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

Good morning, everyone, here in the Okura Hotel and also everyone in the webcast participating. Today, we are presenting our annual results 2025. And before I go into that, I'd like to point out to the cautionary note regarding the forward-looking statements. And then I immediately jump into the key messages for H2 or for the whole year, of course, and starting with the fact that H2 was substantially better than H1. That is also what we guided for. And it was, of course, also back-end loaded with the pressure and the drive to have -- to deliver a very good result in Q4. And actually, we are proud that we delivered such a strong result of around EUR 70 million EBITA. It is not working here that the slides move forward. So when I look then into Automation, Automation had a strong performance, especially in the Smart Vision. Smart Vision had a substantial growth in the profitability, driven by a very strong development of new end markets that we delivered. And what we also saw is that the innovation level was really high, above 30%, so above average on, let's say, the Smart Vision activities. What we see is that especially also the demand in smart software did very well, and we are focusing further on solution performance. And with strong positions there, we see that the added value has further improvement potential although the added value is already at a very high level in the Vision Technology activity. Within automated machinery, of course, there was an impact of the lower order intake during 2024 already, leading to a lower turnover. But there, we had an extremely well performance in Q4, and that had especially to do with larger projects nearing completion and the operational excellence that we were able to implement and that led in the end to a higher margin on these projects and that we originally estimated. We were somewhat conservative in respect of the outlook for automated machinery. And what is also very good news that we made further inroads with the UNIXX technology, first delivery of working system and additional orders that we received and especially a new area where we are penetrating now is the motorcycle business with also 2 UNIXX systems sold in that area. Within Electrification, of course, we saw the impact on the results with the output issues that we had in the Eemshaven. We saw gradual improvements during the year and actually a quite good performance already, not what we targeted for, but a substantial improvement in Q4. And you have to take into account that, let's say, until the third quarter, the profitability was really low or almost 0. And so if you look then at the whole year, the main contribution came from Q4. And what is also very good that we won a lot of additional new contracts. Our technology leadership is really proven with a very high market share above 80% and still also a very good outlook for the market with until 2030, more than 14,000 kilometers in the pipeline for which we are tendering. And last but not least, we announced also today that we had a very big contract win with Alliander, DSO in the Netherlands, where we announced that we have an 8-year contract with a total volume of around EUR 650 million. So performance is developing in the right direction with the offshore and as well the onshore is having also a very good perspective for the coming years. Of course, you all remember the Capital Market Day in September. We are excited about that to unlock our value of the TKH Group. Of course, we also have our Capitalize and Execute program to increase the return on our existing building blocks, and there's huge potential and focus there is really key to get the return that we can achieve. We announced there, of course, that the future of TKH is in Automation and that we are looking for the separation of Electrification and the new shareholder structure for those activities. Later in the slides, we will come back to that, that we have chosen a dual track. We have selected an investment banker for that, and we are working very hard and making progress already in the past quarter, and we will also be able to announce, I believe, in the coming quarters, further actions to give confidence that it is a good move and the perspective of this separation is huge. I go in a little bit more detail to the results. I try to move quickly through that. I already commented to several remarks on this slide. I'd like to point out to the return on sales, a good level, 14.6%, although similar to 2024. Yet the performance of the Electrification business is not there to be able to achieve an even higher level. Turnover in the Electrification business in Q4 was up 29%. Automated Machinery down 6.9% and Vision Technologies up 1.8%. And we have to look at Vision Technologies that the comparison base was quite challenging because of the delivery of some very large projects in Q4 last year. Here, we have the overview of the performance of the whole year 2025. I'm not going to in detail, you can read it for yourself, and I will comment further to the divisions in the next few slides, whereas it is again important to mention here the high innovation rate, 17%. I believe that is really driving the technology leadership that we have and the continued aspiration that we have also there to be a leading technology company in the areas that we are active in. And of course, the leadership leads to above-average margins. And that is, again, in relation also to the perspective we see in return on capital employed, which is not at the level that we targeted at the Capital Market Day, but there's still a lot of room to improve there. I believe it is also good news that the net debt came down. We managed, I believe, in a quite well way the working capital. Elling will come back to that later. I'd like to mention here the EcoVadis result. We are with the Gold awards in the top 5 of companies evaluated by EcoVadis. And as we are a very customer-centric company, this helps us tremendously in positioning ourselves in respect of the sustainability priorities we see at the customer base and that customer base applies to all the divisions that we have in the group where we see that appreciation for the sustainability position of TKH. I move then to the specific results of the 3 segments. Here you will notice we are