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Edited Transcript of SGL.DE earnings conference call or presentation 6-Aug-19 12:00pm GMT

Q2 2019 SGL Carbon SE Earnings Call

Wiesbaden Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of SGL Carbon SE earnings conference call or presentation Tuesday, August 6, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jurgen Kohler

SGL Carbon SE - Chairman of Management Board & CEO

* Michael Majerus

SGL Carbon SE - CFO & Member of Management Board

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Conference Call Participants

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* Benjamin Pfannes-Varrow

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Christian Obst

Baader-Helvea Equity Research - Analyst

* Marc Gabriel

Bankhaus Lampe KG, Research Division - Research Analyst

* Richard Schramm

HSBC, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome to SGL Carbon Investor and Analyst Conference Call. (Operator Instructions)

I would now like to turn the conference over to Jurgen Kohler, CEO. Please go ahead, sir.

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Jurgen Kohler, SGL Carbon SE - Chairman of Management Board & CEO [2]

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Okay, Stuart. Thank you very much for the quick introduction.

Ladies and gentlemen, this is Jurgen, and thank you also to you very much for taking the time today to join our conference call. Today, we will discuss the results of the first half of 2019, and we will also confirm our outlook for the full year 2019. As always as usual, here with me today is our CFO, Dr. Michael Majerus. He and I, we will share the talk and the subsequent following Q&A session.

For the financial reporting, I'm now already handing over to Michael, who will guide you through the first half performance.

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Michael Majerus, SGL Carbon SE - CFO & Member of Management Board [3]

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Yes. Thank you, Jurgen. And first of all, welcome to our participants on this call.

As usual, I will walk through the figures, and we'll start with Composites – Fibers & Materials on Page 3. As you see on that page, revenue amounted to EUR 219.4 million, which is slightly below previous year figures minus 2%, or currency-adjusted minus 3%.

We saw a different development in the market segment where Wind Energy was growing, however, based on a low basis last year because we stepped out of our formal joint venture last year. And we're ramping this business now in new own approach. We saw on the other side Industrial Applications weakening business due to global economic trends.

In Aerospace, we had the billings pretty much focused in the first half year last year. This year, it's the other way around, so we'll see major billings in the second half of the year. That was the reason why Aerospace was weaker in the 6 months comparison.

The remaining market segment Automotive & Transport were approximately on prior year's level with regard to revenue.

In the quarter-over-quarter development, we saw increase in the EBIT from the second quarter to the first quarter (sic) [from the first quarter to the second quarter] as anticipated. The reasons here are primarily the development of Textile Fibers. But as already explained in our first quarter call, what has happened in the textile fiber business was a decline in the fourth quarter last year in raw material price in acrylonitrile prices. And since this textile fiber market is a very transparent commodity market, this is delivered to customers more than usually immediately at the price redemption, whereas inventory is based on the higher purchasing costs as previous months. That was a negative effect in the fourth quarter last year and the first quarter this year. And as anticipated, in the second quarter, this has now started to work out. So of course, we now have inventories, also with slower actual prices. And that was the main reason for the improvement quarter-over-quarter.

If you look overall in the 6 months, EBIT is substantially below prior year level for several reasons. One reason I already mentioned, Aerospace, we had very strong billings in the first half of the year. This year, we will see it this year in the second half.

Similar situation in Automotive here, temporary unfavored product mix, also had a high-margin order last year in the first quarter. We will see this more in the second half of this year. And textile fiber, I already explained the development.

And Wind Energy, we had temporary delays due to some external reasons, which had delays or deliveries. But [this comes resolved now], and therefore deliveries will be pushed out in the second half of the year.

And we saw already earnings improvement in the market segment Industrial Applications, but in the first 6 months unable to fully compensate the above trends.

