SGL Carbon SE

XETRA:SGL

Earnings Call Transcript 2022-Q3

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome to the SGL Carbon Conference Call on the 9 Months Results 2022. [Operator Instructions] I would now like to turn the conference over to Claudia Kellert. Please go ahead, madam.

[Claudia Kellert, executive]

Thank you. Hello everyone, and welcome to our conference call about the business development and the financials of SGL Carbon in the first 9 months 2022. On behalf of SGL team, our CEO, Torsten Derr; our CFO, Thomas Dippold; accounting, controlling and the IR department are participating. We want to present the financials and the outlook on the presentation, and I'll answer your questions after the presentation. I will hand over to Torsten Derr.

[Torsten Derr, executive]

Yes, Claudia. Thank you very much. Good afternoon to everyone. I'm Torsten there, the CEO of SGL Carbon and our business model has proven to be resilient in the first 9 months. Our sales growth accounted for 14.8%. And EBITDA even is in a plus of 25.4%. So you can see we are still following our margin above volume strategy. And with this, we confirm our guidance, which we have raised some weeks ago with sales on a level of EUR 1.2 billion for the full year and EBITDA pre between EUR 170 million and EUR 119 million. The business was successful and all of our 4 business units have delivered to this higher profitability and have supported our growth.

We have pretty strong pricing power and good forward almost all of the raw material price increases and the energy price increases. And yes, we filled our capacity and also capacity utilization supported our bottom line improvement. Our markets are strong, and we couldn't manage our energy challenges so far very successfully. Our focus is on growth markets, and we will talk about this later on in this talk, which is, for example, semiconductors, renewable energies and e-mobility. And this helped us to have this stable and good figures.

With this opening statement, I would like to hand over to our CFO, Thomas Dippold.

[Thomas Dippold, executive]

Yes. Hello, everybody. Also a warm welcome from my side. This is Thomas Dippold, CFO of SGL Carbon. And I have the honor and the pleasure to guide you through our development of the first 9 months of this FY. On Slide #5, if you just follow it some print out, you can see the overall profitability throughout the course of the year for the first 9 months of 2022. And as Torsten has already highlighted, we were very successful in growing our top line.

Our sales reached EUR 853.9 million, which is EUR 110 million more or almost 15% more than at the same time last year where we reached EUR 743.5 million. So you see it's really a quite remarkable step into the right direction as we are growing. And apparently, our markets that we serve are fairly attractive and successful. If we exclude the translation effects from currency effects, which is mainly the strong USD, then our sales would grow by 11.3 million, instead of the 14.8 billion, which is still a double-digit growth rate, and we're very proud of that. When you look at the sales split, then it stays roughly the same. It's hardly any changes compared to the same period last year.

As Torsten has pointed out, our EBITDA grew by EUR 28 million. So we're reaching now EUR 136.1 million in our EBITDA pre figure compared to EUR 108.5 million for the first 9 months of the last FY. Again, if we deduct the currency effects in the profitability increase, it would still be far higher than our sales development. Currency adjusted, our EBITDA pre grew by 17.9%, which is a fantastic development, and we like that very much. So where does it come from?

The key developments Torsten has already pointed out, it's mainly very attractive business that are growing and apparently, the demand from that is very strong. It's mainly semiconductor business for our graphite Solutions business, but also industrial applications, which we see in our carbon fiber business but also especially in Graphite solutions. These markets are growing very strongly, and we serve them very well. And there's also a product mix effect in there, which boosts the margin quite significantly.

In absolute terms, Graphite Solutions is growing the most. It's almost EUR 50 million, where the top line growth in Graphite Solutions, followed by carbon fibers with roughly EUR 25 million compared to last year. Closely followed by Composite Solutions, with EUR 19 million. And last but not least, process technology with almost EUR 15 million. You see all the 4 business units are contributing to the strong sales development.

If you look at it from a relative perspective, then the 2 smallest process technology and also composite solutions are growing the strongest and the large ones like refer solutions and carbon fibers have merely some single-digit or double-digit growth. EBITDA on an operative level is positive in all the 4 business units. Only in carbon fibers, we have the one-off effect with the hedging activities that we conducted in the first quarter with the EUR 9 million. If you exclude that, then all the 4 business units were increasing their bottom line.

On Slide #6, as usual, you see the development of our largest and biggest business unit, which is graphite Solutions. They show a very strong third quarter. And after the first 9 months of this year, they have reached EUR 382.5 million in the top line in sales, which is 15% higher than the EUR 332.7 million, which they have achieved in the first 9 months last year. This is an increase of EUR 50 million or if you take the currency out, especially the U.S. dollar, then it's still 9.4% growth that we see compared to last year. Bottom line, the growth is 24.4%, now reaching EUR 84 million compared to SEK 67.5 million last year, and we could increase the EBITDA margin from 20% to 22%.

