Operator: Welcome to the Aalberts Interim Results 2021 Webcast. [Operator Instructions]. I would now like to hand over to your host, Wim Pelsma, to begin today's presentation. Please go ahead, sir.

Wim Pelsma: Yes.

Welcome people joining our audio webcast. We present today the results of the first half year of 2021. And the agenda for today is as following. So we will start talking to you about Aalberts. Then we will discuss our operational developments.

And my colleague will take over for the financial developments. Then we talk about the outlook. And of course, we hope you have a lot of questions which we can answer. Aalberts, yes, you will find Aalberts where technology matters and real progress can be made, humanly, environmentally and financially. This is a sentence which -- yes, we bring in practice, so everywhere where we can innovate and really we can make the difference in technology, we try to be there, but also to create a uniqueness in the market.

Now when you look to our essence, then I think, more and more, you see that also in our company, is that Aalberts is standing for engineering mission-critical technologies for groundbreaking industries and everyday life. We combine that with a culture where good is never good enough. And where we go further than hopefully all our competitors to go beyond the line of duty. And we have a culture of continuous improvement and development. We do that by sharing and discussing and to sharing knowledge where we can do that, mainly by technology, but also by people, by best practices.

And we must say that more and more, we see there many, many good things happening, and it stimulates innovations and technical uniqueness. We combine that with a culture of relentless in our pursuit for excellence where we stand for as Aalberts. Our way of value creation is based on these 3 essential pillars. So first of all, mission-critical technologies. Our shareholder value is created by leading niche technology positions, which we continuously improve, which have high entry barriers, high pricing power and high value margins, with a sustainable, profitable growth.

And especially also in the first half of the year, you can see how strong our pricing power is because we were able -- when you look through that, also the mix effects, we were able to generate a very good added value percentage even in these times where we have difficulties in the supply chain and also in our raw material supply, which we would handle very well. Good is never good enough, our culture, our continuous improvement. Operational excellence is a very important point in all our business teams. Continuously automating your processes, looking for more improvements in your operations, in your supply chain. Continuously working on that is a culture.

And we express that with our good is never good enough attitude. It's also improving our margins continuously, looking for improvements, strong cash conversion, because with strong cash conversion, you can invest again in the best equipment. And the best automated high-tech equipment gives us a competitive advantage in our market positions, which we continuously also improve by improving the portfolio, which we also did in the first half year by 2 acquisitions we made and 2 divestments which we finalized and executed. On top of that, we have a disciplined capital allocation. That means that we allocate our capital there where our strategy is, and we are very focused on that.

So at the moment, we see that our capital, when we generate a good cash conversion, we allocated there. We have -- where we can get the best returns and where we are the best positioned in the market. It's a continuous process. It's also not stopping. And I think that's important to mention.

Greatness is made of shared knowledge, technology exchange, innovation speed, fast learning adaptation to the market. And again, I think when you look back 18 months ago or, let's say, 16 months ago, when we were in April 2020, March, April, we were all faced with the situation which, at least myself, we never were confronted with. But I think the flexibility and the adaptation of the company and also the management and the teams were amazing when you look now to our results. Relentlessly creating long-term shareholder and stakeholder value, that's our goal. How do we do that? We have the Aalberts playbook.

And our focus is there relentlessly on excellence. We focus our businesses where we have a competitive advantage and we are -- where we have growth drivers. On top of that, we leverage our operations by having more volume in our factories, but also through excellence improvements, automation, the newest equipments. And therefore, you generate margin expansion. And I think our results in the first half year are really been driven by that.

And you see what the effects are, with 14.9% EBITDA margin. Strong free cash flow, disciplined allocation, portfolio optimization, and this goes on and on and on. We call that compounding returns, relentlessly creating long-term shareholder and stakeholder value. Our track record, 45 years of sustainable profitable growth and a proven sustainable business model, probably the line you see here, going flat from '15 to '20, will go up again when we put in the '21 numbers. Now we made a very good first half, and we see good developments also in the second half, with a very good order book starting the second half of the year.

Shareholder value creation, earnings per share, dividend per share, and very important, return on incremental capital employed. From the last 10 years, we're still at 9.7%, of course, with a very low year 2020. Also, that will go up again when we put in the numbers of '21. Our long-term shareholders are more than 50% of our shareholders base. Long-term thinking, long-term developing, innovating and continuously improving your positions.

Our key strength, and I can't say how important that is, is our mission-critical people. The Aalberts way, winning with people, the culture. Greatness is made of shared knowledge. It's a unique advantage within our group. And you see more and more that people take advantage of that.

But it's in all kind of things. It's on digital developments. It's on digital solutions. We have now organized 3, 4 online webinars where we share all kind of things on leadership, where we share things on online marketing, on digital services. It's tremendously what you can learn from other teams and from other businesses, even when you are in different markets, and that's the world where we live in, that we have to adapt fast, and it's all about people.

So our Aalberts way, winning with people, being an entrepreneur, take ownership, go for excellence, share and learn, and of course, we act with integrity. Our strategy and objectives for the period 2018-2022 are based on our strategy, focused acceleration, which we originally presented in December 2017, which we updated in December '19. And as we guided now in our press release, we will update again in December 2021. Our nonfinancial objectives are still

the same: worldwide leading niche technology position, creating sustainable profitable growth. We do that already for many years.

Generating higher value margins and converting operational execution into free cash flow so we can invest again in the right strategy and also allocate it in a disciplined way. Our financial objectives are clear. And we will discuss that also, of course, in December 2021 how we go forward with our strategy focused acceleration. But as important it, it's driven by entrepreneurship and relentless continuously pursuit of accidents. Innovation drives organic revenue growth.

Our innovation road maps, mostly, we launched the last 4, 5 years. Also, some teams launched the last 2, 3 years. We have even a team which is just starting now to launch more the innovation road maps. But you see more and more innovations coming in our sales, and that drives our organic growth. Innovation takes a long time.

It can take 3, 4, 5 years till you really have the revenues. Because do not forget, we also have to order the equipment, and equipment can sometimes take 12 to 14 months before you even have it in your factory. Our R&D investments are increased to more than 4% of total revenue. I think we are already pretty close to 5% because we invest heavily in R&D innovations. And as I said on the general meeting last month -- last end of May, we are looking at the moment only in the Netherlands for almost 80 engineers to fulfill all the needs of our customers.

So yes, people is very important also for our innovations. We follow there the megatrends, which are shaping our future already for many years. And the focus on eco-shaping, eco-friendly buildings, driving sustainable transportation, and increasing semicon efficiency, enhancing industrial niches, that's where we focus our innovations on. Sustainable innovations, where we also will further increase our sustainable development goal rate, which is now 65% of our revenue. We measure also our innovation rate, and that goes better and better.

So we also challenge the teams. We set ourselves targets on this very important KPI. And our pragmatic culture and lean structure keeps us ahead of the game. Sustainable entrepreneurship, we have there a fantastic opportunity as Aalberts. 65% of our revenue is linked to the sustainable development goals where we -- which embrace.

It's not only our responsibility as a company, but it's also a tremendous opportunity for us when you look to the business. We are creating energy savings. We distribute water on an hygienic way. We have lifetime extensions and lightweight materials which we stimulate. That means in service technologies, we extend the lifetime of the materials.

And for example, we use more and more aluminum, which also has to be treated. And we accelerate technology breakthroughs with our OEM customers in our semiconductor industry with advanced mechatronics. 65% is already related to the SDGs, and our goal is to increase that further. Unique positions with sustainable impact. We are one of the enablers for a sustainable world.

Operational development of the first half year 2021. The highlights. Our revenue was €1.511 million -- billion. It's the record revenue in the 6 months. We reached 70% higher than last year.

And what is really a good performance is a 61.8% added value. Also, when you take in account the mix effect because still certain industrial markets are just ramping up. And in these industrial arenas, as you know, for example, in Service Technologies and Fluid Control, we have high added-value margins. So there's also a mix effect in it. The pricing in the first half year, and also my colleague will comment on that more in detail, is still limited effect on our revenue.

