OC Oerlikon Corporation AG

Good afternoon ladies and gentlemen and welcome to Erlikon's 2024 results presentation. My name is Stefan Gick, Head of Investor Relations and I have here with me Michael Suess, our Executive Chairman and Markus Richter, CFO of Erlikon. Michael will start the presentation with a strategy update and an overview on 2024, then Markus will highlight the financials and the outlook. We will take questions at the end. With that, I would like to open our presentation and hand over to Michael. The floor is yours.

Thank you. And I will remain seated for a moment because first after I have done my introduction, which will be very short, a good afternoon. And I'm pleased to have you here today for our annual press and capital market conference. I would like to introduce our new COO, who will join us by 1st April. replacing Markus Take. It's Dirk Linsmaier. And I would like to give Dirk a chance to introduce himself. He will start officially 1st of April, but having you all together, I wanted to give you the opportunity to go in touch directly with him. Dirk is one step of the let's say, not refreshing, that's the wrong word, but to make our management team a little bit younger. United, we have a lot of people, some people, like myself in the 60s or in the early 60s or end 50s. And one of my jobs is to make the management ready for the next 10, 15 years and to do a somehow and generation change. And Dirk is one of these very important steps. And by that, Dirk, maybe you take the opportunity to introduce yourself. Thank you.

Thank you very much, Michael, for the kind introduction. Dear ladies and gentlemen, I'm thrilled to join Erlikon April 1st. For me, Erlikon is a true high-tech player, actually, combining technology, innovation, and in the future, even more, digitalization. So I see there a great potential also in the next phase, and I think what has Michael driven so far towards the pure play, I see a big chance for Erlikon. A few words to myself. So I'm still the CEO of TT Tech Auto, Time Trigger Technology. It's an Austrian company where I have been the last three years, transformed this company, 20% growth each year, doubled sales. each year the profitability, and we have been acquired by NXP semiconductors beginning of the year. So we announced it in Las Vegas this year at the CES that NXP semiconductors will acquire T-TEC Auto, so the closing will happen in the next weeks and month. And that is definitely one of my highlights from the last three years. Before that, I was the CEO of AIM as Osram Intelligent Lighting and Osram Continental, a joint venture between Osram and Continental at that time, driving the change from traditional lighting to matrix lighting, to digital lighting. So one of the highlights there were doing the light carpets around BMW 7 Series or also the light carpet in a mini on the dashboard next to a traditional matrix lighting in the headlamp. Before that, I was 11 years at Bosch in various positions. I've been in China for three years. My daughter was born in China, in Shanghai, so she's proud being Shanghainese. And before that, I was at Daimler Chrysler, where I started my career in the research center. actually i'm really looking forward together with michael and the great team of earlycon driving the transformation and pushing growth and i'm happy to start then april 1st officially thank you very much thank you dirk

