Group Business Review

Oerlikon delivered impressive results in 2018, exemplified by double-digit top-line growth and strong operating profitability in both of its Segments: Surface Solutions and Manmade Fibers. With the divestment of the Drive Systems Segment to Dana Incorporated, this business was reported as discontinued operations in 2018. Despite increasingly complex trade, regulatory and geopolitical conditions during the latter half of 2018, Oerlikon successfully navigated the environment and capitalized on sustained demand in its industrial and regional markets. These results underscore the strength of the company’s initiatives to drive future growth.

Reflecting the progress of its strategy and ability to generate results, the Oerlikon Group’s order intake increased by 23.5 % in 2018 to CHF 2 731 million (including a positive currency impact of 1.7 %) compared with CHF 2 211 million in 2017, while order backlog increased by 20.2 % to CHF 596 million at year-end 2018 versus CHF 496 million at year-end 2017. Group sales grew 26.2 % in 2018 to CHF 2 609 million (including a positive currency impact of 1.7 %) from CHF 2 068 million in 2017. The ratio of Group service sales to total Group sales was 38.1 % in 2018 versus 44.8 % in 2017.

The Oerlikon Group achieved strong year-on-year growth in operating profitability in 2018, as measured by both EBITDA and EBIT. Group EBITDA increased 26.1 % to CHF 406 million, yielding a margin of 15.6 %. This compares to Group EBITDA of CHF 322 million and a margin of 15.6 % in 2017. Group EBIT stood at CHF 243 million, or 9.3 % of sales in 2018 while in 2017 EBIT was CHF 168 million, or 8.1 % of sales.

The Oerlikon Group was solidly profitable in 2018, with income from continuing operations of CHF 173 million, compared with CHF 95 million in 2017, an increase of 82.1 %. After including net results of discontinued operations of CHF 73 million in 2018, net income totaled CHF 245 million in 2018, or earnings per share of CHF 0.71, versus CHF 151 million or earnings per share of CHF 0.44 in 2017. The tax expense for 2018 was CHF 68 million, while in 2017, it was CHF 64 million.

Cash flow from operating activities before changes in net current assets increased 6.2 % to CHF 429 million in 2018, compared with CHF 404 million in 2017. The Group’s return on capital employed (ROCE) was 12.1 % in 2018. In 2017, the reported ROCE figure of 8.2 % includes the drive systems business.

The Surface Solutions Segment remained the largest contributor to Oerlikon’s sales and profits in 2018, representing 58 % of total Group sales and 70 % of total Group EBITDA. The strong performance of this segment during 2018 further validates the effectiveness of Oerlikon’s strategy to become a global leader in advanced materials, surface solutions and materials processing.

The segment’s order intake increased 11.5 % in 2018 to CHF 1 574 million compared to CHF 1 412 million in 2017. Order backlog climbed 55.6 % to CHF 193 million from CHF 124 million in 2017. The segment’s sale increased 10.3 % in 2018 to CHF 1 511 million from CHF 1 370 million in 2017. Sales growth was seen in all regions and across industries, and particularly notable in aerospace and general industries, as well as in the U.S.

The Surface Solutions Segment achieved an EBITDA margin of 18.6 % in 2018 compared to 20.1 % in 2017. The EBITDA margin is lower year-over-year due to significant operating expenses for investments in future growth businesses, such as additive manufacturing and ePD. EBITDA for the segment totaled CHF 283 million in 2018, a slight increase from CHF 276 million in 2017. The EBIT stood at CHF 144 million in 2018, or 9.5 % of sales, while EBIT was CHF 149 million in 2017, or 10.8 % of sales.

The Segment continued to enhance its market portfolio and expand into new technologies in 2018 with the execution of four strategic acquisitions. These acquisitions included DIARC Technology, to increase Oerlikon Balzer’s surface treatment product offering and expand its geographical footprint into Finland; DiSanto Technology, to provide the Group’s additive manufacturing business access to the new sector of medical component manufacturing; Sucotec, to add CVD technology capability for the tooling market; and Eicker, to further strengthen the Groups position as a key supplier of nitriding solutions for the automotive industry.

In 2018, Oerlikon further strengthened its operational and production footprint in Europe and in the U.S. for its additive manufacturing business. It has also begun additive manufacturing powder sales in China. Additionally, it entered new partnerships with industry leaders, including Boeing, RUAG Space and Lufthansa Technik to advance the industrialization of additive manufacturing. Oerlikon has also started developing advanced materials such as superalloy powders for 3D printing at its new state-ofthe- art facility in Plymouth, Michigan.

The Manmade Fibers Segment posted record-level sales and operating profitability improvement in 2018. Segment order intake increased 44.8 % to CHF 1 157 million in 2018 compared with CHF 799 million in 2017. Sales jumped 57.3 % in 2018 to CHF 1 098 million from CHF 698 million in 2017.

These results reflected a healthy demand in its core filament equipment market for fibers, which consequently boosted orders and sales for texturing systems. In the U.S., the robust demand for carpet yarn equipment also contributed to the strong performance. Additionally, the segment’s nonwoven business posted an impressive increase in sales in 2018, underlining its initial success in establishing a foothold in this market.

