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

Good morning, everyone, here in Amsterdam and also everyone in the webcast. We are presenting our half year results and our outlook for the rest of the year. And I start with, of course, the disclaimer, and I hope you keep good notice of this disclaimer as it is always important. Yes, the key message is, we believe that we have, on balance, a very strong performance in the first half of 2023, a little bit of mix. Very good performance at Smart Manufacturing and Smart Connectivity, and we have seen some headwinds with destocking in Smart Vision. Some very positive things that the order book moved up further in Smart Manufacturing. And our strategic positioning is also doing very well, with the strategic investment of EUR 200 million progressing well. We will come back later, of course, on that. And of course, the large order we got from Ørsted as a base for the new plant is also a very positive next step for our strategic positioning. We also, of course, did make good progress with the divestment program with the last part of [ CGG ] Group. And the French connectivity, distribution connectivity activities, where we retained a stake of 40%. And last but not least, also investment in a really key area, Smart Vision with the acquisition of Euresys related to software, and we will come back also to that. Software is becoming more important -- more and more important in the TKH strategy. Yes, the continued growth underpins our strong strategic position. Here, we see the main figures. And I'm not going to walk you in detail through that. That has been already informed in the press release. The value-added increase across all segments. I believe that is really, really important to see also as a key message. We can see that here in the 3 divisions. And in all 3 divisions, an increase -- Smart Vision, we saw a very nice increase from 58% to 59%. Smart Manufacturing from 48.7% to 49.5%. And also in Smart Connectivity, the biggest increase from 35.5% to 41.1%. And of course, that is a very strong fundamental that we have for, yes, creating more value in the TKH Group. It helps the incremental margin to grow when we have growth in our turnover. And yes, if we then look at the return on sales industry divisions, we can see that we made improvements again in Smart Vision and in Smart Connectivity, whereas we see that there was a decrease in Smart Manufacturing, but we are on track to move again to the target of 19%, 20%, that we have set ourselves in Smart Manufacturing, especially the progress we saw in Q2 already and also the progress we are going to make in the second half of the year gives us a lot of confidence that this is a short-term effect. The easing of the supply chain, a very important aspect. It was really difficult in the second half year last year and also in the first quarter of this year and already during the second quarter earlier even than that we expected, it became easier. Still challenging, and the outlook for the rest of the year is also having a big further improvement. And again, that supports the return on sales improvement in Smart Manufacturing. If we look at Smart Connectivity, then we saw really, really strong growth in the energy market. And we also had a very good profitability from subsea. We had some short-term orders that we could get in. We have the ability to supply rather quick. And what we see is also that we get more and more traction with the key players in the offshore wind industry that led also to a further improvement of our sales funnel. And yes, within the digitalization, the fIber optic, we saw that the growth was dampened. And that in respect of turnover, that we saw improvement of the margins, and we focus also mainly on the margins as the import duties still have quite big impact of EUR 4.9 million in the first half year. And the perspective, of course, is with the investments that we are doing in the new plant in Poland that the import duties in the end will be eliminated. Yes. If I go then to Smart Vision, we saw that after a very good first quarter, I believe we were outperforming the market with 14% organic growth. That dampened in the second quarter due to mainly destocking and some shift of orders into the second half year. If we look at the environment, then yes, we see that also the supply chain issues that you saw last year had an effect on the delivery times. So the delivery times were quite long last year. And now with the easing of the supply chain, we see that delivery times have become relatively short. And that leads to the move of customers that they can relax more in respect of the risk that they potentially saw in the supply chain, and that led to reduction of stocks that they have, the inventories that they have. Of course, every company in the world is today looking at working capital. And yes, the good thing is that we can supply in a relatively short time. And we have a very high service level and but also -- it's good to see that the development that we are making with our one-stop shop in the Smart Vision activities. We are really on the move. We have one very nice new customers, and the pipeline also there is looking quite good in winning new customers and winning business related to new applications. We invested -- in respect of the progress of our strategic positioning, we invested also