Operator: Welcome to the Aalberts Interim Results 2023 Webcast. All participants in the call are in listening mode. Questions can be asked after the presentation. Now I would like to hand over to your host, Wim Pelsma, to begin today's presentation.

Wim Pelsma: Welcome, ladies and gentlemen, joining our webcast.

The agenda for today is as follows. So we will start to talk about Aalberts and also our strategy and objectives. The second agenda point is the operational development. Let me talk about the financials, and my colleague will take over. Outlook and then hopefully, we have a lot of questions which we can answer.

First, going to Aalberts. Yes, you will find Aalberts where technology matters and real progress can be made humanly, environmentally and financially. I think this is where we stand for and where we make progress on these fields, we try to do it better every day. Then the essential part of Aalberts and where the brand stands for, we explained it many times, but so important to every time put attention to this branding point is that we engineer mission-critical technologies enabling a clean smart and responsible future. And the second part of our brand and our name is that with everything we do, we think of good is never good enough.

So it's going beyond the line of duty that you try to do the admits to come to the best results. Very important also, and I think more and more, our company is doing that, it's more and more part of our culture that the greatness is made of shared knowledge. We share the knowledge, you need that for innovations, you need it for best practices to improve continuously actually your operations but also relations to your customers, your results for your shareholders, but also for our employees and our partners. So we are relentless in our pursuit for excellence and therefore, you need to create a culture, and that's all represented in this essential brand of Aalberts. Our way of value creation is on 3, you could say, 3 areas.

We have an Aalberts playing field for mission-critical technologies where we focus on. Then we have an Aalberts playbook, which is actually a guide also for our management, where good is never good enough, where we[Audio Gap]as our portfolio, we generate cash. We reinvest that so that you get compounding returns over time, mainly due to focus and improving continuously. And therefore, you need also the right mentality every day. The Aalberts way, winning with people.

Very important because in the end, it's all about people. And greatness is made of shared knowledge, so you create a safe environment where all the people share so we can learn from each other. That brings us a lot. The Aalberts playing field. So when you look to the playing field where we engineer mission-critical technologies, smart and responsible future, we do that in 4 areas.

We drive sustainable transportation. We shape eco-friendly buildings. We increased the semicon efficiency, and we enhance industrial niches. These are the end markets which we pursue. We focused our company more and more on these end markets with our technology clusters, but also with our specialized business units.

And within these end markets and this playing field, you will find Aalberts where really technology matters and we really can make progress. that can be through innovation. It can be due to that we have a unique production technology and also that we have a unique position by something special and unique because when you have a certain uniqueness in your end market, you can also have pricing power. And with pricing power, you will generate, of course, your margin and your cash to keep on investing. Our playbook, good is never good enough, which has some components in it to come to the compounding returns, of course, to create competitive advantage and growth drivers.

It's all about getting the best teams. So winning with the best teams is actually one of the most important points that you continue to develop your people to create fantastic talents so that you all the time have the best teams to go for the job and the targets. And operational excellence and leverage, very important. So the moment you get volume over your equipment, you leverage your equipment, that gains margin and cash flow. This cash flow, we have to allocate on a very disciplined way, and that discipline means that we always invest based on our business plans and business development plans strategically so that over time, you create a return on incremental capital employed to gain returns because that's where it's all about in the end.

And on the long term, that needs continuous portfolio optimization and is driven by innovations. Innovations take a long time. It's also the same as when you allocate your capital in a company like us, it can sometimes be that machining can take 1.5 year from order point until you have it in place. And then you have to start it up. So it's a long-term thing, but I think we proved that we have a sustainable business model to do that.

But very important is that we never satisfied, good is never good enough. It's driven by entrepreneurs. That's how we are organized, and we strive for a relentless pursuit of excellence in all things we do. That's our payable. Innovation, very important in our playbook.

We even have also a KPI on that, that our innovation rate should be higher than 20% in 2026 or earlier. Our innovation rate has climbed the last year strongly when we started to measure this, we had below 10%. We are now above 15%, and our goal is to have more than 20%. Our innovation expenditure also is more than 5% of revenue. And also there, I think when we started with this 8 to 9 years ago, we had maybe a roughly small 2% of our revenue, 1.8%.

So it's all about innovation, but innovation can also be in processes. It's not only products. It's processes, best practices. It's your organization, and therefore, you need also the right mentality with good is never good enough. The Aalberts way, which makes it possible.

Greatest is made of shared knowledge, we explained it many times, to create shared knowledge you have a safe environment. But this is really a huge strength within our organization. And you have to be an entrepreneur, take ownership, so the moment you think things can be better. You have to address it yourself, don't wait on somebody, address it and be an entrepreneur and go always for excellence. That means that be satisfied maybe for a few seconds, but then continue, share and learn your information, share and learn your knowledge so that you can also improve together with your colleague, the opportunity or innovation or organizational processes or machinery, whatever it is.

And always act with integrity. The Aalberts way, winning with people. Our strategy and objectives, which we presented in December 2021, where we focus on accelerating our unique positions with mission-critical technologies, high entry barriers and pricing power. I think more and more, we are building that. I think also in the results, which we presented today.

