Our first Capital Markets Day of Aalberts Industries. Welcome again. The agenda for today is that we present our strategy update and our objectives, that we hope that there are also a lot of questions, and we can all answer them. We have, this afternoon, an innovation experience for the people who will join that after lunch. Our agenda for today, we will present that with the four of us, is that we go through, let's say, the progress we made in our previous strategy, which we made, our Linked Strategy. We will then discuss in parts the strategy for the coming five years, the update, which is called Focused Acceleration. I think also the name is already telling something about what is our aim to achieve for the coming five years.
The next slide is that in 2014, we launched at that time our Linked Strategy. It was during that period of 2013, 2014 that we made up our mind, and we said we should link the group more together. That was actually the idea and also of the name of Linked Strategy. We defined that time four pillars of the strategy. The first was focus our approach, the second was improve defined market positions, improve profitability continuously, and use more the group's strengths, which we already did, but we wanted to intensify that. We also defined certain things we want to accomplish. I think it's always good to look back what you achieved in that period. It's roughly a three and a half to four-year period.
We achieved in the leading of niche position where we tried to, let's say, focus our portfolio much more. We also started the divestments to optimize our portfolio. We looked for certain niche technologies where we could gain a certain uniqueness and also where we could achieve a market position where we could play a leading role in the world. Very important is that we look to all these businesses and we also analyze them, and we made choices. We think we are 95% ready with this process. I must immediately say that you are never ready because the market can change, and you immediately adapt so that you continuously optimize our portfolio. I think with the things we thought four years ago, we are 95% ahead with what we achieved. 5% not.
There is still a small part where we say, "Hey, maybe we should divest that. Maybe we should optimize that further." Of course, optimizing you always do, but maybe we should also close some activities. It's a very small percentage left. It's roughly EUR 40 million-EUR 50 million of revenue where we think, "Hey, that we should improve or adapt or maybe still divest." The niche technologies which we created, we think we are now 60% of where we want to be. That means they are in the right direction, but we still can gain a lot of position. Of course, we can do bolt-on acquisitions, long-term innovation roadmaps, and maybe even the 60% is on the high side. A lot to gain, especially the market position in these niche technologies. Operational excellence, 50%.
Maybe some of you would say to me, "Hey, how is that possible?" In these 4 years, you said already we have decided a lot. Even sometimes I said 90%-100%, and you executed 30%-40%. It's only 50%. It's actually a simple explanation. When you dig in more in detail in, let's say, the new focused approach we have, you sometimes see that you can do more than you originally thought. We expand the program continuously. There is still 50%, in our opinion, which we still can achieve. We are only halfway. Exchange best practices in the group, very important. How more you look into that, how more you see that process in many applications have the same challenges.
That means when you want to offer a system offering, and we come to that today, it's more almost in every application or every market we offer that you have the same challenges. That means the solution is different, but the process is, in many cases, the same. We can learn that from each other. We are 40% on that route. Where we are now, it's on, let's say, the next slide. You can see we have been transformed to a focused technology leader, strongly positioned for accelerated growth. That's important. We have really chosen. In the end, nine technologies we have chosen, which we can pursue now and really push forward and create a better position in the worldwide market, but also gain more share, but also gain more growth, and also gain more margin, in our opinion.
Still a lot to improve in operations and exchanging best practices. There we stand now. In the meantime, what we also did, and this very important next topics, and you see that here next to, let's say, the slides here is the Aalberts way, winning with people. We introduced two years ago our values, and I can't tell not enough to the organization or to the outside world how important this is. This is the most important, winning with people. That means be an entrepreneur, which is in our roots. Take ownership, the same. Go for excellence. It means really that you go to the best. When you think your factory is efficient, then you should tell yourself it's never efficient enough. For example, we launch now an initiative for our factories. We call it 2.0. That means that you really look to your factories from scratch.
How many people you need then? How you can automate? Do you really have to make this, or can you buy this better? Really automate, not be satisfied with 10 people on the line, nor be satisfied with two. Challenge yourself. This is a very important thing. The bar must be very high. Share and learn. Very important. I already said that. Processes are in many cases the same. When we talk about key account management, of course, talking to a big beer customer, I don't want to mention names, or a big building construction is a different market, but the processes and the tools you can use are very often for 90% the same. We can learn how we do that. That's what you already saw last 12 months.
We scored five very big key accounts. Actually, it's every time the same how we come to this win. It's what I see. When we can learn that from each other, how you do that, you win more. Share and learn, very important. Of course, leading by example. Speak up procedures. We put a lot of attention to governance, act with integrity. In the end, it's all about people. The next phase, 2018-2022. Focused Acceleration. As you see, we stick to our pillars. We have to remain focused. It's not that we want to get broader. We must get deeper in the markets. We must get better, not broader. We selected the niche technologies and the markets where we want to be in, and these we want to pursue, mainly by accelerating and improving our technology positions.
Not the market position, but the technology positions. That means you have a combination of a niche technology in the market. You link that to your customer group. We made these combinations. There we want to be leading in the world. What it also means, when you change your structure, what we did, based on these niche technologies, that you also get a worldwide approach and also get more worldwide possibilities, like in Asia or more in America, or even more in the Middle East, because you drive the technologies worldwide with a worldwide business team. We will explain that more. Accelerate organic growth, increase game-changing innovations, executing our long-term innovation roadmaps. Long-term means long-term. In innovation, what you will see, some of you this afternoon in that factory, took us four years. Four years before we had $1 revenue. You innovate also for the future.
It takes time. The third pillar, I can't say how important it is, improve continuously your profitability. It will never stop. Relentlessly continue and expand the operational excellence program. You have to be very focused on that because in the end, profitability is efficiency, is make or buy, is better purchasing, is a better supply chain, and therefore, you need attention. We will also explain later how we do that with our Aalberts networks. We have found a very, let's say, very efficient way to share information on a very lean way also. Still, with only 22 people in our head office. Using the Aalberts strength. It's not saying using group strength. The change is using Aalberts strength. That means also the name. That means also together winning with people the Aalberts way.
It means also that you exchange best practices quicker, and it means it will be a change to the future that the Aalberts brand and global footprint we will use much more intensively. The investment power we have, the projects we achieved, let's say, in the first months of this year with a big key account customer, ASML, which was really a big fight and a big win. We got also mainly due to the Aalberts appearance, the Aalberts name, and the investment power. We were able to immediately say we're going to invest $7 million in our facilities. We did it. We did it this year. Acquisition expertise and talented people. What we will do as a team, we will explain all part of these four.
The coming five years will be accelerating what we have created on a very focused and disciplined way with more organic growth and bolt-on acquisitions. A very prosperous future I want to give the word to my colleague, Oliver Jäger.
Thank you very much, Wim. I also would like to welcome the people here in the room, as well as the people on the webcast. Remain focused. Bullet point number 1 we mentioned. We remain focused on core business and technologies. Just to mention the four, which we already have, which you know, especially the people who followed us quite some time: Installation Technology, Material Technology, Climate Technology, as well as Industrial Technology. We sharpened our names as the ones you know the pillars from before, to give them a good definition to underline the technology-driven basis of Aalberts Industries. We offer mission-critical technologies, products, and services to our customers' products. If we now get into the details of each of the segments, happy to start with Installation Technology, which consists on two sub-technologies: Integrated Piping System and Plastic Connection Systems.
It goes about distribution control of water and gas, end use, heating, cooling, and media supplies in buildings. Consequently, to those technologies, the end markets we are looking for, we are attracting with our products are commercial and residential buildings, industrial applications, and obviously water and gas supply. The distribution channel for those products goes mainly via wholesalers. If we come now to the second business we are running in Aalberts Industries is Material Technology. Also there we run two head technologies, is Heat and Surface Treatment, as well as Specialised Manufacturing. We offering advanced technology combinations by using our worldwide portfolio of products and our global footprint. The end markets of that business are automotive industry, the general industry, machine build, aerospace and power gen. That business and services and products that find its way to the market as a B2B business approach.
If we come now to business number 3, Climate Control. Also there we run two technologies. It's Hydronic Flow Control, Thermal and Sanitary Efficiency. We offer complete solutions, partly tailor-made for heating, cooling, and drinking water. Consequently to those products, the end markets are commercial and residential buildings. The way to the market, those business found either via wholesalers or as project business where we do have tailor-made solutions. Coming now to business number 4, Industrial Technologies. We run three technologies. We have Fluid Control, Dispense Technology, and Advanced Mechatronics. Those products are engineered and partly custom-made solutions. It goes for specific niche applications to regulate, control fluid medias, sometimes in severe and very critical conditions. The end markets we are looking for is district energy and gas. You may have recognized that we have a bit less focus on oil, for good reasons.
We are focusing on the automotive industry, beverage, semiconductor science, and the general industry. Due to the nature of that business and their technologies, the way to the market goes directly to the customer as a B2B business. If one would see where we stand at the moment, we have to improve our technology positions within the Link Strategy. We have defined the technologies we are looking for. We have nine head technologies with 15 business teams. When you look at the regions and the end markets, you could still say that it's not very homogeneous, and this is one of the actions we are going to take and develop for the future to have a bit more balance in regions and a bit more balance in our end markets. How we could achieve those targets?
We have a focused sales organization and our global footprint, our key account structure, which brings things together and develop further markets. We invest in capacity, as Wim already pointed out, either organically or we can do that with bolt-on acquisitions. More details of how we would like to do that, Arno Monincx, my colleague, will guide you through that, and I may ask him to come on stage. He'll do that by himself?
Yeah.
Okay.
