NKT A/S

Welcome to NKT's presentation of the interim report for the first half of 2025. For the first part of this call, all participants are in a listen-only mode, and afterwards, there will be a question-and-answer session. To ask a question, please press 5-star on your telephone keypad. This call is being recorded. Today's speakers are President and CEO Claes Vesterlind and CFO Dean Andrea Pantrup. Please begin your meeting.

Thank you. Good morning, everybody. And welcome to this conference call covering our interim report for the first half of 2025. My name is Claes Westerlind, and I'm the CEO. And as usual, I'm joined by our CFO, Lina Fandrup, for today's call. In the first part of the presentation, I will cover the overall and business lines development, while Lina afterwards will go through the financials for the first half of the year and the second quarter. Let's move on to slide three. Before going into the presentation, I will ask you all to pay close attention to this disclaimer as the presentation may contain forward-looking statements. Now let's move on to our key messages for the quarter. The positive development was maintained in the second quarter of 2025. The stringent focus on execution, both of our backlog and the investments to increase capacity across the businesses was maintained. Throughout the quarter, the activity was high across all three business lines, and again here in Q2, we delivered double-digit organic growth. On the earnings side, for the first time in company history, our operational EBITDA exceeded 100 million euros, which is up 22% compared to last year. This is a remarkable achievement, a notable milestone for us as a company, and it's also a testament to the hard work by all our employees. The improvement compared to Q2 in last year was primarily driven by the performance in applications and service and accessories. We also had a high activity level on our capacity expansion programmes, where the strong focus on executing with sufficient quality at cost and within the timeframe continued. Across all investments, the progress was as planned during the quarter. the new high voltage factory in Casgrona, the second cable lay vessel, NKT Eleonora, and the capacity expansions at our application sites in Asnes, Denmark, and also in Esposende in Portugal. Based on the solid financial performance so far in 2025 and the expectations for the rest of the year, we are updating our financial outlook. We now expect revenue in standard metal prices of approximately 2.65 to 2.75 billion euros compared to previously approximately 2.33 to 2.52 billion euros and operational EBITDA of approximately 360 to 390 million euros compared to previously 330 to 380 million euros. Let's turn to slide number six to take a look at the overall financial performance for the second quarter. The solid financial performance was maintained in the second quarter of 2025, where the organic growth landed at 13% and operational EBITDA amounted to 105 million euros. The high activity level across the business line was the driver behind the organic growth, with positive contributions from all three business lines. From an operational EBITDA perspective, the improvement was driven by the applications and service accessories business lines. We also saw a margin improvement reaching 14.5% compared to 14.2% in the second quarter of 2024. In Q2, the high activity level in solutions was maintained as the execution of the high voltage order backlog continued. In addition, organic growth was supported by specific variation orders and operational execution was overall satisfactory. Operational EBTA was largely unchanged compared to the same period last year. The high revenue and improved operational EBITDA in applications were driven by the contribution from the acquisition of SolidAl and the additional capacity coming online in Q1. Volumes in the power distribution grid segment remained healthy with a robust demand for medium voltage cables. The construction related segment is still subdued, but we did see a slight improvement during the quarter, but volumes and prices remain below the second quarter of 24. Service and accessories had a strong quarter. Activity level was high in both segments, leading to a positive organic growth, and with satisfactory execution, operational EBITDA more than doubled. Margins improved in both service and accessories. Let's turn to the next slide for a deeper look at each of the business lines, starting with solutions. Solutions revenue amounted to 450 million euros in the second quarter of 2025, up from 379 million euros in the same quarter last year. This corresponded to an organic growth of 18%. The positive development was driven by a continued high activity level as we progressed on our high voltage order backlog with overall satisfactory product execution. In the quarter, we also had a positive revenue contribution from specific variation orders. Again in this quarter, installation activities were high and our installation vessel NKT Victoria was well utilised. Operational EBITDA was 66 million euros and thereby basically unchanged compared to the same quarter last year. The margin for the quarter was 14.7%, unchanged from the first quarter, but a reduction compared to last year. This was due to a less favorable product mix and the margin dilution from certain variation orders executed at lower margins. We wish to remind you that in a product business like NKT, quarterly margins will vary between quarters