Earnings call transcript: NKT misses Q1 2025 EPS forecast, stock dips 2.82%

NKT Holding reported its Q1 2025 earnings on May 9, revealing earnings per share (EPS) of $1, falling short of the forecasted $1.06. Revenue was slightly below expectations at €630 million compared to the forecasted €840.71 million. Following the earnings announcement, NKT's stock price dropped by 2.82% in pre-market trading. According to InvestingPro analysis, NKT currently appears undervalued based on its Fair Value calculation, with strong fundamentals including a high free cash flow yield of 21%.

Key Takeaways

• NKT's Q1 2025 EPS missed expectations, reporting $1 against a $1.06 forecast.
• Revenue for the quarter was €630 million, slightly below projections.
• The stock price declined by 2.82% following the earnings release.
• Organic revenue growth was strong at 11%.
• The company maintains a robust order backlog of €10.7 billion.

Company Performance

NKT showed solid performance in Q1 2025, achieving an organic revenue growth of 11%. The company's operational EBITDA margin decreased by 1.2 percentage points to 12.9%, despite an 8% year-on-year increase in operational EBITDA to €81 million. NKT's net result improved by €12 million, reaching €57 million. The free cash flow was negative at -€38 million, while the company maintained a net cash position of €1 billion. InvestingPro data reveals the company's strong financial position with a healthy current ratio of 1.67 and an impressive Altman Z-Score of 7.65, indicating robust financial stability.

Financial Highlights

• Revenue: €630 million, below the forecast of €840.71 million.
• Earnings per share: $1, missing the $1.06 forecast.
• Operational EBITDA: €81 million, an 8% increase year-on-year.
• Net result: €57 million, a €12 million improvement from the previous year.
• Free cash flow: -€38 million.

Earnings vs. Forecast

NKT's Q1 2025 EPS of $1 fell short of the forecasted $1.06, marking a notable miss. The revenue of €630 million also came in below the expected €840.71 million. The EPS miss represents a 5.7% shortfall from expectations, which is significant compared to previous quarters where the company either met or exceeded forecasts.

Market Reaction

In response to the earnings miss, NKT's stock fell by 2.82% in pre-market trading. The stock's current price of $80.74 sits between its 52-week range of $62.32 to $101.07. While this movement reflects investor concerns, InvestingPro analysis shows the company maintains strong fundamentals with a return on invested capital of 22% and minimal debt-to-equity ratio of 0.13. Pro subscribers have access to 10+ additional exclusive insights about NKT's financial health and growth potential.

Outlook & Guidance

NKT has set a revenue guidance for 2025 between €2,370 million and €2,520 million, with an operational EBITDA guidance ranging from €330 million to €380 million. The company has ambitious medium-term goals, aiming for a 40% organic revenue growth CAGR from 2021 to 2028, an operational EBITDA exceeding €700 million, and a return on capital employed (ROCE) of at least 20%.

Executive Commentary

CEO Klaus Westerlind stated, "We were off to a solid start to the year and we continued the rigorous execution of our high voltage backlog." CFO Lene Van Drap added, "We have a strong foundation for the growth journey ahead of us." These statements underscore management's confidence in the company's strategic direction despite the earnings miss.

Risks and Challenges

• Market Competition: Increasing competitive pressures in Central European markets could impact margins.
• Supply Chain Constraints: Ongoing global supply chain issues may affect production timelines and costs.
• Economic Uncertainty: Macroeconomic pressures could dampen investment in infrastructure projects.
• Regulatory Changes: Potential changes in environmental regulations could impact operational costs.
• Currency Fluctuations: Exchange rate volatility may affect financial results, given NKT's international operations.

Q&A

During the earnings call, analysts inquired about potential margin improvements in the Solutions segment by 2027 and competitive pressures in Central Europe. NKT also clarified its limited exposure to the U.S. market and emphasized its strong position in the high voltage sector. With an overall Financial Health Score of "GREAT" from InvestingPro, the company demonstrates robust operational efficiency with a gross profit margin of 31.89% and strong revenue growth of 26.68% over the last twelve months. Discover comprehensive analysis and 1,400+ detailed Pro Research Reports available exclusively to subscribers.

Full transcript - NKT Holding (NKT) Q1 2025:

Conference Operator: Welcome to this NKT Financial Presentation for the First Quarter of twenty twenty five. For the first part of this call, all participants are in a listen only mode. Afterwards, there will be a question and answer session. This call is being recorded. I will now turn the call over to your speakers.

Please begin.

Klaus Westerlind, CEO, NKT: Ladies and gentlemen, good morning, and welcome to today's conference call following the release of our interim report for the first quarter of twenty twenty five. My name is Klaus Westerlind. I'm the CEO, and I'm joined today by our CFO, Lene Van Drap. As usual, I will cover the overall development and the business lines in the first part of the presentation. And afterwards, Lene 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 four. 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 EBITA of EUR81 million, driven by all three business lines.

