Good morning, ladies and gentlemen. Thank you for joining us today. It is my pleasure to welcome you to Aalberts full-year presentation for the year 2023, live in our headquarters in Utrecht. My name is Rutger Relker, Director Investor Relations. This past year, we welcomed Stéphane Simonetta as our new CEO. Together with our CFO, Arno Monincx, we look forward to share our progress made with you today. Stéphane will kick off the presentation with our strategy and objectives, and give an update on our operational developments. This will be followed by Arno, who will share our financial development, highlighting how our strategy has translated into a solid financial performance. Then Stéphane will give some color on 2024. 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 so we encourage you to participate. Later today, we will make the presentation and the recording of this webcast available on the website. Please welcome Stéphane Simonetta to begin our presentation.
Welcome to all of you. It's a true pleasure for me to be here today in our headquarters for the first time to present our full-year results. But before going into the business update, let me pass two personal messages. First of all, I would like to say thank you, Wim, because the great performance we are delivering in 2023 has been also under the leadership of Wim until September when I took over. The second personal note is to say thank you to all our employees for the great welcome I receive. So now I will be giving you three updates. First of all, our strategy deployment. Second, it will be about our operational update. And third, it will be about our end-market dynamics.
But before going into the business update, let me start that there are still three macro trends that are impacting our future, where we in Aalberts, with our mission-critical technologies, can help. It's about urbanization, energy and resource scarcity, Internet of Things. And all of these three drivers are actually growth drivers for us. So long-term growth agenda is still relevant for us. And you may wonder, what is the impact that we are making? And as I like to say, Aalberts is actually everywhere. We are in buildings, where we are helping installers save time and helping the building owner save energies. We are in microchips, where we are helping our customers with great innovation to ensure the world will have more and more chips as the world is getting more and more connected.
Then we are in sustainable transportation, where we are helping our customers in automotive, in aerospace, in marine, reaching their decarbonization target, but also improving safety, reducing fuel consumption, and reducing manufacturing costs. When we talk about strategy, I just would like to come back to what actually we shared in the last Capital Markets Day. We still have the same four strategic actions. I will give you an update right now, one by one, where we are in our deployment, because for us, it's all about strategy execution. As you know, first of all, it's about continuing to optimize our portfolio. Second, it's about delivering revenue organic growth. Third, it's about our operational excellence and fourth, what we call in Aalberts, sustainable entrepreneurship. Let me share with all of you now an update on these four points.
Regarding our portfolio optimization, as you know, over the last two years, we have been doing some acquisition and some divestment. Some great acquisitions around Advanced mechatronics, around water treatment for heating systems, and some divestment where we believe we were not the best owner. My promise to all of you is that we will continue this journey, to continue to do bolt-on acquisitions, and at the same time to divest when we believe we are not the best owner of the companies. Secondly, when we talk about organic growth, the way we want to do it is with more and more innovation.
I just would like to share with you on this slide four good examples of innovations, where we are helping to distribute water, where we are helping to save energies, where we are helping to innovate with breakthrough technologies, or improving the material lifetime or the material characteristics of the components. This is a great enabler to continue to sustain organic growth thanks to our innovation or business development. Organic growth, it's also the way we continue to focus on our four end markets. I'm pleased to share with you an update that you can see on this slide. First of all, the split according to our four end markets. You may see that we are continuing to be strong on eco-friendly building with roughly half of our revenue. You may notice that the semicon efficiency is now 14%.
We have moved from 6 to 14 over a few years, just showing the portfolio transformation that has been happening over the years. Now we have a much more balanced portfolio between our industrial part and our building part. Now, looking at the regional split, we continue to be very strong in West Europe, being also growing in Americas. But for me, the takeaway is that we can still do much more in the Americas. This is where we will continue also to invest. But you may wonder that on the geographical side, what are the differences between building and industry? Let me give you an update now by business segment. What you can see on this slide is actually that on building, we are also balanced from a geographical point of view. We are still very strong in West Europe.
As you see, we have also a good position in Americas and East Europe. This is actually important to us because we see different markets' dynamics. Sometimes West Europe, it's more slowing down. We see now some challenge on the new construction build. Renovation is still a question mark. We see growth opportunity in the U.S. and in East Europe. More balanced portfolio. Now, on the industrial side, you will see that we are really with a major share in Europe. This is simply because we follow our customers. Our footprint is always close to our customers. You can imagine that in service, in Surface technologies, you need to be close to our customers. That's why we are so much present in Europe. In our semicon efficiency, we are also delivering our customers who are mostly present in Europe.
We continue, wherever our customer goes, we will continue to move our footprint in Europe or in Asia should they decide to move there. Talking about footprint, you know we have increased our CapEx, our investment to support organic growth, to support demand increase. I would like to show you some great examples of some of the world-class operations that we are building. Some of these buildings, some of these factories have been recognized as the most sustainable buildings in the world. We are investing in semicon efficiency. We are investing in buildings in Europe and also in North America to also support geographical expansions. We will continue to invest in additional capacity because this is about the long term, not about short-term dynamic. We remain confident for the long term.
The last point about the strategy update, as you know, is what we call sustainable entrepreneurship. I'm really pleased to report to all of you that we have already reached our 70% target in 2023. Now the challenge is on us to sustain this performance year after year. As you know, our business is closely linked to four of the Sustainable Development Goals. It's about moving and distributing water, saving energy, innovating breakthrough technologies, and also improving the lifetime of the materials. You see the breakdown by Sustainable Development Goals. As I said, we will continue to reach 70% or even do higher. When we talk about the long term, no change with our ambition. Once again, we want to be carbon neutral by 2050 or earlier. But let me point you on this slide. The key highlight is our 2023 improvement.
