OC Oerlikon Corporation AG

Good afternoon, ladies and gentlemen, and welcome to Ehrlichon's 2021 results presentation. My name is Stefan Gick, Head of Investor Relations, and I have here with me Roland Fischer, CEO, and Philipp Müller, CFO of Ehrlichon. Roland will start the presentation with a business update, then Philipp will highlight the financials and the outlook. We will then take questions in the end. With that, I would like to open up our presentation and hand over to Roland. The floor is yours.

Thanks a lot. Thanks a lot, Stefan. Good afternoon to everyone and welcome to our 2021 results presentation. 2021 was a strong year for our company, a good one. Besides profitable financial growth, we demonstrated technology leadership, executed two accretive acquisitions and further drove sustainability progress to our customers and to our employees. And let's go into some more details on the year with a short summary on page three. Sales of 2.6 billion CHF were up 17% and order intake at 2.8 billion CHF increased by 25% year-over-year. This represents the highest sales and orders since we refocused our business on two divisions in the year 2018. Growth was driven by strong performance in both of our divisions. In service solution, we executed on market recovery of shorter cycle business, demand from general industries, automotive and tooling was robust, impact from supply chain shortages were in line with our expectations. We also saw trends in aviation improving in the second half, at least, of the year. And in polymer processing solutions, we achieved record order intake and sales. And we continue to deliver on our strategic goal to diversify into non-filament and are currently starting filling up order books already for the year 2024. Our group operational EBITDA of 447 million Swiss francs increased by almost 40% compared to last year. This actually represents the highest operational EBITDA since the year of 2015, when drive systems were still part of Erlikon. Looking at our refocused business, the 2021 EBITDA represents a record. Continued cost containment and operating leverage supported margin expansion year over year. Summing up, we as a team have delivered a robust 2021 supported by our solid operational execution. Therefore, we are proposing a dividend of 35 Rappen per share. We will continue to drive profitable growth in the year 2022 and guide for 2.9 billion Swiss franc sales and an improved EBITDA margin of around 17.5%. And all in all, 2021 is a clear proof point that early corn is in a strong shape. And after six years as CEO at Erlikon, I have therefore decided that this is a very good moment to move on. I have focused the company on two divisions. Both have been transformed and are ready to benefit from structural growth drivers in the future. Team Erlikon is well positioned to take advantage of the solid foundation we have put in place in the past years. Early Call will introduce an executive chair model as per July 2022. This will allow for faster decision-making. We will allocate more responsibility and autonomy to the revisions and so that they can better meet the distinct requirements they have. This will strengthen our organizational agility. At the same time, EarlyCoin will strengthen its corporate governance by introducing on a board level a new governance committee in order to ensure adequate control mechanisms. On the next few slides, I will give you a business update before Philip goes into financial details of the year 2021. And now, let's move on to the market update on page four. Our end markets recovered at different speeds in 2021. In polymer processing solutions, we achieved a record oil intake. Demand in the filament market is very strong, driven by the underlying market growth and key players in China continuing their vertical integration. Larger integrated systems combined with our latest technologies save significant energy and our strategic priority for China. We continue to make good progress in our strategic goal to grow our non-filament business. We see strong demand for plant engineering solutions such as polycondensation plants. We also see a positive market development for our BCF technology carpets. especially in the US. The acquisition of InGlass opened up polymer processing markets in automotive and general industries. The integration is well on track and the performance of InGlass is actually better than our assumptions at the time we signed the deal were. Overall, we expect the polymer processing solution division to continue its growth trajectory in 2022 and beyond. Our order books are almost full for 2023, and we begin to build into 2024. In the service solution division, we are operating across the tooling, automotive, aviation, and general industries and markets. The recovery continues to differ by end markets. We achieved combined 80% order growth in 2021. The general industries and markets saw shorter cycle services recovering well. So recovery in general industries is broad-based, including strong demand in luxury, semiconductors, and energy. In automotive