Sgl Group Ord

A very warm welcome to our conference call about our first half 2023. On behalf of SGL, our CEO, Thorsten Daer, and our CFO, Thomas De Palt, will present our financials and will give you a little bit more insight about our business development, especially in the carbon fiber business unit. After the presentation, we will have enough time to answer your questions. And now I hand over to Dr. Depp.

Claudia, thank you very much. Claudia selected a very nice headline, solid group numbers and on three wheels to the finish. And if you look at our numbers, we were able to increase our top line by 1.9% to 560 million euro. And our EBITDA is stable for the first half year at €88 million. And that shows that three of our four business units ran exceptionally well. And we had slight problems with our business unit, Carbon Fiber. Our equity ratio is at a solid 36.1%. Our net financial debt at €170 million and leverage ratio at one. On the business unit side, and we gave some weeks ago a presentation on semiconductors and especially on silicon carbide, and this business is still with a very, very good demand situation in our business unit. Graphite solutions and also our small business units, PT and CS, process technology and composite solutions, are running well above our assumptions. We are not so happy with our business unit carbon fibers. There we see a temporary downturn of the wind industry, and this resulted in impairment, and Thomas will give you some more information about this. Our capex is, as we explained in our semiconductor call, is higher compared to the last years. and all of the additional capex is going into silicon carbide, into graphite expansions for the silicon carbide segment. So outlook after six months in 2023, we still confirm our sales and our earning forecasts on group level. Our sales, we forecast on previous year level and the EBITDA will be between 160 and 180 million. And with this, I would like to hand over to my colleague, our CFO, Thomas Dippel.

