? Or do you need standards to improve?

Tobias Ohler

I mean, at some point, standards needed to improve again. I mean, what we had seen in the first-half was super good. What we now see around Q4 and Q1 is not what standards can deliver. I mean, it's also a profitable business, but it's more volatile than specialty centers, that's why we focus on specialties. But our portfolio is composed of the two and I would also assume that supply/demand in standard products would improve, especially also when raw materials finally come down over time.

Charlie Webb

Okay, that’s helpful. Thank you very much.

Operator

The next question is from the line of Mubasher Chaudhry with Citi. Your question, please.

Mubasher Chaudhry

Hi. Thank you for taking my question. Just coming back to -- sorry, the subsidized electricity prices. Could it move from the European Union to kind of bring down the electricity prices whether it's EUR0.05 to EUR0.09 or something else when whenever gets agreed, could that encourage a response from China again to kind of make sure that they remain very much at the bottom end of the cost curve. And therefore, my question is, do you need certainty on price of poly or returns rather than just electricity costs?

And then related to that, do you think the customers will be willing to go into these, kind of, discussions where you're effectively given a fixed price of poly or a fixed return, when there's a potential available much, much cheaper Chinese polysilicon available without an outright ban from legislation, which says that you can't have Chinese polysilicon content in Europe or Chinese polysilicon content in solar panels in Europe. So just some thoughts around kind of the moving dynamics of the subsidies and the response what the response could be like? Thank you.

Christian Hartel

Okay. Mubasher, a very interesting question. Is there a response -- potential response from China if there would be European power pricing -- to be honest, I give you my personal view, I think I think in Europe or in the European Commission, people look very much at China and think that everything that is done in China is done against somebody else.

But in my view, I think many of the things we see in China are done in China for China. From that perspective, I doubt honestly, I don't know it, but I doubt that if there would be a competitive power pricing for the solar industry, which is on par or slightly higher than China, I wouldn't expect any reaction from China would be different if it would be half the price, but I think that is absolutely out of the ballpark in my view. So -- and also we were never educating for having the same or lower price than in China, but having it on a comparative level, meaning it could be slightly higher because we are more efficient.

And so to answer your first question, I don't think there would be a response from China. If you talk about the European offtake of our material, and I understand your question in the respect that you mean if power would still be high, we could go for a fixed price of our customers. So -- and then just putting the higher electricity costs down through the value chain through our customers. Well, my answer would be, from our perspective, that might be okay acceptable. But I have some doubts if that could be the great model for Europe because at the end of the day, these high-power costs would go through the entire value chain and then the modules at the end would end up being not competitively priced internationally, where would I wouldn't see that as a great thing to do.

And that's the reason, again, why we advocate for -- in the beginning of the value chain, put in a competitively priced power internationally competitive power, which would make the product on every value chain steps and also more internationally competitive that makes it much easier for us and our customers to engage in such a concept.

Mubasher Chaudhry

Just to -- just to come back on that because the three things that you talked about in each is that you talked about was customers with long-term commitment to buy from Wacker on the long-term economically viable terms, right? So that's what I'm trying to kind of understand those economically viable terms implies that you need stable polysilicon price as well as a stable electricity price. Because if you've got a stable electricity price, the polysilicon time is very, very volatile and therefore justify it being at EUR0.05 to EUR0.09 a kilowatt hour -- kilowatt-hour, you still could be lot thinking?

Christian Hartel

Yes. No, you're right. I mean, you're absolutely right that implies more stable poly pricing and definitely not something which focuses on a Chinese -- the Chinese now that's reference point. Yes.

Mubasher Chaudhry

Thank you.

Christian Hartel

Index that was the word, index. I was looking for index.

Operator

The next question is from the line of Markus Mayer with Baader Helvea. Your question, please.

Markus Mayer

Yes. Good afternoon, gentlemen. And coming back to the customers, and Charlie's question. Are there indications that you see new customers in Europe that there are projects of new customers? That's my first question.

And then the second question is on the silicones business. You expect lower average selling price in standards. What is the price expectation for specialties you expect here flat prices, maybe I missed this?

And then the last question is on BIOSOLUTIONS. You expect still a burdening coming from the upfront costs? Could you give an insight on the magnitude of this upfront costs, which is still weighing on 2023 margins?

Christian Hartel

Okay. Markus, your first question customers in Europe, yes, there are customers in Europe, although the volumes at the moments still low. And as I mentioned, I mean, if you look at capacities for the next value chain step, which is ingot and wafers. This industry is just in the process of being built up, so that means target customers are still evolving. But you also see some customers, which are actually some further steps down the value chain producing cells and modules that wanted to have material which has European origin. So they actually indirectly work together with us that the materials, which we produce is then shipped to another location for making the ingots and the wafers and then goes back to Europe to produce the modules. So, yes, there are customers demand is increasing but it needs to be more to come.

