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

Good morning, everybody. Welcome at our first half 2026 results presentation. It's great to see so many of you joining today's webcast. I'm happy to introduce our CEO, Stephane Simonetta; and our CFO, Frans den Houter. Stephane will kick off the presentation with some business highlights. This will be followed by Frans, who will share an update on our financial development. Stephane will then share an update on our strategy and actions and provide an outlook for the remaining of the year 2026. After the presentation, we will give you the opportunity to engage directly with us in the Q&A session. Please note that after the presentation, both the presentation and the recording of today's webcast will be made available on the website. Please welcome Stephane to begin our presentation.

Thank you, Rutger. And let me start with our key messages. In the first half of the year, we report positive organic revenue growth in our 3 segments and particularly in semicon. We also report an improved EBITDA margin in our 3 segments. And you can see the strong contribution of all the portfolio updates that we have done last year with our acquisition and our divestments, which are all contributing positively to both growth and margins. And we continue to see positive end market dynamics based on our good position at Aalberts aligned with 4 compelling global tailwinds being urbanization, technology acceleration, reshoring and decarbonization. So in a nutshell, we improve our performance. We are rebalancing our portfolio, and we continue to see positive market momentum. Going into the numbers, we are reporting EUR 1.5 billion revenue with an organic revenue growth of 5%. Our EBITDA margin is EUR 225 million, equivalent to 14.4% of revenue. And another solid free cash flow with EUR 89 million with earnings per share improving to EUR 1.47. So improving organic revenue growth, improving EBITDA margin aligned with our outlook. Now going to the operational development. As I mentioned, we continue to be well positioned with these 4 global tailwinds. Urbanization, where we still see more and more people in the future that will need to live in residential, in commercial building, and it's all about comfort and energy efficiency, and that's where our portfolio is so relevant. AI adoption being used in more and more applications is driving a very high growth in semicon equipment, and we are also well positioned into that trend. The reshoring trend continues, you produce in Europe for European customers, you produce in North America for North America customer, and you produce in Asia for Asian customer. That's also our strategy. And our footprint is well aligned to these trends. And at the end, we still believe in the long-term energy efficiency driver across all the end markets and across all geographies. So we are well positioned with this long-term growth driver. Looking at the first half of the year, you see the breakdown of our revenue by segment, by geography, and you see also that we continue to be well aligned with the sustainable development goals. The key change compared to last year is that now you can see the weight of semicon is also increasing, representing now 21% of our revenue. And you can see on the geographical side that Southeast Asia is now a bit bigger, especially after our acquisition of GVT. And you can see also in North America, we continue to make further progress aligned with our long-term ambition to double our revenue in this part of the world. So attractive market, and we have a good and strong ability to achieve leadership position. Now giving you an overview of our performance by segment. In building, 2.9% organic growth, 13.5% EBITDA margin improvement compared to last year. In industry, 6.4% organic growth, very strong quarter, where here, we are actually doing a bit better than the market with 18.6% EBITDA margin, which is basically the best proof about all the actions we took last year, continuing to invest in organic growth initiatives in operational excellence initiatives. And in semicon, we are very pleased to see an accelerated growth. Our Q2 has been very strong. And as a result, we are pleased to report 9.2% organic growth, equivalent to 14.2%, and now we see the strong dynamic in both our