The more impact will come in the second half, and of course, also next year when we have a full year effect. 61.8% of added value. And EBIT of €226 million, 86% higher than last year. And our EBIT margin, 14.9% compared to the first half year 2020, 9.5%, but also much higher than the first half year 2019. So you could say that the combination of innovations, leverage of the company, the strategic restructuring program, but also, the unique market position we have and the pricing power we have is now coming together.

The net profit, 97% up. Earnings per share will go to €1.52 half year. And our capital expenditure is 8% higher. But do not forget, an industrial company, a technology company like us, of course, last year, we were cautious with our investments. So we ramped up again, September, October last year, step by step.

So you will see an increase in the second half and also mainly next year. So our guidance will be for this year, that we still will spend between €160 million and €180 million of capital expenditure during 2021. It could even be a little bit higher in 2022 because we have many, many good plans, which we are now pushing and pursuing following our unique positions. We did two acquisitions and two divestments during the first 6 months. Sentinel, a very nice add-on for hydronic flow control and Premium Thermal, which gives us a fantastic platform in special treatments in America, in the industrial region, Midwest where we were not active.

And we divested Adex and Lasco, which were, you could say, noncore businesses, but also we were not seeing opportunities in the future to grow it in margin or revenue with a unique position. Our return on capital improved a lot again to 15.9%. So Aalberts, we realized a unique -- a record revenue of €1.51 billion, with an EBIT margin, which was also a record of 14.9%. Organic revenue, operational development. The organic revenue growth of 20%, and very important, plus 6.4% compared to 2019.

Our order book build up further. End of June, we had plus 59% compared to last year and 66% compared to 2019 in the same period. And we see, yes, the order book is building up in different segments and different areas. And yes, that looks promising also looking to the second half. No severe issues till now.

We face related to supply chain disruptions and raw material shortages. We had our difficulties. Our teams were very busy to handle that. Besides pricing, which was a very big topic, of course, in our business teams, we also had to manage all these supply chain disruptions. But due to our business model, where our business teams are very close to the customer, very close as and with an entrepreneurial spirit, we were able to act very fast.

So you see that the Aalberts business model, where we put the responsibility on a low level, close to the customer and people run their own businesses, you see that they act very fast because an entrepreneur has to act very fast. So no severe issues till now. But the world is still unstable. So hopefully, we can manage it like this also in the second half year. Certain things you see improving.

Other things are still very challenging. But we managed it till now on a good way. Based on the business evaluations and the market trends which we did in the first 6 months, we discussed with every business team, what do we think the coming years on an innovation basis, on a business development basis? And what are the market trends doing? Yes, we will increase our capital expenditure not only this year, but also the coming years. I think our positioning in our eco-friendly buildings and also coming with the green deal and all the taxonomy which is now coming, we are so well positioned that we will further increase our capital in existing locations, but even expand beyond that. And I think the positioning where we chose for 5, 6 years ago and also divested many things is now paying off.

So we will increase our capital this year to €160 million, €180 million. It could be even a little bit more. It depends on operationally how we can handle it. But I think next year, we'll be in the same range or even higher. It could be even above €180 million.

We have the plans to do that. It's also a question if the teams can operationally handle it. And of course, we have to be on top of it that we get also the returns. Our strategic restructuring program implementation. The inventory reduction projects are running on track.

And also, our divestment program. We guided in December 2019 that we would divest between €300 million and €350 million. Now we are good on our way, and we're still aiming for that number. And that's on track. The same is for the strategic restructuring program.

I think the business teams delivered their excellent performance, and we are tracking that very closely. And you can see it in the numbers that it's also coming back in our profit. And our goal is, as we said also in December '19, to evolve faster into an even stronger and better hours, realizing our strategic objectives. And our objective of EBIT margin of 14%, we reached in the first 6 months of this year. Our order book end of June, plus 59%, and increasing capital expenditure.

That is maybe the takeaway of our operational development in the first 6 months. Looking to the end markets. Eco-friendly buildings, we did very well in all regions. And important to mention here is that we have many underlying growth drivers. And that's for our piping systems.

It's for our hydronic flow control, but also, for our district energy program and our energy supply activities we have in this end market. We have very good positions there, and the market growth drivers actually contribute to good performance. And that are mainly the market recovery, of course, and also some restocking in the distribution channels after the pandemic last year. But that's not the only thing. I think end user are also investing more in renovation and upgrading of residential housing.

So the money they normally may be spent on other things, could be vacations or hotels or whatever, is also partially spent to upgrade their house. There are also much more house movements, as also everybody can see. That means that the moment you buy a new house, you will renovate. And probably, as you know, 70% of our business is renovation. So that really helps.

Our innovations which we lost -- launched the last years are driving also our growth. Some examples. I think our press connections are doing very well for piping systems. Also, our multi-layered pipes and fitting connections are doing very well. And also, the innovation we launched there, I think in our hydronic flow control activities where we launched the last 2, 3 years 15 new product lines are coming more and more on speed, all driven by sustainability.

New air and dirt separator ranges, it's all driving growth. And it makes our position more unique, and therefore, you create pricing power. We accelerate -- this is accelerated by also governmental support programs, stimulating, building efficiency. And the transition towards sustainable heating and cooling systems, we are perfectly positioned there. And a nice example is, for example, that in Germany, there is at the moment a subsidy where when you replace your oil burned heating or cooling system, you replace that to a more sustainable system that you get a subsidy till the end of 2022.

Now we are in the middle of that because the moment they changed their heating system, they take a heat pump or another heat source, but they always need our products, our systems around it. That means the expansion vessels. That means the air and dirt separator. That means the hemostatic controls. It means the piping.

It means the connections. It means the valves. So for us, that this is a great development. And we see more and more government support for our programs coming, now also in France, in other countries, in Holland. And this is -- you must imagine that the green deal, which is announced last week, is not even part of that.

We think that the coming 2, 3, 4, 5 years, you see the effects of that. And there, they say that the innovation rate has to double in buildings. So that is -- we are perfectly positioned. Our operational excellence initiatives and the consolidation of our distribution footprint where we talked a lot about the last years is really making progress. In America, we have now a very lean structure.

It's operating very well in many areas of the United States. In Europe, we are further consolidating in the last months. We consolidated another warehouse in our new facility in Zeewolde. We started up our new distribution center in Belgium for our plastic piping systems. And we also now just started the distribution center in Almere for our hydronic flow control areas -- activities, where we also integrated already the first warehouses, but we are still doing that and continuing.

So I think this process in Europe will continue probably till beginning next year. And more and more, we see the fruits of this consolidation. Investment plans, we will expand, because our manufacturing and assembly capacity, we have to increase, but we do that in combination with operational excellence. So we have new technology defined for our equipment. We call that 2.0.

And also, we copy that now to other areas in the world. And we really accelerated that already the last 2 years. And we decided in the first half of this year to put even additional equipment in our locations in Europe to follow the market for these fast-growing product lines. So many growth drivers, sustainable growth drivers, perfectly positioned here, a very good management, good business teams. The consolidation is coming together.

And we planned additional investment plans in this end market. Semicon efficiency, again, a strong growth and performance. Yes. Long-term growth drivers are the strong microchip demand for computer, logic and storage, e-mobility developments, connectivity in general for all kind of products. It can be your refrigerator, it can be your washing machine.

Everything is connected. And to give data and Internet of Things to your iPhones, it's all needed chips, from high sophisticated chips to low sophisticated chips. Investments in new fabs which are going on 5G rollout, I can continue like that. And do not forget, we are one of the most important suppliers to these OEMs. And we have also the power to further invest and to drive this.

So we are doing that. So we are going actually, yes, in the slipstream of these bigger OEMs which need us. So these growth drivers are not gone for the coming years. They are accelerating our business even faster than expected. And so here, what we are going to do is that we are going to expand our existing locations which we have in our Advanced Mechatronics business.

But on top of that, we see another trend, and that is that microchip manufacturers are also expanding their regional capacity to secure their own technology know-how and supply chain. This has accelerated the last 12 months. There's also the reason of, yes, of the political situation, and people and companies want to protect their technology. This will and is already accelerating additional investments from our customers, and they asked us to follow them. And we will do that, and we can do that, but we have to invest much more.

