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Prof. Dr. Michael Süss and Dr. Roland Fischer

Dear Shareholders

2018 was a record year of exceptional performance for Oerlikon, exemplified by our strong top-line growth and operating profitability. The underlying success of our strategy drove revenue and the EBITDA margin in line with our full-year targets. We continued to execute our mission to become a global powerhouse in advanced materials, surface solutions and polymer processing, addressing our customers’ needs and helping them resolve critical industry challenges and succeed in their businesses.

We are pleased with our ­performance in 2018. While we recognize there are ­global challenges, we successfully completed 
a ­number of crit­ical milestones this past year, ­resulting in a record year.

While we benefited from a strong macro-environment during the first half of 2018, increasing trade, political and economic concerns drove pressures in the global market toward the end of the year. However, we are pleased to have successfully navigated this environment as the demand for our technologies and services drove a substantial increase in sales over the previous year.

Reporting the sold drive systems business as discontinued operations, Oerlikon’s sales improved by 26.2 % to CHF 2.6 billion (2017: CHF 2.1 billion) in 2018, while orders increased by 23.5 % to CHF 2.7 billion (2017: 
CHF 2.2 billion). Group sales in 2018 includes a positive currency impact of 1.7 %. Group EBITDA was higher 
at CHF 406 million, corresponding to an operating profitability margin of 15.6 % after absorbing operating expenses related to investments in our businesses. Net income for 2018 increased by 62.3 % to CHF 245 million (2017: CHF 151 milllion) and earnings per share were CHF 0.71. Compared to 2017, results from continuing operations improved by 82.1 % to CHF 173 million (2017: CHF 95 milllion). With an equity ratio of 44 %, the Group’s financial position remained strong in 2018. The Group’s return on capital employed (ROCE) was 12.1 %. Our net cash position at the end of the year amounted to 
CHF 398 million, and cash flow from operating activities before changes in net current assets was CHF 429 million. Our strong financial base enables us to further invest in our core strategic businesses and new technologies and to support our future growth.

Over the past year, we continued to execute our strategy, which is underscored by the impressive results across our business. We achieved a major milestone by signing the agreement to divest the Drive Systems Segment to Dana Incorporated in 2018, and are pleased to have successfully closed the transaction on February 28, 2019. With this sale behind us, we will be investing further, 
primarily in our Surface Solutions Segment, including 
targeting acquisitions to strengthen our portfolio. 

In 2018, the acquisitions of DIARC, Sucotec, DiSanto Technology and Eicker expanded our offering and presence in multiple markets and regions. For example, the DiSanto acquisition allowed Oerlikon to expand into the contract manufacturing market for additively produced medical components, particularly for orthopedic implants and instruments. The acquisition of DIARC is in line with Oerlikon Balzers’ strategy to increase its foothold in the automotive industry and enhance its surface treatment portfolio, while also extending its geographic footprint in Finland. With Sucotec, Oerlikon Balzers expanded its offering with high-quality chemical vapor deposition systems for the tooling market. Finally, Oerlikon added innovative expertise in plasma nitriding to its portfolio – a heat treatment technology to increase the reliability and wear-resistance of metal parts. These acquisitions provide us with important advances in new technologies, allowing us to better address our customers’ needs.

We also further strengthened our market-leading position in our Manmade Fibers Segment. In the first half of 2018, we completed the acquisition of AC-Automation, enabling the Segment to deliver additional large-scale plant automation solutions for customers in the textile industry. In 2018, we filed 87 patents and invested more than 4 % of our total sales in R&D, reflecting our commitment to develop cutting-edge solutions for our customers.

In 2018, our surface solutions business delivered strong revenues of CHF 1.5 billion and an EBITDA margin of 18.6 %. Performance in this business was driven by our end-market strengths in the aerospace, automotive and general industries. A noteworthy mention was the sale and on time delivery of our environmentally friendly ePD coating system, INUBIA I6, to Shanghai Dafangwuyu Automobile Company for chrome-like metallization of plastic parts. In our thermal spray business, we also succeeded to win new customers like Caterpillar and Moore’s Industrial Service by bundling our materials, equipment and services into a total solution offering.