And with Dirk and his expertise in some markets where we have just embarked to bring our capabilities in coding and 3D printing, we look forward for the next chapter in our operational tasks. And at that point, I have to thank Markus Tucker very much. He was running at the CEO position in a division, and from the beginning of that year, the CEO position in the New Early Con. And before the question is coming, with Markus, we agreed a year ago, me and myself and him, to make this step, because he's one year younger than myself, and I have still to take care about the transition phase, and to have then a potential successor, which is a year younger than yourself, is the wrong choice. So in line with that, we will do some exchange with the next 12 to 24 months in management to get the management younger, not less dedicated, not less focused, but simply prepared for the next 10 years and probably not only three or five years. And in line with that, but with a different perspective, Maybe more with the outlook and with the refreshing of a board. I want to announce as well that with the AGM of April 1st, three of our board members will resign and not stay for a re-vote. That's Irina Madveva, that's Yao Yangu, and that's Gerhard Pegam. And the three will not stay in the board, and they will be replaced by Stefan Brubacher, who is director of Swissman. by Evelyn Steinberger. She is a Swiss entrepreneur, mainly in the energy area and in the finance sector. She is also a board member of Bank Austria. And last but not least, another Swiss citizen by Marco Musetti. The three will join us. The other three will leave us. We will do some reallocations in the boards and in the group, but that you will see with an invitation. But to have you all here, I would simply like to inform you up now that these are the people changes we have in mind. And by saying that, I would like to go now in media series, talk about the 24 year. Akos Richter will go deeper than in the numbers and to give a certain outlook for 25. And as you all remember, I made that announcement a year ago, and we have done our mission. The company is ready for separation. We have done all our tasks, which was a lot of work, pedal work, to prepare either for a spin or for a sell. And why we have done that, I want to remind you again about the rational. The rational was that in 2013 our surface solution business was part of a conglomerate where we had five divisions. The one was already on the way out, that was advanced technologies and there have been four others. We did that until now to focus the company clearly on the two main market leaders, but it was as well clear from the beginning that we have to separate the two businesses. There are good reasons, we will touch that again, why these two businesses are not in common under one umbrella. The two divisions nevertheless since 2019 have shown a strong performance and the company as a whole has done divestments of 1.2 billion pursuits. We have paid dividends of 1.6 billion. We have invested 2 billion in R&D and CapEx and we have invested another 2 billion for acquisitions of assets. So this is a massive transition of the company. We did that very successfully, and now we're on the edge to make the last step. And some people may believe it or not, that was clear from the first 10 years onwards that this will be the journey. The journey was sometimes a little bit old, when in 2016 we had the first down cycle in polymers in the filament story, and you cannot do anything when you have a negative number. Then there was COVID. Meanwhile, we have overcome all that and we are on a good way forward. When we look now in the two businesses, then you can see that there was a massive change in surface solutions from 2018 to 2024. on the technology side from a mainly PVD technology to the full box of PVD, physical vaporizing, chemical vaporizing, thermal spray technology and additive manufacturing. From the markets, three quarters of our market was tooling. And if you would have sticked with tooling, would have been a great story from profitability, but in a shrinking market. Because cutting tools and molds are massively impacted by ICE. And ICE cars, even if it seems that they stay a little longer, they definitely will not grow. There's a grow. which is in the automotive industry but is driven by new technologies and those are remaining strengths and we are covering both sectors in both fields but to stick with only one technology would not give you the tailwind and the diversity and the resilience that a company like ours needs that we are able to celebrate next year our 150 years. You have to challenge yourself, to have to reposition yourself. You have to stay curious and to have to do the necessary steps that you can stay another 50 years in business and not get phased out. And the strength is now that within the last 10 years, We go from maybe two businesses, automotive and tooling, into six, including luxury energy aviation. Within aviation, you have to see there is a small but very interesting part of space. And there are some businesses which we're not showing yet as a business, like semiconductor industry, like green hydrogen industry, and the defense industry, which are fields where we are stretching more and more in with our capabilities. And this is the part in common. It's always about the same capabilities in different applications and in different use cases. And this has driven to a tripling of our revenue from 2013 to 2024, from 500 million to 1.5 billion. And since we have the regional responsibility, we see as well a very strong drive forward in our Asia-Pacific region and in Americas. Last but not least, sometimes people say, why not have the 20% as you had in 2013 or 2014? Because for sure, The profit line of a metal materials business or of a luxury business or of an aviation business or from a tooling business is different. And PVD tooling service has a very high profitability. But others have as well a good profitability. And the transition phase as well took some effort. There is no free lunch in life. You cannot say, okay, now we dream about something and then tomorrow it happens. You have to do that with a team who is dedicated for a continuous journey. And you have to have a board and a shelter structure which is allowing that. Otherwise, you have to change every one or two years direction because someone is losing patience. And this is not the way how to develop a high-tech company. It's a way to develop a high-tech company as we have done in a very consistent way. And covering now six businesses, maybe we'll cover seven or eight, but we'll always look for what is the strength of our capability, what's in for us, what is the USP we have, what is the competitive advantage we do have. And this turned in a combination of a very strong operational performance That turned in a direction that we could, in a market environment, we could achieve 18% EBITDA margin, which is, by the way, not a bad margin. ABB is celebrated for 18%. We're in the same range. And there's a good reason to say, and in between, we will go even higher. But this is not the first and above priority to be 19 or 20. The first and above priority is to grow our business in the different industries and to use our strengths to be in that range. If it's 18, 19, 20, 21, all great. I'm pretty sure we will do the 20 or the 21. But if it's a 19 and I do the right business volume... It's the same quality. And this is important for us to see that we are fully dedicated for the 20% goal, but it's not a single goal. There are more goals to go for. And one of those goals is that we are focusing as an indispensable player in these industries with our technologies. And if you look into that, we are clearly market leaders since years. We have a technology forefront. We are since more than 70 years in this world of PVD active. We have a high scalable global footprint which you will see when we talk about not only taxation but tariffs and all these other questions about boundaries and borderlines where you can do business and where you cannot do business. We are truly global but we are as well truly local, especially with our service business. We have applications across the industries and the saying there's not a single day without Oerlikon is a true saying. Even today, whatever you have, you will find either Oerlikon coatings or Oerlikon yarns which have been done on our machines in your environment. The core of our business model, and I have always to reiterate that because you have to cover so much industries and so much companies, it's on us to remind you where Oerlikon is something special. We are contributing with a high impact to the product, but the cost of our contribution is pretty small. If you take a 40,000 milling head, 40,000 euros, and you have a coating of a couple of hundred euros on this milling head, then this milling head will last three times longer than uncoated. So you're saving 80,000 of investment. If you take a regular miller, it's 160 times life prolongation. If you take a sumi-bore coating in a Volkswagen engine, you're saving 80% of the oil and 4% of the fuel. There's a lot of sustainable effort in that what we are doing. And the contribution is huge, but the cost is small. And that's why the companies want to work with us, and to do that, you need a strong credibility. We've been just recently chosen by one of the biggest U.S. military companies as a strategic partner for 3D printing parts. And when we ask them why they have chosen us, and they don't choose very often strategic partners, and unfortunately we are not allowed to disclose the name, they said because you do a very credible way in that what you're doing. You have a very good governance, and you do that what you do in a very consistent and credible way. That's why we work with you. And this is reflected as well, that we're growing the last 10 years average in 4%, the last four years or three years even