Thank you, Oliver
As Oliver already mentioned, and also Wim, we have at this moment nine technology where we focus on, and we do that for 11 end markets. We do that with 15 business teams, 15 focused business teams. With all these business teams, we defined five-year strategic growth plans. They are all very focused. In these growth plans, main part of that, of course, is also the direction with innovation. They all prepared their innovation roadmap for the next five years. With all these internal plans, of course, growth plans, organic growth plans, we are also looking always to bolt on acquisitions to support this organic growth. That remains very important.
Besides this, let's say, internal growth attention for external growth, for organic growth, we also keep on focused on operational excellence and to improve, keep on improving our operation internally and to improve our profitability. We keep on focused on pricing excellence. Very important to keep on pricing all the cost increase to the marketplace. We keep on focused on make or buy decisions. We keep on focused on manufacturing automation, SKU rationalization to optimize the portfolio, master data management, consolidation of locations, supply chain consolidation. It's never finished. We are here only for 50%, maybe, but it's never finished. We keep on improving it, but it's never finished. It's the relentless pursuit of excellence. Besides these internal trends where we focus on, there are also some big market trends which we would like to stipulate. Sorry.
We have climate control, very important, and electrification of cars is important topic of that. Let's say district energy saving. We are one of the market leaders in district energy. In China, we take big progress with that. Urbanization trend, more houses with more comfort. It's a very important market trend. Raw material scarcity, where we have additive manufacturing as one of the focus technology for the future. Let's say with additive manufacturing, we can also optimize portfolio because we need less slow movers. The slow movers, we can produce with additive manufacturing. Internet of Things. We have 12 billion connected devices at this moment in the world. That will grow to 50 billion in the next three years, is the general thinking. There's a lot of OEMs who are playing in that, and we are in the heart of that in the OEM semicon equipment production.
The globalization co-development, a very important market trend. Our big customers want to work with strong partners who can engineer products, part of their product for them as a co-engineering partner. Let's say it's not only a standard product what we produce. We supply complete solutions, and we are also in the heart of the engineering of that. With Dispense, that's an important, let's say, example where it was in the past maybe only a standard product what we supply, but now we make complete solutions, complete systems for beer and soft drink. When you see all these market dynamics and all these trends with our technologies, we are in the heart of it. It's fantastic to see how all our combinations of technologies are also supported on top of our organic growth plans and on top of our operational excellence projects, supported by market trends.
We are around this everywhere. I don't know if you can read it, but let's say water saving quality around raw material scarcity, climate change with floor heating, irrigation. There's a lot of dynamic, and our open culture helps us to exchange fresh thinking and embrace these new technologies. It keeps us ahead of the game. No matter how frequently or significantly the game is disrupted, we are in the heart of it. It's very important. With these focused business teams, 15 teams with nine technologies for 11 end markets, very focused with their growth plans, their organic growth plans, including innovation roadmaps, also supported by the market trends where we are in the heart of it with all these activities. That will give additional organic growth with John.
Would like to explain also a little bit more about it, how to use the Aalberts strength to utilize all these opportunities in the marketplace.
Thank you, Arno, for leading this slide, which we joined together as we try to share and learn as we presented already. I think very important that the Aalberts strength. You can, of course, easily say that we have strengths which we can use as a group, but what are exactly the strengths of Aalberts Industries? Well, I think next to the track records as we are, let's say, allowed to say, as of today, looking into the future of the next years. I think also the Aalberts way, already explained by Wim and with all our values, winning with people, and that's very important.
I think also the brand, so the Aalberts brand, I'll come back to that later on, will be more prominent going forward in our strategy to make sure that we are all recognized as Aalberts and also being known as Aalberts will attract our employees and the key customers also going forward. I think important also our integrated system offering, and that we really join forces, that we combine products and systems to really attract our customers.
Having, let's say, the global footprint, key account management has been mentioned already a few times, also combining the efforts, whether it's geography that we have, let's say, locations to support our customers globally or that we have a certain technology which we can expand throughout the group and also learn from other locations and technologies which we have available or which we may acquire via bolt-on acquisitions to become even a stronger player in our market. That's very crucial for the future. I think our strong balance sheet gives us the opportunity to use our investment power. We see more and more that our global key accounts are looking for a strong, let's say, partner.
Financially strong, so a strong balance sheet, healthy cash flows and investment power to really attract the right people, but also to put in new technologies, new equipment and as automated as possible where we can. I think also the lean and effective organizational structure, I have another slide on that later on, also gives us the ability to be very flexible and be very short to the point, take quick decisions, whether it's on investments or hiring new people or expanding to other regions in the world. I think that's definitely where we are known for, that we have this flexibility to decide quicker and quicker. We also use our networks within the group, that will be another slide as well, where we really join forces, where we share and learn together to also speed up the cooperation within the group.
Also that will support, let's say, the healthy future we see as the Focused Acceleration, as we have mentioned before. It all comes together, as you can see on this side, the relentless pursuit of excellence. That's really getting better every day and we want to be the best in what we are doing, and we need the best people to achieve that. If you now look at, let's say, what we call the company passport, where we really get, let's say, nailing the Aalberts brand essence. Something which we got a lot of questions, whether we'd use the name of Aalberts or Aalberts Industries or any other brand name into our future strategy. I think what we have definitely decided, and you will see more of that next year. The rollout is planned for 2018.
What we can definitely say that we combine here, let's say the mission-critical people, because that definitely makes the difference with the technologies, the 9 technologies we explained before, but also the leading positions in our markets. That combination is very important. The track record, the investment power, the trust which we try to give to our stakeholders worldwide to make sure that they would like to choose us as their partner or even employees who would like to work for us as a group. Also, I think the culture to always try to improve as much as we can. I think that is definitely what we are known for and what we like to continue going forward. Even what we say here, learning from our failures.
Where we did things wrong in the past or where we could have done things better or different, learn from that and make it even better going forward. Well, back to the brand, what we call the creative articulation. Our brand will be more dominant going forward. We have said already here that every detail is important. We like to be an excellent, let's say, producer of the products and system which we have explained before. We need the best people to realize that. In that combination, and what we also have said in our logo already, you see it, the color red, what we say, owning the red, that will be very important going forward.
That color combined with Aalberts as a name is the company passport going forward, and the brand will be lived by our people and will be recognized worldwide, and that's what we will definitely work on going forward, and that will be presented into 2018. Back to the lean and effective organization structure. I think we can start with a small, the leadership team, as we call it, the Aalberts leadership team. I think already mentioned by Wim that we have only 22 people in our head office, so that's still a small head office, although it doubled in the last three to four years. Mr. Aalberts is now looking at me and says, "How could you have done it since I left, you doubled the head office?" We did, and I think for very good reasons.
I think therefore we are here today to present you the next five years. Not sure whether we could have done that without expanding, but I think in the right directions we have done that. The leadership team is more or less linked to all those nine core technologies which we have explained. The niche technologies, the nine we show here, they are managed by in total the 15 business management teams. Each technology has either one or several business management teams in their markets to support the group and the strategy, and they work together where they can, either within the technology or even between technologies, and also that is being stimulated more and more. The way we try to do that is, of course, also linking the leadership teams to the leadership networks.
For each discipline, we have created a network where people will meet maybe once or twice a year live in person, but the rest of the year, they may have either in conference calls or Skype or via other media. They have contact with each other to really strengthen, you could say, the fundament of our group. If we start on the top, digital is, of course, a crucial element. How can we digitalize in the world we are in and work together there? On governance, having people available on the floor to make sure that we are compliant on the governance and the compliance side as much as we can. That's partly legally driven, but also it's part of the culture going forward. HR development, attracting and retaining our talents.
They like to work for us, but also keep them working for you, maybe change their jobs every other year, go internationally. That's definitely what we try to achieve also in the future. We have to select those talents and make sure they are being kept happy and motivated to work for the challenges which we are all working for. Operational excellence, I think, mentioned already extensively. Also there we have a network of people joining forces and learning from each other. Of course, finance and IT, not only because I'm heavily involved in that. I think also here we have upgraded the finance teams. We have CFOs on each of the business teams. Also on IT, we have seen that bringing people and companies together, also systems need to be standardized and harmonized. That's, of course, where we are in the middle of.
We try to do that as balanced as we can because we know how disruptive IT systems can be for the operations. We try to do that in the best way we can, but that definitely will be also on our agenda the next years to come and definitely spend more on IT as well the next years to support our business because that's the real motivator for that. While marketing, not only because of the brand, the company passport, but also in the marketing side, website, annual report, we like to present ourselves as a group more and more to see that we have capabilities which are much broader than maybe known to the outside world. While key account management, very important.
Pricing excellence, being smart with your pricing in the market, make sure you use your niche technology positions in the markets to get the best possible price, and make sure you have excellent service to your customers. Innovation, Arno showed already the innovation roadmaps which are available now for the 15 business teams. Also, that is a very important part of the strategy going forward. Innovate ourselves out of the world we are in, get the competition running behind us instead of the other way around, and make sure that we are, let's say, in the lead of many of those innovations and a few of those you will see this afternoon. Well, the objectives, maybe this is the slide you were all waiting for, and the right part is empty. Sorry, Thijs, but there's nothing in. Yeah.
You thought, let's see what they have put in there's nothing in. I think if techniques is working, Thijs, I will show you there is definitely more behind this slide. On the slide itself is known. If you start with the worldwide leading niche technology positions, that's what we really are aiming for. The global footprint being, let's say, better positioned in the market. We are still using the strong brand names of the many companies we have in our group. You may see only a few of them in the presentation before, but of course, we have much more local brands which will merge more and more into lesser brands also to recognize ourselves better in the market.
While creating the sustainable, profitable growth, I think that's what we have done for many years, also on earnings per share, also making sure that we balance our risks also for our stakeholders, whether it's end markets, geographies, customers, that we don't have one single customer being a very dominant percentage of the group revenue. That's all part of our risk management to make sure that we have the sustainable growth going forward. While generate high added value margins, I think the innovation roadmap which we have also should help us to drive innovations, get higher margins for the products and services we supply to our customers, and making sure with their strategic partnership, we get into the higher margin businesses. Operational excellence will help to further improve margins. Of course, organic growth, you can benefit from your leverage going forward.
