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Good afternoon, and welcome to the conference call of Krones AG. At our customer's request this conference will be recorded. May I now hand you over to CFO, Mr. Michael Andersen?
Thank you very much. Also welcome from my side to this conference call for the first 6 months of 2018.If we move on to Page 2, here you see the highlights for the first 6 months. So if the order intake increased by 13% to a bit more than EUR 2 billion, which is of course very satisfactory. And the turnover is lagging a bit behind, but of course, that's more a timing issue so it almost reached EUR 1.8 billion so slightly above last year at 1% is exact what we were above.Earnings reached 6.3% or EUR 113 million. So same level as we had in Q1 and also same level as we had in Q2 last year. It would have been nice that it was a little bit higher, of course, because of course that means that the way to reach our 7% for the full year is not getting easier with being a bit behind compared to last year but I get back to the details now.On the operating free cash flow, we had a minus of minus EUR 49 million for the first 6 months. So roughly EUR 80 million better than the year before. So I'm happy to see that it's starting to move in the right direction. As always, we are negatively impacted by the way we handle our payments to our suppliers around year-end. So this is not something of a surprise that we're negative. But I would say that finally starting to move in the right direction with the working capital.If you move on to Page 3. You can see here the quarterly spread -- split of the order intake and you see our 13% was equally split between the 2 first quarters of this year. As mentioned to some of you guys before, we had a price increase announced of -- from 1st of May this year. This is still not really to be seen in the -- in our orders that we are taking in, because the price increase is only effective for quotations issued after 1st of May.And why do we do we then have such a high level? We had it before, but between we have the first quotation and before we get a signature on the order that usually goes up to 6 months. So there is also some effect from the [indiscernible] still here where the last things were aligned or finalized in the beginning of Q2. So this is why we still have such a high order intake despite the price increase.We are starting to see that our -- the orders that we finalized are not getting a bit smaller than what we're used to, because we are pushing through this price increase would of course eventually mean that we will, to some extent, at least for some time suffer on our order intake side. So we also do expect that in Q3 and in Q4 we will start to see some of the impacts on the price increase on the volume.If you look at the bottom, thanks to this a very high order intake and the -- hardly any change in the turnover. We have relatively high backlog of almost EUR 1.5 billion end of June compared to, yes so it's roughly EUR 200 plus million above last year and EUR 300 million above the year before. So we have relatively good backlog for the rest of the year.And this is why, if we move on to Page 4 we see that we have more or less the same level of turnover like last year. So -- and however, with the backlog that we have on hand, we do expect a much better utilization level in especially Q3. So we are still maintaining our 6% target for the turnover for the full year.Currencies, what impact does that have on our numbers? If we look at the pure translation effect, we are talking about around EUR 50 million that we are lacking if we were to have the same exchange rate like last year. So currencies also unfortunately impact us. And here is primarily the U.S. dollar on -- that impacts us. But for example also the Brazilian reais is also negatively impacting us.If we move on to Page 5 and I look at how our turnover is split between the different regions that we have decided to split the world in. I would say there are hardly any material changes. However, we can see that in North America is slightly lower from 15% to 14% and of course, there we do see some of the currency effects also shown there is also same.Apart from that South America is improving, but that's also thanks to our very nice order intake that we achieved for example, last year in Mexico, which belongs to South American our terminology. Europe still remains strong at a very high level, slightly lower than 17, but not any material changes.And China is finally starting to stop the decline that we have seen over quite some time now or it's at the same level. The Chinese market is still an important market for us, but they're still like many others in the industry is suffering from this over-investment. But at least we have see -- starting to see then our -- if, our after sales. This is in China is starting to, how shall I say, get momentum then, which is important for us.APAC slightly lower, but still at the 12%, 13% level like last year, so nothing there. Of course, we all want to see that, that going up and then we are pushing very hard on this very important market for the long-term.If we move on to Page 6 we see the minus 7% development between last year and this year. But roughly the same absolute EBT for the last -- for the both quarters. If we look at the translation impact here, I would say that's a relatively big part of the explanation is that higher single-digit number here that negatively impacted us from these 2 currencies.And