SGL CARBON SE — Call Transcript 2007

Mar 8, 2007

• 1 -

Analyst Meeting/Conference Call

Frankfurt/Main March 8, 2007

SGL GROUP THE CARBON COMPANY

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SGL Carbon Group 2006 Results and new Company Orientation

1. Highlights 2006
2. Achievements and Evolution
3. Strategic Rationale for new Company Orientation

• Fundamentals
• Potential Benefits for SGL
• Strategic Review

1. SGL Response

• Organizational Changes and new Structure

• Profile and Outlook by Business Unit

• Group Outlook

• 2 - SGL GROUP THE CARBON COMPANY

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Group

Highlights 2006 (1)

(in €m)	Δ 2006/2005	2006	2005
● Sales	+11%	1,191	1,069
● EBITDA*	+26%	223	178
● EBIT*	+51%	170	113
● Net Income	+46%	41	28
● Net debt	-13%	229	265

*) before EU-antitrust expenses

SGL GROUP

THE CARBON COMPANY

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Group Highlights 2006 (2)

• Margins improved

• ROS: 11% → 14%

• ROCE: 14% → 20%

• Equity strengthened

• Equity Ratio: 27% → 35%

• Gearing: 0.8 → 0.5

• Return to growth

• Capex: 45¢m → 65¢m

• Strategic investments announced

• Malaysia

• Carbon Fibers & Composites

• Antitrust fines behind us → All fines fully reserved and funded

SGL GROUP THE CARBON COMPANY

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Carbon & Graphite (CG)

Performance 2006

(in €m)	Δ 2006/2005	2006	2005
Sales	+11%	716	644
EBITDA	+24%	199	160
EBIT	+40%	171	122
Return on sales (in %)		23.9	18.9

• Sales: +11% volume/price: +11% currency: +/-0%

• All capacities running at high level

• Substantial increase in EBIT and margins due to double digit higher prices and 14 €m cost savings

• 5 -

SGL GROUP THE CARBON COMPANY

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Specialties (S) Performance 2006

(in €m)	Δ 2006/2005	2006	2005
Sales	+14%	301	263
EBITDA	+37%	45	32
EBIT	+61%	32	20
Return on sales (in %)		10.6	7.5

• Sales: +14% volume/price +15% currency –1%
• Graphite Specialties: strong demand in solar, LED, semicon, and industrial applications yielding +14% sales growth
• Process Technology: 17% sales increase due to expanding Asian presence and rising chemical industry demand
• ROS increase due to ongoing site optimization

SGL GROUP

THE CARBON COMPANY

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SGL Technologies (T)

Performance 2006

(in €m)	Δ 2006/2005	2006	2005
Sales	+8%	171	159
EBITDA	-18%	10	13
EBIT		-1	0
Return on sales (in %)		-0.6	0.1

• Sales: +8% volume/price +8% currency +/-0%
• Significant Carbon Fiber sales growth
• EBIT slightly below break-even due to losses in brake discs resulting from 5 new car launches
• Higher profitability on comparable basis (excl. one time payments of Audi in 2005)
• High development costs (i.e. phase change materials, Carbo chip, 50k Fiber, prepreg)

S

SGL GROUP

THE CARBON COMPANY

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Group Consolidated Income Statement

(in €m)	2006	2005
EBIT before antitrust	170	113
Antitrust expenses	-32	0
Net financing cost	-49	-66
Interest antitrust	-13	0
Net financing cost (incl. interest antitrust)	-62	-66
Profit/loss before taxes	76	47
Income taxes	-35	-19
Net profit/loss	41	28
Earnings per share (in €)	0.66	0.50

• 8 -

SGL GROUP

THE CARBON COMPANY

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Antitrust fines fully accounted for

• At year end 2006, additional 8.6 €m reserved (non-cash) → Worst possible case for all remaining P&L-impacts covered

• In February 2007, 22.3 €m cash deposited at European Commission → All fines cash funded in case of no further reduction by European Courts → All antitrust fines are finally behind us

SGL GROUP THE CARBON COMPANY

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Group Financial Key Figures

(in €m)

Net debt Gearing (net debt/equity) Equity ratio (in %) Free cash flow Working capital Days working capital

