At this time, I would like to welcome everyone to NKT A/S's Annual Report 2024 Conference Call. Today's call is being recorded. If you have any objections, please disconnect at this time. All participants will be in a listen-only mode throughout the presentation, and afterwards, there'll be a question-and-answer session. I would now like to introduce Claes Westerlind, President and CEO, and Line Andrea Fandrup, CFO. Claes Westerlind, you may now begin.
Good morning, everyone. Welcome to this conference call following this morning's release of our annual report for 2024. I'm Claes Westerlind, the CEO, and I'm joined by our CFO, Line Andrea Fandrup. As usual, I will cover the overall development and business lines, and Line will walk you through the financial performance for the fourth quarter and 2024. Please turn to slide number three. Before we begin, please note that this presentation may contain forward-looking statements, and I therefore ask you to pay close attention to this disclaimer. Now, let's move on to our key messages for the year on slide four. 2024 was a pivotal year for NKT that we are proud of. We delivered significant growth, mainly driven by expanded capacity and capabilities in Solutions. We progressed on our major expansions, and we launched new investments across our business lines.
Further, we continued to deliver value to our customers and maintained our diligent focus on sustainability. With the closing of the divestment of NKT Photonics during the second quarter, we completed the transition of NKT to a company with full focus on our core business of power cable Solutions. To strengthen our positions, we, in June, acquired the Portuguese power cable manufacturer, Solidal. During the second half of the year, the integration process progressed, confirming the business case behind the acquisition. Looking back at 2024, it was a busy year in a positive sense, and all in all, NKT is a better and stronger company compared to a year ago, supporting the energy transition and enabling the electrification of societies. With this, we are well positioned to take advantage of the opportunities that lie ahead of us.
Throughout last year, we delivered double-digit organic growth, and Q4 was the ninth consecutive quarter with double-digit growth in both revenue and EBITDA. We ended the year with 26% organic growth, and operational EBITDA amounted to €344 million, record high for NKT, and an increase from €255 million in 2023. This positive development was supported by all business lines, but primarily driven by Solutions benefiting from increased capacity and capabilities, as I just said before. Further, we left 2024 generating a satisfying level of free cash flow at an amount of €400 million. And also worth mentioning is that our net earnings doubled to €236 million. We also made progress on our commitments on sustainability, which is an area that remains important also among our customers. We play a vital role in relation to climate change and decarbonization, as our cable Solutions are important enablers of the energy transition.
We have full focus on achieving our sustainability ambitions and targets, and our focus here is twofold: maximizing our product handprint and at the same time minimizing our product footprint throughout the product lifetime. We acknowledge that there are several challenges that we need to address to achieve these targets. Let's turn to slide number six for a look at the financial performance in the fourth quarter and the full year. As mentioned, in Q4, we again delivered double-digit growth, both in revenue and operational EBITDA. Revenue and operational EBITDA increased across all three business lines, with Solutions being the most significant contributor. Revenue for the quarter amounted to €963 million and €2.5 billion for the full year. This corresponded to organic growth of 23% and 26%, respectively. Profitability also improved as operational EBITDA in Q4 increased by €27 million to €90 million, and the margin improved to 13%.
We thereby, with EUR 344 million for the full year, ended the year at the very high end of our guided range. In Solutions, activity level remained high in Q4, and we continued to execute on our high-voltage order backlog with overall satisfactory product execution. The positive development from the previous quarters was maintained, with continued solid growth in revenue and operational EBITDA, as the business line benefited from the recent year's investments to increase capacity. The higher revenue in Applications was driven by the acquisition of Solidal. Compared to the same quarter last year, organic growth was slightly negative due to continued weakness in the construction-exposed part of the low-voltage segment. The medium-voltage power distribution grid segment continued the positive development, but as we are running at high capacity utilization, it had a limited effect on growth for the quarter.
In Service and accessories, both segments contributed to the positive development in the quarter. The high Service activity level was maintained both on and offshore, and the increased demand for high-voltage accessories had a positive effect. Operational EBITDA doubled, and the margin for the business line was at the historical double-digit level. Now, I will dive deeper into each of the business lines, starting with Solutions, and slide seven, please. In the fourth quarter of 2024, revenue in Solutions increased to €469 million, up from €350 million in the same quarter last year, equaling organic growth of 34%. The development reflected the previous year's investments in capacity and capabilities, as well as overall satisfactory product execution. Installation activity was also high in the quarter, partly driven by subcontracted scope.
Throughout the quarter, we made progress on several projects in the order backlog, including Champlain, East Anglia III, Hornsea III, SüdostLink, and also SüdLink. The high activity level, execution of multiple projects, and management of the associated risks continues to put an elevated demand on the Solutions organization. Operational EBITDA increased to EUR 67 million compared to EUR 54 million in the same quarter in 2023. The margin for the quarter was 14.3%, a slight decline relative to last year, driven by a different product mix. Naturally, in a product business like NKT, quarterly profitability will vary depending on the phasing of the products in execution. In addition, we are constantly investing in enhancing capabilities, and the margin was negatively impacted by an increased cost level to support the construction and ramp-up of the new high-voltage factory in Karlskrona.
The construction of the factory progressed as scheduled during the quarter, with the extrusion tower having reached its final height of 200 meters. We have started the construction inside the tower, and we are installing machinery in parallel with constructing other buildings. The construction of NKT's second cable-laying vessel, NKT Eleonora, progressed as expected, with a keel-laying ceremony conducted in January this year. In Cologne, the investment program to expand production capacity and capabilities progressed according to plan, and supplier selection for several major machine lines has been finalized. Timelines for both investments remain unchanged, and they are expected to be operational from 2027. Please turn to the next slide for an update on the market development. Activity across our addressable market remained at a high level throughout 2024.
