Earnings Call: Q3 2020

Nov 10, 2020

Good morning, everybody. Welcome to this Q3 2020 NKT report. Thank you that you take the time to listen to our Q3 results. And I would like to start now here first whom is that will present. And we go to so we have here in the room with me Rene Andrea Van Roop, who is my new CFO, which she has just announced some months back. And we have also here Pavel Karabe, President and CEO of MKT Photonics, who will talk to you after a given introduction to the MKT numbers. And so coming to the NKT numbers, the quarter 3 was a satisfactory result, improved revenues and earnings from all three business lines, which is actually quite satisfactory considering the circumstance of COVID-nineteen, in particular, in application and service that we could accrue also on that part and in solution from the strong backlog and execution where we could substantially increase our revenues. In application, we have a strong market in Denmark, Germany and Netherlands, which compensated other markets, which were weaker due to COVID-nineteen impact. Service and accessories grow to deliver us in various countries and the region, including Middle East for accessories. And in service, we have then repaired the Skagorak 1 and Skagorak 2, which Skagorak 1 in Q3, which was quite successful. Overall, organic growth of 28% compared to Q3 last year, which I consider as very good compared to the current market situation with uncertainty on COVID-nineteen. So you see on the graph on the right side, for the first 3 months, we increased revenues by 20% and EBITDA, we are also on the right track from Q3 last year to this year from 3% to 7.1%. So overall, on a good way. If we look now on the solution business, we have several projects in the backlog and execution also from different segments, offshore wind like Dokka Bank, oil and gas and so on and different technology, overall, the execution was satisfactory and even partly better than anticipated than us in the 1 project we had some delays. So improved revenues and profitability going up. We went up from 100 and 10 to 165 on the revenues and organic growth 47% and EBITDA 12.3 percent, which is yes. Then we go to the next. So here you see the list of orders what we have received in 2020, and it's not here by timing, it's ordered by size, Zidoslink in Q2. And then in Q3, Porven 5 and Shetland. And earlier in the year, Attica Creek with an interconnector. So all projects sum up to SEK 2,100,000,000 and all are busy projects. Suratice, with exception of Artica Creek, which is an MI technology and with the interconnect offshore wind, so a quite nice mix. And in particular also good that with DC as we are quite strong in DC technology. So €500,000,000 orders received in Q3 is a nice number. Going to the next slide then, we have increased the backlog to from end of Q2 from 2 point $7,000,000,000 to around $3,100,000,000 in Q3, which is a record high for NKT and which gives us a lot outlook also for going forward in terms of execution visibility for the coming year. And so the backlog has increased to around 5x the revenue of LTM revenues of solution by end of Q3 from €241,000,000 to up to €3,120,000,000 which is very nice to have 5 times the backlog of the revenues. You can see the different projects here. It's a mix of offshore wind, interconnectors and oil and gas. And we're working on those, obviously, then to execute them in Loveless manner. Going to application. Application, I mentioned already in the introduction, we have some headwind in some markets due to COVID-nineteen, but could compensate with markets like in Germany, Denmark and the Netherlands. And we were also to with a better mix to improve the profitability in application. And then, of course, if revenues get tougher, we have strict cost control and work on the efficiency. So overall, we were able to grow 5% compared to last year, so €103,000,000 and operational EBITDA of €5,500,000. 1,000,000. So this is a quite nice achievement, I would say. Going to Service and Accessories. Service and Accessories was satisfactory, a nice growth, €38,000,000 revenues and €4,400,000 EBITDA. I mentioned already that is Coverog 1 and 2 repair of an Mi cable, which we repaired. We have a new facility established in the Troisdorf, which allows us to have more offerings to our customers. And overall, the accessories business is growing, particularly the medium voltage side in Europe and also outside of Europe, also we have satisfactory result. Now coming to the COVID-nineteen. COVID-nineteen, we have seen the 1st wave early this year. Now we see second wave, which is even more massive if you read the news. And so far, we our highest priority is and will be that we take care of the people our people in the factory, so let's say, I'll protect it as good as we can. And also, if they are outside, we advise them to take care. That is very important because if they are not impacted by the COVID-nineteen, then we can run our factories, which is without any interruption or shutdown, which is a highest priority. So we have seen some cases, for example, in with COVID-nineteen and you check what we have not seen in before, but on a very low level. I mentioned already the market, some low and medium market, probably slowed down, but we could manage the well so far in compensating it with other markets. So you see on the graph here on the right side, the growth quarter by quarter, 17%, 13%, 29% from Q1 to Q3% and overall 20%. So that's so far so good. Several high voltage orders, we work on tenders. So far, we have not seen any impact