Good morning, everybody. I hope that you can hear us well and better than the operator. We had a little bit struggle to hear it clear and loud, so I have here with me in the room as presenter, Roland M. Andersen, the CFO of NKT. Then we have also here Basil Garabet, NKT Photonics CEO, so let me first start. Thank you that you take the time to listen to this call, and let's first start here with the news, which most of you, I guess, are interested that, as you may have read in the announcement this morning, NKT seeks to strengthen its capital base, and now my CFO, Roland, he will give you the background of why we are doing that and why it's a good thing to do it right now. And afterwards, I will continue with the Q1 report.
Yeah. Thank you. Thank you, Alex. So following our order win last week and also our announcement that we are reviewing our capital structure, we have now concluded on that. And we have decided to strengthen the company's capital base for primarily three reasons. So first of all, the company is growing in its solutions business, its projects business. We have over the past six months won significantly larger orders in U.K. and also recently in Germany, which is the new DC technology. These orders are bigger. They take longer. They are more complex. It's with new technology and also execution risks are higher. And for that reason, we think that it's prudent to have a more robust balance sheet. There's nothing new in that compared to what we have said the past year or so.
But what is new is that in November last year, we initiated the strategic review of NKT Photonics. And contrary to the cables part of NKT, Photonics is negatively impacted by the corona pandemic. And Basil will come back to that later. But that means that the strategic review of NKT Photonics is not expected to be concluded in the near future. And even though as a third reason here, even though that the cables part of the business is not impacted by the corona as for now, we realize that there's an elevated uncertainty in the markets where we operate. And we find it prudent to establish a more sustainable structure and reduce our debt levels moving forward. It is, however, not so that the company has imminent debt maturity and also our overall liquidity situation is stable.
The way we plan to do this, and let me just add a little color to that. I expect there may be questions around that is in two steps. First of all, we today have an authorization to issue 18.15% shares without preemption rights. As we speak here, we are attempting to place that in a direct placement and hopefully will conclude that today. By the same token, we will as soon as we can be allowed to call for an AGM. We will ask the AGM to roll our existing authorizations over like we did last year and the year before. Then we have the intent, if so approved, to use the authorizations to issue another 6.4 million shares, which approximates 20% of the share capital in a similar direct placement as today without preemption rights.
And why do we do it in this way and not in any other way? First of all, we have the authorization today. The capital markets are there. And we can do this fast, presumably. Now, had we done it in a different way with a larger rights issue or similar, we would have had to wait for an AGM uncertainty on when we could call that. We need to do a larger prospectus and, you know, funding date would be further out. So that's why we have chosen to do it this way. Yeah. I think we'll leave it at that for now. And then I'll give the word over to Alex to comment on Q1. And then I'll get back to the financials on Q1.
And then we'll open up for the Q&As in the end of the call.
Yeah. Thanks, Roland, for the explanation. So coming to the Q1, Q1 is slightly better than expected, positive with, you had mentioned the 19% growth where all business lines have contributed to the growth, mainly Solutions with 37%. 10.2% EBITDA is more than we had expected. And all three business lines, yeah, contributed. Particularly positive was the development of Applications with higher earnings and income back to that. We have seen growth in Service & Accessories and this we expect, hopefully then also to continue. So order backlog is all-time high. It's a little bit reduced compared to end of last year to EUR 1.24 billion, but with recent order with SüdOstLink, which will be added then to the backlog, we will exceed the backlog end of 2019.
This, of course, is a great achievement that we can participate in this with SüdOstLink, which has a value of approximately EUR 500 million. The customer is 50Hertz. This is, we are really proud that they can participate in this project as we have developed, spent a lot of work on this development of 525 kV extruded cable. Now finally, the industry moves to this new voltage level and new technology, which is key to transmission, transmit the efficient power from the North Sea to the load center in the south of Germany. With the cables from us, we contribute here to the Energiewende in Germany and contribute to the green transformation in Germany. Big achievement and was a lot of work. So, going to Q1 solutions, we had production executed orders as expected.
