Welcome to the Aalberts Interim Results 2022 webcast. All participants in the call are in listen only mode. Questions can be asked after the presentation. Now, I would like to hand over to your host, Wim Pelsma, to begin today's presentation. Please go ahead.
Yes. Welcome, ladies and gentlemen, joining our webcast for the interim results 2022. The agenda we have for today is that we will discuss with you Aalberts, but also of course, the operational development of the first half of 2022. We will go through the financials and of course, also our outlook. We hope we have a lot of questions which we can answer. First of all, Aalberts. Yeah, you will find Aalberts where technology matters and real progress can be made humanly, environmentally, and financially. I think in the first half of 2022, you could see that where you have a uniqueness in technology, you can also keep your margin, which we again could realize also in the first half of 2022.
The essence of the brand Aalberts. Where do we stand for? Yeah, we engineer mission-critical technologies enabling a clean, smart, and responsible future. We are there where we have a unique position, unique technologies, where we can make the difference in combination with our culture, where we every time strive for improvements, continuous improvements of our operational performance, but good is never good enough. The third very important factor for our brand that we stand for is exchanging of knowledge between all the business teams, even of the different, business lines, business segments. We share knowledge. It drives innovations, it drives also knowledge sharing, and it proves our operational results. We do that relentlessly in our pursuit of excellence.
The way of value creation, which we also presented in December 2021, is actually a combination of the Aalberts playing field, the Aalberts playbook, and the Aalberts way of working. Our playing field, which we have defined our four end markets, where we are active with mission-critical technologies, with a high innovation rate, where we try to have a unique position in the market. The Aalberts playbook, where we strive for continuous improvement of our portfolio, generating capital on the right way. The most important is their winning with the best teams, and that we have a continuous improvement mentality. The Aalberts way, sharing knowledge, share and learn, be an entrepreneur, take ownership, and of course, act with integrity, but also go for excellence every day. We do that on a relentless way every day.
This is our way of value creation in our group. The playing field of Aalberts is actually four end markets where we focus on shaping eco-friendly buildings. We are a real enabler, and also you can see that again in the first half of 2022 for increasing semicon efficiency. We help our customers, the OEMs, to facilitate the growth. We are driving sustainable transportation, and we are enhancing industrial niches. We do that there where we can make the difference with technology, with innovations, where we can make progress. We engineer mission-critical technologies enabling a clean, smart, and responsible future. The Aalberts playbook, actually, how we manage our business every day. The most important is winning with the best teams. We are driving every day operational excellence, continuous improvement. How can we improve our factories? How can we improve our supply chain?
We leverage our equipment through volume. The first half of 2022, the good thing of the 10% organic revenue growth is that half of it is volume growth. We leverage our equipment, and that gives, with the automation of the equipment, you get a better result. Strong cash conversion is our attitude. Disciplined capital allocation there, where you make the difference, where we have the highest margins, where we have the best returns continuously, very disciplined with our capital allocation linked to the Aalberts playing field. Portfolio optimization every day. Do we earn money on the articles we have? Do we earn money on the technologies we have? Can we improve that continuously and drive innovations? A big part of our growth, the last six months, is driven by the innovations we initiated the last years. Innovation takes time.
can take sometimes 3, 4, 5 years in our business, but you see the results more and more coming. Relentless pursuit of excellence, creating in the end, compounding returns driven by local entrepreneurship and a relentless way to pursue excellence. Greatness is made of shared knowledge, is what we say internally. It's a mentality, it's a culture. The culture is very important. It's the culture of our total company. We call it the Aalberts way, winning with people. Be an entrepreneur locally, take ownership in initiatives, don't wait. Even also in these times, it's so important that you take action immediately, go for excellence and improve your business every day. Share the knowledge because it's sometimes difficult enough. When you can learn from your colleague or you can learn from another team by having a better performance to your customer or innovation, then you should do that.
We stimulate that every day, and of course, we act with integrity. The Aalberts strategy and objectives which we presented in December 2021, the updated strategy. First of all, we focus on accelerating our unique positioning with the mission-critical technologies we have. We aim for high entry barriers and pricing power. Again, we could see that also the last 6 months, we were even able to increase our added value margin compared to last year. Creating sustainable, profitable growth with high added value margin, EBIT margin, and innovation rates. On innovation, we set ourselves a target for the first time, more than 20%. We strive for that KPI because it's very important to create this unique position, but also to keep on growing organically. Every day, driving operational excellence and portfolio optimization. It is part of our culture.
should be part of our way of thinking every day and achieving world-class operations. With world-class operations, you have mostly the best equipment, the best way of manufacturing, and that means also the best service to be given to our customers and the lower cost price, where you aim for. Allocating the capital in a disciplined way, strengthening our unique positioning. With a more focused portfolio, which we created the last years, we should stick to the focus and accelerate and improve the unique positions by allocating the capital. That's why we also want to invest more in CapEx to strengthen these positions and create more organic growth combined with build-ons. Realizing sustainable entrepreneurship with clear impact and commitment. A real strategy point which we added the last years.
We really believe in that because sustainable entrepreneurship, it should be integrated in the strategy you have, yeah, with a clear impact and commitment, which we also gave. I come back to that in the next sheets. It's a very important point for us because we believe that a combination of taking your responsibility for sustainability, but also making business in that area, that's the perfect combination. Ensuring an open and pragmatic culture and lean structure. Very important because with an open and lean and pragmatic structure where people feel safe, you can also share knowledge, you can share ideas, people feel safe, and we use the Aalberts strength. This all we combined with new objectives, which we presented end of last year.