This is a very strong achievement that we see there. And where does it come from? In principle, all the markets that graphite Solutions is serving are continuing to grow, especially the semiconductor and LED market is growing with a growth rate of over 40% compared to last year.

And in the semiconductor market, especially the silicon carbide business is growing the strongest. Industrial applications also contribute, but on a far lower level compared to the semiconductor business and especially the silicon carbide systems. And in the bottom line, our guiding KPIs, EBITDA pre, we see with the higher sales and the good product mix as we ship some capacities, especially into the semiconductor business and the high relative capacity utilization.

This is what boosts the profitability. And we were, as Torsten already said, we were fairly successful in passing on all the raw material prices and energy costs to our customers who apparently have a strong demand for the product and are also willing to pay higher prices in order to get it.

Slide #7, Process Technology, our smallest business unit is growing the strongest 24% up in the top line and now reaching EUR 77 million in sales. It's really a strong growth that we see there. Also currency adjusted, it's still higher than 20% growth that we see there. We have a very strong order intake, which we saw beginning of the year or also end of last year and some 6 to 9 months later, it all converts into sales. And this is exactly what we've acquired at that time with a strong sales team and now it materializes also in sales, also a good development.

Book-to-bill ratio is still 1.4% for the first 9 months of the year. So this also indicates that our order book, at least for the next 6 to 9 months is pretty solid. And we think we can continue with that stable development for quite a while. When it comes to profitability, we can clearly show the improvement that we've always been targeting for. We now reached EUR 7.5 million in our EBITDA pre for the first 9 months of the year 2022.

And as you promised, we almost achieved a double-digit margin when you look at the EUR 7.5 million compared to the EUR 77 million there. This is where the business simply should be. It's a niche business for the chemical industry plant building business, and they should achieve a double-digit margin, and we came very close to fine this year. Again, what is driving the good profitability, it's a higher utilization rate. We focus on higher-margin business. And we are also, again, in this project business, a very successful in passing on higher raw material costs to our customers. And especially in the third quarter, we were benefiting from some declining and decreasing steel prices in the last 3 months.

On Slide #8, you can see the development of carbon fibers. In our top line, they grew by almost 10% to EUR 269 million compared to EUR 24.7 million at the same period of time last year. Currency is only 0.5% in there. So it would have been 9.5% growth without any translation effects. And I think as we have to compensate the so-called BMW i3 take-or-pay contracts, which expired end of June, I think we were fairly successful, especially in the third quarter to compensate these capacities with wind business. And with that, we were able to grow the business even further as it was in the first 6 months of the year. We see a high customer demand, especially in the wind and industrial business there, and we can simply sell all the products, all the fibers that we produce into the market. And that also helps us as our production capabilities are fully loaded, and we can sell that into the European Union, but also on a worldwide approach. And last but not least, also in Q2, in the higher finance deliveries, especially to BMW with the i3 contract, we're very supportive in driving the sales.

When we come to the bottom line to the EBITDA prefigure then we see a slight deterioration from 43.8% last year to EUR 42.7 million in this year, which is 2.5% down. But please bear in mind, in the first quarter, we had, as for mentioned, special effect from the hedging of the energy derivatives with EUR 9.2 million, which guaranteed that we could produce on a digestive level through the course of the year. And this was very beneficial for us as we haven't had to shut down any production facilities. We were able to produce and make use of the hedged energy and this helped us very much to run our business.

We have some tailwinds from currently lower prices for our main raw material, which is actual nitrile, which we have to pass on through to our customers only with a time delay. And last but not least, also worthwhile mentioning, which has also contributed into the EBITDA pre figure of carbon fibers, our at equity result from our joint venture that we have with the Italian brake company, Brembo, and the short name for it is a CCB. Their earnings are also in the carbon fiber business, and there are also EUR 2.1 million higher than previous year. So this also contributed quite to that good development.

On slide #9, you see our last operative business unit, which is a composite solution. There, we also see a strong growth, and it's mainly driven by our very strong automotive business there. The sales now reached EUR 111 million, which is a plus of 20.5%, with currency adjusted, it would be 15.3%. And last year, we were below 100, just reaching EUR 92 million. So we see a strong top line development a lot of projects and ramp-ups were started with automotive customers, be it in Europe, be it in North America and also our price initiatives where we want to pass on all the raw materials were also successful.

