Sgl Group Ord

A very warm welcome to our today's conference call from our side, from SEL side. Today, as usual, Andreas Klein, our CEO, and Thomas Dippelt, our CFO, will give you a detailed overview about the first quarter 2025 and our expectations for the upcoming months. We will also comment on the restructuring measures already implemented in the carbon fiber business unit. After the presentation, we are looking forward to answer your questions. Now I hand over to our CFO, Thomas De Poldt.

Hello, everybody. This is Thomas De Poldt. It's a pleasure for me to guide you through our key figures for the first three months of this year. And as anticipated, and as we also I told you the last time when we presented our full-year figures for the year 2024, we expected some lower demand, especially from the semiconductors industry in this year. And this is exactly what you can see in our performance over the first three months of this year. Our sales dropped by €38 million, which is minus 14%, even though some currencies were even favorable for us. So if you adjust it for currencies, it's even minus, almost minus 15%. and we now reach €234.3 million in our top line. And also our EBITDA is hit quite a bit by minus 20.4%, which is €8.6 million lower than the first three months of last year. Where does this come from? It's mainly a decline in volume and especially in high margin products, and there in particular the silicon carbide market. And you know we have a very high margin there, And when sales drop so much in this respective area, and you have such a high margin, it's very difficult to compensate that with cost savings. And this is the reason why we have to suffer this over-proportional decline in the bottom line compared to the top line. So when we look at the sales split, which you can see here on the right side, you see that the ratios almost stay the same. We have minor changes. Graphite solution, more or less, still stands for half of the sale of the group. Carbon fiber, 20%, and composite solution process tech for roughly 50% each, respectively. But the main reason it's not a price decrease that we see, it's mainly a volume decline. It's really the demand that is missing, and we're looking desperately also for new markets that we try to acquire and try to penetrate But the thing is, it takes a while until you really gain new customers, until you really make the sales. So this is the reason why Q1 was, in this case, was minus 14% down. But as I said, this is what we have expected. When we come to the individual business units, starting with a graphite solution, there you see an overproportional decline in sales and EBITDA drop. Sales went down by 17%. We lose 25% in our top line. Why is that the case? Because our semiconductor and LED business line in this business unit dropped by more than 40%. And this is because of the very low demand from our silicon carbide customers. They still have a lot of stock in their warehouses. And it takes a while until they all have digested this and all used it and order again. And this is thanks to the end market, which is the electric vehicle market. And the electric vehicle is still not on the level where we wanted it to be. It takes a while until we get there. And this is the time that we simply have to overcome. It's difficult at that time to really make sales in silicon carbide beyond the level that we're there. This is the reason why we try to find new outlets for our production capacities and facilities, and Andreas will explain a little bit how our concrete and precise measures in this business unit look like. Our EBTA is also hit over proportionally, but again, this is thanks to the high margin that we have there. We have done our homework with cost adjustments and cost savings, but the thing is, when the margin is in such a range, it's difficult to cut costs accordingly in order to get to that level, especially when you're in such a capital-intensive industry like graphite production. Our margin, as you can see here, drops to 18.5% as we're losing 15 million euro in the bottom line coming from 36.6 last year and now reaching 21.6. We hope for a slight recovery in the second half of the year. That's at least what we foresee and forecast right now. And this is also the reason also to give you a little bit of a preview why we stick to our guidance for this particular year. Coming to process tech, this is exactly the other way around. Process tech here on slide number six in this presentation has reached a very good quarter. They are reaching now €36.5 million, coming from €33.0 in the first three months of last year. This is an increase by 10%. Where does it come from? We still have a very good order book that we are eating up at the moment, so we are making use of that. We have profitable orders. We have a good product mix in there. We have good parts and service business. And we also have well-balanced development in our markets, which is the Americas, which is Europe, but also Japan and China. And we are benefiting from the development in the process tech market, in the heat exchanger market, in each and every market. And this is how we grow. When it comes to EBITDA, it looks even more favorable. There we see an increase by more than €4 million, coming from €6.9 million. last year in the first three months of the year, to now straight €11 million, which is a fantastic development when the profit goes up by another almost 60%. We are now reaching a 30% EBITDA margin in this business, and this is just fantastic what we see there. The only bad thing there is that the order book gets a little bit eaten up, so our book-to-bill ratio is below one of what we see. So at least in the second half of the year, if nothing major happens or unforeseeable at the moment, we see a little bit declining developments there because the order intake is lower than the sales that we see at the moment. In carbon fiber, we informed you briefly before we published our 2024 full-year figures, end of February, we informed you that we