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

Good morning, everyone, here, especially in the room in the tech -- in Amsterdam. I'm very happy to see physical attendance again, and also a very warm welcome to the audience in the webcast. It is an important day for TKH of course to present the annual results. We can be proud on what has been achieved. But on the other side, our thoughts are with all the people in the Ukraine, which are in a horrible situation there and also our thoughts are with our 128 employees that we have in the Ukraine. So to be positive again is not so easy, but again we are proud on the results. We have seen good developments during 2021. The Capital Market Day on the 17th of November was a very important milestone for TKH and we see here briefly the profile. I'm not going to walk you in detail through the profile. But what is also important that we have a very strong house, strong foundation, strong building stones to support the new targets that we have set at the Capital Market Day. We are related to very strong megatrends. The energy transformation -- transition, digitalization, safety and security and especially also automation are the building stones for the megatrends where we are related to and that makes life a lot easier to organize high organic growth. So here we can see the targets -- the key targets especially turnover of course with a target of EUR 2 billion needs to be supported with strong organic growth in the coming years. 2021 showed a very strong organic growth where of course the reference base made it a little bit easier with 2020 where we were full impacted by COVID. Return on sales developed quite well last year, about 2 percent points higher than the year before and an ambitious target of 17% where we really believe that we will make major steps in the coming years to achieve that target. And that's also an important reference to the transformation we have went through in the past decade, I would say, to have the focus on our technologies. Disruptive technologies is through which we are able to gain market share, but also to achieve higher and higher gross margins and that translates with a good cost efficiency and to a much higher return on sales. Return on capital employed, a very big step compared to 2020. We came from 14%. We are almost in the bracket of the 20% to 25% and we are also quite comfortable that we will achieve that target. I'm not going to walk through all the details. I come back to the bridge, how we grow our return on sales and we are not depending on 1 success factor. There are more success factors that we can play with and which will support the growth of the return on sales. Especially the scale effect due to the organic growth is an important support to grow the return on sales. Innovations, we still have a few innovations in our portfolio that are not or only small contributing to the result. And we see very good progress there within these areas and that gives also a lot of confidence that we will be able to achieve this 2% additional return on sales from innovations. And then we still focus on the portfolio management, continue to focus on higher return on sales, but especially also higher gross margin and in that respect, we also have a target for a few other divestments. The investment program ran quite well in the past years. We made very good progress and that led also to more power in the organization to focus on the things that -- where we can create more added value and more value creation for the company. Then I go to the highlights 2021. First of all, we can see that the second half year was better than the first half year. The first half year 2021, we still saw a quite big impact in the first quarter where we had relatively low return on sales and that recovered very well in the second quarter, continuing in the third and fourth quarter, but that had still a negative effect in the first half year. We saw very strong increase in all segments so that is also good and that we are betting on the right horses with the technologies that we have. But it's also important, and that is the last bullet, that we will further invest in TKH. We have seen such a strong increase in demand that we also need to further add capacity and we are looking at an investment program worth more than EUR 100 million. We will be more specific in the coming months about what exactly it will be, but it will be certainly related to subsea and fiber optic and fiber optic is related to the effects of also the import duties where we need to have a stronger manufacturing base here in Europe to absorb the impact of the import duties. And we are preparing and quite far to be able to announce that in the coming weeks or months. Then we go to the segments, new segments. The important aspect of the Capital Market Day that we presented a new segmentation. Perhaps a few of you were surprised that we already presented for the whole year our focus on the technology segments although you can also still see the segmentation in the 3 solution areas. But it went well in let's say also the transformation in the group in different reporting structure and this is the future. So we thought this would be the best way in presenting and also to look forward in the coming years and especially of course 2022 to guide you in the right direction. We had a record high order book and also record high order intake of EUR 1.8 billion, which is really substantially higher than the years before and this moving in the direction of the EUR 2 billion, which we believe is not really a stretched target. The order intake is not only related to 2022 so we cannot directly say then that the turnover will be EUR 1.8 billion in 2022, but it gives a very good perspective for growth. And again all the 3 divisions show very good growth of the order book. Machine Vision, plus 91%. We saw very good development especially in the 3D area where we are a market leader. We built further on this market leadership with new technologies and especially the confocal technology was a very well technology related to the consumer electronic industry where we saw also substantial growth. The innovations really developed well. We have a quite nice and unique positioning with our Alvium portfolio. This is a camera with an ASIC and in this camera you don't need FPGAs and FPGAs are one of those components that are really scarce. So we see that we are able at this moment especially within 2D vision that we gain market share because of all the issues with component shortages in the Machine Vision business. Also the video communication, our mission critical communication related to also video communication, did really well. And traffic monitoring also started to pick up again with some interesting projects that we have, 1 major project in Greece, and traffic enforcement is today and traffic monitoring is really a key for future development of the whole traffic system. Low lights here were the parking garages where we saw that the demand was still relatively low although some bright spot was that the fact that the airports in the U.S. started again in preparing for investments also supported with governmental programs, investment programs. And so we are more positive for this year that we will also see in the parking garage environment with our vision technology guiding systems also a pickup of demand and also turnover. Then I go to the Manufacturing Systems. It was unbelievable how fast we saw the order book increasing the order intake really in a disruptive way. A very difficult situation still in Q1 and really amazing what all the people in our group did to work on this additional demand and how they did a kind of 180-degree turnaround to cope with the demand. Of course delivery times are longer today than they were 1 year ago, but we serve customers very well. And with an order intake for the whole year more than EUR 400 million in the Tire Building is a new record and I'm just mentioning this figure also with respect to the bandwidth that we had previously in the vertical markets that we are really on the way to get to the bandwidth and that we have not given up, let's say, all the targets that we had in the vertical markets although the vertical markets will not be a reporting -- part of the reporting structure anymore. UNIXX is making good progress and especially with the modules that we are selling. I have to remind you about that that it's not only the whole UNIXX platform, but some delay to COVID. And we hope that we will be able to take off in 2022 with further sales of complete UNIXX systems where we see that there's really, really a lot of interest from the industry to work with this UNIXX platform. Also very good was the growth in the care market with our INDIVION. Very nice order intake from the U.S., big projects which confirm that we also have a fantastic technology there in our hands, disruptive technology to grow our market share in that market and that is really exciting to see that we are running really on all cylinders in this segment. Then we go to Connectivity Systems, also very high organic growth driven by actually all segments in this technology segment for TKH. Especially the energy transition is asking for a lot of additional capacity and demand not only in the offshore wind industry, but especially also for the onshore business with doubling and even tripling demand in the coming years. It's really exciting to be positioned there with the right technologies and also the right timing for our capacity expansions in the past few years. We are ready for our next phase of capacity expansion and this segment is really contributing in the right way for TKH. We had a substantial improvement there of the profitability of the subsea activities because of a much better utilization of that capacity than in the years before. And also the order book for this year is looking quite well with a potential higher -- again higher turnover and better utilization compared to last year. Then we go to digitalization, which is the fiber optic activities, very high organic growth and we have to take into account there that the volume was even higher. The volume increase compared to the turnover increase because of the fact that fiber prices were relatively low in the year 2021 with improved price levels in the second half year because of the impact of the import duties, the antidumping measures that came in. And the trends are really positive for the further digitalization throughout Europe, which is our main market Europe, and we are again very well positioned there also with additional technologies beyond the cable and the connectivity that you need to connect the cable with the automatic system of patching the cables in the nodes of the network. And last, but not least, automation is really key. We saw that very high investments in the robot industry and we are positioned there with our niche activities, very specialized connectivity systems with very high margins. And also there we saw substantial growth, especially in the profitability. That's all for my part. Thank you for your attention. And I'd like to hand over to Elling de Lange.

