Oerlikon Group has shown a strong stance in global epidemic conditions with orders, sales and production figures for the first quarter of 2020. The group has taken actions against the outbreak to protect employees while maintaining business continuity. As of the first quarter, Oerlikon continued to have a very robust capital structure with a strong cash position and an unlevered balance sheet. An action plan is being executed to preserve cash and reduce costs in all businesses.
The Groupโs Q1 order intake, sales and EBITDA were negatively impacted by the COVID-19 pandemic due to the extended shutdowns in China and the beginning of lockdowns in Europe. In this highly challenging environment, Group orders for the first quarter decreased by 29.9% to CHF 477 million, particularly in Asia and Europe. Group sales were 15.2% lower at CHF 529 million, attributed to lower sales across all regions and adverse currency movements. At constant exchange rates, Group sales were CHF 558 million.
Group EBITDA was at CHF 58 million, corresponding to a margin of 11.0%. EBIT for Q1 2020 was at CHF 6 million, or 1.1% of sales. The first-quarter performance resulted in a rolling 12-month Oerlikon Group ROCE of 5.4%. In the first quarter of 2020, Oerlikon generated 42.0% of total Group sales (Q1 2019: 40.4%) from services.
Oerlikon Group implements proactive action plan
In February, Oerlikon proactively started implementing an action plan to mitigate the impact of the pandemic. The action plan focuses on preserving the liquidity of the company, while ensuring that its businesses continue to operate and customersโ needs are met. Oerlikon has reinforced its strong cash position by proactively drawing down its revolving credit facilities. As of March 31, 2020, the Group has a cash balance of CHF 1.0 billion and a net cash position of CHF 219 million. The strong cash position will enable Oerlikon to manage any potential liquidity challenges.
The Group will be very selective in deciding on investments to be made in 2020, in line with the target to reduce capital expenditure (CAPEX) and discretionary spend by at least CHF 100 million in total compared to 2019. Oerlikon is executing a productivity program, primarily aimed at reducing structural cost in its Surface Solutions Segment. Across geographies and through a number of current and planned initiatives, Oerlikon is reducing a total headcount in the surface solutions business of approximately 800 employees, or around 10% of the Surface Solutions Segmentโs headcount.
In view of the high degree of uncertainty as to the scope and duration of the crisis, Oerlikon is withdrawing its guidance for 2020, while remaining committed to delivering on its mid-term target for the EBITDA margin of 16%-18%.
Manmade fibers segment returned to full capacity operation
Sales of the Oerlikon Manmade Fibers Segment decreased by 19.3% to CHF 205 million in the first quarter due to the global coronavirus outbreak effect. The quarantine in China was effective in the decrease. However, after the quarantine in China has been eased, production and operations in the Manmade Fibers Segment have begun to operate at full capacity and will fulfil the delivery schedules planned for the 2020.
The segment received new large orders for filament yarn systems from three of the world’s leading manmade fibers manufacturers in China. The total value of the three projects is over 600 million CHF. A large part of this project will be established for order intake in 2020, the majority will be accounted for in 2021 and 2022. Despite new contracts, the segment decreased to 144 million CHF, with a 51.4% drop in order purchase, partly due to the delay in financial payments in China.
In the first quarter, the segment took over the majority stake in Teknoweb Materials s.r.l.; which was established in 2017 as a joint venture to extend the nonwoven production system portfolio; to include the attractive market for disposable nonwovens. Due to the COVID-19 pandemic; a strong global demand for Oerlikonโs meltblown (nonwoven) technology used to produce surgical face masks has been noted.
Surface solutions are shrinking
The Surface Solutions Segment faced a slowdown in all of its end markets and across all regions. Order intake declined by 13.5% year-over-year to CHF 333 million and sales decreased by 12.4% to CHF 325 million. The decline in orders and sales was most noticeable in the tooling, automotive and general industries, particularly in March. The previously announced productivity program has continued with aggressive cost reduction goals to increase efficiency and agility.
Oerlikon Group has a strong financial position
Roland Fischer, CEO of Oerlikon Group, said that the COVID-19 outbreak had unprecedented effects on the global economy; the business world and the lives of billions of people. Fischer noted that like many other companies, they saw the first effects of the outbreak in the first quarter; โWe are implementing mitigating measures to protect our liquidity while ensuring business continuity. We remain very disciplined in our investments and have a strong financial position to navigate Oerlikon through these extraordinary timesโ.
Saying that since the beginning, ensuring the safety and well-being of their employees; customers and suppliers has been their utmost priority; Fischer added that China has shown signs of overcoming the virus; while they faced increasing challenges from the global impact in surface solutions segment; toward the end of the first quarter in Europe and in the USA.
Roland Fischer continued his words saying; โOur manmade fibers business continues to be very well positioned; driven by long-term, strategic customer investments in the filament value chain in China. As a result of the COVID-19 pandemic; we are seeing strong global demand for our meltblown technology that is used to produce surgical face masks. To support this demand that is expected to further grow; we have ramped up our production capacity and significantly reduced delivery times of these systems. In addition to selling our equipment globally, we are supporting local and international businesses with nonwoven materials. For example, we are now producing in Germany more than 100.000 square meters of fabrics per month; for the manufacture of over one million face masks each month to protect livesโ.
Fischer did not predict the market for 2020, as the spread and coverage of the virus was unpredictable. Fischer added that while preparing to return to normality and adhering to medium-term goals; they will continue to focus on taking the necessary measures to protect the business and stakeholders in the near future.