We are already at -33% in our CO2 intensity compared to 2018. But I think the most important message is that in the coming year, in 2024, we will not only measure our Scope 3, we will start to disclose our progress on our Scope 3 emissions. So more to come in our annual reports. And the good news is that it's not only about us measuring ourselves. We are really pleased that the progress we have made over the years is actually recognized externally by some of these global standards or indexes, just showing that our improvements are also working and are being recognized. So great job by all our teams around the world. At the end, strategy actions need to be measured. And you know that we have six key objectives that we are sharing in the last Capital Markets Days.
So let me share with all of you where we are regarding our 2026 targets. It's all about organic growth. You have seen in our press release earlier today, we deliver 4.5%. So on track with our 4%-6% 2026 target. We are now at 15.7% in EBITDA, getting close to our target, 16%-18%. Still some work to do, but improving slowly but surely. Regarding our ROCE, also improving. This is also where we still have some work to do to deliver the 18%-20% range in the coming two years. Our innovation rate, like the sustainability, actually, we already reached 20%. But now the goal is to sustain that year after year because, as you know, our innovation rate is based on the last 4 years' revenue, all the innovation we have been doing.
So this is why we will continue to invest in innovation for the coming years. Our SDG rate, as I mentioned, we are now on track. So we'll continue to ensure we sustain that level. And our leverage ratio is actually quite good. We are much better than our long-term target. But I will let Arno say a few words about that in the financial update. So now let's talk about the operational development, how has been 2023. And I will be starting, of course, to talk about organic growth because we have actually managed the headwinds in the building technology with an organic growth of -1.2%. But on the other hand, we continue to grow double-digit in industry, in semiconductors, in transportation, and in all our industrial niches. The supply chain situation has improved in 2023. Of course, we see now new challenges in 2024.
But we have improved our service level. We have continued to drive operational excellence, to sustain our high-level margin, and continue to improve our profitability. Fantastic job once again done by our teams in all our businesses. When you look at innovation, we are at 20%. But when we think about the long term, we will continue to invest to ensure we innovate, to differentiate, to continue to help some of our customer challenges, either in product, either in solutions, or either in services. On sustainability, you will see in our annual report that we are making great progress on CO2 intensity, but also on waste management, and also on circularity together with our suppliers or sometimes with our customers. You can count on us to continue to make an impact for the environment. So our Aalberts Wim Pelsma did a fantastic job in 2023.
Talking about people, as you know, in Aalberts, we say the Aalberts way, it's about winning with people. When we look at safety, when we look at lost-time injuries, we are improving. This is not good enough. We will continue to invest to improve the safety of all our employees in our businesses. We will continue to focus on diversity because focusing on diversity is also an enabler to improve performance, to drive innovation. We are pleased to have 32% of women in our leadership team. We want to go even further. Investing in people, it's about, of course, ensuring all our employees are motivated and satisfied. It's also ensuring that we continue to develop all our employees. We take feedback seriously. We got some good insights about what we are doing.
As you see, we have developed and trained more than 950 colleagues around the world. So count on us to continue to invest in all our people to ensure the long-term growth of the company. The last part of my update before going to the financials is our focus on end markets. When we talk about buildings, let me first start to say long-term, we still see growth driver because the buildings need simply to be more eco-friendly because all the buildings need actually to save energy. And this is where we have great solutions, either with our integrated piping solution or with our hydronic solutions.
In 2023, we have done actually quite a good job because all the lower demand, all the inventory reduction of our employees, all the new construction build going down, we have been able to manage that thanks to our business development initiative, thanks to our sales growth, thanks to our also geographical expansion. So managing the headwinds has been done, I think, very by our teams. Long term is still a growth agenda. Even if the new build is going down, renovation is more stable. And once again, as I shared earlier, the geographical dynamics are quite different between Europe or West Europe, which will likely be more plateau but still growth opportunity in the US and in Poland. On the semicon efficiency, it's still a growth agenda. Let's make it very short.
Let's make it very clear because the world will need more and more chips because our customers are asking us to ramp up capacity. We have done a great job to improve our service level, more on-time delivery to our customers. And we still see a positive trend on the transportation side with the decarbonization coming up from the automotive, from aerospace, also from the marine, where we are supplying some of the biggest, other car makers, plane makers, or ship builders. So at the end, different dynamic where we are, I think, doing a good job thanks to our mechatronics technology or thanks to our unique innovation and business development plan. Talking about sustainable transportation, as I just mentioned, the industry is going through a major transformation. And this is where we see also a mixed picture. Maybe sometimes some industries are going down.
There is always an opportunity for us. Even if sometimes there are some changes between electrification and more combustion engines, we are actually quite resilient because we can support both. We have the technology and the services to support actually any mix of change. Even, of course, we all hope that the decarbonization will accelerate in order to get moving all the things around the world. In the industrial niche, we actually see a growth in all the regions. This is, of course, sometimes very small business. This is where sometimes also we are the only ones to be able to provide this unique technology in some of the industrial places, in some of the agriculture. Sometimes it's also about defense. This is actually doing quite well. Our team did a great job in 2023.
So let me wrap it up before I hand over now to Arno about the financials. You have seen that we are still in strategy deployment mode and are on track for 2026. You have seen that on the operational side, we have managed some of the headwinds quite well. But we are still growing in industry. And that, regarding the end market, we still see also a more balanced agenda. Thank you very much. Now let's go to the financials with Arno.
Thank you, Stéphane. And also, welcome from my side, of course, to this webcast where I will take you through the financial development of Aalberts over 2023. And we start with the highlights where we see that our revenue grew with 3%, which was organically 4.5%.
