Welcome to the Aalberts Interim Results 2023 webcast. All participants in the call are in listen-only mode. Questions can be asked after the presentation. I would like to hand over to your host, Wim Pelsma, to begin today's presentation.
Welcome, ladies and gentlemen, joining our webcast. The agenda for today is as follows. We will start to talk about Aalberts and also our strategy and objectives. The second agenda point is the operational development. We talk about the financials, and my colleague will take over. Outlook, hopefully we have a lot of questions which we can answer. First, going to Aalberts. You will find Aalberts, where technology matters and real progress can be made humanly, environmentally, and financially. I think this is where we stand for, and that we. Where we make progress on these fields, we try to do it better every day.
The essential part of Aalberts and where the brand stands for, and we explained it many times, but so important to every time put attention to this this branding point, is that we engineer mission-critical technologies, enabling a clean, smart, and responsible future. The second part of our, of our brand and our name is that we, with everything we do, we think our good is never good enough. It's going beyond the line of duty that you have, that you try to do the utmost to come to the best results. Very important also, and I think more and more our company is doing that, it's more and more part of our culture, that greatness is made of shared knowledge.
We share the knowledge you need it for innovations, you need it for best practices to improve continuously, actually, your operations, but also relations to your customers, your results for your shareholders, but also for our employees and our partners. We are relentless in our pursuit for excellence, and therefore you need to create a culture, and that's all represented it in this essential brand of Aalberts. Our way of value creation is on three, you could say, three areas. We have an Aalberts playing field for mission-critical technologies, where we, where we focus on.
We have an Aalberts playbook, which is actually a guide also for our management, where good is never good enough, where we as our portfolio, we generate cash, we reinvest that so that you get compounding returns over time, mainly due to focus and improving continuously, and therefore, you need also the right mentality every day. The Aalberts way, winning with people. Very important, because in the end, it's all about people, and greatness is made of shared knowledge. You create a safe environment where all the people share, so we can learn from each other. It brings us a lot. The Aalberts playing field. When you look to the playing field, where we engineer mission-critical technologies, smart and responsible future, we do that in four areas.
We drive sustainable transportation, we shape eco-friendly buildings, we increase semicon efficiency, and we enhance industrial niches. These are the end markets which we pursue. We focused our company more and more on these end markets with our technology clusters, but also with our specialized business units. Within these end markets and this playing field, you will find Aalberts, where really technology matters, and we really can make progress. That can be through innovation, it can be due to that we have a unique production technology, it can also that we have a unique position, but something special and unique, because when you have a certain uniqueness in your end market, you can also have pricing power. With pricing power, you generate, of course, your margin and your cash to keep on investing.
Our playbook, good is never good enough, which has some components in it to come to the compounding returns. Of course, to create competitive advantage and growth drivers, it's all about getting the best teams. Winning with the best teams is actually one of the most important points, that you continue to develop your people, create fantastic talents, so that you all the time have the best teams to go for the job and the targets. Operational excellence and leverage, very important. The moment you get volume over your equipment, you leverage your equipment, that gives margin and cash flow.
This cash flow, we have to allocate on a very disciplined way, and that discipline may means that we always invest based on our business plans and business development plans strategically, so that over time, you create a return on incremental capital employed to gain returns, because that's what it's all about in the end and on the long term. That needs continuous portfolio optimization and is driven by innovations. Innovations take a long time. It's also the same as when you allocate your capital in a company like us, it can sometimes be that machining can take one and a half year from order point until you have it in place, and then you have to start it up.
It's a long-term thing, but I think we proved that we have a sustainable business model to do that. Very important is that be never satisfied. Good is never good enough. It's driven by entrepreneurs. That's how we are organized, and we strive for relentless pursuit of excellence in all things we do. That's our playbook. Innovation, very important in our playbook. We even have also a KPI on that our innovation rate should be higher than 20% in 2026 or earlier. Our innovation rate has climbed the last years strongly. When we started to measure this, we had below 10%. We are now above 15%, and our goal is to have more than 20%.
Our innovation expenditure also is more than 5% of revenue. Also there, I think when we started with this eight or nine years ago, we had maybe a roughly small 2% of our revenue, 1.8%. It's all about innovation. Innovation can also be in processes. It's not only products, it's processes, best practices. It's your organization. Therefore, you need also the right mentality with good is never good enough. The Aalberts way, which makes it possible. Greatness is made of shared knowledge. We explained it many times. To create shared knowledge, you have a safe environment. This is really a huge strength within our organization. You have to be an entrepreneur, take ownership. The moment you think things can be better, you have to address it yourself.
Don't wait on somebody, address it, and be an entrepreneur, and go always for excellence. That means that be satisfied maybe for a few seconds, but then continue? Share and learn your information. Share and learn your knowledge so that you can also improve together with your colleague, the opportunity or innovation or organizational processes or machinery, whatever it is. Always act with integrity. The Aalberts way, winning with people. Our strategy and objectives, which we presented in December 2021, where we focus on accelerating our unique positions with mission-critical technologies, high entry barriers, and pricing power. I think more and more we are building that.
