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

Good morning, everyone, here in Amsterdam. We are very grateful that you are here today, and also a warm welcome to everyone in the webcast. We have today the presentation of our annual results. And to start with, of course, we are happy as a company that we ended with a net result which was in line with our guidance. And then if we look at 2019, it was a year with a lot of turbulence. The second half was much better than the first half. And what we see is that we still had a lot of headwind in the second half. Especially in the industrial segment, we saw that it was quite difficult with -- related to capital goods investments and in some areas, even a substantial drop in turnover in Q4. But in other areas, it went quite well. And especially Machine Vision, we show that we had a quite good development in Q4. And I believe we even outperformed the market there. And that is also our intention, and we will come back to that in the other parts of our presentation. So when we look at the first half year, we saw that we had a lot of capacity available for the second half year for the innovations to be prepared for growth. In the end, the organic growth was negative in the second half year, but the contribution and the mix of activities was very good. So we had a much higher contribution because of the innovations that did very well. The vision activities with a relatively high gross margin did very well. And that ended up in a quite high return on sales, return on sales of 12.9%. And in the first half year, the return on sales was 10.3%. So I believe a good improvement, and that is also related to the Simplify & Accelerate program where we can say that we had also quite good progress. Sorry, I have to move the presentation. Here we go. I can click another one. It's not working. I move to the Simplify & Accelerate program. I believe very good progress, as I mentioned already. We reduced the number of activities that have a low margin, but especially limited value-creation opportunities because of very limited organic growth opportunities. We divested 8 companies and besides that, and that is the #2 point, we reduced the number of business subsegments, that is one. There might be more to come. And the subsegments is -- we have 6, and we are now at 5. And then reduced the number of companies through integration. We ended up there with 9 companies less. And also there, we have a few opportunities, again, in front of us for the coming year to reduce the number of companies further. It makes it, for us as an executive board, quite a lot easier. We have less direct reports and we can fully focus on the vertical growth markets, the organic growth plans that we have there, the innovations that need attention to get further traction in the market, and we are quite optimistic there with respect to what we have achieved in the past year because of this additional focus that we could organize. In the end, the Simplify & Accelerate program was quite intense. So a lot of hard work, I have to say, to get in the end to all the actions that we had planned. If we look at the divestments, we achieved around EUR 250 million in divestments. So -- of course, we already -- we're quite far when we announced this program, with this divestment program -- divestment actions and I believe, a good job that we were able to close these deals. If we look at the return on sales improvement here, that we are looking for 1.2% to 1.6%. We are not yet in this bandwidth but we are getting close to that. And that will be a positive effect that you will see in not only 2020 because part of that you already have seen in the results of 2019 because in the results of 2019, we have taken out connectivity -- industrial connectivity activities in the -- relation to 2018. So also in the figures of 2018, we don't see these activities anymore back. Integration, a quite heavy program there, and we can see that also back in the one-off that we have taken there of around EUR 17 million. And of course, that helps in the improvement of the margin, a lot of effect already seen in 2020 and partly also in 2019 because we're quite effective also in the second half year with cost reductions. And saw also there good progress, and we believe that the 0.8% to 1.2% bandwidth is -- we can achieve. Innovations and focus on the verticals. About EUR 200 million, EUR 250 million turnover should come out of that area. And what we address there are the innovations that are still in the very early stage of the introduction and product life cycle. And a few to mention is the subsea activities; Airfield Ground Lighting; CEDD technology. Within the vision group, several technologies that we address, and the embedded vision and the application for 5G networks. Part of that was addressed already in 2019, but I would say, only EUR 15 million, EUR 20 million of the EUR 200 million, EUR 250 million turnover came in, in 2019. In 2020, we will see a bigger impact of turnover coming out of these innovations, and that will also help us and, especially within Building Solutions, to have a better profitability than even in 2019. Acquisitions. We did 4 acquisitions, very good acquisitions, fitting very well in the high-end technology area with very good potential for margins, achieving at least 15% return on sales. And so there, we also see a positive contribution already in the year 2019 and also more to come in 2020 because several of these acquisitions did not cover the whole year in 2019. In the end, we ended up with about EUR 20 million additional turnover coming in from the contribution. Then we have the execution of the integration program. I said around EUR 17 million. It's exactly EUR 18.3 million, one-off, with impairments -- additional impairments of EUR 5 million. We have listed up here all the areas where we have seen these integration actions. What was very good in the organization that we had initial ideas to come up with integration and also efficiencies in the organization. And after the introduction of the program in June, we saw that it energized a lot of people in the company to connect to this program, and more initiatives in the end came up than that we expected and already had on the radar. So I believe it was also very good for us in the company to get further aligned in the strategy of TKH. And yes, the firm targets that we have set for organic growth and especially also for the bandwidth of the return on sales and return on capital employed. I'm not going to walk you through all these actions that we have taken. The profit improvement will be around 7 -- between EUR 7 million and EUR 8 million on an annual basis, of which EUR 5 million we will realize in 2020. Not all programs can be -- fully be affected in respect of the results for the whole year of 2020. And so there's still something to come also in 2021. Then we go to the vertical markets. We saw a growth in the vertical markets but it was a shy growth versus the last year. It was a growth of around 5.2%. And if we go through the verticals, then we see that some verticals did very well. One vertical that did very well was the Tunnel & Infra vertical, with about 38% organic growth. What we have to understand is that we have not all our vision activities, which could relate to Machine Vision -- in the Machine Vision vertical. And so we have a very nice Machine Vision activity or what is it, cameras, for traffic enforcement in the Tunnel & Infra vertical. Very high profitability, similar to the Machine Vision. It was part of the acquisition of Lakesight. So what you have to understand is that we did not put the complete acquisition of Lakesight into the Machine Vision vertical. And especially the traffic enforcement position did very well. And that was also because of the fact that we saw a new market that we penetrated in, the U.S. market, where we have been quite successful. Last year, it was not yet a very big turnover but it was a turnover around EUR 2 million, EUR 3 million. And -- but has a huge potential for us, and it's a very attractive activity in the Tunnel & Infra vertical. And anyhow, you have to realize that, yes, we focus on the verticals, and we have a lot of vision camera technology in the verticals. So make sure that you don't put all the camera activity in the Machine Vision vertical. And that could be also one of the reasons why the organic growth in the Machine Vision vertical is not so positive. We saw around a 10% decrease in the turnover -- organic turnover of the Machine Vision vertical, which was mainly