SGL Carbon SE

Thank you very much everybody for coming to Frankfurt or dialing into the call to our year-end analyst conference today. As always, I have here we with me the entire Board of Management of SGL Carbon, Dr.

Jurgen Kohler, CEO and Dr. Michael Majerus, CFO and today, this is not my presentation.

I will straight away hand over to Dr. Kohler, who will give a short introduction.

Okay. Thank you very much Raj.

So ladies and gentlemen, thank you very much again for taking the time to join us today for SGL Carbon's analyst meeting and conference call. Now we will discuss, as you expect the results of the fiscal year 2018, and give you a first preview for the year 2019, and also some details about the first quarter 2019.

As always, and as Raj said, here with us today is SGL's CFO, Dr. Michael Majerus, and the Board [ph].

He and I will share the top now. And then at the end, we are both here and available for the questions that you might have.

Let me quickly start with a summary of what we achieved in 2018. We had a strong year operationally and financially.

Sales, EBIT and net income 2018 exceeded our initial expectations, and we slightly increase during the year thrice our guidance. The new SGL Carbon and the new set up after the strategic realignment, now operating only two divisions, two business units; Graphite Materials & Systems or Specialty Graphite and Composites Fibers and Materials or Carbon Fiber Division.

We exceeded for the first time this quarter, EUR1 billion revenue. Group sales grew strongly by 22% compared to the previous year, half of which is purely organic.

Then of course, because of the acquisition of the shares of our former joint venture partners, BMW and Benteler we have a consolidation effect. And then the new accounting standard, IFRS 15 plays an important role but that is Michael's job in a few minutes to explain details.

Group EBIT increased strongly by 61%, especially because of the outstanding performance of our Graphite division. First time as the new SGL, with the new setup, we had a positive net profit from continued operations.

On the financial side we had two major landmark events last year. We successfully issued new convertible bond, about EUR160 million, which matures in 2023 to refinance existing lines and liabilities that we had.

And we very successfully elongated increased our syndicated loan facility to EUR175 million. This is seen as a purely backup instrument and is currently completely undrawn.

And again, Michael will give you details in a few minutes. Strategically, we also continued with the execution of our realignment.

It was a strong year. And we have emphasized the new SGL concept, as initially we did a rebranding, which was the first time we presented in 2018 at our general assembly.

We believe of course the new setup is unique. It's modern, it's clear, it's digital, and I leave the judgment up to you.

The former joint ventures with BMW, SGL ACF and Benteler formally Benteler SGL are now 100% part of SGL Carbon. The integration went very swift and successfully.

And let me emphasize, we did not just move our processes and standards to the joint ventures. It went in both directions.

Things, procedures that they did better than SGL, we incorporated and implanted into SGL. This emphasizes that we have executed on our value chain strategy.

In both divisions we begin with the raw material and we end up with components. We have to do this and we'll speak about details later in order to control costs, in order to control quality not to be dependent on suppliers.

And at the end, which is probably the most important feature to offer full one hand certification to our customers, mainly in the automotive and the aerostructures industry. On a very operational level, we implemented major production sites, our new operations management system for the production.

This is a stringent mandatory system that has to be implemented at all our 32 production facilities overtime, and to be completed early 2020. It is to drive control systems globally.

It is to drive down costs further, to improve quality and at the end since all facilities have to adopt that system they would speak the same language. We have also started with a defined digital strategy approach.

The initiative, several initiatives in this area and we selected areas where we want to digitize quickly. Of course, operations is an important part with sensors to link production steps to interact with our customers.

But we're also digitizing our business processes, we have defined Business Process Excellence Initiative, and we will drive progress amortization in this area. And of course, we also will improve the digital customer experience.

You all use Amazon, you book your travel digitally, you rent cars digitally, if you send packages, you know what the status is. Some of our customers expect the same and we have defined steeper initiatives to implement such things on digital platforms as well, where it makes sense.

And then which is very important beyond the process started in 2018 of selective extensions of our production capacity. We'll again report to you today that we are sold out in many areas.

We need to increase our capacities the customers are demanding more products. We have contracts in our hands.

So we have to do this. In Boon, we have our automotive center in Germany, is our motor center and Bonn, which is being extended battery, graphite material centers in Poland, which we have started to expand.

For the high end industries, LED semiconductor, they're expanding our facility in North America. And in our largest facility in Meitingen in Germany, we have implemented a new Logistics Center which will also be of course, digitized.

And this will conclude my initial part already. We're continuing to improve our technological competencies.

Examples are 3D printing for instance. When you read about 3D printing, you usually think about metals or plastics.

We do 3D printing with carbon materials, with carbon and graphite. We have implemented together with the Fraunhofer Institute in Meitingen the so called fiber placement center for carbon fibers.

Fiber placement means we're going into hybrid structures and we are placing carbon fibers in certain directions of parts that really make sense. So no waste, very efficient, very automated.

And to support our battery business we have increased and we will continue to do so in 2019, our battery laboratory facility also in our innovation center in Meitingen. This is necessary because if you operate in the battery value chain, it is not sufficient to just sell graphite.

You have to prove to your customers that the system works. So we have to be able to test batteries full scale, and you cannot test one battery.

So if you're speaking about battery testing, think about a rank 1,000 batteries, that you're testing at the same time to prove that the system is working. So I wanted to say this just to tell you again that we are continuing to be a technology driven company.

With this I'm now already handing over to my colleague, Michael, to talk about many of the financial figures and the driving forces behind them, Michael, please.

Thank you, Jurgen, and first of all, welcome from my side to this conference call. As usual, I will walk you first through the 2018 figure and then come to an outlook for the year 2019.

And also as usual, I will start with the individual business unit. So let's go to the CFM first.

To see we had a strong increase in revenue here from EUR332 million to more than EUR422 million. More than half of this is coming due to the consolidation effect of the change in the joint venture structure.

Jurgen already mentioned, in essence we have here effects. One is, that we know fully consolidated form of BMW joint venture.

We formerly had only 51% of revenue and the other income statement figures in our P&L and now we have 100% of it in P&L. The second change is the Benteler joint venture.

This was a 50-50 joint venture therefore it was an equity consolidated. So there was no revenue in our P&L.

So now we’ve 100% of this revenue. On the other side, we sold our stake in the form of Kumpers joint venture, which was a joint venture for the wind energy business.

This was since we’re the majority owner, previously 100% consolidated which is now at 0% of course consolidated. So that are the three effect which in total account for more than half of this increase.

However, despite this there’s still also operational growth. And this is primarily driven in the segments automotive and aerospace and that is very important for us, because moving forward, if you look at the midterm, development of our CFM business the most important drivers for the profit increase are especially Automotive aero structure, because these are the highest margin business compared to others.

Wind will also of course grow over time, but this is more fixed cost absorption, business with relatively lower margins. So therefore, this plays a role in the fixed costs absorption, but with regard to the margin increase as I said, automotive aerospace are the most important.

Therefore this is a positive development. Textile Fiber and Industrial Application, around prior year's level; Wind was lower than previous year.

This has two reason, one was of course, as I mentioned the sale of the joint venture which led to reduction. However, we still continue to supply material to our former joint venture, Ernav [ph] who is now our customer.

But of course the value add which was included then in the revenue previously what is not a revenue figure anymore. And second effect is the former joint venture was primarily focused on regional local wind energy customers as you might know due to changed auction regulation for terms and wind energy projects, the profitability of German wind energy producers has declined and therefore as a business wise this had a reduction last year.

The total, despite the fact that EBITDA increased by roughly EUR10 million from EUR44 million to EUR54 million, the EBIT declined from roughly EUR2 million from EUR22.7 million to EUR20.8 million. Reason is here that we had positive and negative effects.

The positive effects was of course the increase in the automotive, was the increase in aerospace. But this was slightly overcompensated by developments in the wind energy, but also textile fiber had weaker result despite the fact that revenue was at the same level.

The reason is we had last year in the textile business a very different development. We had very high raw material price over some quarters which was giving relatively high revenue money wise, but which gave a problem on the earning side, because we could not -- since this is a commodity business we want to go out step by step once we increase our Carbon fiber business.

Due to that high raw material price we could not fully pass these prices through to our customers. So therefore the margin was squeezed.

And what then in the fourth quarter happened is in essence a good thing, because the equivalent nitrile [ph] prices have come down heavily, which is going forward a positive thing because this allows us to normalize the margin going forward, but in the month of November and December we had negative effects because we had to lower the sales price, because this is a very transparent market. And if the raw material prices goes down or the customer expects that the sales prices going down.

But eventually there was of course, the raw materials with the higher prices. So therefore, of course, we had negative effects here in the fourth quarter.

That was the reason for the textile fiber and also some weaker results in industrial applications. Now looking at GMS, we had very different development.

You can -- here the sales growth is purely organically, because we had no amortization activity and see the increase was 16% respectively, 17% currency adjustment. And the very important thing is that this growth is different from the past.

We had some years ago, a record year when the European solar business was in its high, but which then vanished overtime, but this time the structure is very different, because this record profits figure is driven by nearly all market segments. And so it was a much broader basis.

And as you can see in the double-digit growth in sales is really backed by other segments, battery and other energy, LED, semiconductor automotive chemical industry included. The only exception was solar, but here this is not due to the market.

