SGL Carbon SE

Jurgen Kohler - CEO Michael Majerus - CFO

Glen Liddy - JPMorgan Chase & Co. Christian Obst - Baader-Helvea

Welcome to this year-end analyst conference. We already had the press conference this morning.

Here with us is as every year, our CEO, Dr. Jurgen Kohler, and our CFO, Dr.

Michael Majerus. And also as in the last 2 years, we have the physical conference here in the room and the conference call dialed in.

And what we'll do in the Q&A session is we'll take alternative questions and we'll take 1 question out of the room and then 1 question out of the call. Again, same procedure as in the last years.

So without further ado, I will hand over to Jurgen.

Okay, Rachel. Thank you very much.

Ladies and gentlemen, to you also thank you very much for taking the time today to join SGL Group's conference call either here in the meeting room or on the phone lines. Today, as usual, we will discuss the results of the full year 2017, give you an outlook for the year 2018 and also renew and update our mid-term guidance.

Also we will highlight some key areas, which are crucial for the growth of the company and as Rachel said, as usual, also here with me today is our CFO, Dr. Michael Majerus.

He and I will share, as in the past, the presentation and then the Q&A session. So let me begin with a very brief review of the fiscal year 2017.

This is on Page #3. The reshaping and deleveraging of SGL has been completed.

We completed the divestment of our business unit Performance Products, PP, which has been the graphite electrodes business covering the steel industry and by and large the cathodes business with graphite products for the aluminum industry. That divestment was completed, this so-called closing in the fourth quarter of last year.

We received preliminary cash proceeds in 2017 of €461 million and in achieving those proceeds, we were able to significantly reduce our net debt and improve our balance sheet structure. Using the proceeds, we have prematurely redeemed our €215 million corporate bond on October 30 of last year.

And let me also add here that now in January 2018, we have already repaid a convertible bond at its maturity date in the amount of €240 million. We also completed all measures that were targeted in 2017 in the framework of our reorganization project CORE.

CORE stands for corporate restructuring, and we already achieved and harvested more than 75% of the anticipated full savings, which we are targeting at the end of 2018. We also achieved a triple digit net profit resulting from the successful disposal of our cathodes, furnace linings and carbon electrodes business.

In doing so, we also achieved all our balance sheet targets in terms of equity ratios, net debt to EBITDA and gearing, and Michael will go into more detail in a minute. In addition, we also successfully implemented our growth strategy.

We have streamlined our rather complicated joint venture structure from the past. In doing -- we have done so in taking full control of the carbon fiber value chain.

We acquired full ownership in our 2 joint ventures, one with BMW, which we called SGL ACF and Benteler-SGL. Both joint ventures are now fully owned by SGL, and we have integrated those activities, of course, in our division Composites - Fibers & Materials, our carbon fiber division.

Implementing our growth strategy was successful. We generated double-digit organic revenue growth in the 2 business units last year, and we also have doubled our EBIT.

And I'm already handling over to Michael to give you further financial details about 2017.

Thank you, Jurgen, and welcome from my side to this call. As usual, I will start with the business units first.

So CFM, as you can see on the Slide #5, revenue increased by 5% to €332 million, which is currency adjusted and increased by 6%. Higher revenues are stemming from segments industrial applications, automotive and textile fibers.

Wind energy was lower due to reduced business volumes of our customers in Germany. And also the aerospace industry was overall in good level; however, the previous year had a special onetime order from the U.S.

defense industry. This boosted this in that year.

Recurring EBIT improved by 13%, so above proportionately compared to revenue development, primarily due to the higher capacity utilization in our Scottish carbon fiber facility due to higher demand from the segment, industrial applications. Also the Automotive segment showed improved earnings mainly due to better result in our SGL Composites business, which is the former joint venture of Benteler, where we required -- acquired a 50% stake in December.

Despite the fact that aerospace had somewhat slight lower revenue, EBIT was better than the previous year. And in textile fibers, however, we had some lower earnings contributions due to higher raw material and energy costs and also the wind energy as a result of the lower revenue in that year.

So on the market segments view on Page 6, you see Automotive, slight increase is now 30% of the division. This will, going forward, of course, change with the full consolidation of our joint venture with BMW and Benteler, of course.

This will be roughly 50% of our division going forward. As I said in the last year, it was 30%.

Aerospace slightly lower with 6%. Wind energy, already mentioned, decline here in revenue and therefore, the 12%.

Industrial applications improved and textile fiber on a rather stable basis. So let's move now to our other division, GMS.

We have here strong growth and substantially more than proportionate EBIT improvement. You can see, sales revenue increased here by 15%, which is currency adjusted even 17%, but in several division, a strong double-digit percentage growth in market segments, primarily in battery, industrial applications, semiconductor but also LED and automotive.

Especially, the lithium ion battery business increased by 35% year-over-year. And the remaining divisions, solar and chemical, also had growth, however, here in the single-digit growth area.

And chemical had to be catch-up in the remainder of the year because it was below previous year in the first half year 2017, but in all [indiscernible], it was a strong fourth quarter, also overachieved 2016 figures at year-end . So the EBIT improved substantially by more than 72%, which is, of course, far more than proportionately, due to the strong earnings increases in battery as well as industrial applications and all other segments showed stable to slightly improved earnings.

So on Page 8, battery business now almost accounts for 20%, so 19% you can see, which is in absolute terms roughly €100 million now of our business, as I said was strong growth. Solar at around 10%, LED still small, but solar is strongly growing.

You can see it here from 2% to 3%, same in semiconductor was here from 5% to 6%. Automotive stable at 7%, chemical slightly lower due to the over-proportion growth in the other division as well as industrial applications.

Now on Page 9, Corporate. The increase here in sales revenue from €8 million to €18 million is a more technical effect from the accounting side.

The reason is that for providing services to former divisions, the graphite electrode and the cathode business. Before the closing, this was in the group revenue, which was, of course, consolidated.

Now with having the closing process, those are external third parties and therefore, the money we get from the service level contracts are now, of course, external sales revenue. That's the reason for the increase.

The EBITDA before nonrecurring charges was slightly weaker than the previous year, but this is also a technical effect we had in 2016, positive one-off effect by the sale of piece of land in Malaysia, which gave €4 million profit in previous year. So the cost basis was actually €25 million in 2016.

So over the year, we have a slightly increasing development. And the same you can see then with the EBIT of course, the same.

Here the €3 million is stemming from the influence of the land sale in 2016. Now let's move to the group in total on Page 10.

Revenue was already mentioned, €860 million, is 12% up. EBITDA improved from €70 million to almost €91 million.

EBIT before nonrecurring items roughly doubled from €20.7 million to €40.1 million. Nonrecurring items was a positive effect this time for €9 million.

The main reasons are here effects from the first time consolidation of Benteler and the deconsolidation of Kümpers, which had positive effects here on overall figures. And which was overcompensating negative effect, which we had already in the second quarter was the sale of our Evanston site in U.S.

