Welcome to the Dätwyler 2018 half-year results conference call. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. After the presentation, there will be a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Should you need assistance, please press star and zero to get an operator. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Dirk Lambrecht, CEO, and Mr. Reto Welte, CFO. Please go ahead, gentlemen.
Good morning, everybody, and thank you for your interest in Dätwyler. My name is Dirk Lambrecht, and I'm here together with our CFO, Reto Welte. I would like to start with an overview of the key financial figures covering the first half of 2018. Please refer to slide three of our presentation, which is available on our website. Let's start it. Thanks to our leading positions, we have increased our net revenue year-over-year by 7.7% to CHF 694 million. Although some of our markets showed only moderate development. Adjusted for positive currency effects, this means an organic growth of 2.5%. The operating results have grown by 13.2% to CHF 90.7 million.
We have managed to increase our EBIT margin to 13.1% despite higher raw material prices, set-up costs associated with growth projects in the Sealing Solutions division, and a not yet satisfactory performance of our online distributor, Distrelec. The net result has improved by 17.3% to CHF 62.5 million. Earnings per share also increased by the same percentage. The ROCE has seen a significant increase to 24.1%. We are moving to slide four. Here we show our balance sheet at the end of June 2018 compared to the end of 2017. We currently have CHF 222 million in cash and cash equivalents. This figure has decreased since the end of 2017 due to our investments to increase our production capacity in the Sealing Solutions division. Our main project is a new healthcare plant in the U.S.
We have access to more than CHF 600 million. This includes unused credit limits. There is sufficient liquidity to finance our profitable growth strategy. The major change between current liabilities and long-term liabilities is based on the replacement of the previous bond by a new bond in May 2018. The equity ratio is up to almost 17%. I would like to move to slide five. As all of you probably know, the Dätwyler Group consists of two divisions. We have around 6,300 employees in the production plants of the globally active Sealing Solutions divisions. Sealing Solutions generates two-thirds of the group's revenue. We witnessed an increasing trend in 2018. The Technical Components division comprises Dätwyler's distribution business of electronic components. This division focuses on Europe and employs 1,100 employees and generates one-third of the group's revenue. I would like to continue to slide six.
I will now cover Sealing Solutions here. This division develops and manufactures customer-specific sealing components for attractive global industries. Most of our components are system-critical but account only for a very small percentage of the total system cost. On slide seven, we show our position and the revenue potential of the four global market segments we serve. The healthcare segment is characterized by particularly high entry barriers and an attractive growth and margin potential. In the automotive market segment, we have enlarged our revenue potential thanks to the recent acquisitions of Origom and Ott. I move to slide eight. Despite a partly rather moderate environment, our Sealing Solutions division continued to grow profitably in the first half of 2018. This is thanks to our leading positions and operational strength.
For the sixth consecutive time since the merger of the two former divisions, the Sealing Solutions business managed to increase its EBIT, this time to CHF 83.8 million. The EBIT margin reached 18.5%. This is despite higher raw material prices and set-up costs associated with several growth projects. Our healthcare market segment recorded a demand clearly above the market average for high-quality components from the FirstLine production for prefilled syringes. The improved marketing activities are showing the first positive effects. The automotive market segment has also continued to expand, but with less momentum in China and in the U.S. than in the strong prior year. In Europe, demand for high-quality components used in selective catalytic reduction systems continued to develop very positively. The civil engineering market segment had to be content with a revenue decrease due to some project delays, while the new contract with Nespresso creates further potential.
Slide nine depicts our new healthcare plant in the U.S. As you can see, the construction work is finished. We are within budget and for example, time and cost. We will celebrate the opening during an official event together with our customers in September. The validation process with our customers will start in the coming weeks. The plant has state-of-the-art technology, an ultra-modern clean room environment, and fully automated production cells according to Dätwyler FirstLine standards. The USA is still the world's largest and most important healthcare market. Our new plant will enable us to serve the growing needs of leading U.S. healthcare companies looking for high qualitative components. Positive feedback from customers confirms that we have the best-in-class material expertise and production technologies.
