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Wacker Chemie AG
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Dear, ladies and gentlemen, welcome to the Wacker Chemie conference call. At our customer's request, this conference call will be recorded. [Operator Instructions] May I now hand you over to Jörg Hoffmann, Head of Investor Relations, who will lead you through this conference. Please go ahead.
Thank you, operator. Welcome to the Wacker Chemie AG conference call on our Q3 2018 results. Dr. Rudolf Staudigl, our CEO; and Dr. Tobias Ohler, our CFO are with us, who will take you through our presentation in a minute. A 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, welcome to our Q3 2018 conference call. Our chemicals businesses performed well again. Silicones saw very strong results, and the recovery is underway in polymers. On the other hand, polysilicon currently faces a challenging market environment. At EUR 1.24 billion, group sales were 5% lower than last year and 7% below Q2. Q3 EBITDA was at EUR 242 million, down 19% over -- year-over-year and 7% quarter-over-quarter.Just looking at chemicals, though, EBITDA was up 5% over Q2 and 16% over last year. Silicones generated strong results with sales up 14% year-over-year, with an EBITDA margin of 27%. This margin was supported by prices and the strong performance in specialties.Fundamentally, we expect the market to remain short as demand stays high above GDP growth. As previously communicated, we are looking to invest to enable further growth in line with market demand. Polymers saw solid volume growth year-over-year and high utilization rates in our plants. In addition, the absence of VAM turnaround costs helped earnings improve quarter-over-quarter. Raw materials are elevated, with VAM prices continuing to be a headwind.Visibility in polysilicon today is less than usual as the market continues to adjust to recent policy changes in China. When we last spoke, we alluded to first signs of a recovery in Q3. A short pickup at the end of July, however, did not materialize into a market recovery. We continue to produce at full capacity and ship into hubs close to our customers. This helps us to fundamentally improve our customer service. Our cost initiatives continue, and we are well on track to deliver our expected cost reductions.Looking to our group forecast for the full year 2018. We expect a strong performance in chemicals with the usual seasonality in Q4. In polysilicon, we expect in Q4 a similar market environment as in Q3 with only a late potential uptake. Based on this and the expected insurance compensation, we confirm our guidance for the group. For the full year 2018, we continue to see a low single-digit percentage increase in sales and a mid-single-digit percentage increase in EBITDA.Tobias will now walk you through the financials and segment performance.
Thank you. Welcome to our Q3 2018 call, ladies and gentlemen. Let me take you through our financials and present the outlook for each segment. Looking at our P&L on Page 3, we see sales down year-on-year by about 5%. Weaker volumes and prices in polysilicon had a negative effect on group sales growth. Gross profit came in 19% below last year, mainly due to the sales effect, ramp costs at the site in Tennessee and higher raw materials. SG&A were slightly up on wage inflation and group initiatives for digitization and efficiency.Siltronic and our joint ventures contributed about EUR 29 million to the group EBIT after purchase price allocation effects. EBIT was down 31% year-over-year to EUR 107 million. We show a tax rate of 23%, reflecting the relatively higher share of after-tax components in profit before taxes. Earnings per share from continuing operations declined by 36% year-over-year to EUR 1.31 per share.Our balance sheet on Page 4 remains largely unchanged except for the higher inventory level. Business growth in silicones and stock building in polysilicon are the main drivers for this increase. Having strategic polysilicon inventories closer to our customers will provide us with the necessary flexibility when the market recovers.Silicones, on Page 5, kept its Q2 record margin at 27% in Q3. Sales were up 14% compared to last year, driven both by mix and price. The markets continue to be tight in specialties, with some softening towards the end of the quarter in standards in China. We see some supply chain effects ongoing and some uncertainty from trade conflicts. Nevertheless, we improved our last guidance and now expect an EBITDA of slightly over EUR 600 million. This is up from about EUR 600 million before. We continue to expect a typical seasonally weaker Q4.On Page 6, volume and price performance helped polymers. EBITDA improved to EUR 47 million quarter-over-quarter despite the high raw material prices. For the full year, we confirm our last guidance. We see full year EBITDA at about EUR 150 million.On Page 7, Biosolutions saw strong business in pharma-related products. Integration costs from recent M&A held back our performance. Our full year EBITDA guidance is unchanged at about EUR 25 million.Q3 was very challenging in polysilicon on Page 8. Low prices and