Good day, and welcome to the NKT Q2 report 2017 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Hedegaard Lyng, Group Executive Director. Please go ahead, sir.
Thank you, and good morning, and welcome to the last webcast in the current holding company structure. We are here to cover the results for the second quarter of 2017 that we released this morning in the form of a Q2 report for NKT, and also a separate Q2 report for Nilfisk. If we move to slide number three, then my name is Michael Lyng, President and CEO in NKT, and together with me here today, I have Basil Garabet, CEO of NKT Photonics. I am also very pleased to welcome Hans Henrik Lund, our new CEO in Nilfisk, that hit the road running here when he officially joined beginning of this month after having spent significant time in Nilfisk since he was announced as the new CEO back in the spring. Let's look at the agenda on page number four.
I will start with a short presentation on where we are on the split, preparing the split of the company. We will continue with some overall performance comments for the total group before I make a deep dive into the cables business. After that, Hans Henrik and Basil will do the same for their businesses before we then jointly will do a Q&A session in the end. On slide number five, you have seen this slide before, just the reasoning and the plan for the intended split. It is very unchanged, so I will not repeat all the messages on this slide here. We already, as you know, changed the name of NKT Holding into NKT, so that is fully executed, and all other preparations is also progressing according to plan.
That also means that we no longer operate in the holding governance structure, and that all former holding functions has been replaced and allocated to similar structures in NKT and Nilfisk. If we move to slide number six. This slide, here you will find the detailed timeline for the intended split of NKT, which in the big picture is unchanged compared to what we indicated to you when we announced it in our 2016 reports. But now we are able to give you some more specific dates. We start with a Capital Market Day to be held here in Copenhagen, and we also this morning announced a separate invitation for that. We will do that September 19th, and there we will cover NKT, including NKT Photonics, but also Nilfisk full-fledged business review, looking at industry outlook, target setting, et cetera, and we look very much forward to that.
Then after that, we will also call in for an external general meeting October 10th. That is required in order to get final approval from shareholders to do the split. Assuming that we will get that, we will be able to have the first day of trading for the two separate listed shares October 12th. We are still maintaining 15th of November as being the day where we will report third quarter announcement. The board will be pretty busy in connection with that, because we plan to do both the announcement of the interim report for Nilfisk at that day, but also for NKT. We will also be able to announce the so-called demerger statements that we expect to be able to do during September. In other words, that will be the prospectus life document with a lot of detailed information about Nilfisk.
No more on that, so let's move into the highlights for Q2 on page number eight. Starting with NKT, we are very satisfied with the result that we have been able to report to you. It's a good quarter with solid performance and solid project execution, both in the Karlskrona business but also in the former Cologne business. We report a revenue of EUR 88 million, equivalent to an organic growth of 8%.
Operational EBITDA of EUR 42.9 million, so margin is significantly up in the quarter. We report almost 15% in the quarter, up from 10.8% last year. Integration of the ABB business is fully according to plan, and everything around the investment have somehow been finalized. We also, during the quarter, completed the divestment of the automotive business that was completed end of April. So it is still in the numbers with one month. Sorry, two months.
One month, sorry. Then last but not least, we also took over the delivery of NKT Victoria, and she did her first installation job during the summer, also contributing to the positive organic growth and EBITDA margin development. There was a lot of positive surprises during that installation, and in general, it fully confirms her capabilities. If we look at NKT Photonics, they also report a solid organic growth of 26%. We start to see positive earnings up compared to last year. We also, during the quarter, announced a very important acquisition of Onefive, that Basil will elaborate more on during his presentation. In Nilfisk, we reported a good organic growth of 2%. If you dig a little bit into the numbers, you are able to see that Europe did also a 2%.
Then we are very satisfied with the development we saw in U.S. with a strong 6% beating competition, and in particular, strong development within national accounts. We also, in the quarter, saw a good, strong development in gross profit and EBITDA margin in the end are up from 11.8% second quarter last year to now 12.8%. The Accelerate program is progressing according to plan. Again, I would like to welcome you, Hans Henrik, and you will be able to elaborate a little bit more on the numbers during your presentation. If we move on to slide number nine, it's pretty easy here because we are maintaining the outlook for 2017 in all different aspects. So NKT consolidated revenue of EUR 1.1 billion, including the acquisition of ABB, and we report here an operational EBITDA of around EUR 140 million.
