Focused on Customers.

Transcription

1 SGL CARBON GROUP Annual Report 2002 Annual Report 2002 Focused on Customers. Understand demands. Develop solutions. Create value.

2 SGL Carbon is the world s largest manufacturer of carbon, graphite and composite materials. In the manufacturing industry and the aerospace sector, our products and system solutions allow our customers to improve their efficiency, safety, profitability and quality. With around 30 sites and a customer-oriented sales and service network today SGL Carbon is a company with a global focus. Mission Core Businesses Strengthen global market position. Achieve cost and technology leadership. Optimize cash flow. New Businesses (SGL Technologies) Develop new businesses with high growth and profit potential. Leverage carbon fiber to composite value chain. Concentrate on core competencies: high temperature technology, advanced materials, and engineering. SGL Excellence Understand and satisfy customer requirements. Create value for our customers, shareholders and employees. Build trust and encourage knowledge sharing, continuous learning, open feedback and communication among all employees. Take responsibility and lead by example. Develop people and promote teamwork. Provide a climate that meets all legal, personnel and environmental obligations. Build a Corporate Identity throughout the Company.

3 Key Figures Change ( million) ( million) (%) Sales revenues 1,112 1, Carbon and Graphite Graphite Specialties Corrosion Protection SGL Technologies Profit from operations Carbon and Graphite Graphite Specialties 1, Corrosion Protection SGL Technologies Return on Sales 4 3% 5% Profit/loss before tax Net loss for the period Earnings per share ( ) Profit from operations before depreciation and amortization (EBITDA) Cash provided by operating activities 5, Investments in property, plant and equipment Depreciation of property, plant and equipment Research and development costs Working capital Capital employed , Equity Total assets 1,286 1, Gearing Number of employees (at end of year) 7,360 8, Market capitalization (at end of year) Reclassification of the graphite foils business from Graphite Specialties to SGL Technologies 2 Before provisions for antitrust risks and restructuring expenses 3 Before restructuring expenses 4 Ratio of profit from operations to sales revenues 5 After adjustments for exchange rate effects and before antitrust payments 6 Please refer to page 48 7 Not including extraordinary depreciation associated with restructuring 8 Carrying amounts of inventories and trade receivables less trade payables 9 Carrying amounts of property, plant and equipment, intangible assets and working capital 10 Ratio of financial liabilities less cash and cash equivalents to equity

4 Overview of Business Areas Carbon and Graphite [CG] Graphite Specialties [GS] Corrosion Protection [CP] SGL Technologies [T] Share of Group Sales Share of Group Sales Share of Group Sales Share of Group Sales 13% 50% 18% 19% Key Figures and Overview of Business Areas Products/Applications Products/Applications Products/Applications Products/Applications Graphite Electrodes Technical Carbon Process Technology Brake Discs Cathodes Semiconductors Surface Protection Fuel Cell Components Carbon Electrodes Mechanical Carbon Carbon Fibers, Yarns Furnace Linings Electrical Contacts Customer Industries and Fabrics Chemicals Aerospace Applications Customer Industries Customer Industries Plant Construction Industrial Composites Steel Chemicals Energy Expanded Graphite Aluminum Energy Transportation Metallurgy Glass and Ceramics Pharmaceuticals Customer Industries Semiconductor Environmental Protection Automotive Technology Metallurgy Electronics Mechanical Engineering Energy Metallurgy Aircraft Construction Automotive Defense Semiconductors Chemicals

5 Contents CG GS CP T Carbon and Graphite Graphite Specialties Corrosion Protection SGL Technologies Business in Company Goals 2002 and SGL Excellence 8 Corporate Governance 10 Group Management Report Business developments within the Group 12 Business developments 15 Balance sheet structure 17 Liquidity and capital resources 18 Investments and depreciation 19 Research and development 19 Environmental protection and health and safety 21 Risk report 22 Outlook for Annual financial statements of SGL Carbon AG (condensed) 25 Business Reporting Carbon and Graphite [CG] 28 Graphite Specialties [GS] 32 Corrosion Protection [CP] 36 SGL Technologies [T] 40 Our Shares 42 Human Resources 44 Consolidated Financial Statements and Notes Consolidated Income Statement 46 Consolidated Balance Sheet 47 Consolidated Cash Flow Statement 48 Consolidated Statement of Changes in Equity 49 Notes to the Consolidated Financial Statements 50 Report of the Supervisory Board 84 Supervisory Board 87 Executive Committee 88 Management 89 Highlights History 91 Contact Details and Acknowledgements 92

6 2 Robert J. Koehler Chairman of the Executive Committee Business in 2002 Questions to the Chairman of the Executive Committee, Robert J. Koehler Mr. Koehler, looking back, how would you summarize fiscal 2002? For the first time in decades, the economy slumped in all the key regions America, Europe and Asia at the same time, even slipping into recession in some cases. The recovery expected by the second half of 2002 at the latest did not happen. Our customers in the chemicals and semiconductor industries were hit by the economic crisis as well. Only the steel industry began to show slight signs of recovery after the specific crisis in the US and the end of destocking in Europe. How did SGL Carbon develop in this difficult environment? Given this environment, we did well. Our key goal in 2002 was to increase cash flow so that we could lower our debt. We increased cash flow considerably by making significant reductions in working capital and tightly controlling capital spending. However, lowering inventories also reduced capacity utilization and, as a result, our profit from operations suffered. The restructuring program introduced at the end of 2001 allowed us to cut costs considerably in Carbon and Graphite and Graphite Specialties. Cost-cutting measures were also successful in Corrosion Protection and SGL Technologies. Did you succeed in reducing the Company s financial liabilities? Absolutely: instead of our original target of 5% for 2002, we cut net debt by 19%. We were even able to reduce working capital by 30%. And yet you were unable to reach your earnings target for It s true that, in late 2001/early 2002, our goal was to keep our operating result at roughly the same level as the previous year. By the end of the first quarter of 2002, however, given the evident economic downturn, we decided to accelerate our restructuring measures. We had originally announced staff cuts of 430 employees for Instead, we reduced our payroll by more than 800 people incurring corresponding charges in the year under review. Parallel to this, we accelerated our inventory reduction measures beyond plan, which had a negative impact on our operating result, as described above. Finally, cost-cutting measures at CG and GS were more successful than expected, as a result of which we needed to take a valuation charge for inventories, thus further reducing profit from operations. For us, 2002 was a year of restructuring. The fact that we accelerated the measures that needed to be taken over the course of the year, in some cases bringing them forward to the year under review, will pay off in coming years.

