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. We go through the financial review outlook. We hope, people in the room, you have a lot of questions, but also people joining the webcast. Our strategy, as we presented at the last three, four years, Aalberts Industries Linked strategy, focus our approach. I think we are further and further by doing that. Also we improve our defined market positions. That 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. Fourth pillar, use our group strengths. We started that more and more to work together in the group the last three, four years. I must really say that many good initiatives we see. We call it the Aalberts teamwork. 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. Also that we use our KPI tooling, which we have professionalized more and more, our incentive system, HR talent development, many topics where we can learn from each other in the group. It's an Aalberts family, Aalberts teamwork. Next. 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 nine niche technologies which we pursue. That means that the bonding of the different activities of Aalberts Industries are more and more focused. In these nine niche technologies, we want to achieve this worldwide leading position. In many cases, we have already achieved that. Again, by growing with innovations, organic growth, 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%. It is higher than 12, which was one of our objectives.
Our return on capital is still 14.5%, and the goal we had to achieve more than 16%. My colleague, Mr. Eijgendaal, 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 Aalberts way. This is the, we call it the DNA of Aalberts Industries, winning with people. It starts all with people, 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. Try to learn from your colleague or from your other company. You improve your own results and your own performance. Of course, act with integrity. These values we implemented more and more.
We mention them every time, it is one of our big strengths as an Aalberts group, the Aalberts 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. 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. Our end markets are still the same. You see that commercial buildings is our biggest end market, then residential buildings. Mainly in Europe, I must say.
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. You see we also changed the portfolio of our end markets to another mix. Coming to our operational revenue. Highlights of the first six 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. An organic revenue growth of 5%, I think, yeah, 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. The operating profit also 13% more to EUR 170 million.
EBIT margin, as I said, to 12.4%, improves from 11.8% to 12.4%. Net profit plus 12% with an earnings per share of EUR 1.06. Return on capital employed, we went from 14.0% to 14.5%. 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 six to eight months, and these need a lot of additional people. I only mentioned the press release we sent out beginning of the year of two 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, two big customers in the U.S., where we had to ramp up also stocks, the inventories, but also the people. We are changing also our structure commercially in the United States from a more trading concept to a more own manufacturing rep concept. We have to bring in these people, train them all. That means that the costs go before you have the results. We would not do this when we don't expect, of course, growth out of this. That's all investing in the future. I think that's very important to also notice that. Despite the improving profits and the growth, we also invested a lot in the company. Important to notice. That's also the reason why our working capital was something higher, which will my colleague, Mr. Eijgendaal, will explain that, how that is specified. Okay.
I give the word to my colleague, Mr. Jäger.
Thank you very much, Wim, for the intro. Also, I would like to welcome you here, the attendancy 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 two core technologies which we are following. That's the Aalberts Integrated Piping Systems, with the brands you see below, VSH, PY and Apollo.. I You also see the Aalberts plastic connection systems with Henco and LASCO.
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. This is what it's all about. It's a focus on those two technologies. What you can also see that we are focusing that on a global basis or at least in the markets we have presence. 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 EUR 72.7, which equals to a 17% increase. You also could see that that business segment has a very strong focus.
We invested EUR 22.9 million in the course of the first half year, that equals more or less to 41% of the total capital expenditures of Aalberts in H1 in this year. What is all the background in achieving all those numbers? Where does the growth comes from? Obviously, it comes from Europe, we all see that we have a lot of good markets. Also, it started already last year. You could see France and Spain, they're all developing significantly better than in the years of 2014 and 2015 and partly in the beginning of 2016. We have realized as Wim mentioned, where we all been as a team very proud of, we realized new key accounts, where we start delivering into. We widening our offer, which we have to existing accounts.
The ones who participated in the year's beginning presentation, where we have difficulties in the industrial market in 2016 in the U.S. This is starting to recover, so this all together 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. We have a new patent and connection system where we start to deliver our first shipments into the market. We mentioned 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. We start first shipments. We are very happy with that.
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 a rep system, of which we think with that commitment that we have a stronger force on the market compared to that somehow a bit disconnected system. That is visible in the strong development of the EBIT number, that those fruits which we have sowed we could harvest the benefit from that. 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 round the entire portfolio of products. That was all about the Integrated Piping Systems.
You come now to the Plastic Connection Systems. If you look where the growth has been generated there, that's mainly in the regions where we have present in Europe as well as in the U.S. There we developed and strengthened our product portfolio by additions to our product portfolio of the existing ones. There we have a clear innovation roadmap for the future to cover the markets we are into, which is Europe and North America at this stage. We move over to the next division, Industrial Services. There we have two core technologies. It is heat and surface treatment with the well-known brands of Hauck, AHT, and Preclon. We have specialized manufacturing with the companies Metalis and Ushers. You look in the markets, they haven't changed.
We still have a strong footprint into the automotive market with both of the divisions. We deliver into machine build, as well as in our Powergen and Aero, due to the nature of the activities we are doing into the general industry. You come now to the interesting part, the numbers which been realized in the first half of 2017, where we could say that we realized a good growth, a bit minder compared to the building installations division of 5%. We could strengthen our EBIT development by 10% to EUR 44.6, which equals to 13.1%. There, we continuously invested into the business with EUR 18.5 million in the course of the first half year of 2017.
If you give also there a bit of background, doing that also per technology, starting with heat and surface treatment, where the growth comes from. It obviously comes from Europe, and very strong has developed the German market as well as the Benelux market. North America had a good development and a good growth in the first six months. The markets which developed strongly are automotive, machine build, as well as aerospace. What was a bit minor strength, where we had more challenges is the power generation market, especially in North America. What are the activities to ensure the development of the future? We are running operational excellence programs. We do strategic customer developments, cross-technology to give a different appearance and a different footprint into the different markets.