volumes as well as the ongoing Tennessee ramp without the respective insurance compensation weighed on our earnings. Considering these developments, we reduced our full year guidance on polysilicon. We now expect sales and EBITDA to be about 25% lower than last year. While the solar PV market faced uncertainties of market situation in polysilicon, for semiconductors, it looks decidedly different. In this market segment, demand is strong and we are growing faster than the market. Guidance on others is unchanged. We continue to see a low double-digit negative EBITDA for the full year before adjusting for the Siltronic earnings effect.Gross cash flow in the quarter improved sequentially to just over EUR 100 million despite the buildup in inventories. Cash flow from investing activities year-to-date was up about 35% to EUR 280 million. At the end of Q3, our net financial debt at EUR 637 million is at the level of the prior quarter. For the full year, our guidance on net financial debt remains unchanged at about EUR 500 million.With this, let me hand you back to Rudi.
Thank you, Tobias. Ladies and gentlemen, as you can see in our report, CapEx in our chemical segments is up over 50%. Our chemical businesses have strong market positions and technological leadership. We plan to expand these businesses, and that's where our investments are focused. In silicones, we are working on options to increase our upstream capacities while supporting specialties growth with targeted investments. With their versatility, silicones address a broad range of markets, essentially diversifying growth over regions, industries and applications. As a result, we continue to expect to grow faster than GDP in this segment.In polymers, we follow the strong demand growth for our products. Price increases achieved so far are not yet sufficient. We are looking to improve pricing further as we digest higher raw material prices.In polysilicon, we are on track to reach full capacity in Q4. While we are facing a temporary challenge in the market today, our positive view on solar is unchanged. Photovoltaic solar is the fastest growing power-generation technology in the world. No other technology offers as attractive economics or installs more capacity globally.In power auctions around the world, solar keeps winning as the lowest cost power supply. Many markets outside of China are now reporting growing installation numbers. In Europe, we see installations doubling following lower prices and the end of tariffs on solar modules. For next year, analysts forecast significantly higher installations globally. We are convinced that this development will ultimately benefit us.You saw today that we confirm our previous guidance. We continue to see a mid-single-digit increase in the EBITDA translating into over EUR 1 billion in EBITDA in this year.Jörg?
This concludes the presentation today, ladies and gentlemen. We will now begin with the Q&A session. Operator?
[Operator Instructions] First question comes from Charlie Webb of Morgan Stanley.
Just a couple from me. First off, in silicones, can you help us understand kind of the exit run rate in the quarter, how we should see that going into Q4 and into the next year? Clearly, this year's been a very strong year for silicones, both standard grades but also specialties. Just understanding that mix dynamic, where is the weakness, if there is any? Where are you still strong? And how will that evolve as we move into next year? First question. And just second question around kind of cost inflation, energy price inflation globally. Is there something you guys are noting in your business? Are there any kind of spots of significant inflation that you -- it can be raw materials, energy, wage inflation, et cetera, that will become increasing headwinds as we move into next year? That would be my second.
Okay. Let me start with answering the silicones question. Well, run rates right now are very high, and they will remain high into next year. Just for you to remember that siloxane undersupply to the market development was -- which cost us the market development, was the shutdown of the capacities in China due to environmental issues and the shutdown of a European capacity for siloxane. And in addition to that, there was continued growth in demand worldwide for silicones products. And we do not see any fundamental change in these characteristics so far. So overall, market demand is still high, and there are no overcapacities. And we expect this to stay like this for the time being. And as mentioned in the last call, we announced and planned additional capacities are needed to supply the market for its general growth, and I already mentioned this example in the last conference call. We have a total market size of about 2 million tonnes per year, and if we assume 5% growth, we need or the industry needs 100,000 tonnes per year additional on siloxane raw material. So the fundamentals are strong and -- but yes, in China, right now we can see a drop in commodity material prices, however, from a very high level, back to a level which is lower compared to few months ago. However, it's still twice as high roughly as 2 years ago. And...
