Cadeler A/S (CADLR) Earnings Call Transcript & Summary

Welcome, everyone, to Cadeler's annual report presentation. Cadeler is the largest wind turbine installation vessel company, and it's working to create a better world by installing offshore wind turbines as fast as they can. They have a fleet of 20 cars vessels and awaiting delivery of 2 brand-new X-class vessels in '24 and '25. The company has just released their annual statement and it showed the tripling of revenue and the return to profitability. The company today will give the presentation, and then we will follow up with a Q&A session at the end. [Operator Instructions] With me today, I have CEO, Mikkel Gleerup; and CFO, Mark Konrad. The floor is your, guys.

Thank you, [indiscernible], and thank you to everybody listening in to this presentation. It's a pleasure to be in the room together with you. So kicking off the presentation, we will talk about first, the highlights of 2021. And obviously, the picture that we see here is one of the real highlights of the company in 2021, where we took the vessels under Danish flag. And this is a picture from the day where we announced that the Wind O has now registered in Copenhagen to something that we have been really proud of, but more about that. 2021 at a glance for Cadeler started on the tenth of March, where we signed the largest contract in the history of the company. The Sofia project that we signed with Siemens Gamesa. A project that was signed based on the new X-class vessels even before the Fayard contract had been signed. On the 29th of April, we announced a significant fleet expansion by doubling the amount of X-class vessels planned to be built. We came with one from the IPO and then on the 29th, we announced that we were going for 2 in one go. On the 17th of June, we called the option also to upgrade the crane on Wind Osprey and then strengthening both the O-class vessels to be capable for installation of the plus 15-megawatt turbines. And then on the 30th of June, the last day of the second quarter, as we said we would, we signed the contract with COSCO SHIPPING Heavy Industry for the two new X-class vessels. On 24th of August, we delivered our first half year result at the half year '21, and we showed significant growth in our revenue as we do in our full year 2021 accounts. On seventh of October, we signed a contract with Ørsted where Cadeler was the preferred supplier for German projects to be installed in the future by Cadeler. On the 29th of November, as I said earlier, we reflagged the O-class vessels from Cypriot to Danish flag, and we took over the 160 -- approximately 160 seafarers from Swire Pacific ship management and hired them by Cadeler. So today, it's our seafarers and they are part of the Cadeler organization and can really relate to what we do as a company to enable the energy transition and them also being part of that. And then at the end of the year, we finalized two very large milestone projects, the Hornsea 2 project where we installed more than 100 monopile foundations and the Triton Knoll project where we did 90 large WTGs for business. Altogether, really significant projects in a very busy year for Cadeler. So really delivering on our promise and here, we talk a lot about our promise to the clients. So really, having installed these 2 big projects, adding to what we have done in the past on foundations and really not only signaling to the market that Cadeler is a very strong wind turbine installer, but also a very, very strong foundation installer. And that is something that we were extremely pleased with that we were able to do and to deliver on our promise there. And I think especially on Hornsea 2, we showed how efficient a jack-up is installing monopile foundations. And that is something that we potentially could see in the future also continuing to happen. I think one important milestone here is also that Osprey did the largest number of turbines for any vessel in 2021. So really efficient installation. So in total, we have now installed 384 turbines. That number goes up day by day because we are installing as we speak. We are busy on the Seagreen project, but also we have done 528 turbine foundations. And what does that then mean? That means that we have installed enough wind turbines, which is equivalent to the electricity used in more than 5 million European households and that's something that fits with our strategy and also with the vision we have to enable the