with a 6%. Only 24, and you will see that, was more flat, but the years before was a 6, a 10, or whatever you will have, or a 7, in flat markets. It's not that these markets actually are really providing you tailwind. So it's with headwind, you're sailing and improving your margins, And with Headwind, you're improving your tech positions. And that's the technology, the performance of our people, and the market closeness, which allows that, and which gives us the chance to reach out to that what we have done. And to say, I thank a lot to my people, and I'm really proud about to be the executive chair of such a fantastic company. Some examples. Alcorona Evo is the next generation of anyway already a market leading product in coding of tools. Inventa Keeler is a more than 20% energy efficient new technology offering coder for toolings and aviation industry. Matrix materials components. We have a world record done with eco-use of more than six kilometers drilling with the same drill head through hardest conditions and almost no impact on the surface of this drill head, of these coatings. That's a fantastic product. It's only the peak of the iceberg, which I wanted to give you a little bit flavor of the different industries and the different technologies which we are doing. And it's not only about the service business, it's about the materials development, It's about the equipment which we are building, and by the way, we are building this equipment mainly in Switzerland, and we are investing in canton Aargau, in Reichholt, and bringing our Wohlen and Dodecon and Winterthur facility together there, despite the fact that the Swiss franc was eating up more than 400 million of our revenue the last three years. So top line would be simply 400 million higher if we would report in Euro or in Dollar. because we do our billings mainly in Euro, Dollar or in BN or whatever and then we translate it into Swiss Franc and we have cost in Switzerland. Why? Because we are dedicated to that country. We are dedicated to contribute. We are dedicated to the workforce we have. We have our R&D people here. We have production here. And for sure we are global. We are in 37 countries. on this planet. We have 110 service centers all in, maybe 150 sites. Not super big, but we are very present. But it comes out of Switzerland. And if a tech company is not capable to do that anymore, then we have a really difficult situation here in Switzerland. And we stick to that. And on the other side, we have a business, Polymer Processing Solutions, which has a completely different scope. While we have in our surface technology 35,000 customers and you deal with $100 or $500 or $5,000, here we're dealing with a $50 million, $150 million, or $300 million project size. Here we're having 15 customers in two or three countries mainly, while we have 37 different countries with 35,000 customers in our other business. The great start part of that business is that throughout a cycle, If you take the last cycle, 16 to 23, we made an average more than a billion revenue, more than 140 million euro on a year EBITDA, and corresponding to that, a high amount of EBIT and cash. Let's say the caveat is you're growing by 2.5%. Main driver for that business is population. Dress, construction, because a lot of that yarn which was produced on our machines is used in construction business as well and not only in textile applications. We drove attractive returns and cost efficiency and we drove very much on sustainability. And some examples here as well. Market leader, tech forefront even more than 100 years. We have a really high sustainability and efficiency in our customers. By the way, the textile industry only in China is about 70 billion. The total market of textile machinery industry is probably globally, not only China, is 2 billion. But the enabler for the productivity of this industry is these textile machineries. So they are core. Core and key. Similar situation where I mentioned that, the overall cost position, if you spend 100 million in a project by us, that's typically part of a 1 billion or 1.5 billion project overall. But it makes a difference. And the rationale was, by repeating that, what I was saying, market difference, business difference, business model difference, they're so much different that it makes a lot of sense to separate the two businesses. And we have done that successfully in that year. So there's only one cut necessary. We have even in headquarter the cost allocation done in the right way. There is no cost overrun after separation. It's now the time, and we said that, and they heard that, and they will hear that by questions, definitely. 12 to 24 months, can you give us more guidance? Can you give us more about when and what they are doing? There is a significant interest. The point is that we are not ready to deal on a point level, let's say, cheap, but only about the cycle. For the cycle, there's as well a lot of interest, but in a cycle discussion, you have to dispute how you evaluate the cycle in future based on the past. If you ask, is it more a spin IPO or a sell, there's a preference on a sell. There's a second preference on a spin. There's a much lower preference on an IPO. And staying here since 10 years, I'm proud to say that we always told you what we have thought about, and we always have done what we have told you. And who is long enough with us who can prove that, that on any cases, We have delivered in the way how we have promised, but we have always delivered under our conditions, and nobody was squeezing us, forcing us, removing us. That was with drives, where I got a lot of questions. Why are you not selling it cheap? Why are you not doing this or that? It was the same with pumps. And we always came with a very good solution. And to our investors... we'll come with a very good solution as well in this story for both, for the Remainco and the company which is leaving. Because this is the other part of responsibility. It's not only about the investors, it's as well about the people who are in the companies serving, and they have to have a decent, good future. And by that, I would love, I skipped this, I would love to hand over to Markus Richter. This is more as an information for you that the general industry in tooling, automotive, luxury, and aviation, as filament and non-filament, are all showing more a flat situation. On the filament side, we see more projects to be discussed. So we are pretty clear about that. We have seen the trough on the auto intake side. And please, in a business where you always told us that's an eight or nine year cycle, don't judge on a quarterly jump if one order intake goes higher and the next order intake goes a little bit lower. There is a remaining business coming. We are prepared for that business. And we have shown in this year, in filament, that we could provide, even if we take the man-made fibers out, we could provide a double-digit EBITDA and a high single-digit EBIT. And this will stay as well in the future. The difference is that in 2016, when we have seen a trough and we had to manage a trough, that we became negative. And the promise is that in this business, we don't show negative again. The rest is a little bit more information. Markus, now it's about you. Sorry, sorry, sorry, sorry. One word missing about sustainability. It was too fast. Before I go to the numbers. I was too much engaged about the performance of our business. We are on sustainability. We are meanwhile, and this we have achieved in a very short period, and that's why the business per se is sustainable and you don't have too much show around it. We are within the top 20 players of global industrial sector as early come. More than 80% of our R&D spending goes in sustainable products. And we are fully on track with our 2013 ESG targets. Here's some examples. If you would take, as I mentioned, the lifetime extension of metal, what we are doing, you would save 20%, almost 30% of the Swiss carbon emissions of one year. If you take the efficiency, which with our coatings, we do have in our jet engines delivered. That would be an equivalent of 88% of the whole Swiss carbon emissions. So only that two technologies would make Switzerland carbon emission free, if you would count it that way. There is massively waste return and massively effect in our scope one, two and three. And if I conclude now, and that's why I was too fast, maybe driven a little bit by the morning of our interaction with the press, where we haven't touched that sustainability story that much. There are two attractive position businesses, which on the term forward doesn't have to be under one umbrella. We are on track with our pure play execution, clearly on track. We have shown a very strong profitability in 2024. Polymer processing solutions will transit to their markets. And the surface solutions resilience will be even further improved, expanded. And with a little tailwind of the markets, we will see even more profitability. Always be aware, besides error and maybe defense, all of our markets have been flat or shrinking in the last 12 months. And the outlook for that market, general industry, automotive, luxury, for the next 12 months is not that there is big growth. But we are taking market share because our customers are shrinking and we maintain our market. That means we take market share from competition. Which is again a result of our strong execution performance in line with a very strong technology position. And this is what has to work together. You have to have a good technology pipeline, otherwise you could execute proper, but you don't have the right offering. Or you have a wonderful offering, but you don't perform in a proper way. Bose is together in Erlikon, and Bose was not falling out of the blue sky, but was hard work of years to get to that position and to improve that position in the future. Now. We're really going to the financial outlook. Thank you so much for the moment.

