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Wacker Chemie AG
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Dear, Ladies and gentlemen, welcome to the conference call of Wacker Chemie. At our customer's request, this conference 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 2019 results. Dr. Rudolf Staudigl, our CEO, Dr. Tobias Ohler, our CFO, will take you through a presentation in a minute. The presentation is available on our web page under www.wacker.com under the caption Investor Relations. Before we begin, allow me to point you to our safe harbor statement, which you will find at the beginning of the deck. Dr. Staudigl?
Ladies and gentlemen, welcome to our conference call. For the third quarter of this year, we reported group sales of EUR 1.27 billion and an EBITDA of EUR 273 million. This result includes insurance compensation. Last week, we lowered our guidance for the full year as you have seen. Our expectations have declined primarily because prices for polysilicon remain extremely low. Many market experts anticipated a price recovery for solar-grade polysilicon in the second half year. Our previous guidance reflected this assumption but the average prices for this material have not improved. Instead, they fell further in the third quarter due to overcapacities created by Chinese competitors. Also, a weaker macro environment -- macroeconomic environment holds back our chemicals businesses somewhat. Siltronic's results reported as an -- as equity position are also lower compared to last year. As a result, we now expect EBITDA to come in about 30% below the previous year compared to prior guidance of 10% to 20% below last year. Our chemicals businesses, silicones, polymers and BIOSOLUTIONS are all performing well but are not immune to trade war and macroeconomic effects. Silicones reported an EBITDA margin of 20%, benefiting from growing specialty sales. Absolute EBITDA is less than last year due to lower prices and challenging market conditions and standards. However, the steady and consistent focus on our specialties business supports the positive earnings trend over the last couple of years. Polymers reported an EBITDA margin of 15%. We continue to see robust volume growth especially in China, offsetting some weakness in the European markets. The trends towards higher standards for building materials continues. With our global setup, we are excellently positioned to benefit from this development. BIOSOLUTIONS saw a pickup in its biopharmaceutical business ahead of our plans. We completed 3 major CapEx projects during the quarter. Our HDK or fumed silica plant is now up and running in Tennessee. This new plant leverages existing site infrastructure and logistics and provides us with valuable material for both captive use and the merchant market. At our silicon metal site in Norway, we completed the world's largest and most efficient silicon metal smelter. Startup in October was very smooth. Overall, the site benefits from low-cost hydroelectric power in Norway. Consequently, the carbon dioxide footprint of our silicon metal is also much lower compared to material from coal-based power in China. This also translates into probably the smallest carbon dioxide footprint of our polysilicon and silicones compared to the rest of the industry. In Korea, we completed our 80,000 tonne spray dryer for VAE dispersible powders. This dryer is, by far, the largest of its kind and provides us with substantial economies of scale versus our competition. Looking forward, we are going to spend more of our CapEx on the downstream and intermediate parts of the business. These investments will increase the capacity needed for further growth and at the same time improve our value creation. We expect to continue to spend about EUR 400 million per year, mostly on growth. We will grow silicones and enhance the quality and size of the specialties business. Right now, we have enough upstream capacities to support our growth and new opportunities arise when capacity growth in China continues. In polymers, we will continually invest in supporting industry growth. Construction at our new dispersions reactor in Ulsan, Korea is underway. In BIOSOLUTIONS, the project pipeline build and the Amsterdam facility will soon be fully loaded. We are looking already to expand our capacities to be able to serve our customers' growing demand. With a strong business in chemicals supporting us, we are taking every step to improve polysilicon. While this presents challenges, we're working relentlessly to improve the business. Tobias will now walk you through the financials, segment performance and updated guidance.