This was achieved while we are operating in a volatile world in times of uncertainty. At the same time, we maintained our high voltage order backlog at EUR10.7 billion, a level we have seen since the end of twenty twenty three. 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 Koskrona 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 aluminum. With this, we have secured a long term supply of low carbon aluminum wire rod from a well established European partner. And not only does this agreement secure a long term supply of aluminum, 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' decarbonization ambitions.

Let's turn to Slide number six for a look at the financial performance. In Q1 of twenty twenty five, we delivered solid financial performance with organic growth of 11% and an operational EBITA of €81,000,000 The improved EBITA 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 EBITA margin was 12.9%, a decline of 1.2 percentage points compared to the first quarter of twenty twenty four. 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 twenty twenty four was affected by work related to a 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 twenty twenty five, Solutions revenue increased to €388,000,000 up from $3.25 €321,000,000 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 products, 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 €57,000,000 compared to €52,000,000 in the first quarter of twenty twenty four. 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 EBITA margin increased slightly. As we have seen over the years, margin in a product business like NKT will vary between quarters depending on the phasing of the products and execution. In the quarter, we saw progress on several products in the backlog being at different stages of execution.

Main contribution came from Champlain, Hudson Power Express, East Anglia three, Hornsea three, Sudlink and Sudostlink. On the Champlain product, we progressed with installation of the cables and the picture on the slide is from the offshore installation campaign in 2024. And personally, I believe that it also captures very well the beauty with our business. We continued to execute on the investment programs both in Cascrona 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 continued to be high in the first quarter of this year, and we estimate product awards in this market amounted to around €2,000,000,000 Like the last couple of years, the awards were mainly driven by DC technology. We managed to maintain our order backlog basically unchanged at €10,700,000,000 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 €3,500,000,000 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 used 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 €10,000,000,000 in the period of 2024 to 02/1930. 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 decision 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 U.

S. Our exposure to The U. S. Is predominantly through the Champlain Hudson project, where the offshore cables are produced in Sweden and shipped to The U. S.

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.

Lene Van Drap, CFO, NKT: Please turn to Slide number nine for a look

Klaus Westerlind, CEO, NKT: at the applications business line. In Q1, revenue in applications increased to $2.00 €3,000,000 thereby for the first time exceeding the €200,000,000 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 twenty twenty four. Operational EBITDA increased to €18,000,000 from €16,000,000 in the same quarter last year, driven by Solidale 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 twenty twenty four, the applications margin of 8.9% was an improvement of 1.1 percentage points. Medium voltage cable volumes remained 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 €70,000,000 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 a 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 twenty twenty five, we expect a new test hall in Sweden for high voltage accessories to be completed. Operational EBITDA more than doubled to €13,000,000 in Q1 of this year, up from €6,000,000 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 twenty twenty four, we provided an update on our ongoing investment programs. And for the period 2025 to 2028, we expect accumulated CapEx of around €2,000,000,000 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, etcetera, 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 twenty twenty 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 Asnes here in 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 Esposenda, 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 Lene to go through the financials.

Lene Van Drap, CFO, NKT: Thank you very much, Cles. Good morning from me as well. I'll now take you through the financial highlights of the first quarter of twenty twenty five, 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 Solidar contributed to the revenue in the quarter, which was EUR630 million for the group. Operational EBITDA of EUR81 million was an increase of EUR6 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 twenty twenty four, the margin declined by 1.2 percentage points, mainly due to the project mix in Solutions.

So relative to Q4 twenty twenty four, the margin was largely unchanged. Due to the investments and the acquisition of Solidale, depreciation and amortization increased to €30,000,000 and that's leaving EBIT for the quarter at €51,000,000 which is a decline of €2,000,000 When you look at the financial items, you'll see an income of €25,000,000 in the quarter, that's up from €8,000,000 same quarter last year. This was mainly driven by FX fluctuations related to the development of the SEK and interest income from the cash position. Tax for the quarter amounted to EUR 19,000,000, reflecting the higher earnings level and an effective tax rate of 25%. So this leaves a net result of EUR 57,000,000, an improvement of EUR 12,000,000 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 $3.00 €8,000,000 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 phasing between milestone payments and project execution in the Solutions 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 EUR167 million, reflecting a higher activity level across our investment programs, 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 €323,000,000 Let's turn to next slide and have a look at the balance sheet. The working capital position at the end of the quarter stood at negative EUR 1,200,000,000.0.

This was an increase compared to the record low level at the end of twenty twenty four due to the fluctuations mentioned on the previous slide. The position remains healthy and compared to a year ago, it has declined by around EUR 500,000,000. ROCE amounted to 32% compared to 35% at the end of twenty twenty four. The decline was mainly a result of the increase in capital employed. Compared to the first quarter of twenty twenty four, ROCE improved by 10 percentage point due to the higher earning level.

