Earnings call transcript: Erlikon Q2 2025 sees stable orders amid market headwinds

Erlikon’s earnings call for the second quarter of 2025 revealed a mixed financial performance characterized by stable order volumes but a decline in group sales. The company’s operational EBITDA margin decreased year-over-year, and impairments were reported in several R&D projects. Despite these challenges, Erlikon maintained a positive outlook, citing strong technology positions and strategic cost-saving measures.

Key Takeaways

• Group sales decreased by 3% at constant FX rates.
• Operational EBITDA margin fell to 16.7%.
• Orders remained stable with a book-to-bill ratio over 1.
• New product innovations were launched in various sectors.
• Full-year group margin is expected between 17% and 17.5%.

Company Performance

Erlikon faced a challenging second quarter with group sales falling by 3% at constant FX rates, amounting to CHF 786 million. The operational EBITDA margin also experienced a decline, reflecting the broader market headwinds. Despite these setbacks, the company managed to keep orders stable at CHF 826 million, maintaining a book-to-bill ratio above 1, which indicates a healthy demand pipeline.

Financial Highlights

• Revenue: CHF 786 million, down 3% at constant FX rates.
• Operational EBITDA margin: 16.7%, decreased year-over-year.
• Impairments: EUR 46 million in R&D projects.
• Orders: CHF 826 million, stable with a book-to-bill ratio over 1.

Outlook & Guidance

Looking forward, Erlikon anticipates stable or slightly declining organic group sales for the remainder of the year. The company aims for a mid-term EBITDA margin target of 20-22%. Strategic initiatives include optimizing the portfolio for higher profitability and exploring cost-saving measures expected to benefit the second half of 2025 and 2026. The company’s current trailing twelve-month EBITDA stands at $319.6M, with a healthy free cash flow yield of 15% and P/E ratio of 18.4x. InvestingPro subscribers can access 12 additional key metrics and detailed analysis in the comprehensive Pro Research Report.

Executive Commentary

Michael Suss, Executive Chairman, highlighted the company’s resilience, stating, "80% of our markets are in headwind. Despite that, we’re still in a very high profitability level." He emphasized Erlikon’s strong technology position and the need for market growth to strengthen it further. Markus Richter, CFO, added, "We are executing our strategy with discipline, maintaining financial resilience."

Risks and Challenges

• Market Headwinds: 80% of Erlikon’s markets are facing challenges, affecting growth prospects.
• Impairments: EUR 46 million in R&D projects could impact future innovation capabilities.
• Trade Tensions: Ongoing trade tensions are influencing customer behavior and market dynamics.
• Economic Indicators: Subdued industrial production and contracting PMIs in the Euro Area pose risks.
• Competitive Landscape: Navigating a flat or shrinking market while maintaining a competitive edge.

Q&A

During the earnings call, analysts inquired about the potential dynamics in the U.S. market and sought clarification on the impairments in specific business units. Erlikon confirmed plans to use proceeds from the Baumark sale for deleveraging, targeting a leverage ratio below 2x. With total debt of $1.67B and a current ratio of 1.09, the company’s financial position remains stable. For deeper insights into Erlikon’s valuation and future prospects, investors can access the full suite of financial metrics and expert analysis on InvestingPro, including exclusive ProTips and Fair Value calculations.

Full transcript - OC Oerlikon Corporation Pfaeffikon (OERL) Q2 2025:

Youssef, Chorus Call Operator: Good morning, ladies and gentlemen, and welcome to the Erlikon Q2 twenty twenty five Results Conference Call and Live Webcast. I am Youssef, the Chorus Call operator. The conference must not be recorded for publication or for broadcast. At this time, it’s my pleasure to hand over to Aymeric James, Head of Investor Relations. Please go ahead.

Aymeric Jammard, Head of Investor Relations, Erlikon: Good morning, ladies and gentlemen, and welcome to EarlyCon’s first half year results call. My name is Aymeric Jammard, Head of Investor Relations. I have here with me Michael Suss, our Executive Chairman and Markus Richter, CFO of Erlkon. Michael will start the presentation with a strategy update. Markus will then highlight our financials and outlook.

We will end with a Q and A. With that, I would like to open our presentation and hand over to Michael. Michael, the floor is yours.

Michael Suss, Executive Chairman, Erlikon: Thank you, Amaric. Hello, everyone, and welcome to our half year twenty twenty five presentation. Before Markus takes us through the financial details, I’d like to start with some reflections on our strategic journey and keep it short only to remind you where we’re coming from the past ten years. We have fundamentally reshaped early Kahn from a conglomerate into a focus, which was always requested, high performing pure play company where we are on the while we are in this transition, we have created a diversification in our market places within the Service Solutions as a leader in advanced technologies. And on the other hand, Baumark is on good way to be divested as we have signed in May.