Thank you, Thorsten. Warm welcome from my side. This is Thomas Dippel. It's my pleasure and my honor to guide you through the numbers and figures section of this presentation. And as Torsten already said, our H1 2023 overall was really in line with our guidance and our expectation. We clearly said 2023 is going to be a stabilization year and a year of investment, where we ramp up our capacity after two years, where we really scrutinized everything and squeezed our existing production to maximize the output. Now we really invest heavily, especially with the customer down payments into The expansion of our graphite solutions business unit in H1 in the first six months of the year, we invested over 40 million euro into capacity expansion, which is far higher than the numbers we usually invest in the first half of the year. You remember that during the time of the restructuring and transformation, we invested maximum on the level of depreciation. We still do that, and the excess money that we invest comes from customer down payment. So when we look at the sales in the EBDA on a group level, as Thorsten already said, we perfectly can show that we have a stable year. We have in sales just less than 2% up compared to last year, and in EBDA, we more or less matched the figures we had last year. However, as Thorsten was saying, We have a very imbalanced contribution to that. Three out of four business units doing exceptionally well. Graphite solution plus 37 billion contribution to the growth. Process technology plus 15. Composite solutions plus 10, despite the sale and the divestiture of our Gardena business. So if you add up this, then their growth would have been even exceptionally well or better than what you see here with the 10 billion. Our problem child, what's really hurting us very much is the downturn in carbon fibers. In the first half of the year 2023, we have to compare it also with last year, where we still had the so-called BMW take-or-pay contract, which was very favorable given the margins and also the overall production level that we had and the sales. But this year, we no longer have the BMW i3 contract, and we have a really Yeah, very bad market in wind, but we come to that later on. So all in all, these three contributions of the three business units can compensate the downturn in the carbon fibers. Based on the strong improvement in the profitability in three business units, we can compensate also the losses that we make in carbon fiber. And overall, our balance sheet looks quite healthy. With the contribution of Graphite Solutions, the sales split, as you can see on page number five on the right side, Graphite Solutions stands now for more than 50% of our group sales, and Carbon Fiber is down to 23. The other ones are growing slightly. When we come to the business unit, starting with Graphite Solutions first, there we see a 15.3 percent growth to 280 million now, coming from 243 last year at the same time. And it's mainly the semiconductor business that's driving the growth. The semiconductor sales year on year is going up by 51 percent. We clearly show that we focus on semiconductor in general and maybe silicon carbide in particular. This is where we make money. This is where we have a good and decent margin. And this is also what's driving our top line. When it comes to the semiconductor industry, we are fully loaded. We are really on the edge of our capacity. This is what we're trying to expand, and we're investing into that, be it in Germany, be it in China, and be it also in the United States. The other industries that we are serving in Graphite Solutions, at least top line-wise, are either running on a stable level or even a little bit down. Solar is a business we neglected. deliberately because we are rather selling the quantities into semiconductor and chemicals due to some economic and cyclical developments, the sales are down. Our EBITDA rose even higher than the growth rate of our top line with 20.6%. We are now reaching 65.1 million coming from 54 the year before. This is now a 23.2 percent margin EVDA per sales that we show there, which is a full percentage point higher compared to last year. This is really a very remarkable development and a very proud of this development that Grafite solution is showing here. Where does it come from? We are fully utilized. We have a very high utilization rate. We sell a lot in the very, very profitable semiconductor industry and there, especially in silicon carbide industry, And we shift further some resources and capacities that we have from solar into semiconductor. Next one is process technology. And maybe in one of the next presentations, we show maybe also a comparison how they develop, not just compared to last year, but also over the timeframe. We see in the top line a 30.9% growth now reaching 64.4 million Euro in the top line, coming from less than 50 at the same time last year. Where does it come from? We were very good in acquiring projects and new order intakes in the second half last year, so we benefited that always with a time, a lack of six to nine months in the first six months of this year. We see growth in all regions where we are active, be it in Europe, be it in Asia, and also in North America. And when you look at the profitability, then we clearly can say process technology is really our role model when it comes to our slogan that we always, or our philosophy, that we say that margin is more important than growth. And in this year, or in the first six months of the year, they show it in particular how this can be implemented. Their high utilization rate in their production, they continue with a very strict cost management And they really just focus on very profitable orders. And the outcome is, as you can see