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

Good morning, everyone. Warm welcome here in the Okura Hotel where we have the presentation of our half year results. Also a warm welcome to everyone in the webcast. Yes, we have seen that we were not able to meet the estimates, but before I go into that, I'd like to refer to the cautionary note regarding the forward-looking statements. I hope you have time to read quickly through that, and then I can move to the next slide. Yes, as I already mentioned, not meeting completely the estimates, but I believe we are really well positioned with the result we achieved in the second quarter, a very big improvement compared to the first quarter. And what is even more important, we are really well positioned for the second half year and beyond the second half year with the strategic progress that we have achieved. EBITA, 32% higher than the EBIT of the first quarter. We had about a 6.6% organic increase compared to the first quarter. And if we look at the organic increase compared to last year, Q2, it was 1.1%. And if we look at the EBITA, we were at an equal EBITA level compared to -- organic EBITA level compared to 2023. I believe very important is the added value. I believe that is still a little bit underestimated what is going on there. In all segments, we see a substantial improvement where the major step is really achieved within Smart Connectivity. We -- I will come back to that later. And yes, further, a very good development of the Smart Manufacturing activities, a very, very strong performance, mainly also due to efficiency improvements that we achieved and the substantial because of that improvement of the margin. Still impact in the first half year of the destocking effects. Weaker demand in certain end markets, had a battery market and the solar market in Smart Vision. And further, of course, the start-up and ramp-up costs in the first half year related to the expansion of the activities and especially the expansion of the new plant in the Eemshaven, which most of you here in this meeting have been able to visit. We are really excited also there what we see in the increased order book and the sales funnel that we have. Very nice to see that the order book increased with 8.5%. There is more to come. We are still in, today, around 52 tenders for the offshore wind amounting today to more than 9,000 kilometer. So yes, it looks that the market is really, really good there. We are ready there to address that market further for the coming years. And the tenders that I just mentioned are up to 2030 and not going beyond. If we would add beyond 2030, it would be even more kilometers. What is also very good is that we won some large contracts at the beginning of H2 in July, and that will help support the H2 performance. These contracts are for the majority in Smart Vision, and that will help Smart Vision to have a substantial increase in the result in the second half year. The second half year, we see some slower growth than anticipated in Smart Vision, but the large projects are compensating that we have, I believe, a very nice growth in our hands. The weakness in the digitalization, the Fiber Optic Networks, outdoor telecom had a quite big impact in the first half year, and we have taken measures. We see that we will have a higher volume in the second half year. And yes, we have also a cost reduction program in place to bring down the capacity, as we believe that the market for that segment will be -- will have a lower demand in the coming perhaps even 1 to 2 years. But we can bring this activity back to a good profitability that we had in the past of between 15% and 20%. Key to address that is the innovating and differentiating sustainable technologies that they are really instrumental in securing the contracts and, yes, give us the power to work on the growth scenarios that we have as target, [ Vision ] turnover as well also in the return on sales. We completed the strategic investment program. We did 2 divestments accounting for about EUR 57 million turnover and 3 acquisitions accounting for around EUR 20 million turnover. And one small acquisition we did not even disclose, Comark. It's only EUR 3 million. It's in the ITS, intelligent traffic systems market and -- but a very nice acquisition also. We initiated this cost-saving program. I believe very important to look at that. We see in several areas efficiency opportunities, especially within the Smart Vision. And we will reduce, especially in the digitalization area, our cost base because of a lower demand that we foresee for a longer period. And what is also very important that we have, let's say, completed the strategic investment program. We have divested a really substantial turnover of close to EUR 450 million of commodity activities. And we believe that it is important now to readdress our strategy in light of further value creation. And we will come back in Q1 2025 what that exactly will mean. We see potential. We have already ideas, but we need some time to work that further out and announce further in Q1 in 2025. Yes. Here, the highlights of H1. I'm not going to walk in detail through the highlights. Perhaps, again, the innovations at a rate of 15.7% is a high rate and is supporting, of course, also the growth opportunity in the coming years. And the net debt, Elling will come back later. Here, we see the added value increase across all the segments. By the way, the growth -- or decrease in turnover that we see presented here is the adjusted organic decrease or increase. And again, we see that Smart Manufacturing