Afternoon, ladies and gentlemen. Welcome to the Yean Update 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, Doctor.
Stephan Trega.
Good afternoon, ladies and gentlemen. A very good afternoon to all of you out there. With me today are in the conference is Santi Vashemakar, our CSO, and happy to present 2019 to you and happy to receive probably another question that you all have. The outbreak of the SARS CoV-two virus around the globe has an effect to all of our lives, particularly socially, but also to the companies around the globe. Obviously, to us as well as a company to see an uptick.
And we believe that the highest interest you guys have at the moment out there is probably beginning to ask many questions around the COVID-nineteen crisis, how we are prepared, how it is affected to us. And so, of course, we will go through the numbers of 2019 fairly quickly so we have ample time for Q and A afterwards. We will also try to explain our position and our thoughts around the current sales of the company at the beginning. And we'll pick it up at the end of the presentation It's more of a forward looking view as much as that's possible in these days. Obviously, it's very hard.
It's 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. Therefore, we announced yesterday that we put the our forward looking statements or forecast and our guidance under review and under condition. That's announced yesterday that we put under condition and under review the timing of the annual General Endo Meeting as well as the payment of a dividend. So currently, up until this point, I'm supposed to pay a dividend of €0.35 per share. And again, we put this on a review depending on how the situation is going to unfold in the next few weeks months.
We will give you some more indications about our individual businesses and how they how we believe they are going to be affected by the crisis throughout the course and at the end of the presentation, at the end of the presentation. Let me just, from a really big picture perspective, tell you the following from all point of view. Genoptix 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. So 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, are producing, including office 1 in China that's back online, and the 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 much what is becoming more and more of a challenge. But at this very moment, we are still okay when it comes to 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 smaller supply within Europe. But overall, we can at this moment and 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. But big picture again, we believe that our Vincorion and Life and Safety divisions, the 2 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 have other things to do at the moment rather than issuing invoices for new infrastructure. But overall, we believe that the huge amount of stimulus packages that are put in place around the globe should actually support those 2 businesses, and they represent around a quarter of our businesses. The other 2 divisions are somewhat different, light and 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.
But at the very moment, it seems that the semiconductor industry, things are relatively strong or that they're stable. So at this very moment, light and optics is okay. But light in 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. And so therefore, the automotive industry is 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 Q1 and in particular, the first half will be affected by the outbreak. To what extent, it's hard to see. And 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 our bandwidth on managing through the crisis and hopefully emerging even stronger on the other side. There was in 2019, 1000000, it seems ages ago, but there was a 2019, and we'll go through the numbers for 2019 in a fairly brief manner. Let me just point out a couple of few very important things that's worthwhile to notice. 2019 for us, Overall, it's been an 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. And 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.
And for us, that has been quite a test. Since the beginning of this year, we have now our corporate structure in place. And I'm proud to be able to report that we didn't have any of the major hiccups in this reorganization. Everything went pretty smoothly and that allows us now as a next step in 2020 to actually work on streamlining our processes and also streamlining our, quite frankly, our admin efforts to manage the form of complexity in the company. The complexity has been reduced.
It's more 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 intend to sell Vinkorion at the beginning of this year. We had to communicate that in January, 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 Vincor in 2019, you'll probably understand that even better.
The numbers of Vincorion in 2019 have been strong. And the order intake has been strong and the backlog is very strong actually. So we expect a very good 2020 for Golarion. That's all we know it's a disclaimer with the effect of the crisis. We have to find out still.
We have to see still. But 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 double blind, and we are very convinced that our strategy of trying and actually acting to transform the optic 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.
So we, at this moment, operate in Coriant, a bit like almost like an independent investment. Of course, it's part of the group and we're consolidating Coriant. But 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. So we have no intention to reintegrate that now back into the book. And I've been asked a number of times in the past, what does that mean?
Does it mean it's still for sale? Or does that mean you expect some offers? Well, let me put it that way. If somebody purchases us with an offer that is attractive to us, we'll certainly consider that. It's our duty to do that anyways, but we'll certainly look into that.
In other words, if somebody calls, we'll pick up the telephone. To what extent that materializes in 2020 given the current circumstances on the capital markets remains to be seen, I think pre crisis, we would probably have said, well, maybe it still works this year or maybe it's possible. We don't know. But now I think it's not as likely given the status of the capital markets. But 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, but somebody can work with it much better than we can than
we prepare to talk.
Okay. With that said, let me go to Page 5 in the presentation. Page 5 of our presentation actually shows the sales momentum, revenue development in 2019. And you see that in 2019, we've managed to grow ENOPTIG again by 2.5%. Again, we originally anticipated a bit more, but like did want to add 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 Q4 2019 has been very strong for us. It showed growth versus the Q4 of 2018 at 7.5%, 7.6% to be precise. So 4th quarter being very, very strong and a good momentum in the Q1. Growth has been driven obviously by equipment business in the Amazon bus area, equipment industry.
That's always something to mention. It's a very important business for us. And given that there has been quite 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. And we also have seen very good demand in Automation and Integration. That refers to ProtoMax.
