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

Good morning, everyone. Warm welcome here in Amsterdam in the Experience Center of TKH, also a very, very warm welcome to the audience in the webcast. Today, we will present our interim results, which look quite good. And I hope that the market will appreciate what we are doing with our execution, and we will walk you through all the developments in the first half year, but also the outlook, of course. I have to start with the disclaimer, and I hope you take notice of that. And then I go to the key messages. Yes, a very strong turnover growth and we are proud on that, how we have the organic engine running within TKH, especially related, of course, to the megatrends, digitalization, energy transformation, but especially, I believe, also the automation, which applies to the vision technology and the Tire Building systems that we have in our group, amazing technology where we see very high demand. What we see, there is, of course, a difference between the organic growth and the actual growth realized and a big part of that are pricing effects. And the good news is that we were able to pass on increased prices to our customers. On the other side, we were not able to make margins on the price increases. And yes, in that way, perhaps we supported our customers in a good way. There were some -- there was some impact from the geopolitical situation, supply chain effects and also the lockdown -- new lockdowns in Q2 in China, which made it very difficult to deliver our goods in China and impact of the supply chain became worse in Q2 compared to Q1. And also for the second half year, we see, especially within Smart Manufacturing that there are still some issues in the supply chain, which we believe will not be normalized before Q2 and that has a big inefficiency effect because we have the capacity, we have the order book and we want to fulfill the desires of delivery as much as we can to support our customers in their demand and especially in their automation need. And we see, especially in the Tire Manufacturing a big, let's say, reallocation of capacity where there's a high sense of urgency to have that support. But we are managing quite well still delivery times, but with a high inefficiency. Very nice increase of the EBITA, more than 37%. Net profit also well on track which is more than 40%, and we had a one-off of EUR 9.3 million because of the divestment of our property for sale. So I believe a good job also that we saw there is a nice profit. Very good news is that the order book is still very, very strong. And if we would take into account the order intake in July, I believe a small part of the order intake of June moved into July. And then it's really exceptional good and you would see a higher increase of the order book than that we present today. And also, the expectations from our customers and the order pipeline, the sales funnel is really, really looking good. And yes, it looks like TKH is on an island and not seeing anything about recession. Of course, we are not immune, but at least for, let's say, the coming, I would say, even 12 months, it is running quite smooth. There is still a lot of potential for further growth, especially if we can normalize some of the supply chain issues, then yes, it looks that we have a lot of additional headroom to compensate for an eventual effect of a recession. But also keep in mind that TKH has a complete different profile compared to the last recession, the big recession in 2009, 2010, not so much anymore related to the industrial sector. And so yes, I hope also in that respect that you will see a completely different picture when there is a recession, what that -- how that will affect TKH. And yes, of course, everything is focused on execution, execution of the Accelerate 2025 program. I believe a fantastic program, which brought an amazing energy in the company. People are really motivated to work on this, energized because what we have in the R&D pipeline. And again, also the innovation percentage was quite high, close to 19% in the first half year, but we can continue that still for a while with respect to everything what we are doing in the investment of R&D. We see -- we do not see that the percentage of R&D is increasing at the same pace or is even going down a little bit. That's also because of the pricing effect in our turnover, so which, of course, the percentage as a share of turnover of R&D is lower. But what we also see is that we have an amazing efficiency in this R&D and are even further increasing R&D efficiency because we have less disruptive technology coming out, like we had in the past, where we had 7 up to perhaps even 10 at a certain point of time, really disruptive technologies where we had to break through in the market. And now we see it is more a gradual development of the strong technologies that we already have, where we have a lot of differentiating power. And yes, we add some smaller parts to that to keep the differentiating power, but that makes it -- life easier in respect of the investment that you have to do, and that is a potential that also will have a positive effect in the return on sales. Positive outlook for and the specific outlook for this year. I must give some of you a big complement how close you were in respect of the outlook that we give. And again, a great respect, as I see how much time we spend internally to go through all the business details and do it again. And so perhaps we can learn from you how efficient you do that. Yes, the CapEx programs, also, I believe, very, very important. Yes, Emmanuel mentioned share buyback, yes, could be very attractive with the current valuation of TKH. On the other side, also the value creation that we are looking for with organic growth and really fantastic projects with very high return on capital employed, today around EUR 160 million additional CapEx, not on 1 year and it will come in about 2 years. Yes, I believe it's very exciting internally also to work on these projects and very interesting building blocks, again, already on a strong foundation. Not too high risk of doing these investments compared to also to 5, 10 years ago. And yes, customers almost screaming, crying for the supply. And yes, we are working, of course, very closely with potential customers on already getting orders in, in some areas where we are positioned with the CapEx plan, we have a very long outlook, long-term view of what the investments will be in the industry, where it comes even to already capacity -- reservation for capacity that you even do not have today on stream. Yes, the long introduction was the key messages so that makes life simple for the next slides. Here you see the background of the information on the previous slides, I believe, to point here to the return on sales, which has improved in H1 to a nice percentage of 12.8%. And you have to realize that the pricing effect is having a negative impact on the return on sales. And that's a quite big impact. And perhaps Elling will explain a little bit more later on how big that impact is. So on that -- with that keeping in mind, we are really on track also with our target and especially, of course, where we are looking for the result to be achieved in 2025 as an absolute figure that has our targets. I go to the next slide, and I covered also most of the points here. Of course, here, you see the plans where we are going to invest and where we are investing the fiber optic plants that we are building in Poland is really supporting us also to create more profit, and that is related to the import duty effect. Elling will come later back on what kind of effect that is, but it's really substantial this year. And in that respect, it is also a good point to take a wish you in the future as compensation power for additional profit in 2023 when that capacity is coming on stream starting in Q2. And it's also amazing how fast we are building this capacity with a fantastic team in Poland. The team is working very close, of course, with VMI, where we are also investing in additional capacity in Poland. But yes, also the speed, the time that we need