related to the consumer electronic industry. And if you benchmark ourselves to the consumer electronic industry, you will see similar figures and some even worse than that we had with our minus 10%. What was very good in the Machine Vision vertical is that we had a quite interesting step up in Q4, especially for 3D technology with a substantial double-digit growth. And that's related to the 5G smartphone and tablet industry where we see that for this application, you need new manufacturing systems and also new inspection technology. And we are really well -- very well positioned for this application. And that also has a good perspective in the coming year where we see that this 5G technology will further break through. If we look at Fiber Optic, a shy growth of around 2%. A part of that is also because we see some price effect in -- because of decreased -- or margin pressure and decreased fiber prices. So if we would look at volume basis, we would see a higher organic growth than the 2%. In Parking, we also saw a small organic growth. The effect of the relatively small organic growth was related to the fact that we had only very few bigger projects in 2019 whereas normally we have a kind of mix of bigger projects and smaller projects. So we did quite well in the smaller projects. But it's not that we missed out in respect of market, but the projects didn't come in, in 2019. But there's a very good funnel for 2020 of bigger projects between EUR 5 million and even going up to EUR 10 million. And we had these kind of projects in the books in 2018. So in that respect, from a comparison base, it was difficult for us in 2019. But from a market perspective, I believe, very good for the year 2020 that we still have that in the pipeline. Then Marine & Offshore. We saw a decrease there in the turnover, and that was mainly related -- or that was related to the subsea activities where we organized ourselves in 2018 to not accept any new orders until we would have a stable manufacturing, and we had stable manufacturing in Q4 2018. But that's then related to the fact that we needed to have a lead time -- or there was a lead time for new orders. We were able to get new orders, but the first half year of 2019, we didn't have any manufacturing and any orders in the order book. In the second half year, we announced it also in the -- at the half year results last year, we were well positioned for a few projects. One of the projects that came in was Windpark Fryslân, and we started manufacturing also that project in Q4. Originally, it was even planned in Q3, but we had to wait a little bit longer to be able to start. And so that came in, in Q4 in respect of production activities. There's still order book to go for 2020 of the part of Windpark Fryslân and we won another project, and that is Kaskasi, a project little bit smaller than Windpark Fryslân. And at the same time, we see a very good order -- not order, pipeline, what is it, a quotation pipeline for projects even still partly starting in 2020, but mainly executed in 2021. With the order book that we have, we can already meet almost the forecast that we have set for ourselves for 2020. But the good news is that we will be in a further ramp-up scenario for 2021 with a quite substantial utilization in 2020 and even higher than in 2021. And that is very good because we have almost all the costs already in this vertical in this -- not only in this vertical, but in the subsea cabling activities. It takes a long time before the shop floor people are trained and be able to do the manufacturing. And so that is all in place, and we have to realize that all these costs were in the P&L of 2019. The care vertical, a small growth. There is, I believe, a lot to come. One of the activities is the INDIVION, which I will come back in the Industrial Solutions part and some other areas with the remote care for elderly care, where we have done a huge investment in software in the past 2, 3 years. And we are getting traction now for new markets, new opportunities there related also to sensor technology and interesting applications there. So that we also believe that this is well positioned for further growth in the coming year. And yes, of course, if you look at all the growth scenarios, we upgraded the growth scenarios in 2019 at the Capital Markets Day, 3 of them. And yes, there's no reason that -- to have doubt that we are not able to realize the growth scenarios that we have set here on this slide. Tire Building. A very small decrease compared to the year before. Profitability is at a very high level. But there, we saw a lot of headwind already coming in, in the second half year for order intake and also some shift in orders to the coming year, and I would even say the coming years. So we're still a very good order book, higher even than the order book we had at the beginning of 2019. It might be -- and that is also what we have said in the outlook, that we will have a lower turnover in 2020 compared to 2019. And we saw again, in the fourth quarter -- the second half year that we also had a negative effect in our turnover. So the first half was better than the second half year compared to last year. Then the other verticals have -- we see that it still has a substantial turnover. But today, the growth verticals are around 60%. And again, if we go back to 2012, it was a completely different situation. I believe a very strong strategy that we have there with this focus on these verticals. The year 2029 is, I believe, not really representative for the opportunities that we have in these growth markets and especially then related to the upward potential that has not been translated into turnover in 2019, but will be translated in 2020. I believe we have a very strong basis for further growth. The other verticals you see for the coming years, that the turnover in the growth scenarios will be even lower than the turnover in 2019. Again, to remind you, have -- we see mixed growth in this area of around GDP. But we will do further divestments, and that is also part of the fact of what you see here in the growth scenarios of EUR 450 million to EUR 500 million. We still -- every year, this EUR 300 million to EUR 500 million growth in the verticals comes back and going to be realized in 3 to 5 years, and how you have to relate that to the growth scenarios that we have here in place. If you have the low bandwidth of the growth scenarios, then we would be at EUR 480 million growth. And if you take the high end of the bandwidth, we would be at EUR 836 million growth. And the EUR 300 million to EUR 500 million is less than the figures that I just mentioned. So there's also some headroom to have, yes, compensation power in respect of growth that we foresee in the growth verticals in the coming years. I go specifically now to the solutions. And again, if you look at the organic growth in Telecom, we had an organic growth of 4.7%. And -- so that was good, especially if you look at the effects of the price pressure that we have seen. And again, if you look at volume, it would be higher than the 4.7%. A very good return on sales of 15.4%, even higher than the year before. We still have expanded our manufacturing capacity in China for the fiber and also for -- and the preform production is still in progress. We need not, specifically at this moment, the additional preform capacity because there is a lot of capacity available in the market. The good news is that the overcapacity is not having a negative effect until now on the margin of the TKH Group, and that is because we have complete solutions that we sell in the market. And the commodity part of the fiber itself is a relatively small part in the added value that we have in the fiber network systems position. Indoor Telecom is a relatively small part of our turnover. Organic growth was also small there, and it's mainly related to, let's say, the copper network decrease, which is almost closed. Now we will even stop manufacturing the copper telecom cable for the telecom operators, starting off in 2020. But again, that was, in 2019, only a few million euro turnover. So this segment then has a tendency to further decrease. Building Solutions. Yes, a big step-up, especially in the second half year with respect to the return on sales. To remind you, the first half year return on sales was only 8%. And then we saw in this segment that we had a lot of capacity available for the second half year, so relatively high cost in the first half year. It worked out to keep that cost in place and especially the capacity in place for the second