Together with our FirstLine plants in Belgium and India, we can now serve our global customers through the local production of high-quality components in the three main economic areas. The additional production capacity will accelerate our organic growth as from 2019 onwards. New market research confirms that the global prefilled syringe market is expected to grow by a yearly average of 11% up to the year 2025. I continue with slide 10, I will switch to the Technical Components division. This division comprises Dätwyler's electronic distribution business. The business model is based on a high service level and high availability of a broad range of components that we can usually ship to our customers on the next day basis. On the slide seven, we summarize the four main market segments of our distribution business. As outlined on previous occasions, we are focusing increasingly on maintenance, automation, and robotics.
This is where we see the greatest potential for making profitable use of our competencies. In the market segments of electronic design, engineers, and wholesale with customer electronics, our objective is to defend our market position. I continue to slide 12. Driven by the core business-to-business activities, the Technical Components division increased its revenue in the first half year of 2018 by 7.4% to CHF 241 million. This equals to an organic growth of 0.8%, taking positive currency effects. Adjusted for trading days, the organic growth revenue's growth is approximately 1.4%. EBIT amounts to CHF 6.9 million, and this corresponds to an EBIT margin of 2.9%. The adjustments of customer segmentation led to a product portfolio streamline. The resulting impairment charges slowed the margin development. The main reason for this disappointing result is the Distrelec business, as they performed below expectations.
Early indicators, such the considerable customer satisfaction improvement, shows that Distrelec is making further operational progress, but this hasn't yet translated enough into improved revenue and margins. The Enterprise Hub in Manchester is continuously improving operating performance. Reichelt managed to accelerate its profitable growth, thanks to its successful international expansion. To increase brand awareness, we have systematically increased our marketing activities. Nedis is working very hard to implement its comprehensive optimization program. The new common product brand will be officially launched at the end of August. First feedback from our major customers is very positive. On slide 13, I would like to highlight the successful international expansion of Reichelt. For some time now, Reichelt is achieving significant growth with local webshop expansions into several European countries. Besides its home market, Germany, Reichelt is so far serving France, U.K., the Netherlands, Belgium, Poland, Austria, and Switzerland.
The Reichelt value proposition of high quality at attractive prices especially appeals to the large segment of small and medium enterprises. The export business already accounts for more than 50% of Reichelt's revenue and is currently growing around 50%. The focus is on higher margin B2B customers. Thanks to the centralized logistics service and support functions at one location, it is possible to sustain cost leadership despite offering online shops and telephone support in local languages. The significant increase in storage capacities allows Reichelt to continuously expand its product range. I will now cover slide 14, and we're coming to the outlook for the financial year 2018. At group level, we are still aiming for a revenue between CHF 1.35 billion and CHF 1.4 billion. As in the first half of 2018, the EBIT margin should continue to be within the target range of 12%-15%.
For the Sealing Solutions division, I am confident that the strong order book will allow us to grow faster than the market average in the two important market segments, healthcare and automotive. Promising bolt-on acquisitions projects should provide additional impulses in the second half of the year. The Technical Components division will continue to focus on accelerating profitable growth. At the same time, we are working on optimizing our cost base, and we have a clear objective to further increase our efficiency. The new Distrelec hub in Manchester is gaining momentum and is continuously expanding its operational performance. On slide 15, you see our strategic priorities that guide our operational activities and decisions. While we continue to drive profitable growth, we also want to accelerate the digitalization and increase our agility. We have started internal communication and training programs to increase awareness and understanding by our employees.
Employees will only change their behavior if they understand the reasons why we need to become more agile and digital. For the Sealing Solutions division, the focus in terms of digitalization and agility is on Industry 4.0. Key topics are automated, networked, and intelligent production equipment, ongoing process optimization, and predictive maintenance. To take advantage of these opportunities, we are implementing a uniform production system at all our plants across three continents. The online distribution business intends to use the possibility of big data and predictive analytics to add value for our customers. We want to analyze and use the data of online customers in a way that allow us to offer them specific packages that are tailored to the customer needs. I move to slide 16. As I have mentioned, we will open our new FirstLine healthcare plant in the U.S. in September.