What I am also very happy to report, we work 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 convert that entity into a business in 2018. The customers where we get the breakthrough, that one customer has already been started in 2014, working with them together. 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 Metalis. It is strong achievements in France as well as in China.
Where we had difficulties is with the power generation market that concerns Ushers, the turbine production, and we potentially have noticed that. That is on a pretty low basis, but fortunately, we could compensate part of the loss which we are facing with different activities. We widened the spec of products we are going to produce. This is something we are also working on in the course of 2017 and 2018 to have a broader portfolio of what we are doing. If you look a bit in the future of those two segments, I would say that we look for stability in H2. When we right now come to the third business division, I would be very happy to hand the word over to my colleague, Mr. Arno Monincx, and I would like to thank you very much.
Thank you, Oliver. Climate Control. Operational review, where we work with two 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. That is also how we have organized it right now. These are two separate groups, making their own market approach. Climate Control, as said, they develop, engineer, and manufacture a hydronic flow and emission system for heating, cooling, sanitary, and drinking water. 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. When we 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 EBITDA of EUR 29.8 million.
That is a percentage of 11.4%, which is an improvement of 1.2% versus last year H1. When we make a split in the two technologies, Hydronic Flow Control and thermal sanitary efficiency, we see that Hydronic Flow Control made a good growth in Europe and North America, but that Russia was still challenging, which is maybe not surprising to you. Because we continued to optimize and integrate our joint market approach and sales approach, we managed, of course, to improve the sales in the other areas. We are in discussion with several key accounts because that's the good thing of combining these activities in two 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.
For thermal and sanitary efficiency, that performed very well in mainly France, Spain, and Benelux. There we built with a team a very solid five-year growth plan also to really bring the focus into this business team and this five-year growth plan that is, of course, making the right approach to the market, but also bring the team to the right focus. In line with that, we also made an innovation roadmap for five years. They know exactly where they want to go and are also investing in that direction. That is also something we already started to execute. The focus will be on water treatment, thermal control solutions in combination with Plastic Connection Systems. The segment Industrial Controls, where we have three niche technologies. First, we have Fluid Control, which we sell under the brand names Broen and Ventrex.
Secondly, we have dispense technology, which is really operating as one group in one end market, beverage dispense. We have mechatronic technology, which is also operating as one group because they are also active in a joint end market. The end markets, basic energy, oil and gas, mainly covered by Broen, automotive and general industries, mainly covered by Ventrex. Dispense technology, of course, focused on beverage dispense and mechatronic technology, Semicon & Science, and general industries. Where you see that with dispense technology and mechatronic technology, this is really operating as one team where key account management is playing an important part in the commercial success of the company. The operational review or the financial performance. This business segment grew with 11% to over EUR 210 million, EUR 212.7.
EBITDA EUR 30.7 million, which is a growth of 6%, which is a little bit lower than last year. That is mainly due to the fact that we are really investing in engineering power and 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 just has a little lower profitability performance than the rest of the group. Of course, we are going to improve that. That is what we are working on. The split per technology Fluid Control. We still face difficult circumstances for district energy, oil and gas. That's logic. We also have quite some good developments.
Let's say we have a new patent, FullFlow Valve, a new technology, really innovative technology, where we have high expectations of and which will be launched to several customers in the next month. In automotive general industries end markets, we continue to perform well. We said we invest a lot in our innovation roadmaps, and that is what we mainly do with investing in engineers, in engineer capacity. Dispense started a bit slower first half year, which is a trend we see also in the market. A lot of projects were delayed, not canceled, but delayed. I think there is a lot happening in this market when you look at the big customers like Pepsi, Coke, AB InBev, Heineken, mergers, some companies are sold after a merge. A lot of people are just taking some more time with the projects.
We expect that just to continue. Vin Service 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. 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. Mechatronic technology made a good performance, very good organic growth. The semicon assignments and general industries markets were strong. They are investing in people, in capacity to facilitate also the project that we are working on for the near future. We expect that to develop positively in the next month. The extrusion activities for the machine build and aerospace market also continued on a high level. We come to the next slide about the acquisitions update.
Of the last 6 months, we closed Vin Service early 2017, a company specialized in the design and manufacturing of dispensing equipment for both beer and soft drinks, and a very nice add-on to our existing portfolio. There's hardly any overlap, I would say no overlap, really an addition to our portfolio. 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 develop complete systems from the source, from the keg until the dispense at the end of the system in all different variances. 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, Pneutec, engineering company specialized in vacuum, pneumatic, and electronic technology.
A very good addition for our group there for our Semicon & Science business, where they are a nice addition to the already existing companies in that technology. It brings additional vacuum, pneumatic, and electronic technology that we did not have. It gives extra engineering power, extra engineering capacity. 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. That is what we will pursue to do in the future. I think that was it from my side, I would like to give the word to my colleague, John Eijgendaal.
Thank you, Arno. Let's try to summarize some of the highlights on the financials. 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 one, 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. 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. 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 Shurjoint acquisition, which was not in the first half of last year, and the same goes for Vin Service, as Arno already explained. Just started from the 1st of January this year, Pneutec is out of scope for the first half year anyway. This year, a very small impact of FX is only EUR 4 million on revenue positive in this case. We had a large negative, if you remember last year, mainly to the British pound. That's still a negative, but compensated by a positive on US dollars and a small impact positively on EBITA of EUR 0.6 million. Looking at also at EBITA, EBITDA or EBITA both increased by about EUR 20 million, so 10% on EBITDA and 13% on EBITA.
