Wacker Chemie AG

XETRA:WCH

Earnings Call Transcript 2023-Q1

[Operator]

Conference is now being recorded. Welcome to the Wacker Chemie AG Conference Call Q1 2023. [Operator Instructions] I now hand the conference over to Joerg Hoffmann, Head of Investor Relations. Please go ahead.

[Joerg Hoffmann, Head of Investor Relations]

Thank you, operator. Welcome, everybody, to the Wacker Chemie AG conference call on our Q1 2023 results. Dr. Christian Hartel, our CEO; and Dr. Tobias Ohler, our CFO, will take you through our PPS slides in a minute. The presentation is available on our web page 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, the presentation and a recent annual report regarding risk factors. All documents mentioned are available on our website. Chris?

[Christian Hartel, Chief Executive Officer]

Welcome, everyone. Thank you for dialing in on this late Friday afternoon. As we discussed on our fiscal year 2022 call just a month or so ago, we saw low demand and significant destocking at the end of last year. These trends have eased somewhat, but remained defining factors in our chemical segment during the first quarter of 2023. In silicones and polymers, we are beginning to see moderate demand improvements.

Volumes are somewhat higher quarter-on-quarter. This supported a markedly better performance in chemicals. Silicones operational EBITDA is nearly dried as high at EUR96 million compared to the preceding quarter. Polymers reported EBITDA is about 60% higher at EUR71 million. And biosolutions is largely unchanged with results defined by upfront costs and investments.

Polysilicon was held back by low demand at the beginning of the year against high volatility in the polysilicon price index and plant maintenance at our Charleston site in the U.S. Over the first quarter, polysilicon volumes improved and EBITDA came in just shy of EUR100 million. Wacker generated sales of EUR1.7 billion and an EBITDA of EUR281 million in the first quarter. Earnings per share came in at EUR2.90 per share.

Markets remain volatile, and Wacker is not insulated from these events. Inventory drawdowns by customers had a noticeable effect on our sales and earnings. Our teams reacted quickly to navigate these challenges successfully. Their efforts were instrumental in delivering what we consider a solid result in adverse conditions. Please allow me and on behalf of the entire Board, to thank them for a job well done.

So yes, the first quarter in chemicals shows some improvement compared to the preceding quarter. We are, however, not out of the woods yet. Energy prices remain elevated and are a significant headwind to chemicals and polysilicon. While customer destocking is slowing, we are not yet seeing firm signs of a recovery.

Our customers communicate expectations of stronger demand in the year's second half, but the current order pattern remains focused on the short term. In addition, the much expected recovery of the Chinese economy after Chinese New Year has not materialized so far. Based on our customers' views, we expect an improvement in demand for our products in the second half of the year. The first quarter was in line with our expectations and showed good progress towards our full year expectations. We are therefore keeping our full guidance unchanged. We see full year sales between EUR7 billion and EUR7.5 billion, generating an EBITDA between EUR1.1 billion and EUR1.4 billion.

Since we released our full year results, we have met with many of you and most meetings followed a similar sequence. Typically, we covered our segments' ongoing performance and strategic position first, and then we would discuss the U.S. IRA and its potential European counterparts. Many of you expect to hear more about these two topics today.

Currently, we have nothing really new to report. We continue to see and meet politicians and speak to current and potential customers. We have clarified our position toward the main question on capacity expansions to support solar reshoring. And as we have repeatedly said, we need competitive power prices. We need customers, and we need prices reflecting the market conditions outside China. Only when these topics are addressed, we can build a solid economic case needed for future solar investments. To invest, we need compelling, solid and long-term economic conditions. This will be the basis for our decisions going forward.

Over the last few months, I have had many constructive discussions in Europe and in the U.S, and I remain convinced that Wacker will be part of the solution in solar reshore. Nevertheless, and again, as said before, we will not rush into new investments in solar and then sacrifice growth in chemicals and biosolutions.

Our strategy for 2030 has clear targets, increasing growth, higher profitability and improved resilience in times of dynamic change. We want to grow our group sales by 2030 beyond EUR10 billion with an EBITDA margin of over 20%. To realize this strategy, higher investments are necessary. This year, we will invest around EUR650 million. We have defined more than 40 projects globally to reach these goals.

