Ladies and gentlemen, good morning or good afternoon. Welcome to the OC Oerlikon Q2 2018 Results Conference Call and live webcast. I am Ira, 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 1 on your telephone. Should you need assistance, please press star 0 to call an operator. The conference may now be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Andreas Schwarzwälder, Head of Investor Relations at OC Oerlikon. Please go ahead, sir.
Thank you very much, and good afternoon, ladies and gentlemen, and welcome to OC Oerlikon conference call on the results for the second quarter and the first six months of 2018. The hosts today are, as usual, our CEO, Roland Fischer, and Jürg Fedier, the Group CFO, and myself, Andreas Schwarzwälder, Head of Investor Relations. As a reminder, all related documents on the Q2 and half-year results, including the following presentation and the interim report, are available for download on our website. Today, we will follow the well-known agenda. Roland Fischer will provide with an overview and an update on the segments' performance, followed by Jürg Fedier, who will comment on the group's financial performance and the increased full-year guidance. After that presentation, we will host a Q&A session to answer your questions.
Today's conference, as mentioned, is being recorded, and the replay will be available on our website later today. Before I hand over to our CEO, let me add a general comment. After the announced divestment of the Drive Systems segment, which we disclosed on July 30, the segment is reported as discontinued operations. Consequently, all 2018 numbers are based on continued operations, and the 2017 numbers have been restated accordingly. Having said that, let me now hand over to Roland.
Thanks a lot, Andreas, and a good afternoon to everybody on the line, and thank you for joining our second quarter 2018 earnings call now. For the second quarter, OC Oerlikon achieved a strong top-line growth, as you see. The group order intake increased year-over-year by 26.8% to CHF 677 million, while sales went up by 36.6% even to CHF 665 million. And this excellent result is driven by both segments. The Surface Solutions segment carried its growth momentum forward into the second quarter, increasing both orders and sales. And the Manmade Fibers segment, once again, significantly boosted orders and sales in the second quarter. Profitability is further improving. In the second quarter, we have been able to improve the group's EBITDA margin to over 17%.
This is an excellent and outstanding result. However, we need to put this into perspective in order to manage expectations going forward. This excellent result is a result on the one hand from a positive product mix in Surface Solutions, and on the other hand, it includes one-time discontinued effects from the divestment of the Drive Systems segment. Operationally, both of our segments achieved strong double-digit EBITDA margins and therefore contributed both segments to the excellent results. We also continued to deliver on our strategic priorities. As you are well aware, we announced the end of July that we have signed an agreement with Dana to divest our Drive Systems segment. The closing is expected to take place in late 2018 or the first quarter 2019, subject to customary approvals and the usual closing conditions.
This transaction marks a strategic milestone for us as we now can fully concentrate on growing the Surface Solutions and Advanced Materials businesses while working on strengthening our Manmade Fibers segment. In addition to that, we have continued to execute a string of post acquisitions, such as an example, Essento Technology based in Charleston, U.S.A., and investments to strengthen Surface Solutions leadership position, and you will see us continuing on that strategic path. On the group's strong performance in the second quarter or based on this strong performance, we are in a position to raise our guidance for the entire year of 2018. Group order intake is expected to exceed CHF 2.6 billion, which reflects more than 15% growth year-over-year, and sales to grow to around CHF 2.6 billion, which is an increase of more than 20%.
The group's EBITDA margin is expected to exceed 15.5% at year-end. Here we have to get used to the new figures after taking the Drive Systems aside. Let's now turn to the Surface Solutions segment performance in the second quarter 2018. The Surface Solutions segment further advanced its business and delivered another quarter of strong results. Consistent sales growth was achieved in almost all end markets, such as tooling and automotive, and across all regions. In the automotive market, OC Oerlikon's SUMEBore coating product, which improves engine performance by reducing emissions, scored a major win with a global leading market player in Europe. Also, in aviation, a higher level of demand was noted, while the upward trend in general industries continued into the second quarter.