So based on these growth drivers, these additional customer investments, record order book and conversation with our key accounts, we expect a very strong growth this year, but also the years ahead. And we can look forward till 2022, '23. And I think the growth drivers will also go beyond that. So we are preparing our plans for coming 4, 5 years to expand our capacity in combination with efficiency improvements because also we want to have the best technologies to create a uniqueness in our operations in all our locations. On top of that, we are talking to our key accounts with new product introductions.

And this could even give an additional growth where we need, again, additional expansions, which we cannot do in our existing locations. So we're also looking to that. And -- but we need to strengthen further our organization. We are now recruiting additional engineers. And our brand name, Aalberts, is helping them more and more to do that jointly, because we need at the moment in -- only in the Netherlands, not only for the semicon, but for our other business already, almost 80 engineers.

And we are heavily recruiting there to drive these new product introductions. So we expect in semicon efficiency strong growth this year and the years ahead. And we are preparing capacity expansions for the coming years, and we have a horizon of at least till 2023. But I think even beyond that, we see that as a very prosperous business. And we are in also here in a very good position to follow that and to drive it.

Sustainable transportation, also, we saw here a strong market recovery, driven by restocking of the supply chain, but also, more customer demand. And you see the customer demand accelerating the last months. The car sales are going up. But there's also another thing which is very important in this segment and this end market, which is the new developments for electrification of vehicles. When there are coming new models, new cars, it can be passenger cars, can be light trucks, can be heavy-duty trucks, but mainly passenger car light trucks, this will automatically generate new business, because a new model needs new parts.

And when you need new parts, you need to specify these parts. And you have to produce these parts, and you have to give these parts a certain material characteristic. And that's service technologies. So whenever you develop new models, we will get new parts. Now that is already very good for our growth.

And especially when you have hybrid vehicles, you need double parts, so that's even more better for us. And that's also happening. So you need electric cars. So electrification in general is generating business in our areas of service technologies anyway, but also in fluid control. Now then you see a few trends where we take advantage of.

The need for light-weight materials is leading to the increase of aluminum parts. So that means more aluminum treatments. We are the market leader in treatments for aluminum parts. That means the service technologies you need for aluminum, we are the market leader in Europe, and we aim for a leading position in North America to also gain that in the coming years. And you see more and more combination of metal with composite.

That means precision manufactured parts, which we stamp or extrude, are combined with composite and plastics to also reduce weight, but also to give more functionality to the parts or to the systems. We are very well positioned in these niches. Besides that, we see a strong growth in sustainable fluid control solutions. We make air conditioning valves for climate systems and passenger cars. In the air -- these air conditioning valves, you see that we have a certain refrigeration fluids.

These are changing due to sustainable specifications. And we are developing these new fluid applications for electrical vehicles at the moment. It looks very promising. That means we can sell them also to much more models of electrical and hybrid vehicles. Very interesting.

So the market is growing. We have a very good position, but we also have a new application where we are working on. We are codeveloping new regulators and valves for hydrogen. That's in the starting phase. But we are in good development and discussion with our customers and gas applications.

And importantly is that our aerospace activities, which is a small percentage of the total group, but it's recovering faster than we thought with an increased order intake. So strong market recovery, many innovation and application developments which have to come in the coming years. Industrial niches. The industrial markets, as I already explained also in our full year results of 2020 in February, they are behind. And that's also logic, but industrial is mostly a CapEx-driven business.

It's project-oriented. So when you start the project, it takes 4 to 6 months normally when it comes to an order. Now what did you see? Especially in the last quarter, we saw an increased order intake. And that means that also the second half in this end market will be much better. So we see already an improvement.

But the real improvement comes in the second half and also next year because we are still lagging behind. That also explains why our margin there is a little bit lower because we don't have the real leverage at the moment. But it's improving, as you can see. But it's not there where it was in '19, and that's for service technologies and to fluid controlled case. But we expect a further increase in the second half in Europe and North America.

Now nice to mention is here, our investments in really specialized service technologies in the industrial niches, like turbine and like additive manufacturing, which we started up with special treatments, they are really getting traction. We installed new equipment 1.5 years ago in North America. And we installed now additional equipment for the treatment of additive manufactured parts, but also turbine parts, very special parts for aerospace. And we've got already many, many new customers in a very short periods because we have a new more sophisticated technology with the newest equipment, with a very good margin which we gain there. And we will now expand this technology also to other regions, and additional investments are in process.

So industrial niches end market. Order book increased. We expect further increase in the second half of the year. Overview of our end markets and regions. It's a picture you saw already many times.

You see that our semicon efficiency end market is -- has a strong growth. It is now 9% of our revenue. We guided in December '19 that we would double the percentage at that time. So our goal is still to do that, to go to the 14% of the total Aalberts revenue. Of course, it takes time, but you see already the development.

And we expect a very strong growth going forward in semicon efficiency, but also in eco-friendly buildings and also in sustainable transportation And industrial niches is -- we have some very nice applications to develop in the future. Acquisition and divestments. We acquired Sentinel in the United Kingdom. A very nice add-on for hydronic flow control activity. It's specialized in cleaning and protecting and maintenance of heating and cooling systems.

So actually, you improve the heating and cooling system. So it works better. It uses lesser energy. So it's energy efficiency of the system. And it's a fantastic add-on for the total portfolio.

The revenue was approximately GBP 20 million. And our aim is, of course, to grow the business further. And yes, we didn't make a bad start after the acquisition. Then we announced a short while ago the acquisition of Premier Thermal, based in Michigan, USA. It's a leading aluminum treatment provider.

And especially, aluminum is a material which will be used more and more, and it's serving various end markets. They are very well positioned in the electrical vehicle market. We have a very nice pipeline for the coming years. And also the electrification of the light truck market, we are in. And it gets us a fantastic platform, good management, and to build further and to consolidate the market also further.

And we were not present in that area in the industrial Midwest. Annual revenue, approximately USD 60 million. And we see that as a platform which we will further grow organically, but also through acquisitions. Then we divested Adex in the Netherlands. €10 million revenue.

Adex was -- this was actually a noncore business which we -- yes, we thought it was better to bring it in -- to another owner. And I think we succeeded in that. And the same is actually for Lasco. And so they were part of our divestment program, as we announced in December '19. Now I give the word to my colleague, Arno Monincx, for the financial development.

Arno Monincx: Thanks, Wim. And also, good morning from my side to everybody, of course. Starting with the revenue bridge. From the base of the reported revenue of €1.287 billion last year, we had a positive effect in this year of our acquisitions, and which was actually the Sentinel acquisition that you just saw passing by. We had a very small effect of divestments in this year of €1.4 million.

The negative currency effect of €33.4 million was mainly caused by U.S. dollars. And that leaves €252.3 million of organic growth to finish at the €1.511 billion of revenue in 2021, which is equal to a 20.1% organic growth versus the decline of 11.1% that we reported last year. Then the same bridge for the EBITA. Started from the base of 2020, the first half of €121.7 million.

We had a positive effect of €1.4 million of our acquisition in this year. We had a very small negative effect of our divestments that we did last year, 2 small divestments. We have a negative currency effect in the EBITA of €2.6 million, also mainly caused by U.S. dollar. And that leaves an organic EBITA increase of €105.4 million, which is 87% plus.

And that is, of course, at the end ending up in an EBITA of €225.8 million or equal to 40.9% of our revenues. The income statement, where you see, of course, the revenue increase of 70%, but we also, yes, performed a 90.5% of EBITDA versus 40.9% last year. We have slightly lower depreciations also because we delayed some CapEx programs last year in the COVID period, and at least at the end, an EBITA of €225.8 million or 40.9%. You can also see that the net finance expenses, net finance costs are lower than last year. So also, the net profit before amortization increased to €168.6 million.

And that leaves an EPS before amortization of €1.52 versus €0.77 last year, which means an increase of 97%. So organic growth, 20%, EBITA growth, 86%, and EPS growth of 97% are the -- is the performance for this first half year. Then the balance sheet, where you can see, of course, the net debt reduction as we continued. We started already with that last year by good cash flow management, with also good cash flow performances. Our working capital, we made again a big step forward.