yes same level as Q1, and as I said, mentioned earlier same level as Q2 last year. Yes it does make life easier for us for sure, but we are still relatively optimistic that we can achieve our target of 7% for the full year.If we then move on to why we did not make the same amount of money compared to last year, year-to-date? We see on Page 7 that our material cost is, percentage is going up so we are getting under pressure from our suppliers and we are also, so to say, getting under pressure from our employees, because their personal expenses compared to our topline is also going up.And this is of course, like we talked about in the Q1 call, this is one of the reasons why we are increasing our prices. We have high cost pressure and we need to share this pain not only with ourselves in terms of productivity measures, but we also need to share this with our customers, which is what we're trying hard to do.So we are having a relatively large proportion of our suppliers situated in -- not so far away from our production sites and they have a relatively good capacity utilization and there they, of course also have the pressure on their costs and of course needless to say they also want to share this burden with us and this is what we are constantly trying to avoid by these negotiations with them. But we are under pressure for sure here and we need support from our customers to withstand this pressure.If we then move on to the people, which is of course impacted the personnel cost on Page 8, you can see here that on Page 8 that we are almost unchanged in the number of people in Germany and we are increasing outside Germany and this is our clear strategy and has been so for quite some time. And we are -- so at least for the 6 months we manage to carry this through relatively good.However, we do see some infrastructure needs to follow. We are still growing and this is why we, once in a while, still of course agree to add people also in Germany. But our basic strategy is to add outside to get closer to the customers and can also do the service for the after-sales business closer to the customer. This is one way to secure the very important after-sales market and also to secure the growth that we still believe is feasible in this very important part of our business.And then our -- if they our -- international sales list let's call it that, of our footprint with Hungary, is of course not yet to be seen here because we had first starting to hire, we have not so many people yet in Hungary but we do have some. But still a smaller double-digit number of people there but we will start to see that to watch them end of the year that there will come on more people.And we are getting closer into a better evaluation of what that will mean for our colleagues here in Germany. But still need some time to understand the effects. But this could potentially lead to some one-offs later this year, but still to be evaluated.If you look at Page 9. We see then here our cost segment so the filling and decoration segment which accounts for -- most of our business. And needless to say if Krones group is moving then this segment is more or less moving with -- in the same direction. And this is basically what you see here, especially bottom-line, you’ll see here that this is following the group because of the unfortunate effect that we are not really -- still not making money in our process technology segment.But we still believe we -- that we can achieve the 4% growth that we have planned and the 8.3% margin that we have planned. So good development but a quarter that was not as good as we would like to but it's only 3 months so we are still confident to reach our targets for this year.If we then move on to the next segment on Page 10, the process technology. This is of course our problem child or whatever we should call it, so we are not making money, or we have not made money for the first 6 months. However, we did make money in the second quarter not a lot, but at least 1%. And we did see 17% growth on the turnover side. And we are still confident that we can achieve 50% for the full year because the backlog is also pretty strong for this segment for the rest of the year. And the target remains 1%. So turning the EUR 4 million into a slight profit for this year is still our target.And then I'm sorry to announce on Page 11 that the working capital is on average measure, so last 4 quarters again went up to 28.8%. And this has unfortunate been the trend for quite some time, so this is why the average, of course moves up. We have seen the last couple of months that the working capital starts to move in the right direction meaning going down compared to the volume.So we also have had to adjust our target for this year from 26% to 28% and why 28% because we do expect that we'll see -- continue to see the improvement for the rest of the year in working capital. This is of course not very good, however, we at least started to move in the right direction which I am happy to see but you know I wouldn't -- I want to see this development on a more -- over some more months before I would really celebrate this change but I do believe we start finally to see the changes.Our mid-term target, we still maintain at the 22% but of course we have a bit of a timing pressure here that’s pretty clear, because we were -- or I was too optimistic in how fast we can change this. But I still believe there's a lot of self-help here that we can do to improve the working capital, but we also need some