Investor & Analyst Conference Call
Wiesbaden May 7, 2019
Dr. Jürgen Köhler (CEO) and Dr. Michael Majerus (CFO)
Results Q1/2019. Dr. Michael Majerus Outlook 2019 1 2
Composites – Fibers & Materials.
Q1/2019 still impacted by unfavorable development in textile fiber market segment
- Sales revenue in Q1/2019 stable (currency adjusted minus 2%)
- Strong growth in market segment Wind Energy (albeit from a very low base) offset by market segment Industrial Applications
- Remaining market segments Aerospace, Automotive and Textile Fibers approximately on prior year level
- As expected, recurring EBIT reached break even and thus on level of Q4/2018
- Mainly due to temporary margin contraction in Textile Fibers from inventory of relatively high cost ACN and lower selling prices pressure on margins eased slightly in March
- Lower earnings contribution also from Wind Energy despite higher sales due to temporary unfavorable product mix
- Remaining market segments Automotive, Aerospace, and Industrial Applications approximately on prior year level
Graphite Materials & Systems.
Q1/2019 improvement driven by strong demand in most market segments
- Sales revenue in Q1/2019 up 17% (currency adjusted by 14%)
- Substantially more than 50% growth in market segments Semiconductors and LED, more than 40% in Automotive & Transport
- Strong demand increase also in Industrial Applications; slight sales growth in Chemicals
- Battery & other Energy on prior year level as expected
- Sales to market segment Solar again limited to below prior year level as supply to LED and Semiconductor industries again prioritized
- EBIT in Q1/2019 increased substantially more than proportionately to sales by 54% reaching a new record level
- Due to improvements in most market segments
- Chemicals and Solar remained on prior year level
- Despite strong increase in sales Automotive & Transport below prior year level due to customary ramp-up costs for new projects
Corporate.
Improved result in Q1/2019 after adjusting for one-time gain from a land sale in Q1/2018
- Higher sales revenue resulting primarily from stronger demand in the market segment Energy relating to parts for fuel cell customers supplied by our central research and development department (Central Innovation)
- EBIT declined by €2 million from minus €5.6 million in Q1/2018 to minus €7.6 million in Q1/2019 only due to a €3.9 million one-time gain from a land sale in the prior year period - excluding this effect, EBIT would have improved due to
- Lower expenses following the implementation of the Operations Management System (OMS) in the prior year
- Central Innovation expenses of €1.7 million below prior year of €2.1 million due to higher earnings contribution from business with parts for fuel cells
Group.
Adjusted for one-time gain from a land sale in the prior year period, improvement in GMS and Corporate more than compensated for lower CFM contribution
- Recurring EBIT declined by 9% to €18.7 million due to gain from a land sale in prior year period (impact of €3.9 million in Q1/2018). Excluding this effect in the prior year period, EBIT would have been €2.1 million higher in Q1/2019 due to higher earnings contribution from GMS and lower expenses in Corporate more than compensating for lower CFM contribution
- Net financing result improved due to positive currency effects on intercompany loans which more than compensated for higher interest expenses from new convertible bond issued in September 2018 as well as from the first time adoption of IFRS 16
- Lower net result due mainly to non-recurrence of positive non-recurring items of approximately €28 million from the full consolidation of former JV with BMW (SGL ACF) in the prior year period
1before non-recurring items of minus €2.4 million in Q1/2019 and €26.7 million in Q1/2018
Cash flow.
Improvement in free cash flow due to lower increase in working capital
- Cash flow from operating activities improved significantly to €4.1 million from minus €15.3 million due to lower increase in working capital
- Free cash flow also improved significantly to close to break even level due to
- Improvement in operating cash flow and
- Lower cash outflow from investing activities despite significantly higher capex as prior year period included payment for German part of SGL ACF (Wackersdorf site)
- Free cash flow from discontinued operations included
- Cash outflow relating to final settlement payments to the buyer of HITCO Aerostructures in the reporting period
- Cash inflow from the final outstanding payments for the sale of former PP activities in the prior year
Balance sheet.
