Welcome to NKT webcast covering the Q2 result that was released this morning. My name is Michael Lyng, CEO in NKT Cables and Group Executive Director in NKT Holding. With me today, as usual, I have Jonas Persson, CEO of Nilfisk, and together we will cover the development for the group during second quarter, including an updated view on where we expect to end the year 2015 for the group and in the different businesses.
Let's look at the agenda on slide four. I will cover some highlights for Q2, including the financial development. Jonas will take over covering the development in Nilfisk during the quarter. I will do the same for NKT Cables and Photonics Group before we then go into the expected outlook for 2015, and jointly end with the Q&A session, where you can ask questions.
On slide five, we have illustrated the highlights for 2015. At the group level, our second quarter performance was in line with expectations of operational EBITDA improved 36% and organic growth of 6%. The results are driven by NKT Cables, where we continued to show good progress in terms of both growth and earnings, clearly impacted by the Drive program.
Late last year, we started up a strategic process for our cable operations in China. The aim was to analyze the possibilities for having a different setup in China, including a divestment of China. Unfortunately, we have now concluded that we are not able to change the setup. We have not deemed the alternatives attractive, and as a consequence, we are now writing down a big part of the fixed assets in China, and that has a negative impact of DKK 374 million, of course, being non-cash.
As mentioned here on the slide, we will launch a new strategy plan for NKT Cables in connection with the Capital Markets Day coming up September 23rd, and I will come back to this later in the presentation. In Nilfisk, organic growth was flat and clearly lower than we have expected, and at the same time, earnings are negatively impacted by the continued investment in sales and service and by cost due to the temporary delivery issues that we saw in first quarter and that are now being fully resolved during second quarter. Jonas will, of course, come back to this in his presentation.
In Photonics Group, we have appointed a new CEO, Basil Garabet, and we also have divested the activities within the fiber processing equipment that was placed in the U.S., and they were not really needed or strategically important relating to what we do in the sensing business and in the imaging business. Based on all this, and on the result in first half, we have specified our guidance for the year, but I will come back to this later in the presentation. To summarize, overall a good performance with some ups and some downs, but in particular driven by a strong performance in the cables business. If we then turn to slide six, looking at some financial numbers, the 6% organic growth are here broken up into the different units.
We are flat in Nilfisk at 0% and slightly down for the first half year 2015, whereas we continue to see the pattern that we also saw in first quarter, a strong growth in the cable business here reported at 13% and 15% for first half. Photonics Group down 14% and down 9% for first half. We are not that concerned about that because we had very strong order intake that will be executed in the second half. Looking at the operational EBITDA, it is significantly up from the last year level of 324 to now 441, and that means that the margin that we are able to do in the quarter is up from 9.7% to 12%.
A big part of that is, of course, supported by the Drive initiative in the cables business, and of course, also related to that, we are carrying some one-off cost here, reported with DKK 34 million, that have been taken in the second quarter this year. As also illustrated, we start to come down on one-off costs as we are getting closer and closer to finalization of the report. The impairment of China I already mentioned. Working capital we will come back to on a later slide, but we continue to see good traction. We are down if you look at the last 12 months percentage to revenue, so that is good progress.
Cash flow, it is minus with DKK 180 million, and that is due to the acquisitions that we have been able to do in Nilfisk, where we have paid DKK 117 million, and then it is due to the normal seasonal buildup of working capital that we see in particular in the cable business, but also Nilfisk, that have increased working capital with DKK 281 million. This is very normal compared to a second quarter. The outlook, but let us come back to that later in the presentation. From the helicopter view, where are we then heading with the last 12 months operational EBITDA performance? We came from just below DKK 1.3 billion in the first quarter, and we have been able to increase that with more than DKK 100 million.
So we are now standing at DKK 1, 415 million, and that is similar to 10.2% EBITDA margin, and we are pretty satisfied with that journey. If we then look further into the P&L, I am not taking all the numbers here. The revenue composition, the increase of 443 is clearly illustrated, what is included in that, before we come down to the organic growth that I mentioned before. More importantly on this slide is probably the development of the operational EBITDA, the increase of DKK 117 million. As illustrated here, we have seen a significantly margin pick up, a stellar performance in the cables business, up from 7.7% second quarter 2014 to now 14.1%. That has contributed with DKK 127 million.