So therefore, in total, EBIT is €49 million compared to the almost €24 million previous year. Net financing result is somewhat more negative than before -- the increase from €51 million to €57 million.

This is, however, only due to the effect that we had early repaid the corporate bond. This was a onetime payment of €6 million for interest related to this and it was another €2 million write-down of amortization costs.

So in total, it was €8 million onetime effect due to the early redemption of the corporate bond. If you take this out, you can see that already in 2017, financing costs would have been somewhat lower.

And of course, going forward, it will be substantially lower because post the interest burden related to the corporate bond as well as the old convertible bond, which was due in January this year, which we paid back, is of course also meanwhile paid back. But in 2017, as I said, due to the early redemption of two bonds higher expenses.

As a consequence, we had a result from continuing operations before income taxes from minus €8 million compared to the minus €27 million. Income tax was at previous year's level at around €8 million.

So therefore, net result, continuous operation minus €16 million, previous year was minus €36 million, which was also somewhat better than our initial guidance because we said on previous year's level and it is now €20 million better than previous year. Discontinued operations is a positive effect, as Jurgen already mentioned, primarily due to the profit from the sale stemming from the sale of the [indiscernible] division, which was €125 million and the other portion is primarily the positive result of the cathode business in the period from January to October.

As a consequence, we show in total consolidated net result of €139 million compared to a loss of €112 million previous year. Now let's move to free cash flow on Page 11.

The cash flow from operating activities was minus €82.3 million, substantially higher than the previous year. Main effect was here the working capital development in the first quarter.

Usually, we lower our working capital in the first quarter. This year, we did not do it.

We -- the reason is that we anticipated already growth in the year 2018. So therefore, usually we have a better -- in that we have decline in working capital in the last quarter and an increase in the working capital in the first quarter.

So this year, it will be a little bit different development. We already had so to say anticipated increase in the first quarter 2018 for the 2017 quarter, that's the main reason.

Capital expenditure was also higher than the previous year, but in the range of our guidance because we set a depreciation level and we have currently a depreciation level of above 50 before the consolidation of our joint ventures. And the cash used in other activities, the investing activities minus €9.5 million.

This is a combination, of course, of servicing. It's on the one end influenced positively by dividends received from our Brembo joint venture.

On the other side, we have also here the payment for the Benteler joint venture. So this here is a net effect.

And in total, free cash flow is here minus €144 million. Roughly €40 million here is the payment for the Benteler in total.

So if you take this out and you see the operational part of that year. So discontinued operation, we received in total €458 million from the closing on the 2 transactions with Showa Denko for the graphite electrode and the closing with Triton for the sale of the cathode business.

This was, however, adjusted preliminary purchase payment. So we received, in essence, 2x €270 million from both transactions.

We received yesterday the final payment from Showa Denko, which is another €55 million. This was in our bank account as of yesterday.

This will have no earnings impact in the year 2018 but, of course, a cash flow effect. So the total purchase price for the graphite electrode business is then €285 million.

And we will receive, by the end of this year, also additional purchase price payment from Triton, but this is a single digit with -- single digit when your amount will be paid on Friday and then both transactions are closed. So -- and as a consequence, of course, total free cash flow was positive €314 million in the year 2017.

Now let's move to the balance sheet on Page 12. Total assets reduced substantially from roughly €1.9 billion to roughly €1.54 billion.

Reason is here, of course, obviously the sale of our graphite electrode and cathode divisions, which would use the balance sheet. Equity ratio increased first of all due to the reduction of the total assets.

Secondly, however, of the increase in equity recourse to roughly €140 million. Net income of course increased also our equity.

As a coincidence, we achieved our 30% target. It will be -- it is meanwhile even higher because in January, we repaid €240 million convertible bond, which is, of course, also shortening of our total assets and liabilities.

So I'm not sure that we are meanwhile clearly above the 30% in our equity ratio, which was the target set in 2014, as we remember. Total liquidity, yes, we're at €83 million.

This has been reduced in January by €240 million due to repayment of the convertible bond. And it has been increased yesterday by the €55 million due to the purchase price payment from Showa Denko.

Net financial debt at the year-end 2017 was €139 million. As a consequence, gearing decreased to 0.3 and leverage ratio to 1.5.

For the year, we achieved our target because we said in 2014, gearing should be at maximum 0.5 and leverage at maximum 2.5. So we've not only achieved our equity target but also those two targets.

We have also here, meanwhile, both ratios have increased. The reason here is the consolidation of the BMW -- of the joint venture with BMW.

The closing took place in January, despite the fact that we've not acquired yet Moses Lake. Legally, we are considered 100% owner of the whole thing, because the whole outflow from Moses Lake is going to Wackersdorf.

We have 100% acquired Wackersdorf. So economically, we already from accounting standard are the 100% owner of the whole thing.

And therefore, as a consequence, so far we have only consolidated 51% of the debt provided to the joint venture from BMW. We are now of course, considering the 100%.

So this is roughly increase of €100 million in net financial debt. But even with this, we stay below the 0.5 gearing and the 2.5 leverage ratio.

And we will maintain those ratios also going forward. So far financial 2017.

Now let's have a look into 2018, our guidance for the year starting with the division Composites - Fibers & Materials first. We expect here substantial increase in revenue by 25%.

However, this is, of course, obviously, mainly driven by the acquisition of our former joint ventures with BMW and Benteler. If you take this out, which means like-for-like excluding those M&A effects, but also currency effects, which are negative in 2018, we expect a mid- to high single digit growth rate, which is in line with our expectations also previously.

If you go into the individual market segment, we expect the market segment Automotive more than double, which, as I said, as a consequence of the consolidation of the two joint ventures. However, with wind energy industry, we expect a decline by roughly 25% due to the sale of our joint venture, Kümpers.

So we are still -- we will continue Kümpers. Of course, we'll some material delivered, but we're not supplying then anymore from Kümpers to the wind energy companies.

That's the reason behind it. So EBIT also improved substantially due to the full consolidation, primarily of our former joint venture with BMW and higher volumes and partially offset effect is the negative currency effect and higher development expenses.

Now let's move to GMS. Here we expect in total a slight increase in sales.

Also here, we have negative currency effects in year 2018, primarily coming from the yen because so far the big portion of our battery business is built in Japanese yen. And due to the weakness of the yen compared to the euro, we have some headwinds here.

So currency adjusted, it would also here be a mid- to high single-digit sales growth. And this is driven primarily by the market segments, LED, solar as well as automotive.

Semiconductor, chemicals and industrial are expected to be on prior year's level. And on the battery segment, we will -- on this, you have a strong volume increase, which will, however, be offset by price adjustment here in that segment that year.

Overall, we will have a slight EBIT improvement because -- due to the higher capacity utilization, partially offset by the already mentioned currency effect. However, we expect that the high EBITDA based ROCE of 18%, which we have achieved in 2017 should be also achieved again in the year 2018 in that division.

