Ladies and gentlemen, welcome to the Oerlikon Q3 2021 Results Conference Call and Live Webcast. I am Paul, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stephan Gick, Head of Investor Relations. Please go ahead, sir.
Good morning, and welcome to Oerlikon's Q3 financial results call. With me on the call, I have Roland Fischer, CEO, and Philipp Müller, CFO of Oerlikon. We start the call with a business update from Roland. Then Philipp will go through the financials, which we will then follow up with the Q&A. Roland, the floor is yours.
Thank you, Stephan. Good morning to everyone, and welcome to our third quarter results presentation. Our third quarter was again a strong operational quarter. Besides continued financial growth, we demonstrated technology leadership and executed on disciplined capital allocation by integrating our two acquired companies, INglass and Coeurdor. Now let's go into some more details on the quarter with a short summary on page three. Sales of CHF 695 million were up 17% and order intake at CHF 835 million increased by 61% year-over-year. This represents the highest quarterly order levels since the year of 2014. Growth was driven by a strong performance in both divisions. In Service Solutions, we saw sales slightly improving compared to the second quarter.
The generally improving trends in service solutions are supported by a book-to-bill ratio that has been above one for the last three quarters. Demand for automotive and tooling was robust, with impacts from supply chain shortages being roughly in line with our expectation. We also saw positive development in general industries and aviation. In Polymer Processing Solutions, we achieved the highest order intake and sales in the last eight years. We continue to experience a very strong market environment and are currently making excellent progress filling up order books for the year of 2023. Our group operational EBITDA of CHF 170 million increased by 26% compared to last year and showed sequential growth. Continued cost containment and operating leverage supported operational EBITDA margin expansion year-on-year.
Summing up, we as a team have delivered a robust third quarter supported by our solid operational execution. Based on Q3 and current visibility, we confirm the 2021 group guidance. Looking beyond the transitory supply chain bottlenecks, we do see strong commercial activity. Combined with operational execution, it will provide a positive backdrop for the midterm outlook in both divisions. On the next few slides, I will give you a business update before Philipp goes into the financial details for the quarter. Now let's move on to the market update on page four. Our end markets continue to face diverging recovery profiles. In Polymer Processing Solutions, we achieved the highest order intake in the last 8 years. Demand in the filament market is very strong, with key players in China continuing their downstream integration.
We continue to make good progress with our structural shift into more non-filament business. Larger integrated systems, combined with our latest technologies, save significant energy and are a strategic priority for China. We see strong demand for plant engineering solutions such as staple fiber and continuous polycondensation plants. We also see a positive market development for our BCF, our carpet yarn technology, particularly in the U.S. The acquisition of INglass opened up polymer processing markets in automotive and general industries. In automotive, the market development is strong, as sales are mainly linked to new and updated light vehicle models. Every time there is a design change, the hot runner and mold needs to be replaced or optimized, and so there is less of an impact from temporarily lower production levels.
Overall, we continue to expect the Polymer Processing Solutions division to reach a positive book-to-bill ratio in the year of 2021. This will also support our sales growth trajectory in 2022, while we are currently filling order books for the year of 2023. In the service solutions division, we are operating across the tooling, automotive, aviation, and general industries end markets. The recovery continues to differ by end markets. We achieved a combined 15% sales growth in the third quarter. The general industries and energy end markets see shorter cycle services recovering well. The recovery in general industries is broad-based, and we also see oil and gas gaining momentum. In automotive and tooling, we saw intensified supply chain interruptions due to semiconductor and commodity shortages in the third quarter. As such, we are affected by temporary shutdowns of major customers during summer holidays.
We mostly anticipated this in our full year guidance provided in August. We see supply chain interruptions as transitory and the strong demand environment gives us confidence for the medium term, as I will highlight later on. Finally, in aviation, sales improved in the third quarter with more flying activity and demand for MRO services. Aviation remains substantially below pre-pandemic levels, and new COVID variants do have the potential to further extend the recovery profile. Even on low levels, the beginning of the recovery is positive and it will be a tailwind for Oerlikon for some time to come. Summing up, we see a strong market environment for Polymer Processing Solutions. In Service Solutions, we are closely monitoring and mitigating the impact of transitory supply chain bottlenecks. We consider the strong demand environment across our end markets a positive indication for medium-term growth.