The customers accepted our request and this also boosted our top line quite significantly. Our bottom line benefited even more. You see there some 62.6% increase coming from EUR 9.1 million last year for the first 9 months of the year and now reaching EUR 14.8 million. This is, of course, a very strong development but you have to bear in mind, and you could see the comment on the right side at the very bottom of this slide.

There is a compensation payment in there, which is a kind of a one-off effect. We have negotiated with one of our OEM automotive customer, a compensation payment for as a kind of a breakup fee for a project, which has been conducted in a proper way, and we received a one-off payment of EUR 3.7 million in the first half of the year. And if you deduct it and just look at the operative performance and the run rate which we have in Composite Solutions, then it would be a little bit above EUR 11 million. This is now the real like-for-like figure that you have to take into consideration. It would still be a good 10% margin, which is not so bad for our automotive business, and we're happy with the development that we see there.

On Slide #10, I would show you how our bottom, bottom line, our net results, but also some balance sheet figure and some ratios look like and how they have developed. This is exactly what Tosha, myself have always promised you that we try to fix not just the P&L, but also the balance sheet. And I think we've been showing some great progress also in that. When you look at our net results, it went up by EUR 28 million, now reaching EUR 70.6 million after 9 months of the year. This is really a remarkable increase coming from EUR 42.6 million at the same period last year. Our equity ratio rose by more than 10%, 10.9% to be precise and now reaching 37.9%. I think this is a very healthy equity ratio that we show there. What is contributing to that, on the one hand side, the strong operative performance. On the other hand, the higher interest rates, which affect the pension provision.

And last but not least, as you know, we have placed a convert beginning of September, and there's also a kind of an equity portion in there that also goes straight into the equity and all the 3, 4 effects contributed the currency, not to forget to the increase of 10.9% coming from 27% to now almost 38%. The net financial debt remained almost stable. It went up by roughly EUR 3 million in order to grow the business as we did it, but also to finance all the working capital that we need in order to secure and to guarantee our growth.

Our leverage ratio the way the banks calculated has reached a very healthy 1.3. It has been at the same period of time or at the year-end 1.5%. And last but not least, our ROCE has reached for the first time since quite a while, 10.3%, and we're also very happy with the development at year-end last year, our ROCE was 8%.

And with that, I would like to hand over back to Torsten, who's trying to tell you a little bit about the outlook, but also the challenges ahead of us.

[Torsten Derr, executive]

Yes. And I would like to talk a little bit about energy. And as you can imagine, currently, no shortage of cars or electricity has hit us. but we used the time to prepare for it. And if you look at our risk exposure, the risk exposure is mainly in Europe. And our biggest gas carrier is our site in Lavradio Portugal, and there we feel pretty safe because Portugal received the natural gas from North Africa, from Algeria and Morocco, and there is plenty of cars, and we don't expect availability problems there.

So if a scarcity should happen, Germany would be affected, where we operate 5 sites in total. There are 3 small sites, Wakastor, Pilige and Limburg. They don't have a huge energy exposure. So the risk falls into our main and large production sites in Bonn and the second in Mitin. And together, we disclosed this figure last time, we have around 100 gigawatts of natural gas demand. We used the time to prepare for it. In one, we'll install propane gas tanks and you will fuel burners to have the option to switch from natural gas to propane. And you can see on the picture on the right-hand side, a picture out of mining.

And this is our nice 1.5 million liter oil tank, and we have already filed this tank completely with oil. And in times of gas scarcity, we could switch from natural gas to oil. And we feel pretty well prepared and we could digest lower gas allocation of 10% to 20% with our preparation is to most of our new sales contracts, we added an energy clause. So if price increases should happen in energy, we could directly forward it to our customers. What we like very much is the announcement after the German government because you see our risk is mainly in our 2 sites in Mitin and in Bonn with a gas price cap and the electricity price cap, we feel pretty well prepared for next year.

So this about energy, I would also like to talk on the next slide a little bit about resilience and our markets. And you can see on the left-hand side, our split into the main markets we deliver in. And we have colored 3 of the markets in petrol colors. This is mobility, which accounts for roughly 30%, energy, 12.4%; and digitization, roughly 16% of the market. And in all of these 3 markets, we see pretty strong growth. And we have depicted on the right-hand side, the main markets we are delivering into. And the most important is electromobility.

