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 €179.4 million in 9M/2013 consisting of extraordinary
effects (Q2/2013) and restructuring expenses (Q3/2013)
• Significant improvement in free cash flow from minus €159.4 million
to minus €16.1 million
• Redemption of €145.5 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 2013 2012* Change
Sales revenue 1,209.7 1,255.9 – 3.7%
EBITDA1) 89.5 188.6 – 52.5%
EBITDA-Margin 2) 7.4% 15.0% –
EBIT before non-recurring charges 28.0 130.3 – 78.5%
Return on sales 3) 2.3% 10.4% –
EBIT – 151.4 76.1 > – 100%
Net profit attributable to equity holders – 277.8 – 5.6 > – 100%
Earnings per share, basic (in €) – 3.92 – 0.08 > – 100%
€m Sept. 30, 2013 Dec. 31,2012* Change
Total assets 2,086.9 2,559.7 – 18.5%
Shareholders’ equity 754.1 1,067.0 – 29.3%
Net financial debt 485.5 459.3 5.7%
Debt ratio (Gearing) 4) 0.64 0.43 –
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
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 fore-casts. 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 2013. 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 percent-age points to 3.6%. Consequently, growth in 2013 is expected 0.3 percentpercent-age 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 2014. 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 2013.
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 2013. 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 struc-tures. Furthermore, SGL2015 contains measures for restructuring of production sites (relo-cation, 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 2013. 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
reporting will include status updates on savings from SGL2015. This will also include sav-ings 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 2014. This measure led to an extraordinary depreciation charge on the residual asset value of €24.9 million as of Septem-ber 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),
Rotor Blades (RB) and Aerostructures (AS) has been postponed further into the future since the last impairment tests end of 2012. 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 €153.2 million relating to the impairment of assets were recorded within the CFC result in accordance with IFRS already in the second quarter 2013. 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 €179.4 million were recognized, thereof extraordinary effects of €153.2 million already recorded as of June 30, 2013, and restructuring expenses of €26.2 million in connection with SGL2015 in the third quarter 2013.
EXTRAORDINARY TAX EXPENSES
Due to the reduced full year 2013 guidance in June as well as due to short- and mid-term earn-ings 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 particu-larly relating to the US and Germany in the second quarter of 2013. In addition, provisions for potential tax risks from ongoing tax audits were also recorded in the second quarter 2013. 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, 2013. 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.
BUSINESS DEVELOPMENT
Segment Reporting
PERFORMANCE PRODUCTS (PP) Nine Months €m 2013 2012* Change Sales revenue 595.9 681.4 – 12.5%EBITDA before non-recurring charges1) 94.3 168.0 – 43.9%
EBITDA-Margin 15.8% 24.7% –
EBIT before non-recurring charges1) 63.7 139.5 – 54.3%
Return on sales before non-recurring charges1) 10.7% 20.5% –
EBIT 38.8 139.5 – 72.2%
* 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 €595.9 million in the first nine months 2013 (9M/2012: €681.4 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: €168.0 million) during the reporting period. The prior year result included a one-time 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: €139.5 million). The main reason for this development lies in the price pressure in graphite electrodes, which intensified in the second half of 2013. 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, 2013. The produc-tion in Lachute will begin to wind down at the end of 2013, with expected compleproduc-tion in the first quarter of 2014. 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
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: €139.5 million). GRAPHITE MATERIALS & SYSTEMS (GMS) Nine Months €m 2013 2012* Change Sales revenue 311.7 374.5 – 16.8% EBITDA 40.1 69.1 – 42.0% EBITDA-Margin 12.9% 18.5% – EBIT 27.0 55.9 – 51.7% 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 €311.7 million (9M/2012: €374.5 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.
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, 2013. Thus, the Business Area GMS now comprises the two Business Units Graphite Specialties and Process Technology.
CARBON FIBERS & COMPOSITES (CFC)
Nine Months
€m 2013 2012 Change
Sales revenue 298.7 197.6 51.2%
EBITDA before non-recurring charges1) – 16.4 – 11.9 – 37.8%
EBITDA-Margin – 5.5% – 6.0% –
EBIT before non-recurring charges1) – 30.2 – 24.2 – 24.8%
Return on sales before non-recurring charges1) – 10.1% – 12.2% –
EBIT – 183.8 – 78.4 > – 100%
1) Non-recurring charges of €153.6 million in the first nine months of 2013, thereof €153.2 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 €298.7 million (9M/2012: €197.6 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 report-ing 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 over-capacities 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 pro-duction 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.
