NKT A/S

Welcome to this NKT financial presentation for the first quarter of 2025. For the first part of this call, all participants are in a listen-only mode. Afterwards, there will be a question and answer session. To ask a question, please press five star on your telephone keypad. To withdraw yourself from the queue again, you may do so by pressing five star again. This call is being recorded. I will now turn the call over to speakers. Please begin.

Ladies and gentlemen, good morning and welcome to today's conference call following the release of our interim report for the first quarter of 2025. My name is Claes Westerlind, I'm the CEO and I'm joined today by our CFO, Line Fandrup. As usual, I will cover the overall development and the business lines in the first part of the presentation and afterwards, Line will take a deeper look at the development of the financials for the quarter. Please turn to slide number three. Before we begin, I ask you to pay close attention to this disclaimer as this presentation may contain forward-looking statements. Now, let's move on to our key messages for the quarter on slide 4. We were off to a solid start in the first quarter of this year. We continued the diligent focus on the execution of our backlog, resulting in revenue growth and an increased operational EBITDA of 81 million euros, driven by all three business lines. This was achieved while we were operating in a volatile world in times of uncertainty. At the same time, we maintain our high voltage order backlog at 10.7 billion euros, a level we have seen since the end of 2023. Together with additional booking commitments, it continues to give us good visibility for the coming years. The stringent focus on execution of our capacity expansion programs also continued in the first quarter. The construction of the new high voltage factory in Karlskrona progressed as planned. During the quarter, the capacity expansion at our application sites in Sweden and the Czech Republic were completed and taken into operation, and they both contributed positively to the revenue in the quarter. Last but not least, we signed an eight-year agreement with Hydro last week regarding the supply of aluminium. With this, we have secured a long-term supply of low-carbon aluminium wire rod from a well-established European partner. And not only does this agreement secure a long-term supply of aluminium, but it also reinforces our position as a sustainability leader in the industry. It underlines our strategy to improve the carbon intensity of our power cable systems, and reduce emissions, supporting both NKT's targets and our customers' decarbonisation ambitions. Let's turn to slide number six for a look at the financial performance. In Q1 of 2025, we delivered solid financial performance with organic growth of 11% and an operational EBITDA of 81 million euros. The improved EBITDA was driven by increases in all three business lines, while solutions and applications were the drivers behind the positive revenue development. From a margin perspective, the operational EBITDA margin was 12.9%, a decline of 1.2 percentage points compared to the first quarter of 2024. This was mainly a result of natural fluctuations in the product business as well as continued weakness in the construction segment. In Q1, the activity levels in the solutions business line was high, driven by continued execution of our high voltage order backlog and increased installation scope across several projects. The project execution was overall satisfactory, resulting in higher revenue and increased operational EBITDA. The higher revenue and higher EBITDA in applications were driven by the acquisition of Solidal and the additional medium voltage capacity coming online in Sweden and the Czech Republic. Volumes in the power distribution grid segment remained robust, while the construction exposed segment continued to be subdued, as just mentioned. Service and accessories more than doubled operational EBITDA as the activity level was high in both segments. Revenue was lower than last year as Q1-24 was affected by work related to large offshore repair through a legacy service contract. Now I will dive deeper into each of the business lines starting with solutions. Please turn to the next page. In the first quarter of 2025, solutions revenue increased to €388 million, up from €321 million in the same quarter last year. This equals an organic growth of 20% and was driven by overall satisfactory product execution, and installation scope across several projects, including high utilization of NKT Victoria. In addition, solutions continue to benefit from increased organizational and operational capabilities as a result of the investments made during the last years. Operational EBITDA increased to 57 million euros compared to 52 million euros in the first quarter of 2024. The margin for the quarter was 14.7% and thereby declined relative to last year due to a less favorable product mix. Compared sequentially to Q4, the operational EBITDA margin increased slightly. As we have seen over the years, margin in a product business like NKT will vary between quarters depending on the facing of the products and execution. In the quarter we saw progress on several projects in the backlog being at different stages of execution. Main contribution came from Champlain Hudson Power Express, East Anglia 3, Horn C3, Sydlink and Sydostlink. On the Champlain project we progressed with installation of the cables and the picture on the slide is from the offshore installation campaign in 24 and personally I believe that it also captures very well the beauty with our business. We continue to execute on the investment programs both in Karlskrona and in Cologne as well as the construction of the second cable lay vessel NKT Eleonora. All programs progressed as planned during the quarter and are expected to be operational from 2027. Later in the presentation I will give a more detailed status of the development. Please turn to the next page for an update on the high voltage market. Activity levels across our addressable market continue to be high in the first quarter of this year and we estimate Prodit awards in this market amounted to around 2 billion euros. Like the last couple of years the awards were mainly driven by DC technology. We managed to maintain our order backlog basically unchanged at 10.7 billion euros compared to the level at the end of last year. During the quarter, we supplemented the backlog with a number of relatively smaller orders, including variation orders to existing projects. On top of the firm orders in the backlog, we continue to have booking commitments from our customers totaling more than 3.5 billion euros. We expect these booking commitments to be converted into firm orders over the next couple of years. The composition of the backlog is unchanged compared to three