Oerlikon recovers
- Orders received grew faster and more robustly than expected, book-to-bill ratio rose from 1.1 to 1.3.
- Asia as significant growth engine, with share of sales climbing to 41 percent.
- EBIT improved by more than CHF 130 million to CHF -31 million.
- Operational restructuring continued and optimized. Around 85 percent of more than 700 restructuring measures implemented.
- Successful recapitalization led to debt reduction of around CHF 1 billion, CHF 276 million in new liquidity and equity ratio of 35 percent.
- Company targets for sales growth in 2010 raised to around 15 percent; earnings expectations confirmed to reach operational break even (EBIT before restructuring costs) in the second half of the year.
Pfäffikon SZ, August 17, 2010 - The Oerlikon Group is on the road to recovery. In operating terms, most of the segments have achieved sustained growth over the period under review, with orders received in the first half of 2010 increasing by 33 percent compared with the prior-year period, driven primarily by the growth markets in Asia. The Oerlikon Group's profitability also performed positively. In the first half-year Oerlikon Coating, Advanced Technologies and Vacuum posted a profit, while Oerlikon Textile and Oerlikon Drive Systems passed the operational break-even point in the second quarter. "We have many challenging strategic and operational tasks in front of us, but we are well on the way to achieve the turnaround of the Group and to create a sound basis for Oerlikon's sustainable comeback," says CEO Dr. Michael Buscher. Oerlikon has slightly raised its full-year outlook: "We are making every effort to increase 2010 sales by around 15 percent and to reach operational break-even in the second half-year 2010", says CEO Buscher.
Group-wide, orders received rose by 33 percent from CHF 1.6 billion in the first half of 2009 to CHF 2.1 billion in the first six months of 2010. As of June 30, 2010, orders on hand amounted to CHF 1.4 billion (June 30, 2009: CHF 1.1 billion). Sales increased by 10 percent year-on-year from CHF 1.4 billion to CHF 1.6 billion. The ratio of orders received to sales ("book-to-bill") increased to 1.3 compared with 1.1 for the prior-year period. The main growth drivers in the first half of 2010 were markets in Asia, and in particular the textile and automobile markets, which are once again growing robustly. Asia's share of sales rose to 41 percent (prior-year period: 26 percent).
EBIT for the Oerlikon Group improved from CHF -164 million in the first half of 2009 to CHF -31 million in the first six months of 2010. The operating result (EBIT before restructuring expenses) amounted to CHF -14 million (first half of 2009: CHF -138 million). In the first half of 2010, currency effects of CHF 57 million reduced sales by close to 4 percent and EBIT by CHF 6 million. The net result for the Group amounted to CHF -50 million for the first half of 2010 (first half of 2009: CHF -99 million). In terms of continuing operations, the Group result improved from CHF -211 million in the first six months of 2009 to CHF -50 million in the first half-year 2010.
Financial stability restored
Thanks to the success of the recapitalization, the Oerlikon Group sustainably restored its financial position in the first half of 2010. The comprehensive agreement which was reached between lenders, the Renova Group and Oerlikon on March 31, 2010 included a capital reduction of 95 percent with a subsequent capital increase of CHF 1 124 million, the sale of Oerlikon treasury shares to the lenders, a CHF 125 million waiver of debt and a new credit facility agreement. The Annual General Shareholders' Meeting on May 18, 2010 voted almost unanimously in favor of the restructuring package, as a result of which overall debt was reduced by CHF 998 million. At the same time there was an inflow of approximately CHF 276 million in new capital, which will be used among other things for investments in research and development as well as for further regional expansion. Recapitalization also changed Oerlikon's shareholder structure. According to the most recently published information, the Renova/Victory Group holds a 49.6 percent stake in Oerlikon, and the lender group 21.1 percent. The remaining 29.3 percent is widely distributed.
The successful recapitalization of the Group is reflected in its balance sheet. At June 30, 2010, equity amounted to CHF 1 548 million (December 31, 2009: CHF 520 million), corresponding to an improvement in the equity ratio from 12 percent of total assets at the end of 2009 to 35 percent as at June 30, 2010. Net debt improved from CHF 1 646 million at the end of 2009 to CHF 503 million at the end of the first half of 2010. "The financial restructuring, together with ongoing operational restructuring measures, has provided the basis for the return to profitability of Oerlikon's business segments and for their sustained long-term development," says Jürg Fedier, CFO of the Oerlikon Group.
