Composites – Fibers & Materials (CFM): Temporarily unfavorable product mix, postponement of project billings and a weak first quarter in the market segment Textile Fibers characterize first half year

Sales revenue in the business unit CFM at 219.4 million euros remained, as expected, close to the prior year level (currency adjusted: minus 3 percent). While the market segment Wind Energy recorded strong growth compared to the very weak prior year, the market segment Industrial Applications posted lower sales due to the weakening global economy. The market segment Aerospace also remained below the prior year level due to different timings of project billings. Sales in the market segments Automotive and Textile Fibers remained close to the prior year level. Recurring EBIT in the second quarter improved slightly compared to the weak first quarter, primarily reflecting the improvement in the market segment Textile Fibers. However, recurring EBIT in the first half 2019 reached 2.8 (previous year: 17.3) million euros and was substantially below the prior year level. Accordingly, the EBIT margin in the business unit decreased to 1.3 (previous year: 7.7) percent. The main reason for this development was lower earnings in the market segments Automotive and Aerospace, caused by a temporary unfavorable product mix respectively different timing of project billings. The market segment Wind Energy also recorded declining earnings due on one hand to a delivery pushback into the second half of this year based on external factors, and on the other hand to a temporary unfavorable product mix. The earnings decline in the market segment Textile Fibers is attributable to the unfavorable margin development in the first quarter, which already improved in the second quarter. The earnings improvement in the market segment Industrial Applications was not able to compensate for above developments. Return on capital employed (ROCE) based on recurring EBIT of the reporting unit CFM reached 0.9 (previous year: 5.3) percent.

Free cash flow from continuing operations again significantly improved

Cash flow from operating activities in the first half 2019 improved significantly by 23.2 million euros to 15.4 (previous year: minus 7.8) million euros. Main reason was the reduced increase in working capital. Cash flow from investing activities improved from minus 31.2 million euros to minus 24.6 million euros, mainly because the net cash payment for the acquisition of the SGL Composites company in Wackersdorf (Germany) amounting to 23.1 million euros was included in the prior year period. Capital expenditures in intangible assets and property plant and equipment increased by 53 percent to 33.6 (previous year: 21.9) million euros. Free cash flow from continuing operations improved significantly to minus 9.2 (previous year: minus 39.0) million euros.

As of June 30, 2019, total assets of SGL Carbon were at 1,784.7 million euros, an increase of 12.6 percent compared to year-end (December 31, 2018: 1,585.1 million euros) mainly due to the cash inflow from the corporate bond issued in April 2019. Equity attributable to the shareholders decreased by 4.8 percent to 506.2 million euros. The reduction is mainly attributable to the lower pension discount rate environment in Germany and the USA. Overall, the equity ratio as of June 30, 2019 decreased to 28.4 percent (December 31, 2018: 33.5 percent), not only due to the negative impacts from the pension discount rate changes but also because of the temporary increase of total assets. Adjusted for the full repayment of the convertible bond 2015/2020 and the resulting reduction in total assets in July 2019, the pro forma equity ratio as of June 30, 2019 was 31.5 percent.

In April 2019, SGL Carbon successfully placed Senior Secured Notes in the amount of 250 million euros due September 2024. SGL Carbon used the proceeds to prefund its existing convertible bond 2015/2020, to completely repay the loan by BMW related to the full acquisition of the former BMW Joint Venture SGL ACF and to pay the transaction costs related to the issuance of the convertible bond. The loan of the BMW Group was repaid at the end of June, the convertible bond was fully repurchased in July 2019.

SGL Carbon confirms its guidance for 2019

The fiscal year 2018 was impacted by positive effects from the initial adoption of IFRS 15 as well as positive non-recurring items resulting from the full consolidation of the former SGL ACF. This high comparative base influences the outlook for the current year. In addition, the company acknowledges reports on a global economic slowdown. Nevertheless, SGL Carbon continues to anticipate a mid-single digit percentage Group sales increase for 2019, which will mainly be volume driven. Group EBIT (before non-recurring items and purchase price allocation) is expected to stabilize on the prior year level, which recorded a substantial increase over 2017.

After a consolidated net profit of approximately 41 million euros in the fiscal year 2018, the company expects a break-even consolidated net result in the fiscal year 2019. It should, however, be noted, that the previous year benefited from a non-cash positive non-recurring item in the amount of 28 million euros relating to the full consolidation of SGL ACF. In addition, SGL Carbon plans increased expenses in the financial result mainly from one-time effects in conjunction with the early repayment of the convertible bond 2015/2020 and the issue of the corporate bond in April 2019 to refinance maturities due at the end of 2020. With this bond and the 175 million euros syndicated loan signed in January 2019, the company has completed its refinancing measures and is financed until 2023 with respect to existing financial liabilities.

For fiscal year 2019, SGL Carbon continues to expect capital expenditures of approximately 100 million euros after 78 million euros in the prior year. Net financial debt at year-end 2019 is anticipated to be a mid-double-digit million euro amount higher than at year end 2018 mainly due to higher capital expenditures as well as increasing interest expenses. SGL Carbon will, however, remain within its target leverage ratio, i.e. the ratio of net financial debt to EBITDA, of below 2.5. As previously announced, the target gearing level of approximately 0.5 could temporarily be exceeded due to additional capital expenditures in the years 2019 through to 2021.