Ladies and gentlemen, my name is Peter Stierli. I'm the Chief Communications Officer of the Siegfried Group. Welcome to the presentation of our results to the first half year of 2019. We are happy to have you with us. Together with me at the table are our Chief Executive, Wolfgang Wienand, Reto Suter, our Chief Financial Officer. The conference will be recorded and be available on our homepage after this conference. In order to avoid disturbing noise in the conference, we kindly ask you to switch on mute. The call will be held in English. After the presentation of Wolfgang Wienand and Reto Suter, we will open the lines for the Q&A session. Of course, it will be possible to pose questions in German too. Let's start. Please, Wolfgang Wienand.
Thank you, Peter. Also welcome from my side to this earnings call, our first half year 2019. Let's start with the front page of our presentation and have a quick look at the headline. First part, building a leading, fully integrated CDMO player. This is exactly the wording of our 2018 full year reporting in March this year. By reiterating it, we confirm this as our ambition. That's a journey on which we have taken our company. Second part, on track. That's our view on what happened within the first six months with me as the new CEO of Siegfried, and relates to both financial performance, as we will present it later in the call, as well as further organizational development and investments in technologies and people.
When I said at our analyst conference in March that I was very much looking forward to the challenge of leading Siegfried as the CEO, I can today, after almost eight months, confirm that this still holds true. Siegfried is a great place, has great people to work with, and offers significant potential. Now let's move on to the safe harbor statement, of which I kindly ask you to take note. Concerns forward-looking statements being made either in the presentations or the document, or verbally by myself, Reto, or Peter. Next slide is the agenda. We will start with a summary page, status, and outlook, which is a quick download of the key facts and highlights in the first half year 2019, on which we will elaborate in more detail later in the presentation. Three areas, first one being the quantitative part with key financials.
Second one being highlights on what actually happened in our manufacturing network in that period. Third part, outlook on full year 2019 and beyond. Let me briefly guide you through it. We have seen robust growth in terms of net sales, which are up to almost CHF 394 million, which is +4.4% in actual currencies. It's 5.8% local currencies. In line with our ambition to actually grow essentially in line with the CDMO market, which we see at ±6% year-on-year. Core EBITDA at CHF 66.3 million, which is a +4.3%. Core EBITDA margin 16.8% and net profit at CHF 31 million. A brief comment on core results. Reto will provide more explanation later. Core result adjustments, in our view, reflect true operational performance of our company and ensure long-term comparability.
It's in the interest of both management to really look at the right KPIs and also, I believe, in your interests in terms of assessing the quality of our business over a longer period of time. Last but not least, strong cash generation. Operating cash flow up almost 17% to CHF 41.5 million, and free cash flow essentially tripled, up to CHF 14.7 million. When it comes to highlights in the network, in the organization, I want to start with Hameln, our sterile finished commercial operation in northern Germany, where we, in June, inaugurated brand new development labs, state-of-the-art capacities for the process development of aseptic filling of small and large molecules. Large molecules we also refer to as biologics.
Another highlight in terms of capacity expansion occurred in Saint-Vulbas, our French manufacturing site of drug substances close to Lyon, where a new API facility has been completed on time, in budget, and will now be taken into operation in the second half 2019. As always, we are continuously visited by customers and regulatory authorities. Specifically, we had visits of the U.S. FDA in Minden, Irvine, Evionnaz and Zofingen with actually very good outcomes and clean sheets for Evionnaz and Zofingen, and only one minor observation for Minden. More importantly, we also just last week had the first U.S. FDA inspection of our Nantong drug substances facility in China with no observation. Which is a strong outcome for a facility newly invested, a new team being built up and being visited by the U.S. FDA for the first time.
As a consequence of that, we expect the import permit for products manufactured at Nantong into the U.S. in the next month. Last part, outlook 2019. That we can confirm at least mid-single digit percentage growth of sales for the full year 2019 at unchanged foreign exchange rates and improvement of the operating margin being Core EBITDA. Mid-term outlook, we come to that later. Profitable organic growth in line with market, with the ambition to outgrow, including selective and value accretive M&A. Now I hand over to Reto, our CFO, to guide you through the financial section of our presentation. Reto.