We worked on the uncertain ones it too. We completed the for the Dutch offshore Borssele 220 kV cable. That was all as expected in one project in Cologne. We had a delay, which was compensated by other projects. The Victoria in Q1 was not fully loaded, but as it's not unusual in Q1 that you have a lower vessel base of Victoria. Overall, Q1 for Solutions was positive. Looking at the high voltage market for Q1, around EUR 2.4 billion has been awarded and we got some small U.S. Of course, as I mentioned, the SüdOstLink is after Q1. It's positive. We'll continue to work on tenders for all regions all segments despite the COVID-19, so we do not limit that in our tender activities. We'll do so and continue.
The market outlook is still attractive. We have this big German corridor project, but also other projects in the market, in all segments. Coming to the backlog, the backlog all-time high, I said already, a little bit decreased from the end of last year. SüdOstLink will be added to this. We work in all the segments, offshore wind, interconnector, and oil and gas, and have also opportunities in all these segments. Coming to Applications, that is really the highlight and beyond our expectation. Finally, our actions, what we have taken to improve efficiency in the factory, we see first results. We see also, overall, the demand unaffected. Where it's a little bit of a shift more to medium voltage with higher margin compared to low voltage, and that is positive.
So, 3% organic growth, EUR 24 million, and EUR 3.5 million, I think, is a nice achievement, which needs to be continued. Coming to Solutions, overall good traction, organic growth. Our factories are full and operate with no impact from COVID-19. Medium Voltage normal results, we produce without any interruption. And so far, all good. And also the market is here, stable and growing, actually. With this, I'm actually already through, but happy to answer questions later. So all in all, a good Q1 above. SüdOstLink after the Q1, a nice, really very positive, I have to say. And we are looking forward to continue for the full year and confirm our guidance for this year. And with this, I hand over to Basil and he can lead you through the Photonics part.
Thank you, Alex. Good morning. For NKT Photonics, Q1 first quarter is traditionally our lowest quarter. However, even so, the revenue came in at 12.7 million EUR. This is down from the 14.5 million EUR in the same quarter of 2019. Main reason for that, and we'll go through it in a minute, is that the Industrial portion of our market was heavily impacted by various postponements of orders because of shutdowns due to the coronavirus outbreak. The 12.7 actually comes up at a 3% negative organic growth for the business. The, again, as I mentioned, Industrial has been the main contributor for that. Medical & Life sciences portion of our business was flat to slightly down. However, the Aerospace & Defense came in quite strongly in the quarter and looks like it's coming strongly in for the rest of the year.
EBITDA, due to the low revenue, came in at negative 1.8 million EUR. That compares to a negative 0.4 million EUR in the same quarter of 2019. Our order intake is 16% low on the same quarter of last year. Again, there were some larger orders that came in in the first quarter of last year. So it's comparatively lower. However, this is improving, as China and Korea is opening up at the moment. Europe is beginning to open up. However, there's still uncertainty out there in the market. But again, as I said, it is improving. NKT has been impacted by the coronavirus pandemic, again, mainly in the Industrial segment, which is our largest segment to date. We believe that that segment will continue to have uncertainty in it, looking forward. Some good news with regards to our Medical & Life Sciences segment.
the beginning of the quarter, Leica Microsystems, which is one of our larger customers, launched a new confocal microscope, which is powered by our NKT Photonics SuperK supercontinuum white light lasers. We see that business improving steadily throughout the second quarter and going into the third quarter, helping our revenue. Moving on to the next slide on business development in Medical & Life Sciences. Again, as I mentioned, it was flat to slightly down on the same quarter. We expect this to grow again on last year. Today, the percentage of revenue is 15% of our total. We believe that will increase by the end of the year. The industrial segment, which today is 70% of our revenue, saw a significant drop again because of the coronavirus, because of postponement of orders, because of some supply issues that we've had.
However, again, with regards to orders, we see this as improving, but again, there is a lot of uncertainty, and we'll get back to looking at forecast for the next quarter. In aerospace and defense, which today is 15% of our business, we see that revenue and our backlog growing steadily. This business doesn't seem to be impacted by the coronavirus outbreak, and again, as I mentioned, I would imagine this business segment, as a percentage of the total, will increase to the end of the year, and with that, that concludes my segment, and I pass over to Roland.
