Welcome, ladies and gentlemen, to our virtual Capital Markets Day. Unfortunately, we had to postpone our strategy in action part, but we hope to do this together with you next year. The agenda for today is that we will guide you through Aalberts, the strategy and objectives, the financial development, the key takeaways, and then hopefully you all have a lot of questions. First of all, Aalberts. Where do you find Aalberts? You find Aalberts where technology matters and real progress can be made, humanly, environmentally, and financially. The essence of Aalberts, what the brand stands for, is that we engineer mission-critical technologies. We go above and beyond the line of duty. Good is never good enough. Very important with all our people, greatness is made of shared knowledge. We are relentless in our pursuit of excellence. That’s what the Aalberts brand stands for.
Our way of value creation based on these three pillars, unique positions with sustainable impact, high entry barriers, pricing power, high added value, continuously looking for sustainable, profitable growth. Good is never good enough. What does that mean? Operational excellence, world-class operations, continuous EBIT margin improvement, strong cash conversion, disciplined capital allocation. Greatness is made of shared knowledge. Winning with the best teams. Technology exchange, fast learning, do it together with co-development and adaptation to the market. We are relentless in our pursuit of excellence. That's the way how we create value. When we look to our playing field, where are we active with our mission-critical technologies? What and how are we doing that? That's the Aalberts playbook. Good is never good enough. The Aalberts way, it's our culture, it's our people. Greatness is made of shared knowledge through our group.
We exchange tremendous amount of knowledge to improve fast, to create innovations. The playing field of Aalberts is four technologies, four end markets. The playbook has a list of activities where every manager is going after. Our end markets, sustainable transportation, eco-friendly buildings, enhancing industrial niches, but also increasing semicon efficiency. That's the Aalberts playing field. That's where we are in the world. We engineer mission-critical technologies enabling a clean, smart, and responsible future. We do that in the four end markets. You will find Aalberts where technology matters and real progress can be made in these four end markets. We base that on our mega trends, that they are shaping our future: urbanization, energy and resource scarcity, Internet of Things. We see more and more a shift towards co-development, connectivity, and integration. Saving energy is very important in this aspect.
The Aalberts playbook, it's actually a sort of roadmap for our business teams, where we continuously say, "Good is never good enough." Most important is that you try to win with the best teams. Look continuously to your teams. Operational excellence, operational leverage, very important. Work on it continuously. Create strong cash conversion. Be very disciplined in the allocation of your capital. Allocate the capital there where you create the highest returns. Continuously look after the portfolio. It is innovations which is driving our growth more and more. You even see today that we will increase our innovation expenditure to more than 5% of our revenue. Be aware that we started, it was below 2%. That's how you create relentless pursuit of excellence with compounding returns. It's a continuous way of improving the business, but also driven by entrepreneurship, where we allocate the capital in the right way.
It's never ending. It's continuously. Innovation is driving our growth. We announced today that our goal is to create an innovation rate of more than 20%. We are now roughly at 15%. A lot of you know that we started below 10%. The innovation rate is, for us, a very important KPI, and we spend more and more money on it. Innovation expenditure will be more than 5% of our revenue in the coming years. It's driving our growth, and we measure it very thoroughly together with the teams. That's our playbook. Most important is probably the Aalberts way, how we do things. With the people, winning with the people, where we share a lot of knowledge. On every field, we share knowledge. It's on innovations, it's on people, it's also on machinery, it's on suppliers, it's on best practices, it's on stories, it's on motivation.
That's the strength of Aalberts, the Aalberts brand. The values are so important. We live by it. Be an entrepreneur every day. Be creative. Create your dreams. Take ownership. Go for excellence. Share and learn what you know. Don't keep things behind. When somebody else can learn from something you have in your company or your business, share it. Of course, we act with integrity. We have zero tolerance there. The Aalberts way is winning with people, but also together, sharing the knowledge we have in a fast-moving world. Also, this sheet is so important. Again, the last years we saw how important it was because our pragmatic culture and our lean structure, where we leave the responsibility of doing business inside the business teams, keeps us ahead of the game.
No matter how frequently or significantly the game is disrupted, we adapt, and we will adapt more as the speed will also improve through our focus. Greatness is made of shared knowledge. The strategy and objectives for the coming years, we announced that this morning through our press release. The strategy, we will accelerate the unique positions which we have created with mission-critical technologies, high entry barriers, and pricing power. We have chosen the last period to focus further, to narrow our focus further because we see so many opportunities in these unique positions where we can create sustainable, profitable growth with high added value margins, EBIT margins, and innovation rates. These innovation rates are really improving our growth and strengthening our growth.
On the other side, we have to keep on driving operational excellence and portfolio optimization because without this optimization and converting it into free cash flow, we have no ability to further invest and also achieve world-class operations. Because there we still have so much to do in world-class, creating world-class operations. That's not done for the coming years. It's ongoing. What is also a very advantage of narrowing the focus, which we are gonna do, is that we can allocate the capital in a disciplined way and much more focus to the unique positions, which will strengthen these unique positions. In the end, you create a better position. With a better position, you create a more pricing power, high entry barriers, plus you create, by doing that, better margins.
Two aspects which we added to our strategy is that we want to focus much more on sustainable entrepreneurship with clear impact and commitment. We even put it in one of our KPIs because it's our responsibility, but also we see tremendous opportunity there. Because already 65% at the moment of our revenue is related to the Sustainable Development Goals. Our goal is to increase that to more than 70%. We are very well-positioned there. Very well. We have to ensure an open and pragmatic culture, lean structure, using the Aalberts strength, but also empowering all the people. That's so important to attract the people, that people can also be an entrepreneur, that they can develop themselves, keeping being relentless in the pursuit of excellence in all these things. These are our focus points from a strategy point for the coming years.
We've also defined new objectives, which my colleague will motivate more how we came to these objectives from a numbers point of view. But we made choices there. Organic revenue growth, EBIT margin, ROCE, we had already, but also innovation rate, sustainable development goal rate, and leverage ratio we kept the same. We have also the opportunity to keep on acquiring and strengthening our positions. This is the way going forward for the coming years. What is our action plan in the coming four years? It's on one slide, but it's a lot of work. First of all, we will continue the portfolio optimization because we are not there yet. We have to optimize further. We will also finalize, including that, our existing divestment program.
We still think we have to optimize further, so we will launch an additional divestment program, roughly EUR 250 million-EUR 300 million of revenue for the coming four years. On the other hand, we will also strengthen the unique positions with bolt-on acquisitions. It will be roughly EUR 250 million-EUR 500 million revenue because we still think we see a lot of opportunities of bolt-on acquisitions. It could even be a bigger acquisitions. You never know. The second thing is that we will increase our organic revenue growth mainly on the four technology clusters in the four end markets, driving the business plans of the business teams. We have great plans. We all discussed them all the last months. Allocate the capital accordingly, focus it more, measure the returns of these allocations, and also allocate the management accordingly.
Increase the innovation expenditure to more than 5% of revenue already mentioned. That means we need also more CapEx for that. It's not only for growing, but especially the capital expenditure will go in operational excellence, it will go in innovations, and also in growing the fast product lines. We have so many good plans. That's why we increased that to EUR 200 million to EUR 250 million per year for the coming four years. Of course, it will go up step by step. That's how our company works. But it also says something about the big potential we see in these four t echnology clusters and end markets. The third point, relentless pursuit of excellence.
We will never stop, and we also will further consolidate and reduce our locations from 135 end of 2021 to 108 end of 2026. This is including closures, consolidation, but also divestments. We launched an additional operational excellence program where we will also fund that, this consolidation, but also other projects. For example, automation of factories, where we will replace certain equipment by more, much more automated equipment, realizing world-class operations, highly automated, efficient, excellent service. We have a lot to do there still, because that will also be a game changer towards the future to be keeping competitive, being a cost price leader in certain areas, and of course, driving pricing excellence. You see more and more that pricing excellence is part of our culture, but we have to continue that.
It needs continuous attention of a lot of people. We have to put the light on that all the time to drive it. When you have the position in the market, you can also drive price, but do it always cleverly. Pricing excellence. The fourth point, drive sustainable entrepreneurship. Accelerate these unique positions and capitalize the market opportunities linked to sustainable entrepreneurship. That means sustainable innovations. It means that we also will grow the portfolio more towards sustainable entrepreneurship. That's because we see a lot of opportunities, and in the meantime, we realize our commitment to the planet and all the people who live on it, which is part of our responsibility. We will increase our Sustainable Development Goals to more than 70% of total revenue in 2026.
We commit to net- zero carbon in 2050 or earlier, and we hope, of course, earlier. But we're working on that. We have many good sustainability improvement plans which we are executing, and more and more we see in our business teams that this is becoming part of an entrepreneurial possibility, but also opportunities. Aalberts accelerates the unique positioning. That's our goal. That is our actions. Looking more in detail to some of the actions, as the next slide, we see, for example, we focus on four technologies. Hydronic flow control, advanced mechatronics, surface technologies, integrated piping systems, including plastic piping systems. Unique positions with high growth potential and sustainable impact. We can gain a lot here. Unfortunately, we were not able to explain you on-site all these nice factories we have, but also the people who are responsible for these businesses.
We will do that next year, hopefully. This is the outcome of the potential. It's not linked to 2026, to be very clear. It's the potential for the future. At the moment, we have an addressable market for hydronic flow control of EUR 2.5+ billion. We have roughly 22% market share. Our goal is to reach more than 30% organic revenue growth, but also bolt-ons. Advanced mechatronics, 6% market share of EUR 5 billion+. We want to bring it to 15%. A lot of opportunity. Also here, a combination of organic revenue growth and bolt-on acquisitions. Surface technologies, 12% market share we have of the EUR 6.5 billion+ market, our addressable market. We will improve that and as a goal to more than 20%. Piping systems, integrated piping systems, a EUR 12 billion market.