7 Bruno Toniolo, Klaus Warning Members of the Executive Committee Business in What was the reason behind SGL Carbon s refinancing? In order to cover SGL Carbon s medium-term finance requirements, we refinanced our debt by taking out a syndicated loan at reasonable conditions in December The refinancing package will allow us to remain flexible and has created a stable basis for our long-term, internationallyoriented strategy. Besides, in light of the difficult economic environment, we see the fact that the banks granted us this loan as proof of their confidence in our Company. Isn t the refinancing package expensive, and what will happen after the loan expires? Naturally, medium-term planning security for loans has its price: the initial interest rate is roughly 6%, which is only around 1% more than our previous average rate. The loan has a term of two and a half years. When we come to negotiate follow-up financing with the banks at the end of this period, SGL Carbon will have reduced its debt further and will certainly be in better economic shape than it is today. How do you intend to further reduce debt? By continuing increasing cash flow. The key lever in achieving this now is improving our profit from operations. We are also going to continue reducing working capital, though our success in 2002 means that we no longer have as much potential to do this. What progress have you made with the SGL Excellence improvement initiative? The goal of this Group-wide initiative is to continuously create customer value by permanently strengthening the Company s competitiveness. The first year of our improvement initiative went very well: for example, we launched 42 projects to increase cash flow and profit as part of our Six Sigma measures. These projects already made positive contributions to cash flow and profit in their first year. And more than 200 employees worldwide have already been trained to help implement these projects.» 2002 was a year of restructuring. We have accelerated and brought forward the necessary measures, and this will pay off in coming years. «

8 Business in Hariolf Kottmann Member of the Executive Committee Theodore H. Breyer Member of the Executive Committee Turning to Corporate Governance: has the German Government Commission s Code been implemented in your Company? This is not a new topic for us. After all, back in 1999 as the MDAX representative on the German Panel on Corporate Governance we played an active role in the preparatory work on extending German corporate governance and aligning it with the interests of shareholders. The Government Commission s new German Corporate Governance Code, which came into effect at the end of 2002 and which we expressly welcome, was the next logical step in this process. We only had to slightly augment our own existing Corporate Governance Principles to meet the Code s recommendations. Our Principles were approved by the Executive Committee and the Supervisory Board in December The key components of these Principles and our declaration of conformity are described in more detail in a separate section of this Annual Report. What are your expectations for 2003? I am skeptical as to whether there will be an appreciable recovery in the global economy in the course of We are not, therefore, expecting a significant pickup in demand from our customer industries. However, our accelerated restructuring and cost-cutting programs will positively affect results, and we are aiming to break even at SGL Technologies. Overall, we want to see a clear improvement in our profit from operations as compared to However, our main goal in 2003 is to continue reducing debt. What can shareholders expect from SGL Carbon in 2003? There s no question that most shareholders were extremely disappointed by stock exchange performance in 2002: financial markets the world over were in crisis, some share prices fell into an abyss from which they have yet to emerge, and billions of euros of assets were destroyed. SGL Carbon s shares were also hit by this trend. On top of this, damaging market rumors put pressure on our shares as well. However, thanks to the refinancing package and our positive outlook for the next years, we believe that our share price has the potential to recover. Our stable financial situation will pay off for our customers and employees, too. Our customers can continue to count on SGL Carbon as a sound partner, and we will remain a reliable employer for our staff. In this context, I would like to thank all our stakeholders for the successful cooperation in fiscal 2002 and for the trust they continue to put in our Company.» Our main goal in 2003 is to continue reducing debt. «

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10 Company Goals 2002/ Company Goals and Status 2002 Group Cash flow Goal: Significant increase Status: 135 million increase in free cash flow Comment: Reduction of investments and working capital Working capital Goal: Reduction by more than 5% Status: Reduction by 30% Comment: Significant inventory reduction Net debt Goal: Reduction by more than 5% Status: Reduction by 19% Comment: Higher cash flow for debt repayment Established Businesses CG, GS, CP CG and GS organization Goal: Streamlining of organization Status: Transformation of CG and GS into global business units reporting directly to members of the Executive Committee Comment: Adjustment of organizational structures to match globalization by customers and competitors; streamlining of management levels Restructuring CG and GS Goal: Reduction of costs by 22 million Status: Reduction of costs by 30 million Comment: Closure of four locations in the US, further specialization of production sites SGL Technologies Business Area Goal: Reduction of losses by 50% Status: Reduction of losses by 65% Comment: Significant cost reductions and increases in sales revenue in all businesses New products Goal: Alliances/joint ventures Status: Alliances intensified Comment: Increased cooperation with automotive manufacturers in the brake disc business Composites Goal: Expansion of aerospace business Status: Strengthening of the defense business in the US Comment: Additional business from new projects and orders Fibers Goal: Increase in sales revenue Status: Increase in sales revenue of 21% Comment: Higher demand for fibers

11 Company Goals 2002/ Company Goals 2003 Group 2003 Profit from operations Goal: Substantial improvement Comment: Lower cost base and slight increase in volumes and prices Net debt Goal: Further reduction of debt Comment: Higher profit from operations and limited investment volume SGL Excellence Goal: Contribution to earnings of 10 million Comment: Rollout of SIX SIGMA projects throughout the entire Company to ensure continuous improvement Established Businesses CG, GS, CP Profit from operations Goal: Increase in all businesses Comment: Continuation of the restructuring programs at CG and GS; increase in sales revenue Prices Goal: Increase for graphite electrodes Comment: Price increase of /ton in the course of the year compared to prices in Q4/2002. SGL Technologies Business Area Goal: To further reduce losses and nearly break even in profit from operations Comment: Increase in sales revenue of around 10% and further cost cuts New products Goal: Business expansion Comment: Increase in productivity and winning new customers for the brake disc business. Innovations in expanded graphite. Composites Goal: Expansion of aerospace business Comment: New orders in US (HITCO) and establishment of European business. Strategic review of smaller products. Increase in sales revenue in excess of 15%. Fibers Goal: To expand the product range Comment: Development of new applications. Examination of joint venture opportunities.

12 SGL Excellence 8 SGL Excellence SGL Excellence is a program which aims to create a corporate culture of continuous improvement. Our employees are at the heart of this process. At the beginning of 2002, SGL Carbon launched its Group-wide improvement initiative called SGL Excellence, which is based on three pillars: People Excellence promotes improvements in human resources by developing existing talent and retaining excellent employees within the Company on a long-term basis. Operational Excellence optimizes operational functions by cutting costs, improving productivity and performance and reducing current assets. COMMERCIAL EXCELLENCE SGL EXCELLENCE OPERATIONAL EXCELLENCE Commercial Excellence brings improvement in the administrative sector, for example, in logistics, in portfolio management, in pricing or in competitive analyses. PEOPLE EXCELLENCE The SIX SIGMA methodology SGL Excellence uses the proven SIX SIGMA methodology. This uses clear goals, detailed measurement and analysis of existing workflows, and the implementation and monitoring of improvements to achieve the sustained optimization of Company processes. Results after one year Before SIX SIGMA could be implemented successfully, the infrastructure for it had to be put into place within the Company. SIX SIGMA is based on the successful deployment of highly-motivated employees who are trained in the special methodology and its application via external training courses. After one year, 212 employees have been trained, including a total of 38 so-called Black Belts. These are project leaders who are relieved of their existing responsibilities and after completing a four-week training course, implement three to four improvement projects a year with different teams. In addition, SGL Carbon currently boasts three Master Black Belts. These coach the project teams, coordinate all SIX SIGMA projects within the Company, and train team members.