All the proceeds the procedures in between are on track. So from our side, there is no doubt that this divestment will work out in time and in quality. And if you talk about in quality, you remember the transaction value was €850,000,000 with an up with an additional earn out potential of up to €100,000,000 What’s even important is that we have parallel to that, a very strong reduction in our pension liabilities. Sometimes maybe that’s not really perceived in a proper way. But I have to restraints on that because that was a massively de load of pension liabilities of our company.

What we have done on top of that, we optimized further our portfolio, which unfortunately ended up in an impairment of EUR 46,000,000. We will go to details in the Q and A if there are some. But one or two of them are battery development in Europe, green hydrogen development in Europe, where we simply have stopped certain R and D activities and some other stuff in addition. The structural cost measures are implemented and further on track, and we will see benefit second half year and further on benefit in 2026. So structural improvements are on a regular base.

So we do that consistently, not as a one way, but as a consistent further development, the performance quality within the company. Having said that, I simply will further confirm that the transformation is on track to be an excellent and efficient organization. And we have a distinct brand and a distinct investment case for you and very open to all the Q and As you will have to us. Markus, would you like to take over from my and go through the financials?

Markus Richter, CFO, Erlikon: Yes, sure. Thank you, Michael. Good morning, everyone, and welcome to the H1 twenty twenty five results presentation also from my side. In H1, we continued to execute on our strategic priorities to drive efficiency and innovation. We achieved stable orders in a very difficult economic environment as industrial production continued to be subdued.

In parallel, we noted increased cautiousness among some of our customers driven by ongoing trade tensions and geopolitical uncertainties. And finally, the significant appreciation of the Swiss franc against all major currencies during the period had a negative impact on our financial results. I will start with an overview of our first six months, followed by an update on our end markets, including the results, and will conclude with our outlook. At Erlicon, orders were stable year over year at constant FX to CHF $826,000,000, with a book to bill ratio over one. This is a really strong achievement and the confirmation that our strategy to diversify away from automotive and tooling slowly benefits our company.

Group sales decreased 3% at constant FX to CHF $786,000,000. This was driven by lower activity in our service business in the context of downturn in automotive, luxury Operational EBITDA margin was 16.7% in H1, down year over year in the context of difficult end markets, negative mix effect and FX. We are focusing on managing costs extremely diligently and continue further with our structural cost out actions to support the margin. These actions across areas offering limited growth potential aim to gain agility and efficiency and expect positive effects in the 2025. Moreover, as part of our pure play transformation, we optimized our portfolio towards structurally higher profitability.

This resulted in the impairment of some R and D projects and assets at our Knight Riding and Elden businesses. Despite the current challenging environment, Erlkon continues to drive innovation and successfully launched a new PVD equipment platform in Speera as well as a new thermal spray equipment Surface two and new CVD coating, Baldia Varia. With that, let me provide you an update on our end markets. Early Con is operating across the tooling, automotive, luxury, aviation, general industries end markets. Particularly, the general and tooling industries show a close correlation to industrial production.

In the first half of the year, the PMIs in the Euro Area remained in contraction, while U. S. And China stayed around neutral levels. In addition, the ongoing trade tensions led some of our customers to adopt a wait and see approach. And in the first half, our service business was down 5%.

This activity is usually early cyclical and has particularly in the general and tooling industries a close correlation to industrial production. As such, we were impacted by contracting PMIs in Euro Area and close to neutral levels in China and U. S. In automotive, global light vehicle production saw a slight increase in the first half of the year. However, regional disparities persisted with North America and Europe recording declines.

Industry agencies’ forecasts have been recently revised downward but remain roughly stable for the full year. In EU, uncertainties generated by changing industrial policies create a challenging environment for our customers and delay investment decisions. In Flow Control, our performance is closely related to car model launches. The recent slowing momentum in the automotive production and the trade tensions are weighing on the reacceleration of car launch projects affecting particularly The U. S.

We continue to drive innovations to make future mobility more efficient and sustainable, be it in the vehicle body or in the battery, hybrid or combustion powertrain technology. In luxury, the market momentum remains relatively low for the time being with customers acting in a wait and see mode. This is primarily related to the weakness in the Chinese end market, inflation and some geopolitical uncertainties, which are dragging on spending power of the middle class. Mid term growth drivers for the luxury segment remain well intact. With product quality, value for money and trends for more sustainable products, Erlicon with its unique offering is well positioned when the markets pick back up again.

In aviation, we saw 6% passenger growth year to date with industry agencies expecting 8% growth in 2025. Rising flying hours are driving MRO activity and demand for our solutions. We see plane manufacturers reinvesting and upgrading old equipment. Our products are supporting them to develop more efficient and more sustainable aircraft engine technology. The trend had been confirmed at the Paris Air Show in June 2025.

