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

Good morning, everyone, here in the Okura Hotel in Amsterdam. Very warm welcome. Also a warm welcome to the audience in the webcast. We have the presentation of our annual results, and we start with the cautionary note regarding forward-looking statements. I hope you can read it very quickly because I will move to the next slide. But it is an important cautionary note. The result of Q4. We are quite proud in how we finished the year with a record high EBITA. Very nice growth in turnover, organically 5.1%. And what is really important to mention is the further development of the added value. And I come back to that later. And we see within all the segments that we are continuously increasing the added value, which is a reward of all the investments we are doing in our technologies. The record order book is also very important that, yes, with some headwinds still we were able to achieve a record high order intake and leading to a record high order book. What is further very important is that we continued our investments in R&D. Very important to keep our technology leadership. More than EUR 80 million invested in R&D, and I can assure you that this is a very efficient way we invest in our future and with very nice new technologies for new applications, including, for instance, the defense industry. We further reached several milestones in our portfolio optimization by doing divestments and also some investments, very nice acquisitions. We concluded our EUR 15 million cost saving program, which is also key to look at our cost ratio. We saw in Q4 that we reached really high levels of EBIT margins, return on sales. In the Smart Vision department division, we even reached 22% and that is a good confirmation how important it is to keep up our capacity, to keep up our investment and invest in, let's say, our growth story based on the global trends that we are related to. And I will come back to that later. The serial production in the Eemshaven is moving in the right direction. We, of course, have hoped that it would have already solved all the issues in a much earlier stage, but it's really cutting-edge technology that we are working on, and it is the issues that we [ have ] [Audio Gap] unlucky there, that we have not been succeeded at an earlier stage, but we made very big steps in the past, let's say 1 or 2 quarters. And we are really close to get serial manufacturing up on stream. And it is especially related to very long lengths. The shorter length up to 5 kilometer is already no problem at all. Today the critical processes have been solved, and I believe we can assure you that also in the outlook for this year, we are ready to manufacture the 5,600-kilometer cable that we have in the order book to be delivered this year. Very strong order intake, because that is also very important. And especially for the short-term also we see the outlook for the offshore wind industry related to the connectivity business, the inter-array business. Very positive for the medium, longer term, so starting from '27 up to 2030. But we were able to secure the right orders also for the short term for '25 and for '26 including this EUR 200 million order for the turnkey project of Inch Cape. The sales funnel is very high, still it's more than 10,000 kilometers today, with more than 50 tenders we are in. And that gives us also a really good perspective for the demand and the order book that we will need to further utilize the capacity in the inter-array factory in Eemshaven. We are also proud to announce that we have updated our strategy with a further focus, a focus on automation and electrification. I will come back to that later. Of course, automation a really key area for growth. With all the scarcity of labor and the higher labor costs, there's a real big demand for further efficiency, and the technologies that we have address all the opportunities in the business that is related to automation. Electrification is really huge what is happening there. In the next slide I will also come back to that. And what is also very important that we see further [ optimation ] in our operations related to efficiencies, efficiencies related to integrations, but also further synergies that we see in the group. And of course, last not -- but not least, we have is further focus on the electrification and automation. We also have a program incorporated now for further divestments, and yes, that leads to more and more focus within the TKH Group and the right capital allocation, which is, I believe, very important. And we have decided that we will, of course, further invest in automation and electrification, also buy -- visit buy and build strategy. And besides that return -- we will return excess cash to our shareholders. And we have announced that on the 25th of September, we will have a next Capital Market Day. And you might question, why is it taking so long to get to this Capital Market Day? For us, it's very important that we also have the foundation of '25 so that we can specify, I believe, in a better way in September what the new target should be for the coming years after 2025. The highlights of Q4. What is good to see is that in all the visions we had a better result. I already pointed out to Smart Vision with a record high 22% EBITA margin. Smart Connectivity really, let's say, hampered with respect to the utilization of the factory and the manufacturing of the order book that we have on hand. But the good news is that the order book is not gone. The order book has increased with a lower utilization that we had in Q4. So the perspective in also returning to much higher return on sales in Smart Connectivity is there. Smart Manufacturing, fantastic year. The best year ever. And what we see also in Q4, we even were at 20% EBITA margins, which is also higher than the target we had set for 2025. Continuing with the added value increases across all segments. Smart Vision, we are really proud that even with the strong headwinds that we saw the market share increases that we were looking into. And not only looking into, but realized the bigger projects. I believe there was some fear that it would have also pressure on margins, but that didn't happen. We increased the return the added value from 58.9% to 60.6%. And of course, the incremental margin is really supporting there also for the coming year that with a higher turnover, it will almost immediately translate to the bottom line and also pointing to the cost saving program that we introduce in Smart Vision. We have a healthy outlook for the division for this year. Smart Manufacturing already mentioned, a record high result, EUR 116 million and also there are an increase of the added value, which is very good. And partly is related also to the quality of the product mix and improvements in efficiency that we have created within Smart Manufacturing, also in respect of procurement. But anyhow, the whole operational excellent organization of Smart Manufacturing is a big complement to the team and also is rewarded in respect of the very good result that we achieved there. In Smart Connectivity, also a very big step-up of the added value from 41.8% to 44%, partly due to mix. We have divested about EUR 120 million in turnover from our commodity activities in -- distribution activities in France last year. By the way, the result of that activity accounted for about EUR 15 million is still included in the EUR 81 million. So the comparison base is a little bit different if you would distract that from the EUR 81 million. However, here the performance is not acceptable for us, the 4.9%. But here you have to really take into account all the investments that we have done, the readiness for expansion of -- for the growth in demand. We have expanded our capacity. We have invested all these costs already. And the good thing is that the market outlook is really, really positive for the electrification, and that will bring up then, of course, the return on sales. And with the divestment of the lower performing return on sales activities, that will also help, of course, to take up the average of the return on sales in that segment. I continue with the next slide. I believe very, very important, not just from an ideology point of view. It is very important because with the focus on sustainability, we see that we have a much better performance in our positioning at our customers. And we can see that also in the percentage of turnover linked to the SDGs. And yes, we support our customers to be more efficient, to lower their footprint, to lower their cost base. And yes, that is, of course, fantastic in respect also how we can gain market share by supporting our customers. The ratings are also moving upwards. That is a kind of automatic system, I would say. If you have good performance at your customers, then automatically also the ratings will be better and better. And especially, I'm proud on the satisfaction score of our customers -- from our customers, which is at an 8.6, and that is really key where we can build on further. Customers love to work with us, and that is always the continuous challenge that we have by having the right high-end technologies that drive the satisfaction at our customers with very high service levels to our customers. The global trends shaping the future, but especially our future. Automation, we see here a graph that is related to the share of working age population. And we see that will dramatically go down further. That's an important trend to follow, to see that there will be much more investments in automation. And especially the labor shortages and the need for higher productivity levels because of the higher wages are really key and fantastic drivers. We see that there is a lot of appetite at our customers. We are [ spec-ed ] in, in many areas already, which you cannot see already today in our results. So that's -- in many cases, we are already 2 years upfront in -- [ spec-ed ] in. And after that, the turnover will come. And that is what we know, and we cannot immediately translate that into KPIs to show you what is really happening in the TKH Group. The electrification is a really huge opportunity. If we look back, there have been some disturbances there. But what we have seen also in the last months, weeks that the urgency for investments is really, really high. The offshore wind market is expected to grow 13x the current demand up to 2050. That is far away, but 13x is really, really big increase. And recently, it was announced that in the Netherlands, the investments need to be around EUR 195 billion to take care of the network congestion and fill in the demand for the electrification. And I'm just talking now about the Netherlands. And we made really good progress also outside of the Netherlands, focusing especially on high-voltage cable. We see that there is scarcity and that we are really in the right spot with our 110kV up to 220 kV positioning, where we see that there is an above-average scarcity within Europe. And we are very positive that also that will support growth in this area of electrification for the TKH Group. Yes, the next phase, focus and optimization. We will deep dive more in September 25th, but it is based on unique building blocks that we already have. So from that respect, it's not a complete new buildup of a strategy and a foundation. We have a very strong foundation, especially the unique technologies, the technology leadership. The leading market positions are also supporting us and bringing us the right efficiency, efficiency toward our customers to the efficiency toward our cost. And what is also very important that we invested a lot of money to be prepared to be able to utilize our capacity, which has a huge additional capacity available so that we don't have to do for the short-term a lot of additional investments and keep our CapEx for the coming 2, 3 years at a normalized level. And that means also that we are really focusing on cash generation. And last but not least is really our software position. We invested there heavily also. The AI team is doing a great job and being also very smart by using open sources and also developing really, really great algorithms that really make a difference to support the technologies in all the areas that we are active in. Focus will be on automation and electrification. And I believe already mentioned, sufficient about that development, optimizations through integrations and divestments and especially, I would also say, synergies. We will drive down further -- or drive further cost efficiencies. We see opportunities there. We have a lot of energy to work on that and to become even more efficient than that we are today. And yes, we have decided to divest a substantial part of our business and the majority of that is related to the digitalization activities. And we also believe that we can bring that activity in a different environment where it can be more successful than in the TKH environment. And I believe the opportunity for that activity is still very big, but it should be in a different environment than the TKH environment as we have to further focus. That is a clear message we also got from our shareholders. We understand that. And yes, we also have to look then further in our capital allocation where do we spend the money, because we don't have an endless resources available for -- to do investments. And as mentioned before, we will use the proceeds for the excess cash for share buybacks, dividends. And -- But before that, we will also look at further build and buy strategy. Thank you for your attention. I hand over to Elling.

