Good afternoon, ladies and gentlemen, and welcome to Oerlikon's 2024 results presentation. My name is Stephan Gick , Head of Investor Relations, and I have here with me Michael Süss, our Executive Chairman, and Markus Richter, CFO of Oerlikon. Michael will start the presentation with a strategy update and an overview on 2024. Then Markus will highlight the financials and the outlook. We will take questions at the end. With that, I would like to open our presentation and hand over to Michael. The floor is yours.
Thank you. I will stay, remain seated for a moment because first, after I have done my introduction, which will be very short. A good afternoon, and I'm pleased to have you here today for our annual press and Capital Market conference. I would like to introduce our new COO, who will join us by 1st April, replacing Markus Tacke, Dirk Linzmeier. I would like to give Dirk a chance to introduce himself. He will start officially 1st of April. But having you all together, I wanted to give you the opportunity to get in touch directly with him. Dirk is one step of the, let's say, not refreshing is the wrong word, but to make our management team a little bit younger. Indeed, we have a lot of people, some people like myself in the 60s or in the early 60s or late 50s.
One of my jobs is to make the management ready for the next 10, 15 years and to do somehow a generation change. Dirk is one of these very important steps. By that, Dirk, maybe you take the opportunity to introduce yourself. Thank you.
Thank you very much, Michael, for the kind introduction. Dear ladies and gentlemen, I'm thrilled to join Oerlikon April 1st. For me, Oerlikon is a true high-tech player, actually, combining technology, innovation, and in the future, even more digitalization, so I see there a great potential also in the next phase, and I think what has Michael driven so far towards the pure play, I see a big chance for Oerlikon. A few words to myself, so I'm still the CEO of TTTech Auto, Time- Triggered Technology. It's an Austrian company where I have been the last three years, transformed this company, 20% growth each year, doubled each year the profitability, and we have been acquired by NXP Semiconductors beginning of the year, so we announced it in Las Vegas this year at the CES that NXP Semiconductors will acquire TTTech Auto.
The closing will happen in the next weeks and months. That is definitely one of my highlights from the last three years. Before that, I was the CEO of ams OSRAM Intelligent Lighting and OSRAM Continental, a joint venture between OSRAM and Continental at that time, driving the change from traditional lighting to matrix lighting to digital lighting. One of the highlights there were doing the light carpets around BMW 7 Series, or also the light carpet in a MINI on the dashboard next to traditional matrix lighting in the headlamp. Before that, I was 11 years at Bosch in various positions. I've been in China for three years. My daughter was born in China, in Shanghai, so she's proud being Shanghainese. Before that, I was at DaimlerChrysler, where I started my career in the research center.
Actually, I'm really looking forward, together with Michael and the great team of Oerlikon, driving the transformation and pushing growth, and I'm happy to start then April 1st officially. Thank you very much.
Thank you, Dirk. So, and with Dirk and his expertise in some markets where we have just embarked to bring our capabilities in coating and 3D printing, we look forward for the next chapter in our operational tasks. And at that point, I have to thank Markus Tacke very much. He was running the CEO position in a division, and from the beginning of that year, the CEO position in Oerlikon. And before the question is coming, with Markus, we agreed a year ago, myself and him, to make this step because he's one year younger than myself, and I have still to take care about the transition phase and to have then a potential successor, which is a year younger than yourself, is the wrong choice.
In line with that, we will do some exchange with the next 12 months- 24 months in management to get the management younger, not less dedicated, not less focused, but simply prepared for the next 10 years and probably not only three or five years. In line with that, but with a different perspective, maybe more with the outlook and with the refreshing of a board, I want to announce as well that with the AGM of April 1st, three of our board members will resign and not stay for a revote. That's Irina Matveeva, that's Zhenguo Yao, and that's Gerhard Pegam. The three will not stay in the board, and they will be replaced by Stefan Brupbacher, who is Director of Swissmem, by Eveline Steinberger. She is a Swiss entrepreneur, mainly in the Energy area and in the finance sector.
She is as well a board member of Bank Austria. Last but not least, another Swiss citizen, is Marco Musetti. The three will join us. The other three will leave us. We will do some reallocations in the boards and in the group, but that you will see with an invitation. To have you all here, I would simply like to inform you right now that these are the people changes we have in mind. By saying that, I would like to go now in medias res, talk about the 2024 year. Markus Richter will go deeper into the numbers and to give a certain outlook for 2025. As you all remember, I made that announcement a year ago, and we have done our mission. The company is ready for separation.
We have done all our tasks, which was a lot of work, parallel work to prepare either for a spin or for a sell. And why we have done that, I want to remind you again about the rationale. And the rationale was that in 2013, our Surface Solutions business was part of a conglomerate where we had five divisions. The one was already on the way out. That was Advanced Technologies and four others. We did that until now to focus the company clearly on the two main market leaders, but it was as well clear from the beginning that we have to separate the two businesses. There are good reasons. We will touch that again, why these two businesses are not in common under one umbrella.
The two divisions, nevertheless, since 2019, have shown a strong performance, and the company as a whole has done divestments of CHF 1.2 billion proceeds. We have paid dividends of CHF 1.6 billion. We have invested CHF 2 billion in R&D and CapEx, and we have invested another CHF 2 billion for acquisitions of assets, so this is a massive transition of the company. We did that very successfully, and now we are on the edge to make the last step, and some people may believe it or not, that was clear from the first 10 years onwards that this will be the journey. The journey was sometimes a little bit slow when in 2016, we had a first down cycle in polymers in the Filament story, and you cannot do anything when you have a negative number, then there was COVID.
Meanwhile, we have overcome all that, and we are on a good way forward. When we look now in the two businesses, then you can see that there was a massive change in Surface Solutions from 2013 to 2024. On the technology side, from a mainly PVD technology to the full box of PVD, physical vapor deposition, chemical vapor deposition, thermal spray technology, and additive manufacturing. From the markets, three quarters of our market was Tooling. And if we would have stuck with Tooling, it would have been a great story from profitability, but in a shrinking market because cutting tools and molds are massively impacted by ICE and ICE cars. Even if it seems that they stay a little longer, they definitely will not grow. There is a growth, which is in the automotive industry, but it's driven by new technologies, and there is a remaining strength.
