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Wacker Chemie AG
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Dear ladies and gentlemen, welcome to the Q1 conference call of Wacker Chemie. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Mr. Jörg Hoffmann, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir.
Thank you, operator. Welcome to the Wacker Chemie Conference Call on our Q1 2019 Results. Dr. Rudolf Staudigl, the CEO; and Dr. Tobias Ohler, our CFO, will take you through our presentation in a minute. This presentation is available on our web page on www.wacker.com under the caption Investor Relations. Before we begin, allow me to point you to our safe harbor statement, which you'll find at the beginning of the presentation deck. Dr. Staudigl?
Ladies and gentlemen, again, welcome to our Q1 2019 conference call. Q1 group sales came in as expected at EUR 1.24 billion, 2% over last year and 4% sequentially with strong volumes overall. Group EBITDA for the quarter was EUR 142 million, benefiting from good results in chemicals and held back by very challenging market conditions in polysilicon. Q1 EBITDA was 18% below the fourth quarter of 2018 and 44% below last year, mainly due to much lower prices for polysilicon. In Q1, silicones impressively delivered constant sales year-over-year despite missing volumes in connection to a force majeure that weighed temporarily on profitability during the quarter. Polymers continued to expand strongly, reporting 7% top line growth with accompanying earnings growth. BIOSOLUTIONS grew according to plan. Polysilicon on the other hand suffered from weak pricing while shipping very high volumes.Before Tobias gets into more detail on the quarter, let me just focus on silicones and polysilicon. The silicones market saw tightness from Q2 2017 through the end of Q3 last year. Since then, the markets relaxed somewhat from the unusual tightness we experienced last year. An overheating market, especially in China, normalized as demand moderated and inventories were cleared. While some industry observers expected a surge in new setups and capacities, we see the setups and supply and demand as being more or less balanced. The announced expansions appear in line with expected demand growth.An important event in Q1 was the mechanical failure of a piece of equipment, which caused us to declare a force majeure in high-temperature-curing silicone rubber and consequentially in some specialty materials downstream. This held back silicones revenue and profitability in the quarter significantly. New product development and marketing in silicones are progressing well. Our operations across the board are now so fully loaded that we had no capacities available to make up for the lost production from the force majeure. This resulted in lower volumes and negative mix effects. Our colleagues in silicones worked hard to resolve this outage, and we have since resumed full deliveries. Our strategy in silicones is unchanged. We will continue to focus on mix improvements and direct CapEx accordingly.We continue to invest into downstream assets to address our customers' demand curve. In polysilicon, we continued to see strong growth in solar installations globally. As solar has become the most competitive and scalable form of energy generation today, new market opportunities open up. The shift to higher performance product continues as the market moves from multi to mono, and within mono, towards the higher-performing [ inside ] material, with strong demand growth in markets outside China with, for instance, Spain reporting record installations this year.In the world's largest solar market, China, industry consultations on a new renewables policy proceed. China remains committed to be a global leader in renewables with initial proposals designed to accelerate installations. The current debate focuses a lot on the ability to reach grid parity. We appreciate this approach as it drives technological improvements and unlocks new growth potential for the solar industry worldwide. The trend towards higher efficiencies accelerates. That said, it is uncertain at what time exactly the new policy will be formulated and implemented. In our view, this increases the likelihood of a stronger second half for 2019.Moving on to the larger picture. Brexit and trade disputes are casting shadows. While experts' overall view on the global economy is still positive, it appears to be slowing down. Chemical industry bodies report subdued business activity, especially in automotive, industrial goods and exports. Yet, at the same time, construction activity in Europe is still expanding at a good pace. Polymers, for instance, saw very strong volume growth in Europe in Q1 for smart construction products. In our businesses, we see some weak spots in areas such as traditional automotive, while other segments such as electromobility are rapidly expanding. Given the economic backdrop, our businesses all developed well. We remain confident about good demand for our chemicals products and strong volumes in polysilicon.Looking at the group level. We maintained our full year guidance first given just a few weeks ago. We see full year sales with a mid-single-digit percentage increase with EBITDA between 10% and 20% below last year. As a reminder, our guidance excludes insurance compensation.Tobias will now walk you through the financials and segment performance.