10% market share we have already. We want to bring it to 15%. Be aware, we have all plans behind this. We discussed that with the teams. It's a continuous progress we're gonna make in these four technology clusters. Unique positions, very good market share positions with high growth potential, sustainable impact, but also a combination of organic revenue growth and bolt-on acquisitions. The more we focus, the more we accelerate, because you align your capital and you align your management towards these goals. Embraced by a fantastic sustainable entrepreneurship and a great name, Aalberts. The third point, relentless pursuit of operational excellence. This is ongoing. We explained that. We launched in 2019. End of 2019, we said we have 156 locations. Our goal was to bring that down to 122, end of 2022.
We are now end of 2021 at 135 locations, but -8 because we acquired Premier Thermal . That means 127. In 2022 we should have done, and we will do another five to reach our goal. We launch another goal. Our goal is to reduce further to 108 locations, excluding acquisitions. Much more important maybe is besides closing and consolidating, is also that the locations we have, and we will be having also in the future, that we improve them and upgrade them to world-class. Because there is a tremendous effort to bring. Going into every detail, going for excellence, sharing and learning from your colleagues, but also not be satisfied with a certain process. Improve it continuously and upgrade it. World-class is a big word, so we have a lot to gain there still.
It's a combination. That's why we launched this additional operational excellence program driving sustainable entrepreneurship. As I said, at the moment, our impact we make is 65%. We want to increase it to more than 70%. How do you do that? You grow in the right direction organically. We do the right bolt-on acquisitions, and we divest business which is, let's say, lesser, has a lesser growth potential, has also lesser margins, or has also less sustainable impact. It's a combination. You see we are already on the right track here. We have a big impact in the world with what we do. We are an enabler to create, in many cases, a clean, smart, and responsible future in eco-friendly buildings, in semicon efficiency, in sustainable transportation, but also in specific industrial niches. That's how we focus our business.
We engineer mission-critical technologies, enabling a clean, smart, and responsible future. Driving sustainable entrepreneurship. Besides the impact you make, we also have a commitment to make as an organization, as people living on this planet. Our goal is to create a net- zero carbon by 2050 or earlier. We are aiming for earlier, but we have a roadmap. Our roadmap, we started there, let's say three, four, five years ago with gathering data. We do it in the Aalberts way. That means we gather the data, we convince our teams, we talk to our teams, and then we set targets. We did that. These targets we made towards 2026. Our goal is to reduce the energy use in our own companies, in our primary processes with 30%.
The progress we made in our beginning years that we just started then is that we make now 8% versus, let's say, the norm of 2018. Our goal for Scope 1 and Scope 2 will be to reduce the energy use with 30% by doing energy efficiency projects and using renewable energy. Scope 3, that's with our suppliers, raw materials, waste, travel, transport, end of life cycle, and also life cycle circular design assessments. We are busy now with how to measure this data. We have already some ideas about our goals, but we will set targets soon also for Scope 3. Important to mention is that every business team in Aalberts has made already a sustainable improvement plan driving these Scope 1 and 2, and the next step is Scope 3. We see it also as an opportunity.
When we are quicker with good results in Scope 1, 2, and 3, we can also enable our customer to do better their job, but also to help them to become a more sustainable company and in the end, to have a much more sustainable world where we live in. This is our commitment we give today to you all. Financial development is my colleague, Arno Monincx.
From my side, welcome everybody in this virtual webcast, and I would like to take you through the financial development of our strategic plan. I would like to start with the financial assumptions that we made in the action plan that Wim just explained. I will also have the same following as Wim. We start with the continuous portfolio optimization, which remains very important and also a continuous process to improve our portfolio and therefore also with that also our margin. We are finalizing the existing divestment program, which is running and which we are active with, which is on track.
Because the plan was that we would have divested EUR 300 million - EUR 350 million from the start end of 2019 until the end of 2022. That is ongoing. The second point is that we made an additional divestment program of about EUR 250 million-EUR 300 million that we will also divest in the coming years. We will also start up preparations for that. We continue to strengthen our positions through bolt-on acquisitions. As you can see from the numbers, EUR 250 millon-EUR 500 million of revenues, we aim for more revenue to acquire and to divest. We see, as Wim said, a lot of opportunity there. We see a lot of nice bolt-on acquisition opportunities.
We will continue to work on executing the best of these for our company. The second point of our action plan was to increase organic revenue growth. The increase, of course, is driven for a big part also by the increase of the innovation expenditure of over 5% of our revenues. It is crucial to keep your pricing position, to keep your market position, to improve your market position. For that, it's crucial to have enough innovative product lines, because these innovative product lines will, for sure, also leverage the existing portfolio. We think it's very important that we put even more focus on that and that we continue with the execution for all the good plans and the innovation roadmaps that all the business teams have made and prepared and are now executing.
That is also, yeah, the reason that we really increase the CapEx for the next years to about EUR 200 million-EUR 250 million per year. We are driving our business plans from the teams and the innovation roadmaps that are part of these business plans for the coming years. Third point of the action plan is the relentless pursuit of operational excellence. Also an ongoing process. Of course, we have the additional operational excellence program that we announced this morning. Where we have made an one-off exceptional cost of approximately EUR 50 million, which we have funded by the exceptional disposal benefit that we also have made in this year.
That will give an additional annual benefit of approximately EUR 25 million, which will be partly in 2021 already visible, but partly for a small part, and the main will come into our numbers in the coming three years. Ongoing process, invest the money to make the company structural better for the next years, so that you can continue with the operational excellence as we have always done that over the past years also. An important, let's say, line, the operational excellence leverage. That will be, in our aim, our goal, in our plans, a drop-through of 25%, which would mean that on organic revenue growth of EUR 100 million, you should be able to make about 25% more EBIT as a goal. That is our goal. That's also how we challenge our teams to realize that.
It's a combination of these two elements. It's a combination of the one-off plan and also the continuous operational excellence that we are executing. The fourth point, drive sustainable entrepreneurship. As Wim said, the SDG impact to more than 60% as a goal for our revenue to more than 60% of our total revenue in 2026. It's very important because we believe it will be even more important in the future. This is really an important growth driver also for our business plan because we see so many opportunities in areas where we have also our mega trends bringing some tailwind to our end markets. This is a crucial element of our strategy plan for the next years. The objectives.
Of course, these assumptions, these financial assumptions are forming the base of the calculation of the plans and also to come to our objectives for the next period. As you know, when we announce these objectives, and in this case it's for the period 2022-2026, we aim for realization of course in 2026, but if we can do it quicker, we will do that. That is how we work with these objectives. The first one, organic revenue growth. You see already a percentage annually. That's the first difference with the previous goal that we had in the previous plan, where we were talking about an average growth over the period of more than 3%.
Now we have set as a goal, 4%-6% annually as an organic revenue growth objective. Narrow the focus on four technologies, four end markets. That is, of course, one of the big drivers. The more you focus, the more you allocate the capital to the best, businesses, to the best technology clusters, to the best teams. It's driving our business plans forward. Allocate capital and management accordingly. That is also the reason that we increase our CapEx to EUR 200 million-EUR 250 million per year to drive these plans and to make it possible. The innovation roadmaps that we have per business team are increasing also our innovation expenditure to more than 5% of our revenues.
As we have said before, that's a big and important driver for the increased goal of this organic revenue growth to 4%-6%. EBITDA margin. The goal of 16%-18%, that's an improvement versus the more than 40% that we had, which was the goal for next year. That is, of course, as a result, when you can make your organic revenue growth on a higher level, when you can bring it on a higher level, you will also, if you do the right things, generate the operational leverage on that growth. Driving continuous this operational excellence going forward, building the best production factories, building the best surface factories with the best equipment. Cost price leadership.
Let's say the one-off program that we also announced, of course, will also help in the next years because that will accelerate the improvement plans. Now, the 25% drop-through is the total improvement as a goal that we see for both operational excellence and the program, so leverage excellence together. We continue to optimize our portfolio where we still divest the existing program of companies that we have identified end of 2019. We also will announce this, yeah, new program. Of course, we will come also with bolt-on acquisitions that will support our strategy and accelerate our strategy and market positions. Now, that brings us also to the ROCE goal between 18% and 20%. That is, of course, higher than the more than 80% that we had in the previous plan.
Don't forget that this is including the IFRS 16 impact as an important remark. When we made the previous objective in the previous plan, we still were not reporting in IFRS 16. That difference is already more than 1%. This 80% is actually not really comparable to the previous 18%. That you should take in mind. Sustainable profitable growth is driven by optimum capital allocation, and we constantly are challenging our teams to allocate the capital behind the best plans. Selective bolt-on acquisitions, of course, value creation, finalize existing divestment program is on track, and an additional divestment program that will also bring in, of course, cash which we reallocate to the best possible bolt-on acquisitions to further optimize.
Last but not least, we continue with the inventory- reduction program, and that we started also in the end of 2019, where we really focus on the structural improvement of our inventories, of our DIO as we follow that internally, of course, where we really make plans to improve that so that we have relatively less inventories calculating days necessary to make our revenues possible. Last but not least, the higher CapEx plans are also, let's say, calculated in this ROCE objective. The innovation rate, a new objective, more than 20%. The revenue share of products introduced over the last 48 months, that's our definition. As we are following that, we are measuring that, and we are challenging the teams on that because we know how important it is.
It is crucial to have a strong market position to be able to execute your price increases to the customers. It's crucial. You need to be ahead of the game with innovative product lines, you have to be able to keep your position and to also charge price increases from suppliers, from costs, from employees also to the market. For that, you need really a strong innovative portfolio. That's driven, of course, by the innovation expenditure of more than 5% of our revenues. We really allocate our CapEx program to innovative and fast-growing product lines. It's a very important KPI also to support the organic revenue growth above SDG rate, more than 70% of revenues.
