Ladies and gentlemen, welcome to the Oerlikon Q3 2020 results conference call and live webcast. I am Alessandro, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions in writing via the respective field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mrs. Kerstin Flötner, Head of Corporate Communications and Investor Relations at Oerlikon. Please go ahead, madam.
Good afternoon, ladies and gentlemen, and welcome to Oerlikon's conference call on the 2020 third quarter results. In the light of the current developments, I do hope you're all well and staying safe. My name is Kerstin Flötner, Head of Corporate Communications and Investor Relations. On a personal note, I'm delighted to be here and to guide you through my first set of results. With me today are Dr. Roland Fischer, Group CEO, and Philipp Müller, Group CFO. As a reminder, all related documents on the third quarter results, including the following presentation, are available for download on our website at www.oerlikon.com. Today, Roland Fischer will outline Oerlikon's strong progress in responding to the challenging market conditions. We will provide an update on the strong performance of the group and the progress we are making on our cost actions.
Philipp Müller will then give you an overview of the financial performance during the third quarter and first nine months of 2020. After their presentations, we will host a Q&A session to answer your questions. Today's conference is being recorded, and a replay will be available on our website later today. Now, handing over to Roland.
Thank you, Kerstin, and welcome from my side as well. We acknowledge that we are reporting in times of a resurged COVID-19 pandemic, particularly in Europe, so I'm even more pleased to be able to deliver positive results for the third quarter. This demonstrates the strength and resilience of Oerlikon's business. Our Manmade Fiber division continues to see a positive market outlook in the core filament business. This is built upon long-term structural drivers such as customer consolidation and integrated downstream polymer capacity. The third quarter demonstrated Manmade Fiber's strong operational performance. Sales of CHF 313 million in the third quarter brings sales for the first nine months to CHF 765 million. The COVID-19 pandemic has accelerated the development of Manmade Fiber's nonwoven business.
During the first nine months, we have received orders of over CHF 75 million and sales of over CHF 50 million for nonwoven applications. We are pleased to be able to support the global fight against the virus. Important, the nonwoven success is not limited to providing meltblown systems for facial masks. We are seeing increased inquiries for nonwoven consumables, including the Phantom lines for Procter & Gamble wet wipes. This can be used to clean and disinfect surfaces. Let's move on to the more complex market situation for Surface Solutions. The Surface Solutions division has experienced sequential recovery from the low point in the second quarter. The recovery is divergent across end markets and geographies. Automotive has recovered strongly in China, with encouraging developments in Europe. Tooling has experienced a recovery and, to a lesser degree, general industry too.
Meanwhile, our aerospace business has worsened as a result of continued restrictions on travel. With the current resurgence of the COVID-19 pandemic, planes are grounded, and flying hours are limited. On balance, the end market recovery has enabled sales to grow sequentially. Scale, diversity, and global footprint allows Surface Solutions to weather the varying speed of recovery. We are well-positioned to expand our market share against smaller and more exposed local competitors. Let me now elaborate a bit on our cost out programs. As automotive markets softened already last year, we made an assessment of our business and proactively initiated actions on our cost base already in 2019. When the COVID-19 pandemic took hold, we adopted and accelerated our programs.
The most important message I have here is that these cost-out measures are, to the biggest extent, structural in nature and will lead to sustainably lower cost bases for our business. The actions are not dependent on sales volumes. The expected run rate savings of approximately CHF 70 million per annum will continue even when sales increases again. Our strong focus on our cost program is evident with over 650 of the 800+ planned headcount reduction completed at the end of September. In addition to the structural measures, we have put in place tight cost controls on discretionary spend. Operating expenses have been reduced by CHF 165 million compared to the first nine months of 2019, reflecting operational gearing of 66%. Looking forward, our Manmade Fibers division is on track to deliver sales of over CHF 1 billion and to improve margins over 2019.
We have strengthened the Surface Solutions division with the addition of Markus Tacke as Division CEO. He brings a strong track record of business transformation with experience in clean energy and gas turbines. He is well-positioned in further development and integrates the Surface Solutions business with an increasing customer focus. The Surface Solutions division has seen a sequential recovery. However, the varying picture across the end markets and the second wave of COVID-19 means we will not provide an update guidance even on the relatively near-term future, as many countries prepare for new lockdowns. Let me provide you with some more details on our cost out programs.
