Good afternoon, ladies and gentlemen. Welcome to the Jenoptik conference call regarding the financial results of 2019. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Dr. Stefan Traeger.
Good afternoon, ladies and gentlemen. A very good afternoon to all of you out there. With me together in the conference is Hans-Dieter Schumacher, our CFO. We're happy to present 2019 to you, happy to receive probably a lot of questions that you all have. The outbreak of the SARS-CoV-2 virus around the globe has an effect to all of our lives, obviously socially, also to the companies around the globe, obviously to us as well as a company, to Jenoptik. We believe that the highest interest you guys have at the moment out there is probably beginning to ask a lot of questions around the COVID-19 crisis, how we're prepared, how it has affected us, and so on and so forth. We will go through the numbers of 2019 fairly quickly, so there's ample time for Q&A afterwards.
We will also try to explain our position and our thoughts around the current state of the company at the beginning. We'll pick it up at the end of the presentation as more of a forward-looking view, as much as that's possible these days. Obviously, it's very hard, if not even impossible, to reliably assess the extent that the spread of the virus will have on the economy, our own business in this current fiscal year. We've announced yesterday that we put our forward-looking statements, our forecast, and our guidance under review and under condition. We also announced yesterday that we put under condition and under review the timing of the annual general meeting, as well as the payment of a dividend. Currently, up until this point, we had proposed to pay a dividend of $0.35 per share.
Again, we put this under review depending on how the situation is going to unfold in the next few weeks and months. We will give you some more indications around our individual businesses and how we believe they are going to be affected by the crisis throughout the course and at the end of the presentation. Let me just, from a really big-picture perspective, tell you the following. From our point of view, Jenoptik is actually pretty well prepared. We have put in place a task force in the company really weeks back already, and we've taken a lot of measures to prepare the company. At this moment in time, all our factories, but one in the U.S., are productive. All factories around the globe are running.
The only exception we have is our factory in Detroit, Michigan, but all our other factories are open and are producing, including others still in China that's back online, every factory in Europe, and the other factories that we have in America. We're monitoring our supply chain very carefully. We do have very good visibility at this point, but of course that's becoming more and more of a challenge. At this very moment, we are still okay when it comes to the supply chain. We've seen some shortages for materials obviously coming out of stimulation in Philippine factories and the Asian factories. We see some minor shortages of some smaller suppliers within Europe. Overall, we can, at this moment in time at least, report that all our factories are still running and able to produce and supply our customers.
From a demand perspective, again, we will address that when we go into the individual businesses. Big picture again, we believe that our VINCORION and Light & Safety division, the two divisions that are directly dependent on public money, shall be affected to a lesser extent. We believe that public money will continue to flow. There is, of course, a short-term impact because folks are not in the office and the government has other things to do at the moment, rather than issuing invoices for new infrastructure. Overall, we believe that the huge amount of stimulus packages that are put in place around the globe should actually support those two businesses, and they represent around a quarter of our businesses. The other two divisions are somewhat different.
Light & Optics, we see in particular in our semiconductor segment, still order intake and still questions of our customers whether we could supply. To what extent that is changing going forward is very hard to see. At the very moment, it seems as if the semiconductor industry, things are relatively strong or that they're stable. At this moment, Light & Optics is okay. Light & Production, the automotive industry is affected. The automotive industry basically did almost like a global shutdown here in Europe and in the U.S., all factories are almost closed. Therefore the automotive industry, it's already affected quite a lot, and we foresee that to carry on in the next few weeks. With all that said, we have said that we believe that the first quarter and in particular the first half will be affected by the outbreak.
To what extent, it's hard to see. I will share our view on the second half at the end of the presentation. Nevertheless, let's switch to 2019. As much as we all are focusing our efforts and all our bandwidth on managing through the crisis and hopefully emerging even stronger at the other side. There was in 2019, although it seems ages ago, but there was a 2019, and we will go through the numbers of 2019 in a fairly brief manner. Let me just point out a couple of few very important things. That first of all to notice, 2019 for us overall has been a okay year. Certainly we would have liked to get more growth, but the sheer fact that we did post growth in 2019 and actually pretty remarkable margin expansion to us is a good result.
We have continued to invest in expansion and modernization of our locations and our sites. We have received several larger orders, in particular also in Q4, where we saw actually good momentum in orders and in sales. Probably most importantly, we have started our new corporate structure in 2019. We built that in the year 2018, and we started to run it at the beginning of the year. For us, that has been quite a test. Since the beginning of this year, we have now our corporate structure in place. I'm proud to be able to report that we didn't have any lot of major hiccups in this reorganization, and everything went pretty smoothly. That allows us now, the next step in 2020, to actually work on streamlining our processes, and also streamlining, quite frankly, our admin efforts to manage the former complexity in the company.
The complexity has been reduced. It's now time to actually streamline the processes and leverage that and get more efficiencies out of our administrative functions. Quick word on the VINCORION. Obviously, we have communicated in the middle of last year, 2019, that we intended to sell VINCORION, and at the beginning of this year, we had to communicate that, in general, we had to come to the conclusion that at this point in time, we didn't have an offer in hand that reflected our view of the value of the business. When we go to the development of VINCORION in 2019, you'll probably understand that even better within the numbers of VINCORION in 2019 have been strong. The order intake has been strong, and the backlog is very strong, actually. We expect a very good 2020 for VINCORION.
That's all, with a disclaimer, the effect of the crisis, we have to find out still. We have to see still. Overall, that drove our decision to say, "Okay, we will stop the process." It doesn't mean that we in any way, shape, or form deviate from our strategy. Our strategy is still in place, and we are very convinced that our strategy of trying and actually acting to transform Jenoptik into a more focused technology company, focused around our core competencies in optics and photonics is still in place. We have the absolute intent to pursue that strategy. We, at this moment, operate VINCORION a bit like almost like an independent investment. Of course, it's part of the group and we consolidate VINCORION.
In terms of how we manage it, we have no intention to reintegrate all the back office processes and the like, which we have disintegrated. We have no intention to reintegrate that now back into the group. I've been asked a number of times in the past, "What does that mean? Does that mean it's still for sale, or does that mean you expect some offers?" Well, let me put it that way. If somebody approaches us with an offer that is attractive to us, we'll certainly consider that. It's our duty to do that anyways, but we would certainly look into that. In other words, if somebody calls, we pick up the telephone.