I think also in the results which we presented today, you can see again how our position is improving because when you look to the added value margin, I think we generated the first six months. That's only possible when you have a strong market position and you can really improve your pricing. That's what we did, because it already started summer last year, when actually the bigger inflation came into the business, and we acted immediately, and we are continuously acting to keep and protect our added value margin and even improve it where we can. That has to do with unique positions you have in the marketplace. Creating sustainable, profitable growth.
Sustainable, that means every year, and on a sustainable way, with high added value margins, EBIT margins, and innovation rates, because innovations help to create growth, but also with innovations, you sell the other products you have in your portfolio. It's very important also for your sales force. It's motivating the sales force to sell also the package which we have. Now, driving operational excellence and portfolio optimization, it's very important. It should never stop, actually. We did a lot in the last years, and also after COVID, we accelerated that, but still, there's always room for improvement.
To convert that into free cash flow and to achieve world-class operations is, I think, a very important topic also for the future, because that gives you also the margin and the cash flow, and with this cash flow, you are able to have inventory, but also to invest in the best equipment. Again, I think we showed in our EBIT margin in the first six months, how resilient we are. A big portion is also coming, especially also in industrial technology, through all the efforts we did the last four, five years on operational excellence. When you get volume then on your equipment, yeah, you see that your margin is improving. Allocating capital in a disciplined way, very important.
It should always be allocated and invested in the strategy on your business development projects, which we discuss at least every six months with our teams to strengthen continuously the unique positions. Realizing sustainable entrepreneurship, I think we have also there a unique position as Aalberts, because at this moment, 68% of our revenue is related to the Sustainable Development Goals. We even have a goal for that, and that goal is that we want to go beyond 70%. We have clear impact and commitment in sustainable buildings, but also in sustainable transportation, eco-friendly buildings. We drive the semicon efficiency, but also to enable our customers to do it with less energy. On many, many places we are helping this sustainable entrepreneurship. It's integrated in our strategy, and that's pretty unique.
Our goal is, what I said, to bring it above 70% of our revenue. Ensuring an open, pragmatic culture and lean structure using the Aalberts strength is actually an enabler for all the other targets and objectives we have, because and pragmatic culture, it's very difficult or almost impossible to share best practices, but also to create greatness with all the people you have. You have to create a culture where safety and also openness, transparency is very important. I think we came along, we came alongside already with our culture there, and that it's also what we see in the company. From objective point of view, yeah, probably you have seen all these objectives.
Organic revenue goal is 4%-6% annually, EBIT margin between 16%-18%, ROCE 18%-20%, innovation rate more than 20%, SDG rate more than 70%, and a leverage ratio below 2.5. We still, of course, believe in these objectives. I think we, even in these more difficult circumstances, especially of course, in our building environment, where we faced a lot of stock reduction of our customers the last 12 months. When you have that, such a resilient EBIT margin as 15.4% in these times, with an organic revenue growth of percent, the first six months, I think, you can see that our strategy is more and more working and we are on the right track to also achieve these objectives.
Driving sustainable entrepreneurship, it's a real goal and target for us. More and more, you see also that the stakeholders from Aalberts are interested in this integrated approach we have. I think it's pretty unique. Here you can see in this slide how we are doing that. The impact we want to make has to go to more than 70%. In 2022, we reach already 68%, we should be hopefully quickly reach also more than 70% and go beyond that, because I think this is also our clear commitment to this topic to enable a clean, smart and responsible future. The same is for our commitment for net zero carbon roadmap, which we made also in December 2021.
We committed to be net zero by 2050 or earlier, and we set ourselves a target that time to of less than 30% energy use versus 2018, and we reached in 2022, already 29%. I think also for the Scope 3, we set ourselves a goal for target setting. I think we are pretty far there. Our measurement is done already a lot, so target setting is good on track, I think even a little bit let's say ahead of planning. Because for us this is a very important topic to pursue. Operational development of the first six months of 2023.
Yeah, we came to a revenue of more than EUR 1.7 billion, but a very nice I think highlight is that our organic revenue growth is 5.6%, and this was despite, let's say, yeah, you could say a tougher environment in our building technology and eco-friendly buildings and markets. Because we faced their inventory reductions already from quarter three 2022 onwards. But despite that, we had a nice organic revenue growth. Our EBIT came in at EUR 264 million, with an EBITA margin of 15.4%. I think to mention also the added value of 62.3%, where first half 2022, we made 62.8%.
I think that's a real good achievement. Our customers reduced inventories from quarter three last year in building, in our eco-friendly buildings end market, but also ourselves. We reduced inventories, we did build up much lesser stock, or almost no stock, when you compare that to 2022. That has a big impact on your added value, because your factories have a lower volumes. We counter effect that with additional actions in sales, where I come to later, but also due to cost control, but also due to a very good portfolio we have created over the last years. I think a very good resilient performance in that when you look to these numbers.
Now, the net profit, we came in at EUR 189 million. Earnings per share, EUR 1.71, was 2% more. Mainly also because only 2% you could say is mainly due to the finance cost, which you see the interest rates went up. It's also important to look to your net debt all the time and to also bring that down because we have lesser finance costs then. But we did an improvement in EPS growth and cash flow from operations, as we already guided, also beginning of the year. It will get a focus point as at the moment when the supply chain issues are more or less on better solved, we can focus again on lowering our inventories.