half year. And in the second half year, we saw a return on sales of 12.2%. And it's not yet at the target of 15%, but I believe a really substantial step-up of the return on sales as we also had planned for this activity. If we look at the profitability in the second half year, then that was also substantially higher than in the first half year. Profitability was about -- yes, what was it? -- 59% higher in the second half year compared to the first half year. And yes, a few comments already made. We saw a quite good second half year for Machine Vision compared to the first half year. Related to the innovations, I already mentioned 5G. But also in some other areas, we saw really good traction in the market. In some areas, I believe, some market share growth. And yes, the integration that we are doing with the 2D companies is really bringing in effect related to one-stop shop opportunities that were taken also by some of our bigger customers as a very interesting opportunity. Organic growth still was quite negative for the vision and security systems with minus 10.2%. And some of them I already mentioned when I addressed the vertical market, so I'm not going to walk you through all the comments that are made on this slide. Then we have the next slide for Building Solutions. The connectivity systems and organic growth of 6.6%, doing quite well and even taking into mind that we had, in the first 9 months, no subsea cable activity, and that meant a reduction of turnover in the subsea cable segment. But despite that, we still had a 6.6% organic growth. The segment that was doing very well is the power network cables. And especially in the Benelux, we have seen a kind of shortage even in demand for power cables, especially medium-voltage cables. And we were positioned quite well to have sufficient capacity there. We anticipated there already 3 years ago that there would be a shortage in this market and have added -- have doubled our capacity there. So we had an organic growth in that area of around 50% even. And that helped us to move up, of course, the organic growth in the segment despite the decrease of the subsea cable activity. Then we saw in the building industry, which is not a growth vertical, that we had a negative impact of the hydrogen (sic) [ nitrogen ] and PFAS situation. It was not a very big impact, but I have to mention it. We saw, in that segment, a drop in turnover because of this effect of around 5%. And if you look forward, then we see that the PFAS has been moved now in a better situation than we had in the second half of 2018 because of a higher level of the material that we can have in the ground -- the chemicals, which is now, I believe, 0.8%, and it was before 0.1%. And so difficult to oversee what the effect is of the PAS and PFAS situation in the Netherlands for the coming year. At this point of time, we predict, let's say, around a 5% less turnover in that building and construction segment, which is not a very big part of the connectivity subsegment. It would be probably around 20%, 25% of the building connectivity segment. Yes. We announced in Q4 that we would -- we have the intention to close one of our sites in the Netherlands, the site in Ittervoort, and we are still in negotiation about that. But we have taken a provision as part of the total provision that we have presented here. And part of that is also related to the -- to an impairment that we have to do on the equipment that we will not use anymore. And part of that closure -- intended closure, we are -- we will also stop was the more industrial-related portfolio of this unit where we see that it is a very marginal profitability, even in some areas negative profitability where we don't see a future that we will be able to bring that to a reasonable profitability, and that will lead to about EUR 5 million less turnover in that segment. And the other activities will then be moved to another plant that we have in Haaksbergen. Industrial Solutions. We saw an organic turnover decrease of 2.8%. I already mentioned that, especially the specialty cable that we have, which is a very high-end specialty cable in the industrial connectivity, which is very attractive, which also has a huge potential for organic growth, but is related to the capital-intensive industry. And there, we saw even in Q4, a reduction of turnover of around 40%. And we have seen that, I believe, in 2008, when there was also a kind of sudden stop for investments and also reduction of inventories within the customer base. And I believe a big impact there was the fact that our customers reduced their inventory. We also reduced our inventory, and then you get a double impact that you manufacture less. And to remind you, we had very long lead times there until 12 months ago of more than, sometimes, 30 weeks, 36 weeks, and a lot of our customers try to cope with that by also putting in more -- high inventories themselves. So we don't believe that this is an impact that will continue in a similar way as we had seen in Q4. And it could be that we see, even for the coming year, 2020, a similar turnover and perhaps even a higher turnover than that we had in 2019. But it had a quite substantial impact on the organic turnover in the Industrial Solutions segment. Very positive for Tire Building was, of course, the delivery of the UNIXX, that also has been installed now. And we are now in the phase of -- for a factory acceptance test in the coming 5, 6 months. And then if this is a successful FAT, we can move on with the further rollout of the UNIXX. And I have to remind you that we also sell, at this point of time already, modules of the UNIXX, and they are doing quite well, and they are getting a bigger and bigger share in our order intake. We saw, especially within the top 5 tire manufacturers, some reluctance for investments. I believe we expected actually that the top 5 would more stabilize the turnover in the -- and the order intake in the tire building, but what we see is that the top 5 tire manufacturers have a strong position as OEM supplier to the automotive sector, and the automotive sector, yes, is in big trouble, and that has translated also to the top 5 tire manufacturers. At least we see there more-than-average hesitation for investment. It's not that there are no investments anymore. There are investments but we see, at this point of time, that outside of the top 5, the appetite for investment is higher than in the top 5. And even coming in from China, we had seen a quite good order intake from China in the second half year. And we also expected that will continue, even you might think because of the corona -- COVID-19 that there would be a very big impact -- negative impact of China. We will come back to that in a minute at the corona, I forgot to mention that, but of course, that is a kind of turbulence that we see at this moment. Impact from China is really limited on TKH. We see that the factories that we have are all completely in place again and manufacture. Yes, we have also had shutdowns for a longer period than the originally planned Chinese New Year period, but it took about 1.5, 2 weeks more to ramp up the capacity again. And the signs are that as of the coming week, also in the more difficult areas, in Wuhan area even, the production started again. If we look at our supply chain, then we have also some suppliers in China. We are lucky to have only very limited capacity in the -- that we source in the Wuhan area. And so what we can oversee there is that the Chinese COVID-19 effect has very limited impact on TKH. What we see today is, of course, the effects that we see in Europe. And I believe that is completely unpredictable at the moment what will happen. There could be a risk that it moves very fast. As you see today in Italy where schools are already shutdown, closed, and universities. If production plants are closed, it will have an effect on TKH, and it could also affect our own production capacity that we are affected and need to take measures to close down the factories. We believe it will be mainly a directive how to cope with all the measures that you have to take. And of course, we have good plans in place and instructions in our companies how to cope with the COVID-19 situation. Yes. I forgot to mention the updated INDIVION as large part of the Industrial Solutions comment. And again, the COVID-19 is not specifically related to industrial. It could relate to all the activities we have in the TKH Group. That's my part of the presentation. I'd like to give the floor to Elling. Thank you for your attention.