still reporting in the 3 segments. We already had a pre-discussion before this meeting that, of course, the desire to get more input on how the automated, the Automation activities and the Electrification will look like starting from Q1 and moving up through the rest of this year and the future. Of course, we will guide there and -- but it was too early to do that in 2025. So we still reported in these 3 segments. I mentioned already the substantial improvement of the Vision Technology activities related to the EBITA. Here we see that the order book slightly came down. There is a currency effect in that. Elling will come back to that later. But we also have to take in mind that we had some really large projects that in the end, normalized during the year into, let's say, smaller but still sizable projects. And yes, with the fantastic short lead times that we have in a very well-organized supply chain, yes, our customers can wait till the last minute to order and they don't have to book already, let's say, capacity a long time ahead. And that's a big change that we saw compared to 2001(sic) [ 2021 ], 2022, where most of our customers try to secure their business for a much longer time than that we see today. A very good improvement of the return on capital employed. 2D Machine Vision, strong end markets, where especially our technology differentiation worked out quite well to gain market share and to have our market share. We see in 3D Machine Vision, the focus on the solution business is really helping us to improve the added value. And as you can see on this slide, the added value increased from 60.6% to 62%. And yes, we are quite selective in where we want to be active. We don't want to commoditize our business, and there's a lot of potential in adding value towards our customers and that we get the appreciation and the return we can get on the turnover, especially well within 3D vision battery business and factory automation, including the wood processing business. Within Security Vision, the growth was modest, again, also related to the comparison base of 2024, especially the demand for mission-critical systems was very good. We see that with the geopolitical situation, the priority for mission-critical solutions is really high. We are well positioned there, and that has a fantastic growth perspective. And also doing quite well. We had a huge -- a very big parking guidance project in the U.S., a very profitable project, and that was, let's say, kind of breakthrough again in this field of parking. And I believe a good move related to the whole Vision Technology we can supply in this parking area, including the mission-critical systems that we develop. I move to the next slide, the Automated Machinery performance. We can see here the decrease in the turnover of 14.2%. Added value also at a higher level. We see that also in the mix of activities, we had a quite good performance. The innovations play an important part at our Tire Building activities. Of course, also the divestments helped where we had a lower added value. But this is the direction we need to move and it is a good confirmation again of our USPs and technology leadership in this segment. A record high return on sales over the whole year. Last year was already a very high return on sales was 19.1% and last year -- in '24 and last year was 19.4%, we even overachieved while actually, we were somewhat underutilized related to the lower turnover. The order book came down, and that impacted the result. The order book -- the order intake was already lower starting by the end of 2024. But yes, as I mentioned, the mix of activities is also very important. The outlook in principle is very, very positive for this activity. The drivers that are there with Automated Machinery, hands off, eyes off manufacturing is really key. We see that many of our customers have really difficulty to find the skilled labor. And we keep on developing to eliminate as much as possible operators in, let's say, the manufacturing with our systems. And again, had a positive impact in Q4 related to the excellent operational performance on projects, larger projects nearing completion. I go to the next slide, the Electrification. I believe I already mentioned most of the points in the first slide. What I can add here is, again, the outlook is really positive with the unique technology that we have, the dry design technology which offers really big advantages for the contractors, reduces risk during the installation and again, lowers substantially the cost of the whole installation, including the transportation cost because we are located at the most ideal location in Eemshaven to serve the contractors that have their equipment close to the Eemshaven. Of course, we saw the impact of the outsourced activities. We have a sizable project of more than EUR 200 million, the ICO project and the outsourced services have a very low margin. There's a big leverage has there been to winning this project and yes, to secure the business, but the margins are relatively low, and we see that back in the added value that was 4 percent point lower because of this mix in activities. And then digitalization, still a very difficult end market. We are not profitable there. We are on the move to get it profitable, but it will certainly take a few more quarters to get there. The cost base is much lower there now. So that is supporting, of course, to return to profitability, but the end market is still difficult. Of course, we see signs in some geographical areas where the demand is higher than the supply. And that always helps, of course, in a global demand also to balance the supply and demand and get to a better pricing potential. Yes, my last slide here today is about the dual-track process that we have initiated. We have not a preferred option at this moment. We keep all options in that respect open related to the dual-track process. I believe we have clearly pointed out, and it is confirmed again in this sheet why we have made this choice for the separation. I believe that, that has been understood quite well. And yes, we are excited to work on this process. We have 2 very strong activities that deserve also the right, let's say, ownership structure to support the future growth opportunities. Thank you very much for your attention, and I see you back with the Q&A.