And according to our estimates, the EV market is growing with a CAGR of 28%. And our mobility segment with several products will benefit from this. Also, our carbon fibers goes into wind turbine blades, which are reinforced with carbon fibers. And this is driven by the offshore wind energy market, again, a double-digit CAGR of 15%. And we have photovoltaics and this is driven by our business unit graphite solutions. We produce a lot of graphite parts, which are used to produce solar cells. And the photovoltaic market globally is assumed to grow with a CAGR of 8%.

So you see the markets, which drive our growth are growing at very healthy growth rates. At the top right-hand side, you see ZIC semiconductors, and VIC stands for silicon carbide. And this is a new type of semiconductors, which go into power electronics. And I will talk about this a little bit more later on. And this market is growing with 34% CAGR in the next 10 years, and we took these figures from Joel consulting company, which is analyzing the ZIC semiconductor market, and it's the most used source for the growth of this market. And this goes into our digitization field and will also boost top line and bottom line of our business unit, Graphite Solutions. I will come to this later.

On the next slide, I can give you a little hint how we go into the markets, electromobility and these are just a few examples. We are very good in the production of battery cases, an electric truck in the U.S. is delivered exclusively with our battery cases. We have leave springs, which are carbon fiber or glass fiber reinforced spring systems, especially in the EV segment, and we produce brake disc reinforced with carbon fibers. And these are also driven by electro mobility.

And usually, you think you don't need that strong brakes in electro mobility, but they accelerate so fast, and you have to take the acceleration away with breakfast that Island practice will not do the job and this is why our Brakes segment is growing above average. In the Renewable Energy segment, we already talked about solar cells where we produce equipment for. We produce carbon fibers, which go into wind into the blades of wind turbines, and we are among the largest producers of the so-called gas diffusion layers, which is the main component of fuel cell system.

So you see we are pretty well positioned here. In semiconductors, we produce equipment for the production of ships and also for the production of silicon carbide as well as LEDs. We talk about this on the next slide. And we also supply robot companies with carbon fiber. You need, for example; for robot arms, light and reforce parts, and we also supply the aerospace market. So you see strong market, strong products, and this drives our growth.

Now I talk a little bit about silicon carbide, which goes into power electronics. And please look in the pictures in the middle in the silicon carbine markets, there is EV chargers and a wall-box, which you maybe have installed at home contains at least 1 inverter produced with silicon carbide parts. Bidirectional chargers have 2 inverters inside. Mobile chargers for your mobile phone or for your computer use silicon carbide.

You need for photovoltaic and wind inverters which converts AC and to DC produced with silicon carbide. And the most important part is the main inverter, which is included in every electric vehicle, which is very beneficial if you use silicon carbide instead of silicon. Why is it better to use silicon carbide inverters because efficiency is much better.

You have at least 10% less power losses. So you can charge the car which less power. The weight is at least 50% lower. You can build an inverter based on silicon carbide at reduced size and have reduced cooling requirements. So you see there are very important arguments why silicon carbide will grow because the markets will grow like EV or solar and the adoption rate of silicon carbide in those markets will grow from currently around 5% to 50% as the mid of the decade.

So there are 2 toes which drive our markets. So on the right-hand side, you see a picture of our products, and you have to understand what is the role of SGL in the silicon carbon market. We are not producing ships. We are not producing silicon carbides, but we produce graphite parts and some of them are depicted here. For example, crucibles, which are used to melt silicon carbides, we produce heaters, which are used to bring up the temperature above 2,500 degrees C.

We produce graphite, rigid and soft cells for isolation and all those parts are used in devices to produce silicon carbide chips, and we are the only one-stop shop in the industry, which can deliver all those graphite parts in a very high purity grades. And our business, our graphite business is increasing with the silicon carbon markets. More about this we'll disclose beginning of this year or beginning of Q2.

So to summarize what we said, SGL Carbon is well prepared despite a lot of uncertainties. Yes, the overall market conditions are still with very low visibility, how everything is going forward. If you watch the gas prices and the electricity prices, it's like to be on a roller coaster. Currently, it's pretty low, but we expect much higher prices at the end of the winter in Q1. The energy prices in Europe will stay high despite the current status, and we are very happy about the countermeasures, especially of the German government. The availability of gas is still uncertain, and you have seen we prepared for everything.

We have this oil tank and propane gas things in our sites in Mitin and Bonn. Yes, how our customers will behave is still a little bit blurry. I think at least a mild recession in Europe is still very likely. What does it mean for SGL? Yes, we have done our restructuring program, and we will successfully complete it by end of this year, and this brings us in a very good cost position to mitigate all which is coming from the world around us. You have seen that our focus is on growth markets where we already have foothold in, and we will bet on very attractive markets with 2-digit CAGR growth rates.

