Welcome, people in the room, and welcome, people joining our webcast. Today's agenda for this afternoon is that we start to present the Aalberts way. We will show you again the strategy and objectives which we presented in December 2017, the highlights of 2017 and the operational financial review outlook, and hopefully a lot of questions and answers. First of all, I want to say that what you see in our presentation is our new company passport, also our new logo. We announced that in December 2017, that we would roll out that in 2018, I think it's a great improvement, and it shows also the alignment of Aalberts Industries more and more. You can see it also on our website, which is updated today, which is live. Going to the agenda, the Aalberts way, which we presented already earlier to you.
Our values, our core values, very important. More and more, we implement them in the organization. Our five, let's say, real values, be an entrepreneur, take ownership, go for excellence, share and learn, and of course, act with integrity. We expect that from all our people, we implement that more and more, as we said. Our strategy, shortly, which we presented in December 2017. Our strategy of focused acceleration from 2018 to 2022. I think what is also nice to mention is that when you look to the strategy which we had before, we also had for ourselves some objectives, also financial objectives. I think my colleague, John Eijgendaal, will show you how far we reached in our previous strategy to reach our goals from, let's say, three, four years ago. This is our new strategy.
It's an update of our old strategy, you could say. Our goal is to remain focused to improve our technology positions, because we turn the company more to niche technologies, which we want to, let's say, pursue and also develop worldwide. Improve our profitability continuously. I think it's very important to continue that. Even when you have a strong growth, which we had also in 2017, you have continuously to improve your profitability. When you don't do that, you have the risk that you have more and more costs, also especially inefficiencies. We do that through our program of operational excellence. We expanded that also further in 2017, you could see it's a sort of culture we brought in the company, which, in my opinion, is a continuous improvement of your operations.
The fourth thing, very important, we changed to use our Aalberts strength, not only our group strength, also the Aalberts strength. One big Aalberts strength is our brand. To express the brand and also to present the brand, we also have to make it very visible, which we also do now in this presentation. Aalberts, mission-critical technologies, actually everywhere you have a special niche technology in 10 end markets, in 10 specialisms, we are there. Mostly very mission critical, not only with the technology, also with the very knowledgeable people. The objectives we also updated in December, our five objectives. I can't say how important it is to not just only look to our financial ratios, because to reach financial ratios businesses by having strong brand names serving a variety of global end markets, especially have a very unique position.
By having uniqueness, you can ask a high price. High price means high margin. When you have an efficient operation, you normally have a good EBIT margin. Creating sustainable profitable growth, that means continuously improve your earnings per share with good spread of businesses, which we do already many years. I think that's a very important one because it balance out our company. That means sometimes you have good growth in a certain end market, sometimes you have a good growth in other end market. We generate high added value margins. That's a goal for us. That means you give a lot of added value to your customers. That means innovations, that means game-changing innovations. It means also that you have to have a leading niche position.
Of course, you have to have a good margin, because by having a good margin, you create a high added value margin. Of course, convert strong operational execution in free cash flow. I think we again proved in 2017 that our focus on cash, you see more and more, even after a very strong cash improvement year of the last two, three years, in my opinion, even in 2017, we created a free cash flow of EUR 310 million. We reinvest that in businesses and technologies where we think we can have the best position, but also where we can realize and accelerate our organic growth combined with acquisitions. Our financial ratios, we presented that in December.
Average organic revenue growth more than 3%, EBIT margin more than 14%, return on capital more than 18%, free cash flow conversion ratio above 17%, and we reached above 73% in 2017. Leverage ratio below 2.5, and solvability above 40%. That's our goals and strategy for the coming years and objectives. Our businesses, nothing changed. We changed the names as we presented last year. Installation Technology, Material Technology, Climate Technology, Industrial Technology. We are a technology company with leading niche positions, where we share the technologies to create new innovations and create new business models. This is working in many places in Aalberts Industries. One example is a nice product we saw also last year, the new PowerPress valve and fitting, which we presented, but we have many other possibilities already now, but also in the future.
Next slide is about our revenue spread, also here you see our goal is to remain focused. Of course, we have a strategy to, especially the end markets, to improve, let's say, the lower percentage end markets. What you can see here a little bit is that we shift, for example, semiconductor and science, we made a big growth. It's now 4% of our revenue, but also we put more focus on district energy and gas. You see that we don't mention the name or the end market oil anymore because we see more opportunities in district energy and gas applications with a good margin than that we see opportunities in oil. It doesn't mean that we completely stop with oil, but I think the opportunities in these two areas are bigger than in oil.
Here you see step by step our goal is to see a shift that we increase the percentages of beverage, increase the percentage of semiconductor and science, automotive, industrial installations, that we have a better spread. Coming to the highlights. Highlights 2017. 2017 was an excellent year. Not only because of these numbers, as you see here, which we will also present in detail the coming hour, also discuss hopefully with questions. I want to express also is the almost last bullet point, is many investments in organic growth and innovation initiatives. A company is driven, in the end, by new innovations, by new markets, by new customers. We spent a lot in 2017 to gain also growth for the coming years.
When you decide to invest in something, in a new product or a new machinery or a new technology, then mostly in two or three years, you see the effects, sometimes even four years. It's very important that you invest in the right things to also keep the growth for the coming years. The organic growth we reached in 2017 of 6%, I can tell you, is not because we did the right things in the beginning of 2017. We did the right things probably in 2015 and 2014. It's very important. A company, and a very good company, is managed long term and not short term. The numbers you can see here, maybe also to highlight, is the added value margin. Despite very strong raw material increases, probably we come to that more this afternoon, is that we still kept our margin, even improved it.
That's, again, a proof that we are very good positions. We also worked on that with pricing, it's a proof that we kept our margins and even could improve it with a small percentage. For the rest, the EBIT, EUR 336 million, EBIT margin 12.5%, earnings per share, EUR 2.15, which is an increase of 12%. Maybe the most important number, also because we stressed that many years, is our return on capital. Your allocation of capital, also that is done the last years. It's not done the last months. It's done the last years, which now increased with 16.2%. Keep in mind that we did two very big acquisitions in 2014, which is just three years ago, where we had an EBIT margin that time of 7%. We also had to overcome that to get this 16.2%.
My colleagues will further present the operational review and the financial overview. I come back to you. Oliver.
Wim, thank you very much for the intro. I also would like to welcome here the present auditorium and as well the ladies and gentlemen on the webcast. After Wim has presented a very positive overall picture of Aalberts Industries, we would like to dig into the business itself in a bit more detailed way. If we would start with installation technology, we do run two technologies, integrated piping systems as well as plastic connection systems. An integrated piping systems is all about valve technologies and connection systems. We are very innovative in its field in integrated piping systems. I guess a significant portion of you still remember the Capital Markets Day, where we have highlighted the development strengths by the presentation of our factory in Hilversum, which is a fully automated production for push fittings.
The brands we are running in that technology is Apollo, stands for valves, as well as VSH for connection systems. If we come into plastic connection systems, it's all about piping, connection with going products all made on plastics. Also where we make constantly improvements and innovations to aim best in class with our products and best market performance. The brands we are using here in this field is Hancock and LASCO, each for different regions. Somehow logic, the end markets we are delivering our product into is commercial, as well as residential buildings, industrial installations and water, gas, as well as irrigation. If we would like now to swap over to the more operational values with the numbers that we have achieved in the course of 2017. We made around EUR 1.1 million turnover, which represents a growth of some 6%.
We made EUR 139 million of EBIT, which gives a margin of 12.2%, meaning a growth of close to 1% compared to the numbers of 2016. We invested around EUR 43 million in the course of this business year. It's all about related to product innovation, operational excellence projects, and in our production sites. Commenting a bit on the numbers of each of the technologies. If we then start again with the integrated piping systems. We have two main regions or markets, which is North America and Europe. We had a very good organic growth in more or less all of the countries in Europe. In the U.S., where we suffered in 2015 and 2016 a bit of the low industrial areas, we saw an increase of orders in H2 2017.
