The realignment of SGL Group – The Carbon Company – which was further accelerated in 2014 will increasingly bear fruit in 2015. Accordingly, earnings will improve significantly compared to last year based on roughly stable Group sales. The improvement is mainly due to positive effects from the cost savings program SGL2015. In this context, the overall savings target, which was already increased from the original €150 million to more than €200 million in September 2014, has been raised yet again to €240 million. In 2014 alone, cost savings totaled €88 million and savings of €157 million were realized since the start of the program of SGL2015. With the capital increase successfully completed in October 2014, the balance sheet was strengthened and the foundations laid for an accelerated strategic realignment.
Despite a stabilization, or even a slight improvement in some businesses in the second half of the year, 2014 was impacted by the difficult business environment, mainly in the field of graphite electrodes. The sales decline in the Performance Products segment, which was only partially offset by the positive sales development in Graphite Specialties and Carbon Fibers & Materials, resulted in a decline in Group sales by 6% to €1,335.6 million (2013: €1,422.6 million). Recurring Group EBIT amounted to €2.7 million (2013: €22.8 million). The EBIT margin decreased from 1.6% to 0.2%. Non-recurring charges in 2014 decreased significantly to €51.2 million (2013: €122.8 million) and related predominantly to restructuring expenses in conjunction with SGL2015. Due to these significantly lower one-offs, Group EBIT after non-recurring charges improved by more than 50% to minus €48.5 million (2013: minus €100.0 million).
Dr. Jürgen Köhler, CEO of SGL Group: “In 2014, SGL Group made major organizational changes and took important strategic decisions. We have defined the cornerstones of the Group realignment, strengthened our balance sheet with a capital increase and have been so successful with our cost savings program SGL2015 that we can further increase the overall savings target to €240 million. Thus we created a solid foundation for the planned return to sustainable profitable growth. Despite continued subdued general conditions especially in the field of graphite electrodes we see first results in 2015 from our comprehensive realignment measures resulting in significantly improved earnings, for example.”
The net financing result improved in 2014 to minus €49.5 million (2013: minus €52.1 million) despite higher interest expenses. Accordingly, earnings before taxes from continuing operations improved significantly to minus €104.4 million (2013: minus €161.1 million). Subtracting income taxes, the net loss from discontinued operations, as well as non-controlling interests, the consolidated net result improved by approx. 20% to minus €247.0 million (2013: minus €317.0 million) although almost half (€119.2 million) of this loss was attributable to Hitco, which is currently in the process of being divested.
Balance sheet strengthened by capital increase
Total assets as of December 31, 2014 increased by 5% to €2,170.3 million (December 31, 2013: €2,059.1 million) due to higher liquidity and foreign exchange effects. Equity attributable to the shareholders of the parent company amounted to €567.6 million (December 31, 2013: €607.7 million). This decline was mainly due to the negative Group result and the adjustment of discount rates for pension provision calculations and partially offset by currency translation effects and the capital increase of October 2014. Accordingly, the equity ratio declined from 29.5% to 26.2%. Due to the capital increase, net financial debt decreased from €491.1 million to €389.9 million. Gearing defined as net financial debt divided by equity attributable to the shareholders of the parent company improved from 0.81 to 0.69. The free cash flow deteriorated as expected to minus €121.3 million (2013: plus €41.9 million) mainly due to the continued high investments for the joint venture with BMW (SGL ACF) and the cash outflow in the context of SGL2015.
Segment Reporting
Performance Products (PP): Slight result recovery in the second half
Chinese export-oriented steel overproduction continues to negatively impact the electric steel industry which is relevant for the sales of graphite electrodes, resulting in a weaker demand and price development. Therefore, the segment Performance Products recorded a sales decline of 22% to €588.2 million (2013: €755.9 million) in 2014. Mainly due to price pressure in graphite electrodes as well as cathodes, recurring EBIT declined to €26.0 million (2013: €69.4 million). Higher sales and the achieved cost savings showed a positive impact in the second half of the year. The EBIT margin amounted to 4.4% (2013: 9.2%). Savings from SGL2015 amounted to €48.1 million, of which €10.8 million were attributable to the SGL Excellence initiative.
In the framework of SGL2015, the graphite electrode facilities in Lachute, Canada and Narni, Italy were closed in 2014. In total, the graphite electrode production capacity was reduced by 60,000 tons p.a. Expenses related to the site closures were for the most part already recorded in the annual financial statements 2013. Therefore, restructuring expenses of only €9.8 million (2013: €59.5 million) were recorded for PP in the reporting period. Including impairments of €10.6 million, EBIT after non-recurring charges amounted to €5.6 million (2013: €9.9 million).
