Good afternoon, everybody. Thanks for joining our first half 2018 conference call. Since this is our first call and we are a newbie on the market, I would like to recap some key elements of our background and of our group. I am moving to page four. As you know, the space where we operate is air conditioning and refrigeration, which is a space with very strong secular growth trends all over the world. Trends that will continue for many years, especially in developing countries, for the development of the wellness of people, for the cold chain, and for industrial applications. This is also a sector with a growing concern about its environmental sustainability globally, especially for two reasons. The first is the fact that according to many estimates, air conditioning and refrigeration account for around 17% of the overall electricity consumption.
The second reason is the direct effect of the refrigerants, which are still widely used worldwide, the so-called HFCs and others, that are very harmful for the greenhouse effect, much more harmful actually, than CO2 itself. This is exactly what we do. The technology that we provide and the innovation that we provide helps, on the one end, to dramatically increase the energy efficiency of units, and on the other hand, to help our clients in the transition to the new refrigerants. We also continuously try to move the trade-off between energy efficiency and the new refrigerants. Since often, for example, the natural refrigerants tend to have a lower efficiency than the traditional ones. We are arguably in the highest value-added part of the value chain, since we do the brain, the control of the units, and our systems are used in the mass production of OEMs, typically.
We are focused on innovation. We have in excess of 200 R&D engineers, over three R&D centers in Italy, China, and the U.S., and we typically invest around 6% of revenues in R&D. We are global. More than half of us work outside Italy. We have fully owned production plants in Italy, Croatia, China, U.S., and Brazil, and 21 direct sales subsidiaries all over the world that are a key asset for us. I am now moving to page five, where we can see the map of our applications. We do not work on mass market applications, but on some selected very attractive niches, in particular, commercial and industrial in HVAC, and also residential, as far as high efficiency heat pumps are concerned, and refrigeration with food, retail, and food service. I remind that we have a leadership position in HVAC, whereas our market share in refrigeration is lower.
In fact, in refrigeration, we are growing significantly more than HVAC since we are continuing to increase our market share. I am then moving to page six, where we can see the map of our product platforms. We do not provide individual components, but integrated systems. Since more and more to achieve the desired levels of energy efficiency, it is important to have an entire system, and in effect, cross-selling is a big opportunity of growth for us, and this is what is happening. Our systems are deeply embedded in the design of the units of our customers, and for this reason, we have very long-standing relationships with our clients. Going on to page seven, we have a very long and consistent track record of growth in revenues, profits, and cash generation.
This is almost entirely organic, since we only did some small acquisitions of distributors in the past to expand our sales footprint. Especially the biggest one was our Polish distributor, in June last year. We can also see our continuous roadmap of international expansion. I'm moving to page eight, where I would like, before moving to the results, to recap the key elements of our strategy. The core of our strategy moving forward is the continuation of our organic growth. Since we believe that we have plenty of room for expansion left with organic growth. In HVAC, we are consolidating our leadership, and in refrigeration, we are increasing our market share, and refrigeration is in effect the engine of growth. In both markets, we are executing cross-selling and international expansion.
We're also in the process of executing an international expansion of our manufacturing footprint, especially in the U.S., Croatia, and China. This is mainly for five reasons. The first is to expand and prepare the capacity for the next years. The second is to make our supply chain more robust and resilient. The third is to leverage efficiency, labor cost opportunities. The fourth is to achieve a better natural hedging, and finally, to have a better degree of hedging against the duties. Thank you for your attention so far. I'm moving on to page 10 with some achievements so far in 2019. In May, one of our latest innovations, the Heez control system, which is aimed at bottle coolers, so it's retail food service, was awarded in the U.S. the Top Product of the Year by Environment+Energy Leader, which is a news organization aimed at energy managers.
This is a particularly important recognition, since Environment+Energy Leader is not working in our sector, but it's a general energy management news organization. I remind that this innovation provides a 50% energy saving compared to the best-in-class existing solutions, and this is third-party certified, and at the same time enables the use of a natural refrigerant, propane in this case. This is a perfect example of the kind of technology that we provide to make the industry more sustainable. In June, as you know, we did our IPO, that so far has been the only one in Italy on the main market of Borsa Italiana. We have acquired a residual 51% stake in Carel Japan, our sales subsidiary there. Also, in line with the execution of our footprint expansion plan, we deployed the first full line of programmable controllers in the United States.