Nilfisk, we are down, which is not a big surprise, and it should not be a big surprise, because it is entirely related to the investments that we are doing in the front end, and partly also to a slightly higher delivery cost. Here reported at 11.4%, down 1% point, but nominal EBITDA impact is not really significant due to the higher turnover related to FX. I think it is also worth mentioning that the impairment is here mentioned at DKK 305 million, where we are totally reporting a number of 373, and the difference to that is that DKK 88 million out of the total impairment is here on this slide included under tax, and that relates to a tax asset in China that we have fully depreciated down to zero. If we look at working capital development down to 16.9%.
Year over year, we see a decrease of approximately DKK 100 million. If we compare it to end of first quarter, we see an increase of DKK 135 million, and as mentioned before, that is not really a surprise. Big part of that relates to the cable business. It is more or less entirely related to the seasonal impact that we have in both of our businesses.
Looking at the trend curve, it is a very nice development in the cable business. We have seen a further decline to 14% all-time low, by the way, compared to almost 15% end of March. Whereas in the Nilfisk business, we are more or less flattish. Cash flow. We touched on the minus DKK 180 million, and here it is clearly illustrated that we have invested in activities in the business totaling DKK 220 million, so up from last year.
The difference here is mainly related to the acquisitions that we have been doing in Nilfisk. On the cash flow from operating activities, 40, down from DKK 109 million last year. A big part of that relates to the change in working capital. We also have a lot of FX noise in these numbers, and that is why you see a bigger number here, compared to the DKK 130 million I mentioned in nominal increase on the slide before. But that will be a wash over time. We continue to see strong leverage, and I think that is very, very important because we still have a lot of appetite for doing further acquisitions in Nilfisk, and that is high on the management agenda there. So it is good to see that we have room and firepower to do also larger acquisitions.
We are more or less flat looking at the nominal earnings, nominal level here, and we continue to be at one times debt to EBITDA. Looking at the solvency ratio, we are at the 43%, and here we are, of course, impacted by the impairment that we have taken in China, and that have taken off approximately 2% to 3% points on the solvency ratio.
But there is still significantly room to our internal targets. By the way, these are internal targets, where we have the target of be constantly above 30%. With that, we have finalized, and if I should just summary, I think we can be satisfied with the business as such, looking at the total consolidated numbers. As always, you have some ups and downs. But we are strongly believing that we are heading in the right direction in all the businesses. Jonas, please take it over.
Thank you, Michael. I move directly into page 14, which is the growth page. As you can see, we ended up Q2 with zero growth, and that gives us -1% year to date. This is caused by the delivery issues we had here in Q1, but that we also had a spillover here into Q2, as I also mentioned when we discussed Q1 result. If we jump into the Americas, -2%, it is mainly North America that we have a decline in the quarter, and that is, of course, low compared with the market of roughly 3%. Delivery issues, we have the strike situation. I will come back to that later in the presentation. We also have some delay of the growth initiatives we have not only in Americas, but also in the rest of the world.
EMEA ended up with 2% in Q2, which is very much par with the market. Of course not full of satisfaction, since we expect more in EMEA, where we have a very good foothold. As we also said before, we have had delivery issues in Q1. We have totally now recovered here in June, but as I said, we will come back to that. APAC ended up with -5%, compared with a market of 5%. In Pacific, we have a very slow consumer situation. That is not only us, that is generally, it is going down. Therefore, we are suffering there a little bit. Then, of course, in Asia, with the restructuring, it is taking time to do the restructuring we have talked about before. In China with the sales organization, but also in Korea and Japan is impacting us in Q2.
Then moving in and looking to result, of course, this is also impacting the results. So we ended up with 10.9% compared with 11.1% when we ended Q1. So down. We are continuing to invest in the front end, which is very much in line with the strategy we have. Of course, when we do not see the sales, that is also impacting the result. Then we have high distribution cost also in Q2, especially in April and May. It goes down dramatically in June, so we are starting to come where we should be, but even in June's result, we still have some space to cover until we are where we want to be when it comes to distribution cost.
We have had also in the quarter extra cost for consultants for the acquisitions we have done, but I would come back to that later in the presentation. Coming back to delivery issues we had in Q1 that we saw an impact in Q2. It was mainly two things that have caused the delivery situation. The system implementation in Europe and the extra complexity we had in Europe.
We have totally solved that now, and we had an all-time high delivery service here in June. We are absolutely back when it comes to the real numbers. But of course, it takes also time to rebuild the confidence in the market and with our customers. The port strikes in America caused us also some problem in Q1, and also into Q2. That was totally resolved here already in May.
