NKT A/S (NKT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to NKT Q4 Report 2021. [Operator Instructions] I would now like to hand the conference over to the CEO of NKT, Alexander Kara. Please go ahead, sir.

Thank you. Good morning, everybody. Welcome to our Q4 results, and we have published this morning also our Annual Report. So in this meet -- in the meeting room, I have here with me Basil Garabet, the President and CEO of NKT Photonics; Line Andrea Fandrup will call in from home. She is on sick leave. So we need to see how we manage that with questions, but that should be possible to manage that. So if we go to the highlights of Q4, in NKT Cables, we grew organically 7% and the development of the growth was contributed by Applications, Service & Accessories. We still have a high order backlog of EUR 2.87 billion by end of 2021. And also what is not listed here, but worth to mention, we had a good cash flow generation in the fourth quarter of EUR 93 million and the leverage rate show on the Group of 0.1x. We had a small acquisition of Ventcroft in U.K. to strengthen our portfolio with fire-resistant cables. Photonics had a record high Q4 revenues and organic growth of 6%. Going now to the Q4 a little bit more in detail, we had, as mentioned, 7% growth on Cable, and this is the 9th consecutive quarter with organic growth. Also for the full year, we had 15% organic growth, which is the same growth like we had in 2020. So good momentum on overall growth as you can see here also on the slide here on the right side. In Solutions, we had a decrease in revenues. This was related to the mix in Q4 due to lower activities from AC cables. We had a good momentum in application in both revenues and operational EBITDA and I will come back to that later and the same is applicable for Service & Accessories with growth and improvement on operational EBITDA. You see on the right side the improvement compared in Q4 on EBITDA from EUR 9 million to EUR 14 million. It would be EUR 4 million higher, it was impacted here from commercial settlement dispute. Otherwise, we would have EUR 14 million plus EUR 4 million. And the same is applicable for the full year from EUR 57 million to EUR 131 million, which were also impacted by the EUR 4 million from the commercial settlement. So overall, for the full year, I think it's worthwhile to mention here going from 5.2% EBITDA to 10.4% is a significant improvement and with 10.4%, we are in the mid-term guidance which we communicated in 2020. In January 2022, we had unannounced inspection from the German Federal Cartel Office, 2 our factories in Germany and we are cooperating here with the authorities. Going to Solutions specific, I mentioned already that we had lower revenues, minus 10% in Q4. This is due to the mix and less activities from AC cable orders. For the full year 2021, we had a growth of 9% on Solutions and also on EBITDA, we improved EUR 35 million -- EUR 36 million in round numbers to EUR 83 million EBITDA on Solutions side. We executed several orders. As listed here, Attica Crete in MI Cable, Dogger Bank, DC Shetland, DC -- and as mentioned, we had this commercial dispute on a project, which was related to the 2 installations of EUR 4 million. We finalized the commission of the Moray East and with this we can bring green energy to 9,500 (sic) [ 950,000 ] households in the Scotland. Going to the overall high-voltage market, we assessed the high-voltage market in 2021 the EUR 5 billion. A good momentum development on the market in the last 2 years and we see further increase on the markets and we expect market -- that the market rose to EUR 7 billion to EUR 8 billion in average over a year from 2022 to 2024. There will be different regions where cables is needed in Europe, North America, Asia and also Middle East and the different technology like DC AC or MI even. Of course, with cable wind farms going further out in the sea, DC is the more preferred solution as for technical reason, otherwise, to meet the reactive power compensation. Going to the high-voltage order backlog, we are at EUR 2.87 billion which is a high level or EUR 2.43 billion in market standard price. And out of the backlog, we have seen here, 25% will be executed in 2022, not included is here orders which will be awarded in 2022 and will have a revenue impact in 2022. So still a high order backlog and this is, of course, based on orders received in '22 is expected to go up again. Coming to Applications, Applications has really a good Q4 with an organic growth of 33% and traditionally Applications has a weak Q4 and the revenue is EUR 212 million (sic) [ EUR 112 million ] and EBITDA. So good momentum in the market, good growth momentum which drives the revenue and EBITDA. We also were able to manage satisfactorily increases in price increases, inflation and energy prices and so on and could protect the margins in our deliverable projects and also focused on procurement. As mentioned earlier, we did an acquisition, a small acquisition with Ventcroft in January on -- which is specialized on the fire-resistant building wires on the low voltage side. Looking at Service and Accessories, good activities. We continue on the growth path here with Service and also Accessories, mainly medium voltage accessories 17% organic growth in the quarter. Revenue is EUR 49 million and EUR 5.9 million EBITDA. So good activities. We have also established our execution hub in Gdynia where we have had the first joint test and prepare for the growing market in Poland and in the Nordics. So overall also satisfactory development. With this, I would hand over to Basil to give you the highlights of Photonics. Basil?

