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

Good morning, everyone. Warm welcome here in Amsterdam and also, a warm welcome to all of you in the webcast. Today, we have our presentation of the annual results and the quarter, the Q4 result. Before we go into that, we will of course have our cautionary note regarding the forward-looking statements. I hope you take good notice of that and then, we can continue with the next slide, the key messages. Of course, we are happy that we were able to meet our forecasts with the result of EUR 237 million EBITA, a little bit higher than that we forecasted in November, and that's especially due to a very good performance of the Smart Manufacturing segments and especially the Tire Building activities. We saw, of course, as we also indicated, continued destocking effect in Smart Vision and Smart Connectivity. And what is also very good to reflect on is the added value which substantially increased during the year with about 2.6 percent points. And I believe that is really a good confirmation of the strong strategic position of TKH, and we are building further on that strong position, of course. Return on sales, an important strategic KPI for TKH to develop the company towards the 17% and of course we are happy to see in the Q4 the 14.3% return on sales. Of course, ESG, very important, we made good progress and we are also happy to say the 70% of our turnover is related to the sustainable development goals. We made very good progress with the EUR 200 million strategic investment program. We already started the first power core production in our plant in Eemshaven, which is really according to plan. We have guided last year that we will start the serial manufacturing in Q2 a little bit earlier than previously guided for and we are really well organized for that plan. And we also have orders there that we need to manufacture in the Eemshaven related to the lengths of cable that we have to manufacture in respect of the existing order book. Also, very good news, the development in Poland with the new plants that we build there, exciting to see what's going on with the Tire Building activities there, huge expansion that we organized and already implementing an additional expansion that will come in, in the first half of this year. We need that capacity. We rented also a lot of buildings, but it is better to have our own sites and so, we are also well positioned there for further growth in the coming years. And last but not least, the new fiber optic plant is starting to run smoothly. And that is also the case for the specialty cable plant that we created in Poland. Yes, many additional hires there around 200 for the ramp-up and to roll out of the capacity that had, of course, in effect in the connectivity segment in relation of the additional costs. We are quite confident about the utilization in the coming 1 or 2 years of the plants. And that we really need the additional hires that are now working for TKH. And then, of course the strategic positioning, very, very important to build on further. It is really exciting to work for TKH if we see how customers love what we present in the market. The combination of hardware and software really, really important, and AI coming in here and very good that we have a hub here in Amsterdam with talented young people that drive our AI development. We will present at the Tire Show in a few weeks from now, an amazing AI system in our Tire Building equipment. I cannot launch it now, however, I believe, but we will do that in a few weeks. But it's exciting for also creating and developing our scope of supply in the Tire Building systems as we do that also in the Machine Vision area where the one-stop shop is really helping us to be the technology partner for major customers to give them access to all the Vision technology, including the software propositions that we can offer to deliver plug-and-play systems. And that's really a trend that is important to play on and is also a big driver for organic growth in that segment. We are also very happy to announce that we had a continuing very high order intake in the Tire Building systems within Smart Manufacturing and that in the first quarter of this year in the first month of this year, the [indiscernible] order for UNIXX system and what is also very important that there is a very high interest for additional orders coming in and I would say the coming year. Also, very important milestone was the high voltage selection by -- as a supplier for TenneT and, of course, the framework agreement with Vattenfall, which confirms the use piece that we have in our proposition in the onshore wind -- offshore wind opportunities. We also can mention that we have a very good pipeline of orders to secure turnover this year and also for an important part of 2025. And especially if we look a little bit further, then we see that the market is going to triple in the coming 2 years to very, very high volumes. And of course, we are preparing to not only to address that but to already take orders. And we see that the lead times are actually quite long 2, 3, 4, 5 years, and we are already working today on projects for '29 and '28. The 2 major divestments was a very nice net profit contribution of almost EUR 55 million. We also announced that we will further accelerate our divestments and towards the high end of the bandwidth that we announced earlier. And I believe we are making good progress there. And we'll be able to announce this year several divestments. Of course, the proceeds will be invested in the core business of TKH and if there's room left, we also will look at share buybacks. And then last but not least, the acquisition of Euresys is spot on acquisition if we look to the software need in Vision technology. And this is really a fantastic acquisition and we see that it integrated very well into the Group, a lot of enthusiasm within our -- with our colleagues in the Vision group that this company is now part of the TKH Group. To look at the green line, it is fantastic that we were able to return about EUR 120 million in cash to our shareholders. We will strive to give that a further high priority in the coming years. And what is very important that the cash generation in the coming years will be at a very high level, much higher than it has been in the previous years. As we have crossed almost the strategic investment of EUR 200 million, the CapEx will normalize again to older levels and we are really also focusing on this cash generation as we believe that it's really, really important. Here we see quickly the Q4 results. I'm not going to walk in detail through that. The same applies to the highlights of 2023. The net debt I understood was a kind of surprise that it is at this level. But yes, the sun rises for nothing if you have to invest EUR 200 million additionally and you have a share buyback of EUR 50 million. Yes, it has an impact of course also on the net debt. On the other side, we also believe that the net debt will come down very, very quickly in the coming year and that is why we are not worried at all here. The working capital is higher and was above the bandwidth, but also there we are quite confident that the working capital will come down quite rapidly during this year. And that will generate of course also a lot of cash. The order book is at a similar level as last year. And I believe that is good news. If you see the destocking and all these kinds of things that the order book in the end did not decrease and another element is of course that with the shorter delivery times that we have, anyhow the order books are coming down. We can see that in Smart Vision where the order book decreased. But we are not really worried as we see also in the first few months in the majority of our companies in Smart Vision that the order intake is higher than it was in the past quarters per month. So that's also kind of signal already how can we project that in the second half year. We might have a higher turnover that is based on that important fact that we already see that the order intake is increasing and that should translate also in a higher order book then at the end of the first half year. Yes, then we can go to the segments. What I really like to point out is the added value. We see Smart Vision with a small increase of only 0.4%, but in a, let's say, difficult market, and again it proves the quality of our technologies, the way our customers like the technology and are willing to pay the price that we need to have. So no pressure on the added value, although we had the turnover came down in the Machine Vision area. And yes, we are going to build on that further because for the incremental margin in the coming years, it is very important that this performance stays at this very high level of added value to take a lot of additional profit in this segment. We also continue to have a