08-08-2013

Management Board introduces comprehensive cost savings program “SGL2015” in response to the weak business development in the first half year 2013

Half-year report 2013

- Sales increased by 2% to €828 million
- EBITDA before extraordinary effects down 38% to €67 million
- Extraordinary charge of €222 million calculated in accordance with IFRS
- Significant improvement in free cash flow from minus €172 million to minus €46 million
- 2013 guidance modified (published on June 27, 2013): EBITDA 50  60% below comparable previous-year figure of €240 million due to increased competitive pressures from Asia and lack of business recovery in second half year
- Management Board introduces a comprehensive cost savings program: SGL2015

Wiesbaden, August 8, 2013.The overall business development in the first half 2013 was weaker than anticipated. Group sales increased slightly by 2% to €828.2 million (H1/2012: €809.8 million). Adjusted for the sales contribution of the Portuguese acrylic fiber producer Fisipe acquired in 2012, a slight decrease would have been recorded. Due to the weak development in all three Business Areas, Group EBITDA decreased by 38% to €67.3 million (H1/2012: €108.2 million). This corresponds to an EBITDA margin of 8.1% after 13.4% in the previous-year period. Group EBIT before extraordinary effects declined accordingly and amounted to €25.6 million (H1/2012: €69.9 million).

Robert Koehler, CEO of SGL Group: “The combination of a cyclical downturn in many of our customer industries, temporary overcapacities especially in our graphite electrodes and specialties businesses as well as project delays in development and start-up phases within the Business Area Carbon Fibers & Composites required a quick response to the changed market and competitive environment. Therefore, as already indicated, we have introduced a comprehensive Group-wide cost savings program SGL2015 to take resolute action.”

As required by IFRS, impairment tests for fixed assets and goodwill led to negative non-cash extraordinary effects totaling €153.2 million related to write-downs in the Business Area CFC in the second quarter 2013. Result before tax therefore stood at minus €164.3 million (H1/2012: €40.0 million) and net income at minus €243.0 million (H1/2012: €23.0 million), including extraordinary tax expenses of €68.7 million. Based on an average number of shares of 70.8 million, basic earnings per share dropped to minus €3.43 (H1/2012: €0.33).

Free cash flow significantly improved balance sheet marked by extraordinary effects

As of June 30, 2013, total assets decreased by 16% to €2,150.7 million compared to the end of 2012 (December 31, 2012: €2,559.7 million) due to the extraordinary effects in the Business Area CFC, currency effects, write-downs on deferred tax assets and the repayment of the convertible bond due in May 2013. The extraordinary effects also led to a decrease in shareholders’ equity to €797.0 million (December 31, 2012: €1,067.0 million) and an equity ratio of 37.1% (December 31, 2012: 41.7%). The repayment of the convertible bond in May 2013 also resulted in a significant reduction of total liquidity. Net financial debt increased to a total of €519.8 million (December 31, 2012: €459.3 million). This corresponds to a gearing of 0.65 as of June 30, 2013, which is above the mid-term target of approximately 0.5. Nevertheless, free cash flow in the reporting period improved significantly to minus €46.4 million (H1/2012: minus €171.6 million) due to substantially reduced cash consumption for working capital requirements and lower cash used in investing activities. Last years’ free cash flow was also marked by the Fisipe acquisition.

Segment reporting

Performance Products (PP): Impacted by unsatisfactory price developments

In the first half year 2013, sales in the Business Area PP at €420.1 million remained virtually at the same level as in the same period of the previous year (H1/2012: €413.1 million) primarily due to the unsatisfactory price developments in graphite electrodes. At €74.4 million, EBITDA in the reporting period was 20% lower than in the same period of the previous year (€93.1 million). The main reason for this development lies in rising factor costs and simultaneous pricing pressure. Accordingly, the EBITDA margin amounted to 17.7% (H1/2012: 22.5%). Savings from the SGL Excellence initiative amounted to approximately €6 million.

Graphite Materials & Systems (GMS): Cyclical downturn affects business

Sales in the Business Area GMS decreased by 17% in the first half year 2013 to €210.1 million (H1/2012: €252.8 million). However, the previous-year period partially still benefited from a high order backlog from 2011. While sales in the Business Unit Process Technology reached the previous-year level, the Business Unit Graphite Specialties had to record a 20% decrease in sales. Demand from the solar, semiconductor, and LED industries have been contracting for some time, this development has continued until now. In addition, the order intake in the previously more stable industrial applications now has also weakened substantially, not least due to the overall economic developments. This cyclical downturn significantly impacted earnings, as production was decisively cut as a result of the low order backlog and to reduce inventory levels. Mainly due to the resulting lower fix cost absorption, but also caused by the intensified competition with corresponding pricing pressure, EBITDA decreased to €21.5 million (H1/2012: €49.1 million). The EBITDA margin amounted to 10.2% (H1/2012: 19.4%). Cost savings from the SGL Excellence initiative amounted to €3 million.

Carbon Fibers & Composites (CFC): Sales further increased

In the first half year 2013, sales in the Business Area CFC increased by 37% to €195.8 million (H1/2012: €142.9 million); however, 16%-points of this sales growth (H1/2013: €59.0 million) result from the consolidation of the Portuguese acrylic fiber producer Fisipe acquired in 2012. The like-for-like sales growth of 21% compared to the first half year 2012 was mainly attributable to higher sales in the Business Unit Rotor Blades (RB).