and tooling, we saw a strong recovery of shorter cycle business in the first half of the year. However, the second half of the year was impacted by supply chain interruptions due to semiconductor and other commodity shortages. As such, we were indirectly affected by temporary shutdowns of major customers. We do see supply chain interruptions as transitory. The strong demand environment alongside sustainable megatrends give us confidence for underlying medium-term growth. We also see a strong development in forming tools, where we have a common customer base and synergies within glass. And finally, in aviation, sales started to recover in the second half of the year. Aviation remains still substantially below pre-pandemic levels. The initial recovery is mainly driven by demand in MRO, that means service and overhaul. But even on a low level, the beginning of the recovery is positive. It will be a growth driver for Erlikon for some time to come. And in addition to structural growth, this is very positive for us. Looking into 2022, the division is well positioned for growth in tooling, general industry and automotive beyond transitory supply chain interruptions. And so, summing up, we see a strong market environment in both divisions. In service solution, we are closely monitoring and mitigating the impacts of transitory supply chain bottlenecks, which we expect to last until mid 2022. This strong demand environment across our end markets is a very positive indication for medium-term growth. And now let's move on to page 5, where we highlight our strategic priorities. Our strategy to drive profitable growth, extend addressable markets, and gain market share is unchanged. As a result, we are focusing our strategic priorities on growth, diversification, profitability and sustainability. In terms of growth, we continue to drive technology leadership and innovation in 2021. For instance, we launched thin-film coatings for machining of high-performance ceramics. In e-mobility, we are successfully pioneering coating solutions for e-gearing and differential shafts. We also launched coating powders for fuel cell applications, just to mention a few. We diversified our business organically and with M&A in 2021. The acquisition of InGlass opened up adjacent polymer processing markets in automotive and general industries. Our Coeur d'Or acquisition will allow us to leverage our coating technologies into luxury markets. And last but not least, we continue to execute on our organic growth initiatives in non-filament. This led to around 12% organic sales growth in non-filament last year. You can see in our latest sales guidance that we are truly transforming polymer processing solutions into a growth platform. And you might remember, we used to talk about the limitations of the man-made fiber business earlier on. Based on the transformation we have driven in this division, we are now positioned for continued structural growth in 2022 and beyond. And in terms of profitability, we achieved around 260 basis points expansion in operation and BDA margin driven by both divisions. Our ROSI further improved and our balance sheet is solid with a leverage ratio of 0.7 times. And finally, sustainability has been a key priority for Erlikon since many years. While we launched our first sustainability report last year, our starting point from an operational point of view was much earlier at around 2015. At that time, we defined that new products must cover sustainability criteria and reduce emissions. We also started to implement energy management systems at our largest sites. And last but not least, coatings per se, improving the sustainability footprint of our customers. They reduce weight and increase efficiency and lifetime. As such, our solutions have customers to match their own greenhouse gas and energy reduction objectives. Summing up, Team EarlyCoin consistently executed on its strategic priorities. This is driving top and bottom line growth. We focus on top line growth on the next slide. We achieved 17% sales growth in 2021 and are guiding for around 10% growth in the year 2022. Our compound annual sales growth between 15 and 21 amounted to solid 5% per year. Growth at Erlikon is supported equally by both divisions. That is important. As you see on the top left, our product portfolio and service solution is set up to outgrow GDP. Before the global pandemic, the division has been growing with a compound annual sales growth of 5%, which was well above global GDP growth of about 3%. In 2021, we have seen our shorter cycle business recovering from the pandemic and we expect the longer cycle business to recover in 2022. Beyond 2022, we see upside from aviation recovery, market growth and us outperforming the market. Market outperformance is supported by sustainability megatrends, technology leadership, and expansion into new applications, industries, and geographies. On the bottom left, we highlight our growth expectation in polymer processing solutions. In here between 2015 and 2021, the division grew with an 8% compound annual growth