The small size acquisition in the first quarter and a positive raw material surcharge effect added in total roughly CHF 16 million to the reported top line. The ramp-up of the additive manufacturing business and construction of new facilities continued according to plan. In the second quarter, we have acquired Essento Technology from Qi Additives. The company offers manufacturing and engineering services for surgical implants and instrument systems specializing in the orthopedic and spine markets. In addition, we have further expanded our partnership network and are collaborating now with RUAG and Lufthansa Technik to develop AM components for aerospace, and with a German company, IABG, a leading European provider of services such as technological testing, analysis, and consulting to accelerate the qualification and certification of additive components and establishing new standards for additives.
After accounting for operating expenses from increased investments in the additive manufacturing business and technology acquisitions, and benefiting from a positive product mix, the segment managed to obtain an EBITDA margin for Q1 2018 at over 20%, representing an improvement in operating profitability as compared to previous quarters. From an end market point of view, we observed strong momentum in general industries worldwide. The coating market shows continued good demand in all regions, which is supported by strategic initiatives and the adoption of new coating solutions. The automotive business remains robust in Europe, the U.S., and Asia, and we will see ongoing moderate growth also in the aerospace market. Power generation remains a challenging market environment. In particular, large gas turbines are down. From a regional point of view, Europe and North America are showing strong growth, and we do see good development in Asia.
Overall, we are pleased with the positive development of the Surface Solutions segment, which continue to be the main revenue income generator for the group, delivering strong results in the second quarter for the year. Now let's move on to Manmade Fibers. The Manmade Fibers segment continued its successful recovery and significantly boosted orders and sales in the second quarter. The filament equipment market, led primarily by China, was the main contributor to the excellent top-line improvement and was strongly supported by related texturing activities. We achieved new customer wins for carpet yarn, the so-called BCF, Bulked Continuous Filament, and polymer processing equipment and systems. Segment sales doubled in China and tripled in India and North America as compared to the same period in the previous year. This leads me to the Q2 2018 numbers, which show an excellent result.
The orders increased by 45% year-over-year to CHF 282 million, and sales increased by 82% compared to the second quarter last year and stood at CHF 271 million. EBITDA increased by more than 100% year-over-year to CHF 32 million Swiss franc. The segment sustains double-digit operating profitability with an EBITDA margin at 11.8%, while continuing to ramp up production capacities to manage the significant increase in orders and sales. The EBIT for Q2 2018 stood at CHF 26 million, as EBITDA margin was at 9.5%. We continue to see market dynamics improving in the second quarter of the year. The filament equipment market in China, saw again, strong demand as the tier 1 customers are in a process of consolidation, aiming for capacity, technology, and efficiency leadership. As a result of the increased filament activities, the texturing equipment market was also positive.
These are good demands from BCF carpet yarn solutions from the U.S. and Turkey, with some signs of normalization and project opportunities in staple fibers and nonwovens. All in all, this has resulted in a strong pipeline, with lead times going already into the year of 2021. The strong results speak for the performance of the segment and its management. It demonstrates its ability to successfully manage the fast and accelerated recovery that we currently see. Now, last but not least, let's move on to Drive Systems. We are providing today only a short market update on Drive Systems segment. As already mentioned by Andreas, we have announced the divestment of the segment and Drive Systems is reported in discontinuing operations. Nevertheless, the development in the first half year was very strong. Drive Systems maintained its growth momentum and achieved 20% growth in its top line.
The segments continue to see benefits from its repositioning effort, as it made further headways in securing new business with existing and new customers in its end markets and across all regions. The segment noticed continued global improvement in the agriculture market, and also construction remained strong, in particular in the U.S. and Asia. We saw and registered a strong uptick in the transportation sector, especially in China and in India. In automotive, Drive Systems has seen ongoing positive market sentiment, and especially with a significant increase in sales volume of the so-called new energy vehicles in China, was a notable development. In the energy and mining sectors, the higher oil and coal prices appear to be triggering an increase in capital expenditures for both equipment replacement and capacity expansions. All in all, the segment saw a healthy growth in demand worldwide.
The strong top line, combined with improving production efficiencies and cost discipline, leads to a higher EBITDA margin of 12% in the first six months of 2018. We are convinced that the Drive Systems business will further develop under the new ownership of Dana as a business and market focus, as well as technologies of both companies are a good complementary fit. After this review of the segment performances, let me hand over to Jürg for additional comments on the group's financial. Jürg, the stage is yours, please.
