OC Oerlikon Corporation AG

Ladies and gentlemen, welcome to the Oerlikon half-year results conference call and live webcast. I am Mathilde, the chorus 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 zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Aymeric Jamin, Head of Investor Relations. Please go ahead.

Good morning, ladies and gentlemen, and welcome to Oerlikon's Herstal Pure Results Call. My name is Aymeric Jamin, Head of Investor Relations, and I have here with me Marco Freidl, CFO of Oerlikon. Marco will start the call with a presentation providing an update on our end markets, financials, and outlook. We will then follow up with a Q&A. With that, I would like to open our presentation and hand over to Marco. Marco, the floor is yours.

Thank you, Aymeric. Good morning everyone and welcome to our H126 results presentation also from my side. Oerlikon is able to report a strong financial result for the first half of 26. We continue to execute our strategic priorities to drive efficiency, strengthen our resilience and drive growth in a context of geopolitical uncertainties. These initiatives were supported by strong execution and positive market dynamics, in particular in aviation, energy and general industries. I will start with an overview of our first six months, followed by an update on our end markets, the results, including the new segment reporting, and we'll conclude with our outlook. Order intake in H1 significantly increased year on year at constant FX to 920 million Swiss francs, up 19% versus H125. Hereby, strong execution and dynamics in aviation, energy, in particular industrial gas turbine business, and general industries acted as main drivers. This positively impacted especially materials and equipment business. Sales increased by 7% at constant FX to 790 million Swiss francs. A key success factor, in particular in the market just highlighted, was that Oerlikon successfully leveraged strong demand and pricing power in the materials business. Hereby, we acted as a reliable partner to our customers, despite geopolitical and supply chain uncertainties. Operational EBITDA margin was at 19.7% in H1, up 300 basis points year on year. In addition to operational leverage, this was supported by the COSBAUT actions launched in 2025, business mix, volume and positive pricing effects. The H126 numbers are an excellent result and confirm the successful progress in executing our strategy of diversification, both in terms of geographies and end markets. This strengthens the company's resilience and enables us to capitalize on the exposure to markets with positive growth dynamics. Looking into H226, we remain committed to diligently invest in future growth while maintaining a strong focus on profitability and capital return. We also strive to further strengthen customer excellence, for example, utilizing last year's implemented shared CRM platform to maintain our role as a reliable and innovative partner for our customers. Finally, we continue our path to further improve efficiency and resilience. We achieve this through balancing stringent cost focus with leveraging of our global footprint. This enables us to deliver growth based on a stable and flexible local service close to our customers. With that, let me provide you with an update on our end markets. Oerlikon operates across 10 industries, and we are looking forward to providing you further details on dynamics and our solutions for customers in our Capital Markets Day on 8 September in Zurich. Particularly, the general industries and tooling markets show a close correlation to industrial production. In H1, the PMIs in all three main regions improved, moving above neutral level. At the same time, Geopolitical risks and supply chain disruptions keep impacting customers' behavior. For example, with regard to precautionary stocking. Also, growth dynamics in Semicon, a key growth market for Oerlikon, remains strong. Overall, H226 is expected to remain balanced between improving fundamentals and ongoing geopolitical uncertainties. In automotive, global light vehicle production was flat in the first half of the year, with all three major areas showing a muted environment. In the EU, uncertainties generated by changing industrial policies continue to create a challenging environment for our customers and delay investment decisions. These dynamics are also relevant for our hot runners business, HRS Flow, whose performance is closely related to car model launches, which experienced soft momentum in H1. Looking ahead, industry agency forecasts indicate potential for a slight improvement towards year end. All that said, Oerlikon continues to drive innovation in the industry, leveraging its strong customer relationships to make the future of mobility more efficient and sustainable, be it in the vehicle body, Breaking System, Order Battery. In aviation, the industry shows a record high of new plane production and order backlog, supported by increasing traffic and demand for energy efficiency. At the same time, manufacturing capacities and supply chains continue to improve. In addition, the increase in flying hours is driving MRO activity and thereby demand for our solutions. We also see aircraft manufacturers upgrading old equipment. Our products are supporting them to develop more efficient and more sustainable aircraft engine technology. The industry also expresses confidence in the ability to continue increasing production capacity over the coming years. At the end of June 26, The combined order backlog of the major aircraft manufacturers exceeds 10 years of production at current delivery rates, providing strong visibility. In energy, the industrial gas turbines market, which from an Oerlikon product offering point of view is close to aero turbines, experienced strong growth in the first half. This is driven by the surge in power demand for data centers. triggered by the boom of artificial intelligence applications. On oil and gas, we see the market broadly stable. In luxury, end markets remain subdued, mainly due to soft