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Edited Transcript of DAE.S earnings conference call or presentation 13-Aug-19 8:00am GMT

Half Year 2019 Daetwyler Holding AG Earnings Call

Altdorf Aug 21, 2019 (Thomson StreetEvents) -- Edited Transcript of Daetwyler Holding AG earnings conference call or presentation Tuesday, August 13, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Dirk Lambrecht

Dätwyler Holding Inc. - CEO

* Reto Welte

Dätwyler Holding Inc. - CFO & Secretary

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Conference Call Participants

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* Carla Bänziger

Bank Vontobel AG, Research Division - Analyst

* Daniel Koenig

Mirabaud Securities Limited, Research Division - Analyst

* Michael Inauen

* Michal Lichvar

Bank Vontobel AG, Research Division - Analyst

* Richard Frei

Zürcher Kantonalbank, Research Division - Analyst

* Rolf Renders

Baader-Helvea Equity Research - Research Analyst

* Sebastian Vogel

UBS Investment Bank, Research Division - Director & Sell Side Equity Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Dätwyler 2019 Half Year Results Conference Call. I'm Andrew, the Chorus Call operator. (Operator Instructions) 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.

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [2]

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Yes, thank you very much. Yes, good morning to all of you, and welcome to the first half year update call, and thank you, of course, for your interest in Dätwyler. Speaking is Dirk Lambrecht, and I'm here together, as usual, with our CFO, Reto Welte.

During this call, we will refer to our presentation, which we have uploaded this morning, and I trust that you have it in front of you.

I would like to start with an overview of the key financial figures covering the first half year of 2019, and therefore, please I'd like to refer to Slide 3 of our presentation.

Thanks to our strong positions in Sealing Solutions division and our intensified market activities, we were able to increase our revenue by 1.8% to CHF 706.3 million. In the course of the first half year, we were confronted with increasingly difficult market condition.

The trade conflict between the U.S. and China led to a decrease in demand, particularly in the automotive industry. Adjusted for the negative currency effects caused by a stronger Swiss franc and the positive acquisition effects, our organic revenue decreased slightly by 1.6%.

Thanks to our efficiency improvement programs that we already started a couple of years ago and our focus on system critical components, we were able to increase operating result to a record level of CHF 91.2 million.

The reported EBIT margin reached 12.9%. Adjusted for start-up costs for growth projects of around CHF 4.5 million and negative currency effects of CHF 2.3 million, the EBIT reached CHF 98 million, and the EBIT margin reached 13.9%.

The net result increased to CHF 66.2 million. This represents an increase of 5.7% to CHF 3.8 million per bearer share.

Before I dive into the risk side of the 2 divisions, you can see on the overview on Slide #4., the revenue split is around 2/3 Sealing Solutions and 1/3 Technical Components. I assume that you know our divisional portfolio well, and therefore I would like to move quickly to the next page.

Our Sealing Solutions division serves the 3 global markets, Health Care, Automotive and general industry. The connecting element that's affected our sealing components are always customer-specific and system critical parts. If our components do not work properly, the system in which they are installed won't work properly either. At the same time, our Sealing components account for only a small part of the total cost of these systems. Example of systems are (inaudible) or all types of engines.

I would like to move to the next slide, please.

To be in the position to offer our customers industry-leading Sealing Solutions, we are relying on the 3 strong unique competencies. We are able to develop and simulate appropriate materials for various applications and combining that with engineered, tailor-made parts from prototyping to large scale production. And finally, we strive always for best-in-class manufacturing processes.

It's important to understand, only if those 3 competencies are aligned, you will be in a position to offer the best Sealing Solutions. These 3 core competencies are independent of the market -- end markets, and form the genetic foundation for serving the 3 current and potential future markets.

Also, we are able to deploy our core competencies and serve our customers with a global footprint of approximately 20 plants on 4 continents, and they all meet global manufacturing standards. This is how we differentiate in the market and how we create value for our customers.

Referring to the next slide, please. In the first half year of 2019, the Sealing Solutions division continued its profitable growth, of course, despite a difficult market environment. Revenue increased by 5.8% to CHF 479.3 million compared to the already strong prior year period. Adjusted for the negative currency effects and the positive acquisition effects, there was a slight organic decline of 1.2%. This figure was impacted by the negative development in the automotive industry.

