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I am pleased to report that 2018 was a record year for Oerlikon. Our excellent results clearly show that we have the right strategy and also underline our ability to transform our portfolio and successfully turn our businesses around.
When I took on the position of Chairman of the Board of Directors in 2015, we were faced with the challenge of outlining a strategy that would enable Oerlikon to succeed in the medium and long term. At that time, Oerlikon was a conglomerate with a diversified portfolio, and certain businesses were experiencing highly cyclical market conditions. We took the decision to focus on areas where we have strong core competencies and attractive growth markets where we hold number 1 or number 2 positions.
We have outlined a clear strategy that has led to our success in 2018. Our strategy provides us with a runway for growth and we will further execute on it to sustain our strong performance in the medium to long term.
The sale of the vacuum business in 2016 was a strategic step in the defined direction. In 2018, we reached the next significant milestone with the agreement to divest the Drive Systems Segment to Dana Incorporated, and we closed the sale in February 2019. Back in 2015, the drives business had too many product lines and its resources were spread across many markets. We streamlined the business, concentrating on profitable products and areas such as the hybrid and e-drive solutions. We optimized processes and restructured the segment to enable it to better manage the impact of cyclical markets. Our efforts paid off and the drives business was successfully repositioned. This was reflected in the strong performance the Drive Systems Segment delivered in 2018, which led to the sale of the business at a good enterprise and cash value of around CHF 600 million. The next step following these divestments is investment. We have been deploying – and will continue to deploy – cash and our healthy balance sheet to grow our business both organically and through targeted M&A.
The current market environment is rather volatile and uncertain, and marked by protectionist views and ongoing trade tension. Against such a background, we are exercising caution and carefully evaluating each opportunity. We closed six technology acquisitions in 2018. For example, we bought DiSanto Technology to open up for us the additive manufacturing medical market, while with AC-Automation, we can now offer our manmade fibers customers large-scale plant automation solutions. We will continue to enhance our technology portfolio and market reach with further acquisitions. However, we will do so with care as it is our responsibility to secure value and get the best deal for Oerlikon to support its growth. This also means declining to execute potential transactions, which we did several times in 2018.
In 2018, we further invested in our structural growth and achieved 21.2 % organic sales growth. Each year, we add at least two to three coating centers, while expanding several existing facilities to serve customers on their doorstep. This is also an important part of our defined strategy – our close proximity makes us more accessible and available to respond quickly to customers’ needs. Currently, we have 175 sites globally, offering sales, key account management, equipment manufacturing, coating services and after-sales services.
Our R&D pipeline is filled for the next few years as we continue to invest at least 4 % of our revenues in developing new and improved innovative solutions for customers. We launched a large number of new coating equipment, coatings, alloys and services in 2018. For our materials business, we now have the unique competency to very rapidly develop new alloys customized according to what our customers need. This is thanks to our Rapid Alloy Development (RAD) software algorithm, which enables us to develop and launch new alloys in weeks instead of months or years.
I am also proud to say that we are developing technologies that not only add value for customers, but also contribute to improving the environment. For instance, our physical vapor deposition (PVD) coatings and ePD (embedded PVD for Design parts) solutions are wear resistant protection technologies that are excellent eco-friendly chrome replacements. Our SUMEBore coatings for automotive engine cylinders are light, fuel-economical and compact solutions that can reduce oil consumption by up to 80 %. It is a known fact that the production of manmade fibers has a much lower water footprint compared to growing and producing natural fibers. Furthermore, our manmade fibers technologies help customers save up to 30 % of the energy used in production compared to conventional technologies.
Our goal is to stay ahead of the competition with innovation. We want to maintain our number one technology and market positions, and to reach number one if we are not there yet. We are currently spearheading multiple digitalization initiatives in the areas of automation, robotization and complete smart plant systems. We have also launched a digital hub in Munich, Germany, where a dedicated team will be spurring and boosting digital growth in Oerlikon by instilling digital thinking and inspiring new working methods, which will help raise efficiency and productivity in our daily work.
Another significant pillar of our strategy is additive manufacturing. Market adoption and industrialization of additive manufacturing has been slower than expected. However, our commitment to this business remains unchanged. We see this as a marathon rather than a sprint. The launching of a new business requires investment and commitment to reap benefits over the longer term. Through our investments over the past years, we now have a strong operational and production footprint in Europe and in the US, and have begun powder sales in China. We have also established top partnerships with major industry leaders such as Boeing, GE Additive and Lufthansa Technik, as well as academic institutions like the TU Munich, to collaborate on advancing the industrialization of additive manufacturing. All these position us excellently to lead and develop our additive manufacturing business in the aerospace and medical industries, which are markets at the forefront of additive manufacturing adoption, but also in other industries. We firmly believe in the potential of additive manufacturing and that this business will be one of the central pillars of Oerlikon’s medium and long term future.
Our strategy has supported our growth over the past few years and provides us with a strong foundation to sustain future growth. We realize that the global economy is showing signs of slowing down. Certain markets, like automotive, are presently facing challenges. However, we have proven that we are able to achieve a higher sales growth rate in end markets compared to the market growth rate. In the automotive industry, for example, we achieved more than 5 % growth compared to the industry’s 3 % growth rate over the past three years.
For our manmade fibers business, we delivered record-breaking results in 2018 with the upturn of the filament equipment market. Realistically, this market cannot continue to deliver double-digit growth over the long term. Having said that, we have succeeded in evening out our top-line growth with an order pipeline that extends into 2021. Furthermore, we have shown that we have effective measures in place. During the trough periods of the last cycle, we never once delivered negative annual results and always had a positive cash flow. Additionally, we have built up other business areas in this segment. For instance, we launched an Industry 4.0 digital solution for the textile industry, and are excited to soon be able to offer customers a groundbreaking fully networked smart plant solution with extended features.
The innovation and execution across our business would not be possible without the hard work of our employees. The results from our employee engagement survey in 2017 were very encouraging and gave us valuable insights, which were used as the basis for our 2018 HR initiatives. We launched a leadership development program, High Potential in Horizons, and ran further high-performance team workshops to facilitate increased engagement and performance among employees. We also initiated a Culture Change Champion program to drive cultural transformation and build a more collaborative culture as ONE Oerlikon. We firmly see these actions as cornerstones to develop and motivate our talented team of employees.
As announced, we intend to broaden the industrial experience on the Board with the nomination of an additional independent member of the Board for election at the upcoming 2019 Annual General Meeting of Shareholders. Pending shareholders’ approval, the addition will increase the total number of independent Board members to four and expand strategic and operational experience on the Board to support our growth.
To conclude, I would like to personally thank our employees, our management team and my colleagues on the Board of Directors for their hard work and commitment. I would also like to express my gratitude to our partners and customers for their confidence in our solutions and technologies. And to you, our shareholders, I thank you for your unwavering support and am pleased to announce that the Board will be proposing to issue a dividend payout of CHF 1.00 per share, comprising an ordinary dividend consistent with the previous year of CHF 0.35 and an extraordinary dividend of CHF 0.65 as a share of proceeds from the sale of the drive systems business.
March 5, 2019
Prof. Dr. Michael Süss
Chairman of the Board of Directors