04-26-2013

SGL Group: Economic uncertainties result in weak start to the year

- Sales increased by 8.5% to €414 million mainly driven by Fisipe
- EBITDA lower due to cyclical low at GMS and continued difficult market environment at CFC
- Significant free cash flow improvement to minus €17 million (Q1/2012: minus €70 million)
- Strong equity ratio at 41.5% – gearing at 0.45

Wiesbaden, April 26, 2013. In the first quarter 2013, SGL Group – The Carbon Company – recorded a weaker than expected start into the business year. While the Business Area Performance Products (PP) was able to hold its ground thanks to higher shipments, the development in the Business Area Graphite Materials & Systems (GMS) was significantly below expectations due to the cyclical low in its end markets. The market environment of the Business Area Carbon Fibers & Composites (CFC) remains difficult because of project and development postponements. In total, Group sales increased by 8.5% to €414.1 million (Q1/2012: €381.6 million) – however, this was significantly impacted by the €28.2 million sales contribution of Fisipe which was acquired in 2012. Due to the lower earnings level at GMS and CFC, EBITDA decreased by more than one third to €34.1 million (Q1/2012: €52.7 million). This corresponds to an EBITDA margin of 8.2% (Q1/2012: 13.8%). EBIT declined to only €13.3 million (Q1/2012: €34.7 million).

Robert Koehler, CEO of SGL Group: “The first quarter is traditionally the weakest in the course of the year. However, due to economic uncertainties, the first quarter 2013 developed weaker than expected. This mainly affected the specialty graphite business which is currently in a cyclical trough as well as the carbon fiber business that has to battle ongoing price pressure as the end market recovery is further delayed. Accordingly, we had to adjust our outlook for the full year 2013 and now expect Group sales to be approximately on the previous year’s level. Group EBITDA is now anticipated 20% to 25% below the comparable EBITDA of €240 million of the previous year.”

Profit before tax stood at minus €4.7 million (Q1/2012: €20.6 million) and net income at minus €9.4 million (Q1/2012: €13.8 million). Based on an average number of shares of 70.7 million, basic earnings per share amounted to minus €0.13 (Q1/2012: €0.20).

Equity ratio remains solid – less capital expenditure

As of March 31, 2013, total assets of €2,566.1 million remained virtually unchanged compared to the end of 2012 (December 31, 2012: €2,559.7 million). Shareholders’ equity at €1,064.4 million also remained on the same level as at end of 2012 (€1,067.0 million) resulting in a virtually unchanged equity ratio of 41.5% (December 31, 2012: 41.7%). Net financial debt increased slightly by 4% to €479.5 million (December 31, 2012: €459.3 million). Due to the restrictive capital expenditure program during the first quarter, capital expenditure of €15.8 million was €5.0 million below depreciation. Gearing (ratio of net debt to shareholders’ equity) at 0.45 as of March 31, 2013, remained within the target area of approximately 0.5. Free cash flow was improved significantly to minus €17.0 million (Q1/2012: minus €69.8 million) due to reduced capital expenditure and lower cash consumption for working capital requirements.

Segment Reporting

Performance Products (PP): Stable earnings

In the Business Area PP, sales in the reporting period increased by 11% to €218.7 million (Q1/2012: €197.7 million) primarily driven by higher shipments. Despite higher sales, EBITDA at €42.7 million remained almost on the same level as in the comparable period of the previous year (Q1/2012: €42.3 million). The corresponding EBITDA margin amounted to 19.5% (Q1/2012: 21.4%). EBIT decreased by 2% to €32.3 million (Q1/2012: € 33.1 million). Accordingly, the EBIT based return on sales stood at 14.8% (Q1/2012: 16.7%). This development was mainly caused by higher factor costs and lower selling prices. Savings from the SGL Excellence initiative amounted to approximately €3 million.

Graphite Materials & Systems (GMS): Production cuts at GS weigh on earnings

In the reporting quarter, sales in the Business Area GMS decreased by 20% to €102.9 million (Q1/2012: €128.9 million). However, the first quarter 2012 still benefited from a high order backlog at the end of 2011. The strongest decline in sales was recorded by the Business Unit Graphite Specialties (GS), primarily caused by the cyclical downturn in new orders. While demand from the solar, semiconductor and LED industries had already been declining since the end of 2011, the formerly solid order intake of the industrial applications segment within GS also slowed down. This development left an even bigger mark on earnings as production was deliberately cut back as a result of the low order backlog and in order to decrease inventory levels. Primarily due to the ensuing low fixed cost absorption, EBITDA in the first quarter decreased by 66% to €9.2 million (Q1/2012: €26.7 million). The corresponding EBITDA margin stood at 8.9% (Q1/2012: 20.7%). EBIT decreased by 78% to €5.1 million (Q1/2012: €22.4 million). Therefore, the EBIT based return on sales amounted to only 5.0% (Q1/2012: 17.4%). Savings from the SGL Excellence initiative reached approximately €1 million.