And we will do targeted capacity expansion exactly in these markets. Our financial base has been strengthened. Thomas already talked about it. And we have, for example, refinanced our convertible bond some weeks ago. Now our equity rate is around 40%, and we feel pretty well prepared with this. Having this said, I'm going to conclude our prepared remarks, and we would be happy to answer your questions, if there are any.

And I would like to hand back to you, Claudia.

[Claudia Kellert, executive]

Thank you. Now we have time for your questions.

[Operator]

[Operator Instructions] The first question comes from Andreas Heine from Stifel.

[Andreas Heine, analyst]

Thanks for having the chance to ask questions. I’ll ask them one by one. I have quite some. Then, we’ll go back to the line to allow my friendly competitors who also had questions. I would like to start with the sales guidance. I have no problem with the earnings guidance on a good track. If I look on the sales guidance, it basically means that you have another acceleration into Q4. Usually, I would assume that Q4 is a weaker quarter with December being only half months. Could you explain why you are at around EUR 300 million in Q3, and it has to get to close to EUR 350 million to get to EUR 2.1 billion, if my math is right. So what is sequentially driving another growth in this particular quarter.

[Thomas Dippold, executive]

Yes, Andreas, thanks for the question. I think we've shown a very strong Q3, which was already been anticipated at the beginning of September when we rose our guidance for the second time of the year, when we said it's no longer be EUR 1.1 million, but instead EUR 1.2 billion. So far, we have reached EUR 853 million. And you're right. There is still a lot to come in the fourth quarter. Maybe we don't meet EUR 1.2 billion literally, but at least we will be closer to the EUR 1.2 billion instead of the EUR 1.1 billion, which we have guided previously.

And as you have already said, the earnings is totally in line with what we have described so far. When you look at the quarters, especially in our biggest business unit, graphite solution, then they are growing steadily quarter-by-quarter. And we also expect a strong fourth quarter with them.

But as I said, the sales guidance, maybe we will not meet the EUR 1.2 billion literally or that we meet it, but we definitely will be closer to the 1.2 instead of the 1.1 billion, and that was also the reason why we rose our top line guidance when we adjusted our last guidance in general. I hope this end.

[Andreas Heine, analyst]

Yes, yes. Very fair. And then coming to your cash flow statement. For quite a number of companies, net working capital was up considerably, mainly price-driven. My understanding is that we had also quite a strong volume growth. So going into Q4, we see quite a number of companies doing a lot of inventory management in light of a weaker business next year. How do you see your own net working capital trend in Q4? And what does that mean for the cash generation on a full year basis? And maybe linked to this, could you give an update what you're factoring was at the end of Q3?

[Thomas Dippold, executive]

Yes. I think we are not alone when we try to manage net working capital at year-end. And you're completely right. On the one hand side, we are growing with double-digit figures, which also means you have a lot of receivables that materialize. And then with a time like we have some valuation issues with higher raw material prices. And when you grow, you have to buy higher raw materials first.

And I think we are all well aware of the cash conversion cycle that we have in our business. When you do graphite and as Torsten has described it, and especially when you want to have super purified graphite for our customer, mainly for the silicon carbide industry. This means that you have to produce and buy it from pitch and coke and you have to bake it and then you have to graphitize it and then send it to the sites where we do all this purification send it to the customer and then finally get paid after a couple of weeks.

The cash conversion cycle is really quite long. And this is driving our net working capital. However, of course, we are trying to manage it, especially in order to secure our cash flow by year-end. I think we are on a good way to do that. And I think we are confident that our cash flow will be quite a bit higher at year-end as it is right now on a Q3 basis.

Maybe also as an indicator, you mentioned factoring at half year after 6 months of the year was roughly EUR 46 million, and now it's only EUR 39 million. So it has declined by EUR 7 billion. This is also an effect on our working capital.

[Andreas Heine, analyst]

Yes. Okay. And then one question again on the balance sheet. Pensions, I would have assumed to come down in Qs again as the interest rate was going up considerably, and you have given the sensitivity in the last annual report. But what we have seen in the first half did not continue in Q3. Could you explain why that was?

[Thomas Dippold, executive]

Yes, very good question. The interest indeed went up. On the one hand side in Germany from 3.2% to 3.7% and we have the same effect or even a stronger effect in the United States where we also have quite an amount of pension liabilities. There, the interest rate went up from 3.7% to 5.2%. So this is really a strong increase. But on the other hand, you have to bear in mind, in the United States, let's maybe start with that one. There we have planned asset is a completely different pension scheme that we have in the United States. Also from a restructuring point of view, last year, we have funded our pensions in the United States. So that means we have planned assets standing right next to the plan to the DBO. And the interest rates went up. On the other hand, our planned assets went down because of the poor development of the share prices. So that was more or less a wash, and this was a compensation.