Good morning, everyone. Thank you, Alexander. As usual, I will walk with you through some of the financials concerning last year. First of all, if we look at the turnover and the geographical distribution thereof, still roughly 60% of total revenue is within the European environment. About 20% plus in Asia, out of which a little bit less than half is related to China. Close to 15% in North America and the remainder in different parts of the world. What you can see in this chart as well is the circles which give the distribution across the 3 segments which we carry. And obviously, as you can see here, most of the connectivity revenue is within the European region. Walking step-by-step through the different line items of our P&L. The EUR 1.7 billion revenue, of which basically 1.2% organic reduction took place. As mentioned here, the acquisitions and divestments, they caused a drop of EUR 111 million. Acquisitions contributed for about EUR 14 million and about EUR 125 million is the divestment part related to the cable distribution activities in France in 2023. Added value already mentioned by Alexander across the board, a good increase, 51.9%. Has a little bit to do with the mix. Also, the divestments had an impact. And of course, we have also seen that the anti-dumping duties which took effect, had a little bit less impact in '24 than in '23. Operating expenses, EUR 685 million. Of that, about EUR 477 million is personnel-related costs. In absolute figures more or less in line with the prior year despite the fact that we did some divestments. You can also see that the impact of indexation and inflationary effects brought in the end the same kind of absolute figure. Also included there is about EUR 52 million related to depreciation. And of the EUR 52 million, about EUR 35 million is related to the PPEs and the remaining EUR 17 million to right-of-use assets. That leaves an EBITA of almost EUR 204 million, well within the bandwidth, reduction of 14%, out of which organic reduction was 7.5%. Then on the parts below the EBITA line, the amortization, just over EUR 60 million in charges. About EUR 35 million of the EUR 60 million is related to research and development amortization charges. And that's, of course, a big part out of that about EUR 17 million is related to PPA and about EUR 8 million is related to software and IP. Then if you look at the results of associates, you're well aware that we divested EKB and HE Systems in '24. The total benefit out of these 2 divestments in terms of gain was about EUR 24 million, so making up basically the entire result of associates. Then on the financial result, an important increase, over EUR 30 million in charges. Has a lot to do, of course, with the higher net debt level, which we carried in '24 compared to '23 on the back of, amongst others, the strategic investment program. And that, of course, carries a ticket on the interest charges. Then taxes, the normalized tax rate in line with prior year, 24.5% more or less. So keeping that stable gives us a net profit of just below EUR 100 million. Then if you look at some KPIs related to our balance sheet, then of course, working capital is a big topic. If you look at the working capital in absolute figures, again, it's slightly lower than 1 year ago. But there's a percentage also due to the divestments. You can see that the percentage in relation to overall revenue slightly increased to 17.9%. That in itself is not a good development. If you look throughout '24, then, of course, at half year, our working capital as a percentage of revenue was substantially higher. That was more like 19.6%. So it came down in the second half of the year, but still this is not satisfactory. We have a bandwidth outstanding, which we aim for of 12% to 15%, and that in itself stays. And we really have to get to the -- to that bandwidth. A lot of programs are being executed in order to get there. One of the elements which is high on our working capital is the inventory part, especially also on the raw material side. So if you look at our balance sheet in detail, which is in the attachment of the press release, total inventory comes close to about EUR 400 million. And out of that, close to about EUR 170 million is related to raw materials. That came down, but not sufficiently. We still had some impact in the '23 and in the beginning of '24 coming out of some commitments, which were there out of the period when the supply chain issues were dominating, I would say, so in 2002, et cetera. They still had some inflow. And with some of the end markets where we have seen some headwinds, we were not able to get the right traction in terms of reducing those particular stock items. But that's an important element, of course. The instruments which we use, factoring and supply chain finance, not that material in terms of delta. So that is not really causing a lot of change here. Working capital brings us then also to the net debt, slightly up, about EUR 30 million compared to a year ago, just around EUR 500 million net debt gives us a leverage of about 2. That's below the 2.3 which we had at half year, but slightly up compared to the 1.8 at the end of '23. Some bigger tickets here. Of course, the cash flow from operations with EUR 270 million. That's a good starting point. But then, of course, you see also that if you look at the investments which we did in plant, property and equipment, close to EUR 100 million, that still carries about EUR 50 million for the strategic investment program. So if you take that out, then it's roughly EUR 50 million, which is on our, I would say, regular kind of CapEx program related to tangibles. And of course, we still keep on investing in our R&D competencies and road maps, and that had another ticket of about EUR 60 million cash out. Of course, dividend, EUR 67 million, which was paid last year. These are the bigger tickets if you look at the delta net debt '23 going into '24. And just to give you a little bit of guidance as well. If you look at the investments or the CapEx program for tangibles for '25, then we are more in the range of the similar EUR 50 million as we have seen in '24, excluding the strategic investment program. And when you talk about the intangibles, it's in the range of EUR 60 million to EUR 70 million for '25. If you then -- as a last part here, going into the free cash flow. Obviously, with the increase of working capital in the first half, we have seen a poor free cash flow development in the first half, but we gained traction in the second half through working capital improvement. And also, of course, we still have in here part of the strategic investment CapEx program. So that brings us basically in a much better shape when we look at free cash flow development also going forward, I think, in the years to come. It requires further discipline on the working capital, but also you see a little bit of normalization in our CapEx programs. That leaves me with the outlook. Let me see how that goes. We have made strong progress in our strategic positioning also on the back of the completion of the strategic investment program of EUR 200 million. That has been done, that has been completed in '24. And we will start to see the benefits further developing as of '25. And of course, on the back of the strong order book which we have, we believe that '25 will look pretty well for us. Q1, though, will still be reasonably weak. Seasonality is there. We still have the ramp-up in the Eemshaven, the subsea factory, and we still do not see improvement in the fibre optic cable end markets. For the full year, we expect in Smart Vision on the back of the order book, which there is and the market share growth in some of the newer markets and the OpEx saving program, which we implemented, to see both top line and bottom line to improve compared to '24. In Smart Manufacturing, turnover and EBITA will decrease organically. We had lower intake in '24. And that, of course, will have its impact in '25. But also, you should not forget that '24 was an extremely strong year. So the like-for-like is not that easy. In Smart Connectivity, the production capacities, Eemshaven and also in Poland, they will got further traction. And on the back of the high order intake, as you might have seen, we are well placed for substantial or significant growth in top line as well as EBITA in this particular segment. So all in all, we anticipate an organic growth of top line and EBITA in '25 compared to '24. More details and a more firm outlook we will try to make and present to you in August this year. I think so far the presentation part. We will open up for Q&A.