Thank you very much, Wolfgang. Good morning and [Non-English content], everybody, welcome to this call. I am happy to guide you through the financial numbers over the next few minutes. I am on page six now. The sales, you see a robust growth. Again, the Drug Substances business accounts for approximately 76% of net sales and the Drug Products for the remainder for 24%. You see that net sales in total has grown by 4.4% in CHF or 5.8% in local currency. Not as a surprise, we did have some currency headwind, especially from the euro against the Swiss franc, which has depreciated quite a bit from H1 18 to H1 19. The Drug Products business has recorded a slight decline in sales compared against a very strong H1 18.
Part of this decline is due to currency movements, but we also have been subject to a certain lumpiness in revenue recognition in Drug Products. Please remember that over the past four years, this part of our business has grown with a CAGR of 7.8% comparing the first half years from 2015 to today. I'm happy to confirm that we expect a growth in the Drug Products business for the full year compared to 2018. The Drug Substances business has recorded a very strong growth of 7.5% in Swiss francs. Let me briefly talk to you about the introduction of core metrics. Slide seven. Starting this year, we will introduce core metrics, all in the sense of APMs, alternative performance measures. This is nothing new. As you know, we have made adjustments to our profit numbers before.
In 2016, we have presented the profit measures before and after the integration cost of the BASF acquisition. In 2018, we have been presenting the profit measures before and after the restructuring costs that we had incurred in Evionnaz. I have, over the past two years, had numerous discussions and conversations with shareholders, investors, analysts about one-offs and non-operational effects in my P&L. Wolfgang and I have been discussing this topic a lot, and we have given it a lot of thought and consideration, not only for the presentation of our numbers to the markets, but also for the management and steering of our business internally.
Ultimately, Wolfgang and I believe that the investors' understanding of the group's performance is actually enhanced by disclosing Core results, since they exclude items that can vary significantly from year-to-year, and thus enabling the market a better comparison of our true business performance across the years. The presentation of our Core results will follow the very stringent framework and rules of the new SIX Directive on Alternative Performance Measures. Now in more detail, what adjustments do we do? We limit ourselves to two areas of adjustments. The first is, as in the past, we will exclude in the Core results costs for restructuring, impairment, and integration. Secondly, all interest rate effects from pension obligation of foreign plans will be reclassified to the financial result.
These interest rate effects are of a technical nature and non-cash items, and technically they consist of an annual interest charge, but also, and this might be more significant going forward, changes in the present value of these pension obligations, which might result from changes in the overall interest rates. We will be presenting core results only for EBITDA, EBIT, and the respective margins, not for net profit for the time being. I'm now switching to slide number eight, where I will present to you in much detail how these adjustments do work, have worked in 2018 and also 2019, and you will recognize that the impact in H1 2019 is actually quite limited. Let's start with 2018. You remember a year ago in the H1 2018 report, we have still followed the, let's call it old framework, and we have shown two EBITDA numbers, one after restructuring cost in Evionnaz.
This is the bar to your left, the CHF 62 million. We have shown a second EBITDA number before the same restructuring cost, which is the bar in the middle, CHF 63.5 million. This H1 2018 EBITDA before special effects is actually exactly the Core EBITDA for H1 2018 in the new core results framework. What happened in the second half of 2018, you know we had the restatement, so we have come to the conclusion and have also been made aware of that our way of accounting for interest expenses and interest rate effects related to the pension obligations was not in line with Swiss GAAP, and we had restated our accounts. The restated EBITDA for H1 2018 accounted to CHF 61 million. The difference to the relevant Core EBITDA for H1 2018 consists of two elements.