Markus Mayer

Sorry, still a question at, I meant, are there new wafer customers that do you see project of new wafer customers for Europe costs so 5% basically what is missing for new business?

Christian Hartel

The new wafer producers?

Markus Mayer

Yes.

Christian Hartel

No, no, we don't. I mean, now Norwegians are there, but that's about it. Yes.

Markus Mayer

Okay. That was my question. Okay. Thank you.

Christian Hartel

Yes. Okay, sorry. Yes.

Tobias Ohler

Markus, it's Tobias here on the silicones question with respect specialties pricing. In general, we are firm on specialties pricing, but that does not mean that they stay unchanged. So we are not immune to the supply demand effect, but for the time being specialty prices have held up firmly, but it will very much depend also on how the demand will develop over the course of the year.

And also as a side note, the definition between standard and specialty is a simplification. I mean, it's not black and white. There is also grey for some specialty products that I mean closer to standards. I mean the price pressure potentially also comes from standard becoming cheaper.

But I think it's really a different picture for the time being. Why, what standard prices have really reduced yes, significantly specialty pricing has been holding up. On BIOSOLUTIONS, you were trying to get a number on the upfront costs and the magnitude, I don't want to disclose it precisely.

But I think if you take a low double-digit number and see the size of the overall segment, you get a graph on, yes, that margins, yes, depressed, especially in the first half of the year because the overall business, the biopharma business really depends on when to get campaigns turned into revenue and take. And there we see yes, much of the sales coming in the second half. So let's be a bit cautious on the first half but also look at the -- at the optimistic and confident outlook for the full year that we will see a significant increase in -- also in profitability in this year in BIOSOLUTIONS.

Markus Mayer

Okay, thank you.

Operator

The next question is from the line of Thomas Swoboda with Societe Generale. Your question, please.

Thomas Swoboda

Yes, good afternoon. I have two questions on polysilicon, please. I'm intrigued by your statement, you're saying temporary lower contract volumes in polysilicon. I'm wondering if you could expand on that? What does it mean? Does it mean you're walking away from business in the spot market, your customers all doing less within the existing contracts? Yes, I'm just wondering what that is.

And the second question related to that is, could you comment on your year-end inventory level in Polysilicon, how is it compared to the previous quarter, it's actually been increasing and how do you look into inventories for the end of Q1, please?

Christian Hartel

Okay. Yes. Thank you, Thomas. And actually, these two questions are kind of -- kind of related and because let me start with the second one, inventory. Actually in 2022 especially throughout the year-end was pretty low because we had a very attractive pricing for polysilicon. So what we did is try to sell as much as possible and also in December we still at very attractive pricing.

Now what I explained before, and now I turn to the first question, what I explained before is we saw this huge volatility in the pricing of polysilicon starting mid-December reaching the whole point and I think it was the calendar week two in January, but at the same time the volumes in the market were pretty low.

So from that perspective, both our customers and also on our side, the interest to sell volumes was limited, and that was meant temporary lower contract volumes because also on the -- on our customer side, many of the factories were closed because of that COVID infection rate, which was really skyrocketing. So we use the opportunities to talk with them, and we found agreement to lower these contracted volumes because for us the volume was -- the pricing was too low. And for them in many cases stage just didn't need the material and for us it was a good opportunity to restock our inventories. And keep in mind, this is a long logistics chain from our plants in Germany to our hubs in China.

And in order to be competitive in the markets, you need a certain inventory on the ground in the country and that's why we took that opportunity just to also fill up our inventories in China.

Thomas Swoboda

Thank you. And, but does it mean that this situation has already reversed or is this kind of small stand still ongoing?

Christian Hartel

Well, I wouldn't. And I didn't call it a standstill. I think we are in negotiation with all our customers and as you know prices did change also dramatically, then they recovered quite a lot in the past and that's also why we use our contracted volumes to be sold again to our customers.

Tobias Ohler

Thomas, Tobias here. May I add? March volumes are higher than in February.

Thomas Swoboda

This is helpful. Thank you.

Operator

Next question is from the line of Andreas Heine with Stifel. Your question.

Andreas Heine

Good afternoon. I have actually also two questions regarding Halle. I'd like to understand a little bit more how you're playing solar and semi between the two locations, Germany and U.S.? My understanding is that in the U.S., you have your overseas subsidies for producing solar material, but that plant is more dedicated to semi.

