Cost of sales – burdened by the continued increase in raw materials and energy prices
Cost of sales rose by 20% from s893.4 million in 2007 to s1,071.4 million in 2008, and thus more strongly than sales
revenues. The main reason for this are disproportionately higher raw materials and energy costs, which . increased approximately 25-30% over the previous year. Personnel costs (excluding acquisitions) rose by 8% or s27.4 mil-
lion, which, in addition to adjustments in exempt and non- exempt salaries and wages, is the result of growth-related personnel expansion of around 475 employees at German sites (GMS and CFC), in Inverness, Scotland (CFC), in Gardena, USA (CFC) and the sites in Asia (GMS). Due to investment projects that have already been completed, depreciation on property, plant and equipment and amor- tization of intangible assets climbed s5.1 million or 10%
over the previous year. We countered the rise in costs with further measures for manufacturing and site optimization, as well as with our SGL Excellence Initiative. The shift of our carbon electrode production from Italy to Poland and the capacity expansion for cathode manufacturing in Poland were, for instance, concluded in 2008. Furthermore, energy efficiency was considerably enhanced through selec- tive investments at various sites.
The situation in the Carbon Fibers & Composites Business Unit varied depending on the Business Line. While the demand for Composite Materials and Composite Com- ponents including the component business for the aviation industry and the newly acquired business of rotor blades for wind energy has not yet evidenced a significant, econ- omy-related drop, customer orders have clearly declined in brake discs and in third-party the carbon fiber business. On the whole, the order levels at the end of the year were below the level at the end of the previous year.
Income statement
in Fm 2008 2007 Δ
Sales revenue 1,611.5 1,373.0 17.4% Operating profit (EBIT) 305.8 258.4 18.3%
Net financing costs −47.1 −65.4 28.0%
Profit/loss before tax 258.7 193.0 34.0%
Income taxes −68.3 −59.2 −15.4%
Net profit for the year 190.4 133.8 42.3%
Earnings per share (in D) 2.94 2.10 40.0%
Profit from operations increased by 18.3% to s305.8 mil-
lion (previous year: s258.4 million). Net financing costs
improved by s18.3 million to s47.1 million (previous year: s65.4 million). Profit before tax rose to s258.7 million, a
rise of 34.0%. Tax expense of s68.3 million in 2008 (previ-
ous year: s58.9 million) reflects a tax rate of 26.4% (previ-
ous year: 30.7%). Consolidated net profit for the year and net profit attributable to the shareholders have improved disproportionately by over 42% compared to the previous year. Earnings per share rose from s2.10 per share in 2007
M A N A G E M E N T R E P O R T
Reconciliation of operating profit
in Fm 2008 2007 Δ
Sales revenue 1,611.5 1,373.0 17.4%
Costs of sales −1,071.4 −893.4 −19.9%
Gross profit 540.1 479.6 12.6%
Selling expenses −162.4 −144.0 −12.8%
Research and development costs −36.2 −30.3 −19.5% General and administrative expenses −67.5 −57.7 −17.0% Other operating income and expenses 31.8 10.8 194.4%
Operating profit (EBIT) 305.8 258.4 18.3%
Selling expenses – disproportionately low increase
Selling expenses rose by 12.8% or s18.4 million to s162.4
million in 2008 (previous year: s144.0 million). In addi-
tion to volume increases – particularly in the case of GMS and CFC – higher transport costs were also recorded in comparison to the previous year. Substantial reduction in freight rates towards the end of 2008 could not completely offset the rise in costs over the fiscal year.
Research costs – consequences of the innovation strategy
Ongoing expansion of activities related to our innovation initiatives for the development of new products, applica- tions and processes was reflected in increased research and development costs of s36.2 million (previous year: s30.3
million).
General and administrative expenses – increases incurred by acquisitions and Malaysia expansion
General and administrative expenses grew by 17%, from
s57.7 million in 2007 to s67.5 million in 2008. Non capital-
ized expenses in connection with our investment in a new manufacturing plant in Banting, Malaysia, rose by s2.3 mil-
lion over the previous year to s3.0 million. This includes
personnel and property costs incurred in 2008, including the appointment of new employees, who as part of the qualification procedure are being prepared for the impend- ing start of production. Full year inclusion of acquisitions made in 2007 (SGL epo, SGL Kümpers, Schnabel, as well as SGL Rotec, acquired in 2008, have driven up general and administrative expenses by a total of s3.8 million over
the previous year.
Other operating income and other operating expense – income rise due to exchange gains
The net balance of other operating income and other operating expense in 2008 showed income of s31.8 million (previous
year: income of s10.8 million). Exchange gains rose by s9.8
million from the previous year to s15.5 million. In addition
gains from the sale of property, plant and equipment items of
s4.3 million were up from the previous year. The elimination
of restructuring costs (focused on Italy in 2007) contributed positively in the amount of s4.4 million.