This is due to our decision. Because as Jurgen already mentioned, we are sold out in a lot of activities in GMS, especially in the so-called visor [ph], aesthetic production chain, which is also serving the LED and semiconductor and since those markets are growing even stronger and margins are the highest.

We -- this quest now reduced our volume on the solar side, so it was not a market decline. It was a decision how to utilize in the best profitable way, our full year loaded capacities.

And of course, part of this growth was also related to IFRS 15. IFRS 15, what is this?

This is a new standard applicable for Europeans domiciled company with regard to revenue recognition for customer specific product. Customer specific program means product, which is especially designed for customer cannot be sold in any other application of other customers and where the customizer has obligation to take it.

And this is for us primarily the case with our battery business in GMS. And what has happened here is in 2018, that we were able to increase prizes for the Graphite node material we are selling for the batteries.

And this I think is a very good sign in my view because as you know the battery has in the pass one issue, one direction was cost went down. And so, that we were able to increase the prizes.

I think is very good sign about our position here in that business. And now coming back to IFRS 15, the old regulation was that also for this product like for any other products, you recognize the revenue once you have transfers for the customer and depending of course on the individual conditions but now, we have to start when we begin the production.

This is in essence a form of a percentage of completion method to make us our revenue and profit earlier and together with this price effects, this gave the so called IFRS 15 transaction. And normally the result would have come later and of course does not change the total result, but changes time access, because normally we would have shown this later this year, where we showed earlier this was change will come later back to this.

And if you take this aspect out, so on a like-for-like comparison on the revenue side was 2017 the sales growth still would have been 12% which is as I said, very solid growth. Now recurring EBIT increased substantially more than proportionately by 59%.

This is of course due to improvements on market segments, and as I said also very successful implementation of price increase not only in the government segment for the load of other activities. As I said it was the main reason behind the IFRS 15 effect which we visualized accounted for EUR16 million.

And even if you take this effect out EBIT increase still would have been 26%. Now having said this we come to corporate, the corporate of course no big surprises as expected.

The revenue increase here is coming due to the fact that we've sold our former performance product activity which means the former graphite electrode and graphite business. So we are still providing services like for IT and some other things.

So in the past this was of course in our group activities which was not shown as revenue, now being third party customer this effects on revenue, that's the reason for the increase here in revenue. EBIT is little bit less than last year, but no significant deviation, lot of movements here with on the one hand the positive effects in the amount of EUR4 million do to Lancet [ph] in Canada we have added Canada a form of graphical electrode plant, which was not part of the sale to [indiscernible] which caused this.

This manufacturing site was, of course, still dominated the production activity years ago. And but we still had the land and had it for some years and so had to sell it.

Now finally, we're able to sell it at a reasonable price last year. This provide profit or $4 million.

On the other side, we had higher project cost future operation management system and Jurgen already explained and also the end of the cost pass through to former PP activities which slightly more than offset this onetime effect. Now how, if we put together for this developments in the reporting segment ,we come of course to Group figures.

As we already announced in November, we have for the first time in this new structure result former PP business a revenue of more than EUR1billion. We even have some headroom with regard to segment with November because you see we're almost $15 million even above the variance.

So shows it also the fourth quarter was a good development. EBITDA increased strongly from $90 million now to $127 million, and to EBIT from $40 million to almost $65 million, which means that return on capital employed improved from 4.6% to 5.4%.

And for those who participate our capital markets, they, I think we showed there a chart starting now in 2014, if you were to look backwards in the structure of the SGL till date, we had negative ROCE of 4% in that year. Now in 2018, now we have almost 6% -- more than 5%.

So we increased it by roughly 10 percentage points in five year on average in 2 percentage points in a year. Now what is important also net financial result, and so non-recurring items first.

You see here a highly positive figure with EUR16.3 million. What is this is an essence the main driver here is a one-time effect, pure accounting effect, was this IFRS especial so to say.

Due to the acquisition of the BMW stake in the joint venture under IFRS regulation you have to virtually take the whole value out, of your own stake in booking, and reenter it with the recent acquired value. So, since this was higher than the book value, you make accounting wise a gain, which is of course not a cash gain.

Nothing weird, but this is the regulation of IFRS. On other side we have to depreciate this stuff.

So we have no positive one benefit of [indiscernible]. So we have for three years of the creation of this stuff, the amount of $10 million.

I will later come to this in my guidance, neither the positive not the negative effect is cash relevant, but it is the consequence of IFRS regulation. And so the $16 million in essence is the $28 million minus the $10 million depreciation and there's some other minor changes but the biggest driver is that.

Now this leads then to EBIT in total of almost $81 million and then comes net financial result. You will see a strong improvement from roughly minus EUR57 million to roughly minus EUR30 million.

So it improved by roughly $27 million. I will comment [ph] what I clearly explained as you know, we early repurchased our old corporate bond, and we also paid back the old convertible bonds in January 2018.

Therefore, of course, our interest expenses clearly declined. And then that's the reason behind.

And that leads to a result from continued operation in the amount of $51 million and that was the important point, Jurgen already alluded to. So as promised, we show up with a profit for the continuous operation this year in the amount of $50 million.

Income taxes. This was a low, no surprise.

I mean, what you have plenty of is tax loss carry forward. And I think in the total Group, bear precisely in mind, we are talking about close to $1.5 billion [ph].

Of course, not only in Germany, but a large part of Germany, the other large part is in the United States. And so therefore, of course, the effective tax payment are lower.

This time we also had some effects from the changes in the accounting here, from the joint venture, which also had an effect here. So some accounting effects, which lowered due to tax rate, but as I said also the real tax payments are lower due to tax loss carry forward.

You are paying in essence of course, in some locations where we have transfer pricing agreements, for example cost plus basis, that makes more profits, [indiscernible] that we do not have tax loss carry forward. Now, and then we had the result from discontinued operation in minus EUR9 million.

There’s two things. One is a fixed payment for old times [indiscernible] for former cash business which belongs to our times and since of course such transactions usually have a clause then the tax related issue.

The former owners are responsible until the date of the transfer and the new organizer is responsible. And from that time also there was some extra payments here, I think that was an amount of 4 million or so.

And the other amount was the finalization of a settlement on a claim of the buyer of former Hitco business in the United States. This was a provision we had for some time and we finally settled this stuff, this was then already paid in January.

And this together gave you this 9 million and therefore we came then to total net result in the amount of EUR41 million. Now looking at free cash flow on the next page, you can see on the first line the strong improvement in the cash flow from operation by roughly EUR100 million.

So which changes from minus EUR82 million to plus EUR24 million. So relatively strong improvement.

However, still not big enough to be in the net line on the free cash flow basis probably, but direction wise a very solid step in the right direction. And on the other hand, we had some higher capital expenditure.

However here we have to be careful because this not only contains the fix asset investment, but there is also a one-time effect here in the amount of EUR23 million which was the acquisition of the -- of the German facility of the former BMW joint venture and this led then in total to cash flow here. There was some minor other activities and minus EUR82 million is the total cash from investing activities.

So therefore, the free cash flow, yes, is still negative but compared to previous year seeking to improve. I will later come to the guidance for the current year.

We see here from minus EUR144 million to minus EUR58 million. And then we had of course the free cash flow from discontinued operation, we see last in 2017 there was almost EUR500 million, EUR458 million, what is this.

This was of course the purchase prizes for the sale of the cathode and the electrode business. As usual in such M&A transaction you have a final purchase prices then after the -- so called closing date balance sheets are finished and read upon.

So this was also here the case. So of course the vast majority of the purchase price was already paid in 2017 while in 2018 we had completed then the final closing balance sheet and the EUR58 million you see here in line for 2018, these are the final amounts then to be paid for the sale of the former PP division.

So therefore, in total the free cash flow was roughly zero in the year 2018. Now looking at our balance sheet, equity ratio further improve from 29.6% to 33.5%.

There are several reasons for this. Most important reason is of course, the net profit of the year, the above mentioned EUR41.3 million, but we have also some effects which are not touching our income statement.

This is primarily was in that year the contribution from the IFRS equity component of new convertible bonds in the amount of EUR13.7 million. So your analytical split is in the debt and equity components is a convertible and is a hybrid structure.

But this is of course not impacting the P&L and only the balance sheet directly. That was the main reasons for the increase in the equity and equity ratio.

Total liquidity decreased but there’s of course more than sufficient with EUR182 million. And the reason for the decrease is of course, that we had paid backs here the convertible bonds 2018 in the amount of 200 -- roughly EUR240 million.

The convertible bonds 2018 amount of EUR240 million. And we already stepped in the former of financing of BMW, because BMW in the past major all debt financing for the joint venture by themselves.

So, despite the fact that at only 49% ownership it provided 100% of the debt financing. Of course the equity share most part is contributed according to their share ratios.

But the debt financing was entirely provided by BMW, was roughly amount of EUR190 million. So we stepped in now with EUR51 million which was the EUR111.8 at that point in time.

So therefore, the remaining you will see you later is something in the EUR80 million, which still has to be paid to BMW at the latest at the end of next year. So and the higher net financial debt, you see, it increased from EUR139 to EUR242.

This you see the total cash flow was zero. So why does this figure increase?

Reason is accounting reason. As I already explained, we now fully consolidate BMW joint venture.

Formerly we are at only 51%. Therefore, of course, additional EUR90 million roughly from the 49% share of BMW and the total debt financing of the joint venture is now included in our books, and that's the technical reason for that increase in the net debt figure.