On purpose, in September 2021, we increased our inventories because we wanted to have good service to our customers and also be able, yeah, to have pricing power. You only have pricing power when you can also have a reasonable service. Now it was the time, let's say, from the beginning of the year, to also reduce our inventories, again, optimize our stocks, and then you see what it did with our cash flow from operation. This is a record number. We never achieved such a high cash flow in the first six months of a year, and this will continue because our inventory reductions will continue. That also means that we will make a good cash flow this year. ROCE came back again, of course, due to the high inventories of the last year.
Our ROCE was a little bit hurt, but we are now at 15.8%, and when we will reduce inventory less, more in the second half than normally, your ROCE will improve further, of course, when you also make the profit. In our opinion, we delivered a very strong performance with a record EBITDA and cash flow. Operational development in general, maybe some points which order book end of June was at a comparable high level as last year. We should not forget that it was 37% higher compared to the end of June 2021. Very high level order book compared also to 2021 and also compared to 2022, where it's comparable. That is also good.
Customer service improved due to fewer supply chain issues. I think that's what we saw at the beginning of the year, that supply chain issues softened and came better and better. We still have some small, very minor issues in electronics, but that's minor, very minor. We could also ship and again, improve our inventory position downwards, which is good visual in the cash flow. What was also very important is that we continued our investment in business development to drive organic growth, innovation, and also operational excellence projects. We didn't stop any of them. Also, due to our strong balance sheet, we could have higher inventories, but also could invest more in capital expenditure to drive all the good ideas.
We have many, many business development projects ongoing in all parts of the company. That led to a CapEx of a plus of 38% to facilitate all these plans. We will continue that, as we also guided in our December 2021 Capital Markets Day, that our investments will go towards EUR 250, EUR 200, EUR 250. We also will see that this year, that it will climb and be also in that range. We invested in several projects with our customers, also enabling the reshoring. It's really good to see that especially on industrial markets and sustainable transportation, that the bigger customers look for bigger partners for these reshoring projects.
That needs higher investments, but also a pretty unique position with them, where we see we have a lot of pricing power. That's, we scored several projects already the last 12 months with some very nice new technology developments also. That looks very prosperous because we are still at the beginning of this trend, because it needs time to drive all these projects in semicon, in automotive, in sustainable transportation, but also in all kind of other areas. Our organic revenue at a +5.6% and capital expenditure, a +38%. The different segments and end markets shaping eco-friendly buildings.
Yeah, as explained, we faced a volume decline and a continued inventory reduction of mainly our wholesale customers, but not only, also some installers had a little bit too much, but it was mainly wholesale. This started in quarter three last year, it continued till this summer. Our opinion is that it can be that it continues a little bit, but by far, the most of this, the stock reduction is done. By summer, as we already guided earlier, that means that there comes an end to stock reduction of our customers. On top of that, of course, we are also in eco-friendly buildings, are reducing our own stock, and we will continue with that.
Of course, in the second half of the year, we will not have the same stock reduction as we had in the last 12 months. Very important is that the underlying demand for the installer end users is on a good level. You have a little bit of strange situation that the real end user of our portfolio in eco-friendly buildings is still fully booked and busy with installations all the time, and doing the maximum to install, and that the wholesaler, the distributor actually of our product, is reducing the stocks because, yeah, there was too many products ordered, you could say, in the last one and a half, two year after the COVID period.
Also very important to mention is that we see that renovation, which is 70% of our business in eco-friendly buildings, together with repair of heating and cooling systems, is continuing because energy efficiency is a big growth driver, and that's only continuing. We have a lot of products in this area, so we are pretty positive there also regarding to the future. In new build project, we see postponements that has to do also with the higher interest rates and mortgages, of course, but also with all kind of different topics. It can be legislation or, yeah, some environmental topics which we face also in the Netherlands and also other countries. What we also see is that new build is here and there postponed, but not on a full scale.
Here and there, you see the new build projects are again, here and there, started up. It's a little bit diffused picture, but again, 70% of our business is renovation and repair. We implemented additional sales initiatives, and you can only do that when you are operationally very fit. We think we are, because we also installed a lot of new equipment the last years in Eco-friendly Buildings with new machinery. We are still doing that. New factories in many places in America, in Poland, in Denmark, in Holland, are starting up or are on speed almost.
We are at really equipment also to attack with very efficient equipment, new equipment, because we invested the last years in that, and we also during the COVID period, we didn't stop investing, we only postponed maybe a little bit, and that really helps us now, and we will increase our investments. That means you have a very good position towards your competition, but also to our customers, and we're gonna make use of that. We already had some very nice orders on that with additional product ranges. What also is helping, yeah, and that is the other side of having a good inventory, is that we good service, because we also have competitors who didn't have the inventory, and that's you have a competitive advantage.
There are also a lot of pluses in eco-friendly buildings when you look forward. Action plans, we started at the beginning of the year, so besides increasing our prices, yeah, let's say summer last year, due to the increased inflation, we also started at the beginning of the year, immediately in the first week of January, action plans additionally in eco-friendly buildings, to further reduce costs. We look to full-time equivalents, we look to efficiency, operational excellence, and we also focused a lot from that moment on purchase savings. Because, of course, there was a time that you collect the components and products as much as possible to deliver.
