04-29-2014

Realignment is taking further shape at the beginning of the year – Outlook for full year 2014 confirmed

Business development during the first quarter of 2014:

- New reporting structure follows streamlining of the organization
- Group sales at €336.3 million
- EBIT before restructuring expenses: minus €2.3 million
- €2.3 million restructuring expenses
- Consolidated Net result: minus €22.8 million
- €14 million savings from SGL2015
- Outlook for full year 2014 confirmed

Wiesbaden, April 29, 2014. SGL Group – The Carbon Company – implemented major measures within the framework of the Group-wide cost savings program SGL2015 during the first quarter 2014. Group-wide savings from SGL2015 amounted to approximately €14 million, of which approximately €6 million were attributable to the SGL Excellence Initiative. The reporting structure has been aligned with the streamlined organizational structure.

During the first quarter 2014, Group sales decreased by 15% to €336.3 million (Q1/2013: €396.7 million) mainly due to the sales decline in the reporting segment Performance Products (PP). This decline was partially compensated by the favorable sales developments in the reporting segments Graphite Specialties (GS) and Carbon Fibers & Materials (CFM). Adjusted for the sales contribution from the joint venture SGL ACF, which has been proportionally consolidated since January 1, 2014, Group sales was 17.4% lower. Group EBIT before restructuring expenses decreased to minus €2.3 million (Q1 2013: €13.6 million), corresponding to an EBIT margin of minus 0.7% during the first quarter 2014 (Q1 2013: 3.4%). Within the framework of the global realignment of the Group, restructuring expenses in the first quarter 2014 totaled €2.3 million. Accordingly, Group EBIT after restructuring expenses amounted to minus €4.6 million (Q1/2013: €13.6 million).

Dr. Jürgen Köhler, CEO of SGL Group: “We are fully on track regarding the implementation of SGL2015. We have streamlined the structures and optimized many processes. Thus, we achieved further cost savings of €14 million in the first quarter of 2014. Operationally, our Graphite Specialties business got off to a good start into the year and we benefited from a big ticket order from a customer in the electronics industry. The carbon fibers and composites business has particularly benefited from our automotive joint ventures. However, we are continuously struggling with low prices particularly in our core business with graphite electrodes. The successes in other areas are overshadowed by this development.”

Result before taxes amounted to minus €18.6 million (Q1/2013: minus €2.8 million). Subtracting income taxes leads to a consolidated net result of minus €22.8 million (Q1/2013: €9.4 million). Based on an average number of 71.0 million shares, basic earnings per share for continuing operations amounted to minus €0.32 (Q1/2013: minus €0.11).

As of March 31, 2014, total assets remaine virtually unchanged at €2,066.4 million (December 31, 2013: €2,072.4 million). The moderate increase in the non-current assets is mainly due to higher assets resulting from the expansion of carbon fiber capacities at SGL ACF. Equity slightly declined to €646.3 million (December 31, 2013: €667.0 million) mainly due to the negative Group result. Compared to December 31, 2013, the equity ratio remained unchanged at 31%. As of March 31, 2014, net financial debt of the SGL Group increased by 10% to €540.6 million (December 31, 2013: €491.1 million after the retrospective proportional consolidation of SGL ACF). The main reason for this was the lower liquidity since the end of the previous year, primarily resulting from the cash outflow in the context of SGL2015 and higher investments for the expansion of carbon fiber production facilities at SGL ACF. Free cash flow stood at minus €48.7 million (Q1/2013: minus €15.8 million).

Segment Reporting

Performance Products (PP)

Particularly the overproduction of export oriented Chinese blast furnace steel led to lower electric steel production and therefore to weak demand for graphite electrodes. The corresponding price pressure led to a sales decline of 39% to €132.6 million (Q1/2013: €218.7 million) in the first quarter 2014. Accordingly, EBIT before restructuring expenses declined by 87% to €4.1 million (Q1/2013: €32.4 million) and the ROS to 3.1% (Q1/2013: 14.8%). Savings from SGL2015 amounted to €6.9 million, of which €2.9 million were attributable to the SGL Excellence Initiative.

On February 13, 2014 the closure of the Italian graphite electrode facility in Narni (Umbria) including the associated administration in Lainate was publicly announced as the second large measure within the framework of the cost savings program SGL2015. The closure of the 30,000 ton graphite electrode facility is a further step in the Group-wide capacity reduction measures to further improve the cost position of SGL Group. Together with the closure of the Canadian graphite electrode facility in Lachute, which was already announced in October 2013, SGL Group has reduced its graphite electrode production capacity by approximately 60,000 tons p.a.

Graphite Specialties (GS)

Sales in the reporting segment GS increased by 18% to € 90.5 million (Q1/2013: €76.7 million), mainly driven by the big order from a customer in the electronics industry. The significantly higher utilization of the production capacities resulted in a quadrupled EBIT of €9.9 million (Q1/2013: €2.4 million), and an increased ROS of 10.9% (Q1/2013: 3.1%). Savings from SGL2015 amounted to €3.6 million, of which €1.8 million were attributable to the SGL Excellence Initiative.