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 2013. These effects relate to asset impairments amounting to €153.2 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 €183.8 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 2013 2012 Change
Sales revenue1) 117.1 103.0 13.7%
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 €117.1 million (9M/2012: €103.0 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 devel-opment 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.
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 2013. Further markets such as the USA, Japan, and China are to follow in the first half year 2014. The initial years up to the planned serial production are burdened by development and start up costs, which are also being incurred in 2013. The production was started according to plan, both factories are well utilized.
CENTRAL T&I AND CORPORATE COSTS
Nine Months
€m 2013 2012* Change
Other revenue 3.4 2.4 41.7%
Central T&I costs – 7.7 – 8.9 13.5%
Corporate costs1) – 24.8 – 32.0 22.5%
* 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 mea-sures 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 ex-penses for variable remuneration components. In addition, we have already saved approxi-mately €2 million in the context of SGL2015. This relates primarily to lower consulting fees and travel expenses.
Condensed consolidated income statement
Nine Months
€m 2013 2012* Change
Sales revenue 1,209.7 1,255.9 – 3.7%
Gross profit before non-recurring charges 213.9 345.3 – 38.1%
Selling, administrative, research and other income /expense –185.9 – 215.0 13.5% EBIT before non-recurring charges 28.0 130.3 – 78.5%
Restructuring expenses – 26.2 0.0 ≥ – 100%
Extraordinary effects –153.2 – 54.2 > – 100%
EBIT –151.4 76.1 > – 100%
EBITDA before non-recurring charges 89.5 188.6 – 52.5% * 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 con-tribution 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 €185.9 million compared to the first nine months of the previous year (€215.0 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: €188.6 million). This cor-responds 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 mil-lion in the reporting period after €130.3 mil€28.0 mil-lion in the previous year.
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 2013. Accordingly, Group EBIT including non recurring charges was minus €151.4 million in the reporting period (9M/2012: €76.1 million).
Nine Months
€m 2013 2012* Change
EBIT before non-recurring charges 28.0 130.3 – 78.5%
Non-recurring charges – 179.4 – 54.2 > – 100%
EBIT – 151.4 76.1 > – 100%
Result from investments accounted for At-Equity – 13.9 – 12.4 – 12.1%
Net financing result1) – 37.3 – 38.5 3.1%
Result before tax – 202.6 25.2 > – 100%
Income tax expense – 74.4 – 32.5 > – 100%
Non-controlling interests – 0.8 1.7 > – 100%
Net result after non-controlling interests – 277.8 – 5.6 > – 100%
Earnings per share, basic (in €) – 3.92 – 0.08 > – 100%
Earnings per share, diluted (in €) – 3.92 – 0.08 > – 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
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 2013 2012* Change
Interest income 1.1 1.8 – 38.9%
Interest expense – 12.5 – 13.3 6.0%
Imputed interest convertible bonds (non-cash) – 9.2 – 10.1 8.9%
Imputed interest finance lease (non-cash) – 1.1 – 0.9 – 22.2%
Interest expense on pensions – 8.6 – 10.6 18.9%
Interest expense, net – 30.3 – 33.1 8.2%
Amortization of refinancing costs (non-cash) – 2.0 – 1.9 – 5.3%
Other financial income/expense1) – 5.0 – 3.5 – 42.9%
Other financing result – 7.0 – 5.4 – 29.6%
Net financing result – 37.3 – 38.5 3.1%
* 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 2013. This effect was partially offset by higher expenses for the convertible bond issued in April 2012.
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.
The deterioration of the other financing result compared to the first nine months 2012 is main-ly 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 €202.6 million in the reporting period from plus €25.2 mil-lion 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 2013. 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 €277.8 million (9M/2012: minus €5.6 million).
BALANCE SHEET STRUCTURE
€m Sept. 30, 2013 Dec. 31,2012* Change ASSETS
Non-current assets 1,060.3 1,292.5 – 18.0%
Current assets 1,020.2 1,259.5 – 19.0%
Assets held for sale 6.4 7.7 – 16.9%
Total assets 2,086.9 2,559.7 – 18.5%
EQUITY AND LIABILITIES
Shareholders’ equity 754.1 1,067.0 – 29.3%
Non-controlling interests 13.5 15.3 – 11.8%
Total Equity 767.6 1,082.3 – 29.1%
Non-current liabilities 931.9 1,017.5 – 8.4%
Current liabilities 387.4 458.8 – 15.6%
Liabilities associated with assets held for sale 0.0 1.1 – 100.0% Total equity and liabilities 2,086.9 2,559.7 – 18.5% * Adjusted for effects of adopting IAS 19R, see Notes
As of September 30, 2013, total assets decreased by 19% or €472.8 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 €153.2 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 €145.5 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 €128.5 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
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 2016.
