SGL Carbon SE (OTCPK:SGLFF) Q4 2021 Earnings Conference Call March 23, 2022 9:00 AM ET
Company Participants
Claudia Kellert – Head, Capital Markets & Communications
Torsten Derr – Chairman & CEO
Thomas Dippold – CFO
Conference Call Participants
Lars Vom-Cleff – Deutsche Bank
Andreas Heine – Stifel, Nicolaus & Company
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the SGL Carbon Conference Call Year-end Results 2021. [Operator Instructions].
I would now like to turn the conference over to Claudia Kellert. Please go ahead.
Claudia Kellert
Thank you. Good morning, and welcome to our conference call about the business developments and the financials of the past year 2021. Furthermore, we will give you an outlook on the financials 2022 and our expectations for the further developments of our operations, and of course, on the possible impact of the terrible war in Ukraine.
On behalf of SGL Carbon, our CEO, Torsten Derr; and our CFO, Thomas Dippold, will present the financials and the outlook today and will answer your questions after the presentation.
Now I can hand over to Torsten Derr.
Torsten Derr
Yes. Good morning, everyone. I have fantastic figures to report. Last year went pretty well, and our sales is above €1 billion. This is a plus of 9.5%. Our EBITDA developed even better. We are at the upper end of our guidance and we have €140 million EBITDA pre to report, which is a plus of 50.9% or plus €47.2 million.
Our equity ratio is now at 27%. As we reported last time, it was at 17.5%, and Thomas will elaborate on this a little bit more later on. And this gives us much more resilience. Our financial debt is down now at €206.3 million. You know the basis of our whole operation last year was our restructuring program, and we are full on track. We are even ahead of track.
We are able, because the price elasticity is pretty high, to increase prices and to forward most of the energy exposure and raw material exposure we have. And especially helpful was the LED market, which runs pretty well, and semiconductors.
We are hardly affected by the chip shortage in our Automotive segment because we serve the more expensive part of the automotive sector and this was hardly affected by chip shortage in 2021.
So everyone is talking about the war in Ukraine. And of course, we also did our mitigation measures, which we will elaborate later on. Our guidance for the next year sales on this year level EBITDA pre between €110 million and €130 million.
With this, I would like to hand over to my colleague, our CFO, Thomas Dippold.
Thomas Dippold
Yes. Thank you, Torsten. It’s my honor and my privilege to guide you through the full year figures 2021. And we can summarize it, we have achieved our increased guidance for many, many, many years. SGL has, for the first time, increased the guidance on the 13th of July with €1 billion in sales and €130 million to €140 million in EBITDA pre, and this is exactly what we have delivered.
On this slide, Slide 5, for those who can’t see it on the screen, but have a printout from our website, you see a 2-year comparison — or 3 years comparison from ’19 to ’21 and you see the sharp decline in our top line from 2019 to 2020 by over 15% coming or resulting from the COVID impact but also from the loss of the GAM business, the graphite anode material business, which we had still in 2019 with a Japanese customer. And since then, we recorded almost in double-digit growth rates to €1.07 billion in this particular year that we are just reporting.
Our EBITDA pre grew even higher. We lost 22% from ’19 to ’20, coming down from €120 million to €93 million and now showing €140 million straight, which is exactly the upper end of our given guidance.
This also result comes in line with a very strong free cash flow of €111 million, another 18% up compared to the year before. And this then contributes to the strong decline in our net debt, which we could lower by 28% from €287 million to €206 million.
And if you translate it into a leverage ratio, which we report, then the leverage ratio would have been half coming from 3.1 to 1.5.
So where does the profitability and the sales really come from? On this slide, you see the growth compared to last year. And on the right side, Slide 6, the breakdown per business unit. And then you can see we have 2 strong and big business units being Graphite Solutions and Carbon Fibers; and 2 smaller ones, which — and you remember last year, when we split the former GMS and CFM business unit into 2 pieces. This was a very good decision because everybody contributed and improved with a clear focus to dedicated markets and the distinct management behind it.
So when we look at where does the sales growth come from, this roughly €80 million that we report, then Graphite Solutions contribute the most being also the biggest business unit that we have at €36 million, followed by one of the smaller business units being Composite Solutions, which grew by almost 40%, up €33.9 million and followed by Carbon Fibers business unit with a strong sales growth there as well with €33 million.