You can see, again, how our position is improving because when you look to the added value margin, I think we generated the first 6 months. That's only possible when you have a strong market position and you can really improve your pricing. And that's what we did because it already started summer last year when actually the bigger inflation came into the business, and we acted immediately. And we are continuously acting to keep and protect our added-value margin and even improve it where we can. That has to do with unique positions you have in the marketplace.

Creating sustainable profitable growth, sustainable, that means every year, every year and on a sustainable way with high added value margins, EBIT margins and innovation rates because innovations help to create growth, but also with innovations, you sell the other products you have in your portfolio. It's very important also for your sales force. It's motivating the sales force to sell also the package which we have. Now driving operational excellence and portfolio optimization is very important. It should never stop actually.

We did a lot in the last years. And also after COVID, we accelerated that, but still, there is always room for improvement. To convert that into free cash flow and to achieve world-class operations is, I think, a very important topic also for the future because that gives you also the margin and the cash flow. And with this cash flow, you are able to have inventory, but also to invest in the best equipment. Again, I think we showed in our EBIT margin in the first 6 months, how resilient we are.

But a big portion is also coming, especially also in industrial technology through all the efforts we did the last 4, 5 years on operational excellence. And when you get volume then on your equipment, yes, you see that your margin is improving. Allocating capital in a disciplined way, very important, should always be allocated and invested in the strategy on your business development projects, which we discuss at least every 6 months with our teams to strengthen continuously the unique position. Realizing sustainable entrepreneurship, I think we have also there a unique position as ours because at this moment, 68% of our revenue is related to the sustainable development goals. And we even have a goal for that, and the goal is that we want to go beyond 70%.

So we have clear impact and commitment in sustainable buildings, but also in sustainable transportation, eco-friendly buildings. We drive the semicon efficiency, but also to help enable our customers to do it with less energy. So on many, many places we are helping this sustainable entrepreneurship. It's integrated in our strategy, and that's pretty unique. And our goal is what I said to bring it above 70% of our revenue.

Ensuring an open pragmatic culture and lean structure using the Aalberts strength is actually an enabler for all the other targets and objectives we have because and pragmatic culture, it's very difficult or almost impossible to share best practices, but also to create greatness with all the people you have. So you have to create a culture where safety and also openness, transparency is very important. And I think we came a long side already with our culture there. And that is also what we see in the company. From an objective point of view, yes, probably you have seen all these objectives.

Organic revenue goal is 4% to 6% annually, EBIT margin between 16% and 18%, ROCE, 18% to 20%, innovation rate more than 20%, SDG rate more than 70% and a leverage ratio below 2.5. We still, of course, believe in these objectives, I think even in these more difficult circumstances, especially, of course, in our building environment where we faced a lot of stock reduction of our customers in the last 12 months. And when you have that such a resilient EBIT margin as 15.4% in these times, with an organic revenue growth of 4% in the first 6 months, I think you can see that our strategy is more and more working and we are on the right track to also achieve these objectives. Again, driving sustainable entrepreneurship, it's a real goal and target for us. More and more, you see also that the stakeholders from Aalberts are interested in this integrated approach we have.

I think it's pretty unique. And here, you can see in this slide how we are doing that, the impact we want to make has to go to more than 70%. In 2022, we reached already 68%. So we should be, hopefully, quickly reach also more than 70% and go beyond that because I think this is also our clear commitment to this topic to enable a clean, smart and responsible future. The same is for our commitment for net zero carbon roadmap which we made also in December 2021.

We committed to be net 0 by 2050 or earlier. And we set ourselves a target that time of less than 30% energy use versus 2018, and we reached in 2022 already 29%. Now I think also for the Scope 3, we sell a goal for target setting. I think we are pretty far there. Our measurement is done already a lot.

So target setting is good on track, I think, even a little bit, let's say, ahead of planning. So because for us, this is a very important topic to pursue. Operational development of the first 6 months of 2023. We came to a revenue of more than €1.7 billion. But a very nice, I think, to highlight is that our organic revenue growth is 5.6%, and this was despite, you could say, a tougher environment in our building technology and eco-friendly buildings end markets.

And because we faced their inventory reductions already from quarter 3 2022 onwards. But despite that, we had a nice organic revenue growth. Our EBIT came in at €264 million, with an EBITA margin of 15.4%. And I think to mention also the added value of €62.3 million where first half 2022, we made 62.8%. I think that's a real good achievement because do not forget that our customers reduced inventories from quarter 3 last year in building in our eco-friendly building end market, but also our sales, we reduced our inventories, and we did build up much lesser stock or almost no stock when you compare that to 2022, and that has a big impact on your added value because your factories have lower volumes.

And we can't reflect that with additional actions in sales where I come to later, but also due to cost control, but also due to a very good portfolio we have created over the last years. So I think a very good resilient performance when you look to these numbers. Now the net profit, we came in at €189 million, earnings per share, 1.71 was 2% more, mainly also because only 2%, you could say. That's mainly due to the finance cost, which you see the interest rates went up. So it's also important to look to your net debt all the time and to also bring that down because we have less finance costs then.

