NKT A/S : Transcript Q1 2021

NKT Group Q1 2021

Interim Report

Wednesday, 19th May 2021

NKT Group Q1 2021 Interim Report

Wednesday, 19th May 2021

NKT Group Q1 2021 Interim Report

Alexander Kara

President & CEO, NKT A/S

Welcome

Good morning everybody and thanks for taking the time and joining this Q1 end report from NKT. Today we have here with me, as present in the room, Lina, our CFO and Basil, who is the CEO of NKT Photonics.

Key messages: Q1 2021

If we look at the highlights from the first quarter 2021, I think we can say that we had a satisfactory start in 2021. Overall, we had an organic growth of 21% in Cable and all three business lines contributed to this 21% positive result.

The operational EBITDA tripled almost from the same quarter last year, from €10 million to €30 million. We had a record high quarterly performance in Service & Accessories and also a good performance in Solutions.

Very positive, also, to mention is that we had a good start in Photonics. Photonics is back on a growth path, mainly driven by the industrial segment and the Medical & Life and we will hear more from Basil a little bit later. It was the highest ever Q1 for revenues in Photonics, which is good, to be back here.

NKT performance in Q1 2021

If we look at, a little bit more in detail, the Q1 performance, as I mentioned, all the three business lines in Cables improved revenues and earnings and contributed. In Solutions we have different activities, produce different types of cables in our factories in Karlskrona and Cologne and good utilisation of the factory.

After the quarterly closing, we got awarded the Troll West project from Equinor, with €95 million in market price, which is a nice order and also particularly as it is an AC order.

Further, in Applications, we continued on our turnaround and improved the performance, from last year, from €3.5 million to €4.5 million and also achieved organic growth of 2%.

Service & Accessories: we had, as I mentioned earlier, the highest ever quarter, supported by service repair jobs offshore but also onshore and also several other activities. Overall, an organic growth of 21% and as you see here on the graph, good growth from €240 million to almost €300 million in revenues, from standard metal prices. Operational EBITDA, in round numbers, grew from €10 million to €30 million.

Solutions: Q1 2021

If you go now to Solutions, in the first quarter we have executed work on different projects: Dogger Bank A and B. Dogger Bank is the first DC offshore project in the UK. Then we have worked on several other projects: Moray Eastwind and Ostwind, which are what we call[?] AC projects and on Viking Link, which is an MI project. We had a good mixture of execution of different project types.

Further, we have finalised Triton Knoll offshore wind farm in the UK with deliveries of export cables and inter-array cables.

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NKT Group Q1 2021 Interim Report

Wednesday, 19th May 2021

We used our installation for various activities: the NKT Victoria for installation but also for service activities, like the repair job for BritNed. So, revenues went up to €161 million, 27% and €19.5 million EBITDA, or from 4.2% to 12.1% comparing the quarter last year with this quarter.

High voltage market development

If you look at the high voltage market, this year we have been awarded new orders on the onshore segment, like the RTE frame agreement but also various variation orders. As I mentioned, after the quarter closing, we got awarded the cable for power from shore for Equinor, Troll West in Norway with €95 million, approximately, standard market price.

Overall, in Q1 there were around €700 million of orders. We continue to be active on tenders around the world, meaning we are active in Asia, in Europe but also we see more and more activities in the US.

So, last year was a good year for us in NKT with a project on DC technology, now we got the first order on AC, which is also good for the factory loading and the mix in our portfolio.

High voltage order backlog

If you look at our backlog, our backlog is €2.95 billion, compared to its historical figure: very high. It is a little bit reduced, by €20 million, compared the end of 2020 but still very high and we are working on all the segments: offshore wind, interconnectors and oil and gas. Now we will add the Troll West, as power from shore, on top of that.

You see here[?] how the revenue backlog will be executed in the future.

Applications: Q1 2021

If we come to Applications, also a good start in the year. We continue with our turnaround activities in Applications. One further decision that we took was to move the building wires from Asnæs, from Denmark to Poland and to concentrate the building wires in Poland.

Also, it is worth to mention here that we implemented an EIP system in Eastern Europe in the beginning of the year without issues.

I can conclude: overall, a satisfactory quarter for Applications and we continue with our actions to improve further the profitability in Applications.

Service & Accessories

Coming, then, to Service & Accessories, we had a good performance in Service, with various repair orders, offshore and onshore. One, as I mentioned, BritNed, is a connection from the UK to the Netherlands. However, also, on the, let us call it, base business, we had a good development and also on the service agreement.

We did also quite well with Accessories in Nordenham, for medium-voltage accessories. Here also we made a footprint adjustment, where we concentrated the high-voltage accessories in Alingsås in Sweden and move it from Cologne to Alingsås.