Importantly, 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, 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. That's converted into the transaction loss, as you could say, which you can see here. 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. Precisely you get a negative gap, in this case of close to EUR 5 million, which you can see here. On the income tax, effective tax rate of 27%, just below the level of first half of last year.
However, we would expect that tax expense goes up in the second half year, are 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. The better the U.S. will do, the higher the tax rate, which in itself then will be a positive in itself. Let's see how that will develop. In itself, I think the 12% growth in net profit and earnings per share is a nice achievement. Maybe if the finance cost would have been a bit more in our favor, it would have been a little bit more. There's always something to complain about, and let's improve going forward. Look at our balance sheet.
The net debt, we already guided that we would lend around EUR 800 million at half year. Leverage ratio of 1.9. Last year, we were still at 2.1. Also here we are improving on a 12-month basis our leverage ratio. Net working capital, 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 EUR 40 million. 25 already is explained by acquisitions. Shurjoint and Vin Service, not in the numbers June last year, is about EUR 25 million on working capital.
There is only a EUR 15 million 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-for-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 million in the first half. That's also partly because of the acquisition of Vin Service was much more important. I will touch on that in the working capital statement in the cash flow on the inventories and the receivable side. The working capital as 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%. 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. You have 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 a slightly higher working capital level than we had before. 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. The return on capital.
Already we mentioned briefly the split between the two, which we have disclosed here. Normally we are managing the business on the return on capital, including goodwill. That has always been our definition. We see more and more investors, hopefully also watching today, asking us that question, is it with or without goodwill? Including the goodwill, our definition, we have seen an improvement from 14-14.5 in a like-for-like basis. If you would take out goodwill, which is about EUR 750 million at the end of June 2017, you see an improvement of 1% from 21%-22%. At least with this slide, you have both numbers available. You can already see that we are improving, let's say, quicker also because of the organic contribution of our EBITA.
We are aiming still for, let's say, the first one, including goodwill, to be above 16% 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 EUR 100 million negative swing, similar to last year. This year we are at EUR 126. You have also seen that already EUR 74 of that number comes from the inventories. Partly, of course, that's the inflation of raw materials because it's a like for like compared to the December number of 2016. 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 of the second half. There were a few elements in that respect. Of course, organic growth also normally takes a bit more working capital. In that respect, the EUR 126 will largely reverse in the second half, 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 Vin Service acquisition, the EUR 27 million is mainly linked to Vin Service and some earn-out payments we did in the first half 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 from our own credit facilities. 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 US dollars. That has been done. Therefore, you see a big number in the proceeds, also in the repayment, because that is partly being used to refinance. Our dividends, we've also paid EUR 64 million in May this year to our shareholders based on last year profits.
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. That leads to, let's say, the total net increase or decrease in this case of EUR 37 million. While looking at the various business segments, they have been already explained also by Oliver and Arno. Here you can see, I think important, the first half year 2016, those numbers were already adjusted when we did the comparison at full year 2016. I've seen some of the reports coming out earlier this week or even this morning, where still the old numbers of first half 2016 were mentioned. You get, of course, some funny comparisons, not for the total group as a whole, definitely between the segments in itself, and that is mainly related to building installations and climate control.
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. We see, of course, the revenue split by the various segments. CapEx, although it's slightly lower than last year, we still believe, as we have guided earlier this year, that we, at least for the full year, it will still be between EUR 110 million-EUR 120 million for the full year, especially to support our organic growth initiatives. If we look at the same structure, 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 startup losses of greenfields. The amount of EUR 7 million last year slightly increased to EUR 8 million for the first half of this year.
We had already some questions what would be the idea for the full year, 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 million for the full year. Somewhere in that range, maybe a bit higher or a bit lower could be the case for full year 2017. EBITA margins for each of the segments have been disclosed. I think all of them did very well and improving quite nicely their margins. I think Industrial Controls already explained by Arno, slightly lower than last year, there were a few reasons because that happened. 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. 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. 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. When you invest in the business, mainly it takes you on people and equipment, sometimes at least two to three years, to get the real benefits of it. We especially think that the initiatives we take also this year, we will also benefit from next year. Also we hope in the second half. Integration plans, I think of the acquired businesses, we are on track. I think in six months of the five acquisitions we did last year. I think we put a lot of attention on the first three, four months, and we have been really under control, aligned.
We are ready for other acquisitions, which we did immediately in the first weeks of July. It could be that we do one or two more. Let's see. You never know. We have a nice pipeline for add-ons. Let's see. Acquisition, it's done the moment you put your signature on, so they can happen a lot. We only do acquisitions where really we gain value creation with our own business because acquisitions can be very dangerous. You have to be really convinced that you create value for the shareholder. 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.
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. 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, you always have headwinds in these situations. 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. four years ago, we had 15.
That means we invested heavily, 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. We all had to invest that the last years and mainly in the last eight months. There was working capital, additional people you have to train. You need to have the lease agreements with the facilities. After that, we can optimize our trading commission structure, also our distribution structure. That happens from now on. Also here, this is sometimes hard work. Practice is sometimes difficult, 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.
FullFlow valve mentioned by Arno, also the very nice product, which mentioned by Oliver, is our PowerPress valve and fitting line, which we launched. It's a unique product, patented, we have launched it in June. We will see sales and what is nice to tell that we got the first orders already from this product. As always, there are also developments which are not positive, I also should mention them. That is the political environment, 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 low level, we have expectations of North America, it's mostly self-help. We see more order intake in the industrial installation market. Let's see if it continues. Overall, it doesn't look so bad.
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 or on a half year, that we have many opportunities for organic growth. 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 EUR 110 and EUR 120. That could be. Depends on the timing. 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. This is unique in the history of Aalberts Industries. We will organize our first Capital Markets Day.
