OC Oerlikon (SIX Swiss: OERL) Q2 2026 Earnings Call

0:00 Ladies and gentlemen, welcome to the Oerlikon Half Year Results Conference Call and Live Webcast. I am Matilde, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session.

0:31 The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Henrik Jana, Head of Investor Relations. Please go ahead. Good morning, ladies and gentlemen, and welcome to Oerlikon's first half year results call. My name is Eric Jana, Head of Investor Relations and I have here with me Marco Freidel, CFO of Oerlikon. Marco will start the call with a presentation,

1:02 an update on our end markets, financials and outlook. We will then follow-up with a Q and A. With that, I would like to open our presentation and hand over to Marco. Marco, the floor is yours. Thank you, Emrick. Good morning, everyone, and welcome to our H1 twenty twenty six results presentation also from my side.

1:23 Oerlikon is able to report a strong financial result for the first half of twenty twenty six. We continue to execute our strategic priorities to drive efficiency, strengthen our resilience and drive growth in the context of geopolitical uncertainties. These initiatives were supported by strong execution and positive market dynamics, in particular, in aviation, energy and general industries. I will start with an overview of our first six months, followed by an update on our end markets, the results, including the new segment reporting and will conclude with our outlook. Order intake in H1 significantly increased year on year at constant FX to CHF $920,000,000, up 19% versus H1 twenty twenty five.

2:15 Hereby, strong execution and dynamics in aviation, energy, in particular, industrial gas turbines business and general industries acted as main drivers. This positively impacted especially materials and equipment business. Sales increased by 7% at constant FX to CHF $790,000,000. A key success factor, in particular in the markets just highlighted, was that Oerlikon successfully leveraged strong demand and pricing power in the materials business. Hereby, we acted as a reliable partner to our customers despite geopolitical and supply chain uncertainties. Operational EBITDA margin was at 19.7% in H1, up 300 basis points year on year.

3:04 In addition to operational leverage, this was supported by the cost out actions launched in 2025, business mix, volume and positive pricing effects. The H1 twenty twenty six numbers are an excellent result and confirm the successful progress in executing our strategy of diversification, both in terms of geographies and end markets. This strengthens the company's resilience and enables us to capitalize on the exposure to markets with positive growth dynamics. Looking into H2 twenty twenty six, we remain committed to diligently invest in future growth while maintaining a strong focus on profitability and capital return. We also strive to further strengthen customer excellence, for example, use of utilizing last year's implemented shared CRM platform to maintain our role as a reliable and innovative partner for our customers.

4:00 Finally, we continue our path to further improve efficiency and resilience. We achieved this through balancing stringent cost focus with leveraging of our global footprint. This enables us to deliver growth based on a stable and flexible local service close to our customers. With that, let me provide you with an update on our end markets. Oerlikon operates across 10 industries, and we are looking forward to providing you further details on Dynamics and our solutions for customers in our Capital Markets Day on September 8 in Zurich. Particularly, the general industries and tooling markets show a close correlation to industrial production.

4:48 In H1, the PMIs in all three main regions improved, moving above neutral level. At the same time, geopolitical risks and supply chain disruptions keep impacting customers' behavior, for example, with regard to precautionary stocking. Also growth dynamics in Semicon, a key growth market for Oerlikon, remains strong. Overall, H2 twenty twenty six is expected to remain balanced between improving fundamentals and ongoing geopolitical uncertainties. In automotive, global light vehicle production was flat in the first half of the year with all three major areas showing a muted environment. In The EU, uncertainties generated by changing industrial policies continue to create a challenging environment for our customers and delay investment decisions.

5:45 These dynamics are also relevant for our hot runners business, HRS Flow, whose performance is closely related to car model launches, which experienced soft momentum in H1. Looking ahead, industry agency forecasts indicate potential for a slight improvement towards year end. All that said, Oerlikon continues to drive innovation in the industry, leveraging its strong customer relationships to make the future of mobility more efficient and sustainable, be it in the vehicle body, braking system or the battery. In aviation, the industry shows a record high of new plane production and order backlog, supported by increasing traffic and demand for energy efficiency.

6:38 At the same time, manufacturing capacities and supply chains continue to improve. In addition, the increase in flying hours is driving MRO activity and thereby demand for our solutions. We also see aircraft manufacturers upgrading old equipment. Our products are supporting them to develop more efficient and more sustainable aircraft engine technology. The industry also expresses confidence in the ability to continue increasing production capacity over the coming years. At the end of June twenty six, the combined order backlog of the major aircraft manufacturers exceeds ten years of production at current delivery rates, providing strong visibility.

