Earnings Call: Q2 2021

Aug 3, 2021

Ladies and gentlemen, welcome to the Ehrlichon QTH1 2021 Results Conference Call and Live Webcast. I am Samza, 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 and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Giek, Head of Investor Relations. Please go ahead, sir. Good morning, and welcome to Enercon's Q2 financial results call. With me in the call, I have Roland Fisher, CEO and Filip Muller, CFO of Erlikon. We start the call with business updates done by Roland. Then Philippe will go through the financials, which we will then follow-up with the Q and A. Roland, the floor is yours. Thank you, Stephan. Good morning to everyone and welcome to our Q2 results presentation today. The Q2 was a strong operational quarter. Besides financial growth, we demonstrated technology leadership and executed on disciplined capital education by acquiring the 2 companies, Inglaz and Kourdorf. And now let's go into some more details on the quarter with a short summary on Page 3. Polycom achieved solid order intake and sales growth both on a year over year and quarter over quarter perspective. Sales of CHF628 1,000,000 were up 23% and order intake at CHF647 CHF7 million increased by 7% year over year. Growth was driven by a strong performance in both of our divisions. In Service Solutions, we saw trends improving compared to Q1 and we expect further sequential sales growth in the second half of the year. This is supported by a book to bill ratio above 1. In Polymer Processing Solutions, we continue to Experience a very strong market environment and are currently making excellent progress filling up order books for 2023. Our group operational EBITDA of €111,000,000 doubled compared to last year and further improved compared to Q1. Continued cost containment and operating leverage supported a strong operational EBITDA margin expansion. All in all, we had a strong start into the year supported by a solid operational execution and 2 accretive acquisitions. I'm therefore pleased to increase our full year sales guidance to approximately CHF2.65 billion. We are also expecting a higher EBITDA margin around 60.5% for the year. This brings the group already in 2021 into our EBITDA margin target corridor. On the next few slides, I will give you a business update before Philippe goes into the financial details for the quarter. And now let's move on to the market update on page 4. Our end markets continue to face a worrying recovery profiles. In Polymer Processing Solutions, we continue to make good progress with our structural shift into more non filament business. We see strong demand for plant engineering solutions in China such as stable fiber and continuous polycarbonization plants. We also see the BCF industry revitalizing in the U. S. Our shift into more non filament is supported by a strong focus on innovation, on service business and on accessing new growth markets. On top of that, demand in the filament market is also increasing. Key players in China continue their downstream integration. For the full year, we raised our expectation both in filament and non filament sales as Fili will present later on. We We expect to reach a positive book to bill ratio by year end. This should support a growth trajectory also in 2022, while we are currently filling order books for 2023. In the Service Solutions division, We are operating across the tooling, automotive, aviation and general industries end markets. The market recovery continues to arrive by end markets. The tooling and general industries end markets see shorter cycle services recovering well. We expect them to recover by a mid to high single digit percentage number this year. We introduced some new tooling products for the market this year. They have been well received by our industrial customers as they are continuing to look for improved performance to differentiate. The recovery in general industries is broad based And we also see oil and gas gaining momentum. In automotive, we experienced a high level of activity in H1 driven by automotive production. We also were affected by a 2 week shutdown of a major customer due to supply chain shortages. We see supply chain interruptions due to semiconductor and commodity shortages to intensify in Q3. Finally, in aviation, the travel restrictions caused by the global pandemic continued to impact our sales. Our aviation sales were down 14% year over year in the Q2. We expect aviation to be stable on low levels in H2 with new COVID variants to potentially extend the recovery profile. And if we look historically, Then it can take up to 12 months until a recovery in flights arrives in the supply chain. And in this context, I'm pleased that we have already now evidence of first customer inquiries coming back. We signed a 10 year contract with MTU in Q2 to quote some of their next generation aero engine components. Whilst volumes are not material on group sales level, it is a very positive sign that leading aviation players put long term trust into our technologies. So summing all up, we see a strong market environment for Polymer Processing Solutions. In Service Solutions, short cycle business is recovering and we see positive signs in the longer cycle markets, which is a positive indication for 2022. And now, let's move on to page 5, where we provide an update on our strategic priorities. Our strategy to drive profitable growth and Bank market share is unchanged. As a result, we are focused on 3 key strategic Sustainable innovation, cost containment and disciplined capital allocation. In terms of sustainable innovation, we launched in Q2 A new machine for deposition of diamond coatings, it has 2 times higher productivity and capability to produce nano and micro grain diamond films for applications in aerospace. We also launched new powders for thermal barrier and bond coatings. In terms of cost management, we have achieved a 6 60 basis points expansion in operational EBITDA margin this quarter. And finally, disciplined capital allocation has been a key priority for Oerlikon since many years. We paid again a stable dividend in Q2. Furthermore, by acquiring Inglaz and Cordeaux, we have found an excellent way to diversify