Broad Base. Best Solutions. REPORT ON THE FIRST NINE MONTHS 2013

Transcription

1 Broad Base. Best Solutions. REPORT ON THE FIRST NINE MONTHS 2013

2 2 SGL GROUP 9M 2013 HIGHLIGHTS Sales decreased 4% YoY due to price pressure in graphite electrodes and cyclical downturn in graphite specialties 9M/2013 EBITDA before non recurring charges down 52% to 89.5 million Non recurring charges of million in 9M/2013 consisting of extraordinary effects (Q2/2013) and restructuring expenses (Q3/2013) Significant improvement in free cash flow from minus million to minus 16.1 million Redemption of million outstanding 2007/2013 convertible bond in May 2013 June 2013 guidance confirmed for FY 2013: EBITDA 50 60% below comparable previous year figure of 240 million FINANCIAL HIGHLIGHTS (unaudited) Nine Months m * Change Sales revenue 1, , % EBITDA 1) % EBITDA-Margin 2) 7.4% 15.0% EBIT before non-recurring charges % Return on sales 3) 2.3% 10.4% EBIT > 100% Net profit attributable to equity holders > 100% Earnings per share, basic (in ) > 100% m Sept. 30, 2013 Dec. 31, 2012* Change Total assets 2, , % Shareholders equity , % Net financial debt % Debt ratio (Gearing) 4) Equity ratio 5) 36.1% 41.7% * Adjusted for effects of adopting IAS 19R, see Notes 1) Before non-recurring charges 2) Ratio of EBITDA before non-recurring charges to sales revenue 3) Ratio of EBIT before non-recurring charges to sales revenue 4) Net financial debt divided by shareholders equity 5) Shareholders equity divided by total assets

3 3 INTERIM GROUP MANAGEMENT REPORT (unaudited) ECONOMIC ENVIRONMENT In its October 2013 World Economic Outlook, the International Monetary Fund ( IMF ) reported a delay in growth dynamics and continued risks for further revisions in growth forecasts. Stronger growth impulses in the developed world are expected particularly in 2014, while the emerging and developing countries continue to grow strongly, albeit at a slightly lower rate compared to the IMF s forecasts of July Within a global framework, the IMF has reduced its forecasts for 2013 by 0.3 percentage points to 2.9% and for 2014 by 0.2 percentage points to 3.6%. Consequently, growth in 2013 is expected 0.3 percentage points lower compared to the previous year. The developed world is expected to grow by 1.2% in 2013 and by 2.0% in 2014, these forecasts are unchanged compared to the July prognosis. High growth rates continue to be expected in the developing and emerging regions at 4.5% in 2013 and at 5.1% in However, compared to the July forecast, these projections have been reduced by 0.5 resp. 0.4 percentage points. For the Eurozone, the IMF expects a negative development of 0.4% in 2013, which is, however, a small improvement compared to the July forecast of minus 0.6%. The IMF has revised upwards the 2013 forecast for Germany to 0.5% from 0.3%. However, the expectations for the USA have been reduced to 1.6% from 1.7%. The experts forecast growth in China to amount to 7.6% (previously 7.8%) in KEY EVENTS OF THE BUSINESS DEVELOPMENT SGL2015 The increasingly tougher market and competitive conditions have affected our earnings development strongly. Consequently and with high priority, we initiated the cost reduction program SGL2015 in the summer of This program is based on three pillars. First of all, we are reviewing our organizational structure with the support of external consultants. This includes the simplification of business processes as well as streamlining management structures. Furthermore, SGL2015 contains measures for restructuring of production sites (relocation, closure or sale of production sites). Portfolio optimization forms the third pillar of the program (possible spin-off of non-core activities, transfer of activities into partnerships). Total cost savings of approximately 150 million based on 2012 actual costs are expected to be achieved by the end of 2015, of which approximately 50 million are expected to already be realized in Approximately half of the expected cost savings in 2013 relate to SGL Excellence, the remainder to other cost savings measures. From now on, our financial

