OC Oerlikon Corporation AG (OERL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to Oerlikon's Full Year Results Presentation. I am Aymeric Jamin, Head of Investor Relations. I have here with me Michael Suess, our Executive Chairman; Marco Freidl, CFO; and Dirk Linzmeier, COO. Michael will start with the strategy update and an overview of 2025. Marco will then highlight our financials and outlook. We will end with a Q&A. With that, I would like to open our presentation and hand over to Michael. Michael, the floor is yours.

Aymeric, thank you. Good afternoon, ladies and gentlemen. Let me give -- take the opportunity to get with you through a little bit to the year '25, what we have done, what we have achieved and give us all the outlook for '26. So as announced in 2024 in February, 2 years ago, we have executed by spring -- not spring, but February this year with the closing of the sale of Barmag, a longer way to become a pure-play company. A pure-play company means that we are a material science engineering company. We're doing PVD, CVD coatings, 3D printing, building the machines for all these procedures and produce our own and develop our own materials. This out of a widely spread out organization internationally, 37 countries we are covering with a lot of service centers. So this transformation is somehow where the sale of Barmag is done. What's still on the way is where we have started with 3 industries, we are now in 11 industries. We deepen our relation with industries, and we're sharpening our setup of the management team by profession and by age in the right way. We built a pretty resilient value growing from our markets, not all our markets moving in the same direction, as we will show you later on. And everything is built on a strong innovation pipeline where we have, especially in that industry, where we are still remaining, we have always invested 5% or 6%. As a group, you remember maybe before, but the investments we have done in OSS in the past was closer to the 6. Meanwhile, with a more efficient way of R&D, we're somehow in the 5%, but we have not lacked any innovation power. What is very important is that the strategy to become more agile and leaner as well in administration but not only. We're still working on getting our sales forces leaner and closer to the customers and other areas where we use all kind of technologies which are available from our ERP systems, which we have harmonized the last couple of years, CRM and others. But we have almost half -- but maybe Marco, you will touch that point a little later, we have almost half of the cost for administration since 2019. So taking that, having a look on where we are and where we want to go. You remember as well that we embarked mainly with tooling and cutting tools and forming tools story, some automotive, but not too much else. And we had PVD coating, not really CVD not thermal spray, not that much material science, which we all built in the last years together as a core of a company which is unique. Sometimes it's good to be unique, sometimes is a disadvantage because, especially for you to compare us with someone, it's always difficult because we are the white unicorn. With that technology strength, with that technology combination, there is no one out there. There are some people who are playing in the field of material. Others are building machines. Others have some thermal spray services, but the combination of technologies in that way as we are doing it, it's -- if I'm allowed to say, is awesome and there is no one else. And as we have spread out the last couple of years and diversified this competence in more fields. We are today with energy, which stays for oil and gas industry and power generation; tooling, as I mentioned, forming tools and cutting tools. Automotive; aviation, including aerospace; general industry, which today as well covers semiconductors. Medical and others. We have embarked now to make semiconductor and medical more visible by better size and by better accessibility for us to the markets now. So general industry will always cover that industries, which are not big enough yet to show them as on their own. Luxury, we will touch that a little later in my presentation. And last, but not least, defense. We are since decades in the defense industry in the past, directly with Oerlikon Contraves, indirectly over decades as well with the coatings and the powders for the Tad engines and for some Stealth technologies where we supply powder as well, but not so much directly, which we are now more considering but we have to see where our competencies and our capabilities could contribute in the best way to defense, and I have to reiterate, we're talking about defense and not attack, to defense a society where we are living in or we want to keep it livable. So to get closer to the customers, we have embarked in 2022. So we started '21 the process; '22, we rolled it out. And within Asia Pacific, Americas and Europe, we have the 3 major hemispheres. Europe still is bigger than the other two. You should consider that Riri, for example, with its revenue is fully in Europe and is not spread out in Asia Pacific and Americas, and as well INglass has a certain proportion in Europe. So if we take more the core of the core business, we are already more comparable between Europe and Asia Pacific. Americas is still a little smaller. One of the major reasons is we are a long time in Americas with thermal spray. We are probably 20 years now in Americas with the PVD business, and there is more service business to come on PVD. But as U.S. was never strong in tooling industry, or let's say not never, but at least in the last 2 or 3 decades, there are more other areas like semiconductor industry where these competencies and capabilities will play a role