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

A very warm welcome here in Amsterdam in our Experience Center. Special warm welcome also to the audience in the webcast. Yes, we are proud and excited about the results that we presented in the last few hours about the results and the developments that we have in the TKH Group. Very strong growth in the turnover, I believe, really, really well. And of course, also the EBITDA grew quite nice, including the net result, even 44% growth. What is actually, I believe, very, very interesting is that how we have developed the group into about 80% of our turnover today related to high-growth markets, the 3 megatrends: automation -- production automation, digitalization and the electrification, and especially the last one developed really well and even a better outlook than that we had in mind or had analyzed at our Capital Markets Day in 2021. So also very good progress in the Accelerate 2025 program, and we will come back to that later. But especially, the turnover is doing very well. If you look at the average growth of turnover, we would have been at an average of around 7% and then achieving 18% is really going beyond. We are also proud of the new committed credit facility, especially the fact that it is linked now to sustainability targets. I would even say that the whole sustainability focus that we have in the group also with our portfolio, about 68% is related to SDGs. It is, I would say, even in our DNA within the management and people in the TKH Group. Very good progress in the strategic investment program. That is also a kind of additional to what we developed as targets in the Capital Market Day. I believe a very, very nice opportunity, and the trend of the electrification where we are investing about EUR 150 million is really very exciting and a very big opportunity. We are progressing really according to plan. Complex projects, but, yes, we have a lot of experience in building new sites. And in that respect, it is not completely new for us. Also I believe good news that we do not only have a nice dividend of EUR 1.65, but that we also have a perhaps relatively small, but share buyback program of EUR 25 million. Yes, we are working also on, let's say, our communication to the market. I believe we are still a little bit positioned in the shadow, perhaps not yet seen as the technology leader, and that we are positioned really in high-growth markets. It is, again, very good to understand that, and that -- what is also very important is that we have these innovative technologies related to sustainability and efficiency, and especially to improve the world, I would say. What is also good to see is how we developed, perhaps, to give more confidence on what also can be the future of TKH. We have an intensive divestment program behind this. There's more to come. We made nice progress with the CCG group, where we still had a minority participation. You can see that in the left upper graph, had a wide part, which is the divestments turnover that has been eliminated. And on the other side, you see a very nice growth of the turnover of the 3 segments. But what is especially important is to see that, in the end, the EBITDA share of the Smart Vision area is substantial today. It was, in 2008, around 13%. Today, it's 38%, and that is also an area that has huge opportunities, especially related to the automation, eyes-off, hands-off manufacturing. But it's also interesting to see, again, perhaps, many of you are following already longer TKH, is that the R&D expenditure has led in the end to a higher added value. And perhaps, 2022 is not completely representative because of the high share of the raw material price increases in the turnover, which has a dampening effect on the added value. And some -- a few of you have also seen what's going on there and have normalized debt. And another very interesting development is the order book, especially if you see where we -- it came from in 2008, 2009, when it was still below EUR 200 million. And today, it is close to EUR 1 billion. And last year, it was about 30% more than the year before. Yes, about delivering value, here, you see all the key -- KPIs. Innovations is also in our DNA. We see the last few years, last decade, I can almost say a level above or around 20%. We continue to be very innovative and make a difference there. I believe that's a very interesting opportunity to grow our market share and to go beyond the growth of the market in itself. Also worthwhile mentioning is the order intake, which is not on this sheet, but -- which is above EUR 2 billion and, I believe, is a good sign in which direction we are moving, coming from EUR 1.5 billion in 2021 to EUR 1.8 billion, and an order intake of already going beyond EUR 2 billion. I believe, a very, very nice development. And what we saw is that all segments contributed quite well. The price effect in our turnover were there and is quite substantial. It was an effect of 7.6% and a small currency effect. The return on sales, nice growth from 12.4% to 12.9%, with some price effects in the turnover, as we can pass on price increases, but we cannot make margins on the prices that -- or the increased raw material prices that we pass on to our customers. And then 2 temporary, let's say, effects in the return on sales, which I believe is important to address because temporary means that there is the opportunity that, that will be normalized in the coming 1 to 2 years. First is in the Tire Building systems, where we have seen that through component shortages that we had about EUR 30 million less turnover in the second half year. It can be easy calculated if you look at the turnover in the first half year of Smart Manufacturing, then you can see that the turnover was substantially higher in the first half year than in the second half year. We had sufficient demand, had the order book grew. Fantastic order intake there, a new record. But yes, the growth there was limited because of the shortage of the components, with a substantial effect of around EUR 15 million in the result. Because all the costs that we needed to have for the higher turnover were there, we could not reduce that because of the complexity and the inefficiency you get when you don't have the components, and you still want to continue to develop your work in progress. And then another important impact, and there was a small mistake in the press release, that starting from the 1st of November of 2021, and in the press release, it was saying 2022, we -- the import duties were introduced in the EU related to import of fiber optic cables from China, and we outsource the fiber optic cables for a big share in our activities towards our plant in China. We have decided there -- and that was an effect of around EUR 10 million, and we decided there to develop a new plant in Poland, which will be up and running in Q3. And with that, we are eliminating the import duties again. Yes. And then the supply chain challenges, what we see is that it worked out actually quite well in the Smart Vision area, where we saw, especially in 2021, a lot of difficulties. But through redesigns and also, yes, getting more availability of components actually in the second half, it was not having hardly any limitation anymore on our activities. So what happens in the -- or happened in the Smart Manufacturing is related to a few key components like the [ PLCs ], the control equipment and only a few suppliers and, yes, not so easy to replace that and to find new suppliers because our end customers are all, let's say, used to use these systems and they are, let's say, specced into their whole manufacturing sites, and it's almost impossible to make changes there. So we have to be a little bit patient to see when this is going to relax. At least, we have a fantastic order book there, and customers understand that we cannot perhaps deliver to the level that they would like us to deliver. And of course, we are still delivering. We have a high turnover already, but it could be about 20% or even more than that we are doing today. Yes, the refinancing, I already mentioned. And the share buyback, I also mentioned. Yes, executing on our strategy program, I'm really very happy that we took all the efforts to get to the new segmentation, to get further focus, to get focus on the 3 megatrends: automation, digitalization and electrification, and to have the people in our company really focused to that. And yes, we don't make it easy for investments outside of these megatrends. And yes, we have also our hands full to support the growth opportunities that we have there. And yes, the good news is that the outlook has improved and -- especially also in relation to automation. As the inflation, we see in the labor cost, the wages, it's incredible. And yes, the need for higher productivity is really, really a key priority in many companies. And yes, through our Vision technology, we support automation, eyes-off, hands-off manufacturing. And also the scarcity of people, of course, is supported by the automation opportunities we can bring with our Vision technologies. And the same is with the electrification. Also there, we have seen a lot of announcements in not only the world, but especially in the Netherlands for new wind farms coming up to, in the end, I believe, around 65 gigawatts not so far from now, and I believe 5x more capacity needed and being organized to get on stream in the coming 5 to 10 years. I believe it is spot on that we decided in Q1 last year to build a new plant in the Eemshaven for the offshore wind farms, the array cable. And I can only say that the demand is very, very high, and it is very promising what we see. And also the outlook for attracting orders in a relatively short time from now. And that's also good news because if you build a plant, you want to have the plant utilized and not wait for 1 or 2 years or longer before you get your utilization. So yes, minority interest of CCG invested, and perhaps that was a kind of a surprise and not expected by the investors. But yes, in a relatively short time to do this exit, I believe it's a very good job, especially from [ PE ], who was there in the lead to take decision and organize that. We made very good progress in the preparations for the additional divestments. And we are really, really confident that we will close deals, let's say, in the medium term, perhaps a little bit shorter term. And that we can then also reinvest that money again in the core activities of TKH and support our fantastic growth opportunities that we have. ESG, getting more and more important. As I mentioned, sustainability is getting in our DNA. Very good progress, especially in the CO2 footprint, where we have the ambition to get to 100% neutrality in 2030. Big progress made in the last year, and so we will not be back loaded there just before 2030 to get it done. But it's very important that you now already make big steps. And perhaps, the last few steps might be even more difficult to get there, and we don't want to wait till the last minute. Diversity is very important in the TKH Group. Of course, we have a target there to get to 25%. We saw also there good progress. It's not easy in a technological company, but really worthwhile to fill in that target. And also worthwhile mentioning is the satisfaction scores. Of course, we need customers. Customers need to love us to do business with us. We can only do -- they can only get in love with us if we have good performance. And what we see there is that we have a very high rating of an 8.6%, even higher than