TKH Group N.V. (TWEKA.AS) Earnings Call Transcript & Summary

Good morning to everyone, especially the participants here in Amsterdam in the Crowne Plaza Hotel and also everyone in the webcast participating for our presentation of the first half year results. I start with the cautionary note regarding the forward-looking statements. I'd like to point out to you to carefully read what is in this note. The next slide is about the highlights of the second quarter and of course, the first half year. The first half year was not easy, especially not in the second quarter, with an EBITDA down with 27.8% and especially due to a weak development in the smart connectivity systems. And within Smart Connectivity, we saw a big impact of the completion of the launching project for the interray cables in Eemshaven. We had a good start in the first weeks of Q2 in April with realizing the first long lengths in Eemshaven. But after that, we had continued difficulties in meeting the requirements for the launching project and especially related to the long lengths we had to manufacture. We saw very good progress. So in the first processes -- the first 5 processes, everything went smooth. But in the last 3 processes, small issues led to big impact of not being able to supply long lengths. And that was a kind of big blockage in the plant for which we could not get to output, and that led in the end also to a very low output. We solved most of the production issues in Q2, although also in Q1, we had good progress, but that continued in Q2. And we see a gradual improvement also of the production yields, but the main, let's say, success is that we can manufacture and we don't have this blockage because of the long lengths that we had to manufacture for the launching customer project. With the higher output that we will see because of more smooth manufacturing and shorter lengths that we have to manufacture, we will see a catch-up effect in H2. And although it will be back-end loaded, July and August is also a vacation period with always in our production sites, a lower output. Let's say, performance in the other activities was quite solid, especially in Smart Vision. We saw in Q2 even a 12.4% organic turnover increase. And we saw that the adjusted EBITDA was up 35.4%. So really good performance there. What is also good that we had organic growth in the end in Smart Connectivity, and that was mainly related also to our service turnover from the project that we won last year, where we are not only supplying cable, but also do survey works and that is under the label for us as service turnover. Overall, the turnover was up 1.5%. And so yes, we are quite happy with this organic growth, which could have been much higher if we would have a smooth operation in the plant in Eemshaven. We made further progress on the strategic agenda. We announced further focus on automation and electrification. And yes, we are preparing further, of course, for the Capital Markets Day on the 25th of September. And we announced the divestment of Dewetron, which is part of the manufacturing systems with a one-off profit of EUR 36 million, which will be realized in Q3. The next slide is about more specifically the key figures in Q2. Again, we see here the organic growth rates in Q2. I pointed already out to the 12.4% of Smart Vision. And what we see is an organic turnover decrease in Smart Manufacturing. That is related also, of course, to the catch-up effect we saw last year with an extreme good performance in Q2 in especially the tire building area. And then we saw the Smart Connectivity Systems still having an organic growth, although the impact of Eemshaven of 9.1%. The first half year, I believe it's important to point here at this sheet at the order book. Order book came down somewhat. I believe that is more incidental. We see that there is a very good pipeline of orders and sales funnel, especially for smart manufacturing. And so we are quite optimistic for Q3 with respect to order intake there. And the same applies to the other segments where we see also within smart connectivity in the onshore energy cable that the market is really picking up. We already saw a small effect in Q2, but that will continue in the second half year. And the outlook already for '26 is very positive, which a much higher demand because of the rollout that is functioning in a much better way overall in the network companies in the Netherlands. The percentage of innovations was at 16.4%, very important to keep innovating in TKH, although we keep our focus also on execution of the existing activities and build on that. And yes, to remind you that the innovations are coming from new products and systems that we introduced in the last 2 years. Yes, the next slide is a more detailed overview. Of course, you have been able to read that all in the press release. I deep dive a little bit more in Smart Vision. We saw an extreme good performance in machine vision, especially in Asia, consumer electronics, the battery business was doing really