caused by COVID-nineteen, which is positive. And so let's hope it will continue like this in going forward. With this, I would like to hand over to my colleague to talk about the MKT Photonics. Thank you, Alex. Good morning. The MKT performance in the Q3 did improve after a very challenging first half of twenty twenty. Organic growth was positive in the Q3. And we do see the light at the end tunnel on our growth and we hope that that continues in a positive mode. The positivity was mainly pushed by the Medical and Life Science segment of our business. This market has in fact been quite resilient to the COVID pandemic and our sales did increase and helped that positive full results. The industrial side of our business, the industrial segment is still challenging. It was challenging in 2019 and that continued into 2020. It is changing a little bit, but not as fast as our other two segments. And we still see some weakness in the market, mainly again due to the COVID pandemic slowing orders and pushing out deliveries and causing other challenges that we have in manufacturing. In Aerospace and Defense, we benefited from a push in the market and there are fewer restrictions from the COVID pandemic on our customers. We continue delivering on our large contracts and in fact have some new and very beneficial contracts in the pipeline. For the quarter, I'm pleased to say the order intake also increased by 11% in Q3 compared to Q3 of 2019. Again, showing positivity and the order increase was over all three segments. We move now to an update on the impact of COVID-nineteen on our business. As Alex said, our main priority is our employees and the well-being of our employees. That's the thing that we cherish the most because it's the thing that makes us go forward and it's the driving force in KT Photonics. The pandemic, as I said, had affected us quite dramatically in the first 9 months, more so in the 1st 2 quarters than in the Q3. And again, just to reiterate, mostly on the Industrial segment, which happens to be our largest segment. Having said that, all our production sites have been in operation. We've had some delays, but most of our sites are in full operation. And looking forward, as Alex said as well, we're going through a second wave at the moment. So the uncertainty still looks very high. And with that, I'll finish my segment and I'll move it over to Lina. Thank you very much, Wethan. So going into the financial update on the 1st slide here, Slide 16, you see the income statement of the quarter. The quarter was influenced very positive by a good improved earnings coming out of a growth on our top line, both within MKT up to 28%, as Alex mentioned, coming out of all business lines, both solutions, applications and surgical accessories. On the photonic side, also in terms of growth that materialized into to a good growth for the whole NKT. On the operational EBITDA, it's good also to see the performance improvement on NKT cables from last year to this year. And Photonics also on the quarter stabilizing. So the operational EBITDA margin on the full group amounts to 7.1% on the quarter compared to a 4.3% last year. If we look at the EBITDA then after one of our items, we improved threefold from a EUR 6,000,000 last year in 2019 up to EUR 21,000,000. 1,000,000. Depreciation and amortization staying flat and an increase in financial items due to foreign exchange rate effects. A slight change on the tax lease up with the net result improved compared to last year. Yes. So if we turn to Slide 17, some highlights from the balance sheet. The most favorable item here is the working capital From orders won early in 2020, we had prepayments in MKT cables so that has impacted the working capital, so very favorable. So right now, we're at a level of minus €130,000,000 and Photonics more or less flat compared to last year. If we go into the net interest bearing debt levels, they are improving obviously by the improved earnings, but also on the improved working capital. So at this point, at a 3.6x compared to last year at 16.7x, but even on the Q2, we had a 7.6x. Coming further into this presentation, you'll see also our update on the capital structure that we announced today. So going to Slide 18, just a slight peek into it on the net working capital. As mentioned, it's primarily the projects awarded earlier this year that the returns favorable into the working capital of SEK 130,000,000. And if you look at the last 12 months rolling working capital, so we are now at minus 4.8 percent to revenue, which is a very good level. Of course, solutions being the business within NKT cables, there will be fluctuations over the years and quarters on this level. Going to the Slide 19, the group cash flow statement. Positive cash generation from over the last year of SEK 148,000,000 coming from the earnings and the working capital here. If you look at the CapEx levels of the quarter, they're more or less flat against last year. What will happen also Q4 and going into the next coming years is a much higher level of investments due to the corridor projects coming in these years. So that remains to be reflected even more in the numbers as compared to what you see here. And Slide 20, just a look into the net interest bearing debt levels and a bit about what they consist of. Out of the SEK 153,000,000 on net interest bearing debt, these consist of SEK 160,000,000 of mortgage debt and minus EUR 8,000,000 on our revolving credit facility, where we have a full availability of EUR 300,000,000. Further to that, we have SEK 41,000,000 of lease liabilities. So