I read in a few notes of the people in the room that they call it CMD. I don't want to go that far, but Capital Markets Day on the 6th of December, we want to tell you and also our shareholders, and also potential investors, a strategy update of our strategy, of course, and our objectives for the coming years. That will be a strategy update. We hope that people will come, and we want to also learn them something about our very nice products of the different niche technologies. 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.
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. I hope that we have a lot of questions, which we, of course, can answer. Thank you.
It's working now? Nice. Henk Veerman, Kempen & Co. I have some questions. 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 EBITDA. If I do my calculations, I sort of get to an organic EBITDA growth of 10%, 10%-11%. Is that the numbers to think of?
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. That organic growth percentage on EBITDA is slightly lower than, let's say, the 10% you mentioned. Don't underestimate the contribution of the acquisitions for the first six months of this year. That's a higher percentage than the revenue impact, which we have shown.
Okay. If I then calculate the incremental margin you're making on that organic sales growth, which is about 20%-25%, is that also the number to think of going forward when you grow your business further organically?
It heavily depends, of course, in which of the business segments that happens, because especially Oliver's segment has a very high operational leverage, as you know. Then the 20-25 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, yet that percentage may differ, of course, from year to year. 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 gain some momentum on the OpEx side, there is more to gain there to get a higher leverage out of the group as a whole. I think we are moving in the right direction, we do a lot of pre-investments. I think also Wim explained a few examples, which definitely will have some impact on the leverage, 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. 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.
Yeah.
I think ideally it would maybe above 30 or around 30. When you invest, and you know invest goes with waves, depends on the customer. I think we found a pretty good balance of investing and making profits and growing. That's always a balance you need.
Okay, that's clear. Maybe the next question for Oliver. I saw actually that in one of your last tables in the press release, with all the several subdivisions. I saw that the only one which saw a decline is machine build. 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?
You mean concerning machine build?
Yeah, machine build.
No.
Okay.
That relates to a divestment.
Okay.
Which was TT Gemiva, which they were mainly active in machine build, and they maybe had a little bit less in machine build than the year before.
Yeah
I don't know that exactly, but it was mainly affected by the divestments.
Okay, good volume still in the
Yeah, if you look at the volumes in principle in the diverse business, which is mainly Industrial Services, we have a good development in machine build.
Okay.
Could always be better, huh?
Yeah. My next question is on the 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 in which division is being spent?
I think what you see when you see this CapEx overview, you see 75% increase in Industrial C ontrol, which is mainly mechatronic technology, our Semicon & Science. The bigger projects we got, we gained at the beginning of the year. We also published that we would invest EUR seven million to EUR 8 million in these projects. A big part is already spent in the months which is ahead of us, of which we have done, let's say. The other part is when you look to the activities where Mr. Jaeger is responsible for. We had a reduction of CapEx, it's also a little bit a delay. I think a big part will come probably also in the second half. He will catch up a little bit in his total number. That's what we expect.
Therefore, we think the total year will be going to EUR 110 million-EUR 115 million. Although maybe a little bit more. Depends on timing also. That's roughly the total case.
Thank you.
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 110, 120, but I think next year it will really go up. Which is positive, in my opinion.
Maybe one point to add to that, because I think last year we had this big greenfield within the Industrial Services, which was linked to the Ushers acquisition, which was about a EUR 10 million investment last year. Which was mainly in the first half of last year. Last year, Industrial Services looks very high compared to where it's today. It was really, let's say, this one-off project of 2016, which is not there in 2017, just for the comparison.
Okay. My last question is, to you Wim, you just mentioned that the return on capital employed is directly related to CapEx, and that's what you're trying to boost.
Raise CapEx?
Sorry?
Raise returns, you mean?
Yeah.
Yeah.
Sorry, return on capital employed. I think previously you mentioned that it's always difficult to give a target when you spend CapEx. Maybe you can give a little bit more color on what exactly is then the hurdle when you spend all this expansion CapEx?
For me, what is the hurdle? What is the pay back on?
Yeah, the return on invested capital hurdle in doing additional CapEx.
The first thing is you have a strategy. The strategy we explained, and we have now focused the company more and more to eight or nine niche technologies. What you get, these are bigger clusters. You could say we have a company which is above EUR 2.5 billion with nine activities based in four business segments. By doing that, you also create additional business by key accounts or whatever. Based on that, you invest. You invest firstly in your strategy, which might seem a long-term thing, mid-term to long-term. When you have made that decision, 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?" Yeah. I always say the return should be as fast as possible.
When it is a return of four years, for example, for a greenfield, it can still be a good investment. Normally you try to get a return which is much quicker. Mostly, also the small investments can be very attractive. 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. That means our results should also, of course, increase when you invest. Otherwise you invest in the wrong things.
Okay, that's clear. Thank you.
Peter
Yeah.
Question on the margin improvement. The 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 the operational excellence projects?
John? Sorry.
I think about half will be covered by operational excellence if you look at the total improvement. The remaining definitely now comes from the organic growth leverage, which we are contributing now to the margin, of the 60 basis points in total.
Sometimes that's all. That's why I'm doubting a little bit, because sometimes it has also to do with each other. The moment you are more effective, you have a lower cost price, you gain more volume. It's very difficult to calculate exactly. I think what is really happening in Aalberts 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&D, and more sales power, key account power. You gain more volume. In the meantime, you automate your equipment, what you have. You have lesser locations. You come to your point.