If you'll allow me, I know that you're having a CMD later this year, but I have a few questions anyway. So just give it a try. Forgive me. When we talk about these divestments, and it's a rather long list of potentials, would it be fair to assume that given that some of these are not at their optimum in terms of profitability, much more back-end loaded than linear?

The list of divestments, we have specified here the segment of digitalization. That's the list you're talking about. I know you talk to your own list. But there is, of course, work to be done as well. But we have done major steps also with the consolidation of capacity, for example, on the fibre optic cabling activities with the new plant in Poland. So all kinds of steps are already progressing as we already for a couple of years are working with a market which is really tough with large overcapacities. And basically, in the end, it's clear that we don't have the size to be able to shape structures in the way we would like to see them. And that gives us this picture going forward that we better look for a different structure than what we currently have for this set of activities.

Okay. You mentioned excess cash and returning cash to shareholders. So maybe you could help us understand what type of framework you have for the definition of excess cash? Is that at the end of -- year-end net debt/EBITDA of below 1.5, below 1? Just a bit of color on that one, please?

I think this is also a topic more for when we get to the CMD in detail. But we have, of course, always been working with the level that we said our leverage should be in the range of 2. Of course, there can be spikes definitely. But at this point, we have no reason to deviate from that particular range.

Okay. Clear. And on the reporting structure, would it be as of 2026 automation, electrification and then noncore?

That will be Sheet #5 in the CMD on the 25th of September.

Okay. Then another one, and then I have 2 financial questions, and then I'll leave the mic to somebody else. Alexander, your contract ends in 2026. I believe it was April or May. With this strategy update and the ambitions that you've provided, will you be seeking an extension of that contract?

Yes, there is an agreement that I will stay on till the General Shareholders' Meeting in '28.