further in the sales organization. We believe -- very important, we have nice technologies, but we need also to be in the market to make them known in the market and not kept as the best secret there is. We see the big success of the solution center we have in Konstanz. And we are -- we have decided to open more of these solution centers. We believe that is really playing on the trend that customers like to do business with less suppliers. And the good thing is that we can offer a one-stop shop, not only from the component part but also related to the software part. We are really on the move with this software. That is the digital transformation part, which is a strong building stone in the TKH strategy and also reaching the targets. We are upscaling and upskilling the force, and we invested further in that area. And I believe it would be very nice to have a deep dive in the coming quarters to look really what is going on in this digital transformation within the TKH Group. And of course, last but not least, we had a setup of an artificial intelligence hub here in Amsterdam. It's also a very nice next step. We see artificial intelligence as becoming more and more important. We have identified a lot of areas where we can apply the AI. And yes, we are quite enthusiastic of the potential, how that will move up, let's say, further the strategic position of TKH. I already mentioned the acquisition of Euresys and the divestments that we did. And as backup, we show here the exact figures. The strategic investment program, very important for reaching the medium-term targets in 2025. Well on track here with the investments that we are doing not easy, complex projects. So we are quite proud that we are making such a good progress. The subsea cable plant in the Eemshaven should be finished by the end of this year, and the start of serial production should happen in Q2 2024. And that's actually already a quarter earlier than that we previously had planned. I mentioned already a promising sales funnel for subsea cables. And we hope, in the coming quarters, we can also announce further projects that we have won. Also important, we have a capacity up to 1,200 kilometers. We are targeting to have at least 600, 800 kilometers in the coming years as a utilization in the plant. And with that, utilization, we would already have a good profitability meeting the targets that we have set in our medium-term plan. We are also making good progress with the high voltage or the energy cable for onshore activities. Very interesting that last week, it was announced that TenneT has selected TKH, as one of our companies and the group for the supply of high-voltage cables. We mentioned that earlier that, that would be also an important building stone in our strategic targets for the coming years to increase turnover and also increase the profitability and the mix of activities. And again, it's good to point out that the return on sales in Smart Connectivity went up quite substantially already in the first half year. to, I believe, around 11.5%, and the target is 15% there. We are making also good progress with the plant in Poland. The plant -- we were there not so long ago. We have seen that the first machines are already operating, and almost all equipment is installed and that will contribute then to eliminating the import duties. And it is good that we made that decision because there has been a decision that the import duties will even further increase in Q3, and this potential of elimination is bringing also additional potential for increasing the return on sales in Smart Connectivity. The specialty cable plant is integrated in the total plant -- the total investment that we're doing, including the fiber optic investment. Also really well on track and also having potential to grow further in the high-end markets that we are in, medical market, where we also see nice growth rates and interesting margins. And then last but not least, the expansion of the plant in Poland for Tire Building systems. Operational, we have even decided to build an additional -- do an additional expansion. And yes, it shows the confidence that we have and the progress we are making in the tire building segment. The target is to achieve not so far from today a turnover of at least EUR 500 million. We already had last year a very high order intake of above EUR 500 million. And the good news is that also we are really on track with the order intake this year. And yes, of course, you need to have the room to, in the end, also manufacture what you are getting in as orders. Yes, ESG, a very important priority also in the TKH Group. We focus heavily on this reduction of the CO2 footprint. We want not to have this back loaded until 2030 to reach our target. So we are also heavily investing here. in reducing the CO2 footprint, we made good progress in the first half year. Also very nice to point to is the percentage of waste that came down. We see there especially the good improvement in the subsea cable manufacturing, where we are doing much better than we did in the past years. That's all about experience and further fine-tuning and also very important to point out at the illness rate, which is also a key indicator for the motivation in the TKH Group, and that dropped further to 3.75%. That's my part. I'd like to hand over to Elling, and thank you for your attention.