had a fantastic performance, 21% growth, getting close to becoming almost the biggest segment in the TKH Group. Smart Connectivity, we saw especially the continuation of the destocking at our utility companies in the onshore power cable business. The good news is that we see that the demand in these network companies is increasing. So the rollout is doing much better than 12 months ago. They see growth again. In the end, more investment. And -- but they still have a huge stock, and the destocking effect still has an impact then on TKH. We believe that, that will normalize further in 2025. And at the same time, we are working at additional opportunities outside of the Netherlands, where we have, in the meantime, interesting leads, and that is also supporting the growth opportunities for 2025. Of course, the startup and ramp costs are still there. We saw in the first half year that also for Telecom, we still had ramp costs. But especially within the offshore wind, we have a lot of additional costs that we have to bear without a lot of additional turnover. The additional turnover will come in starting in Q4 and -- but will especially materialize in 2025. We have not yet the complete order book there for 2025, but it looks really good that we will be able to close by the end of this year an order book, that we will be able to utilize about 600-plus kilometer in cable in 2025, and that gives us a very good utilization and a very good profitability in that activity. And that is a very big step-up then for 2025. The order intake in Tire Building was still at a very high level, a little bit lower than Q2, but it is, yes, not every quarter a continuously increasing order intake. The outlook for the third quarter and fourth quarter is also quite good. So overall, for the whole year, a high order intake expected. And yes, within Smart Vision, I already mentioned that the outlook is quite good with respect to the orders we have on hand and deliveries scheduled mainly in Q4. There's always a risk that a bigger order can shift. And it's not that I want to give a profit warning here. But that is all in our outlook presented. And yes, we have to be a little bit careful, but, yes -- and the comparison base towards the first half year of H1. We also have to keep in mind, especially within Security Vision, we had a very big order in H1 last year. That was one of the reasons we saw that we performed much better than what we saw at benchmarks in the vision industry. And in the second half year, we again will see that we have some bigger orders that will contribute to growth in that area. So far, yes, here, specifically the added value of Smart Connectivity, moving up from 41.1% to 45.1% is important to notice. A big part has to do, of course, the increase with the divestments that we have done. But again, that is a good proof of how we are strategically moving up. And I always mentioned that there is a conversion ratio that we are targeting of the added value of 40% to translate then into an EBIT margin. Now the target for this activity is 15% EBITA margin. And if you would put 40% on the 45%, you would come above. But -- so I believe that looks really, really good. We need the additional turnover in that segment. But again, as I mentioned, the offshore and onshore energy business is looking quite good in moving forward. What we did here is to show you our progress. However, you can see in how -- in many areas that we actually realized our strategic milestones. In Smart Manufacturing, we achieved every milestone that we needed. We see already also that the return on sales is close to the 18%. It was 17.9%. If we look at Smart Vision, also many of the boxes are checked. And you can exactly see where we are still missing, getting to the target of the 22%. We believe that for the second half year, it is a big decrease to go down to 13.1% return on sales in that segment, and that has mainly to do -- there's a very high added value of 60%. So if you miss turnover there, we are not reducing cost in principle and -- because we have an outlook that we can grow in that segment, but that hits really hard the bottom line. But on the other side, if you get traction and more turnover, it will also hit in a positive way at the bottom line. And I believe that in the second half year, we can get between 18% and 19% return on sales back. So then we are also there much closer again to the 20% -- 22% return on sales. And yes, I already informed about several elements in Smart Connectivity that we are also there on the right track. It looks really far away, with only 6.2% return on sales in the first half year. But yes, we are addressing also a cost saving program here now. And yes, the additional turnover that we can create with the electrification and business, but also the digitalization business coming back, where we also saw in the first half year a quite big impact of destocking in France of a few customers. And in other areas, we see -- we get feedback that it looks better for the second half year than in the first half year. So that will also contribute to store profitability besides cost savings that we will further put in place. ESG, important topic, and what is good to see is that the rankings of the rating agencies improved and especially of the ranking of Sustainalytics is worthwhile looking into, that we are moving into lower and lower risk related to ESG. And yes, of course, there's a lot of effort in this area to make happen what is needed and to fill in our ambition in this area. So far my presentation. I hand over to Elling for the financial part.