Clear. And then on financial questions. You've said in the past, not at the distant past that guidance for subsea would be roughly sales of EUR 180 million and EBITA margins of well over 16%. But now Q1 has passed, is that guidance still applicable?

That guidance is still applicable, yes.

And that also applies for the EUR 6 million to EUR 8 million of one-off costs related to Lochem?

Yes, that's included. Yes.

And then my final one. You mentioned that destocking in onshore energy in 2024 continued. You mentioned weakness in optical fibre digitization, but not so much for energy cable. Are you more positive now about that destocking as the inventory at the grid operators have come down substantially?

No, the inventory is still high, too high, and that will also affect then -- have an impact on '25. We believe that we are stronger positioned today than 12 months ago for turnover within Europe outside of the Netherlands, and that should help us to bring the growth in that activity. And we have the capacity available. We have relatively short lead times, and that's a real big opportunity as we see that most of our competitors have lead times even up to 12 months and longer.

Yes, I've got a question about the order book due in 1 year for the connectivity business. I assume that the majority of that is related to subsea. And what are, let's say, the risks for this year?

The risks are not -- are more in the performance. So it's self-help how we can realize the order book for this year and turn that into turnover. I already answered that question from Martijn that, that looks still positive, although here the first quarter is hardly any utilization still in the subsea plant in Eemshaven. But we have a good plan on how we can cope with the volumes that we have to manufacture, including the Lochem plant. So that is securing, let's say, the order book for this year being translated into turnover, into profitability.

So there's, let's say, absolutely no risk of minor issues in the production of those orders who need to be produced?

I will not say that there is no risk at all, but we have really made big steps. And the issue can be in the detail and the issue is not anymore related to length of cables, and that's really long length already of more than 5 kilometers. But the length above 10 kilometers, there we still see that there is a risk that something happens during the process, because it's a very long period that you have to do that continuous manufacturing. And -- But that looks for -- very well in place now for the 5 critical processes. And it's now the finishing touch we have to do with the additional processes, which are not continuous processes, or we have repair opportunities. But again, it's not 100% risk-free. But we have put in some headroom there that we are not on the edge of what we have to deliver, that -- if there's a small miss that we cannot meet the target that we just discussed. So there is some headroom, but it is also not completely risk-free. It is really cutting-edge technology and what we are doing is really extreme -- is a kind of extreme positioning, and that helps us also why we win these big tenders. We have something unique in our hands. And we see that the barriers for entry are also in that respect, very, very high. And that is the good things.

Okay. And then if I look at the OpEx level in the second half of the Connectivity division, it has come down further. Is that related to more efficiency? Or did you really have a lot of...

Mainly the digitalization area where we reduced the cost by -- in the end, we are closing the plant that we have in the Netherlands, but we substantially reduced the workforce there.

And what can we expect going forward because it is coming down for 1.5 years?

Yes. I mean, the 1.5 year also has to do -- of course, you have to normalize for the divestments when you talk about '23. But if you do that, you see still this reduction. Of course, we have said if there is a full transfer of the fibre optic cabling activities from Haaksbergen to Poland in a new factory, that will have a saving of around EUR 8 million to EUR 10 million on a 12-month basis. And we have seen some of that gradually coming in, of course, but we have not yet completed the full transition. That will be done in Q1. So as of Q2, we will see the full benefit coming through.

Okay. That's very clear and helpful. Yes. If I may continue on the Vision Technology division. Yes, indeed, very high margin in the second half. If I look at the total revenue, there's still about EUR 75 million of other revenue. How did that perform? [ Does it ] also includes the parking business, if I remember correctly, but probably also some other things? So how does it stack up to the, let's say, the performance of the camera business?

Maybe slightly below the ranges you referred to. But all in all, if you look at '24, both the security vision elements as well as the machine vision part, they both have done very well in the fourth quarter for sure. But also the security part throughout the year has been relatively strong, not as strong as we have guided for in '23 because of the -- on the back of some deliveries in '23 for very large projects. We have seen in this particular area some of the order book coming through with larger projects in '24. That's also why we have made in the previous statements that we would expect a strong finish of Vision in the fourth quarter on the back of order book of larger projects, and this is part of it. So from that point of view they did pretty well. And also there when you talk about parking, for example, that's areas where larger projects are definitely, I would say, within reach. They are in the sales funnel. We see that definitely coming through going forward as well.

That is profitable now?

Yes.

Okay. That's also very helpful. And one other question. Yes. On the breakdown of the revenues in the connectivity, how much exactly was subsea last year?

About EUR 40 million plus.

And then the difference is onshore cable. And I think the press release provides an information about fibre optics and other?

We have 3 segments, of course, the Energy segment, which makes up 48% of revenue of Connectivity. Then we have Digitalization being 29% and the remainder, about 23% is the other part within Connectivity.

Yes. And then talking about profitability. Sorry, I don't need to hear the margin. You're not going to give me that, correct?

It's a very profitable.

But the -- in between, there can be big gaps or big differences. So in order to get a feel for the recovery potential, I mean, the 4.9% EBITA margin is compared to 10% last year, and then everybody thought it was quite low, so.

Not sure. But we have mentioned already a couple of items. We have -- prior to this call, also last year we have mentioned the range of revenue, which was just confirmed as well for subsea going forward in '25 with the respective margin. We have mentioned in Q3 that we are more in a high single-digit loss for '24. So there's a substantial delta coming out of that area. I just highlighted the savings we are gaining with the consolidation of the fibre optic activities in Poland, and that's coming in as of, let's say, the second quarter. So that's also bringing a delta. These are the kind of steps we have put in place and have executed and getting its contribution in '25.

So I should not be scared of any concentration risks in other activities that you had super performance in something no one talks about, but then this year turns out to be a disappointment?

Not in that sense. We have super activities and some of the other activities. That's for sure, not necessarily in the context that they are, let's say, giving a huge volatility from year-on-year, that no.

Michael, Degroof Petercam. My first question is about a global trade in machine vision. Many electronics companies are moving production and production assembly from China to surrounding countries. Is this something that is impacting your machine vision business?

