Chairman and CEO Letter
Dear Shareholders
When faced with a challenging year, the question for any company is whether it can also be a productive year. For 2020, the answer at Oerlikon is an emphatic yes.
Any evaluation of 2020 must begin with the COVID-19 pandemic and the uncertainty it caused entire industries, businesses around the globe and people’s lives. The pandemic heavily impacted our end markets, particularly aerospace. We acted swiftly in executing cost-out measures to mitigate the impacts of the pandemic, and to protect our profitability. Globalization and diversification were in fact key drivers of our ability to manage the pandemic. We succeeded in maintaining our supply chain even during the lockdowns, and our experience demonstrates the resiliency inherent in well-networked global value chains.
We proved the strength of our strategy and business model and delivered a resilient performance in a highly challenging market environment.
Furthermore, we are proud to have published this year our first Sustainability Report. Sustainability has always been an integral part of Oerlikon, and now, we are publicly sharing our credentials and our future commitment to environmental, social and governance topics.
Global Capacity, Cross-Regional Reliability
As aforementioned, thanks to our global production and service network, we were able to eliminate and minimize disruptions to our production and delivery timetables. With competencies in our workforce distributed globally, we succeeded in fulfilling customers’ needs by providing coating, commissioning, maintenance and support services even when traveling became impossible.
We also benefited from not being overly dependent on any individual region or industry. As the recovery unfolded at varying speeds by country and industry, our results were positively impacted by the improvement in a certain region or sector. For example, we were able to maintain sales and orders for our manmade fibers systems at a high level as China’s economy rapidly got back on track. The automotive industry’s faster-than expected rebound also helped to compensate, to a certain extent, pandemic-induced weakness in industries such as aerospace.
These examples illustrate how our 2020 performance and longer-term prospects for profitability and growth were strengthened by the breadth of our portfolio and global footprint, which spans across 179 sites in 37 countries.
2020 Financial Performance
Oerlikon performed well in 2020, given the market challenges that we faced. Manmade Fibers proved to be highly resilient and delivered stable results, while Surface Solutions felt the impact of COVID-19, particularly in sectors like aerospace.
Our filament equipment won record contracts from three of the world’s leading manmade fibers manufacturers at the beginning of the year. The three projects have a total value of more than CHF 600 million. The filament markets remained stable for the rest of the year despite the pandemic.
Our nonwoven business was a hidden gem in 2020 with the unanticipated surge in demand for protective wear and masks. Given that a number of governments are redefining such protective items as critical medical supplies and their need to be self-sufficient, we anticipate the demand for nonwoven solutions to continue growing over the next quarters. To support this growth, Oerlikon ramped up production capacity by more than 10 times in 2020.
By contrast, our surface solutions business was impacted by the weak markets. The positive aspect here is that we saw the automotive and tooling markets start to recover in the second half of 2020. In 2020, we had to execute a comprehensive restructuring program. We did so with speed and decisiveness in order to protect our company and its profitability.
Group order intake amounted to CHF 2.2 billion, a decrease of 13.5% over 2019 (2019: CHF 2.6 billion) and Group sales declined by 12.9% to CHF 2.3 billion (2019: CHF 2.6 billion). Group operational EBITDA was lower, at CHF 320 million, corresponding to a margin of 14.2% (2019 operational EBITDA margin: 15.1%). Unadjusted EBITDA margin was at 12.7%. Compared to 2019, results from continuing operations declined 65.5% to CHF 38 million (2019: CHF 110 million). Net result for 2020 improved to CHF 38 million (2019: CHF -66 million). Consequently, earnings per share were CHF 0.11. With an equity ratio of 40%, the Group’s financial position remained strong in 2020.
Strategy and Execution
We have built our success over the past six years on the strong foundation of Oerlikon’s market and technology leadership, our sustainable innovation and our proven ability to deliver above GDP growth.
In 2020, despite facing challenging markets, we were steadfast in executing our strategy. Our focus was on protecting our profitability. Once the impact of the pandemic was apparent, we accelerated on our restructuring and cost-out actions for the surface solutions business.
We executed on optimizing support functions and our global footprint, leveraging synergies in procurement and the equipment businesses and rightsizing additive manufacturing. In a systematic and disciplined manner, we reduced discretionary spend and capital expenditure, and implemented short-time work.
We were constantly ahead of schedule in delivering these measures and succeeded in reducing our operating expenses and capital expenditure. An annual run-rate of savings of around CHF 70 million was realized. This positions us well to improve our profitability when markets recover.
In 2020, we took over the majority shareholding in our joint venture Teknoweb, in Italy, to boost our nonwoven portfolio. Toward the end of 2020, we acquired the thermal insulation systems business from Crosslink in Germany, to add to our portfolio thermal insulation material solutions for so-called battery electric vehicles, which are fully electric vehicles with rechargeable batteries and non-gasoline engines.