It's a very important KPI, not only for the outside world, but also for us, as Albert and Wim said. We see sustainable entrepreneurship as an integrated part of our strategy. We have already, let's say, presented that in the previous strategy presentation, where we really based also, let's say, our market position and market approach from the opportunities that we saw in the market, especially because of these mega trends with resource scarcity, climate change, eco-friendly buildings, enabling like semicon efficiency and big enabler for innovative products for also energy saving. Let's say this is crucial for our strategy, and that is also why we put this as an objective in our one of the six key objectives KPIs of Aalberts. It's an important directive, of course, also for CapEx plans, but also for innovations, also for acquisitions.
For sure, this is an important direction also in these choices. It is important for us that we put it as one of the objectives to also make sure that we also steer the company, the strategic direction of the company in these product lines. Last but not least, the leverage ratio below 2.5. Most of you know that we are below that level already. For us, it's important to have the financial power in combination with a strong balance sheet to make our own choices. The strong balance sheet is our asset, also towards our strategic customers, partners. They want to work with us. What also Wim explained, more and more there's co-development, big projects ongoing, which needs also big, bigger CapEx numbers.
Now, for that, it's always good that you have a strong balance sheet because you can really decide to go after opportunities. It's also clear and obvious that whenever there's an opportunity passing by, that we can make our own choice if it's the right one or not. We keep the financial power to invest and go after opportunities, and we are really able to do strategic acquisitions. For that reason, yeah, we don't lower the leverage ratio, we keep it at 2.5. Of course, it's lower at this moment. Disciplined capital allocation. Let's say, cash dividend policy, we didn't change. It remains the 30% of the net profit before amortization. That's actually, we do what we say, and our stakeholders also know what to expect. We believe that's important.
The second point, the organic revenue growth, yeah, that will also consume, of course, cash in the next years. Capital expenditure with a lot of growth plans, EUR 200 million-EUR 250 million per year for innovative, fast-growing product lines and driving our business plans. As a third step, yeah, we still have all these sweet spots where we see bolt-on opportunities, acquisitions in the size between EUR 20 million and EUR 100 million of revenue per year. We believe we will deploy between EUR 50 million and EUR 250 million per year on these nice sweet spot acquisitions. We are working always on a good pipeline. We remain very disciplined, not to forget to say that, because everything should be good and fit before we really decide to go for it.
That is what we did, and that is how we also earned our track record over the last decades. Then last but not least, acquisitions, strategic footprint, the bigger one, for instance, more than EUR 100 million annual revenue. For that, we also could employ or deploy, when there's a possibility passing by maybe over EUR 250 million. It's depending on the opportunity, but we want to be in a situation that we can do such an opportunity when it's passing by and that we have the financial power also to do that, and not to forget the management. Strengthening our unique positions with mission-critical technologies. Our track record over 45 years of sustainable, profitable growth. As you see, this is the track record until 2020.
It's, as we know, it was not the best year, it was lower, but, nevertheless also, I think, solid given the situation. That is still the reference here in this slide. Even then, you see by continuing the long-term approach that you also create value even with 2020 as a reference year. We are looking forward, of course, to this slide after the closing of 2021. Shareholder value creation. Now when you continue to focus on the long-term, yeah, you create at the end, sustainable, profitable growth. That's the whole idea of Aalberts, to create value for the long-term. Always doing the right actions for the long-term. Never go for the quickie, the quick ones, always go for the long-term.
If you do that, then you create at the end more earnings per share. Because of that, you can pay more dividend per share. At the end, as we just explained, with all the plans and all the organic revenue growth ideas and all the EBITA improvement plans, you also create more return on incremental capital employed, which also here is still calculated over the last 10 years with the reference year 2020. We will update this slide, of course, also after the full year presentation. Nevertheless, it was 9.7%, even with the low 2020 reference year. Last but not least, the strong long-term shareholder base that we have of over 50% for more than 3% holdings of, let's say strategic shareholders for the long-term that have trust in the company.
We are very happy with such a shareholder base. Segment reporting. Last but not least. Let's say, as you know, we have been reporting in four segments, and now we will change that because we will adapt it to the more focused company that we are becoming now with four technology clusters, of which two in the Building Technology segment are reported or will be reported, and two in the Industrial Technology segment. We believe that this makes a better insight also of the performance related to, for instance, Building and Industrial. But also, while we go back from four to two, we also want to give more information. We will also disclose with this change in segment reporting, for instance, organic growth per segment, which we know has been a wish from some of you already for some time.
What is more important is that you can also, let's say, because if the building technology is of course an add-on of the climate technology and the installation technology segment of, let's say, of the past, and the industrial technology is the combination of industrial and material technology from the past. If you want to recalculate these segments, to their history, you can also easily make that calculation. Most important, as you can also see here, again, greatness is made of shared knowledge. It's one company with one culture, with one brand. Of course, with more technology clusters, that they all have their own business plan and their own, let's say, dream for the future. This brings Aalberts really together. We exchange knowledge, we exchange technology.
We share and learn from each other how to deal with digital solutions, digital marketing. It's really a big asset, the combination of these businesses in one company and two reporting segments. Greatness is made of shared knowledge.
Yes, the key takeaways for this presentation and also the press release, which we released, this morning at 7:30 A.M. I think, starting with one, we are not ready yet and also not, I think, the coming year or years in optimizing our portfolio. We will continue to doing that. Of course, we're making progress. With the first divestment program, which will end in 2022, where we are on track, we will launch the second divestment program. As my colleague explained, we also do bolt-on acquisitions, at least in the same amount of revenue and hopefully more. The focus brings us to four technology clusters, and we will accelerate these unique positions, by allocating the capital more towards these four and always also the management attention to that, creating the best business teams, the best management teams.
Because we have the highest growth potential, the margin opportunities, but also the sustainable impact we have there. That's why we choose to go in that direction. We will accelerate that, and that explains also the higher target for organic revenue growth from 4%-6% annually. By increasing that organic revenue growth, innovation is driving our growth. The growth we see now also during this year, where we also announced in our trading update that organic revenue growth was 71.1% compared to last year, a big part of that is already our innovations. That will continue, because innovation takes a lot of time. Sometimes it can take four or five years. We launched innovation roadmaps, just to be clear, roughly five years ago.
five, six years ago, we started with the first ones, long-term. The clusters, technology clusters are coming much more together, and that means that you get also more power. That means you also have more allocation of money, but also management attention and innovation people, R&D people to drive that. That will only accelerate because it's a machine. It's a locomotive which is continuing. It's not stopping. It's becoming part of your culture. That will increase our organic revenue growth in combination with the best market position. Now, we explained to you what is the potential going forward for the coming years, even after 2026. You saw that nice sheet with the four clusters and the goals we had for our market shares there.
What we hope to explain you in person, in our factory, on location, because there we have to do that with our management. We explain you in depth, hopefully next year. We wanted to do that this year of today, but due to the situation, we were, let's say, forced and also from a safety point of view that we do it here in this environment. But it's good to show because we are a manufacturing company to show you that. We will continue with the relentless pursuit of operational excellence. It's really very important, the mentality of good is never good enough. Go for excellence in our values because you're never there. You can always improve. It needs a certain mentality of the people. It needs mentality of the business management teams, that you continuously challenge yourself and also you challenge your, yeah, if that.
You challenge the outcome, you challenge also the results, you put targets. That's part of our culture. It's unbelievably important. The point we added today, and we give it a lot of attention, is where we really believe in, is driving sustainable entrepreneurship. We even give it a goal. We have a commitment of going to net- zero carbon in 2050 or earlier. We want to drive our sustainable development goals to more than 70% of our total revenue. We are now at 65%. We have the opportunity to do that by portfolio optimization, by organic revenue growth in the right areas, but also by divesting, but also by doing bolt-on acquisitions. Driving sustainable entrepreneurship is part of our strategy. It's integrated in our strategy. Sustainable innovations are part of that.
We also look to the investments we do. We think that it can help us also for our customer because we are a big enabler. Do not forget, we are one of the biggest enablers in our company towards our customers, our OEMs, to help them also to become sustainable. We have many big OEMs in the world in semiconductor efficiency, but also in sustainable transportation, where we can be a front- runner of helping them, let's say, to make also their supply chain green. We want to be ahead of that game because we believe that we are done then in a front seat of getting also the business, because we are already there. We have the scale to do that. When you look to all the four technology clusters, we have the scale to do that. It's a tremendous opportunity from a business point of view.
In the meantime, we take our responsibility for the commitment and also driving our embracement, you could say, of the SDGs, which we support a lot. Last but not least, we updated our Aalberts objectives. I think my colleague explains them in detail. It's our objectives for the coming four years. But as we always said, it's not something we have to reach at the end of the road, 2026. We always say we will try to reach them as soon as possible, but in the end at 2026, we have to reach them. But hopefully we can even do it quicker. But there is always a world which gives surprises, markets are changing, and we will adapt, and we have that pragmatic culture to do that.
The bottom line is that Aalberts will narrow the focus. We will accelerate our organic revenue growth. We will keep on doing bolt-on acquisitions, and we will not stop getting our operations more excellent because there we still have a lot to do. We are driving sustainable entrepreneurship as an integrated part of our strategy, and we take responsibility and we set ourselves targets. We gave guidance. This is our guidance for the coming years. We don't give guidance for every quarter because the company is not built like that. We give guidance on the coming years. Aalberts accelerates the unique positioning.
We hope, me and my colleague, that there are a lot of questions which we can answer after this presentation.
Thank you very much. Our question and answer session starts now. My name is Jess, and I'll be your coordinator for today. For people attending the conference call, questions can be submitted by pressing star one. If at any point you require assistance, please press star zero on your telephone keypad, and you will be connected to an operator. For people watching the webcast, questions can be submitted via the Ask a Question button. Our first question of this morning comes from the line of Martijn den Drijver from ABN AMRO ODDO BHF. Please go ahead.
Yes, good morning still, gentlemen. I have four questions, please, and if I could do them one by one, that would be great. Can you guys hear me, by the way?
Yes, fine.
Yeah, we hear you.
Okay.
Yeah.