If we come to innovations, which is a significant portion for today as well as for the future, as Wim laid out. Success of today is realized in 2015 and 2016, where we laid the ground for that. We're continuously doing that. We have a connection systems for high market and high market expectation where we start delivering that into North America, and that is going to be a world product. We continuously work on our sales and distribution organization. We laid that out in the recent presentations of the year of during 2017, that we heavily work on the distribution and sales organization, especially in North America. If we come to the plastic connection systems, the growth is predominantly realized in Europe due to a focus on niche end markets.
We constantly expanded our offering and our portfolio. Also there, we are in process to execute our long-term innovation roadmap. For both sectors, as for Aalberts Industries in principle, the current operational excellence projects, they are further executed. That was also part of the presentation of the Capital Markets Day, that this is one of our key topics to be further executed. If we come now to the next ballpark of technologies, which is material technology, that consisting of three sub technology, which is heat treatment. What we do, we have a complete offering of all heat treatment technologies from a technical point of view. We are as well innovative in process development with our key customers. The brand we are running that is the Hauck brand. If we come now to surface treatment.
It's all about technical coatings, such as hard anodizing, electroless nickel, corrosion protection systems, and polymer coatings. We act there with AHC and Impreglon. Due to the strong footprint we have in automotive industry with our technical coatings, there is more and more a demand that we back our long-term relationship, our long-term agreements with customers, with the Aalberts name and brand. If you come now to specialized manufacturing, it's a precision stamping, including deep drawing and overmolding, and precision aluminum extrusion. The end markets for all of those three technologies is the automotive market, it's the general industry, and power generation and aerospace. If we then dig a bit deeper into that, of what happened in 2017. We achieved EUR 333 million of turnover, which represents a growth of 5%. We realized an EBITDA of EUR 97.3, which is a margin of 13.3%.
One have to take a bit into consideration that we did a bit of restructuring and site closure in the course of this year, which you find as well in the EBIT margin. If you would neutralize that might be then a bit higher than it is disclosed here on that sheet. Also there, we invested in the course of 2017, some EUR 51 million. That's in capacity and production side as well as in our operational excellence projects. If one would comment a bit on the details of each of the technology, if you look at heat treatment, that was a good performance all over the markets and regions that we are into.
We have done capacity investments in Eastern Europe as well as in North America. We also worked in the course of our operational excellence programs of the consolidation of sites, which we have defined that are not so efficient. Surface treatment, in a good performance due to the very competitive products we have, especially in the automotive industry. Also there, I would like to comment that the green fields we have invested in in the recent year, that we could start harvesting first fruits so that that business starts leaving the path of being a hobby. If we then come over to specialized manufacturing. If you look at precision stamping, which is a French-based company, one could say that the market in France supported the development, that we gained market share.
Also there we have a positive picture as compared to the years 2014 and 2015, where that was always challenging. We have constantly developed products in the sector of electrical vehicles as well as autonomous driving vehicles. We work a lot of in the electrical end applications, if you have there the right products and the right product, you could place yourself there with a lot of innovations. If we come to extrusion, which is heavily involved in the aerospace market, that's ongoing stable, as it was also in the course of 2016. What remains challenging in that sector is the IGT market. Everybody heard about Siemens and GE that they are in process to have a bit of different view of last year and as well as next year. This is a challenging environment.
What we also could see that we start having first project in the additive manufacturing, including post-treatment processes, which are all related to heat treatment and surface treatment. We are, as Aalberts Industries, type of innovation partner in a lot of circles in that industry, which would offer future prospect in that field. I would like to close here with my overview on Material Technology, I would be happy to hand over to Arno Monincx, my colleague.
Thank you, Oliver. Welcome everybody also from my side, of course, also in the webcast. Climate Technology. Climate Technology, we have two niche technologies, the hydronic flow control technology and the thermal and sanitary efficiency technology, which are both active in residential building and commercial building. You see also the two strong brands that we have there and that we of course are still using, the Flamco brand and Acova brand. As we are doing that in more business, we can use the Aalberts brand when it is helpful in big projects, for instance. The brands are still used. Flamco is a very well-known brand like Acova is. When it's necessary in the market or when it can be helpful, we are using the Aalberts brands. Coming back to the operational review of Climate Technology, where we made a very good profit improvement.
Good organic growth in almost all regions. As you can also see, the EBIT improved with 15%, which is much stronger than the revenue improvements. The profitability increased to 11.9%, more than 1% improvement. The CapEx was EUR 6.5 million. The hydronic flow control business, we expanded the offerings to a lot of key accounts, which is really improving our business. We continue to integrate and optimize the joint marketing and sales approach, where, as I already said, we are also working really like a group and using here and there the Aalberts brand when necessary. Long-term business plans are made and implemented, including the innovation roadmaps. A lot of focus in that, like we also explained last December, in all our businesses. Starting pilots to develop digital solutions, making our products and systems connected.
That is a key point of, let's say, attention in these particular businesses. For hydronic flow control, we even started in separate digital center to give the attention that it needs to really drive it forward. Thermal and sanitary efficiency, they perform well. A good growth in many regions, especially in France, with a very strong market, of course, also there. Also here we implemented our long-term business plan. We finalized that last year with a very strong focus on innovations, on product developments, which is now executed. We are also focusing in Thermal and sanitary efficiency on the development of water treatment and dispense. The tap business and the product portfolio and branding are much more aligned than in history because more and more we are grouped, this whole group, really as a Comap company.
The execution of the innovation roadmap also started with pilots to develop digital connections and data collection, really to create new business segments. In this particular area, the digitalization of products is very important so that we can optimize the climates in the residential buildings by communicating the products together as one system. The next business, Industrial technology, where you see three niche technologies: fluid control, dispense technologies, and advanced mechatronics. You see that we are using the strong brands Bluvin and Sentrix in our fluid control business. In dispense and advanced mechatronics, we are really using the Aalberts brands also to the market. This is our core brand where we do our business with our key customers. These are small technology companies where they can group together much stronger to the big key accounts that we have.
For instance, dispense, we are dealing with the large companies like AB InBev, Heineken, PepsiCo, and Coke. Then it is really an advantage that you can present yourself as Aalberts. It was also the decision of the management team of Dispense to really bring this forward and to do business under the Dispense brand name under the Aalberts flag. Advanced mechatronics, the same. Big customers, different technologies, where we can play as one point of contact for the customer under the Aalberts brand to the market. The end markets, semiconductor science, district energy and gas, beverage dispense, automotive, and general industries. Then the operational update of this business, where we can see a strong performance, I think, across the whole line. We have a very good revenue performance with also a good EBITA performance.
A little increase of the percentage from 14.8% to 15.0% and EUR 70.4 million CapEx. In fluid control, of course, we still also face difficulties in the oil end market. As Wim already said, we have less focus on that because we see much more possibilities and long-term opportunities in district energy and gas. Also in Asia, for instance, we made good progress with our setup and organization, in particular in district energy, which is a growth market for the next years, for sure. We launched our patented FullFlow valve, a complete new technology to produce a valve, where we put a lot of effort, time, but also, of course, capital behind. We introduced that at the end of last year after ramping up our automated manufacturing in Denmark. A good year in automotive and general industries end markets, especially our CNG gas business developed well.
We invested, of course, in additional engineering capacity to accelerate also here our innovation roadmaps, because also for these businesses, we have long-term business plans with very clear innovation roadmaps with the focus on the right product developments. Dispense. In dispense, we faced some difficulties in the market. A lot has been going on in this market with big players getting together, mergers, but also some products were delayed from projects. That we had to deal with. We continue to align our businesses as a group under the Aalberts brand and present ourselves to the big key accounts and to really present our business as a global business, where we, of course, also integrate the Vin Service in this offer, which we acquired beginning of 2017.
With several key accounts, we are in discussion to offer more complete integrated dispense systems, new technologies, where we really act with our engineering teams as a co-development partner for our customers. We strengthened our engineering team worldwide to further accelerate this organic growth for the future. The third technology, advanced mechatronics, they made an excellent year and they realized exceptional organic growth. Despite that, they also invested a lot in the new projects also for the beginning of this year. The preparations and pre-investments for the increased order book, as I said, add additional projects and we further aligned also here the organization under one Aalberts flag to present themselves as a strong partner, strong co-engineering partner because there, these businesses, dispense and advanced mechatronics look much alike. They are really acting as co-development partners for their key accounts for their customers.