Thank you, Roland, and good afternoon to all of you. Let me start the group's financial review with a closer look at the second quarter group figures. Again, please note that all 2018 figures show continuing operations, and 2017 figures have been restated for the divestment of Drive Systems and for IFRS 15. The before mentioned positive development of all segments, not surprisingly, consolidate to a strong group performance. They add up to an order intake of CHF 677 million in the second quarter, an increase of almost 27% year-over-year on a reported basis, or 20.8% if adjusted for currency developments. Sales came in at CHF 665 million, up 36.6% year-over-year on a reported basis. Driver of the top line development was growth in both segments, as mentioned earlier by Roland.
The book-to-bill for the group exceeded one for the ninth consecutive quarter, and EBITDA reached CHF 113 million. That's an improvement of 63.8% when comparing this to the second quarter of last year. The EBITDA margin stood at 17.1%. That's an increase of 2.9 percentage points versus Q2 last year. As mentioned before, the increase is due to a positive product mix and a one-time discontinued effect from the divestment of the Drive Systems segment, excluding the discontinued effects of CHF 9 million, which relates to the incurred cost in preparing for the sale. The Q2 EBITDA margin for the group's continuing business would have been at about 15.6%. EBIT was CHF 72 million, which translates into an EBIT margin of 10.8%. The development of the exchange rate in Q2 compared to the same period last year was beneficial to the group.
This is mainly related to the translation effect as we report in CHF. The appreciation of the EUR, and to a lesser extent, the CNY, against the CHF was slightly compensated by the devaluation of the USD against the CHF. Assuming stable currencies, orders would have been at CHF 645 million. That is a difference of five percentage points compared to the second quarter 2018 reported figure. Sales would have been at CHF 634 million, also lower by almost 5% compared to the reported figure. The transaction and translation effect on EBITDA was about 5.6% positive and fall in the same magnitude as orders and sales, hence with limited impact on the margin. The strong recovery in Manmade Fibers becomes visible when looking at the group's business split, as the segment increased its share compared to the same period of last year.
The Surface Solutions segment accounted in the second quarter 2018 for about 59% of the group sales. Manmade Fibers increased to about 41%. When looking at the profitability, the upturn in Manmade Fibers becomes visible as well. The segment accounted for 28% of total EBITDA in the second quarter, while Surface Solutions delivered 71% of total group's profitability. From a regional point of view, our proportion of sales increased in Asia Pacific region to about 47% and North America to 17%, while declining in Europe to about 32%. Sales in the rest of the world decreased to about 4%. In line with the before-mentioned recovery in Manmade Fibers, the share of our services and spare parts business decreased correspondingly to 39% of total group sales in the second quarter 2018, this in comparison to 47% in the same period of last year. This concludes our comments on Q2 results.
Let me now continue with the first half of 2018 to guide you through the group financial statements. The group figures show a strong performance in the first half of the year. Orders and sales up 35% and 38% respectively, standing at CHF 1.4 billion and almost CHF 1.3 billion. The margin for the first half year improved to 16.4% for the group, including the before-mentioned discontinued effect. Looking below the line on EBIT at the P&L, the net financial result was minus CHF 1 million, which is mainly related to higher interest income and foreign exchange gains. The tax result was minus CHF 36 million. The effective tax rate on earnings before tax confirms the trend from first quarter with now 28%, is mainly attributable to higher earnings with a favorable country mix, supported by successful tax planning instruments.
For 2018, we do expect the tax rate to be slightly below 30%. However, going forward, we expect to converge towards 25%, which is driven by the positive effect from the divestment of Drive Systems following closing of the transaction. Results from continuing operation was CHF 91 million compared to CHF 31 million for the first half of 2017, which is almost three times as high. Results from discontinued operations representing the Drive Systems segment was CHF 20 million compared to CHF 16 million in the first half of 2017. Our net result of CHF 111 million compared to CHF 47 million for the first half of 2017, is again an increase of more than 100% and confirms the strong performance of the group in the first half of this year.