And we reduced the days, from 80 days last year to 68 days this year. So despite the strong growth of the business and the revenues, we are able to manage that in the right direction. Solvability still very strong, 53.2% of equity as a percentage of the total assets. And yes, the capital employed was even reduced a bit. So that -- the improved performance, profit performance of EBITA also contributed to a better return on capital employed of 15.9% versus the 11.7% last year.

Cash flow statements, where we see, of course, the improved EBITDA, which is €103 million more than last year, has a big contribution to a much better cash flow from ops, which was €85 million higher than last year, finishing at €153 million for the first half year '21. The changes in working capital are more or less the same as last year. And you see some change in provisions, which is, of course, the effects, also, the cash-out effect of the SRC program that we took in the costs last year as a provision. That we have also implemented in the course of this year, which has, of course, a cash-out effect here. Now then some lower CapEx, as I already said, that we slowed down -- last year, we slowed down the program, which, of course, at the end, also had a reduction in the cash-out last year.

But now we have started it again. So it takes some time to also have this cash-out in our cash flow statements. But we expect, as Wim said, an strong increase of the cash-out of CapEx for the second half of the year because of all the programs that we have started and restarted again. At the end, the free cash flow, positive €90 million versus a small negative of €4 million last year, which is a good improvement. You see also here that we paid less finance costs.

And then the acquisition divestments, we see, of course, the cash-out of our acquisition that we did. And also, to make that clear, we have deconsolidated the Adex disposal per the 30th of June, but the cash in is not in yet in this number because the cash in was in the course of July. So we have a strong free cash flow from ops. That is the conclusion and the takeaway from this overview. Then the split per segment.

On the revenue side, where we see also the effects of the strong markets for eco-friendly building and installation and climate technology, where we have a very good improvement of revenues. But also material technology, we see that, yes -- and especially the impact of the recovery of sustainable transportation has taken effect there. And like also Wim said, in the industrial niche end markets, we still believe that there will be a further improvement in the second half of the year. Industrial Technology then. Also, they see a plus of 40%, where, of course, we still have some delay in some industrial markets, for instance, in the fluid control, some fluid control businesses.

But we also have a very strong performance of our semicon activities, which, at the end, ended up in a total of 40% also for this segment. Now the capital expenditure, also here, you see the trends per segment. And as I said, we will be for sure a lot higher in the second half of the year because we really see that we will accelerate the CapEx spending because we start all these projects. So at the end, 70% revenue growth, with a continued CapEx program going to be accelerated in the course of this year. Then the EBITA and EBITA margin split.

You see a very good recovery of EBITA in all segments actually. Installation and climate, very -- both very, very nice recovery of EBITA. And in Material Technology, you see also the effect of the structural cost improvement that we made there, within -- also, a big part of the strategic restructuring program. EBITA performance, margin, 40.9% in total. But we also see now that in all segments, we improved our EBITA performance above the 40%.

And that is also showing that we did the right improvements in the course of last year. And now with the businesses recovering and also getting the leverage in of this recovery in our facilities, we see that the profit performance is really in the right direction. So in all areas, more than 40%. And even in climate, 16%, a very strong performance.

Wim Pelsma: Yes, the outlook.

The outlook is that, yes, we continue with what we are doing. And we are continuing our business development and innovation initiatives, driving our sustainable profitable growth. I think what we also mentioned already earlier, I think our positioning in the different end markets is very good. And we further focus on further organic revenue growth through innovations, through sales, and that's what we call business development. And that will drive our sustainable profit growth further.

It will also drive our leverage further because that's the whole idea. You produce more on your existing equipment. In the meantime, you improve your equipment through operational excellence or 2.0 new technology. And therefore, you create a better margin. On top of that, I think it's also important to mention that we will do and we aim for at least further bolt-on acquisitions.

And we have a good pipeline at the moment. We know exactly what we want. It is the same as we always said, in the areas where we want to consolidate or improve our position. It's in service technologies in North America and Europe. It's in fluid control, where we would like to add on things on sustainable transportation or certain niches.

And in hydronic flow control, we see opportunities. And that are the areas we're looking for. A fantastic pipeline which we will pursue. But we are disciplined, and we don't want to pay too much or too high multiples. So we started the second half of the year with a good order book, and that's very important.

So I think we will therefore have a good start of the second half. And I think what we have to look for is that we manage the supply chain disruptions well. Till now, we did that, but let's see how that continues. We are on top of that. The same is for the pricing improvements and pricing excellence.

Price increases, we are on top of that. But it's hard work. It's a lot of work for the business teams. But we know what to do. Now our capital expenditure, as already explained, in organic growth, innovations and operational actions will be increased.

That's not something only for the second half of the year. We also look already to 2020 and 2023, where we see we have to act to stay ahead of the game. And so we are very busy with all the business development plans with the business teams to drive that. So that's the outlook for the coming period. Now then we announced that we will organize a Capital Markets Day.

It will be on Thursday, the 2nd December 2021, where we will give an update of our Aalberts strategy, focused acceleration. And we plan to do that in our new facility in Almere, the Netherlands, from Aalberts hydronic flow control, where we would combine it -- the Capital Markets Day with an innovation experience and also a factory tour, because we have there also our new factory opened and combined with the distribution center. So we will welcome everyone. We will, of course, announce there also an invitation, et cetera. So we think there are hopefully a lot of questions so we would like to start the Q&A now.

Operator: [Operator Instructions]. Our first question on the telephone is from Mr. Henk Veerman, Kempen & Co.

Henk Veerman: Congratulations with the strong results so far in the year. I have three questions.

The first one is on the market and on the outlook for the second half of the year. I mean you and a lot of your peers, they are guiding on significant cost inflation of raw materials, of production costs, of components. Have you already seen sort of -- yes, do you currently see potential delays, or let's say, potential delays of projects of your customers related to those increased prices in the second half of the year? That's my first question.

Wim Pelsma: Yes. Henk, I think you're aiming for the building markets.

Henk Veerman: Yes. Correct, yes. Sorry. Yes.

Wim Pelsma: Now I think for the building markets, yes, I must say what we see is that there is, of course, pressure on pricing, a lot in these projects.

But as we said, we have a very good position. So we are really pushing through our price increases. We have also the pricing power to do that. So we are very positive about that, as we always do. So that's also why we don't mention it so often, because we have the position to do that, and we will also do that this year.

Yes, and of course, it will increase the prices also of the projects. At the moment, what you see that there are some -- for some projects, there are some discussions that people have to renegotiate or -- yes, that -- so it could be that there will be some delays. But at the moment, we don't see it as a big issue for 2021. It could, of course, be that the new projects for '22 or '23 will -- yes, we will have some effect on it. On the other side, you have to know that there's a tremendous need for buildings.

And so yes, some way or another, they have to renovate or to buy -- to build a new building to confirm the needs. And the other thing is a sustainable drive. And what we really see is there, there's really traction. Sustainability will not stop. It's really coming in our business -- so that -- we think that will absolutely counter-effect a possible delay of some projects.

And so that's the opinion of us at the moment.

Henk Veerman: Okay. And the second question is on what I think you said a couple of times, that there's a shortage of labor, of skilled labor force. You said that in the Netherlands alone, you are currently looking for 80 -- about 80 engineers. Do you also -- can that also potentially weigh on the second half year growth and potentially on the margins, maybe through some employee cost inflation because maybe you need to offer a bit higher wages? And so what has been done? Any incremental incentives to try and fix and solve this problem of a shortage on your side? And then related to that, have you also considered offshoring some of the engineering work?

Wim Pelsma: First question there, I think the increase of cost, we will, of course, take with us in our price increases.

So we not only look to raw materials. We also look to inflations of personal experience and other things. So we will utilize our pricing power and do that to protect our margin or even increase our margin. The second question is, yes, I think it's important that -- and we see also that we more and more build our Aalbert's name. And our Aalberts name together with all the companies we have in different countries, and we are more and more doing that to be attractive as an employer, as a company, that you attract the right people.

And you see that our branding, our culture is really helping there. So I must say, we are really pulling in a lot of good people at the moment. And that's also because, yes, we have seen as an entrepreneurial company where people really can develop. But we have to do that really more. So I think on -- you must imagine that the engineers where we're looking for are for the innovation projects for the coming years.