Thank you for that, Basil. So it flips to slide 17, the group's revenue development. If we clean revenue for the metal price impact, we had a slight currency impact, primarily from Swedish krona, but otherwise, healthy organic growth from the NKT cables business and negative organic growth in the Photonics business. So overall, positive organic growth for the quarter, compared to the same quarter last year. And if we move to slide 18, the group's income highlights, higher profitability, obviously driven by NKT, that outweighs the negative development Photonics. As Alex mentioned, profitability in solutions was higher. And that was driven by a higher load in our factories, related to projects executed in primarily Karlskrona. Earnings also increased in both applications and service, driven by organic growth in revenue.
Photonics was unfavorably hit with lower revenue, primarily from the headwinds that was met in industrials last year, but also accelerated by the corona outbreak. If we move on to slide 19, the group's operational EBITDA for the quarter, the margin increased to 4.2% in Q1 against -1.2% in Q1 2019, as profitability starts to increase in the NKT cables part. We all recall that the swings in 2016 to 2017 is primarily driven by the acquisition of the ABB HV cables activities and also the divestment of our Chinese operations. If we move to slide 20 and have a look at our balance sheet highlights, working capital increased as expected from an exceptionally low level at the end of 2019.
NKT primarily driven by phasing of milestone-type payments combined with the absence of significant new high-voltage project awards and solutions, and thereby also lack of prepayments, etc. And also applications started to build up in Q1, preparing for the traditionally high seasonal quarters, Q2 and Q3. So yeah, so that's what drove the working capital in NKT. The working capital here, and that's worth noting, includes an impact of EUR 28 million due to unrealized hedges, reported on equity. So that's a non-cash item. So if we move to slide 21, again, the working capital increasing, same reasoning as we had on the previous slides. And again, working capital is primarily driven by the timing of payments in solutions, which will cause flow quarterly fluctuations and are also highly dependent on whether we have inflow of new projects.
And moving to slide 22, cash flow highlights. Cash flow primarily driven here by the negative movement in the NKT working capital. And I think we don't have so much more to say here. Again, the changes in working capital here are under EUR 15 million is the cash impact. And we recall that there's EUR 28 million here of non-cash that are offset when you read the balance sheet item. Cash flow from investing activities, higher investment levels in both NKT and Photonics, EUR 14 million in Capex compared to EUR 9.6 million in same period last year that also included the sales proceeds from divestment of railways activities. If we then go to slide 23, the group's financial risk ratio, compared to Q4 2019, we are increasing from 8.2 to 9.3x. And NIBD excluding IFRS 16 increase, driven by the working capital.
By the end of the quarter, we have EUR 164 million in mortgage debt and EUR 177 million drawn on our revolving credit facility. We have a value of 300. The RCF and only the RCF is subject to financial clearance, including agreed remedies in the form of the security over NKT Photonics and the vessel NKT Victoria. NKT A/S has sufficient financial headroom to manage the level of activity expected in 2020. If we move to slide 24, as per the announcement last week, we are reiterating the financial outlook for 2020. The revenues will be between EUR 1 billion and EUR 1.1 billion and operational EBITDA between EUR 40 million and EUR 60 million. For NKT Photonics, due to the negative impact of the coronavirus outbreak, we have decided to discontinue the guidance for 2020.
With that, I will give the word up to Q and A.
Thank you, ladies and gentlemen. Now begin the question and answer session. As a reminder, if you wish to ask a question, please press star and when your telephone beeps wait for it to be announced. Should you wish to cancel it, you press the pound or hash key. Once again, it's star and one per question. Our first question comes from the line of Akash Gupta from J.P. Morgan. Your line is now open. Please go ahead.
Yeah. Hi, good morning, everybody. Thanks for your time. My first question is on working capital. Maybe Roland, if you can talk about phasing of working capital this year. I mean, in second quarter, you are getting an S`üdOstLink contract. I don't know whether it would be formed straight away or will it be formed later. But how should we think about phasing of working capital between Q2, Q3, and like how high working capital can go from levels we saw at the end of Q1? So that is question number one.