Thank you, Michael. Good afternoon, everyone, and welcome to our full year results presentation, also from my side. I will start with the group results, then provide more details on our strategic priorities and the divisions. I will finish with the outlook for 2025. At the group level, orders were 2.4 billion Swiss francs, roughly stable year over year when adjusting for FX. This was supported by stabilization in polymer processing solutions and continued execution in surface solutions. It represents a strong performance given industrial production and consumer spending continued to be subdued. 2024 sales were 2.4 billion, a decrease of 9% at constant exchange rates. This includes a 1% contribution from our acquisition of Riri. While polymer processing solution sales were impacted by customers, Having delayed their orders in 2023, Surface Solutions achieved stable sales in challenging end markets. Operational EBITDA was 393 million Swiss francs, an EBITDA margin of 16.6%. This represents a year-over-year increase of 10 basis points despite lower sales. We see a solid margin increase in surface solutions and a significantly higher margin in polymer processing solutions compared to prior downturns. With that, let me provide you an update on our actions to drive profitability. Our focus on strengthening our company's profitability is unchanged. In addition to growing our business organically, we have put a specific focus working with the right structural cost base and optimizing the portfolio of products and technologies. We have reduced overhead expenses by 33% since 2019, despite making three acquisitions during that time. Additionally, we took proactive cost actions ahead of the filament downturn and optimized the footprint of our coating centers in Germany. As with regards to our pure play strategy, we have a very solid action plan in place. It will allow us to adjust corporate costs to a smaller company setup and ensure future cost efficiency. Our additive manufacturing business reached break-even on EBITDA level in the fourth quarter of 2024, supported by last year's realignment. We are also focusing our R&D much stronger on commercialization. This allows us to price upcoming innovation at a significantly higher gross margin than our existing portfolio. We are further streamlining our product offering, eliminating subscale and dilutive items. For example, we have reduced the number of material coats by 53% since 2022. Overall, we are future-proofing our company to sustainably improve profitability and capital returns going forward. With that, let me go through some more details on our surface solutions division. 2024 sales were roughly stable organically at 1.5 billion Swiss francs. In light of a challenging industrial production environment, this is a very strong result. 2024 was supported by sales growth in general industries and aviation, compensating for lower organic sales in automotive, tooling and luxury. In parallel, Americas continued to outperform, benefiting from our new geographical organization introduced in 2022. As a reminder, the division generated 6% organic growth in 2021, 10% in 2022, 7% in 2023, and now stable sales in 2024, despite macro headwinds. Operational EBITDA in 2024 improved 3% to 270 million Swiss francs. This was driven by a margin expansion of 90 basis points. Our profitability was supported by innovation, pricing, and efficiency. Going forward, the pricing, cost, and growth actions we are taking will allow us to bring the surface solution margin back to our midterm ambition of over 20%. Now, next on polymer processing solutions. Orders in polymer processing solutions stabilized at 896 million Swiss francs. This represents a 2% year-over-year decrease at constant FX compared to a 36% decrease in 2023 due to last year's order postponements. Filament orders were up 11% year-over-year and came in in line with the expected seasonality pattern in H2. We see continued signs of momentum in small and mid-sized filament orders. When it comes to non-filament, we saw significantly softening order momentum in the second half of 2024, driven by fading PMIs. Overall, governance stimulus, improving price-cost spreads for our filament customers make us confident that we have seen the trough in the market in 2024. We note that all long-term growth drivers for the business are well intact. Polymer processing solution sales were 875 million Swiss francs, down 23% at constant FX. Sales stabilized, however, throughout the year, turning into an improvement of 5% at constant FX in the last quarter. Operational EBITDA decreased to 112 million Swiss francs. This represents a margin of 12.8%. Considering the significant reduction of our sales, this is an excellent achievement. With that, let me move on to cash flow. 2024 operating free cash flow more than doubled year over year and came in at 162 million Swiss francs. The improvement was supported by net working capital, which was exposed to significantly less headwinds than last year, given the recent stabilization in polymer processes solutions order and customer advances. We expect limited further cash outflows from here on out, with significant upside once the recovery gains traction. Next, on return on capital employed. ROSI was 5.8% when we look at the operational performance of the company and at 5.1% reported. ROSI is currently depressed, which is mainly related to the filament downturn transitorily impacting EBITDA, lower customer and lower customer advance payments. Future upside to ROSI will come from filament market recovery, continued cost containment, and disciplined execution of our capital allocation strategy. Furthermore, continued footprint optimization and digitalization in service solutions will result in better quota utilization, reducing capital employed. With that, let's move to the balance sheet on the next slide. Our net-to-debt EBITDA ratio was at 2.8 times compared to 2.6 times a year ago. This mainly includes the filament downturn transitorily affecting EBITDA, while net debt slightly improved year-over-year supported by strict cash management. We expect a stable leverage ratio by year-end 2025. During 2024, we repaid 150 million Swiss francs bond. At the end of 2024, we had access to 920 million Swiss francs of cash. In terms of the dividend, we will propose 20 Rappen per share, which is stable year over year. Next, on our ESG rating improvement. In ESG, we had continued positive momentum with several rating upgrades in past years. External partners and agencies recognize our leadership in sustainability and innovation. They rank us as part of the top 20% of global companies within the industrial space. Our solutions improve efficiency, performance, and sustainability of our customers significantly. Let's conclude the presentation with our 2025 guidance. We expect organic group sales in 2025 to be stable or to grow by a low single-digit percentage at constant FX. This is supported by both divisions. Our group operational EBITDA margin is expected to be at approximately 15.5%. This reflects continued innovation, pricing, and efficiency in surface solutions, which is offset by the transitory impact of main-made fibers price concessions to maintain order volume in 2024. Let's look at the divisional outlook in a bit more detail. In surface solutions, which will include HS flow from 2025, we are expecting organic sales to be flat or to grow by a low single-digit percentage at constant FX. Despite slight momentum in some PMIs towards the end of 2024 and in January, we expect the market environment to remain challenging in 2025. Growth in aviation is expected to continue, but at a lower rate. At the same time, market intelligence expects headwinds in automotive tooling and luxury to alleviate. On profitability, we are expecting operational EBITDA margins in the range of 18.5% to 19%. Innovation, pricing, and cost actions will support margins counteracting the difficult environment. In Barmak, man-made fibers, We are expecting organic sales to be flat or to grow by a low single-digit percentage at constant FX. Operational EBITDA margin is expected at approximately 7.5%. As previously indicated, we provided our customers price concessions in 2024 to maintain order volume. This is impacting our 2025 EBITDA margin. It is a transitory effect. We expect recovering pricing levels and innovation to support margins beyond 2025. Furthermore, we are about to implement ongoing manufacturing footprint optimizations. This will benefit Barmark man-made fibers profitability beyond 2025. We are confident to have seen the trough in 2024. We specifically look at the improved economics of our filament customers and government stimulus. With that, let me hand over back to Stefan for the Q&A. Thank you.

