SGL Carbon SE (SGL) Earnings Call Transcript & Summary

A very warm welcome to our conference call about the business development and financials of the first half 2020 (sic) [ 2022 ]. Furthermore, we will give you an outlook and our expectations for the upcoming months, especially about the energy situation. On behalf of SGL Carbon, our CEO, Torsten Derr, and our CFO, Thomas Dippold, as well as accounting and the IR team is on the phone. We will present financials and outlook today, and they will answer all your questions. Now I hand over to our CEO, Torsten Derr.

Thank you very much, Claudia. Good afternoon to everyone. This is Torsten Derr, and I'm very happy to present good figures today. But I want first to talk about resilience because our business is divided up into 4 different business units. We serve on the one hand, carbon fibers, which go into wind energy. We are strong in automotive. We have graphite, which goes into the semiconductor business. And we serve -- we produce, for example, heat exchangers for the chemical industry. You see different industries, customers with very limited overlap, and this helps us to make the business really resilient. In all 4 business units, our order situation was ongoingly very strong. Especially, we saw increasing demand from the semiconductor industry. And I want to focus here on silicon carbide, which is a specialty, which we produce, and this goes into electromobility in both into charging stations and into automotive, into the cars. For example, into inverters. And this is a business where we have a pretty strong foothold in the market. And this strong foothold gives us strong pricing power. And you will later on see that we were able to pass on almost all price increases from energy and also from raw materials to our customers. In total, we have seen sales increase by 10.7% and EBITDA, our profitability, figure went up 22.6%. And you can see we are still following a clear price over volume strategy. We also strengthened our balance sheet, and Thomas will give you some more information on this. Our equity ratio is now 35.7%, this is a plus of 8.7 percentage points compared to last reporting period. And we are also going to increase our guidance. More about this later on in our presentation. And with this, I would like to hand over to our CFO, Thomas Dippold.

