Welcome, people in the room. Welcome, people joining our webcast. The agenda for today is that we will talk about Aalberts and the highlights of the first half year. We will look to the operational review, financial review, we also were looking forward what we expect in the second half and further. Then, of course, we hope we have a lot of questions and answers. Aalberts. Yeah, Aalberts is, and this sheet we have shown many times, is that we have unique technologies, mission-critical technologies, where we have a unique market position. We are a company where mission-critical people can't resist going beyond the line of duty. What does that mean? It means that you really have the mentality to go the extra mile and that good is never good enough. It's a culture where we are really proud of.
The third thing is that greatness is made of shared knowledge. Sharing ideas, creativity, and fast learning brings you a lot of innovation. This is the essence of our company. To create shareholder value, it's a way of working. When you look to the three points we just mentioned, then actually the way we create shareholder value is by achieving these leading niche technology positions. You saw that also in our press release of today, that it's very important to have these unique positions to really have high entry barriers, pricing power, but also create a high added value margin, to invest and keep investing in innovation. Combined with our culture, operational excellence, relentlessly, continuously improving your margin and generating strong cash conversion. We also showed that in the first half, and we'll come back to that.
The cash you generate, allocate that on a very disciplined way there where you make the highest return. It's a continuous process where you have to be very alert and very disciplined, but also very thorough. We also aligned capital in the first half to other topics where we thought we could have a higher return. Technology exchange, innovation speed, creativity, fast learning, adapting to the market will be more and more important, in my view, in the coming years. When you share knowledge and you learn from each other, that's a tremendous strength of ours. We really practice that also in our networks, and it also gives us the amount of innovations, what we also see in the first half, but also the last years which we started, but also the coming years.
Our track record of the last 40 years is shown in this sheet. Sustainable, profitable growth over 40 years. A focused technology leader, strongly positioned for accelerated future growth. We did it already 40 years, we will continue to do that on a very disciplined way. The most important is, it's all about people, I always say. Without good people, without the strength of the culture of the people, but also the intensiveness they practice their job every day, being an entrepreneur, take ownership, go for excellence, share and learn knowledge, try to become better, and of course, act with integrity is the basis of the success. Without that, you have no future. When these people also, let's say, exchange the knowledge, you get a lot of creativity in your company.
Innovation is driving our growth, and I think you see more and more that we get traction in that. The innovation roadmaps we started to build somewhere two to three years ago. In one business team, we started earlier than the other business team. We made also five-year business plans, including innovation roadmaps. We invested heavily in R&D. We still are doing that. We also will not stop because R&D and also creativity in R&D will bring the profit and the organic growth of the future. We leverage megatrends, and I can't say how important that is because we studied that the last years, but also in our capital markets day of two years ago, we said climate change, urbanization, raw material scarcity, Internet of Things, and globalization and co-development is really driving all kind of new initiatives in the world. We are on top of that.
We are at the heart of it. We exchange this thinking, and also we embrace the new technologies. There, you need a very pragmatic culture with fast learning, close to the business, and that's why you keep yourself ahead of the game. When you look to the highlights, and what I did here in this sheet is to show you a little bit what kind of activities where we are active in at the moment. There's a lot going on. This started already two, three years ago. These are the real highlights. Innovations driving additional growth in Installation Technology. It exceeded our expectations. Our PowerPress fitting and valves are really doing very well.
We launched it in the beginning of 2018, we have a tremendous revenue already in 2019. We must even be careful that we can all produce it the coming years. Successful innovation. A set of digital engineering services worldwide. We are busy with extending expense of the building in Belgium with our company, Henco. A new distribution assembly center in the Netherlands, in Zwolle, which we will make operative after summer. It's now built, so we have to utilize it. New generation of electronic regulators for cars. We launched the FullFlow valves for district energy and industrial and residential and commercial buildings. Very interesting, and my colleague, Mr. Jäger, will come back to that. We increased the investments on additive manufacturing. We put investments in related processes for additive manufacturing. We're busy with some very nice contracts there for the future. We started co-development projects for surface technologies.
What happens in electrical and hybrid cars is that you see more and more weight reduction because the cars are more heavy with the batteries. They're looking for lighter materials, but they have to have the same strength. We bring there the outcome with our surface technologies. We opened a renewed extrusion hall in the Netherlands with upgraded equipment. We scored the first long-term digital contracts in Climate Technology through our digital hubs in France and the Netherlands. Last but not least, advantage of investments and earlier gained projects in the semicon industry, we took really advantage in the first half. We still made organic growth, even it was lower in the semicon in the first half. We see a prosperous future.
We are where technology matters, where we really can make a difference, and where we also can make progress through innovation and through doing it on a very unique way. There's a lot to gain. The highlights in numbers, organic revenue growth +3%, and the EBIT growth +5%. EBIT margin, we increased to 13.1% despite more difficult market circumstances. We kept investing in CapEx. It's even +26% to facilitate all the initiatives we have running at the moment and also to facilitate but also to finance the innovations for the future. Innovation is normally done for three to five years. The moment you start with an idea and you have it operationally run and you get sales out of it could take you three to five years. We did a nice acquisition in Chicago, and our cash flow from operation showed a very strong increase.
We think a very solid performance due to the unique market positions, innovation and organic growth initiatives which we took the last years, our entrepreneurial strength, because it is all about people, and very strong focused business teams, which we created the last years. By creating focus in your business team, they are busy with long-term innovation roadmaps and long-term business plans. You get focus in your activities. We will continue with that. My colleague, Mr. Jäger, will now talk about the operational review.
Wim, thank you very much for the intro. Also, I would like to welcome the people here present in our nice boardroom and the ladies and gentlemen joining us on the web. After having seen that the overall picture is pretty positive, I would like to give you some background of the business specifically. Intending to start with Installation Technology. We made a turnover of EUR 574, which is more or less flat compared to the period in 2018. Whether that come from, besides the positive development we see in a couple of areas. In the U.S., we had a pretty slow start, though the top line was more or less like 2018. In Europe, we achieved organic growth, which was above average. If you look at Asia Pacific, which is in that business, a slow number.
We achieved a slight organic growth, the lever is pretty small, that is not so visible in the numbers. Positive currency effects being somehow balanced out with divestment representing some good $20 million. Arno may later add that in a bit more detailed. If you look at the turnover, we achieved around an EBIT of EUR 70 million. That equals to 12.2%, which is a bit softer compared to the period in 2018. The main deviations or impact on that, we had a good stock reduction in the U.S. You may remember from last year's discussion that we had a strong increase in the U.S. stock for a couple of operational items when we changed the way of how to distributing, that was one of the backgrounds. We are currently in process to get that reduced.
We had the U.K. topic where the business is pretty uncertain. We got stock increase, stock decrease, so that made the entire operation a bit less favorable. We have no principal stock increase in the entire segment, if you look at that at the 2018 numbers. Arno Monincx, our CFO, will give you some details of how that work and what there the EBIT impact is. If you look at the CapEx, we are still continued to invest in our fast-growing product lines, as well as in the overall operational excellence project. Wim laid that out at the beginning. That is a significant portion of our taking care of having good operations, being world-class manufacturing, and that requires investment into our operations.