front end but also back end. So as I mentioned, improving in our 3 segments. Let's go now one by one with a bit more details by geography, product line and end market. So building first, as you can see, Q2 was actually a bit better with 4.4% organic growth, and it's a mixed picture in the geography. Strong in the U.S., mixed in Europe as on one hand, we continue to see positive momentum in Europe, in Benelux, in the Nordics and early sign of recovery in Germany. But on the other hand, France, U.K., East Europe remains challenging. And Middle East is still a big uncertainty. In the first half, we couldn't simply ship anything to our customers, and we are looking closely at the situation. By technology, very strong momentum on the valve, very high order book in all our boiler room technologies and a more stable activity in our connection system linked to the residential building activity, which we also see stable. And on the other hand, we continue to see very high order books in data center and commercial building. And talking about data centers, let me highlight one example of the many things we do. You can see here a picture of our stainless-steel air separator that is used actually in data center cooling solution. And this is our own IP, our own design and what makes us win is actually our speed to market. We have been very fast to go from prototype to mass production to support the increased need of our customers. Going into industry, very pleased about the results. I think our team has been doing a fantastic job. And you see that our organic growth is much higher than most of the industrial index, more than 7% organic growth in the second quarter after already a first quarter. And this is a result of all our organic growth initiatives, our geographical expansion, our business development initiative. And we see also here strong dynamics, continued strong dynamics in aerospace, in power generation in defense and more stable activity in automotive and general industry. And an example I would like to highlight is that we continue to invest in technology. I think we are pleased to now have put our second HIP vessel in Eindhoven, where here it's all about removing the defects of all the parts, improving the material characteristics. And with our HIP vessel, we are putting some parts up to 2,000 bars in order to improve the material characteristics and the strength of all the components we treat. And the good news is we see more and more demand from our customers about this type of service. In semicon, very strong dynamic, very healthy order book. And it's actually a bit better than what we expected because we already saw a huge organic growth with more than double digit, 16% organic growth in the second quarter. We were more expecting that in the second half, and it came earlier. So we are -- our team are really doing a great job to manage the volatility and the different dynamics of the end market. So strong in front end, strong also in back end. GVT is already contributing positively to both organic growth and margins. And we continue to invest capacity. Our greenfield factory in Dronten is in the final step, and we are ready for the huge ramp-up coming in '27 and beyond. Also adding capacity in Southeast Asia as we see more and more demand and request from our customers. So great dynamic overall, all driven by AI adoption in more and more applications. But innovation is also key. And I would like to highlight just one example with a robotic system we are doing for the semicon industry with our prealigner, with our own design, our own technology in order to move wafer in a very accurate way. So just to highlight that innovation remains at the core of what we do, especially in this segment. And as a last point regarding our operational development, I'm also pleased to report that we continue to make further progress with our sustainable commitments, more than 70% of our revenue linked to sustainable development goals and also now making an additional progress in our Scope 1 and Scope 2 reduction with more than 6.6% reduction compared to last year. So on track with our sustainable commitment. So that's what I wanted to say regarding our operational development. So let me now hand it over to Frans to give you an update on our financial development. Frans?

