Sif Holding N.V. (SIFG) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for tuning in to the Full Year '21 Results Webcast Presentation of Sif Holding. My name is Fred van Beers, and I'm the CEO of Sif, and I'm accompanied by our CFO, Ben Meijer and with us, are analysts, welcome, gents, of the brokers that follow the shares of Sif. This morning, we published our full year '21 report, which you can find on our website. The slides for this presentation can also be found on our website, and 2 days from now, you can read back this session in the transcript that will also be posted on our website. Let me first start with expressing our sincere sympathy with the people at the moment suffering from the awful, I would say, war in Ukraine. And hopefully, I think we all -- you all will join me in this wish this war ends as soon as possible. Then we now go back to '21, and I'd like to continue with something that we all tend to forget at the moment, COVID-19, and the update on that. At Sif, we applied strict rules for social distancing and testing to minimize the risk of a COVID outbreak on our sites. As a result, we could assure close to normal continuation of our manufacturing. We have seen small outbreaks on both locations during the second and third quarter of '21 and a larger outbreak actually during the final quarter of last year. This has caused higher absenteeism towards the end of the year, but we were able to adjust work in procedures or find replacements to deliver on our obligations to our clients. In the end, it hardly affected our production. Actual situation today is that we still have infections, but COVID-19 is becoming, as we all know, a kind of regular flu, and quarantine rules have been loosened up as we speak. Let's go to the next page. So what did we do in '21? And how is this reflected into our key performance indicators? We have identified 3 major performance indicators for people and planet, and you see them on the top left side of this slide. We asked our accountants, Ernst & Young, for limited assurance and got it actually on these 3 indicators and the findings are included in the annual report that was or will be published -- was published earlier today. In '21, we contributed to projects that resulted in 1.9 gigawatt offshore wind capacity, bringing Sif's total to close to 12 gigawatts during the last 2 decades, sufficient to supply more than 12 million households with clean energy. We come to this number by aggregating the capacity of the turbines that are or will be installed on the monopiles that are listed as complete. Please be aware that this differs from the number of monopiles completed from revenue reporting since these are based on percentage of completion. Limited Assurance was also given for the CO2 footprint and the LTIF, our KPI for safety. Ben will later take you through the financial KPIs and the underlying numbers. So let's move on to Slide 3 for the operational highlights in '21. Last year, Hollandse Kust Zuid North Foundations and the foundations and transition pieces for Dogger Bank A kept us busy. Marshalling activities were rendered for the Kincardine project. In the first picture, you see a foundation for Hollandse Kust Zuid North on a low trailer just before load out on the insulation vessel. These foundations do not include transition pieces and the additions like boat landings and switchboards are applied directly on the monopile after its installation in the seabed. The second picture shows one of the floating installations for the Kincardine project, offshore project for Scotland during its financial assembly stages, which was done at our key site in Rotterdam. Let's move on to Page 4. In the second and third quarter of '21, our production lines were rearranged massively actually to manufacture the largest diameter monopiles in the history of Sif. The diameter of the monopile Dogger Bank A is 8.6 meters and starts touching the boundaries of our current production facilities. This is also the reason why our production output in kilotons during the third quarter was relatively low as we had to adapt to this critical new stage for Sif. Milestones in '21 were the completion of the roll-on roll-off key in Rotterdam, which can be seen on the below picture of this slide and the extension of the C key with 200 meters which can also be seen on this picture on the top side of the bottom lower picture. Accessibility to the water was improved and more logistic operations can be executed more efficient because of these investments. Let's move on to Page 5. We often get the question on the lead time of projects. How far in advance is Sif contracted and contacted? And how long does it take for a project to get from the design table to reality? We prepared this timeline for a typical offshore average wind farm. The average timeline is 3 years. And as you can see in this slide, and on average, we start production 1.5 years after we have started exclusive negotiations with the client. Having said it, today, we are more looking towards 2.5 years. This implies that projects that we currently manufacture were contracted at least 1.5 years ago. With this, I now hand over to Ben to have a look at the order book and to explain how everything mentioned so far is translated into our books. Ben, let's move on.