All this contributed to strong sales. The profitability mix where we really put our focus on profitable business and profitable growth contributed very much together with the savings from the transformation and restructuring program, which Torsten already pointed out, contributed to a profitability increase of over 50% from €93 million to €140 million.
Then we’re having a look at the business units themselves, Graphite Solutions, Slide 7. The main contributor to the strong sales growth of 8% is the Semiconductor & LED business. This is also a very profitable business that we have there, and the margins are comparably high in the — anyway, a very strong or very profitable business unit at Graphite Solutions.
Automotive business and Chemicals were also supportive and followed with this growth rate slightly below that. Industrial business had a very — well, sluggish first half, but recovering in H2 of ’21.
All this contributed together with the savings very much to the strong EBITDA improvement of almost 40% coming from €63 million up to €88 million in 2021.
When we look at Process Technology, then we see a rather flat development in our sales figures. They remained at €88 million top line. However, that contributed a lot with the savings and the internal realignment of the structures that they could increase the EBITDA pre on this level by almost 40% and now reaching €4.7 million.
We’re still not happy with that development, there’s a lot more where we can improve. But still, this is an important step into the right direction. We have a lower utilization. We are fighting with increasing raw material costs. However, this all could be overcompensated with cost-saving initiatives.
On the next slide, you see our Carbon Fibers business. There we see a very strong development in the top line and an even more remarkable development in the bottom line. Our sales went up by 11% and now reaching €337 million, and this comes from a demand from almost all market segments. The strongest of it is automotive, where we have the contract, the take-or-pay contract, which you’re all aware of, which is anyway expiring end of June this year, but it contributed very much to the sales of last year. And this rising demand and being fully sold out, we cannot even serve the demand that we see from the wind industry, which will anyway be the successor of the Automotive business in the second half of the year.
Our EBITDA pre went up by €13 million, now reaching €54 million. And this strong improvement, this €13 million increase, can be halved into 2 pieces. One is the result contribution from our joint venture with Brembo with the BSCCB where we sell a carbon ceramic brake disk, they improved by €6 million. And the other €7 million come from operational performances, price increases and cost savings and higher utilization.
Last but not least, from all the operating business units, maybe the one with the most remarkable development. Our Composite Solution business unit shows a very strong growth, which is mainly driven by automotive orders and contracts, which we could work on in 2021. Our top line developed by 38% and now reaching €122.5 million. And you see that leaf springs project and also battery case projects being made out of composite materials really boosted the sales. And we made sure that this is in large scale or serial production and not just in a manual production application how we do it.
And this really boosted our bottom line very much where we could improve by almost €17 million coming from roughly minus €5 million and now reaching plus €12 million, a remarkable development given the size of the business unit.
Last but not least, you see our Corporate business unit, where we sum up all the corporate functions and corporate services, which we incorporate. Our sales went down almost by half. And this is not a bad development because we don’t want to do sales in corporate for anybody else. We would rather be an internal service provider and just distribute our internal cost to the business units and contribute to their strong development.
However, in the past, we had quite remarkable sales also in our corporate development coming from services to partners, to Showa Denko, you know that, and others. But also we received quite a bit of rental income. We’d rather now sell the unused land and make use of the liquidity, which we could gain in these markets and development. And therefore, sales went down by €15 million.
And this also hit our bottom line by minus €9 million, which we deteriorated there, now having minus €19 million as an EBITDA pre there.
But when you look at the difference between that, that also shows that our corporate cost, despite an increase in our top line by 9.5%, as Torsten pointed out, we could reduce our corporate cost by €6 million, which is exactly the difference between top line development and the bottom line.
When we look at the structure or the more bottom line in the P&L and also how the balance sheet main KPIs developed, I think this is something we are very proud of when we see these key figures here.
We have reached a net result. So the very, very bottom line of €75.4 million. You see that on Slide 12, coming from a disastrous minus €132 million in the year before, which was highly affected by the impairment of our Carbon Fibers business of, in total, €106 million, which we incorporated there. This is a very strong development and half of it comes from one-off effects, but the other half is really our operative performance. And this is a first positive net result that we have achieved since 3 years.
Our free cash flow, which was strong already also in last year with a few one-off effects, even improved further to €111 million, coming from a very strong operative cash flow. Investing cash flow is even negative — or only slightly negative because there are also the land sales and the dividend from our joint venture came in. Our net financial debt could be brought down by this development by almost 30% and now totaling €206 million.