Now let's move to GMS on the next slide, our Graphite Materials & Systems. Revenue here amounted to EUR 321 million, which is an increase of 12% compared to the previous year comparison period. Currency adjusted, that's an increase of 9%. We saw a substantial double-digit growth in the markets, semiconductor, LED, and Automotive & Transport. Other strong demand increases in Industrial Applications and Chemicals. Battery & Other Energy close to prior year level as expected. The main reason is, of course, that we here also capacity restricted. And with regard to solar, we even intentionally reduced our business to increase modest supply on the [LED & LCD] contractor due to better margin situation here.

EBIT in total in the first 6 months increased by 21%, and that's more than proportionately to sales based on, of course, the improvement in most of the market segment as mentioned above.

Solar, of course, assets intentionally remain slightly below prior year level.

In Automotive & Transport, we have strong growth here, also for business related to parts for water pumps and braking systems for cars. This is a planned positive supported by the actual change towards electric vehicles. But as usual, ramping up such projects have initial ramp-up costs. And that was the reason why we've not yet seen here also the corresponding EBIT increase in that segment in that period.

Now let's move to Corporate on the next page. Revenue increased by 20%. Now what is this revenue in Corporate? I mean we do have here not only the administration sector included, but also our Central Innovation, our group research and development activity. And the good thing is that we not only have seen [radical] development, but also practical developments. We're seeing customer pay for this. And the very good project here is our business which is so-called gas diffusion layer, which is used in fuel cell for fuel cell cars. This is a fast-growing business. We are supporting an Asian producer who is producing fuel cell cars, and this is heavily ramping up this production. And correspondingly, of course, we are ramping up this business here. And as a consequence here, revenue in that -- for that business alone has doubled in that period now to EUR 5.3 million.

And if we look at the EBIT development, it's on face level, it's remained pretty close to prior year's level. However, you have to keep in mind that last year in the first 6 months, we had a onetime profit of almost EUR 4 million due to a sale of piece of land in Canada related to a former graphite electrode business in our production site there, which of course did not reoccur again. So on a comparable basis, we saw substantial improvement in that Corporate and CI division. The reasons are that last year was negatively affected by project-related costs with the implementation of a new operation management system in the production area. Of course, this is now implemented and therefore we do not have this onetime introduction.

Cost again on the other side, we had this year a positive effect from a project which we built for IT-related services to reform our phonographic electrode business. And as already mentioned, the growth of the fuel cell-related business is not only a sales growth, but also profitable. It is a very profitable business. And that's the reason the net expenses for R&D has been reduced from EUR 4.1 million to EUR 3.4 million, and all this is contributing to the earnings development.

Now having said this, let's see how this all contributes together in our group figures you see on Page 6. Overall, revenue increased to EUR 561.5 million, of course primarily driven by the volume-related growth in the GMS division for plus (inaudible) half percent compared to previous.

EBIT at EUR 38.8 million is EUR 6 million below previous year figure, but if you take out a EUR 4 million land sale which I already mentioned in the Corporate, it's EUR 2 million below.

What is however worth to mention, we come to this in a second if we look into the cash flow statement, the cash quality of this profit has clearly increased. And there are several reasons for this. One reason is that in previous year figure, we had a positive effect of more than EUR 11 million for IFRS 15 which was at that time not yet a cash inflow. This year, it's only EUR 3 million. So on a comparable basis, it's EUR 8 million better cash quality alone coming from this. And we have EUR 4 million higher depreciation as the operation profit level is also improving. So therefore yes accounting-wise, slightly below previous year figures; but cash flow-wise, improvement compared to prior year's result.

Net financing result as expected, of course, it's deteriorated but also this is intentionally because we refinanced our company. As you might know, we issued a new convertible bond in September last year, which is now of course in the first 6 months figure, which was not in the first 6 months figure last year. We issued a new corporate bond in April, which is at least from April to June in this year's figure, which was not in the figures last year.

