Aalberts N.V.

Good morning, ladies and gentlemen. Thank you for joining us today.

It is my pleasure to welcome you to Aalberts First Half 2024. My name is Rutger Relker, Director, Investor Relations.

This morning we published our interim results. We delivered a 15% EBITA margin in challenging markets.

Together with our CEO, Stephane Simonetta and our CFO, Arno Monincx, we will look back to the first half of 2024 and we will look forward to the second half 2024. Stephane will kick off the presentation with some key highlights.

This will be followed by Arno who will give a financial update. Stephane will then share our strategic priorities and outlook.

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 we encourage you to participate.

Later today we will make both the presentation and the recording of this webcast available on our website. Please welcome Stephane Simonetta to begin our presentation.

Thank you, Rutger. Good morning, everyone.

So the first six months of the year have been challenging as we saw lower activity at our customers, especially at wins in building technology. But we have improved, thanks to the work of our teams, to improve our added value margins and we improve our profitability in our Industrial Technology segment.

As a whole, we are delivering 15% EBITA margin, thanks to our cost saving and robust price level. And as you see on this slide, that are the key highlights about our first half performance with an organic growth at minus 3.9%, with an EBITA at 15% of €242 million, and an added value at 63.8%, which has improved as Arno will explain later, in both actually of segment compared to last year.

As we always do, we are adjusting our costs, especially fixed costs thanks to our structural cost saving. And you can imagine that most of the cost savings are on our Building Technology segment and we are deploying and executing our inventory reduction plan to be back on track at the end of the year.

Despite the short-term challenges, we continue to invest for the long term and that's why our CapEx is in plan with last year. We deliver an EPS at €1.61 and we continue to deploy our four strategic actions.

I'll give you more color later on. So overall, we continue to execute our strategy.

We have delivered 15% EBITA and we are well positioned for the rebound of the activity. When you look at the operational development, let me give you a bit of color for each of our end markets.

And starting with building technology, our eco-friendly buildings, this is where we see lower activity in Europe, especially in Germany. But despite all these challenges, our added value margin has improved in our eco-friendly building, thanks to our robust pricing, our sales initiative and our purchasing actions.

We continue to see a decreasing lower end-user demand in new builds and softer demand in renovation. As expected, the stock level at our wholesaler were still low, but we continue to see better activity in Americas, in Asia and in some product lines, we are actually doing better than the market.

As an example, our grooved technologies, our water treatment offering, our pressurization and storage tank, our safety and efficiency valve are actually doing better than the market, which means we are winning some shares compared to the market trends. In the US, we are still working to improve our service level and this is where we are expecting a better second half on our commercial valve.

And we see the positive trend on some new verticals, especially the data center, where we are also working on offering an innovative solution for our customers. Despite this short-term volatile demand, long-term it remains a growth agenda because the energy, the resource efficiency, in both residential and commercial buildings, they remain long-term growth drivers.

But as you have seen, this is mostly in this vertical that we see the biggest challenge. Because on the other hand, everything linked to our industrial technology is actually doing much better and semiconductor efficiency continues to grow.

Despite some short-term volatile demand, we are improving our service and our order book remains at a high level. And we continue to see very strong demand on our advanced mechatronics module with more and more system integration, especially as you all know for our lithography and inspection application.

We see more and more, which is good news for our sustainability agenda, need for refurbishment from our customers. And this is a growth enabler on top of the technology trend.

And we are continuing to invest for the long-term, because we need more capacity to serve and deliver the growth from our customers. So very confident and we expect a much stronger ’25 in this industry because there is positive technology trend like AI technology that will bring additional demand.

In sustainable transportation, we have once again, this just shows our resilience, a very solid performance, and because also here we see a mixed demand with lower in automotive but continued growth in aerospace. So we are, I think, delivering as usual and flexing our costs to sustain some solid margins.

And that's why we are able to follow the trend, especially in automotive. And we continue to see high growth for the high precision manufacturing parts, especially also some good opportunity on surface technology, because there is more and more need for lightweight material.

And we are also continuing here to support the e-mobility agenda, sustainability and all the reshoring continue to be growth driver in this end market. Industrial niche, a bit more challenge because of course here it's following the overall economy and we see some lower demand, especially in West Europe.

