The conference is now being recorded. Welcome to the conference call regarding the publication of Gerresheimer AG's Q3 results 2019. At the moment, all participants have been placed on listen-only mode. The floor will be open for questions following the presentation. Now I hand over to Ms. Severine Comte, Corporate Senior Director, Investor Relations at Gerresheimer AG.
Hello, everyone, and thank you very much for joining us to review the third quarter results 2019. With me today are Dietmar Siemssen, our CEO, and Dr. Bernd Metzner, our CFO. As we did in the past, we are presenting a set of slides to accompany our remarks on this conference call and the interim report. The slide presentation and the press release are posted on the investor relations website at gerresheimer.com/investorrelations. Please note that this call is being webcast live and will be archived on our website. Before we start, I would like to remind you that the presentations and discussions are conducted subject to the disclaimer. We will not read the disclaimer but propose we take it as read into the records for the purpose of this conference call. Our agenda starts today with a presentation by Dietmar, and I am now handing over to him.
Yeah. Thank you, Severine. Good afternoon, ladies and gentlemen. Good morning to those joining us from the U.S. Welcome from my side also to our Q3 2019 conference call. Bernd Metzner, our CFO, is also co-hosting this call. He will cover the financials in a moment. A few remarks regarding the past quarter. The third quarter grew after strong first and second quarter, as expected, a bit slower. Nevertheless, we have a very high dynamic in the company. We are fully on track with our growth and technology projects. Amongst others, we have opened a new Gx Glass Innovation and Technology Center in the U.S. If you look at the chart, which is the number four, regarding our top line and profitability in the third quarter.
Looking at revenues, they grew by 1.4% as per guidance. On a currency-neutral basis, our adjusted EBITDA was EUR 71.1 million in third quarter 2019, slightly up compared to EUR 69.8 million last year, excluding the special effects from the third quarter 2018. Adjusted net income performance was up over 7% in Q3 2019 versus Q3 2018. We continue to show earnings improvements, and Bernd will detail later on the various effects. After a successful 2018, we have paid our dividend as decided on the annual general meeting. Another milestone for Sensile related to EVER Pharma in the third quarter, which impacts our net debt. Looking at the rest of the year 2019, we confirm our guidance and also expectations. Let us look at the external environment. We continue to see a good market environment overall. The difference we see for our business is driven by customer-specific topics.
As I mentioned to some of you during the past roadshows, we continued to enjoy a good dynamic in Europe and also in the U.S. The overall business trend continues to be good, but we experienced softer demand in our glass business. This is actually not the market itself, but driven by specific operational issues at one of our top customers, where we have a pretty high market share. We expect that this customer will need several months to go back to normal production volumes. We are currently mitigating the effect by supplying more volume to those other customers that temporarily benefit from the lower demand of this one customer. It means they take over certain market shares. We also saw good demand from emerging markets such as Brazil in plastic packaging or India in both glass and plastics.
We have just closed our revolving credit facility refinancing with improved conditions and documentations. We are faced with a very supportive and positive environment from our banks and also business partners. Regarding the operational business performance in Q3, revenues at Plastics & Devices were up by 2.1%. The growth was essentially led by the syringes business and primary plastic packaging, here, especially in the emerging markets. In syringes, we are continuing to see strong demand from our customers but cannot service it fully momentarily because of capacity constraints. The RTF five line is under construction and will help us to increase capacity of around 100 million syringes in 2020 with high-tech camera equipment and process capabilities, leading to absolute top-notch production. Revenues were down 0.9% in the primary packaging glass division in Q3.
The performance in Europe and Asia was overcompensated by the lower demand in the U.S. business, driven by the aforementioned customer topic. As you can see from the CapEx spend in Q3, we are continuing to execute on our CapEx plan. We are completing our furnace overhaul in Essen as we speak. This will also boost our capacity in molded glass Europe and also our manufacturing capabilities. With this overhaul, we have not only rebuilt the furnace, but also increased the capacity and brought the production process to the next level of automation and digitalization, improving our process capabilities, quality, and cost structure. This gives us the competitiveness for the future years. The ramp-up of our plant in Anápolis, Brazil, and construction of our plant in Skopje, North Macedonia, are progressing well. They are in or, I would say, even ahead of plan.
