Aalberts N.V. (AALB) Earnings Call Transcript & Summary

Welcome to the Aalberts Interim Results 2022 Webcast. [Operator Instructions] Now I would like to hand over to your host, Wim Pelsma, to begin today's presentation. Please go ahead.

Yes. Welcome ladies and gentlemen joining our webcast for the interim results 2022. The agenda we have for today is that we will discuss with you Aalberts, but also, of course, the operational developments of the first half of 2022. Then we will go through the financials and, of course, also our outlook. And we hope we have a lot of questions, which we can answer. First of all, Aalberts. Yes, you will find Aalberts where technology matters and real progress can be made humanly, environmentally and financially. And again, I think in the first half of 2022, you could see that where you have a uniqueness in technology, you can also keep your margin, which we again could realize also in the first half of 2022. The essence of the brand Aalberts, so where do we stand for? Yes, we engineer mission critical technologies, enabling a clean, smart and responsible future. So we are there where we have a unique position, unique technologies, where we can make the difference in combination with our culture, where we every time strive for improvements, continuous improvements of our operational performance. But good is never good enough. The third very important factor for our brand that we stand for is exchanging of knowledge. Between all the business teams, even of the different business lines, business segments, we share knowledge. It drives innovations, it drives also knowledge sharing, and it improves our operational results. We do that relentlessly in our pursuit of excellence. The way of value creation, which we also presented in December 2021, is actually a combination of the Aalberts' playing field, the Aalberts' playbook and the Aalberts' way of working. Our playing field, which we have defined, are 4 end markets where we are active with mission critical technologies, with a high innovation rate, where we try to have a unique position in the market. The Aalberts' playbook, where we strive for continuous improvement of our portfolio, generating [Audio Gap] the right way. But the most important is the winning with the best teams and that we have a continuous improvement mentality. The Aalberts way is sharing knowledge, share and learn, be an entrepreneur, take ownership and, of course, act with integrity, but also go for excellence every day. We do that on a relentless way every day. This is our way of value creation in our group. The playing field of Aalberts is actually 4 end markets, where we focus on shaping eco-friendly building. We're a real enabler, and also you can see that again in the first half of 2022. For increasing semicon efficiency, we help our customers, the OEMs, to facilitate the growth. We are driving sustainable transportation or we are enhancing industrial niches. We do that there where we can make the difference with technology, with innovations, where we can make progress. We engineer mission critical technologies, enabling a clean, smart and responsible future. The Aalberts' playbook, actually, how we manage our business every day, the most important is winning with the best teams. Then we are driving every day operational excellence, continuous improvement: How can we improve our factories? How can we improve our supply chain? And we leverage our equipment through volume. Also, the first half of 2022, the good thing of the 10% organic revenue growth, is that half of it is volume growth. So we leverage our equipment, and that gives -- with the automation of the equipment, you get a better result. Strong cash conversion is our attitude. Disciplined capital allocation, there, where you make the difference, where we have the highest margins, where we have the best returns continuously, very disciplined with our capital allocation, linked to the Aalberts' playing field. Portfolio optimization every day. Do we earn money on the articles we have? Do we earn money on the technologies we have? And can we improve that continuously and drive innovations? A big part of our growth, also of the last 6 months, is driven by the innovations we initiated the last year. Innovation takes time. Can take sometimes 3, 4, 5 years in our business. But you see results more and more coming. Relentless pursuit of excellence, creating in the end compounding returns, driven by local entrepreneurship and a relentless way to pursue excellence. Greatness is made of shared knowledge is what we say internally. It's a mentality. It's a culture. The culture is very important. It's the culture of our total company. We call it the Aalberts way, winning with people. So be an entrepreneur locally. Take ownership in initiatives. Don't wait. Even also in these times it's so important that you take action immediately. Go for excellence and improve your business every day. Share the knowledge, because it's sometimes difficult to know. So when you can learn from your colleague or you can learn from another team by having a better performance to your customer or innovation, then you should do that. We stimulate that every day. And of course, we act with integrity. Then the Aalberts strategy and objectives which we presented in December 2021, the updated strategy. First of all, we focus on accelerating our [Audio Gap] with the mission critical technologies we have. We aim for high entry barriers and pricing power. Again, we could see that also in the last 6 months. We were even able to increase our added value margin compared to last year. Creating sustainable profitable growth with a high added-value margin, EBITA margin and innovation rates. On the innovation, we set ourselves a target for the first time, more than 20%. We strive for that KPI because it's very important to create this unique position, but also to keep on growing organically. Every day driving operational excellence and portfolio optimization. It is part of our culture, should be part of our way of thinking every day. And achieving world class operations. With world class operations, you have mostly the best equipment, the best way of manufacturing. And that means also the best service to be given to our customers and the lower cost price, where you aim for allocating the capital in a disciplined way, strengthening our unique positioning. So with a more focused portfolio which we created the last year, we should stick to the focus and accelerate and improve the unique positions by allocating the capital. That's why we also want to invest more in CapEx to strengthen these positions and create more organic growth combined with bolt-ons. Realizing sustainable entrepreneurship with clear impact and commitment, a real strategy point which we added the last year. We really believe in that, because, sustainable entrepreneurship, it should be integrated in the strategy you have with a clear impact and commitment, which we also gave -- and I come back to that in the next sheet -- is a very important point for us because we believe that the combination of taking your responsibility for sustainability but also making business in that area, that's the perfect combination. Ensuring an open and pragmatic culture and a lean structure. Very important because with an open and lean and pragmatic structure, where people feel safe, you can also share knowledge, you can share ideas, people feel safe. And we use the Aalberts strength. This all we combine with new objectives, which we presented end of last year: organic revenue growth annually 4% to 6%; EBITA margin, 16% to 18%; ROCE, innovation rate. And very important also, we also have a target to improve our SDG rate to more than 70% of our revenue. At the time we presented that, we were at 66%. But our aim is to go beyond the 70%. And a leverage ratio less than 2.5. So these are our goals for the coming period to 2026. We are just half a year working on that. We are relentless in our pursuit of excellence to achieve this. And that's also the guidance we give that there are these KPIs, because we want to achieve them as soon as possible. SDG impact increased to more than 70%. That's our goal. And we engineer mission critical technologies, enabling a clean, smart and responsible future. You see here also the link between our mission critical technologies we have, the SDGs and our playing fields. So sustainable entrepreneurship is completely integrated in our strategy, and that's how we see that. Our commitment to net zero carbon roadmap. We are committed by 2050. The progress we made in 2022 -- full year 2022 is that we, first, in 2018, we made a progress of 23% of reduction. Our target is 30%. So we are nice on track already what we aim for in our goal towards 2026. We really put a lot of effort there in the scope 1 and 2. We are now busy with scope 3 doing the measurement and the target setting, because, also there, we take our responsibility. We also see scope 3 as a business opportunity, because, as you know, especially in our industrial activities, we service a lot of OEMs, which we will help to reach their scope 3. And by the positions we have in the market, we see this as a real opportunity for them that we can help them because we are actually able to also improve their scope 3. So that's a business opportunity. Operational development for the first half of 2022, the highlights. Now the revenue, we reached -- we came out at EUR 1.615 billion. It's a 7% increase. And because of the divestments we did last year and also this year, we saw an organic revenue growth of almost 10%. And that's why we overall grew 7% due to the divestments. A very important KPI and actually I think we did that on a very, very good way is the added value. We reached there 62.8% compared to last year 61.8%. So 1% improvement with all the inflation going on. It took a lot of effort to get that done. But I think it also says something about the strength and the unique positions we have in the market. And we are able to adjust our pricing when needed. But we should not underestimate all the effort we have in the business teams to accomplish this KPI of 62.8%. Our EBITA came in at EUR 250 million, was 11% more than last year at the same period. And our EBITA percentage 15.5% compared to the 14.9% we achieved in the first half of '21. Net profit increased with 11% to EUR 186 million and our earnings per share EUR 1.68 compared to the EUR 1.52 last year. Our capital expenditure increased to facilitate the growth plans. And how it works in a manufacturing company, as we are, is that it takes time. We still aim for a targeted capital expenditure between EUR 200 million and EUR 250 million this year. But also here, we're seeing there disruptions in the supply chain, machines which are coming later due to components which are missing, plus also the operational implementation of more CapEx also with the business teams takes more time. But we are there in an increase of capital expenditure, and we will continue in doing that. We also took the decision already last year that