Investor Relations Presentation February 2016
Table of Contents. Introduction to SGL Group s Businesses Page 3 - Reporting Segment Performance Products Page 6 - Reporting Segment Graphite Specialties Page 15 - Reporting Segment Carbon Fibers & Materials Page 23 - Reporting Segment Corporate & Others Page 34 - SGL Excellence, SGL2015, Business Process Excellence Page 38 - Technology & Innovation Page 48 Strategic Realignment Page 51 Latest Financials 9M 2015 Page 64 Outlook Page 74 Appendix Page 83 Page 2
Introduction to SGL Group s Businesses Page 3
SGL Group in 2014. Organization with five business units and four reporting segments Graphite & Carbon Electrodes (GCE) Cathodes & Furnace Linings (CFL) Graphite Specialties (GS) Process Technology (PT) Carbon Fibers & Composite Materials (CF/CM) Main JVs - SGL ACF* - Brembo SGL - Benteler SGL Performance Products (PP) Graphite Specialties (GS) Corporate & Others (C&O) Carbon Fibers & Materials (CFM) Corporate & Others (C&O): SGL Excellence (SGL X), Technology & Innovation (T&I), Corporate Functions JV Partners Business Unit Reporting Segment Business Unit Aerostructures (AS, HITCO) reclassified to discontinued operations as of June 30, 2014 *51% share reported in CFM Page 4
SGL Group at a glance. Based on 2014 reporting structure Reporting Segment 2014 Group sales Business Units Performance Products (PP) Graphite Specialties (GS) Carbon Fibers & Materials (CFM) Corporate & Others (C&O) CFM 22% GS 26% 1.3bn C&O 8% PP 44% Graphite & Carbon Electrodes (GCE) Cathodes & Furnace Linings (CFL) Graphite Specialties (GS) Carbon Fibers & Composite Materials (CF/CM) Process Technology (PT) Key industries served Steel Other metallurgy Energy Chemicals Automotive Corporate SGL Excellence T&I Administrative functions Shares services Major Joint Ventures 51% SGL ACF (carbon fibers and fabrics for BMW Group) 50% Brembo SGL (carbon ceramic brake discs) 50% Benteler SGL (fiber based composite components for automotive industry) Page 5
Reporting Segment Performance Products Page 6
Reporting Segment: Performance Products (PP). Product groups 2014 Group sales PP sales - 2014 Graphite Electrodes (GE) Cathodes Carbon Electrodes Furnace Linings 1.3bn PP 44% Cathodes & Furnace Linings 21% Graphite & Carbon Electrodes 79% Key industries served Steel Aluminum Ferrous and non-ferrous metals Characteristics Supplying the metal industries Leading competitive position Historically solid ROS & ROCE Historically strong cash flow Strategic priorities Align infrastructure with market development (swing capacities) Reduce unit costs by increasing production and shipments at Malaysian plant Increase customer value with product quality and consistency Page 7
Graphite Electrodes. Steel production in EAFs Growth in steel production 2000ff fuelled by infrastructure demand from emerging countries Recently, Chinese steel exports limits EAF growth in most regions, iron ore price decline lowered production cost of blast furnace steel Significantly higher steel consumption 2000ff will lead to higher scrap availability and lower price, favoring again EAF steel production GE critical to EAF furnace efficiency but only ~3% of steel-making conversion cost Page 8 1400 1200 1000 800 600 400 200 0 Worldwide steel production [in million t p.a.] Blast furnace produces primary (integrated) steel based on iron ore Electric arc furnace produces secondary (electric) steel based on scrap 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: WSD, IISI, own estimate
Graphite Electrodes. Essential consumable for electric steel production Steelmaking in an electric arc furnace (EAF) Section view through EAF Graphite electrode Consumed after 5-8 hours Furnace shell Graphite Electrodes Rocker tilt Tilt cylinder Molten steel Eccentric bottom tapping (EBT) 100 360 cm Teaming ladle 35 80 cm Connecting Pin Page 9 Source: steeluniversity.org
Graphite Electrodes. Production process Production process takes up to 3 months Needle coke (key raw material) requirements sourced on basis of multiyear contracts Page 10
Graphite Electrodes. Graphite electrode market 250 Capacity by competitor in 2015** UHP / HP-quality [in tmt] Regional demand in 2014 200 150 100 North / Middle East, Africa 10% Americas 17% Europe / CIS 23% 50 Asia 50% 0 SGL (DE) Graftech (US) Showa Denko (JP) Graphite India (IN) HEG (IN) Tokai Carbon* (JP) SEC (JP) Nippon Carbon (JP) *Announcement on August 5, 2015: graphite electrode capacity reduction by 22kt (Japan ). **Russia and China: Potential UHP capacity dependent on equipment, technical capability and needle coke availability. Source: SGL Group s own estimates (as of August 2015) Page 11
Primary Aluminum Production [in mio. T p.a.] Cathodes. Participates in aluminum industry growth Aluminum demand driven by: Population growth and urbanization Further industrialization of emerging countries Weight/strength/cost advantages Cathodes essential to aluminum smelters Existing smelters relining New smelter construction leading first to project demand and long-term to higher relining demand Comprehensive product portfolio to cope with all technology trends in the AL industry 80 70 60 50 40 30 20 10 Aluminum global production scenarios 2003 2020 67 mio. t 39 mio. t 36 mio. t 50 mio. t 2003 2005 2007 2009 2011 2013 e 2015 e 2017 e 2019 e Solid fundamentals for aluminum production growth Various new projects under construction, additional feasibility studies for capacity increases underway Page 12 Source: IAI, Habor, SGL Group s own estimates, Hydro; Alcoa, CRU
Cathodes. Investment good for the aluminum industry Aluminum smelter Cathodes Investment good (lifetime 5-7 years) 30 70 cm 4 4 1 4 3 2 100 380 cm 30 50 cm Special glue Cathode blocks Ramming pastes Sidewall blocks Page 13
Cathodes. Market shares in cathodes Increasing cathode demand due to new projects. High level of plant utilization Prepared to supply all regional growth markets CIS 7% Market shares in cathodes 2014 SGL 18% Balanced product portfolio enabling participation in all technological developments SEC 16% Various (Chinese & Others) 41% Carbone Savoie 18% Page 14 Source: SGL Group s own estimates, market shares based on volume (excl. China domestic) Various (Chinese & others): various cathode producers combined in this number, none of them exceeding 5% market share
Reporting Segment Graphite Specialties Page 15