7:29 In energy, the industrial gas turbines market, which from an Oerlikon product offering point of view is close to aero turbines, experienced strong growth in the first half. This is driven by the surge in power demand for data centers triggered by the boom of artificial intelligence applications. On oil and gas, we see the market broadly stable. In luxury, end markets remain subdued, mainly due to soft demand in China and, to a lesser extent, tensions in The Middle East. On the more positive side, Swiss watch exports were flat in H1 26% year on year with an improving trend towards end of H1.

8:17 Mid term, the growth drivers for the luxury market remain well intact With product quality, economics and the trend towards more sustainable products, Oerlikon with its unique offering is well positioned to capitalize on this trend. Summing up, we all see a generally improving industrial environment. With that, let's move to Page four, where we discuss the financials.

8:49 Overall, our performance was supported by the generally improving market dynamics as just described. So both our tooling and general industries businesses benefited from PMI increasing above neutral level. Also, aviation, energy and general industries oriented materials and equipment businesses performed very well. Hereby, Oerlikon leveraged strong customer demand and pricing power. Despite geopolitical and related supply chain challenges, we showed strong execution by being a reliable partner for our customers and meeting their increasing demand. Automotive business showed a mixed performance with positive development in coating services versus muted performance of our hot runners and Friction Systems businesses in components.

9:46 Overall, our diversified end market exposure and balanced regional footprint were key enablers of these strong results.

9:57 As a result, H1 twenty six order intake and sales were up significantly year on year at constant FX at CHF $920,000,000 and CHF $790,000,000, respectively. The book to bill ratio remained well above one at 1.2, which is expected to support sales in the second half of the year and beyond. Operational EBITDA in the first six months of twenty twenty six amounted to CHF156 million, representing a margin of 19.7%. The strong performance was the result of several positive effects, including volume, mix, pricing power and inventory revaluation effects based on the strong increase of critical mineral prices.

10:52 Additionally, the progress made in our cost out actions initiated over the last two years led to a reduction in admin costs of 7% year on year.

11:07 As a result, operational ROCE increased to 6.2%, primarily driven by higher profitability. Through our strategic and financial initiatives, we are committed to further improving our return on capital to a level that enables strong long term value creation. As part of our pure play transformation, we have also implemented segment reporting, enhancing transparency and providing greater visibility into the performance of our business. We will discuss the individual segments in more detail at the Capital Markets Day in September, but first time financial reporting is available as of H1 twenty With that, let's move on to the segment Coating Services.

12:02 The Coating Services segment comprises our coating activities that enhance performance and durability of demanding applications. Through a footprint of more than 100 coating centers in 38 countries, we deliver our large variety of coating technologies, ensuring the optimal solution for our customers' products. At constant FX, the segment sales increased by 5.5% compared to H1 twenty twenty five, with all regions contributing. FX remains a headwind. Looking at the markets, sales in general industries, in particular, semicon and tooling grew.

12:50 In automotive, the coating services business showed positive signs of stabilization. Performance in the second half of twenty twenty six is expected to follow the usual seasonal pattern and to remain broadly in line with historical trends. Operational EBITDA increased to CHF57 million. This represents a margin of 18.8. Hereby, margin improvement was supported by volume, mix and pricing. In addition, the cost out actions launched in 2025, including footprint optimization, strong cost control and efficiency improvement further supported margin development.

13:40 With that, let's move on to Materials and Equipment. Materials and Equipment segment provides coating systems, related aftermarket services and materials for thermal spray and additive manufacturing. Our broad portfolio of equipment ranging from single handheld spray guns to fully integrated system platforms enables us to deliver solutions tailored to our customers' needs. Combined with our strong R and D expertise, deep material science engineering knowledge and close collaboration with our customers, we consistently provide best in class materials and application solutions.

14:36 At constant FX, segment sales increased by 19.7% year on year, driven by strong dynamics and execution in aviation, energy and general industries.

14:52 This strong performance is mainly driven by our materials business in which we proved our ability to meet increasing customer demand despite challenging supply chain conditions. In addition to volume growth, we also leveraged our pricing power, including surcharges for critical minerals, in particular, tungsten and yttrium.

