From the Sector

The shareholders of SGL Carbon SE approved all agenda items at the Annual General Meeting on May 9, 2023. The Annual General Meeting, which was held virtually, was attended by up to 114 electronically connected shareholders who, together with the postal votes submitted, represented 64.64% of the share capital.

CEO Dr. Torsten Derr began his speech with a review of SGL Carbon's two-year transformation phase. "In two years, we have been able to increase our sales by 23.5% and adjusted EBITDA by as much as 86.2%. In parallel, we reduced our debt by 40.4%," Dr. Derr elaborated. He also reported on the past financial year and the expectations for the future economic development of the company. In doing so, he also addressed SGL Carbon's growth markets in detail. "Over the past two years, we have made SGL fit for the future. With our products, we serve industries that significantly reflect the trends for the future: climate-friendly mobility, renewable energies and digitalization," he explained.

After 14 years on the Supervisory Board of SGL Carbon, this was Dr. h.c. Susanne Klatten's last Annual General Meeting as Chairwoman of the Supervisory Board. She had already informed the Company on February 14, 2023, that she would be leaving the Board at the end of this Annual General Meeting. As the largest shareholder, Dr. h.c. Klatten will remain associated with SGL Carbon through SKion GmbH.

As proposed, the Annual General Meeting elected Prof. Dr. Frank Richter as a shareholder representative on the Supervisory Board to succeed Dr. h.c. Susanne Klatten. Following the Annual General Meeting, the constituent meeting of the Supervisory Board elected Prof. Dr. Richter as Chairman of the Supervisory Board. Prof. Dr. Richter is Managing Director of SKion GmbH, Bad Homburg, which holds a stake of approximately 28.55% in SGL Carbon SE. Furthermore, Ingeborg Neumann, Managing Partner of Peppermint Holding GmbH, Berlin, was elected to the Supervisory Board of SGL Carbon SE for a further term of office.

• Sales increase of 12.8% to €1,135.9 million
• EBITDApre improves by 23.4% to €172.8 million
• Net financial debt reduced from €206.3 million to €170.8 million
• Fiscal 2023 expected to be investment and stabilization year

SGL Carbon was again able to improve sales and earnings in fiscal year 2022 following 2021. All four business units contributed to this success.
Sales in fiscal 2022 increased by 12.8% year-on-year to €1,135.9 million (previous year: €1,007.0 million). The rise in sales was mainly due to both volume effects and the successful implementation of pricing initiatives to compensate higher raw material, energy and transport prices. At 23.4%, adjusted EBITDA (EBITDApre) improved at a higher rate than sales and amounted to €172.8 million in fiscal 2022 (previous year: €140.0 million). Increased sales and the associated higher capacity utilization also contributed to the improvement in earnings, as well as focusing on market segments with higher margin potential.
 
Earnings development of SGL Carbon
The increase in EBITDApre by €32.8 million to €172.8 million was mainly driven by the Graphite Solutions business unit (+€30.6 million). The Composite Solutions (+€7.9 million) and Process Technology (+€5.2 million) business units also contributed to the improvement in profitability. Although the Carbon Fibers business unit was able to offset the loss of a lucrative supply contract with an automotive customer in terms of sales with new orders from the wind energy sector, but these sales showed a significantly lower margin level. Accordingly, EBITDApre of this business unit decreased by €11.2 million to €43.2 million (previous year: €54.5 million).

Taking into account net one-off effects and non-recurring items of €8.9 million (previous year: €30.7 million) and depreciation and amortization of €60.8 million (previous year: €60.3 million), reported EBIT amounted to €120.9 million (2021: €110.4 million). This corresponds to an increase of 9.5%.
As a result of the pleasing business performance, the successes of the transformation and non-operating one-off effects and non-recurring items (€8.9 million), a positive Group’s net profit of €126.9 million (previous year: €75.4 million) was achieved in 2022. It should be noted that consolidated net income includes tax income of €31.3 million (previous year: minus €6.2 million). This development is mainly due to valuation adjustments on deferred tax assets amounting to €41.8 million, based on the good business development combined with positive earnings prospects in the USA. Current tax expenses amounted to €11.4 million in 2022 (previous year: €11.9 million).
 