energy transition. Coming back to the Danish flag. This is something that we believe is adding value to Cadeler both in terms of the cooperation we have with the authorities, the unions, but also with our clients that can all very much relate to the fact that we have Danish flag on our vessels. We had the ceremony on the 29th of November in Port Esbjerg, we had attendees of a lot of people from the offshore wind industry despite the COVID restrictions and the new Omicron variant of COVID. So it was a less of an event that we would want it to be, but it was a very, very good event, and we had a lot of very positive feedback both from clients and from authorities and other stakeholders in the company. As I said, that now we have all the seafarers being part of Cadeler, that's something that has been incredibly important for us as a senior management team to really bring them in and make them part of the Cadeler organization. So we can all be part of the journey and all collectively feel the values of Cadeler and how we do business and how we behave in the market. And of course, with the -- with having done this step, it is also something we have said that with the new X-class coming in, we will also have them on the Danish flag and also that will create further jobs in Denmark in the future. 2021 has also been all about developing a thriving business. We have had a lot of focus on the whole culture part of the business and really continuing to deliver the high safety standards. It was our first year as an independent contractor, and I can say it has been a very, very busy year, both commercially, but also from an organizational point of view, where we have done a lot of steps to prepare Cadeler better for the future. We have brought services in-house that was previously provided by the Swire group. And I'm proud to say that we have been able to cut the umbilical cord by the end of '21 and that we are today a completely stand-alone company. Our high utilization that we had in 2021 really calls for efficient maintenance and mobilization teams. And I'm also very grateful to say to the team that all have delivered on that promise to us as well. And we have been able to do O&M projects that was not planned in between our inflation projects and our mobilization, our statutory service really to support our clients, but also delivering the value they have promised to their clients. And that is the piece of the machinery that we see ourselves as being really an enabler. We have increased project volume and complexity, we have invested in people, as I said, to prepare for the future and also continued work across different geographies and time zones because there's no doubt about for Cadeler. We are looking at different regions, but we're also building now in different regions. So that is a part of the business that we continue to be present for the very, very long future out there. Impact from COVID-19, you can say in the general society now we see very much that it's loosening, but on board our assets, it's still a thing that we have to deal with, and we still see that COVIDnis an issue for us, and it is certainly creating some disruptions to crew rotations because if we do test positive, although we think that the risk to the individual today is much lower than it was due to the vaccinations and all of that, the clear strategy is that if you test positive, then we have to find a different solution. And the whole testing regime, and that is still something that we are challenged with. We have not had any disruption to operations, but it's certainly something that still costs us more money in terms of operating within a COVID environment. And we're also aware that, although I'm saying that the risk to the individual on COVID infection itself is lower than when we stood here last year -- then we know that there is an additional pressure on the physical and the mental well-being of our employees, and that's something that we are working a lot with. And we have kicked off various initiatives, both in the office and offshore to paid up for these things and make sure that we can have sustained high performance in both teams of the company. We do take precautions to ensure the safety of our offshore teams, and we don't compromise on this. And that goes both for our clients where we are very aligned with the strategy with them, but also with our team on board. I'll hand over to Mark, who will take the next section of the presentation.

