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SGL CARBON SE Call Transcript 2015

Mar 18, 2015

389_ip_2015-03-18_399fa202-3dd3-47cf-a314-60cc9deacb06.pdf

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Investor & Analyst Conference Call

18 March 2015

Investor Relations

Agenda.

1. Review 2014

  1. Financials 2014

  2. Nextsteps

4 O tl k 20154. Outlook

Page 2 | SGL Group – Investor Relations | 18 March 2015

Review 2014. Cornerstones of strategic realignment defined

  • ) SGL2015 asset and portfolio restructuring
  • 2) Improve performance SGL2015 organizational restructuring SGL E ll i Minimum return on capital Excellence savings BU streamlining New process excellence initiatives
  • 3) Generate shareholder return shareholderreturnDefine selective growth areas

*EBITDA divided by capital employed

Page 3 | SGL Group – Investor Relations | 18 March 2015

Right size. Business and asset portfolio aligned with market and core competencies

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Improve performance. Manifold efficiency measures lead to optimized cost structures

Savings target increased from €150 million to €240 million in two steps

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Page 5 | SGL Group – Investor Relations | 18 March 2015

*not included in reported savings; **December 31, 2014

Generate shareholder return. Stringent resource allocation to targeted areas

Selective growth investments

Increasing usage of lithium ion batteries, e.g. by the automotive industry, is boosting demand for our anode materials

Lightweight automotive construction requires more carbon fiber based materials, such as those supplied by SGL ACF

Profitable growth in high performance carbon fiber based materials is safeguarded by proprietary precursor from Fisipe

Growth from existing assets

Rapid substitution of traditional with carbon fiber materials, e.g. in the wind industry, is increasing demand for carbon fibers

Structural growth in solar, LED, and semiconductor industry results in greater consumption of isostatic gra phite g p

Demand for graphite electrodes will rise as scrap steel becomes increasingly available

Demand for cathodes is increasing as new aluminum smelters are constructed

Page 6 | SGL Group – Investor Relations | 18 March 2015

Cultural transformation. Key prerequisite for successfullyp g g implementing change

  • New Board of Management with new management style
  • New KPI targets provide clear measurability of success
  • New incentive schemes implemented with new remuneration system aligns all management personnel to Board of Management
  • New cost awareness on all levels
  • Introducing process excellence initiatives

Agenda.

  1. Review 2014

  2. Financials 2014

  3. Nextsteps

4 O tl k 20154. Outlook

Page 8 | SGL Group – Investor Relations | 18 March 2015

Performance Products. Impacted by price decline in g p ra hite electrodes

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  • Sales revenue (-22 %, no currency effect) and recurring EBIT (-63%) strongly impacted by price decline in graphite electrodes
  • However, quarter-on-quarter, EBIT shows improvement in Q4 resulting from better volumes and implemented cost reduction initiatives
  • Asset restructuring completed: Closure of graphite electrode plant in Lachute (Canada) completed at the end of Q1/2014. GE production of Narni (Italy) plant phased out during H1/2014 and finally terminated in H2/2014.
  • SGL2015 savings €48.1 million, thereof €10.8 million from SGL Excellence

* Non-recurring charges of €20.4 million in 2014 and €59.5 million in 2013

Graphite Specialties. Growing anode materials, big ticket order, and moderately better order intake

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  • Mainly driven by big ticket order in H1/2014 and continued strong demand for anode materials for Li-ionbatteries. Order intake in remaining businesses showing signs of stabilization to slight volume improvements
  • Recurring EBIT nearly ( ) p gg , doubled (+88%) due to improved order situation leading to higher utilization rates, particularly in H1
  • SGL2015 savings €14.3 million, thereof €8.0 million from SGL Excellence

* Non-recurring charges of €0.1 million in 2014 and €4.6million in 2013

Carbon Fibers & Materials. Improvement despite hig p her start up losses as SGL ACF