So far with regard to the year 2018. And now we'll move on to the fiscal year 2019.

Now you see a lot of text. I will try to summarize.

It's not very user friendly. I should apologize for this.

So let's start with the individual business units here, as we did in 2018. Starting with CFM, we expect mid-single digit increase in sales, which is primarily driven by higher volumes.

If you look into the individual market, we expect aerospace on prior year's level, automotive close to prior year's level. We expect a slightly increase in the segment's industrial application textile fibers, later of course depending from the former development of raw material costs.

And we expect a substantial growth in the wind energy market, of course, based also on a low basis last year, but also with increasing business. As I said the former approach was selling it via the joint venture structure, to German customer.

Now we go with regard to international customers, also different customers also a new technology approach. And therefore, this will be a market which we'll go.

What is very important to understand, despite the fact that we will have the same result in total on a comparable level here as last year, the timely distribution over the year will be very different from last year. Because, and the main reason is here the development in textile fiber business.

Once again what we experienced in the first quarter was a heavy decline in the acrylonitrile prices, which negative infected the profits in the year, between the month November and December, because we have to lower the sales price. And we still, we had the inventory at the high prices.

This effect continued in the month, January and February this year. So -- but the good thing is in March, this inventory effect is cleaned up.

So now we have of course only the new inventory at much lower costs there, and therefore the margins are going forward is of course clearly improving. But the first quarter is negatively affected by this thing.

And it was last year the first quarter. So therefore, the negative impact on the textile fiber effect was last year in the fourth quarter this year is on the first quarter.

So that is the timing difference. The other reason is, we had some billings of projects very much accumulated last year in the first quarter.

For example, some aerostructure business in United States. We will also have special project this year, but they will come into projects in the quarters 2 to 4.

So therefore, the time wise separation of this is different. But the total year guide, as I said for this reason is unchanged.

And we expected to average on the prior year level. In GMS, the situation is very different with regards to timing spectrum [ph] and we come later to this, but starting here first with sales.

We expect here sales on prior year level. As I explained prior year level was very much boosted from those IFRS 15 effect.

For this year in total, we expect to have almost no IFRS 15 effect and therefore of course this has to be seen in a relative basis. I will come later to this.

And in essence we will see that higher prices and volume effect in some markets will be offset by negatively currency effects and we expect the market, LED and semiconductor to increase substantially, despite the fact that which is based on our technology leadership in that market. And what is very important we expect here double-digit increase in sales in the market segment, automotive.

This was for example also discussed in this morning with the press colleagues, because as you know Germany has a lot of automotive suppliers. Lot of them have bigger business declining profits, declining revenue.

We're talking about here a strong double-digit increase in sales. How come?

Very simple, I mean the problems the car industry is facing like VW, ATP emission, topics like China business, tariffs disputes, this doesn't affect here. Structural drivers behind it, especially here is the driver towards electric vehicles.

Electric vehicles for example need more water pumps typically than a classical combustion engine Tesla for example has not one water pump but four, why is that? First reason is because the battery pack is underneath the whole car, so you have a much longer distance to cool it than just having engine sitting in the front of the car.

So the way are much longer. That's one reason why I need more pumps.

And the second reason is you do not have the pressure from the combustion engine, which can also be used to transfer to cooling liquidity in the tubes. So there are two reasons why electric vehicles structurally needs more water pumps than a combustion engine.

And now coming to our special graphite, it has a lot of advantages. It doesn't need lubrication, it's not growing.

So it's best suited for the ventilator and rotator in the pump. We are based in Bonn even our whole manufacturing hall four parts like this which we're providing here to wire suppliers and in the end to big German OEMs for their cars and also for their electric cars.

And that is the structure you go in business, if you look now into German press and new German producers announcing almost every month new electric vehicle to come. So therefore we -- very clear seeing not only weakening in the automotive business, we see even stronger push going forward in our motive business and that is the reason for the double-digit growth here.

The market segments, chemical industry are expected on prior year's level. Battery, as I said will be was stable because we had a lot of very positive effects in IFRS 15.

Now this is important to understand why is IFRS 15 affect when is a positive and when is a negative. If you compare to the old accounting standard, is a positive.

If you increase prices or if you increase volume, it's negative. If you decrease price and decrease volume and IFRS has no effect if prices and volume remain stable.

That's an essence the logic behind. And I said we had two times price increases last year.

Therefore of course we had a stable development. We had a very positive development last year.

This year in total, we expect over the year was a stable development. And I will come later more to details on this.

And with regard to solar, we will continue our strategy of course to limit this business and to prioritize the much faster growing, much more margin bearing businesses, LED and semiconductors. Now here coming back now to the time wise distribution of profits is the contrary situation of CFM.

Any way as CFM will have weakest in the first quarter as we have the strongest first quarter. So therefore it doesn't make sense.

Now that we see as [indiscernible] as we multiply the first quarter was also is very different development. Now what is the reason here behind, the reason is primarily we had higher earnings level due to an optimal combination of very good production mix, high generation low cost.

We have also a mid-single-digit positive effect but this is a onetime effect in IFRS 15 also in the first quarter which is not expected to be continuing in the rest of the year. And what is also very important we have this year was a concentration on the shipments on the first half year compared to the second half year and that are all the reasons together.

Essentially the situation is different from CFM. Here, the first quarter is the strongest quarter of the year.

Nevertheless it's the same situation as in CFM overall because of our guidance for the full year to be expect on prior year's level which means of course, that also our ROCE target of 12% should again be exceeded by this business use and show us the stability opportunity as business model even in the overall weaker worldwide economic environments Now to the next page, corporate of course, no big changes. Recurring EBIT anticipated close by prior year level.

And with regard to the first quarter, of course we had here to take out the EUR4 million which was a positive effect in the first quarter last year from the land sales, and this was of course and not reoccur again. Now on the sneak preview with regards to one as a summary, I almost, as I said before on the new business unit, overall we expect in first quarter group sales to increase by mid-digit above prior year level.

It was a different situation to business segments, yes and close to prior year level whereas GMS will be substantially above prior year level as I said this also due to the fact that we have different time wise distribution over the quarters in the two business unit. Now adjusted for the positive onetime effect of the land sale of the prior year group recurring EBIT is expected to be on the prior year's level from the first quarter.

CFM will be substantially low prior year, and approximately on the level of the first quarter 2018 due to the developments of the acrylonitrile price in the textile business which I already explained. The important messages is however is this is worked out already in March, we also have much better margins from now from March onwards.

So, therefore, for the remainder of the year of course, the textile business will improved substantially. And already as I mentioned, the project billing pattern is different in this year.

We'll have the billing patterns for example, for aerostructure now, in the next quarters to come. Therefore the timely separation of revenue and profit is different.

GMS, however, on the other side, expect a record quarter due many optimal combination of favorable product mix, high utilization, low cost. As I already mentioned, that will be small effects fundamental from IFRS 15.

And on the other hand, the shipment level are mainly concentrated on the first quarter. So therefore we say the other way around, that you cannot multiply on the GMS platform.

So, that's the situation on the first quarter. So, overall what is very important to understand is the topic coming back on the year is development of our profits now of IFRS 15.

And what you see now here in the blue bar is the development of profit in the definition of the previous accounting standard, which were valid until 2017. So without IFRS 15.

And taking this out and you see here as I said EUR16 [ph] million was the effect in 2018. And I have already mentioned in 2019 we do not expect to have any over the total year to have IFRS 15 effect, which means, on a comparable accounting basis to profit of 2018 would have been EUR47.2 million and you see therefore, development here on a comparable accounting based of the profit of EBIT from EUR40 million to EUR47 million to EUR65 million.

So, therefore, the so called stagnation is a relatively stable is very much influenced by the change in accounting in the year, where we have the strong price increases in the battery business. That is I think important to memorize.

Now if we look in the source and your outlook for 2019, despite the fact that we expect the EBIT to be on a similar level in 2019, compared to 2018, including the IFRS 15 effects in 2018, of course, we expect the net result to be breakeven. Why is that?

As I said, we had in 2018 a positive onetime accounting effect of almost EUR30 million due to the explained accounting procedure under IFRS for the full acquisition of the BMW joint venture was a onetime effect. On the other side, we have now for three years the EUR10 million depreciation of this figure which was not cash relevant, but a P&L burden.

This was of course, also the effect in 2018, but that was of course overcompensated by this profit. And this profit of course will not repeat again.

So therefore, roughly it's EUR30 million one-time effect is not repeated in 2019. And the other thing I also explained to you that we had far more than $20 million improvement in financial result last year due to the repurchasing of the corporate bond and the repayment on the convertible bonds.

As we announced in December we plan to issue a new corporate bond to refinance the expired and old convertible bonds next year and also to take over the remaining BMW financing of our former joint venture. And of course, this will then increase again the interest expenses this year.

And also as you know, we have issued a new convertible bond in September last year, which was only then for a few months in the income statement last year which will not now be in for the total year. There are two reasons.

So of course not reoccurrence of the EUR21 million -- EUR28 million profit from the accounting of the joint venture. And of course, somewhat higher interest result, that despite the fact that we have even on the same level net result for this year, will be as I said somewhere [indiscernible] was on a, as I say here on break-even level.

CapEx, I mean, we already explained in December statement that we are sold out in some segments that customer are pushing us to do more, in especially profitable business that we go into expand our capacities, especially in the battery and in the LED business. That we will spend additional EUR80 million over three years.