Thanks, Mikkel. So let's talk a little bit around the contract backlog that we now have today. So that now stands at EUR 409 million, so quite a substantial increase compared to where we were 12 months ago. So where at this point last year, we had a contract backlog of just over EUR 300 million. We've, obviously, had the contracts that were then completed within 2021. And then we've added over EUR 160 million worth of new contracts throughout the year. This gives us a very clear visibility of our cash flows going into the future. We hope that really helps at the business, but also our investors and certainly at our banks and institutions that want to lend us money. If you really look at the impact from a gigawatt perspective in terms of the gigawatts installed, if you look at the company to date, we're proud that we have installed over 5 gigawatts worth of renewable offshore wind, but actually, if we look going forward, the current backlog has a 40% increase in the gigawatts that are going to be installed in roughly so under half the time. So you see a significant increase in the impact in terms of the renewable energy we are delivering as a company. If we go forward into the financial results for 2021. So starting off with the P&L -- you'll see that revenue has tripled throughout the year. So as Mikkel mentioned, this is around delivering the projects Hornsea and Triton Knoll as well as the initial mobilization and start of the Seagreen project. We were also able to supplement this revenue where as not all of the options on TK and Hornsea were called. We're able to fit in additional maintenance work where we're able to then be able to boost the revenues by being able to help keep the vessels busy. 2021 was also impacted by the fact that we did have longer mobilization periods as well as the statutory surveys that we completed that we had a part of an impact for both vessels. So this led to a utilization rate of 77% across the year. And obviously, as we're completing those statutory surveys that gives us less days that we're able to then sell to the clients. If we look, we had a reduction in our cost of sales and the biggest impact for that related to the fact that Cadeler now own the vessels. So for the majority of 2020, we were having to pay bareboat charges to hire vessels as well as having a right-of-use asset depreciation, that has now been replaced by a depreciation charge as we own the vessels and that's caused a reduction in terms of the cost of sales. As Mikkel said, we've still been impacted by COVID throughout 2021 and into '22, of the impact from a financial perspective related to those crew changes and an increase in transfer costs. We had an increase in our administrative costs as we then started our life as a stand-alone business. And we've also made investments in people as we're preparing the company to be able to grow and operate a larger fit and service more contracts. If you look at our net finance costs, the charges here really relate to the term loan that we have so the interest fees that we are paying for that. And we're not seeing the same one-off charges that we had last year. The net impact of that is that we have a EUR 7 million profit for the year compared to that EUR 27 million loss last year. And that also involves an EBITDA of EUR 23 million for the year compared to an EBITDA loss of negative EUR 10 million last year. This was in line with the forecast that we've previously made, where we said that revenue would be between EUR 59 million and EUR 63 million. So EUR 61 million, we're in the middle of that as well as our EBITDA forecast being in the middle of our guidance. If we then sort of move on to our balance sheet. We've often talked around the importance of having a conservative balance sheet and you've seen a change as we then come to the end of 2021 in terms of the investment that we've made in assets while keeping that prudent in terms of the level of debt that we have. So you see a significant increase in the noncurrent assets and that relates to the 25% down payment that we paid on those two X-class vessels. Our cash balance has come down to a more neutral position. Obviously, we've then made that initial down payment. We've had an increase in the equity as we completed a private placement in the first half of 2021. And then our liabilities, we, obviously, have had a repayment as we're paying down our term loan. As at the end of the year, that only was EUR 65 million. We've also been able to increase the overdraft facility to EUR 40 million to be able to help support the working capital of the business and having this conservative balance sheet will set us up for the future as we're able to then make the interim payments that we need to make the X-class vessels, so that 15% that we need to make before delivery, we were able to do that by refinancing the facility that we have on our O-class vessels. In addition to that, we're in discussions with a number of ECAs around putting in financing for our X-class vessels, so the final 60% of it is achieved when we take delivery of the vessels. And we've had a number of very productive conversations with the ECAs and the commercial banks that want to lend it into that facility. And that means that we then have all of our future CapEx commitments being able to be funded all throughout debt. If we then move on to our guidance that we then have for 2022. We are forecasting revenues with a range of EUR 96 million to EUR 110 million, so an increase compared to the EUR 61 million that we have within 2021. And really, the revenue that we'll deliver within 2022 and where we fall within this range is driven by the accounting recognition that we have from the two projects that we're completing. So we're completing the Seagreen and Hornsea 2 project, which are both fitting contracts. And as we complete the projects and we get to the relevant milestones where we hit within that range will be around the project completion and whether some of that revenue gets deferred into 2023. So unlike the guidance that we had in 2021, where options may not be called. This is really about the accounting recognition that we'll have within 2022. If we look from a cost perspective, we're forecasting cost of sales, excluding depreciation as well as our administrative costs of being EUR 40 million for the year. And there are a few points that I'll make within this. I think as Mikkel mentioned, we have a continued impact of COVID costs, and we're still seeing that as we come into 2022. And we then also have supply chain disruptions as we're seeing many people throughout the industry. And this is obviously where it's really important for us to be able to build up the strong partnerships with our suppliers to ensure continuity of supply to be able to get the parts that we need at the right time and also the right costs. We're also taking that investment in people as we're now operating as a stand-alone company and as we're then being able to grow the business in terms of the projects that we're completing and the number of assets that we're operating. Lastly, there is an increase in some of the costs related to project expenses as we're moving to these more lucrative and more complicated fitting-based projects. But as you see from the EBITDA forecast that we have, if you take the top end of the range of revenue, where we're forecasting a EUR 49 million increase in revenue, that's then flowing through to a nearly EUR 42 million increase in the EBITDA that we're generating throughout the year. We will, of course, come back as we deliver our half year results later in the year, and we'll be able to then give the progress that we've made today in the year and be able to hopefully narrow down the guidance that we're giving by 2022. At this point, I'll hand back over to Mikkel to talk about the future plans.

