Ladies and gentlemen, good afternoon, and a warm welcome to Oerlikon's annual investor and analyst conference with regard to our full year 2018 results and our outlook, which we both disclosed this morning. My name is Andreas Schwarzwälder, the Head of Investor Relations and Corporate Communications of Oerlikon. Thank you for joining us either here in Zürich or live via our webcast. Earlier today, we published all the results and all the documents are for download on our website and for those here being present on your tables. Let us have a quick look on today's agenda, the well-known one.
As you know, we start with an introduction of the CEO, Roland Fischer, with regard to an highlight overview, as well as the details on the performance of the individual segments, followed by the financial review from the CFO, Jürg Fedier, and we will conclude with an outlook provided by the CEO, and afterwards we have the obvious Q&A session. Please be reminded that this webcast will be recorded and a replay will be available on our website shortly after the event. Thank you very much for joining again, and it's my pleasure to hand over now to our CEO, Roland Fischer.
Thanks a lot, Andreas, and a warm welcome from my side as well. Give me a chance to summarize the year 2018 by four key statements. 2018, for sure, was a good year for Oerlikon. We achieved a strong profitable growth and our order intake increased by 23.5%. Our sales increased, improved by more than 26% and up to slightly above CHF 2.6 billion. This is something what I see as a strong and robust 2018. The EBITDA on a group level increased by also 26% to CHF 406 million, corresponding to a profitability of 15.6%. Here a side remark, including all efforts and activities, and I will come to that at a later point of time, for future growth investments in not only additive, but different other technologies, competence centers and stuff like that. That means we delivered on our strategy.
The second message is the strategy and, not the most important, but an important part is the successful divestment of the Drive Systems Segment, which was closed just last week, Friday. The cash proceeds of CHF 225 million.
625.
Sorry, CHF 625 million. Yeah, that would be a different story. It's a great step forward in our roadmap, and this opens up more and new opportunities. Beside of that, I think we did some smaller acquisitions in terms of volume, not major ones, but very important ones in terms of technology and market access. Here, I just use or take SUCOTEC as a reference, as an example. SUCOTEC is a small company which produces, develops, sells so-called CVD equipment, chemical vapor deposition equipment for a different type of thin film coatings, which we, as Oerlikon, didn't have in our portfolio. Due to the sheer fact that this company was a small one, I think the customers have been a little bit reluctant in terms of how long does this company exist? Just few people. Now having it in our portfolio, it's running like hell.
As a consequence of that, we are building a competence center in South Germany, just as one example, where even so small acquisitions providing a huge sense and a very solid base for the mid-term, long-term growth in our core fields. Beside of that, we invested in the medical area. We acquired a company, DiSanto, in the U.S., which is a company being in the field of producing implants for human beings and animals, based on conventional technology as well as on additive. Last but not least, an Eicker company in the nitriding high-end heat treatment for aluminum parts, mainly in the automotive area. Here I'm having the e-mobility mega trend in mind, of course. We also have been quite successful in managing the cycle in the Manmade Fibers business.
You all know where we are coming from two years ago, three years ago, we have been at the trough of a cycle. Now we are at the opposite. We are at a ceiling. We are full, and we are working hard to fulfill the customer demands, and I will come to that. It's not only about volume, but it's also about new technologies in terms of automation. Here we acquired also two companies, and that gives a clear indication how in Manmade Fibers business, we are not in a kind of harvesting mode. We are very carefully developing this business and this segment as well. The third strong message is the dividend topic. On top of the ordinary CHF 0.35 per share, the Board of Directors made the decision, followed our proposal to propose at the upcoming AGM in April a dividend of CHF 1 per share.
That means this includes CHF 0.65 as extraordinary non-recurring dividend in 2019. Last but not least, based on the business we have in hand, we are looking quite positive into 2019. On the top-line side, both order intake and sales, we expect to exceed CHF 2.7 billion and the profitability we expect to be above 16%. Before I hand over to Jürg, giving you much more details about the financials, I would like to spend a few minutes to do a deeper dive into the two segments, Surface Solutions and Manmade Fibers. Let's starting with Surface Solutions. I think it's obvious and clear, and you know it, that we are the world leading supplier for this type of coatings, thin film, thick film. Our customers can choose from a standard portfolio, from a more customized portfolio, materials, coatings for their dedicated specific applications.
From an end market point of view, 2018 was a strong tooling market, running on high levels. Also general industry was doing quite well, this overarching market development was enriched by additional initiatives we have launched in the past. Just to mention two, SUMEBore, what is a ceramic coating based on thermal spray, where we are coating, this morning I've learned I'm not allowed to mention the name of the OEM, but a big European car OEM is going to coat all their fuel engines with this SUMEBore technology. We talk about millions of units per year. This is a process over years, because the sheer volume cannot be built up in one or two years' time. Another one is a different technology called ePD. This is a thin film technology which offers a lot of advantages. First of all, it's without any chrome ingredients.
That means it's chrome-free, here this is in line with what we expect on the political level, that chrome plating topics are going to be eliminated over the course of the next five, six, later seven years. Right? This is an alternative solution. Here we sold the first units, equipment first, we are right now in a process of building up another competence center for this dedicated technology, also in South Germany, close to the major German car OEMs. From a regional perspective, U.S. and Europe was doing well, whilst Asia and especially China was a little bit slower down, but nevertheless, the orders stood at almost CHF 1.6 billion. That means 11.5% above the prior year level. The sales grew by 10% to CHF 1.5 billion. Here, general industry, automotive and aviation have been the key drivers for that.