Clear. Just on the EBITA margin targets. You've said that the drop-through rate still applies of 25%. But then in that case, the 16%, the lower end of that EBITA margin target seems a bit cautious. If I take the 2021 sales level, which is roughly EUR 3 billion, and add five years of 4% organic growth and the EUR 25 million in savings, the drop-through rate has to go down to 15% in order to get to that EBITA margin target of 16%. If you were to apply the normal 25% EBITA margin, excuse me, the normal drop-through rate, that 16% seems overly cautious. So what have you built into that target in terms of headroom? That would be question one.
Now, first of all, it's a benchmark or let's say in a boundary that we give between 16% and 18%. What I also explained, I think, quite clear, is that the 25% is a goal. Of course, we aim for that, but we are also no computers, so there's always something that can happen also on the lower side, which can delay a little bit. Therefore, these are objectives for the next, let's say, five years until 2026. We believe that we should be able to improve the EBITA within this benchmark.
Maybe, yeah, if everything is positive and everything is in the same way as we expected, and we can find the right acquisition targets in time, and we can also divest the foreseen divestment in time, and we can also introduce the right products in time, yeah, maybe then it's a little bit cautious. Therefore, we give also a benchmark.
Because that drop-through rate that was already mentioned at the 2019 Capital Markets Day. Why would it be different this time, since you're actually more leaner and meaner after these strategic restructuring?
Maybe to add, Martijn, is that, okay, it's a range of 16%-18%. We're looking five years ahead. Now, you know, in this five-year period, we have to execute a lot of things. Some things go quicker, some things go slower. We think, let's first reach this boundary between 16% and 18%. That's also why we give this guidance. As we already said in the presentation, we will try to achieve it as soon as possible. Sometimes things go quicker, otherwise things take longer. Yeah, it could be that we are a little bit cautious. I think that's also wise to do.
The other thing I would like to add, the drop-through of 25%, that's a target we set ourselves. Sometimes it can be a little bit lower, sometimes it can be a little bit higher. Depends also on the timing of things, because you need also to do investments when you have new machinery. For example, new machinery now takes much longer to order.
Yeah.
Yeah. It was maybe eight or nine months, now it's 14 months or 12 months. You are depending on a lot of variables, and that's why I think we put it like that. The potential is there. I think this is the main message.
Besides machinery, we also sometimes need to build more space to facilitate the growth. That's also in these plans, of course.
Got it. Moving on to the second question, it's a bit tricky one, but can you explain your reasoning for continuing to invest in service and heat treatment, even though you are aware that it has a bit of a dilutive effect on the overall valuation also of Aalberts due to the low multiple applied to this business activity? Can you elaborate on why you opt for this activity strategically?
The answer is very simple, because we see a high growth potential, and we believe that we really have there a great market position. It's unfortunate that we could not explain that today also on location, also by our CEO, Oliver Jäger.
You must imagine we have there a fantastic position. We still think that we can improve operationally our margin there. We see opportunities for bolt-on acquisitions, which are in the range of prices where we think we can really add value, and we only will do it when we can add value and create business. We also think we can really make it much more sustainable. Also there. But it's a great business. We have a great position there. We have a lot to achieve and gain in North America, where the market is very fragmented. We believe in this technology cluster to drive it to especially a higher profitability and therefore higher returns.
The reason that also we got criticized also last years is also because of the returns we made, and I think that was a topic we know already ourselves, 'cause it was mainly created by an acquisition we did in 2014. Yeah, as we already have shown in the mid-year numbers, our margins are really improving, and we will improve them much further. We think we have there. We can create value and yeah, and that's part of our portfolio at the moment.
A two-part question on M&A. I think you've already partially answered one of that. Where do you intend to invest in terms of the clusters, the up to EUR 500 million in revenues that you may acquire? Can you add a little bit of color in terms of where your focus is in terms of clusters? The same type of question then for your divestments. You obviously have now four technologies. One is missing. Can you add a little bit more color on where you intend to divest and where you intend to invest?
Yeah. No, I think you mean especially about bolt-on acquisitions, where you want to add. 'Cause CapEx is actually in all four technology clusters. What you see from a capital expenditure is that we mainly will invest more in advanced mechatronics and in integrated piping systems. That has also to do with the fast growth we see in advanced mechatronics. For example, we have to invest in more floor space, and that means also we have to build. We're aiming for additional factories in the Netherlands. The second thing is integrated piping systems, where we see a lot of growth in the fast-growing product lines, press connections, but also groove, also valves. So yeah, there we also need to add mainly machinery to grow there.
That's from a capital expenditure point of view. I think in surface technologies, yeah, we keep investing what we did, not so much more. We mainly are gonna optimize our locations from a capital expenditure. Hydronic flow control, yeah, I think there we will see also additional capital expenditure, mainly driven by the innovations. Here and there also capacity expansion, but mainly innovations. Still there are also operational actions to do. Now, from a bolt-on acquisition point of view, I hope we can do them, actually in all technology clusters. But also especially, we see in advanced mechatronics and also in hydronic flow control, we see good opportunities. In hydronic flow control, in relation to digital services is very interesting. We have a nice target list there.
Advanced mechatronics, when we can add business lines which add to the portfolio which we have now and we can leverage that to our OEM customers, yeah, that could be a very interesting one to even grow faster than we do now already organically. Surface technologies we do, but there we are critical on the value creation, so we don't want to pay too much. We want to add value by consolidating the market, especially in North America. Optimize the footprint from time to time, as we did also last year. Last year, we reduced a lot of locations there, and you see that profitability is really going up.
That's something also we learned, actually, that the moment you have a higher footprint, you can, from time to time, you should also optimize your footprint faster. Now, when I look to piping systems, integrated piping systems, we have a lot of product lines ourselves, so we don't need to do so much bolt-on acquisition. Especially on the field of controls, but also the, let's say, yes, maybe, for example, fixing is an example where we could add through a bolt-on. We have so much things there from a business plan point of view to do organically that I don't see so much acquisitions there, but you never know. It's in all four technology clusters.
I was triggered by your remark, didn't get you. With IPS, you mentioned plastic.
Yeah.
Is that an area where you want to invest as well inorganically?
Um-
Acquiring?
Because the name is integrated piping systems, but we have also some specialists in plastic piping systems. I mentioned them on purpose, and now I do it again to motivate everyone, which is part of piping systems within Aalberts, because integrated piping systems, but also plastic piping systems, but also the valves are very important for us all. It has nothing to do that we would like to. When we see an opportunity, of course, that it can be a bolt-on, and we also have some ideas there, but it's not specifically mentioned due to that. Okay. Then my final question.
You didn't mention anything about how working capital and inventory is going to develop in this strategic period, whereas in the previous update you were very specific on how you're going to manage that down. Can you perhaps elaborate on how we should think about working capital inventory in this strategic period?
Yeah, let's say what I said, we are still working on the improvement of our inventory. The inventory- reduction program, that is something we have been starting and which is ongoing with which let's say with all the business teams that need to improve. We continue to do so. We have also for these plans that is, that is, let's say, it proves to be very successful. You can start pushing things downwards, but that doesn't work. You have to make an objective together with your team, and you just make long-term plans to improve structurally, yeah, the inventories for instance. That is what we do per team now.
That is also what will be of course at the end, which will also sort of affect the net working capital development for the next years.
In the last CMD you actually specifically mentioned a target of 150 in DIO. Is there something that you would like to add to that for this particular period? Should that DIO in days therefore remain at the same level as it will be somewhere at the end of 2022? Do you see further improvements possible?
No. Let's say that of course there comes an end to improvement because you also see that when for instance fast-growing lines, innovative product lines are starting and also starting to grow fast, you need to build up certain product groups in your inventories relatively higher than what you're normally used to when everything is flowing in the supply chain and towards the customers. It goes with hiccups, but therefore we always focus on the strategic improvements, which means avoid making slow movers. Make an action plan for slow movers, work on it. You see in many cases, and that's also because people are always busy with the day-to-day practice.
If you really make a focused plan on these kind of structural improvements, you can really bring it down. That is what we are doing. We are. On the same side, in this year we have an inflation in the inventory. There's, of course, a price increase effect. On the same side, we have supply chain issues at this moment, which can be dealt with so far, but we also have here and there a little bit more safety stocks. That's just-
Mm-hmm.
Let's say, but this, I don't see that as a structural thing. That is just to adapt to the actual situation. For the long -term, yeah, we focus mainly on these, let's say, slower moving parts of the inventories.
Mm-hmm.
Just to improve the quality.
Okay. I have some more questions, but I'll leave it to my colleagues. Thank you very much so far.
All right. Thank you.
Next question comes from the line of Luuk van Beek from Degroof Petercam. Please go ahead.
Yes, good morning. First of all, a question about the role of M&A and divestments in your margin targets. How important are they? Is it a real difference in margin level of the divestments and of the companies that you target through M&A? That's my first question.
Let's say we still aim to improve the margin by the optimization of portfolio. During the time, when the margin of the whole group is improving, of course, this difference becomes maybe a little bit smaller. Let's say that effect was maybe a little bit higher a few years ago, but I still see, we still see very nice opportunities, which also are still accretive to the margin so.
It can also be, it's not only the margin. It can also be that, the divestments gives you lesser growth potential.
Yeah.
Because we even when you have a business which has a good margin, but you see no growth potential, it can be on a divestment list.
Yeah.
Like, I think it's a combination of the KPIs. For us, the most important is the market position and the growth potential in the long-term you can generate with higher margins.
Yeah.
Pricing power and high entry barriers. Therefore you need to have a certain position and scale. I think what you see today is that we have chosen for also businesses which we can scale and where we can really make a difference and also have a good market share. That's also why Surface Technologies is very interesting, because we can generate a lot of value towards the future. That all affects the EBIT margin. It's growth, 'cause growth means leverage. It's optimization of portfolio, which means margin. Also, the sustainable entrepreneurship is an argument to also because that is one of our key KPIs now.
Yeah.
It's a lot of varieties you have there.