we had before with the 8.4%, and we will continue to see that we get at -- or keep the level very high of satisfaction. And the same applies to employees. We want to really further improve there. Good employership is really key today to attract people, to keep the people, the good people that we have. And perhaps, even good to mention that we have 750 R&D people in the TKH Group, very scarce people. A lot of people with software background also and a high demand, and we want to be the best employer to have the right environment for these people to work for TKH, so that we can also further attract people for the growth that we foresee for the coming decade. Here we see the main investments that we are doing related to the EUR 200 million CapEx program, strategic investment program, really on track. Here we see on the left side the Tire Building system factory that is close to opening and is really supporting the very high order book that we have and the increased volumes that we see that we have to manufacture. And of course, also partly the fact is there that we are restoring capacity from Asia to the EU, and that is also from spreading the risk of where you manufacture and also looking into potential risk in the geopolitical situation. Smart Connectivity, perhaps a little bit not a focused activity in respect of communicating about that, but it's a very high-end business that we have there in very nice niche markets related again to the automating trend. And we have lead times there today of more than 52 weeks. So the additional capacity that we are creating in Poland is spot on to fill in the gaps that we have there in capacity. And so we will see also a quite rapid utilization of the plant that we are building, operational in Q3. First prototypes will be manufactured already in Q2. And the same applies for the fiber optic cable plant that is located at the same location. If you look at the 2 pictures, the pictures might look different, but it's 2 plants at 1 location, which also brings efficiency. We have a lot of experience in the neighborhood of that location with VMI and other activities that we have in that neighborhood. A very good workforce that we have there and also good to understand that we already hired a big part of the workforce that applies also to the new subsea cable plant that we are building in the Eemshaven. It proves again how attractive we are as an employer to fill in the vacancies that we have. It goes even more fast. We don't need very special recruiters. We see that people automatically apply for jobs in the new plants that we have. Training is very important in the new plants, and we already start up now the training program, which, for certain processes, takes more than 6 to 9 months. We want to be operational with the new plant in the Eemshaven in Q1 2024 with prototype cables. And here, we see operational in Q2, but that means for serial production. The good news is that if you look at lessons learned from our first investment in subsea cable is that we have not introduced new technologies. We have now an experienced design of the products, and it's a proven design. And we will manufacture in the new plant exactly the same cable designs, so no new risks there. And also the equipment is proven technology and mainly the same as the equipment that we have in our plant in Lochem. So we foresee a much smoother start-up of that activity compared to our first startup in Lochem, which took about almost 18, 24 months before the manufacturing was running smooth. And last but not least, we have the investment in Lochem. That plant where we are making today subsea cable is completely transformed now in cable for medium voltage and for high voltage. We are positioning further for high voltage. We have our approvals for -- the type approvals for the cable we can sell in the high-voltage market, and we will also foresee that in a relatively short period of time. We will get orders for the high-voltage area. And yes, with an excellent facility in Lochem for which we have, let's say, 80%, 85%, the equipment then transformed from subsea into medium voltage and high voltage. Then the reporting segments. At the previous slide, I already mentioned the big development of Smart Vision, coming from 13% of EBITDA in 2008 and now 41%. And yes, we see a more equal share of the activities. And I believe that is also a big improvement of the -- to be more immune for recession, to be more recession-proof and, again, especially related to the growth opportunities from the megatrends. The second half year was, of course, again, better than even the first half year. But again, with the limitations of the shortages of components, the growth was a little bit limited in the second half year. Good news is that the fourth quarter was the best quarter that we had during the year, a record high result and turnover and a return on sales, I believe, of 13.7% or 13.9%, and also above the levels that we see on average for 2022 and also what we saw in the second half year. The Smart Vision, I believe, a very nice graph that we show here on the left how we are creating value, and especially looking at the return on sales there. We achieved in the second half year a return on sales of even above 20%. Very strong growth in the EBITA of 49%. And yes, especially 2D vision, Machine Vision doing really, really well. We have talked, I believe, for many years about the Alvium and the embedded vision, a real breakthrough with around 30% of our order intake coming from this new technology. And what is also good that the margins are above average, and that helps also, of course, to get the margins up in the Smart Vision segment. 3D also did a very good job, double-digit growth and a very strong position, of course, in the consumer electronic market, the wood industry, but especially the battery market, which is a fantastic growth opportunity. We see a lot of investments, especially for the EV market. And yes, the risk of these batteries is high if it is not manufactured in the right way, so inspection technology is really key to get to improvements there. And yes, the 3D technology that we have is really spot on, although I have to say that also 2D technology from TKH is positioned in that battery market. Also doing really well is the Security Vision activities, very high contribution and very high return on sales, even above the average in the -- in this whole group. Similar growth levels as we see in 2D Machine Vision and 3D Machine Vision, so not limiting the growth or limiting the EBIT margins. And a very nice combination also in respect of the synergies that we have and the scale of economy that we are creating by combining these technologies. And yes, we can see in the turnover split graph that more than 87% is coming from the Vision technology and only 13% from other activities in that segment. Smart Manufacturing, nice growth at 17.2%, also a very good improvement of the profitability, although, again, that could have been higher with the limitations of the shortage in the components. And here, again, what I already mentioned earlier, you can see that the turnover in the second half year was lower than that we had in the first half year. Exciting what is really going on there with the order intake and the drive that we see with the UNIXX technology gaining traction in 2 new important systems that normally are integrated in the complete UNIXX system with also a quite substantial value, supporting our growth in the order book and especially also the order intake, which was really at a record high level. And for the whole Smart Manufacturing coming into an order book growth to EUR 573 million, which is a 55% growth. Yes, I already mentioned the reshoring is an important trigger of all the investments. Another very key trigger is the productivity need in the Tire Manufacturing industry and the Vision technology that needs to be part of the manufacturing technology. You need to have proof during manufacturing what's going on during your manufacturing process. A test certificate of a finished product is not sufficient. You need to see customers, and especially, that is then related to the automotive sector, are demanding that you have a proof of your manufacturing process, and the only proof that you can give is through images. We have more than 40 cameras in the Tire Building equipment and also in the other areas that we are in. The cameras are getting all over the place and in more and more applications, including the software application where also AI is becoming to play a more important -- more and more important play. In the Care segment, we have seen that we are executing our deliveries of the bigger projects that we had. I believe it was almost 18 months ago that we received that order. And seeing that the end customer is a little bit struggling themselves, but we are making good progress to see that all the equipment is being commissioned. And the good news is that also new orders came in. Then Smart Connectivity, yes, the growth was really driven by the electrification, very high growth. We started up in Q3 2021 new equipment insulation capacity, and that was already, in the second quarter of 2022, debottleneck. We decided to build additional capacity for the insulation that will be firstly located in the plant in Eemshaven coming in onstream in Q1 2024. And at the same time, we are -- we have expanded other bottleneck equipment in the plant in Lochem to really be able to take off with further growth in 2024. We will be able to have growth also in this year, but for instance, we decided to work -- to continue working during vacation. That is, perhaps this year, a little bit more easy to organize because we hired a lot of people for the new plant in Eemshaven, and they are trained to work during the vacation period. And through that, we get anyhow with the bottlenecks machines more capacity available and to prepare already for the growth opportunities for 2024. And that customers do not get too impatient because of the fact that we are not delivering more this year compared to last year. Yes, the digitalization, the fiber optic is doing quite well. We had also a nice growth there. But yes, the margin was substantially impacted with the import duties. We saw, of course, also price increases because of the import duties, but that does not mean that we -- if we eliminate the EUR 10 million import duties that there will be an improvement in the result once we have the capacity on stream in Poland. And yes, the other business is especially related to the specialized connectivity systems where we are the market leader for the robot industry, medical industry, in very high-end solutions. We have there the activities in the Ukraine, which in the second half year even got to a higher level than ever. We were able to increase capacity there with more than 20%. It is unbelievable to see how passionate the people are, how they love to work and focused on doing their job, instead of being, let's say, active or worried with the war that's going on there. Yes, if we also look at the graph, a very nice step-up. There's more to come in the return on sale potential that we see there, and especially related to the EUR 10 million additional profitability that we can get from the import duties. But also the further scale that we will develop in the coming 1 to 2 years will help to get a better cost ratio, and that will support further also the growth of the return on sales in that -- this segment. So far in my presentation, I'd like to hand over to Elling, and thank you for your attention.