here, 11.9 million euro EBITDA in the first six months of the year with a sales of 64. This is an 18.5% margin without any one-off effects, no positive ones, no negative ones. And they really could increase the margin by over 10% if you compare it to the first six months last year. Carbon fiber, as we already indicated at first in this introduction, and we will come to that, how the wind market, which is really affecting the top line. It's not that we have quality problems. It's not that we have any disturbances in our production. No, it's really the top line and the market that's given us a hard time. And we see a really tough development in our top line, down with almost 30% coming from 176 million euro last year in the first six months of 2022 to now reaching 125.1 billion euro in H1 2023. Yes, there is a certain price effect in there with the expiry of the BMW i3 supply contract at 30th of June last year. This is true. We know that and we anticipated that. However, that now also the quantity is down so much and this has really given us a hard time. And as a consequence, also our EBITDA pre really went down by almost 80%, coming from 28.2 million euro at half year last year. We are now down to 6.1. And if you also look at the contribution that we get from our equity consolidated joint ventures, like the BACCB, where we make this carbon, carry on to break this, you have to deduct 11.0 million from this 6.1. And then we clearly have to state that carbon fiber, as an operative business, is making losses of 5 million euro EBITDA in the first six months of the year. So how do we react on that? On the one hand side, we have partial production shutdowns that really idle some of the capacity that we see. Yes, this is fixed costs, but on the other hand, we also protect our cash. Second is, and you've seen that last week, we had to impair our assets by €44.7 billion because of the bad business development and also the rising capital costs or VAC that we saw in our H1 report. Both were the triggering events that we had to adjust our valuation on our assets. Composite solution as the last operative business unit that we have is doing exceptionally well. Despite the negative effect from the sale of the Gardena business at the beginning of the year, they can fully overcompensate that and still growing with 14.4% to now reaching almost 80 million euro in the top line coming from almost 70 million last year where Gardena was still included. We have a very strong demand from automotive customers in both segments, in large and also small-scale solutions. And this business unit, Composite Solutions, was able to increase the margin coming from €9.7 million or a 13.9% margin to now €12.3 million EBDA, which is a 15.5% margin. This is really a remarkable development that despite the strong growth that we see, we even can improve our profitability even further. And we are very proud of that development. That really helps. And both the smaller business units, process technology, and composite solutions can really compensate the downturn that we see in carbon fibers. Corporate, our corporate developments, there we see, when it comes to the top line, there we see a slight decrease in our sales, which is, however, neglectable. I mean, 10 billion at half-year. There are still the effects from the asset held for sale business units like Gardena and Pune, which we saw beginning of the year, and then we isolated them from the operatives business units and put them into corporate. There you see some effect. The other ones are just some charges to other parties and joint ventures that we have there that are in the top line. When it comes to the bottom line, we see that the EBDA improves slightly by 0.6 million euro, or 0.7 to be precise, which also shows that we continue with a very strict cost management and keep the costs in order also on a corporate level that we maintain the fixed cost as good as we can. Last but not least, from my side, a look at our major KPI beside the development of the business units. Yes, for the first time since three years, we show at least at half year a negative net result of minus 10 million Euro coming from very strong 48.8 million Euro last year. The main trigger behind that is with 44.7 million Euro, the development or the impairment that we see on the assets in the carbon fiber business unit. And last year, we also had in the first six months of the one-off effect from the sale of our Griesheim site, This contributed positively in the first six months last year to that. We are very confident that throughout the year, at least with our operative and normal development, we will also show a positive net result for the full year 2023 figures, but for the half year, it's minus 10. Our equity ratio with the impairment suffered, of course, with the net result, which is negative slightly. We now have an equity ratio of 36.1 coming from 38.5% at year-end, and our net financial debt more or less remains flat despite the heavy investment and despite the negative development in carbon fiber. Our ROSI remains at 11.0%, which is also still a very good level. If you deduct, we also published that throughout Q2, that we are now completely refinanced as SGL until 2026 or 2027 with all financial instruments that we put in place. And if you include the corporate bond, which we bought back last week on the 28th of July, we bought back the outstanding remains of the 250 million corporate bond. If you include the shorter balance sheet to that, then our equity ratio would be above 40%. So this is nothing to worry. It's still a very healthy development. And with that, I hand back to Thorsten Derr, our CEO, who will explain a little bit more the market of the wind, how we see it, and how we move on with that.