to get to realization, including all the equipment is really amazing. I'm really proud on the people that are managing this. Yes, then medium-voltage and high-voltage cables. I believe we had a very good vision of what would happen in that market. But still, we have been too shy. I remember, it takes normally 3 years to get your capacity on stream, 2 to 3 years. And yes, the last investment that came in last year in Q4 -- Q3, Q4, it was already actually almost the same day completely utilized. And that was not because we had good estimates of our customers. Now all the customers had -- we don't see actually any additional demand, perhaps a few percent. And at the same time, we were reading the newspapers that we are not anymore allowed to use gas. We have to go to electrical vehicles and -- but nothing happened in the infrastructure. It's really ridiculous. But we dared to do these investments. And yes, we know that with the capacity that we get further on stream, we can make an additional big step. And what is additionally interesting is that we will get also a market share in the high-voltage business, where we are working already for at least 2 years to get all the certificates, but that looks well. And yes, as an additional area in the medium, high-voltage in the power cable business that will support further growth. And although, let's say, with all the trends of the increased demand for infrastructure investments, it is incredible what will happen in the coming 5 to 10 years with investments. And that's not only in the Netherlands, it's all over Europe, I would say, not only Europe but also in Asia, in the United States. And from a competitive perspective, you see that most companies are focusing on their core markets for TKH, that is the Dutch market, and we have more than our hands full on the Dutch market. We have a big advantage there with our supply chain organization, our logistics, and we are, in that respect, also well protected with our position to also have a safe position for the coming 5 to 10 years. Then the plant in -- for subsea will be a very important investment. We initially planned that investment in 2 phases. But yes, we saw, of course, the demand growing even much faster with all the leads, the additional announcements here in front of the Dutch Coast and the Danish Coast, Belgium Coast that -- I would say that the capacity that we are creating now might already be shy to serve that demand. A big advantage is of Phase 1 and Phase 2 that initially, we had the plan to transport half products, the semi-finished products from our local plant to the new plant, but we canceled that and have now everything on one location, that saves also a lot of logistical costs and a lot of storage cost, where we would have had an additional storage location to be rented. So also with respect to operational costs, we have a lower operational cost. And of course, the scale of the new plant to be able to get all the efficiencies in and produce the longer lengths, which also is a big -- has a big efficiency impact. And what is also very important that we see a further increase of the proposition. So today, the majority of the subsea cable is 66 kV. We came from 33 kV. It's really moving on a fast track, and we are positioning already for 132 kV. And what you see is that the higher you go in respect of voltage, also the higher the margins will be. Of course, there is also a kind of risk related to that, not for nothing, the margins are higher. But if you are able to manage your operations in the right way, then that has a potential of increased margins of the subsea cable business. And we have a very big advantage there when it moves up to 130 kV because we already have the metal sheet, the aluminum sheet around the core, which is, yes, a unique proposition that we have. We have a dry design cable. And for -- the higher the voltage is, the more the necessity to have a dry design and the standard in the industry is a wet or semi-wet design, goes too far to explain you all the details. But it's a really key point how we already have a USP prepared for the 130 kV business. And where we don't have to go any more through this learning curve, and we had a very steep learning curve, and we came from very far in respect of, yes, all the issues we had to get to stable manufacturing. But that is very well developed now with this aluminum sheet -- welded aluminum sheet. And another interesting area is dynamic cables. So what you will see is there will become more floating platforms. And the floating platforms are moving. And for that, you need cable that, yes, can support that movement, and we call that dynamic cables. And the current price of the dynamic cable is more than double the existing price of a subsea cable. And also there, we have, I believe, a unique position to be able to address that market with the right technology, with the less -- least risk for our customers. So yes, you see I am very excited about this investment with the opportunities that we have there, and it's in that respect, not the same as what we have, but is offering a lot of additional opportunity also for the high voltage and further development of the portfolio based on our USPs. And then, yes, last but not least, 2 other very important investments, our connectivity systems where we are building a new plant in combination with the fiber optic plant. It's 22,500 square meter that we built together. And the specialized connectivity business is really, really attractive, where we are making there today margins above 20%. And so, yes, expanding there. We are also positioned in a very, very attractive area of automation again. And the automation in this sector asked for really, really high liability of the cable system and miniaturization is also a key trend, and we are really unique. I believe there are only 2 -- maximum 3 players that are in the position to deliver what we are delivering. And again, the barrier for entry is really, really high. How we see, yes, also many customers struggling with that because it takes sometimes more than 3 years to get new suppliers approved. And yes, the headache that can cost you with the risk that you have leads to the decision that in most cases, the customers are not moving or creating a new supplier. But the lead times have really increased. We have lead times here of more than 12 months. We have an order book also of more than 12 months, which is, I believe, great and a fantastic opportunity, how we are there related also to automation. And then, of course, the Tire Building, we need that capacity. We have our growth plan, and many of you will remember our target in the growth vertical to grow to more than EUR 500 million turnover. And I believe that is not the end of this business, and I will come back in an example later. And also the order book is very good. We still believe at this point of time that we can get to an order intake this year, which is around EUR 400 million, and that is really a big step-up compared to the past and the record that we have ever had in this business. And there's more to come, if you look at the propositions that we have, and again, I will come back later. Yes, sorry for a little bit long explanation only on this side, but I believe key elements to also see that we are really different and that we are with our execution, a unique company that I believe should get more respect in what we are doing related to our -- to the valuation of TKH. Yes, the Smart Vision activity, nice organic growth. We see that the price effect here is smaller than in the other areas. We have seen impact here of the supply chain, and that eases off in the second half year. So the outlook in that respect is better for Smart Vision systems, especially in the security part of our Vision business. We saw that we had big issues with the supply chain. And now in June, we saw, let's say, kind of more normalized activity level. There's a big step-up in the profitability because we didn't reduce the capacity that we have, because of the demand, the increase in order book and, yes, all the projects that we have on our radar. And we are quite