You have more volume on a low cost price, then it is normally bingo. That is what we are doing already a few years. You optimize your operations internally, reduce locations. He did a very good job there in Industrial Services. You optimize that further and further and further. It is part of your culture. You take the money and you invest on the front side. That is what you see now. You see now that we invest a lot on the front side, and you grow. Having more volume on your equipment, which is automated, you have more profits. That is what we are doing everywhere. That is the whole story behind the strategy, which we called Linked.
You can still say that the 60 basis points improvement, 40, again, comes from the added value improvement, only
Yeah
20 you could say from the OpEx side, as we explained before. We have still some pre-investments on the OpEx side, which is, let us say, still may be depressing a little bit the leverage as we said.
Okay. That is helpful. Maybe for Oliver on the Industrial Services business. If I remember correctly, some of the sites in the U.S. of Impreglon were maybe not performing like you would like them to see to perform. Can you maybe give an update on the U.S. performance there?
This is improved in the course of last year and this year. This is better performing, that is comparable to the other business which we have. I also said in the presentation, we have challenges with the power generation market. This is partly compensated of what we are doing over there, mainly the Ushers business. The rest of the business is doing very well.
For a big part, it has been internal improvement, self-help, or is it mainly?
That is on both sides. When we're having self-help, what you said, and improving the organization and the sites itself, we invested in our commercial activities to be more present on the market.
Final question on Industrial Controls. That was the one segment where we saw margin decline. To what extent was Ventrex a factor to keep into consideration? From early discussions with John, I got the impression that Ventrex's this year might see some phasing. Some products having reached their end of life and some new products still having to start contributing. 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 Ventrex, like you say, have some products that are phasing out. That happened this year. Profitability still is very strong on the same level that, let's say, that was before. We expect that they will organically grow again because the other product lines will continue to develop well. We are working on new product lines. That is the innovation roadmap that we pursue with them.
They are at the moment, so in the first half, that they were still growing their business or?
Let's say in the first half, the top line is a little bit lower. The profitability is still at a good level.
Yeah. Okay.
That's what I said.
Okay. 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.
Is it already in the second half or maybe?
The reason for Industrial Controls totally is actually 3. Investments, what Arno says. In the Fluid Control area, we took in a lot of additional engineers to drive the innovation roadmap. A little bit change of the product portfolio, they phased out a product. Other products grew faster, that was a little bit effect in Ventrex. The big investment we did in Mechatronic. In the Semicon & Science, we took in a lot of additional people, which we had to train, before we can do the 2 big projects for a Dutch customer. The third thing is that we took over Vin Service, which had a lower margin than the group of Industrial Controls. Of course, you have revenue, low margin. These 3 things gave the effect that we went from 15.1% to 14.4%. Do we expect that it will go further down?
No, because we will improve Vin Service, as we did other businesses in the coming years. In Ventrex, we have running, 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. As we always said, the question was earlier, can you even improve 15%? We think it's a very interesting business.
Okay.
These 3 reasons are actually, that the only activity where we have actually stronger growth than the EBIT growth, that's Industrial Controls. That's the reason for that. Also, again, we are investing.
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.
Yeah, because it was discussed in one of the segments, but in the reporting it's in the holding.
Correct. It's part of the operational activities of Industrial Services. Let's say for reporting purposes, it's still included in the holding elimination line. As already Oliver explained, things are moving in the right direction. The sooner we can take it out there and move it to where it belongs, the better it will be, of course.
Okay, that's clear.
You know in this business you have a break even. The moment you pass the break even, it goes very quickly in the other direction. That 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, but that was a three-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.
Yeah. It went much faster than we thought.
Yeah. That what I have to say.
Yeah.
With that specific customer, yes. If you look at the entire project, no.
Mike.
Mike Rausch, Petercam. I have a question for Oliver and Arno, because Wim touched upon geopolitical uncertainty, but he forgot to mention Poland because the Polish government seems to be on collision course with the European Union. 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.
Is it-
No, we don't feel that at the moment that there's 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?
Yeah.
Okay. No, that's comforting.
You have to be very alert. That's the world where we live in. We had it more in the past. That's the strength we have. When something happens, immediately take a decision and act. That is part of our culture, and we should always be alert for these kind of things.
Okay.
Some things you don't have under control. Yeah, that's why we're here for.
Okay, I have two questions for John Eijgendaal. The first is on several, well, highlights in the presentation. Roadmap, innovation, patent, and technologies. That sounds like R&D. 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 on the Capital Markets Day. Patented products. We spent already the last few years the development costs on those products to be patented. There's, let's say, nothing on the balance sheet here. That's all expensed in the P&L. Of course, we are talking about several million EUR 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 Pelsma explained in June, July, we are supplying the first products into the market.
There's a ramp up of about three years before really production did start because the patents, the development, which is all done in-house, took a long time to be, let's say, as effective as it will be now to be launched in the market. 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. It's a big investment. We'll get the success out of it.
Okay. Say on a full year basis, R&D within the company as a whole, is it about EUR 5 million or EUR 10 million?
Well, I think the group average is around 3% on revenue. It might be slightly higher on this specific development, of course, we have other products and companies spending maybe a bit less of that. That's an increasing number. Maybe the 3% is a bit more the historical number, because we are definitely scaling up R&D, both in people and in activities to support the innovation roadmaps and organic growth. We're spending much more on R&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.
Yeah. That's correct. 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, don't park, let's say, your expense already on beforehand and let's say on the balance sheet or take it out of your profitability.
No, no, it's not about the balance sheet capitalization. It's about, I want to see what your margins are on the product you're selling today, which may actually be better than what you show us.
If you're ramping up R&D, then I know there's more to come in the future.
Yes.
It's just a suggestion.
Okay. Thank you.
The second one, perhaps also a suggestion. You took out the goodwill from the capital invested.
No, we did not do that.
No, no.
It was showing the difference between the two numbers. Yes.
