Kendrion N.V. (KENDR) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to Kendrion's Q4 and Full Year 2021 Results Presentation. My name is Jozef van Beurden, Kendrion's CEO; and with me online is Jeroen Hemmen, our CFO. For those of you who had planned to join us in the Holiday Inn, thank you for your flexibility. I tested positive for COVID yesterday. So it's clearly not appropriate to have a face-to-face meeting. So thank you for that. Next slide, please. First, I will give a brief update regarding the COVID situation at Kendrion. Then Jeroen will review the Q4 and full year 2021 results, after which I will take over and give you an update of the progress we have made both strategically and operationally over the past period. Next, I will discuss the outlook for 2022, and then we'll go to Q&A. Now as to Q&A, we've done this before. We created the opportunity to ask questions. There are 2 ways of doing that. One is, raise your virtual hands and the operator will enable your microphone. And the other way is to type any questions through the Q&A icon on the bottom of the webcast. Please do state your name and company. Before the COVID update, I would like to draw your attention to the following. Cleo? Certain statements contained in this presentation constitute forward-looking statements. These forward-looking statements rely on several assumptions concerning future events and are subject to uncertainties and other factors, many of which are outside the company's control that could cause actual results to differ materially from such statements. Next let's go to the COVID update. Our priority in dealing with the pandemic isn't changed. #1, the health and safety of our employees, their families, customers, suppliers, and all other stakeholders. And secondly, to safeguard to the group's continuity to ensure that we come out of this pandemic stronger than ever. And although COVID seems to be slowly becoming endemic, the situation remains unpredictable. And this online presentation is a living example of that. We therefore continue to enforce all our COVID prevention measures for as long as is needed. Now let's got to the business review, Jeroen.

Yes. So Good morning, everyone, and thank you, Joep. So on Q4, in Q4 we saw a continuation of the strong revenue momentum of the previous quarters. Our organic revenue increased with 9%. And on a nominal basis, the increase was 12%. The fourth quarter growth was carried by the industrial business groups, with IAC reporting 18% organic growth, and IB even 36% compared to the same quarter last year. This growth was driven by a broad industrial demand recovery, but especially by the trend by which industrial processes are increasingly electrified and automated. Semiconductor shortages affected our Automotive customers, leading to a 6% revenue decrease in Q4. As was the case in the previous quarters, we did compare positively to the auto markets where global car production decreased 13% and in Europe even 28%. As was the case in the previous quarters, we were able to largely mitigate the sharply increasing input prices. Sales price increases plus some positive sales mix effects with a higher share of industrial revenue more than offset the higher input prices and leading to a 70 basis points margin increase. Our operating expenses were affected by high demand volatility in Automotive in combination with the fast growth in industrial. It's created inefficiencies in Automotive, and we had to increase the more expensive weekend shifts in industrial. Nevertheless, our EBITDA improved 1% and our EBITDA -- EBITA 19% compared to the previous year. One-off charges in Q4 that have been normalized in the results includes a EUR 3.3 million impairment charge related to an automotive project cancellation. Based on the current state of the compensation discussions with the customer and our technical view of the reuse of this equipment, we have decided to impair the line. And already agreed compensation with the customer includes an alternative but smaller projects that will start in 2024. And moving to the full year. Revenue increased 16% on an organic basis and is now only 1.5% below the prepandemic levels. Industrial already exceeds the prepandemic levels by some 10%. Despite the significant temporary cost measures taken in the previous year, we were able to realize 20% operational leverage in 2021. This led to an EBITDA increase of 25% to EUR 55.8 million, and EBITA increased 69% to EUR 31.9 million. The higher EBITA drove as well the 480 basis points increase in the return on invested capital. And for the avoidance of doubt, the invested capital excludes intangibles related to acquisitions. Next slide, please, Cleo. Our normalized cash flow came in at EUR 3.5 million. Last year, this was EUR 31.5 million. A substantial part of the increased profit was invested in higher working capital requirements and much higher capital investments, including the start of construction of our new facility in China. Higher working capital was the result of the higher activity level, the increased revenue share of industrial, which carries typically a higher percentage of revenue in working capital, and also higher buffer stocks to increase, to secure our supply chain. Our leverage ratio improved slightly to 2.3%, having fully absorbed the 3T acquisition, the buffer stocks and the investment in the China building. At year-end, Kendrion had EUR 58 million available in cash and undrawn facility -- credit facilities. Next slide, please, Cleo. Kendrion will propose to the shareholders a dividend of EUR 0.69 per share, and this is a payout ratio of 50% of our normalized net profit before amortization. This proposal underlines our confidence in our business fundamentals and our financial position. The dividend, as usual, will be optional in cash or in ordinary shares. Then we move to the industrial groups. Next slide, Cleo, where IB increased for the year, the revenue was 21%. And IAC by some 16% on an organic basis. 3T is now fully integrated in the IAC business group and contributed EUR 3.4 million revenue against a 19% EBITDA margin. The added value margin in the industrial groups decreased slightly in 2021 as price increases are passed on to customers with some delay. Despite the challenging supply chain situation, industrial was able to increase EBITDA with 34% compared to the previous year. And the EBITDA margin improved further to 16.8% compared to 15.3% last year. Then finally, we move to the Automotive, where after a promising start in the first half of the year, the much talked about semiconductor shortages impacted the global car industry significantly in the second half year. Although revenue in Automotive are still on a relatively low level compared to the prepandemic situation, we were able to consistently outperform the market in 2021. This was driven by new business wins in the recent years that started our ramps on production in 2021. For the year, Automotive revenue increased 13%. On the added value margin, Automotive was able to slightly improve the margin despite the sharply increasing material prices. Sales price increases matched the raw material price increase. And in addition, Automotive benefited from a slightly improved sales mix. Operating expenses in Automotive were affected by the high demand volatility, making efficient production planning close to impossible. The EBITDA margin -- the EBITDA increased only 8% to EUR 16.8 million. But we have to bear in mind that the cost base in 2020 was reduced by massive pandemic-related cost measures. With the higher activity level in 2021 and the full R&D pipeline, this cannot be -- this could not be sustained in 2021, leading to the somewhat lower-than-usual operational leverage. And with that, I hand it back to you.

