Welcome to the conference call regarding the publication of Gerresheimer AG's Q2 results 2015. At the moment, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Now I hand over to Mrs. Anke Linnartz, Corporate Senior Director, Investor Relations and Creditor Relations at Gerresheimer AG.
Good afternoon, everyone, and thank you for joining us to review our second quarter results 2015. As we did in the past, we are presenting a set of slides to accompany our remarks on this conference call. The quarterly report, the slide presentation, and the press release are posted on the investor relations page of our website at gerresheimer.com/investorrelations. Please note that this call is being webcast live and will be archived on our website. With me today are Uwe Röhrhoff, our CEO, and Rainer Beaujean, our CFO. Before we start, I would like to remind you that the presentations and discussions are conducted subject to the disclaimer. We will not read the disclaimer but propose we take it as read into the record for the purpose of this conference call. Our agenda for today starts with the presentations by Uwe Röhrhoff and Rainer Beaujean.
After that, we will enter into a Q&A session. It's now my pleasure to turn the call over to Uwe.
Ladies and gentlemen, good afternoon and welcome to our call. Let me start and say that I'm pleased about our results in the second quarter 2015. We are presenting a strong set of results fully in line with our expectations. We saw solid growth in revenues, driven by favorable currency tailwinds, resulting in a growth rate of 6.3%. Organically, we recorded a gradual pick-up in revenues of 1.9%, as expected. Organic growth rates accelerated in Q2 2015 compared with Q1 2015 in all our divisions, but especially in Plastics & Devices. Earnings on adjusted EBITDA level showed a strong upward move by 10.6% to EUR 72.1 million, and adjusted EPS was up 15.1% to EUR 0.84. We recorded good product mix in Plastics & Devices, but also Primary Packaging Glass showed good results based on improving demand situations. Operating cash flow also advanced substantially.
The improvements also reflect the fact that CapEx is not evenly dispensed throughout the year, Most of the spending will come in the second half of the year. Let us now focus on the divisions. In Plastics & Devices, we saw very strong revenue growth in inhalers and diabetes care. Rights from tubing revenues faded away as expected and communicated. The adjusted EBITDA clearly profited from a positive revenue mix. In our Primary Packaging Glass division, we saw increasing demand in the U.S. for our pharma glass bottles. Adjusted EBITDA increased on a better demand situation, Also because we had no major furnace repair. Additionally, as part of our portfolio streamlining that we announced last year already, we decided to consolidate our molded glass operations in the U.S.
We will bring together all our pharma Type I molded glass production at our Chicago Heights plant and decided to close our molded glass plant in Millville, U.S., in the third quarter of 2015. We will start the expansion and infrastructure improvement of our Chicago plant in Q3. This is well on track, This move will improve product quality and productivity. In Life Science Research, we profited from currency tailwinds, as this business is nearly 100% U.S. dollar-based business. After the balance sheet date, we completed our refinancing and announced the divestiture of our tubing business, I would like to make a few comments on the deal we announced last week. Just go with me to slide six. I'm very pleased about the transaction with Corning. After the sale of the tubing business, we will fully concentrate on serving the market with pharmaceutical packaging products.
This is our core competency. Glass tubing is an intermediate product. We produce borosilicate glass tubing in our two tubing plants and sell the majority of the products to our own converting plants worldwide. To a lesser extent, we sell tubing to external customers. At our converting plant, we manufacture the end product out of raw tubing, such as ampoules, vials, cartridges, and glass syringes. Since the tubing remains a very important material for us, we entered into a 10-year supply agreement with Corning. Supply is safely secured. Corning has a very strong expertise in glass, material sciences, and material innovation. They are well positioned to manufacture and further develop glass tubing for Gerresheimer and the products we supply to the pharmaceutical industry. The deal also reduces CapEx requirements. CapEx will be lower because the tubing production is a capital-intense business due to frequent furnace overhauls.
The deal will be supportive of capital returns. This should be good news, too. In full year 2014, the tubing business stood at EUR 83 million in total revenues, internal and external, with an EBITDA margin of about 23%. However, given that CapEx requirements are high, the EBITA margin came in at about 11%. Sales proceeds out of the deal will amount to EUR 196 million. What we also announced last week is a joint venture with Corning. The rationale behind that step is that we want to accelerate innovation for the pharmaceutical glass packaging market. We believe by combining our strengths, we can do more together than either company can do on its own. We combine Corning's know-how in material innovation with our product and end market know-how in pharma and healthcare. This is how we will accelerate innovation for the pharmaceutical industry.
