Sgl Group Ord

A very warm welcome to our first quarter conference call. As always, our two board members, Dr. Thorsten Daer and Thomas De Pelt, will give you more details about our start in the fiscal year 2024 and our expectations for the upcoming month. After the presentation, you will have enough time to answer your questions. Now I hand over to Dr. Daer.

Thank you very much, Claudia. I would like to open this conference. Good afternoon, everyone. And Q1 was a good start in 2024 for us with a weak business in carbon fibers that we were able to compensate with strong businesses, especially in semiconductors. Our sales were slightly below previous year, And this was mainly due to divestments which we had in our site in Pune in India and Gardena in California, US in 2023. We were able to increase our profit at 42.1 million Euro. Our EBITDA pre-exceptions was 5% higher than in the previous year. We were also able to increase our EBITDA margin once again to now 15.4%. If we come to the outlook, we confirm our guidance for 2024. Sales will be on prior year level. EBITDA pre will be between 160 and 170 million euro. With this, I would like to hand over to my colleague, Thomas Dippold, this year for all of our companies.

Thank you, Torsten. I have the privilege to guide you through the performance, especially of the individual business segments and the business units, how they perform. Here, as Torsten already pointed out, maybe again, the overview how the composition of the individual business unit looks like here on a group level. Sales was down roughly 4%, and we can say 1.2% are coming from FX effects and 0.9% from the already mentioned sale of the business in Gardena and the site in Pune, India. So if you take those two effects into consideration, then the sales would have just dropped by 2% rounded on a like-for-like basis, and EVDA, however, is 5% up, which is really a remarkable achievement that we have there. And as you can see, as graphite solutions, especially thanks to the strong performance in semiconductor in general and silicon carbide in particular, now stand for more than 50%. They accumulate for 51.9% of global sales split, and carbon fiber especially, deteriorates to a little bit more than 20%, whereas the other business segments, composite solutions and process tech, more or less stay the same size. When I come to graphite solutions here on slide number six, then you see sales rather flat. They stay at 141. It was the same the year before, after three months of the year. However, when you look at the profitability, then you see an 18% increase in the profitability. We now reach 25.9% EBDA pre-margin compared to sales, and this is thanks to the very strong performance of our semiconductor, and there especially in the silicon carbide business. Our segment, semiconductor and LED, as we call it, went up by 34% year-on-year, Whereas all the other businesses, which is industrial, graphite or not material, but also automotive and chemical, were rather flat, some also weak and deteriorating. And so we have a wash when it comes to the sales. The strong performance in semiconductor got eaten up by the kind of seasonality or global economic situation that we see. So we suffer from the weak performance in graphite or not materials. industrial business, but also automotive in Q1. We received another $8 million of customer down payments for semiconductor and silicon carbide expansion for capacities there, which is exactly in line with what we assumed should be the run rate for 2024. And with that, we are very happy with the performance of Graphite Solutions despite the shortfalls in some of the Yeah, traditional segments. Process tech on slide number seven, you see the performance of process tech. Process tech went up by 3.4% in sales, now reaching 33 million flat after the first three months of the year 2024. This is 1.1 million up compared to the comparable three months, 2023. We still have our order book, which is well-filled, and normally this takes us for the next six to nine months. So for 2024, we don't see a major, major shortfall, at least not in the project business, in this business unit. It should continue as is. However, bear in mind that we also have a very strong parts and service business, which hasn't got a lead time in the project, as I just mentioned. Book-to-bill is still far above one. So this should carry us through the year 2024. We are very happy with the parts and service business, which is really a driver for our profitability. And look at the profitability that we show there. This went up by 40%, now reaching 6.9% after the first three months, 2024. This stands for a margin of more than 20%. You probably remember