Group sales grow after nine months by 23 percent to 786 million euros
Almost half of the increase in sales is attributable to strong organic growth in the market segments mobility, digitization, chemicals and industrial applications
Group EBIT before special items increases by around 80 percent to 59 million euros; of this, around 15 million euros are due to IFRS 15 effects
Highly positive effects characterize sales and earnings in the first nine months, mainly due to the first-time application of IFRS 15 and the full consolidation of the former joint ventures with the BMW Group and with Benteler
Convertible bond for 159 million euros successfully placed; Maturity profile extended to 2023
Sales forecast raised; 1 billion euros in sales expected for the first time as the “new SGL Carbon”
Expected group result in the mid double-digit million euro range and thus at the upper end of the planned range
Dr. Jürgen Köhler, CEO of SGL Carbon: “Continued strong organic growth”
SGL Carbon confirmed its growth course in the third quarter of 2018. Over the first nine months of 2018, sales and earnings increased significantly compared to the previous year. Almost half of the sales increase of around 23 percent was due to strong organic growth in the market segments mobility, digitization, chemicals and industrial applications. The remaining sales growth was due to high positive effects, especially in connection with the first-time application of IFRS 15 and the full consolidation of the former joint ventures with the BMW Group and Benteler. Including IFRS 15 effects of 15 million euros, EBIT before special items rose by around 80 percent to 59 million euros. Because of the increased operating result, a significantly improved financial result and fair value adjustments from the first quarter of 2018, the consolidated result grew very significantly to 48 million euros. The maturity profile has also been extended to 2023 following the successful placement of a convertible bond with a volume of 159 million euros in the third quarter.
Due to the good business development, SGL Carbon is raising its forecast for the increase in sales for the full year 2018 to around 15 percent, which corresponds to a sales target of around 1 billion euros for the 2018 financial year. In addition, the group result is expected to be in the mid double-digit million euro range and thus now at the upper end of the announced range.
“Due to the positive development, we have again increased our sales forecast,” said Dr. Jürgen Köhler, CEO of SGL Carbon. “For the 2018 financial year, as the ‘new SGL Carbon’ we expect the sales mark of 1 billion euros for the first time. With our focus on the future topics of mobility, energy and digitization, we will continue our sustainable growth. We want to increase our sales to 1.3 billion euros by 2022. ”
In the first nine months of 2018, SGL Carbon achieved a sales increase of 22.5 percent (adjusted for currency effects by 25 percent) to EUR 786.3 (previous year: 642.1) million. Almost half of this was driven by strong organic growth in the market segments of mobility, digitization, chemistry and industrial applications. EBIT before special items grew by 79.4 percent to 59.2 (previous year: 33.0) million euros. Above all, the better operational development of GMS, including an IFRS 15 effect of around 14.7 million euros, contributed to the increase. The return on capital employed (ROCE) based on EBIT before special items rose from 4.8 percent to 6.1 percent. The special items of a total of 20, 5 million euros mainly include the adjustment to the fair value of the previously proportionately consolidated joint ventures with the BMW Group at the time of acquisition amounting to 28.4 million euros. After special items, earnings from operations (EBIT) were 79.7 (previous year: 28.0) million euros. Thanks to the repayment of the corporate bond in October 2017 and the convertible bond 2012/2018 in January 2018, the financial result improved significantly from minus 38.6 million to minus 21.3 million euros. The result from continuing operations before taxes rose to EUR 58.4 (previous year: minus 10.6) million. The issue of the new 2018/2023 convertible bond had no significant impact on the financial result due to its proximity to the reporting date. The group result was 47.7 (previous year: 5.3) million euros.
