Welcome at our Experience Center, people joining our webcast. Today, we will evaluate the first two years of the execution of our strategy, focused acceleration. The agenda will be as follows. First of all, we will talk a little bit about the Aalberts strategy, which we announced two years ago. Also, we want to tell you something about the way forward. The last two years, we evaluated our strategy, as normal, when you run your business, you also try to improve. What you want to improve, you also have to take actions for that. We want to tell you something about how we want to evolve Aalberts into a stronger and better Aalberts. Of course, there's also a financial development, which is the effect of that. We also want to show you that.
I think we give a lot of insights about the way forward, the coming three years to adapt to our strategy. We have a Q&A, part one. We have lunch, and then we will talk, a very interesting part, I think, about strategy in action. A lot of you, and also the webcast joiners, I think, asked about what is now exactly your business. I think this afternoon, you have a great opportunity to talk with the people who really run the businesses. You can ask the questions, you can see how we do the business, how we create growth drivers, and how we succeed in that. First of all, this is a very important thing. You will find Aalberts everywhere where technology matters and real progress can be made, not only financially, but also environmentally and humanly.
We are a company, and that's a little bit a modern word, where purpose is important, because it's not only about the financials, it's also about that you can attract the right talent to your company. Also environment is important. You have to have a sustainable responsibility to create also the future in life. Everywhere where technology matters and we can innovate our existing positions, we want to be there. What is the essential part of Aalberts? We say always niche technologies, mission-critical technologies for different industries. It's always niche, it's always special, it's always unique. The second part of our essential brand, our essential being, is in my opinion, that for us, good is never good enough. That means that you go the extra step, and of course, you can say that a lot of companies do that.
I think the way we do that already all these years, and we're on a sustainable way, is really special. We do that with mission-critical people. Very important. The third essential point is that we share knowledge. Why is Aalberts together? Why do we have four business segments? What is the interest of having them together? I think we share a lot of knowledge, and greatness is made of sharing knowledge in our vision. That means you are fast-learning, you innovate faster, but you also create a lot of ideas where you innovate faster, and you learn faster in this very challenging world, which goes faster and faster. The moment you share your ideas and you use every brain cell you have in your company, you innovate faster, and you serve your customer on a better way. That's our belief.
Of course, relentless in our pursuit for excellence. Good is never good enough. Essential. Culture is therefore very important. Our way of value creation is based on these three essential things. We strive for leading niche technology positions with high entry barriers, high pricing power, and we continuously evaluate that portfolio. Combined with our culture of operational excellence, improving our EBIT margin continuously, strong cash conversion, we have the cash also to allocate that well on the best way. As you know, I said many times, capital allocation is the most important thing you can do as management, because in the end, it's about return of your capital employed, about the cash you generate. You told me, and I learned also from you, that cash never lies. Greatness is made of shared knowledge, I already explained. Innovation speed, fast learning and adaptation, technology exchange.
You can't imagine how much knowledge is exchanged by the people within Aalberts. That's also why we created here this Experience Center, to share these ideas with externals, with internals, and it's really working. We are here now one year, and I can really tell that a lot of teams have been here, and also we organize a lot of external events, and it's all sharing knowledge to adapt to the fast-moving world. The Aalberts Playbook. The Aalberts Playbook. Already 40 years, relentlessly creating long-term shareholders' value. We create competitive advantage every day, and you try to analyze what are the growth drivers in your business. We will explain this this afternoon in the businesses which we will present to you. Leverage and excellence operationally and increase your margin continuously. That means it's sort of playbook where we then generate strong free cash flow, which we allocate on a disciplined way.
With that money, we improve our portfolio, can be organic or inorganic. That continues all the time, compounding returns. It's a long run. It's a mid-long run. Of course, you have to manage the short term, this is really the Aalberts Playbook. We will never stop. We will always improve. It's not something you present a strategy and that's the end. You continuously improve. That is our way of working. This slide, you just actually don't have to explain. Over 40 years, the Aalberts Playbook, a proven, sustainable business model for 40 years, our track record. We will continue. I'm also working more than 20 years in this company. A lot of me are also with the same passion to drive the business every day, create new initiatives, launch new products, especially create unique market positions. Our shareholder value creation, you can see here.
Even today, of course, it's now 2019, this is the years 2008 to 2018, you see what we achieved for our shareholders. Also the right side of the sheet, you can see our long-term shareholders, more than 3% holdings. It's more than 50%. It's really changed the last years because long-term value creation, that's what we are. Also shareholders want that we pursue that further. This is very important. I can't say to you how important this is, because without the best people, without the people of the future, you can't win. Winning with people makes really the difference, and this, in my opinion, is the big threat what a lot of companies have, because when you don't attract the right people to your image, to your strategy, to your image, to your whatever you have, you don't win the war. You don't survive.
For us, our mission-critical people are essential, but also the future people, that will make the difference. We believe really the Aalberts Way is Winning with People, but also attracting the right people for the future. There's a lot of disruption going on in all kind of markets, and when you think as management or as CEO or whatever, that you know everything what's happening, I can just tell you, forget it. You have to listen to every new initiative. You have to listen to every new person. Young people, trainees, good educated, or machine operators, are very important for us to survive. That's also why our Aalberts brand is so important. We have to utilize that more. Our values, the Aalberts Way, Winning with People. Our strategy and objectives we launched two years ago.
First, we want to realize them before we change them. We are relentlessly driving these targets and objectives, not only the financial objectives, because also the non-financial objectives, because we need leading niche technology positions. We need to create sustainable, profitable growth, generating high added value margins, and converting strong operational execution into free cash flow. Very essential to hit our financial objectives, which we want to reach as soon as possible, as we said two years ago. We have a timeframe of five years, but our objective is to reach them as soon as possible. Evolving into a stronger and better Aalberts, or evolving into an even stronger and better Aalberts. That could also have been the title. We have evaluated the last two years of this strategy.
When you launch the strategy, and you all know we are in a journey, the fact is that we are in a journey. It's not an endpoint. No, we are in a journey transforming the company, making better and better and better. You also learn. Today, we want to share with you what we learned and what our action and strategic initiatives to further accelerate our strategy, which we launched two years ago, and then evolve into a better and stronger, an even better and stronger Aalberts. What is our evaluation? That allocating our capital in the most efficient way to generate the highest returns. You have to be very disciplined and very, let's say, on top of these things, because don't fall in love with your businesses because you are emotionally connected.
What we saw is that some existing business plans are doing very well, a lot of them, because as you know, we launched this business plan three, four years ago with innovation roadmaps. Some are doing very well, generating a lot of CapEx demand. We also have activities where we say we have limited progress. They require a disproportional efforts and cash. Don't forget the efforts and the energy you put in as management. You put in energy, and then you don't get the returns or the increase of margin which you expected. That's disappointing, yes, but you also have to be very rational. When you can allocate your money better, you should always do it. Of course, we found out that in the last two years that we also have businesses which do much less than we expected. What do you do then?
You adapt. We think that we should further, to build an even stronger and better Aalberts, we should further narrow our focus and accelerate the plans which do now very well. We will invest only where we have a compelling competitive advantage, where we can really increase our margin and returns and realize sustainable organic growth. The megatrends are shaping our future. We should include that in our strategy. Sustainable impact is very important. More and more money will flow to sustainability. It would actually not wise as an entrepreneur not to take advantage of the sustainable trend. We are entrepreneurs. We want to make money. When you want to make money and to increase your position, then you should grab these opportunities. We will accelerate, we believe, we have to accelerate our operational excellence, reduce our complexity further.
We did many things already in the past five, six years. Still, there's so much to gain, in my opinion. The more and more you dig in, the more and more you can gain. In the end, it's all about capital allocation to evolve in a stronger and better Aalberts. We defined actions for that. In the next sheet, we'll show you that. We took actions, we took decisions, we took strategic initiatives to transform faster than we did the last years. The coming three years, we will have a set of measures. First of all, what is now shaping our future? Shaping our future are mega trends which we cannot ignore. Rapid urbanization. Look around these windows and see the buildings. They have to be healthy. They have to be sustainable. Climate change, resource scarcity, Internet of Things. These things are happening.
These things are disrupting markets. It is happening. Sometimes I think a lot of you don't see that in depth. Go in depth, and you will see that more and more. What is also a trend? The market trend, which follows out of that, embracing the sustainable development goals, which we really embrace because we take our responsibility there. We also believe that the sustainable development goals bring us really business. You see two big trends, two big developments, globalization and co-development, and connectivity and integration. What does that mean? Globalization is clear. Despite all kind of, let's say, political discussions, we see only further globalization and co-development. That means the bigger OEMs, they ask for R&D and investment power of their partners. We are very strong. We can fill that gap.
The second thing is there are more solution needed, more solutions, more connected hardware, more devices which are connectable, more software, more digital services, more integrated systems, integrated solutions. These trends are actually in every business which we have. Now Aalberts comes in because you can share this knowledge between the businesses. We can share through our Aalberts Networks, because in every business, this trend is there. It's not only Advanced Mechatronics, it's also Piping Systems. It's also Hydronic Flow Control. It's also Surface Technologies where we have the same trend everywhere. We have a fantastic window to jump in. What is our aim for that? We have niche technologies, and we have selective end markets. We are in the sweet spot. We want to be in the sweet spot. We have to choose more. We have to choose more our niche technology.
We have to choose more and select our end markets more to achieve more and more unique market positions with sustainable impact, where we have a leading position. You have to make choices, because when you do that, you have to make hard choices. Coming from these unique market positions, we said compelling competitive advantage. Where do we have really compelling competitive advantage? Where we really can win in the market with our people? You have to go really deep. We want to be market leaders. We want to have pricing power. We want to have a unique market position. You have to really be honest to certain things. We will choose for this. Hydronic Flow Control, Piping Systems, Surface Technologies, Fluid Control, Advanced Mechatronics. As you maybe can remember, we had 15 technologies two years ago. We will go to five.
We had 10 end markets. We will go to four. We believe that eco-friendly buildings, that means economically but also sustainably, that there in buildings will happen a lot. 60% of our revenue is in eco-friendly buildings. We have to expand that position. The second thing is sustainable transportation. We say here in the air, on the land, and on the sea. It's a big thing which is generating a lot of potential on fluid control, on valves, on regulators, on emission systems, on sensors. Our fluid control activity, also our surface technologies in aerospace, weight reduction. Also going to other materials is a real trend where we see a lot of opportunity. In other areas, like in, let's say, certain automotive areas, we don't see opportunity. In surface technologies, we see a lot of opportunity.
Certain specialized manufacturing, for example, we see less opportunity because of the change of the electrification of cars, the change of the voltage of cars, the change of the engineering of cars. You have to adapt to that world. As for Semicon efficiency, besides our industrial niches. First, industrial niches, beverage dispense, for example, very interesting. All kind of new liquids, all kind of new beverages are developed. We have a great position there. Semicon efficiency, just for your information, it was 2% of our sales four years ago. It's now almost eight. We're going to double it. We have such a good position in Semicon as a tier one, tier two. That's great. The nice thing, and this afternoon we will explain it to you also through our colleague. The nice thing is that we have our own intellectual property.
We are not a contract manufacturer. We are a co-developer. We develop motion control systems with our customers. Many OEMs worldwide. Great position. It also means when you want to achieve these positions, you probably also have to take measures, because you can't allocate your money everywhere. Where technology matters and real progress can be made, that is where we want to be. Innovation roadmaps, more allocation of money to the business which are growing fast. Next year will be for us a very nice year in Semicon. How does that position ourselves? Our unique leading market positions. You know our segment structure. Installation Technology, piping systems, Material Technology, Surface Technologies. How do you improve the characteristics of the business? Climate Technology, hydronic flow control systems. We will present these businesses this afternoon, or you can show them in the experience.
Fluid control, Advanced Mechatronics in Semicon. You see the link between the end market and our technologies. Be aware, we came from 15 technologies and 10 end markets. We go to five, and we go to four end markets. The networks of Aalberts are very important, and they stimulate knowledge sharing, fast learning, innovation, and entrepreneurship with a very lean and mean head office, because we need entrepreneurial spirit close to the customer. The Aalberts brand and the Aalberts Networks are really accelerating our innovations. What do we have to do to go faster? This is what we're going to do. Aalberts will accelerate. We will increase our innovation rate from 10%- 20%, and we are already on the way. We had roughly six or seven. We measure that now. We go to 20. We will invest more.
We will invest more in CapEx, EUR 140 million-EUR 160 million a year. We will focus more on our unique market positions with a competitive advantage. We will divest more the coming three years. I told you all that our divestment program was till now EUR 50 million-EUR 70 million left. We will increase that to EUR 300 million-EUR 350 million to focus more on the businesses which we think where we have a better compelling competitive advantage. Meantime, due to the structure which we have more and more in place after transformation, we are able, especially in installation technology, to reduce our inventories heavily. We have a program, and we are good on the way already in 2019 to reduce our inventories with EUR 100 million-EUR 150 million based on the deal, the days. Of course, you grow.
My colleague, Arno Monincx, will explain that also later. We acquire EUR 100 million- EUR 200 million revenue, roughly during these three years. We continue with bolt-on acquisitions, what you also see, we believe that there are so many opportunity organically that there we will put the focus more and more on combined with bolt-ons. We will divest between the EUR 300 million- EUR 350 million. We will realize, that's really a goal internally, but also of course externally now, that we realize an operational leverage and excellence, a drop-through of 25%. It means the moment you grow organically EUR 10 million, you earn EUR 2.5 million EBIT. That's 25%. We have to drive the business. The coming years, we're going to execute the operational leverage and excellence with automation, with more equipment, with world-class manufacturing sites.
