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

Ladies and gentlemen, thank you for joining us today. It's my pleasure to welcome you with Aalberts' First Half 2024 Presentation. My name is Rutger Relker, Director, Investor Relations. This morning, we published our interim results. We delivered a 15% EBITA margin in challenging markets. Together with our CEO, Stephane Simonetta; and our CFO, Arno Monincx, we will look back to the first half of 2024, and we will look forward to the second half 2024. Stephane will kick off the presentation with some key highlights. This will be followed by Arno, who will give a financial update. Stephane will then share our strategic priorities and outlook. After the presentation, we will give you the opportunity to engage directly with us in the Q&A session. Your questions and feedback are very important to us, and we encourage you to participate. Later today, we will make both the presentation and the recording of this webcast available on our website. Please welcome Stephane Simonetta to begin our presentation.

Thank you, Rutger. Good morning, everyone. So the first 6 months of the year have been challenging, as we saw lower activity at our customer, especially headwinds in building technology, but we have improved, thanks to the work of our teams to improve our added value margins, and we improve our profitability in our industrial technology segment. As a whole, we are delivering 15% EBITA margin, thanks to our cost saving and robust price level. And as you see on this slide, that are the key highlights about our first half performance with an organic growth at minus 3.9% with an EBITA at 15% or EUR 242 million and an added value at 63.8%, which has improved, as Arno will explain later in both, actually, our segment compared to last year. As we always do, we are adjusting our costs, especially fixed costs, thanks to our structural cost saving. And you can imagine that most of the cost saving are on our building technology segment, and we are deploying and executing our inventory reduction plan to be back on track at the end of the year. Despite the short-term challenges, we continue to invest for the long term, and that's why our CapEx is in plan with last year. We delivered an EPS at EUR 1.61, and we continue to deploy our 4 strategic actions, I'll give you more color later on. So overall, we continue to execute our strategy. We have delivered 15% EBITA, and we are well positioned for the rebound of the activity. When you look at the operational development, let me give you a bit of color for each of our end markets. And starting with building technology, our ecofriendly buildings. This is where we see lower activity in Europe, especially in Germany. But despite all these challenges, our added value margin have improved in our ecofriendly building, thanks to our robust pricing, our sales initiative and our purchasing actions. We continue to see a decreasing lower end user demand in new build and softer demand in renovation. As expected, the stock level at our wholesaler were still low, but we continue to see better activity in Americas, in Asia and in some product lines, we are actually doing better than the market; as an example, our grooved technologies, our water treatment offering, our pressurization and storage tank, our safety and efficiency valve are actually doing better than the market, which means we are winning some share compared to the market trends. In the U.S., we are still working to improve our service level and this is where we are expecting a better second half on our commercial valve. And we see the positive trend on some new verticals, especially the data center where we are also working on offering an innovative solution for our customers. But despite this short-term volatile demand; long term, it remains a growth agenda because the energy, the resource, the efficiency in both residential and commercial buildings, they remain long-term growth driver. But as you have seen, this is mostly in this vertical that we see the biggest challenge. Because on the other hand, everything linked to our industrial technology is actually doing much better. And semiconductor efficiency continue to grow. Despite some short-term volatile demand, we are improving our service and our order book remains at a high level. And we continue to see very strong demand on our advanced mechatronic module with more and more system integration, especially, as you all know, for our lithography and inspection application. We see more and more, which is good news for our sustainability agenda, needs for refurbishments from our customer, and this is a growth enabler on top of the technology trend. And we are continuing to invest for the long term, right, because we will need more capacity to serve and deliver the growth from our customers. So very confident and we expect a much stronger '25 in this industry because there is positive technology trends like AI technology that will bring additional demand. In sustainable transportation, we have, once again, this just shows our resilience, a very solid performance because also here, we see a mix demand with lower in automotive, but continued growth in aerospace. So we are, I think, delivering, as usual and flexing our cost to sustain some solid margins, and that's why we are able to follow the trend, especially in automotive. And we continue to see high growth for the high precision manufacturing parts, especially also some good opportunity on surface technology, because there is more and more need for lightweight material, and we are also continuing here to support the e-mobility agenda, sustainability and all the reshoring continue to be growth driver in this end market. In the scale niche, a bit more challenged because, of course, here, it's following the overall economy, and we see some lower demand, especially in West Europe. Once again, also Germany is more challenging with overall industrial need going down. Also, U.S., and we continue to see growth in Asia. So we are adjusting our costs, but the order intake continue to be very strong, on the other hand, in the U.S. for industrial valve, and that's why we expect also the second half to be better. And we still see growth opportunity. That's what we are working on to capture the growth and win share in North America on our industrial valve. So in a nutshell, that's where we have been doing on the first half, with very strong picture on industrial, where we are able to continue the growth on semicon, more stability on sustainable transportation and more challenging on industry and then we are taking all the measure to secure our margins on ecofriendly buildings. Let me now hand over to Arno. Arno?