Does that mean -- sorry, carry on.
No, go ahead.
Does that mean, given your mix geographically and in terms of grades and the underlying growth in the market, you're still kind of stressing it's very healthy, do you believe you can still grow next year, in kind of EBITDA terms, silicones against that backdrop even with some normalization in China? Is that the message? Or is that normalized in -- normalization in China going to weigh on next year EBITDA for silicones on the kind of potential growth of that business?
Well, I cannot give you detailed numbers about next year, obviously, but it's certainly a fact that our exposure to commodity pricing or commodities in China is very low. And I mean, our focus and our strategy for us is to focus on specialties all over the world, and we see our strategy really to pay off. So without being able to give specifics for next year, but demand is strong, and our positioning is extremely well.
And Charlie, this is Tobias speaking on the questions on input costs, I think very good questions looking ahead into 2019. I will start with raw material prices, and if I go back to 2018, we have had a pretty strong headwind. And that headwind actually turned out stronger than we initially expected, so forecasting that is difficult. But as some of the headwind was, yes, induced by some unforeseen shutdowns in -- for example, in acetic acid, also pushing up VAM prices, I would say from today's perspective on raw materials, you should expect some normalization for next year. With respect to energy prices, again, also in 2018, we had headwinds and increasing headwinds. That goes back to oil and coal prices. Everybody is looking at that, and there's also, I would say, a political element in that. So we had higher energy prices in 2018 already then in '17. And I would say, from today's perspective again, we should see also higher electricity and gas prices in '19. But again, going back to our predictability in this environment, just in recent weeks, we had observed some volatility of the oil price. First, oil went up, and now it's down again. So our assumption is now more or less building on the futures that we have in those markets.
The next question is from Andreas Heine of MainFirst.
Actually, I have 3. I'll start with one on silicone and then later, 2 on polysilicon, if I may. I still want to understand a little bit better what's going on in China. Of course, it came down to -- from very high levels, but it seems that there is a softer demand and that supply/demand situation in China has changed. Looking forward that we might enter into a somewhat lower growth environment, how do you see the chance that, let's say, the weakness we see in spot prices in China can spill over to other regions or that Chinese player export at lower prices to other regions? So can anything, what we see and observe now in China, spread around the globe? Or is that something you would exclude? I lead with the silicones question first and then...
Well, yes, I mean, the softer demand in China is certainly due to the impact of the trade war and the cautiousness of market participants in China about their chances to export to the United States, and that's softened this type of market, obviously, a little bit. Again, we are not a big contributor or a big participant in this market, so we mainly read the statistics that we get about the market there. And the question is, of course, will the Chinese economy grow much slower than it is. If it grows much slower, of course, then silicones demand growth will certainly be slower in China. And I mean, will they export more siloxane or basic commodity materials? It's -- I -- it's hard to say, but I do not expect a big impact on the western markets through that. And of course, if the western markets, that means European, American markets, South American markets, et cetera, et cetera, are still growing fast, I think, as I said, there is no reason to assume that the prices of the -- in the silicones market will disappear. So this is why we continue to stay optimistic about the silicones business in general, and especially, of course, the specialties business with -- which is certainly a very, very significant share of our total silicones business.
And then maybe on polysilicon, I have to say, I was a little bit surprised about the sales level, which I think was very high in that quarter given the environment. So either you had reasonably higher prices or your volume was very high. So to get to this EUR 174 million, if I assume that there was a drop in prices, you probably had still deliveries of maybe 13 to 14 kilotonnes. Looking on how weak the market is, could you explain a little bit how you operate in this market, where I thought it's very difficult to sell any polysilicon?