NKT Photonics organic growth of around 10% with an EBITDA margin of 15%. In Nilfisk, we are also maintaining our view of organic growth between 2%-4% with an EBITDA margin between 11% and 11.5%. If we move on to a busy slide here with a lot of numbers. If we somehow try to focus on the blue boxes, then if we look at the composition of the revenue increase of EUR 128.3 million, then we can start to look at Nilfisk and the DOC to 3.5. Then we are back to the remaining part of NKT, which is NKT and Photonics. Here we have a positive contribution from increased mixing prices of EUR 34 million. We have slightly negative impact of EUR 3 million from FX.
Then, of course, we have the positive impact from the acquired business from ABB of EUR 88 million, being partly offset with EUR 18 million relating to automotive, but also to the divestment of the China business that we also finalized last year. Adjusting for those elements, we are back to the EUR 24 million, which is similar to the organic growth, and you can then divide that up between NKT and NKT Photonics as illustrated here. If we continue with digesting the development of the EBITDA and the composition of that, then we are looking at an increase of altogether EUR 26.6 million. Out of that, Nilfisk contribute positively with EUR 3.4 million. You can also see, as illustrated here and mentioned before, that the margins in the quarter is increasing from 11.8% to 12.8%, so a very nice improvement.
Adjusting for Nilfisk, we are down to the continuing operations here, operation EBITDA of EUR 23 million. Here we can look at also composition NKT. So the cable business are contributing positively with EUR 21.4 million margins in the quarter, up from 10.8% to almost 15%. Then also NKT Photonics, a positive contribution of EUR 1 million quarter-over-quarter. In the box number three, we are looking at the different elements of one-off. So the main part here relates to the integration cost of ABB and finalization of the acquisition, almost EUR 4 million. Then there are also costs related to the split of NKT of around EUR 1 million. An element of one-off cost also Nilfisk, related to the Accelerate program of EUR 2.1 million, and that's the main element of the one-offs of just below EUR 8 million.
Another element of this slide that is worth mentioning is the return on capital employed. So we are able to increase that from formerly 9.3%. So now we are reporting a return of 12.8%, which is fully in line with the expectations. If we move on to the cash flow slide. Also here, a busy slide with a lot of different numbers. It's more or less according to plan. So the number that I would like to highlight is the acquisition of businesses, the EUR 151.7 million. That is related to the takeover of NKT Victoria that we did back in April. So it is related to the acquisition of ABB, and you also see the full impact of that. Not only because there are also other elements, but the EUR 785.1 million that we have spent on acquiring different businesses in the first half.
If we move on to the debt development, partly also tying into the cash flow we just looked at, we of course see a jump. We already saw a jump in first quarter after having paid the majority of the ABB acquisition. Now we see the final jump, paying for the vessel. So we are having a debt level of EUR 742 million end of the second quarter, and that equals 2.6x operational EBITDA. So still at a level being, to some extent, lower than indicated when we announced the acquisition back in the fall of last year, where we were guiding you towards a level of around 3x debt to EBITDA. So a good and comfortable development in the debt level. With that, I have finalized the consolidated numbers for NKT, and I would like to move on into the cable part.
The first page here, picture of the vessel that was delivered in the beginning of May, second quarter, and some of you had the opportunity to be in Karlskrona during the christening of the vessel back in May. Looking at the different development in our business, also becoming a business slide here. All in all, we are reporting, as mentioned before, 8% organic growth for second quarter. That equals 1% organic growth for the first half. If you then look a little bit into the different segments, starting with the project business. We had a stellar performance here with 21% organic growth in the quarter. That was also fully expected and also needed in order to fulfill our full year guidance, and with a strong support here by the acquired business in ABB.
And of course, having the vessel now also means that we have a new area of production. The vessel has been fully busy during second quarter, installing a project up in Scotland to full satisfactory for both the customer but also for us. And that's, of course, also impacting the growth numbers here positively. First half year, we are at the 9%, and if you look into the different segments here illustrated by offshore and onshore, offshore continues to be a strong market. There is a lot of tendering activities that will fully support our business plan mid, long term. Also onshore DC market continues to be positive. There's good progress in the expected orders, for example, in Germany, but also other markets are taking off in this segment.