we go for service to our customers. So we invested in additional inventory. We also guided that in our press release. Beginning May that we invested in additional inventory, because with all the disruptions we have in raw materials and components. But also -- yes, in all kinds of way, yes, you need to service your customers. So we made that choice. And thanks to that choice we made last year, we were able to grow 10% organically. So as long as these disruptions are going on, yes, we believe this is the right way forward. Of course, we have to control our inventory. And we look very well to also the fast mover, slow mover, in that perspective, which my colleague will also explain later. Capital expenditure increased from EUR 58 million last year to EUR 84 million. It will further increase also during the second half. And let's see. But I think we will be close to the EUR 200 million end of the year. ROCE even improved. Even with a higher working capital, we were able to increase our ROCE to 15.9% compared to the 14.8% in the first half of last year. And we did some very nice acquisitions, add-ons in the business of semicon, increasing semicon's efficiency, the company's ISEL, and recently, KML. And in our business for shaping eco-friendly buildings, we added the company UWS in Germany, also a very nice add-on on the field of surface in that area. We divested ETI, where we optimize our portfolio, which was a noncore business. Overall, we realized 10% organic revenue growth and an EBITA margin of 15.5%. It's a good performance looking to the whole situation, because also we are not immune from the outside world and what is happening. Also we have inefficiencies. We have labor, which is difficult to recruit here and there. Especially, in North America and United Kingdom, we had difficulties with labor. Raw materials, still difficult to get components. And when you're missing one component and you make a system, you have a problem of delivering to your customer. So that takes a higher work-in-progress, higher raw materials. But we believe that with this strategy, also with the ramp-up we have now, that we need to have also the -- enough finished goods to service our customers. So all in all, we think a good performance, looking also to the world where we live in at the moment. Operational development. Now added-value margin, we already discussed. We have many business development projects to drive organic revenue growth and operational excellence. We will continue that. We believe that's very important. We can also make the difference in the coming periods by gaining market share, we think. So we should keep our service at a higher [Audio Gap] and try to ship more and to reduce our backlog, because we still -- we have a high order book. It was 39% higher than last year. So we started the second half of the year very well with a high order book. These orders have to be delivered, so we need to have a good service. So we will drive that also in the coming months. Capital expenditure further accelerated and will further accelerate. And we were able to manage with a lot of effort, I must say in the teams, the pandemic, which was still going on, because we still have quarantine cases in Germany, in France, where we had to close lines for a certain week. So it's all disruptions in supply chain, in the labor, raw material shortages, component shortages, every time talking to suppliers to get the raw material, and of course, inflation, where we had to do pricing initiatives and also negotiations with our suppliers. So there's a lot going on. And again, also that for us leads to here and there to some inefficiencies, which we can also see in our numbers. But still a good performance. We invested in additional inventory, we already explained. But in parallel, our work-in-progress is increasing to facilitate the growth. So when you grow 10% organically, yes, you have to facilitate that, and especially, when you want to continue that in organic growth. And yes, I have to aim to keep our market position, which, in my opinion, is the most important. When you in these times don't keep your market positions and you lose them, you also will not have the pricing power in the end. And therefore, we believe market position is key, gaining market share is even better. So we are going on that track. Regional manufacturing becomes favorable. Every time we mention this, we see that in many, many cases already. That is due to the geopolitical situation, more and more is sourced locally. We see projects transferred from Asia to North America. And with our local manufacturing and our very strong manufacturing, where we, yes, produce a lot of products in the region where we also sell it, that was always our philosophy, yes, we see that we get a lot of business out of that, more and more. That will only improve, in my opinion, in the coming years, especially when these prices of supply chain and long distances of transport are expensive, but also due to sustainability effects. We believe that you should reduce the transport and reduce energy use by manufacturing that very, very locally, close to the customer. We will take advantage of this. We see it already and it will only become more. Driving organic revenue growth and operational excellence. That's what we're going to do, that's what we're doing, and we will continue that. Eco-friendly buildings. Activities continue to do well and we had a record order book. And we facilitated many development plans. Manufacturing process is further optimized. And yes, we expanded our capacity, where we are still at the beginning of that expansion. Renovation, and we should not forget that also in the times where we live in. The renovation and new builds of residential, commercial buildings is continuing. Also, with the situation with certain, let's say, fossil fuels and gas and oil, it will only accelerate the transition towards sustainable heating and cooling systems. We are in pole position there. Renovation is 70% of our business in eco-friendly buildings. So the moment a heat pump is changed, yes, you need more flow heating, you need more expansion vessels, you need more piping systems to install that. That will only be in our favor. In addition, our continuous flow of innovation is driving our growth and we will continue with that. Also, end of this year, we will launch a fantastic new connection system, and we expect a lot of that for next year. So that is continuing. And we strengthened in this case, our portfolio with the acquisition of UWS in Germany, as already mentioned. So renovation and new build continues. It's driven by transition towards sustainable systems, and that will still be the case. It will only accelerate looking to the world where we live in at the moment. Increasing semicon efficiency. We continue with strong growth and performance with a record order book. We try to service our customers as good as possible. I think we did -- we're also working on the ramp-up of our OEMs and our customers, which is a high customer demand. But we -- I think with all the circumstances, we try to do as best as possible. And we again made a fantastic growth. And even with all the supply chain disruptions, we could do there a good performance. But also here, we have inefficiencies due to the fact that you're also missing components, you -- yes, we missed there certain small items or labor, which you are -- which we have to bring in place. So it takes a lot of effort. And in parallel, we also have to work on the capacity expansions for the coming years and also on the additional development projects with our key accounts, because due to the focused approach we have created in advanced mechatronics, where we really have a long-term approach -- we make plans for the coming 8 to 10 years with our customers because we are able to do that -- it's also that you -- yes, you have to work on all these initiatives at the same time. So we have the day-to-day, we have the capacity expansions, and we have the long-term vision we have with our key accounts for development. But that's the uniqueness we have, and we are strong. So we're also using here our investment power towards our key accounts to enable them to make the growth. Very nice additions, acquisitions: ISEL and KML. I think very nice acquisitions, which also -- yes, where we will take advantage of the coming years. Nice technologies: wafer handling robotics and linear motion systems we added to the portfolio. So strong growth and performance with a record order book. Transportations. We realized a strong performance and we increased our order book. Important to know here is that the demand for passenger cars, motor bikes and commercial vehicles remained strong. It is still disrupted by the component shortages of chips. But despite that, we made a good performance. And it also explains that we increased our technology portfolio heavily the last year. There is a continuous need for specialized surface technologies and precision manufactured parts. Important to know is here that also all the new developments is a good thing for us, because the moment something is newly engineered or has to be coated or treated or precision manufactured, yes, it is an opportunity for us to get more business. So the acceleration of new developments in e-mobility and also lightweight materials and energy efficiency in all kinds of ways also in sustainable transportation. It means also in aerospace, in marine. That means a lot of opportunities to gain business, because we are living of also innovations we do in this area. By having a global network in our surface technologies, but also in precision manufactured parts, we are able also to take in higher volumes, also higher complexity parts. That's more difficult for small local companies. So we believe also by consolidating this market further that we get a better and better position. Markets in aerospace and marine are recovering fast. We had a very good order intake in the first 6 months, and that will continue. So strong performance with an increased order book. And we should not forget that the production of light passenger cars is already in the last 2 years on a very low level and the demand is very high. Enhancing industrial niches. Strong growth and performance. Market is recovering fast, and the order book increased. But in addition, also the innovations were driving our growth. The industrial markets -- and I explained that very often -- were down from the summer of '18 and actually went up in the beginning of '20. Then COVID came. We are now 2.5 years later. And actually, from end of 2021, the industrial markets recovered. So there's a lot of, let's say, still to be made investments in the industrial arena and area, which is not done in the last year. So this is ramping up now very quickly. And yes, and also the order book is increased heavily. And so we have to increase also our efficiency and capacity in certain areas to follow this order book. So strong growth and performance, order book increased. Now financial development, to my colleague, Arno.