Good morning, everyone. Thank you, Alexander. In the next couple of sheets I will walk you through the financials of 2021. First of all as usual, we look at the geographical distribution of the revenue. Not too much change. Europe remains the center of our main activities, the Netherlands with 22% of revenue, 45% in the surrounding countries in Europe. Asia is stable at 19% and North America around 11%. So not too much change, just a little bit of shift from the Netherlands to the countries surrounding us. I walk with you through the P&L structure basically. So if I talk about the top line highlights. Alexander briefly explained already the organic growth for the full year the 15.9%. That relates to just over EUR 200 million in revenue increase. Important to mention here is the raw material prices. The raw material pricing here refers to the copper and aluminum impact, which we had mostly related to our connectivity portfolio of course. In total, 2.6% revenue increase due to these increased pricings. Hardly any differences as a result of the acquisitions and divestments. They were minor coming out of the previous year so that is not a big topic at all in '21. Also here is of course the added value in itself, the 48.3% compared to the 49.2%, slightly lower, a little bit to do with the product mix. We have seen that connectivity systems has increased nicely within the overall revenue structure. That has some impact on the added value. And secondly, of course the increase of raw material pricing also has an impact on the added value in the sense that of course we are able pretty well to pass on the raw material effects to our final customers. But by the fact that you have increased cost of goods sold without an additional margin on the raw material price increases going into your top line, it means it has a small impact on the percentage of added value. Of course and it has been a hot topic also in the previous sessions we had last year, supply chain issues. We have seen that pretty much in line with what we estimated in the summer of last year that EUR 20 million to EUR 30 million of revenue could not actually be supplied to our customers due to supply chain constraints. And that is something where of course we have taken all kinds of mitigation steps, increased stock levels, we have in some cases redesigned our portfolio in order to use different raw materials or different components in our proposition and of course we have been looking around at alternative supply base as well. So a whole range and in the end, I must say the EUR 20 million to EUR 30 million has not been too bad and I think more importantly, it did not deviate too much from what we estimated at the middle of last year when we communicated about the same figure. Of course this topic is still there, it's not completely solved. Definitely there are some issues also this year, which we have to handle. Looking at the operating expenses, EUR 547 million. It's basically the same figure as we had in 2019. So exactly the same OpEx as 2019, but of course the revenue base is higher than we had in '19 itself. It leads to just below 36% of OpEx cost as a percentage of revenue and that's nicely down compared of course to the 38.7% in 2020. That leads to an EBITDA of almost EUR 190 million, almost 40% up compared to the previous year going to a return on sales of 12.4%. I think a nice performance and a good development and a strong rebound out of the, call it, COVID area. Of course I don't want to say that everything is over in that respect, but looking at least on the historical impact so far, most has been behind us I hope. On the chart here as well is the R&D expenditure. R&D expense EUR 64 million, a few million higher than the previous year. The percentage of R&D expense as revenue you'll see that here in the line going down a little bit is 4.2%. It has more to do with the fact that top line has increased more substantially than the R&D expense itself. Capitalization of R&D, EUR 35 million out of the EUR 64 million expense, exactly the same amount as in prior year so no delta there. If I look at the items below the EBIT line going to the net profit level. We didn't have any one-offs on any specific restructuring measures or things like that. We did some of course in 2020, but last year we did not take any one-offs. So from that point of view, it's a pretty clean operation in terms of the P&L performance. If you look at our amortization charges at EUR 51 million lower than in 2020. We see that some of the PPAs of the acquisitions done in the past are phasing out. And out of the EUR 51 million, about EUR 25 million is related to amortization of R&D expense, more or less in line with what we have seen -- slightly up, but more or less in line with 2020. Impairments, some portfolio elements in here where some R&D costs for example had to be written off our portfolio, which in the end doesn't make it to the stages where we would like them to have. But with EUR 1.6 million on an overall portfolio is pretty low and fairly acceptable. Then on the financial expenses and the financial result itself, we have less debt during the year so less financial charges and also we have seen that the foreign exchange impact was not as severe as we had seen in 2020. So from that point of view, positive delta of just over EUR 2 million. The share in the results of associates, this is mostly coming from the large minority stake we still have in the CCG, Cable Connectivity Group. Their performance was much better in '21 than also in 2020. So from that point of view, we see here the contribution coming for a large part out of that structure. Then if you look at our tax rate, slightly up just over 26%, prior year 25.4%. We see that we generate profits in higher tax rate countries. We've been talking about France for example, an area where we have seen nice growth goes also with a higher tax rate. I think if you look at the structure where we are currently, of course we have talked in the past quite a bit that if you look at our impact or the benefit we can get from what we call in the Netherlands the innovation box, a specific Dutch tax scheme, that of course with the ongoing improvement of the results in our Tire Building activities, that also there some more benefit will come. But I would guide you for a level of 25% to 26% for 2022. This leads to a net profit of EUR 95 million, doubling of the result of 2020. And if you look at the net profit before amortization and one-offs attributable to the shareholders, we're talking about EUR 113.9 million, 62% up compared to a year ago and well above the bandwidth which we have communicated as the outlook, EUR 106 million to EUR 112 million so almost EUR 2 million above that level. Looking at our balance sheet, EUR 1.7 billion in total. I'll just take a few items of the balance sheet to give some further focus on. We talked about supply chain issues. We talked about hiccups in component delivery, et cetera. Of course the mitigation steps we have taken has also been to increase stock levels. And if you look at the line inventories on the balance sheet, we came from EUR 236 million at the end of 2020 moving up to EUR 295 million. A substantial increase and by far the majority, more than EUR 50 million more or less, out of that delta is in raw materials. So let's say not in finished goods, but in the earlier stages of, call it, our processes to transform components and raw materials into a final product. At the same time, I think it's also worth to mention that if you look at our construction contracts, this is basically to put it very simple the work in progress on our projects, and you have to look at the contract assets in relation to the contract liabilities and you see that the delta has been in our favor quite a bit. On balance, we had EUR 23 million on contract assets at the end of 2021 compared to EUR 50 million the prior year. So there's a EUR 27 million improvement coming out of how we finance our work in progress. So on one side we boost the, let's say, inventories to hedge against the supply chain issues and also anticipate on the growth which we have seen of course with the increased order book. And we do this partly by, let's say, having a better performance on the funding for our work in progress and at the same time, I think you might recall that quite a bit of our business where we have order intake coming in, also down payments are part of the equation. So with an increased order intake, we have also seen that the down payment inflow has increased. All these pluses and minuses gives us the opportunity to get to a working capital of just over 10%, 10.1%. That's low. That's below our bandwidth of 12% to 15%. But by using the business model as we have, we have been able to generate sufficient capabilities in our balance sheet to also anticipate for, as I said, let's say the supply chain issues and the increased level of activity by still having the low level of working capital. This also leads to a net debt of EUR 205 million with a leverage of 0.9, well below the level of 2 which we have been communicating before as a kind of target. The working capital here, I will take 1 or 2 examples in here, but of course the main elements I have discussed. I only want to highlight here that some part of the inventory increase has come from the price increases of raw materials itself. So about EUR 10 million of the inventory increase is coming out of the price increases of some of the elements in there. We have been using some of the financial instruments as factoring and supply chain as we had done in the past with -- especially on the nonrecourse factoring, basically no delta compared to previous periods. On the supply chain, we have been using a little bit more than we had in 2020. And mind you, it's not that the whole delta between last year and the prior year is the direct