ROCE 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 €1,000,000,000 at the end of Q1 and thereby we maintained 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'll 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 into the range of EUR 2,370,000,000.00 to EUR 2,520,000,000.00 and operational EBITDA between EUR $330,000,000 and EUR $380,000,000. 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 level 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 in 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 year effect of the Solidar 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 make progress towards our financials ambitions for 2028. Here we expect to have a significantly higher revenue base from more than 40% organic revenue growth CAGR from 2021 to 2028. And also an operational EBITDA of more than EUR700 million. Not least, we expect to generate a ROCE of at least 20%, reflecting the improved earning level and a solid return on our investments.

Before opening up for the Q and 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 EUR81 million. We also stringently executed on our capacity expansion programs and across all sites, we saw the expected progression. The progress is in line with plan and we are on track with the programs.

With the agreement we have signed with Hydro, we have secured long term delivery of aluminum with a European partner. The agreement underlines our position as a sustainability leader in the industry and aluminum will support us both us and our customers achieving the sustainability ambitions. With this, Claus and I have concluded the presentation and I'll hand over the word to the operator to steer us through the Q and A session.

: Thank

Conference Operator: star on your telephone keypad. To withdraw your question, you may do so by pressing 5 star again. We will have a brief pause while questions are being registered. The first question is from the line of Klaus Altmer from Nordea. Please go ahead.

Your line will now be unmuted.

Klaus Altmer, Analyst, Nordea: Thank you. Yes, a few questions from my side. So the first is about this around EUR $05,000,000,000 of smaller and variation orders. Is this a step change in these types of orders? Or it's more a Q1 specific development?

That will be the first one.

Klaus Westerlind, CEO, NKT: Thank you, Klaus, for the question. I would say it's you cannot consider it to be a general step change. These levels, they are always specific from quarter to quarter. And of course, there is a materiality limit above which we will make announcements of orders, but there is one below. And of course, we can accumulate orders below that limit that then together sum up to the specific level for the quarter.

And similarly, also depending on which products are in execution and with what scope is being done for the moment, also variation orders can fluctuate up and down for the quarter.

Klaus Altmer, Analyst, Nordea: Sure, Klaus. I guess it was not fair to multiply it by four to find a full year number. But let's just say you get zero variation orders rest of the year, so you're still at a full year of €05,000,000,000 Is that also not a number to use going forward? It is very special for this quarter.

Klaus Westerlind, CEO, NKT: I would say it is special. I cannot give advice that you should use such a number for the rest of the quarters, no.

Klaus Altmer, Analyst, Nordea: Okay. Then the second question is also to the Solutions segment. Also this quarter were impacted by, let's call it, less favorable order mix. When do you expect these less margin projects have been delivered and we're going to see a margin uplift?

Klaus Westerlind, CEO, NKT: Thank you, Claus. Again, let me start and then Lene can complement. I think there is a bigger picture and there is a quarter to quarter picture. If you look at the bigger picture longer term, we have commented previously that it will take perhaps longer time to get through the legacy backlog and into solely the more recent one orders than what the market has appreciated. I think this fact has been picked up.

And I think the message from us has been that it will take until 2027 until we see a significant margin uptake. And this also coincides with The Us taking into operation the new assets. So that's one aspect. The other aspect on the quarter to quarter fluctuation is that this will continue to vary quarter by quarter. And keep in mind that the profitability in Solutions continues to be impacted by the ramp up in OpEx.

If we take the very short scale, I think it's not unreasonable to assume that towards the second half of this year, the margin or project mix will be less unfavorable compared to what we have seen now in Q4 and Q1.

Klaus Altmer, Analyst, Nordea: Yes. Okay. That makes sense. If you look at mid to the high end of the guidance range, definitely the gross margin and the EBITDA margin needs to be improving, and that will mainly happen in the second half. By the way, is this execution or is it the mix that will be the main driver?

Klaus Westerlind, CEO, NKT: I'm not sure I understood the question, but I think the mix is what we are referring to will be the primary driver or has been also the primary driver of this.

Klaus Altmer, Analyst, Nordea: It was just what you said that things will be improving, as I understood, in the second half of the year. Looking at your guidance, then the mid to the higher end of the range, you need to do a much better margin than we saw in Q1. So the question was more if this margin improvement will come from execution or better mix or a combination, obviously.

Klaus Westerlind, CEO, NKT: I think it will the structural change will come from the mix itself. Then, of course, our ability to execute can impact this both up and down.

Klaus Altmer, Analyst, Nordea: Okay. That was all from me. Thank you so much.

Conference Operator: And the next question is from the line of Christian Johansson from SEB. Please go ahead. Your line will now be unmuted.

Christian Johansson, Analyst, SEB: Yes. Thank you. Two questions from me, to the applications segment. So firstly, you talk about increased competitive environment in selected markets. Can you please elaborate on this?

Is this only low voltage? And what markets are you talking about?

