11-07-2013

Consistent execution of cost savings program “SGL2015” in reaction to challenging environment

- Sales decreased 4% yoy due to price pressure in graphite electrodes and cyclical downturn in graphite specialties
- EBITDA before non-recurring charges down to €89.5 million
- Non recurring charges of €179.4 million in 9M/2013 consisting of extraordinary effects (Q2/2013) and restructuring expenses (Q3/2013)
- Significant improvement in free cash flow from minus €159.4 million to minus €16.1 million
- Guidance confirmed for FY 2013: EBITDA 50 60% below comparable prior year figure of €240 million
- First measures of Group-wide comprehensive cost savings program SGL2015 in the process of implementation

Wiesbaden, November 7, 2013. The overall business development of SGL Group – The Carbon Company – in the first nine months of the fiscal year 2013 developed in line with the June guidance. Resulting from the continued price pressure in graphite electrodes and the cyclical downturn in graphite specialties, Group sales declined by 4% to €1,209.7 million. Due to the adverse development in all three Business Areas, Group EBITDA decreased by 52% to €89.5 million (9M/2012: €188.6 million) and the EBITDA margin to 7.4% (9M/2012: 15.0%). Group EBIT before non-recurring charges declined to €28.0 million (9M/2012: €130.3 million). Group-wide savings from SGL2015 amounted to approximately €34 million, of which approximately €19 million were attributable to the SGL Excellence initiative.

Robert Koehler, CEO of SGL Group: “The implementation of our Group-wide cost savings program SGL2015, which was initiated in August, is proceeding as planned. Initial measures are already in the process of being implemented. By the end of 2015, we intend to generate savings of approximately €150 million, approximately €50 million of which will already be realized in 2013. Despite the fact that the business development is far below our original expectations, we have been able to improve free cash flow by more than €140 million within the last 12 months."

For the closure of the Canadian plant in Lachute in connection with SGL 2015, restructuring expenses for extraordinary write-downs of €24.9 million have been realized. Already in the second quarter 2013 negative non-cash extraordinary effects totaling €153.2 million were recorded in the Business Area CFC as required by IFRS. Accordingly, Group EBIT including non-recurring charges was minus €151.4 million in the reporting period.

The financial result improved slightly to minus €37.3 million (9M/2013: minus € 38.5 million). Result before tax therefore stood at minus €202.6 million (9M/2012: €25.2 million) and net loss at minus €277.8 million (9M/2012: minus €5.6 million), including extraordinary tax expenses of €68.7 million which were already recorded in the first half of 2013. Based on an average number of shares of 70.9 million, basic earnings per share dropped to minus €3.92 (9M/2012: minus €0.08).

Free cash flow improved significantly by €143 million

After nine months 2013, total assets decreased by 19% to €2.086.9 million (December 31, 2012: €2,559.7 million). This was caused by extraordinary effects in the Business Area CFC, extraordinary write-downs of the production site in Lachute within PP, the repayment of the convertible bond of €146 million in May 2013 and write-downs on deferred tax assets. These extraordinary effects also led to a decrease in shareholders’ equity to €754.1 million (December 31, 2012: €1,067.0 million) and an equity ratio of 36.1% (December 31, 2012: 41.7%). Net financial debt increased slightly to a total of €485.5 million (December 31, 2012: €459.3 million), which was nevertheless more than €30 million below the half-year figure. Correspondingly, gearing was at 0.64 as of September 30, 2013. Free cash flow improved strongly to minus €16.1 million (9M/2012: minus €159.4 million) due to substantially reduced working capital and lower cash used in investing activities.

Segment Reporting

Performance Products (PP): First major step of cost savings plan in the process of implementation

Primarily due to the unsatisfactory price development in graphite electrodes, sales in the Business Area PP decreased by 12% to €595.9 million (9M/2012: € 681.4 million). Accordingly, EBITDA before restructuring expenses went down by 44% to €94.3 million (9M/2012: €168.0 million). The prior-year result included a one-time positive earnings contribution from the settlement of a long-term supply contract amounting to a low double-digit million € figure. The EBITDA margin therefore was 15.8% (9M/2012: 24.7%). Savings from SGL2015 amounted to approximately €16 million, of which approximately €9 million were attributable to the SGL Excellence initiative. As the first major measure of SGL2015, the closure of the Canadian graphite electrode plant in Lachute by end of Q1/2014 was announced in mid-October. Therefore restructuring expenses of €24.9 million were incurred as a result of these extraordinary write-downs. Thus, EBIT including restructuring expenses in the first nine months 2013 amounted to €38.8 million.

Graphite Materials & Systems (GMS): Cyclical downturn

Sales in the Business Area GMS decreased by 17% to €311.7 million (9M/2012: €374.5 million). While sales in the Business Unit Process Technology (PT) slightly improved, Graphite Specialties (GS) recorded a substantial decline. Demand from industrial applications within the Business Unit GS, which was very stable in the previous year, had already been declining since the end of 2012. However, this trend has stabilized in recent months. Demand from the solar, semiconductor and LED industries, which had been weak since the end of 2011, also seems to have bottomed out recently. The reduced capacity utilization as well as lower prices in some businesses in the Business Unit Graphite Specialties resulted in a significantly lower earnings level within GMS. Accordingly, EBITDA decreased to €40.1 million (9M/2012: €69.1 million) and the EBITDA margin to 12.9% (9M/2012: 18.5%). Cost savings from SGL2015 amounted to €9 million, of which approximately €5 million are attributable to SGL Excellence. Restructuring expenses related to the cost reduction program SGL2015 have not yet been incurred by GMS.

