Earnings Call Transcript - CDLR Q2 2025

Operator, Operator

Good morning, and welcome to Cadeler's H1 2025 Earnings Presentation. Presenting today are Mikkel Gleerup, Chief Executive Officer, and Peter Brogaard, Chief Financial Officer. Please be aware that the presenters' remarks will include forward-looking statements. Actual results may differ significantly from the projections made today. The risks and uncertainties that could lead to these differences are detailed in Cadeler's annual report on Form 20-F filed with the United States Securities and Exchange Commission. Any forward-looking statements made this morning are based on assumptions as of today, and Cadeler has no obligation to revise these statements based on new information or future developments. The presentation today includes both IFRS and certain non-IFRS financial measures. A reconciliation of non-IFRS financial measures to the nearest IFRS equivalent can be found in Cadeler's annual report. The annual report and today's earnings presentation are accessible on Cadeler's website at cadeler.com/investor. This call is being recorded today. If you have any concerns, please disconnect now. Mikkel Gleerup, you may begin.

Mikkel Gleerup, CEO

Thank you very much, and good morning, afternoon, or evening to everyone on the call. I'm pleased to present our half-year results alongside Peter. Regarding the financial performance for the first half of 2025, we exceeded our expectations, leading to an increase in our full-year guidance announced in July 2025, which we are maintaining in this report. Wind Keeper secured a long-term contract with Vestas earlier this year, a significant opportunity stemming from discussions with our client. The upgrades for Keeper are pending before we begin commercial operations in Q1 2026. Seven vessels are currently hired globally, with two in Taiwan and two in North America. The demand for O&M services, especially for larger turbines, is rising, which reinforces our decision to launch Nexra, our service concept, with initial evidence of its market potential demonstrated by Wind Keeper. Despite the removal of Hornsea 4 after a delay from Orsted, our backlog strengthened to EUR 2.5 billion. The Wind Keeper is a key commercial highlight; it was negotiated, acquired, and delivered ahead of schedule, featuring a three-year contract with Vestas and options for an additional 2.5 years, commencing in early 2026. We anticipate that Wind Keeper will serve multiple functions for our client, primarily in operations and maintenance while also facilitating transport and installation for specific projects. Before initiating work for Vestas in Q1 2026, the Wind Keeper will undergo tailored upgrades to align with our operational model and client expectations in European waters. Regarding our fleet, Wind Orca continues its installation process on He Dreiht after an earlier O&M campaign. Wind Osprey has had an O&M campaign and is now installing on Baltic Power in Poland. Scylla is engaged in the Revolution Wind project for Orsted while remaining in the U.S. Zaratan is performing O&M work in Taiwan. The Peak is installing on Sofia, the Wind Maker is tasked with work on Greater Changhua for Orsted, and Wind Pace is in the U.S. for GE. The Wind Keeper is currently in transit back and is near South Africa, expected to arrive in Northern Europe in October. Our backlog stands at EUR 2.5 billion, with a recent contract signed for the Formosa 4 project in Taiwan, which fits well into our strategy, with installation planned for 2028. In the U.S., we are engaged in three projects, with Revolution being the smallest part of a backlog that is less than 10% U.S.-based and nearly complete. Although the backlog has seen slight growth since Q1, it remains strong even after the Hornsea 4 removal, with 97% of projects holding final investment decisions. We ensure our backlog consists of quality projects, maintaining its level despite the Hornsea 4 delay. On new builds, we're pleased to report that Wind Ally is nearing completion, currently in sea and jacking trials and ahead of schedule, now expected for delivery by the end of September, earlier than our original November timeline. This strong performance reflects the dedication of our team and yard. Wind Ally will embark on her first project, Hornsea 3, as planned. Additionally, Wind Mover is set for delivery in the fourth quarter of this year and appears slightly ahead of schedule as well. Wind Mover is contracted to start immediately post-delivery. Wind Ace is in production at COSCO in Qidong, and Wind Apex is in block stage. Overall, the four remaining new builds are either on or ahead of schedule and on budget. Now, I will hand it over to Peter to review our financial results.

