Aalberts N.V. (AMS:AALB)

Earnings Call: H1 2017

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Jul 27, 2017

Welcome, people in the room. Welcome, people joining our webcast. The agenda for this afternoon, we're going to talk you quickly through the strategy and objectives. We will review the operational activities, then we go through the financial review outlook. And then we hope, people in the room, you have a lot of questions, but also people joining the webcast. Our strategy, as we presented that the last 3, 4 years, Albert Centric Linked strategy focused our approach. I think we are further and further by doing that. And also, we improved our defined market positions. It was one of our key pillars, mainly to strengthen niche technologies. We will also come to that later in the presentation, where you can see a more focused approach, mainly on the niche technologies. Operational excellence, very important, improve our pricing, Technology exchange by improving make or buy decisions. Supply chain improvements, it's a continuous process which should be embedded in our culture. Also, there, you see more and more progress of the many projects which are going on. 4th pillar, use our group strengths. We started that more and more to work together in the group the last 3, 4 years. And I must really say that see that many, many good initiatives we see. We call it the Albert's teamwork, and that's an important, I think, also for the results of the first half year, an important aspect that we exchange more and more technologies, manufacturing technologies, but also that we use the our KPI tooling, which we have professionalized more and more, our incentive system, HR, talent development, many, many topics where we can learn from each other in the group. It's an Albert's family, Albert's teamwork. Now our objectives, nothing new. Maybe what is good to mention is that the first one, worldwide leading technology positions. We want to achieve in defined end markets that when you look further in our presentation that you see we have roughly 9 technologies, niche technologies which we pursue. That means that the bonding of the different activities of our businesses are more and more focused. And in these 9 niche technologies, we want to achieve this worldwide leading position. In many cases, we have already achieved that. But again, by growing with innovations, organic growth, but also acquisitions, we want to improve this position. Another thing to mention here is that one of our financial ratios was to achieve an EBIT margin of 12%, and we can say today that we achieved 12.4%. So it is higher than 12%, which was one of our objectives. Our return on capital is still 40.5%, and the goal we had to achieve more than 16 My colleague Mr. Agyindel will tell also something about the return on capital employed, excluding goodwill because it's also good to know that number. Going to the next slide, very important, the Alberts Way. This is the yes, we call it the DNA of Alberts Industries, winning with people. It starts all with people, but also the culture of the people and the values. Be an entrepreneur, take ownership, go for excellence, share and learn, very important, be transparent about what you do and try to learn from your colleague or from your other company. So you improve your own results and your own performance. And of course, act with integrity. This we these values we implemented more and more. We mention them every time. And it is one of our big strengths as an Alberts Group, the Alberts Way. Our businesses, nothing changed. Building installations, industrial services, climate control, industrial controls, we put them in a little bit different order because we do also the presentation in this order. So it was more a logistic way of doing this. And the businesses are exactly the same. Focus our approach. As you can see maybe from earlier slide that we specified a little bit more our regions to make it a little bit more clear. Also our end markets are still the same. You see that commercial buildings is our biggest end market and then residential buildings, mainly in Europe, I must say. And what you also see is that the activities in oil and gas and district energy are now reduced to 2% of the group revenue, which was earlier days, it was higher, but also with a higher position. So you see, we also changed the portfolio of our end markets to another mix. Coming then to our operational revenue. Highlights of the 1st 6 months of 2017. Yes, I think we made an excellent first half. Of course, we can always do better, and we see still a lot of things which we can do better. But an organic revenue growth of 5%, I think, yes, we can be happy with that. We are never satisfied, but we can be happy with that not too long because we have also a second half, of course, which we should pursue. And operating profit also 13% more to €170,000,000 EBIT margin, as I said, to 12.4 percent, improved from 11.8 percent to 12.4 percent net profit plus 12 percent with an earnings per share of €1.06 Return on capital employed, we went from 14.0 to 40.5. And very important to mention is that we invested a lot in the business, in many organic growth initiatives, many innovation initiatives, but also we scored some very nice key accounts the last 6 to 8 months. And these need a lot of additional people. I only mentioned the press release we sent out beginning of the year of 2 big projects for our customer in Holland, a big customer in Holland, where we need to ramp up people, ramp up the facilities and these costs are all in, but we don't have the revenue yet. We also have a very big customer, 2 big customers in the U. S. Where we had to ramp up also stocks, the inventories, but also the people. And we are changing also our structure commercially in the United States from a more trading concept to a more own manufacturing rep concept. So we have to bring in these people, train them all. That means that the costs go before you have the results. But we would not do this when we don't expect, of course, growth out of this. So it is all investing in the future. I think that's very important to all to notice that. So despite the improving profits and the growth, we also invested a lot in the company, important to notice. And that's also the reason why our working capital was something higher, which will my colleague, Mr. Eigen will explain that how that is specified. Okay. Now I give the word to my colleague, Mr. Jaeger. Okay. Thank you very much Wim for the intro. Also I would like to welcome you here, the attendee in the room as well as the people in the webcast. I will start with the segment building installations. You see that the introduction of that segment looks a bit different compared to the presentations which we've done before. That represents a bit the more focused approach. Wim has mentioned in his introduction and in the target what we would like to follow-up, what we did follow-up in the last years and what we are intending to follow-up in the upcoming years. We are seeing here 2 core technologies, which we are following. Let's see, Alberts integrated piping systems with the brands you see below VSH, PY and Apollo. And you also see the Alberts plastic connection systems with Henko and LESCO. And it's all about controlling and regulating water and gas in heating, cooling and in drinking water. If you look at our end markets, logically, they haven't changed so much in the past. We're still looking into the construction market with regard to commercial, residential and buildings as well as industrial installations. So this is what it's all about. It's a focus on those two technologies. And what you can also see that we are focusing that on a global basis or at least in the markets we have presence. But it's all about numbers at the far end. I would like to come over to that slide. You could see that we had a strong growth of 8% and a significant increase in our EBITDA to 70 72.7%, which equals to a 17% increase. And you also could see that, that business segment has a very strong focus. We invested $22,900,000 in the course of the first half year, and that equals more or less to 41% of the total capital expenditures of arborts in H1 in this year. So what is all the background in achieving all those numbers? So where does the growth comes from? Obviously, it comes from Europe. And then we all see that we have a lot of good markets. Also, it started already last year. You see France and Spain, they're all developing significantly better than in the years of 'fourteen and 'fifteen and partly in the beginning of 'sixteen. We have realized, as Wim mentioned, where we've all as a team very proud of, we realized new key accounts where we start delivering into. We're widening our offer, which we have to existing accounts. And the ones who participated in the year's beginning presentation, when we have difficulties in the industrial market in 2016 in the U. S. So this is starting to recover. So this altogether is a background for the growth of the revenue in that segment. We also took initiatives and actions for stabilizing and making those developments more robust and more sustainable. So we have a new patented connection system where we start to delivery our first shipments into the market. We mentioned that, that we have invested technically in the last years and also invested into the organization, costs being carried by the business without seeing the benefit at the moment, so we start first shipments. So we are very happy with that. Then it was already also mentioned that we have changed and developed further our sales organization so that we invest in more own people compared to working with the rep system, of which we think with that commitment that we have a strangle force on the market compared to that somehow a bit disconnected system. We also explained to you that we're continuously working on our fruits, which we have sought that we could harvest the benefit from that and to ensure future development and future strength of that division, we defined a clear innovation roadmap and we take into account the bolt on acquisitions, which we did in the course of last year, which rounded the entire portfolio of products. That was all about the integrated piping system. If you come now to the plastic connection systems, if you look where the growth is being generated there, that's mainly in the regions where we have present in Europe as well as in the U. S. And also there, we developed and strengthened our product to cover the markets we are into, which is Europe and North America at this stage. If we then move over to the next division, Industrial Services, also there we have 2 core technologies. It is heat and surface treatment with the well known brands of Hauck, AHC and Empreklon. And then we have specialized manufacturing with the companies Metalis and Asher's. If you look in the markets of OZeIMA, they haven't