SGL CARBON SE — Call Transcript 2016

Nov 10, 2016

Investor & Analyst Conference Call

Wiesbaden November 10, 2016

1. Review – Jürgen Köhler

2. Financials 9M/2016

3. Next steps

Review. Significant progress in strategic realignment and transformation of SGL Group

• Graphite electrode (GE) business sold to Showa Denko for an enterprise value of €350 million, cash proceeds of more than €200 million anticipated at closing, which is expected in the first half year 2017
• Profitable cathodes, furnace linings, and carbon electrode (CFL/CE) business to be sold in 2017
• SGL2015 successfully completed
• Project CORE (COrporate REstructuring) launched aiming to save approximately €25 million by end of 2018 – by adjusting administrative and corporate structure to the new smaller SGL Group post the disposal of the entire business unit Performance Products (PP)
• Board of Management to be streamlined to two members also to be seen in the context of SGL Group's transformation
• 9M/2016: Group sales down 6%, nevertheless Group EBIT improves to €13 million

• Free cash flow of total Group in Q3/2016 almost breakeven therefore no significant change in net debt since June 30, 2016

• Review

• Financials 9M/2016 – Michael Majerus

• Next steps

Composites - Fibers & Materials. Highest result since inception

in € million	9M/2016	9M/2015
Sales revenue	234.5	252.2
EBITDA*	32.5	28.5
ROCE (in %) EBITDA	9.4	8.6
EBIT*	16.8	12.9
EBIT*-Margin (in %)	7.2	5.1

• Sales revenue decreased mainly due to raw material driven sales decline in textile acrylic fibers, where pricing is based on acrylonitrile/crude oil price development
• Significant increase in recurring EBIT
• Completion of ramp up at SGL ACF (joint ventures with BMW Group)
• Higher volumes and thus better capacity utilization in our own carbon fiber facilities
• Higher profit contribution from HITCO materials business (exceptionally strong Q1/2016 due to invoicing of two major orders)
• Improved result from At-Equity investments (now reported in CFM EBIT)
• SGL Excellence savings of €2.0 million
• Partially offset by higher expenses in composite materials relating to the buildup of the Lightweight and Application Center and ramp up costs for increased business

Graphite Materials & Systems. Mixed picture

in € million	9M/2016	9M/2015
Sales revenue	321.4	340.1
EBITDA*	35.3	43.8
ROCE (in %) EBITDA	12.0	13.1
EBIT*	18.8	27.2
EBIT-Margin* (in %)	5.8	8.0

• Sales revenue down 5% (currency adjusted -6%)
• Higher sales from solar, semiconductor, and LED industries
• Offset by weaker North American business which was negatively impacted by reduced demand from energy related industries due to the low crude oil price
• Demand for graphite (anode) materials for lithium ion battery industry continued at expected levels
• Recurring EBIT declined 31%
• Positive one-time effects from last year (gain from land sale and insurance compensation)
• Lower earnings contributions from energy related industries in North America
• SGL Excellence savings €7.3 million

T&I and Corporate. Significantly lower expenses than prior year period

in € million	9M/2016	9M/2015
Sales revenue	6.2	6.5
EBITDA*	-18.8	-26.5
EBIT*	-22.8	-31.5

• Recurring EBIT improved by 28% due to
• General cost savings
• Lower provisions resulting from changed variable management remuneration components

Group. EBIT improvement driven by CFM and T&I and Corporate – Net result impacted by GE sale agreement

in € million	9M/2016	9M/2015
Sales revenue	562.1	598.8
EBITDA before non-recurring charges	49.0	45.8
ROCE (in %) EBITDA	7.8	5.6
EBIT before non-recurring charges	12.8	8.6
Non-recurring charges	-0.6	-2.0
EBIT	12.2	6.6
Net financing result	-38.7	-39.7
Results from continuing operations before income taxes	-26.5	-33.1
Income tax expense and non controlling interests	-1.8	-3.4
Discontinued operations	-94.7	-67.5
Consolidated net result attributable to the shareholders of the parent company	-124.1	-105.6

• SGL Excellence cost savings (continuing operations) of €9.3 million and (discontinued operations) of €17 million in 9M/2015. Total savings €228 million since inception of the SGL2015 program. Target of €240 included €15 million losses of disposed HITCO and Rotec therefore SGL2015 successfully completed
• Discontinued operations affected by €43 million impairment (relating to business continuation until closing and transaction costs) resulting from the GE sale agreement with Showa Denko as well as €14 million one-time deferred tax impact resulting from the carve out