demand in China, and to a lesser extent, tensions in the Middle East. On the more positive side, Swiss watch exports reflect in H1-26 year on year, with an improving trend towards end of H1. Midterm, the growth drivers for the luxury market remain well intact. With product quality, economics, and the trend towards more sustainable products, Oerlikon, with its unique offering, is well positioned to capitalize on this trend. Summing up, we all see a generally improving industrial environment. With that, let's move to page four, where we discuss the financials. Overall, our performance was supported by the generally improving market dynamics as just described. So both our tooling and general industries businesses benefited from PMIs increasing above neutral level. Also, aviation, energy, and general industries oriented materials and equipment businesses performed very well. Hereby, Oerlikon leveraged strong customer demand and pricing power. Despite geopolitical and related supply chain challenges, we showed strong execution by being a reliable partner for our customers and meeting their increasing demand. Automotive business showed a mixed performance with positive development in coding services versus muted performance of our hot runners and friction systems businesses in components. Overall, our diversified and market exposure and balanced regional footprint were key enablers of these strong results. As a result, H126 order intake and sales were up significantly year on year at Constant FX at 920 million and 790 million Swiss francs respectively. The book-to-bill ratio remained well above 1 at 1.2, which is expected to support sales in the second half of the year and beyond. Operational EBITDA in the first six months of 26 amounted to 156 million Swiss francs, representing a margin of 19.7%. The strong performance was the result of several positive effects, including volume, mix, pricing power, and inventory evaluation effects based on the strong increase of critical mineral prices. Additionally, the progress made in our cost out actions initiated over the last two years led to a reduction in admin costs of 7% year on year. As a result, Operational ROSI increased to 6.2%, primarily driven by higher profitability. Through our strategic and financial initiatives, we are committed to further improving our return on capital to a level that enables strong long-term value creation. As part of our pure play transformation, we have also implemented segment reporting, enhancing transparency, and providing greater visibility into the performance of our business. We will discuss the individual segments in more detail at the Capital Markets Day in September. But first time financial reporting is available as of page 126. With that, let's move on to the segment Coating Services. The Coating Services segment comprises are coating activities that enhance performance and durability of demanding applications. Through a footprint of more than 100 coating centers in 38 countries, we deliver our large variety of coating technologies, ensuring the optimal solution for our customers' products. At constant FX, the segment sales increased by 5.5% compared to H1-25. with all regions contributing. FX remains a headwind. Looking at the markets, sales in general industries, in particular Semicon, and tooling grew. In automotive, the coating services business showed positive signs of stabilization. Performance in the second half of 26 is expected to follow the usual seasonal pattern and to remain broadly in line with historical trends. Operational EBITDA increased to 57 million Swiss francs. This represents a margin of 18.8%. Hereby, margin improvement was supported by volume, mix, and pricing. In addition, the cost outactions launched in 25, including footprint optimization, strong cost control, and efficiency improvement, further supported margin development. With that, let's move on to materials and equipment. Materials and equipment segment provides coating systems, related aftermarket services, and materials for thermal spray and additive manufacturing. Our broad portfolio of equipment ranging from single handheld spray guns to fully integrated system platforms enables us to deliver solutions tailored to our customers' needs. Combined with our strong R&D expertise, deep material science engineering knowledge, and close collaboration with our customers, we consistently provide best-in-class materials and application solutions. At constant FX, segment sales increased by 19.7% year on year, driven by strong dynamics and execution in aviation, energy, and general industries. This strong performance is mainly driven by our materials business, in which we proved our ability to meet increasing customer demand despite challenging supply chain conditions. In addition to volume growth, we also leverage our pricing power, including surcharges for critical minerals, in particular tungsten and yttrium. In equipment, against the backdrop of the strong development of the before-mentioned end markets, order intake was strong. This is expected to support sales in the coming quarters. Operational EBITDA rose to 66 million Swiss francs, corresponding to a strong margin of 23.8%. The improvement was driven by operational leverage from higher sales volumes, complemented by pricing power and effects from inventory revaluation. With that, let's move on to the component segment. component segment engineers and manufacturers precision parts for demanding industries we improve customers product performance safety and efficiency for diverse sectors this includes automotive with hot runner systems from our hrs flow business tis our thermal insulation solutions for batteries and components for the luxury industry In addition, we serve the aviation industry with aero engine components from Eldim and our additive manufacturing business is targeting mainly the aerospace and defense as well as Semicon industries. At constant FX, the segment sales declined 4.4% compared to H125. From a regional perspective, the main business areas negatively