high cost level. So we did not adjust our cost level in relation to the decreased turnover. In the Machine Vision segment, we even added costs, especially related to marketing and sales. And yes, with that we secured that we keep our market share and perhaps also opportunities to even increase our market share. The cooperation is really at a very, very high level. We made really a major step there by integrating the talents in our group working at specific targets in the market, but also in respect of R&D and operational successes. And that creates a really strong fundament for the coming years to build on. And we are really excited about the opportunities that that we see. Smart Manufacturing, I already mentioned most of the points that we are putting in this sheet. Again, also there the added value increased and also to cover inflationary cost increases. So that is very good and the easing of the supply chain health is also there. Amazing job in Q4 and it shows also really the potential of the Tire Building activities, although also the other activities within Smart Manufacturing performed quite well. Within Smart Connectivity, we saw a very good start of the year, a very big increase in the first half year of the results. We showed 11.5% return on sales in the first half year. And of course, yes, in the second half year that was at the lower level but mainly related to a quite steep underutilization of the activities. And yes, that immediately has a big impact then on your result. We made good transition in the end of the fiber cable production from China to Poland. It was in the end a little bit more difficult than that we believe that would be and that had to do with the fact that we started earlier with the transition than that we originally had planned and that had to do with the increased import duties -- the doubling of the import duties that accelerated that whole process. And that didn't go 100% smoothly and also had a kind of negative effect in the Q4 result. I believe these were the main points of this sheet. Yes, looking more forward and related to the assumptions for the return on sales targets, what we also can see here is the specific targets that we have per segment. I believe we have guided before, but now it's perhaps more clear what the targets are. We have special related programs to all the building stones how to get there. We have evaluated of course in the past 6 months again if we are having the right position to get to the return on sales targets and this -- these targets should be -- we should be able to achieve. As a minimum, I would even say within Smart Manufacturing, the targets could be even overachieved if we look already also at the second half year performance of the Tire Building activities and potential divestments that we are -- we'll be doing in that segment. Yes, again in the Smart Vision, very important is the organic growth that we need to achieve. We were quite close already to 20% or around 20% in the second half year of 2022. So yes, the underutilization there also has a very big impact and that is especially related to the very high added value that we are creating there. The one-stop shop, the use piece that we have make us very confident that we can grow and in some cases also can grow faster than the market. However, there are some short-term effects we communicated about the destocking at the end customers, the challenging market circumstances that we can say in some of the end-markets. And the good thing is, the mega trend is automation. And the trend is hands-off eyes-off manufacturing and there we are really positioned well. And with the scarcity of people, the inflation of the labor costs, it is really spot on what we can do there to automate our customers and the Machine Vision technology is really, really key to drive our customers into a better performance. Within Smart Manufacturing, we are really on track again with respect to the issues we had related to the supply chain issues. Very good order intake. And we will see that through further scale and efficiency that the return on sales comes back at levels we had before and has potential to grow further. We get really high appreciation for what we supply with our offerings, very high return on investment for our customers. While this is very important, there is also the automation trend. We see the reshoring where capacity from low-labor-cost countries is now moved to the Western world and more close to the end users. I believe that's also really a mega trend because of the CO2 footprint that needs to be addressed. And the flexibility we can offer with our manufacturing equipment is spot on and what is also important that we are continuously expanding the scope of supply. We have examples where we supply the equipment in the past for EUR 500,000 and today we sell the same equipment for almost EUR 2 million, between EUR 1.5 million and EUR 2 million. And that will be a continuous further development and a very big driver for growth opportunities in the Smart Manufacturing segment. And if you look at the table over there in the middle, you can see also the very nice growth we already organized there from an EBITA perspective. I go over to the Smart Connectivity. Not a very good performance overall in the last year, but it's really exciting what is going on in the market related to the energy transition. I'll have you know that in the Netherlands only -- already only 100,000 kilometer of medium voltage cable needs to be installed to cope -- before 2030, to cope with the issues of the limitations of the network. So that's a fantastic opportunity. We know that the offshore wind market, I already mentioned that will triple in the coming years. There's all official data available if you want to look into that in more detail. You can get a lot of detail of all the projects that are in the pipeline for the coming 5 years. And what is also important that we have the right technologies there to address this market to get our market share that we want to have and to also achieve the margins that we have set as a minimum to develop our activities into the ROS target of 15%. There are also some positive short-term effects with the elimination of the anti-dumping duties. We have a better opportunity for performance in the fiber optic segment and yes, we have a lot of costs already available to create the capacity that we need to address the energy transition demand. We cannot build up that capacity in one or 2 quarters. So we are really investing already today in a capacity that could address 40%, 50% higher turnover. And if that turnover growth will be really far away beyond 2026 or 2027, we would not invest into this additional capacity from a cost point of view. Of course, the investment itself, we cannot, let's say, turn back. But we could do something with the cost level. What we do additionally to our original plan is look more in depth in -- within Europe for the onshore market, where we see, especially for high-voltage opportunities, opportunities that we were not addressing because we originally thought that we would be already limited with the capital expansions that we have now in place. But we know that in this high-voltage market, our competitors have very long lead times of more than 2, 3 years and that there are potential customers that need these cables at an earlier stage. So that's an opportunity that we have not yet put in our outlook for this year and also not put in our outlook for 2025, but we're working very hard on that. And it is exciting to see how much request we already get from potential customers. And the good news is that we have really a state-of-the-art facilities that inspire potential customers to not wait too long to be secured to have -- to be confident about the opportunity TKH can offer. Also, if you look there at the table, we see a fantastic growth in 2021, 2022. Unfortunately, in '23 a small decrease, but we are really prepared for a substantial high growth in this segment. Yes, I believe I covered the most important subject of this sheet. I go to the ESG sheet. Important to position that. And I'm really proud in respect of the satisfaction score for employees where we continuously see that we drive that to higher levels. We believe that is more and more important, good employership and we need the team to deliver our performance in respect of all the targets that we have. And we can only do that with a very motivated team that we have of employees in the TKH Group. We continue to invest heavily there. And yes, if we look at the satisfaction score of the customers, that's also a very good confirmation how well TKH is positioned, how customer-centric we are with 8.6, and we will continue to support this high level. The CO2 footprint was quite substantially reduced again to now with 64.3% compared to 2019. I hand it over to Elling. Thank you for your attention.