Some examples we saw already this year, the excellent service to our customers that are all components to make sure that we get into the higher added value margins. Normally most of that will drop to the bottom line as well if we continue doing that. Another very important way to survive as a company is generating a very healthy cash flow. In our definition, that's the free cash flow. How can we generate as much as possible free cash flow so we can definitely reinvest that into our business? The capital allocation is crucial in this item.
Where we try to use the free cash flow which we generate, or we can choose, we either put more CapEx to support organic growth, we can do bolt- on acquisitions, we can even spend more in R&D or in, let's say, the innovation roadmaps which we have for each of the business teams. That is all generated from, let's say, the inside strategy going forward. Even if acquisitions would be there, if we can finance a part of even the total purchase price of acquisitions going forward, we think that's a good idea to spend our money. Of course, we will not forget our shareholders. We're still paying a dividend to our shareholders. There's no change on that topic. Well, the financial ratios, I think that's important to understand. We had a few ratios before. What are the ratios today?
Maybe not so much new in that respect, I think some of you already wrote a note with some of these in it, although you never saw the slide. In that respect, it has been a secret until now. When I push the button, I think the first one is important, where we did not have, let's say, real guidance other than maybe what was known in the market. Our goal is to reach an average organic revenue growth above 3%. We say average, which is, let's say, the average over the next five years. There will be years where it might be higher than that. There could be years, as we have seen in the last years, that it could be a bit lower. That's not our objective. The objective is to be above 3%, but it's the average.
I think that's important, organic growth, to measure that on the average of the five-year period. Very important that the profitability, what we call our EBITA margin, EBITA as a percentage of revenue, we have now put the bar above 14% to be reached in the next five years. Not to say when we will reach it, well, as soon as we are able to reach it, of course, but that's the target, our objective for the next five years, to be above 15%, 14%, which was 11% before. I think that's important to note. It's an update on that. The same for our return on capital employed. That's our EBITA, it's a pre-tax number divided by our total capital employed, which does include goodwill.
I think it's important to mention that as well, because some people are calculating with or without goodwill, and of course, without goodwill, it would be a much higher percentage. We think we paid for the goodwill, also let's stick to one definition. The bar here we have put from the 16% before, now above 18%. I think you all understand that those two, EBITA above 14 and return on capital above 18, are closely linked together, as were the 12 and the 16 of our current strategy. I think that's, in that combination, a critical point. Remains the same, the free cash flow conversion, the free cash flow before interest and tax divided by EBITDA above 70%. There's no change there. Also, that may be a percentage which will not be there every year. No, it's the objective to be above 70%.
That's the goal. Leverage ratio, also unchanged to stay well below 2.5. You may know from our covenants that we can go up to three times at year-end or 3.5 times at mid-year in the covenants we have with our banks. We as management, we feel still comfortable to stay well below 2.5, and we have even been well below two in the last few years. That's, I think, unchanged in the strategy. The last one also unchanged, our solvability, our total group equity divided by total assets. I think also that is important to show the strength of the group, and also there we feel comfortable to stay well above 40% of our equity percentage on total assets. Also to show to the outside world that we are having a strong balance sheet, that we have the investment power.
It all comes together to the objectives which we discussed before and our strategy. Making sure that these targets are being lived with all our people. We are going also into our group in the next months to come to present this strategy, link everybody into it. I think we have a very good team in place now to support this and reaching those objectives in the next five years to come. Thank you. I hand over back to Wim to give you some key takeaways of what we discussed before.
Thank you, John. There are key takeaways of the presentation. We've been transformed into a focused technology leader, and I think it's the last four years. We still have a lot to do. I think also we need the year 2018 to still do a lot, probably also 2019, but we have changed. We have changed to make a choice in niche technologies instead of regions. We have changed to make business teams of 15 business teams. That means we simplified the structure heavily. It means also that we have strengthened these business teams with CEOs, with supply chain managers, but also with innovation people. When you bundle companies together in a business team, you have bigger companies, you can recruit better management, you can people give more opportunity. You see in totally that our total management structure is much stronger than it ever was.
I will tell you, it will even become stronger and stronger because what we see is that we create winning teams. Winning teams, they attract the best people, and we get the best people more and more because we want to be part of a winning strategy. It is one of the facts that we grew 5% in the first six months of 2017. You see that others do not do that, and we do that. It attracts people. We see that. Being strongly positioned for organic growth will also, from that point of view, through the focus, accelerate our growth. Point one. Point two, there is still a lot to do to improve operationally. Pricing excellence, we are not at 50%. We started a pilot in climate technology, which is very, very successful. It started with the acquisition of Flamco. Very successful. We are now spreading it out.
Every executive team member, which are the four of us, plus three people, you will meet them in the afternoon. Seven people have one subject to drive through the organization. Our colleague, Maarten van de Veen, he is doing pricing. The coming years, we are going to make our pricing much more excellent than it already is maybe, but it is in the details. It is a culture. A lot to do. A lot to do in make or buy. A lot to do in manufacturing 2.0. A lot to do in supply chain improvements. A lot to do in SKU rationalization. A lot of things we just started, so still a lot to do by bringing things together. Three, very important, drive and develop niche technologies worldwide.
It means we have now the opportunity to go with the different teams to other areas in the world to conquer the areas where we are not there. Bolt-on acquisitions will also look to these points where we can improve the position. For example, when we are not so strong in our advanced mechatronics business links to semicon in Asia, maybe we should have there a footprint, for example. We should maybe have a footprint in our fluid control business more in Asia or North America. It is widening your presence. Very focused. We already have targets lists for that. Driven by long-term innovation roadmaps. Long-term innovation roadmaps. That means that things you start up this year will come to business probably in 2020, 2021. That is how long it takes. When you order a machine, it takes these times already 12 months sometimes.
Before the machine is running, it is 14, 15 months. When you invest today, it gives effect in two or three years. A company you do not run by quarter, a company you run long-term. That is how you create value. We believe in that. The whole objectives my colleague, John Eijgendaal, presented is when you want to go to higher return on capital, you have to be very disciplined in your capital, and you have to gain value. Otherwise, it is not possible. Long-term. That is the message. Point four, I wrote here, did you know that 12 billion devices are now connected to the internet, and that in 2020 there will be 50 billion devices? Did you know that?
Did you know that we have the possibility that in an electrical car, we can deliver seven more parts to the electrical car than we do now in a conventional car? Aalberts Industries. Did you know that? You can see it this afternoon. Did you know that in 2040, it's a long way, 54% of the electrical cars are in China? All studies. We are busy with electrical cars. We're going to invest in China more. We're going to invest in residential homes. Did you know that the coming 10 years, we have a shortage of residential homes due to the urbanization of people, due to the fact that we have older people who go to the cities. They want to have luxury homes with floor heating, floor cooling, low temperature heating. Always will be there. We are full in the middle.
We are a market leader in floor heating. Many, many opportunities. The smart driving is fantastic, but it all needs more chips. Now we are a big supplier to that industry, semicon. This whole wave, we are in the middle of it, Aalberts Industries. You saw the slide with the balls, coming the balls down. It was to wake you up because these balls are a sort of flipper. You can do flipper. These balls, they strengthen each other. They create new business. With our culture, our entrepreneurial culture, we create these businesses. We decide very quick because we are lean. We decide lesser in oil, bigger in semicon immediately. That's the strength and the roots of this company. Always. Will never change. It's culture. Did you know that the most carbon footprint is actually, the carbon exhaustion, you could say, is done by buildings?
It's 20%-30% of the total. We are in climate technology. We are there in the heart of that. We get projects more and more because they have to be reduced. The nine technologies, important to know, are linked to the growth drivers and the market trends. Our objectives. Of course, everybody wants to see what are the numbers. Important is that we now put in a target for average organic revenue growth. It says something about our belief. It says something about our focus, and it is at least 3%. A further increase of EBIT and return on capital employed. The next slide is actually wrong. I told to my colleagues, "The slide should be like that." It's like a rocket. It takes off. It takes off because we are focused in our business plans, strongly positioned.
The second acceleration is the innovation roadmaps and the bolt-ons. We further strengthen our business models, but very, very disciplined. Not big things, not necessary. Small things which add, which really create value. No bullshit. Be very disciplined. Spending the money is easy, but getting the return, that is the big thing I know it is very difficult to get returns. You have to work hard for it. The additional growth drivers, which are there, a lot of people don't see that. We are really in the middle of many things, which just drive this business. The strengths we have. There are not so many companies who have this name, this track record. From 1975 it's built up. It's fantastic, in 40 years, more than 40 years. The brand, the way we are doing business, and then the integrated offering.
We are able to offer an integrated solution system, which helps our customers to also divest to us or to, let's say, outsource to us. We have the investment power to invest then with a global footprint. There are not so many companies who can do that. Strong balance sheet, almost 50% equity ratio, a lean and effective organization structure. That means we keep lean, 15 business teams, very quick on our feet so we can go to the many, many opportunities. Control it. We worked a lot on the control of that the last years. A network of fast learning best practices. In this world, when you want to survive the coming 10, 20 years, you have to be very quick in innovation, very quick in your end users.
You have to be quick, decide quick, innovate, think of your customer, foot on the floor, very efficient, and decide every day. Do that every day. That's our culture. Again, the Aalberts way, winning with people is the most important. Thank you very much. I hope we have a lot of questions, and I also hope we can all answer them.
