U.S. markets closed

Edited Transcript of OERL.S earnings conference call or presentation 5-Mar-19 12:00pm GMT

Full Year 2018 OC Oerlikon Corporation AG Pfaeffikon Earnings Presentation

Zurich Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of OC Oerlikon Corporation Ag Pfaeffikon earnings conference call or presentation Tuesday, March 5, 2019 at 12:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Andreas Schwarzwälder

OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing

* Jürg Fedier

* Roland Fischer

OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment

================================================================================

Conference Call Participants

================================================================================

* Alessandro Foletti

Octavian AG, Research Division - Financial Analyst

* Andy Schnyder

zCapital AG

* Armin Rechberger

Zürcher Kantonalbank, Research Division - Analyst

* Christian Arnold

MainFirst Bank AG, Research Division - Analyst

* Fabian Haecki

UBS Investment Bank, Research Division - Executive Director and Senior Analyst of Swiss Small & Mid-Cap Equity Research

================================================================================

Presentation

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [1]

--------------------------------------------------------------------------------

So ladies and gentlemen, good afternoon and a warm welcome to Oerlikon's Annual Investor and Analyst Conference with regard to our full year 2018 results and our outlook, which we both disclosed this morning.

My name is Andreas Schwarzwälder, the Head of Investor Relations and Corporate Communications of Oerlikon. Thank you for joining us either here in Zürich or live via our webcast.

Earlier today, we published all the results, and all the documents are for download on our website, and for those here being present, on your tables.

Let us have a quick look on today's agenda. The well-known one, as you know, we start with an introduction of the CEO, Roland Fischer, with regard to a highlight overview as well as the details on the performance of the individual segments, followed by the financial review from the CFO, Jürg Fedier. And we will conclude with an outlook provided by the CEO. And afterwards, we have the obvious Q&A session.

Please be reminded that this webcast will be recorded, and a replay will be available on our website shortly after the event.

Thank you very much for joining again, and it's my pleasure to hand over now to our CEO, Roland Fischer.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [2]

--------------------------------------------------------------------------------

Thanks a lot, Andreas, and a warm welcome from my side as well. Give me a chance to summarize the year 2018 by 4 key statements.

2018, for sure, was a good year for Oerlikon. We achieved strong, profitable growth. And our order intake increased by 23%, 23.5%. Our sales increased, improved by 20 -- more than 26% -- billion Swiss francs and -- up to CHF 2.6 billion, slightly above CHF 2.6 billion. And this is something what I see as a strong and robust 2018. The EBITDA on a group level increased by also 26% to CHF 406 million, corresponding to a profitability of 15.6%. And here, a side remark, including all efforts and activities, and I will come to that at a later point of time for future growth investments in not only additive but different other technologies, competence and stuff like that. That means we delivered on our strategy.

The second message is the strategy, and not the most important, but an important part is the divestment, successful divestment of the Drive Systems Segment, which is -- was closed just last week, Friday, it's cash proceeds of CHF 225 million.

--------------------------------------------------------------------------------

Jürg Fedier, [3]

--------------------------------------------------------------------------------

CHF 625 million.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [4]

--------------------------------------------------------------------------------

Sorry, CHF 625 million. Yes, that would be a different story. And it's a great step forward in our road map. And this opens up more and new opportunities. But beside of that, I think we did some smaller acquisitions in terms of volume, not major ones, but very important ones in terms of technology and market access. And here, I just use or take Sucotec as a reference, as an example. Sucotec is a company, a small company which produces, develops, sells so-called CVD equipment, Chemical vapor deposition equipment, for a different type of thin film coatings, which we, as Oerlikon, didn't have in our portfolio and due to the sheer fact that this company was a small one, I think the customers have been little bit reluctant in terms of how long does this company exists, just few people. And now, having it in our portfolio, it's running like hell. As a consequence, out of that, we are building a competence center in South Germany, just as one example, where even so small acquisitions providing a huge sense and a very solid base for the mid-term and long-term growth in our core fields. Beside of that, we invested in the medical area. We acquired a company, DiSanto in the U.S., which is a company being in the field of producing implants for human beings and animals based on conventional technology as well as on additive. And last but not least, Eicker company in the nitriding high-end heat treatment for aluminum parts, mainly in the automotive area. And here, I'm having the mobility mega-trend in mind, of course.

But we also have been quite successful in managing the cycle in the manmade fiber business. And you all know where we are coming from, 2 years ago, 3 years ago, we have been at the trough of a cycle. Now we're at the opposite. We are at a ceiling. We are full, and we are working hard to fulfill the customer demands. And I will come to that. It's not only about volume, but it's also about new technologies in terms of automation. And here, we acquired also 2 companies, and that gives a clear indication how in manmade fibers business, we are not in a kind of harvesting mode. We are very carefully developing this business and this segment as well.

The third strong message is the dividend topic. On top of normal, the ordinary CHF 0.35 per share, the Board of Directors made the decision, followed our proposal to propose at the AGM, upcoming AGM in April, a dividend of CHF 1 per share. That means this includes CHF 0.65 as extraordinary non-recurring dividend in 2019. And last but not least, we are looking -- based on the business we have in hand, we are looking quite positive into 2019. On the top-line side, both order intake and sales, we expect to exceed CHF 2.7 billion, and the profitability, we expect to be above 16%.

So before I hand over to Jürg giving you much more details about the financials, I would like to spend few minutes to do a deeper dive into the 2 segments, Surface Solution and Manmade Fiber.

And starting with the Surface Solution. I think it's obvious and clear and you know it that we are the world-leading supplier for this type of coatings, thin film, thick film. And our customers can choose from a standard portfolio, from a more customized portfolio, materials, coatings and for their dedicated, specific applications. From an end-market point of view, 2018 was a strong tooling market, running on high levels. But also, general industry was doing quite well. And this over-arching market development was enriched by additional initiatives we have launched in the past. And just to mention 2: SUMEBore, what is a ceramic coating based on thermal spray where we are coating -- and this morning I have learned I am not allowed to mention the name of the OEM, but a big, big European car OEM is going to coat all their fuel engines with this SUMEBore technology. We're talking about millions of units per year. This is a process over years because the sheer volume is -- cannot be built up in 1 or 2 years time. And another one is another -- a different technology called ePD. This is thin film technology, which offers a lot of advantages. First of all, it's without any chrome ingredients. That means it's chrome-free. And here, this is in-line with what we expect on the political level, that chrome plating topics are going to be eliminated over the course of the next 5, 6, later, 7 years, right? And this is an alternative solution. And here, we sold the first units, equipment, first. And we are, right now, in a process of building up another competence center for this dedicated technology also in South Germany close to the major German car OEMs.

From a regional perspective, U.S. and Europe was doing well, whilst Asia and especially China was a little bit slow down, but nevertheless, the orders to date, almost at CHF 1.6 billion. That means 11.5% above the prior year level. The sales grew by 10% to CHF 1.5 billion. And here, general industry, automotive, and aviation have been the key drivers for that. If we take the special effects like surcharge effects and currency exchange aside, the pure organic growth of the Surface Solution business was at about 6%.

One comment maybe concerning additive manufacturing. Here, we are progressing. I have to admit that the development, especially the qualification, certification and industrialization of this technology takes a little bit longer than actually expected. But nevertheless, we do have our strategic road map, and we follow it. And we are happy and fine about this project.

On the bottom-line side, the segment Surface Solution generated CHF 283 million EBITDA, what is an increase of 2.5% versus prior year. The margin stood at 18.6%. That means within the guided corridor between 18% and 20%, what is always the result of product mix. And you know that service creates, generates higher margins comparing with material and equipment. And we do also have quite considerable regional pattern, it depends on where the sales and the revenue is going to be generated.