Thank you, Fred. We started 2021 with a strong order book already, and during the year, we were able to add Dogger Bank C and Maasvlakte 2 to our backlog. We now have 430 kilotons for 2022, '23 and '24. Our expected production volume in 2022 is 180 kilotons for basically Dogger Bank R, Hollandse Kust Zuid North, Dogger Bank B, the startup of Dogger Bank, I mean, Dogger Bank B, and Maasvlakte 2. With our oil and gas lines, largely out of production, this implies almost full utilization on a 24/5 basis. Most of these projects were acquired in 2020 and 2021. The prices for these projects are firm with steel being a pass-through item for Sif. Most of the steel for projects in 2022 until 2024 is already ordered and supplies are not yet suffering from delays that are related to the war in Ukraine. We're keeping close contact with our supplier, Dillinger Hutte, to see how this is progressing. Tender activity is still high, and we now see that most of the projects in the market require larger monopiles, mostly in the range of 9 to 9.5 meters diameter or even larger. Next slide is coming. Excellent. Production output for 2021 came in at 171 kiloton. I think it is fair to say that this is a solid performance given that COVID-19 precautions and measures did not, so to say, enhance productivity. Output was also slightly depressed in the third quarter by the conversion of production lines from Hollandse Kust Site to Dogger Bank A. Contribution improved compared to 2020 by more than 12%. This was caused by higher margin on subcontracted work, but the increase in contribution margin per ton also indicates the better commercial environment for offshore wind foundations. EBITDA on an adjusted basis increased by almost 24% compared to 2020 to EUR 39.4 million. The adjustments to arrive at adjusted EBITDA relate to expenses, which are directly related to the research project for expansion of our production facilities, and also related to the recognition of badwill on the acquisition of KCI the engineers. This acquisition was completed on March 15, and results are consolidated from that date. Net earnings of EUR 11.6 million translate to earnings per share of EUR 0.45 compared to EUR 0.29 in 2020, an improvement by almost 60%. Given the healthy long-term outlook for the industry and Sif, we propose a payout of EUR 0.19 per share to the AGM. Working capital was volatile over the quarters and was negative with EUR 66 million, which is positive in this setting. With the exception of IFRS 16-related lease liabilities, we have no external debt. Cash position per year end was reported at EUR 73 million. And as mentioned before, this is a snapshot situation and may vary over time depending, amongst others, on status of projects, invoicing and payment behavior. The banking arrangements have been extended by 2 years with unchanged conditions. If you can turn to the next slide. Thank you. As already explained at early occasions, contribution per ton is a better indicator for the commercial environment and pricing levels. And this chart shows the historic movement in contribution per ton. For 2021 and 2020, the numbers have been corrected for marshaling and engineering activities to get a better like-to-like picture. And also in this graph, you see the slight upward trend that is happening as of 2018. Fossil continues to be the dominant energy source. The trend to more sustainable sources is, however, clearly observable, the war in Ukraine, increasing oil and gas prices and a dependence on a limited number of countries for the supplies thereof may accelerate longer foreseen and desired changes. Of the renewable energy sources, offshore wind enjoys an increasing interest. In addition to the decreasing trend of levelized cost of energy for offshore wind compared to other sources, the independence from unreliable world leaders make it more attractive. Next slide, yes. Thank you. The Paris Climate Agreement already dates back to 2016. Unfortunately, it has not resulted in firm action in most of the countries that signed the agreement. The total installed base for offshore wind energy in 2021 was a little over 55 gigawatts. More recently, the European Union and the U.S. administration announced plans for radical reform. Together with the 2021 IPCC report this triggered a certain awareness and country after country raised its ambitions as the above table indicates. On a global scale, the 2030 targets further increased in 2021 to almost 250 gigawatts, reflecting a fourfold growth compared to the currently installed base. Where 70% of the earth is covered by water, less than 10% of wind farms is installed offshore. This indicates the potential for offshore wind. The fear of wind farm density decreases. Also from the ever-increasing turbine sizes that require less and less, but much bigger foundations at sea. And with this positive observation, I hand back to Fred to discuss the longer-term plans and outlook for Sif.

Thanks, Ben. For an accountant, you're very positive. The history -- the financial guy. The history of offshore wind is relatively young. So only a little over 20 years ago, the first wind farms were installed. And the very early one is already decommissioned. These early projects were mostly installed in shallow water at nearshore locations and carry turbines with capacity of approximately 2 megawatts. Over the decades, capacity increased to 14-megawatt nowadays and is expected to even grow further. With the sizes of the turbines, also the sizes of foundations increased. Nowadays, diameters of the larger ones are around 9 to 10 meters. The Dogger Bank A foundations with 8.6 are good examples thereof. Our tender -- from 2025, our tender base shows that 80% of the projects require monopile foundations above 9-meter diameter up to 11.5 meters. That is the reason that we announced our feasibility study for facilities that enable us to manufacture larger diameter monopiles in the same tact of 200 a year as in the existing setup is the case. The increase in diameter from 9 to 11.5 meters imply, on average, a weight increase from 1,500 to 2,500 tons per monopile. Next slide, please, you have it already. This slide reflects the current and possibly upcoming competition. Of this group, Haizea Wind, Steelwind, Sif, EEW and Bladt do currently operate manufacturing facilities for monopiles, and some have initiatives to extend their capacity. Haizea Wind is an established power producer has just completed, or last year completed, its first order for 10 smaller NPs, and have booked a possible order for Orsted. The other companies have announced to open new facilities. SeAH, Koreans, should be operational in the U.K. from '24 onwards and maximum ramp up '26. EEW in the U.S. is able to produce '23 '24. And Windar Navantia is aiming for the same time frame whereby Titan at this moment is still unknown. The combined capacity of this total group is assessed at approximately 1,200 kilotons per year, although more important than tonnage is the number of foundations that the respective factories can actually produce. For now, we still anticipate that assuming all these initiatives materialize successfully, the market will be in a situation where supply and demand are more or less balanced long term. That raises the question where we are on our announced capacity expansion plan. So let's move on to the next slide. In previous presentations, we talked about the studies we executed and technical market studies were completed and look promising. As you can see, they are green. We look at the payback period on the investment of 3 to 4 years. In November '21, we announced the start of a feasibility study to finance the plans. We indicated FID date of early July '22. To arrive at this FID, we need, first of all, the clarity on the investment amount. And given the pricing developments and extremely political uncertainty and the effect of that on raw materials, we may require a bit more time for this May. Clarity on participation in the financial -- financing of launching customers was an important point. And this is progressing very well, we can say, with conditional commitments for 2 clients for launching production capacity of 400 kilotons for the new plant. Clarity on the financials of the CapEx and payback time of 3 to 4 years is important. And clarity on the permitting of the new facilities on nitrogen and other permits. And a simplification of rules and regulations that we think are needed to really materialize the energy transition quicker due to the present geopolitical situation. Next slide, please. So how are we positioned today? This is the picture of our present setup in Rotterdam. We built it in 2017 on a reclaimed land, ideally positioned for transportation to the North Sea with world-class load-out keys and roll-on, roll-off key facilities. This is where we envision the new facilities adjacent to the existing building you see here. While we continue manufacturing of our order book for '22, '24, which we feel is very important to not have a hiccup there. The current planning of the expansion allows for this and minimal interference and no execution risks for the order book projects are foreseen and planned for. This reclaimed land at Maasvlakte has sufficient space to create an offshore hub to accelerate the energy transition we all need and which we need even more in today's situation given the high energy prices, political situation. So let's move on to next one, where we have an artist impression of the expansion that we envisage. As you can see, we plan to build a new factory both to the south and north of the existing factory and do not interrupt the existing one. This will include offices and a state-of-the-art logistics center for the receipt of steel plates on the right side of this picture. Let's move to the last picture. At the new plant, this is the new plant from another angle. And you can clearly see that we still have and can maintain sufficient storage space for approximately 100 bigger sized monopiles than we have today and transition pieces, allowing us to give comfort to project developers for unforeseen issues during installation, which we also see today and probably will see also in the future. And with that, I've come to the end. We have come to the end of the presentation, and we're more than happy now to take your questions based on this and the press release earlier this morning.