4 4 SGL GROUP 9M 2013 reporting will include status updates on savings from SGL2015. This will also include savings from our SGL Excellence initiative, which we will continue to report separately as well. For this program, we anticipate non recurring restructuring expenses to amount to a nearly triple digit million figure. The major part of the non recurring restructuring expenses is expected to be accounted for in the 2013 annual financial statements. Only 40% of the total non recurring restructuring expenses are expected to be cash effective mainly from 2014 onwards. With SGL2015, we are responding to the difficult market conditions which are particularly characterized by an unsatisfactory price development in graphite electrodes as well as the cyclical downturn in our graphite specialties business. At the same time, the performance of our growth area CFC is being impaired by postponements of development and start-up projects. In the meantime, various concrete measures to improve the structure and process organization as well as site restructuring initiatives within the framework of SGL2015 have been defined and are due for implementation or have already been realized. On October 18, 2013, we announced the closure of the graphite electrode production site at the Canadian plant in Lachute, which is expected to be finalized in the first quarter of This measure led to an extraordinary depreciation charge on the residual asset value of 24.9 million as of September 30, 2013, which impacted the results of the Business Area PP. In the reporting period, SGL2015 resulted in total restructuring expenses of 26.2 million, which we will present separately in our financial reporting from now on. In addition to the write-downs in connection with the plant closure in Lachute (Canada), this figure also includes individual measures for other projects as well as initial expenses for consultants. NON RECURRING CHARGES: NEGATIVE EXTRAORDINARY EFFECTS IN Q2/2013 AND RESTRUCTURING EXPENSES IN Q3/2013 In June 2013, SGL Group announced the reduction of its full year guidance, which was mainly driven by reduced earnings expectations in the businesses relating to graphite electrodes within the Business Area Performance Products and graphite specialties within the Business Area Graphite Materials & Systems. In the Business Area Carbon Fibers & Composites, the development of the three Business Units Carbon Fibers & Composite Materials (CF/CM),

5 5 Rotor Blades (RB) and Aerostructures (AS) has been postponed further into the future since the last impairment tests end of The reduced earnings expectations led to event-driven fixed assets and goodwill impairment tests within all three Business Areas. Longer lasting project shifts with negative effects on existing overcapacities, continued high development costs and particularly the restrained development of new business in AS led to significant negative plan adjustments at CFC. As a result, negative non-cash extraordinary effects of million relating to the impairment of assets were recorded within the CFC result in accordance with IFRS already in the second quarter For further details on these effects see the Notes. For reporting purposes, the extraordinary effects and restructuring expenses are summarized under the heading non recurring charges. In the first nine months of 2013, non recurring charges of million were recognized, thereof extraordinary effects of million already recorded as of June 30, 2013, and restructuring expenses of 26.2 million in connection with SGL2015 in the third quarter EXTRAORDINARY TAX EXPENSES Due to the reduced full year 2013 guidance in June as well as due to short- and mid-term earnings adjustments, the deferred tax assets on loss carry forwards were deemed to be impaired. This resulted in a partial write-off of deferred tax assets from tax loss carry forwards particularly relating to the US and Germany in the second quarter of In addition, provisions for potential tax risks from ongoing tax audits were also recorded in the second quarter Both effects increased the tax expense in the first half year 2013 by a total of 69 million. CHANGES OF PRIOR PERIOD RESULTS DUE TO NEW ACCOUNTING PRONOUNCEMENTS The application of the IFRS Standard IAS 19R Employee Benefits (incl. Pension benefits) is mandatory as of January 1, Prior year results are presented on a comparable basis. The application of IAS 19R had a negative effect of 4.6 million on the prior year EBIT and a positive effect of 3.0 million on the prior year financial result. For further details on effects from adopting IAS 19R see the Notes.