Thank you, Jeroen. And I will now proceed with an update of the strategic and operational progress we have made in 2021. As Jeroen just explained, in 2021 we delivered strong results -- previous slide, please, Cleo. We delivered strong results under difficult market conditions. There was significant demand and supply volatility. We faced shortages in many input materials, including semiconductor, steel and certain plastics. We were dealing with price increases of many of our raw materials, putting pressure on our value-added margin. And of course, COVID was and is still a reality. Against this backdrop, we had a good year with group revenue 70% higher than in 2020 and close to prepandemic levels. Our underlying EBITDA grew by 25% and our normalized net profit before amortization by 76%. I'm extremely proud of what our employees have achieved as a global team. And I'm excited about the accelerating transition towards clean energy that we believe will benefit our growth areas. Industrial Brakes, as it boosts demand for wind power, robotics and various other segments; Automotive, where we focus on ACES, specifically sound, suspension and sensor cleaning. And China, where we see the same transition towards clean energy. IAC is focused on profitability and cash generation, but with expanding opportunities for growth as well. Now let's get into a bit more detail. Next slide, please. You know this picture, it's Kendrion's strategic house. The top of the building indicates our strategic intent. We aspire to continuously grow revenue and profitability by investing in opportunities that help society become more sustainable with a lean and focused organization and to provide a top-quality work environment to our employees. Linked to this are our medium-term strategic objectives, such as our target to grow with at least 5% organically on average between 2019 and 2025. Underpinning this strategic goal are 3 pillars: Automotive, representing around half of group revenue. And here, we focus on growth and especially on the opportunity we see developing in actuators for autonomous, connected, electrified and shared mobility, the so-called ACES. In Industrial Brakes, which is around 1/4 of group revenue, and we offer a full range of brakes and see ample growth opportunity driven by the accelerating trend towards electrification, in robots, both industrial and collaborative; in wind power, in elevators and more. Here too we focus on growth. Industrial Actuators and Controls, where the focus is on profitability and cash generation in segments such as control technology, inductive heating, energy distribution and safety valves for nuclear power, we see more and more growth opportunities here too. In other words, our cash engine is growing as well. And then, of course, we have our focus on China, active in all 3 domains with the same intent: growth in auto and brakes, profit in IAC. We have introduced this strategy and the related financial targets in September 2020, some 18 months ago, and we have not been sitting still since that announcement. And before sharing some of the highlights of 2021, let me take a step back and see how Kendrion has transformed over the past 2 years. Next slide, please. Despite the pandemic, we have taken several bold steps to strengthen the company and improve its strategic position. In Q3 2019, we acquired INTORQ, substantially strengthening our position in Industrial Brakes. As these breaks are mostly sold and integrated with an electromotor, this is a play on the accelerating and broadening electrification in almost all markets, like intralogistics, robotics, wind power and more. 2 years later we acquired 3T. This again strengthens us in a segment of significant growth, industrial control technology. It also gives us more critical mass in our ability to develop and deliver software and electronics. And this is strategically important for the Automotive Group. Just as important, these 2 acquisitions have changed the revenue profile of the group. Kendrion is now a more balanced company as industrial and automotive both represent around 50% of group revenue. Cleo? In December of last year, we broke ground on 28,000 square meter manufacturing facility in Suzhou, to facilitate significant growth in the project pipeline and many more opportunities that we are after. All in all, we invested around EUR 121 million. And as you can see on this slide compared to 2019, not just the revenue profile has changed, but it's also up 12% including the acquisitions, despite the pandemic and despite the passenger car market shrinking with 16% from 89 million passenger cars in 2019 to 76 million passenger cars produced in 2021. In this -- over the same period, our EBITDA grew with 29%. And as mentioned, Automotive industrial revenue split is now roughly 50-50. So let's look in more detail at the progress we made in industrial, starting with IAC. Next slide. IAC is active in around 30 different product market combinations. And one of the tasks for IAC management is to invest in those segments that offer potential for growth, while ensuring the other segments are optimized for profitability and cash flow. What we are seeing in IAC is that some segments, especially the ones related to energy transitions are offering opportunities for substantial growth. On the actuator side, rotary solenoids for use in intralogistics and a newly developed rotary lock for industrial washing machines are both growing fast with more potential going forward. We have divested over 30% share in Newton but retained the exclusive manufacturing rights. The production for Newton's drink dispensing valves in Mishawaka is now starting. On the control side, the development of a 20-kilowatt inductive heating system, and these systems replace oil- and gas-based heating, has started. And we had a record revenue for the controls for those in inductive heating systems. Integration of 3T is going well, and the IAC team is looking at opportunities in all markets and is finding more and more chances to grow while retaining its focus on cash flow and profitability. In summary, our cash engine is doing well. Next, let's look into 3T a bit more. 3T offers a significant enhancement of IAC's control technology portfolio with substantial cross-selling opportunities, including 3T in-sourcing from IAC. We have embedded the 3T organization into IAC, and we have also hired the first automotive software and electronics engineers at our offices in Amsterdam. Software and electronics is becoming ever more important for industrial and automotive products. So we foresee more FTE growth. And that is why we expect to open an office at the high-tech campus in Eindhoven for July 1, 2022. Next, let's look at IB. Industrial Brakes had a good year. Volumes were up substantially in almost all markets and segments, driven by accelerating electrification. And despite a difficult supply chain, we managed to deliver our key customers in time. We've also transitioned our U.K.