Free cash flow. Q3/2016 free cash flow almost break even

in € million (continuing activities)	9M/2016	9M/2015
Cash flow from operating activities	-50.9	-95.7
Capital expenditures in property, plant and equipment and intangible assets	-22.0	-32.0
- thereof SGL Group excluding SGL ACF	-21.2	-23.3
- thereof SGL ACF	-0.8	-8.7
Cash flow from other investing activities*	-1.5	9.0
Free cash flow	-74.4	-118.7

Free cash flow from discontinued operations	-16.0	2.3

• Cash flow from operating activities improved strongly by more than €40 million as a result of a higher result from continuing operations before taxes, the reduced working capital buildup in the reporting period, and the nonrecurrence of negative cash effects from the termination of USD hedges in the previous year
• Free cash flow from discontinued operations included approx. €22 million cash-out for restructuring, particularly relating to the closure of the GE plant in Frankfurt-Griesheim, approx. €7 million for strategic projects (carve out, etc.) as well payments of approx. €20 million in connection with the disposal of HITCO's aerostructures activities

Page 9 *Dividends received, payments for capital contributions in At-Equity accounted investments and other financial assets, proceeds from sale of intangible assets and property, plant and equipment

Balance sheet. Sufficient liquidity and sources of liquidity despite deteriorated ratios

in € million	30.09.2016	31.12.2015
Equity ratio (in %)	6.0	15.6
Total liquidity (incl. discontinued activities)	159.6	250.8
Net financial debt	623.1	534.2
Gearing (net debt/equity)	6.12	1.85

• Equity ratio declined due to the net loss of €124 million as well as the further adjustment of pension liabilities in Germany and the US based on lower long-term interest rates (impact on equity: minus €51 million after taxes)
• Higher net financial debt reflects mainly the reduced liquidity, resulting primarily from the buildup of working capital (decrease in trade payables), as well as to one-time cash outflows in connection with the closure of the graphite electrode plant in Frankfurt-Griesheim and payments relating to the sale of HITCO's aerostructures business – however, net debt remained relatively stable compared to June 30, 2016
• €200 million syndicated loan available and undrawn
• GE sale expected to close in H1/2017 with anticipated cash proceeds of at least €200 million Sale of profitable CFL/CE business expected also for 2017
• Currently evaluating the merits and viability of a potential near term rights issue utilizing the authorized capital framework

• Page 10 No maturities of any of our financial debt instruments until January 2018 (convertible bond 2012/2018)

• Review

• Financials 9M/2016

• Next steps – Jürgen Köhler

We expect to also achieve a good transaction for the CFL/CE business.

• Sales process will be continued early next year, preparations have started
• As we had also prepared for a disposition of the entire former business unit PP, we are not starting from the beginning
• Existing data and documentation need to be tailored to CFL/CE and updated
• During the PP disposal process we came into contact with several interested parties for the CFL/CE business
• We expect to sign a contract for the sale of our CFL/CE business in the course of 2017
• CFL/CE business is both cash and earnings profitable on a sustainable basis
• e.g. FY2015 sales €159 million and EBITDA €34 million

Given the outcome of the GE sale, the relatively low book value and the high profitability of the CFL/CE business, we believe that we will be able to achieve more than the book value of the former business unit PP through the aggregated transactions

Delivering on strategy. Achieving our targets

Capital employed

*EBITDA divided by capital employed

1)	Right size
	Disposal Rotorblades
	Disposal HITCO
	Sale of GE (signing)
	Sale of CFL/CE

2) Improve performance SGL2015

BU streamlining

SGL Excellence Project CORE Deleveraging

Status

DONE DONE DONE 2017

DONE DONE ONGOING LAUNCHED 2017

3) Generate shareholder return with profitable growth CFM: CFM 2020+ GMS: Growth strategy 2020 LAUNCHED LAUNCHED

ROCE. Remains key management principle for managing the business

In 2014, we, the new Board of Management, introduced ROCE as new key management principle replacing ROS

We wanted to be held accountable for our stated targets and goals

As a result we implemented the ROCE target in all senior management layers, aligning their incentive system with ours

We started reporting ROCE on Group and BU levels on a quarterly basis, so that our progress can be tracked

While we are not yet where we want to be, we have made substantial progress toward our targets:

9M/2016:	9M/2015:
ROCE	ROCE
Group:	Group:
7.8%	5.6%
EBITDA	EBITDA

Financial targets confirmed. We will continue to drive the transformation and the business forward

After the PP divestment, project CORE and deleveraging, we intend to be structurally positive in net profit and cash flow terms

Sale of business unit PP

Project CORE (COrporate REstructuring)

Deleveraging (reduce interest costs)

Positive free cash flow*

Positive net result

ROCE ≥ 15%***

Equity ratio > 30%

Gearing ~ 0.5

Net debt**/EBITDA < 2.5

With above measures plus profitable growth, we believe to be able to achieve our remaining targets in the medium to long term

* Excluding disposal proceeds

** Excluding Pensions

*** ROCE defined as EBITDA/Capital employed

Target for GMS and CFM. Profitable sales growth of 50%

Augmented by potential selective and accretive bolt on acquisitions to complement our portfolio in terms of region, technology, etc.

