Earnings Call: Q4 2018

Mar 5, 2019

So 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 Schwarzwelle, the Head of Investor Relations and Corporate Communications of Oerlikon. Thank you for joining us either here in Zurich 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 regards to an highlight overview as well as the details on the performance of the individual segments, followed by the financial review from the CFO, Jorg Fedje. And we will conclude with an outlook provided by the CEO. And afterwards, we have the obvious Q and 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, Royal Enfisher. Thanks a lot, Andreas, and a warm welcome from my side as well. Give me a chance to summarize the year 2018 by 4 key statements. 2018, for sure, was a good year for Oerlikon. We achieved strong profitable growth, and our order intake increased by 23%, 23.5%. Our sales increased improved by 20 more than 26 percent, CHF 1,000,000,000 and up to CHF2.6 slightly above CHF2.6 billion. And this is something what I see as a strong and robust 2018. The EBITDA on a group level increased by also 20 6% to CHF406 1,000,000 corresponding to a profitability of 15.6%. And 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 divestment successful divestment of the Drive Systems segment, which is was closed just last week, Friday. The cash proceeds of EUR 225,000,000 sorry, EUR 625,000,000. Yes, that would be a different story. And it's a great step forward in our road map. And this opens up more and new opportunities. But 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. And here, I just use or take Sokotec as a reference, as an example. Sokotec is a company, 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. And 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. And now having it in our portfolio, it's running like hell. As a consequence out of that, we are building a competence center in South Germany. Just as one example, where even so small acquisitions providing huge sense and a very solid base for the midterm, long term growth in our core fields. Beside of that, we invested in the medical area. We acquired a company, TESANTO, 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. And last but not least, an AICA company in the nitriding high end heat treatment for aluminum parts, mainly in the automotive area. And here, I'm having the e mobility megatrend in mind, of course. But we also have been quite successful in managing the cycle in the manmade fiber business. And you all know where we are coming from 2 years ago, 3 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. And here, we acquired also 2 companies, and that gives a clear indication how in Manmade Fiber Business, we are not in a kind of harvesting mode. We are very carefully developing this business and this segment as well. The 3rd strong message is the dividend topic. On top of the normal, the ordinary R35 per share, The Board of Directors made the decision, followed our proposal to propose at the AGM, the upcoming AGM in April, a dividend of CHF 1 per share. That means this includes CHF65 as extraordinary non recurring dividend in 2019. And last but not least, we are looking 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 CHF2.7 billion and the profitability, we expect to be above 16%. So before I hand over to Jorg giving you much more details about the financials, I would like to spend few minutes to do a deeper dive into the 2 segments, Service Solution and Manmade Fiber. Let's starting with Service Solution. 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. And our customers can choose from a standard portfolio or from a more customized portfolio, materials, coatings and for their dedicated specific applications. From an end market point of view, 2018 was a strong tooling market, running on high levels. But also general industry was doing quite well. And this over arcing market development was enriched by additional initiatives we have launched in the past. And just to mention too, Zumebor, what is a ceramic coating based on thermal spray, where we are coating and this morning, I have 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 SUMIBOR technology. We talk about millions of units per year. This is a process over years because the sheer volume is cannot be built up in 1 or 2 years' time. And another one is another a different technology called EPD. This is thin film technology, which offers a lot of advantages. 1st of all, it's without any chrome ingredients. That means it's chrome free. And 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 5, 6, later 7 years, right? And this is an alternative solution. And here, we sold the 1st units, equipment first, and 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 slowdown, but nevertheless, the order stood at almost CHF 1,600,000,000. That means 11.5% above the prior year level. The sales grew by 10% to CHF 1,500,000,000. And 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 Service Solution 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. But nevertheless, we do have our strategic road map and we follow it. And we are happy and fine about this project. On a bottom line side, the segment Service Solution generated EUR 283,000,000 EBITDA, what is an increase of 2.5% versus prior year. The margin stood at 18.6 percent. That means within the guided corridor between 18% 20%, what is always a result of product mix. And you know that service creates generates higher margins, comparing with material and equipment. And 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, just an example, we have included 11 new sites in 2018, and we expanded 2 existing ones. And this is the basis for a quite positive outlook into 2019. Now let's talk a little bit about manmade fiber. Here again, the mass segment is clearly the world market leader for solutions and systems used to manufacture manmade fiber. 