Yes. Thank you, Torsten. This is Thomas Dippold, CFO of SGL Carbon. Welcome to this conference call for the first 6 months of the year 2020 (sic) [ 2022 ]. It's my honor and my pleasure to guide you through the figures for the first 6 months. And on this Slide #5, you can see how we performed on a group level. And you can see as Torsten already pointed out, we reached roughly EUR 550 million in the first half of the year 2022, coming from roughly EUR 500 million the year before. This is an increase of 10.7% or EUR 53.1 million. I think that's a quite remarkable achievement that we've seen so far. And when you take the sales increase without any translational effects, so when we exclude the currency conversion, then our sales went up by 7.6%. So we benefited by more than 2% from mainly the very strong U.S. dollar in the first 6 months of the year. I think the second message that we have to bring across is already what Torsten mentioned in his summary that all business units again contributed to the sales increase and none of them were left behind, all contributed to that strong development. And this makes us very happy and proud. And when we look at our bottom line, you know that the EBITDApre, as we call it, is our guiding KPI for our profitability. Then we reached EUR 87.9 million in the first 6 months of this year, coming from EUR 71.7 million in the first 6 months of last year. So this is an increase of 22.6% or EUR 16.2 million. And this takes us to a margin of 16% if you take EBITDA in relation to sales coming from 14.4% last year. I think this again shows how resilient our business model is and given all the turmoil in the market that we come across so far. The EBITDA improvement, which is a lot stronger than the profitability growth comes from the very strong profitable growth in our businesses, and this is mainly in the silicon carbide business, as Torsten pointed out. Second is we still continue with our strict cost management, and last but not least, we are quite successful in passing on all the cost increases from raw materials, energy and transportation to our customers. And how do we do that? On the one hand side, we have price variation clauses mainly for the raw materials. We have strict and really stubborn negotiations with our customers where we go forth and simply passing on the cost. And sometimes, we work with some surcharges and some timely adjustments of the prices, which we can reflect so that everybody can follow and can reconcile what we're doing. On the next slide, you see the development of our largest business unit, which is Graphite Solutions. Graphite Solutions grows by 10% straight to EUR 243.4 million, coming from EUR 221.2 million, which is an increase of EUR 22 million. So all the stable trends, they continue Graphite Solutions that are broad-based and serving multiple industries. They are all -- businesses, they're all growing, mainly the semiconductor and in semiconductor, especially the silicon carbide business, which increases in double-digit figures. And this is really a high-margin business, and we can grow quite substantially in this business. I think it's also good -- and a good sign for us that also the industrial application business, which is the largest and maybe has been the most sluggish one in the previous quarter. It's also recovering, and we also see some increasing orders our industrial applications business. When you look at the profitability, and we see how EBITDA growing by 22.7%, which is more or less exactly the same growth rate as we have on an overall group level, coming from EUR 44 million to EUR 54 million, and with that, we reached a margin EBITDApre to sales of fantastic 22.2 percentage points. I think this is really a fantastic development over 2 percentage points increase in the margin on a like-for-like figure. This is a very strong performance. And where does it come from? As I said, we have profitable growth, we have higher sales that come with it, and of course, we focus a lot on the semiconductor business and there, especially on the silicon carbide business. Again, we don't see any -- well, major obstacles with all the availability discussions on raw materials, the business unit really successfully managed all the supplies in the first 6 months of the year. And I think they did a good job there. On Slide #7, you see the development of our smallest business unit, which is Process Technology, and our smallest business unit is the one with the highest growth rate if you look at in the relative figures in percentage points. PT has grown by 20.6% in sales coming from EUR 40.8 million and now reaching EUR 49.2 million. This is EUR 8.4 million higher than last year in the same period of time. And you probably remember if you follow us continuously that especially in the second half of last year, we said PT is still in -- not developing in the way we want it, but we see increasing order intakes there. And this is now what materialized also in sales in the first 6 months of the year and they really delivered what they promised and told us in the respective time frame. You see that our book-to-bill ratio is at 1.6, which is very high. And we think this is at least what we heard from the business units, and we are in close and intense contacts with the business unit management, and they tell us that through the high sales that we have, we have to extend the lead times with our customers. And normally, we have 6 to 9 months lead time for the projects. Now it's up to 1 year or even beyond. So this might be a reason why we see extraordinary high order intakes in this business unit. But this, of course, guarantees also the growth for the next months and the nearer future. And profitability wise, you see that we, in the meantime, reached 8.3 percentage points in margin when you take EBITDA in relation to the sales. This is now we reached almost double-digit figures, and this is exactly the direction we want is specialty provider for the chemical industry to be. We were coming from loss-making times in the past, and we are very happy with the development of this business unit so far and because they really make sure of the high utilization, they have a fully loaded capacity and have very low capital cost, they pass on all the increased raw material prices to the customers, and they still benefit now from all the transformation savings in our restructuring project. On Slide #8, you see developments of our second biggest business unit, which is Carbon Fiber. Carbon Fiber also developed quite well. When you look at the top line of our sales, they grew by almost 6% or almost EUR 10 million from EUR 166 million to EUR 176 million. The reason for that is simply because we were also able to pass on all the raw material increases to our customers. And the first 6 months of the year 2022 was highly dominated by -- that the expiry of the BMW i3 contract, which is a very profitable take-or-pay contract was scheduled for the 30th of June, and this is exactly the time when we -- this project was finished. And from the 1st of July onwards, we can now put all our quantities into mainly the wind market, but also into some aerospace and industrial applications market. All of them are increasing. All of them are waiting for the capacity and the projects and the products to come. But of course, we -- it was necessary to fulfill the contract accordingly. And therefore, the first 6 months of the year were highly dominated by the BMW business. And the profitability, we suffered a little bit compared to the first 6 months of the year. However, if you just look at the second quarter of the year, then you see a fantastic development because we were really catching up. The first 3 months were highly affected and therefore, also when you look at the first 6 months, they were highly affected. By a special effect, you know that we had some energy derivatives in order to -- we hedged our energy supply. For the full year, we had a hedge ratio of over 90% now in Carbon Fibers, which