Good day, and welcome to the Q2 2018 Earnings Conference Call. Today's conference is being recorded. I this time, I would like to turn the conference over to Mr. Tim Langer, Head of Investor Relations. Please go ahead, sir.
Good morning, ladies and gentlemen, and welcome to our Q2 earnings conference call. With me today is Ute Wolf, our CFO and Timothy to pass on directly to her for the presentation followed by the usual Q And A.
Thank you, Tim, and also a warm welcome from me. Thanks for taking the time to be with us today. After the press release of our second quarter results mid July, I am happy to confirm our strong set of numbers and continuous progress in terms of the step for the Masaculous divestment. A teaser has been sent out to a broader group of potential investors. The overall process is fully on track.
With regard to our SG and A efficiency program, the analysis of all admin and sales functions has been completed. As a result, we will reduce headcount by up to 1000 over the next 3 years. And progress is already visible in the 1st 6 months of 2018. Looking at our P and L, admin costs are 5% below last year's level Following our already good first quarter, we delivered further clear improvement in all KPIs in Q2. We are seeing ongoing strong demand in our 4 growth engines, health care, smart materials, specialty additives and animal nutrition.
The second quarter results also show first positive effects on our efficiency programs and structural business improvements. We achieved positive volumes in the 2nd quarter with a good development in Nutrition And Care And Performance Materials. In Resource Efficiency, volumes again reached the already strong prior year level. Utilization rates are high in some businesses, here our new capacities coming within the next month are much needed. However, railway strikes in France had a quite pronounced a negative impact on the segment's volume.
5 is the fact that the earnings growth is broad based across all three segments. This year, we will see the strongest earnings growth in our 2 growth segments, Nutrition And Care And Resource Efficiency, both clearly exceeding prior year. Within these segments, earnings growth is very broad based. In Q2, all sixteen business lines within Resource Efficiency And Nutrition And Care exceeded prior year earnings. This is quite outstanding and proves our increased performance orientation, across the whole organization.
Alongside earnings growth, margin expansion is similarly and mainly driven by our 2 growth segments. Now on to a very important KPI, the free cash flow. We are pleased to report substantial progress also on this end. In the usual seasonality, the 2nd quarter bears substantial cash outflows, but still we achieved a free cash flow of plus 1,000,000. This is roughly 1,000,000 above prior year.
In the first half of the year, our free cash flow reached 1,000,000, which is also considerably higher than in 2017. Our performance exceeds the pre release indications of an only just positive free cash flow for the first half. The significant improvement was mainly achieved by a higher operating earnings base, efficiency gains and an increased cash awareness on all levels of the company. Before we go into the quarterly performance of each segment, I would like to highlight Resource Efficiency. Has been developing into an outstanding business in our portfolio.
Our strong performance in Q2 was particularly driven by resource efficiency. This doesn't come as a surprise, the segment benefits from its high quality portfolio. No single business accounts for more than 20 percent of earnings of the segment. Most importantly, Resource Efficiency has been a 1x major free cash flow contributor over the last years. Based on strong core technology platforms, the segment serves the various industries with more than 100 different high performance environment, frankly, and energy efficient products.
Let me now go into more detail of the development in the segment. In Resource Efficiency, we have seen an outstanding quarter where everything went extremely well. All nine business lines delivered year on year higher earnings. This is rather exceptional as the nature and strength of this specialty segment is that slight up and downs do easily compensate each other. Copacities are running at high utilization rates to meet the ongoing strong customer demand.
This is, for example, the case in silica or high performance polymers. The situation will ease in 2019 when new capacities come on stream. For example, the new precipitated silica capacities in the U. S. By the end of this year or our PA12 powder capacities, which are currently ramping up.
Looking into Q3, we expect another strong quarter as positive trends will continue. However, we will be most likely not repeat the outstanding level of Q2. Currently, we expect a more normalized level somewhere between the Q1 and Q2 levels. All full year, we are sticking to our Next is Nutrition And Care, our 2nd growth segment. The segment is built on non cyclical trends.