affected were APAC and Europe. The main drivers for the decline in the segment are the friction systems and hot runners businesses, which were impacted by the automotive headwinds. Despite this, HRS flow is continuing to successfully diversify into PMCL, so packaging, medical, consumer goods, and logistics industries from a lower base. In our luxury business, we are seeing stabilizing, stabilization in sales. On the positive side, we see clearly improving momentum in our aviation-oriented held-in business. Moving to profitability, our operational EBITDA declined to 26 million Swiss francs. This represents a margin of 11.9%. Cost-out measures implemented in luxury in 25 contributed to a year-on-year improvement in that business. In addition, the continuing ramp-up in LDEM for large aero engine programs, automotive diversification into thermal insulation systems for batteries, and additive manufacturing show increasingly positive contribution. Profitability in components remains below our expectations. Accordingly, we will continue to focus on optimizing the cost base, driving growth, and thereby restoring target margin levels. With that, let's move on to cash flow. Cash flow from operating activities of minus 8 million Swiss francs as per our H1 report includes discontinued operations, means Barmak. Focusing on Oerlikon excluding Barmak, pro forma cash flow from operating activities amounted to 32 million Swiss francs in H1-26, up 25 million versus H1-25. This underpins the strong cash flow management, which contributed to absorb higher inventories, which were significantly impacted by increasing critical mineral prices. In this, increased advance payments from customer also acted as countermeasure. Overall, the usual seasonal inventory buildup in H1 is expected to support cash flow in H2. With that, let's move on to the balance sheet and capital structure. The leverage ratio at the end of June 26 stands at 2.5x, reaching this level already six months ahead of the schedule communicated with our full year results presentation. Both EBITDA improvement and net debt reduction contributed. We will continue with the leveraging towards our midterm target of below two times. Throughout H1, we maintain the tight focus on cost control, working capital, and capex. In the first half, we also actively managed our debt profile by repaying 475 million Swiss francs term loan with the Barmok closing. leading to an interest rate saving of 13 million Swiss francs per year. In addition, we issued a 200 million Swiss franc bond in May and repaid a maturing to 20 million Swiss franc bond in June. The coupon is 75 bps lower, resulting in an interest saving of approximately 2 million Swiss francs per year. This was supported by the reconfirmation of all of our ratings at investment grade in spring. Our liquidity position remains strong with around 900 million Swiss francs of cash and available credit lines at the end of June 26. In addition, we report an equity ratio of 41% for H1 26 up from 24% and of 25%. With a strengthened balance sheet and enhanced financial flexibility, we are well positioned to support strategic execution. Next to our 26 guidance. Based on a strong first half year, we are increasing our full year guidance. We now expect a mid single digit percentage sales growth versus the previous guidance of low single digit percentage increase. This reflects the strong H1, especially in aviation, energy and general industries, as well as an encouraging outlook for H2. Furthermore, We now guide for an operational EBITDA margin of 18.5% to 19.5%, up from around 17.5% previously, assuming broadly stable tungsten and yttrium prices. This also builds on a strong H1, supported by market momentum, strong operational as well as commercial execution, and our confident outlook for H2. Let us now recap the first half year on the next slide. Despite a backdrop of significant geopolitical uncertainty and ongoing trade tensions, Oerlikon delivered a strong performance in the first half. It was driven by aviation, energy and general industries with Oerlikon successfully leveraging strong demand and pricing power, particularly in the materials business. Throughout the period, we acted as a strong partner to our customers, supplying mission-critical products and ensuring production continuity. We are also making good progress on our efficiency measures and cost-out initiatives. These actions are on track and will further enhance our agility, improve our operational leverage and support profitability and value creation in the years ahead. At the same time, we remain committed to driving innovation and growth across the company. By continuously improving our competitiveness and investing in new technologies and growth opportunities, We are laying the foundation for further sustainable long-term growth and strengthening our leadership positions in attractive markets. Looking forward, while the external environment remains dynamic, we are very confident in the attractiveness of our products, the strength of our business model, the quality of our customer relationships and the dedication of our teams worldwide. Our priorities are clear. Supporting our customers, executing with discipline and creating sustainable value for all stakeholders. Ultimately, our objective is to deliver long-term value through profitable growth. With that, thank you for your attention and we look forward to sharing with you further details on the business and outlook at our Capital Markets Day on 8 September in Zurich. With that, let me open it up for Q&A.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questionnaires on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from a webcast while asking a question. Please limit yourself to three questions and place them one by one each, hence allowing the company to answer each question individually before posing the next question. Anyone who has a question, may press star and 1 at this time. The first question comes from the line of Tobias Klöpper from Zürcher Kantonalbank. Please go ahead.