Thank you, Alexander. Good morning, everyone. And in the next couple of sheets, I'll walk you through the financials of 2019. On this sheet, you will see that we have, of course, in 2019 quite a lot of moving parts; divestments, acquisitions, restructurings, et cetera. So I just want to make sure that you can follow me in this next couple of minutes. We have presented a like-for-like situation. So also 2018 is adjusted and comparable based on the continued operations. First of all, if you look at the geographical distribution of our revenue, Europe remains the center, hardly any delta compared to 2018. 22% of our revenue is coming from Asia, and maybe most of you think that's China. Just to make sure, about 11%, so half of the 22%, is China. We have a lot of activities in India, Thailand and other parts of Asia as well. And going forward towards 2020, of course, with the divestment of our data cable activities in China itself, that will have a little bit of further reduction, the China component. North America, with 13%, similar in size -- share at least as in 2018. If you look at the top line, Alexander already explained the development in terms of organic growth and acquired growth. You can see that here in the chart in more specific numbers. The majority of the deltas, 2 components, of course, the acquisitions, with almost EUR 56 million, EUR 57 million revenue acquired. The impact of raw materials and foreign exchange have been very limited on top line. And then, of course, when we ended up with EUR 1.490 billion, it means that delta negative in terms of autonomous growth of EUR 28 million. Important is to mention the development on the added value, our gross margin. That's up almost 1% point. Better mix of portfolio, also lower start-up costs for the newer technologies. And also, we were able to get a little bit better deals in our supply chain. If we look then one line lower, going towards the operating results, defined as EBITA in our structure. Of course, the operating expenses, they were, for the full year 2019, EUR 245 million, EUR 30 million additional compared to the previous year, but basically the entire amount came out of the acquisitions with a slight impact of some currencies. And important to mention as well is the H1/H2 comparison because in H1 we had EUR 280 million in OpEx, and you can see that H2 was EUR 15 million lower from that point of view. Another area where there's always a lot of interest is on the R&D. R&D expense slightly increased from EUR 60 million to EUR 63 million. That's coming fully out of the acquisitions. The companies we acquired are high-tech companies as well. They do R&D. And then, of course, it gets in, in this basket once they join the TKH Group. The level of capitalization, we have always been roughly at 50%. We are now at 55%, slightly above, but actually with the full delta in expense coming out of the acquisitions, we have not further grown our own R&D expense. And of course, you will see, as a percentage of revenue, it slightly increased. It has to do with the effect that the divestments are very much related to those areas which do not carry a high level of R&D effort. Depreciation, also an important component as part of the OpEx. For some of you, IFRS 16 has become a little bit of a hassle to include in the comparisons. But that's -- with the implementation of IFRS 16, we have seen that the depreciation has increased with about EUR 16 million because of that effect. So the total depreciation moved up EUR 19 million to EUR 45 million. And out of the delta of EUR 19 million, EUR 16 million came pure as a result of the IFRS 16, the lease items. Of course, from the EBITA going down to the net profit, the net profit definition which we use, also which we use for our outlook, there's quite a few elements in here, which might require a little bit of comments. First of all, if you look at the one-off expense, EUR 18.3 million, about EUR 17 million is related to Building Solutions and a small part related to Industrial Solutions. It's a sizable ticket. In the presentation of Alexander, we have highlighted the main elements making up this total amount. And of course, the benefits going forward are clearly defined as well. On the amortization chart, EUR 10 million increase from EUR 40 million to EUR 50 million, that's substantial. The delta of EUR 10 million basically represents a EUR 7 million increase due to the acquisitions which took place, of which, of course, Lakesight at the end of 2018 is an important component, and the rest is coming due to the mostly R&D efforts over the last couple of years. On the financial expense side, total financial expense, just over EUR 10 million compared to EUR 6.4 million a year ago. The fact of IFRS 16 having the interest-related components of the leases located -- or allocated to the financial expense has the main share in the increase. About EUR 2 million came out of that adjustment. On top of that, we had a little bit of higher debt throughout the year compared to 2018. So that caused the push in the financial increase. Results from associates. Also there, a sizable drop, I would say, from close to EUR 2 million to EUR 0.4 million. Two elements in there. One is, of course, the cable connectivity group. I think I mentioned last year that we did not expect a lot in the remainder of 2019 because of the fact that they have a start-up situation. There are also specific costs in order to get the structure going. But the other part is our share, which we have in the preform joint venture in China. Alexander already explained the market situation in China itself, which caused a lower result in that activity and, therefore, our share of the result has also dropped. The taxes in itself, about 23% effective tax rate. We have been in that kind of bandwidth quite some time. Last year, in 2018 -- and the like-for-like was slightly below that, but I think the range of 23% fits also with the profile we currently have going forward. And then a big ticket is the net profit from discontinued operations. This is probably impact of the divestment in our P&L of last year. It includes, on one side, the net profit which we realized on the industrial connectivity activities from the 1st of January until the 15th of August when the divestment was concluded. And on top of that, and that's the majority of this, almost EUR 39 million, is the book profit out of the transaction which we realized. That brings the net profit in our definition. So the net profit before amortization and one-off income and expenses attributable to the shareholders to a level of EUR 105.3 million where the latest bandwidth, which we communicated, had a range of EUR 102 million to EUR 108 million. On the balance sheet, an increase of total assets. New elements in there, IFRS 16. You can see that the right-of-use assets increased with about EUR 80 million. For the rest, and also to be mentioned here is the assets held for sale, which you see for -- on the asset side for EUR 38.7 million. There are some liabilities on the other side, of course, related to this. And that's mostly related to the divestment of our data cable activities in China. They have been closed in terms of transaction closing early 2020. So at the end of '19, they are reported under assets held for sale. That's on the balance sheet in the P&L. They are fully included in the P&L as a continued operation for 2019. The net debt/EBITDA, 1.5, a little bit similar to the year before, with a net debt of just over EUR 300 million. Our working capital is an important part in the balance sheet and also, of course, in the bank [ covenant ] structure. There's always a discussion when we are at the middle of the year, are we going to achieve our targeted 12% to 15% working capital, 12% to 15% of revenue, that means. We were, at half year, above this bandwidth. We were -- it's above 16% even. But we always refer to you that we are comfortable with the 12% to 15%, and we came back at year-end to 13%, which means a working capital of EUR 193 million. Also important, I think, here is the use of the financial instruments. If you look at our factoring, substantially lower than, for example, at half year, about EUR 12 million and almost EUR 20 million less supply chain finance. Despite less financial instruments, we achieved a substantial improvement in working capital in the second half of the year. That can be seen here in the net debt development as well, a very strong cash flow from operations, EUR 218 million. Of course, throughout the year, we had some bigger tickets in terms of acquisitions, EUR 71 million. And of course, if you look at our investments, the CapEx programs, EUR 30 million in tangible assets. That's EUR 10 million lower than it was in 2018. This is also the kind of reference when we talk about CapEx programs for 2020. The similar applies to the intangibles. So we ended up with a net debt, which is EUR 26 million lower than it was at the start of the year. The inflow of the EUR 83 million related to the divestment is also obvious. Here, the free cash flow comparison. I don't want to go through each line item, but we have free cash flow in 2019 of about EUR 104 million. That's a EBITDA free cash flow conversion of 50%. EUR 90 million was realized in the second half of the year. So we have that pattern a little bit in the last couple of years that the second half really adjusts this part. Then if I move to the outlook. Obviously, there are certain uncertainties which we are facing. Alexander already mentioned the COVID-19. We already put some figures to our exposure in certain markets. Of course, currently, we don't see too much impact. Indeed, our operations are back in operation to the level of close to 90% of where we had been before the outbreak of COVID-19 in China. We have seen that logistics in the country is back on its feet. There is transport, there is container movement. And of course, not everything is as efficient maybe and as smooth as it was, let's say, 2 months ago, but we see big steps coming to a normal situation. So there's a little bit more cost related to that, but nothing of a clear material signs. But that's today's situation. We don't know exactly how things will develop. So -- but not yet defined impact is something we have to take into account. We talked about as well the developments with regards to nitrogen and the PFAS in the Netherlands, specifically. And of course, trade barriers, we've seen movements there in the last couple of months. These are the kind of disclaimers when we talk about the outlook for 2020. Telecom. Mostly driven, of course, by the fiber optic networks. The market in Europe is expected to further grow for fiber optic networks. We have a strong position. And of course, with the additional capacity, which we have as well, we see that we have a possibility to achieve further growth. And that will, of course, be in Europe. Our business model is geared towards the European markets. The overcapacity in China, which is really sizable, we have not yet seen in the sense that it deteriorates our business model. But of course, with overcapacity going international, if I formulate it like that, it's always a risk that it can put further pressure on pricing and on some components like optical fiber itself. We have seen, in the last couple of quarters, a big drop in pricing itself of the individual components. But we expect that with our business structure, not only cable but connectivity elements, et cetera, we're able to offset potential market pressure. In Building Solutions, Machine Vision, already addressed a bit in the earlier part of the presentation. There's still reluctance to invest by some of the producers in the consumer electronic industry and the automotive sector. Despite that, growth is expected. We have new portfolio, and of course, also the acquisitions, which we have added to the group in 2019, will create an upside there. Parking. We see more larger size projects in the pipeline. We didn't have that really in 2019. So that's a plus in general. Within the Marine & Offshore segment, I think Alexander already extensively explained the situation in the subsea cabling systems where the order book and order intake is more and more promising and that we are able to increase the utilization rate. And that, of course, helps the result clearly. Tunnel & Infra. There, the demand from the energy sector for cabling system is ongoing. Good growth. We have seen that also in 2019, and that is going to continue. Also, with AGL and the share of CEDD in our AGL activities, the airfield ground lighting systems, that is further to take off and to grow in 2020. For the rest, I think we mentioned already the whole range of specific action programs as part of the Simplify & Accelerate program. And that, of course, will lead also to some further efficiencies and cost benefits in 2020. In Industrial Solutions, the machine builders, especially in Germany as well as the robot industry, there we still see reluctance for further investment. It's not an easy market in Germany, I would say, also because of the importance the automotive sector plays in that particular country. For the industrial connectivity, which we still have some, of course, in our Industrial Solutions, we did not divest everything, of course. The specialty end is what we have, but they are very much related to also the robot and the machine builders based in Germany. Also, we'll have some headwind there. But we are also reducing the portfolio in order to minimize some of the impact. Tire Building. The order intake decreased in the second half 2019. The reluctance to invest in the automotive sector is basically the base for that. And as a result, we expect a decline in both turnover and result in this particular segment. And of course, we'll do our best to give you a more specific update at the half year results presentation. So far, the presentation from our side. I think we can open up for Q&A. Martijn?