-based service business to Villingen. And on the product side, we continue to be successful with our new Brake portfolio focused on robotics and logistics market segments. And we don't stop there, the IB team has initiated Project Vision 2030 to define the direction and the product road map for the long term. In Suzhou, where we anticipate strong growth in the coming years, we have started a project to further expand manufacturing and R&D capabilities. Commercially, IB's commercial momentum continues. Next slide, please. We continue with our clear focus on global growth markets, logistics, robotics and wind power, and we expanded our customer base on the back of our comprehensive product offering, we added several leading customers. And we confirmed and extended our long-term relationship with top 2 customers. We're also investing in IT to transform IB in a more digital-enabled organization. All in all, a strong year for brakes with plenty more in the pipeline. Next, Automotive. First, as we all know, the automotive market has been negatively affected by the pandemic. So first, let's look at IHS Markit's view of by how much. Year-over-year, vehicle production in 2020 was 16% lower than 2019 at 75 million vehicles. And in 2021, car production was stable at 76 million. According to IHS, it will take until 2024 before we return to the 2018 production levels. So overall, not that much growth in the number of cars, but there is significant opportunity. The opportunity lays in electrified vehicles that we forecast -- that are forecasted to grow with 44% per year between 2018 and 2026 to 28 million vehicles. And as a proportion of total vehicle production, the share of electrification is expected to raise from around 1% in 2018 to 26% in 2026. It's therefore not surprising at all that all the major OEMs and Tier 1s are investing heavily in this. And we too have been investing relentlessly in our product road map, our commercial organization and our software and electronics capabilities to make full use of this important trend. Our acquisition of 3T is a key example of that. A few more words on this, as we are truly entering a new automotive era. Next slide, please. This era is arriving faster than originally anticipated. And not a day goes by without an announcement by one of the leading OEMs, Tier 1s, new entrants or governments about investing in the ACES. Here are a few examples. Mercedes-Benz shows its Vision EQXX at CES; Ford to spend up to EUR 200 million reorganizing for the shift to electric cars; the launch of a whole range of electrical SUVs and pickup trucks in the U.S. by Ford, GM and others. We see consumer electronics companies enter the fray, Sony, Foxconn, Apple. And the investment in software and electronics keeps increasing and increasing. In summary, the internal combustion engine is being superseded as the beating heart of a car by the electronics that control safety and infotainment systems. And this is a significant transition in which software and electronics are a major component of the vehicle. Car makers will have to become more like technology firms and Kendrion aims to be part of this change. Next, let's talk about our 2021 nominations. This slide presents the lifetime revenue in Automotive nominations won in 2018, '19, '20 and '21. We calculate this by assuming that projects for passenger cars have a lifetime of maximum 7 years and start of -- to start of production. And for commercial vehicles, we take a maximum of 10 years. We used the volumes and pricing agreed with our customers but do add our own judgment to that. And we keep track of the nature of the nominations in 2 categories related to the traditional combustion engine or ICE, which we call legacy or independent of the propulsion method like smart damping or sound actuation, which we call ACES. In 2021, we won EUR 305 million worth of new business or a book-to-bill ratio of around 1.3%. Of the 2021 nominations, 60% is related to the ACES and 40% to legacy. A major nomination driver was the successful sound projects with our PHANTONE product line, representing EUR 120 million of nominations in 2021. If we look back over the past 4 years, we have run around EUR 1.25 billion in business, and we've adjusted this for the effects of, on the one hand, cancellations, and on the other hand, extensions of legacy revenue. This represents an average book-to-bill of 1.3 over the past 4 years. And we are beginning to see this in our revenue line. Last year, automotive revenue grew while the production of passenger cars was flat. Next slide, please. Here, you can see that the positive book-to-bill of 1.3 on average over the past 4 years is beginning to make a positive impact on our automotive revenue, where in 2020 Kendrion's revenue was in line with the drop in the passenger car production, in 2021 we did substantially more. 13% more revenue in a market that was largely flat. Overall, we are 10% lower than where we were prepandemic, while the market is off by around 20%. So let's look at the commercial traction in 2021. As mentioned earlier, the star of 2021 was our AVAS Sound PHANTONE product line with a record nomination level of EUR 120 million lifetime. We expect to start producing these products late 2022 in China. We also have growing momentum in suspension, where 3 Tier 1s signed [ ECDV ] suspension contracts. Generally, we saw strong demand for our suspension products despite the global supply shortage. Sensor cleaning is a bit further away from revenue. But here too we are not making progress. Through our strategic collaboration with Tier 1 Caltex, we can provide a complete sensor cleaning system as a one-stop shop. Together, we offer a technically leading platform and have high interest from OEMs as well as robo taxi ventures. All in all, a good year commercially for Automotive with the fast-growing opportunities in the ACES reflected in the high share of our nominations. Next, let's look at China. In China, we continue to grow during 2021, and our nominations are again higher than the size of our business. China government's 14th 5-year plan is heavily emphasizing green energy, electric vehicles, robotics, driving enormous opportunities for Kendrion, which is why we are pleased that we have broken ground on building our new facility in Suzhou in December. Next slide, please. Here, you get an impression of our planned facility located in Suzhou's Industrial Park or SIP. SIP is recognized as the most high-tech area in Suzhou and is the premier location for technology and advanced manufacturing companies there. In Phase 1, we plan to build close to 28,000 square meter with the possibility to add another 16,000 square meter in Phase 2. The building, including a fully automated warehouse is now under construction. We expect to move in, in the second half of 2022. And of course, as you can see, we are planning photovoltaic panels on the roof and expect to generate 1.1 megawatt hours, which should cover up to 60% of our internal energy requirements. Which brings me to the progress we made on our corporate social responsibility program. But before we do that, I'd first like to show you a short impression of the building site in Suzhou. [Presentation]