15:16 In equipment, against the backdrop of the strong development of the before mentioned end markets, order intake was strong. This is expected to support sales in the coming quarters. Operational EBITDA rose to million, corresponding to a strong margin of 23.8%. The improvement was driven by operational leverage from higher sales volumes, complemented by pricing power and effects from inventory revaluation.

15:56 With that, let's move on to the Components segment. Components segment engineers and manufactures precision parts for demanding industries. We improve customers' product performance, safety and efficiency for diverse sectors.

16:17 This includes automotive with hot runner systems from our HRAS flow business, TIS, our thermal insulation solutions for batteries and components for the luxury industry. In addition, we serve the aviation industry with aero engine components from LDIM and our additive manufacturing business is targeting mainly the aerospace and defense as well as semicon industries.

16:49 At constant FX, the segment sales declined 4.4 compared to H1 twenty twenty five. From a regional perspective, the main business areas negatively affected were APAC and Europe. The main drivers for the decline in the segment are the Friction Systems and Hot Runners businesses, which were impacted by the automotive headwinds. Despite this, HRS Flow is continuing to successfully diversify into PMCL, so packaging, medical, consumer goods and logistics industries from a lower base.

17:29 In our luxury business, we are seeing stabilizing stabilization in sales. On the positive side, we see clearly improving momentum in our aviation oriented Eldin business.

17:44 Moving to profitability. Our operational EBITDA declined to CHF 26,000,000. This represents a margin of 11.9%. Cost out measures implemented in Luxury in 2025 contributed to a year on year improvement in that business. In addition, the continuing ramp up in LDIM for large aero engine programs, automotive diversification into thermal insulation systems for batteries and additive manufacturing show increasingly positive contribution.

18:25 Profitability in components remains below our expectations. Accordingly, we will continue to focus on optimizing the cost base, driving growth and thereby restoring target margin levels. With that, let's move on to cash flow.

18:48 Cash flow from operating activities of minus CHF 8,000,000 as per our H1 report includes discontinued operations, means Barmark. Focusing on Oerlikon, excluding Barmark, pro form a cash flow from operating activities amounted to CHF 32,000,000 in H1 twenty twenty six, up CHF 25,000,000 versus H1 twenty twenty five.

19:17 This underpins the strong cash flow management, which contributed to absorb higher inventories, which were significantly impacted by increasing critical mineral prices. In this, increased advanced payments from customer also acted as countermeasure.

19:38 Overall, the usual seasonal inventory buildup in H1 is expected to support cash flow in H2. With that, let's move on to the balance sheet and capital structure.

19:56 The leverage ratio at the end of June twenty six stands at 2.5x, reaching this level already six months ahead of the schedule communicated with our full year results presentation.

20:11 Both EBITDA improvement and net debt reduction contributed. We will continue with deleveraging towards our midterm target of below 2x. Throughout H1, we maintained a tight focus on cost control, working capital and CapEx.

20:34 In the first half, we also actively managed our debt profile by repaying million term loan with the Varmark closing, leading to an interest rate saving of CHF13 million per year. In addition, we issued a CHF 200,000,000 bond in May and repaid a maturing to CHF 20,000,000 bond in June.

21:03 The coupon is 75 bps lower, resulting in an interest cost saving of approximately CHF 2,000,000 per year. This was supported by the reconfirmation of all of our ratings at investment grade in spring.

21:22 Our liquidity position remains strong with around CHF 900,000,000 of cash and available credit lines at the end of June twenty six. In addition, we report an equity ratio of 41% for H1 twenty twenty six, up from 24% end of twenty twenty five.

21:46 With the strengthened balance sheet and enhanced financial flexibility, we are well positioned to support strategic execution. Next, to our 2026 guidance.

22:05 Based on the strong first half year, we are increasing our full year guidance. We now expect a mid single digit percentage sales growth versus the previous guidance of low single digit percentage increase. This reflects the strong H1, especially in aviation, energy and general industries as well as an encouraging outlook for H2.

22:37 Furthermore, we now guide for an operational EBITDA margin of 18.5% to 19.5%, up from around 17.5% previously, assuming broadly stable tungsten and yttrium prices.

22:56 This also builds on a strong H1, supported by market momentum, strong operational as well as commercial execution and our confident outlook for H2.