Good morning, everyone. Thank you, Alexander. In the next couple of sheets, I'll walk you through some of the financials. As usual, I'll start off with the geographical distribution of revenue. In the last couple of years, we have seen a kind of similar pattern year-on-year. But this year, you see a little bit of shift from Europe into Asia. If you look at the Asian market, it represented about 19% compared to close to 15% prior year. This has a lot to do with manufacturing systems. In the circles, you can also see which contribution is coming out of each of the segments in the respective regions. So a little bit of shift from Europe. That means outside the Netherlands into Asia. Netherlands still representing about 25% as we have seen in the last couple of years. If I walk you through the P&L, then first of all, if you look at our top line on turnover, we had 3.2% organic growth, as you can see on the note on the right-hand side. A little bit of dynamics from acquisitions, which contributed for about EUR 17 million of revenue growth, divestments EUR 32 million in the like-for-like with prior year. And this relates to the distribution cable activities we have in -- had in France, a little bit of currency effects, but organic brought in a small EUR 60 million additionally. Important, I think, is the added value to mention, a substantial increase. We went to close to 50% for the entire Group. Of course, the Vision segment is closer to 60% added value, Manufacturing just above 50%, but within Connectivity, that's where this -- the biggest step took place about 400 basis points in added value increase took place within Connectivity, bringing the total, as I said, for the Group close to 50% compared to the 47.2% prior year. Then, if you look at the EBITA, the EUR 237 million, the bandwidth, EUR 230 million to EUR 240 million, which we highlighted at the Q3 that we would be a little bit lower in the bandwidth, but we came out actually better than what we estimated there. I think if you take the next page, we had some one-offs limited though, about EUR 2 million, had to do, of course, with some reorganization. We talked already a few times about the closure of the fiber optic cabling activities in China. So some part just related to that. We did some restructuring within the Vision Group, and that also had some one-off effect. And then, of course, we had some acquisition and divestment costs, which are included in here. That's a minor part. Then, on the amortization, it's EUR 56.9 million. Just to mention, out of the EUR 56.9 million, EUR 33.5 million is related to R&D. And if you spill it up in the segments, then with EUR 42 million, most of it lands in the Vision segment. As for the impairments, EUR 3.7 million, most of it in relation to discontinued R&D projects. And also, that a big share takes place in the Vision group. Result from associates, a substantial amount, EUR 51.5 million. As you can see from the note on Item 6, we had, of course, substantial benefits out of the divestments of the final stake we had in CCG as well as TKH France. In total, a benefit of close to EUR 55 million, which came in. On the other hand, if you look at the other financial results, then the interest rates, which make up basically the entire amount there increased substantially due to the fact that, of course, we had a higher debt level. And in the like-for-like, also interest rates have increased. So the increase on the interest part itself was close to EUR 12.5 million. On the tax rate, a normalized effective tax rate of just over 24%, 24.6% to be precise, more or less in line with prior year. And we expect also a similar kind of range for this year. Important item already mentioned by Alexander, if you look at our balance sheet, working capital, working capital increased compared to '22. If you look at the absolute figures, EUR 309 million. That's fairly high. If you take as a percentage of sales, it's 16.7%. We have been talking for years basically that the reference point for TKH is 12% to 15%. That has not changed. So we are off from the target. We improved compared to mid-'23. There, we were closer to 19%. So there is improvement, but it doesn't go at the right speed. If you see that, especially our inventory levels are not, let's say, coming down sufficiently. And our balance sheet, you will find in the press release, et cetera, all the details, but the total inventory ticket, which you have is about EUR 400 million. And that's hampered by the fact that we have some of the destocking effects in the market, which do not really enable us to reduce inventory to the levels which we wish. As I said, I mean, it's too high. We are spending a lot of effort in making it to the levels which you have seen in the past from us. You will always see again at the middle of the year, slightly up. But towards the year-end, it should come down. That, of course, has impact on the net debt. If you look at our debt leverage in itself, that's quite reasonable, 1.8. We have, of course, seen quite a lot of movement in our balance sheet. You'll see them in the graph here. Of course, we had a fairly reasonable cash flow from operations, EUR 217 million. Interest, EUR 20 million, taxes. But an important ticket is the EUR 177 million, which is related to the investments in plant property and equipment. Of course, driven by the strategic investment program, about EUR 134 million out of the EUR 177 million is related to the strategic investment plan in '23, and we had already EUR 41 million in prior year. So you can see that, by far, the majority is done. We have a little bit of spillover into '24 in terms of actual cash payment as we settle the final part of the execution of the projects. So also, if you look at your forecasting for this year, we are looking more in the range of about EUR 80 million for tangibles, but that's including, let's say, the EUR 20 million, EUR 25 million spillover from '23 out of the strategic investment program. The balance is more the running regular investments which we have within TKH. And if you look at the next columns, then you see that the investments of intangibles, EUR 53 million also for this year as the kind of reference will be closer to EUR 55 million to EUR 60 million for your models. And then you see the investments of associates, EUR 27 million. That is related to the divestments which we did. We had EUR 130 million, as you can see, inflow out of the divestments. But in the case of the divestment of TKH France, we took back a stake of 40% and it's reported in 2 separate items. So one is the full sell-off. And the second part, the investment in associates is the procurement of the 40%, and that's the related ticket. Other acquisitions accounted for about EUR 43 million in cash out. Of course, a good dividend last year, and we did also the share buybacks. So from that point of view, there's a reason, of course, why this net debt moved up, as I said, within the reasonable leverage levels. But the working capital must have its influence in the second half of this year to get down to a better debt level. To close the financial part, we have the free cash flow. We took out the acquisitions and divestments from the analysis here, they're on the footnote on the side. But there you see that H1 and H2, as usual, you see the slight improvement in working capital, as you can see here as well, EUR 29.9 million improvement. But we have to get to the point that the capacities which we have invested in are going to get its contribution into the operations and start to contribute from that point of view as we will see basically with the termination of all the projects so far. That leads me to the final sheet on my side with regards to the outlook. We have made good progress in the strategic positioning of TKH last year with more than 50% of turnover coming from innovations and the completion of the EUR 200 million strategic investment program, we are well positioned for further growth. For Q1, for this year, we anticipate Smart Manufacturing systems to grow compared to Q1 last year. Smart Vision and Smart Connectivity systems will face continued weak market demand. Overall turnover and EBITA are expected to decrease in Q1 compared to Q1 last year. For the full year though, we expect Smart Manufacturing to return to normalized growth levels when compared to '23 and in Smart Vision systems, we expect growth to return in the second half of the year on the back of market recovery. And within Smart Connectivity systems, we anticipate destocking on onshore energy cables in the Netherlands to continue throughout the year. Barring unforeseen circumstances, we anticipate organic growth in both turnover as well as EBITA. And of course, as you know, we normally give you a more specific forecast at half year. So far, let's say, the presentation from our side. We can go to Q&A.