We have been talking about this state-of-the-art FirstLine production standard so many times in the recent past. For this reason, therefore, I would like to take this opportunity and invite you to Aartselaar, Belgium, to visit our European FirstLine plant. The visit will take place on the 15th of November 2018. Please save the date. A detailed invitation will follow. It would be great if as many as possible of you would accept our invitation. Once you have seen our sophisticated production processes for our high-quality healthcare components, you will understand our core competencies and success factors even better. I am looking forward to seeing you all in Aartselaar in November. Thank you for your attention. I would like to hand over to our CFO, Reto Welte, who will cover our financial cradle. Please proceed.
Good morning also from my side. I am now referring to page 18 of the presentation, where you will find the consolidated income statement for the first six months of 2018 compared to the previous year period. You realize the increase in net revenue of 7.7%, as already described by Dirk Lambrecht. On the gross profit level, you see that the margin has not really changed. For 2018, we realized a margin of 26% compared to 25.9% in the previous period. We also realized no bigger changes in the positions research and development expenses, marketing and selling expenses, general and administrative expenses, and also for the two positions, other operating income and expenses. We end up with an EBIT of CHF 90.7 million compared to CHF 80.1 million in the previous period.
For 2018, this corresponds to an EBIT margin of 13.1% compared to 12.4% in the previous period, which is an increase of 13.2%. There is also no bigger difference compared to the previous year if you look at the net finance result. Income tax expenses show a tax rate of 27% almost, which is lower than the previous year where we were confronted with a tax rate of 30%. At the end, at the bottom line, you realize a net result of CHF 62.5 million compared to CHF 53.3 million in the previous year. For 2018, again, this corresponds to a margin of 9% compared to a margin of 8.3%, which is an increase of 17%. I now continue on page 19, where you find the condensed balance sheet comparing June 2018 to December 2017 and June 2017.
I'm mainly comparing to December 2017 when I compare the actual figures with previous periods. If you look at the current assets, you realize a decrease. The main change takes place in cash. We invested heavily into property, plant, and equipment and in our main project in the new facility in the U.S., as already described and presented beforehand. The net current assets show a similar level as in the previous year. The current liabilities show quite a decrease compared to the end of 2017. On the other hand, we see a big increase in long-term liabilities. This is the bond that has switched now from a current liability to a long-term liability, as we have refinanced the existing bond in May 2018.
You also see the equity ratio that has already been mentioned by Dirk beforehand, which is still at the level of almost 70% compared to the previous periods. This is still a small increase. I now continue on slide 20 with the condensed consolidated cash flow statement. You realize in the line net cash from operating activities an increase of 49% compared to the previous period, which is quite an interesting increase. You also see in the next line that this money that has been generated from operating activities was almost overspent into capacities, into CapEx investments.
When you further follow down the condensed consolidated cash flow statement, you realize in net cash used for finance activities, the switch of the bonds that I already have explained, and the last big position is the dividend paid to shareholders with an amount of CHF 51 million compared to only CHF 37 million in the previous period. At the bottom, you realize again the CHF 222 million in cash that are still available mainly for future projects. Of course, there is some projects we invest heavily. Still in the U.S., there is further CapEx to come. This project is almost finished, but there is some additional cash flow that will take place in the second half of the year 2018. I conclude with the segmental reporting on page 21. You realize the different segments.
The Sealing Solutions segment shows an increase in sales as already presented of 7.9% compared to the previous period to CHF 453 million. You also realize again the EBIT improvement of 6.6% compared to the half year 2017 and the slight decrease in the margin. In Technical Components, again, the increase in sales of 7.4% and the increase in EBIT from CHF 1.5 million to CHF 6.9 million. On the EBIT margin, you also realize again this increase. For the total group, we have seen the figures already. At the end, I would just like to mention again the improvement in the reported EBIT margin from 12.4% to 13.1%. I hereby conclude my explanations of the financial figures.
Yeah. Thank you very much, Reto. Now are there any questions from your side?
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. You will hear a tone to confirm that you've entered a queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only answers when asking a question. Anyone who has a question may press star and one at this time. First question comes from the line of Andy Schneider, Said Capital. Please go ahead.
