Hello and welcome to the TKH Q1 2025 market update. My name is Laura, and I will be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen-only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing Star 1 on your telephone keypad to register your question. If you require assistance at any point, please press Star 0, and you will be connected to an operator. I will now hand you over to your host, Alexander van der Lof, CEO, to begin today's conference. Thank you.
Good morning, everyone, and welcome to the Q1 TKH market update call. With the first slide, I'd like to point out the cautionary note regarding the forward-looking statements, and then I move over to the Q1 market update. The turnover came in quite good, with an organic growth of 2.2%, driven by smart vision and smart connectivity, and with a small decrease in smart manufacturing. The EBITDA, we saw a small decrease of 3%. What the main developments were is that smart connectivity was still impacted, with a very weak digitalization market. The cost savings that we have put in place last year will have a positive impact starting in Q2, and that was mainly related to the closing of the plant in Haaksbergen. We see good progress towards stable manufacturing in the Eemshaven, and especially the longer lengths have been a blockage in respect of creating production and turnover.
The first long lengths have been delivered in April, so that is, I believe, good news and good progress. What is also important is that we still see a very good sales funnel, with more than 70 projects, further increased compared to the last communication and totaling to more than 11,000 kilometers under tender until 2030. The order book, I believe it's good that we see a small increase, but really very small compared to the end of last year. The order intake also has been quite good, and in the end, we will come to that with the outlook, the market outlook, especially in respect, of course, of the development of the smart connectivity activities, where we have a very big order book that will support, of course, the higher turnover during the rest of the year.
The recent tariff announcements, and there have been even more recent when we started to make up the press release. Again, even before that, the last announcements between the US and China, we see that there's a limited direct cost impact, and of course, it's difficult to oversee what the uncertainty in, let's say, the market will mean with respect to investments. I believe that it's too early to comment already on that. What is, of course, good, our focus on automation and electrification, where we believe that we are more resilient to negative macroeconomic developments. We are happy to comment related to the divestment of Dewitron. On track there, there's a very good valuation that we were able to achieve. The closing is expected in Q3. I move to the next slide, where we go a little bit more in depth to the three divisions.
Within smart vision, we saw a very nice organic growth of 5.2%, and that was especially related to the machine vision activities, where we were close to 20% organic growth even. Within security vision, a slightly lower turnover, and that had mainly to do with timing of a few larger projects. Sometimes they just move into the next quarter. What is also very interesting to look into is that it is the fifth consecutive quarter of a gradual increase in the order book. Then smart manufacturing, as expected, had a turnover, was slightly lower than last year, and it compares with a very strong Q1 2024. Also, very good news is that the return on sales remained at the high levels recorded in 2024. Very strong and good efficiency programs that compensated the slightly lower turnover.
Last but not least, the order book is slightly lower today than at the end of 2024, but also as expected. Within smart connectivity systems, it was good to see that we had an organic growth in the offshore energy, and that also had to do with the fact that we already recorded also the first turnover of the T&I business within the Inch Cape project. Onshore, after many quarters of decrease in turnover, we saw in the first quarter a nice increase in turnover, and that is related to the fact that we see that the rollout in the Dutch network at the DSOs is moving in the right direction. Of course, there were still some relatively high ramp-up costs of the Eemshaven, as we did not have any utilization or output in the first three months, and that is now gradually turning into higher volumes in the coming quarter.
That had a considerable impact on the result, and the order book increased slightly compared to the end of 2024 for the whole smart connectivity systems. Of course, we were able to announce a very nice project, the Waterkant project, which we signed in April. I then moved to the outlook. We reiterated the organic growth in turnover and EBITDA in 2025. In smart vision, we expect EBITDA to grow, driven by an increased order intake and expected further market share growth. Of course, we see effects of the implemented cost-saving measures that we took last year. In smart manufacturing systems, the turnover is expected to decrease organically, and that is related to the lower order intake and the very strong comparison base of 2024 with the catch-up effects that we had.
Smart connectivity systems, we expect that the new Eemshaven production capacity and the good order book will contribute to significant turnover and EBITDA growth. On balance, we expect that the organic growth and turnover in EBITDA, excluding one-off income and expenses, will be there. That is the last slide that we have to present. I'd like to go to the Q&A.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press Star 1 on your telephone keypad. We'll pause for just a moment to allow everyone to signal for questions. Thank you. We will now take our first question from Martijn Den Drijver of ABN AMRO. OWH, if your line is open, please go ahead.