Overall, a record high quarter, which is a nice start into the year.

With this, I will hand over to Basil and he will give you the peak [inaudible] of NKT Photonics.

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NKT Group Q1 2021 Interim Report

Wednesday, 19th May 2021

NKT Photonics

Basil Garabet

President and CEO, NKT Photonics

NKT Photonics performance in Q1 2021

Thank you, Alex. How do you follow up from a great quarter from Cable? It is to try and catch up on our side, in Photonics. Q1 was a good quarter for us. We achieved the highest revenue, top-line revenue, in the history of NKT Photonics. The quarter started very satisfactorily with us, in both EBITDA growth and top-line growth.

Our organic growth was 26%, which is mainly driven by a broad-based comeback in the Industrial segment. All parts of the Industrial segment were doing well. We also did well in the Medical & Life Sciences segment, where the growth continued from all the products that we launched in middle and late 2020.

With this higher revenue, our EBITDA has also increased. However, our earnings in Q1 were impacted by restructuring costs of €1.2 million in the quarter.

In the quarter, as well, we recorded our highest ever order intake, which corresponded, again, to a 36% increase over the same quarter last year. This was mainly due to the improved market conditions, again mainly on the Industrial side.

Business development

If we move to the next slide, on our business development, we, in Medical & Life Science, continued to perform well in the segment. The main drivers here are our business in ophthalmology, which is increasing; we are getting more OEMs in that sector and our OEMs in microscopy are also driven quite high with the changes at the end of last year into this quarter.

In the Industrial segment, we saw a significant recovery in Q1 over 2020. However, the recovery in the research market is still a little bit weak and we expect that to form better in the second half of the year.

In Aerospace & Defence, the activity level is still very high, both in Europe and the US. This segment is growing and we expect new orders and new growth in this sector.

With this, that is the end of my segment and I pass it over to Line.

Financial Highlights

Line Andrea Fandrup

CFO, NKA A/S

Thank you very much, Basil.

NKT Group: improved revenue and operational EBITDA driven by both NKT and NKT Photonics

So, to recap the business performance for the quarter in the income statement here, on slide 16, we improved revenue and operational EBITDA, both in NKT Cables part and the Photonics.

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NKT Group Q1 2021 Interim Report

Wednesday, 19th May 2021

Under the NKT Cables part, the 21% growth for the quarter was constituted of the underlying business performance. As Alex alluded to: the Solutions business on 27%, the Applications business on 3% growth in revenues and the Service & Accessories, which had a very good start to the year, of 82%. Underlying, also, all business lines in NKT Cables' improved earnings compared to last year.

It is also good that Photonics is back in a growth mode, compared to last year. Clearing further redundancies earlier this year for Photonics, we are also at a break even in terms of our operational EBITDA. The Cables part closed out the quarter with a €30 million operational EBITDA, almost threefold the quarter last year.

On the margin levels, I note that, for the Cables division, a quarter like this actually brings us up to the 10% margin level. We have had good utilisation amongst our factories and also the different cable technologies. Under Photonics, excluding the redundancies here, you also see the break even on the margin level.

The one-off item is a small divestment of the plant in Stenlille. It came in favourable here. Then, closing off with a positive net result of the quarter of 2021, slightly positive compared to last year.

A final note on the FTE: you see also a part on the Cables business that we have ramped up for the increasing activities in the Solutions business and the adjustment there made in Photonics.

NKT Group: expected increase in working capital from an unusually low level at the end of 2020

So, turning the page to the balance sheet highlights, here you can see that we came out of a very unusual, low level of working capital in 2020. We are now at a different level, corresponding to the same level last year, in terms of Q1.

When you go, then, to the ROCE, the return on the capital employed, you also see the improved performance on the earnings levels, panning into an improvement on our ROCE compared to last year and even the end of 2020.

On the net interest-bearing debt and the leverage ratio, we closed 2020 with significant cash at hand and we still have €179 million cash at hand at close in Q1, concluding, therefore, the NIBD at €31 million, offset by the mortgage cost and the lease. So, right now, the leverage ratio is 0.4X for the full company.

NKT: increase in working capital mainly due to the phasing of milestone payments in Solutions

Turning to the trend on working capital, as you know, the major fluctuations that we see over the years here are related to the Solutions business, timing of milestones and pre-payments. We have had some very low levels of working capital in Q4 2019 and even lower Q4 2020. So, Q1 2021 came up somewhat due to the timing of milestone payments in the Solutions business but also the seasonal build up of working capital in applications, preparing for the high season.

Also, what you see here in the working capital, particularly in Q1 2021, is actually the value adjustment of our hedging instrument. It is a non-cash effect but it is corresponding to €57 million and it is correspondingly adjusted on our equity.

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