Rutger Relker: Good morning, ladies and gentlemen. Thank you for joining us today. It is my pleasure to welcome you to Aalberts Full Year Presentation for the year 2023. Live in our headquarter in Utrecht. My name is Rutger Relker, Director, Investor Relations.

This past year, we welcomed Stephane Simonetta as our new CEO. Together with our CFO, Arno Monincx, we look forward to share our progress made with you today. Stephane will kick off the presentation with our strategy and objectives and give an update on our operational developments. This will be followed by Arno who will share our financial development, highlighting how our strategy has translated into a solid financial performance. Then, Stephane will give some color on 2024.

After the presentation, we will give you the opportunity to engage directly with us in the Q&A session. Your questions and feedback are very important to us. And so we encourage you to participate. Later today, we will make the presentation and the recording of this webcast available on the website. Please welcome Stephane Simonetta to begin our presentation.

Stephane Simonetta: Welcome to all of you. It’s a true pleasure for me to be here today in our headquarter for the first time to present our full year result. But before going into the business update, let me pass two personal messages. First of all, I would like to say thank you, Wim, because the great performance we are delivering in 2023 has been also under the leadership of Wim until September when I took over. And the second personal note is to say thank you to all our employees for the great welcome I receive.

So now I’ll be giving you three update. First of all, our strategy deployment. Second, it will be about our operational update. And third, it will be about our end market dynamics. But before going into the business update, let me start that there are still three macro trends that are impacting our future where we in Aalberts with our mission-critical technologies can help.

It’s about urbanization, energy and resource scarcity, Internet of Things. And all of these three drivers are actually growth drivers for us. So, long-term growth agenda is still relevant for us. And you may wonder, what is the impact that we are making? And as I like to say, Aalberts is actually everywhere. We are in buildings, where we are helping installers save time and helping the building owner save energies.

We are in microchips, where we are helping our customers with great innovation to ensure the world will have more and more chips as the world is getting more and more connected. And then we are in sustainable transportation, where we are helping our customers in automotive, in aerospace, in marine, reaching their decarbonization target, but also improving safety, reducing fuel consumption, and reducing manufacturing costs. When we talk about strategy, I just would like to come back to what actually we shared in the last Capital Markets Day. And we still have the same four strategic actions. So I will give you an update right now, one by one, where we are in our deployment, because for us, it’s all about strategy execution.

And as you know, first of all, it’s about to continue to optimize our portfolio. Second, it’s about delivering revenue organic growth. Third, it’s about our operational excellence. And fourth, what we call in Aalberts, sustainable entrepreneurship. So let me share with all of you now an update on these four points.

Regarding our portfolio optimization, as you know, over the last 2 years, we have been doing some acquisition and some divestment. Some great acquisitions around advanced mechatronic, around water treatment for heating systems, and some divestment where we believe we were not the best owner. And my promise to all of you is that we will continue this journey to continue to do bolt-on acquisitions, and at the same time to divest when we believe we are not the best owner of the companies. Secondly, when we talk about organic growth, the way we want to do it with more and more innovation. And I just would like to share with you on this slide, four good examples of innovations, where we are helping to distribute water, where we are helping to save energies, where we are helping to innovate with breakthrough technologies of improving the material lifetime or the material characteristic of the components.

This is a great enabler to continue to sustain organic growth, thanks to our innovation of business development. But organic growth, it’s also the way we continue to focus on our four end market. And I’m pleased to share with you an update that you can see on this slide. First of all, the split according to our 4 end markets. And you may see that we are continuing to be strong on eco-friendly building with roughly half of our revenue.

But you may notice that the semicon efficiency is now 14%. And we have moved from 6% to 14% over a few years, just showing the portfolio transformation that has been happening over the years. And now we have a much more balanced portfolio between our industrial part and our building part. Now looking at the regional split, we continue to be very strong in West Europe, being also growing in Americas. But for me, the takeaway is that we can still do much more in the Americas, and this is where we will continue also to invest.

But you may wonder that on the geographical side what are the differences between building and industry. So let me give you an update now by business segment. What you can see on this slide is actually that on building, we are also well balanced from a geographical point of view. We are still very strong in West Europe. But as you see, we have also good position in Americas and East Europe.

And this is actually important to us because we see different markets dynamics. Sometimes West Europe, it’s more slowing down. We see now some challenge on the new construction build. Renovation is still a question mark, but we see growth opportunity in the U.S. and in East Europe.

So more balanced portfolio. Now, on the industrial side, you will see that we are really with a major share on the, in Europe. But this is simply because we follow our customers, and our footprint is always close to our customers. You can imagine that in service, in surface technologies, you need to be close to our customers. That’s why we are so much present in Europe, and that in our semicon efficiency, we are also delivering our customers who are mostly present in Europe.

And we continue, wherever our customer goes, we will continue to move our footprint in Europe or in Asia, should they decide to move there. And talking about footprint, you know we have increased our CapEx, our investment to support organic growth, to support demand increase. And I would like to show you some great examples of some of the world-class operations that we are building. Some of these buildings, some of these factories, have been recognized as the most sustainable buildings in the world. We are investing in semicon efficiency.

We are investing in buildings in Europe, and also in North America to also support geographical expansions. And we will continue to invest in additional capacity because this is about the long-term, not about short-term dynamic. And we remain confident for the long-term. The last point about the strategy update, as you know, is what we call sustainable entrepreneurship. And I’m really pleased to report to all of you that we have already reached our 70% target in 2023.

And now the challenge is on us to sustain this performance year-after-year. As you know, our business is closely linked to 4 of the sustainable development goals. It’s about moving and distributing water, saving energy, innovating breakthrough technologies, and also improving the lifetime of the materials. And you see the breakdown by sustainable development goals. As I said, we will continue to reach 70% or even do higher.

And when we talk about the long-term, no change with our ambition. Once again, we want to be carbon neutral by 2050 or earlier. But let me point you on this slide, the key highlight is our 2023 improvement. We are already at minus 33% in our CO2 intensity compared to 2018. But I think the most important message is that in the coming year, in 2024, we will not only measure our Scope 3, we will start to disclose our progress on our Scope 3 emissions.