Now let's move on to page five, where we provide an update on our strategic priorities. Our strategy to drive profitable growth, extend addressable markets, and gain market share is unchanged. As a result, we are focused on three key strategic priorities. Sustainable innovation, cost containment, and disciplined capital allocation. In terms of sustainable innovation, we have launched in Q3 a new thin film coating product family, BALDIA. It is designed for the machining of high performance ceramics, carbon reinforced polymers, and high abrasive aluminum alloys. Our recently acquired INglass launched a new nozzle for injection molding of small parts. This opens up a new market for parts weighing less than 10 grams, where high cycle times are required. Last but not least, we also launched a new coating powder for solid oxide fuel cell applications.
In terms of cost management, we achieved 110 basis points expansion in operational EBITDA margin, driven by service solutions. On group level, we reached the 16%-18% target corridor in the third quarter and for the year-to-date. Finally, disciplined capital allocation has been a key priority for Oerlikon since many years. The integration of our recent acquisitions, INglass and Coeurdor, are well on track. They are adding diversification to our business and position us well in growth markets. The addition of INglass is already benefiting both divisions and allowing them to operate better together. We achieved a 16% sales growth in nonwovens for the year-to-date. In terms of R&D, we focus on capital return and growth, as I will present later on.
Last but not least, we paid a stable dividend the first half year and have been buying back shares in Q3. I will provide now some more details about our view on the automotive end market on the next slide. As highlighted before, our automotive customers are experiencing supply chain constraints that impact their production. Some of these shortages are expected to extend into the first half of 2022. We are mitigating the impact the situation has on us by tightly managing our operations and production capacities while retaining the ability to step up production on short notice. Important for us is also to look beyond the current supply chain bottlenecks. Light vehicle production is expected to steadily recover over the coming years. With high-end user demand and car inventories at very low levels, we see Oerlikon well positioned to benefit from the recovery.
On the right-hand side of the slide, I want to focus on the longer term picture for our automotive business. The chart shows the production forecast for light vehicles per powertrain alternative. One of the most important takeaways for our product portfolio is that the combination of internal combustion and hybrid engine production is expected to be roughly stable over the next decade. These are the traditional Oerlikon applications and provide a stable base for our growth initiatives. More efficient engines required by regulations and the additional gearing needed for hybrid transmissions are expected to result in increased coating requirements and service treatments per vehicle. On top of that, we are driving R&D in battery and fuel cell applications to capitalize on electric vehicles. We are looking into heat shields for batteries and into coatings for battery housings, sensors and electric motor components.
Tangible electric vehicle opportunities also include coating solutions applied on forming tools. Furthermore, INglass's hot runner systems should benefit from increased use of lightweight components in light vehicles. Last but not least, electric transmissions produce higher load factors via increased torque, which will need additional service treatments and coatings. All in all, we are on track with focusing our investments to support our customers in their transition to future mobility. With that, let's move on to the next slide, where we take a look at Polymer Processing Solutions growth. Since 2014, we have grown Polymer Processing Solutions sales by around 25%. This has been driven by growth in filament and nonwovens. In filament, we have a broad and integrated offering of machines and engineering solutions, which our customers use to produce man-made fibers used in apparel. We have a strong market position.
Strong demand is driven by innovation, resulting in economical and ecological productivity improvements, continued downstream vertical integration of large filament producers, and man-made fibers outgrowing natural fibers. In the last few years, we initiated various growth initiatives to diversify our business into non-filament applications and plant engineering. We are doing that by addressing adjacent growth and niche markets with innovative high-quality offerings. As you can see on the top left of the slide, we have been growing sales of nonwoven with a CAGR of almost 50% since the year of 2014. This was initially accelerated by the success with the face mask applications in the year of 2020. Now, we are also selling systems for nonwoven applications, such as wet wipes and filters.