Thank you, Alex. Good morning, everyone. For NKT Photonics, we had a good quarter. It was the 6th quarter where we had record revenue. The key developments in the quarter is that, both revenue and EBITDA improved, and the rate of improvement on revenue was 6% and that's compared to the same quarter in 2020 which was in itself a record quarter. So a nice improvement there. We managed the high activity level with limited disturbances from supply chain in the quarter. However, that continues to be an issue going forward. The organic growth of 6% as in previous quarters was primarily driven by a strong performance in both the Quantum sector and in our Industrial sector. Our EBITDA increased to EUR 5.5 million, again driven by the higher top line along with better gross margin from a more favorable mix of products. NKT Photonics also had its highest-ever Q4 order intake, which is up again by 5% compared to the same quarter in 2020, which again, in order intake was a record quarter. On the business development in the quarter, in Medical & Life Sciences, we continued the trend in microscopy and ophthalmology, especially in ophthalmology, where we're doing reasonably well with new orders. The revenue, though, in the quarter was relatively flat. However, we believe that that's a timing issue that will improve. In Quantum, there is -- which is a great area for improvement for us and a great growth area. Quantum contributed quite nicely to the growth, especially in Quantum computing. The Industrial side, which is our largest sector, did very well, especially in the semiconductor sector. And finally, in Aerospace & Defense, that growth was relatively flat, but that's really again due to timing factors and we see that's improving going into 2022. And with that, I'll pass on to Line, NKT's CFO.

Thank you very much, Basil. So turning over to the financial highlights of the quarter and full year on Slide 16, the income statement, summing up what both Alex and Basil spoke to here, organic growth in the quarter for both of the businesses 7% for NKT and 6% for NKT Photonics. And for the full year, both of the businesses are up by 15% compared to 2020. And this turns into also a strong performance on the earnings level where both businesses more than doubled their earnings compared to last year, closing the NKT Cables at EUR 1.31 million for the full year and Photonics at [ EUR 8 million ]. And then going to the operational EBITDA margin, worth to notice that also here the improvement for the quarter compared to last year and the full year for both businesses. So overall, here [ the income statement just ] stepped up compared to last year. Going to the net result and zooming in here on the full year from a minus EUR 75 million in 2020 to plus EUR 4 million, so -- and turning positive on the net result, this is very satisfactory conclusion to 2021. If we turn the page to the balance sheet highlights. As Alex also mentioned, we had on the Cables business a strong improvement on the working capital between the Q3 and Q4, a positive development of around EUR 100 million closing at working capital for Cables at favorable EUR 92 million. Photonics stayed more or less flat compared to Q3 with EUR 34 million in working capital. All in all, this turns into the earnings and into an improved ROCE for the year where we did close 2020 on a negative ROCE, but for the full year for the businesses we had 2.4 percentage, for the Cables business for the full year at 3.4% and for the Photonics business a negative. On the net interest-bearing debt, obviously, very positively impacted on the -- of the working capital and an improved earnings and we closed the NIBD of '21 for EUR 13 million and at 0.1x. So that's a good growth also. If we go to the next slide, here on the cash flow, we have a good cash flow from operating activities, mainly contributing from the change in working capital, but also on EBITDA. The investment level, especially on the CapEx for the full year, you note the EUR 228 million, that consist of the primary part to the Cables business and the Solutions expansions is the major part. The free cash flow for the full year closed at minus EUR 18 million and with Q4 at plus EUR 91 million. If we go then to the next slide, turning to the financial outlook for the year, overall, the Cables division expects to end the revenue on full year around EUR 1.35 billion to EUR 1.45 billion and an operational EBITDA and ranging from EUR 130 million to EUR 155 million. Photonics expects to grow in '22 between 12% to 17% and an EBITDA margin of 11% to 14%. And then we are reconfirming for the Cables solution medium-term ambitions on the next page with a CAGR above 10% growth on revenue from 2019 as base year and operational EBITDA margin of 10% to 14%. NKT Photonics is introducing a medium-term target also with an organic growth on revenues from 12% to 17%, so similar to the 2022 guidance with 2021 as a base year. And the EBITDA margin is expected to increase to 20% to 25% over the medium-term. And then turning to the last line here to repeat the key messages of the quarter. A 7% organic growth in NKT for Q4. A very positive performance in Applications and Service & Accessories. A high-voltage order backlog maintained at the highest and sound level for the end of the year. The acquisition of Ventcroft, a good contribution and addition to our Applications business. And a solid working capital improvement for Q4 and the corresponding low NIBD. For Photonics, the record high Q4 revenue with 6% organic growth and a good contribution on earnings. With that being the last line, we will turn it over to question and answers.