All end markets from Nutrition wire health to industrial special skills of a robust and resilient growth clearly above GDP. Businesses like health care, Personal Care And Comfort And Insulation are more and more contributing to earnings. They are currently driving the growth of the segment. As you know, some parts of Nutrition And Care do not perform up to our expectations at the moment. What we have addressed that via dedicated efficiency programs for instance, in animal nutrition or baby care, and there is more to come.
Let's have a closer look on the quarterly details. In Nutrition And Care, we achieved another quarter of pleasing and improving operational performance. Focused on higher margin products, business optimization and cost reductions supported the segment's margin improvement. Here, earnings in all seven business lines were up year on year as well. The biggest year on year earnings improvement came from Healthcare.
Utilization rates in farmer polymers and exclusive synthesis further increased as a result of a well filled project pipeline. An animal nutrition demand for methionine remained very robust. Volumes were higher compared to prior year, This was actually exceeding our own expectations after the already healthy volumes in Q1. The strong performance would continue in the second half. Consequently, we increased the full year outlook for Nutrition And Care.
Year on year earnings growth in this segment should be well above 5%, maybe even close to the 10%. Concluding with Performance Materials, the segment delivered another strong quarter, mostly driven by Ms. Equillates where the market environment remains strong. And with Aggregates market, we'll stay healthy going into Q3 as well. Based on a good first half of the year and a promising outlook for Q3, we increased our full year outlook for the segment we are Thanks to our strong performance in the first half and our increased confidence and visibility for the second half, we increased our group outlook for the full year.
We now expect an adjusted EBITDA above our range given so far, namely between 1000000000 and 1000000000. Additionally, we increased the outlook for With this positive view on the second half, I would like to close our brief presentation with reinforced confidence for our future targets. We, as the management team, are making progress on our agenda step by step. Strategy execution is well on track on the portfolio side with optimization measures on business line level as well as driving
cultural change and
cost efficiency throughout our organization. As a result, the operating performance is improving on
We will now take our first question from Paul Walsh of Morgan Stanley. Please go ahead, sir.
My first question is, Uta, I wonder if you could just give us a sense for how much of the SG and A savings, the $50,000,000 you've achieved at the half year stage, as well as the benefits from the business line actions, so amino acids and the acrylonic acid JV, and the synergy. So there's 3 different buckets how much have you seen drop through to the P and L in the first half please? That's my first question.
Okay, Paul. Good morning. Is that the first or the only question?
It's going to be the first, but I thought rather than wrap it on I just do it one by one.
Okay. So I answer this question now. Okay. So, I think for the SG and A part, that is very much dropping through. You see that if you look at the full P and L statement that you see the line by line on how we improved in the admin cost in the sales and marketing, of course, there is a volume element, but still the increase, it's much slower than the sales growth.
So if you take the relation SG and A wire sales. We really made a big improvement already. So that is more or less than the proof of this. The synergies also make their way for the bottom line and you see that margins have improved, in both of the segments where the synergies arrive. And for the specific business specific programs, we said 1,000,000 of the cost savings in animal nutrition will arrive in 2018.
I would say maybe roughly 40% is already in the numbers or not the full effect for the year. And Baby Care, 15,000,000 out of these acrylic assets, reshaping of the joint ventures. That comes more or less pro rata over the full year.
Okay. And in terms of the cash flow improvements that you've seen year on year in the first half. Two questions on that. The first is around the cash taxes, there's comments in there that there's different facing between the quarters this year. How much do you think has been deferred into Q3, Q4, I.
E, how much of the cash improvement is just the deferral or different phasing of cash payments on taxes? And the same question around CapEx. I noticed that CapEx was up year on year in Q2. So in terms of the phasing of CapEx, are we still looking at that number of a 1,000,000,000 for the full year? Thank you.
Yes, our CapEx guidance has not changed. So I think we're more or less pro rata on our way there. For the cash flow, if you look at the second half, we will have a significant improvement in working capital. So if you take our capital buildup has to be lower for the full year. On the other side, the phasing in the cash taxes is different from last year.
We will have higher cash taxes in the second half in the last year was exactly the other way around. Cash tax this year will be somewhat higher as earnings are higher. So I think that gives you some idea where cash is coming from in the second half.