Martijn Den Drijver for ABN AMRO. I would like to start off with a question about Smart Vision. You mentioned, Alexander, that you see an uptick in order intake, and that is basically giving you the confidence about that recovery in the second half. But if you have an order intake up-tick now, you're probably going to have sales in Q2 if you -- if I look at normal patterns. So is there anything else besides the order intake right now that gives you that confidence about a recovery in the second half? Can you elaborate a little bit more about that aspect? I'll do them one by one, please.

Okay. Yes. What we also see, of course, what we have in order book for the second half year already. Some orders come in at very early stage and then, have a lead time of 6 to 9 months. That is a good indicator. And yes, it's always the comparison base. Q2 last year was not a bad quarter. So if we look where we came from in the second half year, it looks better, but that is not a promise yet that it will be in Q2 already better than Q2 last year. But compared to Q1, I'm also confident that Q2 will be better than Q1.

And just a follow-up. If you look at the whole of 2024, is Smart Vision going to be flat, up or down relative to 2023?

I mean it's good that you get into the details of the outlook despite the fact that we basically have an outlook on the whole of TKH. I think that's an understandable question, but I think that's more for a little bit later in the year that we get the specifics on each of the segments.

Moving on to my second question about Smart Manufacturing, what is normalized growth? You mentioned that as what we should expect, but what does it mean in your book? And second element to that, when we talked about Smart Manufacturing the last time, so with the half year figures, we specifically asked, is it possible that there is going to be a catch-up in the second half? And your answer was basically saying, well, we have installation capacity, and that's not unlimited, we can't scale up. My question actually is, has there been maybe perhaps some revenue from 2023 coming into 2023 because the revenue level is slightly higher than we had anticipated or I had anticipated?

To answer your last question, I believe that is true. It was, let's say, really last-minute call from one of our customers with a kind of urgency to deliver before the end of the year, and where we expected that to be delivered in January or February. So that has an impact on '24. And yes, I believe the growth will be shy in 2024, to address your question of what is normalized growth.

Okay. And then one final one on Smart Manufacturing. You already alluded it to it, Alexander. You said Smart Manufacturing may already achieve the strategic target in 2024. You did 18.3% in the second half, is that a sustainable level? And if not, why not?

Yes. It is important that we have the right utilization. And it's always addressing what do we have to invest to address the future growth and how that is impacting the short term. And -- but yes, in principle, if we look how we are positioned, the margin gives the potential to achieve at least a target of 18% for the Smart Manufacturing segment.

Okay. Clear. And then on Subsea, you mentioned the prospects of orders. If you get those orders in, will those be -- still be for production in 2024? Or will that be more in 2025, 2026?

No, 1 or 2 will still be for 2024. And we are really close that -- we are quite confident that we will get these orders. And yes, at the same time, I believe we will have a quite good order intake already this year also for the years after 2024.

And then my final one. If I look at your capitalized development cost was plus EUR 8 million year-on-year. But the UNIXX program is done, the LVM seems to be doing well. That platform has been developed and is running well. The Indivion is done. Where are you spending that money on?

Yes, you have to continue to invest to stay ahead of competition. But what we see is that it is more incremental now than that it is really complete new technology. We addressed it earlier that if we look backwards, we have perhaps too many of these high-end innovation projects that also had a negative influence on our performance because cost was also relatively high there. We are focusing on the incremental developments. And I hope at the visits we have at VMI, we can amaze you with what we are doing, but much more on an incremental way. And that is continuing in the Group. If I also look at the development in the Connectivity business, we have a unique technology there for the offshore wind. And we are not going to change that technology in the coming 10 years, I believe. But it will be also incremental developments in respect of monitoring systems that you can use in the onshore and offshore market. But again, much less risk involved in these development projects, but you need to invest.

Tijs Hollestelle at ING. Yes, I want to talk about the Connectivity division. Because indeed, I also noticed quite a remarkable increase in the OpEx levels in the second half, EUR 13 million. So I assume that [indiscernible] addressed as setting up already the capacity to be ready to get in the bigger orders. But you're also losing, of course, the OpEx from the French disposal, so how much is that on an annual basis roughly?

We're talking roughly in the range of EUR 20 million, EUR 22 million.

Yes, and then one quarter is, let's say, visible in the second half numbers already of the division.

Correct.

So the increase is even bigger. So also your remarks about the revenue, so you're anticipating EUR 150 million of turnover somewhere in the near future?

Yes, that's right.

And that is for subsea and onshore cables?

Yes, onshore, medium and high voltage. And the fiber optic cable activities, we have additional capacity there available, and we were limited last year in respect of the capacity that we had available. So there's also an opportunity to grow that is going beyond the EUR 150 million. That's more the energy transition part, and we have the specialty cable plant that also offers opportunities. And there, we also think that it will take another year before we are really utilizing that capacity. So that is in 2025.

Okay. So the fiber optics also has potentially more revenue. And let's say, all things equal, what is the impact on the EBITA from the fiber optics from the change in the situation?