in the future. By that saying, as I mentioned, in the third bullet and introduction, innovation for us and to be leader in innovation is key for everything what we are doing. And you have here some examples on equipment, on components and on coatings. By the way, this is the way how we in future as well want to present the company. But maybe Marco as well, he will touch that point later a little bit. The Equipment and Materials business is mainly driven by thermal spray, equipment as well for PVD, but the most PVD equipment stays in our own service centers. Components, either it's aircraft components by [indiscernible] or it's components by HRSflow or others. And then the coatings -- and the coatings, a lot of these coatings are PVD coatings or CVD coatings for our service centers. With all of that, and in line with the digitalization strategy where we can use new ways of technology to strengthen our footprint, I'll give you only 2 examples. One example is that we have a virtual coating center program which means we link in real time the coaters together, the ones who are not that capable to do that, we have it at least on a daily base, but end of this year, we'll have 200 out of our 450 coaters real-time linked and then to use these technologies to optimize utilization, the way of maintenance, the forward-looking planning and to get -- this will have a strong contribution as well in the way how we use our capital. The other one, total different way. We have in San Diego Scoperta. In 2016, Scoperta was a carve out of the University of San Diego and was at that time, already leading in the AI-based development of materials. Now in our geopolitical days where yttrium, for example, sits on the export control list in China since April, it makes a lot of difference if you have the capabilities as we do actually to develop 16 new alloys per week and to test them and figure out what kind of elements and what kind of alloys could help us to reduce or even to eliminate yttrium as a rare earth material in a lot of our applications. And why are we talking about yttrium, most of you may never heard about that, that's 1 of the 17 rare earth and it's the material which you need in any hot segments of gas turbines. So either gas turbines for power generation or gas turbines for commercial flights or gas turbines for military flights. All the hot sector has thermal barrier coatings and bond coatings based for yttrium. And these are life-limited parts. It's not that you have it built once and then it's done forever. You needed them on a consistent basis. And in '25, we had significant issues to get yttrium for our customers, but we couldn't make it. For '26, we're almost assured that we can make it, so we have it covered. But nevertheless, we have now entered a way to find different elements and different alloys to either, as I mentioned, to reduce or even to compensate rare earth materials which are today mainly coming from China. And it's not because China is the only place to have these materials, but as well, the China, has last 20, 25 years, took the opportunity to get all the refinery processes into China. So even if you have yttrium from other countries, that typically walks or moving through China. So I don't want to deepen that more, but it shows you how important this material science competence is and how long term we have thought about that when we already entered that field in 2016, 10 years before people even have thought about that this may have a strategic value to secure our supply chains in the future. And based on this competences, our customers gave us this year, we cannot mention them, but big customers in the U.S. gave us a supplier award. Other customers helped us to come with naval. Naval is the laboratory of the Navy to help us, and it will be financed by the U.S. Navy and U.S. Marine, to finance a new group of alloys, high entropy oxide is a coating, which helps you to reduce significantly on air falls the erosion and in parallel, you get -- on top of that, you get high turbine intake, which is more power. So I'll give you some examples only to understand because we are a tech-driven company. And a lot of things what we are doing is not very obvious for people. So I just bypassed at my office, the flame for the Olympic games, which we have coated but we couldn't talk about otherwise Olympic administration would have charged us a huge amount of money, but it's where we behind. So there is not, as we always say, there's not a single day in life without Oerlikon but maybe you're not even aware about. But that makes our story that strong. So why we bought in 2023 Riri and why we have bought Coeurdor in 2021 because we are convinced that the luxury coatings, the coatings in luxury products, which are today almost not 100%, but mainly by electroplating is a fantastic field for us to transfer that into PVD technologies or to replace that with PVD technology. And there's 2 major reasons behind. The one reason is a simple one, you need up to 90% less material, which is simply a cost question. The second one is that these materials are dirty materials. So to get a kilo gold or even a gram of gold, you need 1 ton of gold ore. By the way, in rare earth, it's similar, you have 3% to 5% of rare earths in a tonne. So you need -- for 30 kilos, you need 1 tonne of ore. That tells you that to avoid these procedures and even to think about to use it in much similar layers, has an economic, but is well an environmental effect. And last, but not least, why we use tungsten today out of recycling is because tungsten as well at least one -- some parts of tungsten are on the export control list as well from China. And here, we have found solutions to take recycle methodology tungsten from drill heads and to use it to rework. So these are all