Yes. Just go to the next slide, [indiscernible] . But looking at the future, I think that this picture is very important for how we see it because you can say that the world has probably -- it's probably fair to say that we have given COVID-19 a proper right hand and knocked it out, but the opponent that we are facing in the future is a much more difficult opponent to fight -- and that's really what this company is trying to enable -- to be able to fight the monster on the right side, so to speak. And our own commitment to this is, of course, very important because we have said from the outset that we see ourselves very much as an enabler of the transition to a greener future, but we also want to have our own part in this. And that's why we are also saying with our sustainability report that we are also focusing today that we are targeting net zero emissions as a company by 2035. That is our commitment to our clients as well that they can count on Cadeler being part of the journey. We have in 2021, we have signed the UN Global Compact. We have in '21 installed or enabled installation and installed more than 2 million European households' electricity equivalents. We have planned improvements on the O-class on how we run the fueling on the O-class, also something that should give a significant benefit on these assets. And then we continue with the X-class design to really ensure that we optimize and when these vessels hit the water that they are not only current, but also future proof for the environmental footprint that we expect these vessels to deliver on their lifetime. I think it's fair to say that if one believes in renewable energy in Q4 2021, one should believe much more on renewable energy today because there is an acute focus on renewable energy globally and especially in Europe. The reason I'd say, especially in Europe is, of course, because of the energy security that we are currently seeing due to the dreadful war in Ukraine. But there is very high level macroeconomic attention on renewable energy for the reason that we are finding the beast on the right side of one of the previous slides, but also the fact that we need to ensure that there is an independency of imported energy, especially into the European Union. So we see that targets are currently being boosted and it's something that we follow on a daily basis almost, but it's just a few examples with Belgium and the Netherlands that doubled their targets. So you see also countries outside Europe coming with very, very significant targets. And it's all adding to the picture that was drawn through last year and hence, my comment around believing European renewable energy should certainly have increased over the last months. Just a few snippets here for what has been said and it is all adding to the picture. And I can say that as a company, we are involved in discussions high level around new places in the world, new regions, whether we have an appetite to support what can we support, what parts of the value chain that we want to supply. And we are, on a strategic level, incredibly busy with formulating our strategy for not only what we are doing well today, but also what we should do well in the future. We have shown the previous year of this picture here before. And I think that what we can just see is that we continue to grow very, very fast in the industry and there are different scenarios for outbuild, but even in the most conservative scenarios, we do see that this industry is getting very, very busy, and we are also firmly believing that there is a very strong position for us as a company in this industry. And that's certainly also validated by the level of project interaction we have at the moment and then client interaction. If we look at the turbine growth, we have also showed this before. It follows the trend that we thought it would. And we can see that the average trend is that we are just going for bigger turbines. And why is that important? It's important for Cadeler because we have the strongest assets in the industry, and that means that we can continue to service our clients. And it's certainly a development that we support because also this is enabling, as Mark said, to build out much more renewable energy in much shorter time and at the same time, with inherent benefits to the project developers and ultimately, the people getting energy into their power sockets and their households. If we look at the market outlook for wind turbine installation vessels, we also discussed this during 2021, what is the supply and demand balance here? And we have updated the slides. So where we in '21, saw 8 vessels in supply and 17 in demand, that has now shifted. So that's 12 in supply and 22 in demand. So you can say -- so it has grown on the supply side, but it has grown more on the demand side, and that means that the gap has increased since we last presented this slide. And that, of course, for us, as a company, it's important because it fuels the strategy that we have on being really the key supplier of this type of asset in the industry. We also showed this before where we said -- so what is it that we are actively bidding? We showed it in 2020, in '21 and now in '22. And what will you see here is that we are up 32% on active tenders from 22 and at that point already, we said we had maximum capacity, but the team has really come together, and we have been able to accommodate almost 1/3 more, and that's something that we also send thanks to the teams for because it is really a Mount Everest to climb this amount of tender work that we're doing at the moment. We see larger scopes and project sizes, which is also reflected in the chart. And we see also now that we are looking at much more different projects across different regions, and also the value is certainly increasing as well. In terms of fleet strategy, today, we have announced the two X-class vessels and we had the two O-class vessels with upgrades coming and that gives us very high confidence in what we are doing. We are continuously evaluating the fleet strategy because it is, for us, something we have learned over the last 10 years in the industry that you need to have a fleet strategy because we will see much more projects where a vessel is starting off the project and then another vessel is taking over the project, so you can optimize your fleet utilization. And that is very, very hard if you have only a single or two vessels that can do these projects, then it becomes very binary. So we are constantly updating our forecast for how the fleet should look like and also what sections of