Overall sentiment from the key players is positive and all remain confident in the growth trajectory for the next years. Summing up, we see a continued subdued industrial environment. While PMIs remained in contraction in Europe and close to neutral level in The U. S. And China, trade tensions prompted some customers to adopt a wait and see approach.

The positive trend observed in aviation is confirmed. With that, let’s where we are discuss where we are with the financials. Orders in the 2025 were stable organically year over year at CHF $826,000,000 and fell slightly down FX adjusted at CHF $786,000,000. In light of a challenging industrial production and trade tensions environment, this is a very strong performance with continued market share gain over the period. Our diversification strategy across end market and geographies has been instrumental in this achievement.

The 2025 were supported by organic sales growth in aviation and energy, compensating for lower organic sales in automotive, general industries, tooling and luxury. The book to bill ratio remained above one throughout the first half year, signaling our resilience despite market headwinds. Operational EBITDA in the first six months of 2025 amounted to CHF 131,000,000, down year over year. The margin had been impacted by transitory negative effect from mix and FX. Ongoing macroeconomic challenges and trade tensions are temporarily weighing on our service business.

Although this business typically delivers higher margins, it is also early cyclical by nature. Erlkon continued its structural cost actions in the first half as part of its pure play journey, which should support margin in the second half and will position us upon market recovery. I will come back on this topic in more detail later in the presentation. As part of the pure play, Early Corn is updating its ROCE calculation and removed the effects from amortized acquired intangibles from the formula. This change aims to better reflect the core financial performance of the company.

Our operational ROCE was impacted by the lower EBITDA in the first half. Through our strategic initiatives, we are committed to improving our return on capital employed, aiming to restore it to a level that reflects our long term value creation goals. With that, next slide on Baarmark. Baarmark is presented discontinued operations following the signature of a definitive agreement for its divestiture to Retail. In H1 twenty twenty five, orders in Polymer Processing Solutions improved sequentially at $367,000,000.

This represents an 18% increase compared to H2 twenty twenty four. It is down year over year due to different seasonality in line with Barmark expectations. Filament orders were up 20% sequentially and came in line with the expected seasonality pattern. We see continued signs of momentum in small and midsized filament orders. When it comes to non filament, we continued to see low order momentum in the 2025, driven by weak PMIs.

Polymer Processing Solutions sales for the first six months were CHF $352,000,000, up 9% year over year at constant FX. Operational EBITDA increased to CHF 29,000,000. This represents a margin of 8.2%. The transitory lower margin is due to the customers’ price concessions granted into 2024 to maintain order volume. We expect recovering pricing levels and innovation to support margins beyond 2025.

Furthermore, Baumark is about to implement ongoing manufacturing footprint optimizations. This will benefit Baumark Manage Fibers profitability beyond 2025. With that, let’s move on to our outlook on the next slide, please. When we presented our full year results back in February, we anticipated 2025 to remain a challenging year. That view was based on a careful assessment of the macroeconomic landscape and early signals of volatility across our markets.

Since then, the environment has become even more complex. Tariff tensions and geopolitical uncertainties impacted a certain number of our end markets. Our diversification effectively helped mitigate the impact. In the face of these headwinds and the subsequent soft start into the year, we update our full year guidance. We now expect organic group sales in 2025 to be stable or to decrease by a low single digit percentage at constant FX.

In terms of EBITDA, we foresee a group margin between 17.5% to 17% for the full year, whereas the lower end of the margin range would be expected in the event of further escalation in geopolitical tensions. Moreover, our ongoing cost efficiency initiatives are expected to provide structural support to margins with tangible benefits already anticipated in the second half. Let’s now recap for the first half of the year on the next slide. As we reach the midpoint of 2025, we remain focused on navigating a complex environment with resilience, discipline while continuing to execute our pure play strategy. Tariffs burden has erupted, adding pressure to already fragile market dynamics and pushing some of our customers to wait and see mode.

Geopolitical tensions have not only persisted, they’re intensified, creating further uncertainty for businesses. In Europe, evolving industrial policies, while aimed at long term competitiveness, have introduced short term unpredictability. In the face of these headwinds, we remain focused on what we can control. We are executing our strategy with discipline, maintaining financial resilience. We are accelerating our structural cost out measures to enhance agility and efficiency with effects expected to support margins in the 2025.

At the same time, we continue to drive innovation not only to stay ahead of the curve, but to unlock new growth opportunities in emerging technologies and markets. And finally, we are firmly on track with our pure play transformation, including the corporate cost adjustments, reinforcing our commitment to long term value creation. Thank you very much. And with that, let’s open up for Q and A, I would say.