Who wants to start?

Tijs Hollestelle, ING. On the capacity expansion program. It's still a bit the elephant in the room because I understand that you need a very thorough preparation for that. But -- if I understand it correctly, your current Roermond facility is also, let's say, too small. So it's not able to provide, let's say, the even bigger cones for the next generation? Or will that facility remain in place?

Good question. That facility, we definitely need. And when we talk about bigger diameters, we talk about the bottom diameter of the monopile. The top part of the monopile will also with the new generation turbines, stay in the 8 to 9-meter range. So the plan is that -- and that also accounts for transition pieces. So both the top side of the monopile and the transition pieces, we will continue to produce at our Roermond facility.

Okay. That's a relief, I would say. And then -- if I understand correctly, you have to, let's say, build a completely new plant and there you have, let's say, a certain amount of capacity. But in '25 or in '26, your old facility or your current facility in Rotterdam also then has to convert to -- or you had to at least put in equipment, which is able to also produce the sort of more piles. And is that already included in the total capacity or will that then be on top of it?

No, that will be included in the total capacity. And bear in mind that when Maasvlakte was built in 2016 already -- they already anticipated, 11 to 11.5 meter diameters with respect to the infrastructure, so the buildings. So also the equipment is positioned in such a way that you can relatively easily ramp up that equipment for these bigger diameters already. So what we will add in Rotterdam is basically plate handling that you see on the right side, receiving plates, welding of plates and rolling plates, making cans, which we now do in Roermond will then also be happening in parallel for the bigger diameters and the cones in Rotterdam.

From me that helps me understand better what exactly is...

So basically, you build a complete factory.

Yes. And then you have in let's say 2 years in which both different diameters are produced next to each other and then after a while it will be...

And that is why we -- what we have said, as you may remember, a few times that we -- for us, it's strategically -- it was extremely important to fill the order book up until '24 with projects that we can build in the existing factory. So that in parallel, we can do this expansion, and do not interrupt or have orders in the book that need this new facility. So that's the thinking behind our approach.

Yes. And some investors are also speculating that your clients are financing also the expansion, and is that in terms of prepayments, which you receive in a very early stage? So you have a lot of liquidity during the, let's say, the CapEx period. I've never seen an example of that.

No. This is basically indeed that customers are going to pay regarding the capacity reservations. And the exact details have to be worked out, but they make indeed payments in relation to capacity reservations for the new factory.

Yes. Okay. So that's a big help that in your total financing package behind the program.

It's depth. And it's a commitment that -- from customers to actually work with -- that they see the -- how realistic it is to work with his factory, and they see the advantage of getting 4 monopiles a week out. So this 200 a year is extremely important to compress the building period which, compared to our competitors, is unique. We know, where they can only deliver 1 to 2 a week. So that gives them -- the lead time of this production is very compressed. And that's a very important operational support also that we get from them.

Okay, and might there also be subsidies from the Dutch government in the investment?

In subsidy, if we have to wait for subsidies, we may be too late on this, to be honest on this. On the other hand, given that today's situation, and that's also the reason why we do not announce numbers yet on the CapEx, we have basically 2 options. One is to mitigate on the extreme risk of the exploding building prices and steel prices to sort of minimize the investment to minimize the risk on that part or, and that's the other extreme or extreme realistic approach. Now sit together with government and policymakers on what is actually happening today, how can we boost the energy transition even further? And how can we, in the layout of our new factory support that boost of renewables. Because now this is the moment. Yes, we are now at the doorstep of making choices. But in order to do that, we also may need some more financial support.

That's also a possibility.

That's a possibility that we are discussing in Brussels and The Hague at the moment.

Mike Baker. Also on the planned investments. You also say it may be delayed -- is that related to the increase in investment because of raw material prices?

Yes. and there's uncertainty on that. Because if we take FID, we want to have a certain level of security on what we are going to spend on buildings. And as you can see, these buildings -- these are not brick buildings. They are 95% steel. And the steel prices.

At the same time, you stated that you want to earn back these investments within 3 to 4 years. So do you also have to go back to your clients who more or less have given commitment for those 400 kilotons that they may have to pay a bit more for you to earn back that investment in 3 to 4 years? But you have to ask more because the investment has gone up?