In July and August, we continued our international expansion by opening a branch office in Morocco for North Africa and especially in Singapore. The Singapore office is particularly important because we believe that Southeast Asia is an area where we still need to develop our sales footprint. In August, we did the groundbreaking of our new plant in China, which will be three times larger than the current one, and where we will move our first production lines in Q1 2019. Moving on to page 11, some figures. The results are positive and absolutely in line with our expectations. Revenues were up by 9.1% or 12.1% net of the FX impact. We also increased the adjusted profitability, both at an EBITDA level and then at the net profit level, adjusted for the non-recurring costs of the IPO.
This is thanks to operating improvement, as we will see. The footprint expansion roadmap is on track. I already mentioned some examples, and this led to 100% increase in CapEx in first half, which is exactly what we had expected, especially for this footprint expansion. Finally, we are continuing with our international expansion, especially, as I mentioned, in Southeast Asia, which is a key area of development, together with the Americas. Moving on to page 12, some more detail on the results. Revenues were up by 9.1% or 12.1% adjusted for the effects. The contribution of air conditioning and refrigeration in absolute terms is more or less the same, which means that refrigeration in percentage terms grew significantly more than air conditioning, which is according to a strategy of increasing the market share in refrigeration, since I remind you that refrigeration accounts for one third of the turnover.
In terms of the EBITDA, it went down by 8.4%, and that is entirely due to the non-recurring IPO costs. If you adjust for those, EBITDA was up by 10.6%. Looking at the bridge, EBITDA first half was EUR 26.4 million. We have EUR 3.1 million of organic growth. This is due to the top line organic growth as well as operating improvements. In particular, personnel, SG&A costs, grew less than sales, and this is due to a scale effect, especially for the sales footprint, which is the biggest part of our SG&A cost base, and a big part of that has already been deployed, so we expect that to grow in the future less than in the past, and this is exactly what is happening. Besides for some specific areas that I already mentioned.
In terms of cost of goods sold, the percentage, incidence of cost of goods sold remained pretty stable compared to first half 2017, and that's a very good result since we were able, with efficiency gains, to offset the increasing costs related to the footprint expansion. We have, looking at the bridge again, half a million coming from the business combination with the Polish distributor acquired in June last year. We lost EUR 800,000 of FX impact at the EBITDA level, and we arrive at an adjusted EBITDA of EUR 29.2 million. We have EUR 5 million of non-recurring IPO costs, and we arrive at a reported EBITDA of EUR 24.2 million. Looking at net profit, net profit was down by 7.6% reported. Again, this is entirely due to the non-recurring costs.
Net profit adjusted was up by 14.3%, and this is again due to the organic growth, the operating improvement, and also to a significantly lower tax rate that Mr. Viscovich will explain in more detail in a few minutes. CapEx have increased by 100%, up to EUR 7.2 million from EUR 3.6 million. This is exactly in line with our expectations, and is due to the footprint expansion. Talking about the footprint expansion, I would like to mention that the board, this morning, approved the expansion project for the U.S. plant that will start immediately in order to be active during first half 2019. I'm now moving to page 13. More detail, a higher level of detail on the top line. If you look with constant FX, all of the regions grew besides Southeast Asia.
We had an especially good result in Western Europe, despite our very high market share there. This is mainly due to the cross-selling of high efficiency components. We also had a very good result in Eastern Europe and Middle East, even accounting for the integration of the Polish distributor, because we had 30.7% with integration. Without integration, it would have been, in any case, more than 14% growth. Very good result in Eastern Europe and Middle East, and this is the result of some organizational changes that we did in the region, on the commercial organization in the last few months. In North America, we grew by 3.3%, which is less than our expectation. This is mainly due to a delay in the order pipeline by some very big OEMs there, that for specific and temporary reasons, delayed orders in first half.
Since these reasons are temporary, we expect an improvement in second half. In South America, we grew by 0.8%, again, below our expectations. This is mainly due to the situation in Brazil, the economic situation, as well as a big strike that happened there during first half. In the rest of Latin America, a big part of the business is bottle cooler manufacturers, and there, again, we had some temporary delays in the order pipeline. We expect that to improve in second half. This is something that, if you go at the regional level, happens in our business, where you can have, for specific reasons, some big customers that are in advance or in delay with their order pipeline, so that can provide for fluctuations at the local level.