Now was also the time to look again to savings and try to improve your added value margin. I think we did that very quick on time. That's also something which we do immediately. I think the plans the business team made in the first weeks of January were very good. We pursued them every month with the teams. We were on top of that, and you can also see that our costs are really good in control.
When you look to the OpEx revenue ratios, which we had the first six months, that really helped us to have a very, in my opinion, a very resilient margin in eco-friendly buildings when you also look to the volume decline and the lesser production we did also ourselves to also reduce our own stocks. Renovation, heating, and cooling systems are continuing. The market is still in need of a lot of sustainable products, efficiency is still the growth driver also for the coming years. When we look to increasing semicon efficiency, we had a very good first six months. We realized a good performance, our order book is on a very good level, it's continuing.
I think a big change in the first six months, and that started also already the last months of 2022, is that we are really we strengthened also our management there. We focused a lot of on efficiency improvements and service. On top of that, we had fewer supply chain issues, let's say, the beginning of this year, and that combination also gave us that we are much better organized and that reflected in the cash flow from operations, which improved strongly. That is really helping because the ramp-up we did also last year and this year is pretty strong with our customers, but we are able to follow them.
In parallel, we are doing capacity expansions and efficiency improvements, continues all the time, doing investments in that. Also, on the third thing is we gained new projects, new NPIs, new developments together with our customers. Yeah, that also helped our cash flow on a good way in the first six months to be there, yeah, let's say, better in control than we already were, also by strengthening the teams, and the team did a great job in doing that. We are preparing now the new factory for ultra-precision frames, which we will build in the Netherlands. The first activities are started, the two acquisitions we did last year, ISEL and KML, we integrated them well. Very nice businesses.
I think good acquisition we can say now. Also with the teams, we are ramping up the manufacturing. In the second half of the year, especially KML, we need to ramp up heavily in the coming six months because the forecast for 2024 looks very good. Yeah, we are on top of this development. Strong growth continued, order book on a very good level, and we realized, yeah, a good performance in that area. Now, driving sustainable transportation, the end markets, also here, order intake continued on a good level, realized a strong performance and what I said already earlier, and that's also for industrial niches, you can really see all the efforts we did the last four years.
When we get good volumes, good order take on the equipment we have, you see the operational leverage coming with a fantastic EBIT margin in industrial technology. Supply chain disruption at our facilities, our customers reduced, so that also means that our customers could give us more parts to treat and, in surface technologies, we got more parts to produce. It's the underlying demand for precision manufactured parts and, surface technologies is continuing, because do not forget, by having so many new models in electrical vehicles or e-mobility or the lightweight of materials, driven by sustainability and also more and more by reshoring, all these new models need new specifications for precision manufactured parts, but especially also surface technologies.
Because the aim is to make to reduce weight, and to reduce weight, you can sometimes use other materials with different coatings or different treatments. It's all driven in the end by sustainability. We are there in a very good position because the bigger customers ask for big investments and partners who can do that. There are not so many who can do that. Based on that, we gave several new and larger projects in Europe, very nice projects with big OEMs, in Eastern Europe, in Western Europe, but also in America. That's also why, yeah, we invest so much in additional equipment and also building expansions this year. You saw that in our CapEx numbers, but also next year. Yeah, to drive these business development projects.
Requests for sustainable electronic pressure regulators, safety valve applications for hydrogen and sustainable cooling fluids. Also there, we saw many requests. You see that accelerating, what you also see is that our customers want to do business with engineering companies like us or manufacturers like us because they are close by. Here you see also reshoring effect, that looks very promising for our sustainable cooling fluids. The valve applications, we are now ramping up with equipment because we have already the nominations for our customers to deliver in 2024, 2025, and in the coming years. Also there, you see that sustainability is also here driving the business.
We do not forget, more than 70% of our revenue is our goal, should be sustainable with the Sustainable Development Goals. That is a target we have, and this is again, a nice example of that. Aerospace and marine, excellent performance. Also here, it is driven by sustainable system innovations. Also, especially marine, we made there an excellent performance. Yeah, it's all in line with the strategy. Order intake continued on a good level, and we realized a strong performance. Industrial niches. Yeah, it's actually a little bit in line with the sustainable transportation. Order intake continued on a very high level. You could say activities performed very well, and the demand for extrusion parts and surface technologies also here continued on a high level.
Supply chain disruptions reduced strongly, and it led to higher shipments. Our industrial valves business in Europe, North America, we made a good performance. Here we faced some inventory reductions, especially in the months May, June, July. More and more short time. We see now again a better order intake in that area. It was mainly because our customers also optimized their working capital. We also here, we had several initiatives to gain market share coming periods. Order intake on high level, activities performed very well. Now I want to give the word to my colleague, Arno.