Yes, I would like to explain you a little bit why we were surprised of the bad market in wind energy, why wind energy is so important for our carbon fiber business. And I would like to depict the history a little bit. And on the left-hand side, you see the reason why SGL is in carbon fiber, because SGL developed together with BMW a novel concept for a car frame. And you can see here on this picture on the left-hand side, two guys carrying a very light and stable car frame. And this is a car frame of the BMW i3. And this is the reason why BMW and also Volkswagen invested in our company, because 10 years ago, everyone thought this would be the future of car making. And unfortunately, the i3 and the second model, the BMW i20, were the only models built, and no other car manufacturer copied this concept. And unfortunately, BMW decided to discontinue our volume model, the BMW i3, by mid of last year. Then the last BMW i3 was proposed, and our carbon fiber relation to BMW ended for this car model. And Thomas and me came into the company three years ago. And as we asked the carbon fiber guys, there was nothing else than carbon fiber for BMW. And Thomas and me shifted all R&D resources into the development of new carbon fiber types, which you could use, for example, for wind energy. And I have to say, we were last year so proud, and it was like magic for us, that we could shift all the volumes which were released from the BMW i3 into the wind energy because we were able, and our R&D team did a really great job to switch the formulation of this carbon fiber to a fiber which can be used in wind energy. And wind energy... was running pretty well, we thought. Now we know there was a lot of inventory built up, but we were able to sell all volumes which were released by the discontinued i3 into the wind energy. I will later on disclose the market studies we used for our assumptions, and they are still writing a pretty positive future. So we shifted the business from car industry into wind energy. Why not into aerospace? Because SGL is producing a special kind of carbon fiber. It's called heavy-toe or large-toe carbon fiber. And for other segments like aerospace or car industry, you use low-toe carbon fibers. And the manufacturers of carbon fibers are divided two-thirds to one-third We are in the one third segment. We only have three to four competitors, which produces heavy tow fiber. But the heavy tow fiber goes into industrial applications. This can either be car industry or wind energy, but not so easily into aerospace industry. So we moved from last year to this year into wind energy. What happens, to our surprise, wind energy this year is at a 10 years low. Also, our direct customers, they had different assumptions and plans with higher volumes and we really were surprised what happens after Siemens Energy came out in May, July with the reduction of the financial goals with their quality issues and this started really a staccato of bad news in the wind industry and everyone who was active in the wind energy, came up with a profit warning, with a reduction of forecast and so on. And this was combined with pretty high inventories in the whole industry value chain, which were built up last year, where we thought business is running pretty well. And this resulted that we, in an idling of our assets, I would say today as we talk, 30 to 35% of our capacity is idled due to lack of demand in wind energy. We sell around 60 to 70% of our total volume into the segment wind energy, and this demonstrates how hard the hit of a standstill in the wind industry hit us in this segment. it was not so easy for us to escape into other segments, but our R&D department, as we manage to make a fiber for the wind energy, they are working on alternative markets, which I will introduce later on in my presentation. This is something which is some years down the road, but we will step by step shift from the lower margin wind industry into higher margin other businesses. And I show this to you later on. On the next slide, you see why we were surprised. And look at the headline. This we call the wind market paradox. You know about the Green Deal. You know about the Biden administration and their goal in wind energy. There are voluntary targets of a lot of companies to go to net zero in the next 15 to 20 years. And a lot of states declared a net zero target. And this is not feasible without wind energy. And on this slide, look at this. There are, from my point of view, the four best market studies which are there. And here's depicted kilotons carbon fiber used in wind energy by year. And you can see all curves, all four market studies, which we have at hand, have a strong upward potential. And I start with the two lower lines, which is a very reputated market research institute as IHS. And you can see here two lines, the line of 2023. And I think in May, they have released an update of the 2023 study. And the 2023 study is quite a lot of higher than in last year. So IHS was positive. If you look at the two other lines, which is Wood McKinsey and the consulting company McKinsey, two different companies, they predict until end of the decade a tripling of the markets. And the story behind this is very easy. Wind energy is mostly offshore growth. Offshore wind turbines will grow with a CAGR of 18%. And this is described by all market research institutes here in this panel. And offshore wind energy has to use carbon fiber. Has to use carbon fiber. And every wind turbine sold to offshore wind energy uses carbon fiber, and this is the reason for the steep increase which you see here in carbon fiber demand. And some of them were already talking about the shortage of carbon fiber, especially in the US. And we were very happy because we have our biggest carbon fiber production asset in Moses Lake, US. Nobody has seen the downturn in 2023, and we were really surprised as Siemens started, and now almost all players are out with very bad news. But what we think the market will recover sooner or later, right now we see no sign of recovery until year-end. So what are the alternative markets? And here you see which other fibers we are developing. We will go into the hydrogen pressure vessel market. This is for fuel cell cars. This is for hydrogen generation. And this is more or less a plastic tank, which is wrapped on the outside with carbon fibers. And you need large amounts of carbon fiber. And our heavy-tow carbon fiber fits excellent to this wrapping of hydrogen pressure vessels. There are 15 manufacturers worldwide. We sampled all of them and are in a trial period right now. And two of suppliers are already buying from us. And we presented this hydrogen pressure vessel fiber at the JEC show, which is the biggest carbon fiber show in Paris. And the interest is really high, but it takes time until you have a permit to use the fiber and to sell tanks produced with our fibers. So it's for us a medium volume with a mid-term realization timeframe. We are active in construction, and there we have a nice Japanese business. On the second picture are mats depicted. These are carbon fiber mats. And you use them to refurbish, for example, manholes. And you put the carbon fiber met in, put a little bit of concrete on, and you can use the same manhole for another 20 to 30 years. This is a very cheap method to repair bridges or manholes or whatever for steel concrete constructions. We are active in aerospace, and a while ago we presented to the capital markets our cooperation with Solvay, which is disclosing their half-year figures also today. We have a development joint venture, and we produce something which is like an adhesive tape, which you use for the outer body panels of aeroplanes. And of course, there are two major players in this market, which is Airbus and Boeing. And we are pretty far to use our heavy tow fiber for the construction of airplanes. But here, a lot of testing is required. And I cannot promise a fast entering into the business, expect something by the end of the decade, because probation periods are so long in aerospace industry. They first do sample testing, then they use it in unmanned planes and later on in the big volume commercial aeroplanes. And I think 27, 28 business with Boeing and Airbus might start. But we are on a very, very good way. And last segment is carbon fiber rebars for concrete. And the big block above is a steel rebar in concrete, which is used in buildings and bridges right now. And you know, especially in Germany, about the problems which we have with our bridges. You won't have the problems if you would have used plastic rebars with carbon fibers instead of steel, because you will have zero corrosion and you can shrink the concrete use by 50% and have the same stability. This will come, but you need standards from the standard setting bodies in the countries, and we don't expect fast business entry there. Also something between 27 and 2030. So you see we are working on alternative markets, and we still believe in the recovery of the wind energy market. And this shows why we were pretty surprised of the stent still which we are experiencing right now of the wind industry. Okay. I would like to summarize. This is what Thomas and me presented today. Our top line figures are stable, growth of almost 2%, EBITDA on prior year level plus 0.1%, and we confirmed our guidance. Our business units GS, PT, and CS are running exceptionally well above our best assumptions, which we had last year. But we suffered from a 30% top-line decline caused by a weakness of the wind energy of 30%. How are our markets developing? Semicon is still running very good and Thomas and me had meetings with very, very large customers in the silicon carbide industry. They are still going crazy and confirmed the forecast we had. This is a very, very good market and we try to de-bottleneck our capacities wherever we can. We have solid call-offs from automotive industry. And as I explained, currently we suffer from a temporary downturn in the wind energy. This summarizes our half-year figures and with this I would like to hand back to Claudia for the Q&A session.

