Ladies and gentlemen, thank you for standing by, and welcome to the Q3 report 2019 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during this session, you will need to press star and one on your telephone. I must advise you that this conference is being recorded today, Thursday, 21st of November 2019. I would now like to turn the conference over to your speaker today, Alexander Kara, President and CEO of NKT. Please go ahead.
Good morning, everybody, and welcome to the presentation of NKT's Q3 2019 results. My name is Alexander Kara, CEO of NKT. After you have noticed our forward-looking disclaimer on slide two, I will continue with today's presentation. Today with me I have my colleagues, Roland Andersen, CFO of NKT, and Basil Garabet, CEO of NKT Photonics, Mads Bodenhoff, CFO of Photonics, Michael Nass Nielsen, Head of Investor Relations here in the room. Let us move now to the next slide and to give you an update here on Photonics. The NKT A/S Board of Directors has decided to review strategic alternatives for NKT Photonics with the objective of maximize value creation, positioning NKT Photonics for long-term growth, and to support the deleverage of NKT A/S balance sheet.
NKT A/S has not set a definitive schedule to complete this review, and no decision on any particular transaction or alternative has been reached at this time. NKT does not intend to make further announcements regarding the review unless it concludes they are warranted by the circumstance or are expressly required by law. Let us go now to NKT, the cable business, and the highlights of Q3. As you have seen our announcement, the financial performance in Q3 2019 is as expected, impacted by reduced activities and solutions. This outweighs improvement in application, service, and accessories. On a high voltage order book, a local degree is driven by a number of orders awards, small order awards, but also a big order, the Viking Link cable.
After the quarter end, we announced NKT's largest order ever, the Dogger Bank Creyke Beck A/B wind farm, which each one is 1,200 MW out of the total 5,000 MW with roughly 40% of the total CfD. NKT financial outlook updated as application will not deliver sufficient profitability improvement, and the awarded high voltage orders will not have a material impact in 2019. Let us now move to the next slide to the business specifics, and then go to solutions. As expected, the reduced activity levels is reflected in the financial performance. On average, exclusion on the current projects were in line with expectation. Karlskrona delivered better, and Cologne had some production delays, which would have also impact on the revenue. We completed the large Caithness-Moray project in Scotland, where we also used the first time our Victoria vessel, which was a very big success.
Our leadership team solution strengthen its presence in the group leadership forum. We have a dedicated general manager for Karlskrona and Cologne, and a Chief Commercial Officer function in solutions. This strengthens the P&L ownership and is also a support of faster decision-making in both sides. Moving to the market update. The projects in high voltage were around EUR 2 billion, which have been awarded in the first nine months, 2019. We have been awarded a number of these projects. The biggest one is Viking Link, and then several small orders. The CfD auction U.K. proves the strong momentum in offshore wind, and we are happy to work with Equinor and SSE on the Dogger Bank wind farm, which is, as I mentioned, 2.4 GW out of 5.5 GW. We still see an attractive market outlook in the medium and to long term with continued progress on several tenders.
Going to the next, to the order backlog. Our order backlog has increased in Q3, whereas Viking Link was added. Not included in the backlog, what you see on the graph is the Dogger Bank, which we have just booked and announced one day back. This will be added to the backlog. Means we are reaching practically 2 times revenues with adding these yearly revenues, adding the backlog Creyke Beck A/B. We are also the best bidder for Attica-Crete onshore 525 kV cable. With this backlog which we are building up, we are building up the future for 2020 and onwards. As you know, it's important to have a strong backlog for solutions. Coming to application, we delivered a slight improvement in our application business, but the profitability is still not satisfactory. Organic growth was driven by Germany and Eastern European countries.
We have delivered satisfactory production in Eastern Europe, while the performance in Scandinavia was not satisfactory. We are fully focused on improving efficiency and thereby the profitability on all sides. Coming to service and accessories. Service and accessories is going well. We've delivered satisfactory performance in service and accessories, and had a double-digit growth in both areas. This also led to an increase of profitability, where the operational EBITDA almost doubled. In service, we were successful in completing a large offshore assignment, which started in Q2 and finished in Q3. Accessories was mainly driven by increased output of the medium voltage production and solutions for offshore wind. With this, I have completed the NKT Cables portion, and I would now hand over to Basil for NKT Photonics part.