We are all back, as we should be. But we still believe that this has had a negative effect on us when it comes to the growth. I would say minimum 1%-2% is, of course, very hard to say that, but we have seen cancellation of orders. We have seen customers that have chosen other solutions because we could not be able to deliver.
Of course, it is very hard to predict the customers we have not seen. But still, I estimate minimum 1%-2%. In order to improve the situation, we have changed the organization a little bit to meet the customer demand, and how we organize ourselves, especially when it comes to the consumer side. Here in August, we have also changed the management in the supply chain.
As I said, we are very confident now that we are back when it comes to the absolute performance in the delivery. We saw a very good result here in June. But of course, the big problem is now to rebuild the confidence in the channels and regain the trust with our customers. Moving then to the next page, the strategy continue. You have seen this picture before. The front-end investments very much continues, and we have continued to hire people in the front end in the first half, even if we have not done as much as we wanted because of the delivery situation, but it will accelerate here second quarter. Good offering, I will come back to. I also like to just mention the brands.
We have changed the brand here, the company brand, but also our major Nilfisk-Alto brand to Nilfisk, and that has had a very good response in the market. We have seen just positive feedback from market and customer by that. Supply chain, of course, now we are back in a level we want to be. Now it is the next way to be an outperformer and be the best in class.
Moving then to the next page. In the front-end investments, just to give you a short update, commercial excellence we have talked a lot about. We have rolled out now to all the big countries, and this will continue. Now we also start to go into the smaller countries. This program we plan to end here mid-2017, but it is very much going according to plan.
I have also touched, we have continued to hire in the front end, both when it comes to front-end salespeople, but also when it comes to service people. This we have continued to do, so we have added roughly a little bit more than 100 people here first half, and this will continue and accelerate a little bit here in the second half. In order to support both the commercial excellence, but also all in other front-end initiatives we are taking, we have also started to roll out the new CRM system and a service system here, starting with U.K., but this will roll out here and continue up into 2018. Then of course, also to support this and even accelerate the sales initiatives, we also roll out here a global sales training, which we have a pilot here in Q4.
Talking a little bit about our offering. I think we have had many good products already the first half. This is just some of them. We have the Viper AS710, which is very much a mid-market initiative. It's the first rider in the mid-market, and this has very much exceeded expectations when it comes to sales this year when we have launched it. So very good market response. We also have an upright vacuum cleaner, Nilfisk VU500, which is, of course, just an ad for the range we have to strengthen the market in the U.S. The same goes for the Select in vacuum, consumer vac. This is just one of the range we are rolling out in this segment as well.
On top of that, I also have to mention the high pressure for the professional, where we have a whole platform of new products coming out to the market, both cold and warm. Hot water, high pressure, which is a very strong platform, and we have had very strong response also from our customers regarding this. Acquisition. We have talked very much about acquisitions
On top of that, I also have to mention the high pressure for the professional, where we have a whole platform of new products coming out to the market, both cold and warm. Hot water, high pressure, which is a very strong platform, and we have had very strong response also from our customers regarding this. Acquisition. We have talked very much about acquisitions
If you go to the next page 20. We have been able to do some very interesting acquisitions here in Q3 and this year. Kerrick is a high-pressure company in Pacific, a leading brand in that part, a very strong brand, both in New Zealand and Australia. This we have consolidated here from 1st of July. I think this is a very good fit to our family, and also our market share in that part of the world.
Contractor in U.K., also very interesting company doing rainbow service. A rainbow service is service doing not only for our own brands but also do service for other brands. They are very good at that. We have rainbow service also in our rest of the world, but I think Contractor have done, taking this to another level. So I think also the rest of the company have something to learn from this.
So I think this is a very interesting acquisition. Then we come to Smith, which is a dealer, so it's also strengthen our direct sales into Australia. To sum up, gross margin impacted by the sales mix. We have, of course, an overhead situation where we have a sales continue to do the front-end investment, but we also have high distribution costs, and that is, of course, also impacting our result.
If we look at just the outlook for the full year, we will go from 5% down to flat. The reason for that is that we have had a weaker first half than we expected. We see already strong growth here in Q3, but Q4, we had an extraordinarily good Q4 last year, and it is hard for us to redo that. That is why we are going down to flat. This will also, of course, impacting the EBITDA. With that, I would like to hand over to Michael again.