I think that was the story of industrial technology. Then we go to the next slide where we have the overview of the two acquisitions of last year, which we already also, I think, presented to you after the half year one presentation. Vin Service, company in the beverage dispense market, Italy, and PNEUTEC in the semiconductor and science and general industries markets. Then I would like to give the word to John for the financial review.
Thank you, Arno, for highlighting on the various segments as Oliver did as well. I think on the financial review, we have definitely a few things to cover. Starting with revenue. I think Wim mentioned already the strong organic growth. As you know, Wim likes to round it up to 6%. I just stay with 5.5%, but as we all know, that is also rounded up to 6. More important, I think, is the impact of the currency. I think we highlighted already at the first half year that we were slightly positive on currency, about EUR 4 million positive on the revenue. That was flipped over, as you can see on the slide here, a EUR 22 million negative for the full year. If you compare the first and the second half year, I already saw a few notes for you this morning.
If you compare the first and the second half year, the impact was, let's say, EUR 26 million negative on revenue in the second half year. A plus of four in the first half makes it 22, mainly driven by British pound and US dollar. I think it's not uncommon if you know our numbers. I think that's important to understand, and there was about a 2.2% impact of acquisitions in this case. We had Vin Service for the full year. We had PNEUTEC for about six months for the second half year, and there's about a nine-month additional revenue of Shurjoint, which we acquired 1st of October 2016. Those were the main impact, which is about a EUR 60 million addition to our revenue from that side. EBITDA, as you can see here, EUR 422 million. I think depreciation, slightly lower than you may have expected looking at our first half year numbers.
There were some prior period adjustments in that number. If you look forward into 2018, which might be a question also for later on, we will go back to, let's say, the EUR 95 million-EUR 100 million, let's say, normal depreciation going forward. This is a one-off impact included in this number, just to explain that. EBITA already mentioned EUR 336 million. I think a strong performance with the growth we had compared to 2016. Net interest expense more or less at the same level. Other net finance costs, I think also in the first half year, we were impacted by transaction results of currency, which we cannot hedge. In that respect it's something which is following us because of the volatile currency markets we have seen. That impact was a bit higher in 2017 compared to 2016, but we will continue to focus on that as well.
Also on the tax side, I think important to mention the effective tax rate, as we call it here, 24.6% compared to 25.2%. You will say, "Well, that's maybe not that special." I think also going forward, the impact of the US tax reform will always be positive, at least for companies like us making profits also in the U.S., which now will be taxed with a lower rate. Also going forward, we have always mentioned a sustainable tax rate between 27%-28%. That will now be lowered with about 2% in that range. That will be more in the 25%-26% range, assuming, let's say that the mix of our results will be more or less the same going forward. Just to mention that. There were some one-offs, pluses and minuses also here in 2017.
I think, per se, all of this is a realistic number which we have around the 25%. Earnings per share EUR 2.15 already mentioned in the highlights by Wim. I think also important here, the flip on EBITA, as we explained for revenue, also in EBITA, we had a slightly positive EUR 600,000 on the first half, it's now, let's say, the EUR 1.7 million negative for the full year. It's EUR 2.3 million negative on EBITA. If you normalize the results, more or less the first and second half year were pretty close in EBITA performance if you take out the FX impact. That's part of the translation as we all know. You look at the balance sheet. Also here, I think not so many big changes we have seen looking into the various positions.
The smaller acquisitions we did last year did not change that much on the goodwill or intangible side. The net debt came in pretty low compared to many of the estimates. I have to admit, even below my own estimate. That's not unimportant, maybe to mention that we were focusing more around EUR 600 million or just below, which we have expressed at the end of last year. The very strong working capital management we did in the second half year helped us to improve working capital also as a percentage of revenue, at 16.8%, we haven't seen that for a number of years. A strong achievement there compared to the 18.8% in 2016. Equity remains very strong, 52% of total assets. We mentioned already the 16.2% on return on capital.
This was more or less the last of the five financial targets we have set ourselves, which was the one maybe to be reached in 2018, we have managed to reach it already in 2017. Also the changeover now, as of 2018 to our accelerated strategy 2018 to 2022. This fits in very well that we have achieved all those five ratios which we planned a few years ago. Especially this one is the one we are always focusing on, also a lot of investors looking at that return. Do we spend our money? Do we allocate our capital to the right resources? That's what we try to do, at least we see a further trend later on in some of the graphs on those main KPIs, what happened in the last five years. Now looking at the cash flow statement.
Maybe starting with the change in working capital, a positive close to EUR 8 million. A bit better than the achievement in 2016, definitely achievement in the second half year, is mentioning on the split of the three components. Inventories, which we have seen about EUR 52 million increase in inventories. Three main items, partly mentioned already. If you just take the inflation of raw materials, which is a big step, copper increased close to 30% year-on-year in U.S. dollars. That has been one of the drivers, of course, of a higher valuation of our inventories. That's at least a EUR 15 million-EUR 20 million impact out of that number.
We introduced a lot of new products, as we have seen, we built up stock for those products to make sure that they're ready to ship those products to our customers in the course of the year, also going into 2018. The third one, of course, is because of the organic revenue growth. Normally, you would expect working capital to grow, especially on the inventory side. The receivables with about EUR 12 million increase. Not so much to mention there. We are focusing on that as we've always done. We have used, as you have seen, our payables with more than EUR 17 million to compensate more or less the increase in inventories and receivables. That was the achievement of the full year, mainly done in the second half, as you know from our seasonality.
The CapEx number in the cash out, EUR 117, where we have, let's say, invested EUR 119. The cash out was more or less in line with what we put on our balance sheet. The free cash flow with EUR 310 million, a nice increase of 13% compared to 2016. I think our financial cost tax, yeah, that all goes up if we grow. Acquisitions, yeah, we spent EUR 41 million. That's mainly on Vin Service, on PNEUTEC, and some deferred and earn-out payments we did on acquisitions from prior years. We refinanced some of our U.S. dollar financing in the first quarter.
We mentioned that already in the first half year results. Nothing special there to add. We did a big repayment to our banks, EUR 130 million. We continue to repay the debt we took on board, mainly for acquisitions in the past. We can finance that from our own resources.
Dividends, which we already paid in May this year, was part of the half year numbers. A total net cash flow of EUR 128.5 million. That is a big improvement compared to 2016. I think you have to take the refinancing into account, and if you take that out, it's still a positive number, but just to make sure you are comparing apples and apples. Also important here to mention that we put an asterisk behind the various columns. We have moved our precision technology activity, which was formerly within industrial technology. We moved that into material technology, and we changed, because of that, our first half year 2017 on that basis, but also full year 2016 and first half year 2016.
If you make your own analysis, please consider these adjustments so you also are really comparing the same apples and apples as we discussed briefly before the meeting, so that we have really the same comparison in those numbers. The full year numbers, you have seen already in the press release, and the first half year results have been stated here to make sure you have all the details available also to calculate the second half year. You see the change in material technology, industrial technology, and a little bit in the holding elimination line because the consolidation is done slightly different. No big changes, but at least something you should be aware of. Also on the CapEx side, you see, of course, the same split.
If you look at EBITA, other than, let's say, the swing we just explained, I think also here we can see nice improvements in all four business segments. Already discussed when the operational review was done. The total EBITA with EUR 336, a nice improvement. I know there's always special attention for the line holding eliminations. I think also here we said in the first half year results where we had EUR eight million on that line that we would expect between eight and 10 also for the second half year, because that's holding expenses. Some exceptional costs we took into account. It still includes, for the last year, Oliver, the start-up costs of our Chinese facility. It will be the last time that we present it in this line.