As I have already previously explained, the program is focused on streamlining our headquarter functions and support functions, including shared service centers, rationalizing our legal entity structure following a number of acquisitions, optimizing our footprint to benefit from scale and better service our customers, gaining additional procurement synergies, and last but not least, rightsizing our additive manufacturing business, adapting to market trends, and reinforcing where we can add value. The structural program is not limited to headcount and is also designed to yield long-term benefits through efficient working practices and technology adoptions. Headcount reduction and the simplification of our organization is a critical element, however. On these reductions, we are ahead of schedule. As of September 30th, we are more than 80% complete and now anticipate being 90% complete by the end of 2020.
We have increased our estimate of annualized run rate EBITDA savings to around CHF 70 million. The implementation costs remain approximately at CHF 60 million. Let me reiterate that these cost-out measures are structural in nature and will yield a sustainably lower cost basis for our business. The actions are not dependent on sales volumes, and the expected run rate savings will continue even when sales increase again. To give you some more further details on our structural programs. The headquarters and support functions program will reduce headcount by around 80 and to generate run rate EBITDA of CHF 10 million. It includes initiatives like our shared service center concept. We are regionally reducing legal entities and gaining scale from centralizing administration functions such as accounting, tax, and IT across three locations: China, Poland, and the U.S.
This is a great example of how sustainable our structural gains are when volume returns. As we have previously told you, we have looked very closely at our additive manufacturing business and what size and functionality we want to afford given the market outlook. While we continue to believe in the promise of the underlying technology, some end markets are more promising than others. Accordingly, we have decided to stop all of our activities related to the medical business in the U.S. While the medical market is growing in additive manufacturing, it has its own specifics. We learned that in medical markets, our customers are unwilling to outsource additive manufacturing in the same way we see in other markets such as aerospace, automotive, and general industries. The closure of this business alone reduced our structural cost in additive manufacturing by CHF 10 million.
This helps us reach break-even faster and at a lower sales level. Our focus on aerospace, automotive, and general industries is already generating tangible results with OEM partnerships and first signs of larger serial orders taking us beyond prototyping. Elsewhere in Surface Solutions, we plan to generate run rate savings of CHF 45 million, which include, but are not limited to, headcount reduction of 600 FTEs. It includes improvements in plant utilization through further adoption of automation and digitalization. We will optimize our global production network and more closely align it with our customer footprint across core markets. The make or buy decision will be more closely aligned between manufacturing and purchasing. We have continued to progress on the structural cost program. The contribution to the bottom line is a big enabler for returning to our medium-term operational EBITDA margin of 16%-18%.
This is alongside a strong manmade fiber business and recovery volume in Surface Solutions business. In the third quarter, we have been pleased to see some of our markets start to recover at varying paces. The recovery is still in the early stages, and whether these trends continue remain to be seen. There are further risks from the pandemic and from lower consumer demand. The strength of Manmade Fibers market positions continues to provide a stable base. Our order book in the filament business remains sticky, with continued visibility out to 2023. The nonwoven business continues to enjoy a positive market development this year. It has been a real breakthrough year for our nonwoven business. The special filament business, including industrial and carpet yarns, remains depressed. In Surface Solutions, the third quarter saw varying recovery patterns across markets and geographies.
Looking at geographies, we noticed that the picture of recovery was particularly strong in China and contributed to the better results of our Asian business, where Surface Solutions has a third of its sales. In Europe, the market situation improved sequentially. However, North America continues to show weak market conditions. The recovery in automotive has been a bright spot for us across all geographies. Following the summer seasonal shutdown, we have seen car makers increase both sales and production levels sequentially. This is only 5%-10% behind 2019 levels. The pattern we are seeing in September and early October give us cause for cautious optimism. In tooling, we saw a sequential improvement in our sales in the third quarter, particularly after seasonal summer closures in August. General Industries has experienced a more modest pattern of recovery, and it also includes our energy business.