Yes. Thank you, Stephane. Good morning, everybody, also from my side. I would like to take you through the financial development of ours over the first half 2024. Starting with the revenue, where you see the decline of 3.9% organically over the first 6 months versus last year and where we see the headwind in building, as Stephane also explained, ending up in 6.7% organic decline for building technology. And then industrial, a reasonably flat situation, minus 0.4%, which is actually given the market circumstances also in industrial and quite a strong performance. In total, it's minus 3.9%. And the EBITA margin. There, we sustained a good added value. We even improved our added value, as Stephane said, with 1.5%, which is a great result and a great performance of the teams and that is clearly always our strategy that we really protect our added value margin because there, it all begins to -- with the earnings, of course. So there, we are still with 63.8% at a very good level and that is also one of the reasons that we could at least keep our profitability to the level of 15.0%, although it's a decline of 0.4%, but still 15.0% in challenging market situations. The earnings per share before amortization, let's say, the net profit before amortization ended up at EUR 178 million. And also there, we see that the net finance costs were clearly lower than last year. So that is also a positive thing, and that also helped to at least have EUR 1.61 per share as an EPS versus the EUR 1.71 last year. Then the cash flow from operations, where we decreased from EUR 221 million in the first half of '23 to EUR 182 million in the first half of '24. And we have also put here the 2 main reasons for that. First of all, of course, a lower EBITDA level, EUR 16 million effect to this operational cash flow. And the other one is the net working capital move of let's say, which it was EUR 27 million lower than the move last year. And that clearly has to do with the normal seasonality trend that you build up stock in the first half year and you reduce your stocks in the second half year, also because of the seasonality. And where we had the situation in the first half of '23, as we came from a very high stock level in '22 -- at the end of '22, due to all the supply chain issues, as you may remember. So that was clearly, let's say, a positive situation for the cash flow in the first half of '23. But this gives more or less the normal seasonality. And the revenue per end market, where we see ecofriendly builds with 51%, actually quite stable. Semicon efficiency continue to increase in the share of the total towards 15%. Sustainable transportation also slightly increased to 17%. And here, we see the industrial niches are really reducing towards the 17% coming from 19% full year '23. The revenue per region. I must say, quite stable. Actually, there's not a lot of change. The only thing is that APAC, Middle East, Africa is 1% lower than full year '23 and Western Europe is 1% higher than full year '23. The revenue bridge coming from the first half of '23, EUR 1.717 billion, then we have no effect from acquisitions in the first half of '24. The net effect of the disposals, the divestments versus 2023 was EUR 37.3 million that we lost of revenues, it had to do, of course, with the divestment of Disptek currency effect, a small plus EUR 3.8 million, mainly impacted by Great British pound and Polish zloty and then it results in the organic revenue decline of EUR 64.8 million again, the 3.9% as explained earlier, and that is totalizing towards the EUR 1.618 billion we realized over the first half of '24. The same for the EBITA bridge where we started from EUR 264.2 million over the first half of '23. No effects from acquisitions. We lost EUR 4.9 million versus last year due to the divestment of Disptek we did in '23 and then we had a slight positive translation impact mainly, again, Great British pound and Polish zloty of EUR 0.4 million, and that results in the organic EBITA decline of EUR 17.5 million of EBITA loss. And that is, as said earlier, mainly realized in building technology, driven by lower volume, where we saw the margin going down from 14.0% to 13.0%. I will explain in the next slides also and where we still see that industrial technology improved the EBITA margin, but also come back to that in the next slide. The building technology segment revenue came down from EUR 932 million to the EUR 873 million in the first half, which was the 6.7% organic decline versus the minus 1.5% decline we faced in the first half of '23. The added value improved, thanks to robust pricing, also mentioned by Stephane, sales initiatives and purchasing actions. And we believe that our teams also in this difficult market circumstances did a great job to protect their added value. And that, at the end, helped a lot to sustain the EBITA margin to the 13.0% that we reported versus 14.0% last year. And let's say, also here, we see that the capital expenditure we continue to invest despite difficult market circumstances. So that's also -- we are still investing for the long term, of course, because we believe that the long-term perspective also for building is still positive. Last, but not least, America and APAC, we saw better activity than Europe. Then the industrial technology segment, also a slight decrease of revenues from EUR 785 million to EUR 746 million, which organically was, let's say, only minus 0.4% because also here, of course, we faced the disposal of Disptek and don't forget that last year, the first half of '23, we really had a very strong organic growth performance in industrial technology of plus 16%. Then the EBITA margin despite the lower volume, we managed to improve our EBITA margin. And there, the teams really did a great job to flex their cost also with slightly lower volumes to even be able to improve EBITA margin to this good performance of 17.8% in the first half. Also here, we continue to invest, although the CapEx is slightly lower, that is to relate to the timing because also in industrial technology segment, we will continue to invest for the long term. And again, continued growth in semicon efficiency, a stable activity in sustainable transportation and a lower activity in the industrial niches, that is the takeaway from the 3 end markets. Then the 2 segments divided geographically from their revenues. We see 54% Western Europe in building technology, which is a little bit higher in the total than the full year. And for the rest, I would say there's not so much change. Also, in the industrial technologies segment, it's only slight changes Eastern Europe. But for the rest -- Eastern Europe is a little bit lower than last year, for the rest, it's more or less the same. Stephane, back to you.