That doesn't change the fact that the traditional AC onshore market, in particular below 220 kV, remains extremely challenging, and I probably also have to say that we have seen a small worsening compared to what we have seen the previous quarters. So short term, that market remains challenging. A little longer term, we start to be more optimistic on the segment because it will also be positively impacted by the investments that we expect to see, for example, in the DC segment across Europe. Looking at the visibility, we can click on the next slide. On the product business, we are reporting a negative organic growth of 5%. This is the segment where we mainly are having the medium voltage and low voltage segment, but also our specialties.
It should not be a surprise to any of you that we are reporting negative growth because it is negatively impacted by a very strong second quarter, and in general, strong 2016, where we had positive impact from the so-called photo year in Germany, impacting in particular the medium voltage segments. There are markets here that are performing extremely well, but there are also some markets that are remaining challenging. In general, I can say that the more north we move in Europe, the better the markets, and vice versa if you move south. Sweden, for example, continues to be strong, whereas Poland continues to be pretty challenging, in particular in the medium voltage segments. Accessory business, although it is a smaller segment, we are extremely positive around. We see a lot of growth opportunities.
We also launched a number of new products, both onshore and offshore, that have been welcomed by the customers to a large success. If you look a little bit on the backlog here on slide 15, you can see the composition. It is just above EUR 1 billion end of June 2017, and you can also here see the split, what we expect to consume in 2017, and what we expect to be able to produce and deliver in the years ahead of us. We also mentioned all the different projects. We still look at the Borssele Beta as being a potential order that will impact fourth quarter and 2018 and also moving into 2019. This is the project where the customer have an option to execute the project, but that requires financial close.
We can also communicate here that that has been achieved by the customer, so we are actually waiting for the customer to finalize the order. If you look a little bit on 2018, the name of the game here is to get more visibility. We need to have more orders, in particular in the Karlskrona business, the former ABB business, in order to have a solid 2018 compared to 2017. This is, of course, a key focus area for us and a key challenge. There are some projects in the market today that can still impact 2018 positively, but I also have to admit that it is not a lot of orders being out there. Looking at the years ahead of that, so 2019, 2020, and beyond, the market looks very strong. Moving on to the development in EBITDA.
As mentioned before, we take it up, strong performance in the quarter, and that means that the operational EBITDA margin, looking at the trend curve last 12 months, increases from around 10% end of first quarter up to now 11.3%, fully in line with our full year guidance. Underlying, we see a doubling of the operational EBITDA. I also would like to mention here that this is, of course, the quarter where we first time see the full impact of the acquired business. Working capital on the next slide continues to develop extremely positively. We are tying up negative working capital of EUR 30 million end of the quarter. So that would be difficult for Nilfisk to beat that number. But you can try.
That is, of course, reflecting the product business, where you are able to have negative working capital if you have good visibility into the market. If we somehow look into the development in the more product-related business, we are also extremely satisfied with the developments. The priorities for 2017 remains more or less unchanged compared to previously. We still need to focus a lot on turning around our high-voltage traditional onshore business. We continue to lose money in that segment. We do what we can do internally, but it also requires the market to somehow improve. Railway also continues to be a challenge, although it is a smaller segment. Also, I have to say here that we start to see some positive signals in the market that the overall volume in the market will increase in the quarters or years ahead of us.
Billing-wise, medium voltage, in general, we are satisfied with the development. In order to maintain that satisfaction, we need to constantly focus on profitability. Then we have the develop and grow area, in particular the DC segments, both on onshore and offshore, where also we should touch on the integration work that is ongoing. The name of the game is as fast as possible to get the Cologne facility fully qualified to produce DC cables, because that will strongly be required from the market in the years ahead of us. To summarize here before I hand it over to Hans Henrik, a good second quarter, fully in line with the expectations. Integration according to plan. Solid performance by our new vessel, NKT Victoria. In the end, we were able to increase the return capital employed by 3 percentage points compared to second quarter 2016.
We take it up from 6.1% to 9.2%. With that, Hans Henrik, please join me up here and present the numbers for Nilfisk.