We estimate that products awarded in this market exceeded EUR 17 billion for the year, and the development was mainly driven by DC technology, where demand for production and installation capacity remained high. When looking at our awards in 2024, it should be seen in the light of the high order intake we secured in 2023 and our available capacity. If you combine the two years, our market share was around 25%, which is a very decent level. Between Christmas and New Year, we were awarded two turnkey products under the existing framework agreement with TenneT. Those contracts are expected to be called off in 2026 to 2027 and have a combined value of approximately EUR 1 billion. The products will not be included in our reported high-voltage order backlog before call-off, just as the previous awards from 2023.
In total, five products have now been awarded to us under the framework agreement with TenneT, which runs until 2028, with possible extension until 2031. Our view on the addressable market remains largely unchanged, and we continue to expect an average market of more than €10 billion in the period 2024 to 2030. For the past two years, this number has been exceeded, evidencing the strong demand and visibility in the market. There are currently several circumstances globally that could impact short-term energy policies and investments, including but not limited to the new U.S. administration, conflicts, election in Germany, as well as the new E.U. Commission. But like we've said previously, we currently expect the supply-demand balance to remain healthy throughout this decade before appearing to move into more balanced territory.
This said, we also remain humbled that political decisions may impact primarily the demand side short-term, but in this context, we also take comfort in the backlog and the booking commitments that we have. On the longer term, we remain confident about the importance of electricity as an avenue to sustain modern life, including electrification of societies and the energy transition. This should support long-term grid investments and thereby demand for both HVAC and HVDC technology. The presidential election in the U.S. has attracted a lot of attention, and it has also increased uncertainty in the U.S., including potential impact on electrification and installation of offshore wind. We are following the development closely, and the U.S. continues to be an interesting opportunistic market for us with future potential.
Looking at our current exposure to the US, which is limited, it's primarily through the Champlain Hudson Power Express project, which we are executing on as we speak. This interconnector project is linking hydropower from Quebec, Canada, to New York City, providing around 20% of the city's need for electricity. Please turn to the next slide and our order backlog. We ended the year with a high-voltage order backlog of EUR 10.6 billion, which is a slight decline compared to last year, as the order intake is only partly offsetting the project execution during the years. On top of this, we have more than EUR 3.5 billion in booking commitments, which we expect to be called off during the next couple of years.
The current level reflects a structural step change compared to previously and a strong demand for high-voltage production installation, mainly driven by the energy transition and general electrification of society. The composition of the backlog has only changed slightly. From a customer perspective, more than 85% of the backlog is with European TSOs, and with regards to use Applications, around 55% of the backlog is interconnector products and around 40% offshore wind. This backlog gives us good visibility for the coming years and thereby also in our medium-term financial ambitions. Executing successfully on this backlog in the coming years is crucial to realize the inherent value, and as you know, product execution is at the core of NKT, and managing any potential risks is a clear priority not only for the Solutions business line but also for the whole group leadership team, including Line and also myself.
We remain highly active in ongoing tenders. To further strengthen our position and to support earnings and value creation, we will maintain a selective and disciplined approach, which allows us to optimize asset utilization across our production and installation assets. Please turn to slide number 10 for a look at the Applications business line. Revenue in Applications increased to EUR 178 million in the fourth quarter, driven by the acquisition of Solidal, which contributed EUR 32 million. Organic growth for the business line was negative, minus 4%, as the weakness in the construction-exposed low-voltage segment continued, which was mainly related to residential construction activity. Demand and volumes in the power distribution grid remained at a satisfactory level, but when looking at growth rates compared to last year, it has to be kept in mind that our current medium-voltage capacity limited our growth in the quarter.
Operational EBITDA increased to EUR 13 million from EUR 10 million in the fourth quarter 2023, driven by the acquisition of Solidal, while the EBITDA for the existing business was slightly down. Operational EBITDA margin improved 70 basis points to 7.8% in the quarter. Excluding the positive effect from Solidal, the margins were slightly lower due to the lower volumes in the low-voltage segment. From a market perspective, demand for medium-voltage cables remained robust, driven by upgrades and strengthening of European power distribution grids. NKT is well positioned to benefit from this development, and during 2024, we have secured extensions of several framework contracts with local DSOs. We expect this positive development to continue in 2025, where we will also benefit from additional capacity at our sites in Falun in Sweden and also Velké Meziříčí in the Czech Republic, which we announced in April last year.
The construction at our site in Asnæs here in Denmark is progressing as planned, and we expect the additional capacity to be operational by 2026. Please go to the next slide. Lastly, turning to the Service and accessories business line, which here in Q4 delivered a solid quarter with 7% organic growth driven by growth in both the Service and accessories business. In Service, we saw a high activity level coming from smaller onshore repair works, offshore installation work, and maintenance of existing cable systems. Combined with satisfactory execution both on and offshore, it generated higher revenue. The accessories business also reported positive organic growth driven by increased demand for high-voltage accessories. Operational EBITDA doubled to EUR 6 million in the fourth quarter, up from EUR 3 million last year, driven by improved profitability in both segments.