Operator, we are ready for question and answers.

[Operator Instructions] We have the first question from Claus Almer from Nordea.

Yes, I have few questions. The first for you, Basil, the order intake, I think it was 26% for 2021. Why does that not reflect in your revenue growth in 2022? And maybe a cite to this question is, was it 5% to 6% in Q4 alone? Is that a reflection of a slow in growth rate or what did happen in Q4? That will be the first question.

Okay. The 5% or 6% in Q4 was actually an improvement, because Q4 of last year was pretty high. So it's not a slowdown. It's a number of different markets. So it's really -- it's seasonal and it depends on how they come in. As you know, the business has changed from many years ago from a mainly [ research ] business to more of an OEM business. So a lot of our order intake is more on the OEM side, which is multi-year orders going on compared to the past, which were really orders that we will deliver within a quarter or so. So the difference is, the business is changing to being more OEM. It's growing that way, which is what we planned for when we started on this journey to make Photonics more of a commercial entity. And that's the differences that you see to before. It's still very healthy, 26% in -- increase in '21 was very good. This is continuing into '22 and we hope that will basically make our growth go in the way we had forecasted and we planned.

That sounds great. Then, my second question goes to this EUR 7 billion to EUR 8 billion market outlook for the Cable division or for the high-voltage part of the business. So first of all, is this an addressable market for NKT? Is it only Europe or what is actually the EUR 7 billion and EUR 8 billion covering? That will be the first question about Cables.

No, the EUR 7 billion to EUR 8 billion is a market which is addressable for us and it is in different regions and I have the list in front of me, but I need not to go it through. It's in Europe, it's in Americas, different regions in the world and it sums up to the EUR 7 billion to EUR 8 billion, actually a little bit more, but then as we know projects tend to shift some time, so a fair assumption can be EUR 7 billion to EUR 8 billion in average.

Okay. And is Champlain, for instance, included in this market forecast and if you win, how much would that impact your revenue '22?

It is included. Yes, Champlain is included. And how much revenue will be impacted '22, I mean, we don't provide here the details, but Champlain would contribute to 2022 result.

Okay. And then should we assume you are winning 1/3 of this market, given you are a 3-plus minus player?

Just give me a crystal ball, Claus, and I will tell you. I mean, we need to see, of course, what capacity do we have available. How -- what -- which project would fit in our production and our capacity is kept on schedule point of view. I think just to say flat 33%, I think that maybe it would be wrong. And you can see in 2020, we had the high orders received, last year a more moderate. I think you need to look in -- if you look on to look at market share, you need to look over the period of 2 years or potentially even 3 years to get a better understanding. But definitely we expect to be winning some orders this year.

Sure. I was not talking about '22, your market share. It was more for these 3 years. Should we assume on average that you can win 1/3 of the market? That was actually the question.

1/3 is in average would be rather on the high side, because we need to -- we can self take in as many as order as we can execute and as we can produce. Then if we take EUR 8 billion, EUR 2.4 billion would be pretty, pretty high, most probably less than 33%.

We have the next question from Casper Blom from Danske Bank.

I would actually, as expected, like to follow up on the EUR 7 billion to EUR 8 billion outlook that you put out now. Such a market outlook, not speculating what your market share might be, but when would you see that sort of feeding into the P&L? And secondly, you're expanding your factories now. If this comes through, obviously, that would require additional expansions. Well, how would you go about with that? Would it be continuing to expand in the current facilities or would you be looking towards new facilities? And then finally, if you could please elaborate how this corresponds to your medium-term target of this average 10% growth for NKT?

