SGL Carbon SE (SGL) Earnings Call Transcript & Summary

Good afternoon, and welcome to our today's conference call on the results of the full year 2020. Thank you very much for joining us today. Here with me today is our CFO, Thomas Dippold. He will also support me in the Q&A after our presentation. So please go to next slide. Next slide, please. Yes. Can you see the next slide. Okay. Next slide, please. Sorry, the Internet seems to be a little bit slow today. Okay. This is a slide I would like to with, and this concludes our business environment. Of course, we were affected by COVID. And our sales went down by 19%. But we are pretty much active in China and in the semiconductor segment, and this safeguarded our results in 2020. Also our carbon fiber segment, which goes into the wind industry, went pretty well and is still going pretty well. So our highlights, of course, at SGL Carbon, we were also affected by COVID, but we had strict anti-COVID measures, and currently, only 8 active infection cases are known to us. And in total, we only had 2 people which had an infection caused during the work time. So our anti-corona measures worked well, and we didn't close down any of our operations during the COVID time so far. Thomas and me changed the organization, and we will allude on this later on in the presentation. And we also started a restructuring plan, and I would say we are ahead of our plan right now. Our financials, we lost 15% on the top line, and we had an over-proportional loss on EBITDA. But our cash flow -- our free cash flow improved very nicely. Our net financial debt is unchanged despite a larger payment of EUR 62 million to BMW for a share of JV, which we did. We did an impairment of the carbon fiber business of EUR 107 million last year. And our guidance for next year, we will grow in a mid- single-digit percentage range. Our EBITDA will grow by between 10% and 30%. And the net result, we expect between minus EUR 20 million and breakeven. Next slide, please. So this slide shows the development of our share. And Thomas and me, we are pretty satisfied with the developments. I joined the company 1st of June last year. Thomas joined SGL 1st of October. And here, you can see our story. We worked on a restructuring and transformation program of the company, and we went public end of October last year. And you can see a first jump in the share price in October. Then we had Christmas, we had a new year, and we went beginning of January to several conferences and explained our transformation story in more detail, and you can see another hike of the share price beginning of January. And we reached a share price of around EUR 7, which is more than double of what we achieved. And I have to admit today, it went a little bit down. This might be profit taking. But this performance was more than enough to join the SDAX. On Monday this week, SGL went back into the SDAX. And Thomas and me, we see this as a big success after half a year of restructuring. Next slide, please. Thomas is now continuing and will explain you the full year 2020 results. Thomas, please go ahead.