Peter Brogaard Hansen, CFO

Thank you very much, Mikkel. For the second quarter, we achieved revenue of EUR 233.1 million, which was affected by the termination fees related to the Hornsea 4 postponement. However, even without those fees, we still saw significant growth compared to last year. Our equity ratio remains around 50%, indicating a strong balance sheet moving forward. The adjusted utilization for this quarter was 94.1%, which is excellent, and we are pleased to maintain levels above 90%. Our market capitalization is EUR 1.7 billion, and our EBITDA has also improved significantly compared to last year, although it has been influenced by the termination fees from the previous quarter. We updated our outlook for 2025 in early July, increasing the range to EUR 103 million to account for the termination fee, yet the growth we are demonstrating remains robust even after adjustments. Cash flow from operating activities rose by EUR 50 million this quarter. Our backlog is at EUR 2.5 billion, with a daily average turnover of EUR 4.9 million on the stock exchange. For the P&L of the second quarter of 2025, while still considering the impact of the termination fee that inflated the figures, we report solid growth. We now have eight vessels in operation compared to just four last year at this time, when late arrivals meant they were not yet operational. Our operational model is proving effective, with the cost of sales increasing alongside the fleet size and OpEx slightly lower than last year. SG&A expenses have increased in the past to accommodate our larger fleet, and we are now capable of operating both a larger fleet and additional foundation vessels for various projects. Our utilization rates were 76% and adjusted utilization at 94%. The cost of sales has risen due to the newly delivered vessels, which peaked in August of last year, affecting the comparable figures for Wind Maker and Pace. Our EBITDA has shown remarkable growth from EUR 32 million to EUR 189 million. The profit and loss statement for the first half of the year has again been influenced by the termination fees from Q4. Adjusted utilization for the past six months stands at 89%, which is also very strong. Although revenue has been bolstered by the termination fees, it has also grown due to new projects and vessels operating at higher rates than historically. This confirms that our operational business model is functioning as planned. Overall, both the quarter and first half of the year are in line with our expectations and preparations. We have maintained excellent control over development, costs, and revenue, resulting in a very strong quarter. The balance sheet is strengthening with the delivery of new vessels, and our Capital Expenditure for the quarter met expectations. Further details can be found in the notes to the first half accounts. The current assets are growing, largely due to the termination fees, which are classified as contract assets since we invoiced them in early July after receiving the termination notice at the end of June. These fees, due in Q3, should provide cash inflow during that period. Our equity ratio remains solid at 50%, down from 64%, as we have slightly more leverage now but we do not anticipate it dropping below 45%. The CapEx program is expected to be fully funded, with only the third A-class vessel, the Apex, scheduled for delivery in 2027. It's early for us to begin discussions on this, although we are initiating planning with banks for financing that vessel, which is of high interest. We currently have EUR 51 million in cash, not accounting for the termination fees. In summary, we have a solid financial situation with substantial available cash even after accounting for our CapEx program. Our hedging policy involves hedging 50% of U.S. dollar exposure on vessel installments and 50% of interest exposure, which has proven effective. Our financing overview shows EUR 2.1 billion in committed facilities. The financing for the Wind Apex is not yet committed, but we are in talks with banks to secure this about a year before the delivery. The Wind Keeper bridge facility in Q2 contributed to an attractive business case, allowing us to purchase the Wind Keeper at a favorable price with a solid contract. We have signed a takeout facility for EUR 125 million and can cover the remaining purchase price and CapEx through operational cash flow and available cash. Our full-year outlook, adjusted in early July due to the termination of the Hornsea 4 project, predicts revenue between EUR 588 million and EUR 628 million, alongside an EBITDA of EUR 381 million to EUR 421 million. This outlook is dependent on timely vessel deliveries and project execution. We delivered Wind Maker and Wind Pace in Q1 of 2025, which are currently in operation in APAC and the U.S., with two additional vessels set to be delivered in Q3 and Q4. We are also beginning to see revenue and costs recognized from our foundation projects, Hornsea 3 and EA 2. It's important to clarify how we categorize revenue; we report two lines: one for time charter revenue and foundation work and installation work from our vessel contracts, and another for other revenue— EUR 120 million in the first half. This figure includes the termination fees but is not exclusively from them, as it also encompasses various services and smaller revenue streams, including accommodation and catering revenues on our vessels. In the first half of 2024, comparable numbers also showed EUR 13 million. Therefore, it is inaccurate to conclude that the termination fees from Hornsea 4 amounted to EUR 120 million. Now, I will turn it over to Mikkel to discuss sustainability.

