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SGL Carbon takes decisive countermeasures in the crisis - comparatively solid business development in the third quarter

13/11/2020

The mid-term business prospects for SGL Carbon are impacted by the corona pandemic and structural changes in some markets. While the development in the automotive and aerospace sectors is lower than expected in the last 5 year plan, the wind energy business is growing much stronger than previously planned. These changes in the mix and the resulting deviations in earnings prompted the company to conduct an event-driven impairment test in the reporting segment CFM. On the basis of the current status of the preliminary 5 year plan - as announced on October 30, 2020 - this resulted in the need for an impairment charge of 80-100 million, which will be recorded in the fourth quarter of 2020.

In order to sustainably strengthen the profitability and competitiveness of SGL Carbon, the Board of Management has resolved an extensive restructuring program with planned earnings improvement measures totaling more than 100 million until 2023 (compared to the base year 2019). It includes a planned socially compatible reduction in personnel of more than 500 employees as well as substantial reduction in indirect spend. From today's perspective, costs of approx. 40 million are anticipated for the implementation of the program, of which a little more than half is expected to be recognized in profit and loss in the fourth quarter of 2020.

For the full year 2020, SGL Carbon continues to expect Group sales revenues to decline by 15% to 20% and operating recurring Group EBIT to record a slightly positive result. However, outlook for Group net result is reduced to minus 130 to 150 million due to the above-mentioned measures.

Like many other companies, the corona pandemic is also having a significant impact on us. In addition, we also see structural changes in some of our markets, such as in the automotive and aerospace sector. Thanks to decisive countermeasures, we are managing the crisis relatively well operationally. In addition, with our restructuring program, we have laid the foundation for the sustainable transformation of the company towards a leaner, profitable and successful SGL Carbon", explains Dr. Torsten Derr, CEO of SGL Carbon.

Group business development influenced by the Corona pandemic, structural changes in some markets and a positive one-off effectSGL Carbons sales revenues in the third quarter at 227 million were around 10% higher than in the previous quarter. At around 15 million, operating EBIT before non-recurring items was significantly better than in the previous quarter, which was weak due to the pandemic.

In the nine-month period, however, sales fell significantly by almost 18% (no currency effect) to 683.5 million (9M/2019: 832.4 million), primarily due to the weaker business development caused by the pandemic as well as expected declines in Battery & other Energy (GMS) and capacity adjustments in Textile Fibers (CFM). Accordingly, recurring EBIT in the reporting period fell by 38% to 33.9 million (9M/2019: 54.2 million). This includes a positive one-off effect of 8.5 million from the compensation agreement with the buyer of a former business unit (Showa Denko).

The net financial result improved significantly in the nine-month period to minus 23.4 million (previous year: minus 32.6 million). The result from continuing operations before income taxes changed significantly from minus 59.4 million in the prior year period to plus 1.4 million in the reporting period, as the previous year contained an impairment loss of around 75 million. After taxes, the consolidated net result for the reporting period was minus 3.9 million compared to minus 74.5 million in the same period of the previous year.

Free cash flow improved significantly to approx. 44 million in 9M/2020 (9M/2019: minus 9.6 million). As a result, liquidity developed very positively to approx. 167 million as of September 30, 2020, due to strict spend control and non-capital market related funding measures (year-end 2019: 137 million).

Business development by segmentComposites - Fibers & Materials (CFM): Second quarter marked the trough in sales and earnings development - significant recovery in the third quarterWhile the first quarter 2020 in the reporting segment CFM was still relatively unaffected by the Corona crisis, the effects were clearly visible in the second quarter 2020. Fortunately, the negative effects eased again in the third quarter, so that the development - particularly in earnings - was substantially better than expected at the half year mark. Compared to the previous quarter, CFM sales revenue increased by 20% to 97.7 million. Recurring EBIT even increased significantly from minus 1.9 million to 8.8 million. Compared to the third quarter of 2019, however, sales revenue decreased by approx. 11% while recurring EBIT improved significantly from minus 4.6 million in Q3/2019 to 8.8 million in Q3/2020.

In a nine-month comparison, sales revenue declined by approximately 14% (no meaningful currency effect) to 283.4 million. The largest percentage decline was recorded in the loss-making market segment Textile Fibers. This is due to the fact that, as part of the earnings improvement measures, SGL Carbon had at the end of 2019 started to convert one acrylic fiber line to precursor and to idle two acrylic fiber lines. Corona-related declines were recorded in the market segments Automotive and Industrial Applications. In contrast, business with the wind energy sector increased by more than 60% and thus again developed more favorably than initially anticipated. The Aerospace business remained relatively stable on a low level.

Recurring EBIT improved from minus 1.8 million in the prior year period to 10.6 million in the first nine months 2020. The substantially improved results in the wind energy business and the positive effects from the earnings improvement measures implemented at th
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