Ladies and gentlemen, warm welcome to Oerlikon's full year 2019 results presentation and analyst conference today. My name is Andreas Schwarzwälder. I'm the Head of Investor Relations and Corporate Communications for the Oerlikon Group. It's my pleasure to welcome you all here, either in Zurich or via our webcast on a global basis. Earlier today, as you have probably seen, we announced our full year results and published our annual report. All the documents related to the announcement, annual report, press release, and presentation are available on our website for download at oerlikon.com. A quick look on to today's agenda. As usual, our CEO, Roland Fischer, will provide you with a high-level view and a brief introduction of the key figures for the group and will provide you more details on the segment performance for 2019.
Following that, our new CFO, and a warm welcome to Phil, as it is his first set of results for the Oerlikon Group, to provide you an insight into the financial performance as well as the outlook going forward. To remind you, today's presentation will be broadcasted and taped. After these brief introductions of the two gentlemen, we will have a Q&A session and following that we will have the replay available on the website later today. Having said that, I think that's all for housekeeping. It's my pleasure now to hand over to our CEO, Roland Fischer. Thank you.
Thanks, Andreas, and a warm welcome from my side as well. 2019 was a year of many facets and not to say a very colorful year actually. We, as Oerlikon, we continued to execute our strategic goals, including the successful divestment of Drive Systems. In hindsight, I think it was a smart move. We achieved a decent price at exactly the right point of time. We also continued our investments organically, and we are bold on acquisitions and Surface Solutions, strengthening our leadership position. Furthermore, we launched share buyback program by the end of last year. 2019 was a year in which we as a company performed resiliently in a very challenging market environment across both end markets and geographies. The economic environment has been increasingly turbulent in 2019, especially in the second half of 2019.
Nevertheless, our business has performed well, showing resilience, weathering the challenges. In light of these headwinds, we delivered a robust performance. Our group sales at CHF 2.6 billion are at around the same level as in the previous year, 2018. Just as a reminder, and you know it, 2018 was a record year for us, right? I have to say, thanks to the entire Oerlikon team for that great achievement. The EBITDA contracted by 50 basis points to 15.1%, adjusting for one-time effects, mainly restructuring. I will come to that. In the second half of last year, Q3, we saw the first impacts of the challenging market environment on our business in an increasing number of end markets.
Today I can confirm that immediately installed and established initiatives showed first results leading to a Q4, which is as indicated, we told you that, better than the previous Q3, and we have been able to show an operational improvement here. Important to understand that the contraction in margin profile is not only reflecting market conditions, but also our positioning for the future with investments in innovation, technology, and our service network. We are not content to just batten down the hatches. We are positioning the company for the future growth and for an improved and enhanced profitability, we can emerge stronger when the markets are coming back, and they will come back.
We reacted to market conditions like the weakening automotive market in China with workforce adjustments and right sizing of business lines and business areas, including our additive manufacturing business, taking into account a slower pace of adoption and industrialization in many industries. Not to mention what we did on top, and this is the normal way of doing business, doing a tight cost control, and we had also a hiring freeze for the entire group since autumn last year. Undoubtedly, these are painful but required and necessary steps, and nevertheless, towards the end of last year, we even decided to go one step ahead. We commenced a comprehensive two-year Oerlikon Productivity Program to enhance business effectiveness and efficiency, to consolidate and optimize our structures, and to maximize synergies between our different business units in Surface Solutions. This is complement to our growth initiatives we do anyhow in our business.
Organically, in 2019, the group invested CHF 127 million into R&D. That's about 4.9% of our revenue. That's quite a lot. That's well above average. By doing so, we filed slightly more than 100 new patents. The organic growth initiatives, which we did in 2019, included several elements. In Surface Solutions, we launched a big number of new solutions, new products, BALIMED, special coating for medical and surgical tools, BALIQ CARBOS, a new coating for extreme wear resistance applications, especially important for the aerospace market. BALIQ CARBOS, coating for high performance vehicles. Last but not least, the famous SUMEBore coating for combustion engines.
Combustion engines still do exist and are still built, not to the extent we would like to see it, but for the time being and over the course of the next, I don't know, 10, 15, 20 years for sure, we will have this type of technology. Beyond that, we established competence centers for CVD, chemical vapor deposition, an alternative technology to PVD. For the EPD application, we established a center in South Germany, last but not least, for oil and gas in the Houston area in the U.S. Also on the Manmade Fibers area, we introduced four innovative industrial designs at ITMA earlier last year in Barcelona. It's the biggest and most relevant, most important fair for the Manmade Fibers business, with some new technologies for carpet yarn production.
Here, I think it's also important and interesting to understand, here we are including and applying even artificial intelligence. That means we do have components in our machines today which learn out of operational performance, and they are adjusting the processes. This is something what never happened before. It didn't exist, and here we are front runner in our industry. Beside of this innovation elements and topics, we did three smaller acquisitions, not the big ones. Here we completed, not completed, but sorted out and filled some technology gaps we had in our portfolio. We talk about Teralab, a thermal spray coating company in Germany, a Swiss-based company for thermal spray equipment, AMT, and last but not least, D-Coat. This is a diamond-like coating for special application, mainly in the aerospace industry, where it's about machining on composite and fiber composite parts and pieces.
These three strategic acquisitions build on a total amount of 10 acquisitions we did over the course of the last four or five years. It's also important to understand that Oerlikon remains disciplined in our commitment to enhance our growth inorganically. We are retaining the financial capabilities to do transformational deals that are highly strategic and create substantial value for our shareholders and will also create benefits to our customers. We are convinced that in the current environment with volatile economic frameworks and still high valuations, a prudent and cautious approach is the order of the day. With other words, we are not in a kind of emergency mode. We know exactly what we would like to have. We know exactly where our potential targets are. It's about availability, and at the end, it's also about evaluation.
I still have to say there are cases, just few weeks ago, we had one more in the world of digital applications, where multiples beyond 30 have been paid, and this is far beyond any business case. I'm still lacking the idea how a business case can be based on such a price. That's just as a side remark. Following our resilient financial performance in 2019, the divestment of Drive Systems and the extraordinary dividend in 2019 and the share buyback, we are still able to preserve the financial capability to do transformational deals and allow our shareholders to participate in our success. As such, we propose a stable ordinary dividend of CHF 0.35 per share, and again, the second time, an extraordinary dividend of CHF 0.65 per share.
It has to be clear that the total dividend of CHF 1 per share is, of course, subject to the approval by the AGM, which is going to take place earlier in April, 7th of April, in Lucerne. Before I'm handing over to Phil to go into the financial details, I would like to give a short update about our two business segments, Surface Solutions and Manmade Fibers. Surface Solutions is a world-leading supplier, unique and broad in terms of product portfolio, service technologies, materials, products, and finally, solutions is what we are offering together with our customers. Oerlikon develops customized solutions for multiple industries. You know them all, auto, aviation, just to mention a few. Customers can choose between taking standardized products, but also heavily customized solutions in many directions.