Thank you, Stephane, and good morning, everybody, and happy to talk you through the first 6 months of this year and show you these 4 important KPIs. First of all, revenue. Our organic revenue growth improved to 5%. You see very clearly, also in each segment, we had nice step-ups. This all converted into an EBITDA margin of 14.4%, EUR 225 million, which is a EUR 15 million up year-on-year. Also nice to see added value in a solid place, 65.5%. Net profit, EUR 7 million up, bringing us EUR 158 million in net results. Capital expenditure, you see a step down of more than EUR 30 million. Basically, that's all phasing. We will see the reversal of this in the second half year as we have a bit of timing effects in our capital expenditure programs. So the full year guidance for CapEx to be on around a level of last year, EUR 190 million, is still firmly in place. Free cash flow improved. Nice to see third year in a row, small step-up in the mid-year free cash flow, a bit more better balance in the year, driven also, of course, supported by the lower CapEx and predominantly the EBITDA, which is also supporting this number. Then the net working capital was a cash out. So all in all, solid performance in the first 6 months. If you go to revenue, we see nice contributions of our 3 acquisitions. We added Geo-Flo, Paulo and GVT to the portfolio, and you see EUR 135 million step-up in revenue. The divestments of Broen and Metalis and reduced shareholding in KAN brought the number to EUR 178 million negative correction for the divestments and also a negative impact from ForEx, EUR 21 million. Good to see the 5% organic revenue growth, driving our absolute revenue with a plus of EUR 68 million. So on the revenue side, a good set of numbers to go to the EBITDA. The acquisitions we just mentioned, EUR 24.4 million. If you do the numbers, that's more than 18% EBITDA on the companies that we acquired in the past 12 months. On the divestments, a negative of more than EUR 15 million. That is a little bit over 8%. So 18% on the acquisitions and 8% on the divested companies. Small ForEx, EUR 2.8 million effect. And then the organic EBITDA contribution was more than EUR 9 million. So good to see there also being back to growth, but also a positive impact on the EBITDA from the hard work by our business teams on driving our improved revenue to a EUR 9 million plus. EUR 225 million, I repeat, EUR 15 million up versus last year. On the free cash flow, of course, we see, again, the EBITDA and the CapEx effects contributing positive. On the working capital, 6 months rolling, we lose EUR 25 million year-on-year, small -- plus in the other, that's mostly provisions and timings, almost EUR 8 million and then a nice EUR 80.8 million step-up of EUR 30 million. The EPS, very important slide, EUR 0.09 improvement in the first 6 months, driven by the M&A portfolio. You see a plus EUR 0.18 on the acquisitions and a minus EUR 0.09 on the divestments. That comes, of course, with financing costs, a little bit of a tax impact, negative one-off element there from a divestments, little bit of ForEx impacts, and then really nicely EUR 0.05 improvement from our organic performance and EUR 0.03 improvement for the share buyback program. And this year, share buyback program, we're halfway through the scheme, so still continuing that. And for now, we report a EUR 0.03 improvement to EUR 1.47 earnings per share. Then we go to the segment reporting. And Stephane already talked you through the revenue and the EBITDA effect. You see the CapEx added here, yes, no surprise. The total CapEx was down. You see that here as well in each segment, but that will reverse in the second half. Specifically in industry and semicon, we will see a step-up as we complete some of the divestment programs that we have ongoing. In the third column, we added holding eliminations last year. So you see also now again, EUR 13.6 million reported, EUR 3 million up versus last year, some small effects in there. And I think all in all, growth and operational excellence driving improved profitability in the segments. Exceptional costs, yes, we normally report this only at year-end. We decided to also show this half year, improved transparency, a small number here for the first 6 months, EUR 3 million, mainly or fully related to our project to leave Russia, some progress there in the first 6 months. We're still continuing at that. We hope to finalize it this year. We already mentioned in the annual report that the total exceptional cost expected for this year will be around EUR 25 million, mostly non-cash and that guidance we still leave in place. So there's expected to be more to come in the second half. And then let's go to the balance sheet, a resilient company with -- you see on the right top, equity and solvency in a good place. On the left top, the debt has gone up. Of course, we drive the M&A year-on-year. Our ratio is still 1.9, same as it was at year-end. But yes, versus 12 months ago, it went up because we increased that to drive the M&A portfolio. At the left bottom, you see our capital employed, still same level as last year, small step back on the ROCE, but that's a 12-month rolling number. So I think better to deep dive on that at full year again. And yes, very nice to close off, I think, with the net working capital, EUR 62 million lower. That's 2 days reduction. Its inventories went down a little bit, our receivables as well, and we made a step-up in payables, 6 days in total. also driving the growth of the company, and that's really increased purchasing. So no payment stretch there. So strong balance sheet in supporting our strategy. And yes, to give you a bit more insight how we are driving our strategy, I give the floor back to Stephane to tell you all about strategy and action, Stephane.