In the corporate segment, we expect slightly higher expenses due to lower cost applications to the buyers of our former PP business unit, because this is step-by-step now running out. And higher onetime effect due to consultancy projects, primarily our new operating management system, which we are introducing in our manufacturing side as well as the new European data protection directive.

Now let's move to the group again on page 16. We expect in total, group sales to increase by approximately 10%, which is on a like-for-like basis a mid- to high single-digit growth.

And we expect the group recurring EBIT to increase at a slightly faster pace than sales of above 10% due to expected volume increases. Traditional earnings contribution from the full consolidation of the former joint venture with BMW as well as cost savings already mentioned, partially offset by currency effects but also some raw material and personnel cost development as you might know in Germany, where we have 4% increase on the tariffs with the trade union [indiscernible].

Also, this is the effect now for 2018. Net result -- continued operations expected to improve and reach a "black zero," which means a small profit, which is due to the improved operating profit and lower interest expenses, as already mentioned, due to the early redemption of the corporate bond and the repayment of the convertible.

This is partially offset due to the fact that we now, of course, account for 100% of the interest expense of the BMW loans to our joint venture. Now let's move to Page 17.

CapEx, we expect to be €15 million to €25 million above the level of depreciation. Level of depreciation is now a new structure higher, because due to the consolidation of both joint venture with Benteler and BMW, we have -- now have depreciation of €65 million per year.

The reason is here that we have a lot of very good projects going forward in both divisions. For example, a very attractive and popular automotive project in our GMS division for a good customer and therefore, we would like to increase a little bit our CapEx to full range this year.

Also due to the effect that there's a rather rock -- broad range of €10 million we're giving in the guidance is reflecting the flexibility in timing of the individual investment project. All in all, we still stick to what we said before at our mid-term guidance on the organic growth where we achieved is on average CapEx at a depreciation level.

However, over the time line, it will be a little bit more front loaded in this year and maybe also next year. But on average, it's still to be expected that CapEx should be at a depreciation level.

Total cash flow, we expect for the year, black zero in total. The free cash flow on continued operations will improve significantly but remain in the low to mid-double digit negative range, primarily due to the high CapEx level as mentioned.

Hence the cash outflow for the acquisition of Wackersdorf site in our former joint venture with BMW. The free cash flow from discontinued operation will reach positive low to mid-double-digit range due to the final purchase price of GE and CFL.

This guidance is already a little bit conservative, since you already now have our €55 million booked in, as I said, this year. So therefore, we are quite confident to achieve total free cash flow of the black zero this year.

Net debt, I already mentioned this effect. This took -- already took place in January.

This is the consolidation effect of roughly $100 million additionally, 49% of the financing from BMW and our joint venture of Moses Lake, which will increase this figure. However, the balance sheet targets, equity ratio of above 30%, gearing at or below 0.5, leverage ratio at or below 2.5 will continue to be met also in the year 2018.

So far the outlook of 2018, and with this, I hand back to Jurgen again.

Okay, excellent. Thank you, Michael, for giving the detailed explanation about our financials of last year and the outlook for 2018.

And before I move on to discuss the new mid-term guidance with you. I'd like to give a few explanations about our key markets that will drive SGL's growth and EBIT improvement going forward.

On Page 19, I'd like to start with the Automotive segment and I'm talking here not just about electric vehicles, but also about the combustion engine-driven vehicles. CO2 targets that the European union has given and mandated will drive light weight construction and you know that in other region of this world, California and other places, China, there are similar targets in place.

Today, the average fleet consumption in terms of CO2 emissions per kilometer is about 120. The regulation for 2021 calls for 95 only and there's a few other targets that are being talked about already going forward, making these emissions even more difficult to achieve.

This requires lightweight construction of course, in the cars. On the right hand side, we'll give you an indication about what the weight savings can be using other materials than steel.

Take steel at 100, then lightweight steal applications already give a good weight reduction of 25% today, I would guess. Aluminum is even lighter.

Aluminum has been with us since Audi introduced in late 1980s, 1990s. A good lightweight material, magnesium, but more expensive.

And then the far right-hand side, you see the benefit of using carbon fiber reinforced plastics. And we'll give you here two figures that makes it a bit more complicated, but I think you need to understand that.

You can use carbon fibers in a sort of isotropic way, which means the properties are the same in all directions. Like you're mimicking the steel sheet or the aluminum sheet.

This is not the best way to use carbon fiber. Carbon fiber should be used in the direction where you have the biggest forces, because carbon fiber is, as you know, ultra-strong and this gives you the biggest benefit for the buck.

This gives you a 60% weight savings beyond aluminum. And this is what the future of carbon fiber will be.

Structures, where you use simple sheets of carbon fiber, will be history. We will use carbon fiber in areas of the car where it really makes sense, and this will drive lightweight design even further.

Going to the next page, 20. So Automotive will drive growth in our Composites division, CFM.

This is why we have acquired, as Michael already explained, the full control of the joint ventures with BMW, SGL ACF in Benteler-SGL. We have now under full control the -- under full SGL's control, the entire value chain to make carbon fiber-based products.

We have our own raw materials from either Japan or Portugal. We make carbon fiber.

We make dry materials like carbon fiber fabrics. We make carbon fiber fabrics with resins and we build components.

And all of this is under the control of SGL. This is important because we will extract value from each step of the value chain, and we can give the customer what he or she needs from each step in the value chain.

The growth in the Composite division is by and large driven by three elements, its new applications. Like one of our largest customers in terms of components that we make is Volvo.

Volvo bought last year 250,000 leaf Springs. In two years' time, they are going to buy 500,000 leaf springs.

Those leaf springs are not made out of carbon fiber, but out of glass fiber. We love composites, okay.

So glass fiber composite is as good as a carbon fiber composite to us. Imagine you make 500,000 leaf springs a year.

I round it up to 600,000, divide it by 300 days. You have to make 2,000 leaf springs a day.

Give me another composite project in the automotive industry of that size, and this is something we do in our former joint venture with Benteler-SGL. It's a new application.

A few years ago, we made 0 leaf springs. New technologies are emerging to carbon fiber.

Technology is still very young. Carbon fibers were invented 40, 50 years ago, so has a lot of happening -- lot of things happening.

The next best thing coming is thermoplastic applications. What does that mean?

We will give to our customers sheets made out of cheap resins like polypropylene polyamide. They can heat those sheets up and form them in other shapes.

Thermoforming, this is why it's called thermoplastics, a very efficient, very low-cost alternative to other materials and then existing products go into new markets. We were a little bit surprised by the development in the dual-clutch systems today.

Wet friction materials for the German colleagues [indiscernible] are now replacing [indiscernible] materials in those clutch systems, okay. This is a market that grows much faster than we had anticipated with the product that we already had in our pipeline.

So it's new technologies, new applications and so to speak, new markets. And there's a trend, a clear trend not to pure carbon fiber components in cars but to hybrid components.