The additive manufacturing market is a logical step for us as Oerlikon from the service into the structure, leveraging our competencies in material, in engineering, in service, and in post-treatment. From an end market point of view, we saw a decline in performance across most of our end markets, including automotive tooling, general industry, and power generation. Although aerospace delivered a strong year, a strong performance in 2019, the industry is facing some structural challenges following the grounding of the Boeing 737 MAX. This is a matter of fact. It's more on the U.S. side, and there is a logic behind. When an aircraft is not going to be delivered, nobody needs an aeroengine. It's opposite on the European side. Airbus is doing extremely well. The engines for the Airbus, it's partially it's a LEAP engine, but it's also partially the GTF, the Geared Turbofan, is doing well.
Overall, we do see some declines, especially on the U.S. side here. The additive manufacturing business developed also less dynamically than expected in 2019, I have to admit. The underutilized capacity impacted our top line and EBITDA margin on the Surface Solutions business. As mentioned before, structural adjustments in the business were implemented to address market realities. It takes a little bit longer. This Boeing topic for sure is not supporting the additive story because the questions of qualification, certification, and passing all the formal procedures is a challenge and is of higher importance in our days than it has been before. That is what we are sensing. We remain convinced that the additive manufacturing will play a key role in the next generation of industrial applications. From a regional point of view, North America, and again, I'm talking about Surface Solutions.
North America performed well, while European markets were flat. Asia-Pacific softened in 2019 with a substantial impact from the slowdown in the Chinese economy and impact from geopolitical and trade tensions. What does it mean in terms of financials? Order and sales stood at almost CHF 1.5 billion, means 5.4% behind for order intake and a prior year's level when it comes to sales, excluding currency impacts. If we consider the figures on a reported basis, order intake - 6.7% and sales - 1.5%. Sales growth was seen in North America, Europe flat, and Asia in particular, China was down markedly. The top-line numbers include additions from our bolt-on acquisitions and a positive raw materials surcharge effect in the Metco Materials business of roughly CHF 24 million in total. Taking all effects into account, Surface Solutions sales contracted by 1.2%.
This is something what has to be seen in line with the market environment. We do have about a 25% automotive exposure, and we saw the impact, of course. We saw the impact of the slowdown in automotive, but we have been able to compensate it by other verticals, by other industries, mainly, and to be more precise, the thick film business was not booming, but compensating that. Unfortunately, the thick film business, mainly in material, doesn't carry the profitability of the thin film service business. That is why we see the margins as they are. Surface Solutions was impacted by a reduced profitability resulting from a regional mix and the product mix, I just mentioned it, but also from exceptional items. In light of the CHF 13.13 million exceptional items, mainly restructuring, the adjusted EBITDA margin was 16.6%.
On a positive note, and without claiming victory heading into 2020, we saw in the fourth quarter the expected strong operating performance of the Surface Solutions business with an adjusted EBITDA margin of 17.9%, and when excluding the exceptionals, mainly restructuring expenses. We have to be clear that this is based on the first quarter and the developments of the markets in January, February will be not the run rate. Ladies and gentlemen, just to summarize, the Surface Solutions business continued to be the main revenue and profit generator for the group and delivered robust results in 2019. The performance delivered is in challenging market environments and markets show real resilience. Having this said, let's move now to the Manmade Fibers business. With our Manmade Fibers business, we hold a unique technology expertise and strong market positions in the processing of polymer materials.
The segment is the world market leader for solutions and systems used to manufacture manmade fibers. We are the only company which has the know-how to offer a complete manmade fiber spinning system from a single source, from melt to yarn, fibers and nonwovens. Our equipment enables our customers to benefit from low operating costs and a reduced energy consumption. The Manmade Fibers business as a segment performed strongly again in 2019 with a book-to-bill ratio again above one. The order intake exceeded CHF 1.1 billion, and the segment reported a high level of order intake above CHF 200 million in the ninth quarter in a row. Sales remained at a high level in 2019 at CHF 1.1 billion, which is up 4% on a consistent exchange rate base.
The growth was attributable mainly to the filament equipment business, China, and related texturing activities in China, which compensated for the decline in the carpet yarn and staple fiber business, what is more U.S. than Turkey. From a regional perspective, I just mentioned it, China, great. Europe, okay. U.S. and India and Turkey, slightly lower. In terms of profitability, the segment delivered and exceeded our own expectations. We showed a margin expansion of 130 basis points, achieving 30.0%, despite the fact that the segment carried a certain number of projects with lower margins coming out of the poor cycle in 2016, 2017. Looking to the margin developments, we see a continued strong project pipeline for filament equipment in China, where our key customers take position to secure their leadership.
In special filament, we saw lower demand levels, which is mainly driven by the carpet yarn BCF market in Turkey and the U.S., I mentioned it already. On the positive note, we are observing growing interest in our recycling solutions. Finally, the plant engineering part. We see a certain variety of project opportunities with high interest, especially in the nonwoven business. We made progress in the positioning of our continuous polycondensation solutions and for staple fibers, we continue to see challenging market environments. All in all, the sustained high level of projects in the Manmade Fibers is leading to an order pipeline with delivery lead times reaching into 2022 and beyond. The Manmade Fibers business is well positioned as partner of choice in the entire synthetic fiber equipment industry.
We are confident to execute our project pipeline and gain new projects in 2020 despite the challenges from the outbreak of the coronavirus in China. Although it's too early to assess potential impacts from the coronavirus, it is important to remind you that our business structure is a very specific one. Our Manmade Fibers business is a large-scale project business with long lead project and delivery times. To be more specific, when we talk about big projects for filament, first of all, our customers are four, five, six big stock-listed companies beyond the CHF 100 billion revenue. It starts with the supply of crude oil. You have the first element. You have to crack the oil, you have to produce polyester. At the third element, our part, our equipment is coming to place where we produce the yarn.
This tells you know China, it's not a cowboy country anymore. You have to file your plans, you have to apply for permissions, then you start working. That means a project like that takes easily three, four years. Yes, we saw some delays earlier this year. Chinese New Year was extended by one, two weeks. Right now as we speak here, Manmade Fibers is back. Our factories in Manmade Fibers are fully operational. We are missing about 25 people, which are still, how to say it in a proper English, not arrested, but they are not allowed to travel. They are still sticking with their families in critical areas. It means the business is back to normal. Our supply chain works. The most important, or the biggest challenge we do face today is logistical dimension.