The extension of Horšovský Týn, Czech Republic, for the future inhaler project is on track. We are still foreseeing the first parts production in the fourth quarter 2020. More recently, you might have seen the press release, we have just opened our Glass Innovation Center in Vineland, U.S.A. I will cover this in a separate slide. We will now move over to chart number five. Our midterm CapEx plan is very comprehensive and includes lots of important growth projects as well as projects for productivity improvements. We are consequently driving and executing these projects. All are on plan, and we are hereby setting the foundation for the future development of our company. Growth and capacity expansion projects are, for example, we just mentioned plant expansion in Brazil and also Czech Republic. They are just, let's say, easy, fully on track.
In Skopje, we have set up foundation and building structure and have now started to work on the next phase, primarily the inside infrastructure. First hirings of top management personnel have been successfully completed. The same applies to cosmetics, where we are finishing to install our decoration lines, which means that from 2020 onwards, we will now have more internal capacity and rely less on external resources. In regard of productivity and quality improvements, there are several examples. In particular, in the glass business, consequent implementation of standardization and automation into our processes, which is also going to drive profitability up from next year onwards in PPG. An important milestone for technical leadership in glass is the opening of the new Innovation Technology Center in Vineland. It's a great and important step for Gerresheimer. I will cover this on a separate slide.
There are further other projects driving innovation and technology leadership. We consequently drive the standardization of our converting glass processes, leading to identical quality levels from all lines and production sites, completely independent from the worldwide location. For our customers, this guarantees a constant high-quality level in all regions. It facilitates higher process capabilities. Besides quality, also the efficiency, as well as other aspects as, for example, a global maintenance approach, which is very cost-efficient and helps us to save time. We are expanding the production of our Elite glass products. These are essentially products made of Type I borosilicate glass, where pure process improvements eliminate the glass-to-glass contact and reduction of tolerances lead to a significant increase of robustness and value for the customer.
Without the necessity to requalify the product, same material, the customers can run their lines on higher speed with less breakage, and as such, enjoy improvements in their total cost of ownership. Other innovational measures to improve the strength of our vials, ampoules, and cartridges consist in, for example, adding a coating process. These are just a few examples picked from the ones outlined on the slide that also contribute to the improvement of product mix on our side. A few more details on the Innovation and Technology Center on this slide. Number six now. Two weeks ago, we held our Pharma Days, which is our largest customer event that we organize every year, and we invited our customers to attend the official opening of our Vineland Innovation and Technology Center.
More than 100 customers attended the event and were impressed by our presentations as well as our tech show demonstrating our expertise in innovation, quality, as well as the broad product portfolio. On the second day, we visited our plant in Vineland, New Jersey, where we have just built our modern Glass Innovation Technology Center, which officially opened that day together with our customers. Here, we are bundling our glass expertise regarding pharma glass, new product and process solutions, technology, and digitalization under one roof to facilitate the worldwide rollout of innovation and processes. In very close cooperation with our customers, we are now able to develop new products in a very early design phase. Gerresheimer is with this doing the successful transformation from a component supplier to a strategic developer and strategic production of technology solutions. Let us come to Advanced Technologies or Sensile. The dynamic remains high at Sensile.
We are continuing to execute on our current projects, especially the Sanofi and Verily project for diabetes treatment. The SQ Innovation project is developing very promising on both customer and also Gerresheimer side. All deadlines are fully on schedule. Our broad experience in industrialization of complex medical devices, which is actually the core competency of our medical device organization, ensures that we are successful in transferring an innovative pump design into a solid serial production. Next to these two mentioned projects, we are looking at a various range of applications with diverse therapeutic areas, enabling new treatment methods. Due to its accuracy and performance capabilities, the pump supports the treatment of various therapeutic areas far beyond Parkinson, one application that we already have in the field, or diabetes or chronic heart failure, the aforementioned projects.
Significant value for both the patient but also the payers is generated by new treatment methods, enabling the patient to be treated at home with higher comfort and reducing greatly costs of hospitalization. We have intensified discussions with a number of potential customers, ranging from large pharma to smaller healthcare companies. As always, these discussions take time to materialize, but we are looking forward to continuing helping patients' life and condition in the future with a broader use of patch pumps. With this, I hand over to Bernd, who will give us some details on the finance figures.
Many thanks, Dietmar, and welcome from my end as well. Starting on slide nine with a review of the aggregate P&L of the group in Q3 2019 versus Q3 2018. We had this slide in Q2 as well. It shows, amongst others, the revenues and adjusted EBITDA performance on a currency-neutral base as per guidance. You will find the detailed bridges as we have shown them in precedent quarters in the appendix of this presentation on page 16 and 17. As per guidance, that is excluding currency effects and excluding the revenues derived from the loss of the inhaler customer in Q3 2018, revenues grew by 1% from EUR 352 million to EUR 355 million in Q3 2019.