If we go to Southeast Asia, we went down by 2.9%, and that is somewhat disappointing. That is mainly due to the under-development of the sales network, which did not lead to the execution that we would like. We took a number of steps here, so we opened a branch in Singapore. We introduced, very recently, some senior sales figures. We expect an improvement. In North Asia Pacific, we grew by 6.8%. This is despite the fact that there were big jobs in first half 2017 that did not repeat in first half 2018, so we managed to gain market share as well. However, we have a strong order pipeline for second half, so again, we expect an improvement. Overall, we expect an improvement in second half on all the regions.
Possibly not in Europe, where we will grow, possibly not as much as in first half, especially in Eastern Europe, due to the geopolitical situation. Overall, we expect revenues to continue in second half in line with the first half. If you look by sector, it's more meaningful to look at the results with the same effects. Also here, HVAC grew by 10.6%, which is a very good result. It grew in all the regions. This is especially due to the cross-selling of high efficiency components. This is the result of our strategy, which is paying off. Refrigeration grew by 18.7%. Refrigeration, we confirmed the strong growth in market share. We are also executing very strongly the strategy of direct access to end users, so supermarket chains. This is also paying off handsomely.
This is in line with the results that we expect from our strategy. Refrigeration performed particularly well in Europe. I would now like to leave the speech to Giuseppe Viscovich for page 14.
Thank you, Francesco. Good afternoon, everybody. I'm going to comment, at page 14, the lines between the EBITDA and the net profit. As you can see, depreciation and amortization increased. This is mainly due to the expansion in our footprint project, especially in Croatia, Italy, and U.S. Concerning the financial lines, you will notice the decrease in the financial income. This is due to the termination of some life insurance policies for approximately EUR 35 million. Concerning, instead, the companies consolidated with the equity method, this refers to an equity stake held by the Polish distributor that we fully control. With reference to the taxes, as was mentioned by Francesco, we close the period with a tax rate average of 20.5% against 24.5% over the same period last year. The improvement is due to a lower tax rate in U.S.
We also benefit from a certain tax incentive in Italy. We also benefit from the absence of distribution of dividends from the Chinese subsidiary that we foresee to have in the second half of the year. For this reason, we won't keep the same level of the tax rate of the first semester for the full year, but still, we foresee to have a slight improvement in the tax rate at annual basis compared with last year that, I'd like to remember, it was 25.6%. Going to the next slide, where we show the bridge of our net financial position, that I'd like to remember, it was positive of EUR 40 million at the end of 2017. We close the first semester with a positive financial position of EUR 15.2 after the allocation of the dividend distribution of EUR 30 million, and also by generation of free cash flow of EUR 5 million.
The EUR 5 million free cash flow is detailed with more than EUR 20 million generated by the operating, an absorption of cash of EUR 8.5 million due to the net working capital, especially affected by the increase in the inventory level that is mainly due to the purchase policies related to the shortages of the electronic components that we had in the period and also due to the expansion in the industrial footprint that was mentioned before. In addition, in the period, we also had EUR 7.2 million of CapEx. With reference to the cash conversion, in the last 12 months, calculating the index in a rolling method, it has a result of 18.8% compared with 79% of last year. We won't foresee to keep the same level for the full year.
This is mainly due to the cash absorption that we foresee due to the increase in the CapEx, especially in the second semester, and also due to the inventory that we foresee will keep this trend of increase. After this, I will give back the speech to Francesco for the latter remarks.
Thank you, Giuseppe. I'm on page 16 now for the closing remarks. We are in a very supportive scenario since the industry has a strong growth trend, secular growth trend, that will continue for a long time, and we also have the big tailwind of the innovation related to making the industry more sustainable. We continue to have revenues that grow significantly better than the market, though, especially due to innovation, cross-selling, and international expansion. Our footprint expansion project is on track in terms of execution, and we are continuing also our international expansion. For these reasons, we expect the growth in the top line experienced in the first half to continue also in the second half of the year. As far as adjusted profitability is concerned, at an EBITDA level, we expect that more or less to revert to the levels of last year.
This is normal because for us, the second half of the year typically has a decrease in profitability for some seasonal factors. We consider that to close at the end of more or less in line with last year, a very good result, since this means that we will be able to absorb with efficiency the increase in SG&A related to the recurring IPO costs, the exchange rate, as well as the footprint expansion costs. Thank you very much for your attention. We will now be more than happy to answer to all of your questions.
Excuse me. This is the conference 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 touch-tone 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, please press star and one at this time. The first question is from Alessandro Tortora with Mediobanca. Please go ahead, sir.