Thank you, Arno. So when we talk about strategy deployment, as you all know, we have our 6 KPIs where we made great progress last year, and we continue to work on this one. And as you know, in 2023, we were at the '26 target on SDG on innovation rate, on leverage ratio, getting close on EBITA margin and continuing the improvement in ROCE and then with some way to go still on organic growth. So we continue to work on this fixed KPI in '24. And let me report now some progress on our 4 strategic actions. And the first one is our portfolio optimization, like we mentioned also in our full year results presentation, it's both acquisition and divestments. So on the acquisition side, no change. We continue to prioritize 3 areas where we want to grow inorganically, in hydronic flow control, which is still a mix between new technology that we want to add in our portfolio, but also in the U.S.A. In advanced mechatronics, which is also mix between new technology in our portfolio, but also looking at the Southeast Asia footprint and U.S.A., as I mentioned before, but also looking at some bolt-on acquisition on surface technologies. In divestment, we continue to look at our portfolio, and we will divest when we believe we are not the best owner on some of our business, as we have done in the past. The organic growth really, and trying to continue the growth in the U.S., in Asia to have also a more geographical balance overall and growing thanks to our innovation, and we see that this is where we have been also able, in the first half, to have some growth in some niche, thanks to innovative solutions in our ecofriendly building, thanks to the, of course, semicon efficiency trend, but also in aerospace. And that's also what we want to continue to increase our innovation power. And we continue because it's also geographical expansion in Mexico for our surface technology. And in Netherlands, also for semicon efficiency and some ecofriendly building, where we are also had some extra capacity to support the sustainability agenda in Europe. Operational excellence. I think the first half is a good example. What it means, right? Thanks to the great job of our pricing excellence, that's what also always means, right, when there is a more stable volume, how can you do better? And so that's what we have been doing in the first half. Pricing excellence, structural cost reduction and footprint optimization, we continue. And of course, we will make some progress in '24 towards our '26 goal. And we are accelerating continuing the continuous improvement, especially in the business and where we have more operational challenge, not only to reduce costs, but also to improve service level and reduce our inventories, right? That operational excellence. And you can imagine that we have a lot of prioritization in our building technology segment to address these challenges. But let's not forget something also very important to us that we continue to drive our sustainability initiative improving our health and safety for all our employees. We made some good progress in the first half, and we continue and also preparing next year's annual report as per the CSRD regulation, and we are preparing everything. Working on circular economy, together with our customers. So overall, continuing to make progress on the whole ESG agenda with all the KPI and the initiative we are working on. So we expect to report some good progress also next year in our next annual report. So when you look at the outlook or more especially the second half, right? So what do we expect for the second half? And I think first of all, we expect the soft market in ecofriendly building to continue, especially in Europe, and we continue to see opportunity to grow, to do better in the U.S. and in Asia. On the other hand, on industrial technology, we still remain confident for the long term with the semicon growth agenda and industry, more on a mixed picture, as I mentioned, between aerospace; automotive, more stable. So different by technology, by regions and also by end market. Portfolio optimization. We continue to stay disciplined in our capital allocation. So doing CapEx, but also ready to make some bolt-on acquisitions and optimize our portfolio. So we continue to make good progress here. And as I mentioned, when we will continue to provide more transparency, especially on our Scope 3 emissions, more upstream in our value chain to also make progress in this area. So overall, we remain very well positioned for the rebound of the activity, thanks to the deployment of our initiatives, thanks to the restructuring cost we took and thanks to the market trend as we have been doing in the first half. The outlook is not changing. We are still in deployment mode in 2024 with our 4 strategic action. That's what I mentioned at the beginning. So organic growth, operational excellence, portfolio optimization and sustainable entrepreneurship. But what we are planning at the end of the year is a new Capital Markets Day that we will do on the 10th of December and because I think it's after 3 years, it is time to give an update on our strategy and also because 2026 is getting closer, so we have decided to give to all of you and to all our stakeholders an update on our strategy at the end of 2024. That's all I wanted to share with you, and let me back and hand it over to Rutger. Thank you very much.

