Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Carel Industries first half 2019 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr Francesco Nalini, CEO of Carel Industries. Please go ahead, sir.
Thank you. Good afternoon, and thank you for joining our call for the presentation of our first half 2019 results. As usual, I will start from page two with some highlights. Results in this first half confirm the continuation of our positive track record of growth thanks to the consistent execution of our strategic guidelines. In the second quarter, in particular, we saw, as expected, a significant acceleration in sales growth, profitability, as well as net working capital compared to Q1. That's despite an increasingly challenging market scenario, especially in Europe and Asia. Top line growth improved by approximately one percentage point compared to the first quarter, and that's both total and organic, fixed exchange rate and current exchange rate. Total revenues grew in this first half by 20.3%, up from 19.5% in the first quarter.
We have a growth in all geographic regions, also organically, where organic growth is 7.3%, up from 6.4% in the first quarter. We have EUR 18.1 million of positive contribution from the consolidation of HygroMatik and Recuperator that were not present in the perimeter in the first half of 2018. The performance of the two entities is very positive. The integration plan is going on very smoothly, and they are absolutely in line with the respective business plans. They report a combined top-line growth in the high single-digit range, which is a significant acceleration compared to their past performance as standalone entities, demonstrating that we are creating value with these two transactions already. EBITDA adjusted for the non-recurring items, which were mainly IPO related in 2018 and mainly M&A related in 2019, is 20.5% of sales, up from 20% in the first quarter of this year.
EBITDA reported is 20.2%. The net financial position increases by EUR 16.9 million, that's almost entirely due to the adoption of the IFRS 16 principle, without which the financial position would have been basically stable. We have a significant improvement in net working capital. The cash absorbed by net working capital is half what it was during Q1, that's also thanks to the execution of the stock reduction plan that we have in place after the resolution of the raw material shortages that we experienced last year. The production footprint expansion roadmap that started last year is almost over. The new Chinese plant has been fully relocated and is now fully operating, as well as the U.S. plant expansion, which helped us overcome the logistic bottlenecks that we experienced during Q1 in North America.
Also, the geographic expansion of our sales footprint remains a strategic priority to have a better direct control of the market. Consistently, in January, we opened a sales branch in Ukraine to better cover the Eastern European territory managed by our Polish subsidiary. Finally, the go-to market phase for the digital services for food retail is proceeding in line with expectations. Moving to page three with some economic figures. We can see on the top left, as I said, total revenues grew by 20.3% or 19.3% net of the foreign exchange, up from 18.4% in the first quarter. Looking at the revenue bridge, we can see that we have EUR 9.7 million of positive contribution to sales coming from the core business organic. We have EUR 1.4 million coming from the foreign exchange, and we lose EUR 1 million for the expected decrease of the non-core, which is continuing.
Organic growth is 7.3%. The organic growth of the core business would have been almost one percentage point higher at 8.2% without the decline in the non-core. We have EUR 18.1 million coming from the consolidation of HygroMatik and Recuperator, arriving at EUR 166.9 million revenues in this first half. EBITDA is up 39.4% to EUR 33.7 million. Adjusting for the non-recurring items, as I was mentioning before, EBITDA is up by 17.1% to EUR 34.2 million. We have here EUR 3.9 million coming from the consolidation of the two entities, as well as EUR 2 million coming from the IFRS 16 adoption. EBITDA adjusted on revenues is 20.5% on sales, which is lower than the first half of last year, but higher with respect to the 19.6% we had in the Q1.
If we adjust for the IFRS 16 principle, EBITDA adjusted on sales would be 19.3% of sales, which is basically in line with the 19.7% we reported at the end of last year. We have to say that on EBITDA, we also discount EUR 800,000 of recurring costs from the IPO, which were not present in the first half of last year, and also EUR 400,000 of additional costs related to the U.S.-China duties. Of course, we have actions in place to mitigate the duties. We are moving our production for the U.S. out of China into other regions, including the U.S. themselves, thanks to the plant expansion to mitigate this effect. Therefore, we expect it to be lower in the future. Net profit is up by 21.7% to EUR 19 million.
