Ladies and gentlemen, thank you for standing by, and welcome to NKT Q4 2021 Report. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question, you will need to press star one on your telephone. I would now like to hand the conference over to the CEO of NKT, Alexander Kara. Please go ahead, sir.
Thank you. Good morning, everybody. Welcome to our Q4 results. We have published this morning also our annual report. In the meeting room, I have here with me Basil Garabet, the President and CEO of NKT Photonics. Line Andrea Fandrup, we'll call her from home. She's on sick leave, so we need to see how we manage that with the questions, but that should be possible to manage that. If we go to the highlights of Q4. In NKT Cables, we grow organically at 7%, and the development of the growth was contributed by application, service and accessories. We still have a high order backlog of EUR 2.87 billion by end of 2022.
Also what is not listed here, but worth to mention, we had a good cash flow generation in the fourth quarter of DKK 93 million, and the leverage rate shown on the group of 0.1x. We had a small acquisition of Ventcroft in the U.K. to strengthen our portfolio with fire-resistant cables. Photonics has a record high Q4 on the revenues, an organic growth of 6%. Going now to the Q4 a little bit more in detail. We have the, as mentioned, the 7% growth on cable, and this is the ninth consecutive quarter with organic growth. Also for the full year, we had 15% organic growth, which is the same growth like we had in 2020.
Good momentum on overall growth, as you can see here also on the slide here on the right side. In Solutions, we had a decrease in revenues. This was related to the mix in Q4 due to lower activities from AC cables. We had a good momentum in Applications, in improved revenues and operational EBITDA, and I come back to that later. The same is applicable for Service and Accessories with growth and improvement on operational EBITDA. You see on the right side the improvement compared in Q4 on EBITDA, from EUR 9 million to EUR 14 million. It would be EUR 4 million higher. It was impacted here from a commercial settlement dispute. Otherwise, we would have 14 + 4.
The same is applicable for the full year from 57 to 131, which will also be impacted by the DKK 4 million from the commercial settlement. Overall, for the full year, I think it's worthwhile to mention here, going from 55.2% EBITDA to 10.4 is a significant improvement. With the 10.4, we are in the midterm guidance, which we co-communicated in 2020. In January 2022, we had an unannounced inspection from the German Federal Cartel Office at two of our factories in Germany, and we are cooperating here with the authorities. Going to solution specific. I mentioned already that we have lower revenues, -10% in Q4. This is due to the mix and less activities from AC cable orders.
For the full year 2021, we have a growth of 9% on Solutions. Also on EBITDA, we improved EUR 36 million in numbers to EUR 83 million EBITDA on Solutions side. We executed several orders, as listed here, Attica-Crete, and MI cable, Dogger Bank, Shetland HVDC. As mentioned, we had this commercial dispute on a project which was related to installation of EUR 4 million. We finalized commission Moray East , and with this we can bring clean energy to 9,500 households in Scotland. Going to the overall high voltage market. We assess the high voltage market in 2021 as EUR 5 billion.
A good momentum, development on the market, in the last two years, and we see further increase on the markets, and we expect on the market that the market grows to EUR 7 billion to EUR billion in average over the year from 2022 to 2024. There will be different regions where cables is needed in Europe, North America, Asia and also Middle East, and the different technology like DC, AC or MI even. Of course, with cables, wind farms going further out in the sea, DC is the more preferred solution as for technical reason, otherwise, you need reactive power compensation. Going to the high-voltage order backlog. We are at EUR 2.87 billion. This is a high level, or EUR 2.43 billion in market standard price.
Out of the backlog, we have seen here 25% will be executed in 2022. Not included are the orders which will be awarded in 2022 and will have a revenue impact in 2022. Still a high order backlog, and this is of course based on orders received in 2022 is expected to go up again. Coming to Application. Application has really a good Q4 with organic growth of 30%. Traditionally, Application has a weak Q4, and the revenue is of DKK 212 million and EBITDA. Good momentum in the market, good growth momentum, and which drives this revenue and EBITDA.