Hi, gentlemen. The question on TeCo. It has been a discussion topic before that in case the turnaround cannot be achieved, all options, especially outside of [Assmann], will be on the table. Now that H1 was again not that satisfying in terms of growth and profitability the question arises, what has to happen in the second half of the year, or what has to happen in what time frame in order for you to get to the point where all options are on the table?
Yeah, first of all, thank you very much for your question. As I already said several times, we have to consider the full year of 2018 and not only the first half year. Additionally to that, on one hand, of course, the financial figures are very important, but internally, we have as well a deep look to some other figures. For example, like the Net Promoter Score, which is going in the right direction. We will see by end of the year how that is going forward. Yes, it is right. That is not where we expected as well internally, but we would like to see the next couple of months. I think we have addressed the right actions, and we are seeing internally some improvement, and we will see at the end of the year what happens.
As we have showed in the past, Dätwyler will act if there is a need, and we will discuss that next year.
Will you show us these other KPIs at the investors day or probably at the year-end at the analyst conference? Will we get some more insight in these KPIs and how they develop?
No, I think that is not foreseen. Even we would not like to show that to our competitors. Please understand that we are not opening this point here.
Okay. Thank you. Probably a last one, if I can add. If these KPIs wouldn't move in the right direction or not as fast as you expect, how much time do you give yourself?
As I said before, we will see what happens by the end of the year, then we will discuss it internally, then we will draw our conclusions out of that, then we will inform you.
Okay. Thank you.
Yeah.
The next question comes from the line of Michael Lichter, Bank Vontobel. Please go ahead.
Good morning, gentlemen. Thank you very much for taking my questions. I would have couple of ones. Maybe starting again with TeCo. When we look at your competitors, some of them have grown double-digit, and you are showing only growth organically of 0.8% or 1.4% if you take the trading days. What are the main hurdles for the growth? Is it also your conscious decision to not take some sales or is it really just you don't see this growth coming to your side?
First of all, thank you for the question, Michael. I think the point is here, as you know for sure, that we are with Distrelec mainly in the area and in some regions like Switzerland and Scandinavian areas. Even if you compare that with our competitors, the growth rate in such regions is below what they are communicating overall. Additionally, our operations, as I said, in Manchester, is still to improve, but there is really some good going forward movement. As I said before, we have to see for the full year. As I said, we have to find the right actions. What I can see is the people working very hard to achieve our targets. We have to see if we are able to be attractive enough for our customers.
Please understand that I would like to give this organization some more time by end of the year to show that we can be able to, let me say, at minimum to achieve our internal targets.
Do you see any improvements in these markets currently in Switzerland or Scandinavia?
I think if we compare that in these markets, there is some improvements. We have some markets where we have to do a much better work if it comes to internalization as well for them. I think there we have to see and to wait if what we define here as a customer value that is really understood from the customers as well, or that we understand the customers right. I think there is some work to do, but the difference over last year, we knowing exactly what we have to do, and that is what we are measuring internally.
Okay. Thanks. Maybe a second question, just you mentioned in your press release these M&A projects. I understand you cannot say much, but you can understand that it's pretty unusual to talk about it before it's actually finalized. That poses a question, how big these acquisitions are. Are they really game changers or are they a bolt-on acquisitions? How should we look at your full year guidance in terms of sales? Is some of these M&A potential included in this guidance or that would be on top of that?
That is not included in the guidance. I think please understand that I cannot talk more to that. I know that it's unusual, but I would like to give you a little bit guidance this direction for the second part of the year, because I'm confident that we will come back with further informations in the next couple of weeks. I'm still confident that it will be happen. As I said, it will be in the Sealing Solutions division, and it's a perfect fit to the structure what we have there. Please wait a couple of weeks and we'll get further information. Of course, as we have [inaudible] , of course, we will tell them more about that, what we have done in there. Yeah.
Okay, perfect. Thank you.
Thank you.
We have a question from Mr. Richard Frei from Zürcher Kantonalbank. Please go ahead.
Good morning, gentlemen. Thanks for taking my questions. Also, TeCo, you have mentioned that due to adjustments to customer segmentation, there was a result triggering impairments. Maybe also more insights on probably the size of how big this impairment was and to what it was related. Is it just a customer relationship, brands, stock or whatever?