So more to come in our annual report. And the good news is that it’s not only about us measuring ourselves. We are really pleased that the progress we have made over the years is actually recognized externally by some of these global standards or indexes, just showing that our improvements are also working and are being recognized. So great job by all our teams around the world. At the end, strategy actions need to be measured.

And you know that we have six key objectives that we are shared in the last Capital Markets Day. So let me share with all of you where we are regarding our 2026 target. It’s all about organic growth. You have seen in our press release earlier today, we deliver 4.5%, so on track with our 4% to 6% 2026 target. We are now at 15.7% in EBITA, getting close to our target, 16% to 18%.

Still some work to do, but improving slowly but surely. Regarding our ROSE, also improving. And this is also where we have still have some work to do to deliver the 18% to 20% range in the coming 2 years. And our innovation rate lacks the sustainability, actually. We already reached 20%.

But now the goal is to sustain that year-after-year, because as you know, our innovation rate is based on the last 4 years’ revenue, all the innovation we have been doing. So this is why we will continue to invest in innovation for the coming years. Our SDG rate, as I mentioned, we are now on track, so we’ll continue to ensure we sustain that level. And our leverage ratio is actually quite good. We are much better than our long-term target, but I will let Arno say a few words about that in the financial update.

So now, let’s talk about the operational development. How has been 2023? And I will be starting, of course, to talk about organic growth because we have actually managed well the headwinds in the building technology with an organic growth of minus 1.2%. But on the other hand, we continue to grow double digit in industry, in semiconductors, in transportation, and in all our industrial niches. The supply chain situation has improved in 2023. Of course, we see now new challenges in ‘24, but we have improved our service level and we have continued to drive operational excellence, to sustain our high-level margin and continue to improve our profitability.

Fantastic job, once again, done by our teams in all our businesses. When you look at innovation, we are at 20%, but when we think about the long-term, we will continue to invest, to ensure we innovate, to differentiate, to continue to help some of our customer challenges, either in product, either in solutions, or either in services. And on sustainability, you will see in our annual report that we are making great progress on CO2 intensity, but also on waste management and also on circularity, together with our suppliers or sometimes with our customers. And you can count on us to continue to make an impact for the environment. So our Aalbert people did a fantastic job in 2023.

And talking about people, as you know, in Aalberts, we say the Aalberts way, it’s about winning with people. But when we look at safety, when we look at last time injuries, we are improving, but this is not good enough. So we will continue to invest, to improve the safety of all our employees in our businesses. We will continue to focus on diversity, because focusing on diversity is also an enabler to improve performance, to drive innovation. We are pleased to have 32% of women in our leadership team, but we want to go even further.

And investing in people, it’s about, of course, ensuring all our employees are motivated and satisfied. It’s also ensuring that we continue to develop all our employees. So we take feedback seriously. We got some good insights about what we are doing. And as you see, we have developed and trained more than 950 colleagues around the world.

So count on us to continue to invest in all our people to ensure the long-term growth of the company. So the last part of my update before going to the financials, it’s our focus on end market. And when we talk about buildings, let me first start to say long-term, we still see growth driver. Because of buildings need simply to be more eco-friendly because all the buildings need actually to save energy. And this is where we have great solutions, either with our integrating piping solution or with our hydronic solutions.

And in 2023, we have done actually quite a good job because all the lower demand, all the inventory reduction of our employees, all the new construction bill going down. We have been able to manage that thanks to our business development initiative, thanks to our sales growth, thanks to our also geographical expansion. So managing the headwinds has been done, I think, very well by our teams. And long-term, it’s still a growth agenda. Even if the new build is going down, renovation is more stable.

And once again, as I shared earlier, the geographical dynamics are quite different between Europe or West Europe, which will likely more plateau, but still growth opportunity in the U.S. and in Poland. On the semicon efficiency, it’s still a growth agenda. Let’s make it very short and let’s make it very clear because the world will need more and more chips because our customers are asking us to ramp-up capacity. We have done a great job to improve our service level, more on-time delivery to our customers.

And we still see positive trend on the transportation side with a decarbonization coming up from the automotive, from aerospace, also from the marine, where we are supplying some of the biggest other car maker, plane makers, or ship builders. So at the end, different dynamic where we are I think doing a good job thanks to our mission-critical technology or thanks to our unique innovation and business development plan. Talking about sustainable transportation, as I just mentioned, the industry is going through a major transformation. And this is where we see also mix picture. Maybe sometimes some industries are going down but there is always opportunity for us.

And even if sometimes there are some change, right, between electrification and more combustible engine, we are actually quite resilient because we can support both and we have the technology and the services to support actually any mix of change even of course we all hope that the decarbonization will accelerate in order to get moving all the things around the world. And in the industrial niche, we actually see a growth in all the region. This is, of course, sometimes very small business, but this is where sometimes also we are the only one to be able to provide this unique technology in some of the industrial place, in some of the agriculture. Sometimes it’s also about defense. So this is actually doing quite well.

And our team did a great job in 2023. So let me wrap it up before I hand it over now to Arno about the financials. You have seen that we are still in strategy deployment mode and are well on track for 2026. You have seen that on the operational side, we have managed some of the headwind quite well, but we are still growing in industry. And that regarding the end market, we still see also a more balanced agenda.

Thank you very much. Now let’s go to the financials with Arno.

Arno Monincx: Thank you, Stephane, and also welcome from my side, of course, to this webcast where I will take you through the financial development of Aalberts over 2023. And we start with the highlights where we see that our revenue grew with 3%, which was organically 4.5%. And as Stephane already mentioned, there was a clear organic growth in industrial technology, but also a small decline in building technology still facing headwinds.

Nevertheless, we sustained our added value. And I think that is a great performance because first of all, as you may remember, in 2022, we build up our inventories because all the supply chain issues we face at that moment to secure our deliveries to the customers. But this year, 2023, we really reduced our inventories again. So nevertheless, with a solid pricing and also purchase saving initiatives, we managed to sustain our added value, a very good performance of our teams. EBITA, we increased 4%, €521 million towards a margin of 15.7%.