WORKING CAPITAL
€m Sept. 30, 2013 Dec. 31,2012 Change
Inventories 499.2 532.1 – 6.2%
Trade receivables 289.6 318.8 – 9.2%
Long-term receivables from construction contracts 8.0 19.8 – 59.6%
Trade payables – 142.8 – 169.6 – 15.8%
Working Capital 654.0 701.1 – 6.7%
Working Capital as of September 30, 2013 decreased by 7% from €701.1 million at the end of 2012 to €654.0 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 €754.1 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, 2012. 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 634.6 776.0 – 18.2% Remaining imputed interest for the convertible bonds 5.3 32.5 – 83.7%
Accrued refinancing cost 23.3 6.7 >100%
Total financial debt 663.2 815.2 – 18.6%
Time deposits 70.0 130.0 – 46.2%
Cash and cash equivalents 107.7 225.9 – 52.3%
Total liquidity 177.7 355.9 – 50.1%
As of September 30, 2013, total liquidity decreased to €177.7 million compared to €355.9 mil-lion 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 €145.5 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 €485.5 million (Decem-ber 31, 2012: €459.3 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 2013 2012*
Cash flows from operating activities
Result before taxes – 202.6 25.2
Non-recurring charges 179.4 54.2
Depreciation and amortization expense 61.5 58.4
Changes in working capital, net 9.0 – 165.8
Miscellaneous Items 10.1 4.6
Cash flow provided by/used in operating activities 57.4 – 23.4 Cash flows from investing activities
Payments to purchase Intangible assets and property, plant and equipment – 58.7 – 78.4 Payments for the acquisition of subsidiaries (less cash adquired) 0.0 – 30.6 Payments for capital injection concerning equity accounted investments
and for other financial liabilities – 23.3 – 24.0
Other investing activities 8.5 – 3.0
Cash used for investing activities – 73.5 – 136.0
Free Cashflow 1) – 16.1 – 159.4
* Adjusted for effects of adopting IAS 19R, see Notes
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 compen-sated. 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 €159.4 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
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 in-dustries. 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 2012. 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.
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 2013. 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 2011. 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 situa-tion 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.
Due to the existing order backlog, we expect the favorable development in the Business Unit Process Technology to continue in the coming months. As a result, this Business Unit should be able to match the record sales and earnings level from 2012.
On the whole, we expect the Business Area GMS to record significantly lower sales in 2013 compared to the record year 2012. Despite the sales decline, the already implemented measures to increase efficiency and to reduce costs will lead to a satisfactory return on sales in 2013, which will remain only slightly below our medium term ROS target of minimum 14% (based on EBITDA).
BUSINESS AREA CARBON FIBERS & COMPOSITES
In 2012, the earnings situation of the Business Area Carbon Fibers & Composites was heavily impacted by the difficult wind energy markets, which continued to suffer from the after effects of the financial crisis and project delays, and strongly burdened our Business Units Carbon Fibers & Composite Materials and Rotor Blades. Since this market still shows no signs of a sustained recovery in the immediate future, continued adverse effects on our business with carbon fibers and composite materials cannot be ruled out. In contrast, we are forecasting a loss reduction in our Business Unit Rotor Blades thanks to higher capacity utilization as well as our optimization measures. The Business Unit Aerostructures was also negatively affected by delays in civil and military aerospace projects, mainly relating to the Boeing 787 as well as the Joint Strike Fighter (F–35). Further delays cannot be ruled out.
In the remaining quarter, only a slight increase in sales is expected. The anticipated slight reduction in the operating loss for the full year 2013 is therefore mainly due to internal optimization measures.
Generally, the Business Area CFC continues to be impacted by a strong R&D driven substitution trend, which can lead to delays and to start-up/development expenses, which may partially not be predictable until a certain commercial maturity is reached. However, there is no change to the long-term considerable growth potential in this material segment.
GROUP
Based on the developments described above, we confirm our guidance for 2013, which we had adjusted in June. Accordingly, consolidated EBITDA is expected 50% to 60% below the comparable prior year figure of €240 million. Group sales is expected to be slightly lower than the prior year level mainly due to lower expectations in PP and GMS.