don't see a high likelihood for a complete sale of this business unit and therefore start restructuring and also shrink it to a profitable kernel in the end. And this is exactly the first measures are really reflected here in this development. You see that sales dropped by almost 20%, coming from €57.6 million in Q1 2024 to now €46.7 million, which is a drop in €11 million. The reason for that is because of the high inventories that we still have. We have idled a lot of capacity out there. We have cut our headcount down. We have cut the cost down. and really terminated a very unfavorable contract. And the benefit from that, the savings from that, is what you see in the bottom line. We see an improvement by €4 million in four months, and we're now reaching an EBITDA which is just minus €1.2 million. Yes, it is negative, but the improvement compared to the first quarter last year is quite remarkable. It's still not a super business. That's clearly what you can see there when you make out of roughly 50 million euro, more or less a minus 1.2 million result, which is negative, and also influenced by the contribution from our joint venture, BCCB, where all of these net profits also are being shown in this business unit, and their contribution is 1.7. This is also in there. But it's at least a very good development and cost-saving when you compare it to the first quarter last year. And we will continue with this way forward. You've probably read at the beginning of this week that we have announced in a corporate news the closure of our Lavradio site. This is the next big measure in restructuring our carbon fiber business unit. Andreas will also elaborate a little bit in his section and give you some details on where we are, how this process looks like, and how we move on in this particular case. And last but not least, our composite solutions business, they also see an over-proportional drop in sales and also profitability. Why is that the case? Because you probably remember that, and this was very Openly announced and published by us over the last year, we have lost a very profitable contract with a US American OEM who terminated the contract with us prematurely. We got a breakup fee in Q4, but since Q1 2024 onwards, we don't have the sales with this customer anymore. And now you have the comparison where last year in the first quarter we still had the sales with this customer and reached €37.1 million in the top line. And now without the customer, we are reaching roughly €30 million in the top line in the first quarter. And you see the impact of this, as we call it, profitable contract also in the bottom line. Last year, €5.5 million in the first three months. This year, 2.7, so the EBDA almost halved, which is a sharp decline in our profitability. However, we still have a 9% EBDA pre-margin in this business, and this is pure automotive supply that you see there. And therefore, I think a 9% margin is not so bad. However, the other part of the truth is we were not successful in the last 12 months to find any compensating project that we can incorporate in such a dimension in order to cut the shortfall further. But this is where we are. Automotive is difficult, and you know that we're making battery cases and other underbody panels in particular in this business unit. And we're suffering from the same end market with electric vehicles where new models are being postponed or put on hold. And this is the reason why the acquisition of new contracts and new orders there is very difficult at the moment. And last but not least, a look at the bottom line of the P&L, but also some cash flow and balance sheet figures, which you can see here on slide number nine. Our net result is negative for the first three months of the year, with minus 6 million compared to plus 12 million Last year, why is this the case? Why are we 18 million worse than the respective timeframe of 2024? The reason for that is that with the closure and the announcement of the closure of carbon fiber, we impaired another 3 million assets and also some working capital, some inventories, and we also made a kind of a provision for a contract which is about to be terminated or solved. We're still negotiating that, and we have assumed our measures as minus 8 million as an impact from the termination of this contract. And all in all, the one-off items sum up to 17.3 million, which is in the net result, of course. If you exclude the minus 17 from the minus 6 that you see there and you put it there and you just look at the operative performance and the operative result, then it would be roughly on the level of last year. This is just how it happened. However, we are just honest with you. This is the impact that you see from this one of items that come in there. The free cash flow is more or less on the level of last year, 5.9 last year, 5.1 this year. You have to bear in mind that in this particular year, we have hardly received any customer down payments anymore. This went down to a single-digit million level, and almost in the same level as we received some customer down payments, we also paid back the other ones. This came to an end, I would say. You can say that this is almost over this process where we can collect the monies from our customers there in order to increase capacities. And last but not least, you see that the net financial debt is almost unchanged from 108 to 109. So this is just a neglectable increase that you see there. You see that our balance sheet and our cash flow is healthy and we can maintain it. Our financial debt on a very healthy level, our leverage is 0.8, and also our equity ratio still stays above 41%. I think this is a very solid balance sheet, and with that as a fundament, it's, I think, a good fundament in order to digest the downturn and the demand crisis that we see in some of our end markets. And with that, I would hand over to my colleague Andreas, who will guide you through the measures and the silicon market update, but also the status of the restriction of carbon fiber.