impact on working capital because you always have a payment term with your suppliers whether it's 45 or 60 days and if it's extended to 90 or even 120 days, that's the delta basically which has its effect. In 2020 we also had still some taxes, which were deferred coming out of this whole COVID period, amounting to about EUR 22 million. That had been fully settled as well and is no longer part of the liabilities anymore. As I said, the net debt following the nice trend as in the working capital. We have been able to generate cash flow from operations of a level of about EUR 240 million. Of course there has been some interest, we paid tax at a level of EUR 33 million. The net investments in plant, property and equipment just over EUR 30 million. The investments in intangibles about EUR 40 million. The dividend we paid last year of EUR 41 million. And then some of the other items including the finalization of the share buyback, which we initiated at the end of 2020, but completed in '21. So this all leads to a net debt of just over EUR 200 million and is at a good level as far as I'm concerned. Looking at the free cash flow and especially the EBITDA conversion, we're at 50%. Little bit in line roughly with the last couple of years. What is maybe a little bit different this year is that we have been more balanced in the sense that H1 and H2 are more or less in line put it roughly as in a conversion rate. Previously we have seen the second half having a much higher delta than the first half. But what's also interesting I think to see here is if you look at the lines of capital expenditure of tangibles and intangibles, in the last 3 years we have been basically very stable. We have been very flat and we run at a level. Depreciation for example on our tangibles excluding the right-of-use assets is EUR 30 million and that's basically exactly in line for a couple of years now with the investments we are doing. Alexander already mentioned based on the positions we have in the market, the higher intake and the opportunities which we have with our technologies; we need to expand further capacity to a level which goes beyond the running rate of the last couple of years. And that's also what we highlighted in the Capital Markets Day where we guided for a similar level of CapEx as we have plus on top of that, there will be the strategic CapEx programs and that's basically what we're talking about. For the ones who still -- I don't want to say expect too much still, but we use the old segmentation -- the solution segmentation. We just want to include 1 slide here. We have of course more information in the press release. In the attachments, you will see H1, H2 further worked out at the level of the solutions. We also have there an overview of how the vertical markets have been performing last year. We want to make sure that '21 your models can be updated in both versions. But this is the last time I will include this sheet in here. But what we see is that basically all solutions in this segmentation of course had nice organic growth. 2 which are close to the 20% range, Telecom and Industrial Solutions, but also the 12.6% in Building looked fairly nice. Telecom better second half than the first half and Building more or less equal and in Industrial second half was really strong. We got a little bit more text on this sheet, the outlook and I'll try to be close to this text, but of course the details are in the press release itself. But based on the improved market circumstances, which we see for our technologies combined with the capabilities to increase our manufacturing capacity and the utilization rates, this leads to a positive outlook of our business. And based on these developments, we anticipate further organic growth of turnover and revenue -- sorry, turnover and result in 2022 in all the segments. Barring any unforeseen circumstances, and I think this is an important clause at this point in time of course; it's always there, but especially if you look at the current situations with the potential worsening of the current supply chain issues, the effects of COVID which are still in there, but definitely also the geopolitical situation and the conflict in Ukraine with Russia. Therefore, we expect the following for each of the segment. On Smart Vision Systems, the strong demand for 2D and 3D Machine Vision technologies will continue in 2022 due to the targeted programs which we have for some of the key markets and the general, I would say, improved market conditions. For Security Vision, we expect a gradual recovery of the parking industry, Alexander highlighted already some examples there. And we also increase in this segment some of the R&D efforts as well as a little bit of the capacity expansion in order to anticipate for the growth opportunities and the order intake, which is already there and which we expect to grow as well. Smart Manufacturing Systems, the order intake for Tire Building is expected to continue at a high level driven by the products such as MAXX, MILEXX and the Revolute. And also there additional investments in operational capacity will be executed to fulfill the anticipated demand. Turnover in care is expected to grow further driven by the success and the ramp-up of the INDIVION technology. And in the other markets within Smart Manufacturing, mostly in industrial automation systems, we also expect growth in 2022 and also there facilitated by capacity expansion, which we will carry out. Then Smart Connectivity systems, the demand in energy infrastructure continues to grow rapidly. Expansion of capacity for energy cables in the third quarter of '21 and the well-filled order book which we currently have will support further growth in revenue in this year. In the area of digitalization, we also expect further increase. We've seen fiber prices gradually improving so that in itself helps the turnover, but we also see the continuous growth for the need of bandwidth especially in the European market, which is our focus market. To respond to the high market demand, we have decided to prepare for expansion of production capacity and additional capital investments in this year and next year. Of course we'll be back with more specifics and hopefully also a quantified outlook by August of this year. So far I think the more formal part. We also wanted to make sure that you get a good understanding of our position in the Ukraine and Russia. First of all, and I think that's the key element what also Alexander started off, situation with our organization, our people and their families in the Ukraine. We have 128 FTEs there -- sorry, 128 employees in the area of Kiev and of course we monitor this very carefully. We try to assist where possible. Our organizations are in close contact with the people on the ground. It's a very difficult situation and the times are of course very uncertain, but we try to do whatever is possible. On the more business side of it and that's what I wanted to express to you in quite some detail maybe, but we want to give you full transparency here. We have 1 subsidiary in the area of Kiev. We are having an assembly activity there specialized in connectivity systems and mostly in the medical area. Company generates about EUR 7 million in revenue, but everything is supplied internally within the group. So our connectivity group basically is the client of the unit in Kiev and that group will basically use the portfolio to send to their respective customers. So the inflow of the EUR 7 million is towards the group. A lot of the portfolio being made there is also sold as a final product so it's not just semi-finished products or parts of products, which is then incorporated within equipment or something like that in our group, but some of it is definitely going into the area directly to the final customers. The operation itself obviously have been stopped, have been halted. And we already in January took some steps to bring some capacity, equipment, et cetera, to other locations within the TKH Group so to Poland and to Germany. This has not been completed at the time when basically the war started to hit, but some elements are there. So some equipment has been moved, some people as well. And we are doing, let's say as I said, the utmost for those who want to leave and can leave to organize possibilities for them to come to Poland or Germany and also continue to work from there at some point in time. At the end of February, we had about EUR 4 million in assets on the ground, machinery and inventory. If you look at our revenue base or the revenue exposure, if you want to say, within the Ukraine, it's roughly EUR 1 million which we sell in the Ukraine in 2021 and that's at the level which has been the same for quite some time. Russia had a revenue ticket in '21 of about EUR 10 million mostly related to the Smart Manufacturing segment. And currently, we have an order book of about EUR 11 million for Russia and Ukraine. But the value of construction assets is limited. So in other words, we have executed some of the order book. We have got paid for it basically so there's hardly any receivable outstanding there. These projects will not be continued at this point in time of course and we are pretty sure that alternative, let's say, customers or use can be found -- can be made of those elements, which are already prepared or made for this particular customer base. So in general the direct exposure is, I would say, very small revenue-wise. And of course the key question I think that's for all of us how the indirect impact of this crisis is going to have its, let's say, effect, but I think it's far too early to say. But the direct exposure is basically as we have presented here on this particular sheet. So far and let's invite you for the Q&A. I think there has to be a microphone for the webcast. I'm not sure if somebody can take the microphone.