Our cost reduction program SGL2015 will lead to further restructuring expenses until year end, which will mostly be non-cash or will only become cash effective in later periods. Overall, we expect non-recurring restructuring expenses, which will almost amount to a triple digit million € figure. We expect the major portion of these non recurring expenses to be already accounted for in the 2013 annual financial statements. By means of this cost reduction program, we aim to generate sustainable cost savings of approximately €150 million by the end of 2015. Thereof, approximately €50 million should be already realized in 2013. The substantially lower EBITDA means that the set target for a positive free cash flow in full year 2013 can no longer be met. However, the decline in free cash flow will be substantially less than the reduction in the EBITDA due to rigid expense controls particularly relating to capital expenditures and working capital. As a result, free cash flow is expected to be neutral in the second half of 2013. Capital expenditures will be limited to below €100 million in 2013. Due to the extraordinary effects in CFC, the restructuring expenses in PP, and the extraordi-nary tax effects, gearing at September 30, 2013, was at 0.64 and thus above our mid-term target of approximately 0.5. However, with SGL2015 we aspire to again achieve our gearing target of approximately 0.5 in the mid term.
RESPONSIBILITY STATEMENT
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group, and the interim Group Management Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group for the remaining months of the financial year.
Wiesbaden, November 7, 2013 SGL Carbon SE
CONDENSED CONSOLIDATED INCOME STATEMENT
3rd Quarter Nine Months
€m 2013 2012* Change 2013 2012* Change
Sales revenue 381.5 446.1 – 14.5% 1,209.7 1,255.9 – 3.7% Cost of sales – 322.4 – 365.4 11.8% – 1,010.3 – 964.8 – 4.7% Gross profit 59.1 80.7 – 26.8% 199.4 291.1 – 31.5% Selling, administrative, research
and other income/expense – 56.7 – 74.5 23.9% – 185.9 – 215.0 13.5%
Restructuring expenses – 26.2 – – – 26.2 – –
Impairment losses – – – – 138.7 – –
Operating profit (loss) (EBIT) – 23.8 6.2 > – 100.0% – 151.4 76.1 > – 100.0% Result from investments
accounted for At-Equity – 3.1 – 5.2 40.4% – 13.9 – 12.4 – 12.1%
Interest income 0.5 0.6 – 16.7% 1.1 1.8 – 38.9%
Interest expense – 9.2 – 12.6 27.0% – 31.4 – 34.9 10.0%
Other financing costs1) – 2.7 – 3.8 28.9% – 7.0 – 5.4 – 29.6%
Result before tax – 38.3 – 14.8 > – 100.0% – 202.6 25.2 > – 100.0% Income tax expense 4.5 – 13.7 > – 100.0% – 74.4 – 32.5 > – 100.0% Net result for the period – 33.8 – 28.5 – 18.6% – 277.0 – 7.3 > – 100.0% thereof:
Non-controlling interests 1.0 0.1 > 100.0% 0.8 – 1.7 > – 100.0% Shareholders of the
parent company – 34.8 – 28.6 – 21.7% – 277.8 – 5.6 > – 100.0% Earnings per share, basic (in €) – 0.49 – 0.42 – 16.7% – 3.92 – 0.08 > – 100.0% Earnings per share, diluted (in €) – 0.49 – 0.42 – 16.7% – 3.92 – 0.08 > – 100.0% * 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
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
3rd Quarter Nine Months
€m 2013 2012* 2013 2012*
Net result for the period – 33.8 – 28.5 – 277.0 – 7.3 Items that maybe reclassified subsequently
to profit or loss
Changes in the fair value of available for sale securities 0.5 0.2 – 1.4 – 1.2
Cash flow hedges 0.0 2.7 – 3.8 8.4
Currency translation – 9.2 4.3 – 26.2 21.3
Income taxes 0.4 – 0.8 1.1 – 2.3
Items that may not be reclassified subsequently to profit or loss
Actuarial losses on defined benefit plans and
similar obligations 0.0 1.0 0.0 1.0
Other comprehensive income – 8.3 7.4 – 30.3 27.2 Comprehensive income – 42.1 – 21.1 – 307.3 19.9 of which attributable to the shareholders
of the parent company – 43.0 – 21.2 – 307.7 21.5
of which attributable to non-controlling interests 0.9 0.1 0.4 – 1.6 * Adjusted for effects of adopting IAS 19R, see Notes
CONDENSED BALANCE SHEET
ASSETS €m Sept. 30, 2013 Dec. 31, 2012* Change
Non-current assets
Intangible assets 74.8 159.1 – 53.0%
Property, plant and equipment 824.2 931.3 – 11.5%
Other non-currents assets 78.8 88.6 – 11.1%
Deferred tax assets 82.5 113.5 – 27.3%
1,060.3 1,292.5 – 18.0% Current assets
Inventories 499.2 532.1 – 6.2%
Trade receivables 289.6 318.8 – 9.2%
Other receivables and other current assets 53.7 52.7 1.9%
Liquidity 177.7 355.9 – 50.1%
Time deposits 70.0 130.0 – 46.2%
