Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- OC Oerlikon Corp AG, Pfaffikon (XSWX:OERL, Financial) achieved robust orders and strong profitability despite a difficult economic environment.
- Operational EBITDA margin was 16.3% in Q2, demonstrating diligent cost management.
- Surface solutions division saw a 230 basis point improvement in margins, driven by strong pricing, innovation, and cost discipline.
- Polymer processing solutions division achieved a 2% year-over-year improvement in orders, indicating a positive market outlook.
- First-half cash flow from operating activities was CHF105 million, representing a strong improvement compared to the previous year.
Negative Points
- Group sales decreased by 10% at constant FX to CHF616 million, driven by lower filament orders.
- Operational EBITDA margin was slightly lower than last year, reflecting the challenging market conditions.
- Luxury market momentum remains low, primarily due to weakness in the Chinese end market and geopolitical uncertainties.
- Nonfilament business saw delays in investment decisions from customers, impacting order intake.
- Operational ROCE was 5%, indicating a transitorily depressed level due to the current filament downturn.
Q & A Highlights
Q: In polymer processing, or in filament, more specifically, you mentioned smaller and midsized orders coming back. Do you have any visibility from your larger customers on their road map and the outlook on when they could trigger CapEx again?
A: We saw demand drivers in smaller and medium-sized projects, which is positive. The 1.3 book-to-bill in the first half gives us confidence for the revenue outlook in the second half and beyond. The timing of larger projects is difficult to predict, but we are in active discussions with both Chinese and non-Chinese customers.
Q: Regarding your business separation plan, does the recent market correction impact the execution of that strategy or the road map? Are you still targeting to execute that this year?
A: Our timeline has not changed. We are preparing the business internally for separation. Despite the difficult market environment, our strategy to separate the two divisions remains sooner rather than later.
Q: Can you share some thoughts on the growth momentum in surface solutions end markets towards the end of the quarter and what you have seen in July?
A: We had over 1% organic growth in the first half, but expect it to slow down in the second half. Aviation stands out as a strong market, while global PMIs indicate weakness. June and July exit rates support this outlook.
Q: What's your base case for the textile recovery? Do you expect a gradual recovery or a sharp rebound?
A: We believe we have seen the trough. We expect a substantially stronger second half, with revenues about 25% higher than the first half. The recovery pattern should be similar to prior cycles.
Q: Regarding the group-level guidance, margins are expected to come down slightly while the top line is up. Is there extra caution or cost escalation being factored in?
A: We are being cautious due to the overall economic environment. The mix effect from polymer processing solutions, which has lower margins, impacts the total company margin. There are no incremental inflation or cost increases expected.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