We are covering both sectors and both fields, but to stick with only one technology would not give you the tailwind and the diversity and the resilience that a company like ours needs that we are able to celebrate next year our 150 years. You have to challenge yourself, to have to reposition yourself, you have to stay curious, and to have to do the necessary steps that you can stay another 50 years in business and not get phased out. The strength is now that within the last 10 years, we go from maybe two businesses, automotive and Tooling, into six, including Luxury, Energy, Aviation. Within Aviation, you have to see there is a small but very interesting part of space.
There are some businesses which we are not showing yet as a business, like semiconductor industry, like green hydrogen industry, and the defense industry, which are fields where we are stretching more and more in with our capabilities. And this is the part in common. It's always about the same capabilities in different applications and in different use cases. And this has driven to a tripling of our revenue from 2013 to 2024, from CHF 500 million to CHF 1.5 billion. And since we have the regional responsibility, we see as well a very strong drive forward in our Asia-Pacific region and in the Americas. Last but not least, sometimes people say, how do I not have the 20% as you had in 2013 or 2014?
Because for sure, the profit line of a metal materials business or of a luxury business or of an Aviation business or from a Tooling business is different. And PVD Tooling service has a very high profitability, but others have as well a good profitability. And the transition phase as well took some effort. There is no free lunch in life. You cannot say, okay, now we dream about something and then tomorrow it happens. You have to do that with a team who is dedicated for a continuous journey, and you have to have a board and a shelter structure which is allowing that. Otherwise, you have to change every one or two years direction because someone is losing patience. And this is not the way how to develop a high-tech company.
It's a way to develop a high-tech company, as we have done in a very consistent way, and covering now six businesses. Maybe we'll cover seven or eight, but we will always look for what is the strength of our capability, what's in for us, what is the USP we have, what is the competitive advantage we do have, and this turned in a combination of a very strong operational performance that turned in a direction that we could, in a market environment, we could achieve 18% EBITDA margin, which is, by the way, not a bad margin. ABB is celebrated for 18%. We are in the same range, and there is a good reason to say, and in between, we will go even higher, but this is not the first and above priority to be 19% or 20%.
The first and above priority is to grow our business in the different industries and to use our strengths to be in that range. If it's 18%, 19%, 20%, 21%, all great. I'm pretty sure we will do the 20% or the 21%, but if it's a 19% and I do the right business volume, it's the same quality. And this is important for us to see that we are fully dedicated for the 20% goal, but it's not a single goal. There are more goals to go for. And one of that goals is that we are focusing as an indispensable player in these industries with our technologies. And if you look into that, we are clearly market leaders since years. We have a technology forefront. We are since more than 70 years in this world of PVD active.
We have a high scalable global footprint, which you will see when we talk about not only taxation, but tariffs and all these other questions about boundaries and borderlines, where you can do business and where you cannot do business. We are truly global, but we are as well truly local, especially with our service business. We have applications across the industries, and the saying, "There is not a single day without Oerlikon," is a true saying. Even today, whatever you have, you will find either Oerlikon coatings or Oerlikon yarns[Inaudible] which have been done on our machines in your environment. The core of our business model, and I have always to reiterate that because you have to cover so much industries and so much companies, it's on us to remind you where Oerlikon is something special.
We are contributing with a high impact to the product, but the cost of our contribution is pretty small. If you take a 40,000 milling head, EUR 40,000, and you have a coating of a couple of hundred euros on this milling head, then this milling head will last 3x longer than uncoated, so you're saving EUR 80,000 of investment. If you take a regular miller, it's 160x life prolongation. If you take a SUMIBore coating in a Volkswagen engine, you're saving 80% of the oil and 4% of the fuel. There's a lot of sustainable effort in that what we are doing, and the contribution is huge, but the cost is small. That's why the companies want to work with us. To do that, you need a strong credibility.
We've been just recently chosen by one of the biggest U.S. military companies as a strategic partner for 3D printing parts. And when we ask them why they have chosen us, and they don't choose very often strategic partners, and unfortunately, we are not allowed to disclose the name, they said, "Because you do a very credible way in that what you're doing. You have a very good governance, and you do that what you do in a very consistent and credible way. That's why we work with you." And this is reflected as well that we're growing the last 10 years average in 4%, the last four years or three years even with a 6%. Only 2024, and you will see that was more flat, but the years before was a 6%, a 10%, or whatever you will have or 7% in flat markets.
It's not that these markets actually are really providing you tailwind. So it's with headwind you're sailing and improving your margins, and with headwind, you're improving your tech positions. That's the technology, the performance of our people, and the market closeness, which allows that and which gives us the chance to reach out to that what we have done. And to say thanks a lot to my people, and I'm really proud to be the Executive Chair of such a fantastic company. Some examples. ALCRONA EVO is the next generation of anyway already a market-leading product in coating of tools. INNOVENTA kila is a more than 20% energy-efficient new technology offering coater for Toolings and Aviation industry. Matrix materials components.
We have a world record done with SKUs of more than 6 km drilling with the same drill head through hardest conditions and almost no impact on the surface of this drill head of these coatings. That's a fantastic product. It's only the tip of the iceberg, which I wanted to give you a little bit flavor of the different industries and the different technologies which we are doing. And it's not only about the service business. It's about the materials development. It's about the equipment which we are building. And by the way, we are building this equipment mainly in Switzerland. And we are investing in Canton of Aargau in Reichhold and bringing our Wohlen and Dottikon and Winterthur facility together there, despite the fact that the Swiss franc was eating up more than CHF 400 million of our revenue the last three years.
So, top line would be simply CHF 400 million higher if we would report in euro or in dollar because we do our billings mainly in euro, dollar, RMB, yen, or whatever. And then we translate it into Swiss franc, and we have cost in Switzerland. Why? Because we are dedicated to that country. We are dedicated to contribute. We are dedicated to the workforce we have. We have our R&D people here. We have production here. And for sure, we are global. We are in 37 countries on this planet. We have 110 service centers and all in maybe 150 sites. Not super big, but we are very present. But that comes out of Switzerland. And if a tech company is not capable to do that anymore, then we have a really difficult situation here in Switzerland. And we stick to that.
And on the other side, we have a business, polymer processing solutions, which has a completely different scope. While we have in our surface technology 35,000 customers, and you deal with $100 or a $500 or a $5,000. Here we're dealing with a $50 million, $150 million, or $300 million project size. Here we're having 15 customers in two or three countries mainly. While we have 37 different countries with 35,000 customers in our other business. The great part of that business is that throughout a cycle, if you take the last cycle 2016 to 2023, we made an average more than a billion revenue, more than EUR 140 million year-on-year EBITDA and corresponding to that a high amount of EBIT and cash. Let's say the caveat is you're growing by 2.5%.