In a nutshell, innovation, regional expansion, increasing penetration in existing markets and new markets are just an example. We have included 11 new sites in 2018, and we expanded 2 existing ones, and this is the basis for a quite positive outlook into 2019.

Now let's talk a little bit about Manmade Fiber. Here, again, the segment is clearly the world market leader for solutions and systems used to manufacture manmade fiber. It's the only company with the know-how to offer a complete package from a spinning system, from mill-to-yarn until fiber and non-wovens. Our equipment enables our customers to be -- to produce this type of products at the highest level of sustainability in terms of power consumption and water consumption and stuff like that. The Manmade Fiber segment achieved a record growth in sales in 2018, yes. The order intake increased by 45% to CHF 1.2 billion. Sales increased by 57% to CHF 1.1 billion. And the EBITDA, which was on a level of CHF 128 million, with a profitability of 11.7 billion (sic) [11.7%] has been strongly improved and increased.

Here, it's worthwhile to make a side remark. As consistent with our previous speeches, we are not going to extend the existing capacities for Manmade Fiber. We use to the maximum possible our existing capacities, our plants and our supply chain. But we are not building new factories, or we're not extending the existing ones. The pure reason is very simple. The nature of the business remains cyclical.

And on the filament business, we are on a very positive situation. Filament is 60%, 65% of the Man-made Fiber business. We are facing a very positive environment in China. Here, mainly in China, where the market is further going to be consolidated, our order books for '19 and '20 are full, '19, completely; '20, almost; '21, to a certain extent, and contracts, which are going to be negotiated right now, are leading even until '22. And that is a positive topic, on the one hand side, but it implies the fact that Manmade Fibers is not contributing to the growth of the group. That's the downside of this phenomena.

But nevertheless, in total, we are not in a kind of harvesting mode concerning Manmade Fiber. We are also investing in M&A. We acquired 2 companies, Polycondensation and AC-Automation. That means we see a clear trend that at a certain point of time, there will be the phrase is , no-light factories, yes? A factory which is completely automized, and just maybe once a week, somebody switch on the light and check what's going on. There is still a long way to go, but digitalization and automation really is a driving element here, and we clearly have occupied this trend.

Now I think I hand over to Jürg going more into the financials. And afterwards, I will try to give my best in terms of outlook for 2019. Jürg?

--------------------------------------------------------------------------------

Jürg Fedier, [5]

--------------------------------------------------------------------------------

(foreign language) I want to keep it relatively short and tight, so just highlight a couple of issues with regards to the accounts. What you have seen from Roland already, order at CHF 2.7 billion. That's an increase of 23.5%. Surface Solution delivered double-digit increase year-over-year, and we have been growing in all the region.

The Filament equipment market in China was the main driver for the substantial change in top line in Manmade Fiber, where we also attained, in the meantime, the 12% EBITDA margin. And if you look at it in terms of order intake and sales, excluding foreign exchange on both accounts, you have an impact of about 200- basis points. That's what I said, sales at about CHF 2.6 billion. That's an increase of 26%, respectively, 24%.

Also on a positive note, we reported again a book-to-bill ratio, which is exceeding 1 in 2018. And the reported EBITDA was CHF 406 million. That corresponds to a margin profile of about 15.6%.

The ongoing recovery in the Manmade Fiber in 2018 obviously becomes visible when you look at the group business plate on a geographic point of view and the contribution from the 2 segments. Surface Solution contributed about 60% of total group sales and 40% was contributed by Manmade Fiber. On the profitability, the relationship is 70%, 30%. So 70% of the total profitability is being contributed by Surface Solution and about 30% through Man-made Fiber.

From a regional point of view, as you would expect again with the massive recovery which we have seen in Manmade Fiber, Asia Pacific, again, up at about 46%; followed by Europe, which is representing about 1/3 of the total top line; the U.S., trailing around 16%; and then the rest of the world, stable at about 5%.

In line with the before-mentioned recovery in Manmade Fiber, which means selling more equipment, the service part of the overall group has been coming down to about 38% as compared to 45%, which you have seen last year.

I'm not going to go much further into the exchange rate picture, which I mentioned. As I said, the order intake and sales about 200- basis points, the translation effect, which we had on the margin profile is relatively insignificant, what you can see, and that's not different to what you have seen over the last couple of years because we have this natural hedging in place, so the margin is less affected from that point of view.

Let's move below on the P&L below operating profit. The net financial result was CHF 3 million. That compares to about CHF 9 million, which we had in last year, so an improvement of about CHF 6 million, which is mainly related to higher yields, which we had on our global investment, and particularly in China and some gains coming out of hedging activities.

So far, we have been able to avoid negative interest in our cash position throughout the whole 2018. And after receiving the CHF 624 million, I think you just wanted to test me before when you said, CHF 225 million.

After having received now the CHF 625 million, there will be probably a residual portion of CHF 200-plus million, which are going to be subject temporarily for a negative interest. That's the way we manage the limits with the various esteemed banks.

The tax result, I think important from that point of view, was CHF 68 million. I think more important is that the tax, the effective tax rate have been coming off to about 28%. I may recall that we were trailing over the last couple of years as high -- in the low environment of the business, as high as 35%, 40%. And what you should expect, which is even more important going forward, that with the full divestment of the Drive System, we will converge back to a tax rate on an ongoing basis, which is, on one side, driven by the structural change of the portfolio, but on the other hand, driven by some of the projects, which we have been executing over the last couple of years, which bring us back to about 25% on a more sustainable basis, going forward.

Result from continuing operation, CHF 173 million compared with CHF 95 million. That's an increase of about 82%. And the result from discontinued operation at about CHF 73 million compared to CHF 56 million last year, which reflects the really strong operational performance which we have seen in the now divested Drive System Segment, which we would interpret to 2 factors, one through the long-term restructuring efforts, which we have been putting to the business, and on the other hand, some good tailwind in some of the major market positions for Drive System.

Let me quickly also guide you and take this opportunity to take you through the effects of the de-consolidation of Drive with regards to 2019 result. I think, we have been long talking about a CTA recycle of about -- close to CHF 300 million. That's being reconfirmed for the time being. On the other hand, you have a book profit on the transaction based on the EV of CHF 600 million, which will be positive to the tune of about CHF 150 million. So net-net, by fully discontinuing the business out of the group, you will see an impact of about minus CHF 150 million, minus CHF 160 million on the bottom-line. And I think that's important. Obviously, we'll have the contribution for the last 2 months in discontinued operation and then the underlying strengths of the business, which then will probably level-out the result for 2018. We do -- we all do understand that the CTA effect as an accounting recycle is non-cash-related.

So let me come back then to the net income. Net income, as you've seen, CHF 245 million. That's an increase of about 62% compared to previous year.

Our balance sheet remained strong and healthy and unlevered with a net cash position of close to CHF 400 million. We have heard that now a couple of times, yes, it is what it is. We're not very happy about, you know -- we know that the balance sheet potentially could look differently. And I think it goes back in terms of the further execution on the portfolio, where we're going to continue to lever the balance sheet in a magnitude we were talking about in the past.

Total equity amounted to more than CHF 2 billion. That's an equity ratio to date at about 44%. So again, our financial position remains strong. Together with the 5-year credit facility we have in place, with a maturity profile up to 2022. This provides us enough room for us to maneuver and to further execute upon our strategy, and I'm sure Roland will comment on that a little bit more later on.