overall, at the 3.6x level this quarter with a good improvement from last quarter. We have liquidity reserves of 188,000,000 dollars also at the end of Q3 here, where cash is €7,000,000 and our credit facilities amounts to €181,000,000 It is in our intention, as also mentioned in the announcement, to do a rights issue before end of November and close it off before end of this year. If we go to the outlook on the next slide. This quarter, we are coming out with a specification on our outlook for 2020, which is that we will end the year on revenue around 1 $100,000,000 and in the upper end of our guided operational EBITDA of $40,000,000 to $60,000,000 dollars obviously reflecting the good results in Q3. If we look ahead to 2021, we are also giving some transparency into this. We expect revenue of SEK 1,100,000,000 to SEK 1,200,000,000, which is a growth compared to 2020. So we are continuing the traction as seen. On the operational EBITDA level, we're also expecting to improve to a level of CHF 8,000,000 to CHF 110,000,000. There are, of course, assumptions behind these numbers. And for the outlook for 2021, we do expect this if we don't see any material impact from COVID-nineteen. Obviously, we need to have the satisfactory execution of our traffic in the high voltage backlog. And we also expect and assume here to have additional awards of high voltage orders impacting 2021's financials. Continued good improvement in the profitability levels of applications as well as satisfactory offshore work on power cables. So leaving 20 21 on that and looking ahead on the medium term ambitions that we are introducing here again. Green transformation is ongoing and by that also some good wins into NKT's business. What we see and look ahead against is that we will grow our compounded average growth rate over the next years to medium term on average, above 10%. And meanwhile, also increasing the operational EBITDA margin to around 10% to 15%. The assumptions behind this is being successful in our high voltage tender with satisfactory terms and conditions, a strong utilization of our production and installation assets as well as a satisfactory mix and in general across all business lines and satisfactory execution. So if we flip to Slide 22 on Photonics. On Photonics, we reinstated the outlook for the year in October and we maintained this outlook of minus 2% to minus 12% organic growth on revenue and an EBITDA margin of 1% to 6%. At this point, we will not provide more outlook for 2021 and we need to have a better visibility in the markets. On the medium terms, we are also still waiting for some more certainty or more transparency into the years to come. And therefore, at this point, we are actually we are abandoning the medium term targets we had. And at this, we will await the COVID pandemic before we look at what to expect for the medium term on Photonics. But it is the expectation that the revenue development will return to healthy growth rates once the markets have normalized. On this final slide of the financial part, look into our capital structure target, which we're changing this quarter and ahead. The change here is that instead of a leverage ratio target of 1.5x, we are reducing to 1.0x. This is coming out of the NKT NKT becoming a larger and meaning more project driven business. And with that also comes the need for a strong balance sheet. So we are targeting a more robust capital structure to secure. We also when growing, when having longer and more complex projects that we also need a higher level of bank guarantees to practice. We maintained a solvency ratio target of minimum 30 percentage. And when the target is met on our leverage ratio and the solvency ratio, we will also aim for paying out a dividend for 1 third of profit of the year. So with that, I will turn over to Alex, which will give an update on this capital structure. Yes. Thank you, Lien. So just let me say something about the roadmap about NKT from where we're coming and where we are going. If you look at the year 'sixteen, 'seventeen, we had the acquisition, NKT, of ABB, high voltage cable business, Kalkrona and ArlingSource, to acquire the TC technology, which enabled NKB to participate also in corridor projects, which we were quite successful, I would consider. Further, we had 2 acquisition in MKT Photonics. Then in this period, we had the demerger of Nilfisk to focus on the cable business and photonics and some divestment of a non core business in the cables area. In 2017, 2018, we had some challenges with the postponement of orders in high voltage area for various reasons, and this has been reflected in the very low result from last year 2019, as you know. In we picked them up orders in the end of second half of twenty eighteen with more than €800,000,000 with all 3 Johan Sverdrup and other projects, which was quite important. And we had also in this period quite good development in Photonics with a double digit growth. Now in 'nineteen and first half of twenty twenty, we have seen a huge order intake, then that $50,000,000 in 2019. And then in the first half, the Corninger project with Swiss Link and Sigdostink with around SEK 1,500,000,000 in Q3, which was very important for the future. We have done the 1st capital increase in ABB, accelerated bookbuilding of DKK93 1,000,000 in May to strengthen our balance sheet. And we said also we will have another capital increase going forward, and we will do that now in November, as Lien said. And then we have the change in the management, as you know, and also in the management team. Today, second