Thank you, Alexander. Good morning, everyone. I'll walk with you through some of the financials. First of all, the geographical distribution of last year's revenue. Not that many changes, as you can see here, the Netherlands is about 26%, up a few percent compared to '22. Europe outside the Netherlands, about 42%, 43%. A little bit lower in Asia and North America, just below 12%. What we have added this time is the circles, as you can see here, with the regions, how they are contributing to the various segments. And one of the reasons why the Netherlands, for example, has grown as a percentage of the whole has to do with -- you can see here in the Netherlands ring that Smart Connectivity is an important area of revenue within the Netherlands. And as we have seen, the Smart Connectivity has grown nicely, and that is for an important part also taking place in Netherlands and in Europe. If you look at the P&L, the top line growth, 5.3%, basically 5% organic. A little bit of help of acquisitions, 0.6%, and there's some foreign exchange effect. But by far, the growth came from organic activities. If you look at the added value, a very important element in the year, and you see the substantial increase from 47% of added value last year to just over 49%. We see some easing in the supply chains, but also the effect of all the price increases we have been able to manage in the various segments in the last couple of quarters has helped us to increase the added value. All the 3 segments have shown a growth in the added value percentage. Operating expenses, EUR 345 million, a 12.5% increase. Important to mention is that roughly 70% of our OpEx is related to personnel costs. And if you look at the substantial increase in the overall OpEx, then roughly half of that related to personnel is due to the headcount increase. Over 500 people have joined since the comparing period mentioned here. And of course, we also have to deal with indexation in the various countries. But the headcount increase is substantial. We are over 7,000 employees at the moment. And of course, we also have the headcount increased due to the start-up of some of the activities, which have been explained as part of the CapEx program. At the lower end of the P&L, the result of associates, it comes out clearly the EUR 36 million gain. That's a one-off gain as we consider that to be. That's the effect of the divestment of the remaining stake in CCG, EUR 36 million, which took place in Q1. On the other financial results, mostly of course driven by interest-related costs, just over EUR 10 million in interest charges in H1. For H2, we expect a few million above that level. The tax rate is about 25.7%, a little bit lower than last year. That's due to the allocation of the profits falling a little bit more in the companies which have R&D tax facilities. If you look at our balance sheet, specifically on the right side, you see a further breakdown of our working capital development. If you look in absolute figures, last year, we ended at EUR 334 million, and we have EUR 337 million right now. That's still a 19% -- percentage of revenue. That's above the bandwidth which we have as a target, and that's 12% to 15%. We have seen in many years that halfway the year, we are above the bandwidth. And then gradually in the second half, we bring it towards the bandwidth. And that's also, of course, what we are working on in this particular year. One of the areas, of course, where we have seen still fairly high elements of the working capital, has to do, for example, with the inventory. We still have some effects, of course, from the supply chain issues of last year, which are in the balance sheet, and that gradually starts to disappear. 19%, as I said, is above the bandwidth, but we are confident that we are making progress in the second half of the year. If you combine that with, of course, the analysis on the net debt, net debt increased from just over EUR 300 million to EUR 480 million. This substantial increase, but there are a few big tickets, which I don't think are surprising. Of which, one of the largest ones is related to the strategic investment program. You can see that here in the, let's say, bar charts, we have about EUR 71 million in H1 in CapEx related to PPE. And of the EUR 71 million, roughly EUR 55 million is related to the strategic investment plan. So compared to previous years, a substantial increase due to the rollout and execution of the particular program. As you also can see in the column next to the EUR 55 million inflow, that was the CCG divestment, we also keep on investing in the intangibles, EUR 25 million. Roughly EUR 20 million is related to R&D, EUR 5 million to patents, software, et cetera. And the EUR 20 million investment in R&D is, again, like we have seen in the last couple of years, roughly 50% of R&D expense. So not much change there. And of course, also, and that's in the same comparison as usual, of course, the dividend payment which took place in the second quarter, close to EUR 70 million. And also, we had a share buyback program outstanding. We executed about EUR 16.5 million of that program. So there's still some procurement to go in the coming weeks. And of course, I should not forget the acquisition, which is roughly in the middle, EUR 46 million cash out. So if you summarize with a couple of big tickets, the acquisitions, the continuous investment in the strategic investment program and then, of course, the accumulation of the dividend, et cetera, in H1 has caused the increase compared to December. Our bank covenant [ net ] leverage, 1.7. So that's, of course, the direct effect, and we stay well below the 2, which we have as our target. Bringing this to the free cash flow. As you can see here, in the last couple of years, we always have kind of structure that the second half of the year has a little bit of better free cash flow than the first half. But of course, we also see that the impact of the larger investment program is coming through, also in H1, a cash flow from operations before interest of EUR 24 million. But in the end, a negative SEK 24 million free cash flow on the back of the substantial CapEx programs. If I go to the last part almost, the outlook. If you look at Smart Vision, then we expect turnover and EBITA in the second half to grow compared to H1, despite or whilst the challenging market conditions which might dampen the growth. If you look at Smart Manufacturing, the turnover and EBITA are expected to grow in the second half compared to H1. We have strong order book. And so, of course, we see the easing of the supply chain within the Tire Building. For Smart Connectivity, turnover and EBITA in the second half are lower than in H1 '23, A couple of items already mentioned by Alexander. You see some destocking. You see some project delays at our customers, especially on the onshore energy cables. We have some underutilization in subsea in the third quarter and some of the duties, which we highlighted before, which have increased almost 100% as of January -- beginning of August. And of course, we have guided and we have reported before that we are divesting our connectivity distribution activities in France. We expect that somewhere in the third quarter to come to closing as we communicated earlier. But for the outlook, we have fully taken the activities into scope for '23. And this leads to a EBITA forecast for full year, barring unforeseen circumstances, of course, of between EUR 237 million and EUR 247 million, compared to almost SEK 235 million last year. And this leads then to the net profit before amortization and one-offs, which we have been using as a definition in the past as well, EUR 131 million to EUR 139 million as a bandwidth for the full year. Before going to Q&A, just a couple of closing remarks. I think on balance, if you look at H1, we performed quite well. Yes, there are definitely some headwinds, and we have a cautious, let's say, approach towards the second half of '23. We see the destocking effects and some short-term elements within Vision and Smart Connectivity. Our strategic investment program is well on track. We execute according to plan. We see the benefits mostly coming in as of '24 and onwards. And we continue to invest in the strategic positioning. So the strengthening of the core concept and, let's say, making sure that our portfolio is well fitted to our strategy. These actions are ongoing and also will have its impact on the medium-term targets. So we are well positioned in the end to take advantage of the long-term growth opportunities which are given by the megatrends, as we have called them in the past, the automation, digitalization and electrification. With that, we close the formal presentation part, and we open up for Q&A.