Once again, also the Germany is more challenging with overall industrial need going down. Also US, and we continue to see growth in Asia.

So we are adjusting our costs, but the order intake continue to be very strong on the other hand in the US for industrial value and that's why we expect also a second half to be better and we still see growth opportunity. That's what we are working on, to capture a growth and win share in North America on our industrial value.

So in a nutshell, that's where we have been doing on the first half with very strong picture on industrial where we are able to continue the growth on semicon, more stability on sustainable transportation and more challenging on industry. And then we are taking all the measure to secure our margins on eco-friendly buildings.

Let me now hand you over to Arno. Arno?

Yeah, thank you, Stephane. Good morning everybody also from my side.

I would like to take you through the financial development of Aalberts, over the first half of 2024. Starting with the revenue where you see the decline of 3.9% organically over the first six months versus last year and where we see the headwind in building, as Stephane also explained, ending up in 6.7% organic decline for building technology; and then industrial, a reasonably flat situation, minus 0.4% which is actually given the market circumstances also in industrial, quite a strong performance.

In total it's minus 3.9%. And the EBITA margin, there we sustained a good added value.

We even improved our added value as Stephane said, with 1.5%, which is a great result and a great performance of the teams and that is clearly always our strategy that we really protect our added value margin because there it all begins with the earnings of course. So there we are still with 63.8% at a very good level and that is also one of the reasons that we could at least keep our profitability to the level of 50.0% although it's a decline of 0.4% but still 50.0% in challenging market situations.

The earnings per share before the amortization, let's say the net profit before the amortization ended up at €178 million and also there we see that the net finance costs were clearly lower than last year but that is also a positive thing and that also helps to at least have €1.61 per share as an EPS versus the €1.71 last year. Then the cash flow from operations where we decreased from €221 million in the first half of ’23 to €182 million in the first half of ’24 and we have also put here the two main reasons for that.

First of all, of course a lower EBITA level, a €16 million effect to this operational cash flow and the other one is the network capital move of, let's say, which was €27 million lower than the move last year. And that clearly has to do with the normal seasonality trend that you build up stock in the first half year and you reduce your stocks in the second half year.

Also because of the seasonality and where we had the situation in the first half of ’23 as we came from a very high stock level in ’22, at the end of ’22 due to all the supply chain issues as you may remember. So that was clearly let's say a positive situation for the cash flow in the first half of ’23.

But this gives more or less the normal seasonality. Then the revenue per end market, where we see eco-friendly builds with 51% actually quite stable, semicon efficiency continued to increase in the share of the total towards 15%, sustainable transportation also slight increase to 17% and here we see the industrial niches are really reducing towards the 17%, coming from 19%, full year ’23.

The revenue per region, I must say quite stable, actually there's not a lot of change. The only thing is that APAC, Middle East, Africa is 1% lower than full year ’23 and Western Europe is 1% higher than full year ’23.

The revenue bridge, coming from the first half of ’23, €1.717 billion, then we have no effect from acquisitions in the first half of ’24. The net effect of the disposals, the divestments versus 2023 was €37.3 million with the loss of revenues that had to do of course with the divestment of Disptek.

Currency effect, the small plus €3.8 million mainly impacted by Great British pound and Polish zloty and then it results in the organic revenue decline of €64.8 million, again the 3.9% as explained earlier and that is totalizing towards the €1.618 billion we realized over the first half of ’24. The same for the EBITA bridge where we started from €264.2 million over the first half of ’23, no effects from acquisitions, we lost €4.9 million versus last year due to the divestment of Disptek we did in ’23, and then we had a slight positive translation impact mainly again Great British pounds and Polish zloty of €0.4 million.

And that results in the organic EBITA decline of €17.5 million of EBITA lost and that is as said earlier, mainly realized in building technology driven by lower volume where we saw the margins going down from 14.0% to 13.0%. I will explain in the next slides also and where we still see that Industrial Technology improved the EBITA margin but also come back to that in the next slide.

The Building Technology segment revenue came down from €932 million to the €873 million in the first half which was the 6.7% organic decline versus the minus 1.5% decline we faced in the first half of ’23. The added value improved, thanks to robust pricing also mentioned by Stephane, sales initiatives and purchasing actions and we believe that our teams also in this difficult market circumstances did a great job to protect their added value.