Yes, thank you, Operator. Good morning, gentlemen and Jacqueline. My first question is about smart manufacturing. I was expecting, because of the lack of that catch-up effect in the lower order book, a higher decline in Q1. What drove that relatively strong performance? Did some of the deliveries come faster than expected in anticipation of tariff issues? If you could elaborate on that performance and how to think about phasing in the remainder of 2025, given your expectations of lower sales and lower EBITDA. That would be question one.
Good morning, Martin. This is Elling. If you look at the catch-up effects in 2024, then the majority of the catch-up effects took place in the, where we currently are, remainder of 2024, so in Q2 and more in Q3 and Q4. From that point of view, the delta in the like-for-like Q1, the catch-up effect is not that material. That also then, of course, sets a little bit the pace for the coming quarters. That is where the comparison base will be slightly different. We have not seen a major push out of something due to tariffs or things like that. That is not the case.
Clear. Thanks for that. On subsea, it's positive that the long lengths have now been able to be produced, shipped to the customer in April. You still talk about good progress in ramping up towards stable manufacturing. What's the disconnect between the two? It seems as though if you are able to produce lengthy cables and you have shipped them, meaning that the quality was at the right level, why are we still talking about good progress in ramping up? Isn't it finished? Shouldn't it have been finished? Otherwise put, when will it be achieved? Is that Q2, Q3?
Yeah. As mentioned in the press release, we said we made good progress, but you are not yet there. It's a matter of making more kilometers to get further through the learning curve. The five most critical processes we progressed really well, but are not completely there. We still see that the yield is not at, let's say, 98%, which is our target. The further improvement of the yield will then help us, of course, to reduce costs and increase output. That takes at least still during Q2.
Okay. Then hopefully in Q3, we'll have normalized operations, normalized production costs, and yield.
Exactly.
Just one follow-up on that. You guided for incremental costs of between EUR 6 million and EUR 8 million in relation to subsea and the use of Lochem. Is that still your estimate today?
Yes, that is still the estimate today. Yes.
My final question. You sold Dewitron, nice multiples. Well done. Is there something you can already share in terms of the proceeds and what you intend to do with them? Is this something that will immediately go to net debt reduction, or do you think that based on your normal seasonality have better free cash flow in the second half, that this might already be a first sign of another share buyback?
Yeah. Important criterium here is, of course, the net debt EBITDA ratio, where we have set a maximum of 2. Of course, we want to have some headroom there, and I believe we can judge during Q3 when the proceeds come in what we are going to do with the proceeds.
Those were my questions. Thank you.
Thank you. We will now move on to our next question from Chase Coughlan of Van Lanschot Kempen. Larry Serton, please go ahead.
Hi, good morning, all, and thank you for taking my questions. I'm going to bring it to vision, please. You mentioned in the outlook that you expect to see some market share gains there, and I'm curious on why do you expect that, or where do you see you have this real clear competitive advantage? That would be my first question, please.
Yeah. It is in, I would say, almost all the end markets. Smart manufacturing, consumer electronic, the battery business, the wood business. It's not a specific one area, and it has to do with the overall very, very good performance of our technology and the time we have spent in respect of speccing in our technology in the past 12, 18 months. That is now bringing us a good return of also the growth that we saw in Q1, where we were at almost 20% organic growth. I believe that is, of course, also in relation to what other companies have seen in organic growth, a big, let's say, step up compared to competition.
Yep. Okay. That's clear. Actually, maybe on that point, you mentioned the 20% organic growth for machine vision, and I believe you mentioned that the security vision saw a decline basically driven by a timing effect. Could we expect in Q2, if the contract goes through and you get some revenue growth in the security space there, that we could expect quite a fast acceleration of organic growth in the vision segment in Q2, maybe 15% organic growth?
No. We believe that the traction will really come in starting from Q3. At this point of time, Q2 will not be a big improvement compared to, or not a big improvement compared to Q1.
Okay. That's very clear. Maybe one final question going back to subsea. Of course, you flagged the 130 km project in April that you landed. Can we still expect a total kilometers in 2025 between 500 and 600 for subsea, or is the ramp-up still really that does not look so realistic anymore? What are your internal expectations there?
Yeah. I believe we have guided for around EUR 180 million turnover, and that turnover is still, let's say, achievable. It has become a little bit more a challenge compared to three-six months ago, as we have to organize a kind of catch-up of the number of kilometers that we didn't manufacture until April. It looks still achievable if it runs smoothly in the coming quarters.