Yeah. Thank you, Akash. Yeah. So as we're coming out of Q4, we knew that it would be more an execution quarter than actually sales or order intake quarter. And that's also why our net working capital is bouncing to a relatively high level. And we should think about it as hopefully we will get a few more orders in Q2, Q3. We already announced one of them. And as we get new orders, there will also be prepayment attached to those. So you would expect that working capital will start declining or sliding downwards again over the next couple of quarters and towards year end. Also, the applications business that build up working capital towards the end of Q1 should at least once they're coming through Q3 starting to bring capital bound in that further down.
You would think about an improved level of working capital as we move forward from here.
Thank you. My second question is on the German link. So we saw first order award last week. When do you expect SüdOstLink to come in your firm backlog? And will it be Q2 or maybe sometime in second half of the year? And then maybe a few words on phasing of this project into your P&L. And finally, will you require any additional CapEx to increase production in your German plants?
SüdOstLink, we will, after contract signing date, of course, first the preparation work and so on. Production start is foreseen towards end of next year. At this point, we will start to recognize substantial revenues, not before. Then installation will start somewhere in 2022-2023. That is the plan for SüdOstLink. With respect to SüdOstLink, we have production capacity in Karlskrona and Cologne. We need to see based also on maybe what would be the outcome of further wins potentially, if and to what extent would we invest.
Thank you, Alex. And my final one is on Photonics and a couple of questions here. First one is, if you can talk about April trading, what sort of level of decline you have seen in April so we know what kind of, how should we model Q2. And secondly, on Photonics, I mean, I think part of the reason why you're doing capital increase today is because you're suspending strategic review of Photonics. But sooner or later, when this strategic review happens, is it fair to assume that you may use part of proceeds to buy back some of the shares?
Hi, Akash. I'm not sure I caught the first part of the question, clearly. Is it more about.
Is it more about April trading? Like how, what's the level of decline you have seen in April? And maybe if you can talk about also exit rates in first at the end of first quarter because, I mean, many industrial businesses are reporting 20% to 30% decline in April. So I just want to better understand how Photonics is trading.
Yeah.
In early Q2.
Yeah. April for us was also a tough month because there's still a lot of closures from our customers. The order book that we have is actually quite healthy at the moment. It's getting shipments out to customers that has been affected. We see it opening up. We see China opening up. We see Korea opening up. We see a lot of European companies come back. So there is light at the end of the tunnel. I mean, obviously, it's hard to predict the rate they will come back. But at the moment, we see a turnaround in that. It will happen in the second half of the second quarter and then going into Q3 and Q4. But not before. The second question with regards to NKT Photonics, the strategic review, we've put that.
I mean, considering where we are in the market, and considering if you compare us to our peers and competitors out there, everyone is down. It's not really the right time to have a strategic review in the short to medium term.
Yeah. And I think if the question was, what would we do if Photonics would yield excess cash, I think it's too soon to speculate on that.
Thank you. I'll go back into now.
Okay. Our next question comes from the line of Joe Sadler from Nordea. Your line is now open. Please go ahead.
Was that me? So this is Claus Almer from Nordea. Can you hear me?
Yes, Klaus.
That was my name yelled out. Okay. Good. A few questions from my side also. The first question goes to Basil. You're putting in the slides that COVID-19 was the main driver for the decline in Q1. What were the other drivers for the negative performance? That would be the first question.
Well, the majority did come from COVID-19. But as we mentioned before, there is headwinds in the industrial sector with regards to our essentially with our customers. And the business has been a little bit more flat than we expected on the industrial side. The majority of the decline is COVID-related.
Sure. But I guess Photonics is a growth business. So excluding all the COVID-19, I'm quite surprised that, you know, yeah, adjusted for that, Photonics shouldn't be a growth business. But how should we think about, yeah, Photonics excluding COVID-19?
Oh, excluding COVID-19, we would be ahead. I mean, if you look at where we are today on our book plus ship, we are ahead of last year. But again, you know, if customers' facilities are shut, we can't ship. You know, we had customers in India that were shut for three months. We can't ship. We've got customers in California. The facilities are shut. We can't ship.