Particularly in China and in the U.S., we've faced significant sales decline. Thanks to a double-digit sales growth and the high-quality components for selective Datwyler Production Systems and future vehicles and the first-time inclusion of Bins, we were nearly able to compensate the sales decline.

Demand for high-quality health care components from Dätwyler's First Line production continue to grow at a double-digit rate. The Nespresso business also performed well.

Despite start-up costs of CHF 3.9 million for growth projects, we were able to maintain the operating results at CHF 83.7 million. Adjusted for the startup costs and the negative currency effects of CHF 1.5 million, the EBIT reached CHF 89.1 million, and the EBIT margin came in at 18.6%.

Raw material prices were stable, even a little bit below previous year.

The integration of Parco and Bins is well on track, and both newly acquired companies create added volume, as we have expected.

We are moving to the next slide, please. I would like to take this opportunity to give you a brief update of one of our most important growth projects, our new plan for high-quality health care component in the U.S.

In the recent months, we have worked internally with our customers to validate and approve the production capacity. In the health care and pharmaceutical industries, validation of a new plant is a complex and a time-consuming process. The interest of our global health care and pharmaceutical companies in the new Dätwyler plant in the United States is very high. We will record our first commercial sales in middle term before the end of August.

After the intensive cooperation with our customers, we are even more confident that our First Line production standard represents the highest innovation level, quality and safety in the elastomer industry worldwide. It exceeds the highest quality standards of the European, American Authorities and meets our customers' expectations.

The First Line standard is based on quality by design and includes state-of-the-art clean room technology, automated manufacturing cells, fully automated camera inspection and a unit washing process.

Our new health plant also is a showcase for digitalization of Industry 4.0. The production process is fully supported by state-of-the-art IT and digital systems and solutions. And the next step, we will roll out the new digital systems and solutions in other existing plants as well.

Our customers will benefit from a higher product quality, safer production processes and an improvement in traceability throughout the entire supply chain.

Finally, we will create value for our customers what we're always striving for.

Now I would like to go to the next slide and start with the Technical Components division.

The Dätwyler distribution business was electronic components and products as group here. In the online distribution, we provide time-critical electronic components for the short-term needs and of most business-to-business customers. In the wholesale distribution, we sell home and consumer electronic products to online and offline retailers.

Next slide, please. Here you can see some interesting key figures about our distribution business. We bring together over 1,500 suppliers and over 700,000 customers. The business model is based on the highest service level and high availability of a broad range of components that we can usually ship to our customers on a next-day basis.

Our customers still use a variety of channels to order with increase in prices in digital and increasing consensus of online sales. Every day, we have over 230,000 visitors to our web shops in 18 languages. Every day, our distribution centers pack and dispatch more than 12,000 parcels with an average order value of around CHF 200. Profitability is driven by average order value rather than the size of the customers.

We are moving to the next slide. In the first half of 2019, the Technical Components division made further operational progress in a difficult market environment. The economic conditions in the European market, in which we operate, weaken gradually.

Sales declined slightly to CHF 227 million. Adjusted for negative currency effects, the organic decline was 2.4%. While our distribution companies are still giving up business-to-consumer sales with low margins on profits, sales are growing with more attractive business-to-business customers.

Thanks to a strict cost discipline, the operating result increased to CHF 7.5 million. The reported EBIT margin improved to 3.3%. The start-up costs for the international expansion of Reichelt reached CHF 0.6 million. The negative currency effects on EBIT level amounted to CHF 0.8 million. Adjusted for those 2 effects, the EBIT margin reached 3.9%.

Reichelt continued its successful international expansion. The Italian market is also fast with a local web shop and customer support in Italian. After the positive experience of Reichelt, Distrelec is working on an international expansion with web shops in local languages as well.

Nedis is working intensely on implementing the new single-brand strategy.

The acquisition of new customers, the increase of active customer base and the growth of R&D private label will continue to have a positive impact on the business of our distribution companies.

The next slide, please. The measures implemented in recent years have improved the operational efficiency and competitiveness of our Technical Components division. Although there is further potential for development, Dätwyler has decided to review the strategic options for the division, including a possible sale. Dätwyler's goal is to increase long-term success and to create value for our customers and shareholders. The evaluation, it's in the early stage, and the group will communicate more about this when appropriate.

Now I will hand over to Reto, who is looking forward to providing with some further information.

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Reto Welte, Dätwyler Holding Inc. - CFO & Secretary [3]

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Good morning from my side.