Good morning, everyone. Thank you, Alexander. As usual, I will lead you through the financials of the first half. First of all, if we look at the revenue distribution in the first 6 months, a little bit of shift in the sense that Europe, normally, including the Netherlands, has been around 2/3 of sales. That has come down a little bit at the expense, you could say, of a slight increase in Asia. It has a lot to do with the divestments, which we have done. Most like -- the most predominant one is, of course, the cable distribution activities, which we have divested in France. And that, of course, has an impact on the line Europe. On the other side, we have seen in Asia a quite good performance also from manufacturing systems that made a little bit of shift in the distribution as we had seen in the last couple of years. Another element here is, of course, in the rings, you can see which revenue is coming from what kind of segment in the region. And clearly, as we mentioned before, connectivity is very much a Dutch/European operation, with the other 2 segments much more global. Then walking through the P&L., some topics were already in the part of Alexander. But I think important to see is the EUR 867 million revenue, of which there is a 1.6% decline in the kind of like-for-like taking out acquisitions and divestments compared to the first half of '24. Added value, nicely up towards the 51.8%. All the 3 segments increased their added value. So that's a very good performance. We are able to pass on the higher input cost for our customer base. So it's a good step-up. We have seen this already for a longer period of time, but our added value has increased for years actually on the back of the transition and also our more unique and differentiated propositions, which we bring to the market. As for OpEx, EUR 353 million, 2.3% higher than last year. Of course, you can see also here on the additional note that it has some impact as a result of the acquisitions as well as the divestments. About 70% of our OpEx is related to personnel costs. And there, we have seen, of course, a headcount increase. Of course, we had people leaving, but the additional headcount came in out of the CapEx program, which we executed in the last couple of quarters. All in all, the most increasing part within OpEx is, of course, the personnel cost item. And our EBITA, EUR 95.6 million, return on sales of 11%. And also there, it's a 20% drop compared to last year. We're taking out the divestments, then you can see that our organic decline in EBITA was just above 11%. If we move down towards the net profit part, amortization, higher than in '23 first half. As you can see on the back of the acquisitions, which we are doing, which involve companies which have a higher intensity on R&D, also our amortization increases. And of course, we keep on investing in our R&D capabilities as well. The results from associates, there, you can see back the book result on the divestment of HE System. As we guided before, over EUR 13.5 million of book profit that is coming through. In 2023, first half, we had a similar high level of results, and that came out of the book profit we had from the divestment of CCG. Then the financial result -- the other financial results, minus EUR 15 million, substantially up compared to last year. It has a lot to do with the, on average, higher net debt level which we carry and, of course, also the slightly increased interest rates. Clearly, we'll come back to that in 1 or 2 further sheets. It has a lot to do with the CapEx program, which we run an additional CapEx out in the last couple of quarters. Then taxes at 25.8%. The range of 25%, I would also use in your estimates for full year. Looking at the balance sheet. Working capital, you can see the development here. We came from a year ago at EUR 337 million going to EUR 345 million. As a percentage of sales, it's 19.5%. A year ago, we were at 19%, so slightly up. We always have a higher working capital in the middle of the year than at the end of the year. But clearly, this is beyond what we normally would like to see. An important part in our balance sheet is, of course, the inventories. Roughly, about EUR 400 million are the inventories in our group. That is coming down, but not sufficiently, I would say. We see that the growth part and the volume growth in some of the segments, which were previously discussed, do not uptake sufficiently from our stock levels. And therefore, we are still at a too high level, but of course, coming down further as we grow. So towards the second half year, you will see our working capital further improving. Working capital and net debt, also there, an increase of about EUR 105 million compared to the start of the year. Obviously, in the first half, we have substantial tickets related to dividend payments and almost EUR 70 million, as you can see from here, some acquisitions which we did, but of course, also the CapEx program. You can see here close to EUR 60 million on tangibles. Worth to note is that roughly EUR 30 million is related to the strategic investment program, and the other EUR 30 million is, call it, more the regular kind of CapEX. And going forward, also, if you look for the second half of the year, you have to estimate roughly EUR 35 million for CapEx for the tangible part. This leads to a leverage of 2.3. As I said, it's a peak, if you look at the timing of some of the events happening in Q2. Having completed basically the strategic investment program and, of course, the further actions towards the further working capital reduction, that's going to help, of course, in the second half, also with the improvement of our free cash flow. Because if you look at our free cash flow, greatly impacted again by the CapEx program and the still slightly high working capital. But with the improvements which we are expecting in the second half, of course, free cash flow will materially improve. As for the outlook, for vision -- Smart Vision systems, we expect turnover and EBITA in the second half of '24 to grow compared to the first half on the back of the deliveries of the larger secured orders, which we have for the fourth quarter. But overall, the market for our Machine Vision remains challenging, with an anticipated return to growth materializing at a little bit of a later stage. For Smart Manufacturing, the catch-up effect from the second half of '23 as well as the first half of '24, following the easing of the supply chain constraints will subside, leading to a lower second half of '24 in terms of turnover and EBITA compared to the first half. For the full year, we expect organic growth and turnover -- expanded organic growth for turnover and EBITA compared to last year. For Smart Connectivity, the turnover and EBITA in the second half of '24 are expected to grow compared to the first half on the back of deliveries of larger secured orders for the fourth quarter and a decline of the start-up and ramping up cost, which we have seen in the first half. All in all, on balance and bearing unforeseen circumstances for the full year, we expect organic growth in turnover and in EBITA, excluding one-offs for income and expenses, of between EUR 210 million and EUR 220 million compared to a EBITA last year, excluding divestments of EUR 222 million. Prior, this was EUR 224 million, but as we have divested more since our last update, the reference point has slightly changed. So far, I think the presentation, we are ready for Q&A. No Q&A.