CapEx, as you have seen, has been coming off somewhat compared to the previous year, which was mainly driven by the investment in additive manufacturing for the footprint and titanium or powder production in the U.S, is around 80% of this CHF 207 million is allocated to Surface Solution due to the extension, I think Roland already alluded to that to a certain extent, of the coating network and capacity expansion in existing sites. In Manmade Fiber, CapEx was clearly below the depreciation level and amounted to about 2% of sales. And that again goes in-line with what we said. We structurally don't want to increase the capacity. We run the high level of top-line at CHF 1.1 billion through flexiblizing our capacity to the extent possible, and that picture should not change going into 2019. So excluding amortization of acquired intangible assets in the amount of about CHF 40 million, depreciation was up to CHF 121 million, up about 5% compared to 2000 (sic) [2017] ratio. And the CapEx depreciation ratio, as you have seen, is still running at about 1.7%. Including the -- or excluding the amortization of the acquired intangible, we exceed our mid-term corridor of 1 to 1.2. But again, the intention is, in the medium-term, to converge back into that.

Cash flow, cash flow from operating activities before changes in net current assets was about CHF 429 million. The change in net current assets was positive, about CHF 69 million, which was mainly attributable to the increase of contract liabilities such as the advance payments in Manmade Fiber, in particular, which amounted to about CHF 84 million, which again just underlies the previous comment at strong development on the Manmade Fiber.

Cash flow from investing activities amounted about CHF 342 million. That's a combination of CapEx, of M&A spend and some short-term investment, which make up that amount. And cash flow from financing activities in the tune of about CHF 150 million, mainly attributable to the dividend payment and interest payment.

Important here, I think the look at return on capital employed and the overall ROCE for Oerlikon shows a positive development. The group performance in 2018 resulted in a 12-month return on capital employed of about 12.8%. The WACC, still in the magnitude of about 8%, which is, obviously, mainly driven by, on one hand, higher profitability in Manmade Fiber, the overall diligent management of capital deployed into the business and with regards to working capital as well, obviously, to a certain extent, the effects of the impact of the divestiture of Drive System. That reflects our commitment, and we'll continue to focus on that strongly.

And before I end here, a comment on the dividend per se. Returning value of capital to the shareholders through the annual dividend has been an element which is important to us. You have seen that. The Oerlikon Board of Directors will propose a distribution of CHF 1 per share, consisting of that CHF 0.35 of ordinary dividend, if I may call it like that, which represents a distribution from net profit of close to 60% and then an addition of CHF 0.65, the way we see it, also a contribution from the sale of Drive System. Majority of the dividend is going to be paid out of capital reserves. If I'm saying majority, it's about 93%. So there's going to be a residual of about 3%, which is going to be subject to withholding tax. Needless to say, the AGM will approve on April 8 this dividend, this motion, and we're positive that this will go through. And this broadly closes the financial review, and I'm glad to take questions later on. But for the time being, I want to give back to Roland.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [6]

--------------------------------------------------------------------------------

Yes. Thanks a lot, Jürg. And I would like to give a short outlook into the current year 2019, but not only in terms of financials. I also would like to spend a little bit time to give an update on our investments, in future profitable growth and to give you an idea what are we doing actually before we come to the Q&A.

In 2018, we nicely delivered on our strategy. And guess what? The strategy for '19 remains almost the same. We focused on Manmade Fiber. We have managed the cycle, as already indicated, managing the, how to say it in proper English, the outstanding top-line with the all the related challenges in terms of supply chain, in terms of on-time delivery and stuff like that. And beside of that, we focus and spend time and money in non-filament areas, non-woven hygienic products, and the clear intention behind is very simple, to decrease the dependency on the filament business to make it even -- to make it a little bit more balanced from a portfolio point of view.

And on the Surface Solution side, also the same. It's redeploy of cash. That means M&A, big ones, smaller ones as we did, but there is much, much, much more behind. And you can see it when you have a look on the profitability of the Surface Solution Segment, we are spending money. We are spending money beyond additive. There are 2 examples I mentioned already, the new competence centers for ePD, and the other one for CBD, the chemical vapor deposition topic, that means, this is the center, having a certain infrastructure, having an equipment for R&D purposes, having the necessary people around to develop together in combination with customers, solutions for their dedicated and specific needs. But there is more than just these 2 competence centers.

Just to give you an idea, Oerlikon launched in 2018 25 new metal alloys, new materials. And this is the outflow of -- one outflows of R&D spending of about 4% of our revenue. We filed 87 patents, and this is something what is new partially related and depending on this company, which we acquired 2 years ago, which is using, we call it, RAD, rapid alloy development, which is using Big Data to develop new alloys, this is a logical network consequence out of it. But it's not only that, I told you already, 11 new sites in the Oerlikon environment in 2018 tells you a clear story as well.

On that side, I think this is just -- the intention is to give you an overview, what are we doing. And we still, for instance, another example, are penetrating, entering new countries. We are opening our first site in Vietnam, where we have not been before, but even the number of countries where Oerlikon is present and active is increasing.

Last but not least, we're also spending money and doing investments in OMF. We decided to build a line, a stable fiber line in Neum?nster to produce and develop, first to develop and then to produce the next generation of stable fibers. Because we believe in the markets. We believe that there is a need for this new type of product and the existing facilities are not sufficient anymore. That means we are spending higher single-digit amount of millions in Manmade Fiber as well. That means it's not only a pure-play Surface Solution.

An overarching topic for us as Oerlikon is digitalization. And I can tell you I was in Neum?nster earlier this year. I saw the first S8, that's an equipment for producing BCF carpet yarn. And it was a complete new setup for this equipment, fully digitalized. You can use a laptop, and we have to forget and to leave behind the old way of running such an equipment where you have a display and you have some keyboards, where you have to key in stuff. No, it's all online. You take your laptop. You can -- you get access to data, all kind of data which are available. You can monitor efficiency. You can monitor quality. You can monitor almost everything. And this type of new equipment is what the market is asking for. The customer reaction was overwhelming. And this is our first example of what we are doing and what we are having in mind.

Another one is again back in the Surface Solution area, we launched actually 2018 almost a firework in new equipment on the thin film side and on the thick film side, our Surface One equipment for surface spray coating for Metco is running like hell. It's a first of its kind equipment, not fully digitalized yet, but half on its way towards -- or in this direction and offering opportunities, which are far beyond what has been possible and doable so far. And these are just examples, to give you a feeling. We are not only relying on M&A. We are doing a lot in terms of investing, making conscious decisions, spending money, investing money in profitable growth, in areas which we understand, in areas where we know what the market is asking for and where we know how to do it.

So ladies and gentlemen, now giving you an outlook on a group level. We expect Surface Solution order intake to grow by around 4% from prior year's level. The sales growth rate is between 4% and 6% in 2019, despite challenging market environment. The profitability is expected to come in at a lower end of the new EBITDA margin corridor, which has shifted adverts based on the IFRS 16 effect to 21% to 23%. We're again coming in at the lower end of this margin because of all these effects out of the investments -- I'm just -- was describing leading to the effect that as described already, at the low-end.

The Manmade Fiber business is expected to show an order intake exceeding CHF 1.1 billion. Sales is expected on the prior year's level due to the sheer fact that we are not extending the capacity. And the margin is expected to be improved by 1 percentage point or 100- base points. And that brings me, on a group level, to the statement that we are going to or expecting to exceed both order intake and sales in '19, 2,007 billion (sic) [CHF 2.7 billion], and the profitability EBITDA margin is exceeding 16%. And it means, for sure, it's not an easy year. We know all these challenges, tariffs, trade war, FX, but due to the sheer fact of our footprint, we are heavily localized. We do not expect to see here major impacts for Oerlikon.

Now last but not least, let me try to give a summary. 2018 for us was a great year. Strong growth, reasonable profitability, divestment of Drive Systems, that means we executed our strategy. The smaller elements of our strategy also, we achieved, here we achieved a lot as well. The dividend topic has been explained by Jürg, CHF 1, not limiting us in our ability to do big M&As. I think this is an important message you should keep in mind. And we will continue to invest in profitable growth. And all our initiatives -- and I think this is the first time during such a meeting that we have been so open what exactly we are doing and what kind of technologies and engagements and investments we are following.