2006	2005
229	265
0.5	0.8
35.3	27.2
48	57
427	387
129	130

• 10 - SGL GROUP THE CARBON COMPANY

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Continuous Cost Reduction

We have proven our cost reduction capability

*) before antitrust

• 11 -

SGL GROUP

THE CARBON COMPANY

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Operational Performance

We have improved our operational performance delivering on our promises

*) before antitrust

• 12 -

SGL GROUP

THE CARBON COMPANY

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Financial Performance

Net Debt in €m

Gearing (Net Debt/Equity)

We have regained financial strength

• before refinancing

SGL GROUP THE CARBON COMPANY

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SGL Carbon Group Achievements and Evolution

We have → proven our cost reduction capability → improved our operational performance significantly → delivered on our promises → regained financial strength

→ laid the foundation for further Company growth

• Innovation Excellence
• Organic growth
• Bolt-on acquisitions
• Focus on Asia

SGL GROUP THE CARBON COMPANY

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Fundamentals

1. Regained operational and financial strength

• More consolidation and stability in global steel market
• Lower cyclicality of graphite electrodes market than steel

1. Paradigm shift in the development and use of base materials

• More consolidation and stability in global steel market
• Longer cyclicality of graphite electrodes market than steel

1. Focus on profitable growth

• Stable core GE-business
• Rising demand for innovative carbon-based materials

SGL GROUP THE CARBON COMPANY

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• 16 -

Graphite Electrodes - Market Lower Cyclicality than Steel

• Electric Arc Furnace (EAF) will operate preferentially against Blast Oxygen Furnace (BOF) → Scrap prices adjust to ensure EAF competitiveness
• SGL manufactures high performance products that are preferentially consumed in down cycles
• SGL’s furnace linings business benefits from steel down cycle → BOFs are refined for maintenance

SGL GROUP THE CARBON COMPANY

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High Growth for Aluminium and Cathodes

• Quantum leap in aluminium growth from historical 2% to 5% per year due to weight / strength / cost advantages in a higher energy cost environment

• Accelerated cathode demand for relining and new smelters

• SGL as the largest carbon & graphite producer will

• grow with its key partners in the aluminium industry

• leverage its global production infrastructure to satisfy the growing demand in graphitized cathodes

• benefit from swing capability between cathodes and graphite electrodes

• 17 -

SGL GROUP

THE CARBON COMPANY

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Global Market Shares in graphitized Cathodes 2006

• Cathodes are durable investment goods
• Industry highly concentrated
• Double digit growth for graphitized cathodes due to higher efficiency and yield advantages
• Increasing substitution of amorphous cathodes

Source: own estimates, market shares based on volume

• 18 -

SGL GROUP

THE CARBON COMPANY

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Paradigm Shift toward lightweight, high-strength, fuel- and energy-efficient Materials

• 19 -

SGL GROUP THE CARBON COMPANY

Trend

• Global warming
• Environmental pollution
• Tightness in raw material and energy sources

Consequences

• Worsening due to rapid industrialization in emerging countries
• supply scarcity and rising prices
• potential political instabilities

Solutions

• Material substitution
• „Carbon – where other materials fail“
• for „Green Technologies“
• Energy generation
• Fuel- and energy efficiency
• Environmental protection
• Accelerated innovation in aircraft, auto, and industrial applications

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Surge in raw material prices

| | 2003 | 2006 | Δ 03-06 (%) | | --- | --- | --- | --- | | Natural Gas ($/MWh)¹⁾ | 18 | 25 | ~39 | | Oil ($/barrel)²⁾ | 31 | 66 | ~113 | | Iron Ore ($/mt)³⁾ | 36 | 65 | ~83 | | Steel Rebar ($/mt)⁴⁾ | 270 | 530 | ~95 | | Primary Aluminium ($/mt)⁵⁾ | 1,400 | 2,600 | ~85 |

Sources

1. New York mercantile exchange (Nymex)
2. West Texas Intermediate (WTI), US government statistics
3. Metal Bulletin (MB)
4. Metal Bulletin (MB) and MEPS (independent steel research)
5. LME, King Report (KR)

• 20 -

SGL GROUP

THE CARBON COMPANY

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Potential Benefits for SGL Examples (1/3)