To deliver, to transport our equipment, what we produce from our sites, to the harbors for shipping. That means, there will be an impact in Q1 because three, four weeks being not operational, we will see. We work now overtime, and we will recover, and the plan is that by end of Q2, I think we will be back on track. Even more important is another fact. That right now we are negotiating contracts with customers, existing customers, for new projects, big ones. Three-digit billion million projects, would be great, yeah. Delivery days, the first half 2022 and the second half 2023, and they are doing already down payments. That should give you the confidence, or gives me, at least me, the confidence that the Manmade Fibers business is not at risk. We are doing great, and the markets, especially China, is recovering here.
Having this said, ladies and gentlemen, this concludes actually my part on the business review. I will now hand over to Philipp Müller for the financials. Philipp, it's yours.
Thank you. Thank you, Roland. Good afternoon, ladies and gentlemen, from my side as well, and welcome to the presentation. While I have met many of you previously in person, this is obviously, as Andreas pointed out, my first investor conference for Oerlikon. I'm excited and thrilled to be here, and I'm looking forward to working with all of you over the coming years. With that, let me start with our group financial review. I'll start with the P&L. Group sales were CHF 2.6 billion, up almost 2% versus the prior year at constant FX rates and slightly lower on a reported basis. Maintaining similar levels of revenues compared to the very strong year of 2018 in this challenging global economic environment is a solid achievement for our company and is a reflection of our diversified portfolio.
Orders were CHF 2.6 billion for the full year 2019, 5% lower than prior year. The Surface Solutions segment, as we talked about, was the main driver for the decline. We saw lower demand driven by an overall slowdown of industrial activity across several of the industries and markets served. The Manmade Fibers segment had a very strong orders year. We continued the strong trend, and the fourth quarter marked the ninth quarter in a row where we booked significantly above CHF 200 million in orders. At a group level, we achieved a book-to-bill ratio of 1. Group EBITDA margin before exceptional items was at 15.1%, slightly below what we expected for the total year. In the fourth quarter, we saw a number of the improvements we had anticipated. However, some markets slowed down even further towards the end of the year.
Reported EBITDA margin of 14.1% includes exceptional items of about CHF 25 million, predominantly for restructuring. Let me give you some more details on these charges. As Roland said earlier, we took a detailed look at our structural cost position, both at a group level and in our Surface Solutions business. It's clear to us that we need to become more cost efficient and we need to scale our operations more effectively. Accordingly, we initiated the Productivity Program Roland mentioned and took a first step in the fourth quarter of 2019. The charge is predominantly for severance costs across certain corporate functions, as well as businesses in Surface Solutions that are facing a more adverse market environment than anticipated. We're not done with this Productivity Program, and I will give you more details in a couple of slides. Moving on to FX.
The development of exchange rates in 2019 was disadvantageous for Oerlikon. This is mainly related to translation effects into our reporting currency, Swiss Francs. In 2019, the depreciation of a number of currencies, including the Euro and the Chinese Yuan, drove the impact on our financials. At constant FX rates, orders would have been at CHF 2.65 billion, which is 2.2% higher than our 2019 reported figures, and sales would have been at CHF 2.65 billion as well, also 2.2% higher than reported. The transaction and translation effects on EBITDA were not material, with a currency-adjusted EBITDA of CHF 371 million compared to CHF 366 million reported. Next, I will walk you from our reported EBIT results to net income. Net financial result was CHF -15 million. This is mainly related to lower interest income, and the recognition of interest expense for IFRS 16 lease liabilities.
The tax result was CHF -39 million, and our effective tax rate was 26%. For 2020 and the years after, we expect the tax rate to converge further towards our intended medium-term target of 25%. Result from continuing operations was CHF 110 million compared to CHF 173 million in 2018, a decline of 36%. Result from discontinued operations was CHF -176 million compared to positive CHF 73 million in 2018. The negative result is really driven by the deconsolidation of our Drive Systems business after its sale earlier in the year. It mostly reflects accumulated foreign exchange differences, which at the time of deconsolidation are recognized in the P&L. As you know, these adjustments do not have any cash impact on our company or our financial statements. In total, the net result for the group was CHF -66 million compared to CHF +245 million in 2018.
Next, on the balance sheet. Our balance sheet remains very strong with a net cash position of CHF 333 million at the end of the year. Our cash position at the end of 2019 was CHF 658 million. Total equity was just under CHF 1.8 billion, representing an equity ratio of 49%. Overall, our financial position remains very strong, and we continue to have significant flexibility to execute our growth strategy. Next on our investments. CapEx in 2019 was CHF 179 million, 14% below prior year's level. Almost 80% of CapEx was allocated to the Surface Solutions segment due to the expansion of our global coating center network, as well as investments into growth initiatives. CapEx in Surface Solutions represented approximately 9% of segment sales. In Manmade Fibers, CapEx exceeded the depreciation level and amounted to 3% of segment sales.
Excluding amortization of acquired intangible assets and depreciation related to IFRS 16, depreciation was at CHF 126 million, up 4% compared to 2018. With the CapEx to depreciation ratio for the group of 1.42, excluding the amortization of acquired intangible assets and depreciation related to IFRS 16, we exceeded our midterm corridor of 1 : 1.2. We are coming out of a couple of years of significant investments into growth initiatives and existing infrastructure in our company. We're expecting to return closer to our target corridor in 2020 and the years after, as we focus on capital efficiency and increasing returns on the capital we employ. I will give you more details on the outlook slide. Next on the cash flow statement. Cash flow from operating activities before changes in net current assets was CHF 322 million.
Change in net current assets was CHF -170 million, mainly attributable to the decrease of customer progress and advanced payments in our Manmade Fibers segment. Cash flow from investing activities was CHF +416 million, mainly reflecting the proceeds from the disposal of the Drive Systems segment, as well as investments in CapEx and the bolt-on acquisitions that we talked about. Cash flow from financing activities was CHF -760 million, mainly attributable to the dividend, which we paid, the repayment of the CHF 300 million domestic bond, as well as the initiation of our share buyback program. The balance of cash and cash equivalents decreased by CHF 201 million -CHF 658 million at the end of the year. I will take you through our return on capital employed metrics. A rolling 12-month return on capital employed was 7%.
The decrease was driven by the lower NOPAT from our weaker operating results in Surface Solutions and an increased asset base. The asset base increase was mainly due to the recognition of right of use assets under IFRS 16. I will get into more details later, but as we're setting up the company for the future, improving our capital returns will be a key metric for us. Our leadership team is keenly focused on improving this metric over the medium term. Next on our dividend proposal. As you know, returning capital to our shareholders remains a strategic priority for Oerlikon. Accordingly, our board of directors will propose a total dividend of CHF 1 per share, consisting of two elements. First, an ordinary dividend of CHF 0.35 per share, reflecting the strong underlying performance of our company.