Michael Roeg, a couple of questions. Firstly, your strategic investment program totaling EUR 200 million, will that be completed this year? Or will there still be something in -- for next year?

Basically, we completed this year. All the commitments are there, and the execution is well on track to get that completed. Cash flow wise, there's probably a few million which will spill over to next year in terms of payment, but that's more the effect of the negotiations when we pay. But all the execution basically takes place this year.

You mentioned that you have added to your strategic investment program an addition to Poland, your facility. How much will that increase your EUR 200 million strategic investment program?

That's about EUR 6 million, EUR 6.5 million.

You mentioned that most of the investments will bear fruit as of 2024, but will also already be benefits this year? And could you quantify that?

If you look at the, let's say, opening up of the various facilities, then the fiber optic plant in Poland as well as a specialty cable plant in Poland, are coming up to stream and they are getting into operation as we speak, and they will have its contribution to some extent still this year. But at the same time, we have, of course, some initial start-up costs. And especially on the fiber optic side, there we have a negative in the sense that the duties, the antidumping duties, which we have to deal with. They are not specifically related to the plant. But our import, which we currently do from China, have a -- any further increase in the second half of the year. And that will take out some of the benefits, which we get from the start-up of the local activities. So I don't think it's an additional cost, but we don't have the benefit of basically the fourth quarter coming through. And so on a like-for-like, the second half of that year is not too far off from H1.

Talking about the optical fiber business. You mentioned EUR 4.9 million of import duties. I recall -- well, last year, you had 4.5%. So on balance, there is not that much difference compared to last year?

Correct.

Okay. And about the strategy of optical fiber. Currently, you're mainly active, if I'm right, in the Benelux, France and Germany. Do you have the intention to expand you business, for example, into Spain because they are spending heavily -- the government is spending heavily in that country?

Yes, there are more regions where we are active, but you highlighted the main countries currently. But if you look in the next couple of years, let's call it, midterm, then some of these countries will probably come to some, I don't want to say saturation, but some of the growth will flatten off. But other parts of the European Union are still, let's say, on a path where our growth is foreseen in the midterm. And one of the countries you mentioned is definitely an area where potential is there. Currently, it's not a big part, but it's definitely on the agenda for the years to come as a replacement of some of the more mature markets in Europe, which we currently serve. .

Tijs Hollestelle, ING. Yes, you were explicitly on the guidance statement said that, that is indeed including the intended disposal of the French business. But the guidance does include the recent acquisition in [indiscernible] acquisition. And has it already been consolidated partly in the first half?

Yes. You can say that and we gave some guidance on the growth target. It was about 0.6% of the growth came out of the acquisitions. It came in basically since May that we consolidated this. So that's a small part, but roughly EUR 5 million.

Okay, yes. What else did I have? Yes, on the Vision Systems, it's not really a question, but it is kind of -- maybe it's a frustration. Because in this room, we have in the last couple of years asked a lot of questions about, let's say, the end market exposure the client base in order to -- for us to analyze, let's say, the potential cyclicality of the security system to 2D, 3D cameras. And throughout the years, you basically provided us pieces of information. Now I think that the reason the share price is down 10% is because, yes, we're all quite surprised by the 40% growth in Q1, which suddenly turned into quite a negative volume impact in the second quarter. So it would be helpful for us to get a little bit more insight in what kind of drivers are backing your results in Machine Vision. Otherwise, the cyclicality and volatility, yes, will probably hunt you because you're then also not able to provide guidance anymore or not very accurately. I mean...

I understand what you...

TKH would sell 100% of these cameras to tomato farmers in the Netherlands, we can analyze the tomato market [indiscernible] is going. But now it's -- but that is personal, maybe that is not true. My feeling is that the information we're getting is mostly positive. So then you recently added battery players. Now battery as players are doing quite well. You won new clients. So for us, it feels like the Machine Vision business is, even in kind of difficult economic times, continues to grow. But that is not the case. So it would be helpful to give us a little bit more in the future.

No. I fully understand that. The second quarter, by the way, was only, I believe, 0.7% decrease in turnover. So it was not a very big decrease.

But in volumes, it...