This is the U.S. And here in Germany, we have closed one of our pension schemes, which was, as we think, a very expensive one. And we had some negotiations with our workers' councils in order to set up a new pension scheme and consolidate on the one hand side, finish and really close a very unattractive and old pension scheme and some are converted into a new one, and we also consolidated all our pension schemes that are up and running into this new scheme. And by end of Q3 we looked at the trend of our pensions. Normally, you just do that at year-end. But as we went into the new scheme, we did it also for Q3 already. So in the end, you can say we anticipated some effects that we would only see at year-end, normally when we have all these normal pension statements where some experts look at it. But we already adjusted the trend in the future pensions from 1.5% to 2.1% already. And this then also compensates the interest increase that we saw in Germany. I know it's complicated, but you are an expert. I hope I could answer your question.

[Andreas Heine, analyst]

Yes. And I keep on to my last question. You had a very strong growth, especially in the business for these silicon carbide business. It accelerated even through the year. Do you have to invest significantly to keep that growth there's enough capacity available. In other words, you might be at EUR 60 million CapEx this year. Is that going up to a number, let's say, EUR 80 million, EUR 90 million next year? What do we have to assume that you can continue your growth in future CapEx?

[Torsten Derr, executive]

Yes. Andreas, this is Torsten. I try to answer your question one by one. First, our CapEx remains the basic CapEx the same on depreciation level. But the customers like our product in the silicon carbide market so much that they are prepared to give us customer down payments. So if we invest already this year, we will do this funded by our customer. This is not one device, which we are going to increase Autodable.

This is a global value chain going from side to side to side. This is what Thomas explained, we produce a green graphite in bonds, then it goes on spaced, gravities, cleaned and so on. So it goes through 3 or 4 hands and we debottleneck every site where we have a bottleneck. So this will be a global investment campaign, but not with that big ticket items. So it's more low-cost debottlenecking, which we went so far.

The second effect, which I have to describe as a reallocation of businesses. LED market is more lower-margin silicon chips, standard computer chips is in the mid and silicon carbide is the highest margin. And we also reallocated part of our businesses from LED to silicon carbide, and this also accounted for the growth. I hope this answers your question.

[Operator]

The next question comes from Thomas Junghanns from Berenberg.

[Thomas Junghanns, analyst]

First of all, I have a question regarding the higher energy prices. To what extent are your contracts equipped with the energy clauses and how confident are you that you can continue to pass on elevated energy prices also next year and especially in 2024, when we see this expiration of hedging...

[Torsten Derr, executive]

Yes. Thomas, sorry, we don't disclose these figures, but some contracts containing this energy escalation clause, which is good and bad. Good because we can cover the increased energy bet if gas prices are declining like it happens right now, we have to give back the price to our customers. What is much more important for us is the energy hedges we did so far. And we were quite well equipped with energy hedges this year, which is harder in next year because we don't find counterparties, and this is why we enjoy the state programs that much. This is a much bigger leverage on the margin than forwarding to customers. As most of our markets are still tight. We think we will be somewhat successful to further pass on energy cost increases if they happen. For example, in silicon carbide, we are more or less sold out currently.

[Operator]

The next question comes from Richard Schramm from HSBC.

[Richard Schramm, analyst]

Yes. Two questions, if I may. First, concerning the pricing component, as you mentioned that you have been able to more or less completely pass on the higher input cost to your customers. So what was the contribution of this 11% sales increase if it's the out the currency effect in the first 9 months, referring to pricing, what is the pricing component in this 1% increase. That's a rough estimate.

[Thomas Dippold, executive]

Yes. It's a good question. Although there are many effects that go in there. On the one hand side, it's a margin improvement. We have some mix effects, as Torsten pointed out as we shift some capacities from a lower-margin business. It's still a decent one into higher-margin business like silicon carbide and so on. And then we have the price effect. In the end, you can take the let's say, currency adjusted. We have a growth of EUR 110 million in the top line. And I think all 3 parts, be it price increases or price pass-through, be it mix effects, but also cost savings. I think the 3 of the components are roughly at the same level and contribute to that increase. But please allow me to take out the currency adjustment. Otherwise, it gets very complicated. Otherwise, I have to go through side by side. This I think I cannot disclose or cannot pass on to you this information. But you can say it's 1/3, 1/3, 1/3 for price effects, mix effects and cost savings. I think that answers the question in the most way I can do it.