Thank you, Alexander. Good morning. The key highlights for NKT Photonics in Q3. Our revenue came in at EUR 16.7 million. This is up from EUR 15.2 million in the same quarter of 2018. Imaging and metrology and material processing were the main drivers for that growth. Corresponds to an organic growth level of 8%, and it's expected to improve a little bit further in Q4. Our EBITDA came in at EUR 3.9 million. That's up significantly from EUR 1.5 million in the same quarter of 2018, driven mainly by higher revenue and effective cost containment and some positive non-recurring items. The order intake for the quarter came in at 12% growth over the same quarter in 2018. Again, a healthy growth. The value of the orders exceeded the revenues for the quarter and will continue to contribute to further growth.
In October of 2018, we opened our facility in Boston, Massachusetts in the U.S. The site will be a manufacturing site and will supply advanced lasers to the U.S. market, which is one of the fastest-growing markets in our sector, and it will improve our ability to service and access different customers in the U.S. and the Americas. In Q3, we delivered lasers for a directed energy program at 20 kW. The 20-kW laser was a defense project in cooperation with our partner, the German company, Rheinmetall Waffe Munition. Also, in the quarter, we went live with our new global ERP system. We had some expected delays in the system, which postponed some of our revenue to Q4. The new ERP systems integrate all our primary sites under one IT platform.
We have a number of smaller sites, and this is the first time that the company has been integrated over one platform. We hope to see vast improvements on that, especially going into 2020. The financial outlook for 2019 has been adjusted. The organic revenue growth has been adjusted to around 10%. Previously, it was 15%-20%. However, our EBITDA margin is unchanged at 15%-20%, and it is actually coming in at the higher end of that range. We move on to the business development in Q3. If you looked at three sectors that we are in, imaging metrology, roughly about a third each, but the largest is imaging metrology at 38% of our revenue. That still continued to be the primary growth driver in 2019 and for the quarter. We have new potential OEM customers taking possession of some of our supercontinuum lasers in the quarter.
Those are new projects that will have much larger deliveries, again, in 2020 and onwards. These are OEMs that are introducing us to new markets in the industrial side. In sensing and energy, which is 29% of our revenue, we disposed of a small entity, FiOPS, which was mainly focusing on monitoring of pipelines. We closed that small facility down in September 2019. We have also been selected in the products that we manufacture for a very important project in India to supply our single-frequency coherent lasers in large quantities, and deliveries had already started in a small way in Q3, but mainly in Q4, and we see that increasing in 2020. In material processing, which is 33% of our revenue, the growth was mainly driven by our aerospace and defense market segment, specifically with our large projects with Rheinmetall.
We also have several new opportunities in industrial micromachining with a number of different customers worldwide. That is also driving a lot of our future growth as we move forward. Moving from that ends my sector, and I pass it on to Roland.
Thanks, Basil. Let's shift to slide 16. Just briefly on the group's revenue development, we are moving from market prices to standard prices. In standard prices terms for the quarter, we have had about EUR 3.9 million in currency impact, which is primarily the Swedish krona, but also a little bit in Poland. On the divestment side, it is primarily the disposal of the railway cable activities back in February 2019. The rest is the organic growth, of which the negative part of EUR 44 million is in NKT Solutions business and the organic growth in Photonics of 8% equals EUR 1.2 million. If we then swap to the next slide 17, operational EBITDA in Q3 is impacted by lower revenue, primarily in the solutions business of NKT, and it is still the overhang of the lower load in our factory in Karlskrona.
While earnings increased slightly in both the applications business and also our service and accessories business. The implementation of IFRS 16 has impacted positively our operational EBITDA by EUR 1.4 million, of which EUR 1.1 million is in NKT and EUR 0.3 million is in Photonics. Then there has been one-off items of EUR 4.9 million in Q3 related to NKT, our cost program, and also a few production efficiency improving initiatives. We go on to the next slide, our group's operational EBITDA. So expected the EBITDA margin LTM has moved down in 2019 and primarily driven, of course, by the profitability in NKT. Just a reflection on the historical numbers, the improvement from 2015 to 2017 was primarily driven by the acquisition of ABB HV Cables and also by the divestment of NKT's Chinese operations. So we move to the next slide, 19.