is a very energy-intensive business. And we wanted to make sure that on this level that we hedged, we were able to produce all the year through and this cost us some EUR 9.2 million, and this is still affecting our profitability. So you see a growth of roughly 6%. You see a downturn in our EBITDApre development by minus 13%, but if you take this special effect out, then you also see a further improvement of our margin there accordingly. Last but not least, on Slide #9, you see our Composite Solutions business, which is the second smallest of our business units, and they grew by 15.6% coming from EUR 60.2 million and now reaching almost EUR 70 million, which is a strong development by another EUR 9.4 million. So they really can confirm the trend, which is simply going up. And I think the strategy to go into serial production and to have profitable growth by that really pays off. They were not in the markets or in the products that we're serving, which is battery cases, which is leaf springs and which is composite material in general for the automotive industry. They were so far not affected by any bottlenecks or any secondary effect from the Ukraine war. So they were really making use of the capacity utilization of the automization from the serial production and the strong cost savings that they were implementing. They're really ought to doing a very good job. And you see that in the EBITDApre development coming from EUR 5.7 million in the first 6 months of last year to now EUR 9.7 million, which is a fantastic development by over 70% increase. To put a little bit water into the wine, then we have to take into consideration that we have a one-off compensation payment. It's operative. This is why we show it in EBITDApre, but it's a compensation payment from -- well, termination of a contract, which we have been awarded, but the customer -- and the automotive customer just turned around and said well, I want to have it in a different way. And then we had a negotiation. And for that, we received a compensation payment of EUR 3.7 million. This is in our EBITDApre. If you take this out, then the margin would be around 10%, same as last year. So they are growing roughly at the same margin as last year. To finalize our split between the business units of the group on Slide #10, you see our nonprofit or nonoperative business unit, Corporate, where we just sum up all the corporate functions and corporate services to support the group and also the businesses. In the previous calls or since Torsten and me, since we joined the company, we always promised to turn our Corporate business unit into a lean service provider. If you look back some 2 years ago, they were making some EUR 30 million sales. And this year, there would be -- or if you just look at the normal sales, they would be down to a level of roughly EUR 10 million. However, the first half of this year is affected with a special sales impact, which is kind of a technical effect. It's an IFRS 15 effect because in the termination agreement of Showa Denko, which left our Meitingen. Showa Denko is the buyer of our electrode business in 2020. And in 2020, they left our Meitingen and they left it kind of in a premature phase. So the lease contract foresaw a longer staying on the site, but they left early. And for that reason, they had to make certain compensation payments. And one was also for some refurbishment, restructuring or demolition of the buildings they were using. And after this has been properly conducted and finalized, we could -- we saw that the down payment was a little bit too high from today's perspective, and we have a EUR 6.6 million impact in sales because we somehow released this down payment adjustments right into net profit, at least with the gross margin that was in there. So this is a technical effect, which is affecting our sales. If you take this out, then our sales would be EUR 5 million, which is exactly the service we provide mainly for our partner and our joint venture on our Meitingen site, BSCCB, which is the brake disc business that we have together with our Brembo friends. And when you look at the EBITDApre, then you see that we saved another EUR 2.4 million. We had EBITDApre of minus EUR 10.5 million last year and now we have only minus EUR 8.1 million for all the corporate functions service. You see that we also do our homework on a corporate and group level. On Slide #11, I mean, we have always spoken about EBITDApre so far, which is, again, just to highlight that our guiding KPI for profitability. However, the truth is always what's at the very bottom of the P&L and this is a net result. And you know that in so many years, SGL has been loss-making, at least on an operative level. And we can -- and we are very proud and happy to show you that we have reached a net result of EUR 48.8 million, which is an increase of EUR 30.9 million compared to last year. And the main part, the main part of it is really an operative result that we achieved. EUR 10.6 million out of the EUR 48 million is due to one-off effects. One is the Griesheim effect. This has been probably told to the capital market on a top message end of March, if I'm not mistaken, this is when we published that we have sold the hereditary building right or in German, Erbbaurecht, on our former site in Griesheim to a new buyer. And the effect for the first 6 months of the year, EUR 11.7 million, which is in there. Then we have the purchase price allocation of EUR 5.2 million, and this is offset by the Showa Denko effect that I just mentioned to you. All in all, this explains the one-off effect of this roughly EUR 10 million that's in there, and this is positive. So 48.8% is a very strong net result, which goes then if you look to the second part of this chart to the equity ratio. And as Torsten already mentioned, we have reached an equity ratio of 35.7%, coming from 27%. So we really went up by almost 9% in the first 6 months of this year compared to the year-end '21. And roughly EUR 50 million is coming from the profit increase that we have achieved. EUR 30 million is coming from some FX effects with currency adjustments because the euro was so weak and another EUR 60 million were coming from higher interest rates, which were affecting the pensions accordingly. So the pensions went down by roughly EUR 60 million and the equity went up with that -- with a long-term interest hikes accordingly. Last but not least, our net financial debt remains roughly at the same level as at year-end. It increased, in fact, by EUR 6.6 million. How it comes to that? This is mainly due to the reason that our free cash flow is, as we announced and as we guided, is significantly lower than last year. In fact, it's almost EUR 50 million lower than last year. In last year in the free cash flow, we had a lot of one-off effects. However, they count as free cash flow. This year, we have a much higher working capital because with all the critical inventories we made sure that we get enough or whenever we have some spot deals in the market, we mature of that. This is the reason why our inventory is up by roughly EUR 70 million. We know it's a lot, but on the other hand, this also guarantees that we don't have to interrupt our production and that we can really run our production at the maximum out. We have a higher variable remuneration in this year. Last year, there hasn't been any because this was -- there was no bonus payment for the year 2020, and also a dividend affected last year's free cash flow. In the last -- in the first 6 months of last year, we received a dividend from our joint venture, Brembo of EUR 5 million. This year, this will be in the second half of the year for some technical reasons, but this is about to come. But therefore, our free cash flow is significantly lower than last year. And this explains the kind of stable development of our net financial debt. And with that, I would hand back to Torsten, who is guiding you through the outlook and the challenges we are facing.