This represents a payout ratio of 88% of the underlying earnings per share of CHF 0.40. Second, an extraordinary dividend of CHF 0.65 per share, reflecting our strong financial position and our commitment to providing attractive returns to shareholders. The dividend will be recommended for approval to the Annual General Meeting of shareholders, which has taken place on April 7th. That closes the financial review, and I'll move on to the outlook section. First, I'll give you more of an outlook on 2020, and then I'll give you some more details on how we're preparing the company for the future in the medium term. For 2020, we're expecting some of the end markets we operate in to stabilize. However, we expect little or no real recovery of these markets, and we expect a high degree of uncertainty to remain.
Overall market sentiment will likely remain affected by geopolitical uncertainties and trade policy tensions between some of our key regions and markets. On a group level, we expect both order intake and sales to be between CHF 2.5 billion and CHF 2.6 billion for the full year 2020. We forecast lower CapEx of around CHF 150 million, which reflects our strategy to grow with more capital efficiency on the platforms which we've built. We expect to deliver an EBITDA margin in the range of 15%-15.5% before exceptional items. Please note that we did not include any potential impacts from the coronavirus in our outlook. While we monitor the situation very closely and have numerous actions in place to protect our employees and their families, it is too early to tell the financial impact. We will give you an update on that as soon as we've quantified it.
In 2020, as we continue to execute our Productivity Program, we intend to spend another CHF 25 million-CHF 35 million over the next 12-18 months on restructuring costs. Accordingly, on a reported basis, we expect a 14%-14.5% EBITDA margin for the group in 2020. As a result of the decisive actions we've laid out, we expect significant improvements in our operating profitability, and in the medium term, we're targeting group EBITDA margins between 16%-18%. Moving on to the segment outlook. In light of the challenging market environment, we expect Surface Solutions sales to be roughly flat compared to 2019. The segment's operating profitability is expected to slightly improve from the 16.6% adjusted EBITDA margin in 2019.
In 2020, we do expect to continue to see some headwinds in our markets and the impact of the restructuring actions we are taking to materialize in the second half of the year. In Manmade Fibers, we expect order intake and sales to exceed CHF 1 billion again for the full year 2020, which is mainly due to the ongoing strong project pipeline in our filaments business. This will be partially offset by lower activity in the BCF and staple fibers business. The segment's EBITDA margin for the year 2020 is expected to be around prior year's levels of 13%. With that, let me spend a few minutes on how we're preparing the company for the future. We remain very confident about the medium to long-term growth potential of our company. We've built a strong foundation, both financially and from a technology standpoint.
However, the degree of uncertainty in some areas of our economic environment requires us to be more nimble, and at the end of the day, a leaner company. We have also invested in certain areas where growth has been slower than expected, and we need to rightsize those investments. This is the backdrop for why we initiated our Oerlikon Productivity Program in Q4 last year, and we'll continue that for the next 12-18 months. Before I describe the actions, it is very important to note that our capital allocation strategy in this remains unchanged. Firstly, we will continue to return capital to shareholders. In the past five years, including this year's proposal, we have returned over CHF 1.1 billion to our shareholders via dividends, and we look to continue our shareholder-friendly approach, considering our strong cash generation ability and our strong balance sheet.
Secondly, despite returning substantial amounts to our shareholders, we retain the ability to execute on M&A, both bolt-on acquisitions and transformational M&A, we remain focused on valuation in those transactions. Then finally, we remain our focus and our investments into organic growth. As Roland mentioned, we invest significantly over 4% of sales into R&D, and we look forward to continuing to doing that. These three pillars of our capital allocation strategy are unchanged. Now, we're focused on positioning our company for the future. The Productivity Program we have initiated aims to expand our market reach, improve capital efficiency, and boost profitability in the medium term. As I mentioned, we expect to spend another CHF 25 million-CHF 35 million on this program in the next 12 - 18 months and expect significant improvements in our operating profitability. We're focused on a couple of key areas.
Firstly, we are consolidating and optimizing our organizational structure. We're focused on synergies and support functions in our fulfillment organizations and how we become more efficient in areas such as logistics and indirect sourcing. We're also targeting very specific changes in our approach to certain customers and key markets in order to maximize the cross-selling opportunities between the different business units. In addition, we are simplifying and standardizing many of our operational processes. We are in the middle of an SAP implementation in our Surface Solutions business. These simplifications of business processes will enable us to become more efficient and faster. Lastly, our program also foresees the rightsizing of investments like the additive business and others to reflect market conditions and our continued focus on operational excellence in these businesses. With these actions, we are keenly focused on improving our structural cost base and driving profitable growth.
We are targeting group EBITDA margins between 16% and 18% in the medium term. We're expecting the majority of these improvements to come from the Surface Solutions business. This will not be an overnight fix. We're convinced that we have a strong business and a strong foundation and an excellent team of employees who will help us execute this plan. Before opening the Q&A session, let me summarize the key points for the presentation today. First, 2019 was a challenging year, with challenging end markets specifically for our Surface Solutions business. Manmade Fibers continue to generate orders and sales above CHF 1 billion and improve profitability of 13% EBITDA. Secondly, we are proposing an attractive dividend of one CHF per share to our shareholders. Our capital allocation strategy remains unchanged.
Looking ahead into 2020, we see some of the market challenges continuing and forecast sales between CHF 2.5 billion and CHF 2.6 billion, and we expect an EBITDA margin before exceptional items between 15% and 15.5%. Finally, our operational excellence and productivity programs will position us to deliver improved profitability and capital returns in the medium term. In closing, I would like to personally thank our employees for their ongoing dedication and efforts, our customers for the trust they place in us, and obviously you, our shareholders and analysts, for your continued support of Oerlikon. With that, I will hand it back to Andreas.
Thank you, Phil. Thank you, Roland. Ladies and gentlemen, this opens our Q&A session. I would like to remind you that this conference is webcasted. When you raise a question, please wait for the microphone so that everybody joining via webcast is able to hear your question as well. The first question there from Michael.
Yes, Michael von Tobel. A question regarding your 16%-18% target. In the past, Surface Solutions did 20%-22% pre-additive manufacturing. Manmade, you said you could reach eventually mid-teens. 16%-18% doesn't seem too challenging. Is that sort of a first step of where you want to get, or is that sort of the end game? If you could be a bit more colorful on that one, please.
How to say it? The 16%-1 8% is on a group level, right? You are aware about the revenue split between Manmade and OSS. In our world, it means if you convert that, if you break it down into Manmade and OSS, we talk about a target range of, whatever, 19%, 20%, 21%. That is exactly the range where we want to be back, where we have been in previous years, but not carrying the same load. Well, in previous, we didn't carry the same load because today we do have a broader mix. Our Metco business is growing. This is aerospace. Again, the service business is somehow equivalent, but all the rest, equipment and material, is not showing the same profitability. From that perspective, there is an intrinsic disadvantage of the future mix.
Nevertheless, that is the range where we want to be again.