And as you know, we have just recently announced the acquisition of Itzelop. It's a bolt on to ProtoMax. So what we saw with the Slide Lakes and ProtoMax in America, we intend to now roll out into Euron. Page 6, you can see the original distribution of our sales. Growth, particularly strong in America, that is due to the acquisition effects.
Europe, almost flat. We see decline in particular in Germany. That's attributable to the decline in the car industry in Germany and the effects of our light and 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, and 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. Now with that said, let me skip actually in the interest of time to Page 7 and let's go to Page 8 right away. And I'll turn the mic over to my colleague, Hans Dieter, who is 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 not quite, but almost 60% EBITDA. And you may remember that we've originally targeted for 16% EBITDA in our strategy for 2022. So we're not quite there yet, but I think we're fairly close already. So with that, Peter, over to you. And you and Peter will detail development of profit and our P and L statements.
Yes. Thank you, Stefan. A warm welcome from my side to all of you as well. Let us go directly to Page 8, please. Here you see what Stefan already mentioned, our EBITDA was the development of our EBITDA was even stronger than the sales.
We increased it by 5% compared to 2018 to €134,000,000 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 €10,000,000 by the way. And this is also directly the relationship to the EBIT. Where we don't have such IFRS 6% impact, only a little bit. So this is the reason why the EBIT margin is a little bit coming down as expected compared to prior year.
But with 15.7% EBITDA margin, we have been very close to the 16%, as Stefan already mentioned. Then let me switch over directly to the next page, next slide, Page number 9, Slide number 9, where you see our P and L of the group. And 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 this world, 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 carry 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 use these assets. And this is why our deferred tax liabilities increased compared to prior year. And 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's 13.3% compared to 12%. In values, it's €11,300,000 taxes we paid compared to €10,900,000 This is a real tax payments and the rest, as I already tried to explain, is coming from the deferred tax aspects. In the future, Ion Optik will become more and more a normal German headquartered company, so to speak, as I already have explained to you. And we expect always a tax rate between, let me say, 15% 20% in the years to come at least. This is this aspect.
And then let me come directly to Page number 10. Here, you will 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. In last at the end of the last year, we reached €812,600,000 order intake. This is 7% less than at the end of the year 2018. But don't forget, in the last days of December 2018, we booked an order intake.
We expect it to be booked in the Q1 2019 in Light and 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. And Stefan already mentioned, we had a very strong Q4 last year with €237,700,000 which was clear above the Q4 2018. We but nevertheless, also already explained by Stefan, the automotive sector, we saw 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 400 and 66.1%, which is 10.6 percent 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. So 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 €7,000,000 after 9 months. I promise you, we will come close to €18,000,000 We ended
up at
€77,000,000 meaning we collected €70,000,000 free cash flow in the Q4 'nineteen. We are quite happy with this. You all know or we remember that we had some aspects which were not so good for cash flow in the last year. For example, the export license in our incurring business, we could not get throughout nearly the whole year. So 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.
And when we had in the beginning of the year 2019, the push outs in the semi area. So this all influenced a little bit negatively our free cash flow throughout the year. But we are coming back and we are quite happy with €77,000,000 And by the way, with these figures at the year end, we have been, again, net debt free, showing you plus €9,000,000,000 I think, even including the IFRS 16 negative impact to the balance sheet of €55,000,000 So it was not so bad concerning the cash flow and even taking into account, it's free cash flow, meaning operating minus cash flow from investing activities, and we invested much more than in the year before. So taking this all in account, we are quite sufficient with €77,200,000 free cash flow. This having said this, I'd like to hand over again to Stefan, who is happy to share with you our division development and will come later on to the outlook for 2020.
Stefan?
Zita, many thanks. Let's start with light and optics right away. If you would comment, the intention was 13 of our presentation. As you can see, in terms of sales, by the optics, our OEM business grew in 2019 by almost 4 percent to now €350,000,000 The business had good tailwinds 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 the discussions with some folks in the past few months have been some almost a confusion around the Industrial Solutions business. Let me explain that a bit more. Industrial Solutions for us in light and optics is a business segment of a business unit, which produces optical modules and components for industrial accounts. So please don't confuse that with our industry or light and production business or with our industrial metrology business, right? Industrial Solutions and Light and Optics really is a component business for industrial applications.
And that business, which is, let's say, mid double digit, around €50,000,000 in size roughly, that business had suffered in 2019 already. Nevertheless, overall, the division could grow itself, as I said earlier, by almost 4%. EBITDA margin has been stable at a very, very high level of 19.8%, or 110%, 20%. Prior year, the 21.8% was really very high, but we believe that 20% or roughly 20% EBITDA margin of 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, but booked a large order for a semiconductor equipment product in Q4 2018. And 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 ups come for the individual product delivery. This particular product or this particular quality, the contracts for this particular product in question here has been such that under our rules, we had to put this all in one go in the end of 2018. So if you want, December 2018 has been much higher, and we're now missing as well as the year in it.
And that will be with us also into the next year. But we have the orders, it's just in the backlog, right? So that's that as a sort of an explainer an explanation why auto intake is down by 18%. Overall, of course, as I say, semiconductor business is stable, but the Industry Solutions business declined, and the biophotonics business there with the lease has a good potential going forward, but also as an easy 2019. Automobile, Light and Optics, we are fairly happy.