months ago. From a customer perspective, more than 85% of the backlog is with European TSOs. And with regards to use applications, around 55% of the backlog is interconnected projects and around 40% offshore wind. This strong backlog supplemented by the booking commitments gives us good visibility for the coming years and thereby also into our medium term financial ambitions. It also provides comfort in the long-term development of the company. While remaining highly active in the market to further strengthen our position and value creation, it allows us to maintain a selective approach to optimize utilization across our production and installation assets. Our view on the addressable average annual market remains more than 10 billion euros in the period of 2024 to 2030, For the past two years, this number has been exceeded, evidencing the strong demand and visibility in the market. The short-term timing of awards and other decisions always come with some uncertainty, as the individual projects are getting larger in size and the investment process is affected by permits and other political decisions. With that being said, we still expect the supply-demand balance to remain healthy throughout this decade. When looking beyond this and into the 2030s, the market appears to move into a more balanced territory. When looking this far ahead, it obviously comes with a higher degree of uncertainty, but we remain confident around the importance of electricity as an important enabler to sustain modern life, including the electrification of society and general energy transition. This should support the long-term grid investments and thereby the demand for both HVDC and HVAC technology. Currently, we are all living in a volatile world with elevated uncertainty, among others from tariffs being imposed in the US. Our exposure to the US is predominantly through the Champlain Hudson project, where the offshore cables are produced in Sweden and shipped to the US. As we are in advanced execution stage of the project, we only have minor production scope and shipments left scheduled for the rest of this year. Except for the remaining part of this project, we have no U.S. exposure in our backlog. Therefore, we are not concerned with the U.S. situation directly impacting our business. Please turn to slide number nine for a look at the applications business line. In Q1, revenue in applications increased to €203 million, thereby for the first time exceeding the €200 million mark. This was driven by a combination of the acquisition of Solidal and organic growth of 11%, as additional medium voltage capacity in Sweden and the Czech Republic became operational in the quarter. The development in the construction exposed segment remained subdued, with both prices and volume below the first quarter of 2024. Operational EBITDA increased to €18 million from €16 million in the same quarter last year, driven by Solidal and the increased medium voltage capacity. The margin for the quarter was 8.9, which was a decline compared to 10.5 last year. In the quarter, the margin was negatively affected by the lower volume and prices in the construction-exposed segment, a slightly changed product mix and an increased competitive environment in selected markets. Compared sequentially to the fourth quarter of 2024, the applications margin of 8.9% was an improvement of 1.1 percentage points. Medium voltage cable volumes remain robust, driven by upgrades and strengthening of Europe's power distribution grids. We have a long-standing relationship with local European DSOs and with the additional capacity online, we are well positioned to benefit from this development. Now please go to slide 10 for service and accessories. Service and accessories had a strong start to the year. Revenue of 70 million euros was lower than last year and organic growth was negative at minus 6%. However, let's remember that revenue in the Q1 of last year was impacted by large-scale repair work related to a legacy contract. Both segments enjoyed a high activity level in the quarter. Service benefited from a number of smaller jobs, several maintenance projects and installation work and across the segment execution was satisfactory. The revenue growth in accessories was driven by increased demand for both medium and high voltage accessories. The demand for accessories continued to increase mainly driven by the solutions projects in our backlog. We are therefore ramping up production and capabilities, and during the first half of 2025, we expect a new test hall in Sweden for high-voltage accessories to be completed. Operational EBITDA more than doubled to €13 million in Q1 of this year, up from €6 million last year, driven by the high activity level and improved profitability in both segments. For the quarter, the margin was 19.3% compared to 8.1% in the same quarter last year. Please turn to the next slide for a look at our investment projects. In December of 2024, we provided an update on our ongoing investment programs and for the period 2025 to 2028, we expect accumulated capex of around 2 billion euros. This expectation is unchanged and all investment programs progressed in line with plan with some important milestones achieved during the first quarter. In Karlskrona, several work streams are currently ongoing. The tower reached its final height of 200 meters in November, and in the first quarter, we have worked on the internal installations in the tower, including electricity, sewage, water, etc., and also installation of machinery. As you can see from the picture on the slide, the roof on the tower is now completed and the construction of and within the other buildings is also progressing as expected. During the first quarter, we received the important permit to expand the harbor to handle NKT Eleonora and the appeal period is behind us. The new factory is still expected to be gradually operational from 2027. The construction of NKT Eleonora is also progressing according to plan. The key laying ceremony took place in Romania in January where the initial construction is done. Several of the hull sections are already completed and in the first half of 2026 the hull will be shipped to Norway for final equipment. As planned NKT Eleonora will be also operational from 2027. We are also expanding capacity across applications. The expansions in Sweden and the Czech Republic are completed and in Assen, Denmark, the construction is ongoing with foundation work and the construction of the new medium voltage extrusion tower. As previously communicated, the new capacity is expected to come online from 2026. In Portugal, at our site in Esposende, the relevant permissions have been received and as planned, the construction is initiated. This, ladies and gentlemen, concludes my part of the presentation, and I will now hand over the word to Lina to go through the financials.

