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Edited Transcript of TWEKA.AS earnings conference call or presentation 13-Aug-19 8:00am GMT

Q2 2019 TKH Group NV Earnings Call

Haaksbergen Aug 18, 2019 (Thomson StreetEvents) -- Edited Transcript of TKH Group NV earnings conference call or presentation Tuesday, August 13, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Elling D. Hengelo de Lange

TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board

* J. M. Alexander Van Der Lof

TKH Group N.V. - Chairman of the Executive Board & CEO

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Conference Call Participants

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* Emmanuel Carlier

Kempen & Co. N.V., Research Division - Research Analyst

* Martijn P. den Drijver

ABN AMRO Bank N.V., Research Division - Analyst

* Michael Roeg

Banque Degroof Petercam S.A., Research Division - Analyst

* Tijs Hollestelle

ING Groep N.V., Research Division - Research Analyst

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Presentation

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [1]

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Good morning to everyone here in the Experience Center of TKH in Amsterdam. Also a warm welcome to the audience in the webcast.

Yes, if we look at the first half year of TKH, I believe, an important message is that it is not representing what the -- where we are as TKH. I believe we have a very good story, starting with where we communicated also with our Capital Market Day on the 12th of June, very good traction in the strategic development of the TKH Group towards the targets that we have set in the Capital Markets Day. We are very, very confident that we will meet these targets. And perhaps, a few of you might have been mislead with the result of the first half year.

So we briefly, first, go through some of these strategic highlights to relax you, perhaps, a little bit of where we are going as TKH. A good progress in the acquisitions, with full fresh focus on the technologies where we believe that the added value is substantially higher than the average of the TKH activities. We are looking also there strongly for a scale of economy. The integration projects are contributing there to get more cost efficiency through the integration, and also, to get more power and more traction towards our customers in respect of the performance that we can deliver with plug-and-play solutions and a one-stop shop position.

What is looking also very good is the divestment program, where we made the first move. The deal is not yet closed, but we are very close to the closing of the deal. It might be in a few weeks. Substantial divestment, about 8 companies of around EUR 185 million in turnover. So very good progress in respect of the EUR 300 million to EUR 350 million turnover that we have identified as a target to be divested. We are running further the program on the additional divestments. And we believe that there will come other divestments in the year 2019. And we are working further towards 2020 to finish this program of divestment, and to also further focus on the future of TKH with the activities that we want to continue with.

The first divestment also led to the fact that we eliminated now one of our subsegments, and that is a subsegment industrial connectivity. By the way, industrial connectivity is also in a segment that is more cyclical activity. So also in respect of the profile that we are looking for TKH on a more sustainable organic growth, this will help TKH to get more traction in the sustainable organic growth.

The integration of the companies has led to some additional costs in the first half year. We integrated several companies here in the Netherlands in the TKH Security company. And I believe that's working also very well, especially for our further international positioning that we are looking for with the TKH Security activities. A lot of opportunities are there because of strengthening ourselves by bringing the companies under one roof and bringing the companies under one leadership.

The same is the case for the 2D vision companies. We acquired Lakesight last year. And we really accelerated further the integration process of the 2D companies. There, we saw partly cost for the integration and also partly cost for cost efficiencies that we saw through the integration in these companies which will, in the end, also increase the profitability level of the 2D vision companies. A very good progress. People in the organization are really excited of being part of this bigger group and see the combination as really strengthening our position and giving a lot of opportunities to also increase further our market share, which can also accelerate further the organic growth in this segment.

To give a brief overview here, we communicated in the Capital Market Day not so long ago. You can find it all on our website, but this is our route that we will follow very closely. And we are really excited of what this will bring in the acceleration of the increase in return on sales, and in the end, also accelerating our organic growth.

The overview of the mix in portfolio divestments, just to reconfirm that this is the route we are going, especially, I believe, also the innovations in the verticals should not be underestimated. What kind of power we have there in execution also to get to turnover, and especially, also a good return on sales and high profitability. The acquisitions we showed already some progress. There's more in the pipeline, not very big acquisitions, but nice built-on acquisitions that can offer us even a better one-stop shop than that we have today.

If you look at the first half year, and you look at return on sales. Here, you might believe that we lost track in where we want to move. It is quite steep, let's say, improvement that we are looking for. If you take the low side of the bandwidth and add it together, we are at 4% improvement. And if we take the upside, altogether, we are at 5.8% improvement. And yes, again, if you look at the first half year, it might look really far away. But I believe the opposite is true. And therefore, I really like to guide you to look at the second half year where -- with the guidance that we gave. And you take the upper side of the bandwidth, we will be close to 13.5% return on sales. And that is a really big improvement compared to where we were, especially if you look at the average return on sales of 2018 of 11.3%. So there's more to come, but I believe, a very important step that we make in this second half year.

Yes, you have seen the results. Very small organic growth, which is not the intention of TKH, to have a small organic growth. There are a lot of reasons why the organic growth was not there. And we don't find the excuse so much in the external environment in respect of depressed economic circumstances. There is only one area where we already guided since the second half of last year that we saw very limited investments, and that is the consumer electronics business.

We had a very good first half year, last year, in this segment. And perhaps, you can remember that we also announced in this meeting at the half year results last year that we substantially expanded our capacity, and that was mainly related for the consumer electronic business at that point of time. Today, we see other opportunities beyond the -- or outside of the consumer electronics that give us a good perspective so that we can utilize that capacity, but of course, it was disappointed -- a big disappointment in the first half year that we didn't see big investments coming in from the consumer electronic business.

Another effect we saw is that we had fewer bigger sized projects, and we had not been too specific, perhaps, in the press release. But we guided also before that subsea business would be 0 in the first half year of this year. Here, we started in Q4 2018 to really be active, again, for acquiring orders. We had a good sales funnel, and here we can say that for the second half year, it looks very positive that we will have utilization in our plans again. And within the last 6 months, 7 months, we made very good progress in our positioning. And actually, we are really on plan, but it is perhaps disappointing that we lost about EUR 10 million, EUR 12 million turnover there in the first half year compared to last year.