well. And we see that, in general, that market was doing well. also looking at performance of some of our competitors. But also 2D did very well with the bigger projects we had in the defense industry, which is getting more and more important in the Smart Vision activities with good perspective also for the medium term, where we see that we are penetrating as, let's say, yes, the best positioned company to deliver the systems that are required. Security division had a moderate growth, and that has to do with timing of projects. So we see that we have some nice projects on hand that we will deliver in the second half year. So the performance in Security division will be better even after the moderate growth we saw already in the first half year, better in the second half year. Smart Manufacturing, I already pointed out to the low order intake in the first half. We see that especially the Tier 1 is not, let's say, at full speed for ordering, but we see in the Tier 2 and Tier 3 customers that the order -- let's say, the investment appetite is quite high. We also see that reshoring is a very high priority to invest in the Western world with capacity. And we are very well positioned there. Due to timing, I believe the order intake in Q2 was somewhat lower and could have been higher as, let's say, only a few weeks later orders come in. And again, with a very positive outlook for Q3 and Q4. Also good news that we delivered the first UNIXX system, yes, delivered. We are now already in Q3, and it's expected in Q3. So that is good news. Good performance. It was in the end, delivered earlier than that we had in our plan also because of pressure from our customer here and very well execution led in the end to an earlier delivery. Also good to point out here to the divestments of HE and EKB. So in the comparison base, it is important to take that into account, again, related to our focus on automation. And yes, in the end, the performance of Smart Manufacturing with a drop of result of almost 20%, mainly related to the strong result we had in especially Q2 last year and the catch-up effects that we saw there. Smart Connectivity I already pointed out to the onshore activities. So that looks very promising. We were quite underutilized in that area in the past 2 years. We kept capacity available. So also we absorbed cost to be able to react quite quickly, and that actually also happened that within a fortnight, the development was completely opposite to the period before with very high demand not coming from one customer with several customers. And we are able to serve that demand in the second half year and current perspective for 2026, that looks also very promising, and we are preparing for that growth, that substantial growth in a very short time period. Again, we solved most of the production issues in the Eemshaven, although the output in Q3 will not be very high, but that's more the vacation period, and we are very careful in running the plant with a limited number of operators during the vacation period. A lot of further improvements have been made. It is really, again, a state-of-the-art plant. And like we had in it just takes time to run it really -- to get it to smooth running, but the potential is there. And we are really confident also for a big step-up in our volume in the second half year. Digitalization had a quite difficult market situation. As you know, we closed our plant in the Netherlands and integrated these activities now in Poland. That still had a relatively high cost level also during Q2. The completion finished in -- by the end of April, and we see during Q2 further cost reductions and Q3 will be a big step-up in respect of performance compared to the previous quarters. So there, we are also active with self-help to see that we get our profitability up. The profitability was quite negative in the first half year. But yes, with the reorganization and focus in -- of our production in Poland, we believe we can get to a much better performance with also very short lead times to gain market share in the digitalization market. Then last but not least, the SDG turnover is quite important for us in our positioning to our customers. And we see that sustainability is really important for our customers. We have pointed out in other presentations towards the activities of VMI, where we support our customers to be more sustainable in their manufacturing, and that's a very, very nice USP if you can support that with good and high-end technology. Also interesting here to mention is the award of EcoVadis that VMI received the gold medal and very important to understand that we are in the top 5 companies in the world that are the most sustainable companies. Again, it's not based on an ideology. It is based on having a better and more opportunities in our customer base with USPs to develop the business of TKH. And the other KPIs we see in almost all cases and improvement in our development. So far, my presentation, I'd like to hand over to Elling. I forgot to move on. Sorry.