We also have sites where we believe we should not put so much money in. We reduce our locations with more than 30. We have a slide on that later, including our divestments and site closures. We will accelerate our operational excellence. We'll improve, as I said, the manufacturing locations to world-class, to be the best in business, because we want to be leading and have high pricing power, increase our margins. Further focus on clustering our simplification from 10 to four end markets, from 10 to five niche technologies. Also important, we will concentrate all our Aalberts group activities. That means also for the group management, which was outside, we will integrate in our lean head office. Probably we go from 25 here to maybe 30, because the rest probably we don't need because we want to be lean.
We have no group management, only which is business-related. Other will all be here in our new head office. We will concentrate and have more direct reports. Stimulate knowledge-sharing, fast learning through leadership networks. Accelerating our sustainable profitable growth, organic growth, EBITA, and ROCE percentage. Very important slide. Innovation drives our position, drives organic revenue growth, and we have now more than 4% of our revenue is related to R&D investments. When you look five years ago, we had roughly 3% or a little bit less than 3%. This is also the reason that our added value went up, but not our EBIT so much. We invested a lot in R&D, we invested a lot in sales. The coming years, we will drive the innovations.
Only in Climate Technology, and my colleague will explain that, we have 15 new product lines to be launched from summer this year. We will drive innovation more and more the coming years. After that, it will not stop. Innovation rate, CAGR, very important, will strongly increase. We see it already now. Our innovation rate is climbing. Our goal is 20%. That means business which is launched four years ago has to be 20% of the year, which is the current year. Launched December 1st, 2015, December 1st, 2019, 20% of 2019 should be that innovation rate. CAGR, also improving, increasing, because we go more global. We go more after globalization co-development. A lot of opportunity. Capital allocation actually will be the same. More CapEx, bolt-ons, more focus on organic.
When we get a good opportunity for a strategic footprint, we want to have the money in our pockets. Till now, prices are too high for us. Multiples are too high because it looks like the money is still cheap, and in my opinion, the prices are too high. Maybe time changes. Could be. This is also interesting. Where do we allocate our capital? Acquisitions, CapEx. A lot of you asked me also that, where do you allocate the new capital? Where is your CapEx going? Now, here it's going, mainly. Connections and valve technology. Rolling out the technology in press fittings is a huge opportunity. My colleague will explain this afternoon. Combined with valves in America, in APAC, where we are not present. We can just copy-paste technology which we have in Europe. Not just, but at least we have the knowledge.
Innovation, efficiency in our distribution. You know we went through the last four, five years through a huge change in distribution efficiency. Our own warehouse in the U.S. Now our own warehouse in a distribution center in Europe. We get it more and more efficient. We will see that the coming years, and we already see it this year in our inventories. Of course, capacity, we have to add. Acquisitions, we don't need there. Material technology, footprint Europe, footprint U.S., we continue. Acquisitions, specialized technologies, which we did also with PPC in Chicago, which we did with Applied Process, with the ars tempering, which we did with Roy Metal Finishing, with Corrosion Protection in Greenville. All nice acquisitions, very nice companies. We will continue with that process. Climate technology, energy efficiency, digital services, footprint U.S.
Footprint U.S., because we can follow the same strategy as we did in installation technology. We need a footprint there. You can do that greenfield, but faster goes acquisition. Here you see where we want to allocate our money and our CapEx. Sustainable transportation, sensors, valves, regulators for automotive, electrical cars, hydrogen cars, emission rights in container ships, all these kind of things, a fantastic market. We have there dominating positions, sometimes 70% market share in our product lines. Why not expand it? Nice acquisitions we did already. Fentrex, FAS, we want to expand them. Cum expansions for Advanced Mechatronics, for dispense technologies. Mostly including a footprint in Asia. Can be organic, can be inorganic. A lot of ideas. A lot of creativity and a lot of ideas to create long-term shareholder value for you, but also for our other stakeholders. Relentless in our pursuit of operational excellence.
Our current footprint is 156 locations worldwide. We have 63 manufacturing locations, and we have 93 service locations. Mainly, they are almost all in Material Technology. We're going to rationalize that, including divestments, to 122 locations worldwide. We go to 46 factories and 76 service locations. That's our goal. From these 46 manufacturing locations, we have to improve or upgrade, in our opinion, 2.0, nine locations of them to make them world-class. In our service locations, we have to improve seven. The 122 is combination of site closures and divestments. Besides that, we are continuously driving projects per team because you have to create a culture. A lot of you ask me, "Hey, can you give an example?" Yeah, this is an example.
The nice thing in operational excellence, you create a culture of continuous improvement, that you invest a small thing and you reach a big thing in saving. That's between the ears of the people. We made a good way forward already, but it still can be improved. This is a big thing. We also want to follow that in our reporting the coming years so you can see where we are. Of course, when we do acquisitions, then another 22 will go up. Then they are in the right sector. Of course, all these measures will have an impact on our potential development of our financials. Important is that you see this as a potential, and because we made our own model and we made our own assumptions, and you can see at least the potential.
Important, it doesn't stop after 2022 because it's the Aalberts Playbook. Okay. I give the word to my colleague, Arno Monincx.
Thank you, Wim. Welcome, everybody, and also welcome to the people in the webcast, of course. The potential, like Wim said, very important to understand what we try to explain here. As you know us, we have set our goals for 2022, which are standing there and which we are going to realize. This is just to give you some insight. What all these good actions that Wim described, how to evolve Aalberts into an even stronger and better Aalberts than it is today. What is now the impact of these actions? Therefore, we made this model where we put in these data. I would like to share that information with you, what the outcome is of that. As said already many times, organic revenue growth. You know our goal, the average growth over the five years, more than 3%.
For your information, we made this model, of course, also based on these assumptions, but we also made a calculation based on 5% average growth to see what the impact is of our improvements. Another focus, R&D. A continuous investment in leading niche technology positions. We increased the R&D percentage to over 4% of the total revenue and the CapEx to EUR 140 million-EUR 160 million. There are so many good innovative growth ideas, initiatives that we want to inject with our CapEx budget. Operational leverage. Excellence. Drop-through of 25%. That is the assumption that we also took in the model to calculate the effect of the improvements that we have already explained, of which, of course, also portfolio optimizations is an important one. Divestments. To increase the divestments to, let's say, EUR 300 million-EUR 350 million revenue in the next three years is a big step.
It really improves our portfolio, because at the same time, we will also do bolt-on acquisitions, but very much focused. As we have already said many, many times, we don't do acquisitions to do acquisitions. We do acquisitions to strengthen our position, our leading niche technology position, and also, when possible, to speed up the execution of our strategy. Therefore, you do very focused, targeted acquisitions. As also Wim said, we remain very disciplined with our capital allocation. Also with acquisitions, the prices are sometimes too high, then we step out. We only pay what we believe is sensible to pay for. We remain very critical there. Only when it makes sense. Not to forget about the inventory reductions. We already showed you about, of course, the rationalization of our footprint and the reduction of locations.
We also started this year already with the improvement of our VIO, to really focus the teams on the ideal inventory. Sometimes that is higher because we also do a lot of introductions of new products. When you do innovations and you introduce a lot of new products, of course, you need also the stock to be able to start up the successful sales of that business. It is all in the detail, and you have to be on top of it. Therefore, we believe that with the actions that we have in mind, also with the improved distribution footprints, both in North America and also in Europe, where we created central warehouses to replace a lot of smaller warehouses, that will also have the effect. What is then the impact?
Again, this is a calculation of the improvement potential of our EBIT. Now, when we have these two scenarios of 3%- 5%, it shows from the calculation that the portfolio optimization is about 0.5% improvement. That is also logical because you have, of course, a divestment of lower contributing businesses. That's the reason that we also would like to divest them, because we don't see with all the capital that we need to allocate that we get the right returns out of that. On the other side, of course, we acquire the companies in the heart of our strategy, in the heart of our goal. Therefore, these companies have on average a better EBITA percentage, because these companies already have a good market position in their business. That's the reason that we would like to acquire them.
What you then see is that the big difference between 3% and 5%, what happens out of the improvements of operational leverage and excellence, 0.8% versus 1.4%. Adding these together, the improvement potential based on these, let's say, starting points in our model, that gives an improvement until 2022, potential of 1.3% of EBITA in case of 3% organic revenue growth and 1.9% of EBITA percentage in case of 5% organic revenue growth. That is how you become an even better and stronger Aalberts. Very important KPI, the KPI where everything comes together, the return on capital employed. There you see that in the case of 3% and 5% organic revenue growth, the additional improvement of ROCE is 2.4% in case of 3% organic growth and 4.2% in case of 5% organic growth. Efficient capital allocation drives ROCE increase.
Like Wim said, for us as a leadership team, it's all about the right capital allocation. We remain very critical with it, and the outcome is what you see here if you make the right decisions. What can we learn from that? The outlook of the outcome of these calculations is that we are doing the right things. We are focusing even stronger, even better on the right niche technologies in the right end markets. We are playing the Aalberts Playbook, as Wim said. Constantly the right allocation of capital to improve our financial performance, but also to improve the ROCE, the return on capital employed. Not unimportant, when you make these improvements, and when you continue to develop with doing the right things, it doesn't stop after 2022. Thank you. Q&A, I believe.
There must be a lot of questions then.
We have to stay together.
Okay. where's the first question? Martin?
Martijn den Drijver, ABN AMRO. When you talk about portfolio optimization and then more specifically about the divestments, can you talk a little bit more about the timeline? Front-end loaded, back-end loaded, just a bit more on your thoughts about that element.
The timeline of the divestments?
This deployment we plan in the next three years.
Are you already preparing data rooms? Have you already some sort of short, long list? Has the process really been started?
It's like with acquisitions. We are always preparing, we are always looking and working on it, but of course, everything is depending on when you really are going to execute it. We have a planning for ourselves in the next three years to divest this amount of money.
Important is that, maybe to add that all decisions are taken. That's also for the inside viewers, for the webcast, that everybody knows in person who will be divested, because otherwise we get a lot of, let's say, unrest. We prepare that well, so we know exactly what we're going to divest. We discussed it also with the leaders of the management. The persons who don't know anything, they also know they are not divested. It is very important to create.
Sure
troubles inside. We have a timeline, and as you know, we were already busy with the EUR 50 million and EUR 70 million, so it was already in process. We will accelerate that, but it depends also, as you know, on the price. We always said, yeah, when it can take a little bit longer and we get a better price to optimize the business, then we will take a little bit more time.
Yeah.
The goal is to divest in this three-year period.
Thank you. Just to clarify, these targets that are at least implications for follow-through on EBITA from organic growth, is that 2018 as the base or?
Let's say that what we have said, I think clearly also in the beginning and also two years ago when we announced the strategy, the goal of more than 3% average is a goal over the five-year period. What I now show you in this calculation is an average of 3% and an average of 5%, what the difference of impact is over the three-year remaining period. That's what we show you.
Thank you.
Yeah.
It's the improvement potential for EBIT percentage, when you would execute all these measurements. Of course, you have peaks and you have dips in business. You have always. Yeah, some years you have better, some years also markets will do better, others not. It's the average line. I think this suggests the measurements we do. What is the effect of the measurements? Based on that, we hit our objectives. We say as soon as possible.
Morning. Tijs Hollestelle, ING. A follow-up question on Martijn's question. Is it that you have to divest, let's say, EUR 12 million, EUR 25 million revenue companies, or is there more concentration, let's say, three of EUR 100 million? That also is important in the swiftness of the execution.
It's a good question. Let me think a little bit. I think it's two bigger units, and then a combination of smaller locations in Material Technology.
Okay.
It's a combination.
Yeah. A follow-up on-
It's quicker to do than what we did in the past, where we did more small things.
Yeah.
Yeah.
If you don't get, let's say, 20 announcements of EUR 10 million goes very slowly.
No. We would not announce it anyway.
Yeah. On the reduction in inventories, I think that, yeah, most people in the room didn't believe it anymore because it's a recurring topic for Aalberts. You have always had relatively high working capital and inventories. Is it now the, what was it, EUR 150 million of reduction? Is that set in the?
No, 100 to 150.
100 to 150.
Mostly you sit somewhere in between there.
17 million is coming from the disposals then, because 22% is the inventory as percentage of revenue. Is that correct?
Of course.
More or less.
With the disposals, also some inventory goes down. If you, let's say, what we explained about the EUR 100 million-EUR 150 million is that its calculation in days. The effect in days, if you recalculate it in 2022, that should come to the EUR 100 million-EUR 150 million bar.
What actually did happen? How did you find that out now after all these years?
Let's say now, we made, of course, our operational excellence programs. Don't forget, what we explained, as I remember very well, also for North America, for instance, where we completely changed the distribution platform, where we exchanged owned locations for external sales rep offices, where you first have to build up, ship in before you can, let's say, cancel these sales representing offices. Where you introduce also a successful introduction of a new product, where you have to ship in first the stock to really start successful sales. That is now moving. The distribution footprint is now getting really operational. We see big improvements over there. The same with Europe. In Installation Technology, we are, if I remember well, this month, we are taking a new warehouse in use in Holland, which is replacing seven, eight small locations.
