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

Very good morning, everybody, and welcome to the SIF interim results presentation of the half year numbers of '22. My name is Fred van Beers, CEO of Sif. And with me is Ben Meijer, our CFO. And we together try to explain and expect to explain to you what we did in the first half year. Live with us are sell-side analysts from the Deutsche equity brokers and independent analysts. And on the conference call, we have analysts from Norway and the U.K. So if you have any questions, or a remark that relates to the presentation, you are invited to use the button and instructions will follow after this presentation on how exactly to do this all. Let's go to the next page, which is already on the screen, I see, at least here. And what you see -- this place is all about safety. First of all, here in this meeting room for those of who present here, there is no test foreseen. So whatever you hear and even if it is a test, the message is follow the green signs of the exit, listen to the employees of this place, and they will guide you to a safe place. Looking at the results of the first half year on safety, we cannot be satisfied from what you see here on the screen, our lost time injuries was -- were up to 5 in the first half of this year, leading to a lost time injury frequency of 8.9%, which is a running 12-month number. Showing clearly that over the last year, we've seen a quite significant increase in the lost time injuries. And that, of course, is a bit concern to us because we spend a lot of time, effort on cultural change instructions, training and what have you. But we basically see 2 reasons here that surface as a -- why this number is so high. One is the increase in experience of people and workforce that we hire and hire from the workplace, but it's like in any industry, a big problem to find the right people, and we have concluded that we need to invest a lot more time and effort in order to bring people up to a sort of basic level to make them work some sort of safe in our factory, especially in Roermond, but because why am I saying Roermond, the products have increased to such a size that it becomes extremely risky. I should say, or let me put it differently, the risk of running into an accident leading to an injury has increased massively because of big products in quite limited space in Roermond. So we are working on this. We are not happy to that because it's something that you don't want to show as a company active in this business. Secondly, the sickness rate, you see 7.2% first half that looks high. It is, though, in balance with the industry at this moment, and it's coming down quite rapidly. The reason why it's so high was in the first quarter and as part of the second quarter, high numbers due to COVID. A lot of infections again and flu, to be honest, which led to a high sickness rate. Let's go to the next page. So what did we do from an operational perspective? We worked on quite a number of projects. I think they're all known to you to most of you. Hollandse Kust Zuid was completed from a production perspective, they're painting mainly -- and as we speak now, we have the last few monopiles at our sites, the rest being installed in the field already. We furthermore worked on the Dogger Bank projects that's on the top right side, where you see the installation of the first monopiles and transition pieces at the Dogger Bank A by day may, we are full-fledged busy now with the production of Dogger Bank B transition pieces and the monopiles and the Hollandse Kust Zuid north project is fully up and running in our factory. So we're working on quite some projects simultaneously. Dogger Bank has been, as I already said it in relation to safety and interesting project so far for us because it's the biggest, these are the biggest foundations we have produced so far. With wage ranging between 900 and 1,300 tonnes per monopile and a diameter close to 9-meter already. Furthermore, we have been steadily, I would say, working together with or Siemens has been working on the Hollandse Kust Zuid project. You see that on the bottom left picture, the Osprey, the ship doing the installation for Hollandse Kust Zuid turbines running quite smoothly, I must say, and in good cooperation. We're pretty happy with that order and with this cooperation. And then the last project we completed and has been finalized nearly by means of the turbine installations itself is the Maasvlakte 2 project, small project, but at our front door. So we're happy to show that to the people visiting us that we actually can supply also nearby monopiles. Everything running smoothly there. Next page is about the future. So what did we do from a contract win perspective from the first half year? Basically, 2 orders for '23 resulting in the fact that the '23 starts looking quite nice and full with more balanced spread over the production factories, small production lines and bigger production lines. It's the transition pieces for. We would have loved to deliver the monopiles as well. But unfortunately, we had to step out of the monopile program since we were fully booked already for that period with 64 transition pieces, 36 kilotonnes very nicely as an addition to the already booked orders for monopiles, and not yet to be disclosed project and also for transition piece, I can tell you is for 19 kilotonnes where we have signed a capacity reservation, which is already leading to some -- has led to some financial commitments from our customers. So it's very close to becoming a disclosed project, let me put it that way. These 2 projects, of course, do not include the 400 kilotonnes that we are discussing for the new factory. That's on top of this still to be finalized. And I will come back to that a little bit later how that is progressing, to do the project. So for now, I hand over to Ben to go in depth through the numbers, and I'll come back to you after him.

