NKT A/S : Transcript CMD 2022

REFINITIV STREETEVENTS

EDITED TRANSCRIPT

NKT.CO - Nkt A/S Capital Markets Day

EVENT DATE/TIME: SEPTEMBER 22, 2022 / 9:00AM GMT

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SEPTEMBER 22, 2022 / 9:00AM, NKT.CO - Nkt A/S Capital Markets Day

C O R P O R A T E P A R T I C I P A N T S

Alexander Kara NKT A/S - President & CEO

Anders Jensen NKT A/S - Executive VP & CTO

Axel Barnekow Widmark

Claes Westerlind NKT A/S - Executive VP & Head of HV Solutions Karlskrona

Kira Johnson NKT A/S - Executive VP & Chief HR Officer

Line Andrea Fandrup NKT A/S - Executive VP & CFO

Michael C. Hjorth NKT A/S - Executive VP & Chief Commercial Officer of HV Solutions

Michael Nass Nielsen NKT A/S - Head of IR

Michael Yong

Will Hendrikx NKT A/S - Executive VP & Head of Applications

C O N F E R E N C E C A L L P A R T I C I P A N T S

Akash Gupta JPMorgan Chase & Co, Research Division - Research Analyst

Casper Blom Danske Bank A/S, Research Division - Analyst

Claus Almer Nielsen Nordea Markets, Research Division - Senior Analyst of Capital Goods and IT

Lars Topholm Carnegie Investment Bank AB, Research Division - Co-Head of Research of Denmark & Financial Analyst

Massimiliano Severi Crédit Suisse AG, Research Division - Research Analyst

P R E S E N T A T I O N

Michael Nass Nielsen - NKT A/S - Head of IR

Good. It seems like everybody have found themselves a seat. So first of all, I would like to welcome all of you here in Copenhagen, participating in our Capital Markets Day. My name is Michael. I'm heading up Investor Relations at NKT. And I would also like to welcome all the people that are joining us from the web and are listening in from all over the world. We've been very much looking forward to seeing all of you. This is obviously a big event for an investor relations guy like me. So we've been preparing over the past month and are looking forward to present our new strategy today.

So I will just do a few practicalities here before we start. And then my skilled colleagues from the management team will take over after that. So just very briefly here, a small disclaimer that I should read. There will be some forward-looking statements in the presentation that is obviously subject to uncertainty.

Then I would like to share with you the full shared beliefs of NKT, which -- that have been implemented 2 years ago and are made easy to remember for us. So it's ACDC; so We Advance, We Connect, We Deliver and We Care. And I just wanted to dwell a bit on the We Care side because that is a cornerstone of the company.

And therefore, I'd like to start with a safety moment, that is very close to our heart to have safety first. I want to tell everybody in the room that there are no planned fire drills. If the fire alarms go, well, then you'll walk down the stairs down here and doors downstairs will be opened and then we'll gather in front of the building. I don't hope that would be relevant, but I wanted to ensure that everybody is aware of that.

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SEPTEMBER 22, 2022 / 9:00AM, NKT.CO - Nkt A/S Capital Markets Day

And then another caring part, so to speak, is that sometimes at these events, we provide presents to the ones that are coming, but this time around,we've decided not to do. But instead, we will plant a tree for every participant that is joining here, both virtually and physically here in the building. So thanks for contributing in that way, so we can fight climate change together.

And finally, on the We Care side, I've already been asked by one, we haven't printed out any versions, but the presentation is available online. So you can find it there and have a closer look on the presentation. But obviously, we will run through it together with you over the next hours.

Good. So together with me today, we have our full group leadership team. They are seated down here in the back right now, but will come up and present as we go along. We will -- there are 10 in all, but we will only have 7 on stage for the presentation here, but the 2 -- 1 is unfortunately not able to join, but I'll come back to that. So -- but we will have Alexander Kara, that most of you know here, we will have Line Fandrup, our CFO. So the 2 persons that are normally fronting the investment market. Then we will have Michael Hjorth, who is the CCO of our Solutions business. We will have Kira Johnson, our Human Resources Officer as well. We will have Anders Jensen, our Technology Officer. Claes Westerlind that is heading up the Solutions Karlskrona business.

And then unfortunately, Will Hendrikx, which you can see up here, is unfortunately not able to join today. So his presentation will be taken care of by Michael Yong, who is our Head of Strategy. And then on the list here, we also have Axel Barnekow Widmark that is heading up our Services business. And apart from the 8 here up on the screen, we also have Luca Sidler, who is responsible for solutions in Cologne, and we have Jens responsible for our Accessories business.

So that concludes the full management team that you will also be capable of finding around you here. And I think it's fair to say, a broad group of people with a heavy experience within the individual areas and quite a few of them also with a long history in the cable industry. There are also a few other NKT employees, and you can know us that we are wearing these green name tags. So if you have questions or whatever, well then feel free to approach us during the breaks.

