Dear ladies and gentlemen, welcome to the conference call of Interroll Holding AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Daniel Bättig, who will lead you through this conference. Please go ahead, sir.
Good morning, ladies and gentlemen. My name is Daniel Bättig. I am Group CFO with Interroll since March 2014. I welcome you to the fourth live webcast today presenting Interroll's half year results 2018. Interroll is part of material handling equipment manufacturing, a market worth CHF 140 billion in 2017 and growing at a CAGR of 4%-7% a year. Material handling manufacturing is booming and the growth is rather at the higher end of the 4%-7%. Interroll is dedicated to intralogistics only. This is the yellow part, if you're following my presentation in the webcast. We have no ambition to go into forklifts or cranes.
We remain dedicated to Rollers, Drives, Conveyors, Sorters, Pallet & Carton Flow. Therefore, the relevant market for Interroll intralogistics is CHF 5 billion-CHF 7 billion worldwide, and Interroll is currently holding a worldwide market share of 8%-11%. We continued our growth strategy to further expand the global leadership in internal logistics solutions with our key products and services, very successful in the first half year 2018. All product groups and all regions performed better than in the first half year 2017. I want to point out the performance of the Sorters and Conveyors business, which was growing 39.7%, and also the Drives business that was growing 17.7%. There is also good news from our smallest product group, the Pallet & Carton Flow, which we could reactivate in the first half year 2018.
When I am looking at our end markets, courier express parcel, airport, food and beverage distribution, and warehousing, I do not see any slowing down for the time business. We are focused on very dynamic markets, which allows us to outperform material handling equipment manufacturing once again. We remember the growth rate is 4%-7% for the average material handling. Interroll was growing order intake 32.8%, 27.4% in local currency, and we had especially strong growth in the Asia Pacific region with 86.4%. Net sales are growing in the group 18.4%, local currency 13.4%, so there is a 5% positive currency effect in the first half year 2018. Results are growing over proportional. The EBIT was up 23.2%, reaching CHF 25.3 million, despite increased research and development spending levels. Capital expenditures were growing 16.8%.
We mainly see the increase because we are investing in more production capacity to support the further growth. Very strong also operational cash flow, which is up 77.1% to CHF 31.2 million, this clearly reflects the projects we have in the pipeline and the down payments we got on these projects. We posted another record order intake of CHF 324.6 million. This is a plus of 32.8%. Interroll continues its development from a product to a product solution provider. Looking at the graph, you can see that the project-oriented product groups, Conveyors and Sorters, Pallet & Carton Flow, are together now 56%, while the product groups, Rollers and Drives together are 44%. Order intake was strong in Asia, 68.4%, but this is not limited to China.
We see also Thailand and South Korea growing very nicely. I already pointed out Conveyors and Sorters and Drives, which were profiting especially from the earlier announced large follow-up orders in the United States and in South Korea. Book-to-bill ratio reaches 1.35, while it was at 1.2 a year ago, and we have now a record project backlog, which we will work down in the second half of the year, and which allows us to give a positive outlook for the second half year 2018. Sales also at a record leverage CHF 240.7 million or 18.4%. Here we are developing from a European to a global provider. Net sales increases we have seen in all the regions, in EMEA 17.1%, in Americas 13.3%, and in Asia 39.1%.
Here I want to point out that the billing of the American projects has started, and we will bill the reminder of the large follow-up order in the second half of 2018. The large e-commerce order we got in South Korea, we will only partly bill in 2018, while a large part will go into 2019. We continue our strategy to better balance the geographic regions. We want to reach 50% of our business in EMEA and 50% in overseas. Currently, net sales reach 61% in EMEA, 26% in Americas, and 13% in Asia. We continue our growth strategy. Interroll not only developed from a product to a solution provider and from a European to a global company, we also prepare to move from an e-commerce to an Industry 4.0 provider.
I confirm that we will spend this year CHF 5 million in additional research and development cost, as we have announced in 2017. I confirm the CHF 5 million extra for 2018. We're using this extra money to develop smart service products. We are investing in heavy goods and pallet handling solutions, and we are also working on more specific industry solutions like we have provided for tire and automotive. We anticipate first products coming into the markets in 2019. I already mentioned that we were able to grow results over proportional. Our EBIT reached CHF 25.3 million. This is a plus of 23.2%. I have already mentioned that we are spending an additional CHF 5 million on the research and development these years. We have seen that gross margins are getting under pressure this year, so we see increased material levels.
For the time being, this will be manageable for Interroll. We don't see a large negative impact from this. Depreciation is up, amortization slightly up. We have been a little bit better on the EBIT level than the 20% announced earlier in July. Net income reached CHF 18.6 million. This is a plus of 21.5%. The net income margin reached 7.7%. Here we see a slightly negative foreign currency result and a somewhat higher tax quote, but not in nature, in my view. The operational cash flow, as mentioned in the summary, very strong. It's reaching CHF 31.2 million. This is a plus of 77.1%. This is the result, the positive result of the higher projects. We are getting more down payments from our customers. We have a slightly negative impact on the inventory since some of the suppliers are slow in delivering their parts.
Our general managers in the subsidiaries tend to build some extra stocks, as mentioned before, for the time being, this is manageable for Interroll. Also investment increased. We are investing mainly in more production capacity to further support the growth in the future. We have amended our Atlanta plant, which is building Sorters and Conveyors in the U.S. We are about to build our own premises in Thailand. That will be our third regional competence center in the Asia-Pacific region. Also free cash flow, very strong with CHF 18 million, in spite the extra investments we are making. We are continue to creating value. RONA reaches 15.6%, return on equity 14.2%. This is 1% up compared to last year, we are able to create that value despite the increased research and development expense.