If we take the special effects like surcharge effects and currency exchange aside, the pure organic growth of the Surface Solutions business was at about 6%. One comment maybe concerning additive manufacturing. Here we are progressing. I have to admit that the development, especially the qualification, certification, and industrialization of this technology takes a little bit longer than actually expected. Nevertheless, we do have our strategic roadmap, and we follow it. We are happy and fine about this project. On a bottom line side, the segment Surface Solutions generated CHF 283 million EBITDA, what is an increase of 2.5% versus prior year. The margin stood at 18.6%. That means within the guided corridor between 18%-20%, what is always a result of product mix and you know that service generates higher margins comparing with material and equipment. We do also have quite a considerable regional pattern.
It depends on where the sales and the revenue is going to be generated. In a nutshell, innovation, regional expansion, increasing penetration in existing markets and new markets are just an example. We have included 11 new sites in 2018, and we expanded two existing ones, and this is the basis for a quite positive outlook into 2019. Now let's talk a little bit about Manmade Fibers. Here again, the Manmade Fibers segment is clearly the world market leader for solutions and systems used to manufacture Manmade Fibers. It's the only company with the know-how to offer a complete package from a spinning system, from melt to yarn until fiber and nonwovens. Our equipment enables our customers to produce this type of products at the highest level of sustainability in terms of power consumption and water consumption, stuff like that.
The Manmade Fibers segment achieved a record growth in sales in 2018. The order intake increased by 45% to CHF 1.2 billion. Sales increased by 57% to CHF 1.1 billion. The EBITDA, which was on a level of CHF 128 million, with a profitability of CHF 11.7 billion also has been strongly improved and increased. Here it's worthwhile to make a side remark. Consistent with our previous speeches, we are not going to extend the existing capacities for Manmade Fibers. We use to the maximum possible our existing capacities, our plants, and our supply chain, but we are not building new factories or we are not extending the existing ones. The sheer reason is very simple. The nature of the beast remains cyclical. On the filament business, we are on a very positive situation, but filament is 60%-65% of the Manmade Fibers business.
We are facing a very positive environment in China, mainly in China, where the market is further going to be consolidated. Our order books for 2019 and 2020 are full. 2019 completely, 2020 almost, 2021 to a certain extent, and contracts which are going to be negotiated right now are leading even until 2022. That is a positive topic on the one -hand side, but it implies the fact that Manmade Fibers is not contributing to the growth of the group. That's a downside of this phenomena. Nevertheless. In total, we are not in a kind of harvesting mode concerning Manmade Fibers. We are also investing in M&A. We acquired two companies, polycondensation and AC-Automation. That means we see a clear trend that at a certain point of time, there will be, the phrase is lights-out factories.
A factory which is completely automated and just maybe once a week somebody switch on a light and check what's going on. There is still a long way to go, but digitalization and automation really is a driving element here, and we clearly have occupied this trend. I hand over to Jürg, going more into the financials, and afterwards, I will try to give my best in terms of outlook for 2019. Jürg?
[Non-English content], Roland. I want to keep it relatively short and tight, so just highlight a couple of issues with regards to the accounts. What you have seen from Roland already, order at CHF 2.7 billion, that's an increase of 23.5%. Surface Solutions delivered double-digit increase year-over-year, we have been growing in all the region. The filament equipment market, in China was the main driver for the substantial change in top line in Manmade Fibers, where we also attained, in the meantime, the 12% EBITDA margin. If you look at it in terms of order intake and sales, excluding foreign exchange on both counts, you had an impact of about 200 basis points. That's what I said, sales at about CHF 2.6 billion.
That's an increase of 26%, respectively 24%. Also on a positive note, we reported again a book-to-bill ratio which is exceeding one in 2018, and the reported EBITDA was CHF 406 million. That corresponds to a margin profile of about 15.6%. The ongoing recovery in the Manmade Fibers in 2018 obviously becomes visible when you look at the group business split on a geographic point of view and the contribution from the two segments. Surface Solutions contributed about 60% of total group sales, and 40% was attributed by Manmade Fibers. On the profitability, the relationship is 70/30, so 70% of the total profitability is being contributed by Surface Solutions and about 30% through Manmade Fibers.
From a regional point of view, as you would expect, again, with the massive recovery which we have seen in Manmade Fibers, Asia -Pacific, again, up at about 46%, followed by Europe, which is representing about one-third of the total top line. The U.S. trading around 16%, and then the rest of the world stable at about 5%. In line with the before mentioned recovery in Manmade Fibers, which means selling more equipment. The service part of the overall group has been coming down to about 38%, as compared to 45%, which you have seen last year. I'm not going to go much further into the exchange rate picture, which I mentioned, as I said, on order intake and sales, about 200 basis points.
The translation effect, which we had on the margin profile, is relatively insignificant what you can see, and that's not different to what you have seen over the last couple of years because we have this natural hedging in place, so the margin is less affected from that point of view. Let's move below on the P&L, below operating profit. The net financial result was CHF 3 million. That compares to about CHF 9 million, which we had in last year. So an improvement of about six, which is mainly related to higher yields, which we had on our global investment, in particular in China, and some gains coming out of hedging activities. So far, we have been able to avoid negative interest on our cash position throughout the whole 2018. After receiving the CHF 624 million, I think you just wanted to test me before, right?
