11-08-2012

9M Results: Business Areas PP and GMS develop positively - CFC impacted by non-cash write-down

- Sales up 12% to €1,256 million
- PP and GMS in line with expectations, CFC impacted by delayed projects and developments leading to a non-cash write-down of long-term PoC receivables relating to Boeing 787
- Comparable EBIT up 8% to €135 million
- Solid equity ratio at 44%, gearing at 0.49 within target of approximately 0.5
- Outlook 2012: Full year 2012 Group EBIT guidance confirmed at approximately €160 million (before PoC write-down in CFC)

Wiesbaden, November 8, 2012. The operating performance of SGL Group – The Carbon Company – in the first nine months of 2012 shows a mixed picture: While the established Business Areas Performance Products (PP) and Graphite Materials & Systems (GMS) performed in line with expectations, the Business Area Carbon Fibers & Composites (CFC) was affected by a non-cash write-down according to IFRS rules due to repeated project delays related to the Boeing 787 program and markedly reduced production volumes compared to the original plan. Group sales increased by 12% to €1,225.9 million (9M/2011: €1,119.5 million) including a sales contribution of the recently acquired Portuguese subsidiary, Fisipe, of €55.4 million. The current period’s revenue was negatively affected by the write-down of PoC receivables (percentage of completion method) within CFC in the amount of €32.5 million. This impact was partially offset by the final settlement of a long-term supply contract within PP. Like-for-like EBIT compared to the prior-year period increased by 8% to € 134.9 million (adjusted for write-down effects). Reported EBIT for the first nine months of 2012 was €80.7 million (9M/2011: €128.5 million). For full year 2012, SGL Group confirms its already communicated guidance: Group sales in 2012 should increase compared to the previous year and Group EBIT is anticipated to remain at the 2011 level of approximately €160 million (before write-down of PoC receivables totaling €54.2 million).

Robert Koehler, CEO of SGL Group: “Our established Business Areas PP and GMS are still developing positively and in the case of PP even slightly better than expected. This positive development in our traditional businesses, however, was not able to compensate for the losses from CFC as this business continues to be significantly impacted by delayed projects and general weak market conditions particularly in the aviation and wind industries. Nevertheless, we can confirm our 2012 guidance and continue to expect an increase in Group sales and a Group EBIT at the 2011 level of approximately €160 million (before write-down of POC receivables)."

The net financing result of minus €36.0 million slightly improved compared to the prior-year period (9M/2011: minus €39.4 million). Profit before tax of €32.3 million for the first nine months of 2012 was negatively impacted by the write-down of PoC receivables in the amount of €54.2 million. Excluding this write-down, profit before tax would have amounted to €86.5 million, an increase of 28% (9M/2011: €67.6 million, net of impairment effects). As a result of the higher nominal tax expense and the write-down of PoC receivables, net profit for the period decreased to €0.9 million (9M/2011: €56.9 million). Based on an average number of shares of 70.3 million, basic earnings per share amounted to €0.01 (9M/2011: €0.86).

Solid balance sheet structure – Gearing in line with target of approximately 0.5

Total assets as of September 30, 2012, increased by 10% to €2,502.3 million compared to December 31, 2011 (€2,271.3 million) mainly due to the consolidation of Fisipe and the convertible bond placement in April 2012. Shareholders’ equity increased by 5% to €1,090.7 million as of September 30, 2012 (December 31, 2011: €1,041.1 million). The equity ratio consequently decreased from 45.8% to 43.6%. Net financial debt increased by 57% to €539.7 million as of September 30, 2012 (December 31, 2011: € 343.3 million) mainly due to the inventory build-up driven working capital increase as well as the acquisition of Fisipe and further financing for At-Equity investments. Correspondingly, gearing increased from 0.33 to 0.49 which is still in line with the Group target of approximately 0.5. Due to higher working capital requirements for operating activities and higher cash used for investing activities (mainly driven by the acquisition of Fisipe), free cash flow decreased to minus €159.4 million (9M/2011: minus €48.8 million).

Segment Reporting

Performance Products (PP) on track despite growing market uncertainties

In the Business Area PP, sales increased by 13% to €681.4 million (9M/2011: €601.7 million). The strong increase was primarily driven by the final settlement of a long-term supply contract. As expected, PP benefited from rising graphite electrode shipments in the third quarter compared to the first half of 2012 and continues to be supported by higher pricing compared to the previous year. The stepwise recovery in cathode volumes, which began in the middle of 2011, continued – however at anticipated lower selling prices. EBIT increased by 41% to €141.3 million (9M/2011: €100.0 million) mainly due to the above mentioned settlement of a long-term supply contract, higher graphite electrode prices and increased cathode sales volumes as well as savings from the SGL Excellence initiative of approximately €7 million. Start-up costs for the commissioning of the new Malaysian production facility continued to be a burden on earnings. Return on sales improved to 20.7% (9M/2011: 16.6%).