Thank you. Could you please jump to Slide #7. There you can see our key figures for 2020. As Torsten already mentioned, our sales dropped by 15% from formerly EUR 1.087 billion to EUR 919 million now in 2020. This is a drop by EUR 167 million. To that contributed the carbon fiber and material, the CFM business unit contributed about 9%, but they recovered in the second half of the year, so it's only 9% for them. But mostly it was our GMS business unit with the graphite material and systems. They lost 20% overall in the top line. Half of this was expected because we lost, as you know, and if you follow our conference regularly, then you know that we also expected a drop in the so-called GAM business, the graphite anode material. This is something we expected and the other half contributed the COVID pandemic. Due to several countermeasures, we made it that our EBIT before nonrecurring items could stayed on the level of last year and could even be slightly increased by 4%. However, our operating EBIT, which includes nonrecurring items and one-off items, this dropped dramatically to EUR 20 million overall. This is exactly what we forecasted, that our operating EBIT still remains slightly positive. This reflects a 2% ROS margin. Next slide, please. On Slide #8, you see the transition bridge of our various results components on the -- starting from the left, there you see our net result, which is minus EUR 132 million. This is at the upper end of our guidance, which we gave or adjusted end of October where we said net results shall be in a range of minus EUR 130 million to minus EUR 150 million. We ended up at the upper end of that. EBIT reported is at minus EUR 94 million. And the EBIT before nonrecurring effects is EUR 50 million. Between those 2 figures is, on the one hand side, the purchase price allocation, which is more or less a technical effect. We have some provisionings and cost for our consultancy firm who helps us in the restructuring program with EUR 25 million. We have some other restructuring effects, some minor ones, and we have the huge impairment loss, which we announced via the ad hoc message end of October, when we wrote down the assets and the goodwill of the ACF business, which is the Moses Lake and Wackersdorf business, which we formerly had in the joint venture with BMW. Between the EBIT before nonrecurring item and the operating items, where you see all the positive countermeasures, which are -- well, offset the result to a large extent and the impact which you saw on the top line. On the one hand side, we have made a termination agreement with Showa Denko. They wanted to opt out earlier than agreed -- formally agreed upon from our plant in Meitingen, and therefore, they paid a certain compensation for the breakup of the contract. On the other hand, we have some land sale. We have some land, which we don't use for our operations, something which we sold. We have some one-off personal items which went into the right direction, like reduction of extra time hours. And we had some insurance compensation from damages from former years, which also contributed to that. So overall, our operating EBIT ended up at EUR 20 million, which is slightly positive exactly also what we announced end of October. Next slide, please. On Slide #9, you again see that our net results for the last 2 years, they simply look terrible. In 2020, you see minus EUR 132 million, largely impacted by the restructuring provision plus the impairment of the assets, as just mentioned. And also in 2019, in the minus EUR 90 million, also about EUR 75 million due to a restructuring -- not a restructuring, a impairment which we had also in the carbon fiber business. The good thing in 2020 performance is definitely our free cash flow. We achieved a free cash flow, a positive free cash flow for the first time in 7 years. And not just a tiny one, but with EUR 74 million, I think it's a remarkable figure. And what contributed to that free cash flow. On the one hand side, there are several one-off effects like the Showa Denko agreement and the land sale. But on the other side, also a strict net working capital management. We were very strict and cautious in our CapEx and invested far less then our depreciation rate was. And of course, and this contributed even the most. We were very conscious on our spending money, and the savings also contributed largely to the EUR 74 million. So again, this is the first positive free cash flow in 7 years. And this also made it possible that we could pay the purchase price, the deferred purchase price for Moses Lake for the former joint venture with BMW. There was a deferred payment agreed upon that we paid end of 2020, and we could pay down this EUR 52 million in time in full, and nothing more or less happened. But you can also see on our net debt figure, it even got slightly down, and we could reduce our net debt at least by EUR 2 million compared to last year. Next slide, please. And I'm coming to the business units, how they developed. Our business unit Graphite Materials & Systems, as I said at the very beginning, suffered a sales drop of 20%. We could offset this impact from the top line to the bottom line, not to -- yes, not at all. So our EBIT before nonrecurring items, almost half, and our operating EBIT even go down by 60%. In that result are numerous countermeasures and strict cost discipline effects; otherwise, a drop of 20% in this very capital-intensive business unit would have hit the bottom line even harder. So what we saw is that our Semiconductor business could offset the top line quite a bit. This was the only business and the only market segment we had in this business unit which grew even in double digits last year. And this is going to continue also in this year. Same with our China overall business, they are the guarantors that this top line of TMS also will rise again in 2021. Next slide, please. I'm coming to Slide #11, to the business unit Composites - Fibers & Materials. They overcame the market drop and really achieved a remarkable turnaround. So despite the sales going down by 9% from EUR 430 million to EUR 390 million, they made it that the EBIT and also the operating EBIT really improved very strongly. How did it come? We have lower material costs due to the overall recession and due to the COVID pandemic. On the other hand, we have far better production processes and we idled 2 lines for textiles. We converted another line into precursor and may happen that we also could industrialize our precursor to a large extent, and also lower energy costs contributed to that. So in the end, we really achieved operative turnaround there. And regarding the capacity which we had, we are now at full steam and all capacities are fully loaded. Because we shifted our capacities into the wind business, where we really penetrated the market and gained a large market share versus the downturn which we saw in automotive and also aerospace plus industry. In the wind business, which is normally also not so a margin-rich business compared to automotive or aerospace, we could manage it that we could increase the prices. And all these effects contributed to the bottom line development, as I just described. Coming to the next slide, #12. There you can see our business unit Corporate, which is everything else is incorporated as a kind of a shared service. And the shared services is also what is reflected in the sales because some of the shared services we could charge to our -- well, colleagues -- or former colleagues, as we call it, in Show Denko. Plus our joint venture, which is also in Meitingen with the BSCCB. Our EBIT, which was planned and also in prior year at minus EUR 29 million, in the EBIT before nonrecurring items could be improved to minus 11%. What is the reason for that? We have, of course, a Showa Denko payment which I just mentioned and also the land sale contributed to that improvement. If you look at the operating EBIT, there you see the improvement overall after all the countermeasures and savings that we have on a natural basis. On Slide 13, the next slide, there you see our complete P&L and maybe just -- I described all the results at the EBIT figures. Maybe just as a summary, there you can see in the middle about EUR 30 million one-off effects, about EUR 144 million of nonrecurring items, and also our financing result improved compared to last year by almost EUR 10 million due to lower interest rate. And in 2019, we also had the cost for refinancing in prior year. Coming to Slide #14. There you see our balance sheet ratios due to the huge loss that we saw as a net result with minus EUR 132 million. Also, our equity ratio got hit quite substantially. Our equity ratio went down from pro forma 27.8% to 17.5%. And this is a clear contribution from the profit. Also, the low interest rate affected our pensions, and they also got offset in the equity, plus also some currency effect contributed to that. However, our total liquidity even improved despite over EUR 50 million payment to BMW by EUR 4 million, as you can see on the next line here in total liquidity. And as I just mentioned, our net financial debt went down by EUR 2 million. Coming to the cash flow on Slide #15, the next slide. There you can see our cash flow from operating activities amounted EUR 104 million. Again, what contributed to that, our working capital management, where we could gain compared to prior year about EUR 35 million and also the Showa Denko paid off to that. And our cash flow from investing activities, there you see also that we were quite reluctant in spending money. We invested only EUR 55 million compared to EUR 95 million the year before, and the depreciation was about EUR 70 million for 2020. So again, there you see our free cash flow is EUR 74 million, the first free cash -- positive free cash flow in 7 years in SGL last history. And after presenting the figures of the 2020 annual report in a nutshell to you now, I would like to hand over to Torsten, who is guiding you through the restructuring program.