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 be to produce this type of products at the highest level of sustainability in terms of power consumption and water consumption and stuff like that. The Mainland Fiber segment achieved a record growth in sales in 2018, yes? For order intake increased by 45 percent to CHF 1,200,000,000. Sales increased by 57% to CHF 1,100,000,000 and the EBITDA, which was on a level of CHF 128,000,000 with a profitability of EUR 11,700,000,000 also has been strongly and improved and increased. Here, it's worthwhile to make a side remark. As consistent with our previous speeches, we are not going to extend the existing capacities for manmade fiber 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. And the sheer reason is very simple. The nature of the beast remains cyclical. And on the Filament business, we are in a very positive situation. Filament is 60%, 65% of the manmade fiber business. We are facing a very positive environment in China here, mainly in China, where the market is further going to be consolidated. Our order books for 2019 2020 are full, 2019 completely, 2020 almost, 21 to a certain extent and contracts which are going to be negotiated right now are leading even until '22. And that is a positive topic on the one hand side, but it implies the fact that manmade fiber is not contributing to the growth of the group. That's downside of this phenomena, but nevertheless. In total, we are not in a kind of harvesting mode concerning manmade fiber. We are also investing in M and A. We acquired 2 companies, Polyconization and AC automation. That means we see a clear trend that at a certain point of time, there will be, the phrase is no light factories, yes? A factory which is completely automized and just maybe once a week, somebody switch on the 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. Now I think I hand over to Jorg going more into the financials, and afterwards, I will try to give my best in terms of outlook for 2019. Jorg? Danke, 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 €2,700,000,000 That's an increase of 23.5%. Service Solutions delivered double digit increase year over year, and 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 fiber, where we also attained, in the meantime, the 12% EBITDA margin. And 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 €2,600,000,000 That's an increase of 26%, respectively, 24 percent. Also on a positive note, we reported again a book to bill ratio, which is exceeding 1 in 2018. And the reported EBITDA was €406,000,000 That corresponds to a margin profile of about 15.6%. The ongoing recovery in the manmade fiber in 2018 obviously becomes visible when you look at the group business split on a geographic point of view and the contribution from the 2 segments. Service Solution contributed about 60% of total group sales and 40% was attributed by manmade fiber. On the profitability, the relationship is seventythirty. So 70% of the total profitability is being contributed by Service Solution and about 30% through manmade fiber. From a regional point of view, as you would expect, again, with the massive recovery, which we have seen in manmade fiber Asia Pacific, again, up at about 46%, followed by Europe, which is representing about onethree of the total top line the U. S, trailing around 16% and then the rest of the world, stable at about 5%. In line with the before mentioned recovery in Vemei Fiber, 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, an 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 and L, below operating profit. The net financial result was CHF 3,000,000. That compares to about CHF 9,000,000, which we had in last year, so an improvement of about CHF6 1,000,000, 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 in our cash position throughout the whole 2018. And after receiving the CHF 624,000,000, I think you just wanted to test me before, right, with the CHF 225,000,000 After having received now the CHF 625,000,000, there will be probably a residual portion of CHF 200 plus 1,000,000, 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 €68,000,000 I think more important is that the effective tax rate have been coming off to about 28%. I may recall that we were trailing over the last couple of years as high in the low environment of the business, as high as 35%, 40%. And what you should expect, which is even more important going forward, that with the full divestment of the DRIVE system, 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, euros 173,000,000 compared with €95,000,000 That's an increase of about 82% and results from discontinued operation at about CHF 73,000,000 compared to CHF56 1,000,000 last year, which reflects the really strong operational performance, which we have seen in the now divested Drive Systems segment, which we would interpret through 2 factors: 1, through the long term restructuring efforts, which we have been putting to the business and 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 20 19 result. I think we have been long talking about a CTA recycle of about close to €300,000,000 That's being reconfirmed for the time being. On the other hand, you have a book profit on the transaction based on the EV of €600,000,000, which will be positive to the tune of about €150,000,000 So net net by fully discontinuing the business out of the group, you will see an impact of about minus €150,000,000 minus €160,000,000 on the bottom line. And I think that's important. Obviously, we'll have the contribution for the last 2 months in discontinued operation and then the underlying strengths of the business, which then will probably level out the result