That gives all, yeah, more efficiency also in the stock management.
Just to add, it's not what we found out. Aalberts is in a journey, and we consolidated and we transformed the business, for example, to Integrated Piping Systems. First, we brought Europe together, then we brought America together, and last three years, we brought global together. That means we have now one brand name. It's the journey where you go through. In the meantime, we created our improved supply chain in America, which, yeah, it was a big hassle, but is there now. We are doing that also now in Europe. In America, we had to change also the rep structure to own salespeople. Very complicated. It's all done. When the structure is now there, you can also make it very efficient. It's not what we found out. It's the next phase of this company.
There's a huge potential to reduce the capital which we use. In the meantime, we're optimizing the portfolio. That means that slow movers are sold out. Fast movers, we have more stock because we have now also in the top management, supply chain specialists, which we never had global. We continuously improve the Aalberts Playbook to get better returns. Now we can accelerate that. It's not what we found out. We've always said we have too high inventories, not EUR 300 million. There were also people who said that. We would ruin the business because we have a different model than certain competitors, because we have a wide range. 60% of our business is renovation. 60% is recurring business. It's not only new builds. The most is renovations, where you need a broad portfolio. That's our strength.
We can optimize it, and that goes faster coming in 3 years because the structure is in place. Now, fantastic. It's not what we found out. It's the next step.
I'm very happy, yeah.
Aalberts accelerates. Inventory which you don't use is dead capital. You have to use it for more CapEx or whatever, or innovations or acquisitions.
Exactly.
It's the next phase.
All right. It's Jaap Albers from Lucerne Capital. Thanks so much for your presentation. Firstly, on margins, I think for me, it's the first time that you're willing to commit to the 25% incremental drop-through. It'd be very interesting to perhaps hear why you've decided to put out the target today, and why do you think that the drop-through will be actually higher than in the past?
I think also that has to do with the same journey. I think to bring your company and your business teams in line with your strategy, where we come from the last six, seven, eight years, where we have a lot of separate companies, we brought them together. Before that is all running, it's all people. You have the management. It takes time. Based on that, what you say, I think also the next phase is now everything is in line, and also to the management, which is presenting this afternoon. We have to execute more and drive also more the organic growth. Because we have the innovation roadmaps coming in place, three years ago started. Innovations pull through also the other products, so you get an acceleration of your organic growth. You must also look through certain dips or certain spikes.
That's the long-term trend where we are in. That's also why you can drive this drop-through much better than we could in the past. We have to set ourselves a target because we really believe that we should do that. I think internally, it should be higher than 25%.
At first, you have to optimize really the business, like Wim said, when you group two business together, and after that, you can work on the structural cost.
From your perspective, are we now entering a new phase where you've done a lot of investments in the past, and now you'll see the benefits of that?
I think we saw already the benefits because as you saw the share price in 2008, and you saw it in 2018, it is almost triple. I think we also saw already benefits. I think this company is in a journey, and it's important that it also doesn't stop after 2022. This is a way forward where we go, which will not stop, also not after 2022. You reach these unique positions, you leverage your equipment more, you are focused more, you use your capital better, and that's the playbook. You could see there's a next phase. That's why we also took these not easy decisions because we are all part of the Aalberts family, and I must say divesting is not my first goal. What is my first goal is to reach the best returns.
Exactly.
You have to take these decisions also in a disruptive world, because this is also based on certain market changes. Don't forget that. There's a lot of changing. When you see our potential in A dvanced Mechatronics, what we can gain there, now you will see that this afternoon, but it needs capital. It's unbelievable what we can gain there. What we can gain in surface technologies with aluminum, and also in our company in southern Holland, where we do aluminum extrusion with surface treatments. It's unbelievable what we can gain there. You have to adapt, and maybe after two years again. That's why you are an entrepreneur.
You also have to be fair to companies. Let's say if you decide not to allocate capital anymore to that company, you can do two things. You wait until it's dying, or you can decide to sell it, discuss it with the management, that it's better for them to find another owner so that the new owner can re-inject that company with the right capital, because we are not going to do it. Better improve it and divest it in time.
All right. That's very helpful. On the organic growth, because your target is more than 3%.
Average.
Average.
On average. You also show a scenario of 5%.
That's the same. More than three is also five.
Well, exactly. You say accelerating organic growth. I was curious to sort of hear your views. Do you believe that the company is moving towards the 5% because that's what you're showing? I was just curious why you've chosen those two scenarios.
Of course. Our tradition is, that is also what we are. When we say something like that two years ago, our opinion is as a management, let's first reach these targets. Every time you can adapt your targets again and make a nice show. In the end, you have to deliver. Where we are responsible for is that we said two years ago that we in five years, we will go to that, and that's our guidance. People say sometimes, "Well, you give no guidance." Hey, we give guidance, but on a long term or mid-term.
Yeah.
That's our guidance. Let's first hit that guidance, not only financially, but also non-financially. This is a learning phase we had last two years. You have continuous learning phase, so we accelerate, and that's actually the message. Let's see. Yeah, of course, you don't invest in EUR 140 million-EUR 160 million when it doesn't give you returns. Otherwise, we would really make the wrong decisions. Still, you can have dips in certain years or peaks. That's something different.
Henk Veerman from Kem. Thank you for the story so far. When you talk about capital allocation, an increase in CapEx, divestments, and at the same time you commit to small bolt-on acquisitions. I think if you sum that all up, I think leverage is going to drop below 1x in the next 12 months. I think the only statement.
You calculated already.
Yeah.
You have your laptop here.
I think the only statement that is made is that leverage won't exceed 2.5 times, but how do you look at capital allocation with such a conservative leverage base?
Let's say, as Wim said, we are entrepreneurs, so we believe that we always have enough, let's say, opportunities to invest in, not only in CapEx, but also in bolt-ons. We will continue to do that. We also always, of course, have an opportunity when there is an opportunity in the market, which could be very attractive, and it's a bigger acquisition that we at least can do that. We want to be in a position where we can make our own choices when the opportunity passes by. That is where we are then. Let's see how it develops. As we always said, when we generate, and it could be, because it's a very valid question, that we really execute this, we first have to do it.
When that would all succeed and we would have cash which we can't utilize enough, then we always said we will give it back to the shareholder. That means additional dividends or share buybacks. It's not our preference. It depends also how is the price, how is the valuation of companies which are in our strategic footprint. We are not prepared to pay multiples which go beyond our imagination. It happens a lot that we make offers, and even last three months, we had a very nice company, and it was even paid double. We don't do that. You can trust that. We are looking to our returns. It's very easy to buy companies. It is very easy. Spend a lot of money.
It's always easy.
That's also our tradition of 40 years, which we learned a lot, that you have to be very careful before you spend, and that you have a very good plan afterwards, and that you integrate acquisition well, because that's a lot of work. The three we did the last three months, we are still integrating them, and that you have to finish that. Let me say, when that goes faster now through the divestments, and then we will have option number five or six.
Yeah.
Which we always said. Rather not, because this question was also asked to us four years ago, and until now, we have still the same leverage. We did acquisitions. That depends also on opportunity. When the prices are too high, or we have no opportunities, we don't do it. In the end, we give some money back or more money back, but rather not.
Would you maybe phrase it differently? Would you be willing to, if you divest EUR 350 million in sales, would you be willing to just have the proceeds on your balance sheet in order to be opportunistic when the right opportunity comes along? Or would you not be comfortable with the net cash position on the balance sheet? It's difficult to commit the targets.
Yeah, it depends on the situation. I think my answer was pretty clear. When we have the feeling we cannot allocate that cash, then I think we should not sit on it and give it back. We want to create value. When we see opportunities, we will do that. We will also not overload the organization because then you create chaos. When you do too many acquisitions and you can't integrate them, you create turmoil, because acquisition is a lot of disruption in your organization. It's a profession. I must say, the older I get and I'm more experienced, I'm more careful I become because it's really dangerous when you're not careful acquiring everything. You have to align it, also the culture in your organization. Otherwise, you create a very bad fundament. Our founder always said that.
The fundament is the most important thing. When you have not a solid fundament, you can't grow. You have to always to do it on a disciplined way. No deal fever.
Yeah.
We like acquisitions, of course.
One more question on the I think so far we've discussed the group targets and the rise in EBITA margins when top line growth will commence. In the past, we've also discussed, I think, capital allocation, for example, Material Technology, where I think about 40%-50% of your total free cash flow was before CapEx, which we invested in. Since you've done now the bottom-up budgeting again, is that, for example, a division where you're very excited to grow the margins?
Oh, yeah.
Where do you see most?
I think this would also be a very good question for our colleague, Oliver Jäger, this afternoon. It was a very valid point you raised at the mid-year webcast, that there's a lot to gain there. It's also due that we did acquisitions, and you have still to get the synergies out of these acquisitions. That needs time and effort. Somebody said this week, it's blood, sweat, and tears to grow organically. It's the best way to generate returns. It's hard work. When you are not there where you want to be, you have to put more pace on it and put more attention.
Very clear. Thanks.
First of all, to avoid any misunderstanding about the base, you mentioned three remaining years, so it's 2019 current fiscal year, that's the base.
We don't talk about the base. We talk about improvement potential over the year 2022.
Okay. When I currently look at your selective markets, your top four, that's 75%. Which selective markets have you merged?
Which selective markets you have merged?
You had 10. That was 100%, but if I remember, you had 75%.
Maybe, for example, when you mean that it's residential commercial buildings, is that now mentioned as one. I think, especially in industrial niches, we will really focus much less on certain areas. I think when you have industrial niches, you must think of machine build, which is general industry, but mainly in the machine build. Dispense, very interesting niche, but it's more in the detail where we will give less focus. That you in the total give more focus to lesser things.
You're merging a number of these markets to one. Firstly, are there certain markets you will fully divest?
For example, sustainable transportation, you can be on land with a car or with a truck, but you can also be in the air or on the water. What we see in these markets happening is a real change to all kind of regulations. A change in voltage in electrical cars is a huge impact on that car. We will explain that this afternoon. What is the impact of that? All kind of materials have to change, and that has impact on our business. We believe that in that sustainable transportation, we should go much more to the sustainable side. That means, for example, how do we reduce the weight of an airplane? How do we use other materials with certain coatings to substitute heavier material? That's huge trends. We get a lot of requests for these kind of R&D projects.
That's what is meant by that.
It's an important change, because you focus then really on the sustainability of these positions of these markets.
Let me give you one example. Certain special manufacturing in automotive, we will divest because we see trends there, for example, because of raw material wishes which are changing. We are creating, in the end, less added value and become in a very vulnerable position, in our opinion, in four or five years. We don't want that because then we lose our margin more. We get a heavier competitive market environment. We say, rather, we go more to coatings. Coatings, we get a lot of requests at the moment from also the OEMs in the car industry, but also in aerospace, because we have a global footprint and it's a very specialized technology we have there. You look again, where is the niche? Where are you more and more unique and where you are less unique?
You think, "Hey. I should get rid of that," or, "I should go another direction." It's also depending on markets.
By reducing both the selective markets and also the technologies, will this also mean that you will change your organizational structure?
Yes. That's what we explained. We will go to more clustered teams, what we already did, but we will further do that. We have also some standalone companies, which were part of these clusters. We sort it out. You could say we took out. They report now straight to the head office, so shorter lines, and also we want to prepare them for divestment. We really changed, not the segment structure, but in the business teams, we changed a lot. A big part we already did the last four, five months. Also to have closer contact to the end market, to make certain companies ready for divestments, but also to have more grip and more on the operational actions and leverage.
Yeah.
The group activities, Aalberts group activities will concentrate all here. We had some group offices here and there, which we closed, or we are closing in coming three to six months. They will all work from here, or from their car or their home or whatever. We don't want to have overhead there. We want to have execute excellence leverage because our strategy becomes more and more clear, and also the teams. Yeah, the answer is yes. Not big disruptions, but the journey. Luuk.
Yes. Luuk van Beek from Petercam. Well, first a question about innovation, because that will play a very important role. You talked about raising it from 10% to 20%.
Yeah.
Can you explain how you measure that innovation level?
Yeah.
Where should the acceleration come from? Is that products that you've already brought to the market that will ramp up, or things that are still in the pipeline? Any very big components in it, or just across the board to many small things?
I tried to explain it, probably it was not clear. The definition we have for innovation rate is the products we launched four years ago, let's say the December 1st, 2015, and then the turnover we generate with them, with these products in 2019, as a percentage of the total sales of that business team. That should be 20%. The reason, in some businesses, we have a higher rate. For example, Climate Technology can be higher, but like Installation Technology is lower because you need already to order equipment, which takes you sometimes a year. That takes longer. The total Aalberts goal is 20%. Good for your information is that we were at 5%-6%, because we measured that already a certain while. We are now closely to 10, but by far too low.
The innovation roadmaps were launched, most of them, because with every business team, we made a plan, three years ago, some two years or some three. Mostly it takes three to five years to get really that. That's how long it takes in certain things. You have that product on the right-hand side on the table. That took us five years. Now it's very successful. That's why we came to this four-year period and to the 20%. That's how we do it, in all areas, in all segments. Where we don't want to innovate, we should divest.
Yes. My second question is on the portfolio optimization. On the one hand, it's divesting things, which probably have a lower margin than average, and at the same time acquiring niche companies that have a typically higher margin. Can you give?