our business and position is in growth markets. We paid attractive multiples and the acquisitions are accretive from day 1. And now I will provide some more details about our acquisitions on the next slides. Inglaz is a market leader in hot runner systems, which are essential in the production of high end lightweight polymer components. The company has around €135,000,000 sales generated in multiple industries including automotive and customer goods. The acquired technologies are very complementary to Ehrlichon's existing polymer flow control equipment. Our gear pumps focus on precise thermal control, pressure management and continuous flow of molten polymer. Together with the know how of Inglaz, we can further extend technology leadership by combining our R and D efforts in Flow Control. The acquisition also helps us to diversify our business beyond Filament where we reached already a high market share. In 2020, Filament accounted 70% of Polymer Processing Solutions sales. This number becomes 60% within class. Our midterm ambition is a balance ratio of fifty-fifty. We target to reach that by organic growth initiatives and bolt on M and A in non filament areas. The addressable market of Ingas is around CHF2.5 billion. This indeed doubles the existing addressable market of our division. The acquisition gives us Substantial room to grow share in a market that organically grows above GDP. We see in Ingles an annual high single digit percentage sales Growth potential. And last but not least, Inglaz opens up excellent cross selling opportunities between our 2 divisions. For instance, the Forming Tool Business as Service Solutions codes the metal services of tools and moldings Used to create high quality polymer parts. We are truly excited about this opportunity and see it as a transformational catalyst for the division. The closing of the deal happened in the beginning of June and Inglaz already contributed positively to our Q2. And now let's move on to the next page where we highlight CODOR. CODOR is a leading supplier of metalware to the luxury fashion industry. Customers include leading luxury brands producing leather goods such as leather bags and tas. While we are already present in high end decor applications such as pens and watches, we want to expand beyond that. A key feature of the high end decor industry is that trusted long term customer relations and design expertise are very important. The deal is therefore strategically attractive for us as it allows us to leverage our technology through the Cote d'Or brand. Erricon's leading technology and global footprint makes us a perfect match for Cordon. Besides end market diversification, The acquisition provides Erlikon access to further growth. The luxury leather goods market has an attractive mid to high single digit percentage market And finally in terms of ESG, the combination of Oerlikon and Cote d'Or will accelerate the luxury goods industry shift to PVD as a much more greener technology. And with that, I now will hand over to Filip who will take you through our financials in more details. Thank you, Roland. I will start with the group results and then as usual provide more details on the divisions. At the group level, orders were CHF647 1,000,000, up 7%, driven by the recovery in Surface Solutions. Sales were $628,000,000 up 23%. Both divisions contributed equally to our sales increase Based on the market recovery in Surface Solutions and continued strong demand in Polymer Processing Solutions, Our group book to bill ratio was above 1 for the 3rd consecutive quarter. Operational EBITDA was CHF111 1,000,000, a 98% increase versus the prior year. Our margin rate increased by 6 60 basis points to 17.7% 7% driven by operating leverage and tight cost management. Next on Surface Solutions. As Roland highlighted, Surface Solutions end markets are recovering at varying rates. Orders were CHF 345,000,000 up 46% at constant FX, while sales increased 23% to CHF320 1,000,000. In the first and second quarter 2021, We saw a solid pickup across our shorter cycle businesses. And as highlighted in our annual outlook in March, we expect the longer cycle businesses to start picking up in the second half of this year. Importantly and a critical indicator for this development, We achieved a book to bill ratio above 1 for the 2nd consecutive quarter. In terms of end markets, our sales were driven by the recovery in tooling, automotive and general industry. Q3 is poised to benefit from a continued recovery in tooling and general industry. Automotive sales are expected to temporarily level out at current levels due to supply chain shortages. Operational EBITDA in Surface Solutions was $60,000,000 up around 2 30% versus the prior year. This represents around 12 points of margin expansion, mainly driven by operating leverage And benefits from our structural cost reduction program. We expect to continue to generate solid operating leverage in the second half This will be partially offset by some short term costs coming back and a lessened tailwind from the mix of our business. Next on Polymer Processing Solutions. Orders in Polymer Processing Solutions were CHF 302 1,000,000. This is a strong level above our historical average. It is down 17% versus the prior year. However, as a reminder, the Q2 last year saw a strong COVID related catch up effect. In the first half of the year, we generated 618,000,000 orders, which is up 21% year over We expect a sequential order increase in the second half, driven by continued strong demand for our products and services. 2nd quarter sales of $309,000,000 were up 25%. While this was mainly driven by strong organic end Market demand. Inglas also already contributed $12,000,000 in June and supported our diversification into non filament businesses. 