Well, I mean, if you look at the ideal, let's say, more like '25 where you have no more effects of the ramp-up start-up, et cetera, that as what you've set in the past, I mean, one of the reasons of putting the plant in Poland is to mitigate the anti-dumping duties. So that's one ticket. Last year was -- that was EUR 7.5 million, plus, of course, some part of the incremental coming out of the revenue growth. And we have seen in the past that we have margins in this area, which are in the, let's say, mid-double-digit range, should not be different going forward.

Yes, because the EUR 7.5 million, I also note that prior to that, it was EUR 15 million.

No, it was EUR 10 million in '22. But as we had, of course, seen that in the summer of last year, the duties doubled, we stopped basically shipping out of China. And therefore, we have a lower total ticket out of China. We still didn't have fully ramped up the activities in the new plant, and that's where some of the issues are there in terms of the right portfolio being available here and getting the right volumes going. That, of course, is going to be normalized and is already for a big part done, but still has a little bit of effect in H1. Therefore, the reference to '25 is a kind of normal running year, I should add back these incremental margins as we have seen in the past.

Okay. That's clear. And before I forget, the increase in capacity for the cable business, will that be even more in the first half of '24?

Cable business in general or are you talking about fiber optics?

Yes, it is quite complex. I mean the step-up, I'm seeing in the OpEx in the second half, adjusted for the disposal, et cetera, okay, I have to run the numbers, but will the increase on you setting up, let's say, all the things to be ready will be even higher in the first half compared to what we have seen in the first -- in the second half of last year, how much...

Yes, not very big steps, EUR 1 million or EUR 2 million maximum.

And with the risk that you still have very low revenue, so the margin could be, in principle, quite weak in the first half in the coming...

Yes, comparable to, I believe, the second half year.

More or less.

Sorry to mangle about...

No problem.

I think that the year is a big part of the investment case going forward. Is there still any, let's say, from the old TKH business inside this division, the parking business...

Yes, of course, yes, we are also in the -- what is the building construction area, marine business we are active, and the marine business is looking quite good construction. We see some pressure of the building construction market, but we have a very small market share, and we see that it is going quite well and turnover stays on a similar level as last year but not growing.

And airport lighting is not in this?

Yes, airport Lighting is in this segment. We made the announcement of JCAII, which is a good opportunity in further cooperation also with the set technology that we have. We won a big project 2 years ago in Memphis, and that was -- made us further excited about the opportunities in North America. And we foresee that not talking only about turnover, but that there will be a profit improvement from that segment of these 2 companies of around between EUR 7 million and EUR 10 million.

This year?

This year.

And it was slightly loss-making last year?

Yes, correct.

Did I forget anything in this division?

I don't think so.

Michael, Degroof Petercam. First question is on the order you received for UNIXX in the first quarter of this year. I assume this is going to be a sort of a pilot order for the customer to test the machine for about 12 months. Can you confirm this? And do you expect larger orders for this customer once they have tested and qualified the machine for...

It is difficult to talk about the specific customer. But of course, you first have a stage that the customer needs to go all kind of testing. And at the same time, we can already and we did already a lot of testing in the existing equipment that we have at specific processes. And the drive for all customers that are interested is not to just buy one, but yes, to take advantage about this huge opportunity this technology brings and that should then be translated in multiple orders and systems.

And based on previous product introductions that you did, how long does a test phase like this take?

I'll give it then over to Harm now, he is prepared for these questions. And I give him -- I would like to give him the floor.

Yes, good morning. Yes, first of all, we're highly excited about this breakthrough as is the market, I must say, quite a lot of excitement in the market. Several customers are in discussions with us related to the testing phase, based on where we are from a technology point of view, I would say that before year-end, it should be clear whether this fits this specific customer. When you look at -- but this does not limit us from more sales to other customers as we are highly confident about this technology. So this specific project that you asked for, I think before year-end, it should be clear whether this fits and whether there will be multiple further orders. And the -- but for others, we are -- well, we believe that we are now really after, you could say, free to launch this technology for.

Yes. But I assume that other customers that will want to place orders with you will also order maybe one or 2 machines, but also for thorough testing at their own factories before they start giving larger orders, right?

Yes, that is correct. And that has to do with the fact that if you switch to a completely different production platform, you have to qualify all the new products that you make, the new tires that you produce for OE fitting. And that is a time-consuming process. So that takes indeed months to more than a year sometimes. But all in all, specifically related to UNIXX, I would say that in the last 2 years, we have been able to introduce this technology already in parts and in modules. So looking at the rollout of UNIXX technology, that is already in process.

Okay. Then, back to Alexander. Airfield lighting was already mentioned. You mentioned improvements for this year from a small loss to quite some positive momentum. Is that purely from a cost perspective? Or do you also see airports now spending more on airfield lighting and maybe even parking now that passenger traffic is growing strongly again?

We are very well positioned for some larger projects. But even in this guidance, we have not put in the largest opportunities yet to be a little bit more careful about what we are guiding, but we are really excited about the opportunity. And yes, we also reduced cost and that was possible, especially related to the fact that we reached certain milestones that were really important for the technology position. And that also lowered, of course, the breakeven level, and that makes it easier to grow this year compared to the last few years.

This is Chase Coughlan from Kempen. Starting with Smart Vision, I have a question regarding the M&A pipeline. So obviously, the Euresys acquisition, you praised as being quite a positive development, especially in regards to the development of AI and software sort of offering within your Smart Vision portfolio. I'm curious if you have any more sort of concrete orders in the pipeline or sort of plans in the pipeline for M&A there? And as a follow-up to that, I know a few peers are also sort of planning on buying up a few companies within the space. And I'm curious on sort of the multiples development there given the AI frenzy at the moment as well.

Yes, the multiples are still relatively high and that makes us a little bit shy to play the acquisition route at this moment, but we are positioning ourselves for opportunities that are there. First of all, the focus is, of course, on the organic growth to get that really on track and at the same time, look at opportunities.

Okay. And then my second question on net working capital. So obviously, you mentioned the current levels are a bit elevated, a bit higher than the sort of the target range. Should we expect in 2024, that you can return to that 12% to 15% or will it take a bit longer, do you think?

I think we should be able to do that.