Andreas, Tobias speaking. We definitely do not comment on exact volumes. But as we have the highest-quality polysilicon, for sure, also in this environment, the demand for Wacker material was stronger than for others. So that's why we might have over-participated in this environment.
And then the second question relating to this. So you -- there is not a particular uptick in demand. But you said you ramp up Tennessee, and you will have the plant fully ramped up during Q4. So that means that you intend and plan and do operate all your plants at full capacity despite this market. Does it lead to additional inventories? Or do you think you can sell this additional volume into the market in Q4?
It leads to additional inventories. That's what we have alluded to in our presentation. But I mean, of course, we are not happy with the total market environment right now, but we certainly are happy to be able to build enough inventories close to our customers so that when the market really gets stronger, we are in a better supply position to be able to supply more directly and faster to the customers. So it's -- if it doesn't stay for too long, which we don't expect, it's positive.
And then maybe, lastly on this and then I stop, the -- you -- in this buildup of inventories, you do not fear that you have finally to write inventories off because of very low prices. Is that a risk you have? Or are your production costs low enough that, that is unrealistic to assume?
Yes, first of all, IFRS rules always apply, and we take typically full manufacturing costs, and those include depreciation. And you know that our depreciation, especially from the Tennessee side, it's really high after the recent investment. And then according to IFRS, we do mark to market at quarterly end, so we need to adjust for market prices. So -- but that is the accounting part. Looking at it from a strategic perspective, as Dr. Staudigl just said, the stock buildup is part of our strategy. We target to optimize our production. That's number one. And we target to optimize our customer service. That's number two. And at the end of it, let's -- number three, it's -- we are optimizing our financial results on that. So it's really part of the strategy that we leverage those low market -- temporary low market environments to build our strategic stock.
The next question is from Patrick Rafaisz of UBS.
I have 2 questions on polysilicon and 2 questions on silicones, please. Polysilicon, do you feel the pressure -- let's assume the market remains sour for longer, right? Do you think you can or would have to accelerate the cost takeout that you're anyway doing? And at what point would you consider to cut or mothball capacities?
Well, I mean, we certainly try to reduce our costs as fast as possible, independent of the market participation. So we are working hard on that, and I think we are also working very successfully on that. And I...
You -- yes, please, go on.
Yes, go ahead. I'm sorry, what did you say?
I was just going to ask, so it's still the 30% you targeted on the 2016 baseline, right, cost reduction?
Yes, at least. And I mean, I certainly do not want to speculate too much about the market development, but I do not see any reason why there shouldn't be, within a reasonable period of time, a pickup of the market. I mean, the prices for panels is so low, and so the energy costs, the electricity costs out of photovoltaic is so attractive that there has to be an elasticity of the market, and this is what we expect. I mean, we are not going into gloom-and-doom scenarios. I think there's no reason to do that.
And on silicones, you mentioned that commodity-grades prices are falling in China but you have little exposure. Can you talk about what's happening in Europe and U.S. for the commodity grades? And the second question on silicones would be on EBITDA, right? You've increased your guidance almost every quarter for the silicones EBITDA. How big would you say -- or how much of that is excess earnings attributable to things like panic buying of customers due to shortages and spikes in standard grades? And how much would be the kind of clean EBITDA?
Well, to the first part of your question, again, there is not -- no excess siloxane capacity in the world so far, and certainly, quite for some time. So that means, of course, there are still sort of modulating changes in supply and demand and maybe pricing in the commodity area because, just as you mentioned, it's certainly the case that some customers, when more material was available, they bought excess of it and stored it as much as they could store it. And then, especially at the year-end, they want to get rid of the inventory and acquire or purchase less for a certain period of time. So this could get into some -- or result in some fluctuations of supply and demand and commodity pricing, which is very short term. That certainly could happen, but it does not change the overall market situation because there are no -- as I said before, I repeat myself but it's important, there are no overcapacities for siloxane in the world.