No, in volumes, I would say, similar. So not a big impact there. We didn't have big price increases there in the Smart Vision. So it's also, I believe, in the respect of volume, similar figure. And yes, the thing is it is not so easy to give an exact guidance in respect of that development. But we confirmed in Q1 that we were doing something completely different than the market with 14% growth. And if you look now at Q2 and the environment where we are operating, we see heavily let's say, effects, heavy effects. And I'm not going to point out to these players. And then if you look at our performance, it's way better. But yes, a main effect is there, what I pointed to, the short delivery times that we have today. They last year, there were, in some areas, delivery times or more than 6, 9 months. And that effect is coming in. It's a luxury problem for our customers that we now have short delivery times of 2 weeks. We have no supply chain issues anymore at all. And that is an effect that we see back. We see, again, very positive trends, and we dare to to give a guidance for the second half year that we grow there, at least compared to the first half year. We are not confirming yet that we will grow compared to the second half year last year. But yes, I believe there, we are also outperforming. And it's again a confirmation that we have some very good building zones there to be on a growth path. And of course, the proof is in the [ eating] at the second half year, where will we come out. We have also have a kind of disclaimer there that the growth might dampen. And we have to see how strong it now really is. We have really heavily invested in portfolio, and that's a really big driver, how we see that we are able now to address new markets that we were not in. And that is a very important building stone to achieve growth. And also for the medium term, the 2025 target, we have analyzed that we should be able to grow double-digit. And we are not believing at this moment that, that is gone now. But there is a short-term effect. And we, yes, are not completely immune if you look at the environment. And then, I believe, the impact is still very limited compared to others in the market, and shows again the strength of TKH in this segment and the value creation potential that we have. And of course, we see high added value. The impact is immediately in your profitability. We have plans to grow double-digit. But if you are not growing double-digit, all the costs are still there. And we believe also in the next quarters that we need that cost. So we are not cost cutting, we're even investing more in more sales activities because we see the big impact of the solution centers. We get very positive feedback. We had so many visits there with major players that can also support our double-digit growth, how enthusiastic they were. But that is, yes, not a firm contract that we have. But we see the feedback in the whole organization, everyone is super enthusiastic, and we see the pipeline that is helping us to be positive for the second half year. And that is quite unique today in this environment.

That's a clear answer because, indeed, last year, you -- I think you were more convinced given the outlook, but that was because of the backlog. So you had more visibility now basically return to normal, so the visibility is somewhat less.

Yes.

But yes, a lot of conservatism going forward would be helpful. Because, yes, I think it also took you a bit by surprise what happened here.

No, I fully agree. And I'm not going to say that we have been extremely conservative now because then there is a risk that the, let's say, expectations are too high. So let's see that we achieve what we have given in our outlook and -- yes.

Okay. And yes, the last question is on the tire equipment. I think in the last meeting, we talked a lot about that. I think your guidance and also your performance is basically in-line also what you said, and I think also generally what the market was expecting. Could you give a bit of more insight in what we can expect, let's say, in terms of the -- yes, the finishing off of the products, the delivery to customers. How fast, let's say, the backlog will be catching up with the easing of supply chain. Is that something that...

We already saw a quite positive effect in Q2. So we expected about EUR 15 million decrease in profitability of that area. And we have communicated quite clearly about that. So it wasn't that negative effect of EUR 15 million. And so the comparison base for the second half year is already different, and we are quite confident that we are really on track and that's not wishful thinking that we can improve further the results there. And what is very good, and that is what we did know last year, how the order intake would develop further, and we saw a very good order intake in the first half year and also the outlook, Harm, for the second half year is also very, very positive. And not only for the second half year, also looking in 2024, strategic investments, the reshoring activities, which is continuing and needs heavy investments in the industry, the replacement of the equipment because of the, yes, supporting technology that we have to reduce waste to play an important role on ESG at our customers [indiscernible], especially because of new innovations that we brought into the market. The UNIXX modules that support there very well. And yes, we see that traction back in the order intake. And also there, we are not completely immune to a big economic crisis. But until now, we are progressing, I believe, better than that we even had expected. And I mentioned already the EUR 500 million is getting close to us, and that's even excluding complete UNIXX modules, the complete UNIXX systems. And also there, we are making progress. We are still 100% confident that, that will be a major success in the coming years, and that will -- we will be able to add that on what we have today with the -- around EUR 500 million order intake.

Harm also looks more relaxed compared to -- okay. That's helpful.

Yes. On Teams, Thibault, maybe if you have a question. Sorry, the point you asked.

No, no, no. No problem at all. Let me check. I was wondering with respect -- let me get -- with respect to the energy connectivity, could you provide some color on like the delayed projects going into the second half of the year? And I'll take it one by one.

Yes. The -- what we see is that some of our customers have really put a lot of inventory in the connectivity that we supplied starting last year with very big increases, and they forecasted that they would have a much higher need than that they have today. So the inventory grew further and now has come to a level that they say we are at the limit. And with a slower growing demand related to all the permits issues you have in the Netherlands. We know that they work hard in getting more traction in the rollout. The necessity is there. We know that a lot of issues are there that even complete building blocks of houses cannot be connected to the power network and industrial companies. So the pressure is very high, and we have confidence that, that will normalize, especially when the destocking effect because some of our customers have more than 9 months inventory. And that is, of course, too high. We understand that, and that will have a, I believe, a short-term effect of, let's say, 6 months, and we'll come back in 2024.

Okay. And then also with respect to the personnel expenses going forward. Given the additional capacity, how should we look at personnel expense increase towards 2024? Do you expect a significant increase in FTEs?

