Good day, and thank you for standing by. Welcome to the NKT Q3 Report 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Claes Westerlind, CEO. Please go ahead.
Thank you, and good morning, everybody. Thanks for calling in to this Q3 call. If we get started and look at the first slide, I just want to make the comment that both this presentation and also the related comments by myself and Line will contain forward-looking statements. On that note, today, I will be speaking to yourselves. Next to myself, I also will have Line, who is the CFO, although Line is on the tail end of a flu, so she has called, she's calling in from a distance. Then we start with something that would otherwise, I'm sure, come up as a question, and that's the status of the divestment of NKT Photonics. On this page, you can see a brief summary of the latest events.
I think maybe just to mention the fact that in July 2023, a couple of months ago, the purchaser, Hamamatsu, refiled their application with the Danish authorities, and this is currently under assessment, and we don't have much further information as to how this is going or to where it's leaning, but we are in a standby mode around this. NKT Photonics continues to be presented as a discontinued operations and also an asset held for sale. With those words, we come to the quarter. So the third quarter of this year is something that we are proud of in NKT. We achieved a 44% organic growth in the quarter. This is driven primarily by solutions and also the applications business line. Our operational EBITDA reached a new record level of EUR 76.5 million.
On the side of that, also our high voltage order backlog increased to a new record level of EUR 11 billion, and this was primarily driven by the award of 5 projects under a frame agreement from the German TSO 50 Hz, which we were very happy to be able to be secured during the third quarter. If we look at the backlog as a whole, and I will come back to that later on, we are also noting that more than 75% of our backlog is with large transmission system operators. On the cash side, we are also happy to report of a positive quarterly free cash flow generation of EUR 91 million. This is driven by primarily activities in the solutions business.
And also, we, as part of the early Q3, we also closed the rights issue that was conducted earlier in the year, and also added the net proceeds of the same of EUR 357 million to our balance sheet. And on the back of the above events, we have also recently, as you're well aware, both pre-announced the results for the third quarter, but also revised our financial outlook for 2023. So with those key messages, if we go into some of the business highlights, and this may be, again, to stress what I said in the introduction here.
We have had a continuous growth in our revenues and operational EBITDA, which is driven by, primarily, on the one side, solutions, where we have had satisfactory execution, both in our commercial projects, but also in the investment projects that have allowed us to grow in terms of revenue and also EBITDA. In applications, we have continued to benefit from positive performance, in particular in the power distribution grid segment, affecting both part of the 1 kV business, but also medium voltage. And we have seen a lower activity in the construction business, although on a stable level, if you compare with the second quarter this year.
And thirdly, if you look at the service and accessories business lines, here we have, we are recording lower revenues and earnings, and this is due to less service repair activity if we compare to the same quarter in the previous year. So to the right on this slide, you can see what I just said in numbers, a strong revenue growth comparing the third quarter of 2022 to 2023 of EUR 144 million or 44%. And an operational EBITDA, we are coming up to, in round numbers, EUR 77 million, which is more than doubling our EBITDA compared to the same quarter last year, and also a healthy growth from a percentage perspective in EBITDA. We come into the solutions side of the business.
As I said, the satisfactory execution of the ongoing orders, also about, of the investments. I think most of you on the call are aware that we are, conducting investments, and one of the ones which are in the, in the tail end is now the EUR 90 million investment announced in conjunction with the Champlain Hudson Power Express project, which is now in final completion phase. And the assets of the, that investments are now being gradually taken online, and this has both impacted the Q3 numbers, and also they will be completed now at the end of this year.
We continue to progress several projects in our backlog, including, but not limited to, BorWin5, Champlain in the US, Dogger Bank A, B, and C in the UK, Hertel in Canada, Shetland in the UK, and last but not least, also SuedLink and SuedOstLink, which are part of the German corridors. Also, we note that our cable-lay vessel, NKT Victoria, continued to enjoy a healthy loading during Q3. Overall, this took Solutions to a revenue of around EUR 300 million with an EBITDA of EUR 50.4 million.