We also were able to manage this factory increases in price increases in inflation energy prices and so on, and could protect the margins in our deliverables projects and also focus on procurement. As mentioned earlier, we did an acquisition, a small acquisition with Ventcroft in January on which is specialized on fire-resistant building wires on the low voltage side. Looking at Service and Accessories. Good activities. We continue on the growth path here with Service and also Accessories, mainly medium voltage accessories, 17% organic growth in the quarter. Revenue is DKK 49 million and DKK 5.9 million EBITDA. Good activities.
We have also established our execution hub in Gdynia, where we are trying the first joint test and preparing for the growing market in Poland and in the Nordics. Overall, also satisfactory. That's satisfactory development. With this, I would hand over to Basil, and he gives you the highlights of Photonics. Basil?
Thank you, Alex. Good morning, everyone. For NKT Photonics, we had a good quarter. It was the sixth quarter where we had record revenue. The key developments in the quarter is that both revenue and EBITDA improved. The rate of improvement on revenue was 6%, and that's compared to the same quarter in 2020, which was in itself a record quarter, so a nice improvement there. We managed a high activity level with limited disturbances from supply chain in the quarter. However, that continues to be an issue going forward. The organic growth of 6%, as in previous quarters, was primarily driven by a strong performance in both the quantum sector and in our industrial sector.
Our EBITDA increased to DKK 5.5 million, again driven by the higher top line, along with better gross margin from a more favorable mix of products. NKT Photonics also had its highest ever Q4 order intake, which is up again by 5% compared to the same quarter in 2020, which again in order intake was a record quarter. On the business development in the quarter, in medical and life sciences, we continued the trend in microscopy and ophthalmology, especially in ophthalmology, where we're doing reasonably well with new orders. The revenue though in the quarter was relatively flat. However, we believe that that's a timing issue that will improve. In Quantum, there is which is a great area for improvement for us, and a great growth area.
Quantum contributed quite nicely to the growth, especially in quantum computing. The industrial side, which is our largest sector, did very well, especially in the semiconductor sector. Finally, in aerospace and defense, that growth was relatively flat, but that's really again due to timing factors, and we see that improving going into 2022. With that, I'll pass on to Line, NKT's CFO.
Thank you. Thank you very much, Basil. Turning over to the financial highlights of the quarter and the full year on slide 16, the income statement. Summing up what both Alex and Basil spoke to here, organic growth on the quarter for both of the businesses, 7% for NKT and 6% for NKT Photonics. For the full year, both of the businesses are up by 15% compared to 2020. This turns into also a strong performance on the earnings level, where both businesses more than doubled their earnings compared to last year, closing the NKT Cables at DKK 131 million for the full year and Photonics at DKK 8 million. We will go into the operational EBITDA margin.
Worth noticing that also here, the improvement for the quarter compared to last year and the full year for both businesses. Overall here, you can say made a step up compared to last year. Going to the net result and zooming in here on the full year from -EUR 75 million in 2020 to EUR 4 million. Turning positive on the net result is a very satisfactory conclusion to 2021. If we turn the page to the balance sheet highlights, as Alex also mentioned, we have on the Cables business a strong improvement on the working capital between Q3 and Q4.
A positive development of around EUR 100 million closing net working capital for Cables at the favorable EUR 92 million. Photonics stayed more or less flat compared to Q3 with the EUR 34 million working capital. All in all, this turns into the earnings and the into an improved ROCE for the year, where we did close 2020 on a negative ROCE, but for the full year for the businesses, we are at 2.4%. For the Cables business for the full year at 3.4%, and for the Photonics business a negative. On the net interest bearing debt obviously very positively impacted by the working capital and improved earnings, and we close the NIBD for 2021 at EUR 13 million and a 0.1 times.