Cash and cash equivalents 107.7 225.9 – 52.3%
1,020.2 1,259.5 – 19.0%
Assets held for sale 6.4 7.7 – 16.9%
Total assets 2,086.9 2,559.7 – 18.5%
EQUITY AND LIABILITIES €m Sept. 30, 2013 Dec. 31, 2012* Change Shareholders’ equity 754.1 1,067.0 – 29.3% Non-controlling interests 13.5 15.3 – 11.8% Total Equity 767.6 1,082.3 – 29.1% Non-current liabilities Interest-bearing loans 505.5 633.9 – 20.3%
Provisions for pensions and similar employee benefits 334.4 329.8 1.4%
Deferred tax liabilities 1.6 7.5 – 78.7%
Other non current liabilities and provisions 90.4 46.3 95.2%
931.9 1,017.5 – 8.4% Current liabilities
Other provisions 74.1 94.3 – 21.4%
Current portion of interest-bearing loans 129.1 142.1 – 9.1%
Trade payables 142.8 169.6 – 15.8%
Other current liabilities and income tax liabilities 41.4 52.8 – 21.6%
387.4 458.8 – 15.6% Liabilities associated with assets held for sale 0.0 1.1 – 100.0% Total equity and liabilities 2,086.9 2,559.7 – 18.5% * Adjusted for effects of adopting IAS 19R, see Notes
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Nine Months
€m 2013 2012*
Cash flow from operating activities
Result before tax – 202.6 25.2
Add back of net interest expenses 30.3 38.5
Gain on disposal of property, plant and equipment 0.0 – 0.7
Depreciation and amortization expense 61.5 58.4
Result from investments accounted for At-Equity 13.9 12.4
Non-recurring charges 179.4 54.2
Amortization of refinancing costs 2.0 1.9
Interest received 1.4 0.3
Interest paid – 18.3 – 12.3
Income taxes paid – 17.7 – 15.6
Changes in provisions, net – 19.3 – 5.3
Changes in working capital, net 9.0 – 165.8
Changes in other operating assets and other liabilities 17.8 – 14.6 Cash flow provided by/used in operating activities 57.4 – 23.4 Cash flow from investing activities
Payments to purchase intangible assets and property, plant and equipment – 58.7 – 78.4 Payments for capital injection concerning equity accounted investments and
for other financial liabilities – 23.3 – 24.0
Payments for the acquisition of subsidiaries (less cash acquired) 0.0 – 30.6
Other investing activities 8.5 – 3.0
Cash used for investing activities – 73.5 – 136.0
Free Cash Flow 1) – 16.1 – 159.4
Change in time deposits 60.0 – 90.0
Nine Months
€m 2013 2012*
Cash flow from financing activities
Proceeds from issuance of financial liabilities 1.1 240.1
Repayment of financial liabilities – 145.5 – 16.1
Changes in ownership interest in subsidiaries – 1.5 – 11.3
Dividend payments for the prior year – 14.2 – 14.1
Payments in connection with financing activities – 0.6 – 3.1
Other financing activities – 0.2 – 0.4
Cash used in/provided by financing activities – 160.9 195.1
Effect of foreign exchange rate changes – 1.2 0.2
Net change in cash and cash equivalents – 118.2 – 54.1
Cash and cash equivalents at beginning of period 225.9 161.7
Cash and cash equivalents at end of period 107.7 107.6
Time deposits 70.0 170.0
Total liquidity 177.7 277.6
* Adjusted for effects of adopting IAS 19R, see Notes
CONDENSED CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
Nine Months 2013 €m Share-holders’ equity Non- controllinginterests equityTotal
Balance at January 1 – as previously reported 1,066.1 15.3 1,081.4
Effect of retrospectively adopting IAS 19R 0.9 0.0 0.9
Balance at January 1 1,067.0 15.3 1,082.3
Capital increase from share-based payment plans 13.9 0.0 13.9
Dividends – 14.2 – 0.2 – 14.4
Net result – 277.8 0.8 – 277.0
Other comprehensive income – 29.9 – 0.4 – 30.3
Total comprehensive income – 307.7 0.4 – 307.3
Other changes in equity – 4.9 – 2.0 – 6.9
Balance at September 30 754.1 13.5 767.6 Nine Months 2012 €m Share-holders’ equity Non- controlling
interests equityTotal
Balance at January 1 – adjusted according to IAS 19R 1,042.1 14.0 1,056.1
Partial conversion of convertible bonds 2.2 2.2
Capital increase from share-based payment plans 12.9 12.9
Equity component of the convertible bond 24.6 24.6
Dividends – 14.1 – 0.4 – 14.5
Net result – 5.6 – 1.7 – 7.3
Other comprehensive income 27.1 0.1 27.2
Total comprehensive income 21.5 – 1.6 19.9
Other changes in equity 2.5 2.9 5.4
NOTES TO THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
DESCRIPTION OF BUSINESS