And that are the main reasons. A smaller other effect is the first-time adoption of IFRS 16. Now what is this? IFRS 16 is a new leasing standard and very much simplified. We have now to put almost everything on your books. And the former accounting for operation between finance leasing and operate leasing and only to finance lease to be shown on our balance sheet. Today also the operating lease has to be shown. That is a little bit blowing up our balance sheet. And as a consequence, you also have to separate the leasing payments into depreciation and the finance costs. But the depreciation is in the operating profit, and the financial result is of course in the financial result. And that's another effect for the growth in the net financing result.

And of course also as expected, net result is substantially lower than last year, but was EUR 10 million, still of course positive. And the reason was to remember this, we had a onetime accounting effect of EUR 28 million positive last year. This was due to the first and full consolidation of the former BMW joint venture and the related fair value adjustment, which give a noncash relevant onetime accounting profit which did not reoccur again. That are the reasons for this.

Now let's move to cash flow. As I already mentioned, with EBIT being slightly less than previous year; net income being substantially less than previous year; cash flow is the other way around, significantly improved for the reasons I already mentioned. One effect is that cash-related operating profit has improved. The other reason is, of course, the working capital development. As usual, we have an increase in working capital in the first 6 months but substantially lower than in the first 6 months last year. And that was the 2 main reasons why we had a substantial improvement in the operating cash flow to plus EUR 15.4 million.

On the CapEx side we will see, of course, different effects. On the one side, we had higher CapEx as already announced in fixed asset. On the other side, we had onetime effect last year when we acquired the German part of the BMW joint venture here, the Wackersdorf site in Bavaria. This did not reoccur again. And all the aspects together led to a substantial improvement in free cash flow discontinued (sic) [continuing] operation, which was minus EUR 9.2 million, only slight negative.

On the discontinued operations side, we had already early this year and we mentioned this already in the first quarter statement, a settlement with the buyer of the former HITCO Aerostructure business. And this was a cash outflow in the first quarter, and that's the reason for the minus EUR 9.9 million. In the previous year's FICA, we had the other way around, a substantial cash inflow because this was a final outstanding payment for the sale of the former PP activities.

Now let's have a look to the balance sheet. Equity ratio dropped to 28.4%. This is driven by 2 factors. One is debt to equity, it fell, was reduced primarily due to the development of the long-term interest to relate -- interest rates and relate it, most of the pension provision.

The other reason is, of course, a base effect because our balance sheet was inflated in relation with the cash inflow from the issuance of the new corporate bond in April. As you might know, we intended to use this to refinance here the company. And one effect was to take over the former BMW financing provided to the joint venture. This has then be finished at 30th of June.

But the other effect was and the bigger part of the use of proceeds was, of course, to repay the convertible bond which was due in September -- would have been due in September 2020. And this we put on a special account. It's already in our balance sheet. And that was the effect, the balance sheet was inflated. But as you might know, we already purchased this back in July. So we have shown now our balance sheet again. And adjust for this on a pro forma calculation as of June 30 was this shortening in payback of this, our equity ratios would have been already 31.5% again.

Yes, higher net financial debt as I said is -- also as expected, has to some extent increased. And that is due to the already mentioned final settlement payment to the HITCO Aerostructure buyer, and a small negative free cash flow. And some incurred costs for the corporate bond issue because this was roughly 7 million, and expense-wise is, of course, distributed over the lifetime of the bond. Cash flow-wise, this is over the year onetime cash outflow which happens this year.

So far with regard to our financial, and with this, I hand back to Jurgen for the outlook.

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Jurgen Kohler, SGL Carbon SE - Chairman of Management Board & CEO [4]

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Okay, Michael, next then. Thank you.

Now let's look at the outlook for the year. So in a nutshell, our guidance for the full fiscal year 2019 is unchanged compared to what you saw at the March 27 Analyst Conference and our first quarter 2019 report.

I'm moving already to Slide #11. Let's look at Composites – Fibers & Materials first. In terms of sales, our guidance is as we said, unchanged. We will see a mid-single-digit percentage increase which is mainly driven by volumes going up.