specific here that we can see a growth in both turnover and the profitability in the second half year. We had very nice turnover growth in the Machine Vision segment of around 16%, where especially now and finally, I would say, 2D Vision did really, really well. And we have spent a lot of time and a lot of effort put into the R&D road map. And finally now, we see that we have, I would say, goals in our hands with the technologies where we have betted on, which was perhaps not always 100% certain that they would be a kind of breakthrough technology, but now we see it is really breakthrough technology, especially our embedded vision is doing extremely well and is also coping with the shortages in the supply chain, with this chip that we have here. We have so much functionality that we do not need a lot of other components in our camera technology, through which we can deliver on a very short time -- can deliver in a few weeks' time, whereas competitors are struggling with very long lead times, sometimes even up to 6 months. So yes, once you have gained such a market position that is a strong foundation on which you can further build. And yes, there's a huge growth potential there in the vertical markets that we have further defined there to be positioned in. And yes, what you do is also if you want to gain that position, you have to realize what needs to be your proposition to have the winning proposition. We made in the past I would say, 18, 24 months, a lot of these analysis to see where our potential gets, how can we even disrupt the market further with our technology. And yes, with specific developments there, we are preparing for and have prepared to gain those positions, which gives a lot of power to grow, to gain market share in a huge market. If we look at the total vision market, we only have 2% market share. In some areas, we have a very high market share. Like, for instance, the wood industry, we have more than 70% market share -- And we are looking for really winning positions with high market share. And I believe also what VMI did to come from perhaps 20%, 30% market share to be the leader of the industry. That is what we are focused on with our vision technology. And the one-stop shop that we have created there is amazing, and the cooperation that we see there is also really amazing. We don't have one integrated company. But we have, let's say, business units there that really cooperate in an ultimate way to support each other. We see that combinations of companies, wind projects which won -- a single company would have never won. And that is what we are striving for, of course, how do we get the synergy out of these fantastic technologies that we have. And the big trend is that customers want to work preferably with one partner. And that is what we can support that with good account management and also specific targets in our development to exactly know what we need to serve to our customers. The 3D Vision had some difficulty in especially Q2 with the lockdowns and limited supply. In 2D, we only have a relatively small position in Asia, in China. So that was not or hardly affected, and that gives also a perspective for the second half year that will be normalized as we look at it at this point of time that the lockdown effect has been -- has disappeared, and we have begun full-fledged focus on our deliveries. So that is the update for the Smart Vision, perhaps I have not covered everything, but I also like to give you some time to ask questions. Smart Manufacturing, very nice growth. Of course, the comparison base was more easy because of a weak Q1 in 2021. Pricing effects relatively small, but there is more to come in respect of pricing effects and also a little bit recovering of, let's say, margin because there we have a situation that we cannot always increase -- pass on the increased component prices to our customers in existing projects. So yes, that is normalizing now and will bring also especially, I believe, for 2023, a positive effect on the new orders that we are booking and partly also on the existing portfolio, where we have been able now to pass on price increases. And you can see that the added value is still at a quite high level, and you don't even see a big impact there. But we are really underutilized. We have much higher costs and costs related to a potential turnover that is much higher than that we have at this -- are utilizing at this moment. And yes, we believe we need that capacity also in the growth picture we have for the medium term, I already mentioned the EUR 500 million. And yes, that also has to do with the UNIXX, have a fantastic proposition, where the existing launching customer has decided to focus on other priorities. And at the same time, we are today discussing with 3 potential parties that are interested in UNIXX, and, yes, we are really close to a further commercial launch with all the tests that we have done. We believe that the foundation to move on with the technology is quite good. And to remind you, we have sold already many modules of the UNIXX system. So we have, let's say, a good view today on the performance of the high-end innovations that we have put in this UNIXX. And so yes, a little bit delay because of the decision of this customer to focus on other priorities. But on the other side, we can go full-fledged now with other potential customers, and the excitement is really, really high for the perspective and the opportunity UNIXX is promising. And the Revolute is also a very, very interesting technology. And this is a very good example where we see that we are continuously further automating the process. And eyes off, handoff is the motto there to see how you can improve the efficiency. We all know that people, operators are really getting scared, especially high-skilled operators that need to operate such a machine. And anyhow, when an operator is running a machine, there's still a big risk that an operator makes a small mistake and that there's a big batch of tires not produced to the spec as it should be. And The Revolute, to give you this example, what's going on within VMI with our Tire Building equipment. We sold this system about 5, 10 years ago for around EUR 500,000. Today, we are close to EUR 2 million. And of course, yes, the output is also higher. So we have an improved productivity. But also what you see is the level of automation is amazing, how to make a better product. And this element, it is in the sidewall of a tire -- rubbering in the tire to keep it simple, the Bead Apex. And it's an essential part in the tire. And then you see also that the industry is willing to invest to get better technology that reduces their risk, improves their productivity and their efficiency. But anyhow, they are making -- they are able to make a better tire and that helps, of course, also these kind of building centers, now only giving this example. We have more examples that we could present with a value -- a sales value of more than even EUR 2 million, that we didn't have in the past. So a fantastic opportunity for this activity to also utilize what we have and to create a lot of value creation in the coming years. And Alvium doing really well, I believe, also a very big opportunity with what we can do there in the industry, the medicine distribution industry. And yes, the big order, which we already published or, yes, announced last year of around EUR 30 million is now in the execution rollout really doing well. And yes, a lot of interest from other players that see the amazing efficiency you can get and the much lower number of faults that you have a wrong pill in the package and which is a big issue. And if you see how much less faults we have then that there's a huge difference to what the standard today is in the industry. And you can imagine that no one is allowed actually to have faults. And anyhow, you cannot completely prevent and there are inspection systems afterwards how you can take out the faults, but that also is very inefficient. But there, we are setting the standard today with the level that we have, and that is also attracting, let's say, a lot of potential towards us beyond