Peter Holers of Kepler Cheuvreux. Maybe for John on the financial objectives, the 3% organic growth, at least 3% organic growth and the more than 14% margin. Starting with the growth, can you talk about the operating leverage, you get or the incremental margins you make on the at least 3% top line growth? You also talked about operational excellence, and you indicated you're only halfway there. Could you maybe quantify the margin uplift you might get from further operational excellence improvements and measures?
For the operational leverage, of course, it depends heavily in which business segment the organic growth will be. We have seen that also over the last years. The highest operational leverage is mainly in the material technology activity. I think nothing new to you itself. It differs heavily, but normally if you see that organic growth above 3%, and the drop-through, as we call it, is normally between 15% and 20%. I think that's also what general analysts are counting in. Might be a bit higher for some of our activities or even a bit lower in others, you cannot give just 1% but I think that range is pretty accurate. Of course, operational excellence, but of course that is something which we already are doing, although we are only halfway, as Wim explained.
We still continue improving operational excellence, of course it gets a percentage on an even bigger number. Of course, if it just continues that also will contribute several basis points to our EBITA margin going forward. I think the operational leverage plus operational excellence, those are the two main drivers to get above that 14% objective which we have given. Whether it is maybe half in organic operational leverage or half in operational excellence, that depends, I think, even from year to year and from business to business. I think in general, we have to step up to above 14%, you can almost calculate, if you take the five-year period, what the contribution should be to get there. Also that will be different, I think, from year to year.
I think it's a healthy assumption that both should contribute going forward to our new targets on that EBITA margin. Of course, that will drive return on capital at the same time.
Other aspect is the optimizing of your portfolio. The moment you get a better market position, you can ask a better price. You get a better margin. It's portfolio, operational excellence, and leverage. Actually pricing is also very important. When you get a better position, you have lesser traffic of competitors, then have the guts also to ask a higher price. We have a lot to gain there also. The objectives I want to say, our goal is to achieve them as soon as possible. We don't say when.
Exactly.
Important.
Maybe follow up on the innovation roadmaps that you have. What does that mean in terms of R&D spending in absolute amounts and also as a % of sales? Will there be some leverage there, or might we see that growing in line with the turnover?
No, I think you're seeing it already. I think we see that R&D is not only in CapEx, it's also people. I think that's correct. I think you will see more that we probably automate our factories more, that we choose more what we want to produce That we automate, but therefore you need more engineers. These engineers are often busy with the machinery, but that's often linked to a product or a system. It can also be that we say now, for example, regulators. We already assemble very automated, but I just was there a month ago and they still found new ways of more efficiently assembly that. We need lesser people, but therefore we have two, three engineers. I think this you will see more and more. Probably you're right, the spending and the investment in engineering and R&D will go up.
You get a higher quality business.
I think it was Arno who mentioned additive manufacturing. Can you shed a bit more light on what your expectations are and where you currently stand? Do you already have some of this in-house or is it still mostly developing or? A bit more color there.
Yeah. Let me answer that question. Since the last 18 months, we are heavily working on what is our best way to get into additive manufacturing. We don't have both machines to produce something, why we didn't do that? We didn't do that because we think that the business is not ready and right at the moment for doing that. We bring ourself up to speed, and we think that in the upcoming two years, we will be there a step further. We investigating internal opportunities, whether we could produce things we are producing better and more efficient and more advanced with a better outcome. We also look for, Arno mentioned that in his presentation, that we may could do slow movers with that type of technology, where that seems to be appropriate.
On top of that, we also are interested in developing in an outside Aalberts business. There are several markets we are into. We have presented the market like power gen, like automotive, like aerospace. They are all looking for different produced parts. We are with several technologies involved in that. If you look at that business, what is not finished at the moment is all the entire product chain, starting from the powder over engineering, what is the best machine and what is the best post-treatment. We have been in a couple of R&D circles with our post-treatment processes. We are quite convinced that as soon that business takes off, as it will take off, that we are an integrated part of that industry. For example, we had a booth in the world biggest fair called Formnext in Frankfurt.
We have been there as Aalberts Industries with a couple of different technologies with our post-treatment processes. We got more than 70 people asking us for being involved in post-treatment processes. That is either end customers, machine producers, or people developing in that industry. We have some expectations, let us say, for the upcoming two years to have their position, which suits our business and technologies.
It is a great potential for us because we have 100 service network locations in the world. Every additive part needs to have a post-treatment. Maybe we would add the competence of additive, and we are looking for ways we will do that, I think, coming 12 months, we will find a solution. We can add that to our networks. This is amazing. I also visited a few companies who do that. It is great. It is growing fast now. We followed it already many years. Because it is not new, additive, it is already there for 30 years. Now it used more the technology advancing. This will be a great opportunity. You must imagine where we could make our slow movers in insulation technology, where you could make them, once a year, you can make them every week.
You don't have to have the stock. Parts which we use 100 per year or 1,000 per year, you can make them in one week. It is possible. Cash. Could be. We are looking at these opportunities. Very interesting for us, and we are on top of it. It is nice.
Final question for John. Working capital, any idea where that can go eventually? Maybe not the target, but yeah, give some indications where that metric might go.
We thought adding one objective already to the list was already enough, I think there is another maybe pending on working capital. I think what we have seen, cleaning up the portfolio of products is still ongoing on the operational excellence side, also on the total management of working capital, where we try to manage especially our inventories, that's the biggest part of our working capital with the distribution centers and the new way of logistics, IT systems, which we still need to upgrade. Also here we definitely have an internal objective to further improve. Especially the working capital ratio to sales. If you look at the last few years, we have been around 18%-19% working capital to revenues. We definitely have the goal to further lower that.
I couldn't give you an exact percentage, our goal is to make at least more efficient use of our working capital, definitely by the time that we have implemented many of these operational excellence projects, IT improvements, also making sure that the distribution to our end customers, that is still changing as well. Look what's happening with the Amazons and others in this world. How will the distribution footprint look like in the next three to five years?
Which may, in certain product ranges, maybe have a need for higher inventories, more safety stocks, especially in 2017, we explained that already at the half year numbers, that by introducing all these innovations, you will start with a full range of products with a rather high level of working capital to make sure that you service the market and your customers to the best possible levels. Later on, if the volumes are increasing, it nails down again. That depends a little bit on the many topics on our agenda. The goal definitely is to further improve our working capital. Even if the higher working capital is needed for better service to our customers, I think that still remains much more crucial than maybe a bit more working capital on our balance sheet at the end of the day.
Especially with the cash flow we generate, there is no worry on that side.
Yes, Martijn den Drijver in the drive for NIBC. You already mentioned you're looking at the longer term investments in IT, investments in operational excellence, higher R&D. Should we consider 2018 to be a year in which profitability increases will be very limited or even stable to negative? That would be the first question.
We can't say anything about 2018. I can tell you we're still very busy with 2017. Let's first finish that. I think the trend, what we said is that when you innovate more, and I told that many times already, you're also investing in the organization. The question came in the past, how can it be that your added value goes up with so many percentages, but your EBIT is going lesser up? That has also to do with the investments we made the last years in management, in more sales, in more R&D, to create more organic growth. That will continue. I think this year, we said already at the mid-year numbers, we did a lot. It can be that some years you do less, but as you know us, our goal is creating sustainable, profitable growth during that period.
That will also be the goal in 2018, 2019, 2020, and 2021.
Okay. We're used to Aalberts saying, in terms of the outlook, profitable growth, then we had the EBITA target, and we had the ROCE target. I was just wondering, you're obviously confident about the near to medium short term, why have you introduced an organic growth rate? Why set yourself such a target? Things were going pretty well for you, for Aalberts.
We hope also that in the future they go pretty well. Why did we do that? We think it's important to mention. We did a lot of changes the last years. There's a drive to conquer, let's say, the positions which we have now gained. In some cases, we have a very good position. Some we can create a leading position. The goal of having a certain organic growth target, that is also what we go for. We share that. That's it. It's the same. You could also say, why don't we mention an EBIT target of above 10% and keep that for the coming 50 years? That's the same. Above 14 is the same as above 10. As a company, you should also tell what your ambitions are, and this is it.
As you know us, we always try to achieve that as soon as possible. We also believe in the route we go, and that's why we have it as an objective. A lot of things we don't have as an objective, this is one, and this is one we added.
Okay.
Four years ago, we had cash, was not an objective. Cash, I can tell you, is becoming a real objective. That takes time. It's also very good for the internal organization to have certain objectives. We have to grow. We have to conquer market positions. It's a must. When you don't do that in the world of the future, in my opinion, you're gone.
It also helps in the culture, also when you talk about the values. Of course, we have financial objectives also to be presented to our own employees to make sure that they are motivated to go for the targets to be reached. Not all those targets are put on paper, but I think everybody knows where to go, and this organic growth target definitely helps to align the organization going forward. I think it's a good one to add for both internal and external outlooks, I would say.
You also have to take into consideration that even business, which normally was more a local business, becomes more and more global. There are not so many companies who could scope with that. Even services or product you normally serve in regions, you don't do that in the future. The key accounts in, for example, in automotive, the tier 1 and tier 2 suppliers, they are looking for global supply chain. This is also one reason why we think we could grow in the future, and that's the reason why we set that target for us to do that in the upcoming four years.
Luuk van Beek, Degroof Petercam. I have a question about acquisitions. In your new strategy, you talk about bolt-on acquisitions. In the past, you also added quite a lot of value by buying companies with a lower margin, like Flamco, and then lifting them towards your group margin. Is that something that you want to continue to do in the future? Is this part of this bolt-on strategy, or do you think that opportunities for that are becoming more limited?
I think the more we look for, let us say, supportive acquisition, our niche technologies, the more of course also it will be with better margins. We are actually looking for bolt-on acquisitions with good margins.
Not the type where you can improve the margin, but companies that add a high margin that you can grow by using your network, basically.
I would say we look for bolt-on acquisitions which can accelerate our organic growth, and they will be supportive in our margin. That is what we are looking for, yes.