Klaus Westerlind, CEO, NKT: Thank you, Christian. Yes, when we talked about and we were discussing or describing the profitability of the business line, we were referring to continued weakness in the Construction segment. And that has I think we also mentioned the report has gotten even sequentially worse if you compare it to the same quarter last year. So it continues to be very subdued. The competitive environment that we also refer to in selected market is primary that we are seeing some pockets of increased competitive pressure in the Central European region.

And this does not only stretch into the Construction segment, but also into the Power Distribution segment.

Christian Johansson, Analyst, SEB: So this also impacts medium voltage cable pricing. Is that obviously in standard?

Klaus Westerlind, CEO, NKT: It has also impacted the the margins in medium voltage. Correct.

Christian Johansson, Analyst, SEB: Understood. And then my second question goes to the added capacity you you you bought online during the quarter. Can can you just talk about the potential dilution from from that in in the quarter? Yep. Okay.

Has there been a dilution, or or did you take that upfront? I'm not

Klaus Westerlind, CEO, NKT: sure I understand the question of dilution, but what were they did they

Christian Johansson, Analyst, SEB: have Sorry.

: So cost dilution.

Christian Johansson, Analyst, SEB: So so I I assume that ramping up new capacity, you will start being more inefficient in quarter one than you you plan to long term. So just curious to what extent the added capacity dilutes margin in application?

Klaus Westerlind, CEO, NKT: Eduardo, I understand your question. And of course, I think we really communicated per business line what the dilution is on profitability when it comes to the OpEx ramp up. What we have said, and I'm sure we recollect, Christian, but for the rest of us, that around one percentage point of EBITDA, we have the impact on group level from the continuous ramp up, both for the investments that we are carrying out in Solutions, but also the investments that we are doing in Applications. The two completions that we have described in the quarter in The Czech Republic and in Sweden and Folland, they were completed and they were taken into operation in the quarter. We don't have the full quarter impact.

Of course, you would also have a certain cost dilution before you have them into operation. But we will not be able to go into further specifics than what I said on group level.

Christian Johansson, Analyst, SEB: The

Conference Operator: next question is from Ilaria Boriccioli from Goldman Sachs.

Ilaria Boriccioli, Analyst, Goldman Sachs: Hi. Good morning. Thanks for, taking my question. So first one, is do you expect that the negative impact of, the phasing between the milestone payments, and the project execution will become more sort of recurring as your backlog growth decelerates. And on the back of that, like, what are your expectations for free cash flow in '26 and '27?

And then I was curious because you mentioned around 2,000,000,000 projects was awarded in your addressable market this quarter. Have you seen historically any seasonality in the tendering activity?

Lene Van Drap, CFO, NKT: Maybe I start on your first question, and then Klaus can come in on the tender activity. I think our answer to that first question on free cash flow generation will not change significantly from what we've said earlier. So just excuse me for repeating more or less the same message here. I think the first component you can look at is the net working capital as you do. And here, we have said that a negative 1,200,000,000 to €1,300,000,000 is a fair estimate.

And then there are larger fluctuations to that number always because, as you also point out, milestones fluctuation can be pretty large and actually change over fiscal year also this amount significantly. Then combining and this goes for the years ahead. I would say keep an eye out on when we start ramping up the new factory in Karlskroner. Then of course, we will start to use that net working capital position with us for the future production of the cables in the new factory for exactly that purpose. And then our profile on the net working capital will be more directly correlated to the size of the backlog as you have seen, let's say, historically.

The second component, a larger one is the CapEx. And when we communicated our medium term ambitions, we said that accumulated CapEx for the period of EUR 25,000,000,000 to 28,000,000,000 would stand at approximately EUR 2,000,000,000. And then we more or less gave you the profiling of how that would pan out, meaning a high EUR 24,000,000,000 that we now know, Then a 25% that will be very significant and the highest year in terms of investment level, coming down in 26%, not to the levels of 24%, but kind of in between twenty four percent and twenty five And then you'll see a gradual decrease towards a normalized level that we will reach 27%, twenty eight % ish. And I think this is the two largest components in for you to do the free cash flow. And when you do this and you look at our EBITDA outlook for the year, you're going to conclude that negative free cash flow generation of the year is very, very likely.

And then I will just say that you do the same calculation for 2026 and 2027 and reflect about this profile, and that will give you a good idea about where we'll end up.

Klaus Westerlind, CEO, NKT: And to your second question there on the tender activity, the very short and simple answer is that no, there is no clear seasonality on these on the awards in the Solutions business, where at any point in time, it could be a winter quarter, could be a summer quarter, it can come a significant lump and then it can be zero for two quarters. So I wouldn't be able to point to any seasonality there.

Ilaria Boriccioli, Analyst, Goldman Sachs: Got it. Thank you. And then a quick final one. What were the drivers of the intersegment transactions EBITDA this quarter?