for 2018. We do we all do understand that the CTA effect as an accounting recycle is noncash related. So let me come back then to the net income. Net income, as you've seen, CHF 245,000,000, that's 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 €400,000,000 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. And I think it goes back in terms of the further execution on the portfolio where we're going to continue to lever the balance sheet in the magnitude we were talking about in the past. Total equity amounted to more than CHF2 1,000,000,000. That's an equity ratio to date at about 44%. So again, our financial position remains strong together with the 5 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. And I'm 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, is around 80% of this euros 207,000,000 is allocated to surface solution due to the expansion. And I think Roland already alluded to that to a certain extent of the coating network and capacity expansion in existing sites. In MEM and Fiber, CapEx was clearly below the depreciation level and amounted to about 2% of sales. And 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 €1,100,000,000 so flexibilizing our capacity to the extent possible. And that picture should not change going into 2019. So excluding amortization of acquired intangible assets in the amount of about CHF 40,000,000, Depreciation was at CHF 121 1,000,000, up about 5% compared to 2,000 ratio. And the CapEx to depreciation ratio, as you have seen, is still running at about 1.7%, Including or excluding the amortization of the our midterm corridor of 1 to 1.2. But again, the intention is in the medium term to converge back into that. Cash flow. Cash flow from operating activities before changes in net current assets was about CHF 429,000,000. The change in net current assets was positive, about CHF 69,000,000, which was mainly attributable to the increase of contract liabilities such as the advance payments in MAME Fiber, in particular, which amounted to about CHF 84 1,000,000, which again just underlies the previous commented strong development on demand made fiber. Cash flow from investing activities amounted about €342,000,000 That's a combination of CapEx, of M and A spend and some short term investment, which make up that amount and cash flow from financing activities in the tune of about SEK 150,000,000 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 CapReindeer. A comment on the dividend per se, returning value of capital to the shareholders through the annual dividend. I may call it like that, which represents this majority of the dividend is going to be paid out of capital reserves. If I'm saying majority, it's about 90 3%. So 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 8 this dividend distribution, and we're positive that this will go through. And this broadly closes the financial review. And I'm glad to take questions later on. But for the time being, I want to give back to Roland. Yes. Thanks a lot, Jorg. I would like to give a short outlook into the current year 2019, but not only in terms of financials. I also would like to spend a little bit 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 and A. In 2018, we nicely delivered on our strategy. And guess what? The strategy for 2019 remains almost the same. We focus on Manlight Fiber. We manage the cycle, as already indicated, managing the how to say it, in a proper 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. And beside of that, we focus and spend time and money in non filament areas, nonwoven hygienic products. And the clear intention behind is very simple, balanced from a portfolio point of view, yes? 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 Service Solutions segment, we are spending money. We are spending money beyond Additive. There are 2 examples I mentioned already. The new competence centers for EPD and the other one for CBD, this chemical vapor deposition topic that MIMA in combination with voice new materials. And this is the outflow of 1 outflows on this company, which we acquired 2 years ago, are penetrating, entering new countries. Our VR opening have almost 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 you 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 service solution 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, yes? And these are just examples to give you a feeling, We are not only relying on M and A, we are doing all the market is asking for and where we know how to do it. So ladies and gentlemen, now 2019, despite challenging market environments, So 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 1 percentage point or 100 basis points. And 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 CHF 2,007,000,000,000 and the profitability EBITDA margin is exceeding 16%. And 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. Now 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 small elements of our strategy also we achieved here, we achieved a lot as well. The dividend topic has been explained by Jurg, 1 franc, not limiting us in our ability to do big M and 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. And 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 decision selections during the upcoming AGM in April. The Board of Directors is going to be extended from 6 to 7. Hopefully going to be elected. It's Doctor. Susan Toma, a Swiss citizen coming out of or having a strong utility energy background. I think she is quite known here in Switzerland. And 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 Brett and Whitney, Design Chief. He was CEO of Brett and Whitney, what is the leading, aero engine manufacturer in the U. S. Beside of GE. And after his departure from Brett and Whitney, he was running he was CEO of