Okay, that's clear.
It depends. When you have an integration plan, you can improve the margin pretty quick. What was the impression of Flamco and Impreglon? Because we knew the business. Yeah, could be. We also know it's hard work, so you have to really make that choice. Flamco and Impreglon, it's hard work. I think we come there, what we said, we really come there. It's a choice. It depends also on the business you have, combined with the bolt-on acquisition, and then the plan you have to bring it to a higher level. It depends on the management you have. Do they really are able to do that? It's a lot of factors which play in that. It could be, but very important is that they strengthen your strategy. The second thing is that, as always, that the management is able to drive that integration plan.
What it also says is that organic growth is by far the nicest growth you can have, combined with these acquisitions. We have a lot of opportunities ourselves, so it is not a must to do acquisitions, but it can sometimes help you to get a better position in a quicker time. Calculate well, be very critical, because money spent is easy, but getting it back is more difficult.
Okay, clear.
Hello, it is Jaap Pannevis from Lucerne Capital. On the 3% organic growth target, what is sort of the end market assumption within that target? Because it seems to me that currently you are actually growing a lot faster.
There is a long period. When you say average 3%, you make for yourself, let us say, sort of observation how the markets go. I think the organic growth is based out of mainly three things. It is, of course, the markets, but these markets can differ, and we have 10 end markets, so some go up, some go down. Actually that is a small element in this 3%, in my opinion. Another thing is pricing. The easiest way to grow is optimize your pricing. It will be, I hope, an important element. We are going to work on that. The third thing is volume, that you sell more volume or new products. This combination brings that you achieve above 3%. The element of the markets is pretty low.
Due to the fact that you look for a longer period, that you also can have lesser backwind as we have now, is included.
Okay, perfect. The implicit volume assumption is quite low. It's really price mix, and then if the markets stay where they are.
Price mix, volume, main parts. Yes.
Okay.
Again, it could be that we have years we are higher. It could also be that you have years which are lower. We said at least 3%.
Okay, that's very clear. If we move to these key accounts, because you did win sort of these large contracts in 2017-
Yeah
What is the magnitude of these key accounts as we move to 2018, 2019, 2020, in terms of the organic growth contribution?
What was your question?
Well, sort of the magnitude of these key accounts-
Yeah
on the organic growth as these start to hit the numbers.
Oliver?
Yeah. Those key accounts, they play obviously a role in the growth rate, one could not say that only having two, three big contract that they represent the whole 3% we are looking for. It's a mixture of everything. In each of the business divisions and business technologies we have, we do have key accounts we are working on, and we are successful in creating bigger contracts. We don't have a number which is related to one specific key account. We have expectations what we are going to do, and that is part of the entire story.
Okay. It felt to me that the key accounts is really something new to the Aalberts story, and we haven't really seen it in the numbers yet, correct? That's going to come into 2018, 2019, 2020.
The ones we scored.
Yes
the last six months
Yes.
It is so.
Okay.
A big part, yes.
Well, we'll look forward to it.
We make a good start.
Perfect. All right.
Hopefully.
Okay.
Also with key accounts, yeah, they can sometimes say the volumes are a little bit less. I must say, these contracts don't look so bad. That's correct. Let's see, huh?
All right. We'll look forward to that in 2018. Felix Hene from SFO. Wim, historically, I think Aalberts was really a group of many small companies within a very strong group. You've collected these small and mostly entrepreneurial companies over the last 40 years, as you said. I think now with the strategy that you announced, where you're going to put the Aalberts Industries brand in the forefront and probably take some of these more local, niche-y brands back, is that not a risk that you lose some of these entrepreneurs who probably have built some of these smaller brands over their career and what probably attracted them to Aalberts?
It is a very good question. I fully agree. I think the success which we always had, and we actually have, is all made by all these companies and these names. But let me say it how we do it, because we do not start tomorrow. We started already three, four years ago, but even before that. Our philosophy is when you have the same technologies, let us say we have a fitting for press, where you have a pipe and you press that, you have a connection system for that. We had a time, it is not there anymore, that we had eight brands for the same technology. That makes no sense. You lose a lot of power. You should use the best product brand you have.
In these circumstances, you can optimize your branding because in this case, the money was spent eight times on different product brands, and now you spend it one time. In combination with the Aalberts mainly organization name, not the product brand, organization name, you strengthen your whole pitch and portfolio to your customer group. That is the idea. Product brands are very important. We will always keep them. We will look for the best ones and not shatter our investments and not shatter our energy. Do we need a local one for niche? You can always keep it at the local level. You do not use it as a European level or a global level. You have to be flexible there also a little bit. In the end, it is a migration. You have to do it very carefully.
We did it already last four years, and we do not want to ruin business at all. We have to align more what we did, and we will keep on doing that. For example, Flamco is a very strong name. It is stronger than other names, sometimes we have the same business, why not using then one name? Product brand. We still use Aalberts Climate Technology when we present ourselves to a big key account worldwide. You see? We need to use more the combination. It is a big strength we have. We actually not used so much until now, more and more.
May adding one comment here. You said that we may lose the entrepreneurial spirit of the, let us say, local organizations of the local companies which we have acquired. I would say it is the opposite. It is not a strong top-down approach we are driving here that we say, "Well, tomorrow, Eureka, we have a new brand, and you take that, then please use Aalberts instead of your local VSH or AHC or whatsoever." It is an approach which comes from the business. They see that world is changing. It becomes more global. People have a demand for having a different appearance to the market.
If you look at, for example, automotive, if you look at the project business in installation technology, one of the reasons why they're choosing beside our good quality and the good services we are offering, is that we are a strong company which has a global footprint and has a principal good appearance to the market. They would look for the strengths of the balance sheet. For that purpose, it helps local business if they use, when it seems to be appropriate, the Aalberts brand, as a brand which demonstrate that what it's required from the market. May that put that a bit in a more understandable context why we said why we have to go here both ways.
What we faced also is a lot of internal requests to use that name. We were also a little bit forced as a team to find a solution for that. When you look to our dispense business, you talk to very big key accounts. They are waiting more and more to use that Aalberts name in combination with a fantastic product brand like Taprite or DSI. We still keep that, but it's the product brand. They use the overall company name because we can say, "Hey, look to aalberts.com, and you see what we are." It's the combination. It's a very careful process, and we took the time, and we take the time. Don't ruin business.
It's more and more combined offering. Also, like Wim mentioned, the dispense business, they go for a system where they need all the different technologies to supply one solution for the customer. There it helps to present yourselves as Aalberts dispense technologies. Then, of course, you represent still the product brands with the competence center behind it, Taprite, DSI, Vin Service. There it helps. There you get questions from the management itself. We would like to use that.
The big advantage is you pitch as a team. The reason why we also got these four or five key accounts the last six, seven months is that you pitch as a team, and you pitch as an Aalberts team with the products, there's still the strength of the product brands. Then you have much more face, much more possibilities.
Great. Thank you very much.
Not losing the entrepreneurial spirit.
Yeah.
Very important.
Thank you very much. Then one other one to John, please. You touched and mentioned that you're on the digitalization agenda and that you overview the IT, et cetera. Could you probably just give us a couple more examples in terms of within the disruptive world that we live in with Amazon and with everything that's going on, what you do in terms of digitalizing Aalberts on the internal side, but also towards the customer and selling, using stuff like Salesforce or just being on top of this. Thank you.
Yeah. Well, I think what we already have rolled out, and we are still, of course, improving that, we are now getting more into, let's say, CRM systems, so that you get your customers aligned, not only per country, but now much more also internationally. We are standardizing those systems both in Europe and in the U.S. I think that's an important one to be closer to also your key accounts and share information between companies or various businesses. I think on the distribution footprint, where we already made some, I think, announcements the last few years, that we are changing our distribution footprint, especially in North America, where we reduce the number of warehouses. Where we use, let's say, efficient IT systems, warehouse management systems, to get our products shipped to our customers more efficient and quicker.
To get, let's say, also the distribution channels aligned much faster than what we did before. Maybe parties like Amazon or comparables, may also take up products produced by our own companies or even by competitors. We already see where the distribution will be done by others, where even when you are at home, you can order, let's say, a special product from one of the companies. It already is shipped to your house, and you only need the installer to install it in your house, rather than the installer goes to the wholesaler, buys the product, comes to your house and installs it. Yeah, all those trends which we see happening around us, we try to link in with our system that we at least are ready.
Whether it takes a higher speed going forward, we definitely think it will speed up, although maybe the installation world seems to be a bit more conservative, you sometimes think. But then it can be rapidly exploding going forward. I think in all these areas, whether it's on e-commerce or distribution footprint, our IT systems need to be updated and sometimes even upgraded, especially to link also our systems to our customers or even our suppliers. More and more you see that customers would like to see where their products are in the process within your manufacturing or even when they can receive your product. They can maybe also align that with their internal shipments or combining certain deliveries with the products they buy from us.
That is also linked to what they then call either the EDI system, so the electronic data interchange of information, but also vendor management, that you really manage the inventories of your customers, and they have, let's say, the opposite situation as well. All our systems need to be updated and upgraded more in that direction. Partly we have done that, but there's definitely a way to go, as we explained in our strategy the next years to come. To follow those trends, I think digital is much broader. It's not only IT, it just goes much faster and quicker than we may all see today. Therefore, I think we have to speed up here and there to make sure that we keep pace with what's happening around us.
Zink Vera Monoff, Kempen & Co. Thank you for the update so far. I have a follow-up question on the innovations. As I remember correctly, you do not yet specify your R&D expenses, and I think a lot goes through your OpEx. Already year-to-date, a lot of R&D was already spent through your OpEx. Would you be able to give a bit more granularity on that amount and what was the impact on the margins year-to-date? The follow-up is, since you mentioned you want to ramp R&D expenses up, would you consider giving a breakdown or at least give the R&D amount next year so investors can see the margin expansion better on an underlying basis?