Free cash flow, of course, record level when we reduced our inventories, I will come back to that later. But that resulted also in a very strong free cash flow performance. But also, CapEx increased again. Actually, also a record level, €224 million of CapEx spent, which is constantly investing in the future, in the business development programs, in the expansions of our company. And then last but not least, despite all these numbers, we also improved our ROCE again from 16.1% last year towards 16.8% this year.

And last but not least, innovation rate increased towards 20%. And SDG rate, as also Stephane already mentioned, improved to 70%. So Albert’s delivered in 2023 a record EBITA and a record free cash flow. Then the revenue bridge about the revenue development in 2023, from the basis of 2022, we added €39.8 million from our acquisitions that we did. At the same time, we also lost €46.1 million from the divestments that we did.

Then the currency impact versus the positive impact we had in 2022, we now face a negative impact of €36.7 million in 2023, mainly caused by the U.S. dollar. And that results then in organic revenue growth, as mentioned, 4.5% of €137 million towards the €3.324 billion revenue in 2023. EBITA bridge, the same, started from the €500.3 million of 2022. We added from our acquisitions €7.1 million, almost flatting out with the divestments, where we lost €6.7 million.

And then the currency impact also in the EBITA, negative €5.5 million versus a positive effect loss in 2022. And then last but not least, the organic increase of EBITA €25.8 million totalizing towards the €521 million in 2023, being 15.7%. Then the EPS bridge. We started with the €3.37 of 2022, where we added from our acquisitions €0.06, but also the same we lost with our divestments, so that is a neutral effect. And then you also see the organic increase of €0.24, but also that also our company, even with a very strong balance sheet, is facing higher finance costs with an increased interest rate, and that is costing €0.17.

Then besides that, also some high effective tax rate of €0.02 and of course also here the currency impact. So at the end, we managed to increase our EPS, but only with €0.01. The consolidated income statement, clearly, you see here the 2 years next to each other. EBITDA finished at 19.9% in 2023, which was also 30 basis points better than last year. You see also the increase of depreciation, which is of course logic with the increased CapEx programs that we are executing already for quite some time now.

Then the EBITA improvements, and here also the net finance cost being €18.6 million higher than last year, despite a very good cash flow, despite, I come to that later, a very good net debt position. Income tax expense more or less the same, and at the end, that results in €3.38 versus €3.37 last year. A strong and resilient performance. The balance sheet, equity position over 60%, 60.8% solvability, very strong. But also, here you see that the net debt decreased from almost €800 million in 2022 towards €583 million in 2023, which brings the leverage ratio down from 1.3 in 2022 to 0.9 in 2023.

Working capital improvement, one of the drives, of course, also for the strong cash flow. And at the end, the return on capital employed increased towards 16.8%. It’s a strong financial position, and we are ready with this balance sheet also to accelerate our growth agenda. Free cash flow. EBITDA, €29 million higher than last year.

Good performance. Also, here you see the gain on disposal of subsidiaries, where we are a little bit lower than last year, €4.4 million. On the other side, we had some sale of equipment where we were a little bit higher than last year. These 2 years, quite comparable as you can see. And what we do, as always, and I also wrote it in our financial development in press release, we are investing these disposal gains towards improvement of our company in operational excellence initiatives, which we also did this year.

And again, the net effect of these 2 years is more or less the same. Then change in provisions and changes in provision exceptional. That’s an important line. Also, as you may remember, in 2021, we took an exceptional cost for our operational excellence program at that time, and we finished the year 2021 with a provision on the balance sheet of €12.5 million, which were the costs that we already booked in our profit and loss account, but on the same time did not yet spend as cash out. Now you can see here over the 2 years, 2022 and 2023, how this €12.5 million was going into the cash flow statement.

And at the end of 2023, also deadline is at zero in our balance sheet. So no exceptional costs anymore provided for in the balance sheet. Then change in working capital, there you see really the big improvement in free cash flow versus the negative €243 million last year, we managed even to realize a positive change in working capital of about €10 million. That gives the strong cash flow from ops, of yes, €276 million higher than 2022. And then we still also spent a record number of cash out for our investments, for our CapEx, €30 million higher than last year.

Some purchases of intangibles a little bit higher and the proceeds from the sales equipment resulting in our free cash flow of €423 million versus €168 million last year, a very good performance. Our segment reporting, here we are reporting our financials in two segments, but you also see how our technology clusters are representing these two segments. So hydronic flow control, integrated piping systems are representing the building technology part, and advanced mechatronics and surface technologies are representing the industrial technology part. And here you see also the reporting per business segment. Building, we faced headwinds.

We faced headwinds. And also, what you see here is the organic revenue growth finished negative at 1.2%. It’s also very clear that the volume reduction that we faced in the first half year was less in the second half year. And that’s also why you see that the EBITA margin full year of 14.3% is better than the 14.0% that we report in the first half year of 2023. So clearly, we see also the trend that the volume reduction has reduced.

Still, of course, lower than what we would like and therefore still we believe in the long-term perspective of this business with all the renovations that are ongoing in the future. Industrial technology, very solid performance. We made an organic revenue growth of 12.4% and an EBITA improvement even versus the very good year 2022 of 17.7% in 2023. Also from a CapEx perspective, you see that we are investing heavily also in this segment with a lot of, yes, footprint expansion, but also business development and innovation plans to be executed. The dividend, we are proposing a cash dividend of €1.13 per share, which is €0.02 higher than last year.

And also over the last 10 years, you see our CAGR of over 11%, which we believe is a very good value contribution for our shareholders. A proven sustainable business model, that is what Aalberts is about. And that is what you also see here during our history. We constantly manage with headwinds, with good markets, with slower markets. We are always able to perform in a good way.