I'm on Slide 13, where you'll find the segmental reporting by division at a glance shortly. Net revenue per -- in the division, Sealing Solutions, CHF 480 million compared to CHF 453 million. You see that the EBIT was almost unchanged compared to previous year, EBIT margin at 17.5% compared to 18.5% in the previous year's period.

In Technical Components, CHF 227 million in sales compared to CHF 241 million in the previous year. You see the EBIT at CHF 7.5 million compared to CHF 6.9 million, which corresponds to a 3.3% EBIT margin.

And for the whole group, we can report CHF 706 million in sales, which is 1.8% higher than previous year, at a record EBIT level of CHF 91.2 million compared to CHF 90.7 million the previous year and a very slight decrease in the EBIT margin from 13.9 -- sorry, 13.1% to 12.9%.

I continue on Page 14, where you find the return on capital -- the return on capital employed information. Please note that ROCE is calculated by dividing the operating results before interests and tax, EBIT of the last 12 months by the average capital employed of the same period.

Capital employed is CHF 50 million higher than previous year as a consequence of projects like Middleton, which are very well known to you, and further investments in automation, especially in Sealing Solutions.

The reduction in ROCE on group level of 2.7% results, on the one hand, from a higher capital employed for 1.3% and the relatively lower EBIT for another 1.3%. This is supported by the individual results for Sealing Solutions and Technical Components, as presented in the chart, where you can see ROCE for Sealing Solutions of 28.7% and 7.1% for the division Technical Components. While Technical Components should remain stable, the expectation for Sealing Solutions short-term is a further decrease, while, on the long run, the ROCE should return to levels above 30% for Sealing solutions.

I continue on Slide 15, where you can see the consolidated income statement. I do not refer further on for revenue, as I explained it already. One of the effects that resulted in the growth of 1.8%, which supported this growth, is acquisitions, which contributed 5.8%. The gross margin is slightly lower at 25.7% compared to 26% in the previous year's period.

R&D costs are stable at 2.1% compared to sales. Marketing and selling expenses are 6.9% compared to sales and are at a similar level as in the previous year. General and administrative expenses are 5.2% compared to sales and at the same level as in previous year. So that's why the EBIT -- as a result, you can see the EBIT margin of 12.9% again compared to previous year.

Reduced financial results due to lower interest expense and smaller currency impacts compared to previous year result in a lower financial results. Therefore, EBIT before tax, the margin is at 12.5% compared to 12.3%, which is slightly higher. The tax rate is at 24% compared to 27% due to positive impacts out of acquisitions and the improved conditions in several countries like Belgium and the U.S., where tax rates or tax burden has slowed or come down.

Last year, you find the net result of CHF 66.2 million, which is a margin of 9.4% compared to 9% in the previous year.

I continue on Slide 16, where you see the balance sheet, and where you still can see that the liquidity actually supports our planned growth.

Cash and cash equivalents are slightly higher than December. It's a plus of CHF 10 million. Accounts receivable are a bit lower compared to June in previous year despite the acquisitions, but of course, also as a consequence of the sales level and the difficult market conditions, as Dirk explained.

Talk is at year-end levels, year-end 2018, and you can also see the further increase in fixed assets. Of course, as a consequence of the high investments in Sealing Solutions activities, especially the Middletown location, where we established the First Line business, which should result in high margin.

Accounts payable are at a comparable level to previous year and the year-end. Equity is at CHF 840 million, only slightly higher compared to year-end. You have a realized net result of CHF 66 million, but also included in the equities, of course, the dividend paid in 2019, which was CHF 51 million. The equity ratio at year-end was 62.4% -- sorry, 62.9%, and we are at a similar level at the moment.

I continue on Slide 17, where it's all about CapEx. And most of you know, the development of our CapEx related especially to sales. CapEx in the first half to 2019 reached CHF 53 million. CHF 45.3 million thereof was spent for property, plants and equipment.

The previous year figures show the amounts for the full year. A relative figure of capital expenditure as a percentage of net revenue, therefore, is comparable. The red relative line graph shows that the peak of our investment program is behind us. This is also reflected in the decreasing difference between capital expenditure and depreciation.

In the Automotive sector, in particular, we are reviewing the planned investments and adapt them to the changed market conditions. We carefully distinguish between strategically important investments in our future competitiveness and tactical investments to expand capacity.