Yes, thank you. Now we have time for your questions. So the moderator will give you some more details how to ask questions and to handle the

And we have the first question from Thomas Johan from Bernberg. Please go ahead.

Hello. So first of all, I have directly three questions. Maybe we can go one by one. So my first question is, given the difficult environment when it comes to the chemical industry, how is the book-to-bill ratio in process technology and in composite solutions?

Yeah, the book to build ratio is slightly above one. And in composite solutions, we are not connected in any way to chemical industry. Composite solution is more for roughly 70% focus on the automotive industry. And they're on the ultra high end, so Ferrari, Lamborghini, and so on. And we see a very, very healthy demand currently.

OK, perfect. Thanks for this. Then another question with respect to process technology. We saw an increase in the margin, and you gained a margin of about 20% in process technology. How sustainable is this margin? Can you keep this?

Yeah. This margin, we are very happy about what we have achieved, but we don't think that this is sustainable because process technologies, they are connected to the chemical industry. And there are some segments which are running well, others which are running not well. So we see a little bit of a cool down in chemical industry and others which are coming in are reduced compared to the prior periods. But there are other markets. You also need our synthesis equipment for the production, for example, of ultra-pure hydrochloric acid in the semiconductor industry or in the fertilizer industry. And we had very good order entries from these elements. So how sustainable this is, how long this strong order entry stays, We cannot say, but for the time being, we are pretty satisfied. Thomas?

You were mentioning the margin, and Thorsten described the market, and I think he described it perfectly. A margin of 18%, which you see in the first six months of the year. To be honest, we don't think that this is super sustainable and that we can maintain that level or even increase it. We had some very good orders and very good projects in the first half of the year. We always said a double-digit margin is necessary in this specialty business, and this is how the business unit really developed perfectly into. But going beyond 18%, we don't think that this is sustainable.