We have also seen a decline in the conditions in the aerospace market. Restrictions on passenger numbers heavily impacted on commercial airlines, which has had a knock-on impact for our business. Aircraft production rates and indirectly new engines, combined with MRO due to lower flying hours, had a negative impact on our sales. Market conditions indicate a deeper crisis and a longer recovery pattern than anticipated last quarter. Oerlikon has performed well during the third quarter. The actions we are taking are beginning to deliver results. Surface Solutions is a leader in sustainable innovation with a strong technology portfolio. Our proactive cost measures will enable us to grow more profitably and with greater capital efficiency. We have taken additional steps to utilize our technology more efficiently and to increase our focus on the customers. Manmade Fiber continues to demonstrate strength, and during turbulent markets has been a stabilizing force.
The progress made in the development of the nonwoven business adds additional resilience to the division and positions it well for growth markets. The diversity and scale of our businesses allows us to be a strong partner for our customers and suppliers. Our healthy balance sheet positions us well for the future, and we will be ready to execute where the right growth and M&A opportunities present themselves. Following the commercial and market overview, let me now hand over to Philipp to present the group's financials.
Thank you, Roland, and good afternoon. Welcome to today's presentation from my side as well. I will start with the group financial review for the third quarter and then take a closer look at the divisional results. In the third quarter, group order intake was CHF 518 million, down 17% year-over-year on a report basis, and down 14% in constant FX rates. Manmade Fibers delivered robust order intake that underpins our annual sales targets and solidifies our 2021 outlook. Sales in the quarter were CHF 593 million, down 6% year-over-year. FX contributed - 4% to the decline. Manmade Fibers sales increased 18% year-on-year as we caught up on the operational delays caused by the COVID-19 pandemic in the third quarter. Surface Solutions third quarter sales were down 24% year-on-year.
Notably, sequential sales were up 7%, showing the first effect of the market recovery. Operational EBITDA was CHF 92 million in the third quarter, or 15.6%. Margins were around 210 basis points higher year-over-year, despite a lower overall level of sales. It demonstrates the strong operational performance in Manmade Fibers and the first tangible impact of our cost programs. Let me put this margin performance into perspective. Manmade Fibers margins were at 15.4% in Q3, a bit higher than what we call sustainable margin levels. At the beginning of the year, we guided to around 13%, and we are now expecting between 13% and 14% for the year 2020. Midterm, we expect margins in Manmade around these levels. In Surface Solutions, margins were at 14.8% in Q3, despite continued low sales levels.
In July and August, we still experienced very low activity, only September showed some real signs of recovery. For Surface Solutions, we are expecting continued margin improvements from the current levels as our cost actions yield further benefits. Our strong cost actions and increased operational rigor are also delivering improved cash generation. For the second half of 2020, we expect CapEx to be around the same level as the first half of the year, networking capital to be a source of cash. Medium-term, we are also expecting to sustainably lower our CapEx requirements, which will position us to generate strong free cash flow. Overall, the third quarter marks solid progress towards our medium-term group margin targets of 16%-18%. We are confident we can achieve this. Moving to the divisional results. In Surface Solutions, third quarter sales were CHF 280 million.
Sales declined 24% year-over-year on a reported basis, and 20% at constant FX rates. Sequentially, sales grew 7% as markets began their recovery from Q2. Our automotive business showed a solid performance in the third quarter across all geographies. The performance was particularly strong in September and continued into October. The business was still down 17% versus prior year during the third quarter, but it marks an improvement from the second quarter, where we were down 36% versus the prior year. September and October are showing further improvements as OEM car production has ramped up. Tooling and general industries also recovered during the third quarter, however, to a lesser degree than auto. Our aerospace business declined 50% year-on-year from 30% year-on-year in the second quarter, as our aero-engine customers continue to suffer under extremely challenging market conditions.
Operational EBITDA in Surface Solutions for the third quarter was CHF 42 million, or 14.8%. The impact of our cost out program is now clearly visible in the division profitability. Overall, in the first nine months of the year, we reduced operating expenses in Surface Solutions by CHF 165 million compared to the first nine months of 2019. This represents an operational gearing of 66%. Next, on Manmade Fibers. Manmade Fibers continued to deliver solid order intake with 261 million orders during the third quarter. For the first nine months, this reflects order intake of CHF 770 million and positions us well for 2020 top-line expectations of over CHF 1 billion and for 2021. Third quarter sales of CHF 313 million were up 18% year-on-year.