The guidance for EBIT is also unchanged. As Michael explained, we had a relatively slow first half 2019, a weaker market segment Industrial Applications. But for the full year, we expect EBIT still on the prior year level. However there is, of course, some risks attached to that due to the general business environment. Therefore, we have implemented measures to improve the earnings situation across the entire business unit, but with a particular focus on the market segment Textile Fibers. Also, we expect as indicated already higher project billings in the market segment Aerospace and an improved product mix in the Automotive area.

I will now share with you a little bit more details on the next page, #12. So here are a few details in the market segment Aerospace. And as stated by Michael, in 2019, we see a reverse project billing cycle. In 2018, the first half were strong with major billings. In 2019, we expect these larger billings in the fourth quarter.

In the market segment Automotive, we expect an improved mix in the second half when comparing against the first half. We will have higher sales in our Ceramic Brake Discs division in the second half, and we will have project SOPs also in the second half.

In our market segment wind deliveries scheduled, and deliveries scheduled in the first half were pushed out into the second half. This was not demand driven. This was not SGL driven. These were external factors that have now been resolved. So the higher production and the higher deliveries in the second half should be supportive for the earnings situation.

In the market segment Textile Fibers, the situation is a bit special. And we explained that in detail in our Q1 call with the margin squeeze we saw between pricing for our textile products and the acrylonitrile sourcing costs. So we have implemented various activities. We're operating in a task force mode to drive the overall performance improvement. In Portugal, the task force coordinates all action items and measures that we have agreed upon. One of those measures, for instance, we have identified near-term sales opportunities with product groups or areas where we have not been very strong before. We have identified further ideas to improve operations and drive costs down.

You see an example on this slide. For instance, we're going to reduce overtime now. And we're looking at our acrylonitrile purchasing strategy. Acrylonitrile is a major purchasing item for SGL. The acrylonitrile market is extremely transparent. So there's a few things we can do. And for instance, we are looking at our tank storage capacities. This tells you the angle of attack across to all areas.

Let's move on to our reporting segments, Graphite Materials & Systems and (inaudible) for the full year. In terms of sales in GMS, our guidance is unchanged. We're going to be stable on the prior level. As Michael said, this was boosted by positive IFRS 15 effects, and exactly the same statement applies to EBIT.

Despite the strong first half, we are only going to stay on par [delivered] because we're anticipating somewhat lower volumes in the second half, and we're going to drive inventories down somewhat to improve our cash flow. But of course, that impacts a little bit our fixed cost absorption in the manufacturing facilities.

But the target EBIT margin of 12% should again be exceeded. And this proves to you that we have a very robust business model in GMS, even in an overall softening and economic environment.

Corporate, full-year guidance unchanged compared to what we said before. We're going to be close to prior year level. Prior year as Michael said was positively impacted by land sale. This year, we have other positive impact.

Now to conclude my part here, let's look at the group. Again, basically all KPIs, I can tell you the guidance is unchanged. For sales, we will see mid-single-digit percentage increase compared to 2018, again boosted then by IFRS 15 effects.

EBIT stable on prior year level with the same IFRS 15 statement.

Net profit this year, we expect breakeven after the EUR 41 million in 2018. But again, let me reiterate this EUR 41 million were positively impacted by a onetime effect. EUR 28 million from the full consolidation of our former BMW joint venture, ACF.

And in 2019 now as Michael explained, we are planning some higher expenses from the corporate bond that we issued in April and also the repayment of the convert 2015/2020 at some extra cost.

In terms of net debt, also our guidance is unchanged. We will see a mid-double-digit euro million increase driven by CapEx and the aforementioned higher interest payments.

In terms of free cash flow, again, guidance unchanged. We will see a substantial improvement to still a negative low double-digit million euro figure.

This already now ends the prepared part. Thank you for listening and for your attention. And we would now like to open the Q&A part of today's conference call. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question is from the line of Christian Obst from Baader Bank.

Hello, Christian?