Good morning. Thank you for taking my question. Could you give us some insights regarding the fact that the inventory revaluation had compared to your cost measures? What was the effect on your operational EBITDA margin? How much of the inventory increase was due to the higher raw material prices? And then maybe going forward, what effect do you expect? Thank you.

Thank you, Tobias. The effect you see on the margin is a mix of effects. So it is about volume. It is about mix. It is about the effect from the restructuring measures which you saw in the last year and also previously. and on top of that it's inventory evaluation. So it's a mix of effects and not just the revaluation that you mentioned. When you look at the guidance which assumes stable prices for the critical minerals that we refer to, you can work on that basis with regards to modeling.

All right, thank you. Thank you.

The next question comes from the line of Alessandro Folletti from Octavian. Please go ahead.

Yes, good morning. Thank you for taking my questions. Can I ask one understanding one and then my three questions? I know I'm maybe exaggerating, but you tell me. The understanding question is on the ROCHA calculation that you made, you show 6.2%, but this is not annualized. Is that correct?

Can you please repeat the question, Alessandro? I didn't understand.

The Roche calculation that you have shown 6.2% on slide 4 of your presentation. So I just was wondering, 6.2% is not analyzed, right?

It is the balance sheet at a period end, and it is the last 12 months for the nominator.

Ah, that's the last 12 months. Okay, good. Thank you, that's the question. So I wanted to ask you on coating services and component coatings. Can you explain me how you sort of split the business there between what is purely... Servicing, I guess, servicing on tools and what you used to do on coating components for the automotive industry. Do you have like separate factories or separate lines inside your buses? How did you split that?

Yeah, happy to provide the details on that. So on one side, the one segment coating services is what you have to think about as the globally spread centers that provide coating services ranging from tools, that's coating tools, that's forming tools, that's precision components, which also go into Semicon, which go into medical. So it is a very local for local coating center-based coatings business. In components, as the name states, it's much more about the component where we leverage synergies in terms of industries. As I stated before, we have very good dynamics in aviation through the aero components for aero engines from Eldim. We leverage synergies in the automotive industry into the thermal insulation systems. and we have luxury and hrs flow so the coating element in that segment is partial whereas the coating element in the segment coating services is ultimately the business model so that's the key differentiator so when you think for example about luxury luxury does coatings but it's only part of the component offering or in this sense

Like the value add is bigger in components or you have to manufacture more. Coating is only one element, one step of what you do. That's the deal.

That's exactly correct. Yes, exactly. In coating services, it's about the coating itself, of course, which we develop, which runs on our own equipment. So I think we believe we have a very strong USP here combining these business models. That's very unique. where I think components, it stretches beyond the partial coating into whole components which show our strong engineering capabilities, yes.