And that is what you see in this result. At the end, we finished higher, better than last year in a difficult year again. The shareholder value creation, our track record, earnings per share over the last 10 years, a CAGR of more than 9%, €1.38 in 2013, €3.38 in 2023. At the same time, the dividend per share is increasing even more, more than 11%, so that means also, as you may know, over the last 5 years, we increased also our pay ratio from 30% to 33%. Return on incremental capital employed, a very important indicator, how we are allocating our capital and how successful we are with that.

Now, over the last 10 years, we managed to increase our EBITA with €294 million against an increase of capital employed, and this is including CapEx, of course, but also goodwill of acquisitions. €1.409 billion extra capital employed, which means over the last 10 years, 20.9% return on incremental capital employed. And this is an important indicator also for our ROCE on a yearly basis, of course. So as long as this percentage is above 20%, we are moving towards this 18% to 20% objective that we have in 2026. And yes, we are happy with our stable long-term shareholders who believe that we are creating value for them.

A proven sustainable business model. And that brings me to Stephane again, who will give his perspective towards 2024. Thank you.

Stephane Simonetta: Thank you, Arno. I’m sure you have seen our strong financial performance.

But of course, this was 2023. Let me now share a few of my perspective looking forward for 2024. First of all, starting by the market. We see different markets dynamic by geography, by end markets. And when we start at the buildings, we see most likely that Europe, West Europe, will plateau.

But on the other hand, we still see growth opportunity in the U.S. and in East Europe. So more balanced pictures. On the industrial side, it’s always, and the growth agenda will continue, short-term and long-term. Of course, the question is, are we going to see the same double-digit growth in 2024 and 2023? But let’s not forget that long-term we need to invest.

We have a very strong order book in our semicon efficiency, and we still see opportunity also with geographical expansion in our surface technology business. In capital allocation, you have seen our strong balance sheet, you have seen our strong cash position. So we are ready to do bolt-on acquisitions, but also potentially to do more divestments according to our four end markets and according to our strategies. And we will continue to improve on sustainable entrepreneurship. And the key highlight of 2024 is that we will start to disclose our Scope 3 emission, but continue also to improve our waste management and also do even more on circularity.

More to come in our next annual result in our annual report, where we’ll disclose some of the progress and what we plan to do in 2024. So when I look at 2024, our portfolio is actually quite balanced and we are ready to manage some of the headwinds and still having some growth opportunity to manage these headwinds. And the outlook, I have only two key message to pass to you. We will continue to deploy our strategy. We still have some work to do to reach all our objective in 2026, but we will continue with our four key strategic action.

Continue to optimize our portfolio, focus on organic growth with great innovation, with additional investment and with geographical footprint, drive operational excellence, continue to optimize our footprint, but do even more on internal efficiencies and productivities. And we still have some opportunity also on inventory management to go even below and have a better mix in our inventories. And we will not stop on sustainable entrepreneurship. Because at the end, I think what is important for me, and I know for all our colleagues, is that Aalberts has a key role to play. Aalberts is everywhere.

We are where technology matters. And since 1975, we have been engineering mission-critical technologies to enable clean, smart, and responsible future. And we will not stop here. You can count on us to do all we can to make not only a positive impact, but also a lasting impact. So before going to the Q&A session, I just would like to say thank you for watching, but also a huge thank you to all our shareholders for their trust and their loyalties.

Also, a thank you to all our customers for their business and sometimes for their patience as we have still have some delivery or service challenges. But fantastic, thank you, and congratulations to all our Aalberts colleagues, we did an outstanding job to deliver a strong and resilient year in 2023. Thank you very much. A -

Rutger Relker: [Operator Instructions] I would now like to give the word to David Kerstens from Jefferies for the first questions. Good morning.

David.

David Kerstens: Good morning, Rutger. Thank you very much for taking my questions. And well done on the resilient performance. I will ask – I’ve got three questions.

I will ask them one by one. First of all, can you please explain the volume and pricing dynamics in the second half of the year? As it seems, pricing got a bit weaker towards the end of the year, while volume momentum picked up. And what are the implications of that for 2024, please?

Arno Monincx: Yes. Let’s say, as you know, David, thank you for your question. Yes.

We managed, especially in the Q4 2022, we made our bigger price increases. And in 2023, the pricing initiatives were rather limited. So the pricing effect is really going down automatically during the year. So as we have said in the first half year, we still assume the pricing impact of 7% for Aalberts in total. And in the full year, we are assuming a 4.5% pricing effect for Aalberts in total, which makes automatically if you calculate that to your – in your numbers that the volume impact in the second half of the year was more positive than in the first half of the year.

Especially also in the building side. So the building technology segment reduced quite a bit volume in the first 6 months. And in the second 6 months, we saw clearly there that the reduction was slowing down.

David Kerstens: Yes, understood. And based on that, resilient performance in volume, your margins were relatively more stable.

Is that the key driver in building technology in the second half of the year, while you managed to keep margins at 14.5%? And can you please also elaborate on the outlook for building technology in a bit more detail with regards to new builds and renovation? When do you expect markets will be strong enough for a return to positive volume growth supported by easy comps after last year’s destocking and a recovery of margins?

Stephane Simonetta: Maybe I can take this one, right? And Arno...

Arno Monincx: Of course.

Stephane Simonetta: You can add, of course, I know, right. You are right to say 2024 will definitely be more challenging because there are still many uncertainties and the dynamics are quite different by geography but also by end market. If we take West Europe, we all see the new construction bills going down our plateau while renovation is still a question mark.

So that could be some of the headwinds. But on the other hand, I think I mentioned it earlier, we still see organic growth opportunities in the U.S. and in East Europe, where also on buildings, talking to our customers, talking to our partners, there is more confidence. So it will be a challenging year, but with a different, I think, dynamic based on the geographical split on the building technology side.

Arno Monincx: And let’s say again, David, what we saw in 2023 is that the reduction of volume decline of building also had some positive impact in the EBITA performance of building technology as such.

So from 14.0% in the first 6 months, we increased to 14.5% in the second 6 months. And as you may always count on also on our teams, they did a great job also to, of course, take all kinds of actions in cost. And when your top-line is under pressure, you have to anticipate to that. So everybody did a great job there to protect as much as possible their margin, which was at the end resulting even in an improvement in the second half year.