We focus on our specialties and chemicals, biologics and bioingredients and biosolutions and increasing our semi-grade capabilities in polysilicon. A key part of our strategy is to improve our sustainability profile by lowering our emission footprint and offering innovative products and solutions, which enable resource-saving technologies for our customers.

By 2045, we aim to achieve net zero emissions. Reducing Scope three emissions is an important part of this equation. Wacker just held its first carbon footprint conference with key suppliers. We now ask them to report their product carbon footprint for certain materials. We see sustainability as a key value driver, and this is an important step forward in measuring and addressing our carbon impact.

We showcased solutions addressing smart construction at the European Coatings Show in Nuremberg. Smart construction is a key to both raw material savings and energy efficiency. In the appendix, you will find the ECS and the carbon footprint conference information. I invite you to look, and I'm sure you find it both impressive.

Before I hand over to Tobias, we would both like to take this opportunity to thank our fellow Board member, Ido Willems, who leaves us in a few days. You have met Ido at various Capital Market Days events over the last 16 years. Ido has been a great pillar of our company, and he has been a valued colleague and a dear friend. Ido Willems will be succeeded by Christian Kirsten, previously at Henkel Adhesives, responsible for the European activities. Christian brings a valuable customer perspective and deep experience in specialty chemicals to our Executive Board. And now to Tobias for details on Q1 financials.

[Tobias Ohler, Chief Financial Officer]

Thank you, Chris. Welcome. I will walk you through our Q1 performance. We reported sales of about EUR1.74 billion with an EBITDA of just over EUR280 million. The result was at the top of the range which we communicated on the full year 2022 conference call. While the figures are clearly lower than last year, we see our first quarter performance being solid amid very challenging markets, as Chris said. The problem with a truly exceptional year like last is that it sets us up with difficult comps for this year. This will be particularly true during the first half of the year. Strong demand across the entire portfolio, high utilization rates, high prices and some low-priced raw material stocks defined in the first half of 2022.

This year, the first quarter's performance was defined by low demand and trading high energy costs. These effects worked through the P&L from top to bottom with EPS coming in at EUR2.90. Our restructuring program, Shape the Future is on track, clearly supporting earnings. This year, we expect to save around EUR250 million. We have done our homework, and we can now benefit from a more resilient setup with a more responsive organization. Our balance sheet on the next page shows very strong financials with over EUR2 billion in liquidity and shareholder equity of over EUR5 billion.

Moving on to silicones. Sales increased to EUR760 million quarter-over-quarter. When adjusting for the revaluation effect in the fourth quarter of last year, EBITDA increased from around EUR50 million to EUR96 million. After a difficult end to last year with deep destocking following two years of tightness and allocation, we saw some volume improvements in the first quarter. Our utilization still lags well behind the very high loading we experienced during the first half of last year.

While destocking appears to be slowing, it's not over yet, and order entry doesn't show a stronger demand yet. Also, the unwinding of high-cost inventories will burn silicones well into the second quarter of this year. Our silicones guidance for the full year is unchanged. We expect full year sales between EUR3.1 billion and EUR3.3 billion. We expect a full year EBITDA margin of about 15%.

Moving on to the next page, polymers. Polymers also reported a sequential improvement. Sales came in at EUR428 million, slightly higher than in the fourth quarter, owing largely to higher volumes. Destocking began earlier in polymers. EBITDA improved considerably in the first quarter as raw material costs decreased faster than our selling prices.

You will recall that we implemented a surcharge model to address the recent unprecedented rise in raw material prices. This has proven to be a very effective tool improving polymers earnings profile and resilience. Looking to the full year, our guidance for polymers remains unchanged. For 2023, we expect sales of EUR1.8 billion with a slightly higher EBITDA margin than last year.

In biosolutions, sales came in at EUR77 million. In biopharma, we are seeing some project wins and these projects will further contribute to sales with the delay in the second half of the year. We remain focused on transforming biosolutions into a meaningful pillar here at Wacker. Our growth initiatives require continued investments and trigger higher upfront costs.

For example, we hired staff today for our new M&A competence center in Halle, Germany to generate revenue in next year 2024. Looking to the full year in biodolutions, we continue to expect a low double-digit percentage sales growth supported by biopharma and bioingredients. EBITDA will be backloaded to the second half and substantially higher than last year.