Thank you very much, Michael. Good morning to everyone. I am pleased to be representing the Nilfisk team and talking about the Q2 and first half results. I am proud to say that the Nilfisk team has delivered the expectations in Q2. I would like to start debating a little bit about the organic growth. If you take me to slide 21, please. If I first comment on the first half, we have an acceptable growth of 3%. Then dive into the quarters and see that we had 5% in Q1. We had 2% in Q2. We should remember that we had Easter in Q2 this year, which means that the comparison is a bit different. If you do compare the 5% and the 2%, it is not the complete picture. We actually believe that it is a more even half that we have presented.
If I go into the different markets. Americas, still strong growth in national accounts driving the entire growth for us. It doesn't mean that we are performing on all cylinders in Americas. We're not. We are challenged in the industrial space where we have steep competition. But national accounts are doing very well. You see that there are slight decline from Q1 to Q2, and we're still fighting hard to really do well in especially U.S. market. In EMEA, we have an acceptable growth rate of 4% for the half. We believe that EMEA can do more moving forward and do better, but those plans are being developed as we speak. We're happy with what we saw for first half. APAC, we've stabilized around 1%. It's driven by China is doing well.
We're doing well in countries like Thailand, Malaysia, and we have challenges in some of the other markets around Japan, Korea, that we need to improve. So that's kind of the geos. If we go into specialty, we've had a difficult quarter and a difficult half on consumer. We've lost a big customer and have had a tough time catching it up. We have shown you also operating segments excluding specialty to show you that if we do exclude our specialty businesses, we've actually done a 3% growth in Q2 and a 5% in H1, which is acceptable and in line with what we expected. If you take me to the next slide, please. We're proud to deliver obviously 12.8% in Q2. Very close to what we did in Q1, but slightly less. We had 12.9% in Q1, and we're now 12.8%.
Absolutely strong performance driven by the operational improvements we've done, mainly in operations. And we've been helped by a favorable product mix. I have to say that we do not expect to maintain that level for second half of the year. We know we have a different mix. We have more private label business in second half, and we definitely see increasing raw material prices that will lower it as well. So, a very good high level after first half. However, we do not expect that that's where we will be in the second half. Next slide, please. Karina has previously talked about the Accelerate Plus program, delivering EUR 35 million in full year impact end of 2019. We have now broken it down for you, so you can see that we are on track.
We have identified EUR 17 million in savings first half, delivered EUR 8 million, and it will continue as you see on the screen. Feel very comfortable about those programs. I'm very happy that those were established, and we are executing them accordingly. And you see the breakdown. It's all about our overhead reductions, the production footprint, sourcing, complexity reduction, which is very important for us.
Getting fewer products and be more modular in the way we think about things. And then, of course, a better and improved price management. Very clearly defined programs that we are executing according to plan. Next, please. Well, yes, Michael, we cannot beat you on working capital. We won't even try. We would actually go a little bit the other way. You see us at 15.6%, and we actually believe it's a bit on the low side compared to what is a sustainable rate for us.
We believe that 17% is probably where we will be. We have high payables at the moment because there is some ramp up in one of our factories, and that is driving us low on the number at the moment. Next, please. In summary, an acceptable quarter, an acceptable half. We are proud of the current operational EBITDA before special items level. We are obviously proud of our ROCE as well, going up by 3.9%. We do maintain our outlook. We are smack in the middle of the growth guidance, which is as expected, and we are foreseeing a mix change that will drive us further down on the operational EBITDA margin for our second half. With that, I would like to hand it over to you, Basil.
Thanks, Hans Henrik, and welcome to NKT.
Thank you.
Okay, so we move over to the NKT Photonics section. It is the last section here. As we move to the next slide. In the three areas that make up our business, the main one, which is imaging and metrology, which is 30% of our business and the focused growth area where we are concentrating on. We had good and strong progress in the second quarter. We have all our OEMs actually in this area, whether they are in the semiconductor business or in the bioscience segments doing well. We signed a significant imaging development contract. We are very pleased with that. The forecast for that is going into the second half is good. Again, we are very pleased with that.