For the quarter, the margin was 11.1 compared to 6.6 in the same quarter last year. To meet the increased demand for accessories driven by Solutions products in our backlog, we are ramping up production and capabilities. During the first half of 2025, we expect the new test hall in Sweden for high-voltage accessories to be completed. Please turn to slide 12 and sustainability. Sustainability is a key priority for us, and our biggest impact is on climate change and decarbonization through the cable Solutions we manufacture and install for our customers. We play a critical role in the transition to clean energy, as electrification and grid modernizations are prerequisites for a net zero and a modern society.
We are committed to actively contributing to the same by maximizing our product handprint, which refers to the positive environmental or social impacts a product has, and minimizing our product footprint through the product lifetime. A clear example of a product having a positive impact is the Shetland HVDC Link project, which we finalized last year. The 320 kV interconnector now transmits clean wind energy into the U.K., covering electricity need for approximately 500,000 homes. We made progress during the year on our commitments and targets, and by the end of 2024, we have reduced our Scope 1 and Scope 2 emissions by 68% from the baseline in 2019. We are thereby progressing on the target of 90% reduction in 2030. One of the main contributors to these emissions is from our installation vessels.
We have taken several actions to reduce emissions, and we also made investments enabling both NKT Victoria and the new vessel NKT Eleonora to run on sustainable fuel. With the adoption of these fuels, however, still limited, and we are working closely with all stakeholders in the industry to overcome the switching challenge. As you can see, our Scope 3 emissions have increased compared to 2019 baseline. While helping countries reduce carbon emissions, NKT accounts for the emissions caused by power losses from the cables installed in the power grid. Upgrading the power grid is essential for countries to achieve net zero emissions. Therefore, we will continue prioritizing these projects, even though the impact will challenge the fulfillment of the near-term Scope 3 target approved by SBTi.
Importantly, and to confirm our direction, NKT's long-term target to reach net zero greenhouse gas emissions across the value chain was verified and approved by the Science Based Targets initiative in the fourth quarter in 2024. We also made progress on our social commitments during 2024. Our performance with safety improved significantly compared to the year before, and while we are positive with this improvement, we are not at an acceptable level yet. In 2024, we introduced several additional safety measures to drive this metric down, and NKT will continue this focus going forward. Furthermore, the female representation in senior leadership team positions has increased from 13% to 21% since 2021, and in 2024, 25% of our new hires were females. This, ladies and gentlemen, concludes my part of the presentation, and I will now hand over the word to Line to go through the financials. Slide 13, please.
Thank you, Claes, and good morning from me as well. So let me take you through NKT's financial highlights, and we will start with the income statement on slide 14. So starting out at the top with revenue, as mentioned by Claes, we generated 23% organic growth in Q4, and it took us to 26% for the full year 2024. This was mainly driven by 34% organic growth in solution. As we executed on our high-voltage order backlog, we benefited from our investments in both capacity and capabilities. Additionally, the acquisition of Solidal contributed €32 million, equal to 6% growth to the top line in the quarter. Operational EBITDA amounted to €90 million and an increase of €27 million or 43% compared to the same quarter last year. Again, solution was the main contributor with an improvement of €13 million, but all business line increased EBITDA.
Full year EBITDA at EUR 344 million, it's a 35% increase from last year. It's leading to a margin for the full year of 13.8%. Depreciation and amortization were slightly higher than last year, primarily due to the inclusion of Solidal. That brings us to an EBIT of EUR 60 million, a 20 million increase in the fourth quarter compared to last year at the same time, where the EBIT margin was 8.6% and now 2024 closing out at 9.6%. That's an improvement of around one percentage point compared to last year. Financial items net was an income of EUR 6 million in the quarter, was driven by the interest income from our cash position, and this was in line with the development we have seen throughout the year. For the year, financial items was an income of EUR 34 million.
Tax for the quarter amounted to EUR 9 million, reflecting the higher earnings level. Tax rate for both Q4 and the full year was 14%. This leaves a net result of EUR 57 million, EUR 23 million higher compared to the net result from continuing operations of EUR 34 million in Q4 2023. This was mainly driven by the improved EBITDA and income from financial items. Net result for the full year benefited from the gain related to the divestment of NKT Photonics in Q2, and net result thereby landed at EUR 337 million. Our employee headcount continued to increase, reflecting our growth journey and our investments to support this development. During 2024, we have added more than 1,000 new employees to NKT, with around 430 located at our site in Esposende, Portugal. Let's turn to the next slide to look at the cash flow development.
Free cash flow for the fourth quarter amounted to EUR 152 million, driven by EBITDA and a favorable effect from changes in working capital more than offsetting investments conducted during the quarter. For the full year, 2024 free cash flow was EUR 400 million. We had a strong ending to the year on working capital, benefiting from timing effects, and we had a positive effect of almost EUR 300 million in Q4. This was a result of normal quarterly fluctuations in Solutions related to the phasing between milestone payments and project execution. The positive timing effect from Q4 will most likely have an adverse effect at the beginning of 2025. As expected, investments increased and amounted to EUR 216 million in the quarter, as we are ramping up our investment program mainly in solution, but also in Applications. This was nearly a doubling compared to the level in Q4 2023.
Including proceeds from the investments of NKT Photonics in Q2, net cash flow for 2024 was EUR 621 million. Let's turn to the next slide on the balance sheet. Due to the positive development within working capital, as mentioned on the previous slide, the working capital position improved. It stood at a negative EUR 1.4 billion at the end of the year. ROSI improved further to 35% for the quarter, up from 20% last year due to a combination of higher EBIT and lower capital employed from the working capital position. For 2024, ROSI was 31% compared to 15% in 2023. ROSI will continue to vary between quarters and over the coming years. This development is depending on earnings from operations, timing of payments from customers, and not least a higher asset base from ongoing investments. During 2024, we have ramped up our investment programs, and CapEx has gradually increased.