Organic revenue growth annually, 4%-6%, EBIT margin, 16%-18%, ROCE, innovation rate, and very important also, we also have a target to improve our SDG rate to more than 70% of our revenue. At the time we presented that, we were at 66%, but our aim is to go beyond the 70% and a leverage ratio less than 2.5. These are our goals for the coming period to 2026. We are just half a year working on that. We are relentless in our pursuit of excellence to achieve this, and that's also the guidance we give, that there are these KPIs because we want to achieve them as soon as possible. SDG impact increases to more than 70%. That's our goal. We engineer mission-critical technologies enabling a clean, smart, and responsible future.
You see here also the link between our mission-critical technologies we have, the SDGs, and our playing field. Sustainable entrepreneurship is completely integrated in our strategy, and that's how we see that. Our commitment to net zero carbon roadmap. We are committed by 2050. The progress we made in 2022, or full year 2022, is that we, versus 2018, we made a progress of 23% reduction. Our target is 30%, so we are nicely on track already what we aimed for in our goal, towards 2026. We really put a lot of effort there in the Scope 1 and 2. We are now busy with Scope 3, doing the measurement and the target setting because also there we take our responsibility.
We also see a Scope 3 as a business opportunity because as you know, especially in our industrial activities, we service a lot of OEMs which we will help to reach their Scope 3. By the positions we have in the market, we see this as a real opportunity for them that we can help them because we are actually able to also improve their Scope 3. So that's a business opportunity. Operational development for the first half of 2022. The highlights. Now, the revenue we came out at EUR 1.615 billion. It's a 7% increase. Because of the divestments we did last year and also this year, we saw an organic revenue growth of almost 10%.
That's why we overall grew 7% due to the divestment. Very important KPI, and actually, I think we did that on a very good way, is the added value. We reached 62.8% compared to last year, 61.8%. 1% improvement with all the inflation going on. It took a lot of effort to get that done, but I think it also says something about the strength and the unique positions we have in the market, and we are able to adjust our pricing when needed. We should not underestimate all the effort we have in the business teams and to accomplish this KPI of 62.8%. Our EBIT came in at EUR 250 million, was 11% more than last year, the same period.
Our EBIT percentage, 15.5% compared to the 14.9% we achieved in the first half of 2021. Net profit increased with 11%, EUR 286 million, and our earnings per share 1.168 EUR compared to the 1.52 EUR last year. Our capital expenditure increased to facilitate the growth plans and how it works in a manufacturing company as we are is it takes time. We still aim for our targeted capital expenditure between EUR 200 million and EUR 250 million this year. But also here we are we're seeing these disruptions in the supply chains, machines which are coming later due to components which are missing, plus also the operational implementation of more CapEx, also with the business teams takes more time.
We are there in an increase of capital expenditure, and we will continue in doing that. We also took the decision already last year that we go for service to our customers. We invested in additional inventory. We also guided that in our press release, beginning May, that we invested in additional inventory because with all the disruptions we have in raw materials, in components, but also, yeah, in all kinds of ways, yeah, you need to service your customers. We made that choice. Thanks to that choice we made last year, we were able to grow 10% organically. As long as these disruptions are going on, yeah, we believe this is the right way forward.
Of course, we have to control our inventory, and we look very well to also the fast movers, slow movers in that perspective, which my colleague will also explain later. Capital expenditure increased from EUR 58 million last year to EUR 84 million. It will further increase also during the second half. Let's see, but I think we will be close to EUR 200 million end of the year. ROCE improved with a higher working capital. We were able to increase our ROCE to 15.9% compared to the 14.8% first half of last year. We did some very nice acquisitions, add-ons in the business of semicon, increasing semicon efficiency, the companies isel and recently KML.
In our business for shaping eco-friendly buildings, we added the company UWS in Germany. Also a very nice add-on in the field of sewers in that area. We divested ETI, where we optimized our portfolio, which was a non-core business. Overall, we realized 10% organic revenue growth and an EBIT margin of 15.5%. It's a good performance looking to the whole situation because also we are not immune for the outside world and what is happening. Also, we have inefficiencies. We have labor which is difficult to recruit here and there, especially in North America and United Kingdom, we have difficulties with labor. Raw materials still difficult to get components.
When you are missing one component and you make a system, you have a problem of delivering to your customer. That takes a higher work in progress, higher raw materials. But we believe that with this strategy, also with the ramp up we have now, that we need to have also enough finished goods to service our customers. All in all, we think a good performance, looking also to the world where we live in at the moment. Operational development. Now, EBITDA margin, we already discussed. We have many business development projects to drive organic revenue growth and operational excellence. We will continue that. We believe that's very important. We can also make the difference the coming periods by gaining market share, we think.
We should keep our service at the highest to try to ship more and to reduce our backlog because we still have a high order book. It was 39% higher than last year. We started the second half of the year very well with a high order book. These orders have to be delivered, so we need to have a good service. We will drive that also the coming months. Capital expenditure further accelerated and will further accelerate. We were able to manage with a lot of effort, I must say, in the teams, the pandemic, which was still going on because we still had quarantine cases in Germany, in France, where we had to close lines for a certain week.
It's all disruptions in supply chain, in the labor, raw material shortages, component shortages, every time talking to suppliers to get the raw material. Of course, inflation, where we had to do pricing initiatives and also negotiations with our suppliers. There's a lot going on. Again, also that for us leads to here and there to some inefficiencies, which we can also see in our numbers. Still a good performance. We invested in additional inventory, we already explained, but in parallel, our work in progress is increasing to facilitate the growth. When you grow 10% organically, yeah, you have to facilitate that, and especially when you want to continue that in organic growth.