Okay. Perfect. Thank you. Those were my questions.
Thank you. Once again, as a reminder, if you would like to ask a question, please press Star 1 on your telephone keypad. Thank you. We will now take our next question from Tais Holst of ING. The line is open. Please go ahead.
Yeah. Thanks, Operator. I was a bit late in the call, so maybe I missed it. Sorry for that. My question is also on the connectivity business, because I'm really anticipating, of course, to see the impact on the divisional margin from the sales contribution from the subsea cable. Looking backwards at the kind of bumpy ride TKH had with reporting the numbers, what is the likelihood of, let's say, unexpected misses of the other two businesses? I think you mentioned that onshore energy cables are doing a bit better after two years of de-stocking.
It is very difficult to hear you, Chase.
Sounds better.
Are you completely over? No, no, no.
Yeah. So what are, let's say, the risks that are, let's say, disappointments coming from the other business blocks within the connectivity business?
The risk is mainly related to digitalization, where we have the cost-saving program in place that is running quite well. However, the market is really, really difficult, and that is difficult to predict where it will move. We see opportunities to get a higher utilization, but they are not yet in the books. There is, I believe, a reality for risk. In the onshore energy business, I believe we are doing quite well. The risk is very limited. Yeah. I believe that is what I need to comment here.
Yeah. The problem is that as outsiders, we do not have any clue about, let's say, the margin sensitivity. It would be, in my view, rather disastrous for the share price if you finally have, let's say, the higher turnover and high margin of the subsea cable, and then a divisional result which is heavily pressured by the other business. You are probably not willing to provide more detail on that. If there is, let's say, a quick further decline in the turnover of the digital business, is it becoming loss-making on the EBITDA line?
I mean, you can never exclude those kinds of things, but we have, of course, made major steps last year already. We have, in Q1, finalized the transfer of all activities from Haaksbergen and, in this particular field, to Poland. We have not yet a fully optimized quarter in Q1. Going forward, we will have that, including the lower costs which are attached to this. Of course, where risks will come up, of course, we further create self-help programs to make sure that we mitigate as much as possible. Of course, we have made some more general statements towards our strategic outlook for this segment in a different perspective.
Yeah. Okay. Yeah. I have to wait for the actual results then. Thank you.
Thank you.
Thank you. We will now take our next question from Thibault Leneeuw of KBC Securities. Please go ahead.
Good morning, everyone. First, a follow-up question. I would like to know if you would be able to quantify the catch-up effect for the offshore subsea cables that would be needed to get to the $ 180 million in 2025.
Yeah. The catch-up effect is, let's say, around 150 km of cable that we need to manufacture, additionally, in the coming from now, eight months.
Okay. That's clear. With respect to the smart manufacturing, I was just wondering how the Unix adoption is going. Also, I would like to have a little bit more details within the components. I believe the ASP was EUR 12 million compared to the EUR 4 million for MUX. Some is for the component building, but also for the assembly. I would like to know the modules that have been sold so far. Was that all in the assembly? Could you remind me again how much the addressable market increases with the Unix system compared to the MUX system? Thank you.
Thank you. Good morning, Harm Voortman here. First of all, in general, there's a lot of interest in the Unix technology in itself. It's really barrier-breaking, I would say, in the production of tires, where you can really address all the challenges that tire producers nowadays face. If you look at the current applications of Unix technology in the tire building area in production, then you look at mainly on the production of the tread, the outer layers of the tire, where Unix strip winding is used, and that's going extremely well. Really used for the ultra-high-end tires. It is also being deployed in the component manufacturing of tires, where you look at, for instance, the steel-reinforced parts of a tire. We call the machine that produces these parts the Unix Belt Maker.
We sold a number of these machines last year, and also in Q1, we had sales in that. That's all going quite well. Indeed, if you would look at a total system where you would make all the components and the assembly of a tire, then you look at a sale of around EUR 10 million-EUR 12 million. Whereas, if you look at, for instance, a MUX machine that is assembling for a tire, that is roughly, say, EUR 4 million. It depends a little bit on what kind of options and technology is included in the MUX. It can also be an expensive machine, but also a lower-end version.
Yes, there is indeed quite a potential for growth if this technology is further adopted.
Just on the increase in the addressable market, is that from the 4 to the 10-12 million? I do not assume it is a doubling or tripling of the addressable market. I assume it is somewhere lower, but still an increase in the addressable market. Would you be able to quantify that more or less, just to have an idea?
