Wacker Chemie's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Wacker Chemie (WKCMF)

Wacker Chemie AG (OTC:WKCMF) Q4 2013 Earnings Conference Call March 18, 2014 10:00 AM ET

Executives

Joerg Hoffmann - Investor Relations

Rudolf Staudigl - President & CEO

Joachim Rauhut - CFO

Analysts

Jean-Francois Meymandi - UBS

Georg Remshagen - Commerzbank

Andrew Benson - Citi

Thomas Swoboda - MainFirst Bank

Pete Fitzl - Hauck & Aufhauser

Operator

Good afternoon, ladies and gentlemen, and welcome to the Wacker Chemie AG Conference Call regarding the Full Year Results 2013. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation.

Let me now hand the floor over to Mr. Joerg Hoffmann.

Joerg Hoffmann

Thank you, operator. Welcome to the full year 2013 conference call on Wacker Chemie AG. My name is Joerg Hoffmann, Head of Investor Relations. As usual, we have Dr. Rudolf Staudigl, our CEO and Dr. Joachim Rauhut, our CFO with us on the call.

Please note that during this call we may make statements which contain predictions, estimates or other information with our forward-looking statements. These statements are based on current expectations and certain assumptions, and are therefore subject to certain risks and uncertainties.

Some of these risks and uncertainties are beyond Wacker's control and could cause the actual results to differ materially from results, performances or achievements that maybe expressed or implied in such forward-looking statements. Wacker may not update those risk factors or the forward-looking statements made during this call, nor does it assume any obligation to do so.

We published today our annual report, a presentation to accompany this call, a press release on our numbers, and an Excel file detailing our data. In addition, we published a press release today concerning Polysilicon imports into China.

A written version of today's prepared speeches will be posted on our website about half an hour after this call. You will find all of this on our website, www.wacker.com under the caption Investor Relations. Staudigl?

Rudolf Staudigl

Ladies and gentlemen, welcome to our full year 2013 conference call. At about €4.5 billion, Group sales in 2013 were 3% below prior year. EBITDA declined about 15% to €679 million.

Our strong chemicals businesses could not quite compensate the significant price declines in Polysilicon and semiconductor wafers. Overall, 2013 was a difficult year with a slow start, but a strong finish.

We increased our Polysilicon shipments by 29% to 49,000 tons. This is the highest amount ever shipped by us. The lower cost in Siltronic significantly to continuous cost reduction programs resulting in an improving performance despite fall in prices and the exchange rates based competition. Our chemicals businesses provided stable support with growing shipments and improving profitability.

Across all our segments, we initiated cost reductions and actually exceeded our targets by harvesting €225 million, including the effects of volume growth. Net cash flow improved to €110 million, and net financial debt came in significantly better than our 2013 targets.

We have achieved this financial performance through lower CapEx in 2013 and firm working capital management. We have reduced our 2013 CapEx by 54% to €504 million.

Polysilicon benefits from accelerated growth in solar installations. Our shipments and bookings into Q1 are strong with price improvements. After installations of 38 gigawatts last year, we predict an increase of installations to something between 43 to 52 gigawatts in 2014. At midpoint, this represents a 25% increase, and there are some signs that hint to even higher installation numbers.

Clean air issues and beneficiary programs in China and Japan, and fast developing markets for installations in the U.S, and growing competitiveness of solar contribute to this expected increase. We expect high utilizations in our Polysilicon plants as a result. Our Polysilicon projects are continuously progressing as planned.

We have announced this morning that we have found an amicable solution with the Chinese Ministry of Commerce on the trade dispute regarding our Polysilicon imports into China. They have agreed to a minimum import price based on our market price mechanism. As a result, we are able to continue to supply Polysilicon to our Chinese customers without import (indiscernible).

Overall, this is a very positive result that is of course the chains of industry's needs for high quality Polysilicon and their quest for lower cost per watts from high output modules. And the agreement shows in our view a dialog in a corporative spirit can overcome conflicting views on trade issues.