Main driver for that business is population, dress, construction, because a lot of that yarns which we've produced on our machines is used in construction business as well, and not only in textile applications. We drove attractive returns and cost efficiency, and we drove very much on sustainability. And some examples here as well. Market leader, tech forefront, even more than 100 years. We have a really high sustainability and efficiency in our customers. By the way, the textile industry only in China is about CHF 70 billion. The total market of textile machinery industry is probably globally, not only China, is CHF 2 billion. But the enabler for the productivity of this industry is these textile machineries. So they are core, core and key. Similar situation, why I mentioned that.
The overall cost position, if you spend CHF 100 million in a project by us, that's typically part of a CHF 1 billion or CHF 1.5 billion project overall, but it makes a difference. The rationale was, by repeating that what I was saying, market difference, business difference, business model difference. There's so much different that it makes a lot of sense to separate it to businesses. We have done that successfully in that year, so there's only one cut necessary. We have even in headquarters the cost allocation done in the right way. There is no cost overrun after separation. It's now the time, and we said that, and I heard that, and I will hear that by questions, definitely. 12-24 months, can you give us more guidance? Can you give us more about when and what you're doing? There is a significant interest.
The point is that we are not ready to deal on a point level, let's say, cheap, but only about the cycle. For the cycle, there is as well a lot of interest, but in the cycle discussion, you have to dispute how you valuate the cycle in future based on the past. If you ask, is it more a spin, an IPO, or a sell? There's a preference on a sell. There's a second preference on a spin. There's a lower, much lower preference on an IPO. And staying here since 10 years, I'm proud to say that we always told you what we have thought about, and we always have done what we have told you. And who is long enough with us, he can prove that on any cases.
We have delivered in the way how we have promised, but we have always delivered under our conditions, and nobody was squeezing us, forcing us, or moving us. That was with drives. I got a lot of questions. Why are you not selling it cheap? Why are you not doing this or that? That was the same with pumps. And we always came with a very good solution. And to our investors, we will come with a very good solution as well in this story for both, for the remainder and the company which is leaving. Because this is the other part of responsibility. It's not only about the investors. It's as well about the people who are in the companies serving, and they have to have a decent, good future. And by that, I would love. I skipped this. I would love to hand over to Markus Richter.
This is more as an information for you that the general industry in Tooling, Automotive, Luxury, and Aviation, as Filament and non-Filament are all showing more of a flat situation. On the Filament side, we see more projects to be discussed, so we are pretty clear about that. We have seen the trough on the order intake side, and please, in a business where you always told us that's an eight or nine-year cycle, don't charge on a quarterly jump if one order intake goes higher and the next order intake goes a little bit lower. There is a remaining business coming. We are prepared for that business, and we have shown in this year in Filament that we could provide even if we take the man-made fibers out, we could provide a double-digit EBITDA and a high single-digit EBIT, and this will stay as well in the future.
The difference is that in 2016, when we have seen a trough and we had to manage a trough, that we became negative, and the promise is that in this business, we don't show negative again, so the rest is a little bit more information. Markus, now it's about you. Sorry, sorry, sorry, sorry. One word missing about sustainability. It was too fast before I go to the numbers. I was too much engaged about the performance of our business. We are on sustainability. We are meanwhile, and this we have achieved in a very short period, and that's why the business per se is sustainable, and you don't have too much show around it. We are within the top 20 players of global industrial sector as early come. More than 80% of our R&D spending goes in sustainable products.
And we are fully on track with our 2013 ESG targets. Here's some examples. If you would take, as I mentioned, the lifetime extension of metal what we are doing, you would save 20%, almost 30% of the Swiss carbon emissions of one year. If you take the efficiency which we with our coatings, we do have in our jet engines delivered, that would be an equivalent of 88% of the whole Swiss carbon emissions. So only that two technologies would make Switzerland carbon emission-free if you would count it that way. There is massive waste reduction and massive effect in our Scope 1, 2, and 3. And if I conclude now, and that's why I was too fast, maybe driven a little bit by the morning of our interaction with the press, where we haven't touched that sustainability story that much.
There are two attractive positioned businesses which in the medium term forward doesn't have to be under one umbrella. We are on track with our pure play execution, clearly on track. We have shown a very strong profitability in 2024. Polymer Processing Solutions will transition to their markets, and the Surface Solutions resilience will be even further improved, expanded, and with a little tailwind of the markets, we will see even more profitability. Always be aware, besides aero and maybe defense, all of our markets have been flat or shrinking in the last 12 months, and the outlook for those markets, general industry, Automotive, luxury for the next 12 months is not that there is big growth, but we are taking market share because our customers are shrinking, and we maintain our market.
That means we take market share from competition, which is again a result of our strong execution performance in line with a very strong technology position. And this is what has to work together. You have to have a good technology pipeline. Otherwise, you could execute proper, but you don't have the right offering. Or you have a wonderful offering, but you don't perform in a proper way. Both is together in Oerlikon, and both was not falling out of the blue sky, but was work of hard work of years to get to that position and to improve that position in the future. Now we're really going to the financial outlook. Thank you so much for the moment.
Thank you, Michael. Good afternoon, everyone, and welcome to our full year results presentation also from my side.
I will start with the group results, then provide more details on our strategic priorities and the divisions. I will finish with the outlook for 2025. At the group level, orders were CHF 2.4 billion, roughly stable year- over- year when adjusting for FX. This was supported by stabilization in polymer processing solutions and continued execution in surface solutions. It represents a strong performance given industrial production and consumer spending continued to be subdued. 2024 sales were CHF 2.4 billion, a decrease of 9% at constant exchange rates. This includes a 1% contribution from our acquisition of Riri. While Polymer Processing Solution sales were impacted by customers, having delayed their orders in 2023, Surface Solutions achieved stable sales in challenging end markets. Operational EBITDA was CHF 393 million, an EBITDA margin of 16.6%. This represents a year-over-year increase of 10 basis points despite lower sales.