We are already quite on track with the additional FTEs that we need for the strategic investments in 2024. And then, of course, the people that we have hired can be utilized in the manufacturing of the projects that we foresee in 2024. So not a big impact anymore of additional FTEs and additional personnel costs. And you have to note is that we are absorbing that also in this year and yes, it gives a good building stone for 2024 that we can execute on the investments that we are doing.

Yes. Then with respect to the divestment in France, if I look -- basically, you said that the divestment would contribute to a higher margin. But actually, the divestment took place in the business, which had a higher margin. So how should we interpret that?

We had a very good development in the years that we decided to divest and also with more focus on the short term. And that worked out quite well. And yes, the average margin is now a little bit above the average of the TKH Group. But yes, we are going to reinvest this money. And of course, longer term, even more attractive activities than the connectivity -- distribution connectivity business. It's a very small impact on the return on sales now.

Ruben Devos, Kepler Cheuvreux. I just had a question on loss market connectivity as well. So the temporary underutilization in subsea. Obviously, you've got this new facility that will come on stream, right? So I can imagine that you will not be hitting the ground running and that there's maybe some underutilization initially. But can you help us understand a bit how you see the road map, let's say, in the next 18 months where you see deliveries coming in and sort of materially contributing to the P&L?

Yes. We, of course, already announced the 200-kilometer project that will have perhaps a little bit more positive effect on the turnover then that is now let's say, in everyone's mind because it's copper cable and not an aluminum cable. And normally, the value of copper cable is about 3x as high as an aluminum cable, so that will help, of course, the turnover. But with also higher raw material in that project. The added value is lower. So we have not the same added value on the higher turnover. But that will -- we have already a quite substantial impact in the utilization of the plant in Eemshaven. And we are very close to winning business for the remainder of 2024. And to get already quite substantial utilization moving further into 2025 with the pipeline of projects that we can come up to a utilization of around 600 kilometer, 800-kilometer in 2025. Now the confirmation will come not in 12 months. We believe that the confirmation of this pipeline translated into orders can come in, in the second half year. And that gives, of course, the real confirmation that utilization will be there and that the return that we get on the investment is also contributing quite well to the growth of the EBITA and of course, also the return on sales.

Okay. And then a bit of a similar question, but then for Tire Building. You mentioned you've seen order intake of about EUR 500 million already last year. The term objective is also around EUR 500 million in sales. So going into 2024, how should we look at the ramp here as well in terms of, a, you're not seeing improvement in the supply chain. You are delivering. You've already seen substantial improvement in Q2. How should we see the rest of next 18 months?

I believe it's a good question for Harm.

You're right. The order intake is really at a record height already for quite a while. I think last year was extremely high, also because of some temporary effects like people knowing that delivery times were getting longer and longer because of supply chain disturbances. The -- but I think very good news is that the order intake remains very strong. The effects for the longer term, well, that is a little bit complex, I would say. It's depending on -- you see now a big transition from investments from Asia to mainly North America and in Europe. And you can imagine that at a certain point in time, years to come, that there will be an easing of that investment because then the plants will be online. That will take years, but still. And by that time, we expect that the super high flexibility that UNIXX technology can bring will then replace part of that investment and then move the business further up. So in the -- I would say, the mix of orders in the coming years will change a little bit from what we now see as MAXX technology into a UNIXX technology. What that has to do with the volumes in the coming years, I think that's -- well, right now, we expect growth in total in Smart Manufacturing, really according to our strategic positioning. So I would say that's all going very well. And I think looking further ahead this maybe -- well, its -- I would say, a little bit more than talking about dreams then rather than specific and concrete orders. So very positive outlook and on track on our growth plan. I think it's -- we'll leave it like that.

Okay. And I think Alexander talked about the EUR 500 million sort of still excluding the sale of the complete UNIXX models.

Yes. The -- what you see is that the order intake is at very high levels. And of course, only a very small part of that is now consisting of UNIXX technology being sometimes modules of the complete cell, but also UNIXX technology that we have put into complete new machines like the UNIXX Belt Maker. And these machines are getting very -- well, receiving a lot of interest in the market, mainly because of the sustainability challenge that our customers have. And that really helps them in their road map towards reducing their footprint and their CO2 footprint and their waste levels. So in combination with more flexibility, so I think that's, all in all, a very strong positioning. So that will kick in more and more in the order intake. So the percentage of UNIXX technology right now in the order intake is there, but is limited and that will grow. And what that means to the total growth, I just explained that, I think, more for a longer period to look at. But it's looking very well.

Okay. And then just a final question on the guidance. You decided to include, let's say, the full contribution of the divestment of the French cable connectivities. I think you said it would be completed, this divestment in Q3. So just wondering for the rationale for including the full year contribution. Maybe you already addressed it in the early part of the presentation. And then as a follow-up on this. Is that -- are you able to provide us some help on, if you would exclude M&A which was already announced, the Vision asset, the divestment of French cable connectivity, where the EBITA range would be if you take this into account?