And finally, an important element as well. The Board of Directors has discussed and is going to propose to modify the Board of Directors subject to the right decision selections during the upcoming AGM in April. The Board of Directors is going to be extended from 6 to 7. Jean Botti is not standing for re-election. That means he will not be re-elected. As a consequence, out of it, there will be 2 new board members hopefully going to be elected. It's Dr. Suzanne Thoma, a Swiss citizen, coming out of -- or having a strong utility energy background. I think she's quite, quite known here in Switzerland. And the second person, Paul Adams, is not as known as her. I know him very well since a long time. He was working a long time with Pratt & Whitney, Design Chief. He was CEO of Pratt & Whitney, what is the leading aero-engine manufacturer in the U.S. beside of GE. And after his departure from Pratt & Whitney, he was running, he was the CEO of PCC, what is a casting, recasting house in the Western world, providing a lot of casting solutions for IGT business, energy business, aerospace business, and I'm extremely happy to having him onboard. And by these 2 steps, I think we are tremendously improve our industrial experience in the board. And the number of independent board members is increasing to 4. That should be also seen as a consequence of the right approach to reflect the shareholder situation, right?

So having this said, I want to say thanks to all of you for your support and your engagement and dealing with us and thinking about us and talking to us, and now, actually, Andreas, time for Q&As.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [1]

--------------------------------------------------------------------------------

Yes. Thank you very much. That's opens now, obviously, the Q&A session. Please be reminded that this is a webcasted conference. So when raising a question, please wait for the microphone so that people on the webcast can follow your question as well. The first question from (inaudible)

--------------------------------------------------------------------------------

Unidentified Analyst, [2]

--------------------------------------------------------------------------------

I have 2 questions. First, on the margin outlook. Given that you have a positive impact of 100- basis points from IFRS, the margin outlook seems conservative. Or do you just invest more because we've increasing sales and Surface margin should increase underlying with stable sales in Manmade, margin should increase underlying? And Manmade -- and Additive Manufacturing should be less more a burden than it was this year, right? So margin outlook seems quite conservative. Can you comment on that?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [3]

--------------------------------------------------------------------------------

It's -- the question is coming as expected, right? Yes, it's not the case that we are too conservative here. And that was the purpose actually why I gave you a quite comprehensive overview on not all but bigger bunch of different initiatives. We are going to follow up. And we are doing them already. You see it when you consider the Q4 results, right, where we have been slightly below the previous quarters. Yes, all these effects, all these initiatives, all these elements, again -- CVD, ePD, stable fiber line, materials, R&D -- comes with a price tag, and it's not free of charge. And that is actually the reason why we come out now with an exceeding of 16%, yes? Maybe that's -- we didn't -- we don't come with something around. We just say exceeding. This gives us some space to maneuver around. And it's a conscious decision where we say, look, there are opportunities where we see a fair chance, a good chance to build up another pillar for our core business within our Surface Solution area, having our traditional margins, margin levels in mind. And we think it's worthwhile to spend some money.

Perhaps, if I may add, we never, I think, we never talked about the amount of what's being summarized in all those initiatives. So we are talking about CHF 20 million to CHF 25 million expense on top of that, right, business-related stuff, corporate projects and the like. I don't think we have said that before.

--------------------------------------------------------------------------------

Andy Schnyder, zCapital AG [4]

--------------------------------------------------------------------------------

And then second question, a technical one. I think with Sulzer, they cannot pay out a dividend to Mr. Vekselberg. How is it with you? How does it look like? Do you need to pay out to Liwet at least 40%?

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [5]

--------------------------------------------------------------------------------

Yes. Yes, we do because the underlying structure of Liwet is, in a way, that this is not a sanctioned party because Mr. Vekselberg does not have the majority of Liwet. So therefore, the payment is possible to Liwet, which also happened last year, by the way.

--------------------------------------------------------------------------------

Christian Arnold, MainFirst Bank AG, Research Division - Analyst [6]

--------------------------------------------------------------------------------

Christian Arnold, MainFirst. A follow-up question on the margin guidance, sorry about that. On Manmade Fibers, I mean, you are guiding for stable growth, but you have a huge order backlog, orders leading to '20, '21 even '22. So one could expect then that you have quite some pricing power. So how does it look like? By how much, on average, if you can say, were you able to increase prices?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [7]

--------------------------------------------------------------------------------

I think the increase in margins are obvious. In, I think, in '18, we had 11.7%. We had 6% or 7% in '17. For sure, this is based on a volume effect, but also on a pricing effect. I think, last year, we had contracts in which they have been the first ones to be negotiated after the trough, with a very, yes, not so nice-looking margin. This is getting better. And that is mainly the reason now why we are able to improve it by 100- base points to 12.7% or something like that, coming closer to the mid-term corridor, what we always declared, around 15%, mid-teens, yes? The topic is -- or another part of the answer is the market consolidation in China. Here, we talk about big, big projects. The old world, where you have CHF 50 million here and there and where you have been -- where it has been easier to maneuver around, are gone. We talk about several hundreds of millions. There are 5, max 6 big players herein, and this is still demanding. We do our very best beside of operational improvements and volume effects, procurement, purchasing effects, all understood. But we have been clear. Don't expect us, at least not for the time being, what is foreseeable, to be back in a range where we have been 5, 6 years ago, 7 years ago, 16%, 17%, 18%, 19%. No, that's not realistic.

--------------------------------------------------------------------------------

Christian Arnold, MainFirst Bank AG, Research Division - Analyst [8]

--------------------------------------------------------------------------------

The 15% are realistic?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [9]

--------------------------------------------------------------------------------

The 15% are realistic. This is what we are believing in. Yes. And beside, again, it's -- filament is one part, today, 2/3. We have a nicely growing service part. Traditionally, service is, from a margin perspective, the better one. But in parallel, again, here also, we are investing in new fields which -- where we have been -- not been so far, non-woven hygienic products. And this is also coming with a price tag, right? Stable fiber line, I mentioned in Neum?nster. I even mentioned a figure, right?

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [10]

--------------------------------------------------------------------------------

Next question, from Fabian.

--------------------------------------------------------------------------------

Fabian Haecki, UBS Investment Bank, Research Division - Executive Director and Senior Analyst of Swiss Small & Mid-Cap Equity Research [11]

--------------------------------------------------------------------------------

Yes, from UBS. Maybe, again, on Manmade, but on your order guidance of, what is it, the CHF 1.1 billion. And then just reflecting the large order of CHF 550 million you announced back in January 2018. And I think, or until Q3 of this year, you did not really record much of this big order already. So is this still something to come? Has this been delayed? Or does this actually provide you the visibility that you were talking about?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [12]

--------------------------------------------------------------------------------

It -- I think, so far, we do have a volume considered as order intake below CHF 100 million, if I recall it in the right way, right? That means a chunk of the volume is to come, depending on timing, because, again, the CHF 500 million contract is a monster contract, also in terms of building up the factory, right? Even if we would be able to deliver it in 2 quarters, but is not the case, right? And this is one of the elements, what creates a lot of visibility. But when I'm making statements like that we are full in '19, '20, '21, to a big extent, that means the volume, what we have in hand in terms of contracts, signed contracts, down-payment, financing is secured. And then the are traditional checks, yes, from our perspective, other -- the approval's all available, right, to which extent, the key criteria to build such a factory are fulfilled, are done. That means we talk about almost a CHF 2 billion volume, right, over 3 years.