Martijn den Drijver, ABN AMRO. To start off with your tire manufacturing activities, you mentioned an expected decline in sales and results for 2020. Understandable. But I also heard you say, Alexander, maybe for the next year or years. Can you clarify what you mean? Or should we expect stabilization or even a slight decline for tire manufacturing not only for 2020, but also 2021? And related to that, if tire manufacturing is indeed stabilizing or showing a slight decline in sales, what does that mean given the importance of tire manufacturing in your overall vertical portfolio for your medium-term outlook? That would be question one. Should we do them one by one?

Yes, perhaps, good. Because I don't write the questions [ on the revenues ]. Yes, we -- it is difficult to already look now at 2021. We have a lot of opportunities also with the UNIXX that if everything runs smooth, then we have to set the FAT organized by mid this year. Yes, we know that there's a lot of interest for investments there. And that is a lot of compensation power which also addresses a market and, especially, the fact that you see units for manufacturing getting more and more close to the end customers. And that's a big advantage of the UNIXX concept. So yes, there are a lot of opportunities also. I believe we should not be too optimistic about the automotive sector that, that will be in a much better situation in 2021. But yes, still, we see a lot of opportunities that we are not yet, let's say, pessimistic for 2021. We have seen in 2009 that it took only 6 months before there was, again, a step up in the investment levels. And we are, of course, very closely in contact with many of our customers to explain them that it's not a good situation to postpone your orders for a longer time of period because there's so much to earn with our equipment by replacing existing equipment and not just looking at the growth of the market. And that is a process that is also going on. I cannot say that we are already having all the feedback, and all the progress is already in there, that we foresee that could come in with more investment for 2021. So we -- for sure, it will be a lower order intake this year than last year. I believe that is already what we can say. But for 2021, I believe it will be too pessimistic now to say that it will continue on the level of 2020.