Graphite Materials & Systems (GMS) with continued high profitability

In the first nine months of 2012, sales in the Business Area GMS grew by 7% to €374.5 million (9M/2011: €351.4 million) driven by the Business Units Process Technology and New Markets. The Business Unit Graphite Specialties remained on the previous year's level, demonstrating that the broad materials base of GMS is helping to compensate for the cyclical downturn in the solar, semiconductor and LED industries. As expected, EBIT decreased by approximately 16% from €68.1 million to €57.4 million, resulting in a return on sales of 15.3% (9M/2011: 19.4%). The predicted deterioration of the ROS is primarily the result of a lower fixed cost absorption. Capacity utilization in the first nine months of 2012 was lower compared to the very high level during 9M/2011, as GMS has adjusted the production to the lower order intake levels. Savings from the SGL Excellence initiative amounted to approximately €6 million.

Carbon Fibers & Composites (CFC) affected by project delays

Reported sales in the Business Area CFC increased by 22% to €197.6 million (9M/2011: €161.4 million) in the first nine months of 2012 and included an initial sales contribution of €55.4 million from the newly acquired Portuguese company Fisipe. The sales increase was partially offset by the write-down of long-term PoC receivables in the Business Unit Aerostructures (HITCO) which reduced sales by €32.5 million in the third quarter 2012. The write-down became necessary under IFRS rules primarily due to the repeated delays in production and shipments of the Boeing 787 (Dreamliner) and, furthermore, substantially reduced production volumes of the Boeing 787-8 variant and its respective components in favor of the Boeing 787-9. This development rendered obsolete HITCO's contracts for Boeing 787-8 components, primarily with one of its customers, a major tier 1 supplier to OEMs in the aerospace industry. In line with the company's contractual rights and aerospace industry practice, SGL Group has filed a claim with this customer. Potential future compensation payments would reduce the losses associated with these contracts, but can only be recorded if and to the extent these payments are almost certain. Boeing has announced higher production volumes of the Boeing 787-9 variant to replace the reduced production of the Boeing 787-8 variant. In this context, CFC expects to be partially compensated with higher volumes for components for the Boeing 787-9 variant, which, however, can only be reflected in future earnings.

The like-for-like (excluding Fisipe and PoC adjustments) sales growth of approximately 8% was attributable to higher sales in the Business Unit Rotor Blades compared to the weak previous year reporting period, partially offset by lower sales in the Business Units Carbon Fibers & Composite Materials (CF/CM) and Aerostructures (AS). EBIT in the Business Area CFC (before PoC effect of €54.2 million) amounted to minus €24.2 million (9M/2011: minus €8.9 million net of reversal of impairments and impairments). The lower underlying result is due to the continued negative earnings situation of SGL Group's wind/rotor blade business and the low capacity utilization in the carbon fiber business due to continued project shifts resulting in lower material demand from the wind industry. Furthermore, delays in shipping orders for the Boeing 787 and the Joint Strike Fighter led to an unsatisfactory utilization level in the Business Unit AS. Cost savings from the SGL Excellence initiative amounted to approximately €5 million.

Sales of the At-Equity accounted investments within the Business Area Carbon Fibers & Composites increased by 25% to €110.3 million (9M/2011: €88.3 million, 100% values for companies). These sales are not included in the consolidated Group sales figure.

Outlook: Guidance for 2012 confirmed

Group:

Despite growing uncertainties regarding the world economy SGL Group confirms its guidance for Group sales and EBIT in accordance with the outlook presented with the half year report in August 2012: Group sales for the full year 2012 is anticipated to increase compared to the previous year. Despite the Business Areas PP and GMS performing in line with expectations, the company continues to expect Group EBIT in the full year 2012 to remain only at the 2011 level of approximately €160 million (before write-down of PoC receivables) due to the higher than initially planned losses in the Business Area CFC.

Business Areas:

Regarding the development in the individual Business Areas, SGL Group still anticipates an increase in PP sales at comparable margins.
Due to the reasons outlined in the segment reporting, GMS will not repeat the 2011 record return on sales of 18%. However, the return on sales in the full year 2012 should still be significantly above the mid-term target of at least 10%, resulting most likely in the second-best year ever of GMS.
In the Business Area CFC, losses in the full year 2012 will be higher than in 2011. Since the wind energy market still shows no signs of a sustained recovery in the immediate future, which will impact the Business Unit Rotor Blades and the materials business of the Business Unit Carbon Fibers & Composite Materials again in Q4. However, thanks to the acquisition of new customers and further optimization measures, SGL Group expects to be able to reduce losses in the Business Unit Rotor Blades. The Business Unit Aerostructures is affected by further delays in projects relating to civil and military aerospace.