the attractiveness of the repeat medication to be distributed in the small intake packages, which will be the trend for the coming decade that this will take a very hard market share. We've got a very nice new order also in Scandinavia. And I believe the [ the third one ] is coming in also in the coming months. So we see also in Europe because the big order came in from the U.S., but we also see that Europe is getting traction in getting appetite for the investment in this fantastic technology that we have here. Then we go to Connectivity. We see that the price effect here was even the largest, 11%. So the organic growth was still substantial with 13%. Yes, already some limitations in our capacity. If we would have had 30% more capacity, we would have been able to sell that. So that is, of course, frustrating, although you see very nice organic growth already. And -- but again, the perspective also for the coming years is very, very interesting. When we look to the second half year, we are limited for growth at the moment with our limitation in capacity. And starting in 2023, we will have, again, additional capacity, and we can further grow. We see some efficiency improvement potential that can help us to increase further the margin. We are working on that, execution is key there. So it's not only the growth through which we can increase the profitability, but also the efficiency that we have and are eyeing on further with productivity programs, for which we already did also in the past year. A lot of investments that will now be installed and bringing additional productivity and from that, also reduce cost. Especially the energy transition is doing well, but I would say that also digitalization, the fiber optic business is also doing really, really well, about a similar growth as we have in the energy business. And yes, I already mentioned the specialized connectivity systems for robotics. They are all around this 13% organic growth. And yes, all activities are limited in respect of their growth at this moment because of the barrier of the capacity that we have. But again, perspective in these 3 areas for the coming year with a very high probability that we are also going to utilize the additional capacity. And again, in digitalization, we have the effect of the import duties and that was mentioned in the [ third ] bullet through which we see a quite substantial a drop of the added value. And again, Elling will come back to that later. This was 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. I have a couple of sheets on the financials for the first half of '22. As usual, I'll start with the geographical distribution. And as usual, I have to say that Europe is still responsible for about 2/3 of total sales. We see, though, a little bit of a shift from Asia to North America. That's mostly driven by manufacturing systems. Alexander already mentioned, Vision, some hiccups with the lockdowns in China and at the same time, order intake in the past for Tire Building as well as on the Care segment, we have seen that North America is getting a little stronger. So from there, a little bit of shift in North America representing 12% of total revenue. If I go with you through the P&L, starting off again with the revenue base, about EUR 900 million in sales, the plus 24%. As you can see in the chart here, about EUR 50 million was, in euros, at least the price effect we've seen in H1, EUR 35 million, basically related to Connectivity Systems. In the past, we have been talking to you about the impact of raw materials. Raw materials meant basically the copper prices in the past. Of course, we have seen recently that there's all kinds of things, which are increasing in terms of pricing. Therefore, we have modified the reporting, so not just raw material, but a bigger basket of pricing effects. And of course, raw material is part of that. Still substantial organic growth. We could have had a little bit more growth if we were able to deliver without any constraints due to supply chain, lockdowns, et cetera. Luckily, that is revenue, which is not lost, but basically shifted to the second half of this year. Important is the added value line, 47% compared to 48.2%. Clearly, the effect of pricing, if we pass on the pricing effects to our customers, it impacts the top line. It would be nice if we could have a full margin on these price increases, but that's not real, and that's not how we work. So as a result, you see that the added value is under pressure due to the price effect as we are not able to charge the full margin on this. And therefore in the end, bottom line, you see the return on sales being impacted due to the fact that top line increases, but margin, due to this effect, not. So the incremental starts to move. And the margin of the 47% has been affected not only by the pricing effects but also due to the revenue mix, a little bit less Smart Vision revenue. Smart Vision, in general, as you can see in our segmentation reporting, high gross margins. So distribution also is responsible for a drop in margin compared to last year. And indeed, the import duties on fiber, which is fairly new. I mean, since October -- sorry, end of November last year, the EU implemented anti duties -- antidumping duties on optical fiber coming out of China, entering the EU. We are part of this. That means also that we have a duty to pay on the imports of the portfolio which we manufacture in China in our own facilities and bring it to Europe, impact in the first 6 months, about EUR 4.5 million. So EUR 4.5 million, it's almost 1% cost of goods sold, which is affected in here. And obviously, this is one of the clear reasons why we also put, let's say, power on getting the capacity within the EU. And as a result, we have identified and started the project of expansion of the fiber optic capacity within the EU, specifically in Poland. Going down towards the EBITA line. Of course, we have to look at the operating expenses, EUR 307 million, up almost 16%. There is some foreign exchange effect of about 1.5% due to the cost base we have in North America. And what we see as well is that out of our total OpEx, 2/3 is related to personnel cost. We have been able to hire in the last 12 months roughly rounded off about 500 people. But that's been a big challenge, but the fact that we were able to hire them also shows that we are perceived to be a good employer and people are willing to work within the TKH structure. Of course, the full head count increase gradually gets its effect into the P&L. Another important item where we have seen OpEx increasing is in the selling expenses, especially the higher activity level results in more outgoing freight, so our selling expenses amount roughly to EUR 27 million compared to about EUR 19 million in the like-for-like with H1 '21. Then the EBITA, I think, Alexander already mentioned the EUR 115.6 million, to 12.8%, plus 37% compared to last year and basically good contribution from the different segments. If you look below the EBITA line, the one-off income, the EUR 9.3 million, we have divested some buildings, which we had put assets held for sale, a nice book profit we created here. Amortization, EUR 27 million, roughly EUR 14.5 million is related to R&D cost, about EUR 9 million plus to the purchase price allocations and the balance in the area of software. For your models, roughly a similar pattern we expect for the second half of the year on the amortization line, no impairments. That's good news, I think. And if we look at our financial expenses, up EUR 2 million compared to H1 '21, and it mostly is the effect of foreign exchange results. The share which we have in some associates also created a nice return, a higher level than the prior year, especially the share, which we still have within the CCC Group. We did better than the prior year. As far as the tax goes, we were able to generate more profit in the companies where we have some tax breaks related to R&D for some of the Dutch the [ Innovate ] box of some companies in the Netherlands had its effect. So due to the, let's say, different distribution of where results came in, we've seen a lower