depending on the facing of products and execution, but the larger trajectory leading towards 28 and beyond is confirmed by the performance in the second quarter. We saw progress on several projects in the backlog being at different stages of execution during the quarter. Main contribution came from Champlain, Horn C3, East Anglia 3, Sydlink and Sydostlink. In July we shipped the last segment of the offshore cables from Kasgrona to the Champlain Hudson project and focus is now on continued installation of both the onshore and offshore parts. At the site, both in Karlskrona and Cologne, the investment programs to expand high voltage capacity progress as planned. The same goes for our second cable lay vessel, NKT Eleonora. I will later in the presentation reflect on the status of the individual projects, but the main point is that all are on track to become operational from 2027. Please go to slide eight for an update on the high voltage market and our backlog. In the first half of 2025, the estimated product award across our addressable market amounted to around 3 billion euros. Like the last couple of years, the awards were mainly driven by the DC technology. This is lower than what we saw in the first half of last year, but it's still a high figure in an historical context, and we continue to see healthy tender activity. As the individual produce are getting larger in size and the investment processes are affected by governance processes, permits and other political decisions, the short-term numbers could easily vary. Our high voltage order backlog ended the quarter at 10.1 billion euros. This is slightly lower than the level from the previous couple of quarters as we have executed on the orders in the backlog. Unchanged since at the end of 2024, we on the top of the order backlog have booking commitments from our customers of more than 3.5 billion euros. We expect these bookings commitments to be converted to firm orders over the next couple of years. The composition of the backlog has changed slightly, and now more than 90% of the orders are with European TSOs. With regards to use applications, the view is unchanged, with around 55% being interconnected projects and around 40% offshore wind. Together with the booking commitments, the backlog gives us good visibility for the coming years and thereby also into our medium-term financial ambitions for 2028, which gives us the opportunity to focus on the long-term development of the company. We remain highly active in commercial pursuits, abiding to our disciplined approach to optimize utilization, risk and profitability across our production installation assets. On an ongoing basis, we are also assessing the expected market development. Our view is unchanged and for the period of 24 to 2030, where we expect our addressable market to remain on average more than 10 billion euros annually. As also seen here in the first half, the short-term development always comes with some uncertainty, but with that being said, we remain confident in the expectation of a healthy supply-demand balance throughout this decade. Our view of the market appearing to move into more balanced territory when looking into the 2030s also remains unchanged. Please turn to slide number nine for a look at the applications business line. Revenue in the applications business line increased to 234 million in the second quarter of 2025. This was driven by the contribution from the acquisition of Solidal and 11% organic growth. The additional medium voltage capacity that we have added in the Czech Republic and Sweden were fully operational in the quarter. The construction exposed segment continued to be subdued with both volumes and prices below last year, although a slight incremental improvement compared to Q1 was observed during the quarter. Operational EBITDA increased to 31 million euros compared to 21 million euros in the same quarter last year, driven by the solid al acquisition and the additional medium voltage revenue. The margin improved to 13% from 11.8%. This positive development was driven by Solidal and also the increased revenue in the power distribution grid segment. From a market perspective, we observed a slight incremental improvement during the quarter. The demand for medium voltage cables remained robust, especially driven by European DSOs upgrading and strengthening the power distribution grids. With our increased capacity, we were able to meet this demand and during the quarter, we saw a slight easing of the increased competitive environment in selected market that we mentioned in Q1. As said, also the construction-related segment remains subdued, but during the quarter we saw a slight improvement due to a modest increase in construction activity. Please go to slide 10 for service and accessories. Service and accessories continued a strong development. Revenue of 70 million euros was 6 million higher than last year and organic growth was 7%. The growth came from accessory segment as organic growth in service was slightly negative due to the high comparison base from the second quarter in 24 where we executed large offshore repair work. Both segments enjoyed a high activity level in the quarter. Service benefited from a variety of different activities including repair jobs, maintenance projects and also installation works. Execution was satisfactory and thereby also positively benefiting profitability. The demand for accessories continued to increase driven by both medium and high voltage accessories. The