Net financial debt and equity
In fiscal 2022, net financial debt was reduced significantly by 17.2% to €170.8 million compared with the end of 2021 (€206.3 million). The main reason for the decrease is the repayment of financial liabilities in the amount of €29.0 million. Free cash flow decreased from €111.5 million to €67.8 million in 2022. In this context, it should be taken into account that in the previous year, free cash flow included cash inflows of €30.6 million from the sale of land not required for operations.
After 2021, the equity ratio increased again to 38.5% at the end of 2022 (previous year: 27.0% I 2020: 17.5%). Due to the significantly improved earnings situation, the return on capital employed (ROCE) also rose from 8.0% in the previous year to 11.3% in 2022.
 
Development of the business units
As the largest business unit with a share of Group sales of around 45%, Graphite Solutions contributed €512.2 million to Group sales in 2022 (previous year: €443.6 million). The 15.5% increase in sales is based in particular on the positive development of the important market segments Semiconductor & LED and Industrial Applications. Compared to the previous year, sales to customers in the semiconductor & LED industry increased by 49.6%, driven in particular by increasing demand of materials and components for the production of silicon carbide-based high-performance semiconductors. Combined with the increase in sales, GS EBITDApre improved by 34.8% to €118.5 million (previous year: €87.9 million). Accordingly, the EBITDApre margin increased from 19.8% to 23.1%. Volume effects due to higher sales as well as margin effects from the product and customer mix had a positive impact.  Especially the higher sales with customers from the semiconductor industry should be taken into account.

In fiscal 2022, the Process Technology (PT) business unit benefited from the good order situation in recent months and increased its sales by 21.9% to €106.3 million. The main clients of the PT business unit are customers from the chemical industry. The positive development of PT is also reflected in EBITDApre which rose from €4.7 million in the same period of the previous year to €9.9 million. Higher capacity utilization and the successful passing on of increased raw material costs led to an improvement in the EBITDApre margin from 5.4%  to 9.3% in 2022. Energy costs play only a minor role at PT.

In the reporting year, sales of the Carbon Fibers (CF) business unit increased by 3.0% to €347.2 million (previous year: €337.2 million). It should be noted that CF had to absorb the scheduled expiry of a supply contract with an automotive customer at the end of June 2022. These sales were offset by orders from the wind industry and Industrial Applications. However, EBITDApre in the CF division decreased by 20.7% year-on-year to €43.2 million (previous year: €54.5 million). This earnings development is mainly attributable to the expiry of the high-margin automotive contract. In addition, a special effect from energy derivatives in the amount of minus €9.2 million impacted CF earnings in the 1st quarter of 2022. However, the implemented energy price hedges enabled the business unit to maintain its production capability throughout the entire fiscal year, that the weakening of earnings was mitigated.
The Composite Solutions (CS) business unit confirmed its upward trend in fiscal 2022 with a 25.0% increase in sales to €153.1 million (previous year: €122.5 million). The most important market segment for the CS business unit is the automotive industry. In line with the highly positive business performance, EBITDApre of CS increased by 65.3% to €20.0 million (previous year: €12.1 million). This figure also includes non-recurring positive effects of €3.7 million from compensation payments received from automotive customers for premature project terminations.

The non-operating Corporate segment contributed €17.1 million to Group sales (previous year: €16.5 million). In line with continued strict cost management as part of the transformation, EBITDApre improved slightly to minus €18.8 million (previous year: minus €19.2 million).

Outlook
"If we summarize our expectations for the 2023 financial year, it can be summed up under the guiding principle: -invest and stabilize," CFO Thomas Dippold comments on the forecast for 2023.
For the fiscal year 2023 we continue to expect solid demand for our materials and products. In particular, we expect that the demand for special graphite products for high-temperature processes, e.g. in the semiconductor, solar and LED industries, will continue to increase. On the other hand, the first-time full-year effect from the expiry of a supply contract with an automotive customer in the carbon fiber segment and the sale of our business in Gardena (USA) will burden sales development.