Not really. We have a relatively small turnover in the U.S. So that already relates to a lower impact. On the other side, we can quickly move capacity. It's mainly assembly capacity that we have, both in Europe and in Canada. And we acquired last year Liberty Robotics, which has a footprint in the U.S. and we could easily expand capacity there to have local manufacturing in the U.S. And then if we relate to VMI, the tire building equipment, yes, there is no local manufacturing there in this respect. So yes, the end customer in the end needs to pay the higher import duties. We are not considering at this moment to open up a manufacturing location there.

I was actually imagining your customers are moving from China to surrounding countries. So typically, you sell your cameras to your customers who assemble products with it in China, and now they're moving to other countries. And I imagine they're opening new factories in other countries while having the existing product in China so that it could grow your business?

Absolutely. That's the area, India, where we see that a lot of consumer electronic manufacturers are moving into, and we invested already heavily there in local, let's say, presence, not local manufacturing there. We are also not locally manufacturing these activities in China. And that is, I believe, a good move that we did. We started 3 years ago to build that presence and to be in the [ slipstream ] of our customers moving to other areas out of China.

And do they leave their existing product behind in China and...?

In some cases, yes. In some cases, it's a complete new build, yes.

Okay. Interesting. And then sort of a similar question for tire building. I noticed in the press release that your Tier 1 customers are a bit hesitant. Your Tier 2 and 3 are keeping up with good order inflow -- intake for you. When I think of Tier 2 and 3 and I think of local producers and Tier 1 is global producers and those global producers, I imagine, are much more impacted by whatever trade restrictions there will be going forward. Is that what you notice as well when you're talking to...?

No, we have a specialist here in the room, so I'd like to hand over this question, the answer to Harm.

Yes. I -- Well, first of all, also the Tier 2s and some of the Tier 3s are definitely also global players with factories around the globe. When you talk about trade barriers and import tariffs, then I think the whole industry is affected, but that was definitely the reason why a lot of the investments in the last 2, 3 years have been in the West, in Europe and in the U.S. If you look at the -- perhaps you referred to the order intake related to the Tier 1s for TKH, then the -- I would say it's definitely still there. There's still quite a lot of -- the order intake is coming from the Tier 1s, but it is lower than in the last 2 years. And I think the reason for that -- and of course, we cannot be 100% sure, but we believe that the reason for that is more aligned with the impact from the automotive industry where the Tier 1s are more affected by what is happening in the automotive since they rely heavily on OE supply, so the first mount tires. That being said, I think looking forward in the coming years, the main trends for replacement of existing equipment, reasons for that are still there, higher automation, sustainability demands, different kind of tires. So we are sure that the need for extra capacity or replacement of capacity remains.

That's clear. And that brings me automatically to my next question in tire building, UNIXX. Also in the press release, the first order was booked in the first half of 2024 and will be supplied in the second half of 2025. Is this an order for just one tool? Or is it already a quite bigger order?

I think what is extremely important to understand is that the equipment, the machinery and the whole production technology, that is what we call UNIXX, is based on very interesting new developed technology. And that is not only in one complete big tire assembly machine, but it is also now very visible in various other machines that produce components of tires, really helping our customers to meet their sustainability demands and be much more flexible, leading to operating cost reductions. So very successful. So we see that already in our order book and in the deliveries that we will do this year that UNIXX technology as -- in itself is already quite visible. This particular machine that you mentioned is indeed a very large machine, but it's, I think, very exciting what that would bring. And I'm -- we're confident that, that will become a very important part of our growth going forward.

And the time between the order and the installation, is that just so long because it's the first time that you really deliver such a machine and you have a lot of learning to do? Or is this the real lead time going forward as well?

No, it's more related to the fact that a lot of the new features are being tested in our own factories. And that makes that we have to assemble the complete line and do a lot of testing in between, and that makes that it is more than 1 year. Normal delivery time should be within 1 year.

Okay. And then the final question on this topic. How long do you expect the customer to be testing and using this for high-volume manufacturing before they start placing much more substantial orders for UNIXX?

This particular customer is already so excited what is being tested as we speak that we strongly believe that it will lead already to orders this year and otherwise next year. So when you look at production and deliveries, that is then, what is it, '27, early '27, something like that.

Okay. Clear. And then I move back to the other side, one smaller question. It was already, I think, mentioned by Martijn, the onshore energy cable. Netherlands still destocking because the customers cannot use it due to permitting and so on. Have you already secured orders outside the Netherlands?

Yes.

And is there something you can quantify in terms of your expectation in sales this year?

Yes. What we see is that about 25% of our sales will come from outside of the Netherlands.

In this product category?

Yes.

And is it already fully covered by contracts? Or are you...

Not fully, but yes, let's say, the sales funnel is very exciting and new projects popping up every day and also because of difficult performance from especially players outside of Europe, Asian players, Korean players having really difficulty to have the delivery performance, the service performance. And that is a big opportunity, a short-term opportunity that will help us to secure in the short-term more and more orders.

Okay. And last year you didn't sell anything outside the Netherlands in this product?

Hardly anything. No.

Okay. Just out of curiosity, if you sell EUR 10 million in this product outside the Netherlands versus the Netherlands, are margins lower because of transportation costs?

No, transportation cost is in principle passed on to the customer. And so yes, we are very, very competitive in that way. And with margins that are above the average margin that we today have in the connectivity business.

Ruben Devos from Kepler Cheuvreux. I just had a few follow-on questions on offshore cabling. First of all, maybe the orders. I think last year was about 25% of your sales was actually orders. I know that you don't qualify all the orders or you don't take them all in. So book-to-bill is not always very representative, but nevertheless, 25% last year. This year, it's about 80%. So I'm looking a bit of -- for more granularity on how the order book is actually defined and what it all includes?