In the end, indeed, also, what Fred has mentioned, indeed, we are more like finalizing the CapEx estimate and also finalizing more like the business case -- and in the end, for us, what is very clear is that the payback period has to be between 3 to 4 years. So in the end, the numbers have to work out. And at the moment, based on the current assumptions, we say, okay, this is very realistic. But if indeed, it may be the case that, for example, CapEx numbers turn out to be much higher, then it might be the case that you have to look back at the other underlying shift of the business plan. But at the moment, we think that is not the case.

Just a few questions because you don't want to disclose the absolute number what you think about, but could you more or less indicate how much difference it is compared to a couple of months ago, this increase in raw material prices on the final investment?

That's the problem, actually. Any number is wrong. Because who knows? Can you tell me what the -- I mean today, the steel price is this, 1 hour later, it's so much more. So, you're not talking 2% or 3% points here. It's substantial percentage points that we are looking at because it's not only steel for building, it's also steel for the equipment. There's a lot of steel in there. And that starts turning out to be a bit of gold. I mean we also have that discussion, of course, on maybe that question will come on our present order book and the steel supply for the order book. That's secured, as we said already. We've -- I think also thanks to the relation we have with dealing and being the biggest customer. We are in a very good and open dialogue with them, but they had to pay a massive penalty to actually secure the steel. Our contracts are not, in that sense, touched by that. And we have the security of supplies, which is already a lot today. But we do have discussions internally also with our end customers to see how we can find a way of sharing the pain. I mean we do have some hits in our energy balance, of course, like anybody else. It's energy intensive. And so it's -- steel all over the place in our existing order book and also related to our future expansion that tell me -- if you tell me, I will pick it up.

And just for clarity, the FID you're going to make, is that for the investment up to 11.5 already up to 15? The whole package.

That depends on the 2 scenarios I'm just explaining. It will anyhow be 11.5. But we hope and want to build it as we explained before, with the ability to relatively easily ramp up to bigger than 11.5. So the size of buildings and the length of buildings are important elements there.

And then lastly, for the moment. This morning, our Dutch government stated that they want to have in place between 750 and 800 monopiles before 2013, installing 10-giga...

Extra.

Extra additional, yes, yes, yes. How unrealistic is the statement of Mr. [indiscernible] then?

On a scale of 0 to 100?

Something like that. You can even top that.

It will be hard.

So fairly I'm realistic again.

I think it's indeed unrealistic. It's maybe too hard to say. But I think what's important here is the message that's included here that we have to ramp up with maximum effort. And I mean, already on the 10 gigawatts that or 10.7 gigawatts, that was announced at the original plan, it will be difficult to reach that, to be honest. But I just said what I said on the choices we have to make on our facility. We can make choices to actually help that ramp up. Get a higher tech out of the factory for the Dutch.

Turner Holm from Clarksons. So to circle back to, I guess, the near-term operations, the EBITDA in the Q4, the fourth quarter was quite decent. I think it was around EUR 11 million. Is that something that you expect that you can maintain during 2022? I guess you're mostly producing for Dogger Bank and it seems like you've also set up. I mean, can you just walk us through 2022 and how that looks operationally?

Yes. I think also what we stated current expectation is indeed that 2022 will end up a little bit better than compared to 2021 results. And what is important to mention that is indeed also taken into account that you will have no further deterioration of political uncertainty. Also, the Ukraine-Russia war, the impact on steel prices, on energy prices, it's difficult to forecast. So based indeed, on the information we have at the moment, we say it should be possible to have a slightly better result compared to 2021. And basically, what we take into account then is, first of all, you're going to have some additional volumes. So we say also for next year, the forecast is 180 kilotons. This, of course, will bring in additional profitability. On the other hand, there will be a negative impact from higher energy prices, is this EUR 11 million offsetting impact.

Sure. The project that you signed after the end of the year, it was a smaller project. I think it was 36 kilotons. Is that an oil and gas project? Or is that offshore wind?

That is still offshore wind.

Is there any prospect for oil and gas projects? Because I guess your production capacity is a little bit higher if you can bring in oil and gas projects right?

There is indeed more activity on the market, whether that will materialize in an order for us in '22, that remains to be seen. We do not count on that in our assumptions yet. We do have small pin piles in production for wind for substations, but there is indeed activity coming actually from Norway.

Okay, how much could that be 20, 30, 40 kilotons? And when -- what would be the timing? Let's say, that if you were awarded something before the summer, when -- what kind of timelines are we -- is it 2023 where you could maybe see an impact? Or is it...

Yes, '23. '23. And that's what we know now, Turner. There is also more -- we see also activity through our engineering company, KCI. We also get the first feedback that there may be initiatives on gas, putting -- opening up some brownfield spots in the North Sea again to also speed up this gas transition. And let's see what comes out of that. It's too early to judge, but there is definitely potential. And we definitely are interested in that to fill those lines.

Just turning to pricing, it sounds like based on what you have in the order book now, it's fairly similar to what you are executing towards the end of the year on a pricing level, on a contribution per ton level for 2022, maybe slightly higher production but pricing is roughly similar to '22, yes. Looking out at what you're bidding for, how are those dynamics developing? I mean you mentioned that you have several new competitors that are looking to come in. Maybe as early from '23, '24. I guess some of the projects you're bidding on now are also against some of these new competitors. But at the same time, you also mentioned that even if they all come to fruition that they all materialize, you're still maybe short of capacity versus what the ultimate customer demand is. So how are those dynamics playing out in terms of pricing?

Yes, they are, as we always said, we need more for that. And I think I mentioned before that the 650 million to 700 million contribution range is a realistic range to work in. We have no reason to adjust that. What we always have to bear in mind is that to what -- despite the fact that there is a shortage on production capacity, there's always also the alternative of jackets. That you have to bear in mind in EU price, I think. But so far, I think -- or we see that it looks good. The reason why we were -- why we are pretty confident to mention this 3 to 4 years is also based on good margins that we see in the exclusive negotiations with the customers at the moment for the new factory.