Yes. Thanks, Wim. Also, welcome from my side, everybody, to this webcast and in the call. I will take you through the financial developments of our company over the first 6 months. Starting with the revenue bridge. We explained the growth that we made from EUR 103.9 million over the first 6 months versus last year, which was 7% increase. And when we start from the base from last year, EUR 1.510 billion, we added EUR 60.7 million from the acquisitions that we did in 2021 with Sentinel and Premier Thermal and 2022 with ISEL and UWS. Then of course, we deducted the divestments, the revenue that we sold in 2021 of Adex, Lasco and Standard Hidráulica and 2022 ETI, EUR 132 million minus. Then we have a currency exchange effect positive in the revenue of EUR 36.7 million, which effect mainly came from the dollar. And that finishes up or that ends up to the organic revenue growth of EUR 138.5 million, which equals to 9.8% that we communicated as organic growth. And that is how we came to the EUR 1.614 billion over the first 6 months of this year. And the same for the EBITA. The bridge first is EUR 225.8 million last year. We increased with 11% the EBITA over the first 6 months or EUR 24.4 million plus. And that is -- first of all, we added again the acquisition of 2021 and '22 of EUR 30.5 million. Then we deducted the divestments that we made, the divested EBITA of EUR 15.5 million of 2021 and '22. And then the currency impact positive EUR 4 million, also mainly in dollars. And then, yes, the remainder is the EUR 22.4 million of organic EBITA growth that we made in the first 6 months, leading to the EUR 250.2 million, equal to 50.5% of revenues. Then the condensed consolidated income statement, where you see the 2 P&Ls next to each other. You see a slightly -- first of all, of course, the revenue increase of 7%. Then you see a slightly lower depreciation of '22 versus '21, where you also see the effects of a low CapEx year that we made in 2020. And also, in the first half of '21, it was still on the low side before we accelerated the CapEx. And that has impact also on depreciation. EBITA, already mentioned. Net finance cost higher than '21. Of course, we also consumed more capital and also more financing. And then the income tax expenses, which was, let's say, 24.2%, the average tax rate, versus 23.5% last year. So not a big difference over there. Earnings per share before amortization, EUR 1.68, or 11% higher than last year, EUR 1.52. The 10% organic revenue growth with an EBITA margin of 15.5% is what we realized over the first 6 months. Then the condensed consolidated balance sheet, where you see the equity still increased again over the first 6 months this year to EUR 2.215 billion with a slightly lower solvability of 51.6% versus 59.7% at the end of last year. Of course, the dividend that we paid in the first week of July is also reduced from there. And that is also the reason why you see that the total current liabilities are higher than the end of 2021, because there the dividend obligation is registered. Net debt slightly decreased versus last year, only EUR 6 million. But it's almost on the same level. But the leverage ratio improved again from 1.3% last year to 1.1% this year. And then, of course, working capital higher, EUR 706 million, already explained. We invested in inventories to facilitate our customers. And besides the fact that we really made the choice to be more just in case than just in time both with raw materials and with work-in-progress because of all the disruptions, we also see that the impact of inflation and foreign exchange is there also in this number with a big impact of EUR 129 million over the first 6 months. Then the days working capital finished at 83 days versus 68 days last year. Return on capital employed, nevertheless, increased. So despite the higher use of working capital, which, of course, is also increasing the capital employed, yes, we managed to improve the return on capital employed with 1.1% from 40.8% last year to 50.9% this year. And the free cash flow, where you clearly see that the improvement of EBITA is consumed, of course, by the -- also the change in working capital, the movement in working capital, which was EUR 100 million higher than the movement last year. So there you see where we consumed cash, purchase of -- we had a CapEx cash-out purchase of property, plant and equipment increased with EUR 26 million versus last year. And at the end, yes, that ends up to the free cash flow of EUR 4 million plus this year versus EUR 100 million plus last year, which is a deduction. And the majority of this deduction can be explained by the change in working capital, where the increased CapEx cash-out is more or less compensated by the increased EBITA performance. But we made investments in additional inventories and capital expenditure, and we did that on purpose so that we were able also to realize this organic growth that we reported. And the business per -- the business segment per technology, starting with the Building Technology, where we made a revenue of 1% minus versus last year, of course, because of the impact of our divestments and because the organic revenue growth, as you can see here, was 9.7% over the first 6 months. So apples-to-apples compared without these divestments, yes, we made a good performance. Here, you see the EBITA, EUR 141.5 million versus EUR 144.5 million last year, which was a slight decrease in percentage from 50.4% to 50.1%, and that is also where you see that, yes, we are also not immune for disruptions. We have been working very hard to do it in the best possible way the service to our customers. But also, we have had our challenges with labor, with the availability of materials lines to start up and to close down when you have no materials or nor labor at the moment. So there, the efficiency has been slightly lower. CapEx increased with 32% towards EUR 43.1 million. In the Industrial Technologies segment, where we made an increase of 90% of revenue, which equals 10.0% organically. Also there, a good performance and a good recovery of markets, especially in the industrial market. EBITA of EUR 113.1 million versus EUR 84.5 million last year, which was a big increase of 34%. And EBITA percentage as a percentage of the revenue increase 1.8% towards 16.6%. And also here, we increased CapEx with even 73% towards EUR 40 million. Then the revenue per end market and per region. The eco-friendly building end markets ended up at 56% of our total. Semicon efficiency continues to increase. As also already explained, I think, many times over the last years that we have an objective there to grow more than average in that end market. But semicon efficiency is now at 10% of the total. Sustainable transportation finished at 14% and industrial niches at 20%. Then per region, Western Europe finished at 60% of the total; America, 23%; Eastern Europe, 12%; and APAC, Middle East Africa at 5% of our total revenues. And I give it over to Wim again.