Thank you. Can we get to Slide 26 on. Cleo? One second, everybody. Cleo, we need to start sharing. Yes. Thank you. Yes. Thank you very much. So as you saw from that short clip, lots of activity in China. And as I mentioned, we hope to complete and move in into the second half of this year. Then let's continue with our progress on corporate social responsibility. Corporate social responsibility is an integral part of the way we do business at Kendrion. We respond to the increasing environmental awareness of society and our stakeholders by focusing our resources on the development of sustainable products. When it comes to our product portfolio, we develop products that will help to either keep you safe, products that will keep you healthy or products that reduce climate impact. On this slide, some examples drawn from our 3 business groups. Our goal is not just to create sustainable growth, but grow to help sustainability. And it's not just the products in our portfolio and on our road map. We've made real progress in sustainable business practices in 2021, and continue to make good progress towards our 2023 sustainability targets. Next slide, please. We have reduced our relative energy consumption with 8% on our way to a target of reducing that with 15%. Good progress with still some work to do. When it comes to the relative reduction of CO2, we're at almost 18%, so ahead of our target of 15%. This means the relative CO2 emission of our facilities is now 54% lower than in 2015. We will continue to push this and implement further mitigation measures. We also reduced our total waste and improved our recycling rate. Over the coming years, corporate social responsibility with all its components, natural capital, social and human capital and responsible business conducts, we'll continue to get full attention by all Kendrion employees starting of course with the Supervisory Board, Jeroen and me. Next slide, please. Next, let's go to the outlook. We do expect current economic environment to continue in the first half of 2022 with potentially a more stable supply chain in the second half, especially when it comes to commodities like steel and plastics. Semiconductors is less clear. We do see a substantial and sustained opportunity for growth with products that help advance the global push towards electrification and clean energy. And we expect the positive business fundamentals from which we benefited in 2021 to continue with our main objective to the delivery of sustainable profitable growth, which brings me to our long-term targets as announced in September 2020. Over the past 2 years, dominated by COVID-19, I believe we have shown resilience, making full use of the available cost saving and cash preservation instruments when orders were down and using our operational leverage to grow our profitability when demand improved. We also kept progressing our strategic agenda, having invested around EUR 120 million in acquisitions and production capacity. Over the past year, we have made an important step towards our medium-term targets of average organic growth of at least 5% per year from 2019 to 2025, and an EBITDA margin and return on invested capital of at least 25% by 2025. Thank you for your attention. And I'd like to go to Q&A now.