Thank you, Arno and Stephane. As we are starting the Q&A session, I'd like to remind everyone how to participate. [Operator Instructions] I would now like to give the word to David Kerstens from Jefferies for the first questions.

Yes. I've got 3 questions, please. First of all, can you explain the deterioration in organic revenues in the months, May and June, I think, minus 5% in industrial tech and 8% in building tech, particularly in industrial tech, notably weaker than in the first 4 months of the year? And then maybe the second question, what is the impact of weakening incentives to move towards heat pumps? I think the new Dutch government wants to abolish the mandatory change towards heat pumps. Maybe we can keep gas boilers from 2026. I think previously, you talked about the positive impact from replacing 65 million gas boilers in Europe. What will be the impact if we can still keep gas boilers. And then maybe finally, do you see some signs of inventory restocking already in the second half of the year ahead of the expected recovery in demand later this year.

Thank you. Good to have great question. So the industrial technology, it's a very tactical and short term, like you mentioned because I think many of our customers, especially in the German market and in our surface treatment have been managing their half year result and basically stopping and postponing a lot of their services from June to the second half. So that's why the June month, so it's very short-term issue. They have been optimizing and postponing things to the second half. That's why the June month has been more challenging on industrial technologies. The second point is you are right, I think we see it, and the stock remained very high at our customers on heat pumps and they're really struggling to get that out of their doors because they are less and less incentive by the government. But for us, it's actually, I would say, more neutral because we are still selling expansion vessel when you need gas boiler and actually, we see a unique growth. You may have seen in our operational update that we are winning share and now we are doing better than the market trend on expansion vessels because you need more units on gas boiler than on heat pumps. And then the installer can do more jobs to install a gas boiler than to do heat pumps. So I will say it's a new trial. But if you look at the unit, it's slightly positive for us when you see this trend. And the third point I think here also talking to our customers, I've been visiting, we are more cautious that the stock will continue to remain very low, right, because that's what we see from our customers. So we expect and continue to see soft demand in the second half, and we are not expecting a huge restocking before next year.

Thank you, David. Maarten, are you there?