(technical difficulty)

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Christian Obst, Baader-Helvea Equity Research - Analyst [2]

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So I have 3 questions. First of all, the overall cash requirements in the -- going into the longer term. Currently, you are guiding for CapEx of EUR 100 million. We have to adjust for EUR 40 million net interest approximately. So what do you think of your cash needs or cash outflow on a constant basis going for the next 3 years? Will it reach EUR 160 million or a little bit more? So what is the guidance in the longer term? Maybe you can explain that a little bit in more detail.

And then restructuring Textile Fibers, when do you expect to hit breakeven there? And do you expect that you have to book additional restructuring charges there for Textile Fibers for the measures you just announced?

And for GMS, you are driving down inventories to improve working capital going forward. Does that imply that you adjusted your -- adjust your production to the expected lower demand going forward? Or it's just some kind of a seasonal adjustment?

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Michael Majerus, SGL Carbon SE - CFO & Member of Management Board [3]

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Okay. Mr. Obst, it's Michael Majerus. So I am going to answer your question. So starting with the cash flow and drawing guidance, first, I mean with regard to this year, Jurgen already gave the guidance. We expect low double-digit million negative cash flow. I just saw the first 6 months was minus 9. It was pretty much in line with guidance. As you also mentioned, this is based on a CapEx guidance of EUR 100 million. At the same time, we have depreciation of roughly EUR 65 million. So the other way around, if we would already reduce our CapEx this year to depreciation, we'd already be on a breakeven or slightly positive level with cash flow this year. So therefore, nothing we are concerned about.

Next year, of course, from today's perspective, we have not finalized, of course, the new planning. This will be done end of this year. But based on the old planning so far, of course, our expectation is to have a pretty similar CapEx level next year. So again, additional EUR 100 million. And that was also the reason why we, in December last year, pushed out our guidance for the first time being free cash flow positive, which was originally 2020 to 2021 exactly due to this. Of course, if we would reduce our CapEx also last year, also depreciation level, we would already be cash flow positive next year.

So that does not -- this pushing out of our free cash flow positive year is not due to any weakness in our operational development or to any failed strategy. It's simply the other way around that we have more demand in certain areas and therefore investing more. So therefore, from today perspective, we also expect another slightly, maybe double-digit, low double-digit million negative cash flow next year and then a positive free cash flow the year after.

So having said this, first of all, it's completely under our control. So if economy would be weakening, yes, we are very flexible and can react fast and reduce our CapEx exposure. As you might know from this EUR 100 million, roughly EUR 30 million is, so to say, maintenance and required. The vast majority, EUR 79 million, is discretionary. We can stop it any time, push it all, freeze it, we'll continue later. So we are very flexible.

And looking to our financial situation, as you know, we have done a very successful refinancing of our next maturities at the end of 2023 and 2024. We still have a credit line of EUR 175 million note, bond and all, a sufficient cash position. So we can afford with a small double-digit million cash flow without any sweat on our face. It's fantastic like this. And so we are very relaxed about this topic in a nutshell.

And now coming back to the next point, the Textile Fibers business, your question was when would it break even and if there was a restructuring. No, there is no further restructuring necessary. The restructuring, we already have done last year. So this is done and paid. What we are concentrating on, I think you alluded to it, is more of the operational improvement process in the areas of sales, in the areas of production, in the areas of purchasing.

So what we have done, we have improved our storage capacity for us to be more flexible in purchasing in the market at times when prices are lower because this is a very fluctuating market. We have improved production processes. We have a sales push and then optimizing our customer, product portfolio on the Textile Fiber side. So that are the measures. So we are not talking anymore about cost-related restructuring measures. We are talking about improving our operational process. That is what we're going to do. And we have already reached breakeven status in the second quarter. So there is also visible success related to that measure.

Now your last question related to GMS, yes, your conclusion is right. We will be lower production in the second half. And that has indeed 2 factors. One is, of course, seasonality pattern. As we already mentioned, we have in this year the stronger focus of demand in the first half. That is the one reason. The other reason is, however, yes, we also see some weakening in order entry. But I think here, it's too early to say how this develop -- will develop over the first months. So I think a final statement was this. We will only be ready more towards the end of the year.