Then, we have our next question. It comes from Chetan Udeshi of JPMorgan.
Maybe a few. Firstly, can you just give us some number around the ramp-up costs for Tennessee in Q3 that you had? That's #1 point. Number -- second question is -- again, sorry, I think this might have been asked previously, but I wanted to ask it in a different form, which is, previously, we've had this polysilicon module prices going down and stimulating demand for almost 10 years now. But I mean, every time it has -- the market has that -- or demand has gone up, it doesn't necessarily -- or it hasn't meant that the pricing for the solar supply chain has gone up. And maybe you can answer this in a different way. But it seems, at this point, this is the first time that Wacker, in polysilicon business, looks like the spot pricing is probably below the cost of production. Maybe my calculation might be wrong. But given these dynamics, do you think structurally the environment is now much different than in the past, where maybe internally the company has to take a different approach than in the past on this business, just structurally speaking? And number -- the third question would be on silicones. Can you clarify how much do you think your silicone earnings would have benefited from what has happened in China in terms of commodity pricing going through the roof or the tightness in the market just in China?
I mean, with the little we sell in China in silicones, [ I shouldn't -- it's a very good ] question, but I will come back. Of course, I mean, we also participated in the certainly very high commodity pricing in China, but to a small amount only. So I mean -- of course, I mean, prices in China needed to go up because 2, 3 years ago, they were significantly too low. So this certainly was positive. To the polysilicon, of course, I mean, what we are doing is reducing our costs. I mean, we have been very successful in our costs road map over the last years. We -- I think we continue to work hard to come down with our costs additionally, and I said that before. And I mean, the changes in the polysilicon market and the solar market certainly go into our directions. I mean, the quality of the material that is needed is going up, and the industry is becoming more mature. So I mean, more and more customers realize how important the quality of the material is to get high output of -- especially in mono-crystal [ grade ], to get high carrier lifetime, et cetera, et cetera, these significant values. And so this market is becoming more and more mature. And I mean, I'm not in a position to forecast pricing in the future, but I think it will be a profitable market in the future because of the rise in demand and the rise in the requirements and our position to fulfill the requirements in terms of quantity and especially quality.
And Chetan, Tobias speaking to your first question on the ramp costs. I think you already assumed that we don't want to go to that level. But I can say that ramp costs in Q3 would have been higher than what we expect for Q4. So as we are getting closer to full capacity at the Tennessee site, this effect should fade away.
The next question is from Raghav Bardalai of Exane BNP Paribas.
Just had 2 quick questions, please. Maybe first on a sort of macro level, I think you've mentioned that trade tensions are sort of a factor that could lead to a slowing in sort of macro growth momentum. Could I just confirm that you've actually not seen any visible change across any of the sort of key regions or end markets in your chemical businesses, please? And secondly, could I just check on polymers? Could you maybe share some color on the sort of traction with your pricing initiatives so far? Is the sort of combination of higher prices and potentially stable input sufficient to take you to the sort of 14% EBITDA margin that consensus has for next year? Or is the sort of ambition that you would go above that, more closer to sort of what you've been tracking at in the last few years?
Well, on a macro level, this is really hard to say. I mean, there are no significant changes that we can observe right now. But I mean, the whole trade war has only started, and we -- I mean, the whole industry, the whole world has to experience what it means with such drastic tariffs from one country to the other. And the question really is what kind of ripple effects we will see throughout the economy. And since I'm not an economist, I'm a chemist, I am the last who can really predict the detail of what will happen. We just -- in a company, you just can try to prepare for all eventualities as much as possible. And this is what we are doing, and yes, and then we will see what happens.