Thank you, Alexander. Good morning, everyone. Indeed, I'll walk you through some of the financials related to the first half. As usual, first of all, I'll start with the geographical distribution of our revenue. A little bit of change compared to prior year. If you look at the Netherlands and the other European countries around us, then you see that the overall revenue is about 57% in that particular area, and that's lower than last year by about 4%, 5%. That shift has taken place with the benefit going to Asia and North America. Within North America, the U.S. is quite important. Roughly half of what we sell there is coming from our tire machines. And the remainder is coming a little bit out of machine vision, but also our security projects are finding its way there. But still, the European base is, of course, the center of gravity, I would say. Walking with you through the P&L, and I'll walk through the different items here. Briefly mentioned by Alexander, if you look at the top line, organic growth of 1.5%, as you see in the breakdown on the right side of the sheet. Acquisitions and divestments reduced about 20%. That's 2.3%, 3% reduction out of divestments and 0.7% coming out of acquisitions. An important item as well is the added value. If you look at the added value, 50.7% of revenue compared to 51.8%, a reduction here, and that has to do also with -- I think already mentioned, the huge efforts which were deployed in the first half in the Eemshaven. A lot of material went through, not everything find its way to the top line. And at the same time, also, we had part of the revenue stream outsourced services, which, of course, do not carry the same contribution margin as we have on our integrated portfolio. That leads to the operating expenses, EUR 355 million, roughly in line in absolute figures with prior year. But it has to be said that, of course, OpEx has been reduced by the divestments mostly. So if you look at the underlying growth, it's about 4% of OpEx, partly to do, of course, with the efforts, as mentioned already within the Connectivity group, where we have, of course, deployed more headcount and have a different profile in terms of cost structure going forward. The adjusted EBITA, you can see here that actually we got a little bit of help from the acquisitions, and therefore, the organic part is minus EUR 17 million, corresponding to 18%. Going down below the EBITA line, and you'll find this also in more detail in the press release, especially in the, I would say, attachments to the press release with a further breakdown of the one-offs, EUR 16 million, and it contains basically 3 main elements. One is the M&A cost, but an important part goes into what we call the transportation cost due to the delayed ramp-up of Eemshaven. It has already been mentioned, we completed the order, which we had outstanding. The initial launching customer project has been executed, but it resulted in different delivery dates as we had to spend more time on getting it produced, resulting into also more project cost in relation to additional transportations. Thirdly, the restructuring costs and digitalization, the impact of the consolidation of the various plants. Of course, in 2023 and '24, we consolidated the Chinese operations in the new Polish plant, but also in '24 in the first half, we consolidated the Haaksbergen operations. Haaksbergen is closed, no more production for fiber optics there. And as a result, we are now also taking further steps, the rollout, at least of the related cost structures in the new structure. And that has impact on several locations where headcount reduction takes place. And at the same time, and that's also what you see later on in the Item 6, the impairments. As assets have been moved and relocated, it also leads to some asset write-offs. So out of the EUR 4.4 million on impairments, about EUR 4 million is related to impairments connected to fiber optic networks as we have now everything consolidated in a new location. And of course, production there is at full swing. So from that point of view, that entire project has been completed with the impairments, with the restructuring and the full ramp-up of the production, which is going in the right direction. Then on the result of associates, very much linked to prior year. We don't have that kind of result this year. But last year, as you might recall, that was the effect of HE. The financial result, EUR 11 million negative, compared to EUR 15 million last year. We have a slightly lower interest cost compared to prior year. But also here, we have some impact of foreign exchange. We have an income of EUR 1.9 million in H1 compared to a EUR 1.3 million negative exchange rate effect in the prior year. And on the tax rate, about 25%, as we have seen also last year, and that's also for you to use for in your full year outlook. Then moving to the balance sheet items. As you can see on the right side, I think that's an important one is the working capital. Working capital in itself as a percentage has slightly increased compared to last year, and it's too high. We don't want to be in the range of the 19% plus. We see though underneath also positive trends. I think I mentioned in the previous communications that also in vision, we have had high working capital, that's nicely coming down. But what we see as a reversed effect coming out of the lower order intake in the tire building machines is that, of course, with the lower order intake, less advance payments are coming in. And that basically reverses the improvements which we are making in the other segments. So it doesn't look good at top sheet, but underneath there is progress. And once, of course, as confirmed with the outlook for H2 order intake starting to come back in tire building machines that, of course, gets back to a full benefit and also in the working capital segment. And of course, the 19.8%, as I mentioned earlier, is not where we want to be and it's not where we should be. We had at the end of last year, a 17% plus range. And that, of course, is also at least what we target for by year-end. Looking then at the side effect of that being the net debt. We started the year with about EUR 500 million. Cash flow from operations, almost EUR 70 million, pretty low. It's not a surprise, I think, if you look at the underlying performance of some of the segments. But of course, we also had still in the first half some spillover of our CapEx program coming out of '23, so the cash settlement of that in the first part. So you see here in this chart, about EUR 40 million is CapEx related to PPE. That's not at the level where we see it in the second half. That's more going towards EUR 20 million and gets back into the line of the outlook, which we have mentioned earlier. And at the same time, the investment in intangibles, close to EUR 30 million is exactly as we had a year ago, of which the majority is related to our R&D expenses. But it leads to an overall increase of net debt of about EUR 105 million to be exact, with a debt leverage of 2.6. Last year, this time, it was 2.3. Deleveraging will take place as performance will increase in the second half, but also the settlement of the Dewetron exit, which has not taken place, cash settled at least, at the end of H1, but expected to be in the third quarter. Then if you look at our free cash flow, the result of the last 2 sheets basically, then clearly, not a satisfactory picture here. But as we have seen in many occasions, the second half should bring a benefit as we have seen also last year. I mentioned already the CapEx program. And again, I referred to the point that the CapEx for PPE is disproportionately high in H1 compared to H2. Then I move on to the outlook. If you look at the 3 segments, then first of all, when we start with Smart Vision, we have a very strong performance in the first half that's expected to be continued. Therefore, turnover and adjusted EBITDA in the second half are expected to grow compared to the first half. And that's on the back of some larger security orders, both in Machine Vision as well as Security Vision. For Smart Manufacturing, as anticipated because we have been communicating earlier about the lower order intake, Smart Manufacturing for the second half turnover and adjusted EBITDA is expected to be lower than the first half on the back of a lower order book at the start of H2. The order intake in the first half was impacted by uncertainties in the, I would say, geopolitical and trade-related issues, tariffs, et cetera, and the continued lower investment from the Tier 1s, which have not spent a lot of CapEx in the last couple of quarters. But we expect though that the order intake in the second half is going to be up as it looks very promising what we have on the plate currently. Then at Smart Connectivity, the turnover and adjusted EBITDA for the second half are expected to grow substantially compared to the first half due to the projected higher output levels in Eemshaven and the increased revenue coming from accessories and service. Furthermore, in onshore energy, we anticipate a further increase in demand from the network companies that support a higher utilization in our factories in this segment. And within digitalization, a lower cost level and a better utilization rate will also improve the results in that segment. So all in all, subject to ongoing market uncertainties and bearing unforeseen circumstances. On balance, we expect turnover and adjusted EBITDA for the second half '25 to be substantially higher than the first half and to be above the level of second half '24. So far, the presentation, and I think we would like to invite you for Q&A, if there is any question. I can imagine so.