Emmanuel Carlier, Kempen. Three questions so far. The first one is on margins. So in the outlook statement, you literally say that you expect sales growth and also growth in the result. But how do you look at profitability? Because I think there are some positives like the fact that Tire Building, the order book is good so you would see some operational leverage there I guess. On top of that, I expect some positive mix effects. The COVID situation that is improving could also be positive. On the other hand, you have the negatives mainly the high inflation, high energy prices. So how do you look at that? Let's do it maybe one by one.

Related to price increases of raw materials, we see that we pass on the majority of these price increases and that does mean that the absolute margin will stay the same. But essentially you will see some negative effect, but that doesn't hurt the bottom line. So the bottom line will also be -- percentage rise can also be affected, but not in an absolute way. So that works quite well the passing on of prices. But we see with copper and aluminum that it's really kind of crazy situation how fast you see that those prices increase.

But do you expect then profitability to further go up in 2022?

Yes, we believe. I believe that was in the outlook that Elling presented word by word. So there's -- because of the fact that the organic growth will be -- besides the effect of the raw material price increases will be higher as we can forecast at this moment having some very positive effects in smart connectivity. But actually in all 3 areas, we see that there's positive development. The only risk is that the component supply could hamper and limit our growth and we see that many companies communicating today about the outlook for this year. But also there, we are working quite closely to find solutions and we continuously see that we find also solutions, but there's still a kind of question mark.

Then the second question is on Tire Building. How easy is it for clients to cancel projects? I think it's not possible, but just want to check.

No. I believe if companies are canceling projects, then that is even more profitable for us for the short term of course. But -- so that is even in a very tough situation, we have hardly seen that orders have been canceled and if the orders are canceled, then we can see that we can also deliver the systems to other customers in the future.

And the order intake since the negative macro environment started is so let's say the beginning of the year and especially since 2 or 3 weeks ago, is that still good or do you then immediately see that clients...?

I believe the last 2, 3 weeks you cannot yet evaluate because everyone is overseeing -- to try to oversee what's really going to happen and what's going on. Of course you have Russia, but it also has been discussed there will be an effect. But as long as the demand of, for instance, tires is continuing, then there is a big -- already getting capacity today that everyone is really in a hurry to see that they get the capacity at the level where it should be. They waited too long to invest. It is really difficult to predict. The order intake in the first few months I still can say were quite good, but to see effect now from the crisis in the Ukraine is really difficult.

And Nokian is a client of you, if I'm right. They have a lot of activities in Russia, I think 40% or something like that if I remember well. If they no longer can produce there, they might have to move capacity towards other places in Europe so you could benefit from that. Is that something that could already become visible in the P&L this year then? It's not going...

I think it's way too early also to say something about it because there is a short-term of course issue. No one knows how long it will take and there will be actions in place as we also do within the group to shift capacity. There will be perhaps also some headroom at other locations where you can at first, let's say, close the gap and then of course within the coming weeks, months, you might see that other investment programs come in. But I believe it's very difficult to be specific there at this point of time. There can be opportunities and there will be also negative effects.

And then the final question is on your capital allocation actually. So you have a low leverage. On top of that, you guide positive on the outlook. If I look at the valuation, it looks like you have never traded cheaper than today versus the last 8 years. So what is holding you back to allocate some capital towards a buyback today?

Yes, we mentioned we have a quite -- preparing quite heavy investment program. We believe that is even more attractive than buying our own shares and I believe should have also the priority and we will of course further evaluate the momentum of buying shares. We have indicated previously when we do divestments and we have divestments in our radar and we will be actively progressing there that if there will be income that we still would give priority to do then a share buyback.

ING, Tijs Hollestelle. I've got a question about the supply chain issues because you predicted the impact quite well and it's difficult to predict in my view. At this stage, what areas or which businesses are you most concerned about? So what are you currently monitoring that if this happens in the coming months would really give -- have a material impact on, I don't know, the most important businesses? Can you explain a little bit on where you're most concerned about?

I think indeed predicting the level is very complex. The range of the EUR 20 million to EUR 30 million from last year, that has stayed in place, but there has been some portfolio change underneath. So you cannot exactly pinpoint which items particularly will be at risk. Of the areas where we had issues last year of course were in the mostly electronic related components and that is still there to some extent. So some of these effects are having impact in '22 as well and of course with all the steps we are trying to take, we try to minimize the impact. It's a little bit more complicated to specifically, let's say, give you a clear guidance on the revenue which is attached to this. But I think it's somewhere in the range as we have been communicating so far that that basket is still there. There might be a few millions up and down, but I think this level is definitely an item where we still look at. And of course in the current situation of course with all sanctions and restrictions, et cetera, coming out of the war in the Ukraine, I think there it's likely that some effects will further of course definitely impact some of the supply chain. I think it's very difficult at this point in time to specifically pinpoint where, when and to which extent. That's what we monitor, that's what we follow. I think yesterday in our prediscussion, we had a little bit of discussion about some raw materials which are readily available in some of these countries, which are used in the chip manufacturing industry. And this is a main location where these raw materials come from, it will have its impact on chip manufacturing that leads probably to a kind of similar effect in the electronic components as we have seen last year or maybe to a bigger extent, but I think that's still a little bit too early to say. I think what we know from last year, the effects which are there and the supply chains where we manage where we have our action plans, we are still looking in the same kind of bandwidth as what we can see as potential disturbance. But from the most, let's say, recent last 2 weeks effects, I would not dare to put a figure on it right now.

The effect in the first half year as we can oversee now will be quite limited. There could be additional effects in the second half year that we already now have identified. So that is how far we already look in also creating additional inventory to cope with certain issues. And we can see in the second half year that we have not filled all the -- closed all the gaps. And if we then say how much turnover is that, I would say EUR 30 million to EUR 50 million. It's too early to say that we cannot close the gaps. We have seen that last year also that continuously we were able to close gaps, but I'm very transparent now.

Yes. I understand that. And indeed it is not -- let's say your strategic inventory is coming down and you cannot get the products so you can still...?

In certain areas, yes. That is why I say the first half year is no issue. In the second half of the year, we see issues. But again last year we also found good solutions. Now the question is if the Ukraine has an impact with the chip industry, then the whole world is getting to a kind of standstill.

Okay. That is clear. Yes. And then also a question on your capacity expansions in -- what was it, the infrastructure energy business and also entire building? Can you give us a bit more feeling for how much additional capacity in terms of factory space or equipments FTEs?

Now in, let's say, the tire building, I believe we -- you are adding about 50% -- 75% additional space in Poland. And Poland is today around 25% of our capacity in the group. But -- sorry, yes, that's a major step that we are making there. And we already had a high level of capacity to cope almost with the EUR 350 million, EUR 400 million turnover. So this is already, again, a next step and also creating less dependency on Asia. So we have our manufacturing base in Asia. And I believe it was a good idea to reduce the dependency on Asia in 5 years ago. And no, that is also part of the capacity expansion we have. And we can quickly add more capacity there. So we have the lands already in Poland, and this is also, I believe, will have a quite short lead time to realize this expansion. And the investment is about EUR 15 million. So this is really a capital-light business, I would say, for the growth that we can create.

And in the energy, you added that already in the beginning?

Yes. But we are now really focusing on a big step up further, both for onshore as offshore. The onshore demand is really incredible what the additional demand is and changing from, I would say, from month to month that the energy utility companies are discovering what they really need and giving better forecast now also for the coming years, which they never did. So we actually invested in the past few years on our own risk. But we judge it in a wide way that there would come more demand and also scarcity. So the utilization of the additional capacity will be already there in this year. So that's good news that there is not a long learning curve and we have decided to substantially add additional capacity, at least 50%. And for Subsea, we are looking for a doubling of the capacity doubling and perhaps even close to tripling.