Raghav, Tobias on the question on the polymers outlook, very good question. For sure, the price increase that we achieved in 2018 was not sufficient. We talked about a high headwind that we had from our input costs, the raw materials. But what you can achieve price-wise always depends on supply/demand, and we only have 25% of our prices formula-based that pass through inflation to our customers. So our strategy is to maybe move to shorter terms. Also, we announced price increases that give you a hint to the direction. So prices should go up for next year. But I don't have a specific outlook for EBITDA for next year. But we are definitely not satisfied with the temporary EBITDA margin, and this is not at our target level. In the past, we recovered over time, maybe not in a single year. So we would make progress, but we need to see how far we get in next year.
I would like to add one more thing to the previous question. Of course, even when the overall economic growth in the world is going down, I mean, just from past recessions and recessions that are maybe decades ago, let's say, at the end of the ages in Japan, for example, there was always still a strive for better quality of life, and the -- so the last demand that is going down was for some specialized products that everybody needs in everyday life. And I think we are very well positioned with our products in specialty segments. And then in an economic downturn, raw material prices usually are going down significantly, so there is no reason to assume why we wouldn't be able -- even under such a difficult scenario, that we wouldn't be able to perform in our company. So I'm not pessimistically looking into the future.
The next question is from Sebastian Bray of Berenberg.
My first one would be on the certainty of the timing and magnitude of insurance payments that will be received for polysilicon. Is it a certainty now that the full body of insurance materializes in Q4? And have you agreed with the insurer about what this will be? My second question is on -- pardon me, on the unit development in the polysilicon market. Am I right that implicit in your guidance is that the segment as a whole would make negative EBITDA, excluding insurance, for Q4?
Sebastian, very good question on the insurance. As we always highlighted, we said we would conclude the discussions with the insurance company in Q4. So this is part of our guidance. It's part of our guidance for the P&L impact. It's part of our guidance for the cash flow, so that's our expectation. But we are in the discussion right now, and we will not disclose that. I think you can understand that. Our clear goal is to get the right compensation to be made whole, and that is what the insurance is for. And we're working on that. With respect to the polysilicon development operationally into Q4, that's how I understand your question, I think we should split cost and market. We expect to continue to make progress on the cost road map in Q4. We also expect to continue to see less burden, as I discussed before, in the Tennessee ramp. On the market side, I think that will give the input to the top line and then finally, also to the bottom line. We talked about our expectations that at some time the market will pick up again. We have baked into our Q4 assumptions that we at least see a late pickup in demand. So that's how we see Q4. And finally, you come -- I mean, if you want to do the math, you come to Q4. We typically do not guide for a single quarter. You take our full year numbers, which we calculated to around 25% lower in sales and EBITDA from last year's level, 25% below. If you do that, you come to a sales that is, in Q4, somewhat higher than in Q3, and you come to an EBITDA which is above EUR 100 million.
The next question comes from Thomas Swoboda of Societe Generale.
I still have 3 questions. I will try to take them one by one. Firstly, inevitably on polysilicon, a lot of discussions on this lack of pickup in market demand. I would like to pick your brain on what is actually holding back the market recovery in our view? Is it still demand? Is it supply? You're usually well informed. Could you give us some hints please?
Well, I mean, there was a big demand drop in China, and that's what it may be.
But I mean, you...
Yes. Maybe you could also think about another reason. In the deflationary trend as we saw it, and you still see it for modules, investors simply are waiting and see if they can get even lower module prices. And that, in a situation like that, can hold back even markets that normally would really grow fast. I think these are basically the 2 main effects.
That makes sense. On silicones, I mean, you mentioned the drivers for the run in silicones over the last 2 years, and 1 of them being the closures in China. We see that in the face of the trade conflict with the U.S., the Chinese apparently are stepping back from some of the environmental measures and so on. So the worry I have -- or the question I have is, is there is a risk that some of the mothballed or closed-down plants could come down -- could come back to the market if the environmental controls should become less strict? Or are those plants really gone for good? Well, how do you see this?
Well, first of all, I do not believe that the demand for environmental and positive environmental behavior will be relieved in China. This -- I don't see this. Maybe one or the other of the plants really now adhere to strict environmental regulations, but these capacities are not really very significant compared to the total demand. So I mean, in other words, I do not expect a relief in the shortage for siloxane in the world because of that.