Thank you, Frans. So you have seen how did we perform in the first half of the year. Let's see now how did we thrive in the first half of the year. And as you know, 2026, it's only the second year of deploying our thrive 2030 strategy. So you have seen how we continue to be well positioned with these 4 compelling global tailwinds. We continue to rebalance our portfolio across our 3 segments, across geography, across end market application with our organic growth and our portfolio update. So let me give you a short update, as you can see on the right, with our 4 strategic priorities. And I'm pleased to report that actually, we made good progress in our 4 strategic actions in the first half of the year, driving organic growth, optimizing our portfolio, the Aalberts way being our operating model and then further progress in our sustainable commitment. If we start with profitable growth, I think one of the key example is the very strong momentum we see in data center, where our order book is increasing month after month, thanks to either our flow control and boiler room technologies, either with our engineering system and prefab solution, but also with our connection and piping system. And we are well positioned in both the primary loop and the secondary loop for the cooling system and solution of the data center. We see more than double-digit organic growth, and this is all for our building segment. Today, it's only roughly 2% of our revenue, but we see a very good expansion in the coming months. And what makes us win today is our global offering and also our speed to market. We are quite good to go from prototype to mass production. And as you know here, speed is of the essence to support the accelerated growth, especially in North America. Another great example of driving organic growth is our geographical expansion we are doing in our industry segment. You see here 4 examples of either greenfield or capacity expansion in the Netherlands, in Mexico, in France and in Hungary, this is driving organic growth. And this is the result of all the investments we have done over the years, and we see more and more demand for our services, either with heat treatment or surface treatment in aerospace, in power generation, in defense, but also in automotive, like in Mexico and Hungary. In semicon, we are investing for the future. The growth is there. The semicon industry remains very strong, and I'm pleased to report that we are ready for the growth. Very soon, we will start and ramp up operation in our Dronten factory in the Netherlands, where we expect the ramp-up in 2027, mostly for lithography systems. And in Southeast Asia, we are adding capacity in Penang in one of our factory to support also the increased demand from the back-end customers. So preparing for the long-term growth. On the portfolio update, just a reminder that we are well on track. We did 4 transactions on the divestments, mostly in our building and industry segments. And we did 4 transactions on acquisitions in our building, industry and semicon segment, and we will continue. We have an active funnel. We still have the same M&A criteria and the same priority also with our divestment program, where we expect to make further progress in our building and industry segment. So continuing to rebalance our portfolio in order to have accretive EBITDA margin and organic growth update. One example of the Aalberts way, it's the operational excellence that we continue to drive, making further progress also in our Aalberts production system, and it's all about footprint optimization, about inventory optimization, driving production efficiencies in our factories and also optimizing our asset utilization in order to have a better CapEx intensity. Most of the drivers today are within building and industry segment, but also semicon is becoming more and more relevant as we see this huge growth, so an opportunity also to safeguard our margin. So continue to drive operational excellence. So now time to give you an outlook. And to be very simple, we are confirming our full year outlook with improved organic growth, EBITDA margin compared to last year because the market dynamics are similar with what we shared in our full year results. Building remaining a mixed picture, strong in U.S., more mix in Europe. Middle East remaining a key question mark, are we going to be able to ship, but also what will be the indirect impact. And when you look at the product line, strong on valve, strong on hydronic solutions, strong in data center and commercial building and more stable in residential building and some geography. Industry, we expect similar trend in the second half, mostly driven by our own initiative, but also continued growth, aerospace, defense, power generation and more stable activity in automotive and general industry. And in semicon, we are actually satisfied to see actually a higher growth than expected. We expect similar organic growth as in the second quarter in the second half of the year, and we continue to invest in the capacity in order to support the demand increase as we see more and more capacity request from our customers in both front and back end. So based on this end market dynamic, we are pleased to reconfirm our full year outlook. So let's wrap up before opening the Q&A. So as you have seen, our first half of the year 2026, we are pleased to report improved organic growth and EBITDA margin in our 3 segments. We are entering the second half with positive momentum and a very healthy order book. So as a consequence, we are confident to deliver our full year outlook with improved organic growth and EBITDA margin compared to last year. You see that our portfolio rebalancing is well on track and all our integration plan are progressing well, and we continue to deploy our capital allocation according to our policy, first returning dividend to our shareholders, investing for our business to drive profitable organic growth, doing accretive acquisition and continuing our share buyback program. So at the end, I'm really pleased with the first half performance. And also, I want to acknowledge the resilience and commitment from all the Aalberts teams. You can see that first half shows the strength of our diversified portfolio. And you can count on us to continue to discipline, to execute in a disciplined way our thrive 2030 strategy. Thank you.