The Manmade Fibers team executed extremely well in challenging conditions and was able to catch up on the operational delays caused by the shutdowns in the first half of the year. For the first nine months, Manmade sales were CHF 765 million. During the first nine months of the year, we saw particular strength in our nonwoven business. We have recognized over CHF 75 million of order intake and over CHF 50 million of sales in the first nine months. This is not limited to meltblown system for facial masks. The business has additional strong opportunities in the fast-growing sanitary product market. Third quarter operational EBITDA was CHF 48 million, or 15.4%. This was driven by strong execution and solid cost absorption on the high sales levels. For the full year, we're expecting margins between 13% and 14%.
Manmade Fibers continues to provide a significant degree of stability to the group. We expect a stable development to continue for the foreseeable future as our order pipeline sees delivery lead times extending well into 2022 and 2023. Going forward, we anticipate nonwoven being an area of growth and helping to balance the sales mix. Let me summarize the results and our presentation before we start the Q&A session. Manmade Fibers has done an excellent job overcoming the operational challenges caused by the COVID-19 pandemic. We are on track for the full year. Sales of over CHF 750 million and improved margins give us confidence the division can deliver orders and sales above CHF 1 billion for the full year. The Surface Solutions division is seeing a sequential recovery, the speed of which varies between geographies and end markets. We are cautiously optimistic of a continued recovery.
However, risks related to the COVID-19 pandemic remain. Our cost actions are ahead of schedule, delivering benefits to the bottom line. The measures are sustainable. We have strengthened the businesses and added excellent capability to our management team. Visibility on the trajectory of the market recovery remains low for all of us. We continue to focus on what we can control and adjusting our structural cost footprint. Should the recovery be less pronounced, we are prepared to make additional cost adjustments. Furthermore, as our structural cost actions are taking effect, we are increasingly confident about our commitment to mid-term margin corridors of 16%-18% for the group. This closes our prepared remarks. With that, we will open it up for questions. Operator, please go ahead.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to use only handsets. Anyone who has a question may press star and one at this time. The first question comes from Michael Foeth from Vontobel. Please go ahead.
Yes. Hi, everyone. I have, first, two questions on the cost savings and the margin. First of all, by when is the restructuring program complete? Meaning, do we expect the full CHF 70 million savings to be effective in 2021? On the other hand, you said you have CHF 165 million costs that were cut. The difference between the two, is that what will come back if volumes start rising again, or do I get something wrong there? That's on the restructuring.
I have a question on the margin drag going forward of additive manufacturing. How much will that be this year and next year versus the 200 basis points-300 basis points on the Surface Solutions business that you mentioned previously? A question on the management change or addition. What triggered the decision to put in place a new CEO for Surface Solutions? Roland, you yourself, what will you focus on or which priorities will you focus on, if you're no longer heading the Surface Solutions business directly? Thank you.
Okay. Let me start. Michael, a bunch of questions. The cost programs we are talking about have been launched already in 2019, and prior to corona, and have been accelerated earlier this year. If we take the headcount reduction in Surface Solutions as one parameter and one contributing element, we have about 650 people already off the payroll by end of September, and it will be 700 + by end of the year. That means the big majority of this effect will be cost-effective already next year. Giving a final date when our programs will be completed, for sure we will continue the entire year of 2021, heavily depending on how the environment and the economy will develop, right? Honestly spoken, there is no clear end date, what we have in mind. You are absolutely right.
The difference between the CHF 70 million run rate and the reduction in operational spending of CHF 165 million is to a big extent. There are elements like short work mode. What is contributing here, giving us benefit, at least for the time being, we are using it. Another example is travel expenses. We are all sitting, more or less, in our offices or at home, and travel hardly is possible. From that perspective, there are cost elements which are coming back. That's contributing to the difference. The additive part. Yes, we made a big step by terminating the medical business in the U.S., and I think Philipp mentioned the CHF 10 million, if I'm not completely wrong, what is a positive effect here. That moves our effect much closer to the 200 basis points, coming from the 300 basis points we had in the past.
Maybe last but not least, the point, Michael, you are asking why we are introducing a new CEO for the Surface Solutions division. I think the answer is a very simple one. When we decided in 2016 to combine the roles Group CEO and Division CEO, the environment was a completely different one. It was straightforward. Economical trends was clear upwards, we just executed our strategy. In our days now, the economical environment is a completely different one, asking for measures or actions in terms of structural improvements, structural things, but also operational topics. This is something what is extremely important for Oerlikon as a group of company, this is nothing what can be done on a part-time mode. That is the simple reason why we made this decision.