Sorry, yes, because it's still for us a bit complex because of all the different segments. The energy infrastructure onshore, that's mostly Dutch business I guess, yes. They're now discovering that there is a massive bottleneck basically the life in some...

Exactly. And some have not yet even discovered, but they are on the move. And it's good because we have then time 12 months to add this capacity because that is the time period that we're looking at perhaps even a little bit shorter with, let's say, 12 months, then we have the additional capacity.

Yes. Okay. That is clear. And we discussed it before. I mean the subsea cable business is great and the outlook is tilted. I do cover some other suppliers in the industry. Do you see that there is a kind of a risk of lumpiness? So either you win the big project or you don't?

Yes. What you also see is that the employers are looking more and more for, let's say, diversifying their risk and not to bet too much to put too much capacity in one basket. So yes, there are all kinds of potential issues that might with even scarcity of raw materials going to plastics and aluminum that they don't want to bet on one horse. So that is giving us more comfort that we will not lose, let's say, one big project and that we then are with our business. At least that is the feedback we get from the customers, and that's, I believe, good news. And what we -- on the other side, see is that there will be still a shortage in capacity. And shortage in capacity can also be related to the supply side of the raw materials. So yes, the company that is well organized in that part and perhaps has a smaller share has a bigger opportunity than the bigger companies. And we are already preparing now for, let's say, taking care of the sources that we need for the coming 3 to 5 years.

Okay. I didn't know that. So it is possible for one project to, let's say, use different cable makers? You see cable makers. Okay.

Yes, there you see today few big projects of EUR 150 million plus EUR 200 million. And the feedback is that they do not want to give that in one hand.

So that's nice then indeed.

Yes. To have one customer only with EUR 150 million or EUR 200 million turnover is also risky.

I have lot of questions but let's call about it.

Michael Roeg, Degroof Petercam. I have a couple of questions. And the first one is also on subsea cable because there's quite some time between making the calculations for a tender in the production. And in the meantime, everything can happen to input prices, and today, they are skyrocketing. Are there clauses in the contracts that you can pass on everything one-on-one?

In the coming contracts, that will be certainly the case. In the past, we have seen a few contracts where that was not the case, except for the metals that is standard and always, let's say, hedged together with the end customer. But secondary raw materials like plastics, that was not always the case. For some contracts in the onshore utility business, we see that it is common practice, but in subsea that was not yet always practice. But as of today, because everyone has seen these effects, we see now that it is also easy to negotiate because the effects are so big, that is no issue anymore.

Okay. And just out of curiosity, if I buy a piece of cable for EUR 1 million, how much of that would be raw materials?

About 40%, 50%, 45%.

Good. A couple of questions on UNIXX. Is UNIXX a product for all your tire customers or just only for the large ones?

I believe for every kind of customer, it is a relatively small unit which you could place also locally close to the -- where the tires are in the end use. Of course, we are a little bit careful not to deliver them in the Tier 3 customer base. And the first priority will be Tier 1. And then, of course, there will be also opportunities within the Tier 2 base.

What do you think it will be used for initially when customers start ordering in larger volumes, say, in 2023 or 2024? Will it be especially for new factories? Or will customers decide to take out 20% of their old equipment in an existing factory and gradually replace all of that?

I know the answer, but perhaps it's good that Harm who is leading this.

Alexander was exactly right. In fact, you could use UNIXX for any kind of production for passenger car tires. So that means that it is an interesting opportunity for all players in this industry. But we are focusing mainly on the high-end side. If you look at the potential sale in the coming 2 to 3 years, my guess is that it will be mainly an additional capacity that they add to existing factories. And then mainly producing the shorter series, so the higher added value tires, which cause in the current production system, quite some disturbances because you have a lot of downtime in your upstream equipment if you make components just for small series. So there you see an immediate effect, but UNIXX is designed to be profitable for any kind of tire. So also the larger series. And it is our belief that the once they get experienced with the smaller series that it will then gradually fade out the conventional technology. So first, our guess is additional capacity and then mainly used for the smaller series.

Okay. And then final question is on CapEx because you've been teasing us with a couple of numbers, a large one, EUR 100 million and then EUR 15 million, but we don't know is the 100 million expansion or 1 or 2 years. So could you give us an indication of the CapEx for this year and next year based on your current plans?

As I mentioned in my part, I think that if you look at the CapEx over the last couple of years, that's basically the running rate, which you also can expect for this year. On top of it, we will have the projects, as mentioned in the last couple of minutes on subsea and the energy, including the one on the fiber optic part. And there, we are talking of a ticket, which is more than EUR 100 million over the next 2 years. So split between this year and next year. And we are working out all the, let's say, detailed elements of these projects. So maybe on the next occasion, I can be more specific, but this is roughly what you have to take for '22 and '23.

Martijn den Drijver, ABN AMRO-ODDO. My first question is on labor. We've talked now extensively about energy raw materials, but another constraint might be labor. So what are your current thoughts on how to handle that issue? And where do you see the most constrained parts in your business? That would be my first question.

Yes. It is not really constrained. We seem to be quite attractive with an employer. So yes, it takes time to fill in the vacancies a little bit longer, but we are still able to fill the vacancies. And yes, we are a relatively small player, I would say, in the world that -- and if you are a little bit more attractive than competition, it is not so difficult to find the employees that you need.

And you can do so within the collective labor agreement framework that is -- or do you see already that it moves beyond that?

Yes. No, that is no issue at all, also not within VMI and also outside of the Netherlands. Again, we have some areas where it takes a little bit longer to fill in the vacancies, but we are still able to fill them and in with normal salaries and just being a very attractive employer.

Okay. My second question would be on smart manufacturing, 19.9% organic growth. You probably had better spare parts and maintenance as a proportion of revenue in there, yet the value add was only up 30 basis points. So I'm trying to understand that. Can you provide a bit more color as to why that value-add did not go up more given these developments?

And if you recall, let's say, prior the COVID period, the call it, the service part of the revenue, especially within tire manufacturing, machine manufacturing systems, of course, is a little bit bigger. But if I address the tire part, then we were close to 20% of revenue in that segment coming from the services. Of course, that dropped substantially during the COVID period, no possibility to travel, customer premises were not available. So simply the level of services went down a lot. It came back pretty nicely in 2021, but not to the extent that we had seen in the sense that it reaches the 20%. It's more in the, let's say, close to 15% range of that tire revenue related to the part. So we have not seen the full scale coming back. And that has, let's say, a small delta if you look at the historical margins in that segment, where, of course, services have a big contribution margin-wise. And secondly, of course, also, if you look at manufacturing system and then specifically, I take out the tire building, in the COVID period, especially summer of 2020 when order intake as we have been communicating in the second and third quarter was very low. I think at that point in time, some of the projects which were acquired also had a little bit of a lower margin due to the situation and us, as we communicated at that time, getting orders in to have at least coverage of some of our costs. And that is, of course, an effect which has a spillover into 2021 as then some of the execution of these orders obtained in the summer of '20 were executed. And that puts a little bit of pressure, of course, on margin.

I'm not sure I followed that.

No, there were some very big Asian projects of EUR 30 million, EUR 40 million. And yes, of course, if there is a lot of overcapacity, you will see that the buyers are taking advantage out of it.

More aggressive price.

And there, we saw a negative effect on the margin of 1 or 2 of these bigger projects, and that translated into a lower gross margin into 2021.