tax rate than in '21, 26.3% to be precise. You have seen the outlook as well that we are a little bit more careful on the manufacturing systems in the second half of the year, and that leads to a slightly higher, let's say, full year tax rate, best is to work with around 27% for full year. The balance sheet. Obviously, there are some balance sheet items which are requiring a more detailed explanation because if you look at our working capital and as a result, our net debt, we are in areas where we have not been for quite a long time, I must say. There are specific reasons on why we get there. If you take a look at some of the items like inventory, you see a substantial increase in the last 6 months, but we were around about EUR 60 million, EUR 60 million plus. I think also last meeting we had, I explained to you that we do a lot of steps in order to mitigate effects from the supply chain. And that means also that we are increasing stock levels. You see that most of the increases are related to the, call it, raw material and component part and less on the finished goods side. So that's a little bit of a rationale behind it. I'll get into more details in the next couple of sheets. But the other important item is contract assets. If I put it very simple, if we are executing projects, we get down payments and they are the contract liabilities. And as we make progress on these projects, of course, we can claim the progress with our customers. And the balance of these 2 items is, of course, the part which we finance, and that's increased by about EUR 73 million in H1. We have a lot of effort going on. We are very busy, full production, I would say, between brackets, because we have some restrictions on some of the supply chain elements, which caused for a longer process of getting to delivery and commissioning of our projects at customer premises. And that, of course, increases the time of, let's say, having these projects on our balance sheet. All in all, it leads to, of course, an impact due to the working capital items of net debt, just over EUR 400 million. On the covenant level, net debt to EBITDA, we are at 1.6; 12 months ago, we were at 1.5. But of course, last year ending, we were lower. And the main reason, as I mentioned, is the working capital. I have 2 more sheets to explain this in a little bit more detail. If you look at our working capital, our target is always 12% to 15% of revenue. Luckily, in the past couple of reporting periods, we have been below the 12% level, as we were at 11% or 10% at the end of last year. So that's substantially below the target. And if we go up to where we currently are 20% on working capital, the delta is very big. And again, the benefit is 12% to 15%. You see a little bit of the bridge here, but I specifically want to zoom in a little bit on the column here, what we call the increase. As I said, there are a few balance sheet items where we have specific reasoning why they are at the level where they are, again, 20% is high -- is too high. It has to come down. It will go lower. I think in the guidance for year-end, will be more in the 15%, 16% bracket. So getting towards the top end of the bandwidth, which we have been using for years. As I mentioned, inventories, specifically related to supply chain issues, additional buildup of inventory in order to make sure that availability is there. Availability becomes a bigger role in the business model of most companies, including ours, consequences of higher inventory. Contract assets, high order intake, especially in the manufacturing systems last year leads to a lot of manufacturing activities currently. But as I mentioned already, we are not able to smoothly, let's say, pass everything towards the customer locations for installation, commissioning, et cetera. So we have more items for a longer period on the shop floor. And that, of course, creates an increase in contract assets. No cancellations, let us be very clear. It's not a reason of that. It's pure about the high level of activity in a kind of stressed environment when we talk about components. Just to give you one big view. If you look at the MAXX system, one of the Tire Building machines, more than 60,000 components go into one machine. Obviously, 1 or 2 might be, I don't want to say missing or at least not arrive at the right time and can have impact. On the receivable side, number of days of sales, we're about 56 days, not much different from prior periods. So not an issue in their payables, close to 80 days. Not bad, especially in a situation where you need your suppliers quite a bit, and it's difficult to negotiate extended payment terms. So on these sites, I'm not worried at all. As I said, inventory and contract assets, these are the areas where the increase has taken place, but with good reasoning, I would say. But it has to come down and will go down. Clearly, these results, as I mentioned earlier, into an effect on the work -- on the net debt, of which you see the bridge here. Maybe good to mention is the investments we have done in H1 in total, around EUR 50 million, of which about EUR 28 million was related to tangibles. And of that part, EUR 12 million to EUR 15 million has been related to the initial phases of the strategic CapEx programs, which we highlighted before. So some part of the EUR 160 million, EUR 12 million to EUR 15 million is already in the initial H1 CapEx for tangibles. Then we had about EUR 22 million in investments related to the intangibles, about EUR 18 million of that is related to R&D, the capitalization of R&D, out of the total R&D expenditure of EUR 34.5 million. So we still have a capitalization program, which runs 50%, 51%, 52% of total R&D expense, no different from prior periods. Obviously, as a percentage of sales, this is substantially lower due to the high top line growth. All this doesn't lead to a fancy picture on the free cash flow, that's clear. You can see, of course, the change in working capital, where we see this big delta. I think clearly, second half should give you a better view. I think I mentioned already some of the elements, which gives you a little bit of guidance on your model for building up the free cash flow analysis for H2. And on the right side, again, the historical working capital results compared to the target of 12% to 15%. And of course, when you have a very low working capital, then of course, the delta is very clear as we can see in here. The outlook. Of course, there are all kinds of disclaimers around this, but we have done the utmost in order to incorporate everything what we can see, and this is our view for the second half of the year that within Smart Vision systems, EBITA and turnover are expected to increase compared to H1. We see some of the delays from H1 going into H2. Within Smart Manufacturing, the turnover and EBITA is expected to be lower than in H1. I think we highlighted already quite a bit that we see more impact of supply chain issues, component availability, et cetera. And therefore, a delayed, let's say, installation and commissioning period of the projects at our customer sites has an impact. And of course, the OpEx, which we have, the organization is fully busy in keeping everything to the maximum working, but it has, of course, an impact on top and bottom line. Order intake is not affected by this. Actually, as Alexander already mentioned, Q3 started much better than we have seen in the previous Q3s, doing very well. So order book is good and also the outlook here. Within Smart Connectivity systems, we expect for top line and EBITA at similar pattern as in H1. Some capacity issues are there. In some areas, we're running at almost full capacity. We there have to go through the more bigger CapEx programs in order for higher growth once the programs kick in. All in all, we expect that the net profit before amortization and one-off income and expenses attributable to shareholders will come out in the EUR 136 million to EUR 144 million compared to EUR 114 million last year. So far, the presentation part, and we'll open up for Q&A. There's a microphone here in the front. Probably have to walk to the microphone yourself.