As communicated in connection with the update of our medium-term financial ambitions in December, we expect this development to continue into the coming years. The net cash position increased to EUR 1.3 billion at the end of the year, and thereby we maintained our robust financial position. This is needed to fund our ongoing investments across the business, and in addition, the financial foundation allows us to continue progressing on the growth journey that lies ahead of us in the coming years. The value of NKT's issued guarantees increased to EUR 2.7 billion at the end of the year, up from EUR 2.5 billion at the end of Q3 and EUR 2.1 billion at the end of 2023. Please go to the next slide, where we will go through the outlook for 2025.
For 2025, we expect revenue in standard metal prices in the range of €2.37 to €2.52 billion and operational EBITDA between €330 and €380 million. The outlook for 2025 reflects limited growth in Solutions. As we have discussed before, production and installation capacity available in 2025 will be the same as in 2024. In combination with a lower level of subcontracted revenue, revenue in Solutions could be slightly lower in 2025, with organic growth in the range between zero to mid-single digit percentage negative. This is, as you always should expect, depending on execution and timing of specific operations in different projects. We will in 2025 continue to execute on our backlog, mainly on projects awarded in 2020 to 2022, and like in 2024, we'll have a higher cost base in Solutions to support the ongoing investments, production ramp-up, and future value creation.
This is all reflected in the current EBITDA outlook. Both Applications and Services and accessories are expected to contribute positively to the revenue and EBITDA development in 2025. The Solidal acquisition will have full year effect compared to six months in the current year or in the last year, 2024, and the additional capacity in Sweden and Czech is expected to contribute with high single-digit growth to the business line. Services and accessories are expected to see positive effects from capacity ramp-up, and in general, the business line is dependent on the activity level in the market. Currently, NKT is going through a heavy investment phase with construction activities ongoing at multiple sites. In connection with the update of our medium-term financial ambitions in December, we shared our CapEx expectations for the period up to 2028 of around €2 billion.
We also gave indication that you should expect the CapEx spend to be front-loaded, with 2025 being the year with the highest level. This indication still holds, and a step up in CapEx is therefore expected compared to the €463 million spent in 2024. Also, it should be kept in mind that with the projects ongoing, some variables could shift during the year and specific items could move into 2026. As always, the outlook rests on several assumptions. First of all, satisfactory execution of our high-voltage investments and projects, along with satisfactory operational execution across business lines. Market conditions for Applications and Services and accessories are expected to be stable, including normalized offshore power cable repair work activity. We assume limited supply chain disruptions with access to the required labor, materials, and Services, and a stable development in global economy, foreign currency, and metal prices. Please turn to slide 18.
Before we conclude the call, I would like to spend a few moments on our medium-term financial ambition for 2028, which we updated in December. We see a continued strong growth journey ahead of us, and for the period from 2021 to 2028, we expect an organic revenue CAGR of more than 14%. This is a reflection of current order backlog, including the pricing of the projects and the additional capacity coming online. Depending on how you calculate this, it means that we in this period will more than triple the company's revenue from €1.1 billion generated in 2020. On the basis of this, in 2028, we expect to generate an operational EBITDA of more than €700 million, which is a more than doubling compared to the €344 million in 2024, driven by improved profitability across all business lines.
Last but not least, to secure value creation, return on capital employed will exceed 20% in 2028 due to the improved earning level, reflecting a solid return on our investments. Now let's turn to the next slide and last slide, where I will repeat the highlights of 2024. 2024 was a pivotal year for NKT. We delivered organic growth of 26% and in Q4 operational EBITDA grew by 35%. It was thereby the ninth consecutive quarter with double-digit growth for both revenue and operational EBITDA. We reached operational EBITDA of EUR 344 million, the highest result in NKT's history and thereby underpinning the positive development. Reflecting on the 2024 result in the bigger picture and looking back to 2020, NKT has grown from revenue just above EUR 1 billion to now EUR 2.5 billion. At the same time, operational EBITDA has improved from EUR 57 million to now EUR 344 million.
This is truly an impressive development. With the divestment of NKT Photonics in Q2, we concluded the strategic transformation of NKT into a pure-play cable solution provider, and with the acquisition of Solidal, we strengthened our market position. Finally, we advanced on our sustainability efforts, where we maintain a strong and dedicated commitment. In relation to climate change and decarbonization of societies, NKT plays a vital role. The journey is not without challenges, which we need to address to meet our ambitious targets. This concludes the presentation, and we are now ready to take your questions. Operator, please.
We will now start the Q&A session. To ask a question during the Q&A, please press five-star on your telephone keypad. To withdraw your question, please press five-star again. We'll have a brief pause while questions are being registered.
The first question will be from the line of Kasper Blom from Danske Bank. Please go ahead. Your line will now be unmuted.
Thank you very much. I have two questions, please. First one is about competition. There was, in the latter part of 2024, an article in Danish media about potential competition from Chinese OEMs. Claes and Line, I was wondering if you could sort of share your view on how you see that potential threat. Is it something that you are seeing at the moment, or is it more something that could happen at one point? Any kind of flavor to that subject will be much appreciated. I'll take the second question afterwards.
Good morning, Kasper. Thank you. Allow me to start to comment. I share, I mean, we went out in the article there, I think, to comment a little bit.