Carbon Fibers & Composites (CFC): Sales up by more than 50%

In the first nine months of 2013, CFC sales increased by more than 50% to €298.7 million (9M/2012: €197.6 million). The sales contribution of the Portuguese acrylic fiber manufacturer Fisipe (acquired in 2012) amounted to €87.5 million (9M/2012: €55.4 million). Comparable sales growth of 26% is primarily due to higher sales in the Business Unit Rotor Blades (SGL Rotec). EBITDA before non-recurring charges amounted to minus €16.4 million (9M/2012: minus €11.9 million) The lower operating result is essentially due to the continued low capacity utilization in the carbon fiber business, which continues to be impacted by project delays and lower material demand from the wind energy industry and other industrial applications. These delays have led to overcapacity in the carbon fiber market with adverse effects on the carbon fiber price development. Increased productivity and capacity utilization resulted in a significant improvement in the Business Unit Rotor Blades. In contrast, delays in shipping orders for the Boeing 787 and the Joint Strike Fighter (F-35) led to an unsatisfactory utilization in the Business Unit Aerostructures (HITCO). Cost savings from SGL2015 in the reporting period amounted to €7 million, of which €5 million are attributable to SGL Excellence. In Q2/2013, impairment tests for fixed assets and goodwill resulted in negative non-cash extraordinary effects in the earnings of CFC of €153.2 million. Furthermore, restructuring expenses of €0.4 million within the framework of SGL2015 were recorded in the reporting period. As a result, EBIT including non-recurring charges in CFC reached minus €183.8 million (9M/2012: minus €78.4 million).

Revenue from equity-accounted investments within the Business Area CFC increased by 14% to €117.1 million, which is not included in the consolidated sales revenue of SGL Group (9M/2012: €103.0 million; both figures based on 100% ownership of the companies).

Outlook confirmed for FY 2013

SGL Group confirms its guidance for 2013, which was adjusted in June 2013. Accordingly, consolidated EBITDA is expected 50% to 60% below the comparable prior-year figure of €240 million. Group sales are expected to be slightly lower than the prior-year level mainly due to lower expectations in PP and GMS. The cost reduction program SGL2015 will lead to further restructuring expenses until the year end, of which approximately 60% will be non-cash. The cash effective restructuring expenses will mainly become effective from 2014. Overall, the restructuring expenses will almost reach a triple-digit million € figure. The major portion of these one-off expenses will already be accounted for in the 2013 annual financial statements. By means of this cost savings program, sustainable cost savings of approximately €150 million should be generated by the end of 2015, of which approximately €50 million should already be realized in 2013.

The substantially lower EBITDA means that the set target for a positive free cash flow in full year 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. As a result, free cash flow is expected to be neutral in the second half of 2013. Capital expenditures will be limited to below €100 million in 2013. Due to the extraordinary effects in CFC, the restructuring expenses in PP and the extraordinary tax effects, gearing at September 30, 2013, was at 0.64 and thus above the mid-term target of approximately 0.5. However, with SGL2015 the gearing target of approximately 0.5 should be achieved again in the mid-term.

In the Business Area PP substantially reduced sales are expected in the full year 2013 compared to the previous year mainly due to the recent pricing developments in graphite electrodes. For the same reason, the operating margin in the remaining quarter of the year is also expected to remain significantly below the prior-year level. However, the margin should show a slight improvement compared to the reported quarter due to raw material cost savings.

Despite the stabilization in order intake, the Business Area GMS expects to record significantly lower sales in 2013 compared to the record year 2012. Nevertheless, the already implemented measures to increase efficiency and reduce costs will lead to a satisfactory return on sales in 2013, which will remain only slightly below the medium-term ROS target of minimum 14% (based on EBITDA).

In the Business Area CFC, only a slight increase in sales is expected in the remaining quarter. The anticipated slight reduction in the operating loss for the full year 2013 is therefore mainly due to internal optimization measures. Generally, 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, which may partially not be predictable until a certain commercial maturity is reached. However, there is no change to the long-term considerable growth potential in this material segment.

Key figures of SGL Group

(in €m)

Nine Months
9M/2013 9M/2012* Change
Sales revenue 1,209.7 1,255.9 -3.7%
EBITDA (1) 89.5 188.6 -52.5%
EBITDA margin before non-recurring charges (2) 7.4% 15.0%  
Operating profit (EBIT) before non-recurring charges 28.0 130.3 -78.5%
Operating profit (EBIT) -151.4 76.1  
Profit before tax -202.6 25.2  
Consolidated net profit attributable to equity holders -277.8 -5.6  
Earnings per share, basic (in €) -3.92 -0.08  
Investments in intangible assets and property, plant and equipment 58.7 78.4 -25.1%
Free cash flow -16.1 -159.4  
September
30, 2013
Dec.
31, 2012*
Change
Total assets 2,086.9 2,559.7 -18.5%
Equity attributable to shareholders of the parent company 754,1 1.067,0 -29.3%
Net financial debt 485,5 459.3 5.7%
Gearing(3) 0.64 0.43  
Equity ratio(4) 36.1% 41.7%  
Employees 6,660 6,686 -0.4%
*Adjusted for effects of adopting IAS 19R

(1)Before non-recurring charges
(2)EBITDA before non-recurring charges 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 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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