Good afternoon. I will begin with our P&L on Page 3. Sales held up year-over-year despite much lower prices for polysilicon and silicone standards, much stronger polysilicon volumes, better volume and mix in chemicals and some positive FX contributed. Gross profit increased by 24%. The key driver to this improvement was the insurance compensation, which was booked into COGS. IFRS standards require to use the same P&L line which was affected by the incident. The equity income declined year-over-year as sales at Siltronic declined. Net income during the quarter was EUR 86 million, equating to an EPS of EUR 1.67 versus EUR 1.31 last year. Looking at our balance sheet on Page 4. Reported pension liabilities climbed by EUR 300 million since the end of the second quarter. These are effects from quantitative easing and negative returns on the 10-year bonds. Under IFRS, we are required to use historically ultra-low discount rates for our pension obligations. As discussed last quarter, we are actively taking steps to reduce working capital. Although our working capital is up over the year, we now released about EUR 80 million during this third quarter. We are working with suppliers and customers to reduce this further. Including typical seasonality, we expect another working capital release in Q4. On Page 5, we show the effects of the insurance compensation on our accounts. As stated before, it was booked in the COGS line, in the P&L. For calculating the effect on net income, you should tax it with the German statutory tax rate. In the balance sheet, the insurance compensation has increased the line of other financial assets as it has no impact on cash flow yet. We expect the cash inflow from this in the fourth quarter. Because the insurance compensation reflects earnings from prior years, all our 2019 guidance statements continue to exclude insurance compensation. Our reported figures will include the insurance compensation but our guidance does not. For major items, we will make this transparent. Looking to Page 6. Silicones achieved sales of EUR 633 million. This is at the level of last year. Volumes and mix as well as FX offset the significant price declines. If you recall, the third quarter of last year was very much affected by the then prevailing tightness in the industry. Since then, standard prices have reverted to levels seen in early 2017. Thus, the lower prices and standards are the primary cause of lower profitability compared to last year. Like Q2, efforts to reduce working capital influenced margins and utilization rates. EBITDA in the third quarter came in at EUR 127 million. For the full year 2019, we now see silicones close to last year sales despite significantly lower prices for standards. Sales growth -- sales grow based on good demand in consumer-focused businesses and good pricing in specialties, but we see somewhat softer markets in industrial applications. We also observed shorter order patterns, reflecting the overall economic uncertainty. On a slightly lower sales base, we expect to achieve an EBITDA margin of around 19% for the full year 2019. This is slightly lower than previously forecasted. On Page 7, polymers achieved sales of EUR 335 million. This is at the level of last year but sequentially lower than in the second quarter. Year-over-year, construction demand was good overall, but we observed some weakening in industrial segments. Positive exchange rate effects did compensate for lower average prices. EBITDA came in at EUR 49 million, about 5% better than last year but trailing the second quarter. The factor in Q3 was the force majeure declaration of an ethylene supplier. For the full year 2019, we now see a low single-digit percentage sales growth. Our margin expectation in polymers are unchanged. BIOSOLUTIONS achieved sales of EUR 61 million with an EBITDA of EUR 7 million. Sales of biopharmaceutical products saw a substantial increase during the quarter, as our Amsterdam unit began producing for customers. We have good pipeline of projects lined up that should lead to full utilization of the facility already next year. Our guidance for BIOSOLUTIONS remains unchanged. As Rudi said on polysilicon, we did not see the price recovery that many market experts had expected to materialize. Nevertheless, the demand improved considerably with much higher volumes. This led sales to increase by about 20% over the second quarter. EBITDA came in at EUR 85 million, including insurance compensation of EUR 112 million. Operationally though, results declined sequentially. In addition to lower average selling prices, inventory effects reduced the results beyond the last quarter. Cost performance was comparable to the second quarter, and we continue our efforts to reduce costs further while not compromising on our industry leadership in quality. Considering the delayed price improvements, we adjusted our segment guidance for the full year. Now we expect a low single-digit decrease in sales compared to last year. EBITDA in the fourth quarter should continue at about the average run rate of the prior 3 quarters, excluding the effect of the insurance compensation. In others, we expect an EBITDA before Siltronic at levels around last year, which was about negative EUR 25 million. Moving to the overall group again. Gross cash flow in the quarter was healthy. Good results in chemicals and cash released from working capital drove the improvement. Net debt was at EUR 829 million, about EUR 160 million lower than at the end of the second quarter. The increase since the end of last year is mostly due to IFRS 16 effects. We changed our group guidance mainly because of polysilicon and as a result of adverse trade and economic effect on our chemicals businesses. Overall, we now expect a decline of about 30% in full year EBITDA, excluding insurance compensation, versus the EUR 930 million achieved last year. With this, let me hand you back to Rudi.