My first question would be about building technology. You mentioned that the value add was up also for building technology. But your EBITA margin is down. Normally, I would expect if your value add goes up, that your EBITA would go up. So what's driving despite that better value add that decline in EBITA margin for building tech? That's question one. And I'll do them one by one.

Okay. Let me take that question, Maarten. Yes, we are quite, yes, let's say, happy with the added value development that we realized in building technology, given our strategy to protect that constantly in the market. But also, of course, we need a better added value to also compensate for higher OpEx on one side. So that is why we also need a higher added value. On the other side, let's say, the negative volumes have impact in the flex of costs. And therefore, let's say, although the teams did whatever they could to flex the cost at the maximum and with a volume decline of minus 6.7% organically and we face, of course, also some drop down, and that is resulting in the EBITA reduction of, let's say, 14% to 13%. But it would have maybe even lower if that -- if we would not have had such a good added value, of course.

Then there is -- I thing I would add, there is a timing issue to see the effect of our structural cost-saving action that will come more in second half than in the first half.

That is good to know. Moving on to semicon. Growth was substantially higher than I had anticipated at 10%. I think the guidance from Aalberts was roughly for the whole of 2024 mid-single digit. And is that this guidance of mid-single digit still applicable for semicon for the whole of '24, given the strong performance in the first half? And related to that, did the margin, the EBITA margin, for semicon go up?

We -- no change with our guidance, right? Because we -- as we wrote, and I think we mentioned, we continue to see a lot of volatile up and down, especially on the short term. So long term, high confidence, zero growth agenda, there is a slight chance we may do better than our guidance, but the guidance is still the same because we have seen also some short-term movement from our customers. So that's exactly what we were anticipating, actually. And then on the margin?

Yes, the margin, I think also for semicon, we were able to slightly improve margin also in the first 6 months versus last year.

Got it. Then on the announcement of the Capital Markets Day. 2024 is a difficult year, is it a year that we could probably qualify as a transitional year? Why would you go for a Capital Markets Day even though when you -- that you're not even close to your strategic targets for 2026 and the agenda in terms of M&A and capital allocation is pretty clear as well. So what made you decide to go for a Capital Markets Day?

Two reasons, like I mentioned, because the last one we did, it's now 3 years ago, and a lot of things have changed in the last 3 years. And it's because also at the end of the year, before we enter '25, we will be 1 year away from '26. So we believe it's time to give an update of our strategy to all our stakeholders. That's the 2 main reasons.

So it's only about strategy?

It's a strategic update, yes, that we plan to give.

Okay. But targets remain the same then?

We will share the update of our strategy, and you understand that the strategy includes a lot of points. That's what we plan to do. I think I can only comment what I said. As you know, in 2023, we were already on target with 3 of our indicators, getting close to the number 4, so -- and then we have 2 where we still have some work to do, so we will share the update in December of our strategy and the strategy include initiatives and the targets.

Clear. Two final questions for Arno, if I may. There's EUR 18 million in other income, what's included in that EUR 18 million, given that there is no gain on the divestments?

Now first of all, we -- yes, what's actually the main difference with last year is an insurance income that we had because of the damage that we faced, so that is in the other operating income, the main difference versus last year. And as you may have seen also in the holding elimination line we are still quite stable versus last year. So that also means that this, let's say, additional income, we have also allocated for more extraordinary spend. And like Stephane already mentioned, we have already started also a restructuring program, and that is also where we allocated the cost to.

Okay. So that's par for the course as to how does it with these types of incidentals, I get it. And my final question on net working capital. Arno, what should we or what can we expect in terms of net working capital and specifically inventory towards the end of the year?

Yes. Let's say, because what I believe is that maybe some have overseen the effect that we have, the positive income effect that we had in 2023, that there was not a normal because of a normal seasonality trend that you built up your stocks in the first half and you reduce your stocks in the second half. And I can tell you that although in days, we are only slightly above last year. For the full year, we still remain confident that we are able to improve our days working -- our days eventually outstanding also to the -- yes, to the objectives that we have set, we have a lot of initiatives ongoing. And I'm still confident that we will do -- and of course, within decreasing top line as we face it in the first half year. The days are a challenge, but the trend is still good, and maybe you have seen it, but we are lower than June last year. We are EUR 16 million lower than June last year. So we will continue to optimize it also in the second half year.