Thank you, Jonas. Let us move the glasses and turn them towards cables and look at the different markets' performances and markets' trend that we are looking at in the business. Starting with the consolidated growth, we reported 13%, first half, 15%. If we then look into the different segments, it is clear to see that we are repeating what we saw in first quarter, that projects are continuing to see a very strong performance, up 72%.
That is, of course, as I also mentioned before, it is difficult really to compare second quarter here with second quarter last year because it very much relates to the composition of our order backlog. Having said that, we are satisfied with the quarter's performance. If we look at the markets, under the umbrella projects, the offshore and the onshore, we continue to see strong traction on the offshore market.
We have also earlier reported that we finally received the Race Bank order. It was officially confirmed, which was very nice because that is providing us with good visibility into the remaining part of 2015 and also going into 2016. We have also already now started our production of Race Bank. Second quarter has very much been focused on the Gemini project that are close to be finalized. It is not finalized yet, so it is not fully taken into second quarter.
It will be most likely taken into third quarter, but perhaps even into fourth quarter. We are internally following the plan, so it is more a question about where the customer are in the process. So good traction there as well. On the traditional onshore, we continue to see a flattish market. It is not very fantastic what is going on.
We probably have more positive view on the outlook for the development of this market, compared to what we had some quarters back. Also for this segment, we continue to have good visibility. So 2015 is sold out, and we are starting to book orders into second quarter 2016 and onwards. Then looking at the product business, we are reporting a flat development.
Of course, this is not the segment where we are expecting a lot of growth because it is construction-related stuff, the majority of that. This 0% actually ties very well into our guidance for the totality of this business we had when we came into 2015. So it is not a negative or positive surprise. Based on what we did in first quarter, we are reporting a positive 1% growth.
It's a little bit mixed picture when we look at the different markets, where on the maybe slightly negative side, we continue to see Nordic being flattish. Not a lot of activities, in particular in Denmark. We are much more optimistic on Central Europe, where we see a good traction from the market development in former Eastern European countries.
And we also here are succeeding very well on the pricing project that I have mentioned before, where we are optimizing and trying to optimize our mix between the markets and between the customer segments, and that is also driving a positive trend. Last but not least, the specialty segment, which is the accessory business and the railway business, is also performing as we expect. Then looking at APAC, of course, these are extremely negative numbers, minus 40%.
I just want to indicate that this is not necessarily representative for the market development. It is actually more as a result of our behavior in the market. We are extremely restrictive on which orders we want to take in APAC. We don't want to have any kind of empty turnover without profit, where we, on the other hand, need to build up a lot of working capital.
That is over. So we are more cherry-picking the orders where we think we can have some profit and where we also are looking at a satisfied cash tie-up situation or working capital tie-up situation. So that is more what is reflected in this number. So that was the market. So overall, pretty good traction both in projects and products, and then APAC being on a different journey.
If we then look at the EBITDA margin and EBITDA nominal development on slide 24, it is really a stellar performance in the quarter. DKK 243 million is what we are reporting, and that is the 14.1% margin significantly up, compared to where we have been the last many years. And based on that, the LTM curve is jumping up from 8.6% to 10.3%.
I also here would like to warn you that we can talk guidance in a couple of slides, but we are still reporting EBITDA margin of around the 9%. We have taken them up, so now we are around 9%. And that also means that you should expect this red curve to decline over second half. In particular, I'm very confident that we will not be able to beat the strong fourth quarter we had in 2014.
So just be aware of that when you do your modeling. Then, other than that, I don't think I have much to add. So let's continue to the next slide. And that is, of course, looking at the drive the way that we normally look at it, and we continue to be very satisfied with the development. And that is also one reason why we have been able to fuel the margin. And year over year, we have realized DKK 197 million, and in second quarter, DKK 125 million. So we are satisfied with that. We actually executing slightly faster on the projects compared to what we previously have expected. And that is why we already now are reporting a run rate of the earlier reported full potential of DKK 400 million.
That is also the reason why we take up the full potential, kicking in from 17 to DKK 450 million. As you can see here, we still need to lay off some people. That is the main reasons why we also have some one-off cost still to be carried through the P&L. We are now at DKK 272 million and are reporting a level of DKK 360 million. That ratio to the full potential is unchanged since we started to report on this project. The project in itself are getting close to, I wouldn't say finalization, but close to the time where we are transferring it into normal operation. We will continue to report this slide for the coming two quarters, including the annual report, but then it will be very difficult really to get a clear view on this going forward.