Yeah, most important, it helps our market position and higher margin. You do that to be better in the market.
Normally, companies with a very good market position have a high margin. That is how it works.
Yes, exactly.
They have pricing power. They have a leading niche position, so they have high margin. Of course, we buy companies with high margin because we like high margin, but mainly because we like the position that they have.
High margin.
Yeah. I understand you do it for strategic purpose, but to help us with our models, can you give a rough indication about the margin level of the things that you want to divest and the typical margin of the companies that you're looking at?
We gave you direction that it is 0.5% impact on the total.
Yes, I saw that, but that has two components, and there are many ways I can get to that number.
Yeah.
Okay. Then finally, on key account management, that's still, I think.
It can also be that, for example, when you want to expand a footprint in the U.S.A. for hydronic flow control, that you acquire a company like Flamco, which has a lower margin, but you know in two or three years, I can bring it to more than 12%. It could also be. It's not always high margin. It's more how do you conquer your market position with the strategy you have. Mostly it's what Arno said, in my opinion, that when they have a good position, they also have a higher margin. It could also be that it's badly managed, and we can improve it quickly.
That there's a lot of leverage because of the combination. It can also be that.
There's so much synergy. Flamco was a nice example.
Yeah.
We bought it with less than 7% EBIT. We really increased it very fast, above 12%. We saw the potential already up front. We saw that already up front.
Regarding the key account management, I can imagine that the markets that you will now focus on already have a higher percentage of key accounts. Is that the case in-
At this moment?
Yes.
No, I think it's developing pretty fast, but I think it's still an amount which is on the lower side. I think we will see mainly, the coming years, an acceleration in that. That has to do also with the consolidation of the markets, but also that we have a more global footprint. We utilize our footprint to do more business with also global players. There helps also the name Aalberts a lot, because don't underestimate, we also changed very gradually the usage of our name, Aalberts, which was very complicated last years. We launched that May last year in this room to our leadership of 100 people. It's just one half year ago. We are also on that journey, but it really helps. Ask also our colleagues this afternoon. It really helps to get more business with key accounts.
I think we are already improving. I think there will be an acceleration in the coming five to 10 years.
For instance, with Advanced Mechatronics, where you combine different technologies in one team, of course, you have a competitive advantage when you offer that as a team to the customer, so that you can work on applications instead of products. Systems instead of products. That you can only do with key account management.
You have co-development, and you have integration and connectivity. When you combine the technologies within Advanced Mechatronics, still keeping the local entrepreneur in Monchéma, in IDE, which we do, but on the key account, you combine your technologies and your offering. You have a double way of success, actually.
Yeah.
That is pretty unique what we have.
Yes, that obviously has a revenue effect.
Yes.
I can also imagine that you add more value to the customer.
Yes.
It also has effect on margins.
Exactly.
You are incomparable.
Especially when you own IP.
When you go from products to systems, they cannot compare you with a competitor. That is the good thing.
Okay. Thank you.
Listen this afternoon to the business people, if they use the word solutions, or if they use the word combined offering. That's really a trend everywhere.
Yeah.
That's also why you cannot just say we have four business segments, because these lessons we learn everywhere. We share that also everywhere. Aalberts is one company.
On culture, I think comparing to the capital markets there three years ago, you've put a lot of strain Two years, sorry. You've put a lot of strain or changed a lot on the structure as such of the company. Back then, I think you announced the new Divisional Structure and want to take a more direct approach from the headquarter. How has that changed the culture within the group? You're obviously taking out a lot of revenues, divesting a lot of businesses, which seems to be in a bit of a new direction for the group in the scale. What effect has that got on morale and everything? Could some longstanding Aalberts employees say, "This is not the company I started off with 30 years ago?
That's a very good question. It's a very good question, actually, because that was my worry, especially three, four years ago. That's why we took such a long time, Mattijs Planken and myself, to migrate gradually to the Aalberts name in certain areas, because we always said, "Now you can use the Aalberts brand, but you are not forced to use it." A nice thing what happened the last two years is that people grabbed the name. That's a very complex process because you still want to keep the local entrepreneurial spirit with the heart. Companies like Mulkema, VSH, Apollo in America, they still should have their color in their heart. In the meantime, they should see the potential when you bring things together and you present it to a big e-com. That is awareness.
We took a lot of time for that. I think your question, we passed already, in my opinion, one and a half year ago, with the launch of our company passport. Actually, after that, it accelerated in a positive way. I think we took a lot of time, and I got a lot of criticism personally from internal, from people: "Why don't you go quicker?" I said, "I don't want to go quicker because I don't want to lose my people, and I don't want to lose business." We have now found the balance that you have the local heart still in combination when you want with the Aalberts presentation. Ask also the gentleman this afternoon.
Yeah.
My colleague André in het Veld or my colleague Oliver Jäger or my colleague Maarten van de Veen, they face that every day. How do they do that? You have to go very slowly and take the time and not ruin things. We have fantastic brands where we paid a lot of money for, so we should also keep that. Not all the brands. Some are strong and some are, but I think we adapted that well. The same is actually also for this head office. We decided already four years ago. The principle was, we don't want to lose anyone who's working with us in MAN Group. We didn't lose anyone because we took the time.
Excellent. Thank you very much.
We also took the train.
Which makes you sustainable again.
Exactly.
Arno, one for you on the disposals that you're planning. Did you make any calculations on the goodwill? Should we expect any kind of write-downs on these businesses?
I don't expect any write-downs. Let's say, of course, we assume in our model a certain multiple of disposals for divestments and a certain multiple for acquisitions. That's all taken care of in the calculation.
Okay. Thank you.
Peter, maybe first a clarification. You mentioned that you want to focus on five technologies, and you want to divest EUR 300 million-EUR 350 million in sales. Does that mean that?
We're going to expand the divestment program from EUR 50 million-70 million to EUR 300 million-350 million.
Yeah.
We add EUR 280.
Oh.
Yes.
Those technologies that will be de-emphasized, those will be completely divested or might some smaller portions remain?
Yeah
or will be merged into the remaining technologies. If I take Installation Technology, for instance, I think the focus there is on piping technology, piping systems.
Yeah.
Does that then mean that the plastic connection systems that you have within that division will be completely divested, or may some of that still stay?
No, that's for us also piping systems.
Yeah, therefore, yeah.
Okay.
For example, we also have some OEM business which has nothing to do with that core.
Yeah.
That probably we're going to divest.
It's a bit similar to the earlier discussion on Maarten's question on the end markets. Also on technology side, some segments will be merged, basically.
It's not only merge. We would not come to EUR 300-EUR 350 million. I think you optimize your portfolio. That's what you do. When your business is integrated piping systems, then that is also the only thing in the end you want to do. That means the things which are not in there, where you think you can't have a position, you will divest. The same is for hydronic flow control. Hydronic flow control is from source to emitter in a boiler room, and we still have certain areas, maybe we didn't talk about so much to you or to others, but where Wytjes has no clue with that business. We will sell it off because otherwise it doesn't get any attention.
A twofold question for Arno on the organic growth and the margin potential. The 3%-5% organic growth range that you mentioned, what's the assumed market growth? If I look at some of your end markets like construction or automotive, the growth prospects for the coming years look quite modest.
Look quite?
The growth prospect look quite modest.
Modest. What is that?
If I look at the latest EUROCONSTRUCT forecast for construction activity in Europe, which was published last week, they call for about 1% growth.
Yeah.
Overall, what's the assumption there? Also in terms of cost inflation, what do you foresee there? Will you compensate for that?
What?
Cost of inflation.
Cost inflation.
Cost inflation, sorry. Yeah.
Wages, et cetera, will you compensate for that purely by operational excellence and cost measures? Will there also be pricing initiatives? If so, what's then the pricing element that you have assumed in this 3%-5% range?
I think the first question about organic growth is that I think we will show also in the afternoon how our different business teams see their position in the market and what their goal is to develop. There you will see that we strive for market share growth. That's one. Of course, for market share growth, you can only do that with innovations. That is also why we push so much on innovations. The second one is cost price increases. We always aim to transfer to the market, of course. Again, you can more easily do that when you have a strong market position with the right products that enable price increases instead of a commodity business where you always have to fight on price.
That is exactly the reason, because every company will always have cost increases every year, which is exactly the reason why we are aiming for higher technology businesses and a niche market position, because there you can transfer that to the market. That is what we are showing already for a long time, I believe, when you look at our added value development, for instance.
Last question, because I would say last questions. We have also a Q&A session after our strategy in action. Otherwise we would miss lunch. Last question.
Willem Burgers, AddValue Funds. Probably summing up all together. If you're right, that the cyclicality of Aalberts is getting less and less. You mentioned specifically that the Semicon area is performing extremely well.
We have a great potential.
In relative terms from currently 8%, you said we will double this business.
Yeah.
Which means that the returns in that end must be superior to the Aalberts average. Still, 60% of your business is related to renovation, but you also said it's.
In building.
in building.
Yeah.
60% is also recurring. Is that end of the business going to be relatively of lower importance in the next three to five years, which you assume?
I don't know if it's maybe of lower importance. It of course also develops how quick you grow there. I think in percentage, we will grow quicker in the Semicon area than in the eco-friendly building area. Both is very interesting. I would say look outside, look to all the buildings you see, and all these buildings have to be changed due to legislation also. There's a huge opportunity also for energy efficiency. I think what we try to give a little bit the guidance is that certain areas also due to market developments, like in this case, Semicon efficiency. This means the front end of the Semicon business, where you have the efficiency of the equipment, that there we see a big opportunity. Therefore, we also highlight it now, and this afternoon we will explain how we do it. In principle, you are right.
We are less cyclical than we were in the past, and we will make it lesser and lesser cyclical. The moment you get uniquer and uniquer in your position, you are also lesser cyclical because you have also more pricing power. That is already the case of the last years. Our answer is yes. Thank you. Thank you. I suggest there may be a lot of other questions, but that we do that after the strategy in action session. Please, again, ask a lot of questions because it's only good. I think we have now to have a break for the lunch.
Yeah.
Come back. At 1:00 P.M. we start the webcast again. Thank you.
[Break]
Clap your hands. Come on. Clap your hands. Come on. Do you feel all right? Do you feel all right? Come on. Can I get some horns? Always remember, hey, when you're feeling down, know the better way. Oh, I will be there.
[Break]
Ladies and gentlemen, can I ask you to take a seat, please? We will continue in three minutes, so we have time, but in three minutes, we will continue with the presentation. Thank you. Ladies and gentlemen, we really need to position ourselves right now. Please take a seat or have it. Maarten will pick it up from here. Thank you.
Good afternoon. Let me start first to introduce myself. My name is Maarten van de Veen, and I'm responsible for the Aalberts hydronic flow control business. I want to start my presentation with a few questions to you. Did you know that due to the growth of the world population to 8.3 billion people in 2030, the energy demand will increase with 50%? Did you know that in 2050, 75% of the world population will live in cities where it is 50% right now? Did you know that buildings, both residential and non-residential, account for more than 40% of the global energy consumption? That means a huge pressure on building sustainable buildings. That means a huge pressure on making existing buildings greener. This calls for energy-efficient products.
This is demanding energy-saving solutions and systems in the heating and cooling industry. Aalberts hydronic flow control is at the heart of that development. What we do, we offer complete hydraulic solutions from the so-called energy source to the emitter, everything in between to reduce energy costs, to improve energy efficiency. That's what we do. Everything between the energy source, and that could be a gas boiler or a district heating system or, for example, a heat pump, everything in between, we save energy or optimize the system or extend the lifetime of the installation. We focus our sales and marketing efforts on the whole building life cycle. From the beginning to the end. We aim for adding value in all stages, in all phases, in all steps of the building process and the building life cycle.
Also during the operational phase of building, we want to stay in touch. We are there from the creation to the completion, but also afterwards, we want to stay in touch. Our after-sales offer is containing several options for commissioning and balancing the system, for doing trainings, for doing predictive maintenance, for example, repair service, remote control, et cetera. Everything to reduce energy use and reduce the total cost of ownership for our customers. That's what we call life cycle sales. That's what we call, we are at the heart of every great building. Coming back on buildings and improving energy efficiency in buildings. We have several options. We have several possibilities, different possibilities to reduce energy. For example, when you install balancing valves in a building and you balance your system really well, you can save up to 20% of your energy costs.
By the way, 70% of the buildings worldwide is not balanced well. Huge potential there. I will elaborate a little bit more on a few other examples. For example, air and dirt separators and a smart home system that we have. When you look to heating and cooling installations, you always have a lot of air in that installations. You see here a picture of a radiator. For example, when you have a radiator with 5% air in the water, you lose 8% of your thermal output. That means that you can reduce your energy costs with 8% again. Beside that, when you install an air separator, because there is a solution for that, to take out the air out of the installation, you not only save energy, but also you are protecting your installation against corrosion and avoiding noise. Another example is dirt separators.
When you look to a piping system, so to say, there's always a lot of dirt, a lot of magnetite, small iron particles, and also disturb the flow in a system. Also here you can, when you install a so-called dirt separator, you can save a lot of energy, 9% again. We have dirt separators in, let's say, small dimensions, big dimensions, et cetera. Also when you install the dirt separator, you extend the lifetime of an installation, you have less wear and tear, you have less replacements from other parts like pumps and heat exchangers, and a longer lifespan of the total installation. Coming to another example of our products. We developed a complete new thermostat in combination with a radiator head, an intelligent radiator head.