areas where we are in. So luxury we bought, we had to restructure somehow a little bit because after COVID 2022 and I have to mention, the timing was probably not the most luckiest one because when we bought the company after COVID, everybody was expecting then the luxury market bounces back and comes back strongly. But unfortunately, the real estate bubble, which is still a big issue in China for the consumers in combination with a lot of small and midsized companies suffered a lot or even disappeared in the way of how China was handling the COVID pandemic has led to the situation that there is not the highest consumer trust in the market in China yet. So the growth you see in China today is probably by 2/3 driven by infrastructure investments and less by consumer. This will come back, probably not in '26, but there is a certain indications that in '27-'28 this story comes back and then we are very well positioned and in between, we do our own work. And we typically always have done if markets been not in favor for us, we made our homework. So some markets as aerospace, as energy are in favor for us. Some markets like automotive and some parts of the general industry and the tooling are under pressure to one extent, because of the tariff policy, I can probably slip to the next one, you have the markets. Tariff policy is never good because tariffs are not good for trust. And if there is no trust, it's not good for economy. And as I'm actually convinced that a tariff only helps -- doesn't help nobody. It makes a strong economy weaker and makes the weak economy even more weaker and more dependent. So there will be finally a better understanding that this doesn't help, but it will take a while. In between, we have suffered by that indirectly because the tooling industry, the general industry, the automotive industry, they are taken by some uncertainty. They don't know where to go. But this is not only the tariffs, this is as well what's happened in the last 5 years from EU, given total different directions in the way how we want to handle our energy policy, how we want to handle our car policy to get out by 2035 and say we're done driving ICEs anymore is simply it's nonsense. I don't say it's stupid, that would be way to harsh, but it's nonsense and it's not well thought through. And it's harming massively our own industries in Europe and doesn't help anybody. But nevertheless, it's impacting markets. So the tariffs, this huge story in combination then with a question mark, who is with whom in a partnering process in the future? Is it China-Europe, China-U.S., U.S.-Europe, who is together in which sense, this has an impact on our business. And if there is no trust, people keep their money a little bit more together, that has an impact on luxury, it has no impact on aviation because the aviation is driven by recovery and more demand on aviation and commercial, but as well by aviation and military. Only Boeing and Airbus wants to go higher amongst the production rate for a narrow-body aircraft that short and midterm range from 60% to 75%. If you sum it up with 1,500 engines additionally per year, which all of them needs coatings, a lot of them. And they need equipment, which is driving actually somehow our business on the material side and on equipment side. Same is for big in industrial turbines. There was the last 10 years, and it was in that industry until 2015. At the peak where the 2008, 300 plus. Then it dropped and in the last 10 years was around 100, 110. Now we are above 200. And this is for several years now. If you talk with GE the if you talk with Mitsubishi or with Siemens, that's the big 3 industrial gas turbine players. They're all from firm. We have 200-plus and this will last for a while because gas-fired power plants, even in a combined cycle or even combined heating power are the best alternative to replace coal and to have a massive impact on carbon emissions because they are not 0, but they are low and they're always available. So taking all that, it's a mixed picture, but still that's where we went playing and not up in our sales top line. On top of that, I would like to say without the strong Swiss franc, we will be CHF 0.5 billion stronger. And some people would say about that control companies in Switzerland, yes, but we are different to some others have even a certain cost position in Switzerland. We still employ in Switzerland and Liechtenstein more than 1,200 people. So this is a certain amount of money. We do our R&D mainly in Switzerland. We have a lot of our equipment manufacturing in Switzerland and Liechtenstein. So Swiss franc harms us somehow. On the other hand, it gives us benefit when we do refinancing and other stories. But is it a tailwind for us? It's not. So very often, we've been growing 5%, 10% the last couple of years in certain markets and it was more or less eliminated not because only of dollar weakness, but because of dollar, euro, rupee, RMB, yen and whatever you have, let's face it. They're all somehow even towards the Europe, but especially to the Swiss franc, they all have reduced significantly the currency rate. And this is an effect which we managed. And by that, it can even consider very strong that we kept our top line and sales neutral and we gained 6.5% of order intake, which gives a positive outlook. We're still a little bit careful. That's why we said what we said. But throughout the year, there is a certain optimism that in '26, we maybe start running and in '27, we start even running faster. By that, the key figures, you will touch them even more. The only important part of that is 6.5% more order intake, almost flat in sales. Leverage ratio comes down from 3.4x to below 2.5x by end of the year. But here, again, Marco Freidl will explain that more and the book-to-bill is