We are not in any way afraid of competition. I think what we want to make sure is that any competition is made on a fair and even basis on European soil. So I think that's also what we tried to convey in the article. Now, with respect to what we are seeing and meeting currently, I would say that as far as Chinese competition goes, we don't see that in the higher end of ongoing procurement process in Europe. And that's also not something that we have done in recent years. There has been some activity on lower voltage levels, but not on HVDC and not in the high end.
Maybe also, if you allow me, on the basis of this question, also to comment on the complexity in what we are doing in the most high and premium segments, both, of course, to develop the technology, to be able to produce the technology, to deliver it on a turnkey basis, where I think many of the European, or at least three of the European players, differ quite a bit from the approach of Asian players as far as turnkey goes, but also when it comes to expanding capacity, both building capacity within an existing perimeter, but especially to construct and build new capacity outside your existing perimeter.
This is something that is not easy or uncomplicated, even for a company like NKT, who have been in the HVDC business for more than 70 years, and of course, even more so than for players and vendors which have much less experience than what we do.
Thank you. Yeah, much appreciated, Claes. Thanks for that. Secondly, I would like to ask a question regarding Solidal. Reading through the annual report, I can sort of find that it contributed with a revenue of EUR 60 million and an EBITDA of EUR 5 million in 2024. When you acquired the business, you talked about an annual revenue of EUR 120 to EUR 125 and EBITDA of around EUR 20. And I understand that there was a negative inventory impact in 2024. But could you elaborate a little bit about how you see Solidal in 2025? Are you back at the EUR 120 to EUR 125 million revenue?
Is it more due to medium voltage maybe, or is there a negative impact in low voltage in that business? And the EUR 20 million EBITDA that Solidal came into NKT with, should we be at that level in 2025 or above or below? Thank you.
Thank you. If I can start to comment, I think we will be a little bit careful, Kasper, to guide and comment on specific perimeters to a much too detailed extent. But what I can say is, and I think you were right in your comments, the EBITDA specifically was impacted by also even some one-offs during the third quarter. When we go into 2025, we expect for the Esposende perimeter, as we now call it, to contribute at least in line with the business case that we set up when we acquired the business. That, I think, is well in line with what you said yourself.
Understood. Any additional flavor to the expansion of the Portuguese operations? You also initiated an investment in connection with the acquisition.
I would be happy to provide comments on that. That expansion is, of course, standing also next to the other three expansions that we have within the Applications perimeter, out of which two have now been completed. Two are remaining. One is the Solidal expansion, and one is the expansion here in Denmark in the Asnæs factory. As far as the Solidal expansion goes, we are still in, I wouldn't say early phases, but at least in the first half of that expansion. We have procured long-length items. We have also very recently actually gotten the permit, which is a crucial matter, the construction permit to construct the tower down there.
So with that, also we have the path is cleared for us moving ahead there. So it is on budget and on time as we speak for the moment.
Thank you. Much appreciated. I'll leave the floor to others then. Thank you.
Thanks, Kasper. The next question will be from the line of Christian Johansen from ABG Sundal Collier. Please go ahead. Your line will now be unmuted.
Yes, thank you. I will also do two questions. So first one goes to the EBITDA margin in Solutions in Q4. So in your presentation, Claes, you point to project mix being the key reason for a somewhat lower margin. Can you elaborate a bit further? What kind of projects come with a sort of materially lower margin since we are seeing a fairly low level in Q4?
Yeah, thank you, Christian, for the question. Relevant one, of course.
Without going into the minutiae of specific project, it is, like we said there, it's about the project mix, which lends itself in an unfavorable way to the relative margin of Q4. I want to draw everybody's attention to the absolute EBITDA development from the preceding quarter in 2023, but I think you've heard us say also in the past and taken examples of, as an example, the corridor projects being also in these days legacy projects, which were won back in 2020, and of course, I think we also mentioned them on the slide as part of the projects where we made some progress on.
And that together with also the effect of us carrying some costs in conjunction with ramping ahead of time, but also OPEX costs in conjunction with the expansion project in Karlskrona then resulted in that the quarter ended up with a profitability like what you see in our P&L.
Understood. And maybe just about any potential speculation, can you just confirm that there are no project margin write-downs or the like in the quarter?
No, that I can confirm.
Excellent. Then my second question goes to Applications and the margin here as well. So as you pointed out in your previous answer, Claes, on the margin in Q3, there was a one-off. So if we look at the margin in Q4 and Applications, it's roughly in line with what you did in Q3. But adjusting for the one-off in Q3, the margin is actually materially lower in Q4.
So maybe just help us understand the dilution in Q4 for Applications?
Yes. I think also when you look at the fourth quarter, it is always a little bit special considering also with the Christmas season. So there is a seasonality effect if you are to compare the third quarter with the fourth quarter. But of course, you can also make a comparison with the fourth quarter in 2023 then to get a more adequate seasonal comparison period. And what caused the, in relative terms then, maybe a lower margin is the construction segment, where both volumes but also pricing was below our expectations in th
e fourth quarter. Okay. So is it fair to say that there is, I mean, when I compare Q4 to Q3, is there a higher proportion of low voltage in Q4 then?
I think the relative proportion would be a difficult one. I would say that I think especially the profitability in the construction-related segment is where we, together with some volume effect, took some beating in Q4. On the medium voltage, I think we have commented also in the past that we are running at a fair capacity, and we do that throughout the quarter. So it is primarily the construction-related segment, both the 1 kV but also the building wire, which caused the lower profitability.