And that at the end helped a lot to sustain the EBITA margin to the 13.0% that we reported versus the 14.0% last year. And let's say also here we see that the capital expenditure we continue to invest despite difficult market circumstances.

So that's also, yeah we are we are still investing for the long term of course because we believe that the long term perspective also for building is still positive. Last but not least, America and APAC we saw better activity than in Europe.

Then the Industrial Technology segment, also a slight decrease of revenues from €785 million to €746 million which organically was let's say only minus 0.4% because also here of course we faced the disposal of Disptek. And don't forget that last year the first half of ’23 we really had a very strong organic growth performance in Industrial Technology of plus 16%.

Then the EBITA margin, despite the lower volume we managed to improve our EBITA margin and there the teams really did a great job to flex their costs also with slightly lower volumes to even be able to improve EBITA margin to this good performance of 17.8% in the first half. Also here we continue to invest although the CapEx is slightly lower, that is related to the timing because also in Industrial Technology segment we will continue to invest for the long term.

And again, continued growth in semicon efficiency, a stable activity in sustainable transportation, and a lower activity in the industrial niches that is the takeaway from the three end markets. Then the two segments divided geographically from their revenues, we see 54% Western European building technology which is a little bit higher in the total than the full year and for the rest, I would say there's not so much change.

Also in the Industrial Technology segment it's only slight changes Eastern Europe but for the rest -- Eastern Europe is a little bit lower than last year, for the rest it's more or less the same. Stephane, back to you.

Thank you, Arno. So when we talk about strategy deployment, as you know we have our six KPIs where we made a great progress last year and we continue to work on this one.

And as you know in 2023 we were at the ’26 target on SDG, on innovation rate, on leverage ratio, getting close on EBITA margin and continuing the improvement on ROCE and then with some way to go still on organic growth. So we continue to work on this six KPI in ’24 and let me report now some progress on our four strategic actions and the first one is our portfolio optimization.

Like we mentioned also in our full year results presentation, it's both acquisition and divestment. So on the acquisition side no change, we continue to prioritize three areas where we want to grow inorganically.

In hydronic flow control which is still a mix between new technologies that we want to add in our portfolio, but also in the USA. In advanced mechatronics, which is also a mix between new technologies in our portfolio, but also looking at the Southeast Asia footprint and USA, as I mentioned before, but also looking at some of the bolt-on acquisition on surface technologies.

In divestments, we continue to look at our portfolio and we will divest when we believe we are not the best owner on some of our businesses, as we have done in the past. The organic growth, really, and trying to continue the growth in the US, in Asia, to have also a more geographical balance overall and growing, thanks to our innovation.

And we see that this is where we have been able in the first half to have some growth in some niche, thanks to innovative solutions in our eco-friendly building, thanks to the, of course, semicon efficiency trend, but also in aerospace. And that's also what we want to continue to increase our innovation power.

And we continue, and because it's also geographical expansion, in Mexico for surface technology and in the Netherlands, also for semicon efficiency and some eco-friendly building, where we have also had some extra capacity to support the sustainability agenda in Europe. Operational excellence, I think the first half is a good example of what it means, right?

Thanks to the great job of our pricing excellence, that's what also always means, right? When there is more stable volume, how can you do better?

And so that's what we have been doing in the first half. Pricing excellence, structural cost reduction, and footprint optimization, we continue, and of course, we will make some progress in ’24 towards our ’26 goal.

And we are accelerating, continuing the continuous improvement, especially in the business and where we have more operational challenge, not only to reduce costs, but also to improve service level and reduce our inventories, right? That’s operational excellence.

And you can imagine that we have a lot of prioritization in our Building Technology segment to address these challenges. But let's not forget something also very important to us, that we continue to drive our sustainability initiative, improving our health and safety for all our employees.

We make some good progress in the first half, and we continue, and also preparing next year annual report as per the CSRD regulation, and we are preparing everything, working on circular economy together with our customers. So overall, continuing to make progress on the whole ESG agenda with all the KPI and the initiative we are working on.

So we expect to report some good progress also next year in our next annual report. So when you look at the outlook, all more especially the second half, right?