In polysilicon, we reported first quarter sales of EUR441 million with an EBITDA of around EUR100 million. Our semi business continues strong, delivering both higher volumes and prices. The segment overall saw volumes declined due to significantly lower shipments of solar-grade silicon. This was driven by a slow start at customers at the beginning of the year due to volatile polysilicon prices as well as our maintenance shutdown in Charleston and the subsequent ramp of the facility. We used this period to move material into hubs close to our customers.

Towards the end of the quarter, we saw increasing solar volumes as the value chain ramped operations, again, ahead of what looks to be another record year for PV solar installation. For 2023, we continue to see sales of EUR1.6 billion to EUR1.8 billion in polysilicon with an EBITDA of EUR300 million to EUR500 million. We are convinced that we will continue to achieve premium prices for solar-grade polysilicon with different market prices based on quality and origin. However, we expect regional and contract mix as well as new competitor capacities to have an impact on solar price levels and volatility.

Now looking at our net financial position. We ended the quarter with net assets of nearly EUR450 million after generating a net cash flow of around EUR50 million during the quarter. Growth investments are our top priority for capital allocation. Our proposed EUR12 per share dividend will be paid out following our AGM in May. This has been a complicated quarter. And still, we delivered over EUR0.25 billion in EBITDA. I am proud of our progress, and we are working on further expanding the resilience on display here. In summary, our strategy works. We operate in a challenging environment, but continue to deliver.

[Christian Hartel, Chief Executive Officer]

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

[Operator]

[Operator Instructions] The first question comes from Matthew Yates from Bank of America.

[Matthew Yates, Bank of America.]

I apologize joining late from a prior call that was overrunning. Can I just ask you about silicones? You've tried to emphasize in recent years how the product mix has evolved to become more specialty. Yet the results are still pretty volatile, which paints the picture of perhaps still having some reasonable-sized commodity exposure there. I heard on the Dow call earlier this week, they were talking about 600,000 tonnes or so of new siloxane capacity that's coming into the market. So is there a risk here that the profitability of this business could actually come under more pressure rather than the recovery that you're expecting and is embedded into your guidance?

[Christian Hartel, Chief Executive Officer]

Yes. Matthew, this is Chris. Very good question on the announcement on siloxane capacity. Although I have to say this is also not new. I mean competitors in China focusing on siloxane and the subsequent standard product steps is nothing really new to us. I mean we have a clear strategy on focusing on the specialties, and we believe that is absolutely the right strategy because you get a more attractive margin on it. You are less replaceable at your customers and you just deliver more value. Is there an influence? And we said it also in the last call, is there an influence on lower standard pricing, especially in China?

Well, there is. First of all, what we see is that the standard pricing also is subsequently coming to other regions like Europe and then subsequently lowering the standard pricing there. Also, to some extent, we see that in the U.S. And also, what we also said in the past, I mean, the specialties are not to 100% immune to lowering pricing in standard products.

But I believe with the strategy we have and really limited exposure to these standard products, we are on the right track. And at the moment, it is right that it's the specialties that really contribute to the profitability of silicones. But we have seen in the past years also a chunk of profitability coming from the standard product. But again, clear strategy for us, focusing on specialty products.

[Matthew Yates, Bank of America.]

And sorry, just to follow up. So to get to the guidance you're talking about, is the key here that you get volume growth back into the business? Or do you need a recovery in standard pricing through the year?

[Tobias Ohler, Chief Financial Officer]

Tobias. Yes, Matthew, we definitely assume some opportunity to sell, again, higher volumes in the second half of '23. Because as we mentioned also in the last conference call, we have invested over the past, I mean, as part of our strategy. And we have capacities available. But these capacities need to meet the demand. And for the very short term, Q1, we had talked about continued destocking. And for Q2, we don't see a pickup in demand yet.

So for the guidance, we definitely also include a slightly stronger second half. And right now, we don't have the visibility, but we are convinced that, as Chris said, that our strategy is absolutely right and that yes, we have invested and we have capacities for very strong markets.

[Operator]

The next question comes from Mubasher Chaudhry from Citi.

[Mubasher Chaudhry, Citi]

Just clearly look on the silicones for the second quarter, is it fair to assume also do you expect the second quarter volumes to be better sequentially in silicones? I know you talked about weaker start or a weaker April, I just wanted to kind of understand your assumption with regards for the full quarter sequentially? And then secondly, similarly on volumes again, can you provide an update on the turnaround in polysilicon and what your volume are the case for the second quarter, please? I understand the first quarter volumes are quite weak. So I just wanted to get an understanding of if there is a recovery to be expected? And if yes, how much would be very helpful.