Yes, the outlook is that, yes, we have a very good order book at the moment, 39% higher than last year at the same time. So we start the second half with a very good order book. Our main aim is to get that order book shipped. And we are in the position more and more, we think, also, hopefully, that also the situation with the components, that will maybe a little bit better. But that is still a question mark in my opinion if it's really it's improving. Here and there we have some signs. So when we have that further improved, we can also deliver our backlog quicker. Because 39% higher order book, yes, it is what we have in our order book. So we -- maybe we'll ship that to our customers. And the other point is, yes, we guided in December 2021. We guided our strategy and our objectives. And we also said we will execute that in the coming years. We are now 6 months underway, and our aim is to achieve these goals as soon as possible. But it's a period of 4 years, and so -- or 4 years until '26. And yes, we are pursuing that. Now when I look to -- that's maybe also to add. When I look to the underlying trends in the market, and that's I think important to say, is that we really believe that the underlying trends in the market for renovation, shaping eco-friendly buildings are still very strong. The drive for sustainable transportation is strong. And I already mentioned that there is still -- the production of light passenger cars was on a very low level last year. There's a lot of demand. The semicon boom in our opinion will continue. 5G, Internet of Things, artificial intelligence, reshoring, all these kind of things will continue. So that means for the long term, that, that looks very good. Of course, it could be that here and there things are optimized in certain -- that all the wholesalers in building that they optimize their inventories, especially, I think, when the component situation improves. And that's also what we will do with our inventory step-by-step, that we will improve that when the time is there. But we should not forget that the underlying trends and the position we have as Aalberts in these 4 end markets, in this Aalberts playing field, that these underlying trends are continuing. And in my opinion, the renovation towards sustainable heating and cooling systems will only accelerate. And a nice example is, for example, also the conversions we see now towards district energy, district heating and district cooling from, yes, from gas towards district energy. So these are accelerating also due to the political -- let's say, the geopolitical situation we have now in the world. So as mentioned, a good order book. So we start well, and we will pursue our strategy going forward. Questions and answers. So we hope that you will have a lot of questions, which we are able to answer.