Okay. And my final question please, just in terms of the disposal process on the Sacralates, Any sense right now is if you were to sell that outright to a third party, what the kind of tax liability would be? And if you could just remind me of the use of proceeds, please.
Yes, I think for the taxes, it's too early to give, precise indications as it really depends how it is structured in the end. The process is on track. So I talked about that in my speech. We started to send out the teaser we received quite a number of interest here, but that was expected. We will now do the more detailed work for the financial book, data room due diligence preparation or that then do the next step after that.
Our use of proceeds, we said we will we invest into growth, both organic and also potentially acquisitory. But really please keep in mind, we are not in a rush here. We have no pressure from whoever, also not from ourselves to do something immediately and a certain portion will most probably use to improve our capital structure. You are surely aware that we still have quite substantial pension liabilities. We funded already a dedicated part of that, but the question is, is there a more optimal point on the curve and this is what we're looking at now.
We'll now move to our next question from Gunther Zechmann of Bernstein. Please go ahead.
Hi, good morning, everyone. Ute, you highlighted the high operating rates in resource efficiency in your prepared speech. Volumes in that segment were flat and the capacity conference are currently putting a ceiling to the growth if you want in that segment. So Can you just outline what we can expect in the volumes in that business. And the second one also on free cash and the guidance of notably higher Can you help us be more quantitative around that if that's possible for this year, but also if you could give us some idea of the moving parts into 2019 around free cash and also cash conversion, please.
Yes. Good morning, Gunther. Thank you for your question. Maybe on Resource Efficiency volume growth, what is really important to keep in mind that we have quite a notable effect coming from the railway strike in France where we could not deliver 2 fronts and this was a high volume part of the business. So the effect is maybe relatively strong pronounced, although you might not have read in the newspaper.
So that was really a very specific effect of Q2. If we look at the capacities, starting with silica, we are building a new production plant for precipitated silica in the U. S, which will be ramping up by the end of this year. And the plant is needed and designed to just to supply the local tire industry in the tire belt in the U. S.
In fumed silica, we are currently investing a double digit €1,000,000 amount to expand our fumed silica capacities in Antwerp It's a highly profitable investment assets at the bottlenecking and also an optimization in the operations and production So that will be even more profitable afterwards. Startup is targeted for beginning of next year 2019. Additionally, we are currently ramping up our new PA-twelve Powder capacities in miles. So that is for the 3 d printing if we look at our acquisition, Air Proform Air Products, the Pasadena plant, which was newly constructed 2 years ago, is still ramping up In other businesses, we are also had some capacities left. For instance, in crosslinkers, we opened a bigger a scale, a world scale plant in China some years ago.
So overall, we have a wide diligent capacity planning So the business lines really make their master plans when they plan for future growth. They have it on the red screen. Overall, we are enjoying high utilization rates. Of course, that gives us some pricing power and helps margin everything but the design and the planning of new capacities is on its way, and that's the normal course of the business. So from that point of view, resource efficiency, we had seen it in the last years, very well on track in very, very solid, very reliable performance, not very sensitive to economical swings or cycles.
So from that point of view, we are very confident that they will go on on this path. Free cash flow, we discussed already a little bit what drives the cash flow in the second half. Notably higher. What do we mean by that? I will put it in a very simple sentence.
The number has to start with the 6. And I hope that points you into the right corridor.
And any thoughts around 2019? Anything any further levers that you can pull to improve the cash profile?
If we look at our portfolio, I think we have a lot of businesses which are already on a very good track We have seen that in the first and the second quarter of this year, we are working on all levels in the business lines, in the product lines, to really improve product mixes, improve efficiency and all that. So from that point of view, I think the SCENE is set for further stable and reliable growth in all the growth segments we have. If we look at the overall economy, we have good visibility for 2018. So, but not much beyond like everybody else in the market and in the sector, we are really working very hard to improve the KPIs like EBITDA, EBITDA margin, free cash flow, the organization, really received the wake up call. And I think you see that in the first half development.
So we have know where we have to be and we will work very consistently to show the growth path and the cash generation path, which the investors expect from us.
I meant more for 2019 on the free cash flow, if there's anything that you haven't cracked through yet like pensions or working capital where you see some areas you can address that you haven't addressed yet?