Net financing costs declined by s18.3 million to s47.1
million (previous year: s65.4 million including one-time
charges from the Group’s new financing undertaken in 2007 in the amount of s30.8 million). At the end of 2008,
negative non-cash effects of currency gains and losses on Group loans and corresponding derivatives was s12.5 mil-
lion (previous year: s0.7 million) due to turbulence in the
financial markets. After adjustment for these effects, net financing costs in 2008 were s34.6 million after s35.3 mil-
lion in 2007.
Interest income rose slightly to s7.4 million in 2008 from s6.7 million in 2007. Cash interest expense decreased from
the previous year by s2.6 million to s19.7 million. The
average interest rate in 2008 was 3.4% p.a. (previous year: 5.1% p.a.). Non-cash expense from the imputed interest cost on the convertible bond rose from s4.5 million in 2007 to s7.5 million in 2008 based on the calculation for the whole
year. In 2008 this expense was calculated based on twelve months, while the calculation in 2007 was undertaken only for seven months after the new financing was concluded. The total amount of this non-cash imputed interest compo- nent equals to the hidden premium recognized in equity in the accounting treatment of the convertible bond and, over the maturity of the bond, increases the interest expense rec- ognized from the cash coupon of 0.75% to a total of 5.8%. The interest portion of the additions to provisions for pen- sions and other employee benefits was slightly above the figure for the previous year at s14.8 million (previous year: s13.9 million).
Net financing costs
in Fm 2008 2007 Δ
Income/expense from equity-
accounted investments 0.4 1.3 −
Interest income 7.4 6.7 10.4%
Interest expense −19.7 −22.3 11.7%
Interest cost component on convert-
ible bond (non-cash) −7.5 −4.5 −
Interest expense on pensions −14.8 −13.9 −6.5%
Interest expense, net −34.6 −34.0 −1.8%
Refinancing costs (non-cash) −1.7 −1.7 −
Currency effects on Group loans
(non-cash) −12.5 0.7 −
Write-off of accrued refinancing
costs from 2004 − −10.7 −
Write-off of accrued refinancing costs due to early repayment costs for the
high-yield bond (cash) − −20.1 −
Other 1.3 −0.9 −
Other financing costs −12.9 −32.7 −
M A N A G E M E N T R E P O R T
Other financing costs of s12.9 million in 2008 (previous
year: other financing costs of s32.7 million) primarily
include, in addition to the non-cash expense for amorti- zation of the refinancing costs from 2007, the effects of mark-to-market valuations of interest rate hedges. The exchange effects from the financing of the subsidiaries are presented separately for the first time in the year under review. In 2008 a non-cash expense of s12.5 million arose
in this respect versus income of s0.7 million in the previ-
ous year. In 2007, s20.1 million of early repayment costs
incurred in redeeming the high-yield bond from 2004 and
s10.7 million in amortization expense on refinancing costs
still accrued from 2004 were recorded as expense.
Group tax rate reduced to 26%
The income tax expense of s68.3 million during the year
under review (previous year: s59.2 million) reflects a tax
rate of 26.4% (previous year: 30.7%). In 2008, cash tax payments amounted to s42.3 million (previous year: s31.2
million). The cash tax rate at 16.4% was significantly below the Group tax rate as in the previous year, which is essen- tially the result of the utilization of our tax losses carried forward in the USA and Germany.
Financial performance
in Fm 2008 2007 2006 2005 2004
Sales revenue 1,611.5 1,373.0 1,190.8 1,068.8 944.0
Profit from operations1, 2 305.8 258.4 175.4 116.0 62.2
as% of sales revenue 19.0% 18.8% 14.7% 10.9% 6.6%
Net income/loss for the year1, 3 189.6 133.5 44.0 30.2 −2.7
as% of sales revenue 11.8% 9.7% 3.7% 2.8% −0.3%
Basic earnings per share in s 2.94 2.10 0.71 0.54 −1.62
1 until 2004 without discontinued operations and basis of consolidation adjusted 2 before antitrust proceedings expenses
3 after minority interests
Consolidated net profit for the year rises disproportionately
We were able to increase net profit for the year (before minority interest) by 42% or s56.6 million in the reporting
period to s190.4 million (previous year: s133.8 million).
After deducting minority interests, net profit for the year attributable to the shareholders of the parent company was
s189.6 million, an increase of 42% (previous year: s133.5
million).
Based on an average number of shares of 64.4 million, basic earnings per share rose 40% to s2.94 (previous year: s2.10).
In calculating diluted earnings per share the shares that are to be issued under the convertible bond as well as under the stock option and stock appreciation rights plan are also to be taken into account. As a result, the average number of shares rose to 70.6 million, and diluted earnings per share amounts to s2.78 (previous year: s2.05).