Oliver knows that, so it will be a better story going forward, but you may ask him that question later on, if you would. He's prepared for that, I can tell you. Looking at EBITA margins, I think we have always said that we're going above the 12%, one of the targets. I think 12.5 also compared to the first half year is a nice achievement. I think even more important, that also the improvements in each of the four segments took place with quite a nice improvement in each of the four. I think climate technology was mentioned already by Arno, the 1.1%, a very strong performance. That is all done, let's say on a like-for-like basis. That's all organic improvements done in that activity. In total, the improvement of 70 basis points on total EBITA margin.
Looking at the five-year development on the graphs. For revenue, I think in the first few years of the five-year overview, lower organic growth, a bit more contribution from acquisitions. I think 2017 is a nice example of high organic growth and some support also by acquisitions, which we have done. The value margin highlighted before. Although maybe the increase of only 10 basis points doesn't look too impressive, but knowing that the raw material increase, which will continue in 2018, then we get the full impact of both the price increase, but also on the purchase side. That, of course, moves along the line and leave out mix effects and other organic developments which will drive that margin also going forward with the innovations we have planned.
For EBITA margin, also here we can see that after a few years between 2011 and 2012, we now jumped over that hurdle of 12%, one of the five financial targets which we put ourselves ahead of the game in the Aalberts Industries LINK strategy 2015 to 2018. Net profit, earnings per share, I think a nice development year on year, 10 to 12% on average growth in both those KPIs. CapEx, although we had a few stronger years before, it now jumped to EUR 119, and I think that will be highlighted later on what the plans are for 2018. Return on capital, we see the, let's say the dip in 2014 when we did the Flamco and Impreglon acquisition with a rather low EBITA margin and a rather high capital employed.
We improved a lot in especially those acquisitions and the rest of the group that we are now jumped also in the last ratio above the 16%. For the free cash flow, also here we see a nice improvement year on year. Also, you can imagine that the stretch to get it done every year again on working capital remains. Everybody is doing the same game. It seems to be a sport of a lot of people in the group, but also from other companies to keep ourselves busy, especially at the end of December, to see what we can still collect and what we don't pay. That game will continue, although we are much more aiming for a structural improvement in working capital and not these huge swings during the year. We'll work on that going forward. Free cash flow conversion above 70% has been the target.
We were very close in 2016, just below, but nicely jumped over the 70% or 73.4% on 2017. For dividends, important, I think also for our shareholders, that we continue to pay out dividend. It remains around 30% of our net profit per share before amortization. EUR 0.65 is what we will propose to our general meeting on the 18th of April this year to be decided and accepted by the shareholders to their discretion. I think that's the summary of all the financials. Of course, any more questions we can cover later on, I'll hand over back to Wim for the outlook.
Thank you, John. Yes, outlook. As it is written here, we will of course execute our updated strategy and the objectives. It's a five-year plan. As we also said in December, we want to reach this as soon as possible, but we present it as a five-year plan. What is important that at the beginning of the year, we will drive forward our business plans and also our innovation roadmaps. This is a long-term thing. Of course, we can talk about 2018, but it's also you talk about years ahead. That's what we also said is the third bullet point. We expect further sustainable profitable growth in 2018. Let's say we are not negative, but we just have eight weeks in the year and it's just started, but we are not negative.
I think with the outlook of we expect further sustainable profitable growth, we already say a lot. The next slide is the new head office location. We have decided already a few years ago to make a change, we waited till the right moment and the right location. During 2018, it's going to happen. We must say that also as a team sitting here as a board, but also of course our team in Langbroek, it's two sides of the coin. We thought it was good to improve our group connectivity, also that we get more connected, let's say, to the infrastructure, trains, all kind of facilities, and also the infrastructure in IT and all kind of reasons we had to do this rationally, but of course, emotionally, we were also very linked to the location we had already for many years.
The market is not standing still. The world is not standing still. We have to continue, we think it's a good step for us. We will go to the World Trade Center in Utrecht. We were pretty early in the design of the building, we could have a nice spot there. Very modern building, all facilities. We hope also it will be a magnet for our group management that we connect much faster also as an operational head office, as we are between the companies, very quick thinking, quick innovation. We will also have the modern facilities. Now I hope, and we hope, that you all have a lot of questions and that we can all answer them. I would say, who's going to start? Is it working now?
No.
The mic. Oh, great.
Henk Veerman, Kempen & Co. Thank you for taking my questions. First question is for John on the effect of raw materials. I think in the first half, you mentioned kind of the effect in the first half of raw materials in your organic sales growth. When I do the math, the raw materials, at least the copper price increased 23% year-on-year in the first half. I think in the second half it was around 30-plus %, I think 33%. Could you give us an idea of to what extent that translated to your organic sales growth?
Yeah, if you look at the full year, because the first half year we covered, where we said that between 0.5 and 1% was the impact in the first half year. We announced further price increases to the market, which was partly done in the course of the second half year and will still continue where needed also, of course, in 2018. I think the full year impact will be just over 1% for the total. That is more or less in line what we already predicted, not of course, taking into account that copper would still continue to increase. I think it was close to 30% in EUR, we said for the year-on-year comparison. That goes into both our purchase, but also on the sales side gradually during the year.
Because we are covered for many months on the raw material side where Arno is involved, and on the sales side, of course, every company needs to push hard to get the price increases in. Also Wim is on top of that. That takes some time and has some delays, of course, also here and there. I think around 1% is a realistic percentage for 2017.
Yeah. If you look at your added value and also the added value margin, also the second half versus the first half, intuitively it feels a bit like the second half was a bit more difficult to immediately transfer the price increase in your raw material to your clients. Could you provide a little bit more color on those developments in the second half of 2017?
I think in the second half, you get already, of course, the impact. Mathematically, you have a lower margin because you have already partly the price increase in. I think another big important impact there is the increase in our inventories. There's always a huge increase in the inventories in the first half year. Leave out inflation, just building up inventories because of also the summer period, suppliers going in holidays, et cetera. That is what you see, the seasonality in the second half year, a lower added value margin. I think also historically, that's more or less what we see. Leave out some maybe mix effects.
We had a lot of additional startup expenses for some of the new products which we launched, both on the PowerPress side, but other new products which we launched for important customers, where we put a lot of extra costs which go into the added value margin to get all those products shipped on time to our main customers. That all impacted the numbers.
Something to add, maybe. I think you also said it already in your note this morning, that of course, I think it's a combination of what John said, also on top of that, it's always very difficult to time exactly when the price increase has the net effect, because sometimes you have a little bit delay with the customer compared to the raw material increase. The second thing which really impacted was the startup of some new products, where you maybe have some additional costs or whatever. I can tell you, we really were on top of it, and you will see also the further effects in 2018 on the price increases.
Okay.
It says also something when you have these kind of increases, and you can even still with 10 basis points increase your added value margin during the year, you must have a very good position to push it through, which we did. Sometimes we did three increases in a year.
That's helpful.
Yeah.
On depreciation, John, you already mentioned that there is a one-off effect in the second half, so depreciation is a little bit lower, but could you maybe share with us which division that was so we can maybe better compare also the operational margins on a more organic basis?
The main impact was within the Installation Technology
There was, let's say, the biggest impact of this one-off. There was a benefit and a cost to it. It's the net impact, which was having the impact on that activity, plus the total group.
Correct.
Yeah.
My last question for now is on the Industrial Technology division. A little bit of a mixed picture there, I would say, with Mechatronics having a fantastic year in oil and gas, and Dispense still a bit difficult markets.
Oil. Not gas.
Sorry?
Oil, not gas.
Oh, yes, sorry.
Big difference.
Maybe first on dispense. I think the comments in the press release on dispense technology are a bit similar to what was said in the first half of the year. Could you provide a little bit more color on why exactly your clients are for now, I would say, for 12 months now, are delaying their orders or their projects, and what is driving that?
One reason is that there happened a lot in that market with, let's say, AB InBev making some big transactions, which has some effect, of course, to project because they are more internal focused to get everything in the right place than scoring new projects with engineering. That's one thing. The second thing is that also some other bigger customers just delayed some projects. That is the picture that we saw over the whole year 2017. We also see that that is now coming back. It's really a delay. It's not a cancellation. We see this seasonality more in dispense business. We have seen that earlier also a few years ago.