rate, which was equally driven by filament and non-filament. This also includes the transition year of 2016. In Filament, Erlecoin is very well positioned as we are the market leader with a broad integrated offering and cutting edge technology. While Filament had a transition year in 2016, we have experienced very strong demands since then. We are currently filling order books in 2023 and 2024. Demand for filament is driven by man-made fiber, outgrowing natural fibers, and the need of customers for more efficient and sustainable machines. In the last few years, we initiated various growth initiatives to diversify our business into non-filament. Non-filament end markets are growing with a mid-single-digit percentage number annually. We are expanding our non-filament offering by addressing adjacent growth and niche markets with innovative, high-quality products. Success stories include our world-leading equipment for the production of nonwoven fabrics, and here we have been growing sales of nonwoven with a compound annual growth of about 30% since 2015. This was supported by the momentum for applications such as wet wipes and filters. Another success example is our increased focus on customer service, where we achieved an 8% compound annual sales growth since 2015. The customer service business is closely linked to the production levels and OPEX decisions of customers. It therefore adds to the robustness of polymer processing solutions. Overall, the Ehrlichon team is well on track to transform the division into a growth platform with market-leading returns. Our target is to reach a diversified 50-50 sales split between filament and non-filament. And we are additionally focusing our R&D on textile polymer recycling, where we do see strong growth potential in the mid to long term. And looking at the right side of the slide, you see that we reached more than 2.6 billion Swiss francs of sales in 2021. We see us well positioned to reach 2.9 billion Swiss franc sales in this year, 2022. Let's move on to the next slide where we focus on profitability. We have strongly improved our profitability compared to pre-pandemic levels. We actually achieved last year the highest operation APDA since the year 2015. This is a solid performance, keeping in mind that 2015 APDA also included our drive system division, which we divested in the meantime. As such, 2021 represents the record APDA of our refocused business. And it is a clear proof point that our strategy of simplifying the company is paying off. As you see at the top left of the slide, we achieved an ABDA margin in service solutions above 2019 levels. This was driven by our structural cost-out program, which we executed in 2020. The performance is even stronger when considering that our 2021 service solution sales have not yet reached the 2019 levels. And hence, we expect further operating leverage driven by the recovery of our longer cycle businesses and deviations. In polymer processing solutions, we steadily improved profitability. This was mainly supported by operating leverage and our in-class acquisition, which yields above group average margins. Adding up both divisions, we have reached a solid 16.9% operational EBITDA margin in the year 2021. This is well above the 15.2% we reached in the year 2019. And we are guiding for an EBITDA margin of around 17.5% in the year 2022, which implies roughly 40% EBITDA growth year over year. And with that, let's focus on capital return, which is also a key strategic priority for us. We have communicated earlier on that we have a clear target to deliver double-digit ROSI on a sustainable basis. Despite 2021 still being a transition year for Service Solutions, we were very close to the 10% when excluding the impact from an M&A. A key action point was that we have further increased our internal focus on managing capital investment and return. We strengthened our capital allocation framework with capital return and growth perspectives 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. And this is complemented by introduction of server-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 a key metric in our long-term management intensification program. We are convinced that these measures will help us to position our companies to sustainably generate a double-digit ROSI over time. Upside will also come from recovering end markets and continued cost containment. All in all, our strength and focus on capital return should position us well for profitable growth. Let me conclude the business review with an update on our sustainability progress on the next slide. I'm pleased to see that external agencies recognize our progress in sustainability. we had positive momentum with several rating upgrades in the year 2021. This was partly supported by our improved disclosure related to the first sustainability report. Our internal starting point with sustainability was already back in the year 2015. At that point in time, we started to launch various sustainability initiatives within Erdekon. As a result, our largest production sites, which account