Stephane Simonetta: And I think on when it will get up, it’s a very good question, David, because we, as you know, our customers have reduced a lot their inventories, right.

So the inventories are at a very low level. And I think we cannot imagine that it will go even lower, right. We do not know, of course, what our customers are planning, but now it’s more what is going in is getting out. And the question mark is when the wholesaler or customers are going to get back on their stocking profile. And that’s a big question mark.

It could happen in the second half, but today, we don’t know enough. So we just know the inventory are lows and we cannot imagine that they will go even lower.

David Kerstens: Thank you. That’s great. And maybe a final question on semicon efficiency has now increased to 14% of revenue.

Can you elaborate on the growth drivers going forward? And do you see any impact from the hype around artificial intelligence driving ASML and NVIDIA currently?

Stephane Simonetta: I think like I mentioned, David, long-term is just a growth agenda, right. And there may be, of course, different growth dynamics year-over-year. But we are now building factories. We are investing capacity for 2027, ‘28 and beyond. Our order book is at a very strong level on semicon efficiency.

And we still get, of course, a lot of pressure for our customers to ensure ability and supply. That’s what is I think the top priority right now. But at the same time, we are looking also at new business opportunity with new innovation. And let’s not forget that when we talk about bolt-on acquisition, there are still also potentially opportunities to increase our portfolio and continue to add mission-critical technology to serve our customers in the semicon industries.

David Kerstens: Great.

Thank you very much.

Rutger Relker: Thank you, David. I would now like to give the word to Chase Coughlan from Van Lanschot Kempen, who is in the line. So Chase? Chase has left. So Luuk Van Beek from the Degroof Petercam.

Please welcome this morning. Luuk

Van Beek: Yes. Good morning. I have two questions. The first one is on acquisition plans you mentioned that you have a very strong balance sheet which you obviously do.

And that you wouldn’t want to use it for a bolt-on acquisition, but if I look at the diversification opportunities and the growth opportunities especially, [Technical Difficulty] would you also consider to do bigger acquisitions to really make a step forward there in terms of your offering in those areas?

Stephane Simonetta: Thank you for the question. I’m not sure I got the beginning of your question about divestment, but I think I understood the question on big acquisition. We – as I mentioned, we are in strategy deployment mode. Our current strategy is to do bolt-on acquisition. I think in our Capital Markets Day, we even put some amount about the size we are ready, so today to make huge acquisition is not part of our current strategy, right, so we will continue to do bolt-on acquisition mostly around our advanced mechatronics like we have been doing, mostly around our hydronic flow control business, and also around the USA, this is where we will be looking at, but not major and still bolt-on acquisition.

According to the, I think frame, we disclosed in the last Capital Markets Day.

Arno Monincx: We remain very disciplined in our capital allocation, Luuk. Luuk

Van Beek: You have some – such a strong balance sheet, if it continues like this, it could become under leveraged. So that’s, I was wondering what you want to do then, if that happens?

Arno Monincx: Let’s say what we said, we are ready again to make acquisitions. As you know, last year, with the transition of leadership, clearly there we took a break in acquisitions, which I think makes sense.

And now, with Stephane being on board again, we are ready to do so. So you may expect acquisitions in 2024. Luuk

Van Beek: And I have a question on the industrial markets. If you can give a bit more color on the various parts because take for example, sustainable transportation. There are quite some things moving like, on the one hand, automotive manufacturers are becoming more hesitant on growing in electric vehicles.

On the other hand, I think Airbus is growing at the expense of Boeing, which could be favorable for you. So can you give a bit more color of all the developments that you see there, the main ones?

Stephane Simonetta: Yes. I think it’s a great question. And you are right that automotive could be more challenging, right, as we see different dynamics. But we see actually super strong growth on aerospace, on marine, and some other industry segments.

Because we have some technologies which are unique. And this is helping some of our customers. And we do not always supply directly the airplane manufacturer, while sometimes we are more the Tier 2. So we supply Tier 1 that are supplying Airbus or Boeing. And here it’s about growth agenda.

We have also strong order book. We are expanding our capacity to continue to deliver some unique components. Because we are helping our customers to reduce fuel, to reduce cost, to improve safety. And on automotive, we are actually quite agnostic about the technology. Of course, we all hope that the automotive will continue the transformation on decarbonization.

But either it’s more EV or more combustion engine. For us, that does not have a significant impact regarding our growth trajectory. Right. Of course, if the economy and there is less car being produced, that will have an impact on us. But the switch is actually less critical for us in the way we do all our surface treatment, all our material and characteristics.

Luuk

Van Beek: Okay, that’s clear. Thank you.

Rutger Relker: [Operator Instructions] Well, we are waiting for possible more live questions. I also see already some questions coming in. I think now, let me see.

Yes, Martijn den Drijver, ABN AMRO. Good morning, Martijn. Martijn

den Drijver: Good morning, gentlemen. From the snowy slopes of Tignes Val d'Isère.

Stephane Simonetta: Good place.

Martijn

den Drijver: I have a question and it continues to build on one that my colleague from Jeffries also asked. You previously mentioned in, when talking about semicon 2024, perhaps low to mid-single digit organic growth. But since then, we’ve had ASML with very strong order intake and indeed there’s the AI hype. So is that still slightly cautious remark about growth? Has that now been – has that changed basically? Are you now probably, are you perhaps now sensing that there could be an acceleration in the second half based on that improvement in the front end? That would be question one.

Stephane Simonetta: I can only say we don’t want to change what we said last time.

We are still very cautious, right. We still see a growth agenda, but I think it’s too soon to change what we shared with you last time regarding the outlook for 2024. I think that will be my short and simple answer. So not yet. Martijn

den Drijver: Got it.

And then secondly, you mentioned in the press release that the savings from, excuse me, that the Disptek gain will be used for operational excellence. Can you elaborate a little bit on what you mean by that? Is that an acceleration of the operational excellence program? And if so, what kind of savings can or should we expect from that investment between brackets?