We are expecting improvements to go, A, with the realization of further agreements with large key accounts, and further execution of the operational excellence project. If you look at that type of subdivision, Multilayer Systems, they achieved a fantastic H1. They have opened a huge amount of larger key accounts, resulting out of the R&D activities and the efforts we have spent into that technology in the last years. As a key takeaway, the strategy getting more and more traction, and we see a lot to gain in the upcoming months. If we then move over to Material Technology, where we do have achieved a EUR 392 million turnover, represent a good 4% growth compared to 2018, despite the fact that we have lower activities in Europe, mainly due to the automotive market.
Everybody knows that there is a capacity constraint on the WLTP testing, which comes up with a new emission requirement. We have therefore lower car sales worldwide, which is also visible if you analyze a bit the automotive side, especially on the OEM. That caused that we have an inventory reduction in the entire supply chain. When you know that we're sitting more or less on a T3, T4 level. If the whole supply chain starts reducing their inventory, that is somehow an effect for us. That is somehow compensated with very good developments in Eastern Europe, as well as in North America, and also for parts for electrical and hybrid vehicles, where we have a lot of projects which are currently in realization and already running business. If one would then look at the result with the EUR 54 million, that represents around a 13% EBITA.
It's a slight growth compared to the last year. Where does that come from? Mainly it's the U.S. market and all major markets we are in, whether that's automotive, general industry and aerospace, we achieved good performance. We did a very good cost-based management in Europe. We aligned that with the reduced business. We started that very early, as we saw signs that automotive may become a bit weaker. Also the business we have acquired in 2018, they were very well integrated and showed a very good performance. If you look at Specialised Manufacturing, they did very well in aerospace, in general industry and also in automotive. One could say that we're harvesting there the fruits of the combined highly specialized technology offering we do there in Venlo. CapEx was steered into growth areas such as North America, Eastern Europe and new technologies.
Wim mentioned in his intro that we start looking into the additive manufacturing environment, where you see in a couple of industry projects to be developed and we come into that business via our wide range of post-treatment capabilities. If you look at that division, it's not only about the print shop, which is a quite crucial part of that, but there are around 10 process around the print shop, especially on the post-treatment side, where we have a high expertise with our more than 100 different technologies will be useful for that. When we started developing that business with our key competence. One last thing to mention is the acquisition of Precision Plating. Wim set that out at the beginning. That is a Precision Plating, that is a consequent development into another region for the PEM business we did last year in France.
It's all about electrical end application, whether that is for aerospace, for automotive or for buildings. It's all about the electrical connectivity and therefore the related plating processes, where we do have a very strong position in Europe with the acquisition we did in France, and we gained a comparable position with the acquisition of PPC. Turnover is around EUR 36 million-EUR 38 million on an annual basis, and that is consolidated starting from May onwards. The key takeaway for Material Technology in H1, that is a solid performance despite the lower order intake into some of the European markets, and we have a lot of opportunities via portfolio strengthenings. We go over to Climate Technology, they're rebranding with 278, a slight organic growth. The organic growth was pretty strong with a good 3%, they were in line with the entire Aalberts Industries.
Part of that organic growth is eaten up by currency effects. The EBITDA expectations were actually higher than the EUR 33 million, which we have expected. There was one larger product line, which took a bit more time and more efforts than we have anticipated in our planning. Right now it's on a good track. We expecting for the second half of the year, better development. There is a lot of ground for further developments. It's a fast-growing digital hub, which we have realized in France and the Netherlands. We mentioned that already on the full year numbers for 2018. We have a lot of operational excellence projects, which are in queue. One example is the automated expansion, which we realized in Italy. The new build production and distribution center in the Netherlands, which the decision is taken, that's going to be start.
That will give us further good performance in the future. Further, we do optimization of our existing product lines. As a key takeaway, one could say we have new product lines. There is still a lot to improve, as well as portfolio optimization. Concerning Industrial Technology, it's also very strong growth of 11%. The fluid control activities show organic growth driven mainly by innovations. We said in the beginning that innovation is a key topic for us. To give you a few examples, we realized valve projects for CNG, as well as air conditioning. They were partly tailor-made for specific models. We get a good progress in the dispense technologies via innovation, as well as a strong alignment of the sales force that we could target more and more worldwide key accounts. In Advanced Mechatronics, we are well positioned in the semicon market.
We had a good growth of 3%-4%, cleared with less than what we have expected and also less than the 20% we did in 2018 on that division. One could say despite the principal development of the market, we are still growing, and we see there a payoff of the investments and the stock build up what we did in that segment. We have a good horizon for the second half of this year. Just mentioned the ASML outlook. They are pretty positive. If they would like realizing their profits, we will participate on that. The EBITDA of EUR 34 million, that represents the 15.9%, demonstrates a strong performance of this technology and innovation-intensive business. The acquisition of VAF was very well integrated and showed an increased performance in what we have expected by doing that.
A continuous portfolio analysis, which is quite key in that division, that results in a divestment of one company with a turnover of around EUR 12 million a year. We expect further strong performance for the months, especially in the semicon market, and in the other markets we are working in. As a key takeaway, one could say innovation is driving the growth, and we take advantage of investments earlier done. If you can summarize the entire operational review, innovations, operational excellence is also helping us in the first half of 2019, managing to some challenges which you see worldwide. We did our homework for creating a good future and also to managing quite properly the day-to-day activities.
If we go on further, I would like to hand over the word to Arno Monincx, our CFO, and he will give you further guidance and further insight of the performance of the first half of 2019. Thanks.
Welcome everybody, also from my side. Welcome people in the webcast. Welcome people in the room. I would like to go now through the financials. Just for the record to be mentioned, of course, to start with, that IFRS 16 is applicable from 2019 onwards. In the figures of 2018, we did not restate them. They are as they were reported last year. For 2019, IFRS is taken into account. I will give a full explanation of the differences per item in the last slide. I think a nice revenue growth, 4%, 3.6% actually in the detail, of which 2.5% organic. Not so much impact from acquisitions and divestments as also guided last year by John Eijgendaal.
Good to mention also is that the added value, as already shown by Wim, has been increasing with 50 basis points again, which shows that the constant improvement of our portfolio is also bringing the results. Of course, depreciations and EBITDA are a little bit impacted by IFRS, a little bit at EUR 14.7 million, but the operating profit, EBITA, is impacted by EUR 0.4 million, that is limited, as also indicated last year. 5% increase. Another important change is net interest expense, where we have an increase of cost, also partly clarified by IFRS for EUR 1.2 million. Other increase is the change of mix of the loans that is converted from EUR loans, which we have paid off for new USD loans for also recent acquisitions made, of course, in the U.S., which are a little bit more expensive.
In the other net finance costs, you see that there is, of course, foreign currency exchange result, which clarifies the biggest difference, plus some currency material contracts. A little bit lower ETR, also because we divested in a company, as also mentioned by Oliver, HFI, small company, which gave a little bit lower effect on the ETR. That ends up then in a net profit of plus 6%. EPS before amortization, EUR 1.25. Again, the main takeaway, the key takeaway here is that although market circumstances were difficult, more difficult, we still created EBITA and net profit growth. Balance sheet, also here, of course, some important impact of IFRS, which is in the non-current assets by the right of use assets of EUR 126 million, which is also, of course, coming back in non-current and current liabilities. That brings me to the first point in net debt.
You see a big increase until EUR 905 million, as said, EUR 126 million of that increase is referred to IFRS, which also means that the, let's say, normalized increase outside IFRS is EUR 34 million. Just to bring back into your mind also that we have done from the first of July last year until now, four acquisitions, which is also walking through this number. The net working capital improved with 0.4%. I will come back to that later in my next slide because we believe that mainly the balance of the net working capital has been increasing a lot, and I will also explain you where we did that. What has been negatively impacted substantially by the IFRS is ROCE.