As Stéphane already mentioned, there was a clear organic growth in industrial technology but also a small decline in Building Technology, still facing headwinds. Nevertheless, we sustained our added value. I think that is a great performance because, first of all, as you may remember, in 2022, we built up our inventories because of all the supply chain issues we faced at that moment to secure our deliveries to the customers. This year, 2023, we really reduced our inventories again. Nevertheless, with a solid pricing and also purchase-saving initiatives, we managed to sustain our added value, a very good performance of our teams. EBITDA, we increased 4%, EUR 521 million, towards a margin of 15.7%. Free cash flow, of course, record level when we reduced our inventories. I will come back to that later. That resulted also in a very strong free cash flow performance.
But also CAPEX increased again, actually also a record level, EUR 224 million of CAPEX spent, which is constantly investing in the future, in the business development programs, in the expansions of our company. And then last but not least, despite all these numbers, we also improved our ROCE again from 60.1% last year towards 60.8% this year. And last but not least, the innovation rate increased towards 20%. And the SDG rate, as also Stéphane already mentioned, improved to 70%. So Aalberts delivered in 2023 a record EBITDA and a record free cash flow. Then the revenue bridge, about the revenue development in 2023. From the basis of 2022, we added EUR 39.8 million from our acquisitions that we did. At the same time, we also lost EUR 46.1 million from the divestments that we did.
Then the currency impact versus the positive impact we had in 2022, we now face a negative impact of EUR 36.7 million in 2023, mainly caused by the US dollar. That results then in organic revenue growth, as mentioned, 4.5% of EUR 137 million towards the EUR 3.324 billion revenue in 2023. EBITDA bridge, the same, started from the EUR 500.3 million of 2022. We added from our acquisitions EUR 7.1 million, almost flattening out with the divestments where we lost EUR 6.7 million. Then the currency impact also in the EBITDA, negative EUR 5.5 million versus a positive effect loss in 2022. Then last but not least, the organic increase of EBITDA, EUR 25.8 million, totalizing towards the EUR 521 million in 2023, being 15.7%. Then the EPS bridge. We started with the 3.37% of 2022 where we added from our acquisitions 0.06%.
But also the same, we lost with our divestments. So that is a neutral effect. And then you also see the organic increase of 0.24%. But also that also our company, even with a very strong balance sheet, is facing higher finance costs with an increased interest rate. And that is costing 0.70%. Then besides that, also some high effective tax rate of 0.02%. And of course, also here, the currency impact. So at the end, we managed to increase our EPS but only with 0.01%. The consolidated income statement, clearly, you see here the two years next to each other. EBITDA finished at 19.9% in 2023, which was also 30 basis points better than last year. You see also the increase of depreciation, which is, of course, logical with the increased CAPEX programs that we are executing already for quite some time now. Then the EBITDA improvement.
Here also the net finance cost being EUR 18.6 million higher than last year despite a very good cash flow, despite, I come to that later, a very good net debt position. Income tax expense is more or less the same. At the end, that results in 3.38% versus 3.37% last year, a strong and resilient performance. The balance sheet, equity position, over 60%, 60.8% solvability, very strong. Also here, you see that the net debt decreased from almost EUR 800 million in 2022 towards EUR 583 million in 2023, which brings the leverage ratio down from 1.3% in 2022 to 0.9% in 2023. Working capital improvement, one of the drivers, of course, also for the strong cash flow. At the end, the return on capital employed increased towards 60.8%. It's a strong financial position. We are ready with this balance sheet also to accelerate our growth agenda.
Free cash flow, EBITDA, EUR 29 million higher than last year, good performance. Also here, you see the gain on disposal of subsidiaries where we are a little bit lower than last year, EUR 4.4 million. On the other side, we had some sale of equipment where we were a little bit higher than last year. These two years, quite comparable, as you can see. And what we do, as always, and I also wrote it in our financial development in press release, we are investing these disposal gains towards improvement of our company in operational excellence initiatives, which we also did this year. And again, the net effect of these two years is more or less the same. Then change in provisions and changes in provision exceptional. That's an important line also. As you may remember, in 2021, we took an exceptional cost for our operational excellence program at that time.
We finished the year 2021 with a provision on the balance sheet of EUR 12.5 million, which were the costs that we already booked in our profit and loss account but at the same time did not yet spend as cash out. Now you can see here over the two years, 2022 and 2023, how this EUR 12.5 million was going into the cash flow statement. At the end of 2023, also deadline is at zero in our balance sheet. So no exceptional costs anymore provided for in the balance sheet. Change in working capital. There you see really the big improvement in free cash flow versus the negative EUR 243 million last year. We managed even to realize a positive change in working capital of about EUR 10 million. That gives a strong cash flow from ops of EUR 276 million higher than 2022.
And then we still also spent a record number of cash out for our investments, for our CAPEX, EUR 30 million higher than last year. Some purchases of intangibles, a little bit higher. And the proceeds from the sale of equipment resulting in our free cash flow of EUR 423 million versus EUR 168 million last year, a very good performance. Our segment reporting, we are reporting our financials in two segments. But you also see how our technology clusters are representing these two segments. So Hydronic Flow Control integrated piping systems are representing the Building Technology part. And Advanced Mechatronics and surface technologies are representing the industrial technology part. And here you see also the reporting per business segment. Building, we faced headwinds. We faced headwinds. And also what you see here is the organic revenue growth finished negative at 1.2%.
It's also very clear that the volume reduction that we faced in the Q1 year was less in the H1 year. That's also why you see that the EBITDA margin, full year of 40.3%, is better than the 40.0% that we report in the H1 year of 2023. Clearly, we see also the trend that the volume reduction has reduced, still, of course, lower than what we would like. Therefore, still, we believe in the long-term perspective of this business with all the renovations that are ongoing in the future. Industrial technology, very solid performance. We made an organic revenue growth of 12.4% and an EBITDA improvement even versus the very good year 2022 of 70.7% in 2023.