We have to aim to keep our market position, which in my opinion is the most important. When you, in these times, don't keep your market positions and you lose them, you also not have the pricing power in the end. Therefore, we believe market position is key. Gaining market share is even better. We are going on that track. Regional manufacturing becomes favorable. Every time we mention this, we see that in many, many cases already. That is due to the geopolitical situation, more and more is sourced locally. We see projects transferred from Asia to North America. With our local manufacturing and our very strong manufacturing where we produce a lot of products in the region where we also sell it, that was always our philosophy.
Yeah, we see that we get a lot of business out of that, more and more. That will only improve, in my opinion, the coming years, especially when these prices of supply chain and long distances of transport are expensive, but also due to sustainability effects. We believe that you should reduce the transport and reduce energy use by manufacturing that very locally close to the customer. We will take advantage of this. We see it already, and it will only become more. Driving organic revenue growth and operational excellence. That's what we're gonna do. That's what we're doing. We will continue that. Eco-friendly buildings. Activities continue to do well. We had a record order book, and we facilitated many development plans, manufacturing processes further optimized.
Yeah, we expanded our capacity, where we are still at the beginning of that expansion. Renovation, and we should not forget that. Also in the times where we live in, the renovation and new build of residential commercial building is continuing. Also, with the situation with certain, let's say fossil fuels and gas and oil, it will only accelerate the transition towards sustainable heating and cooling systems. We are in pole position there. Renovation is 70% of our business in eco-friendly buildings. The moment heat pump is changed, yeah, you need more floor heating, you need more expansion vessels, you need more piping systems to install that. That will only be in our favor. In addition, our continuous flow of innovations is driving our growth, and we will continue with that.
Also, end of this year, we will launch a fantastic new connection system. We expect a lot of that for next year. That is continuing. We strengthened, in this case, our portfolio with the acquisition of UWS in Germany, as already mentioned. Renovation and new build continues. It's driven by transition towards sustainable systems, and that will still be the case. It will only accelerate looking to the world where we live in at the moment. Increasing semicon efficiency. We continue with strong growth and performance with a record order book. We try to service our customers good as possible. I think we did. We also working on the ramp-up of our OEMs and our customers, which is a high customer demand.
I think with all the circumstances we try to do as best as possible. We again made a fantastic growth and even with all the supply chain disruptions, we could do a good performance. Also here we have inefficiencies, yeah? Due to the fact that we're also missing components. Yeah, we miss certain small items or labor which we have to bring in place. It takes a lot of effort. In parallel, we also have to work on the capacity expansions for the coming years and also on the additional development projects with our key accounts.
Due to the focused approach we have created in advanced mechatronics, where we really have a long-term approach, we made plans for the coming 8-10 years with our customers. Because we are able to do that is also that you have to work on all these initiatives at the same time. We have the day-to-day, we have the capacity expansions, and we have the long-term vision we have with our key accounts for developments. That's the uniqueness we have, and we are strong. We're also using here our investment power towards our key accounts to enable them to make the growth. Very nice additions, acquisitions, isel and KML. I think very nice acquisitions which also where we will take advantage of the coming years.
Nice technologies, wafer handling robotics and linear motion systems we added to the portfolio. Strong growth and performance with a record order book. Transportation. We realized a strong performance, and we increased our order book. Important to know here is that the demand for passenger cars, motorbikes, and commercial vehicles remains strong. It is still disrupted by the component shortages of chips. Despite that, we made a good performance, and it also explains that we increased our technology portfolio heavily the last years. There's a continuous need for specialized service technologies and precision manufactured parts. Important to know is here that also all the new developments is a good thing for us because the moment something is newly engineered or has to be coated or treated or precision manufactured, yeah, it is an opportunity for us to get more business.
The acceleration of new developments in e-mobility and also lightweight materials and energy efficiency in all kinds of ways, also in sustainable transportation, it means also in aerospace and marine. That means a lot of opportunities to gain business because we are living off also innovations we do in this area. By having a global network in our surface technologies, but also in precision manufactured parts, we are able also to take in higher volumes, also higher complexity parts. That's more difficult for small local companies. We believe also by consolidating this market further, that we get a better and better position. Markets in aerospace and marine are recovering fast. We had a very good order intake in the first six months, and that will continue.
Strong performance with an increased order book, and we should not forget that the production of light passenger cars is already the last 2 years on a very low level, and the demand is very high. Enhancing industrial niches. Strong growth and performance. Market is recovering fast, and the order book increased. In addition, also the innovations were driving our growth. The industrial markets, and I explained that very often, were down from the summer of 2018 and actually went up in the beginning of 2020. COVID came. We are now 2.5 years later, and actually from end of 2021, the industrial markets recovered. There's a lot of, let's say, still to be made investments in the industrial arena and area, which is not done the last years. This is ramping up now very quickly.
Also, the order book is increased heavily. We have to increase also our efficiency and capacity in certain areas to follow this order book. Strong growth and performance, order book increased. Now financial developments. My colleague, Arno.
Thanks, Wim. Also welcome from my side, everybody, to this webcast and in the call. I will take you through the financial developments of our company over the first six months, starting with the revenue bridge. How we explain the growth that we made from EUR 103.9 million over the first six months versus last year, which was 7% increase. When we start from the base from last year, EUR 1.510 billion, we added EUR 60.7 million from the acquisitions that we did in 2021 with Sentinel and Premier Thermal Solutions, and 2022 with isel and UWS.
Of course, we deducted the divestment, the revenue that we sold in 2021 of Adex, Lasco and Standard Hidráulica in 2022, ETI on the EUR 32 million minus. We have a currency exchange effect positive in the revenue of EUR 36.7 million, which effect mainly came from the dollar. That finishes up, or that ends up to the organic revenue growth of EUR 138.5 million, which equals to 9.8% that we communicated as organic growth. That is how we came to the EUR 1.614 billion over the first six months of this year. The same for the EBITA, the bridge versus EUR 225.8 million last year.