But we did an improvement in EPS growth and cash flow from operations, as we already guided also beginning of the year, it will get a focus point at the moment when the supply chain issues are more or less better solved, we can focus again on lowering our inventories. On purpose, in September '21, we increased our inventories because we wanted to have a good service to our customers and also be able to have pricing power and you only have pricing power where you can also have a reasonable service. So now it was the time, let's say, from the beginning of the year to also reduce our inventories, again, optimize our stocks. And then you see what it did with our cash flow from operations. This is a record number.

We never achieved such a high cash flow in the first 6 months of the year. And this will continue because our inventory reductions will continue. And that also means that we will make a good cash flow this year. ROCE came back again, of course, due to the high inventories of the last year. Also, our ROCE was a little bit hurt, but we are now at 15.8%.

And when we will reduce inventory less more in the second half than normally also your ROCE will improve further, of course, when you also make the profit. So in our opinion, we delivered a very strong performance with a record EBITDA and cash flow. Operational development in general, yes, maybe some points order book end of June was at a comparable high level as last year. And we should not forget that it was 37% higher compared to the end of June '21. And a very high-level order book compare those to '21 and also compared to '22 where it's comparable.

So that there's also a good customer service improved due to fewer supply chain issues. I think that's what we saw at the beginning of the year that supply chain issues softened and came better and better. We still have some small, very minor issues in electronics, but that's minor, very minor. And so we could also ship and again, improve our inventory position downwards, which is good visual in the cash flow. What is also very important is that we continued our investment in business development to drive organic growth, innovation and also operational excellence projects.

We didn't stop any of them. Also due to our strong balance sheet, we could have higher inventories, but also could invest more in capital expenditure to drive all the good ideas. We have many, many business development projects ongoing in all parts of the company and that led to a capital expenditure of a plus of 38% to facilitate all these plans. We will continue that as we also guided in our December '21 Capital Markets Day that our investments will go towards the €250 million. And we also will see that this year that it will climb and be also in that range.

We invested in several projects with our customers, also enabling the reshoring. It's really good to see that especially on the industrial markets and sustainable transportation that bigger customers look for bigger partners for these resuring projects, and that needs higher investments, but also a pretty unique position with them, where we see we have a lot of pricing power. We scored several projects already in the last 12 months with some very nice new technology developments also and that looks very prosperous because we are still at the beginning of this trend because it needs time to drive all these projects in semicon, in automotive, in sustainable transportation, but also in all kind of other areas. So our organic revenue had a plus of 5.6% and capital expenditure at plus 38%. The different segments and end markets shaping eco-friendly buildings.

As I explained, we faced a volume decline and continued inventory reduction of mainly our wholesale customers, but not only also some installers had a little bit too much, but it was mainly wholesale. This started in quarter 3 last year, it continued until this summer. Our opinion is that it continues a little bit. But by far, the most of the stock reduction is done by summer, as we already guided earlier. And that means that, there comes an end to stock reduction of our customers.

But on top of that, of course, we are also in eco-friendly buildings are reducing our own stock. And we will continue with that. But of course, in the second half of the year, we will not have the same stock reduction as we had in the last 12 months. Very important is that the underlying demand for the installer end users is on a good level. So you have a little bit of a strange situation that the real end user of our portfolio in eco-friendly buildings is still fully booked and basically with the installations all the time and doing the maximum to install and that the wholesaler, the distributor actually of our product is reducing the stocks because there was too many products ordered, you could say, in the last 1.5 year after the COVID period.

Also, very important to mention is that we see that renovation, which is 70% of our business in eco-friendly buildings, together with repair of heating and cooling systems is continuing because energy efficiency is a big growth driver and that's only continuing. And we have a lot of products in this area. So we are pretty positive there also regarding to the future. A newbuild project, we see postponements that has to do also with the higher interest rates and mortgages, of course, but also with all kind of different topics can be legislation or yes, some environmental topics which we face also in the Netherlands and also other countries. But what we also see is that new build is here and there postponed but not on a full scale.

Also here and there, you see the newbuild projects are again here and there, started up. So it's a little bit diffuse picture. But again, 70% of our business is renovation and repair. We implemented additional sales initiatives, and you can only do that when you are operationally very fit, and we think we are because we also installed a lot of new equipment the last years in eco-friendly buildings with new machinery. We are still doing that.

New factories in many places in America in Poland, in Denmark, in Holland are starting up or are on speed almost. So we are really equipment also to attack with very efficient equipment, new equipment because we invested the last years in that. And we also, during the COVID period, we didn't stop investing. We only postponed maybe a little bit, and that really helps us now, and we will increase our investments. So that means you have a very good position towards your competition, but also to our customers, and we're going to make use of that.