First of all, we don't want to make more expenses. We want to make more innovations.
Yeah.
To make more innovations, you need to invest. It's an investment. I think what we said earlier is that we have roughly 3%-4% we spend on R&D. We mentioned that even in our annual reports. We always did that. I think the change is only, let's say, the migration is that you focus it much more. By focusing and also getting, for example, certain key accounts, you accelerate that investment to a higher level. We always took it in a cost. You have a lot of companies who activate it and who take it out of their numbers, and you get a sort of EBIT, with 10 things you have to take out the EBIT. We always put it in, as we always did, and we will keep on doing that because it's part of your business.
When you want to grow, you should invest. That's how it is. What is the exact number? Probably we will not announce that next year because it's integrated in all the businesses. We will invest more. That is the signal. We already do that last year, this year. I can tell you, because I tell nothing different than I told mid-August, is that for the two projects which we have scored in the beginning of the year, we took in more than 50 people. 20 people for machinery to operate and 50 engineers, and zero revenue this year. Now these things, you have to balance that, but that's R&D. It's expenses, but it's investment. It's not an expense, it's an investment.
Yeah.
You don't create more organic growth when you don't invest. You first have to invest and then you grow. It's not the other way around.
Okay. Thank you. In terms of investments through your CapEx, has anything changed in terms of your long-term outlook? Can you give a bit more detail on, let's say, CapEx as relatively to your depreciation, relatively to your sales?
Yeah, I think what we already have said also now with the strategy going forward, that we will see, let's say, a higher CapEx level compared to depreciation. We had a few years where that was more or less in line. The last two years, also in 2017, we already announced that it will be a higher number on CapEx compared to depreciation. If we want to grow organically with the objectives we have shown today, yeah, it's pretty obvious that we will spend more on CapEx. CapEx is really, let's say, in equipment, machinery, and innovation related. Next to that, we of course will also spend more on IT, as we said. That's a bit outside the scope of the definition, there will be more on CapEx compared to depreciation to fuel the organic growth. Of course, that will be looked into per project.
What definitely makes sense, what is the return which we calculate on those investments? I think that is not different than what we have seen before. I think it's a good development to put more of our free cash flow in CapEx developments to support organic growth. That's the goal for next years to come.
That's all the opportunities we have, because therefore you invest. You invest because you see an opportunity or an optimization, but a lot of the investment will also be for new products, for new customers.
Yeah.
That's why you do it. You accelerate your growth.
Okay. We still want to reach those targets on return on capital. We are always looking at, of course, the right balance between the return we get.
Yeah, it's a balance.
It's not just spending the money, because that's easy to do, but really get the real return on those CapEx projects. We have a lot of those also linked to key accounts, but also in general, spending the money and getting the return in an, let's say, reasonable timeframe.
Yeah. On your group guidance of organic sales growth, obviously above 3% and you with a margin target. Would you be able to give a bit more detail per division on how you think that will develop going forward?
Arno?
Yeah, let's say, what do you mean exactly with the details per division?
Well, in terms of growth, do you think it will be skewed towards one division? You've talked a lot about industrial controls as the step up in SEMI's and automotive. Could the growth be skewed towards that division or towards the building installations division, for example? Also on the margins, will it be more skewed towards industrial services or more towards flow control, for example?
Should be all higher than 14. Everybody should help. That's the rule. All should be higher than 14. That's our goal.
Okay.
Of course, as you know, in certain markets, you have a much more niche-
Yeah
than a position like controls or like Industrial Technology.
There are no divisions where you feel you, let's say-
I don't say we will reach that. I said it's difficult to say we end up after five years there at 13.2%, and that segment will be 15.1%. I think what you see already now is that in the different segments that one has more potential from a margin point of view than the other one, because one is also diluted by an acquisition. For example, in the business of Oliver. The Material Technology, we already had 14.5% in the past, but we were diluted that time by Impreglon. Of course, the potential is higher than 14% there.
Okay.
In general, we go for all of the-
Yeah, no, obviously.
Simple answer.
Also for organic growth, we have also said that although it is 3% for the group, but if you look at the first half-year results where we had around 5% organic, that was more or less split evenly between the four segments. That will not be the case every year in that respect, but it's the goal for everybody in the group to have organic growth above 3%, no matter where you are in building installations or insulation technology or material technology. It's for everybody. That's easy if you have group targets. Everybody should follow the group target, because if you reach the group target, as Wim said.
Yeah
It will come out at the end of the day.
Yeah.
Just mathematics.
It's also the business plan we make. We make to optimize our portfolio, optimize your pricing or whatever you do. That's our goal. Of course, in one business, it's different than the other. That's how it is.
Okay. Zooming in on your proposition in automotive, because you elaborated a bit on that and the transition towards electric vehicles. Could you remind us what are the things you do now and the proposition you have towards that market, towards that end market? What do you expect the ramp up will be in the upcoming five, let's say, yeah, 5-10 years? How you expect the markets to transform towards EV and what your proposition will be in the longer term?
Yeah, automotive, you said when everybody is talking about electric vehicles, you know how many vehicles are sold in Europe, electric-driven? Not so many. Everybody is working on developing those. If you look at the development projects we have, one could conclude that the development into electric vehicles offers more chances than threats. A lot of business divisions we have, we get requests, we develop projects. We expect, Wim said that already in the presentation, that we have seven times more parts in electric vehicles we could do compared to petrol-driven vehicles.
Well, why is that? Simple explanation. It's electric system.
Yeah. It's electric system.
Hybrids.
Yeah.
Need new connectors. It's heaven for us. Yeah, it sounds ridiculous, but it's true.
If you look, for example, in China, where we just recently launched a surface treatment facility, which was finished at the end of 2014. In China, the development of electric vehicles is totally different than it is here. It goes much faster because the government sets real target for the bigger cities to have a certain percentage of electrical driven vehicles per city. There are two, three companies who are driving that business. It's companies like Build Your Dreams or NIO, a relatively new company, or there's Tesla. We all make already parts which find its root cause into those vehicles. We are quite positive that with that position we have in China, with surface treatment and with precision stamping in the southern part of China, that we will play a significant role in the development of that business.
If you look at Europe, let's say the politicians which think about that's a good way to develop that forward. There will be an interim technology called hybrid. Everybody knows that's heaven for suppliers because you have still the petrol engine and you have the electrical engine, you have both. We've been quite positive with the development of that. We do not see that development as a threat for our company.
No, it's not a threat, it's a big opportunity.
Full electric cars also have other challenges there, like cooling. The cooling of the system. In normal petrol cars, you have a cooling fluid which you can use. You don't have it in a full electric car. We will explain you more about that in the afternoon with some nice innovations that we have on that field. It gives also a big opportunity for new solutions, for new technology.
For example, if you look at the tier 1 supply chain, they're all developing the new product, whether it's pumps or whatsoever, into electric-run devices. They're also looking due to the fact that electric vehicle is more homogeneous, even if you have different models, so that you can looking for a unique product. We are working on two, three products, which we worldwide launched for cars as of today, but also possible to use for electric vehicles. The world will change, and we're looking more for global footprint, simplifying the supply chain and simplifying the range of product to have compared to petrol-driven cars.
Okay, thanks, guys. Very helpful.
Dirk Verbiesen, Valuation Capital. Following the discussion on CapEx and the ambitions, also following some years where overall growth was quite limited, can you share with us where you have some ample production capacity left in the main product areas before you need to step up investments to reach higher volumes?
I think when you go through the businesses, I think in insulation technology, we still have some capacity left in certain product lines. I think the product lines which grow very fast, which we saw last years, for example, the factory you will see this afternoon, we are fully loaded, we already invested for new machinery or quicker machinery. Could also be, it's not always that you extend your capacity, you also make the equipment better. It's a combination. You always try to have the combination. I think in the area of Mr. Jäger, I think we have some capacity left in the surface treatment, but other areas already pretty full. On the other side, maybe some left. Here and there you see also that we combine efficiency with some capacity extensions.
I think the point is coming more also that you have to invest in the new customers, which you can see as an innovation or capacity extension. It's often a combination, I think the question was also asked four or five years ago, that time when we were in the construction at a low level, and we said, "Yeah, we still have 20%-25% left." Everybody of you thought, "Hey, leverage." That is still the case in certain areas. When you pull through products, that's still the case to optimize. Let's say it's halved. It's actually too simple to say. Okay, you want to have some answer you can do something with, because the market is also changing.
When you have capacity for valves and you are full with connection systems, for example, yeah, you pull through the valves, but maybe you need other valves, you use the equipment another way.
maybe.
Still space left.
Yeah.
To increase the margins.
On the CapEx, assuming there's a number of EUR 130 million, EUR 140 million that you're probably going to need going forward, how much of that-
Yeah, it goes in waves, yeah? Probably the coming years it will go up. This year's already going up. 2018, maybe 2019 goes up. You come to a period which is logical. There was someone who wrote a column about it some years ago. He wrote a column, a paper column about it. That investment is waves because you invest more, you have to execute all these projects. The management is not even able to get it all executed and get a return on that. Normally it drops a little bit. It says something in general about the opportunities we have for organic growth. That's true.
How would you divide that number if you categorize expansions, improvements on existing products-
Yeah
versus new innovative-
Yeah
product categories?
Yeah, very difficult.
Yeah
I would say. Maybe let's say we use little bit more than half for maintaining what you have, and let's say the other half is split in two for maybe some capacity innovation. The other half is roughly your improvements you make.
Thanks.
We always said 30/30/30, probably the one 30 is a little bit higher.
Yeah.
I mean innovation and capacity expansion will be a little bit higher than probably in the past. Difficult to say, huh?