Welcome, everyone.Let me begin with our P&L on Page 3. Sales at group level improved year-over-year by 2%. Polymers was a key driver during the quarter, benefiting from both higher volumes and prices. Gross profit declined year-over-year by about EUR 94 million to EUR 149 million. The decrease was primarily due to the much lower average selling prices in polysilicon. After positive tax effect during the first quarter, net income came in at minus EUR 6 million, equating to an EPS of minus EUR 0.16 versus EUR 1.52 last year.Moving on to Page 4, our balance sheet. While not clearly evident on this slide, inventories in absolute terms are up strongly year-over-year but only slightly up sequentially because volumes sold in polysilicon followed the higher production volumes. Accounts payables decreased since the end of 2018 as builds categorized as CapEx last year were paid during the first quarter. Pensions were up as the discount rate declined to 1.67%. The first time application of the IFRS 16 standard saw financial liabilities increased by around EUR 130 million.Looking at silicones on Page 5. We achieved last year's sales level of approximately EUR 600 million despite a force majeure situation during the first quarter of 2019. The missing volumes held back our specialties business, and EBITDA declined to EUR 128 million. While the resulting change in product mix was a primary effect, sequentially slightly lower prices for standard silicones also played a role here.Following the sharp decline in prices in China in Q3 and Q4 of last year, prices in Western markets were also sequentially down but still similar to the prior year. As we progressed through the first few months of 2019, prices for standard silicone products in China are moving up once again. For 2019, we see silicones sales moving up at the low single-digit percentage ensured the demand for silicones remains healthy, but pockets of weakness in various industries are evident. Good volume growth and better pricing in specialties should help achieve an EBITDA margin of around 20% for the full year 2019.In polymers on Page 6, sales started strong during a typically seasonally weaker first quarter. During the first quarter of 2019, sales increased by 7% year-over-year to approximately EUR 324 million. Both volumes and prices are up year-over-year. The EBITDA increased to approximately EUR 45 million. Efficiency gains supported the improvement in profitability, but the margin remains below our target margin for chemicals. Looking for polymers in the full year 2019, we expect a mid-single-digit percentage sales growth. With volume growth, slightly higher prices and lower average raw material costs, we see the full year EBITDA margin improving to around 14%.BIOSOLUTIONS improved sales following strong growth in biopharmaceuticals, following the acquisition of the new site in Amsterdam. The biopharmaceutical pipeline is developing nicely but will take some time before the plant is fully loaded. Profitability was therefore held back by underutilization at the new site as they begin to load up. For the full year 2019, we expect a mid-single-digit percentage sales growth with an EBITDA of about EUR 30 million.In polysilicon, shown on Page 8, sales came in at EUR 211 million, slightly below last year's level. Although we sold significantly more polysilicon, the markedly lower prices offset the much higher volumes sold. We see good demand for our materials as our quality is the industry benchmark, but pricing remains unattractive. The first quarter EBITDA of minus EUR 36 million is disappointing as further price declines and inventory valuation adjustments weigh on the segment's profitability. As Rudi already discussed the industry trends, I would just like to add that we are taking every step to reduce costs, improve our product mix and improve customer service.During the quarter, we were able to meet strong demand in the spot market from mono customers with inventory out of our Asian hubs. Without the inventory in those hubs, we would not have been able to respond to the demand as fast. Looking into the full year 2019. We expect sales to grow at a low double-digit percentage and a neutral result in EBITDA. Polysilicon prices continued to decline over the quarter, and we expect a somewhat stronger second half to reach our guidance for this segment.Moving on to Page 9, cash flow. Gross cash flow was held back by reduced profitability and higher levels of working capital, following higher business volumes and typical first quarter seasonality. We expect to see a release in working capital as the year progresses. As a reminder, prior year Q1 included the advanced payment of the insurance of USD 100 million. Net debt increased to EUR 886 million at the end of the first quarter. As said before, first-time application of the IFRS 16 standard resulted in our net debt increasing by about EUR 130 million. Looking at our detailed guidance for 2019 on Page 10. Our expectations for the full year 2019 are unchanged.With this, let me hand you back to Rudi.