As you know, it's not the tradition of the house to make a concrete guidance, still we want to give a very positive outlook for the second half year 2018. We can do so because we enjoy very good performance in half year one, we have a record order intake. For the time being, I see the growth drivers unchanged for the second half year 2018. Also long term in our industry, as mentioned before, none of the end markets serviced by Interroll, we see weakness for the time being. This, ladies and gentlemen, concludes my presentation today. I'm now open for your questions. I'm looking forward for an exciting Q&A section. You can put in your questions in writing or with the webcast. Please turn in your questions now.
I quote Mr. Alexander Koller from ZKB. Do you notice bottlenecks in the supply chain?
As mentioned, some of the suppliers have difficulty to keep the timelines. Our general managers in the subsidiaries tend to order extra stocks. For the time being, it's manageable. Nothing that is not good for our further growth journey.
I quote Michael Inauen from Credit Suisse. Can you explain the drop in gross profit margin versus the slight increase in EBIT margin?
Yes. Interroll is working on its productivity. All the sites are measured on the productivity. We are constantly working. We are trying to improve also on the fixed cost side. I think also in first half year, we have done a good job to increase the productivity in all the sites worldwide. We're waiting for new questions at the moment. Ladies and gentlemen, more questions for us?
I quote Michael Foeth from Vontobel. Can you give us an update on the fashion and tire industry?
Yes. Interroll is moving in sales to industrial sales. We have formed up specialized sales team focusing on dedicated industries. As in your question, there is industry sales established for tire and automotive. There is industry sales in place for post and logistics, for airport. We are building more and more specialized teams, which can tie in closer with the needs of the customer. So far, we are very successful with tire and automotive, and we have now just started with e-commerce and fashion.
I go back to a question of Michael Inham from Credit Suisse. Why the drop in gross profit margin?
The drop in gross margin has many reasons. There's not a single reason. As mentioned by me in the presentation, on the one hand side, there is a higher cost for raw material. These things, some supplies are short, so material prices tend to go up. Furthermore, I want to point out that we grow now over proportionally in regions in overseas, in Asia Pacific and in North and South America, where we are not enjoying the same gross margins as in Europe yet.
I quote Marc Possa from [VAUAG]. Have you been able to convince new integrators, or is the existing business done with the common ones?
Actually, we see many new system integrators coming into the market. In the past, typically system integrators were located in North America, Western Europe, or Japan. Nowadays, we see many small to mid-size system integrators, especially also in the emerging markets, like the Philippines, in Malaysia or Indonesia, which are very interesting to Interroll. As you can imagine, if you work with an established system integrator like Siemens, for instance, they will be pushing their solution. If we can work with a small to mid-size system integrator, we have more influence on the technical solution that comes into place, and we have also more possibilities when it comes to commercial terms. There are many new system integrators we work with.
I quote Thomas Brown from Miton Group: Do you have any public targets around the move from e-commerce towards an Industry 4.0 player?
For the time being, e-commerce is still growing very strong. We don't see a slowing down of the e-commerce trend. We are building Industry 4.0 to prepare that next mega trend for us. I think that e-commerce will be the driver for us for many years to come.
I quote Michal Lichvar from Vontobel: Do you still expect seasonally stronger H2?
There is some seasonality with Interroll, since two years, I would say. Typically, logistics and postal companies are ordering their sorters and Conveyors for the next Christmas business. That means these companies have ordered in Q1 or Q2 of 2018, the equipment that needs to be ready by Christmas 2018. This is why we see the order intake so much stronger than the billing. Typically, in the second half year then, the billing is very strong because we have then built the sorter and the Conveyors. We deliver them to the customer. They're typically ready by October and then billed. There is some seasonality.
I quote Markus Poser from [44 AG]: Could you comment on the open positions? Do you find the right people, and at what cost can you onboard them? Is there already a salary inflation observable?
In certain countries, there is salary inflation. It's probably no surprise. You may have heard that from other industrial group. There is certainly some salary inflation in China. We see that also in Germany and in Eastern Europe. For the time being, we are able to recruit the experts we need. I think it is in some instances helpful that Interroll is at rather peripheric locations. In Germany, we are in Sinsheim or in Hückelhoven. There we are in many instances able to attract local talent, which are not willing to commute to Hamburg or Frankfurt.
I quote Michael Flichler: Do project-related segments, Conveyors and Sorters, Pallet & Carton Flow, offer lower gross profit margins?
As you know, we are not disclosing our margins product group by product group, there is no large difference between the segments. Our product segments, the Rollers and the Drives, they have to sell their products at the profit to Conveyors and Sorters, Pallet & Carton Flow. Sorters and Conveyors, Pallet & Carton Flow, again, have to add their engineering and value-add it and then selling it at a profit to the customer.
Okay. We're waiting for further questions. Ladies and gentlemen, we are still open for questions. There seems to be no further questions. I say thank you to all of you. Of course, I'm still open should we have any more questions today or somewhere in the near future. Please drop me a line or call me at my office in Switzerland. You'll find my contacts at the last slide of the presentation. Thank you very much. Hope to see you soon. Hope to talk to you soon. Goodbye for now.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.