"The increasing demand for high-performance semiconductors for electromobility or renewable forms of energy will also boost the demand of components made of graphite for the production of these semiconductors. To benefit from the related opportunities, we will expand our production capacities in this segment and invest a double-digit million amount in 2023 . Based on existing supply relationships, we will implement this investments partly together with our customers," explains CEO Dr. Torsten Derr.
On the cost side, we expect energy and raw material prices to remain at a high level in 2023, along with significant wage increases. Our forecast implies that higher factor costs can be partially passed on to customers through price initiatives.
Based on the assumptions described, we expect Group sales to be at prior-year level and EBITDApre to be between €160 million and €180 million in the financial year 2023.
In the medium term (until 2027), we anticipate a further improvement in our EBITDApre margin between 18% and 19%.

Due to the continued good business development, especially in the Carbon Fibers Business Unit, SGL Carbon SE is increasing its Group sales and earnings guidance for the current fiscal year and now expects Group sales of approximately €1.2 billion (previously: approximately €1.1 billion). The company expects to achieve adjusted EBITDA (EBITDA pre = earnings before interest, taxes, depreciation and amortization before one-off effects and non-recurring items) of €170 - €190 million (previously: €130 - €150 million) in 2022.

Based on lower prices for acrylonitrile as main raw material of the Business Unit Carbon Fibers as well as higher than expected customer demand for acrylic and carbon fibers combined with consistently good production capacity utilization and capability, the management of SGL Carbon SE assumes an improved earnings development of this Business Unit.

SGL Carbon assumes that the factors mentioned will continue at least until the end of the year and that the earnings situation of the Business Unit Carbon Fibers will exceed previous expectations. Combined with the continued good business development of the other three Business Units (Graphite Solutions, Process Technology and Composite Solutions), an improvement in the sales and earnings situation at Group level is expected.

In line with the forecast increase for adjusted EBITDA (EBITDA pre) to between €170 and €190 million (previously: €130 - €150 million), the company is forecasting adjusted EBIT (earnings before interest and taxes and before one-off effects and non-recurring items) of between €110 and €130 million (previously: €70 - €90 million). The forecast for return on capital employed (ROCE) of originally 7% - 9% has been raised to 10% to 12% corresponding to the development of earnings. The expectations for free cash flow (significantly below previous year's level of €111.5 million) remain unaffected by the expected improvement in sales and earnings.

The updated forecast for fiscal 2022 has been prepared on the basis of the currently prevailing market environment and assumes no deterioration in the general conditions, in particular due to the war in Ukraine and its consequences for the global economy.
 
The definition of key figures used in this release is aligned to the Annual Report 2021. There were no changes in the scope of consolidation or accounting methods compared with the previous guidance.

Based on the good business development in all four Business Units as well as the mostly successful passing on of increased costs for raw materials, energy and transport to customers, the Board of Management of SGL Carbon SE expects to exceed the given guidance for the fiscal year 2022. Accordingly, SGL Carbon SE is increasing its sales and earnings guidance for fiscal year 2022.

The Company expects to exceed the upper end of the stated range of its Group EBITDApre (earnings before interest, taxes and depreciation adjusted by non-recurring items and one-time effects) guidance for the fiscal year 2022 of EUR 110 - 130 million and is raising its EBITDApre guidance for 2022 to EUR 130 - 150 million. Correspondingly, EBITpre1 (earnings before interest and tax adjusted by non-recurring items and one-time effects) is now forecasted to be between EUR 70 - 90 million (previously: EUR 50 - 70 million). The sales guidance is also raised to around EUR 1.1 billion for the current fiscal year, originally expected to be at the level of the previous year (EUR 1,007.0 million).

In line with the development of earnings, the forecast for return on capital employed (ROCE) of originally 5% - 7% is raised to 7% - 9%. The expectations for free cash flow remain unaffected by the forecast increase. Free cash flow is still expected to be significantly lower in 2022 than in the previous year (previous year: EUR 111.5 million).

The new forecast for fiscal 2022 has been drawn up on the basis of the prevailing market environment and assumes no deterioration in conditions, in particular due to the war in Ukraine and its consequences for the global economy. In particular, it is assumed that sufficient electricity and gas will be available and production lines will remain in operation. The communicated medium-term targets up to 2025 remain unaffected by the forecast adjustment.