Reporting Segment: Graphite Specialties (GS). Product groups Anode materials Isostatic Fiber Materials Extruded Die molded Expanded Process Technology (as of 2015) GS 26% 2014 Group sales Key industries served 1.3bn Energy Solar / Battery Semiconductor / LED High-temperature processes Metallurgy Tool manufacturing Automotive Characteristics Higher value-added products (machining, coating) Specialized, partially tailor-made, products for differentiated customers Innovation driven business Engineered products for customers from > 35 industries some with high growth potential Strategic priorities Focus on forward integration Combine material-know-how and engineering competence Advanced material, equipment, and process solutions in close cooperation with customers Page 16
Graphite Specialties. Best solutions for our customers... in the PV, Semiconductor, and LED Industry... in the Battery and Energy Storage Industry... in the Chemical and Automotive Industry SiC coated wafer carrier for LED chip production Meander heater for CZ units Anode material for lithium-ion batteries Reinforced graphite sealing sheet Flexible graphite foil C/C carrier frame for solar wafers Redox flow battery electrode consisting of battery felt and bipolar plate Rotor and vanes for break assistant pumps Page 17
Graphite Specialties. The reliable material supplier Full integration to ensure consistent quality Most comprehensive portfolio in the industry Partnering with customers from >35 industries Feedstock Machining Purification Impregnation & coating Global production: America, Asia / Pacific and Europe Isostatic Extruded Vibro molded Die molded Expanded Carbon fiber reinforced carbon Soft & rigid felt SiC coating Lithium ion battery Polysilicon, photovoltaic & semiconductor LED & sapphire Heat treatment Sealings & gaskets EDM Glass & refractories Mechanical engineering Page 18
Graphite Specialties. Specialty graphites required where other materials fail Properties can be adapted to requirements Thermal shock resistance Purity Mechanical strength Main properties of carbon and graphite Electrical and thermal conductivity Resistance to high temperatures Corrosion resistance Page 19
Graphite Specialties. Fine grain graphite production is complex and requires up to six months Coke & graphite Binder pitch Grinding Mixing Pitch impregnating 800-1,200 C Shaping Extruding, vibration / die molding, isostatic pressing Carbonizing 4-5 months 2.500-3,000 C Graphitizing Finishing Machining, purifying, coating 2-4 weeks Page 20 Tailor made product Source: GS Production
Graphite Specialties. Enabling innovation Examples: Graphite anode material for Lithium-Ion batteries Graphite foils and felts for stationary energy storage 3D filament wound susceptors for semiconductor industry Extra large carriers for photovoltaic Advanced silicon carbide coated carriers for LED CFRC charging carriers for hightemperature applications established Target approx. 1/3 of sales based on new products introduced over the last 4 years new Page 21
Graphite Specialties. Major customer industries and market shares 2014 % of total GS sales 2014 Global market share 2014 Energy: Batteries & Nuclear 23% 35% Semiconductor (incl. LED) 12% 15% Chemicals 12% 35% Tool manufacturing 11% 10% Energy: Solar (including Polysilicon) 10% 15% Metallurgical applications 10% 25% Automotive & Transportation 8% 15% High-temperature processes 4% 15% Other industrial applications 10% - Page 22 Source: SGL Group s own estimates
Reporting Segment Carbon Fibers & Materials Page 23
Reporting Segment: Carbon Fibers & Materials (CFM). Product groups* 2014 Group sales CFM sales 2014 Carbon Fibers Composite Materials 51% SGL ACF (JVs with BMW) CFM 22% 1.3bn SGL ACF 20% Carbon Fibers / Composite Materials 80% Key industries served Automotive Energy Industrial Recreation Medical Technology Pressure Vessels Characteristics New applications in automotive, energy, industrial High earnings improvement potential Complete value chain in house The only EU based carbon fiber company * Former Business Unit Aerostructures reclassified to discontinued operations as of June 30, 2014 Strategic priorities Develop innovative customer solutions along the value chain Optimize carbon fiber and composite capabilities along the value chain Convert Fisipe acrylic fiber lines into PAN precursor production Page 24
Carbon Fibers / Composite Materials. Carbon fiber demand growth delayed but all growth drivers intact CF market forecast [July 2014; in thousand mt p.a.] 28 32 41 43 50 57 62 67 75 2010 2011 2012 2013 2014 2015 2016 2017 2018 Page 25 Source: SGL Group market research
Carbon Fibers / Composite Materials. Carbon fiber capacity Capacity [in mt] 35000 30000 25000 20000 Name plate capacities* carbon fiber (excl. oxidized fiber) LT = Low tow fiber 1 24k HT = High tow fiber 50 300k * Actual production tends to be 20 30% below name plate capacity 15000 10000 5000 0 Toray** (JP) Toho / Fortafil (JP) SGL Group (DE) MRC (JP) Formosa Plastic (TW) Hexcel (US) Aksa (TR) Cytec (US) Product LT/HT LT HT HT/LT LT LT LT LT Markets Aero / Ind. Aero / Ind. Ind. Ind. Ind. Aero / Ind. Ind. Aero / Ind. Page 26 ** Including Zoltek Source: SGL Group s own estimates, company websites (as of March 2015)
Carbon Fibers / Composite Materials. Composite Materials Carbon fibers can be woven or braided and are often impregnated with resin before component production We aim to have a broad range of technologies for prepreging / preforming Weaving (e.g. sporting goods, automotive, medical industry) Preforms (e.g. automotive industry) Braiding (e.g. automotive industry) SGL Kümpers Impregnation (e.g. prepregs for wind turbine blades or aircraft parts) SGL epo SGL Kümpers SGL epo Page 27
SGL Group only integrated European carbon fiber producer. Carbon Fibers & Composite Materials Composite Components Refocused on materials & automotive / other industrial components* Raw Material Carbon Fiber Composite Materials PAN Precursor Carbon Fiber Prepreg Preform Automotive & other industrial Fisipe MSP: JV with Mitsubishi Rayon (33%) Prod. Capacity ~ 4kt in UK ~ 2kt in USA SGL ACF: JV with BMW (51%) - up to 9kt in USA SGL epo SGL Kümpers (51%) SGL ACF: JV with BMW (51%) Benteler SGL (50%) Brembo SGL Carbon Ceramic Brakes (50%) * Former Business Unit Rotor Blades sold as of December 31, 2013 and former Business Unit Aerostructures reclassified to discontinued operations as of June 30, 2014 Page 28