So it's a material mix. A good example in the 7 series BMW is the B column, which is aluminum with carbon fibers glued to it.

This will be the future of carbon fiber applications. We will move with our customers if required to the Americas.

We are hoping that Volvo, Daimler will not be the only customers for leaf springs. So if Ford or GM or others are coming, we will move across the ocean and of course, electromobility also drives carbon fiber growth.

Imagine you are in a Tesla or another car with a huge battery that weighs 900 kilograms, 1 ton in the bottom, you have an accident, you end up on the roof, 1 ton of battery above you, okay. So the structure of the car has to change fundamentally with the heavy battery in the floor.

And this is where the battery belongs. Automotive, not just drives our growth in Composites, graphite is used in each and every car on this [indiscernible].

So if you see a car outside think graphite, our graphite division, GMS, serves those businesses. In terms of immobility, there is an increasing demand for brake-assistant pumps.

A brake-assistant pump in your car, which is an internal combustion engine, use it to pressure in the exhaust system. Electric car doesn't have an exhaust system.

So how do you get brake assistants? It has to be an electric-driven pump from the battery and that pump is made of graphite.

Same thing, cooling pumps are made out of graphite. You are arguing, an electric engine doesn't need a cooling pump, right, but the battery does.

So a Tesla S has 4 cooling pumps to manage -- for thermal management of the batteries, okay. So electric cars require graphite.

We are investing into that business in our facility in Bonn over the next, we actually think, 4 years. We're investing about €25 million only to cover the increased demand of pumps.

And we have acquired a major order, which we're allowed talk about from a major Tier 2 supplier in the automotive industry, Pierburg and this is exactly the systems for the brake assistants. The next chart on Page 22 is something we have prepared new for you, just to give you a glimpse or to give you my insight on how much SGL is inside every car.

I love Intel's slogan SGL inside. This is an average car.

Let me move a little quickly counterclockwise starting at the top. Body parts, body shell components like A-, B-, C-pillars, we talked about that, roof reinforcements, et cetera, These are typical applications for carbon fiber reinforced plastics.

Moving on, on the right-hand side, #3, the leaf springs, I was already talking about. We make, as you know, carbon-ceramic brake discs in our joint venture with Brembo.

We make those brake discs in Germany in Meitingen and in Milan or in Italy. We're fully sold out and increasing business.

Why is that? If you buy a hybrid car with a heavy engine, and you add an electric engine and battery to it, what happens?

The car is heavier and the car has more horsepower. Those cars require better brake systems.

So the take rate for our carbon-ceramic brake discs has increased with the rate and the performance of the high-end cars, of course. Continuing anode material for lithium-ion batteries, I will cover that in a separate section.

The friction material for the clutches, I mentioned already. Are we scared about batteries being replaced by fuel cells?

No. There's no single fuel cell without carbon.

If you want to make the electrodes get good coverage from the hydrogen and oxygen, which is the fuel, you have to have a carbon material that distributes the gases on the electrodes. Increase in business from us, we have acquired a major contract with a very major Korean car maker.

And then the standard graphite material. So I talked about the pumps already, but there are sealing materials in the engine.

Gaskets in your engine, okay. There is rotors.

There is fuel pumps. There's many, many other things that require graphite.

In each and every car that you see on the street, there is a lot of graphite inside, hopefully, in many cases from SGL. I'm turning to page, moving on to Aerospace.

Here the opportunity is a bit different. The airline industry is growing dramatically, high growth rates.

I mean, and some of you might cover that industry. The industry becomes more competitive.

There is new competitors emerging like Comac in China, like Mitsubishi in Japan, the airplanes from Russia, okay, Embraer, but that's probably history with the acquisition. So there's has many, many things happening that make that industry more competitive and they require cheaper materials.

We have tuned our BMW carbon fiber to be fit for Aerospace. This is recent breaking news.

We just unveiled this last week at the biggest carbon fiber composite show in Paris. We have now a product that we can present to the aerospace industry for applications in airplanes.

The first target market is not the wings or the fuselage, okay. It's going to be interior components.

It's going to be engine covers, et cetera. But we're very optimistic that, that carbon fiber will receive the permission and qualification of the aerospace industry.

[Indiscernible] is changing. Launchers are built in increasing rates, UAVs, which is drones, are built in increasing numbers.

A drone has to be light. So it's lightweight materials, aluminum, carbon fiber composites or glass fiber composites.

So what drives our growth. Moving on to Page 24.

The growth rates in the aircraft industries are very small compared to the automotive industry. Airbus today, best seller is A320.

They make 40 airplanes a month, and they're talking about moving on to 60 a month, okay. I was talking with Volvo about 2,000 parts a day.

So our efficiency, our productivity is much higher and that is the second thing that will make airplane making cheaper. So it's the material and it is the technologies and here our strategy is that we use our automotive, automation experience for the aerospace industry.

And with our value chain of course, we are here excellent position now. I'll move on to wind energy.

This is a long-term, very successful business with carbon fiber composites for SGL. The market specifically in Germany is now more challenging.

Globally, the wind turbine growth is stable, stagnating. So it's no longer accelerating.

In Germany, we have a specific situation with the new tendering procedure. You know that new winds parks are basically auctioned.

I must say reverse auctioned, okay. Those who offer the lowest generation costs for electricity [indiscernible] project.

This way installation rates have little bit slowed down and made the OEMs to come under more severe cost pressure. We have sold our share in our joint venture SGL Kümpers, which makes carbon fiber fabrics for the by and large German wind industry.

We have the same technologies in another location of SGL, and we see the pressure in the wind energy that I just explained. So this rather driving force is for us to exit these activities.

We see changing technologies. 10 years ago, prepreg.

Prepreg, which is a carbon fiber fabric that contains a resin, was the name of the game in the wind industry. That has almost completely vanished as -- vanished as technology because of high cost.

After that, we saw the carbon fiber fabrics and now, we are seeing protruded, prefabricated components entering the wind industry. You see the carbon fiber history is so short, there are so many technology developments and those developments will be successful that offer our customers a competitive advantage, cheaper technologies.

The next effect here is because the technologies best in carbon fiber become more competitive. Other OEMs in the industry look now again at carbon fibers and we believe this market will increase.

The headline in wind energy. That's reduced the headline to energy beyond winds.

There's also would many things happening, for instance, in the oil and gas industry; types; risers for oil offshore drilling; liquid tanks, et cetera, are all potential applications for carbon fiber composites that we are following and hopefully, we'll be able to exploit opportunities in those areas. The market that develops most rapidly is on page 26, it's batteries.

And I'm sure you are following some of the companies that you see on here. The whole value chain continues to invest and needs to continue to invest in making lithium ion batteries .

Lithium ion batteries is the only available technology today for the automotive area on the right-hand side of this chart. You see a few selected OEMs.

Those OEMs, and this is why there's a blue arrow, put pressure on the battery makers or the cell makers to increase capacities and the new announced capacities are simply mind-boggling. You read the number here of 500 gigawatt hours a year.