Sure. Sure. That I understand. Sorry.
Yeah. Yeah. So otherwise, you know, I mean, the beauty of NKT Photonics is we have a very balanced portfolio. So we're in a lot of markets. And some of our markets that we're in are doing exceptionally well. You know, aerospace and defense is doing well. We're up. The semiconductor market is doing exceptionally well. If you look at other companies in that sector, they're doing well. So it's regional. It really depends on where they are. It's tactical. And you know, we deal with this on a daily basis. So it's the COVID has put a pretty big wrench into the works.
Right. Okay. Then, my second question goes to, yeah, the changed capital structure. Roland, has there been projects where the customer have, you know, mentioned or, you know, excluded NKT to win that project due to the weak balance sheet? Or is the projects in the pipeline where, yeah, the same topic has been raised? That would be my next question.
Yeah, so no, the answer is clearly no. That has not been an issue. You know, we are structuring the way we are tendering, the way we are offering projects, performance bonds and ring-fencing the projects towards the customer, in exactly the same way as everyone else. This has nothing to do with that.
Okay. But then, if that's the situation, why are you, you know, issuing new shares of nearly 20% in a time where the market is kind of, you know, choked by the COVID-19 concerns? And also stating that another 20% will be issued within, I guess, one or two quarters. Why the speed?
Yeah. But the speed is really the threefold thing. First of all, we need to reduce our leverage. Our long-term leverage is 1.5. And, you know, now we're starting to see the bigger projects. We had hoped for that also, expected some of that. So that is not new. But what we had in the toolbox was a potential to do something with the likes. And that is now out. And, at least for the time being. And thirdly, the corona thing, you know, it looks like we're getting the orders. It looks like we are only impacted by corona, but we don't really know, right? There are uncertainties around it.
And we just don't think it's the right thing to do to move ahead with a relatively high leverage where those three things in combination, you know, just continue on unaffected. So that's why now, and I don't think that the cable markets are so negatively impacted as you indicated. I think we will hopefully see some appetite for what we're doing today. And our share price is not the worst either.
Okay. But I mean, one could speculate at least that the interest for Photonics has not been that great as you had hoped for. I mean, it has been out for a possible sale for a few quarters now, and still you're, you know, more or less ruling out a divestment could happen this year. So could you maybe put some color to the interest you have had for Photonics?
Yeah. So when we use the word strategic review, we actually mean it. So it's not a for-sale sign that has just been put up. We've been thinking a little bit about what would the right structure be, what would the right ownership structure for Photonics be? Is it a wholesale? Is it a part sale? Is it a partnership with somebody else that could boost growth even further? So that's what we've been sort of considering. While we were considering that, admittedly, we've been overtaken by the corona situation. So for now, you know, we can't conclude on that review anytime soon. I think that's how you should think about it.
Okay. But I just think, you know, the consideration must have been whether divesting Photonics with a given discount due to the situation or do a nearly 40% rights issue in the group. Has that been kind of part of your consideration?
Yeah. I'm, you know, I'm not gonna be so detailed on what we consider. We think this is the best for the company to do now.
Okay. Thanks.
You're welcome.
Maybe our next question comes from the line of Casper Blom from ABG Sundal Collier. Please go ahead. Your line is now open, Casper.
Thank you very much. First, a little bit of follow-up on a previous question and a possible extension of production facilities. As I recall it in Cologne, you have the opportunity to increase your production facilities relatively easy. Could you just remind us a little bit what the possibilities are down there, how long it would take, and what would be the cost of doing that? Just as a reminder, please. That's my first question.
I mean, we have, of course, the possibility to expand the Cologne with additional extrusion capacity if you decide to do so. I think we need to first now see how the market and the orders received develops before we take a decision. So to make a conclusion already now is too early to say. There are other projects out in the market and so on. We will revisit that before we spend any money.
Yeah. I'm not looking for any conclusion. I'm just asking for a reminder. You have previously talked about how much you could expand and what the price would be. So basically.