The same was the case for the CEDD technology. Perhaps, you remember that we had Lelystad Airport last year. And this year, we also had the same situation with subsea. We hesitated last year to take on new bigger projects. And we were very quiet in, let's say, our positioning. After Q4, we could take off with our quotations. We see a very good quotation portfolio, good -- very good sales funnel for CEDD, but for the first half year, no turnover. Although, we saw in AGL, the airfield ground lighting, a very good development in international projects, which is already an early sign that we will also get more traction with the CEDD technology. But as we guided in -- early this year, we will see a turnover coming in not before 2020.

Before I go a little bit further into the segments and not spend too much time, because I can imagine that there will be questions to get more flavor about where we are moving with TKH. Very important remark to be made is that the order book organically grew with 13% in the first half year. And that is a really strong sign that we are really on track for organic growth in the second half year, and also the strong pipeline for projects, where we were and are very close to getting orders, make us very confident in the outlook for the second half year, which -- yes are quite good perspective in the return on sales for the second half year of around 30.5%, if you take the upside of the bandwidth that we guided for.

Yes. If you go to the 3 solutions, the Telecom Solutions, we saw on organic growth there of 4%, and that was despite, let's say, the downturn we saw in China, where a lot of projects didn't come in. A lot of overcapacity there. However, the European market did very well, mainly based on the 5G, let's say, business that will come in, the investments that are coming in, in the coming years, we see a strong preparation in, especially Germany and France, Eastern Europe, to prepare for the network that you need for the 5G generation.

And yes, we also saw all that through our connectivity portfolio, all the components to which we, in the end, serve our customers with a complete solution for the passive network that has worked also out very well with the nice innovations we have there to improve the efficiency during the installation. Here, it was a good reward in respect of the margins that we can achieve there.

For the second half year, we will have more capacity. We still had constraints for ourselves in capacity limitations in the first half year, and that's, of course, limited our organic growth for the second half year that looks better with the capacity that comes on stream. And so we are also, in the outlook, quite positive for the fibre optic networks within the Telecom Solutions.

In the end, our telecom and corporate networks, a small organic growth, it's not a core activity, I would say, within TKH. A very small share in the turnover, but a relatively good performance.

Within Building Solutions, here we saw, of course, the impact that has a big impact -- effect on the result of TKH, and that is the organic turnover with a decrease of 9.1% within vision and security. And in the end, here we saw an EBITDA decrease of around 15%. Especially, the Machine Vision activities, here, we saw the downturn of the consumer electronic business, and another area where we saw that the turnover was down was because of some bigger projects related to performance within our customers. So no performance issues at TKH, but performance issues at our customers to introduce new innovative technology, where we will be part of with our Machine Vision technology were delayed. And the good news is that starting end of June, or within June and in July that these projects took off, and it will also be a contributor for organic growth in the second half year of 2019.

The integration costs, I already mentioned, Elling will come back with a little bit more guidance there, which kind of cost we have. You have to take into account that, of course, you have this additional cost. And on the other side, you will have the cost saving in the second half that will be eliminated in the second half. And beyond that, we will have less cost because of these additional costs that we took in the first half year to get to the additional efficiency.

In Parking, a very good and important step was the acquisition of ParkEyes. We already saw signs in last year that the number of bigger projects is getting more difficult. Here, we were very successful in projects with parking space beyond 10,000, and here we see that the market is not that big for that size of projects. So we are very glad that we have a good position, also in the medium-size and smaller parking garages, and that will also help, especially, in the second half year to get much more traction in the parking vertical to show organic growth than was the case in the first half year.

So in the first half year, we were around at the same level of turnover as compared to the first half of 2018.

In Tunnel & Infra, we see also a good contribution of Lakesight with the vision technology. And especially, in the traffic area, there's a lot of priority for further investment to reduce traffic jams, not only in the Netherlands, but especially, I would say, in Europe, and new for us is the United States, where we are penetrating and are successful with our technologies. It is, of course, getting more efficiency on the road, and through that, less traffic jams. But on the other side, also traffic enforcement is a very important area where our technology, the vision-based solutions are working out very, very well. And we see more and more applications coming in and projects coming in, where we get our traction to get also into organic growth.

If we look into connectivity systems within Building Solutions, we had a quite strong organic growth of 6.3%. Especially, the investment in the power networks is a very interesting area at the moment. I believe, throughout Europe, for us, it's more the Benelux where we are active. And through our investments in the past few years, we were very well positioned to address the growth, and expect also there in the second half year, very nice opportunities to further enhance our growth in that area.

We also saw growth in the data cable systems, much more limited than in the power networks. I already mentioned in the Marine & Offshore, the effect of the limited turnover of subsea cable systems, but also good news that we will be -- we'll have interesting utilization in the second half year. And we did not reduce our cost in the first half year because of the fact that you have very experienced operators in this factory that you cannot turn on and off. So here, you have to have an outlook where you focus on in respect of the utilization. And again, very promising what additional turnover we will get there in the coming quarters.

We saw also growth in the marine -- and -- in the marine industry, the ship building industry. Especially, the cruising ships is doing very well. We are very well positioned in that area. And we will also see more and more turnover coming in there from the vision and security activities in this segment in the coming 1 or 2 years. And that's really an exciting area.

Tunnel & Infra, we -- I already guided that in respect of the AGL technology, we are doing very well. Airfield ground lighting, it is a LED-based system. We are really, really performing very well in that segment with our technology, which creates a lot of demand, and there are a lot of opportunities in the projects for replacement of LED or light systems. And on the other side, the expansion in airfields that we see, and for additional runways and taxiways, where we are also positioned with this technology to be a part of.

CEDD technology, no big takeoff expected in this year, but we are really strongly positioning for a really strong take-off in 2020. Size of projects that we are quoting for has gone up to EUR 10 million, and many projects also, of course, more close to -- between EUR 1 million and EUR 5 million, but really excited what we can do in this area.

Then manufacturing systems, here I already mentioned that we had an order book for the total of TKH was an organic growth of 13%, and also our manufacturing systems contributed in the growth of this order book doing very well with, especially, our MILEXX technology for truck building. A lot of orders came in for the MILEXX. It has really a high appetite in the industry to work with. This is always a very good technology for truck tires. So also for the second half year and also moving into 2020, the outlook is quite positive there.