With the CHF 225. After having received now the CHF 625 million, there will be probably a residual portion of CHF 200 + million, which are going to be subject temporarily for negative interest. That's the way we manage the limits with the various esteemed banks. The tax result, I think important from that point of view, was CHF 68 million. I think more important is that the effective tax rate have been coming off to about 28%. I may recall that we were trading over the last couple of years as high in the low environment of the business, as high as 35%, 40%. What you should expect, which is even more important going forward, that with the full divestment of the Drive Systems, we will converge back to a tax rate on an ongoing basis.
Which is on one side, driven by the structural change of the portfolio, but on the other hand, driven by some of the projects which we have been executing over the last couple of years, which bring us back to about 25% on a more sustainable basis going forward. Result from continuing operation. CHF 173 million compared with CHF 95 million. That is an increase of about 82%. Result from discontinued operation at about CHF 73 million compared to CHF 56 million last year. Which reflects the really strong operational performance, which we have seen in the now divested Drive System segment, which we would interpret through two factors. One, through the long-term restructuring efforts, which we have been putting to the business. On the other hand, some good tailwind in some of the major market positions for Drive System.
Let me quickly also guide you and take this opportunity to take you through the effects of the deconsolidation of Drive with regards to the 2019 result. I think we have been long talking about a CTA recycle of about close to CHF 300 million. That is being reconfirmed for the time being. On the other hand, you have a book profit on the transaction based on the EV of CHF 600 million, which will be positive to the tune of about CHF 150 million. Net-net. By fully discontinuing the business out of the group, you will see an impact of about - CHF 150 million, -CHF 160 million on the bottom line. I think that is important. Obviously, we will have the contribution for the last two months in discontinued operation, and then the underlying strengths of the business, which then will probably level out the result for 2018.
We all do understand that the CTA effect as an accounting recycle is non-cash related. Let me come back then to the net income. Net income, as you have seen, CHF 245 million. That is an increase of about 62% compared to previous year. Our balance sheet remained strong and healthy, and unlevered, with a net cash position of close to CHF 400 million. We have heard that now a couple of times. Yes, it is what it is. We are not very happy about. We know that the balance sheet potentially could look differently. I think it goes back in terms of the further execution on the portfolio, where we are going to continue to lever the balance sheet in the magnitude we were talking about in the past. Total equity amounted to more than CHF 2 billion. That is an equity ratio to date at about 44%.
Again, our financial position remains strong together with the five-year credit facility we have in place, with a maturity profile up to 2022. This provides us enough room for us to maneuver and to further execute upon our strategy. I am sure Roland will comment on that a little bit more later on. CapEx, as you have seen, has been coming off somewhat compared to the previous year, which was mainly driven by the investment in additive manufacturing for the footprint and titanium or powder production in the U.S. Around 80% of this CHF 207 million is allocated to Surface Solutions, due to the expansion, I think Roland already alluded to that to a certain extent, of the coating network, and capacity expansion in existing sites. In Manmade Fibers, CapEx was clearly below the depreciation level, and amounted to about 2% of sales.
That, again, goes in line of what we said. We structurally don't want to increase the capacity. We run the high level of top line at CHF 1.1 billion, flexibilizing our capacity to the extent possible. That picture should not change going into 2019. Excluding amortization of acquired intangible assets in the amount of about CHF 40 million, depreciation was at CHF 121 million, up about 5% compared to 2000 ratio. The CapEx to depreciation ratio, as you have seen, is still running at about 1.7%, excluding the amortization of the acquired intangible. We exceed our midterm corridor of one to 1.2, but again, the intention is in the medium term to converge back into that. Cash flow from operating activities, before changes in net current assets, was about CHF 429 million.
The change in net current assets was positive, about CHF 69 million, which was mainly attributable to the increase of contract liabilities, such as the advance payments in Manmade Fibers in particular, which amounted to about CHF 84 million. Again, just underlies the previous commented strong development on the Manmade Fibers. Cash flow from investing activities amounted to about CHF 342 million. That's a combination of CapEx, of M&A spend, and some short-term investment, which make up that amount. Cash flow from financing activities in the tune of about CHF 150 million, mainly attributable to the dividend payment and interest payment. Important here, I think, the look at return on capital employed and the overall ROCE for Oerlikon shows a positive development. The group performance in 2018 resulted in a 12-month return on capital.
A comment on the dividend per se, returning value of capital, to the shareholders through the annual dividend. I may call it like that. Majority of the dividend is going to be paid out of capital reserves. If I'm saying majority, it's about 93%. There's going to be a residual of about 3%, which is going to be subject to withholding tax. Needless to say, the AGM will approve on April 8th this dividend distribution. We're positive that this will go through. This broadly closes the financial
Review, I'm glad to take questions later on, but for the time being, I want to give back to Roland.
Thanks a lot, Jürg. I would like to give a short outlook into the current year 2019, not only in terms of financials. I also would like to spend a little bit of time to give an update on our investments in future profitable growth and to give you an idea what are we doing actually, before we come to the Q&A. In 2018, we nicely delivered on our strategy. Guess what? The strategy for 2019 remains almost the same. We focus on Manmade Fiber. We manage the cycle as already indicated. Managing the, how to say it in appropriate English, the outstanding top line with all the related challenges in terms of supply chain, in terms of on-time delivery and stuff like that.