Yes. Thanks very much, Thomas. Before I come to the guidance and the outlook, I would like to discuss a little bit our energy situation. And I would like to start with this slide. And on the left-hand side, you can see the current situation. Currently, there was in none of our plans, shortage on natural gas or energy. And as our order book is pretty full, we try to secure this, and we hedged our energy demand, electricity and natural gas by 90%. And this explains the one-off payment we had in Q1, where we paid EUR 9.2 million to increase the hedging ratio. For all the Germans in the call, you know in Germany, we are discussing the Habeck gas surcharge, which you have to pay between EUR 0.015 and EUR 0.05 per kilowatt hour additionally to the gas price, and this affects only our German sites. And to give you a rough figure, we have total demand annually by -- of 100 gigawatt hours. And we estimate the amount of this Habeck gas surcharge by less than EUR 1 million. And this EUR 1 million, which we have to pay is already included in our guidance. So something which we can digest. On the other hand side, there are a lot of European countries, which are initiating or have them in place, they have gas subsidy programs. And as you know, we have quite a lot of sites in Europe. We have 2 sites in France, 4 sites in Germany, 2 sites in Poland, 1 in Spain and 1 in Portugal. So we have to apply at several programs, which are very different by nature. And to give you a little bit of a flavor, I told you we have natural gas, 100 gigawatt hours in Portugal, we have natural gas of more than 500. So there are sites which have a much higher impact than our German sites. And currently, we try to understand subsidy programs, and we already signed the application form, and I'm pretty sure that this will be a positive in the one or other country to a very different extent depending on how large our production is in the country. This is not included in our guidance so far because we don't know how much money we will receive under the different programs. So now I come to the contingency measures. So the best is to save energy because every energy you save, you don't have to pay. And Thomas and me were pushing our production managers very hard to reduce their overall electricity and gas demand. This was first. And in total, we are having 28 energy-saving projects and 5 are already implemented, and they will contribute already this year in the fourth quarter. In Meitingen, we are discussing a photovoltaic system and we want to substitute 6% of the electricity we consume from the grid, from external providers by our own solar fields. And we think that by end of next year, we will be ready and in operation. In other sites, and I will show this on the next slide, we try to substitute gas supply by other things like oil or propane gas. And I will show you in the next slide how we did this, and this is focusing on our Germany sites. Yes. Here, you can see on the left-hand side, a big tank and please look at the gas -- oil supplying truck on the right-hand side. So it's really huge, and it's 1.5 million liters, and this is a tank, which was idle. So we own this tank for 20 years. It is idle since 10 years. And it took us quite some efforts in 4 months to get a permit to use this as an oil storage tank again. And we refilled the tank in Meitingen with 1.5 million liters of oil. This is already purchased already in our working capital, but we are not using it so far. We are still running everything on natural gas. If -- and this is currently discussed, Germany is going to impose a haircut of 20% or 30%. It would be possible to change for the heating of the buildings and heating of the plants to oil. And we are doing this in Bonn and in Meitingen. In Meitingen, heating of buildings is roughly 50% of our total gas consumptions. In Bonn, it's a little bit less. It's a 1/4 of the gas we use. So we could easily hit our buildings 4 to 5 months, even under a haircut scenario. So I think this was a big deal. So tank is revitalized and it's filled with oil and this will help us even on the gas cuts situation to survive the winter. In Bonn, we have a similar storage tank, much smaller, 100,000 liters. And here, we are checking if we get the permit to reactivate this tank. And we are currently changing for heating of the buildings, the burner from gas to oil. You need different kind of burners. And we ordered everything that we can, if gas supply is disrupted in Bonn that we can switch from gas to oil. So this is for heating the buildings. It's much more difficult in our production. This is fired by natural gas and due to the chemical nature of graphite and carbon fibers and different heat curves, it's very difficult to do this one-to-one switch. If we would switch our production plants from gas to oil, we would have a downtime of at least 3 months to 6 months to readjust the production parameters. So it's very unlikely that we can switch our production from gas to oil. But 50% respective -- in my team, respective 25% in Bonn is better than nothing and the gas cuts, which were currently discussed between 20% and 30%, and both will help us to survive even in plants gas disruption. Also, on the sales side, our legal department was pretty active because you can imagine if a gas cut happens, and we cannot maintain all of our value chains in the company, we might not be able to supply customers where we have contracts. So what we have done since the beginning of this year, we adjusted all selling contracts, especially first the Europe clause and the general terms, which protect us from indemnification of our customers in case of no supply. Most of our new contracts, like Thomas said, have an energy escalation clause. So if energy increases, it's pretty easy for us to forward this to our customers. So next slide shows the external factors. So overall market conditions with low visibility. And I think everyone can agree what happens in Ukraine with a war to Russia, the picture is very, very real. The war can end by end of this year, can even get harder, nobody knows. For China, the Zero COVID policy hurt our supply chains pretty much, but we managed it pretty well. What I can say right now, all our plants in China are running flat out. We are back to 100% capacity. Transportation from China to Europe or China to U.S. still is very tough, but everything was managed so far. So I expect that the situation will ease up by end of this year. We expect that energy prices will stay on a very high level at it is today and the availability of gas, especially in the month November and December in Germany, very uncertain. It's not the case in Portugal because our Portuguese plant is served by North African gas. So different routes, no Russian gas. So our German plants and maybe Poland will be mostly affected by Russian gas cost. So what does this mean for the SGL outlook? Currently, we have no production restrictions and no lack of raw materials in none of our 4 business units. We have a continued good order situation, but we have the termination of the i3 contract. This ran out 3 weeks ago and BMW i3 is history, and we convert the volumes from the i3 to the wind energy market with a little bit less margin. We have strong pricing power in all of our 4 business units. And this is why we increased our guidance to the upper end of the corridor, which we gave you last time. I come to the guidance on the next slide. On top of the sales, down EBITDA in million euro. And if we assume that our strong core markets, such as semiconductors, electromobility and renewables are continuing like as they did, and we get the oil, the natural gas and also the raw materials, we are -- we can lift up our sales guidance from EUR 1 million -- EUR 1 billion to EUR 1.1 billion. EBITDA, usually, we do 60% of the total EBITDA in the first half of the year, the figures which Thomas presented to you right now, we did EUR 90 million in the first half year. So we lift up our guidance to the upper end of the corridor, EUR 130 million to EUR 150 million. So it's more in the region of EUR 150 million. Please remember, the second half year is burdened by the termination of the BMW i3 business, but we are pretty successful to shift over the volume. So guidance, EBITDA at the upper end of the corridor. Okay. This is our last slide, and this is a summary of what we said. So the influence of geopolitical developments was in the first half year, lower than expected. And this is why our profitability was higher. The performance was pretty strong, stronger than Thomas and we expected at the beginning of the year. We followed our price over volume strategy. Sales up 10% and EBITDApre up 22.6%. We have an ongoing good order situation in all business units, and we are able to pass on the price increases, and this is a pretty good situation for us. Our balance sheet is now strong. And if you remember back 2 years ago, as Thomas and me joined this company, our equity rate was 17.5%, and we more than doubled the equity rate now to 35.7%, which equals a leverage ratio of 1.4%. So also balance sheet-wise, pretty strong resilience. And you have seen we have lifted our guidance again to the upper end of the corridor now around EUR 150 million. This concludes our prepared remarks, and I would like to hand back to Claudia.