Let's go to Light and Production, which is on Page 14. And if you just look at the numbers, you could think, well, that's great actually. We grew revenues by 8.6% to almost €230,000,000 We expanded margins again by 4.7%. Order intake has been stable. So why do we say that this is the challenged business?
Well, let's remember that in Light and Production, we have the acquired businesses, ProteMax and also the optical vision business here in Germany, which is a small business actually. The main business is Frohnak. The acquired businesses contributed €37,000,000 to the sales in 2018 and €66,400,000 to the sales in 20 19. So the difference between those numbers, obviously, is the additional annualization effect that we got in the sales of Light and Production. Still, that does mean that Light and Production has had a challenging year in terms of growth.
They didn't grow organically, but the acquired business contributed to most of the growth. But it was still okay ish. It was not a complete meltdown like in many other telecom sorry, like in many other automotive businesses. So lighter production with 8.6% growth driven by the acquired companies. EBITDA expanded to €25,800,000 or 11 point 3% in margin.
That's a slight decline. But overall, I think that's a good development for this business. Light and 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 and production is exposed really to the automotive industry, and we have to see how the effect on the automotive industry will affect our Lightroom Production business in 2020. That at the moment is the point that is really, really hard to assess. We really just don't know at this point.
With that
said, let me go to Life and Safety. And then Life and Safety, the opposite is in a way is correct. If you look into the at the pages, you see a decline in revenue, you see a decline in order intake. The only good thing is that increase in EBITDA. Nevertheless, we are very happy with the development of Life and Safety.
And we would like to remind you that Light and Safety had a special toll collect effect in 2018 when we got a lot of tailwind from these specific projects. We got a total collect here in Germany. So the comparator for life and safety is completely skewed, if you want. Life and safety guys there managed to almost compensate actually the EUR 36,000,000 and they're missing versus EUR 2018 from the Tor Collect project. If you would dial back out the Tor Collect contribution in 2018, you would see double digit growth in Ride and Safety.
Order intake, it shows a little bit of a decline, 9% for Light and 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 the 2020 year. That is a fairly normal development in this business. It's a very lumpy business. The business has project driven, and therefore, it can see swings in auto intake up and down.
But overall, as I say, we were actually fairly happy with how the business developed, in particular also from a margin expansion perspective. Of course, this business has outsupply the IFRS 16 effect. Lots of our infrastructure some of the infrastructure we actually keep on the balance sheet, and we get recurring revenue from the service and the ratio of contracts there. The Metabolic, again, we are very happy with how this business has been developing 2019. And 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 should we expect.
Now let me go to Encore on Page 16. Quineon has shown a significant growth in order intake. And core order intake totaled almost €180,000,000 in 2020. That's a very, very strong result for us, and it does show that the future for this business, 2020 beyond should be really good. And 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. But again, it's a good asset and there's no reason for us. And I think also only to our shareholders that we did not sort of sell it for completely below what our expectation of valuation would be. So you see almost 15% order intake growth in 2019. You see revenue is stable.
How does that work together? How does that square? Well, I think Coram is again in the project business and order intake turns into revenue in years to come. So we do foresee a very good sales development for Vincorion in 2020 and beyond. And in EBITDA, you see that the Voyant 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. I feel very proud of the colleagues Vincorion for them being able to manage such margin expansion. And again, good business, good development in 2019. And 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.
So, to wrap in Coriant at the moment is actually a good thing because again, short term, it helps us to navigate the not excluded crisis. And 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, 2015. Our original target up until really, well, it seems like in ages back, but it's actually just a few days ago, our original target has been to grow the business in the low single digit percentage range. Let me again point out that we have to deconsolidate Helos.
For those of you who are not that familiar with it, Helos is a fifty-fifty adventure or it used to be joint operations between Genoptic and Hilti. And as a joint operation, we would have shown or did show in the past 50% of its revenue and profit in our P and L. Hillos has now been converted into a joint venture so that Hillos is able to also produce for other third party companies, not really for the owners of Hillas. As a joint venture, though, we cannot consolidate it anymore into our P and L, but it ends up in our financial results. So we do consolidate it, obviously, further down below the EBITDA margin, but you don't see it in our sales and profit and operating profit numbers.
And HELOS is we used to have around EUR 20,000,000 or so for HALOS in our P and L. So we lose that. Nevertheless, we were originally targeting for those things that's a percentage range of growth up until a few weeks back. At this moment, the COVID-nineteen 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 months develop.
And I think you all understand that. I think that we have seen that around the globe. And 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.
In 2 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. And until a few days ago, we were pretty certain that we can achieve that 2 years earlier already in 2020. Now here, same caveat applies. COVID-nineteen outbreak makes it very difficult to forecast. Therefore, we also have to put this under review and under the condition that we have to see how the year developed.
So therefore, our entire forecast is subject to review. Let me just say a few words to our view of development, how it could develop in the next weeks months. I think there are 3 possible scenarios, and somehow I'd like to call them UVW. In the reshaped recession, in the scenario 1, where we would basically get a reshaped recession, hard downturn, but then also very quick rebound in a few weeks or in summertime. At Genoptix, we wouldn't have that much of a problem.