Thank you, Tobias.Ladies and gentlemen, as I've said when we spoke the last time, 2019 is going to be a challenging year for us. While we share concerns about a potential economic slowdown, our businesses show only a few weak spots that get compensated by new business. A clear challenge is the pricing situation in polysilicon. Here, we continue our efforts to lower costs.For our chemicals businesses, we continue to introduce new innovative products. At the European Coatings Show, for example, we presented many innovations, such as polymeric binders that are partly made with starch or bio-acetic acid and sent out due to their lower carbon dioxide footprint. We also showcased new dispersible polymer powders that can be used to make powder form interior wall paints. They do not require the addition of biocides and offer additional advantages when it comes to storing and transporting paints.Among the various new products and application areas for silane, silicone and fumed silica, we presented anti-soiling coatings and industrial adhesives with adjusted viscosity. The newly developed, highly hydrophobic fumed silica is perfect for use in high-strength industrial adhesives. These are employed in automotive bonding applications and for the bonding of wind turbine rotor blades. As innovation thrives in our businesses, we continue to look for opportunities to improve productivity and efficiency. This has a high urgency in polysilicon. Our chemical businesses are also generating new ideas and opportunities to lower costs and improve processes.Looking into our businesses, I feel overall confident. Yes. We have a tough time in polysilicon, but we are working on all the right things. The overall market is moving in the right direction. Our chemicals businesses are well positioned and perform very well. Therefore, we confirm our recent guidance for the full year.
Ladies and gentlemen, this concludes the presentation for today. We will now commence with the Q&A session. Operator?
[Operator Instructions] The first question is from Patrick Rafaisz, UBS.
I have 3 questions, if that's okay. I'll start with the first one with polysilicon. Can you talk a bit about how you see the second quarter starting? Would that be a similar quarter to the first, excluding the inventory write-downs? And do you have any evidence here from customers that would support your more optimistic view into the second half of the year? That's the first question.
Yes. The second quarter will certainly not be a very strong quarter, more flattish. And yes, we certainly see indications of a higher demand in the second half of the year. Our customers confirm that but, of course, nobody really can look into the future. But I think there are reasons to be confident.
Okay. And the second question on cash flow. Obviously, you're starting the year with a pretty poor number here. The guidance remains for substantially higher net cash flow than last year. Has this term, substantially higher, in your head as to the order of magnitude changed here from what you thought just a short while ago with Q4? Or are you still just as confident as after the fourth quarter results?
Patrick, Tobias speaking. The cash flow in the first quarter was disappointing, but there's a lot of seasonality in there. And our guidance doesn't change at all. So we see net cash flow clearly substantially above last year as we said 6 weeks ago.It's also a stronger second half. So to be frank, the second quarter is a cash flow quarter, typically challenging because we pay out dividend, we pay out variable compensation. But the second half typically releases working capital, and that brings us to the unchanged expectation of cash flow up against prior year. Our CapEx is lower than last year. And we don't expect a working capital increase in inventories in this year. So you have to bear in mind that last year was burdened very heavily by the inventory increase.
Okay, helpful. And the last, third question, just on the force majeure in silicones. Would it be possible to quantify the volume impact here you had in the first quarter? And has there been -- or is there now some sort of pent-up demand that means that the second quarter could be even stronger now for silicones?
I don't want to quantify the impact exactly. But I want to say it has had a meaningful impact on the Q1 results. Without the force majeure, we definitely would would've been above prior year in sales, and our EBITDA would have been much closer to prior year. The plant is now up and running again. We're making deliveries, but it doesn't have an -- I mean so it doesn't have an impact on Q2 anymore, but we cannot catch up the lost sales because we are running very tight in this unit. So the force majeure that hit us for a month is actually lost for the entire year. We couldn't make that up again. So we cannot expect the uplift in the second quarter just from the lost volume in the first quarter.
The next question is from Andreas Heine from MainFirst.
Yes. I'd like to also to start with polysilicon. I'd like to know whether your increase in inventories, which you have done strategically in China, is done or whether you have more to do? And then related to these inventories, do you have any visibility how the inventories across the polysilicon producers are? Are they on a higher lever or a lower level? And I am a little bit concerned about, let's say, second half being better if it comes to installation and volume. As far as I know, you deliver as much as you can in polysilicon. So if the market does better in the second half, that doesn't mean anything for your volume. So do you expect an immediate impact on the price side here to have a better second half? I leave it then on the polysilicon, but I have 2 questions on silicones as well.
Yes, I'll start with the inventory question. We never said the inventory build is done. We only said that the strategic inventory build is important because we want to be flexible and be closer to our customers to shorten delivery times, and that's exactly a point where we already benefited in the first quarter in 2019 because we could fulfill customer demand that we could only fulfill with a very short delivery time out of our hub in Asia. So for the rest of the year, it needs to be seen how inventories will develop. So most likely, we will see also fluctuations from quarter-to-quarter.