Beside of that, we focus and spend time and money in non-filament areas, nonwoven hygienic products, and the clear intention behind is more balanced from a portfolio point of view, yeah smaller ones as we did. But there is much, much, much more behind, and you can see it when you have a look on the profitability of the Surface Solutions segment. We are spending money. We are spending money beyond additive. There are two examples I mentioned already. The new competence centers for ePD and the other one for CVD, this chemical vapor deposition topic that means in combination with voice, new materials. This is the outflow of one outflows of an R&D spending of about 4% of our revenue. Something what is new, partially related and depending on this company which we acquired two years ago, are penetrating, entering new countries.
We are opening have owns. We are also spending. These are not sufficient anymore. That means set up for this equipment, fully digitalized. You can use a laptop and, we have to forget, and to leave behind you the old way of running such an equipment where we have. Reaction was overwhelming, and this is our first example of what we are doing and what we are having in mind. Another one is, again, back in the Surface Solutions area. Half on its way towards or in this direction, and offering opportunities which are far beyond what has been possible and doable so far, yeah. These are just examples to give you a feeling. We are not only relying on M&A, we are doing a lot. Market is asking for, and where we know how to do it.
Ladies and gentlemen, now, 2019, despite challenging market environments, the profitability is expected to come in at a lower end of the new EBITDA margin corridor, which is shifted upwards based as year, prior year's level due to the sheer fact that we are not extending the capacity, and the margin is expected to be improved by one percentage point or 100 basis points. That brings me on a group level to the statement that we are going to or expecting to exceed both order intake and sales in 2019, CHF 2.007 billion, and the profitability EBITDA margin is exceeding 16%. It means for sure it's not an easy year. We know all these challenges, tariffs, trade war effects, but due to the sheer effect of our footprint, we are heavily localized. We do not expect to see here major impacts for Oerlikon.
Last but not least, let me try to give a summary. 2018 for us was a great year. Strong growth, reasonable profitability, divestment of Drive Systems. That means we executed our strategy. The smaller elements of our strategy also we achieved here, we achieved a lot as well. The dividend topic has been explained by Jürg, CHF 1, not limiting us in our ability to do big M&As. I think this is an important message you should keep in mind. And we will continue to invest in profitable growth, and all our initiatives, and I think this is the first time, during such a meeting that we have been so open what exactly we are doing and what kind of technologies and engagements and investments we are following. Finally, an important element as well.
The Board of Directors has discussed and is going to propose to modify the Board of Directors subject to the right decisions, elections during the upcoming AGM in April. The Board of Directors is going to be extended from six to seven. Jean Botti is not standing for re-election. That means he will be not re-elected.
As a consequence out of it, there will be two new Board members hopefully going to be elected. It is Dr. Suzanne Thoma, a Swiss citizen, coming out of or having a strong utility energy background. I think she is quite known here in Switzerland. The second person, Paul Adams, is not as known as her. I know him very well since a long time. He was working a long time with Pratt & Whitney, design chief. He was CEO of Pratt & Whitney, what is the leading aero-engine manufacturer in the U.S. beside of GE.
After his departure from Pratt & Whitney, he was CEO of PCC, what is the casting house in the Western world, providing a lot of casting solutions for IGT business, energy business, aerospace business, and I am extremely happy to having him on board. By these two steps, I think we are tremendously improve our industrial experience in the Board. The number of independent Board members is increasing to four. That should be also seen as a consequence or the right approach to reflect the shareholder situation. Right? Having this said, I want to say thanks to all of you for your support and your engagement and dealing with us and thinking about us and talking to us. Now actually, Andreas, time for Q&As.
Yes. Thank you very much. This opens, obviously, the Q&A session. Please be reminded that this is a webcasted conference, when raising a question, please wait for the microphone so that people on the webcast can follow your question as well. The first question from Ani.
Hi, I have two questions. First, on the margin outlook. Given that you have a positive impact of 100 basis points from IFRS, the margin outlook seems conservative or do you just invest more? With increasing sales in service, margin should increase underlying, and with stable sales in Manmade, margin should increase underlying. Manmade and additive manufacturing shouldn't be more a burden than it was this year, right? Margin outlook seems quite conservative. Can you comment on that?
The question is coming as expected, right? Yes. It's not the case that we are too conservative here, and that was the purpose, actually, why I gave you a quite comprehensive overview on, not all, but a bigger bunch of different initiatives we are going to follow up. We are doing them already. You see it when you consider the Q4 results, where we have been slightly below the previous quarters. Yes, all these effects, all these initiatives, all these elements, again, CVD, ePD, staple fiber line, materials, R&D, comes with a price tag and is not free of charge. That is actually the reason why we come out now with an exceeding of 16%. We don't come with something around, we just say exceeding.
This gives us some space to maneuver around and it's a conscious decision where we say, look, there are opportunities where we see a fair chance, a good chance, to build up another pillar for our core business within our Surface Solutions area, having our traditional margin levels in mind. We think it's worthwhile to spend the money.
Perhaps if I may add, I think we never talked about the amount of what's being summarized in all those initiatives. We are talking about CHF 20 million-CHF 25 million expense on top of that, right? Business related stuff, corporate projects and the like. I don't think we have said that before.
Second question, a technical one. I think with Sulzer, they cannot pay out the dividend to Mr. Vekselberg.
Okay.
How is it with you? How does that look like? Do you pay out to Liwet-
Yes.
This 40%?
Yes, we do. Because the underlying structure of Liwet is in a way that this is not a sanction party because Mr. Vekselberg does not have the majority of Liwet. Therefore the payment is possible to Liwet, which also happened last year, by the way.