So what do we expect for the second half? First of all, we expect the soft market in eco-friendly buildings to continue, especially in Europe, and we continue to see opportunity to grow, to do better in the US and in Asia.

On the other hand, on Industrial Technology, we still remain confident for the long term with a semicon growth agenda and industry more a mixed picture, as I mentioned, between aerospace, automotive, more stable, so different by technology, by regions, and also by end market. Portfolio optimization, we continue to stay disciplined in our capital allocation, so doing CapEx, but also ready to make some bolt-on acquisition and optimize our portfolio.

So we continue to make good progress here. And as I mentioned, we will continue to provide more transparency, especially on our scope 3 emission, more upstream in our value chain to also make progress in this area.

So overall, we remain very well positioned for the rebound of the activity, thanks to the deployment of our initiative, thanks to the restructuring costs we took, and thanks to the market trend, as we have been doing in the first half. The outlook is not changing and we are still in deployment mode in 2024 with our four strategic actions, that's what I mentioned at the beginning, so organic growth, operational excellence, portfolio optimization, and sustainable entrepreneurship.

But what we are planning at the end of the year is a new Capital Market Day that we will do on the 10th December, and because I think it's after three years, it is time to give an update on our strategy, and also because 2026 is getting closer, so we have decided to give to all of you and to all our stakeholders an update on our strategy at the end of 2024. That's all I wanted to share with you, and let me back and hand it over to Rutger.

Thank you very much.

Thank you, Arno and Stephane. As we are starting the Q&A session, I’d like to remind everyone how to participate.

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

Yes, good morning. Thank you very much, Rutger.

I've got three questions, please. First of all, can you explain the deterioration in organic revenues in the months May and June?

I think minus 5% in industrial tech and 8% in building tech, particularly in industrial tech, notably weaker than in the first four months of the year. And then maybe the second question, what is the impact of weakening incentives to move towards heat pumps?

I think the new Dutch government wants to abolish the mandatory change towards heat pumps. Maybe we can keep gas boilers from 2026.

I think previously you talked about the positive impact from replacing 65 million gas boilers in Europe. What will be the impact if we can still keep gas boilers?

And then maybe finally, do you see some signs of inventory restocking already in the second half of the year ahead of the expected recovery in demand later this year? Thank you very much.

Thank you. Good and great question.

So the industrial technology, it's very tactical and short term, like you mentioned, because I think many of our customers, especially in the German market and in our surface treatment, have been managing their half-year results and basically stopping and postponing a lot of their services from June to the second half. So that's why the June months, so it's a very short term issue, they have been optimizing and postponing things to the second half.

That's why the June months have been more challenging on industrial technologies. The second point is, you are right, I think we see it, the stock remains very high at our customers on heat pumps and they are really struggling to get that out of their doors because they are less and less incentive by the government.

But for us, it's actually, I would say, more neutral because we are still using expansion vessels when you need gas boilers and actually we see a unique growth. You may have seen in our operational update that we are winning shares and we are doing better than the market trend on expansion vessels because you need more units on gas boilers than on heat pumps and then the installer can do more jobs to install gas boilers than to do heat pumps.

So I would say it's a neutral but if you look at the unit, it's slightly positive for us when you see this trend. And the third point, I think here also talking to our customers I’ve been visiting, we are more cautious that the stock will continue to remain very low, right?

Because that's what we see from our customers, so we expect and continue to see soft demand in the second half and we are not expecting a huge restocking before next year.

Okay, that’s clear, thank you very much.

Thank you, David. Martijn, are you there?

I think he's not there.

No, apparently not.

No, no, I am.

Ah, you are. Okay, sorry.

Good morning.

I am. Can you hear me now, guys?

Yes. I can hear you.

Good. I apologize, I couldn't hear you.

Okay, everything's fine, at least in terms of audio. My first question would be about building technology.

You mentioned that the value add was up also for building technology, but your EBITA margin is down. Normally, I would expect if your value add goes up, that your EBITA would go up.

So what's driving, despite that better value add, that decline in EBITA margin for building tech? That's question one and I'll do them one by one.

Okay, let me take that question, Martijn. Yes, we are quite, let's say, happy with the added value developments that we realized in building technology, given our strategy to protect that constantly in the market.