This has been growing substantially with a CAGR of around 30%-40% since we announced the joint venture with Teknoweb in the year 2017. Going forward, Oerlikon continues to aim for growth, application diversity, and market share gains in the nonwoven market. Other successful growth initiatives can be seen in our plant engineering business, where we reached a sales CAGR of 17%. Furthermore, our increased focus on customer service drove a 5% sales CAGR in services since 2014. Importantly, the customer service business is closely linked to the production levels and OpEx decisions of customers. It therefore adds a robust baseline to Polymer Processing Solutions sales. As outlined on the bottom left, we are complementing organic growth initiatives with accretive bolt-on acquisitions. We delivered that this spring with the acquisition of INglass.
It expands upon our key polymer flow control competency that drives polymer processing in man-made fibers applications. INglass was cash and margin accretive from day one and significantly accelerated our diversification towards non-filament. The adjacent INglass market opportunity is over CHF 2 billion. It's highly fragmented and is growing with a mid-single digit % annually. This provides solid perspectives for attractive organic growth and opportunistic bolt-on acquisitions. Heading up our organic growth initiatives and bolt-on M&A, the Oerlikon team is well on track to transform Polymer Processing Solutions into a growth platform with market-leading returns. Our target is to reach a diversified 50/50 sales split between filament and non-filament, as you can see on the right side. Now let's move on to the next slide, where we highlight our focus on capital returns.
We have communicated earlier in the year that we have a midterm ambition to reach a double-digit ROCE. In order to achieve that sustainably, we have further increased our internal focus on managing capital investment and return. We strengthen our capital allocation framework with capital return and growth perspectives representing key investment criteria. Based on defined hurdle rates, we raised the focus on allocating CapEx and R&D investments to high return and growth areas. This is complemented by the introduction of zero-based budgeting in order to intensify the internal competition for capital, especially for investments in growth and innovation. We also introduced standardized review processes to better monitor the achievement of investment targets, including capital returns. Last but not least, we introduced ROCE as key metric in our long-term management incentivization program.
We are convinced that these measures will help us to position our company to sustainably generate a double-digit ROCE over time. Upside will also come from recovering end markets and continued cost containments. All in all, our strengthened focus on capital return will position us well for profitable growth as we continue on the next slide. We see upside potential for sales and margins in both divisions in midterm. In Surface Solutions, we are well positioned to benefit from recovering markets beyond currently supply chain interruptions. While shorter cycle Surface Solutions business is driving the 2021 sales recovery, we have further upside from a longer cycle business. Growth will be driven by sustainability, mega trends, innovation, cross-selling, new applications as well as continued geographic expansion.
The supply chain and semiconductor shortages has put the recovery in tooling and automotive on pause, and we expect it to resume during the year 2022. Besides growing Service Solutions from a top-line perspective, we will maintain our cost focus and allocate capital reasonably. In Polymer Processing Solutions, we have the target to reach a 50/50 sales diversification between filament and non-filament. In filament, we see a continued strong demand environment, and currently we are filling order books for the year 2023. In non-filament, growth is supported by our growth initiatives and accretive bolt-on acquisitions. Summing up, the improving commercial activity and strong operational execution provides a positive backdrop for our midterm outlook and profitable growth. Team Oerlikon has done a fantastic job in preparing the organization for the next stage of structural growth.
With that, I will now hand over to Philipp, who will take you through the financials in more details.
Thank you, Roland. I will start with the group results and then provide more details on the division. At the group level, orders were CHF 835 million, up 61%, driven by strong order intake from Polymer Processing Solutions and the continued recovery in Surface Solutions. Sales were CHF 695 million, up 17%. Both divisions contributed equally to our sales increase based on a market recovery in Surface Solutions and continued strong demand in Polymer Processing Solutions. Our group book-to-bill ratio was 1.2. With that, our book-to-bill was above one for the fourth consecutive quarter. Operational EBITDA was CHF 117 million, a 26% increase versus the prior year. Our margin rate increased by 110 basis points to 16.8%, driven by operating leverage and tight cost management. Next on Surface Solutions.