If you look at the organic growth, it's, it's a very strong growth, which I think is also should be seen as a testament to our capabilities to both attain the people that we need, and also to carry out the investments that we're planning, and to also take these investments into operation as per the plan with good quality and output as a result. Of course, we cannot have this call without discussing the market a little bit. The high voltage market this year and particularly in the third quarter has continued to enjoy the very strong momentum we have seen recently. We estimate that the value of the projects awarded, so to say, bookable projects this year, are in excess of EUR 14 billion.
In addition to this number, the market has also placed a number of long-term booking commitments, mainly as part of framework agreements, and these reservations we estimate to more than EUR 13 billion. Seen in combination, this then shows that cables with a combined volume of more than EUR 27 billion have been allocated towards the market. We continue to see large European transmission system operators as being very active in this segment, trying to, and in a successful way, securing capacity for the cables that are needed in the next decade to complete the green transition. The absolute majority of these projects were awarded based on the DC technology. On the right of this slide, you can see a selection of our notable order wins during the last couple of months.
And if we turn to the next page, maybe just a few words on perhaps the most notable one, and this is the recent order that we have been able to secure from our customer and partner, 50 Hz. It equates to 2,500 km of core cables, with a value of around EUR 3.5 billion. This is distributed across five projects that you can see on the map here, and also in writing to the left. They are all based on 525 kV DC technology that most of you remember NKT launching back in 2014, first being commercially deployed in 2020 on land. And the first project ever awarded on 525 kV DC was the IJmuiden Ver that we announced earlier this year, and that is now followed by this massive frame agreement.
Perhaps what's worth also to note here that this frame and the five different projects, they cut across all the different applications that we are active in. So it cuts across offshore wind, with examples of LanWin6 and Ostwind4. It is also onshore interconnector projects, with the Nordostlink Plus and also SuedOstLink Plus. And last but not least, at least to my knowledge, the first hybrid, HVDC interconnector projects connecting the island of Bornholm and also aiming to integrate offshore wind in the same project. So it is really a testament to the versatility of the technology that we are bringing to the market, and also the customers really applying the full extent and potential of this technology. We cannot help ourselves but to reflect a little bit back in time.
To the left on this graph, in December of 2019, many of us, myself included, it was a very different market at the time, and our order backlog was also very different, below EUR 2 billion. Today, we note EUR 11 billion of booked orders, and on top of that, also further orders in terms of booking commitments from the customers TenneT and SSE, which, if you look at the booked orders, is an eightfold of our backlog from 2019. And this record-high backlog really provides us with the, with the confidence that the investments we are carrying out is the right thing to do. It provides us with the earning visibility, that is healthy for a cable manufacturer now looking into the next coming years.
And out of the EUR 11 billion, around 25%-28% is set for backlog conversion in 2024 and 2025, giving the message that we have a good loading in those years, but also a very healthy loading even beyond those years. And as I said earlier, also important to note that over 75% of these projects are with large European transmission operators. If we look at the backlog as such and try to split it down a little bit further, also by application, around 50% of our backlog currently is in the interconnector segment, around 45% is on the offshore wind segment, and 5% in the power onshore segment. We are well aware about the past and also the present turmoil in the offshore wind segment.
which has been primarily seen in the U.S. and the U.K. I just want to add the comment then, that NKT's exposure to the U.S. offshore wind market, seen from a backlog perspective, is zero. So the product we have in the U.S. currently is the Champlain Hudson Power Express, which is an interconnector between Canada and the U.S. It is a product which is well into execution, where both installation and production is ongoing for the moment. In the U.K., NKT is a strong player from an offshore wind perspective. But if we look at the backlog, and in that backlog, try to isolate projects which are in a very early stage of execution, the relative proportion of that to the backlog is fairly low.
So the approximate amount that we have in the UK in an early stage is around EUR 750 million, to be seen in proportion of the total EUR 11 billion backlog. Moving on, leaving the solutions market and that business line behind us, looking into applications. We note that the higher revenue levels in applications, in comparison to last year, was driven by, on the one side, higher volumes, but on the other side, also price adjustments that have been conveyed to the market to compensate for inflationary pressure. And this revenue growth, also in combination with efficiency initiatives, is leading also to a higher operational EBITDA, if you compare with the same quarter last year. We continue to see a positive sentiment in the power grid market, which is driving medium voltage.