Corning will hold a 75% stake in the joint venture, Gerresheimer 25%. The closing of the transaction is subject to certain conditions as well as regulatory approvals. Closing is expected by the end of 2015. We view this as a long-term partnership with Corning based on the core competencies of both companies. I now would like to hand the presentation over to Rainer, before I will get back to you to walk you through our guidance.
Thanks, Uwe. Ladies and gentlemen, welcome also from my side. Let's have a look at the revenue development and the relevant effects for the second quarter 2015 on slide number eight. On group level, revenues were up by 6.3% and amounted to EUR 356.4 million. Excluding the effect of foreign currency movement as well as portfolio optimization, acquisitions, and divestment, organic revenue growth quarter-over-quarter was 1.9%. Like in Q1, we had a strong and positive currency translation effect, which can mainly be attributed to the US dollar, the Chinese renminbi, and the Indian rupee, as these currency were all stronger than the euro. You can see this pattern of stronger reported growth rates compared with organic growth that's in all of our three divisions. Let's start by having a look at the Plastics & Devices division, where the growth came in at 5.3%, helped by currency translation.
The organic growth rate amounted to 4.6% and reflects very strong growth in part sales, especially in inhalers and diabetes care. Also, primary plastic packaging products made a contribution to growth. On the other hand, the tooling and engineering revenues, which had been abnormally high in the prior year second quarter, came back down to a more normal level and dampened growth a little bit. Overall, in organic terms, 4.6% growth means that Plastics & Devices proved again that it is and will remain our growth engine. In the Primary Packaging Glass division, the soft demand that we saw in the first quarter 2015 did improve in the second quarter. Organic revenue growth was -0.9%.
On the one hand, this was caused by the softer demand due to some FDA-related issues in the plants of our U.S. customers, which we managed to partly offset with effective countermeasures, like the extension of plant holidays in the U.S. On the other hand, we decided to close our molded glass plant in Millville in Q3 2014 as part of our portfolio optimization efforts and going forward to produce all molded glass products in our Chicago plant, which will be fully modernized in Q3 2015. Despite these temporarily dampening effects, positive currency translation effects did push revenue growth well into positive territory, and reported growth in Primary Packaging Glass amounted to 5.6%. Finally, in Life Science Research, the strengthening of the US dollar quarter-over-quarter caused a 20.9% rise in reported revenues in the second quarter 2015.
This positive development was almost purely thanks to euro-U.S. dollar exchange rate movement, and organic growth was 0.4%. The softer demand was due to temporary dampening of demand of laboratory glassware in the U.S. To sum it up, we still saw muted customer demand in the second quarter, but organic growth rates improved markedly in all three divisions when compared to the first quarter. Sequentially, growth ticked up. In addition, the strengthening of our key currency, most of all the U.S. dollar, pushed the reported growth rates markedly up into positive territory. Overall, the development in Q2 and also the first half of 2015 were fully as expected. Let's move on then to the adjusted EBITDA slide, and that's slide number nine. Here, the development in the second quarter 2015 was positive, driven by good margin development in all three divisions.
The adjusted EBITDA margin in Q2 2015 was 20.2%, compared to 19.4% in Q2 of the prior year. The group's adjusted EBITDA came in at EUR 72.1 million in the quarter, above the number in the prior year's quarter, where it had amounted to EUR 65.1 million. In the second line of the slide, you can see that the margin in Plastics & Devices went up from 20.6% in Q2 2014 to now 21.5% in Q2 2015. This is coming from a positive mix effect from the increased inhaler and diabetes care sales in the quarter, but also the lower amount of tooling and engineering revenues when compared to last year. In Primary Packaging Glass, the margin also rose to 22.1%, and was higher than the margin level in Q2 2014, which had been 21.3%, given that we had no major furnace repair.
Finally, in Life Science Research, we achieved a margin of 14.5% for the quarter, which compares to a margin of 14% in Q1 2014. To sum it up, we managed to increase profitability in Q2 compared to the previous year, and that was achieved by a good business performance in Plastics & Devices, then also by our continued high cost discipline in Primary Packaging Glass. Please move on with me to slide number 10, which shows the improvement of our earnings figure in the second quarter 2015. Starting with adjusted EBITDA, which was up 10.6%, we first of all deduct ordinary depreciation and amortization, as well as the amortization of fair value adjustments.