I'd like to give the word now to Elliott Robinson from Bank of America.

Just 3 questions from me, if that's okay, and I'll try and take them one at a time. The first one is just, I was wondering if you could run us through any potential impact on yourselves if there were tariffs implemented in the U.S. So for example, what does your production versus sales footprint look like? That's my first one.

Now, let's say, as you know, we have always the approach that we produce where we are also selling it. So we have a local approach. So I think Aalberts is especially in an area where we face tariffs by importing from other continents of the world. Yes, I think Aalberts is well prepared for such trends because of the local footprint that we have and that we service.

Okay. Nice one. The second bit was just on the net working capital, I suppose going back to that again, I suppose in H1, I suppose you would have thought with the organic decline, it could have come down maybe a little bit more than it did. I was just wondering what was kind of the moving parts within that on the net working capital? And what gives you confidence on the fact that you think that you can reduce it further in H2? Obviously, there's the seasonality in that.

Yes. Let's say that's actually the biggest reason because the movement in net working capital was negative versus a positive movement in the first half year of last year. And it clearly has to do with that in the first half of '23, we reduced our stocks with EUR 30 million coming from an extremely high DIO of 101 days. And now we increased our inventories for the season during the first half year. And in DIO, we are still very close to where we would like to be, although we are 2 days higher because of the -- also the lower top line, of course. But again, we remain confident that we will continue to reduce that further towards the end of the year.

Sure. Just as one extra bit on that point. Is there any sort of split that you gave on inventory by the business unit or anything like that? Or should we think of the higher capital intensity within certain parts of the business, for example?

Now of course, the building is a big part. But also in our semicon business, we have also substantial inventories. The only area where we have less inventories is in surface technology business because there we perform a service to our customers. So there, the inventories level are the lowest from the group.

Right. Perfect. And then my last one, if that's okay. You mentioned about data centers. I mean, could you just expand a little bit on maybe what your exposure is there and what you've kind of seen, I guess?

Yes. We see really an opportunity with our offering in our hydronic flow control portfolio to offer more prefab and skid system to handle that. Also, with our IPS portfolio, so the opportunity for us is to offer a complete system to address the heating and the cooling challenging of the data center, right? And the key is to offer a turnkey solution to our customers and also be able to help them in the design of the system before they do the buildings. So that also allow us to not only selling one-off or components or products, offer more services. So we are really investing a lot in terms of capabilities because we believe it will be a long-term growth driver. So a lot of things done in the back end. Now the sales and the revenue, it's still very, very small, but we are preparing for the growth of this market over the coming years.

I think it's time for the next person and that is Christoph Greulich from Berenberg.

Yes. Three from my side, please. Firstly, on the added value margin, yes, it looks to me like you've reached a record level here, at least what I can see in recent history. So just checking if this level will be sustainable going forward or if there have been any one-off effects in H1, like very fortunate timing of raw material purchases or things like that, which kind of have added to the added value margin in H1? And then the second one on the structural cost savings, which you have already mentioned. Could you just give us a bit more color on that, and on the magnitude of savings in OpEx that we can expect going forward here? And then just the last one on the outlook for H2. So I hear in your statements that you expect construction markets in Europe to remain soft in H2. But just wondering if you compare it to what you've seen in H1, do you think it's going to get any worse or will it be more or less stable? Just asking because the comparable base in H2 will be a quite different one. And yes, if you were to deliver the same revenue number as in H1, that would imply a return to growth in H2. So just checking what you're expecting here?

Yes. Now let me first take the added value margin where we faced improvements both in building and industrial, although building was slightly higher improvement than in build -- than in industrial. And in industrial, the added value margin is on a higher level because also with the previous question about stocks, we perform a service in surface technologies, so there we have a reasonably high added value. And in advanced mechatronics, of course, we also have a material component, so there, the added value is more at a normal level, like we also perform in building. So let's say, yes, we are happy with the improvements. And yes, that has also to do with I think relatively, let's say, the covered material that we have in our coverage of raw materials and then going forward with the pricing trends and we believe it's sustainable, although improvement potential, of course, there is a limit to added value. There comes a moment that you cannot further improve any more, but let's see how -- I think also the mix, so it's also depending of the mix of these 2 segments, how the development of added value will be going forward because, as I said in the industrial technology segment, we have a relatively higher added value than in the building technology segment. And then maybe about the structural costs, you want to take that?