Yes. I have a question about the optimization of your footprint and the reduction in the number of locations. You clearly showed that the reduction will take place at the manufacturing locations, and that you keep the service locations stable. Does that mean that there's no room for optimization there, or do you have plans to optimize the current locations? Can you talk a bit more about that?
No, I think when you see that slide and you see that the last years we did a big reduction in the, let's say, surface locations. Also, a big part of the strategic restructuring we launched in April 2020 was aimed on that area. We have still a lot to do, but we did a lot there. You see now that we focus a little bit more on the manufacturing sides. That has also to do, I must say, with the timing of the different teams. You see, for example, that in integrated piping system, we come now more and more together from a distribution point of view, from a manufacturing point of view.
That is a little bit delay effect from the, let's say, the integration we did the last years. It's. We still will continue in the service location. I think it's maybe not the number we did, but we still will reduce with I think six locations or even more. Of course, when we do acquisitions, and that's part of that value creation, yeah, we will optimize the footprint again. It can be that you close then again locations, or you optimize because you make the optimal footprint with your existing locations and your new locations. No. I can tell you that is very profitable. In the end, what you try to do is generate more revenue per location, because that gives you the leverage.
When you ultimately then these locations, you make them world-class. Yeah, then you get the real effect also in your margin with a long-term perspective of high growth potential, because you have the right portfolio, and you are in the right market positions. Now, that's, let's say, the game we are doing all the time. It's more timing, I think, Luuk.
Okay. My final question is on the innovation, which is 5% of revenues. Is that a mix of P&L effect and capitalized R&D? Or can you talk a bit about how that's stayed up?
Is it me? Yeah, go ahead. Yeah, it's a combination, yes.
Is it primarily one or the other, or is it even if it?
No, it's primarily P&L. Just so, let's say, out of pocket expenses. Yeah. Yeah, it's mainly P&L.
Okay.
It's consisting of R&D people which we increased a lot last years, but we will do further. It's engineering. It's but it's also approvals you have to gain for new products. It's laboratories we expand. It's costs you make to that's why we called it innovation expenditure, so it's mainly a cost. It's everything you need actually to drive innovation. So that can be product development, R&D, but also engineering in the form of people, but also in the form of costs you have. As you know, we take them almost completely in our P&L. As we always did in the past. It's very minor that we allocate or that we depreciate it.
Okay. That's clear. Thank you.
The next question comes from the line of Peter Olofsen from Kepler Cheuvreux. Please go ahead.
Yes, sir. Good morning, Wim and Arno. A couple of questions from my side. First, could you clarify what's happening with fluid control? Is that being de-emphasized? Will it still be part of the industrial technology, but will it then be included in advanced mechatronics? What's happening there?
What's happening there is that we have chosen to focus on four technology clusters, and that means we have not chosen to focus on fluid control. What we will do there is that we will align. It doesn't mean that we will stop with all activity, but it does mean that we will focus more on the other four. That parts, let's say, put it like that, parts of fluid control will also be divested. I want to say on purpose here, because probably also some internal people are watching, that the people who are in the divestment program, it is also which we informed.
It could also be that a small part we still keep, but because we see their alignment with another with one of the four technology clusters. In fluid control, that is an example that you can even have, in some cases, some higher margins, not always, but that you see lesser growth potential or lesser market position opportunity towards the future.
Yeah.
Okay. It's not only about that. Because you can even have a very high margin business, but when it doesn't grow or it reduces over two years, then you can better divest it because you do not have the position. Now, the choice we made with the four technology clusters where we will focus on is that we will step by step also divest parts of fluid control and do not see it anymore as a fifth technology cluster. That's the decision we made.
Yeah.
We also informed the management about it. That will take years, so it's not that we do that overnight. It's a focus point for us for the coming four years.
Yeah.
Besides that, we think we can also make there in the four technology clusters the highest sustainable entrepreneurship impact. That also played a role.
Yeah.
also the margin and the growth and the ROCE.
Okay. Then maybe on the 4%-6% organic growth annually, I suppose that's a kind of average. It might not be that each year it's in that range. Given that you are gradually increasing your R&D spending as a percentage of sales, so it has already been trending up in recent years, it will trend up further. How do you see that organic growth over this 2022-2026 timeframe? Do you think the momentum will gradually build as you increase your R&D spending, or how are you looking at the organic growth profile?
Let's say the R&D spending is one of the big drivers, of course, for innovative, fast-growing product lines. Let's say that is why we believe that this is maybe an ambitious but also realistic target. We believe that the increased CapEx to more innovative product, fast-growing product lines, that is one of the drivers of this increased organic growth.
Maybe to add here, Peter, you're right. Like, innovations take time. Normally, when you start an innovation, the first year you launch the product. The second year, or the technology, you get the first traction, and the third year you get real revenue. That will also be the case here. Do not forget, we started already innovation roadmaps five, six years ago.
Yeah.
The clusters are coming more together. It means the speed will go up. When you add then other innovations, then the speed will go up. That's also the reason of partly also that we have a higher organic growth target for the coming years. It also has to do with, yeah, let's say the position you have. When we have better positions, you also have more pricing power. Pricing is then also an effect of the organic revenue growth. Our goal is to do this annually 4%-6%. Of course, when you look to a year like 2021 and also 2020, yeah, you also have these kind of years between it. Now we had the 10th of November, we had a trading update of 17.1%.
That is of course higher than 4%-6%. You have to look a little bit through that. It's guidance that we increase our organic revenue percentage to a higher level, and but it could also be close to 6%, huh, when these innovations go quicker.
Yeah.
Yeah, in combination with your operational excellence and your market position, you create also a higher margin.
I was then also looking at the slide that you showed with the addressable markets and your market share goals. I take your 2021 revenues and I assume 4%-6% organic sales growth till 2026, that could potentially add as much as EUR 1 billion in sales from organic growth. If I then look at the market sizes and your goals for market shares, if you would indeed reach your market share goals without growing those addressable markets, it would already add EUR 1.8 billion. Either your 4%-6% organic growth target is very conservative.
That's our
Your market share goals are very ambitious.
No, I think that the explanation is, first of all, that we will not reach in 2026.
Yeah.
Yeah. That's the first very important point.
Okay.
It's the high growth potential of these four technology clusters, and there are plans behind. The potential is there to reach that, but it will take longer time. You are fully right. We also add the M&A, of course. That gives the potential which Aalberts has in these four technology clusters. This is the reason that we also are gonna focus on these four, because we can really make impact there.
Yeah.
Let's see how that continues. We but as how our company works and how the teams work is that they get more and more traction. You will see that everywhere. The teams get better and better. The teams get more professional. That will accelerate your growth. Of course, you can also have some setbacks. That means that you have years like 2020, or you have that whatever happens. We you know how unpredictable the world is. That's. The potential is there, and that is fully right. Let's first realize these KPIs. That's how we think, because we think it's already a nice step up.
Yeah.
We focus on organic revenue growth combined with bolt-ons.
Yeah, okay. The market share goals are not for 2026, they are for a longer time period.
It's longer, yes.
Yeah.
That's unfortunate because we had an additional agenda topic, Strategy in Action, because the CEOs of these technology clusters would explain in their own presentation, combined with the Factory to Innovation experience, how this works. Unfortunately, we stand here in front of a screen. We are a manufacturing company. Hopefully we can do that next year in a few sessions. That's what we hope to explain all to you. What potential there is also from the people and the teams who are involved. You hear it from them. Yeah.
My final question is on automotive. Well, obviously a lot of the focus on your side is on innovation.
One of the main trends for innovations in automotive is to shift to EVs. Looking at the automotive business that you have today, and the exposures that you have, what would be the rough split between EVs and cars with an internal combustion engine? And if you look at your content per vehicle, how does that compare for an EV to a car with an internal combustion engine?
Yeah, I think you forget one very important segment, which is hybrids. Okay. In hybrids, you have electric vehicle, but you also have a combustion engine. Okay. What we see, and that's actually not new, what we said earlier, is that the hybrid vehicle is really getting traction. The electric vehicle also, but hybrid is even more. Within a hybrid, yeah, you have two things. You have an electric engine and a battery, but you also have a combustion engine. The parts which you use for combustion engine are also going in the hybrids. What we see now, actually that's maybe also very good to explain now.
We made a tremendous portfolio optimization during the last two years in the sustainable transportation segment, where we really, let's say, first of all, we took our technologies and locations, you know, in a strategic restructuring, where we are completely dependent on mainly combustion engines. The second thing what we did, we acquired, for example, a very nice company like reel-to-reel metal strip coating companies, like Precision Plating Company, but also PEM in France, which are at the moment already 60% active in electric vehicles. Because what you get in electric vehicles is that you have more and more connectors to guide the current in a car, hybrids and electrical. So you need more and more connectors. Now, that
These connectors have to be made from metal strips, and these have to be coated. We see a tremendous growth there. What we also do is align our portfolio, don't go every month, but every year, going in that direction. I think fully combustion, it's difficult to say at the moment because a lot of combustion is also used in still in hybrids. We have an indication, but we didn't disclose it, and we're also not gonna do that at the moment. It's lesser and lesser. What is fully combustion, because fully combustion is still a lot of hybrid. Don't underestimate that. That market doesn't go so quickly.
No. Let's say it's well... It's one of the reasons why we believe that automotive is also a very interesting growth market for the next years, yeah. You have, like Wim said, you have also hybrid cars, so the electrical part will grow, let's say, maybe to 70% of the total. You also still have these traditional parts, which is also still 70% of the total in 2030. If you add it up with the potential of growth of the total volume expected, yeah, that's a, it's a big increase of parts necessary.
Yeah.
Yeah, to develop.
For example, also Premier Thermal we acquired in North America. Now they have a pipeline which is roughly 80% related to the SUVs, which are gonna be made hybrid. That is a big development in North America at the moment. Yeah. That means you still have your SUV with a combustion engine, but they also combine it with electrical transmission.
Yeah.