Mikkel Gleerup, CEO

Certainly. Here's the rewritten Earnings Call remark: We wanted to provide an update on our sustainability efforts, as we believe it's important to keep you informed about what we're doing. Our team has grown in both expertise and capacity to advance our initiatives. Over the years, we've received requests from several investors seeking vetting and certification under various standards, and our sustainability team is actively working towards ensuring we meet those requirements. We're also focused on decarbonizing our operations and have set ambitious targets for ourselves. We have outlined a roadmap that aligns with the incoming larger fleet, and we're assessing the areas we need to address to achieve our goals. We are upgrading the shore power for our O-class vessels, with Wind Osprey's upgrades expected to be finalized in the first quarter. We're also enhancing equipment efficiency for the O-class vessels following our recent energy order, and we’re scheduled to execute those plans by the end of the third quarter. Biofuels are also part of our strategic approach. Our legacy vessels are not compatible with newer fuel types, but we’re experimenting with blending biofuels into our fuel mix to enhance our sustainability profile and to work with clients on project delivery. Additionally, we're drafting a roadmap for implementing a human rights strategy, building off our previous framework, which will be presented to the Board for approval before being rolled out company-wide. Regarding our commercial outlook, we see the market going through a phase of recalibration, yet it continues to show momentum. We acknowledge there are external factors affecting the market currently, but we believe this recalibration period is necessary. Many targets in different markets have proven unattainable due to our existing supply chains, prompting adjustments within those frameworks. Companies are also revisiting their roadmaps due to local auctions and unexpected outcomes, as demonstrated in Denmark and Germany, as well as the U.K. We remain cautious but optimistic that improvements in market conditions and policies are on the horizon. We've observed positive trends in Denmark and the U.K., and we expect the upcoming U.K. round 7 to be particularly strong. Furthermore, the British government is allowing even some projects without permits to take part in the auctions, which is a new development. Governments are actively trying to maximize outcomes by the year 2030, although some projects are facing delays and shifting timelines toward that target. On the brighter side, we're seeing significant growth in project activity again, with important auctions on the horizon, particularly AR7. New early-stage markets are emerging, like offshore wind developments in Vietnam, where a major developer has taken an interest, and test projects are starting to come up in Brazil. We're maintaining a positive long-term outlook, believing that offshore wind will play a vital role in the future energy mix for various reasons. Challenges are anticipated for 2027 and 2028 compared to previous assessments, especially as larger projects exit the market. Our strategy has always included pursuing primary projects while having backup options. With our fleet's strength and our asset capabilities, we're well-positioned to support our clients even in those years. As we analyze the market, we predict an undersupply of vessels toward the end of the decade, starting with foundation vessels, where we anticipate shortages in 2029 based on the projects needing installation. Clients are engaging early with these projects to secure installation and O&M capacity. Our recent announcement of Nexra addresses this demand, as clients are requesting more support and capacity in O&M across different regions, some of which face challenges due to site complexities. To be efficient in vessel utilization, we've assessed installation timelines. For a theoretical project involving 100 turbines of 15-megawatt capacity, our P-class vessel can install more efficiently than standard vessels, resulting in significant time savings. Delays also compound costs, making our more capable vessels desirable in the market due to their superior value proposition. In terms of total supply, we're the market leader with 12 vessels, but when focusing on those able to efficiently install 15-megawatt turbines, the numbers change significantly. We see a drastic reduction in the number of vessels capable of efficient foundation installations, which leads us to believe there will be an undersupply in 2029 relative to project demands. Our entry into the O&M market is driven by steady growth and an increasing demand for services from our clients, particularly for more complex sites accommodating large turbines. We've had instances where clients had limited vessel options for specific turbine services. Our goal is to provide comprehensive support, which is why Nexra has a positive outlook in the years to come. We're expanding our team for Nexra, particularly with our Vestas contract, which serves as proof of concept and an opportunity to develop our capabilities further. While Nexra operates under the Cadeler umbrella, this branding helps us communicate more effectively with O&M clients. Our focus on strategic partnerships, such as the long-term contract with Vestas, solidifies our market position and allows us to maintain our backlog despite some project delays. We consistently monitor and adopt new technologies, including biofuel initiatives, to lower our carbon footprint, which is relevant for the Nexra division as well. We possess the industry's largest and most versatile fleet, enabling us to leverage cross-utilization and mitigate project risks across various branches of our business. Our experienced team has demonstrated adaptability, successfully integrating Keeper into our operations at record speed and preparing it for service early next year. Our robust global platform can navigate market shifts, and we strive to support our clients throughout these changes. We firmly believe in the long-term potential of offshore wind and the increasing demand for electricity. Our strong capital market performance and record backlog provide earnings visibility for our investors as we remain committed to prudent capital stewardship. Thank you for your attention, and we will now open the floor for questions.