That's a good result also. If we go to the next slide here on the cash flow, we have a good cash flow from operating activities, mainly contributing from the change in working capital, but also an improved EBITDA. The investment level, especially on the CapEx for the full year, you know the EUR 228 million, that consists of the primary part to the Cables business and the solutions expansions, is the major part. The free cash flow for the full year closes at -EUR 18 million, and with a Q4 at +EUR 91 million. If we go to the next slide, turning to the financial outlook for the year.
Overall, the Cables division expect to end the revenue on the full year around EUR 1.35 to EUR 1.45 billion, and an operational EBITDA in the range from EUR 130 to EUR 155. Photonics expects to grow in 2022 12% to 17% and an EBITDA margin of 11% to 14%. We are reconfirming for the Cables division the medium-term ambitions on the next page with a CAGR above 10% growth on revenue from 2019 as base year, an operational EBITDA margin of 10% to 14%. NKT Photonics is introducing a medium-term target also with an organic growth on revenues 12% to 17%, so similar to the 2022 guidance with 2021 as a base year.
The EBITDA margin is expected to increase to 20% to 25% over the medium term. Turning to the last slide here to repeat the key messages of the quarter. 7% organic growth in NKT for Q4, a very positive performance in applications and services and systems. A high-voltage order backlog maintained at a high and sound level for the end of the year. The acquisition of Ventcroft, a good contribution in addition to our applications business. A solid working capital improvement for Q4 and a corresponding low NIBD. For Photonics, the record high Q4 revenue with 6% organic growth and a good contribution on earnings. With that being the last slide, we will turn over to questions and answers.
Operator, we are ready for question and answers.
Ladies and gentlemen, we now begin the question and answer session. If you wish to ask a question, please press star one on your telephone. We have the first question from Claus Almer from Nordea. Please go ahead. Your line is open.
Thank you. Yeah, I have a few questions. The first is for you, Basil. The order intake, I think it was 26% for 2021. Why does that not reflect in your revenue growth in 2022? And maybe a side to this question is, was it 5% or 6% in Q4 alone. Is that a reflection of a slowing growth rate or what did happen in Q4? That would be the first questions.
Okay. The 5% or 6% in Q4 was actually an improvement because Q4 of last year was pretty high. It's not a slowdown. It's you know a number of different markets. It's really seasonal, and it depends on how they come in. As you know, the business has changed from many years ago from a mainly research business to more of an OEM business. A lot of our order intake is more on the OEM side, which is multiyear orders going on compared to the past, which were really orders that we would deliver within a
A quarter or so. The difference is, the business is changing to being more OEM. It's growing that way, which is what we planned for when we started on this journey to make Photonics more of a commercial entity. That's the differences that you see to before. It's still very healthy, 26% increase in 2021 was very good. This is continuing into 2022, and we hope that you know that will basically make our growth go in the way we had forecast and we'd planned.
That sounds great. My second question goes to this EUR 7 billion to EUR 8 billion market outlook for the cable division or for the high voltage part of the business. First of all, is this an addressable market for NKT only Europe, or what is actually the EUR 7 billion to EUR 8 billion covering? That would be the first question about cables.
No, the DKK 7 billion to DKK 8 billion is a market which is addressable for us, and it is in different regions. I have here the list in front of me, but I need not go through it. It's in Europe, it's in Americas, different regions in the world. It sums up to the DKK 7 billion to DKK 8 billion, actually a little bit more. As we know, projects tend to shift sometimes. A fair assumption can be the DKK 7 billion to DKK 8 billion in average, in the next-
Okay, is Champlain, for instance, included in this market forecast? If you win, how much would that impact your revenue 2022?
It is included, yes. Champlain is included. How much the revenue will be impacted 2022, I mean, we don't provide here the details. Champlain would contribute to 2022 result.
Okay. Should we assume you are winning, you know, 1/3 of this market, giving you 3 ± players?