Carbon in Automotive. Stringent CO 2 Emission Restrictions Globally Global approach to reduce CO 2 emissions Progressively more comfort and safety features on bord Driver for lightweight Page 29
Example EU. CO2 reduction targets can only be achieved with lightweight construction OEM fleet target development (EU) in g CO 2 /km Only achievable with lightweight -30% 135 95-21% 29 106 29 75 135 77 ~80 2014 2020 2025 0 Targets 2014 ICE efficiency package 3 Moderate lightweight Reachable 0 w/out electrification Page 30
Relative component weight for the same functions in % Carbon in Automotive. Lightweight materials offer significant weight advantages especially CFRP 100 75-5 to -25% -40% 50-15% -20% -60% 25 0 Steel Lightweight steel construction Aluminum Magnesium CFRP quasiisotropic CFRP unidirectional Source: N/EK-L; EKP Page 31
SGL ACF. Milestone in serial application of carbon fibers in automotive industry Market launch of BMW i3 in November 2013, the first serially produced car with a CFRP passenger cell; market launch of BMW i8 in May 2014 Source: BMW Group Global value chain: carbon fibers produced in Moses Lake (USA) and converted into composite materials (fabrics) in Wackersdorf (Germany). fabrics are sold to BMW who manufactures carbon based automotive parts for the BMW i3 and i8. New BMW 7 series (2015): first large scale application of innovative carbon fiber materials in premium car segment October 2009: 90 million combined investment volume for initial capacity of 3kt carbon fiber and corresponding fabric capacity; May 2014: further combined investment of approx. 145 million to expand carbon fiber capacities up to 9kt BMW guarantees certain minimum purchasing volumes at contractually agreed conditions and provides debt financing Page 32
Equity accounted JVs in automotive. Complement our carbon fiber product offering Benteler SGL: 50/50 JV between SGL Group and Benteler AG to develop composite based automotive components Leading position in developing structural automotive parts and modern, automated production technologies Successful manufacturing of prototype parts for the BMW i projects Set-up of the first high volume composite components production plant Brembo SGL: 50/50 JV between SGL Group and Brembo SPA for carbon ceramic based automotive brakes Leading global position, supplying most of the high-end car makers, with production sites in Germany and Italy SGL Group s strategic objectives in automotive: Drive the metal substitution process in automotive to become a major automotive parts supplier Ensure that SGL Group s materials are at the forefront in the automotive industry Page 33
Reporting Segment Corporate & Others Page 34
Reporting Segment: Corporate & Others (C&O). 2014 Group sales C&O sales 2014 1.3bn C&O 8% Corporate 10% Process Technology 90% Business units + corporate Process Technology (PT) plus Corporate T&I Corporate Costs Key industries served by PT Chemicals Pharmaceuticals Environmental Page 35
Process Technology. Process solution provider for chemical and related industries Product portfolio Systems Syntheses Distillation, purification, concentration, dilution Absorption, desorption Reactors & converters Steel pickling Equipment Heat exchangers Reactors and internals Quenchers and vessels Pumps and piping Accessories After sales services Spare parts Maintenance / Repairs Training Chemicals Pharma Metals & Mining Energy Solar Environmental Core industries served Core applications Hydrochloric acid (HCl) Phosphoric acid (H 3 PO 4 ) Sulfuric acid (H 2 SO 4 ) Hydrofluoric acid (HF) Oxidizing acids Isocyanates Epichlorohydrine (EPC) Vinyl chloride (VCM) Polysilicon Page 36
Process Technology. Business model and 3D growth strategy Engineered process solutions lead to high value leverage on graphite Idea Graphite SiC PTFE Ex. Metals Engineering Value chain Production Process Solutions: Systems 1 st Dimension: Regional roll-out Process Solutions: Equipment 3D growth strategy engine for sustainable profitable growth Leading to higher sales, ROS and ROCE 2 nd Dimension: New products 3 rd Dimension: New industries Page 37
SGL Excellence SGL2015 Business Process Excellence Page 38
SGL Excellence. Drives efficiency and customer focus SGL X is more than savings: started in 2002 ongoing and company wide program integral part of our culture continuously questioning the status quo strives for sustainable improvements provides the right mind and tool set important cornerstone in the development of our people empowers our employees with skills and tools: > 190 trained Black Belts > 200 trained Champions > 900 trained Green Belts majority of employees SIX SIGMA trained Innovation Excellence New ideas and solutions for profitable growth Operational Excellence Continuous improvement of our manufacturing, administrative and supply chain processes Commercial Excellence Sustainable partnerships with our customers to secure our future People Excellence Well educated employees as foundation of our success New: Business Process Excellence Streamline and standardize processes Page 39
SGL Excellence savings. Since 2002 continuous cost reduction of 335 million in total Annual Net Savings ( m) 55 21 16 15 25 27 28 23 23 24 26 27 25 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Page 40
SGL2015 cost savings program. Target savings increased twice to 240 million Organizational Restructuring Asset Restructuring Portfolio Restructuring Simplify processes and streamline management structures Review all workstreams and identify redundancies Adjust organizations and Corporate and Service Functions Reduce personnel costs and indirect spend Adjust asset base to changes in market demand Optimize global production network, relocate production Improve capacity utilization Reduce fix costs Use synergies between the Business Units Consolidate sites Carbon fiber business: focus on materials competence Analyze our business portfolio Concentrate portfolio on core activities Investigate options for businesses Already 191 million savings by Sept. 30, 2015 remainder to follow by mid 2016 Page 41
SGL2015. Organizational restructuring A Reducing personnel costs by streamlining corporate and service functions Board of Management Upper Management Middle Management Other Employees -40% -22% -14% -14% Affecting approximately 300 jobs Primarily at management levels B Substantial reduction in indirect spend 1 2 Cost management Review of purchasing structures and processes 30 million savings Cost reduction through adjusted guidelines Transparent monitoring 3 4 Page 42