Great. Thank you, Michael and Markus, for the presentation. Now it is time for Q&A. For investors participating via webcast, please dial the phone number shown in the webcast and press star and 1. We will now start with questions in the room. Please first introduce yourself and the institute you are representing. Yes, please. You might get the mic.

Thank you, Michael Vogt, von Tobel. Two questions. The first one on gross margin. The gross margin increased quite a bit in 2024, and I was wondering if you can comment on what is driving that, if that's business mix or if that's really lower production costs or pricing that impacted the gross margin. And the second question is, you mentioned on the depressed return on capital employed, that that was mainly driven by the lower profitability in polymer processing. I was wondering if you can comment on the current return on capital employed in the surface solutions business, how that is developing. Thank you.

Okay, so as for the gross margin, here we have done some reclassification and this is how the numbers are then made up. On the second question, on the return on capital employed, we have shown you the numbers. We are right now at 5.1% reported and 5.8% operational. We're a little higher at 6.1%.

Thank you very much. Alessandro Foletti, Octavian. Thank you for taking my questions. Maybe I would like to ask one first to Mr. Seuss for the management changes. Last year when we were here, you said that after the spin-off or disposal or divestment of Barmark, basically, then you would probably retire from the double role position. A, is this still valid? And B, do we have here already your successor as CEO?

Let's start with the second question. If it performs properly the next two years, probably yes. If you ask about timeline, there are three elements, spin-off, sell, transition, and stable environment. So as I said last year, when this transition is closed, I will step down from this executive chair. Most probably that will be in AGM 27. I have not intention to go longer. If there's a need, for whatever reasons, I would do it. But the intention is to have these transitions done and then to come back to the business model you like more. By the way, I like the executive chair model pretty well. We have a strong governance and it works pretty well. But if there's a different view, and we have one of the candidates you have seen today, but first he has to perform.

Okay, great. Thank you very much. It's pretty clear. Thank you for this transparency. Can I ask you a question maybe on the guidance, more so operationally speaking, in particular for the surface solution margin? So you had 18.6, and now you guide for 18.5 to 19, meaning... There might be some expansion, but if things go wrong, not. Maybe even a decline. Can you give a color on what must happen for you to be higher, what will happen for you to be lower? And then I have a follow-up.

I will do the first part because you come down with the numbers. It's about the mix and the performance of the markets. As we have said, there is a different profitability in materials than there is in service, than there is in equipment, than there is even a different profitability within Europe, Asia Pacific and others. We don't disclose all that stuff. But there is a mixed element. There is a pricing power. And there is a performance point. And to keep in this difficult market environment, to keep the performance and having 0.1, 0.2, 0.3% up, that's somehow what we are looking for. If you expect a 1% up next year, I wouldn't say that will happen. simply because of the market. If the market's turning faster, let's say there is an agreement on Ukraine and everything comes different. We have seen so much changes in the last six to 12 months in the one or the other direction that's sometimes a little difficult to predict. But what we have always done, as you remember, when we have seen something, we have communicated that. We've communicated even in early 23, in late 22, that there is a downturn in 23 and 24 in polymer, as we have seen from the order index. And this will be maintained, so we'll be as transparent as possible. But even we do not have a glass ball.

Can I please follow up on this margin? We have two separate elements in it. Obviously, additive manufacturing, you said it's breakeven. Can we assume it will stay breakeven maybe for the full year going forward? That would be follow-up number one. And follow-up number two, HRS flow has a very good margin. In this guidance, there is no, or can I assume that there is no sort of decline of that margin going forward?

So number one on AM the development has been positive quarter over quarter and we expect continuation of that as for the moment. As for HS flow inclusion in the surface solutions, We keep our guidance. As you see, HRS flow is adding 0.6 or 60 basis points to the surface solutions profitability, but is in line with our overall guidance, so we don't extend the range at this stage.

Adrian Knoblauch, ZKB, the fixed income side. I have a couple of questions. The first one, trying to understand your debt maturity profile. So you have roughly a billion of redemptions coming up in the next two years. You said you have liquidity of around 900 million. So what is your refinancing plans and what is the minimum operational cash you would need to have on your balance sheet?

So obviously, we have refinancing discussions are starting. We will do this in Q2. On a two track, one track is without a sale and the other track is with a sale. What we are, is our preferred solution to have the sales track in place, use proceeds partially for the deleveraging and then look at the refinancing needs at that time.

But what's important like to add that, that even with out of the cash performance we have shown, there would be a further deleveraging only out of cash position as well. There is the sales process and we go for that, but there is no need if there would be not a sales process that we say we cannot refinance. I think that's from your point, it was your question. because the bonds we have today will be replaced by somehow bonds, and then there's the free capital. We have a revolving credit line of more than 600, not even touched. So with the cash position we have, with the performance we have, I would say it would be the completely wrong impression, and sometimes maybe some of you have that. There is a liquidity issue or some finance issue in early card. It's simply not. And there is the other assets, and I... I said it very clear, there will be a differentiation, not a differentiation, a take out of OMF at the right timing. That's why we set this 12 to 24 months. We do that as soon as it is in line with what we think about, we want to generate. There is mid-term in-class, as you said, a very profitable company, mid to long-term. Long-term is wrong, mid-term, because in-class is no core business. It fits very well into that what we're doing because we're serving the tooling industry with two angles, but it's not a coding business. So there's plenty of headroom for any things to come. But on top of that, there is a very strong cash performance out of the operational business. And with that, I would like to be maybe as my treasurer a little bit more offensive. This is not that what keeps me up at night. What keeps me up at night is the geopolitical questions and when are the markets coming back and we can turn headwind into tailwind because with our cost performance, we're massively prepared for tailwind and we would like to use it.

Okay, so are you alluding to that HRS flow that at the moment that it is part of service solution that is only a temporary solution? So non-core means you're also intending to sell that?

Long call is not, I would be, because otherwise these two people are getting very crazy, it's not core business.

Then I have a question on your, can you remind us on your general dividend policy that you have? I guess at the moment you have a bit of an unsustainable payout policy with 100% of your net profit.

No, we're not paying 100% net profit, but you're more the experts on that. We are paying 20 rappen. which is somehow out of our policy is 50% cash.

We are paying within our early corn policy. We, having seen the trough in OPP, we suggest to continue with the 20 Rappen as we have done last year to be stable on this year over year.

