OC Oerlikon Corporation AG

Ladies and gentlemen, welcome to the EarlyCon Q2 H1 2020 results, conference call and live webcast. I am Alessandro, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Andreas Schwarzwalde, Head of Corporate Communication and Investor Relations at Erlikon. Please go ahead, sir.

Thank you, Alessandro, and good afternoon, ladies and gentlemen, and welcome to Erligon's conference call on the 2020 second quarter results. Particularly in light of the current circumstances, I do hope you're all well and staying safe. With me today is Dr. Roland Fischer, our group's CEO, and Philip Muller, the group's CFO. As a reminder, all related documents on the second quarter results, including the following presentation, are available for download on our website Today, Roland Fischer will talk about the Ehrlichon's development and response to the COVID-19, how it has affected us during the second quarter, and outlining our decisive actions we have taken, and how we will emerge from the post-COVID-19 world as a stronger business. Philip Mueller then will give you an overview of the financial performance during the second quarter and the first half of 2020. After the presentations, as mentioned, we will host the Q&A session to answer your questions. The conference is being recorded, and the replay is available on our website shortly after the presentation today. And now, having said that, I'll hand over to Roland.

Yeah, thanks a lot, Andreas, and welcome to all of you from my side as well. Before we start, let me say a few words about the challenging times that we are living through. I hope you all and your families are well and you are staying safe. And I'm extremely proud of the way how Erlikon's employees are handling this crisis with respect to the challenges both professionally and personally. And from a business perspective, we cannot avoid the effects of the global crisis also. we have taken strong and decisive actions where we are able to do so, mitigating the impact where possible for our employees, our stakeholders, and shareholders. And I'm very pleased to report that the MainMed fiber segment has delivered the expected strong performance during the second quarter. We achieved year-to-date order intake of over 500 million Swiss francs and have a very strong order pipeline to the year end and beyond. The strong operational performance during the second quarter has enabled sales to increase more than 20% sequentially and gives us confidence that the full year figure will be over a billion in orders and sales for the third year now in a row. We also made progress in further diversifying our main-made fibers product portfolio by accelerating the non-woven business activities. The COVID-19 pandemic increased the demand for our melt-blown technology, and here we are able to sign 15 contracts for the solution, which is required to produce fleeces for facial masks, and additional projects are under negotiation. The service solution segment was impacted across all geographies and all end markets. We have seen some initial encouraging signs of moderate recovery in June and now in July. However, it is by far too early to know for sure the degree and spacing of the recovery, given the significant risks still posed by the COVID-19 pandemic. And during the challenging lockdown period, We continue to deliver in many countries our services and technologies as they are considered critical and system relevant by our global customer base. We continue to invest in innovation to serve customer needs and drive structural growth. We do have the right technologies, the financial strength and the team in place to take advantage of a market recovery. And you might recall last year we announced structural actions to address the softening market conditions. With the onset of the pandemic, we have accelerated and deepened these measures and have taken additional costs and liquidity preservation measures. Through a combination of short-term measures and the early impact of our structural programs, we have shown excellent operational gearing. to be able to reduce operating expenses by 90 million Swiss francs year-on-year in service solutions. And by the end of June and ahead of schedule, we already actioned more than 400 of the planned 800 headcount reductions. Early-turn-end service solution will emerge stronger and more nimble from 2020, and we remain committed to our mid-term profitability targets. One key element to achieve the target is the structural cost base in the service solution business. Our priority is to substantially reduce the cost base, reacting to structural market trends. We are ahead of schedule with our program to reduce the service solution headcount by around 10% or 800 people. At the end of June, I mentioned it already, we are more than 50% complete and anticipate being 85% complete by the end of this year, 2020. The structural program is not limited to headcount, but is also designed to yield long-term benefits through more efficient working practices and technology adaption. Overall, we target an annualized run-rate EBITDA savings of around 60 million Swiss francs. In total, we expect implementation costs of around 60 million Swiss francs, and here, let me remind you that 25 million have already been booked in 2019, and 21 million will be