A contract restructuring in Polysilicon was a major customer benefit to our Q1. It was about €115 million of retained prepayments and damages. We continue to supply this customer, however, with less volume and as market prices.

Siltronic continues its strategic transformation as presented in our Capital Markets Day last year. Acquiring the majority of the joint venture with Samsung allows us to consolidate the Singapore operations. In addition, the joint operation of our 300 millimeter plants should yield synergies from shared cost reduction programs and exchange of best practices and to optimize production allocation. With this move and the five closures of the last year, Siltronic is moving to a stronger global production footprint.

After a difficult year in 2013, we are looking positively into 2014. Demand for Polysilicon should continue to grow, and prices are set to rise. European markets for the chemicals business are recovering.

Unfortunately, the Euro is strengthening. We expect some energy cost increases here in Germany as well. However, these effects are more than compensated by our efforts to lower costs. This year, we expect another three-digit million amount of cost savings.

In summary, we expect sales to grow, EBITDA up by at least 10% and net results to rise. All in all, last year, we have improved our market share in Polysilicon and in silicon. We have optimized the strategic set up of Siltronic towards the takeover of the Singapore joint venture.

Our market leadership in polymers is unmatched, and the future potential of Biosolutions has been supported by the acquisition of our new production plants in Halle. All of this gives us the confidence to be optimistic about our future.

Joachim will give you now more details.

Joachim Rauhut

Since you already told our preliminary in early February, let us not dwell too much on the product, but look forward. I will provide guidance for all our segments on Q1 and full year and fill you in on some details for the past Q4 when necessary.

As Rudy said, we expect to increase our EBITDA for 2014 by at least 10%. Strong volumes in all segments and firm pricing in some of them support us. This guidance is based on segment forecast, which I will explain now.

Our Q4 results included two special effects. One was in silicon with the reversal of a loss provision established in 2010 for our (indiscernible) started earnings with €14 million.

After a strong fourth quarter, we see increase in volumes at lower prices for standard products. Our efforts to convert more of our (indiscernible) into higher value-added product continue with some success in personal care, medical devices and electronics, mostly in Asia.

With overall stable raw material costs, we expect Silicones EBITDA slightly below prior year, but better than 2013, excluding the Q4 special effect.

Sales in polymers stopped us in 2013 from a reversal of some (indiscernible) substitution mainly in paper and cardboard as prices of wood have been fell in early 2013. For 2014, we expect the substitution process into -- via EBIT versions to regain traction, especially in the cardboard industry.

In dispersible powder, our focus is on transforming a larger share of unmodified dry mortar markets into polymer modified dry mortars. With sales growth mainly from China, India and the Americas, we expect a slight increase in the full year EBITDA for 2014.

Biosolutions just completed the acquisition of Scil Proteins Production using our success to a GNP qualified large scale segment. The acquisition complements our full service offer for microbios manufacturing of biologics and gives us sufficient capacity to serve customers not only during clinical testing, but also for market supply. Overall, we expect good growth in sales and stable EBITDA for 2014.

Please note that in 2013, the chemical business has some positive effects from temporary salary adjustments of €15 million, which will not be repeated in 2014.

In Polysilicon, we see volumes and sales growth in 2014. As Rudy already said, we see solar installations between 43 and 52 gigawatts in 2014 globally. Pricing for solar products is trending over 2013 average. We continue to focus on achieving another substantial cost reduction for Polysilicon without compromising quality. With all the high utilization rates and moderate price increases EBITDA should improve over last year, showing a clean performance similar to our first quarter 2013.

Demand in the first weeks of the year was high, so that we reduced inventories further. This strong demand for our product, we've now reached inventory levels close to what we consider a minimum for running the business.

As Rudy already said, we really thought about €115 million of retained prepayments and damages from major contract adjustments in Q1.

In 2013, we had €78 million, especially to take of this kind, whereby 8 million was booked in Q4. We expect to start to ramp Tennessee Polysilicon facility in the second half of 2015. And we will have full capacity available for sales in 2016. The technology continues to improve. We expect an increase in overall plant's capacity and efficiency from process improvement.