[Operator Instructions] Our first question comes from the line of Aurelio Calderon from Morgan Stanley.

I've got 3 questions, if I may. I'll take them one at a time. First one is around your organic growth of 10% in the first half of the year. Could you break down how much of that is pricing and how much is volume?

We assume pricing effect to be between 4% and 5% over the first 6 months, and the rest is volume. So you could say, let's say, 5% volume and the remainder pricing.

Okay. That's great. Second question is around the margin decline that you saw in buildings. I'm not sure if you can comment a little bit more what was the main driver of that? Is that more in the pipes business? Or is that more in the hydronic business? Or is it just a combination of both?

No, I think it's both. As already explained also earlier, we also are not immune for the situation which is there. So -- and it's in both. So it's -- and inefficiencies in our manufacturing and supply chain. So that means that, yes, when you have certain manufacturing lines and suddenly you lose 10 people due to COVID, yes, your line is 1 week out. And then you have to start up the line again, and sometimes with temporary people who are not available. So this -- and then you have components, which are not there. So you can't ship. So it's a combination that we could actually ship more when we would have the products available and that you have a higher cost because you expected to ship more. That's also because we have a high backlog. So it's all the disruptions we have in that field, and we are not immune for that. So that's also why, yes, the margin suffered there a little bit. But still, we made 15.1% there. So that's also how you can see it.

And as you could see, the added value of housing in total is a good value -- so in a good value. So it's really in these inefficiency costs, what Wim was explaining to you.

That's great. And maybe one last question. If I kind of [ back out ] your drop-through, it's more or less -- like 16% more or less. And that's compared with -- I think you laid out at the CMD that you were aiming for 25%. So what do we need to see to bridge that gap between that 16% and the 25% that you're aiming for long term?

I would say that -- actually, the same answer as Wim was earlier giving about the EBITA performance in Building Technology. Let's say, if we could have shipped more because of less disruptions, and also that performance would have been better. So we continue to drive these organic growth and operational excellence programs to bring that further in the right direction. But of course, that had also impact on this drop-through.

The next question comes from the line of David Kerstens from Jefferies.

I've got 3 questions, please. First of all, what drove the acceleration in organic growth towards the end of the second quarter in contrast to some of your peers and many other industrial sectors? And related to this, do you expect you can maintain this low double-digit pace for the remainder of the year against easing comparators in the second half of last year? Second question is on the working capital. Do you expect working capital to come down in the second half of the year as it always does? Or do you think it will be structurally higher in view of this accelerating nearshoring trend? And then the final question on the M&A market...

David, maybe to interrupt you, maybe we could first answer the first 2.

Yes, yes, of course, please.

Because otherwise we -- or else we forget. We get distracted.

Now the first question was about the organic growth. No, I think what you see is that we aim for organic growth. And from my perspective, it's very important, I already explained that, to keep our market position or to improve our market position. So we are working on that continuously. And I think, yes, we are in a flow there by doing that, already starting beginning last year. So yes, in the end, it ends to almost 10% organic growth. And yes, that is how it worked out. So I think it's a good performance. We need some more inventory for that. And taking into account even the inefficiencies. Now going forward, yes, we will not stop. So that means we will -- we believe that the underlying trends in the end markets we are in and with the business teams we are active, with the product systems and everything we have, we are very well positioned. So we believe that we should continue that. So that means we will continue our business development plans, also our CapEx plans and keep on driving organic revenue growth. But the uncertainty about, yes, the components and all the other things, yes, it's still there. So it's very difficult to predict how that will work out in the second half. But let's say, we will not pull the brakes because of -- yes, about what is happening, because we look to our market and we look to our customers. And that's where we focus on. And so we keep on driving organic revenue growth and also further optimizing our operation performance because of in efficiencies. And we should solve them. Now that's where we are busy with. And we will see how that works out. And the second question was about working capital.