Battery. As Arno, my colleague explained, they need a lot of new parts. New parts have to be developed. New parts have to be coated. That's really interesting. Combined with the reshoring, which is a real trend at the moment, we see so much traction in North America that companies go back and make more locally, which needs more coatings and more Surface Technologies, but also the production of probably electric cars and other things. I think we will adapt very fast. With the restructuring we did last year, we took a lot of old technologies out.
Yeah.
Okay. That's helpful. Thank you much.
Next question comes from the line of Aurelio Calderon Tejedor from Morgan Stanley. Please go ahead.
Hi. Good morning or good afternoon to you, gentlemen. Thanks for taking my questions. I have four. I'll take them one at a time, if I may, please. The first one is, kind of going back to one of the previous questions on organic growth and market share gains. What are your assumptions in terms of, end market growth and market share gains? Because obviously I understand that a big part of your innovation push and your increase in innovation spend is to, gain the market share. But what is kind of the base case assumption in terms of what's the underlying growth of the market and what's going to be driven by market share gains?
Now, of course, it's we see it as a combination. For instance, in the building eco-friendly building end market, you see this increased need for a renovation. Where the renovation rate is going up from 1%-2% until 2030. That is if we. Let's say, if they do that, then they can realize the goals that have been set by the European Green Deal, for instance.
That is a good example of a growing market, where we also, of course, grow with the market but also gain share because of a strong product portfolio. That is the main reason actually why we see building as so interesting because it is a driver for new build, because there is a shortage of housing, there is a shortage of buildings. A lot of buildings are refurbished to housing. On the other side, there is also a lot of building improvements. For the long-term, that is really one of the examples of end markets with tailwind by sustainability topics. The other one, for instance, semicon efficiency.
There's also a big growth of market because there's such an increased need for high technology chips in so many areas that, let's say that has to be made. For that production of these machineries, you need parts. Now, for these parts applications, they need suppliers like us. On the other side, you see also there that we gain very interesting projects, so that we also really can improve our share. It's a combination, Aurelio. These are two examples of, that's already a big part of our portfolio, where we really see a huge tailwind. Now, automotive you just discussed. We still believe, absolutely believe that for the next 10 years, automotive is very interesting.
There's so much ongoing there with so many new parts, so many new technologies, so many things that still have to be improved, yeah, where we can really play a role with our high tech, yeah, surface coating businesses, lightweight material treatments, developments. Yeah, we really see that also as a big opportunity, both for share and market development.
Okay. That's helpful.
Yeah, go ahead.
Yes. My second question is around your cash conversion kind of targets, because I think you had a 70% cash conversion target previously, and I don't think you have a cash conversion target now. I obviously understand that cash CapEx is going up, and that obviously has an impact. But what are your kind of broad expectations in terms of cash conversions with everything you discussed today on CapEx, working capital, and innovation rates growth?
Well, let's say you're right. We have also increased CapEx plans. Let's say we believe that we have always a strong focus on our cash conversion. That is really something that is embedded in the culture of our company. We believe it's on a good track, and therefore we also believe that the cash conversion for the future will be in a good balance.
We just made a choice how important at this moment is that still, when you take everything together as a balance, we really thought that the introduction of these new targets, objectives, make the balance better and stronger for the future than the previous solvency and free cash flow objectives.
Yeah, maybe to add here, Aurelio, I think free cash flow is very important. We will focus on it as always because it's still part of our incentive system of the business team management. I do not forget that also return on capital employed is a very important target, which we still have in there. The second thing is, I think free cash flow conversion, you should also be careful that it doesn't ruin your short-term, that it doesn't ruin your long- term, because short- term, you focus on this, purely number on the conversion rate, that sometimes it could be the coming years that our conversion rate is a little bit lower than 70%. I think internally we still have that goal.
Because you have to invest a little bit more, for example, in buildings, which we have in Advanced Mechatronics and in some areas. I think the long-term is return on capital. Yeah, we have guidance of 18%-20%, where you should not forget that the previous targets of 18 was excluding IFRS 16, now including. Yeah. Plus, we still have the target of return on capital employed.
Yeah.
Internally, it's still part of the incentive. Does not change. I think in combination with the answer of Arno.
Yeah.
Yeah. No, I think that's very helpful context. Another question is, with this new reporting structure that you're gonna have, especially in the buildings business, I was always kind of surprised by the different routes to market of the two businesses. It's not the case that even though you're gonna have these two businesses together, you're going to try to copy that direct business model that you may have more in pipes onto the hydronic business, or are they just fundamentally different?
They remain completely separated.
Yeah.
Because it's what you said, it's a very different approach, route to the market. We have two fantastic teams that are also growing, of course, their business and their structure, but let's say who are really going after their own business. That is, we believe we should not change that.
No, there's a big difference with these. These two you never can combine. Like the piping system is a business which is a complete other pitch to the end market and the end user than hydronic flow control. Hydronic flow control is focused on the end user of the building with the pitch energy efficiency producing between source and emitter. The pitch for integrated piping systems is giving a solution to the installer and a project developer and engineer that you offer complete piping system solution, including design services, which we are now setting up, which is very interesting. You spec the material in the project, the developer or the engineers for piping. That's so unfortunate because in our location, Almere, where we invited you originally, you can see the combination of the two.
Yeah.
They have different pitches and different end users. Besides that, we have a few very nice niches. One is plastic piping systems, where we have a very specialized company and also a company in underground, below ground applications. Which add to the portfolio. We organized it like that, but I think from a segment reporting, it makes sense.
Yeah.
Because in the end, we simply find the segment reporting, but it's in the end, it's all building, but it was a complete different end user. That's why we should always keep it separate. You get more focus and more growth.
Yeah.
That's great. Just one last question from my side, and I'll go back to Ricky. You are obviously maintaining your kind of capital allocation priorities, high 30% of kind of net income payout. Your balance sheet is looking in a very healthy position. If I add up the divestments and the potential bolt-ons, your cash per share is going to look very, very healthy in a couple of years. Should we expect any sort of announcement along the lines of a special dividend, buybacks, or is the key still reinvesting in the business and driving that organic growth?
Yeah, that is why we also made this slide, because hopefully you saw how many, let's say, opportunities we still have to further develop the business. That is, that's the first goal. Let's say, of course, when we have done everything and we have invested everything, and we still have cash left, then maybe we will of course think of that also. We believe still there are so many opportunities for growth which needs capital allocation. That is our focus at this moment.
Do not forget we still have a net debt.
Yes.
Which we have to pay off.
Yeah.
We, as Arno Monincx very well explained in the presentation, want to make our own choices. When that comes along-
Yeah
a very nice opportunity, or we have more bolt-ons. We have a very nice pipeline at the moment, but, we create more and more ideas. That's why bolt-ons is one, but also from a strategic point of view, we get a bigger acquisition. At the moment, the prices are far too high, as we explained many times.
Yeah.
We want to create returns. We want to create value for our shareholder and stakeholders. Therefore, you must not pay too much. That can change. Especially in the coming five years, maybe. Let's see. When we have cash in the bank and we don't use it and we don't see usage for it, we always said then we will give it back to the shareholder in the form of dividends or in the form of buybacks. It's not our intention. Our intention is to create value and to grow the company.
Great. Thank you very much for that.
Okay, Roy.
The next question comes from the line of Tijs Hollestelle from ING. Please go ahead.
Yeah, thanks, operator. Good morning, gentlemen. Tijs Hollestelle , ING Bank. Thanks for the comprehensive presentation about your future strategic ambitions. Still, I have some questions left on the disposals. How concentrated is the new program? Is it selling, let's say, EUR 225 million revenue companies, or are you gonna sell, let's say, EUR 10 million-EUR 25 million revenue companies? Can you give a bit more detail about what size of these disposals we can expect?
Let's say it's a mixture, Tijs. Maybe one bigger and a few smaller companies. It's a mixture.
Okay. How much roughly left on the previous disposal program? How much revenue?
We are still working on that, so, we can give you more guidance, I would say, hopefully, in a few months.
Yeah, but 14-17 -
Maybe to add, according to new diversification program, I think it's roughly there are four bigger clusters in this EUR 250 million-EUR 300 million. Four bigger clusters, maybe with some small companies. But as always, we will prepare them well, and we do it step by step. That's also why it's for four years. Yeah, and regarding the old program, maybe to add is we still think we finish that end of 2022.
Yeah.
Okay, that's finished. I mean, I know that you guys make detailed calculations on these kind of plans yourselves. If you, let's say, assume you kick out the EUR 250 million disposals today all at once, what is then all things equal the impact on the current EBITDA margin, which is around 15% on the LTM data we have?
I think that is not something that we disclose, Tijs. You may assume that, like Wim said, it's not only companies with low EBITA margin because sometimes companies make a good margin, but there's not enough growth potential. That is the main. It's a combination of all these elements. Also, there we have a mixture. Normally, the two programs of divestments and acquisitions will be accretive to the margin.
Yeah, yeah. That's why I'm asking. But okay. That's clear. Oh, yeah. On the target on the SDG rate, is there also in the disposal portfolio, are there some companies that incorporate really low scores on these sustainability targets?
Now, as I explained, as my colleague explained, it's a combination of things. It's not only low margin, it's not only low growth. It can also be that you think you have no market position, but also that it doesn't add to our sustainable entrepreneurship. It can also be an argument.
Yeah.
It's a combination of things. Okay. When we started a divestment program, I think four years ago, when we launched the first one, we said there are three things. I can remember that myself. It can be, it has nothing to do with the group, so it has no connection with the group. The second thing is it has low growth potential. We don't create a market position on time, and it can be low margin, which we cannot increase because, for example, we have not a competitive position. That was also one of the reason that we divested Lasco. Because we could not improve the margin because we had a lot of price pressure. Now, that can be different reason. There's one reason now additionally, which we have, and that's also sustainable entrepreneurship.
Yeah.
Because we believe that we are a real enabler for our customers, but also for our markets to do that. That can be one of the arguments. It's nowhere near always the only argument. Of course, it will help to drive to go to more than 70%. Certain businesses, yeah, will indeed help to drive our SDG rate to more than 70%.