Thank you, Alexander. Good morning, everyone. As usual, I will take a couple of slides to walk with you through the financial. First of all, if we look at the turnover and the distribution in the various regions, you see a little bit of a change in the sense that Asia in '21 had a 19% share in our overall revenue. It came down to 15%, basically 2 elements. One was COVID, especially in the first half of '22 had some impact, but you also see the trend of reshoring. So quite a bit of our customer base has, let's say, taken initiatives to establish new activities or relocate activities in new areas. As you can see, for example, in the North American market, where we have a 13% share coming out of -- in terms of revenue. Europe, there, the Netherlands is a little bit stronger represented. It has a little bit to do with the mix as well. We have seen, in the previous sheets, the growth in connectivity. Connectivity is very much driven in the Netherlands and some of the countries around this. So that strengthens Europe as a whole in our distribution through the various regions. Looking at the next page on the added value. The added value came in at 47.2%, lower than '21. Some of the arguments were already provided by Alexander. And you can see the top line growth coming through organically, substantially, including a 7.6% price effect. And that price effect has its impact on the added value as we were not able to fully charge margin on the price passing on to our final customers. And therefore, you see a reduction in the added value, as I just highlighted. Of course, product mix is also affected here. We have a little bit more of connectivity in the mix of top line, and that goes with a different margin. But also the EUR 10 million earlier discussed had an impact of about 0.5% on added value, the EUR 10 million. All in all, if you look at this chart, I mean, a substantial growth, of course, in the end. Organically, EUR 275 million. And if you take off the operating expenses, which I highlighted here, which grew about 13.9% in '22 to EUR 623 million, out of the EUR 623 million, roughly 70% is related to personnel costs, which is not so much different as prior year. We have seen a substantial headcount increase. About 450 to 500 FTE were added. More to come also on the ramp-up for the new facilities, which were highlighted, which are coming in later this year. But all in all, I think a reasonable relation, OpEx to revenue. It came down to 34% in that equation. Prior year, it was close to 36%. And if you look then at the EBITA, EUR 235 million almost, an increase of 24% in all the 3 segments. Vision leading with close to 30% increase in EBITA, but the other 2 segments are contributing pretty well here also. Of course, the return on sales affected by the, now I want to say a couple of times, repeated elements. The temporary effects, of course, the duties had its impact, but also the element of passing on pricing towards our customer base without the full margin. That doesn't help the incremental margin as such. So therefore, the return on sales increased to 12.9%. I know that some of you are working on the model of a kind of normalization, what could have been the margin without the temporary effects. If anybody needs help on that, we are always available, but there's definitely a substantial impact there. Going towards the net profit line, we have had some one-off income. We divested some real estate, brought us about EUR 10 million. The amortization line, EUR 54 million and a bit. Out of the EUR 54 million, roughly EUR 17 million is related to PPA amortization that's coming down year by year, and about EUR 31 million is related to R&D. Then if you look at our financial expenses, up EUR 3.6 million. Some foreign exchange effects are in there. And of course, also, the debt level was higher on average in 2022 and that also, of course, pushes up this item. If you look at the share of results in associates, that's nicely developing from EUR 2 million to EUR 3 million on the back of CCG. Of course, also there, that was the last year where this appears in this line as the divestment has taken place by now. Tax, roughly at a rate of 24.8% as a normalized effective tax rate. We had some benefits from some R&D facilities in the various countries, and we also were able to finalize some of the prior tax years items, and that helped a little bit here as well. For your models, if you look forward, I think the tax rate, 25% to 26% would be applicable for '23 as well. This brought in the end the net profit -- the adjusted net profit, which we use also for our guidance. At the top end of the bandwidth, which we communicated at this guidance, we guided EUR 136 million to EUR 144 million. We came in at EUR 143.6 million, so really at the top. So we have clear visibility in the business, which we carry when we communicate our outlooks as we did in the middle of last year. Our balance sheet, there are a couple of items which I just want to highlight in the sense that if you look at our non-current assets, the property, the plant and equipment, EUR 295 million, that's substantially up compared to '21. We have been talking already about the strategic investment programs. Clearly, that is in the rollout. And there, we have a little bit of a higher CapEx than what we have communicated last year due to the fact that we take a little bit of broader step in terms of not doing just Phase 1, but basically getting already to a kind of broader scope, especially on the subsea connectivity. Therefore, the overall CapEx has increased. The other item is the line associates. You might wonder what happened here, but the divestment of CCG took place in Q1, in February, actually, of '23. So at the end of last year, it has been moved from associates to held for sale, which is then disappearing in '23. Inventories, also substantially up, more than EUR 90 million. Just for your reference, the EUR 385 million consists, for a big part, raw materials. EUR 163 million out of this amount is related to raw materials, and that has increased by about EUR 43 million in 2022, and that goes back into the supply chain issues, the disturbances, et cetera. So from there, we anticipated by having mitigated some of the risks by having a little bit of higher inventory levels. All in all, the balance sheet is still very strong. And if you look at our covenant net debt to EBITDA, despite the fact that we have initiated this high level of CapEx, we run at 1.1% for the year '22. Working capital, I just highlighted already the inventory part. But if you look at the working capital in itself, the delta from end '21 to '22, then it doesn't look very good in this chart in the sense that we added EUR 85 million. But again, that's very much linked to a substantial increase in inventory. And also we have seen further revenue growth, especially in the fourth quarter, which also pushed up some of the receivables. I think it's good to note though that if you look at the development of the working capital, and we had our presentation at half year '22, we had a working capital percentage of 20.4%, which came out at EUR 335 million. So actually, from EUR 335 million in June, we brought it down by EUR 100 million to EUR 235 million. So there is an upswing in the first half and a substantial reduction in working capital in the second half of the year. So from that point of view, I think the working capital is at a good level. We've always guided a reference of 12% to 15% of sales, and we come out back in that range at a level of 14%. That, of course, has its impact on the net debt development. EUR 205 million when we started the year, EUR 100 million higher by year-end. Goes back to the same topics. As you can see from this chart, the investment, the CapEx programs carry bigger tickets. We had about EUR 92 million on CapEx, which included EUR 41 million related to the strategic investment program, but also the investment in the intangibles with about EUR 45 million. And of course, the dividend also were major items in here. But all in all, as I said earlier, I mean, we have a strong balance sheet with a debt EBITDA covenant level of just over 1, so sufficient headroom there also to support the investments for '23 and '24. We also concluded, as mentioned in the very first sheet by Alexander, the new financing facility, which gives us a further growth possibility for the years to come. It's not that we needed to have a new facility only for the reason of the fact that it was going to expire as we concluded the previous facility in 2017. And then after so many years, of course, it gets to a termination, which was going to happen within less than 12 months from now, and that's why we put in place a new facility. The free cash flow, summing up some of the items on the previous sheet, well, we always had a situation that the second half of the year was much more positive in terms of cash flow generation. This year, we have some extremes here. If you look at the first half of the year, EUR 121 million negative. And then we get basically to a similar kind of amount in the plus side for the second half of the year, so big swing. And as you look here, you can basically see the swing coming out of the change in working capital. As I mentioned earlier, substantial investment in working capital in H1 and a substantial reduction in the second half of the year, with still stock levels supporting our growth strategy and some of the -- where there are still some risk in some areas the supply chain affects. So from that point of view, I think a fair balance in terms of free cash flow. Then quickly to the outlook. Yes, the outlook, as you can see also with the full text here coming out of the press release, the favorable market conditions for our technologies underlined by the strong order book and our capacity programs, they lead to a positive outlook. We expect that the expenditure for the property plant and equipment will be roughly EUR 200 million in this year, of which about EUR 160 million is related to the strategic investment program. Further, we believe that -- let's say, barring unforeseen circumstances, we expect further growth in turnover and EBITDA in '23. And if you look at the various segments, clearly, within Smart Vision, both turnover and EBITA are expected to grow. We have good order intake in '22. And also our markets in which we are active, they -- where we are well-positioned, they show good prospects. Also on the back of the new product launches, which we try to initiate in these key markets. For Smart Manufacturing, there, we expect turnover to grow. In the end, EBITA to be more or less in line with the prior year where, initially, we will see that the first half will be a little bit weaker, but the recovery in the second half. And this is very much linked to the supply chain issues, which are still having its impact, especially in the first half of the year. But the growth is definitely there. We had high order intake, a record-high order intake. And for that, we have expanded capacity. And we are executing, let's say, this with full force as we need the capacity to execute the order book. And we believe that this order book trend, which comes out of, let's say, the onshoring elements as well as the strengthening CapEx programs with our customer base, are also to continue in the near future. And for Smart Connectivity, on balance, we believe the turnover and EBITDA will grow. We have some start-up costs. As was mentioned, we have already quite a lot of teams of new people coming in and are working in order to anticipate for the ramp-up of the new facilities, which will come on to stream in the next few quarters. And we expect a strong order intake for both offshore wind and onshore energy connectivity systems. The demand for the energy transition-related elements is very strong, and I would say that even strengthened. So from that point of view, the outlook is solid. And the same applies basically for the fiber optic and specialty cable. There, we see that their contribution out of the new facilities will come in, in the second part of the year. All in all, of course, I think, a nice outlook. But of course, the details in terms of a quantified outlook, that's something we will provide during the half year presentation, which will take place in August. So far, the presentation from our side, and we open up for Q&A. [Operator Instructions]. Yes.