Emmanuel Carlier, Kempen, 4 questions, 2 quick ones. First on CapEx. Is the guidance on CapEx unchanged, i.e., around EUR 120 million for 2022 and 2023? Then secondly, on the working capital, you guide for a drop back towards 15% to 16% of sales. Is that mainly the contract assets that will come down? Or what is the key driver for that? Then a third question is on Smart Manufacturing. So on Smart Manufacturing, you guide for softer sales in the second half of the year, but could you maybe disclose a little bit the kind of capacity that you have available for the second half of the year? And I also think you mentioned that this issue will remain until the end of Q2 next year, which is pretty long. So maybe good to better understand why you have already that visibility? And then the final question is a pretty broad one, but if I think about headwinds being recession, but then on the other hand, tailwinds, like profitability improvements in Smart Manufacturing, in parking and in AGL, you don't make a lot of sales, so probably that will catch up. On top of that, you have new capacity coming online. So it looks like you have a lot of tailwinds, which, yes, based on the order intake at the other hand, should result rather in still a higher EBITA next year versus this year, which is definitely not how the market is looking at it today. So we'd be happy to hear your views on that.

The first question on CapEx for this year, you referred to the EUR 120 million, I'll give you a rough split. We have indeed something close to EUR 70 million on, call it, the more regular CapEx programs. And then, of course, as I mentioned also in the March meeting, we have a higher CapEx coming out of the strategic CapEx programs. You might recall that at that point in time, we gave a little bit of a lower CapEx amount than what we have now here. That's on the back of some scope changes and that's especially in the area of, I would say, subsea. We see the opportunities for subsea, well, they definitely become stronger, I would say, in the last couple of months. And it also means that we changed the scope a little bit of the investment in the sense that what we prior had as a kind of Phase 2 program that some of the Phase 2 parts we have brought earlier into the concept. That's why the overall ticket is slightly higher than what we communicated before. So the EUR 160 million, of that, as I said, roughly EUR 12 million to EUR 15 million is already included in H1, and that's already on top of the EUR 70 million for the full year. And then roughly, you have to add another EUR 50 million more or less for this year and the remainder will be next year. On the working capital, how do we get to 15%, 16%, partly contract assets. That's correct, but also the, let's say, effect, it's not only contract assets, which is the only reason on why we have a working capital going to 20%. We see also in some of the other areas that working capital is able to reduce a little bit. We mentioned, for example, that in the Vision segment that we have, I don't want to say, past because you can never say something like that on supply chain issues. But it looks a little bit better in that segment for those components than we have seen, for example, right now in manufacturing system. So also there, you will see that probably the need for some of the stock items is a little bit less. So it's a basket of elements which are moving here. But I think within manufacturing systems is where, of course, a kind of bigger ticket will be the delta and creating the percentage drop for the entire group. Then in Smart Manufacturing, how much capacity is available still until when do we see these hiccups? I think that's also a difficult question in the sense that it's very difficult to look through the supply chain towards the supply chain of the supply chain to figure out at which point some of the critical issues are resolved or not. We don't anticipate that within the next 6 months, this is going to be done. So we will have to deal with this, and that can probably have a further impact also in H1 next year. So it's very difficult to say an exact deadline when this whole supply chain issue will not have an impact anymore. Clearly, for the next couple of months or 6 months, we have a clear view, and that's also communicated in the outlook as we did. And we only know that it will not be completely disappearing at year-end. So we still have effect in H1. To which extent? That is a difficult question to answer at this point.