To what extent that materializes in 2020, given the current circumstances on the capital markets from HSBC. I think pre-crisis, we would probably have said, "Well, maybe it still works this year or maybe possible. We don't know." Now I think it's not as likely given the status of the capital markets. Again, if there is somebody out there that's interested in a business that has very good stable cash flows and is a very healthy business. Again, if somebody can work with it much better than we can, then we are prepared to talk. Okay. With that said, let me go to page five in the presentation. Page five of our presentation actually shows the sales momentum, revenue development in 2019. We see that in 2019, we've managed to grow again by 2.5%. Again, we originally anticipated a bit more.
We would like to have a bit more, but I think given the economic circumstances, in particular in the car industry, I think the result that we have seen in 2019 is a decent one. The fourth quarter 2019 has been very strong for us. It shows growth versus the fourth quarter of 2018, 7.5%, 7.6% to be precise. The fourth quarter being very, very strong and a good momentum in the fourth quarter. Growth has been driven obviously by a good business in the semiconductor equipment industry. That's always something to mention. It's a very important business for us. Given that there has been quite a semiconductor, it's like a bit of a crisis out there in 2019. It's important for us that we, in our segment, still see good demand in the semiconductor equipment industry.
We also have seen very good demand in automation integration that refers to Prodomax. As you know, we have just recently announced the acquisition of INTEROB. It's a bolt-on to Prodomax. What we started with Five Lakes and Prodomax in America, we intend to now roll out into Europe. Page six, you can see the regional distribution of our sales growth, particularly strong in America. That is due to the acquisition effects. Europe, almost flat. We see a decline, in particular in Germany. That's attributable to the decline of the car industry in Germany and the effects on our Light & Production business. We see a decline in Asia. That is in particular in China. You might remember that we, as many other companies have reported, we had headwinds in China already in 2019, pre-COVID crisis. That led to decline in sales in Asia overall.
As I say, total growth for the year, 2.5% sales. That's at least a decent sales growth for what has been a relatively challenging year out there in the marketplaces. With that said, let me skip actually in the interest of time, page seven, and let's go to page eight right away. I'll turn the mic over to my colleague, Hans-Dieter, who's going to explain our margin development. We're proud of the fact that in 2019, we could again leverage our margins and expand our margins to now almost 60% EBITDA. You may remember that we originally targeted for 16% EBITDA in our strategy for 2022. We're not quite there yet. I think we're fairly close already. With that said, Hans-Dieter, over to you and you will detail development of profit and our P&L statements.
Thank you, Stefan. A very warm welcome from my side to all of you as well. Let us go directly to page eight, please. Here you see what Stefan already mentioned. The development of our EBITDA was even stronger than the sales. We increased it by 5% compared to 2018 to EUR 134 million. It was already supported by the contributions of our acquired businesses. We had obviously positive effects from the first-time application of IFRS 16, an amount of around EUR 10 million, by the way. This is also directly the relationship to the EBIT. There we don't have such IFRS 16 impact, only a little bit. This is the reason why the EBIT margin is a little bit coming down as expected compared to prior year. With 15.7% EBITDA margin, we have been very close to the 16%, as Stefan already mentioned.
Let me switch over directly to the next page, next slide, Slide nine, where you see our P&L of the group. Let me focus directly on the earnings after taxes or the earnings per share. Here you see, as already communicated throughout the year, poorer development, let me say it in these words, in the earnings per share compared to prior year, having suffered now on the tax side. What happened? In the year 2019, we had no carried forward losses for corporate tax purposes anymore. We activated the deferred tax assets in 2018 for the very last time, the last portion. During this year, we have for the first time the impact that we used these assets, this is why our deferred tax liabilities increased compared to prior year, therefore we have a higher tax rate.
The operational, let's say cash effective tax rate is nearly on the same level like last year. It is 13.3% compared to 12%. In values, it is EUR 11.3 million taxes we paid compared to EUR 10.9 million. This is a real tax payment. The rest, as I already had tried to explain, is coming from the deferred tax aspects. In the future, Jenoptik will become more and more a normal German headquartered company, so to speak, as I already have explained to you, we expect always a tax rate between, let me say, 15% and 20% in the years to come, at least. This is this aspect. Let me come directly to page number 10. Here you see the most important key performance indicators of our group looking a little bit more in the future. You see our order intake and our order backlog.
At the end of the last year, we reached EUR 812.6 million order intake. This is 7% less than at the end of the year 2018. Don't forget, in the last days of December 2018, we booked an order intake we expected to be booked in the first quarter 2019 in Light & Optics. It was a big order, a major order. If you would equalize this, we would show you a little bit an increase compared to prior year. Stefan already mentioned we had a very strong Q4 last year with EUR 237.7 million, which was clear above the Q4 2018. Nevertheless, also already explained by Stefan, the automotive sector, we saw a certain reluctance to invest in the H2 2019 already, which impacted negatively our order intake of the group. On the order backlog side, you see EUR 466.1 million, which is 10.6% below prior year.
Still a solid base for growth in 2020 from our perspective. Approximately 68% of this order backlog we plan to convert into revenue in this year. This is the starting point for 2020. Next page, please. Here you see our free cash flow development. We have had the discussions last time at the Q3 reporting. When we reported to you the Q3 figures, we had reached EUR seven million after nine months. I promise you we will come close to EUR 18 million. We ended up at EUR 77.7 million, meaning we collected EUR 17 million free cash flow in the Q4 2019. We are quite happy with this. You all know, or you remember that we had some aspects which were not so good for our cash flow in the last year.
For example, the export license in our Korean business, we could not get throughout nearly the whole year. We had to carry forward, so to speak, the working capital aspect on this big order, which we finally got the allowance that we shipped it. Then we had in the beginning of the year 2019, the push-out in the semi area. This all influenced a little bit negatively our free cash flow throughout the year. We are coming back, and we are quite happy with EUR 77 million.
By the way, with these figures at the year-end, we have been again net debt-free, showing you a +EUR 9 billion, I think, even including the IFRS 16 negative impact to the balance sheet of EUR 55 million. It was not so bad concerning the cash flow and even taking into account it's a free cash flow, meaning operating minus cash flow from investing activities, and we invested much more than in the year before. Taking this all in account, we are quite sufficient with EUR 77.2 million free cash flow. Having said this, I'd like to hand over again to Stefan, who is happy to share with you our divisional development and will come later on to the outlook for 2020. Stefan.
Dieter, many thanks. Let's start with Light & Optics right away. If you would follow me on page number 13 of our presentation. As you can see, in terms of sales, Light & Optics, our OEM business grew in 2019 by almost 4% to now EUR 350 million. The business had a good tailwind still, as I said earlier, from the semiconductor equipment industry, which is obviously very, very important for us. We did see a decline in the area of industrial solutions. Now, since in the discussions with some folks in the past few months, there have been some almost a confusion around the industrial solutions business. Let me explain that a bit more. Industrial solutions for us in Light & Optics is a business segment or a business unit which produces optical modules and components for industrial accounts.