SGL2015. Asset restructuring Adjusting production network to changed demand and market environment Closure of Canadian facility in Lachute completed end Q1-2014 Reduced 30,000 t graphite electrode capacity 110 jobs cut Discontinuation of our graphite electrode production in Italian facility in Narni Production discontinued in H2-2014 Reduced 30,000 t graphite electrode capacity Dismissal agreement signed by unions all employment contracts (~120) terminated in December 2014 Further site optimization/capacity reduction measures under review in light of renewed deterioration of graphite electrode markets Page 43
SGL2015. Portfolio restructuring Focusing our business on core competencies and target return on capital Disposal of rotor blade activities Sale of all shares in SGL Rotec to a strategic investor as per December 31, 2013 Strong cooperation in carbon and glass material supply to continue Agreement on sale of aerostructures business of HITCO in July 2015 Decision to sell HITCO in Q2/2014 triggered reclassification of BU AS to discontinued operations as of June 30, 2014 Decision to terminate JV with Lindner Group in Q1/2015 Next steps Focus on core competence material development and production Page 44
Levers to improve ROCE Challenge. Levers to improve ROCE ROCE = EBIT(DA) Capital Employed Improve EBIT(DA): Increase price Increase sales volume NEW! Commercial process optimization Reduce costs (raw materials, indirect spend, ) Reduce Working Capital (short term): Inventory: Receivables: Payables: minimize inventory level ONGOING: SGL Excellence, SGL2015 improve customer payment terms longer payment terms with suppliers NEW! Working capital process optimization Reduce Asset Base (mid term): Limit investments: use existing assets, outsourcing ONGOING: SGL2015 Asset and portfolio optimization Page 45
Business Process Excellence (BPX). New Group wide program introduced Target is to streamline and standardize cross-bu processes Utilization of standardized IT solutions (SAP) Initial focus on procurement, supply chain and sales processes Procurement ongoing procurement optimization project launched under SGL2015. Target: reduce procurement costs and improve profitability Supply chain improve alignment between all stages of the supply chain, from sales to procurement to production, etc. Target: improve supply chain process to further reduce net working capital Sales organization implementation of uniform CRM system, development of new group wide standards and best practices for optimized customer and market approach. Target: generate additional, profitable sales, optimize pricing External consultant appointed for outside-in view and for project set up phase Recently implemented: more stringent investment process Page 46
More stringent investment process. We have introduced more discipline in capex spending Budgeting Project Planning Approval Execution & Monitoring Review Budget decided on by the BoM (strategy defines investments) Professional project manager from Central Engineering BUs remain in charge of Business Case Approval by the BoM Stronger challenging of business assumptions Project execution by Central Engineering Independent project controlling Quarterly Monitoring and review by the BoM Post project audit intensified to capture learnings and evaluate performance Page 47
Technology & Innovation Page 48
Technology & Innovation. Foundation for profitable growth Technology & Innovation: SGL Group s centralized R&D organization Market driven R&D ensures best-in-class support for current and future customers. Industry networks with suppliers and customers are an essential part of our development strategy thus ensuring close contacts to our markets. Global networks with leading universities cover the basic research. Material, process and application know-how is the platform for our development clusters: synthetic graphite, carbon fibers and composites, energy systems, and ceramic materials. Strategic IP management safeguards our products and processes and is a driver of our long term market success. Page 49
Technology & Innovation. Activity areas of T&I in 2014 Raw materials & synthetic graphite development for steel and aluminum industry Reduce graphite electrode consumption in EAF by optimizing raw materials, oxidation resistance and GE-joint. Increase energy efficiency of aluminum production process with improved cathode recipes and advantageous cathode designs. Elongate lifetime of furnace linings by improved microporous carbon-ceramic recipes and advanced lining bloc designs. Strengthen carbon fiber based value chain Operate carbon fiber pilot line and improve carbon fiber production processes. Develop new carbon fiber grades based on own precursor. Develop new composite system based on Thermoplastic matrix as well as SnapCure thermoset resins for automotive applications. Energy systems Low cost graphite based anode materials for Li-ion batteries. New carbon & graphite based composite anode materials with enhanced energy density for 3 rd generation Li-ion batteries. Develop carbon felt with enhanced surface characteristics and improved electrochemical behavior for stationary energy storage systems such as redox flow batteries. Advanced gas diffusion layers for PEM fuel cells for automotive and stationary applications. Improved Ceramic Materials Develop new C/SiC materials and manufacturing methods for complex shaped ceramic structures. Page 50
Strategic Realignment Page 51
Transformation of SGL Group. Guided by clearly defined targets (Sept. 2014) Capital increase and refinancing of convertible bond created flexibility for restructuring and repositioning Stop loss makers and cash drainers by restructuring or disposing Capex for selective growth opportunities subject to minimum hurdle rates Return on capital is key management principle for strategic realignment and future investment Gearing ~ 0.5 Equity ratio > 30% Net debt/ebitda < 2.5 Positive net result Positive free cash flow* ROCE 15%** * Excluding disposal proceeds ** ROCE defined as EBITDA/Capital employed Page 52