Graphite Specialties (GS): EBIT almost doubles to €30.0 million
Sales in the segment Graphite Specialties increased by 16% to €345.5 million in 2014 (2013: €296.7 million), mainly driven by a big ticket order as well as the continued high demand for anode materials from the lithium-ion battery industry. Most other customer industries are showing stabilization or even a small recovery in the order intake. The significantly higher utilization of the production capacities led to a substantial improvement in the result of GS, particularly in the first half of 2014. Accordingly, recurring EBIT almost doubled in 2014 to €29.9 million (2013: €15.9 million), resulting in an EBIT margin of 8.7% (2013: 5.4%). Cost savings from SGL2015 amounted to €14.3 million in the reporting period, of which €8.0 million were attributable to SGL Excellence. In 2014, marginal restructuring costs of €0.1 million were recorded in GS. Accordingly, EBIT after non-recurring charges reached €29.8 million (2013: €11.3 million).
Carbon Fibers & Materials (CFM): Sales growth and loss reduction despite higher start-up cost for SGL ACF
Sales in the reporting segment Carbon Fibers & Materials increased by 18% to €296.4 million (2013: €251.5 million) mainly due to €40 million higher sales at SGL ACF, the proportionally consolidated joint ventures with BMW Group, which benefited from the market introduction of the new BMW i3 in November 2013. In addition, the Business Unit Carbon Fibers & Composite Materials (CF/CM) had a positive impact on CFM sales due to increased demand especially from the wind energy industry. Recurring EBIT improved to minus €22.5 million (2013: minus €27.5 million). This was based on one-third lower losses in the Business Unit CF/CM due to improved volume demand and despite a continued unsatisfactory price level for carbon fibers and the insufficient capacity utilization. At SGL ACF, earnings were burdened by the expected higher start-up losses as a result of the accelerated expansion. Cost savings from SGL2015 amounted to €6.2 million, of which €3.9 million were attributable to the SGL Excellence initiative. In 2014, restructuring expenses relating to SGL2015 for site optimization of €10.5 million (2013: €1.1 million) were incurred. In the previous year, impairments of €41.5 million negatively affected the earnings. Accordingly, EBIT after non-recurring charges reached minus €33.0 million (2013: minus €70.1 million).
Sales of investments accounted for at equity increased by 45% to €220.4 million (2013: €152.1 million, 100% values for companies). These are not included in the consolidated Group sales figure. This improvement is mainly due to Brembo SGL and Benteler SGL, which both continued to benefit from a dynamically increased demand.
Corporate & Others (C & O): Significantly positive impact from SGL2015 cost savings
Within the scope of SGL2015, the Business Unit Aerostructures (Hitco) was reclassified as a discontinued operation in June 2014 to optimize the portfolio and focus on SGL Group’s core competencies. The figures for C & O have been adjusted accordingly. Driven by the lower sales contribution from the Business Unit Process Technology (PT), which benefited from the execution of a big ticket order in the prior-year period, sales in 2014 decreased to €105.5 million (2013: €118.5 million). Due to the successful implementation of the measures related to SGL2015, recurring EBIT of the segment nevertheless improved from minus €35.0 million to minus €30.7 million. Savings from SGL2015 reached €19.2 million (of which €2.2 million were attributable to the SGL Excellence initiative). Despite non-recurring charges of €20.2 million in the reporting period (2013: €16.1 million) EBIT after non-recurring charges remained relatively unchanged at minus €50.9 million (2013: minus €51.1 million).
Outlook 2015: Stable sales and significant earnings improvement – Overall savings target for SGL2015 further increased to €240 million
The SGL Group expects sales – adjusted for currency and possible portfolio effects – to remain roughly stable in 2015 in comparison to the prior year. Group EBITDA and EBIT (both before non-recurring effects) should significantly improve year over year. The SGL2015 cost savings program is further pursued with highest priority. Accordingly, SGL Group further increased the total savings target to €240 million, which was already increased from initially €150 million to more than €200 million in September 2014. In 2015, savings in a mid-sized double-digit million euro amount are expected. In connection with this, restructuring expenses in a high single-digit million euro amount will be incurred and thus at a much lower level than in the year before.