Well, I mean, one of the reasons -- I mean, in your forecast from basically all of you, you have the French activities included for the full year. So therefore, we also have decided to include them. Of course, upon closing, will convert a clear statement on what the contribution has been and then how you convert that back into the new guidance as of the date of closing. So the one-on-one comparison will be provided. Of course, in the full year guidance is the acquisition of Euresys included. I already mentioned in H1, the revenue component of about EUR 5 million. We have guided before what roughly [ EUR 22 million ] was in terms of their revenue and also the kind of contribution margin they make. Obviously, this kind of activities, margins, which they make are contributing to the targets we have outstanding. So from that point of view, I think in your model, you can pretty well figure out how that element fits in. In my part of the presentation, try to highlight you some items like the interest and the CapEx programs, et cetera, to provide you sufficient support, I hope, for fine-tuning your model for the second half of the year.

Okay. And in this business, the French cable connectivity, that's very well spread evenly across the year, the revenue generation? Or is it like seasonality where you have like big contribution in Q4, for instance...

I can always say that August and France is special, but the rest is...

Martin Baker, [indiscernible]. Going back to the TenneT contract, of which you are 1 of the 8 parties. However, according to me, you are not or you're not producing all cables required in the contract, only up to 150?

Yes.

Will that be your focus? Or will you also be expanding your coverage in that area?

No. No. For the coming 3 to 5 years, we are dedicated to that segment. We are well positioned there. We have the right competencies also for that area. And we see that they are the biggest opportunity at this moment for us and also taking into account the risk. And so we want to be more safe also in the development of TKH, not too risky innovations, and you saw that also on the percentage of innovation, which has come down to 15%, had 2 years looking back for new product introductions, and that is, again, a proof of that we are reducing our risk profile to be committed to the targets that we have set.

Your Lochem facility will come available, because that will be moved to Eemshaven. So will you then be expanding your capacity in the 110 and 150 kV?

Yes, that is part of the investment also in the Eemshaven, for which we create capacity in the Lochem plant. And so we are well prepared there. And let's say, starting there of also end of Q1, we will be able also to support the longer lengths, which is also a kind of new opportunity in the high-voltage area, and then we are really well prepared. We can already start with smaller lengths before Q1 2024. But yes, again, I believe it is not only within TenneT. But in the whole high voltage market, we have a quite interesting proposition. We see that the delivery times are very long, even up to 2 years. And then, yes, with a very good operational potential in the factory that we have. So we see that customers are really very positively surprised about the state-of-the-art facility that we have. And you need to have a state-of-the-art facility for high voltage, even up to 150 kV. And that response that we get, I believe, is a very good and positive signal we get to see that as a big building stone for the coming 1 to 2 years to create additional turnover, let's say, around 30 million, 50 million, at least to, yes, have a nice contribution additionally beyond the medium voltage and beyond the subsea business.

If you look at the TenneT contract, I think the total was EUR 1.5 billion. What is your addressable market for that contract?

I cannot disclose that in detail.

Then getting back to the optical fiber market. Could you share with us how much of the optical fiber being delivered in Europe comes from China, and it's not produced within the EU?

I mean at the market level, you mean or are you talking -- of course, that part is reducing substantially. We have seen that some of the Chinese players have also moved in realizing CapEx programs within the EU, so they have become local. So that's diminishing fairly rapidly. So from that point of view, I would say that the objectives of the EU in terms of getting, let's say, the unfair competition out of some players from China out. I think that has some effect. I would not -- because that's a really rapidly moving development. So I would not really be able to figure or present you a specific figure right now how many percent. But I would say that if you look at 1 or 2 years from now, that percentage is really substantially lower than what we have seen in the last 2, 3 years.

But I was just simply wondering, if it would offer you an opportunity to increase prices because of the gap with the import duties.

There is a part of that, definitely. That's why we are, of course, having the local facilities developing at such a speed because there is still some of that effect in the market prices.

Then a question for Harm concerning the manufacturing systems. When I look at manufacturing systems then in 2 years' time revenues have increased by about 30%. However, your OpEx has increased by more than 50%, obviously, due to the challenges in the supply chain. How much will you be able to shave off of those OpEx now the market is easing?

We're not planning to reduce the OpEx, but to increase the top line. You could say that the main part of the operational costs are in personnel. And our employees are now very, very busy with all the -- yes, all the supply chain challenges. And you can imagine that if you produce machines and you have to test these and take parts out, put them in stock or deliver them in complete and then later ship the parts that come in too late. So that's an enormous organization that you have to set up in order to continue your business. That is now easing, you could say, yes? So the supply chain is coming. Also, the last parts are now getting more to normal delivery times. And that means that our operations can run smoothly again soon. But there's still a lot of work to be done. Machines that are incomplete, machines that are stored somewhere in places and then have to be installed, so that will still take some time. But in the meantime, based on the very strong order book that we have and the high order intake, we can increase our production levels again, and that means that we get back to -- well, back to, but really improve our return on sales. So you see that the -- that it will not so much be a reduction of OpEx, but more in top line growth.