And on the volume side and price side, we certainly expect some recovery in prices in the second quarter due to the installations. I mean you could assume -- I mean nobody knows exactly, but you could assume that of the overall installations this year, about 40% are in the first half and 60% in the second half.
Okay. Then -- and then on silicones. I'd like to understand a little bit about the price dynamics. So you said that during Q1, you have seen some softening in the standard prices in the Western Hemisphere. Is it continuing in the second quarter? Should we build this in our models? And how do you see the price trend in the specialties? Is there some spillover effect from softer prices in standard products or not? And maybe lastly, to understand also the seasonality, usually you have quite some exposure to the construction industry in silicone so that Q2, Q3 is stronger than Q1 and Q4. Is that something we will see this year as well? Or are other trends offsetting this seasonality?
For the price movements, we highlighted that we had Western standard prices also moving down sequentially, and I would assume that trend to continue in the second quarter. So the blip in improvement in prices in China has no relevancy yet for the second quarter for Western prices. So we have to see that regional prices are connected somehow, but they move with a time lag. But for most part of our standard business, we see more price pressure, and that's what we actually included also in the overall guidance for the full year. So 2019, the margin decrease from 25% to 20% is mainly from lower standard prices.The seasonality question is a good one. We typically have much -- not much, but a stronger second and third quarter, and first and fourth quarter are slower.
And that's also the case this year. Or is the price movement and other stuff offsetting this?
I would expect the second quarter largely on prior year level in silicones and then have the second half of the year stronger against prior year. But the seasonality pattern is unchanged, second and third quarter is always stronger.
And when you say that the second quarter should be in last year's level, it was extremely strong in the second quarter last year.
Yes. We are fighting hard to increase specialty volumes. We had slight increases in prices on the specialty side. So exchange rate is also supporting a bit in the second quarter as it looks today.
The next question is from [ Charlie Craig ], Citi.
Two questions. First on polysilicon. Could you talk us through how your cost addition on polysilicon is developing? You called out higher energy cost. But given also you're working on your fixed cost base, looking overall, would you say that on a cash cost basis, your -- this year is lower than last year? And do you have any -- and what's your kind of expectation for how energy costs will develop this year, next year going forward?
I would say without energy cost, our cash costs certainly are lower. And we assume that -- or [indiscernible] the energy costs are coming down as well. By how much, hard to say.
But we would expect that energy costs year-over-year are higher in '19.
Yes.
Basis -- what, roughly flat year-on-year, on that basis? Lower fixed costs, higher energy or...
No, energy costs will be higher than last year on the average. But we could have seen the peak in the first quarter.
And in silicones, just to clarify again on the previous question. So you saw 27% EBITDA margins in the second quarter. You're not -- you're saying probably the volume dynamics can be as good as they were in 2018, so the Q2 and Q3, but you're not going to enjoy margins in that range, right, given the pricing?
Yes. Yes. Definitely. I mean I didn't -- I was talking just about the seasonality in top line, not in profitability.
And just one final question. Could you give us a rough split, I know you have in the past, between your specialty and standard volumes in silicone. Where are you in that? And yes, how that's progressing in terms of strategy to push further down into specialty?
Well, it's moving in the right direction. That's what we can say.
The next question is from Sean McLoughlin, HSBC.
Three questions from my side. First, on polymers, just to understand the lack of margin improvement despite better volumes and pricing in the first quarter.The second question on polysilicon. Your efforts to reduce cost, how quickly can you realize these? And how significantly are you able to offset pricing pressure?And the third question, just coming back to silicones. You previously mentioned EUR 100 million of nonrepeatable EBITDA. Are these EUR 100 million confined to Q2 and Q3 last year? And how should we think about these comps from an EBITDA perspective?
Sorry, the last question about the EUR 100 million nonrepeatable EBITDA, I don't get it.
Yes, you've guided before that EUR 100 million of EBITDA last year was due to, let's say, exceptional circumstances that are not again repeating this year. But I would like to understand, these EUR 100 million, at which point in the year were these actually generated?
Yes, now I see what you mean. Well, if you equate from our performance of last year, 25% margin, versus the guidance for this year, 20% margin, it comes roughly to EUR 100 million. And this is largely, as I said before, from lower standard prices that we assume.