We see a solid margin increase in Surface Solutions and a significantly higher margin in Polymer Processing Solutions compared to prior downturns. With that, let me provide you an update on our actions to drive profitability. Our focus on strengthening our company's profitability is unchanged. In addition to growing our business organically, we have put a specific focus working with the right structural cost base and optimizing the portfolio of products and technologies. We have reduced overhead expenses by 33% since 2019, despite making three acquisitions during that time. Additionally, we took proactive cost actions ahead of the Filament downturn and optimized the footprint of our coating centers in Germany. As with regards to our pure play strategy, we have a very solid action plan in place. It will allow us to adjust corporate costs to a smaller company setup and ensure future cost efficiency.
Our additive manufacturing business reached break-even on EBITDA level in the fourth quarter of 2024, supported by last year's realignment. We are also focusing our R&D much stronger on commercialization. This allows us to price upcoming innovation at a significantly higher gross margin than our existing portfolio. We are further streamlining our product offering, eliminating subscale and dilutive items. For example, we have reduced the number of material codes by 53% since 2022. Overall, we are future-proofing our company to sustainably improve profitability and capital returns going forward. With that, let me go through some more details on our Surface Solutions division. 2024 sales were roughly stable organically at CHF 1.5 billion. In light of a challenging industrial production environment, this is a very strong result. 2024 was supported by sales growth in General Industries and Aviation, compensating for lower organic sales in Automotive, Tooling, and Luxury.
In parallel, Americas continued to outperform, benefiting from our new geographical organization introduced in 2022. As a reminder, the division generated 6% organic growth in 2021, 10% in 2022, 7% in 2023, and now stable sales in 2024 despite macro headwinds. Operational EBITDA in 2024 improved 3% to CHF 270 million. This was driven by a margin expansion of 90 basis points. Our profitability was supported by innovation, pricing, and efficiency. Going forward, the pricing, cost, and growth actions we are taking will allow us to bring the Surface Solutions margin back to our midterm ambition of over 20%. Now next on Polymer Processing Solutions. Orders in Polymer Processing Solutions stabilized at CHF 896 million. This represents a 2% year-over-year decrease at constant FX compared to a 36% decrease in 2023 due to last year's order postponements.
Filament orders were up 11% year-over-year and came in in line with the expected seasonality pattern in H2. We see continued signs of momentum in small and mid-sized Filament orders. When it comes to non-Filament, we saw significantly softening order momentum in the second half of 2024, driven by fading PMIs. Overall, government stimulus, improving price-cost spreads for our Filament customers make us confident that we have seen the trough in the market in 2024. We note that all long-term growth drivers for the business are well intact. Polymer Processing Solutions sales were CHF 875 million, down 23% at constant FX. Sales stabilized, however, throughout the year, turning into an improvement of 5% at constant FX in the last quarter. Operational EBITDA decreased to CHF 112 million. This represents a margin of 12.8%. Considering the significant reduction of our sales, this is an excellent achievement.
With that, let me move on to cash flow. 2024 operating free cash flow more than doubled year-over-year and came in at CHF 162 million. The improvement was supported by net working capital, which was exposed to significantly less headwinds than last year given the recent stabilization in Polymer Processing Solutions orders and customer advances. We expect limited further cash outflows from here on out with significant upside once the recovery gains traction. Next, return on capital employed. ROCE was 5.8% when we look at the operational performance of the company and at 5.1% reported. ROCE is currently depressed, which is mainly related to the Filament downturn transiently impacting EBITDA, lower customer advances. Future upside to ROCE will come from Filament market recovery, continued cost containment, and disciplined execution of our capital allocation strategy.
Furthermore, continued footprint optimization and digitalization in service solutions will result in better quota utilization, reducing capital employed. With that, let's move to the balance sheet on the next slide. Our net debt-to-EBITDA ratio was at 2.8x compared to 2.6x a year ago. This mainly includes the Filament downturn transitorily affecting EBITDA, while net debt slightly improved year-over-year supported by strict cash management. We expect a stable leverage ratio by year-end 2025. During 2024, we repaid CHF 150 million bond. At the end of 2024, we had access to CHF 920 million of cash. In terms of the dividend, we will propose 20 Rappen per share, which is stable year-over-year. Next, on our ESG rating improvement. In ESG, we had continued positive momentum with several rating upgrades in past years. External partners and agencies recognize our leadership in sustainability and innovation.
They rank us as part of the top 20% of global companies within the industrial space. Our solutions improve efficiency, performance, and sustainability of our customers significantly. Let's conclude the presentation with our 2025 guidance. We expect organic group sales in 2025 to be stable or to grow by a low single-digit % at constant FX. This is supported by both divisions. Our group operational EBITDA margin is expected to be at approximately 15.5%. This reflects continued innovation, pricing, and efficiency in Surface Solutions, which is offset by the transitory impact of Man-Made Fibers price concessions to maintain order volume in 2024. Let's look at the divisional outlook in a bit more detail. In Surface Solutions, which will include HRSflow from 2025, we are expecting organic sales to be flat or to grow by a low single-digit % at constant FX.
Despite slight momentum in some PMIs towards the end of 2024 and in January, we expect the market environment to remain challenging in 2025. Growth in Aviation is expected to continue, but at a lower rate. At the same time, Market Intelligence expects headwinds in Automotive, Tooling, and Luxury to alleviate. On profitability, we are expecting operational EBITDA margins in the range of 18.5%-19%. Innovation, pricing, and cost actions will support margins counteracting the difficult environment. In Barmag, Man-Made Fibers, we are expecting organic sales to be flat or to grow by a low single-digit percentage at constant FX. Operational EBITDA margin is expected at approximately 7.5%. As previously indicated, we provided our customers price concessions in 2024 to maintain order volume. This is impacting our 2025 EBITDA margin. It is a transitory effect. We expect recovering pricing levels and innovation to support margins beyond 2025.
Furthermore, we are about to implement ongoing manufacturing footprint optimizations. This will benefit Barmag Man-Made Fibers' profitability beyond 2025. We are confident to have seen the trough in 2024. We specifically look at the improved economics of our Filament customers and government stimulus. With that, let me hand over back to Stephan for the Q&A. Thank you.
Great. Thank you, Michael and Markus, for the presentation. Now it is time for Q&A. For investors participating via webcast, please dial the phone number shown in the webcast and press star and one. We will now start with questions in the room. Please first introduce yourself and the institute you are representing. Yes, please. You might get the mic.
Thank you, Michael Foeth, Vontobel. Two questions. The first one on gross margin.