Many thanks, Thomas, and good afternoon from my side as well. In addition to the insights on SGLS Q1 performance, I will now talk you through the two main issues we are tackling in this calendar year 2025. The first thing is the temporary drop in semiconductor market demand, and the second thing is indeed the carbon fiber restructuring we are accelerating. When we look at the already mentioned market segment semi-LED in a year-on-year comparison, we see a minus 30 million euro sales drop compared to a very strong Q1 2024. And as already commented before, this is due to a slower than expected development in the EV market, plus a slower adoption rate of SIC, especially in smaller battery electric vehicles in China. Also, we see a delay in new car models with especially the Western OEMs. So there is some slowdown in growth for SIC compared to previous expectations. In total, this leads to high inventory levels along the entire value chain, but the good thing is we can see our customers already working on that inventory level, bringing it down and enabling reshuffling and back to normal models. The back to normal is very clear. because from our perspective and also from our customer's view, SIC is unchanged in its importance for electric vehicles in the future. It's the technology of choice for fast charging, for long-range driving, and also it's clearly said that all the new EV markets, models introduced in the market built on SIC So that is really set for growth again in the future. And we can see based on the capacities established down the chain that the industry is ready to go back to growth mode once this inventory management has happened. Nevertheless, as an answer to the situation, we are, of course, taking countermeasures to manage this temporary slowdown. On the sales side, We are choosing a broader market approach as previously, going also into SI and LED applications. We are speeding up the development of new applications, and that also includes the development of defense applications. And we are in discussion with our key accounts, with our key customers, to manage this short-term requirement of inventory management with the long-term growth outlook and also the contracts we have in place to find a mutual way ahead in this calendar year, but also beyond. On the cost side, we intensified measures. On the headcount side, we are adjusting headcount on the basis of the utilization level we see in our plans. We apply short-time work in several of our plans and we delay the ramp up of new production capacities wherever that is needed. Punctually, we also apply temporary mothballing for production capacity that is not needed in this particular moment. We have also finalized the closure of our loss-making graphite anode material business. And that included the closure of our plant in Raczybusz in Poland. We are taking countermeasures from a graphite solution perspective to react to the numbers and the market situation we have just seen. At the same time, we are accelerating our carbon fibers restructuring. We executed further worldwide capacity reduction and also reduced personnel and cost accordingly. In total, up until now, we have reduced the headcount of that carbon fiber business by around 100. At the same time, we are, of course, working on the administrative sales and R&D setup, and that's mainly affecting our miting inside in southern Germany. Announced on Monday, Thomas already mentioned that, we have the first bigger closure of a site in Portugal. Our Lavradio site will be closed, and we have informed all the stakeholders, especially our employees, on Monday this week. The production will be discontinued already in June. and that will cause layoffs of around 190 people. And the further closure process will then be completed by the end of 2026 at the latest. With these activities, both on the graphite solutions and the carbon fibers, we confirm our guidance for 2025. which means slightly below previous year sales level and EBITDA pre in the range of 130 to 150 million euro. Yeah, nevertheless, it's not surprising, I think, in current times. This is, of course, on the back of increasing uncertainties in markets, in trade, in geopolitics. So we will keep you updated on that development, of course. For the moment, we thank you very much for your attention and we are now open for your questions. Thank you very much.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 two. Questioners on the phone are requested to disable the loudspeaker mode while asking a question. Anyone who has a question may press star and one at this time. One moment for the first question, please. As a reminder, if you would like to ask a question, please press star and one at this time.

So I see no questions in my list. So reminder from our side as well. So if you want to ask a question to CFO or CEO, please. Now we have got the first question.

Yes, we have one question coming from Uwe Hilgärtner from Schutzvereinigung der Kapitalanleger. Please go ahead.

Yes, ladies and gentlemen, first of all, thank you very much for your detailed information. I have a question regarding the carbon fiber restructuring activities. You mentioned that you have implemented the first measures. The production plant in Portugal will be closed. Headcount has come down, I believe, in Germany already. My question is, do you have already an idea about the products that you think you will be able to continue profitably? And what size of the original business would that be?

Mr. Hilgertner, thank you very much for this question. You know, we have announced the restructuring activities around two months ago, and we said we analyze side by side in detail to take the respective individual solutions that are needed. And yeah, with this big first step around the closure in Portugal. We have taken a very decisive measure because this is a very big loss contributor. Beyond that, at the moment, we cannot comment on additional analysis and decision status, but we will update you, of course, as soon as we know more.

Okay, thank you very much.

So it seems there are no further questions at this time. So I'd like to turn the conference back over to Claudia Kellert for any closing remarks.

So, yeah, thanks so much. I didn't see further questions. So I believe that we explained everything in detail. So if you want to ask the investor relations department, please directly contact Jürgen Recker or myself. You will find the presentation on the webpage, and maybe we hear some of you on our general annual meeting on 21st of May. Thanks so much. Goodbye, and have a nice afternoon.