Okay. Then I have a question on your footnote in the annual report on the compensation of the executive committee. That has doubled in the last year. So my question is, did any KPIs change or the overall structure of the compensation scheme that we should be aware of? Or what is the principal reason for it?

Maybe I don't understand your question properly. There has nothing doubled. Probably that's because Markus Tucker still is on the EC. Someone will join the EC. There's an in and out facing, but otherwise nothing has changed. There's no salary changes, nothing.

I think the overall number has gone up for the entire committee from 9 to 16. And I think for the executive chairman from 3.2 to 7.6. No way.

I can't give you my tax declaration, but it would be nice to have that, but probably we can sort that out, but there is a completely misunderstanding on your side.

I think that's what it says in the annual report.

And we have to look if there is a mistake. We've checked it five times, but I can assure you there is no seven or nothing and there is no doubling.

The last question is, can you remind the minorities that you have in the net profit? Where do they come from or who is that?

What do you mean with minorities?

I think you have six million that you pay to non-controlling parts. I'm wondering what that is.

No, I can't. You see me with a big question mark. I don't see any minority spending of 6 million. Do you have any clue about that?

Well, it says non-controlling interest. Shareholders of the parent. Yeah, I was wondering what it is. Was 10 million last year? Is 6 million this year?

So last year it included something related to TechnoWeb, which we closed down at that point in time. And this year this is just non-controlling shareholders, right? We're part of that. We have to, from accounting point of view, allocate it to them.

Okay, but there is not a part of another company that you don't 100% own, no?

I would need to double check. We can get back to you on that one.

All right, thank you.

Thank you for taking my follow up. Maybe on Barmark I would like to ask. I have the impression that the trend has been kind of bottoming and improving and then sort of kind of slowing down again. When I look at your chart on the input output prices, the polymer filaments and the input prices of your clients, it seems to me that the margin is kind of reducing. So at the same time, you're sort of calling the bottom. So maybe you can give us a little bit more of an indication what you really see in the market there and what's the confidence also that this margin decline is temporary, like meaning only for 25, I would imagine.

So first of all, we see that governance stimulus is taking effect. Second of all, Second of all, we see that the price-cost ratio is going to improve for our customers. What we see in the market is more activity with potential customers. We have order increase, order intake increase if we look a half year 24 over half year 23 by 19 percent. So here we clearly see that the activity is coming back and especially on the small medium sized orders we feel comfortable with the activity.

Maybe I'm allowed to add to you because What he was describing there is maybe the downturn on the profitability that's mainly driven from one major project and maybe one or two smaller projects which we have to take to maintain our market position in the pace of the downturn, which, by the way, we did the same way in the 16-17 to maintain our position to customers. And this we have to get through the system now. That's why there is a further decline. But as I said, even in 25 with this projects which are not that profitable as typically will not go in the miners. The big difference is that in 2016-17 we really dropped by 600 million, comparable, but we dropped in a real negative EBIT minus and a negative red EBIT A minus. Here we will stay very positive in EBIT and in EBITDA, not fully in line with that what we have in 24, a little lower, but not too much lower. And the major driver is not the overall market, this is some specific project which has been necessary to be taken to maintain our position with the customers. So the market is coming back. There we see more significant, more discussions. We see a much better situation on the running situation of our customers, which was the reason in the past why they stopped. You should bear in mind that after 22nd, The market dropped first time in 60 years. There was a negative 6% growth in textile market. First time in 60 years. This has changed. There's as well more Indian projects to come. To be said that the Indian projects sometimes take much longer until they materialize. The Chinese are here more pushy. When they come to discuss, they are closer to to finalize projects. And last but not least, we have and we are on the way to transform significant cost positions from Germany into China, which was a downturn in Germany and we will not rebuild that positions in Germany by two reasons. First, we probably have a higher, there's a higher probability that you will not get the workforces anymore. Second, you have a higher currency risk, you have a higher cost base, you have all higher. That's why we're transforming significant amount of value duration into our sites, which we have since decades, by the way, in Suzhou and Wuxi and into China. And that will additionally give us headroom for a better margin situation that we work on the cost. But this effect you see earlier at the end of 25 and beginning of 26 because this transition has to be done. And for the transition you need as well the supply base. It doesn't help you if you put assembly and other stuff into the region and your supply base still sits in Germany. So we will get our supply base as well Chinese-based as we have had in Germany-based. There's a lot of aspects coming together while we have a positive outlook on the 25 onwards situation. But within 25, the profit will bottom in 25. It will be lower than in 24, but it will never be negative. And the order intake, we will see an increase versus 24. The issue is sometimes that you very often judge, not you as a person, but you as an institution, judge very often on quarters. And we have some quarters where you get, let's say, by accident, five signatures of a big project, and then you get one quarter, you get no signature, and then you get five again. And that's why the overall trend is not only by quarterly build, but it's then built by several quarters.

Thank you very much. Yet I would like to ask you a question on the quarters. Sure. If I may. Just because there was maybe one number that sort of surprised me negative today and it's the backlog in Barmag, which is lower, 289 million from memory. And after 280 plus million sales in Q4, it means to me like I have the impression maybe Q1 starts slow. Maybe you don't have so much work for Q1 yet and I'm trying to understand if you need a lot of order intake during 25, for 25, or if you believe you have enough work.

The gross for the 25 on the sales side, that's there within Walmart. I don't want to discuss now how they operate inside because if they anticipate some shipments or if they postpone some shipments, it goes beyond our discussion level here. That's when they ship and when they book the receipts. But from a volume base, the Barmark situation is picking up and the major question for that is the order intake. So if they do a little bit more, they were pretty flexible in their workforce as well. Otherwise, we couldn't work that way. And you have seen as well that Barmark and the whole business is not very capital intense. Typically, you work on that, what you get from your supply base on a low own asset base.

Can I ask one last one?

If the others agree that we do a bilateral meeting, I'm fine with that. Nobody raises their hands. No, no, it's fine.

Go ahead. On the... How do you call it? Overhead cost. You said that you have done work to split, etc. And so it probably means that when you dispose or sell or flow to the business, they will take their share of overhead cost with them Or will there be something remaining to you that you will have to sort of restructure away later?