Yes. So for the new factory, you mentioned the 400,000 tons in negotiations now. Is that pricing -- so that's similar to what basically the range that you're dealing with now for late 2021 and 2022? Or is it...

That's a higher end range.

It's a higher end of the range?

You have to. I mean the monopiles are bigger. So we need more money. Customers are also understanding that.

Right, so as we think about what kind of contribution or EBITDA that factory could produce.

Maybe more like just like a general answer, I think on that one is deals what we were mentioning, a payback period of 3 to 4 years also in this business, that is developing fastly. You need to have a payback, what we say between 3 and 4 years. That also then means if you have to do a substantial investment, that also means in the end, if you look at the contribution margin per ton, that is a key parameter to earn back this investment in 3 to 4 years.

Yes, and I mean I'd like to refer to what we hope to organize relatively soon in this capital Investors Day, where we can disclose more on that. But for competitive reasons, I'm not willing to disclose too much now since it's only 2 customers that we're talking about.

Andre Mulder, Kepler. Your first question on the plans to also take thinner steel into account?

Thinner steel? It's relative thin but still thicker. What I mean to say is they are bigger diameters, so the famous diameter wall thickness ratio has its limitations. So if you go to a bigger diameter, the steel can maybe be a little bit thinner, but in absolute terms, it's thicker. You see what I mean? Because the ratio has to be between 100, 130.

Okay. So that does mean that you have to completely change your production [ Indiscernible ] otherwise the [ Indiscernible ] would implode on its own.

Exactly. That's why we -- that -- these are technical elements that we are taking into account, in the new factory. definitely.

Okay, this capacity of the industry that you mentioned, 1,200 kilotons. That's on the basis on, let's say, the standard monopiles, or is it already included, the large ones?

Yes. So we simply took what we all can see from the press and did our maths on that based on our -- the ratios we have internally, and that's how we came to the tonnage, and we took -- and they're all announcing up even to 50 meters.

All of them.

Some of them. Some say, 13, 14, others say 15. Then we do our math and then calculate back on what that does that mean on the tax. So on the number of monopiles you can produce. So not only the tonnage. Tonnage is interesting, the number of monopiles in the end is what counts.

Can you give a split of the order book in '23, '24? What is earmarked for '23?

I would say, can I give a complete split, no, because it's somewhere 70 -- 60% is '23 by heart.

I think '23 is almost indeed completely...

It's more than 60% actually.

So that will be close to '22, then...

Yes, yes.

Okay. Looking at the cash items, you're still adjusting for IFRS 16 but my view with IFRS 16 is here to stay. And what I see with my company is that the new covenants. People don't adjust for IFRS 16 anymore. So maybe that's a suggestion not to adjust for IFRS 16 anymore. So you mentioned the cash items of EUR 73 million, but that's sort of a net number. The leases are still there.

So basically, what you're saying is need report numbers? What do you mean exactly on there?

What I mean is that you should not report cash of EUR 73 million, you should report cash including IFRS 16. So maybe it's 16 or so.

Yes. But first, it's more likely the EUR 73 million is basically the cash you have on the bank account.

Yes, but the IFRS 16 is still on your balance sheet. There still is debt.

It is. But therefore, indeed, also in the press release, we basically report 2 numbers. So basically, if you look at the net debt excluding IFRS 16, indeed, you basically have the cash number, and we also reported that number indeed if you include IFRS 16.

Okay. Looking at your market, it's still basically Europe. Are you targeting -- are you tendering for other areas as well? And how is the level of tendering?

The level of tendering is crazy. I mean, it's -- we really have to make balanced and technical choice to say what to offer for and whatnot. And our focus has been now on launching customers for this new factory. That for us was the key element. And that includes, I would say, a balanced 60% Europe, 40% the U.S.

Anything in Asia?

There is activity on Asia. We have -- there's no active tendering. There is tendering going on for Asia, but they are not our prime market. The distance is very far away. The question is, of course, we do tender them because we've done Akita Noshiro. We know that there is initiatives for building with GFE to build a steel factory -- or a monopile factory. Let's see how that materializes. We've seen now that Mitsubishi has won basically all the tenders for Japan. How far -- how much of that will be based on local content is doable, how much has to be done from Europe still. We do not envisage actively now the Asia anymore, given the enormous boost of the European market and the U.S. market.

Maybe last $1,000 question. Can you give anything of a range of what this CapEx plans will mean, maybe a sort of a minimum level that you see? Far off, if I'm already saying, well, it should be a triple-digit number there.

I think it's fair to say that you can -- you should work with that sort of range. But I'm not giving a range because it will always be wrong. That's -- otherwise we would have given it now. But it's -- that's why we, I think, as also showed is, it's basically more than twice our existing facility at Maasvlakte. And as based on your questions, including from an equipment perspective, the full rolling and plate welding and plate preparation lines.

And I think also in terms of welding, that's maybe good to add that is basically also the completely new process. For example, if you compare it to the current situation, so if you look at the new plate lines, indeed, basically, they will be welded together when they are still in a flat position, in a horizontal position on the plate line. So it's completely different than what we currently are doing in Roermond. And then also in terms of equipment infrastructure you need, it's brand new. I think it's good to take it into account. And I think also the pictures we are showing over here and also the discussions we had a couple of times before, is saying, indeed, this is more like -- it's a substantial expansion plan we are talking about.