[Tobias Ohler, Chief Financial Officer]

Mubasher, Tobias here, I'll start with the first question on volumes in silicones. also looking very much at the short term. In contrast to Matthew's question also for the second half. For today, we see no improvement in business trends. So April versus March, for example, April is even slightly lower due to the holidays and less working days in Europe. So order entry doesn't show a stronger demand yet and all bit on, I would call it on short notice.

So if I just look at Monday of this week, so 1 week before May, we were just covered by roughly 50% for May. So just to give you a little bit of a feeling for that. And for that, from our perspective, silicones, we also have some plant maintenance, which will lead to additional technical spending. We have continued negative effects of high trailing raw material costs, as we mentioned before. And as we discussed before, we also have low prices for standards. So if I put all together, silicones will only see a slight improvement in the second quarter over the first quarter.

[Christian Hartel, Chief Executive Officer]

And on your second question on the polysilicon, yes, so the turnaround in polysilicon, our Charleston plant is finished, it's running at full capacity. So that's one of the reasons why we'll see more volumes in Q2 going forward. We don't disclose the exact loadings and capacities of our plants. And I hope you'll find that statement, there will be more volume evaluable in Q2 for polysilicon sold.

[Operator]

The next question comes from Chetan Udeshi from JPMorgan.

[Chetan Udeshi, JPMorgan]

Yes. Just following on your previous commentary on silicones EBITDA may be slightly better than Q1. Can you help us understand how you think about the rest of the division in terms of sequential basis in terms of development also for group? Should we be expecting more like stable EBITDA? Or do you think there's scope to improve EBITDA on a group basis in Q2 versus Q1?

The second question is, I was curious in terms of the silicones business, your production setup is very much European-centric in silicones. And I'm just curious, does the energy dynamics given some of your competitors are either in U.S. or Asia, does that have a structural impact on the competitiveness of Wacker on standards or specialties? Or do you have that flexibility to maybe source siloxane from other regions if it's more expensive to be produced in Europe versus rest of the world?

[Tobias Ohler, Chief Financial Officer]

Chetan, Tobias here starting with your first question. I mean I mentioned EBITDA for the second quarter in silicones was putting all together only a slight improvement in the second quarter over first quarter. And you asked if I got it right about the other divisions. So generally, we don't give group guidance for the quarter, but I'm happy to provide you with some additional color on the segments. So first, polysilicon, semiconductor will continue strong. And with the maintenance over, as we discussed, we should see some higher solar volumes.

However, we also will see much larger solar volumes back to China. And China market prices are, as you know, much lower. And so we assume much lower prices in the second quarter than in the first quarter. So these price mix effects will result in overall lower realized ASP in the second quarter as we see it today.

But we definitely we achieved pricing premium in all our markets, but you have to put it all together. And with some pricing success that we see, it takes time to work it through all the changes of our contract portfolio, which is, yes, staggered as you can imagine. And that said, we expect a good progress in the second quarter towards our full year expectations, but we are not expecting a significant improvement in EBITDA in the second quarter.

So chemicals, we covered silicones, polymers, I think it's sort of uneventful. We see some benefit from seasonality and continue to benefit also from our own selling prices, trailing the decreases in the raw material prices. And biosolutions is also uneventful, biosolutions EBITDA will be backloaded as we said, to the second half of the year and substantially higher than last year. But the second quarter, not materially different to the first quarter. And I mean no group guidance, but I think something to watch out is also other segment.

In the second quarter, we expect a negative contribution in others before Siltronic and the other segment that can swing quite a bit from quarter-to-quarter. Our full year guidance is entirely unaffected. We always say low double-digit negative before the Siltronic equity contribution, but the second quarter overall, a negative contribution before Siltronic. I think if you put that together, you get a little bit of how you can think about group for the second quarter.

[Christian Hartel, Chief Executive Officer]

Okay. And second question, Chetan, you asked on our silicones production setup, European focus. So if you talk about siloxane, so the kind of the precursor materials for our specialties, that is true that these are the two plants in Germany. But also keep in mind, we have this joint venture with Dow in Zhangjiagang in China for siloxane production. You talked about the energy dynamics and does it have a structural impact on the competitiveness? Well, first of all, you have to see that the energy intensity of the siloxane production is much lower compared to polysilicon production.