that we always said 18% should be the max that can be achieved in this business unit. Now we proved ourselves to be wrong. We reached 21% almost. This is a little bit, yeah, you can take it all through the year. There were a couple of one-offs, operative one-offs in the first quarter. but still a very strong performance, and we're very happy with Process Tech, how they're doing at the moment. On slide number eight, you see our continuous problem child in the group carbon fiber went down in sales, which was somehow expected by almost 10%, 9.6 to be precise, and now reaching 57.6 million in the top line. In the meantime, it's not just the wind industry which is affecting us negatively in the sales job. It's also that textile and acrylic fibers suffer. On the one hand side, regarding the prices, because there are some price variation clauses when it comes to acrylonitrile. Acrylonitrile still is on a comparably low level compared to the years before. And with price variation clauses, it also affects our top line. However, It's also the volume that's missing in this unit, and therefore we intensified our restructuring efforts in the first quarter. We reduced our headcount in our Scottish plant in Muir of Ord near Inverness by 83 employees. This has been implemented. We have some restructuring costs, which we show as pre-exceptionals, So this is an exception by 1.8 million that's in there. These are the kind of severance payment that we had to pay in order to make this cut there. But this will help us a little bit to compensate the losses with the fixed costs that are still there in order to adjust that. When we look at the profitability, this is... went down by, I mean, we cannot calculate a percentage because in the first quarter last year, we were still positive. Also, thanks to the performance of BCCB, which is an equity consolidated JV, where nobody has control. In the prior quarter, 2023, in the first quarter, this stands for 5.2 million euro, the contribution there. And in this quarter, 2024, it stands for 4.4. If you take this into consideration, then the operative performance of carbon fiber would be minus 9.6 million euro, which is not so good, as we all know. But we still stick to our guidance, which we gave for this particular business unit. You know that we have a guidance without carbon fiber and one with carbon fiber, and the difference is exactly 25 million. So this is apparently supposed to be the performance of carbon fiber. And we still stick to that, that for the full year, we can achieve that. Slide number nine shows the performance of composite solutions. We already indicated when you remember our last call when we gave our guidance that 2024 will be a rather flat year or declining year for them when it comes to top line but also bottom line. How is that? knew already that we will lose in Q1 a contract, a very favorable contract, which we like very much, with a U.S. American automotive customer. And this OEM terminated the contract that we had there. And therefore, we suffered some downturn in sales by roughly 7%. We now reach 37.1 million euro sales in this business unit. And we could compensate quite a bit of the shortfall of this contract. However, the other effects we will see in the upcoming nine months where we don't have this contract anymore. The good thing is we could somehow keep the profitability on the level as we had before. So sales drop and EBITDA drop go hand in hand with 6.8%. That means in the end that on a lower level, we could keep the EBITDA pre-margin at 14.8%, which is really a fantastic achievement by this business unit. What helps us there, lower energy costs helps us. They are not so energy intensive, but with that saving, they still could compensate on higher costs for salaries, but also raw materials that they have been confronted with. But also the focus on higher margin business, but also some price initiatives that really helped us to stay on the same margin levels, even on a lower level, which we anticipated already when we gave the guidance. Last but not least, our last segment, which we always show here, which is corporate, which stands for all the non-operative fields and areas that SGL Group has. In corporate, you see a decline in sales. Why is that? When we decided to sell Gardena and Pune, we put these entities as kind of held for sale, and we showed the sales contribution from the beginning of 2023 onwards as corporate in order to keep the businesses and the business units clean, so to speak. And their contribution in Q1 2023 can't be compensated in 2024 for that. We anyway have a downturn of roughly 3 million that's coming from that. And with that, that to a large extent explains the