Thanks, Thomas. Please go on to Slide 17. Okay. So Slide 17 is about our restructuring program. As Thomas and me came in, we saw it is necessary to transform this company. I have to admit the people are excellent and very technology-driven, but not business-focused. So this is why we started a cultural change initiative at the very beginning of our start here in this company. And what you can see on this slide are the guidelines which we defined, and they are business first, keep it simple, deliver on promises and act fast, think different. So this means that we focus on projects where we make money with, that we focus on projects with short return on investments and that we think twice when we spend money. And this poster is in every meeting room. Every employee in SGL knows it, and we really want to transform the culture in this company. And this is always the case at the very beginning of a restructuring program. Next slide, please. As I came into this company, we renegotiated the covenants of the synd loan to protect our liquidity in the year 2020. And to be honest, after now half a year later, it was not necessary. Today, our liquidity is at a very comfortable level. We closed the year 2020 at a liquidity level of EUR 140 million and an undrawn synd loan, but Thomas and me acted with immediate actions. We imposed a hiring freeze. And if a department in SGL wants to hire someone, either in production or in administration, they need Board approval. We installed something which we call spend control tower. This is about purchase orders. Every purchase order above EUR 5,000 of value has to pass this spend control tower. And third is CapEx discipline. We have an investment committee and we challenge every new investment within SGL Carbon in terms of return on invest, in terms of predictability and risk. And I think these 3 immediate measures really helped us to improve significantly our liquidity position. So this is what we did as immediate action. Next, Slide 15, please. On Slide 15, you can see how we transformed or changed the organization of our company. The old setup, we had 2 business units, depicted on the left side. And we had countries and we had sites which were managed individually. What we did, we sliced the company in a different way. Now we have, on the right-hand side, 4 business units, which we call companies in the company. We integrated all the units, the R&D labs from central innovation, dissolved central innovation, also the central analytics were dissolved and allocated to the new business units. The business units own the sites where they produce. This means we have companies in the company focused on profitability with an own P&L statement. And we also changed our STI scheme, which is now 100% focused on EBITDA pre-exceptionals of the respective business units. So this is what we did with the business units. On the bottom part of the slide, you can see the corporate functions. As I came in, we had 20 corporate functions. We reduced the headcount in the corporate functions by 20% to 30% and also reduced the number of corporate functions to 10%. So we cut them by a factor of 2 and reduce administration costs. Next slide, please. Now talking about the restructuring program and the figures. We have over 700 individual initiatives. And all together are our transformation program. Every initiative is owned by initiative owner and he signs fully responsible for this initiative. We completed already, by end of 2020, 70 -- 37% of all the initiatives. When we go to headcount reduction on the bottom, we said that we want to reduce the headcount by more than 500 FTE. By end of 2020, we realized already 53% of the headcount reduction. But talking today, we already initiated 85% of the reduction. What is the difference between initiated and realized? Initiated are contracts which were signed, but the employee is going to leave later; realized means the employee already left as a company. So you can see our initiatives are very much front-end loaded, and we already did quite of the project already today. For the recurring savings, which is the middle part of this slide, we realized EUR 40 million of our total recurring EBITDA savings. EUR 56 million are initiated and will materialize in the next months. So we are pretty satisfied and are ahead of plan. And today, we can confirm that we will deliver at least what you can see here, at least EUR 100 million recurring EBITDA savings and at least 500 people reduced in our headcount. Next slide, please. And now I would like to hand over again to Thomas for our outlook.

Yes. Coming to the outlook, please go to the next slide. For our outlook, because what I think, at least in the various talks I had with you guys over the last couple of months since I joined, we know exactly that is somehow confused you, to a certain extent, with our EBIT before nonrecurring and operative EBIT, and we want to get rid of these 2 EBIT definitions. We just closed the year 2020 and stick to the old format, not to confuse you completely. but for the reporting for 2021 onwards, we would like to go to EBIT or EBITDA pre-exceptionals. And these exceptionals are now in anticipative phase. We define you and explain you what we define as an exceptional. There is, on the one hand side, any one-off depreciation which is due to impairments, purchase price allocations or any depreciation on an asset held for sale; all our restructuring expenses because we define them as nonrecurring; any, be it positive or negative proceeds from land of sale and buildings. And so we're also honest with you and also show our positive impact just in case we do something in this direction. Same with insurance claims, which are not counterbalanced in the same year, and other material one-off impacts, which we cannot foresee, but we clearly define them just in case they happen. So this will be our key figure how we manage also our business unit heads which we installed. They have in their SDI and the bonus agreements, they get measured clearly on an EBITDA pre-exceptional result. And this is how we run the company and hope to scale successfully.