SGL Carbon will publish its 2022 half-year figures as planned on August 4, 2022.

The Corporate Family Rating of SGL Carbon SE was raised to B3 by the renowned rating agency "Moody's Investors Services". At the same time, Moody's confirmed the B3 rating of the guaranteed senior secured notes (maturity: September 2024). As part of the upgrade, the outlook for the Company was changed from positive to stable.

The upgrade of SGL Carbon's corporate family rating to B3 is in particular based on the improvement of the company's liquidity profile over the last 12 months, the solid business development in 2021 and the expectation that SGL Carbon will continue to reflect the achieved credit metrics for the B3 rating in the next 12 to 18 months.

“We are pleased that the success of the transformation started at the end of 2020, the stabilization of our financial fundamentals and in particular the improvement of our liquidity situation are reflected in the Moody's upgrade. We also see the upgrade as a motivation to improve further," explains Thomas Dippold, CFO of SGL Carbon SE.

• Sales increase 8.8% to €743.5 million compared to the same period of the previous year
• EBITDApre improves by 59.1% to €108.5 million
• Despite burdens from higher raw material and energy prices, stable revenue and earnings expected for Q4 2021

Following consolidated sales of €241.5 million in Q1 2021 and €255.2 million in Q2 2021, Q3 2021 confirms SGL Carbon's encouraging sales performance with €246.8 million. Due to increasing demand from almost all market segments, Group sales increased to a total of €743.5 million in the first nine months of the fiscal year (9M 2020: €683.5 million). This corresponds to an increase of 8.8% compared to the same period of the previous year.

Almost all business units contributed to the positive sales development. As largest business unit with a 44.7% share of Group sales, Graphite Solutions (GS) contributed €332.7 million to Group sales in the first nine months of 2021 (9M 2020: €308.0 million). The sales increase of 8.0% is based in particular on the positive development of the important market segments Semiconductor & LED as well as Automotive & Transportation. The business units Carbon Fibers and Composite Solutions contributed €244.7 million (9M 2020: €223.4 million) and €92.1 million (9M 2020: €60.7 million), respectively, to Group sales and benefited primarily from increased demand from the automotive industry. Compared to the previous year, sales increased by 9.5% in Carbon Fibers and by 51.7% in Composite Solutions. Only the Process Technology business unit, with sales down 4.9% to €62.1 million, was not yet able to participate in the general economic upward trend.

See the attached document for more infomation.

• Forecast raised for 2021

Based on the encouraging business performance in the first half of 2021 and the transformation successes, SGL Carbon expects strong Group results for the first six months of 2021 and raises its guidance for fiscal year 2021.

The company expects to exceed the upper end of the stated range of its Group EBITDA pre1 guidance (earnings before interest, taxes and depreciation adjusted by non-recurring items and one-time effects) for fiscal year 2021 of EUR 100 to 120 million and raises the EBITDA pre guidance for 2021 to EUR 130 –140 million.

SGL Carbon's sales forecast is also increased slightly to approximately EUR 1.0 billion for the current fiscal year, up from EUR 920 – 970 million originally. The company expects free cash flow for the full year to be correspondingly above the forecast of EUR 20 million given at the beginning of the year. A slightly positive consolidated net result is also predicted for 2021.

Previously, the company had assumed a consolidated net result of between EUR -20 million and EUR 0. According to preliminary figures, SGL Carbon expects Group sales for H1 2021 of around EUR 496 million (H1 2020: EUR 456.5 million). This corresponds to an increase of around 9% compared to the same period of the previous year. Based on the sales increase and the cost effects achieved from the transformation, EBITDA pre (EBITDA before non-recurring items and one-time effects) increased to around EUR 72 million in the first six months of 2021 (H1 2020: EUR 42.0 million).

The updated forecast for fiscal 2021 has been prepared on the basis of the prevailing market environment and assumes no deterioration in conditions due to the corona pandemic. In particular, it is based on the assumption that purchasing prices and logistics chains remain stable and production lines remain in operation. The communicated medium-term targets up to 2025 remain unaffected by the forecast adjustment. SGL Carbon will release its 2021 half-year figures as planned on August 12, 2021.