Okay. That helps. Thanks.
Okay. Now I don't mind first a follow-up question on the margin guidance. Sorry about that. On Manmade Fibers, you're guiding for stable growth, but you have a huge order backlog, orders leading to 2021, even 2022. One could expect then that you have quite some pricing power. How does it look like? By how much on average, if you can say, were you able to increase prices?
I think the increase in margins are obvious. I think in 2018 we had 11.7%, we had 6% or 7% in 2017. For sure this is based on a volume effect but also on a pricing effect. I think last year we had contracts in which have been the first ones to be negotiated after the trough with a very not so nice looking margin. This is getting better, and that is mainly the reason now why we are able to improve it by 100 basis points, to 12.7% or something like that. Coming closer to the midterm corridor, what we always declared around 15%, mid-teens. The topic is, or another part of the answer is the market consolidation in China. Besides operational improvement facts, all understood.
We have been clear, don't expect us, at least not for the time being, what is foreseeable, to be back in a range where we have been five, six years. I think so far we do have volume considered as order intake below CHF 100 million, if I recall it in the right way. That means the chunk of the volume is to come depending on timing, because again, a CHF 500 million contract is a monster contract. Almost a CHF 2 billion volume. Over three years.
What is the risk with these large orders of cancellations, postponements, I mean, without having any prepayments or down payments?
No. Without prepayments, down payments, we would not consider it as order entry. No. I think contracts are signed, down payments are given, financing for the entire project is given, and then you have. No indications for cancellations. The first signal for such a phenomenon would be that we don't discuss future projects anymore, right?
Industry and others, it's fully understandable. Can you update us on what investments have been done, like an atomizer in the U.S. or in?
You're absolutely right. Additive is developing, but unfortunately not as fast as stability. Just to give you one example, our cooperation with Lufthansa Technik. Big company, right? They clearly identified the potential of additive. In terms of having an aircraft flying to a destination, there is an indication a part is going to be replaced, no spare parts available anymore or no need to have them available. Just send a file and print it locally and replace it. This is the idea. This is the story behind. Today, we have to admit that even if you produce two parts in a row and it's the same machine, the parts are not yet sufficiently identical. If you talk about different printer, it's even a different story. The material topic kicks in. What kind of material you use? Material out of the same batch? Yes, fine.
Having two different batches being produced in two different years or whatever, that means there is a lot to be done here and all the details are leading to this type of delay. Concerning Oerlikon, I think the story is quite simple. We did the necessary investments in terms of footprint. We acquired citim, what is great, what is fine. We just build up the two sites in the U.S. for production, one, and for the material production. I gave you a hint, I gave you the information, 25 materials. There is a high share of that relevant for additive. That means it tells you something. That means the stuff is moving. The product portfolio is going to be extended. The growth takes a little bit longer. That means for us, we are very cautiously spending in terms of CapEx and OpEx. CapEx is going down.
We just do spend what is required from a top line perspective, from a OpEx perspective as well. That means we are nicely prepared, and we are following up and working on everything we can do. In teaming up also with big companies, Boeing, and you know them all, RUAG in Switzerland here, just as an example. That is what we do.
Basically we're seeing a shift this year in CapEx from additive manufacturing more to your core business of coatings and service networks.
Yes. We spend about. I don't know how to say. 207-
200 million in total.
200 million in.
To go further here, you mentioned last year, end of the year, sales around CHF 30 million in additive manufacturing. Can you confirm on that for 2018?
The remaining volume would be recognized and would be booked in 2019. What again, 2019, 2020, what the hell should be the reason to take everything, right? That means we are very conscious and very. [Non-English content].
On the additive sale, yes, we can confirm that. We were just a tick below the 30.
The innovation fair here, we expect that is our focus. You are right, I also would expect that after the fair, maybe the orders might peak. A Pulsus application, it's why let's do it. We start with one center. It's not the biggest one, it's a smaller one. Nevertheless, each baby going to be born, is born as a 3.5 kg pack, then it's growing up.
Okay.
Yeah.
Any further questions? Bruno.
Bruno Teta from Crystal. To what extent is this?
I don't think so, but I just want to be sure. Shipped to China. We have seen an impact of about CHF 7 million-CHF 8 million on tariffs in nominal terms with fiber machines as replacement machines which came out of Suzhou. Again, the impact here is a very low single-million number. Overall, luckily enough, we have not been affected dramatically. Again, we have addressed that issue to the extent it may accelerate, that we have mitigating actions in place by shifting supply chain away from the U.S. or away from China for that particular matter. On the cash flows, that we piggyback on Manmade Fibers on the cash flows, I wouldn't put it like that. I think the environment in additive has dramatically changed. You have heard, the CapEx or the big CapEx spending we have done, the big OpEx spendings are actually in place.
Again, I don't think we look at it in terms of subsidizing from one side to the other. Very unlikely. It has to come from somewhere, of course, we will not consider that a subsidizing of Manmade Fibers to support the growth in additive. We wouldn't put it like that.
Thank you. Alessandro Foletti, Octavian. I would like to come back again to the Manmade Fibers order intake. You mentioned this couple of billion. If you say you're full in 2019 and almost full in 2020, accumulated CHF 1.8 billion. How do I reconcile that number with the CHF 400 million order backlog?
No, I think the order backlog is far beyond CHF 400 million.