That's what I would say. I think the majority of the improvements we're expecting from the Surface Solutions business, maybe Manmade Fibers marginally better as well. Then, I think we're getting back into that range that you're describing. What Roland's saying, the mix is probably a little bit different from what it was three years ago.
Just adding to that, you talked about focus on return on capital employed. Are there any targets that you can share or will share in the future?
I think everything we're doing here is really geared towards both of the components of the returns metrics, both from a profitability standpoint and really from a capital efficiency standpoint. I think the way we're approaching especially footprint discussions and how we're positioning the company and scale of operations going forward will help us improve that metric. I think you're going to see that, I don't know.
Yeah. Alessandro.
Good afternoon, Alessandro Foletti, Octavian. A couple of questions. Maybe on the dividend. I appreciate what you have just said, Mr. Fischer, and also you, Mr. Müller, regarding the flexibility. When I look at your share buyback program, which you announced at the end of Q3, you started, I would say, quite dynamically, and now in the days where the stock is down at CHF 8 should be the moment, in my eyes, to be very aggressive in buying. You sort of have stopped. Instead of that, you pay a dividend that basically gives back all the net cash you have right now on the balance sheet. Can you explain me what's the logic there? Honestly, I don't understand it so well.
The answer is a twofold one. Yes, you're right. The share buyback was launched, exactly when?
Mid-November.
Mid-November.
A good start, then we slowed down a little bit. Yes, unfortunately, you are right. Our share price right now is not where I see it and where it should be from my perspective. The topic of the dividend is a different one. We do know where our potential targets are, what we would like to buy, what we would like to acquire. We know the companies, we know the targets, we know roughly the price we would be willing or would be able to pay for it in order to make a decent business case out of it. Right? From that perspective, the message is, we know what we need. Everything beyond what we need, also especially in light of maybe upcoming negative interest, we said, "Look, we don't need it. We don't want to sit on it.
Let's give it back to the shareholders." That was actually the rationale behind.
Okay. You will continue the share buyback or?
I think the program is still underway. One of the things I wanted to clarify, and maybe also especially for our international shareholders, we do not really have the ability to accelerate or decelerate buyback volumes on a daily basis on where the share buyback is. We're restricted by blackout periods and those kind of things. Essentially, what you've seen over the past two months, unfortunately, was something that we couldn't really react to. I think that's important to understand. We continue to think that it's the right action, and that we can do a little bit of both. I think just back to your question, I think the expected cash outflow from the dividend as proposed will be around CHF 330 million. That's our net cash balance. Even after paying that, we would be without any leverage on the balance sheet.
We think we have really the option to do both and obviously have an underlying company that has an ability to generate strong free cash flow.
Okay. Thank you very much. Can I ask a couple of two small questions, then? On the customer advances that you mentioned, it seemed to me that they went down sort of faster than with respect to the order intake that you had made. Is there anything to read into that? Can you explain that?
On the timing.
There really isn't.
No, you're right. I think the situation we have right now is that we talk about new orders coming into a delivery window of 2022, right? The nature of the beast is a simple one. For a contract where the equipment is going to be delivered next year, the down payments are higher. For a project going to be delivered in three years' time, it's traditionally lower. That is actually the reason why the down payment flow is slower than the previous years with respect to a still high number of order intake.
Okay, thank you. My last question on the Surface Solutions business. Is there any tangible effect on your sales due to raw material price movements?
Due to what? Sorry.
Raw material price movements. Typically, on the medical side when the steel goes down and so on.
Okay.
I think it's very minor. I think in the low single-digit million Swiss Franc level when you correct for material surcharges.
Very good. Next question, Christian.
Christian is not on mine first.
Mine first.
Christian, mine first. I have two questions. On the one side, on your guidance for stable growth or stable sales in the Surface Solutions business unit. Looks a bit challenging. You have orders intake of -10% in the fourth quarter. You have a very difficult Q1 ahead of you, and you have negative FX impact of 2%, 3%, 4%, whatever. How do you want to achieve these sales to be stable?
I think it's a fair point and a fair question. We never said that it will be a home run, right? You're right. What we assume is a certain recovery on the market side in the fourth quarter. You are also right, Q1 was traditionally weak due to the sheer seasonal pattern. February was also, not knowing details yet, but all indications are will be not an extremely strong month. I also have to say that China just plays a 10% role in our Surface Solutions business. Nevertheless, two sites in China are closed, coating sites. From that perspective, you are right, there is headwind. We do see some ramp-up cases for certain applications. One is in material Metco business, where we showed a decent growth beyond the market growth here. This is going to continue.
On the one side, that's positive. On the equipment side, we are a little bit more cautious. We saw a great year 2019. 2020, in terms of investments, will be weaker. It's a mixed salad, you are right. This is what we see and what we believe. There is one disclaimer in, I think you made it, that this corona topic. As long as it is a Chinese topic, it's under control for us, for our portfolio, for our applications. When it becomes a global, a European phenomenon, it might look different. We just had, during lunch, a discussion as it looked people which are buying noodles and rice and whatever kind of food, they are not thinking too much about buying a Carmos, probably. Right? From that perspective, and this is a disclaimer we made.
We tried it, but we stopped thinking too much about it because we will not get our arms around. We cannot. That's why we said, based on what we know, that is our guidance. If something happens, in terms of this virus topic.
Okay. I think there's a second disclaimer you put in. You also said that's including acquisition. What's your assumption there? You have to have some assumption if you say stable sales, including acquisitions.
For acquisitions we have, it's a small amount. That's usually the kind of tuck-in, bolt-on acquisitions that we make.
50- 100 o f sales?
No. Not even. Less.
No. It's significantly less than that.
Okay. Second question I would have is on the Manmade Fibers, the margin development in the fourth quarter, which was quite below last year and as well below Q3.
You mentioned there that it's coming from a project from the prior down cycle period. Does this also eat into 2020, and to what extent?
Yes. I think those, I don't call it lousy projects, but projects which are carrying a lower profitability are still.
Execution.
Coming to execution in the coming quarters. We have more than 50% done. More to come. The margin in Q4 didn't came out of the blue. I think we gave you a guidance, and we knew somehow, we saw it coming, and we told you on, I think we got that on 0.8 or something like that.
Now we are at 13, slightly better. That means this is not a surprise. This is in the normal course of executing the projects which are carrying different profitabilities.
Would it be a fair assumption to consider maybe a 12% margin for H1 and a 14% for H2 in order to get you 13%?
It'll really depend a little bit on the project milestone timing, which is really what you see. A lot of those projects continue for several quarters, but then it just depends on if one of the lower margin projects has more milestones in a given quarter. I think in the first half of 2020, the first thing we have to really analyze is the impact from the situation in China. That'll have an impact, and outside of that, it is not necessarily a first half, second half dynamic for us.
Yeah. Thank you.
We've got a question here from Armin.