Please don't confuse that as our industry or Light & Production business or with our industrial metrology business. Industrial solutions in Light & Optics really is a component business for industrial applications. That business, which is, let's say, mid-double digit, around EUR 50 million in size, roughly. That business had suffered in 2019 already. Nevertheless, overall, the division could grow its sales, as I said earlier, by almost 4%. EBITDA margin has been stable at a very, very high level of 19.8%, once in 20%. Prior year, the 21.8% was really very high. We believe that 20% or roughly 20% EBITDA margin for business in total is still a pretty good result, actually. You do see on the right-hand side of the chart a significant order decline.
Let me point out again that we have recognized or booked rather, not recognized, booked a large order for a semiconductor equipment product in Q4 2018. Again, just as an explanation, I think we've discussed that with many of you throughout the year already. Typically, we get what's called frame contracts, and we book the orders when the call-outs come for the individual product deliveries. This particular product or this particular order, rather the contracts for this particular product in question here have been such that under our rules, we had to book this all in one go in the end of 2018. If you want, December 2018 has been much higher, and we are now missing that throughout the year, and that will be with us also into the next year. We have the orders, it's just in the backlog, right?
That as something explainer, an explanation why order intake is down by 18%. Overall, of course, as I say, semiconductor business stable, but the industry solutions business in decline, and the Biophotonics business there, we believe has a good potential going forward, but also acting up as an easy 2019. All in all, though, Light & Optics, we are fairly happy. Let's go to Light & Production, which is on page 14. If you just look at the numbers, you could think, "Well, that's great, actually. We grew revenues by 8.6% to almost EUR 230 million. We expanded margins again by 4.7%. Order intake has been stable. Why do we say that this is the challenged business?
Let's remember that in Light & Production, we have the acquired businesses, Prodomax, and also the OTTO Vision business here in Germany, which is a small business actually, but the main business is Prodomax. The acquired businesses contributed EUR 37 million to the sales in 2018 and EUR 66.4 million to the sales in 2019. The difference between those two numbers obviously is the additional annualization effect that we got in the sales of Light & Production. That does mean that Light & Production has had a challenging year in terms of growth. They didn't grow organically, but the acquired businesses contributed the most to growth. It was still okay. It was not a complete meltdown like in many other automotive businesses. Light & Production with 8.6% growth driven by the acquired companies. EBITDA expanded to EUR 25.8 million or 11.3% in margin. That's a slight decline.
Overall, I think that's a good development for this business. Light & Production, as I said earlier, is the one where we are most concerned when it comes to the effect of the crisis, simply because Light & Production is exposed really to the automotive industry, and we have to see how the effect on the automotive industry will affect our Light & Production business in 2020. That at the moment is the point that is really hard to assess. We really just don't know at this point. With that said, let me go to Light & Safety. Then Light & Safety, the opposite is in a way is correct. If you look at the pages, you see a decline in revenue, you see a decline in order intake. The only good thing is that the increase in EBITDA.
Nevertheless, we are very happy with the development of Light & Safety. We would like to remind you that Light & Safety had the special Toll Collect effect in 2018 when we got a lot of tailwind from these specific projects together with Toll Collect in Germany. The comparator for Light & Safety is completely skewed, if you want. Light & Safety guys there managed to almost compensate actually the EUR 36 million they are missing versus 2018 from the Toll Collect project. If you would dial back out the Toll Collect contribution in 2018, you would see double-digit growth in Light & Safety. Order intake, it shows a bit of a decline, 9% for Light & Safety.
Here again, we had some very big orders that we booked at the end of 2018, for the Middle East, a large construction site and infrastructure development, which we will turn into sales throughout 2020. That is a fairly normal development in this business. It's a very lumpy business. It's a business that's project-driven, and therefore, it can see swings in order intake up and down. Overall, as I say, we're actually fairly happy with how the business developed, in particular, also from a margin expansion perspective. Of course, this business has helped by the IFRS 16 effect. Lots of our infrastructure, or some of the infrastructure we actually keep on the balance sheet, and we get recurring revenue from the service and separational contracts there.
Nevertheless, again, we are very happy with how this business has been developing throughout 2019. We did get orders again for infrastructure in America, in particular in the state of New York, and we have been able to communicate that a few weeks back. Let me go to VINCORION, page 16. VINCORION has shown a significant growth in order intake. VINCORION order intake totals almost EUR 180 million in 2020. That's a very strong result for us, it does show that the future for this business, 2020 and beyond, should be really good. Again, that's why we said, at this moment in time, why would we sell a very, actually good and decent and strong asset, undervalued?
Again, I would like to point out that we believe that strategically, there are just no synergies between VINCORION and the rest of the group. Again, it's a good asset and there's no reason for us, and I think also owe it to our shareholders that we will not sell it for completely below what our expectation of valuation would be. You see almost 15% order intake growth in 2019. You see revenue is stable. How does that work together? How does that square?
Well, VINCORION is, again, in the project business, and order intake turns into revenue in years to come. We do foresee a very good sales development for VINCORION in 2020 and beyond. In EBITDA, you see that VINCORION managed to expand the EBIT margin considerably to now almost 15%, which is really a record for this business. It's a business that typically or in the past has had much lower margins, and we're very proud of the colleagues at VINCORION for them being able to manage such margin expansion. Again, good business, good development in 2019. Given the nature of this business, it will actually also help us through the crisis because it does produce stable cash flows. We have seen that over the years.
To have VINCORION at the moment is actually a good thing, because, again, short term, it helps us to navigate Jenoptik through the crisis. Nevertheless, we believe that strategically, we want to focus our business more on our core competencies around optics and photonics. With that, let's actually go to the outlook and to what we believe the development in 2020 should be. Our original target up until really what seems like ages back, but it's actually just a few days ago. Our original target had been to grow the business in the low single digits percentage range. Let me again point out that we have to deconsolidate Hillos. For those of you who are not that familiar with it, Hillos is a 50/50 joint venture, or it used to be joint operations between Jenoptik and Hilti.
As a joint operation, we would have shown or did show in the past 50% of its revenue and profit in our P&L. Hillos has now been converted into a joint venture so that Hillos is able to also produce for other third-party companies, not only for the owners of Hillos. As a joint venture, though, we cannot consolidate it anymore into our P&L, but it ends up in our financial results. We do consolidate it obviously further down below the EBITDA margin, but you don't see it in our sales and operating profit numbers. Hillos, we used to have around EUR 20 million or so for Hillos in our P&L. We lose that.