13 SGL Excellence 9 In 2002, increasing cash flow was a priority. This was mainly achieved through projects to reduce inventories and receivables. Targets for 2003 The projects started in 2002 and those for 2003 are expected to produce improvements of 10 million. The systematic application of the SIX SIGMA methodology will lead to further sustained reduction in the cost structure and to an increase in cash flow. In addition, an increasing number of projects will be initiated with the goal of improving customer benefits and customer satisfaction. We will also make our internal processes measurable and focus them on the basics. Improving customer benefits Example: From order to delivery Operational Excellence: Systematic application of the SIX SIGMA methodology in the GS business unit in Bonn allowed the latter to significantly improve the process between incoming order and customer delivery. 30% The use of lean tools such as Kanban (pull production) led to a 30% reduction in work in process (WIP) inventories. 90 % The number of delayed deliveries was reduced by 90%. Commercial Excellence: This project also involved the examination of administrative tasks in order to improve the focus on our customers needs. 35% Workflow improvements enabled a 35% reduction in turnaround times. The application of the SIX SIGMA methodology is the critical success factor in enabling us to improve our competitiveness in the long term.

14 Corporate Governance 10 Corporate Governance SGL Carbon AG s Corporate Governance Principles are intended to guarantee transparent and responsible management and supervision of the Company aimed at increasing its enterprise value. Their purpose is to constantly promote the confidence of our shareholders, business partners and employees, as well as that of the general public. As the MDAX representative on the German Panel on Corporate Governance, we have been actively supporting the preparatory work for more far-reaching, shareholder-oriented corporate governance in Germany since This preparatory work led to the publication of SGL Carbon AG s Corporate Governance Principles. An updated version of these Principles, which were extended to include the recommendations of the Government Commission on the German Corporate Governance Code, was adopted by the Executive Committee and the Supervisory Board at the end of The Principles are intended to make the work of the Executive Committee and the Supervisory Board (and the way in which they interact) more transparent, as well as to define the responsibilities of these bodies more precisely. They can be broken down into the following core elements: 1. Legal basis This provides the general framework for SGL Carbon AG s Articles of Association and Corporate Governance Principles. 2. Principles governing the work of the Executive Committee These include the allocation of responsibilities and cooperation within the Executive Committee, cooperation with the operating units, organizational principles of the Company, duties to supply information, rules for conflicts of interest and own-account transactions, as well as remuneration guidelines. 3. Principles governing the work of the Supervisory Board These cover, in particular, the responsibilities and duties of the Supervisory Board, the adoption of resolutions, rules for conflicts of interest and own-account transactions, as well as attendance at meetings. The Supervisory Board has a Personnel Committee, a Finance and Audit Committee and a Strategy Committee, which gives the Supervisory Board a greater degree of involvement in the development of Company strategy. Each committee s tasks and how they cooperate with the Supervisory Board as a whole are precisely defined. 4. Regulations on the cooperation between the Executive Committee and the Supervisory Board Among other things, these include the principles governing information and communication between the bodies and in the committees as well as the principles governing the preparation of meetings.

15 Corporate Governance Specific guidelines These provide guidelines for communication with the financial markets, preventing insider trading, and SGL Carbon s compliance policy. The latter monitors the special non-disclosure obligations of the members of the Executive Committee and the Supervisory Board as well as observance of the rules governing insider trading and the Global Antitrust Compliance Policy. These guidelines contain an explanation of the legal situation and rules of conduct for SGL Carbon s Executive Committee, Supervisory Board and employees, which are communicated regularly in special training courses. SGL Carbon AG s Corporate Governance Principles comply with the recommendations of the Government Commission on the German Corporate Governance Code with the following exceptions: SGL Carbon AG s Articles of Association provide for fixed compensation for members of the Supervisory Board as well as additional compensation for committee work. We believe that these regulations are suited to our Company and we will therefore retain them for the foreseeable future. The D&O insurance policy taken out by the Company for the Executive Committee and the Supervisory Board does not include a deductible. We are in agreement with the Supervisory Board that a deductible is not a suitable method of improving responsible conduct by the Executive Committee and the Supervisory Board. Furthermore, such deductibles are not customary abroad. As a sign of their agreement and personal commitment, all of the members of SGL Carbon AG s Executive Committee and Supervisory Board have signed the Corporate Governance Principles. The Principles will be amended as necessary in the future to reflect further developments in legislation, recommendations and actual practice.» The purpose of the Corporate Governance Principles is to promote the confidence of our shareholders, business partners and employees as well as that of the general public. «

16 12 Group Management Report Economic environment As expected, the global economy did not recover in The economic and geopolitical effects of September 11, 2001 on an already weak economy and the increasing threat of war in the Middle East further impacted the global economy. This development affected most of our customer industries and led, among other things, to reduced investment activity in key sectors such as the chemical industry and mechanical and plant engineering. Demand also continued to decline in the electronics industry and in the semiconductors market. In contrast, the steel industry almost matched 2001 production levels for the full year, despite the difficult economic environment and bankruptcies among US steel producers. The protective tariffs imposed on US steel imports since March 2002 led to a reduction in supply. This resulted in price increases on the American market, which had a follow-on effect in Europe and Asia. Business developments within the Group Consolidated sales revenue down on previous year At 1,112 million, consolidated sales revenue was down 10% year-on-year. The encouraging business developments at SGL Technologies were unable to offset the slump in the price of graphite electrodes and the downturn in key customer industries for our established businesses. This affected the breakdown of sales revenue from our Business Areas: while the proportion of business accounted for by Carbon and Graphite [CG] fell from 51% to 50% and that of Graphite Specialties [GS] from 20% to 18%, the share attributable to SGL Technologies [T] increased to 13% (previous year: 10%). Corrosion Protection [CP] remained unchanged at 19%. Changes in the regional sales revenue breakdown were minimal: there was a slight decline in the share of sales revenue attributable to Germany, at 19% (previous year: 20%), and North America, at 25% (previous year: 26%), whereas the rest of Europe and the remaining world rose to 34% (previous year: 33%) and to 22% (previous year: 21%), respectively. Consolidated sales revenue ( m) Sales revenue by Business Area 1,500 CG: 50% 1,000 GS: 18% CP: 19% T: 13%