Well, I mean, order book is, of course, signed contracts. That's obvious. And I think what you referred to is probably the, let's say, the more larger contracts with the runover beyond the 12 months. And of course, maybe additional to that is also the part related to Vattenfall where we have this exclusive agreement. That's a framework agreement, but that framework agreement itself is not in the order book up to the point that specific projects are brought under the framework agreement and then it becomes part of the order book. So the framework agreement is just a kind of exclusive arrangement, but the project individually then end up as individual projects in the order book once they get to a point that sign-off takes place for these projects.

Okay. And would it be possible to give sort of a quantification around offshore cabling again because you realized sales around EUR 40 million plus, I understood? Next year, around EUR 170 million. The order book went up from, what was it, EUR 300 million to EUR 500 million, right? So that's EUR 200 million addition. Yes, how -- what's the average duration basically on purely the offshore subsea cables and the duration of the actual deliveries from what's now captured?

What is -- normally, I would say, 2 to 3 years. But we have flexibility in the contracts to manufacture at the best time window that we have -- we internally have. So we can move orders forward and also backward. And that is organized also to utilize the capacity in the best way possible. You don't want to have underutilization and you don't want to be overutilized. That is also a big issue. And that helps with a big order book that you can have to create that flexibility and efficiency, combine also certain types of cable in one series to create even more efficiency. And that is, I believe, a very strong way we positioned ourselves to create that flexibility in all the contracts that we have.

Okay. And then I think in your prepared comments, you talked about orders being secured for '25, '26. Would you be comfortable in sharing the sort of the same guidance you provided last year with the number of revenues or the kilometers of cable you expect to deliver in '26?

'26 today target will be still around 600 kilometer. What will be added to that is the turnkey project that we have, where also non-cable business, the project business, installation activities, burial activities will also contribute in turnover and profitability in 2026 as an additional turnover.

Okay. And I think you had sort of the target 50 kilometers per month in terms of cable production. At what point do you think you'll get there?

In the second quarter we believe we will be there, and we are even looking in how we can upgrade that further to around 70 kilometer in the second half year.

Okay. And then just a final question on just the CapEx, just for clarification. Did I get that correctly that you expect EUR 50 million in PPA CapEx and then EUR 6 million to EUR 7 million in tangibles? So in total, EUR 110 million to EUR 120 million and nothing else to be expected, I guess? So a quite significant step down from the last 2 years?

Of course, I mean, the EUR 200 million, which went through the last 2, 3 years, still had an impact of about EUR 50 million last year, and that has been completed. So we go back to a more normalized level, which is around EUR 54 million tangibles.

My name is Jeremy Kincaid from Van Lanschot Kempen. Asking my question on behalf of Chase Coughlan, who couldn't make it today. First question, just on [ HAL ], who has obviously taken a stake in your business. I was wondering if you could provide any thoughts around that. And in particular, you're obviously updating your strategy a little bit today. I was hoping if you could provide some context around whether or not they had any input into that?

We cannot comment on that.

Understood. Then on Smart Vision, your backlog is obviously very strong. And in FY '24, you had some large projects, which helped the margin. I was just wondering if you could provide some color as to whether or not the backlog has some similar large projects, which may help the margin into FY '25?

There is a little bit of that. I mentioned earlier, for example, in parking that there are some more sizable projects appearing in the sales funnel already for some time, and they are also part of '25. And the order book is pretty strong if you look at the high level of delivery of the fourth quarter. So there's a high level of revenue base, plus still an increase in order book. So that gives comfort for '25. And indeed, some of these larger projects are there. And hopefully, we have a different pattern through the year than everything in the fourth quarter, obviously.

Maarten Verbeek, The Idea. Firstly, again, offshore, the inter-array cables. Firstly, have you already completed the Greater Changhua project in Taiwan?

We have not yet completed.

Because when I add more or less all the projects you have and the kilometers to produce, then it seems that what is in your order book is more or less what you expect to produce this year and not much more for the years thereafter?

I don't agree with that. So there is an order book for '26, even beyond '26 where we can also move earlier to '26. For '25, we are, let's say, more than covered in the 600 kilometer that we want to manufacture.

And do you also notice that projects being delayed? For example, the Danish project was no success. They are now fearing that the Dutch projects to be tendered maybe no bidder at all or the terms have to be adjusted, i.e., it will be delayed? Do you see that in your sales funnel as well that projects will be tendered later or demand for inter-array...

There will be absolutely projects tendered later and perhaps postponed or even canceled. The example in Sweden is a good example. But the sales funnel is so big and the development of the market share that we are achieving is also really huge. In last year we won -- out of the 6 tenders we were in -- we won 5 of them, and the #6 is even having a risk that, that will be not -- will be canceled. So we have a far above market share as what we have in our business plan. And that should give us headroom. So we don't see pressure on the margin, gaining that market share. It is really based on the USPs. And I would like to refer to the presentation we gave in June. It's really worthwhile looking into that, what the USPs are of our dry design concept. And with very big advantages being able to install the cable at a complete different window, weather windows. So with very rough sea waves, it is still possible to install our cable, and that reduces the risk tremendously during the installation. And that is one of the examples. But there's a big list there, and that is how we see that we are positioning ourselves with a much higher market share than we had originally in our business plan.

And the sales funnel you mentioned is more or less European based? It excludes...

Exactly, exactly.

Asia or Americas or whatever?

Yes.

Then on the inventory level you mentioned, is it across the board? Or is it allocated to a certain division?

Yes. I mean, obviously, I referred to some of the impact of the supply chain hiccups in '22, '23, mostly related to electronic components, and that finds its way very much in our Vision segment. So in the Vision segment, you will see too high stock levels appearing as a key area.

And do you expect to reduce your inventory and thus your working capital this year to end back into the 12% to 15% range at the end of this year?

We focus on that, of course. But I think it's a little bit too early if everything fall in place. But I think we are able to make a step up compared to what we had done in '24.

And the commitments you had made in the past, you don't have them anymore?

No.

Okay. And within Vision Systems, you mentioned that you're entering new markets. Could you give some examples about -- on these new markets and the size of these markets, how much sales you could generate in those segments?