This is very clear. Last question on the admin costs. They are relatively high, and the proportion to sales has increased in Q3. I think you have some digitalization projects going on. The question is, is this some lumpiness in those admin costs? Could we expect some relief if we should abstract from the wage increases? Or is this the run rate we should be looking at?
Thomas, on the admin costs, first, if you take the ratio to sales, you need to bear in mind that with the lower sales, you get to higher numbers, percentages. So if you look over -- I mean, over at the cost below the cost of goods sold, on an annual basis, you can -- from 1 quarter to the other, you can see some fluctuations. If you look at it for the full year, for the first 3 quarters, I mean, those effects are less pronounced. But you hit to the right topics. So we are investing more in digitalization, and that is a big effort. And then we have some wage inflation that also shows up. But I would always -- yes, go more for -- not for the quarterly numbers in this area, look more at it on a yearly basis to get some modeling assumptions for next year.
We have a next question. It comes from Oliver Schwarz of Warburg Research.
I'll try to ask them one at a time. It's mostly technicalities, so it should be over quite quickly. First, the inventory building. By Q4, Tennessee will reach -- or most likely will reach full capacity again. Given the low-price environment you're currently facing, given the sales, the implied sales guidance you gave for Q4 2018, would you say you will be running flat out in Tennessee as soon as you can? Or would you be like more conservative given the current price environment and step on the brake in regards to notching up capacity at Tennessee?
No, we are going -- Oliver, we are going as fast in Tennessee as possible.
Okay, understood.
And we have baked into the guidance that we have a slight further increase in overall inventories. But that depends on the market. So we are ready to serve the market if there's a late pickup in demand. As we discussed, solar markets are so attractive, and you can -- well, we had observed late rush buying in many years when there's a cut-off date for feed-in tariffs. And that could happen also in this year still, but late, not visible today.
Yes. Playing the devil's advocate here. If you -- if we -- should we not see that, would you be -- still be notching up inventories? Or are you, give or take, on a level now which you say is fine? And how would you proceed? Would you return to the spot markets and sell material there to not, let's say, get inventory build get out of hand? Or how would you like to steer that should we not see that just-discussed pickup in markets?
We continue to run full steam. We have a very strong position, and we are definitely going for a strategic stock to be well prepared when the market picks up again. And we always said that we wanted to have stocks closer to our customers to improve our delivery times.
Understood. And on the technicalities on the insurance payment, can you quickly delve in on how that insurance payment is going to be taxed? And I guess there is a split of replacement of damaged equipment and business loss and compensation for the business loss. Is that -- let's say, how is that put into the cash flow calculation or the P&L? Is the full lump sum are recognized as a gain? Or is only part of that, the replacement part, let's say, seen as replacement CapEx and only part of the insurance payment recognized as a gain on the EBITDA line?
Oliver, I hope you are fine with taking the last part of your third question, I mean, off-line because it's very specific. The first part, I'm happy to answer, looking at the tax impact. Just think back about what insurance does. It makes us whole again. So basically, we are, profit-wise, put as if we are running the plant full, so that also leads to taxable profit.
Then now we have the last question. It comes from [ Karl Dejoegel ] of Maven Securities.
I know you're not going to guide too much or help us with next year's number. But by my calculations, your underlying, excluding the insurance number, is probably around EUR 470 million for the second half this year. But if I just multiple that by 2, I get something around the EUR 900 million mark, just a bit over. Given the way the polysilicon price has gone and also the kind of softness in the silicones market, can you just confirm that you can grow that to kind of EUR 1.1 billion? Because that's where consensus is.
We do not give any forecast for next year, I mean, not at this point.
Okay. Okay. So if I just ask a follow-up, would you agree that my calculation is correct in that your kind of run rate is currently around EUR 900 million -- just over EUR 900 million for EBITDA? So what you would require is for either the polysilicon market to improve or the silicone market -- or your silicone business to improve somewhat as well. Is that a fair assumption?