with our 1.08x is -- for a given market environment in a very good level. So ESG-wise, not so much to add. We are a company where ESG is part of our DNA. Why? Because we make products better either less consuming, soft -- better surface, harder, whatever the case is, whatever we do and we use our products, it drives the sustainability of our customer products. And this is then expressed in the way how we do -- when you compare that, that we're saving only with efficiencies in the aircraft, we're saving almost 1 year of Swiss carbon emissions. But as you have significant amount of -- by the tooling industry simply on metal coating is what we do here. But this is sometimes difficult to understand. You should go a little bit deeper in the strong way of our sustainability. Finally, I would like to conclude and then we will have more time for the Q&A. We successfully divested Barmag. After said, probably we could have made it even a little faster, but there was some dispute how to -- what is the best way to. But in the end, we did it, and we closed it by February this year. There was a chance even to close it in August, September last year -- not last year, in '24, but it did it in a very difficult market environment for a more than fair value, and we helped both for us with a pure play and for retail to get a real future with that technologies because being only in coating business is not a real future. So we helped another Swiss company, which is important and high traditional, and we helped Oerlikon. The clear track now on pure-play execution, I think I mentioned a lot. We can deepen that when we have the Q&A. The strong order intake in '25 is at least a certain -- a little tailwind, where there is more to come, but with our customer measures with everything what we have driven in the last couple of years, I'm sorry to say there is sometimes some restructuring in some write-offs. When you're in Europe and when you have sites to correct in Europe, in France, as we have closed the site in France, we've closed a site in Germany. This doesn't go in line without spending. So now we could simply stay with that and live a little lower and leave it to someone else or we discover it and resolve it. And sometimes, maybe it's not seem super nice, but it's necessary. And we have always done that what was necessary in this company in the last 10 years with all the disinvestments and differentiation into different markets with our core technologies, all that didn't come for free. All the engagement and digitalization, that did not come for free. The 3D printing capabilities where we are now a strategic partner for Northrop Grumman and others are to come in the U.S. where we make money now in the U.S. after learning all that, development in the industry, making mistakes as well. But it is an R&D program, but this is what describes future. If you don't do that, you can harvest, you can have nice numbers, but then some when you don't have a future. And we are here to have a historical obligation. We are celebrating this year 150 years of Oerlikon. And Oerlikon was up and down in this 150 years, but it wasn't only surviving, it was always contributing to the Swiss society. And this is what's our intention as well. That's why we invest in Switzerland despite a strong Swiss franc, that's why we have R&D and machine building in Switzerland. And we are sure that we can afford it, even it's sometimes harming. This is always nice? No, it's not. Is it doable? Yes, it is. And if a tech company like us cannot do that, then we can give up Switzerland as an industrial base. We are not ready to do so. That's why we are here. And in the end, we are paying a dividend where some of you may say that's too high. We say, as we have done in the last 10 years, when we sell a big asset, a huge portion, 2/3 typically stays in the company. And either it helps to grow with some of the dividends in the past, not the dividends, with one of the -- some of the money at the past of divestments, we bought new stuff and some of the money went into dividends. And I think that's more than fair and reasonable because as a shareholder, our shareholders own a part of the company. If you sell it out, it doesn't belong to the company anymore. And they have the right to take a part of that, that we contribute to that. And the logic to give 1/3 to the shareholders and to keep 2/3 in the company was a very healthy one in the past and is a very healthy in the future. And that's why we came to the CHF 0.85 for this year, you can say maybe even because of 150 years, but it was maybe insist on, we sold something, it's not ours anymore. Part of that is the shareholders and part of that stays with the company. And Marco, you will deepen that thought as well. But we have taken almost CHF 500 million of that to dilute or to reduce our debt. And with that, what we have seen, we are in the right way to get by '27 on a 2 to 2.1x -- sorry, 2.0x EBITDA debt ratio. We are absolutely clear that this is not only achievable that we can make that. And that's why we are as well very convinced that we have to and we want to pay that dividend. So because the company now with the book value we made with more equity, with a strong cash generation base, with a fully filled pipeline on innovation with a strong positioning internationally in the different regions in the growth market in all the industries we are in. This is a very resilient company, and this is why we can pay the dividend. Thank you so much for now. Now Marco, maybe you go deeper in numbers. And then we are all ready, and Dirk as well. He is here today with us because Dirk is -- since 1 year now on board is COO. COO has to do a lot of these operational stuff. So if you have the one or the other question to him as well, highly welcome. Thank you.