You know why investors are looking at that?
Yeah.
Okay. 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. As you know, then you could take out EUR 1.1 billion, and then of course you get to even much higher percentages.
True
which may be looking nice, but we still believe we have invested goodwill as we have spent CapEx, working capital, whatever, on acquiring businesses. 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. Also taking out maybe the non-cash element out of goodwill or even intangibles.
Okay.
It could be a much higher number.
The thing is, if you grow organically, then your intangibles go up, your working capital goes up.
Correct
Your goodwill doesn't.
No
Your acquired intangibles don't go up either.
They reduce even because you amortize them.
True. That's why you should take them out both or not at all.
Okay.
This is again, a suggestion.
Yeah. Okay. Thank you.
Okay. Well.
Not sure whether everybody agrees, but I'll look into it, Michael. Thank you.
Okay. 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?
Yeah. I missed it in the press release. Maybe I overlooked it.
I think we are now at 16,000. Last Friday, 16,342.
Okay. Thank you.
Martijn van Beek, DRD. Could you update us on your divestment program?
Yeah. That divestment program we said last time in February, we said that we still have to go between 50 and 100, let's say roughly 70, 75. That's still the case. I think we digged in the last four months after end of February, more in the specific cases, and that's still the number. 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. Yeah, 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. When they have a combination of these three, then they are at number 1 or number 2 on the list. The coming years we will do that step by step. Yep.
It's not a big number anymore, huh?
No. On the other side of the spectrum, you mentioned bolt-on acquisitions.
Yes.
Your balance sheet also offers the opportunity to do a bit more than.
Yes
bolt on. Are you just really looking to fill the white spots technology and not the real sizable positions more?
For me and for us, it's not about big or small.
It's about are you able as a company, or as a team, or as a business, to create value? I agree, we could do bigger ones. When there's an opportunity, when we pursue a certain strategy and there's a bigger opportunity, it's not that we don't do that. We also have names of that. You have, of course, the price, et cetera. What our experience is when you can do an acquisition, ideal between EUR 40, EUR 50 and EUR 150, that would be ideal. Sometimes they are a little bit lower, 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 five. We are ready in six months to get them aligned. It's all about value creation.
You see what value we create also after the first six months of this year. When you do a very big acquisition, there's also a risk, that's why I don't like them so much. I don't say we don't do them, is that you sometimes buy an island in your company, that's not easy to integrate. Mostly, it stays apart you don't realize the synergies. Creating the synergies up front, 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 in maximum seven to eight years, is for us, golden rules. When it's not in that league, don't do it.
The integration plan should be executed by a board member. He's responsible, we execute it very quick. That's what we learned all these years, we pursued even more last years. It's not about big or small, it's about creating value. Spending money is easy. We can go to the bank, low interest rate, let's spend it, we leave the company after two, three 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 organize a CMD. Should we expect a revision of your financial targets?
Yes. You can expect that. It will be done. Your colleague asked something.
Yeah. Thijs wants to know, [Angie], upward or downward, but I think that's clear.
That's the question, of course.
Yeah.
6th of December, Thijs.
Yeah.
Yeah. I got a follow-up question on Martijn's question. The strategy on the eight to nine technologies. For us, it's very difficult to see really in detail how these markets look like. You answered the question on return on invested capital decisions, investment decisions, but is there any kind of different market structure in these eight or nine technologies that might allow you to do a bigger acquisition and maybe
Oh, yeah.
Yeah?
Yeah. I said already in the answer of your colleague that we have some names which are bigger. What I see in the market at this moment, with the moment you have bigger targets, you have very high multiples. Of course, we look to that. Then you pay too much. It's quite simple. When you pay too much, then you don't earn it back in a certain time period. You earn it back in 10 or 15 or 20 years. I can't oversee that. That's our principle. It's not about spending money, it's getting the return. 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.
It's not we start with big then we're going to look for something. No, it starts with strategy. It starts with creating value, then you look to the opportunities you have. I think Arno with his team is What we like is a pipeline, a list which we build ourselves. We create the relationships, we have many things going on. When the time is right on the right price, we attack, sometimes it can be more, sometimes it can be less. Our goal is to get a return on capital which we invest, that you should never forget.
Yeah. No, that message is clear. Your M&A strategy is quite famous. Everybody agrees on that. There have been examples in which you purchased-
Oh, yeah. Of course
certain technologies in which the end market-
Yeah
dried up a year later. I think most investors are fine with it.
Which has dried up a year later.
There are examples in which the acquisition didn't perform because of the market. That's not your fault. If you want to have that technology, you still have to make that decision.
Yeah.
I think investors also agree with that. I mean.
When the market is drying up, probably you made a wrong research before.
It can only be temporary.
Yeah. temporary.
Yeah. Okay. Temporary.
a bigger macro picture, that's not really a problem.
No.
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?
Yes. We have now identified one technology which we don't have at the moment, which we present also end of the year. We think we should try to create a position because it's a real growth trend, for example. As always, what we said earlier, heat and surface treatment North America is, for us, an attention point. Another attention point is when we can pursue our activities, Semicon & Science, which we did again. Yeah. Pneutec, a very nice company. Yeah. It's a great company, but when it would have been bigger, it would also be nice. It's how it is. We know exactly what we want to strengthen our position. That is, and that can be that we have also a bigger opportunity, which we want to pursue. Could be.
Okay. 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 yeah, 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. We mentioned two projects with a bigger customer in Holland, which is ASML, which will give us tens of millions of additional revenue.
In the building installations
Building installations, we made a deal with a German customer. It could end up to EUR 20 million, over years. We made a deal in America with a customer. Tens of millions EUR additional. We have many things in the pipeline.