We will take our first question from Frank Claassen.

Yes. First of all, a question on the cost inflation. I was quite surprised to see that your gross margin was still up in Q4 despite the higher raw material prices. So my question is related to that, have we seen most of the raw material price increases? And what can we still expect? And how are you dealing in general with cost inflation, maybe wages? Are you passing on via price increases? Could you elaborate on that, please? That's my first question. And then secondly, on CapEx. What can we expect for '22. And will -- yes, will it be -- how much will roughly be the new Chinese plant? And what are other CapEx plans for you?

Yes. Thank you, Frank. Let me talk a bit about cost inflation and hand it over to Jeroen, who may want to add some stuff there and also talk a bit about the CapEx. So on cost inflation, you rightfully note that we managed to limit the impact of that. In fact, we expanded a bit our value-added market. So the game there is that, on the one hand, of course we try to push back as hard as we can on our own suppliers. But most importantly is that we timely reflect the increasing prices in the prices to our customers. Now that is -- there's always a bit of delay there. But as you can see, we've been quite focused on that, and we've done reasonably well. I don't expect this is the end of it. So we'll have to continue this game. Now it's a highly unpredictable environment. We, of course, know that the pandemic is still with us, but not telling anybody anything new as the broad expectation is, among all other uncertainty around the Ukraine, is that, for instance, energy cost will go up, and we will need to deal with that as well. So in my view, the world in which you will need to protect our value-added margin with a lot of energy is going to stay with us in 2022. Jeroen, maybe a bit more on that and the CapEx question.

Yes. Not much more, I think, on the inflation as it's quite clear. And there will be some also from the current price levels, some additional impact in 2022 because some of the contract, supply contracts ends right now, so then you get only confronted at the end of the year with the higher price. But also those prices, we are confident that we will be able to pass it on to the customer via raw material clauses or automatic surcharges. And on the, yes, on wage inflation. So currently that has not occurred yet. But as you've already mentioned, we are fully focused on that as with the higher energy prices. On CapEx, for the regular CapEx, we anticipate slightly higher than depreciation. But yes, let's say, 10%, 15% margin. And in addition, we of course have the finalization of the building in China where from the current -- from the investments that we have done in 2021, I expect another EUR 14 million in 2022 for the completion of the other investments that will be driven by -- mainly by production lines for newly won business in automotive. Also important is the ongoing localization of -- and extension of capacity in China, that is particularly driven by Industrial Brakes and also Industrial Brakes in Europe, given the high growth we are looking at, yes, capacity extensions. Those are the most important components of CapEx going forward.

And we'll take our next question from Tijs Hollestelle.

Yes, my first question is, you were mentioning signing up of 2 -- of few leading customers in the IB business. Can you tell us which customers that are or in which end-markets that was?

No, as you know, that's always difficult. But it is worth elaborating maybe a little bit Tijs because these are 2 -- or not 2, a few customers. One is particularly interesting from a volume perspective that have long eluded both Kendrion and INTORQ. And you see the power of combining these product portfolios. Of course, now -- by now this is well-established in the industry and the acquisition is more than 2 years ago, that it makes us a much more interesting one-stop shop for many of these guys. And that was always one of the strategic rationales behind this acquisition and now it's playing out. So that's very good news. It's difficult to name them, but these are global brands, and we expect then we can potentially benefit over time not just in Europe but also for instance in China and potentially also the U.S. So in general, I would say the commercial traction and momentum on the IB side is really strong, of course also driven by a fast-expanding market. So this is not necessarily a market share fight where you have to go in and say, okay, let me offer better pricing. There's just a lot of opportunity, and then with high-quality products and a full range of applications, we simply are in a very strong position to win these types of deals.

Okay. Yes. And is it fair to say that, let's say, the performance of INTORQ integration, everything together in industrial exceeded a little bit your exceptions for the last, let's say, 4, 5 quarters?

I would say, yes. I mean -- but that's not just INTORQ, that's also true for our own Brake business. So we were -- I mean, you know how this goes with these types of M&A discussions, you have your case and it was a very interesting case. Otherwise of course we wouldn't have done it. But the market around this energy transition trend that we see and that we expect to continue is better than what we have originally 2, 2.5 years ago when we looked at this assumed. So yes, definitely. I mean the integration, generically we talked about this before, went really well. And then you get now the benefits of, as I said, the cross-selling opportunities, the comprehensive product portfolio. But yes, the INTORQ business is doing very well, the former INTORQ business as is our former IDS business as well. So this is -- it's an important segment for us. And you can see -- I mean, you've seen the results. It's growing fast, and we expect it to continue.