As Torsten already pointed out, our equity ratio improved by almost 10 full percentage point to 27%. This is due to the strong performance in our profitability, but also due to some effects where we adjusted our pension scheme, we can maybe elaborate a little bit further in the Q&A session.
And with that, keeping the capital employed on a constant level of roughly €1 billion despite the growth of 10%, our ROCE could improve to 8% coming from 1.8% in the year before.
Maybe as a kind of a transition to help you a little bit with the nonrecurring and one-off effects that we had in last year, we have added this Slide 13, where we try to reconcile a little bit between reported EBIT and EBITDA pre.
When you look at the columns, EBITDA pre, we have roughly €60 million in depreciation and amortization and this year only depreciation, then our EBIT pre is accordingly roughly €80 million. And in that, there are €40 million nonoperating one-off items, which you could see on the right side.
We have sold land in the United States, but also in our site in Meitingen, some pieces which we could easily sell and we made roughly €20 million out of it. Then we added a capital option that our pensioners when they go to their retirement age they can choose. In the past, they only had a pension — a lifelong pension. Now they can choose for a capital option that they can take a one-off payment. And this helped our profitability, the bottom line, but also the equity with another €18 million.
And then we also got some insurance proceeds from damages, which we had the year before. These were the one-offs, which are not directly attributable to our operative performance totaling €40.7 million. And we have a purchase price allocation and restructuring efforts expenses of €10 million. And this adds up to an EBIT reported of €110 million.
And with that, I can summarize this chapter with our figures for 2021. And we are very happy and we are really proud of our 4,800 employees who really worked hard and contributed that everybody can see that we have achieved what we said. We’ve adjusted our targets during the year. Our initial guidance, which we gave under a COVID situation, was €920 million to €970 million and we increased it at half year to €1 billion, and we reached €1.07 billion. So this is really a perfect fit.
And also in EBITDA pre, in 2020, we reached €93 million, then we aimed for €100 million to €120 million in our initial guidance that we gave exactly 1 year ago. Then we added it up to €130 million to €140 million, and we exactly reached the upper end. This is really a very strong development for SGL in 2021.
And with that, I hand over to Torsten, who will guide you a little bit through the efforts and the progress we’ve made in the restructuring program, which is the next chapter.
Torsten Derr
Yes, Thomas, thank you. With our transformation program, we are fully on track or even ahead of track. And you know, as Thomas and me started at SGL Carbon in 2020, we directly started with a transformation program of our company and every business unit, every country and also Corporate was affected.
In total, we defined 700 initiatives, and you can see 85% of the 700 initiatives are completed. We promised you to reduce our cost by more than €100 million, and we already overachieved this target. We are right now, as we talk, at €120 million savings. And we also promised you head count reduction, more than 500 people. And today, as we talk, we realized 115% of it. So also overachieved this. Currently, we are at roughly 600 people, which were reduced during the transformation.
Our operational challenges, which we see, are manageable. But the geopolitics, and I mean the Ukrainian war, are very difficult to predict and I will guide you through the challenges which we are facing.
On the left-hand side, you see our raw material costs. And as an example, we put 2 core raw materials, pitch and coke, which are our core raw materials for the production of graphite. And you can see, especially in Q4 and also in Q1 the year prices are increasing. But so far, we managed to achieve availability and we can produce full out in every unit.
We benefit here, especially for our key raw materials, pitch, coke and also acrylonitrile from long-term contracts where we concluded — or where we define supply security and also very competitive prices.
The price elasticity towards our customers is pretty good. And currently, we are able to pass on most of the raw material price increases to our customers.
Second is the transportation and the logistics. And we have depicted here the container price index, and you can see that the container price exploded from around $2,000 per container to $9,500 and it seems to be stable on that level. And due to the Ukrainian war, there was also a secondary effect, the — our transportation from Europe to China and backwards, we use the Trans-Siberian Railway. This is now blocked. But fortunately, we found enough container space to use this as an alternative for the Trans-Siberian Railway. So prices increasing and still on a very high level, but manageable.
What concerns me most is the natural gas price. And here, we have shown you 2 natural gas prices, one for Europe, which is highly volatile and increased pretty much. And you can also see in light grade the U.S. gas prices. And approximately 30% to 40% of our operation is located in U.S. and there we benefit from pretty stable and low natural gas prices.
I will show you in the next slide what we did to handle the European volatility. You can see here our exposure in the 2 energy source, which is natural gas and electricity. And Thomas and me decided to secure the energy and to secure the prices. And as we talk, 84% of our natural gas exposure worldwide is hedged. So we secured availability and we secured the prices.