I continue on Slide 18 with the condensed consolidated cash flow statement. You realize a slightly higher net cash from operating activities compared to previous year. High CapEx of CHF 45 million, but reduced by 45% compared to previous year; a free cash flow of plus CHF 39.4 million results compared to a small minus CHF 4 million in the previous year.

You also see the position net proceeds from loans payable to Pema of CHF 28 million, which reflects, on the one hand, the dividend that has been paid to Pema, which then has been turned into a loan from Pema to Dätwyler Holding. This is, of course, to be compensated at the interest rate at third-party levels.

You also see the line in purchase of treasury shares, which is to serve the share program of the Board of Directors. And you also see what the most important position, actually the biggest position of CHF 51 million, which is at a similar level previous year corresponding to the dividends paid. As a result, the company has cash of CHF 180.3 million by June.

I now hand over again to Dirk.

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [4]

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Yes, Reto, thank you very much.

I would like to proceed on Page 19. The economic challenges in some of Dätwyler's markets have clearly increased. In the Automotive market, for example, there are no signs of a recovery in the coming months. And online distribution for electronic components to the purchasing manager indices and the main European markets signals a significant decline in demand. And the market with declining demand, strict cost discipline is applied. Investments are reassessed and, where possible, postponed without weakening of our long-term position.

However, it's important to understand that these weaknesses in demand are short-term to medium-term developments. By contrast, the long-term structural growth trends based on the megatrends in our core Sealing markets remain unchanged, and I'm really confident that our growth projects position us for these long-term trends.

In the short term, we will benefit from the factors that already generate more than 1/3 of our group sales with the health care and consumer goods businesses with an increasing trend. These markets are not very cyclical and growing steadily.

Overall, I'm confident that we achieved sales growth for the year as a whole, and reported EBIT margin in the lower half of the unchanged target range of 12% to 15%.

Now I move to Slide 20. To conclude my presentation, I would like to draw your attention to the Dätwyler's group strategic priorities. These are long-term priorities on which we base our decisions and activities, and on which we work continuously and systematically. Examples to drive profitable growth in the future include our investment in the new First Line production capacity as well as the acquisitions of Parco and Bins, while Parco opens up new market segments and Bins strengthens our presence in South America.

Besides expanding our core business, we also work on some exciting innovations to accelerate long-term organic growth. Key words here are smart rubber and software electrodes, which enable interesting new application in digital health, diagnostic, variables and driver-vehicle interface and digitalization in vehicles.

All these innovations have in common that we use our unit core competencies in the Sealing Solutions division to develop new applications for existing or new market segments.

As I illustrated, with the example of our new U.S. plant, I would happily mention that, we are also proactively using the potential of digitization, whether in contact with our customers, our employees or the automation of our production processes. Especially with the acquisition of new customers, the increase in the active customer base and the growth of R&D private label will continue to have a positive impact on the business of our distribution companies.

In addition, we are in a privileged position of having many long-standing and competent employees. These employees value the entrepreneurial culture we offer and have a very strong identification with Dätwyler. With the new role of the chief agility officer and targeting trainings, we are further promoting employee discipline and empowerment. By doing so, we are advancing our way to a self-learning organization.

I'm very convinced that Dätwyler is well positioned for the challenges and opportunities of the future. With our strong market positions, our targeted use of resources, our ongoing efficiency programs and our subjective priorities, we will profit from the long-term structural growth trends in our core markets, and we will create value for our customers. Thank you for your attention.

Now Reto and I are now available to answer your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Michal Lichvar from Vontobel.

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Michal Lichvar, Bank Vontobel AG, Research Division - Analyst [2]

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I would have 2 short ones related to health care. How did the traditional business develop? In the press release, you mentioned double-digit growth in First Line produced components, but if you could maybe talk about the more traditional business. And then the second question there, kind of the breakeven point for Middletown, do you still expect to cover costs by 2021 or did anything change there? So that would be the question related to health care.

And then a more kind of a qualitative question for Dirk. How do you see the progress in TeCo developing? Are you happy with it? Or did you expected more at the beginning of this year?

And then the third question, just related to CapEx for full year, what would be kind of the reasonable target?

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [3]

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Yes, Michael. Thank you very much for your questions. I think let me go through that. I think the first one, if I remember it right, was linked to the Health Care business, about the traditional business. As I said, the First Line business is running really quite well. And even there, we have more the problem that we have capacity issues. That means, as you know, we are a little behind with our new facilities in Delaware. So there, we have, let me say, could sell more to the market, but I suppose that will come in the next couple of months better.