sales drop that we have here in this non-operative business unit. And this also goes in line to a large extent with the EBDA contribution. We had 5.9 negative in the first quarter of 2023. And in 2024, we are down at minus 1.7. Where does it come from? We have significantly lower provisions for our short-term incentives. And Q1 last year also included the operating losses from the sale of the sites that we sold. This was the operative performance, so to speak, the top line of the P&L, but also then the EBITDA-3. When we go a little bit further down our P&L, and we have a look at the net results here on slide number 11, then you see that our net result dropped from €15.2 million to €12.6 million. Why is that? There are three effects that go in one direction. One is going in the other. On the one hand side, we have some non-recurring expenses with €2.4 million. €1.8 million out of that is a restriction cost that I just mentioned that we had in Scotland in order to adjust our workforce. to the reduced quantities and capabilities that we have there because we idled a couple of lines. We have higher taxes that we paid because we make especially profits in countries where we have to pay taxes. This is 2 million euro, which is compensating there. Our net financial result is better than last year with 1.3 million. And all in all, these effects stand for roughly 3 million. This is exactly why the net result went down by 3 million. This is, I mean, if you follow us and SGL for more than three, four years, I know that this was maybe not given before Trust there and I started, but this is another positive quarter. I think it's now the 12th or 13th consecutive quarter, leaving out any impairments. and that we have positive net results on a quarterly base. And the same is also true for our free cash flow, which you see here in the middle of this slide. It is positive again with roughly 6 million. It's lower than last year where we had 10.4 million euros, but you have to bear in mind this is also highly affected by customer down payments and repayments, which we already do. So... But it's still positive despite all the heavy capex that we do. I think it's another good result and another good quarter for SGL. And we could do that by keeping our net financial debt roughly on the same level. Our leverage ratio remains at a very healthy 0.7, which I think is super good. Our equity ratio, thanks to the strong performance of the net result, went up by almost one full percentage point. We are now reaching 42%, which is also very good. And the ROSI remains with 11.4% on the level that you know from us, which is, I think, also a very good KPI that we can show here. On the next slide, number 12, we would like to give you a little insight on how we invest in this year. I think when you heard our last call, when we gave our guidance for 2023, you became aware that we would like to invest a lot of money in 2024, especially in the ramp-up of our capacity for silicon carbide. And here on this slide, you see what we did in our first quarter. We invested almost 24 million, whereas our depreciation level is 13 million. So it's almost double that we invest. With our own cash flow, so to speak, our operating cash flow, We stick to our rule that we would like to invest maximum our operating cash flow so that in the end our free cash flow remains slightly positive. This is our guiding principle, how we would like to do business. And everything that comes on top are the already used customer down payments that we received. And this is what we do here. And the first 10 million already are being invested there. So you see for graphite solutions, the big chunk of our capex is in graphite solutions, and we use that for capacity expansions in Bonn and also for our U.S. side in St. Mary's, but also in Miting where we just installed a second set line. The other businesses like ProcessTech and Carbon Fiber, same as composite solutions, use only very little capex in the first quarter. We really concentrate on graphite solutions and As you all became aware, I think we had a highlight slide last time when we were talking about our JV that we have this Brembo or BCCB JV with them, as we call it. We have to invest into a new production building in Meitingen, and the first six million have been already paid out. For that, we're making very good progress with this building and later this year, this should be up that we can also install all the infrastructure and then subsequently all the machinery to start production somewhere in beginning of 2025. And with that, I go to the next section where we come to the outlook and I hand back to Torsten that guides you through the next slide. Thank you.