As Roland highlighted, Surface Solutions end markets are recovering, albeit at differing rates. Orders were CHF 332 million, up 29%, while sales increased 15% to CHF 323 million. In the third quarter, our shorter cycle businesses in automotive and tooling were impacted by the semiconductor and supply chain issues. As highlighted in our annual outlook in March, the longer cycle businesses showed improvement in the third quarter. In a critical indicator for this development, we achieved a book-to-bill ratio above one for the third consecutive quarter. As a result, Surface Solutions has the highest backlog since the first quarter of 2020. Operational EBITDA in Surface Solutions was CHF 59 million, up 41% versus the prior year. This represents around 340 basis points of margin expansion, mainly driven by operating leverage and benefits of our structural cost reduction program.
We are currently facing higher input costs, especially with regards to labor, raw materials, and energy. We expect to be able to manage these cost increases to a large extent. In some of our businesses, our contracts are indexed to input materials and automatically adjust prices to our customers. In other areas, we are pursuing a structured approach to adjust our product pricing in order to reflect the current inflationary environment. Next on Polymer Processing Solutions. Orders in Polymer Processing were CHF 503 million. This is the highest order intake in over eight years and is up 93% versus the prior year. In the first nine months, we booked over CHF 1.1 billion of orders, which is up 45% year-over-year. We're on track to reach our guided CHF 1.45 billion order intake for the full year.
Third quarter sales of CHF 372 million were up 19%. On the one hand, this was supported by strong organic end market demand. On the other hand, INglass made a full quarter of revenue contribution and supported our diversification into non-filament. Organically, sales were up 5% at constant FX against a strong base comp. Third quarter operational EBITDA increased 15% to CHF 55 million. Margins were down 60 basis points to 14.8%. As highlighted in August, we recognized certain additional expenses related to a project delay in the third quarter. We expect a sequential step-up in margins in Q4, in line with our full year guidance. As you know, we are facing major challenges in terms of supply chain bottlenecks, global logistics, and some regional power availability at the moment.
Currently, we do not foresee a major financial impact from these issues in Q4. However, visibility remains challenging. We are managing the situation closely and have various mitigation measures in place in order to successfully deliver on our business plan. Concerning power shortages, we are working in shifts and optimizing energy consumption away from peak times. So far, we have been able to manage the challenges and expect to be able to continue to manage them in Q4. To a certain extent, the situation remains difficult to predict, however. With that, let's conclude the presentation with our outlook. Based on our strong Q3 and year-to-date results and off of the current visibility we have, we confirm our group guidance. We continue to expect group sales at approximately CHF 2.65 billion and group EBITDA margin to be approximately 16.5%.
Looking into 2022, we see continued strong demand for Polymer Processing Solutions. Strong bookings in the first nine months underscore our expectation of a positive book-to-bill ratio by year end. We also further increased our 2022 order book throughout the quarter. Furthermore, 2022 top line will be supported from including 12 months of sales of INglass versus only seven months in 2021. In Surface Solutions, we see reason for optimism as we expect supply chain disruptions to ease throughout 2022. This positions automotive and tooling well for a further recovery. We also expect aerospace to continue to improve from the low base. In our longer cycle businesses, we have already replenished our order books. To recap the first nine months, we have made excellent progress towards our forward-looking priorities. We delivered 16% sales growth, driven by both divisions.
We've reached the mid-end of our EBITDA target corridor already in the first nine months of 2021. We have a strengthened capital allocation framework in place, which will support us in our ambition to reach double-digit ROCE. We have executed two value-accretive and strategic acquisitions and are well on track with their integration. Finally, we paid out a stable dividend of CHF 0.35 per share. With that, let me open it up for Q&A.
We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handset and eventually turn off the volume of the webcast. Anyone who has a question may press star and one at this time. The first question comes from Michael Foeth from Vontobel. Please go ahead.