6 6 SGL GROUP 9M 2013 BUSINESS DEVELOPMENT Segment Reporting PERFORMANCE PRODUCTS (PP) Nine Months m * Change Sales revenue % EBITDA before non-recurring charges 1) % EBITDA-Margin 15.8% 24.7% EBIT before non-recurring charges 1) % Return on sales before non-recurring charges 1) 10.7% 20.5% EBIT % * Adjusted for effects of adopting IAS 19R, see Notes 1) Before non-recurring charges (restructuring expenses) of 24.9 million in the first nine months of 2013 Primarily due to the unsatisfactory price development in graphite electrodes, sales in the Business Area Performance Products decreased by 12.5% to million in the first nine months 2013 (9M/2012: million). Currency effects had a slightly negative impact on sales of minus 2%. Accordingly, EBITDA before restructuring expenses decreased by 44% to 94.3 million (9M/2012: million) during the reporting period. The prior year result included a onetime positive earnings contribution from the settlement of a long-term supply contract amounting to a low double-digit million figure. The EBITDA margin therefore was 15.8% (9M/2012: 24.7%). EBIT before restructuring expenses decreased by 54% to 63.7 million (9M/2012: million). The main reason for this development lies in the price pressure in graphite electrodes, which intensified in the second half of Savings from SGL2015 amounted to approximately 16 million in the reporting period, of which approximately 9 million is attributable to our SGL Excellence initiative. As the first major measure within our cost reduction program SGL2015, we announced the closure of the Canadian graphite electrode plant in Lachute on October 18, The production in Lachute will begin to wind down at the end of 2013, with expected completion in the first quarter of The closure of the plant with a capacity of about 30,000 tons of graphite electrodes is a first step in a company-wide capacity reduction program to sustain the cost leadership of SGL Group. In the reporting period, restructuring expenses of 24.9 million

7 7 were incurred as a result of the write-off of assets in Lachute. Thus, EBIT including restructuring expenses in the first nine months 2013 amounted to 38.8 million (9M/2012: million). GRAPHITE MATERIALS & SYSTEMS (GMS) Nine Months m * Change Sales revenue % EBITDA % EBITDA-Margin 12.9% 18.5% EBIT % Return on sales 8.7% 14.9% * Adjusted for effects of adopting IAS 19R, see Notes In the reporting period, sales in the Business Area Graphite Materials & Systems decreased by 17% (currency-adjusted by 14%) to million (9M/2012: million). Sales in the Business Unit Process Technology slightly surpassed the 2012 level due to the very good order intake from the previous year. In contrast, the Business Unit Graphite Specialties recorded a substantial decline in sales. Demand from industrial applications within the Business Unit Graphite Specialties, which was very stable in the previous year, has been declining already since the end of 2012 in line with the overall economic development. However, this trend has stabilized in recent months. Demand from the solar, semiconductor, and LED industries, which was weak since the end of 2011, also seems to have bottomed out recently. The reduced capacity utilization as well as lower prices in some businesses in the Business Unit Graphite Specialties resulted in a significantly lower earnings level in the Business Area Graphite Materials & Systems. Accordingly, EBITDA decreased by 42% to 40.1 million in the first nine months 2013 compared to the same period last year (9M/2012: 69.1 million). The EBITDA margin therefore amounted to 12.9% (9M/2012: 18.5%). EBIT for the same period decreased by 52% to 27.0 million (9M/2012: 55.9 million). The third quarter of 2013 benefited from some positive one-off effects. Adjusted for these effects, earnings in the third quarter 2013 would still have improved compared to the first two quarters of this year. Cost savings from SGL2015 amounted to 9 million in the reporting period, of which approximately 5 million are attributable to our SGL Excellence initiative. Restructuring expenses related to the cost reduction program SGL2015 have not yet been incurred at GMS.