23:12 Let us now recap the first half year on the next slide. Despite a backdrop of significant geopolitical uncertainty and ongoing trade tensions, Oerlikon delivered a strong performance in the first half.

23:31 This was driven by aviation, energy and general industries, with Oerlikon successfully leveraging strong demand and pricing power, particularly in the materials business. Throughout the period, we acted as a strong partner to our customers, supplying mission critical products and ensuring production continuity. We are also making good progress on our efficiency measures and cost out initiatives. These actions are on track and will further enhance our agility, improve our operational leverage and support profitability and value creation in the years ahead.

24:18 At the same time, we remain committed to driving innovation and growth across the company. By continuously improving our competitiveness and investing in new technologies and growth opportunities, we are laying the foundation for further sustainable long term growth and strengthening our leadership positions in attractive markets.

24:47 Looking forward, while the external environment remains dynamic, we are very confident in the attractiveness of our products, the strength of our business model, the quality of our customer relationships and the dedication of our teams worldwide.

25:08 Our priorities are clear: supporting our customers, executing with discipline and creating sustainable value for all stakeholders. Ultimately, our objective is to deliver long term value through profitable growth.

25:28 With that, thank you for your attention, and we look forward to sharing with you further details on the business and outlook at our Capital Markets Day on September 8 in Zurich. With that, let me open it up for Q and A. We will now begin the question and answer session.

26:05 You. Please limit yourself to three questions and place them one by one each, hence allowing the company to answer each question individually before posing the next question.

26:33 The first question comes from the line of Tobias Klepper from Zurcher Kantonalbank. Please go ahead. Yes, morning. Thank you for taking my question. Could you give us some more insights regarding the effect that the inventory revaluation had compared to your cost measures? What was the effect on your operational EBITA margin?

26:54 How much of the inventory increase was due to the higher raw material prices? And then maybe going forward, what effect do you expect?

27:05 Thank you, Tobias. The effect you see on the margin is a mix of effects. So it is about volume. It is about mix. It is about the effect from the restructuring measures, which you saw in the last year and also previously.

27:24 And on top of that, it's inventory valuation. So it's a mix of effects and not just the revaluation that you mentioned. When you look at the guidance, which assumes stable prices for the critical minerals that we referred to, you can work on that basis with regards to modeling.

27:47 All right. Thank you. Thank you. The next question comes from the line of Alessandro Foletti from OCTAVIAN. Please go ahead. Yes, good morning. Thank you for taking my questions. Can I ask one understanding one and then my three questions? I know I'm maybe exaggerating, but you tell me. The understanding question is on the ROCE calculation that you made, you show 6.2%, but this is not annualized. Is that correct?

28:25 Can you please repeat the question, Oerlikon, right? Didn't understand The the ROCE calculation that you have shown 6.2% on Slide four of your presentation.

28:38 I just was wondering, 6.2% is not annualized, right? It is the balance sheet that of period end and it is the last twelve months for the year. That's the last twelve months. Okay. Thank you. That's the question. So I wanted to ask you on Coating Services and component quoting. Can you explain me how you sort of split the business there between what is purely

29:11 servicing, I guess, servicing on tools, and what you used to do on coating components for the automotive industry? Do you have, like, separate factories or separate lines inside your bulges? How did you split that?

29:30 Yes. Happy to provide the details on that. So on one side, the one segment coating services is what you have to think about as the globally spread centers that provide coating services ranging from tools, that's cutting tools, that's forming tools, that's precision components, which also go into semicon, which go into medical. So it is a very local for local coating center based coatings business. In components,

30:02 it's as the name states, it's much more about the component where we leverage synergies in terms of industries. And as I stated before, we have very good dynamics in aviation through the aero components for aero engines from LDM. We leverage synergies in the automotive industry into the thermal insulation systems, and we have luxury and HRS Flow. So the coating element in that segment is partial,

30:34 whereas the coating element in the segment coating services is ultimately the business model. So that's the key differentiator. So when you think, for example, about luxury, luxury does coatings, but it's only part of the component offering.

30:49 So in this sense, like the value add is bigger in components, so you have to manufacture more. Coating is only one element, one step of what you do. That's the deal. That's exactly correct. Yes, exactly. In Coating Services, it's about the coating itself, of course, which we develop, which runs on our own equipment. So I think we believe we have a very strong USP here combining these business models that's very unique, whereas in components, it stretches beyond the partial coating into whole components, which show our strong engineering capabilities, yes. All right. And my final question is on the materials and equipment business, which obviously had a very strong result.