Yes. So -- and it's also fair to say that, let's say, margin expansion will be, let's say, limited, of course, on these [indiscernible] because you shared probably the cost structure a couple of years ago with COVID-19 taken into account, et cetera, et cetera, but it is now giving you the operational leverage you aim for, for this business, so there probably will be some upside from it.

You mean on -- this is on Brakes, Tijs, or in general?

Integrating the new acquisition but it will not be -- yes, let's talk general in the industrial side. I mean, the margin is quite attractive, so maybe somewhat improvement going forward if market conditions are okay, but no major steps from self-help or adjusting the cost base further?

No, the...

No, no. But the operational leverage can still help. So some operational leverage will still help. But obviously, as you mentioned, to continue that growth you also need to invest in that growth. So there's some upside potential, but definitely not in the cost base of the organization. The focus is really on growth.

Yes.

Yes. Okay, that's clear. And then, yes, basically the same question for the Automotive business. If I -- I think it was Slide 19, you see, let's say, the production levels of the automotive industry. I think you have shown 2018, but I think it was even higher in 2017. I mean, of course, a lot of things have changed over the EV transition. And back then, you had a lot of diesel revenue. But by and large, you could say that if the automotive industry is freed from the supply chain levels, you get back to those, let's say, 2017-'18, levels in terms of volume. And I think you set up your business in such a way that you then have, let's say, the targeted for margins also in the automotive industry. And there's a lot of movement going on, but on a high level this is what we should expect.

Yes. If you know, and then of course it depends on your view of how fast this industry is going back to these levels. Now the slide that you referred to, IHS Markit is not that optimistic. They say it will take until, I think, 2023, 2024 before we get to certainly the '18 levels. The good news for us is, of course, if this goes -- if we get out of the supply chain crunch this -- I mean and even in 2021, as you know, some analysts indicate that 10 million more cars could have been produced and sold if it wasn't for these shortages. Now that would have helped us, of course, enormously, on the revenue side, on the operational leverage side, more stability in demand, would help us optimize our factories better, so that's obviously a great benefit. So even without volume expansion, if we get into a more stable world, that will help us. For us, what is important, and again we had a good year from that perspective in '21, is 2 things. One is the transition towards actuators that are relevant for electrification. And I think we did very well there in '21, but also overall because even if you look at that slide, you can see there's still a lot of combustion engines being produced over the next -- not necessarily growing that much, but over the next few years. The overall book-to-bill of 1.3 over the past 4 years means that in the pipeline we do have substantial growth, both in the electrification but also on the legacy side.

Yes. Okay. That's clear. Yes. And then I mean on the nominations because I got a few questions from investors this morning who said, "Oh, it's down." So they look at it kind of like an order book, but I mean it has to be down for a couple of years in order to say anything on the directional trends of your revenue. So looking, let's say, the past 4 years, it still points to potentially massive growth from the past?

Yes, and that's certainly the way to look at it, in our view, Tijs, and that's also why we -- and we will do that again next year. It's not so much about what happens in '21. It is really -- and you can begin to see that because, as you know, you win something, usually there's a 1.5 years, 2 years delay between that and production. And then, of course, it ramps up. And of course, it's a long time, so things can and have changed. So we really think about this in terms of our overall pipeline that we have built over the past 4 years. And they're on average compared to our average automotive revenue over those years, which is, of course, also fluctuating in line with the market. We have a 30% higher book than -- pipeline than we have current business. So as you say, that points to growth. And in 2021, you see a bit of that.

And we'll take our next question from Johan van den Hooven.

Johan van den Hooven, Edison Group. Few questions. If you look at the ability of Kendrion to pass on the higher prices of raw materials in general and you look at the organic revenue growth of 16% for the full year, can you give a sort of revenue growth split between volumes and prices, please?

Answer the questions one by one. That's a good question but -- Johan, that's a little bit too detailed in my view. And I understand why you'd like to know it. But let me give you -- let me try to be a bit helpful here. So the ability of -- our ability to pass on price increases on the raw material side to our customers is almost directly correlated to the size of the customer we're talking about. So from that perspective, you can understand that in Automotive, this is the most difficult if you're dealing with the big name companies like Volkswagen or Continental. We have all these -- this is all contractually set but there is always a delay. And of course, the delay means that during that period of time you will see pressure on your value-added margin. In Brakes, it's a little bit in between. We have some very big customers and -- but also a whole range of smaller ones where it's a little bit easier. And in IAC, it's almost the opposite. There we can proactively raise prices on the many smaller customers that we have. So what we saw there is actually we saw a bit of added value margin expansion. Now if you then add it all up together and then you get, of course, a little bit of a mix effect as well because industrial, which has bigger margins has grown so much. You see that as a group, we've done reasonably well. So Automotive, most difficult with most delay related to the nature of that industry; breaks, in-between; and IAC, that's where we have the most leverage, if you like.