Then we'll stop using this slide, and we will convert it or transfer it into the strategic initiative that we can look at here on slide 26. This slide you have seen before, and it is all under the umbrella, Drive. We very much have focused on the Get Fit phase, which is the Drive reduce cost related initiative that I just were reporting on. Now we are moving more and more into the Be Excellent phase and also looking into how can we also after that grow the business profitable. Those two phases, the Be Excellent phase and the Accelerate Growth phase, are now taking into our new 2020 strategy framework that we will discuss in further details with you at our Capital Markets Day in the mid of September.
This is just one slide here on slide 27, where we are looking at very top-down, what have our ambition been when working with the strategy? We have looked into three different areas. Of course, it's all about creating shareholder value in the end, and we have not been doing that the past couple of years. We are currently running at a return on capital employed between 6%-7% when we look at full year annual numbers.
Which is, of course, far away where we need to be in this business. The ambition is to move up above 15%, and that has been the starting point for developing the strategy plan. We have developed a strategy plan where we'll also be able to execute on this number. But I would like to come back on that when we meet in September.
Then, of course, we have had a very much internally driven focus and also too much an internally driven focus in the business the last years. First, we had to focus a lot on ramping up the Cologne site and fix the issues we had there. The last year or so, we have focused a lot on adjusting the cost base related to the Drive initiative that I mentioned before.
Now it is really time to look at the most important stakeholders we have, the customers. Being the customer's preferred choice is what we are aiming at. We are not there today. In some areas we are close, some areas we are far away. But it will be a cluster that will be an umbrella for occurring a lot of strategic initiatives that we would also like to come back to.
In the end, it is all about people and people management. I strongly believe that there is a relation between the management skills, the employee satisfaction in our business, and in the end, the return that we can deliver to shareholders. We are not where we need to be, partly also related to the fact I just mentioned before, and that will definitely also be a focus area.
We need to have the right managers, the right leaders, to drive the development from being at a return on capital employed of around 6%, 7% to above 15%. We have defined these four group-wide must-win battles, and this is just a kind of an appetite to what we will discuss in further details in September. Safety, people, and organization, it leads directly into what I just mentioned. We need to invest in more talent.
We need to make sure that we have an agile and engaged organization. We also need to make sure that we have a lean organization. One very important topic in the next many years in the Cable business will be talking about excellence. That goes from excellence in the back end of the business, the way that we are producing, the way that we are set up there, but it also includes the front end of the business, the commercial excellence part, that Nilfisk is heavily working on these days. We are in a business where the majority of what we are serving are defined as a kind of commodity, and that also means that we can only survive in that if we do have excellence in all the different processes of our business. Let us talk much more about that when we meet in September.
Of course, Drive has been the first wave of securing operational excellence or start the journey to drive towards excellence, but we are not there yet. Product development and also material development are having a higher and higher impact on our ability to serve the customers with the needs that the customer have.
We do have some areas where we see some possibilities for stepping up into new product segments that we think will be very attractive, maybe not tomorrow, but a little bit down the road. It is also fair to say that we also, in some areas, have a catch-up that we need to do in order to close the gap to what the customers already are expecting today. So that will definitely also be a must-win battle. Last but not least, this digitalization, and it is not because, nowadays, it is really getting a buzzword.
For us, it means a lot. We have, as part of the strategy process, deeply analyzed what digitalization can do for us, and we do think that there is a lot of areas where we can differentiate from our competitors if we are better in this compared to them. So that is what we are aiming for, and I will also elaborate further on that when we meet in September. Coming to this kind of a highlight summary slide. Return on capital employed increased to 9.3%, but as mentioned before, we will come down in second half. But it is still nice to see and to get reconfirmed that we can actually earn good money in a good quarter in the business. Drive is working as it should. We are taking up targets another time here.
We already talked about the APAC impairment issue, which is of course not nice, but it is worth to remember that it is a non-cash issue. Then in the report, we are also following up on our communication on the Anholt wind farm incident that we saw in the beginning of the year. We are currently reproducing cable lengths to be delivered to the customer to be replaced, and we have already, in first quarter, incorporated our view of the cost. Then the strategy plan that I just mentioned, we will come back to that. Just on the outlook for this business, we have taken up the organic growth. We started with a view of being flat. Now we are more positive looking into where we are after first six months and looking into second half.