Understood. Great. That was all for me. Thank you.
Thanks, Christian. The next question will be from the line of Lars Topholm from Carnegie. Please go ahead. Your line will now be unmuted.
First, congrats with the very solid quarter. Maybe not on margins, but at least on absolute numbers. I have a couple of questions.
So on Solutions, Line, I really appreciate you give some flavor on the revenue outlook for 2025, as that has been a topic of a lot of debate. My question is, to what extent does that outlook of 0-5% top-line decline include third-party revenue that will not reappear in 2026? And other questions is, 2025, the trough for Solutions, or are you seeing a fade also in 2026 and then growth from there? How should we think about this? I have another question afterwards.
Yeah, okay. Thank you, Lars. I think I'll start from the top with a little bit of more color on. And then if you miss something, then just let me elaborate further.
I think what we have said is that the growth between the years of 2024 and 2025 is, as you say, highly impacted by the subcontracted revenue, but also that our capacity utilization in Solutions is at a steady level in these years. When we are benefiting from this subcontracted revenue in 2024, it will come down in 2025. That will be a negative contributor when comparing the year-on-year revenue in Solutions. It will be balanced by a couple of factors, and this includes a different project mix with execution of some of the more recent orders and the installation scope in other projects. I think here we should say that we will only gradually start to produce under orders won in 2023 and 2024, and we continue to execute on some of the orders from 2020 and 2021.
And this includes, of course, the German corridors that is already a big load into our solution factories and will remain to be. Upgraded capabilities in the recent years will also allow for some additional output on certain products. And then adding these dynamics up, it's not unfair to assume that Solutions revenue in 2025 could be below the level of 2024, but we don't foresee it will be dramatically below. So there is mixed effects in here and, of course, still some uncertainties, which is also reflected in our outlook.
My question is more if these same drivers also play a role from 2025 to 2026. So the question is actually more regarding 2026.
Yes, okay. And to pick up on that, when you look at the subcontract revenue, it's very much, let's say, a single event change between 2024 and 2025.
2024 was the unusual year in terms of the magnitude of the subcontract revenue. 2025 will look more as a normal year. To say about 2026, I think the only thing I would say, not being specific about revenue between the years in terms of numbers, is that there will be continuous mixed change in our portfolio, and this is, of course, which projects are we executing on, but also which phase of the project are we in? Are we producing in the factory or are we installing? And if you do the mapping of the different projects that we have, and when we want them and when they will be inaugurated, you will also see that some of these larger projects will come closer to installation, and that will also mean a mixed change into 2026 potentially.
But I think that would be as close as I go to indicating something about 2026 now.
Maybe if I can just add, Lars, on the revenue side, to draw your attention to the annual report where we are also speaking about that we expect around 30% of our HV order backlog to be converted in 2025 and 2026. I think that together with the explanation that Line gave now will also help you to get maybe an overall view on Solutions in 2026.
That's super helpful. Thank you very much. Then if I may stay in Solutions, because when I just recently visited the Karlskrona factory and saw you, Claes, we saw the simulator you use to train staff. It's quite obvious that you are going to take on staff to run the expansion well before that expansion is operational.
So I wonder if you can put some comments on what kind of cost ramp-up we should expect here. Will it be significant enough to, for example, cancel out margin expansion between 2025 and 2027 in Solutions? How should we model that?
It's a very relevant question, Lars. If we go back to the announcement of the big expansion in Karlskrona, we talked about roughly 500 people. And I think that was for the investment in itself. Then, of course, also when you look into the projects, different projects can also be requiring a different amount of staff. That's just to say that the number may not be 500 at the end of the day. A big part or a considerable part of those we have already hired, and we will also continue maybe perhaps less so in this year, but even more so in 2026 to complete that hiring.
Of course, it goes to that we have to hire the most sophisticated, let's say, roles first, and then we can finalize off with less sophisticated roles. As you could see in Karlskrona, this reaches from running a load carrier, which is relatively simple. I think you experienced yourself that it's not so simple, but at least you can hire a couple of months ahead of time to something which is much, much more sophisticated, like a machine expert on an extrusion line, which will take maybe three, four, five years to actually get up to that level. Then you will disperse it in between. Now, this not only applies for the Karlskrona perimeter, but also in general for NKT across application sites, also across the Cologne investment.
What we have said last year is that the, let's say, OpEx run-up ahead of time was around one percentage point on EBITDA. And this is something that I think looking at 2025, we can reiterate that also for this year, and maybe it will actually be marginally above the 1%. So I think hopefully that can help you, Lars, a little bit.
That is super helpful. And then a third question, and you'll probably find this stupid and not going to answer it, but you have given 2028 targets, of course, but given the time it takes to become fully efficient on new equipment for the reasons you just alluded to, is it fair to assume that 2028 is not the end of the margin expansion in Solutions? I think by logic, shouldn't we assume a significant margin expansion from 2028 to 2029?
It's a good question, Lars.
That was a super good question. I think it is a good question, and I will try at least to give maybe a nuance on it. I think there is the element that you talk about that, of course, we want to get better also every year, and especially when you start something up, then you hope and think that you will get better by time, but the other aspect is also that we will not, even from a revenue state, be in a steady state in 2028 for the new expansion, so we can also expect revenues out of the EUR 2 billion CapEx that we talked about as part of our medium-term ambitions. The full revenues of that will not be visible in 2028, but there will come also more revenues over and beyond that.