Let me maybe, Michael, a couple more just numbers on how to think about the cost-out program. If we're saying we're 90% complete with the restructuring program that we had foreseen, I think that's maybe a good gauge for how much of the CHF 70 million of run rate savings we're expecting to come through in 2021. Initially, we hadn't anticipated to get pretty much that full benefit in 2021. Because we're ahead of schedule, we're expecting that to come through in 2021 now. Roland is absolutely right. There are some other elements. I think the important thing that I would point to is certainly the margin step-up in the third quarter and the step-up in the operational gearing.
We're expecting another step-up there in terms of the operational gearing in the fourth quarter, as you really not only have the temporary cost savings, but on top of that you have the structural cost savings coming through. First time we saw a substantial part of the structural cost savings coming through was in the third quarter. We're obviously expecting those to stay, we get some positive incremental operational leverage as volume, I would say, just levelizes out and improves sequentially in Surface Solutions.
On the additive manufacturing, Roland's absolutely right. I think just the medical part maybe removes about 50 basis points-75 basis points of the dilution that we talked about. All in all, with the other structural cost savings, we're expecting to reduce that dilution that we had talked about by 100 basis points-125 basis points from the 300 basis points. Still a ways to go, but like Roland said, the break-even, we're expecting that to be significantly lower than previously. We'll continue to work on that and to looking positively, I think, overall at additive.
Thank you very much.
The next question comes from Alessandro Foletti from Octavian. Please go ahead.
Yes. Good afternoon, gentlemen. Thank you for taking my questions. Just a couple if possible, maybe coming back to the cost. Can you give an indication on the gross margin development in Q3 if there was anything that contributed to this CHF 165 million cost reduction?
At the gross margin level, really not substantial. There's obviously, when we think about our structural footprint, some of the elements there are counted in gross margin. That's where you really saw the step-up in the third quarter. Those are really fulfillment elements that we consider structural and fixed. As we remove them, they improve the gross margin, but no sort of idiosyncratic things that impacted gross margins either up or down in the third quarter.
Let's say input-output price differential was, in the worst case, stable. Let's say not a headwind for you.
Yeah, that's right.
All right. Thank you. I would like to ask another question on Manmade. Maybe first of all, on the margin again, also here, you mentioned, you expect, let me see. Your words, Philipp, were exactly the following. Where did I write it? Between 13% and 14% for the full year 2020.
That's right.
To remain on this level, something like that, you said.
Yeah.
Can you explain what you mean with this exactly?
I think that's really what we wanted to point towards. I think for the total year, we're expecting margins around those levels. We've always said midterm, we see that business in the mid-teens. That's our expectation. 13%-14% is maybe midterm our expectation here for the business. The backlog and price in backlog is getting better. The team is executing very well, at the same time diversifying the revenue pools into new areas. We see that margin level, bar any huge surprises, as pretty sustainable in Manmade Fibers.
The 15%-
Excuse me. The 15.4% is not the run rate. I think Philipp made the comment, right?
No, I understand that.
Yeah.
Maybe you can explain why it is somehow above the sustainable.
I think there's really, as you execute, we always say this about Manmade, depending on what parts of the project we execute through and what part of the backlog we're really running through in our percentage of completion accounting, sometimes the margins are a little bit higher or a little bit lower. Second quarter also saw some strength there. First quarter was a little softer, but also driven by lower revenue. I think as we look into the next couple of quarters, this feels like the right margin level. As always, margins can vary a little bit in any given quarter.
All right. Great. Thanks. Another two short, one short one, and then maybe a longer one for me to go. On the additives business, now you mentioned the exit from medical in the U.S. Maybe can you share other thoughts that you have about rightsizing that business? You mentioned obviously break even is much lower now, but as I understand, it's not yet there. There is more to go. I imagine you want to reach break even, at least, at some point down the road.