Thank you, Fred. So indeed, where did this bring us in terms of numbers? Production came in at 89 kilotonnes, which was almost equal to the first half of last year, slightly better. Equally important is also the number of foundations we produced. In the first half of 2022, we manufactured 74 monopiles and 55 transition pieces compared to 102 monopiles and 3 transition pieces in the first half of 2021. For the full year 2022, we expect an output of around 174-kilotonnes, implying that production for the second half will be close to 85-kilotonnes, reflecting also the holiday effect to do a little bit less production in the second half compared to the first half. Contribution margin in absolute numbers improved with more than 10% compared to the first half of 2021. And this was mainly related to increased marshaling income and income from other activities, including KCI the engineers. If we look at important perimeter contribution margin per tonne clean for the contribution from marshaling and other activities, so they could purely look at the contribution margin per tonne for monopiles and transition pieces, we see a number of EUR 612, which is in line with the first half of 2021. EBITDA on an adjusted basis, this EBITDA cleaned for the one-off impact of costs you have to make in relation to the expansion project came in at EUR 21.1 million, which is slightly above prior year. And as mentioned, the adjustments to come to underlying EBITDA to adjusted EBITDA related to the one-off expenses for the expansion plans of our production facilities. Reported EBITDA EUR 19.1 million, and for the full year, we confirm that our adjusted EBITDA is expected to come in slightly ahead of prior year. And last year, we reported a number of EUR 39.4 million. As mentioned before, working capital was volatile over the quarters and was negative with EUR 42 million. With the exception of IFRS 16-related lease liabilities, we have no external debt and the cash position was reported at EUR 58 million at the end of the first half. And also as explained before, it's a snapshot situation. If you look at working capital, if you look at cash, it's interrelated business and depending, amongst others, on the status of projects, invoicing and payment behavior. Next slide, please. We have defined 3 important nonfinancial KPIs on which we have also requested Ernst & Young to provide limited assurance for full year reporting, so not for the half year numbers. If you look at the CO2 emission per tonne, it slightly increased and this is directly related to the product mix. And the reason is that in the first half of 2022, we have produced more transition pieces, and this implies more ship movements with our subcontractor smulders in Hoboken to apply secondary steel. Footprint from these extra ship movement was partly compensated by conversion of cash preheating to electrical preheating at 7 workstations. If we look at net CO2, it was 0, which is directly related to the wind turbine and the ship side in Rotterdam. Second KPI, which we introduced by the end of last year is related to the contribution of shift to the renewable energy, which increased to 803 megawatts in the first half of 2022 compared to 476 megawatts in the first half of 2021. And for me, a more real number is, if you look at 803 megawatts, it basically reflects 800,000 households. So also in the first half of 2022, our contribution from this perspective was to supply energy for 800,000 households. KPI for safety is LTIF and a number of lost time incidents in relation to every million where man hours worked. And as explained already by Fred, this number was too high in the first half of 2022, and also measures have been taken to reduce this number. Then brief slide regarding the operational situation per today. And if you look at today's situation, everybody knows that we are in a more or less [indiscernible] world, and we can say that steel, [indiscernible] flanges our order book is secured. The pass-through pricing of steel to Sif is more or less irrelevant. This is, however, different for energy cost. So if you look at energy costs, this is indeed directly impacting our bottom line. And if we look at the first half of 2022 compared to the first half of 2021. We see a negative impact from energy prices on the bottom line of EUR 2.5 million. Adjusted EBITDA is slightly ahead of prior year, and this negative impact was offset by, amongst others, increased result in the marshaling segment. An actual operating challenge today is the drought in the low water levels in [indiscernible]. Products steel plays [indiscernible] are transported at the moment in smaller batches. At the short term, we are able to mitigate shortage by buffering by sufficient stock in Roermond and Rotterdam, but that's at the short term. So also indeed by the end of September, at some time, it needs to start raining again. Tender activity is unchanged with special attention for sourcing of steel, Recruitment activity is very high. That's the challenge we face at the moment. Also, if you look at staffing, if you look at personnel to find right qualified people is an additional challenge. To make sure and to secure that we have a flows operation. Please, to the next slide, where I hand back to Fred.