8 8 SGL GROUP 9M 2013 Pursuant to the foundation of the SGL-Lindner Ecophit Joint Venture in January 2013, we integrated the remaining activities of the Business Unit New Markets into the Business Unit Graphite Specialties effective May 1, Thus, the Business Area GMS now comprises the two Business Units Graphite Specialties and Process Technology. CARBON FIBERS & COMPOSITES (CFC) Nine Months m Change Sales revenue % EBITDA before non-recurring charges 1) % EBITDA-Margin 5.5% 6.0% EBIT before non-recurring charges 1) % Return on sales before non-recurring charges 1) 10.1% 12.2% EBIT > 100% 1) Non-recurring charges of million in the first nine months of 2013, thereof million extraordinary effects In the first nine months of 2013, sales in the Business Area Carbon Fibers & Composites increased by 51% (currency adjusted 53%) to million (9M/2012: million). The sales contribution of the Portuguese acrylic fiber manufacturer Fisipe, which was acquired in the second quarter of 2012, amounted to 87.5 million (9M/2012: 55.4 million) in the reporting period. Since fiscal year 2013, sales of Fisipe are allocated to the Business Unit Carbon Fibers & Composite Materials (CF/CM). Comparable sales growth of 26% over the first nine months of 2013 is primarily due to higher sales in the Business Unit Rotor Blades (SGL Rotec). EBITDA before non recurring charges in the first nine months of 2013 amounted to minus 16.4 million compared to minus 11.9 million in the comparable prior year period, resulting in an EBITDA margin of minus 5.5% (9M/2012: minus 6.0%). EBIT before non recurring charges in the reporting period decreased to minus 30.2 million (9M/2012: minus 24.2 million). The lower EBIT is essentially due to the continued low capacity utilization in the carbon fiber business, which continues to be impacted by project delays and lower material demand from the wind energy industry and other industrial applications. These delays have led to overcapacities in the carbon fiber market with adverse effects on the carbon fiber price development. The Business Unit Rotor Blades showed an improvement compared to the same period last year, as we were able to increase productivity and capacity utilization in the rotor blade production due to higher orders. As already reported in our annual financial statements 2012, delays in shipping orders for the Boeing 787 and the Joint Strike Fighter (F 35) also led to unsatisfactory utilization levels in the Business Unit Aerostructures (AS respectively HITCO) in the first nine months 2013.

9 9 Cost savings from SGL2015 in the reporting period amounted to 7 million, of which approximately 5 million are attributable to our SGL Excellence initiative. The impairment tests for fixed assets and goodwill as of June 30, 2013, resulted in negative non cash extraordinary effects in the earnings of CFC in the second quarter These effects relate to asset impairments amounting to million. Details can be found in the Notes to this Management Report. Furthermore, restructuring expenses within the framework of our cost reduction program SGL2015 were recorded in the reporting period amounting to 0.4 million. As a result, EBIT including non recurring charges in CFC reached minus million. At-Equity accounted business activities of CFC within SGL Group (aggregated results attributable to SGL Group are reported under result from investments accounted for At-Equity) Nine Months m Change Sales revenue 1) % 1) Aggregated, unconsolidated 100% values for companies Main investments accounted for At-Equity and operationally assigned to the Business Area CFC are Brembo-SGL (Italy and Germany), Benteler-SGL (Germany and Austria), and SGL Automotive Carbon Fibers (joint ventures with BMW Group, Germany and USA). Due to the revenue increase at SGL-ACF, sales of the At-Equity accounted investments within the Business Area Carbon Fibers & Composites in the first nine months 2013 increased by 14% to million (9M/2012: million, 100% values for companies), and is not included in our consolidated Group sales figure. BREMBO-SGL While the volumes of our joint venture with Brembo for the production and further development of carbon ceramic brake discs decreased slightly in 2012 compared to 2011 due to model changes of our customers, a significant increase in shipments was recorded in 2013 due to several serial production launches. As a result, our production facilities in Meitingen (Germany) and Stezzano (Italy) are much better utilized, particularly in the second half year of 2013.