SGL Carbon SE, located at Söhnleinstrasse 8, Wiesbaden (Germany), together with its sub-sidiaries (“SGL Group”) is a global manufacturer of carbon and graphite products.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The consolidated financial statements of SGL Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations issued by the International Accounting Standards Board, as adopted by the European Union (EU). The interim financial reporting for the nine month period ended September 30, 2013 has been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. In accordance with IAS 34 regulations, a condensed report was chosen compared with the consolidated financial statements as at December 31, 2012.
The interim consolidated financial statements apply essentially the same accounting principles and practices as those used in the 2012 annual financial statements and thus should be read in conjunction with SGL Group’s annual IFRS consolidated financial statements as of December 31, 2012. In the opinion of management, these interim financial statements contain all of the information that is required for a fair presentation of the results of operations and the financial position of the Group. The accounting policies and consolidation methods used are consistent with those used in the 2012 annual financial statements.
The consolidated interim financial statements were authorized for publication in accordance with a resolution of the Board of Management on November 7, 2013. These consolidated interim financial statements were not reviewed by our external auditors.
Reclassifications: The presentation of certain prior-year information has been reclassified as follows: an amount of €5.5 million was reclassified from other comprehensive income to the financial result. This amount relates to an impairment charge on financial instruments held for sale based on a permanent reduction in their fair value. As a result of this reclassification, net result attributable to the shareholders of the parent company deteriorated to minus €6.3 million, and the basic and diluted EPS to minus €0.06.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Of the standards and interpretations applicable for the first time, the amendments to IAS 19 and the new IFRS 13, in particular, are relevant to SGL Group. In accordance with the amend-ments to IAS 1, items of other comprehensive income are now segregated according to whether or not they may subsequently become reclassificable to profit or loss.
As of January 1, 2013, SGL Group adopted IAS 19, Employee Benefits (revised 2011; IAS 19R). The amended IAS 19 replaces expected return on plan assets and the interest cost on pension obligations with a uniform net interest approach. The new rules introduced by the revised IAS 19R also affects provisions recognized for partial retirement (Altersteilzeit, ATZ) in Germany. Previously the bonus amounts (Aufstockungsbetrag) had been fully recognized as termination benefit expense upon the inception of the agreement. In future, under the block model, the bonus amounts are increased on a straight-line, pro-rata basis over the vesting period until the end of the employment phase (Aktivphase) and used during the release phase (Freistellungs-phase). SGL Group has adjusted comparative figures for the prior reporting period as if the new accounting policy had always been applied. The following tables present the impacts of the changes in accounting policy. Impacts to the opening balance as of January 1, 2012 as well as impacts to the prior period presented are:
CONSOLIDATED INCOME STATEMENT
Nine months ended September 30, 2012
For Information purposes Twelve months ended December 31, 2012 €m adjustments adjustments before adjustments after adjustments adjustmentsbefore adjustments after EBIT 80.7 – 4.61) 76.1 100.0 – 6.12) 93.9
thereof cost of sales – 961.4 – 3.4 – 964.8 – 1,320.0 – 4.4 – 1,324.4 thereof selling, administrative,
research and other income/
expense – 213.8 – 1.2 – 215.0 – 289.1 – 1.7 – 290.8
Interest expense – 37.9 3.0 – 34.9 – 51.2 4.1 – 47.1
Income tax expense – 33.1 0.6 – 32.5 – 2.2 0.7 – 1.5
Net result for the period – 6.33) – 1.0 – 7.3 7.5 – 1.3 6.2
Earnings per share, basic (in €) – 0.06 – 0.02 – 0.08 0.10 – 0.02 0.08 Earnings per share, diluted (in €) – 0.06 – 0.02 – 0.08 0.10 – 0.02 0.08 1) Thereof PP: minus €1.8 million, GMS: minus €1.5 million, Corporate Costs: minus €1.3 million
2) Thereof PP: minus €2.5 million, GMS: minus €1.9 million, Corporate Costs: minus €1.7 million 3) Prior year adjusted for an impairment charge of €5.5 million on financial instruments held for sale