We continue to work with our working capital, and it has improved since last quarter, primarily in NKT, driven by development in applications. For Photonics, at the end of Q3, working capital was up by EUR 0.9 million compared to the end of the previous quarter. This increase reflect mostly buildup of inventory ahead of the expected revenue increase in Q4. Separately here on our net interest-bearing debt, we can see the impact to the balance sheet of the lease liabilities coming from IFRS 16 is around EUR 32.9 million. So moving to the next slide, 20. Working capital development. Working capital is continuously worked with in NKT especially, and also improving over the quarters for 2019. If we move to the next slide, 21, group cash flow. Cash flow from operating activities have been positive, so positive EBITDA contribution in both NKT and NKT Photonics.
The working capital development was positive in NKT. In Q3, our investment activities were higher, and that is mainly driven by the NKT investment in upgrade of equipment in qualifying our Cologne plant for DC high voltage production. Cash flow from investing activities were impacted by the coupon payment of EUR 8.1 million made on the hybrid security in September 2019. So if we then move to slide 22, which is the group's financial leverage ratios. Our net debt is flattish over 2019 and slightly up in Q3 from EUR 302 million to EUR 317 million, primarily driven by the coupon payment. But the drop in EBITDA LTM leads to a higher leverage ratios in 2019. 4x, so a relatively low EBITDA gives a high leverage ratio. If we then move to slide 23.
As mentioned, we are making a precision to our guidance for NKT. We previously guided EUR 0.9 billion-EUR 1 billion in revenue. We will now be more precise and say we will end up in the lower half of that range. For operational EBITDA, we previously guided EUR 10 million-EUR 30 million in earnings. We will now make that more precise and say that we will end in the lower half of that range. For NKT Photonics, we are changing the guidance from an organic growth from 15%-20% to around 10%. We will be more precise on the EBITDA margin and say that the margin will now end up in the higher end of the 15%-20% range. With that, I will give it over to the audience for Q&A.
As a reminder, ladies and gentlemen, should you wish to ask a question, please press star and one on your telephone keypad. Press star and one should you wish to ask a question. Your first question comes from the line of Benjamin Szekeres from Goldman Sachs. Please go ahead. Your line is now open.
Hi. Good morning. Thank you for taking my questions. I have three actually, two of which are related. The first one would be to Alexander. Now that you have been in the business for a bit longer than during the conference call at 2Q, what would you say are some of the key improvements or key strategic initiatives that you expect in the business or that you see as important? That is related to my second question, which is about the Photonics disposal. The question there would be why now? Why not a quarter ago? Why not in one or two quarters? Why do you see that right now as being the right time to make that move?
Okay, maybe I say something to the first question. What I have seen obvious is what we need to look into solutions to build up the backlog and build in the future, what I mentioned also during presentation. So, this we have started. We were successful with the Dogger Bank. So we are working on that. So this is absolutely important, building backlog in order that you can fill the factories in Cologne and Karlskrona. If it comes to service and accessories, here we are on a good track on the growth momentum, and this we need further to continue on both areas. If it comes to application, we need to work on the productivity on output, get more out of the factory, so that will be operational performance of the factories will be key, whereas we have a different view.
As also indicated, we could be in the factories in Central Europe and Northern Europe. This is operational excellence, output factory in applications and the others, as I mentioned.
Okay. Thank you, Alex. To Photonics, why now? I think that Photonics is the only subsidiary in the NKT group left from the conglomerate days. That company has been developed over the past years. Over the past two years, I think they have, since their last acquisition, performed quite well in terms of commercial improvements and also organic growth. In Q3, they proved that also earnings is following. We actually think that Photonics is in a good shape and form, and that's why we're starting the process. We have not disposed anything yet. We're starting the process to explore the options, and then we'll be more precise once we have more clarity on that, both with regards to the options, the structure, and also a potential timeline. That's the first reason.