How we want to achieve our targets. Cornerstones of strategic realignment 15% ROCE* 2 Improve performance Generate shareholder return 3 Minimum return on capital Right size 1 1) Right size SGL2015 asset and portfolio restructuring 2) Improve performance SGL2015 organizational restructuring SGL Excellence savings BU streamlining Process excellence initiatives 3) Generate shareholder return Define selective growth areas *EBITDA divided by capital employed Capital employed Page 53
Analysis of business model of GMS and CFM. Many similarities GMS/CFM Meaningful exposure to end markets growing above GDP driven by global mega trends High share of customer-specific products, tailored applications and solutions High potential for innovation since products typically serve as key enablers of innovation in target industries and/or provide vital products for their customers value chains In depth knowledge and control of the complete graphite and carbon value chain provides opportunity for product customization Specific application requirements allow to leverage knowledge and technology as competitive advantage Continued process and cost optimization as well as R&D investments necessary Page 54
Analysis of business model of PP(GE). Market requirements increasingly differ from GMS and CFM PP(GE) Global steel markets in structural oversupply, thus EAF steel development cannot be expected to drive GE demand in near and mid term Therefore supply-demand imbalance remains, industry becoming increasingly commoditized with customers focusing predominantly on price Consequently, GE in particular and PP in general have to be managed in a different way than before and also different to GMS/CFM Optimization efforts will have to continue to lower costs, improve processes and thus further increase competitiveness Continued overcapacities and low profitability will trigger the need for industry consolidation, in which we want to participate There is value in GE: No substitutes for GE in EAF steel production Reasonable long term perspectives from increasing scrap availability in China will lead to stronger demand for GE Page 55
Business models of GMS and CFM share similarities, whereas PP(GE) has become distinctively different Separation will enable the businesses to progress without constraints associated with the plans of the other business GMS/CFM SGL Group has unique strengths and depth of knowledge to drive forward the development of GMS and CFM In our perception, the majority of the current investors of SGL Group are more excited about the innovation and growth businesses GMS and CFM PP(GE) GE/PP is increasingly becoming commoditized where the most required skills are capacity control, cost effectiveness and customer value (quality, supply reliability, etc.) PP needs to adapt its business model to changed market fundamentals and prepare for participation in potential industry consolidation scenarios Page 56
Result of our analysis. Dedicated business models for different market requirements Accelerate growth mode by adapting processes and launching growth initiatives Implement commodity business model and prepare for strategic options with carve-out Graphite Materials & Systems (GMS) Graphite specialties Process technology Carbon Fibers & Materials (CFM) Carbon fibers Composite materials 51% SGL ACF Performance Products (PP) Graphite electrodes Carbon electrodes Cathodes Furnace linings Page 57
Target for GMS and CFM. Profitable organic sales growth of 50% by 2020 1200 1100 1000 900 800 700 600 500 400 737 million sales at 8% ROCE EBITDA Moderate organic sales growth and process optimization phase Accelerated organic growth phase ~ 1.1 billion sales at or above min. 15% ROCE EBITDA 2014 2020 Augmented by potential selective and accretive bolt-on acquisitions to complement our portfolio in terms of region, technology, etc. Page 58
GMS and CFM. Both units serve a broad range of fast growing segments linked to global megatrends Growth opportunities GMS anode materials CFM carbon fibers/mat. >10% 6-8% Energy* Digital Lifestyle Mobility Industry Urbanization ~10%* 7-9% 3-5% 3-4% ~2% Stationary energy storage Lithium ion batteries Wind, Pressure vessels Mobile 3C devices Aerospace, Automotive, Pressure vessels Industrial applications GMS high growth** ~6% Solar, Polysilicon, LED LED, Semiconductor Industrial applications GMS medium growth*** 3-5% Solar, Nuclear, Stationary energy storage, Heat Recovery, etc. Sapphire glass Exhaust gas recirculation, Brake assistant pumps Engine technologies, etc. Mechanical parts, Water management, etc. Page 59 % Approx. market growth, CAGR 2015-2020 Market potential 2015: < 50 mill. > 50 mill. > 100 mill. * Energy efficiency, storage, reversal of energy generation and climate change (10% growth rate represents renewable energy); ** Product Groups: Isostatic, Fiber materials; *** Product Groups: Extruded/Vibro, DieMolded, Expanded, Process technology
GMS and CFM are the basis of an innovation driven, high growth SGL Group. Summary The majority of the current investors of SGL Group are more excited about the innovation and growth businesses GMS and CFM GMS and CFM materials and solutions enable several of the fastest growing economic trends including energy storage, digitalization, mobility and urbanization. Based on strong positions, GMS and CFM target to further improve their position in the value chain with particular emphasis on innovation, high value-add products, services and engineered solutions. Until 2020, GMS and CFM together aim to increase their sales revenue by 50% through profitable, organic growth potentially augmented by selective and accretive bolt-on acquisitions. EBITDA level is expected to increase significantly, exceeding the minimum EBITDA ROCE margin of 15%. Organic growth can be financed by own operating cash flow. Page 60
There is value in Business Unit PP (GE). Key strengths and long-term growth opportunities Key Strengths Only graphite electrode producer with production footprint in all three major regions (NA/EU/Asia) Modern, efficient production facilities High-quality technical services Trusted partner for large global customers Growth opportunities Increased steel scrap availability will lead to significant long-term growth in graphite electrodes Steady demand growth in aluminum (5 % p.a.) will continue to drive demand for cathodes Furnace Linings and carbon electrodes as additional stable businesses Leading competitive position Page 61