And next slide, please. What Thomas explained to you is that we give you transparency on exceptionals and recurring business. This new structure which we are going to report you from today onwards will also give you transparency. In 2020, we had 2 business units: Graphite Materials & Systems, which we call GMS, and we are going to split it in 2 separate business units, Graphite Solutions, around EUR 500 million top line; and Process Technology, around EUR 100 million top line. Same we do with the business unit carbon fiber and material, CFM, we are going to split it to 2 business units: Carbon Fibers, which contains the carbon fiber chain; and Composite Solutions, which contains our composites business. The business units are -- the business models are distinct. The customer base is very homogeneous. And we have almost no customer overlap between the business units, which you can see here. And as I said, we allocated all assets and all production sites to the business units. From now on, we are going to report top line and also EBITDA pre-exceptionals for the 4 business units, and this will give you much more transparency than before. Thomas, please go ahead.

On the next slide, you see our outlook for our newly defined business unit, Graphite Solutions. There you see also for comparison, the relevant sales figure for 2019 -- 2019, Graphite Solutions on a stand-alone basis would have achieved EUR 560 million in sales. They dropped in 2020 to EUR 408 million, and we predict a slight increase of 2021, which we expect. How is that? The business is late cyclical. So we started into 2020 Graphite Solutions, and they almost held nothing when corona more or less started in the first couple of months. But in the second half of the year, then they also got impacted because of the long lead times that this business has. They suffered in the second half of the year. Only Semiconductor could offset quite a bit because this is really a strong booming business, especially in China, but our industrial business is still weak, but we expect a recovery due to the course of 2021. EBITDA got, due to the high fixed cost and the high-margin business, then overproportionately impacted, and we expect that the EBITDA pre, which is now the new key figure which we report here will increase significantly in 2021 because all our cost effects will be -- become effective. We got the battery funding, which we describe a little bit on the next slide. And of course, we have huge growth opportunities, which we also fuel in, like the graphite anode material for lithium ion batteries for the e-mobility, but also the gas diffusion layers for the fuel cell business.

Okay. Next slide, please. And this slide, I will explain a little bit deeper. And if you look at the picture on the right-hand side, what you can see here, this is graphite powder. And it's a very special graphite powder. We call it graphite anode material. And I think you followed the press. There are several battery projects for electro mobility announced in Europe. In total, there are 25 announcements. And last week, on the power day of Volkswagen, Volkswagen announced a loan in Europe, 6 new battery plants for EV. And in total, they announced 600 to 700 gigawatts of capacity until 2030. And you need, in each battery, you have an anode and cathode, which is plus and minus in a battery. And for the anode, you need graphite anode material. It's impossible to build a battery without this powder, which you see on the right-hand side. In total, if the 600 to 700 gigawatts in Europe materialize, you need 300,000 to 400,000 tons of this material. And we own 2 plants, 1 in Poland and 1 in [ sched ] where we can start right now with the production of this material. And there's almost no competition. Of course, there are some competitors which announced pilotation projects, but there is no real backward integration for this whole industry. And now I come to the project itself. So the European union wants to have a stand-alone setup for the EV batteries in Europe. This means battery production and also the backward integration. And they started IPCEI project, which means Important Project of Common European Interest. That means the European Union is supporting an fully integrated value chain for batteries. And this includes graphite anode material. And we, SGL, were selected to get a EUR 43 million funding of this IPCEI, a grant to set up a production chain or improve R&D and also our knowledge on recycling for exactly this powder which you see on the slide. Until 2028, we receive this EUR 43 million. This fits pretty well because we opened 1.5 years ago in making our own battery lab, and our knowledge about EV batteries is already pretty deep. And I have to say to you now, later on, we show you the midterm planning, everything which I alluded in the last 5 minutes is not included in our midterm plan. So this is an upside not including in the figures you will see later on. And I hand back to Thomas.