Okay. Then on fiber optics and the EU import duties. Did I understand you correctly that you were kind of implying that you were going to build some production capacity in Europe to avoid that? And if so, what are you going to do with your Chinese operation? Is that going to be impaired because if the debt production capacity is only dedicated to the Chinese market, it has to deal with all the overcapacity that is still there?

There will only be cable. So the fiber is not affected with this import duty. And that is the majority of the activity in China and they manufacturer also cable, about 1/3 of the capacity that we need in Europe and that capacity, we will also allocate now in Europe.

Okay. So what's the disruption then coming from this EU?

If you look at the price levels, and we have been communicating this a lot due to the large overcapacity, which existed in China as a result of 4G being completed, overcapacity was there. And the impact of 5G volumes was not really available in China. So a lot of this volume came with aggressive pricing into the European market. EU has decided to put duties on this as a statement, which was made at the end of November last year. And these are duties in the range of, let's say, 20% up to mid-40s percentage. And of course, we -- and as Alexander said, it's only related to the optical cable, so not the fiber itself, only the cable. And that means that the capacity which was used in China for cable manufacturing for final customers in Europe is basically more attractive for us to bring that capacity into the European Union. Of course, we have facilities. So it's about expanding operations within Europe, and that's the area we look at. Some of the remaining capacity, and that's mostly the fiber drawing itself. That, of course, remains because the fiber is not touched by the antidumping measure. And that operation continues as before with the growth perspectives as we have coming out of Europe mostly and some capacity which can remain on the cable side can also be used for the international customer base outside the EU because that's where the antidumping has no further impact.

So for your fiber-to-the-home projects customers, you don't see any raw material issues in terms of...

No. I mean we are able to support them in their growth plans and the positions which we have are not changed. It might even help in some areas from a logistic point of view because we have seen, of course, also last year with transport from China. So having more local manufacturing capacity for such a growth market as Europe is a welcome move, I think.

And what kind of CapEx or time frame are we talking about?

I think we're talking about the next 18 months or so that this can run, and I also expect this to be in the range of about EUR 15 million. This is all preliminary. As I said, we get more specific on the strategic CapEx programs in the next kind of communications. But just for you as a kind of reference.

Okay. Then moving on. Is it my understanding that airport was still loss-making in 2021?

Yes.

And is that a single-digit number?

Yes.

Okay. Same question for parking. Still loss-making?

Yes.

Also single-digit number? And then in relation to that, a pickup in U.S. airport operators, we're all going to fly a bit more. Do you expect those entities to be profitable in 2022 based on what you're seeing now in terms of your order book and pipeline?

It has a very high probability because we also reduced the cost base substantially. Not took all the costs out that we could not grow anymore. So there is some room there. And airport, there is a little bit more difficult at the moment. There are some major projects that we are addressing also in the Middle East that could give us the guarantee that we will be profitable, but we don't have these projects already in the books.

You've mentioned in the press release that you had a bit of a tailwind, I can't really call a tailwind, but you weren't spending as much on selling, marketing, travel, what have you. What kind of uptick in that bucket should we expect to say, if you can, just a rough number. Or should we just think about it as OpEx as a percentage of sales will remain at the 36% level?

Yes. I mean that's more a top line question, which you asked me there. But no, I think if you -- roughly last year, we had about EUR 41 million in what we call selling expenses, and that's quite a broad basket of course. It's not just, let's say, conferences and exhibitions, there's a hell of a lot more to this. But that part, those elements are going to come up. And that's a delta of about EUR 4 million compared to what we had in 2020. So when we talk about a further, let's say extension of commercial activity, we call it like that, travel and marketing-related elements, we're talking about maybe EUR 5 million plus. But I'm not sure that all of that will already be this year because we still see in some areas of the world, there's still some restrictions.

Okay. Well, that won't move the dial that much. And then a final question on the deferred tax payments, how much is still outstanding that you have to repay?

Nothing.

Nothing. Okay. Good. Good. And one request. Would it be possible you've split out H1, H2 for your new technologies. Would it be okay for you to provide the 2019 numbers as well because that we had a normal 2019, so to speak. We've had a COVID 2020. Now we've had all sorts of issues in 2021. So we have 2 [ rough ] years, would be good to have a normal year comparison basis.

I think we had in the Capital Markets Day, we went already back to the years '19 even. I think we can give you some reference on the split. We'll provide something for you.

So this is already in the Capital Market Day, information.

Full year, but the split between half.

I have to use a ruler in order to determine the margins, back to the stone ages as my sales colleague said.

We want to take out the margin -- your margin of error in your analysis. That's for sure. So, we'll provide you that.

Definitely do that.

Trion here from Berenberg. Just a couple of questions. I cover a lot of different companies, different industries. And we've seen a trend of very strong order book, some supply chain constraints, which have limited revenue conversion. And then when the revenue has come, it's come at a lower margin because stable pricing whereas you've got costs that are going up immediately. And I know obviously, you have some automatic pricing linked to that raw material inflation. But obviously, we talked today about energy inflation, labor inflation. I'm just wondering if you could talk generally about the risk of this? Or do you feel confident you can go back and just renegotiate the prices? I'd just be interested to get your view on that sort of -- how much pricing power do you feel you have going forward?

There's a lot of pricing power available there where we have only framework contracts. And of course, we are teaching every day and every day again, our salespeople that they should work on price increases, and they really have to do a good sales job. And that is moving really well. And then we have, of course, fixed contracts. I'm not sure exactly within VMI, if there is an escalation procedure for the components. I never heard that was an issue, so I'm asking again. So there, it's also covered. And then with the whole cable business, the smart connectivity, we also see that there is a good system of passing on the price increases to your end customers. And smart vision was not really used to do that. There, you saw more a tendency that every year, the price is coming a little bit down. You introduced a new innovation and then your gross margin is up again. But there, the things are moving really right. We are informed, let's say, on a monthly basis there, what projects they are running there and how the execution is going on with passing on of prices, we even try to get a little bit more than what had to cover the cost increases. And today, we are quite happy with what is going on there.

Good. And then just a second question, just on the working capital. You mentioned you've done a very good job, a lot better than your guidance despite the fact that you've increased inventories and obviously, you're preparing for growth. I just wondered how sustainable do you think that is? You're still happy to keep the 12% to 15%? Or could you see sustainably lower working capital?

I think scale up further. I think there is a good reason to stay with the bandwidth which we have outstanding the 12% to 15%. Obviously, I mean, you can say, the last couple of years, we have nicely going from 13% to 12%, and going now to 10%. But I think it also has some effect of some of the timing of when order intake takes place when the down payments are coming in, all these kind of elements. So I think in general, I think we are able to stay on the, I would say, the lower end of the bandwidth. But an adjustment of the bandwidth itself, that's not something I would like to recommend at this point in time, no.

[indiscernible] Firstly, in your balance sheet, you have a line now, assets for sale. You have mentioned that you would sell businesses with sales from EUR 100 million to EUR 150 million. Is this for all divestments planned?

The revenue, the EUR 150 million to EUR 200 million, which we aim to divest, that's pretty well planned in the sense where this is within our group, of course, that's obvious. But you cannot make the link between the total revenue, which is earmarked for investment in the Accelerate 2025 plan and the EUR 88 million. The EUR 88 million, which is on the balance sheet as assets held for sale. That means that a specific activity or project around that asset base, but that is not necessarily the same as the full basket of revenue, which I mentioned.

My question was, are all companies which you plan to divest already in the asset for sales line. So the answer is no.