Application	Global market and growth p.a.	SGL product
• Wind energy	• 2005: 60,000 MW installed capacity
• Growth: ~16% through 2010*	• Carbon Fiber Prepregs for windmill blades
• Solar power	• 2005: 1,460 MW installed capacity
• Growth: ~25% through 2010**	• Graphite Components for solar-grade silicon
• Nuclear power	• 2005: Demonstration reactor
• Growth: 50 – 70 modular reactors (PBMR) by 2030 ***	• Graphite and Carbon Fiber Composites for PBMR

Source: * BTM Consulting ** Q-Cells AG *** PBMR (Pty) Ltd.

• 21 -

SGL GROUP

THE CARBON COMPANY

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Potential Benefits for SGL Examples (2/3)

Application	Market size and growth p.a.	SGL product
• Lithium-Ion-batteries	• 2006: Over 2bn cells
• Growth: ~20%*	• Specific graphite recipe
• LEDs	• 2005: $5bn
• Growth: ~13% through 2010**	• Graphite parts for LED production
• Fuel cell	• 2006: Prototypes
• Growth: $6.5bn in 2012*** (mainly stationary)	• Gas-Diffusion Layers

Source: * Institute of Information Technology, Ltd. ** iSuppli *** Sagentia

• 22 -

SGL GROUP

THE CARBON COMPANY

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Potential Benefits for SGL Examples (3/3)

Application	Market size and growth p.a.	SGL product
• Climate control	• In 2006: $51bn (Heat ventilation and air conditioning)
• Growth: ~5% through 2010**	• Expanded Graphite for Phase-Change-Materials
• Automotive	• In 2006: 1,500t carbon composites
• Growth: ~20% through 2010*	• Carbon Fiber Composite Materials and Components
• Aerospace	• In 2006: €600m aircraft structures
• Growth: ~20% through 2010*	• Carbon Fiber Composite Components

Source: * Contrium Consulting ** Freedonia Group

• 23 -

SGL GROUP

THE CARBON COMPANY

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From Restructuring to profitable Growth

• 24 -

SGL GROUP

THE CARBON COMPANY

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New Structure

| Segmentation

(Business Areas)	Performance Products (PP)	Advanced Materials (AM)
Reporting Units
(Business Units)	Performance Products
(PP)	Graphite Materials & Systems
(GMS)	Carbon Fibers & Composites
(CFC)
Operating Units
(Business Lines)	Graphite & Carbon Electrodes (GCE)
Cathodes & Furnace Linings (CFL)	Graphite Specialties (GS)
Process Technology (PT)
Expanded Graphite (EG)	Carbon Fibers (CF)
Composite Materials (CM)
Composite Components (CC)
Brake Discs (BD)
Characteristics	Serving metal industries
High ROCE/Cash flow
Leading competitive position
Stable growth	Serving manufacturing industries
High earnings potential
Targeting innovative applications
High growth
Core
Competencies	High temperature technology, materials-, engineering-, applications-know how

• 25 -

SGL GROUP

THE CARBON COMPANY

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Financial Reporting Structure at Group Level 2006 pro forma* Sales and EBIT

• 26 -

SGL GROUP

THE CARBON COMPANY

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Performance Products (PP) Profile

Key figures 2006*

• Sales (€m) 714
• (% total) 60
• ROS (%) 24
• Capex (€m) 34
• Depreciation (€m) 28
• Headcount 2392

Business Lines

• Graphite & Carbon Electrodes
• Cathodes & Furnace Linings

*) pro forma, unaudited

Key industries served

• Steel

• Iron

• Aluminum

• Non-ferrous metals

• 800 mm graphite electrode for electric arc furnaces

• Cathodes for aluminium smelters

SGL GROUP

THE CARBON COMPANY

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Performance Products (PP) Outlook

2007

• Graphite & Carbon Electrodes (GCE)
• Ongoing stable demand
• Cathodes & Furnace Linings (CFL)
• Cathode growth due to strong aluminium cycle
• High capacity utilization
• Groundbreaking for Malaysian hub on March 29, 2007
• Further increase in profit margins

Mid-term Targets (2007-2011)

• Volume Growth: 2-3% p.a.
• ROS: >20% (formerly 15-20%)

Strategic Priorities

• Pursue relentless cost reduction

• Generate high cash flow

• Secure quality leadership

• Optimize global production infrastructure

• Gain market leadership in cathodes and furnace linings

• 28 -

SGL GROUP THE CARBON COMPANY

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New Graphite Electrodes Production Hub in Malaysia

• First ...