Nevertheless, we were originally targeting for low single-digit percentage range of growth up until a few weeks back. At this moment, the COVID-19 outbreak really makes it so difficult to forecast that we have put this forecast on the review. We have to see how the next weeks and months develop. I think you all will understand that. I think that we have seen that around the globe. I will detail how we believe it could develop in a few seconds. Let me just briefly touch on our margin again. In 2019, as I said, we had already 15.7% EBITDA margin. Two years ago, we promised that we want to expand our margins from what used to be 14.2% at the time, to around 16% in 2022. Until a few days ago, we were pretty certain that we can achieve that two years earlier, already in 2020.
Here, same caveat applies. The COVID-19 outbreak makes it very difficult to forecast. We also have to put this under review and under the condition that we have to see how the year develops. Our entire forecast is subject to review. Let me just say a few words to our view of development, or how it could develop in the next weeks and months. I think there are three possible scenarios. Somehow I'd like to call them U, V, W. In the V-shaped recession, in the scenario 1, where we would basically get a V-shaped recession, hard downturn, also very quick rebound in a few weeks or in summertime. At Jenoptik, we wouldn't have that much of a problem. We would obviously have a very hard, or a harder, shall we say, H1.
If the business returns back to normal, we should actually see a good H2 in this V-shaped scenario. As I said earlier, we're not a consumable business, we're in a capital goods business. While consumable businesses suffer, if you don't have your beer now in your restaurant, chances are you will never drink that one beer that you didn't have today. Some of you might, but I think overall, I think consumable businesses are much, much harder hit than capital equipment businesses. Stuff that we can't deliver in the first half, under a V-shaped scenario, we would expect to catch up in the second half because at that point, under the V-shaped scenario, as I said, the stuff will then be delivered. We are still producing currently, as I said, and all our factories are running. That would be the best-case scenario.
The worst-case scenario from our point of view would be a U shape, basically where we do see a recession now, and that prolongs once it's found a bottom for a long time, and we don't see any recovery before 2021. That would obviously put all our economies under severe stress, that would put us under stress as well, or under very challenging conditions. I think the middle-of-the-road scenario for us is what we call a bit of a W effect, where we see the recession now, and in summertime, maybe a bit of a rebound with contracting infection cases and reopening of factories around the world. There is a chance that we could see, again, a rise in cases of COVID-19 in autumn and another clampdown and another shelter in place orders for the entire world. That would make it sort of, again, challenging.
We don't really know which one of these scenarios we will see. Obviously, we are not virologists. We are optics people. We have to see what really happens. We have a lot of trust in what the governments are doing, actually. I have to say that many governments around the globe are putting severe and big stimulus packages in gear. Whether here in Germany, in Europe, in the U.S., or in Asia, we see governments putting together big stimulus packages, which should help for a fairly quick recovery if the scientists can help to develop a cure or at least immunization against SARS-CoV-2. What does that mean for us? Well, we have managed very, very curiously. We steer the company through the crisis as good as we possibly can. It's our highest priority at the moment to keep our operational processes going.
Again, I point that out one more time, to keep our factories running. Up until now, that is possible, and all but one factory is running. We also want to be able to do strategic invests to grow our company and to invest into our strategic moves at this current time. It could be actually an interesting time for activities. We want to be able to invest into that. Those are our highest priorities at the moment, obviously next to the health and safety of our associates and families and the entire society. We have a strong balance sheet in Jenoptik. I think we are well-prepared. Of course, it all depends on how long it all takes and how long the crisis will be with us. At the very moment, we have a strong balance sheet.
We are in daily contact almost with our customers, where it's possible, with our suppliers, with our banks. That makes us, for now at least, hopeful that if the crisis doesn't prolong for too long, we should be okay. Let me close with a statement that I have been using a lot of time lately with our associates and employees around the world. From my point of view, good companies will shelter now and manage through the crisis and come back on the other side. Exceptionally good companies and really excellent companies will steer the company through the storm and get stronger on the other side.
The board, as Hans-Dieter and I will make all that it takes to make sure that Jenoptik belongs to the latter category of exceptional companies that, as to say, actively steer the ship through the choppy waters and emerge even stronger on the other side. With that, thank you for your attention, and we are happy to receive any questions you might have.
Ladies and gentlemen, if you would like to ask a question, please press nine and star on your telephone keypad. If you would like to withdraw your question, press nine and star again. The first question is from Richard Schramm of HSBC.
Yes, good afternoon. I would like to take questions concerning the financing of the project business you have, obviously in Light & Safety and also in VINCORION. Do you have down payments on hand which helped you through this process? Are you able to still achieve milestone payments from your customers in this respect, so that your own liquidity might not be squeezed if you try to keep up operations and prepare for these contracts? That would be my first question. Second, besides the financial ratios you mentioned, what is left as headroom from your financing side in the current situation? Can you remind us on this one? Thanks.
Yeah. Thank you very much for your question. I'll take the first one, and I think Hans-Dieter would be better-
Okay
prepared to answer the second one. From the project business point of view, up until this point, we don't have any sort of delays, if that's the question you have. We can still achieve the milestones given that the factories are open. We think that at the very moment, we keep the business going. It could change given that we have now obviously in Light & Production, with this process, we have large projects and the factories there are closed, so that might change. That's more for the Prodomax business. In recording the Light & Safety, which you've asked in particular to with respect to the governmental account. Obviously, again, if a governmental agency is shut down for a while, then yeah, they don't process as fast. At this moment, we can't report or don't have to report any severe impacts.
With respect to liquidity and the headroom that we have in our financing scenarios, Peter, I think we're better prepared to handle that and also from the discussions that we had lately with some banks and with our treasurer.
Yeah. Thank you, Stefan. Shortly before I switch to this question, I'd like to highlight for Mr. Schramm that we had in our balance sheet at the year-end 2019, EUR 43.9 million prepayments from our customers. We still get prepayments in a certain amount, yes. To the actual, let me say, financing situation of Jenoptik, we are obviously in these days very close together. All our CEO, me and my team, and our divisional heads, we are looking very intensively at the cash development. I can say to you that we still have around EUR 150 million in our pockets compared to €170 at the year-end. The main reason for the deviation is a payment of EUR 24 million for INTEROB, the first payment we made for the deal. All in all, we are still in a good situation. We get the money from our customers.
