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Letter from the Chairman

Letter from the Chairman

Dear Shareholders

2017 was a successful year with strong results for Oerlikon. The ongoing expansion in global economic activity provided a favorable backdrop for growth in all our end markets. Our strategy and technology leadership enabled Oerlikon to take advantage of market opportunities by increasing both orders and sales, as well as improving operating profitability.

Thanks to our strong performance, we raised our financial guidance twice during the year.

Our share price positively reflected our progress and development, and we outperformed both Swiss and industrial indices. While we plan to continue investing in our core areas to ensure mid- and long-term growth, we also remain committed to returning value to our shareholders. Based on the performance we delivered in 2017, the Board of Directors will recommend a dividend payout of CHF 0.35 per share at the upcoming Annual General Meeting of Shareholders (AGM), an increase of 16.7 % over the prior year.

Strong fundamentals

Oerlikon has been providing advanced materials, surface technologies and services for more than 80 years. As a technology leader with exceptional engineering skills, we are adapting to a broad range of industry and market changes and challenges. The business strategy that we introduced two years ago is starting to pay off, and we are well positioned to serve our key industrial sectors and growth markets, as well as better meet customers' needs. Today, Oerlikon is in good shape with strong financial and market fundamentals and a strategy that will enable us to sustain performance and profitability over the mid- and long-term. But, there are always areas of improvement and untapped opportunities that can drive further growth.

We are building the future of Oerlikon on its unique competencies and well-established competence brands. As an industry leader in surface solutions worldwide, we offer one of the most complete portfolios of surface technology, ranging from standard to tailored solutions. We have an in-depth understanding of the properties of materials, such as powders and wires, down to the smallest detail. They are used in many industries to strengthen, protect and improve surfaces.

We are now bringing our comprehensive know-how in these fields to the additive manufacturing (AM) market. With many years of experience in advanced materials and surface engineering, we thoroughly understand the needs of our customers and enjoy trusted relationships with many of the world's largest industrial leaders. All major aero engine manufacturers and over half of the world's largest automotive brands trust Oerlikon’s technologies.

Engineering expertise in materials processing is another key competence for Oerlikon; that is, in the design and development of high-performance industrial components and processing systems. For our AM business, we have made important steps to strengthen our position as a market leader in delivering end-toend services along the entire value chain — from design and prototyping to production and post processing. We are a market leader in polymer processing systems used by our customers to manufacture, spin and texturize manmade fibers. Drawing on our unique competencies, we are executing on three growth drivers: we target attractive growth markets and industries; we establish Oerlikon as a structural growth company; and we expand our offerings through M&A opportunities.

Targeting attractive markets and industries 

Over the past two years, we have closely aligned our technology offerings with our customers’ needs in all identified core growth industries: aerospace, automotive, tooling, general industries, energy, apparel and industrial textiles, and agriculture.

Our key markets are expected to grow over the next five years. The automotive industry, for instance, will be undergoing significant and disruptive changes in the years to come. Worth more than CHF 4 billion at present, the automotive market targeted by Oerlikon is estimated to have a compounded average growth rate (CAGR) of around 4 % to reach over CHF 5 billion by 2022.

To seize these growth opportunities, we are partnering closely with customers to engineer next-generation components and solutions to meet the challenges ahead. This industry needs advanced materials and coatings to help reduce weight, fuel consumption and emissions, while facilitating new design solutions — all areas where Oerlikon excels.

In addition to our core markets, we will focus our business development efforts on eight key geographical regions: We will increase our engagement in China, France, Germany, India, Japan, Russia, South Korea, and the USA.

Focus on structural growth

At Oerlikon, we will generate structural growth through closer collaboration with our customers and markets, enhancing our technology leadership, strengthening regional footholds, expanding our value chain, improving operational excellence and entering new markets such as AM.

In 2017, we made four acquisitions to add promising technologies to our portfolio and reinforce our position in attractive markets. For instance, Scoperta, a highly innovative materials development company. This acquisition enables us to develop new customized industrial materials with proprietary technologies at faster speed to market. To further cultivate innovation capabilities across the Group, we have created a Group CTO (Chief Technology Officer) position as a member of the Executive Committee. I am particularly pleased that Dr. Helmut Rudigier, our long-standing CTO of the Surface Solutions Segment, agreed to take on this important role.

Being closer to customers means short response times, rapid delivery and close cooperation, which, in turn, speeds up our customers' time to market. Today, we operate 186 sites in 37 countries — including 58 R&D and production sites and 180 sales and services sites. We will continue expanding our footprint and presence in key markets and regions to provide services to customers right on their doorstep.

In today's digitalization-driven era, manufacturing companies are exposed to many advanced technology developments such as big data, automation, robotics and additive manufacturing. We regard AM as a central factor and physical arm of Industry 4.0. For Oerlikon, AM represents the logical step from surface to structure, where we are leveraging our core competencies and technologies in advanced materials, surface engineering and materials processing. AM offers numerous advantages in component design, lower design cost, lead time reduction and performance enhancement. AM is set to become an important technology for increasing productivity and raising manufacturing competitiveness, opening up the possibility of retaining or even strengthening manufacturing in engineering-driven regions such as Europe and the USA. For us, AM is an investment in the mid- and long-term future of Oerlikon, and we will continue to build up our AM business via investments in new research, materials and production centers, technology acquisitions, and by establishing partnerships with other leading AM industrial players, academia, governments and industry associations.

We will accompany our market initiatives with improvements in our business and operations. Our restructuring efforts and effective cost management over the past two years have enabled us to successfully turn around our business. Going forward, we will continue to exercise care and discipline in managing cost while improving our operational excellence.

Key success factor: One Oerlikon team

The success of a company is all about people. I would like to thank every employee, team and our leaders for their dedication and strong performance in 2017. We have greatly raised our HR standards, processes and know-how under Anna Ryzhova, Chief HR Officer. The HR team accelerated talent management systems to advance expert careers.

We launched fast track programs and created a more involved work culture that fosters employees’ personal growth. The result was visible in the employee engagement survey, in which almost 80 % of our staff participated. This is a clear indication of our people’s motivation and eagerness to contribute to Oerlikon's bright future.

 Building on success drivers for mid-term growth

Oerlikon is well positioned to build further value by capitalizing on its strong financial, technological and market foundations. We have set our strategic course for growth and will continue leveraging our key competencies and success drivers to ensure ongoing expansion.

For our surface solutions business, we expect to deliver 4-6 % revenue CAGR and an attractive EBITDA margin of 20-22% over the next five years. Moreover, and as communicated in 2016, we will continue to establish our AM business as a core pillar in our portfolio in the years to come. We also see growth opportunities in our Manmade Fibers and Drive Systems Segments. 2017 was a turnaround year for both Segments, as repositioning and restructuring measures enabled them to occupy stronger market positions and secure wins in their respective recovering end markets. Overall, we are building a strong company — one that can deliver mid- and long-term value to our employees, our customers and other stakeholders.

To conclude, I would like to once again thank all employees at Oerlikon, the management team and my colleagues on the Board for their hard work and strong commitment. In particular, I would like to thank Dr. Roland Fischer, for building an excellent team and leading Oerlikon to its successful performance in 2017. I would also thank our customers and business partners for their loyalty and close ties. And, finally, I would like to thank you, our shareholders and investors, for placing your trust in Oerlikon and for supporting us as we execute the next steps in our strategy and focus resolutely on ensuring that Oerlikon reaches its next level.

March 6, 2018

Best regards
Prof. Dr. Michael Süss

Chairman of the Board of Directors

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