Generally, the Business Area CFC continues to be characterized by a strong R&D driven substitution trend, which can lead to delays and to start-up/development expenses, which may partially not be projectable until a certain commercial maturity is reached. However, there is no change to the long-term considerable growth potential in this material segment.

The mid-term gearing target of approximately 0.5 remains of top priority. It will continue to be the governing indicator defining the investment program. The largest projects in this investment program are scheduled to be completed this year. Accordingly, SGL Group forecasts capital expenditure in plant, property and equipment and intangible assets to be up to €150 million in 2012 (including Fisipe) which will largely be funded from operational cash flow. The company also continues to anticipate free cash flow to be up to minus €60 million in fiscal 2012 (before acquisitions). Including payments relating to the acquisition of Fisipe, free cash flow in the full year 2012 will amount to approximately minus €115 million. With capital expenditure forecasted to decline in the future, the company seeks to again be free cash flow positive in 2013 (before potential acquisitions).

Key figures of SGL Group

(in €m)

Nine Months
2012 2011 Change
Sales revenue 1,255.9 1,119.5 12.2%
Gross profit 294.5 310.5 -5.2%
EBITDA (1) 193.3 176.1 9.8%
Operating profit (EBIT)(1) 134.9 124.4 8.4%
Operating profit (EBIT) 80.7 128.5 -37.2%
Return on sales (ROS)(2) 10.7% 11.1%  
Profit before tax 32.3 71.7 -55.0%
Net profit attributable to shareholders of the parent company 0.9 56.9 -98.4%
Earnings per share, basic (in €) 0.01 0.86 -98.8%
Capital expenditure on property, plant and equipment and intangible assets 78.4 79.4 -1.3%
Free Cash Flow -159.4 -48.8  
September
30, 2012
Dec.
31, 2011
Change
Total assets 2,502.3 2,271.3 10.2%
Shareholders’ equity 1,090.7 1,041.1 4.8%
Net financial debt 539.7 343.3 57.2%
Gearing(3) 0.49 0.33  
Equity ratio(4) 43.6% 45.8%  
Employees 6,664 6,447 3.4%
(1)Before write-down of PoC receivables in 2012 of -€54.2 million and before impairment losses and reversal of impairment losses of +€4.1 million in 2011
(2)Ratio of EBIT to sales revenue (before write-down of PoC receivables in 2012 and before impairment losses and reversal of impairment losses in 2011)
(3)Ratio of net financial debt to shareholders’ equity
(4)Ratio of shareholders’ equity to total assets

 

About SGL Group – The Carbon Company

SGL Group is one of the world’s leading manufacturers of carbon-based products and materials. It has a comprehensive portfolio ranging from carbon and graphite products to carbon fibers and composites. SGL Group’s core competencies are its expertise in high-temperature technology as well as its applications and engineering know-how gained over many years. These competencies enable the Company to make full use of its broad material base. SGL Group’s carbon-based materials combine several unique properties such as very good electrical and thermal conductivity, heat and corrosion resistance as well as high mechanical strength combined with low weight. Due to industrialization in the growth regions of Asia and Latin America and increased substitution of traditional with innovative materials, there is a growing demand for SGL Group’s high-performance materials and products. Products from SGL Group are used predominantly in the steel, aluminum, automotive and chemical industries as well as in the semiconductor, solar and LED sectors and in lithium-ion batteries. Carbon-based materials and products are also being used increasingly in the wind power, aerospace and defense industries.

With 47 production sites in Europe, North America and Asia as well as a service network covering more than 100 countries, SGL Group is a company with a global presence. In 2011, the Company’s workforce of around 6,500 employees generated sales of €1,540 million. The Company’s head office is located in Wiesbaden.

Important note:

This press release may contain forward-looking statements based on the information currently available to us and on our current projections and assumptions. By nature, forward-looking statements involve known and unknown risks and uncertainties, as a consequence of which actual developments and results can deviate significantly from these forward-looking statements. Forward-looking statements are not to be understood as guarantees. Rather, future developments and results depend on a number of factors; they entail various risks and unanticipated circumstances and are based on assumptions which may prove to be inaccurate. These risks and uncertainties include, for example, unforeseeable changes in political, economic, legal, and business conditions, particularly relating to our main customer industries, such as electric steel production, to the competitive environment, to interest rate and exchange rate fluctuations, to technological developments, and to other risks and unanticipated circumstances. Other risks that in our opinion may arise include price developments, unexpected developments connected with acquisitions and subsidiaries, and unforeseen risks associated with ongoing cost savings programs. SGL Group does not intend or assume any responsibility to revise or otherwise update these forward-looking statements.

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