Yes, thank you. Good morning, gentlemen. A few questions from my side. You mentioned that you bought back shares in the quarter, and I was wondering if you could tell us how many shares you bought back and how that fits with your further M&A strategy. If you could give us an update on that as well. The second question would be regarding the very strong order intake in polymer processing. If you could give us a bit more granularity, which segments really drove that, and how we should think about quarterly order intake in coming quarters. Your guidance obviously gives an indication for Q4, but how should we look at that in early quarters, 2022?
Then, connected to that would be the question on production capacity in polymer processing. Your trailing twelve months orders are CHF 1.4 billion. Can you tell us what your production capacity is or if you need to take any steps to increase it? That's it from me. Thank you.
Good morning, Michael. I'll start with the share buyback. You know, we have some, you know, our program is obviously running in line with the parameters that we've communicated previously. We have given certain trading instructions to our custodial bank on that, and I'll maybe just summarize the overall status of the buyback. Since the inception of the program, we've bought back about 16.8 million shares. We utilized about 3.7 million in the INglass transaction. Our net balance right now is 13.1 million shares at an average purchase price of just under CHF 8.50. I think it fits right into our M&A strategy. You have seen how we've successfully utilized some of those shares in the INglass transaction.
We continue to think about that as the strategic priority. Obviously from an overall balance sheet and leverage situation, we continue to have a very strong balance sheet that allows us to do M&A on top of some of this buyback activity.
Michael, I take the second and the third question. I think you know the current order intake of CHF 500+ million is a record order intake since 7-8 years, and definitely it's not the run rate, right? Based on the confirmation of our guidance, CHF 1.45 billion, it's simple math what we expect in Q4. You know, for the year of 2022, we do expect to be on a similar level like this year in 2021. When it comes to capacities, I think one half of the answer is already given. We talk about delivery timelines in 2023.
That means obviously we are running at full capacity with our existing sites. What we do, of course, is optimizing our existing sites, investing here and there in newer and more efficient machines. But this is not a major investment in new addition of capacity. It was always our saying that we stay with what we have, we optimize it, we improve it, but we are not talking about additional sites here.
It's very important. Michael, it's included in our CapEx guide for the current year. Nothing above and beyond that. When you think about it internally, a lot of the CapEx investment, you know, capacity investment really goes into the non-filament space. I think it's always important to drive that unit differentiation.
Okay. Very clear. Thank you. Well done.
The next question comes from the line of Sebastian Kuenne from RBC Capital Markets. Please go ahead.
Hi, gentlemen. It's RBC Capital Markets. I have a couple of questions, mainly on OPP on the polymer business. I would like to hear a little bit more about the pricing of the current order book. I mean, you had a long stretch of very strong orders. You filled the orders for 2023. You talk about customers pushing for earlier deliveries. How will that then translate into a margin? I would assume very strong margin profile going forward. That would be my first question. Secondly, also on the polymer side, you mentioned that you go more into plant engineering activities rather than just the machinery.
Can you explain to us how you manage the risks of that, especially when you book an order 18, 24 months ahead and you have the raw material risk? Can you explain to us how you manage that raw material risk, if there's a pass-through clause and so on? The third question on, also on polymer would be on project delays that you mentioned. I assume there are penalty payments for this. How do you see the risk next year that because of logistic delays that you can't deliver on time, and that your customers are charging you for the late deliveries and project delays? How big is that risk? I have then another question on service, but I ask it later. Thank you.
Okay. OPP pricing. I think this is an interesting topic. Here, you know, we have to keep in mind that four years ago, 2016, we have been at the very bottom of a cycle where we had an yearly revenue of CHF 486 or something like that. This was going in line with tremendous pressure from our customer base in terms of pricing. Just to give you a feeling, taking, you know, the 2017 trend in pricing and per unit, let's take a winder, a typical on POY. We have been able to increase over the course of the last years, you know, the prices on average by about, let's say, 30%.
Being back to a decent level, not where we have been in the peak times in 2014, but we are moving in the right direction. The second part was plant engineering. Here you have to be maybe a little bit more precise. We talk about diversification of our business portfolio. That means I think I was clear, we try to achieve a 50/50 ratio healthy basis between filament and non-filament. Plant engineering here, polycondensation is one element besides others where we are gaining momentum. But we are not talking about, you know, an entire plant in terms of EPC. We talk about an extension of our product portfolio. Here the risk, I would say, is a limited one.