Thank you very much, Claes. Good morning from me as well. I'll now take you through the financial highlights of the first quarter of 2025, and we'll start with the income statement. So turning to the next slide, starting out with the revenue. In Q1, we generated organic growth of 11%, driven by 20% organic growth in solutions and the increased medium voltage capacity available in applications. Additionally, the acquisition of Solidial contributed to the revenue in the quarter, which was 630 million euros for the group. Operational EBITDA of 81 million euros was an increase of 6 million, or an 8% increase compared to the same quarter last year. All three business lines contributed to the positive development. The margin for the quarter was at 12.9%. Compared to Q1 2024, the margin declined by 1.2 percentage points, mainly due to the project mixing solutions. So relative to Q4 2024, the margin was largely unchanged. Due to the investments and the acquisition of Solidal, depreciation and amortization increased to 30 million euros, and that's leaving EBIT for the quarter at 51 million euros, which is a decline of 2 million euros. When you look at the financial items, you'll see an income of 25 million euros in the quarter. That's up from 8 million euros same quarter last year. This was mainly driven by effect fluctuations related to the development of the SEC and interest income from the cash position. Tax for the quarter amounted to 19 million euros, reflecting the higher earnings level and an effective tax rate of 25%. So this leaves a net result of 57 million euros and improvement of 12 million euros compared to last year. Our employee headcount continued to increase, reflecting our growth journey and our investment to support this development. On average, almost 6,000 people were employed at MKT during this first quarter. Let's turn to the next slide to look at the cash flow. Free cash flow for the first quarter was negative at minus €308 million. This is driven by a negative effect from changes in working capital and the investment conducted during the quarter, all as expected. Changes in working capital reflected the normal facing between milestone payments and project execution in the solution business line. Additionally, the quarter was affected by the adverse timing effect from Q4, following a strong end to the year in 2024. Investments in the quarter amounted to 167 million euros, reflecting a higher activity level across our investment programmes, mainly in solutions, but also in applications. This level was more than double compared to the same quarter last year, and a high level is expected for the remainder of the year. All in all, net cash flow for the year was then negative 323 million euros. Let's turn to the next slide and have a look at the balance sheet. The working capital position at the end of the quarter stood at negative 1.2 billion euros. This was an increase compared to the record low level at the end of 2024 due to the fluctuations mentioned on the previous slide. The position remains healthy and compared to a year ago it has declined by around 500 million euros. ROSI amounted to 32% compared to 35% at the end of 2024. The decline was mainly a result of the increase in capital employed. Compared to the first quarter of 2024, ROSI improved by 10 percentage points due to the higher earning level. ROSI will continue to vary between the quarters and over the coming years. This development depends on earnings from operations, timing of payments from customers, and not least a higher asset base from ongoing investment, which will ramp up during the years. The net cash position remains at a solid €1 billion at the end of Q1 and thereby we maintain our robust financial position. This is to fund our ongoing investments across the business and in addition the strong financial foundation allows us to continue progressing on the growth journey that lies ahead of us in the coming years. We will turn the page and look at the outlook for the year. Based on the financial performance in the first quarter and the expectations for the rest of the year, we maintain the financial outlook for 2025 on all parameters. We therefore still expect revenue at standard metal prices in the range of 2.37 to 2.52 billion euros and operational EBITDA between 330 and 380 million euros. As we communicated in February, revenue and solutions in 2025 will be impacted by the fact that we have unchanged production and installation capacity available and expect lower levels of subcontracted revenue. In 2025, we will continue to execute on our backlog, mainly on projects awarded in 2020 to 2022. And like in 2024, we will have a higher cost base and solutions to support the ongoing investments and ramp up production for the future value creation. We still expect both applications and services and accessories to contribute positively to the revenue and EBITDA development in 2025. This is due to the full effect of the solid dollar acquisition, additional capacity and the good activity levels. All other assumptions presented in the annual report 2024 are also unchanged and listed on the right hand of the slide. Let's turn to the next slide. So reiterating our trajectory towards the medium term financial ambitions of 2028. We have a strong foundation for the growth journey ahead of us, and with the results and execution in Q1, we made progress towards our financial ambitions for 2028. Here we expect to have a significantly higher revenue base from more than 40% organic revenue growth from 2021, to 2028, and also an operational EBITDA of more than 700 million euros. Not least, we expect to generate a ROSI of at least 20%, reflecting the improved earning level and a solid return on our investments. Before opening up for the Q&A session, let me just recap the main highlights of the quarter on the next slide. We were off to a solid start to the year and we continued the rigorous execution of our high voltage backlog. Combined with additional medium voltage capacity, we delivered organic growth of 11% and increased our operational EBITDA to 81 million euros. We also stringently executed on our capacity expansion programs and across all sites we saw the expected progression. The progress is in line with the plan and we are on track with the programs. With the agreement we have signed with Hydro, we have secured long-term delivery of aluminium with a European partner. The agreement underlines our position as a sustainability leader in the industry, and aluminium will support both us and our customers achieving the sustainability ambitions. With this, Claes and I have concluded the presentation, and I will hand over the word to the operator to steer us through the Q&A session.