Thank you, Tobias. Ladies and gentlemen, we are looking at fundamental changes in the way the chemical industry operates. China has emerged as the world's largest chemical market. It is bigger now than Europe and North America combined. For us but also for our European chemical peers, this poses substantial challenges, mainly due to overcapacities that have been built up. It is no more access to technology and assets that define success. Success today and tomorrow depends on both the fast application of innovations and a comprehensive service offer. Let me give you an example. At the K Fair this week, the world's largest plastics fair, we are showcasing or we have been showcasing a number of innovations in silicones. One particularly exciting development is our ELASTOSIL LR 5040 series. This is a high purity liquid silicone rubber that does not need post curing to meet strict standards such as in food, baby care and medical applications. This avoids costly and lengthy processing after extrusion, thus allowing automated production. Strategy development at Wacker over the last years was aimed to address emerging issues caused by the change of the business environment. We have moved closer to our customers, internationalized our businesses and have broadened our product range. In all activities, we have also stepped up our efforts to contribute to the success of our customers with technology, specialty products and development services. Continuous improvement in efficiency and costs is crucial to our success. Cost discipline is a characteristic of our business. Given the strategic direction and the developing competitive environment in the chemical industry, we must adapt and change to stay ahead. Wacker has always prioritized continuous efficiency improvements and good cost discipline, but the measures already in place will not be enough to weatherproof our earnings and competitiveness medium to long term. That is why we have started to work on a comprehensive program that will prepare Wacker for future challenges. This program will make Wacker more efficient and capable and achieve substantial cost savings. In the coming weeks, we will examine the whole company together with external experts supporting us. We will find out where to become leaner, where to combine functions, reduce tasks and organize processes even better. It is already clear that small isolated measures are not the answer. What we need is a comprehensive, holistic approach. We must and will effectively counter the increasingly difficult conditions facing our business. We know that we are supplying the right markets with the right technologies. Thanks to our core competencies in silicon and polymer chemistry and biotechnology, we offer our customers a wide range of products, both tried and tested and cutting edge. We contribute to global trends such as sustainability, renewable energy and digitalization. We also help solving problems arising from urbanization and the world's population growth. Such a strong portfolio secures leading market positions in multiple key industries and is the envy of many of our competitors. We intend to make even better use of this potential and get Wacker on the track for long-term sales and earnings growth.
Our presentation ends here. We will now commence with the Q&A session. Operator?
[Operator Instructions] And we've received the first question. It is from Patrick Rafaisz of UBS.
Three questions, please. The first one is on polysilicon. And if we assume current selling prices remain constant, how long do you think would it take you to take out sufficient costs to break even again on EBITDA?
I think it's hard to say precisely. But we are working on it very, very focused. And I would say it's not -- probably not too far off, but I'm not committing a certain time line here. On the other hand, I think we should not be pessimistic because as we said we already have seen strong volumes in Q3. The demand has picked up further following the Chinese Golden Week and typically strong volume growth precedes price improvements. So we need to do both. I mean, we need to cut our cost as much as possible and work with quality and in the markets in the other direction.
Second question is around CapEx. I remember, it must have been 3 years ago at the Capital Markets Day, you committed to maintaining CapEx below D&A until 2021, I believe. And -- with your comments today and enough upstream capacities both internally and in China coming up, you think you can extend that commitment beyond 2021?
I mean, we are -- at this point, we are not forecasting beyond 2021 but you can be assured of extreme capital discipline.
Okay, good. And then the third question around the last point you made during the presentation around this comprehensive program you're working on over the next few weeks. To what extent does this program also includes you looking at strategic options for parts of your businesses? Or is that just focused on the operational setup?
This program definitely focuses, I would say, more on the cost than anything else, I mean, anything else with a strategic program that's a constant discussion and it's constantly on the table.
Patrick, Tobias adding here. The focus of the program will be on overhead and indirect costs and indirect spend as well and so we will go through the entire organization.
The next question is from Chetan Udeshi of JPMorgan.
Just following up on the previous question. So is it fair to say that we should rule out any strategic changes in the way the polysilicon business is structured within Wacker as part of the strategic or whatever review that you guys are doing? That's number one. And number two, in silicones, there is a -- there was a comment around having flat sales, 19% EBITDA margin. I mean, typically in the past, you guys have seen quite a big sequential decline in silicones from Q3 to Q4. Is there a reason to believe this time it will be different?
