shaping the portfolio Annual Report 2012 Key figures Oerlikon Group 2012 (in CHF million) 2012 2011 Change (abs.) Change (%) Sales 1 2 906 2 731 +175 +6.4 Order intake 1 2 802 2 878 – 76 – 2.6 EBITDA 1 547 450 +97 +21.6 EBIT 1 421 318 +103 +32.4 Operating cash flow 506 438 +68 +15.5 Net income 385 224 +161 +71.9 Key figures Oerlikon Group January 1 to January 1 to December 31 December 31 in CHF million 2012 2011 Order intake 1 2 802 2 878 Order backlog 1 834 971 Sales 1 2 906 2 731 EBITDA 1 547 450 – as % of sales 19 % 16 % EBIT 1 421 318 – as % of sales 14.5 % 11.6 % Net income 385 224 – as % of equity attributable to shareholders of the parent 21 % 14 % Cash flow from operating activities 506 438 Capital expenditure for property, plant and equipment and intangible assets 2 181 167 Total assets 4 159 4 573 Equity attributable to shareholders of the parent 1 858 1 586 – as % of total assets 45 % 35 % Net cash 3 339 –86 Net Operating Assets 2, 4 1 575 2 205 Number of employees 1 12 708 12 726 Personnel expense 1 765 740 Research and development expenditure 1, 5 106 102 1 2012 continuing operations, 2011 restated. 2 2012 continuing operations, 2011 as reported. 3 Net cash includes cash and cash equivalents and marketable securities less current and non-current debt. 4 Net Operating Assets include current and non-current operating assets (including goodwill and brands and excluding cash and cash equivalents, financial assets, current and deferred tax receivables) less operating liabilities (excluding financial liabilities, current tax payables and deferred tax liabilities). 5 Research and development expenditure includes expense recognized as intangible assets in the amount of CHF 15 million (previous year: CHF 16 million). Key share-related figures 1 January 1 to January 1 to December 31 December 31 2012 2011 Year high in CHF 10.85 7.85 Year low in CHF 5.06 4.06 Year-end in CHF 10.35 5.03 Shares outstanding at year-end 325 964 498 323 124 010 Market capitalization at year-end in CHF million 3 374 1 625 EBIT per share in CHF 1.30 0.99 Earnings per share in CHF 1.18 0.68 Cash flow from operating activities per share in CHF 1.56 1.36 Equity per share in CHF 2 5.74 4.91 Dividend per share in CHF 0.25 3 0.20 4 1 Average number of shares with voting and dividend rights (undiluted). 2 Attributable to shareholders of the parent. 3 Dividend proposed for 2012, to be paid in 2013. 4 For financial year 2011, paid in 2012. Contents Shareholders’ letter 4 I. Profile II. Operations III. Governance 1.0 Information for investors 8 3.0 Oerlikon Group 4.0 Sustainability 56 1.1 Oerlikon in the capital markets 9 operational review 36 1.2 Shareholder structure 14 3.1 Textile Segment 44 5.0 Compliance 58 1.3 Communication and information 16 3.2 Drive Systems Segment 46 3.3 Vacuum Segment 48 6.0 Corporate Governance 60 2.0 Oerlikon Group 18 3.4 Coating Segment 50 2.1 Markets 22 3.5 Advanced Technologies Segment 52 7.0 Remuneration report 84 2.2 Innovation 26 2.3 Regions 28 8.0 Risk management 96 2.4 Operational excellence 32 IV. Financial report Key Figures Notes Key figures Oerlikon Group 101 Accounting principles 107 Key figures by Segment 102 Notes to the consolidated financial statements 113 Group Segment information 146 Consolidated income statement/ Companies by country 150 Consolidated statement of comprehensive Report of the Statutory Auditor 152 income 103 Five-year summary of key figures 153 Consolidated balance sheet 104 Consolidated cash flow statement 105 OC Oerlikon Corporation AG, Consolidated statement of changes in Pfäffikon equity 106 Income statement 156 Balance sheet 157 Notes to the financial statements 158 Report of the Statutory Auditor 162 Legal structure 163 Shareholders’ letter Dear Shareholders, It gives me great pleasure to report on a very successful year for your company. 2012 was a transformational year for Oerlikon in which the portfolio was significantly streamlined, the balance sheet was refinanced, operational performance was very good, profitability improved and cash generation was strong. The sale of our Solar Segment and the announced divestment of the Natural Fibers and Textile Components Business Units have recast the portfolio. These transactions reduce the cycli­ cality and simplify the Group. The capital markets have rewarded our strategic and operation­ al achievements with a share price increase of more than 100 %. 