In the second segment, which is sensing and energy, which is an established area for us, and about 38% of our revenue, we have seen some very strong growth in the quarter. The main driver for that is our Koheras fiber laser line. These are our single frequency lasers. They tend to be doing very well in the first quarter, but we also have quite a significant jump for that in the second quarter. Again, very pleased with the progress in that. In the third segment of our market, which is at the moment the smallest, it is about 12% of the revenue, which is material processing. We see this as a new growth area and a place where we are concentrating a lot of our efforts. One of those efforts is actually the agreement to acquire Onefive.
The agreement was signed in the quarter, and we expect closing beginning of September. Onefive is a good little company with a great positive reputation and brand in a very fast-expanding, ultrafast laser market. They also have key customers in the medical side, especially in ophthalmology. Having them in the company, in the group, is a great and positive move. It is in liaison with our focus areas in growth, which is going up the food chain. It shows a commitment from NKT Photonics to their customers in this great area. We are also seeing significant growth in this area, but this area in general throughout the laser market is doing well. We move to the summary. Very shortly, good revenue for the quarter. We had a 26% increase, organic growth increase, with positive operational EBITDA of EUR 0.7 million. Again, just mention the agreement to acquire Onefive.
Also very importantly, which is part of our growth and Accelerate manufacturing, we have appointed Don Riddell as our COO. Don comes to us from COO of SPI, which is one of the divisions of TRUMPF. It is a large laser manufacturer. He also starts at the beginning of September, and we look forward to having him deal with our manufacturing and help us with the growth. Finally, the financial outlook for 2017 was maintained, as Michael mentioned earlier. Our organic growth is at 10%, and our EBITDA margin is at 15%. Thank you, and I will pass it over to Michael.
Thank you, Basil, and good night as well. We are now ready for the joint Q&A session. I would like to hand it over to you, operator, to ask for any questions.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Once again, it is star one. We take our first question from Casper Blom with ABG.
Thanks a lot, and thanks for taking my question. First question goes out to the new guy in the pack and in Nilfisk. Could you give a couple of more comments on development of the consumer segment within specialty? You mentioned that you have had some challenges there. Maybe some words on how you see that potentially changing. Secondly, also to you, could you give an update on your whole development of the robotics program? Maybe also sort of your thoughts on how that can be used as a driver of growth going forward? That is my first questions.
Thank you, Casper. Excellent. Let us talk about the consumer space. I do not think that we have a significant happening apart from we lost one customer, which you tend to do when competition is hard. We had a customer where we basically said we will not sell at that price level, period. That is sort of the only thing. Then you can see that we are carving out the consumer business as a separate business because we want to focus on it and make sure that we have a full focus on the consumer business with the right leadership power and with the right approach. So nothing new, Casper, as such to report on consumer. It is a tough business. There is hard competition.
It is about 10% of our revenue, and we thought it would be smart to have a dedicated focus on it rather than having it mixed into the professional business. So I expect us to be improving, and we definitely have the right focus on it.
If I can just break in.
That was a.
If I can just break in there with a little follow-up here. Have you had a strategic discussion on whether or not you should actually have consumers as part of your program, or whether you should focus entirely on the professional segment?
No, we haven't. We're in a business that we will improve, and that's the way forward. We have not had that strategic discussion. No, we haven't.
Okay. And robotics?
Robotics, let's be very clear. I will not give you a number, Casper, but I will talk about how I see it. There is a big potential in the technology, that's obvious. It's not because it's technology, but it's because it actually helps our customers. Reality is that 70% of the cost of cleaning goes to labor. Then you can do the math from there, what it means to our customers if we are able to provide them with a reliable robotic solution that can do the cleaning. So I am completely convinced that that technology is super important for our customers and for us. I'm also convinced that we will be the company that provide the first really well-working professional machine for that market.
We've had to delay our launch a bit because we wanted to make sure that we cover all applications in the right way. When we launch, it will be a well-working product. We're not going out with anything that we're not completely 100% satisfied with.
We wanted to do some extra testing. I can say that from what I know from the testing we're doing with customers, we have a competitive edge at the moment, and we will do anything we can to remain competitive in that space. I can also say that I believe personally that the technology will make the premium segment expand, which is very important to the office, given that we have a 25% market share in the premium segment. So a very important disruptive technology for our customers and for us.
Will you be able to provide further details and potentially anything on pricing in connection with the CMD?
It isn't planned like that, Casper. The answer for now is no.