We would obviously have a very hard or a harder, shall we say, H1. But if the business returns back to normal, we should actually see a good H2 in this V shaped scenario because, as I said earlier, we're not a consumable business. We're in a capital goods business. And while consumable business is if you don't have your beer now in your restaurants, chances are you will never drink that one beer that you didn't have today. Some of you like, but overall, I think consumable businesses are much, much, much harder hit than capital goods business.
So stuff that we can't deliver in the first half, under a reset scenario, we would expect to catch up in the second half because at that point, under the reshape scenario, as I said, the stuff will then be delivered. And we're still producing currently, as assets in all our factories. 1. The other scenario, 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 at bottom for a long time, and we don't see any recovery before 2021.
That would obviously put all our economies under severe stress, and 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 double U 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 do we could see a rebound or again, a rise in cases of COVID-nineteen in autumn and another clampdown and another shelter in place orders for the entire world. And that would make it sort of again challenging. We don't really know which one of these scenarios we will see.
Obviously, we're not virologists. We are the optics people, so we have to see what really happens. We have a lot of trust in what the governments are doing actually. And I'd say that many governments around the globe are putting severe and big stimulus packages in here and 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 on immunization against SARS CoV-two. What does that mean for us? Well, we have managed very, very closely. We steer the company through the crisis good as we possibly can. It's our highest priority at the moment to keep our operational processes going.
Again, I'll point that out one more time to keep our factories running. Up until now, that's possible and all the factories running. And 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, and we want to be able to invest into that. So those are our highest priorities at the moment.
Obviously, next to the health and safety of our associates and families in the entire society. We had a strong balance sheet in APIC. So 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. But 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. And so that makes us, for now at least, hopeful that this 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 turn 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.
And the Board and Stito and I will make all that it takes to make sure that Unitic belongs to the later category of exceptional companies that, as I 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're happy to receive any questions you might have.
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 and Safety and also in Corion. Do you have down payments on hand, which helps you through this process? Or are you able to still achieve milestones, 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. And second, besides the financial ratios you mentioned, what is left as headroom from your financing sites in the current situation? Can you remind us on this one?
Yes. Thank you very much for your question. I'll take the first one. And I think Hans Dieter will be better prepared to answer the second one. So from the project business point of view, I would say at this point, we don't have any delays, if that's the question you have.
So we can still achieve the milestones given that the factories are open. And we think that at the very moment, we keep the business going. It could change given that we have now obviously in metal production with this project. We have large projects And the factories there are close to that much change. It's more for the prototype business.
In recording and latent safety, which you've asked in particular to with respect to the governmental accounting, obviously, if again, if a governmental agency shuts down for a while, then they don't process as far. But at this moment, we can't report or don't have to report any severe impacts. And with respect to liquidity and the headwind that we have in our financing scenarios, I think we're better prepared to handle that and also from the discussions that we had relatively lately with some banks and to resolve pressure.
Yes. Thank you, Stefan. And 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, euros 43,900,000 prepayments from our customers. So we still get prepayments in a certain amount, yes.
And to the actual, let me say, financing situation of NeonOptik, we still we are obviously in these days very close together. Our CEO, me and my team and our divisional heads, we are looking very, very intensively at the cash development. And I can say to you that we still have around €150,000,000 in our pockets compared to €170,000,000 at the year end. And the main reason for the deviation is a payment of €24,000,000 for Interop for the first payments we made for the deal. So all in all, we are still in a good situation.
We got the money from our customers. Our they're paying their due payments to us. So we have a cash inflow. Yes, we are looking to make our cash outflow relatively smart. But for example, we have our ZYN loan, our €230,000,000 line with our banks.
We did not draw the money. We did not put it onto our account. So we have not used it. It's only used with an amount of €30,000,000 for guarantees. So we could score €200,000,000 if it would be necessary, but it's not necessary at the moment.
So we are financial wise, let me say, on a good fundament. But 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. But yes, that's future. We are looking very as I mentioned already, very intensively at this development. But at the moment, we are not nervous, let me say it in these words.
The next question is from Malte Schalmann of Warburg Research.
Good afternoon. First question,
I don't
know if it's for your cost structure in the OpEx. So what is the ratio of fixed to variable costs?
So to what extent you can save on costs
in case of a sales decline?
Stefan, do you want to say Celeste?
Yes. Let me get started here. So obviously, we're not averaging these figures precisely. But I think what helps or what might help, if you look into our P and L and you see our P and L structure And if you see our gross profit structure, it does indicate that we have actually high relatively high amount of material costs in our gross profit. I mean, we don't have a gross profit of 50%.
So again, there is a relatively high material amount in our gross profit. And obviously, if the demand will contract significantly, then we would not pay that much sorry, purchase that much material anymore. At the very moment, though, we have another problem. We have the problem of getting the material rather than delaying the supply of the material. But I think that's a good first indicator.