Yes. The first question is, I think that there's a bit of a disconnect between the guidance TKH is providing and the way the stock market is interpreting that. And of course, then I come to the Connectivity division because at the full year '24 results presentation and also in Q1, you were basically talking about EUR 170 million potential revenue at an EBITDA above 20%. You reluctantly, if I recall correctly, gave us, let's say, some information about the revenue levels of '24, slightly loss-making. We were trying to get more insight in the performance of the onshore cable and the telecom business within that division to get a sense for what the sensitivity of the earnings is. So if you are skeptical, then how much visibility do you have? As you just explained that you had a very complex cable contract in the factory, but how much visibility do you have on the next project going into the factory that will yield the expected numbers? Because in all honesty, we have seen the margin going from 10% 3 years ago to 8% to 6% to 3%, and you guys also have seen the share price reaction, and now it's at 1%. So -- and yes, for me, it's difficult to say, but you're feeding us with a lot of positive information and the actuals are complete opposite. While everybody in this room knows that costs exceed, let's say, potential revenue and results, but somewhat more conservatism would be much appreciated because to me now, it's all over the place. Listening to your presentation, the telecom business is also negative now in the first half, a negative EBITA result. And that was not the case last year.

Not in the first half, but the second half.

Let's be very specific. When we talk about digitalization, that is a different set of companies and revenue stream than the pure telecom fiber optic business. The fiber optic business is a segment within the digitalization. That segment is a minor part within digitalization and carries the effects of the, let's say, the whole market effect of, let's say, dumping from Chinese 2 years ago, the antidumping measures which the EU took, our self-help of closing down the capacity in China as a next step in the Netherlands. So there's a lot of ongoing in order to get that back on its feet. That's not the same as when we talk about digitalization. Digitalization is a bigger basket. And you can see from the disclosure, it's about 24% within the Connectivity segment. So roughly EUR 85 million, let's say. And as I said, less than half of that is related to the fiber optic side, but the fiber optic side is where we carry our headache. And that's where a lot of steps are taken. And that's where basically we have finalized in the first half, the consolidation of all capacities in one location, the restructuring ongoing and the capacity is running. So from that point of view, that is a different basket, I think, than putting that across digitalization, but also the second -- the first part of your question is slightly different than only this part.

And the onshore cable?

Onshore cable?

Onshore, that is recovering now. So I guess that the margin is then also improving a bit.

That is profitable.

Last year and the first half of this year?

Yes.

And then can you give us some feel for the way you look at giving an outlook and also the way we should interpret it because that was basically the main question.

Yes, I believe that is a really good point. Of course, we see the deviation in the estimates that were in front of us and in the realization. It is a big, let's say, puzzle and difficult decision what you communicate. So there was, let's say, in May when we announced the first quarter, it looked really positive in respect of the development of the production. And we had just manufactured the first long lengths in Eemshaven and it went much more smooth, we solved all the 5 processes, which were really critical. The processes after that were not critical at all. But some issues happened. You cannot imagine and believe what stupid actions happened through which we were not able to manufacture the long lengths. And so we don't have that crystal ball to see what could go wrong. And so yes, you can say we were too optimistic with the guidance we gave. But yes, the other way would have been that we would say we don't know what is going to happen, and you have to just see what comes out. I believe that would be also very strange. We are really on top of this activity. We have had good information to not be much more negative in May than what we in the end see in the result. It was really, really difficult to get this project completed. And -- but we also developed through that, a much better competence in manufacturing also long lengths now. So that is a kind of unique situation again that we had also with the long lengths we had to manufacture in a new plant. We will never do that again when we build a new plant. The question is, do we ever build a new plant. But also from a reference in our plant in , we have never seen these sometimes also stupid causes and issues that we saw in the Eemshaven. And yes, that is the only explanation that we are much more negative than perhaps that -- or that was let's say, in the estimates of U.S. analysts.

Yes. And then, I mean, the next project is simpler?

Much simpler. Yes.

But are you sure about that?

100% sure. We are also manufacturing at this point of time. And the good thing is we now have to deliver link lengths of around 1 kilometer. So we manufacture longer lengths. But if we have a miss and that the length falls into 2 parts, 10-kilometer falls into 2 parts, you have still 10 link lengths available. So that makes life much easier. And we will be able in the end also to manufacture the long lengths very smooth without any issues. But it is too difficult in a factory that you have to start up, and it's really the highest level of technological advancement in the technologies that we have in that factory. We have the best technologies. We have also asked for external people to judge that, that also to open up our mind, did we make mistakes or something like that? No, it has really proved again that we have the best available technology to meet the specifications that we have to manufacture.

Okay. And then if I look into '26, I mean, you have the order book. Are all the projects now in the order book simpler, more simple to execute?

Yes.

So there's not a risk that we have a very difficult project going into the factory next year and again, yielding problems?

No. In the end, we will have also projects in the future with longer lengths. But we have sufficient time to further optimize where potential risks are, although I believe we have solved or eliminated more than 90% of these risk for the long lengths. And we have about several projects still available for optimization and also reduce the operator dependency. This is the risk of an operator that makes a mistake. And so we want to reduce further the operator dependency. But the technology is ready for long lengths.

Okay. Yes. One small follow-up, and then I pass the microphone on to someone else. You mentioned, defense clients in SmartVision. Do you know -- you have visibility on what kind of products that goes into or maybe names of some of the defense contractors?

Names not, but we know where they are deployed, and we are very careful with making sure that we are not on the weaponary side, let's call it like that, but more in the manufacturing and situational awareness where these kind of cameras are deployed.

And the organization has to be screened for that in order to become a supplier?