And the second thing is that you cannot just see on an isolated basis because in Burghausen and also Nunchritz, we have a highly integrated -- structure, which means that also kind of excess energy or heat generated in the polysilicon process can be used in our silicones process. So it's not a kind of stand-alone competitiveness we talk about, but it's the benefit of the structural interaction of these divisions that really generate an overall benefit for us. But of course, I mean, higher energy prices in Europe are not beneficial. That is true.

Part of your question was, do we take the opportunity to source siloxane from other regions? Also in the past, from time to time, we took some opportunity also to swap material between the regions primarily to save logistics costs. But again, in this context, a high loading of your own plant in a highly integrated [indiscernible] structure gives you more benefits than running at low utilization and just buying material. So I hope that was kind of helpful

[Operator]

The next question comes from Charles Webb from Morgan Stanley.

[Charles Webb, Morgan Stanley]

Yes. Thank you very much for taking the time. Maybe just first on the raw materials. You obviously talked about these kind of lagging high raw materials that you're still working through. Can you give us any sense on at what point you'll be through much of that and you'll be in a more normalized kind of run rate to where those raw materials are today? Kind of first question, is that a second half story? Is that kind of latter part of Q2? It feels like we've been working through them for a bit of time now. And then maybe just kind of polysilicon, tying, I guess, a few of the questions that have come before me.

But on that price premium and the time line for getting those through and realizing those based on your contract structures, I mean, is there any way you can help us understand a little bit more examples of how you're thinking about that price premium? Is it simply just a flat premium over the index? And then I understand it's going to vary customer to customer, but holistically how you're approaching it would be helpful. And just another one on poly. Apologies I know it's one more than the two. But just on the turnaround impact in the first quarter, can you give us a sense of magnitude in terms of maybe high double-digit million, triple-digit million? What kind of magnitude of an impact was that to the first quarter results would be helpful.

[Tobias Ohler, Chief Financial Officer]

Charlie, Tobias here. I'm starting with the first question, the lagging effect of raw materials, it is more or less the reversal of what happened last year. We talked, I think the entire first half of last year about those benefits and depending on the magnitude of the change, if there's a step change, I would always say it's one to two quarters until you will see it in the P&L. But in addition to that, you have always lagging effect if your raw material prices move in one direction or the other. So if you have a continuous decline, you will always see that you are not, yes, realizing spot prices because the structure of the raw material contracts.

So there is a delay in the P&L. And I think you should consider that. If you look at energy prices, I mean, we talked about our hedging strategy, which goes one, two, three years out with declining ratios, those lagging or the lagging effects are even longer. That's why as everyone knows, spot prices right now for gas and electricity are rather back to where they were before. But given the long-term hedging strategy, we communicated that our energy prices would be more or less at the level of last year. And definitely, we had in the first quarter, energy prices at the level of the prior quarter, and we will see benefits going forward. So there is also a time delay until it shows up in the P&L.

[Christian Hartel, Chief Executive Officer]

And maybe, Charlie, some comments on your second question on the polysilicon on the price premium. And maybe if we go back in time a couple of years ago, the main discussion at that time was about premium for quality. So with a higher quality material, you were able to produce higher efficiency solar cells, especially if you talk about these n-type cells. For example, if you today look at premium pricing, there are some additional factors coming up and Tobias mentioned in his speech also, it's the origin of the material, which plays a role due to geopolitical constraints, especially if you talk about material for the U.S. But also, you see the destination where the material goes, and these are totally new things which came up essentially in the last let's say, six to eight months. And they are, to some extent, seen in these new indices.

So if you look for the PV Insights, we always said in the past, the 9n and the 12n and for the quality. But now you also have that inside and outside of China, which is primarily on the destination of the material. And the third aspect is the origin of the material, which plays an important role today. In all this, if you talk about our contract structure, and I mean, we have many contracts with many customers.

And what we do with customer contracts, and I cannot disclose any details on single customers, but what we did and what we also do in other divisions is we have a staggered portfolio, meaning all these contracts don't start and end at the same time because there is also some sort of hedging strategy on the customer side for us. So there is no definite point where you could say from that point on all these contracts are different.

And the second is the price formulas we have in the contracts are typically also not exactly the same. It's often a combination of indices, sometimes it's a combination with the fixed cost aspect, and as we go -- as I mentioned, the last six to eight months to these really new terms that define premium, we are in the process of talking to our customers, renewing contracts, definitely renewing the contracts which are terminated. And that will give us a gradual improvement in that premium portfolio structure.