So as part of the standalone readiness for OMF preparation, we have analyzed obviously the share that OMF was covering at the time and for that share we have an action plan that has already started to reduce that cost. What will not happen is that once OMF is separated, that we will sit on the cost. So we're very anticipating that and having had plans in place. Let's also not forget it's mainly in the headquarter. It's mainly a Pfeffikon topic. It's mainly a Swiss topic at this stage. And yeah, it's around 30, 40 people.

which are identified, talked with, plans in place, and some are already reduced. So there is no burden from any separation that there will be remaining costs and being negative on the remain goal.

Great. If there is one more question, please go ahead.

If you have done the separation, then can you share how much of debt you would give away with the sale?

We have prepared the separation. We have a goodwill allocation topic open. So at this stage, I don't want to disclose more.

Good. If there are no further questions in the room, we now move to questions via phone. Operator, please go ahead.

The first question from the phone comes from the line of Rawat Vinayak from RBC. Please go ahead.

Thank you. I just had one quick question, like what proactive measures you take to stabilize pricing in the polymer business, or whether we have to wait for an end market recovery?

Sorry, maybe it's my age, but I didn't got it fully.

what actions taken to come out of the slum.

In Polymer?

Yes.

We have taken out probably somehow a thousand people in 23-24. We have cut down workforce significantly. This workforce will be rebuilt in Asia-Pacific on a completely different cost base. We have massively worked on our supply base, which will not stay there where they was, but coming out of the total different cost base. And so from an operations side, we were prepared. From a sales side, we are having some new technologies which we are introducing and telling our customers. One of that technology will only show in October on the next fair. But with our customers, the interaction is accelerating significantly, and it's probably driven because they feel more confident that they have to invest again and they want to invest. And in China, it's typically if one starts, the others are walking. We will not see a stampede in 25 already on the early intake, but I'm pretty confident that it will be going forward for us. If it's a little later, it's better because our cost effects are crapping later. So if I'm too early, maybe I have to deliver still something with the cost base out of Germany and not a cost base out of China.

Thanks. Just a follow-up here. So specifically the pricing situation in the polymer solution, can you specifically throw some light there, like what exactly are the measures on improving that?

So here we can say we said that we had to do a price concession and we did a price concession to gain a large project to support utilization on one hand side for our business in 2025. But more importantly, you have to look at the polymer processing market as a duopoly. So in that case, it's either us or our competitor, and you're locked in for many years with a contract once the customer moves. So with that, we did a concession on the price. However, we're still profitable with that project. And what we have seen in the pattern in 2016 was that it was a similar pattern that we had to do some price recessions in 2016. But as soon as the market picks up again, as we've seen in 2017, 2018 and the last cycle, we see also more pricing power coming back to us. So we feel, as you mentioned before, the pricing situation, we feel it's very transitory. On top of that, I feel that with the innovation that Michael alluded to coming out later in the year, we have also a very good positioning with the product that should excite the market. Does that answer your question? I'm not sure if this was the question.

Yeah, thank you so much. And I would love to add again, don't forget there is a drip of 600 million in two years on the revenue line, and there's still a remaining EBIT and EBITDA level, which would be the high end of a lot of companies. So it's a pretty good business model and the only issue in this business model maybe is that it grows year by year on average maybe by 2.5%, 3%. So it's not the big growth driver. But from a business model, from a capital return perspective and all that stuff, with a group of customers, it's a very good business. It does only fit very well with the other business. That's why we separate it. And we tried to do that two times. Unfortunately, 16, we had a drop after successful years. So 17, 18, 19, you had to gain an average, again, three profitable years. And 20 was COVID. And COVID lasted till 22. And then thinking about, OK, now China will boom up again. It was the opposite. It was the combination of Chinese, let's say, policy to the flu and to the... Pandemic. Thank you. In combination with the Russian-Ukraine invasion, which has driven inflation, and inflation is not good for consumers. So you had both effects, and both effects together drove the textile industry negative. It's something like I have seen when I was in MTU, when you had September 11, and then aerospace dropped by 80%, and it remained low for one or two years. But in 2004, we had completely recovered. And there will be a recovery. The question is how fast that will happen. And this as well is a question for us, how we are valuing our asset when we value through the trough to be prepared for the right and not only prepared to execute the right way of sell or spin. And maybe that's an answer why it sometimes takes a while because you have to make up your mind, you have to calculate, you have to study your scenarios and then to say this is the best scenario you can do and we have done that very successfully in drives and very successfully in pumps. And we will do that in the same way according to our rules and conditions as we have done in the past.

Are there more questions online?

There are no more questions from the phone.

Was there a remaining question there? Yes, please.

I have a couple of questions around the margin and mid-term margin guidance. Firstly, on surface solutions, you're guiding for a small improvement or stable margin for 2025. So in order to reach the mid-term guidance of 20% plus, what is needed there? Do you need a better mix shift? Do you need a general recovery also of volumes? And can you also do more through efficiencies, or have you already squeezed the lemon as much as possible in terms of the associated costs? And then secondly, on the Barmak margin, You previously had a mid-term outlook for the polymer processing, mid-term guidance for margin, but now that the HMS flow has been deconsolidated there, what are you expecting in terms of a mid-term margin target for Barmark as a standalone?