Gigawatt hours is the metric that's being used to show the capacity of a battery, okay? Gigawatt hours 500 until 2030, the capacity today is 100, okay.

So fivefold increase in few years at least and this is only the announced capacity increase. And of course, those battery makers put our own -- companies like us who are making the required materials for the batteries, you know those materials.

It's lithium, it's cobalt, it's graphite and many other materials. [Indiscernible] dynamics, Page 27.

The left chart depicts what we expect reading public sources in terms of growth. The blue stack bars shows you these various markets.

Light blue is electric devices, like you are using them here in the meeting room. The middle column is automotive.

And on top, there's other applications. The clear message here, automotive drives the growth and [indiscernible] this growth exponential.

And these growth forecasts are accelerating. The middle sections in that chart is what we showed you two years ago.

The gray-shaded section of it, this arrow, is what the most recent forecasts are. So the forecasts are increasing.

What does that mean for graphite? A simple number for you, 1 kilowatt-hour battery storage capacity is 1 kilogram graphite, and there is no other technology.

So if you happen to drive an i3, a 30 kilowatt-hour battery is 30 kilograms graphite. If you are lucky to own a Tesla, Tesla has 70 to 90 kilowatt-hour batteries, 70- to 90-kilogram SGL graphite.

So whenever you see a Tesla, think SGL. On this chart, we are talking about gigawatt hours, and it's very simple, 1 gigawatt-hour is 1,000 tons.

So 100,000 -- 100 gigawatt-hours capacity today requires 100,000 tons graphite. If you see 1,000 gigawatt-hours here, it's 1 million tons of graphite.

Very simple math for graphite makers like us. So we see a strong growth per team going forward, and there is no substitution technology available today.

Going to solar. Solar like wind goes through an interesting but not unexpected development.

The generation cost for solar electricity drops sharply, driven by various factors, economies of scale is one. Increased efficiency of the solar panel is another one.

And then as far as the development, the growth accelerates. But if you look on the chart, Page 26, on the left side, looking at 2018, we expect new installations in the range of, again, gigawatt, 100 gigawatt per year this year.

In a few years' time, 3, 4 years, it's going to be 160 gigawatts. New installations on a global basis, is this going to happen in Germany?

No, it shouldn't happen in Germany. We're living in the 50th degree of latitude.

There's not enough sunshine here. It should happen in China, India, U.S.A., South America, where there's much higher efficiency to make solar electricity, and this will be happening.

For us, there's another technology element that happens to improve our business growth. The technology in terms of silicon, and you need silicon to make solar cells, is changing.

In the past, historically, the solar cell makers used a very pure silicon in the range of 99.9%. Solar-grade silicon is the technical name.

The solar cell makers moved on to semiconductor-type silicon, which has a purity of 99.99999%. The reason is simple, the higher the purity, the highly efficient the solar cells.

And that silicon is called monocrystalline silicon that's been put. Okay.

And this requires more graphite as simple as this. In each step of making silicon, you need graphite, starting with the melting of sand, purifying the silicon to get solar-grade silicon, again purifying that solar-grade silicon.

To get monocrystalline silicon, you need graphite, so this additional production step in making the solar cell silicon now, which increases our business. We are benefiting from a technology shift.

And we are fully sold out in that business, which should give us opportunities and leverage for potential price increases. Semiconductors.

I indicated already how semiconductor-grade silicon is made. You need graphite, you need the production step.

Semiconductors are growing nicely. A conservative figure is here, 5% growth year-over-year.

We believe the growth is faster. Looking at all the cloud installation, the computers that are being built, the server parts, et cetera, we have an increasing number of mobile devices.

Cars are, by and large, computers these days. Think about autonomous driving, about connectivity.

Everybody requires semiconductors and computer chips some time. We believe, in China today, there's 40 new semiconductor factories under construction.

Semiconductors are being made in -- mostly in China. And the drivers, I just explained to you, the material is in short supply today.

What material is in short supply? When you make a semiconductor, you need large graphite carriers in the process.

The process is very hot, 1,300 degrees centigrade, very harsh chemicals. And the only material that you can use is graphite.

With that many new factories being built, graphite is in high demand. Again, here, we think and we believe that price increases for SGL should be possible.

Another semiconductor application is LEDs. LEDs are nothing else than semiconductors.

This is also a very rapidly growing market, driven by 3 submarkets. Automotive high-end cars today use LED lighting.

The exteriors, the interiors, that is LEDs. Signage.

Outside, you can build larger signage with a much higher pitch display resolution than in the past. Better colors, better contrasts, et cetera.

So LED outside signage will increase tremendously. And then, of course, general lighting.

Many, many communities are already replacing the old light bulbs with new LEDs. And here, the name of the game, the driving force is cost reduction, of course.

I mean, LED lives much, much longer. LEDs require much less electricity.

So that is a development, pushing LED installation. And that, again, increases the number of LED factories on a global basis.

Global basis, I'm lying to you, again, it's Asia and Asia, where those LEDs are being made. And you might know about the big project of OSRAM in Malaysia.

We are supplying the graphite to that factory. The graphite for LED-making is probably among the most high high-tech graphite.

These big carrier plates are not only big, they are machined from us to a micrometer accuracy scale. And we are coating those carriers with one of the hardest materials on earth with silicon carbide.

The strong demand has driven us already last year to start an expansion project in our factory in the United States, in St. Mary's.

The demand is so big that, that installation, which will be finished this year, has to be increased again. And we have approved the second expansion phase, which will be completed early in the fourth quarter of this year.

To give you a ballpark figure here, that project, over 3 years, requires approximately a €25 million investment. It's a little bit old industry and a long-term customer of SGL, Page 31, the chemical industry.

The chemical industry cannot do without graphite, and I think I explained that in the past. The chemical industry is in a stable growth mode.

Regional distribution, of course, the growth is different. On a broad scale, the public figures for 2018 expect the growth rate of 3.5%, which you see here, 2018 over 2017.

There are several interesting developments. Of course, you know about the consolidation ideas.

It's not just DowDuPont, but there's other consolidations happening. The U.S.

petrochemical industry is back into an investment mode, which helps us. And of course, the shale gas exploration has picked up again under Trump in the gas.

All of these developments are good for our business. And we have won a major contract for hydrochloric acid recovery in the -- in China.

And some of the projects that were postponed and maintenance activities that were postponed because of the lower profitability expectations are now coming back, and those have to be executed which, again, drives growth for us in that business. And Michael already indicated that our order book in the last half of last year improved.

Moving on to general industrial applications, which is the last segment I am talking about. There's many, many general industrial applications, insulation materials and others that require graphite and carbon fiber materials.

There is new applications coming up. I was talking about thermoplastics already.

You'll find carbon fiber now in many medical applications, in sport applications historically. One industry development, I admit, also surprised us a little bit.