Our group growth of 1% was already anticipated for the quarter and were generated on the back of unfavorable comps in both divisions, with an extraordinary growth of 3% in P&D and 8.7% in PPG in Q3 2018. I will detail the revenues per division of Q3 2019 in a few slides, but the main drivers of growth were the Plastics & Devices division as a whole, and for the primary packaging glass division, the regions Europe and the emerging markets. As flagged during our previous conference call, we were expecting headwinds coming in particular from a U.S. customer for our molded and tubular glass business. On a nine-month basis, as per guidance, this represents a 4.2% sales increase year-on-year. As mentioned before by Dietmar, we had a slight currency tailwind and overall, as reported, revenues grew by 1.4%.
If you look at the adjusted EBITDA performance as per guidance, which means that we exclude currency effects as well as correctly non-recurring special items of Q3 2018, we see an improvement of the adjusted EBITDA performance in line with the revenue growth by 1.6% year-on-year from EUR 69.8 million in Q3 2018 to EUR 71.1 million in Q3 2019. Non-recurring special items in Q3 2018 were the contribution from the loss of the inhaler customer of EUR 5.6 million in our P&D division, as well as the negative effect linked to the network charges in our PPG division of EUR 1.4 million. A total of EUR 4.2 million in Q3 2018. If we look at the main items in the P&L below the adjusted EBITDA line, we had as follows. In Q3 2019, we had limited one-off items versus Q3 2018. Good news.
The increase in depreciation and amortization is essentially driven by an increase in fair value amortization as a result from the acquisition of Sensile Medical, which was only consolidated for two months in Q3 2018. By way of comparison, Q2 2019 levels of depreciation and amortization were also around these levels. Quarter-on-quarter, we did not see an increase. The net finance expenses were stable year-on-year. By the way, here we have some good news for the interest charge going forward. I expect it to be better by some million EUR from Q4 onwards on a yearly basis due to a pure EUR funding instead of a partial U.S. funding with higher interest rates. As mentioned briefly by Dietmar, we have just signed the refinancing of our RCF and this with better conditions.
Net finance expenses will be going down by around EUR 1 million on a full year basis. Lastly, our income taxes were pretty stable year-over-year. For the first nine months of 2019, the tax rate was about 28% compared to 30% for the same period last year. This leads us to a reported net income of €19 million in Q3 2019. As mentioned by Dietmar earlier in the presentation, if you look at the adjusted net income derived by the operational performance of the business only, then we continue to see an improvement year-over-year by over 7%. Please move with me to slide 10 for a detailed review of the growth by division. On this slide, we are looking at the performance of the divisions during the quarter, both on a currency-neutral basis as well as reported. Starting for Plastics & Devices.
In the top left corner, we are giving you the revenue growth on a constant currency basis as per guidance. On that base, we grew in Q3 2019, 2.8% compared with Q3 2018. From a reported standpoint, that is the first graph on the left, we saw revenues increase from EUR 190 million in Q3 2018 to EUR 194 million in Q3 2019. The main revenue drivers in Plastics & Devices were as follows. The syringe business, where the growth momentum seen in H1 continues among others due to the initial production takeoff for the heparin contract won last year. We also continued to see a good performance of the plastic packaging business during the quarter, in particular in South America and India. Our U.S. prescription business was slightly down year on year. Overall, the plastic packaging business was broadly stable in the quarter versus a year ago.
Overall, the revenues in our medical plastic systems, that means part sales as well as tooling revenues, grew as well compared to the same period last year. To be specific on tooling. Tooling is, as I needed to learn, a quite volatile revenue stream on a quarterly basis as it depends on engineering work on certain projects, but also part of the revenues are generated with us buying and selling back special machines to our customers. Over a full-year period, however, the forecast accuracy for tooling is very high. For the full year 2019, we expect tooling at the level of last year. As a consequence, however, as indicated in the Q2 conference call already, we are expecting the tooling revenues to decline in Q4 compared to Q4 2018. On a reported basis, I have the following observations to the adjusted EBITDA of Plastics & Devices.
On a year-over-year comparison, the adjusted EBITDA of our contract manufacturing business was, as already mentioned, in Q3 2018, positively impacted by EUR 5.6 million linked to the lost inhaler customer in Küsnacht. If you exclude this, the adjusted EBITDA grew by 1% from EUR 45 to EUR 46 million in Q3 2019. The revenue mix overall, including the mix between part and tools in the devices business, have led to the margin levels 23.6%. Commenting on the next box in the middle and in the same logic. On a currency-neutral basis, the revenues in the Primary Packaging Glass division decreased by 2.6%. We saw reported revenues declining slightly from EUR 161 million in Q3 2018 to EUR 159 million in Q3 2019.