Also from a CAPEX perspective, you see that we are investing heavily also in this segment with a lot of footprint expansion but also business development and innovation plans to be executed. The dividend, we are proposing a cash dividend of 1.13% per share, which is 0.02% higher than last year. And also over the last 10 years, you see our CAGR of over 11%, which we believe is a very good value contribution for our shareholders. A proven, sustainable business model, that is what Aalberts is about. And that is what you also see here during our history. We constantly manage with headwinds, with good markets, with slower markets. We are always able to perform in a good way. And that is what you see in this result at the end. We finished higher, better than last year in a difficult year again.
The shareholder value creation, our track record, earnings per share over the last 10 years, a CAGR of more than 9%, 1.38% in 2013, 3.38% in 2023. At the same time, the dividend per share is increasing even more, more than 11%. So that means also, as you may know, over the last 5 years, we increased also our pay ratio from 30%-33%. Return on incremental capital employed, a very important indicator, how we are allocating our capital and how successful we are with that. Now, over the last 10 years, we managed to increase our EBITDA with EUR 294 million against an increase of capital employed. And this is including CAPEX, of course, but also goodwill of acquisitions, EUR 1.409 billion extra capital employed, which means over the last 10 years, 20.9% return on incremental capital employed.
This is an important indicator also for our ROCE on a yearly basis, of course. So as long as this percentage is above 20%, we are moving towards this 80%-20% objective that we have in 2026. And yes, we are happy with our stable, long-term shareholders who believe that we are creating value for them. A proven, sustainable business model. And that brings me to Stéphane again, who will give his perspective towards 2024. Thank you.
Thank you, Arno. I'm sure you have seen our strong financial performance. But of course, this was 2023. Let me now share a few of my perspectives looking forward for 2024. First of all, starting by the market, we see different markets dynamic by geography, by end markets. And when we start at the buildings, we see most likely that Europe, West Europe, will plateau.
On the other hand, we still see growth opportunity in the U.S. and in East Europe. More balanced pictures. On the industrial side, it's always and the growth agenda will continue, short term and long term. Of course, the question is, are we going to see the same double-digit growth in 2024 than in 2023? Let's not forget that long term, we need to invest. We have a very strong order book in our semiconductor efficiency. We still see opportunity also with geographical expansion in our surface technologies business. In capital allocation, you have seen our strong balance sheet. You have seen our strong cash position. We are ready to do bolt-on acquisitions but also potentially to do more divestments according to our four end markets and according to our strategies. We will continue to improve on sustainable entrepreneurship.
The key highlight of 2024 is that we will start to disclose our Scope 3 emissions but continue also to improve our waste management and also do even more on circularity. More to come in our next annual result, in our annual report, where we'll disclose some of the progress and what we plan to do in 2024. So when I look at 2024, our portfolio is actually quite balanced. We are ready to manage some of the headwinds and still having some growth opportunity to manage these headwinds. The outlook, I have only two key messages to pass to you. We will continue to deploy our strategy. We still have some work to do to reach all our objectives in 2026.
But we will continue with our four key strategic actions: continue to optimize our portfolio, focus on organic growth with great innovation, with additional investment, and with geographical footprint, drive operational excellence, continue to optimize our footprint but do even more on internal efficiencies and productivities. We still have some opportunity also on inventory management to go even below and have a better mix in our inventories. We will not stop on sustainable entrepreneurship. Because at the end, I think what is important for me and I know for all our colleagues is that Aalberts has a key role to play. Aalberts is everywhere. We are where technology matters. Since 1975, we have been engineering mission-critical technologies to enable a clean, smart, and responsible future. We will not stop here.
You can count on us to do all we can to make not only a positive impact but also a lasting impact. So before going to the Q&A session, I just would like to say thank you for watching but also a huge thank you to all our shareholders for their trust and their loyalties. Also, a thank you to all our customers for their business and sometimes for their patience as we still have some delivery or service challenges. But a fantastic thank you and congratulations to all our Aalberts colleagues. We did an outstanding job to deliver a strong and resilient year in 2023. Thank you very much.
As we are starting the Q&A session, I'd like to remind everyone how to participate. For conference call participants, please press star 1 on your phone to join the queue. Those tuned in via the video webcast, please submit your questions via the Q&A form. I would now like to give the word to David Kerstens from Jefferies for the first questions. Good morning, David.
Good morning, Rutger. Thank you very much for taking my questions. And well done on the resilient performance. I will ask I've got three questions. I will ask them one by one. First of all, can you please explain the volume and pricing dynamics in the H1 of the year? As it seems, pricing got a bit weaker towards the end of the year while volume momentum picked up. And what are the implications of that for 2024, please?
Let's say, as you know, David, thank you for your question. W e managed especially in Q4 2022, we made our bigger price increases. And in 2023, the pricing initiatives were rather limited.
The pricing effect is really going down automatically during the year. As we have said in the H1 year, we still assumed a pricing impact of 7% for Aalberts in total. In the full year, we are assuming a 4.5% pricing effect for Aalberts in total, which makes automatically, if you calculate that in your numbers, that the volume impact in the H1 of the year was more positive than in the H1 of the year, especially also in the building side. The building technology segment reduced quite a bit volume in the first six months. In the second six months, we saw clearly there that the reduction was slowing down. U nderstood. Based on that resilient performance in volume, your margins were relatively more stable.
Is that the key driver in Building Bechnology in the H1 of the year while you managed to keep margins at 14.5%? And can you please also elaborate on the outlook for Building Technology in a bit more detail with regards to new builds and renovation? When do you expect markets will be strong enough for a return to positive volume growth supported by easy comps after last year's destocking and a recovery of margins?