They're paying their due payments to us. We have a cash inflow. Yes, we are looking to make our cash outflow relatively smart. For example, we have our syndicated loan, our EUR 230 million line with our banks. We did not draw the money. We did not put it onto our account. We have not used it. It's only used with an amount of EUR 30 million for guarantees. We could draw EUR 200 million if it would be necessary, but it's not necessary at the moment. We are financial-wise, let me say, on a good fundament. It's depending what Stefan already mentioned in the beginning of his speech. It's depending on how long and how deep this crisis will last on. Yeah, that's future. We are looking, as I mentioned already, very intensively at this development.
At the moment we are not nervous, let me say it with these words. Yeah.
Thank you.
The next question is from Malte Schaumann of Warburg Research.
Good afternoon. First question I wanted to ask is for your cost structure in the OpEx. What is the ratio of fixed to variable cost? To what extent you can save on cost in case of a sales decline?
Stefan, do you want to say first?
Yeah, let me get started here. Malte, obviously, we're not publishing these figures precisely. I think what might help, if you look into our P&L and if you see our P&L structure, and if you see our gross profit structure. It does indicate that we have actually a relatively high amount of material costs in our gross profit. We don't have a gross profit of 50%. Again, there is a relatively high material amount in our gross profit. Obviously, if the demand would contract significantly, then we would not pay Or sorry, purchase that much material anymore. At the very moment, though, we have another problem. We have the problem of getting materials rather than delaying the supply of the materials. I think that's a good first indicator. Then it very much differs around the world.
If you come to our functional cost, the situation really differs around the world. Here in Germany, where we have the majority of our admin and functions people, also R&D is predominantly in Germany. In Germany, we have good tools from the government to support. If indeed we're running out of work, folk here can go on what's called short-term labor, where the government actually subsidizes the missing income for people. That has been a tool that's been used in the 2008 or 2009 crisis, actually very successfully within Germany. Part of, I believe, why Germany emerged so strongly after the crisis of 2008 or 2009. This tool has been rolled out already again here in Germany. We did come to an agreement with our workers council, actually in record time, within a day, on a new what's called the [Foreign language].
A contract between the management and the workers representation here in Germany for this tool of short-term work. We don't have to use it at this very moment because we have people going to use their bank hours when we don't have enough work. We have lots of bank hours. We're actually pretty flexible in our labor cost structure. Again, if you look into our costs, then there is a pretty significant material cost, which are flexible.
Right. Any idea what, from the SG&A costs, might be variable? Is it, I don't know, 10%, 20%, something in that range? Maybe less than 20, but.
SG&A is labor, plus obviously what we have in terms of IT costs and things like that. I hesitate to give you a concrete number. I don't know, Malte, if you can put a bit more light or color around that. We don't want to give you a precise number here, but maybe there's some other indication from your end how you see that.
Yeah, I'd like only to admit that obviously, we are looking very careful on our spending side. Meaning what investments we really will release right now and start and what we will spend on projects we are running with companies who advise us. There we are very careful, obviously, in the cash out saving mode, so to speak. All in all, as Stefan already mentioned, the major bullet points are material costs by far. Second one is personal costs, and there we are good prepared, let us say in these words, yeah. As best as we can. Yeah.
Okay. Fair enough. On the automotive business, do you see an impact in all segments on metrology, laser systems, and in automation? Is there a kind one customer group more willing to discuss on new projects than others, or are all businesses clearly impacted at the current point in time?
That's hard to say at the moment. We see clearly an impact in metrology, where we hear again and again that our sales reps are not allowed to enter premises of car companies. As a matter of fact, this week with the shutdowns in Europe, they don't even go to the customer anymore. Demonstrating product is impossible at the moment, and visiting customers is impossible at the moment. In the Prodomax and the automation business, these are often longer-term negotiations. They don't go out every day to knock on customers' doors. At the moment, that business seems to be okay, but that might change. At the moment, the projects they get, basically, they started negotiating a year back. That's how long it takes at times to actually close the contract for automation businesses.
I would say they are the least affected, and laser processing is somewhere in the middle. That's feeling at the moment, really because the development is so dynamic that it's pretty hard to be a bit more precise on it.
Okay. Good. My last question is on the development of the gross margin. I think it was two or three years ago when, I think it was in 2017, you shared your expectation that gross margins should increase every year and then finally somewhere in the future towards the 40% level. But actually, we saw a decline, even though flat, but a decline in gross margin by more than 100 basis points since then. Basically, what went wrong, or what is the explanation behind that? And then should 2019 have been kind of a trough? 2020 might be difficult to foresee, but should then the trend turn towards a more positive development in the future, next year and the year after that? What's your view on that?
There's a fairly simple explanation for that, actually. The development in our gross profit pretty much depends on our product mix. With the addition of the automation business, Prodomax, if I take, and now also INTEROB, these are businesses that have a very different P&L structure. These are businesses with very low gross profits, but pretty high operating profits, actually. It's just by the nature of these businesses, because they have a lot of third-party items which they purchase, mark up, and then sell on to customers. Again, if you integrate, basically, we build a whole street for a car company, and you purchase robots and a lot of additional stuff, and then you put a mark-up on it, but you don't sell it with a full cost profit. Nevertheless, on the bottom line profitability, they are pretty high.
That indeed is the explanation for the development of the gross profits, the change in business model with the addition of Prodomax and INTEROB.
Right. Anything within your other businesses that should kind of kick off certain trends over the next two to three years?
The metrology business is under pressure from a price perspective. That's for sure. Industrial metrology is under price pressure, which has a negative impact on the gross profit. Again, since we are an OEM provider, of course, we will continue to work on our gross profit. For us, I think the potential for savings is higher in the admin side and actually with growth in the overhead coverage. Again, there is the Prodomax effect that drove down gross profit, then there is price pressure for metrology. I think what we should see in terms of uplift in the future is the more we get software businesses, the more we get full solution businesses, like we do, for example, in Light & Safety already.
We want to roll out that type of business and utilize that business model much more in terms of recurring revenue models and full solutions. Additional services, additional software sitting on top of our infrastructure, on top of our hardware components, that should enlarge our gross profit. All right. Okay, thanks.
The next question is from Richard Schramm of HSBC.
Yes, thank you. I would have a follow-up on Light & Production. I'm not sure if I understood you correctly, but you said that the bigger projects you have there are more or less on hold, especially in North America, and that's right, which would go in line with the closing down of the factories there. I think that will also affect the equipment side as well. Second question I have concerning the weakness in China last year, was there a particular reason, or was it more the general economic environment there as China was heading already to slower growth last year, and therefore was a bit ahead of the development here in the rest of the world?