So what does it mean now for the 2019 figure. That means that we will have a CapEx figure in the result of roughly EUR100 million for this year.

And the main driver is here of course the automotive and transport sector. I have already explained the situation especially on GMS and on the automotive sector was a double-digit growth, driven by the electric vehicles, LED and semiconductor and the battery business.

What is important, if you look at from the risk side all this CapEx exposure are modest in nature. I think you will see, we have in total a necessary maintenance CapEx of roughly EUR30 million to EUR40 million.

So out of these EUR100 million, what is really has to be done and cannot be pushed out as such, the EUR40 million. All the rest is growth projects, which of course, this question which are modular and in the case of a weakening also could be reduced as we currently do not see the situation of a weakening, but in case if it would be possible this could be easily done.

Nevertheless, despite the fact, that EBIT is of the same level, the net result will be on low level. We expect a further improvement negative free cash flow to low double digit million amount.

And the main reason is here that despite the higher CapEx, we expect clearly improvement in working capital and here you have to understand that working capital was pretty much influenced last year by two factors. One was the higher raw material cost, especially acrylonitrile topic I mentioned was on record very high levels last year.

And of course, this influenced also the value of our inventory. As I said this values came severely down now in the fourth quarter last year.

So therefore, of course also our inventory value wise is going down. That is one reason and the other reason of course is that also volume wise have built up inventory last year due to the risk of a hard Brexit.

We have a task force here instead, a Brexit task force. I have the pleasure to head this task force.

So -- and then we of course very significantly -- and the good thing is we do not see really substantial risk on this. Because if you look into the whole thing, on GMS side we do not have much export businesses, there one the customer and with this customer we have a contract that any duty will be paid by him.

So therefore if there is a duty this is not our problem and does not influence our profit. And with regard to carbon fiber, we have a different situation.

We have of course here a value chain which because of produced in Portugal we have a carbon fiber manufacturer in Scotland, and we have than the next production steps in Bavaria and Austria. So we cross the border here two times.

But the good thing is that carbon fiber, as a high tech product, in Europe is by the EUR is duty exempted, so we do not have to pay duty. So this is not an issue.

The only potential problem after Brexit would be some logistic after Brexit would be some logistic problems at the borderline which it comes to hard Brexit. And Britain is not readily having enough people doing the duty stuff.

That's the reason but this is a temporary problem, logistical problem, but that has been reason why we have increased our inventory on the one side for on GMS for customers in UK and on the other side for the value chain in CFM not to have any interruption. Of course we expect that whatever way it will be sold out this year.

And then we can normalize also our mental levels and that's an essence the two main reasons behind the improvement in working capital. That's the reason for the fact that we expect also substantial improvement in free cash flow.

The net debt really increased by mid-double digit million amount. So how come?

The reason here of course is despite the fact that we have free cash flow on a small double digit amount of reason is also to some parts accounting one, because we have also the new accounting standard for leasing. And with this, I mean it's not a very big topic.

So asset wise we will have roughly EUR35 million more assets [indiscernible]. But on the expense side, we have to separate now between the operation and the financial part and what is perceived as the financial result of interest parties will move now from the operational expenses to the financial expenses.

So this will not impact any more the free cash flow but the financial flows. And the other reason is you also expect some expenses with regard to issuance of the new corporate bond, which is also part of the financial flow and not have the free cash flow.

That is the reason why we have somewhat higher increase in net debt compared to the free cash flow level development that is the reason behind. Balance sheet target I expected to be met continuously the equity ratio at or above 30% and leverage ratio at overall 2.5.

As already communicated in December we expected the gearing targets at or below 0.5 could temporarily be exceeded due to additional CapEx in the years '19 to '21. Now so far the outlook was --.

And since I hand over now back to Jurgen again.

Okay Michael. Thank you for the very detailed reporting.

This next section is to confirm to you our midterm outlook, our profitability targets and to talk a little bit about strategy. That chart on Page 21 is to explain individually what we did last year.

We had in the market a guidance based on the year 2017, where we had EUR860 million in sales and 4.6% of CE based EBIT. The guidance the guidance had been EUR1.3 billion sales and 11% our CE by 2022.

And last year in December, we increased that target to roughly EUR1.4 billion our guidance, a little below, which amounts to an annual growth rate a CAGR of 8% to 9% on average. We're sticking to our 11% ROCE EBIT target, which means that because turnover moves up our EBIT will also move up by a certain low double digit million euro amount.

ROCE as you know, is our key performance indicator for the Group. Our long term incentive bonus program is solely based on that figure, for the board of Management here on stage and for all top management in this SGL, and that long term incentive bonus program also requires that the ROCE increases year over year over year.

How do we do this? How do we drive our ROCE improvements?

There's various factors. It's not magic.

It's I think doing the business we are growing the top line which helps on our top line is growing with higher margin products, which carry more profitability. Higher margin products in aerospace and automotive, in LED, and semiconductors these are our growth engines, batteries.

In our value chain, we are moving for the by the same token to the right. We are selling less low value added product or more high end products and of course we're working always day by day on further efficiency improvements.

When we improved our outlook last December, we also talked for the first time about additional targets for the year 2022. We are targeting targets for the year 2022.

We are targeting a net profit margin of 67% and the free cash flow margin of 5%. In order to achieve all this, of course the broken down targets for the business units, and they should achieve a return on sales based on EBIT of 12% or above.

Talking quickly about the balance sheet targets and ratios and as Michael already said and equity ratio about 30%, leverage ratio debt to EBITDA below 2.5. This we'll maintain of next couple of years.

Gearing as was stated already should be below 0.5 we might exceed that temporarily to a certain extent because of our investments. Now what is the structure of our growth, what drives our growth?

The mid-term growth pattern for the two divisions is very different. And Graphite materials and systems we see and cloud sort of a linear growth path going forward.

This is established product, it is established markets following mega trends, mobility, digitization, semiconductors, energy and so forth. Graphite in those applications is irreplaceable and this is where we're speaking already quasi linear even in our growth path.

For the revenue business, composites fibers and materials we see project driven growth. So we have to gain project and the growth is somewhat back and loaded and that leads me to the next page.

And if you look at composite fibers and materials first, it is as you know, a very young material. The breakthrough virtually happens today in various industries automotive aerospace, when you have to develop further markets, why is that?

Steel aluminum plastics are established materials, you have young material, you have new material behalf to sort of make the market. Are we going to substitute steel aluminum?

No. But we are going to become a great partner to those materials in hybrid applications.

Why are we so optimistic over the last 12 to 18 months we have won several trends I think projects and I'll give you details in a second? But and this is why we have that staircase slide.

The development time to certification times, sales and earnings will come and be later end of the midterm.. Graphite Materials & Systems we talked already about, that the key positive stress today here, as Mike indicated already, now pushing our operations to the limit.

And we have to increase production output to some extent. Again, I'll give you details about that because it's so important.

On page 24, we are highlighting a little bit the pipeline for major projects in the automotive segment. I'm not very happy about this slide, but that is the name of the game.

Many of our customers do not allow us to give you names or figures simply because they treat as a secret and you can only talk about those projects with a few exceptions, when we have the SOP. But in the last 12 to 18 months, we have won additional 13 projects.

Three of them will start of production in having 2019 than eight and 2020 which indicates to you already, we negotiated 2016, '17 a project that is substantially time and then there's new project starting up in '21 and '22. Why is that number only one, because we're still negotiating for those later use.

The composite products that we will produce shouldn't be surprises to you we are talking about leaf springs, we're talking in cars about trunk lids, stiffening elements in the engine compartment or underneath the car, battery housings, I'll get into them in a second cars, because it's a very new attractive element and then preforms that we are giving to customers who want to make their own cars. Preforms in the sense of textiles of prepreps [ph] or similar things.

Page 25 details few things a little bit more, where we allowed to speak about. And that slide also shows again, why it is so important to have the full value chain in our hands, which has always been our strategy which we always talked about.

And this is why we are so happy that we did major steps in 2017 and ‘18 by acquiring the share from one joint venture partners BMW and Benteler. BMW iNEXT I think is a very prominent project, the successor to the i3, we have won that project.

And we are delivering carbon fiber, we are delivering glass fabric, we are delivering carbon fiber fabrics. The pre series manufacturing starts 2021, is one that project in 2018.

Again there is a time lapse in between and large scale SOP is targeted 2022. And we're using various steps again in our value chain, we’re making the precursor in Portugal we're making the carbon fiber in US in Moses Lake and the fabrics are made in Germany.

And we believe to our knowledge, this is the second largest project on earth using carbon fiber components after the i3 by BMW. Then we move on to the second topic, battery boxes, battery boxes for electric vehicles is a very important element of our strategy going forward.

You need to understand the design for electrical cars today has two different path, so to speak. If you have a car that has a combustion and combustion engine and you convert to electric driven cars, you're restricted because of design.

The future electric cars will be designed around the battery, like the Tesla, like the i3. We have, at the bottom of the car, a very large battery, you have the axles next to the large battery and everything else is on top.

So you are building your car virtually around the battery and you need a large battery casing for that purpose. We have presented designs at the JEC road show in Paris, this mid-March which is our biggest sale, the biggest sale on earth.

And we will start supplying a battery casing large scale to an automotive carmaker in Europe. We’re expecting SOP in 2022.

Why is that so exciting, because the composite battery box is 50% lighter than the alternatives. It has higher stiffness, it is fire protected.