the wind farm we want to be active in. We saw on Seagreen this year that we kicked off the project with Osprey, and we could take the sea fastening from Triton Knoll. We reused that. We rebuilt the sea fastening in a very cost-effective manner. We started off the Seagreen project with Osprey. We then transferred it to Orca just this month. And Osprey is now back in port mobilizing for Hollandse Kust, which is a project that we are very much looking forward to execute for Vattenfall. It's the first subsidy-free project being built, and it will be the world's largest offshore wind project when it's finally constructed. So we will see much more of this flexibility in the fleet, and that really talks around the fleet strategy that we have to continuously have a focus on. And also, as we have said, we see very, very high demand at the moment for our larger jack-ups in the foundation space because not only have we demonstrated how efficient a jack-up is for installing monopile foundations, but also it's clear that there's a bottleneck in that space, and there is a very tight supply in that market. Hence, the clients are coming to us now for securing capability. So it's good for us that we have very strong capabilities, both in the turbine segment and in the foundation segment. In terms of widening our business scope, we have touched on this in the presentation already. But we are looking both at vertical and horizontal expansion. We're looking both at organic growth -- further organic growth in the business. We are looking at inorganic growth. We have a very good, let's say, value chain picture of the industry and where it could potentially be attractive for Cadeler to play a role. We have very much a synergy view, so where can our current business adds synergy to another segment both from a partnership approach, but also from a capability approach. We are very strong and engineers here in the company, and we believe that, that adds a lot of capabilities for other segments as well. We continue to focus a lot on strategic partnerships. That's not a secret. We say that a lot, and that's because we really mean that our clients can count on how we operate and how we behave. And that's our commitment to the industry. We are increasing our portfolio of services. And for some of the new spaces in wind industry, like floating wind, we see that very much as an opportunity. And that's also a space where we are actively involved and are working together with project developers for floating wind. In terms of increased global footprint, we have said it from the beginning of the company in its public era that we would like to expand the company's footprint, so to speak, beyond Europe but we want to do it in a sustainable manner. We don't want to head out and do one project and then head back again. We don't believe that that adds a lot of sustainability to the industry. But when we see a pipeline of work, then we are happy to engage in an area of the world that we're not currently busy in, but really still following the strategy that we are not having an ambition of taking a flag in the ground everywhere there's an offshore wind farm being built, but really happy to stick a flag in the ground where we see a pipeline of projects and partnerships flourish to the benefit of both us and our partners up and downstream. So that continues to be a strategy and that's something that we will continue to develop during 2022. In terms of revised specification, we have talked a lot about this, and we are, let's say, cautious about what we are seeing in this year, but what we can say is that we continue to be positively surprised about the capabilities of the X-class design, and we will be able to certainly over-deliver on technical capacity. So we have shared some of this under NDA with our clients in terms of what we can do, but it's fair to say that both in terms of loading capacity and main crane capacity, we are somewhat above what we said we would be able to deliver. In terms of continuing the journey on the X-class, we always knew that this would be a journey in terms of where we should be with these assets in terms of the environmental footprint of those assets. And it is a journey and it's a journey that we continue through the life of these assets. But we are already now embarking on certain projects with these assets together with Fayard together with the designers to see how we can really maximize them. We will continue to talk about this because we do believe that it's very important, but already have harvested significant benefits compared to what we have. But we are not stopping there. We will also select another very important project for the O-class vessels to ensure that they are brought up to the highest level they can be brought up to and ensure that we deliver as environmental-friendly installation as possible on all our assets. Then at the end of the presentation, we want to talk a little bit about what we say is called super partnerships. And that's because we believe that, that is one of the instrumental parts of our journey to enable a green transition in the world. Mark talked about it that we have been very much helped by our partners to be able to have as little impact from the supply chain squeeze that we have seen and also the inflation on pricing. And that is certainly something that we would like to say thanks to our entire partnership value chain for because we believe that we are in this together, and we will continue to be in this together. Our clients, most people know these names, but we think it's also important to talk about the other side of the equation, the companies that enable us to do what we are doing. And here, there is a lot of companies on this list, one of them even hosting the presentation today. But without the banks, for example, we couldn't do what we are doing, so it is really a heartfelt thanks to everybody in our value chain. Also to our suppliers that ensure that we get the best product at the best price at the right time. That is key for us and key for our success. And as we have also said to our suppliers, getting stuck at the same price as our competitors, that's not an option for us. We need to be better, always. So there needs to be an inherent value for the commitment we make to our partners that they have to bring back to us. We will continue to deliver on these partnerships, and it will continue to be at the heart of the company to think about our partners throughout the journey because we can only do this if we are in it together. With this, we are happy to take questions. Thank you.