And maybe then just to follow-up on the UNIXX. If you have your first customer now starting to test the UNIXX -- maybe I should rephrase. How many other global top 20, global top 5 are going to test the UNIXX in the course of 2020? Because that gives us some kind of indication of what we could expect potentially in 2021 from UNIXX.

Yes, it's difficult to disclose that. And what we also have to understand, it's not just testing. It is ramping up a manufacturing according to the specifications that we have set for the UNIXX. And that goes beyond testing because what we see is that also the certification that you need for tires are being organized. And so the testing is what we did in our plant when we had built the first prototype. This is a complete different phase we are in. And once we have seen that we meet all the specifications in the FAT, then we can roll this out. And it's not just a matter of testing anymore. It is proven technology then. And that makes it easier to sell. And what I also mentioned is that it's now -- not all in the complete UNIXX, the sales opportunity. The units, the modules have a huge advantage. And what we can see is that other players in the industry can already, in a very smooth way, introduce themselves with this new UNIXX technology. And that's a different situation compared to perhaps the ASML situation where you -- where they were not able to sell modules. We are in a very big advantage there that we can sell these modules. And that ramp-up will already start also further during 2020.

Okay. And then final on tire tech -- tire manufacturing. You've obviously increased capacity through your unit in Poland. That was based on the assumption that you would see material growth in 2021 and afterwards. The hearsay is though, that's not going to realize -- be realized in 2020, who knows about 2021? What does that mean for operational leverage because those costs are in your P&L?

Yes, what we see is that we also build that plant for reducing the FX cost in the Netherlands, and so that program runs further. So we are reducing the flex cost of labor in the Netherlands and move that capacity to Poland. So the utilization is still quite high there. And we are perhaps a little bit more underutilized in the Netherlands at this moment. But that helps, of course, the efficiency -- the cost efficiency that we have in the group. So with a lower turnover, we have better cost efficiency.

Maybe to add one. Another feature there as well that we mentioned a little bit about trade barriers. We have seen the China -- portfolio come out of China has had restrictions in some parts of the world. Being -- having the possibility of, let's say, using our facilities in Europe to, let's say, assist in this equation has helped us and will help us going forward.

Okay. Moving on to Building Solutions. Could you maybe help us out with the losses of AGL in subsea in 2019, just to give us a better feel of how that unit performed?

In the past, we have always been talking about start-up costs. I mean it's not really start-up costs anymore because the [ learning ] effects are not there in the sense that we have moved on to a kind of stable process. It's all about capacity utilization. That's mostly on, of course, the subsea part. But for the 2 portfolios, subsea and the CEDD technology, we roughly had about EUR 8 million to take costs ahead of the benefits.

Okay. And then a follow-up on that. You mentioned that the results will improve of those 2 activities in 2020. Should we then expect breakeven or even profitability? Or would that be a too positive assumption?

We'll be close or at the level of breakeven as -- for this year.

Okay. And the final one on Parking. You mentioned no large projects or fewer. But I do recall that at the semiannual results, you said, "We've had a number of large projects that did not start-up, that we're going to start-up in the second half." So I can't reconcile those 2 remarks. Can you provide a bit more color on what happened? Because these statements seem a bit contradictory.

Yes. It's also a matter of definition of what was a big project. So we had in the second half year a few projects of EUR 1 million to EUR 2.5 million. But the year before, we had some really big projects. And that is a sizable project already, about EUR 1 million to EUR 2.5 million. But the year before, we had, for instance, Disneyland. It was a project of EUR 6 million to EUR 7 million. And what we are now looking for is projects between EUR 5 million and EUR 10 million, that did not -- that were not ordered or not realized in 2019, but that will be realized in 2020.

Peter Olofsen of Kepler Cheuvreux. Maybe first a question on the outlook where you see growth in different areas in Telecom and in Building, but then declines in Industrial. Can you give some indication how that will play out at the group level? Will the growth within 2 segments be sufficient to drive growth for the group?

This is very good question, but then we should have perhaps given a specific outlook for the whole year already. So yes, we cannot give you, let's say, that support at this moment. It's too early to give that support. But yes, we will guide you with the market update where we will move during the year.

Okay. And then maybe on Machine Vision and then especially the consumer electronics and 5G side of the business where you sound rather bullish, I would say, especially if you compare it with statements by your peer in North America. So the question I have is what visibility do you basically have that these investments around 5G will actually come in, in 2020? Also, because many of the smartphone supply chains are actually in China, so the supply chains are affected, but also the sales of smartphones is affected. So what visibility and -- do you really have there?

