Free cash flow from continuing operations improved significantly

Cash flow from operating activities in the first half year 2020 improved significantly by 25.4 million euros to 40.8 million euros, in particular because, in contrast to previous years, there was no significant increase in working capital. In addition, cash flow from investing activities improved from minus 24.6 million euros in the prior year period to minus 14.2 million euros in the reporting period, mainly because of lower capital expenditure in intangible assets and property, plant and equipment. Additionally, the first half of 2020 included cash inflows from a dividend payment from the joint venture with Brembo of 5.0 million (previous year: 6.0) million euros. As a result of the above effects, free cash flow from continuing operations improved significantly to 26.6 (previous year: minus 9.2) million euros.

As of June 30, 2020, total assets of SGL Carbon were at 1,460.5 million euros and thus slightly below the prior year level (December 31, 2019: 1.504,8 million euros). Equity attributable to the shareholders of the parent company decreased by 4.9 percent to 398.0 million euros (December 31, 2019: 418.6 million euros). The decrease is mainly attributable to the consolidated net result of minus 13.8 million euros. Overall, the equity ratio at 27.3 percent was almost at prior year level (December 31, 2019: 27.8 percent).

Guidance 2020: Group sales expected to decline by 15 to 20 percent year-on-year; slightly positive operating recurring Group EBIT anticipated

In light of the uncertainties surrounding the further development, the duration as well as the impacts of the Covid-19 pandemic, on April 1, 2020, the Board of Management of SGL Carbon SE decided to suspend the guidance for the fiscal year 2020 as published in the Annual Report 2019.

While the global economic backdrop continues to remain fragile and dominated by Covid-19, the outlook for the second half of the year is becoming more and more consistent. Therefore, under specific assumptions, which remain tentative, a Group outlook for the fiscal year 2020 was once again presented on July 28, 2020. In particular, a second pandemic wave and an associated further decline in demand due to a recession is not taken into account in the current forecast for the full year.

For the business unit CFM, SGL Carbon now anticipates sales revenues to decline by approximately 10 percent. Declining sales in the market segment Textile Fibers, which is mainly the result of capacity adjustments, as well as the Covid-19 related demand decline in the automotive industry, is unlikely to be compensated by the strong growth in the wind energy business and the increase in the market segment Aerospace. The deteriorated outlook compared to the guidance given before the Corona pandemic outbreak, when SGL Carbon had anticipated stable sales revenues, is related to all market segments except Wind Energy, where sales revenues are growing stronger than initially expected. For operating recurring EBIT, SGL Carbon now anticipates close to a break-even result, which is not far from the March 2020 guidance (turnaround and slightly positive EBIT), because the Company expects to be able to limit the negative earnings effects of the pandemic-driven lower sales revenues with personnel measures such as short-time work as well as various spending reductions and postponements. Additionally, earnings improvement measures implemented in the Textile Fibers business in the second half of 2019 as well as price increases in the wind energy business implemented early 2020 will contribute to the earnings improvement compared to the prior year.

In the business unit GMS, SGL Carbon now expects sales revenues to decline by approximately 20 percent due to the reduced business volume in all market segments expect Semiconductors, which is expected to remain on a similar level as in the prior year. The deterioration compared to the March 2020 outlook (high single-digit decline) mainly results from the weaker development in the economically more sensitive businesses with the chemical industry and industrial applications. The business unit also has reduced sales revenue expectations in the remaining market segments except Battery & other Energy. The operating recurring EBIT is anticipated to decline by at least 50 percent and therefore substantially more than planned in March (20 percent decline) based on the reduced sales revenue expectations and the resulting significantly lower capacity utilization.

In the reporting segment Corporate, SGL Carbon continues to expect a substantial deterioration in the operating recurring EBIT, due to expected higher consulting costs in the reporting period as well as a result of the prior year benefiting from one-time gains from services provided to the buyer of the former business unit Performance Products.

Based on the expected developments in the reporting segments as described above, SGL Carbon expects full year 2020 Group sales revenues to decline by 15 to 20 percent. Operating recurring Group EBIT is anticipated to record a slightly positive result.

As already communicated since the beginning of this year, SGL Carbon has been working on various additional funding options independent from the capital markets. Some of these measures have been successfully completed or substantially advanced after the balance sheet date. These will increase Group recurring EBIT in a low double-digit million Euro amount in the form of one-time effects, presumably mainly in the third quarter. Consequently, Group net result from continuing operations for fiscal year 2020 is expected in a similar magnitude as before the Covid-19 pandemic outbreak (negative low double-digit million Euro amount) despite a lower operating recurring Group EBIT.

To take into account the reduced operating earnings expectations and in the context of a conservative free cash flow management, capital expenditures will be further reduced in the current year to approximately 60 million euros (guidance in March 2020: 70-80 million euros) and thus below the level of depreciation. Investment focus in the business unit CFM is on the market segment Automotive (primarily to execute on the new battery casings orders).

In addition, SGL Carbon has invested into the conversion of another textile acrylic fiber line to PAN-precursor to supply its carbon fiber production. In GMS, investment focus is on the market segment Battery & other Energy (fuel cell components).

Thanks to the successful execution of additional non-capital market related funding options mentioned above, the March 2020 guidance of a mid double-digit million Euro increase in net debt at year-end 2020 compared to year-end 2019 can be more or less confirmed despite substantially lower operating earnings expectations. The increase in net debt can largely be attributed to the payment of the purchase price for SGL Composites USA (the carbon fiber plant of the former joint venture with BMW in Moses Lake, Washington, U.S.), in the amount of 62 million U.S. Dollar, which is due at the end of this year.

Accordingly, a comfortable liquidity position is expected at year-end 2020 despite the purchase price payment planned in the fourth quarter 2020. In addition, the syndicated loan in the amount of 175 million euros continues to remain available and undrawn.