The cause for this decline in volume is the worsening global recession, which has taken hold of Oerlikon’s main markets, in addition to the continuing crisis in the financial sector. These factors led to a general reduction in demand and made it considerably more difficult to finance large projects in machinery and plant engineering, notably in Solar and Textile.
The continued weakness of the global textile market resulted in a drop in Oerlikon Textile sales of 58% year-on-year to CHF196 million in the first quarter of 2009. Oerlikon’s core businesses Coating, Solar and Vacuum posted decreases in sales of over 30% due to the worldwide reduction in industrial production. Oerlikon Drive Systems was hit hard mainly by the downturn in transportation-related industries, with a 31% decline to CHF213 million.
In anticipation of a further deterioration, all business units developed contingency plans at the end of 2008. These plans were expanded and embedded into a comprehensive corporate program in early 2009 with three areas of focus – restructuring and contingency measures, securing the company’s financial stability and further focusing the portfolio on the core interface and surface technologies. All work streams are now under full implementation.
Restructuring: In the first three months of 2009, the Group’s headcount was reduced by nearly 700 employees to a total number of 17,710. At Group level almost 6,000 employees are working shorter hours. Oerlikon Textile is rigorously executing on its Simplify program, including a reduction of the production sites by 50%, product portfolio pruning by 25% and reduction of fixed costs by 20% until 2010. Short time work was nearly doubled to around 2,000 employees. Further measures aim to reduce the break even point by additional CHF200 million to a total reduction of CHF500 million until 2010 (compared to 2007). Oerlikon Drive Systems is in the process of improving operational flexibility and profitability via an extensive package of measures.
Nearly 3,000 workers are on short time. Oerlikon Balzers announced in March that it would cut another 250 jobs worldwide. Oerlikon Solar will reduce its headcount by 60 positions. At Oerlikon Vacuum 750 employees are currently working shorter hours. Despite these tough times, Oerlikon continues to honor its obligations as a company that trains young people. The number of new apprentices at the Balzers/Trubbach location will climb to almost 100 people in 2009.
Financing: Steps to optimize cash flow, reduce working capital and to strengthen the balance sheet in the medium term were also rolled out. Besides a reduction in capital expenditure to below depreciation levels, a strict focus on key research and development projects, further cuts in discretionary spending and the sale of non-operational real estate is targeted. Together with defined working capital reductions, a potential of more than CHF300 million has been identified. At the same time, the company is in the process to amend the syndicated facility. Results are expected in the second quarter 2009. Equity market transactions are in consideration.
Portfolio: Progress continues to further streamline the portfolio. The sale of Oerlikon Esec to tBE Semiconductor Industries N.V. is closed and the management buy-out of the Etch business in St. Petersburg, Florida is completed. This brings Oerlikon Group’s overall exposure to the semi-conductor industry down to less than 3% of sales. Additional disposals are being evaluated.
Outlook
Oerlikon continues to refrain from any detailed sales or profit forecasts for the current year due to the ongoing low visibility in major markets. Although on a low level, the sequential order increase of 19% in the early cycle Textile business in the first quarter of 2009 indicates the possibility for a recovery in other markets. Specifically for Oerlikon Solar, a normalization of the business is expected for the second half of 2009.
Oerlikon Solar
Oerlikon Solar AG (Oerlikon Solar), a subsidiary of Oerlikon was not able to win any significant new orders in the first quarter of 2009, so it continues to complete existing orders. Sales were down by 32% to CHF51 million. Orders received stood at CHF11 million (-40%), and orders on hand amounted to CHF390 million (-3%). Due to the global financial crisis, Oerlikon Solar clients have delayed orders and investments for expansion. Through shorter working hours for 200 employees and the redundancy of 60 positions, the segment is adjusting its capacities to the current situation. Investments in Research & Development are not affected by the downsizing – the research and developement roadmap to achieve grid parity in 2010 will continue as planned. Together with the Japanese company, Tokyo Electron (TEL), Oerlikon Solar announced a strategic sales and service cooperation, thereby strengthening its presence in the Asian market. Oerlikon Solar anticipates that the conditions for financing will improve in the second half of 2009, and that by the end of the year normal business conditions with strong growth will return. Stimulus programs and subsidies for renewable energy as announced, for instance by the Chinese, Japanese and US government, will additionally increase demand. The medium- and long-term market outlook for thin-film silicon solar modules with double digit growth rates remains unchanged. Oerlikon Solar is cautiously optimistic that ongoing customer negotiations will result in new orders during 2009.
We respond to the current market situation with major restructuring and broad contingency measures, steps to secure our financial stability, as well as further focusing the portfolio, says Dr. Uwe Kruger, chief executive officer.
The declining market, first broadly experienced in Q4 2008, deteriorated further at the beginning of 2009. Counter measures enforced earlier in the year will help to alleviate the impact of this severe downturn predominantly in the second half of 2009, comments Dr. Kruger.
Through the consequent execution on all three work streams of our corporate program we are convinced that Oerlikon will sustain in this adverse business environment, says Kruger.
We are cautiously optimistic that current negotiations with our customers will result in at least one large order by then. says Kruger. Broadly sized stimulus packages as well as increased willingness of banks to finance new businesses will help to improve the current business environment.
