Sif N : Group FY 2021 earnings call

Sif Holding Full Year

2021 Results

Friday, 18th March 2022

Transcript produced by Global Lingo

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Sif Holding Full Year 2021 Results

Friday, 18th March 2022

Sif Holding Full Year 2021 Results

Fred van Beers: Good morning, everyone. And thank you for tuning in to the Full Year '21 Results Webcast Presentation of Sif Holding. My name is Fred van Beers, and I'm the CEO of Sif, and I'm accompanied by our CFO, Ben Meijer. And with us are analysts - welcome, gents

• of the brokers that follow the shares of Sif.

This morning we published our full year '21 report, which you can find on our website. The slides for this presentation can also be found on our website, and two days from now, you can read back this session in the transcript that will also be posted on our website.

Let me first start with expressing our sincere sympathy with the people at the moment suffering from the awful war in Ukraine. And hopefully, I think you all join me - you all join me in this wish that this war ends as soon as possible.

Then we now go back to '21, and I'd like to continue with something that we all tend to forget at the moment, COVID-19, and the update on that. At Sif, we applied strict rules for social distancing and testing to minimise the risk of a COVID outbreak on our sites. As a result, we could assure close to normal continuation of our manufacturing.

We have seen small outbreaks on both occasions during the second and third quarter of '21 and a larger outbreak actually during the final quarter of last year. This has caused higher absenteeism towards the end of the year, but we were able to adjust working procedures or find replacements to deliver on our obligations to our clients.

In the end, it hardly affected our production. Actual situation today is that we still have infections, but COVID-19 is becoming, as we all know, a kind of regular flu, and quarantine rules have been loosened up as we speak.

Let's go to the next page. So what did we do in '21? And how is this reflected into our key performance indicators? We have identified three major performance indicators for people and planet, and you see them on the top left side of this slide. We asked our accountants, Ernst & Young, for limited assurance and got it actually on these three indicators and the findings are included in the annual report that was published earlier today.

In '21, we contributed to projects that resulted in 1.9 gigawatt offshore wind capacity, bringing Sif's total to close to 12 gigawatts during the last two decades, sufficient to supply more than 12 million households with clean energy. We come to this number by aggregating the capacity of the turbines that are or will be installed on the monopiles that are listed as complete.

Please be aware that this differs from the number of monopiles completed from revenue reporting since these are based on percentage of completion. Limited assurance was also given for the CO2 footprint and the LTIF, our KPI for safety. Ben will later take you through the financial KPIs and the underlying numbers.

So let's move on to slide three for the operational highlights in '21. Last year, Hollandse Kust Zuid foundations and the foundations and transition pieces for Dogger Bank A kept us busy. Marshalling activities were rendered for the Kincardine project. In the first picture, you see a foundation for Hollandse Kust Zuid on a lowbed trailer just before load out on the installation vessel. These foundations do not include transition pieces and the additions like boat landings and switchboards are applied directly on the monopile after its installation in the seabed.

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Sif Holding Full Year 2021 Results

Friday, 18th March 2022

The second picture shows one of the floating installations for the Kincardine project, offshore Scotland during its final assembly stages, which was done at out quay site in Rotterdam.

Let's move on to page four. In the second and third quarter of '21, our production lines were rearranged massively actually to manufacture the largest diameter and monopiles in the history of Sif. The diameter of the monopile for Dogger Bank A is 8.6 metres and starts touching the boundaries of our current production facilities. This is also the reason why our production output in kilotons during the third quarter was relatively low, as we had to adapt to this critical new stage for Sif.

Milestones in '21 were the completion of the Roll-on/Roll-off quay in Rotterdam, which can be seen on the below picture of this slide and the extension of the sea quay with 200 metres, which can also be seen on this picture on the top side of the bottom lower picture. Accessibility to the water was improved and more logic - logistic operations can be executed more efficient because of these investments.

Let's move on to page five. We often get the question on the lead time of projects. How far in advance is Sif contracted and contacted? And how long does it take for a project to get from the design table to reality? We prepared this timeline for a typical average offshore wind farm. The average timeline is three years. And as you can see in this slide, and on average, we start production 1.5 years after we have started exclusive negotiations with the client.

Having said it, today, we are more looking towards two-and-a-half years. This implies that projects that we currently manufacture were contracted at least one-and-a-half years ago.

With this, I now hand over to Ben Meijer, to have a look at the order book and to explain how everything mentioned so far is translated into our books. Ben, let's move on.

Ben Meijer: Thank you, Fred. We started 2021 with a strong order book already, and during the year we were able to add Dogger Bank C and Maasvlakte 2 to our backlog. We now have 430 kilotons for 2022, '23 and '24. Our expected production volume in 2022 is 180 kilotons for basically Dogger Bank A, Hollandse Kust North, the start-up of Dogger Bank B and Maasvlakte 2.

With our oil and gas lines largely out of production, this implies almost full utilisation on a 24/5 basis. Most of these projects were acquired in 2020 and 2021. The prices for these projects are firm with steel being a pass-through item for Sif. Most of the steel for projects in 2022 until 2024 is already ordered and supplies are not yet suffering from delays that are related to the war in Ukraine. We're keeping close contact with our supplier, Dillinger Hütte, to see how this is progressing.

Tender activity is still high, and we now see that most of the projects in the markets require larger monopiles, mostly in the range of 9 to 9.5 metres diameter or even larger.

Next slide is coming. Excellent. Production output for 2021 came in at 171 kiloton. I think it is fair to say that this is a solid performance, given that COVID-19 precautions and measures did not, so to say, enhance productivity. Output was also slightly depressed in the third quarter by the conversion of production lines from Hollandse Kust Zuid to Dogger Bank A.