Thank you very much, Ben. So I think [indiscernible] we've shown it consistently over the years, I think. But well, basically, the message is, and that's unchanged. The step change is having there in the past, but have been increasingly big. If you look at them individually. And I think at this moment or we know at this moment, we are facing a step change towards the 14 to 15-megawatt turbines, if not bigger. And the step change we have to make is also the biggest in our history, to be honest. And that's why we are very, very carefully working on this. And unfortunately, we had to postpone the FID. We had hoped to be able to before the summer break, but well, we have decided to take our time as needed. We will come back to you as soon as possible when we know exactly when we can disclose. I think a few things are important here. First of all, and this has been I'm only echoing, I think others in the supply chain. The supply chain is tight and all supply chain parties are facing the same challenge of how am I going to earn back my investment? So profit levels throughout the supply chain have to be healthy, and have to be consistently healthy in order to justify a quite substantial investment that not only us, but others have to take, and we've communicated this before, but a 3 year earn back maximum 4 year is definitely a very strict, I would say, condition that we want to fulfill in order to go to an FID moment here. And having said that, we are positive in respect of reaching that point and not only an earn back period, but also later on, of course, some earnings for the shareholders and the company itself because earn back is one thing. After that, you need to earn your money even more. Isn't it? And this is basically one of the elements that we are working on. I said we are still very positive that we can reach this moment, but we're not going to disclose anything before we are sure on this. And I think the other element I'd like to mention is related to permits. We're working on that as well, but we want to be sure that both on the nitrogen and which is in Holland, an interesting debate has to be secured before we are taking an FID in the same, to a lesser extent, relates to the environmental permit and the building permit, which from a process point of view has to be 100% under control. Having said that, I'd like to move on to the next slide, and that shows the market. And again, this is a picture we've shown before. I think 2 very important things have happened since we last met. That is this announcement from the Dutch, Danish, Belgium and German correlation, so to say, to further increase their ambitions, which has been put in this number, which we also noticed is putting some extra push on regulatory offices and also the permitting office, et cetera, to really help the industry now to make sure that all these things criteria are in place to really boost what's needed through the supply chain. And the other one released 2 weeks ago in the U.S., whereby the no successful getting this EUR 430 billion program through the Senate, I believe it was Congress for the renewable business and the energy transition in the U.S. was a big -- has a big impact for us because -- and I will come back to that later. We are fully working on that area as well, how we can play a role in the U.S. So the gigawatt ambitions are now for 2030, 250 to 300 gigawatts easily. Let's see how that will materialize. But there is not a lack of ambition in this business. If you move on this picture, we saw, I think, as well in previous meetings. Basically, what you see here is a picture on the left side, where we see the number of foundations needed per year. And I just discussed it also with [indiscernible] next time, I will show you a different picture showing that also towards 2030, the ambitions that are now here listed as 1,100 foundations because that's the number we can justify based on projects some time ago has now increased to something like 1,300, 1,400 already, where we can say, yes, they are having a certain level of security that certainty that they will be needed. So the demand towards 2030 is year-on-year, basically increasing. And let's see how the supply chain can react on that. Because if you look at the right side of the picture, the biggest chunk there is the blue part, and the blue part is the equivalent of the number of monopile foundations between 9 and 11.5 meters. And that is exactly the area where we are focusing on to build our -- to align our new factoring before. Going to the next page. This is the world, as you can see. And we have been discussing a lot about the investment plan for Europe, but we are not sitting still, so to say, that's not English, but it's a good Dutch on developing and looking into the Asian area and the Americas as well. You've seen probably our announcement that we are -- have put up a partnership with GS Entec, industrial conglomerate in Korea -- South Korea, whereby we will grant them a license, it's a license agreement to initially convert an existing factory to be able to make monopile on a relative short notice. And depending on the market development and how the corporation is developing in the second phase, look at setting up a complete dedicated monopole production facility under the responsibility of GS Entec but with the support of Sif, which gives us a local partner in that area for -- also for our customers because a lot of our customers are developing also in the Asian area. This structure we choose because it gives us the right balance between what we can -- the limited people we have available to actually help support this sort of partners, in balance with expansion needs in the supply chain outside Europe in this case in Asia. For the U.S., we are in discussion with a very strong local partner. We cannot disclose yet, because we need to formalize a few things, but I can tell you that it's going in a really promising direction. Whereby we are looking at a sort of a joint venture setup for setting up a local production facility at the East Coast of the U.S. for production of the bigger diameters even than those needed in Europe. What we see is that the East coast of the U.S. requires due to the soil conditions and the bigger water taps and the wave behavior for even bigger diameters than the 11.5 meters and we are looking at that area what we can do there together with the local partner. So beside -- again, in summary, we are not only looking at Europe at the moment, we're definitely also putting a lot of effort in expanding to those 2 areas. Then the next page, we're not the only one active in this business, which actually I said I think before, is underpinning the fact that monopiles are definitely also in the future, the foundation of choice. Basically, all these parties are developing as planned for, and that's also how we calculate their capacity and the dates that they are coming up to stream with a monopiles. But even with all the capacity being successfully implemented, we still see that the ever-increasing ambitions are higher than what the supply chain can actually deliver to the market. So basically, what my message is, every one of these parties has to be successful in order to sort of come to the ambition level that is required by the local government. Yes. And then going to the next page. Again, the picture you've seen before, it hasn't changed. It will change a little bit here and there because we're constantly modifying and I think that's the other message on the expansion plan. Although we haven't taken FID, we are full-fledged working towards going on with the discussion with suppliers, with building parties to go to final design of the factory commit, make sure that suppliers can deliver equipment when we need it in order to be up and running early 2025 full fledge. So that remains unchanged despite the fact that we have delayed our FID a bit, we are in such a dialogue, and we have made such commitments to all parties require -- critical parties that we do not need to delay the final starting date of the new factory. And that's important also, of course, for the discussion with our launching customers that we -- where we're now in exclusive discussions with, we need to be able to supply or deliver monopiles for those projects in time. And I think another important thing to mention is here is 400 kilotonnes. From a kilotonne perspective, it goes up quite a lot, but from a total number of monopiles, we stay at around 200 monopiles per year number. For a week at here, but basically, it's 200 a year. Meaning 200 a year, meaning 11 meters to around 2,500 tonnes each as a reference monopile. Next page. This picture hasn't changed in that sense. The one may be missing here is permits, but it's included, you could say, in the financing aspect of financing in order to get financing solidly. Secured permits is an important part of that. Having security on that. I mentioned it already before, on the nitrogen environmental and the building permit. That's where we are also still working on. The human resources development remains a concern for us, like any other industry, I could say at the moment. But we have a good plan in place. We have the right people in place to actually do the recruiting, but also we're working or we're building our -- expanding, I must say, our own trading facility not only for the safety part of it, but also in order to be able to really educate and train people from basically scratch to the level that we require for this -- our present factory, but also our future factory layout. And that brings me to the last sheet to thank you for your attention so far, and I'm pretty sure there are a few questions to be -- that you want to ask. And I think we get an explanation on how the process works. Or can we give the -- open the floor for the people around the table.

Yes. I think Stefano, we should open the call [indiscernible].

[Operator Instructions] Your first question comes from the line of [indiscernible].

Fred, Van, do you hear me?

Sorry. I can hear you.

Okay. Yes, sure. So I guess I just wanted to touch on the expansion project to begin with, I think -- I mean, if you look around the steel prices in Europe have come down a little bit. And I guess it might suggest that maybe the ultimate CapEx for the project, maybe isn't getting worse. And so I guess I just wanted to understand a little bit about what are the challenges that you're facing in terms of the expansion to kind of make sure we think, I mean you pointed to very strong market conditions. [indiscernible] had a great year, really so far in '22, and I think you pointed to how it's accelerating the demand picture. But what are sort of the key items that you're trying to secure or nail down on or understand better before you take up these projects?

Basically a lot of hard work, but what I tried to mention on in the presentation, is related to making sure that the permit -- the permits are granted in time. And secondly, that we are sufficient -- can be sufficiently sure that we earn -- earn back of our CapEx in time is solid enough and also leads to some longer-term profits that justifies this investments. So that basically means that in our discussions with the market, with customers in relation also to the discussion with finances, we want to really clock out that when we push the button that we are close to certain that we can earn and release or what is it, realize our business plan as we put it forward. That's basically, I think, the core of the discussion that we're having at this moment. And in that process, we are not, so to say, putting the pressure on ourselves to sort of come back with disclosure without having these items clocked out according to what we feel is required.

Just a follow-up on the comments that you had earlier in your prepared remarks, you said that you still are targeting the beginning of 2025. So I guess I'm just wondering how much time do you have, if you're going to be able to meet that target?