So may I start with the second question, Chetan? Yes, typically we have some seasonality in Q4 from customers' destocking and given the macroeconomic uncertainty, which is higher than normal, I think that is pretty difficult to forecast. And in addition to that, we also see some softer order intake especially in industrial applications such as automotive, plastics, textile. So putting all that together, we definitely see some seasonality in Q4.
On your first question, of course, we don't rule out anything. But I think we need to really focus on what the true issue is, especially in polysilicon. And it's this overcapacity, it's the state subsidies in China for competition, but that's the nature of this type of competition. On the other hand, let's look into the future. I mean, what will happen with the solar industry, the demand for efficiency of the modules will continuously arise. I think it's a very similar process that we have seen in the semiconductor industry. The demands on quality, efficiency, et cetera, will go up. And -- so the future certainly is not only mono, the future is, to a high degree, n-type mono. And so far, we are the only supplier for n-type capable polysilicon. And as others work themselves into that, they have to upgrade their facilities at -- with substantial cost. And we just turn a switch to make material for that type of quality. So I'm -- I don't agree to the pessimism that is around. To a certain degree, I think we have seen the same issues, for example, in 300-millimeter wafers as long as Siltronic was a division of Wacker, there were some guys who wanted to be, by far, the world leaders and the best and the greatest and the biggest and they couldn't sustain it either. I mean -- and in the meantime, prices for 300-millimeter wafers are twice as high as they were 5 years ago. So I think the industry will mature. And it will take -- obviously, it takes some time. But on the other hand, we do not give up on that business, definitely not.
Okay, understood. I think the reason for pessimism, probably comparing to 300-millimeter wafer, at least there, I would say, probably the number of competitors are much smaller here. In polysilicon, I think it's even difficult to know exactly how many companies are producing in China these days. So I think -- but I got your gist of your response there, Rudi. The other question I had as a follow-up. I, sort of, one of your key...
We know exactly how many producers there are in China, and I think we have a very good understanding of their capabilities. And from all our know-how we have, we do not agree to pessimism.
Okay, understood. Just on polymers, one of your key competitors in that business has been talking about moving some of their upstream volume from VAM into VAE. Do you see that in your, sort of, competition side of thing or you've probably not seen an impact from that at all?
I think we see that in a very narrow scope. This is -- yes, capacity is in Asia, in Southeast Asia that we see facing our capacities. But we are very proud that we are now in operations with the new powder dryer in Korea, which we put into operations in October. And there's a dispersion reactor in the first half of next year, which will come onstream. So this will improve our competitiveness. Beyond that, we don't see any big movements from our competition.
And according, I mean, to our competitiveness in that industry, we are not afraid of competition. Excuse me, I would just like to add, we have no problems with competition who also has to make money.
Operator?
Okay, then we go to the next question. It is from Tom Wrigglesworth of Citigroup.
Focusing on the POLYSILICON business. Can you give us a little bit of color about the developments in China? We're obviously expecting a new highlight, a pickup in demand, but it looks to us that maybe not all of the subsidies have been on offer. How do you see the Chinese market developing going forwards into 2020? Where do you think we are on inventories, right? And both in the market and Wacker inventories, obviously, you built a position there. Is that a position that you're sort of sustaining? And so when we see -- when you talk about high-volume sales, is that kind of virgin production that you're selling or is there an inventory component within that? And the third question, sorry, it's focused on POLYSILICON, but the inventory valuation effect, negative, if I look at -- has there been much change in the underlying profitability from 2Q? Because obviously, if I back out the insurance compensation that puts me deeply negative for the quarter. But I'm wondering what those -- how those inventory effects have impacted profitability.
Maybe on the Chinese market, of course, there was this delay in publication of the new policy in China that certainly has delayed the market development. For 2020, as far as I know, there also have not been new policies published so far. But on the other hand, I mean, this is what our customers are telling us that basically, their customers and installers, because of the downward trend in pricing also for modules, that projects have been pushed out at least for a few months because the installers expect lower prices or still lower prices for modules. But as soon as this trend is stopped, I think there will be a significant increase in installations and demand. And so the Chinese market will certainly be at a high level next year. But we also see significant growth in demand in all other regions in the world. Just looking at Europe, I mean, the European market can easily double for next year. But we will see that. We will -- looking at that very carefully. So far, our rough estimate for next year on demand is something between 125 and 160 gigawatts. But it's a wide range so far, but there is a lot of optimism for renewable energies in the market. And on the -- okay. On the inventory?
