Expanding the global footprint Oerlikon further expands in growth markets
China’s GDP grew 6.7 % in 2016, down from 6.9 % in 2015 and 7.3 % in 2014. This deceleration was due in part to muted global economic growth but the abruptness of the slowdown is likely attributed to a cyclical correction, which typically follows a period of overheated economic growth. Facing high debt that was created to drive growth in previous years, China’s policymakers have been making efforts to shift its economy away from its reliance on investment and industry toward domestic consumption and services. The renminbi depreciated modestly in 2016, falling by more than 4 %, while inflation rose to 2.1 %. Once the cycle turns and policy changes take effect, the outlook in China should improve. In 2016, Oerlikon generated 16 % of Group sales in China, where it employed more than 1 450 people at 23 sites.
In 2016, the Surface Solutions Segment saw sturdy growth in China’s tooling market in the second half of the year and also made good inroads in developing its business in the country’s aerospace and power generation sectors. Currently, the Surface Solutions Segment generates 11 % of its sales in China. To establish business opportunities for its additive manufacturing business, Oerlikon entered into a partnership with the Shanghai Additive Manufacturing Association.
China’s development affected Oerlikon’s 2016 performance due to China’s dominant role in the filaments equipment business. Specifically, eight of the Manmade Fibers Segment’s top ten customers are based in China. In 2016, the Manmade Fibers Segment generated over 38 % of its sales in China. However, Oerlikon enjoys continued good standing and trusted relationships with key customers in China, and expects to benefit from this when the market turns around. Indications were noted toward the end of the year implying that the filaments equipment market have reached the bottom of the trough in 2016.
The Drive Systems Segment won business in China’s commercial vehicle market with axles for low-floor city bus applications, and signed partnerships with leading automotive manufacturers for hybrids and e-drive systems. The Segment generated 6 % of its 2016 sales in China.
India’s economic growth in 2016 was also affected by the subpar global economic development and the country’s GDP grew 6.6 %. According to the IMF, India benefited from an improvement in trade due to a decline in commodity prices, stronger external buffers and effective policy actions. However, ongoing efforts to enact structural and economic reforms were overshadowed late in the year by a move to demonetize India’s high-value currency, a policy aimed at reducing corruption and strengthening the formal economy. Although demonetization is likely to be beneficial for the economy over the medium term, economic growth is expected to be adversely impacted at least through to the first quarter of 2017. The government is aiming for manufacturing to contribute 25 % of GDP by 2025, up from 16 % in 2015. In 2016, Oerlikon generated 7 % of Group sales in India, where it employed more than 2 800 people at 16 sites.
Oerlikon’s operations in India are focused mainly on serving domestic customers. The Surface Solutions Segment, which operates a network of 10 service and production centers, extended its service offering for the automotive industry at its facility in Bangalore. In 2016, the Segment took advantage of the growing economy and further developed its coating business in the automotive, aerospace, power generation, oil & gas and general industrial sectors.
India’s burgeoning textile industry continued to grow in importance for the Manmade Fibers Segment, which has been operating in the country for more than 30 years. In 2016, the Segment won additional long-term contracts to install and run maintenance workshops at customers’ sites.
The Drive Systems Segment increased sales in the agriculture, construction and transportation sectors in India, fueled by the increase in local demand and for regional exports.
Europe grappled with economic and political uncertainty in 2016, with the UK’s unexpected vote to leave the European Union and migrant issues playing dominant roles. These issues, combined with Europe’s ongoing structural challenges, dampened economic growth and contributed to a flattening of industrial production, notwithstanding the continued low interest rate policy in the Euro Area. In Germany, Europe’s biggest economy, real GDP grew 1.7 % and is expected to decline to 1.5 % in 2017, according to the IMF. France’s GDP grew 1.3 % and is forecasted to remain flat in 2017. Overall the Euro Area economic growth for the year was 1.7 % and is projected by the IMF to decline to 1.6 % in 2017. Europe accounted for 42 % of Oerlikon’s sales in 2016 and continued to serve as the base for the Group’s global headquarters. Oerlikon employs in Europe at 84 sites more than 6 800 employees, corresponding to nearly half of its global workforce.
In 2016, Oerlikon made a strategic investment in Germany for its additive manufacturing portfolio by acquiring citim GmbH, which will be a part of the Surface Solutions Segment. As a stamp of approval of its quality in the aviation sector, a Surface Solutions Segment’s coating center in the UK received certification from Airbus. The Segment generates 47 % of its sales in Europe.
For its Manmade Fibers Segment, Oerlikon acquired the staple fibers technology portfolio of the German company Trützschler Nonwovens & Man-Made Fibers GmbH, in order to expand its offering, gain access to customers and solidify the Segment’s position as a leader in synthetic staple fibers. In 2016, positive demand for staple fibers was noted in Europe, and positive uptakes for bulked continuous filaments systems and services in Turkey. Europe accounted for 21 % of the Manmade Fibers Segment’s sales in 2016.
Italy remains the main hub for the Drive Systems Segment, where innovative solutions are developed for passenger, hybrid and electric vehicles as well as for customers in the agricultural, oil & gas, and construction sectors. Although all of its key sectors experienced lingering weakness in 2016, the Segment won new customers and incremental projects with existing customers in the European construction sector and increased sales revenues in its agriculture business in Europe. In total, the Segment generates 47 % of its sales in Europe.
The US economy lost momentum in the early part of the year, with weakness in business fixed investment driven by a decrease in capital spending in the energy sector and financial market volatility. The UK’s vote to leave the European Union drove up demand for an already strong US dollar, which climbed further following the November US presidential election, creating headwinds for export-oriented industries and the manufacturing sector. Full-year US GDP growth was 1.6 % according to the IMF. Canada was also affected and its GDP grew 1.3 % for the year. In 2016, Oerlikon generated 21 % of its sales and employed more than 1 750 people at 30 sites across North America.
Looking ahead, the IMF expects US GDP growth to rebound to 2.3 % in 2017 and GDP growth in Canada is projected to increase to 1.9 %.
The Surface Solutions Segment operates a network of 33 service and production centers in the Americas and is a major supplier to the US automotive, aerospace, energy and food sectors. The Segment is building a state-of-the-art manufacturing facility in Michigan, dedicated to producing advanced materials for additive manufacturing and high-end surface coatings. In June 2016, Oerlikon joined America Makes, the US National Additive Manufacturing (AM) Innovation Institute, to partner with other leading organizations in AM. The Surface Solutions Segment generates 19 % of its sales in North America.
The Manmade Fibers Segment, based in North Carolina and Georgia, mainly supplies manufacturers of bulked continuous filaments (BCF) used in carpet production, and benefited from renewed BCF market demand. North America accounted for 12 % of the Segment’s sales in 2016.
The Drive Systems Segment, based in Indiana, develops and manufactures drives and transmissions for the agriculture, construction, oil & gas and mining sectors, and expects to benefit from the recovery in US end markets. In 2016, the Drive Systems Segment generated 33 % of its sales in North America.