Right. And my final question is on the materials and equipment business which obviously had a very strong result. Typically in the past when you had the surcharges, etc., it didn't have a big effect on the bottom line, actually. It was just more like passing on the input price increase. What is different here in this current situation?

Yes, it's a very good question, Alessandro, and I think it relates a bit to my answer to Tobias' question. What we have seen over the last half year and also before is the dynamics in the industries that I mentioned. Aviation, general industries, really allowed us to push our offering to beyond just a pass-through of prices. We developed, I would say, into a much more strategic partner to our customers. Or we were before, but now it became much more independent and visible to our customers. So it's literally a mix of volume and also the quality of our offering and the value that we can demonstrate to our customers. So it is a combination of factors that we have not seen in the years back. So it's a combination.

So if I may add on here, obviously the margin increase from 16.8 to 23.8 is huge, right? But are you telling me that because of this increase while you add the 28%, it's not a new level that you can keep or... I should be maybe between the two numbers.

I mean, what we guide for is stable prices. So in H1, and I'm sure you have looked at the tungsten and digital prices, they increase significantly. So if we assume stable prices, then at least that effect will not repeat unless prices start climbing again. But the fundamentals, which range from operational leverage, how we operate the business, How we steer it from sourcing to shipping, I think that's a really comprehensive improvement that we have developed over the last couple of years.

Well, the 23.8 is not necessarily the new sustainable level, but you are away from the 6.9 of last year, basically.

Right.

Okay. Thank you.

Thank you also.

We now have a question from the line of Louis Billon, from Bada, Europe. Please go ahead.

Hi, good morning, and thank you for taking my question. So my question is, so when we take your midpoint guidance for operational ABDA, it's at 19%. So it implies H2 at around 18.3%, depending on sales. But should we consider that it will be the new standard going forward? Do you feel confident to reach 18.3% EBDA in 2027 and beyond?

Thanks for your question, Louis. At this stage, we don't comment on 27, right? We will have a capital market day in one month where we will look into the mid-term. There were the effects I just described to Alessandra, but overall, we are very confident that the actions we took over the last couple of years, that they have a sustainable effect and enhance the quality of the profile of the individual segments and the products we deliver. So yeah, we don't command the 27, but we have a sustainably positive development which we control.

Okay, thank you. And maybe a second question. Could you give us more detail on the order in H1? Is it mostly pre-booking from your customers? And also, is the lead time changing? So should we expect those orders to be converted in sales More later than it used to be?

Well, I mean, on the order intake, what is important is here that we have a very strong contribution also from equipment, right? As I said before, on the sales level, it's mostly materials, but on the order intake, we see very good dynamics in equipment as well. And this is driven by the same industries in aviation, but also in energy. I mean, if you observe the industrial gas turbine markets, The OEMs, the order books, how deep they are, how I would say stable for the next couple of years. You can assume that on the order intake one, this is also significantly impacted by equipment. And here one element to consider also looking a bit ahead is that we have a significant share of aftermarket business in our equipment business. Any system we place is an opportunity to generate aftermarket business, after sales, and also to generate materials business. So this is the power of the combination of these two businesses is to create a sustainable and very sticky demand after you place a system in the market.

Okay, thank you. And maybe a last question. Like, Your stock of tungsten and yttrium is a change since the full year 2025. Do you have less stock? What are the new rules for the stock of tungsten and yttrium?

I mean, overall, we don't go into details on the volume as such, but the supply situation in these materials is something that you need to be very capable of in managing. So it's about securing and being able to ship to customers. So yes, there is an effect of volume because volume grows on the sales side. But yeah, that's about it.

Okay, thank you.

Next question comes from the line of Leonie Cern from UBS. Please go ahead.

Yes, hi, thank you for taking my question. I have three follow-ups. I'll start with the first one regarding your new segment. You mentioned coding services. and that you expect for the second half to follow the typical seasonal pattern. If I look at the H225, then this looks a bit softer than the H1. So is it fair to assume that coding service revenues will be softer as well into this year?

Thanks for the question, Leonie. The seasonal pattern we refer to is not about the underlying dynamics of the fundamentals. We are very confident on that end. It's just a simple fact that with the summer break in the H1 and with the December holiday season, you have naturally a lower share of, let's say, working days. But the fundamentals are very much intact and we see actually good trends in the underlying business.