That's hell of lot questions. No, that's fine. No problem. So how does that affect in the P&L? I mean, we have the backlog. The backlog what we have is distributed over the next year, so what we indicated also and as we win more, for example, if Champlain will become order, this will have a revenue impact in '22 and the years to come and for further project if we will win. And we look at, of course, what capacity can we have and which projects can we take in order to fill our contractual obligation. If it comes to factory expansion, we expand Karlskrona and Cologne and that is the current status. And we said also, we move one -- focus the lower high-voltage from Cologne to the Czech Republic and through some investment in Cologne to be able to produce more high-voltage AC and DC. So that will give us some improvement on capacity and then we need to see, based on orders received, if we do have further expansion, but that we would come back to you if we have any news here. The mid-term guidance, it's 10% to 14% and, of course, if we win orders and with good profitability and also progressing well on Applications with our improvement and the other business Service and Accessories, we would be rather in the higher end of the guidance and we will give more news if we think we are there, so for the time being it's 10% to 14%.

Actually, just to follow up on that, what I was hinting to was more the 10% revenue and organic growth outlook. I do know that you say at least 10%, but if I take 2019 as the starting point, and at 10% a year, then in '25, '26, '27 that would correspond to a number that is very far below the 33% market share that Claus talked about.

Okay. That's your point. Okay. But it's clear, we can -- the CAGR of 10% is related to mid-term. So we grow in '25, '26, 10% CAGR, this would be not -- this is -- would be not possible without further investment. That is clear. So I think with this investment -- and so we will have the CAGR of 2024, up to '24 roughly. To grow further on 10% CAGR, that would require investments. I'm not sure if that's the question.

No, I can follow up later on. Actually just one additional small question. Should we expect any one-off costs in '22?

Nothing planned.

We have the next question from Akash Gupta from JPMorgan.

My first question is also on these projects. I think the EUR 7 billion to EUR 8 billion average over the next 3 years would be EUR 21 billion to EUR 24 billion over the period. Can you maybe help us with the phasing of these orders? How do you see them to come in the next 3 years? Will it be more front-end loaded or evenly loaded or back-end loaded? And especially what do you have -- in industry order, what expectations for 2022? That's the first one.

Okay. I cannot -- I have here the list of the projects for '22, '23 and '24. And that's pretty much balanced. So how projects will be awarded, it's quite a lot of number of projects in the range of [indiscernible] projects per year roughly and we don't count it here. And so, it's pretty much balanced. It's not unbalanced. But then, again, anyway orders can move as we see and we have seen also last year, the U.K. CFD moved from 2021 to 2022, but now it will be every year. So going forward -- so that is -- yes, the EUR 7 billion to EUR 8 billion could be pretty stable.

And then my follow-up is on geographic split of these projects. Like, I mean, not that long ago this industry used to be EUR 3 billion to EUR 4 billion in size with more likely EUR 3 billion than EUR 4 billion and now we're talking about EUR 7 billion to EUR 8 billion, which is essentially implying 100% growth in the last 2, 3, 4 years. Maybe if you can help us with where this growth is coming from? How much is U.S. or North America, how much is Europe and how much of this is opportunities outside of Europe and North America?

Yes, Akash, I mean, I have not the percentage here, but lot is in Europe, but also in projects in U.S., also Middle East there are projects and -- but I have not now split it by -- in percentage per region, but a lot in Europe, but also U.S., Middle East, Asia, all regions, but definitely the Europe is strong and also North America is becoming more.

Okay. And my final one on the same orders is, if you look at this run rate EUR 7 billion to EUR 8 billion, typically it takes around 3 years to feed into revenues that will extent. So if 2022 is going to be EUR 7 billion to EUR 8 billion, then it would be around 2025 when Industries' revenues would be in line with these order intake. And if we apply historic market share, then you can get as much as EUR 2 billion -- you should get EUR 2 billion in euros out of this EUR 7 billion to EUR 8 billion industry by 2025 in revenues term. And if you look at the current capacity and coming back on that earlier question, it looks like you may need to soon start with big investments if you want to maintain your market share. And so far, we have not seen any indication of that while we see some of your competitors are in -- are raising capacity before some of these orders come -- orders materialize. So maybe any comment on your market share in future? Is there any risk that your market share in the medium-term might be lower than the last 3, 4, 5 years that we have seen, simply because of the constraints you have on the balance sheet side that might impact your CapEx programs?

No, I think we want to maintain our market share and on the balance sheet. I mean, you have seen, we have the sky-high or quite high investments that to -- on that EUR 13 million or EUR 14 million and still cash flow almost neutral for Cables. So if needed, we -- and if we see [ opportunity ] then we will review that and potentially invest, but at the moment, we're not there.