Yes.

So you have those permits and certification processes?

Exactly.

.

To continue on the inter-array and offshore and onshore energy. Combined, it was approximately between EUR 190 million and EUR 195 million turnover. Could you give a breakdown between how much revenue in onshore and how much revenue in offshore?

I think if you look at, let's say, the range, EUR 185 million, EUR 190 million, if you call that, then roughly about, let's say, 30% or so is related to the offshore part.

That's then about EUR 50 million or so. Does it imply because previously, you said EUR 170 million of revenues for onshore that we should expect EUR 120 million of revenues onshore in H2? Or has a bit been...

It's in that range, maybe slightly lower. But in all fairness, the buildup is slightly different compared to what we communicated in the past. Because as you know, we have an order book, which includes one specific contract where we have a larger scope than just cable manufacturing. And that scope will also have its revenues in '25, including in the second half of '25. So if you look at our outlook, not everything is coming out of cable manufacturing, but also of the supply of call it, the scope related to an integrated project.

Okay. Could you remind me, you signed a contract for Waterkant in Q2. When is production for the project?

Waterkant project, yes, we signed that.

Yes. But when was production planned?

Production in '26 -- late '26 or beginning of '27.

Because if I recall well, Waterkant has also very lengthy inter-arrays. So will you have solved the problem by then? How sure are you that you will be able to produce those things?

Now based on the current knowledge that we have, we will be 100% certain that we are fit to manufacture the longer lengths. And we are also close to another project where we have the same cable types, which could be a kind of risk mitigation if we would have a miss that you still can deliver shorter lengths. So we are really careful in that respect. But yes, it is not extreme in the end to manufacture length of 20-kilometer plus cables. The layout, the technology is completely focused on that and should be capable of doing that.

And lastly for the moment. How is TKH acting on the tariffs the U.S. government is implementing? Will you be simply passing them on to your customers?

Yes.

Yes. And we have the advantage that we have hardly any local competition for the technologies that we deliver to the U.S. We have such unique propositions. And for part of the vision cameras, we have the opportunity to have a location quite close to the Canadian border to open up a manufacturing plant where we can even move people from Canada to the U.S. to manufacture if that would be necessary. Michael?

Michael, Degroof Petercam. Well, I have to come back to Eemshaven as well, of course. During Q2, you came across several unexpected setbacks with that very long cable project. Have you learned from that? And should you today start with the exact same project, would you be able to execute smoothly on that same cable?

Yes, we have learned lessons, but there might be still issues.

Okay. And the goal of a new plant with all the learning curve and so on is, of course, to eventually reach 100% productivity efficiency and so on. Where would you rank the plant today in percentages compared to that 100%? And where was it at the end of 2024 to see what kind of slope of learning curve there is?

Yes. It's very difficult to exactly say that -- at the end of Q1, it was at less than 10%. It was developed in Q1, Q2 to the end of Q2 to 60%, 70%. And yes, today, we are already closer to 80%.

80% in terms of where you want to be productivity and smoothness of the operation. I'm not talking utilization.

Yes.

Okay. Then during the presentation, you mentioned that connectivity or I assume it was subsea cable will be back-end loaded. Should we assume something like 35%, 65% sales split between Q3 and Q4?

It could be close to reality.

Okay. And of course, the operating profit will also have quite a big difference between the 2 quarters.

Well, one comment there. As I mentioned already, we have in the second half revenue, not only based on cable manufacturing, cable delivery, but also on services and other elements, which are part of the scope. And that's, of course, having a different kind of margin profile than when we produce something ourselves. And therefore, the timing of these events decides about Q3 and Q4 result taking without further details at the moment.

Yes. Good. Then the onshore energy cable, the past 2 years have been difficult because you built -- you have a factory for the Netherlands, which is sold out, but your customers have difficulties with all the permits and cycle times. Now you seem much more enthusiastic, demand picking up, outlook '26 would -- is that because permitting has become easier, change in regulation? What is causing this better momentum?

The network companies have found better solutions to organize the rollout. So part has to do with permits. A very big part has to do with their organization to make projects more simple, also to get faster permits. And that execution is really doing really, really well.

And that's broad-based throughout the Netherlands.

It is throughout the Netherlands, yes. It's not one customer. It is, I would say, all of them. So it looks also like a Dutch solution that has been found.

Okay. Have you also been selling outside the Netherlands as you intended?

Yes, we made good progress there, and we will continue with that in the coming years, especially for high voltage. We see great opportunities in the U.K., in Ireland, which is also a market where there is hardly any local manufacturing. We see in Germany, we see in Scandinavia. So that will be a very nice building stone to build further on and to, let's say, deleverage our presence in the Netherlands and the risk of being a sole supplier only in the Netherlands.

Okay. Is it too early to assume you're going to be sold out in this activity next year?

Sold out could be the case. But yes, we also have capacity available in Eemshaven, which we can allocate to, let's say, the onshore business. So we still have a lot of opportunities to create also in a simple way, additional capacity.