That is part of our daily work, and this is part of our improvement program and that is true for 2019, but also the years beyond.
Okay. Thank you.
We'll now take our next question from Christian Faitz of Kepler Cheuvreux. Please go ahead.
Yes. Good morning, Ms. Walt, good morning, Tim. Three questions, if I may. I asked them one not one at a time, but all in a row.
First of all, the higher pensions versus the fiscal 'seventeen level, what is behind the, more than 500,000,000 rise And then, just a general question. In your industrial activities, do you currently see a more pronounced Amalal or just the same old normal seasonal tip. And then final question, some of your peers in the coatings precursor market are reporting about a slow business development in Deco in Europe. Do you also see this in your Additives business at present? Obviously, I'm asking this well there of your positive remarks concerning Q2, but what is the current Q3 trend there?
Thank you.
Okay, question. Thank you very much for your question. Higher pensions, it's 2 influences. 1 is the interest rate, which dropped a little bit in Q1 already. And then we have in the mortality, of course, we have regular changes in the mortality rate.
So that was also a smaller influence in Q2. On the industrial activities, we've at this time, we really see a good demand, we see a good business development. So no signs of weakness that we see. Of course, in the general political and economical sphere, there are risks I think we're all pretty aware of that. But from today's point of view, we have no signs of a slowdown in our activities.
To your questions, in quoting additives, we do not deliver so much into the deco paint and the deco part of that. We benefited from high demand for waterborne coatings, especially in China. So from that point of view, we are not so much exposed to that part of the market.
So it's mostly industrial and
mostly Asia, which is going well for you.
We'll now take our next question from Michael Schafer of Commerce Bank. Please go ahead.
Yes, thanks for taking my two questions, basically, good morning. The first one, the results efficiency, you already proliferate basically on the volume outlook potentially for the second half. I wonder on the pricing side, you stated in the fact sheet basically that your internal raw material cost index is slightly higher. So should we expect basically this kind of positive pricing environment see over the past quarters to continue heading into the second half and also related to resource efficiency. I wonder looking at the, on the portfolio part of your sales growth you reported, I noticed RAVA strong $82,000,000 sales in the 2nd quarter, 20% up.
Is this all related to Hooper? So should we translate this into Hubert's performance shown in the 2nd quarter compared to the first one. This would be my first question. And the second one is on Nutrition And Care. The second quarter, we have seen flat pricing, reversal of a trend we have seen in the first quarter.
So I wonder whether it can shed some more light on where this is coming from and where do you see this evolving basically heading into the second half with potentially also the the headwinds or the base effects getting lighter in the thionine pricing? Thank you.
Okay, Michael. Thank you for your questions. Good morning. In mix effect, especially in our coatings business. So that maybe is an effect to be kept in mind.
On the other side, if we see raw material price increases arising, of course, we incorporate that into our into our pricing policy. I think especially for RE, they are the overall raw material bus more or less flat. So it's a little bit different from the very much oil linked raw material basket that you see somewhere else. So I think for Resource Efficiency, it's more really a specific mix of, trends that we have seen. The sales increase was not only due to Uber.
I think the numbers of Uber are known, so you can really see what is the addition coming from the 1st time consolidation and what is then organic growth. In that segment. So Christian and Keya pricing, let me start with methionine methionine was, overall stable in prices. We have had some headwind from the FX. I might remember that from our last call.
So we've seen really stabilized prices on our methionine business. We see a good volume development. So even a little bit better than expected. If you think of pricing, in Nutrition And Care of course, we had better mixes, product mixes and personal care and household care, where sometimes volumes are a little bit hurt, but prices develop a very nicely alternate interface and performance, and to a certain extent, course, baby care has an influence on pricing as they have passed on mechanisms for raw materials and are still relatively high volume business. So that is the bits and pieces of pricing, the pricing landscape for Nutrition And Care.
Okay. Thank you.
We'll now take our next question from Sebastian Bray of Berenberg. Please go ahead.