Adjusting for the non-recurring costs, it will be basically in line with last year, and that's despite higher financial charges and a higher tax rate, which is at approximately 23%, in line with our expectations, and that we will comment in a few minutes. CapEx are up by 54.9% at EUR 11.2 million, basically related to the footprint expansion, which is now almost over. That went and is almost finished according to our plans. Moving to page four, we have the revenue breakdown. On the left, we have the breakdown by region. We can see that all geographic areas report a growth net of the foreign exchange, which is, in our opinion, a very good result considering the increasingly challenging and uncertain conditions of the market in several parts of the world.
EMEA grows by 22.1% net of Forex, which is basically in line with the first quarter, even taking out the contribution of HygroMatik and Recuperator that mainly insist on this region. APAC is up by 8.3% net of Forex, which is a deceleration compared to the first quarter, but in our opinion, is a good result considering the market situation there, which is increasingly difficult, especially in China. We have a number of strategic actions in place to improve our growth rate in the region for the medium term. North America has a strong acceleration in sales growth to 20.3% net of Forex, and that's also thanks to the overcoming of the logistic bottlenecks we experienced during the first quarter, thanks to the plant expansion. Latin America grows by 2.8% net of Forex, a slight deceleration compared to the first quarter.
Here we have a very good growth in Brazil, double digits. We have the strong negative effects of the economic situation in the rest of the region, especially Argentina. To the right, we can see the breakdown by sector. HVAC grows 28.1% net of effects, with an acceleration compared to the first quarter, also considering the contribution of HygroMatik and Recuperator. That's thanks to our strategy of cross-selling and geographical expansion. Refrigeration grows 7.4% net of Forex. We have the loss of EUR 1 million due to the expected decline of the non-core, as we said before. I now leave the word to Giuseppe on page five to comment the items below the EBITDA.
Thank you, Francesco. At page five, you can go through the lines below the EBITDA, starting with the depreciation amortization, showing an increase from EUR 4.1 to EUR 8.1. The increase is mainly due to the enlargement of the consolidation perimeter that accounts for about EUR 1.3 million, the adoption of the IFRS system that account for about EUR 2 million, and the remaining for higher CapEx incurred during the period. With reference to the financial charges and income, they are affected by the higher interest expenses linked to the new loans, mainly activated for financing the M&A of last year, and also by the absence of the financial income of the last year life insurance policies that has been sold. At the end, the line of the taxes that show an increase of our tax rate as anticipated from 20.5% to 22.9%, mainly for three reasons.
The first one is that we have anticipated the distribution of dividends from China in the first half, where instead last year it was in the second half. We also have a higher tax rate in the Italian parent company, that starting from 1st January 2019 is considered a holding company, and so is affected by a higher regional income tax. Thirdly, by a prudential accrual that we have done in the Chinese subsidiary, where we are pending for the renewal of the ruling that is expired at the end of last year. Here we expect to get the approval by year-end. In case of positive answer, we will account a benefit retroactively. Now we can go to page six, where we show the bridge of the net financial position, where we close the end of the period at EUR 76.1 million.
That has been affected by EUR 14.7 by the adoption of IFRS 16. Without which, the net financial position would have been at EUR 61.4, almost in line with the financial position at the end of last year. During the period, we have distributed dividend for EUR 10.1 million. We have purchased back shares for more than EUR 1 million. Also we have generated free cash flow cash of EUR 9 million. That includes capital expenditure for EUR 11.2 million and the increase of net working capital for EUR 5.9 million. As already anticipated, regarding the net working capital, we have significantly increased the performance, reducing the absorption of cash that was in the first quarter more than EUR 11 million. This is thanks to the improvement in the inventory and also to the decrease in tax credits. Hand back to Francesco for the final remarks.