We increased the EBITA by 11% over the first six months, or EUR 24.4 million plus. That is first of all, we added the acquisitions of 2021 and 2022 of EUR 30.5 million. We deducted the divestments that we made, the divested EBITA of EUR 15.5 million of 2021 and 2022. The currency impact [was] positive $4 million, also mainly dollars. The remainder is the EUR 22.4 million of organic EBITA growth that we made in the first six months, leading to EUR 250.2 million, equal to 50.5% of revenues. The condensed consolidated income statement where you see the two P&Ls next to each other. You see a slightly...
First of all, of course, the revenue increase of 7%, then you see a slightly lower depreciation of 2022 versus 2021, where you also see the effects of a low CapEx year that we made in 2020 and also in the first half of 2021. It was still on the low side before we accelerated the CapEx. That has the impact also on depreciation. EBITA already mentioned. Net finance cost higher than 2021. Of course, we also consume more capital and also more financing. Then the income tax expenses, which was, let's say, 24.2%, the average tax rate, versus 23.5% last year. Not a big difference over there. Earnings per share before amortization, €1.68, or 11% higher than last year, €1.52.
The 10% organic revenue growth with an EBITA margin of 5% is what we realized over the first six months. The condensed consolidated balance sheet, where you see the equity still increased again over the first six months this year to EUR 2.215 billion, with a slightly lower solvency of 51.6% versus 59.7% at the end of last year. Of course, the dividend that we paid in the first week of July is also reduced from there. That is also the reason why you see that the total current liabilities are higher than the end of 2021 because there the dividend obligation is registered. Net debt slightly decreased versus last year only EUR 6 million, but it's almost on the same level.
Yeah, the leverage ratio improved again from 1.3 last year to 1.1 this year. Of course, the working capital higher, EUR 706 million already explained. We invested in inventories to facilitate our customers. Besides the fact that we really made the choice to, yeah, to be more just in case than just in time, both with raw materials and with work in progress, and because of all the disruptions, we also see that the impact of inflation and foreign exchange is there in also in this number with a big impact of EUR 129 million over the first six months. The days working capital finished at 83 days versus 68 days last year. Return on capital employed, nevertheless, increased.
Despite the higher use of working capital, which of course is also increasing the capital employed, we managed to improve the return on capital employed with 1.1% from 40.8% last year to 50.9% this year. The free cash flow, where you clearly see that the improvement of EBITDA is consumed, of course, by the change in working capital. The movement in working capital, which was EUR 100 million higher than the movement last year. There you see where we consume cash. The CapEx cash out purchase of property, plant, and equipment increased with EUR 26 million versus last year.
That ends up to the free cash flow of EUR 4 million plus this year versus EUR 100 million plus last year, which is the deduction. The majority of this deduction can be explained by the change in working capital, where the increased CapEx cash out is more or less compensated by the increased EBITDA performance. We made investments in additional inventories and capital expenditure, and we did that on purpose so that we were able also to realize this organic growth that we reported.
In the business segment per technology, starting with the building technology, where we made a revenue of 1%, minus versus last year, of course, because of the impact of our divestments, because the organic revenue growth, as you can see here, was 9.7% over the first six months. Apples to apples compared without these, divestments, that we made a good performance. Here you see the EBITA, EUR 141.5 million versus EUR 144.5 million last year, which was a slightly decrease in percentage from 15.4% to 15.1% and that is also where you see that, yes, we are also not immune for disruptions.
We have been working very hard to do it in the best possible way, the service to our customers, but also we have had our challenges with labor, with the availability of materials, lines to start up to close down when you have no materials or no labor at the moment. There, the efficiency has been slightly lower. CapEx increased with 32% towards EUR 43.1 million. The industrial technology segment, where we made a 90% increase in revenue, which equals 10.0% organically. Also there a good performance and a good recovery of markets, especially in the industrial market. At EUR 30.1 million versus EUR 84.5 million last year, which was a big increase of 34%.
The EBITA percentage as a percentage of the revenue increased 1.8% to 16.6%. Also here we increased CapEx by even 73% to EUR 40 million. The revenue per end market and per region, the eco-friendly buildings end markets, ended up at 56% of our total. Semicon efficiency continues to increase, as also already explained, I think, many times over the last years that we have an objective there to grow more than average in that end market. Semicon efficiency is now at 10% of the total. Sustainable transportation finished at 14% and industrial niches at 20%.
Per region, Western Europe finished at 60% of the total, America, 23%, Eastern Europe, 12%, and APAC, Middle East, Africa at 5% of our total revenues. I give it over to Wim again.
The outlook is that we have a very good order book at the moment, 39% higher than last year at the same time. We start the second half with very good order book. Our main aim is to get that order book shipped and we are in the position more and more. We think also hopefully that also the situation with the components that will may be a little bit better. That is still a question mark in my opinion, if it really is improving. Here and there we have some signs.
When we have that further improved, we can also deliver our backlog quicker, because 39% higher order book, yeah, it is what we have in our order book. We maybe we'll ship that to our customers. The other point is, we guided in December 2021. We guided our strategy and our objectives, and we also said we will execute that the coming years. We are six months underway, and our aim is to achieve that, these goals as soon as possible. It's a period of four years and so, or four years to till 2026. We are pursuing that.
That's maybe also to add when I look to the underlying trends in the market, and that's, I think, important to say is that we really believe that the underlying trends in the market for renovation, shaping eco-friendly buildings are still very strong. The drive for sustainable transportation is strong. I already mentioned that there is still the production of light passenger cars was on a very low level the last years. There's a lot of demand. The semiconductor boom, in our opinion, will continue. 5G, Internet of Things, artificial intelligence, reshoring, all these kind of things will continue. That means for the long term that looks very good.