Youssef, Chorus Call Operator: We will now begin the question and answer session. You. Our first question comes from Vogel Sebastian, UBS. Please go ahead, sir.

Sebastian Vogel, Analyst, UBS: Hello, good morning. I’ve got three questions. I’ll ask them one by one. The first one is on the indicated cost out that you have mentioned for Surface Solution. Is it also causing some extra costs in the second half?

Or is it just a saving benefit that you expect there? That was my first question.

Markus Richter, CFO, Erlikon: So according to that, we expect savings for the second half of the year. We are on track with the execution. Potential additional costs in terms of, for example, severance packages will be part of a restructuring and will be normalized for the operational business.

Sebastian Vogel, Analyst, UBS: Got it. Second question is on the trading volume or trading backdrop, sorry, sort of that. Can you share a little bit your thoughts on order and sales momentum by the end of the second quarter and the beginning of the third quarter in your key end markets, I. E, general industry, automotive and luxury and what we have seen there?

Michael Suss, Executive Chairman, Erlikon: Is it to Markus or is it to me?

Sebastian Vogel, Analyst, UBS: To both of you.

Michael Suss, Executive Chairman, Erlikon: Okay. Markus, you want to start or should I

Markus Richter, CFO, Erlikon: Go ahead.

Michael Suss, Executive Chairman, Erlikon: Okay. So first, before I answer that question, maybe one additional comment. All these tariff discussions, which we see and maybe you have from sure you have realized that this EU U. S. Trade agreement is not a fully trade agreement yet because it’s not formalized.

It’s the idea about this 15%. Switzerland actually is struggling with the 39%. So now we have two layers. The one layer is what does that impact us directly with our regional setup and organization. I think we can handle that in a proper way despite the fact that for sure, exports to The U.

S. Directly out of Switzerland, we will seek to ask for exemptions because in most cases, we are mission critical. What is much more difficult to touch on is the indirect effect. So how does this tariff discussion is impacting The U. S.

Consumer behavior? How is it impacting The U. S. Trade overall? And how it’s impacting the export capabilities of our customers in Europe.

And still, we have 50% of our revenue in Europe, 25% of our revenue in U. S. And Americas and 25% of our revenue in Asia. So to predict what second half of this year and maybe first quarter next year is, is a little bit difficult. But what we see is that we had, let’s say, a weak 2024, a weaker 25%, and we see some stabilization.

So anyway, to go for a 17.5% guidance, second half will then have to be better than the first half. And part of that is the saving, but the other part of that is to stabilize our top line. Has that answered your question?

Sebastian Vogel, Analyst, UBS: Yes. Many thanks. And Paul, follow-up then that’s about more regarding the dedicated lead for general industry automotive and luxury. What’s the demand that you have seen by, let’s say, July, was that stronger than the average that you were showing for the first half? Or was it weaker?

Michael Suss, Executive Chairman, Erlikon: As far as I have seen it, but maybe Markus you may correct me, Luxury is flat, not really increasing, not really declining. The only thing what we see is there is in our favor an ongoing process, which was strategy to enter this market to walk away from electrogall wine again to walk closer to PVD. So that percentage is on a good track. We have some really new innovations shown them where they’re working actually on how and which way they want to place them in the market So on the luxury side, on automotive, the picture is much more diverse. As you have seen that automotive, especially the premier car manufacturers have shown massive reduction of their income situation.

This is not changing any new models launched, but maybe that’s changing the behavior to launch additional models. This could have an impact. Actually, I do see more fight for flat and not for further decline. In outer order intake, I have not seen a decline yet.

Sebastian Vogel, Analyst, UBS: Got it. Many thanks. And one very last follow-up. Generally, in terms of mix, can you provide us with sort of rough ballpark of the business mix regarding to equipment versus powder versus services and where you’re standing at the moment, if possible?

Michael Suss, Executive Chairman, Erlikon: That’s a little difficult, but I can share two things probably. 80% of our revenues actually have headwind and 20% have tailwind. So that’s the aerospace part where we are in that’s running well. There is more orders, especially on the equipment side. Any equipment which we sell is further tracking than our service part.

Service on the equipment side is in a pretty good ratio. We don’t disclose that because that would go too deep into the reporting structures. And the service business overall, so most of our business, as you know, PVD is services. In equipment, a decent part of that is services, where there’s not a real Service business that’s in the Materials business, that’s direct sell. But to split that in percentages, I’m not in a position to do that now.

Sebastian Vogel, Analyst, UBS: Got it. Many thanks. Happy to go back to the queue then.

Michael Suss, Executive Chairman, Erlikon: Thank you.

Youssef, Chorus Call Operator: The next question comes from Bernd Louie, Alfa Romeo. Please go ahead.