Also, the markets here are very different at GMS. In some areas, we see weakening. Other, we see very strong demand. One example, what I mentioned is, for example, in the automotive sector where we built just a new hall in Bonn manufacturing site last year, which is already fully occupied and capacity utilized. And customers are even asking for more.

So I mean we are very -- as you know, we are active in very many markets with very different developments. So I would say the main reason now for the lower production is, as I said, the seasonality in this year. And related to this, we will also see some inventory reduction. Also, this is important to keep in mind that we expect for GMS also inventory reduction in the second half, which will have also a positive effect on cash flow.

Okay. So you have one other question?

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Christian Obst, Baader-Helvea Equity Research - Analyst [4]

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Okay. I have one additional on the cash flow on the first question. You say you can react very fast if the economy is deteriorating. So having in mind all the profit warnings and everything we see around and lower guidance for economic growth going forward, so what should happen that you will really decide and say maybe you will lower your CapEx from EUR 100 million to EUR 80 million or to EUR 60 million? So how do you measure that?

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Michael Majerus, SGL Carbon SE - CFO & Member of Management Board [5]

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Yes. Because we are not investing into some speculation into anonymous markets, so our CapEx is concrete projects and customer related. And so therefore, you have to differentiate between the overall development and our projects. And in some area, it's extremely the opposite of what you're seeing.

And I guess, for example, in automotive, I mean in my view, we are currently very much punished at the stock market, being perceived as an automotive supplier. I mean first of all, you see a very strong correlation, by the way, if you look into the last 18 months between our share price development and to most of the stock price of car suppliers in Germany. But if you look into our business, first of all, only 30% of our business is Automotive, 70% is non-Automotive.

And if I see in the automotive sector what has happened, I mean, German carmakers industry was very much based on diesel engine to achieve the CO2 emission targets. Now with customers not buying that much more diesel as in the past, they have a much higher share of gasoline engine. And as you might know, gasoline engine is a -- has in principle higher CO2 emission than compared with diesel engines. So all of a sudden, German car producers are facing a big problem, yes, with customers not buying any more than enough diesel and now having a fleet with higher gasoline share, higher CO2 emissions. What is the consequence? We see much more project on lightweight, yes, because they have to do much. We have not seen -- we have never seen so many project on the automotive side as we've seen in the last 12 months.

Another consequence of this is that besides doing more lightweight in the gasoline engine, they have to do more on the electric vehicle side, yes. And that's the next thing, which is beneficial development for us, yes. And we have won for the first time projects, yes, not only here in Europe because in the past, I would say, 12 months ago, CFM was European-only player in the cars and almost entirely a German customer because besides Volvo, all of our customers were German OEMs. Now we have alone won one steel project in the United States. We've won one project in China. Just was in the last 6 months. So what we see is also globalization of this business.

So therefore, coming back to your question, this only depends on how we see the concrete projects, yes. If we see, of course, a weakening or a higher risk, yes, at a customer, of course, then we are careful, and then we are reducing it. But it does not depend on some developments which do not affect our business. So we have to decide it on a case-by-case basis, and that is how we handle it.

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Christian Obst, Baader-Helvea Equity Research - Analyst [6]

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Okay. So does this mean that currently, it's not the case that you are thinking about cutting these projects?

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Michael Majerus, SGL Carbon SE - CFO & Member of Management Board [7]

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Yes.

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Operator [8]

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Next question is from Marc Gabriel from Bankhaus Lampe.

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Marc Gabriel, Bankhaus Lampe KG, Research Division - Research Analyst [9]

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Sorry, I was a little later in the call. So maybe you have already explained what measures you are planning at CFM to bring their profit to the target level for the year as a whole. Otherwise, I would like to hear that.