Path forward for PP (GE). Ensure a globally leading commodity business and prepare for all strategic options Further increase competitiveness through continued site optimizations Continue to drive productivity improvements, lower costs (different from GMS and CFM) Optimize business model and processes Adapt sales and marketing efforts to market fundamentals Prepare business to participate in anticipated industry consolidation, define and execute on strategic options Technical carve-out to be completed by mid 2016, thus approx. six months earlier than initially planned Adaption of business model will further increase efficiency and competitiveness while flexibility for strategic options will drive value Page 62
Value creation through Transformation of Business Models. GMS/CFM PP Building an innovation and technologydriven materials and solutions business Increase share in exciting growth markets Build on fast developing economic trends Use pipeline of innovative products and engineered solutions Take advantage of preferential customer access Shift product mix to higher value add Expand technology base and process expertise Ensuring a globally leading commodity Performance Products business Increase competitiveness through further fixed asset optimization Continue to drive productivity improvements Optimize business model and processes Develop pricing strategy to reflect market fundamentals Prepare business to participate in expected industry consolidation Page 63
Latest Financials 9M 2015 Page 64
Performance Products. Substantial EBIT improvement despite lack of recovery in graphite electrodes in million 9M/2015 9M/2014 Sales revenue 406.3 428.8 EBITDA before non-recurring charges* 54.0 45.7 EBIT before non-recurring charges* 23.9 16.2 EBIT-Margin before non-recurring charges* (in %) 5.9 3.8 EBIT 18.3 9.7 Sales revenue down 5 %, (currency adjusted -12%) only due to lower volumes and prices in graphite electrodes. Cathodes sales increased YoY Nevertheless, recurring EBIT increased by nearly 50% due to savings related to SGL2015 and raw materials Mainly SGL2015 related restructuring charges amounting to 5.6 million in reporting period SGL2015 savings 17.1 million, thereof 6.3 million from SGL Excellence Page 65 * Non-recurring charges of 5.6 million in 9M/2015 and 6.5 million in 9M/2014
Graphite Materials & Systems. Stable sales, declining earnings resulting mainly from big ticket order in 2014 in million 9M/2015 9M/2014 Sales revenue 340.1 338.0 EBITDA before non-recurring charges* 43.8 52.7 EBIT before non-recurring charges* 27.2 37.2 EBIT-Margin before non-recurring charges* (in %) 8.0 11.0 EBIT 26.3 36.5 Sales revenue up 1% (currency adjusted down 6%) FX-adjusted sales decline mainly driven by big ticket order in 2014 Process Technology showed recovery in Q3 after weaker H1/2015 sales performance based on subdued order intake in 2014 Continued strong demand for anode materials for Li-ion batteries Recurring EBIT declined by approx. 10 million due to Lower capacity utilization resulting mainly from non-recurrence of last year s big ticket order Partially compensated by one-off gains from a land sale and an insurance claim SGL2015 savings 9.4 million, thereof 5.9 million from SGL Excellence Page 66 * Non-recurring charges of 0.9 million in 9M/2015 and 0.7 million in 9M/2014
Carbon Fibers & Materials. Turnaround in profitability achieved in million 9M/2015 9M/2014 Sales revenue 235.4 213.5 EBITDA before non-recurring charges* 23.5-8.4 EBIT before non-recurring charges* 8.4-18.1 EBIT-Margin before non-recurring charges* (in %) 3.6-8.5 EBIT 8.1-18.5 Sales revenue increased by 10% (currency adjusted 4%) Increased sales contributions from our proportionally consolidated joint ventures with BMW Group (SGL ACF, 51% share) CF/CM benefited from improved demand from various customer industries Recurring EBIT turned positive Strong EBIT improvement at CF/CM due to better volumes and thus higher utilization Lower ramp-up costs and improved productivity for carbon fiber capacity expansion in Moses Lake and Wackersdorf (SGL ACF) as expected SGL2015 savings 3.2 million, thereof 1.4 million from SGL Excellence Page 67 * Non-recurring charges of 0.3 million in 9M/2015 and 0.4 million in 9M/2014
T&I and Corporate. SGL2015 savings partially offset by various effects in million 9M/2015 9M/2014 Sales revenue 6.5 7.2 EBITDA before non-recurring charges* -25.4-26.9 EBIT before non-recurring charges* -30.5-32.3 EBIT -31.6-49.1 Recurring EBIT slightly improved - savings from SGL2015 partially offset by higher consulting fees relating to Business Process Excellence initiative currency effects from the translation of USD based administrative expenses SGL2015 savings 4.3 million *Non-recurring charges of 1.1 million in 9M/2015 and 16.8 million in 9M/2014 Page 68
Group. Improved EBIT reflects both operational improvements and lower non-recurring charges in million 9M/2015 9M/2014 Sales revenue 988.3 987.5 EBITDA before non-recurring charges 95.9 63.1 EBIT before non-recurring charges 29.0 3.0 Non-recurring charges -7.9-24.4 EBIT 21.1-21.4 Includes savings of 34 million from SGL2015 in 9M/2015, of which approx. 14 million attributable to SGL Excellence Page 69
Group. Improved result from continuing operations on flat sales demonstrates effectiveness of SGL2015 in million 9M/2015 9M/2014 EBIT 21.1-21.4 Results from investments accounted for At-Equity 1.3-3.4 Net financing result -40.9-31.9 Results from continuing operations before income taxes -18.5-56.7 Income tax expense -7.9-8.9 Results from continuing operations after income taxes -26.4-65.6 Consolidated net result attributable to the shareholders of the parent company -105.6-91.5 EPS, basic and diluted (in ) -1.15-1.29 EPS, basic and diluted (in ) continued operations -0.31-0.94 Result from investments accounted for At-Equity improves to above break even level mainly due to Brembo SGL and lower costs related to SGL Lindner Substantial improvement in results from continuing operations after taxes despite non recurrence of 10 million positive one time effect in net financing result in 9M/2014 (non exercise of investor put of 2009/16 convertible bond) Net result and EPS includes loss from discontinued operations (HITCO) totaling 78 million (of which 53 million impairment charge resulting from sale of aerostructures business; 9M/2014: loss of 25 million) Page 70