2nd quarter operational EBITDA increased to CHF 49,000,000. Margins were up 80 basis points to 15 0.9%, driven by Inglis and better operating leverage. In Q3, We expect lower margins due to a COVID related project delay and higher freight and material costs, which we expect to be transitory effects. This will be followed by a sequential step up in margins in Q4. The project delay should be resolved by then and we are constantly indexing our pricing to material costs. Let's now move on to the next page where we provide more color on our cash flow and return on capital employed. First half cash flow from operating activities was CHF36 1,000,000. For net working capital, We experienced the usual seasonality, a buildup of net working capital for the revenues in the second half of the year. This is in line with our increased sales expectations for the second half and we are on track for our full year networking capital plans. In terms of CapEx, we spent CHF 45,000,000 in the first half, which is roughly on pace for our full year guidance of around $20,000,000 We expect operating free cash flow to strongly improve in the second half as EBITDA expands And networking capital seasonality reverses. Next, return on capital employed, Which is as you know the primary compensation component in our long term incentive plans. We improved ROCE to 6.4% as per the first half of the year. It includes the last 12 months of net operating profits And as such is still impacted by the pandemic. Also, it does not include the full earnings from the acquisitions yet. Capital employed is calculated from the balance sheet date. As such, The full impact of the acquisitions is included in the denominator. Including 12 months of pro rata contribution from Inglas And Curt or in numerator, we would have reached 7% ROCE. It shows that our improved cost management And highly focused approach to capital allocation are bearing the first fruits. Our clear goal is to reach double digit ROCE in the medium term. With that, let's move to the balance sheet on the next slide. As per end of June, our company has a solid 33% equity ratio. Our net debt to EBITDA ratio was slightly above 1. This includes the impacts of our 2 acquisitions as well as the dividend which we paid in Q2. We expect to end the year below one time net leverage, in line with our commitment to continue to run the company with a strong balance sheet. In order to finance the acquisitions, we successfully placed senior unsecured bonds in May with a total value of CHF575 1,000,000. This included a CHF125 1,000,000 bond Due in 2022 with a 0% interest rate. A $250,000,000 bond due in 2025 With a 0.375 percent interest rate and a $200,000,000 bond due in 2028 With a 0.8 percent interest rate. The transaction allowed us to lock in current attractive market conditions For the long term. With that, I will conclude our presentation with our updated outlook. Following a strong first half year, we are increasing our full year guidance. We now expect group sales At approximately CHF2.65 billion and group EBITDA margin to be approximately 16.5%. Book to bill is expected above 1 with orders around CHF2.75 billion. We're increasing our guidance driven by both divisions. In Surface Solutions, We are raising our sales expectations towards the high end of 1,250,000,000 to 1,300,000,000 This is driven by Curt Ward, while our core business performs in line with our expectations. The division reached more than 20% sales growth in Q2 and organic recovery is in line with our original assumptions. In terms of margins, we are increasing our guidance from 16.5% to 17.5% previously To the now 18% to 18.5%. This is driven mainly by stronger effects from our cost out measures and solid business mix. In Polymer Processing Solutions, We expect to reach a book to bill ratio above 1 by year end. This is based on an improved $1,450,000,000 orders guidance And around $1,350,000,000 sales guidance. A bit less than half of the sales guidance increase is driven by In Glass. The majority of the increase is organic. We see stronger than expected demand both in filament and non filament. Filament achieved 24% growth in the first half, while non filament reached 22% organic growth. The strong non filament growth shows that our initiatives to diversify the division are paying dividends. We will continue to drive this strategy. Looking into 2022, We see continued strong demand for polymer processing solutions. This is underscored by the expected positive book to bill ratio in 2021. We also further increased our 2022 order book throughout the quarter. As a result, We see room for organic sales growth in 2022 driven by non filament. We also expect increased sales in 2022 from including 12 months of sales from Inglaz versus only 7 months in 2021. In terms of operational EBITDA margins for Polymer Processing Solutions, we raised the guidance from 14% to 14.5% to 15%. This is driven by the accretive Inglis acquisition. To recap on the quarter, we have made excellent progress towards our forward looking priorities. Oerlikon delivered 23% sales growth in Q2 driven by both divisions. We have reached our EBITDA target corridor already in the first half of twenty twenty one with a 16.9% margin. Adjusted ROCE of 7% shows improved momentum towards our double digit target. We have executed 2 value accretive and strategic acquisitions and we paid out a stable dividend of RUB 35 per share. With that, let me end our results presentation and open it up for Q and A. The first question comes from Michael Voet from Vontobel. Please go ahead, sir. Yes, thank you. Good morning, everyone, and well done on the results. I have sort of a few questions around your Surface Solutions Automotive Business. I was wondering if you can detail a little bit where the recovery comes from, Sort of which subsegments in automotive, which processes? And if you can comment on the progress of your EPD Coating business there as well. So that's around automotive. And also if you can give us as a second point Some information on the impact that you're seeing from the accelerated shifts to electric vehicles in the next 6 to 12 months On your Surface Solutions business? And then I have a follow-up just on financials. Thank you. So let's start with the OSS Automotive Business, here we do see a certain regional pattern. I think China It's up to speed across the entire portfolio. Here in Europe, we see a mixed Picture on the one hand side markets are developing have developed obviously. But you all know and we know that big OEMs In Munich are extending the summer break by 1 week or when we talk about Odi they have