Armin Rechberger from ZKB. Yes, regarding disclaimers, what are your assumptions regarding FX exchange rates for the stable sales and order intake for the U.S. dollar and Euro maybe, and Renminbi?
I would say we've sort of reflected a currency situation, an FX situation similar to what you had in January. We've entered a lot of our hedging positions to the extent that we hedge certain positions as of then. That's sort of what we go for. In other words, the latest things that have happened here, specifically impacted by the global crisis, are not budgeted by us. I think what I would also highlight, though, again, is, and you saw that in 2019, is that there might be an impact on sales and on orders, but typically because of the way we fulfill contracts and the way our operations work, the impact on profitability on bottom line is fairly limited because we incur both the sales and the cost in that currency.
That's kind of what I would tell you, and then obviously what happened sort of over the last two to three weeks, specifically with the strengthening of the Swiss franc, we did not reflect that way.
Okay, additional question. Sales, 3D printing, how much sales were you able to realize in 2019?
We said we're still sort of in the range between CHF 30 million and CHF 40 million. I think Roland said that a little bit behind what we had anticipated at the beginning of the year.
More than two years ago, you reported two big contracts, orders in Manmade Fibers, around CHF 530 million. You were still booking from these orders, how much did you book in Q4? How much still is left of these two orders?
We have booked around 50% of the overall. I don't know off the top of my head what we booked in the fourth quarter. I think to date, a little bit over 50%, and then the rest is still to come.
To come in 2020?
Book as order entry.
Yeah.
Not revenue.
Reto Brühwiler from ENPA. A question on equipment within surface technology. Could you remind us how big that business is and what it does to your margin if there's a change mix?
We have two business units producing equipment. It's a thin film and a thick film equipment. Here we talk about, in total between CHF 2 million and CHF 300 million revenue. This is heavily depending on the economical cycles. You have periods which we had in 2018, 2019, where big customers like Pratt & Whitney are ordering several certain number of machines. This is done once, then they use it for the next, I don't know, eight years, 10 years. That means it's a little bit up and down. The second element is, we do, especially in the thin film area, primarily serve our internal coating centers. Here we have a clear philosophy. First priority is doing the service and selling the spare parts to those which have one.
We think twice to whom we sell a thin film coating equipment, because the volume which is going to be produced on that equipment is not our service business. That's why on the Metco thick film area, it's a little bit different. Here we are coming traditionally, that was a Sulzer philosophy, equipment and materials. Here we are heavily pushing the service part due to the sheer and simple reason that the profitability is much higher. We talk again, we talk about service and aerospace, and it takes time to penetrate. First of all, you have to take the opportunity to enter a new aeroengine program, and then you have to fulfill the qualification process. We are doing it. We are quite successful on that.
Maybe to give you insight into the split. As you know, the Surface Solutions business has 60% related to services and the other 40%, roughly, to equipment and materials, of which half of that is equipment and half is materials.
We got Fabian.
Yes. Thank you. Fabian Haecki, UBS. First a question again on the Manmade Fibers margin. Still a bit surprising, guiding for flat margin at 13%. You have no longer highlighted your 15% or mid-teen kind of midterm guidance. My first question, is this still in place? Secondly, on man-made, in H1 2019, you had more than 15% EBITDA margin. It came down, heavily down, but will still apparently not recover in 2020. You mention low priced orders, but if I remember correctly, the trough in the Manmade Fiber business was in 2016. It's now four years later. Seems much longer than the normal throughput time. What are we missing here, and how was it possible that you had such strong margins in H1 2019?
I think it's primarily a mixed topic. We didn't have, in those quarters, low margin projects to be executed. I think in early in 2019, I think the BCF, the carpet yarn business, what also carries a stronger profitability beside of the service part, what is about 10% of the whole stuff, was contributing more. Yes, you're absolutely right. Again, this advantage of that business is it's somehow, how to say it, foreseeable. What's going to come, assuming that the entire project planning stays on track and we know, not very precisely, but actually quite good, what is going to be delivered and what are the margins. That's why that puts us into a position to give a guidance knowing that in Q1 and Q2 we are overshooting, but we will underperform in Q3, Q4.
On a yearly basis, we are exactly, and I think we guided 12.8% and now we are at 13%. Now then is the next four quarters, this low margin profile projects will continue to a certain extent. That's the reason why we say we are flat and we are weak in the BCF business.
The mid-term.
Mid-teens remains the structural margin profile that the business, considering a normal level of BCF and the filament margins to improve is the structural set of margin profile that the business should be able to achieve.
Okay. Then again, a quick follow-up in Manmade on the custom advances, which was down more than CHF 130 million. Whole free cash flow was down because of this, triggered by Manmade, which is actually very cash generative normally.
Yeah.
Can we expect here reversal or some structural trends as most business comes from China? Financing terms, customer prepayment. Is there anything that has changed and is not going just to reverse? Because otherwise we could expect a very strong free cash flow next year.
No, I expect the Manmade Fibers cash situation remain on that level. Again, assuming we are closing a project delivery days in 2023, there will be no 15%, 20%, 25% down payment. It will be a single digit percentage. That means that volume creates.
A lower amount of upfront cash, but it comes later, right?
I think it's important, Fabian, that underlying in the terms and conditions with the customers and sort of how we contract and when we book orders and the fact that we have them securitized and so on and so forth, nothing has really changed. There's a business, a commercial dynamic behind that, but there's not sort of a structural dynamic of customers approaching us in a different way.
Okay, thank you. I got a last one on your restructuring plan you started in Q4. Can you give here some more details where exactly you're going to save costs and take out costs? Is it on SG&As, more on procurement? Is it in the production sides? You highlight a bit also in the headquarters. Is there anything in terms of numbers you can share with us to have a bit of feeling about cost savings or sort of split in which areas?
I expected the question and of course there are numbers which I'm having in mind. Let me try to describe it in a different way. We are not, as a company, not in a kind of emergency mode. We are not fighting to survive. We are still doing not extremely great in this market environment, but we are doing fine. It was actually triggered by the structural change, what is coming upon us out of automotive industry last year. We said, "Look, things are going to change." The automotive industry never will be back where it has been before. Not knowing and not thinking too much about their topics. We said, "Look, we have to do our homework." We defined a package where we say we have to be more cost efficient. We have to take costs out. We have to adjust our structures.
Just as one example, one year ago or two years ago, we have been a 3.% whatever, 6% billion company. There was almost CHF 1 billion Drive Systems business. We said, after the divestment, we don't touch the headquarter. We don't touch the central function for the time being until we know what's going to happen. That's why we said, "Look, let's start from the beginning." We do adjustments on the headquarter side. We do improvements on the central functions, HR, finance, IT. Here we had a mixed picture. We had centralized organizations, and we had very local organizations. This is going to be sorted out. We made adjustments on the automotive business unit.