Thank you, Alexander. Good morning to everybody. As usual, I'll walk with you through the financials, starting off with the top line, geographical distribution of our revenues. As you can see here, a little bit of change, not too much. Europe remains at the center of our activities, 60% just like in '24, but a little bit of a shift from the Netherlands to other parts in Europe. Asia, pretty strong, 23.7% of the total. That's mostly driven by the fact that the Security and Vision propositions in Asia have grown compared to '24, mostly in that particular region. North America, more or less stable, just below 15% of the total. And then the other regions, there you see actually a reduction towards 2.7% of total revenue, and that's mostly coming out of a little bit of a different distribution within the Tire Building revenue, where things went a little bit back to the more traditional regions, I would say, which we disclosed here. If I walk with you through the profit and loss account, what I usually do, then, of course, first of all, looking at the revenue again. Organic growth, 4.9%. As you can see, acquisitions and divestments had an almost EUR 27 million impact. About EUR 6 million, EUR 7 million came out of the acquisition of Liberty Robotics and the other part has to do with the divestments of which Dewetron is an important part. Looking at the added value, Alexander highlighted this already a little bit, how did the added values develop per segment. Clearly, Vision is doing well. Automated Machinery, a very strong increase in the added value, also partly driven by all the efficiency improvements and operational excellence programs, which have been already implemented since quite some time and getting its full effect, but also the operational performance of the projects, which are near to completion. And Electrification, the split, the mix between, let's say, own produced and sourced products, which are in the top line was different than in '24 with more outsourced services as part of the revenue stream having impact on its added value. Making good contribution in the end, but added value-wise, lower than when we produce ourselves. And that leads to adjusted EBITA for the group of close to EUR 190 million. That's about 7% -- 7.2% organic decline compared to '24. And you can see that the effects of the acquisitions as well as the currency fluctuations were rather small. If we then go down in the P&L, the one-off expenses. Most of it took place, EUR 16.8 million is the total for the full year, EUR 16.3 million already was established in the first half of the year. The biggest ticket, more than EUR 11.5 million is related to additional transportation costs, which we had in subsea as a result of the delayed effects in production for which we then were liable for the transportation cost towards the final customer. The acquisition and divestments had a ticket of about EUR 3.8 million and restructuring and digitalization, about EUR 2.3 million. Then on the impairments, I think it's important there, the effects of the transfer of our fiber optic activities from the Netherlands into the new factory in Poland that has been completed, as mentioned earlier. And that resulted to some remaining assets to be depreciated as they don't find a place in the new location. And that goes within the chain. That's within China, the Netherlands, where this took place. And then, of course, as you always see with the high level of innovation, which we carry and the amount and the expense we have related to R&D, there also is some cleanup always in portfolio because not all the portfolio is getting to its full benefit, about EUR 2 million on R&D projects from the past, we had to impair. The results of associates, mostly the entire amount, which is mentioned here, the EUR 34 million is coming from the Dewetron exit, a very well-performed exit with a very important benefit. Then on the financial result, we have seen a little bit of improvement there, mostly driven by the exchange rates. If you look at the delta there, we have about EUR 4 million, EUR 4.5 million effect, and that basically explains the delta between '24 and '25 on this particular line. Tax rate, the normalized effective tax rate, just over 22%, 24% in prior year. And I think if you look at also your models, probably in the range of 23%, 24% is an element where you can work with. Taking -- next look at the balance sheet. Important, I think, is the working capital. You can see in our press release the details of the components in the balance sheet, of course, we have always been discussing the inventory levels. Inventories came down pretty well, EUR 340 million, still a sizable amount, but it was about EUR 400 million. So the reduction is EUR 60 million. But what we see on the other side in the construction -- contract assets, there, we have a substantial uptake. A lot of projects that was earlier mentioned are in the final stages of completion. And of course, they are still in our books. The liability -- the contract liabilities are lower due to the fact that order intake is at a lower base. So the delta is substantial. We have a net contract assets in '25 finishing at about EUR 60 million compared to a negative, so a contract liability of EUR 11 million in '24. So the delta is pretty big, and that goes back in your working capital. So from that point of view, the underlying effects, supply chain improvement, stock levels, et cetera, are doing very well. But on the effects of completion of projects within the Tire Building activities and the lower order intake, you see that basically that effect evaporating, bringing the overall working capital more or less in line in close to the EUR 300 million as we had in prior year. And the 17% is too high. We keep on referring to roughly the 15% is where we at least want to be. And I think that's also feasible if you look at the steps which we have taken on the various elements, but the timing of especially the intake effects see that the level goes towards the 17%. That, of course, has also impact on the net debt levels. We improved from close to EUR 500 million to EUR 460 million, a leverage rate of 1.9. At the half year, we were still at 2.6, so a good improvement there. And if you look at the bigger tickets here, then I think it's important to highlight the CapEx, which we have in both the tangibles and intangibles. You see them here accumulated towards about EUR 130 million. As mentioned earlier, and there's been a lot of questions, we had the special strategic investment project or program for quite some time. That had still a little bit of impact in the first quarter. About EUR 15 million, EUR 16 million of this cash-related element in CapEx is related to that program. So normalized for that, we are in the range of EUR 115 million. That's also a kind of level for your models for going forward. Looking at free cash flow, the ones who follow us for a while know that normally second half is, of course, better in terms of cash flow generation. We can also see that in '25. You can see the various deltas here, but I think especially the free cash flow in the second half of close to EUR 100 million compared to a negative of EUR 23 million in the first half came out at a total for EUR 75 million for full year. Also there, not really where we want to be, but I think it's a good step up in the second half at least. And if you follow the capital expenditure line on the PPEs, then you will see that the impact of the strategic investment program is really diminishing, and we're getting, especially in the second half already to the normalized level that I talked about earlier. Then my last sheet is related to the outlook. Our strong building blocks with leading technologies and strong market positions form a strong foundation for '26. Barring unforeseen circumstances, we expect on balance organic growth in turnover and adjusted EBITA in '26 but with the first quarter being weak. I want to mention maybe before we get immediately the questions on this one, we are a little bit, let's say, less disclosing details on some of the outlook components. In the past, we had a little bit more detail on this. Alexander already mentioned we are in a dual-track phase. So there will be a lot of, let's say, disclosures coming up, a lot of, let's say, liabilities in relation to disclosures coming on the agenda and also in different shapes and forms. So from that point of view, we are a little bit more, let's say, reluctant to go in too much depth at this point in time. That's the statement I would like to add to this point here. Let's open up for Q&A.