since weeks months Deleted shifts due to this shortage topic and this has an indirect impact for us as well. What we also see in the U. S. On the one hand side, yes, the economy is getting hotter, but the automotive market in the U. S. Is somehow still behind our expectation. So that means it's not so much a topic or discussion about different The different elements of our portfolio because if we can talk about the number of cars being produced. And from that perspective, I think we are moving in the right direction. We see substantial growth, but we are clearly below It's a pre crisis level. When we talk about EPD, I think it's the nature of the beast. This is a topic for premium cars And we do make certain progress. Munich based OEM has acquired equipment, batch equipment And this technology is in the process of being implemented. I think it's I'm not sure whether We are actually entitled to make such an announcement, but it's a big model of this Munich based OEM has decided to go for this technology for his big ones, right? So and And the e mobility topic, this is something what we do not yet see In our current figures, this is something what's going to come. Yes, From a sheer quantity point of view, we talk about a few 100,000 Cars compared to the entire community of worldwide car production, this is still a minor change. But we are preparing ourselves here for with different elements of our product portfolio And you also have to keep in mind for at least for the next few years, 3, 4, 5 years, We talk primarily about hybrid applications. So it's a pure electrical vehicles are still On a lower level, what we expect and the whole world expects is a strong increase in hybrid applications. That means The combustion part of these type of cars is not going to disappear, but the new electrical drives Are contributing here. Michael, thank you. Yes, absolutely. Very helpful. Thank you. And then just a very short financial question for Filip. You were talking about some short term costs Coming back in Q3, if you could just give us some information on what sort of costs are coming back and if they are just temporary In nature. Thank you. No. Michael, this is really what you would expect. We're really hoping that we can travel a little bit more, see customers, I'll ramp up some marketing efforts. This has really caused us has been out of the system since the start of the pandemic. We've always expected that to come back. Frankly, we expected some of it to come back earlier, but the Q2 was still very, very slow. We're not talking about a huge amount, but that activity hopefully The increase is in the second half and then it's there to stay and it provides a partial offset to the positives that we're seeing. Okay. It's very clear. Thank you. That's it from my side. Thank The next question comes from Alessandro Foletti from Octavian. Please go ahead. Yes. Good morning, everybody. Thank you for taking my questions. I have a couple. Maybe On the raw materials and freight costs in polymer processing and the project delays, These are sort of three elements that you mentioned are there in Q3, but maybe only transitory. Can you sort of give an indication what is really relevant and what Can be really best on suppliers? Yes. I would say the more strategic parts of cost increases These are much more longer term. So in other words material cost increases those are things that are indexed contractually with We don't expect a longer term pressure on those items. On some of the shorter term cost items, We expect some pressure and this is really specifically as it pertains to shipping globally. It's no secret that obviously shipping routes are very, very At the moment, we face this on a day to day basis in line with that certain other things like Freight cost, but also things like freight insurance or even wood that we use to fix our equipment within the containers, the cost is Skyrocketed. Some of that we have to absorb ourselves. We think this is a very transitory effect. We expect the supply chains To ease quite a bit, especially the more strategic routes from China to Europe, which we utilize the most. So I think this is more of a Q3 effect. And then on the project delay, is really an idiosyncratic challenge on a project. We were not able to Procure certain talent levels really globally from lower cost countries. So we had to substitute that With workforce from much, much more expensive regions and that's basically what we're reflecting here in the Q3. We're expecting Catch up on the delays here, mitigate the delay and then like we said in the Q4 not to experience that pressure anymore. Okay. And in terms of split of these three inputs is like onethree, onethree, onethree or is I don't know the accounting alone for 50% of the step down that you expect? Yes. You can I don't think we want to go The exact split of it, but you could expect that the project is the largest part of this? All right. Thank you for that. And maybe a small reminder on the Additive Manufacturing business, I was asked before the call. Can you remind me what the dilution there in the surface solution margin Whether it is in the expected range and sort of breakeven level sales and current Sales level, if you can? Yes. Alessandro, I would say no changes to what we've previously said here. It's in the expected range in 2021. And I would also say the breakeven sales levels are similar to what we told you at the outlook at the end of last quarter, Which is much lower than it was previously given the restructuring that we've done there last year, but we're still a little bit away from it. Okay. Thank you for that. And maybe my last one, if I may. You gave Philippe an indication on 2022 for Polling and processing. And maybe I was distracted. I don't know if you did the same for surface solution. And if Yes. Can you repeat please? If not, can you give it? No. Maybe I'll start a little bit with just what I had gone through And then hand it over to Roland. I think in polymer processing, we said, obviously, you we will include the full results from Inglas Versus just 7 months of the results in 2021. So we're expecting growth from that. And then just based on the organic Order book and so on