Thank you. Moving to page seven, to summarize, we saw in the second quarter a significant improvement in top-line growth, profitability, as well as net working capital compared to the first quarter, even in presence of an increasingly challenging market scenario, especially in Asia and Europe, and the enduring of very difficult conditions in Latin America. This is a demonstration of the resilience of our business model, as well as of the validity of the strategic guidelines that we consistently execute. The integration process of HygroMatik and Recuperator is proceeding very smoothly. The results are fully in line with the respective business plans, and the performance is way better what it was in the period they had as standalone units, meaning that we're already creating value with these transactions. The footprint expansion plan launched last year is substantially over.
The new Chinese plant is fully operating, as well as the U.S. plant expansion. We're just now adding the final assembly lines to China and to Croatia. Finally, we confirmed the improvement in the inventory trend that we are executing after the resolution of the raw material shortages situation. As closing remarks, we can observe that there is an increasing volatility in the market, especially in Europe and China, and a difficult political situation in Latin America. This suggests us a prudential stance in elaborating medium-term forecast. Without a significant further deterioration in the global macroeconomic scenario, we can expect for the full year to keep a top-line growth as well as profitability close to what we have achieved in this first half. Thank you very much for your attention. Now we are more than happy to answer to all of your questions.
Excuse me. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and One on their touchtone telephone. To remove yourself from the question queue, please press Star and Two. Please pick up the receiver when asking questions. Anyone who has a question may press Star and One at this time. We will pause for a moment as callers join the queue. The first question is from Alessandro Tortora of Mediobanca. Please go ahead.
Yes. Good evening to everybody. I have two questions, if I may. The first one relates to the outlook, okay, short term and also medium-term outlook that you pictured before. Can you, let's say, give us some details, focusing first of all on the short term for the outlook for the second part of the year? We saw in the first half and about in the second quarter a strong acceleration in North America. While if we take out the contribution of the two acquisitions in Europe, Western Europe should have grown, let's say, by three, 4%. If you can better explain what are the reasons behind this slowdown in Europe, and also if you consider sustainable the acceleration we observe in the U.S. in this first half. Thanks.
Thank you for the question. In the short term, we are observing in the market in general, higher uncertainty and volatility. We observe this in Europe, where in general, industrial investment is, as everybody knows, more uncertain. This leads the market to be more cautious with investments. We're observing that also in Asia, especially in China, because there is the trade war, which is of course an effect, and is leading to, again, more volatility and more cautiousness on the market. Just a comment on the trade war, then I come to your questions. The trade war, basically, in China, could affect us in basically three ways. The first one is the direct cost of the duties. Here, since last month, we are putting in place the adjustment of the supply chain, so we are mitigating the effect even more than we have done so far.
The effect has been relatively small, in fact. The second effect is a movement on the Chinese market, more towards the internal market out from the export, concerning Chinese manufacturers. We are adjusting to this by strengthening our innovation capabilities in China to develop products more effectively tailored at the local market, and we are executing that now. The third effect is a general, again, uncertainty and possible slowdown in the Chinese market. That, of course, we will counterattack with an increase in the market share, which is still pretty low there. Having said this is basically the situation in Asia. The situation in Asia is such that the actions we're taking make us confident for the medium term, even if, for the short term, there is uncertainty on the performance. Concerning North America, the outlook remains very positive.
The performance in the second quarter was particularly positive due to the resolution of the bottlenecks and the backlog we had in Q1. We expect for the coming quarters, a good performance in North America, we stay positive on the market, probably not at the same level that we had in this second quarter. Concerning Europe, even taking out HygroMatik and Recuperator, the growth in the region has been basically stable compared to the first quarter. Here, we saw, in particular in Europe, refrigeration is more affected. Refrigeration is going very well outside Europe, with a very good growth. It has decelerated a bit in Europe, that's due to a particularly good year last year. Since refrigeration is less OEM-based and more project-based, there could be fluctuations in the individual periods in the market.
