NKT has already announced that its 2019 financials would be a dismal read. Now it seems the year will turn out worse than anticipated.

In the wake of a quarterly interim report underperforming on practically all parameters relative to Q3 2018, NKT now downgrades its annual guidance.

The revenue forecast for full-year 2019 was previously in the range EUR 0.9-1 billion in standard metal prices, and the cable company projected earnings before interest, taxes, depreciations and amortizations at EUR 10-30 million. Both posts now get a downward adjustment in the lower end of the respective spreads.

"Nothing will end up saving 2019. We'll first see an improvement in 2020," warned former acting Chief Executive Roland M. Andersen back in the spring of this year, however, those expectations for 2019 now appear to have been too positive.

NKT's cable business' revenue in standard metal prices fell from EUR 286.9 million in 2018 to EUR 232.4 million this year. Quants hadn't foreseen this decline, and based on estimates gathered from NKT, they projected EUR 259.2 million in revenue. This is also reflected in the operating result, which dropped from EUR 27.6 million to EUR 10.8 million. This, again, was well under analysts' outlook of EUR 12.4 million.

The company's combined business closed Q3 with a deficit of EUR 19.2 million, with the cable unit accounting for a loss of EUR 20.9 million, while the Photonics division, specializing in laser equipment, exited the period with a profit of EUR 1.7 million.

Order book grows

All in all, the interim report paints a picture of an expectedly poor 2019, but several aspects performed even less well than expected. The Solutions unit continues to burden the spread sheet, showing 16 percent negative growth in the cable business' third quarter.

For context, one year back NKT booked a major EBITDA guidance downgrade for 2018, adjusted from EUR 90-110 million to EUR 70 million. In other words, expectations for 2019 were already in the basement compared to last year.

NKT noted an order book worth EUR 1.09 billion, to which the Viking Link interconnector project was the most substantial contribution – an order NKT previously mentioned it hoped had been bigger.

"Just call it non-event, but we characterize it as expected and actually quite alright. But we are aware that the absolute earnings level is hardly in line with where it should be. That will improve looking forward," Andersen, now chief financial officer, told EnergyWatch in August.

On the other hand, the high-voltage land and sea cable order for offshore wind farm Creyke Beck A and Creyke Beck B at Dogger Bank didn't make it on time to enter the quarterly accounts. That order, worth EUR 360 million, would have embellished NKT's balance.

That might serve as some consolation, but it won't help in 2019. Here, NKT expected to realize a mere 10 percent of the order book, while 45 percent will be actualized in 2020. The remaining 45 percent will be completed in 2021 or later, the company reckons.

Bright spot set in ejector seat

There was only one bright spot in the Q3 report – namely the Photonics unit, which not only outperformed 2018, but also exceeded analyst expectations for the operating result.

Photonics' revenue climbed from EUR 15.2 million to EUR 16.7 million in the third quarter relative to 2018's ditto – slightly under the quant consensus forecast of EUR 18.1 million. On the other hand, the operating result leapt from EUR 1.5 million to EUR 3.9 million and surpassed analyst expectations of EUR 2.7 million.

As an expression of the idiom 'get out while the getting is good', NKT's board has decided to explore "strategic alternatives" for Photonics, the cable company writes in its report.

According to Chair Jens Due, this will take place in order to, among other things, reduce NKT's debt.

"Today, we're starting to explore strategic alternatives for NKT Photonics to optimize the [potential, -ed.] value creation we think that business has. Now is the right time for such a process to position NKT Photonics for long-term growth and to support the reduction of debt on NKT's balance," Due writes in a statement, reports Danish news agency Ritzau Finans.

The group debt obligations have been increasing in steep incline, from EUR 248.3 million from the end of 2018 to EUR 349.9 million today. A timeline has not yet been set for this process for the Photonics unit.

English Edit: Daniel Frank Christensen

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