[Operator Instructions] We will start with today's announcement from Maersk [indiscernible] He asks what you make of the market entry from Maersk that was announced this morning? Do you think they will remain one vessel company?

I don't really have an opinion for their fleet strategy or what they will do because that's up to Maersk. We welcome them to the industry. They have -- it's not really a surprise for anybody in the industry. I think this has been a public secret for the last couple of years that they were trying to come into the industry. Obviously, they have been waiting for a project in the U.S., I think it's fair to say a very complicated project in the U.S. as well. So all the best to Maersk. We wish them all the best on the journey. And as we have said from the outset, we want to enable an industry. So we think it's great that people they want to enable the industry. And I think it's -- if anything, the fact that Maersk is entering it probably validates our industry to a very solid level, I would say.

Thank you, Mikkel. As a follow-up, I may ask the -- we don't know what Maersk's strategy is. They might be a one vessel company or they might want to expand. If they want to expand, they mainly have two routes to go, they can either order more new builds and potentially hurt the market balance in the industry or they consolidate? Can you share some thoughts on potential M&A and consolidation in the industry and how your perspective is on that?

It's a good question. We have said ourselves that we are looking at certain potential M&A opportunities ourselves. We want to be an independent company. We have very strong shareholders. We saw that Swire just yesterday announced a voluntary lockup for 12 months on their shares. And I think that, that shows the commitment we have from our shareholders to really build the strongest company in the industry. So I think if one focuses everywhere, one focuses nowhere. So what we are really focused on is to build the strongest company in the industry and ensure that we deliver very, very strong value to our shareholders.

That's what we want to hear, Mikkel. Thank you. Another question from Turner here. The fourth CfD round is expected to be finalized in the second quarter of this year. Are you bidding on contracts related to this CfD round? And when should we expect the vessel contracts to be announced in that case?

So as a general note comment, I can say we do not guide on when we expect awards because we are not in the steering wheel, so to speak. If we were sitting at the steering wheel, we would be happy to do that. But we are not. But yes, we are bidding into the round 4. So there's a lot of things going on. But when contracts could be announced, that's a no comments from my side at the moment because I'm not the one to decide. But we see a lot of positives. And we certainly also believe that the round 4 will be one of the strongest rounds ever due to the current macroeconomic pressure on building, let's say, more independent and clean energy.

And on that front, since Turner start talking about contracting, your second X-class is still available. You booked up the first X-class and you book -- added a lot of backlog for O-classes. Are you now actively bidding or talking to your clients about contracting the second X-class? And how are those discussions going?

Yes, we are being very active in general, both first and second X-class and both O-classes. And we have also said to the industry that and X-class is not going on a small project because that's not what they're designed for. So we are obviously looking at, let's say, the bigger and the more complicated projects because also this is where the X-class really deliver a lot of value back to the clients, and they certainly see that. So we remain very, very positive on the outlook for the X-class vessels based on the feedback we get, and based on the number of projects we are involved in. And in certain projects we are involved in the same projects due to -- in many different avenues as well. So -- and I think that, that's also -- from sitting in the company that gives us a lot of confidence around how attractive the X-class are for delivering the projects.