Also the traction within the top 5 is doing very well. And we see, especially in the top 5, much more stable position in respect of investments than that you see outside of the top 5. Outside of the top 5, the market is more cyclical than within the top 5 in relation to the investments. And we see, especially within the top 5, also coming in more and more replacement of existing technology, and the replacement is organized to improve the efficiency and to improve the potential for profitability and to build, in the end, also better tires and more innovative tires. And we see a lot of innovations today in the tire industry that meet the TKH technology.

So no weakness shown there in respect of the order intake. The order intake of the first half year was even higher than it was last year. And last year, we had a record high order intake in the first half year.

So yes, what we saw as a kind of negative effect in this segment is the connectivity part that still exists in TKH, which is a very attractive area with very high return on sales. And there, we saw some negative effects of, let's say, the end markets, the robot industry, in the automotive sector. What is very good that we see compensation coming in from the medical industry with very high-end technologies and for very important applications, where we are on the move. We acquired, a year ago, a company in Ukraine for high-end medical assemblies and miniature assemblies. And we have a very specialized location there to work on this. And the potential for this is really big. And we believe that, that has a lot of compensating power for, perhaps, further downturn you might see in the automotive and robot industry.

Yes, and also, last but not least, a very good news with respect to the UNIXX. We had a few months delay in the end. Here, we guided, I believe, in March during the presentation that we would deliver the equipment in Q2 that -- that will happen. There were still some -- there was still some fine tuning necessary, and all this additional cost, of course, also was taken into account in the first half year. And we guided also that it would continue partly in Q3, but the good news is that we will deliver, and that the customer has approved the system for delivery. So a small delay, but very exciting what this technology can offer. And we will all see this as a kind of interesting opportunity for further investments from our customers already in 2020.

And in that respect, we are still, let's say, quite close to the original idea of the market launch and had a market launch in 2020 -- was the original plan when we guided for that, I believe, starting in 2016.

This was my part of the presentation. I like to hand off over to Elling for the next part. Thank you for your attention.

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [2]

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Thank you, Alexander. Good morning, everyone. The next couple of sheets concerning the financials. Looking first at the geographical distribution, we see that, as we have seen in the last couple of years, center remains the European activities, Netherlands and Europe, good for 63% of revenue. Interesting to see is the stronger performance in North America, mostly related to our manufacturing systems, which created the delta in H1.

I will walk you through the P&L and the balance sheet. What is important to realize is that we are reporting, what we call continued operations. Of course, you all know that we have in progress and close to closing the divestment of the majority of our industrial connectivity activities. As a result, IFRS requires the financials to be reported in such a way that the divestment scope is considered to be as discontinued operations, and therefore, the P&L, the profit and loss account, going back to January 2018, it's completely adjusted for the effect of the divestment. IFRS also defines that the balance sheet, however, is not adjusted. This creates a little bit of a strange thing in IFRS, but it means that you will see the divestment case, the discontinued operations, to appear back in the balance sheet at the end of June 2019 but not in the prior reporting periods. In some areas where we have specific relations or ratios outstanding, we have made some adjustments so that you get a good comparison. Having said that, the revenue, as explained by Alexander, EUR 753 million, plus 3.5%, basically flat on organic growth. Important, I think, is to see that the gross margin slightly moved up, 47.4%, a small increase. And as you can see from the chart as well, basically, there has been hardly any impact of raw material movements and foreign exchange effects.

If I go down and take the operating expenses, which is the next topic, you'll see a big increase in the sense that the operating expenses amounted to just over 37% of sales. Prior year, first half year, was 35.5%. This is a delta of EUR 21 million. The EUR 21 million OpEx increase relates to a few main elements. The first one is the consolidation of the acquisitions into H1. So this caused an OpEx increase effect of EUR 12.5 million; the foreign exchange effect, a small EUR 2 million effect; and as mentioned earlier, we had some integration costs in Building Solutions, the amount of roughly EUR 1 million to EUR 1.5 million. Still, there is a substantial cost increase if you compare it to the top line development. And that's exactly the topic for today, I think, and addressed by Alexander. In some areas, we run very high gross margins. You know that our Machine Vision activities are running at gross margins close to 70%. So a drop of a few million in sales causes a big bottom line effect. And this is very difficult even if you want to do that to compensate this in OpEx savings because we strongly believe in the Machine Vision strategy, the market itself, but we have to shift some of our resources to the addressable markets where we see potential for further growth. You don't want to kill the resources by a downturn in one segment and basically put at risk your strategy going forward. But it had a clear effect in H1. As a result, the EBITDA came out to EUR 77.6 million, return on sales of 10.3%, and that's 8.8% lower compared to the EBITDA of prior year.

We have also, to make it more easy for some of the analysts at least, also to deal with IFRS 16. The leases, basically, are being brought into the balance sheet environment. This has also some impact on OpEx level because within the operating expenses, we have seen, and that's highlighted in the sheet, the depreciation level increased with almost EUR 10 million of which, by far, a majority, just over EUR 8 million came out of an IFRS 16 effect. It found its compensation as well in lower manufacturing and housing costs. So all in all, I'd say, bottom line effect is very minimal. And you can find it in the press release with full disclosure in the attachment.

Then the items below the EBITDA level, I think, clearly, the amortization costs are increasing. EUR 18.5 million in first half 2018, EUR 24 million and a bit in the first half of this year. The effect of the acquisitions, mostly Lakesight is, of course, in here, because out of the EUR 24 million, just over EUR 11 million is related to purchase price allocation and EUR 9.9 million is related to R&D.

Going forward, basically, the second half of the year will have a slightly higher amortization level as we had some of the acquisitions kicking in, in the second quarter this year, the smaller ones, but that leads to a slightly top-up for the second half of the year.

Then the financial expenses, EUR 4.5 million negative compared to EUR 3.8 million last year. Also here, you find back to IFRS 16 effect. About EUR 1 million in interest came out of the IFRS 16 introduction. Some of the lease fees are split and the -- at least the financial cost, and you'll find it back on this line, but they were partly offset by the lower foreign exchange losses.

And the next line, results from associates, there you also see a reduction compared to last year. In 2018, the majority of this line consisted of the result coming out of our participation in the joint venture we have in China regarding pre-form manufacturing. Well, you might got -- have gotten from the previous occasions that we met, that the fibre optic market, especially in China, had been in some turbulence, and still is, that has caused, in the first half of this year that level of profitability in the pre-form activity company has reduced, and therefore, our stake into that particular result also dropped. We expect for the second half to be a slight increase in performance there so that can help a little bit.