On multiple products
Yeah
on a whole product range.
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. 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. Yeah. 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, you become very strong. You also use your brand name more as Aalberts, which we will do. It's a combination of many things.
We discuss many possibilities at the moment. Hydronic Flow Control is the same. Yeah? 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. When you have then a key account and you offer that like that, you can even make long-term agreements. Next step is you do the service. Connectivity. You're going to measure what is their energy use. Many innovations are going on there, but actually we just started there.
You're always replacing an older product of yourself. It's good that you're very innovative.
Of course not. 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 three, four functions in a new product, you save a lot of materials.
Yeah.
That is innovation.
listening to the story, it sounds like your growth should be 12% because you have now the market in favor. 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.
Yeah, of course. Yeah, we are.
And-
Products are sometimes phasing out. 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 Hydronic Flow Control. There are not so many people in Integrated Piping Systems. There are not so many people who have that portfolio. The big difference is we offer it in an integrated way and sometimes on a much higher level in the organizations of our customers. That's why we score these bigger projects.
Okay.
Yeah, 12%, yes, of course, you can mention what you want. Let's start with five 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%-1% comes from the copper price, the raw material effect.
Yeah, 0.5%-1%.
Yeah.
Yes.
The rest is then volume. I would say the general markets of ours are taking care of the volume, yeah? It is just a given. If you have these better products, you also, your pricing power should then increase.
Yeah. Correct.
Yeah, that is then I think a bit, still a bit missing or is that something that really will?
That's what we said
become visible in the next years?
The pricing was a difficult topic the last years, and we mentioned in February that we have now the opportunity to increase the pricing, which we do. We are able to do that, but before you get that visible in your numbers, it can take a little bit of time. We thought it was quarter two, quarter three. We now see it's quarter three, quarter four. We see a bigger effect. That's true.
Because in the old days, when you had the big flow control division, yeah, in the old reporting style.
Yeah
About 40%-50% was cost of goods sold with a lot of copper and plastics.
Yeah.
Your ability as a company to price on-
Yeah
Volatility was always relatively good.
Yeah.
Telling all-
Still is. We put the price increases through.
Yeah, to me it sounds like it has even gotten better, but I don't really see it, but maybe it's too early.
Yeah. That's what we said. We expect that it's in quarter three, quarter four, we see that more. That's exactly what we said.
Okay.
We are able to push them through. We have no doubt about that.
Okay, fair.
Even now, I was there in 2006. Copper was at EUR 2,000 a pound, and it went up to EUR 8,000.
Stable margins, I remember that as well.
No, I personally increased the prices six times in that year. That was a different time. Now it's not EUR 2,000.
Okay.
You go up 5% or 10% with copper, of course you increase. That time it went up, I think 300%, 400%, or 500%.
Yeah.
I think a 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.
Right.
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. I think also something to bear in mind if you look at the operational leverage.
It says a lot about a strong position. We had 58.6% 3-4 years ago, added value, now 63%. A big part is going back in the organization, is what I said. You only become stronger management teams, stronger R&D, stronger sales teams. It takes time. You see now, you see the growth coming.
Yeah.
What will be the second half?
Maybe not the 12%.
What will be next year, I don't know. You're managing the company, you drive it every day. We would not invest in people or CapEx or 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. When you combine that with additions in your portfolio, be very careful with that, by the way. You have an optimum mix. Big and spending money is not our goal. Of course, when we need to do it, we do it. It's about the returns you make. We want to higher margins. We always said that. Higher organic growth, higher margins. In December the margins will not go down, you knew that already.
I think we have Jaap on the question.
Yeah. This is Jaap.
[Inaudible].
Lucerne Capital. One follow-up because indeed we're seeing a very big sort of step-up in growth to the 5% organic growth. If we think about that number from your perspective, what part of that growth is 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. I think the market is, also take America into account. We are not very strongly in America in the residential market. We are mostly in commercial there and industrial. America looked like quarter four very good, and then it softened. I think we did not so bad the first half. Second half will be better in America, what we expect. America was not a high growth rate. I think in general that the market does maybe in all activities where we are in maybe 3%, and the rest is self-help.
That means if I compare that number to last year, that actually the self-help and the initiatives are really accelerating now.
Yeah
compared to the last few years.
Yeah.
All right.
Where the bigger key accounts we are ramping up, so the effects of the bigger key accounts, which you mentioned, which we scored, we are not even very much visible. The bigger customer we mentioned in America, we started shipping in end of June.
Great. If I then also look at the P&L, because clearly there's a lot of cost in the P&L for growth as I guess we talked about. 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 EBITDA line, on the cost line?
Added value is pricing. I think it's, and it's also a mix of your portfolio where we get rid of low performing or low finance product lines, and we still are divesting, so we continue with that. That will improve your added value. Pricing will improve your added value. 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 price again. 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 four years. 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.
Indeed, because some of these bigger accounts, would those be then accretive to the added value margin or some of the new products?
Could be.
That should still sort of come through going forward.
Could be, 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. You try to gain it back. It could be both, what I said.
Perhaps one last question, actually, on the cost base, because sort of in previous years, we talked a lot about the operational excellence.
Yeah, still.
The reduction of the cost base. Is that still sort of continuing for the next couple of years?
Yeah. 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. Pricing excellence is actually a very hot topic all the time. We did a lot now in climate control. We're going to start the next year in building installations, continuous optimizing your pricing, but pricing excellence. It's also a culture. We are not finished. We never will be finished with that.
Sort of related to that, because then it really seems that the investments for growth, the magnitude is actually very, very big in the first half. Are you willing to share any thoughts on that, how big that the investment has been?