We are starting the Q&A session. [Operator Instructions] I would like now to give the word to Martijn den Drijver from ABN AMRO for the first questions.

Three questions, and I'll take them one by one. What was the reason that the building division despite [Technical Difficulty] growth in Q2 [Technical Difficulty] in EBITDA margin [Technical Difficulty] elaborate a little bit on the development?

Maybe you want to ask the 3 questions and then we go one by one.

I'd like to go one by one, please.

So a few comments. You are right, first of all. And I would mention 3 main reasons. First of all, we have had some challenges in Middle East, where we simply couldn't ship any goods. So we have also more inventory, but our invoicing has been nil in the second quarter for the building segment. Second, I think as we mentioned, we continue to see a challenge in our connection system, especially in Europe due to the low activity of the residential building. And then we have also some one-off costs, especially in this segment. So that's the 3 main reasons where it's a bit lower than expected in the second quarter.

And just one one-off element, is that a material amount, low single-digit millions?

Yes, low single digits. I would put a number like that.

Okay. I'll move on to my second question. Semicon obviously had a blowout Q2. You already mentioned that 16% organic growth, an EBIT (sic) [ EBITA ] margin of close to 15%. How should we think about H2 and 2027 given the positive statements from ASML on the front end and Besi on the back end? And also your own statements in the presentation, a further acceleration. Does that imply that we should think double digits in H2 and perhaps even high double digit in 2027?

I think you mean the second half '26, right?

Yes. H1 2026 was 16 -- almost 16% growth. You mentioned positive statements from -- a further acceleration is expected. We know the statement from ASML and Besi. So how should we think about H2 2026 and 2027?

First of all, you are right, and let me confirm that indeed, second quarter organic growth with 16% in our semicon segment was higher than anticipated. And actually, we can confirm that we expect the similar trend in the second half as in the second quarter, so a 15% organic growth continuation in the semicon, and we are also quite confident for 2027, but you should expect the second half organic growth similar to the second quarter for semicon segment.

Martijn, are you still there? Because you had a third question. I think that we lost Martijn, but we have some good backup. So David Kerstens from Jefferies. Perhaps you can also ask some of your questions.

Two questions from my side, please. First, on the Industry segment, you said momentum in the second half in line with the first half, which was very strong, right, and accelerating to 7% in the second quarter despite the impact of high energy prices and despite the impact from the increasing pressure on the German OEM car industry. What is the impact of those 2 factors, the higher energy prices on the organic growth? And how do you see the increasing pressure on the German auto industry impacting your industry segment growth? And also margins seem to have reached a new level following the divestment of Broen at 20%. Is that a sustainable level going forward? And then maybe a follow-up on semicon growth, very clear guidance. But I think in the fourth quarter, you will have also GVT coming into the organic growth for 2 months. And from what I understand, GVT is growing more than 20% or 25%. And can you give an indication of what the exact revenue contribution was of GVT in the first half of this year?

Thank you, David. And let me do a first few couple of answers. So on the industry and then the price increases that we saw in the first half, I think, first of all, price increases, be it from energy or from raw material increases, we are able to price that on really well to our customers. So pricing excellence is there. And I would say in the mix, the total impact, 1% to 2% on pricing with inflation in there is, I think, a good proxy. So you can see that the organic growth really driven from the volume is very strong. And as we said, we give no specific organic growth expectation for the second half. But in the voice, it's pretty clear we expect that to continue. And then on Broen, so you asked a little bit of guidance on the EBITDA levels for the second half of the year. Yes, of course, the impact of Broen is positive. You can see that also in the waterfalls we just showed you, and we give those guidance overall over the whole portfolio. So no specifics there. But of course, in the second half, this will continue to have a positive impact. And then on semicon, yes, very clearly, the GVT -- organic growth in GVT, you can deduct from the semicon numbers, and we acquired this company at a revenue level of EUR 107 million. Yes, if you do the numbers now, you see quite a significant step-up. And indeed, we don't give guidance and expectations on an individual level. But from October onwards, GVT will be added to the organic growth calculation. And that, of course, will also help the semicon number there.

And you take 20% EBIT margin in the second quarter. That is a new high for industry, right? Now the new sustainable level following the divestment of Broen.

So we only give guidance on a company level, as you know. So we -- I try to give you a bit color where we are. And I think also from the voiceover of Stephane, clearly, per segment. On building & industry, we expect the second half to be continuing at what we see in the first half in general terms. And then there is the guidance on a company level, and that's where we leave it for now.

I would like now to give Martijn den Drijver the opportunity to ask his third question because I see that you are back in the queue. So hello, Martijn? Do you hear us? No, we lost him again. So now I'd like to give the word to Kristof Samoy from KBC.