Thank you, Michael. Good afternoon, everyone, and welcome to our full year results presentation also from my side. I will start with our results, then provide more details on our key initiatives to strengthen financial performance, and we'll finish with the outlook for '26. First, as Michael mentioned, Oerlikon closed the sale of Barmag on 2 February '26. Accordingly, Barmag is presented as discontinued operation in our '25 balance sheet and income statement. The cash flow statement remains fully consolidated, meaning it still includes Barmag as of year-end '25. Detailed information on the discontinued operations can be found in Note 2 of our annual report. In '25, we delivered strong order intake at CHF 1.655 billion, up 6.5% versus prior year at constant FX. We saw momentum improving towards the end of the year, which helped us to close with a book-to-bill ratio at 1.06, driven mainly by strong orders in materials and equipment. Sales remained stable versus '24 at constant FX at CHF 1.568 billion. A slight growth in second half, supported by low comparison base, offset the decline in H1. This achievement in a weak economic environment proves the resilience of Oerlikon, which has -- was also achieved through the execution of the strategy of end market diversification. Aviation industry dynamics, we're supporting our performance and also in energy we saw a positive trend driven by our industrial gas turbine business, supported by AI data centers, extensive energy needs. Nevertheless, most of our other end markets remain subdued. The volatility generated by global trade tensions and geopolitical uncertainties weighed on top line growth, in particular, in tooling and automotive. In luxury, the weak customer purchasing behavior, especially in China continue to impact the sector performance. These industry dynamics required us to take actions and restructure some activities, in particular, in Europe. I will come back on this later in the presentation. From a regional perspective, APAC outperformed, especially India. Our long-standing presence in industrially developing countries enables us to support global customers as they expand their operations. We are benefiting here from the new geographical organization introduced in '22, which has strengthened local coordination and commercial execution. Our global footprint also helps reducing exposure to trade tensions and ensure optimal service to our customers even in uncertain environments. Operational EBITDA decreased by 11% to CHF 271 million and a margin of 17.3%. Our profitability was supported by innovation, pricing and efficiency measures, which counterbalance the negative mix impact from our short cyclical service business and from FX headwinds. Our cost-out actions related to headquarters downsizing are on track with more than 50% having shown financial effects already in '25. The remainder is expected in '26 and '27. Moreover, structural cost-out actions in the business taken in '25 will increasingly produce effects and support return to positive net result in '26. With the next slide, let me provide you with more details on our continued actions to drive profitability. Our commitment to strengthening the profitability of our businesses remains a clear priority, also with the target to improve capital return. Alongside driving organic growth, we are putting equal emphasis on establishing the right structural cost base and optimizing our portfolio of products and technologies. Since 2019, we have reduced overhead expenses in admin by 45%, representing a substantial improvement. The decrease further accelerated in '24 with the announcement of the divestment of Barmag. We saved with these cost-out actions more than CHF 60 million in the last 2 years and structured Oerlikon as a smaller, more focused company. Digitalization, automation and footprint optimization of our coating centers are driving operational simplification and efficiency which are key drivers to ultimately improve profitability. For example, we increased our number of coaters, which are real-time connected to around 125 and aim to further expand this year by up to 100 more. This helps to optimize equipment maintenance schedules, utilization rate, which also enables better reallocation of capacity to coating centers with higher demand. The better data transparency for our operational assets and the optimized asset allocation logic will be a key contributor to further support operating leverage and thereby improve capital returns going forward. The regular review of our portfolio using our capital allocation framework ensures that resources are directed towards profitable and growing businesses. This review resulted in restructurings in H2, primarily affecting our combustion engine-related automotive business in Europe as well as a smaller part of our luxury business. These actions aim to sustainably improve profitability and ensure that resources are allocated adequately to support profitability in the medium term. We are also sharpening our R&D approach with a much stronger focus on commercialization. Starting in '26, we incorporate the adoption readiness level approach into our processes. This aims to focus more effectively on customers and market adoption of our new products. At the same time, we are streamlining our offering by eliminating subscale and dilutive products and replacing them with more efficient solutions. This shift enables us to price upcoming innovations at meaningfully higher margins compared with our legacy portfolio. Overall, these actions are future proving our company and position us to deliver sustainably higher profitability and improved capital returns going forward. With that, let's move to the balance sheet on the next slide. Let me now walk you through the balance sheet and the pro forma impacts of the Barmag divestment. At closing, 2/3 of the paid purchase price of CHF 716 million were used to repay our CHF 475 million term loan, significantly reducing Oerlikon's leverage ratio. The closing also generated a net book gain of CHF 287 million, which will be booked in '26 on the result from discontinued operations. Pro forma of the proceeds and net of proposed dividend, this reflects a strong improvement of our equity ratio from 25% to 41%. Leverage at the end of March '26, considering the proceeds of the divestment of Barmag and after the proposed dividend is expected to decline to 2.7x net debt to EBITDA. Looking ahead, we plan to further deleverage in '26 and '27 towards our midterm target of below 2x. In '25, we also actively managed our debt profile by issuing CHF 350 million bonds in September and repaying CHF 250 million bonds in November. Our liquidity position remains strong with around CHF 960 million of cash and available credit lines at year-end. Going forward, liquidity management will benefit further from the Barmag divestment. Our restricted cash mainly in China has decreased by around CHF 185 million following the closing, improving cash availability and lowering financial costs. With regards to distribution to shareholders, we are proposing a stable ordinary dividend of CHF 0.20 per share, supplemented by a onetime extraordinary dividend of CHF 0.65 as a result of the Barmag divestment with the strengthened balance sheet and enhanced financial flexibility, we are well positioned to support strategic execution as markets recover. Next, on to our ESG ratings improvement. In '25, we maintained or improved our ESG ratings across major agencies, keeping us within the top 20% of the industrial sector. External partners and agencies recognize our leadership in sustainability and innovation. Our MSCI rating remains at the maximum AAA rating, placing us among the leaders in our industry. Our CDP scores for climate change and water security improved to be demonstrating progress in transparency and emissions management. These results validate our long-term commitments to responsible production, energy efficiency and sustainable innovation. For example, in 25, we invested 85% of our total R&D expenditure in sustainable products. Our solutions significantly improved the efficiency, performance and sustainability of our customers' products and operations. Overall, our ESG performance reinforces trust with customers, employees and investors and supports our competitiveness. Let's conclude the presentation with our '26 guidance. Turning to our '26 outlook. We expect the year to remain influenced by geopolitical uncertainty and soft end market dynamics. Sales are expected to increase by a low single-digit percentage organically at constant FX, reflecting the expectation of a continued subdued environment in general industries, tooling, automotive and luxury markets. These headwinds will be partially offset by continued strength in aviation and selected energy applications. We also anticipate the continuing negative mix effect, particularly from service activity, which impacts margin in the near term. Besides this, we expect an operational EBITDA margin of around 17.5% for the full year. This is supported by the structural portfolio and footprint optimization actions initiated in '25, which will increasingly contribute. On this basis, we anticipate a significant improvement in ROCE, advancing in the direction of our weighted average cost of capital. Our '26 guidance reflects both the realities of current demand conditions, and the benefits of the actions we have taken to structurally improve profitability. With that, let me open for Q&A.