Siltronic in Q4 included the special depreciation of diffused assets of €31 million decreasing the EBIT. For 2014, we expect to consolidate the Singapore activity in 300 millimeter that is beginning of this fiscal year. Full year 2014 reported sales should benefit by €100 million from this. The reported EBITDA will also increase. Giving the message price decline compared to the previous year full consolidated profit of Siltronic relate last year's figure of €110 million significantly. However, the fully consolidated 2014 results will also be significantly higher than the reported 2013 results under equity accounting at €27 million. Overall, we expect stable shipments for 200 millimeter and growth potential for 300 millimeter.

Now, let's look at the guidance for the Group. We expect Group sales to increase by mid single-digit percentage year-over-year. This stronger yield has a dampening effect on sales. Following strong shipments and our cost reduction efforts, we expect EBITDA for the full year 2014 to increase by at least 10%. This is certainly a cautious guidance, and we hope to improve on this during the year. Combined, this is still high fixed rate over 50%; this should lead to better net income.

In the first quarter, sales and EBITDA should be clearly about €1.1 billion and €250 million respectively. For the full year, we see depreciation at €600 million in 2014. With CapEx below that number is €550 million. About half of this is for the Tennessee plant.

Net financial debt should increase by €300 million to €400 million, following the consolidation of the Singapore joint venture and the continuing supply of Polysilicon quantity for which we have received prepayments. Overall, net cash flow will be neutral on the full year as we do not expect further substantial working capital effects.

For Wacker, 2014 is still a year of transformation. While we are finishing our last capital-intensive expansion project, we are not yet reaping the full rewards. Giving the foundations we laid that should change over the coming years. To get there, we continue to work on cost roadmap. For 2014, we target three-digit million euros in cost savings supported by volume growth.

In summary, we have to navigate it, a tough 2013. This year, however, should show an improved performance towards our long-term targets.

Operator, we are ready to take questions now.

Question-and-Answer Session

Operator

(Operator Instructions)

Joerg Hoffmann

Operator, our first question comes from Mr. Jean-Francois Meymandi at UBS.

Jean-Francois Meymandi – UBS

Hi, good afternoon. Thanks for taking the question. A bit of English clarification there, on your annual report under big one, you stick about significant increase in sales in several divisions. Can we have a bulk path around the significant work? And then in this same report you stick about EBITDA margin at the same level or above last year, and you translate into the presentation in EBITDA above or prior last year, which one is the correct? That would be the first question.

The second question you are fine with at all special effect in and out with the consolidation of the prepayments levels for Q1. For last year in the special effect in the chemical things, I would look without having volumes growth already at around 15% to 18% increase in EBITDA, therefore should reconsider the 10% at an absolute minimum. And as a follow-up on that one, what price on Polysilicon would you assume on this guidance? Thank you very much.

Rudolf Staudigl

Yeah, I would like to start with your question concerning the annual report. I made this outlook there in two ends. I would say it's the best explanation for what we expect as growth is what is said in the conference call, it's a mid single-digit number. And keep in mind that we expect a dampening effect of the stronger Euro. Last year, we suffered by the stronger Euro, about €100 million from sales, and we came from an U.S. Dollar exchange rate of 128 to 133 on average, and now we have 133 and moved to 138. So, that is another 100 million, just a rough calculation. This has a dampening effect.

The EBITDA forecast, I think we have made very clear what specials we have in our 2013 year, what specials we have in 2014 with the contract cancellation. We've got you rightly described a major impact by the full consolidation of the joint venture. But you also should listen to what I said on the segment performance. We said we will not have same process on EBITDA in 2014 that we had on 2013, because we experienced an ongoing negative price trend and this will -- for the joint venture. So the joint venture, those contribute less EBITDA compared to what is contributed in 2013.