17 Group Management Report 13 Gross profit down on previous year Gross profit amounted to 226 million, 23% below the previous year, and the gross return on sales fell from 24% to 20%. This development is mainly due to the drop in the price of graphite electrodes, the reduction of inventory levels (which partly affected earnings), and the economic slump in the customer industries for our GS and CP businesses. We were able to prevent a further drop in the gross return on sales with our restructuring program in CG and GS, which was approved at the end of The cost-cutting measures developed better than expected, contributing to lower cost of sales than in the previous year. At 139 million, selling expenses were down 10% on the previous year s figure ( 154 million). We were also able to significantly reduce research and development costs in the period under review by 18% to 25 million ( 31 million). General and administrative expenses were cut by 10 million to 48 million. At 15 million, net other operating income and expenses increased by around 5 million from the previous year. Drag on earnings due to weak economy, provisions and special factors The profit from operations before costs relating to antitrust proceedings and restructuring expenses fell from 59 million in the previous year to 29 million. In addition to lower sales mainly in GS and CP and the deterioration in prices of graphite electrodes, two special factors are primarily attributable to this: Firstly, although the planned reduction in inventory levels at CG and GS led to an improvement in cash flow, it also resulted in a further decrease in capacity utilization, and, in turn, to lower absorption of our fixed costs. This affected earnings by approximately 18 million. Secondly, although the restructuring measures introduced in CG substantially improved our cost position, this led to a lower valuation of inventories (and resulting charge) at the end of the year. As part of its investigation of the graphite industry for anti-competitive behavior between 1992 and 1997, which has been ongoing since 1997, the European Commission imposed a fine of 28 million on SGL Carbon AG in December 2002 with regard to its Graphite Specialties activities. We Sales revenue by region Origin Sales revenue by region Destination North America: 24% Germany: 37% Rest of Europe: 38% Remaining World: 1% North America: 25% Germany: 19% Rest of Europe: 34% Remaining World: 22%

18 Group Management Report 14 do not believe this fine to be justified and will lodge an appeal against the decision with the European Court. However, in order to cover any possible risks, we have increased the existing antitrust provision by 22 million as a precautionary measure. In addition to the restructuring program for CG and GS in North America, which was resolved at the end of 2001, we identified further cost-cutting potential in 2002 and took immediate action. Restructuring measures in the European CP and GS businesses that were implemented ahead of schedule led to 287 additional positions being eliminated. These actions resulted in a one-time charge on profit from operations of approximately 8 million. The consolidated loss from operations including costs relating to antitrust proceedings and restructuring expenses therefore amounted to 2 million in the year under review (previous year: 17 million). Net financing costs almost halved in comparison to previous year In fiscal year 2002, net financing costs were reduced by 23 million to 25 million. Due to lower interest rates and the reduction of our net debt, net interest expense on loans fell to 25 million (previous year: 26 million). At 10 million, the interest component of additions to pension provisions remained almost unchanged. The translation at the balance sheet date of our US antitrust liabilities into euros led to a positive non-cash exchange rate effect of around 4 million (previous year: 5 million) due to the weakness of the US dollar.this effect also contains the market valuation of the derivative financial instruments used to hedge currency risks relating to our US antitrust liabilities, which are denominated in dollars. The rescheduling of the US antitrust authorities payment plan and the related non-cash accrued interest on dollar liabilities due between 2003 and 2007 also made a positive contribution of 3 million to the net financing costs (previous year: 3 million). Net loss after taxes improves The tax income for the fiscal year was the result of the recognition of tax loss carryforwards. These exceeded the tax liabilities resulting from the positive earnings in foreign companies which could not be offset against loss carryforwards generated by other companies. As in the previous year, we did not recognize deferred tax assets on the losses incurred in the US and in Great Britain. In 2002, the addition to the provision for antitrust risks was treated as a non-tax deductible expense for consolidated reporting purposes. If both of these effects had been taken into account, the net loss after taxes for 2002 would have been reduced by an additional approximately 19 million. In fiscal year 2002, the net loss improved to 24 million (previous year: 95 million). Earnings per share amounted to 1.08 (previous year: 4.42).

19 Group Management Report 15 Restructuring of CG and GS implemented successfully The restructuring and cost-cutting program designed to reorganize and further improve the efficiency of our global graphite business, which was approved at the end of 2001, is developing better than expected. Specialization at the CG production sites is well underway. We have reduced our headcount by 482 and improved the efficiency of production processes, which has resulted in a sustained reduction in production costs. US feedstock production in the GS Business Area has been consolidated further. Our highest-cost site, Niagara Falls, was closed in order to improve capacity utilization at our Morganton site. We consolidated further processing and finishing in St. Mary s by closing our Dallas and Hillsboro sites. In addition to the rationalization effects, these measures resulted in an additional elimination of 115 positions. Our restructuring program allowed us to realize cost savings of 30 million in 2002, 8 million more than originally expected. We also anticipate further cost savings to be made in the coming year. Business developments Carbon and Graphite [CG]: Results affected by price pressure and restructuring At 551 million, CG sales revenue in fiscal 2002 was down 11% on the previous year. In the first quarter in particular, the slump in the steel industry in Japan and North America and the inventory reduction in Europe had an effect. The steel industry recovered slowly over the rest of the year, but could not make up for the slump at the beginning of the year. Sales volumes of graphite electrodes fell by 2% to 173,000 tons. The average price of graphite electrodes dropped by 16% to 2,248 per ton in the reporting period. This development was mainly due to existing overcapacity. Profit from operations ( m) Profit from operations by Business Area ( m) Change (%) , CG GS CP T Corporate costs Group HGB (German Commercial Code) 2 before costs relating to antitrust proceedings and restructuring expenses 1 before restructuring expenses

20 Group Management Report 16 Due to continuing strong demand from the aluminum industry, sales revenue from cathodes was up 21% to 91 million. Furnace lining sales revenue, on the other hand, remained unchanged at 14 million. We were also able to increase sales revenue from carbon electrodes for silicon production by 11% to 42 million. Profit from operations fell in fiscal year 2002 to 52 million (previous year: 79 million). The cost savings only partly offset lower prices for graphite electrodes in Europe and North America. The reduced production costs from our restructuring program resulted in a one-time non-cash impairment loss of 6 million related to the valuation of inventory at the end of the year. In addition, the reduction in inventory levels to improve cash flow and the lower cost coverage due to the decline in sales revenue affected profit from operations by 6 million. Graphite Specialties [GS]: Profit from operations impacted by inventory reduction and declining demand As a consequence of the ongoing economic weakness in our customer industries (semiconductors, chemicals, and mechanical and plant engineering), sales revenue declined by 15% to 196 million. This affected all product areas with the exception of mechanical carbons. In addition to weak sales, the planned reduction in inventory levels affected earnings by 12 million, due to the high level of internal value added and associated high fixed costs portions. At 2 million, profit from operations before restructuring measures was down 20 million year-on-year. The cost savings of around 7 million from the restructuring program were unable to offset these negative effects. Additional restructuring measures in Europe, which were accelerated from 2003, resulted in the reduction of 91 positions and impacted earnings by 5 million. This resulted in a loss from operations of 3 million after restructuring measures. Corrosion Protection [CP]: Economic downturn leads to low capacity utilization CP sales revenue fell by 10% to 212 million in the year under review. This was mainly caused by the reluctance of our key customer industries to invest, an overall drop in maintenance and repair expenditures, as well as the postponement of orders by our customers in the chemical, energy and environmental industries. This development influenced all product areas. It also led us to accelerate additional structural adjustments originally planned for the coming years to fiscal In the course of these restructuring measures, a total of 196 positions were eliminated at our two German sites in Siershahn and Bornum, as well as in Houston (USA) and at various other sites. The costs involved amounted to around 4 million in the year under review. At 5 million, the profit from operations before restructuring expenses was down from last year s level ( 13 million), as the ongoing rationalization measures could not fully compensate for the decline in capacity utilization. This led to a profit from operations after restructuring expenses of 1 million in 2002.