Yeah. No, Alessandro, I think the answer is a very simple one. In medical, we made this tough decision because we didn't see the chance, really, to fulfill the intention and the plans we had to convert traditional production technologies more into additive due to the sheer fact that there is just a limited willingness to outsource this technology. Having this recognized and realized, we thought it's the right point of time to say, now it's enough.
In other areas, the situation is much better. We do see a strong move from originally prototype business more towards more substantial contracts in the aerospace and space area, especially we talk about volumes, contracts, CHF 0.5 million, CHF 1+ million . This is a structural move, which is coming with industrialization of this technology. That brings us top line, and that brings us closer to the break even. It's not so much about doing additional heavy cut here.
Okay, I understand. Maybe on my last one, when I look at the Manmade sales split, I see 24% comes from what you call plant engineering. I know the IR team told me, the nonwoven business is also allocated there. Maybe, can you tell me how big the nonwoven inside there is, and how big is the polycondensation and other stuff? You mentioned also this sanitary product, et cetera. Can you give a little bit more color? Where do the orders come from in terms of geography? What kind of clients and so on?
Yeah. I think this is a complex question and for sure, actually, I don't want to give you the entire overview here. I think these small business fields, nonwoven, polycondensation, are business lines which we established just a few years ago. They are small if you compare it with the big filament business and the carpet yarn business. We do have today, let's say an order of magnitude of CHF 100 million, CHF 150 million. One big example was the nonwoven volume for these meltblown units, which is a positive effect out of the corona pandemic. Normally we are selling one, maybe two units a year, each CHF 3 million-CHF 5 million. I think now we have about CHF 50 million in revenue here, and this is already a bigger revenue here. We talk about CHF 100 million, CHF 150 million for this type of business.
I think the only other thing that I would say is, Alessandro, that those businesses are a lot more global. You obviously know our filament business is still about 70% of Manmade Fibers. That's predominantly in China. The other businesses, the nonwoven business, but also BCF and carpet yarn and so on, they are much more global, and outside of that. It helps us to diversify our revenue pool, both above and beyond of the filament business, but also outside of China. I think that's a positive for us.
If I look at the geographic split, you make 81% Asia. I have to assume that part of this new nonwoven or meltblown or polycondensation are in Asia, but outside China.
It's primarily Europe.
Okay.
I think the brutal truth is the European countries have realized that they are not able to fulfill the own demand, and that's why plenty of countries are building up capacities here. This CHF 50 million meltblown business is more or less beside a few, very few ones for the U.S. and very few ones for Asia. It's a European business.
Okay. Thank you very much for answering my question. Have a nice day.
Thank you. You too.
Thanks.
Thank you.
Next question comes from Christian Arnold from MainFirst. Please go ahead.
Yes. Good afternoon. On your midterm target 16%-18%, what do you need from the divisions? You were talking before for Manmade Fibers also in the midterm, this 13%-14% EBITDA margin. That's somehow a run rate we can calculate. What does it mean for Surface Solutions and especially then the additive manufacturing part? Do you need to be break even to get to 16%-18%? Are you still expecting loss-making business in additive manufacturing and already achieving a 16%-18% or do you have to be actually profitable in that area?
I think, Christian, I think the math is a very simple one. On a group level, consisting of two divisions, when we want to be between 16% and 18% on a group level and Manmade mid-teens and Philipp was clear, 14% or something like that. That means automatically now, depending on the volume, what is required on the Surface Solutions business. It's close to the 20%. Here, for sure, additive is not the decisive factor. It's really the profitability and the big chunk of our Surface Solutions business. You know it. It's a wide portfolio. We do have extremely strong service business. We have equipment business, we have commodity and material business. Everything is carrying a different margin range.
From that point of view, to achieve the given guidance, 16%-18% means 20% + for Surface Solutions, is really depending on the continued cost-out efforts in Surface Solutions. To a certain extent, for sure, the volume will help when the markets are coming back. The additive part, and I think Philipp gave an indication that we are after completing all our measures here, the margin dilution will be below the 200 basis points. That means it's not the additive topic which is driving the gain.
I would agree. Obviously, also when you go back to our statements about the break-even point for the additive business, we're expecting that that break-even point is actually CHF 20 million, CHF 30 million lower than where we previously were. We're expecting to achieve that, and that'll obviously also be a contributing factor. Back to Roland's point, it's really not the deciding factor in it.