Balance sheet. Solid despite slight deterioration in million 30.09.2015 31.12.2014 Total assets 2,036.1 2,170.3 Equity ratio (in %) 22.6 26.2 Total liquidity 296.2 347.5 Net financial debt 519.7 389.9 Gearing (net debt/equity) 1.13 0.69 Total assets declined by 6% Equity ratio declined due to net loss of 106 million in the reporting period (including a loss of 78 million from discontinued operations) negative currency translation effects of 41 million due to the devaluation of the Malaysian Ringgit in Q3/2015 partially compensated by 19 million IFRS equity component of the new convertible bond 16 million (after tax) gain on equity resulting from effect of increased discount factors for calculation of pension provisions in Germany (from 2% to 2.25%) and in the US (from 4% to 4.5%) Page 71
Free cash flow. Small positive free cash flow from continuing operations in Q3/2015 as anticipated Continuing operations in million 9M/2015 9M/2014 Cash flow from operating activities -47.0-1.5 Capital expenditures in property, plant and equipment and intangible assets -48.5-93.7 - thereof SGL ACF -10.2-54.2 - thereof SGL Group excluding SGL ACF -38.3-39.5 Cash flow provided by other investing activities* 8.9-4.3 Free cash flow -86.6-99.5 Operating cash flow in 9M/2015 declined due to working capital buildup (mainly relating to lower trade payables due to reduced raw material costs as well as the declining investment spend and higher inventories) non-recurring cash out for USD hedges in Q1/2015 (relating to HITCO) Free cash flow from continued operations improved slightly in 9M/2015 achieved positive free cash flow from continuing operations in Q3/2015 as projected Page 72 *Payments for capital contributions in investments accounted for At-Equity, proceeds from dividend payments and sale of intangible assets and property, plant and equipment
Solidly financed. Maturity profile extended in September 2015 SGL Group successfully extended maturity profile in December 2013 250 million Corporate Bond at 4.875% (due 2021) 200 million credit facility, undrawn (due 2017) Supported by previously issued Convertible Bond (April 2012) 240 million Convertible Bond at 2.75%, adjusted conversion price of 40.9598 (due 2018) Maturity profile extended with new convertible bond issue in September 2015 for early repayment of Convertible Bond due June 2016 Adequate equity and liquidity as of September 30, 2015 New 167 million Convertible Bond at 3.5%, conversion price of 18.6451 (due 2020) issued for early repayment of 134.7 million (as of June 30, 2015) Convertible Bond at 3.5%, adjusted conversion price of 27.2959 (tender offer completed in September 2015) Early redemption of remaining Convertible Bond due 2016 in October 2015 Equity ratio: 23% Gearing 1.13 Total liquidity: 296.2 million Page 73
Outlook Page 74
SGL Group in 2015. Organization streamlined to three from five business units Performance Products (PP) Graphite Materials & Systems (GMS) Carbon Fibers & Materials (CFM) Additional Key JVs Graphite electrodes Carbon electrodes Cathodes Furnace linings Graphite specialties Process technology Carbon fibers Composite materials 51% SGL ACF - Brembo SGL - Benteler SGL Corporate Functions & Service Centers Technology & Innovation (T&I) JV Partners SGL Excellence (SGL X) Page 75
Business unit outlook 2015. Performance Products: PP sales expected slightly below prior year level only due to lower graphite electrode volumes and prices. Partially compensated by higher cathode sales. Deteriorating GE business conditions in Q4 (GE order postponements/cancellations) will lead to an FY15 EBIT slightly below last year, despite strong SGL2015 savings, raw material cost reductions and earnings improvement in 9M/2015. Graphite Materials & Systems: GMS to report nearly stable sales, and mid to high single digit million lower EBIT as a result of non-recurrence of big ticket order and weaker order intake in H1/2015. Carbon Fibers & Materials: CFM to post slightly higher sales and significant improvement in EBIT. Better volumes in both CF/CM and SGL ACF, partially offset by crude oil based pricing of Fisipe acrylic fibers. EBIT improvement based on overall improved demand and lower ramp up costs at SGL ACF Corporate: Slightly lower costs as a result of SGL2015 savings and gains from disposal of nonoperating assets Page 76
Group outlook 2015. Full year Group sales expected stable - lower sales in PP compensated by better turnover in CFM Group recurring EBITDA and EBIT: substantial percentage increase despite expected weakness in GE in Q4/2015 due to in line or better performance in other businesses. ROCE to improve in line Restructuring : SGL2015: mid double digit million savings. Mid double digit million restructuring cash- out Total restructuring expenses will from H2/2015 onward include one-time expenses associated with transformation of business models as announced on July 7, 2015 and amount to a low double digit million amount in FY 2015 (including SGL2015 related restructuring costs) Renewed deterioration of GE market conditions requires review of additional measures and leads to possible additional restructuring charges in mid to high double digit million magnitude Net result: If possible additional restructuring charges reach a high double digit million magnitude, net result (cont. operations) would remain approx. on prior year loss level Capex for the first time in many years to decrease below D&A level of approx. 90 million Free cash flow (cont. operations): improvement impeded due to various one-off effects however operational free cash flow (before tax settlement of 35 million) slightly positive again in Q4/2015 Page 77
SGL Group in 2015. Strategic realignment will continue SGL2015 savings target increased to 240 million in Q1/2015 Business Process Excellence: implementation of initiatives Commercial process optimization (sales approach, contractual optimization, payment terms) Working capital process optimization (all aspects) More stringent investment process Asset and portfolio optimization ongoing Discontinuation of SGL Lindner JV in decided in Q1/2015 Agreement on sale of aerostructures business of HITCO reached in Q3/2015 Strategic realignment further defined in July 2015 Growth initiative for Business Units GMS and CFM Legal separation of Business Unit PP within SGL Group and evaluation of strategic options to be accelerated. Carve out to be finalized in mid 2016 6 months earlier than expected Page 78