Martijn den Drijver, ABN AMRO ODDO. I'd like to start off with connectivity. And I'm going to ignore the Q1 for subsea. But on a pro rata basis, Q2 to Q4, would that 600 kilometer, EUR 180 million in sales, 15% to 17% EBITA margin still apply? Or is that upgrading of the equipment and the scaling up still an issue beyond Q1? That's question one.

I believe that is really a key target we have, and we are, let's say, positioned to achieve that.

Okay. The second one...

With a much lower risk than last year. So we have seen in the press release that we had excuses related to type test, larger dimensions and especially the larger dimensions opened up new issues, but we also announced that we did a major upgrade of one of the key lines related to the final process in -- for this cable. So the risk is much lower compared to last year and even compared to Q4, which makes the possibility, which is the 600-kilometer way higher than in 2025.

Well that begs a follow-up. What is low risk in your book?

Low risk. that's difficult to exactly pronounce that, yes, the -- let's say, the opportunities are bigger than, let's say, the negative aspect.

Okay. I'll move on. Would you be able to help us out, you mentioned the transportation costs, but there were also double costs for Lochem in supporting subsea. There were also double costs for Haaksbergen in their transition to Poland. So if you add it all up, what are we talking about of rather incidental OpEx elements that are not likely to reoccur in 2026? Just are we talking about EUR 15 million? Are we talking about EUR 20 million? Just a bit more color so we can we know what to expect at the OpEx level.

I think if you look at the elements you mentioned, I think an important part is indeed also the transfer of the telecom activities to Poland. And that's probably roughly half of the, call it, incidental related cost. And that will be in the range of EUR 7 million to EUR 8 million. So you're more accumulating that than towards in the range to between EUR 10 million and EUR 15 million, more on the higher end of that bandwidth as being the, call it -- I don't want to get into a definition question of one-off, but more in response to your question being a kind of incidental related item.

Around the EUR 15 million level. Got it. And then a final question on connectivity and then I'll move on. Onshore obviously did well. Is that unit on track with regards to the EBITA margins that you've set? Is that also in that 15% to 17% region already? Just to get a bit of sense of where that unit stands.

I believe you underestimate the underutilization effect there. So the cost level has been relatively high there with the transformation, Elling already mentioned that from Lochem to Eemshaven, whereas we could not, let's say, reduce the cost of, let's say, all the employees as we were preparing for the growth in onshore, both in medium and low voltage as well as high voltage. So we see a higher cost level that had still a quite big impact also in Q4. And with the higher utilization, it will, in the end, move into let's say, substantial higher return on sales than that we achieved in the past year. And we'll come back to the level that we saw in, I believe, 2023 when we had a high utilization level and the cost conversion was much better in place than it has been in 2025.

Got it. And then a question for Harm. Can you talk a little bit about the customer behavior in Q4 going into Q1 2026? What are you seeing in terms of your Tier 1 clients and your Tier 2, Tier 3 clients, China and Asia versus European? What are you seeing? What are they telling you?

I think the picture is different for each and every group of customers that you now refer to. If you look at the traditional large players, the Tier 1s, there you see that the effect of a pressure on the automotive industry in Europe is still having an effect on their total operations and their profitabilities on that. So that means that the -- when you really look at modernization plans, expansion plans that is still in Q4 was that still limited. We expect that at a certain point in time to flip and get back, but that will not be early in '26. If you look at the Tier 2, Tier 3, there, you see that the -- that there's still a lot of opportunities seen in -- for them to export to the larger markets in Europe and America. And in order to position themselves well. We're talking about a lot of overseas projects in North Africa, in Southeast Asia, in Eastern Europe, but it takes time to convert plans to actual delivery of equipment. And that is happening in a world that is still a little bit clouded when it comes to the short-term economic perspective coming from, yes, import duty effects, import barriers, et cetera. So there is still some reluctance visible. We are positive when it comes to the '26 total order intake. We're -- yes, we're convinced that, that will improve compared to '25. But there's still, indeed, in Q4, there was still a reluctancy to really move on quicker than what was happening in the first part of '25.

Okay. Got it. And then a question for Alexander and Elling. If I look at your balance sheet, the 1.9 covenant net debt to EBITDA, your free cash flow conversion, you're guiding for lower CapEx, probably the same net working capital or even better. So you're going to have pretty good free cash flow. Why did you decide not to go for a share buyback given the proceeds of Dewetron? Give the shareholders something at this point in time. What was the thinking behind that decision?

We have -- in our Capital Markets Day mentioned that one of the elements is share buybacks. The disclaimer is the 2% level of leverage. That's basically where we are at. There is quite a few points which you highlighted, which are to come. But at the same time, of course, we are running also this dual-track program. And there are a lot of things coming together in '26. So from that point of view, it's not that we will start with every kind of KPI, which gets into a parameter and pull the trigger. We have a clear plan on how we want to execute the overall transition towards a split. And we don't want to get the process hijacked by all kinds of intermediate kind of steps. But in terms of allocation policy, you're right, it's part of our, let's say, elements which we address, but at the right times in the right context.

And then just a short follow-up and then I'll hand over. Where are you now in that dual-track process? Are you still in the selecting of the long list? Are you -- are parties already providing indicative bids, nonbinding? Where do you stand roughly?

You are a little bit on a fast track. The performance is really key that we achieve in the improvement of the result. So we don't want to give it away for nothing. The potential is huge. I believe it is important to show a track record in the performance, and that should be close to the guidance we gave at the Capital Market Day at the bandwidth of 12% to 15%. I'm not saying that we will achieve that this year, but we should make a big step towards that target level and prove it in the results in actual figures. And there, we need Q1, Q2. We can prepare everything. We are preparing everything. We are looking at the organization structure, doing investments in the organization structure, preparing for the separation. The legal separation is in place. And so we have set several milestones during the year. And let's say, discussions with potential interested parties will not occur before, let's say, mid-second quarter. You need to prepare well. I believe that is really key. And don't be on a track that you are too much hurried and then you get a kind of -- you have to step back in what you want to achieve. And I can add something to that because that probably will the next question, what is the timing we are targeting. We are preparing for Q4 to do a transaction. And of course, when we look back at the Capital Market Day, we announced that we would announce material steps within 12 to 18 months. And we are very well in that time frame that we announced there. I believe we -- you want to ask something?

Yes, because if you say -- it's true, you said 12 to 18 months.

Yes.

But I also remember that in the Q&A, you said when asked, we'd like to move much faster, we'd like to be faster because it provides clarity both to our employees and to our customers. So how do we balance the two?

The balance is working really well. And it is a clear, let's say, communication that we have. And everyone knows that this is the past and that the patients need to be there. And again, it's also about finding, let's say, the right environment related to all the stakeholders and, of course, also the right valuation that we are not going to discount hundreds of millions because of a fast track.