Okay. And then maybe my final question, just on the results from associates. So I see here, you have EUR 51.5 million results from associates, which includes about a EUR 55 million one-off contribution from the divestment. So that implies a small negative to remove these. Could you maybe give a bit more detail and a bit more color on the markets here and what we can expect for 2024?

Yes, quite specific, actually, because we basically have 2 items here. One is what we refer to as our cooperation with Shin-Etsu, the preformed business in China. We are in there with another Chinese partner, the Chinese partner with us about taking preforms, so taking capacity. The Chinese partner really for quite some while has not been able to actually procure. And as a result, the capacity is being shrinked to basically only supply to us. And as a result, there is a kind of impairment within that organization and that, that goes through our line result of associates. That's one. It's about EUR 2 million. And then there's about EUR 1 million, which is related to the, call it the initial period of TKH France in the new structure with the new owner. We have the PPAs and all the other things in the first, let's say, couple of months, quarters coming in. And as we have a share of 40% in there, that also relates to us.

[indiscernible]. Firstly, a couple of years ago when you organized your Capital Markets Day, you set out a number of financial targets, of which one was the EBITDA -- adjusted EBITDA margin of more than 17%. But you also announced a couple of others. They are still in place for 2025 to be achieved?

Yes.

Okay. And then you still say we might not achieve that level. What kind of odds do you think -- what kind of odds do you think there is that you will achieve that 70%?

Oh, that's very difficult to get. I don't want to be too negative, and I don't want to be too optimistic. But yes, we are working very hard, and we are not giving up there. And yes, it should not be, let's say, years after 2025, that we should be able to achieve that. And we are really getting close there. We have the right strategy. We did the right investments. We are in the right markets. So yes, definitely, we will be getting there. But it would I believe not be wise to not give any indication of what is going on. And we see also that the estimates are lower. And yes, there are some assumptions related to that. And we give a little bit more insight to what our assumptions are to get there. And yes, there's still work to do, and we are -- so let's not ask too many questions so we can get back.

With more or less '26, '27, that's highly realistic to assume that you will achieve the 17% margin?

Yes, absolutely.

Okay.

And there's also headroom. There was more headroom, of course, 2 years ago, when we didn't have inflation, when we didn't have a war, where we didn't have high interest rate. But there is still headroom to be achieved. And yes, that headroom is definitely not there in '25, but it will -- is there already in '26. And it can be that some of that headroom disappears for whatever reason, but we are not guiding a spot on, on the 17%. That should be more than 17%, and we are really confident that we are going to achieve that.

Okay. And then with respect to your working capital, lowering your working capital in this case, lowering your inventory, that is more or less fighting against you? Or is it in contrast with the utilization rates? So how will you balance reducing your inventory versus keeping your utilization rate at a high level?

Yes. If you look at where some of the inventory is located, there's a substantial relatively high ticket attached to the Vision segment. That, of course, has different dynamics when you talk about a lot of elements tied up in relation to, for example, connectivity. And then you have a capacity relation issue, but that's less on the Vision side.

Then, the other week, one of your clients, I should call it engineering company within Vision technology, reported their results and they spoke about that they were able to record -- to post record margins because they could get the Vision systems at a very strong discount. Are you also shipping out your systems at much lower margins to more or less lower your inventory level quickly?

That's -- I mean, let's say, we are not, let's say, having that kind of approach to inventory reduction in terms of giving it away, be nice on inventory levels, but not being able to meet any return on capital employed criteria.

But you can see it in the added value that even increased and we would have -- the necessity would have been at a lower price. You would have seen that immediately in the added value.

Let me put it differently. Do you see price competition in this space?

Of course, there is price competition. But what we like to position us is as not a commodity player, not just selling the camera, but being [ spec'd-in ] and having a lot of advantages compared to competition. And then you are not really in the price competition. Of course, price is always a kind of a factor, but not a major, the dominant factor.

Okay. And then lastly, for the moment, you more or less give an indicated target margin for Smart Connectivity of 15%.

Yes.

However, if we look back in history with the margins you achieved on optic and on your low medium voltage cables, and now coming in your Subsea whereby you already have stated even at 600 kilometers, we will be at group average and group average is higher than the 15%. So imagine if you can make 9,000 kilometers of Subsea. Why such a low margin for Connectivity as a target?

Yes. We still have some activities there that you can say they are also not really core and where the margin potential is less. So, it could be that we further initiate also divestments there. But as long as they are in, then that's a mix of activities.

Maybe add a little bit of flavor. If you look at the -- you'll find it in the attachment. If you look at the distribution of revenue through the different areas in Connectivity, then the electrification part is about 39% of revenue. The digitalization, about 33% and then you have the remaining activities. So when you talk about the margins and the different elements, we have to relate it to the different contribution they make in the total of Smart Connectivity. So that gives you a little bit of flavor of where you have yet, pluses and minuses.

But then more or less because you're going to accelerate your divestment program, this will be mostly in this segment. So I suppose they would be already out of your P&L accounts. What would be then--?

Not a big impact, not a big impact. We are not so far away of the 15%. And we guided for Smart Manufacturing, there is really the accent for divestments of the noncore activities. And there are also activities that are below 10% regional sales.

We also have 2 people in the call. I'm not sure if they -- let's maybe first move here and then, we'll see if either David or Trion has a question. Go ahead first.

Okay. Follow-up for Harm. In the past, I've asked about possible cannibalization through the introduction of the UNIXX. Can you update us on that now that so many customers are lining up for the UNIXX?

It is obvious that if you produce tires on a UNIXX system or on the MAXX, and the customer chooses for UNIXX instead of MAXX that you sell less, MAXX Tire Building machines. There are a couple of elements in this. One is that the UNIXX is doing more than what the MAXX is doing, and that is making the components of a tire also in the machine, and that you see that back in the pricing and the cost levels of UNIXX. So one UNIXX is more expensive than one MAXX. So even if it would be a one-on-one cannibalization, then still you see a growth in turnover. And the second thing is that we strongly believe that the UNIXX is ideal for replacing older existing equipment in the market. So I'm not 100% sure whether you can relay this one-on-one.

Got it. And just moving on to parking and the guidance part of that. Was it dilutive or accretive in terms of EBITDA?