Yeah, thanks, Wim. Good morning also on my side. I would like to take you through the financial development of the first six months of 2023. We start with the revenue bridge, where we started with EUR 1.614 billion last year. We had a positive effect in the first six months from our acquisitions that we did in 2022, ISEL, UWS and KML. That positive effect was EUR 30.9 million. We had a negative effect from our disposals that we did in 2022, ETI and VTI. That negative effect was EUR 13.5 million. The currency, we had a positive effect from the US dollars in the first six months, but a negative effect from the Great British pounds.
At the end, the total effect negative was EUR 2.9 million in the first six months. The result is the organic growth that we realized in the first six months of EUR 88.0 million, totalizing to the total revenue of EUR 1.717 billion in the first six months. As already explained, this EUR 88 million represents EUR 5.6 million, or 35.6% organic growth. The EBITA bridge, starting from the EUR 250.2 million last year, the 50.5% on revenue. We had a positive effect from the acquisitions of EUR 6.3 million, making it more than 20% EBITA contribution.
We had a negative effect of EUR 2.2 million from the disposals that we did in the first six months. The negative EBITA effect from the currency translation was EUR 0.8 million. Just as a reminder, last year, we had a positive effect in these first six months of EUR 4 million. It's a gap of almost EUR 5 million. The organic growth of EBITA in the first six months was EUR 10.7 million, totalizing to the EUR 264.2 million EBITA, which is 50.4% on the revenues. The consolidated income statement, where you see, of course, the increase of the revenues with 6%.
Also you see that we increased our depreciations, which is, of course, the result of the increased CapEx program over the last years to facilitate all the business development plans and innovation initiatives. At the end, also, EBITA increased at 6%, slightly lower percentage point, 1%, but it's almost the same increase as on the revenue. Then the net finance costs increased strongly with EUR 12.2 million versus last year, and that is also the main reason why the EPS grew slightly lower than the EBITA grew, and the EPS grew with EUR 0.03 to EUR 1.71 versus EUR 1.68 last year. The balance sheet, first, the net debt.
The net debt, we could decrease during the first six months, and that, of course, the main driver for that reduction was the strong cash flow from operations. Because of that, also the leverage ratio improved versus the, let's say, the end of last year, from 1.3 to 1.2. Days Working Capital, you see there increase also versus last year, and that is also something that you should be aware of. Although we improved our DIO and Days Inventory Outstanding, and also our DSO, so Days Sales Outstanding, our Days Payable Outstanding was much lower than last year.
Of the strong decrease of inventories, since you have just less purchases during the period, especially, before the finish of the first half year, and that at the end, results, in a higher Days Working Capital. The solvability also improved because of the lower debt, and that is from 51.6% last year to 55.5% this year. Still a very solid balance sheet. We go to the free cash flow, where it also says before exceptionals, although in the 2023 numbers? That is only EUR 1 million, the effect. We see again, the strong EBITDA performance, as a starting point.
You see on the second line that we did not have a gain on disposal of subsidiaries, where we had in EUR 7 million disposal benefit last year because of the disposal of ETI. We have the line result on sale of equipment and change in provisions, and there, the impact of the result on sale of equipment was versus last year, EUR 3.3 million higher. That has to do, yeah, also with the program that we are already executing for the last couple of years to reduce our footprint. Yeah, you also sometimes sell a building and some equipment just to also close the location, and that is the result of that.
The change of working capital, there you see the big improvement from a cash perspective, where we had last of this year, a negative impact of the change in working capital of EUR 105 million versus last year, EUR 222 million, which is an improvement of EUR 170 million. Also there, the improvement from inventories was EUR 160 million, plus the improvement from receivables was EUR 60 million plus. The disimprovement from payables was EUR 58 million negative, so that reduced a bit the advantage of the movement in working capital. Now, last but not least, the purchase of PPE. Also, there, the cash out of our CapEx increased with almost EUR 38 million versus last year. Despite that, yeah, we made a free cash flow of EUR 110 million versus EUR 4 million last year.
A strong cash performance. Our segment reporting, the first, the building technology segment. Yeah, we have already mentioned, we are already facing quite some time stock reductions at the wholesale side, at the distributor side, but also we have strong focus on our own stocks to improve that during the first half year. That's, yeah, let's say, a double effect of, on stock reduction, of course, had impact on the volume in our building activities. Because of that negative volume impact, that we also made a slightly lower profit of 40.0% versus the 50.4%, comparable last year. The CapEx was about the same level, EUR 41.2 million versus EUR 43.1 million last year.
Let's say at the end, an organic revenue decline over the first six months in building segment of 1.5% versus 9.9% increase growth last year. The industrial technology segment, there we see a very strong performance also from a volume perspective, and that also led to a very good leverage of the equipment installed. That means that they made a good drop-through on the organic revenue growth of 16%. The EBITDA grew from 60.3% to 70.5%. The EBITDA grew faster, as you can see, because of that drop-through. 26% growth versus the 80% growth on the revenue side.
EBITDA finished at 70.5%. A strong increase of the CapEx of EUR 75.2 million versus EUR 40 million last year, 88% higher. The revenue per end market and region, eco-friendly buildings, 51%. As a reminder, last year, full year, it was 54%, and also here last year, full year, semicon grew from 12% to 30% in the first six months. Sustainable transportation also increased from 15% to 60%, and industrial niches from 9% to 20%. That is for the end market. For the regions, Western Europe, 61%, America, 23%, Eastern Europe, 11%, and APAC, Middle East, Africa, 5%. It's a total.