It's not a structural thing?
No.
You expect a reversal of that effect in 2018, then?
It didn't start then.
Okay.
That's what he said.
I know you normally don't give the breakdown of the several sub-lines or the sub-divisions, but is it a correct conclusion that in 2017, the growth in Industrial Technology was primarily driven by mechanical, by Mechatronics? Because I think if you also look at the sector breakdown, the Mechatronics division explains as quite a ramp-up year-on-year.
I think we also were very, I think what we said is that exceptional growth for semiconductor and science market did very well. I think also the fluid control and automotive and general industry did very well. Especially, that is maybe good to know, that in gas applications, we make the electronic regulators for the CNG gas in cars. Arno?
Yeah.
That's fantastic business at the moment. You see a change there. We took also there a lot of business.
Absolutely.
Let's say you can see the trend in especially smaller cars where diesel engines are less used. A good alternative for that segment of cars is CNG with the proven technology, where you can immediately improve the pollution or decrease the pollution with the same car. We believe that we are in good positions there. This is the strength of, in my opinion, Aalberts Industries, but also the new setup. We see that certain markets are lesser, and we think have higher competitivity, more price pressure in oil. What we see, district energy grows fast, CNG gas grows fast, Advanced grows fast. We put immediately resources and we move quickly. That's the very big advantage of this structure we have now in place. We adapt very quick. That's also how we want to keep on growing and accelerating the growth.
Our management teams are very close to the business. That's a strong advantage. Maybe one last question, if I may. On your OpEx in the second half, also in the first half, maybe also year-on-year, I think we discussed before, let's say, the organic operational gearing in your business model, the comments were always, "Okay, yeah, we also invest a lot via the OpEx base." Has that accelerated in the second half or is it more or less stable year-on-year? Have we seen the most of it? Now that, for example, if I look at your number of FTE-
I hope we never saw the most of it. It's not about cost, it's about what you invest to get a higher return. You have to invest to get business. It's very simple. I think in 2017, we did a tremendous amount of things. Now we discussed about it. How much is it? It's more than EUR 10 million, what we put in, much more. Only for the advanced mechatronics, where we had two very big project at the beginning of the year, which we announced, the additional ramp-up we took in, I said, I think here in August, we took in 50 people, we took in 100 people with zero revenue. The revenue comes this year and years. This kind of things we never did in the past like that.
We took in six additional engineers in our fluid control business in automotive, in Graz, just to push our innovation roadmap. We changed the whole distribution setup in North America, where we had five distribution centers
We have to build up the teams, we have double stock, we also have to keep the old structure in place. Now we are reducing that. 2018 is the year of efficiency. We took in our own salespeople, we had reps. We had 15, now we have 70. We had all had to train them. Three months they were only training and not selling. Not everyone you take in is immediately good, you have to change again. We took in a tremendous amount of cost there, all investments. It's investments in the future of Aalberts Industries, already in 2017, in 2018, 2019. Otherwise you don't grow. I think we did a lot in 2017, also 2016, 2017 more. Hopefully we will continue.
Basically in 2018 and 2019 we can expect, let's say, number of FTE and personal cost, et cetera, you can expect that also to increase further?
You can't put a line linear on it. Let me say, when we see an opportunity and you think it's a good market position with a good margin, and we can improve our margin, then you should also invest. I think that was also the message we gave in December, that we have so many organic growth opportunities and exciting market dynamics, and we mentioned a list of them, that we are pursuing that in combination with bolt-on acquisitions. We are there on a very good track. We have the teams behind it, we have the plans behind it, we have innovation behind it, and we have the money for it. That's what we are pushing.
Okay. Thank you. Very clear.
Martijn Bagha here. I'd still like to go get back to the depreciation, because when I look at your tangible assets and also what I see what you have been written down in the past half year, I'm more or less missing some EUR 10 million in depreciation in the second half of the year. Could you still give a bit more color on what happened?
No, it's partly currency, of course. If you look at year-on-year. Also here we have been impacted in the second half by a lower depreciation on the currency side. That's one of the effects if you compare to the first half, and the one-off impact on depreciation in the second half, because it was taken into the second half results that impacted around EUR 5 million-EUR 6 million on total for the group and also impacting the installation technology segment, as we said to Henk before. It's a one-off, so we will return to normal depreciation going forward, as we said.
Was there a reason to adjust that?
Yes, more an accounting treatment of how you depreciate your fixed assets and how you take that over the useful life. That's also according to IFRS. That led to an adjustment which went back into time, which was taken into a total adjustment in 2017. We are now back on track for that and therefore continuing with a normal depreciation level going forward.
Fine, thanks. Looking at your growth, it's also being boosted by your innovations. Do you have some kind of innovation ratio, more or less how much of your sales consist of products which are being launched in the past two years or three years or something like that, to get some feel?
Very good. Could you repeat that again, the last one? I didn't got that.
If you monitor your innovation ratio, and that's then being defined as products which have been launched in the past two years or whatever, how much that contributes to your revenue.
We normally don't disclose here a detailed number of that, but when we make a lot of innovation, where you have seen that in Hilversum, where we started, is at a huge amount of turnover in 2017. Now it's not, but it started much faster than we expected. We think that in the years to come, 2018, 2019, 2020, that that will be a type of world product which we'll see firstly in North America and then also in Europe.
Lastly.
To comment that also, we have these innovation ratios. We do that per business. It's a little bit difficult to do that. Aalberts Industries is global because you have to look at per business. I think especially when you look also to the R&D expenditure and the amount of R&D people, we really increased that heavily. That will also continue coming years. The reason for that is also that we have clustered our teams. For example, we have hydronic flow control that are actually five to six companies. Now it's more treated as one business team. We also create competence centers, where you actually centralize for partly but also intensify your innovation roadmap. That needs more people, like also in fluid control and automotive, but also in hydronic.
I think in general, our innovation rate goes up, and per business we make the percentage. Actually, we can do that much more properly in the coming years. What's most important is how quick, what is the revenue percentage of a product? That's how we measure it over three years. What's the percentage in three years of your revenue of the products you launched in last three years? These kind of things we are measuring more and more.
Thank you. Lastly, you talked about the shift from oil into more focus on gas and CNG. Can you give some kind of feel how much you still do in oil and how much then in gas and CNG?
Let's say, in oil, we are not so big. That's also what I said, I think in July.
We are, of course, still active in gas. When you say oil and gas, we do the gas part, there you see more and more shift to LNG, where we also believe that there are good opportunities. We will put more focus on that. The CNG, that is only in a specific part of the business of automotive, where we deliver these valves and regulators for cars. Let's say oil, we are not big. That is a small part of Aalberts.
Lastly, could you say something about your biggest new greenfields you are setting up?
The greenfields? Of heat treatment?
Yeah, for example.
Heat treatment.
Surface treatment.
Yes.
We mentioned that with the half year numbers and also I mentioned that this year. The greenfields, especially referring, I guess, to the China project. I said that we are in process, getting more and more orders. We have a good cooperation with at least two key accounts in automotive, which were both said, and I said that it's going to leave the path of being a hobby. That will happen in 2018. If you look at the heat treatment greenfield, especially in Eastern Europe, they were more or less from day one, a story of success due to the way how it was set up and how we had the customer arrangements. If you look into North America, there was one of the greenfields in the IGT market, so that is, let's say, below expectations.
One could also say that's in principle also a story of success, what we did over there.
By the way, to refer maybe to your question about oil, it is below 1%. It's below EUR 25 million. Oil-related.
Yeah. One other point to add, the oil price is not low only in 2017. That's already a couple of years. The impact, let's say if you wouldn't said, well, even at that small division, the downswing, but that already happened in 2016. In 2017, it went not worse. It's more the opposite. What Wim said was.
It didn't get worse in 2017.
No.
So.
What Wim said is that we have with our management team the ability to adjust our strategy, we are not, so to say, bounded by that specific market. If you would like to make the focus on more on something else, we could easily do that the way how we are organized.