Michael or...

Michael, Degroof Petercam. I have a question about your guidance for the full year. If I compare the EUR 96 million EBITA in the first half with your midpoint for the full year of EUR 215 million, you see a strong improvement in the second half to EUR 119 million. That is a run rate of EUR 238 million, sort of a starting point for next year. I suppose that next year, everything will be similar to the second half of this year. Then you will do EUR 238 million, all else being equal. That will mean an easy base in the first half and flattish in the second half. However, I read on Slide 16 that even in the second half of this year, you will still have some start-up and ramp-up costs. Will that be fully gone next year, all those start-up costs and ramp-up costs, so that for the second half of next year, there is even a higher potential than that run rate?

The start-up cost will -- for -- will be largely eliminated. As this mainly a new plant, there will be also continuing ramp-up costs with somewhat higher waste in -- during the first 1 or 2 years. So there will be some effect, but the major additional contribution is the utilization that will come in. With the substantial higher volume, like I mentioned, we are moving towards the 600-kilometer utilization, and that is a really big step-up.

That was actually my second question. So even on the similar level of activities, there would still be some upside potential for H2. But now moving to subsea, already during the side basis, you were very encouraged about the potential for next year. You've got a big order. You see more orders coming in. That alone should give the underlying run rate quite a boost next year.

Yes.

But some of your other activities are either normalizing or still a bit sluggish. What do you think will be the main other drivers next year next to subsea?

May I mentioned already the Smart Vision, where we see substantial improvement in the second half year and driven by, I would say, around EUR 40 million in, let's say, bigger projects. And the question is, will we have next year the same number of bigger projects. And at the same time, we are investing quite heavily in sales and see that we win some market share. We have some interesting innovations in the pipeline that should bring also additional turnover. So we try to give us some self-help, instead of waiting until the market comes back. But I believe we show again that we can get to a much higher return on sales already in the second half year, and that should give us also a good foundation for the coming year. But with the remark about the bigger projects, but I believe that there is really potential also to win another few bigger projects. And that is also the combination of the activities, how we present under the umbrella of TKH vision. We are seen as the technology partner for many bigger customers, and that is a major breakthrough, I believe, that we see already coming back in the order book also for this half year.

Okay. And you didn't mention Optic Fiber. Optic Fiber there, during the introduction you already mentioned, there is some more headwind than expected you will be downsizing a little bit. Is that especially because, for instance, penetration of Optic Fiber in the Netherlands is reaching quite high levels?

Not so much to do with the Netherlands, but there's also a major impact in the Netherlands. For instance, Delta who stopped actually the investment in Fiber Optic Network. And so yes, that was a disappointment for us and had a short-term impact that might come back that investment, but then through other parties that have to do that investment. And yes, I mentioned the destocking effect in France and -- but that's really a substantial stock that is in the market there at our customers. So that will take some time. And we see in other European end markets that it looks better than in the first half year. So we are projecting, let's say, an interesting growth. I'm not putting the word substantial now in my mouth, although I do it. But that is still a challenge and not known if it can be substantial. But we are prepared. We and, yes, cutting also at the same time cost.

Okay. So once that destocking in France is over in, say, 6 or 9 months, then there's quite some upside potential. And the final question also on Optic Fiber. Is the impact from import duties now entirely gone? Or is there still a tail from China or no?

Well, of course, the stock levels, which we brought from China in the second half of last year in order to facilitate a more smooth ramp-up of the new facilities, as we have closed down the facilities in China. There are still some of the stock available due to the fact that some other market parties are not consuming the volumes we would like them to consume. And therefore, there is still a little bit of that on -- in our stock. And once that stock goes to market, there is some impact of the duties, but not to the extent material, as we have seen in the previous years.

Okay. So in the second half, there will be a minor impact, negative still from that. But by year-end, that stock is probably gone.

That's right, exactly.

Maarten Verbeek, The Idea. Getting back to the growth because you had your guidance for 2025. You said EBITA is 17%. It is going to be difficult to reach that target. But you still reinstate your revenue goal of more than EUR 2 billion. You're still firm on that guidance.

I didn't point out to that.

It's in the presentation, still there. So...

Yes. But there is a kind of disclaimer with the headwinds that we have. So yes, I believe it's too early to exactly disclose if that is achievable or not.

Okay. You are divesting lower additive value businesses -- commodity business. You're on the eve of divesting EKB, yes. But when we look at assets held for sale, it's more than just that company. It does now include all businesses of which you envisage these will be sold and then more or less -- although it's never ending story. For the time being, this will end our divestment program.

It's correct that, let's say, in the assets held for sale, there is more than just the EKB company. But as you said, it's a part of our strategy to continuously work on further value creation. And from that point of view, we never said that there is an end to this. I think what Alexander also highlighted is if you go back in the last couple of years, we basically divested EUR 450 million. And also in this round since the last Capital Markets Day, where we had the bandwidth of EUR 150 million to EUR 200 million of divestments, we are basically on the upper end of the bandwidth, with still assets held for sale. So that gives an indication that we will overshoot the target. So from that point of view, we are actively working and getting this done.