Our balance sheet continues to remain strong and healthy as well as unlevered with a net cash position of CHF 363 million. Our cash position at the end of June this year was at CHF 778 million. Total equity amounted to almost 2 billion, representing a ratio of about 44%. Overall, our financial position remains strong together with the expected cash proceeds from the Drive Systems divestment and the existing credit facility we have in place. This provides us enough room for us to maneuver and to further execute upon our strategy. CapEx was at CHF 79 million in the first half of this year. That's 30% above prior year level.
Almost 85% of CapEx was allocated to the Surface Solutions segment due to the expansion of the global coating center network on one hand, capacity expansion in existing centers, as well as our investment in additive manufacturing. CapEx in Surface Solutions represented roughly 9% of sales. In Manmade Fibers, CapEx amounted to about 2% of total segment sales. Excluding amortization of acquired intangible assets in the amount of about CHF 20 million, depreciation was at CHF 60 million, up 70% compared to the same period in 2017. With the CapEx to depreciation ratio for the group of about 1.31, excluding the amortization of acquired intangible assets for the first half, we are still above our targeted midterm corridor of one to 1.2 percentage point. Coming to the cash flow statement. Cash flow from operating activities before changes in net current assets was CHF 244 million.
Change in net current assets was minus CHF 50 million, mainly attributable to the increase of contract liabilities, or better known as customer advances, in the amount of CHF 109 million. Cash flow from investing activities amounted to minus CHF 90 million, mainly reflecting capital expenditures, and cash flow from financing activities amounted to minus CHF 135 million, mainly attributable to the dividend payment earlier this year. This results in a decrease in cash and cash equivalents of CHF 33 million to CHF 838 million at the end of 2018. Another very positive development, if I look at the ROCE, OC Oerlikon's return profile shows a positive development. The group's first quarter performance resulted in a rolling 12-month return on capital employed of 10.7%, reflecting the higher operating profit over a reduced asset base, now exceeding our implied cost of capital.
This reflects our commitment to create value while executing on our strategy. Ladies and gentlemen, let me conclude with the 2018 outlook before we start the Q&A session. Despite the fact that certain risks in the global, political, and macroeconomic environment remain, we expect the positive momentum in our end markets to prevail. Based on the strong set of results in the first half of 2018, we are confident that we will be able to sustain growth, and therefore, raising our outlook for the year. Our guidance has been updated to reflect the announced divestment of Drive Systems. We are now providing guidance on the basis of continuing operation, which means that we have restated both the full year 2017, and the previous guidance.
For the full year of 2018, we expect group order intake to exceed CHF 2.6 billion, and sales to increase to around that level of CHF 2.6 billion. The group EBITDA margin after operating expenses from increased investment, particularly in additives, and the discontinued effects from Drive Systems, we target the margin to exceed 15.5%. Let me quickly summarize the underlying assumption. We expect Surface Solutions sales to grow up to 10% in 2018, while remaining within its attractive margin corridor of 20%-22% EBITDA margin, with an unchanged dilution assumption of around 200 basis points from the investment expenses in additive manufacturing. In Manmade Fibers, we expect order intake to increase further to exceed CHF 1.1 billion. Due to the successful capacity ramp-up, sales can slightly exceed CHF 1.1 billion, and the margin is expected to exceed 11.5%.
Allow me to elaborate on certain impacts from the Drive Systems divestment that is expected to close late this year or in the first quarter of next year. Besides the further improvement of our cash position of around CHF 600 million, we expect the tax rate for the group to be slightly below 30% at year-end, and going forward to converge, what I said before, towards 25%. Further, and similar to what we have seen in previous divestments such as Vacuum, accounting principles require a recycling of the cumulative exchange differences, the CTA, through the P&L. We currently assess this effect from the CTA in the magnitude of minus CHF 285 million at closing. Let me remind you that this will be a non-cash effect in the results from discontinued operations.
With the strong Q2 performance, our increased expectation for the full year, and the clear execution of our strategic roadmap, we provide the framework to sustain our growth and further improve profitability going forward. Ladies and gentlemen, this closes our comments on the second quarter and the first six months of 2018. We thank you for participating, and we are happy to open the lines for questions now. Operator, please go ahead.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Graham Phillips from Jefferies. Please go ahead.