21 Group Management Report 17 SGL Technologies [T]: Loss reduction exceeds expectations In the fiscal year under review, sales revenue by SGL Technologies increased by 11% to 150 million. The defense business of our US subsidiary HITCO developed particularly encouragingly: sales revenue increased by 15%. We were also able to increase sales volumes of oxidized carbon fibers for the aircraft industry and composites for the automotive industry. With a loss from operations of 12 million, we managed to reduce the loss recorded last year ( 34 million) by more than our original target of 50%. The start-up costs incurred in the commencement of our full-scale production of carbon-ceramic brake discs, underutilization of our fiber facilities and expenses relating to the further development of both fuel cell components and the defense business still affected results. However, we have been able to substantially reduce the losses in these areas. Balance sheet structure Total assets at the end of 2002 amounted to 1,286 million, down from the prior year-end by 209 million, of which 89 million is due to exchange rate effects. The main reasons for the 84 million decline in noncurrent assets were foreign currency translation effects ( 50 million) and depreciation and amortization in excess of capital expenditures by 27 million. We substantially reduced our working capital (net carrying amounts of inventories and trade receivables less trade payables); the 30% drop to 385 million (previous year: 549 million) is mainly due to the targeted reduction of inventories ( 106 million) as well as to a drop in receivables ( 54 million). As a result of these measures, we were able to reduce our net financial liabilities by 100 million, or 19%, to 427 million. Our gearing the ratio of net financial liabilities to equity rose slightly to 2.2 (previous year: 2.1). Equity declined from 255 million to 196 million, mainly due to exchange rate effects, as well as costs relating to antitrust proceedings and restructuring expenses. As a result, the equity ratio fell to 15% (previous year: 17%). Balance sheet structure (%) Noncurrent assets Equity Provisions Inventories Net financial liabilities Receivables, other Other liabilities Total assets ( m) 01 1, , , ,286

22 Group Management Report 18 Liquidity and capital resources Debt down substantially, refinancing arrangements concluded successfully In the year under review, we further reduced our net financial liabilities (financial liabilities less cash and cash equivalents) by 100 million from 527 million to 427 million. The key measures included a significant reduction in working capital, planned cut-backs in capital expenditures in property, plant and equipment ( 41 million against 91 million in 2001) and lower antitrust payments as a result of the rescheduling of the payment plan agreed with the US antitrust authorities in the first quarter of At the end of the fiscal year, sales of receivables had reached 41 million (end of 2001: 11 million). Cash provided by operating activities after adjustment for exchange rate effects increased to 139 million, compared with 56 million in the last fiscal year. At the same time, we increased our free cash flow (cash provided by operating activities minus cash used in investing activities) by 135 million, to 98 million. This indicates that the reduction in net financial liabilities was funded primarily from operations. In December 2002, we concluded a comprehensive financing package of firm loan commitments amounting to 510 million. The syndicated loan has a term of two and a half years and was secured at normal market conditions. Together with the existing 134 million convertible bond, this covers SGL Carbon s entire financial liabilities, including the antitrust fines. The loan has been granted subject to the condition that the Group complies with standard bank covenants, such as the ratio of net debt to EBITDA and EBITDA to interest expense. The syndicated loan provides a solid basis for the Group s medium-term financing requirements. Profit from operations before depreciation and amortization (EBITDA) and before antitrust risks and restructuring expenses amounted to 110 million, down roughly 35 million year-on-year. At 242 million in total, our established businesses continued to generate strongly positive cash Income statement, summary ( m) Sales revenue 1,112 1,233 Costs of sales Gross profit Selling/administration/general expenses Profit from operations Costs relating to antitrust proceedings and restructuring expenses Net financing costs Loss before tax Income tax benefit/expense 3 29 Net loss for the period 24 95

23 19 flows before restructuring expenses (and before capital spending). SGL Technologies net financing requirements fell to 3 million, down 35 million from last year s level. In fiscal year 2002, the cash used in financing activities related to the repayment of loans and hence to the reduction of our net financial liabilities. Investments and depreciation Investments down by more than half Following the sharp rise in the previous year, capital expenditures in property, plant and equipment fell by 55% to 41 million, approximately 30 million lower than depreciation. 55% of these investments were attributable to CG, 13% to GS, 8% to CP and 24% to SGL T. Capital expenditures in property, plant and equipment were primarily for replacement and maintenance purposes. As planned, investments at SGL T fell substantially following the conclusion of the comprehensive investment program undertaken in recent years. Investments in 2003 to match previous year Having completed our investments at SGL T for the time being, we expect Group capital expenditures in 2003 to remain at last year s level, again around 30 million lower than depreciation. Research and development As part of our restructuring program, we improved the efficiency of our research and development activities and cut expenditure in this area by 18% year-on-year to 25 million. CG: Electrodes demonstrate high mechanical strain tolerance Intensive research and development allows us to constantly improve the product qualities of our graphite electrodes. For example, we were able to significantly reduce the risk of material breakage, which can occur when electrodes are subject to extreme mechanical strain. This improved mechanical strain tolerance gives our graphite electrodes a considerable competitive advantage. Capital expenditures in property, plant and equipment ( m) R&D expenditure ( m) CG GS 6 13 CP 2 5 T 9 26 Other 1 2 Group CG 8 9 GS 5 7 CP 2 2 T 9 9 Other 1 4 Group 25 31

24 20 GS: New material reduces customers production costs We developed a new material for isostatically-molded graphites and successfully introduced it onto the market. This material is already being used extensively in the continuous casting of metals and in the semiconductor industry. We have also developed a new crucible material for the semiconductor industry, which is helping to considerably reduce our customers production costs for wafer manufacture. CP: Efficient bonded tube system for chemical plants In its CP Business Area, SGL Carbon developed a special new bonded tube system that can be used in place of metals. These lightweight plastic tube systems are chemical-resistant, vacuumtight and more cost-effective than existing systems. Polymer floor prevents static charging We developed a polymer base with high chemical resistance that can be used by the electronics industry to prevent static charges building up. This helps to substantially reduce the failure rate of electronic components as a result of undesired electric discharges. SGL T: Expanded graphite for latent heat storage systems Adding expanded graphite to latent heat storage systems increases their thermal conductivity substantially, allowing smaller heat storage systems to be designed. At the same time, expanded graphite is opening up new applications in the areas of automobile air conditioning, home heating technology, and a variety of industrial processes. Injection-molded bipolar plates for fuel cells New developments in injection molding technology mean that graphite bipolar plates for fuel cells can now be manufactured economically in large quantities. The low-cost production of fuel cell components (bipolar plates and gas diffusion layers) by SGL T is a key contribution to the commercialization of fuel cells. These cells offer promising future prospects for both mobile and stationary applications.