On the inventory questions, the second and the third one, Thomas, as we said, we always run full. So we are running flat out at our capacity, so the pickup in volume in Q3 versus Q2 also included some volume from our inventories. With respect to the operating EBITDA, if you exclude the insurance compensation, there's basically 2 effects. We continue on our cost road map in POLYSILICON and we are seeing good progress. But as we reported, that is not each and every quarter at the same progression. And the third was pretty much at the same level as the second quarter. But the effect on operating EBITDA was mainly from the slightly lower average selling prices still in the market. And that has effect on sales and profitability but also, in addition to that, on the inventory valuation. And if you put that together, you come up to our EBITDA development.
Sure. But I can't say that 90% of the delta was inventory and 10% was the price. I was just trying to get a split between those 2 factors, the lower price and the inventory valuation negative?
It's much more balanced, Thomas.
The next question is from Thomas Swoboda of Societe Generale.
I have 2 questions, both on POLYSILICON. The first is a quick one. In terms of the guidance you have given for Q4 for POLYSILICON, do you include any inventory valuation changes in this guidance?
This is really difficult because the inventory valuation can go both ways. So we are -- as Rudi described, I mean, there was no price pickup yet but we see strong volume growth in Q3. And after Golden Week also, the demand was very strong for our products. But it's very difficult to bake in any assumptions on inventory valuation effect.
So you have made none, so this is without inventory changes?
Yes, none to minor.
None to minor. Perfect. My second question is a little bit more complicated, and it pushes towards strategy and towards what Mr. Staudigl said on Siltronic before. I mean, since Siltronic was spun off, the Chemicals businesses have really showed a lot of strength, but the turbulences in the polysilicon market are just recurring and are distorting the markets -- the financial market's attention towards polysilicon repeatedly. Mr. Staudigl, you have drawn parallels between POLYSILICON and Siltronics a lot of times during this call. So my question would be, strategically and in the midterm, obviously, does POLYSILICON need to be 100% controlled by Wacker? Or is a solution like the one you have chosen for Siltronic something you could imagine also for POLYSILICON in the midterm? Is it even feasible at all?
Well, let me, first of all, say, the fact that the Chemicals businesses are shining is not a result of the fact that we spun off Siltronic. And so the Chemical businesses are standing on their own and are performing really well. And as I said before, I mean, I'm not ruling out anything on POLYSILICON. But on the other hand, it simply would be wrong to focus on the wrong issues. We need to focus on improving the business as it is because, whatever you do strategically, it's most important to have a well-running polysilicon business. And as I said, we do not give up on the development of this business and especially the markets and because we see so many opportunities also for improvement that we should focus on that.
That's perfectly fine.
The next question is from Sean McLoughlin of HSBC.
My first question, just continuing on the strategic review, you've talked about cost disadvantages versus China based on electricity prices. I'm wondering, would the strategic review -- or how would the review impact this thought process? And ultimately, what optionality do you have today in relocating capacity to lower electricity cost centers?
Well, electricity costs in Tennessee are certainly lower than in Germany, and nobody says that electricity costs in Germany need to rise. We have, especially together with the other partners in the chemical industry, major efforts running in talking to the government and agencies to make them aware that actually lowering electricity prices and generating electricity renewably reduces the carbon dioxide emissions in Germany and in Europe significantly. So there is a lot of interest in Germany and in Brussels on ways to reduce the carbon dioxide and thus to reduce electricity prices. So I'm also not pessimistic there. We just need to work on the right things and not give up, on it all.
Understood. And specifically on POLYSILICON, you now don't expect a price recovery this year. What visibility or confidence do you have of a price recovery into 2020?
Of course, we don't have a visibility there. But as we already said, we see strong volume. And unfortunately, in the past, I mentioned that there were slight indications for price increases when it didn't really materialize. So we are very cautious to predict anything there. But what we can report is a strong demand.
The next question is from Sebastian Bray of Berenberg.