Well, what you have published is CHF 405, I think, to be precise.
The pure order backlog.
How do I reconcile that number with the CHF 1.8 that you must have in terms of visibility?
Sure.
Obviously, you have a higher visibility than what we have according to the accounts.
Yeah.
The gap between what we can see in accounts and what you have is CHF 1.4 billion, maybe CHF 1.5 billion. How can we explain?
There are two elements. As I said, I think Roland alluded to that before. Once we show it in the order backlog or as order intake, we have fulfillment of all criteria. Which means the prepayment has been done, and the financing is in place. We have a significant amount of soft backlog, and soft backlog we haven't been disclosing, but that gives us exactly the visibility, which means that we have a pipeline of negotiated orders. Let's say we talk about another CHF 200 million, CHF 300 million into end of 2020. Needless to say, the customer will not prepay for that at this point in time, but that doesn't mean that it doesn't exist, because it exists in the soft. In the soft, you don't see. Those are mainly negotiated contracts.
We have a third element of that, which are contracts, and that gives us an even better visibility, which are contracts which are being in discussion right now, which haven't assigned contract, nor do they fulfill the criteria for order intake. That's the way you reconcile. Since we are not disclosing beyond order intake and backlog, we are not going to reconcile that number. Again, I can just reconfirm that, as I said, the way we plan the business, the way we look at the business, the way we talk in this consolidation with some of the big accounts, that this will stretch us in 2021, even beyond 2021, what Roland mentioned.
If I understand correctly now, compared to, let's say, the period 2013, 2014, when, just after the last peak, you obviously also then had a soft order backlog that you don't show us. Now today, for sure, this soft is much bigger than before, number one, and also less risky than before in terms of not manifesting itself at some point. Is that a correct way to interpret it? Otherwise, we see, we hear normalization, we are all scared about going down again. That's very real.
Yeah. True.
Right? Last time, I had to cut my estimate by 50% after three, four hours, and I was not alone. Everyone. The issue is, when does it come? Does it come? Does it not come? We all hope it doesn't. We all hope it has substitutes.
I mean, I can understand that everybody's trying to relate to what they have seen in the past. I think there are one or two elements which we talked about which are different, right? We are talking in this current environment, which is, to a big extent, driving this demand, apart from the normal demand which you create through polyester growth demand globally, right? That's in itself about 4%-5%. You have this consolidation taking place. Contrary to what you have seen in the natural fiber space, where capacity continued to drag and be removed somewhere else, those capacities are literally shut down. That's an important element. Not all what we fuel over the next couple of years is doomed to or correlated for direct growth, right?
It's a big part of that is a substitution, and at the same time, a substitution to better quality of the machines.
That's where this whole element of automation and all that is coming in, which we are having. The other element is, and I think that's also important to understand, and again, you haven't seen it, so it's probably a little bit harder to convince you, but what we deliberately do is to make sure that we manage. Here, if we talk about the cyclicality, we basically talk about the cyclicality in filament in the China market, right? We all agree. I think that's important. That's the common denominator which we need to have. There, again, we are trying basically to offset at least part of that volatility, which gives us a better assessment on how big that volatility potentially may look like. That goes in the area of automation, which again, is there and very impressive, by the way.
If we talk at AC -Automation, the one which we bought, and what we can do in betting future project, will absorb a big part of that volatility. The other one, I think Roland mentioned, is on the nonwoven space, right?
Into hygiene applications and the like. I'm not saying that will 100% offset that, but it certainly will take out a big part of the volatility.
That's the downstream part of the explanation. There is an upstream part. Please do me a favor, don't compare our Manmade Fibers business as of today with a natural fiber of the past. Today, our equipment is part of a bigger chain. It starts with a petrochemical industry cracker, and where you produce your polymer, right? This is nothing what you can switch on or switch off. Yeah? That means our equipment, our elements we are providing are essential parts of a much bigger chain of production. It starts with the pipelines, the oil and fuel supply, and the cracker and the polycondensation topic, and then our equipment kicks in, right? That means the decisions to go for such plants are much more conscious than a natural fiber plant, where you take cotton from, I don't know, still from U.S., or I don't know exactly.
You start producing and working on them, or you don't do it. That means this gives us much more sustainability and reliability in this business.
Thank you very much for this additional information. It was very helpful. I have two very short one, if I may?
Sure.
On the cash flow. My calculation is about CHF 217 million free cash flow. That means operating cash flow minus acquisition of, without companies, but PPE and intangible assets. My calculation was CHF 217 million free cash flow for this year. How much did Graziano contribute to that number, if at all?
I know.
Yeah, of course. They did contribute. Do you have that in mind?
It's not disclosed.
We have not disclosed, but I couldn't find. I couldn't tell you how much it is.
Well, in here there is.
There is a contribution.
There is a number, CHF 7 million.
Exactly.
That's not exactly what I'm looking for.
That's the number.
I'm not sure that it is the same.
That's the number as closed. The seven. Okay, I see what you mean. Yeah. It was not significantly higher than that, right? We had.
Of the Glassbox transaction.
No.
No?
No. The cash flow consolidates into the Oerlikon cash flow for 2018, right? Whether Glassbox or not, whether discontinued or not discontinued. We had significantly higher CapEx spend, that is actually correct. The contribution, if I may say so, was probably in the magnitude of about CHF 20+ million max, right, from Drive Systems side.
Okay, great.
In terms of free cash flow, right?
Yeah, sure.