The most important new market is the defense market. And that has really big opportunities. Also in the Q4 turnover we saw already one of these bigger projects being translated into turnover and profitability. There's a big pipeline in respect of sales funnel and also potential orders we will get in this year. It's not all coming in this year, but it is a really long perspective where we see very big opportunities related to also our technology differentiation. So we have technology in our hands, which competitors do not have, and that is a real breakthrough for us in that area.

Martijn den Drijver for ABN AMRO again. Just a few more additional ones. Comark, are we talking about a couple of million of revenue similar margins to Vision in 2024?

Only a few million contributing, yes.

Yes. So that was a bit of a tailwind in Vision in H2?

Small. Liberty Robotics, if that's your next question, is slightly bigger than Comark.

Yes, but that one had any press release. Comark didn't.

Okay.

I was wondering the EUR 15 million of savings that you've -- the program you've now completed, how much did you realize of those savings in 2024, just to get a sense of what we can still expect in 2025?

I think that's still very limited, because if you look at the restructuring which took place, for example within the Vision segment, there basically the execution took place in the fourth quarter. So that's a minor effect. And on the connectivity side, that's what I mentioned earlier, the move is ongoing. So there is, let's say, some benefit as we were moving, but the full potential gets back once the move has been completed. That will start in the second quarter. But there is a little bit of impact during the -- let's say, fourth quarter in '24, but also that, I would call it minor.

Got it. Got it. And then my final question is capitalized development costs up again versus last year. Now you're guiding for, what was it, EUR 60 million to EUR 70 million for next year. I can understand that in the last -- well, take a step back. We had the Indivion. We had the subsea cable. We had the UNIXX. There are no such developments right now. Yes, you have your AI, but why does it continue to go up and up and up if you don't have lead products that underline and show what you're doing with it?

Well, I mean, it's -- you can label very big projects like the UNIXX, which is, of course, a particular portfolio. But in that portfolio, many different elements are making -- are being part of that portfolio. I don't want to say that UNIXX is a kind of platform, but actually, it is a base for many different developments within the tire segment. And that gets some deliverables executed, the different UNIXX modules, et cetera, the Revolute and all kinds of other elements. But that platform, that kind of skills and competence, which brings us also the competitive advantage in '26 and '27 and '28, that is maintained, and that is continuously ongoing. And if you look at the cycle of how long it takes for some of these new platforms or new families to get to market, that's quite a few years. You're with us for a long time. You know probably exactly when the first time we talked about the UNIXX, it has a long cycle. And these kind of skills are there, and they have to be nourished and brought to further development. And the same applies within Vision. In Vision, of course, things are growing also very rapidly. And we also talk about, even within the LMI structures about the Gocators, et cetera, but that is a kind of platform which continuously adds to new portfolio going forward. And yes, there is a slight increase. We have also acquired companies like Liberty Robotics, which are definitely companies which have a high R&D content, high-margin business as well. And they are in the area of the automation, robotization using Vision technology. So they are also contributors to a slight increase of our capitalization of R&D.

So basically, as long as TKH keeps growing, capitalized development costs will go up?

Okay. That's a kind of short summary, but...

Just making sure. And then my final question, coming back to those savings, the 2D integration of companies on the procurement level and the organizational level, are those savings part of that EUR 15 million? Or is that a different program?

Well, some part it is, but we have still steps to be done. So we did the first step, which we announced in the fourth quarter. That's a saving which is related to about EUR 5 million. Out of the EUR 15 million saving, about EUR 5 million is related to Vision, EUR 10 million in relation to the connectivity part. But there is more which we have on the agenda, as we also communicated in our press release.

So that is part of something that will be released -- revealed at the Capital Markets Day?

It's more the optimization part.

Still so many labels under the 2D, that might actually go down a bit.

Yes, you're at Sheet #6 this time for...

Michael Roeg again, of Petercam. I have again a follow-up on a question from Martijn. Are there this year any major development programs that will start commercialization due to which there will be, for the first time ever, amortization on those programs? Will that make a big difference this year?

No, there's always things like that, of course. It's not that it has a material, large impact as we continuously have these kind of cycles. So it's not that there will be a major step-up suddenly. So we had, as I mentioned in my part of the presentation, about EUR 35 million of the amortization related to R&D cost, probably will be slightly up also on the back of some of the acquisitions, which have a high technology component in itself. But it's not going to, let's say, go through the roof and go at EUR 45 million or something like that. That's not the case.

Okay. And the first commercial sale of UNIXX will not trigger it because you've already been selling modules...

Exactly.

[indiscernible] amortization?

The platform is in the market.

Okay, clear. So through the roof. No, Okay.

Yes. While I have the microphone, I also have an additional question, or it's more a remark because I heard your statement about the 600-kilometer cable for 2026 and the revenue guidance for this year was EUR 170 million, the midpoint, that was based on how many kilometers of cable?

Around 550 kilometers.

550 kilometers. So a small increase for 2026. So you are aware that, let's say, 2 years ago, expectations basically caused the share price of TKH to end at EUR 30 in December, and thanks to the [ HAL ], we're now up a little bit. But these expectations are quite scary. And I agree with Martijn's comments that we, so many here in the audience look at offshore wind stocks. It is quite lumpy. So you have to be very, very careful to look at, let's say, the consultancy or the market research forecast and the actual situation for companies operating in the field. Because you don't receive a phone call, can you produce a cable starting next week? So if you're unlucky and won the wrong orders, you can have huge gaps in your production. Yes, I just want...

No, I fully agree with that.

The share price sentiment is really, really weak. And that allowed indeed -- yes, let's say, deep value seekers, maybe potential takeover seekers to acquire TKH shares at very low levels. So -- and part of it is because -- yes, sometimes I got the feeling we get these, let's say, bullish investment cases, which is basically our jobs from the management of TKH, which is not helping the share price at all.