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  • Sales revenue increased by 18 % (no currency effects)
  • Significantly increased sales contributions from our proportionally consolidated joint ventures with BMW Group (51% share)
  • CF/CM benefited from strong gy demand from the wind energy sector
  • Recurring EBIT increased by 18%
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  • Partially offset by higher ramp-up costs for carbon fiber capacity expansion in Moses Lake and Wackersdorf (joint ventures with BMW Group)
  • SGL2015 savings €6.2 million, thereof €3.9 million from SGL Excellence

* Non-recurring charges of €10.5 million in 2014 and €42.6 million in 2013

** BaFin corrections reflected in financial statements as at December 31, 2014. All comparative figures 2013 restated.

Page 11 | SGL Group – Investor Relations | 18 March 2015

Corporate & Others. Strong reduction in corporate costs p y yp artially offset by planned lower PT contribution

  • Sales revenue declined by 11 % (no currency effects), due to
  • Planned lower sales contributions from the BU Process Technology (PT). In the prior year, PT benefited from the execution of a big ticket order in China.
  • Recurring EBIT increased by 12%
  • Strong reduction in corporate costs resulting from SGL 2015
  • Partly offset by scheduled lower PT profit contributions
  • SGL2015 savings €19.2 million, thereof €2.2 million from SGL Excellence

*Non-recurring charges of €20.2 million in 2014 and €16.1 million in 2013

** BaFin corrections reflected in financial statements as at December 31, 2014. All comparative figures 2013 restated.

Group. Price decline in graphite electrodes impacts overall performance

Sales, EBITDA and EBIT declines relate mainly to lower prices in PP

Cost savings of €88 million from SGL2015 in 2014, of which €25 million attributable to SGL Excellence

Significant improvement in result from investments accounted for At-Equity mainly due to Brembo SGL

Net financing result reflects a €9.6 million gain from the imputed interest component of the 2009/2016 convertible

Net result and EPS 2014 includes loss from discontinued operations totaling €119.2 million relating to HITCO

* BaFin corrections reflected in financial statements as at December 31, 2014. All comparative figures 2013 restated.

Page 13 | SGL Group – Investor Relations | 18 March 2015

Balance sheet. Improvement reflects October 2014 capital increase

* BaFin corrections reflected in financial statements as at December 31, 2014. All comparative figures 2013 restated.

Page 14 | SGL Group – Investor Relations | 18 March 2015

Free cash flow. Negative due to capex for SGL ACF and cash out for SGL2015 measures

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***and other non recurring payments

Page 15 | SGL Group – Investor Relations | 18 March 2015

Solidly financed . Capital increase in October 2014 restores balance sheet metrics

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Agenda

  1. Key events 2014

  2. Financials 2014

  3. Nextsteps

4 O tl k 20154. Outlook

Page 17 | SGL Group – Investor Relations | 18 March 2015

Where we stand.

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We have substantially outperformed with SGL2015 in terms of execution and savings

But, as anticipated, target achievement is a way ahead pg y

However, we do have a defined roadmap for returning to profitable growth

Page 18 | SGL Group – Investor Relations | 18 March 2015

Business Process Excellence (BPX). New Groupwide p g ro gram introduced

  • Target is to streamline and standardize cross-BU processes
  • Utilization of standardized IT solutions(SAP)
  • After implementation phase BPX will become part of SGL Excellence
  • Focus on procurement, supply chain and sales organization
  • Procurement - ongoing procurement optimization project launched under SGL2015 to be integrated and continued. Initial savings already achieved in transportation, packaging, office supplies and maintenance. Target: reduce procurement costs and improve profitability
  • Supply chain – improve alignment between all stages of the supply chain, from sales to procurement to production, etc. Targ g et: improve supply chain process to further reduce net working capital
  • Sales organization – implementation of uniform CRM system, development of new Groupwide standards and best practices for optimized customer and market approach. Target: generate additional, profitable sales
  • External consultant to be appointed for "outside in" view and for project set up phase Externaloutside-in project
  • Recently implemented: more stringent investment process – see next page

Page 20 | SGL Group – Investor Relations | 18 March 2015

More stringent investment process. We have introduced more discipline in ca pex s p g endin