Tijs Hollestelle, ING. Interesting conversation. I want to also drill down a little bit more on the Connectivity division. So you provide, let's say, insight on the split there. So the telecom business made EUR 182 million. If I listen to Elling with the accidental OpEx, I would say that, let's say, an operational EBITA loss of somewhere in the range between EUR 5 million and EUR 10 million is the right assumption?

That's correct.

Then you have, let's say, EUR 525 million in the cable business combined. That leaves about EUR 22 million of other business. It's not really material, but was that profitable?

No.

Loss-making?

Yes.

A couple of million.

Couple is...

Below EUR 5 million.

Definitely below EUR 5 million.

Okay. Just to get, let's say, the starting point which you had the discussion before the meeting. And then the -- what was the actual, let's say, offshore revenue in 2025?

About EUR 135 million to EUR 140 million.

That is for me a bit of a positive surprise. And then -- but you still stick to the EUR 180 million revenue target for this year, there's also potentially upside to that number.

Just you transferred to Martijn's statement towards the target for this year.

I tried.

That's smart, but condition was that Martijn's assumption was that if you look further down the road, starting, let's say, Q2, if you then analyze the remaining period, should you be back at the EUR 170 million, EUR 180 million with a 17% return on sales. And that has been confirmed. So from that point of view, that is there. But it's not the same as '26.

Yes, I get it, yes. But let's say, the run rate somewhere in the third quarter that people can see there's potentially also upside. That is indeed what I'm asking. And I'm also still a bit puzzled, why don't you give us, let's say, a direct answer on the profitability of the onshore cable business because the recovery is now taking place for 3, 4 quarters in a row. Has always been quite a stable business, core business for TKH Group. I would say that the EBITA margin is like 10% or so on that business. Is that still not the case because of all the switches and double costs with subsea changes?

Yes. I think Alexander mentioned already the underutilization due to the suboptimal, let's say, utilization of the asset base, which we had. Market looks good, but we have a lot of internal, let's say, moving parts and some costs which are not yet fully paid for through the utilization itself. So that's what we are still having in '25. And that's, of course, going to change going forward. We see order intake further improving. The market attractiveness becomes bigger and bigger. So that utilization effect comes down. And the other elements within call it, the connectivity or cabling part are finding their own ways in the sense that the telecom part that has been organized has been separated from the operations in the Netherlands and from a cable manufacturing point of view, is separated and has its own activities, et cetera, from that point of view, I would say in '26, you will see an improvement in that particular area.

Yes. Okay. That's helpful. And...

And just to finish that part, the full disclosures, and that's why you say why we don't disclose it in the dual-track, there will be sufficient disclosure. And I don't want to be ahead of that process. So from that point of view, you will see the disclosures, but you have to be a little bit patient.

Yes. I get that. And indeed, your statement on Q1 for this year and the outlook is also mainly related to the Connectivity business, which is still a bit unstable, shaky.

Shaky is a word, which...

We will show a substantial improvement in Q1 compared to last year in Connectivity. However, we have, of course, the lower order intake effect within Tire Building. So the reality is that the profitability there will be lower compared to last year Q1. So that is the balancing act where we are in. And again, with a good progress in the Electrification business with the result in Q1.

Year-over-year. Okay. Yes, that's helpful. Then some lot more detailed questions. I also noticed, let's say, relatively low one-off costs in the second half that is good. And with your -- let's say, your current projects in the cable business, is there, let's say, any nervousness on the contract dates? Or you have sufficient time to produce on time in 2026?

I will not say sufficient because what is sufficient...

Deadlines.

You would like to have, let's say, half a year, 12 months headroom. But we are close and we are in control of meeting deadlines. And that has also had its impact also in 2025. We were really customer focused to make it happen to deliver what has been promised at the right time in the right quality and the right length. And that also impacted somehow our efficiency related to our production. And that will also further normalize during the year as we are creating more headroom in the delivery times and then have more flexibility to also combine certain cable types, so which you also get huge additional efficiency instead of continuously changing over from one type to another type, you have your start-up costs. And so that has also real big improvement potential for '26.

But because of the unexpected delays we had, that's why I'm asking it. I understand that you're answering the question based on...

I already answered that the risk is much lower that we will not have our output performance compared to last year. With all the improvements, all the upgrades we did, we still can acknowledge that we have the right technology. We have the best people in-house, but it has been extreme what we had to realize, and that is really has been substantially normalized in the past few quarters, and that gives confidence that we can meet the requirements, and we are creating more headroom during the year because we like to have that headroom. And our customers also, they prefer to have it 3 months earlier or 6 months earlier than that they need the cable because the cable is essential for, let's say, the finalization of these multibillion projects.

Yes. Okay. That is clear. And then moving to another division. Did you somehow spotted any change in the volumes in the Machine Vision business coming out of Germany? Do you see any, let's say, cyclical recovery signals in the German-related business in the cameras?

Nothing material, I would say. If you look at Vision as a whole, it has shown nice growth. Europe is a little bit on the weaker side in that growth aspect, and Germany is then at the bottom end of that.

Yes. It has been very weak. But yes, no change in...

Nothing material.

And the FX impact you were mentioning?

Yes. I mean that was indeed on the order book because if you look at our -- and I mentioned that also in the geographical split of where the revenue takes place of Vision. APAC is important and North America. And I think if you look at the order book itself, it's about EUR 130 million for Vision. Prior year was about EUR 140 million. You will get close, not exactly, but you go close to the level of the '24 order book if you normalize it for FX effects. You probably get EUR 138 million or something like that with EUR 137 million.