Lene Van Drap, CFO, NKT: It's not different than the usual, but what's different than the usual is that the Swedish crown has strengthened again the euro, and that does give some implications for our P and L. So if you think about the intersegment transaction, you should think about, let's say, group overhead costs that's not directly allocated to business lines. And then you should think about elimination of internal FX hedges where we do have Karlskroner as a Swedish crown entity, and they're executing on euro contracts. So when the Swedish crown strengthens or the opposite, that will have some implications for the intersegment, but also on the financial items, you actually see this currency fluctuation having a rather large item. But I think that's how you should think about it.

Overall, we're not very exposed to currency fluctuation as our portfolio stands. So I think in the grander scheme of things, this is a minor thing to talk about.

Ilaria Boriccioli, Analyst, Goldman Sachs: Got it. So that was the only driver. Right?

Ching Wan, Analyst, Barclays: Hello?

Lene Van Drap, CFO, NKT: No. Sorry. I said yes. I don't know. Were you were you waiting for that?

Okay. Sorry. Okay. Yes.

Ilaria Boriccioli, Analyst, Goldman Sachs: I I didn't hear you.

Lene Van Drap, CFO, NKT: No. That's fine.

Ilaria Boriccioli, Analyst, Goldman Sachs: Thank you.

Conference Operator: The next question we have is from the line of Hakash Gupta from JPMorgan. Please go ahead. Your line will now be unmuted.

Akash Gupta, Analyst, JPMorgan: Yes. Hi. Good hi. Good morning, Klas and Linett. Thanks for your time.

I got two as well, I'll ask one at a time. My first one is, how shall we think about revenues in solution in the in the full year? When we look at q one, you had 20% growth, and you are saying that your production hours are largely similar. And as the year progress, your subcontracted revenues will go down. So I'm I'm just wondering if you can help us giving us some building blocks for how shall we think about 2025 revenues in in solution where you have visibility from backlog.

Lene Van Drap, CFO, NKT: I can start and then Haierkash, Klaus can chip in here. I think we have done this, let's say, more or less bucketing exercise earlier of telling you about that the machine hours between the years 2024 and 2025, more or less the same or it is the same. And then that the subcontracted revenue is a decline year over year, but that's, to a certain degree, also compensated by other effects. This hasn't changed for now, and we don't do an outlook for each of the business line. But I think reflecting about it like that, then of course, there can be ups and down based on the variation orders we just talked about or the different progress on the different projects.

And that's going to be the main contributor into revenue for the year.

Klaus Westerlind, CEO, NKT: No. And I have nothing to add, Akash, I think also with that, I think we have led also you to believe that it's not unlikely that the revenue level on Solutions will be similar to what we had last year.

Akash Gupta, Analyst, JPMorgan: So is it fair to say that as year over year progress, there may be some quarters when revenues in solution would be down year on year, also given the comp that we have in some of the quarters?

Lene Van Drap, CFO, NKT: Yes. The mix is different than last year, so that could be scenario, yes.

Akash Gupta, Analyst, JPMorgan: Okay. And my second question is on competition in high voltage market in Europe. So we had this National Grid Framework Award in March, and I think there were six companies or consortium that were shortlisted by National Grid to award their cable needs. So I'm just wondering any thoughts you have on competition because we saw some new players in that and any any any any implications that we should be aware of? Thank you.

Klaus Westerlind, CEO, NKT: Thank you, Akash. No, I couldn't give any specific guidance there. We noted exactly like you do on the six successful players there. Of course, I think what we are seeing is also what we have seen in the last couple of years, aspirations being put forward. I would like to draw the attention to the fact that the frame itself is not meaning any guaranteed volumes as such.

So I think that was also quite clear from the outcome. So any volume allocations will come to the market in a separate manner. But of course, being prequalified in the frame would be a prerequisite for being able to compete on that. And apart from that, I would just refer to many of the others discussions we have had where competition tends to be higher or more. The lower end the segments you go, it tends to be only a few players that really has the experience and the proven ability to deliver on the very high end on the HVDC, five twenty five, C and LAN cables.

: Thank you. That is it from my side. Thank you.

Klaus Westerlind, CEO, NKT: Thank you, Akash.

Conference Operator: The next question is from Chris Leder from UBS. Please go ahead. Your line will now be unmuted.

Chris Leder, Analyst, UBS: Hi there. Just two questions from me, if I may, please. I'll go one by one. The first, actually, is just following up on on the National Grid Framework, orders. And I think Prismic was saying recently that they expect that they could see some orders land in 2025.

Just wondered if as a follow-up, if you had any visibility on when you think those frames will turn into firm orders? Thank

Klaus Westerlind, CEO, NKT: you. I we try not to guide on specific agreements or customers when orders will come, etcetera. It's also connected to a big volatility. Of course, things can pass quarter to quarter or from year to year even without having a substantial difference for us as a business. Now with that said, it's not unlikely that we will see a number of orders being awarded this year.

And we have also earlier said that UK is a prime market for such potential orders this year. And I think I will leave it with that statement that I think is unchanged from before.