The raw material risk does exist in general. We are trying to include that in our contract to the best possible extent that arise from customer- to- customer, right? Last but not least, the project delays. I think we were communicating one case where obviously last year we have been not able to fulfill the contracts because of travel limitations. We have been not able to send the right quantity of right qualified people to the site. Here we had delays, and we had a certain negative impact. You know, you can imagine, whatever we are going to sign today, we are trying to safeguard us as much as possible, yeah.
Sebastian, if I can maybe jump on that last one. I think that you know, the most critical component that we're looking at is obviously the electrical component that we have within our winder technology. Specifically as it relates to inverters. We're thinking about a variety of different fulfillment strategies and shipment strategies of how we can ease that pain. I think that's the most pressing area where we're going to see shortages and challenges on the supply side. I think we have an ability to manage around that to an extent and basically complete all the equipment without some of the electrical equipment and then ship that later on. Hopefully that'll allow us to fulfill on all of our contract obligations with our customers.
Obviously, we're in constant exchange with our customers on the topic because they see this pressure not just from us as a supplier, but from basically all their other suppliers as well.
What you're basically saying is you ship out a kind of semi, like, semi-finished machinery, and then you hope that you can air freight the controllers out to the destination in Asia and then put those controllers in and then ship it to the client. Is that kind of the-
Right.
-temporary moment.
That's right, Sebastian. Not yet, because we're not yet in that situation. Think about not a semi-finished, it's basically 97% finished, and then you need the inverter technology on top, obviously, to make it run. There are certain, you know, parameters that we absolutely need to fulfill with our clients in order to basically make the polycondensation plant run efficiently. That's basically the strategy. Yep.
Yeah. Thank you. Final question on Surface. Very strong margin. I'm a bit confused actually how strong it is. Is this mix, is this also
already the kind of the contribution? Do you have, do you see cancellation risks? Because we heard it from SKF recently and Sandvik also was cautious especially on automotive. Do you have cancellation risks that you see in the next weeks or have seen in the past few weeks? Thank you.
No, Sebastian, you know, the nature of our service solutions business is a short cycle business. We do not talk about too many explicit projects, at least not in the service business. In the equipment business, there are no cancellations because everybody believes the midterm cycle is intact here. I think the second part of the question was
Just on margin.
On the margins.
Yeah.
I think the brutal truth is, I think we did our homework, right? We're heavily working on our cost base here. This is not since yesterday. We started in 2019. Now we are not yet completely done, but almost through. Now we see the results, right? It's not driven by the markets. This is internal cost management.
Very good. Thank you so much. Much appreciated.
The next question comes from the line of Christian Obst from Baader Bank. Please go ahead.
Good morning. First of all, on cash flows, there are not so many information about cash flow in brief so far. Can you give us some kind of an idea how much you spend on M&A this year so far? What is the CapEx plan for this year, maybe next year? Especially some more details, how the working capital developed during the third quarter. Another clarification more or less, of course, very impressive, the development of the cost measures and the impact there. Can we expect something special on cost measures also going into 2020? Or is it only the transfer of costs to customers and how to manage cost volatility going forward? Thank you very much.
Yeah, Christian. On cash flows first, we don't release a separate cash flow statement after the first quarter and after the third quarter, only at the half year. I'll give you a little bit of color. All the M&A activity was already reflected at the half year. We didn't do any incremental M&A in the third quarter. Take what we've released in detail at the half year point as you know, that's everything from an M&A standpoint. Then maybe a little bit of color from a net working capital standpoint, I think that is the biggest area that we've talked about.
You've seen that in the first half, net working capital was a significant use of cash, that is in line with the revenue profile that we communicated for the second half of the year. We also said that we expect that to partially reverse in the second half. In other words, net working capital will be a source of cash. We're not gonna reverse the entire impact based on the growing top line that we're expecting for the current year and also for the next year. We're expecting some reversal of that impact in the second half of the year. Obviously, when you back into our guidance, you can see that earnings in the second half are expected to be stronger. Finally, I would say CapEx guide is in line with what we communicated all throughout the year.