Yes. And then one final remark. I mean, Harm excellent results in my view, despite the pressure on the top line. But the conversation on the potential recovery of the order intake basically came back every quarter in 2025. Some of my clients are not really happy with that because it's -- every quarterly update, it suggests that an order intake recovery is close by. And if you then -- basically it's not happening for four quarters for all kinds of macro reasons, which everybody understands it is better not to say that and just report the numbers because otherwise, yes, you're creating kind of hope. And the guys in the room, we have to model them maybe an upward recovery, which is not happening. It's not helpful. So better not do the statement.

I do understand that there is -- that people are really looking at the volume of order intake per quarter and the size of the order book to make a best guess on what is coming in the first period. We do understand that. At the same time, I would say that recovery signals are really there and that the -- but it is also pretty unclear. And what you can see in the financial results over '25 is that the performance was in our opinion, very good. And I think that is the most important part, right? The -- if you perform well even with some top line pressure, then that stands out. But okay, point is clear. And I think we can restate that in the course of '26, the order book will improve. But indeed, it's, yes, taking a bit longer than expected, although we still have an order book. And so it's not that we're out of work, so to say.

Michael Roeg, Degroof Petercam. I have also a question about the Vision business. If I remember correctly, then consumer electronics is one of your larger segments. Do you see any hesitance among customers because of the turmoil in some of these consumer electronics categories due to the strong increase in memory prices?

No, I think that has not really an effect. What you see is that the driver for our Vision solutions in the consumer electronics production is mainly on new innovations on the consumer electronics side. So if you see changes on battery packing inside smartphones or when you look at foldable phones, et cetera, there are really new elements that need to be inspected, new technologies and new software developed where we are excellently positioned. I think that's more important than when you see the pricing effect of the consumer electronics going to the end markets.

Well, the thing is there's quite a big decline forecasted for smartphone volume, 10% to 15% decline and other consumer electronics categories are probably going to be going down as well.

Yes. But if you look at, for instance, EarPods, so the wireless connection for hearing that is an element where there are 0 memory chips in. And there are also some other elements in that. And also in these peripherals, we are very well positioned.

But again, all about innovation. So also in the EarPods, you see that there is a new battery technology involved, which needs a much more detailed monitoring and security related to the whole manufacturing process. And that is what drives our, let's say, growth in the consumer electronic market. It's the innovations that continuously ask for new Vision Technology to monitor what's going on during manufacturing.

Okay. Most of your Vision products are for inspection and not so much for recording and storage. So I assume that memory chips are relatively small within your bill of materials. Is that something you can quantify?

Yes. And where we do need memory chips, for instance, when you talk about machine learning, AI kind of applications on production lines, there, we have secured for a longer period of time, the pricing and the supply. So we're confident that it has not a material impact on our performance.

Okay. That's reassuring. Then I'm going to quote something from the press release. Within Electrification, we've solved the main challenges relating to the ramp-up of the subsea cable plant. Well, the word main suggests that there may be some smaller things left. Would you say now that you are at 95% of the desired productivity of the plant or 90%, something like that?

Let's say, the productivity has more potential than growth from 95% to 100%. It is more the stabilization of the manufacturing, which is at 95%. And that has been proven especially in the first 5 main processes, and then there are another 3 processes. And the last 3 processes, there was 1 process where we had difficulties with the larger dimensions. And that has been solved actually not before January. So we solved that in January with a major upgrade. And -- so that, yes, is -- we are now running at 95% of, let's say, perfect technology and the last 5% that has nothing to do with the productivity because we will see that we can improve. I mentioned already joining the same cable types in one manufacturing run. That is a huge productivity win, and that is not incorporated in the 95%.

Okay. So your month of February operationally was already even better than January.

Absolutely. Yes.

Maarten Verbeek, the IDEA! I'd like to have a brief chat about your largest offshore project, whereby you also have all kinds of services. If you break that project into 3, so prior to production and after production, have you now completed the first part of that project?

Yes, how do you find the first part? The first part, you can say, survey and let's say, moving away explosives in the field that is almost finished, I would say, at 80%. And in this year, the installation will start, let's say, mid of '26. And before mid of '26, we have to manufacture all the accessories and, of course, the cables to support the installation starting mid this year.

If the survey went well, and we do know that has depressed your added value within this segment, but the profitability was solid, as you always stated.

Bottom line, yes.

Does it mean that if we subtract that from the other offshore activities that, that was more or less still loss-making?

Yes. Because of the huge underutilization.

Then you had a very successful rate in the area. But lately, one of your competitors won the BC-Wind project. Do you know why you have lost that project against your competitor?

Yes. But I'm not going to explain that here. And I never mentioned that we would win 100% of the project. The original business case to come to an EBITA margin of around 20% is based on, let's say, 25% up to 30% market share. So we're overachieving there. And it's good to have also a good filled order book at reasonably good margins. And again, we are not yet planning a second plant. But I believe from the opportunity, we could overutilize what we have invested. But that's good. Let's first see that we utilize the complete plant and that everyone is smiling here in this room and all our stakeholders are having a big smile.

But you stated with production of [ Interra ], you can produce at the same rate level as your competitor, but your ESG rates are much better. Does that imply that they are now more or less offering.