Renewed deterioration in GE market conditions. Chinese steel exports at record high level Overall steel market situation today is comparable to the peak of the financial crisis 2008/09 with crude steel utilization on historic low levels Chinese steel exports continue to rise, depressing steel production in most remaining regions of the world 140 120 100 in million t 93 125 110 80 60 40 20-20 Page 79 66 62 56 52 55 78 48 42 27 49 20 24 47 41 41 33 32 24 2-13 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Net Export Export FC China compensating lack of domestic (steel) demand by increasing exports Source: Worldsteel.org, SGL Group estimates
Renewed deterioration in GE market conditions. Iron ore prices continue to favor BOF production route Iron ore/scrap price development continues to be unsupportive for EAF steel production as iron ore prices are expected to reach new lows Against this backdrop, graphite electrodes remain oversupplied, resulting in renewed pricing pressure 200 150 Iron ore China price in USD/t 100 50 0 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Sep 15 Further decline to below USD40/t Page 80
Initial outlook on 2016 significantly impacted by renewed deterioration in GE market conditions. From today s point of view, Business Units GMS and CFM as well as cathodes business within Business Unit PP to develop in line with SGL Group s expectations However, anticipated renewed price erosion in graphite electrodes to prevent further EBIT improvement in the Business Unit PP. In fact, graphite electrode business anticipated to be EBIT negative in 2016, resulting in significant deterioration of the EBIT of the Business Unit PP Planning process for 2016 still in early stages and countermeasures yet to be finalized, implemented and their impact evaluated, thus impact of operational and structural developments on Group EBIT 2016 not yet fully clear From today s point of view, a significant decline in EBIT (before non-recurring effects) is anticipated Page 81
Consequences of renewed deterioration in GE market conditions. Renewed downturn in graphite electrode business confirms SGL Group s strategy to legally separate the Business Unit PP, as announced on July 7, 2015 Accelerated implementation and thorough execution of the required measures As a result, SGL Group is confident that the technical carve out process within the SGL Group can be completed well ahead of schedule, i.e. approximately in mid 2016 In addition, SGL Group will also speed up the process of defining and executing on strategic options for PP Simultaneously, SGL Group is reviewing further site optimization and capacity reduction measures including potential site closures as well as further reductions in personnel from adapting its business model Page 82
Appendix Page 83
Global presence 11 production sites North America 23 production sites Europe 8 production sites Asia * Page 84 * Business Unit Aerostructures reclassified to discontinued operations as of June 30, 2014
Shares in issue and shareholder structure. Basic shares Security Identification Number 723530 ISIN Number DE0007235301 Cusip Number 784 188 203 Number of Shares (as at January 31, 2016) 91,806,502 Free float ~ 37% Reported shareholdings according to 21 f. WpHG SKion GmbH (Oct 15, 2014) 27.46% BMW AG (Oct 15, 2014) 18.44% Volkswagen AG (Jul 31, 2015) 9.88% Furthermore, and based on the respective voting rights announcements we received, Voith GmbH, Heidenheim, currently holds more than 5% of the voting rights of SGL Carbon SE. Page 85
Debt market instruments. Corporate bond Coupon 4.875% Principal Amount 250 million Issue Date 12 December 2013 Date of Maturity 15 January 2021 Convertible notes 2012/2018 Coupon 2.75% Principal Amount 240 million Adjusted Conversion Price 40.9598 Conversion Right (as at January 31, 2016) 5.86 million shares Issue Date 25 April 2012 Date of Maturity 25 January 2018 Convertible notes 2015/2020 Coupon 3.5% Principal Amount 167 million Conversion Price 18.6451 Conversion Right (as at January 31, 2016) 8.96 million shares Issue Date 14 September 2015 Date of Maturity 30 September 2020 Page 86
Capital Expenditure by Business Area. Major investment focus in 2014 PP GS CFM Additional improvements in production processes at Malaysian plant Replacement and EHSA in USA and Spain Measures to achieve efficiency improvements in the production process, also in the context of SGL2015 Transfer of some productions steps from Germany to Poland New green production in Poland Tripling of carbon fiber capacities at SGL ACF New polymerization facility and conversion of spinning line to PAN precursor production in Portugal Automation at SGL Kümpers (Germany) Capital expenditure and depreciation [in million] 240m 34 90 23 21 35 50 33 90 39 30 54 61 66 71 84 83 81 29 21 20 14 12 20 14 14 8 4 * Reported capex of 129.5 million for 2010 includes 7.4 million cash inflow for services rendered by SGL Group. Therefore cash outflow for capex was 136.9 million 111 25 154m 80 137m* 139m 66 61 46 2008 2009 2010 2011 2012 2013 2014 Central projects / Corporate Carbon Fibers & Materials Graphite Materials & Systems Capex (left hand column) Depreciation (right hand column) 132m 95m Performance Products 133m 27 11 Page 87
Financial calendar / contact details. Financial calendar 2016 March 23, 2016 Annual Report 2015 May 12, 2016 Report on the first quarter 2016 May 18, 2016 Annual General Meeting August 11, 2016 Report on the first half year 2016 November 10, 2016 Report on the first nine months 2016 Contact SGL CARBON SE Soehnleinstrasse 8 65201 Wiesbaden Germany Phone +49 (0) 611-6029 - 103 Fax +49 (0) 611-6029 - 101 investor-relations@sglgroup.com www.sglgroup.com Page 88
Important note. This presentation contains forward looking statements based on the information currently available to us and on our current projections and assumptions. By nature, forward looking statements are associated with known and unknown risks and uncertainties, as a consequence of which actual developments and results can deviate significantly from the assessment published in this presentation. 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 may arise in our opinion include price developments, unexpected developments associated with acquisitions and subsidiaries, and unforeseen risks associated with ongoing cost savings programs. SGL Group assumes no responsibility in this regard and does not intend to adjust or otherwise update these forward looking statements. Page 89