In the division, we basically saw the same trend as in Q2 as we have also expected the U.S. converting business to be impacted by lower demand. We continue to see growth in Europe and in emerging markets. The operational issues with two plants of one of our large customers have impacted our revenues this past quarter. We expect that the customer will need several months to go back to normal production volumes. We are currently mitigating the effect by supplying more volume to those other customers that temporarily benefit from the lower demand of this one customer. On a reported basis, I have the following observations to the adjusted EBITDA of PPG. Adjusted EBITDA margin was 18.9% and in absolute terms was EUR 30 million in line with the previous year quarter.
There are three drivers Which were holding off on an EBITDA margin improvement in Q3 2019 versus Q3 2018. First, decoration. As in Q2, we also had to externalize part of the work to third parties in Q3 with lower margins. As you can remember from the CapEx chart shown by Dietmar, some of the CapEx projects associated with decoration lines at our plant in Tettau are expected to be completed by 2019, so that we should see more internalized work going forward. Second, lower operating leverage in the U.S. on the back of the softer demand by the before-mentioned customer. Third, the complete overhaul and extension of the furnace in Essen. Such overhauls have also an impact on OpEx, and given that this repair is a very large one, which started in Q3 and is about to be completed, it is impacting profitability in Q3.
To end on a positive note for PPG, for Q4, we see, like in the first half of the year, a nice sales and EBITDA growth again. Q3 2019 includes revenues from the Advanced Technologies division, which was consolidated for two months in the third quarter of 2018. Sensile posted revenues in the amount of EUR 6.3 million during the quarter. These were almost exclusively development revenues. Within GAT, the adjusted EBITDA development was in line with expectation given the nature of the revenues, namely development revenues in Q3 2019 at Sensile Medical. Let's move to the free cash flow review on the next slide. The evolution of the free cash flow in Q3 versus last year is very much driven by the planned increase in CapEx, as well as the higher working capital consumption, here as well partially planned ahead of Q4.
We are outlining here the free cash flow calculation as per our definition, starting with adjusted EBITDA. A few additional comments on the year-on-year variations. Adjusted EBITDA, I do not need to comment as I have done it two slides earlier. Working capital. As we all know, you can only judge on working capital on a 12-month basis, but not referring only to one single quarter. Nonetheless, I have the following comments to the working capital increase in Q3 in the amount of EUR 12 million. This increase in working capital was partially driven by the European business in light of the stockpiling ahead of our furnace overhaul, which started in the midst of Q3, but also ahead of what we anticipate to be a good season in cosmetics before Christmas. This should unwind over the next few months.
Another very important factor for our working capital increase is caused by the Sensile business in Q3 2019. The nature of this development business leads to the application of the percentage of completion method. This means that as the projects develop, we are building up receivables, which will be paid later on when we have finished the projects or respective project milestones. As a result, we see a temporary increase in net working capital. As mentioned, you can only judge on working capital on a 12-month basis. For Q4 2019, for example, we see a significant decrease of working capital in the amount of more than EUR 30 million. The increase in CapEx spend reflects the 2019 guidance and planned step-up is needed for growth and efficiency project.
From Q3 2019, with minus EUR 3 million free cash flow before M&A, we expect to swing in Q4 2019 to a free cash flow before M&A of more than EUR 30 million. Moving on to the next slide on net financial debt and adjusted EBITDA leverage. As outlined in the title, net financial debt has increased since end of May. This is essentially a factor of the payment of the dividend in the amount of EUR 36 million and the milestone payment to the former owners of Sensile Medical with regards to EVER Pharma in the amount of close to EUR 19 million. Both was planned. The adjusted EBITDA leverage was also lower year-on-year at 2.4 times. As also stated in the title of the slide, we have now successfully refinanced our RCF. Funding was on September 26th. Closing on October 8th.
The overall credit facility amounts up to EUR 550 million as opposed to EUR 450 million until now. Important to note, the margin grid is more beneficial than in the old facility and all in all, together with the before mentioned change to a predominantly EUR financing, we will reduce the interest cash charges on a comparable basis by a mid-single digit million EUR amount on an annual basis. Besides this, we have also been able to secure a better documentation. As an example, we have introduced a certain variability on the EBITDA covenant, which among others, allows us to go above 3.5 times in case of M&A for a limited time.