Of course, it could be that here and there things are optimized in certain, that or that wholesalers in building that they optimize their inventories, especially I think when when the component situations improves. That's also what we will do with our inventory step by step, that we will improve that when the time is there. We should not forget that the underlying trends and the position we have as Aalberts in these foreign markets, in this Aalberts playing field, that these underlying trends are continuing. In my opinion, the renovation towards sustainable heating and cooling systems will only accelerate. A nice example is, for example, also the conversions we see now towards district energy, district heating, and district cooling, from gas towards district energy.
These are accelerating also due to the political, let's say, the geopolitical situation we have now in the world. As mentioned, a good order book, we start well, and we will pursue our strategy going forward. Questions and answers. We hope that you will have a lot of questions which we are able to answer.
We will now start the Q&A session. For the people dialing in, press star one to register your question. For the people joining the webcast via Aalberts.com, questions can be asked via the Ask the Question button. Our first question comes from the line of Aurelio Calderon from Morgan Stanley. Please go ahead.
Hi. Good morning, Wim, Arno. I've got three questions, if I may. I'll take them one at a time. First one is around your organic growth of 10% in the first half of the year. Could you break down how much of that is pricing and how much is volume?
Aurelio, good morning. We assume pricing effect to be between 4% and 5% over the first six months, and the rest is volume. You could say, let's say 5% volume and the remainder, pricing.
Okay. That's great. Thank you. Second question is around the margin decline that you saw in buildings. I'm not sure if you can comment a little bit more what was the main driver of that. Is that more in the pipes business, or is that more in the hydronic business, or is it just a combination of both?
No, I think it's both. Like, as already explained also earlier, like, we also are not immune for the situation which is there. It's in both. Inefficiencies in our manufacturing supply chain. That means that, yeah, when you have certain manufacturing lines and suddenly you lose 10 people due to COVID, yeah, your line is one week out.
Yeah.
You have to start up the line again, and sometimes with temporary people who are not available. You have components which are not there, so you can't ship. It's a combination that we could actually ship more when we would have the products available, and that you have higher costs because you expected to ship more. Because we have a high backlog. It's all the disruptions we have in that field, and we are not immune for that. That's also why, yeah, the margin suffered there a little bit. Still, we make 15.1%.
Yeah. That's also how you can see it.
As you could see, the added value of ours in total is in a good value. In a good value. It's really in these inefficiency costs what Wim must explain to you.
That's great. Thank you. Maybe one last question. If I cannot back out your drop-through, it's more or less like 16% more or less. That compares with, I think you laid out the CMD that you were aiming for 25%. What do we need to see to bridge that gap between that 16 and the 25 that you're aiming for long term?
I would say that actually the same answer as Wim was earlier giving about the EBITA performance in building technology. Let's say, if we could have shipped more, because of less disruptions, and also that performance would have been better. We continue to drive these organic growth and operational excellence programs to bring that further in the right direction. Of course, that had also impact on this drop-through.
Great. Thank you very much.
Yeah.
The next question comes from the line of David Kerstens from Jefferies. Please go ahead.
Hi. Good morning, gentlemen. Thank you for the presentation. I've got three questions, please. First of all, what drove the acceleration in organic growth towards the end of the second quarter in contrast to some of your peers and many other industrial sectors? Related to this, do you expect you can maintain this low double-digit pace for the remainder of the year against easing comparatives in the second half of last year? Second question is on the working capital. Do you expect working capital to come down in the second half of the year as it always does, or do you think it will be structurally higher in view of this accelerating nearshoring trend? The final question on the M&A market.
Maybe we could first, David, yeah, maybe to interrupt you, maybe you could first answer the first two.
Yeah, of course, please.
Yeah. Because otherwise we
Otherwise we forget.
Yeah.
We have to wrap it.
No, the first question was about the organic growth. No, I think what you see is that we aim for organic growth. From my perspective, it's very important, I already explained that, to keep our market position or to improve our market position. We are working on that continuously now. I think, yeah, we are in a flow there by doing that already starting beginning last year. Yeah, it in the end ends to almost 10% organic growth. Yeah, that is how it worked out. I think it's a good performance. We need some more inventory for that and taking into account even the inefficiencies. Now, going forward, yeah, we will not stop.
That means we will. We believe that the underlying trends in the end markets we are in and with the business teams we are active, with the product systems and everything we have, we are very well-positioned. We believe that that we should continue that. That means we will continue our business development plans, also our CapEx plans, and keep on driving organic revenue growth. But the uncertainty about the components and all the other things, it's still there. It's very difficult to predict how that will work out in the second half. But let's say, we will not pull the brakes because of what is happening, because we look to our market and we look to our customers, and that's where we focus on.
We keep on driving organic revenue growth and also further optimizing our operation performance because of inefficiencies and we should solve them. Now, that's where we are busy with and we will see how that works out. Now the second question was about working capital.
Second question about working capital. Now, of course, as I already explained, we saw and because of this just in case, instead of just in time, we saw also that a big part of the increase is in the raw materials, in the work in progress to really secure the service to our customers. Of course, it's our objective to yeah to bring it further into balance for the second half of the year. Yeah, for us, the objective is to yeah to to get the finished goods in the right balance so that we can also continue the deliveries of the backlog that we also have to our customers.
We expect the working capital to improve, as it always does, you're right, in the second half of the year. If we come back down to the old levels, that's the question, because I think there will still be a situation of disruption. There will still be a situation that we need relatively more inventories than what we were used to in the past. The world is changing from that perspective and we will adapt to that. Of course, we have a big focus on the further improvement of our inventories and working capital.