Give me a crystal ball, Claus, and I tell you. I mean, we need to see, of course, what capacity we have available, which project would fit in our production and our capacity from a schedule point of view. I think just to say flat 33%, I think that maybe would be wrong. You can see in 2020 we had high orders received. Last year, a more moderate. I think you need to look if you want to look at market share, you need to look over a period of two years or potentially even three years to get a better understanding.
Definitely we expect to be winning some orders this year.
Sure. I was not talking about 2022, your market share. It was more for these three years. Should we assume on average that you can win 1/3 of the market? That was actually the question.
1/3, on average, would be rather on the high side, because we can just take in as many orders as we can execute and as we can produce. If you take DKK 8 billion, DKK 2.4 billion would be pretty high. Most probably less than 33%.
Okay. That makes sense. Thank you so much.
Thank you for your question. We have the next question from Casper Blom from Danske Bank. Please go ahead.
Thanks a lot. I would actually, as expected, like to follow up on the DKK 7 billion to DKK 8 billion outlook that you put out now. Such a market outlook, not speculating what your market share might be, but when would you see that sort of feeding into the P&L? Secondly, you are expanding your factories now. If this comes through, obviously, that would require additional expansions. Well, how would you go about with that? Would it be continuing to expand in the current facilities, or would you be looking toward new facilities? Then finally, if you could please elaborate how this corresponds to your medium-term target of these average 10% growth for NKT. Thank you.
That's a lot of questions, huh?
Sorry.
No, that's fine. No problem. How does that affect in the P&L? I mean, we have the backlog. The backlog is what we have is that distributed over the next year. What we indicated also, and as we win more, example, if Champlain will become ordered, we'll have a revenue impact in 2022 and the years to come and for further project which we will win. We look at of course what capacity can we have and which projects can we take in order to fill our contractual obligation. If it comes to factory expansion, we expand Kalundborg and Cologne, and that is the current status.
We said also we move the low and high voltage from Cologne to the Czech Republic and do some investment in Cologne to be able to do more high voltage AC and DC. That will give us some improvements on capacity. We need to see based on orders received if we do a further expansion, but that we would come back to you if we have any news here. The midterm guidance, it's 10% to 14%.
Of course, if we win orders and we improve profitability and have also progressing well on application with our improvement and the other business of service and accessories, we would provide a higher end of the guidance and we will give them more news if we think we are there. For the time being, it's 10% to 14%.
Well, actually, just to follow up on that, what I was hinting to was more the 10% revenue and organic growth outlook. I do know that you say at least 10%, but if I take 2019 as the starting point and add 10% a year, then in 2025, 2026, 2027, that would correspond to a number that is, you know, very far below the 33% market share that Claus talked about.
Okay, that's your point. It's clear the 10% CAGR is related to mid-term. Going 2025, 2026 10% CAGR, this would be not possible without further investment. That is clear, huh? I think with investment and so we will have the CAGR 2024 up to 2024, roughly.
To grow further on 10% CAGR, that would require investment.
Okay.
I'm not sure if that answers the question, huh? I mean.
No. Well, I can follow up later on. Actually, just one additional small question. Should we expect any one-off costs in 2022?
Nothing planned.
Excellent. Thanks.
Thank you for your question. We have the next question from Akash Gupta from J.P. Morgan. Please go ahead.
Yes. Hi, good morning, everybody, and thanks for your time. My first question is also on these projects. I think the DKK 7 billion to DKK 8 billion average over the next three years would be DKK 21 billion to DKK 24 billion over the period. Can you maybe help us with the phasing of these orders? How do you see them to come in the next three years? Will it be more front-end loaded or evenly loaded or back-end loaded? Especially what do you have in industry order award expectations for 2022? That's the first one.