But also, of course, we need a better added value to also compensate for higher OpEx on one side, so that is why we also need a higher added value. On the other side, let's say the negative volumes have impact in the flex of costs.

And therefore, let's say, although the teams did whatever they could to flex the cost at the maximum with a falling decline of minus 6.7% organically, we face, of course, also some drop down and that is resulting in the EBITA reduction of, let's say, 14% to 13%. But it would have been --

Or translating that?

-- maybe even lower if we would not have had such a good added value, of course.

Then there is a timing issue to see the effect of our structural cost saving action that will come more in second half than in the first half.

Okay, that is good to know. Moving on to semicon, growth was substantially higher than I had anticipated at 10%.

I think the guidance from Aalberts was roughly for the whole of 2024 mid-single digit. Is this guidance of mid-single digit still applicable for semicon for the whole of 2024, given the strong performance in the first half?

And related to that, did the margin, the EBITA margin for semicon go up?

No change with our guidance, right? Because as we wrote and I think we mentioned, we continue to see a lot of volatile, up and down, especially in the short term.

So long term, high confidence, still a growth agenda. There is a slight chance we may do better than our guidance, but the guidance is still the same because we have seen also some short term movement from our customers, so that's exactly what we were anticipating actually.

Then on the margin?

The margin, I think also for semicon we were able to slightly improve margin also in the first six months versus last year.

Got it. Got it.

Then on the announcement of Capital Markets Day, 2024 is a difficult year. Is it a year that we could probably qualify as a transitional year?

Why would you go for a Capital Markets Day, even though you're not even close to your strategic targets for 2026 and the agenda in terms of M&A and capital allocation is pretty clear as well? So what made you decide to go for Capital Markets Day?

Two reasons, like I mentioned, because the last one we did, it's now three years ago and a lot of things have changed in the last three years. And it's because also at the end of the year, before we enter ’25, we will be one year away for ’26.

So we believe it's time to give an update of our strategy to all our stakeholders. That's the two main reasons.

So it's only about strategy?

It's a strategic update that we plan to give.

Okay, but targets remain the same then?

We will share the update of our strategy and you understand that the strategy includes a lot of points. That's what we plan to do.

I think I can only comment on what I said. As you know, in 2023, we were already on target with three of our indicators, getting close to the number four.

And then we had two where we still have some work to do. So we will share the update in December of our strategy and the strategy includes the initiative and the target.

Clear. Two final questions for Arno, if I may?

There's €18 million in other income. What's included in that €18 million given that there is no gain on the divestments?

Now, first of all, what's actually the main difference with last year is an insurance income that we had because of the damage that we faced. So that is in the other operating income, the main difference versus last year.

And as you may have seen also in the holding/eliminations line, we are still quite stable versus last year. So that also means that this, let's say, additional income, we have also allocated for more extraordinary spend.

And like Stephane already mentioned, we have already started also a restructuring program and that is also where we allocated the cost to.

Okay. So that's part for the course as to how Aalberts does it with these types of incidentals.

I get it.

Yeah.

And my final question on networking capital. Arno, what should we or what can we expect in terms of networking capital and specifically inventory towards the end of the year?

Yeah, let's say because what I believe is that maybe some have overseen the effect that we had, the positive income effect that we had in 2023, that there was not a normal because of the normal seasonality trend that you built up your stocks in the first half and you reduce your stocks in the second half. And I can tell you that although in days we are only slightly above last year, for the full year we still remain confident that we are able to improve our days working, and days in inventory outstanding also to the objective that we have set.

We have a lot of initiatives ongoing and I'm still confident that we will do. And of course with a decreasing top line as we face it in the first half year, the days are a challenge but the trend is still good and maybe you have seen it, but we are lower than June last year.

We are €16 million lower than June last year. So we will continue to optimize it also in the second half year.

All right. Those were my questions.

Thank you very much gentlemen.

Okay.

Thank you. I'd like to give the word now to Chase, no excuse me, to Elliot Robinson from Bank of America.

Elliot, your line is open.

Hi guys. Just three questions from me if that's okay and I'll try and take them one at a time.

The first one is just, I was wondering if you could run us through any potential impact on yourselves if there were tariffs implemented in the US. So for example, what does your production versus sales footprint look like?