[Operator Instructions] The first question comes from Sebastian Kuenne from RBC Capital.

I have a few, actually. First, I would like to better understand the volume price/mix situation that led to the very strong order intake in Q4. You mentioned some shortage of rare earths and tungsten and the sharp price increases. How much of that growth that you saw in Q4 is actually just a pass-through as basically raw materials going in and going out without any effect on profitability, that would be my first question?

Thank you for the question, Sebastian. The strong order intake in Q4 was mainly driven by our Materials & Equipment business. And to the second element of your question, yes, there is an effect of that, but it's also in organic terms, the orders are increasing significantly, so it is not just the price dynamics we were describing.

Then on the restructuring, can you give us an idea of the scale of it and how the cost savings will come through in Europe in the next 12 to 24 months?

Yes. So looking at the restructurings in H2, they were mainly focused on our combustion engine for automotive business. In Europe means, first and foremost, Germany and France, also some restructuring in that area in the United States. In Luxury, we had a smaller restructuring of one business in Italy. In terms of materialization, we saw first effects coming through in '25, but expect them to further materialize as we finalize the execution measures in '26.

And the scale of the savings? How many staff is involved?

Staff is in '25 in Europe was around about 300 people, and there is some more to follow in '26 when we execute the measures.

Understood. And then finally, can you give us an idea of the current capacity utilization in your service business in the tooling business in Europe. You have a high automotive exposure here. How much more could you in theory pass through the equipment annually compared to where we are now? Are we talking 50%, 40%, 70%, where are we spending currently?

Maybe I'll take that. The utilization is different if you take the service centers and if you take equipment materials. In materials actually somehow at least in some alloys, it's the supply base, which is limiting us how far we can grow. But utilization is meanwhile on a level that we have ordered an additional contract for Plymouth and we are considering a third one to come because it's a sustainable long-term lasting demand on certain materials what we are doing. In addition to that, what we do since 2 to 3 years now is that we monitor our fleet of coaters which is roughly 500 and where I said 450 of them are monitored easily in real time or at least on a daily period that we even send them from service centers in one region to others, where the demand is higher. So you don't do that on a weekly basis, but we really see -- and you have utilizations in some areas where only 40% and in others you have 70% to 75%. But be careful, even the 40% can be a very high profitable business, it depends then how we can add to this business more to utilize that equipment and what we have decided 2 years ago, 2.5 years ago, that wherever there is equipment is in the system available, we have to consider that first before you build or buy new ones. What I have to mention, we built new diamond coater, new graphite coater, which in the past was technology, which we have acquired. We have developed that and introducing that, and this was pushing a little bit the CapEx in the past. And this year, we have a certain CapEx by Plymouth put together a consortium and to reallocate the 3 sites in Switzerland, where we combine Rümlang, Dottikon, and Winterthur in Risch-Rotkreuz, which would start somehow in summer '26 and be finished by end of '26, early '27. So please keep different. Those materials capacity very well utilized, still some headroom in some areas, but next capacity already to come. There is equipment where we can -- we are producing somehow not on the top line, but we can, let's say, do a little more. So there we are almost fully loaded. And then there is -- this is, by the way, already that we're talking about order intake for '27 and even beyond because there is a pipeline even from our customers that don't need it tomorrow, but they see a consistent growth and they see a consistent growth as well in a way to coat parts. And then there is the service centers where, again, within the service centers, we have different clients, and you can remember what I've shown in different coatings. Not each coating runs on each coater. And here, the digitalization helps us a lot to optimize. Does it answer somehow your question?

