SGL Carbon SE (SGL) Earnings Call Transcript & Summary

Very warm welcome from SGL side as well. Time is running. First half of '26 is behind us. And today, we want to discuss and present to you our first half figures and give you a short overview about our expectations for the second half of 2026. Even today, Andreas Klein, our CEO; and Thomas Dippold, our CFO, will lead the presentation and will be able to answer your questions. And now I hand over to Thomas. Please, it's your turn.

Thank you, Claudia. Hello from my side. This is Thomas Dippold, and it's my privilege and honor to guide you through our results for the first six months of the year. On Slide #4, you can see the overall development of the group. Our total turnover dropped by 13% or roughly EUR 60 million coming from EUR 453 million to now EUR 394 million in the first 6 months of 2026. Where does this come from? To a large extent, from the discontinuation of our loss-making carbon fiber business, which we still had in our books in the first six months last year. Last year, in June, we closed our site in Lavradio. So they were producing, same with Moses Lake for the first respectively, six months of the year before the closure took place. And therefore, a like-for-like sales decline is derived from that, which is EUR 50 million. The other EUR 10 million, which our total turnover deteriorated from an operational level can be attributed to the high-margin business in Graphite Solutions, where we still see a very sluggish development and the demand for this high-margin silicon carbide business didn't catch up until now. And second, also our Process Tech business unit suffers from a very weak order intake and order book, which, well, maybe turns a little bit better in the second half of the year, but we come to that when we discuss the business units. What we have on a contrary is the following, we have compensation payments received. We also mentioned that in the first quarter call, you probably remember that, that we already collected the first EUR 7.7 million in the first quarter of 2026, where we renegotiate the take-or-pay contracts, the customer down payment contracts with our customer. And another one has been renegotiated, which stands for EUR 21 million. And this is also top line, but also profit and cash for the first six months of this year. And this is what's already also in our top line. Our EBITDA pre deteriorated only by 3.7% coming from EUR 72.5 million in the first six months last year to now roughly EUR 70 million in 2026 H1. Where does it come from? On the one hand side, of course, we got rid of the loss-making business in Carbon Fibers. We see, on the other hand, the down payments or the contract renegotiations and the compensation payments in there. And in the end, it also reflects the weak business in the high-margin Graphite Solutions business and the Process Tech business. Our EBITDA pre margin reached 17.7%, which shows a very healthy, well, margin, at least if you include the compensation payment. Coming to Graphite Solutions, the biggest business unit, and they stand for more than 50% of our overall sales. There, we see an increase in the sales coming from EUR 221 million to EUR 234 million. This is an increase by 6%, but it also includes, as I just said, the compensation payments for the adjustment of the supply contracts with the take-or-pay customers, mainly in the silicon carbide business. If we exclude this, then we would see a slight decline in our turnover by minus 6%, which represents the weak economy that we are currently dealing in and a rather stable or maybe a slightly negative business in all other market segments. Our EBITDA pre is up 14.2%, coming from EUR 40.8 million in the first six months last year to now in H1 2026, EUR 46.6 million, again affected by the compensation payments. Our EBITDA pre margin in Graphite Solutions reaches some very healthy almost 20%, again, slightly negative impacted by currency effects. Process Tech, again, a weak quarter, same as Q1. We see a huge drop in our overall turnover by almost 30%, 28.2% to be precise -- we reached EUR 70.2 million in the first 6 months last year, and we now dropped to a little bit more than EUR 50 million in our top line. We still see a very weak market situation. Also, the conflict in the Middle East doesn't help because it also makes sure that every investment decision in the chemical business is currently postponed or at least put on hold. So we see large uncertainties and they are really hitting us with the order placement from our chemical industry customers. We see a lot of maintenance postponements because the assets are not fully utilized. And none of the effects is really helping us at least top line-wise in the business of Process Tech. And as a matter of fact, also EBITDA pre is heavily impacted on that, the huge demand, which we saw over the development over the last three years where we could increase the margin quite a bit, and there was really a very strong demand and our capacities were almost fully loaded and fully utilized. This has turned to the negative. Our EBITDA pre reached EUR 7.3 million in the first six months of 2026, whereas we had almost EUR 20 million in the same period of time last year. The market situation as everybody in our -- on our level of the value chain is underutilized. There's price pressure from the few orders that are out there in the market and the margin decreased then as a matter of fact, to 14.5% coming from 28.3% in the same period last year. Last but not least, on Slide #7, we show you the development of our Fiber Composites business. As a reminder, Fiber Composites since beginning of the year is a combination of the former business units, Carbon Fiber and Composite Solutions. We merged the two businesses as we restructured Carbon Fiber to a profitable core. And there, you see also a sales decline by a little bit more than 1/3 coming from EUR 150 million last year to now roughly EUR 100 million in H1 2026. This is exactly the aforementioned decline coming from the restructuring. This is EUR 50 million, which stands for the continued business that we had in the first six months last year until the closure of Lavradio and then subsequently in Q3, the idling of the capacities in Moses Lake, United States. And this was expected. And if you turn it around, then you see that our -- all our other business or the continued business is Carbon Fiber is at least flat, and we can keep our sales. When you look at the bottom line at our EBITDA pre, there you see a huge improvement in profitability coming from EUR 10.6 million in the first 6 months last year to now almost EUR 19 million. And I think that clearly shows how successful we were with the restructuring of our Carbon Fiber business. We also kept our promises. You probably remember that if you follow our calls, we once mentioned that our restructuring cost shall not exceed EUR 50 million over a course of 2 years. We have accomplished the target. Our overall restructuring costs were a little bit more than EUR 40 million, and we did it in less than one year, the overall restructuring. So I think we clearly showed that it was a very rigid and consequent restructuring and we made it, so to speak, in time and in budget. In the profitability of our Fiber Composite business -- you see that there's also a contribution from BSCCB, our at equity consolidated JV with Brembo. It also increased their contribution there, but we don't show any sales. We just show our part of the net result in that. If you -- well, if you take out this margin from the margin, the EBITDA pre margin, then we reached a very healthy 11.5% margin in our Fiber Composite business, which I think is quite remarkable that after one year of restructuring and the combination of these two business units, we can achieve that. And last but not least, a few more KPIs on the bottom line of the P&L, cash flow and also balance sheet ratios. Our net result improved drastically. It went back into black figures. Last year, it was affected by the restructuring where after six months of the year, we have reached minus EUR 31 million negative net result. It turned positive again and improved drastically by more than EUR 40 million. We now reach EUR 11.8 million. So it's a very stable back-in-black development. And without the impairments that we have seen last year, our net result would also have been positive in the same period of time. So SGL continues to show black results also at the very bottom of the P&L. Same with the free cash flow. The free cash flow, yes, it includes the compensation payments. But even without them, we show on a quarterly basis, positive free cash flow results. And this is a very strong achievement to have EUR 31.4 million as free cash flow after 6 months in this year, a huge contribution or a huge improvement compared to last year. And last but not least, thanks to the strong free cash flow, also our net financial debt could be lowered by almost EUR 20 million. It now reaches a leverage ratio of 0.6. So this is super stable and super healthy. Same with the equity ratio, it increased to almost 40%. The ROCE remains stable at roughly 10% and I think that was a very strong start into 2026. After six months, we are still happy with the way at least the balance sheet and also the bottom line of the P&L develops. And having said that, I hand over to Andreas for his remarks.