Yes. Thank you. Now we can start with the Q&A session and the moderator will give you some more technical details.

And the first question is from the line of Sven Sauer from Kepler Cheuvreux.

Congratulations on the results. And I have two. I was just wondering since -- I mean, in June, you raised the guidance, and I was wondering what's the new trigger for the disproportionate earnings growth. So now you're expecting the upper range of EBITDA guidance, but sticking with the EUR 1.1 billion in sales already announced in June.

Yes, Sven, this is Thomas. I'm trying to answer your question. Yes, we -- as you can see, we reached EUR 550 million exactly in the first half of the year. And we said we want to reach EUR 1.1 billion. So we are exactly at 50% sales-wise there. Profitability-wise, we are at 60% as Claudia also mentioned in the presentation. The reason is we have August, we have December. The one is a holiday month. The other one is a Christmas and maybe Football World Cup months. So this is something we have to take a little bit into consideration. And the other thing is, as Torsten was mentioning, we lose the BMW i3 contract. I mean this has a long time been planned, and we replace it quantity-wise 100% with wind capacities and other industries, but the profitability is definitely a different one than we had with a take-or-pay contract. And this is the reason with all the risks and uncertainties that we still see in the market. We are confident to reach the top line, but we think that the second half of the year profit-wise, I mean we haven't seen any impact on our P&L and our business model in the first 6 months of the year, but the risks are still out there, and this is why we are a little bit cautious on the way forward.

Okay. I mean, maybe I formulated my question wrong, but you were expecting now since June, a better earnings development?

No, we just -- we stick to our guidance range that we gave on the 7th of June when we increased our guidance. We just make it a little bit more precise that we're saying it's not the range EUR 130 million to EUR 150 million. It is at the upper end, which is around EUR 150 million to phrase the answer differently. Sorry, Sven, for not taking your question properly then, yes.

Yes. Okay. Great. And the second question is regarding the hedging. I'm not sure, can you comment on if there is a hedging of the energy prices planned for 2023?

Yes. Yes, it is -- currently, we have a hedging ratio of 90% in total for 2023. We already have hedged worldwide more than 50% of our total exposure. And we want to close more deals because our order entry and order backlog is so good that we have to guarantee the availability of our capacity, and this is why we need. We are not going into the next year with a lot of energy spot demand. And we are closing our exposure month by month.

Okay. Great. And just a follow-up question. Can you also quantify the margin improvement you have from hedging? Because I mean, going forward, we're going to have to continue probably with high energy prices. So the hedging expenses will also be higher. So I mean I was just wondering what maybe a normalized margin would be?