changed. We still have a strong footprint into the automotive market with both of the divisions. We deliver into machine built as well as in our power gen and aero and also due to the nature of the activities we are doing into the general industry. Also, if you come now to the interesting part, the numbers which have been realized in the first half of twenty seventeen, also where we could say that we realized a good growth and a bit minder compared to the Building Installations division of 5%. We also could strengthen our EBIT development by 10% to 44.6 percent, which equals to 13.1 percent. And also there, we continuously invested into the business with €18,500,000 in the course of the first half year of 2017. So if you give also there a bit of background, doing that also pair our technology, starting with heat and surface treatment, where does the growth comes from? It obviously comes from Europe and very strong has developed the German market as well as the Benelux market. Also North America had a good development and a good growth in the 1st 6 months. The markets developed strongly is automotive, machine built as well as aero. What was a bit window strength where we had more challenges is the power gen market, especially in North America. What are the activities to ensure the development of the future? Also, we're running operational excellence programs. We do strategic customer developments across technology to give a different appearance and a different footprint into the different markets. And what I'm also very happy to report, when we worked there since some two and a half years in our China activity, also where we come more and more or less to a type of business. We get the breakthrough, we get big orders with T1 and T2 suppliers, which then convert that entity into a business in 2018. And the customers where we get the breakthrough that one customer has already been started in 2014 working with them together and one could see doing a greenfield in that technology that takes the time to really to be established in that market and to have access to bigger orders and to bigger jobs. If you come right now to the special machining, the growth of the precision stamping activities represented by Metellis, it is strong achievements in France as well as in China. Where we had difficulties is with the power gen market that concerns ushers. The turbine production, we potentially have noticed that. That's on a pretty low basis. But fortunately, we could compensate part of the loss which we are facing with different activities. So we widened the spec of we are going to produce. And so this is something we are also working on, on the course of 2017 'eighteen to have a brighter portfolio of what we are doing. And if we look a bit in the future of those two segments, I would say that we look for stability in H2. And when we right now come to the Search Business division, I would be very happy to hand the word over to my colleague, Mr. Arno Mornings. And I would like to thank you very much. Thank you, Oliver. Okay. Climate Control. Operational review, where we work with 2 niche technologies, hydronic flow control, branded under the name Flamco and we have our thermal and sanitary efficiency technology, which we brand under the name Comap. And that's also how we have organized it right now. These are 2 separate groups making their own market approach. Now Climate Control, as said, they develop, engineer, manufacturer and hydronic flow and emission system for heating, cooling, sanitary and drinking water. And with these technologies, we work into the end markets, we operate into the end markets, commercial buildings and residential buildings and also in industrial installations. Now, when we then go to the operational review, we see a very good improvement on revenue side, 5% growth, but also a very nice profitability growth of 70% to an EBITA of CHF 29,800,000. That is then a percentage of CHF 11.4 million which is an improvement of 1.2 percent versus last year first half. And then when we make a split in the 2 technologies, hydraulic flow control and thermal sanitary efficiency, we see that hydraulic flow control made a good growth in Europe and North America, but that Russia was still challenging, which is maybe not surprising to you. But because we continued to optimize and integrate our joint market approach and sales approach, we managed to, of course, to improve the sales in the other areas. Now we are in discussion with several key accounts because that's the good thing of combining these activities in 2 groups. We have a very strong joint market approach. And with this key account approach, we are working on opening some nice opportunities with some big customers. Now for thermal and sanitary efficiency, that performed very well in mainly France, Spain and Benelux. And there we built with the team a very solid 5 year growth plan also to really bring the focus into this business team. And this 5 year growth plan that is, of course, making the right approach to the market, also bring the team to the right focus. And in line with that, we also made an innovation roadmap for 5 years. So, they know exactly where they want to go and are also investing in that direction. And that is also something we already started to execute. Yes, let's say, and the focus will be on water treatment, thermal control solutions in combination with plastic connection systems. Then the segment industry controls, where we have sorry, where we have 3 niche technologies. First, we have fluid control, which we sell under the names under the brand names, Bruin and Ventrex. Secondly, we have dispense technology, which is really operating as one group in one end market, beverage dispense. And we have mechatronic technology, which is also operating as one group because they are also active in a joint end market. Let's say, the end markets, just energy, oil and gas, mainly covered by BROOM, automotive and general industries, mainly covered by Fenrex. And Dispense Technology, of course, focused on beverage dispense and mechatronic technology, semiconductor science and general industries. Where you see that, let's say, with dispense technology and mechatronic technology, this is really operating as one team where we also key account management is playing an important part in the commercial success of the company. The operational review or let's say the financial performance, this business segment grew with 11% to over €210,000,000 €212,700,000 EBITA, €30,700,000 which is a growth of 6% and which is a little bit lower than last year. That is mainly due to the fact that we are really investing in engineering power, in engineering capacity to move forward with the innovation roadmaps for the future technology that we want to sell. Secondly, we also did an acquisition in this field, which was which just has a little lower performance profitability performance than the rest of the group. But of course, we are going to improve that. And that is what we are working on. And then the split per technology fluid control, we still face difficult circumstances for Distic Energy Oil and Gas. That's less logic. But we also have quite some good developments. Let's say, we have a new patented full flow valve, a new technology, really innovative technology where we have high expectations of and which will be launched to several customers in the next months. In Automotive General Industries and Markets, yes, we continue to perform well. And yes, we said we invest a lot in our innovation roadmaps and that is what we mainly do with investing in engineers in engineer capacity. Now, dispense started a bit slower first half year, which is a trend we see also in the market. And let's say, a lot of projects were delayed, not canceled, but delayed. I think there's a lot happening in this market. When you look at the big customers like Pepsi, Coke, AB InBev, Heineken, let's say, mergers, some companies are sold after a merge. So a lot of people are just taking some more time with the projects. But we expect that to just to continue. FinServ's integration made good progress. There's a good cooperation with the rest of the team. They're really working as one team, so that is very good. And we are with several key accounts offering new technologies and we more and more really develop nice integrated systems where we use all the technology of the different companies in this group. Now mechatronic technology made a good performance, very good organic growth. The semicon, assignments and general industries markets were strong. Also they are investing in people, in capacity to facilitate also the project that we are working on for the near future. And yes, we expect that to develop positively in the next months. And the execution activities for the machine built and aerospace markets also continued on a high level. Then we come to the next slide about the acquisitions update. Over the last 6 months, we closed FinServs early 2017. Company specialized in the design and manufacturing of dispensing equipment for both beer and soft drinks and very nice add on to our existing portfolio. So there is hardly any overlap, I would say no overlap, really in addition to our portfolio. And that means that we have a lot of possibilities when we combine these technologies with the technologies that we already have in the group to really, yes, develop complete systems from the source, from the CAC until the dispense at the end of the system in all different, let's say, variances. So, we feel that we become more and more an important co developer for our key accounts. The second one, very recently, a few weeks ago, Pinotec, an engineering company specialized in vacuum, Pinnomatic and Electronic Technology, a very good addition for our group there for our semiconductor science business where they are a nice addition to the already existing companies in that technology. And it brings additional vacuum, pneumatic and electronic technologies that we did not have. It gives extra engineering power, extra engineering capacity. So yes, again, with key account management to our key accounts, we can really act as a co developer and a strategic partner for our key accounts. And that is what we will pursue to do in the future. I think that was it from my side. And I would like to give the word to my colleague, John Magdal. Thank you, Arnaud. Yes, let's try to summarize some of the highlights on the financials. So the financial review, as we call it. Start with the revenue. I think the 7% was mentioned already, but if you look at the below side of the slide, you can also see what is the exact split of that increase in revenue. Organically close to the 5% we have announced, 4.7% to be precise. Out of that, we have estimated about 1 let's say, 0.5% to 1% due to the price increases because of raw materials inflation, and the rest is really linked to volumes. And you would expect a somewhat higher