Many plastics are processed in so-called injection molding applications. If you know KraussMaffei from Munich, one of the large makers of injection molding machines.

An injection model material, in many cases, you have short glass fibers as reinforcement. In the future, in many applications, will be carbon fibers.

A carbon fiber -- short carbon fibers are replacing the glass fibers in some applications and injection -- for injection molding parts. This actual growth, we are now in a unique situation, for the first time that I remember, that we have to tailor-make those short carbon fibers.

In the past, we use [indiscernible] in our factories and cut it short. So that shows you how dynamic that market is.

We're also expecting that civil engineering use of carbon fibers will [indiscernible]. Going forward, carbon fibers don't corrode.

Carbon fibers are ultra-strong. So especially for maintenance of civil structures or for repair of civil structures, we see applications -- good applications for carbon fiber.

The downside in Germany is that certification process with the authorities here is lengthy, and we will target other regions, other legislations for those applications. Okay.

Same thing, GMS is driven by general applications. Drilling activities in the U.S., I talked about oil and gas.

You need to know, each and every drill head in this world is molded in a graphite mold. It's casted metal with diamonds on it, and that happens in mold.

[Indiscernible] and increased drilling activities. We are happy, and then there's new applications emerging for graphite.

If you happen to own a new Samsung mobile phone that has a curved glass on top, okay, that glass cannot be rolled flat. That has to be again casted.

And again, what is the mold made of? It's graphite.

Now imagine, going forward, the level of imagination, the big dashboards in the car in the future will be touchscreens made of glass. How do you make those big craft touchscreens, you need graphite molds.

So glass-bending, making curved glass is an increasing market. For us, small, smaller than LEDs at this stage, but growing.

So I think my intention here has been to give attention has been to give you a little bit of an explanation about the various growth markets and growth opportunities that you have in our hand. So let me move on to the last part of the prepared talk here and explain to you our mid-term guidance.

Page 34 is a repetition or, if you want, a confirmation of our previous guidance. We said in the year 2020, we will be around about at €1.1 billion sales, and then ROCE based on EBITDA level of 15%.

We are now a new company after the restructuring, after the realignment. We will change a few things.

And we're changing the metric here, we will move on now with the guidance based on EBIT. So the ROCE guidance for 2020 is unchanged, but it's now 9% EBIT-based, which is identical to the previous 15% based on EBITDA.

Where does the ROCE improvement come from? From today's perspective, it's, of course, the mega-trends that will drive our growth and our capacity utilization.

I tried to highlight at various points of my presentation that we want to go downstream the value chain, make more finished products, make less carbon fiber -- less carbon fiber sales, less graphite blocks sales, but finished products for our customers. And of course, of efficiency programs will contribute to our profitability growth.

We're a new company now after the realignment, and I think it's now right time that Michael and I give you a new mid-term guidance. The mid-term guidance will reach out to the year 2022.

So from a sales level of last year, €860 million, we are saying with the growth of 8.5% on average, we should be at $1.3 billion sales in 2022 and with an ROCE of above 11% based on EBIT. With that top line growth and with that profit growth, I think you see what our definition is of profitable growth as our target.

In addition, for the first time, we are giving a guidance for a net profit margin, our free cash flow margin. For the net profit, we are targeting margin, and we see this on the right-hand side of 6% to 7%, for the free cash flow margin, a level of approximately 5%.

Unchanged, our balance sheet ratios, again, Michael explained those earlier today already, equity ratio of above -- or 30%, leverage ratio of below 2.5, which is net-debt-to-EBITDA, and the gearing of below 0.5. So we're confirming this guidance for the full 5-year planning horizon.

And we're also introducing a margin target for our business units. The margin target, of course, because we have to cover corporate overhead costs, we have to cover cost of our innovation department has to be a little higher and we guided here on margin our S target based on EBIT of 12% or above.

This is our new mid-term guidance, and this also ends my prepared part here. Thank you for your patience and attention.

And we would now like to open the Q&A part of today's conference call. Please, Jasmine, go ahead and guide us through that section.

We'll start with a question from the room here. No question in the room yet, so we'll move on to the call.

Glen Liddy from JP Morgan.

One of the things that I'm struggling with is your tax rate. I appreciate that you don't have a big tax loss carryforwards on your balance sheet but given the development of the business over the last 5 to 10 years, you must have some.

What do you think we should be looking at in terms of modeling your tax liability for the P&L over the next couple of years or so?

Yes. I mean, we can, of course, have some indication out of the figures we have given because we have here a net profit margin for 2022 of 5% to 6%.

And if you see that this is related with the return of sale of above 10%, you see that for the both -- for interest and taxes, there is a difference of 3% to 4 percentage points. On that point, and the same thing, we said we want to have our leverage ratio and a stable rate, so we again see that's -- what has been the interest rates so we can make then also some calculation of what's related to the revenue, the tax rates should be.

Of course, if you look percentage on the profit, of course, this depends from country-to-country. But coming back to your point, it's why that we have substantial tax loss carryforwards.

We do have in total, you would find it in the details in our report, roughly €1.5 billion tax loss carryforwards in various jurisdiction, which is, of course, a potential to be used going forward. But we have to be careful in some jurisdiction, this a timely limited.

For example, in the U.S., some of those things expire in the 2020, to some extent. You also have a minimum taxation here in Germany to some extent, so therefore, we have not given a precise tax rate percentage guide.

But I said, implicit in the calculation, what we have given you as a target now, you can see at least related some assumptions on that tax related to our revenue and income over the time to come.

That's fine for the very long term, but I was thinking more over the next year or 2?

I wouldn't expect taxes to be that much different in absolute terms from we -- today, of course, it will increase to some extent. You'll see, so far, we have €6 million, €7 million, €8 million tax on the income basis, of course, with increasing profit.

This will, to some extent, also increase. But on the other side of that, we have tax loss carryforward so we do not expect huge tax burdens to come in the next 1, 2 years.

Okay. In terms of the growth you're expecting in things like batteries over the next couple of years, at the moment, your customer base is very heavily skewed towards the Tesla organization.

Over the next couple of years, I think you've won new business. Can you give us an idea of the timing of when you expect to start delivering on the new contracts that you've won recently?

Okay. Glen, good to have you on the line again.

This is Jurgen speaking. Do I understand you right that you want to talk about the graphite for the lithium-ion batteries because you mentioned Tesla?

Yes.

Yes. Today, our largest customer for that specific specialty graphite is the value chain, Hitachi, Panasonic.

And everybody knows that Panasonic's largest customer is Tesla. At this stage, we are expanding our capacity according to the graphite demand forecast of Panasonic.

So we have invested, in the last year, roughly a small, single-digit million amount in our Polish and French facilities. We are investing in North America.

So we have two facilities that make that specific battery graphite. We have plans, of course, to penetrate other accounts.

We are in other battery makers already to a smaller extent, to a much smaller extent, but we want to increase our presence in those accounts as well. The qualification is at different stages.