Composites – Fibers & Materials (CFM): Increase in sales and earnings mainly due to structural effects
In the first nine months of 2018, sales in the CFM division increased by 28 percent (currency-adjusted by 30 percent) to EUR 323.9 (previous year: 253.9) million. Structural effects resulting from the full consolidation of the Benteler-SGL joint venture, which was previously accounted for using the equity method, and the previously proportionately consolidated joint venture SGL Automotive Carbon Fibers (SGL ACF), which led to the sale of the stake in the formerly fully consolidated joint venture SGL, were primarily responsible for this Kümpers clearly overcompensated. In operational terms, sales were primarily driven by the aerospace and automotive market segments. In the textile fibers segment, sales were at the previous year’s level, while they fell in wind energy. EBIT before special items grew by 22 percent from 17.2 million to 20.9 million euros. The automotive market segment recorded the greatest increase in earnings, benefiting above all from the full consolidation of SGL Composites (formerly SGL ACF). The results of the aerospace and textile fibers market segments remained constant, while they fell significantly in the areas of wind energy and industrial applications. The return on capital employed (ROCE) of the CFM division based on EBIT before special items was 4.6 (previous year: 5.2) percent.
Graphite Materials & Systems (GMS): Improved results in almost all market segments
In the first nine months of 2018, GMS revenues increased significantly by 15 percent (currency-adjusted by 17 percent) from 381.5 million to 436.8 million euros. The main reason for this was the double-digit growth rates in the battery & other energy, LED, semiconductor, automotive & transport and chemicals market segments. Business in the Industrial Applications segment was slightly above the previous year. SGL Carbon limited sales in the solar market segment below the level of the previous year because the company preferred to supply customers from the semiconductor and LED segments with isostatic graphite specialties. The first-time application of IFRS 15 increased sales by around 24 million euros. Adjusted for this and without currency effects, GMS sales grew by around 11 percent.
EBIT before special items rose by a disproportionately high 59 percent to 59.5 (previous year: 37.5) million euros, mainly due to improved results in almost all market segments. It contains an effect from the first-time application of IFRS 15 in the amount of 14.7 million euros. Adjusted for this effect, EBIT before special items rose by 19 percent. At GMS, the return on capital employed (ROCE) based on EBIT before special items rose from 11.8 percent in the previous year to 16.0 percent.
Corporate: EBIT before special items roughly at the previous year’s level
At minus 21.2 (previous year: minus 21.7) million euros, EBIT before special items in the Corporate division remained roughly at the previous year’s level. It contains a positive effect of 3.9 million euros from the sale of a property, which more than offset the implementation costs for the Operations Management System (OMS) and the elimination of costs passed on to the Performance Products division, which has since been sold. Central Innovation’s expenditures amounted to EUR 6.1 million, at the level of the previous year.
Free cash flow is characterized by high investments; Equity ratio increased
The cash flow from operating activities of the continuing activities improved significantly in the first three quarters of 2018 by 34.8 million euros to 7.6 million euros, mainly due to the positive development in the second quarter of 2018. This reflects the improvement in the operating result. The cash flow from investing activities decreased from minus 10.2 million to minus 47.5 million euros. This includes, among other things, cash outflows of EUR 23.1 million from the acquisition of SGL Composites Gesellschaft in Wackersdorf (formerly SGL ACF Germany). As a result of the purchase price payment for the acquisition of SGL ACF and the resulting increased outflow of funds from investing activities, the free cash flow from continuing operations deteriorated to minus 39.9 (previous year: minus 37.4) million euros.
The balance sheet total rose to 1,620.0 (December 31, 2017: 1,541.7) million euros. At the same time, the equity ratio grew by 4 percentage points to 33.6 percent. The reason is the disproportionate increase in equity by 19.2 percent to 544.6 (December 31, 2017: 457.0) million euros. This increase is primarily due to the consolidated result, the effects of the transition to IFRS 15 and IFRS 9 from the opening balance sheet as of January 1, 2018, the IFRS equity component of the convertible bond issued and the adjustment of the interest for pension provisions to the higher interest rate environment and to new mortality tables in Germany back. Primarily due to the full consolidation of SGL Composites (USA), net financial debt rose to EUR 220.9 (December 31, 2017: 139.0) million.
SGL Carbon raises sales forecast
SGL Carbon is again increasing its forecast, which has been adjusted upwards for the first half of 2018, and now expects a sales increase of around 15 percent for the 2018 financial year (previously: slightly more than 10 percent). This means that the “new SGL Carbon” should reach the sales mark of 1 billion euros for the first time. This corresponds to a currency- and structure-adjusted percentage growth in the high single-digit range. In addition, there is likely to be a low double-digit million euro amount due to the first-time application of IFRS 15.