Yes, the outlook.
The outlook in the second half of 2023, and I think that's important, is that we will continue our many business development projects we have, driving the organic growth, innovation and operational excellence. That means we are really pursuing all these plans. That means we are driving also the strategy which we have presented in December 2021, because our goal is to realize these objectives, which we are going to reach. Therefore, we keep on driving that, and that, of course, needs also CapEx to facilitate these plans. That will also further increase.
Yeah, the guidance we gave already in December 2021, that it will go somewhere between EUR 200-EUR 250, but I think it will be closer to EUR 250 for this year. We are pursuing all these plans. In the meantime, we are further reducing our inventories so that we will make a good cash flow this year. Yeah, we will continue actually on the same pace with the actions in building technology. I think, yeah, we will be pursuing also the actions on the market share gains. We will be very alert on our costs further.
... pursue also the monthly cost reductions and purchase saving plans we have made from the beginning of the year. In industrial, we will ship the good order book and continue also there with the innovations. That is actually what we then call, we are relentlessly executing our strategy to reach our and realize our objectives, which we have presented in December 2021. That is our outlook for the coming period. I think that there will be and we hope a lot of questions, which we want to answer, of course.
Thank you. 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 a Question button. Thank you. We'll take our first question from Martijn den Drijver at ABN ODDO. Your line is open. Please go ahead.
Yeah, thank you, operator. Good morning, gentlemen.
Morning.
Hi, I have three questions. We'll take them one by one, please. Can you share with us what the customer behavior was in building technologies going from your your May update for the period to April, and then moving into May, June, July? I'm referring to what do you know, what do you see in terms of destocking, what do you see in terms of sell out at the distributor wholesaler level? What do you see in terms of your discussions with end clients and installers? That would be question one.
Okay. The customer behavior is actually that we faced inventory reductions already from quarter three last year, and that continued also in quarter one this year, but also in quarter two this year. On the end user line, you see actually that the installers are pretty full of work. Actually, they also the coming months they are full of work, so there is more the limit to how many people you have to install the projects and the renovation works which you have to do. On the distributor behavior, yeah, you saw also in quarter two that they continue stock reductions. Their sales out is sometimes a little bit diffuse.
In some areas you see that the sales out can be a little bit higher, in some product lines, a little bit lower. What you also see, of course, that they all are working on their working capital. So,
Mm.
That's, that has also to do with their own high stock positions, of course, which they want to reduce. The second thing is, yeah, they, yeah, they. That's also, I think, also logic. They are also a little bit cautious because, yeah, it's, you see that also new build projects are postponed. Yeah, when, as a wholesaler, you are called to optimize your stocks from that point of view. What we see at the installer level, they are actually having a very good, very good, how do you say that, book of work to execute.
Mm-hmm
... also the coming months. What the other trends are only accelerating. When you see the renovation of let's say, the heating and cooling systems to go to more sustainable solutions, that's only accelerating, and that will also continue. That is the picture, what you see. What I said already earlier, in my opinion, the stock reductions in summer from the wholesalers will be over, and of course, can be here and there, that they still do something per product line, but I think you get a better situation in the second half, from that point of view.
Got it. Just one full small follow-up. Acceleration of trends in heating and cooling, is that really visible in hydronic flow control, or is that an expectation?
No, I think you have different trends. What I discussed about stock reduction, wholesale, that you have here and there, you have sellouts of wholesale, lower, and here and there, some higher per product line. You have, of course, installers who are still full of work, but also the installers here and there have a little bit too much stock. For example, when they normally maybe have in their shop, they have maybe three expansion vessels, or two, they have maybe now four. Also there you see optimization, but the trend of renovation of heating and cooling systems towards the future and the sustainability trend is ongoing. For example, we also, on top of that, we are gaining here some nice deals.
In specific, hydronic flow control, we made a very nice deal for expansion vessels, which starts in the second half, because we have now the equipment, two, three additional lines installed. That will also help. You have a short-term thing of stock optimization, mainly in wholesale and also a little bit in installers. Installers are having a good workload, also the coming months. The same trends are there from renovation and repair, and that will not stop because, yeah, sustainability is not stopping. That is the situation. Europe, by the way, Europe is different than North America. In Europe, you see this, in North America they're also reducing stock, but also there, it's a little bit different pattern.
It's mainly Europe, where this happens.
Got it. Got it. Moving on to my second question. How should we look at the second half? For Aalberts as a whole, how should we look at the second half versus the first half? Like, normally, the day margins are somewhat lower in the second half compared to the first half. Now you have some cost savings from these measures, both from 2022 and the ones that you're doing right now. You mentioned procurement savings, you mentioned perhaps a stop of destocking and building technology and market share gains. Should we assume EBITA margins, therefore, to be perhaps flat or even up? How should we think about the second half?
I think what is important to understand is, that is really the case we also had in the first half year. We still, let's say, consumed raw materials of contracts which we fixed end of last year and beginning of this year, but mainly end of last year. This was, of course, a higher raw material.
Yeah.