Yes. Good afternoon, everybody. I have four questions, if I may. The first one is related to the CapEx expansion in the U.S. If you can give us more detail on each component you are going to produce in the U.S. with this investment. The second question is on the trend and the management of the working capital. If you can give us an idea if this level of 20% on sales of working capital is something that, at least for this year, will be there and stable given the shortage you mentioned before in the semiconductors. The third question is on China. If you can share with us now looking for the Chinese market for you, and also specific outlook for heat pumps, if it is a product in which you see good potential.
The last question is on the joint ventures. I'm referring to the Japanese one you reported but also to the Polish. If you can give us an idea of the contribution of the Japanese joint venture, but also the contribution of the Polish joint venture in this part.
Okay. Thank you very much for the questions. I will start from China. If I understood correctly, the question that refers to the market trend there. The market trend is definitely positive in general because there is a growing expectation for higher efficiency in China, so it's very positive. One example is the so-called coal to electricity roadmap from the Chinese government for the switch of the heating of cities from coal to electricity. These are jobs that, for example, we had in 2017 and did not repeat in first half. They were more than compensated by market share gains as well. However, we already have an order pipeline of such projects for second half. This is the reason why we expect an improvement. There are also very good results in refrigeration in China, since they are developing the cold chain and they are opening supermarkets there.
We're also getting good results there, and we'll have even better results in second half. Concerning the joint ventures, the contribution of Carel Japan is very limited because that is a very small subsidiary so far, so it's not really material. Concerning the contribution of Alfaco as well as the other two questions, I leave now to Giuseppe.
Regarding the capital expenditure, you ask to have a little bit more detail on the capital expenditure. We globally had EUR 7.2 million CapEx, out of which EUR 1.5 million were due to intangible assets, that are mainly represented for almost EUR 1 million from the capitalization of development costs. With reference that with the tangible assets, here we have EUR 5.7 million of investments, mainly driven by EUR 1 million due to the acquisition of the land in China. We have more than EUR 1 million invested in the industrial equipment in Croatia, more than EUR 1 million invested for the same reason in U.S., coherent with the industrial project, and also more than EUR 1.5 million invested in industrial equipment in the headquarter here in Italy. Regarding the working capital projection, let's say that last year we closed our working capital with around 18% on the revenues.
We won't be able to keep the same level at the end of this year, we foresee that the working capital on sales will be most likely close to 20% of our revenues. With reference to the contribution of the Polish distributor that was fully acquired, in term of impact on the revenues, let's say, this did in the period a contribution of about EUR 2.9 million additional revenues compared with the previous period. In term of contribution to the EBITDA, almost EUR 0.5 million of positive contribution to the EBITDA. The Japanese distributor, instead, is not so material in term of revenues. It is, in a yearly basis, actually a distributor of almost half million EUR turnover, let's say, in term of sales.
Just, if I may, maybe two quick follow-up. The first one on the M&A strategy. If you see any opportunities in the short term, and if yes, which application, let's say, you are monitoring the market. The last final question is on Cash Flow, if you think you have a [inaudible] which level.
Sorry, we could not hear you so well. Could you please repeat the questions? Thank you.
Okay. On the M&A side, if you can, let's say, give us any idea if you are still on the market monitoring opportunities on the M&A side, if yes, in which application you see opportunity on the M&A side. The last final question was on the tax rate. If you can let us give us a more precise idea or indication on the tax rate level for this year. Thanks.
Okay. Thank you for the questions. Speaking about M&As, yes, absolutely, we are on the market. We confirm that we have an active pipeline there. Where we're looking, we're looking into, first of all, complementary components, so components that complement our system. We're looking also into possible competitors for accelerating the market share expansion geographically. Also we're looking into services, since one of our strategies is developing services. I thank you especially for the question, because it gives me the opportunity to remind, that probably I forgot to mention before, that on our strategies as add-ons, we have, and we confirm that, the development of services, which are currently pretty negligible, as well as add-on M&As. This is absolutely confirmed, and we are very much working on this. Concerning the tax rate, Giuseppe?
Yeah. Concerning the tax rate, the huge increase in improvement we had the first semester compared with last year, won't be kept till the end of the year because, we foresee to have a dividend distribution from our Chinese subsidiary that will increase a bit the level of tax rate. We foresee that we can do better compared with the tax rate of last year, that I remember it was 25.6%. We foresee that it could be close to 23%, 22.5%.
Okay, thanks. Very clear.
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Okay. Thank you very much for your attention and for your questions. We will meet again on the next call. Thank you very much. Good afternoon, everybody.