So we already had some very nice orders on that with additional product ranges and what also is helping and that is the other side of having a good inventory is that we could service because we also have competitors who didn't have the inventory. And you have a competitive advantage. So there are also a lot of pluses in eco-friendly buildings when you look forward. Action plans, we started at the beginning of the year. So besides increasing our prices, let's say, summer last year due to the increased inflation.

We also started at the beginning of the year immediately in the first week of January, action plans additionally in eco-friendly buildings to further reduce costs. So we look to full-time equivalents. We look to our efficiency, operational excellence, and we also focused a lot from that moment on purchase savings because, of course, there was a time that you collect the components and products as much as possible to deliver. So now it was also the time to look again to savings and try to improve your added value margin. And I think we did that very quick on time.

That's also something which we do immediately and I think the plans the business team made in the first weeks of January were very good. We pursue them every month with the teams. We were on top of that. And you can also see that our costs are really good in control also when you look to the OpEx revenue ratios, which we had in the first 6 months, and that really helped us to have a very, in my opinion, a very resilient margin in eco-friendly buildings when you also look to the volume decline and the lesser production we did also ourselves to also reduce our own stocks. So renovation, heating and cooling systems are continuing.

The market is still in need of a lot of sustainable products and efficiency is still the growth driver also for the coming years. Now when we look to increasing semicon efficiency, we had a very good first 6 months. We realized the good performance, and our order book is on a very good level. So it's continuing. And I think the big change in the first 6 months and that started already the last months of 2022 is that we are restrengthened also our management there.

We focused a lot on efficiency improvements and service. And on top of that, we have fewer supply chain issues, let's say, the beginning of this year. And that combination also gave us that we are much better organized and that's reflected in the cash flow from operations, which improved strongly. And that is really helping because the ramp-up we did also last year in this year is pretty strong with our customers. But we are able to follow them.

In parallel, we are doing capacity expansions and efficiency improvements continues all the time doing investments in that. And also on the third thing is we gained new projects, new NPIs, new developments together with our customers. And yes, that also helped our cash flow on a good way in the first 6 months to be there, let's say, better in control than we already were also by strengthening the teams, and the team did a great job in doing that. We are preparing now the new factory for ultra-precision frames, which we will build in the Netherlands. The first activities started and the 2 acquisitions we did last year.

ISEL and KML, we integrated them well, very nice businesses, I think good acquisition, we can say now. And also with the teams, we are ramping up the manufacturing in the second half of the year, especially KML, we need to ramp up heavily in the coming 6 months because the forecast for '24 looks very good. And yes, we are on top of it of this development. So strong growth continued order book on a very good level and we realized a good performance in that area. Now driving sustainable transportation.

The end market also order intake continued on a good level, realized a strong performance. And what I said already earlier, and that's also for industrial niches, you can really see all the efforts we did in the last 4 years. And then when we get good volumes, good order take on the equipment we have, you see the operational leverage coming with a fantastic EBIT margin in Industrial Technology. So supply chain disruption at our facilities, our customers reduce, so that also means that our customers could give us more parts to treat and in-service technologies. We got more parts to produce.

And the underlying demand for precision manufactured parts and service technologies continuing because do not forget by having so many new models in electrical vehicles or e-mobility or the lightweight of materials, driven by sustainability and also more and more by reassuring all these new models need new specifications for precision manufactured parts, but especially also service technologies because the aim is to reduce weight and to reduce weight, you can sometimes use other materials with different coatings or different treatments. It's all driven in the end by sustainability. And we are there in a very good position because the bigger customers ask for big investments and partners who can do that. And there are not so many who can do that. So based on that, we gave several new and larger projects in Europe, very nice projects with big OEMs in Eastern Europe, in Western Europe, but also in America.

And that's also why, we invest so much in additional equipment and also building expansions this year, you saw it in our CapEx numbers, but also next year, to drive these business development projects. Request for sustainable electronic pressure regulators, safety valve applications for hydrogen and sustainable cooling fluids, also there, we saw many requests. You see that accelerating. And what you also see is that our customers want to do business and with engineering companies like us or manufacturers like us because they are close by. So you see also a reshoring effect.

And so that looks very promising for our sustainable cooling fluids. The valve applications, we are now ramping up with equipment because we have already the nominations for our customers to deliver in '24, '25 in the coming year. And also there, you see that sustainability is also here driving the business. And we do not forget more than 70% of our revenue is our goal should be sustainable with the sustainable development goals. That is a target we have.

And this is again a nice example of that. Aerospace and marine, excellent performance. And also here, it is driven by sustainable system innovations. Also, especially marine, we made there an excellent performance. And it's all in line with the strategy.

So order intake continued on a good level, and we realized a strong performance. Industrial niches, it's actually a little bit in line with the sustainable transportation. Order intake continued on a very high level, you could say, activities performed very well. And the demand for extrusion parts and service technology also here continued on a high level. Supply chain disruptions reduced strongly and it led to higher shipments and our industrial valves business in Europe, North America, we made a good performance.

Also here, we faced some inventory reductions, especially in the months, May, June, July. So more and more short time. Also, we see now, again, a better order intake in that area. It was mainly because our customers also optimize their working capital. And also here, we had several initiatives to gain market share coming periods.