10 10 SGL GROUP 9M 2013 BENTELER-SGL In our joint venture with Benteler, we develop the usage of carbon fiber reinforced composites for the automotive industry. Several projects with different OEMs in the automotive industry were awarded to us, are proceeding according to schedule, and should reach commercialization within the next years. Several serial production launches will occur at the end of 2013, which will in particular be implemented at our new facility in Ort (Austria). SGL AUTOMOTIVE CARBON FIBERS The joint venture established in 2009 with the BMW Group for the production of carbon fibers and carbon fiber fabrics has begun serial production for the new BMW i-series. For this purpose, carbon fibers are being produced at our Moses Lake (USA) facility, which are converted to fabrics at the second joint venture facility in Wackersdorf (Germany). On July 29 of this year, the new BMW i3 was introduced to the worldwide public. Market launch in Germany and further European countries will be in November Further markets such as the USA, Japan, and China are to follow in the first half year The initial years up to the planned serial production are burdened by development and start up costs, which are also being incurred in The production was started according to plan, both factories are well utilized. CENTRAL T&I AND CORPORATE COSTS Nine Months m * Change Other revenue % Central T&I costs % Corporate costs 1) % * Adjusted for effects of adopting IAS 19R, see Notes 1) Before non-recurring charges of 0.9 million first nine months of 2013 Compared to the same period of the previous year, central T&I costs decreased by 14% to 7.7 million (9M/2012: 8.9 million) mainly due to the already introduced cost savings measures as well as a grant of 0.4 million received in the reporting period. Corporate Costs were reduced by 23% to 24.8 million (9M/2012: 32.0 million) mainly as a result of lower expenses for variable remuneration components. In addition, we have already saved approximately 2 million in the context of SGL2015. This relates primarily to lower consulting fees and travel expenses.

11 11 Condensed consolidated income statement Nine Months m * Change Sales revenue 1, , % Gross profit before non-recurring charges % Selling, administrative, research and other income /expense % EBIT before non-recurring charges % Restructuring expenses % Extraordinary effects > 100% EBIT > 100% EBITDA before non-recurring charges % * Adjusted for effects of adopting IAS 19R, see Notes Due to the above-mentioned sales decline in the Business Areas PP and GMS, Group sales declined by 4% (currency adjusted by 2%) to 1,209.7 million. Excluding the revenue contribution of Fisipe, group sales decreased by 7%. Gross margin at 17.7% of sales was down significantly compared to the previous year level of 27.5 %. This was mainly due to the lower sales contribution from the Business Area PP which was characterized by price pressure in graphite electrodes. Selling, administrative, research, and other income/expense decreased by 14% to million compared to the first nine months of the previous year ( million) mainly due to lower expenses for management incentive programs and variable remuneration components. A higher positive balance in other income/expense of 23.7 million (9M/2012: 8.2 million), resulting mainly from foreign currency translation and hedging, further contributed to this development. Due to the development in all three Business Areas, Group EBITDA in the first nine months 2013 decreased by 99.1 million or 52% to 89.5 million (9M/2012: million). This corresponds to an EBITDA margin of 7.4% after 15.0% in the prior year period. Groupwide savings from SGL2015 amounted to approximately 34 million in the reporting period, of which approximately 19 million is attributable to our SGL Excellence initiative. Group EBIT before non recurring charges declined accordingly and amounted to 28.0 million in the reporting period after million in the previous year.

12 12 SGL GROUP 9M 2013 Restructuring expenses for the first nine months 2013 amounted to 26.2 million, of which 24.9 million relate to write-downs in connection with the closure of the Canadian plant in Lachute and 1.3 million to ongoing restructuring expenses. Impairments relate to the impairment of goodwill of 77.6 million, the write-off of other intangible/tangible assets and of long term (PoC) receivables totaling 75.6 million, all entirely attributable to the Business Area CFC and recognized in the second quarter Accordingly, Group EBIT including non recurring charges was minus million in the reporting period (9M/2012: 76.1 million). Nine Months m * Change EBIT before non-recurring charges % Non-recurring charges > 100% EBIT > 100% Result from investments accounted for At-Equity % Net financing result 1) % Result before tax > 100% Income tax expense > 100% Non-controlling interests > 100% Net result after non-controlling interests > 100% Earnings per share, basic (in ) > 100% Earnings per share, diluted (in ) > 100% * Adjusted for effects of adopting IAS 19R, see Notes 1) Prior year adjusted for an impairment charge of 5.5 million on financial instruments held for sale based on a permanent reduction in their fair value RESULT FROM INVESTMENTS ACCOUNTED FOR AT-EQUITY Result from investments accounted for At-Equity decreased to minus 13.9 million from minus 12.4 million in the previous year period. Proportional start up losses of the joint venture with Lindner, which was founded in January 2013, are included for the first time in these results. Additionally, the proportional losses of the joint venture with Benteler increased, resulting from start up costs of the new production plant in Austria. Higher proportional