Bernd Louie, Analyst, Alfa Romeo: Hi, thank you for taking my question. Could you provide more insight on your exposure to The U. S. Market? You have previously highlighted that The U.

S. Was key growth driver. However, The U. S. Sales are currently down year on year.

Could you help us better understand the dynamics in The U. S. Market? And do you expect potential tariff shift to have a positive impact on your U. S.

Growth? And are you seeing any of your clients relocating, operational, establishing manufacturing sites in The U. S?

Michael Suss, Executive Chairman, Erlikon: Let’s start with the last part. A lot of our clients have U. S. Sites, and it’s ups for the moment, not visible for us that they shift massive production towards that site. So one of our bigger clients, the Volkswagen Group, they have not the biggest exposure into The U.

S. Audi has none, Porsche has none. If they plan to do something that would not work short term, that works mid and long term. Overall, our exposure in The U. S.

Is a good one. But as I said, it’s a 25% of our business is U. S. Market directly. What is important for us is that a lot of our European customers who are exporting to The U.

May have an impact may have a positive or negative impact on tariff situation. And this is that’s why we are a little careful and cautious because that makes the whole world for us very difficult to touch on. Because very often, we quote stuff which is in a Tier two or Tier one situation, enters then a car or a product, and we do not know finally, is this product moving towards The U. S. And tackled by tariffs?

Or is that moving to India or China and not tackled by tariffs? Or does it stay within European Union? The predictability of markets within the last three months dropped a lot because we had seen it, but I don’t tell you anything new and I don’t want to hide behind geopolitics. But it’s a matter of fact that the Israel’s situation is completely unclear. The Iran situation is unclear.

Nobody talks about Taiwan anymore. Russia and China have just recently launched a common exercise with the navies. We have the tariff discussion, which goes radically up and down. So now India has announced to get higher tariffs from The U. S.

The European deal, as I said, in my eyes, is not really fixed because it’s a handshake between European Commission head and U. S. President, but there is not a real deal structure behind. And last but not least, we have to face this 39% threat on the Swiss industry. And here again, we can handle that somehow by our international network and our direct activities.

It will have an impact, but it’s an impact which we get probably under control. What we cannot handle is and what we can it’s difficult to foresee is that how this tariff situation is impacting our clients’ situation and the overall behavior of customers to buy the equipments where we are getting our coatings on.

Markus Richter, CFO, Erlikon: Yes. And Michael, thank you. And if I may add to that. So if we consider the FX headwind and USD depreciation, we are actually flat year over year for The U. S.

Or for The Americas. So here, we have shown some resilience. And going forward, we see some upside in the energy, oil and gas if the promised drilling activity is coming back. Here, we see a bit of a delay of the uptake of that. But don’t forget, we have the world’s leading technology with our new metrics material, a drill head that has set world records in terms of depth and growing through hard rock.

So if the drilling activities for generating new oil sources will come, this will be a great upside for us. On the tariff side, don’t forget, and I want to mention this, I’m sure you’re aware, but the service business is typically very local. We have a location in The U. S. And 100 miles around it or 150 kilometers around it is where you have the customers except for Materials and Equipment business, as we discussed earlier.

But I feel we are flat in a very weak environment, which shows our resilience and shows that our customers really appreciate us as part of their partner in there and how valuable we are to their supply chain.

Bernd Louie, Analyst, Alfa Romeo: Okay. Thank you.

Michael Suss, Executive Chairman, Erlikon: And may I add to what Markus was saying, and I don’t want to overwhelm you with all these words and phrases. But when we talk about oil and gas industry, we have as well to differentiate between upstream, midstream, downstream. We have seen a good oil and gas industry in midstream, downstream, but there was no upstream. Upstream was half that. If there’s now these activities of higher drilling, that would be in our favor because that’s where we are engaged in the oil and gas sector.

So it’s always important which part of a sector is moving actually. And this is I think on one hand, it’s burdened. On the other hand, it shows the resilience of the company because 80% of our markets are really in headwind. Despite that, we’re still in a very high profitability level. And if then for the half year and I stated that very often, a business like Erlichoorn is very difficult to judge on a quarter base or half year base.

When we do some impairments now, then we correct within the pure play story. We correct some developments, which have not either taken place or which have really materialized like in nitriding, where the market volumes are consistently falling and not developing proper, and there we had to act on. But this is a correction, which is not talking anything about the operational strengths of the company. It’s not talking about the innovation pipeline, which we have. The only what we need is a little, little boost from the back in one of the other markets, because 20% aerospace is 20% is good, and we will increase our market share there, but it’s going over time.

All the other industries, even semiconductor first half year was pretty weak. This is a market where we’re building actually a position for us, but still that market or even that market is not a strong market.

Youssef, Chorus Call Operator: Next question comes from Michael Voort, Vontobel. Please go ahead.