Sven, this is difficult to answer, to be honest, from today's perspective, we are at the right at the beginning of our budgeting phase. You see currencies, you see interest rates, you see everything that we just put together all the bits and pieces. And I'm afraid we have to postpone the answer to this question until beginning of next year when we give you the guidance for 2023 then I think we have a much clearer picture on where we're going to end up in '23. But for now, this would be speculation, and we shouldn't do that here.

Okay. And the 50% of the hedging -- sorry, but the 50% of the hedging in 2023, was this already part of the EUR 9 million that you paid in Q1?

No.

No.

So there's going to be a cash outflow for this 50% coming up?

I mean, there are various ways how you can hedge things. You can buy options, you can buy forwards or you simply fix prices, then you have to pay anything upfront. It depends on the instrument and the derivatives, how we do it. And in the end, you can also have a long-term contract that's just fixed, which you normally have at home. We see our gas bills and your electricity, something like that. So in the end, I think we have to wait a little bit because there are multiple ways, and it varies from country to country and site by site how we have to do it.

The next question is from the line of Andreas Heine from Stifel.

I have a few I would like to ask them one by one, maybe because I don't want to confuse. I think at the end of the BMW contract, again, you highlighted this several times and also that you will transfer this into especially to the wind energy market. Could you update us whether that has been successful? So are your Carbon Fiber plants fully loaded, and you really could immediately switch to the other use of your carbon fibers?

Yes Andreas, this is Torsten. Thanks for the question. Our plants are fully loaded, and we even did in our Carbon Fiber unit, a low-cost de-bottlenecking, so we increased our capacity a little bit and even this increased capacity is sold.

Okay. That was the first one. The second, I've seen that the textile business in the first half was flat in sales, while raw materials and prices probably went significantly up. Can you update us how you run this business in this very difficult environment and how you can secure that it is too much drain on earnings.

Andreas, it was a little bit difficult to understand. You asked about the textile business, is this right?

And then the textile business and what you have seen in the split of the same that it was flat in sales from last year to this year. But of course, energy costs were up, acrylonitrile was up. So I would assume that the prices are significantly higher. So the same sales teams, much lower volume. And I just want to know how you run this business and how you can avoid losing money?

Andreas, what we described as textiles is a mixture of different products. For example, our PANOX business goes in, which goes into the aerospace industry as an isolation material and demand is very high there. You are mentioning -- or you meant, I guess, the acrylic fibers, which go into apparel. And best way to describe is the spot business. We buy acrylic nitrile which is a chemical on the spot market are contracted, then we have energy prices and then we negotiate prices with the customers. And if we agree on the price, which is beneficial for us and the customer, we do that deal. Otherwise, we do not. So don't expect a big minus from this business. I think it's more or less a spot business. And you know, we are only doing this because the plant in Lavradio was bought by my predecessors to produce precursor for carbon fibers. And the textile business is just to run the capacities flat out and to bring the fixed cost down. This is the only reason, and we do it on a spot basis. So this is a way how we...

There's no strategic rationale behind. It's just opportunistic. Yes.

Yes. Okay. Good. That's very clear. Then I have seen that you have very strong growth in automotive, in carbon fibers and you decided to dismiss with BMW contract. But in graphite, it was not as favorable as last year. I thought that with your participating in e-mobility that you have also solid growth rates in the automotive business in the Graphite Solution part.

So Andreas, our growth was in the real graphite business. We have a different business, which is also in our Graphite Solutions business, which we call press to size. And there we produce from press or molded graphite, we produce parts. For example, parts for liquids or for oil for automotive. And this business was, in fact, going down. And this is what we call automotive. If we sell pure graphite, this is not summarized on the automotive market. So it's only the press to size business, and there, we saw all the fluctuation, which you saw in the automotive segment.

Okay, understood. And then only some technical questions. In the cash flow statement, the net working capital was an outflow of EUR 27 million. And then as mentioned, EUR 40 million others. I guess that includes bonuses, but probably I wish you get that, but is EUR 40 million is not all bonuses. So what is behind that?

Unfortunately not, but -- as a CFO, personally, as a CFO say luckily, not this thing we have some technical reversions because there's an equity result that's in the EBIT and that's kind of converted there. Yes, the bonus is also in there, but also the Griesheim effect, which is in short, they're all reverted in others and all the 3 effects sum up to the EUR 40 million.

Okay, understood. Then I did not fully understood the corporate line. So you have additional EUR 6.6 million in sales. I understood this gross margin. But on the other hand, you said that earnings would have come down. Our expenses would have come down as the personal with reducing the administration costs. So if I take the EUR 6.6 million with any margin and add that to the H1 EBITDApre shown in Corporate, I would probably get to a higher expenses in nature.