It also drives 1 kV to a certain extent, and we are proud to say that we have a strong presence with this segment also, that we need, we need and plan to reap the benefit of going forward. At the same time, the challenging situation in the construction activity continues, and we also, as a company, continue to be humble for, for what this brings in the future. Although, we would also like to note that the volumes are on, albeit a low level, they are stable, if you compare to the same quarter, previously. Okay. Then we come to service and accessories, which is in Q3, seeing a decrease in both revenues and earnings, if you compare with the same quarter last year.
This is primarily driven by that the repair, offshore repairs in particular, is on a lot lower level than what we have seen in the past years. However, on a positive note, other segments within our service business is contributing positively to compensate for this shortfall, and this is due to various strategic initiatives that have been taken by our service business line in expanding both from a geographical perspective, but also from a little bit of a business and offering perspective. Our broad-based improvement journey in accessories is continuing. For example, the ramp-up of our HVDC production capacity to support our solutions business, but also the shift from production capacity from Germany to Sweden. And then also here, we have more work to be done in the coming quarters.
With those words, I would like to hand over the presentation to Line.
Thank you, Claes. Can you hear me well?
Yes.
Good. Just checking. Okay, so, a few slides on the financial highlights on the quarter, and it's, we start with the P&L. I would like to start up a little bit more high level here to just acknowledge that, with this financial result, we reckon the movements on revenue and EBITDA, between business line eliminations and also the large impact on financial items, for Q3. We would like to explain this thoroughly, as thoroughly as possible, because we don't predict currency fluctuations into the future, or at least the mechanics behind what- how does NKT accounts stack up.
So we will invite for a separate session on this in the future, but just to acknowledge, and we can fully understand that we have more questions to it than what we are able to cover here in the webcast. But the two main reasons why this fluctuation happens is, we have a number of entities that are not in the euro. They have local currencies as their functional currency of the entity. And overall, that will give fluctuations on intercompany eliminations when we look into currencies. NKT's overall financial target is to secure our cash flows in euro are not disturbed by any kind of currency impact. But due to this setup, there will be fluctuations.
We are only protecting externally, our exposures against the euro, but not for the local entity currencies. Just to say that up front. If we look here at the P&L, Claes just mentioned the substantial growth of 44% for the first half. That corresponds to 35%, not first half, sorry, first three quarters, where we for the full year of 2022 grew 15%. The operational EBITDA being at EUR 77 million, more than 2 times the level of 2022 at the same time, and an operational EBITDA margin of 15.3%, where we closed out 2022 on 10.7%. So good uptake on the margin level here.
Then we come to the financial items, and here you see the EUR -24 million, which are primarily unrealized value adjustments. On currencies, meaning assets, liabilities, on our balance sheet that have market values different than those we accounted for in the balance sheet. We regulate over in financial items, but it's an unrealized value adjustment. Yeah, just to say that, so just we have that. The effective tax rate was 23%, kind of similar to the previous quarters. The FTE level, you continue to see increasing due to the high activity levels. Certainly also preparing for the growth ahead of us.
If you go to the next slide, looking at our balance sheet, we always say we close the year usually at a very favorable level, and we closed 2022 at Net Working Capital at EUR -300 million, and now we're closing the third quarter here at EUR -600 million. So, it is a very favorable position, which is very much due to the milestone payments and solutions, and a structurally higher backlog that we built up for executing in a larger company also in the future. The elements of an improved earnings and a higher Net Working Capital amounts also to a ROCE where we close out Q3 on 15.4%. So that's a very good level, also just looking back to closing 2022 on 6.6%.
With the capital raise, you see our net interest debt at -EUR 674 million, and a leverage level at -2.9 times the EBITDA. And then I just want to add here also that we have issued guarantees at EUR 1.8 billion euros at the end of Q2. Turning over to our cash flow, which closed the free cash flow for the quarter of +EUR 91 million. That was due to our earnings of EUR 77 million, but also the change in working capital of EUR 98 million. And then, the cash flow from investing activities was at EUR 60 million. We're progressing well on our plans of investing primarily in the Karlskrona site. So, on track there.