ROCE has been impacted by 0.7%, which means that outside IFRS, we would have been on 15.1% compared to 15.2% last year, again, with four acquisitions done since then. Now we report in IFRS 14.4%. Takeaway is that ROCE has been impacted by that. Cash flow. Of course, the EBITDA increased, and we have made the correction for HFI for the non-operating income in the result of sale of equipment and change in provisions. We have the change in net working capital, which is about the same as last year. There's a big difference because last year we built up inventory in the first six months, EUR 48 million for the whole group. As Oliver said, it was even more in, let's say, Installation Technology.
Receivables, we increased to EUR 8 million more than last year, or let's say we collected EUR 8 million more than last year. In payables, as you all may remember in the year-end results of 2018, we have gone a little bit too far maybe by stretching our payables. What we did in this period is that we stretched a lot less, and that means also a negative impact of EUR 54 million on this payable line. In total, that brings the sum of EUR 2 million difference with last year. Because we built up much less stock in the first half year of this year and much more last year, we believe that the balance of net working capital is much more healthy. It also says something about the quality of earnings, because the margin that you normally also gain with stock built up is now not there.
A second important point is the line for acquisition disposal of subsidiaries, where we, of course, made our acquisition of PPC per the 1st of May. Also there we have some deferred payments and earn out of previous acquisitions. Of course, also on the disposal side, we have the collection of the sale of HFI. In general, a net increase in cash, let's say decrease in cash of EUR 202 million versus EUR 234 million negative last year, which is an increase of EUR 32 million. Strong cash flow from operations. Net working capital more balanced after the big stretch we made last year. Again, we also realized ourselves that we had to bring back the inventories more in line, and that is what we actually are doing. Revenue and CapEx segment reporting.
Now, we have seen already the numbers, of course, in the previous slides, an increase of revenue of 4%, but also a strong increase in CapEx. We continue to invest in many innovation and organic growth projects, but also we continue to invest in efficiency initiatives, and that's also like Wim said, we are still a lot to gain there. That's also exactly the reason that we continue to invest in that, in these organic growth initiatives. Operating profit, EBITA, increase of 5%, and you see the split here per segment again, also compared to last year. What we see, of course, is that the Installation Technology is a little bit lower revenue-wise, but that has to do, like Oliver explained, with mainly divestment of some activities last year. They made good organic growth in Europe.
A little bit slower start in the U.S., also there we saw increase of orders at the end of the second half year. What is most important here, also when you look at the EBITDA %, is that we built off these stocks of over EUR 50 million. Even in the U.S., we did not build up less stocks, but we decreased the stocks. We believe that the situation is much better because of that now. We also are confident that with the plans that we have for more businesses, because we do it not only on Installation Technology, for the next three years, we have good improvement plans running, which we follow up regularly, we will continue to improve these inventories. Material Technology, good increase. Oliver already explained about that. Also profitability increase. Actually, the rest is increasing.
Climate Technology, a little bit small increase, but there it was already explained that although we also there had an okay organic growth, we had some delay in a product introduction or new product introduction where we put a lot of effort in, and that is still to expect in the second half of the year. Of course, the costs are also made in the first half year without the revenues there. There we had a little bit smaller increase of profits. Industrial Technology performed well, and also there you see that the portfolio is really bringing the results. That brings me to the last slide with the impact of adoption of IFRS 16 in our numbers, where you can see that on EBITDA level, the adoption is EUR 40.7 million. On EBITA level, it's only EUR 0.4 million.
That's the number that we are at least always focusing on. That is hardly changed. Net interest because of the right of use assets, of course, and also the financing part of that increased to EUR 1.2 million. Income tax expenses, a correction of EUR 0.2 million, that brings the net profit. It's a little bit lower, EUR 0.6 million versus the number without these corrections. Net debt, important number, where you see the EUR 126 million increase for only IFRS. Almost the same number as the total assets are increasing. That brings to the ROCE, which is lower, as I already explained, 0.7%. That has impact. Also on the equity percentage, you see a negative of 1.9%. Leverage ratio to finalize, 0.2 difference, which means that we are now at 1.9 instead of 1.7. The 1.7 would have been exactly the same again as last year.
The adoption of IFRS has impact on return on capital employed. That's the big takeaway, I would say, from this slide. I can hand over again to Wim.
Yeah, Aalberts looking forward. This is Aalberts looking forward. A lot of self-help going forward to drive organic growth. I can say we are actually pretty positive about the second half because when you look to these examples like innovations for thermal management for hybrid and electrical vehicles, we are busy with many co-development projects and Surface Technologies for changes in voltage in cars. I always said that we are living in Material Technology of new parts. That means when the voltage, which is now happening in cars, are changing, then you get weight increase because you need thicker material. That's not possible because then the car will be very heavy. They use other materials, but we want to have the same strength.
We, at this moment, especially in Southern Germany, we have a very good order intake in this field because they're all busy with new parts. That will accelerate. We are one of the few companies in Germany, we are market leader in Germany in Surface Technologies, who can help the customer to develop these kind of coatings. One example I can give. There is a car, it's called the 7 Series, which has to be cooled because it is a hybrid car. Instead of having two cooling pumps, this car needs now seven cooling pumps. All these cooling pumps have to be treated for surface treatment. That's one example. When cars are changing, parts are changing. When parts are changing, you have to innovate to develop them, and that is new business. We are living from new parts.
Besides that, we also come back to the existing automotive market, because we want to give you a little bit more our guidance, what we hear from our customers. Coming back to Aalberts looking forward. In, let's say, Climate Technology, we have fantastic amount of new product lines. We already mentioned in February that we have 50 new product lines on the table, which we showed in the biggest exhibition in the world, in Frankfurt, in the month of February, March. We are launching them step by step. This will take 18 months to 24 months. Innovation is not going like a rocket. It's going step by step, but we are not stopping. That means that we will continue bringing these products to the market.
As maybe you also remember last year, quarter three was not the best quarter for Climate Technology, but we expect now a much better quarter. That with including also these innovations. We will start a new build probably in quarter four, when we have the approval to build for Climate Technology to build a new factory will be in Almere. Probably we will also send a small press release out because we're very proud on it. It will probably be September, October, where we build a complete new factory, but also a new assemble center and also a distribution facility besides it. We have a very good growth in these product lines, which we produce now in Bunschoten. Our innovations on the area of marine are also making progress. We see more and more that in marine there come legislation for emission reductions.
The 1st of January 2020, the bigger ships, like container ships, have to reduce their emission. We can help them because we can control the fuel systems in their engines. We expect also from these kind of sustainable transportation trends, we expect a lot of innovations. It's not for nothing that we said climate change or sustainable transportation is one of our topics to drive innovation. That will only increase. Yeah. It's not something on the short term. We're building a company on the long term, or mid-term. That will keep on continuously progress. The innovation roadmaps again started two, three years ago. The most effect of the innovation you always get between three and five years. That means for us in 2020, 2021, we will see impact of that, and it's now coming more and more. That is called self-help.
We think that also in the second half, we will have a lot of self-help. Besides that, operational excellence will be continuously, relentlessly pushed. That means we have to become more efficient. We have to automate more our factories. We still have a few larger sites which we want to consolidate. We are not ready with that, especially in Installation Technology. We have still a lot to do because we brought it together and the last team which was brought together was Installation Technology. We still have a lot to gain. A lot of innovations are underway, expansions, automations of factories, but also new equipment. That means that our CapEx will continuously going to rise. Also, that is what we explained in December 2017. It could hit somewhere between EUR 150 million-EUR 170 million in the end.