I would have 3 please, 2 brief and 1 a bit more involved. When I look at the change in pension liability at Wacker, am I right in saying that, next year, there will be about an additional EUR 10 million to EUR 15 million of pension costs within the EBITDA? That is my first one. My second question is as follows: Commodity siloxane prices are still substantially higher now than -- and seemingly stable than when Wacker added siloxane capacity in 2014 and 2015 when many of its peers were also doing so. Why step away now from a more capital-intense commitment to a business that seems to have held up reasonably well? And my third is a question related to the comments made on a potential solar demand of 125 to 160 gigawatts next year. On my numbers, this is me -- this would equate to an incremental increase in polysilicon demand of potentially 80 kilotons-plus. What would your supply expectations be from 2020 if your preliminary demand expectations are that there are 80 kilotonnes-plus or so of polysilicon incremental demand next year?
Well, I mean, as I said, this is a rough estimate. We don't have precise numbers now, obviously, we just tried to simulate the markets and come up with a range. And I think our -- you know our polysilicon capacities. Overall, it's 80,000 tonnes plus whatever we do -- or we can do on debottlenecking. And with this capacity, we will supply the semiconductor market as well as the highest quality demands for solar.
Sebastian, to the first 2 questions. On the pension liabilities, yes, the discount rates that are ultra-low do not only have an effect on the balance sheet but also on the P&L because service costs will go up next year. This will very much depend on the discount rate at the end of 2019. But it's fair to assume that this will be a double-digit million number in additional personnel costs. To the second question on investments in upstream, as we always said, we will focus, and this is a clear priority, our sales on specialties. And we see plenty of opportunities there to support this. And yes, we did increase our upstream capacity also in the years after 2014, but this was a very limited investment, also very efficient debottlenecking. And from today's perspective, our clear priority is specialties business.
That's understood. And just a quick follow-up. I appreciate if you cannot necessarily give me a number, but on the base case that you set out or preliminary case, let's call it that, of 125 to 160 gigawatts of solar demand next year, do you think that the polysilicon markets will tighten, remain at the same level of utilization or fall further into overcapacity?
I do not want to speculate on that yet.
The next question is from Andreas Heine of MainFirst.
Yes, one small question only on POLYSILICON at the beginning and then some on the SILICONES segment. In POLYSILICON, looking on the CapEx you have spent in the first 9 months, I think it was EUR 27 million. I was assuming that this division for running down costs needs an investment of EUR 60 million to EUR 70 million a year. Is that coming down so it's more, let's say, EUR 40 million, what you might need? That's the first question. Maybe asking the others later.
Yes, I think the run rate indicates that our CapEx for Poly is more around EUR 50 million than what you had with the EUR 60 million to EUR 70 million.
Okay. And then on the SILICONES, your silica plant is now up and running, and you sell it -- you use it internally but also externally. Do you see any price impact already on the U.S. market from this capacity? Silica usually stays in the region and for the U.S. market there's quite a capacity. Is that having any impact on the prices?
I mean, we are about to start it in Q4, but it's not having any price impact. It basically replaces imports, but as you said, it's a very lightweight material so there's not much intraregional efficient transportation of the product.
I was thinking if it substitutes external supply and has some merchant impact, whether that might, then, a negative impact on prices on this rather high-margin product.
No but it allows us -- I mean, as we are a consumer in our own production of fumed silica that we today need to ship from Europe to America, it allows us to substitute that with local production.
Okay, understood. And then in SILICONES, the -- you usually have, some years ago, given some indication what the split between specialties and standard products is. With the focus on specialties and lower demand on the standard products, would you be able to share with us what the current split between these 2 is and the specialties?
It really depends on the definition. But I mean, using the definition that we had a few years ago, it certainly has increased. I mean, we have been successful in growing our specialty rate.
Is it significantly more than 50% now? Is it not that big? I think the last number I was aware of [indiscernible] was I think 60/40 and the 60% to the standard products rather than to the specialties. I think that was in a presentation from 2015. Is that --
I would rather focus on the growth, and it certainly has grown.
And the standard products have a significantly lower margin. Is it fair to assume that the very vast majority of all the EBITDA is now from specialties given the low prices you have? I was thinking maybe 85% to 90% on specialties.