for 50% of our total energy consumption, had energy management systems implemented by the end of year 2021. And we will further strive to roll out in 2022. We also launched a project to define the calculation of scope three emissions in 2021. And this will provide us with a base to formulate an action plan for future emission reduction. Other 2021 sustainability highlights were our first internal diversity conference, a global health and safety and environment day, as well as a refreshed code of conduct. And going forward, we have a clear sustainability roadmap for the year 2030. Our ambition is to become climate neutral on Scope 1 and 2. And furthermore, R&D investments in new products must cover ESG criteria. We will provide an update on our roadmap in our refreshed sustainability report, which will be published by the end of March. Besides improving our ESG footprint, we want to help customers to meet their own greenhouse gas and energy reduction objectives. In polymer processing solutions, our new equipment allows for up to 40% energy saving. More than 80% of recycled carpets are produced by employing early corn machines. And furthermore, our flow control solutions enable lightweight materials which are used in immobility. Although important, manmade fibers enables water saving as they are much less resource intensive than natural fibers. And in service solutions, our coatings are improving the sustainability footprint of our customers. They reduce weight and increase efficiency and lifetime. For instance, they can enable two lifetime extension of up to 160 times. They can also extend lifetime of high load immobility components, just as an example. And last but not least, coatings per se improve fuel efficiency in cars and planes by around 3% and 5% respectively. Summing up, both divisions help our customers in reaching their sustainability objectives. As such, we are well positioned to benefit from sustainability megatrends, and this, alongside improving commercial activity and strong operational execution, provides a positive backdrop for our mid-term outlook and profitable growth. Team Erlikon has done a fantastic job in preparing the organization for the next stage of structural growth. With that, I will now hand over to Philipp, who will take you through the financials in much more detail. Thanks a lot, and Philipp, it's yours.

Thank you, Roland. As usual, I will start with group results and then provide more details on the divisions. At the group level, orders were 2.8 billion Swiss francs, up 25%, driven by strong demand in polymer processing solutions and the partial market recovery in surface solutions. 2021 sales were 2.6 billion, up 17%. Both divisions contributed to the sales increase. Our group book-to-bill ratio was 1.1 for the full year. Operational EBITDA was 447 million Swiss francs, a 39% increase versus the prior year. Our margin rate increased by around 260 basis points to 16.9%, driven by operating leverage and tight cost management. With that, let me go through some more details on Surface Solutions. As Roland highlighted, Surface Solutions and markets continue their post-pandemic recovery, albeit at differing rates. 2021 orders were 1.35 billion Swiss francs, up 18%, while sales increased 7% to 1.28 billion Swiss francs. In the fourth quarter, sales increased year over year, despite shortages in the automotive industry and the restocking effects last year. We saw strong demand in general industries. We also saw aviation continuing its recovery in Q4. 2021 operational EBITDA was 230 million Swiss francs, up 30% versus the prior year. This represents around 320 basis points of margin expansion, mainly driven by operating leverage and the benefits of our structural cost reduction program. In the fourth quarter, margins were impacted by negative business mix. These mixed effects were driven by significantly lower revenue in some of our high margin businesses like thin film and PVD solutions. The lack of activity was due to the transitory disruptions of our customer supply chains. We expect these effects to normalize in 2022 as activity in these high margin businesses returns to normal levels. Next on polymer processing solutions. Orders in polymer processing solutions were 1.45 billion Swiss francs. As Roland mentioned, this represents a record order intake for our business and is up 32% versus the prior year. Polymer processing solutions is a growth platform for us. Filament and non-filament are growing. We expect this growth to continue in the future. Record sales of 1.37 billion Swiss francs were up 29%. On the one hand, this was supported by strong organic market demand. On the other hand, InGlass contributed with seven months of revenue and supported our diversification into non-filament. Organically, sales were up 18% at constant exchange rates. Operational EBITDA increased 41% to 213 million Swiss francs. Margins were up 140 basis points to 15.6%, supported by operating leverage, the in-glass acquisition, and cost efficiencies. We have not experienced any significant impact from the