Second question about working capital. Of course, as I already explained, we see -- we saw -- because of this just in case instead of just in time, we saw also that a big part of the increase is in the raw materials and the work-in-progress to really secure the service to our customers. And of course, it's our objective to bring it further into balance for the second half of the year. And yes, for us, the objective is to get the finished goods in the right balance so that we can also continue the deliveries of the backlog that we also have to our customers. So I -- we expect the working capital to improve, as it always does, you're right, in the second half of the year. If we come back down to the old levels, that's a question, because I think there will be still a situation of disruption. There will still be a situation that we need relatively more inventories than what we were used to in the past. Yes, the world is changing from that perspective and we will adapt to that. But of course, we have a big focus to the further improvements of our inventories and working capital. And nevertheless, also important to mention is that despite the fact that the inventories are on a high level, we have continued all the programs that we have to improve the inventory from a quality perspective. So we continue to optimize, let's say, the slower movers parts of the inventories to reduce them. And that is also why we still feel comfortable with the situation. We see also in the different categories of our inventories that it's really in the fast running parts of our inventories where we increased partly because of this just in time effect, but now just in case. And secondly, also, yes, when you have physically more raw materials on stock and you have a price increase from inflation, of course, that has an impact to your inventory levels. That's just how it is.

Yes. Understood. That's great. And then maybe -- the final question, yes, was on the fast recovery of the industrial niches that you highlighted in the presentation. I was wondering does that now offer opportunities for divestments. Or you think that's not attractive in the current market with depressed valuations and you're more focused on M&A at the moment?

Yes, it's a good question. No, I think the industrial markets are recovering fast. That's correct. Yes, what we see in the M&A market, and that's also what you can read in the papers, is the M&A market is a little bit cooled off. So as you know from us, we look for the right momentum. So we are further optimizing the businesses which we're aiming for divestments. And yes, look for the right moment. But I think at this moment, it's not the right moment. But we have still till 2026 to execute our program, and so we will look for that. But let's see how it develops in the second half and -- but you saw a very quick cool down in that area. But you're right, that gives opportunities for M&A. And especially, I think we -- you see also -- the ramp-up, for example, in the semicon area is so high that smaller companies can't follow. We can follow reasonably well because we are pretty experienced in how to do that and we have also the power to do that. So that gives opportunities. And so let's see.

The next question comes from the line of Martijn den Drijver from ABN AMRO.

I'll do my questions one by one. I just wanted to come back to the supply chain issues in Building Technology. You mentioned that there might be some improvements in the second half, perhaps. Is there anything you can do yourself to remedy that? Or should we assume that the supply chain issues will play a role in the second half of the year as well?

Yes, of course, you can do a lot yourself. So yes, first of all, we have to look to the people. We have to look to alternative suppliers, which we are looking to that. The most -- the combination of these disruptions in combination with the high growth, that is another complexity. And as Arno explained, we are building more and more our finished goods, which we see that also the last months. Our finished goods are building up. So at the moment, our finished goods are building up, we can also ship more. So the inefficiencies, as we said it, is a combination of that we could have shipped more, so that would cover the cost more, so we have higher EBITA performance. Plus you make additional OpEx costs. So it's a combination of the 2. So where we can work on ourselves, actually a lot, is by increasing our shipment and by solving the issues. And we are working on that hard. Yes, that is what we're going to do. So let's see how it works out in the second half. It's not only that we have to wait till that part is coming in, because when you do that, we would not have made 15.1%.

No, I appreciate that. I was just wondering, if you go for additional suppliers, that means lower volumes, maybe less advantages in terms of pricing. If you use less temporary workers and you hire them full time, that has a structural OpEx impact. Is that something that we should take into account? Or is that too early for that?

No, I think that's not how it works. I think we also put in equipment which is much more efficient, so you need lesser people. So yes, you have many things which drive efficiency. But it's very simple. At the moment, you could have shipped more, yes, you would have a higher revenue, higher added value on the same costs. In the meantime, we have also higher costs due to these effects. Now that explains the 0.3%. It's only 0.3% lower margin. And we will do everything we can to recover from that. Now let's see how that works out. There are so many uncertainties also in the second half. So yes, I can't tell anything about this. And the only thing, we will work hard to solve the inefficiencies. But the most important is that we will ship more, and that looks not so bad because we increased our finished goods.

Yes. Got it. Okay. Then moving on to Industrial Technologies. What was the key driver to that step-up in the EBITA margin? And was the margin of semicon roughly the same? And that most of the improvements come from surface technologies and industrial niches? Or -- can you perhaps elaborate a little bit on that? And the second element to that question is, should we see this as a sustainable level going forward? Or was there some sort of one-off element to it?

No, we have clearly stated that the first 6 months results have no impact -- were not impacted by one-offs. So if you read the press release, you saw that we made a gain on the disposal, but we made -- also, for the same amount of cost, we made extraordinary costs. So the net effect of exceptional costs and exceptional benefits is 0. So these results are really operational results. Yes, let's say, the -- the increase and the improvement is, of course, coming from leverage. If you take, for instance, business in dispense or business in surface technologies, of course, when you make more revenues, you make much better leverage on your employed capital. So that is just how it works.

No, I appreciate that, Arno. But dispensing is EUR 80 million, EUR 90 million revenues. So the uptick in EBITA margin can't be due to dispensing. So it's either driven by operating leverage...

No, no, it's a combination -- it's a combination. But let's say, surface technologies made a good performance. Industrial niches made a good performance. So yes, at the end, that led to this improvement of EBITA.