half and onwards, we have a record high order backlog with above SEK3.1 billion, which is very positive. And Photonics, we and as a Board of Directors assumed strategic review as there's too much uncertainty in the market as you just also heard before. We have received non binding offers for a smaller part, non core part of MKT Photonics, which is currently being evaluated. We will strengthen our balance sheet going forward with the rights issue but it is pre empty rights of the existing shareholders. This will come, as said, in November to have a stronger balance sheet as our projects are becoming bigger and needs more guarantees. And also, we need this to order to execute the backlog, the German corridor, but also future projects, which we're expecting as a part of the transformation of the Korean agenda. So this is where we stand. Going forward, we are looking for growth at about 10% and profitability is the next phase of MKT. With this, I think we can go to questions. Please feel free to answer questions to Your first question today comes from the line of Akash Gupta of JPMorgan. Please ask your question. Yes. Hi, good morning, everybody. It's Akash here from JPMorgan. My first question is on 20 21 guidance. So maybe if we can start with what kind of assumptions do you have for known project segments? So I think, I mean, looking at your backlog phasing, 20% of projects backlog would be converted into sales in next year. So I think you have nearly half of or more than half of 2021 revenue visibility secured in your backlog. But if you can tell us about what sort of assumptions you have for other 2 segments and also on margins? That's question number 1. And then I ask for the softwares. Yes. Thank you for your question. So we are still early in the year, though we guided 80 to 110. So it's another wide range as we are early. We have, of course, good backlog and visibility of the DC project. And here, we are fine, but we have still capacity in AC, 3 core C cable, which we are looking to catch 1 or the other order, which will result in utilization for next year. And then, of course, also important is that we continue the good trend started in application and also have some one or another offshore repair for next year. Thank you. And my second question on this medium term margin target. I mean, if you look at your next year guidance, then it looks like you would be in high single digit. And even at upper end of guidance range, you would be slightly below 10%. So is it fair to say that by 2022, you should be in your margin guidance? Or just wanted to know, can we assume like by 2022 or will it be more 23 when you will be within your margin corridor as you target in your medium term assumptions? Yes. Akash, your math is correct. So but I mean, we said we will grow 10% in average. So meaning in the next year. And also, your midterm, we define as 3 to 5 years. So there can be, of course, small differences from year to year. In fact, we had 1 year high and other lower. And my final one is on working capital. So basically, I think the improvement in Q3 was ahead of expectations. Can you say anything about Q4, whether there is any other milestone or down payments that are still pending in Q4 or whether you will going to final quarter? Thank you. We don't want to be too specific, but of course, there's always milestones, time and solution. And yes, what I shall say, yes? Yes. And I think we the working capital will continue to fluctuate as seen and just looking at 2019 as a not as a normalized level, I would say, definitely a very low level. So more or less on par going into the end of this year from current level. Thank you. Thank you. Your next question today comes from the line of Christian Johansen of Danske Bank. Please ask your question. Yes, thank you. Just first of all, a clarification on the medium term target. So you say 3 to 5 years with the base being 2019, so we are talking 2022 to 2024? Yes. 2020, 72. Yes, yes, to start in 2019 and then you add 5 years, 2021, 2022, 2023, 20 24, 20 25, These are the 5 years. Okay, great. Then in terms of the equity issue, you expect to carry on towards the end of this year. So if we look at the midpoint of your EBITDA guidance for next year and take your current net debt, then in order to get to this net debt of EBITDA of one time, you would need to lower debt by exactly €100,000,000 Would that be fair to assume that, that is what you are targeting in this upcoming equity issue? So we haven't sized the rights issue yet. That is work in progress. So we will come back further on that one. That is done. All right. Fair enough. Slightly along the same line, obviously, if we look at U. S. Offshore wind, there's quite a substantial build out already. And looking at the auctions coming up over the next 12 months, that will only increase. So with the equity issue, you do plan, what room do you have for further expansion? And then specifically, what option option could you pursue in the U. S. Sort of short term and long term? I mean, we communicated that we expand the factory in Cologne and called Corona. This allows us to produce all kind of cables, either DC or AC, Trico AC. So we can, obviously, also quote 3 core AC project in U. S. Offshore or also interconnectors if they should appear or get realized. So we have in that sense no limitation. Okay. But would I mean are you considering to build capacity or to do acquisitions in the U. S. Market? And would your capital structure post the equity issue enable you to do this? No. We have now we set what we plan to do and that's