So we have also time to fill them in. But yes, we have to give it a lot of attention to get the right people on the right spot, and that's an important topic. But at the moment, I don't see that as a -- that it would slow down our growth. So I think what is very important for the growth of the future is that we recruit the people on time and then rest on time. So that's what I personally am pushing a lot at the moment, looking to the potential going forward.

But I think when we have the time, we can solve these things.

Henk Veerman: Okay. That's clear. Last question for now is on the CapEx, the higher CapEx that you guide for. You already mentioned some capacity expansion in the semicon space, some new product introductions.

But I'm trying -- what I'm trying to understand is the incremental higher CapEx guidance. Is it driven by, let's say, more capacity expansion and more product innovations? Or are these plans already on the table? But have you guided now for higher CapEx because maybe your existing plants in our insight will cost a bit more, also driven by raw material inflation?

Wim Pelsma: No, no. It's -- the -- what we see is that the existing plans which we had already, we accelerate. So what we mean by that is that we see more demand. And especially, for example, in the building environment, in piping systems, hydronic flow control.

And there we see a bigger demand of the fast-growing product lines and the innovations. And so we have to add capacity in these fast-growing product lines. Important is that these fast-growing product lines don't stop in the coming years. So when I, for example, look to our new expansion vessel which we developed, which is 20% or 25% more efficient than the previous one -- we just started 2 years ago with this product. This product will grow for the coming 10, 15 years.

But at the moment, you see that, that you have -- need more capacity. You have to order an extra line, an additional line, what we are doing now in Almere. And so that's one example. And so it's a combination of a good position, fast-growing product line. And you need to add capacity on top of the capacity you already planned, let's say, beginning of the year.

Now the second thing, what you see is really new innovations. So new innovations. For example, in the advanced mechatronics semiconductor area. Yes, we get new product introductions, which we have to engineer, and then we have to assemble or manufacture it. So that needs a place.

That needs also new equipment. That is actually why we -- yes, we guided for this year €160 million to €180 million. And it could even -- when we operationally can manage it, could even be a little bit more. And that will also be next year going to the €180 million or even a little bit more. It is not the case that we have more costs for the existing ordering of equipment.

And of course, there, you have also some inflation. But of course, we try to negotiate that with our suppliers.

Henk Veerman: Okay. That's clear. Maybe if I can squeeze in one more question then on your leverage and on your debt position.

Because you're currently at 1x net debt to EBITDA. The second half is traditionally a half year with significant cash inflow. And on top of that, you will receive the divestment proceeds. Yes, considering the higher CapEx and also maybe you will continue to do some M&A. But at the same time, I think your leverage at year-end is expected to be at sort of almost a decade low.

Does that open up the door for sort of incremental shareholder returns? And how do you look at that conservative leverage at this point?

Arno Monincx: So let me take that one, Henk. Yes, of course, the cash flow performance of the company is good. And as you said, we also have still the inflows of disposals. But we also, let's say, already announced an acquisition which we also still have to pay for. And we still have very good plans on the way forward also for further bolt-on acquisitions.

So we have also mentioned that in the press release that we are active. The pipeline is good. And yes, we are also active on that role. So we still believe that we have enough, let's say, business opportunities to allocate our capital to these before we start to return that back to the shareholders.

Wim Pelsma: Henk, maybe to add.

It's as always -- our aim is to be an entrepreneur and to develop our business and to create value. At the moment, we see that yes, we would have too much cash or the cash is not working, then we will -- yes, we will return it to our shareholders. But do not forget, we also still -- have still a net debt of more than, what is it, €600 million. And so also reducing the debt further is also a topic. But yes, as we always said, when the money is not working or we cannot get the money working, then we will think of these options.

I must say our pipeline for acquisition is very good. So -- and we're also more ready to do more acquisitions because our business teams are ready for that after the transformation period. And yes, we will also continue our divestment program. So let's see how that works out. And when we have too much cash, we will overthink that.

But it's not our preference.

Operator: Our next questions are from Mr. Peter Olofsen of Kepler Chevreaux.

Peter Olofsen: Congratulations on the strong margin. On that topic, for this year, you were looking for the full benefit of the €50 million in savings.

Could you shed some light on how that will phase over the year? Will there be some additional savings in H2 compared to the first half? And then related to the CapEx, I understand that part of the CapEx will be to drive further operational excellence. How much additional savings could that result in?

Wim Pelsma: Let's say, starting with the first question, about the strategic restructuring program. We have also guided last year that from the €50 million annual benefit that we estimated at that time, that about 20% was taking in the second half of last year. And the majority of the remainder would flow in this year. Now we are on half of it.

So you may assume that also about half of the remainder is into our numbers over the first half.

Peter Olofsen: So that means that if you compare H2 with H1, there should not be a material additional benefit?

Wim Pelsma: No. I don't say that. Let's say we have said we have a full annual benefit of €50 million. Now about 20% was in the first -- in the second half.

And I say about half of the remainder, but let's say, that is in the first half of '21. And the other part, yes, you may expect in the second half of this year. So you can calculate. So it means that the tragic restructuring is also continuing in the second half. Okay.

You have a delay when you reduce people or you improve, you always have a delay of your cost flowing out. So there's still a nice amount to get out of the cost in the second half of the year. And I think end of this year, I think, Arno, we could say that. And then most of the program is done. That is maybe a small part, a very small part in the first half '22.

So we're not done yet.

Peter Olofsen: And will there then be additional savings from some of the investments that you will be doing?

Wim Pelsma: Yes. The operational excellence is a continuous process, and it's running in all the business teams. So yes, of course, when you do investments in operational excellence. For example, we are now busy to improve our manufacturing of press fittings in North America, is one of the many examples.

Yes, that will reduce our cost price. And that will come in step by step also, in the numbers in the coming periods. It's not only the coming 6 months. It's also the coming 18 or 24 months. And in the meantime, it's a fast-growing product line so we get higher leverage.

Yes. So we still have -- there a lot of gain also from an operational access point of view. That's also why we always said, yes, if it will not stop after we reached 14% margin. So it's a continuous process. We are still busy to optimize our portfolio.

There's another thing where we now made a good progress with the divestment program, and we will finish that divestment program before end of '22. And in the meantime, we add other acquisitions where we have a nice pipeline in combination with organic growth and operational excellence. So that will go on. And we will give some more guidance end of the year how we see that going forward.

Peter Olofsen: Maybe on the operating leverage, obviously very strong in the first half.

I recall from the Capital Markets Day in December 2019 that to get to the 14%, you were looking for like 25% drop-through or incremental margin from organic growth. From where we stand today, do you think also going forward, this 25% drop-through is realistic or?

Arno Monincx: Yes. Let's say, of course, we have always said, if we come up above the level of 2019, then you should also get into account. And yes, that is still valid, I think.

Peter Olofsen: Okay.

Then maybe to follow up on some of the earlier comments around M&A and divestments. So the M&A pipeline looks very robust, so to say. But what is the scope for potentially larger deals? Or do you generally see that valuations there are still a bit too high?

Wim Pelsma: Yes. I think what you say, we looked at larger deals also in the beginning of the year. We even were -- with one very busy, but you see that the M&A world is very high multiples.

And I think sometimes, it's not realistic at all. So we don't do that. So the moment you get in auctions or whatever you get compared to, or you're in competition, you pay far too much. So our way of forward is that we build relationship. We have some nice niches where, yes, where we know what to do, where there are not so many people know what to do.

And there, you can take your advantage and acquire companies at a less multiple, which is where we can really generate also returns. And as you know, we are very disciplined. It's -- and that means when we do not earn our money back on a cash flow basis in 7 to 8 years, based on our business integration plan, then we don't do it. So you can still pay a little bit more because you have more synergies. But then you also have to realize these synergies.

And at the moment, bigger companies, you pay far too high multiples. Where I don't understand how you in heaven sake get your money back in a reasonable time, which you can oversee. So we don't do that. It's also not needed because we've also tremendously fantastic organic revenue growth plans. And that's the most important organic revenue growth.