Because this asset held for sale means that there is a certain time frame in which you expect that this will be executed.

Okay. That's understood. Since it is now in this line, do you expect it to be divested within the next couple of months and also the current economic environment, does that hold it back? Does it postpone the final divestment?

In the current environment, it's not that we see an immediate -- of course, there is volatility in the market right now. So if you would ask me is today the best day to make a kind of deal and parties interested. I mean, there's, of course, a certain anxiousness in the market and nervousness, I would say. So from that point of view, it's not that short order. But having this on the balance sheet, it means -- and it's also not necessarily a couple of months, but that, let's say, within the next couple of quarters, we are going through an execution of this. That's what this statement means assets held for sale.

Okay. You mentioned that you will make an additional investment in Subsea. Firstly, export cables free from the table. That's not a topic you think about? And then secondly, about Subsea, can you make this expansion at your current side? Do you need to find another plot for these new facilities?

The investment that we are eyeing on now is so big that we need to have in location at cost.

And then more or less the high margin area that's most logical one.

I'm not going to disclose that at this moment. We are looking at 3 locations, and we are in negotiation and it's too early to already...

Okay. And by looking that, you know that it's just subsea exporters, not...

No. The potential is so huge for the array cable and our position is so strong there that we want to focus there and not increase further risk because of all kind of new innovations you have to introduce in the export cable area.

You mentioned that you will expand the capacity in energy by about 50%. And for Subsea, even doubling to tripling. Can we simply -- because you have set sales targets for these entities, can we simply add 50% to your energy sales target and also doubling to tripling the target for what you intend to realize in sales in subsea?

That was a good question for Elling, I believe.

You can, of course, make your own calculations based on that, but this is part of, let's say, our plan on how we are going to scale up towards the targets of 2025. This is a specific step as part of the road map and the strategy to get to the targets for 2025. It's not that we add, let's say, the investments and the benefits coming out of it on top of the targets. So this is part of the plan on how we get there.

But when we in the past, added the revenue of those 7 growth verticals, we would arrive at the EUR 2 billion plus. So now it's even going to be a bit more because of these investments.

I mean you might see that if you look at the verticals, there are bandwidth as we had in the past and some are going very well. Some are having high growth rates. We just talked about to where we are not at the right speed, which we would have liked to see. So if you go on a line-by-line item, there might be some areas where some of the bandwidth for 2025 in the old vertical system might be slightly higher than what it was.

You mentioned that raw material supply chain issues, et cetera, could have an impact of between EUR 30 million, and EUR 50 million on your revenue line. Is this on top of the EUR 20 million to EUR 30 million we have seen last year? Or is this compared to the EUR 20 million to EUR 30 million we have seen last year?

That's the same basket.

So more or less the difference is then EUR 10 million to EUR 20 million more?

As Alexander said, with the disclaimers attached to this, that's what we currently see, and it's more towards the second half of the year. We have one question also from [ Ruben ]. He's joining us by Teams.

Just one on the order book. Just looking at it, it looks like the far majority of those sales will be realized within 1 year, about 94% to be precise. That has not changed much from the year before. But just curious thinking about longer visibility and the ongoing supply chain issues. Is there increasingly an incentive for your customers, let's say, to make longer-term commitments? Yes, I mean the reason I'm asking is that you're targeting capacity expansion basically across all business segments. So just to get a bit of a feel of what other elements give you confidence for demand beyond 2022? That's my first question.

I think, of course, order book is a good indicator if you have the right portfolio for the growth segments we target. So there, we see proof of the positions we have taken and the portfolio which we carry. And this is, of course, not something which is done from a, let's say, technical point of view. We have also in the Capital Markets Day clearly highlighted where we see the growth opportunities based on the trends which we have identified and the matching with our portfolio and geographical coverage of where we can achieve these revenue growth. So that is the basis of which we have planned also our targets for 2025. And what we see is basically through the order intake and the order books that we are getting, I can call it confirmation that we are on the right path in the sense that the portfolio is definitely greatly accepted in the marketplace and that we get more confidence, if you want to call it, of being on the right path. And going towards these revenue targets outstanding and the way how we would like to go there includes the capacity expansion programs, which are necessary in order to get there and to do that. So from that point of view, it's maybe a little bit more of comfort, which we have by a high order intake and high order book in the short term for the long-term plans we are trying to roll out.

Okay. So the order book is based on the contractual performance obligations, but then do customers also share like longer-term order forecast, but there's no real commitment on it?

Sure. I mean, we are very close to our customers in order to make sure that not only we have the right, let's say, service level and portfolio today that these customers can also be sourced -- served, I would say, with our new portfolio in the next couple of years. And we want to make sure that we have a good understanding of what it is that they actually look for. And that leads to much more strategic discussions than, let's say, tactical procurement discussions. And that's across the board, I would say, and that's part of where we are able also to have a high level of innovations because we get a pretty good understanding from the interactions with our customer base on what it is. That is a reason for them to procure and that's part of our agenda to secure that this is solved in the next generation of our portfolio.

All right. And then maybe on machine vision. You typically have a very good market position in consumer electronics. Could you maybe talk a bit about how you're seeing preparations for new handsets that will be introduced this year? Do you see any risk following the rise in pricing of precious metals? Could this be sort of a break on growth and consumer sentiment, do you think?

I believe it's too early to say something about the consumer sentiment. What we know that there will be more innovations introduced. And I believe tonight there is an announcement of one of the major smartphone players, and that is always good for us because we are preparing already upfront then for upgrading and changes in the manufacturing systems. That looks quite good, good preparation in Q4 for Q1 and the upcoming quarters. So we are quite excited there what we can do.

All right. And then you also mentioned apart from the wood industry and consumer electronics, you mentioned other markets such as battery and semiconductor markets. Could you talk a bit about those prospects, please for machine?

We all know that the battery market is a really fast-growing market and inspection to have the right products with all the risk you have if you don't have the right product increasing. And that's why it's a very attractive market in respect of demand and the specifications that are asked, which have a good fit to what -- to our capabilities and specifications. And another interesting market is the logistics market where we still have a very small market share, but we are on the move with some very nice niche products and systems. We are developing more in the direction of also systems to help our customers to have plug-and-play units. And so that is a huge market. And we are on the move there, and that is also supporting our growth plan.

Time for couple more.

Okay. Martijn den Drijver, ABN AMRO-ODDO. I just want to come back to the explanation you gave for the relatively low value add in smart manufacturing. If customers were benefiting from your relatively lower volume intake or order intake, do we -- should we expect a reversal then in 2022 or 2023? Because obviously, now there's more demand than you have capacity. Otherwise, you wouldn't be expanding capacity. So should we expect a reversal of fortunes there in terms of pricing in this value add? And is that a 2022 effect or 2023 effect?

Already in '22.

Okay. And I just wanted to come back to Smart Vision.

Just put the pressure a little bit more on Harm.

Just a question on Smart Vision again, similar to the one I asked previously on smart manufacturing. You had organic growth of 10.5%, which in your text, you mentioned, is mainly machine vision. Now you've always [ dedicated ] us that machine vision has a gross margin of roughly 70%. So if you grow 10% and the majority is coming from that machine vision, then why is your value add down 80 basis points? So that suggests that the other activities within that bucket are not doing that well. So can you elaborate a little bit on that development?

I mean if you look at -- because you can still find the machine vertical and the revenue increase, which had an uptake of over 15% in '21 compared to '20 pure machine vision in the old definition of the vertical. As we have mentioned also in the previous occasions that if you look at the supply chain issues, we mostly have seen on the electronic components, and that mostly relates back into the Vision segment. And that's where we then have also the, let's say, the, call it, cost of goods sold effect coming through in that particular area. And that, of course, puts further pressure on some of the margins you talk about.