Good morning and thank you for taking my questions. I would have 3 please First, Lewis on the improvement in cash flows. Can you give any outlook on your fortress to avoid its ability to cover its dividend post the divestment of MMA, which I assume will take place at the start of end of this year start of next. Given the underlying improvement in group cash flows, second is also on cash flow. To what extent do you think you have completed the easily available measures for cash flow improvement Is this a process that as is the case for cost savings is likely to stretch into 2020?
And lastly, more of a technical point on resource efficient see. The slides, I think you mentioned said that, at most, 20% of the, a very single largest business unit does not rise more than 20 percent of earnings in resource efficiency. Is this likely to remain the case as you ramp up for 2 new fumed silica facilities Thank you.
Okay. Thank you very much. Yes, I start with the last question. I think as all other business lines in Resource Efficiency also have capacity additions here and there, that general pattern will not change very much even if silica has new capacities. To your first question, the contribution of methacrylates to the free cash flow improvement.
So our free cash flow improvement was driven by higher earnings throughout the whole group and a strict cash focus on all levels. So that really is making everybody busy, not only one business line is keeping everybody busy, not only one business line here. The earnings improvement is broad based. So it's really all sixteen business lines of our Nutrition Care And Resorts efficiency. They have produced higher earnings.
So that is not just one product or one business line that is driving this year. The divestment of the MMA business is strategically the right decision. The timing is from our point of view very good as we have streamline, they'll have already optimized the business. The market is in a good shape. So from that point of view, I think it's a good timing to now go undertake that step.
If we look at the cash flow contribution, I'm sure you are aware of the main KPIs like sales and EBITDA margin and EBITDA, but they also consume roughly 100,000,000 CapEx in the whole group. So from that point of view, maybe the cash flow generation is not as strong as it might seem from the outside. We I have to admit we've had year where the cash contribution from this business was relatively modest. And so we are actually happy course, to enjoy the good situation, the good cash contribution from a finance business in our group. So but also from others like the performance of immediacy 4 chain and others like active oxygen.
So we have some who are really also cash contributors in the group. Going into next year, it is clear where our KPIs have to be. This is our task as management to make sure that the business development in terms of sales and EBITDA, but also in terms of free cash flow is according to the expectations of our shareholders and it's clear of course that the cash flow should be higher than the dividends. So that's one thing we have to deal with and one thing in the end where we have to reach the right level.
Makes sense. Thank you. And in terms of the extent of completions, the what I take from that is that your shareholders expect you to cover your dividend and therefore you would hope that you would be able to fill that in 2019, please correct me if I have misinterpreted this. And the extent of completion is, so am I right in saying that we're likely to see a steady improvement in underlying cash flow through to 2020, which happens as you pull the same levers you are currently using for cost savings?
As we develop the portfolio more to a high margin for more efficient organization, that in the next step leads to a better cash generation. We have to have an eye on our CapEx. We do that now for the last years already, you see how we manage that. We have to make sure that the CapEx spending is efficient, also given the growth needs we have. This is our normal management schedule that we, proceed So from that point of view, we know where we have to go and it is our task and our management task to deliver that.
All right.
Thank you very much.
We'll now take our next question from Thomas Swaboda of Societe Generale. Please go ahead.
Yes, good morning. Most of my questions were already asked. One left for In terms of your leverage, net debt to EBITDA, we'll be approaching one times at the end of 2018. What is the range where you are feeling comfortable with with your net debt, please?
Yes, Thomas. Thank you for the question. We are not monitoring, only the leverage for the net financial debt. We have to incorporate the pension debt as well because this is what the rating agencies take into consideration If we take this total financial debt or this total debt, excuse me, together, we are around three times. Which is, we monitor the rating, you might have noticed that, that we said a good, investment grade rating which leaves some room for higher leverage, but not too much.
So I think we're more or less at a good level.
Perfectly clear. Thank you.
We'll now take our next question from Nodhinkle of Equinix. Please go ahead. Yes,
good afternoon, everybody. Four questions from my side, please. The first one, could you on MiS09, could you update us on your current view on future capacity increases in the industry, how you see it? Secondly, on the proceeds from the disposal of crylets. Would you rule out a specialty blend at the moment?