And to help out, Johan, a little bit here. So of the 16% growth, 90% is driven by volumes. So the great majority is volumes. So pricing -- price did have an effect.

Okay. Then second question about the EUR 120 million on nominations in sound. Can you give us a bit more detail, please, about well, how many customers they are? Which ones, of course, if you want to give names. How many customers they are.

Yes, Johan, I'd love to say, but -- no. I mean we -- so big names. You can see that the numbers -- so there is a range of different nominations that we won. There were 2 particularly large ones with big name customers that everybody would recognize, globally active. And the interesting thing is the product, and we didn't elaborate on it this time. We talked a bit about it at the first half results. We have a complete product offering that you say, look, it's not just the electronics and software that produce the sound, but there's also a so-called software development kit that we ship with it that allows OEMs, Tier 1s, anybody who uses this product, not only to create their own sound, but also to test that in the vehicle as you drive it to adjust it. So it's really a complete -- yes, the software and electronics product almost. And then there's various flavors of loud speakers that you can combine that with. We have our own, what we call the Impulsgeber, which is really high end. But if you don't want to do that and you want to go for something lower price and, of course, a little bit lower quality, that's possible as well. So we're getting a lot of traction on that. Sound is important as the proliferation of electrical vehicles continues. The OEMs, and that's also quite interesting. They view this as an important differentiator. So the sound that these products make is part of the brand and of the brand identity. So the notion that they can tailor this exactly as to how they want to sound this, and we make that very easy for them, is an important differentiator in this product line. So we mentioned EUR 120 million. That's a record. And there's a lot of traction and a lot of activity. So we hope, of course, that we will continue the momentum going forward.

Last question for now, perhaps a detailed one about Newton, the sale of the 30%. Can you also, yes, give a bit of details? What about the potential in years to come? It's a start-up, but give us a bit of a flavor, please.

Jeroen, maybe you want to say a few words about that.

Yes. So it's a very promising technology, it's typically in certain industrial areas. So it is quite [indiscernible]. So don't expect EUR 10 million revenue or something from that in the coming years. If it ramps to EUR 1 million or EUR 2 million, then we are happy.

Johan, maybe on that. So we -- is indeed starting company. So we took a 30% share in that a couple of years ago. It turned out that the company continued to need more cash and cash infusion. Now of course we are not a venture capital firm or a bank. So this is not natural to us. So there was an opportunity to divest. We make a small book profit, but we retained the upside that Johan just talked about. So we felt that it was a good exercise. So we get this off the books. We don't have to worry about this anymore from an equity or investment perspective, but we do get the manufacturing upside.

We have no more available questions in the queue.

Anybody still questions? Cleo, is there any written questions?

We do have another available question from [ Bastian Rodman ].

On your -- question on your market share in Automotive, you mentioned that you -- and you showed nicely that you outperformed the market. Is this mainly due to the fact that you have just now more exposure to the growing EV market? And I'm wondering if you also -- are you outperforming that particular market as well?

Yes. So it is really generically related to the fact that if you look at our pipeline, and that's why there's one slide with the 4 years of nominations, lifetime nominations is important. And we've seen -- so if you look also at 2018 and '19, and these are the type of products that are basically starting to contribute to revenue now. You see that actually there the share of electrification was still quite low, in line with of course what the market was at the time. So today I would say it is still mostly driven by additional wins that we had in '18 and '19 in legacy, a bit of course also in sound and suspension. But going forward, this will shift over the coming years. So it's very difficult because you look at the projections on electrification, but it's such a dynamic market. Everybody knows it's growing really fast, but it's very difficult to gauge from quarter-to-quarter or even from year-to-year as we -- for the year '21 how much growth was actually directly related to -- or maybe for us, we, of course, know how much was legacy and not, but we don't really know if we're then outperforming a very fast-growing and very fluid electrification market as well. But -- so that's why also for us, the visibility is such we look at this and say, okay, in industrial, we are way, way above the 2019 revenue levels, and we've explained why we think that is. And we talked also a bit about Brakes and related to Tijs' question. In automotive, we're not there yet. And then of course, you say, look, is that us or is it the market? And then you see that indeed it's still down, but it's relative to the market. It's better than what it could have been without this full pipeline. So for me, it's a long question, but it simply points to a pipeline that is bigger than the size of the business.

Okay. What about your -- the customer base in that pipeline? Is it mainly like the existing OEMs, Tier 1 suppliers? Or do you also have a lot of nominations from more relatively new start-up companies in that space?

Yes. We certainly see that. And that is exclusively on the ACES side. So sound, for instance. But also potentially on suspension we see there's a lot of new entrants. And these are not the ones that I mentioned in the presentation. This is Sony and Foxconn and Apple because that's a little bit more speculative. But there is a lot of new entrants globally around the world in these new types of cars. And we certainly see fantastic opportunity. And the first nominations as well. Now revenue-wise, that it's still today not contributing a lot, a little bit, sampling revenue and things like that. But we have high expectations with that.