I mean you know carbon fiber composites are used in the aircraft, aircraft usually in the outside don't burn. So we can achieve that, the acoustics are outstanding.

Electromagnetic shielding is important, for the carbon fiber because there is high currents from the battery going to the engines. So we can and we hope to become one of the materials of choice in that complex design.

And of course we are integrating sensors in the battery casing as well temperatures and other defect possibilities. And then negotiations of course with other carmakers to use those type of battery boxes.

An established product in SGL, and there's no other large scale maker of leaf springs today, our leaf springs for cars. Our largest customers are Volvo and Daimler.

This is a high volume product. It's based on glass fiber.

We are making a couple hundred thousand a year. So us sitting here for two hours, we are probably making 300 leaf springs in that the timeframe, 3,000 a day.

So this is what we really call high volume manufacturing. We have one new project, we have one new project outside Germany.

We are going to other suppliers and customers in Europe and North America. And we have Asian OEMs knocking on our doors.

Controlling the entire value chain from the precursor to the component is probably even more important in the aircraft industry because of the certification. If you want to go to Airbus and Boeing today to sell them composites, they will not ask you for carbon fiber.

They want you to make a precursor, qualified a certified carbon fiber, they want you to make the part and to have the full certification over the entire value chain. That is the future business model that is the discussions that you would have with Airbus.

We have achieved a frame contract with Airbus Helicopters using our holistic value chain for structure components based on our value chain. And then we have communicated recently in the press release that we will supply to the Turkish company Onur Air insulation material for the engines of the A321.

The nice thing about that achievement is still to come. You can imagine that that engine is under the wings of many other aircraft.

So once you're on that aircraft, you have good business opportunities and we are using Onur Air as well as our sales partner in EMEA and Middle East region. Is that new to us?

No, we have a large U.S. carrier as our customer in North America, which we have supplied for many, many years with insulation materials for the engines.

So that is part of our technology. The next two slides, I attend to very quickly because Michael explain these topics already.

The weakness in the wind industry is by and large driven by the situation and Germany and us exit SGL Kumpers, that was part of our strategy. We don't need SGL Kumpers because the wind industry uses less and less fabrics and we have that technology in Pakistan [ph].

So that was the situation. And of course we are developing new technologies to support our wind energy customers.

There is a technology called protrusion. If you want later we can explain to you what that means.

Textile fibers, I think I want to skip, textile fibers is not our strategy. We'll phase out textile fibers over time.

We need it today to load our plant in Portugal and the acrylonitrile misery of Q4 January or February was explained to you in detail. Now what is our CapEx investment structure?

Michael indicated we're probably going to spend around EUR200 million plus or minus in 2019. You see that in the bottom of the chart in the first column.

Probably only less than one-third will go to CFM. So the large proportion goes to GMS.

And we said we're going to spend an additional EUR80 million distributed over three years. So it's not a different EUR80 million a year.

It's over three years. This is why this chart covers the years 2019, '20 and '21.

And highlighted in the light blue we're indicating to you without sort of giving precise figures which market segments we're going to cover. In GMS it's of course, battery with a low double digit million euro amount focused on our facility in Poland.

LED semiconductors, mid double digit. This is probably today one of our largest growing segments, and automotive and transport as well a very low double digit million, in addition to what we have done in 2017 and '18 already.

Having stated this, this means that we have one automotive project for GMS as well in 2018 which requires an expansion of our capacities. In CFM Of course, we're following our communicated strategy, investments in the range of the low double digit, million amount goes into automotive here.

And then we are continuing, as we said converting textile, acrylic fiber lines in Portugal, to make our own precursor which also requires a low double digit euro amount. And then there is of course other smaller investments and our maintenance CapEx.

I think there was a question last year, what is our base spending, if you do nothing else. That is in the range of EUR30 million to EUR40 million per year give or take.

A few examples, what we are doing, and this is not new investments. We have focused on these areas in our strategic alignment over the last couple years already.

Our investments are of modular nature. We are growing with our customers.

If we achieve a contract, we invest. We do not invest because of an anticipated growth of a customer, okay, that's -- I guess I would call it too risky.

But some customers we even achieve take or pay contracts. And so this is even the automotive industry.

So this is a good situation. In battery, of course that is graphite for the anode and the lithium ion battery.

We've talked last time there is no substitution in lithium ion batteries. We continue to grow rapidly.

That modular expansion will happen at our low cost facility in Poland at this stage. We saw that the EBIT spending that we need, the CapEx spending that we need for LED and semiconductors over the next two years.

We are expanding currently and continuing to expand our facility in the U.S., in Saint Marys, in Pennsylvania, which is our only facility where we do that specialty graphite which is a high tech graphite, is a so called isostatically pressed graphite purified to 99.9999% carbon graphite content. And then we coat it with silicon carbide.

Silicon carbide is as hard as diamond. And that is the product that the LED and semiconductor industries need.

And there is no substitute. So if you cover [indiscernible], they will tell the same story that they need this material from us.

Where's the market for LEDs and semiconductors? It's Asia, Asia and Asia.

So what are we doing to do, I mean are we going to rely on obviously be able to export from the U.S. to Asian markets without duties?

Do we know that? What is the Trump effect et cetera?

And we're reaching our capacity limit in the U.S. So we actively doing a site selection, a site search.

We have a group that's spending to establish a second production site outside the U.S. to simply move closer to our customers, to serve our customers better and to have two legs in that important business to stand on.

But of course, the cheapest investment for the time being is expanding our existing facility. Automotives and transport, I think here, we are a little bit of a surprise in the markets that we are talking about a good increase in business.

Going forward our key site for that activity is Bonn in Germany. And we have expanded that site, as Michael said, we have built a new hall, a new building which is already fully absorbed.

And we are continuing to invest for our customers, that need graphite components for cooling water plants for tank monitoring pumps, for grade assistant pumps and the customers you would know, it's Bosch, its Continental, it's Magnet, it's [indiscernible] and so forth and they are asking for more. I think that should be enough at this stage.

Let me move to the summary and then we can enjoy your questions and the discussion. So despite of the slowdown of the global growth rates, globally, the economies are growing okay, but the growth rates are slower what was stated or forecasted before.

We're optimistic about as SGLs development because of a few reasons of course. We are as the new SGL well positioned.

We have a high degree of diversification, lot of growth market, lot of innovative markets. We are not a supplier of the steel aluminum industry any more.

Our business model is not based on cyclical commodity growth. We are growing because of structural growth effects, such as you know electric mobility, energy and digitalization.

The two different growth dynamics and the two businesses we have explained, graphite give or take linear growth. Composites is more like a staircase approach over time.

So we confirm our Group outlook for 2019 and our midterm targets, 2022 which I tried to explain in some details. So now thank you for your attention.

We're looking forward to your questions and the discussion. And I think Raj will guide us through that session, where Michael and I will share the answers.

Okay, thank you very much. I'd like to start off with questions here in the room.

So Marc Gabriel, would you like to start [Multiple Speakers]?

Yes, thank you very much, okay, with Bankhaus Lampe. I have three questions if I may.

First of all, so the expansion CapEx that’s really linked to additional new orders. So there is exactly there is no risk for you.

There's always risk with customers if they make mistakes, but in the mode of area, we are at the limit. We’re in the positive stress.

We don't see a slowdown at our customers and we are covered with take or pay agreements or contributions from the customers for the capital spending.

Okay, and then second question is on the new financing. Am I right that the joint venture financing of BMW was a U.S.

dollar financing? And are you also -- could you remind us what interest rate was paid for that bond, or is paid for that financing?

And the new bond placement which you are heading for is going to be a euro placement or will that also be stripped into U.S. dollars and euros?

And the last question, are you planning any one-offs in 2019 and you mentioned Mr. Majerus, the impact of IFRS 16.

But will there be also an impact on the EBITDA level for you, the 35 million was just on the assets side as I understood it, quite right.

Okay, with regard to the new financing, I mean, as I said we have two refinance topics. One is of course, the old converted bond, which expires in September next year.

This is of course, a euro amount, which is the bigger part of the refinancing. This is roughly EUR170 million.

And the smaller part of the refinancing is the BMW finance because we already, as I said, stepped in 51% of this. So the remainder is yes, this is also U.S.

dollar amount. I think the equivalent is somewhere in the EUR80 million amount, so yes, of course the bond will be euro bond, but of course, we will then also take it off to U.S.

dollar whether we make them via hedging or so, we will directly convert, put this in a dollar account which could make sense for example because the U.S. has high interest rate.

And so I think we will convert this amount into U.S. cash amount because it will not have any hedging cost then.

Of course you have its directly in the currency and do earn interest rates in the U.S. accounting.

So that is the most likely solution with regards to this. And here under new and the second question with regard to the new leasing standard under IFRS, yes, it is a EUR35 million is the asset value that is a -- I don't have as precise reminder simply that is a single digit 10 [ph] million amount which is then on the earnings side.

But this is -- or even smaller account. But this is a change, I think in total of course if things doesn't change.

And the movement of course between the lines, because as I explained before, interest part now I think it's even smaller And moving from the operating expense into the financial expense.

And maybe to add other than the EUR10 million PPA we are not expecting any further one-offs in '19. Matthias Pfeifenberger, Deutsche Bank.

Matthais from Deutsche, thanks for taking my question. The first one would be on ACN prices, you mentioned that in the further cost that you expect lower raw material pricing and positive impact on earnings.

