NKT expects to keep breaking records — EnergyWatch

Most things fell into place for NKT last year. Order intake was higher than ever, as was turnover, and since the EUR 1bn investment in the expansion of factories and fleet will only really be paid for in the coming years, almost DKK 1bn (EUR 134m) went into the cable manufacturer’s coffers, resulting in an operating margin of 13.2%, which is quite enviable for the wind industry. 

When Solutions business is taken in isolation, the operating margin was even higher, coming in at 15.8%. This boost NKT’s confidence, as it is in the division for large high-voltage orders that the majority of the expected continued growth in the coming years is to be found.

”Needless to say, we are satisfied with what we have presented,” says CEO Claes Westerlind, acknowledging the efforts of the company’s now 4,500 employees.

That number grew by around 500 in the past year and is set to grow even more in the coming years when the factory expansions in Karlskrona and Cologne are completed in 2027, if everything goes according to plan.

The need for expansion is clear. In connection with the annual report, NKT increased its confidence in the high-voltage market, predicting that as early as 2024, an annual market of more than EUR 10bn will be established in the countries relevant to the Danish manufacturer. This represents a huge potential – not least when viewed through the prism of NKT’s 40-45% share of the total available market last year.

Limited growth in the next few years

However, this is where there might be a fly in the ointment. Even though production capacity has increased from the latest factory expansion, which was completed in late 2022, NKT recognizes that it is reaching the limit of how many new orders it can accommodate. After all, the next expansion is still three years away.

”It’s probably fair to expect that we won’t have the same market share as last year. For a number of reasons. Both because there are other players besides NKT and because our capacity is naturally limited. We are, so to speak, victims of our own success,” says Westerlind.

”So over the next couple of years, until the new plants are operational, we expect a more subdued growth in revenue for the Solutions business.”

Sustainable margins

Although there may of course still be growth to be had in the other business areas, it seems difficult to reconcile this with the manufacturer’s revenue growth targets. Towards 2028, NKT sees annual increases of at least 12%. However, this should be seen as an average over the period, the CEO points out, and with last year’s growth of 36%, the company is already a few years ahead of its curve.

On the other hand, NKT has set firm benchmarks for its expected growth on the bottom line. By 2025, the ambition is for the operating profit to have grown from last year’s EUR 254.6m EBITDA to at least EUR 300m. While by 2028, operations should make at least EUR 550m. This means that the operating margin in the period is predicted to grow by at least another 40% to 18.5%, according to Stockwaveinsights’s calculations.

Not a guide

”Now, we don’t guide on operating margins. But what I can say is that the margins in the underlying projects support our medium-term forecast,” says the Swedish CEO.

However, margins of this size are not exactly a staple in the renewable energy industry. Historically, this is certainly not the case for NKT, which was financially hanging on by a thread just a few years ago, when it was difficult to get factories and installation vessels even remotely close to full of projects.

Balanced investment

But margins are expected to grow from revenue in the coming years, and not only because it’s now a seller’s market. Some of the orders from the bad times are gradually working their way through the system.

”The projects we won three or four years ago were not priced as sustainably as they are now, and they are also affected by rising costs. Whereas the orders we’ve won recently are both calculated based on a different cost structure and have more sustainable margins,” explains Westerlind.

However, he also admits that the common economic theory of supply and demand may also be a contributing factor to NKT not investing all of its newfound capital in increasing production capacity as quickly as possible in order to secure as many orders as possible.

”I am very aware that we need to grow at the right pace so as not to compromise the numbers,” says the CEO.

”We want to remain in a positive market environment. We’ve learned the lesson of over-investing in the past and that’s something we’re trying to avoid in the future.”

Standing strong in the face of the unexpected

One potential challenge to maintaining balance, however, is external factors. NKT’s medium-term financial outlook is based on a number of factors that are essentially a status quo assumption, such as stable raw material prices, stability in the supply chain and a stable development in the global economy.

”Just like all other people and businesses, we are affected by the surrounding environment. And as we’ve seen, things can be more volatile than we thought,” admits Westerlind.

”But with that said, we are in a position of strength at the moment. We have low debt, which makes us less exposed to interest rate changes; we have a solid order backlog in the high voltage business, which gives us visibility for the future; we hedge a large part of our cost base such as currencies and metals; and we work very actively with a broad and often geographically local supply chain.”

That point is perhaps best exemplified by one of the other records NKT set in 2023: net interest-bearing debt, which five years ago stood at EUR 242m, has been steadily reduced to around zero. 

Last year, cash and cash equivalents grew to EUR 888m, and with loans of only EUR 207m, the firm has a negative net debt of EUR 670m.

(Translated using DeepL with additional editing by Catherine Brett)