Mr. Frei, it's a mixture that ends up mainly in the stock positions, of course. It's a devaluation of stock positions, it's in the lower range of CHF 1 million-CHF 3 million. It's not that much of an amount, but it's, of course, the Technical Components is an important part.
Okay, thanks. I have another one concerning the ramp-up in the U.S. and India in the healthcare. Is it possible that this might affect the operational development in the second half of the healthcare segment?
As I said, I think we are in the phase with our customers to invite them to approve the site, and that is a typical process here. I think we will see some first sales in 2019, and that will increase over the year in 2019. So far, what we can see, and that is leading to a very good development for products for the filler space as well in Belgium in our FirstLine facility. That is as well very attractive for the customers already now that they are knowing that we will have such site on a global scale, but there will be no effect in 2018 in the second half. We are still covering the cost for the projects, including material price increases.
So far, we have not mentioned that, but just to give you an indication, the cost for raw material price increases plus projects cost is approximately 1% of the turnover of Sealing Solutions in the first half year. We are able to keep this EBIT percentage for Sealing Solutions. I think it's quite even there and good to the side of that, and we will benefit from that investment in the next years.
Okay. I have a last one regarding the taxes in the U.S. and the fight with China. Do you see any negative impact, especially on the automotive business? I guess healthcare, you're now well on track with the U.S. plant. When it comes to automotive, do you expect anything to come here, or are you globally positioned so that you can come around potential tax impact?
As we are globally positioned in automotive, we can come around about big impacts. Actually, at the moment, we see a positive impact as our business in the U.S. should be able to profit from lower tax rates in the future.
Okay.
Overall, the tax rate will not change drastically. You still have to accept a tax rate over a period of 26%-28%.
Okay. Thank you.
In China, we profit from a specific situation. Actually, our tax rate there is even lower than the average. We are a so-called.
Yeah. We have the technical specialists there, that means that we're leading to a tax rate of around 15% in China.
Okay. Thank you.
The next question comes from Silvan Betschart, Reichmuth & Co. Please go ahead.
Thank you, gentlemen, for taking my question. Most of them have been answered. Just want to follow up on Technical Components. The question is, you mentioned now several times you do not want to judge the business after six months. You want to look at the full-year figures. We are now seven and a half months, close to seven and a half months into the year. Does this mean that you are very confident that there will be a re-acceleration or an improvement in the second half of the year? Do business trends in the last one and a half months point to this?
Please understand that we will see the full second half year, and so far, we would like to give no further comments to the progress in July and in August.
Okay. Thank you.
Next question comes from the line of Rayan Starden, Baader Helvea. Please go ahead.
Yes, good morning. Two topics. First, on Sealing Solutions. You mentioned that in the first half, you could compensate raw material effects and ramp-up costs with productivity gains. How does it look like for the second half as you also open now the U.S. plant? Maybe this will lead to some further ramp-up costs. Do you see here still that you can compensate them again in the second half like in the first half?
Yes, that is my expectation. So far, I think we have tied some continuous improvement in the production, and we have identified some further cost reduction programs, internal programs, which in thereof, we should be able to compensate such costs as well in the second half. Even I have to say, as you know, if it comes to the raw materials side, the raw materials increase typically is linked with customer contracts, and there's typically a delay of three to six months. I think we should be able to cover that as well for the second half of 2018. Is that okay for you?
Yeah. Thank you.
Thank you.
Another question in the area of Sealing Solutions for the consumer goods segment and Nespresso. You actually haven't spoken about growth in that segment. Can you give here some more indication? You have rather pointed to a good growth potential going forward. Does it mean actually in near term, you haven't grown there, but you expect to do so in future again?
We cannot disclose information to that. I think the market is well known that we have some special contracts with Nespresso. Therefore, we would not take that business on risk. Therefore, we are not open any information to that. Please have a look to the Nespresso site, what they are telling about their business. We are doing from our side the best that Nespresso can do their best to the market from that perspective, that is what we can do here.
Okay. Thank you. The last question regarding TeCo, Technical Components. When we look at the two business units, Distrelec and Nedis, maybe some indication in terms of turnaround situation, where do we stand more profitability-wise? I think are you here still in the red, and do you expect here to be break even again and positive in the second half?