Arno Monincx: Let’s say like we always do, as you know, Martijn, we are investing our disposal gains towards operational excellence initiatives. And also, let’s say in 2023, we did between €15 million and €20 million of operational access initiatives with a payback of 2 years to 3 years. So that will for sure help also in ‘24 and onwards to improve our profitability. Besides, of course, we always have one offs as we have always.

So the total net effect. And that is also important to understand our numbers. As you can see in the holding eliminations there, you see that the total costs have increased of holding eliminations. And that is really the – let’s say effect of higher holding and holding costs, not of higher or lower disposal benefits, because they are yes, spot on equal last year and this year. Martijn

den Drijver: Thanks, Arno for getting feedbacks element.

Because I was indeed wondering how that works, because we have a €30 million on Disptek, which means you have €90 million of other income, insurance payouts, subsidies, grants to get to €49 million of other income you reported for the year. You have maybe €9 million to €10 million of regular holding corporate costs, and you reported €5 million negatives. That leaves an unexplained delta of roughly €45 million. Should I see that €45 million as the investment in these cost savings or in this operational excellence program? Is that the way I should look at it?

Arno Monincx: On the other operating income is €49 million, as you say. And that is including, of course, let’s say the disposal benefits and the and of course, also the operational excellence initiatives that takes OpEx.

So that is then causing the higher OpEx lines, which you cannot identify on the P&L. So therefore, we always explain, as we did also in previous years, the real incidental effect in our holding/elimination line, because as we have always been doing, the operational results in our segments are operational and clean, and we take all the exceptional benefits and costs in our holding/elimination line. So, let’s say the other operating income is in line, I would say a little bit lower than last year, it’s €5 million lower, but it’s also depending on the extra cost that we make, how the impact will be for the profitability, so there is no difference with last year. Martijn

den Drijver: Now, the key one is that there is no one-off in the operational EBITA per division. Okay, clear.

And then…

Arno Monincx: There as a one-off effect, but it’s par with last year, so it’s approximately €5 million last year and this year. Martijn

den Drijver: Yes, but you mentioned that’s on the holding line. None of that impacts the divisional EBITA.

Arno Monincx: No. Martijn

den Drijver: Okay.

Moving on, you mentioned quite a number of elements that have supported the value-add and specifically in building tech, the EBITA margins. What you don’t talk about is the procurement savings, is there anything that you are willing to share of what that might contribute in 2024, because that was…?

Stephane Simonetta: I think I can take this one. Thanks for asking. And of course, this is where I think we are more positive regarding material costs management because we see the price of material getting down, more and more availability from our suppliers. So, our purchasing team are working on a very aggressive plan to sustain our margin.

So, this is where, and it can be sometimes single or even double digit material cost saving that we see in 2024. So, more opportunities definitely compared to 2023. Martijn

den Drijver: Okay. That’s clear. And one final question, basically on the same subject.

So, raw mats probably moving in a favorable direction. How about energy, is that also coming your way in 2024 relative to 2023?

Arno Monincx: A little bit more difficult to predict, of course. But as it looks right now, it is also going down a bit, the effect. But we don’t know how that looks like in two months, three months, as you know. Martijn

den Drijver: Yes.

We know them, but looking at it. Okay. Those are my question so far. Thank you very much.

Rutger Relker: Thank you, Martijn.

I would now like to give the word to Maarten Verbeek from The IDEA. Good morning Maarten.

Maarten Verbeek: Good morning all and thank you. A couple of questions from my end, please. As you stated, you made some good progress with your working capital, but you are still not within your targeted range.

Do you believe you could be in that range at year end, or do you believe it will take a bit longer before you will be in that range, so that would be in 2025?

Arno Monincx: Now, what I explained at the end of 2022 is that we of course, made a steep increase in inventories to secure our delivery performance towards the customers with all these supply chain issues, and that we were aiming to go back to the normal level of, let’s say, before 2022, which is ‘21, in about 2 years. Now, I think we made a big step forward in that direction. It’s only a few days away from where we were at 2021. But of course, we will continue to further improve and optimize also our inventories to even a better level, so that is work in progress.

Maarten Verbeek: Okay.

Thank you. In the first half, you were facing some underutilization, particularly in that building. Do you still expect that to occur in this fiscal year?

Arno Monincx: Let’s say for as long as the volumes remain on the level where it is today, you could expect that is the same. But we don’t know exactly how this will look like. But as you can see in 2023, we managed well the headwinds.

But of course, underutilizing a bit leading to a lower EBITA performance as the year before, that’s clear. So, yes, we will do our utmost to protect our margin also going forward. That’s just how we are doing the business.

Stephane Simonetta: That’s also one of the key priority going forward and there are operational excellence, strategic initiative, to focus more on higher utilization of our assets, doing leaner investments, continue to support the growth, but with better footprint optimization and better capacity utilization. Especially on the building side, I think this is where we have challenges, but also opportunities.

Maarten Verbeek: And lastly, could you share with us what you expect to spend on capital expenditure this year?

Arno Monincx: Yes. Let’s say, as we also have guided, I think already in the Capital Markets Day in ‘21, it will be some higher years of CapEx. Now, like we said last year, €200 million, €250 million, I think we were quite spot on and that we expect at least the same also for 2024. So, there is a lot of projects, yes, also with a longer lead time than only 1 year, so we are continuing to invest also in 2024. So, €200 million, €250 million, you should take into account.

Maarten Verbeek: Okay. Thank you very much.

Rutger Relker: Thank you, Maarten. I think now Ruben Devos from Kepler Cheuvreux. Good morning Ruben.

Ruben Devos: Yes. Good morning everyone. Thanks for letting me on. I actually have a first question related to semicon. I believe you talked about investing for capacity for ‘27, ‘28.

You already realized €460 million in the semicom division. So, if you are preparing already for ‘27, ‘28, could you give some degree of how much capacity you are actually planning for, rough order of magnitude? Are you looking for maybe a high €100 million range, what should we be thinking of?