• Graphite Electrodes plant in South East Asia

• GE-greenfield facility in 25 years of a major GE producer

• Lowest cost plant worldwide

• State of the art technology

• Optimal logistics

• Favourable energy and labour costs

• Integration into global production network of SGL

• Modular construction of 30 km capacity

• Expansion to 60 km possible

• Basis for fully integrated production hub in Asia

SGL GROUP THE CARBON COMPANY

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• 30 -

Advanced Materials (AM) Concept

• Develop new products and solutions for profitable growth → Paradigm shift of technologies and materials
• Exploit synergies between GMS and CFC businesses → Technologies → Processes → Products and applications
• Optimize global production and sales network → Balanced presence in triade → Global marketing and key accounts
• Optimize portfolio → Bolt on acquisitions and joint ventures → Focus on innovation, technology, and growth

SGL GROUP THE CARBON COMPANY

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Advanced Materials – Graphite Materials & Systems (GMS) Profile

Key figures 2006*

• Sales (€m) 340 (% total) 29
• ROS (%) 11
• Capex (€m) 17
• Depreciation (€m) 14
• Headcount 1970

Business Lines

• Graphite Specialties
• Process Technology
• Expanded Graphite

*) pro forma, unaudited

Key industries served

• Chemical

• Energy

• Semiconductor

• High-temperature processes

• Automotive

• Mechanical engineering

• Specialty Graphites for semiconductors

• Graphite parts for LED production

• SiC-coated Wafer-Carriers for solar-cells

SGL GROUP

THE CARBON COMPANY

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• 32 -

Advanced Materials - Graphite Materials & Systems (GMS) Outlook

2007

• Graphite Specialties (GS)
• Increase capacity for ISO/extruded for market growth
• Process Technology (PT)
• Growth in Asia and Russia
• Expanded Graphite (EG)
• Optimization of production infrastructure in EU, NA, Asia

Mid-term Targets (2007-2011)

• Sales Growth: 6-8% p.a.
• ROS: 10-15%

Strategic Priorities

• Increase production presence and market share in Asia and Eastern Europe
• Continue driving growth by innovation and substitution
• Continued cost savings and margin improvement

SGL GROUP THE CARBON COMPANY

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Advanced Materials - Graphite Materials & Systems (GMS)

New Product Pipeline based on Sales 2006

• ~1/3 of sales based on new products introduced over the last 4 years
• Examples
• Graphite for Li-Ion batteries
• Crucibles and molds for solar production and LEDs
• Molds for ceramic-armoring applications
• Heaters for the semicon industry
• Expanded graphite for thermal (electronics, climate) management
• Micro grade for printer heads
• Graphite for particle filter for diesel engines

• 33 -

SGL GROUP THE CARBON COMPANY

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Advanced Materials – Carbon Fibers & Composites (CFC) Profile

Key figures 2006*

• Sales (€m) 130
• (% total) 11
• ROS (%) -4
• Capex (€m) 13
• Depreciation (€m) 9
• Headcount 835

Business Lines

• Carbon Fibers
• Composite Materials
• Composite Components
• Brake Discs

*) pro forma, unaudited

Key industries served

• Automotive

• Aerospace & Defense

• Energy

• Mechanical Engineering

• Sporting Goods

• Medical Technology

• Carbon Fibers for high-temperature applications

• Carbon Fibers for reinforcement of cement

• Carbon-Ceramic Brake Discs

C

SGL GROUP

THE CARBON COMPANY

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• 35 -

Advanced Materials - Carbon Fibers & Composites (CFC) Outlook

2007

• Carbon Fibers (CF)
• Strong sales growth and margin improvement
• Backward integration into PAN-precursor
• Composite Materials (CM)
• Strong growth in prepreg for windmills
• Joint venture with Kumpers for preforms
• Composite Components (CC)
• Increased demand from aerospace & defense
• Brake Discs (BD)
• Expansion of customer/product portfolio