And the tax rate, about 23%, roughly similar to last year. And also, going forward, I think the 23% applies to TKH.

This leads to -- here we go down all the way to the bottom line to our definition of net profits, the net profit of continued operations before amortization and one-offs, almost EUR 46 million, and that's a drop of 9% compared to last year.

We look at the balance sheet, the balance sheet has extended from EUR 1.5 billion to EUR 1.7 billion, roughly. You'll see there in the tangible right-of-use assets. That's the effect of IFRS. That's about EUR 74 million, which came to the balance sheet. And what you also see, and that's completely at the bottom assets held for sale. And on the, of course, the liability side, you see a similar amount or similar position for the divestments which I reported on, which has, let's say, presented separately in the balance sheet and are no longer forming part of the line items on the 30th of June as they did at the end of 2018.

Our net debt, just over EUR 400 million. We ended last year with EUR 327 million. Few main tickets, I will get back to that in a second. It leads to a net debt/EBITDA of 1.9. And of course, we have a target of 2, but we are just at the border there, but we see de-leveraging in the second half of the year.

Working capital, we end up with EUR 245 million, as a percentage of sales, 16.5%. Percentage-wise, fairly much the same as we have seen in the middle of 2018. We always have an effect that at the middle of the year, we are at a higher end than at year-end. The same will happen this year. And of course, here, in the like-for-like, we also have to deal with this element of assets held for sale, which is part of this equation. But percentage-wise, we basically come to the similar level as we have before.

Our net debt development, as I said, EUR 327 million is where we started the year. The cash flow from operations was about EUR 72 million, but we also had quite a few bigger tickets. Of course, our investment levels for the tangibles and intangibles, we come to about EUR 38 million for H1. I have mentioned in the last occasion that total investments will be about 5% to 10% lower than last year. That's also how it's going to work out by year-end. We are well on track with that. And of course, the investment levels in the intangibles, the EUR 19.4 million. A big part is, of course, related to the R&D. Also there, we have seen that R&D expense in the first half 2018 was EUR 30 million. Total expense at H1 2019 is EUR 33 million. That includes also some parts coming from Lakesight, and the level of capitalization is still 50%. For about 16.6%, 16.7% has been capitalized.

A big ticket in terms of cash out, almost EUR 60 million on dividends, which came at the end of Q2, which leads to a net debt of just over EUR 400 million. And of course, I should not forget the 2 smaller acquisitions, which we did, which also caused some cash out. Of course, we are working on the transaction regarding the divestment of the industrial connectivity scope, and that should bring some cash in in the near future.

Closing off the presentation part of this with the outlook. Alexander already mentioned a few topics. If I look at the 3 solutions, in Telecom, the demand for fibre optic networks remains high in Europe, and we have a strong position in Europe. So we also believe that in the second half, we can benefit from this. We also have the available capacity in order to handle this coming in the second half this year. And therefore, we expect that both turnover and results will improve slightly compared to the first half of 2018.

For Building Solutions, we see positive developments going forward, second half, both in connectivity and vision security. The order book is good, the intake is good, and we see also a level of potential orders, which is quite positive and healthy, and we believe that we can use that to strengthen the case for the second half. So here, we expect definitely the turnover, but especially, the results to significantly increase in the second half compared to H1.

Industrial Solutions. The turnover and result, we expect to see a slight decline despite the increase in order book. We see that some of the tire manufacturers outside the top 5 are shifting some of their geographical allocation in terms of project allocation, and this leads to some shift in our activities. It will be a good base for 2020, that's for sure, but it helps -- doesn't help really the second half.

So all in all, we expect that we will achieve a net profit of the continued operations before amortization in the range of EUR 106 million to EUR 112 million compared to EUR 110 million, which we achieved last year in the like-for-like.

I think, so far, the presentation part. And let's open up for questions.

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Questions and Answers

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [1]

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Emmanuel Carlier, Kempen. 2 questions. First, on the order book. Could you give a bit more details on that? Like the size of the order book? And how the incoming orders improved year-over-year? And then secondly, and the most important question, so I think you explained quite well why 2019 will be lower than we all expected. But how do you look at 2020? Because yes, the macro environment is weakening. Yes, you missed the expectations in H1. So what gives you the confidence that you could go back to organic topline growth and EBITDA margin expansion as of 2020?

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [2]

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Yes. Perhaps, the order book, Elling...

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [3]

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Yes, the order book came out at EUR 463 million, and that's roughly EUR 60 million higher than we started the year with. Of course, the main contributors to the increase of the order book are in Building Solutions and also a little, of course, coming from Industrial Solutions. It's -- if you look at -- because your reference is to prior years. I think this is a more -- a bigger step-up than we have seen in the deltas of the last 2, 3 years.

If I take out some of the movement, which we have seen with regards to Industrial Solutions, basically, the tire equipment where you have seen some fluctuations sometimes in the order intake. But if I eliminate this for a second, then underneath the other segments have a higher level of order intake, resulting in a higher order book than we have seen prior.

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [4]

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And then the, let's say, organic growth, the traction that we are getting in the second half is mainly based on long-term investments that we did, has started already in partly in 2016 and '17, where we now really have good traction to achieve substantial turnover. And that is related, especially, within Building Solutions, in the Machine Vision area, with very good traction in environments related to, for instance, the battery business, the solar business, I already mentioned, traffic in the Infra segment. And yes, a lot of innovations that we have there that move this in very good new projects where we get confirmation that we are really at the high end of what is possible.

And with respect to our traction also have more market share opportunities than others should have. We just won also a very challenging project for the Olympic Games, where you will see that more and more companies will start this all kind of analysis, sports analysis, where we have been able to be selected on a worldwide contest to win this, and proved, again, that we are the best in respect of what you can get in technology.

That gives us a lot of confirmation how we are on the move further with the Machine Vision activities, not too much related to the environment, where we see a weakness coming in. You don't hear me talking about automotive, you don't hear me talking too much about the robot industry, but a lot of other applications where we are really getting good traction.