Okay, thank you. And then the second question, I think on free cash flow, it's very important to clarify, you mentioned that operating free cash, that the reported free cash flow contains like 42 million impact from Barmak. Will this impact be limited only to the first half, I assume, because you consolidated also in first half? And then what are your expectations also around networking capital normalizing? What would be a good ballpark range to assume where inventory and receivables end by end of year so we can make an estimate on free cash flow?

Thanks. So first, We still report Barmok within our financials because the closing only took place in February, right? Beginning of February. That's why on the cash flow statement, you still have the whole group, including this continued operations, whereas in the balance sheet and the income statement, It's Oerlikon only. And we'll see that for the rest of the year to come. The effects that we observe here, I mean, is the effects from the January result of Barmak. So after the closing, there is nothing to be expected anymore. When we look at the working capital, as described before, we have at the moment, obviously, a high impact on inventory buildup. This is materials, but also very important to mention. Also, when you look at the last couple of years, cash flow wise, H1 was usually weaker because we build up also inventory and prepare for shipments of equipment in the second half. So the end of year cash flow profile and also working capital profile will look different than from H1 as it did in the past couple of years. In the working capital, there are some one-offs at the moment due to the factors I described. We work on countermeasures. I think we were quite successful on generating advanced payments. And we keep our focus on that.

Okay, so is it fair to assume a similar cadence that we've seen in free cash flow last year, where we've seen around minus 50 in the first half and then plus 150 in the second half? Is this fair to repeat this year as well from what you've just described?

Well, I mean, the order of magnitude always depends on the business mix, right? But directionally, as I said before, H2 is stronger because of the factors as described.

Okay, thank you. and then last question I wanted to check regarding cash flow because you initially mentioned for cash flow around 100 million for 26 but now the first half was actually quite soft at just 33 and does it mean the remainder will come in in second half or will CapEx for a whole year be low?

Thanks for the question. So CapEx was indeed low in H1. It's a combination of factors. Number one, we remain very, very diligent on assessing the opportunities to invest. But in that case, it's simply also backloading of the capex. So we keep our previous comment that we expect around 120 million of capex for the full year. There is some backloading in particular also from the large one-time investment we have this year in Switzerland for the technology campus Reiholt. So to answer your question, the result of H1 is because for sure we were diligent, but secondly, it's simply seasonality and capex being backloaded into H2.

Okay, perfect. Thank you so much. And then just to check on the margin guidance that you gave, the midpoint at 19%, will this mostly be supported by the similar drivers for the second half as we have seen in the first half?

Well, I mean, what will ultimately drive the business, we will find out in the course of H2, right? But we see the fundamentals in terms of industries, in particular the ones I mentioned, aviation, power chain, as very sustainable. So yes we expect that generally the industry dynamics that we've shown I think on the slide you also see that in some industries we expect H2 even with potential upside to remain intact and the guidance as such what I mentioned is that it assumes the stable prices for the critical minerals.

Perfect, thank you so much.

Thank you, Lenny.

As a reminder, if you wish to register for a question, please press star and one on your telephone. Now I have a question from the line of Christian Arnold from OdoBHF. Please go ahead.

Good morning, gentlemen. One question on your segment reporting. Looking at your half-year report, I see that For the component segment, the operating assets declined quite significantly by mid-year versus the beginning of the year with stable operating liabilities. On the other side of materials and equipment, operating assets increased a lot. So have you seen here, have you shifted some assets from one segment to the other or what's behind this development? Thank you.

Hi Christian, thanks for the question. Yes, and you see that in the footnote on the respective page in the report, that with the start of the segment reporting, we reallocated goodwill based on the relative fair value principle. So the majority of that shift is related to the reallocation of that.

Okay, and can you give you a little bit more detail? So we are talking about the acquisitions of Riri, which move from one segment to the others?

It's not acquisition-based. It's about the relative fair value of the individual segments that determine the distribution into the asset base.

Okay. Thank you.

Thank you.

The next question comes from the line of Remo Rosenau from Helvetische Bank. Please go ahead.