Perfect. Thanks. That helps a lot. And the last question from my side is with respect to the customer prepayments you have already received. How many customer prepayments have you received so far in 2023? And can we still assume a capex of 80 to 90 million euro for 2023?

Yes. I mean, 40 times two is 80. And normally we are always a little bit backloaded when it comes to capex. So we are running full steam ahead with our capex and we do whatever we can. to ramp up capacity. This is not greenfield, this is all brownfield. So we invest in our sites, be it in Germany, be it in North America, and also in China, on the Grandpa solution. And there, especially when it comes to capacity expansion in semiconductor equipment. So we are really running full steam ahead there, as promised. And your second question was on the customer down payment. Yes, it continues. It was 10 million in Q1. six million in Q2, and you can expect further customer down payments throughout the rest of the year.

Perfect, thanks. Then I will step into Q. Thank you.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by one on your telephone. The next question is from the line of Sven Sauer from Kepler-Chevreux. Please go ahead.

Yes, hello. Thank you for taking my questions. The first one is on your capacity and your planned expansion. I was wondering if you could maybe provide some more color on that. You mentioned in the presentation that it's not only in the graphite solution segment where your capacity is at max, but also in another segment. And then the previous question, you mentioned that the investments are not greenfield investments. So, I mean, I was wondering as an add-on to that, what's the limitation to expand capacity further? Is it money or is there any other bottleneck to further expand capacity in the graphite solution segment? Thank you.

Yeah, Sven, thank you for your questions. I think the first question was on where and how we invest. We can clearly say process technology, they hardly need any capex, it's more project business, so that's not so relevant for a composite solution. We invest, of course, whenever we win a new project and we need some new toolings, partially our customers finance it and then we also have a kind of a down payment or customer down payment also there. But we invest whatever those businesses also need, also for carbon fiber. We invest despite the difficult situation in case we need something. And you know that we switch our energy supply in our Labradio site from gas to biomass. This, of course, we continue with that. We don't stop that because we think it's also a sustainable move into a green carbon fiber. This is something that we still continue to do. But everything in excess, be it from our own cash flow, what we can create from our operative cash flow, we spend on the level of depreciation for the expansion there. And as long as we have enough room and capacities in existing sites that we can further equip them with machines and furnaces and ovens, it's definitely faster and generating more and more cash and also higher sales. And we can serve our customer much quicker than developing a greenfield site where we need, you know, you need a construction company until everything's set up. This is easily one to one and a half years until this has been installed. So we try to serve the customer demand as quickly as possible, and this is by max out and utilizing the space that we still have there. And I think we can continue with that for still quite a while. If you give me unlimited resources in engineering capacities and, of course, money, we certainly have good ideas how to invest, but we think with the current demand that we see and also that we maintain our cash flow as a, you know, good corporate company, then we think we spend the money that we have in a very good way. And of course, it always can be more. But you also have to make sure that you spend the money diligently. And this is what we can guarantee by moving ahead as we do.

Great, thank you for the answer. I have one follow-up question in the carbon fiber segment. Would you share the exposure you have to the offshore and onshore wind segment in carbon fiber?

Yes, this is very easy to answer. You can build a wind turbine with both glass fiber where we are not in all carbon fiber. And the longer a wind blade is, the more carbon fiber you need. And above 90 meter blade length, you can only do it with carbon fiber. And the onshore installations are smaller than the offshore installations. And I shared with you the growth rates. Offshore is growing with 18%. I think onshore is forecasted with 2%. And the share of carbon fiber used in onshore installations is very low because the blend lengths are lower. So you could focus everything, what we do, or 80% to 90% on the offshore market.

So far, there are no further questions. And I hand back to Claudia Kellert for closing comments.

Yeah, thanks for your participation today. You will find the presentation, the replay, as well as the half-year report on our web page, And if you have additional questions, please contact Jürgen Reck or myself. And I only can wish have a relaxing summertime and goodbye. Hope to see you and speak to you latest, latest in November. Thank you. Bye-bye.