Let me start with the OSS. So... I would love to have a mix towards cutting tool coding and doubling that. It will not happen. Cutting tools is a great business, but it's a business which is running flat or even shrinking, and we are getting market shares there. There are new applications to come, but not in the same dynamics. So the cutting tool market is still growing, but not with the dynamic we have seen some in the past. Materials is doing very well. We expect more growth there. What we really need is a turn in the markets, in the main markets. Main markets means if automotive industry really understands where the track is, which is difficult for them sometimes because there is too much different signals from Europe, America, China, wherever they expect to have automotive. And this is the unsecurity of automotive plus their supply base is impacting our markets massively. The other one is then luxury. Luxury is stalling. Unfortunately, we have taken REERI at the time of 22, and luxury is stalling since two years. If luxury comes back, and the process is doing very well because we took REERI to accelerate and even support and accelerate the move from electroplating to PVD. LVEJ group is a major driver for that, because you get significant savings in materials, and you have much better surface qualities. And if you take a bag, one of the, there's a second bag, sorry if you're getting too long, but I had to learn it. I learned it from my daughters, and I learned it from our markets. There's a second and a third bag, a third market for bags. If you buy a bag for five or ten thousand bucks, You sell it after a year, you buy the next one. If you sell it and there are a lot of scratches on your material parts, you sell it much lower if you don't have the scratches. A PVD surface is a much... Less scrappable surface than electric galvanic surface. Major driver. Materials, second driver. Base for that, you need MMI technology, which we have, to transfer brass to stainless steel and to coat that. This is fully on way and it's doing very well. But it's still a smaller portion of the overall business and the overall luxury business today is stalling. Tailwind there, better margins here. Tailwind in automotive, internal industry, better margins. If we would have already a bigger portion, and beyond that what we always have done in aviation, if we would have a bigger portion in more PVD parts and jet engines, bigger portion in military jet engines where we're working on, that will additionally drive margin. So it's a mixture, yes, there's mixed effects. But the real effect is that we will see better margin quality of markets recovering, plus the lemon isn't squeezed. We're doing very well, but we will do a lot of things. We talk about digitalization. I give you an example. We have 550 coders globally. Last year, we had the first 60 connected. This span of this year, we will have 200 coders connected. We're working clearly on a so-called cloud factory, where we have best practice sharing between all the sites we have spread out. And this is doable by AI and big daters and connections. This was not doable a couple of years ago. We first had to develop all that stuff within the company that we can roll it out now. But nobody else has the capability because nobody has 550 coders. These are things which will further on getting our utilization up, getting our capital intensity down, because if you have a lot of service sites, you have business which you have to do close to your customers, but you have businesses where you have not to be that close, which you can shift. And we have these sites. This is, by the way, a strength now in this geopolitical situation, that we have our sites in the US, in Europe, in China, and in Asia Pacific region, which helps us. Besides that we are following a global business, we are very local with our offers. So maybe the answer was a little bit too complex, but it's not squeezed. That is important for me. There's further improvements on our operational side. That's market and somehow a little bit the mix.

And I think on your second questions, basically for OMF, here we have seen in the last cycle, we have seen an average operational EBITDA margin of 13.3% and that this margin is fully intact.

Dr. Suess, one brief question, something we touched upon before the conference, but I think it's kind of important to repeat that. In a what-if scenario, if you would sell polymer processing rather sooner, what is the market like for M&A, for surface solutions? I think that is an indication that this may be interesting for other investors as well. If there is anything that you would potentially put your eye on or if the market is too expensive or where we're at. Thank you.

Actually, there is not a real peer for us to buy. We are pretty unique. We are market leader in PVD. We are market leader somehow in, not in CVD, but in thermal spray and equipment. So we have done always smaller, last five, six years, 20 smaller assets, 5 million, 6 million, 10 million, by technology or by localization. But there's not a big asset. We have done significant acquisitions, especially with really to open up the luxury market, which would not be open for us. to work with Hermès, to work with Dior, to work with Louis Vuitton if you wouldn't be part of the group. So that this industry unfortunately is stalling since two years, they will come back for sure. There is more the organic growth and the application story that we go with that what we are capable for in different industries. And this helps us to roll out six industries of today. As I said, Semicon, for example, semiconductor industry, we do already a significant amount of AM parts for life-limited parts in the production. There is, if you do semiconductor production, today all this production equipment is thermal sprayed. Next generation may stay as thermal sprayed is already questioned, but at least if 1.4 nanometer, you need a PVD solution. We're working on that. That's probably three years down the road. So we have a lot of things in our technology pipeline that do not need an M&A actually. We need simply to execute on that what's in the pipeline and getting the markets. And as I said, there is no one. Investors sometimes say, oh, there is body coat in, it's a thermal heating company. It's totally different to that what we are doing. They have some nitriding, but no coating. There's a Prexor service solutions. They're pretty good in thermal spray. They belong to Linde, and they have a Linde multiple on the evaluation. So you have probably a $600 million business, which costs you $2 or $2.5 billion. As long as Linde is not changing that policy, that sits wonderful and nicely with Linde. And it's mainly on the CVD service side. Not CVD, thermal spray service side. On equipment side, we are far beyond everybody in thermal spray and PVD. In PVD, we do not sell so often to others, only for ourselves, but in thermal spray, we do. It's different business models. Materials, we have improved massively by halfening our numbers, which we are serving. We have improved massively productivity. And as I mentioned this morning, we do more and more material developments, new materials and new applications, AI-based. We have both Coperta in California 2016. Where the big benefit is that you go, if you need a new specification, you go in the periodic system. It gives you probably 15 million solutions. You get in our algorithms with the data we have, a couple of months running them. Then you go with four solutions in the laboratory. So you can shrink years and hundreds of millions development to maybe single digit million developments in months. And this was one of the examples how digitalization is really taking place impact in businesses like ours. The same is what I mentioned with our service centers. To have one service center virtually, but you have it spread out in the world and you have a best practice sharing between all the different service centers. Whatever you have coded once, you have it available everywhere else. What was the best coder in? What was the second best? What was the third best? Plus all the data you have of your customers. How they order, when they order, which way they order. You can predict. Today we cannot. In some cases we do already, in some cases we're still not doing it. These are all things we're working on. We will massively improve our performance. Additionally to that, what we have done already. Will it happen everything next quarter? Definitely not. It will be the same as we have done and we have shown in a transition, a consistent move forward.

Thank you. I have two questions, or two and a half, maybe to Mr. Richter. First on additive manufacturing. I think you highlighted earlier that additive manufacturing has reached break-even in Q4-24. First question, can you give us a feel for how big this subdivision is? And when you refer to break even, is that operational EBITDA or EBIT? And secondly, I would like to understand a little bit the post-employment benefits. Has there been a restatement? I see post-employment liabilities pretty much unchanged, 200 million. But I see post-employment benefit assets of 45 versus 1 million last year. Thank you.

So on AM, it is about operational EBITDA. The size of the business is in the 20 million range right now. For the restatement, for the point that was raised before, we need to check and follow up. Stefan, do you have an answer for that?

Yeah, we are following up.

Apologies for that. Okay.

And gross in AM actually is somehow 40% plus.

Great. So thank you, everybody. This concludes today's presentation. You are now more than welcome to join us for coffee and tea upstairs. Thank you for your attention today, and goodbye.