Would you think that this is a chance that they also then might come out earlier out of this mess and might help here to compensate a bit for weakness in other markets? Thanks.
Yeah. Thanks for your questions. I'm not quite sure if I have said that the bigger projects came to a standstill in North America. If I said that, then I apologize, but I don't think I have said that, actually. The fact that Prodomax has larger projects. The shutdown of the car plants really is just a week old or so. We have not yet seen the effect there. What we have seen is a long-term structural effect in the car industry, which of course, we're all aware of, and the car industry has changed structurally, that's for sure. I don't think that we have seen a decline in projects. As a matter of fact, we have seen for Prodomax, still a lot of an increase in outsourcing activities. The projects become ever bigger. The growth in Prodomax is not driven by more projects.
They can only take that much. They could have taken much more. They can only take as much. The growth is not driven by more projects but by bigger projects. The volume per project gets ever higher, which is an expression that the car industry ever more automating their production processes. Again, the shutdown of the factories in the last few days, the complete shutdown, didn't have that much of an impact on us. Other than, and now we come to China, because a lot of your tech questions. In China, we have seen an impact in particular in the car industry in January, February, and to some extent still now. Our challenges in China are predominantly driven by the challenges in the automotive industry. Do we believe that China can help us all to come out of this crisis area? Yes, I do.
From what I hear from our Chinese colleagues, things are normalizing there and let's all hope that the Chinese industry comes out of the gate strongly, and I think there is a good chance that that materializes.
Thank you.
The next question is from Peter Rothenaicher of Baader Bank.
Yes. Hello, gentlemen. One question on Light & Safety. You mentioned this business is seen as more resilient, but don't you think that in these times, the focus of the governmental organization is less on red light and speed control, and therefore this kind of orders might be postponed and no orders given?
Well, I mean, nobody knows, but I would not foresee that. I think once the administrations are back up and running, I think they will spend quite a lot of money, actually, on infrastructure projects to stimulate the economy. Thus, I would foresee that the Light & Safety should actually see tailwind and semiconductors from those stimulus packages once they go into it. Of course, I don't have a crystal ball. I don't really know, but I would not understand why a jurisdiction would reduce its efforts to save lives on the road and its investment into infrastructure, in particular with the huge amount of stimulus money that's going to flow around the globe.
Have you seen in the first quarter so far here bigger orders already?
I think, we're talking over the situation that has developed in the last 10 days. In China, it's a bit over, but you think back 10 days, who would have thought that the entire United States of America is going to be in a lockdown and shelter in place 10 days ago? No, we have not seen it yet in these effects.
Yeah. On the development in the semiconductor equipment sector, could you give us here some information about the performance in the first quarter? What are your customers saying here?
Customers in semiconductor are actually still asking us to supply. Some are even urging us to supply a bit earlier, I think that is because they want to be as resilient as possible to disruptions in the supply chain. That often change every day. Again, that's more on the state side I refer to, not necessarily on the auto intake side. On the state side, at least our semiconductor manufacturing customers are questioning or are reviewing our pandemic plans and our preparedness for what does or doesn't come and are asking us to supply as quickly as possible. They are pretty good at managing their supply chain, essentially. That's exactly what they're doing at the moment.
I think you mentioned so far that you have not applied for short-time work, but if I hear about your comment on the automotive-related business, particularly on metrology, isn't it necessary here to react very quickly now?
Well, we are prepared. We have put all the ingredients in place. We can switch it on every hour, basically. Wherever we need to, we can switch it on. I didn't say we don't do it at the moment. It's only in very limited places we have short-time work. Let's not forget, though, that short-term labor is something that helps companies to steer through and survive this downturn. It's not a good instrument to structurally change businesses. We have already, at the end of 2019, put in place some initiatives to do some structural cost take-ups. We are managing very careful at what point it makes sense to go on what's called short-term labor here in Germany. By the way, under a short-term labor regime, labor is reimbursed. We will be reimbursed by the government for the accommodation of our workers.
In return, we cannot lay off people. Again, we are balancing that pretty carefully. We have no intentions to go on mass layoffs here, don't get me wrong. We manage it very carefully because we want also to structurally improve our cost efficiency in some of our businesses. That's nothing to do with Corona. Please don't get me wrong. Really, please, please. We do not want to create the impression that we're taking advantage of what really is a disaster situation. We have put some measures in place and projects running actively already since the beginning of the year. There was no discussion about Corona in Germany.
Again, with regard to Prodomax. As the OEMs are definitely having a strong focus on liquidity, don't you see here major risks of order cancellations?
That's hard to see or hard to really tell. Midterm, at least, I would think that if they want to survive, they need to automate their businesses. That's what we have said like a mantra throughout the whole of 2019. Automation is something that all the major car companies are using more and more and more. I would think it's probably not the case that they're canceling orders on us. To what extent the liquidity issue comes into play is, for me, really hard to judge. It's also hard to judge, to be honest, to what extent stimulus packages around the globe bring liquidity back to the car companies. Please understand, I really can't actually answer that question with any more precision than the color that I tried to put around it. Anything else would be speculation on my end.
My last question is on Hillos. You mentioned that your negative sales impact in the current year will be around EUR 20 million. How big is then the impact on EBIT that will then be transferred to the financial results?
Look, I mean, we don't disclose that, but let me just say Hillos is not the most profitable of all businesses.
Okay. Thank you.
If you would like to ask a question, please press nine and star now on your telephone keypad. The next question is from Craig Abbott of Kepler Cheuvreux.
Yes. Good afternoon. Can you hear me?
Yes.
Yes, we can. Good afternoon.
Yes. Excellent. Yeah. I have three remaining questions, please, and they're all related to the Light & Optics division. The first one is, it's a technical question, but still, I just wonder how much of that very large order that you received in Q4 2018 is still in the backlog to be worked off this year? Secondly, obviously, your health and life sciences activities today are still a relatively small percentage of the group, but might this actually benefit from the crisis as you have more testing systems in use? Thirdly, on the supply chain, you mentioned that overall, you're not yet concerned, although you see some potential bottlenecks. I remember the last couple of years you've had, anyhow, some shortages, and then this key input product for most of your optics production, I forget the scientific name, but I just wonder.
Calcium fluoride.
Yeah, exactly. This is obviously a pretty critical material, and I just wondered how your supply chain there looks. Thank you.
On the calcium fluoride side? That's almost the easiest question to answer. We still get supply. Thank God it's not far away. It's in the same city. We get it from our neighbors.
Yeah.