--------------------------------------------------------------------------------

Fabian Haecki, UBS Investment Bank, Research Division - Executive Director and Senior Analyst of Swiss Small & Mid-Cap Equity Research [13]

--------------------------------------------------------------------------------

What is the risk with these large orders of cancellations, postponements, I mean, without having any prepayments or down-payments?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [14]

--------------------------------------------------------------------------------

No, no, no. Without prepayments, down-payments, we would not consider it as order entry. No. I think contracts are signed. Down-payments are given. Financing for the entire project are given. And then you have additional criterias, all the national approvals in China, for instance. So that is fine. Cancellations, we do not have any indications of any cancellations. What does exist is sometimes a small, a minor modification in terms of different types of yarn. And that means the shift from product type A to B or a shift on the time line, in-line with the overarching process of building up the factory, right? But no, no indications for cancellations. And the first signal for such a phenomena would be that we don't discuss future projects anymore, right? But it's not the case.

--------------------------------------------------------------------------------

Fabian Haecki, UBS Investment Bank, Research Division - Executive Director and Senior Analyst of Swiss Small & Mid-Cap Equity Research [15]

--------------------------------------------------------------------------------

Then a second question on Surface Solutions, Additive Manufacturing. You have been quite vocal in the past about that, and now you are all a bit quiet. I see the delays with the certification process. I mean, it's obviously the aviation industry, now that it's fully understandable. But can you update us on what investments have been done, like an atomizer in the U.S. or in Munich, your R&D center? What is still to come? What are you seeing in terms of pipeline manufacturing projects? Where are we from the basis of citim you acquired? And then also, the powder sales, is there any -- how was growth in that business basically and what do we have there?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [16]

--------------------------------------------------------------------------------

You're absolutely right. Additive is developing, but unfortunately, not as fast as we thought and as we anticipated. What is a market phenomena? And you rightly mentioned already the reasons behind. It's about certifications, approvals. It's also about industrialization in terms of costs and process stability. Just to give you one example, our cooperation with Lufthansa Technik. A big, big company, right? And they have a clear -- they clearly identify the potential of Additive, yes? In terms of having an aircraft flying to a destination, there is an indication a part is going to be replaced, no spare parts available anymore or no need to have them available, just send a file and print it locally and replace it. This is the idea. This is the story behind. But today, we have to admit that even if we produce 2 parts in a row and it's the same machine, the parts are not yet sufficiently identical. If you talk about a different printer, it's even a different story. Then the material topic kicks in. What kind of material do you use? Material out of the same batch? Yes, fine. But having 2 different batches being produced in 2 different years or whatever, that means there is a lot to be done here, and all the details are leading to this type of delay. But concerning Oerlikon, I think the story is quite simple. We did the necessary investments. In terms of footprint, we acquired citim, what is great, what is fine. We just build up the 2 sites in the U.S. for a production one and for the material production. And I gave you a hint, that means a hint, I gave you information, 25 materials. There is a high share of that relevant for Additive. That means it tells you something. That means the stuff is moving, if there's a product portfolio that's going to be extended, but the growth takes a little bit longer. That means, for us, we are very cautiously spending in terms of CapEx and OpEx. CapEx is going down. We just do spend what is required from a top- line perspective, from an OpEx perspective as well. That means we are nicely prepared. And we are following-up and working on everything we can do and teaming up also with big companies, Boeing, and you know them all, RUAG in Switzerland here, just as an example, and that is what we do.

--------------------------------------------------------------------------------

Fabian Haecki, UBS Investment Bank, Research Division - Executive Director and Senior Analyst of Swiss Small & Mid-Cap Equity Research [17]

--------------------------------------------------------------------------------

Basically, we're seeing a shift, [decreasing] CapEx from Additive Manufacturing, more to your core business of coatings and service networks.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [18]

--------------------------------------------------------------------------------

Yes, we spend about, I don't know, but how to say it's 200...

--------------------------------------------------------------------------------

Jürg Fedier, [19]

--------------------------------------------------------------------------------

CHF 200 million.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [20]

--------------------------------------------------------------------------------

CHF 200 million in '18. And the same amount you should -- we plan and you should expect for '19 as well. Yes, and I mentioned already some of the initiatives and projects where we are going to spend it.

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [21]

--------------------------------------------------------------------------------

Next question from Armin.

--------------------------------------------------------------------------------

Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [22]

--------------------------------------------------------------------------------

Armin Rechberger from ZKB. Well, to go further here, you mentioned last year, end of the year sales at around CHF 30 million in Additive Manufacturing. Can you confirm on that for 2018? And then regarding the order intake question from Manmade Fibers again. You say -- or you'll guide for 2019 up to CHF 1.1 billion, so we can expect from the 2 big orders you got from China another CHF 450 million. So that means you are expecting just about CHF 500 million for the rest of the year from new contracts, which is less than half you had this year...

--------------------------------------------------------------------------------

Jürg Fedier, [23]

--------------------------------------------------------------------------------

Being recognized in 2019. And because the same, what's happened to -- that could happen also in the -- with the other projects being realized this year.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [24]

--------------------------------------------------------------------------------

Assuming this would be maybe correct, if the entire remaining volume would be recognized and would be booked in 2019, but is not necessarily the case, right? But again, the filament business is 60% to 70% of the business, and then we have all the rest, the other topics, the other portfolio elements. And it's also -- and it goes back to your question, a pricing topic. I have to tell you that we walked away. We let certain projects go, which was a simple reason that the margins have been not sufficient. And again, '19, '20, what the hell should be the reason to take everything, right? That means we are very conscious and very -- (foreign language) a little picky, yes, picky, yes -- what we take, right, because once our capacities are filled, they are filled. And from that perspective, I'm not so much concerned about order entry right now.

--------------------------------------------------------------------------------

Jürg Fedier, [25]

--------------------------------------------------------------------------------

On the Additive sale, yes, we can confirm that we were just a tick below the CHF 30 million for 2018.

--------------------------------------------------------------------------------

Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [26]

--------------------------------------------------------------------------------

I have 2 additional questions, if I may. Vietnam, you mentioned a new plant there. What are you doing there in this plant? And then ITMA 2019, in June, so in natural fiber, at least, it's very common that the clients stay -- wait until after this important fair with the new orders. Might that be the case as well for you? Big plants, I think rather not, but do you see some trends like that, [that deal]?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [27]

--------------------------------------------------------------------------------

I think it's, for us, [foreign language]. Of course, for us, it's an innovation fair here. We expect that we are able to show several new, more digitalized equipment and solutions for our customers as we did it in the fair in Hanover for the BCF application. That is our focus. And you are right, I also would expect that after the fair, maybe the orders might peak because everybody's keen to see what is possible and what is doable, right? That was one element. And the first part of the question was?

--------------------------------------------------------------------------------

Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [28]

--------------------------------------------------------------------------------

Vietnam.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [29]

--------------------------------------------------------------------------------

Vietnam. Yes, it's a good question. We have been -- so far not been in Vietnam. And it's a thin film Balzers application. And here, we saw the opportunity of an upcoming industrial center in the north, and the customer base seems to be promising or is promising. And that cost, the decision on our side, yes, we are a global company, Asia is our market. And from a technology point of view, we are anyhow providing the best solution, and that's why let's do it. We start with one center. It's not the biggest one. It's a smaller one. But nevertheless, each baby going to be born is born as a 3.5-kilogram pack, and then it's growing up.

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [30]

--------------------------------------------------------------------------------

Any further questions?

--------------------------------------------------------------------------------

Unidentified Analyst, [31]

--------------------------------------------------------------------------------

[Bruno Detta from Chrysler]. To what extent is this trade agreement between U.S. and China affecting, for example, Manmade, et al, and for example, in terms of payments and delays or whatever? And my second question is, to keep up the investment in Additive Manufacturing, do you need any cash flows from Manmade in the coming years? I don't think so, but I just want to be sure.