No. We are still the only one who is offering the dry design cable technology, and we are really far ahead of competition, especially if you look at the bumpy road we had to go through since 2016 to get it, let's say, translated also in the right manufacturing processes. And -- but it's not just the ESG advantage. It's also the installation advantage, which is a big cost saving that can go up to even 15%, 20% of the total project price. So in some cases, it can be that you can use smaller dimension of cables, which have a substantial lower price than the higher dimension cables. And that is because of the ampacity we can offer with our technology, which is much more efficient than with the conventional cable types. And yes, the USPs are really huge and not only related to ESG, but also to cost. We have a much lower transportation cost because we are in the Eemshaven and most of the contractors are close to the Eemshaven that can save on a project of EUR 15 million, about EUR 1.5 million if you have to transport it from another location. I'm not going to mention the location, but you can imagine which location.

Then I do believe last time you said you also want to expand more into defense. Can you provide a bit more information where you stand at this stage?

Yes, that is mainly related to our Vision Technology. And the application of that is in the situational awareness area, as you can say, we're engineered in when it comes to certain solutions and projects. So the actual volumes for supply will -- are still to come. But we expect already this year a positive effect of that in our Vision activities. And when you look at -- and I think that's quite obvious, the main focus for us is Europe and North America for supply.

And then lastly, on the -- still on the Tire Building, again, you mentioned we do expect order intake to improve in the course of this year. You also always have a certain lead time before you will start to produce. Does it imply that Q2 will also be depressed for you and then more or less earliest recovery should or could start in Q3?

I think if you look at production volumes, that is indeed in Q1, Q2 will be lower, and it's more back-end loaded when it comes to the results. I take the point. So we're -- how do you say that, actively monitoring the situation now. I think you're right. The second half will be better than the first half.

You still gave a forecast.

And lastly you mind, just confirm, you mentioned CapEx, tangible, intangible will more or less be similar to this year.

Yes. If you take out the special investment program, which we announced earlier.

Ruben Devos from Kepler Cheuvreux. I got a few small questions left. First one is actually on the Alliander framework contract. I think you talked about EUR 650 million over 8 years. So it's about EUR 80 million a year. That's quite substantial already. You also referenced framework agreements with other DSOs, which are not reflected in the order book. So curious about whether you could potentially size the annual revenue opportunity here because it feels a bit like an underappreciated structural growth driver actually.

Yes, the issue is what Elling already announced. We have to be really careful to already give -- disclose this information. So we will do that in the course of this year. So sorry that I cannot be more specific there.

For digitalization, I mean, if I look at the market, it doesn't seem to be in a very bad shape. Obviously, you've gone through a bit of restructuring and '25, as you said, was loss-making. But do you see '26 maybe more as an inflection year or still a bit of a restructuring? And I think you've talked about -- yes, I think you talked about Electrification, the fact that you wanted to have a solid run rate of profitability before maybe moving to the next step. Could you -- do you have a bit the same rationale for digitalization?

Yes. To start with, I mean, we have mentioned last year already that the digitalization is to be exited. That's no change. And that exit is independent as we communicated in the Capital Markets Day from the, call it, Electrification, Automation split. If you look at the market itself, I would say that on a global level, there is some dynamics, especially in North America is pretty strong, driven by data centers and also the trickle-down effects of the federal funds leading to more fiber-to-the-home initiatives. And that's pulling some capacity towards that region. But it also requires a lot of build American buy American concepts. We are not -- we don't have any plans to establish something over there. So our focus remains Europe. And in Europe, we see that actually the volumes in and these are preliminary figures for '25, the volumes itself in Europe are minus 13%. So from that point of view, we look at a world where different dynamics in different regions takes place. But we are very well positioned. We have chosen from the beginning a market segment, which is really on the high end. What that means is that our fiber specifications are really in the top of the market. From the beginning, that has been the concept to be as much as possible away from the commodity kind of portfolio. And that fiber spec is in the end, also what is currently looked for within the data centers. And data centers is one of the drivers, as I said, for North America. It's also something which will in Europe become a bigger kind of team. So there are some, let's say, elements which give positive sign. The question is how we get access to the right projects and how we do that. But I think portfolio-wise, we are in a good pace. '25 was a transitioning year. We mentioned earlier already in the second half of last year, everything was transferred in Poland. We are fully staffed. We have full running. Delivery times are going down compared to, let's say, a year ago. So from that point of view, I think we are in the right track at a lower cost base. It doesn't mean immediately we meet all the targets of TKH, but the transition '25, '26 is a positive one.

And the reasoning is basically similar in terms of timing, how you think about a potential divestment or separation of digitalization?

Correct.

Okay. Okay. Well, I think for Security Vision, I also have one question. Just I think you've mentioned a few times now that you're increasingly winning larger projects on a structural basis. My curiosity is what's really driving that shift? Is it mostly because of a different geographical mix? Are you upselling more software? Is it largely project deliveries? Like yes, how should we think about these larger projects as well? Like are we talking a few millions? Or is it already maybe EUR 10 million?

Yes. The largest project until now is EUR 25 million. And the success why we win these bigger projects is the integration of the technology that we can offer, the combination between mission-critical communication, Vision Technology, access control. And we are one of the few that has this offering and including the software to really being a differentiator and have a low risk profile for the potential customers to award us these larger projects. And we see also in the performance of these larger projects that we are, let's say, having a really well operational excellence related to also the profitability and the forecast that we made in delivering on time.

Okay. And the very last one for me is just -- I think you might have mentioned it somewhere, but maybe I missed it, but I think you talked about a EUR 15 million cost saving program at the start of the year? How much did you eventually realized? And what may be the aggregate cost savings embedded in the full year outlook of this year?

Well, we didn't announce the as a specific cost saving program. But based on the question of Martijn earlier, what were some incidental-related costs. This is in the basket of about the EUR 15 million. As I said, it's part in the Energy segment and the other half is more in the digitalization part. And that's basically the kind of element you should take with you. And of course, there are some further growth initiatives for '26, which will have a slight driven effect on the OpEx, but the EUR 15 million is basically what you should not see back in '26.