And for electricity, 83% is hedged. And every day, we close more and more countries. Yesterday, we closed our exposure and in France because — why have we decided to go this way? Our order entry is fantastic. We are fully booked out and we can run at capacity. So our duty is to secure the production, and this is why we hedged 85% of the energy and secured our production. And all this is included in our guidance for this year and in our figures.
Next slide, please. Here you can see the drivers. And I already said this, we have a very strong demand in all market segments. Every business unit — every of our 4 business units is running at capacity and our order books are full. In one of the business units, we even went into sales control because we had too many orders and had to select the best one.
The growth drivers are semiconductors and also renewable energy. And we also have interesting orders coming from automotive, and this guarantees our sales for 5 to 6 years.
The price elasticity is pretty high, and the price — the cost increases, which we see from logistics, from energy and also from raw materials we can pass on to our customers. And what really helps is our transformation program. This is giving us resilience.
So coming to the right side of the slide, raw material prices and availability. We have multiple sources for all our core raw materials and we think this secures for the time being our production.
Energy price development is still very volatile and the prices are high, but we decided to mitigate it by hedging 85%. So we secured availability of energy and also the price.
And just — I repeat it that you know the BMW i3 contract, which is pretty important for our Carbon Fiber business expires by mid of this year, but we already find mitigation also for this. We are shifting the capacity into Wind Energy and the demand in Wind Energy is so high that we cannot satisfy all the orders, which are coming into our books.
So mitigation on all 3 major risks. What we cannot control are geopolitics. So if there are secondary effects on our customer side, for example, in automotive, where we have no indication so far, this is not included; and also a slowdown of our global economy. But — prior to this meeting, we talked to our largest customers and all confirmed their orders, which we have in our books right now.
Here you can see the effect in sales. We guide you for the sales on the sales around €1 billion on prior year’s level.
And including the Ukrainian war effect and all the energy hedging and the effects where we secured our raw materials will lead to an EBITDA pre between €110 million and €130 million.
Good news is that our midterm planning remains unchanged. We are pretty bullish on what we see on the customer side and our sales went up from ’20 to ’21 by 9.5%, we already reached the €1 billion area. And we will increase our top line in a range between €1.2 billion and €1.3 billion in 2025.
In the same time frame, we will further improve our EBITDA pre margin from today’s 11% to 13% to 15% to 18%. So we confirm both our top line growth plan, and we are also going to improve our profitability.
On the next slide, I’m going to repeat the key messages. So 2021 was really fantastic, and it was above Thomas and my expectation and I think also above your expectations.
The BMW i3 contract runs out by mid of this year, this is planned. And we will find a very, very good substitute in Wind Energy. This market is booming right now, and we cannot satisfy the demand which is coming from our customers.
The prices for raw materials, energy and transport are high, but we can pass on most of the price increases to our customers, and we have secured everything which is important for our production.
Of course, there are still uncertainties. Maybe our customers slow down. We have no indication right now in our books. And best is the midterm outlook is unchanged, and we are still bullish with our business.
With this, I would like to conclude my remarks and hand over to Claudia.
Claudia Kellert
Yes. Thank you. Now we can start with the Q&A session. Johan, maybe you can explain the handling once more. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions]. First question is from Lars Vom-Cleff from Deutsche Bank AG.
Lars Vom-Cleff
I’ve got three, and if you agree, would ask them one by one. I still struggle to understand your flat sales guidance. I mean you say that you are able to pass on most of the input price inflation, which tells me you’re able to increase prices. You’re saying that you expect to benefit from a further increase in demand in almost all market segments. But nevertheless, you’re guiding for flat revenue. Maybe you could help me understand that a little bit better.
Thomas Dippold
Yes, Lars. This is Thomas Dippold. Well, you are right. The demand is high. However, and this is — we have to make is very clear. We are losing the BMW i3 contract, which is not just very profitable in the bottom line, but also price-wise in the top line. And therefore, with all the — and this also affects the top line then accordingly in the second half of the year.
And the prices are definitely not so high, even if they’re increasingly attractive in the wind market, we cannot fully compensate that. And this hits the bottom line but also affects the top line. And with all the uncertainty that we have around that and the capacity constraints, which Torsten pointed out that in many businesses we are coming to the capacity limits, especially where we have this high profitability business, and we need to expand our capacity accordingly, which we are planning to invest further on.