Maybe I can take this one, right? And you can add, of course, Arno, right? You are right to say 2024 will definitely be more challenging because there are still many uncertainties. And the dynamics are quite different by geography but also by end market. If we take West Europe, we all see the new construction builds going down or plateau while renovation is still a question mark.
So that could be some of the headwinds. But on the other hand, I think I mentioned it earlier, we still see organic growth opportunities in the U.S. and in East Europe, where also on buildings, talking to our customers, talking to our partners, there is more confidence. So it will be a challenging year but with a different, I think, dynamic based on the geographical split on the Building Technology side.
And let's say, again, David, what we saw in 2023 is that the reduction of volume, decline of building also had some positive impact in the EBITDA performance of Building Technology as such. So from 40.0 in the first six months, we increased to 40.5 in the second six months. And as you may always count on also on our teams, they did a great job also to, of course, take all kinds of actions in cost.
When your top line is under pressure, you have to anticipate that. So everybody did a great job there to protect as much as possible their margin, which was at the end resulting even in an improvement in the H1 year. And I think on when it will get up, it's a very good question, David, because we, as you know, our customers have reduced a lot their inventories, right? So the inventories are at a very low level. And I think we cannot imagine that it will go even lower, right? We do not know, of course, what our customers are planning. But now it's more what is going in is getting out. And the question mark is when the wholesaler or our customers are going to get back on their stocking profile. And that's a big question mark. It could happen in the H1.
Today, we don't know enough. So we just know the inventory are low. And we cannot imagine that they will go even lower. Thank you. That's great. Maybe final question on semiconductor efficiency. It's now increased to 14% of revenue. Can you elaborate on the growth drivers going forward? Do you see any impact from the hype around artificial intelligence driving ASML and NVIDIA currently?
I think, like I mentioned, David, long term is just a growth agenda, right? And there may be, of course, different growth dynamics year over year. We are now building factories. We are investing capacity for 2027, 2028, and beyond. Our order book is at a very strong level on semiconductor efficiency. And we still get, of course, a lot of pressure for our customers to ensure ability and supply. That's what is, I think, the top priority right now.
But at the same time, we are looking also at new business opportunity with new innovation. And let's not forget that when we talk about bolt-on acquisition, there are still also potentially opportunities to increase our portfolio and continue to add mission-critical technology to serve our customers in the semiconductor industries.
Great. Great. Thank you very much.
Thank you, David. I would now like to give the word to Chase Mayfield from Van Lanschot Kempen, who is in the line. So Chase. Chase has left. So Luuk van Beek from De Groof Petercam, please, Luuk. Welcome this morning.
Yes. Yes, good morning. I have two questions. The first one is on your acquisition plans. You mentioned that you have a very strong balance sheet, which you obviously do, and that you want to use it for bolt-on acquisitions. But if I look at the diversification opportunities and the growth opportunities, especially. I think, would you also consider to do bigger acquisitions to really make a step forward there in terms of your offering in those areas?
Thank you. Thank you for the question. I'm not sure I got the beginning of your question about divestment. But I think I understood the question on big acquisition. As I mentioned, we are in strategy deployment mode. Our current strategy is to do bolt-on acquisition. I think in our Capital Markets Day, we even put some amount about the size we are ready. So today, to make huge acquisition is not part of our current strategy, right? So we will continue to do bolt-on acquisition mostly around our Advanced Mechatronics, like we have been doing, mostly around our Hydronic Flow Control business and also around the USA.
This is where we will be looking at, but not major and still bolt-on acquisition according to the, I think, frame we disclosed in the last Capital Markets Day. We remain very disciplined in our capital allocation, Luuk.
B ut with such a strong balance sheet that is, if it continues like this, it could become underleveraged. So that's, I was wondering what you want to do then if that happens.
Let's say what we said, we are ready again to make acquisitions. And as you know, last year, with the transition of leadership, clearly , there we took a break in acquisitions, which I think makes sense. And now with Stéphane being on board again, we are ready to do so. So you may expect acquisitions in 2024.
And I have a question on the industrial markets, if you can give a bit more color on the various parts. Because if you take, for example, sustainable transportation, then quite some things moving like on the one hand, automotive manufacturers becoming more hesitant on growing in electric vehicles. But on the other hand, I think Airbus is growing at the expense of Boeing, which could be favorable for you. So can you give a bit more color of all the developments that you see there, the main ones?
I think it's a great question. And you are right that automotive could be more challenging, right, as we see different dynamics. But we see actually super strong growth on aerospace, on marine, and some other industry segment because we have some technologies which are unique. And this is helping some of our customers.
We do not always supply directly the airplane manufacturer, right? Sometimes we are more the tier two. We supply tier one that are supplying Airbus or Boeing. Here, it's about growth agenda. We have also a strong order book. We are expanding our capacity to continue to deliver some unique components because we are helping our customers to reduce fuel, to reduce cost, to improve safety. On automotive, we are actually quite agnostic about the technology. Of course, we all hope that the automotive will continue the transformation on decarbonization. Either it's more EV or more combustion engine for us, that has not a significant impact regarding our growth trajectory, right? Of course, if the economy and if there are less cars being produced, that will have an impact on us.
But the switch is actually less critical for us in the way we do all our surface treatment or all our material and characteristics.
Okay. That's clear. Thank you.
Okay. Please, for all the conference call participants, could you please press star one for further questions, please? While we are waiting for possible more live questions, I also see already some questions coming in. I think now let me see. Yes. Martijn den Drijver, ABN AMRO. Good morning, Martijn.
Good morning, gentlemen. Good morning. From the snowy slopes of Tignes Val d'Isère. Good place. I have a question. And it continues to build on one that my colleague from Jefferies also asked. You previously mentioned when talking about semiconductor 2024, perhaps low to mid-single digit organic growth. But since then, we've had ASML with very strong order intake. And indeed, there's the AI hype. So, is that still the slightly cautious remark about growth? Has that now changed, basically? Are you perhaps now sensing that there could be an acceleration in the H1 based on that improvement in the front end? That would be question one.