I think that gives you all the components you need from a cash flow standpoint. Then on cost measures, I would say to Roland's point, the big, you know, painful actions that we had to take are done. At the same time, we continuously look at how we can optimize the portfolio. Underperforming businesses will continue to be, you know, put under scrutiny. If we need to take some more cost actions there, we will do it in a very, very fast way. Don't expect another huge action like we had to take in 2020.
Maybe a side comment from my side. With respect to net working capital, what always has been the focus area, one of the most important focus areas at all, but now in light of our market environment, we also have to make conscious decisions when it comes to inventory, getting access to parts and pieces, to make some compromises here in order to brings or keeps us in a position to deliver to customers, right?
Okay. Thank you for that. Maybe some small additional questions. There is, you talked about the continuing downstream integration, especially from the big players in China. Have you any idea how long this trend will last? Last one is on additive manufacturing. The impact is going down, which is, I see positive, but what is the current status there? Thank you very much.
Okay. I think OPP, polymer processing projects, all we can actually say is, the ongoing projects which are in a phase of execution or planning even, are not showing any signs or indications, of delays or even cancellation. That means, for 2022, we are secured, we are safe. 2023, I would say as well, earliest in 2024.
To say to the Deutsch what does it mean in English? The outlook ends somewhere end of 2023. For 2024, we cannot give any confirmations here. From that perspective, no negative signs at all.
Okay.
When you talk about additives, for sure there is a kind of dilution in our business. I was in Berlin just, I don't know, a few weeks ago, and as an operational guy, I will tell you in two minutes or one and a half minute. We don't like a non-quality, of course. Yeah. It was the first time I saw, you know, in the site, consignment store where industrial parts are handled and stored and deviations are going to be discussed and evaluated with customers. That means what I want to say is, the industrialization of this business really takes place now, and that makes us very optimistic.
You might have heard about the conference just two weeks ago we did in Aachen. It was again a great success. A different group of people, much more industrial guys, joined, which are really dealing with the topic and applying it. That makes me very confident.
I would say on additives that we actually had one of the most successful quarters ever in terms of the order intake, both in Europe and in the U.S., across a variety of applications, really large-sized industrial type contracts that we're signing up here. The business is on a better footing from a cost standpoint, and we're ready to execute on those contracts. The dilution in line with what we told you earlier, Christian.
Okay. Thank you very much. Thank you for your time. All the best.
The next question comes from the line of Alessandro Foletti from Octavian. Please go ahead.
Yes. Good morning, everybody. Thank you for taking my questions. I have two questions, actually. I'm not sure you wrote it in the press release or in the presentation or maybe it was a talk that I had with Adi. It seems there is a percentage of conclusion effect in the Q3 numbers. Can you please quantify if there is an effect on sales and EBIT?
What is that question?
I'll take the questions one by one, if you don't mind.
Under percentage of conclusion?
Of completion, I think.
POC. Percentage of completion.
Yeah, percentage of completion is a standard revenue recognition method under IFRS that we have in polymer processing. You know, you can maybe see in our annual disclosure how much of that follows that versus transactional revenue recognition. That's not a number that we disclose separately.
Right. Was there anything exceptional in the way the margin then developed in Q3 because of that?
Oh, no. No, no.
All right. Okay, great. On the supply chain bottlenecks that you have mentioned, how would you assess it? Like, the worst was in Q3, the worst is coming now in Q4, or the worst is in Q1, Q2 next year?
I think this is an interesting question, right? I think the, you know, the level of uncertainty in the economy is extremely high. We have to differ between two different topics. When our customers, automotive industry is struggling, we are to a certain extent affected, but this is beyond our reach, right? It's a simple question of what is the number of cars being produced. I think this is one part of the story. The other part, it's our internal, our own business where we are short of pieces and parts. Phil was referring to the inverter. This is a control unit for our winder technology.