31:38 Typically, in the past, when you had the surcharges, etcetera, it didn't have a big effect on the bottom line actually. It was just more like passing on the input price increase. What is different here in this current situation?

31:56 Yes. It's a very good question, Alessandro. And I think it relates a bit to my answer to Tobias' question. What we have seen over the last half year and also before is the dynamics in the industries that I mentioned. Aviation, General Industries really allowed us to push our offering to beyond just pass through of prices. We developed, I would say, into a much more strategic partner to our customers or we were before, but now it became much more independent and to our customers. So it's literally a mix of volume and also the quality of our offering and the value that we can demonstrate to our customers.

32:44 So it is a combination of factors that we have not seen in the years back. So it's a combination.

32:52 So if I may add on here, obviously, the margin increase from 16.8 to to 23.8 is huge. Right? But are are you telling me that because of this increase while you add the 28%, it's not a new level that you can keep? Or I should be maybe between the two numbers? I mean, what we guide for is stable prices. So in H1 and I'm sure you have looked at the tungsten and digital prices, they increased significantly. So if we assume stable prices, then at least that effect will not repeat unless prices start declining again.

33:37 Of the fundamentals, which range from operational leverage, how we operate the business, how we steer it from sourcing to shipping, I think that's a really comprehensive improvement that we have developed developed over the last couple of years. So the 23.8 is not necessarily the new sustainable level, but you are away from the 6.9% of last year basically? Right. Okay. Thank you. Thank you, Oerlikon. We now have a question from the line of Louis Vuillon from Baader Europe. Please go ahead. Hi, good morning and thank you for taking my question. So my question is, so when we take your midpoint guidance for operational EBITDA, it's at 19%.

34:31 So it implies H2 at around 18.3% depending on sales. But should we consider that it will be the new standard going forward? Do you feel confident to reach 18.3% EBITDA in 2027 and beyond? Thanks for your question, Louis. At this stage, we don't comment on 2027, right? We will have a Capital Market Day in one month where we will look into the midterm. There were the effects I just described to Alessandro, but overall, we are very confident that the actions we took over the last couple of years that they have a sustainable effect and enhance the quality of the profile of the individual segments and the products we deliver.

35:22 So yes, don't comment on 27%, but we have a sustainably positive development, which we can show. Okay. Thank you. And maybe a second question. Could you give us more detail on the order in H1? Is it mostly pre booking from your customers? And also, is the lead time changing? So should we expect those orders to be converted in sales more later than it used to be? Well, I mean, on order intake, what is important is here that we have a very strong contribution also from equipment, right? As I said before, on the sales level, it's mostly materials.

36:09 But on the order intake, we see very good dynamics in equipment as well. And this is driven by the same industries, in aviation, but also in energy. I mean, if you observe the industrial gas turbine markets, the OEMs, the order books, how deep they are, how, I would say, stable for the next couple of years, you can assume that on the order intake, one, this is also significantly impacted by equipment. And here, one element to consider also looking a bit ahead is that we have a significant share of aftermarket business in our equipment business. So any system we place is an opportunity to generate aftermarket business, after sales and also to generate materials business. So this is the power of the combination of these two businesses is to create sustainable and very sticky demand after you place the system in the market.

37:11 Okay. Thank you. And maybe a last question. Like your stock of tungsten and yttrium, is that changed since full year 2025? Have you maybe do you have less stock? What are the new rules for the stock of tungsten and yttrium? I mean, we don't go into details on the volume as such, but the supply situation in these materials is something that you need to be very capable of in managing. So it's about securing and being able to ship to customers. So yes, there is an effect of because volume grows on the sales side.

38:02 But yes, that's about it. Okay. Thank you. Next question comes from the line of Leoni Zian from UBS. Please go ahead. Yes. Hi. Thank you for taking my question. I had three follow ups. I'll start with the first one regarding your new segments. You mentioned Coating Services and that you expect for the second half to follow the typical seasonal pattern. If I look at the H2 twenty twenty five, then this looks a bit softer than the H1. So is it fair to assume that Coating Service revenues will be softer as well into this year? Thanks for the question, Leoni. The seasonal pattern we referred to is not about the underlying dynamics of the fundamentals. We are very confident on that end. It's just a simple fact that with the summer break in the H1 and with the December holiday season, you have naturally a lower share of, let's say, working days. But the fundamentals are very much intact, we see actually good trends in the underlying business.