13 13 start-up losses were also recorded at our joint ventures with the BMW Group (SGL-ACF). The previous year period benefited from a special payment relating to SGL-ACF and was burdened by a write-off on the EPG stake. We anticipate substantially improved results from investments accounted for At-Equity in the full year 2013, also due to the non recurrence of the EPG write-off in the previous year. The market launch of the new BMW i3 in the fourth quarter of this year has lead to higher production and sales volumes at SGL-ACF in the second half of this year. Higher deliveries in the second half year 2013 are also expected at Benteler-SGL as well as at Brembo-SGL. FINANCIAL RESULT Nine Months m * Change Interest income % Interest expense % Imputed interest convertible bonds (non-cash) % Imputed interest finance lease (non-cash) % Interest expense on pensions % Interest expense, net % Amortization of refinancing costs (non-cash) % Other financial income/expense 1) % Other financing result % Net financing result % * Adjusted for effects of adopting IAS 19R, see Notes 1) Prior year adjusted for an impairment charge of 5.5 million on financial instruments held for sale based on a permanent reduction in their fair value Non-cash imputed interest expense of the convertible bonds decreased as a result of the repayment of the 2007 convertible bond in May This effect was partially offset by higher expenses for the convertible bond issued in April Due to the reduced discount rate for pension calculations from 4.75% to 3.75% resp. 3.5% (US resp. German pension plans), interest expense on pensions decreased compared to the same period last year.

14 14 SGL GROUP 9M 2013 The deterioration of the other financing result compared to the first nine months 2012 is mainly due to the 1.5 million lower balance of other financial income/expense. This development is related to negative non-cash translation effects of foreign currency-denominated bank loans that were positive in the same period last year. Last year s figure includes a writedown of 5.5 million on available-for-sale financial instruments to their permanent lower market values. RESULT BEFORE AND AFTER TAXES Result before tax decreased to minus million in the reporting period from plus 25.2 million in the first nine months 2012 mainly due to the non recurring charges described above. Taxes on income in the reporting period were marked by extraordinary tax expenses, which were primarily incurred in the second quarter These relate to a write-down on deferred tax assets of 33 million due to lower earnings expectations in Germany and the US and based on current expectations and estimates of management additional expenses of 36 million for the expected risks from ongoing tax audits. Total tax expense in the reporting period amounted to 74.4 million (9M/2012: 32.5 million). Accordingly, net loss attributable to the shareholders of the parent company in the first nine months 2013 reached minus million (9M/2012: minus 5.6 million).

15 15 BALANCE SHEET STRUCTURE m ASSETS Sept. 30, 2013 Dec. 31, 2012* Change Non-current assets 1, , % Current assets 1, , % Assets held for sale % Total assets 2, , % EQUITY AND LIABILITIES Shareholders equity , % Non-controlling interests % Total Equity , % Non-current liabilities , % Current liabilities % Liabilities associated with assets held for sale % Total equity and liabilities 2, , % * Adjusted for effects of adopting IAS 19R, see Notes As of September 30, 2013, total assets decreased by 19% or million to 2,086.9 million compared to December 31, 2012 ( 2,559.7 million). Currency effects reduced total assets by 49 million. The reduction of non-current assets was mainly due to the extraordinary effects of million in the Business Area CFC, consisting of a goodwill impairment amounting to 77.6 million and the impairment of fixed assets and other long-term assets of 75.6 million. Write-downs of assets of the Lachute plant totaling 24.9 million and write-downs on deferred tax assets of 33 million were also recorded in the reporting period. Furthermore, current assets have decreased, mainly due to the repayment of the convertible bond due in May 2013 in the amount of million resulting in a corresponding decrease in liquidity. As a result of the investor put option in the 2009/2016 convertible bond in June 2014, an amount of million was reclassified from non-current to current liabilities. This measure was necessary because of IFRS regulations which relate to the first possible due date that cannot be influenced by the issuer. Accordingly there is a potential obligation to repay the