While we completed a number of acquisitions in 2018 to provide levers for additional growth, we also made good progress integrating our 2017 acquisitions, including Scoperta, DiaPac and Primateria. In 2018, we conducted an integration pulse check with employees from six of our acquisitions and received constructive feedback.
Importantly, in 2018, we continued our innovative work 
in additive manufacturing. We increased our traction 
for additive manufacturing services in the aerospace industry as evidenced by the five-year deal signed with Boeing to develop standard materials and processes for metal-based additive manufacturing, the collaboration with RUAG to qualify and accelerate series production of 3D-printed space components, and the agreement with Lufthansa Technik to establish replicable processes and standards for maintenance, repair and overhaul applications. Additionally, Oerlikon secured long-term agreements with large customers for additive manufacturing materials, representing a shift from transactional sales 
to contractual relationships with key customers. To further promote collaboration in additive manufacturing, Oerlikon hosted a second successful Munich Technology Conference with over 1 000 participants, including world- renowned decision makers and industry leaders.

Our global footprint continued to expand in 2018, highlighted by the 13 additional production and service sites in close proximity to our customers. For example, a large coating center in Bielefeld, Germany, for machining, forming and plastics processing, an advanced materials production center in Plymouth Township, Michigan, USA, a new coating center in Manesar, India, and a new coating center in Johor, Malaysia, to better serve customers in the respective regions.

We also launched a number of innovative new technologies. SurfaceOne, a highly compact thermal spray coating system with an intuitive and customizable user interface, was officially introduced to the market. SurfaceOne was recognized with the Red Dot Design Award and the International Design Excellence Award for its exceptional build and capability. Our INNOVENTA family was completed with the launch of the INNOVENTA mega and INNOVENTA kila coating machines, which provide the ideal platform to process large-sized metal-forming tools, die casting molds and saw blades.

2018 was a record year for our manmade fibers business. We increased orders and sales substantially by 44.8 % and by 57.3 % respectively, and also improved the EBITDA margin to 11.7 %. The growth reflects healthy market demand in filament equipment, primarily in China, as well as notable contributions from India and Turkey. Growth was also supported by strong demand for texturing equipment, mainly in China, and an increase in sales for carpet yarn, primarily in the U.S. The magnitude of orders in 2018 has resulted in a robust pipeline, with project lead times reaching into 2021, ensuring our ability to sustain our top-line development at a high level over the next few years. 
During the year, we divested our tape and monofilament business to the Starlinger Group to allow us to focus on our filament, staple fiber and nonwoven businesses. Following this strategy, we are partnering with Shaoyang Textile Machinery to jointly advance sales of our nonwoven solutions in the highly attractive hygiene market, also outside of China. In 2018, we introduced the new Staple FORCE S 1100 – an easily configurable plant that spins, draws, crimps, cuts and bales in a single process step, using a highly user-friendly process control system.

We are pleased with our performance in 2018, and look toward delivering good results in 2019. While we recognize there are global challenges, the prospects in our end markets remain attractive. We completed a number of critical milestones this past year, leaving us well-positioned to continue executing our strategy. We expect our surface solutions business to continue growing at 4 – 6 % annually and our manmade fibers business to sustain its top line development over the next few years. We will continue to invest significantly in our future and thus, in 2019, we expect the Group’s order intake and sales to each exceed CHF 2.7 billion and EBITDA margin, after operating expenses from investments, to exceed 16 %.

In 2019, we will continue to drive our organic structural growth through further market-leading innovations, better alignment with customer needs, footprint expansion and digitalization initiatives. We look forward to further creating value for our customers with our unique, leading technologies, and maintaining profitable growth across our business. 

In closing, I would like to personally thank our employees for their hard work and dedication, our partners and customers for their trust in our technologies and services, and finally, our shareholders for your continued support of Oerlikon.

March 5, 2019

Best regards
Dr. Roland Fischer 

Chief Executive Officer