The gross margin increased quite a bit in 2024, and I was wondering if you can comment on what is driving that, if that's business mix or if that's really lower production costs or pricing that impacted the gross margin. And the second question is, you mentioned on the depressed return on capital employed that that was mainly driven by the lower profitability in polymer processing. I was wondering if you can comment on the current return on capital employed in the surface solutions business, how that is developing. Thank you.
Yeah, go ahead.
Okay, so as for the gross margin, here we have done some reclassification, and this is how the numbers are then made up. On the second question on the return on capital employed, we have shown you the numbers. We are right now at 5.1% reported and 5.8% operational. And then Surface Solutions alone, standalone?
We're a little higher at 6.1%.
Thank you very much, Alessandro Foletti, Octavian. Thank you for taking my questions. Maybe I would like to ask one first to Mr. Süss for the management changes. Last year when we were here, you said that after the spin-off or disposal or divestment of Barmag, basically, then you would probably retire from the double role position. A, is this still valid? And B, do we have here already your successor as CEO?
Let's start with the second question. If he performs properly the next two years, probably yes. If you ask about timeline, there are three elements: spin-off, sell, transition, and stable environment. So, as I said last year, when this transition is closed, I will step down from this Executive Chair. Most probably that will be in AGM 2027. I have not the intention to go longer.
If there's a need, for whatever reasons, I would do it, but the intention is to have these transitions done and then to come back to the business model you like more. By the way, I like the Executive Chair model pretty well. We have a strong governance and it works pretty well, but if there's a different view, and we have one of the candidates you have seen today, but first he has to perform.
Okay, great. Thank you very much. It was pretty clear. Thank you for this transparency. Can I ask you a question maybe on the guidance, more so operationally speaking, in particular for the Surface Solutions margin? So you had 18.6% and now you guide for 18.5%-19%, meaning there might be some expansion, but if things go wrong, not, maybe even a decline.
Can you give a color on what must happen for you to be higher, what will happen for you to be lower? And then I have a follow-up.
I will do the first part because he comes in with the numbers. It's about the mix and the performance of the markets, as we have said. There is a different profitability in materials than there is in service, than there is in equipment, and there is even a different profitability within Europe, Asia-Pacific, and others. We don't disclose all that stuff, but there is a mixed element, there is a pricing power, and there is a performance point. And to keep in this difficult market environment, to keep the performance and having 1.1%, 1.2%, 1.3% up, that's somehow what we are looking for.
If we expect a 1% up next year, I wouldn't say that will happen simply because of the markets. If the markets are turning faster, let's say there is an agreement on Ukraine and everything comes different. We have seen so much changes in the last 6- 12 months in one or the other direction. That's sometimes a little difficult to predict, but what we have always done, as you remember, when we have seen something, we have communicated that. We have communicated even in early 2023, in late 2022, that there is a downturn in 2023 and 2024 in polymer, as we have seen from the order intakes. And this will be maintained. So we'll be as transparent as possible, but even we do not have a glass ball.
Right. And can I please follow up on this margin? We have two separate elements in it, obviously.
Additive Manufacturing, you said it's break-even. Can we assume it will stay break-even maybe for the full year going forward? That would be follow-up number one and follow-up number two. HRSflow has a very good margin. In this guidance, there is no, or can I assume that there is no sort of decline of that margin going forward?
So number one, on AM, the development has been positive quarter- over- quarter, and we expect continuation of that as for the moment. As for HRSflow inclusion in the Surface Solutions, we keep our guidance. As you see, HRSflow is adding 0.6 or 60 basis points to the Surface Solutions profitability, but is in line with our overall guidance, so we don't extend the range at this stage.
Adrian Knoblauch, ZKB,[Foreign language] the fixed income side. I have a couple of questions.
The first one, trying to understand your debt maturity profile. So you have roughly CHF 1 billion of redemptions coming up in the next two years. You said you have liquidity of around CHF 900 million. So what is your refinancing plans and what is the minimum operational cash you would need to have on your balance sheet?
So the refinancing, obviously we have refinancing discussions starting. We will do this in Q2 on a two track. One track is without a sale, and the other track is with a sale. What we are is our preferred solution to have the sales track in place, use proceeds partially for the deleveraging, and then look at the refinancing needs at that time.
But what's important to add that even without the cash performance we have shown, there would be a further deleveraging only out of cash position as well.
There is the sales process, and we go for that, but there is no need if there would be not a sales process that we say we cannot refinance. I think that's from the important. It was your question because the bonds we have today will be replaced by somehow bonds, and then there's the free capital. We have a revolving credit line of more than 600 not even touched, so with the cash position we have, with the performance we have, I would say it would be the completely wrong impression, and sometimes maybe some of you have that. There is a liquidity issue or some finance issue in early. It's simply not, and there are the other assets, and I said it very clear, there will be a differentiation, not a differentiation, a takeout of OMF at the right timing.
That's why we said this 12 months- 24 months. We do that as soon as it is in line with that, what we think about we want to generate. There is mid-term INglass, as you said, a very profitable company, mid- to long-term. Long-term is the wrong mid-term because INglass is no core business. It fits very well into that what we're doing because we're serving the Tooling industry through two angles, but it's not a coating business. So there's plenty of headroom for anything to come. But on top of that, there is a very strong cash performance out of the operational business. And with that, I would like to be maybe as my treasurer, a little bit more offensive. This is not that what keeps me up at night.
What keeps me up at night is the geopolitical questions and when are the markets coming back and we can turn headwind into tailwind because with our cost performance, we are massively prepared for tailwind and we would like to use it.
Okay, so are you alluding to that HRSflow that at the moment that it is part of Surface Solutions, that is only a temporary solution? So non-core means you're also intending to sell that?
Non-core is not, I would be, because otherwise these two people getting very crazy. It's not core business.
Then I have a question on your, can you remind us on your general dividend policy that you have? I guess at the moment you have a bit of an unsustainable payout policy with 100% of your net profit.
No, we're not paying 100% net profit, but you're more the experts on that.
We are paying 20 Rappen, which is somehow out of our policy, which is 50% cash.
Yeah. We are paying within our Oerlikon policy. Having seen the trough in OPP, we suggest to continue with the 20 Rappen as we have done last year to be stable year- over- year.
Okay. Then I have a question on your footnote in the annual report on the compensation of the Executive Committee. That has doubled in the last year. So my question is, did any KPIs change or the overall structure of the compensation scheme that we should be aware of, or what is the principal reason for it?