And on the other hand, producing solar material in Germany was higher electricity cost does not looks attractive. How you play this and you can elucidate on this? And then as one peer who -- which reopens a plant in the U.S., saying that and that to keep on plant is fully ramped that would be able to earn EUR100 million to EUR300 million EBITDA?

I would assume that your higher exposure to see and your technology lead that your profitability is higher than the EUR100 million to EUR300 million fully loaded. Could you comment on this piece as well? Thanks.

Christian Hartel

Yes, Andreas, I would start to -- I'll start to comment. The line was not as good so it was little hard to understand. First question, I think you were looking for the grade. So semi-conductor and solar grades, how we switched that in the U.S. and how that influenced by the electricity pricing. Well, first of all, the general statements, we're probably the only ones that can use both the capacities for solar and semiconductor because of the kind of technical setup that we have. And typically what we do is, of course, we try to find an optimum but we also try to make it in a way that it's in line of our customers, especially on the semiconductor side because there are some of these customers definitely demanding to have two sites that are a qualified and be are delivering to give them more risk protection.

But the solar -- the energy price itself doesn't make a huge difference whether we produce poly or better produce solar or semi because at the end of the day, our aim is to run both -- all the plants at full capacity. So it's really not a decision so much on the electricity pricing. And then the second question?

Andreas Heine

Maybe adding to this. How is it is the subsidies in the U.S. they're only for solar and not semi and you don't have that in Europe, at least by now. So how you can get access to disadvantage than the tax credits on the solar rate could?

Christian Hartel

Yes. You mean for the IRA credit for polysilicon?

Andreas Heine

Yes.

Tobias Ohler

But we assume, Andreas, Tobias here. We assume that this is also applicable to as per definitions of the high quality that we produce at this. I mean it's above solar quality as we all know that tax credit would also be applicable to the semi. So -- but it's a tax credit. So we will not see it in the P&L in this year because I think it will also be paid out, yes, in the next year. The mechanisms, I mean I think it's not yet fully defined how they -- how they actually want to do it.

Andreas Heine

Okay, thanks.

Tobias Ohler

And then I think your second question was on, yes, you were referring to?

Andreas Heine

You are as good or better than your competitor in your plant in Tennessee, actually?

Tobias Ohler

No, I think the question was also on some potential EBITDA contribution from an investment. I think it's far too early to speculate about that.

Andreas Heine

No, I was just thinking with the plant of your peer is as big as your ones and they saying that it can earn EUR100 million to EUR200 million of EBITDA. So you have the same sites and I would assume that your Tennessee plant should be at least as this is not [Technical Difficulty]?

Tobias Ohler

I think we shouldn't comment on that. Sorry.

Andreas Heine

Okay.

Christian Hartel

So I'm grateful, I was kind of let's talk about.

Operator

Mr. Andreas Heine, you are still there?

Andreas Heine

No, my question was answered. Thanks a lot. Thanks.

Operator

Thank you. The next question is from the line of Chetan Udeshi with JPMorgan. Your question, please.

Chetan Udeshi

Yes. Hi, thanks. I had couple. So first is just on the guidance that you're talking about the net cash of EUR400 million going to a low net financial debt. I mean, I'm assuming there is a EUR600 million of dividend payment, but it would imply that essentially you are assuming free cash flow to be zero to EUR100 million, is that a fair assumption? And why is the free cash flow so low in 2023? Can you maybe shed some light?

The second question was clearly, I think the whole -- most of the conversation today on the call has been on solar and polysilicon, which is quite interesting. But just from a philosophy point of view for management team, how comfortable are you to take or make investment decisions based on subsidies, because in theory subsidies can be -- can be there for two years, they may not be there after two years. So like what sort of mechanism will you take into account in terms of making a investment case around subsidies? Thank you.

Tobias Ohler

Chetan, on your cash flow question, Tobias here. I think you need to equate that our guidance as number one, a lower EBITDA. And then secondly, we have a higher invest and if you potentially also include a bit of a buffer for yes say a small bolt on acquisition, it's even beyond this EUR650 million that we have as a capital expenditure in our -- in our plants organically. Right now we don't, I mean, we don't assume a big unwinding of working capital definitely we would expect inventories to come down a bit also lower raw material costs. Yes, supply chain bottlenecks to get this solved, but I think your calculation was not that far off. And is that if you account for the EUR600 million dividend payment that would come after, yes, the shareholder meeting.