Okay. Now my final question, turning to the left to Harm about UNIXX. The launching customer will receive their first UNIX system in Q3. Can you share us a bit of the road map of that customer, their plans for testing it over a certain period and then perhaps adding more systems to their factories. Is that something that they have shared with you? And what would be the time frame and the potential magnitude?

Sorry, I have to stand here because of the camera. Well, very exciting project. Also, the customer is highly excited. What we see in the coming period as it is now being installed the machine. We expect in the second half of this year, a lot of new tires, prototyping tires for both the very high-end market as well as for very-high-speed tires. So we guess a couple of months for a lot of development and testing. And then probably that customer can decide on road maps in their different portfolios. What is already clear is that for their main production of the ultra-high-end tires for the passenger car market, there is a rollout in the coming years foreseen for several machines coming in. So that looks good, but it might be even a wider portfolio than expected. And in the meantime, we are also developing the same UNIXX technology for motorcycle tires. And that could be an addition also in the coming years. That's longer term, but all in all, this UNIXX technology opens up a lot of perspectives for the coming years.

So the outlook is quite good for the high-end tires for this particular customer, ideally, once they get convinced and things prove right, you get sort of the generic tires. Is that also something that is on the road map? Or is that still too far away?

No. It is -- in particular, for this customer who is focusing on the high-end market, that is not so much in their portfolio, I would say. But this technology is clearly also very helpful in making -- well, you could say, middle of the road hazard normal tires in a very efficient way. For that, we did with a number of different various customers in the last couple of months also some testing and that also looks very promising. So all in all, we are very positive on the longer-term outlook for this, also for the -- to completely replace over time the conventional tire production, but it takes time. So it's not this year or next year that it will be material in the revenue foreseen.

Ruben Devos, Kepler Cheuvreux. Sorry, in English. I wanted to continue on Eemshaven, of course. I was just curious about the fact that, obviously, with long cable lengths, thinking about sort of the portion of the market that you would not be able to address maybe in the meantime. I think you talked about near term, certainly, you think to have more simple production, less long cable lengths. So in terms of the addressable market, like what portion would you maybe miss or would be less of an opportunity in the next 2 years?

No, we don't see any project that we could not, let's say, accept and or be positioned in the best way we can position and against competitors. So also last year, we won, I believe, 80% of the projects that were available, and it continues at a very high pace at this moment. So the capabilities are really fit for the market demand.

Okay. And I remember maybe there was a number called out before of 600 kilometers in cable lengths for next year. Is that -- you confirm that, that could still be...

At this moment, we confirm that, yes.

Okay. And that's, let's say, fully secured or part of it is still in a competitive?

No, we still have to win 1 or 2 projects. What, of course, helps that we also shift some of the deliveries to '26 from '25 to '26. So we are getting much more close now to the 600 kilometer.

Okay. For Poland with the consolidation of your activities there. Just thinking about what could be sort of the breakeven utilization rate, for this activity for fiber optic specifically that you would need?

I think if you look at the cost which we are bringing down through the restructuring that within the second half, we will definitely get to the breakeven point. That doesn't save the whole year, but of course, that's the step up towards '26 where we believe that we can be profitable.

Okay. Sorry, you would need like what is it, 70% of fab loading like utilization?

No, I think it's a little bit more because we have restructured the way how we have capacity available because in the previous setup, we had a different locations capacity. And that has been consolidated, but also, therefore, put in a kind of different structure. So we don't take the entire portfolio from the past, and we also don't have the exact footprint in terms of machinery, and that has brought down already the capacity level, and therefore, we will be quicker to a higher percentage of utilization. But it's not just cable manufacturing. It's also the, what we call, connectivity proposition, which goes with the cable systems, and that's also an area of growth. And that combination will give us the upside. But utilization rate is really reasonably well. But again, the efficiency has to improve similar to the Eemshaven. We can do what we promise, but it has to become more efficient in actually getting it done. And that's the path for the second half, and we are well on track with that.

Yes. Yes. And then I think for connectivity as a whole, I think it's probably a question also for the Capital Markets Day next month. But obviously, your added value has dropped here, I think, almost 6 percentage points in connectivity. Obviously, my question is what is the realistic midterm target? You've had this incident in offshore. Obviously, you've now consolidated activities in fiber optics. What could we be modeling or looking forward to potentially?

That's a good question about capital markets. But just to give you one comment on that. If you look at the 45% in added value connectivity last year and 39% this year, for sure, elements of, let's say, the extra effort, the material consumption, the waste, et cetera, in order getting the project for the launching customer in Eemshaven completed has a negative effect. But also, as we mentioned, the distribution of revenue, which includes services, which are outsourced, they don't carry the same added value as our own production. And that component, of course, within Connectivity has a negative pressure on the percentage of added value, and that's also what you see in H1. But we'll address this in the Capital Markets Day.

Okay. And just a final question, unrelated to Connectivity, but rather on Vision. For Security Vision, that's expected to pick up, I understood from -- as of Q3. Are these sort of projects tied to rather specific geographies or specific end markets? And is the -- and are the margins sort of at par with machine vision?