I think in the September meeting for the Capital Markets Day, we can certainly give some more details on that. Right now, I would say, indeed, it is growth potentially, but it's also clear that it will not be triple the turnover. I really would like to address this in the Capital Markets Day.
Okay. That's clear. Then final question with respect to your revenue expectations for manufacturing. It looks like that the CapEx expectations for the tier-one players is around -4.6% for 2025. Is that an organic decrease that you would expect more or less in line for your business, including the timing components of the catch-up effect with the strong 2024 last year? Would that 4.6% be more or less of a fair representation?
I think there's not a direct relationship between the total CapEx expenditure of the tier-ones and the turnover of smart manufacturing. It's more complicated like that. There will be a decline in turnover compared to 2024, but we already saw last year hesitation in the tier-ones, as you know from our press releases. That, while you could say, is still the case, although we see some really starting to invest again. It's difficult to relate that exactly to the numbers that you said.
Okay. Thank you very much.
Thank you. We will now take our next question from Ruben Devos of Kepler Cheuvreux . Your line is open. Please go ahead.
Yes. Good morning. I have a first one regarding order intake. I think the order book was flat versus year-end. I guess underneath, there might be different takeaways across the segments. I think year-end, it was obviously a very strong order intake for connectivity. I think 1.4 book-to-bill, machine vision was one, I think smart manufacturing was 0.9. Yeah. Obviously, curious for Q1 how maybe the order intake was different across the segments.
Maybe formulated slightly different. If you look at the order book, you said it's more or less in line with the end of 2024. The decrease in order book is taking place in manufacturing in line with previous communication. About vision, as well as connectivity, had an increase in order book in Q1.
Okay. Did it further, let's say, improve from what you saw the full year? In other words, when it was 1 for smart vision, 1.4 for connectivity, did that further improve from that perspective? For smart manufacturing, did it further decelerate?
Not further, but in line with what we have been communicating. I think I would leave it at that, the reference to the order book.
All right. Fair enough. Just on the sales funnel, I was thinking about your referencing 70 projects, 11,000 km currently under tender until 2030. That is a timeframe of six years. What about, let's say, in the next 24 months, how many of these, let's say, 70 projects or 11,000 km do you expect to be awarded?
Yeah. We have not, let's say, all the details here, but I would say between five and ten projects.
Okay. Five to ten projects. Because 11,000 kilometers, just doing simple math, you get to, what is it, 1,800 kilometers a year. You're talking about 150 kilometers this year. That would give you, let's say, a bit less than 10% market share there. Is that a good way of thinking about it? Because I think the win rates you talked about earlier was well ahead of your initial anticipation. That's where my question is coming from. Obviously, maybe on the demand side, there's not much to be concerned about. Maybe it's rather going to be on the supply, like how time-sensitive might some of your customers be in getting these cables in. This is just some of the questions I have.
Yeah. Perhaps a more direct answer is that we are still targeting, let's say, around 600 as a minimum kilometer in 2026. Of course, we will also book orders for 2027 and 2028, but I believe for now, it is important also in respect of guidance that the 600 is what we are guiding for. There are more projects to be, let's say, awarded starting from 2027, so we need to have relatively high market share for the projects in 2026. I believe what I just mentioned indicated between 5 and 10. We are, let's say, we still have some headroom in respect of the 600 kilometer for 2026.
Okay. Yes. All right. Yeah. I think my numbers were a bit wrong. So I said 150, but that was, I guess, it was EUR 180 million sales, but then 500 km of cables in 2025. You basically have a market share around 30% then, I guess. Okay. Thanks. That's useful. That's all.
Thank you. We will now take our next follow-up question from Martijn Den Drijver of ABN AMRO. Please go ahead.
Yes. Thank you, Operator. I would like to come back to Onshore Energy. The regional and the TSO are now progressing with projects, so the selling is improving. Do you expect that situation to improve going forward? Because on the permitting side, we hear quite negative stuff from contractors as well. I was just wondering if you could shed some light on that development. Is this the first part of a real recovery, or is it just a slight uptick and then it flattens off again? A bit more color there. In relation to that, you were also seeking international sales for some of the cable. Is that still in the cards, or do you think, well, maybe we'll just sell that in the Netherlands? Question one.