This is why we give you a rather maybe conservative outlook considering our top line.
Lars Vom-Cleff
Understood. And then I mean the spread between European and U.S. gas prices has become enormous as we can also see on your chart. Is it easy for you to shift production to the U.S.? Are you relatively flexible with that? Or does the current European production have to stay in Europe and is hit by the European gas price?
Torsten Derr
Thanks for this question, Lars. No, we will stay at our current set of sites. We have 29 production sites. And I think we have 9 production sites in the U.S. And fortunately, the high-energy consuming sites are in the U.S. For example, our site in Moses Lake, where we buy hydropowered energy between $0.02 and $0.03 per kilowatt-hour, which is a fantastic price for green energy.
But you cannot shift the heavy assets, which we are operating and the setup will stay as it is, and we have to keep our chains intact, which are sometimes from Europe to U.S. and back. Hope this answers your question.
Lars Vom-Cleff
It does indeed. And then a last one, if I may. I understand it’s very, very difficult to predict how business year ’22 could look like. But would you be able to break down your guidance a bit more? And could you maybe share 1 or 2 sentences per division on your guidance, what you’re expecting for the various divisions?
Thomas Dippold
Yes. This is what we can do for sure. I mean in Graphite Solutions, we expect a moderate increase of our top line and a further improvement of our profitability. This is what we can see. Price is only a slight increase in our top line because we’re coming to the capacity limits, as I just pointed out. In our Process Technology, we see a further increase in demand, at least from the chemical industry. And therefore, we see some growth there, at least our order book reflects that. And also EBITDA pre, as I pointed out that we are maybe not 100% happy with the current profitability of this business unit, we expect to see also some further increases there.
In Carbon Fiber, our sales look rather flat. But flat means it can also slightly go down and we do expect that because of the impact that I just mentioned with the first question with the expiry of this take-or-pay contract. And therefore, also our profitability will be hit significantly, especially in this business unit, which is also the most business, which is affected by the energy prices by far. And last but not least, in our Composite Solutions business, we’re also coming to capacity limits there. All the projects, which we set up in 2021 are now fully up and running. And therefore, our sales can only maybe stay flat or even a slight increase that we see there. And the profitability has really come to a level, which is totally fair for Automotive business, so we don’t see a further relative improvement of our EBITDA pre in our Composite Solutions.
I hope this helps to understand a little bit how we see 2022 per business unit.
Torsten Derr
Maybe, Thomas, let me add a little bit. I would like to talk about price increases. And Lars, what we see right now I have not experienced in my career. From last year to this year, we see an energy price increase, I think, of 78%. Some of our raw materials are just doubling. So we have to knock on the door of our customers. And we are very successful in passing on these price increases in raws, in transportation and in energy, which we haven’t seen so far. But we are pretty successful in doing this. But just to pass a doubling on raw materials on to the customer, I tell you, it’s not an easy challenge.
Operator
[Operator Instructions]. Next question, it’s from the line of Andreas Heine from Stifel.
Andreas Heine
Yes. I would like to dig in a little bit more in these what you said on the outlook by segment. I would basically in trends had come to the same conclusion what you’ve just mentioned. But going then into the numbers, it means that the Carbon Fiber has really an issue because if 3 divisions are increasing in earnings, only 1 declining and that one is where you consolidate Brembo where I would assume that earnings will not decline, then there is basically nothing left if I go to the lower end. Then excluding Brembo, then the core — the Carbon Fiber is at very thin margins. Maybe you can elaborate on this a little bit more.
And as you have mentioned it several times that you are working at capacity, what does it mean for your CapEx program? My understanding is that you still work on improving the mix, so not necessarily going for larger upstream investments. But how can you adjust and align the capacities, especially in the fast-growing areas in Composite Solutions and Semi & LED in graphite fibers.
One — then I go back to the line, but I have more questions. You were quite successful in selling nonoperating assets. And in the first 3 quarters, I asked about that’s all or whether there is more to come and you said there a little bit would come. Maybe you can expand a little bit what your plans are in selling noncore assets in your segments?
Thomas Dippold
Yes, Andreas, you are right. I can maybe catch up with that point again and what we may not forget. You are completely right. Graphite Solutions is operating at the capacity limits, at least in many of the markets and businesses that we’re having, and therefore, we see a slight increase. But this slight means really slight. And it’s the same in Composite Solutions. And in Process Technology being the smallest of the current business units, a significant increase is still — can still be only a single-digit million top line figure that we see there.