Why would finding an alternative source immediately lead to higher bill of material?

It's not so much that. It's availability of certain types, which are of certain chips, for example, which are not available. If you have to go through brokers, to get access to those chips. I mean the multiple you pay on this is like horrible. I mean things might be -- and I think we even gave examples last time that we had issues where, let's say, cost of goods sold for a certain element was maybe EUR 5. But if you have to go through the broker channels that can go up to 200 a piece or even more. There's no relevant anymore to, let's say, inflationary elements, but that has, of course, an impact into the overall portfolio margin, et cetera, especially in '21.

And is that something you see at the same level in 2022 or because you are now perhaps better prepared alternative sources beyond brokers that should diminish somewhat?

That has been the work. I mean if availability is there for the same article, let's say, EUR 200 instead of EUR 5, that's, of course, the discussion is that feasible in terms of getting it to the customer and how much margin is left. If that doesn't go or availability is no longer there, you can go for a redesign. And that is, of course, costly has a time effect in order to get that executed. And what you can see is, of course, these other ways, we have been working. Of course, these elements are still there in '22. And you don't know exactly which one will pop up as being the next issue, which will be hit. And yes, that is the, let's say, uncertainty which is still there and which is difficult to manage. But wherever we see that there are issues popping up, we try to work around it or solve it and sometimes it can be with price increases where the customer is really desperate to get this portfolio in his books. That's fine, even if it -- or especially if it's part of something bigger than, of course, on the total scale, the customer is maybe not too concerned with the strange price increase on the component. All these things are part of the, let's say, day-to-day work these days of getting this solved. But it has an impact on margin, that is obvious.

Emmanuel Carlier, Kempen. The first question I still have is on Smart Vision. So in the outlook statement, you mentioned that the market conditions are improving. On top of that, you guide indirectly, I think, for market share gains because you enter the logistics market and some other markets. So if I read you well, you believe you can grow more in 2022 than in 2021. Yes. Okay. Then secondly, on the raw material bill. Could you maybe just give an update on the number of costs you have copper and aluminum because prices are going up quite rapidly. So it's also interesting for us to know what it means with respect to the top line, if you can pass that on.

Well, I mean if you -- I'm not sure exactly where you want to go with this question because, of course, if you look at last year, we had 2.6% impact due to raw materials on the top line. And we have seen especially copper being, let's say, at a low level at the end of 2020, low, relatively speaking, but basically doubled in 2021 in terms of pricing. And yes, when I talk about the 2.6%, it's basically copper and aluminum as the 2 main areas in that 2.6%.

But the copper bill is much larger than the aluminum bill.

Yes, that's correct.

Yes. Is there any guidance you can give on the split between the 2?

That's a little -- that's complicated to do that.

I would say 1/3 aluminum and 2/3 for the copper.

That's a rough?

Yes. It's not scientific.

Yes. It's not detail from [ EUR 1 ] specific.

All right. And then on the energy costs, is that something like, I have a number in my head, around 2% of sales. Is that kind of -- well, of course, it depends at what time you look at it. But I think on the average in previous years, the energy bill for TKH was around 2% of sales. Is that correct?

No, that's far too high. Yes. If I round it off, then it's about EUR 10 million.

And then on the capacity expansions that you announced, just to be sure I understood it well, so you have the normal CapEx budget, which is broadly unchanged. And then on top of that, you have EUR 100 million more for the next 2 years. And that is for subsea cable and the telco business mainly. Because you also have other capacity expansion. So that is included in the other budget.

But they are minor. So the main areas, of course, is indeed the energy, subsea and the fiber optics. And of course, we have an entire building, the expansion program. This adds up to more than EUR 100 million. The exact figure, as I said, we are working on all these plans. We will be more -- we provide you more guidance on this as we go along. But these are the projects which are initiated, and we want to make sure that at least we give you, let's say, the statement, one of capacity expansion based on the plans which we have in order to get to the targets of 2025 and also give you a first indication on which kind of levels you have to think about. But more specific, we will be maybe in Q1 or for sure at half year.

Yes. And so what additional sales and EBITA will these plans give you? Because I think subsea cable, if I look at the business, this is a business that so far has been below average profitability, I would assume. So yes, I think the question would be, do you believe that these investments can generate the 17% EBITA margin target that you have or probably even a bit above because otherwise, I would expect that you prefer to expense in other activities.

You're absolutely right. So that's an important criteria for capital allocation. Investments need to meet the criteria of a minimum return on capital employed, which is first priority. And we are not satisfied if it's just 25% even. So -- and then the next one is the return on sales, which is also a minimum requirement of the 17%.

Yes. But what would give you then the confidence that in subsea cable, you can get to that level because you have never disclosed profitability today. But...

No, but we can also calculate, of course, the scale effect and of course, look at the sensitivity of the pricing, and we have seen that we have also pricing power that we get the margins that we want to have. I give an indication already earlier. They are higher than the average gross margin that we are making today at TKH. So then you have the cost conversion that translates into the return on sales. And scale helps, of course, to have a more efficient cost conversion ratio. So it's a play of scale. And this year, we will be around EUR 40 million turnover, but we are looking at more than EUR 100 million, EUR 150 million plus and we don't have to double the R&D. We don't have to double the sales. We don't -- a lot of these kind of things where you leverage on your overhead that you already have.

Tijs Hollestelle, ING. Yes, one follow-up also anticipating, let's say, your more concrete outlook in August. Elling, I think you mentioned that the PPA of previous acquisition was fading out a bit. Is the amortization of intangibles from acquisitions in the -- let's say, the graph or the table in which you calculate, let's say, just net profit, is that the amount which goes from 23% to 19%?

Correct. That's correct.

Yes. And what is your expectation for this year?

I think it will be in the range of 17 to 18.

17, 18, okay, so a little bit lower. Okay.

One last question.

2, please? Okay. The first one very quickly then. You have a certain amount of assets held for sale. Are those activities still in the backlog? Are those activities held for sale still included in the EUR 1.8 billion backlog?

In the backlog, they are.

And could you tell us by how much?

It's relatively low because the nature of their activities is more distribution, as we mentioned in the past, that has a different, let's say, order book stream as we see in some of the other activities.

Okay. Short term, order book, low margin distribution. Clear. And the second one then, Machine Vision. Do you get all of a sudden new customers asking for quotes because their current suppliers are somewhere in a country in Asia with which they don't feel any safe anymore because of potential loopholes in cameras or spyware or whatever? Is that a trend you see being a European and North American Machine Vision player?

Yes, I believe that's a general trend that you see. Yes.

So have you gotten a lot of new customers that you haven't served before?

No. There was a question before, how can we get more confidence on how we are developing our business head that is also winning new customers. Of course, you also have to look at which customers do you lose. But we are not losing hardly any customers, I would say, but winning new customers. And that's in our dashboard to see if we are on the right track to win market share, to win business in the segments that we want to be active in. So it's a very important indicator, and that is moving quite well. Thank you all, also for the audience in the webcast. It was quite a long session. I hope we -- you could stay awake, but I believe the questions were very good here and very challenging. I hope that everything is moving in the right direction with the Ukraine and not as severe as it is today. Difficult to forecast what's going to happen. But at least we are on track, and we put all our efforts on a good performance in the year 2022. Thank you again, especially also for you being physical here in this audience.