The one is the restructuring cost of CHF 1.5 million, and the second one is the reclassification of the interest of CHF 1 million. Now let's apply the concept exactly the same to 2019. You see, we did not have any cost for restructuring, integration, and/or impairment. We only applied this reclassification of the technical non-cash pension interest charge in the amount of CHF 1.1 million, and leading to this now reported Core EBITDA of CHF 66.3 million, which compares, is on the same basis as the Core EBITDA of 2018 to CHF 63.5 million. In the half-year report, we have now provided to you the historical data core for 2018 only. However, in the annual report 2019, we will provide you with some further historical data for core results.
With that rather technical part, I move on to slide nine, where we have depicted the various profit levels for H1 2019, always compared to H1 2018. I'm very happy to report that we have again been able to convert a robust growth in sales to increases of absolute profits, but also profit margins on all. The gross profit increased to CHF 92.4 million, up from CHF 81.9 million. To a gross profit margin of 23.5%, up from 21.7%. The Core EBITDA, which is an important number for us, increased to CHF 66.3 million, up from CHF 63.5 million, with a margin which is flat against last year. Core EBIT increased to CHF 42 million, up from CHF 39.2 million, an increase of the margin to 10.7%. Also net profit increased to CHF 31 million, up from CHF 29.3 million at a margin of 7.9%.
Let's have a closer look at the cost element of things, namely the SG&A. We're now on page 10 of this presentation. You will see that the marketing and sales cost, as well as the admin and general overhead cost, and also the other operating income, has been well under control, and in absolute terms, more or less flat against H1 2018, actually despite a robust growth in sales. We, however, had a significant increase in our R&D cost. This comes for two reasons. On the one hand side, you know that the R&D function is a very important client-facing element of our business and also integral part of our strategy. During H1 2019, we have invested in this R&D function, so increased cost. On the other hand side, we have also seen a certain cyclicality in terms of cost absorption for clients' projects.
In H1 2019, have less charged out to customers than we had observed in previous periods. We think that the second element will normalize over the midterm and already in H2 2019. Taxes came in slightly higher in H1 2018, which is mainly due to the mix of local profit generation. We again think that this will normalize over the course of the full year 2019. Cash generation, Wolfgang has alluded to that, is a key KPI for the management of the Siegfried Group. I'm happy to report that cash generation has been strong in H1 2019 again. The operating cash flow increased by 16.7% to CHF 41.5 million, mainly due to the fact that we have been able to keep changes investments into net working capital stable despite the significant growth in sales.
We have been very diligently working, especially on accounts payable and accounts receivable in the first half of 2019. You will notice that the inventory has increased compared to the end of 2018, which is a normal effect. We see that at the occasion of every half year, it's normal, and it's actually positive because it's a signal and an indication that we have been already busy producing intermediate steps in preparation for finalizing and selling these products then in the second half of 2019. We are also proud that the free cash flow has almost tripled to CHF 14.7 million, which is, of course, due to the higher operating cash flow and to a slightly lower CapEx compared to H1 2018. The next slide number 12, capital allocation. I get these questions a lot, let me try to answer that.
How do we intend to spend the marginal Swiss franc that we generate? I have presented this already at the analyst conference in March, but I think I present it again because it's important, nothing has changed. We use a clear set of priorities in allocating funds with the ultimate goal to maintain a very strong balance sheet and to actually enhance financial flexibility to support our strategy EVOLVE. Which means that we use our funds, firstly, to reinvest, to maintain and enhance our organic growth. Secondly, it means that we limit ourselves also going forward to a moderate payout ratio in terms of dividends. Thirdly, we deleverage whenever we do have the opportunity to do so.
In March, I also have elaborated on the availability of dry powder funding capacity available to us, and I have been stating that we have CHF 350 million of that capital available, of which actually CHF 200 million immediately. Since March, conditions in the debt markets have further improved and actually the appetite of banks, but important also, other suppliers of that capital is still strong. The conditions for hybrid capital have actually, after a difficult Q4 2018, come back to normal and are quite attractive these days. I can confirm the statements I made in March. However, important, I have also had conversations following the March statements who have raised concerns about too much gearing, too much levering. Let's say net debt to EBITDA levels are now including the hybrids of higher than 4 for a limited period of time.