Other key financial figures also improved. Despite the incipient market recovery, net working capital was kept at a low level, thereby optimizing cash flow from operating activities. Cash flow from operating activities before changes in net working capital improved from CHF -28 million for the first half of 2009 to CHF 130 million in the first six months of 2010. Capital expenditure was subject to continued restraint in the first half of 2010 compared with the same period last year. In the first six months of 2010 the Group invested CHF 53 million, around 33 percent less than in the prior-year period. Investments still remained at a low level with a capital expenditure to depreciation ratio of 0.5. Given a sound financial basis and recovery in its markets, Oerlikon will gradually return to a sustainable level of capital expenditure.
Implementation of restructuring measures ongoing
Operational restructuring measures were further pursued in the first half of 2010, with the focus remaining on Oerlikon Textile and Oerlikon Drive Systems, including the closure of Oerlikon Graziano's Italian site at Cento. By the end of the first half of 2010, around 85 percent of more than 700 restructuring measures identified for the group as a whole had been completed. Due to rapidly changing market conditions, the restructuring measures are continually being adjusted and optimized. The goal remains unchanged: to achieve permanent cost reductions on the basis of figures from 2008 of around CHF 400 million by the end of 2011. In the first six months of 2010, cost savings had increased from approx. CHF 240 million in 2009 to around CHF 320 million. Restructuring costs during the same period amounted to CHF 17 million, and are expected to reach CHF 50-70 million for the 2010 full year.
In the first half of 2010, the workforce was reduced by almost 500, mainly in Europe. Conversely, the number of employees increased by around 550 in connection with the expansion of plants mainly in Asia and South America; in North America headcount rose by close to 250. This increase was partly due to the conversion of external temporary jobs to full-time positions. During the first half of 2010, around 2 500 employees were still working short time. At the end of the 2010 first half-year, Oerlikon's headcount amounted to 16 703, a good 300 more than at year-end 2009.
Segment overview
The recovery posted by Oerlikon Textile in 2009 continued into the first half of 2010, with orders received increasing year-on-year by 154 percent to CHF 1 210 million and orders on hand at June 30, 2010, up 90 percent to CHF 954 million. Sales increased by 60 percent from CHF 430 million for the first half of 2009 to CHF 687 million for the first six months of 2010. The segment benefited in particular from a recovery in the Chinese textile industry, returning to positive EBIT with a second-quarter result of CHF 3 million. Overall, EBIT for the first half of 2010 amounted to CHF -9 million (first half of 2009: CHF -118 million). Ongoing implementation of the wide-ranging restructuring program in the first six months of 2010 resulted in a further reduction of the break-even threshold. At this year's ITMA trade fair in Shanghai, China, Oerlikon Textile unveiled a number of pioneering innovations. Accelerated sales growth is expected for the second half-year 2010, with a more moderate growth rate in orders received. The impact of additional restructuring initiatives on earnings will also have to be taken into account.
Oerlikon Coating recorded a 27 percent year-on-year increase in sales in the first half of 2010 to CHF 201 million, with Coating Services posting substantial growth in demand. In geographical terms, the rapid recovery of markets in the Far East was the main growth driver. With 24 coating centers in Asia, including seven in China, Oerlikon Coating has benefited from the timely build-up of a network of coating centers in the region. Due to consistent restructuring and cost-cutting measures, the segment has returned to profit, recording EBIT of CHF 25 million for the first half of 2010 compared with CHF -6 million in the prior-year period. Oerlikon Coating expects the recovery to continue in the second half-year at similar growth rates and margins.
In the first six months of 2010, Oerlikon Solar continued to focus on completing existing orders and implementing its technology goals on schedule. The segment plans to launch a new generation of systems on the market by the end of the year, which will provide significant competitive advantages due to much lower manufacturing costs for thin-film solar modules. At CHF 11 million, orders received for the first half of 2010 were 98 percent down since the prior-year figure included a large order from Hevel of Russia in 2009. For the same reason, orders on hand at June 30, 2010, were 54 percent lower year-on-year at CHF 216 million. Sales declined by 74 percent to CHF 74 million, while EBIT amounted to CHF -60 million (prior-year period: CHF 0 million). However, in recent months the solar market has also shown signs of recovery, and Oerlikon Solar won two follow-up contracts from its Chinese customers Tianwei and Astronergy, which were announced in July and August, respectively. In the second half-year 2010 Oerlikon Solar expects to significantly reduce its losses.