[Jaap van West from Lazard Capital]. A quick question. Could you update us on the ramp-up of the key account initiatives? I think a lot of them start in 2017. How will sort of 2018 look versus 2017 on those key account projects?
Yeah. Key accounts we have in different business segments. We are busy with that. It's also, let me say, it's a new phase for Aalberts Industries because what you actually see is that we coming from a lot of smaller decentralized companies, which we still have in many cases. Let's say we bundled them more and clustered them more where related to a customer group. The moment you do that, and we also put now the name, a brand name with it, there's now the possibility that these teams can use the Aalberts name, and a lot of them are going to do that. That was not able in the old situation, so we managed that to do that, is that you suddenly are becoming another player. The awareness of being another player is also how you present yourself.
What we see now is that in several business segments, like Advanced Mechatronics, like Dispense Technologies, but also like even Fluid Control. People talk about Fluid Control, not about VENTREX, for example. They mention it themselves. We talk about Integrated Piping Systems. We talk about the Hydronic Flow Control, what I said, but also about the Surface Treatment, Heat Treatment. There comes an awareness that suddenly you don't talk with a company of EUR 10 million or EUR 20 million or EUR 30 million, EUR 40 million. Hydronic Flow Control is more than EUR 300 million. The awareness becomes there, and you see a sort of movement that people see now more opportunities towards these bigger key accounts. I think the initiatives we took in 2015, because there it started a little bit, and we had some front runners. The front runners were Advanced Mechatronics. I think they are already completely working like that.
I think Dispense is a very good example. Only in these two activities, maybe five or six already really opened or are expanding to a bigger level. When we look to Hydronic, and that's a nice thing also as an Executive Team, we give ourselves targets as Executive Team to open at least or expand at least 30 key accounts worldwide. That means the Executive Team has a responsibility that each of us, we open also key accounts or expand them. What you get that Aalberts people come in at the top, we open doors. I just the last eight weeks, I opened myself two new key accounts. It's a movement. I think we have now in the revenue, you see maybe now five, six, maybe eight, but I think they're coming more and more.
It's an additional business you generate besides the business you already have. We want to have both.
When you are a heat treatment company, you act regional or in a country. When you can also make with a company like GKN or Volkswagen or whatever, Daimler or Airbus, you can make a European or worldwide deal, then you have both. That's a real strength. Electrification of cars, we are in the heart of it, but also in China. I'm going to China in June to discuss a huge investment plan. Also, we're going to open their technical center. We're going to make a second assembly location because they know us in France, they know us in Germany, they know us in America, they know us. It's an awareness. That will continue.
Is it possible to quantify the impact of organic growth in 2017 and perhaps how that will impact 2018? Some of these big projects.
We always said the organic growth is a combination. It's, of course, also many markets are good. That helps. The second thing is we have certain key accounts, and we mentioned already the first half also. The third thing is the focus in the sales. When a sales team and a business team knows what their business is, they're going to focus on it. Automatically, you gain more share. The fourth thing was the pricing, which is still at, let's say, 1%, what John said. Will probably be a little bit more in 2018, what I expect, because you have the full year effect of the price increases. This is a combination. These things will continue. Then, of course, on top of that, you get your innovations, which we launch now more and more.
Yeah, it's a snowball, it's an acceleration. When some markets, all markets will not stay like this. We know that. But when you work on all the other initiatives, at least you still generate an average more than 3% organic growth. That's how we came to that KPI.
Okay, perfect. Then on the balance sheet, you're pretty unlevered now at 1.7 times. I think last time on the Capital Markets Day, you sort of talked about that there was not a huge outlook for acquisitions. Could you perhaps update us on that?
Pardon? You said a huge?
No, that acquisitions were not a huge priority.
It's 1.3, the leverage, [Jaan].
Yes, it leaves you a lot of room. This is again, dangerous. I'm now thinking if you said that acquisition is not a huge priority. No, I think what we expressed in December, that we have a lot of organic growth opportunities and that the nicest growth to have and the best growth to capture is organic growth. There's a lot of focus on it. We will always do acquisition to strengthen our positions. Maybe I should give the word to my colleague who's also responsible for that. We have a very nice list, as always. You don't know when it's going to happen. We will going to do acquisitions. Arno?
Bolt-on acquisitions.
Sort of because the pace of acquisitions was a little bit slower in 2017, is that just sort of a coincidence because the pipeline didn't materialize or?
What we also said in December is it should make, of course, a good fit with our business. It should really strengthen our business. It should give further acceleration to our growth. The team should be good of the company that we would like to buy. The price should be good. There's a lot of things that should be good before we make the decision to buy it. Let's say, I think it's more coincidence than there's something else that we did only two, maybe, last year.
The year before, we did a lot.
Yeah, exactly.
We have said that. It's not that we have said that 2017 will be the year to integrate also the four acquisitions we did in 2016. Yeah, sometimes that goes quick, sometimes it takes more time. Sometimes you think it's done and it comes back, you have to go again. You have to be very careful. Acquisitions, you have to be ready for that. I think what we can say is that we really integrated the acquisitions pretty well. Yeah, you never know.
Okay.
We will do acquisitions.
Okay. One last question for John. If you look at the added value margin, which was up 10 basis points year-over-year, is there anything that you can say what the increase would have been on an underlying basis excluding the raw materials impact?
That, of course, is very hard to calculate because it's included both in the sales and in the purchase side. What we have seen the last few years is that we have increased the added value margin between, let's say, 30 and 60 basis points, I think on average, if you look back in the last five years, the graph which I showed before. I don't think 2017 would have been much different of that. The impact of raw materials is as hard to grab on the exact number. Therefore, the 10 basis points may not look that impressive, but I think as we discussed before, it's a good achievement on the pricing side. We will continue to increase prices where needed. Also that margin will be impacted going forward, both positive by mix effects, innovations, et cetera.
On the pricing side, we have to keep a very strong focus on that, and that will definitely impact the margin on the negative side, not just mathematically, as you know.
Okay. That's very helpful. Okay.
I have a question about the semiconductor segment that is running very well. I remember, correct me if I'm wrong, but back in the days, like in the 1990s, there was also the explanation, I think back then, for 20% EBIT margins for the industrial services division even. I'm wondering, obviously, the business has changed. There's different activities in there now than there were back then, but this is still a, let's say, clearly higher margin than average activity. Is the growth, is it very much related to specific technologies? Because I think, has the cycle been that strong for semicon? The cycle is expected to continue to be strong this year. I talked to my colleague who said that the semicon, there's probably some correction expected. Maybe you're immune to that because you're specifically involved in certain technologies.
Can you shed some more light on the cycle, on the margins, on that development?
Yes. I think the margin is good. I think we also, even when we invested a lot, we even improved it during the year. We also did a lot of investments during 2017, what I just explained. That is driven all over the different technologies. I think a very important thing to know for semicon is that we specialize ourselves in three and now four technologies. One is the large frames, and that's a big specialty where we produce and now also assemble and clean the large frames for the lithography machinery. The second thing is high-purity gas systems. It's a real specialty, so it's where the deposition, it's a little bit simplified said, for the wafer, there you need a certain gas environment, and we provide that.
The third thing is the vibration isolation, actually the motion control of the stage in machinery. Now we have a fourth technology in PNEUTEC, where we also have the pneumatic and also the hydraulic systems where you actually steer the stages. Our strength is that we have this specialism, and therefore, also we have, let's say, very good margin. This margin is maybe not on the levels you set.
Yeah
In certain areas it is. I think we can further improve that, also because using our global footprint. Coming to the semiconductor market. I think we are specialized on this. We don't want to be a contract manufacturer because you can take in tremendous revenue when you want, at this moment. We want real money. Real money, you do to have a certain market position, to have a certain technology. We still think that, I think 2018 will be a good year. How it's after that, we will see. Not unimportant is that we are in different stages of the whole process of semicon, but also on the front side, where it's mainly investment driven and not volume driven. We're not negative about this year.
I think also the, Maarten, the cycles you saw in the past, you will see much lesser because it's becoming more and more adult and also more a global business. That's one of our strategic goals, to also become a real global company in this business. Asia, North America.