Yes. It does.

Perfect. Thank you.

The next question comes from Tobias Klöpper from Zürcher Kantonalbank Bank.

Two questions from my side, if I may. I will take them one by one. The first on the margin guidance, is that for an increase of roughly 20 basis points compared to '25, with stabilizing end markets, corporate cost savings and restructuring benefits, which might seem rather conservative, as you already mentioned. Can you give us some more light on why this might seem that way? Is the mix effect expected to be even more negative in '26?

Why don't you answer, Dirk?

You can start.

I'll start and maybe Marco has a better idea then to answer than I have. The 7 5 is that what we see it for the year with that what we have on hand. There is some indication it could become a little bit stronger, but we are not in a position to do so. Maybe we have to see since half -- when we have the half year results to give let's say, better guidance. We definitely want to avoid that last year, you remember '24 was a very strong year for us. And we look to markets and thought, okay, these markets are doing well, that's why we made a budget for '25, which was very aggressive. And then we had to correct the consensus and to correct the guidance in mid of the year because all these turbulence is by tariffs. All these turbulences that in February and April because we first had to react them. When you get told certain alloys in tungsten cannot be explored anymore, each one is blocked, you have to work on that. And you get somehow, some hits. And we want simply to want to avoid that. So is it conservative? No, I think it's a good base. Could be more in, if it works as we think it works, yes.

I also think Tobias that we -- on the elements that we have under full control, we definitely did our homework again in '25, positioned the company very solidly, restructured where it was necessary. And now given the geopolitical situation, there remains some uncertainty. Some of our businesses can react quite quickly, but overall, I think that is what we currently see as an outlook.

Yes. And maybe I think we are all in the same boat. You have a Supreme Court decision on tariffs and you have an administration who reacts completely differently than anybody would expect. Typically, you respect the Supreme Court decision and not counter that with violating another law and raising new tariffs. So this is the environment given where we are in. So -- and to trust that and to build that in the business plan, sorry to say, that's a challenge not only for us, for a lot of others. But as we are in certain sensitive areas with the materials with aerospace or all this stuff, it's the case. And that we have main industries still significantly tackled by these tariffs. And here, I really talk about automotive and our automotive supply industry. which is a strong consumer in tooling and coatings. By the way, there is something which will replace partially that because aerospace becomes more and more market for coated tools, which in the past was always a little bit shy because there was always the fear that the coatings could have an impact on a surface on -- for the materials where they're working on. So defense has not embarked fully yet. So defense that we're talking a lot about theoretical orders, but the supply base is not ramped up. The supply base is not there. So these are areas where we position ourselves as well, for example, in coating. If you have to have more how much you need to mix for a machine, you need topnotch coatings. If you have to composite to machine, they have to have topnotch coatings. Does that happen already? No, it does not because the supply base is not there yet. The orders are placed, the willingness is out there. Now that the supply base has to get ramped up and then it has to start the industrial operations. This is the environment we are in. And probably after lessons learned '25 towards '24, we try to do something balanced in '26.

Very helpful. And then to my second question on the leverage, where do you see the primary lever to achieve the leverage ratio of 1.2x by '27. Is it primarily EBITDA growth or debt reduction?

Yes, I can take this one. It's always, right? At the moment, we are operating at the EBITDA profitability that we certainly don't see as the midterm target where we want to adopt. So that is a clear lever there. Then it's, of course, the cash flows that we expect to generate as we move ahead. And also on the CapEx side, it's further diligence by better using asset reallocation. Mike was describing it before looking into our utilization, how we operationally perform and see that we can allocate the assets to the markets that really need them and also innovate based on the existing coater base, right? We don't have to the new coater during the field for every new product we bring to the market because a lot of our innovation happens in the process itself. I think it's that. And then last but not least, it's the working capital. I think if you look at the numbers, we already made a good step in the end of 2025 using the working capital in it by the way, optimizing cash from there, and we see also further upside on the working capital from -- as we move ahead.