So we are not so positive about consuming the former data book that will come back in the coming half year, or perhaps, even not in 2020, although, we see also some kind of downturn in that area because of the fact that the innovation rate of the smartphone business and tablet business has been at a very low level. And we live also from innovations. If you get high-end innovations, you need different inspection technology, and we have the technology available. But yes, if the innovation is not there, you can refurbish existing equipment. So we believe that there will come in more innovations also in the smartphone business, again, and that will also be a driver for further investments in that area, even when the demand goes down for this -- for consumer electronics.

We have not really taken that into account, as an -- as let's say, the driver for our organic growth in second half of 2019 or 2020, but it is an opportunity that we might see coming in the coming even quarters.

Subsea is an important area where we have seen no turnover in the first half year. We will see continuous further utilization of that activity, and we are talking about bigger projects. So the step-up in the utilization is big. And also, then you get relatively high impact on your organic growth. The same applies to Airfield Ground Lighting. And again, I already mentioned, for instance, the traffic enforcement, which is also a very interesting area where we are moving into the U.S. market. We see a lot of positive effect coming in, and that's developed during the first half year, especially, within Q2 is the security area, where we see that the market in the U.S. is being more and more protected for imports from Asian manufacturers. And so there, we see also move into our direction with the technologies that we have, and we saw also already signs it, especially, in the governmental areas that there's more focus on European technology instead of technology coming in from Asia.

And that's -- those kinds of confirmations make it possible to get into an organic growth that we have accounted for in the second half year that was already close to 10% in the second half year for only Building Solutions. And so not a one-off situation, it is spread across a lot of activities that we have and markets that we are in. And again, we are quite excited what perspective we also have going forward in 2020 and the years beyond 2020.

And it's part of our strategy. The focus where we put our investments, here you see that we don't put the investments too much in the industrial area, where also for the coming years, it might be more difficult to get your organic growth. Although, there are also still opportunities based on the innovation that we have. I already mentioned the UNIXX, which is really exciting. If you ask Harm the question to tell a little bit about that, he will say really the sun shinning what is -- how he feels about that the really extraordinary technology that we have in our hands. It's really extreme successful that we have reached our goal there, which you could also see as a kind of mission impossible. Others have not been successful already for a longer time to develop such kind of technology. It is really, really disruptive, and it will get a lot of excitement in the Tire Building industry, we believe.

So we have very strong positioning that we feel really comfortable. Was the first half year for us a surprise? No, it was not, but let's say, in our guidance, we look at, let's say, the guidance we saw from analysts coming in, and I believe we are not that far away from the guidance and the forecast that analysts see for TKH.

We are really on track in respect of this organic growth and for a strong part related to the innovations that we have.

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [5]

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(inaudible)

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [6]

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So 2020, especially. But I also believe, not that far away in 2019. But I don't know what happened in respect of the discontinued operations and if we have a mismatch there. But yes, again, the second half year with an organic growth that is substantial and return on sales of around -- between 13% and 13.5% is really looking very good.

And yes, there are some one-off costs. Have we could have perhaps taken as an extraordinary, and then it would have normalized more and you would have seen another picture. We could not be too specific on the 12th of June with respect to this one-off cost. We will have in the integration some other one-off costs that we could project. However, had that was not in our net profit guidance because it's before, let's say, one-offs. And -- but we are running this integration program, and we see a lot of opportunity also there and further profit improvement. I believe what we have seen in the first half year is relatively small to the next improvements that we can see in the integration and additional profit that we can get. And that is all related, again, to the bandwidth that we have showed, and I believe, we've already covered a lot of that bandwidth in the year 2019 to finish these integration projects and that also gives a lot of additional power for our profitability in 2020.

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [7]

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(inaudible) in 2020, we basically imply 30% to 40% growth in net profit. So (inaudible) that's basically because the order book is quite limited in size. So I think the order book, I would say, in the second half of the year. (inaudible)

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [8]

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That is a -- the sales funnel is also very important. It's a very important indicator. And where you see if there is a demand or not, are there projects around or not, and we see that in the areas that we are focusing in that the projects are there. And that we are not disappointment -- disappointed about what we see in the environment. Here in some areas, we are even getting more excited about the opportunities than that we were before. It has to do with the traction and the innovation that we have, and the confirmation we get from the market, what we even see as a good example of a reference that we get from one of our customers, where we introduced innovative technology that he's writing reference letter to us to, yes, not even -- we even do not ask for that.

So excited is the market about what we have. And then, again, the translation into quotations gives you quite a good picture of where you are able to move. So order book is nice, but we also see that we are in a lot of projects that have a shorter-term horizon in respect of execution. So not taking 6 months to execute the project and deliver the project, some of these projects can already be fulfilled the demand in a few weeks. And that means that your order book is not really representing, let's say, the trend, of course, partly, it is. It is nice we have this 13% organic growth, which is a good sign, but yes, the sales funnel is for us an even more indicator to know that also for the more short-term deliveries that we are really on track.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [9]

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Martijn den Drijver, ABN AMRO. I'm still a little bit baffled, given what we've heard from you at the Capital Markets Day. It was very, very optimistic. I guess, it's more of a question and a statement. Wouldn't it have been wiser to be a little bit more cautious with regards to the short-term outlook and what you see in terms of cost because now there's a big mismatch between what the market is expecting, what you're reporting? It also goes for 2020, in my opinion. Consensus for 2020 is for EUR 148. You're guiding now for EUR 106 to EUR 112, that means a substantial pick up in 2020. I have a hard time reconciling that. So question mark and statement, would have been better to be a little bit more cautious or maybe even say it's more back-end loaded than what we have seen today? First question.

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [10]

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Yes, I believe that the -- what you saw at Capital Market Day is what you get in the end. How do you show the managers running these businesses was really excited. They are hands on, they are very committed to the potential that we have. We have not, let's say, put up the show there. It is really whatever is in our hands. And yes, the opportunities are very, very positive. Also in the Machine Vision, you have seen 2 presentations, both from 2D and 3D, and we are really on track there to get into the execution that we are eyeing on with our internal targets. And the internal targets back up, let's say, organic growth. And they also back up, let's say, the big step-up that we are eyeing on for the return on sales.