The visibility is really a very short view. That -- the only good visibility that we have is that we know where we are selected for new applications in the manufacturing process, but that is not yet a guarantee that in the end, our end customer will do the investment. And -- but we know that for -- if our end customers want to move into the smartphone 5G business, then they have to do these investments. There's no way out anymore now. But to get already an order for the coming 12 months is not done. So we have a visibility of about, I would say, 3 months. We also need to be able to supply very quick. Sometimes we need to supply within 4 weeks already, and it's a very -- that's a big variation that we see in the orders that come in. So we have organized ourselves there. And yes, the main visibility is that we know exactly what in the end, how many new systems do they need to manufacture the number of products and, yes, what that means for us, so we can make a budget for a year. And I believe that budget is a kind of realistic budget. And yes -- and the proof is in Q4 that we see that the need is there for the new technology and that is not any longer a dream. And it's quite early because there are hardly any 5G networks already in place. But what you see is it's a driver of innovation. People that want to buy a smartphone want to have the latest technologies. So it's an opportunity to really have a prepared smartphone for 5G. What we see in China is that Foxconn has started it. There was an official announcement that they started manufacturing again. That could be an issue. There are more companies, of course, that manufacture, and it's especially the system integrators that then have to deliver the new equipment to the manufacturers of the smartphones like Foxconn. So there is a kind of lack in, let's say, the start-up of Foxconn and then, of course, the system integrators that can supply the new equipment. But today, it looks quite positive in respect of the opportunity like we guided for in the outlook.

Right. And then just to be clear, the -- is it then companies like Foxconn who decide which technology or which vision...

No, no, no. That's the end customer and the owner of the technology, and that's the, yes, smartphone companies that -- they decide to be in control of the inspection, the way it is during the manufacturing process inspected.

Maybe just one additional point. We talk about -- you mentioned China manufacturing there, et cetera. I think one of the effects, at least when I talk to the people which we have in China, is that if you look at the telecom sector right now, I mean every -- the schools in China are closed. Universities are closed until the end of May. Primary schools, et cetera, kindergarten, they're all working with webcast programs and all kinds of different, let's say, smart working type elements. There is a strong belief that a lot of that will stay. It will not go back to how it had been. Some of the new smart ways of communication, working, et cetera, will stay to a certain extent. And that will be driven by the Chinese government in a, I would say, I don't want to say, fast-track or speed-it-up program for 5G rollout. There is 5G in China already. In the major cities, you already have some of the networks. And it's very well-planned for. And again, I mean, it's what I hear, that there is a big expectation inside the market that 5G is one of the next steps as a result of the events of the last couple of months as a push in this particular market. And that, in the end, would also drive then people moving towards 5G devices. That will help, of course, the manufacturing in the end.

Okay. And then my final question is a follow-up on my earlier question on the Tire Building business where you already indicated in November with the trading update that you were seeing a lower order intake. So the outlook for Tire Building in 2020, as you see it today, is that materially different from what you saw in November? Or has that outlook continued to weaken over the last couple of months?

No, I wouldn't say that. It is in line with what we indicated in November and what we already saw signs in August last year.

Tijs Hollestelle, ING. Yes, I've got a couple of remarks about, what is it, the slide with the growth verticals, which is, in my view, quite important for the investment case of TKH. We see the revenue development on -- in the table and on the right-hand side, a lot of comments on the developments. But yes, I think it would be quite helpful if we also got specific information about how much the M&A contributed to the different verticals because it's quite difficult for us to see what the underlying movements are. You did, I think, 4 acquisitions, which contributed almost EUR 60 million to the revenue, and all of that is in the Building division. Yes, but then the breakdown per Parking, Tunnel & Infra, would be quite helpful because, otherwise, we cannot see the underlying development of the business. Do you agree with me?

I guided, I believe, a lot more specific where the organic growth was within the Machine Vision vertical. I mentioned the 10% decrease in organic growth. And -- but if you need more support, we can see if we can give some more support there to get the facts in the right way together.

And for instance, the delta in subsea revenue from '18 to '19, how much additional revenue you got in '19?

From subsea?

Yes.

No, subsea was a decrease of turnover. And I believe there was a delta of around EUR 15 million in subsea.

And spread over first half and second half?

Let's say, the half-and-half -- let's say, EUR 12 million in the first half and EUR 3 million in the second half.

Yes. I hope that you see my point here because it's very difficult to see what it is doing.

Yes, yes, yes.

And otherwise -- I mean, yes, people are checking up whether these growth verticals, which all the capital being allocated, are indeed performing. And if we don't have a clear picture of that, then it's all based on comments. And I see most of your comments are positive about the potential higher or bigger addressable markets, but underlying, it is going down, if you ask me. And then I also cannot really see how much of the acquired revenue is spread out over these verticals.

Anyhow, 2020 will be easier then.

Yes. But you probably will make more acquisitions. So then I have to say probably...

Yes, the size of acquisitions will not be big in 2020. And yes, the substance of the turnover in these verticals will be anyhow higher because of the organic growth that we foresee there. So it'll be a complete different year, 2020, than 2019 there. And yes, we have a very strong basis to be able to say that. And partly the Q4 made that move already, and the Q4 was a quite good quarter for the verticals. So if we would completely have to start from scratch at the 1st of January this year, we would have given a different outlook. And I can assure you that we want to positively surprise this year compared to last year.

And also the -- for each acquisition, we disclosed, of course, the revenue which they bring. And obviously, I think if you look at acquisitions which we did this year, it's quite clear where they are located, with ParkEyes being in Parking and the others basically in Vision. I think that's too big of a hassle to get your model organized for this, but we'll take it with us going forward.

Yes. Okay. And then another question about the result from associates. You explained the decline year-over-year. And if I understand correctly, the first disposal of the industrial connectivity session, you still have a 25% stake in there. So that profit is showing up in this line item going forward?

No. We have more than 40% share. Because it basically contains 2 items -- 2 main items. One is the share which we have in the divested industrial connectivity activities, which we did in 2019, that's more than 40%. As I mentioned, I mean, they have a start-up, basically, in the last 4 months of 2019. There's a little extra cost in getting the transaction organized and getting going. So there's hardly any contribution coming from that. And secondly, is the share which we have, the 12.5% share in the preform manufacturing joint venture with Shin-Etsu in China. And there, we have seen that, because of the market situation in 2019 with a lower pricing, et cetera, that activity has had less return. And that's basically the delta of the EUR 1.9 million coming out of EUR 18 million to the EUR 400,000 benefit in 2020.

And because the -- indeed, the question is about you know that business quite well because it's been part of TKH for many years. So what is the expected profitability of that business -- of that stake, more or less, because...