Nevertheless, also important to mention is that despite the fact that the inventories are on a high level, we have continued all the programs that we have to improve the inventory from a quality perspective. We continue to optimize, let's say, the slower movers or parts of the inventories and to reduce them. That is also why we still feel comfortable with the situation. We see also in the different categories of our inventories that it's really in the fast-running parts of our inventories where we increased, partly because of this just in time effect, but now just in case. Secondly, when you have physically more raw materials on stock and you have a price increase from inflation, of course that has an impact to your inventory levels. That's just how it is.
Yeah. Understood. That's great. Thank you very much. Maybe the final question was on the fast recovery of the industrial niches that you highlighted in the presentation. I was wondering, does that now offer opportunities for divestments or you think that's not attractive in the current market with depressed valuations and you're more focused on M&A at the moment?
Yeah. It's a good question. No, I think the industrial markets are recovering fast. That's correct. Yeah, what we see in the M&A market, and that's also what you can read in the papers is, yeah, the M&A market is a little bit cooled off. As you know from us, we look for the right momentum. We are further optimizing the businesses which we are aiming for divestments and yeah, look for the right moment. I think at this moment is not the right moment. We have still till 2026 to execute our program. We will look for that. Let's see how it develops in the second half. You saw a very quick cool down in that area.
You're right, that gives opportunities for M&A and especially I think we. You see also the ramp-up, for example, in the semicon area is so high that smaller companies can't follow. We can follow reasonably well because we are pretty experienced in how to do that, and we have also the power to do that. That gives opportunities. And so let's see.
Yeah. Thank you very much, gentlemen.
Okay.
The next question comes from the line of Martijn den Drijver from ABN AMRO. Please go ahead.
Yes. Good morning, gentlemen. I'll do my questions one by one. I just wanted to come back to the supply chain issues in building technology. You mentioned that there might be some improvements in the second half, perhaps. Is there anything you can do yourself to remedy that, or should we assume that these supply chain issues will play a role in the second half of the year as well?
Yeah. Of course, you can do a lot yourself. First of all, we have to look to the people. We have to look to alternative suppliers, which we are looking into that. The combination of these disruptions in combination with the high growth is another complexity. As Arno explained, we are building more and more our finished goods, which we see that also the last months. Our finished goods are building up. The moment our finished goods are building up, we can also ship more.
The inefficiencies, as we said it, is a combination of that we could have shipped more, so that would cover the cost more, so we have higher EBIT performance, plus you make additional OpEx costs. It's a combination of the two. Where we can work on ourselves is actually a lot by increasing our shipments and by solving the issues. We are working on that hard. That is what we're gonna do. Let's see how that works out in the second half. It's not only that we have to wait till that part is coming in, because when you do that, we would not have made 15.1%.
No, I appreciate that. I was just wondering, if you go for additional suppliers, that means lower volumes, maybe less advantages in terms of pricing. If you use less temporary workers and you hire them full-time, that has a structural OpEx impact. Is that something that we should take into account or is that too early for that?
No, no. Just no. I think that's not how it works. Okay. We also put in equipment which is much more efficient, so you need lesser people. Yeah, we have many things which drive efficiency.
Yeah.
It's actually very simple. Okay. The moment you could have shipped more, yeah, you would have a higher revenue, higher added value on the same costs. In the meantime, we have also higher costs too, due to these effects. Now, that explains the 0.3%. It's only 0.3% lower margin.
Yeah.
We will do everything we can, yeah, to recover from that. Now, let's see how that works out. There are so many uncertainties also in the second half. Yeah, I can't tell anything about it. The only thing, we will work hard to solve the inefficiencies, but the most important is that we will ship more and that looks not so bad because we increased our finished goods.
Yeah. Got it. Okay, moving on to industrial technology. What was the key driver to that step up in the EBITDA margin? Was the margin of semicon roughly the same and that most of the improvements come from surface technologies and industrial niches? Or can you perhaps elaborate a little bit on that? The second element to that question is, should we see this as a sustainable level going forward or was there some sort of one-off element to it?
We have clearly stated that the first six months results have no impact, were not impacted by one-offs. If you read the press release, you saw that we made a gain, yeah, on the disposal, but we also made for the same amount of cost, we made extraordinary costs. The net effect of exceptional costs and exceptional benefits is zero. These results are really operational results.
Mm-hmm.
Yeah, let's say the increase and the improvement is of course coming from leverage. If you take, for instance, yeah, business in dispensing or business in surface technologies, yeah, of course, when you make more revenues, you make a much better leverage on your employed capital. That is just how it works.
No, I appreciate that, Arno, but dispensing is EUR 80-90 million revenues. The uptick in EBITDA margin can't be due to dispensing. It's either-
No, no.
driven by operational leverage.
It's a combination, but let's say surface technologies made a good performance.
Yeah.
Industrial niches made a good performance. Yeah. At the end, that led to this improvement of EBITDA.
Okay.
Again, what you see, Martin, is the effects of the strategic restructuring.
Yeah.
We explained so many times that in surface technologies we improved our technology portfolio. Like, the business we have in Germany left in heat treatment is only 5 sites. When you compare it to 12 years ago, I think it is much lower than we have in North America now. You can't compare at all that business with 10 years ago. We did very well in surface technologies with a higher margin than in our semicon business, to be clear.
No, that's clear.
That will continue as long, of course, as we also have the volumes. That doesn't look bad. Because we have a good order intake, and in our business in semicon, which is part of industrial technology, yeah, we are ramping up.
We have to follow our customers with even a higher ramp up than we expected at the beginning of the year. Now, yeah, you can see that also in the OEM customers, which also published results.
Yeah.
That takes also costs because when you have to ramp up, you need additional people. Industrial niches is only climbing because there's a delay of projects already going on from the summer of 2018.