contribution from the inflation in the second half year because some of the price increases were just announced in the first half year and will have its full impact in the second half year. So there's more to come on that side. 2.4% comes from acquisitions and divestments. Of course, a bigger impact, if you compare it to the first half of last year, comes from the Surejoint acquisition, which was not in the first half of last year. And the same goes for FinServ as Arnaud already explained, just started from the 1st January this year and Pliotec is out of scope for the first half year anyway. And this year, a very small impact of FX is only €4,000,000 on revenue positive. In this case, we had a large negative. If you remember last year, you made it to the British pound. That's still a negative, but compensated by a positive on U. S. Dollars and a small impact positively on EBITDA of $600,000 When looking at also at EBITDA or EBITDA both increased by about $20,000,000 10% on EBITDA and €13,000,000 on EBITDA. Importantly, I think, not so much the net interest expense that's pretty much in line with last year. It's mainly the other net finance costs. You have seen the split up in the press release, mainly the FX, so not the translation in itself, but transaction, mainly also on ruble, where we have seen a big change, especially in the last few months of the first half. So that's converted into the transaction loss as you could say, which you can see here. And also the financial instruments, which we use to hedge our positions, has been a negative position. Last year in the first half, it was a positive. So per selter, you get a negative cap in this of close to €5,000,000 which you can see here. On the income tax, effective tax rate of 27%, below the level of first half of last year. However, we would expect that tax expense goes up in the second half year. I already guided at the full year numbers that we expect between 27% 28% for the full year, of course, a little bit depending on the contribution of the U. S, which, of course, has the highest tax rate. So the better the U. S. Will do, the higher the tax rate, which in itself then, Jaap, will be a positive in itself. So let's see how that will develop. So in itself, I think the 12% growth in net profit and earnings per share is a nice achievement. But yes, maybe the finance cost would have been a bit more in our favor, it would have been a little bit more, but there's always something to complain about and let's improve going forward. Looking at our balance sheet. I think important, the net debt. I think we already guided we would lend around €800,000,000 at half year, leverage ratio of 1.9. Last year, we were still at 2.1. So also here we are improving on a 12 month basis our leverage ratio. Net working capital, I think that has been mainly the bigger increase you could say. I know some of you already looked at that this morning when the press release was announced. Of course, you have to distinguish whether it is the increase between last year June and this year June because then the gap is only €40,000,000 25,000,000 already is explained by acquisitions. So Sure Joint and FinServ is not in the numbers June last year. It's about €25,000,000 euros on working capital. So there is only a €15,000,000 increase year on year, which is also mainly related to inventories, as we will touch on in a minute anyway. If you compare it to the December 2016 numbers, which is not really a like like because that's always the lowest level during the year, the increase has been at least in absolute numbers around, let's say, EUR 150,000,000 in the first half, but that's also partly because of the acquisition of FinServis was much more important. We will touch on that in the working capital statement in the cash flow on the inventories and receivable side. I think important the working capital as a percentage of the revenue in 12 months rolling, that has been pretty stable between, let's say, first half last year and this year, around 22%. Our goal, as you can see from the full year number, we were close to 19%. That, of course, we will do our best also in the second half of this year where you can normally get, let's say, the seasonal swing in working capital again, yet to get back to a more normalized level on working capital, albeit with the organic growth we have seen so far and the new products we are launching into the market, we may still have maybe slightly higher working capital level than we had before, but that's, I would say, nothing to worry about. It's really a healthy development combined to where the business is going. Looking at the equity position, further increased close to 47% of total assets. And I think important return on capital, already we mentioned briefly the split between the 2, which we have disclosed here. So normally we are managing the business on the return on capital, including goodwill. That has always been our definition. But we see more and more investors hopefully also watching today asking us that question, is it with or without goodwill. So including the goodwill, our definition, we have seen an improvement from 14,000,000 to 14,500,000,000 in a like for like basis. But if you would take out goodwill, which is about €750,000,000 at the end of June 2017, you see an improvement of 1% from 21 percent also because of the organic contribution of our EBITA. So we are aiming still for, let's say, the first one, including goodwill, to be above 16 percent in 2018 because that's still the strategy which was explained by Wim before. Looking at the cash flow statement, where it all comes together, I think we touched on EBITDA. Very important, the swing in working capital. I think at half year, we normally are around €100,000,000 negative swing, similar to last year. But this year, we are at €126,000,000 You have also seen that already €74,000,000 of that number comes from the inventories. Our party, of course, that's the inflation of raw materials because it's a like for like compared to the December number of 2016. But we also have invested a lot in new products. We put some, let's say, additional stock in the U. S. To make sure that our new central warehouses will be stocked up before they can really go live in the course the second half. So there were a few elements in that respect. And of course, organic growth also normally takes a bit more working capital. So in that respect, the $126,000,000 will largely reverse in the second half, but we still believe that for the full year, it will still be maybe a negative number, which you may expect anyway because of organic growth and more questions to be discussed later on. I think on CapEx, similar cash out as we had last year. Important to mention the acquisitions. We only did the FinServers acquisition, so the CHF 27,000,000 is mainly linked to Finn Service and some earn out payments we did in the first half of last or of this year, acquisition from last year. We also refinanced part of our debt. I think we explained at the full year numbers that we had financed all the acquisitions in 2016 for our own credit facilities, and we have now, let's say, reversed some of that back into a midterm facility of 5 years, which we also used to repay some more expensive debt, mainly in U. S. Dollars. So that has been done. Therefore, you see a big number in the proceeds, but also in the repayment because that is partly been used to refinance. Our dividends, we've also paid €64,000,000 in May this year to our shareholders based on last year profits. So that is a well, you could say a one off at least in the first half year, which is not coming back in the second half. And that leads to, let's say, the total net increase or decrease in this case of While looking at the various business segments, they have been already explained also by Oliver and Arnaud. But here you can see, I think important, the first half year twenty sixteen, those numbers were already adjusted when we did the comparison at full year 2016. And I've seen some of the reports coming out earlier this week or even this morning, where still the old numbers of first half twenty sixteen were mentioned. And you get, of course, some funny comparisons, not for the total group as a whole, but definitely between the segments in itself and that is mainly related to Building Installations and Climate Control. So that's maybe something to watch over when you are finalizing your notes on today's numbers that you really compare the numbers of 2016 as stated here. So we see, of course, the revenue split by the various segments. The CapEx, although it's slightly lower than last year, but we still believe, as we have guided earlier this year, that we at least for the full year, it will still be between maybe €110,000,000 120,000,000 for the full year, especially to support our organic growth initiatives. If we look at the same structure, but then for EBITA and our EBITA margin, I think everybody is also focusing on this nice line, holding eliminations, what's in there, holding expenses, some restructuring charges and start up losses of greenfields. The amount of €7,000,000 last year slightly increased to €8,000,000 for the first half of this year. There are already some questions what would then be the idea for the full year, but I think looking just at these numbers, at least count on a similar amount for the second half year. Last year, we were around EUR 15,000,000 for the full year. So somewhere in that range, maybe a bit higher or a bit lower could be the case for full year 2017. Well, EBITA margins for each of the segments have been disclosed. Slightly lower than last year, but there were a few reasons, slightly lower than last year, but there were a few reasons because that happened, but I think mainly related to the further investments to grow and improve that business. I think we are happy with the 60 basis points improvement on the total group on EBITA margin to 12.4%, which is really a record in our history. So that's always nice to present numbers which are better than they have ever been, and we are working hard to maintain and further improve. Going back to Wim for some guidance on the outlook. Thank you, John. Yes, the outlook you can read that we will consistently execute our strategy, drive our many organic growth and innovation initiatives. I can't say that enough that we invest a lot in the business. And when you invest in the business, mainly it takes you on people and equipment, sometimes at least 2 to 3 years to get the real benefits of it. But we especially think that the initiatives we take also this year, we will also benefit from next year and also we hope in the second half. Integration plans, I think, of the acquired businesses, we are on track, I think, in 6 months of the 5 acquisitions we did last year. I think we put a lot of attention on the 1st 3, 4 months, and we have them really under control, aligned. So we are