PCC, what is a casting the casting house in the Western world, providing a lot of casting solutions for IGT Business, Energy Business, Aerospace Business. And I'm extremely happy to having him on board. And by these two steps, I think we are tremendously improve our industrial experience in the board. And the number of independent board members is increasing to 4. That should be also seen as a consequence or the right approach to reflect the shareholder situation, right? So 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. And now actually, Andreas, time for Q and A. Yes. Thank you very much. This opens then obviously the Q and A session. Please be reminded that this is a webcasted conference. So 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 because with increasing sales in surface, margin should increase underlying? And with stable sales in manmade, margin should increase underlying. And manmade and additive manufacturing shouldn't be less more a burden than it was this year, right? So margin outlook seems quite conservative. Can you comment on that? It's 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. And we are doing them already. You see it when you consider the Q4 results, right, where we have been slightly below the previous quarters. Yes, all these effects, all these initiatives, all these elements, again, CBD, EPD, Stabil Fiber Line, Materials, R and D comes with a price tag and is not free of charge. And that is actually the reason why we come out now with an exceeding of 16%, yes? Maybe that's yes, 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 service solution area, having our traditional margins, margin levels in mind. And we think it's worthwhile to spend some money. Perhaps, if I may add, we never I think we never talked about the amount of what's being summarized in all those initiatives. So we are talking about CHF 20,000,000 to CHF 25,000,000 expense on top of that, right? Business related stuff, corporate projects and the like. I don't think we have said that before. And then second question, a technical one. I think with Solzer, they cannot pay out the dividend to Mr. Rexelburg. How is it with you? How does that look like? Do you pay out to Levett, this 40%? Yes, we do. Because the underlying structure of Levett is in a way that this is not a sanctioned party because Mr. Wexelberg does not have the majority of Levett. So therefore, the payment is possible to Levett, which also happened last year, by the way. I don't mind. First follow-up question on the margin guidance, sorry about that. On manmade fibers, I mean, you are guiding for stable growth, but you have a huge order backlog, orders leading to 2021, even 2022. So one could expect then that you have quite some pricing power. So how does it look like? 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 0.7%. 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. Here, we talk beside of operational improvement, in fact, all understood. But 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 5, 6 years. I think so far, we do have a volume considered as order intake below €100,000,000 if I recall it in the right way, right? That means the chunk of the volume is to come depending on timing because again, a €500,000,000 contract is a monster contract. Almost at €2,000,000,000 volume, right, over 3 years. And what is the risk with these large orders of cancellations, postponements, I mean, without having any prepayments or down payments? No, no, no. Without prepayments, down payment, No. I think contracts are signed, 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 are given. And then you have but no, no, no, no indications for cancellations. And the first signal for such a phenomenon would be that we don't discuss future projects anymore, right? Industry and autos, it's fully understandable. But can you update us on what investments have been done, like in atomizer in the U. S. Or in? You're absolutely right. Additive is developing, but unfortunately not as fast as visibility. Just to give you one example, our cooperation with Lufthansa Technik, Big company, right? And they have a clear they clearly identified the potential of Additive, yes? 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 needs. We have them available. Just send a file and print it locally and replace it. This is the idea. This is the story behind. But today, we have to admit that even if you if we produce 2 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. Then the material topic kicks in. What kind of material you use? Material out of the same batch, yes, fine. But having 2 different batches being produced in 2 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. But concerning EarlyCo and I think the story is quite simple. We did the necessary investments in terms of footprint. We acquired Citi. What is great, what is fine. We just build up the 2 sites in the U. S. For production 1 and for the material production. And I gave you a hint I gave you the information, 25 materials. There is a high share of that relevant for Additives. That means it tells you something. That means the stuff is moving. The product portfolio is going to be extended, but 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, yes? 