Okay. I have here the list of the projects for 2022, 2023 and 2024, and that's pretty much balanced. How the annual project will be awarded, it's quite a lot, a number of projects in the range of 12 to 20 projects per year, roughly. We don't count it here. It's pretty much balanced. It's not unbalanced. Interval orders can move as we see. We have seen also last year, the U.K. CFD round moved from 2021 to 2022, but now it will be every year going forward. That is, the seven to eight could be pretty stable.
Then my follow-up is on a geographic split of these projects. Like, I mean, not that long ago, this industry used to be EUR 3 billion to EUR 4 billion in size, with more likely three than four. Now we are talking about EUR 7 billion to EUR 8 billion, which is essentially implying 100% growth in the last two, three, four years. Maybe if you can help us with where this growth is coming from, how much is U.S. or North America, how much is Europe and how much of this is opportunities outside of Europe and North America?
Akash, I mean, I have not the percentage here, but a lot is in Europe, but also projects in the U.S., also Middle East, there are projects, but I have not now split it by percentage per region. A lot in Europe, but also U.S., Middle East, Asia, all regions. Definitely Europe is strong and also North America is becoming more.
Okay. My final one on the same orders is if you look at this run rate, EUR 7 billion to EUR 8 billion, typically it takes around three years to feed into revenues at full extent. If 2022 is going to be EUR 7billion to EUR 8 billion, then it would be around 2025 when industry revenues would be in line with these order intake. If we apply historic market share, then you can get as much as EUR 2 billion. You should get EUR 2 billion in euros out of the EUR 7billion to EUR 8 billion industry by 2025 in revenue terms. If you look at the current capacity and coming back on that earlier question, it looks like you may need to soon start with big investments if you want to maintain your market share.
So far, we have not seen any indication of that, while we see some of your competitors are raising capacity before some of these orders come, or orders materialize. Maybe any comment on your market share in future? Is there any risk that your market share in the medium term might be lower than the last three, four, five years that we have seen, simply because of the constraints you have on the balance sheet side that might impact your CapEx programs?
No. I think we want to maintain our market share. On the balance sheet, I mean, you have seen we had quite high investment that EUR 213 million or EUR 214 million and still cash flow almost neutral for cables. If needed, we and if we see it's opportune, we will re-review that and potentially invest. At the moment, we are not there.
Thank you. One final question I have for Line is on inflation and net price cost squeeze, which you see every year. What are your expectations for 2022 versus 2021? If you can help us with that.
Yeah. I do think like all other companies, we also see inflation rise on the raw materials, utilities, and also on wages and salaries. We're navigating this very much and in general, then commercially passing on to our customers in both in terms of our solutions business and applications business. You will see rising input costs, but you will also see us pushing prices to enable, let's say a zero impact to our P&L.
Thank you.
Thank you for your question. We have the next question from Daniela Costa, from Goldman Sachs. Please go ahead.
Hi, good morning. I wanted to ask on three things, and sorry if they have already been asked because I joined a little bit later. But first I wanted to check on Q4 solutions margins. I guess even if we take the dispute, they're still at 7%, which I think is, given your utilization rates have been improving. We've talked about pricing getting better now for quite a few quarters in high voltage. They still seem rather low. I wanted to understand sort of what is still hindering this from being into the double digits like some of your peers. I understand AC is not fully utilized, but DC, I would thought should be margin accretive. Is it an underutilization impact? How much would that be?
Is it pricing in the backlog that is a negative? Any color on those headwinds would be useful. Second, I wanted to check regarding services and accessories, if you comment a little bit on how you see demand going forward. I guess the pool of wind offshore, particularly offshore, has expanded, but we've been at quite elevated levels of services. So if you can help us think about that in 2022 and afterwards would be great. And then my final question relates to, I think we've seen some execution issues and turbine delays and things on, like, players on the turbine side. I don't know this is not a direct read across for you, but can you talk through like normally, like on the cable ordering process on offshore, when does the cables go in?