Thanks for the explanation, Torsten. Coming to the next business unit on the next slide, our process technology. The process technology is more or less a carve-out of the formerly GMS business unit, which GS and PT were together. Our process technology, you can imagine like a plant construction. They are working for chemical and petrochemical companies, and they produce graphite equipment like heat exchanger, but also synthesis systems. And due to the slow recovery of our overall economy, all the chemical companies have a capacity and none of them or hardly anybody of them is really investing in new plants. They only do refurbishment and maintenance. And this is the business we are also currently in, but there's no real growth. And this is also the reason why we, as an outlook for this business unit, put the sales and also the EBITDA pre on a stable term. We expect our recovery in 2020 and 2021 will be, for this business year, a kind of a transition year. We have a new management in place. And they are dealing with the restructuring and the overall setup and the global footprint of this business unit, and they will come up stronger than ever before. On the next slide, you see our business unit Carbon Fiber. This is the former CMS -- CFM, sorry for that -- CFM business unit and we cut it more or less, not in the middle, but we cut it halfway. And the larger portion is the Carbon Fiber business, which is roughly EUR 300 million. You see also that the sales in 2019 amounted EUR 341 million, and it dropped in 2020 to EUR 304 million. And they also got a stable outlook. We have a new business management in place. And we expect the business to be rather flat due to the drop that we saw in aerospace, but also automotive. And the huge market share that we could win in our wind business, we are now on a conservative base regarding the top line. We expect it to be rather flat, maybe a little bit growing, but the overall definition will be stable. And we work on further optimization with the new management. For example, our precursor in Lavradio in Portugal in our plant there can be further industrialized, and the ramp-up of our own production can be speeded up, and then we don't need to buy so many other precursors from competitors and the market overall. So looking to the EBITDA pre figure and the bottom line results, we expect, even on top of the big improvement they made compared to last year, another slight increase in our EBITDA pre. And last but not least, on the next slide, you see the outlook for our business unit Composite Solutions, which is the second half and the lower part of the value chain in this former CFM business unit. They amount for EUR 91 million in sales in '19, and they dropped only a little bit in 2020, on just 2%. And there, we expect a significant increase in the top line and a turnaround on the EBITDA level. So why is that? We have one -- well, first of all, we also have a new management in place there. We expect our operative turnaround there and that we won 2 contracts, and they should guide us into a serial production of battery cases and battery enclosures for e-trucks. So we have the components in Ried and Ort, which is in Austria, and then we ship it to Arkadelphia in the United States, where we assemble everything, and then we can ship it to our customer. So we see a certain top line growth, which is a significant increase. And the bottom line on an EBITDA pre level should be slightly positive, but compared to the minus EUR 5 million which we had in 2020, this will be a positive figure for the first time since many years in this business unit. So on the next slide, you see our overall outlook. So coming from 2020 with EUR 919 million, we expect the top line growth up to EUR 970 million, which is up to 5% growth which we can offer. This is just the organic thing and the rebound from the market. We don't expect a V-shaped recovery. But as Torsten said, we only promise what we really can deliver. And our history in overpromising is quite long, and this is something we would like to turn around. On -- we rather focus for next year. Of course, we take every chance in the market, and we -- if there's something where we can grow profitably, we take it. But this is our top line outlook. Our EBITDA pre outlook is, however, far more aggressive. We expect that our EBITDA pre level shall be in the range of EUR 100 million to EUR 120 million in '21, and this should reflect all our efforts in ramping up our bottom line, generating our own cash flow and really be far more profitable than what we have been in the past.

Next slide, please. Yes. In the next weeks, we are going to announce the Q1 figures for you, and this is just a heads up for you guys what you see here -- you can see here on the picture are graphite tubes, and they contain power fuel rods for nuclear power plants. And we supply this exclusively to one customer for power plants in the U.K., and the company operating this power plants decided to discontinue the operation of the power plants by end of this year. So we settled an agreement with our customer. And we will have a one-off in March of this year in the low double-digit million euro area. And the majority will go into the Q1 earnings. So adjust your models because we will have a compensation due to lower sales and lower earnings in the next quarters of this year. This is a one-off effect which will be compensated in the next 3 quarters, just a heads up for you. And we will have a pretty good March. Next slide, please. Please go to Slide 32. We are now coming to our midterm planning. And I would like to start with our road map on Slide 32. You can see the years 2020, '21 and up to '25. And this is a time frame we are going to plan. And you can see our 3-step transformation approach. First step this year and ending next year is a transformation. We are focusing on cost reduction and are focusing on profitability and cash. And also, I talked a little bit about changing the culture. And we are pretty much ahead of what we planned. And we will advance beginning of next year to the second phase. We are already busy with the analysis of our production sites. For a company of our size, just EUR 1 billion, we are operating 31 production sites, and we are analyzing the profitability and the position in the value chain of every of our sites, and we will come up with the planning of our production footprint in the year 2022. We are also focusing on selective organic investments, and our cash position is -- our liquidity position is pretty comfortable. So we can afford investments with low return on investments. And this we will do selectively. And we will also come up in 2022 with an ESG commitment. SGL has not done much in this field, but we are currently working on this and we are prepared for the year 2022. And the third phase which we consider if our performance improved significantly, we are going into large investments. For example, we are planning to invest into a graphite anode material plant as a greenfield investment. And we will do other large investments. This we will do when the performance is improved, and it's not included in our 5 years plan. You have seen the 4 business units. We can do every portfolio effect you can imagine. We can do acquisition which will go into one of the 4 baskets, or we can divest. We did all the preparation, but I have to emphasize we are not planning right now to divest anything. But we did the slicing in 4 different buckets, and every strategic option is possible. Next slide, please. This is our 5 years planning. And you can see, from 2019, the COVID-19 dropped to EUR 919 million. Thomas already gave you the guidance. We will grow in a single-digit range to an area between EUR 920 and EUR 970. And we will have a compounded growth of 6% until 2025 to a level of EUR 1.2 to EUR 1.3 billion. And I have to emphasize, this is only based on our current portfolio and only contains organic growth. It is not including a greenfield investment into graphite anode material and no other large project. What is most important for me is, bottom low, you can see our EBITDA pre margin in 2020 was on a level of 10%, but it included some onetime effects. We will go to 11% to 12% this year. Only based on our operative business, we are going to increase our margin to 15% to 18% until 2025. So next slide, please. I think -- sorry for the delay. This shows you our key performance indicators for our midterm planning. We are planning with a ROCE of more than 10%. Our leverage ROCE is planned smaller than 2.5 million. You have seen the sales growth is expected to be single digits, around 6% per year. Our consolidated net result will be positive. We plan from this year onwards with a positive free cash flow and the EBITDA pre margin on sales will be more than 15%. So this concludes our prepared remarks. Operator, would you please initiate the Q&A session?