Yes. Thank you, gentlemen, for taking my call. First of all, three questions. First question is on Surface Solutions growth. Can you talk a little bit about the end markets that are going to provide this 10% growth expectation for this year? Is that an organic growth number, or is that with the acquisitions? The second question was around additive manufacturing. How big is that market now in terms of sales for you, and what is that growing at? The third question was really on the margin. I know you have got the corridor 18%-20%. When do we get through the CapEx and the investment phase? Is it in 2019 that that margin corridor could actually be lifted? Thank you.
Okay. I will try to answer your question. First of all, the Surface Solutions growth, which is, I think 10%, is including all in. That means organic mainly, and we do have some smaller acquisitions. We call it string of pearls, which are contributing to a minor extent as well. That means the big chunk is coming out of the organic growth part, and this is related actually not to a single vertical like automotive or aerospace. It is across the entire landscape. It has a certain regional pattern. China is still doing well, but overall, it is across the landscape. Additives. What was the question for additives, the second?
How big is additive manufacturing in terms of sales now? Perhaps expand a little bit on the GE-
Yeah
aerospace.
As usual, we do not disclose the volumes and the figures for the business units. I think we gave you an indication for last year where we have been. We are growing here on a percentage perspective, with impressive figures. Overall, I think the additives business is a small part of our OSS volume. It is in a lower double-digit range of CHF millions. Last but not least, I think the CapEx question, also an interesting question. We do have, most probably, it is a peak year in 2018 with our CapEx spending. Just to give you CapEx and financials is one element, but talk about what we are doing gives maybe a better impression. We just recently opened our plant in Japan, Nagoya, where we are having a combined shop now for automotive and thin-film applications, serving a big Japanese car OEM.
Maybe another example is India, where we have opened a site, a service shop serving GE Power Generation. Last but not least, of course, our active engagement. We just commissioned an atomizer in Bingen just a few weeks ago. That means these are elements where we are spending our money. This is spent into the footprint, which is going to serve our growth in the coming years. But again, most probably 2018 will be a peak year. That means we are going down slightly in 2019.
Okay. If we think about 2019, and I appreciate that you'll probably provide guidance on that early next year. But can we think that there might be some operational gearing coming in from this business once we pass the sort of CapEx and R&D peak?
Yeah. Of course. First of all, I think the margins where we are right now is very attractive. Please keep in mind that the volatility within this margin range is not only or primarily driven by our CapEx spending. This heavily depends on our product mix and on our regional mix. I think I explained it in an earlier call. The same product being sold in a country A is not generating the same profitability when we compare it with a sale in another country. That means there is, and this is not an excuse, there is a strong pattern behind regional and product pattern, which creates a certain volatility. It's not only CapEx. That would be the wrong conclusion.
Yeah. I appreciate it's obviously a mixture of service and equipment and components and materials.
Yes.
In terms of the balance of the business, when we think about the balance of the business for the remainder of this year and into next year, is there anything in that in terms of, I don't know, more service or more materials as opposed to less equipment, which may change the mix and therefore the margin?
No. The share actually most probably is going to be maintained because we are not purely focusing on service or material. We are trying to boost all business lines. That means the material and equipment business is growing to a similar extent as the entire segment. From that perspective, the shares should stay somehow stable.
Okay. Thanks very much.
Yeah.
The next question is from Michael Foeth from Vontobel. Please go ahead.
Yes. Hi, gentlemen. Two questions. One is actually following up on what you just said regarding additive manufacturing. Do you have a plan for when this business is expected to become break-even in terms of EBITDA contribution? The second question is regarding Manmade Fibers. You have increased your guidance here as well, with sales now slightly exceeding CHF 1.1 billion. If I remember correctly, you said in the past that you wanted to avoid volumes really exceeding CHF 1 billion in terms of the capacity that you want to make available. In order not to overshoot. What are the capacity needs that you have in Manmade Fibers, if any, and how do you manage that sort of cycle? Thank you.