Yes, and the headline is Semiconductors Drive Our Growth and Our Profitability. And this slide gives you an overview of our largest business unit, GS. And you can see here in this slide the business units by segment in which we are active. And you can see in brackets the share of this business segment of the prior year. And on the left lower side, you see battery materials, and we are a little dissatisfied with battery materials. And this is a business unit where we produce graphite powder, which is used as an anode material in EV batteries. And you know that we are under strong competition in this segment from China as well as our customers are. The total European battery industry has disappeared or is under strong pressure. And most of the batteries are imported from and produced in China. And as the Western competitors are under pressure or are disappearing or are stopping their investments, This has a negative effect on our business, just to give you a heads up here. Fortunately, we were able to compensate the losses with a growing Semicon business, which is now above 50% share of the business unit GS, and you see a deep dive on the right-hand side. If we now take a closer look, you can see that the share First of all, the semiconductor business was growing from quarter one to quarter one last year to this year from 44% to 51%. And within this semiconductor business, we saw heavy growth of the silicon carbide business, which grew quarter to quarter by 33%. So quarter one last year to quarter one this year. And as Torsten mentioned, for this silicon carbide business, we were able to get another 8 million customer down payments for additional increase of our capacity. On the next slide, I want to use this slide to explain to you again the strategy and the setup of our company. this strategy. We focus on growth markets like semiconductors and e-mobility. And we try to be innovation leaders, quality leaders, and achieve high margin in every business segment which we operate. And our setup is very simple. We are a portfolio company, and we are structured in business units. And all business units are independent companies in a company with an own profit and loss statement. This makes it very simple for us to do bolt-on acquisitions or divestitures in this setup. If we now take a closer look to this picture, you can see here our four business units, graphite solution, process tech, carbon fibers, Without BSC-CB, this is very important, and composite solutions. And it shows the development in the EBITDA pre-margin, which is the main KPI which we use in our company. You can see that GS, Graphite Solutions, developed very nicely and reached peak performance in the quarter one this year. Process technology did a very, very nice development, now above 20%, as Thomas pointed out, driven by parts and service business with a very, very good margin. And we are also very positive here for the outlook for this year and also the period to come. Very good order intake, which we see. On the right-hand side, composite solutions also developed from negative margin to a very stable positive margin around 15 percent. If you compare these three business units, which reached highest margin, highest absolute EBITDA, highest turnover, and compare this with CF carbon fibers, you see a downward trend in margin, And also pretty high losses in the quarter one this year. And this is the reason why we explained to you last time that we explore all strategic options for this business. Either we fix it ourselves or we find a better owner for this business. And this is what Thomas and me are exploring right now. And hopefully next time we can give you more detailed info about the status of this project. With this, I would like to close my remarks and would like to head back to Claudia.