Maybe a comment on the cost reductions in polysilicon. Of course, with such a precipitous fall of pricing, nobody can reduce costs at the same speed as you can see on the results of everybody who really truthfully request results. And so -- but on the other hand, everybody is working very, very hard to reduce costs, and we are moving forward.
Can I just rephrase that question then? I mean you've talked about accelerating cost reduction. I mean are there any easy -- can you give us examples of any easy actions that you can take in order to see concrete reductions in Q2, Q3, Q4?
Nothing is easy in this business anymore. And we certainly do not want to disclose special items we are doing.
With respect to the polymers question, your first one, Sean. We had 14% margin in this year and also 14% margin in last year. But please bear in mind that the raw material prices were still at a more moderate level in first quarter last year, and the increase came through Q2, Q3, Q4. So the year-over-year comparison is not that big on raw materials.
The next question is from Anthony Manning, Berenberg Bank.
This is Sebastian Bray of Berenberg Bank speaking. I would have 2 main questions, please. The first is on polysilicon. Am I right in saying that if prices do not recover, the guidance as it stands for 10% to 20% increase in EBITDA -- a decrease in EBITDA cannot be held? Are there any reasons that you would assume that prices would recover in H2 given that I think further capacity is due on the market at this stage? That's my first question.And the second is on insurance. It's now been almost 1.5 years since the accident at the U.S. facility at the end of 2017. And I'm wondering how certain are you of recovering the full loss given that there seem to be some torturous negotiations that took a bit longer than originally expected.
So for the insurance, there is no update, but there's also no change in our assumptions. So we excluded it from the guidance. And if there was something to report, we would report it.
On the capacities in polysilicon, yes, there is new capacities coming on stream, but there are also older capacities being shut down to quite some extent. And of course, demand is increasing in the second quarter. That's certainly the assumption.
Can I just follow up on the insurance question again. The -- I -- is it fair to say that it's taken longer than you originally expected for this issue to be resolved? And why -- would it be reasonable to assume the payment materializes in Q2? And if that isn't the case, then why are you not able to say at this stage when exactly the payment comes.
We are in the midst of discussions. So the plant in Tennessee just ramped in December, and for that reason as we are talking big numbers, we take our time. And for that reason, there's no change to what we said before. There's also no different notion in what I'm saying, it's completely unchanged.
The next question is from Martin Jungfleisch, Kepler Cheuvreux.
I have 2 on polysilicon, please. The first one is given the weaker pricing for solar-type polysilicon, you mentioned that you are planning on expanding your exposure to the semi markets. Could you possibly provide your exposure in terms of volumes and sales today? And how much you expect this to raise this to in the short- and mid-term? And do you see any challenges to this? And would this reduce the overall production capacity? And the second question is if you are fully loaded in semiconductor polysilicon in the first quarter, was volume and demand overall weaker in line with the general industry trends? And also of the negative EUR 36 million EBITDA you generated, could you possibly tell us how much of this was driven by inventory write-downs?
I mean, first of all, if we produce more semiconductor material, it does not substantially reduce the overall capacity at all. Second, we certainly do not disclose the exact amount of semiconductor polysilicon we are producing. We just can see that we are more and more successful in that segment, and we already are the leading supplier of semiconductor material. And of course, if the wafer demand is going down, of course, the amount of semiconductor polysilicon needed is also coming down for sure. But on the other hand, these are just cyclical events in the semiconductor industry, and then the wafer industry is not really of great concern.
Martin, to the inventory write-downs, we do not disclose exactly, but we can say that it had a major effect on quarterly results. And I would like to help you equate it. If you take first the PV inside price movement average Q4 to Q1 sequentially, that was down roughly EUR 1 or USD 1 a kg. If you take then an assumption on our inventory, you know that we have 80,000 tons capacity. So just take a number that you deem fair as inventory, you'll easily come to a double-digit million euro effect in inventory write-downs. And this saw a significant portion of the minus EUR 36 million in EBITDA performance in the first quarter.
The next question is from Raghav Bardal, Exane BNP Paribas.
Just a quick one in polysilicon. I think in prior calls, you had mentioned that domestic producers in China haven't been sort of very active in the mono segment of the market yet. And I just want to check if you could confirm if this is still the case or how the competitive landscape has changed recently maybe.Then, if I can sneak in a follow-up on polymers. Just thinking beyond 2019, are you still looking to push prices in the context of recovering towards that 16% level? Or does the lower input cost environment sort of hamper that ambition?