That's our preference. And with bolt-ons additional, we create new organic growth. That is how it should work, as always, as we always did it.

Arno Monincx: Accelerate our strategy, yes.

Peter Olofsen: And then on the two acquisitions and the two divestments that you have recently announced.

Is it fair to say that, on balance, those transactions will be margin accretive? And could you maybe give an indication by how much?

Arno Monincx: Let's say, yes, the two divestments were, as Wim said, also not really noncore businesses. So also from that perspective, let's say, we believe that the acquisition we made in our core, with all the growth opportunities also, that we, of course, have a higher margin and better margin on the acquisition than on the disposals. That is what it is.

Wim Pelsma: And potential to grow, so it's a combination.

Arno Monincx: Because, as you know, we have -- we always have said, if we don't see the growth opportunities and we don't also see the business able to really grow above a certain margin that we have set as a goal for -- in our strategic objectives, and then for us, it's something that we look at to divest because we can better allocate our money to higher growth potential businesses with a good growth potential, but also with a good margin potential.

Peter Olofsen: But you are not willing to disclose how much the overall margin increase could be from these divestments in?

Arno Monincx: No. We never do that. But when you listen well in December '19, we give their guidance on what is the portfolio optimization goal for this period. But we will not do it.

Wim Pelsma: So it's margin accretive, yes.

Arno Monincx: The answer is yes, but we cannot say how much.

Peter Olofsen: Okay. And then my final question is on industrial technology. We see that all 4 segments have a higher margin than the first half of last year. But industrial technology is still the one that is below the 2019 level.

I'm just trying to understand why that is. Is that purely because defend track business and the activities in the industrial niches have not yet fully recovered? So their sales are still below pre-pandemic levels?

Wim Pelsma: Yes. It's clearly a mix issue. So of course, we also have, for instance, in dispense business in this segment, you can understand that dispense is still yes, in a slower pace. We see some recovery, but it's still very, very slow in comparison to the other markets and the other segments.

So that has an impact. So it's a mix impact. And on the other side, yes, it's compensated, fortunately, for a big part, by a very strong performance of advanced mechatronics.

Peter Olofsen: Yes. Because that business is obviously growing very strongly, but you're also investing in the business, adding costs.

So is that immediately margin accretive? Or does it take some time to fill that capacity so you don't see the full margin potential in semicon already right now?

Arno Monincx: Let's say, of course, when you invest, you're also taking cost. But you also, of course, invest to get out more revenue out at the end, more production and more revenue with more margin. So most of our investments contribute to profit potential certainly for the next period.

Wim Pelsma: But you also have leverage here. So of course, you add cost, but you also have leverage on your equipment.

So we aim for that the margin is, of course, increasing also in advanced mechatronics. But what -- I think it's a very valid question, Peter. But what you see is that advanced mechatronic is growing fast, and that the industrial niches where we have a very good niche position, high margin, are still behind. In sustainable transportation, that's doing well. But the industrial niches are behind, with the most difficult business, which is now recovering, dispense.

And so that explains that you see growth, but that your margin, EBIT margin is not going back to the old numbers. But when the industrial niches are improving further, second half and next year, you will see also the margin growth.

Operator: Next questions are from Mr. Martijn den Drijver of ABN AMRO. Martijn

den Drijver: I would like to kick off with a question on the raw material pricing.

Looking at what your peers have reported, could you perhaps quantify the FIFO effects in the first half year? Other industrials have reported that it's been quite substantial, with positive impact on gross margins from that FIFO effect. Could you perhaps shed some light as to, if any, effect that has had in the first half year?

Arno Monincx: Yes. Let's say, what we have said is that we see that the real net pricing effect in the first half year is about 3% -- 2% to 3%. And a lot of price, let's say, initiatives have started, of course, in line with also the raw material developments. But it also takes some time to get these full effects in because when you increased for the first of April, it will give you the -- and the second quarter before the full effect is coming in, in the third quarter.

So there's always a delaying effect from there. Another topic is that for a lot of industrial businesses, that price adjustments are always done afterwards. So after a period of a quarter, for instance. They have a material clause in the contract. So then you get the adjustments afterwards.

So also there, there's a delaying effect in times that the cost prices are increasing. So we assume about 2% to 3% of net price effect in the first 6 months. And that we expect also that it will further increase, of course, in the second half of the year. Martijn

den Drijver: And then specifically, because price increases to customers are one thing or one component, but inventory revaluations that you've been able to recognize as a plus in your gross margin, has that been a material component in the first half year?

Arno Monincx: Let's say, of course, there is an impact on the inventory valuation for sure. That's also one of the reasons that you see that the inventories have made the movement as they did.

By the way, that has also been caused by some more raw materials they took into stock also to be secure of deliveries for the next period. So there was also some more inventories from that perspective. But also, in the gross margin, I would say that, that effect is rather limited, because, yes, at the end, you can -- you only -- that effect is limited, Martijn. Martijn

den Drijver: Okay. Okay.

And when you say limited, should we be thinking about 10, 20, 30 basis points or a little bit higher? Just to give us a bit of a sense.

Arno Monincx: Let's say, a few basis points, but not more than that. Martijn

den Drijver: Okay. Then the second question is on those price increases. You just mentioned 3% net.

If I look at some of your distributors there, they've been announcing that your price increases for the second half year are significantly higher. Can you perhaps share with us whether those price increases that you have announced to your customers has led to slightly higher than normal restocking ahead of those hefty price increases in the first half year?

Wim Pelsma: Let's say, we think that there will be some because you have always an effect before a price increase, that customers try to purchase more. But we have also actually quite a challenge to get the big order book delivered. So in many cases, it's just the pricing we make on the deliveries, because, yes, we are already happy in a lot of growing businesses that we can deliver in time. So you can imagine with an order book like we have and the growth that we make, that it's also in some business quite, yes, they are really running on higher volumes.

Arno Monincx: But maybe to add here, Martijn. I think we announced from December on so many price increases. I think we are sometimes, busy with the fourth round that it doesn't make sense so much to order a lot before the price increase because the next one is already coming after 3, 4 months. Hopefully, it's now stabilizing. And yes -- and then you get a little bit of the situation.

So yes, you always have that you get from some customers additional orders. But on the total, that is minor. And important is that the price increase effect will be higher than in the first half. Martijn

den Drijver: And most of the wage increases from collective labor agreements both in Germany, Belgium and the Netherlands or in any region, those have been more geared towards the first half? Or do you -- is that more geared towards the second half? I don't have all of them.

Arno Monincx: No.

I think -- also, when you look to the -- just the agreement we made with the SMA in Holland, that the fact will be mainly in the second half and also next year. So we will prepare ourselves on that. So that means we will -- as long as you have the pricing power -- and you can see on our order book that we have that because they need our products and you have the position for it, yes, you have to protect your margin or even improve your margin, that's what we will do.

Wim Pelsma: So also including the personnel expense increase, and that they will come more in the second half and next year. Martijn

den Drijver: Got it.

Got it. And perhaps continuing on costs. I can imagine that marketing, consulting, obviously travel, never a big cost bucket with the, I assume anyway, but that's going to slowly but surely normalize a bit in the second half, but fully in -- perhaps even more so in the second half -- or in the first half of 2022. Would that be a reasonable assumption? And if so, could you perhaps quantify that element?

Wim Pelsma: I think it will, of course, increase a bit in the second half, but we also learned from the last period that maybe, yes, let's say, we will also reduce our traveling. So instead of flying to the U.S.

every month or so, you can better make your trip a little bit longer and reduce the frequency. And it's also what we try to make our business teams aware of and that we also have to travel, of course, because it's very important, but also, with a smart sense. And so for that reason, I believe that maybe it will not come back in full. So it will be a little bit -- it will remain a little bit lower, but it will take an upward trend in the second half of the year versus the first half of the year. That's for sure.

Martijn

den Drijver: Okay. And then on Installation Technology and Climate Technology, we already discussed capacity within Aalberts. But I also understand that installer capacity is rather limited and that installers are clamoring for staff in order to more staff projects. How, in your opinion, is that a possible between brackets threats? So you may be ready in terms of products and service offerings. But can those installers scale up fast enough despite that high demand from green deal and what have you? Just your thoughts on that element of the equation.