Thanks, and a warm welcome also from my side. First and foremost, I'm happy that on the basis of the first half Thomas explained, we are well on track to deliver on our guidance 2026. At the same time, SGL Growth 2030 is generating a lot of positive momentum, and that's only less than half a year after its rollout. And we want to give you a couple of insights on where we stand and the momentum we have generated so far. In the area of semiconductor, next to the already explained talks with our customers on adapting the existing contracts and building the future collaboration, we currently see a positive momentum in the market, especially in China and SiC, and that's mainly volume, but also a price stabilization we are seeing there currently. We have to wait a little bit. We have to be a little bit patient how sustainable this is, but the momentum clearly is there, and that's a positive sign. On top of that, successful market launch of our novel coating products continued. And yes, it's clearly possible to say that there is outstanding customer feedback on the performance of these products. And this, we will hopefully be able to leverage fully in the calendar year 2027. In the field of nuclear, we have announced on Monday that we have reached a new agreement with X-energy to expand our nuclear graphite production capacities, and that's mainly affecting our production site in Chedde in France. And this investment really positions us as a key supplier and also gives us capacities to develop even beyond our SGL Growth 2030 horizon into the future. In space, we are successfully progressing in establishing and also expanding customer relationships, and that's mainly affecting heat-resistant materials for rocket nozzle production. So very positive development penetrating the market. In the area of defense, we are very active at various trade shows in the first half, really expanding our network in the industry, both in the -- yes, drone, but also beyond applications. And in the field of drone projects, we have developed first prototype parts, and we are currently in initial sampling and bidding processes. And then these processes are running well, and we expect to see first relevant contributions in 2028, if not earlier. Last but not least, in aero, we managed to double our production volume as a supplier of materials for retrofit floor panels. And due to the structure of that industry, this is really supposed to be a lever into further aero applications for SGL and for our lightweight products. So in summary, it is great to see the SGL Growth 2030 progress so far, and we consider it being well on track towards our EUR 1 billion sales target in 2030. At the same time, we can confirm our guidance 2026, and that's irrespective of still challenging macroeconomics of ongoing geopolitical uncertainties and several key markets remaining weak. Thank you very much for your attention.

Our first question comes from Lars Vom-Cleff, Deutsche Bank.

A couple of smaller questions, if I may. Following the EUR 29 million already received in H1, should we expect further compensation payments from the semiconductor customer for the remainder of '26? And if so, what amount should we build into our models in this case?

Hello, Lars. This is Thomas. Yes, we are currently in negotiation. As I just said, we have reached agreement with two of the contracts. We are, of course, in discussions with others. Some tend to just expand the contract, then of course, it doesn't have an effect with a compensation payment. There might be something coming up in the next quarters. But let's put it this way, the big chunk of it has been renegotiated already.

That's already helpful. And then looking at the divisions and your guidance, I mean, Process Technology sales declined 28% in the first half, divisional EBITDA pre more than half. Unless I'm mistaken, you are still guiding for only a slight decline in both metrics for the full year. So my question would be, does this guidance remain valid?