support from our customers and suppliers.And this is also why we in connection with our price increase announcement we are also adjusting our payment terms and -- but we of course always need too, to advance so it doesn't go in one second to change this percent, but we still believe the long-term we have a significant improvement percent from the better working capital management.And then of course, all else that has -- have mentioned in this call, we know that when EBT is going down and the working capital goes up and fixed assets not so much change then unfortunately we will see the return on capital is going slightly down, so that's then a mathematical result from this development. So it did drop 80 basis points between '17 and '18.If we then move on to the cash flow on Page 12. We see here that the free cash flow improved by EUR 100 million and adjusted for acquisitions around EUR 70 million or EUR 80 million roughly a bit less. So I am very happy to see this development and this is basically all coming from working capital. And if we do adjust for the year-end affects and the change of revenue recognition principle, we actually have an improvement for the first 6 months. So finally, at least we start to see that this is going to run in a right direction but still a long way to go.Acquisitions not a lot in -- spent in the first 6 months we did acquire, yes, either 100% or a bit less in 4 entities but not very big. One that I would however just mention is that we did invest in a small assist company that this -- in our mind relatively good position in artificial intelligence. And there we have together with our main shareholder there we share basically have an equal share in this entity. And then the management maintains the rest. But we do have, by that investment, good access to some capabilities in this very important field for Krones but also for many others. So here the more talent is for sure. Not easy but at least we managed to get our foot into 1 entity that has some of these capabilities that we of course also are trying to build up ourselves but speed is also important here. And therefore we did decide to join forces with another partner here.And nothing else, I would say to add so a happy development on cash flow and as I said adjusted for -- especially year-end effect and [indiscernible] actually positive development of working capital for the first 6 months of this year.Last page, Page 13 our target, so revenue maintained at 6% as previously mentioned. I would say here what can impact our revenue and EBT targets for this year? Currency is I don't know how exactly the currencies would develop for the rest of the year. If I did know I may would not even have been sitting in this call here. So this is one uncertainty for the rest of the year. Then how we do implement our pricing increase is also something that can impact the rest of the year. So that I would say is 2 of the uncertainties.And then as mentioned under the employee side one-offs is not included, so if we may have some one-offs this will impact this negatively. But if we do expect them we will of course hear them as soon as possible with the market but still in the finding phase so to say. And then you see the working capital to turnover of revenue unfortunately 28% and not 26% that we previously had.Sorry -- so this was my quick presentation of the numbers for the first 6 months of '18 and now I leave the floor to questions. Thank you.
[Operator Instructions] Mr. Sven Weier from UBS.
Three questions please. The first one is on the order intake, you obviously mentioned that there could a bit of an impact from the price increases on the order intake. So would it be fair to assume that you would also be expecting like a 6% increase in the order intake this year, which would mean you would be probably flattish in the second half? That's the first question, please.
Sven. Yes, as you know we don't give guidance, but for sure we are not expecting a 13% increase for the next 6 months. We will see a lower level, I am quite sure about that, because we want to push through the price increase. And there are of course not all our dear customers are so happy with this so -- and we have to set examples. What the percentage will be, difficult to say, but I do not expect any significant improvement compared to last year. So that's maybe a right level but again difficult to see. Timing is also something on order intake in the last couple of weeks there has been a little bit delay in decision from our customers, but this can vary from week-to-week basically. And maybe whatever these 2 gentlemen agreed yesterday can maybe influence the timing. So we don't have delays, but who knows.
Second question is just on the headwind that you faced from higher material costs. In the first half I was just wondering if you could quantify those, and if we should also expect the same level for the second half?
I -- quantify is difficult. At least I wouldn't do it in this call here. But yes, we do see some smaller price increases. We do face that our customers come with -- our suppliers come with relatively high expectations about the price adjustments that they would like to have. I would say usually we were able to have price reduction and this is what is difficult for us now. It's a little bit of product mix as well. And of course also level of turnover. So I would expect that the material cost percentage is improving of course in the second half, otherwise, we will never ever be able to achieve our 7%.