And the other remark I would make is we specifically said at least 10%. So, as I said there is upside potential and it very much, really depends on the performance of the Polysilicon division. And it very much depends on the development of the pricing. We have assumed a slightly better pricing levels than in 2013, but not significant. We also have assumed in our forecast that due to the growth in the (indiscernible) we will have a very good utilization in our plants. And similar -- so that we are basically -- that we sell the material which we can produce. And as you know, we have produced our inventory last year significantly. So, we will not have so much sales from lowering the inventory.

Jean-Francois Meymandi – UBS

But then you stated in your preliminary remark, it sounds likes that you expect a full year performance in line with your Q4 in EBITDA margin, which was from 25%, correct?

Rudolf Staudigl

Yeah. A little bit of offset.

Jean-Francois Meymandi – UBS

Okay, thank you.

Rudolf Staudigl

You're welcome.

Joerg Hoffmann

Operator, the next question is from Georg Remshagen from Commerzbank.

Georg Remshagen – Commerzbank

Yeah. Hi, I am Georg Remshagen, Commerzbank. And two topics I would like to discuss with you. The first is the inventory reduction in Polysilicon in Q1 you mentioned. I am just a bit surprised by this because I understood that you had already massively reduced inventories in Q3 and that basically have already reached the level, which could possibly reduce further. So, maybe you could give us some more indication on this topic especially because the profiting impact is obviously quite important when we look at Q1? That's the first point.

And the second one, there was an article (indiscernible) introduced reduced payments of 20% of procurement AG, a surcharge for energy-intensive industries. And that may become effective in July. Now, we got in that topic, I am interested what your German Polysilicon and Siltronic activities fall into these industries, which could benefit from the reduced levels. And what would be the financial impact in case you would have to pay such a 20% kind of surcharge compared to 2013 or what about the additional cost (indiscernible) would not be exempted? Thanks.

Rudolf Staudigl

Well, we certainly with production processes that you mentioned would fall under the category of energy-intensive industry, which is in international competition. If these two would not fall into that item, what falls into that? The jury is still out on what the details will be of the AG reduction and eligibility and all the details of that. But as you can imagine, we are heavily lobbying the German, especially the German politicians to make sure that reasonable decisions are made. This morning in the press conference, we said that depending on what the outcomes of all these discussions are; the cost impact on us that could be anything between €10 million and maybe €40 million, €50 million.

On the other hand it increases just the pressure on cost reduction that we feel and that we apply and that we are committed to achieve. So, we are in the midst of these discussions. But it's not looking too bad I would say.

Georg Remshagen – Commerzbank

Okay, good.

Rudolf Staudigl

Yeah. Your question concerning inventory reduction, yes, and we reduced inventories substantially. But we utilize strong demand we presently use inventory and I see it ongoing in March. Please keep in mind that our possibility to shorten the delivery time to our customers, for example, that we don't ship the material that we fly the material.

Georg Remshagen – Commerzbank

Okay. Resulting from this, I mean flying stuff will actually will be more expensive than shipping. And inventory reduction given your cost structure, you should already have also negative impact on margin. So, from your best, should we expect a comparable margin contraction in Q1 regardless of the impact of the retained prepayments? Should we expect the margin contraction for Q1 in Polysilicon that stays comparable to what you fit into for the last year or is it just a negative?

Rudolf Staudigl

I think it will be a negative figure, but it will be not that so permanent that I don't think that I would talk very much about it.

Georg Remshagen – Commerzbank

Okay, understood. Thank you very much.

Joerg Hoffmann

Operator, the next question is from Mr. Andrew Benson at Citi.

Andrew Benson – Citi

Thanks very much. A few questions, can you just give me a little bit more flesh on the structure of the [debt] (ph) increase? I can say from the slideshow that the cost of the increase in your state budget, if you go through that. You talked about effecting prices to go up, perhaps it will be good in Polysilicon just let me know how much you they are going up at this point in time although I can see the Bloomberg price. And then on the chemicals side, you kind of mixed on the Silicones stripping out the one-offs and more update on polymers. I guess the main negative is current, so perhaps if you can give bit more flesh on why did you got those figures? I'll appreciate it.