There is a big block where we say, "Look, we have to optimize, we have to do better in our Surface Solutions business." In two directions, costs, but also getting access to new market fields where we are not yet present today. There are good examples. We managed the penetration of the aerospace industry with our thin film applications. I mentioned aerospace takes a long time. Took us three years. Now we have it and if we don't do a big wrong, we are in for the next three decades. That's fine. Here we have to do more. That's why what we have in mind. We are looking for synergies between the business. Equipment was mentioned. Here we are doing similar topics, different machines, doing a different physical process.
At the end we talk about CapEx, we talk about control units, we talk about processes, tools, how our engineers are designing equipment. Here we do alignment. There is a certain double-digit million effect in a mid to long-term run. When we talk about footprint, for instance. Today, we know where we are coming from. We do have in the thin film area 108 sites. Our traditional business model being close to a customer. That's still valid, that's still great. In certain areas of this planet, in Central Europe for instance, where logistical opportunities are completely different as of today compared it with 10 years ago. When you place an order at midnight with Amazon, the day after you have your product, most probably. Here we are moving more towards, how to say it, virtual coating centers.
We are doing it already to a certain extent. That means when a customer is sending a package of tools to be coated, it doesn't mean necessarily in future that everything is coated at the coating center where he sends it to. Using digital tools, we are optimizing our load. We are optimizing our batch planning for different coating machines, stuff like that. That means here we expect a lower double-digit effect in the midterm time range. We talk about efficiency, about logistical processes. We talk about almost everything. We talk about the front end. A special organization or a special process to better deal and handle big customer rather than the traditional long tail, which we have in the material business and in the thin film coating business. We have, just to give you a feeling, 30,000 customers in the Balzers area.
We have a huge customer base. We have to find a better way to deal them properly. In parallel, we have to find a better way to deal and better cope and better serve the big ones. This is a complete, not a complete new setup. It's about a question, doing things which we didn't do before without losing anything what we did before.
I would agree with that, Fabian. I think that is really the context in which we're working, and I think that's very critical. Then I would just maybe add to that, the fourth quarter, obviously you have to think about it as a number of initiatives, really focused on HQ support functions and some of the businesses where the environment is really a little bit tougher. We're talking about a net reduction of headcount there, a couple of hundred. I think very important there is also that while we're doing that, we are also shifting some headcount and shifting some employees. That's really part of the core strategy that Roland is describing, where this might not be a net reduction, but we're going to be pulling support functions together in areas where they're costing us less.
I would just say the right way to maybe think about what we've given you as a restructuring expense or the way we think about it is maybe a one-to-two-year payback on that, because it's a little bit of mix between just structural, sort of more headcount type actions that have a little bit of shorter payback and some other things. One to two years is maybe the right way to go about it.
There is a technical dimension. Things are changing. Everything gets more digitalized. Although in our processes serving the customers, that means it's a comprehensive package. We did mention the digital hub we opened in Munich last year. This is not a hobby of anybody. We do see the clear need to use our size and the strength and the leadership position of our company to develop new business models, new type of doing business based on state-of-the-art latest versions of digital opportunities. I think I mentioned this morning in the Manmade Fibers area, not only service, solution. We are selling BCF machine for producing yarn for carpet applications, which carries artificial intelligence modules. Yeah? The machine is controlling what has been Fiber tension. Whenever something is different, we are using the signals which we installed to optimize the process.
Today we have started delivering elements, machines for Manmade Fibers applications, again, carrying artificial intelligence. This is where we are. This is what we have to do more. That's why it's not, again, not a typical restructuring or survival program. No, this is a repositioning program where we make conscious decision to do things differently and maybe also to get rid of old stuff, to a certain extent where it applies. Being really also in future in the leading position. There should be nobody aside of us being ahead of us. That is the ambition at least.
Yeah. Armin Rechberger again from ZKB. You mentioned your coating network of about 108 +.
For thin film.
Jobs for thin film. You also mentioned that two are closed down in China.
In China, in Wuhan.
Only two. One in Wuhan.
The other one out of the 13 in China, 11 are operating and two are impacted from that region.
Italy, Northern Italy, where are the plants there? Also in the red area?
We are not in the red area, we are operational in Italy. There is, now knocking on wood, that is as we speak, right? No, four coating centers.
You don't have any production plants in Northern Italy after selling Drive Systems?
We do have coating centers.
Four coating centers.
Four coating centers, but they are all operational.
The situation about production plants in China except the coating centers?
I think Manmade Fibers, we talk about the big one in Suzhou. It's back at stage. We are close to 100%. We are missing the mentioned 25 people, which are not allowed to travel. They are still sticking with their families in their hometowns. That's it. Again, we are operational. We are full speed ahead. Our supply chain is also on a normal level. They are even doing extra shifts to recover. The only restriction we see right now is transportation. Logistical topic and to bring our goods to the ships for the time being. From that perspective, we will see again in Q1 a certain slowdown revenue wise because the four week, three weeks, three and a half weeks we have been closed, we didn't create any revenue. This is going to be recovered over the course of the second quarter.
That is what we see right now. China.
Well, I see two problems. First, well, you are there, your plant is operational, okay. From here, say from other companies, they are operational, but there are no orders there. Salespeople can't travel. They can't visit their clients. You can't sell a plant, a Manmade Fibers plant via the telephone or via the internet. You have to visit your clients, which is difficult right now.
Our clients are not sitting in red zones. Again, as of today. Yes, you are right. We do have some smaller clients, which we cannot visit. It would be stupid just because you're allowed to move in, but then you are not allowed to step out again, right? From that perspective, it doesn't make sense. Also the commissioning part, we have, I don't know how many projects in the erection and commissioning phase. We had a stop there as well, right? We brought back our people and our local people, but now we are back at site.
I think that's very important, honestly. That's why we're driving the distinction. When you think about our business, it's obviously a long-term project business. In other words, we're not negotiating contracts today for revenue generation next month. What we're manufacturing and producing right now relates to orders that we got a year or two years or three years ago. In other words, we will probably see a little bit of slowdown on the commercial side in terms of new order intake and finalizing that and all this kind of stuff. The whole system is a little bit slower, those orders are for delivery in three years from now or in two years from now. That's why we're driving the distinction. The project business and our manufacturing cycle are basically back up and running.
I think the other thing that I would say is that our customers are also continuing production by and large. Even if they currently, right at this moment, don't have the opportunity to ship their product, they are storing it at their facilities because they know that when the logistics ways are opening back up, they're going to have an opportunity to sell that. That's why we're driving the distinction. I think the project business is quite a bit different there from what you're describing.
I see that point, yes. The other problem I see, we lost maybe 15 to 20 production days because of the crisis. Even though you work through all the weekends now with your people, it's quite difficult to catch up during the next quarter. It will shift the problem into the second half year for sure. Especially in China, where people tend to work also on Saturdays.