Then a question from Andreas Nygard from Kepler. How will 2022 fleet utilization compare to 2021. Could we see utilization above 90% next year this year?

Okay. We don't give specific guidance to sort of utilizations or day rates. But I think as you will see, the vessels being busy throughout the year. Obviously, 2021 was impacted as we talked about by those 5-year statutory surveys. So I think you'll see an improvement within 2022, but I'm not sure we can be more specific on that.

Yes. And you could say that we completed the statutory survey on Orca at beginning of the year. So that's, of course, some time coming out. We also did a small room extension for the client on Orca. But all in all, very, very strong utilization and the vessels are on project from now until end of the year.

And on the backlog front, can you talk about how much of your backlog currently includes O&M work and how much includes turbine installation?

We don't disclose the specifications of our backlog to one degree also because one of the contracts in the backlog is also a contract that has certain optionality, so to speak. And that's why it's hard for us to guide accurately on it. So we would rather say the backlog is the number, but what we are going to do, we will inform you later.

I appreciate that. And another question from Turner on the industry as a whole. Do you think there's an ability for the offshore wind developers to accelerate build out plans in the wake of the current energy crisis in Europe? Or do you think the industry is already running at full capacity? Are you seeing any initial signs or hearing comments from clients that suggest that developments are speeding up?

So yes and yes. Yes, we believe that the industry can ramp up. What is needed for the industry to ramp up, I actually said in a conversation with one of the most senior executives in our industry and had that exact conversation 8 days ago. And the industry, yes, can certainly speed up. There's no reason for the industry not to speed up. What we do need is also more, let's say, forward-looking commitment from people granting the permissions for the projects. It's not long ago that you saw that on average, every country in Europe is falling behind the agreed approval process for offshore wind. And I think some of the worst examples they have between 13 and 15 years of approval processes. And I think that this is where the European Union needs to focus that we really get up to speed with the approval processes. You can say in Denmark, the project Thor, over 5 bidders who wanted to all pay the Danish government about DKK 2 billion to build that project. That begs the obvious question, why don't we build 5 more? So I do believe that we can do this. We can do it to be -- as a supporter in the supply chain, the turbine suppliers can do it with the right commitment. Certainly, if you have 5 companies willing to pay above DKK 2 billion to outbuild 1 gigawatt, let's get started.

On that front, would that be able with the current fleet of turbine insulation vessels? So would you have to see more new builds being added to the market faster than what we have expected.

So we actually showed a slide here today where we set current levels of installation based on what we know today, supply and demand. And then from there on, one has to make their own estimations on what's needed. But in terms of -- Turner's second part of the question was quite good whether we are in active discussions on this. And surely, yes, if you saw one of our slides with the [indiscernible] it imagine that we had talked in the IPO process around Brazil out building 17 gigawatt of offshore wind. People were probably said that's not realistic. But actually, if you look at Brazil as a country, Brazil is probably one of the countries that has delivered on their onshore outbuild plans. They have delivered to the developers, to the product suppliers and to the operators exactly what they promised. If they can give the same trend in offshore, I think that there's a very strong foundation for that market there and that 17 gigawatt alone in a totally different place of the world that will take capacity out due to inefficiencies and all of that. So I think that this is something we have to get used to that we will see other countries coming online now with very big ambitions and also the ability to support it. I don't think it's that it's randomly selected by Shell, for example, that they decide to immediately go into Brazil. It's a market that fits them well. They know it from oil and gas, and I think that they will be doing a lot of things down now.

And another question is from [indiscernible]. How is pricing developing or holding up? And how does that relate to return on invested capital?

I mean I think we've previously said that we can't give an exact guidance in terms of the pricing that we'll get in the future years. We've obviously updated on the contract backlog that we've seen and the increase. We've previously guided from the X-class vessels that be between $180,000 and $260,000 per day based on 75% to 90% utilization. We still stand by that, and we obviously have made the decision to build a second class vessel. So we saw a favorable reaction within that. But I think on a whole, we're seeing improving pricing, we're seeing improving conditions on the contracts, but we're not able to give specific guidance on the rates.