Cash flow from financing activities of EUR 257 million, as Claes already mentioned. On the next slide, our updated guidance for the year, communicated earlier, of a revenue of EUR 1.85-EUR 1.9, and an operational EBITDA of EUR 240 million-EUR 260 million. This still assumes that we will execute satisfactorily on our projects rest of year, and do not have any unforeseen impacts from external environment. Also important to note, the last sentence here on this slide, that this update does not change the medium-term financial ambitions for the trajectory into 2025. Before Q&A, just closing out on the key messages of the Q3.
The 44% organic growth and a record high quarterly EBITDA, operational EBITDA level of EUR 77 million. A very strong order backlog for the future of EUR 11 billion. A quarter of positive free cash flow generation, EUR 91 million, and a closed finally rights issue, which was fully subscribed and even oversubscribed, where the proceeds amount of EUR 257 million on our balance sheet. And then an updated outlook for the year. With that, we will turn into Q&A.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Please stand by while we compile the Q&A queue. Our first question comes from the line of Moyo Adebayo from Goldman Sachs. Please go ahead.
Good morning, Claes and Line. Thanks for taking my question. It's Moyo Adebayo here from Goldman Sachs. I have three questions this morning. So firstly, we're just wondering how you assess the risk around cancellations or delays in the Hornsea Three project. Secondly, given the unprecedented level of industry high voltage awards that you've seen this year, and as you've nicely highlighted for us in this presentation, do you see risks of much smaller order intake in 2024? And just a small housekeeping one as the third one. You mentioned the report that a smaller portion will be executed in Q4 2023. Just wanted to confirm that you mean relative to this quarter. Thank you.
... Thank you. Thank you for the questions. Just on the third one, I didn't really perceive that. Could you repeat the third question, please?
You mentioned that a smaller portion would be executed in Q4 2023 in the report this morning. So I was just wondering if this was relative to this quarter, just confirming I've interpreted that correct, correctly.
Yes. Yes, that's correct, and we start from the back, and then Michael can also give some more comments on that. Thank you for your questions. If we start with the first one, assessing the risk on the Hornsea Three project, I think I will refrain from commenting on specific projects. But what I can say in general is to reiterate, I think communication we have done in the past, which is that we have been disciplined and will continue to be disciplined when it comes to booking production capacity. And that will not be done with less than that we have a commercial compensation in place, should the project be canceled. Having said that, if a project is canceled, it will be a negative impact.
Before a project gets canceled, I think it's fair to assume that the customer will always try to find a replacement project or cable to be utilizing in the same slot. Otherwise, money is lost, so to speak. And of course, the bigger the customer and the more projects that they would have, the bigger that possibility is. Should that not be possible, then a cancellation will take place, and there will be a level of compensation, which not in full will compensate the shortfall, or to repair the damage that we would sustain. But in addition to that, we also would then turn to replanning possibilities, which is basically making shifts in our backlog.
That's where, even though this would not be a good event, we have the biggest backlog we've ever had, so meaning also possibilities to try to mitigate and compensate for such a shortfall. We do recognize that some projects are in a very early stage, and I think that's fair to say about Hornsea Three, but for us to be able to make an assessment on whether it will be canceled or not, I think we are not qualified to do that. And we read the media, and we have not any indications from the customer that they would not go ahead with this project. I think I would leave it like that.
On your second question, considering the level of awards this year, is there a risk of fewer or lower volumes to be awarded in 2024? From a total level, if I start with the market, the market continues the outlook to be very positive. There is several large European TSOs who are in the realm of starting up or have started procurement procedures to secure cable capacities for the next 5-10 years. There is always, of course, a risk that things get shifted left or right, but so far, we don't have an indication of a slower, lower pace in that.
Looking at NKT as a company, of course, the more we sell, in excess of our own existing capacity, so meaning the more backlog we build, the more difficult, within brackets, it will be to win further orders. And that is, if you will, us being victims for our own success. Are we full in the next coming years? No. I mean, we always have, capacity here and there to be able to entertain some pursuits. And starting in 2027, 2028, then also we have, a lot more capacity to, to partake in the, in the upcoming tenders. But, I want to underline it's a good situation we are in for the moment with a, with a massive backlog.