Do you want to share the information about the break-even point, actually? I mean, you're saying CHF 20 million-CHF 30 million lower, so in absolute terms? Does it mean-
No, I think we said previously it's going to be CHF 70 million, in that neighborhood.
Okay.
Obviously hard to tell because it depends on the execution and so on. We're probably at CHF 20 million-CHF 30 million lower than that now.
Okay. CHF 50 million, something like that, huh?
A bit low.
A bit lower. Exactly. I understood you correctly that, for Manmade Fibers, 14% is good, 15% is probably challenging. Something like that, between 13% and 15%, that's what you're aiming for for the coming years.
Yeah. That is exactly what we have in mind, and what we see, taking into account the market situation. I was always clear the last years that the boom or the stable workload here is coming out of the consolidation in the Chinese filament business. That means today we really deal with big players, big companies, CHF 100+ billion revenue. They do have a strong pricing power here. That is actually the reason why we say we don't expect, and we don't see the business to be back in regions, which has been possible five years ago, coming close to the 20%. Right? This is simply not realistic anymore in this environment. That's why the mid-teens.
Okay. Very good. A question maybe, I don't know if I should ask this question to you. Maybe nevertheless, you can share your personal opinion on the dividend. Oerlikon was paying a large dividend the last couple of years. Now being in a environment where you have to reduce headcount, where lots of your workers actually are paid only 80% of their salaries. What's your thinking about future dividend or special dividend for 2020? I know you're probably not the right person to ask, but nevertheless, I would like to hear your opinion actually on that.
No, I think we have to be very clear here. What happened in the past happened, and we had a good storyline, good reasons for doing so. In between, the economy has changed, our performance-
Right.
-our financial figures have changed. I never thought about a special dividend for 2020. It's a great idea, but honestly-
No, look, I think that it's way too early to talk about that. We have a fourth quarter that we're focusing on to execute on. At the end of the day, we will make a proposal to the board of directors. We are aware that the dividend is a very important component of our value proposition to investors, and we want to maintain that. We want to be an attractive investment. It's very clear. Also what is clear is that the economic environment has completely changed. We will take that into consideration. What I will also tell you, though, is that goes back to Roland's point, is that obviously the special dividends that have been paid in the last two years were very, very clearly tied to the portfolio changes that we've made. I wouldn't confuse those.
I think a regular dividend is an important value proposition for us to investors. We will look at that very critically when we make a recommendation to the board of directors for next year. None of that has happened yet. At the moment, we're focused on executing on the fourth quarter and delivering on the cost-out targets.
Personally, I believe a special dividend would be actually more of a reputation risk than anything else. Having this kind of special situation everybody of us is in, I think it is not the time to actually pay special dividends. Yeah.
Yeah. No problem. I think we'll-
Thank you.
Yeah.
The next question comes from Sebastian Vogel from UBS. Please go ahead. Mr. Vogel, your line is open. Please go ahead.
Sebastian, are you there?
Yeah. Can you hear me now?
Now we can hear you.
Now we can hear you. Yeah.
That's perfect. Yeah, sorry for that. Quickly with regard to the discontinued business, in the share of additive manufacturing in terms of sales, you mentioned that you have CHF 40 million, CHF 50 million of sales currently per annum. I was wondering if the medical business over there was contributing something to the CHF 40 million, CHF 50 million, or at the moment there were just no sales generated with that vertical.
The medical business was under CHF 10 million of sales, just under CHF 10 million of sales in 2000, or roughly CHF 10 million of sales in 2019. That's the right way to think about it.
Okay, perfect. That's all. Many thanks. Cheers.
Thank you.
The next question comes from Armin Rechberger from ZKB. Please go ahead.
Yes. Hello, gentlemen. Restructuring. You said that you will face restructuring cost of about CHF 60 million. When I count it correctly, you have spent already CHF 54 million, still six to go. Is that correct? Any changes in your program about the cost?
No, Armin, that's what we flagged. We're expecting about CHF 5 million to go in terms of charges in the fourth quarter. We confirmed the overall CHF 60 million.
Mm-hmm. Okay. There's just one quarter to go and no guidance for Surface Solutions. I understand it's difficult now, you see a slight recovery in tooling, the biggest market, and automotive, aviation is still depressed, so that's already a basis. What's out there why you can't give a guidance?