Financial ratios as of March 31, 2019 remain within targets
- Equity ratio decreased slightly despite higher equity and positive currency effects
- Mainly due to adverse effect from adoption of lower interest rates on pension liabilities and
- Increased total assets resulting from initial adoption of IFRS 16
- Higher net financial debt primarily reflects final settlement payments to the buyer of HITCO Aerostructures
Results Q1/2019 Outlook 2019. Dr. Jürgen Köhler 1 2
In a nutshell:
Guidance is unchanged compared to what was presented at the March 27, 2019 analyst conference
Outlook 2019. Reporting Segment CFM
Higher project invoicing and improved product mix anticipated for next quarters
Outlook 2019. Reporting Segments GMS and Corporate
|
GMS |
|
Corporate |
| Sales |
|
EBIT1 |
EBIT1 |
| Guidance unchanged |
|
Guidance unchanged |
|
Stable on prior level which
was boosted by positive IFRS
15 effects |
|
Stable on prior level which
was boosted by positive IFRS
15 effects |
|
|
|
Despite strong Q1/2019 as
we anticipate somewhat
lower volumes and higher
costs in next quarters |
|
|
|
Target EBIT margin of 12%
should again be exceeded, |
|
proving robust business model even in an overall soft economic environment
EBIT1
Guidance unchanged
Close to prior year level which was boosted by positive one-time gain of approx. €4m from land sale
Outlook 2019. Group
| Sales |
EBIT1 |
Net profit |
Capex |
Net Debt |
Guidance
unchanged |
Guidance
unchanged |
Guidance
unchanged |
Guidance
unchanged |
Guidance
unchanged |
Mid single digit %
increase compared to
2018 which was
boosted by positive
IFRS 15 effects |
Stable on prior level
which was boosted |
Break-even expected
after €41m in 2018 |
Approx. €100 million |
Mid double-digit m€
increase |
|
by positive IFRS 15
effects |
Due to non |
|
|
|
|
recurrence of positive
non-recurring items |
|
Free Cash Flow
Guidance
unchanged |
|
|
of €28m from full
consolidation of SGL
ACF in 2018 |
|
|
|
|
And higher interest
expenses in 2019
mainly from corporate
bond issued in April
2019 |
|
Substantial
improvement to
negative low double
digit m€ |
Thank you for your attention !
Appendix: Latest results & outlook in detail
Composites – Fibers & Materials.
| in € million |
Q1/2019 |
Q1/2018 |
| Sales revenue |
115.0 |
115.0 |
| EBITDA1 |
9.0 |
17.9 |
| EBIT1 |
0.4 |
9.3 |
EBIT-Margin1
(in %) |
0.3 |
8.1 |
ROCE
(in %)
EBIT |
1.8 |
5.0 |
- Sales revenue in Q1/2019 stable (currency adjusted minus 2%)
- Strong growth in market segment Wind Energy (albeit from a very low base) offset by market segment Industrial Applications
- Remaining market segments Aerospace, Automotive and Textile Fibers approximately on prior year level
- As expected, recurring EBIT reached break even and thus on level of Q4/2018
- Mainly due to temporary margin contraction in Textile Fibers from inventory of relatively high cost ACN and lower selling prices pressure on margins have eased slightly in March
- Lower earnings contribution also from Wind Energy despite higher sales due to temporary unfavorable product mix
- Remaining market segments Automotive, Aerospace, and Industrial Applications approximately on prior year level
Graphite Materials & Systems.
| in € million |
Q1/2019 |
Q1/2018 |
| Sales revenue |
164.2 |
140.1 |
| EBITDA |
32.2 |
22.5 |
| EBIT |
25.9 |
16.8 |
| EBIT-Margin (in %) |
15.8 |
12.0 |
ROCE
(in %)
EBIT |
17.4 |
13.4 |
- Sales revenue in Q1/2019 up 17% (currency adjusted by 14%)
- Substantially more than 50% growth in market segments Semiconductors and LED, more than 40% in Automotive & Transport
- Strong demand increase also in Industrial Applications; slight sales growth in Chemicals
- Battery & other Energy on prior year level as expected
- Sales to market segment Solar again limited to below prior year level as supply to LED and Semiconductor industries again prioritized
- EBIT in Q1/2019 increased substantially more than proportionately to sales by 54% reaching a new record level
- Due to improvements in most market segments
- Chemicals and Solar remained on prior year level
- Despite strong increase in sales, Automotive & Transport below prior year level due to customary ramp-up costs for new projects
Corporate.