Contribution improved compared to 2020 by more than 12%. This was caused by higher margin on subcontracted work, but the increase in contribution margin per tonne also indicates the better commercial environment for offshore wind foundations.

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Sif Holding Full Year 2021 Results

Friday, 18th March 2022

EBITDA, on an adjusted basis, increased by almost 24% compared to 2020 to €39.4 million. The adjustments to arrive at adjusted EBITDA relate to expenses, which are directly related to the research project for expansion of our production facilities and also related to the recognition of badwill on the acquisition of KCI, the engineers. This acquisition was completed on 15th March and results are consolidated from that date.

Net earnings of €11.6 million translate to earnings per share of €0.45 compared to €0.29 in 2020, an improvement by almost 60%. Given the healthy long-term outlook for the industry and Sif, we propose a pay-out of €0.19 per share to the AGM.

Working capital was volatile over the quarters and was negative with €66 million, which is positive in this setting. With the exception of IFRS 16-related lease liabilities, we have no external debt. Cash position per year end was reported at €73 million. And as mentioned before, this is a snapshot situation and may vary over time depending, amongst others, on status of projects, invoicing and payment behaviour. The banking arrangements have been extended by two years with unchanged conditions. Agnes, if you can turn to the next slide. Thank you.

As already explained at earlier occasions, contribution per tonne is a better indicator for the commercial environment and pricing levels. And this chart shows the historic movement in contribution per tonne. For 2021 and 2020, the numbers have been corrected for marshalling and engineering activities to get a better like-for-like picture. And also in this graph, you see the slight upward trend that is happening as of 2018.

Fossil continues to be the dominant energy source. The trend to more sustainable sources is, however, clearly observable. The war in Ukraine, increasing oil and gas prices and a dependence on a limited number of countries for the supplies thereof may accelerate longer foreseen and desired changes. Of the renewable energy sources, offshore wind enjoys an increasing interest.

In addition to the decreasing trend of levelised cost of energy for offshore wind compared to other sources, the independence from unreliable world leaders make it more attractive. Next slide, yes. Thank you.

The Paris Climate Agreement already dates back to 2016. Unfortunately, it has not resulted in firm action in most of the countries that signed the agreement. The total installed base for offshore wind energy in 2021 was a little over 55 gigawatt. More recently, the European Union and the US administration announced plans for radical reform. Together with the 2021 IPCC Report, this triggered a certain awareness and country after country raised its ambitions as the table in the presentation indicates.

On a global scale, the 2030 targets further increased in 2021 to almost 250 gigawatt, reflecting a fourfold growth compared to the currently installed base. Where 70% of the earth is covered by water, less than 10% of wind farms is installed offshore. This indicates the potential for offshore wind. The fear of wind farm density decreases, also from the ever-increasing turbine sizes that require less and less but much bigger foundations at sea.

And with this positive observation, I hand back to Fred to discuss the longer-term plans and outlook for Sif.

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Sif Holding Full Year 2021 Results

Friday, 18th March 2022

Fred van Beers: Thanks, Ben. For an accountant, you're very positive. Thank you very much. The history of offshore wind is relatively young. So only a little over 20 years ago, the first wind farms were installed. And the very early one is already decommissioned.

These early projects were mostly installed in shallow water at nearshore locations and carry turbines with capacity of approximately two megawatts. Over the decades, capacity increased to 14-megawatt nowadays and is expected to even grow further. With the sizes of the turbines, also the sizes of foundations increased. Nowadays, diameters of the larger ones are around nine to 10 meters. The Dogger Bank A foundations with 8.6 are a good example thereof.

Our tender - from 2025, our tender base shows that 80% of the projects require monopile foundations above nine-meter diameter up to 11.5 metres. That is the reason that we announced our feasibility study for facilities that enable us to manufacture larger diameter monopiles in the same tact of 200 a year as in the existing setup is the case.

The increase in diameter from nine to 11.5 metres imply, on average, a weight increase from 1,500 to 2,500 tonnes per monopile. Next slide, please.

This slide reflects the current and possibly upcoming competition. Of this group, Haizea Wind, Steelwind, Sif, EEW and Bladt do currently operate manufacturing facilities for monopiles, and some have initiatives to extend their capacity. Haizea Wind is an established power producer has just completed, or last year completed, its first order for ten smaller MPs and have booked a possible order for Orsted.

The other companies have announced to open new facilities. SeAH, Koreans, should be operational in the UK from '24 onwards and maximum ramp up '26. EEW in the US is able to produce '23, '24. And Windar-Navantia is aiming for the same time frame, whereby Titan at this moment is still unknown.

The combined capacity of this total group is assessed at approximately 1,200 kilotons per year. Although, more important than tonnage, is the number of foundations that the respective factories can actually produce. For now, we still anticipate that assuming all these initiatives materialise successfully, the market will be in a situation, where supply and demand are more or less balanced long term. That raises the question where we are on our announced capacity expansion plan. So let's move on to the next slide.

In previous presentations, we talked about the studies we executed and technical market studies were completed and look promising. As you can see on the slide, they are green. We look at the payback period on the investment of three to four years. In November '21, we announced the start of a feasibility study to finance the plans. We indicated FID date of early July '22.

To arrive at this FID, we need, first of all, the clarity on the investment amount. And given the pricing developments and the extreme geopolitical uncertainty available - and the effect of that on raw materials, we may require a bit more time for this. Clarity on participation in the financing by launching customers was an important point. And this is progressing very well, we can say, with conditional commitments from two clients for launching production capacity of 400 kilotons for the new plant.

Clarity on the financials of the CapEx and payback time of three to four years is important. And clarity on the permitting of the new facilities on nitrogen and other permits. And a simplification

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