25 Group Management Report 21 Environmental protection, health and safety Total expenditures on environmental protection, health and safety in the workplace and risk prevention in the period under review amounted to 25 million. Of this figure, 6 million was invested in new installations and measures relating to technical environmental protection installations, while ongoing operating costs amounted to 19 million. Expenditures on health and safety in the workplace and technical risk prevention amounted to 3 million. We pressed ahead with our systematic industrial and occupational safety measures. Days lost and the number of accidents both increased slightly year-on-year. However, the low number of accidents at SGL Carbon compared with the industry average is proof of our continuing high safety standards. Despite the strained economic situation, we are continuing to implement specific measures aimed at achieving a sustained improvement in environmental protection, health and safety in the workplace, and risk prevention. In 2002, our environmental protection activities focused on the installation of three state-of-the-art waste gas combustion plants in Italy and Germany. We also installed a solid-waste recycling plant in Germany with the aim of reducing pollution, improving efficiency and cutting our energy requirements. Work accidents and days lost Reducing pollution in the Group (%) Accidents per 200,000 hours worked Environmental index (1995 = 100%) Days lost per 200,000 hours worked Safety performance index 21,542 12,164 3,561 4, Waste recycling Hazardous waste Water Air

26 Group Management Report 22 Risk report Our risk management system (RMS) comprises a series of distinct but interlinked planning, monitoring and information systems. These cover all areas of the Company, and are continuously adapted to reflect changes in conditions. The RMS is based on an integrated planning process, value-oriented key figure systems and control reports. The operating units and central service departments are responsible for identifying the respective key risks for the entire medium-term planning period, for determining their financial impact and initial probability of occurrence, and for suggesting measures to be taken. As part of the target-setting meetings between the Executive Committee and the operating units and central service departments, the key risks are examined and countermeasures are agreed and introduced. A rolling evaluation of the likelihood of key risks occurring takes place on a quarterly basis; any new risks which may have arisen are identified, and countermeasures are examined by the responsible operating units and service departments. Individual risks are aggregated by Corporate Financial Controlling on a quarterly basis or ad hoc as required, and discussed at meetings of the Executive Committee. For its part, the Executive Committee informs the Supervisory Board about risk development and risk management at regular intervals. In addition, the Internal Audit department examines all components of the risk management system at appropriate intervals in its role as a unit independent of these processes. The areas of responsibility for risk management are set out in Group guidelines. Operational risks We believe that the main operational risks for 2003 stem from the ongoing weakness of the global economy, particularly with regard to its impact on price and volume development. Other operational risks relate to higher than anticipated raw materials, energy, and personnel costs. All of our businesses, and especially our growth businesses, are subject to technological development risks. The market may grow at a slower rate than anticipated, and planned cost reductions may not occur. These factors are monitored on an ongoing basis within the businesses and via quarterly reports produced for the Executive Committee, which provide details of material variances. Financial risks Financial risks primarily relate to the syndicated loan which was obtained at the end of December Non-compliance with the agreed covenants could result in the suspension of this agreement, and a short-term extension of these coverage ratios would then have to be negotiated with the banks. This could lead to additional costs or, in the case of repeated instances, to the termination of the credit lines. We are countering this risk with a tough liquidity policy, plus rolling liquidity and financial planning based on the earnings and cash flow estimates provided by the operating units, which are updated on an ongoing basis. Our existing credit facilities, which include the syndicated loan, the convertible bond and local credit lines, cover the Group s foreseeable financing requirements.

27 Group Management Report 23 We are also exposed to financial risks in the form of changes in interest and exchange rates, which we hedge using derivative financial instruments. Risk minimization is the overriding principle for all of the activities we undertake involving derivative financial instruments, which are employed exclusively for hedging purposes. The trading and monitoring functions are kept separate, and we also perform regular risk appraisals and independent audits in this area. Risks arising from antitrust proceedings The antitrust proceedings in the US and Canada have been concluded. Our appeal to the European Court of First Instance against the fine imposed by the European Commission in July 2001 with regard to graphite electrodes is still pending. We will be filing an appeal with the European Court soon against the fine imposed with regard to specialty graphites in December The outcome of these proceedings remains uncertain at present. Events after the balance sheet date All shares in SGL PanTrac GmbH were sold and transferred in January Outlook for 2003 Only moderate recovery of global economy expected We do not expect the global economy to recover significantly in Slow economic growth in the US and economic recovery in Japan will be offset by a merely sluggish recovery in Europe. However, these forecasts carry high economic risks. We expect investment demand in our customer industries, chemicals and semiconductor technology, to pick up only as the year progresses. In the steel industry, we are forecasting steady development for the year as a whole. Nonetheless, we expect the Group s results to improve significantly year-on-year, reflecting the positive effects from our cost reduction actions, higher graphite electrode prices and a further substantial increase in the result of SGL Technologies. CG: Stable demand Demand from the steel industry in the US, Europe and Asia is likely to lead to higher sales volumes of graphite electrodes and cathodes in 2003 as a whole. The ongoing consolidation in the graphite electrode industry should lead to a further reduction in capacity, and hence a shortage in supply. In light of these developments, we believe that we will be able to successfully implement our already announced price increases for graphite electrodes. Pressing ahead with our restructuring program will also allow us to further improve our cost position. Consequently, we are forecasting a substantial increase in earnings.

