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.