products in our high voltage order backlog also contributed positively to the development and execution in the quarter was satisfactory. To support the positive development, the construction of a new test hall in Allingsås in Sweden was, as expected, completing during the quarter and the facilities undergoing a gradual ramp-up. Operational EBITDA more than doubled to 14 million euros in the quarter compared to 5 million in the second quarter of 24, with the margin landing at a satisfactory 20.2% compared to 7.1%. Profitability in both segments improved and the positive development was driven by higher revenue and improved operational performance. Please turn to the next slide where I will give a status of our investment projects. We made solid progress on our investment programs, and they all followed their individual plans. This also means that the expectation of an accumulated capex of around 2 billion euros for the period of 2025 to 2028 is unchanged. In Karlskrona, Q2 was characterized by a lot of construction activities going on simultaneously at many different locations. Within the tower, we have progressed with installing both ancillary and machine equipment, and across the site, installation of machinery progressed. The first building was completed as we inaugurated the new logistics center and took it into operation. All necessary permits for the expansion of the harbor has been granted and construction started in early August. Following a public competition, the 200 meter extrusion tower was named NKT Crown alongside its sisters Lighthouse and Anchor. We are following the plans and the factory is still expected to be operational from 2027, the latest. The construction of our second cable lay vessel, NKT Eleonora, is also progressing according to plan. The completion of the individual sections of the hull are progressing, as you can tell from the illustration on the slide. The final outfitting of the vessel will be done in Norway during next year, and the planning of this part of the construction was initiated also during the second quarter. In parallel with the factory, NKT Eleonora will also be operational from 2027. In Cologne, where we also add additional high voltage capacity, the progress was also in line with plan. We initiated the installation of the new extrusion line and installation of additional equipment progressed. The additional capacity in Cologne is also expected to be operational from 2027. Lastly, in applications, the construction in Aston has progressed with the completion of civil work, including foundation cast and construction of the new extrusion tower. The installation of equipment has been initiated and the new capacity is still expected to come online from 2026. At our Esposende site in Portugal, we are seeing clear progress in the construction as illustrated on the picture to the bottom right. The additional capacity is still expected to be operational in 2027. This, ladies and gentlemen, concludes my part of the presentation, and I will hand the word over to Lina to take a look at the financials. Please turn to slide 12.

Thank you, Claes. And good morning from me as well. Let's start by going into the income statement for NKT's financial highlights of Q2. Revenue in Q2 amounted to 723 million euros, up from 605 million euros in the same period last year. Organic growth of 13% was driven by positive contributions from all three business lines, which all saw high activity levels. In addition, the solidale acquisition contributed to the revenue, and as we now have owned the company for 12 months, this business will contribute to the organic development going forward. Operational EBITDA for the quarter was 105 million euros, an increase of 22% compared to last year. The first time in the company history EBITDA exceeds the 100 million euro mark. The margin was 14.5%, a slight improvement compared to 14.2% reported in the second quarter of 2024. As Claes went through in his presentation, applications and services and accessories contributed positively to the improvement, while the EBITDA and solutions was on par with last year, mainly due to a less favourable project mix. Depreciations and amortizations are up by €10 million to €34 million, driven by our investments and the solidary acquisition. EBIT thereby amounted to €71 million compared to €61 million last year. Financial items net was a cost of 1 million euros as interest income on our cash position was more than offset by costs related to fluctuations of foreign exchange rate. In Q2 2024, the income of 16 million euros was a result of income from both interest and FX fluctuations. Tax for the quarter amounted to €16 million, equal to an effective tax rate of 23%. The low tax cost of €2 million in Q2 2024 was impacted by regulation of German tax assets. All in all, this leaves us with a net result of €54 million compared to €75 million from continuing operations last year. The net result in Q2 2024 was positively affected by 104 million related to the divestment of NKT Photonics. Our employee headcount continued to increase, reflecting our growth journey and our investments to support this development. On average, more than 6,000 people were employed at NKT during the second quarter. Let us turn to the next slide to look at the cash flow development. Free cash flow for the second quarter was negative, minus 175 million euros, driven by a combination of a negative effect from changes in working capital and the investments conducted during