The demand is also higher now for semicon. The demand is also higher for semicon.
Luuk van Beek of Petercam. First, I have a question about the Climate Technology, where you mentioned that you are working on the digital solutions. Can you indicate to what extent your products are already, say, digital ready, and how long you expect it take to develop a full digital offering? If you can do this organically or that you have also to look at acquisitions to achieve that.
I think you have to identify two things. We have connectivity of products. Products that can communicate with each other, which of course then gives a lot of extra applications in the system. Then, I don't really understand your question because I think you also mentioned, are you ready to sell digitally or?
Well, no, you mentioned that you are investing in digital solutions.
Yeah.
Can you explain what the next step, and it was, I assume they're already connectable. What is the next step that you try to develop, and will you do that in-house or also through acquisitions?
What we said also in the presentation is that for hydronic flow control, we have set up a separate hub for digital business. There we will bring people together who really try to make the products connected with each other. That means a lot of R&D activities to get these extra features in the product. Of course, we are also looking at possibilities for acquisition, always. If there's a new technology that we can acquire, we are looking to that, and that is also part of our scope.
We work with startups.
Yeah.
We started with that. I think we've looked at to at least 15 to 20 companies in this field, if we could buy them. Most of them were not very good, let me put it like that. Financially.
It's a little bit different.
What we said one year ago, "Hey, maybe we should change our way of working. We're going to work with a startup." We invest in a certain
Product line to make it connectable, and that works very well. We have now three pilots running, and we share that in our Aalberts networks. Based on that, we created now a digital hub in Holland, where we put in software engineers, which is supported by Aalberts ourselves. We will see this as a pilot in the group. We have now more and more connectable products, which can communicate through a language with a database or a cloud or whatever. This is, for us, very important that we push that. We have hardware, but we said we should add something in service, in that it's also connectable with software plus service.
Okay.
We get now really speed. I think we look for what is the right approach. I think we have more and more the right speed now. Also nice pilot in Paris.
Yes, absolutely.
What we said-
In these networks, we bring R&D people from different businesses together, because when a valve needs to communicate with another tool in the system, that can be a solution for a dispense, but it can also be a good application for fluid control. People exchange knowledge and ideas to really get new energy and ideas for the future.
What has fluid control to do with hydronic flow control? You would say nothing. I disagree. The digital solutions for different business applications are exactly the same. The strength of Aalberts Industries is that you share this knowledge and you apply it in different markets and different products. Huge strength. Aalberts is one company, and that's why we do all these things. That's the world that we live in. The moment you have a digital solution for an air or dirt separator in your boiler room, hydronic flow control, which has to communicate about the flow of the water through that valve, you can use the same technology sometimes for an automotive valve. Different applied. You understand? That's what we share in these networks. Then you immediately innovate very fast. You learn from somebody else, and you apply it for your own.
Now that's new. Then you have startups accelerating this, and that's how we now try to do it.
Hopefully it's clear.
A second question about the, you mentioned that in a couple of segments, the margins were depressed by startup costs. Obviously you will continue to launch new products given your pipeline. Can you give any indication to what extent, say, the additional profits of the old/new products? What is the mix between startup costs for the new products that are coming in and the additional contribution from the old ones? Will the impact increase before it improves, or will it already start to improve in 2018? That's basically the question.
What I was thinking. Was it so simple? Was it so simple that you could put that just on the paper like you ask it or say it? Let me explain the new products we have in Hilversum you saw, or also the new heating interface unit you also saw, some of you. This is a project of three, four years, where you spend costs. Then you have the first launch. The first product, when you produce it's inefficient, so you make more costs. You have mostly low volumes, so you have a higher cost price. The moment you improve your efficiency, then you sell more, you have a better efficiency. It's a scale, hopefully like that.
How that really in percentages is difficult to explain, I think what is most important it is that in these numbers which you see, we also put in a lot of investments already for the future. When you allocate your capital right, and we made our studies right, then these products will have a good margin. Otherwise, we would not have invested in it. It's impossible to put a percentage or exact lineal along that.
Yes. My final question for now is on the payables, which were responsible for quite a good improvement in the working capital.
Yeah.
Are they now at a sustainable level or they're relatively high and should be expected to move to a more normalized level in 2018?
No, they were on a rather high level at year-end, as you have seen also in comparison to prior years. We used that stretch also to compensate the increased inventory. Our goal is to more normalize, both on the inventory side, by the way, and also on the payables side. Of course, it depends on organic growth and other elements, how things will develop. But you would expect a slightly, let's say, more normalized levels on both sides. But depends also on what raw material prices will do going forward, because also that drives up the value of your payables as it does for inventories. We are more looking at days payables, days sales outstanding, days inventories, to look at that, to manage that in the best possible way.
Do you have a number for the double inventory yet in the U.S. due to the consolidation of the distribution?
That's of course also an impact because we used the lesser warehouses where we still are fine-tuning on that side. We still have higher inventories than we would like to have, but it's also to make sure that we have our service levels right to our customers in the first place. That's always our main concern to drive that. Also that should normalize. If it all helps, of course, to get that ratio more healthy, I think that's the goal going forward, and we should see already some of that positive development in 2018.
Maybe to add what you also see, Luuk, is that by clustering the business teams, we have much stronger supply chain organizations and supply chain managers that we never had in our business teams, and they collect also the different suppliers. We also have already a structural improvement, in my opinion, on payment terms. That means, for example, consignment stocks. When you have a stronger cluster of groups, you can also make better arrangements with your suppliers about consignment stocks. We do that, and that is also an effect you see. I think the second thing is in North America, it's not only that you have to put double stock, and maybe it's not completely double, but you also have focus on changing your organization with reps, so you have lesser focus on sales.
The moment you get real focus on sales and you can make your supply chain efficient, then you get improvement in your working capital. These effects we still have to see in the coming year.
Okay.
Peter Radder of Kepler Cheuvreux. On the Installation Technology business, it seems that in Europe in 2017, the growth was rather broad-based across the region. Could you shed some light what you see going into 2018? Remains that growth rather broad-based, or do you see some regional differences? Then on the U.S., you talked about higher orders in H2 on the installation side. To what extent did it already translate into higher sales in the second half? Or is there some lagging effect, and is it only going to show in 2018?
I think the regional differences for installation technologies. 2018 will be a good year in installation technology in Europe. I think there are so many projects. As long as people are transferring to other houses, more offices, apartment blocks, that will continue. You know, we are in the installation business, which is mostly 6 to 12 months behind. The only unsecure country, I would say, is the U.K. I think the U.K. was pretty okay in 2017, but I think we are a little bit cautious, especially in the second half 2018, how that will develop. We are counterattacking that with more local production, but also new products. The products we showed you, but also the groove. That hopefully can compensate, optimizing portfolio in the U.K. I'm pretty positive about Europe.
About America, industrial valves and many industrial products, that's normally a longer order process than in the building. You make also more to order. You have also lesser stock of these bigger valves, mostly are bigger valves. It's an acceleration. We saw some in the second half, but we still see more. The biggest effect will be in 2018 and hopefully 2019. What also helps, and we saw that in 2014, is the lower dollar, which stimulates export in the U.S. That was also the explanation why we had only 1%-3% organic growth in the period 2014, 2015, 2016, because building was not so bad, but the industrial was low because the high dollar and the low oil price. What happens now, lower dollar, oil price goes up, and that helps the investments in the country.
When you do an investment in the U.S., now it's probably also driven with the lower tax rate, it could be that there are more investments and they export more. You need more manufacturing locations. You need more machinery. This machinery has to be installed with connections and valves for industrial applications. That's the explanation why I'm also there and pretty positive on the industrial side in America, which we didn't see for two and a half, three years.
Yeah.
2015, 2016, 2017, let's say the half of 2017 was not very good industrial-wise. That's a big chunk of our business of installation technology in North America, not in Europe. Let's see. We are just eight weeks in the year.
Don't forget that the U.S. dollar is already 10% lower than the average over last year.
Yeah.
The translation impact-
Exactly
I explained that on the revenue side.