Let's start with the second question, Manmade Fibers. I think it's self-explanatory that we are using all given and available opportunities to manage this business. That means we are using our supply chain. We are increasing people, staff, mainly on a temp basis, in order to get our arms around. We also clearly said and stated that we are not going to expand our technical capacity, what is still the case. We use our sites, which we have. We do not invest beyond the normal replacement rate into these sites. The sheer fact that projects which we are discussing with customers right now are leading already into 2020 and 2021, gives you a clear indication that the capacities are limited. This is our way to manage it because it's a cyclical business and we use what we have.
The first question was break-even additives. This is a simple or more difficult question, depends how you see it. First, you are asking for the break-even point. This point heavily depends when we limit or stop our growth rate. Right now, we have an existing business that is doing well, that is fine, but we are growing in a very strong way, and the nature of the beast means we are investing. As long as the additive market is behaving in the way as it does right now, and we do have a plan to take a certain share out of that market, we are growing and we are spending the money, and we have not yet reached break-even, of course. I cannot tell you when this exactly will be.
Okay. Thank you. Maybe just one last follow-up on Manmade Fibers. You mentioned in the past that you still had some lower margin orders in your order book. When can we expect actually the margin to step up further? You increased your guidance slightly, but we're still far away from previous peak margins. Any comment on that?
Michael, I think you see already the effect of stronger projects coming in with, what did we indicate, 11.5 or something like that for Manmade Fibers, which is already a strong increase versus previous year. This effect takes place already, but I also want to be crystal clear, we are not yet, and most probably, we will not see the levels of project margins which we saw four or five years ago. They have been in the range of 18% or even higher. This is not the case right now, and we don't see it. We are improving, and we will further improve in the coming year of 2019 to a certain extent, and we do have a plan. At least I have it in mind, or Jürg and myself, we have it in mind. I don't know whether we published it. Andreas is shaking his head.
I'm not going to tell you. We will improve.
Thank you very much.
Yeah. Thanks.
The next question is from Wasi Rizvi from RBC. Please go ahead.
Oh, hi. Thanks for taking my question. I just have a few actually. Starting with Surface Solutions. You talked recently probably about SUMEBore. I was just quite interested in what the big win was and, is it something as significant as taking what is a specialist product into mass markets and whether that could add something to your organic growth rate next year in terms of what its contribution could be? Then moving on to Manmade Fibers. I'd be interested in your thoughts as to how you think what your customers are thinking around laying down what are quite large capital projects at a time when the kind of global trade, there's a bit more uncertainty around there. How do you see them behaving in the back end of this year if this level of uncertainty continues?
The first question, I was talking about a bigger win in the automotive market segment. I talked about a big European car OEM, where we managed to convince the customer to go and to install our SUMEBore technology for their cylinders in their car engines. As we talk about a very big one, we talk about millions of engines per year. Here we will see a ramp-up in terms of equipment and in terms of power, which is required. For sure, this project will contribute to our growth path in the coming years. The second question, Manmade Fibers. You are right. The trade, open to great trade questions between U.S. and China, maybe might create an impact. Right now, we do not yet see it. This market is still hot.
It's a consolidation question in China between the four, five, six big players. So far, we do not have any indication concerning effects from potential trade war elements. Jürg, that's correct?
Absolutely correct. I think it's more driven, what he alluded to, this strong consolidation which is taking place. Needless to say, the pipeline based on the discussion which we had before, due to limited capacity from both players here in the market, takes this out to 2020, 2021, right?
Yeah.
Sorry, could I just follow up on the first one? Are you able to quantify what the impact of this big win with the European auto OEM could have on Surface Solutions sales? Are you able to give us an indication of the size?
Of course not.
Okay.
Sorry.
Just sorry, just one more. Thinking about your balance sheet. The shape of your Group has changed again now, so your two divisions, a slightly different profile to what you were previously. Does that change how you think about what the optimal leverage is for the Oerlikon Group? What do you think it should be at on an ongoing basis? Once we get beyond the fact there are portfolio changes going on, what's the optimal leverage for the group now?