In the second half, we will have an advantage in the raw material. That is mainly in building technology. The second thing is energy costs are lower. These are two things which are really there. Energy costs will be lower, because don't forget, also in the first half, we have very high energy costs in all the factories.
Yeah.
We had high raw material. Despite the high raw material, we reached 62.3% at the value. That says something about, also the pricing power we also delivered. On the other end, the cost programs in building technology will continue. Stock reduction also will, yeah, will be lower, much lower. You, you also have to produce, but, the counter effect is that we still will, reduce our own inventory step by step further.
Mm-hmm.
The real effect of new build postponements, it's a little bit diffuse here and there. It's difficult to judge, in my opinion, but there are some positives on that side. Now, you look to the industrial area, order intake was good. The coming months will also be good because we have a good order book. How the end of the year will be, depends also a little bit how the order intake will be in the coming months. We start at least from a very good base.
Yeah.
Semicon will continue, because their order book is sky-high. We have so many things to improve further. That, that is the picture for the second half. Yeah.
Clearly a more positive picture than the normal seasonality. Okay.
That are your words, huh? Martijn.
Sure. Absolutely. Absolutely. My third question is more of an accounting issue, but it is an important one. The other income line has EUR 8.6 million. There's a gain on assets, you know, the sale of those buildings, so EUR 4 million. I just want to understand how you accounted for those elements in the reported EBITDA. Is the reported EBITDA, including the EUR 4 million gain, but also including the EUR 3 million addition to the provision, or how should we look at true/underlying EBITA?
Let's say the underlying EBITA is including this EUR 4 million result on the PPE. Clear, that's also reported in the other operating income. Let's say the other operating income, as you can see, it's lower than last year. Last year it was EUR 10.5, this year it's EUR 8.6.
Mm-hmm.
In the other operating income, also last year, we reported the ETI disposal benefit of EUR 7 million, and then some PPE, a benefit of EUR 0.9, and some other effects. This year, it's also reported for the EUR 4.2 result on PPE. The, let's say, the real income effect, I would say, is lower than last year.
I understand that, but that's on a year-over-year, half-year-to-half-year comparison. If I were solely say, reported EBITDA, EBITA versus underlying EBITA, you would probably remove that EUR 4 million. Then in comparison with the first half, your story holds, but if you look solely at the first half, the EUR 4 million is one of them.
Listen, Martin, that is also always the issue. There are also a lot of negative things about P&L. You cannot only take out the positives and the negatives. Let's say, how you should look at these other operating income is, this is a normal level of about EUR 10 million, because you have all kinds of elements going through that through that line. Yeah, and therefore, I think it's a very comparable situation with last year. Therefore, let's say the disposal benefit is something clearly that we always, therefore, we always make, let's say, make very clear that it's a separate income.
Although last year, as we also said, yeah, the income is also compensated by exceptional costs, so you should also look at the total effect of these elements. This other operating income line is showing an even lower effect than last year.
As you know, this line has been much higher in the past.
I know.
All kinds of insurance, effects. That was also an exceptional situation. I would say this is a normal, let's say, picture of, how this line looks like, over the first six months.
I think it would be worthwhile to make some sort of bridge going from normal holding costs, plus one-off elements, minus one-off negatives.
Martijn, we have discussed this earlier.
It just gives a bit more insight.
Yeah.
Just a bit more.
If you only focus on the other operating income, this is the line where we should, for instance, report an income from a, from an insurance perspective, right? On the other side, you also have costs. You also have costs in your operating side.
Yeah, I agree.
That are, let's say, on the opposite side. Let's say, you should rely on us, that we try to really to give a clear picture of our operating results. That's also the reason that the disposal benefit is really clearly reported separately, and also, when it's really having a one-off effect, then we will show it in the holding elimination line, because they are where it belongs. When the holding elimination line is showing a normal picture, then you should conclude, or you can conclude, that there's no one-off effect from that perspective.
I have no further questions. I know, thank you very much.
All right.
Thank you. Once again, as a gentle reminder, for the people dialing in, please press star one to register your question. For the people joining via the webcast , please ask your question via the Ask a Question button in aalberts.com. Thank you. We'll now take our next question from Aurelio Calderon at Morgan Stanley. Your line is open, please go ahead.
Hi, good morning. Thanks for taking my questions.
Good morning.
I've got two questions. I'll take them one at a time, please. The first one is one of the comments you've made on destocking, not just at kind of wholesalers, but your own destocking effect. Could you help us quantify the impact on gross margins that you've had from that destocking? Probably another way to ask it is, what was the benefit on the way up when you were building inventories, and what do you expect to be the kind of negative effect once you underproduce or kind of flash through those inventories?
Let's say, you can see that we made 0.5% less added value in the first six months versus last year. We made a stock decrease of EUR 30 million versus a stock build of EUR 168 million last year. It's really a big change. Now, of course, we are not going to quantify the impact, but I think, it's clearly that part of this destocking, as we have also guided last year, has come, for instance, from the raw material part, because also there, the reliability of delivery has improved. We need less physically on stocks than we did six months ago or 12 months ago.