So yes, I believe we would have misled if we would not have been that open about what's going on in the TKH Group.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [11]

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Appreciate that, but that is medium-term and longer term.

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [12]

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Of course.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [13]

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Now we have this mismatch and the shares are down minus 16%.

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [14]

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Yes, yes.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [15]

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Okay. But let's move on. If we add all the costs for integration and the preparation for the higher growth, the innovation projects within connectivity and the increasing costs for the units, what kind of delta are we talking about relative to 1H '18 to get a real apples-to-apples feel?

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [16]

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Yes.

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [17]

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If you look at the units related cost, roughly about EUR 1 million. So that's in Industrial Solutions. When you talk about the direct integration costs, talking about EUR 1 million to EUR 1.5 million.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [18]

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Any other elements?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [19]

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These are the main ones.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [20]

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Okay. If my memory serves me right, for subsea you said or indicated that it would be breakeven in 2019 and that AGL would be profitable. Now you're guiding for profitability in 2020 for AGL, probably, loss-making for subsea. Is that correct?

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [21]

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You are not that far off. Yes.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [22]

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Okay. And can you quantify something? Can you add a little bit more color there and what type of loss we should expect for subsea?

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [23]

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The loss at the end for the whole year will not be substantial, that will be relatively small and that's, especially, because of the utilization in the second half year. But let's say, in the first half year, the loss was close to EUR 4.5 million, EUR 5 million. And that is because of all the costs kept in the air to take into account the sales funnel that we have and the closeness to orders. And you cannot ramp up in a few months or a few quarters the capacity, you need to stable at this highly skilled operators that we have and also all the other costs around that the overhead, you need to keep in the air, and we are very confident. The outlook is getting even better in that area in where we are in. If we look at the number of projects and the sales funnels there, we are looking for even some periods where we will see scarcity in, let's say, connectivity products, cables.

And so yes, we are very confident that, that will be a big step-up for us also further in 2020 and 2021.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [24]

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Did you just say that you had product -- production utilization in the second half, meaning that you actually have a contract won that you're going to execute in the second -- that you're going to produce...

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [25]

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We have a letter of intent. Yes.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [26]

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Okay. Again, moving on. With regards to Industrial Solutions, a declining EBITA margin. Now the remaining connectivity activities are small. You've mentioned that in the press release yourself. So how is it possible that this is resulting in a decline of the EBITA margin by 80 basis points, especially, given that in previous periods, you've indicated that the engineering components may actually be somewhat less and that there will be more deliveries. Now normally, that would lead to a higher EBITA margin. So I can't reconcile the 2. Can you please elaborate?

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [27]

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Yes. Elling?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [28]

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There are 2 elements here. One is the connectivity, which is remaining in Industrial Solutions, manufacturing systems. That activity, I don't want to say it's negligible, that's not the case, but there, we see that the main end markets are the automotive and the robot industry. And there, we have seen that basically, there -- and let's say, the market has not the potential which we would like to see, and definitely, also not at the price levels we would aim for. So most of the delta -- the negative delta on EBITA, the majority of it is related to the remaining connectivity part, where we have overcapacity in the facilities. That's the main thing.

The other equation of your question about the engineering, basically, getting to a kind of new normal structure, that is partly the case. But at the same time, that has been very much in effect with the top 5, if you also see currently, and that's what we mentioned, the MILEXX is one of the key, let's say, drivers in intake as well. There, we also have this effect of engineering, not to the extent that we are, let's say, having negative pressure on the result, but that's why you don't see the topline growth in that particular area, compensating the overcapacity in the connectivity, which we have for the robot and automotive sector.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [29]

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Okay. So now we've had 2H '18 with a relatively high engineering component. H1 '19 we have a relatively higher engineering component. When is the actually delivery going to take place and when is the actual EBITA margin expansion going to occur?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [30]

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Now that -- of course, you have -- as you go along, there is some margin taken, not everything, of course. So that's going to come H2 and in 2020. Most of it in, of course, is coming in the near future. The only disclaimer we have put here is that we have seen that some of the non top 5 players, and then you have to think, for example, some of the Asian players, as a result of quality headlines which we read daily in the newspapers, are reallocating the, let's say, investment decisions in terms of geography. And that has some impact in the actual shipments of where we need to ship. That's, let's say, the second half of the year, why we don't see the growth in, let's say, the results in the second half in manufacturing systems.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [31]

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But you have a pretty long -- you can actually predict really well when you're going to sell something because these plans, these CapEx plans do not change from day-to-day, unless there's something catastrophic happening. So I'm still surprised. I can see that there's a shift from geographies to one geography to another, but that will only impact plans for your results in 2, 3, 4 years down the line.

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [32]

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Not necessarily because there are some facilities where, let's say, the larger firms have multiple locations. And if they decide to shift from one location, if I call, a location in North America back into Thailand, where they have facilities in place, that's a fairly, I don't want to say quick thing, but it definitely doesn't take more than a couple of months.

Yes, so there are facilities, which have to be upgraded, which they expand. The original plan might have been, as an example, North America. That's probably not an option for some of them. So that's why they reallocate this to existing facilities, for example, in Asia or in Europe.

And that has a push on delivery time within our organization, no cancellation or anything like that. It's the reallocation effort.

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Martijn P. den Drijver, ABN AMRO Bank N.V., Research Division - Analyst [33]

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Okay. And then my final question is with regards to the divestment, connectivity systems. Can you please elaborate what the actual cash inflow of that transaction is?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [34]

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We will disclose this a little bit more at a later date, but if you look at the total value of the transaction is EUR 113 million. There are some debts included as well. Equity value is about 95%. Of course, we are going to take a stake as well, which is roughly EUR 16 million to EUR 17 million, if I round it off. And there's other figures, I think, you have to work with. And of course, there are some tax effects and some other net debt components, but these are the main items in there.

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Michael Roeg, Banque Degroof Petercam S.A., Research Division - Analyst [35]

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Michael Roeg, Degroof Petercam. I have a question about the disposal program. We've seen now one large divestments coming up, after which, you will take an equity stake. Is this what you have in mind for future disposals as well? Or will those just simply be sell and get rid of them?

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [36]

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Yes. We always keep this option open, but the options that we are now looking at is 100% divestment.