That's my first one. Thank you.

Now let's say as you know, we have always the approach that we produce where we are also selling it. So we have a local approach.

So I think Aalberts is especially in an area where we face tariffs by importing from other continents of the world. Yeah, I think Aalberts is well prepared for such trends because of the local footprints that we have and that we service.

Okay. Nice one, thank you for that.

The second bit was just on the net working capital. I suppose going back to that again.

I suppose in H1, I suppose you would have thought with the organic decline, it could have come down maybe a little bit more than it did. I was just wondering what was kind of the moving parts within that on the net working capital and what gives you confidence on the fact that you think that you can reduce it further in H2.

Obviously, there's the seasonality in that.

Let's say that's actually the biggest reason because the move in net working capital was negative versus a positive movement in the first half year of last year. And it clearly has to do with that in the first half of ’23, we reduced our stocks with €30 million coming from an extremely high DIO of 101 days.

And now we increased our inventories for the season during the first half year. And in DIO, we are still very close to where we would like to be, although we are two days higher because of the also the lower top line, of course.

But again, we remain confident that we will continue to reduce that further towards the end of the year.

Sure. Just this one extra bit on that point.

Is there any sort of split that you give on inventory by the business unit or anything like that? Or should we think almost higher capital intensity within certain parts of the business, for example?

Now, of course, the building is a big part, but also in our semicon business, we have also substantial inventories. The only area where we have less inventories is in surface technology business because there we perform a service to our customers.

So there the inventories level are the lowest from the group.

Right. Perfect.

Thank you. And then my last one, if that's okay.

And thank you for all the questions and for taking the time. You mentioned about data centers.

I mean, could you just expand a little bit on maybe what your exposure is there and what you've kind of seen, I guess? Thank you.

Yeah, we see really an opportunity with our offering in our hydronic flow control portfolio to offer more prefab and skid systems to handle that also with our IPS portfolio. So the opportunity for us is to offer a complete system to address the heating and the cooling challenging of the data center, right?

And the key is to offer a turnkey solution to our customers and also be able to help them in the design of the system before they do the building. So that also allows us to not only selling one of our components or products, but offer more services.

So we are really investing a lot in terms of capabilities because we believe it will be a long-term growth driver. So a lot of things are done in the back end.

Now the sales and the revenue, it's still very, very small, but we are preparing for the growth of this market over the coming years.

Perfect. Thank you very much for taking my questions.

Cheers.

Cheers.

Thanks. I think it's time for the next person.

This is Christoph Greulich from Berenberg. Christoph, your line is open now.

Good morning and thank you for taking my questions. Three from my side, please.

Firstly, on the added value margin, it looks to me like you've reached a record level here, at least what I can see in recent history. So just checking if this level will be sustainable going forward or if there have been any one-off effects in H1, like very fortunate timing of raw materials purchases or things like that, which have added to the added value margin in H1?

Then the second one on the structural cost savings, which you have already mentioned, could you just give us a bit more color on the magnitude of savings in OpEx that we can expect going forward here? And then just the last one on the outlook for H2.

So I hear in your statement that you expect construction marks in Europe to remain soft in H2 but just wondering if you compare it to what you've seen in H1, do you think it's going to get any worse or will it be more or less stable? Just asking because the comparable base in H2 will be a quite different one?

And yeah, if you were to deliver the same revenue number as in H1, that would imply a return to growth in H2. So just checking what you're expecting here?

Yeah, let me first take the added value margin, where we faced improvements both in building and in industrial, although building was slightly higher improvement than in industrial. And in industrial, the added value margin is on a higher level because also with the previous question about stocks, we perform a service in surface technology, so there we have a reasonably high added value.

And in advanced mechatronics, of course, we also have a material component, so there the added value is more at a normal level like we also perform in building. So let's say, yes, we are happy with the improvements and yes, that has also to do with, I think relatively, let's say the covered material that we have in our coverage of raw materials and then going forward with the pricing trends.

And we believe it's sustainable, although improvement potential, of course, there is a limit to added value. There comes a moment that you cannot further improve anymore.