Yes. I think just on added value, I would add that fantastic job by our teams in such a challenging market because we never compromise on price, right? And we, of course, in some product line, there is more competition with the price pressure, but that's where we don't go at all cost just for volume, and that's why we are able to sustain such a good performance. On the structural costs, you can imagine, actually, we are taking action. First of all, executing what we planned because we were expecting a soft market in building. So a lot of it is already in progress, and that's why we expect some impact already in second half, especially in building technology and this [Audio Gap]. So really reducing fixed costs, like I always say, we need now to do more of the same with less, right? And then in '25, we will have a better fixed cost to the building technology. So -- and it's a mix of footprint of fixed cost that we are doing in -- mostly in our building technology. We are still adjusting in industrial technology, but most of the restructuring cost on OpEx are on the building technology side.

Then the outlook?

And the outlook, we see actually a flat compared to first half, right? Because we -- as I mentioned, we -- the stock are already very low on building technology, and we believe they will stay there. So we don't expect an increase in building regarding the inventory. And then in the industry, we follow our customers, so that's not where it's a major challenge. So that's why second half with a flat volume and additional cost saving impact, that's a bit what we expect in the second half.

[Operator Instructions] Yes, it's Luuk Van Beek from Degroof Petercam.

I have 2 remaining questions. One is on the U.S. commercial valves, can you elaborate on efficiency, you've taken to improve your service levels and what's happening there? And the second is, if you can give an indication of how you see the impact of raw materials going forward? We saw a strong spike in the copper price, for example, in recent months that it came down. And do you expect any significant impact from that in H2?

Thank you, Luuk. So yes, commercial valve, it's all about service level based on some operational challenges we have internally. So we are improving. We had a very strong June, right? And that's what we expect to continue. So the growth is there. The order book is there. We just need to do even a better job and continue the improvement to get more product out of the door, so one hand is to get back to the service level we need for our customers. And we believe when we will get there, there are more growth opportunity for 2025. So '24 is to get back on track and to the service level for our customers. And then let's see, '25, if we can actually start to win. So exciting opportunity, but the market is there and it's up to us to get it.

Yes. Then for the raw material, as you know, Luuk, we are covered with our materials for 4 to 7 months ahead. So that gives us always the view how we should anticipate with pricing towards the trends of raw materials. And it looks like, as it looks right now, going -- because the trend is also upward in raw material pricing, that probably in the beginning of next year, we will do some pricing initiatives again to compensate for that. But that is to be seen, of course, in the remainder of this year. But that is how it looks like today and we will see how the trends will be affected in the second half of the year. But we are always ahead of the game there because we are covering our materials ahead. So that is a positive thing.

Thank you, Luuk. I think there's another person. It's Chase Coughlan from Van Lanschot Kempen.

Apologies, I had some technical difficulties earlier, so I'm not sure if I missed the question already. But we've obviously spoken quite a lot today about the raw material, price inflation and how you pass that on successfully improving the added value margin. I'm just curious on if you look for that building technology space, what exactly are your competitors doing actually? Is there a risk that some players are not raising prices and could potentially undercut you and effectively gaining market share? Or are you having, you lose market share? Is that a risk that you see happening at the moment?

There is always a risk that people will sacrifice their price to get volume and get deals, right? But that's not our strategy, and that's what we have been doing very well. And of course, that's where innovation matters, and I'm super pleased to see on some product line, we have been doing better than the market on building technology because our offering is unique because we have better product and better availability also, and that's the best way. And where we see the biggest pressure on price is where there is less innovative solution, right? And this is some time where we are not afraid to just let it go because also it's where we have also lower margin. So where there is a highest pressure on cost is actually not a risk for us.

Okay. That's very clear. And then just one final question from my side. You also spoke quite a lot in the presentation about acquisitions, potentially some bolt-ons in the U.S. Could you potentially give us sort of more indication on size here or even on a time line in terms of when we should expect a deal to come through? Is that something that we could expect in the second half of '24 or even going more into 2025? Any more color there, please?