And then it very much differs around the world. If we come to our functional cost, Penn State is really the Pacific around the world. And here in Germany, where we have the majority of our admin and functions people, also R and D is predominantly in Germany. And in Germany, we have good tools from the government to support, if indeed we're running out of work, then so clear 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 'eight or 'eight or 'nine crisis actually, yes, very successfully within Germany, part of what I believe is why Germany emerged so strongly after the crisis of 'eight or 'nine.
And this tool has been rolled out already again here in Germany. And we have we did come through an agreement with our workers council, actually record time within the day on a new, let's call it, the Contemplatinsweinberg in German. So 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, and we don't have enough work. We have lots of bank hours.
So we're actually pretty flexible in our labor cost structure. And again, we look into our costs, then there is pretty significant material costs, which are flexible.
Right. Any idea what the SG and A cost might be variable? Is it 10%, 20%, something in that range? Maybe that's not 20%.
I mean, this is again, SG
and A
is labor, plus obviously what we have in terms of IT costs and things like that. So I hesitate to give you a concrete number. I don't know if you can put a bit more light or color around that. Obviously, 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.
Yes. I'd like only to admit that, obviously, we are looking very careful on our spending side. So 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. So there we are very careful, obviously, in the cash out saving more, so to speak. But all in all, as Stefan already mentioned, the major bullet points are material costs by far.
Second one is personal costs and where we are good prepared, let us say, in this It's best that we can.
Okay. Fair enough. And then on the Automotive business, do you see an impact in all segments, on metrology, laser systems and automation? Or is there kind of one customer group more willing to discuss on new projects than others? Or are all businesses that are clearly impacted at the current one time?
That's hard to say at the moment. We see clearly in Technometrology, where we hear again and again that our sales reps are not allowed to enter the premise of car companies. And as a matter of fact, this week was the shutdowns in Europe. They don't even go to the customer anymore. So demonstrating products is impossible at the moment and visiting customers are impossible at the moment.
In the product and the automation business, these are often longer term negotiations. I mean, they don't go out every day to knock on customers' doors. So at the moment, that business seems to be okay, but that might change. At the moment, the projects they get basically, they start negotiating a year back. That's how long it takes their time to actually close the contract for Automation businesses.
So that's, I would say, there has been least affected and laser processing is somewhere in the middle. But that's yes, that feeling at the moment really because the development is so dynamic, but it's pretty hard to be a bit more precise on
Okay. Okay. Good. My last question is on the development of the gross margin. I think it was 2 or 3 years ago when I think it was in 20 17, when there was a you shared your expectation that gross margin should increase every year and then finally, somewhere in the future towards the 40% level.
But actually, we saw a decline in the last or a decline in gross margin by more than 100 basis points since then. So basically, what went wrong? The explanation behind that? And then what should 2019 have been kind of a trough? 2020 might be difficult to foresee, but should then trend turn towards a more positive development in the future, next year and the year after that?
So what's your view on that?
There's a fairly simple explanation for that actually. The development in our cost profit is pretty much depends on our mix product mix. And with the addition of the automation business, Protomax, Fil Tec and now also Interlock. These are businesses that have a very different P and L structure. These are businesses with very low gross profits, but pretty high operating profit actually.
And 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. So again, if you integrate basically, you build a whole street for a car company, and you purchase robots and a lot of additional stuff. And then you mark you put a markup on it, you don't sell it sort of with the actual gross profit. Nevertheless, on the bottom line profitability, they are pretty high. So that indeed is the explanation for development of the gross profits.
The change in business model with
the addition of the provenance.
Right. Anything within your other businesses that should kind of pick up certain trends over the next 2 to 3 years?
The metrology business is under pressure from a price perspective, that's for sure. So metrology, industrial metrology is on a price pressure, which has a negative impact on the gross profit. But again, since we're an OEM provider, of course, we will continue to work on our gross profit. But for us, I think the potential for savings is higher in the admin side and actually in this growth in the overhead coverage. So again, there is a protomass effect that goes down gross profit and there is price pressure for metrology.
And 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 and takes already. And we want to roll out that type of business and then 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.
The next question is from Richard Schrum of HSTC.
Yes. Thank you. I will pass. A follow-up on NADEEN 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, that's right, which would go in line with the closing down of the factories there. So I think that also will affect the equipment side as well.
And 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. And 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.
Yes. Thanks for your questions. I'm not so sure if I have said that the bigger project came to sent in. If I said that, then I apologize, but I don't think I have said that actually. The fact that ProtoMak has larger projects.
The shutdown of the car manufacturers of the car plant really starts the year sorry, a week old. 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 all are aware of. And the car industry has changed structurally, that's a source. And I don't think that we have seen a decline in budget.
As a matter of fact, we have seen the Protemax still rather an increase in outsourcing activities. The projects become ever bigger. Because in programmatic is not driven by more projects. They can only take that much. They could have taken much more, they can only take as much.
So the growth is not driven by more projects, but by bigger projects. While the entire project gets ever higher, which is an expression of the car industry have a more automating their production processes. And again, the shutdown of the factories in the last 2 days, the complete shutdown didn't have that much of an impact on us. After then, and now we've come to China, we just started the second question. In China, we have seen an impact, in particular, in the car industry in January, separately and to some extent.