As I said, overall, I think our target is at minimum to hold the growth rate, what we have shown in the first 6 months, that is our target for the second half. That is what our target is, and we will see what we can do about that.
In terms of profitability, could it be the second half 2017, the reference for the second half 2018 or a target, let's say, this way?
As I said, let us have a look to that. Our target is here to continuously increase, of course, the profitability and to see the internal KPIs. Then we will report to that when we have the full year behind us. Then we will give more explanation to that.
Thank you.
The next question comes from the line of Markus Bossa, DBAG. Please go ahead.
Yes. Good morning, gentlemen. I would have a couple of questions concerning Sealing Solutions. Could you maybe allude on the footprint? I mean, you are in the U.S. now or almost in the U.S., Belgium, and India. Is that enough for the future, or do you think that there is a need for a further location in geographic and political terms? Could you maybe say how much CapEx you would have to make in order to expand those new plants, to expand them further? I mean, where is the capacity utilization right now in the U.S.? For how many more years of growth will you be able to handle with the existing capacity, and how much will an expansion cost? And maybe in terms of TeCo. One part of the strategy is to nourish sales with own brands.
Could you maybe give us some details there where you stand in terms of percentages of those own brands versus OEM brands? Maybe in terms of Google spend as well, is there an increasing rate of Google spend that you have to do in order to keep up growth? Or can you even reduce it due to a perception change in the market since you mentioned the Net Promoter Score?
First of all, thank you very much for the questions. It's a lot of questions. If I understand the first question, just to clarify, you spoke about Sealing Solutions, about Automotive International, and you said that we have mainly in the U.S. and Europe, if I understand that right. I have to say, a big portion of our business and automotive is already in China. We have more than 2,000 people working there for us in the automotive sector, and there even we are the leading company for the product portfolio, what we have. If it comes to the, let me say, to the capacity in the future, when I look to the growth rate, what we see in the automotive sector so far, we have invested in the capacity in the last couple of years.
I see not a strong need for further investments from the capacity perspective in the next one to two years to cover the growth rate. From that perspective, we are well-positioned here. If it comes to TeCo, of course, we have our own brand, as you know, with R&D, and we are performing with that very well. We do not disclose the percentage of that because it could be as well very important to know for our competitors, and we wouldn't want to give this information out of our company. All other detailed questions what you mentioned, the Google spendings and so on, we are not disclosing such figures as well. Please understand that.
Can I just add a follow-up? Concerning the capacity in Sealing Solutions, I was more referring to the healthcare side of the business, where you have invested heavily in China and recently in the U.S. as well. Could you allude on the capacity utilization? Is there the same one to two years additional capacity relevant like in the auto business, or do you have more spare capacity in order to accompany more growth in the future before to have to reinvest and mirror existing capacities?
If it comes to the healthcare capacities, I think we have a long-term investment plan. One of the major topics here was to step into the U.S. market. Of course, with this ongoing investment of around CHF 100 million, CHF 110 million, we will be able to cover the needs for the U.S. in the next couple of years. If it comes to China, so far, we do not have a plant in China. Perhaps, you would like to mention India, where we are still investing in the FirstLine capacity. With all the investment, what we have announced so far, we should be in the position to cover the market needs for the next couple of years. However, whenever we see an opportunity to add our product portfolio, it could lead some further investments.
I have to say we are talking about investments which is in the CHF single-digit millions, it's not really on a high value, which we have to communicate, especially. I think that is our major investments are announced, and that should help us to follow the growth opportunities. As I said before, on one hand, we would like in the healthcare sector to have on one hand, to grow with the market growth rate and on top of that, to gain some market share from our competitors. Okay.
Geopolitically driven investments in China for the healthcare business are not planned yet?
China will be an important market in the near future. I said that several times. Of course, our first idea would be to do that via an acquisition. If that is not possible, we have to think to invest there. That will be not before 2020, the investment. Perhaps we come with a decision in 2019. That depends on how far we are with our other investments and how we can manage our Let me say to our people management inside of the Sealing Solutions. You can imagine that such huge investment needs a really strong attention of the management and we would like to lose, let me say more or less the control of the cost. That was a strong behavior in the last couple of years of Sealing Solutions, therefore we are doing that step by step.