No, we understand that. And we look at this also from a strong risk mitigation perspective. And the risk mitigation we have here is that we have capacity for 1,200 kilometers. So we are quite aggressive to win orders. And I mentioned already earlier that the business case of TKH is having a market share of around 20% to be utilizing around 600 kilometer. And -- so the focus is on gaining a high market share above 50% and in that respect fill the capacity with still good margins. There's a lot of headroom. We have cost advantages. We have a lot of USPs. So we are not afraid that the margin will be under pressure, but we are creating a lot of additional headroom to get above the 600 kilometer. And we are not guiding for a higher profitability in '26 today based on a higher utilization. But we are taking care of how can we get a order book which could then deliver around 900 kilometer of utilization. And then there -- that can shift orders. You have a 300-kilometer headroom that you can move from 1 year to the other year. And that is the good news is that most of the projects are having a longer lead time. But the customers like to have the cables in advance. So they also pay the cable in advance. And that is the flexibility that we are creating to reduce that risk that you are just mentioning. And we are also serious about it. That's a real risk that is there. But yes, the risk mitigation is what I described. Is it 100% certain business case? I cannot guarantee you that it's 100%. But we are trying to get as close as possible to the 100%. And we understand, it's very clear, your message also.

Yes. Maybe I'm also a bit impatient, but I understand that. And yes, one final question. Is there a possibility that you put the anti-takeover measures currently in place at TKH at the AGM agenda?

To continue that, yes, there's no problem. We get confirmation on it.

Okay, right.

There are questions -- I don't see any questions.

So, yes, we don't see them here.

We don't see them here. Maarten had one more question here.

I'd just like to get back to the working capital because also what you just mentioned and also we're looking at competitors, for example, one in Denmark. You have your working capital ratio target of 12% to 15%. But if you will get -- grow fast in inter-array, taking a bigger part of your whole company with those massive payments, upfront payments, that must have quite an impact on your working capital as well?

Correct.

Is that then included in your 12% to 15% target because actually it implies a worsening of your target, of your performance?

Worsening and...

Because at this moment, you don't have that much prepayments, upfront payments to produce foods?

Yes. But of course, on some of the main contracts, which are to be executed in '25, we have that. So also the biggest delta in our order book -- on one particular contract, there is, of course, these kind of prepayments conditions also in place. But that is to be executed.

Sure. But again, those are also included in your working capital ratio?

It will be once the execution starts, yes.

Yes. But shouldn't then more or less you have some kind of fine-tuning with your working capital definition ratio or adjustment of it?

At group, we don't see that yet. No.

Okay. We have questions in Teams.

Yes. Thibault Leneeuw, KBC Securities. So looking on the outlook, for Smart Manufacturing, the order book decreased around 20%. And if I basically look at consensus numbers, it's around a 3% decrease for 2025 forecasted. Do you think that a 3% decrease is reasonable based on the lead times and what you currently see in the market? Or do you expect that there might be some additional weakness given the current weakness in the automotive market and for [indiscernible]?

Well, apart from, let's say, the specifics on percentages, you have seen our outlook. Of course, we had -- and I repeat myself now, we have, of course, seen a lower intake in '24, putting some pressure on the order book coming into '25. '24 has been an exceptional year in the sense that we had a good, let's say, catch-up or spillover effect out of '23. And that in the like-for-like, of course, you have to take into account if you want to judge the delta between '24 and '25. Despite that, there's still a reduction in line with what has been discussed on one of the prior questions as well.

And then the second question is basically for the EBITA for 2025, consensus is expecting a 20% increase and that will be mainly driven by the Connectivity segment. Is that also something that right now you do feel comfortable with?

Well, I think I highlighted on one of the questions of Tijs, I think the key items. We see, of course, a loss for subsea in '24 going to a 15%, 16% return on sales on the bandwidth which we earlier guided. So that's a substantial delta. And then, of course, we also have the situation that due to the consolidation of some of the other activities and new locations, cost saving programs will have its effect starting in the coming period. And that, of course, is then also a substantial delta compared to '24. So I think that are building blocks which are pretty clear and give a lot of, let's say, confidence towards the, call it the delta in connectivity, which is a substantial part of the upswing which you referred to.

It's David Kerstens from Jefferies. I had a question on the divestment program of activities not related to automation and electrification. You highlighted digitalization as the most important asset that is around 11% of revenues, I think, in 2024. Does that mean that the total number of businesses earmarked for divestment is around 15% or 20%? Or how should we see that? And maybe also, from my understanding, if you look at the Smart Vision segment, which activities are not related to automation or electrification? How does the Security Vision segment fit into one of these buckets?

I understand both questions. One is about the total size of the bucket related to divestment and the other one is about scope. But these 2 questions are going to be addressed in the CMD in September. For the moment we have mentioned in the press release what we are able to mention. All other elements will be addressed in September.

Okay. Understood. And now that you have highlighted electrification as a potential divestment candidate, when will it be moved to asset held for sale, once you have a sales contract? So just from my understanding, it's still fully included in the 2025 outlook, right, at the moment?

Well, just to clarify, because you mentioned electrification, that's going to be going forward one of our key pillars. So that's not...

Sorry. Digitalization, my bad. Sorry.

Of course, once you get to firm commitments and steps where processes around such a divestment scenario end up towards a certain level of commitment, if I formulate it like that, then the element of assets held for sale comes up. But as you can see on our balance sheet at the end of '24, that has not yet been the case. There is one position for assets held for sale, and that's one specific company within the Smart Manufacturing group, which we highlighted in the press release, but it does not include the Digitalization segment.

Okay. Understood. And maybe a final question also related to the inter-array cable order book. You had a big step-up in that order book in the fourth quarter. You announced only a few of those orders. My question was, can you give an indication on the client concentration you have in that order book? Is it only a handful of customers? Or is it a much more diversified order book?

Yes. It's more than a handful, but it's, of course, not a huge number because the projects are really bigger size, starting from EUR 25 million up to EUR 200 million. And -- but it's a nice diversification, I believe we see in the order book and also what we have in the pipeline, where also new customers are coming in. Any other questions? Then I'd like to thank you for the very good questions, your commitment, also the audience for being present here in -- virtually in Okura Hotel in Amsterdam. Hope to see you at the half year figures in August and of course, also at the Capital Market Day in September. Thank you very much for being here.

Thank you.