Accretive.

Accretive?

Yes.

And it was loss-making last year, right?

Not last year, but the year '22.

Okay. And so I think the wording in the press release is quite positive. Do you expect a further positive development for guidance?

Yes. It is less strategic as it was before, but we like to take the opportunity of, yes, the opportunity that we have now in enhancing the return on sales, and then we look at our options.

Okay. And the delta, you've given some sort of guidance for the delta for airport, which was quite significant.

Yes.

Slightly lower, I assume, for parking guidance or should --

Yes. Not even slightly, I would say, more between EUR 3 million and EUR 5 million.

Got it. The asset held for sale that's on your balance sheet, what type of business is that, if I may ask?

You may ask, but you'll see when we announce something.

Okay. Moving on to more. I understand from post on LinkedIn that Allied Vision and SVS have merged at certain levels?

Yes.

Could there be any savings we should take into account in 2024 relative to 2023? And what are the plans further within TKH Vision to bring those multiple labels more together and to get more synergies, both on the top line and the cost line?

The cost saving is not that big. We see more, let's say, operational opportunities when we -- we'll get into the gross [indiscernible] again. So we have, let's say, more flexibility and we can faster expand our capacity than that we were able to do before. So that's, again, an opportunity-driven decision and perhaps EUR 1 million cost saving. So that's not a huge step. And what we are using more and more is the TKH Vision branding. And that works out very well. In all the exhibitions, we present ourselves in our TKH Vision. Development of the website is coming in now and to position ourselves as the technology partner through TKH Vision at our customers. And that works out very well. We have very, very positive feedback there. And we have not yet decided about the individual brand names. They are not standing in the way as long as we presented in the right way. And what we see is a fantastic development there in the group, how everyone is working not only for its own portfolio, but also for the portfolio of the colleagues. And that's a really exciting development that we see in the Group. And that helps, and that could bring us in the next phase. But it is -- the next phase of just having only one brand would not bring a big additional advantage, I believe. It will be very costly first to do that. And on the other side, we already take advantage out of the TKH Vision position, but not only TKH Vision, also the TKH image is really helping to be the partner of these technologies companies we are partnering up with. They also are looking beyond. They are looking at VMI, the amazing systems we developed in the Group, which shows the competence, and they get confidence what our capabilities are. The proof that we have with AI developments already, we can show them. And so also the Group support is really, really good, the TKH Group brand.

But Tattile is still separate from that, up until a certain extent. And at exhibitions, they always sit somewhere else next to the TKH Vision stands?

Yes, you're right. You're right. But that is actually positioned in the TKH Security division. And yes, it's a different world where they are positioned with their technology. It's a different technology also. And they are in the ITS market. And it's a complete different market where we don't see that much synergy as the Machine Vision market. But we see, of course, synergy in the technology base, and we see a lot of synergy within the security area. We had some very nice projects last year, international projects, where we saw a combination of Tattile and TKH Security. And yes, that is on the move. But it is not, let's say, hampering our growth by having the Tattile brand in that market.

No, I know from my last visit to their stand is that they were expanding internationally in the Americas, Latin America...

Yes.

That large project that you referred to. Is that like a first sign of that step-up in activity levels or was that just a one-off?

No, I believe we are positioned to do more of these kind of projects, yes.

Okay. And then my final question for Elling. Factoring in supply chain financing went down substantially. Is that just because it became too expensive or is there another reason?

No, we have said in the past, we use these instruments more for the, call it, Southern European countries. We can debate where it starts. But with the divestment of France, this has major impact on these 2 items.

Ruben Devos from Kepler Cheuvreux. I just had one on the order book for Smart Manufacturing, actually, just could you remind us like the order book is EUR 630 million. Full year sales were EUR 570 million. If you just deliver on the order book, that would still be 10% growth. Is -- what does it include? Is it deliveries going out in the next 12 months? Does it include aftermarkets business as well?

The order intake for Tire Building includes indeed also the service activities, the retrofit business, spares, and it includes orders for new machinery equipment, taking the delivery time of one single machine, which is, I would say, close to a year, more or less. You can imagine that if there is a project where people start a new factory and they order 6 or 12 Tire Building machines that the total production time plus rollout takes maybe 2 years. So the order intake for '23 includes orders for -- also for '24 and even '25.

Okay. And if you think about -- obviously, since COVID, we had quite a disruptive period for manufacturing Tire Building, you've had the supply chain issues, you've now had a lot of deliveries going out, accelerated deliveries in Q4. In this last, let's say, 4- to 5-year period, if you look at the installed base and you make the reevaluation, would you have said that you gained share in the installed base? Or...

The lifetime of equipment like this in the global market is quite long. From a technical perspective, it can even be over 30 years. There are machines out there after 30 years still in production. It is more the economical lifetime where you see that new developments make that it is highly attractive to replace old equipment with new because you can lower your operational cost or -- and that is also a big driver now, sustainability, where customers are forced to do a lot on their carbon footprint, on new products, new technology, electrical vehicles coming into play, all requiring new production technology, and that is a big driver for replacement. If you look at the market share for Tire Building activities of TKH, that is very high. But given the fact that a lot of the equipment in the market is already out there for a long time, you see that the installed base percentage is growing rapidly.

Okay. All right. And then -- so apart from, let's say, the UNIXX, the increasing share of wallet and those type of things, if you just look at the end-markets, obviously, there's been a bit of nervousness on EV penetration rates. Does that affect to some degree, the investment appetite you're seeing from your clients?

No. Actually, there is -- there are still a lot of main drivers requiring our customers and potential customers to do a lot of investments and you see that the investment levels are quite high. And while Alexander already mentioned that, the reshoring, bringing production closer to your end-markets, which is North America and Europe, the sustainability drive that I just mentioned, the high level of automation and the exciting new opportunities by AI-driven applications, bringing the quality levels up and the fact that new tire technology is coming into play. I think that's all positive to keep the level that we see now in play.

All right. I just had a final question on cable connectivity. I think back in August, I think the story was a bit that obviously you saw some early signs of destocking and there were some project delays, permit issues, these type of things. Now we're in February still are cautious on destocking and onshore energy cabling in the Netherlands, specifically. There's no real end date in sight, it looks like. But has the story changed at all from what we heard in August from what you're seeing in this business?