I can also note that we have not made compromises, neither from a risk nor a profitability perspective in the last awards, in the order intakes we have done. We feel comfortable from where we stand for the moment. I hope that was answers to your questions.
Super clear. Thank you.
Maybe before we leave Mo, just, just a final remark. This is Michael Nast, Head of IR here. I just wanted to clarify your last question on the smaller portion comment. The smaller portion was meant in relation to the full order backlog. So obviously, there will only be a smaller portion of that full backlog to be executed in the remaining part of 2023. So it's not related to comparing to the previous quarters or anything like that. So just to clarify that, it's a small portion of the EUR 11 billion that would obviously convert into execution and revenue in Q4.
Thanks.
Thank you. We'll now move on to our next question. Please stand by. Our next question comes from the line of Casper Blom, from Danske Bank. Please go ahead. Your line is open.
Thanks a lot. I have a couple of questions also, and I'll just take them one by one, so you don't have to remember too much. On the whole supply and demand situation, Claes, I understand your comment that NKT does not have any direct exposure to the U.S. offshore market, but you do have competitors that have, you know, added capacity to serve a, you know, expected U.S. offshore market with high-voltage cables. That competition might now see that projects are being canceled, and they might have factories in the U.S. with open capacity. How would you view that in regards to the European market? I mean, wouldn't it pose a threat of, you know, additional capacity being poured into the European market? That's my first question.
I think it's a good reflection, Kasper, and as you rightfully say, of course, there is an indirect correlation there. Whether I considered it to be a threat or not, I would say that it may be an opportunity for the supply-demand balance to come closer to something which will make it possible to execute the progress in time, at least in the near term. There is, of course, also a cost disadvantage with transporting cables over the Atlantic. But I think for some cases where the European-based factories are not able to deliver on time, it's a good opportunity then to could be an opportunity to bring the cables from the US. So I would not be overly concerned with that threat for the moment, considering the overall supply-demand balance.
Okay. So if I may elaborate a little bit on your answer, Claes, that simply because when you look at that capacity standing in the U.S., compared to the capacity gap that you see in Europe, then, you know, it's still not at a point where you could sufficiently cover the whole demand in Europe?
Correct. Yes. Of course, of course-
Thank you. That's very clear.
In short, yes.
Okay. Thank you. Then coming back to your comments regarding the high activity among the large European TSOs, we've also seen you guys receive orders from several of those. Could you maybe sort of elaborate a little on, you know, what's left in that equation? I mean, there's been mentioning of other TSOs also preparing either framework agreements or large orders. In terms of that sort of hurricane of orders, what are—which, which one are we still missing?
I need to be careful to see what's public and not, Kasper, to respond to your questions. But, I mean, there are several large European TSOs which have not completed, let's say, their frameworks. I think one thing which is well publicly known is that Amprion are procuring. Prysmian announced also being awarded part of the Amprion frame agreement. There are more parts in that. In UK, the TSO has not awarded framework agreements, so I think that that can be expected. And there are also opportunities in France with RTE, which I think they have also publicly stated that they are in the process of awarding HVDC equipment, covering both cables and converters during the course of next year.
That's only to give a couple of examples where I believe, I think that information is also public.
Okay. That's helpful. Thank you. Then finally, just following up on Photonics. Again, I'm not sure how much you can say, but can you provide any kind of timeline as for when you would expect the Danish authorities to respond to Hamamatsu's renewed application?
Not quite. It is refiled. There has been question and answers process there, and when that is to the satisfaction of the authorities, then I think we can say it is a response time of 125 days. But what we cannot say is when that period starts. So that basically leaves us unable to make a prediction here.
Okay, is it possible for us, sort of outsiders, to find out when that process starts, just so we know sort of how long to wait?
I'm looking at Michael here, a little bit unfamiliar with the Danish system, but I think-
No, not to my knowledge, Kasper. I can, I can confirm that.
Okay. Then you can expect a few calls. Thanks.
Thank you. We'll now move on to our next question. Our next question comes from the line of Claus Almer from Nordea. Please go ahead.
Thank you. Yeah, also a few questions from my side, and I will also do them one by one. As I heard you, Claes, you said that next year could also see same level of order activity as we're seeing this year, so i.e., this EUR 14 billion. Was that correctly understood?