For the traditional business, I mean, pharma is slightly above previous year. We had already last year a very strong half year, and what we call medical sector is slightly around 0, but that is linked with a strong half year last year. But I suppose due to the good order book, where we have it especially in this sector, we will catch up in the second half.

At the Middletown, breakeven point is difficult to tell because it depends really on how fast we are proceeding here. I still believe that we should be able to start with a breakeven in 2021, but maybe that will be in the last quarter. But please understand we can give you -- have a much better view at the beginning of next year.

When it comes to TeCo, the expectation of course for the first half year was higher, but then there is a reason before. We are below that, and that is linked to the market condition. If you looked at the PMI, especially in the European companies, you can see there that the PMI dramatically has -- went down -- so coming down. So from that perspective, it's below that. However, I think in these circumstances and this market condition, I think we performed quite well. So on the last question, I think it's for Reto.

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Reto Welte, Dätwyler Holding Inc. - CFO & Secretary [4]

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For CapEx for the full year, at the moment, there is projects on the discussion, which would result in some CHF 120 million CapEx for the full year. But individual projects are still under review, which will probably lead to a reduction.

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Michal Lichvar, Bank Vontobel AG, Research Division - Analyst [5]

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Okay. Then this reduction is just tied to or related to kind of a more difficult economic situation that you are just facing currently?

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Reto Welte, Dätwyler Holding Inc. - CFO & Secretary [6]

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Absolutely right. That's the major concern we have to take into account.

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Michal Lichvar, Bank Vontobel AG, Research Division - Analyst [7]

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And then just maybe a follow-up on this TeCo. When we look at some of your peers, okay, they report maybe in a bit different time lines, but there we've seen still okay growth or even double-digit growth in the markets that you are serving. Do you see that you are losing market share, and that's also part of it? Or do you really contribute all of the underperformance to the market?

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [8]

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What we have to say here, Michael, that is right. I think that if you look for the peers, of course, what we can see, that was -- the peers which are getting their figure to the market, when everybody is doing that, what we are facing there that they have even in the second quarter a sharp decrease in their sales growth structurally. However, I think we are still below that, and that means we are currently losing a little bit market share. That, of course, this depends on which segment we are talking about.

Reichelt is still on a very good track. So it's performing very well. We have a little bit more topics here with Distrelec, however, I'm convinced that with all the activities that we have that we can perform maybe slightly better in the second half. But that's -- as I said, that it depends on the general market conditions.

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Operator [9]

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The next question comes from the line of Richard Frei from ZKB.

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Richard Frei, Zürcher Kantonalbank, Research Division - Analyst [10]

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I've got several questions. First of all, may you give us some more insights regarding the organic development of the general industry segment? And then secondly, regarding consumer goods, it seems that the business is still steadily running. Still, I'm interested in the competitive situation. Is it more or less unchanged or do you face more competition today?

And then regarding TeCo, you've mentioned a potential sale is here, also the possibility given that you just sell parts of it to different buyers. Or is it just available for sale as one package? And in relation to this, how do you rate the regulatory landscape considering a potential sale?

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [11]

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Yes. Richard, thank you very much for your questions. Let me start with TeCo. As we have communicated today, we had some strategic options, including a possible sale for this Technical Components division. Since the evaluation is really on the early stage, we can't say more about it today. And thank you for your understanding, and I assure that you will -- that we will communicate more about this in the due course and answer your questions later on. I think that is what we can say today, yes?

And if it comes to the general industries, consumer goods is performing quite good. We do not see a change in the competition here. I think what we are doing, and we do our own job here, I think we're doing a good job and the team. So from that perspective, I think there is nothing that I can add to that. And as you know, we do not -- giving further details on the contract here, yes?

And yes, that is the organic growth development for the general industry. Overall, I think that is what we can say here. That is, for example, with oil and gas, as I've said and during my presentation, that is performing as we have expected. The margin development is really nice to see. And as well the target is here to achieve our budget, and that is full and follows currently. I think that is -- from that perspective, there is nothing changed. What we have with Civil Engineering, we have a slight decline in sales here in the mid-single digit range. That is what we are facing. That is the current situation here with general industries.

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Operator [12]

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The next question comes from the line of Daniel Koenig from Mirabaud.