we're expecting organic growth in OPP as well driven by non settlements. So I think we have a Pretty positive outlook there. And in Surface Solutions, we didn't say anything specific. It's certainly too early to talk about it specifically. But as Roland alluded to, we're still quite a bit below our 2019 activity levels. We have no reason to believe that we will not recover to those levels over time. And then so in other words, I think that's a positive All right. Mr. Fischer, do you want to add something on this one? No, I think Filip made a more or less complete statement. I think here we are living in 2 different worlds. In the OPP business, First of all, we are extremely successful in our structural shift from to focusing more on non filament business. And in the old days years ago, it was not purely, but 80%, 90% Filament. This share is now within glass going down to 60. And the Filament business itself It's still booming. We are negotiating contracts, filling up books Our books for 2023 is the 1st contract for 2024. That means this part of the business is stable for the next Few 2, 3 years it's growing. And even nicer our non filament activity whether it's nonwoven, whether it's polyconization Now with Inglaz that's a €2,500,000,000 market we are opening up for us. That means here we have A lot of fantasy, how we might will grow in future. Okay. Thank you very much. The next question comes from Andi Schneider from ZEP Capital. Please go ahead, sir. Hi, everybody. I have a few Adam questions. First, on the Seeing recruitment problems and shortages in the labor market. Do you experience a general Salary inflation, can you talk about that? How does it look like and versus what we've seen in the past? Yes. So I think this is a topic and has been a topic always And it's what we see is a regional pattern, right? We do have a very dynamic market in Asia, in China with a certain increase in salaries, but availability of people is not an Sure. What is coming up now and what we see since the beginning of the year is in the U. S. Where the market is Getting hot and when you just travel there were sign on bonuses if you just show up right and to start work Somewhere and here we have placed measures in terms of adjustments, But also in terms of adjustments of the packages and working conditions to find the right people for our business. It's manageable. I would say the same, Andy. If I can maybe just to Roland's point, specifically in the United States, no secret. One thing to note is Certainly that the wage inflation is mostly on the unskilled labor. So we're seeing that, but to Roland's point Not a very material point. The other thing to note is we're certainly looking forward to September 6, a lot of the The unemployment benefits in the United States expires. So I think the expectation is that more people come back into the workforce, event that we will sort of See, this go back to more normal, more reasonable levels as well. So we were impacted by it. Very, very challenging. Saw temporary wage inflation on that non skilled part, not overly material and we're expecting it to normalize In the Q3 and then the Q4. So you basically reacted more by signing bonuses and less by general increase in wages, Which will stick more I guess. Yes. I think honestly the turnover rate in these kinds of categories of labor sort of with hourly rates And on the non skilled part, it's very flexible. So it's not so much in the European It's contracted or negotiated contracts that are longer term. We think it's a pretty transitory thing That probably won't impact us at any material level. Okay. And On Inglis, can you tell us what kind of growth you're seeing this year for Inglis in 2021? That high single digit going forward already in 2021? Or is there a little bit more work needed from your side to bring it up to this high Growth rates over the coming years. Yes. So now we are right now in the process of integrating the company. They do have quite a strong market position for the automotive application. What is important for us because this e mobility Topic is kicking in the demand increasing demand for lightweight high end lightweight polymer parts. But there are other applications, right, Where the market position of Inglaz today is not as strong as in the automotive industry. And here we have a high single, as you indicated, as we said, high single digit growth rate. And actually we do expect and we are looking for additional opportunities to further grow this business. We have established a business unit for this type of business including our pump business And this is one element of our diversification strategy to become less dependent from Filament. And so we can expect the business to be around €145,000,000 to €150,000,000 this year in sales? Yes, I think that's right. Yes. With around 27.5 margin, is that still Good or higher or lower? I think we gave you sort of the indication at the time of the transaction. No change to that. And the business is performing look, I mean, we've only consolidated for 1 month, but we're very pleased with what we're seeing here from a Financial standpoint, but more importantly from a commercial standpoint and operational standpoint. So no change to what we previously Perfect. And then if I might add one or the other question on the Filament business. I think I ask you that every quarter. What are you seeing in terms of potential downturn coming in then 2024 or 20 25 after these big projects are finished. Is there something on the horizon yet or don't you see anything yet? No, we do not see any indications for that. And as you always say, yes, this Type of business is a part of petrochemical big petrochemical plants, which do have also in China today You know a lengthy need or require a lengthy period of planning and approval and certifications for building Yes, such a plan. And from that perspective, these players are thinking in 5 years horizons to build up capacity And we are in the midst of it. And as I indicated, we are I think 2023 is almost filled not completely, but and the first contract Going to 2024. And that is the time horizon we see. And here, we do not have any indication of any downturn. And then last