Now I think that's related to crude prices right. It was the basically the collapse of oil prices in the fourth quarter but since then oil prices are up 30%.

So is there a risk for the second half?

And how do I phrase that politically correct? Yes, the input cost is crude oil, going through a cracker refinery to get the raw materials.

However the acrylonitrile makers are in Oligopoly. Okay.

There's only a handful. The biggest markets are in China.

And the European suppliers are companies like INEOS, a Russian company. Mitsubishi is trading from Asia to Europe.

Why am I telling you this because it is sometimes not following the course of oil price. But the good thing is the acrylonitrile market is transparent.

There's indices globally for the regions and the pricing negotiations usually is index minus, the bigger you are the bigger the minus. I hope that that answers your question.

So ACN prices might trend up along with oil prices towards the second half?

That is speculation at this point in time. As Michael said acrylonitrile prices had come down sharply with the consequences that our textile customers postponed textile purchases expecting prices eroding further, that was the situation at the end of last year.

And I have a question on the CapEx. You call it your other smaller investments but it's consuming a high double digit euro amount.

So is that shut down costs for textile capacity, so can you elaborate a bit further on these other smaller investments?

Okay, I mean we are operating at this stage 32 manufacturing locations around the world, five of which are very big, another 10 probably sizable and then smaller ones. All these facilities need some investments to improve costs to adjust capacity to improve technology.

And that is what we speak about here. Okay?

So you don't have to prove improve technology if you don't want and if we don't have the cash, this is why that is summarized on that line.

Finally, just two clarification questions on chart number 18. You show the EUR65 million IFRS 15 impact in 2018.

But on the slide before you are talking about a mid-single digit IFRS impact in Q1 '19. So I guess the real underlying improvement is maybe EUR5 million less and should be added on the 2019.

No, that the conclusion is not true. I think the 2018 we have, for the full year a positive effect of EUR60 million.

In the year 2019, we expect in the year -- in the first quarter a small effect, but for the full year, we expect, since the volume, as I said is pretty much front loaded will go down a little bit in the second quarter. So therefore, it will revert in the second quarter.

So it will be positive in the first quarter, but overall for the year-over-year comparison, this is 60 [ph] in the ‘18 but almost new in the year ’19.

And the final clarification on the net debt, you call the increase a mid-double digit amount, that can be 40 that can also be 70, any pointers there for us, 50 or 30 or…?

Of course we indicated, let me say it this way. We indicate the free cash flow is small double digit figure, I would rather say, very small, double digit figure today.

From today perspective and we have some additional effects of course, coming as I said, the cost of the financing for new bond who will be free cash flow. The leasing effect which we talked before.

So therefore, as I expected in the not in the higher range of the mid double-digit.

So at this time I wanted to ask if there's someone on the call who wants to ask a question otherwise we hand it back to the room.

So I think we continue in the room, Christian Obst

Yeah, thank you, Christian Obst from Baader Bank. First, I'd like to come back to the corporate allocation.

So this EBIT figure is negative roughly in the amount of CFM positive -- being positive. Maybe can you give us some kind of an idea how you allocate or could you allocate this to the two business units?

I know you don't like that very much. But it could make sense to give us a feeling where you really use the corporate costs for, and how do you like to develop the corporate costs going forward.

Then on LED growth, you mentioned that LED growth was stronger than the battery growth. Should this also happen going forward?

And are you losing some kind of market share in the battery business because this is a very strongly driven or growing business? And with LED and your part growing stronger, is the right assumption that in the battery that you're losing some kind of market shares there?

Can you give us some kind of an indication in the battery business for the margin development? So you are increasing volume but -- and you are increasing prices, but the overall EBIT contribution was more or less flat, if I understood it right.

So the margin came down. So what do you expect there going forward?

And coming back to the CapEx. The CapEx you mentioned now is linked to the project, you know, and you talked about new projects, which are under negotiations.

You're talking about some possible isocyclic investment on new plant, maybe in Asia. So all of these new projects, new ideas is not included in the current CapEx guidance, right.

Maybe I start with some corporate costs topic first. I mean, yes, we have a level of EUR30 million.

Almost EUR10 of this is not administrative stuff but R&D because we have split the R&D in two parts. We say the close to market and customer related small development stuff.

This is in the course of the business unit. And the more far reaching fundamental things like 3D printing, next generation of carbon fiber and stuff like this, this is the central innovation.

So we're talking in essence about somewhat about EUR20 million and this EUR20 million of course is not the summary [ph] of the two guidance for the year. I mean, we have a rather small headquarters to say it's very precise.

We have 50 people in total. So it's not a large headquarter.

The topic is we have a lot of central organizations and not necessarily in the classical administration that we’ve put out of the business units. And we have a central IT for example.

IT is not part of the business unit. HR is an own cluster.

Purchasing for example, because this was part of the reorganization also we did with the so-called core project. The core project was not only a cost reduction but was a reorganization, was large part of our restructure, but it was the first step into adjusted the organization for growth.

Because we said, the business unit are only responsible for three things, which is sales marketing, which is production and which is the close to customer related development. On the other side, we see all the other functions was HR, was IT, was purchasing is not stuff with a business unit.

We have a global head of this and there are several reasons for this. One is -- you can only get synergies and reduce cost because it was so such important and you centralize it.

Secondly, we have also to adjust processes to the renew SG&A, to fast growing high tech company. This you need of course the experience head of this, which is expert of this and not some manager locally doing in terms of other things.

And the third reason was we wanted to focus the business unit on those things, which are the size of roles, which was selling product, producing the products and development products and take all the [indiscernible]. So having said this, we of course are charging those parts, which have a direct interrelation, or if you do for example direct our services, do for example, hiring for business unit to make you the salary accounting and so on.

This is of course charged, but some overall things like for example, old pension stuff, we do not divide here. Some fundamental HR topics we do not divide, and the same strategy if you have concrete project related topics to the IT.

And but we have also some overall IT topics like IT security, we are not charging today to the business units. And that is coming back to the what is the $20 million.

Out of this of course, you can always discuss to charge more, but in the end it's left and right and. But they said it's not the topic that is a super administrative headquarter.

That is more the organization style of SGL.

Okay, Christian, good to have you again. You had a few questions about growth and CapEx.

I think you mentioned LED. Let me start to state we have given you indication of other key performance indicators.

Market share is not among those. For us market share is not a target.

You can have the company market share as the target if you're in the commodity area, okay. That could make sense but not in our case.

LED, I don't know what our market is today, I could extract it for you, but we have gained market share, because we have for certain applications in the LED area, the leading technology. So we are very optimistic and this is why we are looking at that investment in the coating of the graphite outside North America.

And by the way, January was the best month in the history of SGL for those products. Battery, same statement applies market share is not our objective.

I think looking at the artificial graphite and all that competition between artificial natural graphite but we said 20% in 2017. That is the number that I have at the fingertips here.

Our largest customer is Panasonic we're selling to Hitachi to Panasonic. So we are growing with that customer.

Should that customer see stagnation or whatever, that output for that customer would remain on that level. But as we explained before we are qualifying our graphite with other battery makers, and we're developing new graphite types that have a higher capacity, which we will then sell without the value -- without the middleman, Hitachi Chemicals.

Anyhow the strategy is to add a low percentage of silicon to the graphite to have higher capacities. CapEx, Christian you can assume that, that set of slides is consistent.

So if we are talking about somewhat south of EUR1.4 billion in 2022, the CapEx that we are showing is geared toward that objective. So the automotive projects that come to fruition in terms of SOP, in those three, four years are covered by the CapEx in both divisions.

Should we suddenly gain other rapid projects, okay, we begin in 2019 and you have to have output in 2021. Okay, then we need to see what we do.

But with that CapEx and the projects in our hands, we're going to reach our sales target. And you said isostatic investment.

There's no plan to invest in isostatic. I think I understand where you're going and investing in a large press as we operate it in Bonn.

That would be a major investment. Okay.

But that's not in that timeframe.

Another question with regards to the battery stuff and the margins. And that's is complicated thing, because you have to differentiate between percentage margin absolute margins.

And we of course, and it's also little bit complicated over the years because a lot of changes were in. As I said, in previous year, the name of the game in battery was always to bring costs down, to make battery more affordable.

And yes, we had I think in 2017, it was a more significant price reduction. But this was of course, but the benefits was for this that we also had due to this been able to get a strong volume increase in that business.

So overall, it made sense. This is economic decision.

And overall the total margin has increased, but percentage wise, you're right, it has gone down but in the end all of us are not paid by percentage but by absolute amount. So therefore, of course the decision as makes sense.

And it's still a profitable business, also a percentage consideration. And of course, percentage wise we adjusted a little bit.

As I said last year, for last year, for the first time, we increased prices again, yes not to the original amount again, but we also percentage wise, expanded this then somewhat better. And for the current, we expect to have a stable situation, both on the price and the volume side.

The volume side, as I said more than influenced how this relation also, this was a capacity and the customer is going on. As we said last year, we had capacity limits there that was the reasoning behind doing the additional CapEx for the same.

So therefore in the short term, do not expect big changes. Of course, this might and only come once we have higher volumes and entire capacity in this business.

Question you asked about market share in the LED segment and what was so nice to figure it out. Our global market share in that segment for the specialty graphite is today 25%.

Thank you. So far I have one additional question.