Mid-term Targets (2007-2011)

• Sales Growth: >15% p.a.
• ROS: >10%

Strategic Priorities

• Expand Carbon Fibers capacities based on own PAN-precursor
• Develop product/markets based on own 50k-Carbon Fiber
• Support organic growth in CM, CC and BD by targeted partnerships and acquisitions

SGL GROUP THE CARBON COMPANY

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Carbon Fiber Market Demand Growth (in kmt)

• Highly concentrated global market: 3 Japanese, 3 US, 1 Taiwanese, 1 European
• SGL only EU Company with backward integration incl. long term cooperation with MRC/Japan
• Global production currently in line with demand
• Demand growth barely matched by scheduled capacity expansion

Source: own estimates

• 36 -

SGL GROUP

THE CARBON COMPANY

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Advanced Materials - Carbon Fibers & Composites (CFC) Strategy

• 37 -

SGL GROUP THE CARBON COMPANY

Materials → Core Business

| PAN Precursor | CF | Prepreg Preform | | --- | --- | --- |

Core Competencies

• Materials
• Technology
• Processes

Parts/Components → JV-partnering

| Hitco: Defense &

Aerospace
Components:
Industrial, Energy,
Automotive
Brake Discs:
Automotive

• Development of final use/applications
• Development of finished parts/manufacturing techniques
• Marketing
• Substitution

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Group Outlook 2007

Operational

• Sales growth 7-10%
• EBIT expected to exceed previous record level (€m 192)
• Cost savings of more than 20 €m
• EBT and net profit to rise by more than 40% vs. 2006 (EBT: 76 €m, NI: 41 €m)

Capex

• Low investment 2002-2005 due to debt reduction priority
• Return to normal capex for growth of approx. 100 €m in 2007 ff
• Financing through operational cash flow
• Gearing level to remain around 0.5

SGL GROUP THE CARBON COMPANY

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Group Outlook Q1 2007

Group

• Sales increase of approx. 10%
• EBIT increase well above sales growth due to a very good start into 2007 (2006/Q1: 33 €m)

PP GMS CFC

All BUs contributing to sales and earnings improvement vs. Q1/2006

SGL GROUP THE CARBON COMPANY

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Group Outlook 2007 - 2011

Mid-term Targets

Sales growth: 40-50% top-line growth over 2006 ROS: 12-16% ROCE: 17-22% WACC*: ~ 10% *pretax

Strategic Priorities

• Focus on profitable growth
• Enhance financial structure and improve gearing level
• Attain and live our new VISION through our new CLAIM

SGL GROUP THE CARBON COMPANY

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• 41 -

New Vision We are the Leading Carbon Company

New Claim Broad Base. Best Solutions.

Materials Engineering Applications Global Presence

Promise to market

SGL GROUP THE CARBON COMPANY

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• 42 -

From SGL CARBON GROUP

To SGL GROUP THE CARBON COMPANY

SGL GROUP THE CARBON COMPANY

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SGL Group

The Carbon Company

• SGL is entering a phase of sustainable profitable growth
• Benefiting from substitution and innovations in existing activities, growth and profitability will be accelerated by new carbon fiber applications
• SGL has regained substantial financial strength
• Growth will be financed through internal cash flow generation
• Whilst focusing on profitable growth, SGL is strongly committed to continuing a prudent financial course

SGL GROUP THE CARBON COMPANY

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Important Notice

Forward-looking statements:

This presentation contains statements on future developments that are based on currently available information and that involve risks and uncertainties that could lead to actual results deviating from these forward-looking statements. The statements on future developments are not intended as guarantees; rather, such developments and results are dependent on a number of factors, they contain various risks and uncertainties and are based on assumptions that may prove to be incorrect. These risks and uncertainties include, for example, unforeseeable changes in political, economic and business conditions, particularly in the area of electric steel production, the competitive situation, interest rate and currency developments, technological developments and other risks and unanticipated circumstances. We see other risks in price developments, unexpected developments relating to acquired and consolidated companies, and ongoing cost optimization programs. SGL Carbon does not intend to update these forward-looking statements.

SGL GROUP THE CARBON COMPANY