Maybe you all know at home, you have such programmable room thermostats where you can program the time that you leave your home and that you enter your home again and set the temperature, et cetera. This new product, this new thermostat is behaving according to your habits. You reduce a lot of energy because you only give a too hot or too cold comment, for example, the system is adapting themselves. It's also connected with the cloud and based on artificial intelligence procedures, we continuously improve the system. In the end, we save again a lot of energy. Up to 30% is reachable, is achievable with this system. We come to a sort of summary of our business. When you look to the market size, the addressable market for our products is around EUR 2.5 billion.
Our market share currently is around 21%, and our goal is to grow to 30%. Beside the tailwind coming from mega trends like urbanization, like CO2 reduction, like shortage of energy, like digitalization, we also have determined some other growth drivers. We offer complete solutions from the source emitter to the emitter. This is one of our competitive advantages. We really save energy between the source and emitter. We focus our sales efforts on the total building life cycle. In many countries, more than 25 countries, we have our own sales force active on the market. Driving the growth not only by helped or supported by the mega trends, but also we are driving the growth ourselves, for example, by innovations. Wim mentioned it already, we are in the process of launching more than 15 new product innovations. We really believe in innovations.
Not only in the products themselves to make them more energy efficient, again, but also in making the products more intelligent, connectable, talkative. We also innovate the way in which we sell products. For example, we introduce new business models. We sell not only hardware, but we also sell subscriptions, for example, where we sell the data coming out of our products and make it available for our customers. Of course, legislation is helping a lot, and this all makes our market really attractive. I think by involving Aalberts hydronic flow control in every step of the building life cycle, you can reach substantial savings in energy and also a reduction of the total cost of ownership. We make our slogan of being at the heart of every great building really happen. Yeah.
Good afternoon also from my side. My name is Oliver Jäger. I'm one of the Executive Directors, and I'm running the Aalberts Surface Technologies group. The question which remains in the air is, what are we doing? What do we do? We do improvement of characteristics of materials in all different markets, whether it's sustainable transportation. Wim gave already this morning an explanation of what that all covers. It's not only automotive. We do also industrial niches, which could be machine build, could be aerospace, could be power generation. All that is related to industrial niches, we are at home on those markets. We do that for regional and also for global key accounts. That's one of the strengths the Surface Technologies unit have. What technologies are we performing?
We do surface treatment, we do heat treatment, we do brazing, and we do additive manufacturing and its post-processes. To demonstrate a bit the strengths of that part of the organization, I have picked three examples out of a thousand to demonstrate that expertise. Starting with somehow sustainable transportations. In the morning, we mentioned already that everybody's looking for electrification in a lot of sense. When you look for vehicles, you could see that we have more electrical applications in cars. We look for autonomous driving. We look for hybrid-driven vehicles and also fully electric-driven vehicles. That consequently means we have more electrical power within one of those cars. That needs the development of a different type of system, which will be the 48-volt system, which you already see in a couple of announcements of the Tier 1 suppliers and the automotive that change that system.
That change led to a higher performance demand of the materials being used. Consequently, of that rapid development in the automotive industry and in the Tier 1 supply chain, co-development plays a more important role than maybe some five or 10 years ago. That means also the rapid development demand of the market that led to a decrease of part and model variety. On the other hand, you have more numbers or higher numbers of parts per individual model. There you can see the strengths of our organization. It's A, the variety of treatments. It's our co-development capacity and the huge service network we are offering to that market, which brings us into a position having a more partnership relationship to our customers, compared to somebody who's just delivering a treatment to improve the materials with a certain standard product.
The second example I have picked is additive manufacturing. Everybody's talking about additive manufacturing, and everybody is looking for the printers and improving the speed of printers and the quality of printers. The true to bring that story into the future is the design of the entire process. That starts from the pre-process, thinking of what offers that technology to future products. It's the printing process itself, and it's the post-treatment processes. Consequently, the development of the entire process chain is that what people are doing to bring those products as valuable products to the market. Our strength in that chain is the post-treatment processes. As I mentioned before, we have a worldwide position.
We have more than 70 treatments in the air where we can support the development of that industry. That is to say that Aalberts surface technologies is one of the turnkeys to bring that technology into the market. My third example to demonstrate the strengths and future opportunities is the business development, which we did in North America. Some 10 years ago, we have started with two locations, two service centers in North America, which one can call that a market position. Within the last 10 years, we developed that to a footprint of 20 locations. We did that via investment in organic growth. We did also greenfields, and we did also specific bolt-on acquisitions and technologies. Wim mentioned in his presentation, three of them, which we did in 2019 and in 2018.
That brought us into the position to make co-development with key accounts, which we do have also in Europe. That means we opened just three key accounts in the last 18 months, where we bundled our technology, where we could do what we do in Europe. We could also offer the same service quality in North America. That development doesn't end. We are in process to introduce new technologies such as high isostatic pressure, which is a technology which you need for aerospace parts, for AGT parts, and also for additive manufacturing. That's a very unique and specialized process, as well as specialized anodizing, where we are an expert or one of the experts in Europe, and we will introduce that also to the North American market. If one would summarize a bit, what's our, let's say, competitive advantage, which we have demonstrated by the three examples.
We have a worldwide service network, and via our locations. We have offered a good combination of different technologies. We have engineering and co-development capabilities with our customers. If you then look at the market share we have, the accessible market for us is around EUR 6.5 billion. We cover around 12% of that. We're targeting 20%. The question remains in the air, what are the growth drivers? First is that we expand the technologies we have to all regions we are active in. We put a focus on regions like Eastern Europe, North America, as well as Asia. We expand specific growth areas like power generation, aero, electrical vehicles, and additive manufacturing. The higher demand on the performance of the materials, in principle, led to more advanced surface requirements, which we are able to offer.
If you have a takeaway of that, we have great potential for further consolidation, and there's a lot to gain in profitability. I then would be happy to hand over to André in het Veld.
Thank you, Oliver. Well, welcome everybody, also from my side. My name is André in het Veld, responsible for Aalberts Integrated Piping Systems. What do we do? I would like to explain our business, possible you were not aware, but this morning when you were at home, you were surrounded by integrated piping system in your home. Now you are here in this building, and I tell you, again, you are surrounded by integrated piping systems. There are always tubes, connections, valves to control and to regulate the fluids and the gases through the building. This is not only happening in the building, this is also happening in factories and even in ships.
Our mission is to create our customers the best integrated piping system, and that they are able to create this in a very efficient way, and that they can do the job very quick, and that the system works perfectly, and that they also have designed the right size of the tube, the valve and everything, so that the energy consumption is as low as possible. This is not easy because our company, where we have a global footprint, we have 125,000 SKUs. The challenge is to make the right selection out of these SKUs to create the right integrated piping system.
Before I'm going to explain how we do that, I would like to explain you in what verticals we are active, and then how we create out of the 120,000 SKUs, the right integrated piping systems, and how it looks like at the end, and what benefits it brings for our customers, and what makes us unique. I tell you, we are very unique. There's no comparable company with our portfolio and our offer. We are active in basically six main verticals: residential, commercial, industrial, but also in the tunneling, and also in shipbuilding and fire protection. In each of these vertical, we have people who know this world perfectly. I tell you need to understand each of these verticals in the bloody detail to really do the right thing for that vertical. Shipbuilding is something completely different than industrial or residential.
The question is now, how we are going to create for these verticals the best integrated piping systems. What we have done in our company, first of all, we have organized all our SKUs we have, the 120,000, into one database. We have the master data. We're working there on today, tomorrow, and I think this will never end. This is basically the most important thing for us to make it possible to support a software tool, to make a smart selection, and to create the best integrated piping system for a certain vertical. How we're doing that, we are doing that with design service. We have people who know everything about the different verticals. We also have people who know everything about our portfolio. Most of these people, of course, they are working at Aalberts Integrated Piping Systems, and also our customers.
Some of them do know a part of the portfolio. Nobody really has the full overview. What we have done now, we are creating. The first version is on the way, that we have one software tool which has access to our entire portfolio. With some smart selections and putting in the drawings with BIM models, you can create the integrated piping system. At the end, you get the drawing and you get the bill of material, and you have the complete integrated piping system. This is unique. Why is this unique? There's nobody else who has the valve portfolio complete, and on the other hand, the whole connection technology and the fastening technology. That is finally how our solution looks like. If you see it, I think we would all agree, it doesn't look too complicated.
To get it, very much knowledge is needed to make the right selection for the different verticals. Of course, the question is, what does it bring? What are the benefits? Nowadays, I think it's everywhere a challenge to get the right skilled labor to do a job. This is a topic in Europe. This is also more and more a topic in the U.S. For us, it's very important to have solutions where we save time. With our software tool, we save a lot of time, and by our solution, a fully integrated solution. What does it mean? A valve with the connections already integrated from our factory. Within 30 seconds, you can connect this valve to a tube. If you're going to do that by welding, it takes you minimum 10 minutes, and it could even take 50 minutes.
Not even talking about the security measures you have to take because of fire risk. It's a lot time-saving. It's also because we use connection technologies, new technologies, that makes it possible to do the job much quicker. I will deepen this later a little bit more, but if you go from welding to press, you save enormous money and time because of the labor cost you don't have. You also can do the job with lesser-skilled labor. Lesser-skilled labor is more available in the market. That's very important. The second point, not unimportant for us, and maybe also for some others. If you have a fitting which you use to welding, that fitting costs you normally about EUR 1. If you use a press fitting for thick wall steel, it costs about EUR 8.
Hey, we go from value one to value eight. That is really a fun factor for us, also for the market. Why is the market willing to pay? Because they save the labor cost, and also they have a benefit. This is for all involved, we win. The last point, a larger share of wallet. With Aalberts integrated piping systems, we are selling not only one product, we are selling a solution. We also guarantee that this solution is working very perfect, has the lowest energy consumption when the liquid is flowing through the system. What is really nice to know that normally we have companies who were focused only to sell a fitting. They didn't sell the valve. We're not even thinking about fastening technology, and sometimes they were selling the tubes.
We can sell now in one project from one to four products. That means we can, a factor of 4x, go up with our value in one project. We do not need more projects. We just need to sell more in one project. That is really another big benefit of this strategy. Now the last one for the whole what makes us unique. You have what I said already to you. You are specialist in the area of valve technology. You are specialist in the connection technology, but there is nobody who is a manufacturer in all of this as one company. We are. Due to the size of our portfolio. We also have this database with 120,000 SKUs where they can make the entire integrated piping system of. Normally, this is happening with different manufacturers, different suppliers.
It's all out from one source, and we give the guarantee it will work. What you see, our customers really like this approach a lot because it gives a lot of safety for them. It will work, it's all fitting together, and it's coming from one source. One person is helping them to create this system. To go a little bit more in detail in some of the benefits. The first point how we actuate the business is we sell the entire portfolio in all the regions. If I go a little deeper, in the U.S., the connection press technology is a bit, I would say, less mature than in Europe. Europe is already pretty far developed in the press technology area, I would say 15, 20 years ahead, and we have learned a lot.
We have learned how to develop these products, how to produce these products in the most efficient way. We also have learned how to do it even better. With this knowledge, we have looked to the U.S. market, and we have developed the right product for the U.S. to connect thick-wall steel pipes in the U.S. We also know how to manufacture these, and we see really this takes traction. What happened, the one region is ahead of the other, and we benefit from this. In the opposite, the valve technology is ahead in the U.S., I would say, in our company of Europe. Tremendous opportunity. Here, we will in future make big progress and steps to get more valve sales in Europe, and that is of course additional. Then again, you sell more value for each project. The second point is the innovation.
I think innovation is one of the most important things in our business to develop the business, but also to build the image of a company. A company without innovation is basically a company without a nice face. We see that now we have nice innovations where we really get traction. It pulls the rest of the portfolio. We will continue to do so. We have first successes already. We will continue with that to develop the entire IPS portfolio that it is really able to serve all these verticals I just showed to you. The last but not least, point three, world-class manufacturing. Also here, we can conclude that some of the regions are a little bit more, I would say, ahead on automation, how to produce fast than the other.
We transfer the knowledge from Europe to the U.S. to benefit from that market and to do a quick startup of a new way of producing it in the U.S. because we are convinced we always want to be there where the market is. We start where the knowledge is, in this case, with the press technology in Europe, and then on one day we will say, "Now we're going to produce this in the U.S. because we want to be close to customer." Now, this morning we heard already, no acquisitions in Aalberts Integrated Piping Systems. I can only agree on that because we have just 8% market share, and we can basically only grow.
I know with all the ideas we have, but even more important, really motivated and strong teams in the regions and very good ideas and more and more traction with the Aalberts Integrated Piping System. One strategy approach to the market, one face to the world market, where we clearly accept local adjustments, local things, what needs to stay local. We think a little bit global, but we act very locally. If something needs to happen different in the U.S., there's no discretion. We do that. Apollo is an important brand, so we do that. CS8 in Europe, we do that. We will more and more use the Aalberts Integrated Piping System. To summarize our competitive advantage. The first thing, we are manufacturer, but I don't like that word personally. Why not? We are much more than that. We are innovator.