Clearly it means that, if you build off raw materials, it, you don't have any impact in your, in your added value margin. On the other side, when you reduce really production, like we also did, because otherwise you cannot. Let's say last year we had an, a stock build, so we had a higher production, that has an added value impact for sure. The total at the end, the difference was 0.5%, also driven by all kinds of other operational improvements, purchase savings, pricing initiatives.
The effect is difficult, but you can also see that when you have really a good volume performance like we did in industrial segment that you also make a good drop through there.
That's helpful. Thank you. My second question is a little bit more big picture, and you've been talking about initiatives to gain market share. Obviously, you have a big CapEx programs and so on. I just wonder, how do you see that market share evolving? What do you think are the main levers and the main reasons why you can take market share? You alluded to, you were able to take share from customers or take pricing, because you had stocks. What are the next drivers of that kind of market share gains, as you're going to reduce stocks, continue investing, how do you see that evolving?
A very important point for you, Aurelio, is that we can take market share at the moment or the last months, but also the coming months. In my opinion, is that we strategically decided in 2020, during the COVID period, to not stop the investments. That means that in 2021, we kept on investing in equipment, which we were ordering. For example, our copper press factory in the United States, which we built up completely. Another example is all the lines to our expansion vessels, which we have in Almere. We kept on investing. We didn't stop. Maybe we postponed here and there some cash payments or whatever, but we didn't stop.
For example, we built a factory for full flow valves in Denmark, which and now we are building at the moment, the factory for the bigger dimensions.
... we didn't stop. That means that we are a manufacturing company, the moment you order machinery, it takes you sometimes one and a half year before you have one piece of equipment, and then you have to start it up. It takes you another three, four months or five months to get it running. That can take years. We didn't stop. Now, the same is also in the area of multilayer and tubing, where we invested a lot in different areas. We have the equipment in place, we have the newest equipment in place, we have the efficient equipment in place. The second thing is that we also were able to have inventories.
Due to our strong balance sheet, we have inventories in building technology, which some smaller suppliers, and also at the moment have difficulties because of the interest rates, because they may be under pressure of banks. That means we can also deliver. We have the service. This combination, besides of course, a good sales plan and a good sales pitch. We're gonna take advantage of it, and we see already some efforts having results the last months, but we will continue that. Actually, what you are doing, you're taking advantage of the strategic decisions you made two, three, four years ago. Now, we will continue with the investments in the equipment, and we also have some new innovations, like our PowerPress fitting range.
We have now launched a stainless steel range with a valve, with a patented full flow valve. All these innovations we can also use. That's what we mean with that. That's why you make the difference with the, with, yeah, with what you did the last years, eh? Which we also explained.
Okay, that's very helpful. I realize this may be your Wim, this may be your last conference call as CEO of Aalberts, all the best.
It is.
The future. We,
This will be my last.
Perfect. Well.
Aalberts at least.
Exactly. But yeah, thanks for all the help.
Thank you. Thank you.
There are no further questions. Thank you for joining today's webcast call. You may now disconnect. Oh, I'm sorry.
Okay.
I'm sorry. Please pardon me.
Oh.
There is one question via webcast from Javier Pinedo of Torreal. Could we assume for the full year, 2023, that there will be no investment in working capital, thanks to the inventory reduction?
Let's say, we expect, as we have already guided, also during the first six months, we expect a good cash flow this year. We will continue to optimize our inventories by executing the plans that we made per business team, so the teams will continue, and we may expect that it will continue to go down in the second half of the year. That would also mean that we hopefully have a positive effect from the net working capital movement, because that's the automatic effect from it.
Lovely. Thank you. There are no further questions. Just one just came in again. Let me have a look. That's from the audio.
The ID. Maarten?
Yes, Maarten. Your line is open. Please go ahead.
Thanks. Let me just introduce myself, so I'm not sure if my line was open. It's Maarteen Verbeek of The Idea. I have a question concerning what you mentioned on your order book, which was some 37% higher than mid-2021. When I'm making my calculations, then, more or less, it is flattish compared to year-end and also flattish compared to last year's. I presume that volume-wise, it is definitely lower since prices have gone up. You also mentioned that at semicon, you are at a record level high. That presumes that for the other businesses, the order book must be lower.
Will this initiate some additional cost reductions, you have to, take for your company, and also put a bit of pressure on your margins, since you already have a relatively high, inventory level, and you don't want to produce much more? Will it also have an impact on your profitability for the second half?
I think we already answered these questions because, yeah, of course, the order book in building technology is lower. When your wholesalers are reducing the stock position, they also send in less orders. That is the explanation why there, the order book is lower. You're right, semicon is on a very good level, but also Industrials on a very good level. That's of course, you can also read out of the press release. You ask about cost reduction. We are already busy with that. To counterattack that effort and try to gain market share to through more sales initiatives. That's what we keep on doing also the coming periods.
Okay, thank you.
More questions?
There are no questions. Just let's give them a final reminder. If you are dialing in, please press star one to register your question. For the people joining the webcast via Aalberts.com, questions can be asked via Ask a Question button. Thank you. Okay, I don't see any further questions. Thank you for joining today's webcast and call. You may now disconnect.
Thank you very much, also from our side.
Yeah. Thank you. Bye-bye.