Chris Leder, Analyst, UBS: Okay. Thanks. That's clear. And second one is on applications. And just thinking about the weaker profitability as a result of construction markets.

And I think it's clear from Q1, across your peer group that there's commentary in Europe that construction markets probably remain weak. Would you share that view across 2025? Or you're expecting maybe a rebound in the second half that that can help improve margins alongside, I suppose, the the new sites being at a full ramp? Just any color there on what you think this trajectory looks like on the construction margins, would be very helpful. Thanks.

Klaus Westerlind, CEO, NKT: Thank you. I think in earlier calls, when we were here a couple of months ago, we talked about us expecting this segment to remain subdued for at least the first half and then to return to very modest to zero growth in second half. I think this was before also many of the reinforced global discussions around tariffs, etcetera. So with that, I think without referencing any newer statistics, our expectations on this segment for the rest of the year is very, very modest.

Conference Operator: Okay, super helpful. Thank you. The next question is from Kasper Blomp from Danske Bank. I

: have three questions. I'll just try and take them one by one. And first one is actually a little bit of a follow-up to the previous question. Can you give any kind of help as to how bad profitability within low voltage and construction cables is hit right now? Is still a positive EBITDA margin in that segment?

Lene Van Drap, CFO, NKT: In general and hi, Kasper, thanks for the question. Understood. In general, we don't comment on the profitability on, let's say, even the subsegments of the business lines. I think what you I would rather refer to is that the Construction segment in Application is a rather small part of the whole NKT business. So by that, I don't think you should be too worried about this.

It's also built into our outlook for the year that this is subdued and remains subdued.

: All right. Fair enough, Lime. Then coming back a little bit to Akash's question about solutions and revenue here. I think you have, in previous calls, mentioned that you could see a solutions revenue that would be flat to potentially down 5% in 2025 versus 2024. Is that still sort of the possible outcome that you see?

Because I just heard Clare say that it's not unlikely that revenue is similar to 2024.

Lene Van Drap, CFO, NKT: This is what we, let's say, continue to see and then the or expect and there's a plusminus to that, right? Really also the beauty of the Solutions business in terms of what can you catch up and thereby POC or the opposite. But I think we remain at that common level.

: Okay. That is fair. Then my final question just goes to sort of the general market environment within high voltage cables. Obviously, somewhat of a hype seen in '23 and '24 in terms of market awards, I think it's also widely known that that there's been some pricing tailwind for for both you and your competitors. Are you still seeing that pricing can hold up?

Or is the sort of less hype starting to have a negative impact on pricing in the auctions observed in the market? Thank you.

Klaus Westerlind, CEO, NKT: Thanks, Casper. No, it's a relevant question. The difficulty in answering it is, of course, the sample size that we operate with. So there's not so many awards, to be honest, which is out there, and we refer to the volumes being awarded in the first quarter just now. Now with that said, we don't have any evidence suggesting that the supplydemand balance, looking at the riskreward aspect of the product that we are in now, has substantially changed.

And we also don't have that expectation for the near term. We remain with the overall comment on the market that we believe it's going to be an average more than SEK 10,000,000,000 from 02/2004 to 02/1930. And we reiterate that now, of course, in light of what has happened the last two years, when we look at this year specifically, it appears to be closer to the 10% more than anything above that. But as far as the risk reward balance is concerned, we don't we haven't noted any changes.

: So that's your way of saying that pricing is holding up? And I would then assume that that's also your starting point for tendering activity this year?

Klaus Westerlind, CEO, NKT: I think that's your interpretation. And I think there is not a big change in the market sentiment. So I think that's not an unfair conclusion, Kasper.

: Okay. Thanks a lot, guys.

Klaus Westerlind, CEO, NKT: Thank you.

Conference Operator: The next question is from the line of Ching Wan from Barclays. Please go ahead. Your line will now be unmuted.

Ching Wan, Analyst, Barclays: Hi, there. Thank you for taking my questions. Firstly, I wanna follow-up on the consolidation line question that was asked before. So I'm working because I think there was some nervousness on the high voltage margin this morning, and I think this potentially could help explain that. So I'm working with two assumptions.

One is accessories is higher margin than cables, which was what your peers communicated, and that was kind of also verified by a recently IPO ed accessories stand alone business in Germany. The second one is, I think, the majority of the consolidation line was the accessory sales from services to solutions. And from your disclosure, we can see you have 33,000,000 in the quarter, which is 17,000,000 higher year on year, and that's the vast majority of the movement in the consolidation line. So the FX effect is actually very, very minor. So if I normalize the revenue and EBITDA for the consolidation line and move this to solutions, which is how your peers book accessory sales, the the the solution's margin would have been a hundred bps higher.

Therefore, you didn't really miss consensus on the solution's margin. Would you think this is a reasonable way to think about that?

