OC Oerlikon Corporation AG

Ladies and gentlemen, welcome to the Erlicon Q3 2021 results conference call and live webcast. I am Paul, 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 Stefan Gick, Head Investor Relations. Please go ahead, sir.

Good morning and welcome to Ehrlichon's Q3 financial results call. With me in the call, I have Roland Fischer, CEO and CFO of Ehrlichon. We start the call with a business update from Roland. Then, Philip will go through the financials, which we will then follow up with the Q&A. Roland, the floor is yours.

Thank you, Stefan. Good morning to everyone and welcome to our third quarter results presentation. Our third quarter was again a strong operational quarter. Besides continued financial growth, we demonstrated technology leadership and executed on distributed capital allocation by integrating our two acquired companies, Inglas and Codor. And now let's go into some more details on the quarter with a short summary on page three. Sales of 695 million Swiss francs were up 17%, and order intake at 835 million Swiss francs increased by 61% year-over-year. This represents the highest quarterly order levels since the year of 2014. Growth was driven by a strong performance in both provisions. In service solutions, we saw sales slightly improving compared to the second quarter. The generally improving trends in service solutions are supported by a book-to-bill ratio that has been above 1 for the last three quarters. Demand for automotive and tooling was robust, with impacts from supply chain shortages being roughly in line with our expectations. We also saw positive development in general industries and aviation. In polymer processing solutions, we achieved the highest order intake in sales in the last eight years. We continue to experience a very strong market environment and are currently making excellent progress, filling up order books for the year of 2023. Our group operational LPTA of 170 million Swiss francs increased by 26% compared to last year and showed sequential growth. Continued cost containment and operating leverage supported operation FDA margin expansion year on year. And summing up, we as a team have delivered a robust third quarter supported by a solid operation execution. And based on Q3 and current visibility, we confirm the 2021 group guidance. Looking beyond the transitory supply chain bottlenecks, we do see strong commercial activity. Combined with operational execution, it will provide a positive backdrop for the mid-term outlook in both divisions. On the next few slides, I will give you a business update before Philipp goes into the financial details for the quarter. And now, let's move on to the market update on page four. Our end markets continue to face deferring recovery profiles. In polymer processing solutions, we achieved the highest order intake in the last eight years. Demand in the filament market is very strong, with key players in China continuing their downstream integration. We continue to make good progress with our structural shifts into more non-filament business. Larger integrated systems combined with our latest technologies save significant energy and are a strategic priority for China. We see strong demand for plant engineering solutions, such as stable fiber and continuous polyquantization plants. We also see a positive market development for our BCF, our carpet yarn technology, particularly in the US. The acquisition of InGlass opened up polymer processing markets in automotive and general industries. In automotive, the market development is strong as sales are mainly linked to new and updated light vehicle models. Every time there is a design change, the hot runner and mold needs to be replaced or optimized, and so there is less of an impact from temporarily lower production levels. Overall, we continue to expect the Polymer Processing Solutions Division to reach a positive book-to-bill ratio in the year of 2021. This will also support our sales growth trajectory in 2022, while we are currently filling order books for the year of 2023. In the Service Solution Division, we are operating across the tooling, automotive, aviation, and general industries end markets. The recovery continues to differ by end market. we achieved combined a 15% sales growth in the third quarter. The general industries and energy end markets see shorter cycle services recovering well. The recovery in general industries is broad-based, and we also see oil and gas gaining momentum. In automotive and tooling, we saw intensified supply chain interruptions due to semiconductor and commodity shortages in the third quarter. As such, We are affected by temporary shutdowns of major customers during summer holidays. We mostly anticipated this in our full-year guidance provided in August. We see supply chain interruptions as transitory and the strong demand environment gives us confidence for the medium term, as I will highlight later on. And finally, in aviation, sales improved in the third quarter with more flying activity and demand for MRO services. Aviation remains substantially below pre-pandemic levels, and new COVID variants do have the potential to further extend the recovery profile. Even on low levels, the beginning of the recovery is positive, and it will be a tailwind for Erlikon for some time to come. And so, summing up, we see a strong market environment for polymer processing solutions. In service solutions, we are closely monitoring and mitigating the impact of transitory supply chain bottlenecks. We consider the strong demand environment across our end markets a positive indication for medium-term growth. And now, let's move on to page five, where we provide an update on our strategic priorities. Our strategy to drive profitable growth, extend addressable markets, and gain market share is unchanged. As a result, we are focused on three key strategic priorities, sustainable innovation, cost containment, and disciplined capital allocation. In terms of sustainable innovation, we have launched in Q3 a new thin film coating product family, Baldia. It is designed for the machining of high performance ceramics, carbon reinforced polymers, and high abrasive aluminum alloys. Our recently acquired in-glass launched a new nozzle for injection molding of small parts. This opens up a new market for parts weighting less than 10 grams, where high cycle times are required. And last but not least, we also launched a new coating powder for solid oxide fuel cell applications. In terms of cost management, we achieved 110% basis points expansion in operational APDA margin driven by service solutions. On group level, we reached the 16% to 18% target corridor in the third quarter and for the year to date. And finally, discipline capital allocation has been a key priority for Earlycoin since many years. The integration of our recent acquisitions, Inglas and Cordor, are well on track. They are adding diversification to our business and position us well in growth markets. The addition of Inglas is already benefiting both divisions and allowing them to operate better together. We achieved a 16% sales growth in non-filament for the year to date. In terms of R&D, we focus on capital return and growth, as I will present later on. And last but not least, we paid a stable dividend in the first half year and have been buying back shares in Q3. I will provide now some more details about our view on the automotive end market on the next slide. As highlighted before, our automotive customers are experiencing supply chain constraints that impact their production. Some of these shortages are