Ordinary depreciation and amortization was flat in the quarter, while the figure for the amortization of fair value adjustments was lower and reflects the fact that some fair value adjustments have been fully amortized in line with their economic life. We have EUR 5.8 million of restructuring and one-off costs, which are mostly costs related to the closure of our molded glass plant in Millville, then also some costs related to M&A projects and the refinancing. The cost of portfolio optimization also relates to the Millville plant shutdown. After these costs, EBIT amounted to EUR 40 million, which is 5.6% above the figure that we recorded in the prior year.
The next items are the net finance expense for the quarter, which was flat quarter-over-quarter, and the tax charge, which was a touch lower, like the tax rate, which was 31.5% compared with the 32% which we had in Q2 2014. The combined figure for the finance expenses and taxes was slightly higher in this Q2 compared to the last Q2. As EBIT was higher quarter-over-quarter, net income also rose by a healthy rate of 7.4% and amounted to EUR 22.4 million after EUR 20.8 million in Q2 of the last year. Accordingly, both earnings per share and adjusted earnings per share were up by 6% and 15.1% to EUR 0.65 and EUR 0.84 per share, respectively. Overall, on the earnings side, it was for sure a successful quarter, with good improvements in all earnings metrics that you can see on the slide.
Let's then have a closer look at the key balance sheet and cash flow figures. Overall, we recorded a good set of results, meaning our balance sheet remains healthy and cash flow developed favorably. Total assets were up by 4.2% on the comparative quarter's end, and that's coming from higher current and non-current asset values, which was mainly driven by changes in foreign exchange rates. Excluding the positive effect from U.S. dollar to euro exchange rate translation, the total assets figure would have risen by a 0.5% rate. Group equity was up by 7.8% to EUR 615.2 million. Most of the increase is attributable to the continued positive development of group net income. Accordingly, the equity ratio rose to 36.2%. Net working capital was up by about EUR 37 million compared to the previous year's quarter.
A lot of that was coming from higher inventories, which was driven by the strengthening of the U.S. dollar and from a lower amount of trade payables as a reporting rate. As a percentage of revenues, average net working capital was up to 20% of revenues compared to 18.5% one year ago. At constant currency, net working capital was only about EUR 19.6 million higher than the figure one year ago. CapEx spending was 5.2% lower than in Q2 2014, but this is only a temporary effect, as CapEx for the whole year will be spent as previously guided for both growth purposes and also the continued implementation of our machine strategy in Primary Packaging Glass. Finally, looking at the key cash flow figures for the second quarter, what I can say is that all of them are up.
Main reason for that are the higher earnings figures quarter-over-quarter, as well as the lower CapEx spending compared to Q2 2014. Overall, the good Q2 performance is for sure also reflected favorably in the balance sheet and cash flow figures for the quarter. Speaking of cash, let's move on with me to slide 12, where you can see our financing structure. At the end of May, it remained very solid and provides us with funding security. The interest rates were completely fixed, and the bank debt and the bond have residual terms of about one and three years respectively. As already communicated on the occasion of our full year results conference, we intended to do a refinancing during this year, and we have done so in June, of course, without touching the bond. I will give you the details on that in a minute.
At the end of the second quarter, the amount of cash and cash equivalents that we had was EUR 73.4 million, our revolving credit facility still gave us more than EUR 100 million to draw on in an instant. The net financial debt figure of EUR 465.6 million was higher compared to the February 28, 2015 figures of EUR 441.1 million. This was also driven by the further strengthening of the US dollar with the euro since the end of Q1 2015. Also because of the last 12 months adjusted EBITDA improved further since then, the adjusted EBITDA leverage figure was only slightly up and still at a very good level of 1.8 times last 12 months adjusted EBITDA. That means at the end of Q2, we still had a lot of headroom within the then existing structure to continue to implement our growth strategy.
In order to profit from the primary market environment, we successfully refinanced our syndicated bank debt in June, right after the end of the second quarter. You can see all this on slide number 13. As indicated, we did not touch the bond. We refinanced the revolving and amortizing credit facility that we previously had in place. We repaid both and have agreed with the bank on a new syndicated and fully revolving credit facility. The improvements are as follows. First, increased capacity because the new facility has a capacity of EUR 450 million instead of a combined EUR 400 million before. Second, savings in annual interest expenses of up to about EUR 1 million per annum. Third, current interest rate based on drawings of EUR 225 million is at about 1.1%.