it. So no further capacity expansion at this point in time, nor anything else. Fair enough. Then my last question on applications specifically and the assumptions you have put into your 20 21 guidance, if you can elaborate on that and specifically what you expect to sort of gain earnings wise from internal measures? No, I mean, we have obvious actions ongoing to improve the efficiency in the factory and the profitability and the work on the portfolio as well as on discipline in pricing. That's all ongoing. But then we have the uncertainty with COVID-nineteen. And we have that before in the discussions where we said there is certain uncertainty and then some slowdown in the demand in some countries. And this is difficult to predict how that will develop. So that is really a challenge. What we cannot say so far, we were able to compensate by with other markets and also to secure the bottom line with cost out. And so that was so far positive. So the assumption for next year is that we continue the trend that we have. Excellent. Thank you. That was all for me. Thank you. Thanks, Christian. Thank you. We do have a few more questions on the line. Your next question comes from the line of Casper Blum of ABG. Please go ahead. Your line is now open. Hello, Kasper. Can you please check whether your line is on mute? Hello? Yes. Now we can hear you. Okay. Sorry about that. First of all, great to see earnings trending in the right direction again. And then a couple of questions, a couple of them actually being follow ups. I'll start with a follow-up on Christian's question with regards to applications. It seems to me like applications has kind of like turned a corner this year after some years with internal challenges. Would you say that sort of the self imposed challenges that the applications had in 2018 2019 are now kind of behind you and that you can sort of start shifting focus a bit more to the external side rather than having to solve internal issues and perhaps become a bit more offensive in the applications business? That's my first question. I mean, we continue, of course, working on, if you want to say, optimization in applications. That's a normal thing. And we also mentioned that we will move the 1 kilobytes from Denmark, Essenes to Czech Republic. So that is a normal topic. So we focus on internal stuff, you want to say. Also we roll out an ERP system and ERP system in Central Europe, where we need to make sure that it's going in the right direction. So we have internal stuff and then also external on the market with the customer, with the portfolio, how to penetrate the market. So that goes hand in hand, both is required to improve the business performance of application. Yes, I appreciate that. But is it fair somehow to say that you've kind of like put out the fires that were on in applications and maybe there is a bit more time to focus on clients and on the commercial side than there has been the last couple of years? Or is that a complete way wrong way of looking at it? No, that's you can say so if you want. We have also a new manager leading application business. We have a plan to go forward. That's all fine. As I said, we will roll out the ERP system. We had some hiccups in the past in the Nordics. We do expect that we do not repeat that, but there's always rolling out NPE system. There's also always some risk also, which we have mitigation action in place. So you can say so if you want to call it the fire, yes. Yes. I will not hold you accountable for the previous management team. That's absolutely not fair. But I think they at one point mentioned a target of an EBITDA margin of 6% to 8% in applications. Is that something that you could sort of recognize as being possible down the road? I think that the margin I mentioned in the past was 7% to 9%. Oh, sorry. And if you continue with our action, this is not out of reach. Okay, fair enough. Then a question regarding your medium term EBITDA margin target of 10% to 14%. Could you comment a bit on sort of the different variables that can take you through the high end and low end of that range? I suppose some of it is depending on the magnitude of orders that you're able to get into the solution business. But what are sort of the most important drivers? Is it pricing in the market? Is it the number of projects? Or is it other things? What takes you around that range? Kasper, this is Linus talking. I guess you answered more some of that question. So it's obviously with a range like this. We are, of course, dependent on the tenders coming out, some of the choices being made in different plans of interconnectors and onshore, offshore cables. So that's one prerequisite that there are tenders out there and we win our fair share of that. On satisfactory terms and conditions and pricing, of course. Then another assumption which is important is also as we talk about in 2021, the optimal utilization of our production and installation of assets and running the whole execution satisfactory. So I would say that is kind of the outlier for what can take us from the 10% to the 14% depending on the development here. Okay. And then just a clarification at last year. Did I understand correctly that you would say that a working capital to sales ratio of around minus 2% was a sustainable level going forward? Or did I not understand that correct? I don't think we set an offer on that. But otherwise, it's in history. I don't know. I'm looking at Michael. What we're saying is that we've seen a it's Michael speaking here, Kepler. So we've seen a good improvement in Q3, obviously. You