ready for other acquisitions, which we did immediately in the 1st weeks of July. But it could be that we do 1 or 2 more. Let's see. You never know. But we have a nice pipeline to for bolt ons. So let's see. But you know, acquisition, it's done. The moment you put your signature on, so that can happen a lot. And we only do acquisitions, which we where really we gain value creation with our own business, because acquisitions can be very dangerous. So we have to be really convinced that you create the value for the shareholders. We will realize further sustainable profitable growth over the whole year. We said that in the beginning of the year, we expect to do that and we strengthened our outlook that we will. So I think after the first half year, we can tell that we are also not so negative about the second half. I wrote here a few remarks. It doesn't look so bad for the second half because also we expect some price effects come into the business, ramping up of our key account management deals. Most of them we ramped up in the first half. They are now ramping up step by step revenue in the second half. As normal, you don't know how quick that goes. So you always have headwinds in these situations, but we are positive that we see some help from that. We have self help of the sales organization. Just to explain, in America, in September, we roughly will have, I think, 70 to 75 own manufacturing people on the road. 4 years ago, we had 15. That means we invested heavily, and we changed the structure from a trading commission to a more own people structure. To do that, you also need your distribution and IT footprint. So we all had to invest that the last years and mainly in the last 8 months. So there was working capital, additional people you have to train. You need to have the lease agreements with the facilities. And after that, we can optimize our trading commission structure, but also our distribution structure. So that happens from now on. But also here, this is sometimes hard work, practice is sometimes difficult, but we are going in the right way from now on. Our organic growth initiatives, innovation initiatives, many investments, few new products we launched in June, July, full flow valve mentioned by Arnaud, but also the very nice product which mentioned by Oliver is our PowerPress valve and fitting line, which we launched. It's unique product patented, and we have launched it in June. So we will see sales. And what is nice to tell that we got the first orders already from this product. But as always, there are also developments which are not positive, and I also should mention them. That is the political environment, and I want to say that you never know what happens. It is also in the U. K. Let's see what happens there. Russia is still challenging. Oil and Gas is on a low level. And we have expectations of North America, but it's mostly self help, yes? We see more order intake in the industrial installation market. Let's see if it continues. But overall, it doesn't look so bad. And it should also be because when we create more, let's say, inventories and invest in the business, you only do that because you see growth. I can tell that for the coming years, because you can't run a company on a quarter over a half year, that we have many opportunities for organic growth. And that's also what you will see in the second half, but also next year, more investment in CapEx in the business. John mentioned between 110, 120, that could be. It depends on the timing, but next year will be more because we see a lot of opportunities. The best growth is organic growth combined with very nice bolt on acquisitions to create value, return on capital employed. That's our goal. The next slide. Yes, we this is unique in the history of Alberts Industries. We will organize our 1st Capital Markets Day. I read in a few notes of the people in the room that they call it CMD. So I don't want to go that far. But Capital Markets Day, on 6th December, we want to tell you and also our shareholders and also investors, potential investors, a strategy update of our strategy, of course, and our objectives for the coming years. But that will be a strategy update. Our very nice products of the different niche technologies. So we will combine it with a factory tour and a sort of experience visit that you can also, let's say, see our fantastic niche technologies and that we explain them to you and hopefully a lot of other people. So we are really looking forward to that to present to you our strategy update and objectives for the coming years. Thank you very much. Also on behalf of my colleagues, and I hope that we have a lot of questions, which we, of course, can answer. Thank you. Henk Fehmann, Kempen and Co. I have some questions, and I will do one at a time. I think the first is for John. You mentioned the FX impact on your organic sales growth and how this will translate to EBITA. And if I do my calculations, I sort of get to an organic EBITA growth of 10% 10% to 11%. Is that the numbers to think of? Or I think it's slightly lower. I think we explained that we took, let's say, a lot of extra costs on especially organic business to grow that. So that organic growth percentage on EBITA is slightly lower than, let's say, the 10% you mentioned. And don't underestimate the contribution of the acquisition for the 1st 6 months of this year. That's a higher percentage than the revenue impact, which we have shown. Okay. And if I then sort of calculate the incremental margin you're making on number to think of going forward when you sort of grow your business further organically? It heavily depends, of course, in which of the business segments that happens, because especially all of our segment has a very high operational leverage, as you know. So then the 20% to 25% would maybe be on the lower side. But for some of the other businesses, especially the investments we now do to support the organic developments, U. S. We have mentioned, but also within Industrial Controls, yes, that percentage may differ, of course, from year to year, but it has been a bit more impacted, I think, this year or this first half year by additional operating expenses. I think one of the comments of last year's results was also that we did see a nice improvement in added value margin, but that was almost the total EBITA improvement. Now you already see that we get we gain some momentum on the OpEx side, but there is more to gain there to get a higher leverage out of the group as a whole. So I think we are moving in the right direction, but we do a lot of pre investments. I think also Wim explained a few examples, which definitely will have some impact on the leverage, but definitely it's moving to a higher level than where we have been the last few years, partly because of the lower organic growth, of course. Okay. Thank you. Then my next question is for Oliver. I think 25%, what you mentioned is not so bad when you also want to pursue a high organic growth rate. So I think ideally, it would maybe above 30% or around 30%. But when you invest you know, invest goes with WAVs, depends on the customer. But I think having we found a pretty good balance of investing and making profits and growing. That's always the balance you need. Okay. That's clear. Maybe the next question for Oliver. I saw actually that when you in your one of your last tables in the press release with all the several subdivisions, I saw that the only one which saw the decline is machine built. And I think earlier in the full year earnings call, you mentioned that you already saw some decent volume there and a bit of momentum there. Maybe can you elaborate a bit on did something change there in the second quarter or more in the last, let's say, March till June? Concerning machine build? Yes, machine build. Yes, that relates to divestment. Okay. Which was the Jamaica, which they were mainly active in machine builds And there maybe had a little bit lesser machine builds than the year before, but I don't know that exactly, but it was mainly affected by the divestments. Okay. So good volume still in the Yes. But if you look at the volumes in principle in the diverse business, which is mainly Industrial Services, so we have a good development in machine CapEx a little bit low in the first half and a bit more in the second half. Can you give a bit more color on where exactly this CapEx and which efficiency is being spent? No, I think what you see when you see this CapEx overview, you see 75% increase in Industrial Control, which is mainly mechanic mechatronic technology or semicon and science. So the bigger projects we got we gained at the beginning of the year. We also published that we would invest 7,000,000 to 8,000,000 dollars in these projects. It's a big part is already spent in the months, which is ahead of us of which is which we have done, let's say. And the other part is when you look to the activities, which where Mr. Diego is responsible for, we had a reduction of CapEx, but it's also a little bit a delay. I think a big part will come probably also in the second half. So we will catch up a little bit in this total number. That's what we expect. So therefore, we think the total year will be going to €110,000,000 €150,000,000 or maybe a little bit more. Depends on timing also. So that's roughly the total case. Thank you. But in general, and that's, I think, an important message, we will invest more in the business looking to all the opportunities we have. How that exactly comes in the numbers on the 10, 20, but I think next year, it will really go up, which is positive, my opinion. Maybe one point to add to that, I think last year, we had this big greenfield within the Industrial Services, which was linked to the Ashurst acquisition, which was about a €10,000,000 investment last year, which was mainly in the first half of last year. So last year, Industrial Services looks very high compared to where it's today, but it was really, let's say, this one off project of 2016, which is not there in 2017, just for the 2016, which is not there in 2017, just for the comparison. Okay. My last question is, at the you just mentioned that the return on capital employed is directly raised to CapEx and that's what you're trying to boost. Raise the CapEx? Sorry? Raise returns, you mean? Yes, yes, yes. So the return on capital employed. I think previously, you mentioned that it's always difficult to sort of give a target when you do when you spend CapEx. But maybe you can give a little bit more color on what exactly is then the hurdle when you do all this when you spend all this expansion CapEx going forward? I mean, what is the hurdle? What was the company more focused the company more and more to 8 or 9 niche technologies. Now what you get when you these are bigger clusters, yes? So you could say we have a company which is above $2,500,000,000 with 9 activities based in 4 business segments. So by doing