Fourth, foreign exchange rate flexibility because we can draw the facility in a combination of euro and US dollars. Fifth, we also have negotiated an improved set of covenants with net debt adjusted EBITDA of 3.5 times. The bottom line is this, overall, we managed to profit from the favorable market environment in June and successfully completed the refinancing, so we now have increased our financial capacity at reduced expenses. Before I hand it back over to Uwe, let me just wrap up key points from my part of the presentation. In Q2 2015, we increased the operating profitability of the company by 80 basis points to a 22% EBITDA margin, the same is true for EBIT, which we managed to increase by 5.6% to EUR 40 million.
Also, we increased reported earnings per share by 6%, and that despite higher one-offs and restructuring costs compared to Q2 2014. Operating cash flow also improved markedly to EUR 40.1 million in the quarter. Free cash flow was up by EUR 30 million over quarter on top. Last but not least, we successfully completed the refinancing of our bank debt facility, and now we have increased capacity here. At the same time we have reduced expenses. Overall, we continue to have a very strong setup in place that will enable us to execute on our strategy for profitable growth going forward. With that, I now hand it back over to Uwe.
Thanks, Rainer. Let me start with our guidance for the financial year 2015. We fully confirm our guidance. There is no change resulting from the deal that we announced last week. Closing of the deal is what we expect for the end of the year 2015. This is not anticipated to affect our guidance for 2015 at all. In the first half, we recorded a slight growth of 0.1% organically. As we have said earlier, we expect growth to further accelerate throughout the year. We should be fine and in line with our guidance. We expect organic revenue growth of 1%-3% for the full year 2015. The refurbishment of our Chicago plant actually started yesterday. In Q4, we will resume production at full capacity.
We will continue to invest in the future of our business with market being in good shape and the mega trends of our industry supporting our growth initiatives. To achieve these targets, we will require an estimated investment volume of between 9% and 10% of revenues at constant exchange rates in 2015. We continue our strong focus on profitability. For the adjusted EBITDA, we reiterate the range of EUR 255 million up to EUR 265 million at constant currencies for 2015. Our updated outlook for the financial year 2016 to 2018 reflects the disposal of the tubing business as we expect the deal to be closed by the year end. Here comes what needed to be updated. First of all, no change to our revenue guidance. We reiterate revenue guidance as it stands. We continue to aim for average annual organic growth of 4%-6% in 2016 to 2018.
For the adjusted EBITDA margin, we defined an uplift towards 21% by 2018. This is what was changed now to approximately 20% by 2018. The reason being that the revenues with external customers that will be eliminated from the revenue line are low and only a bit higher than the EBITDA contribution of the whole business. The targets for the remaining business remain completely unchanged. In order to receive these targets, we will require less CapEx than before due to the nature of the tubing business being more capital-intensive than the average of Gerresheimer's business. Therefore, we reduce CapEx guidance from originally 9%-10% of revenues, now down to 8%-9.5% of revenue at constant exchange rate. We are well positioned for the years ahead. We have defined clear steps to ensure our continued success going forward.
These include expanding capacity at various locations, further standardization of our production technology, some of which were initiated during the past financial year. Further progress is scheduled for this year. With that, I hand it over to Hans.
Thank you for your presentation. We will now open the call to questions. The lines are now open for any question you may have. To ask a question, please dial the nine star on your phone to register. Nine star in order to register for a question. Thank you. First question comes from Oliver Reinberg, Kepler Cheuvreux.
Yeah, good afternoon. Oliver Reinberg from Kepler Cheuvreux. Three questions, if I may. I probably don't have too many questions on the quarter. Can you just briefly comment on the depreciation charges? I was a bit surprised seeing this actually ticking down. I thought with the machines that you are going to roll out, this is probably going to increase. Can you just give us a one-way, what kind of assets you charge as depreciation should we actually model going forward? What D&A would probably disappear once you start to deconsolidate the tubing business? Secondly, can you just briefly comment on the phasing, how we should think about the second half? So far, Chicago has not impacted the second quarter. Is it fair to assume that the earnings generation will be more dependent on Q4 this year than it is usually the case?