Or as you mentioned, several other uses for the cash Thirdly, with regard to resource efficiency, You posted very nice margin today. Should we regard these margins as the new kind of cruising altitude for the next couple of years? And lastly, I would also be happy if you can say something on your perception on a good level of mid cycle margins for nutrition and care and performance materials. Thank you.
Okay. Thank you very much. I will shortly answer the questions, 2 to 4 and then Jim will elaborate on the methionine capacities afterwards. Proceeds MMA, I already described the use of proceeds. Special dividend is not on the list that is a clear understanding of the management board and also supervisory board.
From today's point of view that situation. Margin in Resource Efficiency, the margin in Q2 was very well. We said everything went extremely well that quarter, normally in normal quarters, resource efficiency is more like 22.5 percent, 23%. I think that's a normalized margin. This is what they have proven in many, many quarters.
So from that point of view, Q2 was a perfect quarter for them, and this is where then the margin was. We see no peakish environment. We are developing our capacities. We see good demand in all and robust demand in all the sectors we deliver into as the reach is so diverse. There is no single market where we are especially dependent on.
So from that point of view, I'm pretty confident that RE will continue on the path of consistently and very reliably good growth with good margins as I described. Reliable margin for Nutrition And Care, as it is one of our segments. So it should be, of course, higher than it is today. They already made good progress, on their way, but I think they should be also over 20 in the next years. But again, this is a step by step process.
Performance Materials has a different pattern, in their dynamics. So here a normalized margins is more a low to mid teens, and they are now a little bit above that, but that maybe gives you some idea where a normalized Martin level could be.
Yes, thank you. Yes, Anu. On the methionine capacities, I think no news here, the announced capacities are expected, the 2 new capacities for the second half of twenty eighteen or twenty nineteen. Let's see when they finally come. We have 3.40 kilotons from Adiceo in Spain, second half twenty eighteen, most likely, maybe 2019.
And we have the 100 KT from Sumitomo in Japan, similarly expected second half twenty eighteen, twenty nineteen so far. And that's what we said also in the reporting. We are seeing good volume demand. I think in Q1 and in Q2 has surprised us even somewhat on the positive side. In the second quarters.
Also for the third quarter, I think we can say we're already today, well covered. I think this is a good indication that also going forward demand Stays healthy, although we need to see whether it stays on the good levels of Q1, Q2 might be just for customer destocking and a bit of seasonality might be a bit down in the second half, but otherwise, demand stays good, as I said, well covered for the third quarter. So also going forward, we are looking at the supply demand balance to continue in that market at, again, stable prices in local currency on a more normalized price level. So all good.
Okay. Thanks.
We'll now move to our next question from Jeff Haire of UBS. Please go ahead.
Good morning. I just have a couple of questions. In your opening remarks, you made a comment that resource efficiency is the biggest contributor to your free cash flow of a group for the group. Could you just give us some idea of how big a contributor it is in percentage terms? And then also just on the cash flow, looking at cash provisions, which I think you've guided to will be somewhere in the region of 1,000,000 for this year.
What can we expect going further out is that a number that we should expect for the next 3 to 4 years or is there stuff that you can do to bring that number down?
Geoff, could you please repeat the second question? I'm sure
in your free cash flow, the cash provisions that you have or the cash adjustments that you have, I'm just wondering what level they will be up into 2019 2020.
Payout from provisions, that is what you mean?
Yes, yes.
Yes, maybe to your first question, contribution of our resource efficiency, the free cash flow Of course, that differs a little bit from year to year, so I would not be very, very reasonable to give you a precise number. But if you look at the nature of the business. It is not so CapEx intense. It's really a very stable growing business at good margins. So that really drives the cash generation of that business and also the cash contribution to the group.
If you compare it to the other segments, which are here and there have big investments to do. So maybe that gives you an idea how the relation could be. Payout from provisions this year is not so much different from last year. There are some early retirements effects that we have. But this is more really a smaller double digit amount And that will be the level also for the next years going forward.
So there is not besides this early retirement, there is not such a big structural change in that.
Okay. Thank you.
And, of course, that this early retirement payments are to a certain tend payouts from restructuring programs of the past. So depending which which kinds of form we take for our SG and A program. This might also be influenced in the next years.