Order intake on a high-level activities performed very well. So now I want to give the word to my colleague, Arnaud.

Arno Monincx: Yes. Thanks, Win, and good morning also from my side, and I would like to take you through the financial development of the first 6 months of 2023. And we start with the revenue bridge and where we started with €1.614 billion last year.

We had a positive effect in the first 6 months from our acquisitions that we did in 2022, ISEL, UWS and KML and a positive effect of €30.9 million. We had a negative effect from our disposals that we did in 2022, ETI and VTI and that negative effect was €30.5 million. Then the currency, we had a positive effect from the U.S. dollars in the first 6 months with a negative effect from the Great British pound. And at the end, the total FX negative was €2.9 million in the first 6 months.

And then the result is the organic growth that we realized in the first 6 months of €88.0 billion, totalizing to the total revenue of €1.77 billion in the first 6 months. And as already explained, this €88 million represents €5.6 million or 35.6% organic growth. Then the EBITA bridge started from the €250.2 million last year to 50.5% on revenue. We had a positive effect from the acquisitions of €6.3 million, making it more than 20% EBITA contribution. We had a negative effect of €2.2 million from the disposals that we did in the first 6 months.

The negative EBITA effect from the currency translation was €0.8 million. And just as a reminder, last year, we had a positive effect in these first 6 months of €4 million. So that's a gap of almost €5 million. And then the organic growth of EBITA in the first 6 months was €10.7 million, totalizing to the €264.2 million EBITA, which is 5.4% on the revenues. And the consolidated income statement, where you see, of course, the increase of the revenues with 6%.

And also you see that we increased our depreciations, which is, of course, the result of the increased CapEx program over the last years to facilitate all the busy development plans and innovation initiatives. At the end, also EBITA increased at 6%, slightly lower percentage point 1%, but it's almost the same increase as on the revenue. And then the net finance costs increased strongly with €12.2 million versus last year, and that is also the main reason why the EPS grew slightly lower than the EBITA grew and the EPS grew with €0.03 to €171 versus 168, last year. And the balance sheet, first, the net debt. The net debt, we could decrease during the first 6 months.

And that, of course, the main driver for that reduction was the strong cash flow from operations. Because of that, also the leverage ratio improved versus, let's say, the end of last year from 1.3% to 1.2%. Base working capital, you see there increase also versus last year, and that is also something that you should be aware of. Although we improved our DIO-based inventory outstanding and also our DSO, so days sales outstanding, our days payable outstanding was much lower than last year. And [Audio Gap] of the strong decrease of inventories seem that you have just less purchases during the period, especially before the finish of the first half year.

And that, at the end, results in a higher base working capital. The solvability also improved because of the lower debt, and that is from 51.6 million last year to 55.5% this year, still a very solid balance sheet. Then we go to the free cash flow, we had also said before exceptionals, although in the 2023 numbers, that is only €1 million, the effect we see, again, the strong EBITDA performance as a starting point. And then you see on the second line that we did not have a gain on disposal of subsidiaries where we had a €7 million disposal benefit last year because of the disposal of ETI. Then we have underlying results on sale of equipment and change in provisions.

And there, the impact of the result on sale of equipment was versus last year, €3.3 million higher, and that has to do also with the programs that we are already executing for the last couple of years to reduce our footprint, you also sometimes sell a building and some equipment just to also close the location and it is the result of that. And the change in working capital there you see the big improvement from a cash perspective, where we had this year, a negative impact of the change in working capital of €105 million versus last year €222 million, which is an improvement of €170 million. And also there, the improvement from inventories was €160 million plus. The improvement from receivables was €16 million plus, but the disimprovement from payables was €58 million negative. So that reduced a bit the advantage of the movement in working capital.

Last but not least, the purchase of PPE. Also there, the cash out of our CapEx increased with almost €38 million versus last year. And despite that, we made a free cash flow of €110 million versus €4 million last year. So a strong cash performance. Our segment reporting, the first, the building technology segment, we already mentioned, we are already facing quite some time stock reductions at the wholesale side, at the distributor side, but also we have strong focus on our own stocks to improve that during the first half year.

So that's, let's say, a double effect of stock reduction, of course, had impact on the volume in our building activities. And because of that negative volume impact that we also made a slightly lower profit of 4.0% versus the 5.4% comparable last year. The CapEx was about the same level, €41.2 million versus €43.1 million last year. So let's say, at the end, an organic revenue decline over the first 6 months in building segment of 1.5% versus 9.9% increase growth last year. And then the Industrial Technology segment, yes, there we see a very strong performance also from a volume perspective and that also, it led to a very good leverage of the equipment installed.

And that means that, they made a good drop-through on the organic revenue growth of 16%. So the EBITA grew from 60.3% to 70.5%. The EBITDA grew faster, as you can see, because of that drop through 26% growth versus the 80% growth on the revenue side. EBITDA finished at 70.5% and also a strong increase of the CapEx of €75.2 million versus €40 million last year, 88% higher. In the revenue per end market and region, eco-friendly buildings, 51%.