What is actually the impact from Chicago in the third quarter? Lastly, not sure you can say much about it. Obviously, part of the Rexam assets are now up for sale at Call Center. Leaving valuation, everything aside, just strategically, it's U.S., it's plastics, but the client base will be somewhat different. I would assume this is more pharmacy business rather than pharmaceutical clients. Would this be a theme that you would consider when evaluating whether such a target would be interested? Also, can you generally comment on your M&A pipeline currently? Thank you.
Yeah. Thanks for your question. I might start with your last one. Obviously, generally, we do not comment on individual projects and M&A opportunities. Our strategy remains unchanged. Priority number one is expanding our plastic business for devices and pharmaceutical packaging in the United States, as we continue to look at opportunities for primary packaging in the emerging markets. We look currently at a number of projects, we continue to have that high on our agenda. The phasing, second question, phasing in the second half of the year for Primary Packaging Glass. Obviously, the Chicago Heights retail has an impact on Q3. That clearly is the case. Nevertheless, I do not really anticipate that for total Gerresheimer business, that we need an extraordinary strong Q4 to achieve our goals in a different level that we have seen before. I do not see that.
Certainly had Chicago Heights an impact on primary packaging performance in Q3, clearly. The last one, I would refer to Rainer on the depreciation because I could not answer that.
Thanks, Uwe. First of all, when we talk about the depreciation, for sure, we can say that we had last year 6.8%, and we don't give the guidance for the quarterly numbers. We have given you an idea going on further, which was that this will increase with roughly 0.2% for 2015 for the whole full year. We don't want to be too precise for 2016 after the tubing business is out, because we don't know exactly when it will be out. We assume it will be year-end. Uwe has certainly given you before the EBIT figures. With the EBIT figures and percentage, you can model it pretty easy.
Then you can translate that how much money that is, I think you will come to a good conclusion on that basis because that will always stay the same amount, and it's a high depreciation, well above the 10%, because that's clearly the reason why we think it's asset light going on further. Second question was PPA amortization. There will be no change due to the fact that the tubing sale has nothing to do with the PPA amortization, because that's normally always based on customer stuff, which we bought something in the past and the tubing business wasn't bought. There's nothing getting out of there.
Great. May I briefly follow up? Can you just remind us the Chicago impact? I think you were talking about initially last year, about EUR 15 million of sales. Is that correct? What kind of EBITDA impact would that be?
We did not give guidance on the EBITDA impact, but EUR 15 million of sales is correct.
Right. Okay. Can you just confirm that the Corning transaction is completely independent from any kind of further M&A transactions that you currently have in mind, correct?
Yes.
Thank you.
Okay. Next question comes from David Adlington, please.
Afternoon, guys. Thanks for taking the questions. First one, just with respect to the disposal. Just wondered if you'll be recognizing any profit on that, and presumably that's not included in the guidance. Secondly, just in terms of your EBITDA corridor, obviously noticing that still assumes a 130 exchange rate. I just wonder why you continue to use that and where would that corridor be at the current exchange rates. Thanks.
Perhaps I start with the second one. We have given you a guidance, our current exchange rate, by the way, the guidance is correct. We have a current exchange rate of 130. If our exchange rate changes with EUR 0.10 downwards, so getting the US dollar stronger, that has an influence on revenues on the yearly basis of EUR 23 million-EUR 25 million and totally the same margin. We stay with our guidance because that's the comparable guidance also for the last years, and we always provided you with these numbers and our planning is also built on 130 because when we finish our planning, we finish it before November, and therefore, all our internal plans as well as all our external discussions are based on currency neutral, and that's how we also manage our company.
Second question is for sure, the profits out of this disposal of our tubing business is not included in our guidance right now. Here also, we haven't given that out, but you can be sure it's a good amount, but we don't talk about it right now, I would say. Because it's extraordinary, it's adjusted, and we will show it separate from our normal results, because when we give you our guidance, it's always the tubing business and all effects is excluded.
Sure. Then maybe one follow-up, please. When I look high level, you obviously raised a decent amount of proceeds from the disposal of the tubing business. You've refinanced the debt, giving you some further headroom, and it looks like you're gearing up for a transaction in the nearer term. Is that a fair assessment?
No.
I would not comment on that.
We would not comment on that because for sure M&A is always part of our strategy.