Lene Van Drap, CFO, NKT: I really like your attempt of driving the logic all the way to accessories, margins, and and solutions. I would not confirm your calculation here. And I think there's some missing pieces in there, but probably something we can follow-up on behind. What I want to afterwards, what I want to say is that your the assumptions that accessories should carry a good margin, I agree to or we would agree to. Should it be higher than cables?

We would not say always. It depends, again, on projects. That we have significant, I would also say, for the accessory size of business intercompany sales to solutions, would say yes to. It's always so for us that, that's the, let's say, edge of our offering in the market. It's a solution, including the cable, the accessories, the joiners, the installation.

And that's really how we make also a strong business. When we then return to the currency impact, it is something you see in the consolidation on the non allocated and it has a certain bearing for sure. So trying to separate a little bit your business logic and then the currency implication, which I don't think you can draw directly through as you you try here.

Ching Wan, Analyst, Barclays: Okay. That's why we can follow this up later. And you also said the in the release that during the quarter, NKT completed the site acceptance test for the Ethoca crate power cable project in Greece. Would you tell us the implication of this top line margin? Could this be the margin dilutive part?

Lene Van Drap, CFO, NKT: So you're fully right. We did the SAR acceptance test, and that's a it's more for us to show you or share with you some of the traction on the underlying projects. We would I think Agreed is one of the eldest projects we're executing on. So I think you can draw some conclusion about at least profitability from that time. How much it ends up contributing right now, we would not comment at that level, but certainly, the mix is in there.

Ching Wan, Analyst, Barclays: Okay. Great. My last question, if I may. So people already asked about the construction exposed low voltage demand. By country, would do you see divergent trends?

Because some of your peers mentioned recovery in selective markets. Just wondering in which countries have you seen signs of recovery, if anything, at all?

Klaus Westerlind, CEO, NKT: Yes. You I assume now that you're asking about the construction related segment, and we have not seen any broad based recovery. And I think we will refrain a little bit from commenting too much on different regions. But I would confirm the hypothesis, and I think you're referring to others as well there, that it is very regional markets. So they do behave differently, both from a volume perspective and also from a pricing perspective.

But I will say that without going into details what markets carry which volumes or margins.

Ching Wan, Analyst, Barclays: Okay, great. Thank you very much.

Klaus Westerlind, CEO, NKT: Thank you. Thank you.

Conference Operator: And next up, we have Lukas Johannis from Jefferies. Please go ahead. Your line will now be unmuted.

Klaus Westerlind, CEO, NKT0: Thank you. Good morning. I have three questions as well if we can do it one at a time. The first one is on, you know, on application and, more specifically, on the power grid business, the medium voltage business within this. Because, obviously, you mentioned competition and and pricing also there, probably the the margins also impacted there.

I'm I'm just wondering if you can give some more details about where you're seeing necessarily the the issues there. Obviously, we haven't necessarily seen some of the the other companies in the sector talk about, you know, Power Grids margin being a bit more under pressure. And also within the Solidale business, there's quite a high exposure to low voltage kind of within the grid. Is that maybe more the part where you're seeing that weakness? Thank you.

Klaus Westerlind, CEO, NKT: Thank you. I think on the second part of the question around Solidale, I think we will refrain commenting on specific factories or perimeters within the applications business other than to confirm that we are on track with the integration. And as far as the performance goes, we are satisfied with that perimeter. To your first question around the power grid area, as I mentioned also before in the presentation, what we have seen in the first quarters are two aspects. One aspect is that there are some pockets in the market where we see increased competitive pressure, which is putting the margin under pressure.

And then secondly, there is also a mix aspect. Obviously, also within the Power Grids segment, are different kind of products and not only products, but also different kind of projects or customer segments. And there, the mix change that we experienced in Q1 also put the margins of the business lines a little bit impacted. So these are the two tendencies that we are seeing. We are, of course, vigilant around this also going forward, but that's what we observed during the first quarter.

And this was primarily in the Central European markets.

Klaus Westerlind, CEO, NKT0: Perfect. Thank you. And the second one was just on the phasing of CapEx. Usually, the first quarter is lower and then accelerates throughout the year with a stronger Q4 just because now you're running, obviously, very different project across different geographies. Should we see a different kind of quarterly phasing?

Otherwise, that would imply probably much higher CapEx number for for the year. So should we expect that we're not necessarily going to see, as much seasonality as the usual year on CapEx? Thank you.

Lene Van Drap, CFO, NKT: That's a good question, Lucas. I think you should primarily go by the annual CapEx, and I understand your wish maybe to split by a quarter. I wouldn't say that you could expect that we wouldn't have the seasonality. Sometimes in a business, and I've seen this other places, too, it is so that it's like there is a certain sprint on investments throughout the year where you get mobilized, you increase the spend and you get certain things done even closer to New Year's than early days. But we are running such a big project in Karlskroner.

So it's I think you're right that it will be maybe less of that because it's more big pieces moving, but I wouldn't comment necessarily on the exact split around the quarters.