In some accounts, we are already in batteries and in cars. In others, it will take a bit more time.

But you're absolutely right that we are in the process of broadening of our customer base here.

I think one of your customers is building a big plant already. How big a step change when these individual plants come on stream is it for the battery business?

I can only estimate our -- I think that you are talking about Panasonic, who is building the Gigafactory in Nevada in the U.S., and that is a factory that receives our material at the end, okay? And we are investing in parallel.

And me telling you that we have no big investment right now here in front of us, it would be a three-digit million expenditure. That's not the case right now.

[Indiscernible] we have capacities. What do we do?

We have various graphite technologies, and we are, in the U.S., now in the process of changing the technology in our existing graphite factory. That graphite factory made a different graphite in the past.

It is now making battery graphite. It's a good opportunity for us with fairly little CapEx to enter this market.

I have two questions. One is on Inverness, you said that you have a sort of an improvement there and some kind of a mix change.

Can you give us more details about that kind of mix change and how the mix will go on forward, especially at Inverness? And the next one is on headquarter T&I costs, they are still high.

Of course, you have initiated support program. Is that currently on-plan and will deliver the expected reduction of corporate costs?

And the next one is how much do you like to invest in R&D going forward to achieve your targets? And is there any plan that you can or will allocate this kind of R&D cost to the segments that we have a very lean corporate structure and then all of the R&D allocated to the business areas going forward?

Okay, Christian. This is Jurgen speaking.

Also to you, thank you for being on the line. Let's talk about R&D first.

We have made a major change last year. We have separated our R&D organization, and we have given all activities that are close to our customers into our two divisions.

So those R&D colleagues that work close to customer on graphite and on the graphite division, and the same applies to carbon fiber. And we have maintained a core R&D activity with roughly 90 colleagues today in our Meitingen facility.

And the cost of this -- sorry, the cost for these colleagues or the cost for these R&D headquarter, let's put it that way?

It's in our R&D center. In the past, we have not revealed that cost, and I think I don't want to do it at this moment in time.

I'm asking for your understanding here. We'll think about what guidance we can potentially give in that direction.

But I can state we have not increased our R&D spending, and we don't have to do so because we have changed our strategy. In the past, for my case, SGL had too many different R&D activities.

We have now reduced the number of R&D activities and put more resources in those activities that are crucial for our growth ambitions. So there's a lot more activity now in developing aerospace-grade carbon fiber.

A lot more activities, no surprise, in the battery segment, okay? A lot more activities in coating, silicon coating and other coating of graphite.

So we have reshaped our R&D environment by giving it more focus. I think that is the right answer here.

Speaking about Inverness, for those who don't know the name Inverness, we have two large-scale carbon fiber factories, 1 in North America, Moses Lake, 1 in Scotland, which is Inverness. Christian knows us quite well.

Moses Lake in North America produces one type of fiber 24/7, 24 hours a day, seven days a week, 330 days a year. We need some maintenance, okay?

One time. Very efficient, very lean and mean.

Scotland is the opposite. In Scotland, you make the same carbon fiber type, but you make various other products in Scotland.

So if you want to buy short carbon fiber, you get it from Scotland. If you want to buy a carbon fiber yarn, you get it from Scotland, okay?

So this is the set up in SGL. I think it's fairly efficient.

You're asking about the mix change. Yes, there is mix change, twofold mainly.

We have, over the past years, increased our capacities in Scotland to make more of the short carbon fiber. The second mix change is that we have sold our Evanston factory to North America, which was a small carbon fiber factory.

Evanston made a different carbon fiber type, so-called 24k carbon fiber, which is a little bit thinner than our 50k. That 24k carbon fiber is now also made in Scotland for those customers who are asking for it.

Does that your answer your question?

In some cases, but not fully. There was still a -- there's a certain number of carbon fiber you sold to the consumer industry, which was very low-margin carbon fiber, low-margin business.

How much is this business now? And how much will this deteriorate going forward with that change of the mix?

Okay. The lowest-margin carbon fiber business is for the sporting goods industry.

And that is, no surprise, not our favorite industry. We have very little volume going in that industry.

And historically, we had very low volume. We leave that battleground to others.

So in that regard, there is no mix change. The mix change that you might be adding for will come by exploiting our full value chain.

The carbon fiber from Scotland and Moses Lake will be used to make fabrics, for instance, in Wackersdorf or another factory. And that fabric then will be used to make a prepreg or a car component.

So the mix change is not necessarily -- or the mix change that drives our profitability does not necessarily happen in our carbon fiber locations but in the value chain moving downstream.

Okay. How much is currently going into another product, and how much are you selling directly?

I don't have that number with me. I need to extract it from the system.

I really cannot tell you how much of our thousand, thousand tons of carbon fiber is sold as carbon fiber. I mean, everything we make in Moses Lake, okay, our largest factory, is not sold as carbon fiber.

It is sold as carbon fiber fabrics [indiscernible] products. Only a [indiscernible] and only a fraction out of Inverness is sold as plain carbon fiber.

So our pure carbon fiber sales is a low figure.

Yes. And this is Michael Majerus, coming to your other questions regarding corporate cost.

I mean, you're right. €30 million is a relatively high number, but you have to understand the content.

I'll come back to this in a second. But first of all, regarding the development, and your question, why is this not going down.

I mean, as I told you briefly, explained in my presentation, we -- in the year 2018, after the situation that we have, some one-off costs related to some project, which we do not charge for business unit but it's showing centrally, although they are related to business unit. One -- very important one here is the operating management systems.

So we are improving the way how we manage our manufacturing sites, introduce common standards and processes, shuffle managements and so on. This is a rather big project.

It was a [indiscernible]. This is shown here.

And the other effect is also more temporarily effect, in addition to one-time effect that we -- that the SLAs, the service level agreement to the former sole division are expired over time. We are also not expiring at one date, so we have some sort of the jump fixed cost, which we cannot decrease with just one shot immediately.

So some further cost adjustment can only be done once the whole thing is here, expired. And so that is also a little bit for redundancy, temporary redundancy.

They are the reasons why we have this development here in 2018, so a more temporary effect. On the overall level, you have to understand, this is not an average [indiscernible] headquarter.

I mean, we have, in essence, roughly 50 people in our corporate headquarter. And if you see that we have centralized here some functions, which we only have here, like for example, legal department and restorations, you could find some treasury group consolidation and so on and so on.

I think 50 is not big corporate center. But I think on the other side, you see that €30 million is not coming just from the 50 people, obviously.

So that shows also that we do have, of course, here also certain costs, which we show centrally. We have a big IT organization, which is not included in this [indiscernible] .

Some of the costs we are charging to the business unit, but not all of the our costs we are charging. It depends very much whether this is a type of project honored by the business unit.

Or was it a general project, for example, which we initiated despite the fact that, in the end, the business units will benefit from it. The whole insurance costs are shown here.