Again, what you see, Martijn, is the effects of the strategic restructuring. We explained so many times that in Surface Technologies, we improved our technology portfolio. Like the business we have in Germany left in heat treatment is only 5 sites. So when you compare that to 12 years ago, I think it -- it is much lower than we have in North America now. So you can't compare at all that business with 10 years ago. So we did very well in surface technologies with a higher margin than in our semicon business, to be clear.

No, that's clear.

And that will continue as long, of course, as we also have the volumes. And that doesn't look bad, because we have a good order intake. And in our business in semicon, which is part of Industrial Technology, yes, we are ramping up heavily to follow our customers, even a higher ramp-up than we expected at the beginning of the year. Yes, you can see that also in our -- in the OEM customers, which also published the results. And that -- yes, that takes also costs, because when you have to ramp up, you need additional people. But yes. And industrial niches is only climbing because there's a delay of projects already going on from the summer of 2018. So yes, that is how the situation is. And then you get leverage on your equipment. And then, of course, your margin is increasing fast. But that's what you see.

Okay. When you published the April update on the -- at least the update in May on the January to April results, you mentioned that price increases were getting a bit more push back. Those are my words, the interpretation. Is that still the case? And if so, how should we think about that gross margin, because it's definitely stronger than expected. Usually, going from H1 to H2, you have a 70 to 100 basis points of decline in normal markets. How should we view the gross margin development for the second half?

Let's say -- I don't say it became easier, but we will continue to price whatever is necessary, of course, not losing sight of our situation in the market and our market position. So I expect that we can continue in the same way. And it's not only pricing. The reason that we also improved our added value is because the mix is getting better and better. I don't -- if you look to the EBITA bridge and the revenue bridge and you look what we divested and what we acquired and what the margin is of these acquired companies, you can see that we also improved from a mix perspective. And that has to do also with added value, of course.

Yes, yes, that's true. My final question. You touched upon it yourself already. The cost savings from the strategic restructuring of 2021 and the EUR 25 million. At the time, you guided for a small impact in 2021 and then roughly EUR 10 million in 2022 and EUR 10 million in 2023, roughly. How much of those savings did come through in the first half of 2022?

Let's say, it's just what you described. That's really also what we see in the actual results. So that comes in gradually, yes. So about EUR 5 million.

The next question comes from the line of Marta Bruska from Berenberg.

Congratulations on a very strong result. I have 4 questions. I'll take them one by one. I have understood that your order book at the end of the quarter was 39% higher. Assuming no order cancellations, until when does it cover the sales? In other words, how many months in sales is that for you?

That is, of course, different per technology. And let's say, in the building business, we have normally between 2 and 3 months visibility. In the industrial market, it's a little bit different per -- let's say, for surface technology, it's very short, maybe 1 month -- 1, 2 months. And in the semicon efficiency business, the visibility is much longer, but then it's maybe 6, 8 months. So that's the mix that we have in our order book.

Can you comment in any capacity on the new order intake trend in July? You have seen what is the development of the order book currently?

In July? You mean over the last 3 weeks?

Yes, exactly.

Wim, what is that?

But I think the development in the last 2 weeks is -- orders are still coming in. And so that's -- yes, we are happy with that.

I did not -- now just following up on the pricing discussion. I did not quite understand whether you are planning for new price increases? Or do you think the costs are already covered. So I understand there are a lot of moving parts and it's hard to give a strong answer. Does it mean that basically you are still considering it and you probably don't have...

Yes.

Yes. All right. So it's not...

No, but from a pricing point of view what you see now developing is that here and there you see raw materials, yes, let's say, bottoming out, or they are on the top or they're even -- here and there they're reducing. So that means from a raw material point of view, I'm sure I'm happy with that, that it is not further continuing, because otherwise we had to continue pricing further there. But the other aspect is the inflation. Like the inflation, especially also in labor and other things are still continuing. I think we will see that in the second half of this year. But also next year, you see the full effect of that. So we are anticipating on that trend. So there are still price increases prepared when it's necessary. What we always did is that -- we believe that our market position is very important because you need to have the pricing power to keep your added value margin. That's crucial. When you don't do that, you cannot invest and you cannot innovate. So we protected margin as good as possible. And from an inflation perspective, we are also preparing additional price initiatives where necessary, and they are also running at the moment, also again, in July. But of course, you also have to look to certain product lines, where you maybe -- can't make the price increase because they're already -- yes, for example, there the raw materials is already on the stable situation or -- so it's a very detailed work. But yes, I think we are pretty good at it. But it takes a lot of effort. But price initiatives will be continuing, but more for another reason than the raw materials. It also depends what our suppliers do.

Right. So is it fair to say that you will continue with price increases, but in selective pricing actions that are planned for second half?

For example, in the business of an industrial area, also in the semicon business, we also have a lot of labor. Now this labor is -- yes, of course, you can wait on it, that this labor expenses will increase. So that means we have to increase to our OEMs. That is a little bit delayed compared to the raw material situation. So there we have additional initiatives to do that. Then you look to your business and your markets and you calculate and you take action. So that will continue. So it's not only selective. It's looking to what is happening, and then take action. That will continue, yes.

Okay. That's very reassuring. And then just to confirm with the savings in the first half from the restructuring that you confirmed that it was about EUR 5 million, right?

Yes.

Okay. And then the last question, if I may, please. It's more general. Would you consider selling your semicon efficiency business if approached by an attractive buyer?

No.

No? All right.

It's a fantastic business. And especially, the position we gained and the way we are doing that, I think it's a big opportunity also for the future organically and inorganically. And we did some very nice acquisitions, really nice, ISEL and KML, that are really good add-ons. We always have good add-ons, but these are really nice also from a growth perspective. So there's a lot of opportunity.