We are strong company. We innovate, we design, we manufacture, and we market this to the market, and we support that by excellent services. That is Aalberts Integrated Piping Systems. We do that with our entire portfolio. We have the beauty that we already have today a pretty good global footprint, a very strong footprint in the U.S., and a very nice good footprint in Eastern Europe and also in Western Europe. In Asia-Pacific, we also have a starting position, and this we will expand over the next years. Fantastic. We can bring our products to the market. The third point, we also made a decision, if you really want to bring knowhow, added value to our customers, you also need to have people who understand your portfolio.
I think you would agree with me, if you have 120,000 SKUs, you need to have people who are completely focused on that because that alone needs full focus. We did that change over the last four or five years in the U.S. Meanwhile, we have all people on the payroll focusing day and night on our own IPS portfolio. The same we have in Europe, and we also have more and more of this in place in Asia Pacific. The last point, innovation. By having more and more people on our payroll from the sales, we also get more and more input from our sales about what the customer wants. What is the problem of the customer? How can we help the customer? The voice of the customer is more and more coming internal, and that's very good.
We get more and more input for good innovations. That's the first thing. Second beauty is, we have the power to drive these innovations worldwide. That's also what we do. We go to the growth drivers. Of course, we are going to sell the entire portfolio worldwide. What we're also going to do, we're even going to deepen more our knowledge about these verticals. Because every vertical needs a specific solution. My goal is personally not to have more SKUs. My goal is basically to improve the quality of the portfolio. That can mean we take out some we don't need, and we add the right ones. That's the way how we improve on continuous our portfolio. The last point or the third point, the rollout of connection technology. I think I already explained. This, we are doing. We are in the middle of it.
The fourth point, that we also will continue is to drive innovation. That together, that means that I think we are convinced, my team is convinced that 8% market share we have today, we will move over the years to 30% or even more. That will happen because we have tremendous opportunity. We have the products, we have the people, and we have very clear and convincing strategy where We can see they buy in, and this is very positive. That's from my side about Aalberts integrated piping systems.
Good afternoon. My name is Thomas Breser, and I am representing the Aalberts Advanced Mechatronics organization. Aalberts Advanced Mechatronics has a strong focus on the semiconductor and science industries. 20% of men and 17% of women develop cancer during the course of their lifetime. 76 million people will develop Alzheimer in the year 2030. What is needed is new and more sophisticated equipment to enable these research activities in this industry. Scanning electron microscopes, for example, just to name one. Also in the material science, new equipments are needed for the research of cleaner materials, safer materials, and new materials. We heard about the automotive industry. Electric cars need batteries. The lifetime of those batteries is insufficient today, to say the least. There's a lot of research ongoing in this area to find new materials to develop and manufacture batteries with longer lifetimes.
In the semiconductor industry, there are many emerging applications. Sticking with the automotive industry for just a second, you have in your cars, you have voice processing, you have tons of electronics. There's more electronics in a S-Class Mercedes than in a 747 aircraft. There are more and more sensors being put into cars, safety systems, and this all is in preparation for autonomous driving. Internet of Things was also something that Wim already mentioned earlier this morning. Personal wearables, smart and connected homes, also industry applications like Industry 4.0 are driving a huge demand for these applications. 5G is right now being discussed all over the place, wireless communication, wireless components, all the infrastructure is driving that market. There is artificial intelligence. Huge computer with unbelievable computing power needed.
Data centers and cloud infrastructure are all markets or applications that are driving the semiconductor industry that we're participating in. What do we need or what does the industry need? They need efficient semiconductors. They need efficient semiconductor devices. That's where the semicon efficiency is coming from. Higher functionality, less power consumptions of those microprocessors, higher speed, obviously, and even smaller and smaller devices to be put on one chip. There are over 20 billion transistors today on one microchip. That number is growing. That's what is defining the trend. In order to enable the semiconductor manufacturers to do all this, they need new equipment. They need more advanced lithography equipment, they need process equipment, and they need, obviously, inspection and metrology equipment for the process control. This is where Advanced Mechatronics comes in.
We are delivering leading-edge production and technology, in most cases tailor-made to our customers, and prepared for the future, for the next generation chip manufacturing. We are enabling them to meet not only their technology, but also their manufacturing roadmaps. We are specialized in vibration isolation. You can imagine if you are talking about seven nanometer technology nodes, that is almost nothing. A hair is growing 10 nanometers in one second. 7 nanometers, you do the line and spaces on a microchip, the next line to each is 7 nanometers gap, the next line, only 7 nanometers thick, is next to it. If there are some disturbances, you have a connection, you have a shortage, the transistor is not working, the chip is not working, you have an impact on yield.
That's vibration isolation come in. We also do ultra-clean, ultra-high purity parts and fluid systems for gas mix cabinets, for example. We do large, accurate precision frames and vacuum chambers for the industry, for the equipment manufacturers. Our competitive advantage is system design and engineering capabilities, NPI engineering capabilities. The expertise for new product industrialization to bring them from prototype or pilots into high volume. We have supply chain management expertise in the organization, and a lot of people that know the industry and have expertise there. I brought you two examples today where we describe on how we want to put or how we put our strategy in action. The first example is an example of consolidation, of consolidating the supply chain. There's a lot of consolidation going on in the semiconductor industry as well as the semiconductor equipment industry.
Larger customers also want to buy from larger suppliers. There is a huge trend to go to fewer and larger suppliers in the industry. The larger suppliers need to have a certain size and critical mass to cope with the demand of the customers, and that is where Aalberts is coming in. What you see here on the right side of this presentation, this green module, that's a machine conditioning, monitoring, and control unit consisting of 24 individual modules supplied and shipped by or provided by several different suppliers, shipped to the customer, and then assembled and tested and integrated at the customer site. The problem was obviously high lead time because there's a huge amount of test time involved.
There was a high failure rate because we find out in the customer factory with the modules, once they are merged together, if they are working or not. It was also binding quite some capacity of the customer for what we would consider a non-core module. Yeah. What does the customer want? The customer wants to focus on their core competence. Yeah. Outsource more and more non-core devices, modules, subsystems, et cetera, to larger suppliers. They want to reduce the lead time, they want to reduce the failure rate, and obviously, always a driver is the cost reduction in these industries. Advanced Mechatronics is and was capable in this example to meet the critical competencies that are necessary, engineering, NPI, as mentioned before, but also supply chain management.
We co-developed this solution here for this customer, and we had a local presence, which is therefore also a key advantage of us when you talk about development or co-development. What we did, we basically transferred and insourced and improved the supply chain, and we created, which you see to the far right, where you see the operator, plug- and- play somehow. A device, testing qualification, then 20 from system engineers, consists actuators and vacuum tests, flow monitoring test for the customer. We managed lead time by more than 80%. We iterate, we had the performance, and we achieved regard to meet their role as a measure in the. Second example is an example chain manage and securing this integration. The expertise and high chain that are prepared to meet the demand. The customer was looking for cleaning submicron, also abilities for. Why?
Even welded manual process that was achieved in this case. Output about manual welding products that we are Power. Because into the deformation of bending happening. Again, the customer competence, development partner for them to secure and obviously for Advanced to do early process, for example, lessons for much higher reliable controllability. We invested in and built a great area that we have received the benefits in terms of competence. First, increasing the complexity roadmap of this customer with co-development and new innovations from Advanced Mechatronics. This is the last slide to summarize our competitive advantages. Again, we are specialized in certain technologies, vibration isolation, ultrahigh purity fluid systems, large precision frames, and vacuum chambers. We have our own intellectual property.
Just one of the organizations that is part of Aalberts Advanced Mechatronics has more than 50 patents of product families and over 100 patents worldwide. We are continuously putting our capabilities or capacities in new development, new products, new own products. We have the investment power of Aalberts and Aalberts brands, which is important in this particular market segment. The combined offering to work with the customers for co-development on a global basis is a key advantage that we have. You see here today, we have roughly 8% market share of a total addressable market of EUR 2.7 billion, and we intend to more than double this over the years. What are the growth drivers? A, we want to increase the market share with our existing customers, obviously.
That is a given in the current product portfolios by following these customers in their global manufacturing areas or footprint. A lot of this manufacturing is going to Asia, and Wim mentioned it before, that there are opportunities for us to follow them and have local manufacturing in Asia. Not only that, we want to penetrate new OEMs. They are in the U.S., but also in Asia. In order to penetrate new OEMs, you need to have local engineering. That is also key, engineering and manufacturing throughput. We expand our portfolio to reach this global footprint with acquisitions or greenfield, like also mentioned earlier. We will focus on technical co-development with our customers and own innovations within the Advanced Mechatronics group. Thank you very much.
Yes, lady and gentlemen, for the day. Hopefully, you get some insight in the businesses. I think what we discussed today, we could say as a key takeaway, allocating our capital in the most efficient way, and that's very wise to further narrow the focus. I think also after listening to the presentation, you see what kind of potential we have and also that needs capital. Our aim is to achieve unique leading market positions with sustainable impact. I think that's very important because a lot of money flows in that direction, sustainable transportation, but also semiconductor efficiency in the medical area or wherever it is. I think that's really supporting our business as a mega-trend, which is shaping our future. To build an even stronger and better Aalberts, we will accelerate organic revenue growth, mainly in the five areas, but four of them were presented.
We realize an operational leverage excellence with a drop-through of 25%. Therefore, we will accelerate our portfolio optimization. That means we will increase our divestments, increase also the attention for inventory reductions. It could be that under 20,000 SKUs should also be a little bit less, as long as we have the right SKUs. We further focus, cluster, and simplify our organization because I can't tell you how important that is. The more you are simplified, the more you are focused, the better you can perform. That means we change reporting lines more to Utrecht, and also we drive more the businesses with our KPIs.
As mentioned by my colleague, operational leverage excellence mainly drives the EBITDA percentage increase, which is one of our aims. We should drive also this leverage and excellence. Efficient capital allocation is proven also by our model, but also I think where we really allocate the money is really driving our return on capital percentage increase. Nevertheless, you are living in a world where certain end markets also have their own development. When you look through that development, this is the long-term creation of shareholder value. We think by taking these measures, that we really evolve into a stronger and better Aalberts, and we already started with executing these initiatives. I think we still have a lot of questions left, and hopefully we have also the answers. I would like to invite my colleagues. Oh. Okay, take a seat.
Take a seat?
Marcel. Maybe to introduce Marcel Abbenhuis. Marcel Abbenhuis is responsible as executive director and part of the executive team also for Industrial Technology and also Advanced Mechatronics, but also dispense fluid control. When you have questions to him also, feel free. Martijn.
I'll start off again. Martijn den Drijver, ABN AMRO. To start off with Advanced Mechatronics, a question for Mr. Breser. Can you elaborate on what is missing in your portfolio given the remarks in the presentation?
That's a good question. Right now we are very good positioned with the four companies that are part of the Advanced Mechatronics organization. We mentioned today only vibration isolation and ultra-high purity gas systems and the large frames. We also have others within the organization, other capabilities that are helping us to have the position in the industry that we currently do and set forth. There's always something that you can add to the portfolio as it is today.
Okay. I'll switch to Installation Technology, Mr. In Het Veld. Playing the devil's advocate, you mentioned that your solutions are unique. Can you elaborate on your valve and connection technology is different from that of Uponor and Viega? As far as I can see, they have exactly the same combination.
Yeah, I can comment on that. It's the portfolio, including the valves, the fittings, the tubes, and the fastening. This entire portfolio out of one source, that is what makes us unique. It's not that a single product makes us unique. It's the entire portfolio what creates the IPS solution.
I understand that you have an elaborate portfolio.
Yeah, that's the difference from Uponor. Clearly different. Uponor is very much, yeah, focused on the plastic.
A question on working capital. Clearly, you're working hard on the inventory bit. You've mentioned growth with activities with global accounts. You're going to focus on increasing key accounts. That obviously has a negative effect on accounts receivable. Is there maybe a material portion of the positive effect in inventory undone by an increase in receivables given your focus on key account management?
To whom is the question? To me?
To you.
Yes. Let's say a portion will be, of course, compensated by increased financing because of longer supply chains. On the other side, given the efficiency improvements that we make, also in our warehousing logistics, but also in our manufacturing footprint, we believe that we can also still make a lot of wins there. We still believe the total combination, we can really win a lot in working capital also, especially in installation technology, despite the internationalization of the business.
Okay, thank you.
By having a bigger portfolio, you also have more pressure not to, let's say, extend your payment term. We have much more power. It's not in principle when you have a key account that you have a longer payment term. Can also go the other way. Of course, they're trying, always.
In the presentation on hydronic flow control, the term, or the phrase lifecycle sales was used. Can you elaborate on what portion of your business is generated outside of the initial sale or the initial installation of the products. How material is that for your business? Maybe Arno or Wim can talk about how significant that is for the Aalberts group.
Now, at least, it is a significant part from our business. Of course, also renovation of, let's say, existing and refurbishment is a big part of our business. We focus our sales efforts on the whole building lifecycle from the beginning to the end, so to say, and it is fast-growing. Especially when you look to all the tailwind coming from mega trends and the legislation. That is helping a lot to grow that business. Of course, you still have a lot of over-the-counter business, where you have to replace, for example, expansion vessels. You can talk about lifecycle sales, and of course, we want to replace products that we supplied, let's say 10 or 20 years ago with our products, but that's not real lifecycle sales.
Still, it's not clear to me what part of the business is then really product sales and which part is more services or other type of-
No, we aim at least for more than 40% of our sales coming from project sales, so to say.
Yeah, I think you mean project sales or product? Product?
Yeah.