Yeah. Related to the Dutch markets and the DSO rollout, it is, of course, difficult to really predict on our side what will happen in nine months' time from now. At least the forecast that we get points out till the end of the year that we see growth. At the same time, we have put this mitigation in of the international positioning, and that is moving in the right direction with also the first orders coming in here. We will continue with the internationalization. Again, we are also on the right track there.
Clear. I was just wondering, the second question is with regards to smart manufacturing, just to come back to Harm's statement. Can you talk about, in terms of the order intake, you said that the tier-ones are slightly coming back or some first green shoots. Does that mean that most of the intake so far in Q1 is from Asian Chinese operators, customers? If so, what does that mean for the sales mix and margin?
Good morning, Martijn. Yeah. If you look at the total order intake in Q1 and also the expected order intake for the remainder of the year, we believe that the percentage coming from the tier-ones will be a bit better than last year, but not at the same level as what we had previously. There is, you could say, an improvement on that side, but it is moving slow. So far, actually, we see two things. One is the continuous sales into North America and Europe for the automation and the reshoring. Definitely, Asia was an important part in Q1. There's not really a different trend, I would say, in the order intake when compared to 2024. Yeah. I think I'll leave it like that.
Okay. There is no real sales mix change, hence no effect on margins. That would be the way to think about it.
Yeah. Although, and that is also what you have seen in the communication, is that the order intake is at a lower value than in the, say, two years ago.
Got it. Got it. Then my final question is moving back to subsea. The first one is a relatively easy one. Is it the Waterkant? Will that be produced in 2026 or in 2027?
'27.
Okay. Then a more general question. We've seen the giant Hornsea project being shelved. We've seen what happens in the U.S. under the Trump administration. It used to be that supply was very restricted on the interarray cable. Now, with these more recent trends, is that situation changing, meaning that you see perhaps Prysmian or Nexans having more capacity available, therefore competitive pressure moves up? Or is there so much demand from the various regions that that is not expected to happen?
There is still sufficient demand, and we do not need 100% market share. By the way, we have adjusted also our sales funnel with the US situation and also the Hornsea project, which was originally in our sales funnel. Still, we are above 11,000 kilometers. Yeah. I believe what is really good is the unique design that we have, where we see that the desire to work with us is getting to higher levels every day. It is really a unique selling point. Again, we do not need 100% market share.
Clear. Clear. Those were my two follow-ups. Thank you.
Thank you. Once again, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We will now take our next question from Maarten Verbeek of The Idea. Your line is open. Please go ahead.
uestion from Maarten Verbeek of The Idea. Your line is open. Please go ahead.
Good morning. Maaten Verbeek of The Idea. Firstly, they're all around the offshore energy cables. You still have some issues with producing long-length interarray cables. In your current order book and what you have to manufacture on the short term, will that give you any issues or problems of not being able to produce those or at very high cost or something else?
No. What we see is that it really normalizes with the finishing of the Ørsted project, Greater Changhua, and it will run much more smoothly because of less pressure for long lengths. We get into a situation where we have link lengths of around 1 kilometer.
Okay. Thanks. Maybe an old question with respect to the Waterkant or the Q1. The last one, the Inch Cape, you already took in your order book before the final close was taken. Just to verify, this order of Waterkant, is it already in your order book or not?
Today it is, but it was not at the closing of Q1.
Okay. Thanks. Then also with respect to this order, it's a very long, or let me say, you want an order for 130 km of interarray. Will this project only consist of 16 foundations? That gives a tremendously high foundation to interarray ratio. Let me address it like that. Could you give some explanation to that?
No. I cannot.
Okay. We will take it.
This is the order we got, and we have to do with it.
Right. Otherwise, we'll take it offline. Also, maybe in relation to what Martijn asked, because everywhere you see that installers or owners of offshore wind parks are getting more cautious. We have seen Ørsted. People want to have a better CFD. Still, your sales funnel is growing pretty rapidly. Could you provide more color? Is it that you are expanding more outside Europe into Asia or these kinds of territories?
No. That is not the case. It is mainly Europe. Any other questions, Maarten?
Sorry. I didn't hear your answer because, if you could, could you please repeat it because something went wrong?
Okay. It is mainly Europe where we see the sales funnel for us.
Okay. Thanks so much.
Thank you. There are no further questions in queue. I will now hand it back to Alexander for closing remarks.
Okay. Thank you, everyone, for all the questions and being here in this meeting. We will continue to execute and do our best to meet the organic growth in turnover and EBITDA in 2025. Thanks again, and wish you all a nice day and success.
Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.