I can only say we don't want to change what we said last time. We are still very cautious, right? We still see a growth agenda. But I think it's too soon to change what we shared with you last time regarding the outlook for 2024. I think that will be my short and simple answer. So not yet.
Got it. And then secondly, you mentioned in the press release that the savings from, excuse me, that the Distech gain will be used for operational excellence. Can you elaborate a little bit on what you mean by that? Is that an acceleration of the operational excellence program? And if so, what savings can or should we expect from that investment?
Let's say, like we always do, as you know, Martijn, we are investing our disposal gains towards operational excellence initiatives. And also, let's say, in 2023, we did between EUR 15 million and EUR 20 million of operational excellence initiatives with a payback of 2-3 years. So that will for sure help also in 2024 and onward to improve our profitability. Besides, of course, we always have one-offs, as we have always. So the total net effect and that is also important to understand our numbers. As you can see in the holding eliminations, you see that the total costs have increased of holding eliminations. That is really, let's say, an effect of higher holding costs, not of higher or lower disposal benefits because they are spot-on equal last year and this year.
Thanks, Arno, for getting to that element because I was indeed wondering how that works. Because we have a EUR 30 million gain on Distech, which means you have EUR 90 million of other income insurance payouts, subsidies, grants to get to the EUR 49 million of other income you reported for the year. You have maybe EUR 9 million or 10 or EUR 9 million-EUR 10 million of regular holding corporate costs. And you reported EUR 5 million negative. That leaves an unexplained delta of roughly EUR 45 million. Should I see that EUR 45 million as the investment in these cost savings or in this operational excellence program? Is that the way I should look at it?
The other operating income is EUR 49 million, as you say. That is including, of course, let's say, the disposal benefits and, of course, also the operational excellence initiatives that takes OpEx. That is then the what is it? Cost saving. Crossing the higher OpEx lines, which you cannot identify on the P&L. Therefore, we always explain, as we did also in previous years, the real incidental effect in our holding elimination line because, as we have always been doing, the operational results in our segments are operational and clean. We take all the exceptional benefits and costs in our holding elimination line. Let's say the other operating income is in line, I would say, a little bit lower than last year. It's EUR 5 million lower. But it's also depending on the extra cost that we make, how the impact will be for the profitability. So there's no difference with last year.
But the key one is that there's no one-off in the operational EBITDA per division. Okay. Clear.
And there's a one-off; there's a one-off effect, but it's on par with last year. So it's approximately EUR 5 million last year and this year.
But you mentioned that's on the holding line. None of that impacts the divisional EBITDA.
No, no, no, no.
Okay. Moving on. You mentioned quite a number of elements that have supported the value add and specifically in Building Tech the EBITDA margins. What you don't talk about is the procurement savings. Is there anything that you're willing to share of what that might contribute in 2024?
I think I can take this one. Thanks for asking. Of course, this is where I think we are more positive regarding material cost management because we see the price of material getting down, more and more availability from our suppliers. Our purchasing team are working on a very aggressive plan to sustain our margin. This is where and it can be sometimes single or even double digit material cost saving that we see in 2024. More opportunities definitely compared to 2023.
Okay. That's clear. One final question on basically on the same subject. Roadmaps probably moving in a favorable direction. How about energy? Is that also coming your way in 2024 relative to 2023?
A little bit more difficult to predict, of course. But as it looks right now, it is also going down a bit, the effect. But we don't know how that looks like in 2, 3 months, as you know. So,
no, no, no, no. But looking at spot. Okay. Those are my questions so far. Thank you very much, gentlemen.
Thanks.
Thank you.
T hank you, Martijn. I would now like to give the word to Maarten Verbeek from De IDEER. Good morning, Maarten.
Good morning all. It's Maarten Verbeek of De IDEER. Come forward from my end, please. As you stated, you made some good progress with your working capital, but you're still not within your targeted range. Do you believe you could be in that range at year-end, or do you believe it will take a bit longer before you will be in that range? So that will be in 2025.
Now, what I explained at the end of 2022 is that we, of course, made a steep increase in inventories to secure our delivery performance towards the customers with all these supply chain issues and that we were aiming to go back to the normal level of, let's say, before 2022, which is 2021, in about two years. Now, I think we made a big step forward in that direction. It's only a few days away from where we were at 2021. But of course, we will continue to further improve and optimize also our inventories to even a better level. So that is work in progress.
Okay. Thank you. In the H1, you were facing some underutilization, particularly in building. Do you still expect that to occur in this FY?
Let's say, for as long as the volumes remain on the level where it is today, you could expect that is the same. But we don't know exactly how that will look like. But as you can see in 2023, we managed the headwinds, but of course, underutilizing a bit, leading to a lower EBITDA performance as the year before. That's clear. So we will do our utmost to protect our margin also going forward. That's just how we are doing the business.
And that's also one of the key priorities going forward. And there are operational excellence strategic initiatives to focus more on higher utilization of our assets, doing leaner investments, continue to support the growth, but with better footprint optimization and better capacity utilization, especially on the building side. I think this is where we have challenges but also opportunities.
Lastly, could you share with us what you expect to spend on capital expenditure this year?
Let's say, as we also have guided, I think, already in the Capital Markets Day in 2021, it will be some higher years of CAPEX. Now, like we said last year, EUR 200 million-EUR 250 million, I think we were quite spot-on in that we expect at least the same also for 2024. So there's a lot of projects, also with a longer lead time than only one year. So we are continuing to invest also in 2024. So EUR 200 million-EUR 250 million, you should take into account.