I think we said in February, we can say it again now. We said in February that the structure of the distribution centers in America costed us roughly $3 million-$4 million. I think in the first six 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 12-15 weeks with no revenue. To build up a distribution structure, you have to get the warehouse people. 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, you get the efficiency in the model.
What is very promising, that's why I'm happy about, you see our sales of everywhere where we are our own 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. 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. Of course, you should control it. It's always you want to go quicker, the same as the greenfield in China.
Dirk Verbiest, 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? Where do you see further room, let's say, for recovery or sustaining a certain growth level? Are you more optimistic for the next six to 12 months on North America or Europe? That's my first question on growth potential there. Second question I have on the remarks on oil and gas in 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 2017? That's oil and gas. Maybe an update on where you are in the improvement processes on margin terms in Impreglon and Flamco. We've seen quite good developments in both efficiency, industrial services, and climate control in terms of margins year-over-year. To what extent was that also helped by margin improvements in those two companies? Thanks.
Maybe I take the first question, then Arno takes the second, and Oliver, 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 got a very nice growth because we also invested last year in matching 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 two, recovery of margins, oil and gas, 2017 or 2018.
Let's say oil and gas remains challenging, of course. 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. Let's say we don't see a strong improvement yet, but we are also not so big there, the impact is not so big.
More generally, the client discussions, are they more talking about pushing back orders back further into the future?
Let's say, yes. We see also when you visit exhibitions, you see an improved atmosphere. People are more optimistic. I can also say that it's still very vulnerable, and it's still also much depending, I would say, from political situations. What can you say about it?
We think it's more 2018 than 2017.
Yeah.
I take that over. Just one comment also to the oil and gas. Let's say in the Industrial Services division, we have some influence in oil and gas. You see the people looking for more orders. We have closed down one of the sites where we offered that in Houston. We run those activities more from the north and take some logistics into account. You could see that people looking for more, that's not a super trend where you can say, "Well, tomorrow, everybody's back in business." That takes longer. Even oil prices are today not very high, even if they have improved. Your question, I would say the third one was related to the margin improvement. Mind you still have recognized that the margin of both of the companies, Flamco as well as Impreglon, were on a one-digit level around 7%.
Both of the companies been in two-digit numbers. Flamco was a bit faster on that. They realized that after a good one and a half years to be on that track and Impreglon scratched in the end of 2016 on being close to that. Right now we are solid above that.
Solidly above that. Did I?
Yeah. We are above that. Yeah.
Okay. Thanks.
We set that time when we did the acquisition that we would increase the EBIT percentage in four to five years with 5%. Impreglon had roughly 6.87%. That mean we should have 12. Now, where are we now?
Yeah, close to 11.
Close to 11. We will reach that. Flamco, we said the same, a little bit better. Good acquisitions, 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 that was, of course, a brief statement maybe. The split up in working capital were inventories, receivables, payables. Inventories we analyzed the increase of EUR 74 million, which is partly related to the inflation of the raw material prices. 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 EUR 20 million 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 one of the key accounts in that respect. I think that's the main explanation of EUR 74 million, 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 second quarter, which was not a bad quarter in itself. That ramps up receivables in itself.
I think also on the day sales outstanding, which we are measuring, we are well on track to achieve our goals there. As you can see from the working capital statement, we used our suppliers for around EUR 40 million in the first half year to finance the increase in working capital. That makes up, let's say, the total of EUR 126 increase in the first half. That's maybe just to elaborate on that more in detail. Maybe.
We have another question.
Yeah. Well, we can do
No, before.
Whatever we take, we can do the
Yes. No?
Yeah. Of course, we have the other operating expenses, the increase which you see there. That's, of course, the like-for-like compared to the first half of 2016. It does now include the acquisitions of Shurjoint and Vin Service, which were not in. 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&D, which is partly people, which you see in personnel expenses, but also partly in supporting R&D in itself, and getting, let's say, more on the general expenses side. Relatively, a slightly higher % of revenues, which we of course, are working on to get that ratio 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. That's the situation we discussed, mainly for the U.S. in itself. Jos van Beek. Sorry. As Hilversum is the first 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. What probably is meant is that Hilversum has now the new automated production plant for our new patented connection system for carbon steel, which is live. This is correct. What is the experience so far? The experience is so far that after all the ramp-up of this product line, which took us three to four years to develop it, install the machinery, getting all the R&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.
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. In my experience, it takes you at least 1 to 2 years, and then you do it quick to really get it very efficient. Will there be a further rollout of fully automated production? Yes, we are doing this continuously. Everywhere when you can automate volumes or you can put robotics in, you do that. That's part of our operational excellence everywhere. In the meantime, you put capacity and more innovation, long-term innovation roadmaps for longer term and more sales. Hopefully that is enough. This is a nice question for Mr. Jäger.
That question is as well from Jos van Beek. That shift to electric vehicles, will this mean fewer components to be produced or surface treated for Aalberts? To a certain extent, yes. On the other hand, if you look into the development of electric vehicles, you find new parts and in different functions which need to be coated and treated. 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.
Maybe to add something to this, we are also very active in pursuing additive manufacturing. We didn't mention it in our press release, but additive manufacturing in combination with heat or surface treatment, you can redesign parts. Sometimes you lose parts due to this shift, but you also gain other parts by adding specialized manufacturing technologies in combination with the heat or surface treatment. We think it also give a lot of opportunities. In other companies also. Yes.
We are also developing new products for electric cars.
That's the controls.
We do produce cars in parts in electric vehicles, and we do that in China, we do that also in France, and 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. This is a trend we are following and developing for us further.
More questions? No more questions?
Then
I would like to thank everyone present in the room and joining our webcast. We hope that things became more clear. Thank you very much