Maybe I don't understand your question properly. Nothing has doubled. Probably that's because Markus Tacke still is on the EC. Someone will join the EC. There is an incoming and outgoing, but otherwise nothing has changed.
There's no salary changes, nothing.
I think the overall number has gone up for the entire committee from 9%- 16%. And I think for the Executive Chairman from 3.2%- 7.6%.
No way. At least. I can't give you my tax declaration, but it would be nice to have that, but probably we can sort that out, but there is a complete misunderstanding on your side.
Yeah, maybe I think that's what it says in the annual report.
And we have to look and if there is a mistake, we've checked it 5x , but I can assure you there is no seven or nothing and there is no doubling.
Okay. Then last question is, can you remind the minorities that you have in the net profit, where do they come from or who is that?
What do you mean with minorities?
I think you have CHF 6 million that you pay to non-controlling parts. I'm wondering what that is.
Now, you see me with a big question mark. I don't see any minority interests expense of CHF 6 million. Do you have any clue about that?
It says non-controlling interest, shareholders of the parent. Yeah, I was wondering what it is. Was CHF 10 million last year, is CHF 6 million this year?
So last year it included something related to Teknoweb, which we closed down at that point in time. And this year, this is just non-controlling shareholders, right? Where part of that we have to, from accounting point of view, allocate it to them.
Okay, but there is not a part of another company that you don't 100% own, no?
I would need to double-check. We can get back to you on that one.
All right, thank you.
Thank you, Foeth.
Again, thank you for taking my follow-up. Maybe on Barmag, I would like to ask. I have the impression that the trend has been kind of bottoming and improving and then sort of kind of slowing down again. When I look at your chart on the input-output prices, the polymer filaments and the input prices of your clients, it seems to me that the margin is kind of reducing. So at the same time, you're sort of calling the bottom. So maybe you can give us a little bit more of an indication of what you really see in the market there and what's the confidence also that this margin decline is temporary, like meaning only for 2025, I would imagine.
Yeah. So first of all, we see that government stimulus is taking effect. Second of all, we see that the price-cost ratio is going to improve for our customers.
What we see in the market is more activity with customers, potential customers. We have order intake increase if we look half year 2024, over half year 2023 by 19%. So here we clearly see that the activity is coming back, and especially on the small, medium-sized orders, we feel comfortable with the activity.
Maybe I'm allowed to add to you because what he was describing there is maybe the downturn on the profitability is it's mainly driven from one major project and maybe one or two smaller projects which we have to take to maintain our market position in the pace of the downturn, which by the way, we did the same way in 2016, 2017 to maintain our position to customers. And this we have to get through the system now. That's why there is a further decline.
But as I said, even in 2025, these projects which are not that profitable as typically will not go in the minus. The big difference is that in 2016, 2017, we really dropped by CHF 600 million comparable, but we dropped in a real negative EBIT minus and a negative EBITDA minus. Here we will stay very positive in EBIT and in EBITDA, not fully in line with that what we have in 2024, a little lower, but not too much lower. And the major driver is not the overall market, it is some specific project which be necessary to be taken to maintain our position with the customers. So the market is coming back. There we see more significant discussions. We see a much better situation on the earnings situation of our customers, which was the reason in the past why they stopped.
You should bear in mind that after 22nd, the market dropped first time in 60 years. There was a - 6% growth in textile market. First time in 60 years. This has changed. There's as well more Indian projects to come. To be said that the Indian projects sometimes take much longer until they materialize. The Chinese are here more pushy when they come to discuss. They are closer to finalize projects. And last but not least, we are on the way to transform significant cost positions from Germany into China, which was a downturn in Germany, and we will not rebuild that positions in Germany by two reasons. First, we probably have a higher there's a high probability that you will not get the workforces anymore. Second, you have a higher currency risk. You have a higher cost base. You have all higher.
That's why we're transforming significant amount of value creation into our sites, which we have since decades, by the way, in Suzhou and Wuxi and into China. And that will additionally give us headroom for a better margin situation that we work on the cost. But this effect you see earliest end of 2025 and beginning of 2026 because this transition has to be done. And for the transition, you need as well the supply base. It doesn't help you if you put assembly and other stuff into the region and your supply base still sits in Germany. So we will get our supply base as well Chinese based as we have had them in Germany based. There's a lot of aspects coming together while we have a positive outlook on the 2025 onwards situation. But within 2025, the profit will bottom in 2025.
It will be lower than in 2024, but it will never be negative. And the order intake, we will see an increase versus 2024. The issue is sometimes that you very often judge, not you as a person, but you as an institution, judge very often on quarters. And we have some quarters where you get, let's say by accident, five signatures of a big project, and then you get one quarter, you get no signature, and then you get five again. And that's why the overall trend is not only by quarterly built, but it's then built by several quarters.
Thank you very much. Yet, I would like to ask you a question on the quarters.
Sure.
If I may. Just because there was maybe one number that sort of surprised me negative today, and it's the backlog in Barmag, which is lower, CHF 289 million from memory.
After CHF 280+ million sales in Q4, it means to me like I have the impression maybe Q1 starts slow. Maybe you don't have so much work for Q1 yet. I'm trying to understand if you need a lot of order intake during 2025 for 2025 or if you believe you have enough work.
The growth for the 2025 on the sales side, that's there within Barmag. I don't want to discuss now how they operate inside because if they anticipate some shipments or if they postpone some shipments, it goes beyond our discussion level here. That's when they ship and when they, let's say when they book the receipts. But from a volume base, the Barmag situation is picking up and the major question for that is the order intake. So if they do a little bit more, they were pretty flexible in their workforce as well.
Otherwise, we couldn't work that way, and you have seen as well that Barmag and the whole business is not very capital intense. Typically, you work on that, what you get from your supply base on a low-own asset base.
Can I ask one last one?
If the others agree that we do a bilateral meeting, I'm fine with that.
Nobody raises a hand.
No, no, it's fine. Go ahead.
On the, how do you call it, overhead cost. You said that you have done work to split, etc., and so it probably means that when you dispose or sell or float the business, they will take their share of overhead cost with them, or will there be something remaining to you that you will have to sort of restructure away later?