As I said before, that was completely independent of M&A activities.
Fair enough. I'll try it anyway. Thank you very much.
Okay. Daniel Wendorff, please.
Good morning. Thanks for taking my questions. Two remaining, if I may. I'd like to follow up on Oliver Reinberg's question on the negative impact from the Chicago Heights plant upgrade. If we assume a certain improvement of dynamics in Primary Packaging Glass and then on the positive side and then on the negative side, you have the negative impact from the Chicago plant closure and seeing overall dynamics in Q2 from this business, if I add these positive and negative things up, is it fair to assume that we might see a similar organic sales growth rate for this division in Q3 year-on-year as we saw in Q2? That would be my first question. The second question would be on the positive momentum we saw in Diabetes Care, I'm wondering what kind of product lines you're referring to.
What do you actually produce for customers which are facing such a great quarter? Thank you.
Yeah. Number one, Chicago Heights. I really cannot help you much with that since we generally do not provide guidance for a quarter. As I've said, the guidance for our year stands. We have half a year in Chicago Heights that is coming. The effect is completely in the second half of the year. The little advice that I can give you is that, in a furnace repair situation, taking it down, you might not have all of that in Q3. Maybe a little carries over in Q4 because you work off inventories and you shut down. Generally, at the end of the shutdown period repair, that is actually when you experience most of your revenue losses. That is pretty much how much I can help you with your assessment of that. Hope that helps.
On the Diabetes Care, basically, we talk here about products that are as such as lancing devices or products that go into delivery systems for insulin. It's a very narrow customer base, as you know on that end. We just had a good quarter with our customers on a very traditional product line.
Thank you.
Okay. Gunnar Rychlik, please.
Yeah, Gunnar Rychlik, Deutsche Bank. Thanks for taking my question. Just two left, actually. Firstly, coming back on Plastics & Devices. I was wondering whether you can give us an organic growth figure excluding the effect of normalizing tooling revenues. Also where you stand in terms of the delayed product launch we've been talking about in earlier quarters. Any update in that regard? That would be my first question. Then secondly, on the syringes business, a brief update from you on RTF4, that would be appreciated, where we stand here. Also where we stand overall in terms of the profitability of the syringes business, also in a historical context, how close are you back to historical margins here? Thank you.
Maybe first, not so good news. On the RTF business, we are not back at historical margins yet. The good news is that we are very happy with the performance of RTF4. It's a good investment, and we really think that we are well on track here with the business. Overall, I am quite pleased with the continued improvement of the performance of the syringe business. I think that shows a solid upward trend. There is still a distance to go to historical profitability levels, I must admit. On the delayed product launch for the inhaler, I would say so far, the product performs to our significantly reduced expectations. We have no visibility today if the pickup will come in 2016.
I'm personally a little cautious and generally might take a little longer. We have right now no visibility really how much will be, at what level we will be in 2016. Right now, customer is clearly meeting the expected revenue levels. On the parts growth, excluding the tooling, we generally do not provide that growth rate. To be admitted, I can say that we are very happy with the development so far this year. Clearly, an excellent development.
That's very helpful. Thank you.
Okay, thank you so far. Again, to register for a question, it's nine star. Scott Bardo, please.
Thanks very much, Anke. Scott Bardo from Berenberg here. Thank you very much. I just wanted to talk a little bit about the portfolio construction at Gerresheimer now that you sold for a relatively reasonable price, your tubular business. I wonder if you could just comment a little bit then about whether this precludes you doing something similar in Life Science now, or whether Life Science is still an opportunity that you assess. Following on from that, there's been some press reports that the old Rexam medical plastics business in the U.S. is up for sale again. Might we see some of these efforts you make, a signal to free up capital to do something a little bit more bold in U.S. plastics? Perhaps if you could comment on the dynamic there, that would be appreciated.
Scott, I start with Life Science. Always the same discussion which we had in the past. It's a good cash generator for us overall, but at the end, it's not really strategic. Again, as cash contributor, it's well accepted and we're happy about the performance overall. Because, as you know, this is a business with an operating cash flow above 10%, which is a good number.
To the portfolio, Scott, I would say, I've said before, the divestiture of the tubing business itself was not part of a greater portfolio move. This was more from a rationale perspective, a move to concentrate on end products and leave the material science to a partner that has much, much more firepower on developing the materials. Admittedly, I think we sold it at a reasonable price. That opens, certainly, opportunities for reinvestment, and we will see what is available according to our M&A strategy that I have explained just before, in the future for a reasonable pricing. I think that it's, and as I said before, on a single company that is on the market, I would not like to comment at this point.