When do the turbines go in? If we keep seeing delays on the turbine side, can it hit the demand? How bad does it have to be to hit the timelines of awards of cables? Thank you.
Coming to the first, without this dispute, we would around DKK 10 million or 7.2%. The margin is impacted by the mix. As I said earlier, less activities on the AC cables projects. That's how it is. In service and accessories, we see a growing demand on accessories, particularly on medium voltage, but also with the good momentum here on service side, without really closing anything further on Q1. We expect that service and accessory business line will continue to grow and also on the profitability.
On turbine execution issues, we do not see any execution issues at the moment, at least in NKT cables. These large cables are ordered early ahead. Even if there would be a delay in the turbines, you can either store the cables at the factory site, or you could also do a so-called wet storage, lay the cable into the sea. Then if you order platform with the DC, with the connection made to pull in into the platform at a later stage. I do not expect that delays from turbine or installation of turbines will impact or have an impact on that delay of awards.
Thank you for your question. The next question from Kristian Johansen from SEB.
Yeah, thank you. My first question is on applications and this pretty impressive 33% organic growth. Can you give a bit of color on the growth and demand you're seeing in the quarter between medium voltage and low voltage? And in particular for medium voltage, we've been talking about this potential structural growth as well. Do you feel there's enough evidence now that you can firmly say that it is happening? Or what's your sort of updated view on the more structural growth so demand for medium voltage cables?
Yeah, I mean, we see a high demand on medium voltage and on low voltage pretty much in all the regions we are active. As normally Q4 is about a weak quarter for application. You can see, and quite significant growth. We expect that this continues okay, if nothing extremely happen. But we see a good underlying dynamic in the market which for us have even also confirmed the other cable manufacturer.
Understood. My other question was on the pipeline of AC orders. You have highlighted that the lack of AC orders is a dilutive factor currently on your margin. Can you just update us on the progress on the potential pipeline within AC orders? I mean, have you gotten more confident or less confident in terms of winning anything short term?
I mean, there are some AC orders which we will be awarded in 2022. Projects in the U.K., in the Baltics, in other regions. There are some opportunity to be successful and but we need to see when they will be awarded. Even if they awarded, it will not, and if it would be successful, it would be not an immediate revenue impact. It will come with some delay of, let's say nine months.
In any case, the potential impact on 2022 revenue would be fairly limited. Is that fair to assume?
It's very limited. I mean, our guidance is based on what we see realistic to achieve.
Understood. Great. That was all for me. Thank you.
Thank you for your question. The next question from Max Yates from Credit Suisse.
Thank you. Just my first question would be around two specific projects, the SuedOstLink and the Champlain Hudson. I just wanted to understand what you've assumed within your revenue guidance for these projects, and particularly Champlain Hudson. Have you assumed any contribution this year in guidance? Then also, if you could just give us an update of the discussions with the customer on the SuedOstLink and how that's progressing, and when you think you'll start producing this project at your factories. Thank you.
We have SuedOstLink and SuedLink and Champlain is a part of our guidance. SuedOstLink as well as Champlain will contribute to the revenues in 2022, but provided, of course, Champlain will be awarded. I will not provide here details on how much. SuedOstLink we'll start to produce around end of Q2. We have agreement with customer when we produce, also the same with SuedLink. We will have revenue recognition from the corridor projects as well as Champlain if it gets awarded.
Okay. Just a couple of others. When you think about you've obviously talked about capacity today, and you talked about some investments that you're making in Karlskrona, and also Cologne, and also shifting some production. What I wanted to understand was with the available expansion, so adding lines, essentially brownfield expansion, what is the maximum revenues that you can get those facilities to without going down the route of a new factory kind of in the U.S. or in Europe? Yeah, what's the maximum with expansions that we can get to in terms of revenues for those facilities?
Maybe as a guideline around DKK 200+ million revenues per extruder expansion roughly.
Is it fair to assume that kind of that would take your total potential revenue without greenfield expansion to about DKK 1.2 billion in solutions? Is that fair?