I personally look at every machine that is not only a capacity. It should be a much better machine, hopefully you take one new one, and you kick out three old ones. You have lesser repair costs, and you go to the best technology. What is that then? Capacity expansion, or is it operational excellence? Mr. Verbiesen, you tell me.
The last one probably more than. It's not a new product, but it's.
It's growth.
yeah. Thanks.
Peter, a couple of follow-ups. Starting with a question that was raised by Jaap on the organic growth, where you mentioned the importance of pricing. Correct me if I'm wrong, the perception I have is that-
Volume, huh?
Volume. Focusing on-
Market.
Yeah. My question relates to the pricing, and correct me if I'm wrong, but the perception I have is that historically the pricing was mainly a reflection of what happened in terms of raw material pricing. Do I understand you correctly that is about to change or is changing? That it will be less dependent on what happens to the raw materials, and it should be a more structural driver then?
Correct.
Yeah.
Exactly the case.
Okay.
It's both. Make sure that you cover your increased raw material costs, which has been definitely a big issue also on the agenda this year because of the increased raw material prices. Next to that, doing let's say the smarter pricing, even leave out the raw material component of that to make, let's say, a higher margin on your products, both the innovation products, but definitely also your existing products. That will be a combination of the two that should drive the margin.
It's also a culture.
Yeah.
Value pricing is a culture. You have to train people. It's a long road. I give you a very simple example, which we had two, three years ago. Yeah. When we also acquired Flamco. When the price of a box of products which you deliver in four weeks is the same as a bag which you ship in two weeks, or two products which you ship in one day, then you lose a lot of margin because you give an additional service. It's just a simple example. A box in four weeks, you can order, you can plan your production. It's a complete box. It's, let's say, 30 products. When you deliver a bag, it's only five, and you deliver it in a shorter time, so you need more stock. That is all value. That's a simple example, but you have many examples like that.
It has to do with how you sell your system or your solution or your product. In the meantime, when you are more unique, what we achieve with our portfolio, more unique worldwide position, you can ask also a higher price, but you must also be able to sell that. It's actually also a sales training. There are a lot to do there. It's not only pricing, it's also volume. It's also market.
Especially when you offer more system solutions, it's even more incomparable-
Yeah
with other things. There you also have a big opportunity.
By the way, you must also be careful with selling system, what Arno says, that you don't ask too low price.
No.
You do a lot of things. In general, what you said is correct. It's not only raw material. It's driving this excellence. It's excellence. It's a culture.
Okay. On the bolt on acquisitions, of course, Aalberts now is a much bigger company than 5 or 10 years ago, and you will continue to grow. What do you consider to be bold on? Is it EUR 100 million? EUR 250 million? EUR 500 million?
We don't set goals separately for that. It goes like we know where we want to grow, where we want to focus on in the next years. Of course, when we find the right targets, we will go for it. We don't set ourselves a goal for this is the minimum amount of equities we need. We would like to do, of course, always a few per year. That would be nice.
Okay. In case you don't find the right targets for the right price?
We don't buy.
No. If you deliver on your growth and your margin ambitions, we will see your balance sheet gradually de-lever in the coming years. You might even end up with a leverage ratio closer to zero rather than the upper end of your up to 2.5.
We still see enough opportunities in the bolt-on acquisitions. We don't count on that specific case if we don't find them. The only thing I tell you is that we don't need to buy. We have enough growth plans to focus on ourselves. When we find the right targets for the right price, we will buy them.
Still, if you would not be able to find them or not at the right price-
We will find them
Would you then consider-
We will find them
changing or maybe stepping up the cash return to shareholder? Is that something you would consider increasing the payout?
It's always what we said. We said always, first is organic growth, CapEx investments, which we say by far the nicest growth. The second thing is acquisitions. The third thing is organic growth and acquisitions. We continue that. When the moment is there that we have so much cash which is not usefully used, and we have the feeling that the coming years we will not be able to give it a good return, of course we have other methods to do that. It's not our goal. On the other hand, we don't buy things which are by far too expensive or we don't get a return which we like.
If one come into them, and if you look at the diversity of technologies, the diversity of end markets and regions, the likeliness of not finding anything to grow is more on the low side.
Okay. That's helpful. Very good.
It could be that you have some years. Last year we did four, this year we did two. This year very busy with all kind of organic growth initiatives. You look also to the management, how busy are they? Are they able to integrate an acquisition? When we did in Impreglon, we were pretty busy at this site, so we didn't do so much acquisition. You also are much more looking to other sides. We did Dispense too. They are very busy. That's the nice thing of the model.
Yeah.
We have really lists per technology, and we are having, I think, Arno with his team, which is by the way only one person. He's having 50 to 60-
Very strong team
Very lean. Very lean.
There are only a few acquisitions, Peter, because that's.
Very lean. We talk to 50, 60 companies maybe. We always did that.
Yeah.
Yeah, sometimes they come to you very quick. They can even call us tomorrow.
Okay. Thank you.
We have to acquire the right things with the right returns. Acquisitions will always be part of our strategy.
Yes.
That's important. Always. Very disciplined.
Yeah, exactly.
Even with acquisitions, we can still deleverage the balance sheet.
Yeah.
It's not to say that if we continue to do acquisitions, you may only extend when you reach that point. That's, I think, important.
We have not aimed to do very big things because we don't need it, because it hurts your return with the multiples you're paying today. In our opinion, you pay by far too much, especially with things which go through an auction or whatever. We don't even look at that.
Wim Linnenbergers at Value Fund. I was thrilled by your latest expression, Aalberts Industries as a rocket. From that perspective, yeah, I have one specific question.
We know a rocket goes slow in the beginning.
Yeah. I also, well,
You never know when it accelerates.
Yeah. There's also a risk to a rocket, I think.
Oh, very.
Maybe there's one question is, we spoke about key account management, and that's something that has been with Aalberts Industries, I think, for 10 years already. It's becoming more profound now that Aalberts Industries has its own passport. You have leeway to a great many superior companies throughout the world. I think it's worthwhile to get some in-depth knowledge for this audience on what percentage of your turnover to date is with these key clients, and probably more important, to what percentage could that increase in the next five years? Because, when I'm right.
Aalberts has a lot to offer to these clients. You can probably gain a lot of market share there. My second question specifically relates to China because, is there a special strategy within your five-year program that looks into that end market? You mentioned semiconductor as one area where you would increase your presence. Can you elaborate a little bit on that perspective? Thank you.
Maybe the first question and the second question, I think Mr. Jäger can answer very well. The key accounts. I think the definition we give to a key account, because you're right, key account is, of course, a broad definition. In our opinion, what our definition is, what we aim with that is that you combine technologies or products on the key account level. We clustered the business teams, so therefore you have a more focused offering. This focused offering, you present together with your Aalberts organization name to a certain.
Bigger customer, you could say. Which mostly also have a global footprint, which links to your global footprint. I think these projects, they're very small at the moment. We have scored five the last 6 to 12 months, but we are busy with a lot of things to discuss. What the outcome is, I don't know, but we see there's a lot of opportunity. What it also means is that you have to upgrade your organization because you need a complete different sell, but you also need a different execution. It needs also time. It's, again, a process which needs time that your organization gets used to that. Yeah. That's why I said, yeah, there's a potential, but yeah, sometimes it goes quicker and sometimes it goes slower.
At this moment, this definition, key account management, is not a big part of our revenue yet. There's potential.
That's less than 10%, I would say.
That's why we mentioned it.
Yeah
as one of the growth drivers.
It needs also training. We brought together that group worldwide. I know Mr. Monincx did that, we train them. We share and learn. You see, one is talking to one big beer customer, the other one is talking to Airbus or whatever, but the processes and the learnings are the same.
Yeah.
We have to upscale also the quality and the way of organization. It takes time. How quick that goes-
Yeah
is a good question. It's something you are working on, I don't want to say which percentage in the future. It's impossible.
It also includes the element of recurring revenue, I presume?
Yeah, correct.
closer customer.
Sometimes you have to innovate for that specific project.
It drives also innovation and then again, equipment.
That does mean that the cyclicality of Aalberts Industries' turnover and result might be reduced in the future. Is that also an element?
I personally think the cyclicality was already much lower. Also before it was not so as it sometimes was talked about.
Of course, we had a lot of construction. Maybe you have now lesser construction because we balanced that, and we will further balance that. You go cover more regions. We have more North America. We want to go more to Asia. That balances further out. That's correct.
When you drive this technology, we get more balancing out. It's our second objective, so that's correct.
Mm-hmm. Is it true that?
China
that the margins on these key client accounts are better, much better probably than average?
They can be better.
You also have to be very careful.
that you don't do all kind of services which you don't get paid for.
Okay.
It's also a very important lesson.
The management is thinking, "Hey, I go for the revenue." Nice. They forget that the customer is asking for five additional technical complex specs. Again, it's also training. There is potential from a market point of view, but it needs also a different mindset, and therefore, it's good that we learn that from each other.
What makes it.
In general, yes. You do it properly. Sorry.
Yeah.
What you could see if you look at the organization and how it is developed, that we have management team for each of the technologies, compared to, let's say, a more atomized organization some 10, 15 years ago, that what brought us the quality in the organization that we could deal with key accounts. To give a number to that, how much that we bill on average in maybe five years, that's a bit hard to say. Principally spoken, we could follow the demands of bigger companies, so key accounts, and to participate in their, let's say, de-atomization of their supply chain, and we could do that. Now.
It's an upgrade of your organization.
Yeah.
never forget the local customer.
Yeah.
We should have both.
Never forget the entrepreneurial spirit of the local company. It's an add-on. It's not only. It's an add-on. Important, because we have to be the entrepreneur also locally.
Yeah.
China?