[Tobias Ohler, Chief Financial Officer]

On the last question with respect to the turnaround, we typically don't give precise numbers, but it was significant enough that we wanted to talk about in the first quarter. I think from there, you can estimate the magnitude as you like.

[Operator]

The next question comes from Jaideep Pandya from On Field Research.

[Jaideep Pandya, On Field Research]

I wanted to go to the discussion in the press right now on the electricity price of USD0.04 to USD0.09 and just understand what in your view is the time line for this and then tie that in with your discussions with your customers to expand polysilicon capacity in the U.S. and in Europe because it seems like some Chinese players are now even looking outside China to invest. So how do you see investments in polysilicon in light of electricity costs?

And then also just as a sort of small follow-up, there is a bit of a talk of local content requirements in the value chain, even in the U.S. So if you can just comment on that as well, that would be great.

[Christian Hartel, Chief Executive Officer]

Okay. So Jaideep, so I take the I take the PPP questions, power, poly, politics. And your first one is probably the toughest one, which is on what's the timing for industrial power price? I mean, again, we have been advocating this for many, many years because we truly believe it's an essential part of the competitiveness of the whole chemical industry, if you like, in Europe, which is really at stake at the moment. So it's not only about polysilicon. Of course, it's our business and where we focus on. But I think this is really crucial for having and keeping the competitiveness of the really great chemical industry within Europe.

Second comment would be, I think what we've heard in the last one two weeks was probably the most we have ever heard about concrete talks about an industrial power price, especially in Germany, which we advocated and which we appreciate. The very difficult thing for us and also for other companies is to really judge when it will come. And also, I mean, if you've read the news in recent hours and days, it's still unclear what is the range of this pricing. It somehow starts with $0.04, it goes up to $0.09.

A big question is about who is the accessible group of companies? Is it the only the true kind of energy intensive? And I mean the more guys you would have into that bucket, probably the higher the price would be. And also, it is still not yet clear the duration, we've heard some people recently talk about, let's do it two years. We always said we need at least five to seven years until there is sufficient renewable energy at competitive pricing. So which means it is still kind of in a process of discussion in the political area, I think. And then to give you my view on the timing, I think what needs to be done first is the ministry of the economy needs to say this is the concept.

Second step would be the German government itself agrees on that concept. And I think it's a political process, which might also take time. And then you need to make it a law. And then the third final step would be, you somehow have to align it with the European policies. And as much as we push for a quick solution, this could still take months to be implemented. But again, I don't want to be pessimistic about it. I believe the change has never been better than ever in history. And so we keep advocating for it.

And it goes again with the second part of your question, how do we see that investment. For us, a clear statement and a reliable commitment on the power pricing for us is really the entry ticket, the mandatory entry ticket to talk about a potential expansion of polysilicon next to having offtake agreements, long-term off-take agreements with customers. These are progressing. But we can do it because we already have capacity on the ground even without investing, we engage in talks with customers on supply in the U.S. and in Europe.

And the third part of your question comments on potential local content requirements, especially in the U.S., yes, that's also what we hear. And we give also here in the year a clear statement. We are already on the ground. We have material that can be used for a reshoring initiative. And if you want us to invest more, again, it needs to be a compelling business case. And typically, the investment costs in the U.S. are higher than in Europe. So the topic of CapEx support plays a vital role here for us to take a decision.

[Jaideep Pandya, On Field Research]

Sorry, Chris, to ask you one follow-up. How much as a percentage of your time are you spending with the politicians right now? And how important are you in Germany?

[Christian Hartel, Chief Executive Officer]

Well, I mean, the second question, you have to ask other guys for the second part of the question, how much time I use for this topic for the politics? Sometimes it feels like 120% of my time.

[Jaideep Pandya, On Field Research]

Okay. Thanks a lot. I hope they're better compensating you for it. Thank you.

[Operator]

The next question comes from Jeff Harry from UBS.

[Jeff Harry, UBS]

I just wanted to ask, in recent days, we've seen that Germany is in, German politicians, I should say, are considering banning the export of chemicals for the semiconductor industry to China. I just wondered what impact would that have on Wacker if that did come to pass?