Rudolf Staudigl

Okay. Let's start with the subject of [debt] (ph) increase. We said in our outlook in the financial statement in this call we said financial debt may increase by 300 million to 400 million, 150 million results out of the investment into the Singapore joint venture. We have -- we take the time to payback together with the contribution from Samsung project financing, which was in there. So, the joint venture will then have no financial debt.

This is not accounted in the investment figure of €550 million. This is a payment into the reserve of equity. It's a capital addition as you described. So, it is not by what is required under IAS to be flowing under CapEx. So, you have to add this on the -- but you can say I have to edit on the CapEx figure, which then you'd derive at 700 million.

The next important figure is that we constantly, you could say, repay prepayments in the range of 200 million to 250 million per year. And this then also adds on the financial debt. You see that the financial debt will still rise in 2014. But then it will come in the next year to a turning point.

And next question was on the silicon business, I will be not too cautious there. As I said, we have got positive contributions from this reversal of the SILPURAN provision by 17 million, and we had some positive effects from the temporary Federal leader adjustments, which we have to overcome in 2014.

I'd view it as the following, if we have a stronger growth in Europe, Europe markets recovering, this will lead to a stronger chemical sales and there particular the silicon business can benefit. And that, I think would be a trigger that we can even outperform last year's result.

On what we calculate on pricing improvement in Polysilicon, I think you have realized, assuming that the spot market price has increased significantly. As the spot market price is not the right guideline for what price increases are in the market, the spot market prices is very low, but we will not (indiscernible) spot market prices. The spot market prices have moved up, and we continue to increase our pricing, but the spot market prices reflect that the market is short. And so, the spot market price is not guiding -- it's always guiding to the extreme.

Overall, we have -- as we described in our outlook, we have got slight increases in Polysilicon pricing assumed. And we see that we will hit this -- in this range in Q1.

Andrew Benson – Citi

Okay. Thanks very much.

Rudolf Staudigl

If the prices will be higher than slightly, then it goes into a positive effect of currency.

Andrew Benson – Citi

Yeah. Thanks very much.

Joerg Hoffmann

Operator, the next question is from Alexander Karnick of Deutsche Bank.

Alex, you are there? Operator, Mr. Karnick is apparently not on the line. Please switch to Jean-Francois Meymandi from UBS.

Jean-Francois Meymandi – UBS

Hi, I'm back. So, just on the --- a quick follow-up more on the strategy thinking for Siltronic, now that you fully consolidate these joint venture, would you switch on volumes that you manufacture in Germany to Singapore to be closer to the customer? And what's the long-term strategy you think? Are you still running for cash, or do you have higher CapEx requirements from now on?

Rudolf Staudigl

In terms of production allocation, maybe you have to remember that in Singapore we do not have AP or protective reactors. That's why APs will still be manufactured in (indiscernible). On the other hand on polished wafers, as you can imagine we have much more flexibility now. So, there is a certain improvement of potential Q2 production optimization, production allocation for polished wafers.

On the strategic implication, there will -- because of this takeover of the majority, there is not a change in the strategy of Siltronic. We are still focusing on positive cash.

Jean-Francois Meymandi – UBS

Okay. And I have another quick one on your polymers business. It seems that the last year's development in detergent prices has really hurt in terms of volume growth for you. You were however guiding for -- let's say 6% to 10% -- 8% medium-term growth in polymers at your Capital Markets Day. Do you think we can continue that in 2014 after detergent as we have gone already?

Rudolf Staudigl

Well, as you can imagine, we are heavily pushing for growth there. You're absolutely right that we saw a setback because of the high (indiscernible) prices. The strategy for the dispersion is to improve the performance to be more like (indiscernible) dispersions in order to replace it to a certain degree, not only by lower products or by higher FBR prices or lower VAE prices, but also on performance of the product which then gives more stability of the sales even when future volume prices continue to fluctuate heavily. So, we expect higher growth for this year, definitely.

Jean-Francois Meymandi – UBS

Okay.

Joerg Hoffmann

Okay. Operator, the next question is from (indiscernible) Finance.