And then the final slide from my side, the full agenda for today. So we have a lot of nice things on the table. We will basically do it in 3 blocks and 3 block -- and each of these 3 blocks will be ended by a Q&A session where you can ask questions, mainly around what has just been presented, but obviously welcome to also ask questions to other parts whatever you have on your mind.

So right now, I'm welcoming you so that we are going along with. Well then Alex will take the first introduction here. And Michael Hjorth, the CCO, will take the market part and we have Claes taking the solutions part. We'll round that off with a Q&A session and go to have some lunch after that.

After the lunch break, we will continue with Applications, which is done by Michael Yong, our Head of Strategy, as I mentioned, and Axel will cover the Service & Accessories part and followed by a Q&A session. And that will go on then in the afternoon, we will have Technology by Anders Jensen. We will have ESG, which is presented both by Michael Hjorth and Kira Johnson, and Line will do the financials as the final slide here. Then we'll end with the Q&A session and Alex will come back on stage and wrap the day off. So we hopefully can end at around 4:00. So that's the plan for here.

Then some of you have signed up for a trip to Karlskrona to see the factory that we have over there tomorrow. So there will be a bus waiting for us downstairs, which will leave no later than 4:30 for the people that have signed up. So please come down for those of you that's relevant and tell Johanna, that will stand in the entrant, before entering the bus that you are there. So we'll know that we have everyone with us.

I think that's basically it from my side. So I think now we will go on to why we actually hear to the more exciting part, so to speak. So therefore, I would like to welcome Alex up on stage that will do the first part of the presentation.

Alexander Kara - NKT A/S - President & CEO

Yes. Thank you, Michael. Yes. It's great to see you all here for the Capital Market Day, those which are in the room and many of you who know me and also part of our management team, also those which are connected to the web. This is my first Capital Market Day. So -- and also for my team members, so we're all a little bit nervous, but I hope we will manage well.

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SEPTEMBER 22, 2022 / 9:00AM, NKT.CO - Nkt A/S Capital Markets Day

So just for -- but still for those which don't know me, I started in NKT 1st of August 2019, after 32 years working in ABB, where I also was leading for the period of time, the Cable business out of Karlskrona globally. And I have to say, I worked in a lot of fields in -- from energy generation, transmission, distribution, but the cable business is one of, let me call it, coolest business, most interesting business. If we look at the solution business, the complexity of production with installation on land, on sea, but also the application business and the service and accessories. So I like this business very much. It is very interesting. And now with these changes in the market what we see, the trend to green renewable energy, the market outlook is fantastic for the cable business, for the entire industry, which is, of course, great.

So cables are important for the sorts -- for the modern society. And why we will see that the energy demand will go up. And whenever you have more demand, you need to produce electrical energy and you need to transport electrical energy. And how can you do that? You can do that with overhead lines or you can do it with cables. And there's no other way to do that, from high voltage, from the generation to the distribution grid and to the consumer and the demand is already increased and will increase further.

So in the next couple of hours, we will tell you what are our plans, what our strategic directions. I hope you learn more about NKT, about us, and the business. And we will answer your question, as Michael said, during the break.

So we connect a greener world. This is our purpose, which we have changed when I joined. And this is what we are doing. Our portfolio, our product solution and services what we have today has the only purpose to support a greener world, to connect a greener world, to be an enabler for the energy transmission and also our future, what we plan to develop on products, solution and services at this intention. So we are in the space of transmitting power to -- from the generation to the end user.

Cables plays a vital role, and we are in the field of delivering cables for offshore. It can be different kind of cables, can be 3-core AC, alternative current, can be DC for longer distance, it could be dynamic cable. Then we have cables for interconnectors, for solar plants, and wind farms on land where you have more medium voltage cables. So it's a vital role for the energy transmission, and we are proud that we can contribute with our power cables and make a contribution.

We connect a greener world is important for us, and that is also what we mean. And why is it important for us? Number one, the demand is high in -- for cables. The demand is high, it requires our competencies, our capabilities. We also can contribute with the decarbonization of the society. So whenever you want to move to an alternative energy source if it talks about heating, for example, replacing gas or so when you go to heat pumps or electrical car, you always need to produce, you need electrical energy and you need cables to connect it. So we can help to decarbonize the society, and that is important to us. And last not but least, we connect a greener world is important of us because it is in our DNA and our values. And this is our focus to connect a greener world.

Looking a little bit backwards, in 2020 when I came, we launched the strategy ReNew. And we had obviously in 2019 some challenges. And in 2020, the strategy, one part what we did is work on organization to a more classical profit and loss organization and established a strong management team, and you see -- you will learn the management team a little bit later. And one important step was also in 2020 to strengthen our balance sheet. So we did an ABB and rights issue in 2020 to strengthen our balance sheet.