Because I was sort of wondering because you just said that timing delay between the first quotation and the order is normally 6 months. And when you announced the price increase in May so that brings us towards November-December in terms of impacting your P&L. So was just wondering to what real extent this can really help you to compensate the wage costs and the higher material prices?
I agree that that's not the main contributor. I would say the backlog is the one that should help us because, of course, we have fixed cost leverage by higher volume, so this is the main contributor for improving the profitability in the second half. I fully agree with you that the price increase will primarily start to impact the next year. Of course, the POC will probably impact Q4 partly but not a lot. It's the fixed costs leverage that would carry us through for the rest of the year.
And then finally on the working capital and the target of 22%. I mean, isn't it rather unlikely, I mean, you go to the clients right now you say, we want to achieve higher prices for the equipment, and at the same time we want the money earlier. I mean, isn't the standard reaction of your clients that you have to choose either you get higher prices or better payment terms, or maybe some clients are even saying higher prices, but better payment terms for us, the client. So I mean, isn't it as long as you try to push increases on pricing likely that the working capital target is rather pushed out further?
Yes, it doesn't make it easier for sure. So we have to be selective when we -- because there's basically 3 components price, payments terms and then [ all Ts and Cs ] penalties and whatever have you. And one, we have to sell a product as well of course, so it's -- we need also support from customers that's for sure and this is not going to be easy. But I still think there's a lot also to do on milestones that are defined in the contract and how good the wording is. So yes, I agree it's not easy, but as I said I'm not giving up at least for now under 22%, but it looks of course quite challenging, I agree.
Mr. Sebastian Kuenne from Berenberg.
Two questions from my side, 1 relating to process technology. It seems that you are very unhappy with the performance there or maybe I'm reading too much into it. And I get the feeling that you are considering the options that you have for this division. Can you give a bit more color on what you said earlier that you may or may not have one-offs and what those one-offs relate to and if that's relating to process technology and what that could entail? And the second question is on your sales growth target, is it right that I understand this growth target as a based on stable foreign exchange rate as of I think March 2018? And when you now say that you had a EUR 50 million impact on sales all being equal for the rest of the year that would mean that you kind of -- you get out with 5% growth and still say, well we met our target because it was on currency neutral. So is it currency neutral that you have the 6% or are you confident that you get the 6% on that date all being equal?
Yes, Sebastian you know us too well, I would say. But let's start with the PT result. Yes, you did read correctly that the one-offs may also include something on processing. So we have a serious issue in processing that we are evaluating what to do right now and the one-offs. So we have a capacity issue I would say and one-offs will of course then mean that we are considering to adjust our capacity. However as you know, this is not so easy for us right now. So this means a lot of discussions and evaluations, but yes it also includes processing. More I cannot say right now. On the sales growth, yes, you -- it may mean that -- yes, I did open the door slightly for that -- maybe the currency could potentially mean that we are not in reporting terms reaching the 6%, it still remains to be seen -- so but this is an uncertainty that may impact the 6%.
Ms. Felicitas Bismarck from Deutsche Bank.
I have more than 1 but the first 1 was actually a follow up. If the currency could mean you are not reaching the 6% wouldn’t it hit you harder on the margin side because of the -- because you are basically producing almost entirely in Germany, so wouldn’t the 7% be more in danger than the 6%?
No actually not, because yes, we do produce our new machines in Germany but we do, do our spare parts not only in Germany so that will not be the case for us.
And another question on how confident are you that you're not going to have the summer slump this year?
The what? Sorry.
The summer slump that you are usually see in Q3, right, that’s perquisite for your guidance, I think. How confident are you that this is not going to be as bad as it was in the earlier years?