Wim Pelsma: No, no. I think that's a valid point, Martijn. I think when you talk to installers -- and it's actually many, many regions, that they are fully booked sometimes till summer next year or even longer. So that could in the end be that you get a sort of platform or whatever, how you call it. But do not forget that we also innovate.

So that means that what you try to do with your innovations is you take more market share or that you make the work for the installer more easy or that you combine your -- and that's what we do a lot now in hydronic flow control where we see now really successes. We combined our hardware with digital services. So at the moment, you can offer complete projects instead of only 2 products. We deliver now maybe 6 or 7 products in a complete offering. So that's our aim.

So it's -- yes, installers, yes. That could be that there's a certain -- yes, of course, you have only 24 hours to install, but you get also other solutions, and that's also what's driving the growth. And what you also see is that, of course, this installer world is adapting. So they are recruiting people. And that takes time.

But I think when you are 12 months further now, they will have more people. They will be educated. So -- but it could be a valid point. But then we have to find ways to innovate and to take more market share, mainly through innovations, which we also do. Now when you look to another point, that's a transition of technology.

When you look to our press fittings, press connections, I always said the market for press connections in Germany was €1.2 billion. And there are living roughly 70 million or 80 million people in Germany. But the markets in North America for press connections is maybe half of it or $400 million, $500 million, but there are living 320 million people. So the technology transfer from soldering or threading, to connect the pipe, to pressing, where we are in pole position is continuing the coming 20 to 30 years. Yes? So that has nothing to do with the installation capacity.

It's just a change of this technology. And we are the leading -- that's the fast-growing product line.

Arno Monincx: It's time saving for the installer because they need less time to install such a product. So that's also for them an increase of capacity.

Wim Pelsma: It is a valid point, but it's also counterattacked by innovations and also already the fast-growing product lines.

We have press connections will grow. It will grow in the coming 20 years. And then you get probably push connections. Now we are busy with that also. We have now.

And yes, that is, of course, how you do business. And what we also created in the last 5, 6, 7 years. Martijn

den Drijver: And talking about specifically this element and then linking it with M&A. You've mentioned that in terms of M&A, more geared towards service technologies, hydronic flow. Within that hydronic flow...

Wim Pelsma: And fluid control, yes. Martijn

den Drijver: Yes, excuse me. Fluid control also. Does that mean that if you look at what an installer wants to do within a renovation project, it's not only water or fluids? It's also air? Is that still something that you're looking at? I know that would probably require a larger acquisition, but it can be done by smaller acquisitions. Is that still something that you're looking at to fully complement the service offering by moving into air?

Wim Pelsma: Yes, it's a very good point, Martijn.

Air is interesting. It is true. But I must say it's still on our -- in our mind. But at the moment, we have so many opportunity in hydronic flow control, yes, that we first have to pursue these, but it is still in our mind to maybe in the future at this. But at the moment, we keep focused on what we are doing.

But I'm not ruling it out in the future. And you're right, it needs maybe a bigger acquisition, and we also look at these. But there you come then to the point again on the multiples, which we don't want to pay. So yes, that's a good point. It could be in the future.

Martijn

den Drijver: Okay. And then my final question, the €200 million to €200 something, €230 million, €250 million in divestments, should we still -- Would it still be possible or should it be -- is it reasonable to assume that you can still execute that in 2021 given that the multiples are apparently attractive? Is that something we should be taking into account?

Arno Monincx: No, '22. I would stick to the '22 timeline.

Wim Pelsma: We are optimizing it and selling at the right timing. And also, want to have a good price for it.

And you know there are big multiples. So yes, it's also we prepare it well, but it is what Arno said. I think in 2022, we're aiming to finalize it. We are not in a hurry there. We do the best thing for the company.

Operator: Next question is from Mr. Aurelio Calderon of Morgan Stanley.

Aurelio Calderon: Congratulations on the strong margin development. A couple of questions. A lot have already been answered, but I will follow up with some of the questions that have been asked on pricing.

And I guess if you say you have achieved something like 2% to 3% net pricing. My question is, do you think this has had an impact on market share? Or do you see this as potentially having an impact on your market share?

Arno Monincx: Let's say, I think in many areas, we increased our market share because we have a very good product portfolio, which is clearly winning share. So from that perspective, I think that is ongoing. And of course, when you do price increases, you also try to do it as smart as possible. And let's say that you don't do everything at loss, but if you try to do it in steps also to keep your competitive position, of course.

But again, we have a good pricing position, a good pricing power because of our technologies. So -- and the good -- yes, the advantage in these times is that everybody has to increase. So of course, that is something -- but we have a good position so we can leverage on that.

Wim Pelsma: Our aim is really not to lose our market share. So you have to do that very clever, and that's done by the business teams, I think, in a very good way.

So at the moment, we see a very good key account that -- we discussed that. We discussed price increases. And they say, I have to do it a little bit later. Or can we do it a little bit lower? Yes. Then we listen to that because you don't want to lose customers.

But on the other hand, you want to keep or improve your margins. So it's a continuous discussing and also feeling with your customer. And sometimes, you choose for gaining market share and letting the pricing a little bit go when you have a new customer or something. So it's really -- you need to do it very customer made. And that needs a lot of work.

It's a tremendous amount of work to do that.

Aurelio Calderon: Yes. That's helpful. And my next question is on your transportation business, and more specifically, in your automotive business. So question number one here is, have you seen any significant impact from chip shortages impacting production? And a second question related to that is, you mentioned that the EV transition, then especially hybrids, are seen as a net positive for Aalberts.

I think when we speak to other peers, and maybe they're more exposed to gearboxes and other parts that are more specific to ICEs, but they don't necessarily see the transition as a net positive. So why do you think this is also good for Aalberts? Is it because of your portfolio? Is it because of different business mix? So as you mentioned, aluminum. If you can shed some light on that would be helpful.

Wim Pelsma: Yes. The first question is, do we see effects of the chip? Yes, we do see effects.

I think what we saw in the second quarter is that you see some -- yes, it's not a delay, but some flattening of the order intake, stabilizing, you could say, especially in surface treatment Germany. But when we talk to our customers, then we also see a big demand. So that means that they keep on producing partly. So it's not a big impact. It's more a little bit flattening.

And we expect that in quarter 3, where we are now in, and especially all -- in September, when the holidays are over, that we see an increase in demand again, because -- and that's very important. There is also customer demand. So -- and step by step, hopefully, they will also -- they are solving these supply chain issues. But it's an unstable situation still. But it's also not getting worse.

We have the impression. So we think in September, October, we will see a ramp-up again of that specific -- in this specific topic. Now when you look to combustion engines, electrical engines, important to know is that I think now the last 20 months, we started already in October 2019. We are restructuring our technically portfolio, especially within service technologies. Yes? So we really have chosen for technologies which are niche and which also have a good future and a big future.

So that means that traditional treatments where we -- which we did in the past, we really stopped or we reorganized. It's a big part of our strategic restructuring program. Went to service technologies, by far, the biggest. So we stopped completely lines. We -- yes, we scrap those lines.

We sold them. And we closed a lot of facilities to focus on the technology of the future. Now what are our technologies for us? Yes, that is -- for a big part, is that service treatment. Yes? It's a treatment of coatings, where we have a leading position in anodizing for aluminum. We have a very good position in chemical nickel, also for steel and aluminum.

And we have -- we focus on special thermal treatments. So that means nitriding. It means also that we focus on new processes for additive manufacturing for turbine to become really a niche player. Now we acquired 2 companies in real to real metal strip coatings. They are very successful fantastic acquisitions because the metal strip coatings are a lot of cases needed for stamping parts in combination with connectors.

And we need more and more connectors in electric cars. And so that is growing. So we already did this exercise 2 years ago. And the strategic restructuring helped us tremendously to get the portfolio in the right direction. Do not forget that we also closed several locations in Germany, which we transfer to Eastern Europe, because in Eastern Europe, we still see a need for more traditional heat treatment.

But because also manufacturing plant's been there. It's -- so we are very well positioned. Our acquisitions are based on special treatments, special -- so the technologies we have chosen, there we acquire. So when you look, for example, to Premier Thermal, that's why we're so happy with this acquisition. They are leading in aluminum parts.