the quarter. Changes in working capital was an outflow of 82 million euros, and it reflected the facing of specific milestone payments in the solution business line. This development offset the positive operational EBITDA. Investments in the second quarter amounted to 174 million euros, reflecting the higher activity level across our investment programmes, mainly in solutions but also in applications. This level was almost a doubling compared to Q2 2024 and a high level is expected for the remainder of the year. Net cash flow for the quarter was negative 198 million euros. Let's turn to slide 15 for a look at the balance sheet. The working capital position stood at negative 1.1 billion euros at the end of the second quarter. This reflects an increase of 52 million euros compared to at the end of our first quarter and is unchanged relative to a year ago. These movements are due to the facing of specific milestones and solutions as described on the previous slide. Capital employee increased by 163 million euros during the quarter due to investments and the less negative working capital position. Compared to a year ago, capital employed has more than doubled, but this effect has been offset by an increased earnings level, leaving ROSI unchanged at 30%. Over the coming years, ROCI will continue to vary between the quarters as it depends on earnings from operations, timing of payments from customers, and not least a higher asset base from the ongoing investments which will ramp up during the years. The net cash position was around 750 million at the end of the first half, providing a robust financial position. This is a requirement both to fund our investments and also to continue progressing on the growth journey that lies ahead of us in the coming years. During the second quarter, we also refinanced our revolving credit facility. Let's go to the next slide for an update on the outlook for 2025. So based on the financial performance so far in 2025 and our expectations for the rest of the year, we have updated the financial outlook for the full year. We now expect revenue at standard metal prices in the range of 2.65 to 2.75 billion euros compared to previously 2.37 to 2.52 billion euros. Operational EBITDA is now expected to be between 360 and 390 million euros compared to our previous outlook of 330 to 380 million euros. The update is driven by the solutions and services and accessories business lines. In the first half of the year, we reported double-digit organic growth driven by the high activity level across the business, including specific variation orders and a high level of subcontracted revenue and solutions. This is expected to be lower in the second half of the year, but we expect the revenue growth and solutions business line to be slightly positive for the full year. Throughout the year, we continue to execute mainly on projects awarded in 2020 to 2022. Looking at the projects planned for execution in the second half of the year, the project mix appears to be slightly more favorable compared to the first half. Unchanged from previously, we have a higher cost base in solutions as we support the ongoing investments and production ramp-up. The dilution on group margin in 2025 from these costs is still expected to be slightly higher than the around 1 percentage point in 2024. We expect services and accessories to maintain a high activity level for the rest of the year driven by the overall demand in the market and contribution from repair jobs. We therefore expect a higher contribution from services and accessories on both revenue and EBITDA compared to our initial outlook. Unchanged, we expect applications to contribute positively to the revenue and EBITDA development in 2025. All other assumptions presented in the Annual Report 2024 are unchanged and listed on the right-hand side of the slide. Please turn to slide 17. We have a strong foundation for the growth journey that lies ahead of us. With the results achieved and the execution on our capacity expansion investments in the first half of the year, we made clear progress towards our financial ambitions for 2028. At that point in time, we will have a significantly higher revenue base with more than 14% organic revenue growth, Kager from 2021 to 2028 and an operational EBITDA of more than 700 million euros. And just as important, we expect to generate a rosy of at least 20%, reflecting the improved earnings levels and a solid return on our investments. Now, let me just recap the main highlights of the quarter on slide 18. We maintained a positive development in the second quarter of 2025 with continued stringent focus on execution of our high voltage order backlog and our investments to expand capacity. We delivered 13% organic growth with positive contributions from all three business lines and our operational EBITDA amounted to 105 million euros, up by 22%, and it exceeded the 100 million mark for the first time in company history. All capacity expansion programmes followed the plan, across both solutions and applications we saw the expected progress. Last but not least, we updated our financial outlook for 2025 based on solid financial performance we have seen so far in the year and our expectations for the rest of the year. We now expect revenue in the range of 2.65 to 2.75 billion euros and operational EBITDA between 360 and 390 million euros. With this, we have concluded the presentation and will now hand over the word to the operator to guide us through the Q&A session.