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Michael Roeg, Banque Degroof Petercam S.A., Research Division - Analyst [37]

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Okay, good. Then about this particular disposal, it's now recorded as net profit from discontinued operations, which you exclude from your adjusted net profit. But shouldn't you actually include 44% of that result? Because eventually, it will come back as associates.

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [38]

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Eventually, that is the case. But at this point, we have not included that. That's correct. We talk about the continued operations in TKH, but we did not -- absolutely right in the sense that, let's say, for the remainder because it's a matter of when closing, et cetera, will take place. How much still then could apply to our share in that particular result for this year, but that we have not specified indeed.

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Michael Roeg, Banque Degroof Petercam S.A., Research Division - Analyst [39]

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Okay. So we have to keep it close on our radar. Otherwise, when you start including it all of a sudden your profit growth will accelerate.

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [40]

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Good point. But you know from the, let's say, the attachments in the press release, roughly what kind of margins have been made in this particular scope of companies. That gives you a good reference, I think.

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Michael Roeg, Banque Degroof Petercam S.A., Research Division - Analyst [41]

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Good. And I have a question about the backlog. Roughly, what percentage of that backlog is from your growth verticals?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [42]

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I think probably 2/3 to 70%.

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Michael Roeg, Banque Degroof Petercam S.A., Research Division - Analyst [43]

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So your visibility is somewhat better for growth verticals than for the non-growth verticals?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [44]

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If you look at one particular one, which is, of course, well known. I mean, the tire vertical, that is a major in terms of absolute figure contributing to this order book level.

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Michael Roeg, Banque Degroof Petercam S.A., Research Division - Analyst [45]

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Okay. The letter of intent from subsea is not included yet?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [46]

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No.

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Michael Roeg, Banque Degroof Petercam S.A., Research Division - Analyst [47]

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Okay. And then a final one. Will you please reconsider issuing quarterly trading updates?

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [48]

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We were actually thinking about once a year.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [49]

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ING, Tijs Hollestelle. Then I probably will drop conference on TKH. That's -- I agree with Michael, the timing of deciding to stop quarterly reporting is, yes, I'm not very happy with that because there are so much going on the disposals, you continue to do acquisitions, you have integration, the economy is on a turning point. Because the elephant in the room here is that no one can predict what's going to happen to the end markets, but your story is based on what you get out of the markets, but the share price reaction today is that the investors are already anticipating a potential recession. And we are now reporting in August. So in 7 months, we hear back from you. And I think that we're in a crucial stage now.

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [50]

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And we will see, let's say, a big deviation from what we see now. We will take the responsibility to communicate with the market. So this is what we see happening in -- until the end of the year. I believe this is the strongest guidance that we can give you, and we even guide you that ahead, and also the upside of the above side of the bandwidth is feasible. And yes, there's not any indicator this moment that there is a sign that we should draw back there. If that happens, now with this very specific guidance, we will come back to the markets, but we are really quite confident that this will happen what we have guided for. And to be honest, there is some conservatism even in that guidance because we also hear what's going around. And we see some very steep drop backs in demand in the automotive sector. Now we are hardly in the automotive sector. And even within the Tire Building activity, it's not so much related to the automotive sector because a big part of the Tire Building is also replacement of tires, and we are also in the replacement cycle of existing capacity with the high-end innovations that we have to improve the profitability of our customers.

But anyhow, we will come back and take our responsibility if it is necessary. In October, if we see different environments in a negative way, but also even in a positive way, we might give a short message to the markets where we are. And of course, we know that the market is getting more sensitive. And in that respect, you can say, it's unfortunate that we decided last year, but not knowing what was really going to happen this year in the environment with all the trade war effects and that -- the market is so sensitive that you need to have perhaps even a monthly communication to tell what's going on.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [51]

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Yes. Because the one thing that gives me confidence that you guys are around, let's say, back in 2008, and I know that TKH transformed a lot since, but you also then there were a lot of good products and a lot of different business and end markets. So have you already set up additional meetings in order to really focusing on the early warning signals you got back then? Because you guys were both around. So you probably remember that.

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [52]

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Of course. But we can say that we have the weekly, let's say, turnover and order intake that it looks really, really very good. And the Consumer Electronic business, we already guided a long time ago, already with the half year results last year, that it didn't look well. And I believe that has been, perhaps, miscommunicated by us that, that would have also a big impact in the first half year. And that is the problem that we were running with the innovations in other markets that we will be back on track for organic growth once here this Consumer Electronic is utilized. Last year in the second half, the turnover was already down. So it's already much easier for TKH now to grow, to have organic growth in the Machine Vision segment.

So we are really quite confident, we have a very good dashboard, and we're also there to say we don't cut the cost. We have cut costs, but that was more an efficiency program and it was not downsizing the capacity that we have. And if we would fear there, then we would be the first to really decide to cut down costs there as to we use the capacity, but we also have customers that are really excited. I mentioned this example of this letter for the CEDD technology. It's not that we are dreaming away that we have something nice enhance now, the customers are even more excited than that we are ourselves. But that's, perhaps, our conservative attitude.

And a conservative attitude is really also translated into the outlook that we have at this moment, and we are working very hard to see that we do better, and at least that we are a really good positioned for 2020 to take advantage and to get also to forecast that we see that are not unrealistic.

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [53]

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Just to add maybe 1 or 2 sentences. The reference to 2008 is, in a way, quite correct. I mean, if you look at TKH, I mean we have quite a lot of operating entities. And part of the program, which we launched in the Capital Markets Day, it's not just cooperation, but also consolidation. Simplify means also less entities, all these kind of elements. And that is, let's say, an agenda, which is ongoing as we speak.

So when we talk about, let's say, setting the agenda going forward, I mean, it also -- it takes into account the lessons we have seen in similar kind -- I don't want to say similar situations as 2008, but volatile markets and the effects which it can have on our group. And of course, that sets certain actions and tightens developments in particular areas and certain market segments and that's the agenda which we carry forward.

So from that perspective, I mean, we see from all the different activities, the opportunities and also the challenges, but we are, let's say, organizing ourselves to face both sides of the equation.