Aymeric Jammard, Head of Investor Relations, Erlikon: Thank you for taking my question. Good morning. Actually two, if you could make some comments on whether your midterm EBITDA margin target of 20% to 22% is still valid at this point? And sort of maybe on the back of your cost savings and streamlining, what the time line to get there would be? That would be my first question.

Michael Suss, Executive Chairman, Erlikon: So Markus, I would like to start because, yes, it’s intact, and it’s massively depending on how our market environment is working. In that market environment where we are in, we are more in the 2017 or 2018 as we are working actually. But if some of these markets and they will, by the way, that we have not 80% of our markets, I would say, of industry because we’re covering general industry, automotive industry, luxury, semiconductor industry, tooling, cutting tools, forming tools, this is a huge portion of industry. If some of that industry is turning, there is a very high opportunity to get on this 20% and further on. In a given market environment, so if you ask me on time line, if the market environment next year is the same than this year, we are more in that area where we are actually, maybe a little bit higher because our savings are working.

And savings doesn’t mean that we cut off something nonsense. We are simply additional drive our performance within the structures, procedures in that very pure organization, which we are now a little bit released of all this stuff, which was more too much corporate heavy. So by the time line, it depends massively on the markets and depends massively on how the international community is thinking about open trade.

Markus Richter, CFO, Erlikon: And maybe if I may add to that, and currently, we’re looking into the possibility of having a Capital Markets Day next year. And with that, because it’s really transformative mode for us right now, we can give you much better and much more concrete updates on that.

Aymeric Jammard, Head of Investor Relations, Erlikon: Okay? Okay. Thank you. And I guess my second question probably gets the same answer. You redefined the way you calculate ROCE.

And the question would be now you’re still it’s still pretty low and not in value generating territory now. The question would then be what time line you have in order to get value generative, but you will probably answer at the same time, I guess, or if you want to make any comment No. On it

Michael Suss, Executive Chairman, Erlikon: Sorry, that’s the wrong guess. ROCE is something where we simply see that we have done significant investments and activities in the past. By the way, within our depreciation, there is a significant portion out of a very old deal that was the old Medco deal, which is phasing out over the next couple of years, but it was in ’twenty one, ’twenty two, still significant. There are some other activities where we’re working where we have invested, where we do not need to invest all the time. As for example, we had no own carbon coater and diamond coaters, which we developed, and we are now on a very good action to introduce them into the markets.

So there was things to be done where the ROCE was not in favor of that, as you mentioned. I’m not happy about a 4% or 5% ROCE, and there is a clear task to get that on a level, as you said, that we are capital accretive and not capital dilutive. And the time line about that, it’s in a shorter period or, let’s say, over the next two years and not over the next five years. Market situation, it can be a year, it can be two, it can be a 1.5. Definitely with the pipeline we have, and this is and this should sound really encouraging for you, the innovation pipeline we have, day by day, we take market share.

In a flat or even shrinking market environment, we take market shares from our competitors. So the technology position of Erlicon is a super strong one. The only what we need is a little bit more market to grow to strengthen that.

Markus Richter, CFO, Erlikon: Right. And but also, you’re correct, you get the same answer, a more formulated view on that also as part of a potential CMD in 2026. Thanks for your understanding.

Bernd Louie, Analyst, Alfa Romeo: Sure. Thank you.

Youssef, Chorus Call Operator: The next question comes from Foletti Alessandro, Octavian. Please go ahead.

Alessandro Foletti, Analyst, Octavian: Yes. Good morning everybody. Thank you for taking my questions as well. A couple as well, very easy I think. Is there a way can you quantify the impact of the business mix in your margin decline?

Michael Suss, Executive Chairman, Erlikon: Markus, can you do

Markus Richter, CFO, Erlikon: that? Mentioned before, we don’t go on that deeper level. But here, the truth that you are aware of are intact. The majority of our business is around the services business. This is where the margin accretion is coming from for our group.

And this is where we have the biggest hit due to our end markets, general industries, tooling and automotive. So a good portion of what we see in our results and in our difference in results versus last year is very much coming from a mix. We also have to consider that 0.6% or EUR 5,000,000 is coming from FX. So but I’m sure you decommissioned that already. And as for the mix, it’s the majority of the remainder.

Alessandro Foletti, Analyst, Octavian: Okay. Thank Thank you. Well, it was still good enough even if it was just qualitative. And then on the pension effects, you mentioned Mr. Suss that you restructured massively the pensions and I see the liability grade now.

But I wonder if there was an effect on the P and L as well. And if that also would be nice to hear if you can quantify.

Michael Suss, Executive Chairman, Erlikon: Maybe I didn’t got your answer proper your question proper. Can you repeat?