They are leading in that kind of parts. When you look to PPC in Chicago, they are the leading in metal strip coatings with a -- yes, sort of fantastic company, which almost half of the order book is for electrical vehicles. That is also the choice we made already 2, 3 years ago. So that's why we think, yes, we have the wrong -- we have the right technology niches within Surface Technologies, but also generating new models for cars ultimately gives new parts. And they also are looking for lightweight.

And then you come to aluminum, for example, but also to connectors. Yes, of course, there's also business going away when you are in the combustion engine, but we try to be ahead of the game there already two years ago to stop these activities. And we're not done yet.

Aurelio Calderon: Yes, yes. That's incredibly helpful.

One last question, if I may squeeze one more in. And I guess a lot has been talked about the semiconductors and ASML. I think yesterday posted very strong results and raised guidance again. And I guess, obviously, the question is what's the great opportunity to your business? And I think last year, you mentioned that semiconductors was growing something like 20% or north of 20%. If you can quantify.

And how good the business was in the first half of '21?

Arno Monincx: Yes. Let's say the good growth continued, I would say, in the first half year. So that is what it is. And yes, as you said, this -- one of the reasons of the expansion of all the plants, also for capital expenditure for our semicon business, is this big growth announced also with our key accounts, of course, like ASML. So we are adapting to their requests for more capacity for the future.

So that is what we take our investment decision on.

Wim Pelsma: It will be higher than 20% this year. And you know, we are a very good partner of AML. So we -- yes, we will follow that. And we even got more new product introductions where we are now starting the development.

Operator: And following question is from Mr. Tijs Hollestelle of ING.

Tijs Hollestelle: I'm also quite impressed by the first half results, obviously. And I think most topics have been discussed. But just to be sure, the first half performance of the insulation technology, for me, that really stands out.

Also historically, if you look at the margin. So that is really the -- what we're seeing is the structural impacts of all the programs that you have been running in the past. So that is something we can calculate with going forward. And then also, in addition, I mean, you did not really want to answer the question on the disposal. But Lasco, of course, has a lower margin.

So all things equal, next year, the margin of the Installation Technology division should be higher year-on-year. Is that correct?

Wim Pelsma: Yes. Maybe addressing the first question. Yes. I think you're right.

The Installation Technology is -- we get it more and more together. We took us 4, 5 years to bring it together. But more and more, the strategy is functioning, but we also see the leverage in our factories more and more coming. And on top of that, also here, we optimized the portfolio. So -- and we are not done yet with that.

So there's still something in a divestment program in this area, which we have to divest, let's say, the coming 12 months, so that will further help the margin. Yes. And looking to Lasco. Lasco, we tried to develop the last years to grow that. Now we succeed this in growing, but we were not really able to bring it to a margin level where we -- what was our goal.

And you're right. It was a lower-margin business, highly commoditized, very price -- more and more price under pressure. And we don't like that. So that's why we optimize it and we disposed it. So yes, that has a margin accretive effect in, let's say, in the next year.

So is the margin sustainable? Yes, it is. Are we already there where we want -- where we can be? No. I think we can improve much further, because the way we make press fittings now in North America is very old fashioned. And we are now installing equipment to reduce the cost price much further. And that are the best practices within piping systems so we have to drive that faster.

Besides that, we brought new innovations like Power Press. You saw probably in Iverson. We're going to bring another innovation in the second half of this year, hopefully, in October, which will drive our business even further, produce on very high-tech equipments in Europe. So patented products again. So that will drive our leverage further.

So we have still a lot of potential there to gain organically growth, but also in margin as we also said in December '19, which was presented by André in Veld.

Tijs Hollestelle: Yes. Yes. That's good to know. And normal seasonality, is that the second half, generally speaking, is a bit slower when compared to the first half.

Wim Pelsma: Yes. But I think when we have such an order book, as we start now in the second half, we will not have a lot of effect of the seasonality, at least not for quarter 3. Of course, I don't know quarter 4. The big insecure point is the supply chain. So we manage it very well, and we are still managing it well.

We do it actually a very good. But it's a lot of ways, it's uncertain. So yes, let's see how that continues. But with this order book, we will have also a good start in the second half.

Operator: We will continue with questions from the webcast.

The first question is from Mr. Robert Emblem. Is 3D printing a competing technology for you?

Wim Pelsma: No, no. 3D printing is additive manufacturing. And that is actually a new specialized technology for us for the post-processing of additive manufactured parts.

So we explained that a little bit in our press release under industrial niches, where we have -- we focus on the post-processing of additive manufacturing parts because additive manufactured parts which you use for, let's say, high specified products or systems, you need to treat them on a very different way because -- yes, and therefore, you need certain post-processing processes, like hot isostatic pressing, but also vacuum heat treatment in combination. And we invested in that so we see that there's a big opportunity. And let's see what it comes out of that, if you can even -- ourselves going to make some specialized additive manufactured parts. But we first focused on the post-processing of it. So it's an opportunity which we are now investing in, starting in North America.

Operator: Okay. Next question is from Mr. Dirk Verbiesen. Do you expect an improvement in the added value margin for second half 2021 given the delay in the impacts from price increases on shipped volumes in second quarter 2021?

Arno Monincx: Yes. Let's say, we believe so because that's the reason that in the first half year, that there is some delay, of course, in the impact of the pricing increase because it takes time.

But of course, this price increase now come into place in the second half year. Let's say, the raw material markets are very insecure. So unforeseen circumstances is always taken into account, of course, because when you get, again, very steep increase of price, then of course, we also have to adapt to that, and that might also take some more time. On the other side, as we have also said, in the second half year, we also expect that the industrial niche end markets will further improve. So also, we believe in the mix effect of our high added value businesses that will improve at the end -- the added value in the second half of the year.

Operator: Okay. Next question is from Mr. Pierre Bodo. You said you were disciplined in terms of M.

Arno Monincx: Yes.

M&A, what is your criteria? Let's say, we always say that we want to earn back our money in a time frame of, let's say, 6 to 8 years. So that is actually the base of a valuation for us. So that means that if we see very good, let's say, opportunities, we could pay a little bit more. And where we don't see so many opportunities, of course, then we also would not be interested in such an acquisition. But the base is always that we want to earn back our money in the 6- to 8-year time frame.

That is really our benchmark.

Wim Pelsma: Yes. And to add that, of course, it should be fully be in line with the strategy. And that is the first thing. We only acquire things fully in line with the strategy.

The second thing is what my colleague said. And the third thing is that we make a business integration plan together with the management or together with the management inside Aalberts where we really believe in. And -- because in the end, you want to generate synergies, because otherwise, you should not do an acquisition. And these 3 things make, if we say yes to an acquisition, and then roughly 10 or 20 people look to an acquisition, then we think it over 10 times because acquisition can be very dangerous. And I must say, how older I get, I'm more cautious I get, because you have to be very, very cautious.

But yes, acquisition can be a way to grow faster in certain positions, but you have to be very careful and you should never pay too much.

Operator: Our next question is from Mr. Vincent Steinman. Could you please clarify what is the expected total impacts from disposals and acquisitions on second half cash flow? And then in inverted comments, just in half year, on deals already announced?

Arno Monincx: Yes. First of all, we still have to close the biggest disposal, Lasco.

We still are working on that. So it's -- I think it's a little bit premature to speak about that. But if we would close everything as we expect, of course, then the only thing I can say is that it will be a positive impact. But on the other side, we are also still working on, yes, finding new additional M&A targets to acquire. So we will, for sure, try to find the right allocation of our cash inflows for future business opportunities.

But for the -- let's say, for the targets that have been announced, I can say it's a positive impact, of course.

Operator: There are no further questions, sir, please continue.

Wim Pelsma: So thank you very much for all the questions. And hopefully, we've made things clear. And we would like to thank everyone who is joining the audio webcast for attending it.

And so thank you very much.

Arno Monincx: Yes. Thank you.

Wim Pelsma: Bye, bye.

Operator: Thank you for joining today's webcast and call.

You may now disconnect your lines.