We will still have it for sure. I think the backlog is relatively high, so the next 3 months should be relatively good, of course, we will with our slightly change of revenue recognition be impacted that we definitely will not have the same number of hours produced in August than in other months of the year. May was also better of course because of the many holidays here in Bavaria where we have most of our production. So we will have some slowdown for sure in August. But we have a lot of stuff we need to get through. What is uncertain is the order intake that we will generate in the next 1 to 2 months for the utility and for the Q4, so that's more the issue. But yes, it will be lower in Q3 than on average for the year, but it should be better than last year.
Okay, and then the other question I have, when do you actually recognize an order as an order, when you get cash or when you sign a contract?
It depends a little bit on region but in principle when we sign an order or when we have some kind of written document that there is an order, could also be a PO or whatever. However in some parts of the world, meaning primarily Middle East and Africa, we -- for some customers we wait until we see the money. [indiscernible] a legal obligation with something that then is recognized.
But in the normal case it would be written document, what happens if they cancel the order, do they have to pay something or?
Usually yes, but it depends a little bit off -- many issues but yes usually there is a penalty included. But it also depends on, if it's a long lasting customer and we have not really started then of course we may be a little bit flexible there. And cancellation fees is -- there is no general one about that one, it depends on customer to customer. If we haven't had any costs, it's -- at least with customers that we are working long with -- we're flexible there, I would say.
Okay, and the last question, the one off. I didn't understand like acoustically what you said about the one offs. So you are expecting one offs for Germany for capacity adjustments in the second half, did I understand that correctly?
We're not expecting, we're still in the evaluating -- what Hungary and processing may mean. But it could be that they're coming one offs but it's still not finally determined. So we're still in evaluation about that. But this -- we are building up in Hungary and we are still not having a result that we are happy with in processing, so it's under evaluation.
Mr. Sebastian Growe from Commerzbank.
A couple of questions from my side, firstly on the price hikes again. It's still early days and nonetheless I would like to ask if you can just give us a sense of how sticky will it the announced price hikes are on vendors obviously a time like between making the announcement and then really signing the orders but nonetheless can you at least call it if we say -- if things are moving to the right directions or the pushback is not as dramatic as eventually one might assume beforehand. And on competition in particular are you seeing any peers following your example here or what that also mean that they will eventually wait the say 2 quarters or so until early 2019 that is then before this might start to act in the same direction.
Yes, thank you for the question. The price increase is something that is also very new for Krones let me put it that way. And they -- we first have to -- do that all over, we are pushing that hard through in certainly. Then the customers will for sure not make life easy for us in the beginning. And that will I think take time and I would believe that the -- our competitors would also like to see that we are actually sustainable doing this, or whatever you call it before they may or may not react -- difficult to say. If I were them, I would probably still say let me see if they really mean it. So I'm not expecting them to change so fast behavior. I think this will take some time. When? Ideally sooner than later but this is completely out of my control, of course.
And then on the [ NRIs ] again if I may on this nonrecurring effects that you [indiscernible]. My understanding is for -- you may talk about Hungary and if so for a second my understanding is that you are hiring around 500 people there in the initial ramp up phase, and given that you'll certainly do not have issue whatsoever on the order side with 13% order intake growth, should we rather read that, that you eventually are preparing to grow even faster in Hungary, not least to cover obviously this exploding personal expenses or how should I interpret that?
No, Krones has to learn to produce outside Germany, so we are not having -- on any different plans for the time being than the 500 that is still what we are working hard to achieve first, this is a tremendous effort for Krones. If it's not so many compared to the 10,000 people we have in Germany but there are no different plans right now than to try to find, educate the staff, to actually get some stuff out of the door with the 500 people that we have currently in plan.
But if really the growth is so strong and at the same time you are considering at least to layoff some people I heard about the [indiscernible] technology issue in particular but it seems to be that you are just kind of -- what can I say -- more efficient in the general operations, which would then mean you simply do not require any longer so much stuff, is that the right way to think about it then?
I don’t know, it's difficult to say -- I am not actually completely sure I follow your thinking -- but we're not planning to -- we need to manage the volume, that's correct, but we're not planning to hire more people in Germany. We do believe we can manage it, we do have 4% to 5% efficiency improvements every year, so I'm not expecting at least to increases the staff on the blue collar side for sure in Germany.