Second reason is that this will obviously help us getting closer to an optimal capital structure and reduce the group's net debt levels.
Thank you. My third question is about the guidance for NKT, looking for the cables business, which you have lowered to be in the lower half of the previous range. I'm just interested in what are some of the moving parts that could result in you being towards the lower end of that lower half or perhaps the higher end?
Yeah. From the outset, in Q4 last year, we said that in order for us to get into the higher end of that range, we would need some order wins and bigger order wins that would impact 2019 with production and thereby revenue and earnings. Also, we would need a certain traction on applications. I think sitting where we are today, we are quite happy with that applications is starting to grow, but the earnings are not following sufficiently fast compared to what we had expected. Secondly, we have taken a big chunk in on high voltage orders this year if you count in the Dogger Bank. We are quite happy with that actually. None of those will have production impact in 2019. That will only be from 2020 and onwards.
That is where we are narrowing the interval for 2019 to the low end. By the same token, we reiterate that 2020 will be better than 2019. We have the highest backlog, as we speak, for a long time, and I think that will underpin that statement.
Okay. Thank you very much.
Thank you. Your next question comes from the line of Kristian Johansen from Danske Bank. Please go ahead. Your line is now open.
Yes. Thank you. A few questions from me. The first one, in regards to the strategic review of NKT Photonics. Does that then mean you have decided on keeping NKT Victoria, or is that still a possibility you have in front of you to potentially divest it?
Hi, Kristian. Thanks for that question. There has been no plans to sell NKT Victoria. For us, that is a strategic asset. So that is not related to Photonics.
Okay. Looking at the Q3 numbers, in my view, there are two disappointments, right? Lower than expected revenue in solutions and lower than expected margins in applications. If we look at these two factors into 2020, is there any negative read over from these? Should we be more concerned in our estimates on these two parameters for 2020?
Yeah. For me, I think I am quite happy about the fact that we are building the backlog. We are building the backlog, so it is the highest level today as it has been for a while. Not only are we building it, we are also building it with the right stuff, right? As we have discussed, we need more MI, and we need more DC. Dogger Bank is actually DC, high voltage interconnects, and Viking Link is MI, and potentially Attica-Crete is also MI. So this is adding to our ability to fill all three lines in Karlskrona more efficiently. So that is clearly a positive. Now, on the application side, it is positive that we can start growing that business organically in a European market that may be converging towards zero. But we are clearly delayed in terms of earnings pickup.
As Alexander also says, that will be a key focus for the next year or two, to make sure that we execute properly now and make that happen. So potentially a little bit of carryover negatively in applications but, de-risking 2020 in terms of looking at the backlog.
Okay. On applications, because you've been speaking about improving productivity for some time, and it hasn't really happened. Do you need to take more drastic steps here? Looking at your Scandinavian factories, which seems to be the problem, is that the right setup? Or do you need to close some down and move production elsewhere? What are your thoughts around this?
We have some thoughts around that. But we're not ready with that yet. I think Alexander is also reviewing our whole setup and so on. So there's no decisions on that. I think the existing setup needs to perform a lot better than we see currently. That's the starting point.
Okay. But would it be fair to expect that you sort of address the strategy for this business a bit more in detail in connection with the annual report then?
I think with the annual report, we will give a bit of a strategic update.
Okay. That is quite clear. That was all for me. Thank you.
Thank you. Your next question comes line of Claus Almer from Nordea. Please go ahead. Your line is now open.
Thank you. Yeah, also a few questions from my side. The first is to the strategic review. Maybe you could share a bit more details on this process. What are you doing at the moment? Are you hiring any consultants? Whatever you do, can you give an update on that one? That will be the first question.
Hi, Claus. Thanks for that question. I think currently we will not add so much more color than we just have done. We have started the process. We will be structured around it in terms of the team in Photonics, in terms of the board of directors. We will start working with our options and as soon as we have a more crystallized picture of that, we will also start to work a little bit with a potential timeline and what that entails for both the company and also for the group. I think I will leave it at that for now.
Maybe I can add, we will not use consultants. That is not planned.