As part of the standalone readiness for OMF preparation, we have analyzed obviously the share that OMF was covering at the time. For that share, we have an action plan that has already started to reduce that cost. What will not happen is that once OMF is separated, that we will sit on the cost. We're very anticipating that and having had plans in place. Let's also not forget it's mainly in the headquarters. It's mainly a Pfäffikon topic. It's mainly a Swiss topic at this stage. Yeah, it's around 30-40 people,
which I identified, talked with plans in place, and some are already reduced. There is no burden from any separation that there will be remaining costs and being negative on the remaining cost.
Great. If there is one more question, please go ahead.
Thank you.
If you have done the separation, then can you share how much of debt you would give away with the sale?
We have prepared the separation. We have a goodwill allocation topic open. So at this stage, I don't want to disclose more.
Good. If there are no further questions in the room, we now move the questions via phone. Operator, please go ahead.
The first question from the phone comes from the line of Rajat Vinayak from RBC. Please go ahead.
Thank you. I just had one quick question, like what proactive measures you take to stabilize pricing in the polymer business or whether we have to wait for end market recovery?
Sorry, maybe it's my age, but I didn't got it fully.
What actions taken to come out of the slump?
In polymer?
Yes.
We have taken out of properly somehow 1,000 people in 2023, 2024.
We have cut down workforce significantly. This workforce will be rebuilt in Asia-Pacific on a completely different cost base. We have massively worked on our supply base, which will not stay there where there was, but coming out of a total different cost base, and so from an operational side, we were prepared. From a sales side, we're having some new technologies which we are introducing and telling our customers. One of that technology will only show in October on the next fair, but with our customers, the interaction is accelerating significantly, and it's probably driven because they feel more confident that they have to invest again and they want to invest, and in China, it's typically if one starts, the others are walking. We will not see a stampede in 2025 already on the order intake, but I'm pretty confident that there will be going forward.
For us, if it's a little later, it's better because our cost effects are grabbing later. So if I'm too early, maybe I have to deliver still something with the cost base out of Germany and not a cost base out of China. Other?
Nothing. Just a follow-up here. So specifically the pricing situation in the Polymer Solution, can you specifically throw some light on there? Like what exactly are the measures on improving that?
Ich verstehe die Frage so schlecht. Ich bin mir auch nicht ganz sicher, aber[Foreign language] pricing. I mean, so here we can say we said that we had to do a price concession, and we did a price concession to gain a large project to support utilization on one hand side for our business in 2025. But more importantly, you have to look at the polymer processing market as a duopoly.
In that case, it's either us or our competitor, and you're locked in for many years with a contract once the customer moves. With that, we did a concession on the price. However, we're still profitable with that project. What we have seen in the pattern in 2016 was that it was a similar pattern that we had to do some price concessions in 2016. As soon as the market picks up again, as we've seen in 2017, 2018, and the last cycle, we see also more pricing power coming back to us. We feel, as we mentioned before, the pricing situation. We feel it's very transitory. On top of that, I feel that with the innovation that Michael alluded to coming out later in the year, we have also a very good positioning with a product that should excite the market.
Does that answer your question? I'm not sure if this was the question.
Sure. Yeah. Thank you so much.
I would love to add again, don't forget there is a drop of CHF 600 million in two years on the revenue line, and there's still a remaining EBIT and EBITDA level, which would be the high end of a lot of companies. So it's a pretty good business model. The only issue in this business model maybe is that it grows year by year on average maybe by 2.5%-3%. It's not the big growth driver. From a business model, from a capital return perspective and all that stuff, with a group of customers, it's a very good business. It not only fits very well with the other business. That's why we separated. We tried to do that 2x .
Unfortunately, in 2016, we had a drop after successful years. So in 2017, 2018, 2019, you had to gain an average against three profitable years. And 2020 was COVID. And COVID lasted till 2022. And then thinking about, okay, now China will boom up again, it was the opposite. It was the combination of Chinese, let's say, policy due to the pandemic in combination with the Russia-Ukraine invasion, which has driven inflation, and inflation is not good for a consumer. So you had both effects, and both effects together drove the textile industry negative. It's something like I have seen when I was in MTU, when you had September 11, and then aerospace dropped by 80%, and it remained low for one or two years. But in 2004, we had completely recovered. And there will be a recovery.
The question is how fast that will happen. And this as well is a question for us, how we valuing our asset when we value through the trough to be prepared for the right and not only prepared to execute the right way of sell or spin. And maybe that's an answer why it sometimes takes a while because you have to make up your mind. You have to calculate. You have to study your scenarios and then to say, this is the best scenario you can do. And we have done that very successfully in drives and very successfully in pumps. And we will do that in the same way according to our rules and conditions as we have done in the past.
Good. Are there more questions online?
There are no more questions from the phone.
Was there a remaining question there? Yes, please.
I have a couple of questions around the margin and margin guidance. Firstly, on Surface Solutions, you're guiding for a small improvement or stable margin for 2025. So in order to reach the midterm guidance of 20%+ , what is needed there? Do you need a better mix shift? Do you need a general recovery also of volumes? And can you also do more through efficiencies or have you already squeezed the lemon as much as possible in terms of the associated costs? And then secondly, on Barmag margin, you previously had a midterm outlook for the polymer processing, midterm guidance for margin, but now that HRSflow has been deconsolidated there, what are you expecting in terms of a midterm margin target for Barmag as a standalone?
Let me start with the OSS[crosstalk]. So I would love to have a mix towards cutting tool coating and doubling that.
This will not happen. Cutting tools is a great business, but it's a business which is running flat or even shrinking, and we are getting market shares there. There are new applications to come, but not in the same dynamic. So the cutting tool market is still growing, but not with the dynamic we have seen some in the past. Materials is doing very well. We expect more growth there. What we really need is a turn in the main markets. Main markets means if the Automotive industry really understands where the track is, which is difficult for them sometimes because there is too much different signals from Europe, America, China, wherever they expect to have Automotive. And this is the uncertainty of Automotive, plus their supply base, is impacting our markets massively. Yeah. The other one is then Luxury. Luxury is stalling.
Unfortunately, we have taken Riri at the time of 2022, and Luxury is stalling since two years. If Luxury comes back, the process is doing very well because we took Riri to accelerate and even support and accelerate the move from electroplating to PVD. LVMH Group is a major driver for that because you get significant savings in materials and you have much better surface qualities. And if you take a bag, one of the, there's a second bag. Sorry if it's getting too long, but I had to learn it. I learned it from my daughters, and I learned it from our markets. There's a second and a third market for bags. If you buy a bag for $5,000 or $10,000, you sell it after a year, you buy the next one.