China. Yeah. When we did that step over some years ago and thought that we have to invest in China, there was an idea behind that, not having a single entity of a couple of million EUR to be far away because it's cool to be in China. There is industry developing locally, whether it's automotive, whether it's machine build, whether it's right now the trendsetting industry for electrical cars. We are part of that, and we would like to grow that further. Does that require more investment, assuming we will be successful with our plan number 1 and 2? Yeah, sure it does. Based on good reasons, we will continue to grow that.
No acceleration.
There will be an acceleration, but first you have to make your homework. Everything has to be good, set in place. When that is done, then you can accelerate.
I think the electrification of cars in China, that's a big potential which we have to work out. We're going to do that.
February
first four months next year.
Yeah.
We want to invest also there more.
Thank you.
Yes. Before we continue, we have to answer one or two questions which came via the webcast to make sure that we meet our timing for that, because you are still here, but the rest may or will leave in a few minutes.
I think the first question was: Can you raise prices even if capacity utilization is low, so no growth in volume? I think this refers more to the question we had before, that when it comes to raw materials or other elements, we are able to increase the prices, and we try to pass on that, of course, as much and as quickly as possible, which is a very important topic. Of course, if there is no growth in volume, maybe the excellence pricing already done, we hope to have achieved that. Of course, it's always more difficult. I think the raw material part has always been high on the agenda, and we have agreements with our customers that we are able to structure the pricing going forward to increase the price when that's the case. I think there was a second question.
Planning to optimize the efficiency of the key account team, shall say?
Yeah. For Arno.
Let's say.
Good question.
we have a key account team per business. That's important to understand.
Does anybody know what the question is? Okay.
How are you planning to optimize the efficiency of the key account team? We have a team per business, we bring these teams also together in key account training, which we did, let's say, a couple of weeks ago also for the first time, where we train specifically on instruments and tools for the people, how to be able to take the most effort out of a key account customer. Of course, maybe, let's say, the business are different, the tools are quite similar on how you can use it. We train the people in that. Besides that, we also analyze how the people are performing and if we need to make some changes also there. Let's say, a good salesman does not need to be a good key account manager. It's a different topic.
You act with bigger customers, you act with bigger orders, deals. It's more an ambassador role maybe, should be strong. Let's say, we also try to constantly find and attract the right people for these positions. We are actively working on that. Yes?
Okay, this covers the two questions, which came across.
Mark Verbeek, DRD. A couple of questions. First of all, on one hand, you mentioned you want to improve EBITDA margin. Secondly, you want to lower your working capital. At the same time, you keep your free cash flow conversion ratio the same, unchanged. That more or less implies that CapEx will be high, and you mentioned CapEx will be higher over depreciation, but really significantly. Could you give a bit more color about your CapEx plans and in relation to what it is or in relation to depreciation, how much above that level?
Yeah, I think on the CapEx, we already said that we already for this year guided a higher CapEx than depreciation, so we might be at maybe 120%. We said around EUR 150 million, EUR 120 million in CapEx for 2017. That's not news in itself, with maybe EUR 95 million-EUR 100 million of depreciation. That will be about the ratio. If we increase further our CapEx or our depreciation will of course also increase, but not as fast as CapEx. That percentage might go up to 130% or 140% of depreciation, maybe for a number of years. I think Wim already mentioned that for 2018, 2019, 2020. That might be as far as we can see it today, all things equal, that might be the percentage we are looking for.
Of course, that takes out of our free cash flow a bigger portion than relatively to what we had before, where depreciation and CapEx was much more in line. Now you see that there is a bigger gap between CapEx and depreciation. Yeah, working capital, we try at least to stabilize as percentage of revenue, as we said, or further improve it. A little bit depends on how the developments we described before will go. Therefore, we think that above 70% is, let's say, a good objective to go for for the next five years, but might not be reached in every year, will be exceeded in other years. It's always how it goes, but that's definitely the goal. Whereby CapEx will be higher on the agenda, as we said before, to support organic growth.
If there's no organic growth, we will have lesser CapEx, because in the years that we had hardly any organic growth, CapEx was more or less in line with depreciation. We are able to manage that pretty flexible.
Thanks.
Our goal is to have lesser working capital and more investments. Simple as that.
You also still have a program to divest the businesses which are not core to you. What's the status at this moment, and how much do you still want to divest?
No, I mentioned that in beginning of the presentation, EUR 40 million to EUR 50 million of revenue, where we still have the idea, yeah, that it's not It has no link with the group or it has a low financial performance or no growth potential. As what we said earlier, we will optimize these activities, and then when there's a right opportunity, we will clean up that part of the portfolio. Probably in the coming years, we will take next steps. It can also mean that sometimes you find another solution that is not a divestment, but we just close it because we think it's better looking to the time we spend on it. This is roughly the case. These coming years, we will optimize that further, but it's still a small amount.
Lastly, what do you see as the main risks in the next couple of years?
Main risks. There are always other sides of the coin, it is good that you ask this question.
I think other side of the coin risks are, of course, the whole environment, let's say the political environment. I think you have to react very quickly these days. Therefore, I believe in our organization, which we have, because you need local entrepreneurship, but still controlled with a very clear strategy. That's what we aim for. Adapt very quickly. The second thing is our people. I think investing in people and having the best people in the coming years will be the biggest challenge. Technical people, but also high-level people. We just talked about key account management. You need different people for that. Continuously optimize our human resource development. My colleague is driving that fantastic project he took over from me. A very good, very important topic. That we drive human resource development through the group, give people other opportunities, learn them.
In the end, it's all about people. That is risk. I think you have to be very on top of that. Another thing is still look for your businesses every time. Do I have the right business? Do I have the right portfolio? What we did with oil, but lesser intention on oil, because we think the margins will still be difficult coming years. You adapt immediately. Be very motivated as a team. In the end, it's all teamwork. I hope that we create a lot of business and a lot of fun, and which is also important with the whole team, which we have gathered, and we stick together, and that we have a fantastic journey to go.
Thank you.
It's nice to start working every day at 6:00.
Bert Van Lerberghe.
That is also very important that you keep that in the group.
Bert Van Lerberghe, Tubbe Lemberge. In the beginning of the presentation, you showed us the achievement rates of your several projects.
Yes.
The one on operation excellence was the lowest, which the logical conclusion is.
No. The lowest was the exchange of best practices. That is 40%.
Yeah, excellence was only 50%.
Yeah
achieved.
That was not the lowest.
Almost the lowest.
Almost.
The logical conclusion is that that's quite hard to achieve. Of course, I understand this is not a straight line, but it goes in leaps and bounds. Can you explain what sort of hurdles you have met and what sort of hurdles can you still expect on this project?
You mean specifically on operational excellence?
Right.
The hurdles we have met is that when you bring teams together, you change people. Not always easy. You have to do that step by step. You also find out that certain people are not maybe the people who can run a certain responsibility. Another hurdle is that you have to align the strategy. It needs a lot of communication. You need to take people with you. It is a lot of time, but very important because it is step by step. For the future, I think when the teams are in place and they look to their operations and to their optimizing and they have their targets, you automatically get that they come to more ideas, which is logic. There come new hurdles.
New hurdles can be how you move things, new hurdles can be implementation of an IT system, which you have to do step by step, and be very carefully by that. It can mean that you have to optimize your distribution footprint. It can mean that you have to bring names together. All with the people, you have to discuss it, take time. It is a long-term thing. You do not change these things overnight. I do not believe in it. It is a culture again that you bring it to 60%, 70%, 80%. The big message is there is still a lot to do. Still a lot to improve, to come also to a higher margin.
My second question is about you did not mention currencies. I suppose your projections targets are regardless of fluctuation. What is your assumption on currency as Aalberts is now getting more international?
Of course, we don't have an outlook on currency and don't speculate on that. I think that's our policy anyway. Yeah, of course, we based our objectives on the, let's say, the existing situation around currencies, and we already see in the last few years, the development, whether it's British pound and US dollar. Those are two dominant currency for us as a group. The rest is mainly dominated in EUR anyway, which is also disclosed in our annual report. Yeah, if the pounds, although it's still lower than it was before, but if the current situation would continue. I think also there, organic growth is measured taking FX impact, so currency impact out. In that respect, whether currency goes up or down, we always clean our numbers for currency.
In that respect, there is no, let's say, impact on the organic growth targets if you look at the currency. Of course, the translation, where we also had some pluses and minuses the last few years, that will remain, and I don't think that will change in next few years. Whether that's a positive, a negative, or a neutral, let's see how it develops. We try to cover ourselves where we can, and I think that's what we have always done. We will continue that policy also going into the next years to come.
Last question, because we are already at 10 minutes past our goal time.
Okay, well, in overdue time, thanks. Joseph Bates in Gillis. One final question that's on the power systems market. That market is down quite a lot, but also in terms of servicing. You can read about gas turbines where the revenues are too low to pay for maintenance. To what extent are you exposed to, let's say, the renewable, the wind, and the solar energy market? Is that something that is an opportunity for you or where you have already an established position?
If you look at the energy market, it is correct what you're saying, that the power generation business with relate to industrial gas turbines, that's low and lower than we have expected and anticipated. We do think in line with the major suppliers that that will be a down cycle of maybe two, three years, and then that goes up again for a couple of reasons. Are we in the, let's say, the renewable energies? Yes, we are with the diverse technologies. We do play a role in that, whether it's surface treatment, it's heat treatment, it's part of machines. Part of the parts we are machining are related to that. Is that a super significant portion in the turnover structure? No, it's not. Otherwise, it wouldn't be mentioned in the portfolio of markets.
Okay. Thank you very much for being here, also joining the webcast, people. Thanks for the questions. We can still answer questions during lunch and after that. Also thank you to webcast viewers. Thank you very much.
Thank you.
Thank you.
Thank you. I think that's every slide for the experience.