Could you maybe give the split between Q1 and Q2, so we have a little bit of a view on next year.

For this year?

No, this year because I think the issues mainly start in Q2.

Yes, Q1 was running quite smooth, and that's why we had such a big improvement in the profitability in Q1. And we also guided that in the outlook we gave after the Q1 update that Q2 would look worse than Q1.

Yes. But you did EUR 256 million, I think or EUR 260 million in sales in H1. You guide for lower sales, but could you quantify a little bit more how much lower? I appreciate that you get -- you don't know exactly...

It's around EUR 20 million. Although there are also other activities in that segment. But related to this, it is about comparable EUR 20 million is the issue we have in Tire Building.

Your last question about...

I believe the perspective is that we have a potential to have higher turnover in H1 2023. But at least there, we are working also with redesigns, redesigns that our suppliers are doing. But it will not be over the 1st January of 2023, but Q2 might look better than -- that we see in Q3, Q4 and Q1. And then, of course, in the second half year, it should be quite normal again. And yes, that is -- yes, you mentioned that in your last question that it could be that we get quite a lot of the tailwind strong position that we have. And that has a lot of compensation power in 2023 for any area where we would be affected because of recession.

Tijs Hollestelle, ING. Also a couple of questions. Yes, the 132 kV cables, is that specifically for the next-generation offshore wind farms planned for, I think it's '24, '26, that's is far out, but the industries need upgrading towards a bigger scale in those cables. And you basically already have the technology really to go along, which is helpful. And then also another easy question, any more specific commercial successes in Vision technology, so you gained a big customer or new end market, you have to mention the name, but a bit...

The logistics market that is already for a long time, let's say, kind of key market where we see that are huge opportunities. And we have a very small market share there. And what we see, especially related to forklift trucks that we have a breakthrough there. And this asked for quite intelligent systems and also the latest acquisition, Nerian is supporting our position there. The Nerian technology is able to measure distance in a very efficient way and very precise way. And now that is again a building stone, which is very important for the -- for having the right proposition in the whole package that we can deliver in that market. So yes, another important, I was almost going to mention a customer. I'm not allowed to do that, sorry, but in the lottery market, where we analyze lottery tickets in a very, very efficient way, in a precise way you cannot make a mistake completely automated process and you need automation there. And there, we are -- we won a very interesting project and this really potential of thousands of cameras. And so that's one example of a big ticket because you will see in the end in every shop where they sell these tickets that they will have such a machine. We are not delivering the machine. So we're a subsupplier. We deliver the software and that is nice. That's not just a hardware proposition. And especially through the software proposition, we came in the winning proposition. And of course, you need state-of-the-art technology, whereas they at first thought they could use a really simple camera. But in the end, we were also to upsell that you really need the technology. And now in the combination, we can really support the analysis that needs to be made with, let's say, 100% proof. Yes, and I can continue with that agriculture is a very important area that we are growing. The battery business, we saw that we had very nice growth in that segment, and that was especially in China. At the same time, we see that everywhere in the world, battery plants are being built. China is the most competitive market. So if you are able to sell there, it is easier to sell your technology and also in more added value with a complete system, including software in the Western world. So that is on the move. Yes, and then the medical industry, where we are also winning with the new portfolio that we have. We have introduced after USB, the GigE interface, again, where we thought it would pass out. We see that it is really still a very important market, and we adopted that technology. We see that, that really helps for a lot of applications where they still use that technology. And yes, I can continue for a long time, I don't know.

And it's indeed helpful. And is it also that it is becoming less, let's say, hit and run. So you have a tender and you sell a few of these cameras that these clients do really recognize the technology and start also to work with you.

But I have to be careful that I don't mention the name of the customer. The lottery business. This is a project for 5 to 10 years. Once we are designed in, they will not change it because they make so much money with this system that -- and then we are a relatively small part of the cost price, that, that is not a big risk. And there's a continuity for many, many years. And we are in the slipstream of how they penetrate that market with the selling of the system. And that -- and we have many examples there, and the forklift truck business, you can imagine, once you are designed in, you will have the business for the coming 5 to 10 years. And it's an ultimate way of customer intimacy and relationship where you cannot change very easy to another supplier. And that is where we focus on the past few years to really get differentiated technology to not be able to easy replaced. And that gives also really a good long-term perspective of the growth that we can achieve in this segment.