Klaus Westerlind, CEO, NKT0: Okay. Thank you. And the last one was just on the Service and Accessories, Just the level of of margins in that quarter, do you point to kind of specific one off maybe here and that we shouldn't necessarily take the the Q1 margin for for the full year. Is that something to to highlight there? Or it's just maybe the increase in accessories will kind of continue your scaling the solutions business and so the margins are maybe higher than what we expected before, which is more kind of low to mid teens versus this level?

Thank you.

Klaus Westerlind, CEO, NKT: Thank you. I can start and Leeni can complement. I think both business lines are contributing in a positive manner to the quarter if compared to the same period last year. So there is sustainable improvements in the baseline business in both business lines. Now with that said, part of the strong performance and the margin in particular also came from, as I said earlier, a number of repairs and maintenance projects, which themselves are of a discrete manner.

So as you can understand, we are, of course, extremely satisfied with the 19.3%, but this is not something that we are using as a proxy now going forward with reference to what I just said.

Lene Van Drap, CFO, NKT: No. I wouldn't add anything.

Klaus Westerlind, CEO, NKT0: No, thank you. That's it.

Klaus Westerlind, CEO, NKT: Thank you.

Conference Operator: And the last question we have is from Lars Topper from Carnegie. Please go ahead. Your line will now be unmuted.

Klaus Westerlind, CEO, NKT1: See, a couple of questions from my side to applications also. The first one is in in in such a scenario where you see increased competition and problems in price pressure, how do you respond in terms of pricing? Do you follow suit in in being a little bit more lenient on price? Or do you rather say, okay, then we take in fewer orders? And on the cost side, are you in a situation where you feel you need to do something to cater for this situation?

I have another question on applications afterwards.

Klaus Westerlind, CEO, NKT: Thank you, Lars. Good speaking to you. It's good questions. I think if we start with the just operational footprint and our situation in applications, we are satisfied with the changes we have done over the last couple of years. And we are also, of course, never satisfied with respect to improvements on cost base, improvements on operational efficiencies just to continue the journey to get better all the time.

Now with respect to how do we act in an environment like just described, I think I would be very careful to disclose our market tactics on how we respond on it more than to say that, of course, we strike the balance between absorption, turning the assets and also, of course, the margin of the same. And in that, obviously, also having just the whole market component of our positioning, the competitive environment in mind. But I would I would ask not to go deeper into that also for competitive reasons simply. I hope you understand.

Klaus Westerlind, CEO, NKT1: Yes, of course, I understand. That's all very fair. Second question,

: on

Klaus Westerlind, CEO, NKT1: a more positive note, in applications, you won a framework agreement with RTE of France. So a couple of questions to that. If I look at the length of cable you have to deliver and the total framework that also include others than you, My guess is €180,000,000 is that completely far off? And can you talk a little bit about the execution profile of this? When will it become firm orders?

Are you in the future going to announce such framework agreements in general? And can you maybe also talk about what some of the other TSOs are doing in low and medium voltage?

Klaus Westerlind, CEO, NKT: Yes. Thank you, Lars. If I just take in general in the low and medium voltage, the sentiment in the market, I can repeat what I think I have said a couple of quarters ago or we have said, which is that we have seen a tendency in that market of the frames are getting longer in circumvention. So they're moving from being quite short term agreements to becoming longer, also becoming more articulate when it comes to volumes. So what the volumes are that are projected.

And even there are not tangible examples of contracts being signed, but at least in discussions of framework agreements even with some sort of a volume guarantees in them. It is obviously, we have to distinguish between solutions and applications, but at least that's a sentiment we have seen in general without going into particular markets. And I think you can see us also during last year having announced quite a couple of frames that we have been successful in. RTE is one of these frames. And I will, I think, disappoint you a little bit by saying that I cannot go into further details on that agreement than what we have disclosed in the past through also the press releases.

Now as to whether we will announce or not, we do so when we have either a material obligation to announce or we see that there is a marketing aspect that is positive for us in announcing. But the frame agreement with RTE is an important one. We have supplier to RTE both in the legacy NKT era, but also Soledal has been. And this agreement, I think, manifests that situation, both on medium voltage but also on the low high voltage sphere, which is what is being covered by this agreement. And I will unfortunately not give you an indication of whether the estimate from your side on the monetary aspect is right or wrong, Lars.

Klaus Westerlind, CEO, NKT1: Fair enough, Chris.

Klaus Altmer, Analyst, Nordea: Thanks, guys.

Klaus Westerlind, CEO, NKT: Thank you. Okay. So with that, I understand from our operator that we are out of questions. And I just want to thank everybody for tuning in today. And of course, me and Lene and the organization are happy to say that I think Q1 shows a positive continuation of last year, and it's also another step in the staircase towards our medium term ambitions in 2018.

And with that said, I wish everybody a good day and a good weekend when it comes.

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