28 Group Management Report 24 GS: No significant economic recovery In the course of the year 2003, we are not anticipating a significant economic recovery in our customer industries (chemicals, furnace construction and metallurgy). However, we expect the order situation in North America to improve. Reorganization, cost reduction measures and the strategic reorientation of GS are likely to result in a substantial increase in earnings. CP: Customer industries reluctant to invest With regard to our CP business, we are not forecasting any notable economic recovery for the current fiscal year. Economic behavior in our key industries, and in particular chemicals and plant engineering, is still characterized by a marked reluctance to spend money on maintenance and investment. However, our ongoing restructuring and cost reduction measures and the large order placed by an Australian magnesium producer should more than offset this development. For this reason, we expect the profit from operations to increase substantially in fiscal year 2003, although sales revenue growth will be only moderate. SGL T: Further reduction in losses For 2003 as a whole, we are forecasting a further increase in sales revenue from our carbon fibers and carbon-ceramic brake discs, as well as from the defense business operated by our US subsidiary HITCO. Lower manufacturing costs for carbon fibers and carbon-ceramic brake discs will further reduce the loss from operations. Our goal is to almost break even for the year as a whole. Liquidity and capital resources The new financial framework provided by our refinancing package will provide us with sufficient funds in the course of the year to cover peaks in demand. Our adherence to the Group coverage ratios set by the banks is guaranteed by the expected reduction in the loss from operations and the renewed restriction of investment volumes in 2003.

29 Group Management Report 25 Annual financial statements of SGL Carbon AG (condensed)* Balance Sheet Dec. 31, Dec. 31, m ASSETS Intangible assets/property, plant and equipment Noncurrent financial assets Noncurrent assets Receivables and other assets Cash, marketable securities, prepaid expenses 1 0 Current assets Total assets EQUITY AND LIABILITIES Equity Provisions and special tax-allowable reserves Financial liabilities Other liabilities Total equity and liabilities * according to HGB German Commercial Code Income Statement m Net investment income Result of ordinary activities Taxes 2 8 Net loss for the year 0 9 Unappropriated surplus/accumulated deficit 9 9 Our annual report contains statements on future developments that are based on currently available information and that involve risks and uncertainties that could lead to actual results deviating from these forward-looking statements. These risks and uncertainties include, for example, unforeseeable changes in political, economic and business conditions, particularly in the area of electrosteel production, the competitive situation, interest rate and currency developments, technological developments and other risks and unanticipated circumstances. We see other risks in price developments, unexpected developments relating to acquired and consolidated companies, ongoing restructuring measures and unforeseeable occurrences in conjunction with the reviews to be performed by the European antitrust authorities. SGL Carbon does not intend to update these forward-looking statements.

30 Carbon and Graphite CG GS CP T Our electric steel production has become more cost-efficient. Thanks to the 800 mm graphite electrode developed with SGL Carbon, we can produce more steel in less time. [Ulrich Eggers, Managing Director of Salzgitter AG s Peine steelworks, Peine, Germany]

31 High-voltage steel recycling. Salzgitter AG s modern melting furnace is equipped with SGL Carbon s new, high-performance 800 mm graphite electrodes. An innovation that kills two birds with one stone, enabling the development of improved melting furnaces and making them more productive at the same time. This reduces costs.

32 Carbon and Graphite CG 28 Carbon and Graphite [CG] SGL Carbon is a leading provider of carbon and graphite. Graphite electrodes, which are used in electric arc furnaces to produce electrosteel, are our most important products in the CG business. We also produce carbon electrodes and cathodes for use in metallurgy and in the aluminum industry. Our furnace linings are used in the production of pig iron. Mid-year turnaround The recession in CG s markets continued to affect business development through mid The import duties imposed by the US government led to a recovery in the American steel industry in the second half of the year. Demand also picked up in the Asian and European markets, particularly in the area of specialty steels. Successful restructuring In order to keep up with our customers increasing globalization and the intensified competitive environment, we implemented a restructuring and cost-cutting program designed to reorganize and further improve the efficiency of our global graphite business at the end of 2001 already. Specialization of CG production sites is well underway, and we reduced headcount by one-fifth while improving the efficiency of our production processes. These restructuring efforts have resulted in a permanent reduction of our cost base. Decrease in sales revenue and earnings CG sales revenue totaled 551 million, a decrease of 11% compared with the prior year. Demand recovered substantially during the year and remained almost unchanged, as global sales volumes Key figures CG ( m) Change (%) Sales revenue Profit from operations before depreciation and amortization Profit from operations Return on sales (in %) Capital expenditures Depreciation and amortization Research and development Employees (Dec. 31) 3,041 3, before restructuring expenses 2 based on profit from operations before restructuring expenses

33 Carbon and Graphite CG 29 amounted to 173,000 tons in 2002 in contrast to 175,000 tons in the prior year. However, prices continued to decline our average price for graphite electrodes was 2,248/ton, a decline of 16% on the prior year. Profit from operations totaled 52 million, down 34%. This result reflected not only the drop in prices but also a one-time charge of 6 million due to the revaluation of inventories at significantly reduced production costs. 800 mm graphite electrode proves a major success In 2001, we launched the world s first 800 mm graphite electrode on the market. A major success, this electrode offers a 20% improvement in our customers efficiency by enabling increased productivity and reduced energy consumption. Together with further quality improvements to our graphite electrodes, this gives us an important competitive advantage that our customers appreciate. Our joint venture with the Japanese graphite electrode manufacturer TOKAI in Shanghai is developing according to plan. This alliance provides SGL Carbon with improved access to the Chinese steel market, the largest and fastest-growing steel market in the world. The global trend towards graphitized cathodes is continuing uninterruptedly. We were able to further increase our market share for this important component of aluminum smelting furnaces. We also strengthened our position as the global number 1 in the market for carbon electrodes for silicon and phosphorous production. 2003: Signs of recovery Given the cyclical nature of our markets, we expect increased sales volumes in Our order book is already well filled and indicates sustained high utilization of our production capacities. At the beginning of February 2003 we announced a price increase for graphite electrodes. We expect the graphite industry to continue its consolidation, which could lead to a further reduction in global production capacities. Sales revenue by Business Line Sales revenue by quarter ( m) Profit from operations by quarter ( m) Graphite Electrodes: 403m (73%) Carbon Products (Carbon Electrodes, Cathodes, Furnace Linings): 148m (27%) 50 0 I. II. III. IV I. II. III. IV before restructuring expenses

34 Graphite Specialties CG GS CP T As Europe s largest manufacturer of silicon wafers for solar cells, we rely on SGL Carbon s ultrapure graphites, which are tailor-made to meet our technological demands. [Dr. Armin Müller, Head of Production Crystallization and R&D, Deutsche Solar AG, Freiberg, Germany]

35 The sun is an inexhaustible source of energy. In order to use it, high-performance solar cells, which are produced using Deutsche Solar AG s silicon wafers, are required. Graphite is a key component in the manufacture of these wafers. SGL Carbon produces ultrapure graphites that are tailored to customers needs.