that, you also create additional business by key accounts or whatever. So based on that, you invest. So you invest firstly in your strategy, which is, you might think, a long term thing, mid term to long term. When you have made that decision, so you are already very critical where you allocate your money. Based on this allocation, which is based on the strategy, you say, hey, what is my return on that? Yes. And then I always say the return should be as fast as possible. So yes, when it is a return of 4 years, for example, for the greenfield, it can still be a good investment. But normally, you try to get a return which is much quicker. But mostly, also the small investments can be very attractive. But what it says is that the strategy which we are pursuing that we can create growth and create value by doing that. That is actually what we are saying. So that means our results should also, of course, increase when you invest. Otherwise, you invest in the wrong things. Peter Hollisz of Kepler Cheuvreux. Also a question on the margin improvement. So there was 60 basis points versus first half last year. There are a couple of moving parts like volume growth, but also the operational excellence working in your favor there. Could you maybe quantify or give an indication how much of this 60 basis points is attributable to your operational excellence projects? Jan? Yes, I think about half will be covered by operational excellence. If you look at the total improvement. And the remaining definitely now comes from the organic growth leverage, which we are contributing now to the margin, so of the 60 basis points in total. Sometimes it's that's why I'm doubting a little bit because sometimes it has also to do with each other. So the moment you are more effective, you have a lower cost price, you gain more volume. So it's very difficult to calculate exactly. I think what is the what is really happening in Amerenced Industries, and that's also why we want to explain that again in December, is that we optimize, I always say, the back office by combining a lot of smaller companies in clusters with one pitch to the market. You optimize your operations, your pricing, everything you do, and you pull it back in innovation, R and D and more sales power, key account power. So you gain more volume. In the meantime, you automate your equipment, what you have. You have lesser locations. Then you come to your point. So you have more volume on a low cost price, and then it's normally bingo. That's what we are doing already a few years. And so you optimize your operations internally, reduce locations, you did a very good job there in Industrial Services. And you optimize that further and further and further. It's part of your culture. And you take the money, you invest on the front side. Now that's what you see now. You see now that you invest a lot on the front side, and you grow. Having more volume on your equipment, which is automated, you have more profits. So that's what we're doing everywhere. And this is the whole story behind the strategy, which we called Lindt. And I'll say that the 60 basis points improvement, 40, again, comes from the added value improvement and only 20, you could say, from the OpEx side as we explained before. So we have still some free investments on the OpEx side, which is, let's say, still maybe depressing a little bit the leverage as we said. Okay. That's helpful. Maybe for Oliver on the Industrial Services business. If I remember correctly, some of the sites in the U. S. Of in Fraclon were maybe not performing like you would like them to see to perform. Can you maybe not give an update on the U. S. Performance there? So this is yes, this has improved in the course of last year and this year. And so this is better performing. That's comparable to other business which we have. What I also said in the presentation, we have challenges with the power gen market. So this is partly compensated of what we are doing over there, mainly the ashes business, but the rest of the business is doing very well. And for a big part, it has been internal improvement, self help? Or is it Yes. No, this is on both sides. I mean, we're having self help, what you said, and improving the organization and the sites itself. But also, we invested in our commercial activities to be more present on the market. Okay. And then final question on Industrial Controls. That was the one segment where we saw a margin decline. To what extent was Ventrex a factor to keep into consideration? From early discussions with John, I got the impression that Ventrex this year might see some phasing, some products having reached their end of life and some new products still having to start contributing. So is that a factor in the margin decline? And when will that be resolved? Is that something for this year, second half or maybe next year? Let's say, Fenrex, like you say, have some products that are phasing out. So that happened this year. Profitability still is very strong on the same level that, let's say, that was before. And we expect that they will organically grow again because the other product lines will continue to develop well and we are working on new product lines. And that is the innovation roadmap that we pursue with them. But they are at the moment, so in the first half, they were still growing their business? Let's say, in the first half, the top line is a little bit lower, but the profitability is still at a good level. That's what I said. And based on what you're working on, the top line? We expect the top line, of course, to develop again to the positive direction, yes. And is it already in the second half or? Maybe the reason for industrial control is totally is actually 3: investments, what Arnaud says. In the fluid control area, we took in a lot of additional engineers to drive the innovation road map. A little bit change of the product portfolio, the phased out of product. Other products grew faster, so there was a little bit of effect in vendorings. And the big investments we did in Megatronic, so in the semicon and science, we took in a lot of additional people, which we had to train before we can do the 2 big projects for Dutch customer. And the third thing is that we took all the Fin Services, which had a lower margin than the group of Industrial Controls. But of course, you have revenue low margin. So these three things give the effect that we went from 15.1% to 40.4%. Do we expect that it will go further down? No, because we will improve wind service, as we did other businesses in the coming years. And in Ventrex, we have running but also not in Ventrex, but also in the other activities of Industrial Controls. We are running very nice innovation programs, which will ramp up the coming years. Maybe you see a little bit in the second half, but that's not how quick it goes. But as we always said, the question was earlier, can you even improve 15%, and we think it's a very interesting business. So that these three reasons are actually that's the only activity where we have actually stronger growth than EBIT growth. That's Industry Control. That's the reason for that. But also, again, we are investing. And then final question for John, just to confirm that the result of the Chinese greenfield, that's in the holding cost, right? It's still in the holding cost, as we have said. Yes, because it was discussed in one of the segments, but in the reporting, it's in the holding. So it's part of the operational activities of Industrial Services, but let's say for reporting purposes, it's still included in the holding elimination line. But as already Oliver explained, things are moving in the right direction. So the sooner we can take it out there and move it to where it belongs, the better it would be, of course. Okay. That's clear. You know in this business, you have a breakeven. So the moment you pass the breakeven, it goes very quickly in the other direction. But we gained we were very happy about that. We gained some very nice big long term agreements. That means you have reference projects for volume. To mention that, it was a 3 year exercise to develop the customer to where it is today. That brings us, I wouldn't say, in difficulties, but we are facing more demand for new capacity. Did it it went much faster than we thought. Yes. That's what I have to say. Yes. With that specific customer, yes. If you look at the entire project now. Mike Rook, Petercam. I have a question for Oliver and Arnaud because Wim touched upon geopolitical uncertainty, but he forgot to mention Poland because the Polish government seems to be on course with the European Union. So I was wondering how the operating companies in Poland are noticing perhaps any kind of uncertainty with respect to investments or end markets. Is there something going on? No. We don't feel that at the moment that there is any change with regard to the operations we are performing, neither on the business in Poland nor on the business we have on, let's say, international basis. Okay. Same for me. Same story. Okay. No, that's comforting. But you have to be very alert. That's the world where we live in. But we had that more in the past. So you immediately there's a strength we have. When something happens, immediately you take a decision and act. That is part of our culture, and we should always be alert for these kind of things. But some things you don't have under control, but that's what we're here for. Okay. Then I have two questions for John. The first is on several, well, highlights in the presentation. Roadmap, innovation, patent and technologies, That sounds like R and D, but I haven't seen a number. Could you give us an indication how much you spent in the first half of the year and how much that grew year on year? Well, what we discussed in the presentation is on the patented products. We refer to it to be presented to you in the on the Capital Markets Day. So patented products, so we spent already the last few years the development costs on those products to be patented. So there's nothing on the balance sheet here. That's all expensed in the P and L. But of course, we are talking about several 1,000,000 anyway in the last years, maybe not as high in the first half, but in the first half, of course, we did start up full production in our factory to produce those products. And as Wim explained in June, July, we are supplying the first products into the market. So there's a ramp up of about 3 years before really production did start because the patents, the development, which is all done in house, took a long time to be, yes, let's say, as effective as it will be now to be launched in the market. So not a real number to it just for the first half, but in total, it has been a very big project both in CapEx because that's even excluded in this number, but just on operational expenses. There's a new building, facilities, people, equipment. It's a long run to be there