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 we know them all, Roark in Switzerland here, just as an example. And that is what we do. So 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 spent about I don't know how to say EUR 207,000,000 EUR 200,000,000 in To go further here, you mentioned last year, end of the year sales around €30,000,000 in Additive Manufacturing. Can you confirm on that for recognized and would be booked in 2019. What is and again, '19, 'twenty, what the hell should be the reason to take everything, right? That means we are very conscious and very And you are right. I also would expect that after the fair, maybe the orders might pick because of Balsas application. And so let's do it. We start with 1 center. It's not the biggest one. It's a smaller one. But nevertheless, each baby going to be born is born as a 3.5 kilogram pack, and then it's growing up. Any further questions? Bruno Deta from Crystal. To what extent is this trade? I don't think so, but I just want to be sure. And then shipped to China. So we have seen an impact of about €7,000,000 to €8,000,000 on tariffs in nominal terms with fiber machines as replacement machines, which came out of SUCHU. But again, the impact here is a very low single €1,000,000 number, right? So overall, luckily enough, we have not been affected dramatically. And again, we have addressed that issue to the extent it may accelerate that we have mitigating actions in place, right, by shifting supply chain away from the U. S. Or away from China for that particular month, right? On the cash flows, we piggyback on manmade fiber on cash flows. I wouldn't put it like that. I think the environment in Additive has dramatically changed. As you have heard, the CapEx or the big CapEx spending we have done, the big OpEx spendings are actually in place. And again, I don't think we look at it in terms of subsidizing from one side to the other very unlikely. I mean, it has to come from somewhere, of course. But we will not consider that a subsidizing of manmade to support the growth in additive. We wouldn't put it like that. Alessandro Foletti, Octavian. I would like to come back again to the man made order intake. You mentioned this couple of €1,000,000,000 Obviously, if you say you're full in 2019 and almost full in 2020, cumulated EUR 1,800,000,000, let's say. How do I reconcile that number with the €400,000,000 order backlog? No, I think so order backlog is far beyond €400,000,000 Well, what you have published is 4.10 5,000,000, I think, to be precise. The pure order backlog, right. How do I confirm that number with the 1,800,000 that you must have in terms of visibility? Obviously, you have a higher visibility than what we have according to the accounts. So and the gap between what we can see in accounts and what you have is EUR 1 point €4,000,000,000 maybe €1,500,000,000 So how can we explain? There are 2 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 criterias, which means the prepayment has been done and the financing is in place. Now 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, right? So let's say we talk about another €200,000,000 €300,000,000 into end of 'twenty. Now 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. So in the soft, you don't see, right? But those are mainly negotiated contracts, right? And then 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 signed contract nor do they fulfill the criteria for order intake. And that's the way you reconcile, right? But since we are not disclosing beyond order intake and backlog, we're not going to reconcile on that number. But 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 whole stretches in 'twenty one, even beyond 'twenty one, Rodolphe mentioned. So 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 you always have a soft order backlog that you didn't show us. But now today, for sure, this soft is much bigger than before, number 1, and also less risky than before in terms of not non manifesting itself at some point? Is that a correct way to interpret it? Because otherwise, I have to we see with here normalization, we are all scared about going down, okay? I mean, that's very hard, right? And last time, I had to cut my estimate by 50% after 3, 4 hours, and I was not alone. Everyone so the issue is when does it come? Does it come? Does it not come? We all hope it doesn't. We all hope it doesn't. But let's let's I mean, I can understand that everybody is trying to relate to what they have seen in the past. I think there are 1 or 2 elements which we talked about, which are different, right? So we are talking in this current environment, which demand. Apart from the normal demand which you create through polyester gross demand globally, right? That's in itself about 4% to 5%. But then you have this consolidation taking place. And 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. So not all what we fuel over the next couple of years is doomed to or correlated for direct growth, right? But it's a big part of that is a substitution and at the same time, a substitution to better quality of the machines. And 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. And 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. But 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. And 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, embed in future project, we'll absorb a big part of that volatility. And the other one, I think Roland mentioned, is on the nonwoven space, right, into hygiene applications and the like. So I'm not saying that will 100% offset that, but it certainly will take out a big part of the volatility. That's the way I want to And that's the downstream part of the explanation. Then there is an upstream part. Please do me a favor. Don't compare our man made business as of today with 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? And this is nothing what you can switch on or switch off, yes? 