We'll now take our next question from Laura Lopez of Baader Bank. Please go ahead.
Hi, good morning. So first, I would like to know what is the main driver for the strong performance in the health care business. So is it more the CMO or the specialty polymers for delivery systems? And how are the capacities in this business? Are you also coming close to working at full rates?
And secondly, on Baby Care, one of your competitors mentioned that the situation gotten even worse how do you see that? So I know that now you're of course benefiting from the changes you are doing, but in general, how do you see the general supply demand situation and also from the demand side in the business? And then lastly, so several industrial technology companies are becoming very cautious, expecting a significant slowdown in the automotive. Business in the second half of this year. Can you remind us what is your exposure to the automotive business and also how how good is your visibility for the remaining of the year?
Or maybe just is it just only under the third quarter that you have your visibility or or do you expect the full remaining part of the year to be also positive?
Okay, Laura. Thank you very much for your questions. I will answer your two last questions, and then Tim will explore rate on the health care development. Yes, baby care, We also stressed at several times. It is stable, but on very low levels.
So we see no real signs of recovery there. We do homework to improve our cost base, sort of, to keep the overall level in an acceptable shape, but I can only agree to that. There is no sign of improvement. And from today's point of view, that might take still a while until we see better times there. Automotive, we are not so much exposed to automotive.
I think for the overall group, it's between 10% 15%. But please keep in mind that we really deliver into various specific applications where you sometimes have, a different cycle than in the normal automotive cycle. If there are, we placements and other things. If it comes to the tire portion of it, there is also replacement tires So from that point of view, we're maybe not one to one exposed that is as it might seem at the first glance. From today's point of view, we see no signs of weakness, but again, of course, our foresight is a couple of months but again, from today's point of view, no slowdown on the horizon.
Laura Healthcare. We are at the moment very happy with the business. I think Ute said it in the 2nd quarter in Nutrition Care the biggest absolute earnings contributor in 1,000,000. So this is, in the meantime, the driver of the segment, if you want to. And, I think happy also with the utilization rates, you know, the typical new site in the U.
S, which we've taken over. This is finally working very nicely on high standards, good quality levels and at increased utilization rates. At the same time, and you said that we are expanding capacities and have to expand capacities here. This is what we're also doing in the U. S.
Two locations. The one is the facility we've taken over from Transferra, small acquisition in Vancouver, And the other one is the Birmingham laboratories in the U. S, both for polymer and liposome based dosage forms. This is mainly the drug delivery business. And here, we are expanding over the next year's total investment is 1,000,000.
So we absolutely, we are confident to keep this track in the health care industry. And often in this case, if we're talking about expansions on new projects, new products, You also have to keep in mind that these are often customer finance and more and more customer finance, we have to say, in the past where we struggled here that we are now seeing strong customer commitment and customer prepayments for new projects in that business. So summarizing at the business, we are currently very happy with.
Great. Thank you for the question for the answers. And then I have one more is just like kind of a housekeeping. So the adjustments have been lowered than expected in the 1st 2 quarters. So of course, you have less integration costs that you had last year, but is it a run rate between $30,000,000 $30,000,000?
Also good for the next quarters? Or do you believe that some restructuring costs might be might increase? And then in the second half, the adjustments might be a little bit higher?
Yes. I think what will come is the provision for the SG And A But I can't give you the precise number now. Besides that, we might have some smaller restructuring efforts to do as we are working on the portfolio, but that will not be to a large extent. And very honestly, we really do not plan for that as we really try to keep a good operating business and not so much rely on adjustments here, but there might be some smaller portions from, restructuring in one or the other side or one or the other product line here and there. As you have seen it in the past.
And then a bigger chunk for the SG and A program where we set the 1000 FTE. It depends. Which form of measure we will take in the end to have the precise number. So today, I cannot give you really precise number that can only be booked when the headcounts are also fully identified in which legal entity. They are, so it's a little bit technical here.
But if you look back on our admin excellence program some 5 years ago, we had more or less the same magnitude of personal reduction. And maybe that gives you a little bit of feeling where the one time cost might be.