should not expect the same magnitude of improvement in Q4, but a more stable level. Okay. But is that I mean, the minus 4.8%, is that then a sustainable level going forward? Well, I'll just continue this year, Casper. That is very hard to say because obviously as you've seen in the past, it depends a lot on the order intake and the prepayments associated with those orders. I think what we've said all along is that generally we should be in negative territory in solutions and we will tie up capital in applications. I think that still holds, but whether the level then would be exactly around the 4.8% going forward, that we are not going to guide forward today. Okay. Fair enough. And thanks for the answers. Thank you. Your next question today comes from the line of Andreas Catorza of Goldman Sachs. Please ask your question. Good morning, everyone. Thanks for taking my questions. The first one is on the rights issue and in particular on the size. Considering your new target capital structure and the fact that the CapEx for expansion will be spread between 2020 2022, I was wondering at high level thinking whether you are considering the strategic review of Photonics as a moving part when it comes to the target and I issuance size for this year? That's my first question. I'm not sure what I understood fully your question. The connection is not so super good. So the rights issue, I mean, we communicated the rights purpose of the rights issue to finance the investment of the capacity expansion in Cologne and Castrola. And we gave indication in previous what that could be around €150,000,000 And for Photonics, that has no impact. And we just declared that we have incoming questions, which are the Board of Directors looking into it as it is non core business of Photonics. Understood. Thanks. And then the second one is on pricing. As some of your competitors have mentioned lately that they've seen some pricing pressure in the tendering environment. I was wondering if you see any risk of solution margins being diluted in the incoming orders other than the pricing or what's your view on how pricing is playing out lately? I mean, in general, I can say, if let's take applications, for example, we are very price disciplined. We are really looked that we get the returns what we needed for our investments in what we have in the factories. So we are really disciplined on pricing applications. In solution, it's the same. So the utilization in general with the higher demand is going up. That should have a positive impact on the pricing. Of course, each in the project as such has their own dynamics, depends on the capacity utilization for that window when that would fit into the production slot. So there might be difference on an individual tender on solution. But overall, it should go up, and it needs to go up. You. Your next question comes from the line of Claus Adam of Nordea. Please ask your question. Thank you. Yes, I have also some questions. The first question goes to your capital structure target. When do you expect to reach this minimum or maximum onetime level? That will be the first one. Hi, Kans. It's Kaposi and Ming talking. It is also a medium term guidance on the capital ratio target here. Okay. Then a question to Photonics and Basel. The decision or the possible decision to partly divest some of the activities, what drives that? Is it possible to carve out other parts of Photonics? We well, to answer the second part of the question, no. What we're looking at is a smaller non core part that we got incoming and we're reacting to it. Right. So we should not expect that Photonics will be sold, if that's the decision, in different pieces? No, no, no, not at all. The core of what we do in the laser business is very robust and it's a whole piece. Like I said, this particular one is a non core business. Right. Is it fair to then assume it's non core that the valuation if you end up selling this business will be below what we could expect out of the remaining of Photonics? No, I can't comment on that. I mean, it's the valuations of photonics companies are pretty obvious in the market. And we will report on that once it happens. Fair enough. And then a question regarding the midterm target for the cable activities. So you have this minimum 10% revenue growth. If you look at your pipeline, do you beyond 2021 at least see a more steady growth or would it be a bumpy road? That will be also a question. Yes. The question was bumpy. I mean, no, I mean, we said in average 10%, and we have a good backlog now. And with the corridor project going forward, let's say, starting 2022, like a large base business. And then we have the others, which continues build up, let's say, the revenue stream. So I do hope not that's bumpy. Right. And then just about the structure of the guidance. So you're coming out with a guidance for 2020. Michael is on to Chip. I just wanted to say, Claus, that we you know that we have investments ongoing in Solutions. These investments will gradually translate into higher revenue in 2022 and then further in 2023. So there will be stepwise improvements also linked to the fact that we actually have extended our capacity during that period of time. And then we will obviously need to be capable of filling that additional capacity, which we are a firm believer of being capable of with the market that we're seeing. Sure. So then about the whole structure of the guidance. You gave a guidance for 2021, and that's up to a 10% 9% revenue growth at least on the numbers. So maybe you could put some color to why you decided to