[Christian Hartel, Chief Executive Officer]

Well, Geoff, that's well, interesting question that came on the tickers just a few days ago. Now for us, we have a good view that it sounds like a rumor, which just came out of politics or from somebody else. We were surprised to hear that. I can give you a general statement. I think all these talks about banning exports of any specific product groups, which are vital for the global economy, in my view, would result in massive negative impact on both sides, on all sides of global economy.

And yes, I mean, if we would sell less to China, yes, we would sell less to China. But I think it's only the tip of the iceberg because then somebody else wouldn't get material and wouldn't be able to produce other material, which is then used not only in China but in the rest of the world, and it's all interlinked. So therefore, this is also something which we address when we talk to politics on the energy topic, saying, "Don't talk about decoupling with China because it doesn't make sense." And we always made a clear statement that we believe in free trade and fair competition. So yes, that's what I have to say to that.

[Operator]

The next question comes from Andreas Heine from Stifel.

[Andreas Heine, Stifel]

Yes. Two questions basically. The first is on silicones. You said that the volume is not really progressing from Q1 to Q2 due to ongoing destocking, what visibility do you have whether this is still destocking or whether what you see right now is just low underlying demand? And the second question is on polysilicon trying to get the head around on what you mean with premium.

So if I look on what massive capacities come in polysilicon and what the price outlook from some surveys are for poly prices might end on the Chinese spot market at the end, that might be clearly below your unit costs you have here in Germany. So a percentage premium or any premium on such a low price would not really help you. Is it this premium really decoupling from what's going on in the spot market? Or would it be just somewhat more on a very low price, we might end up with at the end of this year?

[Tobias Ohler, Chief Financial Officer]

Andreas, to the destocking question silicones, unfortunately, we do not have full transparency on that. We sell over 3,000 products to as many customers. So we normally try to work through it segment by segment. And here, the story is that segments that started first in destocking out of woods first. But there's more segments that we cover. So there are still some segments late in this process that are continuing to destock. And if I look at the order pattern, it continues, I think, very short term.

And that signals to me that in general, our customers do not have great visibility on their own end markets, and we need to live with that. And that's why also the momentum in the second quarter hasn't shown the improvement yet. And also not in China. I mean everyone was expecting at the beginning of the year that China would show stellar improvement already starting just after Chinese New Year that hasn't happened. There is slight improvement. So there, April is a little bit stronger than March. But overall, we cannot confirm this for silicones volumes globally

[Christian Hartel, Chief Executive Officer]

And Andreas, on your premium pricing question, I mean, this is a pretty complex agenda to talk about. And as I said, I mean, the pricing we see today of premium pricing depends on questions like what's the origin of the material, what's the quality, what's the destination of the material. And therefore, I think I cannot give you a simple answer to this because I think, for example, if you talk about quality, probably this could be something which is just an adder on a market price.

If you talk about origin of the material, this is not an adder on the Chinese price because if the material needs to be non-Chinese, then the adder to a Chinese price is not the important step. The important step is that you have a material, which is coming outside of China. And therefore, I would envision that these are just different pricing mechanisms which come there.

And if you talk about quality, also one third of the installations this year will be n type, that's what we believe. And therefore, the demand for high-quality material, which we produce should be pretty healthy. And yes, so it's an ongoing discussion we have here with our customers on these pricing, and it's a dynamic market.

[Andreas Heine, Stifel]

Maybe adding to this. If I go back to the last cycle, there your profitability in polysilicon was at zero, assuming that semi was always profitable, then solar was below the waterline. Is your pricing power now strong enough that you could definitely avoid this situation to come again?

[Christian Hartel, Chief Executive Officer]

Andreas, I think what we should also not forget in the overall equation is the overall demand supply situation. I think demand is strong overall for solar, and it will remain strong. But you always have these announcements from a lot of Chinese competitors. And to give you here a very clear statement about it will never happen like it happened a few years ago, I think it's just extremely difficult to do. Our strategy was always and regarding auto semiconductor focus on high-quality material with a high reliability, and that's what we also continue.

[Operator]

The next question comes from Sebastian Bray from Berenberg.

[Sebastian Bray, Berenberg]

I would have two please. The first is on biosolutions. Could you give some indication of how the underlying profitability ex ramp-up, pandemic preparedness facility or one-offs of this business has developed. The reason I'm asking is that this was going at a run rate somewhere in the low teens of EBITDA on a sales base of something like 320-ish. And it looks as if in Q1 and Q2, this business is going to have 0 million of EBITDA. When exactly do these ramp-up costs stop? And is this going to really rip from a profitability perspective once the new facilities start to be filled sometime in '24? That's my first question.