Maybe as a request
for the outstanding questions, I think we are running here a bit ahead of time, maybe the last remaining participants in the Q, Q'd limit their questions to just one. Now you have to rephrase your sentences very smartly so that you put your 4 questions into one sentence.
We will
now take our next question from Andreas Heine of MainFirst. Please go ahead.
So then I try a complex on the resource efficiency. Resource efficiency, you mentioned that everything went very perfect in the second quarter. Now 1 month is over in Q3. Do you see already a change in what went so well in too and might not be so well in the second half. And related to this, you said that the product mix has improved and that has also increased the margin, which I would think is something ongoing.
Looking not only in the product mix, but also on this segment, the business unit mix, is the improvement in the margin, what we have seen in Q2 also driven by a different, percentage split of the various business units or was it broadly based that the margin improvement happened in the same quarter?
Yes, Andreas. Thank you for your question. As I said, it was a quarter where everything went extremely well. We've given you some indication that Q3 is between Q1 and Q2. So also a good growth in the longer line I describe what could be a normalized margin for resource efficiency.
And I think there is not so much magic around that. It has been just a very good quarter. That happens. Sometimes you have it on the other side where GBP 20,000,000 are missing here and there. So from that point of view, I hope that is enough information points for you to work on that.
Thanks.
We'll take our next question from chetan Udeshi of JP Morgan. Please go ahead.
Yes, hi, thank you. Maybe just one, I had 2, but I'll restate it to 1. Can you just give some color we should think about cash taxes for full year, given that in the first half, it was there was some crazy impact. I think P and L taxes more than 1,000,000. So how should we think about the full year cash taxes on cash flow line?
Yes, cash taxes, as I said, 1st half was relatively low. In the second half, we will have Then, yes, the biggest chunk of it overall for the full year, the cash taxes will most probably be higher than last year as our earnings are higher. So maybe that gives you a little bit of feeling on the other side keep in mind that net working capital still has to be reduced significantly in the second half as well. So that's more or less. Than counterbalancing on the cash side.
Sorry, so did you say the cash taxes won't be higher than last year? I didn't understand. So will it be higher
as the earnings are higher.
Okay. And is that a strange? Is it more like maybe not as much as P and L of more than 400, but somewhere between 350 to 400, is that the right range to look at?
I think if you look at the cash taxes of last year and add up more or less the earnings growth, then you're more or less there. We
will
now take our final question from Martin Evans of HSBC. Please go ahead.
Yes, thanks very much. It's just a very quick question. I mean, obviously, it's always delightful and interesting speaking to you,erton and Tim, but I'm just wondering, and you may have addressed this before, why the CEO is not on this particular call? And I wouldn't have asked that except I noticed in September that the management, he's also not there and the deputy is there. Is there any particular reason or is this just logistical, complications?
Martin, I think from our side, just some organization issues for the meet the management, the agenda and we've sent out the invitation. This is an operational event, and you've seen it. It will be on our growth segments nutrition and care resource efficiency. We'll do a deep dive here and we'll have a broad audience and a broad number of participants from the segments, not only the segment heads, but also the, some of the business line managers there. So you meet quite a few number of Evonik representatives, which also you don't know yet.
So I think this is interesting. We'll be joined by the Deputy CEO, how H Fargo is responsible for the operating businesses. So this is the focus the media management. And I think therefore neither CFO nor CEO are there to make it really. For you an interesting day on our growth segments.
And for the call today, I think that's not unusual. We've done it in the past as well. It was either CFO or CEO or both, and we always had calls. You remember that in the past, where we did it only with CFO, this is call where we had the pre release already in July, 17th July. So we also didn't expect it to last on our no way ahead in our, I think there's limited news flow today.
So, I think that's as easy as it is.
This concludes today's question and answer session. I would now like to turn it back your host for any additional or closing remarks.
Thank you. Yeah, ladies and gentlemen, before we come to the final end of today's call, I would like to invite you to our meter management on September 14. You should have already received the invitation via email last week As Tim said, Harachwager, as well as our growth segment heads, Rhina Best and Clossoatic are looking forward to meeting you in London and explaining, the growth stories of their segments. Thank you very much for your attention today and goodbye.
This concludes today's call. Thank you for your participation. You may now disconnect.