Yeah, I think, I, I don't know if I said that, but I think it's also not—it's not an unreasonable expectation that the, the order activity could be not too unsimilar to this year. Why I'm a little bit hesitating on the response, and as you know, Claus, if there is a massive frame agreement which will be awarded in Q3, Q4 next year, and, and by coincidence, it slips with a quarter, that can cut the market down quite a bit.
Sure.
So I think if you remain-
In round numbers.
Yeah, yeah, in round numbers, I think we will see similar high activities from the remaining European TSOs going into next year. Whether that will materialize exactly to the same amount of billions, I think I will leave that unsaid, but there is a significant activity going ahead.
Right. And then, so, so I guess you have a lot of discussion with these TSOs, both with the frames you have won already and those being planned. And I, I guess they are also reading their newspapers and, and offshore comments, so to speak, not just in the U.S., but also in, in Europe, UK Round 5 being a, a prime example. Does—how does that, you know, impact the discussions you are having? I, I, I know what you said about the, the order activity, but do they not at all consider delaying some of these volumes into longer into the future?
Yeah, it's a good question, and I think what I can respond on is, of course, what we hear in the discussions that we are having. What they're considering internally, I will, I will leave that unsaid. But we have not to date seen any reduced ambition levels when it comes to securing capacity for the next 10 or even up to 15 years in some cases. And I think it's maybe perhaps also a reflection of that, the green transition will continue. But then here in the, this year and next year, perhaps there are some projects in need of resetting, but, but the overall process will continue. Then it's more a matter of an adjustment in pace, perhaps. But so far, we have not seen reduced ambitions from the TSOs.
Okay. Then, my second question goes to this liquidity reserve. Line, you had a slide showing you had EUR 1.1 billion in reserves. How is it when you look at your off-balance reserves? What's the number there, and how much have you, you know, in off-balance guarantees?
So, I'm just wondering if I get your question in terms of off-balance sheet reserves, because we have the utilized guarantee lines we say, right, what we have, but we don't disclose what the sizing of the total guarantee lines back, if that's what you're asking about.
It is.
Yeah.
Just, you know, curious, given all the things you got out of Sweden, for instance, the export credit agencies. So where are you? Are you starting to get limited on accepting new orders, or is there ample room to just keep growing the backlog?
There is room. So I think this, this part of the equation of NKT and tendering, you should not have any worries about.
Okay, so just, do you have the reserves or the capacity to repeat this year's order intake next year? If you have the capacity, obviously.
So I can share with you.
Okay.
Yeah, I understand the question. So what we do is we have a process for predicting what kind of tenders are coming in the future that we need to put an offer on the table on. And with what we have line of sight on to now, we can tender and put in the guarantee line needs for those. I think what we were surprised about last time, just going back, was the structural change. So let's say, what kind of structural change could come that would then enable the market to go even faster? But with what we see in the pipeline now, we can tender and put the sufficient guarantee lines in.
Okay, that makes a lot of sense. Then just a small question: When are you going to have a positive net, net financial, result, giving all the net cash sitting on the balance sheet?
Are you talking about interest rates here on all the cash?
Yeah, yeah.
Yes. But then I guess I have to be able to predict how our currencies, the Swiss franc and the zloty-
Excluding that, excluding that.
We are having a positive interest income.
Okay.
It's just minor in the grand scheme, yeah.
Okay. Thanks. That was all for me.
Yeah, just if I may, just to make a clarification or a small addition to what Line said there on your second question, Claus. From my perspective, I think it's unlikely also that next year we would have an order intake with equals to this year. I think that would not be realistic, seeing that our market share on the EUR 14 billion this year has been very high, 50%. We have built extensive backlog also, and that we would be able to add a similar size backlog after the current backlog, which has just been added, I think is from a capacity perspective in relation to the delivery times, not realistic. So I would, I think we have won.
We have been too successful, if you will, this year versus, you know, it's not a sustainable level of success if you look at it over two years. So I just wanted to add to that comment on the side of our financial capability to entertain that.
Sure. Yeah, I guess that, that is obvious, more or less. Just wanted to get a indication on, on the capacity from a financial point of view, but thanks for that clarification, Claus.