Okay, thanks very much. Very much pleased to have you communicate more fully about the Millville facility. Somewhat shrouded in mystery prior to the announcement. Can you help put this into some degree of perspective, how significant this consolidation is to realize your earnings improvement trajectory by 2018, and We should also expect some additional manufacturing consolidation as part of this plan, or are we now pretty much all the heavy lifting now done? Thank you.
Yeah, I think that's a very good comment and question. A molded glass facility, and I'm sure you have seen one in our portfolios, is generally a facility that requires high utilization and excellent cost to make some money. We obviously have taken the opportunity to consolidate our Type I molded borosilicate business into one facility in Chicago. The Millville facility actually has two furnaces, so-called type III furnaces for soda-lime containers that basically go to pharma over-the-counter type of products. It is a very small borosilicate furnace that produces containers for injectables. That furnace we basically consolidate now into the Chicago height furnace, which is a very large furnace, actually one of the largest in the industry for those type of glasses. We believe that we actually create a plant here that can create substantial economies of scale out of that consolidation.
The Millville facility will be closed. We had announced a layoff of a little bit more than 100 people in step 1 and a little bit more than 100 people in step 2. I think that is pretty much the heaviest lifting we could do.
With respect to now your 20% margin targets by 2018, can you help us understand, was this an important part of that or?
Yes.
It was.
Yes, that was an important part, but not the only part. There are a number of activities that always have to be done. Do not forget that one is our re-machining strategy for tubular containers to go to the same machine type in all facilities that should give productivity. There are always furnace repairs that we need to execute in glass with productivity improvements, to just keep the margins at a high level. Always a number of activities, but this is the most significant one in a single plant.
Great. Thanks very much for taking my questions, Uwe.
We have one follow-up from Oliver Reinberg, please.
Thanks a lot for taking the follow-up. Can you just briefly give us an update on your pen business? I think in the past you gave us some kind of market share data where you currently stand. Can you just update us, what is currently your market share in pens, and can you comment, have you actually won any kind of new clients in this kind of area, or is that something that is on the rise in the foreseeable future? Secondly, can you just comment, I mean, M&A pricing obviously seems to be a challenge globally. Is that to any extent probably impairing your ambition that you have for external growth? And lastly, I would assume Brazil for you is a small issue. Obviously, you have Vedat there. Brazil has economic challenges. Is there anything that is impacting your business as well in a meaningful way? Thank you.
Thanks for the follow-up question. I start with Brazil. So far, year-over-year, we did all right in Brazil, surprisingly so, since the business is, in Brazil generally, in a difficult situation, businesses. We do expect further slowdown in our anticipation for the year end. It has not a significant impact on our performance. Let's see if maybe we can keep it running as good as it has. Generally, we believe that second half of the year might be a little bit more difficult than the first half of the year in Brazil. Insulin pen business, no, we have not won new customers. We are, as you might know, quite well-positioned at two of the large accounts, therefore our market share remains unchanged.
I'd say, it is likely that we are in a range that we are at the lower end of our target range. We always said we want to get a share of 20%-30%. We are, I would say, here in a position where we are not the number one yet, but a very, very strong number two in the market. Do we try to increase from that? Certainly, we look at certain products, but there's really nothing on project. There's nothing that is worthwhile sharing at this point. I think there was.
I think these were the questions.
Okay.
All right.
I had just one question on the M&A pricing, whether there is actually any kind of-
Yes. Please. There was one. Absolutely. Well, I actually think that M&A pricing is a challenge these days. What you see is that particularly private equity closes deals at internal rates of return that are significantly lower than in the past. With money still being relatively inexpensive, that makes the competition on those deals tough unless you have significant synergies that others do not have. We cannot claim from a Gerresheimer perspective that we are generally very aggressive people when it comes to paying prices. I would say I would not sit here and say we are generally people that, in this context, say that it would be very, very easy for us to close deals just because we might be in possession of more money in a few months.
I think that the environment still needs to be evaluated and that a deal for us in whatever sense needs to make economic sense. Strategic and economic sense have to go together.
All right. Thanks so much indeed.
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