supply chain bottlenecks we described, logistics, or power shortages. We continue to manage the situation very closely, and we have various mitigation measures in place in order to successfully deliver on our business plans. With that, let me move on to cash flow. 2021 cash flow from operating activities was 324 million Swiss francs. Networking capital was impacted by the strong sales increase. Certain safety stock, which we built in light of existing supply chain challenges, and by the two acquisitions we executed in June last year. Taxes and capex were in line with our expectations. Altogether, we delivered solid operating free cash flow of just under 200 million Swiss francs. Next, return on capital employed, which is, as you know, the primary compensation component in our long-term incentive plans. Organically, we improved grossly to 9.7%. So we're close to the minimum target we have set ourselves, but not there yet. Including last year's M&A transactions, ROSI was at 7.6%. As you know, this calculation includes the full increase in operating assets, but not the full 12 months of the earnings from the acquisitions yet. ROSI is already above 2019 levels. And as Roland also described, this gives you a strong indication that our improved cost management and highly focused approach to capital allocation are bearing the first fruits. Our clear goal is to reach double-digit ROSI on a sustainable basis. With that, let me move to the balance sheet on the next slide. As per the end of 2021, our company has a solid 34% equity ratio. Our net debt to EBITDA ratio was 0.7. This is in line with our commitment to run the company with a strong balance sheet. The ratio includes the impact of our two acquisitions last year and already shows a solid improvement compared to 1.1 times net leverage, which we had right after completing the two acquisitions. In order to finance these acquisitions, we successfully placed senior unsecured bonds in May 2021 with a total value of 575 million Swiss francs. The interest rates on those bonds range from 0 to 0.8%. And with that, let me conclude 2021 on the next slide before we move on to the outlook. The continued focus on executing our strategy has positioned Erlikon well for profitable and sustainable growth. The company is set up to deliver strong sales growth in both divisions in 2022 and the medium-term future. We are laser-focused on margins and returns. We achieved an operational EBITDA margin of 16.9%, 170 basis points above 2019. We expect further profitability improvements in 2022. ROSI showed solid progress last year, and we're on track to reach our target of double-digit returns. And last but not least, we are delivering on our sustainability targets and helping our customers to reach their objectives. We've positioned the company to benefit from sustainability megatrends. Our profitable and sustainable growth results in the opportunity to pay a stable dividend, execute on M&A, and share buybacks. As Roland mentioned, we are proposing a dividend of 35 Rappen per share, which represents a 3.7% yield on the stock prices for end of 2021. We did execute two accretive acquisitions last year and bought back shares in the amount of 32 million Swiss francs. With that conclusion of 2021, let me move to the 2022 outlook. We expect group sales of around 2.9 billion Swiss francs and group operational EBITDA margin to be approximately 17.5%. Profitable growth will be driven by both divisions. In surface solutions, we are expecting 1.4 to 1.45 billion Swiss francs of sales. The growth is driven by the recovery of our longer cycle business and continued market growth for our short cycle businesses. We foresee a stronger second half of the year, supported by fading impacts from supply chain shortages. We are focused on continued margin improvement, and for 2022, we expect EBITDA margins to be between 18.5 and 19.5%. The improvement is driven by operating leverage and continued cost efficiencies. In polymer processing solutions, we expect sales of around 1.5 billion Swiss francs. The growth is supported by strong momentum in filament and non-filament. InGlass is also contributing, as it will be consolidated for a full 12 months. You can see in our latest sales guidance that we're truly transforming polymer processing solutions into a growth platform. Based on the transformation we have driven in this division since 2017, we are now positioned for continued structural growth in 2022 and the future. For the year 2022, we expect EBITDA margins in polymer processing solutions to be around 16%. Now, before we hand it over to Q&A, I would also like to make an early announcement at this point. We plan to host Capital Markets Day in May of this year. We will use that opportunity to deepen the understanding of early cons businesses and their growth drivers. We also want to extend that dialogue between the investor community and our divisional leadership team. And naturally, you will receive additional details on timing and logistics of this event in due course. With that, let me hand it over to Stefan for Q&A.