If you look at the projects, I mean, we have seen already quite a nice path of more sizable projects in the last couple of quarters, and that is still ongoing. very much related to larger projects in North America. And of course, in these size projects where we have indeed unique features, and that's why we're winning these projects, we also have good pricing power. It doesn't mean that the overall margin of security is at the level of machine vision, but it's a comfortable margin, which we are able to get there.

It's , ABN. Just could you explain a bit more about the order book in smart manufacturing about the customer behavior? What have you seen in the past few months? Why is it -- it has come down probably you said uncertainty about tariffs. Are there any other reasons? Anything you can say about customer behavior? And has it changed over the past few weeks?

We -- well, it has not really changed over the last couple of weeks, but for already a longer period of time, I would say, since Q3 last year, the overall order intake for equipment in the tire business was at a lower level than in the couple of years before, and that had mainly to do with, you could say, a couple of reasons. One is the enormous influx after the COVID period and the recovery of markets after that. So there was an uptick, which faded away a little bit since last year. And the second reason is that you saw a large pressure on the automotive market, mainly in Europe, also in the U.S. where the Tier 1s, so the larger players in this industry who are really exposed to OE supply, so the first mount tires that volume was coming down, companies under pressure and the appetite for new investments was a bit lower. That was a period that already started end of last year. So that's why we also guided for this year a lower revenue and order intake as the years before. We expect that to continue for the -- you could say that continues for this year and perhaps next year. What has added -- what has been added to this situation is the unclarity on the whole tariff situation for North America. And that caused a lot of companies who were already in the process of discussing projects to be a little bit cautious and just wait and see, you could say. And that hesitation has brought, yes, you could say, in an effect that caused a lower intake than we expected as of the beginning of this year. But that effect should now be, you could say, resolved since it has become clear what the tariff situation is and the effects of that. At the same time, you still see a pressure on the automotive market in Europe, Chinese imports in Europe and pressure to export to the U.S. So we expect that -- you could say the Tier 1s will for the moment, continue with some hesitation in this, but the pickup is really foreseen in the Tier 2, Tier 3 area where we see a lot of appetite for investments outside of China and Asia Pacific. So that combination mix that we expect for the second half a higher order intake than -- much higher order intake than the first half of this year.

Just on the last question on the . You reiterated the 600 kilometers, but there was originally a margin plan for 16% EBITA. Is that still realistic?

I believe that was even mentioned 20%, but you're right, it was 16% that we mentioned for the whole year, that is impossible. For the second half year, we are getting very close to that margin. But that's not the overall connectivity margin that will be somewhat below that percentage. But it's a big step-up compared to the 1% we had in the first half year.

Okay. And the last question also is related to . This is a question from Martijn actually. About the liquidated damages that was probably the reason for your loss there what you reported.

Not the reason for the loss, but the liquidated damages. I mean, it's about damages which have to be compensated. And the discussions around damages very much concentrated about extra deliveries. beyond the scheduled delivery times of the cable due to the delays which we were facing, and that resulted in additional transportation costs, and that's also what we have been highlighted in our communication, and that's a one-off which we have described here.

Because the mic is here, , ABN ODDO as well. Related to working capital, you highlighted there the fact that the order intake within manufacturing systems is lower and that had quite some impact on the milestone payments you received. How is the dynamic there going forward? Because you expect an uptick again. But in case of lower activity, would that imply such a lower working capital as well? Or...

I mean the way our intake affects the working capital is by the down payments, the advanced payments. It's not on the progress payments. They are a normal part of your model and the receivables and the work in progress, et cetera, but it's very much about the down payments. And as intake has been low in the first half, the down payments have been low. And that, of course, is a negative for working capital despite the fact that we had compensation in some of the other segments, we were still seeing a slight increase in the absolute figure. Second half with higher order intake expected in the manufacturing, that means also that the deposits will come in and that will then reverse the situation compared to H1, and that's a help in the second half compared to a negative in the first half.

Do you meet orders for that?

That's independent from working capital targets. It's an area where, of course, we see the opportunities and we have guided for that. This looks very promising and that we have a definite higher intake in the second half than what we will see in the first.

In case of normalization there, where would you go to working capital-wise as a percentage of sales? What was more or less the leap because you already said underlying, we did a very good...

Yes, I don't think we will achieve the 15% yet. But of course, I believe that we will be better as a percentage compared to the end of '24, and that was in the 17.5% range. So we expect to be below that.

Okay. With the Thai manufacturing orders...

Not only, also the, let's say, the continuous progress on getting working capital down. It's a combination of both. I think there's also online maybe a question. .

Can you hear me?

Yes.

Okay. With respect to the performance of the Manufacturing segment, last quarter, I mentioned that the CapEx at the Tier 1 manufacturers went down minus 5%. And then Alexander basically mentioned that there was no direct relations and that they didn't really see that there was some hesitation, but that they started to see the pickup again. So I'm just wondering, based on the comments and the outlook then, Alexander comments basically made me assume that the impact would not be that negative, that organically the decrease should have been less than 5%. We have seen like a 9% reported decrease. So I'm just wondering how do you explain the fact that at Q2, you still saw like the pickup and then now you reported minus 9%?