Obviously, we cannot delay this for another year or so. That doesn't work. What the thing is, though, we do believe we have to come out with this decision this year and -- or have to. But in parallel, as I said before, we are in constant dialogue and also actually committing to, for example, to pre-engineering, committing to some long lead items that we now secure already for specific equipment in order to make sure that we are not running into the trap of delaying the FID for a certain while, and then actually having a cascading of problems with our supply chain, which leads us then to a problem of making that what is the '25 target. So it's a bit fluid, but I think it's fair to say that if we don't have an FID this year, we run into trouble in order to meet the date, I should say.

Just on the market picture because, I guess, it sounds like you're trying to get your returns, right? And some of that is pricing and some of that is the cost of the CapEx. In terms of the pricing, that you're seeing in the market now. I mean, obviously, demand picture is very, very strong. But at the same time, you have competitors that you showed on the slide, are these plants typically launching with launch customers like you're planning to do? And how is the sort of insurance of these new players affecting pricing from what you've been seeing so far?

Well, there's a few questions here, I think. First of all, we -- and I think we said it before, the pricing levels that we are discussing at the moment with our customers are to our satisfaction for this business. It's -- it's more -- the repeat factor that we're looking for here as well as launching customers is one thing, but we're also looking -- we also need to make the right profits in the years after the startup. So that's one item that we are discussing with market prices. And on the competition, yes, we have seen some -- I think we all have seen some communication on developers supporting some of these start-ups with partly orders or ambitions or what have you. To what extent -- I mean, that basically questions you should ask them. I think we only know what we've seen from the press. In our discussions with the market, we clearly noticed that price is one thing. That reliability of supply and quality of supply is another element that is highly valued by the market. And not to forget, of course, to mention security of capacity. So security of capacity with a supplier that has a track record and has a proven track record from a quality and timing perspective is maybe at least equally important than prices.

That makes sense. And then last one for me, I can turn it back. With the U.S. market, I mean, you touched on obviously the new law that has been passed in the U.S., and obviously [indiscernible] the demand case in terms of providing incentives from the offshore wind farms. But I guess it's a lot more than that, right? It's also about supporting local supply chain. And at least my understanding there are some significant tax incentives for, I guess, what they call clean energy manufacturing, with the support up to 30% of the project. Is that something that you expect this potential JV in the U.S. to qualify for in terms of helping to finance that kind of project?

It's an area that we want to maximize in exploring. And of course, we would be silly if we wouldn't be able to make use of that. And I think this is one of the elements where we believe a very strong local partner is essential because they -- not only from a tax help perspective, let's put it that way, but also in finding the right labor and the right setup of how you work with labor. Yes or no with unionized labor, et cetera, et cetera, support from state governments because that differs from state to state are all elements that we know are important, but where we also know our own position and our own experience as a thorough Dutch manufacturing company that we need the right partner locally, and it has to be a really well embedded, so to say, partner, that has a bit of history and has a bit of a track record in our opinion, with whom we want to cooperate and where we want to make sure that they are on board in the right way and where we feel we are on the right track there, but we're not there yet. I hope you could hear me well. The connection was a bit wobbly, but I think -- I hope I answered your questions.

Yes, loud and clear. I mean I have a few more. I can circle back after others have had a chance.

[indiscernible] with me here with eagerness to sort of ask the question. So the floor is open, James.

[ Mark Baker ] with [indiscernible]. The first to get back to you mentioned more permits and financing. Once you have the permit, building an environmental, then it's no problem for you to automatically get financing in place?

It goes hand-in-hand. I think the financing is related to when do we get the permit. That's how these things work. And I'm not necessarily saying that we have to have the permits in place before. That's ideal, but we need to have a commitment on when do we get the permit and will that not jeopardize our planning process.

Since financing would be in place. But you can't predict what stock market is going to do. So will you be dependent of the stock market for your financing plans, i.e., is there do you expect to raise equity to finance these counts?

Good question. And I'm a bit boring you, I guess, but that question will be answered when we have the whole thing in place.

The U.S. partnership you mentioned is a bit different than the one in Asia. You talked about the GV. When talking about the GV, it also means equity is involved, much more money improved than a partnership you have in Asia. Could you say something about that, what do you think that's going to cost?

I understand the question, and probably I hope you should have mentioned the word so that would have taken away from the question. But I think that's too early to say. I think we have to -- what is important, I think, is to get the message that we are very seriously working on setting up something in the U.S., which has a different setup indeed, I should say, from compared to Korea. How that works out. You know as well as I that you can have various structures on how you finance and set up a GV, and that's what we are looking at, at the moment. But I can tell you one thing. Whatever that structure will be, it never ever can dilute the structure that we are working on for Europe. So our first priority is and will remain the Dutch our European facility.

Mike, I want to add on that one. One of the first steps also together with this potential partner is to jointly work out a business plan also for the North American market. That's one of the first key steps and also based on that one, indeed, also look at the financing implications.

When I look at your throughput output for the year that has been lowered somewhat compared to the start of the year. Is there a particular reason for that?

On this one, 1 of the factors is if you look at the challenges in the labor market, how difficult it is in need to find good and qualified people. This is impacting our production output also what you see in the first half of the year, it has been a little bit lower than what we were anticipating, and we were able to mitigate this impact for example, by better results in the marshalling segment, but this is a challenge we are currently operating with.

You just mentioned it, a challenge to get qualified to people. You also said that you want to improve the skill set of your employees. What kind of implications would have had for your wage bill going forward?

Good question. What we have decided is that, in general, our wage level should be competitive to the market. The question is what market. So we believe that for many functions, we have to compete with oil and gas, which is a kind of market. And that's the sort of level we're looking at. I think what we have evaluated, the wage component is important, but what is even more important is the quality of the people and the knowledge of the people and especially when you start looking at this new setup where you thought about maybe looking more at process management instead of welding skills such traditional [indiscernible]. We have to be careful to not be too Dutch with the salaries in comparison to what you actually require. So we feel that we should be able to compete with oil and gas.