Well, we haven't actually changed that position yet. I don't think we're going to change that going forward. We remain in a position and everything which we look at going forward in terms of redeploying the cash, which is a need, we said that before. The situation which we have right now with Drive Systems or the potential income of an additional CHF 600 million on cash will obviously not change that. Our view on the gearing remains the same. We still believe that we should bring this company on the balance sheet, probably the vicinity of 1.5 to 2 times net debt EBITDA. That per se dictates the capacity which we have based on the current balance sheet and the cash to redeploy into further activities and transformational moves going forward. No, the position has not changed.
Great. Thank you.
You're welcome.
The next question is from Alessandro Foletti from Octavian. Please go ahead.
Yes, good afternoon, everybody. I probably have a couple of questions, maybe on the disposals of Drive Systems. You mentioned the CTA recycling to the P&L. Is there maybe a book gain to expect? When I look at your asset sales for sales and liability ups for sales, is there a book gain that may come in that compensates maybe part of that loss? That's question number 1. On the cash-in, you mentioned CHF 600 million ± cash-in. Does this imply that you're not reducing the pensions? You mentioned in all your press releases that the EV of this transaction is CHF 600 million, I was wondering if you can explain a little bit how the composition of this CHF 600 million is. That would be my second question. I have another question on the Manmade as well. You've been mentioning the normalization in Turkey.
When I hear the word normalization, last time we spoke about that, let's say I have a few red alarms flashing. Can you maybe quantify a little bit what you mean with this normalization in Turkey? Thank you.
I leave the last one to you, Roland.
Yeah, okay.
I start with the financial part of it. The CTA, if I understand you correctly, is there something out there of an extraordinary book gain apart from what we're going to generate on the underlying net profit? Not to the extent I can see it over the next 2 to 3 months or until year-end. In other words, the CTA will have an impact on the net reported result to that magnitude. On the cash side, actually, if you go back at the high level, Alessandro, and look at the bridge from equity value to EV, you have about a CHF 500 million equity value. You have a net debt position middle of the year of about CHF 51, a pension of about CHF 49-
and some minor adjustments, which you have a minority interest, which brings you to approximately the CHF 600 million.
All right.
When we talk about around CHF 600, it's driven by the cash pool, which is obviously going to be refunded at the end of the transaction. That's currently running in the magnitude of CHF 15 million to CHF 20 million on top of the CHF 620, but obviously will be a reflection of the ongoing underlying business going forward, right? There's no other changes in debt position or in pension positions the way you said. The delta will come from the cash pool itself at the time of closing. It's a locked box transaction, right? We have mentioned that-
Okay
Just to remind you that this is a locked box transaction going back to the 1st of January 2018.
I hope that helps, Alessandro. I leave the Turkey question to Roland.
Maybe I have to apologize if I caused a red lamp by using the phrase normalization. It should not be the case. We have a strong manmade fiber business. The carpet yarn BCF business is a smaller part compared to the filament. We saw a strong business the last six, 12 months in Turkey, which was outstanding to a certain extent, and we believe that this now is going back to normal. This is not changing the needle on our manmade fiber. At the end, the opposite is the case, and I gave a strong indication when we talk about contracts today about 2021, that means 2019 is full, and not talking about 2018. 2020 also is almost completely filled. That should give you a kind of confidence that manmade will have a stable, fully loaded period over the next at least one half, two years.
All right. Thank you. Maybe just a comment on this issue. I fully understand and appreciate that you are fully booked for 2019, of course, or maybe over for 2020. As you know, oftentimes, your share price sort of reacts to the order intake figure and not just to the sales and bottom line. With this growth in order, at some point, we will reach a level where growth is not possible anymore. There is where
Yes
We would have to figure out how we talk about it the next time.
Maybe the fact that you have two years gives you, as well as us, some opportunities maybe to think about that business differently. I leave it there.
Yeah. Okay. I take it from there. No, fine. I get your point. Yeah.
Thank you.
Thanks. Someone?
For any further questions, please press star and one on your telephone. Once again-
Okay. It looks like that we have answered all the questions. That closes then our Q2 results call, and we look forward to having the discussion with you going forward and speak to you next time on latest on October 30th when we publish the Q3 numbers. Thank you very much for participating, and have a good afternoon.
Yep.
Ladies and gentlemen, the conference is now over. Thank you for choosing Conference Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.