For me, that's the easiest answer, is the impact of the disposal program on the margin. But would you be able in theory to reach, let's say, the higher end of the EBITDA margin targets, if you would not do any disposal?
Yeah. That's of course a question we had to answer with that. Again, that's a combination of things.
Okay.
Look, it's really a combination of things. You cannot answer this question because the moment you focus more on lesser things, you get more attention, you get more capital there.
Yeah.
You grow faster, so you have more leverage and you have more automation, so you have a higher margin. When you do that in combination with optimizing your portfolio, yeah, you have the best mix. Now, we drive our sustainable entrepreneurship like that, yeah, we have a better SDG rate. That's why we present it as a total package and the effect of the total package and the assumptions, I think Arno made very clear. Yeah, that's how we come in the boundary between 16%-18% EBIT margin, plus an organic revenue growth of 4%-6% annually, and a return on capital between 18%-20%, and SDG of more than 70%, and an innovation rate of more than %20. Like, it's a combination.
Yeah.
When you subtract that one part out of it, yeah, you also have to look to the other KPIs.
Yeah. Yeah, I'm just trying to get the whole picture.
That's always good because when you don't try, you get never the answer.
You never. Yes, it's always no. Yeah. I've got one other question. Also, I mean, I know you're-
Yeah.
I know your M&A strategy for a long time, but would you as a management team, let's say, be open, let's say, to acquire something big, which in your opinion is not optimal managed, so that you, yeah, let's say, pay attention to a bigger acquisition in which you implement, let's say, the best-in-class things of Aalberts? Is that something you would be willing to do, or is the focus still more primarily on getting new leading technologies via M&A or nice niche market positions or getting access to certain clients or so?
Answer is yes. When of course the price is right, and we can get the returns, and we can create value, but also when it's, because that is mainly, I think, when you come to these acquisitions, it will strengthen your market position in a certain area or in a certain product line or in a certain technology. Okay. When we can add a business line which we really like to advanced mechatronics, and we can leverage that to our customers, yeah, that could be a bigger one. When we want to have a good footprint in hydronic flow control in North America, where we have a small footprint at the moment, but we could get a bigger one, like we did that time. Also, Apollo Valves, which we acquired that time, which is now also a platform for a lot of things. Yeah.
Of course it can be a bigger one. It has always to do with the strategy and the market position where you have then again, the pricing power. That's also why we want to have our hands free, so when the moment there comes something, that you can do that.
Yeah.
As Arno Monincx explained, bolt-ons are also interesting because you can integrate them faster, and we have more time now to do bolt-ons because our big migration, you could say our transformation is more and more. I don't want to say done because there's still a lot of work, but you see also the management has more time to integrate acquisitions. It's a combination. Acquisitions, you never know, huh? It can change tomorrow. Tomorrow, there can come an opportunity.
Yeah.
which gives us a strategic footprint and which can cost us maybe EUR a few hundred million or more. But we can do it then. We are open for that.
Yeah.
Absolutely, yes.
Okay. Yeah. Thanks a lot.
All right, Tijs.
Thank you.
The next question comes from the line of Henk Veerman from Kempen & Co. Please go ahead.
Hi. Good afternoon, Wim and Arno, and the rest of the team. Thanks for the presentation and allowing the possibility to ask some questions. I have a couple of questions left. I'll take them one by one. The first one is on the footprint rationalization program. Basically versus 2019, you plan to reduce your number of locations by about 30%. Meanwhile, I think you already mentioned the trend nearshoring and your decentralized platform has been quite an advantage during the current period with supply chain deficits and the pandemic creating all kinds of challenges.
What would you say to shareholders that might worry a little bit that you will lose this decentralized edge now that you further reduce the number of locations?
No, no, I think that would be the wrong conclusion.
Yeah.
Because we will not reduce our, let's say, our local approach of our business teams. Because what we do, for example, you combine factories. Okay, I give you one example. At the moment, we approved that project in December 2019, where we're gonna produce our press fittings in North America with upgraded, even upgraded technology we have in Europe, in our location in Hilversum. Now, we are two years further. We are now ramping up the factory. This factory is completely inside an existing building where we rationalize the floor space because we automate it through new machinery, the complete factory. We gain space in the factory. We put in actually a new factory. You have the same location, but you utilize the location much more.
That's, I think, what we're doing in a lot of places. When you look to the service business, the Surface Technologies, yeah, there you also close locations. We really looked also to this trend because we can still expand the existing locations. The whole thing is what you try to do is get more revenue, more business in lesser or the same locations. That's optimizing your footprint, and that gives leverage. Also a big advantage, for example, of this is also that you have your engineering and your R&D on one place. You get much more traction with innovations.
Yeah.
Yeah, that's also what we do for, in this case, in hydronic flow control. We try to combine. We have created competence centers where the R&D is, but we also want to produce more. Now, I think Almere, again, which we'd like to show you next year then, is a combination where we integrated different product lines, but also where we integrate in different warehouses.
Mm-hmm.
We have all the R&D concentrated in that Almere head office facility. We closed other head office facilities, for example, in France, where we only have a sales office left. You get much more traction by concentrating your locations. Now, that is an ongoing thing. It's also a creative thing because people come up with ideas all the time, so it's not standing still. That's also why we launched an additional program, because we challenge all the time ourselves, and we challenge also the teams from our point of view. Yeah, it's not that we lose our local approach. On the contrary, I would say.
No.
Reshoring can be very interesting for us, huh? We see that everywhere. In every business we have at the moment, we see that trend. For example, in plastic piping, floor heating, you see a lot of business coming back which wants to be produced in Europe or in North America. That's also why we expand in many areas.
Yeah. Maybe to add, to make that also very clear, our reporting structure has nothing to do with our organizational structure. That remains the same. Teams are responsible for their business worldwide.
Yes.
The fact that we combine, let's say, two segments into one does not change anything in our management structure. That is just not the case.
Exactly. Good remark.
Yeah, that's clear. Indeed, very interesting trend. Second question is on the semicon business. I mean, I think following the acquisition of Nuytec a couple years back, you've done a lot in this cluster. I saw in one of your slides that you, for the long- term, plan to more than double your share of the market. I was wondering, do you plan to sort of introduce more products or move into other assets of the semiconductor market? Are clients asking for this also given your key account approach, obviously?
That's again what we like to explain then next year. For example, we are very strong in lithography. That technology, but we can also go more to other areas like etching with our equipment. For example, our high purity gas systems could be aligned there very well, so could also be sold there. Another example is, we are mainly now in Europe and a little bit in North America. We can also go more to Asia. We can go more to Germany, so even now. That's all organic revenue potential things. We can add business lines through bolt-ons or with co-developments with our customers.
That's why we have such an ambitious target there, and we also think we can realize that. It's a combination of organic revenue growth with our existing and new customers which we have already. We add, let's say, new co-developments which where we are in process with some very interesting things. That's why we have to expand quickly and heavily in the Netherlands. The third thing is bolt-ons.
Yeah.
Where we have a nice target list, where we can add business lines or, yeah, or even maybe a bigger strategic acquisition in the future. You never know. Yeah, we're really getting traction in that field. Not only there, it's also in the other three.
Yeah.
Interesting. Maybe coming back on the CapEx, which already has been discussed a bit. I mean, in summary, you plan to invest via CapEx more than EUR 1 billion in the next five years of shareholder capital. What would you say are like one or two projects that stand out and where most of the CapEx will be directed to? I think a previous example has been obviously the factory in Flevoland in Holland. What are? Are there like one or two very large projects in the upcoming years that explain sort of this very large bump in annual CapEx spend?
You have. First of all, advanced mechatronics, we're gonna expand in one or two greenfields, probably in the Netherlands, the coming three or four years. Maybe two to four years, 'cause we grow very fast, we have floor space issues. We want to streamline operational excellence. The second thing is we are now building the first step of, for example, press connection systems in the United States, in integrated piping systems. Now, we're gonna expand that further. We need equipment and to expand it because it's a fast-growing product line. The other thing is, for example, we have factories in integrated piping systems for groove. Now, we have to expand that because we are fast-growing. We expand it and maybe in the future have a greenfield, could be in North America.
We have in plastic piping system, we grow fast, so we have to add equipment. Also through underfloor heating, heat pump, conversions. Now, hydronic flow control is also the same. We have many areas. Actually, in all the four areas we are expanding.
Yeah.
In Surface Technologies, we keep the CapEx pretty the same. What we do there, we mainly replace old technology by new technology and make it much more sustainable, and we align it to the right market segments. For example, electric vehicles. For example, hybrid vehicles. For example, aerospace. For example, turbine. For example, machine build. We replace a lot of equipment with newest equipment, which is more sustainable, but not so much more than we did in the past. There are many examples which is driving the growth, but it needs also time. Before you order equipment at the moment, it takes us 12-14 months to get machinery. Especially now with also the supply chain issue, it can even take longer.
We have also the right management in place now.
Exactly.
In these teams to drive this forward because, of course, that is crucial to be able to execute all these plans.
Absolutely.
Right.
Many examples.
Follow-up question on the divestments. I mean, you identified divestments obviously in 2019, and we're almost done with that program. I was a bit surprised about the EUR 250 million-EUR 300 million additional divestments that you identified, and it hasn't really been discussed in this Q&A session. What I'm trying to understand a bit is what made you change your mind on this EUR 250 million-EUR 300 million of sales versus 2019? Is that have you increased the hurdle rate in terms of, like, the quality of that business? Or have you seen in that sort of ring-fence sales maybe the quality of the business deteriorating in recent years?
No.
What is the main reason that, yeah?
It's more because we see so much opportunities in the four technology clusters. It's a positive, actually a positive answer from that point of view. Okay, 19 is two years ago. In the meantime, there happens a lot, huh? Markets change, teams become better, we get more and more insight in our product lines, in our strategy, step by step more. We said we should focus even more because then we can create more growth and value. It's a continuous learning process, and that will also continue because the company should never stop thinking, yeah? I think two years ago, yeah, we didn't have it on the radar like that. Maybe, but it was not, let's say, solid enough to decide it.