Emmanuel Carlier, [indiscernible] with Kampen. I basically have 3 questions, but they have some sub questions. So first of all, on the CapEx plans, I would like to hear the kind of return on invested capital you expect on these plans. You say that there will be EUR 250 million to EUR 300 million of sales addition from these plans. So there, I would like to hear the phasing over the next 2 to 3 years. And then, finally, related to the CapEx plans is, could you give us an update on what was included in the CMD targets and whatnot? Because you are investing more than we expected before, so I think, probably, something like EUR 150 million of sales is not really included in the CMD target, I think.

Maybe I'll answer your question. To start with the latter part, if you look at the development of this CapEx program, and if I refer to not only the CMD, but also last year, last year, we communicated that the CapEx would carry a ticket of about EUR 160 million. That's increased to EUR 200 million because the markets are much stronger and, let's say, a more positive outlook than what we had seen, let's say, more than a year ago. So from that point of view, we basically modified the scope a little and basically entered in the kind of Phase II already at an earlier stage of the expansion program, and that specifically applies to the subsea connectivity, so the Eemshaven. I also mentioned last year that the related revenue base connected to the program, as described at that point in time, was in the range of EUR 200 million, EUR 200 million plus. And there, you see that we have also increased the expected revenue base coming out of the investment to the EUR 250 million to EUR 300 million. Obviously, these are activities, which should carry a return which is above the target which we aim for. That's the whole reason why we, of course, are engaging in this kind of investments. So that's definitely something you have to take there. I don't want to be that precise in terms of giving you actually a kind of breakdown of each item of the investments contributing, how much and having what kind of return. But for the entire group, basically, it definitely meets the midterm 17% target in terms of return on sales. And so we have scaled up the investment program on the back of the strong market outlook. And therefore, we also predict and foresee, of course, a better return, and that closes also the gap, if there is any gap, towards, let's say, your discussion of the CMD targets because we have highlighted there different baskets where the growth would come from. Partly from innovation, partly from organic growth, and this is basically part of that particular set, both innovations and organic growth. But I think by the effects described that we are going up a little bit in the bandwidth of expected revenue, that there is a little bit of increase compared to what we highlighted in the Capital Markets Day.

But how big is that then? Is that -- so the EUR 200 million of last year was related...

That's more close as what was taken in the CMD, yes.

And in terms of phasing, 2023 for...

I think if you look at the full run of this kind of basket, EUR 250 million to EUR 300 million, the last one which will come on to steam in the second half, basically, contributing to revenue base. I'm not talking about manufacturing, but the revenue base is, of course, the subsea connectivity in the second half of '24. So let's say, starting somewhere at the second half of '24, you start to operate at the level that this kind of revenue base annualized will start to come in.

Okay. And then the second question is a bit looking at kind of one-offs in 2023 on the EBITA line. So you have the import duty on the telco business, which was EUR 10 million. So I would like to hear how much you believe it will still be in 2023. And secondly, any disclosure you can give on start-up costs that will hit the P&L?

The fact that we will open up the facilities for a kind of full ramp up on operations by the third quarter means that there is, let's say, a couple of months of effect. So I would talk more about EUR 2 million, EUR 3 million range still impacted this year in terms of saving on the duties. Of course, the full effect is then in '24. When you talk about the ramp-up, the scaling up of the headcount as we get the new facility staffed and get the people trained, that will run in a few million, but I don't want to be that precise at this point in time. We are still early at the year. We have a few things still to pass. But it's definitely, let's say, not double digit or anything like that. It's a few million. I'll leave it at that at the moment.

Okay. Then a final question for me is on Smart Manufacturing. What is the reason that you guide for a flat result because, on the one hand, the top line will go up a lot in the second half of the year. You had already the negative impact on your margins, so in the second half, that should improve. So basically, you are saying top line will grow, but margins will be even softer this year versus last year. Is that just being cautious? Or am I missing anything?

Let's say, what we have, of course, is the situation why this is impacting us quite a bit is due to the fact that we have the headcount and the organization to operate at a much higher level in terms of production output and revenue base. But due to the supply chain issues, we operate, and it sounds maybe strange, but kind of inefficient in the sense that people are not doing the things they should do, because they have to remove some of the assembled equipment, store it at the other facility, up to the point that the missing components come in, then bring it back on the shop floor again, finish it, et cetera. So we have much more movement and activities than what we have in a normal situation, with a smooth progress in terms of assembly than what we would like to have, and that is creating quite some cost. So the organization is there also to handle a higher level of activity, but they are doing different things than what they can do once the supply chain is no longer in hiccup, and that's the situation we will still have basically for the first half of this year.

If it then reverts in the second half, margin should be kind of similar to 2022, I would say. Although the guidance implies that you expect softer margins in 2023. So I don't really get that.

Well, it's about how much, let's say, the delta is and when you can do the ramp-up, to which extent.

Okay. Yes, yes. Okay. So you take into account that, potentially, it might take a little bit longer than H1. Maybe it might run a little bit into Q3.

It's not that, let's say, there's -- let's say, on Friday, you have all the material in. And then as of Monday, everything works to the max. There is a kind of -- I don't want to say ramp-up, but there is kind of a part you need to take in order to get to the higher volumes. And that's definitely what it is planned for in the second half of the year.

Martijn den Drijver from ABN and ODDO. Just want to come back to this subject because you mentioned in your introductory speech, Alexander, we expect supply chains in Smart Manufacturing to normalize in the coming 1 to 2 years. That's what you literally said. So what gives you the confidence, coming back to, again, the question, that it will actually improve in the second half? That's question.

Of course, we get a lot of information from our suppliers, and we know exactly what's going on within the suppliers. We have also top management reviews there. And especially, Harm is very much involved there. And we see, of course, what they promised that they achieve that, and that gives confidence that it will normalize. And if they're -- they can always come up another kind of hiccup that we cannot foresee because of something happening in the world. But if that stays normal, then, yes, there is a good plan within these suppliers how they can recover and how they can support us with the high-growth opportunities that we have.