But I [indiscernible] the other way around, I thought eventually you are just better, leaner -- whatever you have better production floors [indiscernible] there is no need to hold on to 6000 people in Germany, that was my thinking.
Yes I think -- I think we have to take it in steps here, so 500 people adding over in Hungary and we're looking at ways to improve our processing result and that's what we -- for the time being have on our table, nothing else.
Okay fine, and then a final one on working capital, if I may. The adjustment of the third quarter for 2018 -- is it possible to sort of break it down in various bits and pieces, I know it's always not an easy exercise but just conceptually to our [indiscernible] so obviously you had higher prices on the supplies that you are purchasing, at the same time obviously you are making progress on the general just improvements of production floors and with that having eventually structurally lower working capital need. So what is exactly the driver behind the 200 bps increase in the target quarter so there is [indiscernible] priced is it -- sorry?
No, it's receivables and we are not solving our problems as fast as we have thought. So we are still not fast enough to get off site. So meaning, doing the installation and we are not doing the installation, do not have to takeover of reaching the different milestones that trigger payments. Then of course, we don't get cash, but then we can't even issue an invoice. So it's -- we are still too slow in being able to send an invoice basically.
But it's really on the invoicing in the first place or was it really the installation that you referred to before? So just want to understand if this is something that you can heal and fix by just training your people, right? Or if there's what can I say a mental blockade or whatever it is that is really causing the problem here?
I don't know that where there is a blockade, but this company has to focus on cash every [ 16,000 ] and how to get them -- how to in [indiscernible] to send invoices faster. And of course, ideally also change the payment terms of a -- then also pay them faster. So I think there's no blockade, but of course, we have not necessarily had the same necessity to focus on working capital as we have now. And that takes time basically to change behavior. This is not something that you do overnight. And then if you do installation you depend on that you have the right stuff at the right time and that the machine works. And you also depend there unfortunately the right now to some extent also on the customers, because of what is written in the agreements with the customers.
Mr. Peter Rothenaicher from Baader Bank.
Firstly on the quality of your order backlog, how do you think about this is quality compared to last year? I'm aware you do not have the impact of the price increase in, but overall in terms of the competitive situation and the quality, how do you see it?
Yes actually I had it on my list to say, Peter, because you always ask this question. It's not as good as last year so that's -- there is a slight negative development, of course, partly driven by also the increase in material costs, but the price -- the quality is a bit worse, let me put it that way. But this is also one of the reasons why we are pushing through the price increase basically.
And what is your view on the management change at KSS? I know it is happening now in the third or fourth quarter, but do you have some hopes that competitive situation will become somewhat easier then?
Oh no, I don't think so. I think this is a very good company KSS. Yes, they have decided to change 2 out of 3 from the top management. And we do know the guy that this or [indiscernible] but at least he used to work for Krones some years ago. Again a new CEO there. And so he knows at least us quite well even though he has not worked for several years with us. But they are a very good competitor. They will continue to be -- act very professional, but I think he has for sure, one important task that is to grow and also make KSS profitable for sure.
Regarding your process technology division what is on the one hand performance of your recent acquisitions particularly SYSTEM LOGISTICS and how do you proceed with your PT activities in the U.S. and China?
So SYSTEM is -- SYSTEM has a very strong backlog, so the question is to get [indiscernible] rest of the year. There is some strange way of timing there, so they have most of the turnover in the last part of the year. So they're not doing very well for the first 6 months like last year, but there is a very high expectation of profitability for the rest of the year, because of the very nice backlog they have. So I would say they're doing good like we would like them to do. We have achieved a lot of good profitable business in the U.S. with our small acquisition of a company called Vertique that we did in the end of 2016. So they are going -- doing good trans market in the U.S., is also doing good. We're growing there quite fast so we now have offices in 7 different locations compared to the 2 they had when we took them over. So on their profitability they're still making a nice margin, not as high as before, because we're investing in this growth there. And on PDA they're doing very, not PDA sorry, [ Devlin ] is doing very nice, but they're not very big. On China, we do not have any companies that we acquired there for the time being.