Agenda

  1. Key events 2014

  2. Financials 2014

  3. Nextsteps

4 O tl k 20154. Outlook

Page 22 | SGL Group – Investor Relations | 18 March 2015

SGL Group in 2015. Organization streamlined to three from five business units

Page 23 | SGL Group – Investor Relations | 18 March 2015 *CF/CM and 51% of SGL ACF form Reporting Segment Carbon Fibers & Materials (CFM)

Business unit outlook 2015. Group EBIT improvement supp y orted b y all three business units

  • Performance Products (PP): Small percentage increase in sales, substantial percentage increase in EBIT. Somewhat higher volumes may be offset by raw material induced price adjustments. Improvement mainly driven by SGL2015 and raw material cost reductions. Recent currency development supportive for EBIT
  • Graphite Materials & Systems (GMS): Stable sales and EBIT despite non-recurrence of bi ti k t d St d d f big cet order. Strong demanfrom Li-ion-b tt t t ti d t battery cus tomers to continue, mo derate demand improvement in other customer industries.
  • Carbon Fibers & Materials (CFM): Small percentage increase in sales and significant improvement in EBIT Better volumes in both CF/CM and SGL ACF may be partially EBIT. Better in be offset by crude oil based pricing of Fisipe acrylic fibers. EBIT improvement based on overall improved demand and lower start up costs at SGL ACF in H2
  • Corporate: Stable on lower (SGL2015 related) base and despite consulting costs for new efficiency improvement projects

Page 24 | SGL Group – Investor Relations | 18 March 2015

Group outlook 2015. Net profit should benefit from imp gp roved EBIT and lower restructuring expenses

  • Full year Group sales to remain stable even if lower raw material prices are partially passed on to customers
  • Group recurring EBITDA and EBIT: substantial percentage increase, with H2 expected stronger than H1 (time lag of raw material cost relief, SGL ACF ramped up in H2)
  • SGL2015: mid double digit million € savings. As most SGL2015 measures implemented, only single dgt o i i million € rest uctu g e pe ses ructuring expensesre a m in. Mid doub e d g t o double digit million € rest uctu g cas ructuring cash- out
  • Net result to improve due to better EBIT and lower restructuring expenses but remaining in negative territory
  • Capex for the first time in many years to decrease to D&A level of approx. €90 million despite continued high capex in H1 for SGL ACF
  • Free cash flow: operational improvement to be partially offset by planned restructuring cash out and in H1 continued high capex for SGL ACF, leading to increased net debt
  • ROCE to improve in line with improvement in EBIT and EBITDA

2015 negative free cashflow more than pp y ro portionatel y skewed to Q1

  • Q1 typically shows a high working capital buildup Q1
  • This development is more pronounced in 2015, as Q4/2014 benefited, for example, from certain premature prepayments of customers, which had been scheduled for Q/ 05 1 2 015
  • In addition, SGL2015 cash out particularly related to Narni effective in Q1
  • SGL ACF finalizes expansion in Moses Lake in H1/2015, associated high capex in Q1
  • Non recurring cash out for USD hedges relating to USD denominated intercompany recurring loans to US subsidiary and HITCO (resulting mainly from writedown on HITCO book value)
  • Al t th ti 2015 g ti f h fl ill b ff ti i Q1 → Almos the entire 2015 neative free cas flow will be effective in –remaining nine months should be more or less cash neutral

Page 26 | SGL Group – Investor Relations | 18 March 2015

SGL Group in 2015. Strategic realignment will continue

  • Business Process Excellence : implementation of initiatives
  • Commercial process optimization (sales approach, contractual optimization, payment terms)
  • Working capital process optimization (all aspects)
  • More stringent investment process

Asset and portfolio optimization ongoing

  • Discontinuation of SGL Lindner JV in decided in Q1
  • Further news flow to follow in next months flow

St gth i g th f d ti f t i g t fit bl g th ! →Strengthening the foundation for returning to profitable growth

Page 27 | SGL Group – Investor Relations | 18 March 2015

Thank you for your attention !

Your questions, please

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