Also maybe to add one thing because, I mean, we talk very much about supply chain. With supply chain, let's say, to the extent it was an issue last year, it's only now concentrated mostly on manufacturing systems. In all the other areas, like in Vision, et cetera, the supply chain issues have been resolved. So we talked specifically about a small portfolio where we are in need of within Smart Manufacturing. And indeed, we see there, let's say, recovery, but not to the extent that the high intake matching our demand currently. So that's why we still have issues. With high demand, we scale up quite a lot, we get into a better position, but not yet sufficient. And hopefully, that will get better in the months ahead of us.

I'll chew on that one a bit. Then moving on to Smart Vision, you're reasonably positive about 2023, and you have a backlog order book of EUR 159.2 million. How much of that EUR 159.2 million, which is, by the way, if you compare that to actual sales levels, EUR 500 million is still relatively modest? How much of that EUR 159 million is actually going to be delivered in 2023? In other words, what is giving you the confidence to state in your outlook that you're going to grow in 2023 sales and EBITA?

First of all, it will be mainly delivered in 2023. But what is not in the order book are, of course, the framework contracts that we have, and that is also an early indicator of where the business is moving. Always, something can happen. But today, the outlook in the markets that we are in is looking very confident that there will be growth, and it has also to do with a lot of new applications that we are in where we positioned ourselves in the last 2, 3 years, which are taking off. And for instance, we hear from other players in this world that the logistics market is a very difficult market. But we are, for instance, active with forklift trucks. We have new technology developed for this application, which is not an easy environment to have a good proof of concept. And -- but we work here for more than 3 years, and it's taking off at the moment. And if you look at what's going on, for instance, for this technology, the forklift trucks and AGVs, what's going on there, how they are in need of Vision technology, but that's a complete different application where we see today other players being active. And so there are a lot of areas, the battery market, we -- I already mentioned, that's a very, very big opportunity there. And we have the superior technology, which makes us also confident which -- yes, it gives even more opportunities than perhaps also competition in that area. And I can mention, I believe, 50 areas where we see this progress. Agriculture market is also another a very interesting market. Fruit sorting is very, very interesting, and it's all about efficiency, increasing productivity, improvement of the products. You can also understand with fruit that you can do a lot of things there automated, instead of doing it manually.

I'm still a little confused because if you listen to some of your peers/competitors in Smart Vision, they are not that positive about consumer electronics outlook for 2023. And that is still, I assume, the biggest chunk of where you derive your sales from. So I perfectly understand that you're building new end markets, but if consumer electronics is hampering, is stagnating or whatever you want to call it.

But consumer electronics is not such a big part as you think. Within 3D, it's a substantial part but not the majority of the activity. And besides that, we are also positioned in niches where you cannot do without continuous development of investments in the equipment that we can supply. And we know that there's lot of technology development going on in smartphones, in consumer electronics, where you need more and more higher-end technology to get to more efficiency during your manufacturing to get to the quality level that you need. And so even if the demand goes down there, there are opportunities because of the technology developments in that area where we especially are very well positioned with the very high-end 3D technology that we have. With 2D, we are hardly not active in the consumer electronic business. So that is also making a big difference compared to other players. We are in a quite unique position there, I think.

Yes. I think the fact that we have 2D and 3D, let's say, strongly -- as part of our portfolio is already a differentiator with some of the other competitors. They're either or. And I think you did with the consumer electronic market, some of them might look at the, let's say, the number of smartphones being solved, but that's not really representative for the market potential. It's about what technology is being used for assembling phones. The volume in itself is not that important, but the technology on which they want to standardize in terms of inspection technology. And if that's changed due to the configuration of, let's say, for example, a smartphone, then it has impact on how you assemble the -- set up the assembly lines, and that creates business. Other trends are, of course, have to do with the reshoring. As I mentioned, our impact of the Asian revenue base, we see that also with customers going to different places. Moving, let's say, some capacity out of China, for example, in the consumer electronic market to different places creates business opportunities because new assembly lines have to be equipped at new locations.

Okay. I have 2 more questions, please. If you look at your value add, it declined year-on-year, even if you adjust for the EUR 10 million of import duties, which I guess is in your COGS. In 2023, there will be material wage inflation. There will still be some material inflation. Do you think in terms of pricing strategy you can offset those elements more than you did -- were able to do in 2022?

Now of course, we are always trying to maximize what -- and leverage on the USPs that we have. So we continue to build further on USPs with -- and new product introductions, which also might help to get out of a certain pricing situation and be able to improve the margins. We are really confident that we will get above again the 50% gross margins.

In '23?

I'm not saying '23. But yes, we are not there only for 2023. We are working on this target of 2025. And there, we are really, really confident that we will get to that. Of course, the short-term effects already helps a lot. If you take about EUR 25 million in result and would add that, you are already again above the 50%. And yes, new activities coming in where we make even higher margins, I mentioned the Alvium portfolio, which is really on the move now and gaining more and more share. And we are making their margins above 60%. So we have a lot of activities also that are, today, above 50%. And that mix will also further change in a positive way because, there, the growth drivers are also really, really high.

Just to get it right. You are expecting value add to go up in 2023 then based on these arguments of sales mix and your ability to raise prices.

The effect of the -- the temporary effects are still in there in -- for a big part in '23. Elling explained, perhaps only EUR 2.5 million, EUR 3 million that we get out of less import duties. And about Smart Manufacturing, we also mentioned the first half year will be still a difficult half year. And so...

I think to guide on a specific added value for '23 is a little bit too stretched now. But the point is that we have, of course, a strategy where we work on smart technologies, and this smart component will further increase as we go along. And this smart element means that there's more software-related elements part of our proposition, and that goes with higher margins. And that's the base why gradually our margin will go up. There will be, let's say, always some events. But underneath, and I think that's also in one of the earlier sheets, if you take, let's say, a longer-term look back and you see our added value increasing, I'm sure it's not a nice, straight line. Everybody would like to have that, but it's up, and I think that's the key thing.

All right. Moving on to my last question, which is with regards to divestment and the share buyback. So the proceeds of the CCG sale are not yet obviously visible. You have announced the EUR 25 million share buyback. Should we assume that the additional proceeds given your low net debt to EBITDA will also be used for additional shareholder remuneration? That's question one -- or question a. And what's happened with that asset held for sale, not the CCG, but the other one that's been on the balance sheet now for a year? Highly unusual for an M&A transaction, so what's happened there?

Well, the fact -- let me start with the latter. The fact that it's still on the balance sheet means that there is an active process, which justifies that you have it on the balance sheet. It's not like a statement that we want to do this. There is a little bit more, let's say, meat to this in order to justify that it's still there. So from that, you can basically read that we are in an active process. The second -- or the first question you had basically about is a divestment leading always to a share buyback. No, we have said in the past that we will always evaluate at a particular point in time when the divestment proceeds are coming in, if we use it for share buyback, but that depends on the situation the company is in at that time. That's always the disclaimer. We are currently expanding on a substantial strategic investment program where substantial CapEx is being committed. We have not forgotten about our M&A agenda going towards '25 as well. So we take this all into account and make it a decision if a share buyback is applicable at that point in time or not. For the current situation, and in the actual situation, is that the proceeds came in, in February, so they are there. We believe that it's feasible to do a share buyback of the EUR 25 million. That led to the decision to do so. But you cannot read that automatically for every proceeds coming in, we are doing a share buyback.

So the CCG proceeds are part of the overall framework...

It's part of the evaluation, are we able to do that, and does it fit in the capital allocation, and is it something where we believe that it's a good moment for us to invest in the future.

And just one final remark, a question on the active process. Normally, M&A processes don't take so long. So should we -- can we expect something in the first half? Or will we actually -- is one of the options that you're going to withdraw?

If that decision would have been made because we present, let's say, our balance sheet based on the last information, including everything up until yesterday, which is in there. So if our decision would have been to change, you would not see it in the balance sheet. And if we close something in the first 6 months, you will be the first one to get my call.

After the press release.

Tijs Hollestelle, ING. Yes, I was also looking at the same dynamics as Martijn saw earlier this morning. I mean, it's good to see that there's a major catch-up effect in the Smart Vision business in the second half of 20% organic growth. So if the supply chain issues indeed in Smart Manufacturing and the Tire Equipment are being resolved, it's a completely different product. So probably the catch-up effects will be more spread out. Is that a fair assumptions? Or will it not be concentrated in 1 quarter that you push out all these big systems that is probably 2 to 3 quarters?