And one final question I have for Line is on inflation and net price-cost squeeze, which you see every year. What are your expectations for 2022 versus 2021, if you can help us with that?

I do think like all other companies, we also see inflation rise on the raw materials, utilities and also on wages and salaries. We are navigating this very much and in general, commercially passing on to our customers both in terms of our Solutions business and Applications business. So you will see rising input cost, which will also see us pushing prices to, let's say, impact to our P&L.

We have the next question from Daniela Costa from Goldman Sachs.

I wanted to ask on 3 things. I'm sorry if they have already been asked because I joined a little bit later. But first I wanted to check on Q4 Solutions margins. I guess, even if we take the dispute, they are still at 7%, which I think is -- given your utilization rates have been improving, we've talked about pricing getting better now for quite a few quarters in high-voltage, they still seem rather low. I wanted to understand sort of what is still hindering this from being into the double digits like some of your peers? I understand AC is not fully utilized, but DC, I would -- should be margin accretive. Is it an underutilization impact? How much would that be? Is it pricing in the backlog that is a negative? Any color on those headwinds would be useful? Second, I wanted to check regarding Services & Accessories. If you comment a little bit on how you see demand going forward? I guess, the pool of wind offshore particularly of there has expanded, but we've been at quite elevated levels of Services. So if you can help us think about that in 2022 and afterwards would be great? And then my final question relates to, I think we've seen some execution issues in turbine delays and things on like players on the turbine side. I don't know, this is not a direct read-across for you, but can you talk through like normally like on the Cable ordering process on offshore, when does the cables go in, when does the turbines go in if we keep seeing delays on the turbine side? Can it hit the demand? And how bad does it have to be to hit the timelines of awards of cables?

Okay. So coming to the first, without this dispute, we would have around EUR 10 million or 10.2%. And the margin is impacted by the mix and as I said earlier, less activities on the AC cables projects. So that is how it is. And in Service & Accessories, we see growing demand on Accessories, particularly on medium voltage. But also we see good momentum here on Service side, without closing anything further on Q1 and we expect that Service & Accessories business line will continue to grow and also on the profitability. On turbine execution issues, we do not see any execution issues at the moment, at least in NKT Cables. This cable -- large cables are ordered early ahead and even if there would be delay in the turbines, you can either store the cables at the factory site or you could also do so-called wet storage and lay the cable into the sea. And then [indiscernible] platform with the DC, with the connection that make the pull-in into the platform at a later stage. So I do not expect that delays from turbine or installation of turbines will impact us or have an impact on that delay of awards.

The next question is from Kristian Johansen from CEB (sic) [ SEB ].

So my first question is on Applications and this pretty impressive 33% organic growth. Can you give a bit of color on the growth and demand you're seeing in the quarter between medium-voltage and low-voltage? And in particular for medium-voltage, we've been talking about this potential structural growth as well. Do you feel there is enough evidence now that you can firmly say that it is happening or what's your sort of updated view on the more structural growth demand for medium-voltage cables?

Yes, I mean, we see high demand on medium-voltage and on low-voltage pretty much in all the regions we are active and as normally Q4 is rather a weak quarter for Application, you can see a quite significant growth. And we expect that it continues. Okay, if nothing extremely happen. So -- but we see good underlying dynamic in the market, which for us and even also concern the our cable manufacturers.

And then my other question was on the pipeline of AC orders. So you have highlighted that the legacy AC orders you say a dilutive factor currently on your margin. So can you just update us on the progress on the potential -- the pipeline within AC orders? I mean, have you gotten more confident or less confident in terms of winning anything short-term?

I mean, there are some AC orders which we will be awarded in 2022, a project in U.K., projects in the Baltics and other regions. So there are some opportunity to be successful and -- but we need to see when they will be awarded. But even if they are awarded, it's not -- and if you would be successful, it would be not an immediate revenue impact, it will come with some delay of, let's say, 9 months.

So in any case, the potential impact on 2022 revenue would be fairly limited. Is that fair to assume?

Yes, fairly limited. I mean, our guidance is based on what we see realistic to achieve.

The next question is from Max Yates from Credit Suisse.

Just my first question would be around 2 specific projects, so the SuedOstLink and the Hudson Champlain. So I just wanted to understand what you've assumed within your revenue guidance for these projects and particularly Hudson Champlain, have you assumed any contribution this year in guidance? And then also if you could just give us an update on the discussions with the customer on the SuedOstLink and how that's progressing? And when you think you will start producing this project at your factories?