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 polyconization topic, and then our equipment kicks in, right? That means there are 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, so I don't know exactly. And then 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 2 very short ones, if I may. On the cash flow, euros 200,000,000 my calculation is about euros 217,000,000 free cash flow. That means operating cash flow minus acquisition of without companies, but PPE and intangible assets. And my calculation was €217,000,000 free cash flow for this year. How much of that how much did Gaziano contribute to that number, if at all? Yes, of course, they did contribute. Do you have that in mind? It's not disclosed. We have not disclosed, but I couldn't offer and I couldn't tell you how much it is. Well, in here, there is a number, EUR 7,000,000, but it's not Exactly. That's not exactly what I'm looking for. I'm not sure that the that is the same. But the same okay, I see what you mean, yes. But it was not significantly higher than that, right? Because we had Because it's a cross box transaction. No. No. Because there were the cash flow consolidates into the Ehrlichen cash flow for 2018, right, where the lockspokes are not where they discontinued or not discontinued. But we had significantly higher CapEx spend. So that is actually correct. The contribution, if I may say so, was probably in the magnitude of about €20,000,000 plus max, right, from drive systems side. Okay, great. In terms of free cash flow, right? Yes, sure. And last one on Additive again. You mentioned the €30,000,000 What I've been hearing now, I wonder if you are sort of expecting any growth at all now or do you still expect? Yes. Yes. Sure. Do you want to comment on that? Yes. No, we are expecting a sound double digit growth rate here coming from a lower level. The level has been mentioned by Jorg. And that gives you an indication where we will be end of 2019. All right. Just a very short add on, then I finish. 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 €30,000,000? Or is there a gray area where you, at the end of the day, you don't know Rich? 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. And 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. So old days where this was the case, yes, we sold material powder to a customer not knowing Any further questions? There's one. Michael Roost from Anzarius. Just a quick question on the order backlog again, your soft order backlog in the man made fibers. Can you tell me what is the element in there which is pricing related? Because you also mentioned a bit earlier that you've walked away from certain projects where the pricing has been or not? Yes, that is correct. I made this statement. But contracts where we walked away are not in our order backlog. Not at all. No. Soft. Even soft, no. No, no. Not at all. Not at all. Not at all. So it's not that you said not at all. Not at all. To become a soft backlog, at least you have a signed you need a signed contract, yes? Otherwise, it's nothing. No, no, for sure. I just thought that maybe No, no, no, no, no. More willing to accept something a bit further time line when the pricing is a little bit lower there. No. Okay. And then what is the next step, for example, for that to turn into a proper order backlog, so to speak? Is that a 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, yes? It's 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 ending in the midst of nowhere, not being used is quite high. From that perspective, there are criteria where we can see, okay, it makes sense because it also doesn't make sense to build a polyconization plant and then doing what with the stuff, right? So I think there are simple criterias usually used in project business to check what is the probability, what is and again, the approval topic is really very important, right? Sometimes entrepreneurs dream about something. But so 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, right, Having the different delivery days. Okay. So these pricing these lower priced projects are now out of the market. They've been taken by somebody else? No, no, no. No? Or The let's be careful throwing around these black and white scenarios. The build down of the order pipeline is, a, related to the customer, so his project time schedule and all that. So it may very well be that you still have different pricing or in fact, you do have different pricing in the pipeline, but it's very much dependent on when those projects are being called, right? So you don't have an automatic fall away from low pricing and everything which is coming is on the higher pricing. But 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, right? Because again, somebody may decide that in a bigger order that he's moving the thing to 'twenty one instead of 'twenty, right? And that's obviously all part of it. So 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. A quick follow-up on the balance sheet. What will be the run rate net cash with that? Well, the only variable which you have in there is what we potentially would spend in bigger acquisitions going forward, right? Because you know what we're going to spend on the dividend, right? And that's you know based on the underlying business where 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. So but it will be 400 net cash at the end of 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 2% and 2.5 percent 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. And that's why we are saying, and I think that's an important message, that even with this additional distribution of dividend, we are not impairing ourselves on the acquisition side, which we already have heard from some of the journalists this morning, right? So that's a wrong interpretation. And last one on that. You mentioned in the past that you would certainly look at the Proxair 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 them out in advance. Yes. No, it's but your statement is correct. This is something what we are always looking into, but there is no progress here, not because of us, but because of the target itself, yes. Yes. Thanks. Yes. Armin Reischberger from