SGL Carbon reagiert mit konsequenten Gegenmaßnahmen auf die Krise und stößt umfangreiche Transformation an – stabiles EBIT vor Sondereinflüssen und deutlich positiver Free Cashflow im schwierigen Coronajahr 2020

• Konzernumsatz 2020 bei 919,4 Mio. € und damit um 15 % unter dem Vorjahresniveau
• Nettoergebnis wegen Wertminderung bei CFM und Restrukturierungsaufwendungen bei minus 132,2 Mio. € (Vorjahr: -90,0 Mio. €)
• EBIT vor Sondereinflüssen mit 50,2 Mio. € leicht über Vorjahr (48,4 Mio. €)
• Operatives EBIT vor Sondereinflüssen und Einmaleffekten mit 19,5 Mio. € leicht über den Erwartungen
• Free Cashflow mithilfe von strengen Investitions- und Ausgabenbegrenzungen sowie Einmaleffekten deutlich gesteigert um 91,0 Mio. € auf 73,7 Mio. €
• Nettofinanzschulden trotz Kaufpreiszahlung für Carbonfaserwerk in Moses Lake geringfügig reduziert auf 286,6 Mio. €
• Restrukturierungs- und Transformationsprogramm: bis 2023 jährlich wiederkehrende Einsparungen in Höhe von mehr als 100 Mio. € avisiert, davon bereits 40 Mio. € im Geschäftsjahr 2020 erzielt
• Prognose für 2021: Umsatzerlöse zwischen 920 und 970 Mio. €, bereinigtes EBITDA bei 100 bis 120 Mio. € (2020: 92,8 Mio. €)

Die Corona-Pandemie hatte im Geschäftsjahr 2020 einen wesentlichen Einfluss auf die Geschäftsentwicklung der SGL Carbon. Auch wenn die Produktion bei der SGL Carbon dank effektiver Hygiene- und Schutzmaßnahmen zu keinem Zeitpunkt heruntergefahren werden musste, war das Unternehmen mit einer deutlich reduzierten Nachfrage konfrontiert. Während für das Berichtssegment Composites – Fibers & Materials (CFM) eine Nachfrageerholung zum Jahresende festzustellen war, hat sich die Nachfrage im Berichtssegment Graphite Materials & Systems (GMS) bis zum Jahresende nur wenig belebt. Der Konzernumsatz lag 2020 bei 919,4 Mio. € und damit um 15 % unter dem Vorjahresniveau (2019: 1.086,7 Mio. €). Wegen einer Wertminderung bei CFM sowie durch Restrukturierungsaufwendungen betrug zudem das Nettoergebnis minus 132,2 Mio. € nach minus 90,0 Mio. € im Vorjahr.

Prognose: Entwicklung des Konzerns

Nach dem starken wirtschaftlichen Einbruch im Jahr 2020 gehen wir davon aus, dass das Geschäftsjahr 2021 von einer moderaten Erholung geprägt sein wird. Die Umsatzerlöse sollten über dem Vorjahresniveau (2020: 919,4 Mio. €) in der Spanne zwischen 920 und 970 Mio. € liegen. Für das bereinigte EBITDA erwarten wir eine Verbesserung auf 100 bis 120 Mio. € (2020: 92,8 Mio. €). Hier werden sich insbesondere Einsparungen aus den eingeleiteten Restrukturierungsmaßnahmen positiv widerspiegeln. Nach einem Konzern-Jahresfehlbetrag der fortgeführten Aktivitäten von 132,9 Mio. € im Geschäftsjahr 2020, der primär auf Wertminderungen bei CFM und die Restrukturierungsaufwendungen zurückzuführen ist, dürfte sich das Nettoergebnis (fortgeführte Aktivitäten) im Jahr 2021 deutlich verbessern und im Bereich zwischen minus 20 Mio. € und einem ausgeglichenen Ergebnis liegen.