Yeah. Thanks.
Thank you. We'll now move on to our next question. Our next question comes from the line of Akash Gupta from JP Morgan. Please go ahead. Your line is open.
Yes. Hi, good afternoon, everybody, and thanks for your time. I have a few as well, and I will go one by one. The first one I have is on offshore wind and risk of cancellation, et cetera. I see you are not going to give a project-by-project details, but I'm wondering if you can help us figuring out when we look at your business plan at this stage for 2024, 2025, can you say how much revenues you see from these UK projects that people are worried about and may get canceled? An indication, at least for 2024, in terms of whether there will be an impact or they are more back-end loaded, that there will be no revenue impact in 2024. That's the first one to start.
...I don't think we will not guide into next year for the various business lines and also not down on project level. What I can say about the projects in the UK, which are in early stage, you know, that's prior to production, then it's I can make the comment that, yes, they are planned for production to be started next year. So if there will be cancellations that will come, you know, within that production will be started within 12-18 months, of course, that it would not be optimal, not good. It will be in part financially compensated, and in part, we would have to make replanning to mitigate the consequences as far as possible.
I'm sorry, I cannot go further into details than that, Akash.
Yep, no, no worries at all. The second one I have is on solution margins. You had 16.7% margin in the quarter, which is probably the highest in many years. How shall we see sustainability of this high margin going forward? Is this a level you can maintain, or maybe if you can talk about nuances for margin development in coming quarters in solutions?
Yes, it's a good question, Akash. I think it's a good margin, as you said, for the quarter, and we are happy and proud for that. At the same time, I would also be cautious to extrapolate based on the margins of the solutions business in a single quarter. This has to be seen in the context of many quarters, if not years, to create the adequate proxy. And the simple reason is, as I'm sure you're well aware, and I think we have communicated that in the past, the margin in an individual quarter will depend on the product mix, with different products carrying different margins.
It will also depend on risk and contingency, maturity, where some quarters have more risks connected to them than also reserves, where if NKT is successful in mitigating the risks, as we often are, that renders extra profit. And also, thirdly, another dimension is seasonality. So, for example, winter months is typically less installation activity, also less revenues and absolute EBITDA then. So, I think you should view it as across many quarters and also years, you know, we are on the trajectory of fulfilling our guidance for 2025, respectively, 2028, and solutions is an important part of that. And we take comfort in the fact that we have a record high order backlog, which also provides us with the right prerequisites and foreseeability to be able to do that successfully.
Also, maybe an imprecise answer, Akash. I hope you're okay with that.
No worries. And maybe, can you say if there was any positive effect of finalizing any projects that you had in the backlog in third quarter?
I think finalization of projects is important. That would be such an event, like I said. I'm not sure if we comment on specific projects which we have completed this quarter. What I can say is that we have had installation activities which have been done during the third quarter, and those are typically also activities which have risks connected to them. And to the extent we are successful, then risks comes to profit. But none of the projects that I talked about before, in the presentation on solutions have to have been closed, if that was the question.
Thank you. The next one I have is on applications. The demand for medium voltage cable has been very strong. We have seen some of your other competitors are increasing capacity. Can you talk about if you have considered any capacity expansion plan to sustain the high level of growth in the coming years?
Yes, and we share the view that you mentioned there about the strong market from a medium voltage perspective and also the expectations going forward. And we are continuously evaluating both debottleneck investments and also operational efficiency measures and additions, pure additions to the machine park. From a CapEx perspective, this is something which, if you excuse the expression, flies almost under the radar in the context of solutions CapEx. So, it is more modest things. But there, we are continuously doing some smaller investments and efficiency measures, and of course, also work actively on operational efficiency measures.
Thank you. And my final one is on, I mean, recently we had European Wind Package announcement, and within that, there was mention of that EU will come out with a, next, package or announcement to accelerate grid investments. And, I've seen you as well as, other CEOs of cable companies have been to Brussels to speak to, to bureaucrats. Maybe if you can talk about, what sort of discussions are taking place, and, is there a possibility that we may need to have another round of investments because the growth, which is already very high, may require further, investment in capacity? Thank you.