EBITDA in the first half year 2013 amounted to minus €11.3 million (H1/2012: minus €8.7 million), yielding an EBITDA margin of minus 5.8% (H1/2012: minus 6.1%). The low operational performance is due to the continued unsatisfactory capacity utilization in the carbon fiber business due to ongoing project shifts, leading to lower material demand from the wind industry and from other industrial applications. The Business Unit Rotor Blades (RB) improved its performance compared to the previous-year period, as new orders enabled higher capacity utilization and better productivity. However, this did not lead to higher carbon fibers and composites demand as yet. As already reported in the annual financial statements 2012, delays in shipping orders for the Boeing 787 and the Joint Strike Fighter (F-35) also led to unsatisfactory utilization levels in the Business Unit Aerostructures (HITCO) in the first half year 2013.

The impairment tests for fixed assets and goodwill resulted in non-cash write-downs of €153.2 million in the Business Area CFC in the second quarter 2013. Savings from the SGL Excellence initiative amounted to approximately €4 million.

Revenue from equity-accounted investments within the Business Area CFC increased slightly to €72.6 million, which is not included in the consolidated sales revenue of SGL Group (H1/2012: €69.5 million; both figures based on 100% ownership of the companies). The proportionate losses posted in the net financing result were mainly caused by start-up costs for the joint venture Benteler-SGL as well as for the joint venture with BMW Group (SGL ACF) for carbon fibers and fabrics in connection with the market launch of the new BMW i3.

Outlook 2013

The negative developments in all segments – especially the increased competitive pressures from Asia and lack of business recovery in the second half year – resulted in an adjustment of the guidance for the full year 2013, which was already published on June 27, 2013. Group EBITDA is forecasted 50-60% below the comparable previous-year EBITDA of €240 million. Group sales is expected to be slightly lower than the previous year level mainly due to reduced expectations in PP and GMS.

In the full year 2013, the Company expects to post reduced sales in the Business Area PP compared to the previous year mainly due to pricing pressure in graphite electrodes. With stable volumes forecasted in the second half year compared to the first, the unsatisfactory pricing development will lead to a lower EBITDA margin in the second half year of 2013 compared to the reporting period.

SGL Group also does not expect a recovery in the Business Area GMS in the second half of this year. Therefore, GMS will record lower sales in 2013 compared to the record year 2012. This also results in a lower EBITDA and a corresponding return on sales, which in 2013 will fall below the medium-term EBITDA ROS target of minimum 14%.

In the Business Area CFC project delays will continue to affect the Business Units Carbon Fibers & Composite Materials, Aerostructures and Rotor Blades. Rotor Blades should be able to reduce their losses thanks to the acquisition of new orders and internal optimization measures. Demand recovery in our ongoing development projects is expected in the fourth quarter of 2013 at the earliest. The anticipated slight reduction in full-year 2013 operational losses is therefore mainly due to internal optimization measures. On the whole, the Business Area CFC continues to be impacted by a strong R&D driven substitution trend, which can lead to delays and start-up/development expenses that 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 substantially lower EBITDA means that the set target for a positive free cash flow in 2013 can no longer be met. However, the decline in free cash flow will be substantially less than the reduction in the EBITDA due to rigid expense controls particularly relating to capital expenditures and working capital. Capital expenditures will be limited to €100 million in 2013 (previously €110 million). Due to the CFC write-downs and the extraordinary tax expense, gearing at June 30, 2013, was at 0.65 and thus above the mid-term target of approximately 0.5. However, the SGL Group aspires to again achieve the gearing target of approximately 0.5 with the planned measures.

Substantial cost savings program “SGL2015” introduced

To account for the changed fundamental environment, the management board will set up a comprehensive global cost savings program: SGL2015. This program consists of two pillars: On one hand, the organizational structure will be reviewed (adjustment and simplification of business processes as well as streamlining management structures). On the other hand, the program will also include measures for site restructuring (potential divestment of non-core activities, transferring activities into partnerships as well as the relocation, closure or sale of production assets). The individual projects are currently being developed and will be incorporated into the 2014 planning session. The already established SGL Excellence philosophy will also play a major role in this context to safeguard continuous efficiency improvements. Details on the SGL2015 cost savings program including schedule, associated costs, and expected benefits, will be published near term.

Key figures of SGL Group

 (in €m)

H1/2013 H1/2012* Change
Sales revenue 828.2 809.8 2.3%
EBITDA1) 67.3 108.2 -37.8%
EBITDA margin2) 8.1% 13.4%  
Operating profit (EBIT) before extraordinary effects 25.6 69.9 -63.4%
Operating loss/profit (EBIT) -127.6 69.9  
Loss/profit before tax -164.3 40.0  
Net loss/profit attributable to equity holders -243.0 23.0  
Earnings per share, basic (in €) -3.43 0.33  
Investments in intangible assets and property, plant and equipment 36.4 48.5 -24.9%
Free Cash Flow -46.4 -171.6  
June
30. 2013
Dec.
31. 2012
Change
Total assets 2,150.7 2,559.7 -16.0%
Shareholders’ equity 797.0 1,067.0 -25.3%
Net financial debt 519.8 459.3 13.2%
Debt ratio (Gearing)3) 0.65 0.43  
Equity ratio4) 37.1% 41.7%  
Employees 6,662 6,686 -0.4%
*Adjusted for effects of adopting IAS 19R

1) Before extraordinary effects of minus €153.2 million in the first half year 2013
2) Ratio of EBITDA to sales revenue
3) Net financial debt divided by shareholders’ equity
4) Shareholders’ equity divided by 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 45 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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