--------------------------------------------------------------------------------

Jürg Fedier, [32]

--------------------------------------------------------------------------------

So we leave it there, we don't think the... the, let me get back to that. So let me talk about the trade agreement. The impact is actually minimal. We have a couple of buckets which are impacted currently through additional tariffs. One flow which we see is actually coming out of Metco. Material powders, which are being produced in Westbury, New York and then shipped to China. So we have seen an impact of about CHF 7 million to CHF 8 million on tariffs in nominal terms, which, for the time being, we are able to pass on. However, we also have a mitigation action in place because you may know that we have the ability in Barfeld, in Germany, to reproduce similar alloys for our material powder compositions, so that will be the solution from that point of view. If you look at vice versa, from China to the U.S, we had some small components which go into the BCF, in the carpet fiber machine as replacement machines, which came out of Suzhou. But again, the impact here is a very low-single million number, right? So overall, luckily enough, we have not been affected dramatically. And again, we have addressed that issue to the extent they may, it may accelerate, that we have mitigating actions in place, right, by shifting supply chain away from the U.S. or away from China for that particular matter, right? On the cash flows that we piggyback on, Manmade Fibers on the cash flows, I wouldn't put it like that. I think the environment in additive has dramatically changed, as you have heard. The CapEx or the big CapEx spending we have done, the big OpEx spendings are actually in place. And again, I don't think we look at it in terms of subsidizing from one side to the other, very unlikely. I mean, it has to come from somewhere, of course. But we will not -- we will not consider that as subsidizing of Manmade to support the growth in additive. We wouldn't put it like that.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [33]

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian. I will like to come back to the Manmade order intake. You mentioned that there's couple of billion. Obviously, if you say you're full in 2019, and almost full in 2020, accumulated CHF 1.8 billion, let's say. How do I reconcile that number with the CHF 400 million order backlog?

--------------------------------------------------------------------------------

Jürg Fedier, [34]

--------------------------------------------------------------------------------

The order backlog is far beyond CHF 400 million.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [35]

--------------------------------------------------------------------------------

Well, what you have published is CHF 405 million, I think, to be precise.

--------------------------------------------------------------------------------

Jürg Fedier, [36]

--------------------------------------------------------------------------------

The pure order backlog.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [37]

--------------------------------------------------------------------------------

So how do you reconcile that number with the CHF 1.8 billion that you must have in terms of visibility? Obviously, you have a higher visibility than what we have according to the accounts. So -- and the gap between what we can see in accounts and what you have is CHF 1.4 billion, maybe CHF 1.5 billion. So how can we explain...

--------------------------------------------------------------------------------

Jürg Fedier, [38]

--------------------------------------------------------------------------------

There are 2 elements. As I said, I think Roland alluded to that before. Once we show it in the order backlog, for as order intake, we have fulfillment of all criteria, which means the prepayment has been done and the financing is in place. Now we have a significant amount of soft backlog. And soft backlog, we haven't been disclosing. But that gives us exact visibility, which means that we have a pipeline of negotiated orders, right? So let's say, we talk about another CHF 200 million, CHF 300 million into the end of '20. Now needless to say, the customer will not prepay for that at this point in time. But it doesn't mean that it doesn't exist, because it exists in the soft. So in the soft, you don't see, right? But those are mainly negotiated contracts, right? And then you have a third element of that, which are contracts, and that gives us an even better visibility, which are contracts, which are being in discussion right now, which haven't the signed contract, nor do they fulfill the criteria for order intake. And that's the way you reconcile that. But since we are not disclosing beyond order intake backlog, we are not going to reconcile that number. But again, I can just reconfirm that. Then as I said, the way the plan the business, the way we look at the business, the way we talk in this consolidation with some of the big accounts, that this will stretch us in '21, even beyond '21, as Ronald mentioned.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [39]

--------------------------------------------------------------------------------

So if I understand correctly now, compared to, let's say, the period 2013, '14 when just after the last peak, you obviously also then had, you always have a soft order backlog, DSOs. But now today, for sure, this soft is much bigger than before, number one, and also less risky than before in terms of not, not manifesting itself at some point? Is that a correct way to interpret it? Because otherwise, I could -- we see, we'd hear normalization, we are all scared about going down. That's the reality, right? And last time, I had to cut my estimate by 50%, after 3, 4 hours. And I was not alone. Everyone. So the issue is when does it come? Does it come? Does it not come? We hope it doesn't, we all hope we can substitute...

--------------------------------------------------------------------------------

Jürg Fedier, [40]

--------------------------------------------------------------------------------

But let's, I mean, I can understand that everybody is trying to relate what they have seen in the past. I think there are 1 or 2 elements, which we talked about, which are different, right? So we are talking in this current environment, which is, to a big extent, driving this demand. Apart from the normal demand which you create through polyester growth demand globally, right, that's in itself about 4% to 5%. But then you have this consolidation taking place. And contrary to what you have seen in the Natural Fiber space, where capacity continue to drag and be removed somewhere else, those capacities are literally shut down. That's an important element. So not all what we fuel over the next couple of years is doomed to, or correlated for direct growth, right? But it's -- a big part of that is the substitution, and at the same time, a substitution to better quality of the machines. And that's where this whole element of automation and all that is coming in, which we're having. The other element is, and I think that's also important to understand, again, you haven't seen it, so probably a little harder to convince you. But what we deliberately do is to make sure that we manage it here. If we talk about the cyclicality, we basically talk about the cyclicality in filament in the China market, right? We all agree, I think that's important. That's the common denominator which we need to have. But there, again, we are trying basically to offset at least part of that volatility, which gives us a better assessment on how big that volatility potentially may look like. And that goes in the area of automation, which again is there and very impressive, by the way. If we talk at AC automation, the one which we bought and we can do, in big, in future projects will absorb a big part of that volatility. And the other one, I think Roland mention is on the non-volume space, right, into hygiene applications and the like. So I'm not saying that we'll 100% offset that. But it certainly will take out a big part of the volatility. That's the way I would...

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [41]

--------------------------------------------------------------------------------

That's the downstream part of the explanation. Then there is an upstream part. Please do me a favor, don't compare our Manmade business as of today with the Natural Fiber of the past. Today, our equipment is part of a bigger chain. It starts with the petrochemical industry cracker and where you produce your polymer, right? And this is nothing, what you can switch on or switch off, yes? That means our equipment, our elements, we are providing our essential parts of a much bigger chain of production. It starts with the pipelines, the oil and fuel supply and the cracker and the polycondensation topic and then our equipment kicks in, right? That means there are -- the decisions to go for such plants are much more conscious than the natural fiber plant where you take cotton from, I don't know, from still from U.S., or I don't know exactly, and then you start producing and working on them or you don't do it. That means this gives us much more sustainability and reliability in this business.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [42]

--------------------------------------------------------------------------------

Thank you very much for this additional information. It was very helpful. I have 2 very short one, if I may. On the cash flow, CHF 200 million -- my calculation is about CHF 217 million free cash flow. That means operating cash flow minus acquisition of -- without companies, but PPE and the intangible assets. And my calculation was CHF 217 million free cash flow for this year, how much of that, how much did Graziano contribute to that number, if at all?

--------------------------------------------------------------------------------

Jürg Fedier, [43]

--------------------------------------------------------------------------------

Yes, of course, they did contribute. Do you have that in?

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [44]

--------------------------------------------------------------------------------

It was not disclosed.

--------------------------------------------------------------------------------

Jürg Fedier, [45]

--------------------------------------------------------------------------------

We have not disclosed, but I could not find, I couldn't tell you how much it is.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [46]

--------------------------------------------------------------------------------

Well it here, there is a number, CHF 7 million, but it's not ...

--------------------------------------------------------------------------------

Jürg Fedier, [47]

--------------------------------------------------------------------------------

Exactly.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [48]

--------------------------------------------------------------------------------

That's not exactly what I'm looking for. I'm not sure that is the same.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [49]

--------------------------------------------------------------------------------

But the CHF 7 million...