After a certain spike in the coming years, we will go down again. That's what you see. We expand Belgium, we build in Almere, we finished Zeewolde, and we keep on investing in innovations. Also very nice to mention are the upgraded product lines in dispense. Dispense we brought together, as we heard from my colleague, Mr. Jäger, that we have very nice products in dispense, which we also launch in the second half. We expect a lot of it because one competitor of ours did not such a good job, so maybe we could take that position for a big part. There's a lot to gain and there's a lot coming. That is my message to you. When we look further forward, next slide, we give a little bit more guidance on two markets because it is difficult.
What you read in the papers and what you hear, there's a lot of uncertainty. What we did for ourselves, we did a very thorough investigation with our customers. We called them intensively. Our management is on top of things. This is what came out in automotive, that we think that the engine mix of vehicles, which is now really disturbing a little bit of supply chain. That means which engine has to go to which car, because diesel is less, petrol is higher, gas is higher, electrical is coming. You get a change of mix. This should be in the boundaries of the legislation, which is in 2021 effective. You see the car manufacturer is puzzling, what is the right mix? This is coming more clear. We see that now.
Maybe when you order your own car, you sometimes also see that, because you see a delay when it's delivered. It doesn't say anything about the ordering. It says something about the delivery. That's a big change and a big difference. The second thing is the capacity of the WLTP testing, which Mr. Jäger mentioned, is improving. We see that. A very important point, inventory reduction will stabilize. We get really the signs of that. It started already step by step from July last year. We see now where we produce products in specialized manufacturing, we see a rise. That means for us, normally they're three, four months later, you have also your heat treatment and surface treatment business. We trust on that, and we talk to our customers. Developments of hybrid and electrical cars will continue. It will give new business. It will not stop.
It will give new business and replace also the business you lose. All this business in automotive, in Material Technology, is mostly taking some years, and then you get a new part. When you look to semicon, we expect an increased activity level in the second half of 2019. We talk to our customers, but also the front end of the semicon market, and that's very important to understand. You have a front end and a back end. The front end, you invest in the efficiency, how you produce a chip. That means that the customer who eventually uses the machinery in the front end has a competitive edge when he is more efficient in chip producing. That means he can fight in the market. The moment a customer doesn't do that, you lose also in the market.
The efficiency investments in semicon are continuing, and that is where we are. We see an increased activity level in the second half, mainly quarter four. I think you get also some guidance from others in the market the last weeks where this is confirmed. Our inventory was kept on a high level. The inventory reduction we gained in Installation Technology, we built up in industrial technology advanced mechatronics. Why? Because we will see the pickup. When we see the pickup, we can deliver immediately. We built up there roughly, I think EUR 15 million-EUR 20 million additionally inventory, which we will ship out the second half for a big part. We are busy with the customer. The development of projects in which Aalberts is participating is not stopping. It is ongoing.
We scored two very big projects, as you can maybe remember, two years ago, and we pre-invested in machinery, and we take really advantage of that. In semicon, we grew the last years 20% or more than 20%. First half, it's maybe four, but we will ramp up again, and next year will be very nice. Let's be a little bit longer-term thinkers, and we have a prosperous future in this end market. A very prosperous future. Why? Because 5G, autonomous driving, the mobile phones, everything will increase. Data, memory, logic, everything will increase. This is a fantastic market, and we are a top supplier in this. Let's not disturb us from a short-term, little bit lower growth. We have a prosperous future. Coming to that. Self-help initiatives, acceleration of that even. Organic growth potential. We have more CapEx.
Do you really think that we would spend all this CapEx when we don't see the possibilities? When we say every time discipline capital allocation. On organic growth, this company has fantastic possibilities, and we will pursue that. Besides that, we expect in the semicon and automotive a pickup. In automotive, we expect a stabilization, as I explained, but also a small pickup because inventory reduction is over. Semicon, we have very good signals that we will have a good second half, especially quarter four. That brings us to the outlook, which is exactly the same, that we remain confident in the execution of the many growth and innovation initiatives, also efficiency initiatives and investment plans. We keep on pursuing them because we really believe in them even more than six months ago.
We will pursue our strategy-focused acceleration, which we set almost two years ago, and we will drive our profitability further and convert, especially this year, strong operational execution into free cash flow. We will make a nice cash flow this year. To update you, and that's my next slide. To update you on our strategy, which we launched as you know two years ago. We will update you about where we are, what did we find out in the two years more in depth, what will we accelerate, what will we change? Because we think we learned a lot in these two years. One thing is for sure, the organic growth possibilities, what we have initiated also two years ago, are even exceeding our expectations the coming years.
That's a little bit the tip of the slider, the tip of the whatever, and of what we want to say there. We want to invite you and our shareholders, but also potential shareholders, investors, to come to our fantastic facility here in Utrecht, where we are here in our experience center. We also will show you some very nice innovations, which we have in the pipeline and also are already selling. We will do that the 4th of December, 2019. Hopefully we get a lot of visitors in our nice new office in Utrecht near the train station. I would like to thank you very much for our presentation, and we hope, of course, that we have a lot of questions and that we all can answer them.
Thank you. Who's first?
Is it me?
Yeah.
Can I go first? Okay. Frank Claassen from Degroof Petercam again. Question on M&A, how high is that on your agenda, and what are the main focus areas currently, and what do you see on pricing, for instance?
Yeah
multiples already coming down? Secondly, working capital. How much room for improvement do you see still there, and what are the main areas? Is it indeed inventories or is there also room on the other fields? Thank you.
Maybe coming to the M&A. M&A, as we also guided at the beginning of the year, that we expect two to four acquisitions, mainly bolt-on acquisitions to do in 2019. That's still our goal. We still think we can achieve that between two and four as we a little bit did last year. Bolt-on acquisitions are very interesting because you strengthen your market position, you create more uniqueness, and they can be integrated pretty easily. You take lesser risk, and you have a quicker return on the business plan you made up front. We will continue that. M&A will always be an important fact of the growth. Our ideal situation is organic growth, of course, it's the nicest growth, but combined with bolt-ons that you build your chosen market position further. Coming to pricing, we also talked, and we looked at a lot of bigger acquisitions.
For me, the prices are too high. They're not coming down at the moment. We will not spend money on too expensive acquisitions when we don't see the return. Our policy is always that we have three golden rules, is that it should be a perfect strategic fit. The second thing, it should be management of ourselves or the management of the other party, that we really believe in the business integration plan, that we get a return out of it. The third is, we never pay too much based on the free cash flow out of the business integration plan because we want to have our money back in maximum seven to eight years. Yeah. The bolt-on acquisitions are very nice because you build up relationship. We know the market in depth, so we have lesser competition.
We don't like auctions because with auctions, everything is driven up to the highest profitability, and they have no CapEx investments, so when you take them over, you have to invest all the things. We believe in bolt-ons where you really build relationships, and then that there are more arguments to sell to us than only the money. There we are pretty successful, and we will keep on successful. We have a very nice pipeline, but we are very critical. Yeah. I can tell you the last two months, we rejected probably three, four projects that we were busy with. Yeah. We even sometimes signed already an LOI. We are very critical. We are working for our shareholders to have a disciplined capital allocation. We see enough room for additional acquisitions also this year and the coming years.