question on the surface mix. You had some tailwinds now in H1 and Less so than in H2. Can you be a bit more specific? Is that just a little bit stronger growth in Asia In film, is that that? At the end of the day, Andy, it's thin film. As you know, that It is the shortest cycle part of our portfolio and tends to be with fairly very accretive margins. We're expecting more pickup in the second half on the somewhat longer cycle parts of the business that's the more CapEx relevant Equipment, some of the materials businesses and so on, they tend to be a little bit less accretive. And that's the mix effect. I think there's obviously better operating leverage that basically we expect that to offset each other. And then I think as we go into next year, I think the mix effect will subside a lot more because the different parts of the portfolio are going Grow at a similar speed. But we can still expect just from an operating leverage standpoint that margin should Further, even though the mix is probably less favorable. Yes, absolutely. That's a pain, yes. Okay, perfect. Thanks. The next question comes from Christian Ochs from Badger Bank. Please go ahead, sir. Hello. Can you hear me? Yes. Okay. Thank you. So most of the questions are already Nevertheless, I have 2 smaller ones left. One is, in the nonwoven business, there was some kind of a demand and margin Spike, I would say, do you see any kind of a cooling down there either on the sales side or the On the margin side, this would be the first question. And the second one is Concerning the dividend, do you think that the M and A do you exclude the M and A payments out of Your dividend expected dividend contribution going forward, right? The second question, I'm not so sure whether I get it, but I think the first one, I can answer. I think the non filament Business you are talking or you are referring to consists of different types of business. Here we have a bunch of technologies. We have the carpet yarn topic. We have the nonwoven topic. We have Stable fiber topic. Yes, polycarbonization business. More specific, it's a nonwoven. I mean the nonwoven. The nonwoven. Okay. And this nonwoven mask application, of course, was a spike last year. We sold, I think, if you ought to thank you, about 20 units normally 1 or 2 per year that was a spike that was contributing with a low triple digit €1,000,000 revenue and this is now back to normal, right? But on the other hand side, other elements of Nonwoven buckets are growing and we do expect continued growth in the non filament Over the course of the next year. I think that's an important part. So the boom with face mask equipment For the FFP2 math is over. Nonetheless, we expect significant growth In that non woven applications, we've talked to you about the macro trends that were aligned with their hygienic products. So I think that business performs very, very well. And then to your second question, I think we look at the topics obviously quite separately. I think The dividend is really more related to the ongoing business, the strength of our portfolio and The ability of our portfolio and our company to generate free cash flow. The M and A activities you saw us financing that Exclusively with debt financing now. And I think we're looking at our very, very healthy balance sheet and leverage and all of that I think These are really the components then to determine the dividend for next year. Thank you for that. Maybe another On the cash flow, do you have some kind of a free cash flow target for the group and the current structure going forward? So Maybe between $150,000,000 $200,000,000 over the course of the cycle? I think that really depends on earnings And obviously the trajectory, I think we're going to see a significant earnings accretion in the current year. We see revenues up significantly versus last year. And then I would just give you the components that we've talked about. So I think as we see sales and earnings grow In this fashion, I think we're going to see a relative networking consumption in those years that's probably expected Maybe on receivables and inventory, but we will we're expecting to manage that very, very tightly. We've given you kind of our tax effective tax rate about 25 Percent. So and then interest payments are relatively limited. We've just given you the substantial portion of our outstanding debt is the $575,000,000 and have given you those interest So I think those are the different components. And as revenues and earnings grow, I think we're expecting this portfolio to continue Generate very strong cash flow conversion. Okay. Thank you for the details. All the best. Thank you. Thanks. The next question comes from Sebastian Kuehne from RBC. Please go ahead, sir. Yes. Hi, gentlemen. I hope you can hear me. Yes. So first question on Service Solutions. So the guidance the revenue guidance you give for the second half or The implied guidance would mean that you need about, yes, only €315,000,000 of orders, right? The orders drop Very quickly into revenues. You had very strong orders in Q2. So you need fairly low orders in the second half to reach your Revenue target in my calculations about 10% to 13% lower orders than in Q2. Could you explain why that is? Have you seen a lot of restocking? Or do you expect actually a slowdown in the markets? That would be my first question. Yes, that's a good question. Sebastian, don't read too much into that. We try to because of the short So the nature of the business, we really look more at sales as an indicator of that. So I think the forward looking meaningfulness of orders in that business This is very limited. By and large, we're just expecting orders to be in line with sales in that business, although the longer cycle components might A little bit higher. And again, I think the backdrop for the business also for the next year is a positive one, because we are only Somewhere in the recovery from the pandemic on the overall business. But there's no longer lead times. I mean, you either expect lower orders or you expect longer lead times at the end of the year. Otherwise, the numbers would not add up. So it's Yes. I know it can't stay the same. You will have much lower orders in