[Operator Instructions] Our first question today comes from Richard Schramm.

First question would refer to your midterm guidance you just have outlined. I wonder why the margin target has a relatively wide span of 3, 4 percentage points, 15% to 18%. What is the reason behind this? And second question would be, you mentioned it, I think, already that rising material prices played also a role and hurt you as a mature supplier last year in I think [ GSL ]. What is the perspective for the current year going forward? Are you yourself affected by rising material prices? And can you pass on these without any delay to your customers? Or should we be prepared to see a certain burden for the operating performance from this side?

This is Thomas Dippold. I'm trying to answer your question. The first question, if I'm not mistaken, I couldn't understand you 100% well. But if I understand it correctly, your question was about the EBITDA pre margin as percent of sales. Regarding our target for 2025, where we have a range of 15% to 18%, what we can say that we at least want to achieve 15% and the maximum in our scenarios would be 18%, depending on the mix of our businesses. You know that our businesses have quite a different margin range, especially GS business being very profitable and having a high margin. Whereas our CF business is just trying to develop into that business. And it depends on the mix that we have until 2025. This is why we gave this range. Personally, we say 15% is something we promised for sure, 18% is possible, and this is what we're heading for. This is how I would answer the question. Knowing exactly that for you, as an analyst, this gives you quite a range in your Excel spreadsheets sort of for that.

Yes. And so maybe, Thomas, to add to your explanation. We are active, for example, in the gas diffusion layer, which is a core element in the fuel cell. And we have one very large customer for this who supplies 50% of the cars with fuel cells worldwide. And you know this is a technology which is at the very beginning. And there is a pessimistic planning, a base case planning and then optimistic. And as we are active in this business with a gas diffusion layer, this can surprise us nicely or this technology cannot develop. This is always the case if you work on the forefront of technology, which we do. So Richard, you also asked a question according to raw materials. And yes, it's true. We saw increasing raw materials. For example, acrylonitrile is one important raw material, which we buy for the carbon fiber chain, which doubled in the last 6 months. Fortunately, most of our contracts are either on a spot basis, that means we can directly increase the prices to the customers, which are true for our textile business. All other contracts are containing raw material clauses where the prices are based on the raw material, and with a certain delay, we can forward some of the increases. And this is already included in the guidance which Thomas gave on the raw materials. Hope that answers your questions.

Yes. And just maybe a follow-up on this material issue, you have seen that some materials have signs of scarcity, and in some areas, we see real supply chain issues. I mean you are not affected quite obviously by the chip supply issue, at least not directly. But I have heard that, for example, in the chemicals industry, also some materials are becoming problematic and that supply becomes difficult. Do you see any volume problems here? Or is this is not the case in your business at the moment?

Yes. First of all, a clear no. We have no supply shortage which forced us to postpone deliveries to our customers or forced us to reduce production. And we did a pretty lucky punch at the beginning of this year. We have a big tank for acrylonitrile, which secures our supply chain, and we fully loaded our tank and have quite good security of supply right now. Despite the biggest supply of this raw material is in INEOS, which is in force majuere, but it's a rumor that they lift the force majuere by end of this month. So to answer your question, no effect on our business so far.

[Operator Instructions] Our next question comes from Andreas Heine.

This is Andreas Heine from Stifel. Two, if I may. The first is on these battery anode material, could you elaborate a little bit more on what the entry barriers are? So why is it that you think you can get most of this business in Europe. Technically? Is it capacity wise? Or there are other reasons? That's the first question. And second one, on windmill. You outlined that is a strong growth business, but on the other hand, not that favorable on margin. Maybe you can highlight a little bit what the competitive situation for this business is?