There are also other shortages when it comes to logistical questions, availability of container and even, you know, power supply in China. So that means there are plenty of elements here. What we would say or what we are saying is all this, you know, this entire bunch of different phenomena will last at least into the first half of next year. That is what we expect, actually.
I don't know if you can measure this in a way, but maybe by the number of discussions that you have internally, you feel like it is worsening still or it's sort of, well, we know that as we can deal with it, or do you have the feeling that there may be things that are even worse in the coming quarters?
I know this is very difficult to judge. We take what we have right now. We will assume it will last on the level we have right now. It might change regionally. It might change from product to product or material, commodity or whatever. All I can say is so far we have been able to manage it quite successfully. Not saying that we didn't have some minor negative impacts here, but we have been able to compensate that.
Right. My final question is coming back to the share buyback. Do I understand correctly that your shares can only be used for M&A or you can actually use it also for other purposes, it's up to you?
Primarily to be used for M&A.
Okay. Is there any legal limit? That's what I mean, in the utilization.
Well, you cannot, you know, cancel them. As you know, there's significant tax disadvantages to them. I think that's the-
Mm.
the biggest reason.
Okay, thank you.
The next question comes from the line of Sebastian Vogel from UBS. Please go ahead.
Good morning. I have three questions. I would like to pose them one by one. The first one is on polymer processing. In the slide deck, you mentioned about a couple of margin headwinds, mix project delays, higher raw mats, and freight costs. Can you shed a little bit more color there, how much the different factors have been a headwind to the margins, and if there were some offsets that were helping the margins, you know, volumes, of course, on that side? If you can help us to get a bit of a better sense how the different factors impacted the margins on that segment. Of course, related to this question is like, this project delay you were talking about, is that now been really finished, so is that nothing what we will see anymore again?
If you could also add your thoughts here, that would be great.
The order of magnitude, you know, is low single-digit millions we talk here. And the project delays are as to our best knowledge as you know today, I would say, yes, we are converging, and we do not foresee any additional new topics coming up.
Got it. That project is pretty much finished today. There's nothing, no potential further, deterioration as we expect from this one.
No, the project is not yet finished, but we are back on track.
Understood. The second question would be on surface. Can you give a little bit of your thoughts on the different end markets, how the growth rates have developed over the course of the third quarter, how the last months was comparing to the first two months? Was there some trends or how have you seen things there?
OSS, fortunately, we do have a quite broad market and customer base here, what helps a lot. Automotive industry is stagnating from our perspective. Here we have to be more careful, you know. Different regions are showing a slightly different pattern. From that perspective, I think, you know, our figures in terms of order intake and sales in Q2, Q3 are in line with what everybody expects here, right?
Yeah. I would say from a monthly standpoint, obviously after July and August, which are typically slower months especially, an acceleration into September. At a moderate level, specifically in the auto industry because of the idiosyncratic challenges and the plant shutdowns. We saw a similar pattern. I think that's specifically the comment on the auto industry.
Did that work into October further, that we have again seen some sort of gradual acceleration into October so far?
Versus September, no, I think on the auto side is similar to September.
On the short cycle side in general?
It depends a little bit on the end market, as Roland was saying, and on the geography. It's kind of a mixed bag of things.
Understood. Then Roland, one last one with regard to the auto exposure in on the surface side. I hear the third quarter global production numbers seem to be quite negative. Actually, if I have calculated correctly, your numbers are suggesting that you have even seen positive growth. Can you explain that a bit? Was it just like because of the third quarter '20 was a bit different, or what has led to the sort of mismatch between global production volumes and your growth numbers in automotive?
It's really. It's obviously a slight nuance that you're picking up on that's, and you're right. It's a mix of the base effect and then specifically our geographic mix, and customer mix, really, of where we've picked up. By and large, though, you know, we see, we really see a trend that is very similar to overall production numbers.
Got it. Many thanks.
Okay. This concludes today's call. In case of further questions, don't hesitate to contact us in the IR team. Thank you for your participation, and goodbye.
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