Yeah.
Yeah. That is how the situation is.
Got it.
You get leverage on your equipment, and then, of course, your margin is increasing fast. That's what you see.
Okay. When you published the April update on at least the update in May on the January to April results, you mentioned that price increases were getting a bit more pushback. Those are my words, the interpretation. Is that still the case? If so, how should we think about that gross margin? Because it's definitely stronger than expected. Usually going from H1 to H2, you have 70-100 basis points of decline in normal markets. How should we view the gross margin development for the second half?
Let's say, I don't say it became easier. We will continue to price whatever is necessary, of course, not losing sight of our situation in the market, of our market position.
Mm-hmm.
I expect that we can continue in the same way. It's not only pricing, yeah. The reason that we also improved our added value is because the mix is getting better and better. If you look at the EBITDA bridge and the revenue bridge, and you look
Mm-hmm
what we divested and what we acquired and what the margin is of these acquired companies, you can see that we also improve from a mix perspective. That has to do also with added value, of course.
Yep. That's true. My final question, you touched upon it yourself already, the cost savings from the strategic restructuring of 2021, the EUR 25 million. At the time, you guided for a small impact in 2021, and then roughly EUR 10 million in 2022 and EUR 10 million in 2023, roughly.
Yeah.
How much of those savings did come through in the first half of 2022?
Just what you described, that's really also what we see in the actual results. That comes in gradually.
EUR 5 million.
Yeah. About EUR 5 million.
Okay. All right. Thank you very much. Those were my questions.
Yeah.
The next question comes from the line of Marta Bruska from Berenberg. Please go ahead.
Hello, good morning. Congratulations on very strong results. I have four questions. Take them one by one. I've understood that your order book at the end of the quarter was 39% higher. Assuming no order cancellations, until when does it cover the sales? Or in other words, how many months in sales is that for you?
That is, of course, different per technology, yeah. Let's say in the building technology, we have normally between two and three months visibility. In the industrial technology, it's a little bit different. Let's say for surface technologies, it's very short, maybe one month, one two months.
Mm-hmm.
In the semicon efficiency business, the visibility is much longer, but then it's maybe 6-8 months. That's the mix that we have in our order book.
Thank you. Can you comment in any capacity on the new order intake and the trend in July? You have seen what is the development of the order book currently.
In July, you mean over the last three weeks?
Yes, exactly.
Now, Wim, what is that?
Oh, I think the development in the last two weeks is orders are still coming in and so that's yeah, we are happy with them.
Thank you. Now just to follow up on the pricing discussion, I did not quite understand whether you are planning for new price increases, or do you think the costs are already covered? I understand there are a lot of moving parts, and it's hard to give a strong answer. Does it mean that basically you are still considering it and you-
Yeah
Yeah, all right. No, it's not.
No, from pricing point of view, what you see now developing is that here and there you see raw materials, let's say bottoming out or they are on the top or they're even here and there reducing. That means from a raw material point of view, I must say I'm happy with that there's no further continuing because otherwise we have to continue pricing further there. The other aspect is the inflation. Like the inflation, especially also in labor and other things are still continuing. I think we will see that in the second half of this year, but also next year you see the full effect of that. We are anticipating on that trend. There are still price increases prepared when it's necessary.
Like what we always did is that we believe that our market position is very important.
Because you need to have the pricing power to keep your added value margin. That's crucial. When you don't do that, you cannot invest and you cannot innovate. We will protect that margin as good as possible. From an inflation perspective, yeah, we are also preparing additional price initiatives when necessary, and they are also running at the moment, also again in July. Of course, you also have to look to certain product lines where you maybe can't make the price increase because they already, yeah, for example, they're the raw materials already on a stable situation or.
Yeah.
It's a very detailed work, but yeah, I think we are pretty good at it, that it takes a lot of effort, but pricing issues will be continuing, but more for another reason than the raw materials.
All right.
It also depends what our suppliers do, huh? Yeah.
Right. Is it fair to say that you will continue with price increases, but in a selective pricing actions, that are planned for the second half?
Yeah. No. For example, in the industrial area, also in the semicon business, we also have a lot of labor. Now, this labor is, of course, you can bet on it that this labor expenses will increase. That means we have to increase to our OEMs. Now, that is a little bit delayed compared to the raw material situation. There we have additional initiatives to do that. We look to your business and your market, and you calculate, and you take action. That will continue.
All right. Thank you. Just to confirm.
It's not only selective, it's looking to what is happening.
Mm-hmm.
take action. That will continue.
Yeah.
Yeah.
Okay, thank you. That's very reassuring. Just to confirm of the savings in the first half from restructuring that you confirmed it was about EUR 5 million, right?
Yeah.
Okay, thank you. The last question, if I may please. It's more general. Would you consider selling your semicon efficiency business if approached by an attractive buyer?
No.
No.
No? All right.
No. It's a fantastic business, and especially the position we gained, and the way we are doing that. I think it's a big opportunity also for the future, organically and inorganically. We did some very nice acquisitions, really nice, isel and KML. I, you know, they are really good add-ons.
Yeah.
We always have good add-ons, but these are really nice, also from a growth perspective. There's a lot of opportunity.
I agree. I also liked those acquisitions since it makes a lot of strategic sense. Thank you very much. Again, congratulations. Looking forward into the second half. Thank you.
Thank you.
Martha. The next question is a follow-up question from the line of Aurelio Calderon from Morgan Stanley. Please go ahead.
Hi. Thanks for taking my follow-up. It's just a clarification on one of Martin's earlier questions. Did he say that the Surface Technology business is making higher margins than semicon? If that's the case, why is that? Is there anything structural or is it the effect of volumes plus the energy surcharges that you have in the business?