Yes, okay. So we have SuedOstLink and SuedLink and Champlain as part of our guidance. And SuedOstLink as well as Champlain will contribute to the revenues in 2022, provided, of course, Champlain will be awarded. But I will not provide here details on how much SuedOstLink will start to produce around end of Q2. So we have agreement. We have agreement with customer when we will produce. Also the same we SuedLink. So we have -- we will have a revenue recognition from the corridor projects, as well as the Champlain if it gets awarded.

Okay. And just a couple of others. So when you think about -- you've obviously talked about capacity today and you talked about some investments that you're making in Karlskrona and also Cologne and also shifting some production. So what I wanted to understand was, with the available expansions, adding lines essentially brownfield expansion, what is the maximum revenues that you can get those facilities to, without going down the route to the new factory kind of in the U.S. or in Europe? So yes, what's the maximum expansions that we can get to in terms of revenues for those facilities?

Yes. So maybe as a guideline, around EUR 200 million, EUR 200-plus million revenues [ power extruded ] expansion roughly.

Okay. And so, then is it fair to assume that kind of that would take your total potential revenue without greenfield expansion to about EUR 1.2 billion in Solutions, is that fair?

Maybe a little bit more.

Okay. And just the other sort of couple. So just then in terms of CapEx for 2022, I mean, I assume given your sort of bullish market or your, I guess, optimal positive market comments on the EUR 7 billion, that's kind of available investments to existing capacity will likely be made. So I guess, how should we think about CapEx over the next couple of years in the context of you most likely adding these expansions versus what happened this year? So any guidance on sort of how CapEx should evolve in '22 and '23 would be helpful?

If I can jump in here, Alex. On CapEx, I think 2021 has been very high level because of the parallel ongoing expansions in the Solutions factories in Cologne and Karlskrona and we are closing out on the Cologne expansion, but the Karlskrona expansion will continue for some part of the year. So you should expect -- we don't guide on CapEx, but you should expect still somewhat of a CapEx level. Usually, we would say, before the expansions, we had EUR 50 million to EUR 60 million of maintenance CapEx and we are turning into a bigger company, right. So that is, let's say, incrementally growing up and then closing out on the Karlskrona factory. And in our continued investment, both in our technology and our IT in general. So it will -- it's not expected to be at a similar high, but still pretty impacted by the expansions throughout '22. And beyond that, let's say, we don't have a scope of larger expansions, but as Alex alludes to, of course, we are considering the longer term how to transform NKT for -- to take our share of the growing market out there.

Okay. And just my third final question would just be on the mid-term margin targets, which says sort of 10% to 14%. It's obviously quite a wide range and I would say, you have some fairly unique visibility in that, you have a big backlog, very healthy kind of market conditions that I would argue would almost guarantee that your capacity will be fully utilized at some point in 2023 or 2024. So I guess, I feel like we have pretty good visibility on the revenues. So what I really wanted to understand was, what are the moving parts or what do you see as kind of most important to get you to the upper end of that margin range? Is it -- because pricing should be good if the industry utilization is high. So is it just execution? Is it mix of projects? Do you see the mix of projects in your backlog as sufficient to get you to the upper end? I'm just trying to understand the moving parts around that medium-term margin guidance given some of the building blocks feel like they are in place.

No, as we said also earlier, it's good execution, getting projects in with good margins, which should happen. Then further improvements on the Applications business line and Service also that we continue to have a fair share on offshore repairs and also on Accessories. So if that all happens, then we would be rather on the upper side of the guidance. And I think consensus is 13.9%. So this is how it is.

And just sorry, a very final one. When you look at a lot of the projects coming to market, I mean, we've seen obviously quite a big range of projects which are some land high-voltage projects and offshore wind will come in the U.K. CFD auction. I'd think in 2022 we have some larger inter-connections like the terranean link that came to market. Do you see very different margin profiles across these projects? I'm trying to think about kind of across that EUR 7 billion to EUR 8 billion. I know you've mentioned sort of DC is more profitable, but just thinking about the major projects where you have the opportunity to win which I see as sort of the CFD, Hudson Champlain, do you see very different margin profiles in a lot of these projects or not so much?