Unidentified Analyst

Yeah. Good afternoon, gentlemen. I have a question -- first question is on Polysilicon and here on the granular part of your activity, which is relatively small so far in FBR. We have just recently seen these two announcements from two players about significant capacity buildup plan in granular Polysilicon. So, this is a good indicator that there is always appetite in the market for this type of material. So, I wonder is this the right interpretation of this or what is your take on that? And maybe then in this context, could you update on your development activity in FBR and the strategy going forward, maybe you're considering also a capacity increase, I don't know.

Rudolf Staudigl

Yeah, we saw these two announcements. And one certainly is strategic move into the Chinese markets, which -- I mean poor cash. And the other one is an announcement to set up the capacity in the Middle East which is so far as I know only sort of a feasibility study.

It's certainly true that granular Polysilicon compliments Siemens type Polysilicon simply to fill the voice in charging the crucibles. So, there is a need for that. So far the purity of the granular Polysilicon is not as good as the Siemens Polysilicon. I think in the long run, the granular Polysilicon have to meet the same purity requirements as Siemens Polysilicon. So, this is certainly still an important development task for the producers of this material based on mono-ethylene.

Our activity, as you know, is containing only a capacity of 500 tons per year. It's going very well. It's based not on mono-ethylene, it's based on trichloroethylene. We have made improvements in terms of purity of the material, and we achieved very close to Siemens type Polysilicon purity. And cost-wise, of course with such a small capacity, we are still higher. We see improvements in terms of specific energy consumption. And so, this in the future will certainly be a viable alternative to Siemens poly, but in my opinion, granular Polysilicon will never replace Siemens type Polysilicon. It's an excellent compliment if the purity is at the same quality as Seimens poly. And there is still some ways to go.

Unidentified Analyst

Yeah. You said it could be an excellent compliment, so if it has good quality, what is the blend grade in the mix that would be the maximum to make it an economic use? Is it 50% or is it 20% to 30%?

Rudolf Staudigl

Some people say something around 30%. But since we don't (indiscernible) I think you should ask the people who (indiscernible).

Joachim Rauhut

This is the number we've got.

Rudolf Staudigl

And it really depends on the quality of the material.

Unidentified Analyst

That's right. When you process -- well, rival processes, let's put it like this, I think of which are producing a lot of dust and powder which we saw at the process. How is that with the new process?

Rudolf Staudigl

It's not producing dust.

Unidentified Analyst

Okay.

Rudolf Staudigl

When you fill up a crucible then it's better to use as much very high density material. And Siemens Polysilicon simply has a higher density than the granular. And this is why you always want to put in as much high density material and then fill up the voids with granular.

Unidentified Analyst

Okay.

Rudolf Staudigl

Okay.

Unidentified Analyst

Yeah. Let's switch quickly to another topic to Silicones. So, at the Capital Markets Day, you have highlighted your strategy that you want to move more to specialty products. And you said at that time that in 2012 about the third of your revenues were with specialty products and you are targeting 50% by 2017. So, I wonder whether the strategy has already made some progress last year. And then, whether you have increased your revenue share with these kinds of products. And what level you have reached there?

Rudolf Staudigl

We actually -- if you look to the percentage there is only very slight increase in what you call specialty products. This is due to the fact that we actually increased very much our time of some production last year, particularly in the German facility to some of the bottlenecking and to very good performance. And so this was working against this. Now, we cannot do this every year. So that's why in 2014 we will move more towards what we describe as strategy that we would sell more specialties.

Unidentified Analyst

Okay. So, the 1.5 percentage points of clean margin improvement in Silicones, last year was not yet really a reflection of this strategy. This is yet to play out then?

Rudolf Staudigl

Yeah. I think those comments was more of correction of that we were able to load our plants and facility very nicely.

Unidentified Analyst

And this 15% EBITDA margin target for specialty products; is this still the valid number?

Rudolf Staudigl

Yeah. Yes, certainly.

Unidentified Analyst

Okay.