You talked before about some kind of positive replacement of the Toray fibers for the interior of some aircrafts maybe going forward. Can you give us some kind of a timeframe or an update on these kind of issues?

Thank you.

I think I can, but let's start. The carbon fiber that is targeted to the aircraft market today is dominated by Toray, by [indiscernible] and to a much lesser attend by Hexcel and the MBRES [ph], that's brand largely in the market.

And these fibers are extremely expensive for various reasons. They are very thin, ours is much broader industrial fiber and so on and so forth.

And we have now in the market, it took some time to develop it, a heavy fiber that is used in the cars but with the properties that you need on aircraft. I can state this.

That is in advanced modular fiber. We have already shown it at the trade shows et cetera.

And that is our key material that we will put into preprex or components for the aircraft industry. So we have projects with Boeing, with Airbus, we talked about Airbus Helicopters to place that fiber.

We're having materials and that that is fiber that can use in structural components, the fuselage, the wings. Now, the little bit of downside here is that takes time.

I mean, the aircraft engineers and we are happy about this because we're all flying a lot are very conservative. They used to be conservative before the 737 Max okay.

They are very conservative, and this will take time. For non-structural components, seats, floor panels, partitions in the fuselage we already in development project.

But this is part of that stairstep approach in CFM.

So we'll take a question from the call, and then we'll go back to the room. I've already noted down Sebastian and Mr.

Heimburger.

Hi, there. Just a few from my side as well.

Firstly, on the guidance, for the GMS division, you mentioned that you expect a stronger first half. Is there anything which could sort of influence the shipments in the second half either stronger or to the weaker side, or is this also fairly visible at the stage?

Hi, this is Mike. Hi Ben.

I would say if you look into the upside and downside for a second quarter, I think with the GMS volume, I would see from today's perspective was a more upside and downside.

Okay, and coming over to CFM and you're guiding for them sort of flat, CFM sale, and in the automotive side. And but you have got three new project starting production.

What's the main rationale behind your guidance there?

I think these projects they are just starting off course and then will have not a big impact in this year. On the other side, we have a -- some slight reduction on a bigger company but this -- which will not have influence on our profit side, on revenue side because we have here take or pay application.

So therefore we have counterbalancing effects here in these segments and that's the reason for it.

Okay, and last question is on the BMW i3 contract which I think is currently set to terminate in either 2050. Is there a risk here that the BMW don't extend this contract and there's a time when you are answering that capacity either with the new volumes from the iNEXT?

Okay, Ben. Thank you.

This is Jurgen speaking. BMW i3 we were the exclusive supplier, and but we have the obligation to supply as long as BMW needs our material.

We get annual nominations from BMW. So I know 2019 is going to be a normal year.

But information about when that car comes to production and or whether it comes to production, in 2021, 2022 this information that you have from the press and I have from the press, I can't speculate further. But what we do of course is we are ready to use that capacity for other projects and these projects do not have to be automotive projects, okay.

I was speaking to Christian a minute ago about aerostructures. So we can use those carbon fiber activities for other industries as well.

And the use that we're talking about is probably in reach for the qualification for the aircraft industry. Hopefully that answers your question.

Yeah. And just quickly following up on that, also in terms of you winning new orders, and realistically, in the automotive side of it, that seems a little bit longer before it becomes relevant to earnings.

Is there any orders that you could win at this stage which could become incremental for earnings within a short time frame, in the CFM business?

I mean, the qualification times, the design times in the automotive industry are shorter than the aircraft, correct. Of course, we're working with many, many potential customers on projects.

But our state of information was shown on that one slide where we said three project startup this year, eight, next year, and then thereafter some. So that is information that we have today.

And of course, we're targeting to be more but there's nothing that I can or would speak about today. Sorry.

The only thing what we can say is that the number of projects we see in the automotive has never been higher than is currently. So we see a lot of activities going on.

Okay, thanks very much.

So we continue with Sebastian Ubert here and then with Mr. Heimburger over there.

Is it on? Okay, so I'm Sebastian from SocGen.

I have a question regarding CFM. When I look in to the margin quality and I deduct about almost 17 main income from Brembo, you are hardly positive with your earnings at just EUR4 million at about EUR400 million of revenues and assuming that the increase you’re shipping into the wind industry, which was just close to EUR9 million sales last year, heavily this year, how much more losses do you need to cover and what is the utilization rates currently in the U.S.

and what will that be going forward once you are shipping more into the wind industry?

Maybe I start and maybe Jurgen talk about the capacity utilization. Yes, I mean, we all know CFM still as compared to GMS not a material business.

But you have to see, and we all agree that the EBIT is not yet on the level we want to have it. But you also have to see the development over the last four, five year.

When I started, it was I think on EBIT level even negative. Yes, today we're talking then somewhere in the EUR20 million region, but we see that the progress is there, but yes, of course, there are different sources with different quality.

Some are profitable, some are highly profitable. You miss and I mentioned Brembo, for example, was of course, BMW business here, there are also other popular business.

Others are still of course in development activities. I explained before that we not show all the development in the central departments that and the important part here is of course, the industrialization of our own precursor.

As you might know, historically we started precursor in Japan with Mitsubishi. It was very important for us to get strategically here in an own precursor source and, of course, especially 2018 was also pretty much affected by the development effort in the industrialization of the own precursor.

So there are a lot of effects on the positive and negative side. But I think what is overall little bit overshadowing the situation is that this development in textile fiber business, as because it should take this out or the picture would look differently.

Because here historically we had a strong erosion in profitability over the last four years. When I started the earnings was much higher than it than it currently is.

So therefore, the progress which we make in our real business is not that visible, because the progress we made in the automotive side was so to say almost compensated by the development of textile fiber business. And frankly speaking I say this openly, this was also not pretty much the focus area of us.

We’re not a textile fiber business and what has been developed here was also unfavorable market situation that may make me see equivalent [ph] neither topic. So and but of course, profit erosion in textile fiber business had let us of course, digging deeper into it.

We said we made also restructuring there. We are now also changing the [indiscernible] portfolio, because the majority of this businesses is currently in commodity business.

We are pretty much dependent on the overall market situation. Also we are currently in the face of developing more specialty product like for example, flame retardant or pigmented fibers.

And the other thing is we are now, since we are successful progressing on the industrialization of the precursor, we are also now starting to progress on the conversion of the lines away from the textile fiber, to the spinning -- to the precursor. And we were therefore convert another line this year, which we will also have of course, reduce the scope of our Textile fiber business and improve the earning quality.

So therefore, there's a very differentiated strategy but I think in CFS really have to separate short term effects business which are not strategic and the progress of those businesses who are for the midterm development important. And once again, here important for the margin is primarily the aerostructure and the automotive business and some segments in the industrial business.

There are some positive business medical applications, for example is one you can use it in x-rays application, because it's x-ray this is high margin business. Even I have a friend of mine, who has an x-ray [indiscernible], broke his elbow and he's having the steel cum fiber in his elbow.

I mean this is nice application, not joking because it's not only much lighter, but it's also you don't have any problems if you go to the x-ray at the airport anymore you have anymore, because it's transparent and there's a lot of, some nice things. So those of course are excellent.

Wind you are right, wind of course, is not the higher parts business. Wind is, I would say a similar thing like the textile fiber.

The textile fiber we need for the time being to fill the capacity on the precursor production. Wind we need to fill the carbon fiber on a speedier way then it will come in the aerostructure and the automotive way, but this is of course not high margin, but more fixed costs, this option is a good, also helps to improve but decisive thing is, of course the progress in the automotive and the aerostructure business.

And here I think the important thing is that, that is what Jurgen showed in this slide and you could see it in announcement in December, BMW made the announcement in January with the Airbus Helicopter so this opportunity which we can concretely name luckily, a lot of them we cannot. Here we are making better focus than anticipated.

But yes, it is a start-up business and I said we have mixing and also the profitability of the sectors are very different. And with regard to capacity utilization, yes, I hand to Jurgen.

Thank you. Hi, Sebastian.

You're talking about our carbon fiber facility in Moses Lake. Yes, the facility is not fully used, fully absorbed, which is not an earnings problem or cost problem because as we stated, we have a take or pay contract with the customer.

What are we doing there? I mean, and I cannot say what's the capacity utilization is, because then others could calculate how much fiber is used in cars et cetera.

But I can be more open about the strategy. As we always said we're going to use capacity for the wind industry in order to have more cost absorption.

Michael explained that and we have a small CapEx project, which is among the technology projects in order to be able to produce in that facility, carbon fiber for the aircraft industry. And that relates back to what I said earlier, once the -- if i3 expires, we should be in a position to use that facility and other elements of our production engine for the higher margin aircraft industry business.

Okay. Thank you.

I have one follow-up question also for CFM with regards to your production site in Scotland. Can you remind us where those carbon fibers go into and do you have an idea what would happen if it comes to a hard Brexit?

Do you need to recertify your fibers for the rest of the world or it was the European Union then?

Excellent question I'll do the first part and then Michael jumps in. Moses Lake is today focused on one fiber type, 24X7, 330 days a year, okay.

Moses Lake is the most efficient carbon fiber engine on earth because very little overhead, no sales force nothing, just making, making, making carbon fiber. Scotland is the opposite.

In the Scotland we do at least three different carbon fiber types, we do yarns, we chop carbon fiber, we have shortcut carbon fiber and a few other products. So this is a very versatile site, but capacity wise, smaller and that is the right approach.