Alessandro Foletti, Analyst, Octavian: Mentioned in your statements, Mr. Sviu, that you restructured the pensions, the pension liability? Or was it just in connection with Baumark?

Michael Suss, Executive Chairman, Erlikon: It’s in connection with Baumark. Baumark was carrying a huge liability. And when we have finalized the carve out of Baumark, the sale of Baumark, and we have a much, much smaller pension liability on the company. So it’s not only about the classical debt levels, it’s really on the pension side, which gives us a massive release on that because typically by structure, Baumak was a mainly German organized setup. And in Germany, you had a much higher pension liabilities as we have typically in the RemainCo with the setup we have.

Markus Richter, CFO, Erlikon: And you alluded to that, so we don’t have the effect yet in our books. We will have we will see the effect only at closing, which we expect to be at Q4. And here, we expect something around EUR 120,000,000, 130,000,000 effect then at the year end.

Alessandro Foletti, Analyst, Octavian: All right. Thank you. That’s great. And then remaining on Biomark maybe, is there also foreign exchange accumulated foreign exchange recycling through the P and L that has to happen?

Michael Suss, Executive Chairman, Erlikon: Markus, I’m not

Markus Richter, CFO, Erlikon: sure I understand the question, to be honest. Well, the past

Alessandro Foletti, Analyst, Octavian: when if I remember correctly when you sold I think the vacuum business or the what was it advanced technology business, there were cumulated translation differences from foreign exchange that were sitting on your balance sheet that that to be recycled through the P and L ones leading to significant book losses, but non cash, but book losses. This is what happened a So couple of times in the

Markus Richter, CFO, Erlikon: you’re talking about CTA and the currency translation. Also here, as you’re aware, this will be happening with the closing. Again, this is at Q4. As of June, we can say that we’re in the ballpark of around EUR 200,000,000 for that.

Alessandro Foletti, Analyst, Octavian: Okay. Good. Thank you for that.

Youssef, Chorus Call Operator: Next question comes from Knobla Razian, ZKB. Please go ahead.

Razian Knobla, Analyst, ZKB: Good morning. Thanks for taking my questions. I have two. And also thanks for the clarification there on the pensions. My first question is you have a rather big discrepancy between the reported and the adjusted EBITDA or operating or how you call it.

Can you elaborate there on the nature of your impairments, specifically this Natridium or Eldrim? What are they exactly? And how do I understand one offs there?

Markus Richter, CFO, Erlikon: So it’s restructuring. All of them go under restructuring. And obviously, the difference, as you mentioned correctly, is related to these impairments. We have three types of impairments. We have the impairment for night riding, which is a business that has challenges on the customer side, very connected to the automotive business.

And with that, also very under pressure from the market. We don’t right now see a good way to have an accretive business out of that and that becomes sizable. So this is the impairment for night riding. Also, the next impairment is for Elden. While we believe and we see strong uptake in the aviation industry, Elden is a special case.

We have a very large contract long term contract with the main player in the aviation industry. However, as you are aware, the qualification process and sometimes the setup of the production may take longer than anticipated, and this is the case here. We see a delay of this contract. The contract will come in its full form at the moment, but at a later stage. So we took cautious steps on this one.

And the last one was already mentioned. It’s a bunch of R and D projects that were referred to by Michael before. And maybe one thing that’s important to me on the Eldon side, don’t forget this was a business that we acquired as part of the Metco transaction somewhat ten years ago. And here, the write off is mainly on the intangible assets. So the tangible assets are still intact.

Does that help?

Michael Suss, Executive Chairman, Erlikon: Yes. Maybe I’d like to add a little bit because the different the quality is different. Nitriding is a declining business where we are in touch with other business partners how to solve that. It’s a small pretty much small business. LDIM is a story where there is a growth plan behind, but that growth plan is, as Markus was saying, is with a big contract of transferring activities from a customer of us towards us.

And this takes a little longer because his capacities to push forward and to do all this verification, qualification work on are sometimes a little bit defocused. So by that, we have to do that. The last one, and it’s not a bunch, maybe Markus, I have to correct it. It’s dedicated. It was some activities on green hydrogen and stack development for that and batteries and solid state batteries where we simply have said there’s a freeze on now.

We stopped that. We have to write that part off, which we have invested already. It’s not the know how is not gone, but we have to wait until the markets are really promising and coming back. Green hydrogen is not that market as it was. It was somehow promised five, six years from European Union.

The same is the solid state battery situation. And the other major part of that was a development for certain titanium powders, where with the titanium powder development, this was simply obsolete and we had to write it off. So that’s an older story out of a couple of years ago. So that’s really and the last one was a start of a development of a new coater, which we stopped because that coder weight became too big and not for the right market. So it’s really dedicated write offs, which we do according to the pure play that we say whatever is not fulfilling our requirements, we don’t carry it with us, but we simply take it off.