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Daniel Koenig, Mirabaud Securities Limited, Research Division - Analyst [13]

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My question on TeCo was already answered. I have just one additional slight question. The depreciation and amortization charge has been growing as a percentage of sales. I was wondering what one could expect for the full year in terms of depreciation and amortization.

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Reto Welte, Dätwyler Holding Inc. - CFO & Secretary [14]

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Well, there is -- there will be a slight increase in the second half of the year as further investments will be capitalized and seen as fixed assets. So -- but that's going to be a very slight increase. So you can actually double the figures for the first half of the year.

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Operator [15]

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(Operator Instructions) The next question comes from the line of Carla Bänziger from Vontobel.

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Carla Bänziger, Bank Vontobel AG, Research Division - Analyst [16]

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I would like to have your current view on the potential expansion into China in the Health Care segment? Do you have any updates you can give us here?

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [17]

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Yes. So far, we have and we are still in the discussion in China. And what we have decided internally is, firstly, not to go for a greenfield. So we have seen some change in the regulation to get passed to China. But we will, first of all -- that we fill our capacities, what we have in India. And therefore, I think it's our target to export from India to China, and that is running quite good currently.

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Operator [18]

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The next question comes from the line of Michael Inauen from MainFirst.

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Michael Inauen, [19]

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I have a couple of questions maybe also on the consumer business or the Nespresso business. I was wondering if you see a positive impact from the Starbucks deal that Nespresso has done, so particularly on the virtual line in the space.

And then maybe a little bit more general or competitive question on the capital bases. I mean, I'm getting more and more pushbacks from international investors on the growth discussion on the capital business in China. Well, I was just wondering if you have a view on this, if you see this as a long-term risk to the capital business in China. I know it's a question also, obviously, for Nespresso, but I'm just interested in your view?

And third question, on selective catalytic reduction, you said it was growing double digit. And I remember once, you showed in one of your presentations that you expect it to grow further, but I was just wondering, when do you expect it to actually stop? So when do you see a 0 growth impact here?

And on TeCo, also when you mentioned that a sale is a potential options here, also here I was wondering, when looking at the landscape, electric components in the U.K., Premier Farnell has been taken up by Avnet. So do you see a buyer for such an asset in China? I mean, you don't have to be obviously precise here, but just do you really see this as a real option to sell this business?

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [20]

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Yes. Michael, thank you very much for your questions. First of all, as I said, regarding Nespresso, as you know, we have a contract there. And we are, to the group, would like set this business on risk. And therefore, we are a little bit hesitant to tell you too much of that. But what I can tell you that we are, let me say, happy with this business currently. If you look for -- therefore line, we are on this well. We are working as well with other product lines, what they are doing into the market. So finally, it's running as even a little better than we expected at the beginning of the year.

If it comes to the aluminum total single portion cup hold here, I have to say, I think it's not our target to say if we see that as the right product or not. Finally, the consumer will decide what they are using. From our perspective, that has a lot of positive, let me say, sense to use such an aluminum product. Even what they are doing with all the recycling efforts and how they are getting the coffee from the continent, I think they are spending a lot of money there. I have seen that in their facilities and what they are doing from that perspective, I think it's even from time to time much better when we sell compared to plastics.

At this point, if we come to TeCo. I think, as I said before. I think, today, what I before, we cannot tell you more. There's a lot of options when we're evaluating. And please understand that we will not give further, let me say, comments for that. And if I -- I'm not sure if I understood the third question that was regarding...

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Michael Inauen, [21]

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Selected customers.

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [22]

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select -- SCR, the expectation here, and then the what is going forward, I think there it's -- obviously, it's running quite good. Even that we are seeing a decline of sales of car, but the penetration of such products when we are producing in the market is really quite good, and that is on a double digit range. And nobody can tell how that will be in the second half year, but if I look to the orders, what we have in hand, that is quite good, even despite that what Bosch, for example, communicated a couple of weeks ago. And that is one of the reasons why we not came back with an exact figures, what we see as a target range in sales for the second half year. There's a lot of uncertainties. That's a typical example here.

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Michael Inauen, [23]

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Just 2 follow-up questions on SCR, but that's probably I just don't understand it. But is most of the revenues for new diesel engine covers or is it actually upgraded diesel engines? And maybe you can just tell me this is. And on TeCo, I understand you cannot give more details, but maybe let me rephrase the question. Do you see, for example, American companies in the same area to trying to move into Europe?