Okay. Thank you very much.
Thank you, Maarten. I think now Ruben de Vos from Kepler Cheuvreux. Good morning, Ruben.
Yes. Good morning, everyone. Thanks for letting me on. I actually have a first question related to semiconductors. I believe you talked about investing for capacity for 2027, 2028. You already realized EUR 460 million in the semiconductor division. So if you're preparing already for 2027, 2028, could you give some degree of how much capacity you're actually planning for, rough order of magnitude? Are you looking for maybe the high 100 millions range? What should we be thinking of?
It's difficult, I think, to predict. The order book is high. We are investing. And I think we have a good view on the coming two, three years. But I will hate to give you numbers at this period of time because I think it's still more a range. We still see growth long term, I will say. If you look at long term, it's high single digit or low double digit. That's what we see long term on the semiconductor industry, right? But to give you a number, I think that will be a bit premature at this point of time. And as Stéphane said, we also have an acquisition focus in this area. So you may assume the increase of share in the total. That will continue, so.
Okay. Okay. And then thinking about obviously, we've seen very positive newsflow coming out from the semi-equipment space and also from AI, etc. If you look at your major buying customers, ASML, ASM, KLA, and so on, is there any other end markets that you're paying more attention to in terms of your systems? Thinking the vibration isolation systems, the high purity flow systems, are they more penetrated in some specific segments like logic or memory where you're more penetrated with your subsystems?
I think it's a great question. And that's also very high in our agenda for the next strategy period. So in the current strategy period, it's still around the same, I think, go-to-market or service to our customers. So doing a few bolt-on acquisitions to increase our portfolio to deliver our current customers in this highly sophisticated equipment, maybe also looking more at services. That's what we are looking at, helping our customers also on their circular request. And then for the next strategy period, that will be something we will need to decide. Do we want to expand and be more front-end or more downstream in the value chain of the semiconductor industry, or do we want to stay here more upstream? So good question, but I think very relevant for the next strategy period.
So count on us to be back when we will have made the decision because then it will be the time for a new Capital Markets Day sharing what we want to do beyond our current scope.
All right. Thank you. And then just a final question on, let's say, the margins. I think you have that target objective of 25% drop-through rate. I think it was 21%, 21%, 22% in 2023. But obviously, you've had a bit more of challenges in the building segment. I think you're also talking about a bit of a challenging year in 2024, but you also talked about potentially strong savings in terms of raw material procurement. Is it fair to say maybe in 2024, you'd still be trending below that, let's say, objective of 25%? But then once, obviously, you get higher utilization in building segment and you see renewed renovation activity, new build activity, that you would be trending ahead of that?
Now, let's say that is really depending from the fact if we can really make volume growth again in building because, as you have calculated probably yourself, we made 90% drop-through in 2023 in total, clearly with a very good drop-through performance of industrial business and, even a negative drop of building with a volume decline. That is logic. So et's say I expect because we saw already the improvement in the H1 of the year that is also clearly what you can see in the EBITDA performance. I expect that we can grow also drop-through again for building if we are able to make volume growth again. That is clearly, of course, what is not yet so clear at this moment.
Okay. The idea is still that maybe within industrial, that it's more straightforward to have that higher drop-through for the service business as opposed to the semiconductor, or is it rather the same level?
Let's say clearly, the service technology business has a higher EBITDA performance than the semiconductor business at this moment. But the semiconductor is still growing also, rapidly. So that has all impact on the EBITDA performance. But at the end, they both do a very good performance. But semiconductor is even on the higher side.
All right. Thank you very much.
Sorry, semiconductor. I said semiconductor, but I mean service technologies.
Thank you, Ruben. Now, I would like to give the word to Aurelio Calderón from Morgan Stanley. Good morning, Aurelio.
Hi. Good morning, gentlemen. Thanks for taking my questions. I've got two, please. The first one is around what we talked about, the building blocks for pricing this year, 2023. S orry, last year, 2023. Can we talk about what happens in 2024, how you see because you've talked about raw materials coming down. You've talked about energy prices probably coming down. So I'm just wondering if you are seeing more pressure from your customers to take prices down or you will do whatever it takes to at least protect prices. That'll be the first one, please.
I think thank you, Aurelio, for the great question. You are absolutely right. Of course, we see many of our peers or other companies going massively on price reduction to get more volumes. But that's not our strategy, right? There will be always someone cheaper than us. And we don't want to go to this trend.
So we believe in our innovation. We believe in our differentiation. And we believe in our unique offering, right? So now, of course, it will be more challenging to push price increase in 2024 than in 2023. But we still want to continue. And the price increase may be lower than in 2023. But we are determined. And I know our team are working very hard to manage because we still have sometimes some commodities on some part of our business where we still see price increase also in our own value chain. So we count also on this to pass to our customers. So back to your question, yes, we see the pressure, right? But yes, also, we will do all we can to continue to pass even modest price increase on our Building Technology segment.
And purchase saving initiatives. There's also now the supply chain, let's say, availability has normalized again. We put much more focus again on our purchase saving initiatives. And I think also there we make progress.
That's great. Thank you. And the second question is around market share. You talk about I think it's for the building segment. But you talk about market share gains. Arno Monincx, if you can elaborate a little bit more on how you're gaining market share. Is it because innovation? Is it because, as you said, availability? What are the drivers between market share gains? And if you can also touch on what you've seen in terms of market share developments in the other verticals would be helpful.
That's a very good question. And sometimes it's very painful. But sometimes it's also a great opportunity because you are absolutely right.