39:17 Okay. Thank you. And then the second question, I think, on free cash flow, it's very important to clarify. You mentioned that operating free cash that the reported free cash flow contains like €42,000,000 impact from Barmark. Will this impact be limited only to the first half, I assume, because you consolidated also in first half? And then what are your expectations also around net working capital normalizing? What would be like a good ballpark range to assume where inventory and receivables end by end of year so we can make an estimate on free cash flow? Yes. Thanks. So first, we still report bar mark within our financials because the closing only took place in February, right, beginning of February.

40:10 That's why on the cash flow statement, you still have the whole group, including discontinued operations, whereas in the balance sheet and the income statement, it's Oerlikon only. And we'll see that for the rest of the year to come. The effects that we observe here, I mean, is the effects from the January result of Balmac. So after the closing, there is nothing to be expected anymore. When we look at the working capital, as described before, we have at the moment obviously a a high impact on inventory buildup. This is materials, but also very important to mention also when you look at the last couple of years.

40:58 Cash flow wise H1 was usually weaker because we build up also inventory and prepare for shipments of equipment in the second half. So the end of year cash flow profile and also working capital profile will look different than from H1 as it did in past couple of years. In the working capital, there are some one offs at the moment due to the factors I described. We work on countermeasures. I think we were quite successful on generating advanced payments, and we keep our focus on that. Okay. So is it fair to assume a similar cadence that we've seen in free cash flow last year, where we've seen around minus 50% in the first half and then plus 150% in the second half? Is this fair to repeat this year as well from what you've just described?

41:56 Well, mean, the order of magnitude always depends on the business mix, right? But directionally, as I said before, H2 is stronger because of the factors I described. Okay. Thank you. And then last question. I wanted to check regarding cash flow because you initially mentioned for cash flow around CHF 100,000,000 for 2026. But now the first half was actually quite soft at just CHF 33 And does it mean the remainder will come in, in second half? Or will CapEx for the whole year be lower? Yes. Thanks for the question. So CapEx was indeed low in H1. It's a combination of factors. Number one, we remain very, very diligent on assessing the opportunities to invest.

42:46 But in that case, it's simply also backloading of the CapEx. So we keep our previous comment that we expect around €120,000,000 of CapEx for the full year. There is some backloading, in particular also from the large onetime investment we have this year in Switzerland for the technology campus at Eicholt. So to answer your question, the result of H1 is because, for sure, we were diligent, but secondly, it's simply seasonality and CapEx being back loaded into H2. Okay, perfect. Thank you so much. And then just to check on the margin guidance that you gave, the midpoint of 19%. Will this mostly be supported by the similar drivers for the second half as we have seen in the first half?

43:39 Well, I mean, what will ultimately drive the business, we will find out in the course of H2, right? But we see the fundamentals in terms of industries, in particular, the ones I mentioned, aviation, power gen as very sustainable. So yes, we expect generally the industry dynamics that we've shown, I think on the slide, you also see that in some industries, expect H2 even with potential upside to remain intact. And the guidance as such, what I mentioned is that it assumes stable prices for the critical minerals. Perfect. Thanks so much. Thank you, We now have a question from the line of Christian Arnold from ODDO BHF.

44:35 Please go ahead. Yes, good morning gentlemen. One question on your segment reporting. Looking at your half year report, I see that for the Components segment, the operating assets declined quite significantly by midyear versus at the beginning of the year with stable operating liabilities. On the other side of Materials and Equipment, operating asset increased a lot. So have you seen here have you shifted some assets from one segment to the other? Or what's behind this development? Thank you. Hi, Christian. Thanks for the question. Yes. And you see that in footnote on the respective page in report that with the start of the segment reporting, we reallocated goodwill based on the fair relative fair value principle.

45:35 So the majority of that shift is related to the reallocation of that. Okay. And can you give you a little bit more detail? So we talking about the acquisitions of Riri yes, which moves from one segment to the others? It's not acquisition based. It's about the relative fair value of the individual segments that determine the distribution of into the asset base. Okay. Thank you. Thank you. The next question comes from the line of Raimo Roveinau from Helvetosche Bank. Please go ahead.