We up it to around 5%, and that is also partly driven by the good visibility that we have in the business. On the margin side, we also are taking that up from previously being between 8.5%- 9% to now being around 9%. You all know that it's a little bit difficult to really be firm on this, because in the end, it relates a lot to our ability to finalize the offshore projects as expected, not only to quality, but also time-wise, and it's not always us being in control of that. That was the Cable business. Let's go to slide 31, look at Photonics. Here we have already back in July reported that Basil now takes over as Group CEO.
It's partly a new position that we have created, partly replacing the CEO in Birkerød, where we do a lot of imaging. But it's also partly replacing Søren Isaksen, who went on pension early this year. Going forward, Basil will also support Jonas and myself in explaining what the status in the business so he will join the quarterly announcement presenting this slide. For now, there's not a lot to say. It's not really a great performance we have seen in first half, but we are not really that concerned. We will see a significant pick up both on the top line and on the EBITDA in second half, and that's also why we are more or less maintaining our full year guidance in this business.
We already touched on the fiber processing business that we have divested to Thorlabs, a great home for this business that it is a buyer that wants to continue where we ended. So that's good for the company and for the people in the company. We assume that divestment to be effective during September this year. With that, we have finalized the deep dive into the different segments, and we can now turn into slide 33 looking at the outlook for 2015, where we have now specified them in the range that we started with. If we start with the top line consolidated, we are now reporting that we expect around 3% growth before we set up to 3%. So it's more positive view on the top line.
As illustrated in the segments, it is driven by the NKT Cables business, where we had flat expectations in the beginning of year, and now we are having 5%. We are changing numbers a little bit with Nilfisk, because they see the opposite trend. Unfortunately, based on the result of first half, it will not be realistic to achieve 5% growth, and that's why we have now taken it down to be flat. Having said that, we do see a very good traction in the business here in July, August, and we also expect September to be strong. So it's actually more on the basis of a very strong fourth quarter last year that we are being cautious on how to guide growth on Nilfisk.
On margins, we had initial guidance of an increase of up to 1% from the 9.6%, and we are now seeing an increase of around 0.5% from the 9.6%. Hopefully when we meet, or when we end the year, we will start this with 10 point something, but in the lower end. Looking into the segments here, it is of course clear that we cannot maintain the level that we expected in Nilfisk due to the missing growth.
You all know the effect from operational leverage in this business, it's high. If you don't grow, you can see it immediately on the margins and on the nominal earnings. Then it also relates to the cost that Jonas Persson was mentioning before. Here we are taking them down with 1%. I just want to emphasize that, of course, looking at the growth in Nilfisk, we are not happy with where we are. But it does not change the fact at all that we think that the strategy plan is fully correct.
Just because we have had a slow start of that, we will not change a single penny in the strategy plan. We strongly believe that it is the right strategy plan for Nilfisk, and it is important that we are being patient, even when looking at numbers like this, and that we do not start to change around with what we want to do. In the cable business, we are moving up to the 9% EBITDA margin, as mentioned before. Photonics Group is more or less in line with what we saw when we initially guided for the year. With that, we have finalized our part of the presentation. Let's move into the Q&A session. Operator, please take it from here.
Thank you. We will now begin the Q&A session. If you would like to ask a question, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask your question. If you find your question is answered before it is your turn to speak, you can dial zero two to cancel. So once again, that is zero one to ask a question or zero two if you need to cancel. There will be a brief pause now whilst we register your questions. Okay, so far we have two questions in the queue. The first is from Kristian Johansen of Danske Bank. Go ahead, sir. Your line is open.
Yes, thank you. Just in order to understand the guidance for NKT Cables and the strong development in Q2, I understand that a lot of the high earnings is driven by the Gemini project. How large a proportion of the project have you delivered in Q2?
That is a really difficult question to answer, because we have actually delivered a lot, and we are very close to have delivered fully, at least where we are today. But in the end, a big part of the profit recognition and also related to the top line, relates to all the different test phases that you are starting up when you have finally connected the cable, partly all the cable pieces, but also to the offshore wind farm. That work is a very important part of not only the top line, but also the profit. We have not carried out that yet, and that is expected to happen either September or going into October. That is really not in our control. So difficult to give you a number that you really can use for something.
There was, you mentioned this timing issue for that test phase. Is there any risk that this will go into 2016, and should we think that your guidance reflect that risk as well?
With the knowledge I have today, I do not expect that to move into 2016. Just bear in mind that this is not really anything that we can control. We are in close cooperation with the customer in this business, and according to what is current planning, it is something that will happen in either end of Q3 or beginning of Q4. So that is the knowledge I have today. The guidance that we have is not very much exposed to that. They are partly exposed, but Gemini is just one out of many projects that we are executing. We normally just only talk about the larger one. There are also other projects, for example, the Baltic 2 project that we already have talked about, that we are also very close in finalizing.