Yeah.
Thank you. Last one on additive again. You mentioned the CHF 30 million. What I've been hearing now, I wonder if you are expecting any growth at all now?
Sure.
Do you still expect?
Yeah.
Yes.
Sure. Do you want to comment?
Yeah, no. We are expecting a sound double-digit growth rate here, coming from a lower level. The level has been mentioned by Jürg, that gives you an indication where we will be end of 2019.
All right. Just a very short add-on, then I'm finished. On the additive side, can you really discriminate how much of the powder that you make are really additive-related and hence contribute to that CHF 30 million? Or is there a gray area where you, at the end of the day-
No.
You don't know really?
No, when we talk about additive, we know what it is. It's a substantial amount, below 50%, of course. Material and the rest is service. Normally we do know, because in these days now, the customers are aware. There are different grades in terms of purity, in terms of characteristics of the material. This was the case. We sold material powder to a customer not knowing if they were using them for additive applications, but this is gone. In these days, the customers and we are aware.
All right. Thank you.
Yeah.
Any further questions? There is one.
Hi. Michael Roost from Mensarius. Just a quick question on the order backlog again, your soft order backlog in the Manmade Fibers. Can you tell me what is the element in there which is pricing related? You also mentioned a bit earlier that you walked away from certain projects where the pricing has been Or not?
Yes, that is correct. I made this statement. Contracts where we walked away are not in our order backlog.
Not at all.
These are gone.
Like the soft?
No.
Soft.
Even soft, no.
Not at all?
Not at all.
It's not that you said, okay, well, we're willing to-
To become a soft backlog, at least you need a signed contract.
Yeah. Otherwise, it's nothing.
No, for sure. I just thought that maybe.
No.
You were a little bit more willing to accept something a bit further timeline when the pricing is a little bit lower then.
No.
Okay. What is the next step, for example, for that to turn into a proper order backlog, so to speak? Is that the.
Again.
Prepayment that then will flow in? Or how will that be?
There is a down payment or prepayment to a certain extent. There is financing for the entire project, and I just referred to our application. We want to see the progress of the entire chain, right?
Because if the chain upfront doesn't exist, the probability that I'm going to deliver my part is ending in the midst of nowhere, not being used, is quite high. From that perspective, there are criteria.
Okay.
where we can see, okay, it makes sense, because it also doesn't make sense to build a polycondensation plant and then doing what with the stuff, right?
I think there are simple criteria usually used in project business to check what is the probability. Again, the approval topic is really very important. Sometimes entrepreneurs dream about something, but that means this is really a conscious decision where we see, and big chunks of contracts are going to be divided into, how to say, buckets.
Having the different delivery days.
Okay.
Yeah.
These lower price projects are now out of the market. They've been taken by somebody else.
No.
No? Or?
Let's be careful throwing around these black and white scenarios.
Okay.
The build down of the order pipeline. Is, A, related to the customer, so his project time schedule and all that. It may very well B, that you still have different pricing, or in fact you do have different pricing in the pipeline. It's very much dependent on when those projects are being called. You don't have an automatic fall away from low pricing and everything which is coming is only higher pricing. That's why we say, that's why we're trying to help you to guide that, over the year, if we look at the build down of the pipeline, that we should expect about 100 basis points improvement on that.
Okay.
Because again, somebody may decide that in a bigger order that he's moving the thing to 2021 instead of 2020. That's obviously all part of it. It's not that black and white in terms of the pricing situation. That incrementally the value of the pipeline or intrinsically the margin profile increases, that's what we all agree, because otherwise we wouldn't be able to move the margin profile year-over-year.
Okay. Thank you.
Welcome.
Follow-up here, Ani.
A quick follow-up on the balance sheet. What will be the run rate net cash position after you get the proceeds and you pay out the dividend and all taxes and everything that comes with that?
Well, the only variable which you have in there is what we potentially would spend in bigger acquisitions going forward. Because you know what we're going to spend on the dividend. That's, you know based on the underlying business, what we are guiding, what potentially you will have, in terms of additional cash generation. As I said, the big variable in there is just the timing of some bigger transactions.
It's CHF 400 net cash at the end of year plus CHF 600 proceeds and then minus CHF 300.
Plus cash flow generated in.
Plus cash flow generated. Okay.
Yes.
In terms of balance sheet, you mentioned larger acquisitions which might come. To which level would you leverage your balance sheet?
Well, it hasn't changed actually, our position. We always said that we want to be between two and two and a half over time, which again, let me precise, doesn't mean that upon inception the leverage may be a tick higher, but I think based on the underlying strengths on the cash flows and the deleveraging capability, that's the magnitude which we're looking at. That's why we are saying, and I think that's an important message, that even with this additional distribution of the dividend, we are not impairing ourselves on the acquisition side, which we already have heard from some of the journalists this morning. That's a wrong interpretation.
Last one on that. You mentioned in the past that you would certainly look at the Praxair business if it would be in the market. Any updates on that front? Are they still not really open for discussions because they have other topics?
I'll leave that up to my boss.
Yes. No. Your statement is correct. This is something which we are always looking into, but there is no progress here. Not because of us, but because of the target itself. Yeah.
Thanks.
Follow up? You again.
Yes. Armin Rechberger from Zürcher Kantonalbank . Manmade Fibers. The wording was it belongs to the portfolio, but not to the core business. Any changes there? In the wording?
No, it's a little bit semantic.
How do you see it?