Semiconductor -- I'm sorry, solar wafer customers, of course, are using domestic polysilicon also for mono applications in China -- I mean domestic in China. For very high qualities, our material is definitely significantly superior. And I already mentioned in several calls, and it's still the case that some producers are not really able to assess in detail how much higher quality of a material really benefits them. But this is a question of the maturity of the industry. And as the industry matures, the methods are becoming -- the processes are becoming more stable, and the methods of analysis are becoming better, so more and more realize what benefits they have from high-quality material.
With respect to the polymers question and the outlook for 2020 pricing, it's really early to talk about pricing 2020. Bear in mind that some of our products are also based on formula prices. So if we have the trend that raw materials moderate again, we have the negative effect on prices as well from that. And in addition, as in last year and as in this year and it will be same in 2020, it always depends on supply and demand, and this is different by region. We have some loose capacity situation in Asia than in the Western markets. And that will also then determine the pricing for 2020 in polymers.
The next question is from Oliver Schwarz, Warburg Research.
Some questions from my side. You said that the inventory write-downs affected the EBITDA by probably a double-digit million number. Why does that affect -- I may be thick here, but why does that affect the EBITDA and not the EBIT because that seems to be an accelerated depreciation which shouldn't affect the EBITDA? Some clarification on that line would be nice.Consolidation of the polysilicon industry. It seems like no player at the moment is really able to be in black figures given the current prices. Have you seen signs of further consolidation of the market? Or is everybody hanging out -- hanging in there and waiting for higher prices in the second half of this year to materialize?And second question's on poly. As you stated that you want to go for a higher market share, is that just a recouping of market share that you lost with the accident at Tennessee and the reduced volumes thereafter? Or is that something -- in addition to that, each year are you currently doing some additional bottlenecking that would allow you to produce higher volumes that you could push into the markets?And lastly, in silicones. Could you quickly elaborate on demand from the automotive industry and their suppliers, please?
Maybe on the consolidation of the polysilicon industry, yes, there are too many hanging in there, that's for sure. But ultimately, there will be consolidation. But that's not untypical for development of [ new industry ] unfortunately.
The silicones automotive market is down as end-market segment, but it just makes 5% of our total silicones sales. So we feel that the car industry is growing slower. But you also need to differentiate between traditional combustion engine and electric vehicles. So we have quite some new business also on the electric vehicle side that goes very nicely.To the accounting question, which was your question number 1, I think I don't like the term depreciation on the inventory. It's not correct. I would neither, I mean, call it write-downs. It's more like a revaluation. And from that, you'll also see that this clearly is a revaluation of an asset that then goes into the EBITDA, not below that line.
And I'm sorry, I skipped the answer on the growing market share on the semiconductor volume side of polysilicon, if I understood you correctly. This is not a -- not recouping lost market share, it's successively improving market share through performance, through reliability, through competitiveness. And it's not reducing capacity on the solar side.
Understood. May I sneak in an additional question regarding depreciation, please? Could you quickly elaborate why the depreciation level in Q1 2019 was higher than in Q1 2018 despite your guidance of having -- or aiming for a lower depreciation level in 2019?
Yes. This is the IFRS 16 effect as the leases that go out of EBITDA become depreciation and interest. So our depreciation goes up year-over-year by EUR 30 million just from the new standard.
But shouldn't that be the case in the full year as well because you're guiding at EUR 525 million? And I guess, that's including that effect.
Yes, but it's -- I mean we are getting close to prior year level with depreciation. So it's exactly these EUR 30 million that also show up for the full year.
The next question is from Thomas Swoboda, Societe Generale.
Yes. I have one question left, and it is on your guidance, especially in polysilicon. I'm still trying to understand it. And sorry to make it a little bit longer, but if I understand you correctly, you said that EBITDA in Q2 should be roughly flat quarter-over-quarter in the second quarter. So if you -- in order to make your guidance, you would then need to make EUR 140 million of positive EBITDA in the second half of the year. I hope I got this right. My question on this is can you give us a hint how much of this EBITDA swing you can control, meaning how much -- or what proportion of cost savings, increased volumes and other things you can control can contribute to this guidance? And how much is the hope for the better pricing in H2? I'm perfectly aware you don't want to show all your cards, don't want to put all your cards on the table, but any hint on this would be very helpful.