And we may not forget, and this is probably something which I didn’t mention in the question of Lars at least, we also have a business called — a business unit called Corporate. And as we want to purely concentrate on being an internal service provider and not having external sales, which are also reflected in the top line, you can expect also a further decrease our top line in the business unit, Corporate, accordingly. And if you sum up everything together, we say it’s a rather flat development in our top line. That’s maybe the only comment that I can add on to this.
And when we are talking about the BSCCB JVs, it’s an equity joint venture, which is not affecting our top line. So you may be right, and we don’t see any problems in our joint venture with BSCCB and we expect same profitability contribution there. But just as a reminder, it’s not reflected in the top line, only in the result.
Andreas Heine
I was more referring to the earnings.
Thomas Dippold
Yes, yes, yes. Right. In the earnings, you are right. And therefore, still it’s a significant decrease and significant means larger than 10%.
Andreas Heine
In Carbon Fibers?
Thomas Dippold
In Carbon Fibers, yes. Yes.
Andreas Heine
What about in all these segments [indiscernible], I don’t know how much it means, maybe a couple of million will not be too much. And if you look at, let’s say, from what you delivered in 2021 to take the worst case, which is €110 million to 130 million. And if I look on what you have delivered in Carbon Fibers and I extract the equity business, which is run by Brembo of €60 million and 3 of the segments might increase earnings, as you have outlined, then Carbon Fiber, despite the fact being working at capacity has quite some issue on the margin side.
Set all that aside, which is a heavy loss-making or how can you explain the weak profitability of Carbon Fibers you expect for 2022?
Thomas Dippold
It’s mainly the energy that we are having, and you said that. Our site in Portugal is very much driven by gas and the gas prices, which is in Europe and the gas prices really hiked as Torsten pointed out to some peaks. And we have hedged that on a what we think reasonable level, but it’s definitely a level where we can produce. And I think this is the most important as this is the beginning of the value chain of our internal value chain where we produce a precursor. We want — and other fibers and materials, we want to secure our production on a level where we can profitably produce.
For sure, not as profitable as it was when the gas prices were down at €10 to €20 per megawatt-hour, but definitely on a level where we say this is something which we can pass on to the customers and this is something where we can produce. And this is exactly what we hedged. But this is definitely an impact, and this is also reflected in our guidance which we give.
Torsten Derr
Andreas, I would like to answer your second question. You talked about growth limitation and our CapEx program, and this is pretty simple. So most of our CapEx is going into our business unit, Graphite Solutions. And there, we are benefiting from the semicon market. We receive very positive feedback from our customers and also customer commitments for investments. And this we support with the major share of our CapEx.
In the Carbon Fibers, the story is different. We are not investing in capacity expansion. But you know we are operating an acrylic fiber plant in Lavradio, and we are selling acrylic fibers and also produce in Lavradio in Portugal precursor, which is the basis for our Carbon Fiber chain. And there, we have a lot of room to optimize everything and to shift acrylic fiber capacity into the Carbon Fiber chain and improve our margin without capacity expansions.
Capacity expansions we are planning right now at the end of the time frame we are planning 2025, where we plan to enter the aerospace market. And there, we will do something in Moses Lake and also in Lavradio. We also changed the head of the business unit 1.5 years ago, and he brings businesses to the table, which are much more profitable than the businesses we had before. And I think we will have quite some fun with Carbon Fibers in the future.
Thomas Dippold
And then, Andreas, your last question on nonoperating assets. Yes, we plan to continue with that. We are in talks with potential interested parties. We still have a few businesses that were some idle land, which has been used in the past, which we are about to sell. But it’s too early to give you an update on that, but we’re working on that.
Operator
There are no further questions at this time, and I would like to hand back to Claudia Kellert for closing comments. Please go ahead.
Claudia Kellert
So thank you. So if there are no further questioners, so if you have a question then right now or later you can ask the IR team. Then we see an additional question from Lars.
Operator
Okay. We have 1 more question from — a follow-up question from Lars Vom-Cleff from Deutsche Bank.
Lars Vom-Cleff
I’m sure Andreas will also have some follow-up questions. I just was curious to hear a bit more about your new idea to enter the aerospace sector again. I mean, last time, please correct me if I’m wrong, it wasn’t that successful. Could you talk a bit more about what you’re planning there? And why it should be more successful this time?