2012 also saw a structural transformation of the balance sheet. We have a significant cash position as a result of both divest­ ments and operational performance, and have materially reduced the cost of financing for the company. The refinancing, completed in July, includes a new unsecured credit facility and, for the first time, a Swiss bond. The structure, which demon­ strates renewed market confidence in the company, greatly increases flexibility and reduces financing costs by almost half. The Board of Directors believes the company is well positioned to create sustainable value; the dividend policy introduced last We continue to face economic uncertainties in many inter­ year was a clear indication of this. I am pleased to announce related markets and industries. The Eurozone crisis appears to that the Board will recommend a dividend of CHF 0.25 per have calmed for the moment, but sovereign debt, sluggish share for 2012, an increase of 25 % over the last year, to the growth and consumer confidence remain issues around the Annual General Meeting of Shareholders. world. Given our focus on operational excellence, higher­margin growth markets and the diversity of our global footprint, which Looking forward, the achievements of 2012 have laid the foun­ is extensive relative to Oerlikon’s size, I believe the company is dation for the next phase in Oerlikon’s history. Through disci­ well positioned to manage these challenges and will success­ plined use of cash we will stimulate profitable growth through fully navigate through uncertain times. R&D investment, operational excellence and by entering new markets and regions. On behalf of the Board, I would like to thank our shareholders, our employees, customers and business partners for the com­ mitment and the support they have invested in Oerlikon. March 4, 2013 Sincerely, Tim Summers Chairman of the Board of Directors 5 The key factors in our strong performance were the systematic implementation of operational and strategic measures in the areas of: Innovation: Investments in research and development are pay­ ing off – take the WINGS technology used to produce man­ made fibers as an example. Since the system’s market intro­ duction, we have sold more than 10 000 units and thus increased our market share in manmade fibers to over 45 %. Regional expansion: in 2012, we again moved ahead with our global positioning by building up new coating centers in Asia, putting our new Drive Systems plant in China into operation and opening our new corporate headquarters for China in Shanghai. Operational excellence: we continued to work on optimizing our operational processes and cost base; for example, sup­ plier On Time Delivery has increased to more than 99 %. Portfolio shaping: in addition to the major transactions in the Solar and Textile Segments, the divestment of our stake in Pilatus Flugzeugwerke AG, the Melco business and property in Arbon, Switzerland, has enabled Oerlikon to fully focus on operations. These achievements established a good starting position for 2013 and years to come. Despite macroeconomic challenges, we believe that Oerlikon still has further growth opportunities. Unrealized potential will be rigorously addressed in applications Dear Shareholders, and industry fields we have not systemically approached in the past – specifically identified opportunities are under review in While in 2012 our agenda to strategically transform the Oerlikon the Drive Systems, Vacuum and Coating Segments. We will Group became obvious, we continued to deliver strong opera­ also continue to exploit cost­saving opportunities in areas such tional results. We increased profitability once again by generat­ as procurement and in manufacturing, through execution of ing EBIT of CHF 421 million representing an EBIT margin of operational excellence measures to further improve our under­ 14.5 %. Despite a challenging global economic environment, lying performance and profitability. we were able to increase sales in continuing business by more than 6 % to CHF 2.9 billion. While securing high­quality orders, For these reasons, we are cautiously optimistic about the future our order intake totaled CHF 2.8 billion, close to the same level and will meet these challenges and take advantage of these as the previous year. The strong operational performance and opportunities by continuing to systematically apply our strategy the cash proceeds from divestments resulted in a net liquidity based on innovation, regional expansion, operational excel­ for the Group of CHF 339 million. The continued strengthening lence and portfolio shaping. of our financial position is also reflected in the equity ratio, which increased from 35 % to 45 %. I would like to express my deep gratitude to all of our dedicated and highly qualified employees at our about 160 locations Nearly all Segments contributed to this positive performance. around the world for their hard work and support. They are the Key drivers were the Textile Segment – which will from now on reason for our success. focus solely on the manmade fiber business – and the Coating Segment. Both Segments are at Best­in­Class level relative to March 4, 2013 peers in their respective industries.