Multiples for bigger companies, in my opinion, yeah, I think they are crazy, personally. We will not do that.
Yeah.
Working capital.
Working capital. As I also explained, we have for our most important capital or let's say working capital users businesses, we have made three-year improvement plans. Of course, mainly focused on stocks but also to keep focus on receivables. Payables, I would say, you see already now per half year, one closing that we are trying to stretch that a little bit less than we used to do in the past. That also means that the first gain we had now in the first half year did not really pay off in cash immediately because we had to compensate the year-end position of last year of payables. We believe that with the stock improvement plans that we have at this moment in the next three years, we could make an improvement of about EUR 100 million calculated in days.
When you calculate in days also of course when you grow organically in revenue you also grow working capital normally. We can improve in days, calculated about EUR 100 million.
What will happen is that we will keep on reducing inventory and Installation Technology, that when we ship out advanced mechatronics, that will also go down.
Yeah
That's because we build up in advance in the first half.
Thank you.
Martijn Den Drijver . Firstly, can you provide some kind of bridge in your EBITDA because we have seen highly profitable acquisitions, we have seen divestment, and also, obviously some organic performance?
Yeah, let's say, as you saw in the revenue split, the impact of M&A in half year one was not so big. That's also what John Eijgendaal guided last year. When we look to the holding elimination line in the EBITA specification, you see that we had a normal situation. First half year last year, about EUR 6 million costs. This year it was a little bit lower, 3.9%, so you see that there we had a small advantage of a disposal that we did just before closing of half year one of HFI.
In principle, the first half year of 2018 showed the normal picture, that is also what we still expect for the remainder of the year. In the first half year, there is only a very small advantage of an disposal because, let's say, if I compare to last year, we also had some small advantage in the first half year, that is not a big difference. For the second half year, we still expect that the whole elimination line would show the same normal picture, again, around EUR 10 million-EUR 12 million. Unless we can still make a divestment before the year ends to compensate some of that. That is how it looks like. Let's say the EBITA performance of 2019 is more or less organic despite the currency impact, of course, what we also have disclosed.
If I'm right, last year you made a very profitable acquisition. PPC is a very profitable acquisition.
That was done in May.
1st of May.
Okay.
That's not really visible. If you really look at that and what we've done last year and this year, the acquisition impact, it's not zero, but it's not really visible in the numbers.
Okay.
Now the difference is, we did Pfaff the first of July, and we sold the retail business.
Yeah
1st of July. Pfaff is indeed having higher margin than retail. The revenue is half of it. Yeah. That's 1st of July last year. We did an acquisition, Roy Metal Finishing, in October last year, so that's really counting. PPC, you can't even count it. It's one or two months. We did a very small one in New Jersey, Co-Planar, which had, I think EUR 7 million revenue. It's, I think, on EUR 1.5 billion, it's almost nothing. The difference is, of course, that we acquired a little bit higher margins.
That's correct.
There we have a little bit advantage, but not so much because the most is EBITDA growth organically. I think it's not completely five, but let's say it's maybe four, thick four, something like that. I think what is maybe important to mention is also that, and that is really affecting our profitability is, don't underestimate when you reduce your stock in a highly vertical integrated company like Apollo in America. Because we do the pouring, the foundry, then we have machining, then we do the assembly. When you reduce that EUR 30 million of stock, you're lacking a lot of absorption. That's how they call it. Yeah, that's probably also the reason why the EBITDA organic growth is a little less. That will stop. The inventory reduction will not continue. We will further optimize.
Previous sessions, you had said that you are looking to your portfolio and intended to divest some EUR 40 million-EUR 50 million of business. When I read through the press release, I got a feeling that you once again run through your portfolio and, yeah, might do a little bit more than that.
I think we wrote a good press release, because you've seen that well, especially I think in Climate Technology. That is not new. I always said I have to get rid of some more, and that it could be part of our topic in December. What we see after two years, we drove these 12 business teams, we drove the five-year plans, and as always, you have some things which go much better than you originally thought, and there are some things which are lacking behind, and you get nice stories and nice excuses. We are indeed thinking, and especially also in that area, that we should maybe do a little bit more. I don't want to make this the Capital Markets Day. That's correct. That's also why we put that sentence in.
That is actually holding us a little bit back to increase our margin quicker in Climate Technology. When you would ask me, where did you expect a little bit more? It's actually in that area, because it's such a nice business. One part of that business we do very well, high margins, but another part is lacking behind. We must get rid of certain things. It's very well studied. I'm happy because then we don't write the press release for nothing.
Also will be discussed at CMD, still want to ask you. What you also mentioned is that the main impact of IFRS is on your ROCE. Is it something which you will change as well, the outlook, because of the IFRS 16 implementation, or is that still what you're going to reiterate over?
We come back to that in December.
Yeah.
Of course, it's a setback. It is like it is. You know us a little bit, huh?
I hope so.
We will try to, of course, to outperform.
I hope so. Also a bit of change in wordings concerning your capital investments, because I thought it was already very clear that you put your money there where there's growth and margins and whatever, but still, I read some kind of fine-tuning again.
Yeah. Could you really specify what the difference is?
A very nice example, I think also.
I mentioned that when I said, well, we skid our CapEx into certain directions that we made a quiet move in the course of this year that we focused on North America and new technologies. I mentioned that we look for additive manufacturing, that we, in that environment put a few investments and a few machineries in. Consequently, we reduced a bit what we do in other markets. That also applies for Europe.
Different?
That was technical-wise, if you look at regions, we further focused our investment into Eastern Europe. We work on a couple of Polish facilities, which we will increase, partly automotive, partly aerospace, partly industrial gas turbines, where we have a good liaison with the supply chain over there. Same in North America, if you look at regions besides the technology I have mentioned.
Will it also have implications for the amount of CapEx you will invest, or that's more or less the same?
Guidance
Allocate it a little different.
No, I think we have given guidance on that. Yeah, we stick in that number.
Between EUR 40 million and EUR 60 million.
Yeah.
Yeah.
We will remain on that topic.
Thank you.
It's a continuous process, huh? I think when you see now we have lower sales in Europe, of course, you change your pattern. When you see, suddenly additive manufacturing, we see some very nice opportunities.
Lovely.
You can say, "Oh, I spend more." You can also say, "I take a little bit back, and I put it there." It's continuous fine-tuning. I think you have to do very aggressively all the time when situations are changing. That's, I think one of our things which we have in our DNA, that you have to be very alert on that.
You've underlined that a bit, when automotive is a bit less in H1. It is somehow logic that you are not starting investing in capacity in Europe for automotive.
Exactly.
You put a brake on there, and if you see opportunities in other hand, might you continue that?
Another thing is, for example, that you see that thicker materials in cars, due to changes of voltage, a car at always 12 V. Now, when you bring it to 24 V, maybe 48 V, otherwise you burn the whole car. You need thicker materials. That changes certain business profiles. When you are too late with that, suddenly you see profitability going down. Below all these markets, there's going on a lot. I think the quickness how we see that, and you adapt on that. Greatness is made of shared knowledge, it's really true.
Yeah.
You have to learn and adapt very fast, but keep on investing in the right things.
Yeah. You could certainly did the investment in PPC, one part of that.
Yeah
when you see the change of the electrical vehicles, the more usage of that type of coating, and that type of technology supports that development.
It could be that when certain things have such a big potential, that you want to put more CapEx or capital there. That other things, you should give no money anymore. That's coming back to your first question. We will come to that in December.