What we are at least sure is that the recovery that -- and the rollout is not yet at the level that it should be. And the drive is there, and they are also organizing the maximum what they can. And yes, we get an outlook for today already 2025, and that is a much better outlook than for this year, but it's not a guarantee. But yes, at the same time, we see that they take a lot of actions to make it happen. And we see the pressure, of course, also from the outside world that it really needs to happen. Otherwise, it will be a big disaster in the Netherlands. It is already a disaster.

Okay. But recovery in H2...

We are not going completely to wait. That was the original plan, and we say, okay, nice, but we have so much capacity and with a small change, we can even add more. We are looking now also broader in Europe. And yes, that might speed up the utilization rates in the coming quarters.

Before we go to Martin, maybe one of the analysts online. David or Trion in case you have a question? No, doesn't look like. Martin? Sorry, Michael?

I have a question about the couple of numbers that I heard so far. This year, you will probably not have those import duties in optic fiber, so EUR 7.5 million benefit.

Just a little bit because it's tied up to the inventory which we still have, and gradually, that disappears.

Okay. So let's say maybe one or 2 at most. And EUR 7 million to EUR 10 million improvement in airfield from cost cutting and other types of benefits, then parking should do a little bit better. If I add all of this up, it sounds almost roughly similar to the negative comparison base from your higher OpEx in connectivity. So that is sort of a net neutral impact year-on-year. So now my question is your guidance of organic EBITDA growth this year, is it entirely driven by organic sales growth or is it predominantly from cost-cutting elsewhere that we haven't heard about?

No cost cutting. No, it is the additional turnover that we see that will come back and also need to come back to deliver on the organic growth.

Okay. And there were no other things that I missed in that net neutral calculation I mean.

I don't believe.

Okay. Good. And then my final question, I think one of the first questions from Martijn was about what is normalized growth in manufacturing. And then at the end of your answer, you -- something mentioned like shy.

Shy, yes.

Now normalized sounds to me like 4%, 5% organic sales growth in manufacturing and shy sounds a bit 1% or 2%. Could you direct us to which of the 2 ranges you think normalized is?

Well, first of all, in the document in the press release, we didn't say normalized growth. We said normalized level. So that means that some of the, let's say, let's call it catch-up effect in the second half of last year due to the issues of the supply chain accumulating, buildup of inventory and then, the shipment to the customers in a relative short period of time. That effect is not something which we'll see in the same extent coming back in '24. That's the kind of normalized effect.

But in the first half, you will have an easier base than in the second half of this year. Clear.

[indiscernible] Firstly, getting back on your CapEx guidance for this year. So excluding the SIP CapEx, about EUR 55 million to EUR 60 million. Is it also a number which we should apply for '25, '26 or--?

At some point, it will kick up a little bit because we have a larger asset base, which at some point also needs to have its maintenance levels, et cetera. So it will go up, but we don't have, let's say, in that kind of time frame, major plans, let's say, on the agenda, as we have seen in '23, for example. That's not a...

This was specific for PPE, but lately, you also invest quite a lot in intangibles. What do you expect for intangibles?

If you look at -- I think I mentioned that we are there closer to the EUR 55 million to EUR 60 million for next year. We had last year EUR 53 million. So if you look at, for example, R&D is a bigger part of that. We had R&D expense of just below EUR 80 million, EUR 78 million to be precise. And of that, the capitalization level is still 50% to 55% as we have been seeing in the last couple of years, it's always in that bandwidth. So that's maybe a small increase but not that material. And of course, in the intangibles, we have, of course, also the software, the ERP systems and all these kind of investments. And that's also taking quite a few million there.

Okay. And then getting back to the import duties on fiber because you had last year EUR 10 million, this year at EUR 7 million, so that's actually a benefit of EUR 3 million, but you also said you had some issues producing fiber out of Poland. On a net basis, did you still do better than the EUR 10 million of last year? Or were those incremental costs in Poland much bigger than that larger than EUR 3 million, so at the end of the day...

It's roughly in the ballpark because we had that, of course, as I said, we stopped it in some date because we had simply, it doesn't make any sense anymore with 70% duties in the second half last year to keep on shipping at that time, and if you imagine, if you ramp up in your factory, it's not one product, you have a whole product range. So you have to go through, let's say, commissioning and acceptance of the entire product range at the right speed. And that's why it's taking time to get from, let's say, the day of opening to a full portfolio ready to serve your customer base, and that creates some hiccups. And that's where in the timeframe between transitioning of closing down in China and having the full ramp-up of the entire portfolio, that took a little bit longer with a little bit more effort, a little bit more headaches than we anticipated. And from that point of view, there is a charge of about EUR 3 million, roughly EUR 2.5 million to EUR 3 million. So on the like-for-like, the effect '22 '23 is more or less the same.

And then lastly on Subsea. Are you still confident that you were able to produce between 600 and 800 kilometers of Subsea cable in '25?

No. That is what we disclosed in the press release that there is a challenge, and I also commented already on that to get all the cables and the project we are working on in the window of '25. And the market has postponed a lot of projects. A lot of announcements have been made about these projects also and that made it much more difficult than that looked like 1 year ago.

I take one more last try for either trying on David. And otherwise, I think we gradually have to -- one, hang on. Go ahead, [indiscernible] there's no response from him.

Yes. Continuing on the Subsea theme, we have urged that 200 kilometers we have a few prospects that may come in. And if they come in, it might be for 2024. Let's take the most optimistic scenario. Those orders come in and some of them you are able to produce in 2024. What type of utilization in terms of kilometers would that result in? Would that be 400, would that be 600? Just a bit of color there.

Around 300.

Okay, clear. And at that level...

We are profitable.

Profitable, breakeven or profitable?

Between 5% and 10%.

I don't see any further questions also online.

Okay. Now thanks for all the questions and your physical presence here. I believe that it works out better than only through teams. But everyone who joined this meeting, a big thank you to you. We will do our best to perform well this year and also in the coming years and hope to see you all in good health back at the results and presentation in August. Thank you very much.