So now the challenges our challenges in China are predominantly driven by the challenges in the automotive industry. Do we believe that China can help us also come out of this crisis area? Yes, I do. From what I hear from our Chinese colleagues, things are normalizing there. And let's hope that the Chinese industry comes out of the gate strongly.
And I think there is a chance that, that materializes.
The next question is from Peter Hotechnieja of Baader Bank.
One question on Life and Safety. So 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?
I 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. And thus, I would foresee that the license safety should actually see tailwinds and stimulation from those stimulus packages once they go in here. Of course, I mean, 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 world.
Have you seen in the Q1 so far here bigger orders already?
No. I think we're talking over the situation that has developed in the last 10 days. Or I mean, in China, it's a bit older. But you think back 10 days, who would have thought that the entire United States of America is going to be in lockdown and for shelter in place 10 days ago. So no, we have not seen yet seen this effect.
Yes. Then on the development in the semiconductor equipment sector, Could you give us here some information about the performance in the Q1? What are your customers saying here?
Well, customers in semiconductor are actually still asking us to supply. Some are even urging us to supply a bit earlier, and I think that is because they want to be as resilient as possible to disruptions in the supply chain. Now that often change every day. And again, that's more on the sales side, I refer to not necessarily on the auto intake side. But on the sales side,
at least
our semicon manufacturing customers are
questioning or
reviewing all pandemic plans and our separate preparedness for what start or doesn't come and are asking us to supply as quickly as possible. They are pretty good at managing the supply chain eventually, and that's exactly what we're doing at the moment.
Then I think you mentioned so far that you have not applied for short time work. But if I hear about your comments on the automotive related business, particularly on metrology, Isn't it necessary here to react very quickly now?
Well, we are prepared. We have made all the we put all the agreements in place. We can switch it on every hour basically. So wherever we need to, we can switch it on. And I didn't say we don't do it at the moment.
It's actually in very limited places in Fortinburg. Let's forget though that short term labor is something that helps companies to hear through and devices downturn, it's not a good instrument to structurally change businesses. And we have already, at the end of 2019, put in place some initiatives to do some structural cost data. And we are managing very careful at what point it makes sense to go on what causes some labor here in Germany. And by the way, under a short term labor regime, labor is reimbursed.
We will be reimbursed by government for the organization of our workers. But in return, we cannot delay our people. So again, we are balancing that pretty carefully. We have no intentions to go on sort of mass layoffs here. Don't get me wrong.
But we managed to very carefully because we want also to structurally improve our cost position in some of our businesses. And that's nothing to do with corona. Please don't get me wrong. Really, please, please, please. We do not want to create the impression that we're taking advantage of what is really a disaster situation.
We have put some measures in place and projects running actively already since the beginning of the year, and there was no discussion about corona in Germany.
And then again, with regard to Protomax. So as the OEMs are definitely having a strong focus on liquidity, don't you see here major risks of order cancellations?
It's that 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 said like a mantra throughout the whole of 2019. And automation is something that all the major car companies are uniting more and more and more. So I would think it's probably not the case that there are canceling orders on that.
To what extent the liquidity issue comes into play is, for me, a really hard to judge. And it's also hard to judge, to be honest, to what extent similar packages around the globe bring liquidity back to the car companies. So please understand, I really can't actually answer that question. You're any more positioned than what I just tried to the color there, I tried to put around it. But anything else would be speculation on my end.
And my last question is on Hilla. You mentioned that your negative sales impact in the current year would be around €20,000,000 How big is 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, Hillel is not the most profitable of all businesses.
Okay.
Thank you.
The next question is from Craig Adlitt of Kepler Cheuvreux.
Yes, good afternoon.
Can you hear me?
Yes.
Yes, I can. Good afternoon.
Yes, excellent. Yes, I have 3 remaining questions, please, and they're all related to the Light and Optics division.
The first one is I just wanted to technical question is 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 relatively small percentage of the group. But might this doesn't actually benefit from the crisis as you have more DNA and more testing systems in use? And then thirdly, on the supply chain, you mentioned that overall, you're not yet concerned
whether you see some
potentially bottlenecks. I remember the last couple of years you've had anyhow from shortages and then this key input product for your most of your optics production. I forget the scientific name, but I just wanted to
How does it feel like?
Yes, exactly. And this is a pretty obviously pretty critical material. And I just wondered how your supply chain there looks? Thank you.
On the Kaltenp flower side, that's almost like 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.
But of course, if their production is going to shut down or has to shut down because they get COVID-nineteen cases and then they will have to go in isolation. That we don't know. But at the very moment, that's not the case.
Okay.
First question has been on our life sciences. No, no. Long term
fixed any order from Q4 2018, how much of it was the
high cost?
Yes, yes, fixed any order. Of course, I didn't know from the top of my head. It's the order was for around 2 years worth of supply. So it's probably half of it still in the backlog, but I can't really give you a precise number. That's simply because I don't know.
But it was for around 3 years.
Yes, it's correct, Jovan. It's around 50%. We are in negotiation concerning some requests of our customer technical points, but it's around 50%.