Rudolf Staudigl

At least I would -- you have to say it's going at 15.

Joachim Rauhut

Yeah, at least.

Unidentified Analyst

Yeah. Well, we never know, I mean, the price pressure and all these things by your own number.

Rudolf Staudigl

Yes.

Unidentified Analyst

Okay. Thank you for your explanations.

Joerg Hoffmann

Operator, the next question is from Georg Remshagen – Commerzbank.

Georg Remshagen – Commerzbank

Yeah. Hi, two follow-ups from my side, please. But first is on your net debt guidance. And I still struggle to understand this. Because I agree that you get that -- you have to pay the 150 million for this Singapore plant offered a steady increase. But on the other hand, you also get access to the cash flow. So, my assumption would be that large part of the 150 million you actually already get back to see in terms of cash flow contribution from the Singapore activity.

And then taking into account of what you guided for in terms of earnings and in terms of CapEx and D&A. And I just get to a lower number of for the net debt increase. So, and just tell me where am I wrong. So, that's the first.

And the second one on the FBR material, if you assume that FBR material would really be comparable in terms of quality versus the Siemens material. Then we clearly have a substantial cost advantage playing in favor of FBR. And would that not more than offset this disadvantage under crucible load. Or does not allude to a deterioration of your competitive position?

Rudolf Staudigl

Whenever you improve the quality of the FBR and even those competitors who run those processes and I'd say it -- then this increases the cost. And there will be further cost decreases in Siemens material as well.

Georg Remshagen – Commerzbank

Okay. So, you are not really worried?

Rudolf Staudigl

I'm not worried about that.

Georg Remshagen – Commerzbank

Okay, thanks. And on the net debt?

Rudolf Staudigl

On the net debt, we are also not worried. If I look through what you said, I think we have got a positive cash flow as we already described from the join venture. But keep in mind that the performance of the joint venture, if I look to absolute EBITDA, they'll be in 2014 and unfortunately much lower than in 2013 because we now experience there a significant price drop and in line with the market.

And but due to the pricing mechanism, it's usually joint venture, this price drop comes with a time lag. So, unfortunately we experience it just when we have taken off a majority. So, this is the one wrong assumption in your calculation.

Georg Remshagen – Commerzbank

Okay.

Rudolf Staudigl

And the other is, we will have some outflow, not so much operational which do affect our cash flow; just for example is we have quite text audit every four or five years. So, then we'll have some negative effect. So, overall, that's why we come to the debt increase of 300 million to 400 million.

But you see that we put that range and we said prepayment and -- prepayments repayment can be 250 and investment in Singapore is 150, which leads to the 400 million which is the upper range to see that we are targeting to be lower debt then net debt has not so much increase.

Georg Remshagen – Commerzbank

Got it. Thank you.

Rudolf Staudigl

And you can imagine that these price reductions, we think we experienced on 300 millimeters that this has to be accounted by cost reduction efforts.

Georg Remshagen – Commerzbank

Yeah.

Rudolf Staudigl

Thanks.

Joerg Hoffmann

Operator, the next question is from Mr. Thomas Swoboda from MainFirst Bank.

Thomas Swoboda – MainFirst Bank

Good afternoon, gentlemen. I still have three quick questions. And the first is on your capacity utilization in Polysilicon; are you willing to disclose your capacity utilization for the full year 2013? That's the first one.

The second one is a clarification on these salary concessions. I understood a 50 million during 2013. How is the split? Should we understand the split of equally to the numbers of employees per division or is there something else we should consider?

And a quick one on the tax rate; that's the third question, you got again full tax rate of above 50%. Can you specify that a little bit? Should we be below the level we saw this year, which was very high or if it's really a very open guidance and we still could see the high levels of 2013? Thank you.

Rudolf Staudigl

Yeah. Your question concerning -- the second part was concerning the wage and temporary adjustments, which related to the Chemical group. If you take the 50 million and I think 2/3rds of this really -- yet to account for the Silicone business and the remainder for the two other divisions.