Look, that's part of why we said it's just too early to quantify it. We don't want to speculate about it right now. I think we have a decent assessment of what we're seeing, and I think you understand the dynamics of the project business, and then we really have to go through the detailed project timeline and see, does it impact just the first quarter or also the second quarter? We'll give you that update.
Okay, a completely different question, if I may. Regarding you had some additional costs, additional to the restructuring costs. If I'm right, it was for a bigger acquisition. You might have done some due diligence, and now you are deploying quite some cash for your investors. Can you put a number on which acquisition you were following?
No.
How big? Which country? Was it for Surface Solutions?
Well, as you know, we're not disclosing an M&A pipeline.
I mean, it's over.
No. Well, you're stuck to a certain M&A NDA restrictions. I think we're not disclosing here anything in terms of what we did on M&A. The other element, as you rightly said, there were certain, the CHF 25 million of exceptionals include the CHF 19 million of restructuring and CHF 6 million are related to other non-recurring items, which include some of the costs from M&A, but also include other projects like we talked about digitalization, the ramp up, and things like that. This is not purely related to M&A.
I think what we have said is that we looked at a couple. We talked about this previously. We have looked at a couple of potential acquisitions pretty closely. It goes back to what Roland was saying. I think we continue to have a keen focus on just value creation opportunity, and that's somewhat limited with where valuations are at the moment.
Good. Follow-up from Alessandro.
Thank you. Alessandro again. Just a quick follow-up on the restructuring as well. You mentioned right-sizing, and I think it was related to AM. Can you give more information on that, please?
Right-sizing was related to AM. We do it in other areas as well, for functions and as a headquarters. What we did in AM, I think you are more interested in, we adjusted the headcount and the capabilities to a level. What is more in line with the revenue we are generating and the expected growth, which is still substantial in terms of percentage. Philipp gave the total figure. We are in the range of 30% something.
A strong growth rate, at the end, it doesn't change the needle for the segment or even for the group level. What we did is really to, how to say it, to establish and go through a really tough and a conscious decision. Talking about taking all the R&D projects and really do an assessment. What is the probability that these projects are going to come? What is the probability of converting it into a real revenue stream? What is the way to go? What are really the core technologies which we need in terms of capabilities? Is it more on the production side, process side, or more on the material side? We did some arrangements and some adjustments here. We don't talk about I don't know. I don't want to mention a figure.
No.
A certain small amount of jobs have been canceled here in Germany, in Wörnitz as well as in Huntersville.
Maybe in the past you used to tell us what was the dilution on the segment margin, initially it was 200 basis points, the dilution from that segment, from that business on the Surface Solutions segment. It became 300 in the more tough environments. Can you give an indication of what's the direction here again, maybe?
It's getting better. That's exactly the purpose.
Yeah. I assumed that.
I think that's sort of the point.
Going back to 200, going below 200.
That's sort of the point. I think it's sort of embedded in the guidance that we've given. I think we've said a couple of times, clearly, we think that the 300 basis points dilution has to be the floor. The cost action that Roland is describing is part of that improvement. There's a very significant component just in terms of executing more consistently and better fulfillment operations. I think we will give you that number. I think we haven't included it into the guidance right now because there's just a high degree of uncertainty attached to it, but we'll give you that number again, and clearly we're focused on making sure it's less dilutive in the future.
At some point it will be zero or a positive.
Exactly.
Let's say zero, maybe.
We always said let's walk before we run. We'll get it to break even first. That's exactly the intention.
Also, it's not only about headcount reduction, just to give you a flavor. We do have a site in Troy for producing of additive materials. Which is also to a certain extent underutilized. What we are doing right now is quite simple. We are using the site for ordinary non-additive materials as well, coming out of Troy, in Lima. Exactly. These are logical steps, how we are, not trying, but how we are getting our arms around.
Good. Maybe a final question? Oh.
Two only.
Two final questions.
Yeah.
If I may, a very long-term question on additive manufacturing. I understand that so far additive manufacturing has affected only prototyping and small series production. Is it possible to have coverage of capital allocated to additive manufacturing if it never goes into large volume production?
I think the topic of quantity is a difficult one. When it comes really to mass production, as we see it in a casting business. At least I don't see additive in an order of magnitude coming close to casting products. Here, when we talk about aerospace by nature, we talk about hundreds of pieces, of parts, maybe few thousands. That is for a mass production, nothing. Here we are already. We do have components in the hundreds. That means that does exist for aero engine applications, for power generation, gas turbines applications. Pardon?
Space.
Space, yeah. Space again is one order of magnitude lower. We talk about 10, 15 satellites. This is a single piece production. That means, having that said, the quantity is just one dimension. The other more important one is the topic of design features, which do exist when you think about more bionic designs, what you cannot produce by using a different technology. Here it's a balance between volume and price. Just to give you a flavor. There is one famous, not famous, but an important product in the U.S. for military aircraft, costs CHF 70,000, CHF 80,000 per piece. It's difficult to compare it with mass production. The requirements the customers do impose is a complete different one.
Mass production capabilities or processes even would scare them to a certain extent.
Okay.
Andy? Cool.
Again, an add-on question on your guidance in Surface Solutions. I am trying to get to your guidance of only slightly improving margins, even assuming that the Cost Coating Program only cost them kicks in in 2H with a run rate of savings of CHF 30 million, as you mentioned before. Two-year payback, that means CHF 25 million-CHF 30 million in savings. Assuming CHF 10 million only this year, that would mean already 60, 65 basis points margin improvement. AM negative impact should only get better. On the opposite side, we have the mix effect, which was pretty bad this year already. How bad can it get there? Why is your guidance rather conservative?
I think you're doing exactly the sort of the math that we try to lay out there. We do anticipate in some of the end markets to just continue to have challenging economic dimensions in terms of pricing, in terms of maybe the automotive industry, some of those areas. We're just anticipating some continued headwinds on that we'll be able to more than offset with what we're doing here. I think that's just sort of our running assumption is that some of the dynamics will continue to be, we're not going to be able to generate price or even the opposite, and we're going to have sort of ordinary inflation, labor inflation working against us. We're more than offsetting those headwinds.
The biggest negative mix impact this year was the tooling business in Asia, in Surface Solutions, as far as I understand. This can't go down another 30% this year as it was in 2019. Where exactly does this negative mix impact, this additional negative mix impact coming from, which is offsetting all the cost savings and less dilution from AM?
Yeah. It's not offsetting all of that. I think there's a little bit of mix and there's materials that's going to continue to grow well, and that's a little bit lower margin. Specifically, I think it's the commercial dynamics that we'll have with some customers.
Okay. Ladies and gentlemen, thank you very much for participating, also for those on the webcast for joining our full year results. We'll see you again on May 5th, when we present our first quarter results and host a conference call then. In the meantime, wishing you a good afternoon, and thank you very much for participating.
Thank you.