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The Rupp Report: OC Oerlikon Out Of Troubled Waters

Jürg Rupp, Executive Editor

It's the season for the publication of the annual results of many stock listed companies. Last week, Switzerland-based OC Oerlikon Management AG, owner of Oerlikon Textile, presented its annual figures. OC Oerlikon today has more than 16,600 employees and reported sales of 3.6 billion Swiss francs in 2010. One can say that the results are positive and give hope for a prosperous future. And the management of OC Oerlikon is confident of returning to profitability after two years full of problems inside and outside the company. Four business units contributed to the positive results: Oerlikon Textile, Vacuum, Coating, and Advanced Technologies.

OC Oerlikon reported a 51-percent increase in orders in 2010, to 4.5 billion Swiss francs, including orders on hand totaling 1.7 billion Swiss francs, while the company's book-to-bill ratio grew from 1.0 to 1.3. Sales grew by 25 percent to 3.6 billion Swiss francs in 2010 compared with 2.9 billion Swiss francs the previous year. The increase was due mainly to Asian demand for innovative products offered by the group. Foreign exchange effects resulted in a 6-percent sales reduction totaling 220 million Swiss francs. The company reported flat sales in North America and a minor increase in sales in Europe. Sales in Asia increased by 65 percent, with China and India accounting for the largest part of the increase.

The group's operating profit rose to 103 million Swiss francs in 2010, compared to a year-earlier loss of 280 million Swiss francs. Earnings before interest and taxes (EBIT) rose to 51 million Swiss francs in 2010, compared to a year-earlier loss of 589 million Swiss francs. Foreign exchange effects lowered EBIT by 27 percent or 14 million Swiss francs. Net profit totaled 5 million Swiss francs, compared to a 2009 net loss of 592 million Swiss francs.

OC Oerlikon reported a significant improvement in cash flow from operating activities in 2010 to 511 million Swiss francs, compared to the previous year's cash flow of 90 million Swiss francs. Cash flow from operating activities before adjustments in net current assets totaled 354 million Swiss francs, compared to a net loss of 92 million Swiss francs the previous year. The company reduced its net debt to 274 million Swiss francs from 1,646 million Swiss francs in 2009.

Recapitalization
Readers of the Rupp Report know about the Oerlikon Group's financial and legal problems over the past two to three years. Over and over again, the company was mentioned not only in the textile press, but even more in the financial papers. Those times seem to be over. The group said that it "regained a solid financial base through the recapitalization that was part of the financing agreement concluded in 2010 between lenders, the Renova Group and Oerlikon."

During the past year, the group's top management and major shareholders were fighting for a solution to get out of the critical financial situation. The final agreement included a considerable 95-percent capital reduction followed by a 1,124 million Swiss franc capital increase, as well as the sale of Oerlikon treasury shares to the lenders, a 125 million Swiss franc waiver of debt and new credit facilities.

Oerlikon Textile
Oerlikon Textile recorded a profit in 2010 with EBIT totaling 21 million Swiss francs compared to a 2009 loss of 424 million Swiss francs. Incoming orders totaled 2,509 million Swiss francs, a gain of 114 percent over 2009, with orders on hand totaling 1,197 million Swiss francs, compared to 2009 orders on hand of 489 million Swiss francs. The business segment's sales soared 58 percent to 1,653 million Swiss francs, reflecting strong growth in Asia, mainly from China. Oerlikon Barmag showed very strong results, and even has some orders first due for delivery in 2013. Oerlikon Schlafhorst and Oerlikon Neumag also gained market share. Because of the "outstanding demand" for its products in 2010, Oerlikon Textile expects incoming orders will be lower in 2011. All the same, its forecasts call for further sales growth and an increased profitability. An executive interview with Thomas Babacan, COO of OC Oerlikon and CEO of Oerlikon Textile, will follow in an upcoming issue of Textile World .

Outlook 2011
For the current year, following the peak in demand and order intake in the wake of the recent economic crisis, OC Oerlikon expects incoming orders to slow slightly and mentions that Oerlikon Textile and Coating expect healthy markets in the coming hear. The group is projecting 2011 sales growth of up to 10 percent and further growth in profitability, based on stable foreign exchange rates. The performance in the first two months of 2011 is reported to be strong, supporting the optimistic outlook for the entire year.

Dr. Michael Buscher, CEO of the Oerlikon Group, said: "The consistent implementation of our operational and strategic measures is paying off. Our profitability is increasing faster than planned and we are well on our way to a sustainable comeback." Let's hope he's right.

April 5, 2011

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