Yes. Okay. Mr. Heine, thank you very much for this question. Very good question. I start with graphite anode material. So first of all, the graphite is a mixture of natural graphite and synthetic graphite. And SGL carbon is active in the field of synthetic graphite. If you distinguish 2 types of batteries, low-class batteries and high-class batteries, the high-class batteries have a 100% share of synthetic graphite. So if you buy a Porsche, for example, 100% synthetic graphite will be in. We -- in our planning, we took the gigawatts. And for the 700 gigawatts, you need 300 to 400 kilotons of synthetic graphite. And this already contains a split of 70% to 30%, which we expected for the mix of synthetic and natural graphite. And I can tell you, it's not easy. We installed our battery technology center in Meitingen, and we are able to produce our own batteries. That means we take our graphite anode material from production. We put it on copper foil and build our own batteries, do several hundred charging and de-charging sessions with it. And sometimes it's not logical, and you need years to be in that business. We are in this business for more than 5 years because before we started to enter the graphite anode material ourselves, we had one big Japanese customer. And we produced graphite bricks which we supplied to this Japanese customer. He put this to a milling process, coated it and sold it to the battery industry. Now we are moving one step forward. We produce a battery anode material ourselves. So that means our experience is 5 to 6 years. We have the plans. They are there, and we have the capacity. Our competitors announced several projects, but they have pilotation equipment or very limited experience. I see ourselves really in the pole position. And we sent samples to -- there are 25 projects. I think 80% to 90% received already the samples from our production plants in Poland. So I hope this answers your question on battery anode material. And the trend is going to artificial graphite, not to natural. The windmill story, yes, what you said that the margin is lower than, for example, in our automotive business, is totally right, what you said. For the carbon fiber, our main business right now is BMW i3, and it goes to the outer body panels to the i3. But unfortunately, BMW decided to discontinue this project in the next -- within the next year. So we have the capacity of carbon fiber, and we have to utilize the capacity. And an outlet which is growing very nicely is the Wind Energy segment. Of course, the margin is lower. But the business of Wind Energy is growing nicely. For the onshore installations, we see a 2% compounded annual growth. For offshore we see 14% until -- 1-4, until end of the decade. And the good is, which pushes the business into -- in the carbon fiber direction is that this solution which is used today, the blades of a windmill are today reinforced with glass fiber. This will not work from next year onwards because the blades are getting longer and longer. This year, we will see blades of a length of 90 meters to 100 meters. End of the decade or 2027, we will see blades of a length of 150 meters. And it's only possible to build them with carbon fiber reinforcement. So the market will grow, and we see a very healthy market and also an option to increase prices.

[Operator Instructions] We do have an additional question. This comes from Benjamin Pfannes-Varrow.

Just two for me, please. One on the Carbon Fiber division. I think you mentioned now that it's almost fully utilized, if I understood correctly. But you've obviously got a mix shift towards lower-margin wind business as the i3 is phased out. How do you expect to increase the margin then in the Carbon Fiber division? Am I missing something? Or how does that increase over time in your forecast?

Yes. This is -- we will increase the prices as much as we can, but the main effect will come from the backward integration. Benjamin, today, we are buying the precursor molecule, which is then converted to carbon fiber in 2 of our plants, in Moses Lake in U.S. and the Muir of Ord's in U.K. And we acquired a precursor production plant, which is a feed for the carbon fiber plants in Portugal in Lavradio. And step-by-step, we are going to replace the externally purchased precursor fiber. And you make the money with a precursor and not with the carbonization step. So by replacing the externally purchased precursor, we are going to increase the margin. And this is planned in our 5 years planning. Only a fraction is the price increase at the front end. I hope, Benjamin, this answered your question.

Yes. That's helpful. So do you also have a time line on how many lines and by when you expect to convert the whole precursor plant in Portugal?

Yes. In Portugal, we have -- Portugal is a former textile fiber production plant. We currently have 8 lines which can produce. 2 of the 8 lines, we converted to precursor lines, and 6 are still busy in the textile fiber segment. And really, this needs experience. And we are sampling with improved precursor fiber, our carbon fiber production line in Muir of Ord's every 4 weeks, and we are making large improvements. When we have figured out how to produce the perfect precursor fiber for us, we are going to convert more of the fiber lines and will increase the captive use of it. This might take up to 24 months, I would say.

Okay. That's clear. And my next question would be on CapEx. To get to your current midterm guidance, do you have a rough estimate which you can provide, and perhaps the split between maintenance and the growth?

Yes. This is something we can maybe give you a little bit more flavor on that. In fact, this is also something what we wrote in our annual report. Our investments, in general, will be on the level of our depreciation. That's what we can clearly say. We have idle capacities. If you see the drop that we saw from -- coming from roughly EUR 1.1 billion down to EUR 919 million where we are now, this means in many of the businesses, we have idle capacity. On the other hand, as Torsten and myself, we pointed out during this investor call, we take a far closer look on investments than maybe it has been done in the years before. This is not to blame anybody, and things in the rearview mirror appear always a little bit. You can judge easier when you have the facts rather than when you have to decide beforehand. But we make sure that we are not investing into fancy stuff in 5 or 10 years. And this is also the reason why we canceled our Central Innovation and allocated all the resources to the business units to make sure that they're far more closer to the market, that we have a far more business-driven approaches rather than to have groundbreaking research which pays off in 20 years' time. So we invest selectively in growth, especially in the battery business. This is where we reserve a lot of our CapEx budget for, and the rest is maintenance. But not to forget, we, of course, invest in all the ESG efforts which are necessary. This is something we cover up in 2021, so hopefully, also in Q1 and Q2, you will see a lot more than that. We take this very seriously. We are a high-energy, driven company. There's a lot to gain for us. We do a lot, but we don't talk about it so far. This is something we want to change. This is a clear commitment from our side, and we also invest in energy-saving investments, and we will explain to you within the next call. Please be a little bit patient with us on that.