36 Graphite Specialties GS 32 Graphite Specialties [GS] SGL Carbon is a leading provider of graphite specialties and is the only company in the world to have mastered every manufacturing process. This enables us to provide a broad range of different applications and industries with graphite materials and system solutions. Continuing economic slump in key industries The Graphite Specialties Business Area was hit particularly hard by the continuing economic slump in almost all of its target sectors such as the semiconductor and chemical industries as well as mechanical and plant engineering and the resulting decline in the number of incoming orders. Poor demand in these areas could not be fully offset by other successful businesses. Inventory reductions affect earnings At 196 million, sales revenue was down 15% on the previous year. Despite comprehensive cost-cutting measures, the operating result before restructuring expenses fell by 20 million to 2 million. The focus of our working capital management was on the reduction of inventory. Along with lower capacity utilization at our plants and restructuring measures in Europe that were implemented ahead of schedule, this affected earnings in the year under review. The sustained cost cuts from the restructuring program that was approved at the end of 2001 were unable to offset this completely. Global focus of the organization At the beginning of the year under review, we reorganized the GS business. A new internal structure, organized by function, will allow us to better meet the challenges posed by rapid Key figures GS ( m) Change (%) Sales revenue Profit from operations before depreciation and amortization Profit from operations Return on sales 2 (in %) 1 10 Capital expenditures Depreciation and amortization Research and development Employees (Dec. 31) 1,476 1, before restructuring expenses 2 based on profit from operations before restructuring expenses 3 before write-downs

37 Graphite Specialties GS 33 changes at both customers and competitors. In addition, we are reviewing all of our business processes in detail with the goal of simplifying, standardizing, modernizing and accelerating them. The Six Sigma approach used in the SGL Excellence initiative has been successfully introduced in all areas. The savings already realized in the first year are proof of success. New developments reduce customers production costs We successfully introduced a new material for isostatically-molded graphites onto the market. This material is already being used extensively in the continuous casting of metals and in the semiconductor industry, where it is helping to lower our customers production costs considerably. We have also developed a new crucible material for the semiconductor industry, which allows wafers to be manufactured at lower cost. This is what we mean by creating value for our customers. Upswing in alternative energies We were able to expand our position in the relatively new market for solar technology at a level substantially in excess of market growth (approx. 20% per year). We are a major supplier of equipment for the manufacture of solar cells and offer a wide range of graphite products used to line silicon crucibles and furnaces. Restructuring measures will bear fruit in 2003 Although we do not expect our customer industries to pick up to any great extent, the restructuring program that we introduced at the end of 2001 will play a key role in compensating the ongoing decline in demand in fiscal year This should lead to a moderate improvement in our profit from operations. With the sale of SGL PanTrac GmbH, Berlin, at the beginning of 2003, we took our first step toward a complete withdrawal from the manufacture of electrical contacts. We have identified additional cost-cutting potential and are confident that we will be able to further improve our position in the US, in Europe and Asia. Sales revenue by Business Line Sales revenue by quarter ( m) Profit from operations by quarter ( m) 1 Technical Applications: 100m (51%) I. II. III. IV. I. II. III. IV. Other: 16m (8%) before restructuring expenses Mechanical Carbons: 23m (12%) Semiconductor Materials: 32m (16%) Electrical Contacts: 25m (13%)

38 Corrosion Protection CG GS CP T

39 One-stop services. The demand for system solutions is rising. SGL Carbon is the only company in the world to offer a complete range of industrial corrosion protection services in one package. For example, we supplied a system of coordinated corrosion-resistant materials and equipment, including the entire process development stage, for the construction of ECI Elektro-Chemie GmbH s two new gas and acid synthesis units. We produce basic and hydrochemicals. When it comes to corrosion protection, we rely on SGL Carbon s system solutions, since these save us time and reduce our development costs. [Dr. Jürgen Baune, Managing Director, ECI Elektro-Chemie GmbH, Bitterfeld, Germany]

40 Corrosion Protection CP 36 Corrosion Protection [CP] SGL Carbon is the only manufacturer worldwide with a complete range of products and services for industrial corrosion protection. The consistent implementation of our systems approach in the form of a full-service package to the customer is just as important to our success as the ongoing development of our product and service portfolio, with its strong focus on the needs of our customers. Order postponements due to economic downturn In light of the ongoing crisis in the global economy, our customers in the chemical, energy and environmental sectors continued their cautious policy on investment and maintenance expenditures. Numerous planned major projects were postponed or cancelled. These developments particularly hit our surface protection business. At 212 million, sales revenue of Corrosion Protection was down 10% year-on-year. Reduction in staff affects profits Our current rationalization measures are having the desired effect. In the year under review, we reduced costs and brought forward measures that were originally planned for The related headcount reduction costs we reduced the number of employees by around 9% in total decreased profits by 4 million. This contributed to a profit from operations before restructuring expenses of 5 million, which is down 8 million from last year s figure. Key figures CP (Mio. ) Change (%) Sales revenue Profit from operations before depreciation and amortization Profit from operations Return on sales (in %) Capital expenditures Depreciation and amortization Research and development Employees (Dec. 31) 2,034 2, before restructuring expenses 2 based on profit from operations before restructuring expenses

41 Corrosion Protection CP 37 New development in the production of bonded plastic tubes Our plastic applications business has developed a completely new bonded tube system made of fiberglass-reinforced plastic lined with a modified PTFE material. This new system will allow the operators of chemical plants that are subject to corrosive usage to address new applications not previously possible with conventional bonded plastic tube systems. Focus on China In spite of the ailing economy, the surface protection business of our Chinese subsidiary reported a substantial increase in the number of incoming orders. We want to expand our activities in China and in Asia in general in fiscal Major contract for Australian magnesium project We acquired a major new customer in our international activities. The order involves the construction of key segments of a planned large-scale production plant for the Australian Magnesium Corporation. With a volume of 27 million by 2004, this is the largest contract in the history of our Corrosion Protection business. The contract from Australia is testimony to SGL Carbon s strong position in the group of globally leading competitors in the industrial corrosion protection sector. Better results expected In fiscal 2003 we will continue to implement our systems approach in the international markets. We expect efficiency to be improved and costs reduced further in the course of our SGL Excellence projects. Due to the continued reluctance of our customers to spend money on investment and maintenance, we expect sales revenue to increase only moderately. However, our restructuring and cost-cutting measures, as well as the substantial Australian order, should result in a noticeable improvement in operating profit. Sales revenue by Business Line Sales revenue by quarter ( m) Profit from operations by quarter ( m) Surface Protection: 132m (62%) Process Technology: 80m (38%) 20 0 I. II. III. IV. 0 4 I. II. III. IV before restructuring expenses

42 SGL Technologies CG GS CP T Boeing awarded us as a key supplier with superior service and outstanding quality. [Dale W. Mizer, Program Management, HITCO Carbon Composites, Inc., Gardena, USA]

43 Airplanes have to be safe. And efficient. Just like the Boeing C-17 Globemaster III military transporter. This aircraft not only transports heavy cargo over long distances, but can also land on short runways. Developed with state-of-the-art technology. The tail cone on the rear of the C-17 is manufactured using an innovative carbon composite. Supplied by HITCO Carbon Composites Inc., a US subsidiary of SGL Carbon AG, which has been commended by Boeing for top quality and safety.