I think it depends on how we see it. When we say it's a material, we are material and Surface Solution company, it's obviously not in the center of the gravity, but also in material, in a wider sense. For the time being, it's core. We don't touch it. We don't follow any plans to divest it or Yeah. More I hardly can say.
Good. I think Oh, there's one follow-up.
Yes, just one follow-up on additive manufacturing. You continue saying that the burden is 200 basis points, and you print that again in your guidance. You have massive deviations from your original plan, and we're seeing that you're lowering now CapEx, and also you have become cautious on OpEx. Obviously, if GE Aviation doesn't give you an order for a series production of a part, you don't need to buy the 3D printers, you don't need to buy an assembly hall, also you need less additive manufacturing salespeople that can be quite costly on the OpEx side. Is this 200 basis points, which doesn't seem to be exact math? Can it be that it will actually be lower because you don't need to spend that much, and there might be some upside to that?
Fortunately, we never gave a detailed explanation what for we are spending their money. Today I gave you more titles and not only titles. I think these are really initiatives, and you will see the press announcement when we are opening this center, that center, what we are doing here. We felt we have to give you a kind of better understanding that it's not only additive, there are other elements herein. This sums up to, I think you mentioned the figure even, right?
20.
The 20th.
I think your reference is to AM in particular, right?
Yeah.
Yes.
This was a bigger part of it. Now it's not too much to be increased, other elements are kicking in. That leads to an effect of. You are right, it's a rough estimation. By purpose, it's a rough estimation.
Let me perhaps just add one comment, and I think we have said that many times. The main investments in order to be able to operate and go into small series production and all that, we believe has been done. There's obviously a good leverage which we can pull in terms of adjusting the OpEx side, lesser on the CapEx, of course, which has been spent. That's exactly what we play. I go back on what you said before. This is not exact science. We believe that we can manage that dilution, at least at the time where the business is still in the ramp-up
Around to 200 basis points. That's perhaps another way to look at it.
Final question from Alessandro.
Right. Thank you then. The CHF 25 million, CHF 20 million-CHF 25 million that you mentioned before in relation to these additional expenses-
On top of.
Is it something on top of the additional?
Yes.
Yes, it is.
Is it also something new in this sense? Is it an acceleration to this kind of stuff? You have to do it every way, anyway. You told me once when I asked you a question on EBITDA. We are not sending out numbers. We are managing a company. If you manage a company.
Which is true.
You remember that, right? It still is the case. You still invest.
Sure.
In R&D, in stuff like that.
Yeah.
Yeah.
Is this sort of an acceleration?
Alessandro.
How do I understand that?
There are certain, I think Roland mentioned that very nicely. A, yes, they're on top of that. B, there are just a lot of things which are happening in terms of digitalization. Again, it would go beyond what we can discuss here. That's an element I think Roland Fischer talked about, which is extremely important. A lot of activity behind. Again, I can spend CHF 20 million, CHF 30 million, CHF 50 million, CHF 100 million, right? While we have chosen not to do so.
That's one example. We have a need, we talked about that in the past, in harmonizing the SAP environment, right? That's happening as we speak. I will inaugurate next week our shared service center in China. Which again, is done for the purpose, is absorbing some money, but will help us to harmonize from an operational point of view, get some efficiencies of putting robotics in and the like.
The same, by the way, we do in Warsaw, right? Where we go live in Poland with a service center the middle of the year. Those are just a couple of things. They're not coming without investment, that's what we are talking about. Again, here, I would take the same approach. We're obviously very cognizant of the sensitivity which we're going to create on the group, those are things you can manage. You cannot avoid them, right? You cannot say it's zero or not. I cannot run an SAP project and say, "This year I'm not going to spend anything." That doesn't work. That's exactly what it is. There is some flexibility at the outer range.
Yeah.
In managing that cost base. Do you see what I'm trying to say?
The topics don't happen accidentally. Yeah? In a nutshell, I think the company is growing far beyond the market growth. This is not coming out of the blue. There are initiatives behind, there is a plan behind, where we, in the past, sit together identifying opportunities. These opportunities have to be developed. Again, new countries, new customers, new technologies, new applications, this is driving our growth beyond the market growth. Now it's the time to make it happen, to build it up, and to bring it in a commercial operation. This is just one example, this shared service topic, right? There are others. That's the reason why we, again, I don't want to sound too negative. I'm happy. I'm extremely happy that we as Oerlikon do have these opportunities, that we have a chance to spend this type of money for these purposes.
It's the basis, the foundation for the EBIT to come in two, three years, right? In three years' time, we will be a strong supplier in CVD, for instance. This will be another pillar within our thin-film coating business based on a different technology. It would be stupid not to do it. Sorry for being emotional.
That's okay.
Does it help, Alessandro?
It does. Please don't understand my questions like I'm not happy that you have opportunity to invest and that you invest.
Yeah.
I don't want you not invest to grow, of course. It's just the mathematics don't add up exactly precise.
On your side maybe. Depends. Yes, they do.
The spreadsheet probably allows for some slippage, right?
Yes.
We're happy to discuss this offline then. I think we have answered all the question. We close our this year's full year announcement. I'm happy to speak to all of you on May 7th when we disclose our Q1 results, and we'll have the opportunity to further deepen the discussions throughout the year. Thank you very much for attending. Thank you for joining the webcast, and the IR team is obviously happy to support you in case of any additional questions you may have. Thank you very much, and have a good afternoon.
Thank you.