Christian Hartel

Okay. And Chetan, on your -- on your second question. Very good, very good question on the part of the subsidies and well to be -- to be fairly plant we prefer a business where we are the sole architect of our own success. I would like to phrase it because we are an entrepreneurial company, and we don't want to rely on subsidies.

I think when we talk about reestablishing the solar supply chain in Europe, for me, this is more, it's not so much about subsidies. It's really about setting the right framework, setting the right structural changes within Europe. I mean if you have a lot to be competitive in the future for the chemical industry for many other industries.

I think competitive power pricing is something which is just essential to keep -- to keep the industry to keep and to keep employment at an attractive level. And from that perspective, I don't think you can just subsidize it. You can subsidize something for five years. But you need to make this structural change, and that's also what we advocate in politics, saying, that the buildup for renewables needs to be much faster.

The infrastructure for renewables and all the processes to get them running needs to be faster because that's a structural difference, a structural change for the country that makes it more competitive, and this is what we're really aiming for because I agree with you, I don't feel very comfortable building something just on subsidies, and Just in subsidies we will definitely not do.

Chetan Udeshi

That's useful. Thank you.

Operator

The next question is from the line of Sebastian Bray with Berenberg. Your question, please.

Sebastian Bray

Hello, good afternoon and thank you for taking my questions. I would have two, please. The first is on the starting point for the power prices at Wacker relative to the proposed EUR0.05 to EUR0.09 per kilowatt hour. I took a look at the energy costs in some of the historical data of about 4,000 gigawatt hours per year electricity consumption. Am I right in saying -- am I warm in saying that the realized price paid for power at Wacker was somewhere in the mid-teens per kilowatt-hour in the year 2022? That's my first question.

Tobias Ohler

Sebastian, we have always been shy of commenting on specific power prices and items on that level of detail. What we always referred to is that we benefited from the hedging approach. So we did not -- we did not pay the super high spot prices like in third quarter of last year and that was the value that generated hundreds of million in benefit against the spot price from our hedging strategy.

But if you observe the prices and yes, we have seen also forwards coming down in mid-teens prices that were available at some parts or in some phases of last year. And reference point is still the energy costs that we always happy to give you is that our energy costs in global Wacker was almost doubled last year going to a number of slightly above EUR800 million in total for the group.

Sebastian Bray

That's helpful. Thank you. I don't want to push this too hard, but am I at least lukewarm with that figure? Why am I pushing to you?

Tobias Ohler

I think we could go to the next question.

Sebastian Bray

Thank you. And the next question is on BioSolutions segment. Are we going to have a period in ‘25 when we wake up the capacity is fully utilized and EBITDA margins are over 20% because I look at the margins now and I think, well, let's say, the figure is EUR20 million of upfront costs that go in there. How much visibility do you have on these facilities being filled? And can you remind me of when the new RNA facility under the pandemic preparedness plan is done?

Christian Hartel

Yes. For the -- for your second part of your question, the pandemic preparedness plan, requires the plant to be -- to be operational in mid of ‘24 and that's the plan and that's what we aim for and as he stated and Tobias repeat that again, I mean 2023 will be a year of transition for BioSolutions where we ran capacities, where we built new capacities and also we don't talk often about it, but I can tell you, the teams are pretty successful in getting new projects on the road.

And most of them are in the pharmaceutical space, they just takes some time. It is not something which you can do from today to tomorrow. So from that perspective, we will see absolutely gradual improvement and I'm pretty optimistic already in 2024, looking for BioSolutions. So to give you a picture in 2025 do we wake up and are happily surprised, I think we will see a gradual definitely a gradual improvement and starting 2024 it will be already good year.

Sebastian Bray

That's helpful. Thank you for taking my questions.

Operator

The next question is from the line of Sean Meakim Loveland with HSBC. Your question, please.

Sean Meakim Loveland

Thanks and good afternoon. Just a follow up on U.S. versus Europe in polysilicon. I sense that there's been a re-prioritization of Europe in your thinking around where you will be investing CapEx, if you do choose invest CapEx in solar expansion. I'd just like to kind of understand what are the main moving parts in that thought process?

And the second question is just a confirmation on Siltronic, but these are -- I saw that you still, it's still for sale, you're waiting for confirmation of buyer and price. If you could just comment a little bit about what those boundary conditions might be and maybe how the environment has changed since global wafer? Thank you.

Christian Hartel

Okay, Sean. Quick answer on your first question. There's no reprioritization on our side, whether it's the U.S. or Europe for potential solar investment. As we stated in our Capital Market Day, we have no decision on investing in solar. Since then, there is a lot of discussion going on both sides of the Atlantic. But on both sides of the Atlantic, there is not yet a scheme, which would allow us for a long-term and feasible and economically feasible model to invest.