• SGL Carbon supplies first plants with DIN EN1591-1 tightness certification to the chemical industry
• First column already delivered to major European customer

In plant operation in the chemical industry, the tightness of flanged joints is becoming increasingly important when dealing with aggressive and corrosive operating media. In accordance with European Union requirements, the German government has defined new requirements in the first administrative regulation to the Federal Immission Control Act (BImSchG), which will apply from January 2021. SGL Carbon is the first manufacturer of PTFE-lined columns to be able to provide the required proof of tightness according to DIN EN 1591-1 and has already delivered the first column with the new certification to a major European customer.

Specifically, the Technical Instructions on Air Quality Control (TA-Luft) of the Federal Immission Control Act (BImSchG) prescribe new, stricter emission values (leakage class L0.01) for keeping the air clean, which must be complied with when operating plants requiring a permit. In order to be able to guarantee the technical tightness of steel/PTFE flanged joints, SGL Carbon, together with a working group of other companies, first determined the EN 13555 sealing characteristic values, which reflect the material-specific PTFE properties as well as the characteristic manufacture and shaping of the linings. With these characteristic values integrated in a database, SGL experts were able to perform realistic DIN EN 1591-1 calculations for flanged joints of a packed column lined with POLYFLURON PTFE and prove the tightness in accordance with TA-Luft. The design, final acceptance and pressure tests in accordance with Directive 2014/68/EU (PED) were successfully certified by a recognized notified body.

"With the rapid implementation of the new  tightness requirements for columns, our solutions offer customers further significant added value, which is currently also being applied to other products. Our sales team and technical service are available to provide customers with comprehensive advice on the new directives and our products," explains Ralph Spuller, Director Product Management in the Process Technology (PT) Business Unit at SGL Carbon.

• Carbon fibers combined with injection molding replace conventional steel construction
• SGL Carbon supplies innovative carbon fiber profiles
• Serial use in a future high-volume model of BMW Group
• Construction method offers great potential for use in other automotive projects

Already in August, SGL Carbon received a multi-year order from Koller Kunststofftechnik GmbH for the production of novel carbon fiber profiles for serial use in windshields for a future high-volume model of BMW Group.

The profiles are particularly flexible fiber tows, pre-impregnated with thermoplastic resin in various dimensions. They will be compiled by SGL Carbon on the basis of its own 50k carbon fiber at its site in Innkreis, Austria, and subsequently processed by the injection molding experts at Koller to form a skeletal plastic component. The composite component will replace the previous steel-based windshield. Production of the carbon fiber profiles will start in the remainder of 2020 and will then be ramped up gradually over the next few years for the BMW Group model launch.

In the vehicle, the windshield is a connecting element between the roof frames and thus has an important stabilizing function. The carbon fiber profiles add the required stiffness and crash safety to the component. At the same time, they help to significantly reduce the weight of the roof and thus also support the driving dynamics. The injection molding process also enables particularly complex and material-efficient structures. In the BMW Group model, this innovative component concept will cut weight by 40 percent compared to conventional steel designs of the component while creating important space for cable ducts and sensors.

The production of the carbon fiber profiles themselves is also particularly geared to material and process efficiency in large-scale production. The profiles consist of several smaller fiber strands, the so-called rods, and are manufactured using the modern continuous pultrusion process. During product and process development it was one key objective to ensure that material loss during production is almost completely avoided.

"At SGL Carbon, we have been working on the development of thermoplastic carbon fiber profiles for use in injection molding for some time already. This development work is now beginning to pay off. Due to the many advantages and competitive costs, we see a great potential for the technology to be used in other automotive projects too," explains Sebastian Grasser, Head of the Automotive Segment in the Business Unit Composites - Fibers & Materials at SGL Carbon.

"Innovative lightweight construction with hybrid designs has developed into a strategically conclusive concept for Koller Group's OEM customers," confirms Max Koller, CEO of Koller Group. "SGL Carbon's high level of material expertise, combined with the process know-how of KOLLER Kunststofftechnik and KOLLER Formenbau, create the basis for a promising future in innovative lightweight construction technologies. With this order, the BMW Group has confirmed its confidence in the successful cooperation between SGL and Koller; we are particularly pleased about this", said Max Koller.
 
The Koller Group is a globally operating technology company with plants in Europe and China, as well as NAFTA. The Koller Group develops and manufactures lightweight construction, tools and serial components, primarily for the automotive industry.