Around 50%. And last question around life science and biopharma. Not short term because the optics or the testing kits are the tests are molecular tests. There is no sort of optical testing for SARS CoV-two. Those are, as far as I understand, molecular and PCR tests, which are nonoptical tests.
We do have some, yes, 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. So that's an initiative that's going on, which we obviously support. We also are in close contact with the industry and association, Futarsee in Germany, to see, for instance, how production capacities can help in producing medical supply. But there's no short term possible or no short term larger stimulus in our laser optics business on that.
Okay. And then when you
say the thermal imager.
The thermal material?
The thermal imager. So basically, it's the infrared cameras, but that's not a huge. It's not moving materially.
Just one quick follow-up, please, on that. The comment you and Shunmak had made on the Viximi order. You mentioned that you're negotiation with customers on Technicos. Is that because there's been disagreement or because the customer simply has requested further additional upgrades or so?
No. We're not disclosing those discussions at the moment, Craig.
The next question is from Michael Junghems of Commerzbank.
Yes. Good afternoon, gentlemen. Thanks for taking my questions. I have a couple left of them on the table. First, I go them through 1 by 1.
The first question I have is on Lin Corion. So could you put a little bit more color on how your business in Linkorion with the railway and aircraft industries developed in Q1? And in addition, how much of your very good Q4 intake, what Swin Kurion showed here actually did come from the defense industry? And then thirdly, how sustainable do you see the higher margin you achieved in Swin Kurion sustainable for 2020 now in light of the COVID-nineteen outbreak?
Thank you for your questions. Railway and Aircraft is an interesting one. In the aircraft and railway business, the challenge is, of course, more around the services. An aircraft that doesn't fly doesn't need service. And 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 it goes very much on the mix. The inquiry on the margin is like many of our businesses, actually very mix dependent.
In 2019, we have had given the permissions relatively late, but nevertheless, to sell petrol to ship petrol to rocket power supplies. And those products have a fairly high profit margin for us. So gross profit depends on the margins sorry, the gross profit depends on the mix. Gross profit margins depend on the mix of products. And therefore, to say, in 2020 2019, that's been pretty high because we had a rich margin product mix.
Okay. And do you Sorry? Yes. Hello. I just wanted to have a follow-up.
So do you currently the order backlog for Bank of Korea has, do you think you can achieve this high share of Patriot projects in 2020 again like in 2019? Or would you say that you would see a little bit of a lower level in 2020?
Look, we don't want to give detailed guidance on the gross profit of individual physicians. Please do understand that 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 our control.
Yes, sure. Fully understand. Just last question then, Corian, the share between defense industry and aircraft railway in Q4 in terms of the Q4 authentic, 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% to 60%, the rest is railway and aircraft. And that's by a margin. We don't report that per quarter.
Yes. Fully understood. Okay. Thank you. Then I have a couple of questions left here.
One question on that in production. So I just want to get back to the situation in the Automation Integration vertical here. In terms of your Interop, how is the lockdown currently in Spain affecting Interop at the moment? So because of what you could see in the press news is the local government of Spain, they imposed a complete shutdown, lockdown on countries. So is there currently any impact on interprets at the moment?
Yes. Here again, the situation is very dynamic. At the moment, we can sit and really feel a lot People are on home in home offices. And the good thing is that the Italo is not in Madrid, They're really the countryside sort of in the middle between Madrid and in Bilbao. And that place is not as much affected at the moment.
The, let's say, is operating, but of course, that can change every day.
Okay. So is it realistic to assume that you might see there might be the risk that the automotive customers in Spain, they would ask you to they would ask Interrupt to do to postpone the deliveries. So they would ask for a push out of deliveries. So assuming that the COVID-nineteen impact at the moment would not improve over the next months.
Again, I just simply don't know.
Yes. I really don't know. Yes. Fair enough. Okay, fair enough.
Then I have a couple of smaller questions left. On Light and Optics, so 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? And how is the business currently doing, so within your LithoProfit business only currently in Q1 in terms of the order intake?
Okay. By and large, litho is still going well. And as I said earlier, our semiconductor and manufacturing business is still going well. And 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. Comparator, Q4 'nineteen versus Q4 'eighteen is not a good one.
It's Q3 of this. Clearly, that's project that we booked in 'eighteen.
AT and T. Okay. Then on Life and Safety, a small question on Life and Safety here. What you could read in the news, there were some litigation issues you had with the traffic sales, bit commerce in Germany. So 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.
So could you give us an update on the situation here with respect to litigation issues at the moment?
Yes, sure. The world famous Commonwealth of Zusarlem of I know that Antigua is that they want to they want companies to actually store the original data of the measurement. Now that's against what the Federal Bureau for Measures and for measures, we're sending out the PDB, the detached engine components on sales and size, work differently. And so we have to find a situation that there is a federal body saying, no, no, we don't want you to do that. And as a matter of fact, we don't allow you to do that.
And then there is a court in a high court in Zaland ruling, but we acquired that to do that. And at that moment, we were stuck. And we have originally offered to adapt our products, and we have built a new software for that. But the PBB, the the federal body declined to accept that adapted to software because they still are at the position that they don't want the original data to distort for data security for reasons. Now situation is the following.