But let's see how? I think also the mix says, so it's also depending on the mix of these two segments, how the development of added value will be going forward because, as I said, in the Industrial Technology segment, we have a relatively higher added value than in the Building Technology segment.

And then maybe about the structural costs, you want to take that?

Yeah, yeah, I think just on added value, I would add that fantastic job by our teams in such a challenging market, because we never compromise on price. But and we, of course, in some product lines, there is more competition with the price pressure, but that's where we don't go at all costs just for volume, and that's why we are able to sustain such a good performance.

On the structural costs, you can imagine, actually, we are taking action. First of all, executing what we plan, because we were expecting a soft market in buildings, so a lot of it is already in progress.

And that's why we expect some impact already in the second half, especially in building technology. And this [indiscernible].

So really, reducing fixed costs, like I always say, we need now to do more of the same with less. But and then in 2025, we will have a better fixed cost to the building technology.

And it's a mix of footprint of fixed costs that we are doing, mostly in our building technology. We are still adjusting in industrial technology, but most of the restructuring costs and OpEx are on the building technology side.

And the outlook?

And the outlook, we see actually a flat compared to first half, because as I mentioned, the stocks are already very low on building technology, and we believe they will stay there. So we don't expect an increase in building regarding the inventory.

And then in the industry, we follow our customers, so that's not where it's a major challenge. So that's why second half, with a flat volume and additional cost-saving impact, that's a bit what we expect in the second half.

Yes, very clear, thank you.

Okay, thank you. [Operator Instructions] Yes, it's Luuk van Beek from Degroof Petercam.

Good morning, Luuk, your line is open now.

Yes, good morning. I have two remaining questions.

One is on the US commercial valves. Can you elaborate on the actions that you've taken to improve your service levels and what's happening there?

And the second is if you can give an indication of how you see the impact of raw materials going forward. We saw a strong spike in the copper price, for example, in recent months then it came down.

Do you expect any significant impact from that in H2?

Thank you, Luuk. So yes, commercial valves, it's all about service levels based on some operational challenges we have internally, so we are improving, we had a very strong June and that's what we expect to continue.

So the growth is there, the order book is there, we just need to do even a better job and continue the improvement to get more product out of the door. So one hand is to get back to the service level we need for our customers, and we believe.

When we will get there, there are more growth opportunities for 2025. So ’24 is to get back on track and to the service level for our customers.

And then let's see in ’25 if we can actually start to win. So exciting opportunity, but the market is there and it's up to us to get it.

Yeah, then for the raw material, as you know Luuk, we are covered with our material for four to seven months ahead. So that gives us always the view how we should anticipate with pricing towards the trends of raw materials.

And it looks like, as it looks right now, because the trend is also upward in raw material pricing, that probably in the beginning of next year, we will do some pricing initiatives again to compensate for that. But that is to be seen, of course, in the remainder of this year.

But that is how it looks like today. And we will see how the trends will be affected in the second half of the year.

But we are always ahead of the game there, because we are covering our materials ahead. So that is just a positive thing.

Okay, thank you.

Thank you, Luuk. I think there's another person.

It's Chase Coughlan from Van Lanschot Kempen. Good morning, Chase.

Your line is open.

Good morning, all. Thank you for taking my questions.

Apologies, I had some technical difficulties earlier. So I'm not sure if I've -- I missed the question already.

But we've obviously spoken quite a lot today about the raw material price inflation and how you pass that on successfully improving the added value margin. I'm just curious on if you look for that building technology space, what exactly are your competitors doing actually?

Is there a risk that some players are not raising prices and could potentially undercut you? And effectively gaining market share and having you lose market share?

Is that a risk that you see happening at the moment?

There is always a risk that people will sacrifice their price to get volume and get deals, right? But that's not our strategy.

And that's what we have been doing very well. And of course, that's where innovation matters.

And I'm super pleased to see on some product line, we have been doing better than the market on building technology because our offering is unique, because we have better product and better availability also. And that's the best way and where we see the biggest pressure on price is where there is less innovative solution, right?

And this is some time where we are not afraid to just let it go. And because also it's where we have also lower margin, so where there is the highest pressure on cost is actually not a risk for us.

Okay, that's very clear. And then just one final question from my side, you also spoke quite a lot in the presentation about acquisitions, potentially some bolt-ons in the US.