We have a strong funnel that we are working on, on our 3 priorities, like I mentioned. So we expect to make progress in the short midterm on this and the bolt-on is as per our current strategy when we reported in the last Capital Market Day in 2021.

Yes. With the areas of America.

Hydronic flow control and advanced mechatronics in the U.S. and maybe also in Southeast Asia for advanced mechatronics.

Thank you all. We have received some questions, which have been submitted via the Q&A form and I'd like to start with this one. Yes, there is a question whether we could repeat or give perhaps even a bit more clarity about what we said about cost reductions being more visible in the second half versus the first half? And as a result, follow-up question, can we also see margin evolving even better?

What we can say about that is that we have, as Stephane, I think, also explained, we have already started a lot of, let's say, structural reduction actions. So the reduction of structural cost actions, we have started a lot of that, I just explained some of these costs already taken in the first half year, which also, let's say, was the [Audio Gap] for the holding elimination costs to be more or less flat versus last year because the income from the insurers, we also allocated to that part of improving the business, and we expect more to come in the second half year, and that will also then give the benefits in the second half of the year of these structural cost improvements.

Thank you, Arno. There's another question...

And even more important is that it's also really improving our basis for 2015, and then we have the full year benefit.

We -- I think we have seen that we are able to flex all our variable costs that actually improve. So most of the actions we are taking now is to address, of course, some short-term volatile demand, but also prepare for the long term, having a lower fixed cost base. So when the rebound of activity will come, we'll be even better prepared to continue our margin expansion.

There's another question, which probably has been answered already, but let's repeat it because currently, it's an important question. Again, about what growth trends could we expect in building tech and industrial tech in the second half of this year?

I think we can repeat. So soft demand, we expect will continue. So more second half similar to the first half on the building tech and a bit same on the industrial tech because we see mixed demand. So that's what we expect.

But just to remind you that last year, the second half also was weaker than the first half organically. So from a comparison base, it might be a little bit easier.

Stephane, there's another question for you. Specifically, how do you make progress on your observations after your onboarding?

Yes. Thank you for asking. And we -- I'm pleased to say that we are making good progress. And actually, now we are more in action mode based on some of my first observation, right? So continuing to invest and accelerating on all our people and culture agenda as we just welcome also a new member in our executive team. And so it's also preparing for the future, having the right leadership, talent development, diversity. So this is, I think, well in progress. The second point was, as you know, operational excellence, right? So we continue what we have been doing. But now we are even investing more to become leaner and faster to improve our service level, reduce our inventory and also optimize our CapEx, so a lot is put on the machine utilization, better maintenance, and we are adding a lot of capabilities to drive that, also preparing for the return and on technology and innovation also, especially in building technology, we are working also on some initiative to prepare and work on some innovative solutions to offer more than product and offer solutions to our customers in both residential and commercial building. So that's some of the things we accelerated in second half, preparing for the long term, and so no short-term impact but preparing the long term.

Thank you. There's another question also for you, Stephane. Can you explain again, what do you mean with portfolio optimization?

Yes, I think it's a good one. It's 1 of our 4 strategic actions. So portfolio acquisition is to -- and that's something which we will always do, right, internally or externally. I think we always need to optimize our portfolio to make sure it's a portfolio where the market is growing, where we can have a good position, where we can be in the leading position and where we can make good margin in a sustainable way, right, so back to our Aalberts' DNA sustainable and profitable. So what it means now on one hand is to do acquisitions. So that's what we are working on. And then what it means is divestment based on our internal portfolio, where we believe we are not the best owner, if there is lack of synergies or we believe there is a better owner than us that can invest in this business, we will simply divest it. So that's what I mean for portfolio optimization.

Thank you, Stephane. I think I have no further questions now coming in, so I think that we can conclude today's webcast. So first of all, I would like to thank each of you for your participation. I hope today's presentation has provided you with a clear understanding of our achievements, our financial health and once again confirmed our strategic direction going forward. Thank you once again for joining us today.

Thank you.

Thank you.