A follow up from Tijs Hollestelle. So you've got to weld the place together, and then you're going to bend it.

Roll them. Yes, it's possible. This -- that's on others as well. It's not rocket science, but we believe and we will not disclose more, but we believe we have some tricks in there that make it possible to actually come to 4 monopiles a week because that's where the trick is. We're more than happy to explain to you and show it later.

Yes, yes. I was also wondering with all the focus on renewable energy and all the political attention in my view, maybe it's a bit cynical, but it is -- I also spotted, it's a little bit of a high. And are there still, let's say, the calculations on the total spending of an offshore wind project with rising interest rates, the steel prices where there is no steel, which not only affects, let's say, safe but also the installation vessels, the hammers, the cable laying vessels. There's inflation everywhere that the welders, there are not enough engineers. Is there some point in time in which, let's say, the market gets a little bit less enthusiastic because the numbers don't add up anymore?

Well, ambitions are at least, they're very enthusiastic. We talked about it earlier already. It will not go as far -- as quick as it's now anticipated, but it will go a lot quicker than what we do today. And with the new factories coming, I think the steel in the end, that's the big question of when will the steel be available again? And to what extent can others ramp up? That's the question indeed. To what extent, I think we haven't touched on that yet. But to what extent is hydrogen as a storage medium and transport medium ramping up? Because otherwise, it doesn't make sense either to have these wind farms built because the grid cannot handle it anymore. So you need -- there's a lot of things that have to go in parallel. And what we truly believe, and that's also through a lot of discussions with alliances in branch organizations, this whole industry has to go up in various areas. Only foundations is not enough. Should we, this morning, I had a discussion with the journalists as well. Should we, on a political scale, agree to sort of stabilize the size of turbines for a while to help accelerate, because that will help a lot. That will help a lot with respect to insulation vessels with turbine builds making some money made and the whole industry efficiently gearing up for -- and getting the maximum out of the production facilities. I mean the reason why we were able to make the numbers over the last years to a large extent, had to do with the fact that we optimize the efficiency of our production process. And a bit of price, but the majority is efficiency, efficiency, efficiency. And this whole industry is dominated by growth, growth, growth, bigger, bigger, bigger, which is a big time backfiring on the efficiency of your process.

Yes, that's indeed what I mean. And also, I mean, and not to be foolish about it, but everybody is reporting all that we're going to provide that amount of energy for so many households. But in reality, it goes to a data center for a big U.S. tech firm and at least in the Netherlands. -- here in the more toll in the Netherlands, the infrastructure is crumbling. I mean almost the lights go out. I spoke to the construction company and basically 2 out of 3 streets here have to be broken up in order to adjust that. So all these things, the politicians are not talking about, they're only announcing new bigger investments. So I'm getting it more and more skeptical because I also see that the supply chain is...

We live in a free country, you can do whatever you want, but...

Able to handle it. And then you have the U.S. markets, the Asian markets, it's...

I think that it's also part of a fast-growing industry that -- I mean we can blame it on the politicians, but here we as an industry also have a responsibility to inform and proactively talk to the political people to say what the effects are at the moment. And I think that's happening more and more. So yes, it goes 2 steps forward, 1 step back. But still 1 step forward. And that I think also with the ramp-up. And I agree with you, it's easily very sad and very nicely looking in when there's elections coming up. But now we have to do it as well. I think we truly believe, we truly believe we can contribute here. It's in our vision statement even that we can accelerate. And we do believe that this is possible, but we have to do it together. That's also the normal.

One more for me, a follow-up, Turner from Clarksons. So on the construction of the new project when you get to FID, how would that construction contract be structured? Would it be a turnkey -- or would you take some price risk with regards to the total cost?

We are -- 2 options there. Depending on the situation as it is at that moment. And -- let me start by saying something first. We have now -- we started to build a project team around very experienced Project Director. So we hired a project director, he is now assigned to this project. He has done big infrastructure projects in Maasvlakte. He was for the Dutch responsible -- around stable, responsible for the [indiscernible] development plan, which is not moving as quick as everybody hoped for, but has a lot of experience, and this is part of what we are now working out in that team. What is the best way forward. And also there, we keep the options open as long as possible because it can go both ways.

Sure. I guess from an investor perspective, you want to have as much security on whatever price...

So do we.

Understand, understand. I mean, I guess with regards to Tijs' point about renewable energy, I mean, monopiles are still the cheapest solution, right? And now you can go out to 60 meters, something like that.

Depth.

When you think about the alternative relative to jackets or base structures, concrete potentially, right? How are those pricing dynamics changing? I mean, is there less steel in the jacket than there is -- I mean because it requires more labor, right, a jacket, but -- does it have less steel or more steel?

It does have less steel. Installation costs are higher. But the steel, if you include the pin piles because you need pin piles also, the depth, it's slightly less but it's from a labor, indeed, a complex thing, and availability of jackets. So if you're a very good jacket builder, you can do 25 to 50 a year, then you're really good. There's not that many that can do that, but that still is only part of a wind farm, whereas we can do 200 and maybe a little bit more if we are successful in our discussions.

I mean I guess the question is, is about price. Is monopiles still cheaper than jackets, is that still the cheapest out there?

Yes, but there -- it has its limit in -- especially when you go towards the 11.5 size and length deepwater, then it becomes close if it's exceeding your contribution margins too much.

Right, and then, I mean, I think in some of the newer markets, there's been talk about some of these gravity-based structures to concrete because they can't necessarily build monopiles and they want to have local content I think, in France and the U.S. also. But then we saw Equinor for their Envirowind basically back out of that solution. How are you seeing some of these new markets develop? I mean it seems like some of these alternative solutions, at least with regards to that entire wind project, don't seem to be playing out.