Henk Veerman, Kempen. My first question is on the organic sales growth, 2.5%. Just for my understanding, that equals about EUR 35 million of organic sales. From my understanding, is it fair to assume that about half of that EUR 35 million is industrial technologies and the other one Installation Technology? If you have to summarize what was being discussed.
I think what we earlier said in these meetings is, when you look what is above average and what is below average, then industrial technology was above average. Material Technology was a little bit below average. Climate Technology was spot on, and the same was roughly in Installation Technology.
Yeah.
Maybe a little bit more, but Europe was very good, and America was roughly flat due to the slow start, but we will see a very good second half in America. That's roughly the Then I think you know the average is three, and then you know roughly where it is.
Second question.
When you are a quick thinker, of course.
Second-
Your colleagues know already. They write it down.
Second question, one remaining question on working capital and more specifically the inventories. I think in the previous earnings call, we also discussed the inventory position in relation to the commodity prices. If I summarize the inventory position now, it increases by 1% versus sales growth of about 4%. Is that proper?
No, because actually the material prices between Q4 2018, Q1 2019, and Q2 2019 are more or less the same. There's the efforts and of course, that's also the way how you try to cover your materials, of course. The impact of raw materials is not.
Okay. I have some questions on Material Technology, and I hope you appreciate them.
We appreciate every question.
If I take a step back and look at the past four years, right? The Material Technology, you've had a economic tailwind, and you've invested about half a billion via CapEx and via M&A, which equals about 50%. If I look at EBITA growth and also first, and I look at turns being made on.
Just like those reports, is it fair to give the best deal still on the line should be applied?
The aim that we made was 2014. When you look at the performance of Impreglon when we acquired the company, that was around 6.8% EBIT margin. This is more or less doubled within the years we are running that business. Principally spoken, we are happy with the development of success. Also we increased in the heat treatment division, quite strongly, the EBITDA margin, if you look at four years ago and what has been achieved in the entire year 2018. I couldn't say there is nothing to do. There are still room to improve. The Impreglon acquisition, when you still see ups and downs of certain sites. If an average one could say we have achieved what we have expected, but could be better in the future.
I think we agreed that we could do better. Because as you know probably before we did the acquisition of Impreglon, we made already in our surface treatment and heat treatment, we made already 14.5% EBIT. I think it has also to do with the integration of the acquisitions which I think some are going well, others you take more time. It's always taking more time. In general, I think it's a very good question because I think we still can gain a lot there. Also here, you see that certain businesses also now due to the market changes are disrupting a little bit. We have still some things which are actually by far not optimal. Maybe we should split them from the very nice business. A very good question. My opinion is we still have a lot to do.
Maybe we don't agree here, but I think we still have a lot to gain there. Don't forget now for the first half that we had a -3%, -4% in Europe, which is highly profitable.
Okay.
That doesn't help for the first half year results.
Well.
Be compensated with other things, but we had lesser EBIT there.
Yeah. Last question. There was like EUR 60 million cash outflow, in the first half on the acquisitions/divestments side. You only did one small acquisition. Is it fair to assume there was some sizable earn-out also in that figure?
There was also an earn-out and some diluted payments that we agreed when we bought the other companies several years ago.
Okay. Thank you.
Yeah. Combination.
Yeah.
It was a nice company we bought. Yeah, it's correct, but only for a few months.
Can you hear me? Yes.
Yeah.
First I had a question about you made an example. I can imagine how innovation would work in challenging end markets. I can see why that would work in terms of your organic growth. You also made an example. I was actually looking for an example how operational excellence works in challenging end markets, how that actually helps you, and whether you have a real-life example to make it a little bit more simple for me.
Operational excellence is something we drive already all these years. Actually, I started to a lot with that when we transformed the company to clusters. What you see the last years, we drive it much more innovation is organic growth. It's a period. It's a phase. Operational excellence you should always do. What is operational excellence? We have a list of projects in each business team, and I demand at least 20 or even more, where you optimize your operations in every sense. That means in your factory, in your supply chain. What does it mean? You have assembly work, which is where you have maybe amount of people assembly by hand, and you automate it with a machine. That's a project. Another thing is that you consolidate the warehouses in Zeewolde, what we're now doing. The building is there.
We have seven, eight warehouses all over Europe in insulation technology, and we cluster them to one warehouse. You streamline the packaging, you streamline the branding, you streamline this. That is what we're going to do in the coming 12 months in Zeewolde. We have still some larger sites, which we want to consolidate with other sites. For example, in the U.K., alert reacting. I think in the U.K., we have to be producer even more than we are. We must attack the market. We will bring additional U.K. That's to attack this, the factories in one. That are the big things. The smaller things are lose the 10,000 here and you gain 50,000 there. You continuously think of cost reduction, automation, supply chain improvements, and that's an ongoing thing.
Of course, what the question which was here before, we are in Material Technology. When you have 3%-4% less volume in heat treatment and surface treatment in Germany, which we have. We have a furnace. When you have a furnace and your furnace is filled 4% or 5% less, you have the same cost. You have a pretty high break-even point. That's that business. That is of course not helping the total EBIT picture. We compensated it. We had this 4% less. Operational excellence is helping all these These are examples. Not only larger things, which we still have in the pipeline. We still have to reduce, in my opinion, two, three bigger locations into other locations in America and Europe. That's mainly in Installation Technology.
Is it then also fair to assume that while you're consolidating the warehouse in Europe, I think, which we always see in North America, there might be double running costs, there might be double inventories from time to time?
I explained that many times. There's a big difference between America. America was a very difficult situation in the last four, five years because we had three companies which had all reps and agents, which were stock holding. We had a situation of roughly 75 reps and agents, which also had our inventory and the contacts to their customer. We had only maybe 10 to 15 own salespeople. The decision we made four, five years ago, and I think it's really in that period, is that we said we want to have our own salespeople, our own sales force. Why? When you have innovations, you can push them really to the spec. You need to have a specification sales force to come in the specification of the building project. When you don't have that, you have no power. An agent is short-term oriented.
When he can sell tomorrow this, the day after tomorrow he sells that. You have no power. We made a real strategic, difficult decision to do that. That means we had to build up a sales force of 85 people, from 12 to 85, and we had to reduce the agents from 75 to now we have maybe eight or 10, and pay them off. In the meantime, when the reps are stock holding, you have to build up a separate distribution network, otherwise you can't service your customers. We had, that period, double costs in America. We did that all. In the meantime, we acquired Shurjoint, which had also two warehouses, and who had, by the way, more than $20 million of stock. We bought that company, so we also are busy to integrate that and bring it down.
We got also already rid of the two warehouses. We did it all. This was 2016. It was so nice acquisition when we did it. We have it all done last year. We also changed the management because we thought we should have much more professionalized also the cash and everything. Now we make it efficient. What see you now, this year, EUR 30 million reduction. We start a lot of operational integration, still our IT is not on one platform. We still have to do. That is America. Europe is more simple because you have one warehouse, and we have already all the salespeople. What we just do, we say, now the warehouse in Germany or France, we integrate, and then we do the warehouse in place X.
We integrate step by step the six, seven warehouses in Zeewolde with a very new IT system. It's much easier. I don't expect a lot of disruption. Could be a little bit, but America, we have created a great position. Maybe when you noticed in the press release, we also said we expanded business with key accounts. We scored a few key accounts in the first half where we have next year tremendous sales. We have to invest heavily in our production lines in Fayetteville and in Arkansas, otherwise we can't even handle it. The strategy is getting traction, what we said, but it's still a lot to gain. Yeah, it takes time. We are coming there now. We're getting the right direction. That's also why I'm still very confident to hit the 14% EBIT in Installation Technology.