It is correct that Gemini is, of course, having a very positive impact in the second quarter performance, but it is also very much driven by Drive, as illustrated by the numbers.
Okay. Looking ahead for next year and the Race Bank project, can you just remind us, how much will you have a final delivery of in 2016, and how much will be in 2017?
It will be difficult to remind you of on that, because we have not disclosed it before. It is not something that I can go into detail about now. Let us take that when we talk guidance for 2016. The majority of the project will be delivered before end of 2016.
Okay. Then just my last question regarding your APAC business for cables. You are taking the write-down now, but I still would like to have some details on how you plan to make this a profitable business going forward.
Yeah. It is correct that we have taken down the fixed assets and tax assets close to zero. It is now written down to 15% of previous booked value. What we intend to do is really to focus on whatever we can focus on internally. Looking at our performance in China, the reason for not performing where we should be is to a very, very large extent, market related. On the market, we could argue that we start to see slight small improvements. Having said that, we also have some internal issues that we should have executed better on in the past, and those are the ones that we are focusing on now. That also started with laying off the CEO of China recently. He left, and we are currently replacing him with another candidate.
Then we will focus a lot on what can we do internally in the business. It is not such as this business is losing a lot of money. We are not talking a big change before we are actually having black numbers. So it is not a big drain today, and so that is where we are. I would, of course, have preferred to have found a different solution. We also had some opportunities for different solutions. But we did not deem to see them attractive enough compared to what we think we can do internally.
Okay. That is clear. That is all for me. Thank you.
Thank you. Our next question comes from Patrik Setterberg of Nordea. Go ahead, sir. Your line is open.
Yes, hello. A couple of questions from my side. In the report, you are mentioning that you are having good tendering activity within your offshore cable business. I am just wondering, if you are going to be able to win one of these contracts, will that be for production in 2016, or is that with a time horizon where production will happen after 2016? That is my first question.
I do not want to disclose too much on this because it is very sensitive compared to our bidding strategies. We still have some room for optimizing our capacity utilization and flow in 2016. So it could be that there are orders that could impact 2016 positively. But the larger ones that we are tendering right now and where we are also having good traction is, of course, on the backside of 2016, going into 2017.
Okay, thank you. Then a question to your Nilfisk business. I can understand you will continue with your strategy, and you will continue to do your investments in the front end. I am just wondering, looking a little bit further ahead, given that you are going to make these investments in the front end, should we expect that the margins should take another decline in 2016 compared to the level you expect to report in 2015?
No, absolutely not, because part of this is also distribution cost, and we will be back on track on that. Absolutely not. It should, on the other hand, improve compared with 2015.
Okay, thank you. My last question is relating to the working capital performance, both in Nilfisk and Cables. In Nilfisk, I am just wondering why we see a buildup of the working capital, given that we have acquired a slow growth. What should we expect that you will take up measures regarding the working capital in the second half? On the Cables side, I am just wondering, given the outlook you have been provided for the second half for the Cables business, should we expect that we will see a relatively large release of working capital in the second half of the year?
First, let's touch on the Nilfisk question. It's correct that we are building up working capital. There's a lot of effects in this because we do have inventories in both U.S. and in China. Calculating them into Danish kroner means a significantly higher amount. Looking at the trend curve, we are more or less flat, and that is of course because of the turnover also being impacted by FX.
Having said that, we, in particular on the inventory level or maybe only on inventory level in Nilfisk, we are not satisfied with where we are. That is, of course, fully related to the missing top line. We had planned for more, and we have produced in the first six months of the year to deliver more to the market. That is why inventory is higher than they should be.
On the outlook for cables, on working capital, we are at a very low level at 14%, at least compared to top line. Looking at the nominal number, I expect to see a rebound and cash inflow in second half as we normally see in this business, but not to the degree that we have seen the last couple of years. That is also related to the composition of projects and to a weaker second half this year compared to second half last year.
Okay, thank you.
Okay, our next question comes from Jon Hyltner of Handelsbanken. Go ahead, sir, your line is open.
Thank you. Can you hear me?
Can, Jon.
Great. My question is on acquisitions. Just if you could provide some help on the type of contribution on the top line from these three last acquisitions in Nilfisk and perhaps the profitability level on those.