Thank you. Now we will have enough time to answer your questions, and the moderator will give you some more details how to set up the technical details.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handset while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Andreas Heine, Stiefel. Please go ahead.

Thanks for asking my question. Yes, you highlighted that you haven't done any impairment. I was hearing this, I have to say, from the carbon fibers. So if you haven't done this, you expect in your strategic options that you would at least get from the outside a value as much as your book values. That's my first question. And secondly, also on the carbon fibers, well, you had a loss of 10 million in the first quarter, 25 is the guidance for the full year, and you haven't changed this. So I guess you have reasons why you expect the coming quarters to be better. The cost savings is certainly positive, but probably not enough to get there. Maybe you can share what your thoughts are. And then on the down payments, you have collected and shown this again, much you have collected 22 23 and at the beginning in 24 for the full year 24 could you give us an indication how much the net down payments will be so how much will you incrementally collect and how much is what you have to pay back yeah these were my questions hello andreas this is thomas uh you are 100 right uh um and and um as i said um

If there's no impairment, that apparently means that our business case, which, by the way, we have ordered the figures by end of March. So since end of March, we only have six weeks that pass by. Nothing has happened in the meantime. So you have seen in our annual report that we have very little headroom when it comes to carbon fiber. That means apparently our book value or the value used reflects to a large extent, the discounted cash flows that we have in this business unit, and this has been audited, and we still believe in this business case. And also, the course of the year 2024, how we perform so far in the first quarter is exactly in line with our planning. So this is also what we can show to the one or the other interested party in this business that, yes, we have a bad time right now, But this is also expected, and the better times, as Thorsten also pointed out, are ahead, and the wind market will recover, and also some other businesses will show up. This would only be our business case. We don't know what others might use the fibers for. This is exactly why we test the market and why we do that. But there's no need, at today's perspective, for an impairment, and this is the reason why we didn't do that. Second, you mentioned the weak Q1. I already indicated that we somehow anticipated that because we compare also to a rather good first quarter 2023. So this explains the deviation to a large extent because in Q1 2023, if you remember the call that we had exactly one year ago, We believed that the wind market was only delayed and will catch up late Q2 and then later in the year. So in Q1, we kind of produced all the way through and put some of the inventory on stock, which we now sold off. So the inventory level of carbon fiber went down quite a bit. This is also the reason why we had to idle a lot more lines than we currently anticipated that. But in comparison to last year, a lot more capacity has been idled. This is also the reason why we adjust the workforce. This is a one-off. But with the running costs we have right now, we are very confident that we can keep our guidance in this business unit. And your last question referring to the customer down payments, We always report what we have received in a quarter, and this was eight million. I already said that this is more or less in line with our expectation for the full year, but please accept that we don't disclose a real figure for the full year, because it's always up for a negotiation, and Torsten already said that in silicon carbide, There is a certain bumpy road at the moment. We will certainly come to that. That at least the outlook in e-mobility is a little bit diluted at the moment. And therefore, also the willingness of granting down payments is maybe something that we have to have some discussions on that. But at least with what we have seen and received in Q1, we're fine.

The next question comes from the line of Dario Dickmann, HSBC. Please go ahead.

Yes. Hello. Thanks for taking my question. I've got a question about your corporate guidance for the full year of a significant decline from the minus 17.4 million in 2023 with roughly 1.7 million in Q1. Is that something we should expect down the road? significantly in the second quarter, or is this more of a run rate we could expect going forward?

Well, normally, normally. The 5.9 that we've seen last year in the first three months of the year is certainly something exceptionally high as a loss because it also incorporates the operating losses from the sites of Gardena and Pune. Normally, we have a run rate of minus 4 to minus 5 million on a corporate level, and this should be the normal run rate for the upcoming months and upcoming quarters for 2024. This is a normal thing, and we don't expect a major deviation from that.

Okay, thank you. And maybe also on carbon fibers, in the first months of the second quarter, what can you see from a pricing perspective, especially from acrylic fiber and textile fiber? Has there been some further deterioration? Yes.

Apologies for that, but we talk about the beginning of August when we publish our H1 results, but please allow us that we give a consolidated view on the second quarter. When we talk about that, we don't want to talk about April pricing now for carbon fibers. I think that's far too detailed.

Okay, thank you.

The next question comes from the line of Thomas Junghans Berenberg. Please go ahead.

Yeah, good afternoon, gentlemen. I have a question with respect to the graphite business and here in particular with respect to the battery business. You mentioned that you are currently struggling in this business here with no material you deliver. And my question is, What is your strategic plan for this business? Are you thinking about divesting this business or shutting it down?

Hello, this is Thorsten. We are checking all possible options here. What we see, we are bound with our business to Western battery makers and they are really having a tough time and we see volume reductions for our graphite powder from quite some players, and this leads to underutilization in our assets in Poland. And of course, we reacted to that. We reduced workforce, did a cost-cutting program to mitigate the cost effects a little bit. But we have to see if this is sustainable. You can see how little the share of graphite powder was, and we are operating a lab in Germany and two plants in Poland for this marginal turnover. And this is why we are laying our cards currently and we are thinking about what to do with this business. But nothing to announce yet. But we are unsatisfied with the decline of that business.

So can we assume that this business is loss-making given the underutilization?

Yes, it's loss-making. But you see that the sales share is so low that it was pretty easy to compensate with other good running businesses.

Okay, got it. Thanks. And one question with respect to your CapEx guidance. You guided for 150 million euro in CapEx for full year 2024 and reported 24 million euro in CapEx in Q1. Do you think that you will still achieve these 150 million euro in capex and this is maybe a little bit backloaded?