Right. Thank you. If I'm not mistaken, within Climate Technology, the one kind of area where you guys always have a wide spot, so to speak, was air. Is that still the case? Are you looking at that still?
Good question.
Is this something that has to be.
Good memory.
Well, I mean, sometimes not. On the previous question that end, is that something that needs to be inorganic, or actually could you try to build up organically?
I think you're fully right. We mentioned also air, it's still in our definition. Air, we cannot do organically. I think it's too long. When we will do air, you have to do an acquisition. I must say at the moment, we also face that we see so many opportunities in hydronic flow control, that air is actually became a little bit on the backside. It's still an interesting market. I don't want to say we'll never do it, the moment you can drive organically, what you have is much more interesting than doing, again, a broader activity. Probably for the coming years, we will not pursue air, exploit everything we have in hydronic and get rid of some old portfolio and maybe integrate even a little bit more than we did till now.
We come back to that in December.
My last question was more, kind of a management lesson for myself is, at one hand you say innovation, you need to look three to five years out, and it will help your business overall. Currently, the challenging end markets also dictate, and I think Mr. Jäger just mentioned it, okay, we see a little bit weakness in automotive end markets, so we shift a little bit of the CapEx that we spend there, maybe down to zero, to other areas. How should I balance the short-termism of that and the long-termism? It seems like a contradiction in terms. How do you balance basically the CapEx allocation in terms of short-term and long-term?
Yeah. What it has to do with, also there we guided, we said when we have the CapEx, we have 40% we spend on innovation, 30% we spend on efficiency, and 30% we spend on capacity expansion. Where my colleague was referring to is the capacity expansion.
Yeah.
That's the first thing you cut, because when you see volume going down, you're cutting capacity expansions immediately. The innovations you protect. Growth areas, you also protect. You even give more money. What we did, actually, he did, is that he cut capacity here and there, and that we spent actually in innovation more, especially in additive manufacturing related processes in North America.
Thank you very clear. All right.
It's Thijs Hovers from Lucerne. A few questions on the margins. The added value margin went up by 50 basis points, which I think is quite impressive. Can you talk a little bit sort of what has been driving that? Was that product mix pricing? Anything else you'd highlight?
I think pricing was limited to between 0.5 and 1%, I would say. Because material prices were quite stable, of course. Let's say we made, of course, again, an improvement of our portfolio. That is supporting this improvement. What we already said earlier is that, let's say the margin in Installation Technology was a little bit lower, but take into account the less stock build that we made there. Still there's also upside, we believe, like Wim already explained also earlier with the potential for the future.
Would you be willing to share sort of how much that impacted that stock reduction on margins? Was it significantly basis points or?
I would say that has cost us a few million.
Okay.
Yeah.
If we sort of
That's mainly because of the absorption that you miss.
Yeah.
The absorption in your.
I think it's more than a few million. That is, let's say a few million.
Okay. Sort of, we actually see a lot of companies struggling with cost inflation, labor cost inflation, Germany and the U.S., et cetera. You actually seem to manage that really well given the EBITDA margin development. Can you talk a little bit?
There's a tricky thing there. The tricky thing is that wages always take longer.
Yeah.
We expect the second half and next year that there will be a big impact. We already discussed a lot in the management team to increase prices.
Yeah.
Based on that, it's going very slowly because things are, you get a wage increase and then they say often, it will go on on the first of July or the first of January.
Okay.
The wage increase, that's also discussion you have now in several countries. Why don't the people have more salaries? I think it will come because it's already agreed, and so we have to adapt on that. That's what-
From that perspective, it's reasonable to assume that the pricing component on the top line also goes up a bit?
No.
To actually cover up for wages.
I think we really have to compensate for that.
Yeah
second half, but mainly next year.
Okay. All right.
Yeah. When you don't do that, it's a big risk because it kills you because it comes in very slowly. It's like raw materials.
Yeah. All right. I would also just on Material Technology, right? You indeed mentioned actually quite a significant headwind from the lower production in Europe, but the margins still went up, which I think is quite impressive. What was actually helping that so much?
What I try to explain that we made a good cost management in Europe to steer margins, and then we had better business in Eastern Europe and as well in North America.
What does it tell us about the second half of the year if those volumes would indeed be more favorable given the phasing of the OTO than wide?
We don't give margin guidance in detail, but if the automotive guys make what they're saying, I think then we are very positive.
Okay. Very clear. Wim, maybe also frontloading the CMD, but I know you gave the sort of the 3% organic sales growth targets two years ago.
No, we gave.
Sorry, at least.
3% average organic, I think this is so difficult to explain every time.
Yeah. Sorry, at least. It was at least 3%.
Even you Thijs Hovers.
It was at least 3%, which I think at the time the end markets were a bit more favorable, but I guess we knew.
Yeah.
How do you feel that's sort of going forward because it seems the innovations are still accelerating? Do you also think that at least could be more than three? When you update it next time.
We always said more than three because you said at least three.
Yeah.
I think the message I also gave is that we see a lot of opportunities in our existing business and some plans are working out well, some are exceeding our expectations, and some plans are a little bit behind. It's wise to sometimes go through that whole cycle again and maybe say, "Hey, I can maybe focus more on the things which are growing faster and allocate my capital there," which you do every quarter. From a business point of view, you have to review it, and that's also what we are doing till December, and then it could be that you have a higher growth pace. Yes. Organic growth is by far the nicest growth. When you realize your operational leverage and your drop-through. That is also very important, that you stick to your operational excellence, that you create also the leverage.
All right. That's very helpful.
Yeah, let's see.
It's not about the growth, it's about profitable growth. That direction, we lead towards.
We certainly agree.
Yeah.
I've got one question left on advanced mechatronics. In the past, you've been a bit more elaborate on the fact that you might want to go greenfield into Asia to follow your clients in that respect.
Yeah.
I was just wondering whether you could take me through what kind of metrics would be needed to actually follow up on that decision, given that it seems unlikely that you're going to be doing large M&A in that area, given your comments on multiples. I was just wondering whether you could expand a bit on that.
Yeah. There are two comments on that. You're right, with the large multiples for buying a platform. The other disadvantage of buying a platform, we investigated by the way, we even talked to possibilities. The other disadvantage is that you buy something where we are not so focused as we are today. I think the strength we have in Advanced Mechatronics is that we do the motion control systems, including the frames and the high-purity gas systems. There we are real specialists. We are our own IP, so we develop ourselves. We have our own project management. That also protects your margin. The moment you become a contract manufacturer, we don't want that.
When you buy a larger platform, which we investigated, you get a lot of things with it, and you pay a high multiple, which you don't like, and then you have to clean it up again in the coming four years. When we could do a small acquisition, which would help us to start up quicker, that is the preference. You're fully right, that is a real hot topic for myself because we need to be there. Our customers ask us that. We are working on that intensively. Hopefully we will succeed, but it will probably be more a bolt-on or small or a greenfield or a combination. Then it opens a lot of possibilities when we have their footprint. Also where, you're also investigating what is the best place.
Yeah.
Maybe one follow-up, actually. You sound very excited about semicon specifically. Is there anything that you could do to sort of boost that exposure to the group significantly by an acquisition or?