CONDENSED BALANCE SHEET
December 31, 2012 January 1, 2012 €m adjustments adjustmentsbefore adjustmentsafter adjustments adjustmentsbefore adjustments after Total assets 2,560.0 – 0.3 2,559.7 2,271.3 – 0.4 2,270.9
thereof deferred tax assets 113.8 – 0.3 113.5 67.8 – 0.4 67.4
Current assets 460.0 – 1.2 458.8 335.2 – 1.4 333.8
thereof other provisions 95.5 – 1.2 94.3 76.8 – 1.4 75.4
Total Equity 1,081.4 0.9 1,082.3 1,055.1 1.0 1,056.1
Retained earnings 205.3 0.9 206.2 231.6 1.0 232.6
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Nine months
ended September 30, 2012
€m adjustments adjustmentsbefore adjustments after
Net result for the period – 6.31) – 1.0 – 7.3
Other comprehensive income 26.2 1.0 27.2
thereof actuarial losses on defined benefit plans and similar obligations 0.0 1.0 1.0
Comprehensive income 19.9 0.0 19.9
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
As of January 1, 2013 the group implemented IFRS 13 “Fair Value Measurement” that provides a single framework for measuring fair value. The implementation of IFRS 13 had no impact on the consolidated financial statements but led to additional note disclosures.
The following table assigns the individual balance sheet items for the financial instruments to classes and valuation categories:
€m Measurement category under IAS 39 Carrying amount as of Sept. 30,
2013 Amortized cost through equityFair value
Fair value through profit or loss Carrying amount under IAS 17 Carrying amount as of Dec. 31, 2012 Financial assets
Cash and cash equivalents 1) 107.7 107.7 225.9
Time deposits 1) 70.0 70.0 130.0
Trade receivables 1) 289.6 289.6 318.8
Receivables from long-term construction contracts 1) 8.0 8.0 19.8
Available-for-sale financial assets 2) 16.4 16.4 21.7
Other financial assets 1) 1.9 1.9 2.3
Derivative financial assets
Derivatives without a hedging relationship * 3) 6.1 6.1 5.8
Derivatives with a hedge relationship n. a. 1.9 1.9 5.6
Financial liabilities
Corporate bond 4) 200.0 200.0 200.0
Convertible bonds 4) 351.5 351.5 487.9
Bank loans, overdrafts and other financial liabilities 4) 88.4 88.4 94.8
Refinancing expenses 4) – 5.3 – 5.3 – 6.7
Finance lease liabilities n. a. 20.8 20.8 20.9
Trade payables 4) 142.8 142.8 169.6
Miscellaneous other financial liabilities 4) 20.4 20.4 16.8
Derivative financial liabilities
Derivatives without a hedging relationship ** 5) 1.3 1.3 0.3
Derivatives with a hedge relationship n. a.
Thereof aggregated by measurement category in accordance with IAS 39
1) Loans and receivables 477.2 477.2 696.8
2) Available-for-sale financial assets 16.4 16.4 21.7
3) Financial assets held for trading 6.1 6.1 5.8
4) Financial liabilities measured at amortized cost 797.8 797.8 962.4
5) Financial liabilities held for trading 1.3 1.3 0.3
* Thereof €6.1 million (December 31, 2012: €5.7 million), classified as cash flow hedges prior to the settlement of the hedged item or for hedging of intercompany loans in foreign currency
** Thereof €1.3 million (December 31, 2012: €0.3 million), classified as cash flow hedges prior to the settlement of the hedged item or for hedging of intercompany loans in foreign currency
The following table assigns the individual balance sheet items for the financial instruments to classes and valuation categories:
€m Measurement category under IAS 39 Carrying amount as of Sept. 30,
2013 Amortized cost through equityFair value
Fair value through profit or loss Carrying amount under IAS 17 Carrying amount as of Dec. 31, 2012 Financial assets
Cash and cash equivalents 1) 107.7 107.7 225.9
Time deposits 1) 70.0 70.0 130.0
Trade receivables 1) 289.6 289.6 318.8
Receivables from long-term construction contracts 1) 8.0 8.0 19.8
Available-for-sale financial assets 2) 16.4 16.4 21.7
Other financial assets 1) 1.9 1.9 2.3
Derivative financial assets
Derivatives without a hedging relationship * 3) 6.1 6.1 5.8
Derivatives with a hedge relationship n. a. 1.9 1.9 5.6
Financial liabilities
Corporate bond 4) 200.0 200.0 200.0
Convertible bonds 4) 351.5 351.5 487.9
Bank loans, overdrafts and other financial liabilities 4) 88.4 88.4 94.8
Refinancing expenses 4) – 5.3 – 5.3 – 6.7
Finance lease liabilities n. a. 20.8 20.8 20.9
Trade payables 4) 142.8 142.8 169.6
Miscellaneous other financial liabilities 4) 20.4 20.4 16.8
Derivative financial liabilities
Derivatives without a hedging relationship ** 5) 1.3 1.3 0.3
Derivatives with a hedge relationship n. a.