Okay. Thank you very much.
You are welcome.
We have a question coming from the line of Mr. Michael Heider, Credit Suisse. Please go ahead.
Good morning, everyone. Thanks. Three main questions, actually. One on Technical Components. You said that CHF 1 million-CHF 3 million impairment was coming from, I would say, Nedis. Can you also explain a little bit the expansion plans for Reichelt? What's the cost actually for this, and what do you expect going forward from TeCo? That would be one question on TeCo. Two questions on Sealing Solutions, if I may. One is a bit the competitive dynamics in the healthcare environment. West Pharmaceutical seems to recover here also. I think they had a huge restructuring program or still have a huge restructuring program going on. They delivered pretty good results. I don't know if it's exactly true like this, but I've heard that Gerresheimer has chosen them for a prefilled syringes project. It looks like they're also pushing a bit further into this market.
Maybe you can give us a little closer look on what's going on there. One on Nespresso. It looks like Nespresso is pushing a little bit more on this Vertuo line. The bigger capsules, actually, they will be launched in Switzerland. I understand this is a very small market, but I was just wondering, is it still the case that you would be producing these Vertuo line capsules, and what would you expect from this larger capsule that is mainly for the U.S. market? Maybe these three questions.
Thank you very much, Michael. Reto, would you like to start?
Well, the provisions, you are right, but it is not only Nedis. It is also partly concerning Distrelec to a certain extent. We do not expect further bigger provisions that have to be taken into account because the project at Nedis, the restructuring and refocusing on one brand is actually very well advanced. There might be something in the second half of the year, but no further big provisions to be expected.
I come to the next question that was a little bit linked to one of our competitors here in the market. As you said, they announced a growth rate of around 9% in the second quarter. If you compare that with the first quarter of around zero, the average is, let me say that what we for sure have significantly above that with our FirstLine startups. I assume that we will keep that momentum as well for the next couple of years because we started already earlier, with the investments, and with the market launch of our new operating strategy. I think we have still a good position, and I am confident that we will see some further good progress here. For sure, you will understand that.
Hopefully you have time to come in November to our facility in Belgium, and we will inform more about that. If it comes to our business consumer goods, that means Nespresso. As you know, we are as well delivering the Vertuo line capsules, and that is included in the contract. I can't tell too much more of that. Whatever they are doing, we will join and is it in the positive direction as well in the negative direction? If it is in a positive, then we will have the portion of that as well. Other questions should be addressed direct to Mr. Sorry for that, Michael.
No, that's fine. Just to come back on the Reichelt question, maybe for Reto to give us a little bit of feeling what this expansion really costs. One that I forgot to ask actually on the seasonality in Sealing Solutions, because usually you have a bit lower revenue number in the second half with usually a lower EBIT margin. Is that something that we can expect also in 2018, or are there growth dynamics, would they tend to a better second half compared to the first half?
First investment into the expansion of Reichelt is probably 1% EBIT margin that we lose over a period of which is invested into additional marketing activities and into additional public activities. That, as I said, is probably 1%. It's not that much. Then to come back on the seasonality. Actually, seasonality over the last years, if you look back, is no longer that important. Second half is in many cases almost at similar levels as the first half of the year. If you go back earlier on, that's absolutely true. We have a strong seasonality, but markets have changed in the direction that over 12 months period, it has become very stable.
Yeah. What we perhaps can say additionally to Reichelt beside is this investment. You know that still Reichelt has a mix of B2B and B2C, and we are striving more in the direction of B2B. If we compare just the growth rate of B2B with Reichelt, we are aligned with what we experience from other companies in the market. That is going very well. On the other hand, of course, in B2C direction, we are losing some market share, but that is not our target. Overall, we are happy with the development of Reichelt.
Sorry, is it also fair to say, because, Michael, before me, he referred to your competitors, like for example, Electrocomponents, who usually reports very good numbers. If I look at your Technical Components business and I would try to strip out the revenues that you deliberately let go, what would be really the growth rate? Because I think you grow faster than 0.8%, but you just let go of, I don't know, 1% or 2% of revenues. Is that correct? You are closer to market growth actually than it looks?