SACLABJurgen. Manmade Fibers, the wording was it belongs to the portfolio, but not to the core business. Any changes there or in the wording? No, it's a little bit too mind if you see it. No, I think it depends on how we see it. When we say it's a material, we are material and service solution company, it's obviously not in the center of the gravity, but also immaterial, right, in a wider sense. And for the time being, it's core. We don't touch it. We don't follow any plans to divest it or yes. And yes, more I hardly can say. Good. I think there's one follow-up. Yes. Just one follow-up on Additive Manufacturing. You continue saying that the burden is 200 bps and you print that again in your guidance. But you have massive deviations from your original plan, and we're saying that you're lowering now CapEx and also you're very have become cautious on OpEx. And obviously, if like GE Aviation doesn't give you an order for a series production of a part, you don't need to buy the 3 d printers. You don't need to buy an assembly hole. Also, you need less additive manufacturing salespeople that are can be quite costly on the OpEx side. So I mean, is this 200 bps, which is doesn't seem to be like exact mass? I mean, can it be that it will actually be lower because you don't need to spend 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're opening this center, that center, what we are doing here, yes? And but we felt we have to give you a kind of better understanding that it's not only additive, there are other elements herein. And this sums up to I think you mentioned the figure even, right? 20. The 20. But then your reference is to AAM in particular, right? Yes. And this was a bigger part of it. Now it's not going to be not too much to be increased, but other elements are kicking in. And that leads to an effect of and you're right, it's a rough estimation. By purpose, it's a rough estimation. But 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, right? There's obviously a good leverage which we can pull in terms of adjusting the OpEx side, later on the CapEx, of course, which has been spent. But that's exactly what we play. So I go back on what you said before. This is not exact science, right? But we believe that we can manage that dilution at least at the time where the business is still in the ramp up around the 200 basis points. That's perhaps another way to look at. Final question then for Alessandro. All right. Thank you then. Then the €25,000,000 to €25,000,000 that you mentioned before in relation to these additional expenses, is it something on top of the additional? Yes, it is. And is it also something new in this sense? I mean, is it did you sort of is it an acceleration? I mean, this kind of stuff, you have to do it anyway. You told me once when I asked you a question on EBITDA, we are not sending out numbers. We are managing a company. So if you manage a company, you remember that, right? It still is the case. So you still invest in R and D and stuff like that. So is this sort of an acceleration of undue uncertainty? There are certain I think Roland mentioned that very nicely. A, yes, they're on top of that. B, there's just a lot of things which are happening in terms of digitalization. And again, it will go beyond what we can discuss here. But that's an element, I think Roland talked about, which is extremely important, a lot of activity behind. I mean, again, I can spend €20,000,000, €30,000,000 €50,000,000 €100,000,000 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. We just will 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? We go live in Poland with a service center the middle of the year. And those are just a couple of things. They're not coming without investment. And that's what we are talking about. And again, here I would take the same approach. We're obviously very cognizant the sensitivity which we're going to create on the group, but those are things you can manage. You cannot avoid them, right? Cannot say it's 0 or not. I cannot run an SAP project and say this year I'm not going to spend anything. That doesn't work. But that's exactly what it is. But there is some flexibility at the outer range in managing that cost base. Do you see what I'm trying to say? And the topics don't happen accidentally, yes? 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. And again, new countries, new customers, new technologies, new applications, This is driving our growth beyond the market growth. And now it's a time to make it happen, to build it up and to bring it in a commercial operation. And this is just one example of this shared service topic, right? But there are others, yes? And that's the reason why we and again, I don't want to sound too negative. I'm happy. I'm extremely happy that we as Erlikon do have these opportunities, that we have a chance to spend this type of money for these purposes because it's the basis, the foundation for the EBIT to come in 2, 3 years, right? In 3 years' time, we will be a strong supplier in CBD, for instance. This will be another pillar beside within our thin film coating business based on a different technology. It would be stupid not to do it. So sorry for being emotional. That's okay. Does it help, Alessandro? It does. I mean, please don't understand my questions like I'm not happy that you have opportunity to invest and that you invest. I mean, it's not I don't want you not invest to grow, of course. It's just the mathematics don't end up exactly precise. Well, on your side, Well, the spreadsheet probably allows for some slippage, right? And we're happy to discuss this offline. I think we have answered all the questions. Then we close our this year's full year announcement. Happy to speak to all of you on May 7 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.