No, it's a very good business. In Surface Technology, we always made very good margins. The only thing that a lot of people forget in the past is that we a long time ago did an acquisition with a very low margin, and we had to recover that all the time. We did a strategic restructuring, where we consolidated locations the last two, three years, improved the technology portfolio heavily, also mainly in Germany, where you get a much better business. Surface Technology is a very interesting business, we make a good margin there. You know, Advanced Mechatronics, semicon is also a very nice business.
When you grow so fast in the semicon efficiency area, growth also needs costs because you have to invest. Also there we have a nice, but we also have some additional costs because you grow so fast, and then the inefficiency is also there.
Yeah.
Both businesses are very nice.
Consuming working capital.
Because of the growth, yeah.
Great. Thank you.
The next question comes from the line of Chris Hollister from ING. Please go ahead.
Yeah. Thanks, operator. Yeah, morning, gentlemen. I've got a question about the semicon business. It's growing by almost 30% year-over-year. I think the impact of the acquisition of isel is about 9%-10%. Is that correct?
We have disclosed the annual revenues of isel. You can calculate yourself, I would say.
Yeah. KML is not yet consolidated then because of the acquisition.
No.
Yeah.
No.
KML
isel is EUR 35 million per year, so you can easily calculate what should be the impact from that acquisition.
Yeah. Yeah. This morning some of the Dutch listed semiconductor companies reported also earnings and quite some conflicting signals. The order intake for Besi were down 25%, but ASMI orders were up 80%. I think yesterday, ASML order momentum was also quite strong, and I also think they even dare to give a bullish view on the order intake of the third quarter level. If I understand correctly, Aalberts' exposure is also more to these more strategically oriented semicon-
front end. You have the front end and the back end.
Yeah.
We are the front end.
The cyclicality of Aalberts business in that is also reduced compared to the, let's say, 10 years ago.
Well, we had a very good order intake in semicon efficiency.
Yeah.
Very good.
You also share the same, let's say, healthy visibility with those clients.
Absolutely.
Okay. That is reassuring. Yeah. Also a kind of technical question. If I look at the organic growth rates per division, and if I add that up, I come to another level as compared to the overall revenue bridge. There's EUR 148.3 versus the EUR 138.5 reported. What? Is there something I'm missing here?
Say it again. What do you calculate?
Yeah. If I look at the organic growth reported per segment.
Yeah
If I add that up, I get to a different amount of organic revenue growth to what you're reporting in the overall revenue bridge.
The question is, did you take the right base then of the 2021? Because we have currency impact, acquisitions, divestment. You have to net also the base of 2021.
Okay. Maybe it would be helpful in the future to also provide, let's say, the FX, the disposals and the acquisitional growth per division, so that we don't have to recalculate the Building and the Industrial business.
Yeah. Yeah. As you know, you know, how we explain. I could also say you can rely on the numbers that we are disclosing. Yeah. That is just the correct number.
Yeah, would it be an idea to do that? Because it would be helpful. Just it's more easy to look per division where the acquisitions and then. Because you're doing the bolt-ons every time, so it's difficult for us to calculate that exactly per month. You do the disposals, which will continue in the coming, and at least for the coming year.
Oh, yeah. Let's say we are quite clear always, yeah, in all our M&A transactions for both acquisitions and divestments, what the annual revenue has been, yeah, or is. So you can also calculate with the dates of the transaction what the impact is in the different periods. Then you should be quite easily, because you also know in which division these transactions are. Yeah, how that calculates up to the final organic growth per division, so.
Yeah. It is possible, but it is more easier if it would just be before that point. Okay. Thank you.
What you say. I hear what you say.
The next question is a follow-up question from the line of Martijn den Drijver from ABN AMRO. Please go ahead.
Yes. Two follow-ups, if I may. Could you share with us what the EBITA margin is of your newest acquisition in building technology, UWS? Is that similar to the average? Is it lower? Is it higher? And a question on ETI, the divestment in the U.S. What was roughly the size and margin of that unit? This is purely model based, I guess. That would be the first question.
Let's say the UWS is above average EBITA, so accretive EBITA business.
Mm-hmm.
The ETI business was a little bit on the average, I would say. Maybe a little bit below.
Okay. What was the size of ETI?
49. $45 million.
45. Okay, great. Thank you. My final question. If you look at the holdings eliminations line, and you mentioned that the one-offs are basically in balance. You now have EUR 4.4 million. Should we assume then EUR 9 million, that is the new run rate for holdings/eliminations? Because it used to be a little bit higher, more higher than that. Nine million, is that?
That's correct. Yeah. Yeah.
Okay.
Let's say the first half year gives them a representative value for the remainder of the year.
that is also something we should roughly take into account for follow-up years, assuming including a bit of wage inflation for the head office as well?
Yeah, yeah.
Okay.
You can count on that. Yeah.
All right. Thank you.
Just a quick reminder, if you want to submit a question, please press star one on your telephone keypad or submit your question via the Ask a Question button in the webcast. The next question comes from the line of Maarten Verwaaij from ODDO BHF. Please go ahead.
Good morning. It's Maarten Verwaaij of ODDO BHF. One question about your order book. You mentioned that it increased by 39%. At the end of April, you stated it was an increase of 51%. Obviously, that's also due to the base of last year. Therefore, I don't believe that your order book in absolute terms has declined end of June versus end of April. Could you provide some more color what the difference is between end of July and the end of April?
Yeah. We don't disclose that. We can say that the order book is in absolute terms increased, but we don't disclose the difference.
Okay. Thank you.
Other questions, Maarten?
No, thank you.
All right.
There are no further questions. Thank you for joining today's webcast and call. You may now disconnect.