As a reminder, last year, full year, it was $54 million. And also here, last year, full year, semicons grew from 12% to 30% in the first 6 months. Sustainable transportation also increased from 15% to 60% and industrial leases from 90% to 20%. That is for the end market for the regions, Western Europe, 61%, America, 23%; Eastern Europe, 11%; and APAC, Middle East, Africa, 5% total.

Wim Pelsma: Yes, the outlook.

So the outlook in the second half of 2023, and I think that's important is that we will continue our many business development projects we have, driving the organic growth, innovation and operational excellence. So that means we are really pursuing all these plans. That means we are driving also the strategy, which we have presented in December '21 because our goal is to realize these objectives, which we're going to reach. But therefore, we keep on driving that. And that, of course, needs also capital expenditure to facilitate these plans.

So that will also further increase. And yes, the guidance we gave already in December '21 that it will go somewhere between €200 million to €250 million, but I think it will be closer to the €250 million for this year. And so we are pursuing all these plans. In the meantime, we are further reducing our inventories so that we will make a good cash flow this year. And we will continue actually on the same pace with the actions in Building Technology.

I think we were using also the actions on the market share gains. We will be very alert on our costs further and further pursue also the monthly cost reductions and purchase-saving plans we have made from the beginning of the year. And yes, in Industrial, we will ship the good order book and continue also there with the innovations. So yes, that is actually what we then call we are relentlessly executing our strategy to reach and realize our objectives, which we have presented in December '21. So that is our outlook for the coming period.

So I think that there will be -- and we hope a lot of questions, which we want to answer, of course.

Operator: Thank you. We will now start. [Operator Instructions] We'll take our first question from Martijn den Drijver at ABN. Martijn

den Drijver: I have 3 questions, take them one by one, please.

Can you share with us what the customer behavior was in building technologies going from your May update for the period to April and then moving into May, June, July? I'm referring to what do you know, what do you see in terms of destocking? What do you see in terms of sellout at the distributor-wholesaler level? What do you see in terms of your discussions with end clients and installers? That would be question one.

Wim Pelsma: Okay. So the customer behavior is actually -- we faced inventory reductions already from quarter 3 last year, and that continued also in quarter 1 this year, but also in quarter 2 this year. On the end-user line, you see actually that the installers are pretty full of work. And actually, also the coming months, they are full of work.

So there is more to limit how many people you have to install the projects and the renovation works which you have to do. So on the distributor behavior, you saw also in quarter 2 that they continue stock reductions. The sales out is sometimes a little bit diffused in some areas, you see that the sales out can be a little bit higher, in some product lines a little bit lower. But what you also see, of course, that they all are working on the working capital. And that has also to do with their own high stock positions, of course, which they want to reduce but the second thing is that's, I think, also logic, are also a little bit cautious because you see that also new build projects are postponed.

So when as a wholesaler, you are optimize your stocks from that point of view. But what we see at the installer level, they are actually having a very good. How do you say that the book of work to execute also the coming months? And the other trends are only accelerating. So when you see the renovation of, let's say, the heating and cooling systems to go to more sustainable solutions that's only accelerating and that will also continue. So that is the picture what you see.

And what I said is that already earlier, in my opinion, the stock reductions in summer from the wholesalers will be over. And of course, can be here and there that they still do something per product line, so you get a better situation in the second half from that point of view. Martijn

den Drijver: Got it. But just one small follow-up. The acceleration of trends in heating and cooling, is that really visible in hydraulic flow control? Or is that an expectation?

Wim Pelsma: No.

I think what -- so you have different trends. So what I discussed about stock reduction wholesale, you have here and there, you have sellouts of wholesale lower and here and there some higher product line. And you have, of course, installers who are still full of work, but also the installers here and there have a little bit too much stock. So for example, when they normally maybe have in their shop, they have maybe 3 expansion vessels or 2, there maybe now 4. And so also there, you see optimization.

But the trend of renovation of heating and cooling systems towards the future and the sustainability trend is ongoing. And on top of that, we are gaining here some nice deals. So in specific hydronic flow control, we made a very nice deal for expansion vessels, which starts in the second half because we have now the equipment, 2 or 3 additional lines installed, so that will also help. So you have a short-term thing of stock optimization, mainly in wholesale and also a little bit in installers. Installers are having a good workload also in the coming months.

And the same trends are there from renovation and repair, and that will not stop because yes, sustainability is not stopping. That is the situation. By the way, Europe is different than North America. In North America, they're also reducing stock. But also there, it's a little bit different pattern but it's mainly Europe, but this happens.

Martijn

den Drijver: Got it. Moving on to my second question. How should we look at the second half? So for Aalberts as a whole, how should we look at the second half versus the first half? Normally EBITA margins are somewhat lower in the second half compared to the first half. But now you have some cost savings from these measures both from 2022 and the ones that you're doing right now. You mentioned procurement savings.