The course is set for deleveraging and profitable growth

• Proceeds from sale of GE and in a later step disposal proceeds from the contemplated sale of CFL/CE and potential measures for strengthening the capital structure will provide sufficient means for substantial balance sheet deleveraging and allow us to focus on and to develop our growth businesses
• With our focus on CFM and GMS, our portfolio is better balanced between markets and industries, thus reducing the volatility in our business
• GMS and CFM materials and solutions enable several of the fastest growing megatrends like energy storage, digitization, and mobility
• Based on strong positions, GMS and CFM target to further improve their position in the value chain with particular emphasis on innovation, high value-add products, services and engineered solutions
• To achieve the mid to long term targets, SGL Group fulfills all requirements: strong market positions, leading technologies, and committed employees
• Approx. €1.1 billion of sales at or above 15% ROCEEBITDA targeted for the mid to long term. Organic growth can be financed by own operating cash flow

Thank you for your attention!

Appendix

Performance Products. Reclassified to discontinued operations as of June 30, 2016

in € million	9M/2016	9M/2015
Sales revenue	310.3	406.3
EBITDA before non-recurring charges*	2.0	54.0
EBIT before non-recurring charges*	-20.4	23.9
EBIT-Margin before non-recurring charges* (in %)	-6.6	5.9
EBIT	-30.6	18.3

• Agreement to sell graphite electrode (GE) business to Showa Denko signed on October 20, 2016. Remaining profitable CFL/CE business to be sold in 2017
• Lower sales revenue (-24%) mainly due to renewed price decline in GE since Q4/2015
• on the encouraging side, volumes in GE stabilized at low levels and even showed a slight increase compared to the prior year period
• EBIT declined to minus €20.4 million from €23.9 million in the prior year period mainly due to
• renewed price pressure on graphite electrodes since Q4/2015
• cost savings from both raw material price developments as well as from SGL Excellence and other projects (€17.0 million) were unable to compensate for the GE price effect
• Nevertheless, EBITDA on break even level

Important note:

This presentation contains statements relating to certain projections and business trends that are forward-looking, including statements with respect to SGL Group's outlook and business development, including developments in SGL Group's Composites - Fibers & Materials and Graphite Materials & Systems businesses, expected customer demand, expected industry trends and expected trends in the business environment, statements with respect to the sale of the graphite electrodes (GE) business and the expected sale of the cathodes, furnace linings, and carbon electrodes (CFL/CE) businesses, statements related to SGL Group's cost savings programs and statements with respect to the intention to conduct a share capital increase. You can generally identify these statements by the use of words like "may", "will", "could", "should", "project", "believe", "anticipate", "expect", "plan", "estimate", "forecast", "potential", "intend", "continue" and variations of these words or comparable words. These statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about SGL Group's businesses and future financial results, and readers should not place undue reliance on them. Forward-looking statements do not guarantee future performance and involve risks and uncertainties. These risks and uncertainties include, without limitation, changes in political, economic, legal and business conditions, particularly relating to SGL Group's main customer industries, competitive products and pricing, the ability to achieve sustained growth and profitability in SGL Group's Composites - Fibers & Materials and Graphite Materials & Systems businesses, the impact of any manufacturing efficiencies and capacity constraints, widespread adoption of carbon fiber products and components in key end-markets of the SGL Group, including the automotive and aviation industries, the inability to execute additional cost savings or restructuring measures, availability of raw materials and critical manufacturing equipment, trade environment, changes in interest rates, exchange rates, tax rates, and regulation, available cash and liquidity, SGL Group's ability to refinance its indebtedness, development of the SGL Group's pension obligations, share price fluctuation, the satisfaction of the closing conditions for the disposition of the graphite electrodes (GE) business, including obtaining relevant regulatory approvals, the possibility that the length of time necessary to consummate the disposition of the graphite electrodes (GE) business may be longer than anticipated, the achievement of the expected benefits of the disposition of the graphite electrodes (GE) business, the possibility that the SGL Group may suffer as a result of uncertainty surrounding the disposition of the graphite electrodes (GE) business, the anticipated effect of the disposition of the graphite electrodes (GE) business may have on SGL Group's financial condition and results of operations, the ability to sell the cathodes, furnace linings, and carbon electrodes (CFL/CE) businesses at a price satisfactory to SGL Group or at all and other risks identified in SGL Group's financial reports. These forward-looking statements are made only as of the date of this document. SGL Group does not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

© Copyright SGL CARBON SE ®Registered trademarks of SGL CARBON SE