The majority of the new RCF is five years with one year extension option after the first and second year each. The bank consortium consists of up to nine banks, and overall, we had much more demand than we could allocate. This not only underpins the confidence that our partners have in Gerresheimer, but also stresses the potential that this business can realize as we are geared up for more profitable growth in the next few years. This would conclude my part of financial presentations, and before I hand over to Dietmar, I would like to thank, in the name of the executive board, Severine Comte for the past three years at the helm of the investor relations team here at Gerresheimer, and introduce her successor, Jens Philipp- Bühle.
As most of you know, Severine and her family are relocating to the Netherlands, and as a consequence, she will be looking for new opportunities closer to what will be her new home. As much as we understand, we are sad to see her leaving. Please join me in wishing her all the best for this new personal and professional adventure. We are equally very fortunate to have found in Jens Philipp- Bühle a successor and new head of investor relations for the team, effecting from November 1st, 2019. Jens has an extensive banking and investor relations background and joins from Schaeffler AG. Having said, I'm handing back to Dietmar.
Yeah. Thank you, Bernd. From my side, only a couple of words for the conclusion. In the end, our objectives are outlined on the slide and we confirm our guidance. We are fully on track towards our 2019 guidance. We are working with high speed on the number of projects across all divisions, as you heard. Execution is on plan, and we are consequently working on setting Gerresheimer on what I call sustainable and profitable growth path. With this, I am handing back to Severine for Q&A session. Thank you so much so far.
Thank you. We are now entering into the Q&A session. The lines are now open for any questions you might have. To register for a question, you need to press 01 on your telephone keypad, and in case you want to cancel your question, you have to press 02. We will pause a couple of seconds for the questions. The first question comes from Falko from Deutsche Bank.
Thanks for taking my questions. I would have three, please. Firstly, on the opening of the Glass Innovation Center, you mentioned you want to transition more into being a solution provider and strategic developer in the segment rather than just a component supplier. Can you elaborate a bit more on your longer-term strategy behind that and maybe even the potential this move could have on your margin profile? Secondly, on your large U.S. glass customer that is facing these issues. Based on data we look at, it appears the situation is improving rather quickly on their end. Do you have an indication that your business with them could be back to normal again at the beginning of 2020 already, or can it still be a drag in the first half of next year?
Thirdly, shifting to 2020 and without obviously giving a quantitative guidance, can you give us a flavor for the potential growth drivers that should support growth next year? I'm just thinking in relation to your expectations for raw material price benefits and the additional capacity coming on stream and other potential tailwinds. If you can add some color here, that would be very helpful. Thank you.
Okay. We just split up the question a little bit. This is Dietmar Siemssen. I take the first two. Yeah. The Glass Innovation Center. I think you have to see that there is a lot of competence in glass already today, of course, in Gerresheimer. What we never had was really that we concentrate all the competencies in one site with also the equipment, the test equipment, the opportunities and so on. We will have around 25 engineers really located in Vineland, concentrating on glass improvements. What does it mean for the business? On the one side, you have to see the process-related side. The process-related side, of course, helps a lot our own production, the standardization of our glass production, the high efficiency, the quality improvements and so on.
What we do here is also working very close with the customer in a very early design phase on solutions that are really helping the customer. New innovational solutions. One of the examples are, of course, developments of the Elite glass, which is actually quite revolutionary. You have a significant, more robust glass material without the necessity of requalify with much better tolerances. That really leads to the fact that our customers can run their production lines on a total different speed with significant better cost, less breakage, a big advantage. We also talk about other aspects. Different glass materials. Also, the ready-to-fill opportunities have to come and be supported. The processes have to be supported out of this Vineland. Your question, what does it mean to the margins?
There's no doubt we are taking over certain further aspects in the value chain of either the filler or also our customers. With this, for sure, are helping both sales but also the margin capabilities. Not to underestimate the aspect of being a strategic partner to our customers, supporting them in a very early design phase, and for this, increasing the relationship and reliability of the customer supplier base. If this helps. The second one was the topic of this large U.S. customer. Most of us all are aware of who we are really talking about. Actually, we just met with the top management to understand, when they will have their problems under control. There seems to be light at the end of the tunnel. Will we see the effects already in the beginning of 2020? I would be a bit careful.
On the one side, I would like to see whether they are really improving the process, which we can optimistically believe. There's another aspect that might delay the positive impact on Gerresheimer. This is due to the fact that with these problems occurred at this customer, we of course and also this customer, built up safety stocks. It will take some time until these safety stocks are really completed or ran down to what I call normal levels. I think, the third question that are concerning the growth drivers, Bernd is eager to take it, so I hand it over to him now.
