NKT A/S : Transcript Q2 2021

Q2 Report 2021

Tuesday, 17th August 2021

Q2 Report 2021

Tuesday, 17th August 2021

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Q2 Report 2021

Tuesday, 17th August 2021

NKT

Alexander Kara

President and Chief Executive Officer, NKT A/S

Welcome Address

Good morning, everybody, thank you that you take the time to listen to our Q2 results of NKT and NKT Photonics. I have here in the room with me Line Fandrup, my CFO, and Basikl Garabet, the President and CEO of NKT Photonics, which you will hear later.

NKT Performance in Q2 2021

Positive performance driven by all three business lines

If we come to the Q2 numbers, and we pre-announced the Q2 results on 16th July, so you will not hear too many new surprises. We have disclosed our EBITDA revenue for NKT Photonics, and we have updated our guidance. As such, no surprises to expect in this call.

Key developments in Q2 2021

Overall, our key message for Q2, is we had good organic growth, satisfactory growth overall for both NKT and NKT Photonics. 20% organic growth in Cables, and all the three business lines contributed to the revenue growth and also to the earnings, and this is the highest EBITDA result since 2017.

We have some order wins. Troll West and AC Cable, [inaudible] customer and Dogger Bank C, a DC offshore wind farm in the UK, which completes then the Dogger Bank cable order, where we had already received Dogger Bank A and B.

In Photonics, we had the highest ever Q2 revenues of 28% organic growth, which was mainly driven by the industrial segment, which is also great[?].

The Board of Directors has decided to resume the strategic review of NKT Photonics.

Solutions

If you now look at the performance. As I said, a satisfactory quarter, the best since 2017, 21% growth, and you can see that here also, on the sharp[?]. And in Solutions, we had good utilisation in the factory with different kinds of orders which we produced, different cable clients, and then two awards, as I mentioned already, which brings up back to a record high order backlog of €3.16 billion in market price. Which is of course great, as it increases our visibility and planning capabilities for the way forward.

Applications

Also, in Applications, we continued to improve on the financial performance. We have increased revenue and also the earnings efficiency, and I will come back to this a little later.

Service & Accessories

Service & Accessories achieved the highest ever quarter. We had an exceptionally good quarter, especially in Service with repairs, and this of course contributed strongly to the result of Q2.

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Q2 Report 2021

Tuesday, 17th August 2021

Solutions - Q2 2021

Improvement driven by execution or order backlog

If you go then to Solutions, here, as I said already, we had different types of cables produced in Karlskrona and Cologne, DC, like Dogger Bank A, and AC, offshore, like Ostwind Troll for oil and gas with Equinor, and Viking MI cable. A good mix of cable production in Solutions, and as such, a good utilisation in the factories.

Then, what is also highlighted is the completion of the NordLink interconnector from Norway to Germany. This is also, personally, for me, a great achievement, as I was personally involved in 2014 in this tender on ABB, and finally, this project is now in service. From the award in 2014, it takes actually quite a long time to install such a large order, but a great achievement, and good to see that.

NKT Victoria was busy in Q2, the first half had good utilisation with vessel installation. And what we are now looking in, and what we have started already in Applications & Accessories, looking at structure optimisation of the business. We have initiated the process for Solutions, how to optimise the Solutions business from the cost structure, the portfolio, which we have also pre-announced, and with up to €40 million of cost, which is a mixture of CAPEX and other costs.

High-voltage Market Development

High activity level leading to order awards

Looking at the High-voltage market overall, I think what is good is there is about €2 billion which have been awarded in the first half, which is good for the industry, and which helps the industry to increase the utilisation, which is great for all. As I said, we have been successful with Troll West in Norway AC offshore cable with dynamic sections, and the Dogger Bank C, which completes the total Dogger Bank order.

We continue with tenders in different market segments. The majority of the orders which have been awarded in the first half have been DC and some AC. And you see on the right side Dogger Bank C and Troll, which have been added to our backlog.

High-voltage Order Backlog

Returned to a record level of €3.16 billion, up from €2.95 billion Q1 2021

Going now to the backlog. With these two orders of Dogger Bank C and Troll West, we return back to a record high backlog of €3.16 billion in market price, which gives us good visibility and planning capability for the future.

Applications - Q2 2021

Continued improvement in profitability

Looking at Applications, we have increased revenues to €124 million, up 6%, and also the earnings have improved to €7.6 million. Here we see a result of the improvement actions that we have taken, and we expect this trend to continue.

We are also progressing moving the building wires from Asnaes in Denmark to Poland, to have a focus factory concept. This relocation is ongoing and will obviously take some time.

Also, on the medium-voltage side, we had some good momentum in the market in the Nordics, but other markets were a little bit weaker.

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Tuesday, 17th August 2021

Thus, good traction in Applications, and more to come in the coming quarters.

Service & Accessories - Q2 2021

Exceptionally strong financial performance

Service & Accessories, a really good quarter, I would say, with €65 million on revenues compared to €36 million the same quarter last year. 90% growth, mainly driven from Service with several offshore repairs, but also good traction on Accessories with medium-voltage accessories from Nordenham in Germany.

Also, we did work on optimisation on the business. And as we announced earlier, we concentrated the high-voltage Service business in Alingsas in Sweden and moved those production capacity from Cologne to Alingsas.

€14.5 million EBITDA - quite a nice achievement for one quarter. Unfortunately, this is not expected to continue, as it was driven by repair orders.

With this, I think you have the highlights of the cable business, and I will now hand over to Basil, who will give you more details on Photonics.

NKT Photonics

Basil Garabet

President and Chief Executive Officer, NKT Photonics

NKT Photonics Performance in Q2 2021

Highest Q2 revenue ever for NKT Photonics

Good morning, and thank you, Alex. What a great result for Cables, it is getting harder and harder to catch up. Let us start with Photonics.

We had a great quarter. It was a great, satisfactory quarter. We had the highest revenue for Q2 in Photonics. The revenue improved as well as EBITDA and it is compared to last year, which was obviously impacted by the COVID-19 pandemic.

Our organic growth was 28% which was driven by very good growth in industrial. Medical & Life Sciences had a modest growth, and Aerospace & Defence had modest year-to-date, but the actual quarter was up 30%. We are seeing some fluctuation in organic growth in the Defence side, but if you take it over a year, it is relatively steady and we are very pleased with the way it is performing.

Obviously, due to the higher revenue our EBITDA increased earnings, including redundancy costs, we are at zero EBITDA because we had something like €0.4 million of redundancy costs.

The other good thing that happened to us which is very pleasing to us, is that our order intake was also at a record high. It is at 41%, which is an all-time high for Q2, again very pleased. We have been working very hard with our customer and our customer base to improve the business going forward and it is good to see it come home.

Finally, on 16th July, the Board of Directors decided to resume the review of strategic alternatives for NKT Photonics.

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