Carbon Fibers & Composites (CFC): Sales increase driven by acquisition

Sales in CFC increased by 68% to €91.1 million (Q1/2012: €54.4 million) in the first quarter 2013. However, this figure includes a €28.2 million sales contribution from the Portuguese acrylic fiber producer Fisipe, which was consolidated from the second quarter 2012 on. The like-for-like sales growth of 16% was mainly attributable to higher sales in the Business Unit Rotor Blades. EBITDA in the first quarter 2013 amounted to minus €8.4 million (Q1/2012: minus €4.9 million) and was thus comparable to the level of the fourth quarter 2012. The corresponding EBITDA margin amounted to minus 9.2% (Q1/2012: minus 9.0%). EBIT decreased to minus €13.5 million (Q1/2012: minus €8.0 million). Accordingly, the EBIT based return on sales stood at minus 14.8% (Q1/2012: minus 14.7%). The low operational performance is due to the continuing negative earnings situation of the rotor blade business and the continued low capacity utilization in the carbon fiber business because of project postponements, which led to lower material demand from the wind industry and other industrial applications. As already reported in the annual financial statements 2012, delays in shipping orders for the Boeing 787 and the Joint Strike Fighter led to an unsatisfactory utilization level in the Business Unit Aerostructures (AS respectively HITCO) again in the first quarter 2013. Savings from the SGL Excellence initiative amounted to approximately €1 million.

Revenue from equity-accounted investments within the Business Area CFC at €42.9 million, which is not included in the consolidated sales revenue of SGL Group, was approximately on the previous year’s level (Q1/2012: €42.1 million; both figures based on 100% ownership of the companies).

Outlook 2013 adjusted due to uncertainties regarding the business recovery across all Business Areas

Economic uncertainties continue to impede reliable forecasts for the full year. Due to the considerable uncertainties in the steel markets, PP expects only marginal volume increases in its graphite electrodes business over the next quarters compared to the reporting period. Graphite electrode prices have declined since the end of 2012 due to the increased competitive pressure. As a result PP expects to post slightly reduced sales in the full year 2013 compared to the previous year. The return on sales for the full year 2013 should remain on a similar level as in the reported quarter. Due to the very weak first quarter 2013, GMS expects currency-adjusted sales slightly below the record year 2012. Since the first quarter 2012 was still very strong, GMS anticipates a lower return on sales in the full year 2013 compared to 2012, remaining, however, above the medium-term EBITDA ROS target of minimum 14%. At CFC, demand recovery in ongoing development projects is expected in the fourth quarter of 2013 at the earliest. The anticipated slight reduction in full-year 2013 losses is therefore mainly due to internal optimization measures. Generally, CFC continues to be impacted by a strong R&D driven substitution trend, which can lead to delays and to start-up/development expenses, which may partially not be predictable until a certain commercial maturity is reached. However, the considerable long-term growth potential in this material segment remains unaffected by this.

The recent expectations for the business areas result in an adjustment of the guidance for Group sales and Group EBITDA given during the annual press conference: Group sales are expected to be only flat compared to the previous year mainly due to reduced expectations in PP and GMS. Group EBITDA is forecasted 20% to 25% below the comparable EBITDA of €240 million of the previous year, resulting from increased uncertainties relating to the business recovery in all three Business Areas since the annual press conference in March 2013.

The mid-term gearing target of approximately 0.5 remains the top priority. It will continue to be the governing indicator defining the capex spending. Accordingly, the capex for 2013 has been limited to €100 110 million. Therefore SGL Group maintains its forecast of positive free cash flow (before acquisitions) from 2013 onwards.

Key figures of SGL Group

 (in €m)

Q1/2013 Q1/2012* Change
Sales revenue 414.1 381.6 8.5%
Gross profit 79.3 106.0 -25.2%
EBITDA 34.1 52.7 -35.3%
Operating profit (EBIT) 13.3 34.7 -61.7%
EBITDA margin1) 8.2% 13.8% -
Return on sales (ROS)2) 3.2% 9.1% -
Profit before tax -4.7 20.6 -
Consolidated net profit attributable to equity holders -9.4 13.8 -
Investments in intangible assets and property, plant and equipment 15.8 21.4 -26.2%
Free cash flow -17.0 -69.8 -
Earnings per share, basic (in €) -0.13 0.20 -
March
31, 2013
Dec.
31, 2012*
Change
Total assets 2,566.1 2,559.7 0.3%
Equity attributable to shareholders of the parent company 1,064.4 1,067.0 -0.2%
Net financial debt 479.5 459.3 4.4%
Gearing3) 0.45 0.43 -
Equity ratio4) 41.5% 41.7% -
Employees 6,661 6,686 -0.4%

*Adjusted for effects of adopting IAS 19R

1) EBITDA to sales revenue
2) EBIT to sales revenue
3) Ratio of net financial debt to equity attributable to the shareholders of the parent company
4) Ratio of equity attributable to the shareholders of the parent company 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 2012, the Company’s workforce of around 6,700 employees generated sales of €1,709 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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