I think the answer is a very simple one. We know the first nine months, September was a great month, and October was also a very good one. Now if everything would be stable, it would be a simple exercise. The point is, every night I'm switching on television, or sometimes I do it at least, there is a tremendous discussion ongoing, with respect to corona. Countries are discussing lockdowns, partial lockdowns. What we also see is an increasing infection rate, and we see it in our sites and factories as well. That's why we are simply cautious here. We say, nobody knows what will be the situation in two, three weeks. I know just two months to go. The message is a simple one, and you can do it by yourself.
I think, for us, it's really a timing question. We think about that everywhere. It's hard to see if there's going to be any delays. We're really thinking that the trajectory of the end market recoveries and the stability in Manmade Fibers are there to stay. We're fairly positive on that. A temporary delay could certainly cause certain things to slip into the first quarter. We're not seeing that right now, but it is incredibly difficult to predict. That's sort of the background for why we thought it's just more prudent to stay at this level. We're not seeing that. That's not what we're trying to say, but it is incredibly difficult to predict what's going to happen in two weeks right now.
Mm-hmm. Okay, regarding additive manufacturing, you closed medical. What else do you close or really change there in additive manufacturing? What sales do you generate with additive manufacturing during Q4? I mean Q3.
Maybe start with the last one. We don't break out additive manufacturing sales out of the quarter. We gave you an indication of the general size of the business in the previous question. I would say it's very important actually, that we have adjusted other structural cost items in additive. Really, when you think about SG&A type costs that we think were meant for a larger structure. That sort of is the CHF 5 million of savings that we're expecting above and beyond of the closure of the medical business. Also very important, and Roland made that point. The challenges that we saw in the medical business are idiosyncratic for that business. We continue to see a very good promise for that technology in other businesses, and Roland mentioned that in aero, in automotive, and in general industries.
We're not shutting down any other segments in there. I think the medical challenges were, again, very idiosyncratic for that market because it's high regulatory burdens. It's important for us. We're committed to that technology. We see actually it moving from prototyping to more serial production. That's a positive. I think Roland made that point that there aren't any further significant cuts here. We are actually seeing green shoots on the commercial application.
Thank you.
The last question comes from Christian Obst from Baader Bank. Please go ahead.
Yes. Thank you very much for taking the question. Three additional one very small one. What is the margin level in nonwoven compared to the average of Manmade Fiber? Sorry for that, another one for additive. You are reducing the headcount by approximately 120. Are these employees now in assets held for sale or really out? How many employees are left? The last one is a more going forward question. The CapEx guidance is more or less stable. No addition. What kind of growth you can deliver in the current structure with Surface Solutions, or in other words, what kind of turnover you can achieve in the current structure before you have to increase CapEx again, maybe a bit above depreciation? Thank you very much.
I think, similar answers. I think the margin level for the nonwoven business actually is a very positive one. For market, the rationale is very simple. The market was very hot. Everybody was asking for this meltblown equipment, and there are just few suppliers here. We took an advantage here. The headcount reduction for additive, 120 people. Now I'm looking to Philipp. I think 80 something plus are coming from this medical business in the U.S., and all the rest is not equally, but shared or distributed across the remaining additive business.
The CapEx question also is actually simple to be answered. You know that we have been close to CHF 1.6 billion revenue in OSS in 2019, CHF 1.5 billion. What a five and not six. We had actually a plan for a figure slightly higher. The capacity for this volume actually is installed. That means, we do have technical capacity, maybe not people anymore, but technical capacity for revenue, I would say, of at least CHF 1.6 billion. Of course, it depends on the mix. Yeah.
Yeah.
If there would be a boom in material, we have to increase capacity here. Overall, across the country, I would say CHF 1.6 billion is easily to be done.
Easily, yeah.
Yeah.
Okay. Thank you very much and all the best for the fourth quarter.
Thank you.
Thank you very much for your questions. With this as the last question, we would like to conclude today's call. Please don't hesitate to reach out to us in the Investor Relations team in case of any additional questions you would like to ask. Next reporting is scheduled for March 2nd in the year 2021, when we will disclose the full year results for 2020. Sorry. Yep. We do look forward to speaking to you then again. Stay healthy. Stay safe. Goodbye.
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