That fiber goes in many, many applications, some go in automotive. Some goes in early aircraft application.

There's a lot of general industrial applications, carbon fiber is used as a stiffener as an addition. And if you have extrusion processes, okay, injection molding, replacing glass fiber with carbon fiber, injection molding processes.

So that has a broad range global carbon fiber application. Those that go into sport come from Muir of Ord in Scotland.

So that has a very, very broad range of users. So it's the opposite of Moses Lake.

We have a task force for the Brexit situation which is headed by Michael. So he is better suited to answer the question that question and shows us -- shows you how prominently we treat that topic.

I think with regard to CFM, of course, the situation we see with the Brexit was [indiscernible] because the fundamental swaps would have been of course the duty topic, because we have to cross the border twice now because we come from border that was the precursor, to production of the carbon fiber in Scotland, and ship it here to Bavaria. And but this will not be a topic because in European union [Technical Difficulty] exempted.

So this will not be a topic. Also with regards the only temporary topic we see was if it comes to a hard Brexit, was the logistics supply situation and because we have to assume that Great Britain will not immediately ready to take over all this duty stuff and activities at their borderline.

That was also one of the reasons coming back to the working capital development last year that we increase our inventory to have a meaningful reach, even in the case that we have here some delays at the border that we have a continuous flow in our value chain. So but as I said this we expect to be temporary problem because UK has to solve it this logistic problem.

If it comes to this, we don't know if hard Brexit come but we have to be prepared for it. But as I said we do not see it as fundamental topic with regards to inflation because I said the tariff, the duty topic it's not a topic.

And what is even rather positive is that was the weakening of the British pound compared to euro, also the cost basis has been reduced. It's favorable for us.

So to say this quite frankly because this was also discussion with the press this morning whether this is a structural problem where we will move out of Scotland I said, no this is not a structural problem. No, we will stay in Scotland and made a lot of sense to stay here.

And I think also the separation of work between Moses Lake and our Scottish plant as Jurgen explained will maintain.

And on certifications, do you have some that you might lose in a case of a Brexit?

We have one topic, which is the chemical side the REACH [ph] certifications, okay. But there has been a very positive development.

Yes, assuming the Brexit, UK will adopt REACH regulation, which is identical to the European REACH regulation. So there's a European REACH and the UK REACH in the future.

The cost impact on us as minimal, it's a five digit figure. We have to supply a few documents and the rest is copy and paste.

So that question a year ago, critically more tricky. So we are now lot more relaxed because of REACH.

Okay, thank you.

And to Mr. Heimberger, please.

Hans Heimberger, Kepler Cheuvreux. Just one question left.

Can you remind us on the status of the purchase price, this $62 million for Moses Lake. This is likely to be a cash outflow in2020 and is increasing net debt in 2020.

Is this correct or can you remind us on the status of this transaction. Thank you.

It's still liability in our balance sheet but not yet part of the financial liability, it's currently booked in our other liabilities and of course in the moments we paid of course this was reduced in our net debt position is yet not the case. I mean money wise we already have used from the convertible bonds, $60 million to be deposited in a U.S.

dollar account. Coming back to the discussion we had before and because we have to pay this in U.S.

dollar so the money is already available but in the moment we will do so we would also have to refinance the 80 million debt coming back to -- or we want to issue a new corporate bond to refinance the old stuff. The debt portion of the joint venture not the equity portion, debt portion of the joint venture and the convertible bond and if we then immediately paid or paid it at the end of 2020 this is the decision we have to make.

We have a question from Richard [indiscernible] upfront here.

Thank you. Two questions, expectations for working capital improvement in 2019 are part of the positive free cash flow.

And you explained the thought process in terms of the improvement being driven by inventories because of ACM prices but they were lower by the end of the year and it looks like a bigger component of the working capital build up was really higher trade receivables. And I think something other contract assets in light of growth that you project in terms of top line sales.

I guess a little more detail in terms of the driver, in terms of the working capital improvement would be useful and maybe quantifying as well.

Yes, we have to, but careful was the, other was the accounts receivable topic. Because as I said, if you compare year-over-year, we have of course also the consolidation effects here.

Because as I said, we have achieved a lot of structure changes. We have now full consolidation of Benteler which was -- as I said, it's not consolidated before, we have 100% consultation of BMW, which was only consolidated 51%, yes on the one hand.

On the other side, we left the joint venture. So therefore, of course, if you look into the year-over-year comparison, this is of course a little bit inflated, all working capital stuff but it's structural change because of course accounts receivable.

And all the other topics actually, I think the -- and I think and that was also more on receivables a year-end effect. I think really if you look more -- if you take out the M&A effect and we look into the operational development.

I think, as I said the biggest impact last year was on the inventory side and the bridge up. So which the other thing is more so to say accounting stuff overlaying the whole picture.

So less on the receivable side and main factor here as I said is the inventory side due to reasons which I mentioned the higher raw material prices and to Brexit related intensively increasing momentum.

Is there a figure that you provide for guidance in terms of the working capital improvement that could be expected year-on-year driven by that inventory?

Think now, I look at my investor -- I think we have not giving a specific guidance with it.

No, we've not provided guidance on the working capital change. We've just said that the improvement in negative free cash flow, down to a low-double-digit figure is being driven by working capital improvements based on flat earnings higher CapEx.

So…

But I think you can calculate the range for yourself. If I think we had a negative cash flow of close to EUR60 million, EUR58 last year, we improved this now to low-double-digit, on the other side where the CapEx of what was it EUR70 million to EU80 million previous year that we know increase to EUR100 million.

So this might decrease. So in essence the main difference as to become for the working capital, so therefore I think.

Understood. And second question I know I realized core is finished and there are no planned restructurings but to the extent that the textile segment is weaker and you do have 32 sites and maybe some of those are more concentrated on a textile side.

Is there potential to look at restructuring at a point in the future for some of those sites?

And the answer is yes, we're looking into it and also into solution if we also would temporarily shut down some textile fiber line, that the team is currently working on, on exactly that question. But as I said, currently, we see improvement here in the margins to do business to what I said to change in the acrylonitrile price situation and we also focusing on speedily implementing non-commodity products like the flame retardant to improve our profitability.

So the current focus is more on the sales side, strategy. I mean, the art for the sales guys is now yes, to reduce the prizes, but to a lesser extent and the raw material prices have decreased, and they are heavily decreased and to therefore expand the margin again, that is one driver.

As I said the other driver is introducing higher margin products in the area of the pigmented and flame retardant. But of course, we're working also on a alterative plans if necessary to do more under restructuring side, but currently as I said, the focus is not on the execution on further restriction measures.

What we preparing for this and it will be necessary.

And may be just to clarify, we only have one textile fiber site, so it wouldn't be about shutting down a full site, it would be about restructuring that site.

Right. And just to follow-up on the working capital question.

I think previously, I thought the guidance for free cash flow was positive and now it's 5%. Just to understand the definition, is at 5% of total debt or…?

No, to your question to the 2022 guidance, all those percentage are related to revenue.

Okay, just to confirm. Thanks.

You guys are still not tired after two hours? All right, Matthias Pfeifenberger.

The final one if I may. What's the missing piece on the wind side and also on the aerostructures is it protrusion.

I think this technology is not owned in house yet. So where are you in that step?

Are there ways to buy in more of the technology to expedite this process or do I mix things up? Thanks.

That's different names to the games in aerostructures and in the wind industry. In the aerostructures there is to my knowledge, no protrusion technology at all.

Aerostructure, let's talk about the two biggies. Boeing, Airbus, Airbus uses so called pre-plex, which is carbon fiber fabric that has a resonance impregnation.

Hexcel is the biggest supplier to Airbus that is the technology they are using and they're putting the big airplane fuselages and big furnaces to heat them and cure the resin. The technology of Boeing is different.

They also use impregnated material with resin impregnated but small types. That's what they buy from Toray.

And these tapes have been used as you can imagine, to wind the aircraft structures, be it wings or fuselage, different technologies. Both technologies we have in house.

You have a prepared site and really in Germany if we do that we have the same site, develop the tape structures and you're selling those tapes into other applications already. Now it's a matter of marrying our new carbon fiber for the aircraft industry into that application.

Wind, when I need to say two sentences at least. The wind industry as long as I know it has undergone two or three technology changes.

15-20 years ago was carbon fiber. Then carbon fiber was replaced by so called pre-plex similar to what Airbus uses in the aircraft industry.

But that is too expensive, you need to cool it. Transportation is nasty.

That technology was then almost fully abandoned and the wind rotor blades makers use dry fabric. And that technology is now slowly replaced by what you said pull through the parts, which is prefabs, prefabricated elements that are put into the large form or the rotor blades.

The technology that we only have partially in house but we are developing that. We are acquiring with money, that type of equipment and going forward, we will decide whether that is a technology we're going to put in the wind industry.

So today, our business into the wind industry is carbon fiber pure carbon fiber.

Any more questions? We didn't want to discourage anyone.

Okay, well, thank you everyone both on the phone and as well as here in the room for coming and for a very, the most intensive discussion we've had since quite a few years. So thank you very much.

And if you have time for another cup of coffee, I think we can -- we are available for a little bit more time. So thank you again.

And we'll speak to you at the latest after Q1.

Thank you again from the Board of Management for your time, attention and great interest. Thank you.

Have a great day.