| in € million |
Q1/2019 |
Q1/2018 |
| Sales revenue |
9.6 |
8.3 |
| EBITDA |
-4.9 |
-4.3 |
| EBIT |
-7.6 |
-5.6 |
- Higher sales revenue resulting primarily from stronger demand in the market segment Energy relating to parts for fuel cell customers supplied by our central research and development department (Central Innovation)
- EBIT declined by €2 million from minus €5.6 million in Q1/2018 to minus €7.6 million in Q1/2019 only due to a €3.9 million one-time gain from a land sale in the prior year period - excluding this effect, EBIT would have improved due to
- Lower expenses following the implementation of the Operations Management System (OMS) in the prior year
- Central Innovation expenses of €1.7 million below prior year of €2.1 million due to higher earnings contribution from business with parts for fuel cells
Group.
| in € million |
Q1/2019 |
Q1/2018 |
| Sales revenue |
288.8 |
263.4 |
| EBITDA before non-recurring items |
36.3 |
36.1 |
| EBIT before non-recurring items |
18.7 |
20.5 |
ROCE
(in %)
EBIT |
5.0 |
5.2 |
| Non-recurring items |
-2.4 |
26.7 |
| EBIT |
16.3 |
47.2 |
| Net financing result |
-6.2 |
-7.0 |
| Results from continuing operations before income taxes |
10.1 |
40.2 |
| Income tax expense and non controlling interests |
-1.2 |
-3.8 |
| Result from discontinued operations, net of income taxes |
0.0 |
-4.2 |
| Consolidated net result attributable to shareholders of parent company |
8.9 |
32.2 |
- Recurring EBIT declined by 9% to €18.7 million due to gain from a land sale in prior year period (impact of €3.9 million in Q1/2018). Excluding this effect in the prior year period, EBIT would have been €2.1 million higher in Q1/2019 due to higher earnings contribution from GMS and lower expenses in Corporate more than compensating for lower CFM contribution
- Net financing result improved due to positive currency effects on intercompany loans which more than compensated for higher interest expenses from new convertible bond issued in September 2018 as well as from the first time adoption of IFRS 16
- Lower net result due mainly to non-recurrence of positive non-recurring items of approximately €28 million from the full consolidation of former JV with BMW (SGL ACF) in the prior year period
Free cash flow.
| in € million (continuing operations) |
Q1/2019 |
Q1/2018 |
| Cash flow from operating activities |
4.1 |
-15.3 |
•
Capital expenditures in property, plant, equipment and intangible assets |
-15.4 |
-8.2 |
Cash flow from other investing activities1
• |
7.6 |
-16.8 |
| Cash flow from investing activities |
-7.8 |
-25.0 |
| Free cash flow |
-3.7 |
-40.3 |
| Free cash flow from discontinued operations |
-10.5 |
62.6 |
- Cash flow from operating activities improved significantly to €4.1 million from minus €15.3 million due to lower increase in working capital
- Free cash flow also improved significantly to close to break even level due to
- Improvement in operating cash flow and
- Lower cash outflow from investing activities despite significantly higher capex as prior year period included payment for German part of SGL ACF (Wackersdorf site)
- Free cash flow from discontinued operations included
- Cash outflow relating to final settlement payments to the buyer of HITCO Aerostructures in the reporting period
- Cash inflow from the final outstanding payments for the sale of former PP activities in the prior year
1 dividends received, payments for capital contributions in investments accounted for At-Equity and other financial assets, payments for acquiring remaining stakes in our joint ventures, proceeds from sale of intangible assets and property, plant and equipment
Balance sheet.
| in € million |
31.03.2019 |
31.12.2018 |
| Equity ratio (in %) |
33.0 |
33.5 |
| Total liquidity |
161.4 |
181.6 |
| Net financial debt |
263.6 |
242.2 |
| Gearing (net debt/equity) |
0.49 |
0.46 |
| Leverage ratio (net debt/EBITDA) |
2.1 |
1.9 |
- Despite slightly higher equity, equity ratio decreased slightly due to increase in total assets
- Equity increased slightly due to net result and positive currency effects, partially offset by adverse effect from adoption of lower interest rates on pension liabilities
- Increased total assets resulting from initial adoption of IFRS 16
- Higher net financial debt primarily reflects final settlement payments to the buyer of HITCO Aerostructures
Reporting segment outlook 2019.