Could you potentially give us sort of a more indication on size here or even on a timeline in terms of when we should expect a deal to come through? Is that something that we could expect in the second half of ’24 or even going more into 2025?

Any more color there, please?

We have a strong funnel that we are working on, on our three priorities, like I mentioned. So we expect to make progress in the short mid-term on this.

And the bolt-on is as per our current strategy when we reported in the last Capital Market Day in 2021.

Yeah.

With the areas of America, hydrolic flow control and advanced mechatronics or in the US and maybe also in Southeast Asia for advanced mechatronics.

Yeah. Okay, very clear.

Thank you, gentlemen.

Thank you.

Thank you all. We have received some questions which have been submitted via the Q&A form.

And I'd like to start with this one. Yeah, this is a question whether we could repeat or give perhaps even a bit more clarity about what we said about cost reductions being more visible in the second half versus the first half.

And as a result, follow-up question, can we also see margin evolving even better?

What we can say about that is that we have, as Stephane I think also explained, we have already started a lot of, let's say, structural reduction actions. So reduction of structural cost actions.

We have started a lot of that. I just explained some of these costs are already taken in the first half year, which also, let's say, was for the holding/eliminations cost to be more or less flat versus last year because the income from the insurers we also allocated to that part of improving the business.

And we expect more to come in the second half year. And that will also then give the benefits in the second half of the year of these structural cost improvements.

Thank you, Arno. There's another question.

And even more important is that it's also really improving our basis for [2015] because then we have the full year benefit.

I think we have seen that we are able to flex all our variable costs and actually improve. So most of the action we are taking now is to address, of course, some short-term volatile demand but also prepare for the long term, having a lower fixed cost base.

So when the rebound of activity will come, we'll be even better prepared to continue our margin expansions.

Thank you. There's another question which probably has been answered already, but let's repeat it because apparently it's an important question.

Again, about what growth trends could we expect building tech and industrial tech in the second half of this year?

I think we can repeat. So soft demand we expect will continue, so more second half similar to the first half on the building tech.

And a bit the same on the industrial tech because we see mixed demand. So that's what we expect.

But just to remind you that last year the second half also was weaker than the first half organically. So from a comparison base it might be a little bit easier.

Yeah, okay, thank you. Stephane, there's another question for you.

Specifically, how do you make progress on your observations after your onboarding?

Yes, thank you for asking. I'm pleased to say that we are making good progress and actually now we are more in action mode based on some of my first observations, right?

So continuing to invest and accelerating on all our people and culture agenda as we just welcome also a new member in our executive team. So it's also preparing for the future, having the right leadership, talent development, diversity.

So this is well in progress. The second point was operational excellence.

So we continue what we have been doing but now we are even investing more to become leaner and faster, to improve our service level, reduce our inventory and also optimize our CapEx. So a lot is put on the machine utilization, better maintenance and we are adding a lot of capabilities to drive that, also preparing for the long term.

And on technology and innovation also, especially in building technology, we are working also on some initiatives to prepare and work on some innovative solutions to offer more than product and offer solutions to our customers in both residential and commercial buildings. So that's some of the things we accelerated in the second half, preparing for the long term, so no short term impact but preparing the long term.

Thank you, there's another question also for you Stephane. Can you explain again, what do you mean with portfolio optimization?

Yeah, I think it's a good one. It's one of our four strategic actions.

So portfolio acquisition is to, and that's something which we will always do, right? Internally or externally, right?

I think we always need to optimize our portfolio to make sure it's a portfolio where the market is growing, where we can have a good position, where we can be in the leading position and where we can make good margin in a sustainable way. That go back to Aalbert's DNA, sustainable and profitable.

So what it means now on one hand is to do acquisitions, so that's what we are working on. And then what it means is divestment, based on an internal portfolio where we believe we are not the best owner.

If there is lack of synergies or we believe there is a better owner than us that can invest in this business, we will simply divest it. And so that's what I mean for portfolio optimization.

Thank you, Stephane. I think I have no further questions now coming in.

So I think that we can conclude today's webcast. So, first of all, I would like 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 once again confirmed our strategic direction going forward. Thank you once again for joining us today.

Good day.

Thank you.

Thank you.