Okay. And then talking about acquisitions, you acquired JCAI. When we look at revenues and takeover price, it's a multiple which looks a bit high for what TKH tends to pay for acquisitions. It's twice more or less sales. Could you give some insight in the benefits and maybe also the profitability of this acquisition to TKH?

You take it or...

No, it's for you.

No. If you look at the stage where the company is and the contribution it makes to our portfolio, the important part is to realize that in the revenue which they have, about 25% is software-driven sales. So there is a large installed base, which generates a regular flow of software-related revenue. And that's for us an important platform also to bring on our airport proposition, the CEDD technology, in order to, let's say, penetrate the existing customer base, which they have and basically combine their technology with ours. So you're quite right. If you look at the entity itself, you might say this is not exactly the standard multiple of TKH. But if you look at the potential, then definitely, it makes sense to, let's say, come to the valuation, which in the end is where it came out with.

Okay. And then concerning SMS, Smart Manufacturing division, particularly Tire Building, it was positively impacted by the catch-up effects of the inventories that we had in the past, the supply chain issues in the past. Could you indicate how much of the revenue is due to this effect as a guidance?

Well, if you look at this effect, we had it already in the second half of last year. We saw that, let's say, quite a lot of things we had prepared. We talked to you in the past that we basically hired 7 locations to store all the machines, et cetera, and that we would release them as the supply chain would ease. That has actually happened, of course, in the second half of last year. So we have seen a massive amount of, let's say, deployment of ready equipment. At the same time, of course, we also mentioned, you have a lot of, let's say, need of field service engineers and other engineering skills in order to get that executed in the field. So you don't -- it's not a matter of just shipping everything in 1 week, and that's done. So that has an impact on the timing of when you have this catch-up effect being -- going to market. So that was in the second half, but also in the first half. And when you talk about the impact of that on EBITA level, and you have to really take into account a couple of million in order to, call it, normalize that particular catch-up effect also in the first half. And your question maybe leads to the outlook for the second half then. But of course, that effect, we don't -- it would be nice to have a catch-up effect forever, but that's not the idea of a catch-up effect. So that effect is in H1. That will not be in the second half. And at the same time, in manufacturing systems, you highlighted already some of the divestments, which we are doing. They also are in manufacturing systems. So both HE and EKB are in manufacturing systems. And of course, they will not be part of the running rate for the second half of the year.

Now we also provide the share of Tire business of the division. So that gives us a view. And therefore, more or less, my interest to hear how much of the business is, let's call it, a one-off, which is not. But to get a better feel for what we should expect for H2.

Of the?

The revenue of the Tire Building business.

I mentioned already that the impact on H1 in terms of catch-up effect is a couple of million on EBITA. I would leave it like that.

And then lastly, you've signed a supply agreement with Vattenfall. Is it logical to expect that more of these partnerships will be signed in the future?

Yes, that is possible. And -- but we have not yet have come to agreement there.

Yes, related to tire manufacturing, [indiscernible] ABN ODDO, could you say something on the, I would say, absolute levels? You say that the order intake is still on a high level. But yes, could you give a little bit more color on that going forward?

For you.

Yes. Maybe I would ask Harm even to address that. Of course, he has the best response.

Yes, order intake is still at a high level. Maybe look at it from a historic perspective. The -- at the same time, we were running at a very high turnover rate in the first half. So you see a little bit of a decline in order book to go, but that is still at a very high level. Order intake is strong, and that is basically mainly because of, well, all the underlying trends that are still in the market there, automation, drive for sustainability, that leads, well, all the major players to invest at a high level. We don't see a real decline there in appetite for investment.

The delta you mentioned there for the whole segment, which is from EUR 630 million to EUR 680 million, that's more or less related to the normalization of, I would say, the trend you see in tire manufacturing systems.

Yes. At the same time, these projects are not very equally spread over the year. So you see the order intake with some peaks, so that also is a timing effect. When you look at -- when you translate order intake into turnover, then that's moving out. So I really would say it's a minor element.

Okay. And then related to the other segment Vision technologies, you mentioned there that there are some segments a little bit difficult related to batteries and to solar, but you have quite a positive statement here for the second half of the year. And yes, what kind of orders are those from? Which kind of segments are they coming? And I saw already in the presentation that you see a little bit of shift towards Asia. Are those Asian orders? Could you give a little more color there?

They are not Asian orders. And I believe it's too early to disclose in which areas we see the orders. And so, yes, I believe in the beginning of next year, we will come back to that. But they are completely different in most cases than what you would expect.

Okay. Because I read in the press release that those orders contribute -- would contribute to Q4 as well.

Yes.

So you said the statement will come somewhere then during -- in Q3.