Versus other.
Services, you mean?
Yeah, services, et cetera.
Services is still a small part of our business, of course. We just started, for example, with, let's say, selling subscriptions. We just started with that, so it's still a small part, but it will grow very fast in the near future.
I guess also for the group, it's still a small portion.
Below 10%.
Yes, below 10%.
Below 10%.
Yeah. More than zero.
Somewhere in the middle, maybe. No, I think the point is that it's starting, and there's a big opportunity towards the future to be able to develop that. You see more and more that you get integrated solutions where you have combined hardware and software. I think it's somewhere below 10.
Yeah.
Maybe between five and 10, something.
Dirk, this is EValuation Capital. For Mr. Pelsma, a question, basically, reflecting all the ambitions we've seen on market share increases, which look quite promising, knowing that it's all about 50% increases in absolute terms. What timeframe is attached to those targets? Probably not 2022, what can you share with us what you've seen, let's say, over the past two, three years in launching new innovative solutions and what kind of gains you've seen, as said, it's a quantified target, what timeframe should we see it as you said?
I think it would be a dream of realizing that in three years. I think when you run a business, it's one of the most difficult thing is the question you ask, because you have so many things where you, what to put, influence that. It can be that you have other customers, other contact person, or an innovation is not going so quick as you think it goes in the market. I think the aim is not to put a timeframe on it. Of course, we made our plans. We made plans for this. We have also our own timeframes. Let's say it's not 2022, but what is exactly, let's say it's as soon as possible after 2022. We can't give there any years, because when I would say four years or five years, I could not verify that.
When you would ask me, "Hey, could it also accelerate the coming years due to certain mega trends? Because your organization is more fit for the growth, because your structure is more in place, because you allocate your capital much better to these businesses," then my answer would be yes. That's the whole essential thing of today, and that we really have chosen for, let's say, five things where we didn't present fluid control because we thought it was a little bit too much in a presentation, but we will show you that in the afternoon. All these four, five things, we really think when we allocate more of energy and cash to that, we will accelerate also the growth despite dips or peaks in the environment where you live in, which you always have. That would be my answer.
Actually, I can't give you that answer, say five or six or seven years, but I think it will accelerate, especially in 2021, 2022, because a lot of innovations come there more to, how do you say that?
Too late, yeah.
That they are more adult in their introductions, and that will continue. That's also important. It will not stop after 2022. Probably, hopefully, we are sitting here again after two years, evaluating the coming two years, and then we say, "Hey, what is now the situation? Is it really accelerating what we expect?" Putting a real number on it, I can't do, because it's difficult to verify that.
Yeah. Maybe on part of your answer that you said, you have ups and downs in the market. What is your view on the outside world today, let's say? How do your clients position themselves for the next 6-12 months? Is that a generally positive view that you can say, okay, 3% organic growth is achievable, or has it become, let's say, for the next 6-12 months, to the amount of visibility you can share with us?
Of course, you also know, Dirk, that we can't say too much in this period of the year. What we also said mid-year is that we said we have given some guidance about what we see in the markets. We also said, when you have a lot of uncertainty in the markets, that we will also be part of that. Because when you have CapEx-driven business, and the CapEx is postponed, you will also have your own postponements. We have seen that. We have also said, for us, a big question mark was the industrial U.S. markets, where we had a lot of quotes at mid-year. What we saw, due to the uncertainty, also certain postponements. Of course, you also know what happens in the German automotive and industrial markets. Also there, inventory reduction.
We said mid-year that we would expect a certain tick-up in, let's say tick-up or pick-up, I even made a mistake there.
Tick-up
during the presentation, tick-up, pick-up, during the end of the year. We have seen this tick-up, but it was slower, and let's say also a little bit later than we expected, but we see it. It is mainly due to inventory reductions is more and more, let's say, done. Still, it's a volatile world. When you look to the U.K. Also, we are facing that situation. When you look to the coming six to 12 months, what we said also already earlier is that, for example, Advanced Mechatronics, Semicon, we really saw an improvement in quarter four. There, you see it came a little bit later than we thought, but next year will be very good.
Actually, a little bit the same as what we said mid-year, but a little bit later and a little bit lesser tick-up than we maybe thought that time, which we also already said in September, August. It is very difficult to predict. That is also why we do not predict, because we would like to do what we say, and when you do not know it, you do not say anything. There are a lot of people who say a lot, but then they have to correct it afterwards. We do not like that. What we like is that we give you guidance about the coming three to five years, because this is not only 2022. Actually, I also think we should not be so negative, because also when you look, for example, to Germany, the situation will also change again.
I think, it was maybe not a very easy year, in Germany, in certain markets. It could be that also the beginning of next year is little bit the same. After that, when you speak also to certain customers, it could even improve again. It's still 2020. We are not busy with quarterly trading. We are busy developing and creating value for our shareholders. Of course, we are also not immune for certain market developments. It could also be that the mix is then a little bit different, that in certain markets you grow faster. Let's say in Germany, in certain Material Technology activities, where we have a high break-even point, you are a little bit more vulnerable also in your profitability. You have dips and you have peaks.
In the end, you develop the company and you develop your long-term growth. You also have responsibility to all your other stakeholders. I think a very important topic for these times is also your people. When you would ask me, what is the most challenging topic for the coming years? That is attracting the right people and keeping the right people. That is really, for me, the biggest challenge. The markets are there, the potential is there. To having the right bemensing, the other word we can't tell anymore in Holland. Bemanning. Bemensing. You need to attract the right people, and that is so important. We also give today to you a sort of image of ours, that hopefully we attract very ambitious and learning people. We are not immune for the day to day at the moment.
Hopefully I gave you a little bit information.
Yeah. The next question. Okay. Yeah.
Yeah.
Thijs Hollestelle, ING. Dirk Nollet. I've got a follow-up question on the Semicon business, because also the predicted growth is quite high. Can you give us a bit more background of how the business mix looks like? How much client concentration risk is there? Probably a lot of semiconductor companies, but I think also medical equipment makers, the geographical split. Is there huge concentration? Is it relatively easy for you if you wheel in another client, and if you are in a partnership, you're not only doing one project, which you probably expect in for a long period. Can you give us a bit more background on these dynamics?
Well, the semiconductor equipment industry, which is what we are talking about and what we are targeting, is not that huge. You know the players in the market, whether they're on the lithography side or the process side or the metrology side. Yeah, we are in contact with all of them. We have a very good position there. If you have one or two of them consolidating or merging, obviously this is always bringing opportunities for us going down the road.
Yeah, it's not the case that ASML is currently 70% of the total revenue of the Semicon business.
Semicon in total?
In total. Yeah, just the concentration ratio or the top 5 customers are 80% of revenue.
Well, there are analysts out there that are looking at this particular market, whether this is Gartner, Dataquest or VLSI Research. They cluster the semiconductor equipment market. The wafer front-end market is roughly EUR 500 billion. You probably know, since ASML is a public company, what their current share is in this EUR 50-plus billion, then you get an understanding of what the market share of an ASML, for example, is.
That's not what I'm asking. I also have that kind of data, but yours is the concentration risk of the Semicon business.
Guys, I think when you have five or, let's say between five and eight bigger customers, I think there we do, let's say, 80% of our business with Marcel, roughly.
Yes.
Correct. I think that is a vivid situation.
Yeah. If I can add on that, because Advanced Mechatronics is not only Semicon. Semicon is one of the markets, but we are also involved in medical, in coatings, printing. That's not the only market that we are in with our product line, so to say. We have much more opportunities than only the semiconductor market.
Okay. You're right. I think, of course, our colleagues in Holland, in Veldhoven, are a very big partner. I think roughly we have five to eight customers. That's also logic, because these OEMs are pretty big. We work also with I don't want to say the names, but we have customers in Germany and in Singapore, where you have the same footprint, where you can do the same footprint. Therefore, I think Asia is so important for us, also to get bigger at other customers. Of course, ASML is a big partner. That's correct.
The preparation phase takes years before these customers say, "Okay, you are my preferred supplier." Is your optimism coming from advanced stage of these kinds of talks?
Yes. The business plan is based on several customers, on customers we have. Not only ASML, of course. I think the trend in the market is that there was already a tremendous consolidation, what Thomas said, and that they're growing all so fast, and that's the trend, that their problem is the supply chain. That is actually not only happening in Semicon, but we see it also in the beverage market. We see it also in the automotive market. What you see now with the car manufacturers, that they reorganize. Last week, 10,000 people at two big OEMs in Germany that they fired. They do that to create space for their new developments. They will also have more co-development companies to help them. This case for surface technologies. It's really a trend.
We also think we have to decide now because, or you go with the wave and you really take your position, or you can't follow because you can't allocate the capital enough. That's why we made these decisions. Your question, five-eight customers have 80% of that. Roughly. Besides that, Marcel is right, we have other markets than only Semicon advanced.
Thank you.
Okay.
Can I ask a quick follow-up on Semicon? We know ASML is important, and they're already ramping up EUV. Is that something which could be so meaningful that these outsiders could see that into the numbers if EUV reaches 40-50 shipments?
What is the question?
Well, if that could be a real meaningful contributor on the Aalberts group level, if EUV reaches 40 to 50 shipments in two or three years' time.
Yeah. We are in EUV. Yeah, the moment it goes from 20 to 40, we will follow. It's a simple math. That's also why we're very positive about next year, huh, Marcel?
Correct.
Yeah, it's a simple math. It's true.
Were you willing to quantify that impact?
You mean what is our revenue per EUV?
Well, something like that.
We give every time the same answer. We don't disclose that.
And-
Don't believe. No. We have to also to be careful towards our partner.
One more question on Semicon. Would you be willing to sort of share anything on margins? Is it better or worse than group level margins?
Aalberts group level?
Yeah.
It's part of Industrial Technology, so it's higher than Aalberts group level.
All right. That's very helpful. Very helpful.
No, it's a very healthy margin, but I still think we can further improve. There you have the leverage, but also fluid control is very interesting. I think they are both interesting.
All right.
It's not that one is doing now so much better than the other.
All right. That's very helpful then.
Yeah.
Perhaps on piping systems, do you see any changes on the distributor side of the business that perhaps like Amazon is becoming more important or that whole landscape that the supply chain is changing?
Well, let me say, we cannot close our eyes what's happening in the world. I think our main distributors all are in the topic, and they prepare themselves to cope with that, let's say, a possible threat to them. What we do is we manage that we are ready for whatever happens. In our case, that means we have not to take care only to supply the right products, but also have always our data available to plug in whatever channel that's going to happen. That is our position. I don't believe personally that it will change rapidly in our business because still, we are traditional business, but it's growing.
Right.
Also, when you look to the existing wholesalers, they do also a lot via e-commerce. Some of them already do more than 60% of their business via their e-commerce platform.
Yeah.
They're almost Amazon, so to say.
Yeah. What is very important, I think also to add, is that they also use brands.
They use more brands.
They use more brands, yeah, also on their website. That's also.
Yeah, that's completely correct because the brands-
That's what I learned from you.
Yeah, creates the pool. First request, and you can say that the bigger wholesale channels also prefer to have a private label. Well, we of course, prefer our own brands. That's the kind of balance act. What you see is that channels for the internet always like to use the brands because there is demand, and there's the promise of the brand, and it stands for quality normally.
Exactly. Plus innovation. The moment you have innovations, they need you.
Yeah.
Actually it's, in my opinion, also a big opportunity for innovative companies. When you don't innovate, you have an issue, because then you get compared to others. You have continuously to be very innovative with your package and your products and your services.
All right. That's very helpful.
Yeah.
Also that needs more investment. Master data, it's all investment. You need to take that position.
Martin Baker. After lunch, we had four presentations about new technologies, about strategy, addressable markets, and market share. Maybe because it was after lunch, but I think I have missed one about fluid controls. Is there any reason for that?
Yeah. I just mentioned that.
Oh, yeah.
Because we thought four-.
Was already enough.
was already a lot. In fluid control, we have two experiences instead of one, the rest. The people can tell you a lot about fluid control. We tried to divide the time. Otherwise, we would not be able to give the experience. It's more a time issue.
With concerning hydraulics, it looks like you have a system which is competing against Nest. When I saw one of the pictures, why do you compete against Nest? What do you think you have to offer more, or are you also more or less making a system which is comparable with Nest?
Yes. More or less comparable, also we really can learn more about it during the experience later on. To be honest, let's say our product is much better than the product called Evo, because it's adapting, let's say, the habits of the resident of the home, for example, and Nest is not able to do that. It's still a programmable, of course, connected with the internet room thermostat, but our product is much more. We would like to learn you more about that product later on.
What's your route to beat Nest in this respect? Yeah, the competitor is very big.
This product is just a part of our complete product portfolio, so to say, and it's not our aim to beat Nest, for example. It is more our aim to complete and to offer a complete product portfolio, so to say.
All the other features, is Nest compatible with all other services you offer?
Can you repeat?
With all the products you have.
Yeah.
Are they also compatible with a Nest system?
No, no, no.
To speak.
The Nest is offering is only a small part from our product portfolio, so to say.
Thanks.
Sam a question on the regulatory environment.
When they look to the legislation, for example, there is no legislation that is saying, "Hey, you have to install an air and dirt separator," for example. When you look to the Dutch market, all buildings in the Netherlands have to get a C label before 2023. That means that you have to do a lot in energy saving. You cannot reach that without, let's say, installing products like air and dirt separators. Not only that, you have to do more, of course, but air and dirt separators, and also the more intelligent ones, can really help you to reach the goal of, let's say, getting a C label for your building. The other question I didn't catch.