We see still that the import duty effect seems to have a bigger impact for the Tier 1 players. And they are also more strong related to the OEM business and the OEM business is, I believe, in a much more severe situation compared to several months ago. So that leads, I believe, to more hesitation and Harm commented already that he foresees now that they will be not back before '26 and perhaps even late in '26.

That's clear. And then with respect to the outlook for the second half, there is still quite a big gap to fill with respect to the EBITDA to get above the second half 2024 level. It's roughly EUR 30 million, let's say. I would expect that the largest part, around EUR 20 million would be driven by the pickup in the Eemshaven facility as more or less in the right magnitude order. And then the remaining EUR 10 million will be mainly driven due to the digitalization part of the new facility in Poland, some cost savings there and an improvement in the Vision segment. Is that the right way to look at it for the EBITA improvement?

I don't want to, let's say, confirm on line item. You're right that the biggest contribution will come from Connectivity, and it has these 2 components without getting to the breakdown. And of course, on the other side, you see that Vision will continue its strong performance in the second half as well.

You stated previously that you will divest the digitalization business. Will you start in that process once you have recovered, once you have become decently profitable again in that division?

Well, I mean, of course, a profitable business improves the chances of a successful divestment. That's obvious. So that's why probably you don't have seen a kind of move in the first half of this year as there was a lot of work in progress. The benefits are coming through. And we'll see what is the optimal structure of this divestment. It contains various items, as I mentioned earlier, the fiber optic side on one side. There are some other components. And we just have to, let's say, get to the right path up in order to get that done. And I think probably it's also a little bit more for Capital Markets Day when we have a little bit further view on the portfolio going forward than today's H1 results.

Okay. Then secondly, your sales funnel in the area, 11,500 kilometers. I'm bit surprised because it has increased over Q1. Whilst I've seen that, for example, filled auction in Germany, postponements of projects and still this number is increasing. You mentioned it's still only Europe. What do you really look at and determining the sales funnel? Is it -- have projects already have seen the FID? Or how does it work? How do you...

It is the requests we get for quotations and the start of the tendering processes that we see. So it's real projects that are planned and are in some ways at an early stage, already tendering now for a project in '28, '29. But yes, there seems to be that more and more projects are generated in areas here in the North Sea, Germany, especially, we see a lot of commitment to new projects. And yes, I believe it's good that we have this KPI of showing you the number of kilometers. You read a lot of negative news in the newspapers about postponements, but this is the real fact. And it's not created by ourselves. There is also a lot of public information about all the new projects that are, let's say, being tendered.

When we look at the inter-array market, in Europe itself, not so much is happening when we look at new capacity. However, if you do look at what's happening in Asia, where a $360 million investment is being made to build a quite a large marine cable manufacturing facility. One is even being developed in the U.S. And particularly, this U.S. customer says that it will or it has secured 18 months of volume for export to Europe. How do you see that competition? Is it really a local market? Or do you also expect competition from Asian manufacturers in Asia and also from North America market?

From North America, there is no capacity available for...

This one is being constructed, and I mentioned they already have 18 months of volume in the order book.

We have not seen them in any tender. So yes, I don't know what is the truth. Then with this, let's say, information from Asia, there is some competition. But what we see is that the additional transportation cost is a real negative, let's say, competitive edge. And what we also see is that especially within Europe, there's a tendency to really go for local and protect also from a risk point of view with all kind of sensor technology, which might be in the cable to secure that you have a local supply in Europe and not from another location where there is a risk.

Yes. I also have a follow-up, Tijs Hollestelle, ING. Yes, I was thinking about the, let's say, the internal reporting deadlines. I was also thinking that you have the Capital Markets Day in the 25th of September. For Machine Vision, it's kind of smaller contracts. It's probably the same for onshore cable. So probably the lumpiness is in the tire business, both on the results and the order intake when you deliver the project and on the subsea cable. So how much visibility do you think you have when you're standing on the stage on the 25th of September? Because as you mentioned, July and August are not the strongest months of the third quarter. So you only have, let's say, visibility on underlying demand for a couple of weeks.

We are not going to bring forward the Q3 reporting into the Capital Markets Day. That's not the case. It's the same when we make our, let's say, outlook right now, of course. So there is a certain model which we use. And you're quite right, it depends a little bit on the different segments, what the feasibility is. And in some cases, of course, also what the actual effect is. There are certain activities where, let's say, the final acceptance test of certain products is decisive in the overall results and revenue taking, which is at an end of a certain process in manufacturing. And that's no different as we do it now. So from that point of view, I think we will be having, of course, our radars and internal structures working to be as best prepared as possible for the 25th of September. But it falls all in line within the regular outlook reporting as we have scheduled on our intervals, half year, Q3. These are the right kind of moments. And of course, there will be some flavor in the Capital Markets Day, but it doesn't go beyond that.

And have you put more pressure on Tier 2, Tier 3 management to, let's say, provide more accurate information to you guys?

We get on a weekly basis, we get turnover information. So we have a dashboard that is quite clear in that respect of how the performance in the months is developing. It's not that we have to wait at the end.

Yes, it's already quite efficient, I mean.

Okay. No questions anymore. Then I'd like to thank especially the participants in Amsterdam and also the audience for being in this webcast. Thank you.