expected to extend into the first half of 2022. We are mitigating the impact the situation has on us by tightly managing our operations and production capacities while retaining the ability to step up production on short notice. Important for us is also to look beyond the current supply chain bottlenecks. Light vehicle production is expected to steadily recover over the coming years. With high end user demand and car inventories at very low levels, we see Erlikon well positioned to benefit from the recovery. On the right hand side of the slide, I want to focus on the longer term picture for our automotive business. The chart shows the production forecast for light vehicles the powertrain alternative. And one of the most important takeaways for our product portfolio is that the combination of internal combustion and hybrid engine production is expected to be roughly stable over the next decade. These are the traditional early current applications and provide a stable base for our growth initiatives. More efficient engines required by regulations and traditional gearing needed for hybrid transmissions are expected to result in increased coating requirements and service treatments per vehicle. On top of that, we are pricing R&D in battery and fuel cell applications to capitalize on electric vehicles. We are looking into heat shields for batteries and into coatings for battery housings, sensors, and electric motor components. Tangible electric vehicle opportunities also include coating solutions applied on forming tools. Furthermore, in-glass hot runner systems should benefit from increased use of lightweight components in light vehicles. And last but not least, electric transmissions produce higher load factors via increased torque, which will need additional service treatments and coatings. All in all, we are on track with focusing our investments to support our customers in their transition to future mobility. With that, let's move on to the next slide, where we take a look at polymer processing solutions growth. Since 2014, we have grown polymer processing solutions sales by around 25%. This has been driven by growth in filament and non-filament. In filament, we have a broad and integrated offering of machines and engineering solutions, which our customers use to produce man-made fibers used in a pier. We have a strong market position. Strong demand is driven by innovation, resulting in economical and ecological productivity improvements, continued downstream vertical integration of large filament producers, and man-made fibers outpouring natural fibers. In the last few years, we initiated various growth initiatives to diversify our business into non-filament applications and plant engineering. We are doing that by addressing adjacent growth and niche markets with innovative high quality offerings. As you can see on the top left of the slide, we have been growing sales of nonwoven with a CAGR of almost 50% since the year of 2014. This was initially accelerated by the success with the face mask applications in the year of 2020. Now, we are also selling systems for non-woven applications such as wet wipes and filters. This has been growing substantially with a CAGR of around 30% to 40% since we announced the joint venture with Technowave in the year 2017. Going forward, Erlikon continues to aim for growth, application diversity, and market share gains in the non-woven market. Other successful growth initiatives can be seen in our plant engineering business, where we reached a sales CAGR of 17%. Furthermore, our increased focus on customer service drove a 5% sales CAGR in services since 2014. Importantly, the customer service business is closely linked to the production levels and OPEX decisions of customers. It therefore adds a robust baseline to polymer processing solutions sales. As outlined on the bottom left, we are complementing organic growth initiatives with accretive Bulldon acquisitions. We delivered that this spring with the acquisition of InGlass. It expands upon our key polymer flow control competency that drives polymer processing in Mehmet Fiber's applications. InGlass was cash and margin accretive from day one, and significantly accelerated our diversification towards non-filament. The adjacent in-glass market opportunity is over 2 billion Swiss francs. It's highly fragmented and is growing with a mid-single digit percentage annually. This provides solid perspectives for attractive organic growth and opportunistic bolt-on acquisitions. Adding up our organic growth initiatives and bolt-on M&A, the Erlicon team is well on track to transform polymer processing solutions into a cross-platform with market-leading returns. Our target is to reach a diversified 50-50 sales split between filament and non-filament, as you can see on the right side. And now let's move on to the next slide, where we highlight our focus on capital returns. We have communicated earlier in the year that we have a midterm ambition to reach a double-digit rosy. In order to achieve that sustainably, we have further increased our internal focus on managing capital investment and return. With strength in our capital allocation framework, this capital return and growth perspective representing key investment criteria. Based on defined hurdle rates, we raised the focus on allocating CapEx and R&D investments to high return and growth areas. This is complemented by the introduction of zero-based budgeting in order to intensify the internal competition for capital, especially for investments in growth and innovation. We also introduced standardized review processes to better monitor the achievement of investment targets, including capital returns. And last but not least, we introduced ROSI as key metric in our long-term management intensification programs. We are convinced that these measures will help us to position our company to sustainably generate a double-digit rosy over time. Upside will also come from recovering end markets and continued cost containment. And all in all, our strength and focus on capital return will position us well for profitable growth as we continue on the next slide. We see upside potential for sales and margins in both divisions in mid-term. In Service Solutions, we are well positioned to benefit from recovering markets beyond currently supply chain interruptions. While shorter cycle Service Solutions business is driving the 2021 sales recovery, we have further upside from a longer cycle business. Growth will be driven by sustainability, megatrends, innovation, cross-selling, new applications, as well as continued geographic expansion. The supply chain and semiconductor shortages have put the recovery in tooling and automotive on pause and we expect it to resume during the year 2022. Besides growing service solutions from a top-line perspective, we will maintain our cost focus and allocate capital reasonably. In polymer processing solutions, we have the target to reach a 50-50 sales diversification between filament and non-filament. In filament, we see a continued strong demand environment and currently we are filling order books for the year 2023. In non-filament growth is supported by our growth initiatives and the creative bulldog acquisitions. Summing up, the improving commercial activity and strong operation execution provides a positive backdrop for our midterm outlook and profitable growth. Team Erlikon has done a fantastic job in preparing the organization for the next stage of structural growth. And with that, I will now hand over to Philipp, who will take you through the financials in more detail. Thank you, Roland.