Okay. And my last one, maybe just on the larger CapEx projects, which you mentioned are not included then in any of the guidance. Does that -- how do you think about the timing of those? I mean presumably, it's something -- if an opportunity in dam, for example, came through sooner, would you pursue the larger projects already quicker than your kind of road map suggests by '22, '23? Or will it really only be post when you've achieved these other steps first?

And maybe I have to dig a little bit deeper in. If we have one order of one battery project, this needs a full plant capacity. One graphite anode plant capacity is around 20,000 tons. And as I said, end of '20 -- end of this decade, some 300 to 400 kilotons are needed. So we need in Europe several of the graphite anode material plants. We need around 2 years to build a new one. But the good message is we have 2, 1 in [ sched ] and 1 in Poland, and they are ready to produce. So we can start a brownfield approach and don't have to invest from scratch. This is why investment will come late. The investment costs are plus/minus around EUR 200 million for one greenfield approach. You need 2 years to build it up. And I think we are going to see the first turnover at the end of our planning period, minus 2 years for building up everything, yes? I hope your question is answered.

But it's difficult for us to incorporate already in the budget and in our plan. This is why we just said, well, what we showed to you is something we can promise on. This is something we can deliver, and this is a promise from us. Everything that comes on top is something we can just describe as an optional thing. We have the employees and the capacities. We have the knowledge and we apparently dedicated by the EU, the Bundesrepublik Deutschland, and all the Federal State of Bavaria. And they granted at EUR 43 million as the sole graphite anode material producer in Europe to research and to develop this material in order to have a sustainable European supply chain. So I mean it's up to us. It's really up to us to make it happen. And once -- now after we receive this grant and these subsidies, we go full steam. But we hope to surprise you on that. This is all what we can say.

We promised to you as soon as we have signed the first take-or-pay contract, we will come back to the markets and announce it. But right now, it's not included in our plan.

Our next question is a follow-up from Richard Schramm.

Just a quick one on this European better innovation project you just mentioned. So I'm just curious that how the bookkeeping is for this funding you receive. Does this mean you will book every year kind of EUR 5 million income in your P&L from this side? Is that correct?

I can explain, Richard. Unfortunately, they don't just transfer the money and say just spend it wisely. But no, the thing is, of course, this is tax money in the end. And of course, they also want to have a confirmation that they use the money in a proper manner. So that means we have a subsidy-grade or quote or ratio, ratio is the right word, of 95%. That means for every expense which we can prove that we have undertaken on this special research or development, we get reimbursed by 95%. And if it comes to investments, then we get the depreciation of 95% once investment is taken. This is how it is set up. And -- but it's still a very, very comfortable range. So in the end, we need to invest, if you make use of the full EUR 43 million until '28, we need to invest only EUR 3 million or EUR 2 million, EUR 2.5 million of our own money, and we get a subsidy of all the rest. This is a huge boost of all the development, what I can tell you.

And Richard, this shows how high the importance level of graphite anode material is for the European Union. And if you have read the press, Volkswagen is going to discontinue parts of their supply from China for several reasons. The European Union is going to set up an integrated supply chain, and they selected us for the graphite anodes business, and we get this funding. We are pretty proud to have achieved this.

Okay. I understand. And the time line, you say until 2028, is it a bit up to you how fast this is proceeding? Or do you -- it depends on your partners here?

No just -- yes, it depends on the partners. So if Volkswagen opens a battery plant, they need graphite anode material. Just look at their announcements. And I can tell you, we talk to all of them. Most of the projects are currently delayed. Even Tesla, you can read it in the press. And to our estimate, the big business will start in 2024, 2025. Yes, but this depends on the big battery projects. They have to buy if they want to produce.

And ladies and gentlemen, at this time, we will end today's question-and-answer session. I'd like to hand the conference call back over to Dr. Torsten Derr for closing remarks.

Yes, please go to the next slide. Slide number 36, please. Slide 36, please. Excellent. So thank you very much for the good questions. And I want to summarize and give you the key takeaways, which are not bad, I think. First, corona year 2020 was very much impacted by restructuring. We did the impairment of EUR 107 million, and we also paid our 49% stake in the JV with BMW. That means we cleaned the ship in 2020. Second, we had to protect the liquidity in the year 2020 and we did some one-off effects. This year, we are not continuing with one-offs. We are improving the underlying business and will at least deliver the same EBITDA pre as in last year, even more. The transformation project, and this is point 3, is on track. Today, we confirm the EUR 100 million. We confirm the reduction of personnel, and the savings are confirmed. We are very well on track and even ahead of our planning. We talked also in the Q&A session a little bit about the IPCEI grant of EUR 43 million. We are one of the major European graphite anodes players, and the business will grow because 25 battery plants are announced in Europe. And last but not least, point 5, we have a solid liquidity, which is different than half a year ago. Our liquidity level end of last year was EUR 140 million. Today, it's even a little bit higher. We still have an undrawn synd loan of EUR 175 million and no maturity of financial instruments in the next 1.5 years. So our position is sound. Our midterm plan which we presented is on the conservative side, and we are looking forward to meet you in the next conferences and in the Q1 call. Thank you very much for your attention.