Razian Knobla, Analyst, ZKB: All right. And then you’re receiving the cash proceeds for Baumark later this year. And you stated the priority of usage of these cash proceeds by paying off the term loan in February, then you want to do growth initiatives. And then you were thinking of a special dividend. And I was wondering, do you have any leverage level in mind that you want to reach before you’re thinking about paying out a special dividend?

Michael Suss, Executive Chairman, Erlikon: Yes, we do, but we would like to discuss that in the Board when it’s the time. First and above all, the major target is to deleverage. And that’s what we have announced and what we will do. And then we will see how the situation end of the year looks like, which kind of activities we’re doing and what is the, let’s say, remaining headroom for a potential special dividend. Special dividends, as you remember, we paid in the past, always as a part of a divestment, saying that those shareholders still participate in that.

As long as we can afford that, it was always good. We will not do anything which we cannot afford.

Markus Richter, CFO, Erlikon: In terms of going forward, it’s just a clear ambition to be below two well below two for the leverage ratio going forward.

Youssef, Chorus Call Operator: The next question comes from Arnold Christian, ODBHF. Please go ahead.

Christian Arnold, Analyst, ODBHF: Yes, good morning gentlemen. I have a question on the balance sheet and there especially on the prepayment received on orders and trade payables. These were quite lower than half a year ago. And I believe this is mainly due to the fact that, yes, we don’t have Barmak in there anymore. So we only have now CHF 20,000,000, I think, on prepayments and trade payables on the 108,000,000.

Is that a new level we should think about? Or do you think that repayments would play a bigger role again? Of course, never to the same extent as we as it used to be, because you don’t have bar mark anymore. But is this also due to the fact that you face lots of headwinds and therefore you don’t have much prepayments? How should we think about that?

Markus Richter, CFO, Erlikon: So first of you’re correct. A good portion of the advanced payments that we received were for Baumark business. As you know, as part of the discontinued showing of Baumark, the entire Baumark is shown under assets held for sale in one position. Going forward, we have also started an initiative to restructure our net working capital by which we want to improve the ratio between receivables and payables. Here, the project has started and is well on track.

And knowing that we may not get to the advanced payment levels without BaMark as part of pure play, we have organized to get to a better positioning of our net working capital with that.

Michael Suss, Executive Chairman, Erlikon: But the question, Markus, was a little bit more about the prepayments. And just structural, definitely there is a change because in the Baumark business, and you have seen that if you’ve been following the company, when you have an increasing market, you have always significant prepayments. Then on the opposite, in the years 2023, 2024, cash wise, the company was suffering a lot by these prepayments because then we had to deliver the work, but the payment’s been already been done. So then very negative cash impact in the years twenty twenty three, twenty four towards the company came from this decline. Since 2025, it’s more or less bottoming out.

But dimensional wise, and this was always one of the reasons why we said we had to separate the businesses in its quality total different. We’re talking about 50,000,000 to €300,000,000 order size for single orders versus we’re talking a lot of small customers and a lot of small service businesses in Remainco, in early con. And so structural wise, is a change, but that was what Markus was mentioning was even together better ratio between within our net working capital, and there are some significant moves to which we can do. But on the prepayment side, the level the quality level will decline towards that what you know now of 2021, 2022, 2023, not because there was no prepayment anymore in that dimension. On the other hand, there will be more prepayments again when we do especially on the equipment side, when we have some more markets tailwind again for further growth.

So in a growing market, for sure, you have higher prepayments and in a shrinking or flat market. But here again, to be precise, the dimension Baumark was bringing, that’s a different dimension because the business there, we do not have in early con in regular big projects, let’s say, above €10,000,000 Baumark doesn’t start projects below €50,000,000 The typical project size is 150,000,200 sometimes up to €300,000,000 And they only start there when there is significant prepayments there, but then they have to finish the project as well when their premiums are already taken. That’s part of their business model.

Markus Richter, CFO, Erlikon: Was

Michael Suss, Executive Chairman, Erlikon: that precise enough for us to

Christian Arnold, Analyst, ODBHF: Very clear. Yes, very clear. Maybe just a follow-up on the potential restructuring of net working capital. I mean, what kind of potential do you see there? I mean, we talking about an improvement of €25,000,000 €50,000,000 €100,000,000

Markus Richter, CFO, Erlikon: At this stage, mean, we’re going in that direction. But at this stage, we’re not yet ready to quantify. I would say give us to year end to have an announcement here.

Christian Arnold, Analyst, ODBHF: Thank you very much.

Youssef, Chorus Call Operator: Ladies and gentlemen, that was the last question and this concludes today’s conference call. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

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