CFM – guidance unchanged from outlook in March 2019
- Mid single digit increase in sales expected
- Mainly driven by higher volumes
- Sales in market segment Aerospace expected on prior year level and Automotive close to prior year level
- Slight increase in sales anticipated for Industrial Applications and Textile Fibers, with the latter also depending on the development of raw material costs
- Substantial growth anticipated in the market segment Wind Energy, albeit from a very low base as the prior year was impacted by the sale of SGL Kümpers and very low customer demand
• Note: in contrast to prior years, recurring EBIT in Q1/2019 expected to be the weakest in this fiscal year
- Mainly due to rapid and strong price decline of acrylonitrile (ACN, raw material for textile fibers) at the end of last year, which resulted in reduced selling prices. We already experienced temporary margin contraction in Q4/2018 based on higher priced inventory of ACN. This trend continued into Q1/2019. The inventory of higher prices ACN is worked through in Q1/2019 and we are starting to see the margin pressure easing.
- In the further course of the year we expect the lower raw material prices to have a positive impact on our earnings
- Project billing pattern distributed differently in 2019 compared to 2018 first quarter 2018 exceptionally strong due to high capacity utilization and high shipment levels related to particular projects – in 2019, we expect certain projects to be billed particularly in Q2 through to Q4
- Therefore we confirm full year 2019 guidance for recurring EBIT to remain on prior year level
Reporting segment outlook 2019.
GMS – guidance unchanged from outlook in March 2019
- Sales expected on prior year level which was boosted by initial adoption of IFRS 15
- Higher price and volume effects likely to be offset by negative currency effects
- Despite a temporarily weaker industry outlook, we expect our sales in the market segments LED and Semiconductors to increase substantially as we anticipate to increase our market share based on our technology leadership
- Double-digit increase in sales also expected in the market segment Automotive
- Market segments Chemicals, and Industrial Applications expected on prior year level
- Close to stable development in Battery & other Energy to be viewed in context of positive IFRS15 effects in prior year
- As in the previous year, sales in the market segment Solar likely to be limited to below the prior year level to prioritize the LED and Semiconductors market segment
• Note: in contrast to prior years, EBIT in Q1/ 2019 expected to be the strongest in this fiscal year
- Approx. mid single digit €m positive IFRS 15 effect one-time in Q1/2019
- High earnings level due mainly to an optimal combination of very good product mix, high utilization and low costs unlikely to be sustainable at this very high level
- Overall, shipment levels are skewed to H1/19, somewhat lower shipments planned for H2/19
- Therefore FY 2019 EBIT expected on prior year level which was boosted by initial adoption of IFRS 15
- ROSEBIT target of 12% should again be exceeded in this business unit and thus stability of GMS' business model proven in a weaker overall economic environment
Reporting segment outlook 2019.
Corporate – guidance unchanged from outlook in March 2019
- Recurring EBIT anticipated close to prior year level
- Prior year included a €4 million one-time impact from a land sale in Q1/2018
Group outlook 2019. Guidance unchanged from outlook in March 2019
- Full year Group sales expected to increase mid single-digit mainly driven by volume increases
- Despite weakening of overall economic environment
- Prior year boosted by high effects from initial adoption of IFRS 15
- Group recurring EBIT expected around prior year level which was boosted by positive IFRS 15 effects
- Adjusted for effects from initial adoption of IFRS 15, Group EBIT in 2019 is growing even faster than in 2018 and is approximately on the same level as previously expected
Group outlook 2019. Guidance unchanged from outlook in March 2019
- Net result – continued operations expected to break even (2018: €41m)
- Prior year included a high positive one-time effect of €28m from the full consolidation of SGL ACF
- In addition, we expect substantially higher interest cost in net financial results mainly from the corporate bond issue in April 2019 to refinance existing debt
- Capex 2019 to increase compared to prior year to approx. €100m resulting from the new 5-year plan to capture additional sales and earnings potential from 2022 onwards
- Mainly driven by higher capex in Automotive & Transport, LED, Semiconductors, as well as Battery & other Energy
- Note: our capex projects are modular in nature and could be stretched out or postponed if required
- Substantial improvement in negative free cash flow from continued operations expected to a low doubledigit m€ amount mainly due to working capital improvement and despite higher capex and higher interest costs – i.e. we are already free cash flow positive on normalized capex levels
- Net debt at end 2019 to increase by a mid double-digit m€ amount
- Balance sheet targets expected to continue to be met leverage ratio at or below 2.5; as previously communicated, gearing target at or below 0.5 could temporarily be exceeded due to additional capex in the years 2019-2021
Important note.
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 related to SGL Group's cost savings programs. 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 may have on SGL Group's financial condition and results of operations 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