Tijs Hollestelle, also an additional question. Yes, on Elling's remarks on the FTEs. The increase in Smart Vision in number of employees is probably because of the acquisition. But then indeed, the increases in Smart Manufacturing and Smart Connectivity are basically 80% related to anticipating the new capacity coming online.

Especially in Connectivity and Smart Manufacturing, also related to the, call it, inefficiencies due to the extra workload in order to handle all the efforts as just explained by Harm.

So the impact on, let's say, the second quarter, I think these people came in, was already EUR 4 million, EUR 5 million.

If you add the entire, let's say, 500 people, then roughly, you're talking about this kind of tickets, yes.

Yes. And you need to train them, et cetera.

That's what I mentioned earlier. I mean we don't -- we have kind of, call it, startup costs. I don't want to be too much in detail on that. But you don't have the efficiency from day 1. That's not realistic, and that will not happen. So there's a scale up time before they really contribute their, call it, euro value, if you want to express it like that. And that takes a little bit of time. And that's also for the second half of the year, where we further scale up some of the newer facilities which come on full steam. But then, of course, in '24, they are all staffed and they have their contribution to make.

And in the, let's say, the next 12 months, how many absolute FTEs do you thing you need for the year?

I think what Alexander already mentioned, most of them are already there. There are still, let's say -- I don't want to give you a specific number, but it's not like the magnitude as we have seen, a few hundred people, it's much less than that. But of course, we keep on investing. It's not only about capacity expansion, it's also about other areas, where we want to emphasize sales efforts, et cetera. So it's not only related to CapEx programs, but also about the strategic agenda, which we try to execute.

Bjorn [indiscernible]. I have a question related to working capital dynamics. You have a clear target there. Could you elaborate a little bit on the destocking you see potential for yourself, but as well the trends you see at your clients? Because you mentioned shorter lead times and so on. how much is already, I would say, normalized? And what kind of destocking you see for yourself and still for your client -- clients?

Well, it's a good point. I mean, as I said, working capital at half year is always higher than year-end. One of the areas where we see the working capital, let's say, at a higher level is the stock levels. Some of that is related to the raw materials, as we call it, components and other elements. So it's not so much the finished goods part, which is the biggest share, it's fair and balanced with the raw materials. Of course, when we face some headwind and see some destocking effects that has an impact on our side, then we have, of course, the same towards our suppliers. I don't want to get into the specific numbers, how many millions is related to that. But of course, that's an effect which we have seen in Q2, and that did not help a further reduction in especially the second quarter. But as time passes, we see that we are able to get back our working capital to a more normalized level, which we're used to for TKH. And that means that we are able to offset some of these, call it, destocking effects in the quarters to come.

Would it imply your longer term as well, because of the shorter lead times [ toward ] your clients that you would be able to have short lead times yourself as well as your suppliers and that you can go know your range or maybe...

In general, that's a trend. Of course, it will always depend a little bit on specific situations. The serviceability of our customers is, of course, an area where we try to get into a kind of competitive advantage compared to others. And that requires, in the end, the balancing act on how much we invest in stock and these kind of elements. But in general, you're absolutely right.

Okay. And then related, because you talked about net debt. And you said that net interest expenses, they increased with about EUR 9 million during H1, you said there will be a couple of millions more in the second half of the year. That was included in your profit target, if I'm right. That's a little bit of a balancing act as well between outstanding debt and the interest you have to pay. Can you give a little bit of color there as well?

If you look at, as I mentioned, the debt increase, especially in the first half, has a lot to do with some specifics. I mean the acquisition -- the CapEx program, the strategic CapEx program because, of course, we always do CapEx programs with the strategic part. We have cut the dividend, we have a small share buyback, all well within the leverage structure we are aiming for. So that's not an issue, but it puts a higher net debt in the end. And of course, with current interest rates that has a higher ticket. If you look at the second half, there was previously a question, how much is still to be done. Basically of the ongoing strategic program, well, that's basically in the second half of the year. So that means also, there, we see a ticket, which we have to deal with. Some of the other elements are not there anymore, let's say, the dividend part, et cetera. So you see some improvement in the second half of the year. We have a divestment which is to come, as we discussed earlier, in France. So from that point of view, there are some moving parts, but that, in the end, in the current environment, we'll have a slightly higher interest as a result for the second half.

Okay. No questions anymore. Then we close the meeting here in Amsterdam and also in the webcast. Thank you very much for your questions, and being here attending this meeting. And we are looking forward for the next meeting to see you all again. Thank you.

Thank you.