We will have substantial deliveries in Q4. The orders have come in. One of these orders already came in last year and -- but there was a kind of delivery time of 12 months, not on our side, but that project would be -- would materialize in Q4, and that is still the case. And yes, perhaps one area that is perhaps unexpected that is, I hardly don't dare to say it, but it's the parking area, Parking vision, where we have an order of more than EUR 20 million for one airport. And there are more airports that getting more appetite. And that was one of the reasons that we said we have to materialize there also the opportunities that are there. And so that's a major, where I mentioned an example, and I believe that is a surprise and also a very profitable project.

Okay. And then there's no risk of slippage towards '25.

There's always risk in that respect, and that is what I also mentioned during my presentation. It looks really good. And -- but yes, that is in the bandwidth of, let's say, our outlook.

Ruben Devos from Kepler Cheuvreux. I just wanted to follow up on Vision again. I think, obviously, it's very interesting for us to have a bit of a read of -- across the different end markets because you've got exposure to many of them. Yes, obviously, you said no aging orders, one Parking order, which was substantial, but it's so fragmented, right? How can we get an idea of where the recovery is materializing? And what we should look forward to in Vision?

Yes. It's mainly the factory automation. I believe that it's all about automation and had a trend with the high inflation, scarcity of labor. Had -- the Vision technology is the superior technology and the needed technology to improve productivity and get in the end also to better products. So yes, that is a broad market. There's a lot of end markets, including wood, yes, solar, battery. I believe solar and battery will not be attractive in the coming 2 quarters, perhaps even longer. So we have taken that into account. But we see many other areas. VMI is doing a fantastic example in how they have a nice growth related to factory automation. And you can mention, I believe, hundreds of applications where you need factory automation and equipment -- with equipment. And I believe that's the good thing. It's many, many end markets. And the main driver is this need for higher productivity because of scarcity of labor and the high wage costs.

Okay. And battery and solar, which affected you in H1, how big was that roughly speaking as part of the total portfolio?

I believe we missed there, compared to the second half year last year, around perhaps close to EUR 10 million.

Okay. EUR 10 million.

Turnover.

Turnover in H1.

Yes. With a higher contribution margin of 60%, it's a big impact that you are missing. Last year, we were happy that we had that as an additional turnover, but it's not a stable market, the battery market and solar market. So it's also not a real, let's say, core market where we say we need to have, let's say, that as a kind of focus. It was nice to have that, but I believe there's much more sustainability in position and market demand in the broader factory automation market.

Okay, okay. And then just on the order book for subsea. I think, generally, for Smart Connectivity, you reported an order book of about EUR 300 million, significantly up from SEK 218 million, I think. Yes, how -- what part of that EUR 300 million is basically subsea related?

Now I can answer your question definitely. I don't have that exact figure now in my mind. But we had an order intake of around EUR 130 million in the first half year.

Okay. And you cannot put it between digitalization, energy, yes.

Perhaps, Elling would -- I don't have that exactly in my mind at the moment.

Obviously, we highlighted already that within the Fiber Optic business, the market is really in a challenging situation. So from that point of view, there's not so much increase there. Majority -- by far, the majority is related to subsea. And as we have said before, also the onshore energy market, that is not yet what we see as a recovery in our order book. There are some signs that this market is on the move, but it's not yet in our order book. So by far, the majority of the increase is related to subsea.

Okay. And that 600 kilometers of cabling that you identified, that -- just for clarification. Did you already secure that? Or was it based upon the sales funnel in the future?

We are missing a little bit 150 kilometer, but we have several opportunities that we are quite close at this moment, that we are quite confident that we will have this utilization of 600 kilometer, at least. We are more optimistic than that we were in March. In March, we didn't have that confidence, but now we are quite confident.

All right. Clear. And just a final question on the cost savings. So I guess, just a general question. I understood most of it is you have identified cost savings in Fiber Optics in connectivity. EUR 15 million in total, I think that's about 1% to 2% of your annualized OpEx base. Is there scope for more?

I believe so, I believe so. So we are looking further into cost saving opportunities. So this is not the end, I believe. And it's all related to efficiency. And yes, we -- again, we might see more opportunities, yes.

And I guess, related to that and a bit of a longer-term question, but what's your view on Fiber Optics as being part of -- as being a core part of our portfolio today? I think you've talked about divestments in Smart Manufacturing. And we've seen a lot already, yes, in Smart Manufacturing, but what about Fiber Optics?

What's important is that we bring down the, let's say, overall structure towards an earlier profitability at lower volumes. That's the key priority. Of course, if you look in the last couple of years, quite a couple of things have happened in this market, most predominantly the introduction of antidumping about 3 years ago with an additional step-up in December of last year, which leaded to quite some response from our side. And we see the effect to some extent that we are dealing with this. But we have, let's say, taken swift steps in order to make sure that we are fully EU compatible, so to eliminate the duties. But this market, of course, has a lot of developments from that respect. There's still quite a lot of overcapacity at a global level. So it's all about finding the right niches and an efficient way of production, and that is our key priority initially to get that done. Tijs?