The Segment experienced growth across all its key regional markets, most notably in China, the U.S. and Latin America. The segment continued to gain market share and has generated a robust order pipeline with deliveries into 2021, laying the groundwork for sustaining a high level of top-line results over the next few years.

Segment profitability also improved substantially in 2018, with EBITDA more than doubling (up 129 %) to CHF 128 million, or 11.7 % of sales, versus CHF 56 million, or 8.0 % of sales, in 2017. EBIT stood at CHF 106 million, or 9.6 % of sales, in 2018, while EBIT in 2017 was at CHF 33 million, or 4.7 % of sales.

To solidify its market position, the segment made two strategic acquisitions during 2018. With AC-Automation, the segment extended its smart plant portfolio with a large-scale plant automation solution for customers in the textile and packaging industries. Acquiring the technologies from PE Polymer Engineering Plant Construction enabled the segment to expand its product range to cover the entire polyamide process chain for fibers and filaments. In line with its strategy to focus on its core businesses, the segment divested its tapes and monofilament business to the Austrian Starlinger Group. In 2018, the segment also signed an agreement with Shaoyang Textile Machinery in China in order to penetrate the disposable nonwovens market.

Maintaining a portfolio of innovative technologies, a global presence and industry-leading scope of comprehensive services continue to be key components of Oerlikon’s growth strategy. The Surface Solutions Segment contributed 58 % to total Group sales in 2018, while the Manmade Fibers Segment accounted for approximately 42 % of Group sales.

With a strong global footprint, Oerlikon operates over 175 sites in 37 countries, with 79 sites in Europe, 52 sites in Asia-Pacific and 44 sites in the Americas. Asia-Pacific accounted for the largest proportion of Group sales in 2018. Sales in Asia-Pacific amounted to CHF 1 210 million, or 46 % of Group sales, versus CHF 884 million, or 43 % of Group sales, in 2017. Europe was the second largest regional contributor to Group sales in 2018, with sales totaling CHF 852 million, or 33 % of sales, compared with CHF 775 million, or 37 % of sales, in 2017. Group sales in North America totaled CHF 409 million, or 16 % of Group sales, in 2018, versus CHF 300 million, or 15 % of Group sales, in 2017. Sales in other regions remained at 5 % of Group sales in 2018 with sales of CHF 138 million, compared to CHF 109 million in 2017.

As of December 31, 2018, Oerlikon’s balance sheet totaled CHF 4 545 million, compared to CHF 4 363 million at year-end 2017. The Oerlikon Group had equity (attributable to shareholders of the parent) of CHF 2 001 million, representing an equity ratio of 44 %, compared to CHF 1 971 million, or an equity ratio of 45 % as at December 31, 2017. 

The year-on-year increase in the total balance sheet and continued strong equity ratio primarily reflected the improved cash and cash equivalent positions due to higher customer advances. This was offset by higher capital expenditure and an increased dividend payment. As a result, net liquidity at the end of 2018 was CHF 398 million compared to CHF 499 million at 31 December 2017.

Cash flow from operating activities before changes in net current assets increased 6.2 % in 2018 to CHF 429 million compared with CHF 404 million in 2017. Net working capital, defined as trade and trade note receivables plus inventories minus trade payables and current customer advances, totaled minus CHF 79 million in 2018 versus CHF 167 million in 2017.

Capital expenditure (CAPEX) amounted to CHF 207 million, compared to CHF 169 million in 2017. Excluding amortization of acquired intangible assets, the CAPEXto- depreciation ratio was 1.7 times, which is higher than the Group’s target of between 1.0 to 1.2 times due to significant investments in additive manufacturing and in building up promising surface solutions businesses such as ePD.

Cash flow from investing activities was minus CHF 342 million in 2018, compared with minus CHF 237 million in 2017, attributable primarily to capital expenditure for plant and equipment. Cash flow from financing activities amounted to minus CHF 149 million in 2018, mainly for dividend payments of CHF 118 million, repayment of financial debt of CHF 5 million and interest paid of CHF 16 million, compared with minus CHF 132 million in 2017, which included dividend payments of CHF 104 million, repayment of financial debt of CHF 6 million and interest paid of CHF 18 million. Oerlikon reported a cash and cash-equivalent position at the end of 2018 of CHF 764 million compared with CHF 871 million at the end of 2017.

Oerlikon invested more than 4 % of its revenues in research and development (R&D) in 2018. R&D expenditure for the year was CHF 120 million, or 4.6 % of Group sales, compared with CHF 101 million, or 4.9 % of Group sales, in 2017. Oerlikon believes that a dividend payout is an important means of returning value to shareholders. Based on the strong performance in 2018, the Board of Directors will recommend a dividend payout of CHF 1.00 per share at the 46th Annual General Meeting of Shareholders on April 9, 2019. The proposed dividend comprises an ordinary dividend consistent with the previous year of CHF 0.35 and an extraordinary dividend of CHF 0.65 as a share of proceeds from the sale of the drive systems business.