And then the last question for the moment. You mentioned that the energy price gas price has hit your bottom line by approximately EUR 2.5 million in the first half. Gas prices are currently at a record level. What's your best estimate for H2?

This might be a little bit higher than the EUR 2.5 million, but also for the second half of the year, the majority of the prices have been fixed.

When -- till when does this fix runs. When will you be open to the market when do you have to renegotiate your contract in gas?

At the moment, the majority is fixed indeed until the end of this year. And for 2023, the majority is still open. So impacted by the energy prices.

Thijs Berkelder, ABN AMRO ODDO BHF. First question on the new contracts in this closed one, static contract, which originally was scheduled or still is scheduled to be done by a competitor? Or is it?

Basically, all the contracts are scheduled to be done by competition, but we won.

It's just a normal contract.

It's just a normal contract, it's not a shift from 1 -- like the [indiscernible] one for example. Yes. No, no, no.

Okay. Clear. Then Slide 5 in your presentation pack, you showed the contribution margins per ton. And in this half, it's more or less equal year-on-year, but this half you clearly had a high mix of TPs versus MPs, while last year, vice versa, can you roughly indicate what the difference is between contribution margins, TPs versus MPs.

Not the exact number, but normally, indeed, when you see the contribution margin on TPs is a little bit lower compared to MPs. But the big impact, if you compare with prior year, mix indeed is 1 factor. Another important factor is last year, we were having a lot of subcontracted work in our scope, where we make a low margin on it, but it's still contributing to the contribution margin in absolute numbers. This scope was less in the first half of 2022. So this is having a negative impact. Also the mix is indeed also having a negative impact. On the other hand, a positive impact came from more storage-related activities. So from certain clients, monopiles were on our location longer than anticipated in the contracts, and we were able, indeed, to have an additional benefit from that part.

And then just to add on to that, I think from -- I guess you understand because if we were to give a split, then we give also wise potential information to the competition and because the only transition piece we made were for Dogger Bank.

Yes. Clear. Then a question on LTIR. I guess explosion happened in -- what exactly happened?

Yes. that was quite an event, to be honest. And what happened is that during the production stop over the weekend. Gas leakage occurred that filled some bottom pitches. So we have the heavy gas -- different gases, natural gas, but we have the specific gas for preheating, which we are, by the way, now outphasing by means of induction heating. So we want to get rid of that as a whole. But the startup of the production cost by means of a grinding what is it Spark caused this explosion. So that's what happened. Luckily, we had no physical injuries whatsoever. One guy was taken to a hospital for 48 hours of observation to be sure, nothing later on happen. But of course, it created quite some mental damage, you could say. So we have people that we are now giving professional help to help them to overcome this event longer term. But -- and the material part of damage caused by this was solved quite quickly. And I must say, with a big, big thank you to not only our own maintenance team, but also our sub-suppliers that were really helpful in siding is up quite quickly.

Okay. And does it -- or has it brought, let's say, extra costs for our Q3 forecast?

No.

Not materially.

And also the cost directly related to the property we have sufficient insurance in place to cover these costs.

Okay, clear. Coming back on Korea and the U.S. Okay. In the expansion plan in the Netherlands, you're very clear. You're targeting a payback of 3 to 4 years on the investment. So that's totally clear to me. But what kind of financial returns or dynamics can we expect for Korea and the U.S. What is the peak condition?

The principles are the same, as for Europe, to put it very simple, the structure, though, is completely different. So I think we're not going to disclose all these numbers also for, I think, obvious reasons and also in agreement with our partner. But you have to think of a license fee kind of structure for Korea. So there's a completely different setup and no as such investment or CapEx related to that for us. And related to the question of Martin, the U.S., I think we [indiscernible] to have a bear with me and a bit of patience, but we will not dilute on our cornerstone, so to say, for the U.S. in relation to the Europe case.

That's also -- on that last remark because indeed, the FID for the initial capacity expansion, I mean the U.S. is on top. So that does not disturb that side of negotiation.

No, I can be very clear on that. It will not disturb and has no effect on the European one.

Yes. And your local U.S. partner, that is a big industrial U.S. company.

It's a big one, yes.

And in which industry.

I'm not going to tell you.

Yes, it's an experienced financially healthy.

We agreed with them to not disclose until we have the business plan as Ben was saying, is ready, not frank. Google. We discussed most of it, but I'm kind of checking your ability to provide the outlook, which has been kind of a thing for the stock price in the past years. So if I understand correctly, you had, indeed, let's say, difficulty in finding labor as a kind of a negative the sickness rate was quite high because of COVID, it's a negative. Gas prices, which is specifically management. Marshalling services were on positive balancing debt. And also you remarked that the current projects in operation in the first half went smoothly. So that I think is a big help. Hence, you are able to provide, let's say, or reiterate the full year guidance.

I think that's a correct summary.

Yes. And also your build in some conservatism in the outlook, which gives you a lot of leeway to guess because you have to be a lot of depth, a continuation of the gas.

There's some reasons for being a bit cautious, I think.

But overall, taking all circumstances into account at this stage. Current forecast is a realistic 1. To say, indeed, we still expect based on the information currently at hand that we say it's going to be slightly ahead of prior year. .

Yes. But because so many unpredictable things have seen. I mean I also understand it's quite difficult for you guys to give that outlook how much you gave already a couple of months now. And then I picked up the remark on next year. So what do you say, balanced spread on the portfolio. So basically back to -- more back-to-back production of different projects than you had, I think, in the past year. So that is -- tells me that profitability, let alone the unexpected things can be quite good.

In an ideal world, that's definitely good, that's what I would conclude.

Also if you only look at that, that would have a meaningful impact on your EBITDA, you could make in 2023. I don't want to get too excited.

No, but you're excited. And that's why we mentioned also at least 200 kilotonnes to be delivered.

Yes. That's a firm statement. But how much of that was let's say, your planning? Or was it kind of coincidentally happening?