the second half. Yes. I think take it as an approximation. I think again we're expecting orders to be in line with sales and a positive business Okay. Then for okay, that's understood. For Polymer, you basically imply accelerated deliveries of Just short of CHF400 1,000,000 per quarter. Is this now running at max capacity Including the acquisitions, is the €1,000,000 per quarter something you can deliver on a sustained basis? Or do you now think well we better increase capacity by 10% or 20% in that business? What's your plans there currently? No, we are optimizing the existing capacity, what we have in our sites in China and in Germany. That means we are somehow here and there adding machine capacity. We are optimizing the shift optimizing the output. What we are not doing, what we will definitely not do is To go into huge infrastructural investments in terms of new sites or something like that. No. We have been able over the course of the last 2, 3 years to constantly increase capacity by optimizing existing sites. And remember, Sebastian, a lot of the growth is coming from the non filament side and that's obviously a little bit different. We see continued Growth there also into next year and so on and we're adjusting capacity. The only other thing that I would add is, we feel very confident that we can Deliver on the sales expectation in the second half. Very confident. I think the one thing that we're watching very, very closely is again the shipping I think we have an ability just from how we account for things with percentage of completion to usually fulfill pretty closely on the financial dimension of that. But Shipping and so on remains something that we just collectively have to be very, very focused on. But internally speaking, I think we're very confident that we can deliver on this. Understood. And just for understanding in the main plants for polymers, Do you run on 1 shift or 2 shifts? Or what's the construction of the bigger plants there? No. We are operating a 2 shift mode in some areas, A 3 shift mode. The modern machines today can operate for 4, 5, 6 hours without any human beings. No. This is exactly what I'm talking about when I say reoptimizing capacity. Understood. And the last question also on Polymer. You mentioned the COVID related delivery delay, which will trigger a charge in the second half. I assume that is kind of yes, you didn't meet the deadline for installation of the plant, I assume what's the scale of that charge? We gave you an indication that it will have an impact on margins in 3rd quarter, but we'll give you a little bit more details when we're through it and have the full estimation done. But you're absolutely right. At the end of the day, it's a delay And on a project and it's really the rectification of that delay and what we need to do to make whole on this With the customer that will mean the additional cost and that additional cost is just a lot higher due to COVID and sort of how we can Rectify the situation. Yes. And with shipping being so difficult now especially for routes to Asia and North America, wouldn't there be a risk that you have further delays in other projects that are now coming up in Q3, Q4 And with some of the no, no, no, no. This delay by the way the equipment is shipped, so there's no further issue. Obviously, if we have a delay on shipping that is due to COVID that's a force majeure. So we don't this is something we're working through obviously with our customers. We're very transparent with that. They face this from a number of suppliers. We don't expect any impact From that, this year was really more a technical problem and then the remediation of the issue was really the problem and the cost of So really being separate. So a true one off, yes. Yes. Okay. Thank you so much. That's all. The next question comes from Edouard Ziva from ZKB. Please go ahead sir. Good morning. Thank you very much. Congratulations For those results, my first question would be concerning the diversification on polymer processing and the target of fifty-fifty. When do you have an idea when you wish to achieve those fifty-fifty repartition? And second thing, do you expect To go there in an inorganic way through M and A or through organic growth of flow control? Both actually. We do not have a fixed date over the course of the next years. You know where we are coming from. I told you where we are right now. And obviously, Filament is growing. This is a nice also a nice part of the story, but non Filament is Growing stronger and the Inglaz acquisition and this polymer processing part is It's a focus area and it will be done organically and inorganically and that means we have to See when another target is available that is not predictable. Understand. Thank you very much. And so should we expect more M and A acquisition in Direction of flow control or do you want to widen your diversification base in other potential subsegment for polymer processing? No. It's there are more elements on the table today. We just talked about the business We do. But there is a topic like polymer recycling elements, which Are not contributing substantially to the business as of today, but we do have technology For recycling mechanical recycling of PET equipment or bottles and Stuff like that. Then this textile topic is coming over the course of the next Few years recycling of course. And here we talk about chemical recycling. Here we are engaged in startups in U. K. For instance. This is a company where we are now going now from a lab how to say application into a bigger prototype. But this is to come not today and not tomorrow over the course of the next few years. This is a typical non filament growth area. Understand. Thank you very much. I would have a second question regarding the aviation subsegment. And you mentioned seeing first now So some clients returning and asking for quotes. So do you expect to see a first Recovery somehow in Q4 or in 2022? Or when do you expect full recovery of the Aviation segment sub segments. Full recovery of aviation and now I'm referring to experts maybe 2024, 2020 I think we have to be to cut the elephant into slices. We do have in China and the U. S. Domestic Air traffic, which