The point is that once you have the equipment completed on site, it has to be shipped to the customer premises and be commissioned by our field engineers. And it's not that, let's say, we can do this all in the same week. This is a gradual stacked approach. So from that point of view, let's say, the turnaround from having availability into getting actual revenue stream is indeed a little bit more phased out compared to the Vision segment.

That absolutely right.

That is unpredictable also for you guys at the moment.

Well, I mean, we have, of course, all kinds of plans made on all kinds of scenarios. And we have insight, of course, what we believe that we will get. And based on that, we have made our forecast of what is going to be done first, and that's where we derive our, let's say, estimate from.

Yes. If I step away, let's say, from seeking additional guidance from you guys, because I don't want to have that on '23, not even on '24, we had the discussion in the past. And so the overall size of the Tire Building business, I mean, you're -- we have more innovations, more added value, higher ASPs. There's a bigger renovation and repair markets. You have entered into the truck tire market. If the new capacity would be ready on full steam and you would say you have, let's say, a normal -- not even a champagne scenario, you're having a good year, what is the possible annual turnover then of the Tire Building business? And also, the question is because 10 years ago, we also looked at substantially higher revenue target for that business. I think you have done all the steps in terms of becoming even more market leader, but there's always something else that is basically holding back the revenues. I believe the good thing is the order intake, which gives also a very strong signal of where we are moving. We have not disclosed that exactly, but if you make the right analysis and comparisons with the order intake. In 2021 and 2022, you can already get to conclusions. And we are above EUR 500 million order intake. And it would be strange if we would not develop our turnover above EUR 500 million not so far from now. And yes, again, it's really exciting in what trends we are positioned, and that is getting more and more positive. I had this morning an interview with the [indiscernible]. And there, I try to explain a little bit more what's really going on. And we mentioned earlier that more than 70% still of the equipment is older than 15 years in the Tire Building industry, and that old equipment is not Vision-based technology. And without Vision-based technology, you cannot satisfy any longer the automotive manufacturers because they want to have proof of what's going on during the manufacturing process. So there will be more and more push to replace that existing equipment, and that's a huge available market for us and a very big driver to get further growth opportunities, even if the tire market would go down in size. And yes, we have our hands full in, let's say, creating the additional capacity, not only for the components, but everywhere in the people. It's not for nothing that we are building a huge facility today in Poland with overcapacity. We are already thinking about the next extension, which we can realize in a relatively short period of time. It's all to prepare for the big growth opportunities, and I'm not even talking about UNIXX coming in. Because in the very high order intake, UNIXX is still playing a relatively small role. And that is, again, what we also see and getting more and more confidence. It's really the dream of every tire manufacturer. And yes, we have also proof today that we can manufacture with that equipment and that we are also pushing for further, let's say, activities in the market with that technology. And that is another step up, and I can promise you that we are already preparing for not saying no to our customers if the demand is there.

Yes. I also understand the dynamics, but just to get it. So it's above EUR 500 million if the new Polish facility is up and running, let's say, 2 years from now.

Yes, perhaps earlier.

Okay. But...

No. The capacity is there basically to have that level of revenue.

Yes. Okay. That's clear. And I do see that the OpEx levels are indeed higher because that has always been the case with the tire manufacturing business. The operational leverage works both ways. You have no other option to be prepared, okay. Yes. And also an additional question on the gross margin because it was particularly low in the second half of the connectivity business, and that is then purely the raw material price inflation effect, I guess, because it has more price effect in the second half compared to the first half.

Correct. You see also the price effects are mostly taking place in -- if you look at the 3 segments, mostly in connectivity.

Yes. And the final question, can we expect a big difference from the new facilities in Poland in terms of labor costs? So part of it is now removed from Asia to Poland. Probably that is a negative, but compared to the European activities, is that significant?

Well, to understand this, I mean, the only area where we have a slight shift is indeed in the fiber optic capacity brought from China to Poland. But it doesn't mean that we dismantle the activities in China completely. We use that capacity basically for customers outside the EU, so where no duties apply, and that's the sourcing base then. So that continues. So there's a slight add-on cost for the new facilities in Poland, but of course, they go at a little bit of a lower rate compared to the facilities which we have in the Netherlands. But it's not that -- let's say, we are talking about, let's say, multiple factors of cost differences, that's not the situation anymore. There is a cost difference, but not that much material, though.

Yes. And a final question on -- I think you already explained most of it, but you don't see any trends in the trade working capital that, let's say, the cash dumping in the negative interest environment is gone, and you see a return to more normal payment term behavior?

Let's put it this way, it goes 2 ways. I mean, once you're in a situation where supply chain is an issue, it's very difficult to negotiate with your suppliers, prolong the payment terms. It's about availability. So if that normalizes a little bit, of course, the balance starts to be coming back again. In general, I would say that it's -- I don't want to say it's getting back to normal, but there is a trend towards more normal kind of negotiations on both sides. But I don't see there the biggest effect coming through. It's more about managing the supply chain and the effects of that mostly in the inventory levels.

Kepler Cheuvreux, [indiscernible]. I had a first question on Smart Vision, or actually, China. A bit of what your first read is on the situation in China following the opening of the economy. Obviously, initially, we think of Smart Vision mostly exposed because of the consumer electronics, but you just mentioned that you're not that dependent upon it. But I was just wondering, if you think throughout the year, is there may be some upside risk that could come from China if that turns out better? That's my first question.

Well, it's very difficult to have a clear geopolitical outlook on the developments of China for the remainder of the year. But of course, the opening up of the economy after COVID is, in general, I think, a positive thing. The question is, does it go to the right speed as predicted? Maybe that's slower than what was anticipated maybe before the opening was actually affected. Of course, there are many different areas where, let's say, impact could be. In case of, let's say, China supplying to Russia, and therefore creating a kind of situation of all kinds of boycotts coming in towards China, which could hamper portfolio elements, et cetera. That's very difficult to predict. I think if you look at our customer base there, on 1 side, they have already taken an early stage, and it's not coming from the last few months, to evaluate to which extent China is strategically important for them. And in some cases, they reposition themselves in new areas, and that gives, let's say, for us, a lot of business potential. It's not that we depend on China customers so much in China, but it's more the international players being active in China. And if they take conclusions out of the situation in China to move somewhere else, we move with them.

Okay. That's helpful. Just a second 1 on subsea cabling, I understood you've been expanding your offering there in terms of dynamic cables and high-voltage cabling. Could you maybe help us understand a bit to what degree that offering sets you apart from peers? Yes.

Now, what is the whole dynamic cable specification is still for the market and development. But we have, I believe, a very big USP that we have a welded aluminum sheet, and that is a USP also for the normal array cables that we have, and it's perhaps not 100% necessary, because we have a dry construction and there's also semi-dry construction where there is still potential that water can come into the core of the cable. But if you move up in the voltage, it is all about, let's say, dry designs. And there we are really in advantage, because we have the experience of, let's say, 5, 7 years development that we did to make this, let's say, a standard process, but it's our proprietary technology. And there we are really in a very big advantage. And we also foresee that 130 kV will come in much faster than that originally was predicted. And we are already making today quotations. And of course, the projects are not for tomorrow, but let's say, in the coming 2, 3 years. And that is really good, and also the way the customers are interested in our design, because we are today the only 1 who has proved to make, in long lengths, aluminum sheets around the core, welded aluminum sheets.

Okay. And then a final question on tire manufacturing, so basically with UNIXX last year, the commercial launch, I understood you've been selling these modules ranging from EUR 3 million to EUR 4 million, but that basically you could offer a whole integrated assembly option. How has been the take-up maybe in the latter part of last year, and how do you see maybe evolution from a consumer perspective, whether they...

We have a specialist here in the room who is running that business. So Harm, the floor is yours to give the answer.