16 16 SGL GROUP 9M 2013 convertible bond on June 29, 2014, which is less than 12 months away. Therefore the total outstanding obligation of the convertible is recorded as current liabilities. However, we still expect that the convertible bond will only become due at maturity in June WORKING CAPITAL m Sept. 30, 2013 Dec. 31, 2012 Change Inventories % Trade receivables % Long-term receivables from construction contracts % Trade payables % Working Capital % Working Capital as of September 30, 2013 decreased by 7% from million at the end of 2012 to million mainly due to the fact that production has been adjusted to the lower demand. CHANGES IN EQUITY Shareholders equity as of September 30, 2013 was at million (December 31, 2012: 1,067.0 million). This corresponds to an equity ratio of 36.1% compared to 41.7% as of December 31, The decrease of 5.6%-points is mainly due to the non recurring charges described earlier. NET FINANCIAL DEBT m Sept. 30, 2013 Dec. 31, 2012 Change Current and non-current financial liabilities % Remaining imputed interest for the convertible bonds % Accrued refinancing cost >100% Total financial debt % Time deposits % Cash and cash equivalents % Total liquidity % Net financial debt %

17 17 As of September 30, 2013, total liquidity decreased to million compared to million at the end of the previous year mainly due to the repayment of the 2007 convertible bond at maturity in May 2013 in the amount of million, which is also reflected in the reduction of current and non-current financial liabilities. Accordingly, net financial debt of the SGL Group increased by 6% to million (December 31, 2012: million) mainly due to the deterioration of earnings and the resulting decrease in liquidity. This corresponds to gearing (ratio of net financial debt to shareholders equity) of 0.64 as of September 30, 2013 which was above our target of approximately 0.5. FREE CASH FLOW Nine Months m * Cash flows from operating activities Result before taxes Non-recurring charges Depreciation and amortization expense Changes in working capital, net Miscellaneous Items Cash flow provided by/used in operating activities Cash flows from investing activities Payments to purchase Intangible assets and property, plant and equipment Payments for the acquisition of subsidiaries (less cash adquired) Payments for capital injection concerning equity accounted investments and for other financial liabilities Other investing activities Cash used for investing activities Free Cashflow 1) * Adjusted for effects of adopting IAS 19R, see Notes 1) Defined as cash provided by operating activities minus cash used in investing activities

18 18 SGL GROUP 9M 2013 Cash provided by operating activities amounted to 57.4 million in the first nine months 2013 compared to cash used of 23.4 million in the comparable period of the previous year. Main reason for the improvement was the cash inflow from reduced working capital requirements compared to a cash outflow for the increase of working capital in the prior year period. Thus, the lower level of earnings compared to the first nine months of 2012 was more than compensated. The position of other items in the amount of 10.1 million in the first nine months of 2013 included non-cash losses of our At-Equity accounted investments, which were added back to the operational cash flow. The 62.5 million lower cash used in investing activities during the reporting period is mainly due to the Fisipe acquisition last year. In addition, capital expenditures in property, plant and equipment, and intangible assets were reduced to 58.7 million compared to 78.4 million in the same period of last year. In total, free cash flow in the reporting period improved significantly to minus 16.1 million (9M/2012: minus million). EMPLOYEES As of September 30, 2013, SGL Group employed 6,660 people (December 31, 2012: 6,686). The number of employees in the Business Area Performance Products was 2,080 people (December 31, 2012: 2,081), in the Business Area Graphite Materials & Systems 2,761 people (December 31, 2012: 2,802) and in the Business Area Carbon Fibers & Composites 1,745 people (December 31, 2012: 1,725). As of September 30, 2013, SGL Group employed 2,599 people in Germany (December 31, 2012: 2,585), 2,000 in the rest of Europe (December 31, 2012: 2,056), 1,366 in North America (December 31, 2012: 1,318) as well as 695 in Asia (December 31, 2012: 727). OPPORTUNITIES AND RISKS Regarding existing opportunities and risks, we refer to the annual report for the financial year ended December 31, 2012, as well as to the Management Report of this interim report. Opportunities might result from a more positive development of the global economy and our customer industries. At present stage, we continue to see risks associated with the sovereign debt crisis in Europe and in the USA and continued global problems. This can negatively impact the financial situation of our customers. Governmental policy-driven regulatory measures in relation to tax increases and public spending cuts can negatively affect our business. The economic