Yes, thank you. I just noted that the spending for research and development were down from 58 to 38 million. It looks like quite a steep decrease. What is behind this number and where do you expect the full year number to be and then going forward?

Thanks for the question. That is a baseline effect. Last year, as you might have seen in the full year or last half year report in 2025, we had significant restructuring and impairment costs. So the delta that you see is not that we spend less on R&D. We are committed that R&D in the area of 4% up to 5% is a very important driver of our success. So the delta you observed is a baseline effect because you had one time cost in last year, which this year we don't have anymore. As you might have seen between the reported and operational figures, we don't have gaps this year. So that's the reason.

Okay, great, thank you.

Thank you.

We have a follow-up question from the line of Leonie Thien from UBS. Please go ahead. Yes, thank you.

Just one more follow-up regarding the components. You also mentioned that profitability remains below your expectations or below the target level. Can you qualify what the target level would look like?

I mean, we will look into the midterm in more detail in the capital market day on 8 September, Leonie. But obviously, we want to have all the businesses contribute to the margin of the group. And what we see at the moment, that's not the case. What is encouraging is that, as I described before, we have also very encouraging dynamics in that segment, in particular the aeroengine business in Eldim, but also the immobility-oriented TIS or additives. So we have positive drivers. On the other ones which are struggling, you have seen over the last couple of years that we will have a very diligent look on opportunities to improve margins if growth doesn't come. But more details on the midterm outlook we'll give you in the CMD.

Yeah, thank you so much. We have a follow-up question from the line of Louis Billon from Bada Europe. Please go ahead.

Thank you for taking my follow-up question. Could you give us more color on the split in the material and equipment division, the split between fixed cost and variable cost? Please repeat. Can you give us an idea? of the split between the fixed cost and variable cost and maybe an idea of what are the main costs in this division.

Well, you have a mix of two very different businesses, right? One is the materials business and the other one is the equipment businesses, which have very different structures. I mean, as part of the report, we don't share further detail on that one. Potentially, you can follow up with HR to get some more generic guidance. but in the report we don't go into that level of detail. Okay, thank you.

We have a follow-up question from the line of Alessandro Folletti from Octavian. Please go ahead.

Yes, thank you for taking my follow-up. Just two, if I may. First of all, on the quoting services business, when I look at your split of sales by region, We see America is still the lowest and you did mention that you wanted to relocate some capital towards that geography. But still, it doesn't seem that it has happened yet. Maybe you can explain why and what's the direction there?

I think one fact to comment on is that there is still, as you know, FX effects in the portfolio. And in particular, the US dollar has seen quite some weakening over the recent 12 plus months. Very recently, as you've seen, some of the country pairs, they're moving a little bit more in the favor of Swiss franc or an actual FX reporting. But there you have FX effects that are significant.

Fair enough. Thank you very much. I didn't think about that, honestly, not in this context. But does it mean that you did actually open more quoting centers in the U.S.? And, well, you mentioned that you closed some here. So is this happening? I mean, the U.S. is very strong. I mean, there are areas, I don't know, Houston. There's a lot going on.

Yeah, the dynamics in the market are positive. So if we look at constant effects, that's positive. In terms of sites over the last 12 to 24 months, we have closed 15 sites, 15 or 16 sites. So the general trend is into concentrating footprint. and optimizing utilization of our assets, our quotas in that case, to improve capital return. We believe that the footprint and the utilization of our assets in the individual centers and these assets are mostly our own coating equipment that we know very well is an asset base that we can very dynamically shift between the centers. So to your question, no, it's not about an increase in number of sites in the U.S. The main focus is about utilizing the existing sites, potentially right-sizing the footprint as required, and as we did a couple of times in the last years, and to optimize the utilization of the individual episodes.

Right. Thank you very much. But the 15, 16 you closed, they were not all in the U.S., right? It's a global number.

I mean, the FX headwinds we observe in most of the currencies, in particular also in Asia.

Right. Okay, good. Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Aymeric Jamin, Head of Investor Relations, for any closing remarks.

Thank you very much to all of you for having joined this call and for your questions today. I remain at your disposal, of course, later to answer any further questions you may have. Thanks and have a good day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscall and thank you for participating in the conference. You may now disconnect your lines. Goodbye.