Martijn den Drijver for ABN AMRO ODDO again. On Vision, if I look at -- let me take them what Cognex, Rockwell, Honeywell, Keyence have said about 2026. If you summarize it, they're basically guiding for mid-single-digit growth -- organic growth. Would you be comfortable with that number? Or is that Germany component enough of a reason to guide for or be a little bit more cautious than that mid-single-digit organic growth that we see in the market?

I think the -- what they are mentioning is indeed reflecting what you could say, the growth in market and obviously, we're doing our best to stay there well positioned.

You've really learned well from Tijs now. Okay. Thanks, Tijs. It said in the press release, and you've also mentioned it in the Capital Markets Day that you were going to do this, the merger of the brands within the integration of the back offices, what the efficiencies that you were looking to realize? Did you realize that? And what does it mean in terms of lower cost or efficiency in 2026?

Well, what we -- last year, we made a big step in one of the entities where a German entity, NET was dissolved into -- mainly into Allied Vision and partly into SVS. And that leads to a lot of efficiencies. I think I'll refer to Elling when it comes to the pure financial side of that. And early this year, we -- end of last year, early this year, we announced the one brand for the 2D group as Allied Vision. And that was also received very well, by the way, early this year in the market.

I think if you look at the absolute figures, then we're talking about low single numbers with further upside going forward, but that's not '26. I think the other element you have to take into account is the additional commercial opportunities which come out of the integration as well. So the one brand and the one, let's say, commercial organization to the market and all these kind of things, that's where in the end, the benefit of integrating has to come from. It's not just a pure cost-cutting exercise.

No, that's true. That's true. And a final question on the Vision and linked to the capitalized development cost. If my memory serves me well, during the Capital Markets Day and also thereafter in the discussion, I think it was even in the presentation that there was a common platform that had been developed for both 2D and 3D. That was in place. The first products aimed at utilizing that platform were going to be introduced. So my question actually is, why are the intangibles being guided for at the same level? Because I would expect if the platform is done, you have done your work, then why do you need all these R&D and capitalized development costs?

Well, there are a couple of things. It's not that the whole R&D only works on one platform. There are much more portfolio elements, which are in the range of activities which they handle. And of course, the platform is not something which once you launch it, it's going to be like that forever. You always see the upgrades, et cetera. But it's a matter of allocation in time, which resources are being allocated to what kind of projects. And there's always a lot of, let's say, enthusiasm in these teams on what else could be done or should be done and has to be done. And that's an area where in the end, I think if you want to deploy your resources, of course, you have to be very careful, and we also highlighted in the Capital Markets Day that we want to bring the CapEx and amortization levels to be more in line -- that's not all in '26, but going towards '28. So there has to be a level of prioritization coming through in the R&D projects to make sure that, let's say, the gap is closing. But it doesn't mean that completing a particular platform, then everybody is off the hook for tomorrow and everybody can go home.

A lot of things it was in software, so it was not a hardware platform. It was the integration through the software that we could use, have plug and play, the several technologies that we have in one system. So the hardware platform is a different ball game. And there, we are still on the move, especially related also to new end markets like the defense market. So that's a huge investment program that we have aligned with the opportunities we have in the defense industry where you have to match the specifications and some of these specifications are completely different compared to monitoring a smartphone in consumer electronic.

Maarten Verbeek, the IDEA!. A follow-up. You mentioned concerning the added value of Vision systems, you're more or less at a -- you made a huge progress over there, but you reached a level which you think this is a level which cannot be improved much further? Or do you still see that you can gain more in that respect?

Related to the Electrification.

No, no, Vision.

Vision. That's interesting for Harm.

Well, when you see a shift going more into the software proposition side and if you look at more recurring revenues from software, then there is a potential in the future to bring this figure further up. But I think the 62% is already a very nice achievement.

So we should not be too enthusiastic about further improvement in that respect.

No, I believe it's a very, really fair and very good margin. And what the improvement potential is in the further alignment of the portfolio. So we still have some commodity activities there in the security business, and we are -- that's on the divestment list of the EUR 250 million. And of course, that helps then to improve the margin, but that will be perhaps a few tenths and not percentage.

Maybe you already have answered my next question because you want to focus on Automation. You are seeking a new owner for your energy and digitalization business. Are there other business units within TKH, you still like to bring to another owner?

I mean we have in the Capital Markets Day included the sheet, and it's also in the handout which you have, and it will be also on the website as part of the presentation, which we gave today, where you can see that in some of the segments in Automation and Electrification, both have what we call a, I'll put it blunt kind of noncore or other business, which in the end will be exited. And that's independent, as I said, from the big separation topic, Automation, Electrification. And that agenda has not changed. The majority of the basket I referred to is, of course, within the connectivity part. The biggest there is, of course, the digitalization basket, but there are some other bits and pieces.

And the other bits and pieces, do you expect that to be completed this year, that program?

I cannot give you a guarantee on that, but we are working on getting things executed.

No questions anymore. Then I'd like to thank you again for being here, but also for all the time you invest in TKH, which is not an easy case, I believe, to do your analysis in the right way. So that means that you need to spend a lot of time. And I really appreciate for that also in the name of my colleagues. Also, I'd like to thank everyone in the webcast for participating, and we will come back in beginning of May with our Q1 results. And after that, we have our Annual Shareholders' Meeting. I hope to see you certainly again during roadshows or in August with the presentation of the half year results. Thank you very much.