Well, I mean -- as a -- of course, we are not giving any guidance for, let's say, an external party. But maybe the best help I can give you is that if you look at the total impact of the performance of the company from, let's say, the 1st of January until the date of closing, which was 15th of January, it's about EUR 6.3 million in net profit. That's for that time frame. And of course, we believe that in this new structure, where we take share in that particular venture, that benefits will be higher than what it is that we had when they would be on our books. So that it gives you a reference what potential on annual basis is there.

Yes, okay. And to close up with a compliment. You are including, indeed, the payment of the lease liabilities in your free cash flow...

Thank you.

So that's sweet. Not everybody is doing that yet.

Mike Roeg, Degroof Petercam. Okay. I also start with a compliment. Thank you for reinstating some kind of update, Q1/Q3. Now on to questions on the business. First, on subsea. You mentioned you had production in Q4, and there will be a [ till ] in Q1. Is that correct? Is that roughly similar?

Even Q2, and there's another project coming in, so we are already set for up to Q3.

Okay. So basically, the first contract that you executed in Q4 2020, you will have more sales from that than last year?

Yes, absolutely. Yes.

And the second contract, is that a firm contract or a letter of intent?

It's a signed contract, yes. It was a letter of intent last year. And today, it's a signed contract.

Okay. So that will help you from those EUR 8 million utilization costs to close to breakeven for subsea and CEDD?

Not yet completely. We need, for Q4, additional business. And that looks quite good that we will get that.

Okay. In that view, considering the fact that this is such a lumpy business and also very capital-intense, would it make sense for you to issue press releases on this type of contracts, which are very different from most of your other business? Because that would give investors quite some good view on where things are heading for that particular business.

Yes, yes. One of the reasons is the market update that we can use for that instead of having for every contract and press release. But if it's in a window that it's taking too long time, we might also use in between press release. But the market update is especially related to that. And not only for subsea, but also for other areas where we are, let's say, making good progress for bigger projects. And then, yes, it is a big building stone. These are building stones for the traction we want to have for the organic growth in these verticals that Tijs just addressed.

And then my question on CEDD product. Do we have firm contracts for that for execution in 2020?

Yes. It's -- we don't have them in the order book in respect of the CEDD technology. We have some interesting contracts already in the order book received last year and it looks good for this year for the LED lighting, the AGL lights, and we are very well-positioned for some bigger CEDD projects. But the contract has not been signed yet. But we are close to, yes, opportunities to sign contracts. So we have -- it's already long phase than that you have went through because their lead times are really long there, lead times of up to 12 months. And -- but yes, we have not started since 1st of January. We have started already several years ago, and we are getting more and more traction there.

Okay. And once you sign a contract, what would be the time frame for delivery? Is that a couple of months?

Could be very short. And we know the pressure of -- in some of these contracts for performance of the contractor that they are on deadlines and these deadlines are very close by. And so we have to be prepared to even deliver within 1 month already, a substantial part of these contracts.

Good. Yes, then sort of a follow-up on the question of Peter. If I look at the 3 divisions, 2 are -- will be in organic growth mode this year. Together, they are 57% of your group adjusted operating profit. On top of that will be some profits from companies acquired but not yet fully consolidated and your simplification benefits. So looking at just the 2 divisions, that will be quite some strong potential for growth.

Yes.

The other one is actually the Vision in decline. Your visibility there is actually best given the backlog.

Yes.

Is it why you don't want to commit to being the balance of the 3?

No. It's just that we have never done that at this stage of the year, and we want to continue with that. That's the only reason.

Also, small footnote to remember that, of course, the data cable business is no longer part of the, let's say, profit line 2020. So that's a delta of minus EUR 5 million on EBITA level.

Yes. Martijn den Drijver again, ABN AMRO. On Parking, large projects, either in the funnel or in the order book. However, what's happening now is that foot traffic in malls, in Disneyland, in airports is going to come down, undoubtedly. So my question is, you may have it in your order book, but how certain can we really be that you're going to be able to execute those? That would be one. And then you mentioned that some of the revenues from the acquisitions in Machine Vision have been allocated to Tunnel & Infra. Does that mean that all of the revenues of Tattile, which is the unit within Lakesight, have been allocated to Machine Vision? Or is it just a revenue line between -- of Tattile. And if so, maybe in line with what Tijs has said, a bit of guidance, color on what that is? And then the third one. Okay. CEDD, no firm contract yet. Looking positively, but if you do get an order in and you start production, I can imagine that volumes will be relatively low, so maybe not suboptimal. Can we expect a profit from CEDD if you start production from such a new project -- product, excuse me?

I'll do the Machine Vision revenue allocation. Tattile is indeed the acquisition part of the Lakesight group in Q4 2018. At that time, we also have disclosed that their activities, specifically Tattile, within the Lakesight group belong to the Tunnel & Infra part. And roughly, total revenue is close to about EUR 20 million.

And the last question is, yes, the profitability book. I mean directly when we have activities in the CEDD technology.

So -- and first, follow-up on Tattile. Margins of Tattile in line with the overall Machine Vision group?

Yes. And your first question about Parking. Basically, you talked about a kind of reduction of traffic flow in the parking garages. I would say that's an ideal moment to install new technology.

Hope it's not a strategy. To follow-up on the verticals on Lakesight. Just to make sure, there was a EUR 56 million contribution from acquisitions to the sales in '19. All of that was in the verticals? So all the Lakesight's revenues were in the different verticals?

Not all the different verticals, but they are -- all the revenue of Lakesight is in the verticals, and then everything basically is in Machine Vision except for the contribution of Tattile, which is Tunnel & Infra.

Okay. So if I then look at the growth verticals, there was a EUR 45 million decrease in revenues? There was a EUR 56 million contribution on M&A. So organically, it was down like EUR 11 million, EUR 12 million?

1.9%. It's about the same.

And the 1.9% is for the group?

Yes. At a vertical level, it's about the same, yes.

Okay. No questions anymore? Then I'd like to thank you. And Tijs' remark about the verticals, it's not only coming from you. We are willing to support and to give you transparency of how that is allocated in the verticals. There's no objection to do that, okay? Thanks again for your attendance, for also the audience in the webcast. And we will come back to you with our market update beginning of May, have our annual meeting in May also and come back with you with the half year figures. And hope we can show -- and but we just heard that hope is no strategy. We will show good results in the first half year. Thank you for your attention and being here also.

Thank you.