Okay, fair enough. I just have a single question for Michael with regards to the order intake in cables. With the integration of ABB now becoming more everyday life and the first rough work being done, have you seen any change to how customers are relating to you? Has it been so that you've maybe been a little bit on the sideline in terms of receiving orders and are now back to normal? What has sort of been the dynamics in that?
I think today we are definitely back to normal. I also have to say that we were probably not in a normal situation between signing off the deal and closing off the deal, and as you know, that took almost six months. During that time, there was, of course, a lot of uncertainty among customers about what is exactly going to happen. Will it be approved, will it not be approved, et cetera. We were also in a difficult situation because we were not allowed to talk together, and also not allowed to talk to customers about future projects. That somehow complicated that period. But today that is behind us, and I definitely do not see any extraordinary situation today. We are fully back where we need to be. Having said that, we would like to have seen a more strong order intake the last couple of quarters.
It's not that we have lost a lot, but we need to have more visibility into 2018, and that is what we are working on right now. The years ahead of us, 2019, 2020, looks extremely strong, so that I'm not concerned about.
Okay. Can you give any sort of a teaser on the tendering activity?
It is difficult to give you much more teaser than you're probably fully aware of the significant number of offshore wind projects that currently are being discussed among the utilities, the TSOs in Europe. But also globally, I have to say that particularly in the U.S., there are some significant projects under development where we are actually in a unique position to probably get a fair share of that market as well. I don't want to give you any specific names. You can Google it and find out yourself.
I will, but just on the U.S., is that something that you see sort of feeding through to orders in the sort of short to medium term, or are we talking more sort of a post- 2020 scenario?
It will not be orders that will have any impact on 2018, but with the knowledge we have today, potentially kicking in having impact in 2019. Some of these projects, when they finally have been decided on and all financing has been completed and all that, some of the projects are actually under a lot of time pressure because they somehow are tied up to different incentive packages that they have received in order to get funding. So when they finally decide, we normally get under pressure to finally complete engineering and start up production.
Got you. Thanks a lot, guys.
Thank you. We take our next question from Kristian Johansen with Danske Bank.
Yes, thank you. First, a question on the NKT business. Michael, on slide 15, you show this chart with all your high-voltage projects. I note if you compare that with what you showed us last quarter, that the graphs for Race Bank and Galloper seems to have been extended by six months. Can you just elaborate on what has been going on there?
Nothing in particular, but as you know, we are not always deciding on our own about the timeline here. There are no issues within our responsibility of production. But sometimes it happens that customers somehow are delaying final installation or whatever it can be, and thereby are expanding the time. So nothing in particular that relates to us or our performance.
Okay. Can you therefore also confirm whether there has been any major risk reversals or reversals of risk provisions in Q2?
Well, I saw in your note that you were referring to two particular projects where you expected to see closure and risk reversions, and I can confirm that that has not happened in Q2. We expect that to happen in Q3. So in the old NKT business, if I can put it that way, we have not seen any risk reversals impacting earnings. It is a slightly different story in the ABB business because it is a different animal, where they look at the risk aversion as part of operations more or less. So, that is what I can say.
Okay. That is quite clear. Thank you. Then, on Nilfisk, you described the underperformance in the industrial segments in Americas. Can you just give an indication of what you are doing to try to turn that around?
Yeah. Well, it is a tough one because we have a really strong competitor in that segment. So apart from that market pressure, which is obviously external, we have some internal things we can do in the way we sell, where I believe that we have some efficiencies that can help us. So it is mostly about how we sell, and our improvement in that approach that will help us moving forward.
Okay. That is clear. That was all for me. Thank you.
Thank you.
Thank you. Ladies and gentlemen, as a reminder, please press star one to ask a question. We take the next question from Claus Almer with Nordea.
Thank you. Also, a few questions from my side. Michael, you can start out. You mentioned this U.S. office, and then the timing of 2019. Is that delivery or when you expect to sign orders? That will be the first one.
That is when we expect to be able to start to work on the project, so start production.
Out of Europe, or I guess
No, out of Europe. What we mentioned-
Yeah
in our report is that we have opened up an office in U.S., that in the beginning will be a sales/tendering office. If they are successful and we turn that into concrete orders, we would need to add a lot of more people to that office because then it turns in to be a project execution office, and that requires a completely different organization. That is what we start to build up.