For all kind of safety for tunnels, and I think there's a lot of stuff where we've seen recent accidents, where the safety standards are not up to par. A lot of upgrading takes place. Any role you're playing in that?
No, we do not really play in that field of the market. We mainly focus on buildings, both residential and non-residential, but not especially on tunnels. It's more the business of integrated piping systems.
Yeah. We follow the legislation there. There's nothing special known by me now that something is there popping up. If it pops up, we follow.
So.
Hank.
Henk Veerman from
There's a mic here.
Maybe you can talk. Yeah.
Henk Veerman, Kempen & Co.
Yes.
Before I move over to Material Technology, one question that interests me is when I looked at integrated piping systems, I discovered there are still a lot of brands that are used across the several geographies.
You looked at the website?
Yeah. Many websites as well. I think a lot of websites are still in the air. Is that also the way forward, or is it time to maybe combine this?
What we clearly see is that we will end up finally with, I would say, some power brands linked to technology. If I take one brand in my area, Apollo, it's very clear it's the power brand in my business for valve technology. If I take another brand, it's VSH, is also a very strong brand. Yes, we also have a regional brand where we say it's a very strong brand in a certain region, U.K. and the Middle East, for instance, Pegler. Is it we go to lesser, but at the end, we will continue to carry brands where, of course, we see the value. At the end, we also see that our roof, our integrated piping systems, gets more and more traction, and the people more and more recognize that.
At the end, I think over time it will more and more be connected, the brands to our Integrated Piping Systems.
Okay.
It's a work in progress.
Yeah.
It could be that you see some. I also have these questions. I think there's also still a lot of work to do to get it all completely finalized. Plus, as I explained, we migrate step by step to that situation. We don't want to lose the heart of the people in Apollo or in VSH or in Pegler. I think more and more the people understand it.
Completely.
They follow it.
Yeah.
Now you can implement it step by step without the question of Felix, without losing the people.
Yeah.
That's the last thing we want.
Yeah, clear. On Material Technology, I think the growth in the business has been about 3% for the last six years or so, with very limited margin expansion. You now talk about quite aggressive market share gains with introduction of new technologies. Is it now the time to do that, given that you are quite unsatisfied with the margin you make in your existing sites? Another question I have on that is, in the U.S., how many service centers would still like to open, and do you see opportunity to acquire these sites, or will it be organic expansion as of now?
Coming to your question number 1, are we satisfied with the margins? No, we are not. We are continuously working on that. You may remember that we have, in the end of 2014, beginning of 2015, that we acquired the company in Pegler, which has a wide range of technologies and a wide range of sites. We continuously improve that. We had a margin when we acquired the company of below 7%, which is right now above 12% in average. This is the general improvement of margins of that company we have acquired. Are we satisfied with what we're seeing today in the numbers? No, we are not. It's a continuous way of improving that. We launched today that we would think a bit about what are the right technologies. Do we keep all of the sites and all technologies we have? Yeah, maybe not.
You could see that slide which Arno presented with the deconsolidation of the sites, so there are also some reduction of service sites. That will be one of the actions we take to have a more strengthened focus on what we are doing. Looking to North America, where we had that development from two to 25 at the moment. Yeah. We are constantly evaluating whether companies being on the market, whether we could acquire them or not. We have a good setup at the moment. For next year, we have a strong focus on, A, integrating the acquisitions we have done, that we do a bit of transfer of technologies which we have in Europe, which we would like also to have in the U.S. I mentioned two of those. It's a HIPping, which is in process to get there implemented, and the other technology is anodizing.
We don't do that in North America. You look at the key account structure we have, which acting in Europe, in Asia, and also in North America. There is a demand for anodizing in sustainable transportation, but also in IGT as well as in Aero. We could implement that technology. Would you see that in numbers in 2020? Potentially not, because investment takes some time to get that converted. This is what we are aiming for.
Okay. If I understand it correctly, it is more about buying new machines in the existing sites and then add the right skill set, and then target the key accounts associated with that kind of technology, or maybe already has a relationship. To get to 12-20, maybe half has done that, and the other half is maybe add some more sites, maybe grow a little bit of a thicker nationwide footprint in Europe and the U.S. Is that how I should look at it?
More or less.
More or less?
Yeah.
Okay. It's clear.
Do not forget that before we acquired Impreglon, the surface technology business they talk about is not mature technology. There's still some things in maybe we would like to divest. Surface technology had already 14.5% EBIT in 2014. I think Impreglon, which we still think was a good add-on, especially also in America, gives us the footprint which we have now, but it also threw us back in our margin.
Okay.
We're coming there. Oliver is coming there.
The last question on Advanced Mechatronics. I was quite surprised how outspoken you are about consolidation in the industry and maybe acquiring a sort of a new, a fourth leg on the business when it comes to certain products. What kind of products are they then? I think the question was asked before. I think when you're so outspoken, maybe you could give a little bit more color on that. What kind of knowledge is there then in the organization that is not being fully utilized at the moment?
Well, it's not so much about knowledge. I think if you look at the landscape, there are a lot of mechatronic-like, advanced mechatronic-like components that are going in such equipment, in such a tool. Yeah. It's part of the growth strategy, obviously, to look at that. It's not only the technology and the product. We are right now set up with the people, with the customers that we have, with the key accounts that we have, with the products that we are currently serving, and the combination of making subsystems with different kind of individual products. That's how we want to achieve this growth. Rest is potential add-on down the road.
Felix Wienen from SFO. Two questions. The first one to André. I think driving the share of wallet and selling more complete systems has been a project that you're on since the last three, four years now.
Correct.
Or even longer. I think the initiative makes a lot of sense, but can you share some of the progress that you've made over the time or also some of the challenges? In particular, on the challenges is, I think, again, the idea is convincing, but in the end, how important is price for the customer?
At the end, it all starts, of course, with the right solution. Our products we use in our solution needs to be as such, standalone, also competitive, and should eye-on-eye comparable. They should be same or better than the competition. This is also how we strengthen our position. If you ask me what progress we make, I think we make some very good progress, but also honestly, it takes always longer than you think before. What I see is that our sales team more and more gets the message across to our customers, and the customers also understand it, and more and more also use our organization for them. They are coming to us and ask for the solution. For instance, our engineers in the back office, they engineer an entire IPS system.
Sometimes, just to give a little bit idea, they are working two weeks on such an entire system for one big building. That shows. Then, of course, we put all our products in there. That is really happening. Every success starts small, and the success create another success. That is now what we are seeing what's happening. That happens as well in the U.S., and we also see we more and more get also these kind of nice projects in Europe, that we bring the whole system into a factory or into a new commercial building.
Okay. Thank you very much. To all of you, but especially to Wim and Arno, we spoke a lot about mega trends today, about things like sustainability, future transportation, and so on. We didn't touch a lot about digitalization, which was a bit of a surprise. Can you fill out that work for us and how important it is for you as a group on the one side internally, and here I talk about CRM systems, SFE, et cetera. Also outside towards customers and how you want to develop the group further there.
Yeah. First of all, I think I would like to give Maarten a word, because I think we talked a lot about digitalization, but maybe to explain it.
Maybe not enough.
Probably not enough. It was not clear, could also be.
Yeah.
Of course. In hydronic flow control, we have a specialized Digital Lab, so to say, I think with in total 15 people in it, working day to day in making our products more intelligent. That's of course, let's say, a long-term goal because that takes a lot of time to realize that. Also in creating new business models.
Stipulated, let's say, the possibility of selling data via subscriptions. We just started with that, and we really believe in that. We really work hard on it to make that kind of products and subscription models available. We have 15 people working on, let's say, digitalization. Also in the future, we want to offer, let's say, commissioning. I talked about commissioning, how can you commission your system, for example. We also will make that available via the internet, for example, and we are also working on that. That's 15 people are day by day busy with the whole, let's say, digitalization process.
Internally, in terms of processes.
IT.
Yeah, let's say, you mean the process in our company?
Yeah.
Let's say, I think also André touched on a point to that, master data. We are focusing a lot on that, and we know that is actually, in almost all cases, the basic, what you need to have that organized well before you can really digitalize also your services to the customer. Because whatever you want to show to him, you have to have standardization in pictures, in product types, in all kinds of things. You need a lot of master data to organize that. All the business teams have an IT roadmap. Like we have an innovation roadmap, they also have an IT roadmap. That IT roadmap is aligning, let's say, the business. It's not per se necessary that, for instance, Advanced Mechatronics is on the same system as Integrated Piping Systems.
It is, of course, important that the companies and groups within Integrated Piping Systems are aligned together on at least an aligned system. That's what we focus on and what is also giving a new opportunity for the future.
I think we invest a lot in IT systems for each business team.
Yeah.
A lot of processes are running at the moment. For example, Advanced Mechatronics, also Dispensers then afterwards starting. Hydronic Flow Control, we did already a lot. Busy we are in Integrated Piping Systems. Per business team, I think we are already five or eight years busy on the structure within Surface Technologies, which is very important, to align all these 90 service networks. I think we never spent so much money as the last years and the coming years. It's more, it's what Arno says. It's related to the business team.
Yeah.
We will not have an IT system for whole Aalberts. We have our KPIs, which we do with a sort of shell. I think it's very important for the future that you have very good information.
Yeah.
Also to be connectable to certain new business models. That was our driver also.
I think that is also, let's say, the opportunity that Aalberts has.
Yeah.
The world is digitalizing, of course, our products, because we identify digital product and digital services. That makes sense. All our products, I think the digitalization plays a big part, big role. You will see some examples also here in the afternoon with the innovations. Products have to be communicating, connected to systems. Valves have to be closed and opened from a distance, these kind of things. That is crucial that you, of course, develop there. There, we can share and learn from each other. That is also what we explained in the past with our networks, where we bring the people together that are dealing with these digitalization of products so that we can learn from each other. On the other side, you have the sales, the route to market with traditional wholesale business and, of course, the Amazons and the digitalization of services.
I believe it's a big opportunity that we can leverage also on these new routes to market because, at the end, they want to sell products, and we have these products. We should be prepared that we can do business, that we are able to do business with these new kinds of routes to market. That's most important.
Maybe that is driven from the business. I don't believe, and I recently even said it in an interview, I don't believe in a chief digital officer, right? It's driven from the market. The market asks, and also we ask for inventory reduction, for example. Optimize your inventories. You need the data, and we have them now in Integrated Piping Systems, to drive that process. The same is when you have design services, you have to send them all over the world. You make the design in Holland, and you send it to Dubai. Your infrastructure has to be ready for that. What we are doing is per business team, we have an IT roadmap.
What Arno does with our colleague, Erik Jörning, we bring together these IT people once in three, four months, and we share what they are doing, and they're learning a lot from each other. That's again an Aalberts network.
Yeah.
That's such a big strength we have because a lot of processes are in different applications, different business, but are exactly in the core the same, the same challenges. That makes you strong as a total group. I see we have two questions via webcast. Maybe we can That's question one. It's from Joris Dupraz. Hopefully, my pronunciation is well. From UBS. Could you please tell us more about the margin per geographic regions, as we only have revenues disclosed? That's a big question. Arno?
The problem of that is, of course, that's correct. We disclose the revenues per geographic area, but not the margins, because it's always a combination of different products and different businesses. We don't do that, and I also don't think that it says a lot. I don't know if you have to add something. You show 8%-21% market share scores across divisions, which huge addressable markets. You claim leader in each market in each of your division number one, number two. I was expecting much higher market shares or much smaller total addressable markets. Can you explain where I misunderstood something? Are those markets very fragmented, for example? It's a very good question, I think. I think the answer for me would be yes.
I think that's true, because when you look to and that's also the nice thing, that when you look to the shares we have and really dig into that, our market shares are, you can say 8% in piping systems is not so high. I think it's also pretty high, but it's a very big market. When you look to Semicon, it's still small. I think this is the right conclusion that it's still fragmented, and especially also in surface technologies, where we already have a very nice position. That is very fragmented, a lot of locations. It's a lot to gain from that perspective. That's also why we allocate our capital in another way. Hopefully, this is the right answer. No more questions via webcast.
Stay seated.
Hopefully, maybe last question from your side. Any questions left? Martin.
You mentioned you will implement a new reporting structure. When will that happen?
New reporting structure?
New divisions.
No. We have no new divisions. What we did is that also to align the divestments because we have to divest certain businesses. We made more direct reports to Utrecht. We took out certain businesses out of the niche technology clusters we just presented to give it more focus. It means more focus for my colleagues on my left side. That we together, and Marcel Abbenhuis is helping me with that, is that we also drive the standalone companies more closer than we did in the past. We changed a few reporting structures more directly to Utrecht. That's actually what we changed. It's not that we changed the Divisional Structure, it's more that certain business teams now report more to the headquarters.
In a sense, of the four business entities, nothing changes.
No. The four business segments don't change. Nothing. Until now. We know what happens in the coming five years, 10 years. Okay. I would like to thank you very much for the questions. I think hopefully it was very informative and that we learned a lot, but we have a very nice experience coming. You can still ask the team all kind of questions, but also you can see the products and the digital services, which we do also a lot. It gives you, hopefully, more insight in the business we do. Thank you very much and we'll see you.
Thank you.