Okay. Let me just try with one question to this. Do you think keeping Photonics is a possible scenario?
Currently, we have not disposed it, so it is clearly a scenario.
Okay. Then the second question goes to the backlog. At the annual report for 2018, the value of, let's say, 2019 backlog. So the revenue to recognize this year was close to EUR 450 million. And based on the information in the Q3 report, that has grown to EUR 466 million, roughly. So not a much increase. I would have thought in and out orders would have increased the value of the 2019 backlog by more. Is there anything we should be aware of there?
No, I think this is a pretty narrow interval you are asking about, I think, Claus, but some of the in and out orders that we have received in 2019 will probably have production in 2020 instead of 2019, if that is what is disturbing you a little bit.
Yeah. You can say that. So why is that? Is that due to these issues you had in Cologne you mentioned during the presentation or was just coincidence?
It is not just a coincidence. We have been full in Cologne, and some of the orders we have taken in, we can only produce in 2020. So that is an element of that.
Okay. Can you also give just me, that will be my final question, an update on the one-off cost this year and the cost savings program. Is this the effect going into 2020?
Yeah. I think the cost saving program, we are currently at about 70 FTE, where the target was 130, as one element, and the other element was a reduction in general spend. I think with regards to the FTEs, we're not exactly where we want to be by end of the year, but we will be there coming into first half of 2020. But on general spend, we are ahead, so we will meet our savings targets for 2019. The reason why it's not moving as fast as we would have wanted is because some of the projects that we have taken in the small end, need some of this manpower. So there's a little bit of planning around it, and then we will complete it in the first half.
Okay. But I think you initially said the one-off cost would be between EUR 8 million-EUR 10 million, but then you also had the gain from the divestment. So I don't think it fully adds up. Yeah, where are we in that respect?
Yeah, but there's—
You are spending a little bit more money.
No, I think we have a few other one-off costs as well on some of the production and efficiency initiatives and so on. So probably we are spending a bit more on that and a little less on this program, actually.
Okay. Thanks.
Thank you. Your next question coming from the line of Akash Gupta from JP Morgan. Please go ahead, your line is now open.
Yeah. Hi, good morning, everybody. Thanks for your time. I have a few questions, please. My first one, first couple of questions on solution business. First of all, if you can talk about backlog margins in a bit more detail. We know that some of the orders that you have taken have come at a time when everybody was struggling with the backlog. Therefore, if you can say how much of backlog is healthy backlog or similar to 2016, 2017 margins that you have delivered in the past, and how much of backlog is under pricing, and what should we expect for 2020 and 2021 in that respect? That is question number one.
Thanks for that question. I think it is a little bit delicate. I think we have been clear that our Hornsea 2 project was below what we found really attractive, and that the market has been competitive. But for the remainder of the projects we have taken in, I think we will keep that between us and the customers.
Basically, you are saying it is not really a major issue, this margin mix in the backlog when we look at margin for I mean, it is an issue, but not a major one for next year and after.
I do not think there is an issue, but what I am saying is that precise information, I would like to keep between us and the customers.
Yeah. My second question on solution is about the pipeline. I think all of us that have seen activity picking up. I think your competitors have also announced some orders, and we see more and more activity in offshore wind space. There is also some talks that SuedLink might come for award next year, and some of the customers in SuedLink have already dedicated some budget in their planning for that. Is it fair to say that at this point, if everything go according to plan, then 2020 can turn out to be a record year for industry in terms of orders, both submarine and land interconnections?
Yeah. Our indication is that these corridor projects go ahead. That means Q1, Q2, there should be some awards if there is no delay by the customer. There is always a risk here. There are several other projects which will be next year awarded, on the offshore side and so on.
Do you have any internal expectation in terms of when do you expect SuedLink to come for award? One of your competitors said it might come for second half next year, but do you have any update on your side?
It could be second half or in Q2. Our indication is Q2.