19 19 and political developments in China might have a considerable impact on the demand of our customers businesses. Besides such regional and global economic trends, we also generally face more subdued, and in certain cases even markedly reduced, demand in our customer industries. Exchange rate fluctuations, such as the sharp depreciation of the Japanese yen and the Indian rupee, increase competitive pressures. Further price reductions of Japanese and Indian competitors are possible. Additional raw material price increases could have a negative influence on profit margins and may also further weaken demand. In the Business Area Performance Products, competitive pressures have increased. Partly as a result of foreign currency effects, prices for graphite electrodes have tended to slip since the end of Overall, the graphite electrode market is currently characterized by overcapacities. In the Business Area Graphite Materials & Systems we see ourselves faced with cyclical weak demand from our customers across all industries. This results in markedly lower short and mid term earnings contributions of both Business Areas as compared to prior periods. SGL Group s risk situation in the Business Area Carbon Fibers & Composites results from the weak demand for industrial carbon fibers, further delays in civil and military aviation projects as well as the continued difficult situation in the wind industry. Currently, we do not anticipate a sustainable recovery of the market environment. Nevertheless, we expect that the fundamental mid to long term growth trends for lightweight materials will stay unchanged. The current situation with significant oversupply in the industrial carbon fiber market has a negative effect on prices. SGL Group is subject to regular tax audits. Based on the expectations and the assessment of management, provisions for possible risks arising from the ongoing tax audits were recorded in the second quarter 2013 which might result in future cash outflows. The financing agreements of SGL Group contain contractually agreed covenants that regulate specific procedural obligations of SGL Group concerning compliance with certain financial performance indicators during the terms of the agreements. Existing business risks could affect compliance with these covenants and may result in an early refinancing of our financing instruments. Despite the generally unsatisfactory demand and earnings situation, as well as the continued pressure from competition, in our opinion and based on information currently available, there are no material individual risks that could jeopardize sustainably the business as a going concern. Even if the individual risks are viewed on an aggregated basis, they currently do not threaten the going concern of SGL Group.

20 20 SGL GROUP 9M 2013 OUTLOOK BUSINESS AREA PERFORMANCE PRODUCTS Despite the ongoing considerable uncertainties in steel markets, we expect a slight, partially seasonally driven, volume growth in our graphite electrodes business in the fourth quarter 2013 compared to the first three quarters. Graphite electrode prices have already started declining since the end of 2012 due to increased competitive pressures. This price pressure has intensified significantly in May and June of this year, especially due to the devaluation of the Japanese yen and the Indian rupee. For 2014, we have announced price increases. The stepwise recovery in cathode demand should also apply to the full year We already observe higher maintenance and new investments for additional aluminum capacity. However, a noticeable increase in demand primarily related to new investments will translate into higher capacity utilization of our cathode capacities only in the upcoming years. Accordingly, price increases will also only be enforceable with delay. As a result, we expect the Business Area PP to post substantially reduced sales in the full year 2013 compared to the previous year mainly due to the recent pricing developments in graphite electrodes. For the same reason, we expect the operating margin in the remaining quarter of the year to also remain significantly below the prior year level. However, the margin should show a slight improvement compared to the reported quarter due to some raw material cost savings. BUSINESS AREA GRAPHITE MATERIALS & SYSTEMS The Business Area Graphite Materials & Systems has been affected by the demand decline primarily from the solar, semiconductor, and LED industries, resulting in weakening order intake since the end of The more traditional industrial activities have also started to show cyclical weakness since beginning of this year. However, the order intake development has stabilized in the last months. Overall, we anticipate a slight improvement in the demand situation in the coming months, driven by the expected positive economic development in our end markets. In contrast, expiring currency hedging activities, especially for the Japanese yen, will have a negative impact on earnings in the fourth quarter.