[Tobias Ohler, Chief Financial Officer]

Sebastian, it's a complicated one, to be frank. But to give you the time line, just look at that we are generating revenue from the mRNA content center starting in the second quarter next year. And until then, we need to ramp the entire staff, and we have already, I think, an additional almost 100 on board. And this gives you a little bit of the magnitude of the personnel cost that already come without revenue. Once we have the revenue of the contract, we generate profits for sure. That is one effect on biosolutions, which is a drag on the first half.

But there's another drag in the first half because we have some project successes that in biopharma, where we already start producing material, but it won't get shipped before the second half of the year. So we have, in addition to labor costs, we have material cost that doesn't generate revenue yet. And you were perfectly right that the second quarter doesn't look too much different from the first quarter. So first half is, to be frank, close to breakeven EBITDA and profitability comes in the second half.

[Sebastian Bray, Berenberg]

That is helpful. And the second one is just a question on underlying profitability by subsegment in polysilicon, I appreciate you can't really say, well, the number was this for semiconductor and it was this for solar. But is the level of semiconductor profitability today similar to the level at the same time last year? Or has it changed noticeably?

[Tobias Ohler, Chief Financial Officer]

As I said before, we do not comment below segment level on different applications. We have the moving factors. We have higher volumes. We have higher prices, but we also have higher energy costs against last year. So for that, not too different, I would say.

[Operator]

The next question comes from Markus Mayer from Baader Helvea.

[Markus Mayer, Baader Helvea]

Only one question left, and that's also linked to Sebastian's question on biosolutions. I know that the saving of your ambitious plan until 2030 was not back-end loaded. But where do you see yourself on your internal plan to reach ambitious 2030 targets regarding top line but also profitability.

[Christian Hartel, Chief Executive Officer]

Okay. I mean Markus, the line was not too good. I hope I fully got your question on biosolutions performance, ambitious targets, top line and profitability. And we always said it's not back-end loaded. And yes, it's true. And I think Tobias just gave a good example of that we will see a gradual growth in sales and in profitability, mRNA preparedness plan ramping up in 2024, starting in Q4, we will see a definite step up there.

And we also talked about ongoing M&A pipeline. There's nothing concrete to talk about today. But we will see this also coming up in due time, and this will be part of how to reach the EUR1 billion. So we feel pretty much confident and on track with this target.

[Operator]

The next question comes from Rikin Patel from BNP Paribas Exane.

[Rikin Patel, BNP Paribas Exane]

Just one follow-up on silicones. You mentioned earlier that specialties aren't immune to seeing pressure on pricing. Just wondered if you could give us an indication of what the percentage of specialties is in your portfolio at the moment? And how sustainable or resilient pricing has been again in specialties year-to-date?

[Tobias Ohler, Chief Financial Officer]

Rikin, Tobias here on your mix questions in silicones. So we mentioned also in the Capital Market Day that we continue to focus on specialties and didn't want to grow this share. But we do have standard products in our portfolio, just also for balancing the [indiscernible] system. I think percentage-wise, there is not a big change. And as we emphasized also in the last conference call, I mean, that definition, especially in standards, I mean, it's also not black and white, but for simplification, you need to do it.

So your question, now moving towards the pricing in specialties, I would answer in the sense that the more specialty product, the stronger your position also to continue with value-based pricing. The closer you are at this differentiating line between standards and specialties, there comes some pressure. So it's not black and white. And we guide for specialty pricing, yes, to not come under the same pressure as standard pricing.

And I think we continue exactly our pricing policy to yes, go for the value that we create for our customers. But we will see slightly lower prices. This is obvious. The longer destocking and weak demand environment takes and volumes are not picking up again by nature in supply and demand, there is more pressure on your prices.

[Operator]

There are no further questions at this time. I hand back to Joerg Hoffmann for closing comments.

[Joerg Hoffmann, Head of Investor Relations]

Thank you, operator, and thank you all for joining us for today and for your interest in Wacker Chemie. Our Q2 conference call is scheduled for July 27. Until then, don't hesitate to contact the IR department if you have further questions. Thank you for your interest in Wacker.

[Operator]

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