No, I think the point, as I said, let us give some time. We have still the issue with Distrelec, that is clear. We can't see that in the financial figures from the top line, and that is what we are missing on the EBIT line, as Reto expressed. There are some things which we will improve in the second half of the year. On the top line, we have to see, are we really doing the right actions there? That we have defined the right actions. Now we have to see if we can see that finally as well in sales, and that is what we are striving for. Please understand that we not would like to go during this Q&A in the deeper details of this three brand fields.
Yeah. Okay. Thank you.
As a reminder, if you wish to register for questions, please press star and one on your telephone. The next question comes from the line of Johannes Brinkmann, AWP. Please go ahead. Mr. Brinkmann, your line is open.
Can you hear me?
Yes, we can hear you.
Wonderful. Do you see any negative impacts of the trade conflict between Donald Trump and the EU and China for your automotive business?
I think the question is good. We can't see such impacts directly because for us, from time to time, it is very difficult to judge if such products which we are bringing to our 1st-tier customers and in which cars they are using such products. If our 1st-tier customers will be influenced by the OEMs like BMW, Audi, and so on, that could behave an impact. We can't see that today. Therefore it's difficult to answer that from our side. What we can say is that we are not losing market share in Europe. We are having some good improvements, as I mentioned in the SCR systems. There we have a very well penetration. From that perspective, we are doing well. We have new product lines there which will help us to grow above the market.
As covered to the influence, I think that is very difficult to answer.
Okay. Thank you.
Yes.
The next question comes from the line of Dominik Feldges, Neue Zürcher Zeitung. Please go ahead.
Yeah, thank you. I would just have one question or two questions regarding, again, Distrelec and Nedis. The strategy, you have in Manchester seems to be quite a risky one. You have a lot of new people there on the ground, I think, who are all new. Does that mean that you also had to let some people go in other locations. Does that mean that you have lost market share at Distrelec? The same, I think, Reichelt, you have said, B2C, you have lost market share. What about Nedis? There, also any losses of market share?
The first of all, of course, if you start a completely new operations with around 100 people, that is a process. To bring all people together and to have all processes the right behavior, I think that is still in optimization phase. So far I see a good progress. They are talented people there, and I'm sure that we will see some further improvement in the next couple of months. If it comes to the other divisions, as I said, with Nedis, very important will be now in the second half year that we will announce our new one brand strategy by end of the month. That will hopefully, and that is our plan, to lead to an better value for our customers, and that should finally bring increases in sales.
How far that will go is difficult to predict, but I think it's so far on a good way, and we are in budget there to that what we expected. If it comes to Reichelt, I think, as I said, Reichelt, we are striving for B2B because we see there a better opportunity for us in the long term to grow our market share there. That is what we are striving for. Therefore, we have already budgeted that we will lose in the B2C market. That is, let me say, a planned decrease of the market share in this direction. Yeah. Okay. A product question.
There are no more questions at this time. I'd now like to turn the conference back over to Mr. Lambrecht and Mr. Welte for any closing remarks.
Yeah. Although, as we mentioned, now I think we have a good result overall for the Dätwyler Group. Of course, there is some room for improvement, especially if it comes for TeCo. We will do our best to go forward and to improve step by step. We will come then back next year with our conclusions, what we are seeing here for the full year of 2018 if it comes to TeCo. In the healthcare sector, we will proceed with our plan, with our long-term plans that should help us to accelerate the growth there. Automotive, we have to have a look what happens in the market, but we believe and we have the indications that we could above the market average in this area.
So far, I think we should be able to deliver figures in the range of we have delivered in the first half year. Reto, any comments from your side? If so, no, I would like to thank to all of you for the participation in this conference call, and hopefully, you will be able and to manage to join us in our new healthcare factory or the first one, healthcare factory in Belgium, which is similar to that what we have in the U.S. I'm sure you will be impressed and will understand why the customers in the future especially will join us in this healthcare business. Thanks a lot for your attention, and I wish you a nice and a restful weekend. Goodbye.
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