First of all, it's about availabilities, right? Now, I think with the supply chain improvement, if I look at West Europe, even at the beginning of the year, we are doing quite a great job because we have super good availabilities. Our factories are delivering. We have our distribution center full. And we can offer short lead time. And many of our customers and wholesalers, actually, they want our product based on the best-in-class quality, based on the best services and the long-term and reliability of our offerings. But of course, when we are not able to deliver, this is also becoming a challenge. And if I look at the Americas, this is where we have some opportunities to improve our service level for our customers and gain market share.
So I will say availability in 2024 could help us to manage some of the headwind even if there is a global market demand. But I know in the U.S., we could gain market share with better service.
That's great. Thank you very much.
If that's your last question, Aurelio, thank you so much. Then I think it's now time to go to some of the questions submitted via the webcast. And I'll start with the first one here. Perhaps that's a good one for Arno. It's a question about the CAPEX level after 2024. Would it be more normative? Would it go down?
Let's say we have guided, of course, in the Capital Markets Day of 2021 that we increase our CAPEX towards EUR 200 million-EUR 250 million. So that will take until the end of this period.
Nevertheless, of course, we expect in the short term that we are on the high side of that because of all the big projects that are running. Besides, perhaps later on, it will go down a bit. But we still see lots of growth potential opportunities to which we allocate our CAPEX. Let's say at the end, CAPEX do have a very good return. It's always accretive to our ROCE performance, which is also an important target for us to realize. W e see for as long as we allocate as we see opportunities to make returns on our CAPEX, we will continue to do so. I think the guidance has been quite clear until 2026.
I will add on top of what Arno said that what you will see also is a change in mix of our CAPEX, less in buildings because you are right. When the capacity will be there, we will be ready to grab the growth and more in R&D, more in innovation because we are quite good for the next four years based on the business development we did with our 20%. But there are still many opportunities to innovate solutions for our customers. We still have some room with also the digitalization agenda. And this is where, within our frames, as we will be spending less in buildings in the coming years, we can spend more on R&D for the long-term growth agenda that we have.
Thank you, Stéphane. There's another question about M&A. What would be your key priorities in M&A?
Thank you.
I think first of all, you know very well, right, I think better than me, that we have a very successful M&A playbook in Aalberts. We have been doing that for many years. And we have been great at doing bolt-on acquisition or strategic agenda. We will continue to do that focusing on our four key end markets, right? That's the strategic compass, right? And you can count on us to be very disciplined in this allocation. And I will just mention, like I've been sharing, I think, to some of our investors and shareholders over the last weeks, we have three key priorities in our M&A agenda, right? It's about, first of all, Hydronic Fow Controls because we see opportunities to continue to expand our portfolio. When you go in the boiler rooms, you see what we are doing with our expansion vessel, with our air-dirt separators.
Now, we have also heat treatment for heating solutions. But we could also do more to do full solution package for the commercial buildings. So that's one element. But Hydronic Flow Control is also in the U.S. where we are quite small. This is where also we believe we will be much faster by doing some great acquisition to also enter the residential side in the U.S. So number one, Hydronic Flow Control. The second one, Advanced Mechatronics to continue what we started also with our semiconductor efficiency agenda. As you have seen over the last two years, we did some great add in our portfolio. And we will continue to do that. But Advanced Mechatronics could be also a geographical expansion. I think I explained it that in this business, you need to be close to your customers.
So if our customers are also moving the assembly, the equipment in other parts of the world, we will be following it. And then we may do also some acquisition in other parts of the world outside Europe for the semiconductor efficiency business. The last priority in the US because for me, it's important that in the long term, we have also an even more balanced portfolio between Europe and USA. And we also have a good recipe. We have done, I think, a great job in Surface Technologies with all the acquisition we have been doing. But I still see many growth opportunities in terms of acquisition for the North America market. So I would say these three priorities for the coming years.
Thank you. There's another question about inventory level. Perhaps that's a good one for you, Arno. You have reduced. We have reduced the inventory position in 2023. Could we expect some further reduction in 2024?
Yes. As I already explained, we made a big increase in 2022. We said at that time that we will probably need more than one year to come back to the normal level again. Now, I think in 2023, we improved 11 days, which is a good, let's say, big step forward towards the direction of before the spike in 2022. We are not there yet. Still have a few days to improve. But you can count on us that we will constantly try to, to further optimize our inventory because at the end, it's capital employed. We have to be sure that we are most efficient in our also in our inventory allocation. So we will continue to improve that also in the years to go.
And this is also, as Arno mentioned, through our operational excellence agenda, we can also improve the way we manage our flows in our supply chain. And this, as a result, could optimize the days on hand that we have in our value chain on inventories. So maybe having even better availabilities for our customers, especially in the building, but maybe more streamlining our work in progress and our raw materials on the inbound from our supplier. So definitely, the answer is yes. We will improve.
Thank you. And this is perhaps a nice bridge to another question which came in, whether you could perhaps share some more details on operational excellence. Is this just footprint reduction, optimization, or what's your view on that?
Thank you. I think also what we share, right, in the it's definitely more than footprint, right? So don't get me wrong.
We will execute the plan and deliver on the objective we share in the last Capital Markets Day because we can have a more simple footprint and continue to reduce the number of sites. But like I said, it's not about the number of sites, right? It's about the efficiency you drive. It's about higher CAPEX utilization, higher, I think, also health and safety for our employees and better flows in our supply chain. So all of that through technologies, I think we can still do more and reduce our cost to produce, as an example, especially in the buildings because this is, I think, where we are the frontrunner and the repetitive. Then in semiconductors, it's to also continue even it's more a project business.
And then on the service, I think this is more a footprint because also here we need to ensure we have the right utilization for big furnaces, a huge oven that we have in some part of the world. So that's for me the what I call the end-to-end operational excellence.
Thank you. Quite clear. I think that we can conclude the Q&A session. And as we conclude today's webcast, I want 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 confirmed our strategy direction going forward. Thank you once again for joining us today.
Thank you.