Yeah. So what, yeah, thanks, Casper. So what we previously said on that still stands is that we can expand capacity on the offshore lines by 50% in Cologne. And that would cost us EUR 30 million to EUR 50 million to do so.
Perfect. Thank you very much. Then secondly, you know, were successful in the SüdOstLink, and congratulations on that. What is sort of the current trend in profitability within high voltage in Europe? We've previously talked about how a, you know, ramp-up in awards could sort of make a little bit of squeeze and maybe give you back some pricing power if order books start being full at the different producers. What's the sort of current trend on profitability within high voltage? Thanks.
I mean, and let me first say for our SüdOstLink, we have achieved a satisfactory margin level. Obviously, the more projects get subordinate to the industry, the utilization industry is good for all the cable manufacturers. That's positive. So, with higher utilization, higher load, you would expect, with the normal market dynamics, that margin would go up. Of course, each project in itself may have a specific dynamics.
But are you there yet where you're sort of starting to see that, potential margin improvement? Or, or do we need to sort of see things getting even, even hotter?
Yeah. I mean, the let's say the margin development is not just defined by ourselves, huh? It's defined by the market, by the total environment, huh, and how our competitors act also. So, for sure, if the market goes up, we expect higher, that also the margins would go up.
But you're not. You haven't seen it yet then?
I said that we have seen in SüdOstLink satisfactory margin level for SüdOstLink.
Okay, and how does that compare to, for example, where margins were three, four years ago before you saw sort of a downturn in the market?
The margin level now on the SüdOstLink, you can compare it with offshore large offshore projects, not with AC onshore projects. So, yeah.
Okay. That's helpful. Thank you. Then, for Basil, the lack of orders or business that you've seen here in Q1 and also into April, do you think there is a sort of a pent-up demand where we will see a sort of potential catch-up effect in the second half of the year when the current shutdowns are being opened up?
Yes, I think so. I think we're already seeing it. So, as countries open up, we're seeing the business coming back. So, like I said, where we are today with regards to book plus ship, we're actually slightly ahead of last year. So we see a continuation. I mean, that again, the uncertainty that we have is, you know, we don't know at what rate it'll come back or if there's a second wave, etc. So it really depends on how countries open up and in which markets. Remember, we are in a number of different markets.
Okay. Thank you. And then finally, just for Roland, a little bit of housekeeping, on the net financial items and also the sort of one-off restructuring costs that you report, what should we expect for the full year on those two lines?
Yeah. So restructuring, there won't be a lot of restructuring this year. It'll be less than next year. I think, less than last year, I presume. And on financials, you should probably expect something that is in line with last year also.
Okay. So it was, it was a lot in Q1 then?
Yeah. There were some non-cash items, right, derivatives and so on in Q1. So there's a little loss in the numbers in Q1.
Yeah.
But full year should be in line with 2019.
Perfect.
Slightly more.
Thank you very much.
Thank you. The next question comes from the line of Artem Tokarenko from Credit Suisse. Please go ahead. The line is now open.
Good morning. Thank you very much for taking my questions. My first one is around the rights issue and the equity raise and the ways to use the proceeds. So could you maybe talk a little bit about what are your strategic priorities to use that cash, and in particular how you will be thinking about, you know, further investments into Photonics? And also, I appreciate you mentioned only EUR 50 million CapEx for Cologne expansion, but I think previously you were more talking in the range of EUR 50 million to EUR 100 million or even more hundreds million euros for CapEx if you had a big share of SüdLink. So maybe also if you can give us any color on that, that would be helpful.
Yeah. Thank you for that question, Artem. It's not a rights issue. It's a direct placing at market price. And the expected use of proceeds is sort of general corporate purposes, right? We have a cash management structure with a revolving credit facility. So, you know, you get the cash in, and then basically your net interest-bearing debt goes down, right? We don't have term loans that we are reducing, and we are not affecting the size of the revolver. So it all goes into the same pot, so to speak. Now, these funds are not meant to do capacity expansions. That's not what it is meant to. It's meant to deleverage the balance sheet.
Right. But more thinking about the capital needs of Photonics because I think previously you indicated that once that business reaches close to 100 million revenues, it will require 50 million to 100 million CapEx investments. Is this requirement still in place?