Thank you, Alexander. Yes, UNIXX, exciting new technology, I would say, not only because it's bringing the flexibility that the industry really needs, but also helping them, our customers, to reach their sustainability goals, both in their production as well as in making their end products much more sustainable. So there's a big push now from the market, mainly driven by the sustainability question, even more so than the flexibility, I would say. Exciting new technology also means that it takes time to introduce this into the market and for customers to really absorb this and get full traction on that. What we have seen is that the technology that we have released. And when you think of modules, you might think of part of a machine, but actually, these are full machines, but making, for instance, a component of a tire. And these are very successful. And indeed, when you would combine everything together, you could come up with a full, what we call a UNIXX cell. And that is still in the last industrialization phase where we had, you could say, a sort of a hiccup because of the fact that the previous launching customer that we used to work with had other things to focus on. And that's why we are now discussing with a few really highly-interested customers to install this cell in Europe in a new facility. And we believe that, that would -- well, we still need a couple of things to prove before we can release that full. We know that it is working, and we know that we have, well, you could say, everything running up, but still you need to prove. You need a proof of 24/7, week after week, making full high-quality products at the right output. And that part still needs to be proven, and that's what we will be working on in the rest of the year. But all in all, you could say that the UNIXX technology in itself is really, well, exciting, both for TKH as well as for our customers.

[ Marcus Baker, The Idea ]. Firstly, it has been suggested that Smart Manufacturing will show a sharp increase in revenues and flat EBITDA. But concerning the first, if I look at your order book and then assuming that the work for year 2 and beyond is all for this segment and has subtracted from the order book, then more or less the order book for SMS is just virtually flat compared to year-end of last year. So shouldn't we assume that SMS is going to make a strong increase in revenue, but it will be more or less somewhat better with somewhat flattish EBITDA?

I mean, if you look at what we have been saying is that if you take the first half, we still have, let's say, the supply chain issues, we have an organization which is ready to carry a substantially higher revenue and production load, but they are busy with all kinds of inefficient items. That is gradually going to disappear in the second half of the year. The order book, the order intake has been very strong. Indeed some part is, let's say, towards the year 1 and 2 from now. So I mean, you can try to come up with all kinds of assumptions and scenarios, but I don't think we go much more beyond to what we already said.

So maybe brief comment on -- should we more or less assume that what we have seen in the second half of this year will be more or less similar to what we should expect in the first half of this year?

It's not that you can immediately say that the second half last year had supply chain issues, so the effect will be the same in this year. It's all about at which point you have already prepared your organization for the ramp-up phase. So we probably have more cost in H1 than in H2, as we know that we need to have the people on board for the scale up in the second half of the year. Of course, we have been working quite, let's say, efficient in the sense that we have looked at OpEx wherever we could in the second half of the year. You don't touch everything because you know that you're going to ramp up, so you don't want to let skills to leave the organization, but some other things you don't do. In the second -- in the first half of this year, I mean, that's gradually getting to a little bit of a higher OpEx as you need to have the organization fully back in shape to get ready for the things that are intended while they are there rather than doing the other things, which we unfortunately have to do as a result of the supply chain effects. I realize it's not a one-on-one answer of yes or no. But I think with this, you probably can work a little bit.

You mentioned that we'll completely focus on medium and high voltage, so all the inter-array activities will be moved to Eemshaven. Could you more or less give us some guidance, what kind of revenue capacity you would have in '24, '25 for Eemshaven focusing on inter-array and your medium and high-voltage activities?

Now for Eemshaven, we have been quite clear in the number of kilometers. And of course, it's depending on the mix what kind of turnover you can achieve with that. But let's say, between even EUR 150 million, and the high bump is EUR 250 million if it would be developing more into the direction of 132 kV dynamic cable, which will be a substantial part in, let's say, 3, 4 years from now. And then in Lochem -- and then I perhaps better can express it in turnover. We have another, let's say, EUR 100 million, EUR 150 million capacity available for medium and higher voltage, which we can easily further expand because we have created now room. So it's really a strategic plan thinking forward, not just 1 year or 3 years, to see if we can and are prepared to increase capacity further there substantially. And yes, today, we are focusing on the Dutch market and we have our hands full in the Dutch market, refusing today customers outside of the Netherlands. But yes, in principle, we can also deliver in a radius of, let's say, 250, 500 kilometers, and have a very well position there. And I believe, especially in the higher voltage, that is a difficult market in respect of the scarcity of capacity, and that's, I believe, a really good opportunity. We know that some of our competition has more than 2 years lead time. And yes, that can also accelerate, I believe, the opportunity of getting market positions, and we are completely lined up there to take advantage out of the opportunities. And we can go farther than just barriers of the Netherlands.

And since Harm is in the room and also is willing to answer questions. Concerning INDIVION, could you give some more color on what's happening to this particular end customer and the developments of INDIVION in general?

Also, the INDIVION is exciting new technology. First of all, your question regarding the project in North America. You could say that the scale of the investment and the number of plants that were supposed to be put on stream with INDIVION's multiple machines, multiple sites, that was, you could say, quite a challenge. So there was some delay, you could say, in the rollout, not caused by TKH, but caused by the overall progress of the project. But it's going quite well right now. First plant is being installed and commissioned. The second, third will follow soon. So for sure, this year, we'll see quite some dramatic push up in the use of this technology in North America. And as was mentioned already earlier this morning, also from Europe, we received a number of new orders for the INDIVION. All in all, we believe there's a very nice future for this and a very positive outlook. This year will mainly be the focus from TKH side on getting the project in North America up and running as well as possible, because that will be really approved for the whole market besides the fact that we already have a number of orders, of which I would say a few of these orders from Europe came from the same customer who already has this technology. That customer is, you could say, proving the business case that we have here, being very successful and hence, expanding.

[indiscernible], some follow-up questions. Start off with Smart Connectivity. Normally, there's a little bit of a disclosure on airport, on parking. That's not the case, so maybe you can shed some light on where airport stands? Is it breakeven? Does it generate a profit? What's the outlook for 2023? And the same question for parking then. Has it turned profitable yet? What are your expectations for 2023? Question B, with regards to Smart Connectivity. The other segment still represents 29%. I'm not going to say that it's all legacy, a term that you used in the past. But what is the percentage of that 29% that is coming from new build, residential, commercial, utility, new construction? And related to that, what have you seen in terms of destocking, restocking by the distributed wholesalers? All those combined is question 1.

Okay. The last question, it's easy to keep in mind also, there are no, let's say, developments in that respect of destocking or negative effects on the business. And then the building and construction market is -- we have a company that is in the divestment program that is in that market. So when that is divested, we will have less, let's say, relationship with that market. And then, let's say, about EUR 80 million is still in that market. So a relatively small part of the total business of TKH. So also from the other part, we will see that the divestment will also have a big impact there in respect of the mix of turnover that we will see in the future. Then I forgot...

Airport.

Yes, airport is not profitable yet. But yes, perspective is there. We have seen that it was very difficult still in the airport business to see the higher investments that are, let's say, applied to the airport technology that we have. We had a nice breakthrough in the U.S. with a de-icing project where we, again, have proven. This was the Project Memphis. Sizable project, and yes, what you can imagine after the winter in the U.S. that everyone is eyeing now on what happened there at Memphis, and it was really incredible how that helped in de-icing and gain efficiency in this application. So that's really a proven big opportunity now, and we will see further rollout. And then, yes, we have made substantial progress in speccing ourselves in. And yes, speccing in means that, yes, when there is a tender -- and a big part of these businesses are also related to tenders. We have made a big move that we are expecting, and yes, have the superior technology to offer many, many advantages in this airport business. We would be very disappointed if we would not make this very big step in 2023, and we know that there are some very big tenders, tenders of more than EUR 5 million, EUR 10 million coming into the market. We have not yet won them, but yes, we believe that the opportunity has been bigger than ever to move here. And also the very satisfied customers that we have is another, let's say, a very big building stone to build further on that. And then parking. Is it sufficient, or...

I was just wondering, based on your current backlog and expectation, should we then assume that there is a step up? Is it going to be profitable, if marginally?