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Jurgen Kohler, SGL Carbon SE - Chairman of Management Board & CEO [10]

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Okay. Marc, this is Jurgen, and thank you again for being on the call. We had a little bit information about this and some detail on one of the slides. I don't remember which number. It may be 13 or something.

So our angle of attack is that we are addressing all aspects of the CFM business. We are right now in a task force mode, which simply means that all action items, all time lines are being followed up on a weekly or sometimes daily basis. We are addressing the purchasing side. I said earlier acrylonitrile is a very transparent market where we have very little leverage, but we can play with our acrylonitrile tank capacity, for instance. We're looking -- and that is something each and every company would do in cost savings in operations. This is not necessarily right away headcount reduction. But we can play with maintenance. We can play with overtime and many, many more things you can do.

And of course, on the sales side, there's always opportunities to optimize because the markets are very liquid. They are in movement. So we're specifically in CFM looking at areas that we have not fully addressed in the past. We call that a white spot activity. We're looking at selective pricing measures in the right direction and so forth. So we are looking at all aspects of the business, Marc.

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Michael Majerus, SGL Carbon SE - CFO & Member of Management Board [11]

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Yes. And I think another important factor should be added. This is Michael Majerus here. I mean besides all the measures Jurgen just alluded to, I mean, it was also very important to understand we, so to say, have a mirror situation of the intra-year profit development this year than it was last year. If you remember, last year figures, we had EBIT of plus EUR 17 million in the first 6 months and only EUR 4 million in the second 6 months. Why was that? Because we had the majority of the billings in the very profitable projects in the Automotive and Aerostructures in the first half.

And we had the impact which I -- I'm not sure whether you already joined when I explained this. What has happened then in the second half in the Textile Fiber business was the strong decline in the raw material prices, in acrylonitrile prices. Since the textile fiber market is a very transparent commodity market, customers in this are on very immediate Textile Fiber price reduction, whereas you have sitting for several months inventory in your pipeline, having paid at a higher cost at earlier months. And that was negatively affecting the first and the fourth quarter, especially in the last quarter and the first quarter this year.

So this year, so that was the reason why we had majority of the profit last year in the first half and only a small contribution in the second half. This year is exactly the other situation, no, because the negative impact on the Textile Fibers business, which has happened in the second half last year, materialized in the first half this year. But as already explained, we have focus out there which will help us break even. And the other way around, the majority of the billings in the Aerostructure and Automotive is this year to be taking place in the second half. And that are the reasons all together why we stick to our guidance.

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Operator [12]

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(Operator Instructions) The next question comes from the line of Matthias Pfeifenberger from DB.

Hello, are you there?

(technical difficulty)

Okay. The next question comes from the line of Richard Schramm from HSBC.

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Richard Schramm, HSBC, Research Division - Analyst [13]

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Yes. A quick follow-up on the financial results. Here, you signaled already that there will be a clear increase, at least temporarily, to the additional bonds you have noted on the balance sheet. But you also indicated that there was the kind of onetime cost elements included. Is this already visible in the first half figures we see in the minus EUR 19 million? Or will this occur in the second half? And what should we then expect for next year when this element drops out, that these premature costs will not occur any longer here?

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Michael Majerus, SGL Carbon SE - CFO & Member of Management Board [14]

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Yes. Mr. Schramm, this is Michael Majerus. Yes, coming back to your questions, the onetime costs related to the bond, the almost EUR 7 million, this was a cash effect. It is not expense effect, only to a small time about the expense effect because as you know, accounting-wise, these upfront payments related to such funds are distributed over the lifetime of the bond. So the 4 plus 1 of the 5 years. So they are only a small portion as, of course, in the expense. But it's, of course, in the cash flow statement, net debt development. That was why I have commented to it.

And we have -- okay. And we have another onetime effect. And you're right. This is, of course, on the expense side. But this is to come then now in the third quarter because after the voting period, so after the 30th of June, and therefore, it's anyway not in our figures yet, we have repurchased the convertible bond expiring originally in September last year. And as a consequence, this is not the other way around, yes. Also here, we had the upfront payment distributed over the whole lifetime.