A few questions, if I may. First of all, just as an observation, looking at the organic revenue growth and the organic EBITDA evolution in your waterfall schemes. Could you comment on the drop-through, which we can expect going forward? Because it's -- in the first year, it was well below 25%. And then in terms of inventory, we typically see a seasonal uptake going from year-end into first year half. But we've seen considerable growth in industry in the first-year half. We also see considerable growth in semicon. There have been already some optimizations in building. Could you detail maybe what the impact was of the Middle East on the days of the inventory outstanding? And then finally, just on semicon again, to make it clear, you expect similar growth in the second-year half as you have seen in the second quarter. So that means that quarter-on-quarter, you're not expecting any significant uptick in growth in semicon anymore.

Let me maybe start with the last one, and then I will let Frans answer your first 2. So you are right, and I confirm that you should expect an organic growth in the second half of the year for the semicon segment, aligned with our Q2, which was a bit more than 16%. So that's what I can confirm, knowing also in Q4, like I said, I think earlier, we will also add GVT in our organic growth reporting numbers.

Yes. And let me come back on your first question on the drop-through, and that's a good observation because normally, you would expect the drop-through to be of a higher level. It's EUR 9 million. We're happy with positive organic growth. We're happy with the positive EBITDA contribution organically, but it should be a bit higher. Basically 3 reasons: the holding elimination cost that went up with EUR 3 million year-on-year, that's holding us back a little bit. And then we have, as Stephane in the introduction also shared in building, yes, we see lower profitability because connection systems, U.K. market holding us back and also the Middle East. So those effects, yes, hold back a little bit of step-up in organic, which we will work further on, of course, in the second half of the year. And then you also asked about the impact of the Middle East on inventory. That's also indeed one of the drivers there. I would say single-digit euros as an indication. So single-digit million-euro impact on the inventory from Middle East.

If I may, just one follow-up on building, you mentioned the U.K. situation. But you've recently took some action in Doncaster, what is the reason that the situation there remains difficult or is deteriorating? Could you provide some more color there?

The market trend and especially in the residential building where we don't see, I think, as per our guidance, a flattish market. And this is where also we have our biggest exposure with our connection system portfolio. So that's the 2 elements, market trend, residential and product line exposure.

I'd like to give the word to Luuk from Banque.

First of all, a question about buildings. Do you see any support of the higher energy price and the efforts to reduce dependency on fossil fuels, so maybe more demand for heat pumps and things like that? And secondly, on buildings, how do you look at your portfolio? You mentioned a couple of challenging areas. Do you think that's something that's just cyclical and will improve over time? Or do you think some adjustment in the portfolio would be needed to optimally position for future growth?

Yes. I think we mentioned it, let me repeat because we start to see, you could say, finally some early sign of recovery in Germany driven by higher demand of heat pumps. all the indexes that we see are quite positive. We don't see it yet in the short term, but this gives some hope that the situation will improve maybe in the second half, but also in 2027. But as you know, there is a usual disclaimer about the government incentive, what will the German government will do to continue to incentivize the demand for house and homeowner to go for heat pumps. So start to improve. Let's see. But it's, I think, compared to the previous year, a bit more encouraging. And the second point, I would say it's a continuation. We are still, first of all, doing very well in our valve business, doing very well with a very strong order book in our boiler room situation, also doing very well in North America. And we continue to see market stable in residential in Europe, especially, I think we talk about the French market, the U.K. market, East Europe. And then we are challenged in terms of performance still in our connection system. So we still have the same strategy in terms of portfolio optimization, and we are not done in both our acquisition and our divestment. And indeed, we still have further opportunity to optimize our portfolio in both building and industry segment also where we still have opportunity to do further divestment.

One further question, if I may, on automotive. We see -- saw some mixed signs on the one hand, obviously, all the restructuring in German automotive, but also a pickup in new car registrations. Do you see any signs of improvement after the stabilization that you already...

Too early to say. We see the market still stable. And yes, if you can see some reports of some index showing 1% to 2% growth. But for us, we're still more stable activity. But what I think is more important is that we are doing better than the market with our own initiative, with our geographical expansion. So in the first half, we have actually grew a bit better than the market also with our exposure in automotive, thanks, for example, to the opening of our factory in Hungary, in Mexico. So we are able to grow a bit better than the market. But to answer to your question, we're still more stable activity in the second half.

It's still nice queue, and I would like to ask Ruben Devos from Kepler Cheuvreux to also ask your questions.