Well, I mean, the margin I think varies from project to project. You cannot say -- and we are active on all the areas, on the inter-connectors like Champlain Hudson, could be also land inter-connector, offshore wind DC, oil and gas power from shore. So it's a mixed bag. But overall, this higher utilization, we can also -- with our backlog. And also our capacity, we can be more selective and we see that margin go up. And also we also raise our prices whenever we can.

Okay. Actually, I mean, maybe if I could sort of slightly rephrase it, the SuedLink and SuedOstLink projects and Hudson Champlain, they are going to be a very, very big contribution of your revenues in the next 2 or 3 years. And so, I guess, maybe my question is, do you see different margin profiles in the land projects to what we've traditionally been used to in some of the offshore wind and larger inter-connections? Do you see much in the difference in terms of margins?

I mean, Champlain Hudson is obvious a direct negotiated deal, so you can expect satisfactory margins and also in the corridor project, we communicated earlier that we are having satisfactory margins.

The next question Akash Gupta from JPMorgan.

The first one I have is on Photonics. Here, if I look at your margin guidance, you're guiding 11% to 14% EBITDA margin in 2022. And if I compare then against 2019 when on an underlying basis you had 15% to 16% margin. I mean, we are looking for revenues that are quite ahead of 2019 level, but margins are somewhat down. So maybe if you can help us explain what is really driving that? Is it more investments? Or is it the segment mix within Photonics? And then how do you see the path to mid-term margin ambition? Should we expect more like a straight line or more like back-end loaded margins in Photonics?

Yes, probably I will take that. Okay. Akash, obviously not on --. Yes, sorry I didn't hear that. Yes. I can answer that. 2019 was affected by a number of one-offs. And if you adjust for those, actually 2019 will come further down than the 14%, 15% you alluded to. So actually we are in a very positive track here to see EBITDA margins that will be higher than they've been in a number of years coming into 2022 with this guidance that we've issued. In terms of the longer-range or the mid-term guidance, we will see a gradual improvement to what's the guidance of 20% to 25%. It is not as such back-loaded towards the year or latter part of the period. The improvement will be driven by, obviously, more than anything else. It will be driven by scale effects from the increase in revenue and it will be driven also, to some extent, by improved gross margins and improved efficiency within production.

And my second follow-up is on working capital progression. I think there was a positive surprise in Q4. And if we look at in 2022, on one side you have execution of projects where we don't know what sort of working capital profile you have. And on the other side, you have a prospect of very strong order intake where you might get some customer down payments. So for modeling purposes, what's your current expectations on working capital in contribution in 2022? Should we expect any headwind or tailwind, any comment on that?

Line, will you answer to the modeling question?

In terms of the '22, sorry, I didn't hear the full question.

Yes, it was on working capital progression, you had a positive in Q4 and are there any projects working capital profile where you may have to consume cash because of the ramp-up that may be something you would like to flag? And overall, given on one side, you may be executing on these projects and on the other side you are expecting some large order awards. What's your expectations at this point in time for full year working capital? Like, is it a positive number or negative number, what should we expect?

I think you expect to see fluctuate throughout the year as in general, we have it. I think Q4, again, '21 was very favorable, right. So let's expect some of that to be at a [ different level ] for the quarters and then it very much depends on awards in some of these projects. And I think you can actually look up some of those projects that we talk about, when they would expect it to be awarded. Of course, that will have a very positive impact with Champlain is awarded and the pre-payment on that. And then on the other side, you will see that we expect to start production on some of the larger DC projects later this year, which, of course, then will also impact on working capital. So I think nothing out of the usual fluctuations to expect here.

The next question from Jakob Magnussen from Danske Bank.

A question on your capital structure. You have a hybrid that's up for its first call date later this year. So just wondering your thinking around, first of all, calling on this which seems quite obvious in terms of reducing your interest cost, but more on if this should be refinanced in the debt markets or you want to simply go with a lower cash profile going forwards. And maybe also in prolongation of that, your thoughts around longer-term ability to pay out dividends to shareholders?

We're not at the conclusion yet in terms of how we will act and you are fully right, it is in our interest, of course, to have a lowest cost of capital possible and what that means in terms of the hybrid, we will make a decision on not too far away, fully right on that one. So let's see what the movement here of the year in the first half and then we will, of course, share and get to that conclusion.

There are no further question at the moment.

Okay. Then, thank you very much for your good questions and thank you for the time to listening into this conference call. Wish you a great day. Bye-bye.

That will conclude the conference for today. Thank you for participating. You may all disconnect.