It's correct. We have been both in Brussels and also speaking with other representatives for the EU Commission around these factors. And the message from NKT, and I think it's similar also from us supporting also Europe Cable, who is delivering the messages, is that foreseeability is very important to be able to entertain the investments that are being done for the industry for the moment. So visibility not only two, three, five years ahead, but 10, 15 years ahead. These are massive investments, and we need to make sure that we have the use of them for an extended period of time. That's one strong message. Another message is around permitting as well. That permitting is an imperative part of enabling the green transition and to also basically underpin the foreseeability of timely execution on these projects.
And the third one being fair competition and an even playing field. For NKT and European manufacturers to make investments on European soil, we need to make sure that the playing field is even, tax instruments like CBAM needs to be applied in a way so it doesn't counter to have a European supplier base, but rather facilitates it. But with these conditions, fulfilled, we are not excluding the possibility that further investments are needed, and we would also not be opposing to partake in such. But at the same time, I want to say that NKT is now very focused on carrying out the investments, which we did announce earlier this year in May, the EUR 1 billion investment in extra vessel and also another factory in Karlskrona.
Maybe last housekeeping question. Have you placed the order for vessel, and do you have any timeline when it will be delivered? Thank you.
We have not placed the order to the yard. We are in a detailed design phase and in the selection phase of the contractor. And yes, we have a timeline also for, or an intended timeline for the vessel.
Thank you.
Thank you. We'll now move on to our next question. Our next question comes from the line of Kristian Tornøe Johansen from SEB. Please go ahead.
Yes, thank you. So my first question is on Applications. So back in Q1, you booked 11% EBITDA margin in Applications and told us that we shouldn't necessarily expect that to be sustainable. And since then it has come down, and it's now 8.5% here in Q3. So just curious whether you're more comfortable around this margin level as being sustainable going forward?
Thank you for the question. I think your read back of the historic communication from our side is correct, and we know there's some noise on the line. I would be prepared to say that, yes, we are within the realm of what is to be considered sustainable for application for the moment. However, of course, to the construction market and what will happen there. This is in which we are happy with, and also we believe that, from a medium to long-term perspective, this is a good level, although it kind of also concentrate as we've seen in the past.
Okay, that's quite clear. And then just so you've talked about the strong margin in Q3, but I have to say, I still feel like I'm not getting a very clear picture of what the dynamic is. So more to your upgrade of guidance, surely something must have progressed better than expected in the quarter. So is there any way you could give us a bit more concrete on exactly where this outperformance in the quarter exactly comes from?
I'm thinking here how to respond on this. It's correct. I think that we have performed better than what we expected. It also led to the upgraded guidance. And as I said before, we are in a situation where installation works are being carried out, which in itself also entails risk and contingency. And when we are successful in that, then sometimes we will get more money to the bottom line, which was previously expected. But we have that nature also in this quarter.
Another one is that we are, as I said in the presentation, we are on the tail end of the investment announced in conjunction with the Champlain Hudson Power Express project, where we have now gradually started to take these investments online, and also not completely, but in part, that has been also done a little bit earlier than expected. And then last but not least, we have projects like the Champlain Hudson Power Express, where we are also having revenues coming from external manufacturers, like sub-supplie r. That is also something else which, depending on the planning and the magnitude within a given quarter, can also give them an extra leverage from a profitability and revenue perspective. So, so it's difficult for me to go into in the details of what is driving it, but I think that summarizes from a solution perspective.
If you view it from an application perspective, also in applications, I would say that in relation to the narrative which was explained earlier, we have seen performance than what we were expecting from Q3 as well. So that is another contributing component.
Okay. That did help a bit, so thank you. Great. That was all for me. Thanks.
Thank you.
Thank you. There are no further questions at this time, so I'll hand the call back to Claes for closing remarks.
Yes. Thank you, everybody, for listening in to this discussion about our quarter, which, as I hope you also hear, we are proud of, and I think it's a quarter that is confirming the journey that NKT is on, which is profitable growth. Things can vary quarter to quarter, but I think we are happy to come with this kind of a report, and we look forward to continuing the trajectory with some quarterly fluctuations going forward. So thanks a lot for listening in, and looking forward to meet you hopefully in the next couple of days and weeks.
This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.