Yeah, no, I just explained. The situation, what in my opinion in advanced mechatronics is, it's a very young business. Young in age. The supply chain is really, in my opinion, one of the biggest issues of the bigger tier ones. We have decided three, four years ago to completely focus on that. That's also the reason why we sold off a lot of other companies. When you look to the original activities we have, we have actually left advanced mechatronics. There we acquired even Pneutec. In the meantime, we grew rapidly organically with our facility also and our office in Eindhoven in the High Tech Campus , and that will continue. I want to stick to the strategy. That means the technology I have, I want to expand worldwide. Then doing a bigger acquisition, that disturbs actually your strategy.
I think we have a much higher profitability and sustainable profitable growth when we will do a smaller bolt-on, get a footprint in the market, and then accelerate heavily with organic growth. I think organically, we have big plans there. I think even without an acquisition, the coming four or five years, also from 2020 onwards, it's a very prosperous future. You have to look a little bit further than only three months. Yeah. That is the only request to you. It is so simple. You have 5G, which will come. You have autonomous driving, which will come. You have more mobiles. Your children need more memory to memorize all the videos they make from their friends. There's building data centers everywhere. Yeah, it's all based on more calculation power and more memory, and therefore you need to bring it in smaller surfaces.
That is, for example, what also a company like ASML is doing. We are one of the top suppliers in that build. We are in EUV. When EUV goes to 40, we also go to 40. It's so simple. You have a small dip here. We are very well positioned. We invested a lot and pre-invested, that's also why we still make growth these first six months.
Yeah.
I will do the same in Asia. I will do exactly the same. Maybe I should get rid of other business to support that business more. That's correct. I'm not only positive about the semicon. Also Integrated Piping Systems has a fantastic future.
Yeah.
advanced mechatronics, we started to bring together already three, four years ago to cluster it. integrated piping system we clustered the last one and a half year. There you still go through certain turmoil, what I explained.
Yeah.
Yeah. More questions?
Okay.
No more questions? We have some questions left through the webcast. Question one. Martijn Den Drijver ABN AMRO Bank Why declined EBITA margin Installation Technology despite organic growth and the positive effect from divestments?
I think we already touched this topic. The main explanation is that we build off stocks, or let's say that we did not build up stocks for EUR 55 million versus last year. That's a big difference and that is actually the reason that the EBITA margin declined slightly. Despite completion of new distribution center structure in U.S. and a sales catch-up, delayed orders in Q4 coming in H1 2019, inventory continued to creep up.
It's Advanced Mechatronics.
Yeah. What is the cause of the increase other than organic growth? What he means is the IPS business in the U.S., as we explained already during the meeting, where we decreased the stock. Really from the end of 2018 until now, we decreased the stock. That is something that it is creeping up. The total inventory creeped up a little bit because we also built up some stocks and we did some acquisitions, of course. Also there we have some adding of inventory. The increase of stock, that was mainly in Advanced Mechatronics, where we are preparing for hopefully high demand in H2. The rest is foreign exchange differences and acquisitions and divestments. What is the reason behind the swing in payables between H1 2018 and H1 2019?
The reason is that in H1 2019, let's say in end of 2018, we pressed our payables a lot because we pushed, also we tried to compensate actually the stock build-up that we have done during 2018, but also in H2. Therefore, we had to stretch payables a lot at the end of 2018. As John Eijgendaal already explained in his meeting in February, we had to take into account that it would be a pushback when you then open the balance in 2019, because then, of course, you get the kickback of all these delayed payments, which is a negative. That is what we now have swallowed, I would say. We compensated that by bringing the stocks down, or at least less up. That is the whole balance that we brought in working capital much more healthy than at the end of last year.
There's a lot of questions. Aalberts was once indicated as a share with Brexit implications by ING. What are the implications of the Brexit for H2 in 2019? How does this influence the outlook?
Good question.
I would say that, of course, we have some business in the U.K. in pounds. When the pound is really devalued, of course, that will hurt us for the foreign exchange differences. We still have a local production with a local cost base and local business. We are not exporting a lot to the U.K. We are more importing and exporting from the U.K. to the U.S. We believe that with the strategy of, like Wim explained in the meeting, to really invest also in the local image of local production in the U.K., I think that is the best way to attack this risk.
One thing maybe to add is that, as we always said, it will not be a very big impact, but what is not helping, that's also why we wrote in our press release that it's challenging because what happened, the 31st of March, it was announced that there was a Brexit. What did everyone in the U.K.? They built up stock. We had some nice orders. After the end of March, suddenly there's no Brexit. It's now the 31st of October. What did everyone? Stock down. What will happen probably now after summer, stock up. Now, I can tell you one thing, and that's the same is when you have a production where you have to work like that, it's not very efficient. That doesn't help.
That's also why we wrote it, that it is a challenging situation because you have to build up stock, otherwise maybe you can't sustain your deliveries. Then you get not a very stabilized production. That is actually the main effect. On the other hand, we also do a lot to the Middle East, the cost price is only reducing. It can also take advantage. Our answer will be that we will utilize more our footprint and utilize more our very strong market position to create more added value because we have a very integrated, very long vertical integration also in the U.K. because we make our own bars of brass. We machine, we assemble. When you can utilize that more and then maybe decrease somewhere else and consolidate the factories, then we can take big advantage. Innovations.
We're launching in the second half a lot of new valve innovations to get market share where we are pretty successful actually also in the first half. These disruptions doesn't help. We know now who has been chosen to the new prime minister, so let's see what happens. It's not a big implication by ING. By the way, there is somebody of ING here. "Can you expand on your view and your most important asset, your employees? Salaries are going up, shortage of qualified personnel. What is your plan?" That is a very good question. What we see is that we have to do a lot of own initiatives to get the right qualified people everywhere.
We initiated with our Human Resource Development network, a lot of initiatives to, also with external parties, to reschool people from outside, to bring people to other jobs, but also automating equipment. By automating equipment, you need lesser people for assembly, for example, but you can utilize the people in other areas of your company. I must say till now, we still can find when we want good qualified people, but we have to really bring them to a higher level. You find good people, but they don't have the right skills, so you have to train them. It's a challenge, but we still manage, especially in Advanced Mechatronics. We saw a huge increase the last two years. In 2018, we took in 180 people only there.
We still managed to find them, but the most point is they not always have the right skills. We have programs in place now to really bring them to a higher level. I don't know how it is in Germany and other countries.
The employee topic is more a strategic thing. When you look at the last years, what we all did with the acquisition and the development and bringing business together, who's doing that? It's not the one sitting here on the table, that our management team's doing that we have developed them, and it was always strategic to develop the people in the direction we need to develop them. Where we can't do that, where we have sources open, we looked in the outside and try to add qualifications to the management team, which we are needing to be successful in the future. If somebody asking what's your plan, when if you start working on that today, I personally thought that might be a bit late.
With the strategy we have in mind, that's one big part of the strategy besides putting machines and entering markets, making greenfields, making acquisitions. Human resource development is an integral part of that strategy.
We have now an Aalberts network, run by my colleague, which is HRD, where we really have now a very nice group of persons which are really coming together and making these plans also and exchanging the plans jointly. It's also talent development. It's shifting with certain people to other positions. We put a lot of attention on that. Very good question because it's in the end all about people on the right place.
Okay.
Okay. I would like to thank, we have no questions anymore, I would like to thank everyone in this room, but also joining the webcast. Thank you very much and for your presence. Thank you.