That's the negative part.
hopefully we will compensate that on the other side.
Oh, we have a question from [Haiko Jesajong]. Given the negative British pound currency effect affected by the impossibility of a Brexit outcome, but also the expected trade protection measures by the Trump administration. Oh. How is Aalberts Industries mitigating these kind of risks? I think this is a nice question for one of my colleagues. Just for the U.K., I guess. Yeah. Yeah. We can comment, of course, on the currency side, that's of course what we have seen already in the last few years, that the pound sterling weakened. We had, let's say, to increase also our prices in the U.K. because of a lot of purchases we do in euros. Of course, we cannot predict exactly what the outcome is.
I think we mentioned just on the U.K. side for the first half, but also, yeah, what's going to happen in the second half when also the Brexit gets maybe a clearer picture on what developments there will be. I think we try to do a lot of, let's say, our production in the U.K. and sell in British pounds in the U.K., also to have a more natural hedge on the currency side. I think that's also on stimulating the exports from the U.K. to, Middle East and other countries in Europe, where of course you are being helped by the lower pound. That's, I think, more from a, let's say, currency perspective than what's going to happen in the U.K. market, let's say the whole market itself.
The second question is, in order to meet growth and innovative targets, you are also hiring new talented people. In what way growth could be restrained as the industry is scrambling to attract highly skilled people? Good question, I think. Yeah. What kind of incentives do you have that these talents will choose for Aalberts as their employer?
Okay, let me take that. We have started in the last year of being more visible to the outside world as an employer. To give you an example, we have launched a trainee program. Right now it's the second generation running, where we pick specific people from the industry as young people, to educate them via projects within our company. That is very well received. We are currently working with the second generation. That attracts, just by a type of snowball effect, people to see us as an attractive employee in the industry and in the specific technologies we are working on.
Yeah. Maybe to add, I think we also started some initiatives internally to start up educations. We're also working on an initiative in Holland. Because I think that therefore is a very good question. The real constraint is not maybe the amount of people, but I think especially the right people. We just talked about digitalization, we need complete different kind of people there. Combined with our, let's say, hardware people, you need also software people. The other thing is, by automation of your equipment and also the supply chain expectations, you need also certain skilled people. Also the machine operators, they sometimes stand on the line, which is an investment of EUR 5 million-EUR 6 million for one line. It's very technical, very high tech. You have to, let's say, bring people in other levels instead of the old levels you maybe needed.
You can do schooling, but also you need to attract people. I think also one of the reasons the company passport, my colleague said, is to also get more exposed as Aalberts, we get more visible and also attract there the right people in the many countries we are in. We have a third question on the use of working capital. I think we covered most of that in the presentation, it's mainly on the inventories and receivables, as it states here, are piling up year-over-year. I think if you normally see organic growth and the impact, as we explained on the raw material increase, let's say it's at least in number of days, especially in % of revenue, it further improved in 2017.
The structural problem, of course, while you always have, let's say, too high inventories if you look at valuation, it's more about the quality of your inventories, the days outstanding. Also the question here, what we wrote off during the year. I think every year we have a few million EUR of, let's say, write-offs, whether it's on slow-moving obsolete stock or maybe on your receivable side, the part which may not have been insured, limited amounts compared to the total group, I would say. We are working on a structural improvement of working capital, not only in the end of the year, but in the full year as we have anticipated.
Okay, the last question from Haiko. "How does Aalberts anticipating on the electrification, digitalization, and autonomous driving developments in the automotive industry?" I would say that we are not anticipating. We are working together with the Tier 1 suppliers and be part of that development. I said that in the part of my presentation, that we are, especially with the precision stamping company, with the surface treatment business, as well as what Arno laid out in the valve business for automotive cars, that we have been part of those new developments, whether it is the electrification of cars, whether it is further semiconductors you need for running cars autonomously. We are having a lot of projects running with the industry of doing that. I would say when that comes further, for us, that is a winning path.
Maybe good to add here also is that what we said also at December, in a new electrified, let us say electrification of vehicles, electrical car, the amount of parts for us and also combined with hybrid, could be seven times more than in a conventional car. When it is autonomous driving, could be 10 times more. We made a visit at the 1st of February in our factory and our colleagues in France, where we had a business plan for especially Asia, where we are going to triple our R&D activities the coming years in this field. Many projects we have where we also have the right technology. Asia will be a big-
This is not the only part. Also in the business we manage semicon, that is also up for the change of how to run a car with more digital, autonomous. You need more-
Yes
We also part in that business, even if we are more the front and then the last, because we do not produce chips. That is so visible that we be in a significant portion of that development.
Exciting market dynamics. As we explained December, we are at the heart of it. Electrification of vehicles, autonomous driving, but also district energy, gas. We are all at the heart of it. Making the chips for the semicon, which is, again, has a relation with autonomous driving. Asia. China is tremendously ambitious in electrification of cars, we have to be there, and we are there, and we have to expand there.
Maybe one last point of that. You all know that from 2019 onwards, there's an obligation for Chinese car manufacturer to have a 10% share of electrical cars. If you look at the Chinese market, they're doing 30 million cars a year. That means 3 million that represents the entire buying rate of the German car population. That's just 1 year selling an electrical car over there. That means the development that will happen there because they have the legal framework in doing that. With the presence we have in China, with a couple of technologies we are running, we will participate in that. Also as being a strong European company. We have very good hubs in China to follow up that development and to be part of that development.
More questions? Yeah.
Yeah. Maybe to clarify, did I understand correctly that the greenfield in China will no longer be in the holding, but will move into the segment?
Correct.
Okay.
As of 2018, Material Technology will include the Chinese facility of surface treatment.
Correct.
That's because it's now becoming profitable?
Oliver?
I said that. Not a hobby any longer, no.
Okay. We are very happy he says that now.
Yeah.
Good business, Oliver.
Me too, by the way.
Took a while, Oliver, but we're there now. Maybe to explain it, because some very long-term agreements, high volumes, huh?
Yep.
It took a while because you have the prototype phase, but I think it looks now very prosperous.
Well, always have to say, when you would deliver from today onwards into the automotive industry, the amount of time you need to spend for being certified and approved as a supplier, that's significantly different than some five years ago. People are quite after recalls. You have to have zero mistake products. You have to really make sure to the supply chain within automotive, that you're able to deliver on that path. Getting approved is much more complex, especially in China, compared to some five, six years ago, where people absorb capacity as soon as it's there, and they could live with some startup difficulties you have in a technical company. This is totally different from the years 2014, 2015 onwards. They've been very critical with the supply chain, and I would say they're even more critical than the Europeans. The time is spent there.
That was not what we have expected and what we wanted. We are not so patient on that, on converting investments into profits. This is a matter of fact, and we are quite happy that we achieved that and that we had 2018 having their contribution to something.
Maybe one follow-up on this. The business that you're doing in China, is it mainly with European customers that you follow to there?
No.
Do you also meaningful amount of business with Chinese car makers?
That's also Chinese car makers. To name here one, you may know the company NIO, which is one of the relatively new founded companies for high-class electrical vehicles. Also, we working with them on their supply chain together. As well a company like Tesla, we do products. We do work with the Western Tier 1 suppliers, which are present in China, as well as with Chinese Tier 1 suppliers. The biggest customer share we have is Chinese companies. This is a very good development that was initially not anticipated because the Chinese market, you produce. What we are doing, we do that for the Chinese market. It's not for export or something like that you produce something, we coat and then they're exporting that. It is for the Chinese market. The Chinese Tier 1 supply chain, that is stronger and stronger.
They're looking for quality, they're looking for quality suppliers. If you have a good working relationship with them, which we have established in the last two to three years, we are very positive on future development and making also next steps there in China.
This new structure gives us also the base, because it's worldwide organized, to go also to the other areas. When you have a surface treatment business team or a heat treatment or a precision stamping, it's a worldwide organization. They go also in these kind of trends, these kind of regions. More questions?
No more it seems.
No more questions. I would like to thank everyone here in the room, but also everyone joining the webcast. We wish you a very good day.
Thank you.
Thank you.
Thank you.