No, no, no. It's not that simple. But as we described it last year, I mean, a majority of the strong improvement in 2018 was from the price increases that were in the standard business.
And that is washed away and now specialties have grown nicely. Any idea what -- is it still, on EBITDA level, a significant portion from standard products or less?
So we have done a lot of cost improvement ahead of the tightness in '17 and '19 so we are very competitive in the standard business still today.
I could give you just one indication. We certainly have a much lower standard portion than some of the competitors.
The next question is from Laura Lopez of Baader Bank.
So I have 3 questions. Now that polysilicon prices have reached lower levels than expected, do you see an impairment risk for the plant in Tennessee? And secondly, on polymers. You mentioned that you had a significant or robust volume growth in Asia but there was some weakness in Europe. How do you see that developing? And also in the U.S., there has been also some signs of weakening in the construction industry. So maybe how do you see that developing? Or what are the first signs that you're seeing now starting the fourth quarter? And lastly, on BIOSOLUTIONS. I was surprised to hear that you will achieve already full capacity utilization next year of the plant that you just recently acquired. Does that mean that next year, we could potentially see significantly double-digit top line growth because, if I remember correctly, you doubled your capacities in the biopharmaceutical business with that acquisition last year.
Okay. On BIOSOLUTIONS, we certainly expect a significant growth there. How much it is, it's -- I do not want to speculate. In -- on the POLYMERS, yes, we see very nice growth in demand in Asia, especially in China. And we see weakening, as we said, in Europe but also in the United States, just with the slower economic development.
With respect to your first question, Laura, the review of asset value is always standard practice. And as you can see, there's nothing in the accounts. But as we stated before, we are in that business really for the long term and we do not run this business just for in a single quarter.
The next question is from Martin Jungfleisch of Kepler Cheuvreux.
I have 2 remaining ones. The first one is on POLYSILICON inventory. Again, can you confirm that you have sold some inventory in the third quarter so it had a net decrease? And also, can you remind me again what the impact is on EBITDA margins when you sell inventory? That's the first one. And the second one is on SILICONES and your acquisition of this British battery specialist. Can you provide some more detail on the strategic reasons of this transaction and how this fits in your silicon anode battery R&D? And also, if you can provide an update here, what your midterm ambitions are in this area and what do you think of -- when this thing can come to the market more in volume terms?
So I'll start with the first question on inventory. The simple answer is that, yes, we had confirmation. Yes, we had a slight decrease in inventory. And from the volume perspective, a decrease always means a margin compression.
On the acquisition of Nexeon. I think it's just an excellent add-on to our existing activities for battery materials, and I think they have been very successful with what they were doing, and we are successful with what we are doing. And sort of combining the strategies, I think it's certainly very valuable. And if I think about what automobiles or a specific automobile company was paying for a competitor of ours and of Nexeon's in the United States, so that means the valuation of this company would be around USD 1 billion. I think we really -- I mean, if we compare that, we made a significant contribution to the value of our company by setting up this joint venture more or less.
Can you comment on what kind of sales this company of this silicon anode business contributes?
Not very much at all. It's really de minimis at this point in time.
The next question is from of [ Jodie Pender ] of [ Millennium ].
Two questions. Can you just tell us, on the Tennessee plant, when will this become more or less 100% semi grade? And the second question, sorry, on POLYSILICON is, when you look at the supply landscape in China today, how much percentage of the low-cost supply is basically benefiting electricity from cheap coal, which, in principle, is fundamentally, yes, in the long run, it's a policy question mark really.
Did I understand that right? What portion of the Chinese production of polysilicon is based on cheap coal?
Indeed.
Okay. I would say maybe at least 80%. There is some hydro power for some producers, but most of them -- and that's Chinese policy to sort of drive all the businesses with high electricity demand to the West, and in the West, there is simply on the -- I mean, in the Far West, in Xinjiang province and Inner Mongolia, there is basically only coal-based. So it's a very high carbon dioxide emission business, there's no question about it. And to your first question on Tennessee, it certainly takes some time until we can fully load it with semiconductor material, but we will always have a portion of solar material out of Tennessee.
And sorry, just to follow up. We are starting to finally see offshore wind pick up in sort of a meaningful way. Do you feel that there is a kicker effect because you sort of need solar for offshore wind to work in terms of the power distribution. Do you feel that, in 2 years' time, solar gets a [ fill-it ] because of offshore wind or that's nonsense?
