Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NKT AS (NRKBF, Financial) reported strong operational and financial results in Q2 2024, with double-digit growth in revenue and operational EBITDA for the seventh consecutive quarter.
- The company achieved organic revenue growth of 29% compared to Q2 last year, driven by positive contributions from all three business lines.
- NKT AS (NRKBF) recorded a quarterly record operational EBITDA of EUR 86 million, equivalent to a margin of 14.2%, which was 1.8 percentage points higher than the previous year.
- The high-voltage order backlog remained robust at EUR 11.3 billion, providing strong earnings visibility for the remainder of the decade.
- Strategic progress was made with the successful divestment of Photonics and the acquisition of SolidAl, enhancing NKT's market-leading position in power cable solutions.
Negative Points
- Despite higher revenue, the operational EBITDA margin in the service & accessories business line decreased to an unsatisfactory level of 7.1% in Q2 2024.
- Profitability was impacted by an increased cost base, reflecting higher employee headcount and work related to a legacy service agreement executed at a low margin.
- The company faces challenges in expanding production capacity, including cost overruns, delays, and difficulties in attracting and retaining skilled labor.
- There is uncertainty regarding the timing of when a structurally larger supply chain will materialize, potentially affecting future market balance.
- The financial outlook for 2024 includes assumptions of stable market conditions and satisfactory execution, which may not account for potential economic disruptions or supply chain issues.
Q & A Highlights
Q: Can you explain the unallocated costs within EBITDA and what to expect going forward?
A: Line Fandrup, CFO, explained that unallocated costs are due to non-allocated group costs and elimination of intercompany currency hedges, particularly related to the Swedish Krona. These costs should not be added or subtracted from the solution business line results.
Q: Has there been a change in your outlook for the high-voltage market towards the end of the decade?
A: Claes Westerlind, CEO, stated that while there is strong demand expected in the coming years, a more balanced supply-demand situation is anticipated towards the end of the decade. This is based on announced capacity additions and market dynamics.
Q: How should we think about net working capital for the remainder of the year?
A: Line Fandrup, CFO, mentioned that net working capital will depend on customer payments and awards. While the current level is favorable, it may change due to individual customer payments and project timelines.
Q: Can you comment on the free cash flow and whether it was driven by a single contract?
A: Line Fandrup, CFO, clarified that the cash flow was not due to a single contract but rather multiple elements within the solutions business. The cash flow was influenced by milestone payments and prepayments.
Q: What is the outlook for margins in the solutions business for the rest of 2024 and 2025?
A: Claes Westerlind, CEO, noted that margins will vary based on project mix and installation activity. The seasonality of installation work and project mix will influence margins, making it difficult to predict exact outcomes.
Q: How should we think about new capacity announcements given the balanced supply-demand outlook?
A: Claes Westerlind, CEO, emphasized that NKT will maintain discipline in capacity additions, ensuring demand certainty before making expansion decisions. The focus remains on executing current projects efficiently.
Q: Can you provide an update on the Champlain Hudson project and its impact on subcontracted revenues?
A: Claes Westerlind, CEO, stated that the Champlain Hudson project is progressing well and is expected to be completed in 2026. Subcontracted revenues are currently high due to this project but will normalize over time.
Q: What is the expected tax rate for the remainder of the year?
A: Line Fandrup, CFO, indicated that the effective tax rate is expected to be around 15% for 2024, as NKT continues to capitalize on tax loss carry-forwards.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