Thanks, Dietmar. We are just in the preparation phase for our budget in the next year, in the next couple of weeks. Having said, however, it's crystal clear, and we are quite positive also in our outlook. We said that we think that we will grow between in the band of 4% to 7% in the beginning of this year. This holds true also as we speak today. Practically, if you think about, you mentioned precisely raw material. It's a little bit too early now to look where the raw materials will stand in plastics in 2020. It's clear they are quite volatile. What you know is that in our most contracts we have price escalation clauses, so practically, we don't see major impact there. What are the growth drivers for 2020? Basically, Dietmar already touches on them.
The growth will come from syringes. We have more capacity, as you know. Look at the new inhaler, for example, in Wackersdorf end of 2020. Hopefully, we will see, and this is our expectation, recovery of our U.S. large customer we mentioned beforehand. We see that and think that we will have more high-value products on the market. We mentioned before Elite and the strong underlying growth in plastics packaging and standard glass packaging in the Asia and Europe. This is something what is very positive for us. Yeah, therefore we are looking very positive and confident into 2020 as we speak.
Okay. Thank you very much.
Thank you. We're going to take the next question from Scott Bardo from Berenberg.
Great. Thanks very much for taking my questions. I have several, but I'll pop back in the queue for some of them. As you highlighted, Dietmar, somewhat of a softer quarter, but arguably anticipated so. Just given the EBITDA development this quarter where we see some margin contraction year-over-year, can you comment at all about whether the whole guidance range is still in play for you as a company, or you're more comfortable now at the lower end? Just trying to understand how significant a jump we should expect in the fourth quarter, please. Just some financial questions for Bernd, please. You mentioned obviously that working capital is something that can be addressed on a 12-month view, which sounds as though there's some opportunity throughout 2020 for you to work your magic as such.
I wonder if you could give us some sense on where you see free cash flow for the group this year and next, and also how quickly you believe that you can delever from this current undistorted 3.2-3.3 range, assuming no further acquisition. Last question please, just relates to Sensile. Appreciate you have several customers and projects. I think one central project at the time of the acquisition was out of Sanofi Verily. Dietmar, I think you mentioned anticipation of some milestone this quarter or next. Perhaps you can give us some update. Are you still comfortable that that project remains fully in place and you're working towards it? Thank you.
You see the motivation of the executive board is very high. We are almost fighting to wave to answer the questions. I take the first and the third one. The first one is relatively easy because it's concerning the guidance. I think we confirmed the guidance. We will see how the fourth quarter will be. I expect a stronger fourth quarter again compared to Q3. Traditionally, the fourth quarter is always a good one, so let's see how this works. As we mentioned a couple of times, we don't see that we will not fulfill the guidance, and that means in all aspects. If I may ignore the order, then I would immediately take the third question.
Sure.
For Sensile, we are anticipating further milestones. There is actually only one open and remaining, which is a milestone concerning the Sanofi project. Yeah, that's true, we are expecting it, that we need to pay this at the end of this fiscal year. The honest truth is we are also eager to do so, because I think it will also confirm that the project is further on track. Which it is. We are working with the customer in various aspects, and we have actually started to work on the industrialization, which is key. It's not only a pump that we are developing. I think one of the key aspects of this project is to make sure that you bring this into a successful series production. This is what we have started to work on already.
The same is in principle valid for the other project we are officially talking about, which is the SQ Innovation, where the speed is much higher and we have, in principle, also here, quite far developed and are just ahead of a further key milestone, which will, in this case, as it's a new project, not lead to any further payments. It's still as important as the other things also to go ahead. I hope this answers your question on one or three. If this is the case, I hand over to Bernd for the net working capital.
Thank you.
Yeah. In practice, regarding the working capital, if I look now in Q4, we will come back and we will have a round of working capital improvement around EUR 35 million. Basically, also considering our CapEx plans, that we will be in a positive territory for our free cash flow before M&A for the full year, close to, let's say, EUR 5 million-EUR 10 million, something like this, EUR 5 million, EUR 10 million. Looking now into 2020, how we see the working capital situation there, actually, I think that we will be able. Basically, we always will grow our working capital in line with the sales growth. This needs to be considered. I think, compared to this standard, we might be a little bit better in 2020 on the basis of the year 2019. This is at least my expectation going forward.