[Richard Schramm, analyst]

Which at the end of the day means that there has been also a real increase in volume in your business. So it was not only price driven and not only and currency driven, but has also been a real volume growth, right?

[Thomas Dippold, executive]

Exactly. And this is exactly what we did in the past. I mean you know that we are very prudent and tight on the CapEx side. As Torsten just pointed out when he answered Thomas Johan's question, we are investing since the last 2 years on the level of depreciation maximum. And we try to spend our CapEx money in the most diligent way we can use it by debottlenecking as we call it, always we look at the weakest part at the constraint in our value chain, be it in the global value chain, be it in a site, be it in a production line or be it in a simple machine or add some shift. We always look at where is the constraint, how can we overcome it. And this is where we invest in order to maximize our production what we can do, where we know the customer and where we can produce the product. So we do not trying to make any stupid new things which we maybe have never ever done before. This is how we do it. So there's also a real growth in our quantity that we sell, let's put it this way.

[Richard Schramm, analyst]

Okay. And second point I wanted to touch is the growth areas you outlined here on the chart on Page 13. Can you give us an indication what portion of your business you would attribute to these markets at the moment? I assume it's still relatively low portion and should grow, of course, then over the next years. But where do we stand at the moment here?

[Torsten Derr, executive]

Yes, Richard. Those markets, as I said, offshore wind energy is a carbon fiber market. So it goes into our business unit carbon fibers. And EVs is composite solutions. They are the battery cases and so on. And ZIC semiconductors and photovoltaic is graphite solutions. If you look at the margins of the respective business units, they are above average. This is what I can say, but we don't disclose margins for specific markets. But they are above average in the respective business unit...

[Richard Schramm, analyst]

Sorry, I didn't ask for margin. But a share in sales, that was my intention to get an idea where this business stands at the moment within your product portfolio?

[Torsten Derr, executive]

Richard, you have seen the left-hand chart. This shows our market exposure split. So we sell 29% into EV, we sell 12% into energy. This is the average market split of all business units. And a part of this is described by the 4 markets we randomly selected for this presentation.

[Claudia Kellert, executive]

Richard, do you want to know exactly the growth rate of each market segment or…

[Richard Schramm, analyst]

Quite simple. So from your 100% sales, is this, let's say, future growth markets, are they at the moment at 5%? Or are they already at 10% of your sales where do we stand at the moment here? What's the basis we have to look forward from this growth rates you have penciled out...

[Torsten Derr, executive]

For wind energy and our carbon fiber, this is what we can say, the wind energy replace the automotive. And there, you have to distinguish between onshore and offshore and especially in offshore, which is growing far bigger than onshore and especially in our offshore applications, this is where they need our graphite parts.

And what we can disclose the wind energy part of our carbon fiber business is next year it's roughly 35% to 40%. This is what we can say. And a part of it is offshore, and this is the larger portion that we have in there. When we come to photovoltaic and 6 semiconductor, this is something we don't disclose. But as I pointed out in the beginning, our semiconductor share and our graphite solution business unit is about 1/3.

And out of that, a certain portion is silicon carbide, and this is what is growing with 40% year-on-year as Torsten pointed out. This is the way we can disclose it. And when you look at electric vehicles, and there we have especially our Composite Solution business unit, they are almost 100% into automotive and serving especially the electric vehicle market.

For sure, they're also doing some aerokits for some sports cars and SUVs, and they also have some leapsprings. But the battery cases, which is an element as this niche business in the electric vehicle part is definitely in our Composite Solutions, and it plays there the largest share of our top line. I hope this could answer the question in the way you asked it..

[Operator]

The next question comes from Klaus Schlote from Solventis Beteiligungen GmbH.

[Klaus Schlote, analyst]

I have a question regarding the node material for batteries. As far as I remember, a couple of quarters ago, that was something. What was kind of a case where future growth might come from? What is the current situation there? Is this business, you're still trying to get a grip on the market there that some OEM will buy your powder? Or is that you -- given up on that?

[Torsten Derr, executive]

Yes. This is still a strange story. You see all the announcements of the automotive OEMs, which will boost the rate of electric vehicles, and they need batteries. Currently, the majority of batteries is imported from China or Asia. But European battery industry is building up, and there are 20 to 25 projects which are announced and some of them raised EUR 4 billion money to construct everything. What we see, we sample almost every one of them they analyze our material to trial with it, we get pretty good feedback. But the business is not there. We see ourselves in a pole position as we have contact to most of the players, but we also see that most of the battery projects are delayed.