Restructuring cash outflows in a mid-sized double-digit million euro amount and the high capital expenditures for capacity expansions at SGL ACF during the first half of 2015 will continue to burden the free cash flow in 2015. On the whole, net debt will be significantly higher at the year-end 2015 than on December 31, 2014. Since a number of long-term expansion projects in the established business are either largely completed or at the end of their investment phase, investment requirements in 2015 will be significantly lower than the previous year and for the first time in many years approximate on the level of depreciation.
Key Figures SGL Group
(in €m)
| Full Year | |||
| 2014 | 2013 | Change | |
|---|---|---|---|
| Sales revenue | 1,335.6 | 1,422.6 | -6.1% |
| EBITDA before non-recurring charges | 84.1 | 102.8 | -18.2% |
| Operating profit (EBIT) before non-recurring charges | 2.7 | 22.8 | -88.2% |
| Return on sales (EBIT margin)1) | 0.2% | 1.6% | - |
| EBIT | -48.5 | -100.0 | 51.5% |
| Result from continuing operations | -127.8 | -256.7 | 50.2% |
| Earnings per share, basic and diluted (in €) continuing operations2) | -3.26 | -4.47 | 27.1% |
| Capital expenditures in intangible assets and property, plant and equipment (excl. SGL ACF) | 62.6 | 91.9 | -31.9% |
| Capital expenditures in intangible assets and property, plant and equipment (SGL ACF) | 70.0 | 25.1 | >100% |
| Free cash flow | -121.3 | 41.9 | - |
| Dec. 31. 2014 | Dec. 31. 2013 | Change | |
|---|---|---|---|
| Total assets | 2,170.3 | 2,059.1 | 5.4% |
| Equity attributable to shareholders of parent company | 567.6 | 607.7 | -6.6% |
| Net financial debt | 389.9 | 491.1 | -20.6% |
| Debt ratio (Gearing)3) | 0.69 | 0.81 | - |
| Equity ratio4) | 26.2% | 29.5% | - |
| Employees | 6,342 | 6,387 | -0.7% |
1) Ratio of EBIT before non-recurring charges to sales revenue
2) Based on an average number of shares of 75.7 million
3) Net financial debt divided by equity attributable to the shareholders of the parent company
4) Equity attributable to the shareholders of the parent company divided by total assets
About SGL Group – The Carbon Company
SGL Group is one of the world’s leading manufacturers of carbon-based products and materials. It has a comprehensive portfolio ranging from carbon and graphite products to carbon fibers and composites. SGL Group’s core competencies are its expertise in high-temperature technology as well as its applications and engineering know-how gained over many years. These competencies enable the Company to make full use of its broad material base. SGL Group’s carbon-based materials combine several unique properties such as very good electrical and thermal conductivity, heat and corrosion resistance as well as high mechanical strength combined with low weight. Due to industrialization in the growth regions of Asia and Latin America and increased substitution of traditional with innovative materials, there is a growing demand for SGL Group’s high-performance materials and products. Products from SGL Group are used predominantly in the steel, aluminum, automotive and chemical industries as well as in the semiconductor, solar and LED sectors and in lithium-ion batteries. Carbon-based materials and products are also being used increasingly in the wind power, aerospace and defense industries.
With 42 production sites in Europe, North America and Asia as well as a service network covering more than 100 countries, SGL Group is a company with a global presence. In 2014, the Company’s workforce of around 6,300 employees generated sales of €1,336 million. The Company’s head office is located in Wiesbaden.
Important note:
This press release may contain forward-looking statements based on the information currently available to us and on our current projections and assumptions. By nature, forward-looking statements involve known and unknown risks and uncertainties, as a consequence of which actual developments and results can deviate significantly from these forward-looking statements. Forward-looking statements are not to be understood as guarantees. Rather, future developments and results depend on a number of factors; they entail various risks and unanticipated circumstances and are based on assumptions which may prove to be inaccurate. These risks and uncertainties include, for example, unforeseeable changes in political, economic, legal, and business conditions, particularly relating to our main customer industries, such as electric steel production, to the competitive environment, to interest rate and exchange rate fluctuations, to technological developments, and to other risks and unanticipated circumstances. Other risks that in our opinion may arise include price developments, unexpected developments connected with acquisitions and subsidiaries, and unforeseen risks associated with ongoing cost savings programs. SGL Group does not intend or assume any responsibility to revise or otherwise update these forward-looking statements.