Top line, this is not very big acquisitions. We are talking about roughly EUR 12 million for Kerrick, and the other two are smaller. This is a very small impact both on the top line, but also on the EBIT level. They are all making profit, different levels of course, but that is also very small impact on the total result.
Yeah. Good. That's helpful. Then on further acquisitions, is it mainly Nilfisk where you want to grow through M&A or are you looking throughout the group?
It is mainly a topic that we are following in Nilfisk, because due to current strategy in cables and also new strategy, acquisitions is not really what is driving the agenda. It is more, as I mentioned before, the excellence in the different part of the business. Having said that, we do also allow ourself to look into unique opportunities like we did when we acquired the Ericsson business some years back. That acquisition have turned out to be extremely successful. An acquisition like that is not something that we are taking off the agenda. But it is not top priority.
If you look at your target list in Nilfisk for companies that you would like to acquire, how does that pipeline look?
We started strongly here last autumn to build the pipeline, and the pipeline is still very strong. These initiatives and the drive for this continues.
Okay. Thank you. That is very helpful.
Thank you, Jon.
Okay, once again, if there are any further questions on the line, please dial zero one now. We have one further question coming through. That is from Zelman of Carnegie. Go ahead, sir, your line is open.
Thanks. I have a few questions, too. The first question goes to Nilfisk. The gross profit is actually up year-over-year, and if you look at the EBIT, it is also, I guess, up year-over-year if you adjust for the distribution extra cost or delivery extra cost, despite the zero growth. Is that FX driven or what is behind that trend?
FX.
That is purely FX?
Yes.
No, we did not answer. I was just explaining, Jonas, your-
Yeah, I didn't hear what you said.
Your question. I was translating it.
Okay. Can you hear him clearly?
It's partly, of course, there are some currency impact in the numbers. Since U.S. is trading below average gross margin, it is not entirely due to that. It is also a mix issue, and then we have worked on gross margin. As you know, we have also increased prices, by the way. So it is a mix of issues.
We had a gross profit, a negative effect here in the mix in the second quarter, but year to date it is a positive effect, yes.
Okay. Then going to the cable business. Within the products area, as you said, you are guiding for this flattish. Can you split up between volume and prices? Because you previously have mentioned that few sub-segments have seen positive price trends.
Yeah. I cannot give you a firm number on it, but you are fully correct that we have been positive on price increases, and we are still, and we are also increasing prices. So there are negative volume effects in some of the areas, and that should not be of any concern to you because, as I also have explained earlier on, we started up this pricing initiative beginning of the year, and that also means that we from time to time are saying no to customers if we do not think that the profitability level are where it should be. Of course, in the end, we need to grow the business. But currently, we are more focusing on profitability than growing the top line.
Sure. Okay, thanks. Then just a final quick back to Jonas. On slide 16, you mentioned that delivery performance is back at all-time high level. How do you measure that?
Delivery accuracy, delivery service to our customers. So when it comes to how many deliveries we are doing in right time compare with expected from the customers. That is up on a very high level, and it was a long time since we had a level like that. So on that part, we are back. Then, of course, as I also mentioned in the presentation, we still have a work to do to regain the confidence and trust that we will be able to keep that on this level.
Okay, thanks. Do you see some more important clients have put you on hold, waiting to see how your delivery performance is performing?
No. That I cannot say. Actually, to be very honest, first or second quarter, I was a little bit afraid that some of our big customers would turn their back on us. But that only shows that the market, they have more competitors that have a similar problem, because I think on the other hand, we have been able to keep all the customers. But of course, we have lost single orders because some customers had to take it from other sources when we couldn't deliver. But we haven't lost any big customers, no.
Okay. Thank you.
Okay. As there are no further questions on the line, I will hand back to our speaker for the closing comments.
Thank you, operator. Let us just turn to slide 35 with the official invitation to investors, analysts, and media to the Capital Markets Day in Copenhagen at 23rd of September. We will have three main focus areas during the day. One will, of course, be launch of the new NKT Cables strategy, and I will head that. Then we will have, together with my management team or part of my management team, then we will have a strategic update on where we are in Nilfisk that Jonas will take care of. Last but not least, we will also be able to present Basil for you, and he will, of course, also give his early days view on the strategy plan for the Photonics Group. So I look forward to see, hopefully many of you there.
If not there, then we are coming back to you with third quarter announcements, November 12th. So look forward to talk with you there, if not earlier. With that, we can then end the call. So thank you all participants for listening in. Goodbye.