Our First Sustainability Report
Sustainable innovation defines Oerlikon: it is embedded in our strategy and in everything we do.
We are now formally joining the ranks of people proactively engaging in sustainability and inspiring others to do the same. We want to state explicitly our responsibility as caretakers of our global ecosystems and champions of sustainability. We offer this commitment to you unequivocally on behalf of ourselves, our Board of Directors and each of our Oerlikon associates; we have all dedicated ourselves to this mission.
Based on the materiality analysis, we have selected 8 out of 17 of the United Nations Sustainable Development Goals (SDGs) where we can make the most difference for our stakeholders. We have set environmental, social and governance targets for 2030 in areas closely linked to our operations, policies and capabilities. We welcome you and all our stakeholders to join us on this journey as a caretaker and sustainability champion.
Digitalization
Oerlikon is fully committed to digitalization and AI initiatives. We defined our Digital Roadmap in 2018 and since then, we have instituted more than 60 digital projects across all businesses. Digitalization is increasingly integrated into Oerlikon’s operations – how we work together, communicate, acquire talent and create more synergies throughout our organization and in our dealings with customers.
At our Munich-based Digital Hub, we continue to design and implement digital, innovative solutions and deliver superior digital services in the priority areas of the Industrial Internet of Things, automation, digital sales and analytics. The Digital Hub has sparked new ideas regarding innovative approaches to running successful transformations and staying ahead of the curve.
Responsible Employer
Oerlikon’s people are our most valuable asset, and in 2020, one of our top priorities was to ensure the safety and well-being of each member of our team. As soon as the global threat of COVID-19 was understood, we immediately took steps to protect employees. We issued safety guidelines and put in place protective measures such as disinfecting offices and workplaces.
To provide an additional level of protection, we pioneered the usage of safety devices from a Munich-based start-up, Kinexon, called SafeTags. These wearable sensors measure the distance between employees with centimeter accuracy, and the system sounds a warning if two sensors fall below the defined minimum distance for a certain period of time. In the event of an infection, software enables contact chains to be tracked precisely.
Following successful pilots at some of our sites in Germany and Switzerland, we have deployed over 7 500 SafeTags in Europe and in the US. As Kinexon is not commercialized in all countries, we have deployed in early January 2021 an alternative but similar technology known as SpaceBands in Russia, South America, Canada and Asia, outside of China. More than 2 000 of these bands will be available for use at our sites in these regions and countries.
Further Empowerment in Operational Business
As we announced during the fourth quarter, we proceeded to empower our operational businesses and increase our customer focus with the appointment of Dr. Markus Tacke as Division CEO for Surface Solutions. We also nominated both Division CEOs, Markus Tacke and Georg Stausberg, to the Executive Committee. Both of them bring significant industry experience and have track records in successfully transforming industrial businesses to generate profitable growth.
Share Buyback and Dividends
In 2019, Oerlikon’s Board of Directors elected to buy back up to 10% of the share capital recorded in the company register over a period of up to 36 months. The share buyback continued into 2020, and we intend to utilize the repurchased securities to finance potential inorganic growth and to fund our global long-term employee incentive program.
As part of our strategy to allocate capital competitively, we returned value to shareholders in 2020 in the form of dividends. For 2021, the Board will propose at the Annual General Meeting of Shareholders an ordinary dividend payout, at the same level as in the previous three years, of CHF 0.35 per share.
Confidence in our Future
With a track record that affirms the strength of our strategy and with the diverse portfolio, global footprint and market position that have supported us through even this challenging year, Oerlikon is poised for continued performance and growth. We have excellent sustainable technology, exceptional talent and the key customer relationships necessary to pursue business opportunities as global markets recover.
The structural programs implemented in 2020 are expected to support mid- and long-term improvement in operating profitability and drive the Group’s EBITDA margin toward 16% to 18%. Assuming the COVID-19 pandemic will not cause further major disruptions and markets continue to improve as vaccination programs are successful, Oerlikon expects sales to be between CHF 2.35 billion to CHF 2.45 billion and an operational EBITDA margin of 15.5% to 16.0% in 2021.
We offer our personal thanks to our employees, our management team and our colleagues on the Board of Directors for the dedication and commitment they demonstrated throughout 2020.
In addition, we offer our gratitude to our partners and customers for their confidence in our solutions and technologies and to you, our shareholders, for your unwavering support and continued faith in Oerlikon.
March 2, 2021
Best regards
Prof. Dr. Michael Süss
Chairman of the Board of Directors
Dr. Roland Fischer
Chief Executive Officer