Only those costs are shown here, and so on and so on. So it's not the question that we do have a huge gigantic overhead sitting here in this part.

Of course, we can debate lengthy whether we should allocate more to the business you insured. Centrally, that is a discussion, where to show it.

But as I said, it's not the effect that we have here accentuated central organization.

Maybe just some clarification points on your mid-term guidance. You base it on 2017.

Could you just again share with us the effects that we'll get from ACF and Kümpers and whether they equal each other out? And also with regards to the EBIT margin, that we have a starting point.

Then secondly, also in the midterm guidance, which currency exchange rates have you implemented in that guidance in terms of Yen and U.S. dollar?

Are we talking about current ratios or average ratios? And then lastly, as we already mid of March, could you also maybe share with us a little bit your feelings on Q1?

You mentioned already, high working capital you started with. So what do you expect in terms of revenues, maybe EBIT, and ideally, also cash flow generation?

Yes. Let me start with the midterm guidance stuff.

The €1.1 billion, of course, has been introduced a while ago. You're right.

Two things have changed now. One is that -- the move structure.

Here we now have, in addition to full consolidation of the BMW joint venture, and not only the 51%, but now the 100%. We have the full consolidation of the Benteler joint venture.

And Benteler is roughly €50 million revenue. And the 50% of ACF is precisely in mind -- is another €50 million.

On the other hand, we have the decline of Kümpers, which was, I think, also in the making towards of €50 million. And on the other side, we have -- I don't have the currency exchange rate now in Italy in my mind.

I'm not sure, have we disclosed this in the past, what we've used for...

Yes. We have basically locked in the ongoing currency rate more or less out of Q4 of last year.

Yes, yes. We know.

But what we have -- if this is the stated figures. That's one of my questions, but okay.

Well, coming back to it, I don't have it in mind, but what has changed is, compared to previous guidance, the currency rate which you're using now are the most actual one, as you have just said. So we're using a -- normally, we have a planning period which -- so we use the exchange rate as of this time.

And post-U.S. dollar and the yen are much more unfavorable now than they are in the past.

And normally, we continue this for our five-year plan at that rate. So therefore, confirm the 1.1.

On the other hand, we have a slight positive effect from the structure of the joint ventures. On the other side, we have a negative effect from the currency.

Whether this will stay or not, we have to see, but that will be a speculation. But that is, in essence, why we confirm the 1.1 going forward.

The €1.3 million comparable basis for the same structure and the same exchange rate so this will be operationally €200 million additional business to come in the next two years. So with regards -- I think yes, we have already here a text.

I think, maybe, I will be not precise what I have been for the first quarter. Is that we began the fiscal favorable developments revenue initial weeks of 2018 were higher than the prior year level.

So we are currently, we're not giving more details, guidance on that. But so far, and compared to our guidance at the plan which we do have for 2018, we are at least at the level or even slightly better than the plan so far in the first two months.

That is the only thing we can say for the time being.

Just two follow-on questions. On the aero business, where you're saying you can use the lower tow fiber that you're using with BMW.

Is that qualified yet for any aircraft? And how long will it be before you get qualifications to be able to use it?

Okay. A small correction.

It's a so-called heavy-tow, large-tow carbon fiber, 50,000 filaments. We call it 50k.

The [indiscernible] fiber, as you know, in the aircraft industry, is a low-tow fiber in the range of 6k, 12k, so much thinner. So what we are offering for the first time, and we do not know of any competitive fiber here, first time a large-tow carbon fiber has reached the properties that the aerospace guys require.

That is the new situation. Yes, I can confirm that we are under qualification, that materials are being tested, and that test components are on aircraft, okay?

More -- I cannot say because we do not know, really, how long the qualification takes. And if you ask Boeing or Airbus, I'm sure they will give you the same statement, okay?

They want a lot of assurance. Of course, less assurance if you're talking about aircraft seating or compartment divisions in an aircraft, okay, partitions in the aircraft.

That goes much faster compared to the fuselage and other structures. So it might not -- might be a little bit disappointing answer, but I really cannot give you a figure here.

That's fine. If you won the qualification on the components that is been tested for now, would that required material amount of CapEx to be able to meet the programs it's being tested for?

I do not believe that short-term, that requires Capex. We have not just tuned our automotive carbon fiber with the new properties, we have also enabled our current factory in Moses Lake previous [indiscernible] BMW, to make that fiber.

So the nice thing for us is, that specific aerospace fiber is made in the neighborhood of Boeing.

Right. Okay.

And another thing, just coming back to revenue CAGR. You're pointing to 8.5%.

You've also said that you are front-end loading the investment, because your CapEx is going up significantly this year. Yet, you're also pointing towards group level revenue growth of maybe high single-digit.

So does that imply dips later? Or should we regard your CAGR expectations as cautious?

Okay. Good point.

I'll start with a different direction. I hate an annual business plan.

We have to have it for various reasons, for you guys in the room, on the phone line to calculate the bonus that Mike and myself might get or might now get, so. But our time is so fast.

We talk about agility, fast-moving industries, development became so many opportunities that it's hard to assess the annual CapEx. The only thing that drives us to give us a CapEx basket, a budget, is if we don't have more money to spend, but then you have to allocate, okay?

The situation in 2017 developed specifically in the automotive industry very fast. We have two investments opportunity that we did not know in the fall off 2016.

Imagine that, okay. They came early 2017 and this is why we started to invest in 2017, and then ramping up those investments with the guidance that Michael gave in 2018.

And similar things on smaller scale are happening on the composite side. The dramatic increase in our graphite business for the LED and semiconductor industry basically forces us because there's only three competitors on the graphite side to increase our coating capabilities for the graphite in North America.

So what I'm moving at is the current growth that we are seeing, we are covering with a year or maybe two years of investments. It was a little bit above -- or a bit above our long-term guidance.

And we said CapEx will be on the level of depreciation, amortization. That will be the case.

And there's a few years where we're going to be above and others are going to be below. So we believe that 8.5% average growth, we can cover a risk on average our Capex guidance.

Okay. It sounds like one of your biggest problems, nice problem that it may be, is deciding how to capture the growth and where to allocate capital.

So what criteria are using to decide one project over another?

In general, it is, and that is not a surprise, profit expectation, ROCE. So ROCE, how much capital employed to we need, both in terms of investing in equipment and machinery, but also capital employed in our or value chain, okay?

So ROCE is the key KPI to make those decisions. At this stage, we did not yet have to reject a good opportunity to invest.

And the reason is that we have some facilities where we're moving from low-margin graphite, I talked about the battery situation in North America, from low-margin graphite to a much better-margin graphite.

Do we have any more questions, either in the room or on the phone? Thank you.

So Jurgen, you want to finish it?

Yes. The only thing I can say, thank you very much again for your time, patience and attention.

We will have the next call to talk about the first quarter results and the outlook in early May. And I'm looking forward to talking to you at that occasion.

Thank you very much, and have a great day, great afternoon here.