Thank you. Moving on to application business, I wanted to understand what exactly the core of the issue there is. Is it the demand, or is it the competitive behavior, or is it something internally with you because you are also in middle of this IT systems rollout? Maybe if you can talk about what exactly is the core of the issue, because we are seeing for last many quarters that profitability in that business has been, I would say, way below expectation. Maybe if you can also talk about how long do you think it will going to take, because I think previously you have said that you may not reach normalized margins there in 2020. But maybe if you can update us with your roadmap and plan for this business to turn the margins around.
Yeah. I think that the issue here is that we have been doing too much, too fast for that business to handle. That's everything from organizing a global supply chain on top of the entire business to adding an ERP upgrade, at least in the Nordics. Further introducing lean programs and different, also introducing and outsourcing of core processes. Doing that, I think it's going quite okay for us, but it's not efficient. We're putting too many resources into that where we should be moving the other way. That we rectified a little bit in April where we reversed the structure a little bit. So far, the positive sign of that is positive organic growth.
It works in terms of hitting the markets, but we still need to fix the machine, as Alexander says, we need the throughput in the factories to come up at a lower unit cost. So it's a mixed bag of having, I think, a too ambitious roadmap in terms of what that business could deliver in two years. We'll take a little time Q- by- Q from here on to improve, but we will get there.
Basically, just to summarize, you're saying that it's all internal issues. There are no external issues in terms of demand or competitive behavior. It's just you are just doing too many things too fast.
Yeah, it's primarily an internal issue. The markets are relatively strong. We've grown organically, probably also faster than the market in Q3. It's primarily an internal thing.
Thank you. My final one is on cash flow. Year to date, in first three quarters, you have built up some working capital. I think you may get some down payments for this U.K. offshore project in Q4. If you can talk about what should we expect for Q4 as well as full year cash flow, and where do you expect to end your net financial debt by end of the year?
Yeah. I'll answer some of that. I think we've guided on EBITDA, and that gives you a number. On our investment level, I think we probably said we'll be slightly below last year. I also think we said in Q1 that our working capital shouldn't, by the end of the year, be higher than it was in Q1. If you add those numbers up, then you'll get there approximately.
Thank you very much.
You are welcome.
Thank you. Our next question comes from the line of Artem Tokarenko from Credit Suisse. Please go ahead. Your line is now open.
Good afternoon. Thank you very much for taking my questions. My first one is around applications business. Could you maybe help us understand a bit better in terms of year-over-year bridge for next year? How much of a headwind to those incremental costs which you have because of IT and rollouts and internal issues in that business have been a headwind this year, and how much of those you would expect to reverse next year?
Yeah. So, it is not necessarily IT cost or IT issue that is giving us headwinds. I think we are getting that under control. It is a matter of getting the organization back to a structure where they can work efficiently, where they can make their lean processes work, where they can get throughput up on a day-to-day basis. And also where the supply chain functions are sufficiently coordinating with front-end sales so that we more efficiently produce exactly what we need to use and sell month by month. A little bit of planning. Very operational measures. And good news is we know what has to be done, and now we need to execute it.
Okay. The question is, the cost base for that business, do you expect it to be flat for next year? Is there any way you can quantify those potential efficiency improvements which you see?
I think the way we think about it here is that we need to do more for same. We simply need the assets to deliver more throughput. The market is there, we can sell it, the customers is there. That is how we think about it. So less under absorptions in the factories.
Right. Because it sounds like the market is doing maybe a bit better than you have expected, and then from outside it is very hard to get any visibility on margin recovery in that business if cost base remains flat. That is just question of high efficiency.
Yeah. Exactly.
Okay. My next question is on solutions business. Could you maybe help us understand a bit better how you see the shape of recovery and revenue deliveries in that business throughout next year with your current order book? Also, I guess you disclosed that from current order book you have around EUR 450 million of revenue for next year in solutions already. Could you help us to also understand how the Dogger Bank and Crete-Attica, which are not part of the order book, how much of those will be delivered next year, and what should we expect for info out for next year?
Yeah. So, I think what we said is that Dogger Bank expectedly will be initiated for production also in 2020. So part of that needs to be included in 2020 as well. We haven't completely updated our production plans yet, but that would be a meaningful amount of that that will be starting in 2020. Attica-Crete is not in the order book yet, just to be clear on this. But that will be started in 2020 as well, expectedly.