Thomas Swoboda – MainFirst Bank

And there were no salary concessions in the other divisions, nothing outside of the chemical group?

Rudolf Staudigl

Not of importance. I mean, we haven't got all this very adjustments in the Siltronic business but we -- they are not temporary. They are ongoing because the business needs this.

Thomas Swoboda – MainFirst Bank

Understood.

Rudolf Staudigl

And tax rate and I think you have two movements. First of all, we see a 100% consolidation of our joint venture. And we see high depreciation policy in the joint venture with effect we get more negative income which into the accounting which we can offset with our German profit or profits in Germany.

So, this is the negative effect of -- there is a positive effect on the EBITDA, but if you looked into EBIT and to net income; it's a negative effect. Now forcibly, this negative effect keeps in 2014 because the depreciation from around mid of 2014 will decrease because we have got a demanding depreciation policy. So, the depreciation will decrease significantly already in 2015. And this will then help the tax rate again.

Secondly, we have got ongoing and start up losses in Tennessee. And they will slightly increase because we are getting closer to the ramp up of the facility. So, these are two negative effects in the tax rate. On the other hand we see EBITDA growth, which will then be in Germany and that's why it's very difficult to predict exactly the tax rate. And if we take a rough 50, and I have got to try that it does not exceed 100. So, I think you then have got a good reference point.

Thomas Swoboda – MainFirst Bank

That's fair enough. Thank you.

Rudolf Staudigl

Your first question was on the loading in Polysilicon as I recall. The loading and loading was mixed and -- but we have -- because we started the short-term work. We have decreased the loading in the summertime. And then we run to full capacity in the fourth quarter. And overall, I think there is a figure in the annual report which I am not aware of but I think Joerg can tell you which was the overall loading.

Joerg Hoffmann

I will recall.

Rudolf Staudigl

Yes?

Thomas Swoboda – MainFirst Bank

All right, thank you.

Joerg Hoffmann

But the important fact is that the loading in the fourth quarter was close to 100% and right now it is close to 100%.

Rudolf Staudigl

Yes.

Thomas Swoboda – MainFirst Bank

Right. I mean, the background of the question is obviously that we want to find out a little bit of more what is the swing potential from where we turn to a more normalized loading in Polysilicon, therefore be the average capacity utilization in 2013.

Rudolf Staudigl

In (indiscernible) call, with the annual report and we disclosed it.

Thomas Swoboda – MainFirst Bank

Thank you very much.

Joerg Hoffmann

Operator, the last question is from Mr. Pete Fitzl at Hauck & Aufhauser.

Pete Fitzl - Hauck & Aufhauser

Hello, thanks for taking my question. I've just one question regarding the Polysilicon segments. And if I remember correctly, the last time we spoke along with the Q3 results, you were highlighting the quality of your Polysilicon, which is somewhat superior to your competitors. However, customers by that time did not yet appreciate this quality difference with the price premium.

So, my question is that still the case, are you able to charge a premium now and it's not why would that be the case that you cannot translate that into higher prices.

Rudolf Staudigl

I think there is a misunderstanding. Our customers appreciate higher quality with higher prices. We can easily see that from the input price curves into china. So, there is a difference. However, well, I said that time was, that some customers also mix lower quality product together with higher quality product because the market does not yet really require or appreciate only the top quality material, the top quality ratio.

And to a certain extent that's still the case but on the other hand, the market needs a better and better quality material because the efficiency of the solar modules is important ultimately for the price of electricity that's coming out of the module.

Pete Fitzl - Hauck & Aufhauser

All right, understood. Thank you.

Rudolf Staudigl

And I would like to come back to the question of (indiscernible) because I was able to find the right page in our annual report, its 131 and the plant utilization, you read that, it's 90%.

Joerg Hoffmann

Everybody, this concludes the conference call on the full year 2013. If there are additional questions, please don't hesitate to contact back at Investor Relations. Thank you very much for your input. Thanks. And we will be back on the 5th of May for our Q1 results. Thank you.

Operator

Conference recording has stopped.

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