Of course, if their production is going to shut down or has to shut down because they get COVID-19 cases, and then they all have to go in isolation. That we don't know. At the moment, that's not the case.
Okay.
First question had been on our life sciences, no?
No.
Long-term?
Big semi order from Q4 2018. How much of it is in backlog?
Yeah. Big semi order. Of course, I don't know from the top of my head. The order was for around two years' worth of supply. Probably half of it's still in the backlog, but I can't really give you a precise number, simply because I don't know.
Okay.
It was for around two years.
Yeah. It's correct, Johann. It's around 50%. We are in negotiation concerning some requests of our customers.
Yeah, technical.
Technical points, but it's around 50%.
Yeah. Around 50%. Last question around life science and biopharma. Not short-term, because the optics for the testing kits, the tests are molecular tests. There is no sort of optical testing for SARS-CoV-2. Those are, as far as I understand, molecular or PCR tests, which are non-optical tests. We do have some tailwinds, if you want, for our thermal imaging cameras. There is an initiative to see if we can build more thermal imagers to use in the monitoring of temperature of people before entering buildings. That's an initiative that's going on, which we obviously support. We also are in close contact with the industry associations, particularly in Germany, to see whether our production capacities can help in producing medical supply. There's no short-term larger stimulus in our Light & Optics business on that.
Okay.
Other than, as you say, the thermal imagers.
The thermal material?
The thermal imager.
Yeah.
Basically, the infrared cameras, but that's not a huge-
Okay.
It's not moving the needle.
Just one quick follow-up, please, on that. Because the comment that you and then Schumacher made on the big semi order, you mentioned that you're in negotiation with customers on technical issues. Is that because there's been disagreement, or because the customer simply has requested further additional upgrades or so on?
No, we're not disclosing those discussions at the moment. Sorry.
Got it. Okay.
The next question is from Michael Junghans of Commerzbank.
Good afternoon, gentlemen. Thanks for taking my questions. I have a couple left of them on the table. I go then through one by one. The first question I have is on VINCORION. Could you put a little bit more color on how your business in VINCORION with the railway and aircraft industry is developed in Q1? In addition, how much of your very good Q4 order intake, what VINCORION showed here actually did come from the defense industry. Thirdly, how sustainable do you see the high margin you achieved in VINCORION sustainable for 2020 now in light of the COVID-19 outbreak?
Thank you for the questions. Railway and aircraft is an interesting one. The challenge is, of course, more around the services. An aircraft that doesn't fly doesn't need service. Therefore, that's a bit of a challenge. Same goes for railways. Some railway provider might say, "We don't service our equipment that much." I don't think that's a long-term effect or a deep effect, but it might have an effect on demand of those two businesses going forward. To the margin question, it depends very much on the mix. The inquiry on the margins is, like many of our businesses, actually very mix dependent. In 2019, given the permissions were delayed, but nevertheless, to sell a Patriot, to ship Patriot rocket power supplies, and those products have a fairly high profit margin for us. Gross profit depends on the mix.
Gross profit margins depend on the mix of products. Therefore, to say 2019 has been pretty high because we had a rich margin product mix.
Okay.
Sorry?
Yes, hello. I just wanted to have a follow-up. Currently, the order backlog for VINCORION, do you think you can achieve this high share of Patriot projects in 2020, again like in 2019? Or would you say that it would be a little bit of a lower level in 2020?
Look, we don't want to give detailed guidance on the gross profit of individual divisions. Please do understand. We don't want to give guidance overall. We have a hard time to give any guidance at the moment, let alone to get into these details, really. That's really hard for us to tell up front.
Yes, sure. Fully understand. Just a last question then, Cory, on the share between defense industry and aircraft railway in Q4, in terms of Q4 order intake, how large was this, roughly, in terms of defense?
Again, we don't separate in our reporting between the defense and the rest of the businesses. Overall, the share of defense is around 55%-60%. The rest is railway and aircraft. That's by and large, and we don't report that per quarter.
Yes. Fully understood. Okay. Thank you. I have a couple of questions left here. One question on Light & Production. I just want to get back to the situation, the automation integration vertical here in terms of your INTEROB. How is the lockdown currently in Spain affecting INTEROB at the moment? Because of what you could see in the press news is the local government of Spain, they imposed a complete shutdown, lockdown on country service. Is there currently any impact on INTEROB at the moment?
Yeah. Here again, the situation is very dynamic. At the moment, we can still communicate with INTEROB. People are in home offices. The good thing is that INTEROB is not in Madrid. They're really in the countryside, sort of in the middle between Madrid and Bilbao. That place is not as much affected at the moment. The site is operating, but of course, that can change every day.
Okay. Is it realistic to assume that there might be the risk that the automotive customers in Spain, they would ask INTEROB to postpone the deliveries? They would ask for a push out of deliveries. Assuming that the COVID-19 impact at the moment would not improve over the next months.
Again, I just simply don't know.
Yes. Okay.
I really don't.
Yeah. Fair enough.
It's just a speculation on my end.
Yeah. Fair enough. Okay. I've a couple of smaller questions left on Light & Optics. Currently, have you seen any slowdown with respect to your semiconductor business within lithography equipment in Q4, in terms of the order intake, what you received in Q4? How is the business currently doing within your lithography business only currently in Q1, in terms of the order intake?
Okay. By and large, litho is still going well. As I said earlier, our semiconductor manufacturing business is still going well. Q4 order intake, again, has been skewed because of the order intake that we did get in 2018, the large sum that we got in 2018 in Q4. The comparator Q4 2019 versus Q4 2018 is not a good one. It's skewed because of this fairly large project that we booked in 2018.
Yeah. That's absolutely. Okay, on Light & Safety, a small question from Light & Safety here. What you could read in the news, there were some litigation issues you had with the traffic light speed cameras in Germany. And you can also see that your work safety business in Germany, there was some slight contraction in sales, even if you exclude the Toll Collect impact last year. Could you give us an update on the situation here with respect to litigation issues at the moment?
Yeah, sure. The world-famous commonwealth of the Saarland. I know that I'm keeping Saarland and anybody here.
Thank you.
The world-famous commonwealth of Saarland has decided to rule that they want companies to actually store the original data of a measurement. That's against what the Federal Bureau for Measures in Germany, the PTB, that is the Physikalisch-Technische Bundesanstalt work differently. We have the funny situation that there is a federal body saying, "No, we don't want you to do that. As a matter of fact, we don't allow you to do that." There is a high court in Saarland ruling that we require you to do that. At that moment, we were stuck. We have originally offered to adapt our product, we have built a new software for that.