where we are now. So it's a big investment, but we'll get the success out of Okay. But say on a full year basis, R and D within the company as a whole, is it about $5,000,000 or $10,000,000? Well, I think the group average is around 3% on revenue. It might be slightly higher on this specific development, but of course, we have other products and companies spending maybe a bit less of that. So and that's an increasing number. So maybe the 3% is a bit more of a historical number because we are definitely scaling up R and D both in people and in activities to support the innovation roadmaps and organic growth. So we're spending much more on R and D last year and this year than we have done in the past. In that case, I would suggest that you start reporting it as a number because if you would compensate for this, then your underlying performance in operating margins is even better. Yes, that's correct. But you also know that if you launch new products, which takes a long time before you get all the benefits, the revenues and the margin improvements, yes, don't park, let's say, your expense already on beforehand, let's say, on the balance sheet or take it out of your profitability. No, no, no. It's not about the balance sheet capitalization. It's product you're selling today, which may actually be better than what you show us. And if you're ramping up R and D, then I know there's more to come in the future. So it's just a suggestion. Okay. Thank you. And then the second one, perhaps also a suggestion. You took out the goodwill from the capital invested. No, we did not do that. It was showing the difference between the two numbers. You know why investors are looking at that? Yes. Okay. But you forgot to take out the acquired intangible fixed assets. Correct. You should take those out as well. We have done a similar exercise of that, but as you know, then you could take out €1,100,000,000 and then of course you get to even much higher percentages, which may be looking nice. But we still believe we have invested goodwill as we have spent CapEx, working capital, whatever on acquiring businesses. So we believe we should also make a return, whatever that return is. We have put ourselves a goal, as you know, above 16%. That's what we are still following, but also taking out maybe the non cash element out of goodwill or even intangibles. That could be a much higher number. The thing is if you grow organically, then your intangibles go up, your working capital goes up. But your goodwill doesn't and your acquired intangibles don't go up either. Well, they do see them because you amortize them. True. So that's why you should take them out both or not at And this is, again, a suggestion. Yes. Okay. Thank you. Okay. Well, then Not sure whether everybody agrees, but I'll look into it, Michael. Thank you. Okay. Yes. And then final one, I have to ask Wim also something. Could you give us the staff levels? Pardon? Staff levels, number of employees. Number of employees? Yes. I missed it in the press release. Maybe I overlooked it, but I think we are now at 16,000 last Friday, 16,300 or something, 300 42. Okay. Thank you. Could you update us on your divestment program? Yes. That's a divestment program. We said last time in February, we said that we still have to go between 50 100, 100, let's say, roughly 70, 75. That's still the case. I think we dig in the last 4 months after end of February more in the specific cases, and that's still the number. But as we also explained, we take the time to do it in such a way that we create the best value for ourselves and our shareholders. But yes, you talk about some smaller companies, some smaller business lines where or they have no link with the group or we see no growth potential or they have a low financial performance. And when they have a combination of these 3, then they are at number 1 or number 2 on the list. So it's still so the coming years, we will do that step by step. It's not a big number anymore. On the other side of the spectrum, you mentioned bolt on acquisitions. Your balance sheet also offers the opportunity to do a bit more than just bolt on. Or are you just really looking for to fill the white spots technology and not the real sizable positions anymore? It's not for me and for us, it's not about big or small. It's about do you are you able, as a company or as a team or as a business, to create value? I agree, we could do bigger ones. So when there's an opportunity, when we pursue a certain strategy and there's a bigger opportunity, then yes, it's not that we don't do that. We also have names of that, but then you have, of course, the price, etcetera. What is what our experience is, is when you can do an acquisition, ideal, ideal between 40, 50 and 150, that would be ideal. Sometimes they are a little bit lower, but still you can gain nice value. The advantage of having little bit smaller ones is that you can integrate them very quick. Last year, we did 5. We are ready in 6 months to get them aligned. And it's all about value creation. And you see what value we create also after the 1st 6 months of this year. So when you do a very big acquisition, there's also a risk, and that's why I don't like them so much. But of course, I don't say we don't do them, is that you sometimes buy an island in your company, and that's not easy to integrate. So you mostly, it stays apart and you don't realize the synergies. So the creating the synergies upfront, think before you acquire, does it really fit your strategy? Is the management team enthusiastic about being part of our group? Or our management to integrate it, do they really pursue it and have an integration plan where you earn your money back cash wise at maximum 7 to 8 years is for us golden rules. When it's not in that league, and then don't do it. The integration plan should be executed by a board member. He is responsible, and we execute it very quick. That's what we learned all these years, and we pursued even more last year. So it's not about big or small, it's about creating value. Spending money is easy. Okay, we can go to the bank, low interest rate. Let's spend it. And then we leave the company after 2, 3 years, no, we have to create value. That is all about, being entrepreneur, organically, in combination with acquisitions. Currently, you have set the targets for 2018. In December, you organized a CMD. Should we expect a revision of your financial targets? Yes. You can expect that. Your colleague asked something. Yes, upward or downward. But I think that's clear. That's the question, of course. 6th December. Yes. I got a follow-up question on Maarten's question. The strategy on the 8 to 9 technologies, for us, it's very difficult to see really in detail how these markets are look like. You answer the question on return on invested capital decisions and investment decisions, but is there any kind of different market structure in these 8 or 9 technologies that might allow you to do a bigger acquisition? And maybe yes? Yes. But I said already in the in the answer of your colleague that we have some names which are bigger. But you know, what I see in the market at this moment, at the moment you have bigger targets, you have very high multiples. So of course, we look to that. But when then you pay too much. So it's quite simple. So and when you pay too much, then you don't earn it back in a certain time period. Yes, you earn it back in 10 or 15 or 20 years. I can't oversee that. That's our principle. So it's not about spending money, it's getting the return. But you're right, we have some nice bigger targets, especially also regional wise, where we would like to expand in Asia or whatever or North America or in certain technologies or certain market positions. But it's not we start with big, and then we're going to look for something. No, it starts with strategy. And then it starts with creating value and then you look to the opportunities you have. And I think Arnaud with his team is what we like is a pipeline, a list which we build ourselves, we create the relationships. And we have many things going on. And when the time is right on the right price, we attack. And sometimes it can be more, sometimes it can be less. But our goal is to get a return on capital, which we invest. And that's you should never forget. That message is clear. But I mean there have been I mean your M and A strategy is quite famous. I mean everybody agrees on that. But I mean there have been examples in which you purchased certain technologies in which the end markets dried up a year later. I think most investors are fine with that. Or it's dried up a year later? There are examples in which the acquisition didn't perform because of the market. So that's not your fault. If you want to have that technology, you still have to make that decision. I think investors also agree with that. When the market is drying up and probably you made a wrong research before. It can only be temporary. Or temporary. I mean your partner is bigger. Yes. Okay. So that's not really a problem. Is there any is there an upfront strategic decision that you see a certain market, in which case you allow yourself to take a bit more risk if you can corner that market by taking out the bigger Yes. We have now one identified one technology, which we don't have at the moment, which we will present also end of the year, but we think we should try to create a position because it's a real growth trend, for example. But as always, what we said earlier, heat and service stream in North America is for us an attention point. Another attention point is when we can pursue our activities in semicon and science, which we did again. Yes. Pernodec, a very nice company. Yes. It's a great company. But yes, when it would have been bigger, it would also be nice, but it's how it is. So we know exactly what we want to strengthen our position. That is and that can be that you have that we have also a bigger opportunity, which we want to pursue, could be. And I also had a question on the mentioning of new key accounts, for instance, in building installations. Can you give us a bit more color on that? Because yes, it sounds nice, but size I'm not looking for a name, but just more the practical example of what that means for the business. Now one we mentioned in the press release. So we mentioned 2 projects with a bigger customer in Holland, which is ASML, which will give us tens of 1,000,000 of additional revenue. In the building installations? Building installations, we had we made a deal with a German customer. It could end up to 20,000,000 dollars over years. We made a deal in America with a customer, tens of 1,000,000 additional. But we have many things in the pipeline. On multiple products? Yes. And the reason is that you offer with one organization, you have one pitch to the market, very focused. When we say integrated piping system, you should look to the website. We put all the