Nothing happens coincidently, except for the unwanted unknowns. No, no. We've always said that we have a certain room, of course, in our production because of this balancing and unbalancing factor and whatever we can do to fill those holes. We have taken into our planning. We're not successful on everything, but so far so good.

And there is, let's say, no or -- what is your take on, let's say, that the low river water depths influence production maybe in the fourth quarter and then you have to produce into next year? Is that something [indiscernible]?

It's something we monitor on a daily basis. I mean, next week, as you read us probably as well the level goes up against a little bit. That is also for us an opportunity to maximize the feet of Roermond with steel, giving probably an extra 1 or 2 weeks leeway on this whole thing. Also, what we see is that water management is taking care to maximize the levels in the rivers, also in Germany. So we monitor that. We know now that we are safe at least till the end of September at Roermond longer at Maasvlakte because from Roermond to Maasvlakte, is a bit easier, although there is a lot of struggles there with blocks and what have you. If it takes longer, it's more effort. It's a bit more costly for our transport, but we get the stuff. So that's basically the window we're looking at. If no rain falls within the coming 4 weeks and the rivers go down even further.

That's clear. I just get an idea for that. Yes. One final question? Or is it yes, on Slide 12. There was EEW together with [indiscernible] is indeed making a similar expansion, as you have announced. Is that solely happening in the U.S. because they're building together as a new facility for USD 250 million. Is that the complete, I think it was a blue bar.

Yes, that's the blue bar. I have the sheet in front of me. And that's the 1 they're building in New Jersey or have built in New Jersey.

Yes. And in relation to your capacity because that is, of course, a completely from scratch facility -- is that..

Be careful in comparing these numbers and capacities for what we do, but it's I think it shows that it's not a cheap one thing to do.

Yes. So that is kind of a good indication.

It's an indication. But related to the U.S. market, the whole piling, for example, foundation systems in the U.S. is slightly different from us. So you have -- there are some elements that could make it different. But it gives you a direction.

Andre Mulder, Kepler. Let's start with the $1,000 question. You said you're not going to accept any dilution to the profits, let's say, the returns or so. But looking at the element of the market, it looks more a question that you have to accept Otherwise, the market is running away from you if you don't participate?

Good question. And then -- but we have -- there's always an alternative. It's not -- we like, but what we are not going to do is with the knife on the throat and with the wall -- with the back against the wall except levels that bring us into financial problems later on. Then we have the alternative, if you really play it down to something to 0, is either we delay the whole process. And wait, maybe 1 or 2 years because we are full to '24, we can do a partial move or we simply make a strategic change towards a logistic center and a sub-supplier of transition pieces and top parts of monopiles through waters. So is it a strategy we want? No. But are we going but we're not -- as you say, we're not going to let itself be pushed into a corner we don't want to maneuver in. And I think there's also no reason for doing that, given the discussions we have with the customers and the market finances that we have at this moment. We only need to make sure that we -- when we push the button that we are sure that we are not regretting 2, 3 years from now. And I think this is a very important one, given how this whole industry is developing. And it's very nice that there's a lot of ambition. But if the supply chain isn't making the right amount of money, in order to materialize that. I think you will not find anybody willing to go into this business. And it's too big, at the moment. And the impact is too big for companies on their own and all industry as such to not take this position. You cannot gamble, so to say, anymore in this business. I think that's an important one to remember.

Looking at the expansion it seems that you said pricing is on your side. So it seems more a question of, can you secure a large enough pipeline going forward?

That's a very important element indeed.

On the U.S. South Korea, South Korea struck a license agreement, why is there not 1 for the U.S?

Because that could be an option to start with still. It's not the direction we're taking at this moment, but it could be an option. And the other one is picking your choices from a market perspective point of view because I think the Asian market is longer active, but has some challenges in how steady they are in the development plans, et cetera, et cetera. So we are a bit more cautious on that one. So these are sort of reasons why we constantly make a judgment what model we take.

Okay. On the U.S., can you mention the area where you're talking about Maine.

I said East Coast of the U.S.

Maine is for a state that doesn't want offshore wind. So it's not there. But is it north is it south?

It's east coast, and close to the water.

On the gas side, you mentioned you're mostly covered for this year. If you look at the current prices, what's the actual for next year?

If you look at the carbon price levels and indeed the last week, it again increased, then also for next year, it will be a couple of millions. I do not have the exact number at the moment, higher. And also for next year, what we will look what we we've been doing the last 12 months is in a face based hedging the prices. So based on the latest input say, okay, partly we're going to lock in. Then later on indeed, if the moment seems right, again, lock in an additional part. So in a phase where we are hedging the prices, that -- if you take the current price levels Andre, and if you compare it to the current estimate, what I was saying for the full year 2022 that you will be roughly EUR 5 million, it might be a little bit higher compared to 2021. But if you take the new level of 2022 as a basis, based on the -- prices, also for next year, you will be a couple of million euros or it will be higher.

It will be another EUR 5 million.

I do not know if it is EUR 5 million at the moment, I'd say, a couple of millions. I do not know the exact number.

EUR 5.3 million.

And maybe the last question so far. Have you seen any life coming into the oil and gas side? As what we've seen, of course, the U.K., Norway pushing [indiscernible].

Yes, that should be live. We see it through KCI the engineers, that is filling up quite nicely the tender pipeline, et cetera, for designs, which is for us also an indication Sif in the production that there's something happening. And we're having some discussions there -- serious discussions on potential tonnages tenders for that and that could materialize for -- even for '23, even a few maybe or 24%.

Any volumes that we mentioned there?

No. You know how it goes with -- there's not that many of these projects. It can be in pin piles, it can be structural lag. It varies from 5% to maybe 20 kilotonnes.

If you go from 0 to 10 it would really be quite an improvement?

Exactly. So we do have production of some -- for the substations for wind farms in production at the moment, but that's numbers of 8 4 plus 4 pin piles, it's not material, but it helps.