Stephane Simonetta: Yes, that’s – it’s difficult to, I think to predict. The order book is high. We are investing, and I think we have a good view on the coming 2 years, 3 years, but I will hate to give you numbers at this period of time, because I think it’s still more a range. We still see growth long-term.

I will say, if you look at long-term, it’s high-single digit or low-double digit. That’s what we see long-term on the semicon industry, right. But to give you a number, I think that will be a bit premature at this point of time.

Arno Monincx: And as Stephane said, we also have an acquisition focus in this area. So, you may assume the increase of share in the total, that will continue, so.

Ruben Devos: Okay. And then thinking about, like obviously, we have seen a very positive news flake coming out from the semi-equipment space and also from AI, etcetera. How, like if you look at your major buying customers, ASML, ASM, KLA, and so on, is there any like other end markets that you are paying more attention to in terms of your systems are thinking, the vibration isolation systems, the high purity fluid systems, are they more penetrated in some specific segments, like logical memory, where you are more penetrated with your subsystems?

Stephane Simonetta: I think it’s a great question and that’s also very high in our agenda for the next strategy period. So, in the current strategy period, it’s still around the same, I think go-to-market or service to our customers. So, doing a few bolt-on acquisitions to increase our portfolio to deliver our current customers in this highly sophisticated equipment.

Maybe also looking more at services, that’s what we are looking at, helping our customers also on their circular request. And then for the next strategy period, that will be something we will need to decide, do we want to expand, and be more front-end or more downstream in the value chain of the semiconductor industry, or do we want to stay here more upstream. So, good question, but I think very relevant for the next strategy period. So, count on us to be back when we will have made the decision, because then it will be the time for a new Capital Markets Day, sharing what we want to do beyond our current scope.

Ruben Devos: Alright.

Thank you. And then just a final question on let’s say the margins, I think you sort of have that target objective of 25% drop through rate. I think it was 21%, 22% in ‘23 and up, but obviously you have had a bit more of challenges in the Building segment. I think you are also talking about a bit of a challenge here in ‘24, but you also talked about potentially strong savings in terms of raw material procurement. Is it fair to say maybe in ‘24 you would still be trending below that, let’s say, objective of 25%, but then once, obviously, you get higher utilization in the Building segment, then you see, renovation activity, new build activity that you would be turning ahead of that?

Arno Monincx: Now, let’s say that is really depending from the fact if we can really make volume growth again in building, because as you have calculated probably yourself, we made 19% drop-through in 2023 in total, clearly with a very good drop-through performance of industrial business and yes, even a negative drop of building with a volume decline that is logic.

So, yes, let’s say, I expect because we saw already the improvements in the second half of the year, that that is also clearly what you can see in the EBITA performance. I expect that we can grow also drop-through again for building if we are able to make volume growth again. And that is clearly, of course, what is not yet so clear at this moment.

Ruben Devos: Okay. And the idea is still that maybe within industrial that it’s more straightforward to have that higher drop through for the surface treatment business as opposed to the semicon, or is it rather the same level?

Arno Monincx: Let’s say, clearly, the service technology business has a higher EBITA performance than the semicon business at this moment.

But the semicon is still growing, also that has all impact on the EBITA performance. But at the end, they both do a very good performance, but semicon is even on the higher side.

Ruben Devos: Alright. Thank you very much.

Arno Monincx: Sorry, semicon.

I said semicon, but I mean service technologies, yes.

Rutger Relker: Thank you, Ruben. Now, I would like to give the word to Aurelio Calderon from Morgan Stanley. Good morning Aurelio.

Aurelio Calderon: Hi.

Good morning. Thanks for taking my questions. I have got two, please. The first one is around what we talked about, the building blocks for pricing this year, ‘23, or sorry, last year in ‘23. Can we talk about what happens in ‘24, how you see, because you have talked about raw materials coming down, you talked about energy prices probably coming down.

So, I am just wondering if you are seeing more pressure from your customers to take prices down, or you will do whatever it takes to at least protect prices. And that will be the first one, please.

Stephane Simonetta: I think, thank you, Aurelio for the great question. You are absolutely right. We – of course, we see many of our peers or other companies going massively on price reduction to get more volumes.

But that’s not our strategy, right. There will be always someone cheaper than us, and we don’t want to go to this trend. So, we believe in our innovation, we believe in our differentiation, and we believe in our unique offering, right. So, now, of course it will be more challenging to push price increase in ‘24 than in 2023. But we still want to continue.

And the price increase may be lower than in ‘23. But we are determined and I know our team are working very hard to manage because it’s, we still have sometimes some commodities on some part of our business, where we still see price increase also in our own value chain. So, we can’t also on this to pass to our customers. So, back to your question, yes, we see the pressure, right. But yes also, we will do all we can to continue to pass even modest price increase on our Building Technology segment.

Arno Monincx: And purchase saving initiatives, there is also now the supply chain, let’s say, availability has normalized again. We put much more focus again on our purchase saving initiatives. And I think also there we make progress.

Aurelio Calderon: That’s great. Thank you.

And the second question is around market share. You talked about, I think it’s for the Building segment, but you talked about market share gains. And I wonder if you can elaborate a little bit more on how you are gaining market share? Is it because of innovation? Is it because of availability? And what are the drivers between market share gains? And if you can also touch on what you have seen in terms of market share developments in the other verticals would be helpful as well.

Stephane Simonetta: Yes, that’s a very good question. And sometimes it’s very painful, but sometimes it’s also, it’s a great opportunity because you are absolutely right.

First of all, it’s about availability, right. And now, I think with the supply chain improvement, if I look at West Europe, even at the beginning of the year, we are doing quite a great job because we have super good availabilities. Our factories are delivering. We have our distribution center full, and we can offer short lead time. And now, many of our customers and wholesalers actually want our product, based on the best-in-class quality, based on the best services, and the long-term and reliability of our offerings.