definitions in. So you when you really study the website, you see it. Integrated piping system means with all kind of materials of pipes. We can have all kind of connections, and we have the valves with it. We have a unique position in the world, and we are even the biggest in the world in that field. And when you put that pitch together, really together and you launch also the products which you miss like this product which we now produce in Holland, yes, you become very strong. And you also use your brand name more as Alberts, which we will do. So it's a combination of many things. So we discuss many, many possibilities at the moment. Hydronic flow control is the same, By combining an expansion vessel with a pump group and a balancing valve and controls and air and dirt separators. It's all in the boiler room of a building or a ship or whatever, but mainly in a bigger building or an apartment complex. We offer that now in one pitch. We never did that in the past. It's an integrated offering. That's the big difference. And when you have then a key account and you offer that like that, you can even make long term agreements. Next step, if you do the service, connectivity, you're going to measure what is the energy use. So many innovations are going on there. Actually, we just started there. But you're always replacing an older product of yourself. I mean, it's good that you're very innovative. No, of course not. No. Because when you integrate functions of old say you have a function of balancing, controlling and regulating, and you develop a product which is integrating these 3, 4 functions in a new product, and you save a lot of materials. That is innovation. Listening to the story, it sounds like your growth should be 12% because you have now the market in favor. But you're I mean, I can imagine from your position that you always like to discuss the new things, but at the same time, you're also phasing out of projects. Yes, of course, yes, we are. The product is sometimes phasing out. But by combining that, you should also look to the competition. Who can offer this portfolio and who can offer that integrated offering? There are not so many people in hydraulic flow control. There are not so many people in integrated piping systems. There are not so many people who have their portfolio. The only big difference is we offer it in an integrated way and sometimes on a much higher level the organizations of our customers. And that's why we score these bigger projects. But yes, 12%, yes, of course, you can mention what you want. Let's start with 5% in the first half. Let's try it another way for John. If I look at the 4.7% organic growth, you already mentioned that about 5% to 1% comes from the copper price, the raw material effect. Yes, 0.5% to 1%. Yes. Yes. And the rest is then volume. So I would say the general markets of ours are taking care of the volume, which is just a given. But then if you have these better products, you also your pricing power should then increase. Yes, correct. Yes, but that is then I think a bit still a bit missing or is that something that really will become invisible in the next years? But the pricing is the pricing was a difficult topic the last years and we mentioned in February that we have now the opportunities to increase the pricing, which we And we are able to do that, but before you get that visible in your numbers, it can take a little bit time. So we thought it was quarter 2, quarter 3. We now saw it's quarter 3, quarter 4. We see a bigger effect. That's true. And because in the old days, when you had the big flow control division and in the old reporting style about 40% to 50% was cost of goods sold with a lot of copper and plastics And your ability as a company to price on volatility was always relatively good. Yes. We're still is. We put the price increases through. Yes, but to me it sounds like it has even gotten better, but I don't really see it, but maybe it's too early. Yes, that's what we said. We expect that it's in quarter 3, quarter 4, we see that more. That's exactly what we said. But we are able to push them through. That's we have no doubt about that. And even now, but don't I was there in 2,006. Copper was at $2,000 a pound and it went up to $8,000 stable margins. I remember that as well. No, we I increased I personally increased the prices 6 times in the year. So, there was a different time. So now it's not 2,000. So you go up 5% or 10% with copper. So of course, you increase. But that time, it went up, I think, 300%, 4 100%, 500%. I think the nice thing is, Thijs, also if you look at added value margin, which increased again in the first half of this year, normally it goes down when you just pass on your raw material pricing. So mathematically, it dilutes your added value margin, but we did exactly the opposite despite further increases to expect in the second half of this year, as we said. So I think also something to bear in mind if you look at the It's about a strong position. We had 58.6% 3, 4 years ago. It is billion, now 63. But a big part is going back in the organization is what I said. And you only become stronger, stronger management teams, stronger R and D, stronger sales teams, But it takes time. That takes time. But you see now you see the growth coming. Yes. What will be the second half, yes? Maybe the next half. I don't know. So you're managing the company. You drive it every day. And but we would not invest. We would not invest in people or CapEx. We're doing that when we don't see the growth. Organic growth is for us the most nicest growth to have because it gives the best returns. And when you combine that with additions your portfolio, be very careful with that by the way, then you have an optimum mix. Big is not big and spending money is not our goal. Of course, when we need to do it, we do it. But it's about the returns you make. We want to higher margins. We always said that, higher organic growth, higher margins. So in December, the margins will not go down, but you knew that already. The Jaap on the question. Yes. This is Jaap on the Stifel, Resurient Capital. Just one follow-up because indeed we're seeing a very big sort of step up in growth, right, to the 5 percent organic growth. If we think about that number from your perspective, what part of that growth is sort of driven by better end markets? And what part is driven by the new products? Is there anything you can sort of say about that? It's difficult to judge completely because these things sometimes interact. But I think when I would I think the market is also take American account. We are not very strongly in American residential market. So we are mostly in commercial there and industrial. So America looked like quarter 4 very good and then it softened. So I think we did not so bad in the first half. 2nd half will be better in America, what do we expect. But so America was not a high growth rate. So I think, in general, that the market does maybe all activities where we are maybe 3% and the rest is self help. So that means if I compare that number to year, that actually the self help and the initiatives are really accelerating now compared to the last few years? Yes. Where the bigger key accounts, we are ramping up. So the effects of the bigger key accounts, which you mentioned, which we scored, are not even very much visible. The bigger customer we mentioned in Americas, we started shipping in end of June. Great. And then if I then also sort of look at the P and L because clearly there's a lot of cost in the P and L for growth as I guess we talked about. But then going forward, if we think about the leverage in the model, should that really be on the added value or sort of more on the EBITA line on the cost line? Added value is pricing. So I think it's and it's also a mix of your portfolio where we yes, we get rid of low performing or low finance product lines, and we still are divesting. So we'll continue with it. That will improve your added value. Pricing will improve your added value. But on the other hand, maybe you sometimes gain also some bigger contracts where you have to give away a little bit to get also volume, where you reduce your cost wise again. So it's a combination. But in general, it should be both. That would be my opinion. I don't know if we can create the same growth as the last 4 years. But in general, our goal, one of our objectives is to generate a higher added value with our customers, do all the things we do, a better position in the market, operational excellence and innovations. And then indeed, because some of these bigger accounts, would those be then accretive to the added value margin or some of the new products? I mean, that should still sort of come through. Because when you get more volume and you have to give away sometimes maybe you have a little bit lesser added value, of course, we optimize also our supply chain immediately. So you try to gain it back. So it's that's but it could be both, what I said. And perhaps one last question actually on the cost base because sort of in previous years, we talked a lot about the operational excellence and the reduction of the cost base. Is that still sort of continuing for the next couple of years? Yes. Reducing the back office, injecting on the front end and then you grow. And you get a better market position, better market position gives you more pricing power, and then you continue. So pricing excellence is actually very hot topic all the time. We did a lot now in climate control. We're going to start now in the next year building installations. So, continues optimizing your pricing, but pricing excellence, it's always it's also a culture. We are not finished. We never will be finished with that. And then sort of related to that, because then it really seems that the investments for growth, the magnitude is actually very, very big in first half. Are you sort of willing to share sort of any thoughts on that how big that investment has been? I think we said in February so we can say it again now. We said in February that the structure of the distribution centers in America costed us roughly $3,000,000 to $4,000,000 I think in the 1st 6 months, maybe, John, again, we spent that amount of money. You must imagine, we took in, I think, 30 people in America in sales, which we had to train 12 to 15 weeks with no revenue. And to build up a distribution structure, you have to get the warehouse people. So you have to build it up. When we have it now standing, we can reduce all the other locations, which we will do, of course. We reduce transport costs, so you get the efficiency in the model. But what is very promising, and that's why I'm happy about, you see our sales of everywhere where we are on people, you see our sales accelerating. All right. That's very helpful. It's CapEx. In this case, it's working capital and it's OpEx. So on these three lines, we are fighting, as you can see from the numbers, to improve things going forward in the second half and into next year. We are entrepreneurs, But of course, you should control it. So it's always you want to go quicker. It's the same as the greenfield in China. Derek Felice, Evaluation Capital. A few questions left. More on the, let's say, the top line development in volume terms. Can you be a bit more specific on what you've seen in terms of growth in North America versus Europe? And where do you see further room, let's say, for recovery or sustaining a certain growth level? Are you more optimistic for the next 6 to 12 months on North America or Europe? That's my first question on growth potential there. 