You mentioned perhaps a stop of destocking in building technologies and market share gains. Should we assume EBITA margins, therefore, to be perhaps flat or even up? Or how should we think about the second half?

Wim Pelsma: I think what's important to understand is, and that is the case we also had in the first half year. We still, let's say, consumed raw materials of contracts, let's say, which we fixed end of last year and beginning of this year, but mainly end of last year. This was, of course, a higher raw material now. So in the second half, we will have an advantage in the raw materials.

So that is mainly in building technology. The second thing is energy costs are lower. So these are 2 things which are really there. And so energy costs will be lower because don't forget, also in the first half, we have very high energy costs in all the factories can be at higher raw material. Despite the higher raw material, we reached 62.3% at the value.

So that says something about also the pricing power we also delivered. On the other hand, the cost programs in Building Technology will continue. Stock reduction in wholesale will be lower, much lower. So you also have to produce. But the counter effect is that we still will reduce our own inventory step by step further.

And the real effect of newbuild postponements, it's a little bit diffuse here and there. This is difficult to judge, in my opinion. But there are some positives on that side. Now you look to the industrial area. Order intake was good.

So yes, so the coming months will also be good because we have a good order book. How the end of the year will be, it depends also a little bit how the order intake will be in the coming months. But we start at least from a very good base. Now semicon will continue because their order book is sky-high. We have so many things to improve further.

So that is the picture for the second half. Martijn

den Drijver: There's clearly a more positive picture than the normal seasonality.

Wim Pelsma: That are your words. Martijn

den Drijver: Sure. Absolutely.

My third question is more of an accounting issue, but it is an important one. The other income line has €8.6 million. There's a gain on assets, the sale of those buildings of €4 million. I just want to understand how you accounted for those elements in the reported every day. Is the reported EBITDA, including the €4 million gain, but also including the €3 million addition to the provision? Or how should we look at through/underlying EBITDA?

Wim Pelsma: Let's say, the underlying EBITA is including this €4 million result on PPE clear.

That's also reported in the other operating income. Let's say the other operating income, as you can see, it's lower than last year. Last year, it was 10.5%, this year, it's 8.6%. And in the other operating income, also last year, we reported the ETI disposal benefit of €7 million and then some PPE benefit of 0.9 and some other effects. So this year, it's also reported for the 4.2 result on PPE.

So let's say, the real income effect, I would say, is lower than last year. Martijn

den Drijver: I understand that, but that's on a half-year to half-year comparison. But if I were just to solely say reported EBITDA versus underlying EBITDA, you would probably remove that €4 million. And then in comparison with the first half, your story holds. But if you look solely at the first half 4 million...

Wim Pelsma: Listen, and that is also always the itch there. There are also a lot of negative things through our P&L. So you cannot only take out the positives and the negatives. Let's say, how you should look at these other operating income. This is a normal level of about €10 million because you have all kinds of elements going through that far line.

And therefore, I think it's a very comparable situation with last year. And therefore, let's say, the disposal benefit is something clearly that therefore, we always make, let's say, make very clear that it's a separate income. Although last year, as we also said, the income is also compensated by exceptional costs. So you should also look at the total effect of these elements. But this other operating income line is shown an even lower effect than last year.

And as you know, this line has been much higher in the past, all kind of insurance effect. And that was also an exceptional situation. But I would say this is a normal, let's say, a picture of how this line looks like over the first 6 months. Martijn

den Drijver: I think it would be worthwhile to make some sort of bridge going from normal holding costs plus one-off elements, minus one-off negatives.

Wim Pelsma: Again Martijn, we have discussed...

Martijn

den Drijver: Just gives a bit more insight.

Wim Pelsma: If you only focus on the other operating income, this is the line where we should, for instance, report an income from an insurance perspective. But on the other side, you also have costs. You also have cost [indiscernible] let's say, on the opposite side. So let's say, you should rely on us that we try to give a clear picture of our operating results.

And that's also the reason that the disposal benefit is clearly reported separately and also when it's really having a one-off effect, and we will show it in the whole elimination line because they are where it belongs. So when the holding elimination line is showing a normal picture, then you should conclude or you can conclude that there's no one-off effect from that perspective. Martijn

den Drijver: I have no further questions. I know and thank you very much.

Operator: [Operator Instructions] And we'll now take our next question from Aurelio Calderon at Morgan Stanley.

Aurelio Calderon: I've got 2 questions. I'll take them one at a time, please. The first one is, one of the comments you've made on destocking, not just at wholesalers, but your own destocking effect. Could you help us quantify the impact on gross margins that you've had from that destocking? Or probably another way to ask it is, what was the benefit on the way up when you were building inventories? And what do you expect to be there the negative effect once you underproduce or flash through those inventories?

Wim Pelsma: Yes. You can see that we made a 0.5% less added value in the first 6 months versus last year.

And we made a stock decrease of €30 million versus a stock build of €168 million last year. So it's really a big change. Of course, we are not going to quantify the impact, but I think it's clearly that part of this destocking, as we have also guided last year has come, for instance, from the raw material part because also there, the reliability of delivery has improved. So we need less physically on stocks than we did 6 months ago or 12 months ago. And clearly, it means that, if you build off raw materials, you don't have any impact in your added value margin.