Next question [indiscernible].

[ Mark Baker ] [indiscernible]. Steel has always passed on to the client. Are there more costs which you can pass on to the client or when they change over time that you can build them that incremental cost?

Will directly pass through is indeed the direct steel and the flanges we are using. It's a direct pass-through. But also if you look at the longer term, so not for the firm orders in place at the moment -- for the firm production orders. What we have been doing, of course, also for the new tenants we are working on is increase our price levels. They can also factor in, just to make sure they're taking into account the higher energy price, but also the higher wage inflation, that this is indeed covered when we bring out our new pricing costs.

Yes. And I think here, we also have to be careful not to exaggerate because it's now working against us. There's also times when it works in favor. So you have to be careful not to sort of.

But do you need to take that risk soon to be better that once you have secured an order that back, you secure your gas and et cetera, et cetera that you lock it in?

But then if you look at the offers, it could be the case in the market, but if you look at the overall size of the business, and if you look at the impact of energy prices, of course, it's -- for this year, EUR 5 million is a significant impact. But if you look at the overall cost structure of our projects, it's still -- it's a minor part. So I think the key items, indeed, we are securing via a back-to-back mechanism. And this one, indeed, a small item is if it is becoming very material, more material than it currently is, it's something to think through. I agree.

Thijs Berkelder, ODDO BHF. Of course, a low water levels is more transport movements extra costs roughly in Q3 for transport. What's your plan?

No, we have contracts with our transport partners and the steel -- for the steel it's for diligent, for a supplier. And in between Roermond and Maasvlakte, it's also for our transport company. And yes, we have a bit of a fee that we pay, but that's not material.

Clear. And then coming back on, let's say, shortage in FTEs in recent weeks, of course, several big plants have been closing down in Netherlands. Is there already a first signal that you now can benefit from the [indiscernible]. And not yet.

It's a bit -- we thought, for example, that the closing down of this -- what is the energy plant at Maasvlakte as we were in contact to see if we could benefit from that, but that's revamped again due to the...

I think what we do see the last couple of weeks, if you look at the number of outstanding vacancies, especially in introduction, it's decreasing.

So we are closing the gap. We are closing the gap at the cost of doing also extra training, extra, what have you for the our -- up and running. That's the effect.

Then coming back on the slide we see on the screen here again? Your Maasvlakte or your new expansion plan is to be producing, let's say, early 2025. Korea and the U.S. should we assume more like in 27, 28-ish?

Korea will be faster because we will license existing technology. It's a 2-phased plan. The first phase is licensing of existing knowledge and they should be able to produce also end '23 beginning '24 providing they have in order. Then and the U.S., it's still too early to state, but it will not be before our much like plant is up and running. Henk Veerman. Henk, can you come through.

Can you hear me?

Yes.

Okay. Perfect. Good morning, all, experienced some technical difficulties.

Solved.

They're still, I got online, by the way. But it will just to answer my. Okay. Let me just start. First question on the return hurdle that has been discussed previously of 3 to 4 years. You mentioned earlier that the pricing you are discussing with clients is in your satisfaction, let's say. And at the same time, the long-term demand, we all see the graphs looks quite strong for the monopiles that you will be able to produce in the new outlay. So what exactly is then threatening the 3- to 4-year earn back hurdle? Is it just the investment outlay that is scattering that sort of that hurdle? Or are there any other factors in play.

No, the element here is more the longer pipeline. So it's really cool and good that we have these commitments from customers now are popping up for the start-up, but we are also looking at the volumes for later on in order to be more on the safe side there for this earn back, as simple as that.

Okay. So the conclusion is that for, let's say, for the first 3 to 4 years, you'll be able to, let's say, at least earn back your investment?

No, no. What I'm saying is for the start-up for the first maybe 1, 1.5 year, which is also very important, by the way. We know that we are -- we can be satisfied and we're pretty confident. But we also are looking for '26, '27, '28 at some sort of more robustness on commitments. Whatever for.

This earn-back period of 3 to 4 years, I think we also discussed it in the previous call, but what kind of like production utilization scenario is it based upon? Because also in the first half of this year, you sort of had to deal with a lot of operational difficulties.

In our business planning Henk, what we are forecasting is that you start up in the -- not at the full utilization rate. So in the long run, we are working with utilization rates of roughly 80%. Taken into account, again, a certain design of monopile, we call it the reference monopile. So you do not forecast or factor in more than 80% utilization. And also the first year, so in 2025, you did not factor in the full 80%. You work with a lower number.

Okay. So this 3- to 4-year earn-back hurdle is in your view, let's say, based upon a realistic base case production scenario.

Yes. Yes.

Or is it conservative in your view?

It's realistic, and it's based on the 80% utilization in the long term.

Okay. Clear. On the license agreement that you signed with GS Entec, am I correct to assume that it consists of lump sum payment in combination than with a, let's say, a license fee for each 1 of monopile produce. And then the follow-up is, when will this license sort of lump sum fee come in? Is it in 2 years? Is it perhaps longer or shorter?

No. Your assumption is quite close to reality. And if you're going to ask me to disclose the numbers, I hope you bear with me that I'm not going to do that. But we basically are looking like with our projects, the cash neutral, so to say, our cash positive program. So it will be quite a bit upfront. When exactly, that's what we're going to agree now with them in the coming months.

Okay.

Fred, sorry, and in the end, of course, it will not be cash neutral, in the end it will be cash positive.

Yes. But before we spend costs. We will add some.

Henk, please continue.

The other question is on the new agreement that you state that you are -- that you will intend -- that you intend to sign with Dillinger and also alternative suppliers because of the very volatile steel markets. Could you give some more color on how the alternative suppliers part of that -- those agreements, how that works, how that looks? And will the new Dillinger contract be materially different from this perspective in terms of the P&L or will it look like similar to the contract already in place?