And with that, also EBITDA, both in relative terms, but especially in absolute terms, obviously. I don't know if it was a bad answer to a good question or a good answer to a good question, Lars.
I noted Line's little, but thank you very much for your clear answer. Thanks, guys.
Thank you, Lars. The next question will be from the line of Daniela Costa from Goldman Sachs. Please go ahead, your line, and I'll be unmuted.
Hi, good morning. I have two questions as well. One is just more in terms of, can you comment a little bit about the tendering outlook in high voltage, which are do we expect 2025 to be in general sort of a stronger year than 2024 and to see the backlog going back to growing again?
And the second one is just, can you help us with bridging from your guidance to how we should think about free cash flow for 2025? Thank you.
Okay, thank you, Daniela. I think I will take a stab at the first question, and I will leave it to Line for the second one. So tendering outlook, there is a number of interesting projects that are being tendered for the moment. So the activity is definitely there. When we look at this year, we are also viewing that in the context of last year and the year before. Last year, as I said also in the presentation, the total awarded amount amounted to EUR 17 billion and the year before to EUR 15 billion. So we are leaving two extraordinary years behind us.
We have said in our communication last year that we expect in average more than 10 billion EUR in terms of market size to be awarded between the years of 2024 until 2030. We remain with that view in average that this will be the market. But we stand cognizant of the short-term volatility now politically and also economically. When we look at from where we stand today, looking at this year, we would expect the market to be around the 10 or below the 10 number. But again, this has to be seen also in the context of the two previous years. I think needless to say to you, Daniela, because you know the market well, big projects can easily sway this number significantly up or also somewhat down. Line, secondly.
And on backlog?
And on backlog, I think it remains to be seen.
I think we still have a very, very high backlog. So we will continue to strive and optimize our risk-reward balance rather than to hunt market share. I think we will aspire to exit this year, of course, with similar or higher backlog, but I would not be disappointed if that doesn't happen and we leave the right projects to the side instead of hunting just market share.
Okay, then let me cover your second question, Daniela, and I'll start from the top, just doing the dynamics here. So of course, our cash flow will always depend on our ability to execute and generate free cash flow from our operations, and especially the working capital in Solutions can be fluctuating quite some between the quarters, depending on how we execute and the milestone payments to the customers.
Depending on, and that was your first question, how the awards of the year will look, there's also, of course, the fluctuations of advance payments from new orders, and that's also going to be a part of this year's view into net working capital and thereby also free cash flow, then very central is the development of our investment program, and we said in December that we expect to take a significant step up in expected CapEx in 2025, and this will remain, so that you should expect, so in general, NKT's cash flow and working capital will fluctuate quarter by quarter due to this, so if I just zoom in then on 2025 and think about the logic of how you could look at this, so you have our expectations to EBITDA from the outlook.
And then on working capital, you saw a significantly favorable development in 2024 as it decreased by around EUR 700 million to a much more favorable level by end 2024. This was due to milestone payment and prepayment Solutions. And very much related, I would say, also to the order intake back in 2023. I will say that you should expect a similar fluctuating level in 2024 or 2025 as you've seen in 2024. But I would also say that probably a good base level of minus EUR 1.2 to minus EUR 1.3 billion you can reflect about and then swings to that where EUR 100 million is not uncommonly seen. Then the step up in 2025 on CapEx. And we will have this as the highest level expectedly on the full CapEx program.
If you ask me now about a number, it could be very different from what we say in six months or different, certainly. And that doesn't mean that we don't have a very, very clear plan on how to execute our investment programs. It's simply also something about optimizing the commercials of an investment program. So the CapEx eventually will be dependent on the spend. But if you add all of this up, it's fair to assume that we could have a negative free cash flow in 2025, but we will continue to have a substantial cash balance throughout the same year. I think I gave all the disclaimers, but also trying to give the building blocks here. Yeah.
Yes, thank you. I didn't quite understand the working capital one. Did you say you had a positive move of 750 and you expect a similar move?
No, I was referring to the fluctuations of 2024, which was a positive EUR 700 million. And then saying that you should think about 2025, that a base level could be around -EUR 1.2 billion to -EUR 1.3 billion. And fluctuations to that can be quite large and EUR 100 million.
I see the change, the 100. Okay. Understand, understand. Yep. Thank you. Thank you very much.
Thank you, Daniela. The next question will be from the line of Lucas Ferhani from Jefferies. Please go ahead. Your line will now be unmuted.
Thank you. So just the first one to come back on Solutions and the margin in Q4. You talk about kind of project mix and also the subcontracting or partly subcontracted scope. What would you highlight on kind of the beat?
Is it because you had a bit more on Champlain Hudson maybe in Q4? And does that also impact the margin, that subcontracting scope maybe coming at slightly below? Is that the way to look at it? Thank you. Thank you, Lucas. I think we are not able to give full clarity to the question, but I think we commented that subcontracting is a part of the revenue beat. And then without going into too much exactly what projects that is that brought it. So I think we will have to leave it like that.
Okay. And on just the project mix, is it more which project or is it also manufacturing versus installation as well, maybe less installation in Q4?
Oh, it is a part of both, but it's primarily going towards the project mix. So different projects carry different margins.
Perfect. Thank you.
And then another one on application again on the margin. I think Solidal in Q4 was pretty much in line with kind of the financials we saw at acquisition, but the NKT scope is relatively weak if you compare to kind of early 2024 and 2023. Can you highlight a bit in which region you are really seeing that low voltage kind of volume and pricing pressure?