In all honesty, I think every initiative is needed to facilitate the ambitions that are there. In the end, 80%, even if it's only 70% of the market -- 60% of the market is done on monopiles still so much we're more than happy to take that gain. Same with floaters.

What do you think the chance is that the competitors that you showed on the slide reach the timelines that you showed on the slide?

We consider some of them challenging, but we -- let's put it that way. Challenging with respect to the timeline and challenging with respect to the output they claim they can generate. In our analysis, however, we take all of them 100% serious and take them fully on the plans they have announced. But if you want to know more, Turner, you have to talk to them.

I understand. Just one last question on that is you said that it adds up to about 1,200 kilotons, that's the total size of the market, including these new expansions?

No, that's to the total capacity they can produce. The total market, including our expansion would be something like 1,700 kilotons.

Right. And I guess most monopiles now are just a little bit over 1,000 tons, but they're doubling in size in some cases or more, right? So how many monopiles is that? And the question is really how many monopiles is in that 400 kilotons? Maybe I'll ask that instead, right? Like how big are the monopiles getting in terms of weight?

400, I think you have, I don't know even exactly there's a little bit net to net. Yes, I would say, yes, 200, 200, 250.

And then it's a little over a year.

The question is whether it be with or without transition pieces, et cetera.

But is it roughly...

A little over a -- a rough 200...

A little over a year of production...

But again, I think what is important to need to mention we have more, we call it, like a reference monopile. But every project is fundamentally different indeed. So in the end, you cannot put an exact number to it. But I think more like as a first reference, I think 200 number is a good ballpark number to work with.

Okay, so you're going to secure the first year of production based on -- if these projects are signed.

It will not be completely in 1 year. So it's a little bit more. But it's a very, very solid basis for a ramp-up which is important, don't forget that. You need tonnage for testing and ramp up of your facility. And then it's nice to do that with -- in liaison with the customer instead of buying steel and do it yourself. It's a bit expensive. So and it goes into '26. Starts '24 and it goes into '26.

[indiscernible] I just want a comment to a remark you made that up to 11.5 meters, we still be more economically attractive compared to other systems. But at the end, you want to go to 15. So what happens then?

It still is, but then you have to constantly bear in mind that there's alternative solutions with which you compete. And we've always said in the end -- in the end, we want to make money and a decent return on capital employed. And we were -- it's very nice to be -- to contribute to rescuing the planet, but we also have to survive. So that's the game we have to play there. But we did explicitly decide on this 11.5 meters because our market analysis shows that 70%, 80% of the market, roughly we can cover with that. And we -- the other thing is we don't know enough yet on how it works above that diameter. Others do apparently, but we can -- based on the fact that we build 2,200 monopiles have some question marks on diameters above 11.5 meters with respect to manufacturability and associated costs. And we're not going to promise anything before we know. So we first want to know and learn based on the 9 meters and up to 11.5 meters. I want to learn on how the system that we have now worked out, why we make the transition from labor intensive to machine-intensive because we -- I think this industry needs a level of industrialization and professionalization in the production processes, which we feel we can do. Based on that knowledge, we will make the next step. And we have good hopes that we can be successful in that.

I see you've launched a 3 pole monopile like that. Do you already see demand for that product?

The market?

So do you see demand for the product, three poles monopile.

We have inquiries, but they are not firm tenders yet. And we have announced it because we are studying it. So how exactly does that one now the tripod -- how does that work out what we discussed earlier between the monopile and the jacket. And can it be an interesting substitute for certain water depth range for the jacket, whereby you use -- make use of monopile technology together with smelters or partner on the structural legs. It's still early to say that whether that's going to be successful.

Can you maybe spend some words on the technical differences between the fixed foundation monopile and a floating monopile? Of course, you also need a monopole for a floater, but how difficult is it compared to a fixed monopile? What's your competitive position?

How much time do you have? I mean -- because I think the starting point is completely different. The monopile is a structure that you put in the soil, whereas a floater, is basically ship. So ship rules and regulations still apply to a large extent. And the way floaters are built is it's double hole, the string is there, pumping systems, there's a lot in -- it's basically a vessel. And that -- so then there are ideas and projects going on where you can maybe where you step away from that and say, okay, let's use now monopile technology to build floaters or the middle section or the transition piece section. But then you -- you run into the question, okay, but that's a lot of steel. And then it's, again, steel versus labor, where the discussion goes from a costing perspective. We are following all these initiatives, but the main difference is one is a ship, the other is a bottom-fixed land-based construction. But we're following them all, and we have no clue at the moment, to be honest, which one is going to be the winner in this game.

You can provide both the fixed structure as well as the floating structure.

Yes, we can -- if it's based on our present production technology, not on shipbuilding technology. All right -- oh we have one more. Because we have questions online as well.

One follow-up, not particularly about the outlook because I understand the out you're going to think that the people in the room also then, let's say, the quarterly volatility or EBITDA, but I can imagine that you always have, let's say, when you're starting up a new project that you have that learning curve effects of somewhat lower MDA levels in order not to spook the market too much on the next quarters because they basically cut the guidance in 4. Do you already see which quarter there might be some, let's say, normal operational things happening that might reduce the quarterly EBITDA?

Let me think, we have indeed more like the start-up of [indiscernible] in is this quarter is end of this quarter beginning next quarter.

So impact will be in the second quarter.

Yes, beginning of Q2, if there is an impact, indeed. And then we have more like the [indiscernible], then we have the startup of Dogger Bank A towards the end of the year.