Tijs Hollestelle, ING. A lot of questions already been answered. For me, the key is to still get better understanding about the connectivity division. So reading your outlook, I assume you're going to make, let's say, about EUR 700 million annual turnover this year in the connectivity division, EUR 650 million, EUR 700 million. So what is the breakdown then of the onshore, offshore and fiber optics revenue clusters?

Midpoint, by and large.

I'm not going to, let's say, give you that specific on the estimate. But if you look where we currently are, and there you can see quite some transition. I talked about the divestments over the last couple of years. If you look at connectivity right now, close to 50% is related to the energy-related market. And roughly 30% is what we call digitalization. And we have to really understand, well, digitalization is not, let's say, the same definition as fiber optics. If you look at the pure fiber optic-related network, so what we call the outside plant, where the deployment of fiber-to-the-home concept takes place, that is roughly, and I'm rounding it off, about 15%. And so half of the digitalization part is related to optical fiber. The other part is also related to, call it, the digitalization/telecom, but then it's more like the indoor related part. And as I mentioned, we moved up substantially on the energetics part as a total contribution in the whole due to the fact that companies like CAE, et cetera, have been divested in France, that portfolio. So you will see that the strengthening of, let's say, on one side, the capacities within especially subsea and the increased order book as well as the, let's say, road forward, that the part of energetics will further increase because that's the highest growth area within connectivity. I leave the split of how much is going to be this year, the split between onshore and offshore. But I'll just give you the -- a little bit of flavor where this mix within connectivity will go to.

Yes, I still find it a bit strange that you don't give more information. So what is, let's say, the incremental steps possible? And you don't have to give me a champagne scenario, but also not a bear case. What is your own, let's say, base case scenario? Because my feeling is that there can be hundreds of millions in subsea, let's say, 1.5 years from now, but also in the onshore cable, the pain is pretty severe, I believe, for you guys because you added capacity on top of relatively new capacity when the market was destocking for more than 12 months. So crushing your margin, but I don't have a feel for what it is. So yes, to handle a little bit of feel for, okay, in a normal market, we can add at least EUR 100 million turnover to the onshore cable business, and I won't pin you down whether that's going to happen exactly from the first quarter next year. And then also for subsea, because now I'm still, like, what is the incremental growth that gives us the margin we need for that division?

We can be a little bit more specific with the onshore. I'm not giving you the base what we have today, but we believe that between EUR 30 million and EUR 40 million additional turnover can come in next year. And I don't want to go beyond that at this moment. So that is what we are targeting, partly recovery of the Dutch market and partly also because of international expansion and mainly looking at high-voltage and attractive margins. So we don't want to fill the order books with low contribution margins. And then I believe we mentioned during the site visit at Eemshaven, I believe my colleague, Martin [indiscernible], mentioned EUR 160 million. I mentioned EUR 170 million turnover. And I believe we are this year, I forgot now exactly, but around EUR 70 million, EUR 80 million turnover. So that is, let's say, around a range that you can put in for next year.

Yes, yes. I can also do that by the kilometers you're giving us, but the...

It's always including accessories also. Accessories is about 30% of the activity. And -- but, yes, again, you can always translate that including accessories to, let's say, an average price. If you look at the EUR 130 million, that was around EUR 500 million order intake with around 500 kilometers of cable, including accessories.

Yes, yes. And also an additional comment on one of the other questions. The order intake of connectivity going forward will be the lion's share. It will always be shifty. But the other business is more like wholesalers, shorter. Maybe you sometimes have a bigger project, but it's not really an order book kind of business.

No, you're right. And the onshore business is all framework agreement. So we have a very short horizon of the actual order book. That's only -- I believe, it's even less than a quarter. But we get a good forecast for, yes, sometimes even 2, 3 years, what's going on because you also have to do your planning in respect of capacity. And that is a nice cooperation we have with the end customers. It's not always completely reliable, to be honest, and we have to do our own judgments there. But that is somewhat misleading in the order book that not everything is in the order book. Normally, you could almost put in the order book what your forecast is on the framework for the whole year, but that's not what we are doing.

Yes, I understand. Okay. And one final question. The EUR 50 million cost savings program, you gave a split that EUR 5 million will be allocated to the Vision and EUR 10 million for connectivity. It's not already in the numbers. So there will be a one-off cost in the second half for this. Or is it already in the reported EBITA of the Vision technology.

No, no, no. It's not in the reported EBITA, and it looks like that the one-off cost is very limited. It might be that is coming in, some one-off costs, but that is not yet detailed. But the majority can be done without a one-off cost.

Yes. So it's the numbers I'm looking at are clean.