The construction side of the segment is that which is under pressure. And as you may be aware, this is roughly around 30% of the business line. And it has not been a specific region where we see weakness in the construction segment. It is basically throughout. So I would not be able to pinpoint any country or any region like this. Yeah.
Okay, no, that's fair. And just the last point on the capacity coming online over 2025 in medium voltage.
Is that kind of already set up to be used by some framework agreements you've already signed? So we expect that as soon as it kind of comes online to be fully utilized. And also should we assume the margin on that kind of additional capacity should come at something maybe closer to where Solidal is?
It's a good question. Without giving exact reference points, what I can say is that the two capacity extensions being then in Falun, Sweden, and also Czech in Velké. It is focused on medium voltage capacity expansion. And as you're well aware, this is where the situation for the moment enjoys a good commercial momentum, both from a volume perspective and also pricing perspective. So we expect these assets to be utilized from when they come online and not that we will run with idle capacity.
So we have positive expectations both for volume utilization, but also from a margin perspective so that the margin will be, let's say, accretive to the Applications business line.
Perfect. Thank you. And just to confirm, is it coming online from Q1 or it's more during 2025?
During Q1 now.
Okay. Perfect. Thank you. That's all.
Thank you, Lucas. As we are running out of time, the last question will be from the line of Ching-Yi Wang from Barclays. Please go ahead, your line will now be unmuted.
Hi there. Thank you for taking my questions. If we stay on a medium voltage topic, the €7 million synergies to be realized on Solidal by 2026, do you now have more visibility on the phasing of this?
So what we could say about the synergies here is that we're already seeing a contribution ongoing.
I think one anecdote we shared is the inclusion of Solidal supplier contracts in the NKT scheme has given some of these contributions. So we are on good traction with this. And I think coming in as expected and communicated that is what you should expect to see.
Great. Thank you. And then my second question is on subcontract. In 2025, do you think you have other scope to subcontract other projects? And also, does the contingency release work in a similar way and in a similar scale to normal projects?
If I try to comment there a little bit, and maybe if I don't get clear enough, then maybe you can also further clarify or ask me then. On the subcontracts, our Solutions business is comprised of a natural element and volume of subcontracting in basically every turnkey project. So obviously, in most cases, we manufacture the cables ourselves.
There is an exception to this, and that is the Champlain Hudson Power Express, where we are also manufacturing cables through the factory we built once upon a time, today owned by Southwire. But otherwise, that's an in-house manufacturing. As far as the installation goes, we are using both in-house resources and also external resources. What we use and when for what project, it depends a little bit on the exact scope of the project. Typically, cable A we do ourselves. Typically, also trenching to a certain extent we do ourselves, but we also use external subcontracts. Going back to, I think, what Line said before, 2024 was maybe the odd year with the Champlain project, considering that we had external cable manufacturing and also an unusual high amount of installation works. So when you think about 2025 and also 2026, we will move into more normal territory.
Thanks. That's very clear, and the contingency release?
Contingency release is a difficult question. In all our projects, we have risk and contingencies, as you're well aware. These risks are coupled to risk maturity dates. They will differ from project to project depending on the actual timeline. Whether they will be consumed to cover cost depends on our ability to manage the risk. If we are unable to manage, then it will be consumed as cost. If we are able to mitigate it without consuming it, then it will be released, and we don't have anything else to give than we will follow our normal procedures for 2025, as we have done also for 2024 and 2023.
Thanks very much, so maybe if I can ask one more question on the high voltage.
I think your expectation for EUR 10 billion annual awards seems a little bit conservative versus what your peers are saying. Is that just because you view the US market as more optimistic to you and they include that in their addressable market, or is that because you're, I don't know, just being more conservative in general?
It is a difficult one for me to comment on, to be honest. But of course, it could be that we talk about our own addressable market when we talk about the addressable more than EUR 10 billion. It is also admittedly difficult to make exact predictions, especially as the projects, they grow larger and larger. So a single project shift can be a big difference as well. And of course, then you can make different analysis, what you take in and what you take out, depending on where you're sitting in what company.
But overall, admittedly, also in 2023 and 2024, we were conservative. It was a lot higher than €10 billion. We will have to see how this year ends, but it's also a good reason for why we wanted to talk about an average number over a couple of years rather than individual years number. I think these are the best comments I can give to that.
That's very clear. Thank you very much. My last question. So the testing center you're completing in Services this year, is it contributing to external revenue? Can you remind us?
Sorry, yeah.
Which one was it?
In Services, is it the repair job of 2024? Sorry, I couldn't hear fully.
Oh, sorry. I think you are completing this test center in 2025 in your Service and sector segment. Is this test facility contributing to external revenue?
Yes, you're right.
It's a test hall in Alingsås, and that will support us in ramping up both towards the Solutions divisions, but also in testing accessories for also direct sale to the external market.
Great. Would you be able to comment on the scale of contribution at all?
Oh, we're sorry. It's difficult to say the exact scale.
Okay. No worries. Thanks very much.
Okay. Thanks for running out of time. I'll hand the call back to the speakers for any closing remarks.
Thank you. Thank you, everybody, for calling in.
And we just also want to finalize off by saying that thank you for taking the time today to listen in and ask questions, and also to leave you with that 26% organic growth and EBITDA raise of 35% if you compare 2023 to 2024, free cash flow generation of EUR 400 million, and last but not least, the net earnings that have doubled from 2023 to 2024 concludes a good year for NKT and puts us in a strong position for 2025 and going forward. So with those words, thank you a lot for today, and looking forward to seeing many of you in the coming days.