Regarding the free cash flow performance of the next year, it depends a little bit how much CapEx we want to spend. We have this really in our hands, and I believe it's quite too early to talk about this. Actually, what we always guided was 12% CapEx of revenues. If you consider this, I think we should be also able to see a better or see a free cash flow, which should be not really negative, but depending on the CapEx plans going forward. It's a little bit too early.
Understood. Thank you. Maybe just a follow-up, please, Bernd. Obviously pleasing to see you refinance and reduce net financial cost. Can you give us a guidance, actually, to what a reasonable net financial number would be for Gerresheimer on a sort of annualized basis? More generally, now that you refinance and create some additional scope and flexibility also with your covenants, is this because, in a sense, you were apprehensive about crossing the covenants, or is it that you anticipate doing some M&A? Can you just share a little bit the rationale here for the refinance? Thank you.
Just in practice, it's always good. Maybe just to start with the first question, as overall, you can assume that you have interest charge of around EUR 20 million, something like this, in the free cash flow. I think we will be able to reduce it somehow in the direction to EUR 15 million on the basis of a certain level of debt, obviously. This is where we had our comparison from. Therefore, on next year, I think we should be able to reduce this by EUR 3 million in total to EUR 4 million, because some savings you will also get now in Q4. That's a very good relief. The other question regarding, we don't actually plan for M&A now, and we didn't consider this, that we have now something concrete, relevant, let's say relevant, concrete in our hands.
What is important that we have always optionalities, and an option has a value. We use now the good conditions which we have in the capital market and with the banks to also introduce in the documentary some optionalities for us, but it's not something that we want to make use of it tomorrow. Yeah. Just that we have it in our hands for the next couple of years. You never know.
Understood. Thanks very much for the answers.
We're going to take the next questions from Alexander from Hauck & Aufhäuser.
Yes. Good afternoon. I was wondering if you could give us a number. How much did the newly won contract for syringes in the EU contribute to Q3 numbers, and then also your expectations on the annualized basis going in 2020?
It takes some time because we are squeezing all the figures and discussing whether we disclose it, actually, yeah. I think the contract you are referring to will have a peak volume in, I think it's 2021, 2022, which is in direction of EUR 20 million. This means it's a big contract. We are today clearly below this, we already achieved a couple of millions EUR here. Which is also good because we need the capacity that we have at the moment also for other customers that are demanding. It will definitely help if the RTF line 5 is ready, we will have this available in next year. This will add around 100 million additional capacity of 100 million, not EUR. That would be great, it's 100 million units, in 2020.
The same amount will also come on top in the following year, 2021, when we have the RTF six ready. The next step then will come in the later years out when we set up the first capacities of syringes in Skopje, North Macedonia. I hope this answers your question.
Yeah. Thank you very much. Then one follow-up or different question. With regards to your glass innovation center, what implication does it have on the near-term operational cost development? Do you still need to staff this unit further, and also, what does it mean with regards to your R&D expenditures going forward?
There will be some additional costs, but I think some of them are covered with the CapEx. This is what we have to set up. The running cost of this innovation center will not be significant. Even if it adds something in direction of our R&D, the R&D in Gerresheimer is at the moment so low that I can increase it significantly before we only come close to the moment where you could feel the difference. There's no doubt, in the next years, we clearly have the plan to increase our capabilities for innovation and with this also in our R&D, but it will still be a very low figure compared to many other companies.
Okay. Thank you very much.
Okay, we're going to take the next question from Daniel from Commerzbank.
Daniel Wernicke from Commerzbank. Thanks for taking my questions. My first question would actually be on the fifth RTF line again. Can you already say whether this line will fully contribute to the sales line as of Q1 next year, or will this be a gradual process? My second question would be on the productivity improvement project you laid out to us in the presentation. Can you potentially talk about how we should think about a trajectory here? How this will start to contribute or how all these programs will start to contribute to margin improvements, next year? I would have a follow-up question on the net working capital question. When you think of a two to four-year horizon, where do you think a sustainable networking to sales ratio could be? Thank you.
Yeah. I take the first question. I think we would already need the capacities in Q1. Would be great to have them. The pity is this line will probably only start in Q4 2020.
Okay.
That's why you will see the full impact of the RTF 5 actually one year later, yeah, than it's fully running. You also have in the Q4 2021, again, the RTF 6 digging in. The full impact you will clearly only see with a certain four quarters delay. What we will see, though, next year is another RTF line that we rarely talk about, which is actually the RTF line that we are setting up as we talk, or it's set up in Bünde for vials. This will actually already show impact very clearly in the first quarter. Let me say in the mid of the first quarter, but we will see the first impacts in the first quarter. The productivity improvement, you don't want to take it, Bernd?