--------------------------------------------------------------------------------

Jürg Fedier, [50]

--------------------------------------------------------------------------------

Okay, I see what you mean. Yes, but it was not significantly higher than that, right, because we had...

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [51]

--------------------------------------------------------------------------------

Because of the [clutch box] transaction?

--------------------------------------------------------------------------------

Jürg Fedier, [52]

--------------------------------------------------------------------------------

No, because there were, the cash flow consolidates into the Oerlikon cash flow for 2018, right, where the [lock box] and our credit is continued, or not discontinued. But we had significantly higher CapEx spend. So that is actually correct, the contribution, if I may say so, was probably in the magnitude of about CHF 20-plus million max, right, from Drive Systems right. In terms of free cash flow, right?

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [53]

--------------------------------------------------------------------------------

Yes, sure. And last one, on additive again. You mentioned CHF 30 million. What I've been hearing now, I wonder if you are sort of expecting any growth at all now or you still expect?

--------------------------------------------------------------------------------

Jürg Fedier, [54]

--------------------------------------------------------------------------------

Yes, sure.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [55]

--------------------------------------------------------------------------------

Yes, we are expecting a sound double-digit growth rate here coming from lower levels, and level has been mentioned by Jürg. And that gives you an indication where we will be, end of '19.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [56]

--------------------------------------------------------------------------------

All right. Just a very short one, I don't, then I finish. On the additive side, can you really discriminate how much of the powder that you make are really additive-related and, hence, contribute to that CHF 30 million? Or is there a gray area where you at the end, you don't know really?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [57]

--------------------------------------------------------------------------------

No, when we talk about additive, we know what it is. It's a substantial amount, below 50%, of course, material, and the rest is service. And normally, we do know because in these days now, the customers are aware, there are different grades in terms of purity, in terms of characteristics of some material. The old days where this -- was the case, yes -- we sold material, a powder to a customer, not knowing we're using them for additive applications, but this is gone. In these days, the customers and we are aware.

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [58]

--------------------------------------------------------------------------------

Any further questions? This one.

--------------------------------------------------------------------------------

Unidentified Analyst, [59]

--------------------------------------------------------------------------------

Michael [Russe] from [inzarious]. Just a question on the order backlog again, your soft order backlog in the Manmade Fibers. Can you tell me what is the element in there which is pricing-related? Because you also mentioned a bit earlier that you walked away from certain projects where the pricing has been going up.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [60]

--------------------------------------------------------------------------------

Yes, that is correct. I made this statement. But contracts where we walked away are not in our order backlog.

--------------------------------------------------------------------------------

Unidentified Analyst, [61]

--------------------------------------------------------------------------------

Not at all?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [62]

--------------------------------------------------------------------------------

Not at all. Not even soft, not, no, no.

--------------------------------------------------------------------------------

Unidentified Analyst, [63]

--------------------------------------------------------------------------------

Not at all.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [64]

--------------------------------------------------------------------------------

Not at all. To become a soft backlog, at least you have a signed, you need a signed contract, yes? Otherwise, it's nothing.

--------------------------------------------------------------------------------

Unidentified Analyst, [65]

--------------------------------------------------------------------------------

No, no, for sure. I just thought that maybe you're a little bit more willing to accept something a bit further time-line when the pricing is a little bit lower there.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [66]

--------------------------------------------------------------------------------

No, no, no.

--------------------------------------------------------------------------------

Unidentified Analyst, [67]

--------------------------------------------------------------------------------

Okay. And what is the next step, for example, for that to turn into a proper order backlog, so to speak? Is that prepayment? That then will flow in, or how will that be?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [68]

--------------------------------------------------------------------------------

There is a down-payment or prepayment, to a certain extent. There is financing for the entire project. And I just referred to our application, yes? It's -- we want to see the progress of the entire chain, right? Because if the chain upfront doesn't exist, the probability that I am going to deliver on my part is ending in the midst of nowhere, and not being used is quite high. And from that perspective, there are criterias where we can see, okay, it makes sense. Because it also doesn't makes sense to build a polycondensation plant and then doing what with the stuff, right? So I think there are simple criteria usually used in project business to check what is your probability, what is -- and again, the approval topic is really very important, right? Sometimes, entrepreneurs dream about something, but so that means this is really a conscious decision where we see -- and big chunks of contracts are going to be divided into, how to say, buckets, right, having different delivery days.

--------------------------------------------------------------------------------

Unidentified Analyst, [69]

--------------------------------------------------------------------------------

So these pricing, these lower-priced projects are now out of -- they've been taken by somebody else? No, or?

--------------------------------------------------------------------------------

Jürg Fedier, [70]

--------------------------------------------------------------------------------

No, no, no. The -- let's be careful throwing around these black-and-white scenarios. The build down of the order pipeline is: A, related to the customers, so his project time schedule and all that. So it may very well be that you still have different pricing, or in fact, you do have different pricing in the pipeline, but it's very much dependent on when those projects are being called, right? So you don't have an automatic fall-away from low pricing, and everything which is coming is on the higher pricing. But that's why we say, that's what we're trying to help you to guide. But over the year, if we look at the build down of the pipeline, that we should expect about 100- base points improvement on that, right? Because, again, somebody may decide that in a bigger order, that he's moving the thing to '21 instead of '20, right? And that's obviously all part of it. So it's not that black and white in terms of the pricing situation. That incrementally the value of the pipeline or intrinsically the margin profile increases, that's what we all agree, because otherwise we won't be able to move the margin profile year-over-year.

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [71]

--------------------------------------------------------------------------------

A follow-up here, (inaudible)

--------------------------------------------------------------------------------

Unidentified Analyst, [72]

--------------------------------------------------------------------------------

A quick follow-up on the balance sheet. What will be the run-rate net cash position after you get the proceeds and you pay out the dividend and now taxes and everything that comes with that?

--------------------------------------------------------------------------------

Jürg Fedier, [73]

--------------------------------------------------------------------------------

Well, the only variable which you have in there is what we would potentially would spend in bigger acquisitions going forward, right? Because you know what we're going to spend on the dividend, right? And that's -- you know based on the underlying basis, what we are guiding, what potentially you will have in terms of additional cash generation. As I said, the big variable in there is just the timing of some big transactions.

--------------------------------------------------------------------------------

Unidentified Analyst, [74]

--------------------------------------------------------------------------------

So but it CHF 400 million under net cash at the end of the year plus CHF 600 million proceeds and then minus CHF 300 million?

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [75]

--------------------------------------------------------------------------------

Plus cash flow generated.

--------------------------------------------------------------------------------

Unidentified Analyst, [76]

--------------------------------------------------------------------------------

Plus cash flow generated. Yes. And then, in terms of balance sheet, you mentioned larger acquisitions which might come. To which level would you leverage your balance sheet?

--------------------------------------------------------------------------------

Jürg Fedier, [77]

--------------------------------------------------------------------------------

Well, it hasn't changed actually, our position. We always said we want to be between 2 and 2.5 over time, which again, let me precise, doesn't mean that upon inception the leverage may be a tick higher, but is then based on the underlying strengths on the cash flows and the de-leveraging capability, that's the magnitude which we are looking at. And that's why we are saying, and I think that's an important message that even with this additional distribution of the dividend, we are not impairing ourselves on the acquisition side, which we already have heard from some of the journalist this morning, right? So that's their own interpretation.

--------------------------------------------------------------------------------

Unidentified Analyst, [78]

--------------------------------------------------------------------------------

And last one on that. You mentioned in the past that you would certainly look at the Praxair business if it will be in the market. Any updates on that front? Are they still not really open for discussions because they have other topics?