Thereof aggregated by measurement category in accordance with IAS 39
1) Loans and receivables 477.2 477.2 696.8
2) Available-for-sale financial assets 16.4 16.4 21.7
3) Financial assets held for trading 6.1 6.1 5.8
4) Financial liabilities measured at amortized cost 797.8 797.8 962.4
5) Financial liabilities held for trading 1.3 1.3 0.3
* Thereof €6.1 million (December 31, 2012: €5.7 million), classified as cash flow hedges prior to the settlement of the hedged item or for hedging of intercompany loans in foreign currency
** Thereof €1.3 million (December 31, 2012: €0.3 million), classified as cash flow hedges prior to the settlement of the hedged item or for hedging of intercompany loans in foreign currency
The following table shows the breakdown of the assets and liabilities measured at fair value into the three levels of fair value hierarchy:
December 31, 2012 September 30, 2013 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Available-for-sale
financial assets 16.9 4.8 21.7 11.6 4.8 16.4
Derivative financial assets 11.4 11.4 8.0 8.0
Derivative financial liabilities 0.3 0.3 1.3 1.3
The fair value of the corporate bond recorded at amortized costs was €197.2 million as of Sep-tember 30, 2013 (December 31, 2012: €197.0 million). The fair market value of the convertible bonds 2009/2016 and 2012/2018 as of September 30, 2013 was €150.1 million and €238.8 million, respectively (December 31, 2012: €153.2 million and €243.0 million, respectively).
IMPAIRMENT TEST OF PROPERTY, PLANT AND EQUIPMENT AND GOODWILL
Due to the lack of business recovery in 2013 in our businesses relating to graphite electrodes within the Business Area Performance Products (Business Unit GCE) and graphite specialties within the Business Area Graphite Materials & Systems (Business Unit GS) and the resulting reduced full year guidance 2013 and mid term plan, SGL Group conducted event-driven im-pairment tests of property, plant and equipment, and other intangibles of the Business Units GCE and GS during the second quarter of 2013. The recoverable amount of the Business Units GCE and GS was calculated using discount factors of 8.9% and 9.3%, respectively. No impair-ment loss was identified.
Since the last overall valuation in connection with property, plant, and equipment performed at the end of financial year 2012, the assumptions regarding the short- and mid-term develop-ment of sales and profitability of all Business Units within the Business Area CFC had to be reviewed and adjusted.
Within the Business Unit CF/CM, the slower than expected economic recovery together with overcapacities in the carbon fiber markets had a negative effect on margins and utilization rates and thus on the result. Within the wind power sector, decreasing prices added additional pres-sure on rotor blade margins within the Business Unit RB. In the Business Unit AS, numerous project shifts, continued high development costs, and particularly the lower than expected volume of new business led to negative plan deviations.
On the whole, the short and mid term expectations and profit contributions of these Business Units deteriorated. Thus, SGL Group performed impairment tests for property, plant and equipment, and for other intangible assets as at June 30, 2013 for these three business units (the cash generating units). SGL Group determines the recoverable amount as the fair value less cost to sell. The projected cash flows were adjusted and after tax discount rates of 9.0% for CF/CM, 10.3% for RB, and 7.4% for AS were applied. As a result of the updated analysis, impairment losses for property plant and equipment and other intangible assets at CF/CM, RB, and AS of €24.3 million, €8.0 million, and €28.8 million, respectively, were recorded (thereof related to intangible assets: €0.0 million, €1.6 million and €2.1 million, respectively).