No. So what we expect, investment level in Photonics is to continue at the level you saw last year.
Right. Okay. Thank you. And could you maybe also give us some color on terms and conditions on the German corridors and on SüdOstLink in particular? I guess all cable manufacturers have previously spoke about challenging terms and conditions and that a small problem on the project can require kind of a full replacement of that project. So maybe could you give us some color on potential maximum liabilities on those projects which you have?
Yeah. I mean, these corridor projects, as you know, is a 525 kV DC technology, first time so far. There is no reference project on this voltage level. That means we have a technical risk. On the other side, we have terms and conditions, which vary from customer to customer. And in the SüdOstLink, if you look at, at least for us, the terms and conditions, the technical risk, and the reward was balanced, and we were successful to secure the three lots from 50Hertz. Now, in A-Nord, we were not successful. And obviously, these parameters which I mentioned were not in balance. So, this is how it is.
Well, I guess my question is, if considering that you have to consider that it looks like you have to do an equity increase after winning those projects and that, as you mentioned, profitability is just satisfactory whereas risks are quite high, will you be willing to share maybe maximum liabilities you may incur on that project if there are any problems with SüdOstLink?
No, we, I think, we don't share in detail total liability on warranty and LDs and all these detailed terms. I can just say, these are projects which have a long duration. It's complex projects, from the execution point of view. It's complex terms and conditions, and I think in SüdOstLink, it was the terms and conditions are balanced, satisfactory for us as well as for the customer.
Okay. Thank you. And my last question is around solutions and the order pipeline which can contribute materially to 2021 revenues. Could you maybe talk a little bit about whether there are any projects you're actively bidding on which can materially contribute to next year's results? Because as it looks now, those German projects will be more 2022 story for you from a P&L standpoint.
Now, typically, we have secured quite some orders over the last couple of months, which contribute partly this year on the revenues. Of course, for, as I mentioned earlier, SüdOstLink will not contribute substantially in this quarter as we start production at the end of next year. Typically, large projects and solutions, from orders received until revenue recognition, that takes 12+ months normally. So as such, large projects would not necessarily contribute to 2020 or not significantly technique-related like this. There is, besides the corridor project, there are, of course, other projects in the market, which we tender. So our people are busy despite the corona and COVID and I don't know, you name it effects, huh? Yeah. I hope I answered your question.
Okay. Thank you. Yeah. And maybe a last quick follow-up. On that second tranche of equity increase which you're aiming for, what's the timeline you're considering, please?
Yeah. So what we're saying is that, hopefully we'll conclude that before the end of this year, but it's obviously subject to us having the authorizations in an AGM that is currently a little unclear when we are able to convene.
Okay. Thank you very much.
You're welcome.
Thank you. The next question comes from the line of Andreas Scaturi from Goldman Sachs. Please go ahead, Andreas. The line is now open.
Good morning, everybody. Thanks for taking my questions. I have two. The first one is on applications. I appreciate that good profitability this quarter was driven by production efficiencies, and I was wondering how sustainable are those drivers and these profitability levels beyond the impact from COVID-19 and whether you see further margin expansion in this division?
I'm not sure whether I got the full question. The connection is not so well, but the obvious actions which we are taking to improve efficiency in the production are sustainable actions. It's not one-off actions. That is what I also mentioned in earlier calls. We work in applications, for example, to improve the efficiency of the production and the output of the productions, and we have our plan and continue to do so. We will improve. Obviously, we will not make a step function in one or two quarters, but with our actions, we believe that we can continue to improve the profitability in applications. We see a first result in Q1. Production efficiency is not obviously limited to applications. We also look in other areas in solutions, accessories.
How can we become better, more efficient, more productive, having higher productivity means, more output with the same number of people, yeah, and more efficient.
Thank you. And my second one, which may already have been addressed but had some line issues, is on the production plan for the German corridor contract. If you can, please remind us of how the capacity utilization now stands in Karlskrona, Falun and Cologne, and how do you plan to produce for the German corridor? And in addition, should the second contract arrive from the German corridors, how that production plan can change? Thank you.