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [24]

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As I said, Michael, please understand, I do not would like to give further views for that topic. We are -- together with our Board of Directors, are thinking about what can we do in the future and to find the best solution.

Regarding the diesel engine class, I think that is really difficult to say because we are -- do not have any aftermarket. We are delivering the products to the first -- for the first tiers, and they are bringing those products to the market. This could be that already some products of what we are delivering is going as well for refurbishment, let me say, for costs, but mostly, I suppose, that 90% or 95% is going into new costs. That is my best guess here.

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Operator [25]

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The next question comes from the line of Rolf Renders from Helvea.

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Rolf Renders, Baader-Helvea Equity Research - Research Analyst [26]

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Just a follow-up on auto exposure and the outlook for that. You touched upon it already a bit, but maybe you can elaborate a bit further, given all the negative news we get across the board from suppliers into that.

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [27]

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Yes. I think -- yes, Rolf, I can do that. I've been happy about it. And the point is, that one example in Europe, if I look into our orders book, they are quite well thought. Then we -- so for example, our Czech Republic plant has a lot of orders.

It's a little bit different in China, which we are seeing still a slightly decreasing trend, and the same as in the U.S. And the reason why I'm a little bit hesitate to be too optimistic here is really I do not believe that what we have here in the orders today will come through in the second half year. So I was already at the beginning of the year, let me say, more conservative when somebody asked me regarding the automotive.

But no, that is still the same, and that is what I still believe we should be more conservative. We are trying to be very disciplined on the costs. We will initiate further activities to choose a cost base, and then we will see in the next couple of months what happens. And maybe you remember in 2007, '08, that was -- in this climate of that time that comes for another month, and we're trying and doing everything to be prepared for such a case, yes? And I'm sure that we were able to do that as we did it in the past.

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Operator [28]

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(Operator Instructions) The next question comes from the line of Sebastian Vogel from UBS.

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Sebastian Vogel, UBS Investment Bank, Research Division - Director & Sell Side Equity Research Analyst [29]

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I've got 3. And the first one would be on Sealing Solutions. With your full year results, you're providing revenue split between Auto, Health Care and general industries. Maybe I missed it, but I haven't seen with the half year results, is that something that you'll only provide as full year results? Or would you -- or would it be possible to share that also for the half year numbers?

And then coming back to Technical Components, of course, I was wondering if you can update us there, what is the current asset base? And one last follow-up on that one, sorry for that in advance, but speaking more to your press release, when you were talking about strategic options, can you share your thinking about what would be strategic options? I mean, you mentioned that sales is only one, but I assume that should be the -- could be other (inaudible) there at least?

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [30]

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Yes. Sebastian, thank you for the questions. Let me start with the last one. I can just repeat what I have said before, that what type of options there in the market to do, and we said that is including the sales of this division on the LOI. Of course, that is excluding the acquisition in this area. And there is a lot of other options here. So -- and as I said, we will not give further comments to that. Please understand that.

If it comes for the split of the segment at Sealing Solutions, we will provide that only at the end of the year for the full year due to this, let me say here, long-term behavior of our business that makes from my perspective no sense to do for the year. And on the other hand, we wouldn't like to tell too much through the year for our other market competitor view, yes? And then I think the second question...

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Reto Welte, Dätwyler Holding Inc. - CFO & Secretary [31]

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And for the asset base, I mean, you are aware that we are not sharing divisional balance sheets because this is -- there is also a certain complexity linked to it. But to give you at least some indication of the explanation, the assets that we have in Technical Components is mainly stock and, of course, the logistics centers. And as you are aware, we have logistics centers in Den Bosch in the Netherlands. We have one at Ryhill, then we have a smaller one here in Switzerland, and they all carry stock. And if you take the total stock number that we present in the balance sheet, you just reduce it by 50%, and then you have an indication at least on the stock level that is used in Technical Components.

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Operator [32]

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(Operator Instructions)

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Dirk Lambrecht, Dätwyler Holding Inc. - CEO [33]

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Okay. Then if there's no further questions, then we, from the Dätwyler team, thank you very much for participating in this call. I really enjoyed that. And that is -- for all your questions, this was very helpful. And I'm looking forward to see you again in the next year, and thanks for your attention. Thank you very much, and goodbye.

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Reto Welte, Dätwyler Holding Inc. - CFO & Secretary [34]

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Have a good day.

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Operator [35]

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Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines, goodbye.