Okay. Okay. Maybe last question then on the impairment charge that you took. Could you tell us a bit more about maybe the project size? Yes, I don't how much this is compensated, so maybe a percentage or -- because you mentioned a small project instead of?

Yes. So this was actually a large project. And so last year it was clear that the volume would be a lot less. It was in combustion engine projects, to improve the combustion engine exhaust and particles. That technology, that specific technology was not needed anymore because of changed emission rules to help the automotive industry in the COVID pandemic. During this year, it became clear that not only the volumes would be lower, but yes, the project will be fully canceled. So last year we took an impairment on capitalized R&D. This year to be prudent, we impaired the equipments. Discussions with the customer are still ongoing. But like I said, for reasons that, yes, so far, technical analysis has shown limited reuse of the equipment. But to be conservative, we have taken the impairments on the alternative projects that we have won that is significantly smaller than this one. It helps a bit. But it's -- yes, is it like EUR 30 million lifetime revenue or something.

Yes. And to -- just to make sure that there's no confusion. So the revenue impact of that has been, when we talk about nominations, and we said, look, this is the nomination over the past 4 years. Adding it all up, we think is EUR 1.25 billion in lifetime revenue over the past 4 years. This has -- this is reflected in that number. You can well imagine that 2018 and '19 projects, some are doing better, some get canceled altogether. We take that out. This one, of course, is part of that. But there is also lots of existing revenue from legacy projects that we assumed to be sunsetting that are still with us because it's not just us that invest far less in legacy actuators, everybody does that, which means that existing products run for longer. So that is all -- we try to do that, of course, on a regular basis to gauge our pipeline and that EUR 1.25 billion over the past 4 years includes this cancellation and others.

I will take a question from Maarten.

This is Maarten Verbeek [indiscernible]. A couple of questions from my end. First of all, at IB, there was a very strong acceleration in the Q4 sales numbers. Could you provide some more color on that?

Well, yes, I mean, I would say, quarter-by-quarter is always a little bit risky, if you like or not risky, but you're comparing, of course, compared to Q4 last year. Now Q4 is always, as you know, traditionally, our weakest quarter from a revenue perspective. That is also the case for IB. What we see there is, and this was evidenced specifically in this Q4, that there is so much opportunity and demand that our customers asked us to basically produce well, not over Christmas, but much longer in the December months than we typically would do. And also compared to Q4 2020. So therefore, that's particularly comparable, with that particular comparable for Q4 only then looks really strong. But I would say the underlying trend, it's better to look at the full year growth. And it's very strong double digit, and it's driven, as we talked about, by this trend towards more electrification across really all segments.

You believe it has brought sales forward so that maybe Q1 could therefore be slow?

No, no, no. I don't think so. Of course, you will see, but I don't think so, Maarten. I think this is simply, if you say, look, for instance, if you produce one more additional week. Typically, in December, we're closed for 2 weeks over Christmas and New Year. Now if this is this year 1 week, then of course, you compare that to last year, you get a lot more revenue and that shows up. So it's not necessarily bringing it forward. It's just the reflection of our customers' wish to get these things delivered as quickly as possible, and we responded to that. Yes?

The strength in IB also into Q1 continues.

Okay. Then a follow-up on what Tijs asked in there to IB customers. I can imagine you can't mention the names, you set it out volume clients. But could you maybe still inform us in which areas they are active?

Yes, they are -- I mean, this is -- it's -- typically, they're active in intralogistics. They are active in robotics. I mean it's quite broad. And that's the other interesting feature of this trend. It's not just the wind power mills themselves. It's everywhere where electro motors get deployed is where you see opportunity. So it's quite broad. And the other interesting thing from our perspective is that also some of these customers have a local -- sorry, a global footprint, which gives us over time, and we -- not immediately, but over time the opportunity not just to sell this in China, in Europe or in the U.S. but everywhere.

And then with respect to the sound system order, did I hear you right that you mentioned that this one will be produced in China? And then a follow-up?

Start yes, yes. Yes, it will start in China, for sure. We said that we expect at the end of '22, maybe will move into 2023, but we do expect this project to run in the first project, but there are quite a few more, but the first one will start in China, not all of the EUR 120 million, but?

It's then also 4 Chinese customers?

No.

No.

No, no. So there's one Chinese customer and one global customer and one European customer.

But then why if you opted to produce it in China, it can also -- maybe also from an easy perspective to produce it more locally?

No, we produce in principle, local for local. And that is the reason why.

We have no other questions.

Okay. Cleo, anything in writing?

No.

No. Okay. Well, and I thank everybody for your attention and your flexibility. If you have any follow-up questions, you of course know how to reach us. Thank you very much.

Thank you.