is at the level of 80% maybe 80% of the pre crisis level, The long distance flights are still extremely down and recovery here and we just few days ago an intensive discussion to a pre crisis level will take at least another 2 to 3 years. But that doesn't mean That there are first positive signs of business coming back and I think you're referring to The contract with M2 where we have successfully managed to enter the PVD coating of latest aero engine Technologies, this is a great story. But I think you also have been clear it's Not yet material contributing too much to the business as of today. This is Going to come over the course of the next years. Yes. I think what's very positive for us is what Roland is mentioning. So narrow Which is the type of aircraft that's more engaged in the domestic travel and within Europe and within China and within the United States. The recovery of the activity is much stronger. Our portfolio and obviously freight is very, very strong freight and logistics. And so our portfolio is a little bit more geared towards that part and we're expecting that to recover more quickly. If we're believing some of those external sources then the overall activity on that part by the end of the year could be somewhere between 80% So that bodes well for second half of the year order activity and then next year obviously parts of our portfolio recovering. And then again the wide body transcontinental travel that will probably not be a significant recovery until later on. So I think parts of our portfolio are going to recover. That will help us tremendously with cost absorption and obviously revenues next year, but not all of the aero Thank you very much for those explanation. And finally, I would have a third and final question, which is a kind of a double question. And for the sub segment of the Surface Solution, where should we I mean, this tooling, automotive, aviation, general industry, where should we locate, I guess, general industry? And my second question is where In which of this segment is AEM mostly focused? So, I think Cadore is a luxury goods market business. We have been Active with our high end deco applications for pens and watches just to mention 2 applications, But Corder is clearly beyond what we did so far. Here we talk about all the fancy and Famous big expensive brands, which are providing leather goods whether it's a bag or a belt or whatever. And these are these type of products are using metal applications, which are And somehow designed in a highly in a very special way and here Cordeaux is One of the big players and this opens up an opportunity for us to penetrate this type of market. It's Growing with mid high single digit growth rate per year and this It's something what we will cover from now on, right? So yes. And Edward, I would You're absolutely right. Curt Hor is in general industry for the moment. To Roland's point, I think as that becomes much more material and obviously a real Roth driver, we might separate that out for the moment. It's in General Industries. And additive to your question is depending on the end That we're selling it to. You know that we have a lot of success there in airspace, radio frequency components, But also in power gen even some in automotive. So it will be in the end market that it belongs to. Understand. Thank you very much. The last question for today's call comes from Sebastian Vogel from UBS. Hello, good morning. Can you hear me? Yes. Perfect. I got two questions. On your outlook or your guidance Slide and you also referred in your presentation about it. And the stronger effect of the cost out measures that you're referring there, And can you shed a little bit more light what you mean by that? Yes, a little bit of a better understanding. And the second question would be as well on Non Surface Solution and For the full year, if I was calculating correctly that would sort of imply something around like 8% in organic terms for the second half. As I said early on, some long cycle stuff is coming back, early cycle stuff maybe not so much. But is that number not a bit conservative in Yes. I'll probably take the first one. I think the we had gone through kind of the overall margin Expansion opportunity from the structural cost out measures where again we saw about $35,000,000 to $40,000,000 of the benefits already in the second Last year, right. And then you look at what we're indicating here that's an approximately 400 basis points margin expansion in Surface Solutions For the year and kind of the expectation above and beyond of what we had previously indicated It's really attributable to the cost out measures. And I think that our teams have executed very, very fast and very, very thoroughly And in many areas overachieved really the structural cost reduction that we had anticipated. So I think that's one. And then on the conservative outlook for the second half, I think there's still a variety of out there. Specifically the Q4, I think is still a TBD. I would tell you so far what we have seen the market reaction and market development has been pretty closely aligned with what we Talked about at the beginning of the year. We were pretty close on that and I think we're going to keep where that stands. And then frankly for us it also it doesn't really impact us as much whether the recovery happens in the 4th Quarter or in the Q1 2022, I think we're very well positioned with customers. We will capture that growth when it happens. Understood. One follow-up to your earlier remarks on the cost out measures. And then you said there were some overachievements being Is that boils it down to a real number that you say instead of the previously target €45,000,000 of cost out for the segment you rather sort of Aim for you have now seen something more like 50 or is it not really possible to or is it to an extent where you'd say, okay, it doesn't necessarily mean that we need to Raise the previously indicated number there. Well, I mean, we updated the margin rate guidance. So I think that gives you an indication. Got it. Many thanks. Great. Thank you, Sebastian. 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. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.