Torsten Derr
I think last time, as we communicated on this, we planned development JV together with Solvay. This is not anymore the case. It’s more a buy or sell business where we produce special carbon fiber, which can be used — which can be used in aerospace. But to enter aerospace business is always a long-term exercise and we will have fun with this starting 2025, 2026 and at the end of the decade. But we made very big promises and we will further comment on this in our Q1 session, which is in May, I guess.
Operator
We have another follow-up question from the line of Andreas Heine from Stifel.
Andreas Heine
Yes. Maybe you can talk a little bit about Q1, t’s almost over. So is Q1 progressing in line with what your guidance is? Or what I’ve seen from other companies is that they basically prepare for a very good first half and do not extrapolate this into the second half, meaning that most of the companies reporting are over delivering in the first quarter and have some cautiousness then for how the year progresses. That might be similar at your end?
And one thing on the free cash generation. If you look at the low end of your guidance, the €110 million, and — that you — with all the price increases might see an additional need in net working capital. This is still fair to assume that even at the lower end of the €110 million, you would have a positive free cash flow.
Thomas Dippold
Well, coming to the last question, this Is easy to answer. Yes, this is our clear target. We, of course, want to have a positive free cash flow. This is what we are working on and this is exactly how we manage the businesses, full stop.
Coming to your first question, I mean, we anyway have this kind of seasonality as we pointed out because the expiry of the i3 contract, which is exactly at half year, so the first 6 months, we still have this i3 contract and afterwards, we don’t. And this is the case.
What we can say, and we don’t want to give too much of a kind of a sneak preview of Q1, let’s see how much now really closes. And up to now, we were just working heavily on finishing 2021 until yesterday with the Supervisory Board meeting. We started really okay into the new year.
But again, give us the patience or please be patient for another 5 weeks and then we report beginning of May on the Q1, how it looks like. And then we can maybe elaborate a little bit further, then we see how much the development in Ukraine has progressed and what the visibility of Q2 and also subsequently for the second half of the year is how successful we can be with price increases with the customer, as Torsten was pointing out. So far, our guidance is €110 million to €130 million. And again, we will have this question I’m quite sure on beginning of May when we present our Q1 figures.
Operator
We have another follow-up question from Lars Vom-Cleff from Deutsche Bank.
Lars Vom-Cleff
I had just received a question from, Harvey Tiomali, an investor that is listening to our webcast and he’s interested in learning more about your cash use with your currently very high cash balance. Maybe you could tell us a bit more what you’re planning with your cash and how you would like to invest that?
Thomas Dippold
Well, when you look at our cash position, then you also have to look at our debt position. It’s not that we have an RCF — where we have an RCF in place, but it’s completely undrawn. And the way we are financed so far is via — through capital market financing instruments.
One is a convertible and one is a bond and the convertible expires September ’23, which is in 1.5 years. So enough time to look at that. And the current status, if you look at the annual report, it runs with €150 million or €151 million to be precise. And the bond is €250 million, which expires exactly 1 year later.
And what we have there, I mean, we cannot make use of the cash in total and just invest the money and do something else. And then we run into refinancing issues and then our balance sheet structure looks as it is.
So far, what we’re trying to do, we safeguard the cash that we have and maintain it on the level, which is also — gives you a lot of security and confidence that we maintain our cash position as it is. What we try to invest, as Andreas and also Lars were pointing out, we try to achieve a positive free cash flow to show that we can run the business in a profitable manner.
And we don’t invest monies, which we don’t make. This is maybe the most guiding principle that SGL is having in the nearer path. And we first have to make the money and then we can spend it, and this is a clear position that we have. And when we spend it only in profitable businesses, which we hopefully know and expand existing ones rather than going deep dives into some new adventures. where we — what we have never done before in some businesses, which we maybe are dependent on 1 sole customer. And this is the guidance and the principles we follow there.
So we are very precautious with our CapEx. We are very precautious with our cash flow. And we would rather safeguard the cash that we have for good sake and then refinancing shouldn’t be a problem.
Operator
There are no further questions at this time, and I would like to hand back to Claudia Kellert for any closing comments. Please go ahead.
Claudia Kellert
Yes. Thank you. Thanks for your participation in our call today. And if you have further questions, do not hesitate to contact Jürgen Reck or myself. We are pleased to answer additional questions also from Lars and Andreas. Thanks so much, and have a sunny afternoon. Thank you. Goodbye.
Operator
Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.
Be the first to comment