Okay. And maybe in terms of the shape of recovery, because I guess consensus is looking for EUR 40 million of EBITDA in that business. So far, if you look at current revenue and profitability run rate, it's behind that. So, throughout 2020, would you expect it to be H2-weighted?
Yeah. I would expect it to be H2-weighted. Absolutely.
Okay. In terms of the utilization of NKT Victoria, how does this look for next year compared to this one?
Yeah. But currently, that was the same last year. The bookings of that ship are not necessarily fully booked by the end of the year. That is something we do as we move along. That is also the case now, but we are not so worried about that. We will get deployment for that. It is still the world's best cable-laying vessel, and there will be both service jobs and installation jobs for that.
Right. Looking at the awards of interconnectors this year, I think you have been primarily securing the land sections. So two questions. Firstly, why you think you are not more successful on subsea sections? Secondly, given that NKT Victoria, my understanding, is primarily made to do complex interconnect installations, do you see that lower market share in subsea interconnections part as potentially a threat to Victoria's utilization coming back to previous healthy levels in the future?
No, not really. I think you are mentioning one or two specific instances where the customers have been quite close to the customers of these projects, and where they have done something similar before. In addition, probably have been really sharp in terms of their offers. So it is a combination of that, I think. We would be able to do also these projects. But by the end of the day, the customer needs to make their choices.
Right. On solutions, with Dogger Bank and assuming is finalized for next year, is it fair to assume that all lines will be utilized in H2 next year?
It's not that simple. All lines will be utilized, but it's not the lines, it's also the different production steps in the factory. I don't know if you've ever seen our process map there, but we need to have project in each full flow in the factory. We need to have projects on its way in, we need to have projects in the middle, and we need to have projects on its way out. So yes, we will now start to fill both lines, but we don't have yet, most likely in 2020, all production phases full in 2020. That would only come from 2021 onwards. So it takes a little while to build up again, if that is a meaningful answer.
Maybe I can add, Dogger Bank and Attica-Crete, it will come. It will not be completely manufactured next year. So it will be also in 2021. So just the half, it will be mainly in the second half, we could say. Other will be in 2021.
Right. Thank you very much. My last question is on cash flow from net debt for next year. In particular, Photonics business obviously comes as a remedy on your revolver. Firstly, why have you accelerated the strategic process now? Does this mean that there are some concerns that cash flow generation has maybe been weaker than you've expected in H2, and will be weaker in the next year? Because as it sounds to me, recovery next year will also be more skewed towards the year-end.
No, I think in the beginning of this call, we talked about why we are doing Photonics now, right? It has to do with Photonics' performance. It has to do a little bit with how we view the options, potentially the options, for that business, both structurally and also ownership-wise. Secondly, it is obviously also a deleveraging of the group's balance sheet. That is why we decide to start the process now. There is no disposal yet. There is no nothing yet. It can take some time until we become clear on that.
I guess, let me ask differently. If free cash flow generation continues at current level for the next two, three, or maybe four quarters, is your agreement on your revolve still sufficient to withstand that?
I think that is why we are disposing Photonics. We expect to have sufficient financial headroom next year.
Okay, got you. Thank you very much. Thank you.
Thank you very much. Our next question comes from the line of Casper Blom from ABG. Please go ahead, your line is now open.
Thanks a lot. There's been an awful lot of questions already, so just one from my side. A bit hypothetical maybe, but let's assume that you divest Photonics and you get in some proceeds. How would you rank your wish to pay back debt? You have the mortgage, you have the credit revolver, and then you have also a hybrid capital. As I recall, there's first call on the hybrid in 2022, and you're paying a debt of an interest of a little more than 5%. Is it possible to pay back the hybrid to start with, or how would you start deleveraging, if you could rank that, Roland?
Yeah. I think as you correctly say, Casper, that's a little hypothetical, so I'll refrain from speculating that for now.
Fair enough. Thank you anyway.
Thank you. There are no further questions at this time. Please continue.
Okay. Thank you everyone for participating then. Thanks for that. Cheers.
That does conclude our conference for today. Thank you for participating. You may now disconnect.