booked and rebooked in the second quarter of this year. Our global service network, leading technologies and market position will preserve the ability of service solutions to grow structurally once markets recover and return to growth mode. Nevertheless, we are continuing to evaluate actions to further optimize our structures and cost base, considering the current environment. The elements of top line growth in combination with cost discipline and capital efficiency provides the framework to achieve our midterm commitment to group EBITDA margins between 16 and 18%. Over the past quarter, we have seen a continuation of multifaceted economic development of the COVID-19 pandemic, which we experienced already in the previous quarter. The strength of Man-Made Fiber's market position, customer proximity, and order book continue to provide a stable base in this economic environment. Our order book and the filament business remain sticky with no cancellations and continued visibility out to the year of 2023. The special filament business, including industrial and carpet yarns, remain weaker as a result of pre-existing market softness and the geographical profile of our customer base outside of China. The COVID-19 pandemic has, however, generated a strong global demand for early corn's milk-blown non-woven technology, which is used to produce face masks. This demand has grown, driven by government regulations and the need for greater self-sufficiency and reduced reliance on imports of critical medical items. It can be seen on a daily basis across Europe and the rest of the world with government's regulations and guidance for wearing masks in public places. The strength of the underlying market conditions can be seen in the order intake with 366 million Swiss Francs in the second quarter. resulting in 510 million CIS francs for the first half of the year. This underpins our confidence in delivering sales of over a billion CIS francs for 2020. In service solutions, the imposed lockdowns due to the pandemic impacted all of our end markets and provide different recovery pattern. In tooling and general industry, both representing about 17% of our first half year sales each. We are closely correlated to industrial production, which saw a substantial decline in the second quarter. All regions were materially down sequentially in the second quarter. However, we recognized the recovery pattern in China during the second quarter with increased business activities and the rebuild of inventory. following the easing of the strict pandemic measures. Assuming comparable scenarios for Europe and with the time lag in North America, we expect the second quarter to be the trust. The pattern of recovery is more likely to be V-shaped. In the automotive industry, which was substantially down in terms of deliveries and production in the second quarter, with declines of around 30%. The market currently expects a decline over 20% for the full year of 2020. With the easing of restrictions and lockdowns, particularly in Asia and Europe, we recognized some recovery in the latter part of June as key OEMs slowly ramped up production and or restocked for start of production. And therefore we now assume to see a U-shaped recovery. And last but not least, in the aerospace industry, challenges have been compounded by the sudden and substantial reduction of commercial air travel. IATA forecasts a 55 decline of passenger traffic in 2020 and now expects a return to 2019 levels only in the year of 2024. This leads to a deep and extended down cycle and prolonged recovery. However, Given the megatrends in global mobility and global trade, our belief in long-term structural growth trends remains unchanged. We continue to monitor the ongoing impact on the virus, including potential additional waves. Subject to the situation not substantially worsening, we see the second quarter as a draft in most markets. The shape of the recovery has plenty of facets across the different industries and it is very difficult to predict. Early stability and strength as a group and the structural long-term market dynamics combined with the decisive actions we are taking will position us well for the recovery when it comes. And while we are navigating the continued economic impact of the downturn, We also have a keen focus on positioning our company strategically for the future. Service solution remains a strong and leading industrial technology business. The decisive actions we have taken will increase the resilience of the segment. The business will be capable of delivering higher levels of probability. When there is a return to an environment of structural growth, The business is well positioned to ramp up and deliver sustainable and profitable sales. And in our manmade fibers business, which has evolved as a business and is today, again, a strong stabilizing factor for the group during this time. Our efforts to diversify the business are beginning to yield results and it continues to deliver strong returns. And last but not least, our healthy balance sheet positions us, sorry, well for the future, and we will be ready to execute when the right growth and M&A opportunities present themselves. And following the commercial and market overview, let me now hand over to Philipp to present the group's financials. Philipp, it's yours.