And so there was a remaining part of almost EUR 6 million, which was the still not yet distributed onetime expense until the end of September 2020. And since this is now completely repurchased, we had to take this in one shot into our income statement. That will, of course, appear in the third quarter.

So therefore, of course, if you take the minus EUR 19 million, of course, it will be somewhat more than double in the full year because you have, first of all, the EUR 6 million additional onetime shot on the expense side. And we have now, of course, the -- for the full 6 months, the new corporate bond, which was only 2.5 months in the first half.

On the other side, of course, we do not have the old convertible bond anymore in our figures. So there is some compensation. I mean overall, of course, this was a good decision to early repurchase the convertible bond. So in essence, cash-wise, we saved roughly EUR 2 million from today until the September next year with this measure.

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Operator [15]

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The next question is from Benjamin Pfannes-Varrow from Berenberg.

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [16]

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I have a few questions, please. First one is on CFM. Given the pickup that's needed in H2 in terms of EBIT, are you able to quantify how much of that you expect to come from the efforts to reorganize the Textile Fibers business?

Second question is on GMS. You mentioned the increasing uncertainty. Can you give us a bit more detail about where you see perhaps some weakening or where you think that could occur?

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Jurgen Kohler, SGL Carbon SE - Chairman of Management Board & CEO [17]

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Okay. Benjamin, thank you for your questions. I'm going to address GMS, and Michael will quickly talk about Textile Fibers.

The GMS uncertainty is nothing very specific that we can talk about right now. It's just that every corporation, every company now, given the uncertainties with Brexit, with the China-U. S. trade war, with some weakening economies, okay, we're all very careful looking at the day-to-day business situation we're monitoring. And of course, we are in a good position because our business is very broad. As Michael said, we're not an automotive supplier. We are in the LED business and the semiconductor business and the chemical business and many, many more, solar, et cetera. So we're just carefully monitoring. We're grasping opportunities where we see them like in automotive and other areas. We reduced our production a little bit to be prepared should something major happens, for instance, with the Brexit. It was more like a general uncertainty that we see.

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Michael Majerus, SGL Carbon SE - CFO & Member of Management Board [18]

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Yes. Benjamin, this is Michael. So coming back to your question to CFM, we expect with regard to the Textile Fiber -- I wouldn't call it restructuring. I would call it operational improvement programs. We expect roughly EUR 3 million to come from that. And of course, the vast majority of the improvement is coming from the other effects which I mentioned. So of course, the, as I said, different time schedule with the billings of the Automotive and Aerostructure, that is roughly this operation we expect here.

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Benjamin Pfannes-Varrow, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [19]

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Okay. And just coming back to GMS. Like you said on that point, I mean the reduction in inventories, I mean that's still a precautionary aspect as well as seasonal, but you don't see -- or you haven't seen any decline so far. So that's just purely precaution or...

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Jurgen Kohler, SGL Carbon SE - Chairman of Management Board & CEO [20]

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The answer is yes. You mentioned both aspects. And I believe Michael explained that in the introduction. We have a seasonal pattern. First half is stronger than the second half, which is also part of our guidance. And yes, we are looking carefully at our inventories. We don't want to overstock should we see a decline in one or the other of our business segments.

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Operator [21]

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(Operator Instructions) The next question is from Matthias Pfeifenberger from DB.

Mr. Pfeifenberger, can you please unmute your microphone? (technical difficulty)

There are no further questions at this time. And I would like to hand back to Jurgen Kohler for closing comments.

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Jurgen Kohler, SGL Carbon SE - Chairman of Management Board & CEO [22]

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Okay. Again, thank you very much for your time and your attention. I hope we will be together again for our next call in early November 2019. We're going to present and discuss our third quarter performance. And of course, we will also give you an updated outlook then for the full year 2019.

So thank you for participating. Have a great day, and we are looking forward to talk to you again. Bye-bye.