At the moment, I'm not in the situation to disclose details about the new contract. What I can mention also for the future is Dillinger is already our trusted steel partner for a long period and will also be the case for the future. But at the same end, if you look at the overall demand for steel, we want to have also backups in place. So Dillinger at the moment and also discussions we're having is, number one, trusted partner. And if you look at the alternatives, looking at various alternatives and also the overall qualification process, it will take another couple of months and you also have something as a backup plan in case required.

And the main reason for now signing this agreement relates to the quite substantial increase of tonnage that we need on a yearly basis. So for us and for them, it's good to have a mutual commitment written down in an agreement on the volumes basically. I mean the pricing mechanism and the way we cooperate will not change because we're pretty satisfied with that altogether.

And when you say alternative suppliers, is that similar to -- because I remember historically, you had this alternative scenario where you would ship from Korea, if I'm not mistaken. Is that still the alternative route? Or are there also other alternatives.

There are a few in Europe, but they have the limitations on volume and plate size. Yes, there is the supply from Korea POSCO, you referred to. They are a possible supplier, but we as a company and also looking at the whole European policymaking are having a lot of preference for European steel supplies, given the CO2 footprint, CO2 penalties and also our role in actually meeting the environmental impact goals.

This remains -- so the base case scenario is still that you will be fully dependent on Dillinger also on the new.

Not dependent on them. We're not dependent, we prefer -- we actually want to cooperate with Dillinger because they -- we know them, they know us, and especially the quality of their steel second to none compared to others. And that's not to be underestimated because as I said it before, quality is one of our main competitive edges in the market, and we are not giving in on not a millimeter on that one. So whoever wants to become a second supplier to us has to really qualify on all these items and steel for us in all honesty -- is our price in all honesty is the least of our priority on the list, because it will be completely outweighed by hiccups in the production process, if you have quality issues.

Right. Yes, that is appreciated. But I mean, with the problems we're facing today being the low water levels in the line, with the new manufacturing setup, you would need roughly twice, if not more, as much steel plays. Would the scenario that we face today, would that sort of create additional problems when it would be required to produce or in price as much tonnage in the new manufacturing layer?

That's a very valid question. And there's a few things that we do there to mitigate. First of all, the storage capacity for the new facility on steel will be excessively bigger and higher than what we have today. So we can have a lot more buffer Secondly, we can as said, we are not dependent on Dillinger, so should there comes a serious situation, we can also get steel from abroad, not being Dillinger [indiscernible]. And then the third parties, Dillinger also has a factory and does supply steel plates from the Dunkerque facility. And that, as you know, is not limited due to the rivers. So also from Dunkerque often forgotten, but that's also a Dillinger a site, and they also produce the steel plates that we use. Turner, I understand you have a question?

I have 1 more for you, Fred. So on 2023, you talked about quite strong order book. I think you said at least 200 tonnes of production, which I guess all else equal, looks very strong and positive from a financial perspective. But for 2024, I guess it's a lot yes. I think you said the order book is 263 kilotonnes and over 200 goes to 2023. So 2024 looks a bit time at this point. I mean, what's sort of the status on tendering the fill 2024 capacity?

Also regarding 2024, we have also the volumes from the launching customers of 400 kilotonnes, and part of this can be produced also in 2024 and also part of it in our existing production facilities.

And besides that, we are working on a few projects still also for '24, Turner. There is something still in the market out there that we are working on. But in relation to what Ben just said, we have to be then careful here that we're not putting ourselves in the corner because we are also working on the launch of customers. And we -- although we have communicated first of January fully up and running, we want to start producing in our planning from the mid-'24 onwards already with test, but we like to do the tests with actual orders. Otherwise, we have to explain to you why we have 100-kilotonne test material in our factory.

But I guess -- I mean, operationally, is there any challenge to 2024 to have, let's say, a relatively full level of production compared to your current capacity? Is there something about potential startup of the factory that could mean that your 2024 production is lower? Or is it otherwise just a normal year in terms of our work scheduling and your ability to produce.

It will be an interesting year '24 for sure. I cannot deny that. But the way we set it up is that we are building a complete new factory next to the existing operation, meaning that we have a few weeks, we know maybe 2 months that we have some interference between the new and the existing factory, and that will cause some hiccup. But it will not be substantial or material enough to actually expect us to have a big deficit there. Any more questions?

Andre Mulder, Kepler. 3 more questions. Launching customers? Does they get discount? Normally launching customers get the discount?

It's no.

Secondly, on again, the expansion. Will this windmill also cover the electricity needs of the expanded project?

Yes. If it's turning. Yes.

And last question. To what extent does the expansion impair marshalling services?

Absolutely.

Fully?

Yes. So the marshalling, we are in discussion with the Port of Rotterdam to find alternative plots and see if there's a -- it's not a given the way it's set up and the fact that north of our facility, there was a plot, but that has been now rented out long term by another company. Not being active in this business. But yes, we need -- especially during the build phase, but also later on, we do expect that we have to limit our marshalling and logistic services unless we find another plot, which is [indiscernible] by the way.

Thijs Berkelder, again ABN AMRO ODDO BHF. You've included KCI, some other activities. Are there more companies you are in talks with looking at Dillinger, I recall, I think some 10 years ago, Dillinger was interested in acquiring Sif. And well, got no answer. So decided to set up steel in [indiscernible]. Is that part of any part of the discussions with Dillinger?

No. I mean, to be honest, no. And we're quite busy with what we're doing today and setting up and making sure that we are ready for the future. And at this point, there's nothing in that area that we can mention. No more? The people around this table are ready with their questions, officially at least. Are there more questions from the people online? No. Well, then I think I have to thank you for a very interactive and good questions during this session. And I'm looking forward to the next one where we, hopefully, will tell more about our investment plan. Okay. Thank you very much. And then I'll come to the end of this meeting -- official meeting, I want to close the lines. Thank you.

Thank you.