In any case, all the underlying trends that fuel our growth in refrigeration, which is the F-gas Regulation for refrigerant, the pursuit for higher efficiency, and so on, they still are there, so we are very confident for the medium term. The situation for the very short term in Europe is, again, uncertain. Overall, the stance that we take is overall that we proceed to maintain the same level of growth, or a level of growth which is close to the one we achieved in the first half, and the same for profitability.
Okay. The second question was on, let's say, the statement related to the medium term. Clearly, when you mention, let's say, a prudential stance, do you consider, let's say, it is around the 7% organic growth you are going to get according to your target this year as a sort of sustainable level, or as you stated, you see some risk that could put at risk also this 7% level?
Well, let's say for the medium term, since all our underlying assumptions in terms of market growth and our outperformance of the market are untouched, we confirm a high single digit for organic growth in the medium term. We have no reason to change our view for the medium term. We have only, of course, more uncertainty, like regarding this moment, for the short term.
Okay, thanks.
The next question is from William Turner of Goldman Sachs. Please go ahead.
Hi there. My first question is on the CapEx outlook for the remainder of the year and for next year. Given that you've almost completed the footprint expansion in China and the U.S., can we expect it to start coming down in the second half? What's the expectations for 2020?
Okay. Thank you. Yes, the footprint expansion is almost over. However, there are still several expenses we need to accrue in the second half. More or less, we confirm our forecast for this year, as well as we confirm the expectation for next year at approximately more or less in the EUR 15 million CapEx.
Okay, great. My second question is a follow-up on one of the previous ones that you had, and that was your mentioning in China that you could shift towards focusing more on the internal market rather than probably the exporters which are based in China. When you look at your sales currently to the country, how much of it is going towards companies which export from China versus those that sell internally? How does the competitive dynamics differ between those export-oriented Chinese customers and the internal ones?
Okay. We don't have a precise figure for sales for the export market as well as for the internal market. Let's say that a very general difference between the export market and the internal market is that the internal market, at least at this stage, has probably, on average, less sophisticated figures, but higher volumes. In any case, also the internal market is moving up in terms of feature and is increasingly attentive to efficiency and sustainability. We expect the internal market to be more and more sensitive to, let's say, the competitive advantage that we have with our offering. At the same time, we are improving our production capability and competitiveness, thanks also to the footprint expansion, but also our innovation capabilities to adjust the offering to the internal market.
Additional strategies that we are pursuing right now in China is to have a more direct access to end users, like we are doing successfully in Europe, especially in refrigeration. We are now targeting more end users in order to basically promote the advantages of our technology, also to end users in the internal market. That's the basic strategy together with product innovation that we will follow to cover better the internal market, which has the advantage of having much better volumes than the export market in our niches.
Great. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is a follow-up from Alessandro Tortora of Mediobanca. Please go ahead.
Yes. Two very, let's say, quick follow-up. The first one is, given that we are discussing about all the measure in order to recover and to release growth in, let's say, China, I saw that you collapsed the difference between South APAC, North APAC. Can you tell us, sorry, the performance, just an indication of China organically speaking in this first half in terms of sales? The second question is on the net working capital on sales. We saw a good, let's say, release, in terms of net working capital in this second quarter. If I remember well, in the last conference call, you were targeting a net working capital on sales level below 19%. Is it confirmed for the full year? Thanks.
Okay. Let's say South Asia Pacific is having, in this moment, a better performance than North Asia Pacific. We have a double-digit growth in South Asia Pacific, and we have slightly more than 5% in North Asia Pacific. We're talking fixed exchange rate, because with current exchange rates, growth would be higher. Fixed exchange rate, we have double digit in the South and slightly more than 5 in the North.
Okay.
Concerning the working capital, yes, we confirm the target of being below 20% this year. Sorry, 19% this year.
Okay. Thanks.
Once again, if you wish to ask a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. Gentlemen, there are no more questions registered at this time.
Okay. Thank you so much for your attention and for your questions. Speak to you again for the third quarter 2019 results. Thanks. Bye.