Sure. Okay. About the intense tendering activity you see beyond 2018, have you started to see any impact on prices from that?
It's always, as you know, Claus, difficult somehow to compare prices and talk about prices, project A versus project B in this segment because we are somehow providing the customers with a solution. But I can confirm that the price level that we currently are tendering on is fully supporting our long-term target of achieving above 15% return on capital employed, and also supports the historical numbers that we have seen in that industry. So we are fully satisfied with the price level that we see in the orders impacting 2019 and beyond.
Maybe I could ask the question a bit differently. When you have this tendering, the client will, of course, rank different aspects or KPIs. Does the price have the same weight in the tendering, or is availability of capacity becoming more important for the clients?
It depends a little bit from customer to customer, what they somehow prioritize. When we look at these kind of tenders, the customers are normally telling us how they evaluate the different competitors. Typically, we see that price goes in the range from 60%-80% or 50%-80% impact. Then there are a number of other aspects. It can be health and safety, it can be overall technical solution, it can be past performance, et cetera. So price is, of course, a key element. Having said that, all the different utility companies and other guys who are investing into this business are, of course, also looking into the number of projects and somehow are fully aware of the fact that capacity can easily impact the price.
Okay. Just my final question regarding low voltage. Overall, how do you see the pricing environment within this space?
We are actually satisfied with the price environment in the space. Of course, there are bits and pieces here where we see price pressure, and also a need to compete on price. But there are definitely also elements where we are fully satisfied with the price level. We are also looking at the new product assortment that we have introduced as part of the Construction Products Regulation that we have talked about earlier. There we have been able, and we also need to increase prices compared to the old product range. So we are satisfied with the price development overall across Europe in that segment.
But not as such a positive pricing effect?
No. There's no positive pricing effect made.
Okay. Then a few questions for Nilfisk. There was mention that raw materials will be a headwind in the second half of the year, and also a mix effect. Can you try to quantify this?
I wish I could in detail. I might call a friend on this one. Let me say, the private label business is growing in second half. That's a major contribution. Then I'll call a friend and ask Karina to elaborate on it.
Yeah. There's many things in the mix effect. There's both the private label that Hans Henrik talked about, and there's also the actual products that we're selling within our business. From that perspective, that has a bigger impact than raw materials. I won't give you the exact number for each of them. But those two in combination, along with a number of other smaller things, they really make the difference in what we see in the second half. Raw materials, because that could be a next question, are they continuing to increase? No, that's not what we see. But the impact that we are estimating for the second half is because we didn't have the full impact in the first half.
We talked about it after Q1, that we were beginning to see it fully affecting Q2. Then basically assuming that they stay at the current level, we see the second half being quite significantly impacted by it.
Okay, thank you. Just a final question. Hans Henrik, you have been around NKT not that long yet, but do you have any first impressions you want to share?
Well, I am definitely happy with the potential I see and with the Q2 performance from the team. I tend to think about the business in two terms. I think about the business in simplify the business, and I think about the term of growing the business, and I think those two go hand in hand. We have started simplification when it comes to portfolio, long tail, all of that. We have also started simplification when it comes to some of our footprint. We have started simplification when it comes to some of the branding. I think continuing that simplification and focus of the business is important. That enables us, obviously, to grow. So I think about the business in those two terms, Claus.
No major changes is on your table?
No, I think we have had a solid strategy that has been executing well over the last couple of years, and I am happy to join a company that is in that situation. Then, as I said, there are a couple of things where you can simplify and you can grow it faster. One of the things one of your colleagues asked about already, what are we doing in terms of autonomy and robotics? It is a beautiful opportunity right there for us as an industry. So there are things that I might fuel more than was planned, but overall, you should not expect to see a dramatic strategy shift. That is not at all what we are talking about.
Okay. Thank you so much.
Thank you. As we have no further questions, I would like to turn the call back over to our hosts for any additional or closing remarks.
Thank you, operator. I do not have any additional remarks other than what is illustrated here on the slide, that we will be back hosting the Capital Market Day here in Copenhagen, September 19th, and I definitely hope you will show up for that event. Then the two separate listed entities will report individual third quarter reports November 15th. So with that, thank you for listening in, and thank you, operator.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.