If you sell it and there are a lot of scratches on your material parts, you sell it much lower if you don't have the scratches. A PVD surface is a much less scrappable surface than an electro-galvanic surface, major driver. Materials, second driver. Based on that, you need MIM technology, which we have to transfer brass to stainless steel and to coat that. This is fully on the way and it's doing very well. But it's still a smaller portion of the overall business and the overall Luxury business today is stalling. Tailwind there, better margins here. Tailwind in Automotive, internal industry, better margins. If you would have already a bigger portion beyond that, what we always have done in Aviation, if we would have a bigger portion in more PVD parts and jet engines, bigger portion in military jet engines we're working on, that will additionally drive margin.
So it's a mixture, yes. There's mixed effects. But the real effect is that we will see better margin quality if market's recovering, plus the lemon isn't squeezed. We're doing very well, but we still do, we will do a lot of things. We talk about digitalization. I give you an example. We have 550 coaters globally. Last year, we had the first 60 connected. Second half of this year, we will have 200 coaters connected. We're working clearly on a so-called cloud factory where we have best practice sharing between all the sites we have spread out, and this is doable by AI and big data and connections. This was not doable a couple of years ago. We first had to develop all that stuff within the company that we can roll it out now. But nobody else has the capability because nobody has 550 coaters.
These are things which will further on getting our utilization up, getting our capital intensity down because if you have a lot of service sites, you have business which you have to do close to your customers, but you have businesses where you have not to be that close, which you can shift, and we have these sites. This is, by the way, a strength now in this geopolitical situation that we have our sites in the U.S., in Europe, in China, and in Asia-Pacific region, which helps us. Besides that, we are following a global business. We are very local with our offers, so maybe the answer was a little bit too complex, but it's not squeezed. That's important for me. There's further improvements on our operational side. That's market and somehow a little bit the mix.
I think on your second question, basically for OMF, here we have seen in the last cycle, we have seen an average operational EBITDA margin of 13.3%, and this margin is fully intact. Thank you. Thank you.
Stephan Sola, Sola Capital. Dr. Süß, one brief question, something we touched upon before the conference, but I think it's kind of important to repeat that. In a what-if scenario, if you would sell polymer processing rather sooner, what is the market like for M&A, for Surface Solutions? I think that is an indication that is maybe interesting for other investors as well. If there is anything that you would potentially put your eye on or if the market is too expensive for where we're at. Thank you.
Actually, there is not a real peer for us to buy. We are pretty unique. We are a market leader in PVD.
We are a market leader somehow in CVD, not in CVD, but in thermal spray and equipment, so we have done always smaller, last five, six years, 20 smaller assets, CHF 5 million, CHF 6 million, CHF 10 million by technology or by localization. But there's not a big asset. We have done significant acquisitions, especially with Riri to open up the Luxury market, which would not be open for us to work with Hermès, to work with Dior, to work with Louis Vuitton if we wouldn't be part of the group, so that this industry, unfortunately, is stalling since two years. They will come back for sure. There is more the organic growth and the application story that we go with that, what we are capable for in different industries, and this helps us to roll out six industries of today, as I said, semiconductor industry.
We already do a significant amount of AM parts for life-limited parts in the production. If you do semiconductor production today, all this production equipment is thermal sprayed. Next generation may stay. Thermal spray is already a question, but at least if 1.4 nm, you need a PVD solution. We're working on that. That's probably three years down the road. So we have a lot of things in our technology pipeline that do not need an M&A, actually. We need simply to execute on that, what's in the pipeline, and getting the markets. And as I said, there is no one. Investors sometimes said, "Oh, there is Bodycote." It's a thermal heating company. It's totally different to that what we are doing. They have some nitriding, but no coating. There's Praxair Surface Solutions. They're pretty good in thermal spray.
They belong to Linde, and they have a Linde multiple on the evaluation. So you have probably a CHF 600 million business which costs you CHF 2-2.5 billion. As long as Linde is not changing that policy, that sits wonderful and nicely with Linde. And it's mainly on the CVD service side, not CVD, thermal spray service side. On equipment side, we are far beyond everybody in thermal spray and PVD. In PVD, we do not sell so often to others, only for ourselves, but in thermal spray, we do. It's different business models. Materials, we have improved massively by halving our numbers, which we are serving. We have improved massively productivity. And as I mentioned this morning, we do more and more material developments, new materials and new applications, AI-based.
We have bought Scoperta in California in 2016, where the big benefit is that if you need a new specification, you go into product system. It gives you probably 15 million solutions. You get in our algorithms with the data we have, a couple of months running them. Then you go with four solutions in the laboratory. So you can shrink years and hundreds of millions development to maybe single-digit million developments and months. And this was one of the examples how digitalization is really taking impact in businesses like ours. The same is what I mentioned with our service centers. To have one service center virtually, but you have it spread out in the world, and you have a best practice sharing between all the different service centers. Whatever you have coded once, you have it available everywhere else. What was the best coder in?
What was the second best? What was the third best? Plus all the data you have of your customers, how they order, when they order, which way they order. You can predict. Today, we cannot. In some cases, we do already. In some cases, we're still not doing it. These are all things we're working on, and we will massively improve our performance. Additionally to that, what we have done already. Will that happen everything next quarter? Definitely not. It will be the same as we have done and we have shown in a transition, a consistent move forward.
Thank you. Torsten Sauter, Kepler Cheuvreux. I have two questions or two and a half, maybe to Mr. Richter. First, on additive manufacturing. I think you highlighted earlier that additive manufacturing has reached break-even in Q4 2024. First question, can you give us a feel for how big this subdivision is?
When you refer to break-even, is that operational EBITDA or EBIT? And secondly, I would like to understand a little bit the post-employment benefits. Has there been a restatement? I see post-employment liabilities pretty much unchanged, CHF 200 million, but I see post-employment benefit assets of CHF 45 million versus CHF 1 million last year. Thank you.
Okay. So on AM, it is about operational EBITDA. The size of the business is in the CHF 20 million range right now for the restatement or for the point that was raised before. We need to check and follow up. Stephan, do you have an answer for that?
Yeah, we are following up.
Apologies for that. Okay. And gross in AM actually is somehow 40%+ .
Great. So thank you, everybody. This concludes today's presentation. You are now more than welcome to join us for coffee and tea upstairs.
Thank you for your attention today and goodbye.