--------------------------------------------------------------------------------

Jürg Fedier, [79]

--------------------------------------------------------------------------------

I leave that up to Roland.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [80]

--------------------------------------------------------------------------------

Yes. No, it's -- but you -- [Esteban] is correct. This is something what we are always looking into, but there is no progress here, not because of us, but because of the target itself.

--------------------------------------------------------------------------------

Armin Rechberger, Zürcher Kantonalbank, Research Division - Analyst [81]

--------------------------------------------------------------------------------

Yes. Armin Rechberger from ZKB again. Manmade Fibers, the wording was it belongs to the portfolio, but not to the core business. Any changes there or -- in the wording? How do you see it?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [82]

--------------------------------------------------------------------------------

It's a little bit semantic. No, I think it depends on how we see it. When we say it's a material, we are a material and Surface Solutions company. It's obviously not in the center of the gravity, but also immaterial, right, in a wider sense and for the time being, it's core, we don't touch it. We don't follow any plans to divest it or -- yes, and yes. More I hardly can say.

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [83]

--------------------------------------------------------------------------------

Good, I think -- there's one follow-up.

--------------------------------------------------------------------------------

Unidentified Analyst, [84]

--------------------------------------------------------------------------------

Yes, just one follow-up on Additive Manufacturing. You continue saying that the burden is 200 bps and you print that again in your guidance. But you have massive deviations from your original plan, and we're saying that you are lowering now CapEx and also you're very -- have become cautious on OpEx. And obviously, like GE aviation doesn't give you an order for a series production of a part, you don't need to buy these 3D printers, you don't need to buy an assembly hall. You, also, you need less Additive Manufacturing salespeople that are -- can be quite costly on the OpEx side. So I mean, is this 200 bps, which is -- it does not seem to be like exact math, I mean, can it be that it will actually be lower, because you don't need to submit that much and there might be some upside to that?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [85]

--------------------------------------------------------------------------------

Fortunately, we never gave a detailed explanation of what for we are spending the money today. I gave you more titles and not only titles, I think these are really initiatives. And you will see, you will see the press announcement when we're opening this center, that center, what we are doing here, yes? And -- but we felt we have to give you a kind of better understanding that it's not only additive, there are other elements herein. And this sums up to -- I think you mentioned the figure even, right?

--------------------------------------------------------------------------------

Jürg Fedier, [86]

--------------------------------------------------------------------------------

I think the reference is [2AM] in particular, right?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [87]

--------------------------------------------------------------------------------

And this was a bigger part of it. Now it's not going to be too much to be increased, but other elements are kicking in. And that leads to an effect of -- and you are right, it's a rough estimation. By purpose, it's a rough estimation.

--------------------------------------------------------------------------------

Jürg Fedier, [88]

--------------------------------------------------------------------------------

But let me perhaps just add one comment and I think we have said that many times. The main investments, in order to be able to operate and going to small series production and all that, we believe, has been done, right. There obviously a good leverage, which we can pull in terms of adjusting the OpEx side, later on the CapEx, of course, which has been spent. But that's exactly why we play. So I go back on what we said before. This is not exact science, right? But we believe that we can manage that dilution at least at the time where the business is still in the ramp-up around the 200- basis points. That's perhaps another way to look at.

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [89]

--------------------------------------------------------------------------------

A final question then, from Alessandro.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [90]

--------------------------------------------------------------------------------

Then the CHF 25 million, CHF 20 million to CHF 25 million that you mentioned before in relation to these additional expenses, is it something on top of the additional?

--------------------------------------------------------------------------------

Jürg Fedier, [91]

--------------------------------------------------------------------------------

Yes, it is.

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [92]

--------------------------------------------------------------------------------

And is it also something new in this sense? I mean, is it -- did you sort of -- is it an acceleration topic? I mean, this kind of stuff, you have to do it anyway. You told me once, when I asked you a question on EBITDA, we are not sending out numbers, we're managing our company. So if you manage your company, you -- if you remember that, right, it still is the case? So you still invest in R&D and stuff like that, so is this sort of an acceleration? So how do I understand that?

--------------------------------------------------------------------------------

Jürg Fedier, [93]

--------------------------------------------------------------------------------

Look, Alessandro, the -- there are certain -- I think Roland mentioned it very nicely. A, yes, they're on top of that; B, there are just a lot of things which are happening in terms of digitalization. And again, it will go beyond what we can discuss here. But that's an element, I think, Roland talked about, which is extremely important, a lot of activity behind. I mean, again, I can spend CHF 20 million, CHF 30 million, CHF 50 million, CHF 100 million, right, while we have chosen not to do so. That's one example. We have a need. We talked about that in the past, in harmonizing the SAP environment, right? That's happening as we speak. We just will -- I will inaugurate next week our shared service center in China, which again is done for the purpose. It's absorbing some money, but will help us to harmonize from an operational point of view, get some efficiencies of putting robotics in and the like. The same, by the way, we do in Warsaw, right, when go live in Poland with the service center, the middle of the year. And those are just a couple of things. They're not coming without investment. And that's what we are talking about. And again, here, I would take the same approach. We're obviously very cognizant to sensitivity, which were going to create on the group. But those are things you can manage. You cannot avoid them, right? You cannot say it's 0 or not. I cannot run an SAP project, and say, this year, I'm not going to spend anything. You know that doesn't work. But that's exactly what it is, but there is some flexibility at the outer range in managing that cost base. Do you see what I'm trying to say?

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [94]

--------------------------------------------------------------------------------

And the topics don't happen exponentially, yes? In a nutshell, I think the company is growing far beyond the market growth. This is not coming out of the blue. There are initiatives behind. There is a blend behind where we, in the past sit together, identifying opportunities. These opportunities have to be developed. And again, new countries, new customers, new technologies, new applications, this is driving our growth beyond the market growth. And now it's the time to make it happen, to build it up and to bring it in a commercial operation. And this is just one example, this shared service topic, right? But there are others, yes? And that's the reason why we, and again, I don't want to sound too negative. I'm happy. I'm extremely happy that we at Oerlikon do have these opportunities, that you have a chance to spend this type of money for these purposes because it's a basis, a foundation for the EBIT to come in 2, 3 years, right? In 3 years' time, we will be a strong supplier in CVD, for instance. This will be another pillar beside, within our thin-film coating business based on a different technology. It would be stupid not to do it. So sorry for being emotional.

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [95]

--------------------------------------------------------------------------------

That's okay.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [96]

--------------------------------------------------------------------------------

Does it help, Alessandro?

--------------------------------------------------------------------------------

Alessandro Foletti, Octavian AG, Research Division - Financial Analyst [97]

--------------------------------------------------------------------------------

It does. I mean, please don't understand my questions like I am not happy that you have opportunity to invest and that you invest. It is not -- I don't want you not to invest to grow, of course. It's just the mathematics don't end up exactly, precisely.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [98]

--------------------------------------------------------------------------------

Well, on your side maybe.

--------------------------------------------------------------------------------

Jürg Fedier, [99]

--------------------------------------------------------------------------------

Yes, the spreadsheet probably allows for some slippage, right?

--------------------------------------------------------------------------------

Andreas Schwarzwälder, OC Oerlikon Corporation AG - Head of Group Communications, IR & Marketing [100]

--------------------------------------------------------------------------------

And we're happy to discuss this offline. I think we've answered all the question, then we close our -- this year's full year announcement. Happy to speak to all of you on the May 7 when we disclose our Q1 results and we'll have the opportunity to further deepen the discussions throughout the year. Thank you very much for attending. Thank you for joining the webcast, and the IR team is obviously happy to support you in case of any additional questions you may have. Thank you very much, and have a good afternoon.

--------------------------------------------------------------------------------

Roland Fischer, OC Oerlikon Corporation AG - CEO & CEO of Surface Solutions Segment [101]

--------------------------------------------------------------------------------

Thank you.