Yes, yes.

Yes. Maybe this one for Harm as well. Just going back to manufacturing, I think we spoke about it a little bit already. So this is Chase Coughlan from Kempen. But you said that the underlying trends are still quite positive, and you see reshoring and EVs and whatnot, even though it will have a negative effect on the second half. My question is regarding we've seen freight costs obviously come up, I think, upwards of 80% since the start of 2024. Do you see that having an impact on clients delaying orders or maybe rethinking having a large investment there in the second half of this year as well?

I think if you look at transportation cost, then remember that a few years ago, more than 70% of all the tires in the world were produced in Asia, whereas the biggest markets by far are Europe and North America. So we -- so in this world, we produce them on one side of the planet, and we move them to the other side. With the rising transportation cost, there is even more pressure than all the other elements to -- already mentioned, to shift production. So rising transportation cost obviously impacts a little bit the transportation of equipment, capital goods that you need in a new factory in Europe, North America. But I think with high transportation costs, but also high risk, look at what's happening in this world, that's even a stronger driver to keep the investments going in the world.

Yes, that's clear. And then maybe one last question. Obviously, you've said you expect potentially 600 kilometers of cable in full year '25 to the subsea business. Could you remind me exactly what approximate return on sales margin that would produce for that facility?

At least 20%.

At least 20%, okay. Great.

There is a question online from Thibault. Maybe we can switch to the online question.

I don't know if you can hear me. I can hear myself.

Yes, we can.

My first question is with respect to the gross profit margin in the connectivity segment. So there, we saw a very strong increase in the added value. If when the fiber optic and onshore normalizes, what kind of gross profit margins and value margin would you expect in the future?

Well, if you look at the increase, it's a substantial increase. It has a lot to do also with -- so we clearly mentioned before, we have a clear program for divestments of mostly commoditized portfolio. And commoditized portfolio very often carry a, call it, below average gross margin, and that we also have seen within the distribution activities, which we divested in France. So from that point of view, on the like-for-like, you see a nice up in the added value in the first half of this year compared to last year. Secondly, in the fiber optic part, it's not so much that we have been -- had to deal with the pressure on gross margin. Of course, there is price pressure, but we were able to offset this very well within the supply chain. So our gross margin was not really affected. But what you see is that the price to the market of a particular portfolio carries a substantial lower sales price than prior years from that point of view. That is the impact, but not so much gross margin.

Okay. And then when the onshore business improves, then you could see some normalization in the gross margin, I assume.

I believe for the coming 1 or 2 years, the gross margin will stay around this 45%.

Okay. And then a second question. Now that the strategic investment program is over, how are you looking at the capital allocation? You've been quite active on the M&A front, and innovations are quite important. But how are you looking at the current debt structure? And given the current share price, do you think that a share buyback would be interesting?

Yes. We made a statement in respect of the readdressing the strategy and related to value creation, and one of the options is there the share buybacks, where do you invest related to capital allocation, what you are going to do. And that is what we are seriously addressing and take also some time with all the options that are possible to -- and come back in Q1 in 2025.

And you're happy with the current net debt level.

It should be much lower. And I believe the cash generation that we are now positioned for, with the finalization of the strategic CapEx, it will come down quite substantially in the coming quarters.

Okay. And then one last final question. You talked about the fact that the -- yes, in the first half, the Vision segment, revenues were lower compared to last year given a very strong first half performance. I believe that was mainly in the first quarter. So I believe that also Q2 '24 compared to Q2 '23 also saw an organic decrease. Is that correct? Could you give maybe a little bit color on Q1, Q2 dynamics? You mentioned a slight improvement. Are we then talking 2%, 3%, 4%?

Yes, that's the kind of range. But indeed, you're quite right. How the first half last year looked like, Q1 was still strong and then we saw a weaker second quarter. And then your statement is quite right on how you view then the first half of this year. Michael Roeg?

Yes. Just one final question about the CapEx. You mentioned EUR 35 million for the second half of the year for tangibles. Is there still a tail from the investment program? Or is this the run rate going forward?

Only a few million probably will be in there. But if you look towards next year, as we have said, in the kind of 65%, 70%, 75% range is where you have to look for. We have a larger footprint right now than we had a couple of years ago, so there will be some elements coming related to that as well.

65%, 75%...

And on the Intangibles, it's more in the range of about 60, 65, of which H2 will not be so different than H1 on the intangibles.

Okay. That was the last question. Then I'd like to thank you all for your contribution here with the questions and the discussions that we had here. Again, we started that we are quite confident with the progress that we made with our strategy and the position that we have to prepare for growth in the second half year and not only in the second half year, but also going beyond. And I believe that's a great foundation that we have today at TKH, and I hope that, that will be valuated. Thanks for your attendance also in the webcast, and see you next time. Bye.