It is normally backloaded. You're 100% right. If you now really reach 150 by all means, let's see. Sometimes it's not on us, but also on the suppliers that we have to involve. And they also have some lead times, which we sometimes don't like, but we also don't want to push it too hard because otherwise you just pay double the price if you just want to have it right now. We're trying to optimize it that we fulfill our requirements that we have for the customer who gave us the down payments, but we also want to spend the money diligently, and therefore we do a proper planning, also not to waste any money, But we will invest a significant amount of money there. If it's in the end, 130, 140, so be it. But if you really match the 150, let's wait and see. But it's definitely back and loaded in the second half of the year.

Thomas, what is safe to say, we stick to the 150 million capex guidance, and we have projects to spend all of this. And this goes to almost all of our sites in the world. If we don't manage to spend all the amount, it's due to late delivery of equipment manufacturers or just restrictions in our engineering capacity. But then we will spend it in the first months of the next year. Anastas, thanks for answering my questions.

We have a follow-up question from Andreas Heine. Stiefel, please go ahead.

Additional questions, please, on graphite. If I look on the chart you have on page 14, where you split down the digitization end market, then you show a decline in LED and in semi. Is that a falling market here, or is that due to capacity constraints? So could you have sold more if you had the capacities available, or is that reflecting the end market? The more traditional markets show a decline. What does your order book tell you? You have visibility of at least half a year. How do we have to think about these traditional markets in 2024? And then lastly, these CapEx spend of $150 million, probably the peak in investments this year. When are these capacities really available? So you have said already the capacity expansion Are there other parts of this expansion project which are already available during 2024, or is that all for growth in 2025 onwards?

Andreas, I'll try to answer your question. First of all, we split in the market segments LED Semi and SIG Semi. From a quality point of view, the highest quality goes into SIGSEMI. And this was where a lot of our capex was going to. We invested in cleaning of graphite and in machining capacity. That meant we could take a share of the graphite, which we sold in lower quality markets, and we cleaned them up and machined them and sold them into the high margin SIG business. Everything at the end is coming out of the same green isostatic graphite press, which we operate in Bonn, which we also de-bottlenecked for some percentages. So it's just a restriction of capacity, and we are able to sell out everything. What was your second question, Andreas?

More traditional end markets, so you say, industrial application, transport, chemicals. What's your order book like as you have a visibility of at least half a year?

Yeah, I would say it's more or less flat. You know, our customers are a glass industry, aluminum industry, chemical industry in this market and automotive industry. And they see a little uptake, but this is not good. And this is not much. This is something 2%, 3%, or 4%. And this is the same we see in our order book. So no big effects expected there.

So also no decline, it means. No. Because in former cycles, this traditional market was a lack of one or more years. where it's then also following the weaker trends, and that's not what you see this cycle.

No, and I would say industrial and also transport is pretty fast. If we see a decline in the end markets, it's pretty fast communicated to us, and we reduce also our production.

And the third was a CAPEX question, right? Yeah, the third was when the various projects you have an impact on the top line.

First of all, we are often asked how many percent is your capacity increase? And this is a very tough question to answer because We have a value chain which goes over nine value steps, and our $150 million, which we are going to invest this year, are investments in step seven, in step eight, in step five, and we de-bottleneck everywhere at various sites in the world, which means that we, at the end, can increase stepwise our capacity, especially in the high-quality SICK markets. And the investments which we are doing right now will come onto stream in the course of 2026.

Not before we will see much other than this.

No, stepwise, Andreas. Some investments are faster and are already available beginning of next year, some backloaded at the end of 2026. So the total effect we will see... at the end, but you will see a stepwise increase of our capacity in the next year.

As you are right now, capacity constraints and shift mix, there will be more capacity, whatever more is available next year, so you can grow with your asset base in 2025 again. Yes. Thanks.

Once again, to ask a question, please press star and 1.

So I can't see more question here. So thanks a lot for your participation. You will find the presentation and also our Q1 statement on the web page. And if you have additional questions, please call the IR team with Jürgen Reck and myself. Thanks a lot and have a nice afternoon. Thank you and goodbye.