I would be very disappointed if it would not be profitable this year, and it was a substantial loss last year. So that has a big improvement potential in the Smart Connectivity business. And now that we have been talking here, in the original plans where we said this business should grow to at least EUR 100 million, we still believe that it's possible, but it takes a lot of additional breadth to get there. You know also that Erik Velderman is now fully focusing on that. It deserves a full focus business. He is traveling all over the world, not anymore to visit investors, but to visit customers. And yes, it is also important that we show at high level, at the airport management, top management, that that's a serious business, to show the confidence that we have that we are committed to this business. And I really believe this will be a big success.

Same question on parking.

Yes. Parking, I'm a little bit less confident. But yes, there is still a lot of potential. It is today around EUR 25 million turnover. It is not profitable at the moment. We introduced new technology there with a lower cost, more advanced functionality, and the perspective is good. And yes, we will create value with that and it will also turn into profitability this year, we believe. And that also has, again -- but that's in Smart Vision, that activity, and has additional potential to improve the return on sales if that is coming to profitability.

Okay. And then moving on to quality of earnings...

But we have reduced our ambition there. That previously, I believe we had, in the vertical market target, a very high ambition and we have dedicated ourselves now more to, let's say, the highest return on sales possible, to be more a niche player in that market, and to join the forces also with the security position that we have, with the security cameras, with the access control, and mission-critical communication systems. And yes, then it's a joint combination, but a number of projects will be less than when you would be fully focused on the parking guidance systems, where actually I was talking about profitability, yes or no. And then it's nice to have into a one-stop shop that we sell to the parking garages.

Okay. Moving on, in terms of quality of earnings, I noticed that the holding costs in 2022 were significantly higher than they were in 2021. What's the reason for that, and what should we expect for 2023?

What we are doing is, in some areas we are strengthening the organization, in the sense that -- I think we mentioned also in the Capital Markets Day that when we talk about, for example, the Smart elements, especially when we talk about AI concepts, et cetera, that we want to facilitate, from a corporate perspective, the competencies for the various operating entities. So we have taken on some additional people in order to make sure that we establish a kind of competence base, which is accessible for all the different organizations. And that's, for example, in the area of AI. And there have been a few other areas where we basically have strengthened the platform of competence where then the, let's say, operating companies can make use of. And that's very much to do with the smart element in general.

So the underlying all the cost of, what was it, EUR 12 million a year hasn't changed apart from that element?

No, it's not that. Let's say, we are expanding, let's say, the staff, but we allocate specific competence projects, which we build up.

So what's the new run rate, EUR 15 million?

EUR 15 million, EUR 16 million, that kind of range. I think we were not far off also in the prior years from that.

Okay. The second component of this question, you've basically answered already. If you look at capitalized development cost, it's gone up and up and up. EUR 6 million this year. Even though the UNIXX almost fully developed, Alvium fully developed. So I'm wondering where is this capitalized development cost going?

I mean, if you look at the level of capitalization as a percentage of expense, that hasn't changed. And that's for years, 50% to 52%, 53%, 54%. What it is that, of course, we strive for and that's where we get a lot of our business coming from is from the innovative agenda, which we carry. Also here, we have about 20% of revenue in 2022 coming from newly-introduced portfolio in the last 2 years. That's on which we are able to grow, that's where we are able to differentiate from others. And that's also where we are, let's say, putting the foundation for margin improvement. So that is something which is a key cornerstone within the strategy of TKH. And it would be, let's say, a kind of, let's say, wrong direction if we are really going to have a lower, call it, R&D expense going forward. So from that point of view, I think this is actually showing the strength that we are able to find the people to do the R&D projects. And sure, UNIXX, you can say most of it is done. There are more elements of the portfolio which are done, but we need to have a portfolio in the next few years as well to get the growth going. So from that point of view, this is not going to change very much.

Okay. And then just 2 accounting questions. Your DSO -- so excluding contract assets and liabilities, just pure trade receivables and other receivables, went up from 44 to 50. Now 50 is still a very decent number, but why was it up? And what's the explanation for that? And the second one, in your cash flow statement, you have EUR 14 million of cash coming in, but it says divestments. So I'm assuming that's not the real estate, but it could be. So what's the EUR 14 million?

The EUR 14 million is real estate. And let's say, for the DSO, it's more like if you look at the previous years, then we are in this range of, let's say, low 40s to 50, so there is not a specific reason why it went up. You can say last year, referring to '21, of course, the entire working capital came out very well, including the DSO. So not every KPI of '21 is representative for our, let's say, regular flow. But there is no specific reason or a specific incident or a specific project where things went off the rails. That's not the case.

But there was an extraordinary situation by the end of 2021.

Yes, that's what I said. I mean, the reference part is very positive because we're very low. The other thing is, of course, the distribution of the results during the year, and we had a strong Q4. And as a result, you end up, of course, with a higher receivable position at year-end because you have a strong finish of the year. I also don't want to forget, we have 2 analysts online as well. And we should not forget about their questions, if there are any.

Can you hand over the mic?

Thibault has a question. Thibault Leneeuw.

Yes, from KBC Securities. I was wondering, you said that you will expect a slow, steady increase in the return of sales. But looking at the target for 2025, the return of sales above 17% does not seem a slight increase. How are you looking at the achievability of that target?

I mean, there are different elements. I mean, we highlighted already here that there our -- if you look at the return on sales of '22, there are some elements in there which are of a temporary character. And if you -- I don't want to say normalize, it's maybe a too big word, but if you take that into account, you will see that we are already substantially higher than 12.9%. One of the analysts here came to about 15%. I think that's quite a rough calculation, and fairly accurate in the sense of that kind of range. And of course, what still has to be done is that we get the full benefit coming out of the investments we are currently doing. And that's a little bit back-end loaded. That's also what we mentioned in the Capital Markets Day, that we have a program to run. We need to build the capacities. We are, let's say, at maximum capacity in some of the segments. So we need the additional capacity to grow, and that will, of course, give the incremental as well. And that is more towards the second half of '24, that the full benefits come in, especially on the connectivity side. And then, of course, towards '25, that's a full year when all the, let's say, contribution can be expected in all the different projects which we are currently having in execution. And again, the reason why we execute these programs and why we have even topped up some of the investments due to the fact that the markets are strengthening -- have strengthened in the last couple of quarters and that our position is very strong. You can see that from the higher order book which we have been generating, so we have already higher backlog. This was already referred to. We have backlog going into '25 already. So from that point of view, we need the capacity to handle this, and that is 1 of the key points of, let's say, call it, the gap to what we currently are and the targets outstanding. So 1 is to mitigate the temporary effects, and second is the expansion programs to get the additional capacity on board to generate the incremental revenues coming out of that. I look a little bit down because for me, you're down here, but...

And the second question is with respect to the CapEx. Going after 2024, towards 2025, how are you looking at the maintenance levels after all the plant capacity expansions?

Yes. I think the key point is that the strategic investments have been completed. At this point, we don't foresee another round of this level of CapEx program. If you look at the current rate of about, let's say, the EUR 50 million or so in terms of tangibles, I think that's going to go up probably more towards maybe the 65%, 70% range. That is my preliminary outlook at the moment, yes. And on the intangibles, we already discussed that R&D is part of our DNA, and it would not be good if that would not grow. Thank you, Thibault. Trion also has a question. Trion Reid from Berenberg.

Just a follow-up on that margin target. I was a little bit surprised that you didn't mention the impact of pricing. So is it that you still think you can get to 17% even with this negative impact from inflation, which would, in my mind, effectively be a bit of an upgrade? Or is it that we should think about the absolute EBITDA targets on this kind of old revenue guidance?

No, we have not given up here. And I believe also with the additional investments, there has come in more room than we originally had, let's say, planned in the end of 2021 during the Capital Markets Day. I believe it's too early to exactly say how much compensation room we have there and what the price effects will be in the coming years if that explodes further. So I believe there's still a lot of headroom and we are doing our utmost to achieve at least the absolute figure, but are again focusing on the 17% minimum.

My questions have already been answered.

Okay. Thanks, Trion. Okay. Then I'd like to thank you all for your attention and for the very good questions. I believe the question have challenged us even more to prove what exciting development we can show and will show within TKH. I hope to see you all back again during the half year figure presentation in August, and I wish you all the luck yourself and good health and a lot of success. Thank you very much for your attention.

Thank you.