Yeah.
You learn. Our policy is also, Henk, that we divest on the right moment. Okay, because we want to earn some money for it. We are not in a hurry there. We just do it step by step.
Yeah.
We optimize it, and then we sell it, so we also earn some money. You see now why we earn the money, because we use it to drive another operational excellence program. We creating value for the shareholder. That's. It's insight which is built during the last years again. Of course, we discussed it intensely with our executive team, and we come to that conclusion. Yeah, in the meantime, we need more capital for the four. You say, "Yeah, should we also put capital then even in number five or number six?" Now we say, we can maybe allocate the capital better there because higher returns.
Yeah.
You make a decision.
has all to do with growth potential, huh?
Exactly.
Because normally when you allocate your capital to a business which is doing good, has a nice margin but it's not growing as some of the others are doing, let's say our core technologies are doing, and then you have less return, so.
to be clear, it doesn't mean that we will take overnight a decision-
No.
of a certain business. It can even also be that the coming years we see, hey, this is a little bit different. We can integrate it or align it to a cluster we have now.
Yeah.
That is the learning curve you have to give yourself.
Yeah.
That's also why I'm a little bit cautious about the question of fluid control. Yeah, there's not focus anymore on that fifth technology, but there are still very nice company, very good teams, which could be aligned here and there to the company.
Yeah.
Technologies from digital point of view. We have, of course, a goal, and we have a strategy. That's what we announced today.
Yeah, I think that makes the. Yeah.
Continuous learning.
Yeah.
Continuous learning.
Adapting, learning.
Adapting and learning.
Thank you. Those are all the questions.
All right.
Thank you.
The next question comes from the line of Maarten Verbeek from the IDEA . Please go ahead.
Hi, Maarten.
Hello, Maarten.
My name is Maarten Verbeek of the IDEA. A couple of questions from my end. Firstly, just to get back to the divestments you have announced or how much there is still left. If I'm right, of the first program you have done EUR 225 million, more or less, so that implies still some EUR 75 million-EUR 125 million remaining, and adding the additional program, that should mean until the end of the year. New program you seek program between EUR 325 million-EUR 425 million. Am I correct?
It could be, let's say it could be. Like Wim said, it is also not set in stone yet, right? We have a plan, we have an ambition, and we learn also in the coming years. Let's say it could be until the end of this program.
Yeah.
Yeah, yeah.
Maybe to make clear, Maarten, the EUR 225 million is not correct. We are roughly a little bit more halfway at the moment. From the EUR 300 million-EUR 350 million which we announced two years ago, we did roughly half, a little bit more than half. We are in the process and that can happen next month or whatever, or in a few months to get it fulfilled before the end of 2022. That still we are on track there because that's what we guided two years ago. We will do that till end of 2022. The other program is on top of that. You can calculate yourself. Roughly half of it is under EUR 70 million. Plus, now, what is it? The EUR 250 million. So then there's your calculation.
Yeah.
We are busy with a few bigger chunks to divest at the moment even.
Yeah.
Of course.
Yeah.
We can only announce it when things are done.
We have also acquisition opportunities.
Absolutely.
Thank you. Two years ago, you gave an organic growth guidance of 3% on average, now 4%-6%. Two years ago, inflation was not such a theme as it is today. Now looking to your new organic growth target, what kind of inflation rate or price increase did you take into account?
Yeah, let's say I would say a relatively normal level. We did not take into account the level that we have in this month, in this year with the pricing.
For the normal level, that's about two?
Yeah, I think it. You should look at when you put inflation or additional pricing or extreme pricing in your business model. Then it could be changed in two years again.
Yeah.
Yeah, when the inflation goes up in the coming year or two years, then it could also be that the business goes down because it becomes so expensive and people invest less. You compensate for that again. I think what we try to do is give guidance for with normal rates and not the extreme rates of pricing which we have today, is that you do your 4%-6%. Of course, at the moment, pricing is helping.
Yeah.
Again, it's.
I was asking what-
Again, it's for the coming five years, huh?
Yeah.
It's not only next month.
I was asking.
Next year.
What's normal? Therefore I was asking what's normal rate? Is that more or less 2%?
Yeah. If you want to take a normal rate, take 2%.
You also mentioned that you will provide additional financial information per segment. Will that be limited just to organic growth? Will you also be presenting more besides revenue and EBITDA, for example, and that would be a nice suggestion from my end, the capital employed per segment.
We will not do that. We will disclose what we have. Let's say the addition to what we did previously is the organic growth. That's the additional information that we split per segment. You still have revenue, organic growth, EBITA, and EBITA margin and capital expenditure.
Okay. Thank you very much.
Thank you.
We have received some questions via the webcast. The first webcast question comes from Henrik Andersson from DNB who asks: Some of your new objectives seem very conservative. Net- zero by 2050 is what the world overall needs to be. SDG sales of 70% is just 5% up. Given you sell businesses with 10% sales, that alone should take care of it. Can you please elaborate here on your thinking?
Yeah. No, maybe let's take the question of the SDGs. Okay. Just by divesting, the suggestion is that by the divestment program, we would only focus on improving the SDG rate. That's not the divestment. Divestments are part of more things. It can be lower growth, it can be lesser margin, it can also be no market position, but also that you have a less impact you can make in the sustainable development goals. So not all the divestments are related to only that KPI. The other question was conservative targets. Yeah. You can, of course, call it conservative. I know the time we came from 10.8% EBIT margin, and that was some eight years ago or 10 years ago.
Let's say we are now going to 16%-18% margin. We always think let's first reach that as soon as possible 'cause that's what we also said. The same is for the return on capital employed. When you want to get a return between 18%-20%, with all the investments we do and the acquisitions with also probably some goodwill.
Including IFRS.
Including IFRS, I think these targets are pretty ambitious.
Yeah.
Let's see. We're gonna work on it. That's the same, yeah, the question about net- zero carbon. Also there, we do it the Aalberts way, and that means we commit to the 2050 net- zero carbon or earlier. I tried to explain that we are busy with improving and measuring also Scope 3 and target setting. That's also why we mentioned earlier, because that's our aim, that we only say something and we announce it, but we are also sure that we can reach it 'cause we are a manufacturing company, and so we have locations which we have to drive to that better performance. Let's take it from here.
We have on the Scope 1 and 2, we have a clear target setting, 30% down on energy use compared to 2018. On Scope 3, we are measuring at the moment. We extended the team in the head office, but also there to accelerate that and let's see how we perform in the coming years. Don't forget the word earlier 'cause that's our aim.
Thank you. We now have two questions from Robert Avlan who asks: Can you please give an example of your new strategy in action for some of the technology sectors? Also, you often mention to make your factories world-class and do state-of-the-art automation. Do you have your own team dedicated to factory automation to build competitive advantage?
The first question was about strategy in action. Can you give an example? I would love that we invite you for next year to show that. The question was, in my opinion, related to manufacturing. I would say we invite you in Almere. You can see a fantastic example. From that point of view, also I think what we are creating now in Raunheim, in advanced mechatronics, where we make vibration isolation systems for advanced mechatronics. We extended the factory, we streamlined it heavily. Now again, we are expanding. Again, we just approved the expansion in that fantastic facility.
Now another example for operational excellence, what was asked is, for example, what we do now in North America in piping systems, where we produce completely in an automated way, press fittings, which we sold there already, but we didn't do it in a very automated way. Another example is in our fantastic factory in Belgium, where we are able to reduce scrap all the time, improving the performance of our extrusion lines, making plastic piping and connection systems. We have so many good examples here. There's still a lot to do because it's never ending.
No.
Still a lot to do.
Thank you. We next have a question from Marta Bruska from Berenberg, who says, "Thank you for the excellent update. I am fully supportive of your decision to postpone the opportunity to visit your operations in person, but could you please give us a glimpse of what you are planning to improve in your operations in more detail, in particular regarding eco-friendly buildings and markets? Are you mainly expanding capacities or investing in new manufacturing technologies? And if so, which ones? How much of the total CapEx will go to automation?
I think when we look to eco-friendly buildings, we will get a real big increase in capital expenditure in piping systems and also hydronic flow control. The main reason for that, for the coming years, is two things. We're gonna add, let's say, operational excellence activities, actions in combination with capacity expansions, mainly in certain connection technologies and also valve technologies. These are fast-growing product lines, so it's a combination of capacity but also operational excellence. Another example is that we're gonna expand mainly on hydronic flow control, which is eco-friendly building related. We have mainly investments in capacity expansions, and we're also gonna consolidate here and there some activities. Always, when you do a capacity expansion, you try to do it with the most modern technology, and so it's always a combination.
Let's say again what I explained earlier, from EUR 200 million to EUR 250 million, which we intend to increase to, from a capital expenditure point of view, we will invest much more compared to the past in building technology, combined integrated piping, but also hydronic flow control and more in advanced mechatronics. Surface technology is mainly active with replacing older equipment or older technologies by newer technologies. That is roughly the case. The expansion may be in these three, mainly in these three areas. Advanced mechatronics is mainly capacity expansion because we grow so fast there. Hopefully that clarifies a little bit the question.
Thank you very much, everybody. We have now come to the end of this Q&A session. I would now like to hand it back to Wim Pelsma for the closing remarks. Thank you.
Yeah, we would like to thank you very much, also on behalf of my colleague, for joining this webcast. Again, it feels a little bit strange that you explain the strategy of a manufacturing technology industrial company only on the screen because we have many nice locations to show you, and I really hope that the strategy and action part, which is actually in our opinion one of the most important parts of this day, that we can show you that next year when things are safe enough to do that. We wanted to give you a flavor and also, not only a flavor, but also the goals and the strategy we have the coming four years. Again, be invited for next year.
We would love to explain to you the four technology clusters more in detail, but also the CEOs of the business teams. Thank you very much for joining, and we will absolutely see you and speak to you. Thank you very much.
Thank you.