46:28 Yes, thank you. I just noted that the spending for research and development were down from CHF 58,000,000 to CHF 38,000,000. Is well, looks like quite a steep decrease. Is that what is behind this number? And where do you expect the full year number to be and then going forward? Yes. Thanks for the question. That is a baseline effect. Last year, as you might have seen in the full year or last half year report in 2025, we had significant restructuring and impairment costs. So the delta that you see is not that we spend less on R and D. We are committed that R and D in the area of 4% up to 5% is a very important driver of our success.

47:24 So the delta you observed is a baseline effect because you had onetime cost in last year, which this year we don't have anymore. As you might have seen between the reported and operational figures, we don't have gaps this year. So that's the reason. Okay, great. Thank you. Thank you. We have a follow-up question from the line of Leone Zhen from UBS. Please go ahead. Yes, thank you. Just one more follow-up and regarding the components. You also mentioned that profitability remains below your expectations or below the target level. Can you qualify what the target level would look like?

48:12 I mean, we will look into the midterm in more detail in the Capital Market Day on September 8, Leoni. But obviously, we want to have all the businesses contribute to the margin of the group. And what we see at the moment, that's not the case. What is encouraging is that, as I described before, we have also very encouraging dynamics in that segment, in particular, aero engine business in LDIM, but also the e mobility oriented TIS or Additives. So we have positive drivers. On the other ones, which are struggling, you have seen over the last couple of years that we will have a very diligent look on opportunities to improve margins if growth doesn't come.

49:01 But more details on the midterm outlook, we'll give you in the CMD. Yes. Thank you so much. We have a follow-up question from the line of Louis Vuillon from Baader Europe. Please go ahead. Yes. Thank you for taking my follow-up question. Could you give us more color on the split in the Material and Equipment division, the split between fixed costs and variable costs? Can you please repeat? You give us an idea of the split between fixed costs and variable costs and maybe an idea of what are the main costs in this division?

49:51 Well, this we have a mix of two very different businesses, right? One is the Materials business and the other one is the Equipment businesses, which have very different structures. I mean, as part of the report, don't share further detail on that one. Potentially, you can follow-up with HR to give some more generic guidance. But in the report, we don't go into that level of detail. Okay. Thank you. We have a follow-up question from the line of Alessandro Foletti from OCTAVIAN. Please go ahead. Yes, thank you for taking my follow-up. Just two if I may. First of all on the Coating Services business and I look at your split of sales by region, We see Americas is still the lowest and you did mention that you wanted to reallocate some capital towards that geography, still it doesn't seem that it has happened yet. Maybe you can explain why and what's the direction there?

51:00 Yes. Think one fact to comment on is that there is still, as you know, FX effects in the portfolio. And in particular, The U. S. Dollar has seen quite some weakening over the recent twelve plus months. And very recently, as you've seen, some of the country pairs, are moving a little bit more in the favor of Swiss franc or an actual FX reporting. But there you have FX effects that are significant. Fair enough. But does it take just then the didn't thank you very much. I didn't think about that honestly. Not in this context. But does it mean that you have you did actually open more quoting centers in The US and, well, you mentioned that you closed some here.

51:51 So is this happening? I mean, The U. S. Is very strong. I mean, there are areas, I don't know, Houston. There's a lot Generally going yes, the dynamics in the market are positive. So if we look at constant FX, that's a positive. In terms of sites over the last twelve to twenty four months, we have closed 15 sites 15 or 16 sites. So the general trend is into concentrating footprint and optimizing utilization of our assets, coaters in that case to improve capital We believe that the footprint and the utilization of our assets in the individual centers and these assets are mostly our own coating equipment that we know very well, is an asset base that we can very dynamically shift between the centers.

52:56 So to your question, no, it's not about an increase in number of sites in The U. S. The main focus is about utilizing the existing sites, potentially rightsizing the footprint as required and as we did a couple of times in the last years and to optimize the utilization of the individual assets. Right. Thank you very much. And so this 15 but the fifteen, sixteen you closed were not all in The U. S, right? It's a global number. It's a global. I mean, the FX headwinds we observe in most of the currencies, in particular also in Asia. All right. Very good. Thank you. Ladies and gentlemen, that was the last question.

53:43 I would now like to turn the conference back over to Eimerik Jamin, Head of Investor Relations for any closing remarks. Thank you very much to all of you for having joined this call and for your question today. I remain at your disposal of course later to answer any further question you may Thanks, and have a good day. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.