Thanks, Mark. I'm looking forward to when you have to expand that guidance from staff end. During your prepared remarks, you mentioned fleet strategy. You mentioned you're continuously looking to optimize your fleet strategy. Can you discuss how the view on the optimal fleet has changed over the last few years? And is it a trend towards more high-spec vessels? Or is there a push towards expanding outside the turban installation vessels. You mentioned that tight supply for foundations vessels. Do you mention that in relation to using your turbine installation vessels in that industry or potentially expanding with the foundation vessels? And could you see some synergies expanding into that segment?

Yes. I think that we are open to not only doing turbine installation vessels, we are open to do more than that, certainly. It is our focus to do the jack-ups, but we are also looking at synergies in other areas on the horizon of offshore wind, so to speak. But in terms of fleet strategy, as I said, if one believes in this in Q4, one should double believe in Q1 2022, right? And that also goes for us and for our fleet strategy, we are very positive around the outlook for our fleet, and we are continuing to optimize. And this is something we do together with the Board. We continuously have a discussion with our Board around how do we see the market and how can we ensure that utilization comes up and really ensure that we deliver on this. But it's important for us also to constantly challenge ourselves to ensure that we harvest also the segments in the industry with highest value. It's not fun to be the world champion if you're sitting in an area with the lowest value, obviously. And we don't think that we are there. We think we are in one of the really strong spaces, but we will continue to challenge ourselves to see where can we deliver things to our clients that adds a lot of value to us and to them as well. And then we also said that O&M for us is one of the areas that we are focusing. And that might not make the best sense, but it's a very strong synergy with the turbine installation. And also it buys us a lot of social capital with the client because this is really a heavy burden on their shareholders when the turbines are not spinning. So if we can go out and fix one. A good example is when we head at home from the Seagreen project with Osprey. We passed by a wind farm on the way back home and we fixed an issue for a client. And the value of that is certainly something that we can feel and it's a value and a feedback we get from the client that we don't get on any installation project. So it all builds to the super partnership strategy, where we also want to take our part of that burden because the offshore wind is only interesting for the world if it's spinning and producing offshore wind.

Then the last question here before we stop it off. Cost structure. You mentioned that you expect project expenses to increase as you move on to larger projects. Could you share some perspective on the expected size of the project costs as a share of revenues or at least provide like a ballpark figure for how much of your cost structure is related to project expenses today? And what we should expect for the future as you move on to a full fleet operating with 4 vessels?

I think within our cost of sales in our accounts, we give a breakdown of our cost structure within that. So I think that will break it down into the component parts of depreciation of maintenance of seafarer payroll. Obviously, seafarer payroll becomes the largest part of our cost base, and I think that will remain the case. But obviously, each contract is individual and the terms that we have as part of our contract and the revenues and costs that we can generate, is always something that is confidential and so we can't disclose on an individual [indiscernible] basis. So unfortunately, I can't provide greater clarity. But obviously, what we talked about in terms of that improved revenue, we are seeing that increased revenue that we're generating from these more lucrative fitting contracts. The vast majority of that is then flowing through to improved EBITDA and ultimately improved profitability. But I think we have to accept that there are some additional project costs.

Yes. And I think one addition to that is that the project costs are actually very, very hard to break down. It's a function of revenue because we are working also on certain projects now where our project costs could be spread over more projects by being smart about how we do it. So it is something that we are developing a strategy for really not only to optimize our bidding power into projects, but also really to optimize our cost structure. We had a very, very strong focus on the cost of the business. But what we said in the beginning is also that we will remain prudent and that's also what we have done this year. And as Mark said, we have some cost expectations on COVID, for example, that might go away. So today, Denmark is lifting their last restrictions on travel, for example. So it might go away before we know. But at the moment, we want to be prudent and expect some increased cost on this because we do see it still.

Thank you. I think that concludes the Q&A session. I would like to thank Mark and Mikkel for your presentation. It's been lovely hosting you. Thank you for the attendees to -- that listened in, and thank you for the attendees too who asked questions as well. And until next time, thank you.

Thank you very much.

Thank you, everyone.