On the other side, when you reduce production like we also did because otherwise, you cannot -- and let's say, last year, we had a stock build. So we had a higher production that has a value impact for sure. But the total at the end, the difference was 0.5%, also driven by all kinds of other operational improvements, purchase savings, pricing initiatives. So the effect is difficult. But you can also see that when you have really a good volume performance like we did in industrial segment, I think you're also making a good drop through that.

Aurelio Calderon: That's helpful. And my second question is a little bit more big picture. And you've been talking about initiatives to gain market share. Obviously, you have big CapEx programs and so on. But I just wonder, how do you see that market share evolving? What do you think are the main reasons why you can take market share you alluded to you were able to take care from customers or take pricing, PKC had stock.

What are the next drivers of that market share gains as you can to reduce stocks continue investing? How do you see that evolving?

Wim Pelsma: A very important point for Aurelio, is that we can take market share at the moment or the last months but also the coming months. In my opinion, is that we strategically decided in 2020 during the COVID period to not stop the investment. So that means that in 2021, we kept on investing in equipment, which we were ordering. For example, our copper press factory in the United States, which we built up completely. Another example is all the lines to our expansion vessels, which we have in Almere and we kept on investing.

We didn't stop. Maybe we postponed here and hear some cash payments or whatever, but we didn't stop. For example, we built a factory for full facility in Denmark, and now we are building at the moment, the factory for the bigger dimensions, we didn't stop. So that means we are a manufacturing company. So the moment you order machinery, it takes you sometimes 1 half year before you have one piece of equipment.

And then you have to start it up, but it takes you another 3, 4 months or 5 months to get it running. So that can take years. So we didn't stop. Now the same is also in the area of multilayering tubing, where we invested a lot in different areas. So we have the equipment in place.

We have the newest equipment in place. We have the efficiency equipment in place. The second thing is that we also were able to have inventories. So due to our strong balance sheet, we have inventories in building technology, which some smaller suppliers. And also at the moment, have difficulties because of the interest rates because they may be under pressure on banks.

So that means we can also deliver. We have the server. And this combination, besides, of course, a good sales plan and a good sales pitch. We're going to take advantage of it, and we see already some efforts having results the last month, but we will continue that. So actually, what you are doing, you're taking advantage of the strategic decisions you made 2, 3, 4 years ago.

Now we will continue with the investments in the equipment. And we also have some new innovations like our power price fitting range. We have now launched a stainless steel range with a patented full for valve. So all these innovations we can also use. So that's what we mean with that.

So that's why you make the difference with what you did the last years, which we also explained.

Aurelio Calderon: That's very helpful. And I realize, Wim, this may be your last conference call as CEO of Aalberts, all the best forward.

Wim Pelsma: This will be my last.

Operator: There are no further questions.

Thank you for joining today's webcast call. You may now disconnect. I'm sorry. Please pardon me. There is one question via webcast from Pinedo of Toreal.

Could we assume for the full year 2020 tray that there will be no investment in working capital, thanks to the inventory reduction?

Wim Pelsma: Let's say, we expect, as we have already guided also during the first 6 months, we expect a good cash flow this year. So we will continue to optimize our inventories by executing the plans that we made per business team, so the teams will continue and we may expect that it will continue to go down in the second half of the year. That would also mean that, we hopefully have a positive effect from the net working capital movement because that's the automatic effect from it.

Operator: One just came in again. Let me look.

That's from the audio. Yes, Maarten.

Unidentified Analyst: Let me just introduce myself. So I'm not sure if my line was open. It's Maarten Verbeek from the IDEA! And I have a question concerning what you mentioned on your order book, which was some 37% higher than mid-'21.

I want to make my calculations, then more or less, it is flattish compared to year-end and also flattish compared to last year's. I presume that volume-wise, it is definitely low since prices have gone up. You also mentioned that at semicon, you are at a record level high, that presumes that for the other businesses, the order book must be lower. Will this initiate some additional cost reductions you have to take for your company? And also put a bit of pressure on your margins since you already have a relatively high inventory level and you don't want to produce much more. So will it also have an impact on your profitability for the second half.

Wim Pelsma: I think we already answered these questions because, yes, of course, the order book and building technology is lower. When your wholesalers are reducing the stock position, they also send in less orders. So that is the explanation why there the order book is lower and you are right, semicon is on a very good level, but also industrials on a very good level. So of course, you can also read out of the press release. And when you ask about cost reduction, we are already busy with that.

So to counteract that effort and try to gain market share through more sales initiatives. So that's what we keep on doing also the coming periods. More questions?

Operator: There are no questions. Just like to give them a final reminder. [Operator Instructions] Okay.

I don't see any further questions. Thank you for joining today's webcast and call. You may now disconnect.

Wim Pelsma: So thank you very much from our side.

Arno Monincx: Yes.

Thank you. Bye-bye.