No, no. This is exactly -- sorry, then I didn't explain it properly in the presentation, sorry for that. But -- and thanks for the question because this gives us a chance to put it in the right direction. That gross margin part of it, which is the EUR 4.7 million is a pre result. So you don't see it in our EBITDApre, but you see it in our net result. This is why I explained the EUR 10.6 million as a one-off effect, which is Griesheim, which is the Showa Denko gross margin effect that I just highlighted and being offset by the purchase price allocation of the EUR 5.2 million. This is the background behind it. So you see it. I'm sorry for the confusion, but I haven't invented the IFRS standards. I just have to follow it. So it's IFRS 15, and it says you have to see it in the top line because we don't have any sales pre. So it's technically simply has to be in there, but it's not a result that you can see in our EBITDApre because it's a pre result. Now I think I confused out of the many participants in the call, at least 95%, but this is how I would like to explain it. If anybody needs extra explanation, please give Claudia, give myself a ring and we do it one-on-one. I know it's very complicated. It also took a while for me to understand.

But it basically means what you show which is EBITDApre is a run rate. That's the same.

Yes. Yes.

If you double this, then we get right understanding what this number should look like on a full year basis.

Exactly. If you take out this technical effect and then you have EUR 5 million say, it take times 2 then you know exactly what we will be at the year-end. And if you take the profitability, so to speak, or the result that we see at the EBITDApre, which is EUR 8.1 million and taking times 2 then you most likely have the result for the year. And this is -- for Corporate, this is no rocket science.

The next question is from the line of Richard Schramm from HSBC.

First, a question on the inventory levels you mentioned. Does this assume indicated fully covering already the production for H2 or even goes already beyond this? And therefore, no further price risk from the material side at the moment in your guidance here? Can you exclude this? Do I understand this correctly?

Yes. Yes.

Yes. We have -- so to speak, we have loaded our warehouses with EUR 70 million of inventories, you're 100% right. And we did that with all the critical parts which we need in order to be able to produce and everything that we have on stock is being needed for orders that we already have in our books. So we buy what we can somehow put into the products that we are about to sell. And this is how we do that. If you see any opportunistic deals and we know for sure that we can use it when we do it. But we've also made very clear, Torsten and myself, in the many meetings we had with our business units, and we follow them very closely in this turbulent times that this is now the upper end of our inventory development, and we certainly want to go down to a healthy level.

Thomas, let me add one thing. So Thomas mentioned the EUR 60 million to EUR 70 million inventory, around 50% is found in our graphite value chain. And the graphite value chain took pretty long. You start with pitch and coke and then it takes 6 to 9 months until graphite, which we sell into the market comes out. And due to the strong customer demand, we started our value chain for graphite at capacity. So this is currently pumped through this value chain over 6 to 9 months. So we cannot interrupt the graphite production process and will be sold later on. And customer demand, as I said, is very, very healthy currently.

Okay. And also a point which is often discussed is the reliability of suppliers. So how would you judge your situation? Do you have critical suppliers where you run the risk that they might see problems? For example, with the energy supply or other problems. So that this might pose problems going forward into 2023 from this side?

Yes. We reacted at end of last year and followed a double or triple supplier strategy. So for every raw material, we have more than 1 supplier. And I would say, in terms of availability, we would be oversupplied if we take all. And this gives a little bit of stability. I have to admit that our procurement department did a tough job. There were problems everywhere in energy procurement and raw material procurement. And very often, Thomas and me had to step in and I did many CEO calls to secure raw materials. But so far, we did it, and we don't see any disruption. Negotiations with gas and electricity suppliers were pretty tough, especially in Germany and one where we purchased larger amounts of gas simply went bankrupt and so was secured by the German government, and we had to look for other suppliers. So it was not an easy ride. But to be honest, I don't see right now any issues with energy or with raw materials, which is very tough to get right now is, for example, steel for investments. If we want to increase our capacity somewhere we have delivery times of more than a year. So to expand our capacity this is pretty tough and takes a long time, yes. But raw materials to run our assets, I would say, from today's perspective solid.

Our next question is from the line of Lukas Spang from Tigris Capital GmbH.

My first question is just a clarification question, if I got it right. You said that you can pass all 100% of your increased material cost to customers. And this is also related to the future contracts or future revenues?

Yes. I don't know the exact figures, but it's close to all what we were able to pass on. But it's not included in all contracts, in new contracts. This is what I said, which we made this year had different terms and conditions, different clause and most of them are containing raw material price escalation clause, but not all. Not all. For example, automotive contracts usually don't have raw material price escalation clauses inside and you have no guaranteed volumes. But in other industries, they have. So it's not all. Sorry if I gave information which was most understood.

Okay. And if there is the possibility to pass them on? Is there some limitation? Or can you really pass then all the increased material price to the customer?