Yeah.
Okay.
I take it over. It takes to the second and the third question. Regarding the productivity improvement project, and your question was how long and how we see the margin improvement here. It's clear with all the investments into this area, we think that midterm we will have a jump from 21% where we are now with the EBITDA margin to 23%. That's really clear our objective midterm. Other thing is the net working capital ratio. What we see here is actually that we will be, I think, 17% is something what is really sustainable. Working capital to revenues, what I think we will definitely achieve. We looked at the benchmark and with this we are pretty good underway.
Okay. Maybe a follow-up question on the RTF line for vials you mentioned, Bernd. How meaningful could this be for you in terms of revenue contribution?
You see that we are struggling a little bit because I do not have a real figure at the moment, which does not mean that there's no contribution of the line. I have no real figure. We would have to follow up on this. Yeah.
Okay. That would definitely be appreciated. Thank you.
Yeah.
Yeah, thanks. I'm fine then for now. Thanks.
Thank you. It is a bit of a shame. I do not feel comfortable now, but I do not have all the figures available here.
No problem. Thank you.
Yeah.
Okay, in the interest of time, I'm going to take one last question, I think, from Credit Suisse.
Verena. Thank you. Hi, Dietmar. Hi, Bernd. I have actually three questions. I hope we can make it in these couple of minutes. Two relate to the molded glass business and one just on the prescription business Centor. The first on molded, I think you mentioned that cosmetics you had some stocking effect. How is the visibility actually now for the Christmas season? I think that's typically a very important time for the business here. Do we have a clear commitment for these products that you have pre-produced now? That would be my first question. The second is essentially on the molded glass pharma business. Could you elaborate on the capacity utilization now after you've expanded capacity at the Essen plant, maybe? The last question relates to the Centor business.
I noticed now it has gone a bit sideways now for quite a while. Could you maybe elaborate on the strategic value to Gerresheimer? It looks like it is a bit of a standalone, separate business, and if I follow your growth ambitions over the next few years, it could be a certain drag. Would there be any consideration for a review of that business in the context of Gerresheimer overall? That would be all. Thank you.
Let's start with the first question. The stocking effects in cosmetics, I think, the Christmas season will clearly come, and we get the orders in as we talk at the moment. It's at the moment, it's almost more a question of our capacities to be able to deliver, which is not only the molding. We should not forget it's also a lot of the capacities we are talking about the decoration. And I think that's what you heard in the presentation of both myself and also Bernd. We are tight in the cosmetics. So we are using a lot of external resources at present for the decoration, which helps us to get the parts out, but it's actually not increasing the erosion factor of the margin because the external sources usually take the margins away.
That's why it is so essential for us to bring in these capacities for the decoration for us. Coming back to the Christmas business, yes, we have the books full, and we are producing full power in order to support our customers here. The additional capacity in Essen. Oh, that's not the answer I need, guys. I need the answer of the additional capacity. Can you hear this? Did you hear my answer at all?
No, I'm sorry.
I repeat myself. Did you hear my answer on the-?
Yes, on the Christmas.
On the Christmas stuff. I come back to the molded glass. The additional capacity that we set up in Essen will utilize more or less from the latest beginning of next year. This means first quarter and we are urgently needing it because we could have sold more molded products already this year, and this will help us. Centor, it's a tough question, actually. It's something that you usually do not discuss openly. I can answer it very true and honestly. There is no discussion ongoing within Gerresheimer for a strategic future of Centor. We are very pleased to have our colleagues on board. It is true that the growth that we experienced in the last years was not very strong. Nevertheless, it's a very profitable, strongly cash-generating supporter that we have on our side.
What we do at the moment within the strategic discussions is we are elaborating on the fact is how can we bring growth into also the Centor field, as we also are looking into more growth opportunities into total Gerresheimer. No, there's no plans to de-invest Centor on short notice. At least there's nothing that we are discussing. We are instead looking into opportunities to grow this business, which is a very good business.
No doubt. I just thought it's difficult to grow. I'm very much looking forward to any ideas you have, of course. Thank you.
This would conclude the conference call right now. If there are any other questions, of course, feel free to contact us directly. The next set of results will be published on the 19th of February 2020. Maybe to finish on a personal note from my end, thank you very much for the quality of interaction over the past three years, and I wish Jens-Philipp and the team lots of success. Bye-bye.
Thank you.