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Tijs Hollestelle, ING Groep N.V., Research Division - Research Analyst [54]

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To put it differently, if you made additional investments or capacity expansions in subsea cable, I would be more comfortable than you do it in crew vessels because that market will no longer exist if the sh** is going to hit the fan. But that is also taking into account that your clients can say anything to you and be very energetic unless they're going to be hit with no demand themselves and then they're gone. So that's the big worry at the moment.

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [55]

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But let me now, we are looking also beyond what customers think and have good analysis of the environment, you can be assured of that.

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Unidentified Analyst, [56]

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[Mark Baker DID] A couple of questions. First of all, if my memory serves me well, last year, you had also some additional costs out of cost and technology cost of close to EUR 5 million. That's correct? H1 last year?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [57]

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Yes, but it's a different kind of cost. And then we've talked about start-up cost and start-up cost is more related to getting technology under control, get it introduced, et cetera. That's not what we're talking right now. So also the -- let's say, the loss which was mentioned by Alexander in subsea, that is not what we call a start-up activity. I mean, that's a, let's say, a capacity issue because of lack of orders, but not a, let's say, getting into control of the technology kind of related costs.

So that's a different flavor there.

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Unidentified Analyst, [58]

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Point taken. Furthermore, if you look at your order book, is some kind of seasonality through the year. So now you compare your order book with last year. But for example, what will be with midyear last year?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [59]

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There, we also see a kind of similar effect, but of course, I think it's relevant to look at let's say, most recent developments as a lot of you refer also to the macroeconomic environment, I think it's better if you look at the most recent data, which we communicated, which was at the start of this year. So quite some effects are already in that order book from that particular point of view.

There are not that many seasonalities in our business, as I mentioned earlier. I mean, we have seen order intake in the tire business, fluctuating quarter-to-quarter. But I already mentioned earlier, if I take out that particular part, then the rest is fairly in balance, and that's, of course, mostly in Building Solutions.

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Unidentified Analyst, [60]

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And if you look at the order book, how much is for this year? And how much is for 2020 and beyond?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [61]

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By far, the majority is, of course, for this year.

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Unidentified Analyst, [62]

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When we look to the EBITA, which declined from 85.1% to 77.6%, could you provide some kind of EBITA bridge with contribution from acquisitions? You already hinted a bit on ForEx and other noncore.

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [63]

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Let's say, if I give you a little bit of help there in the sense that -- I mean, I made quite some reference to the increase in OpEx. There, you see that there's a substantial part coming out of that equation. If you look at the contribution coming out of the acquisitions, you're talking about something in the range of about EUR 2.5 million. So I think that helps you a little bit on getting the autonomous effect on EBITA.

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Unidentified Analyst, [64]

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And lastly, for H2, achieving such a profitability, what kind of organic growth are you penciling in for the second half?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [65]

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Obviously, this is substantially up. I mean, Alexander already mentioned to the 10% growth expected in Building Solutions. If you look at organic and inorganic then, of course, everything on the inorganic side is in Building Solutions. Lakesight, the main contributor in that respect was already in since October last year. So we're talking, let's say, probably in roughly half of the growth is coming from the organic part within the TKH Group, let's call it like that.

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Unidentified Analyst, [66]

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(inaudible) just a follow-up on the last remark with regards to the EBITA contribution of acquisitions. Lakesight was acquired October 2018 so you have a full 6 months. Given what you said about EBITA margin, the 2.5% seems incredibly low.

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [67]

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True. But I'll really talk about the integration part that's part of the effect in the acquisition. The Lakesight acquisition led to us getting to the machine group integrated. And that, of course, puts pressure on the result of that particular activity. Formulated differently, if I would take out the effects of Lakesight being in the group, and therefore, let's say, the integration would have been done differently, you would add EUR 1 million to EUR 1.5 billion on that result.

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [68]

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And then we had some delays there, not related to the industrial environment, but delays with the technology of some of our customers that originally planned, let's say, turnover and projects in Q1 and Q2 moved into Q3. And that's really one-off has nothing to do with the economic environment.

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Unidentified Analyst, [69]

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(inaudible). Maybe a few questions on Telecom. Considering the price pressure in China, did you ship any products into China in the Fiber Networks system business? And this is now fully a European business?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [70]

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It's minimal, what is done in China. So almost everything is in Europe because that's really the place where we are able to get good margins, where the markets are, let's say, are robust in terms of demand. We have good propositions. We're in the network projects. So we are a little bit shielded from the, let's say, transparent cable prices, which, especially the Chinese try to bring into Europe. We combine our cable activity together with connectivity, and that gives a good compensation to some of the margin pressure, which we see on the pure cable side. We have no reason from that perspective to really look for market share in China as we have already have been doing that for the last, I would say, 2 years, shifting everything back to Europe.

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Unidentified Analyst, [71]

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Okay. But do you then see purely on the cable side, you see some spillover from the price pressure in China to Europe?

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Elling D. Hengelo de Lange, TKH Group N.V. - CFO, Head of Personnel & Organization and Member of Executive Board [72]

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Not on all the cable times because I think I mentioned in the past, we have also specialized fiber, dedicated for some markets in Europe, which are not applicable in China. Chinese don't use that specification of fiber. So there is no manufacturing of that particular fiber in China, except within our facilities, but for the European market. So on that side, we don't have immediate pressure in terms of pricing.

If we would go to the standard portfolio, then we would have to face the same things. But in general, the forecasted pressure has been not that strong as we can see in H1, for example.

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Unidentified Analyst, [73]

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Okay. And then maybe on Building and Machine Vision. You're talking about some end markets you've not talked about before, like solar, battery. If you enter these new market segments, does that impact the margin profile in Machine Vision or is it a similar type of margins?

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [74]

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It's a similar type of margins here.

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Unidentified Analyst, [75]

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Even initially when it's maybe a new business, it's still a typical type of margins?

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J. M. Alexander Van Der Lof, TKH Group N.V. - Chairman of the Executive Board & CEO [76]

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Absolutely.

Okay. Thank you very much for your challenging questions. I believe we are really looking very positive in respect of where we stand as TKH. I hope we get your confidence and that we can prove that we are very successful. Also, thank you to the audience in the webcast. If you have any questions, you can send them by e-mail or call us, but especially with e-mail, and then we will come back to you to answer the questions.

Thank you very much. Looking forward to see you in the coming quarters during the roadshows, and thank you for your attention.