Oerlikon Vacuum benefited from a favorable market environment, increasing orders received in the first half of 2010 by 54 percent to CHF 224 million. At June 30, 2010, orders on hand amounted to CHF 95 million, an increase of 46 percent compared with June 30, 2009. Sales were 30 percent higher at CHF 193 million, once again mainly driven by Asia, and China in particular. To capitalize on the growth opportunities in this region, among other things the service network was further expanded. Sales in Asia rose by 68 percent in the first half of 2010 in comparison with the prior-year period. The segment successfully converted volume growth into higher profitability, posting EBIT of CHF 13 million compared with CHF 2 million in the prior-year period. Oerlikon Vacuum expects the market recovery to continue in the second half-year, although a degree of slowdown cannot be excluded once customer inventories have returned to normal. Further pursuit of restructuring measures in the second half of 2010 and the associated costs will lower profit growth.
Oerlikon Drive Systems experienced initial signs of a market recovery in the first half of 2010, with orders received growing - primarily in the second quarter - to CHF 393 million, or 42 percent more than in the prior-year period. Orders on hand also rose year-on-year by 35 percent to CHF 124 million. Due to project lead times, this growth has not yet impacted sales figures. Sales declined slightly by 3 percent to CHF 367 million, while EBIT for the first half of 2010 amounted to CHF -15 million (prior-year period: CHF -20 million). By restructuring plants in Europe and expanding sites in Asia (primarily India), the segment is further optimizing its cost structure. Oerlikon Drive Systems does not expect to see a stable market recovery and the associated return to profitable growth before 2011.
In the first half of 2010, Oerlikon Advanced Technologies benefited from a recovery on the semiconductor market and high demand for optical storage devices (Blu-ray discs). The successful launch of the new SOLARIS machine for the manufacture of crystalline solar cells based on nanotechnology also contributed to business success, marking the completion of the new strategic direction in the first half of 2010. On this basis, the segment saw orders received grow to CHF 62 million, corresponding to an increase of 94 percent compared with the prior-year period. At June 30, 2010, orders on hand amounted to CHF 41 million, up 95 percent from June 30, 2009. At CHF 51 million, sales were 82 percent higher. The segment continued its positive performance of the second half-year 2009, posting EBIT of CHF 3 million compared with CHF -12 million in the prior-year period. Advanced Technologies expects to see similar strong growth for the second half of 2010, although higher investments in research and development may hamper growth in profit.
Innovations: the key to success
In the first six months of 2010, Oerlikon invested CHF 122 million or 8 percent of sales in research and development (R&D), 22 percent more than in the prior-year period. Oerlikon is convinced that technology leadership in its core markets remains key to the Group's success. Oerlikon's long-term R&D activities also achieved important milestones in the first half of 2010. At the ITMA trade fair held in Shanghai in June, Oerlikon Textile presented the WINGS concept for the manufacture of fully-drawn yarns (FDY). Oerlikon Coating launched BALINIT ALCRONA PRO, the next generation of high-performance coating which enable a further marked increase in productivity. At the beginning of the year, Oerlikon Vacuum introduced the DRYVAC platform, which reduces the consumption of energy by dry screw pumps and improves their performance.
Outlook
In the first half of 2010 Oerlikon saw a reversal of the negative trend, with a return to financial stability and recovering markets. "We are well on the way; the speed of the recovery is satisfying," said Chairman of the Board of Directors Vladimir Kuznetsov. The declared goal of the management team under new CEO Dr. Michael Buscher is to ensure the Group's sustained stability and reliability, and to be transparent in all areas. The strategy currently being formulated for the next three years does not envision any adjustments to the segment structure, provided the markets do not undergo any significant changes or structurally distorting trends. "Oerlikon's portfolio is in place - all segments belong to the Group," confirms Vladimir Kuznetsov. The strategy revision, which is expected to be approved by the end of this year, focuses on a sustainable increase in Group profitability. "Our maxim is earnings before growth," emphasizes CEO Buscher.
The improved economic conditions and progress in the implementation of strategic and operational measures have caused Oerlikon to adapt its expectations for the year as a whole. For 2010 the company now estimates an increased sales growth of around 15 percent, whereas the second half-year 2010 will see a moderate growth of orders received compared to the first half-year 2010.
Earnings will also improve in the second half-year of 2010. Oerlikon expects that all segments apart from Oerlikon Solar will return to or increase operating profitability (EBIT before restructuring costs). For Oerlikon Solar the second half-year should result in a significantly lower loss approaching break even. Additional strategic measures are currently being evaluated to further increase the performance of the Group. This could impact the result in the second half-year. At this point in time, the company confirms its earlier announcement to reach operational break even before restructuring costs in the second half-year of 2010.