And when I joined, the market before I joined was rather weak. So we had a low backlog in solutions. It was absolutely critical to win large projects in order to get utilization in years ahead of the factories in Karlskrona but also in Cologne. And we were quite successful in 2020, also with the German corridor. The project was around EUR 1.5 billion. And on that basis, we took then decision to invest in Karlskrona and in Cologne, and that was the right thing to do.

We initiated also several footprint changes, optimization on the application side, but also on the accessories side. Most of them will be completed by end of the year, some will continue into the next years. So overall, we have a strong backlog in solutions today of EUR 4.6 billion. Applications is in a better shape. And the ReNew strategy, what we launched in 2020, had the purpose to prepare ourselves for growth, to prepare ourselves for growth. And this we did with the investment and all the changes what I said.

An example where we were also successful with the SuedOstLink second system, which we won this year. We could not accept that this order -- or win this order, if you would have not the capacity expansion. So it was the right capacity expansion in Cologne. It was the right thing to do, to

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SEPTEMBER 22, 2022 / 9:00AM, NKT.CO - Nkt A/S Capital Markets Day

expand the capacity. And this year also, we announced the capacity expansion in Cologne on the back of the Champlain Hudson Express project. So we invested in the past, and we'll do so in the future based on trigger events, on large projects.

If you look at our financial performance over the last years, it has improved on revenues. And you -- most of you are familiarized with the numbers. So revenues have increased from '19 to '20, 15%; from '20 to '21, 15%. And this year, we will also grow, based on -- in the range of the guidance.

The backlog has increased substantial, and we have also potential to win further project and increase it further. And the earnings has improved over the years. And I would say the last couple of years, we achieved, with the management team, and of course, also with all the stakeholders support, the board, we achieved a turnaround and at the same time, achieving a turnaround. I'm proud that we could increase the employment engagement to 73, and we target 74. It's not only assets which makes the difference. It's the employees and it's people which drive changes in the organization, and that's what counts.

So we have strengthened the foundation in NKT. We are today a better company. We were also net profit positive in 2021. We are well structured, and we built the foundation for growth. I think we have done here some remarkable steps in the last couple of years.

So if you look at NKT, NKT is important for the renewable energy transition today and in the future. We will be a pure play for power cable solutions once we have divested the photonics what we intend to complete latest by Q1 next year. Then, we are a pure cable company and can focus on that. We have a broad portfolio. Practically, our entire portfolio is for the renewable energy with some small portion in application, on a building wire, which is related to a construction business.

And we are in a leading technology position in particular in HVDC technology. What we have seen in the last couple of years is there was a shift towards more HVDC, the HVDC technology, due to that offshore wind farms have been further out from the shore, then you need to go to DC technology, and Michael will talk more about it.

We take sustainability as an important topic, and we started very early and signed as the first company in December 2020, the science-based target. So all our factories run on renewable energy. We have electrical car policy, our focus are on fossil fuel. And you will hear more about our targets a little bit later in the ESG presentation. So it's important not only that we deliver cables for renewable, for the green transition, but also that we contribute ourselves to reduce our CO2 emission.

And we want to be here a front-leader in sustainability, also to walk the talk. By the way, also, I think as a leader, personally, you need to walk the talk and see how you can reduce the CO2 emission. So I do that to by my best I can, using public transportation in Denmark, in Copenhagen, or this taxi electrical, taxi and so on. So I think it's important -- sustainability is important for us and will be important.

If you look at the green transition, I think NKT is an attractive partner, an attractive partner for investors. Why? Number one, we see a huge growing market. We have an all-time high backlog, and we see a more balanced demand/supply chain, which result in higher margin. And we see that, and we can also be to today more selective. For customers, we have a long experience. We have good products, good solutions. We execute on time and deliver, and customer come back to us. So we can contribute. And this all, we can only do with engaged and motivated employees, and we have 4,000-plus of them.

So if I look at the market, the market is great, and you see these big numbers on energy investment in energy, EUR 5,000 billion. Wind energy generation will triple from 2020 to 2030, and the largest growth is in offshore wind, and the market will grow in the present decade from 3 to 4x, from 2 to 8 giga billion (sic) [EUR 2 billion to EUR 8 billion] or even more. And Michael will tell you more. And the market is dynamic. We have seen that with the invasion for Russia and Ukraine, where the demand or the acceleration of renewable energy got even further accelerated. And it was not that long time ago in Dublin, I was invited to meet energy ministers, and their clear commitment to come to these 300GW gigawatts in 2050 and earlier in between milestones.

So the future is green, and we will play a part of our -- of the future and deliver with our cables and contribute to a cleaner society. So this is our mission. And as I said, NKT is today in another situation. We have a lot of challenges behind us. We are today another company. It doesn't mean that we are perfect, so don't get me wrong. There's always challenges in the company, but we are in a situation and the opportunities are more

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