I mean, again, production I mentioned is out in next year, Q4 2021. Existing production plans can, of course, change based on order development, as we hopefully get in. I think we will now see just how project awards will happen in the next two, three months in Solutions, and then we decide where and how to produce. There is not an immediate urgent need based on the current information available to decide today where we need to produce, for example, the SüdOstLink or any other order which we would potentially get in the next couple of months.
Okay. Thank you very much.
Thank you once again. For questions, please press star and one in the telephone keypad. I believe that Claus Almer from Nordea has a follow-up question. Your line is now open, Claus.
Thank you. Yeah. Just a follow-up, coming back to my question regarding the speed of this rights issue. No doubt that the outcome of the SüdOstLink tender will be, you know, important for your share price and therefore for your order backlog. Why don't you wait until that outcome has been communicated? That would be the question.
Klaus, it's not a rights issue. It's a direct replacement, but.
Sorry.
But it's an authorization that we have. And, you know, I cannot add more color than we think now is the right time to do it. There will be more tenders coming up, and you can always speculate on where you want to do it and not want to do it. We need to get this done. We're communicating on the back of biggest order win we have ever had, a decent Q1. We think the investor interest is there now, so we have chosen to do it now.
Okay. Thanks.
Yeah. You're welcome.
Gentlemen, I can talk about it in terms of follow-up questions as well. Please go ahead.
Oh, thank you very much for taking a follow-up from me. Just a quick one on applications. Given that Q2 has historically been a very important quarter, could you maybe talk a little bit about what, what level of growth you've seen in April, and have you seen any kind of recovery in May? Thank you.
Yeah. I'm not sure. April so far, we see the good trend, let's say, from Q1, to continue. Application is also a mixed bag. It's not that we are impacted in any way from or was likely just the minor from the corona, but we see differences that in some countries it's difficult to deliver cables, like particularly, for example, France and U.K. But so far April, we see the good trend continue. We can produce. We can deliver in some countries more than in the others.
Okay. Thank you very much.
Okay. Once again, for any follow-up question or if you wish to ask a question, please press star and one in the telephone keypad. Gentlemen, the next question comes from the line of Kristian Johansen from Danske Bank. Please go ahead. The line is now open.
Yes. Thank you. Just a question on medium voltage outlook. So now that the German corridor projects are definitely happening, which we've been waiting for quite some time, can you speak a bit about the outlook on the medium voltage market in Germany? 'Cause I assume that these high-voltage corridors will have some sort of adjacent investments needed into the medium- voltage grid.
I mean, the medium- voltage grid is, of course, impacted mainly how you, I would say also, by different factors. One is the renewables. I mean, you have, you have also offshore wind farms. You have solar. These large DC corridor projects change, of course, the overlaying high-voltage grid, and that impacts the dynamics from the network and the network stability and the whole, let's say, power flow on the high-voltage side, and then consequently on the, let's say, sub-transmission and medium voltage. There's no doubt that the medium- voltage grid, the distribution grid, needs to be strengthened over time by all these factors. Now, the question is which, what speed that will go, and will it be even further accelerated? That's difficult to say. But it would some just simply a consequence of also the strategy of decarbonization.
If you have more electric cars, if you go to heat pumps, and so on, so you need the strength and also the distribution grid. You cannot not just stay on the high-voltage level.
Can you make any prediction on when you would expect an impact on the investment in medium- voltage grids?
I mean, we certainly see impact, and we mentioned that the mix has changed towards more medium voltage, so we see higher demand, as we speak, namely medium voltage with a better margin, which is positive for us, but I think also positive for the industry, for all, if the margins are going up on these relatively low-margin business. So that is positive, huh, and now I cannot pretend to look ahead and tell you exactly how that will develop. I think it will continue, and most probably from the market driver, from the trends, megatrends, will be accelerated. I would, at least from a logical point of view, expect that.
Okay. That's, that's quite clear. Thank you.
No further question at this time. Please continue the other one.
Okay. If there's no more questions, then thank you, everyone, for attending this Q1 report from NKT. Thank you, and have a good day.
Thank you very much. Have a good day. Bye-bye.