The PTB, the Physikalisch-Technische Bundesanstalt , the federal body declined to accept that adapted software because they still are of the position that they don't want the original data to be stored for data security reasons. Now, the situation is the following. All other German Bundesländer are up and running, and several courts have ruled that the federal position is the higher one or the right one. It's just the country of Saarland that has decided to have another opinion. To us, that's not that much of a problem. Again, we appreciate all businesses. We appreciate the business that we would've gotten from Saarland, but the impact on the overall sales figure from the, I don't know how many cameras we have installed in Saarland, but the impact on our total group's business is not that high.
Okay, thank you. I have a few questions left, a couple of housekeeping questions. You booked an impairment loss in Light & Optics of around EUR 1.3 million. What was the reason for that? The impact on the EBITDA coming from the IFRS changeover. I remember that the CFO mentioned the impact would have been around EUR 10 million. However, in the annual report on page 97, I read a figure of around EUR 12 million. Which one is the correct here? The last question is in terms of your trade payables. The trade payables increase sharply to around EUR 84 million versus EUR 60 million last year. Will this normalize again to a lower level in 2020?
Peter, I think those are questions for you. I'll point out that EUR 12 million is probably around EUR 10 million. Other than that, I'll leave it to you to explain if you know it better than I do.
Yeah. EUR 12 million or around EUR 12 million is the correct figure. It's EUR 11.59 million. The difference to the EBIT is the figure I mentioned, because in the EBIT it's only EUR 1.7 million. The missing part in the EBIT is the EUR 10 million. Yeah. This is what I tried to explain. Yes, on the EBIT, the other side is EUR 11.5 million. Which is equaling EUR 12. Correct. This was one question and the other one?
Yes, the two last questions. The one question was in terms of the impairment loss. You booked in Light & Optics of EUR 1.25 million. What was the reason for this?
Oh my God. I have to check. EUR 1.5 million.
1.2 million.
I think the thing that's for machines. That's depreciation of machines.
Mm-mm. Sold machines.
Super.
Oh, whilst you're checking, do you have another question?
Yes.
Maybe we can jump back.
The last question. Yeah. My very last question is with regards to your trade payables. They increased to around EUR 84 million this year, was it EUR 60 million last year? Do you think this is going to be normalized again to a lower level in 2020?
Our trade payables. We did purchase a lot of material in Q4. That drove up our accounts payable. It depends, again, on the timing of our sales. In Q4, we have revenue recognized a lot of sales, which we have built in the fourth quarter as we built machines in the first quarter, heavily recognized it. Obviously, that means we end up with accounts receivable and accounts payable in the balance sheet.
Yeah. Okay. Thank you. These were my questions so far. Thank you.
Thank you. Thanks for your questions.
The next question is from Gordon Schönell of Bankhaus Lampe.
Yes. Good afternoon. Dr. Traeger, you said that these times are interesting for strategic activities for you Jenoptik. Are you referring to M&A activities? You already did one big deal, and in these times, cash is king. Yeah, that would be my questions.
Yes. Cash is king, that's always the case. We're doing all we can to manage our liquidity. On the other hand, yes, I think, again, excellent companies steer actively through the troubled waters and emerge even stronger on the other side. We want to be part of the excellent group of companies, if you see what I mean. I do think that some of the valuations in the marketplace that have been very high in 2017, 2018, 2019, come down a bit. Now, our own valuation, obviously, is affected as well. I would think that once the capital markets reopen. At the moment, everything seems to be closed. At the moment, it's very hard to get visibility. I think once we normalize on the lower level, then assets become, again, a bit more How do I say?
The prices for assets become a bit more realistic, maybe. I think our share is undervalued. I think we have ways to go up. I think for some other companies, other interesting companies and assets, it could be an interesting point to actually intensify M&A activities once we have a bit more visibility on how things develop in the next few days and weeks.
Mm-hmm. Okay. Thank you for that answer.
If you would like to ask a question, press nine and star now on your telephone keypad. There are currently no further questions in the queue.
Okay. I know that we owe you one answer still, the gentleman from the Commerzbank. My suggestion would be whilst we're digging into that, maybe you can touch base with our investor relations department, and they can take it up in an individual call with you if that's okay with you, and we will certainly try to deliver the answer as soon as possible. Our investor relations department will follow up in an individual one-on-one call with you, and I hope that's okay with you. Okay. Other than that, again, thank you for-
Stefan.
regarding it.
Stefan, excuse me. Can I answer the open question concerning this impairment, the EUR 1.2 million in Light & Optics? It's concerning a site in Berlin, where we decided to not go ahead with the business, and we depreciated the fixed assets to zero.
Now I know.
You know the famous-
Now I know.
The famous project. You know the project, yeah?
Yeah. I know the project.
It's one R&D project which we also took down and write off. In total it's EUR 1.2 million. Yeah. Excuse me, it took a longer time to research. Excuse me.
It's good that we know that. It gives us the chance, actually, to pick up on that point. What you see there is that already in 2019, we prepared ourselves for quite some initiatives for structural cost takeouts in the business and for structurally making our business stronger. Part of that, some of these initiatives do include product line pruning. Those of you who have been with us to the capital market day will remember that we have pointed out that we believe that other than VINCORION and now Hillos, there are other smaller businesses and smaller product lines that increase complexity for our business and are, from a strategic point of view, let's say, not necessarily the stars in the portfolio.
We have taken measures already to prune some of our product lines, to prune the product portfolio and grow those products that have a good position in the marketplace, those product lines that have a good margin profile for us. Apparently, the EUR 1.2 million points to one of those products out of the portfolio where we believe it's better to actually prune it and to, let's say, right-size our product portfolio overall, or optimize our product portfolio overall. We will use 2020 as a year to make our business even better structurally. We have put these projects in place already in 2019. It's not something that's been driven by the COVID crisis. Again, let me point out, I don't want to be cynical. We have no intentions to sort of utilize the disaster we all see.
We have put this plan in place already in the last few months and weeks, and we fully intend to execute on them as much as possible in the crisis. Brings me back to the analogy of ships that those who steer actively through choppy waters might be ahead once the storm calms down, and we fully intend to be one of those. We intend to pursue our strategy. We believe it's a good strategy. It's a sound strategy. We have a good balance sheet. Of course, we'll not be reckless. We know that the crisis might be severe, and we manage very closely at the moment, really almost by the hour. We're in touch with our banks, we're in touch with our customers, we're in touch with our suppliers.
Given the structure of our business, we're actually hopeful that once this crisis is over, we'll emerge even stronger on the other side. Thank you.