In my opinion, excuse me, but it's nonsense because you need the combination of wind and solar in order to supply constant energy. And then, of course, not only wind and solar but I think you always will need a certain portion of gas-fired power plants to stabilize the grid, to stabilize the supply of electricity. And yes, I mean, to have the best renewable energy production and supply. And by the way, we are also producing a lot of chemicals that are used in -- for wind power generation. There is no wind blades without fumed silica, for example.
The next question is from Charlie Webb of Morgan Stanley.
First off is just around POLYSILICON. I mean, I know you've been depreciating these assets fairly aggressively as you always do. But is there any impairment risk given the current economic environment or for those assets that -- as we think about into the end of the year? First question. And then just secondly on SILICONES kind of given we're talking about lower cost energy and with, I guess, some capacity addition that's set to come online in China through end of year and in through next year utilizing some of that lower cost. How are you guys thinking about that cost curve in China? And do you see any kind of further downside to, I guess, standard pricing into 2020 given that, I guess, the cost curve looks like it's flattening? Your views on that would be very interesting.
I didn't get the connection with the standard silicones and power prices.
I'm saying the new --
I'm sorry, acoustically, it's really...
Can you hear me now? Is that better?
Yes, now, it's much better.
Okay. Sorry, the question was around, obviously, the capacity additions in the West of China in standard grade or kind of upstream silicones coming online next year are likely to benefit from cheap energy similar to what we see in POLYSILICON. So I'm just wondering how you see the cost curve for SILICONES for the standard grades, sort of commodity grades next year versus this year in China and what effect that could have? That was the question.
Well, now I understood what you mean. Energy supply is not so important for the SILICONES, for the, let's say, the siloxane production. As far as I understand, the reason why these plants are located in the West is because the -- they produce metallurgical silicon also there, and they want to have direct supply from metallurgical silicon into the siloxane facilities. Although from our experience, the transportation of metallurgical silicon is not so expensive. It does not add such a tremendous portion of cost for siloxane. I think it's more a convenience issue rather than a transportation cost issue. So in other words, they expand siloxane capacity in the West of China, it's fine with us. We can also use purchased siloxane for specialty -- for our specialty silicones. So it's fine with us, I would say.
Charlie, to the first question, as I said before, a review of asset values is always standard practice, and there's nothing in the accounts. And to confirm again, we always look at the long-term perspective of the business as we discussed extensively also on the call.
Okay. Just coming back on the first one a little bit, just a bit more clarity. So if we think about the flattening of the cost curve, if there is to be a flattening of the cost curve given, I guess, I don't know what exact numbers you have, but let's say there's 10% additional supply of siloxane for next year and let's say, demand running at 5%, 6%. How do you see that flattening cost curve, that increased supply addition beyond demand? What do you think that's going to do to the silicones market across, I guess, the upstream piece but also perhaps some of the kind of midstream? I understand specialty has been somewhat protected, maybe even benefiting. But I'm just trying to understand your views on upstream silicones profitability as well as perhaps some of the midstream from the additional capacities. And I think arguably, they are coming at a lower cost position than historically. So just your views on that as it relates to kind of silicones profitability?
I think it creates more opportunities than threats. If low-cost siloxane is available, we can purchase it. We have -- since we have a fairly low volume of standards, it's really not affecting us so much.
And the next question is from Raghav Bardalai of Exane BNP Paribas.
I just have a very quick one on regulation. I know Wacker, along with some of the other U.S.-based polysilicon producers, presented to the U.S. manufacturing caucus regarding the need to sort of end Chinese tariffs. Could you give us a sense for what realistic outcomes you see from these efforts and maybe whether regulation could actually change the status quo in the market today?
Yes. That would be really speculative but we are following certain Twitter accounts on an hourly basis. In other words, we cannot predict anything there because I think, in my opinion, nobody can predict developments in the trade talks between China and the U.S. Everybody can be surprised by the minute.
Okay, everybody, thank you for joining us today and for your interest in Wacker Chemie. We are looking forward to further discussions with you as the quarter progresses. We will be back with a conference call on the full year results on March 17 next year. Goodbye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.