2nd question I have on the remarks on oil and gas and industrial controls. Let's say the exposure you have to North America, if we see the activities and production rates in shale, which have gone up quite significantly. Can you remind me what a main driver would be for that specific segment for you to see a recovery? Are discussions with clients in that respect more skewed towards pushback of potential order flow into 2018? Or are you more positive already for second half twenty seventeen? So that's oil and gas. And then maybe an update on where you are in the improvement processes on margin terms in Pregilon and Flamco. We've seen quite good developments in both divisions, Industrial Services and Climate Control in terms of margins year over year. To what extent was that also helped by margin improvements in those 2 companies? Yes, maybe I take the first question, then Arnaud takes the second and of you take the third one. The top line Europe, North America, I think in Europe, we grew much faster than North America in the building installations area. I think in the industrial area, so mainly also in the industrial services, we've got a very nice growth because we also invested last year much in capacity, but we got new orders despite the turbine OEM customers. North America, what do we expect? I think what we hoped that in the first half, it would be better. We didn't see that so much in the commercial arena. What we saw, we had more orders in the industrial installations. We think that will continue. And through our self help, we think North America will do better in the second half. Europe will still be on a good base. I think the underlying markets in the Building Installations and Climate Control are very good. That will continue. Question 2, recovery of margins, oil and gas, 2017 or 2018? Yes. Let's say oil and gas remains challenging, of course. And I would say, I thought it was especially for North America that you asked. In North America, we are not so big in oil and gas. So, let's say, we are we don't see a strong improvement yet, but we are also not so big there, so the impact is not so big. But then more generally, the client discussions, are they more talking about pushing back orders further into the future? Yes. We see also when you visit exhibitions, you see an improved atmosphere. People are more optimistic. But I can also say that it's still very vulnerable and it's still also much depending, I would say, from political situations. So what can you say about it? Well, we think it's more 2018 and 2017. Yes. Okay. Then I'll take that over. Just one comment also to the oil and gas. Also, we and let's say, in the Industrial Services division, we have some influence in oil and gas. So you see that people are looking for more orders. We have closed down one of the sites where we offer that in Houston. We run those activities from more from the north and take some logistics into account. You could see that people are looking for more, but that's not a super trend where you can say, well, tomorrow, everybody is back in business. So that takes longer. And even oil prices are today not very high even if they have improved. Then your question, I would say the third one was related to the margin improvement. And you still have recognized that the margin of both of the companies, Flumco as well as Impeccnon, were on a one digit level around 7%. Both of the companies been in 2 digit numbers. Flamco was a bit faster on that. They realized that under after 1.5 good 1.5 years to be on that track and in Praklon scratched in the end of 'sixteen on being close to that. And right now, we are solid above that. Solidly above that? Yes, we are above that, yes. We said that time when we did the acquisition that we would increase the EBIT percentage in 4 to 5 years with 5%. And Pregnon had roughly 6.87%. So that means we should have 12%. Where are we now? 11%. Close to 11%. So we will reach that. Flamco, we said the same and a little bit better. Good acquisitions, but a lot of work. Thank you. I see there is a question on the screen now coming from explaining the changes in working capital, which I tried to do during my presentation, but it was, of course, a brief statement maybe. I think the split up in working capital, inventories, receivables, payables. Inventories, we I think analyzed the increase of the €74,000,000 which is partly related to the inflation of the raw material prices, but I think also the increase to get our central warehouses in the U. S. Up and running. There was a big investment at least of €20,000,000 to get, let's say, our inventories in those CDCs, which is partly a double impact on that inventory level, especially in the U. S. Of course, organic growth normally absorbs more working capital on the inventory side, especially in Building Installations where we are building up the stock to launch the new products, which we have discussed before and also specifically in this case to supply 1 of the key accounts in that respect. So I think that's the main explanation of the €74,000,000 which will partly be reversed in the second half as normally is the case. I think the next question already comes. Receivables always is a big increase in the first half year because you normally end up the December position the lowest in the year, and then it builds up a little bit depending on how invoicing has been done in the Q2, which was not a bad quarter in itself. So that ramps up receivables in itself. But I think also on the day sales outstanding, which we are measuring, we are well on track to achieve our goals there. And as you can see from the working capital statement, we used our suppliers for around €40,000,000 in the first half year to finance the increase in working capital. So that makes up, let's say, the total of 1 €26,000,000 increase in the first half. So that's maybe just to elaborate on that more in detail. Maybe. We have another question. Yeah, we can do. Before whatever we take, we can do the yes. Yes. And of course, we have the other operating expenses, the increase which you see there. And that's, of course, the like for like compared to the first half of twenty sixteen. So it does now include the acquisitions of Sure Joint and Finn Service, which we're not in. And I think we already explained that we spent additional costs, expenses in this case on, let's say, the total infrastructure of the group, also in R and D, which is partly people, which you see in personnel expenses, but also partly in supporting R and D in itself and getting, let's say, more on the general expenses side. So relatively a slightly higher percentage of revenues, which we, of course, are working on to get that ratio, yes, more in balance with what we are aiming for. I think that's the big increase you see in the other line, next, I think, to the increase in personnel expenses, which was maybe more, let's say, a valid question for the efficiency we have now, putting a lot of indirect people in our system, which are not generating the revenues at the same time. So that's the situation we discussed mainly for the U. S. In itself. Joost van Beek. I'm sorry, As Hjofersom is the 1st fully automated production plant is now live. By the way, this is not the first fully automated production plant because we have many fully automated production plants. But probably it's mentioned that the meant is that Hilfstrom has now the new automated production plant for our new patented connection system for carbon steel, which is live, which is correct. So what is the experience so far? The experience is so far that after all the ramp up of this product line, took us 3 to 4 years to develop it, install the machinery, getting all the R and D and now shipping the goods is that we're shipping the goods now. We already have orders. 10 to 15 customers we already have in a very short time. So cost per unit, we are bringing down because when we have more volume and we have more let's say, when the production line is more and more running, you get lesser cost per unit. But in my experience, it takes you at least 1 to 2 years, and then you do it quick to really get it very, very efficient. Will there be further rollout of fully automated production? Yes, we are doing this continuously. So everywhere, when you can automate volumes or you can put robotics in, you do that. That's part of our operational excellence everywhere. And in the meantime, you put capacity, more innovation, long term innovation roadmaps for longer term and more sales. Hopefully, that is enough. This is a nice question for Mr. Jaeger. Well, that question is as well from Joost van Beek. That's a shift to electric vehicles. Will this mean fewer components to be produced or surface treated for Alberts? Yes, to a certain extent, yes, if you look at the current portfolio. On the other hand, if you look into the development of electronic vehicles, you find new parts and different functions, which need to be coated and treated. And this is one of our, let's say, analyzing factor at the moment to see in which direction it goes to and that we place our products in those new developed markets. And maybe to add something to this, we are also very active in pursuing additive manufacturing. We did mention it in our press release, but additive manufacturing in combination with heat of service treatment, you can redesign parts. So sometimes you lose parts due to this shift, but you also gain other parts by adding specialized manufacturing technologies in combination with the heater service treatment. So we think it also give a lot of opportunities. And now the companies also, yes? It's also developing new products for electric cars. We do produce cars in parts in electric vehicles. We do that in China. We do that also in France, and then we do that as well in Germany. While we think that China is the market for electric vehicles, which will be the fast one to grow where you really have serial productions. But this is a trend we are following kind of developing for us further. More questions? No more questions? Then I would like to thank everyone present in the room and joining our webcast. And we hope that things became more clear. Thank you very much.

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