Maybe a little bit more.
Okay. Just the other sort of couple in terms of CapEx for 2022, I mean, I assume given your sort of bullish market or your, I guess, optimal positive market comments on the DKK 7 billion that kind of available investments to existing capacity will likely be made. I guess how should we think about CapEx over the next couple of years in the context of you most likely adding these expansions versus what happened this year? Any guidance on sort of how CapEx should evolve in 2022 and 2023 would be helpful.
Maybe I can jump in here, Alex. On CapEx, I think 2021 has been a very high level because of the parallel ongoing expansions in the solutions factories in Cologne and Karlsruhe. We are closing out on the Cologne expansion, but the Karlsruhe expansion will continue for some part of the year. You should expect. We don't guide on CapEx, but you should expect as still somewhat of a CapEx level. Usually, we would say before the expansions, we had EUR 50 million to EUR 60 million of maintenance CapEx, and we are turning into a bigger company, right? That is, let's say, incrementally growing us and then closing out on the Karlsruhe factory, and then our continued investment both in our technology and our cyber or IT in general.
It's not expected to be at a similar high, but still pretty impacted by the expansion throughout 2022. Beyond that, let's say we don't have a scope of larger expansions, but as Alex alludes to, of course, we are considering the longer term how to transform NKT for to take our share of the growing market out there.
Okay. Just my very final question would just be on the midterm margin targets, which they're 10% to 14%. It's obviously quite a wide range, and I would say you have some fairly unique visibility in that you have a big backlog, very healthy kind of market conditions that I would argue would almost guarantee that your capacity will be fully utilized at some point in 2023 or 2024. I guess I feel like we have pretty good visibility on the revenues. What I really wanted to understand was what are the moving parts, or what do you see as kind of most important to get you to the upper end of that margin range? Is it, 'cause pricing should be good if the industry utilization is high. Is it just execution?
Is it mix of projects? Do you see the mix of projects in your backlog as sufficient to get you to the upper end? I'm just trying to understand the moving parts around that medium-term margin guidance, given some of the building blocks feel like they're in place.
No, it's as we said also earlier, it's good execution, getting project in with good margins, which would happen. Further improvements on the application business line, then service also that we continue to have a fair share on offshore repairs and also on accessories. If that all happens, then we would be rather on the upper side of the guidance. I think consensus is 13.9%. This is how it is.
Just sorry, a very final one. When you look at a lot of the projects coming to market, I mean, we've seen obviously quite a big range of projects, which are some land high voltage projects and offshore wind will come in the UK CFD auction, I'm thinking 2022. We have some larger interconnections like the Tyrrhenian Link that came to market. Do you see very different margin profiles across these projects? I'm trying to think about kind of across that DKK 7 billion to DKK 8 billion. I know you've mentioned sort of DC is more profitable, but just thinking about the major projects where you have the opportunity to win, which I see as sort of CF, the CFD, Champlain Hudson Power Express.
Do you see very different margin profiles in a lot of these projects or not so much?
No, I mean, the margin, I think, varies from project to project. You cannot say, and we are active on all areas on interconnectors, like Champlain Hudson. It could be also land interconnectors, offshore wind, DC, oil and gas, power from shore. It's a mixed bag. Overall, with higher utilization, we can also monitor with our backlog, and also our capacity. We can be more selective and we see that margin go up, and also we raise our prices whenever we can.
Okay. I mean, maybe if I could sort of slightly rephrase it, the SuedLink and SuedOstLink projects and Champlain Hudson are gonna be a very, very big contribution of your revenues in the next two or three years. I guess maybe my question is, do you see different margin profiles in the land projects to what we've traditionally been used to in some of the offshore wind and larger interconnections? Do you see much in the difference in terms of margins?
I mean, Champlain Hudson is obviously a direct negotiated deal where you can expect satisfactory margins. Also in the corridor project, we communicated earlier that we are having satisfactory margins.