[Klaus Schlote, analyst]

Yes. So it's still a case for future growth, basically.

[Torsten Derr, executive]

Yes. Yes. And it's small-scale production, what we are currently doing. This is the status and what we see in the future is that the European battery market will be independent. It might be that China closed its borders and not that many batteries were exported. And this is why big programs, subsidy programs were launched in Europe and also in U.S. And we see in 10 years from now, pretty much independent regions, Europe, U.S. and China. And this will require a battery industry to be built up, and we see that graphite for those batteries is pretty scarce. And we are, I would say, the largest player currently in this field. We have a site in Poland, which could be able to produce up to 20,000 tons of graphite powder for batteries. But currently, everything is more or less important from China.

[Klaus Schlote, analyst]

What is your best guess when this market will take off...

[Torsten Derr, executive]

25, 26, the first capacities are going to open. All the 20 projects which are announced, I would bet on end of silicate.

[Klaus Schlote, analyst]

So your contract with one of the OEMs, when will this happen most likely in this context?

[Torsten Derr, executive]

Yes. We have no sales contract signed right now. We are still in the sampling phase and in the small series production, but this is nothing we would bet on. We need the large volumes and they might come 2526.

[Operator]

We have a follow-up question from Mr. Andreas Heine from Stifel.

[Andreas Heine, analyst]

Yes. First question is on the industrial part of your business in graphite and loading carbon fiber set was very strong. And you said that you have quite some lead time, so that goes back to, let's say, first half, which looks still pretty good for the industry, which is not the case right now. Do you see already an impact on a slowdown from this end market in your book-to-bill ratio and specifically graphite in the industrial applications and also in carbon fibers?

[Torsten Derr, executive]

Yes. And stills we don't see a disaster in those markets. But what we can see that the order entry is going down. It's still positive for us. So order entry is still increasing our order backlog, but not to an extent which we have seen 2 or 3 months ago. So everything is slowing a little bit down, but we can see in no region and in no specific segment, a real breakdown. Of course, we read the same information as in the newspaper. But from order entry point of view, we cannot see a significant slowdown right now.

[Andreas Heine, analyst]

So then with the lead time you have, you can be in these end markets pretty safe, at least for the first half of next year. Is that fair?

[Torsten Derr, executive]

I would say so. And our preparation is -- this was what I'm trying to explain. We shifted already volumes from the LED segment into silicon carbide power electronics. And we expect a slowdown of the semicon industry, and our strategy was to use the mix effect a little bit and shift volumes of markets which are not that stable into the very solid silicon carbon market. This is our strategic answer to it. Perfect.

[Andreas Heine, analyst]

Then the same question is on these gas and electricity break IDs of the German government. As far as I have seen it that you are only applicable if you have seen an EBITDA decline by 40%, which, quite frankly, is not what I see at you, and I would not expect this for next year. This is for companies having a demand of having a use of gas and electricity of more than 1.5 gigawatts, which is also value full. I would assume that you have basically no advantage at all from these gas banks. What's your view on what we can see from the proposals right now?

[Torsten Derr, executive]

Andreas, we have to check it as the conditions for the programs are pretty new. We haven't checked it so far. We will come up with this during our next call. Okay.

[Andreas Heine, analyst]

Then the last one, I'd like to add, this is the wind energy. So indeed, we were very successful, and we could see this with a sharp decline in mobility and strong increase in energy in carbon fibers. This wind energy, was that old Europe? Because you said that in this car farmers there was basically no FX effect. And I would assume if you would deliver to Aisin players, for example, that would have seen in FX effect. That's the first question. And I would also be interested better there you have. How broad range of customers do you have? Is this a couple some more of customers you were able to find for this fast switch from the WIC contract to an...

[Torsten Derr, executive]

First of all, so the industry and wind energy is an oligo poll, there are, I think, 7 players which account for more than 80% of the market. And of course, we have contact to all of them. And directly or indirectly, we are supplying almost everyone. You see it's a global business. Also, our value chain, is a global value chain. And this is why the currency effect might be not that big. We have production in Lafarge for the first step of the value chain, precursor manufacturing. And the second step, which is also pretty energy intensive is the carbonization, which we do in U.S., Moses Lake. So it's not a pure European business, and this might mitigate our... effect. I hope your questions are answered.

[Claudia Kellert, executive]

Thanks for your time and interest in our call. Next regular investor call will be on March 23, where we will report on our financial figures 2022. In the meantime, if you have got a question, please call the IR team, and we will answer your questions. Thanks a lot. 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. Good day.