That's the monopile. We basically have a continuation on the transition piece.

So you have 2 projects at the same time in the current...

No, no, no. If you look more like a monopiles at the moment, right now, we are producing Dogger Bank A, then we are switching to [indiscernible] beginning of the second quarter. And after that, it's more like starting with Dogger Bank A.

So you're using both lines also that on the project.

We can -- depending on the size, but that becomes technical, we can use in parallel different production holes Yes. So it depends from project to project, but we have a start-up early Q2. And we have a start-up of the monopiles. I think Q3. Q3 is always also a bit with holidays and so on.

And also, you mentioned that your -- the impact from COVID-19 was relatively low on your production levels, but I assume it could with additional costs or not for you guys it's important the production going, but there is, let's say, a kind of negative impact on last year's FDA because of that, you had to hire all welders.

Yes, or didn't push the more tonnage out than you maybe could have. A little bit it, but the impact is relatively limited, but you will have some additional costs, for example, for the testing facilities that we have put in place. But then on the overall picture, still serious money, but it is relatively minor.

I had to switch off one shift. But that's only for a few days.

I have some questions coming in from Thijs Berkelder from ABN. I think he's on holidays at the moment, but also thinking about Sif. First question is regarding the expansion, return in 3 to 4 years is this on an after-interest basis? And I think regarding this calculation, what we do so far is basically because we are still working on the financing strategy. So if we look at paybacks, we basically look at the operational components. That's what we look at. So we did not factor in the financing structure and any potential interest implications. Second question from Thijs is regarding energy costs. Based on current prices, what is the negative impact on EBITDA in 2022 versus 2021, if we can give an estimate on that one. And do you have an offset from wind turbine at the Maasvlakte. Impact of electricity cost, basically, if you look at the current pricing, the negative impact on EBITDA level I would estimate it roughly at about EUR 5 million on an annual basis compared to 2021. So it's a serious impact on the EBITDA based on the current price levels, and it's very volatile at the moment. And there is no offset from the wind turbine at the Maasvlakte. And then the last question is, are you preparing for floating wind construction. But, maybe there's a question...

No, it's -- we preparing for floating wind construction, not ourselves, but we are looking at ways. As I just discussed with Andre, can we -- the supply sections, if we have the capacity available for that. And are there other techniques where we can use our skills in rolling relative big plates, which are purely in a R&D phase, I would say, with whoever is partner. I think it's part of our overall strategy that we are, on 1 side, focusing fully on monopiles and transition pieces, but on the other hand, keep our eyes open on new developments in the market and not be overall and have a [ Nokia ] syndrome to be faced.

All right. Then there are some other questions coming in via the line -- Are you finished Ben with the...

Yes.

Sean McLoughlin, I'm hoping I'm pronouncing correctly, from HSBC IB. A few questions coming in, I'll read them. If raised offshore wind ambitions for 2030 are to be met, offshore wind development needs to accelerate. We talked about it. How much more can cut development times? What are the main risks for you of faster development and production? Good question. I think my answer would be standardization. I think if we are able to freeze the existing 15 to 17 megawatts, you can and base your whole layout from our perspective, but also for the turbine builders for the coming 5 years on that, but that's highly politically driven, and then you can really accelerate because then you can optimize your processes, you can start gaining on efficiency in your production lines, and that's where you can squeeze out more, as we said before. Where do you see any bottlenecks to the industry scaling up? everywhere. Are there enough vessels for 15-megawatt turbine transport and installation? Good question. What's now on order I'm looking at Turner here as well, who knows a lot about it. Looks good. But if these ships need to be modified to 20 or 25 more, then there will be an issue. And in all honesty, we have seen some examples last year of ships being delayed due to technical and commissioning issues, which has its effect, negative way. Then questions coming in from Henk Veerman from Kempen. First question is the margin of your backlog is protected against fluctuations of the steel price. But what can you say about the impact of OpEx inflation, such as wages, energy costs, et cetera, on the profitability of orders in the backlog. I think we touched a bit on it already on energy. Ben?

But I think regarding the backlog, Henk, it's more like also when we set the prices also for future projects, indeed, you take into account certain inflation rates. And at the moment, indeed, if you look at these current abnormal price increases on energy, we see at the moment, that is not fully factored in, in the prices we have set for these projects. So you make -- you take into account an inflation assumption, but at the moment, that part is not fully covered.

Can you give some more color around discussions in the industry on timing of projects due to rising steel prices? We of course, everybody like we are is worried about what's really going to happen. And these questions do pop up in tendering discussions and talks but so far have not led to a situation that tenders are being delayed or stopped, I would say. So at the moment, I think it's so volatile and uncertain that nobody is taking radical decisions yet on the pipeline. The third question is the payback time of 3 to 4 years of your strategic expansion project based on total earnings of the company in the new setting or incremental additional earnings versus the old production setting incremental. Good question, and we base it of course on incremental. And then the fourth question, what finance source could you utilize if CapEx outlay remains higher than initially expected due to inflation of materials and construction costs. I think we try to address that question already. That's why we are not disclosing anything, but taking the time to study now and wait for more clarity on this as well. Those were the questions from, Henk. Thank you very much, Henk. Agnes, is there anything else?

No.

Any more questions? Do you have nothing popping up? No? Then if nothing more, then I would like to thank you all for the good questions and the dialogue we had, and then we stop and end this presentation on our annual numbers '21 and the outlook for the coming years. And hopefully, we see each other online or face-to-face back when we present the expansion plan. I think that will be the first one then or the half year numbers, that would be late -- thank you very much.

Thank you.