Thomas, we hinted that we don't see a large improvement in the second quarter. That was our statement. That means that we had EUR 36 million negative, so we continue negative. But that doesn't add up to EUR 140 million in the first half minus. So it is the first statement.The second is, with the inventory revaluation effects, that -- these go both ways. So we have revaluation negative, but our assumption is clearly that we have a stronger second half end demand-wise and such also with somewhat higher prices and that will then also lead to a higher inventory valuation. So that explains that we see the guidance of neutral EBITDA unchanged.
So are you saying that cost saves and additional volumes do not play a big role in the swing?
For sure they play a big role. We work intently, as we said, on cost reductions, and they make up a strong element as part of our profitability. But somehow the prices are expected higher in the second half, that's true.
As the costs decrease, the need for price increase is less in order to get to the guidance.
We have a follow-up question of Andreas Heine.
Inside polysilicon and the inventories, you said that you were happy to have some inventories in China to make use of the high demand there. I don't fully understand this, I have to say, looking at -- even if I strip out the inventory revaluation. And then the solar part of your polysilicon business is loss-making, so why does it make sense to be keen to sell down inventories if the demand is high and if you don't earn anything? And it's the first question.And working on what you just answered on the question before on the inventories going in both direction, I would assume that you have kind of first-in, first-out calculation in the inventories. So the new build-up inventories would go on this cost. And I would assume that then if you do not have to do any additional inventory reduction but selling down the already, let's say, revalued inventories at prices -- at current prices and building up the new inventories at cost base would not get to relieve of these write-downs you have done already even if prices go up. Could you explain this to me, please?
So I will start with the second question. The relief in the revaluation only comes when prices go up, that's -- if not, you're absolutely right in your accounting. So you sell at the revaluation -- I mean at the revalued inventory level. And if that price is the same, you don't make margin on that.
And then on the first, could you explain why does it make sense to sell the inventories, that you mentioned this as a positive having these strategic inventories in China and being part of the higher demand if you can't earn anything with it?
Because we had a rush demand of a customer and sort of we [ need it ] with all our sales volume at a certain period, we need to accept a certain price level, and we sell it then still at a better price than market price. And we also think strategically in building those customer relationships. And just bear in mind, at the Tennessee plant, not running for almost a year or not at least running at full capacity, so we lost some business opportunities. And in that situation, we are very happy that we could serve from a local hub material.
We are still always selling at higher prices than competition.
Okay. And then lastly, as you mentioned, is it fair to assume that your deliveries in the first quarter were higher than your production capabilities?
No, it's similar to production capabilities.
We have another follow-up question of Sean McLoughlin.
Just a follow-up -- another follow-up on the write-down. Given that polysilicon pricing has been in free-fall over the past 9 months since June 2018, can I ask about the frequency of the write-downs? I don't recall if we've heard of any inventory write-downs since the middle of 2018. So could you maybe share with us any polysilicon inventory impairments that you've made over the past 3 quarters to help us get a better grip of underlying profitability trends in polysilicon?
Sean, the revaluation of inventory is standard procedure in IFRS accounting. You always go and have them in the books at total manufacturing costs. These include depreciation. But if your selling price is below that, you revaluate it to that lower selling price. And that was the case throughout the year or the second -- I would say, the second half of 2018 when prices dropped. But you compare against full manufacturing costs, including depreciation, and we had worst depreciation in -- I mean we have a very high level.
The last question is from [ Olga Kashnova ], Svenska Handelsbanken.
I have a question regarding the production cost at the silicon plant. Could you give us please more details in this regard? What happened? What exactly happened?
You mean in this force majeure case?
Yes.
Okay. Well, a piece of equipment failed. And so our production capacity was reduced by a fair amount. And then you just cannot produce this specialty material, and that's why we have not only lost sales, we have also lost significant profitability. But we do not specify detailed production costs.
Okay. But it was not an accident, right?
No, no, no. it wasn't an accident. It was an equipment failure, mechanical.
Okay, so a technical issue?
Technical -- a piece of metal. A piece of metal failed.
There are no further questions. I would like to hand back to the speakers.
Thank you, operator. Thank you for joining us today and for your interest in Wacker Chemie. We're looking forward to further discussions with you as the quarter progresses. If you'd like to meet with us next time we are in your city, please send us a message directly or register your interest with our corporate access partners.We will be back again with a conference call on the Q2 results on August 1. Goodbye.
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