Wolfgang and I take these concerns seriously, and we will obviously consider that train of thought as well when we came into the situation of structuring a funding package for a potential acquisition. These have been my very few remarks on the financial perspective of our business, and I'm handing now back to Wolfgang.
Thank you, Reto, which brings us to the strategy part. Let's start with page 14, which provides a brief snapshot on our view on the environment we as a company are operating in. I want to start with the target market. Our customers' market, which is part of the, let's say, total healthcare expenditures, which globally shows a strong growth across all segments. Hospitals, ambulant care, home care, but also pharmaceuticals, of course. This market of pharmaceuticals into which we deliver our services and products, we see growing year on year, essentially constantly at approximately 4.5%. That's our target market, and it's a good thing to supply into a market which grows continuously at that rate. The outsourcing of manufacturing, so the question, who actually does produce the drug products to be sold as pharmaceuticals, is actually changing.
While in the past, usually pharmaceutical companies had their own manufacturing capacities and used it captively for their own supply. Pharmaceutical companies more and more tend to outsource these activities to companies like Siegfried, to CDMOs. This outsourcing trend actually adds a growth increment on top of the 4.5% year-on-year, so that we see our CDMO market, so the market where we are operating in, growing at ±6% year-on-year. Above pharma market growth rates. When defining a strategy, it always makes sense to look at your customer industry and especially look at changes occurring there, so that you, as a supplier, as a CDMO, can actually find the right strategic answers to these questions, to these changes. We observe five fundamental trends in the pharmaceutical industry with an impact on the CDMO business model and the prospects of CDMOs.
First one being that pharmaceutical companies more and more focus on innovation and marketing distribution as their true value drivers. It's not the in-house process development of the product. It's not the in-house production of the product. That's actually the observation which supports our assessment of the above pharma market growth in the CDMO space. Second part is that if outsourcing, there is an increased cost awareness of pharmaceutical companies focusing on complexity costs and risks within the supply chain of CDMOs as key cost drivers. That is the support of our rationale to actually offer integrated services and to offer services out of a network because it actually can address both risks and efficiency, i.e. costs. Third trend, breakthrough innovations often come from small pharmaceutical company startups, which by default, do not have own process development and manufacturing capabilities.
That translates into our ambition to actually have a broad and diverse portfolio of customers, not only focusing on big pharma, but also including innovative, small pharmaceutical, mid-size pharmaceutical companies, startups. Fourth trend is a rather, let's say, chemical technical one. Increasing complexity of new pharmaceutical entities and medicinal therapies, which lead to potentials for CDMO to actually differentiate, both on the technological end and also, again, on the integration end, because offering both services, process development and drug substances and process development and drug products, offers potential to take out time and reduce time to market. Last but not least, proactive lifecycle management, meaning that even innovative pharmaceutical companies, in contrast to the past, tend to also not give up on their brands after loss of exclusivity, but trying to maximize value out of these generic drugs as well.
That leads to the implication that a CDMO, which is actually able to support also the generic APIs and drug products by the right cost structure, has additional business potential. That led to the Transform strategy, and the outcome of the Transform strategy is shown on the next slide, our global manufacturing network. That is slide 16. With actually a very good presence in all relevant geographies. In the U.S., Irvine, California, acquired in 2010. Pennsville, East Coast. A number of sites in Europe. Zofingen headquarter, Minden, Saint-Vulbas, Evionnaz coming to us from BASF. Hameln, acquired in 2014. Hal Far, Malta, an OSD site that we invested approximately 10 years ago, and recently the Nantong site in China for the manufacture of drug substances. The next slide, please, 17.
Far, we have been talking about business models, strategic implication of customer market and fixed assets, things like site network. However, to make all that work in real life, we had to make sure that we are all aligned within the whole company with regard to some fundamental beliefs, ideas, and ambitions. Because otherwise, the company would simply not be able to deliver outstanding performance in such a complex environment like ours, thinking about complex technologies, heavy asset manufacturing, strict regulatory frameworks, strong competition. Siegfried's Executive Committee and myself have spent a significant amount of time on discussing and defining and eventually explaining to all our teams what these fundamental beliefs, ideas, ambitions at Siegfried are. They are summarized on this slide. First, the why. Our mission and vision.