All other German Bundesmen are up and running, and several, really several, of course, as a rule that the federal position is the higher one or the right one. It's just the country of Saarlem that has invited us 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 have gotten from Thailand, but the impact on the overall sales figure from the gutters, I don't know how many cameras we have installed in Solan, but the impact on our total group business is not that high.
Okay. Thank you. And then I have a few questions left, a couple of housekeeping questions. So you booked an impairment loss in Latin OpEx of around EUR 1,300,000. What was the reason for that?
And then the impact on the EBITDA coming from the IFRS changeover. I remember that the CFO mentioned the impact would have been around €10,000,000 However, in the annual report on Page 97, I read a figure of around €12,000,000 So which one is the correct here? And the last question is in terms of your trade payables. The trade payables increased sharply to around €44,000,000 sorry, €84,000,000 or €84,000,000 or €60,000,000 last year. So will this normalize again to a lower level in 2020?
And Peter, I think those are questions for you. I'll point out that EUR 12,000,000 is probably around CHF 10,000,000, but
probably that
I'll leave it to you to explain. And you know it doesn't.
Yes, yes. Yes, yes. So €12,000,000 or around €12,000,000 is the correct figure. It's €11,590,000, yes. And the difference to the EBIT is the figure I mentioned because in the EBIT, it's only €1,700,000 And so the missing part in the EBIT is the €10,000,000 Yes.
This is what I tried to explain. So yes, on the EBITDA side, it's €11,500,000, which is equaling €12,000,000 correct. This was one question and the other, Armament?
Yes. The 2 last questions. The one question was in terms of the impairment loss. You booked in light of tax of EUR 1,250,000. So what was the reason for this?
1,200,000.
I think for machines, depreciation of machines. Well, also checking, do you have another question? And then
Yes. The last question yes, my very last question is with regards to your trade payables. So they increased to around €84,000,000 this year versus €60,000,000 last year. So do you think this is going to be normalized again to a lower level in 2020?
Our trade payables, I mean, we did purchase a lot of material in Q4. We had a very massive Q4. And that drove up our accounts payable. So it depends on, again, on the timing of our sales. But in Q4, we have been at revenue recognized a lot of sales, which we have built in the Q4 as a result machine in the Q1, revenue recognized it and obviously that means we end up with the accounts receivable and the accounts payable in the balance sheet.
Yes, okay. Thank you. Please go ahead. Thank you.
Thanks for your questions.
The next question is from Gordon Chanel of Bankhaus Lampe.
Yes. Good afternoon. Doctor. Helga, you said that these times are interesting for strategic activities for yield uptake. So are you referring to M and A activities?
I mean, you already did one bigger deal. And I mean, in these times, cash is king. Yes, that would be my question. Yes, cash is king. That's always the case.
And we're doing all we can to manage our liquidity. But on the other hand, yes, I think,
again,
excellent companies here actively with the Chocolate Waters and emerge even stronger on the other side. And we want to be part of the excellence group of companies, if you get what I mean. I do think that some of the valuations in the marketplace that have been very, very high in 'seventeen, 'eighteen, 'nineteen come down a bit after this, our own valuation of these affected as well. But I would think that once the capital markets reopen at the moment, everything seems to be closed. At the moment, it's very, very hard to get the visibility.
But I think once we normalize on the lower level, then assets become, again, a bit more audited. The prices for assets become a bit more realistic maybe. I think our share is undervalued. We have ways to go up. But I think for some other companies, other interesting companies and assets, It could be an interesting point to actually intensify M and A activities once we have a bit more visibility on how things develop in the next few days and weeks.
There are currently no further questions in the queue.
Okay. I know that we owe you one answer still, the gentleman from the commercial perspective. But my suggestion was, whilst we're digging into that, maybe you can touch base with our 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. So our Investor Relations department will follow-up in an individual one on one call with you and hope that's okay.
Okay. Other than that, again, thank you for joining us.
Stephan, excuse me, can I answer the open question concerning this impairment, the €1,200,000 in Light and Optics? It's concerning a site in Berlin where we decided to not go ahead with the business and we depreciated fixed assets to 0. And you know the famous project, yes?
Yes, I know the project.
And it's 1 R and D project which we also took down and write off. So in total, it's EUR 1,200,000. But it took a longer time to research.
But it's good as we know. It gives us the chance to find out one 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 making structurally making our business stronger. And part of that, some of these initiatives do include product and 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 Hilla, 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 as far as in the portfolio.
And we have taken measures already to prune some of our product lines, to prune 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. And currently, the €1,200,000 points to 1 of those products out of the portfolio where we believe it's better to actually prune it and to, let's say, light size our product portfolio overall or optimize our product portfolio overall. We will use 2020 as a year for to make our business even better structurally. We have put these projects in place already in 2019. So it's not something that's been driven by the corona crisis.
And again, let me point out, I don't want to be cynical. We have no intentions to sort of utilize the disaster that we all see. But we have put this place or plans 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 the headwinds once the storm comes up. And we fully intend to be on one of those.
We intend to pursue our strategy. We believe it's a good strategy. It's a strong 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. But 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.