Okay, fantastic. Thank you very much.
Thank you for your question. The next question is from Akash Gupta from J.P. Morgan.
Yes. Hi, thank you for taking the follow-up. The first one I have is on Photonics. Here, if I look at your margin guidance, you're guiding 11% to 14% EBITDA margin in 2022. If I compare then against 2019, when on an underlying basis you had 15% to 16% margin. I mean, we are looking for revenues that are quite ahead of 2019 level, but margins are somewhat down. Maybe if you can help us explain what is really driving it. Is it more investments, or is it the segment mix within Photonics? And then how do you see the path to midterm margin ambition? Should we expect more of like a straight line or more like back-ended loaded margins in Photonics?
Is Jacob able to take that?
Okay. Jacob's obviously not on.
Oh, yes. Sorry, I didn't hear that. Yeah, I can answer that. 2019 was affected by a number of one-offs. If you adjust for those, actually 2019 will come further down than the 14% to 15% you alluded to. Actually we are on a very positive track here to see EBITDA margins that will be higher than they've been in a number of years coming into 2022 with this guidance that we've issued. In terms of the longer range or the midterm guidance, we will see a gradual improvement towards the guidance of 20% to 25%.
It is not as such backloaded towards the latter part or later part of the period. The improvement will be driven by, obviously more than anything else, scale effects from the increase in revenue. It will be driven also to some extent by improved gross margins and improved efficiency within production.
Thank you. My second follow-up is on working capital progression. I think there was a positive surprise in Q4. If we look at in 2022, on one side you have execution of projects where we don't know what sort of working capital profile you have. On the other side, you have a prospect of very strong order intake where you might get some customer down payments. For modeling purposes, what's your current expectations on working capital in contribution in 2022? Should we expect any headwind or tailwind? Any comment on that?
Line, will you answer to the modeling question?
Sure. In terms of 2022? Sorry, I didn't hear the full question.
Yeah. It was on working capital progression. You had a positive in Q4. Are there any projects working capital profile where you may have to consume cash because of the ramp up that may be something you would like to flag? Overall, given on one side you may be executing on these projects and on the other side you are expecting some large order awards, what's your expectations at this point in time for full year working capital? Like, is it a positive number or negative number? What should we expect?
I think you expect to see it fluctuate throughout the years. We as in general have it. I think Q4 again 2021 was very favorable, right? Let's expect some of that to be at a different level for the quarters. It very much depends on awards in some of these projects. I think you can actually look up some of those projects that we talk about when they would expect it to be awarded. Of course that would have a very positive impact with if Champlain is awarded and a prepayment on that. On the other side you will see that we expect to start production on some of the larger DC projects later this year, which of course will also impact our working capital.
I think nothing out of the usual fluctuations to expect here.
Thank you.
Thank you for your question. The next question from Jacob Johansen from Nordea Bank.
Yeah. Thank you very much. A question on your capital structure. You have a hybrid that's up for its first call date later this year. So just wondering your thinking around first of all calling this, which seems quite obvious in terms of reducing your interest costs. But more on if this should be refinanced in the debt markets or you want to simply go with a lower cash profile going forwards. Maybe also in prolongation of that, your thoughts around the longer term ability to pay out dividends to shareholders. Thank you.
Thank you for the question. We are not at a conclusion yet in terms of how we will act. I mean, you're fully right. It is in our interest of course to have the lowest cost of capital possible. What that means in terms of the type, we will make a decision on not too far away. Fully right on that one. Let's see with the momentum for the year in the first half, and then we will of course share when we get to that conclusion.
Thanks.
Thank you for your question. There are no further questions at the moment.
Okay. Thank you very much for your good questions. Thank you for the time to listen into this conference call. Wish you a great day. Bye-bye.
That concludes the conference for today. Thank you for participating. You may all disconnect.