And your own factory, you has it expanded there and how is it proceeding?
In China, that's more for the BP or bottling and packaging and that's the -- yes, we are. We do have work there and we do expect that it's -- will [ drop ] next year, but with still low, because the guys needs to learn. But it's, I would say, it's moving as planned in the right direction, but it still requires time before we have the capabilities to sell a really competitive product, which is by the -- which is the target that we want to have. And a product for the Asian market that is suited for that market.
And the last question in terms of free cash flow, do you still confirm that you will have highly significantly positive free cash flow, let's say, a 3 digit figure?
I don't think we have -- I don't know what to confirm, because I don't think, at least I've made any statements about that before. I think free cash flow is impacted by our last investments in Hungry. So we are investing a lot of money there, and there we may also have an acquisition or 2 in the next 6 months. So that will for sure, impact the free cash flow negatively.
Okay. But apart from these acquisitions?
We don't make -- yes, we want to have a positive development there for sure, but we don't, as you know make guidance on the free cash flow.
[Operator Instructions]
Okay. I don't think there are more questions so…
There are.
Sorry, there are more coming on.
We can take the 2 questions?
Yes, of course.
Mr. Sebastian Kuenne, your question please.
A follow-up question. Could you just confirm your current targets for staff buildup in the regions especially China, Eastern Europe, North America where it seems to be the growth markets. So because a colleague mentioned earlier the 500 in Eastern -- in Hungary, but that's also over several years I think. Can you just say what your targets are maybe for 2018 and '19?
Yes. I could, but I don't think we've shared that, but we are -- the Hungary is this and next year then we should have the 500 people on board. The plant is ready to basically start production early next year. So that's primarily this and next year. And then yes, we do plan to expand the production in China so there we also add people. Then I would say the rest is in installation guys primarily, after sales. So that's around the world so not necessarily only in North American. North America is not a really booming market of us. Where is our growth? That's Africa, APAC and China so this is where we invest mostly in people. But as you know we are basically everywhere. But this is our growth regions Africa is still very strong. Middle East is normally also a good growth driver, but with the regional tensions there I do not expect a significant buildup of people the next 18 months or whatever.
Mr. [ Yajaha Hanyognen ].
Sorry if you already covered this. But did you -- have you quantified or in any way kind of numerated what the impact of tariffs could be especially in the second half?
So you mean the salary adjustment are increased in Germany I assume right?
No. I'm talking about tariffs.
From import duties or what?
Yes.
No, we have not quantified -- that's I find it a bit -- a moving target. It has not been until now a significant impact for us, but there is of course, a slightly negative impact, because our machines is also including steel. So there is a disadvantage on the cost side, which we, of course, try to share with the customers, because we are not the only one who has this. Our 2 main competitors are basically having the same production. On a substantially different production footprint like us I think the market is equally negativity impacted, but not -- I -- we haven't, it's not a huge number right now I would say.
And then just also from the production that you started up in the U.S. recently does that also get impacted I guess, because there are some materials that you would have to import there?
So I think there is a slight miscommunication there. I know there was somebody who wrote an article, which does not really necessarily completely show the picture. Yes, we do produce a small amount of new machines in North America, but it's a very small amount until now we primarily produce spare parts in North America. So there's nothing significantly going on in the new machine business in the North American facility that we have [indiscernible]. And we are not planning to do so. We have a focus on China and in Hungary. And only if these tariffs are going to be significant we may have to speed off our -- speed up our thoughts there, but until now we hope that this is not required, because this will, needless to say of course, take focus away from our 2 main focus areas meaning Hungary and China.
We have no further questions in the moment.
Okay. Then I try again. Thank you very much for joining the Q2 conference call and looking forward to meet you on the road or latest as in next call in roughly 3 months. Thank you. Bye.
We want to thank all the participants of this conference. Goodbye.