In the end, it takes to -- and the customer needs to take it. Of course, we can't force them. We still need to have a contract and to have an agreement. We just cannot say this is the price and in the end, nobody buys it. But so far, and so to speak, the demand from the customer and their desire to get the products also to guarantee their production is apparently higher than the price sensitivity or price elasticity that we have.

And Lukas, if you look simply at the markets where we are in, we supply carbon fibers to wind energy. You know about the European green yield. So all wind turbine producers are running flat out and they need carbon fiber. So our market is pretty healthy. You know about the chip crisis. And all chip manufacturers are running flat out. They need our graphite. So this is what I said at the very beginning, our markets are really running well. And everyone talks about recession, I cannot see it today in our order book. And the industries we serve are currently pretty healthy. Only automotive and some segments is going down a little bit.

Okay. And then coming back to the energy topic. Very interesting and good information about 100 gigawatt hours. So if we assume really bad case scenario and you would not even get any gas anymore? What would that mean for your production in one related to the complete production of your company?

Lukas, it's very hard to answer this question. First of all, we established a crisis team and certain procedure, which will start from that day on where gas supply is disrupted. We have some of our assets, which we run in Germany, we have them double or triple. We are running more than one graphitization plant and we will shuffle in a different way our supply chains. We would not start from Germany, we would start from Poland and then go to China, a different way. So it's very hard to plan this upfront because it depends on if the gas cut is 10%, 30% or 80%, totally different scenarios. But what we have, we have defined an action list, which are the first steps to do. We have defined the crisis team even the starting time. It will be started every morning at 7:30, 1.5 hours is defined. So I think we are pretty well prepared. We did everything we can. But to give you a number, euro number of this effect almost impossible.

Okay. And then on the i3 topic, can you give us an idea on a rough number, how much of earnings and revenue this business contributed in the first half of the year?

No, sorry, we are not allowed to disclose those figures. It's a contract we had with BMW. I can give you a slight idea of the volume. It was 20% to 25% of the Carbon Fiber volume, which we produced, which went into this model, but the EBITDA was over proportionally higher.

Okay. And then last one also to this topic. BMW is also planning more e-mobility cars. Do you see there a chance again for you? Or would you say there are other materials that are used for the production of these cars?

Yes. There are 2 cars in the world, which had a chassis produced from carbon fibers. This was the i3, a big volume car and the i20. We are in both cars and we are exclusive suppliers of both cars. BMW discontinued the i3 since i3 weeks. And the i20 is still running for another 4, 5 years. And this will be supplied by us. No other car manufacturer copied this model to produce the frame of a car from carbon fiber. So the big demand for carbon fiber in automotive will simply disappear. But other applications, for example, steel substitution for cross beams in a car, where you substitute heavy steel by lightweight carbon fibers, this is growing by 5% to 10% every year, but starting from a very small basis. And BMW, Volkswagen and all car manufacturers, you know get some carbon fiber elements from us. But what I wanted to say, it drops by the discontinuation of the i3 and then it grows again from a smaller level.

The next question is from the line of Lars Vom-Cleff from Deutsche Bank AG.

Two smaller ones left, I admit. The first one would be, I mean, in Q2, we saw the euro weakening severely, and we reached parity during the quarter. Could you quantify the impact that has had on your EBITDA?

As we said, the growth rate on the top line was from 7.6% growth versus 10.7%. So it's roughly 3% in the top line, and it's a lower single-digit amount that's affecting our EBITDApre.

Okay. And then a quick technical question. We saw tax rates of 9% in Q1, 10% in Q2. Is 10% plus/minus the rate we should also take for the full year? Or will it rather trend towards 25% in the second half again?

It was 9%, now 10%, then it's going to be 11% and 12%, probably. No, no, I'm just kidding. I think we have a lot of losses carried forward, which helps us to a certain extent that the tax rate is at that level. And to be honest, if no indication why should it go up. The profit distribution all over the group should roughly stay the same and there's no indication why it should be different at year-end.

We have a follow-up question from Andreas Heine.

It's only a small one, actually. You had always where you stand in your cost alignment program. It's not included anymore. Is that now behind? Is that all fixed and set or are additional projects running?

Andreas, thanks. We showed it so often that we wanted to discontinue to show this slide. So it's running flat out, but it's going up to a certain level and we are stopping our -- stop the reporting first and the Bonsai program, how we call it internally, runs out by end of this year. This does not mean that we are discontinuing to work in lean structures, yes. We try to continue the spirit from Bonsai that we have almost harvested, I would say, 90% plus from the project, and this is why we stopped reporting.

So there are no further questions at this time, and I hand back to Claudia Kellert for closing comments.

Yes. Thanks a lot for your attention, especially on this hot day. So if you have any further questions, please call Jürgen Reck or myself, and we are happy to answer your questions. Have a nice afternoon and goodbye. Hope to see you soon. Bye-bye.