Carbon Fibers & Materials (CFM)

Sales in the reporting segment CFM increased by 26% to €69.2 million (Q1/2013: €54.9 million) mainly due to markedly higher sales in the proportionally consolidated joint venture SGL ACF, which benefited from the market introduction of the new BMW i3 in November 2013. The Business Unit Carbon Fibers & Composite Materials (CF/CM) also recorded a strong sales increase due to increased demand primarily from the wind energy industry. Nevertheless, due to the ongoing unsatisfactory price level and the insufficient capacity utilization in the carbon fiber business, the segment reported a negative EBIT of minus €6.9 million (Q1 2013: minus €8.2 million). Savings from SGL2015 amounted to €1.0 million, of which €0.5 million were attributable to the SGL Excellence Initiative.

Sales of all equity accounted investments increased by 71% to €49.3 million and are not included in the consolidated Group sales figures (Q1/2013: €28.9 million, 100% values for companies). They mainly concern Brembo SGL and Benteler SGL.

Corporate & Others

At €44.0 million, sales decreased by 5% (adjusted for currency effects by 2%) compared to the prior-year period (Q1/2013: €46.4 million). Main reason was the slightly lower sales contribution from the two Business Units Aerostructures (AS resp. HITCO) and Process Technology (PT). The operating loss improved by nearly one-third to €9.4 million (Q1/2013: €13.0 million) due to lower expenses in Corporate Costs which are attributable to the implementation of SGL2015 measures. Savings from SGL2015 amounted to approximately €2.5 million, of which approximately €0.6 million were attributable to the SGL Excellence Initiative.

Outlook 2014

SGL Group confirms its guidance for the full year 2014, which was published in March 2014. Accordingly, Group sales on a comparable basis is expected to remain virtually on the same level. Mainly due to the graphite electrode price development, Group EBIT will be down significantly compared to 2013. The major portion of restructuring expenses relating to the cost savings program SGL2015 was already recorded in the annual financial statements 2013. Therefore, restructuring expenses in 2014 are expected to amount to only a low double-digit million-€ figure. With this cost savings program SGL Group aims to generate sustainable savings of approximately €150 million by the end of 2015 (based on 2012 actual costs). €69 million of cost savings were already achieved in 2013. Savings of a similar magnitude are also expected for this year.

After a considerable positive free cash flow in 2013, SGL Group anticipates a significantly negative free cash flow in 2014, mainly due to the cash outflow of implemented restructuring measures as well as higher capital expenditures in the joint venture with BMW. Compared to last year, the capital expenditure requirements for the established businesses are significantly lower in 2014.

New reporting structure from first quarter 2014 onwards

As mentioned above, the business activities are reflected in the following reporting segments from 2014: Graphite & Carbon Electrodes (GCE) and Cathodes & Furnace Linings (CFL) will continue to be aggregated in the reporting segment Performance Products (PP). In addition, the joint venture with BMW Group (SGL ACF), which has been proportionally consolidated from January 1, 2014, and the Business Unit Carbon Fibers & Composite Materials (CF/CM) will be combined to form the reporting segment Carbon Fibers & Materials (CFM). The Business Unit Graphite Specialties (GS) will be presented as a standalone reporting segment. The smaller Business Units Process Technology (PT) and Aerostructures (AS) will be reported together with Corporate T&I and Corporate Costs in the reporting segment Corporate & Others.

Key figures of SGL Group

 (in €m)

1st quarter 2014 1st quarter 2013 Change
Sales revenue 336.3 396.7 -15.2%
EBITDA before restructuring expenses 18.9 34.5 -45.2%
Operating profit (EBIT) before restructuring expenses -2.3 13.6 > -100%
Operating profit (EBIT) -4.6 13.6 > -100%
Return on sales (ROS)1) -0.7% 3.4% -
Result before tax2) for continuing operations -18.6 -2.8 > -100%
Consolidated net result attributable to the shareholders of the parent company -22.8 -9.4 > -100%
Earnings per share, basic and diluted (in €) for continuing operations -0.32 -0.11 > -100%
Capital expenditures in intangible assets and property, plant and equipment 27.6 23.1 19.5%
Free cash flow -48.7 -15.8 > -100%
March
31, 2014
Dec.
31, 2013
Change
Total assets 2,066.4 2,072.4 -0.3%
Shareholders’ equity 630.1 650.8 -3.2%
Net financial debt 540.6 491.1 10.1%
Debt ratio (Gearing)3) 0.86 0.75 -
Equity ratio4) 30.5% 31.4% -
Employees5) 6,408 6,387 +0.3%
1) EBIT before restructuring expenses to sales revenue
2) Prior year adjusted for the discontinued rotor blade activities
3) Net financial debt divided by shareholders‘ equity
4) Shareholders‘ equity divided by total assets
5) Compared to the year end 2012 (6,686 employees) the number of SGL Group employees (excluding SGL ACF) decreased by 431, of which 339 relate to the sale of SGL Rotec and the remainder to the organizational and asset restructuring measures.

 

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 43 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 2013, the Company’s workforce of around 6,300 employees generated sales of €1,477 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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