So there is not a big -- if I may be allowed to add that. This is not a big blockbuster the one and only to the story. You have to coat a lot of stuff until you make CHF 1.6 billion revenue. And you have to optimize. And sometimes in our business, it's the little things which count. That's the way how we manage overdues, our payable receivables and even inventory. In inventory, we have achieved a lot in the materials business. We cleaned up 2,000 different material numbers, 2,000. There's still some headroom, but we are still -- we're operating on that. We have a CRM system, which was not there in that quality in the years before. We got it fully operational in '25, we're using it now. We have harmonized continuous improvement systems, 3 different ones into one, and it gives you very strong transparency where continuous improvement works better than some -- comparable to some other places. And to have this best practice sharing. So what we are doing, we're using the technology available, together or a highly spread out company virtually like it would sit on 1 place. And this gives a lot of optimization potential, which was not available simply in the years before, and a lot of things had to happen. Cleaning up 21 ERP systems, which we had into 1. And it was -- believe it, it was a very sad and severe operation. And it costed a significant amount of money to get there. CRM was the same. Continuous improvement, same. Digitalization. The digital hub, meanwhile, is really paying back that what we have invested because we have systems which we even now from customer -- from competitors and others getting asked if you don't sell that. We have reduced in HRSflow the typical time for an offer of 4 weeks to 2 days by using digital solutions. We have an early -- was the early Q system developed where now our OEM customers from the aerospace industry are asking to get their systems. So we have a technology position, which is not falling out of the blue sky. It's hard work consistently over years, not over months to get there. But this gives you then the resilience and the leading position because nobody can follow you because with a finger snap, you don't get there. You have to go the same hard way as we have done. But this gives me as well the confidence with the team which we have built up with the lean team meanwhile. We have an EC of 5. We have an NBM of 50, including the 5 EC. We have a top management team of 40, that's it, on 10,000 people. And this is the way that all these small stuff on operations, on inventory, on the sales side, for sure, pricing was as well an issue. We had some issues in 2021 to get the prices on a level. But if you look in, we have done the pricing story pretty good. Meanwhile, we have to see that we don't overstretch it. It's the combination out of a lot of things. And for sure, if there is in the 2, 3 industries where we are very strong and we have headwinds, if that will turn into a little tailwind, then you see significant additional effects, but even without that, we are convinced that we can improve the company further on and don't nail me in the end is a 20% EBITDA margin or 19.5% or 20.5%. Midterm, we are sure we have 20%, that we go for that. But we go as well as a combination of margin and investments and by the way, top line. And this combination will drive the company. We slimmed down the company. We have to be aware that now with CHF 1.6 billion, we are not the CHF 3 billion company anymore, which we have shown in our cost positions. We have somehow now to grow. We're growing massively and mainly organic, not too much inorganic, but we would have a way to finance inorganic as well. But we're not looking for that because as I initially explained, we are unique. There is not the one and only target which would help us a lot. This is a specific solution. And what we learned now in this challenge, I would not now we mention a crisis, but in the challenge is around rare earth and critical minerals, our customers unanimously gave us the feedback that it is covered how dependent and how important Oerlikon is for their key components and for their supply base, which gives us as well a pretty strong position. Hopefully, it was not too long, and hopefully, we have touched your point.

The next question comes from Sebastian Vogel from UBS.

My first question is with regard to the organic sales growth guidance for 2026. Can you elaborate what sort of pricing assumption is going into that one?

Dirk?

We don't give further details on the inclusion of price increases, but you can assume that it is not mainly driven by pricing, it's 0%.

Got it. My second question, again, they're not hard numbers, but more of a rough indication, just to understand a little bit more the margin effect of business mix. Can you give us the sort of indication where you stand in terms of equipment versus material versus service of your top line there, that is some sort of rough indication?

A rough indication is that service business typically is in the higher double digits than others, but equipment and materials is as well in double digit and we have cleaned up. That material business was 3, 4, 5 years ago, was single digit or even negative. Equipment business, when we got this story in 8 to 9 years ago, was negative as well and it was highly fragmented. Meanwhile, we have with solution 1 and solution 2, 2 modulize systems where we can even do customization in a much better way as in the past. We have -- it was difficult even to figure out how much equipment we have out. We've discovered some 2,500 systems. But probably there is a dozen more out there, which we don't even know. By this 2,500 systems, we -- most of them, we have some service for. But a lot of them are not equal. They are not even something in mind, but they put together. But now with the new setup, we have that for both businesses or, let's say, all these businesses are in double digit now, but it's different quality of double-digit, and that's why the mix of service, cutting through services is still one of the best businesses in quality of earnings. And if you compare that with the materials business, do you have a mix effect in the numbers and I want to disclose it. Do you want to add something?

No. There was a question from Sebastian regarding the sales distribution that was on the EBITDA. Do you want to take it?

You can take it.

So on the sales distribution, so 1/3 is roughly the coating services and the other 1/3 is the material equipment and the rest of the -- is the component business in terms of sales.