We are a technology providing company, so mastery of science and technology, and our innovation takes place on the process development and manufacturing level, all with the ultimate goal to actually manufacture safe drugs for patients worldwide. That's a mission, and that's why people at Siegfried are ready to go the extra mile. The vision is also important. Where do we want to take our company to? Here we have stated that we want to become the most trusted partner of the pharmaceutical industry and the global leader in the CDMO space for very specific reasons. We are the strongest team running the most competitive network. Essentially, what we do when managing the company all needs to and actually does relate to this vision. Last but not least, the what. The strategic journey ahead of us, about which I will briefly talk later.
All that we do, of course, needs to be carried by a certain set of values, which we summarized here on that slide as well, which are excellence in what we do, passion, because we deeply care about what we do, integrity, quality, and sustainability. That brings me to the next slide. We talked about assets, network, and people, values, mission. Here you can see on a slide that you know from the March presentation, a kind of picture which says something about the competitive environment we are operating in. That's the CDMO pyramid. It's structured along annual revenues of our competitors. You see the breakaway group with companies like Patheon, Thermo Fisher, Lonza, Fareva, Catalent. Close behind these companies, it's Siegfried, and we consider ourselves somewhere at, let's say, number five, number six in the CDMO space.
Another conclusion from that picture is there is consolidation potential, and consolidation is taking place. Let's go to the next slide, page 19, where we see the cornerstones of our corporate strategy EVOLVE. Which is about driving Siegfried's organic growth, as well as external growth agenda by executing on a set of independent strategic options. First one being continued investments in our technology base, especially talking about micronization, highly potent API manufacture, and other things. These are additions organically to our capabilities. Here we decided some time ago that in the field of aseptic fill finish, drug product manufacturing, as well as formulation development, we want to play a role, because technically, we are able to do so with our teams and capacities in Hameln and Irvine.
With some incremental investments, we have now created the capabilities to also play in that field. It's still a small portion of our business, however, strongly growing. The last two pillars are about M&A. Looking at our current network, you will see the drug substances space is pretty competitive. It's significant in terms of capacities. It's very diverse. It has command over a broad range of all relevant chemical technologies. I would dare to say it's probably one of the most competitive networks in the CDMO space in the world. That does not hold true for the drug product network that we have. It's only three sites. It's only one oral solid dosage form site in Malta, and also the sterilized fill finish sites in Hameln and Irvine do not yet command of the necessary capacities.
It remains our strategic ambition to actually strengthen the drug product network by acquiring the right assets, the right sites, right businesses. While I've said that the drug substances network that we have today is very competitive, we would also be ready to execute M&A in that space because there are still things you could add and you could improve and optimize. Assuming that the right target comes available, for example, in North America, we would be ready to actually make a move in that space as well. That leads me to kind of the wrap-up slide, where we summarize our view on what Siegfried is today, what we want to achieve, and how we want to achieve that. The ambition is to perpetuate robust organic growth, and on top of that, execute value-accretive M&A. Last year, we have been close to CHF 800 million revenues.
We see a very robust organic growth case. Within the parameters that we have today with our current network and applying adjacent incremental investments into capacity and technologies and further integrate our network, we see robust potential for organic growth in line with the CDMO market, and we see the potential to actually expand our operating margins up to the 20% range. That's kind of the base case of Siegfried. On top of that, and in line with the strategic ambitions that I just described on the previous slide, we want to accelerate growth through M&A. Value-accretive acquisitions in our core areas and acquisitive entry to new areas within our CDMO business model.
The outcome of all of that, let's say in 10 years from now, so our Siegfried vision, is that we want to be the global leader in the CDMO space, want to be the most trusted partner of the pharmaceutical industry, want to be the strongest team running the most competitive network, have critical size in all segments, also drug products and main geographies, and be able to master all relevant chemical, biological, and pharmaceutical technologies. That's what we wanted to present to you, and we will now be happy to take