Okay. Very clear. Yes. And then also, I think it's basically the same question as Emmanuel have, assume there are no supply chain issues, and you gave us a compliment for forecasting the numbers quite well, could you give us a little bit of help in terms of when you can do it conservatively, but when you see the current capacity investments, but also the plan for capacity investments in kind of building blocks, absolute revenue contributions over time because indeed the stock market things, then there will be a big hit from a recession, but you do seem to have a lot of additional capacity at least to keep the revenue stable next year. So a little bit helpful because you already explained a lot, but there's so many moving parts that's difficult to track when exactly the capacity is, let's say, ready and then you have to fill it up. When will the actual revenue contributions -- the material revenue contributions start to impact the numbers, quarter-by-quarter preferably?

I would expect a week by week, let's say, most of the -- we talk about the CapEx programs, around mid-'23, so middle of next year, they're coming to a kind of stage that gradually, they are available in terms of operations. There might be a little bit of a few months difference for the different projects, but roughly, that's the kind of contribution we start to see in the second half of the year. Of course, fourth quarter at a higher level than Q3. But safe to say that starting '24, '24 will be a full year of -- full capacity utilization of the CapEx programs.

For energy infrastructure, subsea, tire and the fiber optics all the timing is more or less the same?

Of which some might already start in the middle of '23, but the more material ones, I would say Q4 and starting the first start first part of '24. And if you look at, let's say, the overall contribution or, let's say, top line coming out of this, that's a difficult question because the range is in many different areas, but I think I'll give you a rough ballpark, but EUR 200 million plus is for sure what you have to look at.

Not in one quarter. In the third quarter [indiscernible] I understand that.

At 12 months basis.

Yes. Okay. That's very helpful. And yes, one final one. I understand correctly from your comments on the trade working capital, but nothing happens, let's say, out of your control. I mean I understand that the supply chain effects are out of your control in that, but that is you understand nothing strangely volatile, strange behavior, clients...

No, as I said, I mean, on the receivables, there's similar patterns in the past, nothing special there. And the -- let's say, the stock buildup is let's say, well-coordinated with our OpCos, which areas do we invest more? What kind of components do we actually acquire more aggressively than what, let's say, only order book will define or other parameters. So this has been a progress -- process in which we have been basically bottom up, building the choices which we made. Of course, if you look now at the total picture, obviously, it has a substantial impact when you talk about free cash flow, et cetera. But these are areas where we are working on. But I think availability has become a much more important element in the business model, and that's where we have been working on. We have good order books. We have good order intakes. We don't see any cancellations. And all of this is on the back of that, we also have a good, let's say, delivery schedule towards our customers or potential customers. And yes, sometimes we also need to discuss with them because of issues change. But the fact that they are running to order with us is also a good sign because we have the possibility to serve them and may be slightly different on the different time frame than it was 3 years ago, but we are still able to increase order book as a result. And I think that's why we look at, and this is how we have managed this. But at some point, it has to go down, obviously.

There was an additional risk mitigation to secure components of unreliable suppliers, where we saw in the past that 1 or 2 months before they need to deliver, they completely cancel. So you need to mitigate it with. So once there is an opportunity that you can get something, then you do that. But that will normalize because of a lot of redesigns we did, and that will come in already in the second half year and then that has a big impact on reducing the inventory because we have less need for risk mitigation of this cancellation risk.

The feasibility on the, let's say, the cash collection on the debtors and the contract assets, et cetera, because you know that you get the components. The only thing you don't know is that on the new -- the newly generated business that can also have an expected impact on the trade working capital. That is basically how I look at it because you never know exactly what will happen.

I mean, as I said, the 60,000 components, there's always something which pops up.

Too much components.

But let's say, with all the work, and it's not something from the last couple of months, I mean this is already for, let's say, 18 months that the supply chain is, let's say, a key topic in the operations agenda. We have been finding a lot of ways and a lot of, let's say, concepts on how we could handle this on the supply chain side, but also in our own operations by doing things differently or it's a different order. All these kind of things are in there. But at some point, the last part has to be stretched, and that's what we are currently looking at.

Michael, Degroof Petercam. First, I have 2 questions on the optic fiber business. Could you say by how much your capacity will increase when the plant in Poland is completed? And the second question is, you mentioned EUR 4.5 million in import duties. Did you have to take that hit entirely yourself? Or were you able to partly or fully pass it on to your customers?

To start with the latter part, I mean, the duties are on our account. Of course, what we have seen, and that's an effect in general of taking these kind of steps by the EU is that dumping practices are blocked. We are not a company who is involved in dumping, but some of the Chinese operators have difficulty to -- let's say, to be as aggressive as they were in the past. This, in general, leads to a better price level in the market. But that is not something we have been able to see moving up that rapidly. I think there's slightly better pricing, but it's not to the same extent that the entire level of duties and the duties depends. They go up 30% to 40%. It's not something that the price mechanisms has worked to a level of 30%, 40%. So a big part -- a large part of the EUR 4.5 million we have been -- we have to absorb ourselves. Over time, of course, market prices should develop better, but especially the new facility in Poland will help us to mitigate this effect. The plant in Poland is partly bringing capacity allocation from China into the EU. So it's not pure expansion, but we're talking about roughly 15% to 20% capacity expansion on the cable side.

Okay. Clear. And should we expect a similar EUR 4.5 million in second half? I guess, we do because your plant is not yet finished and you're still going to source there.

Roughly.

And then hopefully, part of that EUR 4.5 million will be absorbed -- will be compensated by better pricing. Do you see something in the market already happening in terms of pricing?

Slowly, but not to the percentage levels, as I just mentioned, that's not what we see.