It's too early to talk about next year. I mean, the only hints that we can give you are on the segment level. I think polysilicon, look at the overall solar market, take the assumptions on that. We have all 3 sites back available next year for the full year. Polymers, we expect some normalization in raw materials. In Biosolutions, we expect to load our new assets, and for silicones, we again expect a strong market environment with tightness to continue, and especially in specialties.
Right. But do you think you can grow your silicones business? I mean, I understand you expect tightness to continue. But do you think the environment is going to become more favorable or as favorable as it is currently? Because, clearly, the polysilicon market is going to get -- is going to be a headwind. So I'm just trying to work out where the delta is versus the analyst expectations.
The silicones market is a growth market, fundamentally, with the versatility of applications, the broad setup. We are not selling to specific segments that have an over-proportional share in our portfolio. We are growing above GDP in the silicon -- silicones environment.
But that doesn't make up that EUR 200 million shortfall from run rate to consensus. Sorry to labor the point, but I'm just really trying to get a grip as to what improvement needs to happen next year for you to hit the numbers.
I think we'll leave it there. We are not talking about specific guidance for next year.
We've received another question. It comes from Laura Lopez of Baader-Helvea.
So I just have 2 left. So one, you mentioned a little bit about the pricing environment in the polysilicon for the semiconductor industry. I just would like to know how good is your visibility in this business. So how long are your contracts? And do you think this is going to continue for several quarters? Or -- and have you seen any pricing also pressure there, maybe coming from the solar side? And also one of your competitors was trying to push some prices up. Has this been the case that pricing has been moving actually upwards, polysilicon for the semiconductor industry? And secondly, in silicones, I would just like to know if -- do you have any visibility on the current inventory situation by your clients? Because it might also be the case, like due to tariffs in the U.S., many customers increase their inventory levels prior to that and now we might see a restocking trend continuing in the fourth quarter. So how do you see this then?
Let me start with the silicones. As I as mentioned before, during the time -- a time of shortage, if a customer gets a hold of more material than he presently needs, of course, he builds up an inventory. And as I mentioned before, it can happen that, especially in the fourth quarter, people want to get rid of excess inventory to improve the balance sheet. That can happen. These are certain short -- or are short-term modulations in the pricing environment for commodities. I do not rule that out. And yes, this is part of the normal seasonality. So yes, but as I said before, the -- there is still an underlying tightness in the supply of raw material for the silicones. But short-term effects can happen but do not change the medium- to long-term effect. And in semiconductor polysilicon, we are always pushing for higher prices. That's standard, and yes, the demand is there.
Okay. And maybe with regards to...
And we can absolutely say, and I really have to mention that here, that the semiconductor people really need the highest possible quality, especially for 300-millimeter wafers, for DRAM and NAND applications, et cetera, et cetera. And everybody's relying on WACKER POLYSILICON.
And maybe there, how good is your visibility? Because also the semiconductor players are now being able to have better -- significantly better contracts than in the past, longer. Is that the same for you for polysilicon?
No, we always had longer-term contracts, I mean, in addition to some short-term additional supply. This really has not changed significantly. Although because of this high demand for silicon wafers, customers are interested in long-term, very reliable, high-quality supply. But whether we have long-term contracts or not, we are in this business for the long term, and this is what our customers know.
Okay. And maybe, sorry, the very last one, very short, is a housekeeping question. So you confirm your CapEx guidance for 2018, but your 9-month spendings were rather low. So this means we will have a significant step-up in the fourth quarter in CapEx.
Yes, that's what we see. With the big projects, we see a step-up in the fourth quarter.
As we have no further questions, I would hand back to you.
Thank you, operator. Thank you all 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 us next time when you're in the city, please send us a message or register your interest with our corporate access partner. The link can be found next to the financial publications and IR presentations on the web page. We will be back again with a conference call for the full year 2018 results on March 19 next year. Goodbye.