come out with that guidance compared to a minimum 10% growth guidance until 2023 or 2025? It's always good to have a short term performance that is supporting the long term guidance at least or it's just backed on a very strong pipeline of projects? It's backed on the strong pipeline of Project Cloud. So when you look at it, that's also why we are telling it that it's the compounded annual growth rate that we are looking at. So when you look at it over the medium term, well then it should be above 10% on average per year. Okay. And then as to the margin guidance, should we think this range that you may be in the early phase of 3% to 5%, you are probably closer to the 10% and then in the end of the up to 5 years, then you are probably aiming for the upper end of the margin guidance. Is that the way to think about your margin guidance? Yes. Mean, we're not giving that specifics into it. The assumptions can vary over the years and by that also the margin. So it's not early stage or late stage indications. Okay. So in theory, it could be 14 2023% and 10% in 20 25%. That's the way to think about it? In theory, yes. Okay. That's all for me. Thank you so much. Thank you. Thanks, Claus. Thank you. We do have one more question at this time. Your next question comes from the line of Artem Tokarenko of Credit Suisse. Please ask your question. Good morning. Thank you very much for taking my questions. My first one is around your 2021 outlook. Could you maybe specify what are the main moving parts or the main determining factors for you ending up at the lower or the higher end? And also how much more order wins do you require for the next year to get you to the upper end of your outlook, please? So this is Lina speaking. To talk about 2021, obviously, it's a little early stage to get a guidance for 2021. So with that, we are indicating some uncertainty by guiding as we do. As Alex also alluded to, we are seeing the, let's say, the 2nd round of COVID-nineteen coming and that is an uncertainty to our business also to a certain degree. We need to win some more orders in the high voltage. The AT3 core C cable, we do have capacity to take on a bit more there. And then further, we need to, of course, execute the projects well that we have in our backlog over improving profitability in applications and satisfactory level of offshore power cable services. That is the assumption we're working with them while we also have this little bit wider range of the outlook for 2021. Okay. But I guess just given your revenue range in your guidance of $1,100,000,000 to $1,200,000,000 is fair to assume you require at least another $100,000,000 of orders for next year delivery to get you to the high end? No, no. That's not the way it's kind of built at all. Okay. Thank you. My second question is around your midterm targets. Could you maybe talk a little bit about whether the high end 14% margin target could be achieved with your only with your current backlog, considering its mix pricing and if you are able to execute properly on the backlog? And also maybe as a follow-up to this, also looking at your current capacity, how much years of 10% growth do you think is available from your current capacity? And how would you think about your capacity longer term? So to start with your first question, the 14%, it's not only our current backlog, obviously, also winning more projects over the years, which is an assumption around the whole medium term ambition level. We need also to see a good level of terms of conditions and pricing obviously in the tenders coming out over the years. Can you repeat your second question? Yes, sure. Just with your target of growing 10% per annum, considering your capacity, how many years of that growth do you think your capacity supports? And would you be willing to add more capacity down the line? I mean, we have the capacity which supports the corridor project and additional orders. So and then, of course, we optimize further the factory output in solution but also in application and seeing whether we can get more cables out of the factories. So I mean, maybe we said 10%, above 10% over the next years and at least you can assume as it is stated there. And we said medium term is 3 to 5 years. Okay. Thank you. And my last question is around Photonics guidance. Could you maybe elaborate on reasons behind you withdrawing the midterm guidance? And specifically, whether that's just timing related because the guidance was for the next 2 years or that's more of a structural concerns that, that business wouldn't be able to make the 25% margin? No, nothing structural. It's really where we are in the pandemic at the moment to get more clearance on the landscape. Once that happens, we will give guidance. The pandemic has affected our business in a different way than it has affected cable. We are in different markets. And once we have clearance, we will give guidance. Okay. And maybe just a quick follow-up on this. You mentioned in the reports that you've added that you've increased the cost base in Photonics this year. Could you specify how much is that on an annual basis, please? We're not reporting on that. We obviously had planned a year without a pandemic. So we will we are looking at the situation as we speak at the moment. Okay. Thank you very much. Thank you. There are no further questions at this time. Please continue. Okay, then. Thank you much that you took all the time to listen and thank you for your good questions. With this, I think we can close and we can wish everybody a good day and a good week. Thank you very much.