But of course, when we are not able to deliver, this is also becoming a challenge. And if I look at the Americas, this is where we have some opportunities to improve our service level for our customers and gain market share. So, it’s I would say availability in ‘24 could help us to manage some of the headwind, even if there is a global market demand. But I know in the U.S., we could gain market share with better service.

Aurelio Calderon: Yes.

That’s great. Thank you very much.

Rutger Relker: If that’s your last question, Aurelio, thank you so much. Then I think it’s now time to go to some of the questions submitted via the webcast. And I will start with the first one here.

Perhaps that’s a good one for Arno. It’s a question about the CapEx level after 2024, would it be more normative, would it go down?

Arno Monincx: Let’s say we have guided, of course, in the Capital Markets Day of 2021, that we increase our CapEx towards €200 million, €250 million. So, that will take until the end of this period. Nevertheless, of course, we expect in the short-term that we are on the high side of that because of all the big projects that are running. And besides late – perhaps later on, it will go down a bit, but we still see lots of growth potential opportunities to which we allocate our CapEx.

And at the end, CapEx do have a very good return. So, it’s always accretive to our ROCE performance, which is also an important target for us to realize. So, yes, we see as far as long as we see allocate, as we see opportunities to make returns from our CapEx, we will continue to do so. And I think the guidance has been quite clear until 2026.

Stephane Simonetta: I will add, on top of what Arno said that, what you will see also is a change in mix of our CapEx.

Less in buildings, because you are right, when the capacity will be there, we will be ready to grab the growth. And more in R&D, more in innovation, because we are quite good for the next 4 years, as on the business development we did, without 20%, but there are still many opportunities to innovate solutions for our customers. We still have some room with also the digitalization agenda. And this is where, within our frames, as we will be spending less in buildings in the coming years, we can spend more on R&D for the long-term growth agenda that we have.

Rutger Relker: Thank you, Stephane.

There is another question about M&A. What would be your key priorities in M&A?

Stephane Simonetta: Yes, that’s – thank you. I think first of all, you know very well, right, I think better than me, that we have a very successful M&A playbook in Aalberts. We have been doing that for many years and we have been great at doing bolt-on acquisition of strategic agenda. We will continue to do that focusing on our four key end markets, right.

That’s the strategic compass, right. And you can count on us to be very disciplined in this allocation. And I will just mention, like I have been sharing I think to some of our investors and shareholders over the last weeks, we have three key priorities in our M&A agenda, right. It’s about first of all, hydronic flow controls, because we see opportunities to continue to expand our portfolio. When you go in the boiler rooms, you see what we are doing with our expansion vessel, with our air-dirt separators.

Now, we have also heat treatment for heating solutions, but we could also do more to do full solution package for the commercial buildings. So, that’s one element, but hydronic flow control is also in the U.S. where we are quite small. This is where also we believe, we will be much faster by doing some great acquisition to also enter the residential side in the U.S. So, number one, hydronic flow control.

The second one, advanced mechatronics to continue what we started also with our semicon efficiency agenda. As you have seen over the last 2 years, we did some great add in our portfolio and we will continue to do that. But advanced mechatronics could be also a geographical expansion. I think I explained it that in this business, you need to be close to your customers. So, if our customers are also moving the assembly equipment in other part of the world, we will be following it.

And then we may do also some acquisition in other parts of the world outside Europe for the semicon efficiency business. The last priority, in the U.S., because for me, it’s important that in the long-term, we have also an even more balanced portfolio between Europe and USA. And we also have a good recipe. We have done, I think a great job in surface technologies with all the acquisitions we have been doing. But I still see many growth opportunities in terms of acquisition for the North America market.

So, I would say these are key priorities for the coming years.

Rutger Relker: Thank you. There is another question about inventory level. Perhaps that’s a good one for you, Arno. You have reduced – we have reduced the inventory position in 2023, could we expect some further reduction in 2024?

Arno Monincx: Yes, as I already explained, we made a big increase in 2022.

And we said at that time that we will probably need more than 1 year to come back to the normal level again. I think in 2023, we improved 11 days, which is a good, yes, let’s say a big step forward towards the direction of before the spike in 2022. We are not there yet, still have a few days to improve. But you can count on us that we will constantly try to further optimize our inventory, because at the end its capital employed and we have to be sure that we are most efficient in our – also in our inventory allocation. So, we will continue to improve that also in the years to go.

Stephane Simonetta: And this is also, as Arno mentioned, through our operational excellence agenda, we can also improve the way we manage our flows in our supply chain, and this as a result could optimize the days on hand that we have in our value chain on inventories. So, maybe having even better availabilities for our customers especially in the building, but maybe more streamlining our work in progress and our raw materials on the inbound from our former suppliers, so definitely the answer is yes, we will improve.

Rutger Relker: Yes, thank you. And this is a perhaps a nice bridge to another question which came in, whether you could perhaps share some more details on operational excellence. Is this just footprint reduction, optimization, or what’s your view on that?

Stephane Simonetta: Thank you.

I think also what we share, right, it’s definitely more than footprint, right. So, we – don’t get me wrong, we will execute the plan and deliver on the objective we shared in the last Capital Markets Day because we can have a more simple footprint and continue to reduce number of sites. But like I have said, it’s not about the number of sites, right. It’s about the efficiency you drive. It’s about higher CapEx utilization.

Higher I think also, health and safety for our employees, and better flows in our supply chain. So, all of that, through technologies, I think we can still do more and reduce our cost to produce, as an example, especially in the buildings, because this is I think, where we have the hydronic and the repetitive. Then in semicon is to also continue even it’s more a project business. And then on the service, I think this is more a footprint because also here we need to ensure we have the right utilization of our big furnaces, a huge oven that we have in some part of the world. So, that’s for me, what I call the end-to-end operational excellence.

Rutger Relker: Thank you. Quite clear. I think that we can conclude the Q&A session. And as we conclude today’s webcast, I want to thank each of you for your participation. I hope today’s presentation has provided you with a clear understanding of our achievements, our financial health, and confirmed our strategy direction going forward.

Thank you once again for joining us today.

Stephane Simonetta: Thank you.

Arno Monincx: Thank you.