And therefore we have to wait on both sides what comes up. And of course, we do not only wait, we're engaged in these discussions, but I can't really tell you today, which is more attractive. I think we would probably need some more weeks or months to wait on this. On the Siltronic, well, also really nothing new on this front. We always said we want to de-invest the remaining share that we have to 30%. We want to look for the right partner and of course we are interested in an attractive pricing which values the money -- which values, sorry, which values the company at the right -- at the right value. And that's the way we go forward. So really nothing to comment more on.

Sean Meakim Loveland

Thank you. I suppose just more broadly around, I think if we think about the political environments, I mean, is the sale effectively restricted to a local player?

Christian Hartel

I don't know, I mean geopolitical situation at the moment doesn't seem to be easier than two years ago. I think that's a fair statement to make, but again we are not, we are not in a rush. We are not in a hurry. We are financially pretty stable, and we can do all the investments and our growth strategy going forward are also without these proceedings.

Sean Meakim Loveland

Very clear. Thank you.

Operator

The next question is from the line of Jeff Harry with UBS. Your question, please.

Jeff Harry

Hi. Good afternoon and thank you for the opportunity to ask questions. I just had two questions. First of all on back to polysilicon, but this time on semiconductors. Clearly there's a lot of capacity being built in Europe and North America with on shoring as we go through the next sort of four to five years. When would you expect to be tendering for contracts with the Intel and all the other companies that are adding new capacity in the coming decade?

Christian Hartel

So well, to answer your question. Actually, we are not -- we are not directly tendering to the Intels and Samsungs, but we are tendering to the Wacker producers like Siltronic like nets like global wafers and of course they are also ramping up their capacities, and we are in constant negotiations on expanding long-term contracts. And I can tell you that we have a -- well, we have a pretty good pipeline on expansion projects with them.

Jeff Harry

Okay. Thank you. My second question was just back to Siltronic. Clearly, you've got the largest shareholder, but also GW still have a substantial shareholding. You have to agree on who you sell the shares to or is there or can you both operates completely separately?

Christian Hartel

No. I mean we can sell the shares. I mean our shares are our shares and global water shares are global wafter shares. There is no restriction on that.

Jeff Harry

Okay, thank you.

Operator

The final questions come from the line of Jaideep Pandya with On Field Research. Your question, please.

Jaideep Pandya

Thanks. The first question is on polysilicon. On the n-type market, what is your view of this market this year? Industry experts are saying around 100 gigawatts. We a couple of your Chinese competitors can produce this so can you actually produce the 60, 65 kt all of n-type and do you think there is a price premium for this product? That's my first question.

The second question is really around your raw material, energy bill. What is your expectation for this overall this year because when I look at your guidance, basically you're dropping EBITDA by EUR900 million year-on-year and you're dropping sales by about EUR1 billion year-on-year. So pretty hefty drop through from sales to EBITDA, so just curious whether you're baking in a flat raw material, energy environment in that?

Christian Hartel

Okay, Jaideep. First part of your question, the entire, I mean we always -- we always said that entire will be the prevailing technology because it's such better performance and so I would agree with you that there is a big potential going up and it's a good number I think to work with. Can we produce if our 60 kt you're referring to our solar capacity for that? Well, it's a clear yes. As I mentioned before, we could use our capacities both for solar and semi and if you can make semi, you can definitely make entire poly type.

Tobias Ohler

Jaideep, on raw material, then energy. It's pretty tough to actually come up with forecast for these items, if I went back clock to our planting season in fall, I think we -- we had assumed that raw materials would be sort of flat and energy would still increased a lot. In our Annual Report, we have baked into the forecast that raw materials are down and that energy slightly increases against prior year.

If I look at the most recent development from the last couple of weeks, I would yes see also the potential that energy comes in at the same level as last year because we are already roughly 80% hedged so there are some remaining volume to be bought and very much depends on then how the second half of the year develop, but overall lower raw material bill and energy is slightly up or at the same level as last year.

Jaideep Pandya

Thanks a lot. I just want to make one comment to just Chris. Thanks for your IR team as well given the lovely commodity you are in polysilicon and the volatility we bring to their lives that have been super helpful last year.

Christian Hartel

Okay. Yes, thanks. Yes, thank you.

Operator

This concludes the Q&A session and I hand back to Joerg Hoffmann.

Joerg Hoffmann

Thank you, everybody, for joining us today and for your interest in Wacker Chemie. Our Q1 conference call is scheduled for April 28. Don't hesitate to contact the IR department if you have further questions. Thank you.

Operator

Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.