I agree. I also liked those acquisitions. It makes a lot of strategic sense. And again, congratulations. Looking forward into the second half.

The next question is a follow-up question from the line of Aurelio Calderon from Morgan Stanley.

It's just a clarification on one of Martijn's earlier questions. Do you say that the surface technology business is making higher margins than semicon? And if that's the case, why is that? Is there anything structural? Or is it the effect of volumes plus the energy surcharges that you have in the business?

No, it's a very good business. So we -- in surface technologies, we always made this -- we always made very good margins. The only thing what a lot of people forget, in the past is that we -- a long time ago, we did an acquisition with a very low margin and we had to recover that all the time. And we did a strategic restructuring, where we consolidated locations in the last 2, 3 years, improved the technology portfolio heavily, also mainly in Germany, yes, where you get a much better business. Surface technology is a very interesting business. So we make a good margin there. But advanced mechatronics and semicon, those are very nice businesses. But when you grow so fast in the semicon efficiency area, growth also needs costs because you have to invest. So -- also there, we have a [ nice business ]. But we also have some additional cost because you grow so fast. And then inefficiency is also there. But both businesses are very nice.

Consuming working capital because of the growth, yes.

The next question comes from the line of Tijs Hollestelle from ING.

Yes, I've got a question about the semicon business. It's growing by almost 30% year-over-year. I think the impact of the acquisition of ISEL is about 9% to 10%. Is that correct?

We have disclosed the annual revenues of ISEL. So you can calculate yourself, I would say. But...

And KML is not yet consolidated then versus ISEL...

No, no, no.

But ISEL is EUR 35 million per year. So you can easily calculate what should be the impact from that acquisition?

Yes. And this morning, some of the Dutch listed semiconductor companies reported also earnings. And there are quite some conflicting signals. The order intake for BESI were down 25%, but ASMI orders were up 80%. And I think yesterday, ASML order momentum was also quite strong and I also think they even dare to give a bullish view on the order intake of the third quarter level. If I understand correctly, Aalberts' exposure is also more to these more strategically oriented semicon players, yes?

Front end, front end.

You have the front end and the backend.

And we're in the front end.

Like the cyclicality of Aalberts' business in that is also reduced compared to the, let's say, 10 years ago.

But we had a very good order intake in semicon efficiency.

Yes. You also share the same, let's say, healthy visibility with those clients.

Absolutely.

Okay. And that is reassuring. Yes. Then also I had a kind of a technical question. If I look at the organic growth rates per division and if I add that up, I come to another level as compared to the overall revenue bridge that's EUR 148.3 million versus the EUR 138.5 million reported. Is there something I'm missing here?

Say it again? What do you calculate?

Yes. If I look at the organic growth reported per segment and if I add that up, I get to a different amount of organic revenue growth to what you're reporting in the overall revenue bridge.

The question is: did you take the right base then of 2021? Because we have currency impact, we have acquisitions, divestment. So you have to net also the base of '21.

Okay. Maybe it will be helpful in the future to also provide, let's say, the FX, the disposal and the acquisitional growth per division so that we don't have to [Audio Gap] into the building and the industrial business.

Yes. As you know -- you know how we explained, and I could also say you can rely on the numbers that we are disclosing. So that is the correct number.

Yes. But would it be an idea to do that because it would be helpful. Just it's more easy to look per division where the acquisitions are in there. Because you're doing bolt-ons every time, so it's difficult for us to calculate that exactly per month. And you do the disposals, which will continue in the coming -- at least for the coming year. So...

Yes. Let's say, we are quite clear always in all our M&A transactions for both acquisitions and divestments, what the annual revenue has been or is. So you can also calculate with the dates of the transaction what the impact is in the different periods. And then you should be able quite easily, because we also know in which division these transactions are, how that calculates up to the final organic growth per division. So...

Yes, it is possible, but it is more easier if it's just [Audio Gap] at this point. But okay.

What you say -- I hear what you say.

The next question is a follow-up question from the line of Martijn den Drijver from ABN AMRO.

Yes. 2 follow-ups, if I may. Could you share with us what the EBITA margin is of your newest acquisition in Building Technologies, UWS? Is that similar to the average? Is it lower? Is it higher? And a question on ETI, the divestment in the U.S. What was roughly the size and margin of that unit? So this is purely model based, I guess. That would be the first question.

Let's say, the UWS is above average EBITA, so accretive EBITA business. And the ETI business was a little bit on the average, I would say, maybe a little bit below.

Okay. And what was the size of ETI?

$45 million.

$45 million. Okay. Great. And then my final question. If you look at the holdings/elimination line, and you mentioned that the one-offs are basically in balance. You now have EUR 4.4 million. Should we assume then EUR 9 million, that is the new run rate for holdings/elimination, because it used to be a little bit higher than that? So EUR 9 million, is that...

That's correct, yes. Yes. Let's say, the first half year gives a representative value for the remainder of the year.

And that is also something we should roughly take into account for follow-up years assuming -- including a bit of wage inflation for the head office as well?

Yes, yes. You can account on that, yes.

[Operator Instructions] The next question comes from the line of Maarten Verbeek from The Idea.

It's Maarten Verbeek of The Idea. One question about your order book. You mentioned that it increased by 39%. At the end of April, you stated it was an increase of 51%. Obviously, that's all to do with the base of last year. So therefore, I don't believe that your order book in absolute terms has declined end of June versus end of April. But could you provide some more color what the difference is between end of July and end of April?

Yes. We don't disclose that. But we can say that the order book is in absolute terms increased. But we don't disclose the difference.

Other questions, Maarten?

No.

All right.

There are no further questions. Thank you for joining today's webcast and call. You may now disconnect.