Group EBIT before special items should continue to develop at a slightly disproportionate rate to the now slightly increased sales growth. The reasons for this are the positive effects from the significantly increasing volume demand, the successful initiatives for price increases in the GMS division, the additional earnings contribution from the full consolidation of the former joint venture SGL ACF and cost savings. This is offset by a slightly lower than expected contribution to earnings from the CFM division, higher personnel and raw material costs and less favorable currency relations. In addition, the earnings effect from the first-time application of IFRS 15 should be in the high single-digit to low double-digit (previously: mid to high single-digit) million euro range.
The preliminary purchase price allocation (PPA) resulting from the full consolidation of the former joint ventures will increase depreciation by around 10 million euros per year until 2021. These are shown as special items in the CFM reporting segment.
SGL Carbon is now specifying its forecast for the group result from continuing operations at the upper end of the announced range. A result in the mid double-digit million euro range is now expected (previously: low to mid double-digit million euro range). The improvement compared to the previous year’s loss of 16 million euros is primarily due to the better operating result, the lower interest expenses as a result of the early repayment of the corporate bond on October 30, 2017 and the repayment of a convertible bond due on January 25, 2018.
Due to the full consolidation of the former joint venture SGL ACF, net financial debt is expected to be significantly higher at the end of 2018 than at the end of 2017. The goals for the gearing ratio (net financial debt to equity) of around 0.5 and a leverage ratio based on EBITDA of below 2.5, however, remain unchanged and should be adhered to.
CFM forecast: sales expected to be a quarter above previous year due to acquisitions
The sales forecast in the CFM division remains unchanged. This also applies to the individual market segments. As before, an increase in sales of around 25 percent compared to the previous year is expected in the division, primarily due to acquisitions. Adjusted for currency and structure, this corresponds to medium to high single-digit growth.
Sales to the automotive industry are likely to more than double due to the full consolidation of the former joint ventures with Benteler and the BMW Group and the good development in demand. In the aviation market segment, sales should increase slightly, while in the industrial applications and textile fibers market segments they should be around the previous year’s level. In contrast, sales to the wind industry are expected to fall by more than half due to the deconsolidation of the former joint venture with Kümpers and weaker customer demand.
The higher earnings contribution from the full consolidation of the former joint venture SGL ACF and the growing volume demand are offset by negative currency effects, higher development costs and weaker than expected earnings in the wind energy, textile fibers and industrial applications market segments. SGL Carbon therefore now expects EBIT before special items for the division to be roughly on a par with the previous year. The first-time application of IFRS 15 has no material impact on CFM in terms of revenue or earnings.
GMS forecast: EBIT continues to develop disproportionately to the now higher sales growth
For the GMS division, SGL Carbon expects slightly higher sales growth than forecast for the first half of the year. Sales should continue to increase only slightly, but this now corresponds to growth of around 10 percent after adjusting for currency effects (previously: medium to high single-digit growth). In addition, the first-time application of IFRS 15 is expected to increase sales in this business area by a low double-digit million euro amount.
Significant sales growth is expected for the LED, automotive & transport and semiconductor market segments. Slight sales growth is anticipated for the industrial applications and chemicals market segments, while sales for the solar business are limited in favor of customers in the LED and semiconductor segment. The company also expects a further increase in sales for the lithium-ion battery business.
Due to the overall good development in the first nine months of 2018, SGL Carbon now expects a stronger operational improvement in the GMS division, as EBIT should continue to develop at a significantly higher rate than the now higher sales growth. The positive effect from the first-time application of IFRS 15 is also likely to be higher than previously expected. The company is now anticipating an amount in the high single-digit to low double-digit million euros by which the EBIT in this segment will be increased. Overall, it is expected that the GMS reporting segment will again exceed the Group’s target return on investment of at least 9-10% ROCE (EBIT in relation to capital employed) and even improve slightly compared to the previous year.