Operator, Operator

We will take our first question from James Franklin with Jefferies.

Jamie Franklin, Analyst

So firstly, I've got to ask on Revolution Wind. I know, obviously, it's only a very small part of your backlog now, but just wanted to get a bit of color on what the potential impact could be to Cadeler if this project remains halted, for example, if it stays halted for a month or what would ultimately happen if the contract is canceled. So do you have any contractual protection in place, firstly, on Revolution Wind? And then secondly, on Sunrise Wind, please?

Mikkel Gleerup, CEO

Yes. I think what we can say is that contractually, we are as well protected as you can be. That has been discussed before because the fact that the market here is difficult at the moment is not a surprise for anybody. So the contract we have on both Sunrise and Revolution are contracts where I would say there's a lot of protection in them. At the moment, what we can say about Revolution Wind is that we are in dialogue with our clients. The only reference point we have is Empire that was halted for around about a month or so and then it was restarted again. The question is, will the same happen here? Nobody knows at the moment. So I think that we are here and we have said to our client that we are looking to support them to the degree we can with the installation of the project. That's the only logical outcome of this: that Revolution is completed and providing clean energy to the citizens of the U.S. But I think that nobody really knows today what is happening. We have been told that we should stop working on Revolution Wind and comply with the stop order and that we will hear more. That is what we know today.

Jamie Franklin, Analyst

Okay. Got it. That's helpful. And then secondly, I just wanted to talk about Wind Keeper. You gave a bit of commentary on your CapEx in the first half of the year, which included various construction payments for the new builds. But talking about 2Q specifically, is it fair to assume that the majority of that CapEx related to Wind Keeper and there's no sort of other major construction payments? And then the second part on Wind Keeper is if you can just give us a bit of color on the upgrades that you're expecting to make on the vessels, so not just in terms of the value, but if you can give us a sort of picture of what the physical upgrades are likely to be?

Peter Brogaard Hansen, CFO

Thank you, Jamie. I will address the first part of your question, and then Mikkel can provide details on the second part. Yes, it is reasonable to assume that the CapEx for Q2 is primarily related to Wind Keeper. There have been no unexpected CapEx expenditures in Q2 or the first half of the year. The costs are essentially the scheduled payments outlined in contracts with the shipyards. Wind Keeper did indeed incur significant expenses in Q2, so your assumption is accurate.

Mikkel Gleerup, CEO

And in terms of the upgrades, the upgrades we are doing on Keeper are upgrades that will enable the Wind Keeper to work in European waters like what we see on other vessels. The Wind Keeper has been built by a company in China that had an ambition of working in Chinese water and also in international waters. There are things that they have done in the design that we would have done differently if we had started the design. We are trying to rectify some of those. I cannot give you all the details, but some of the things that we are doing are that we are, for example, putting a new auxiliary crane on the vessel because the current auxiliary crane is in the way of how we do a deck layout for efficient O&M, but also for potential installation work. We're also adding a new bow cluster to improve the DP for North Sea operations, and we are also working on the leg guides to get more capacity out of the very nicely long legs that this vessel has that enable her to work on very, very deep water depth and very complicated soil conditions. We're also recertifying the main crane under an international classification society, which means that we can do a better lifting curve with the crane and then a general accommodation upgrade that will make her similar to our other vessel standards and also to what our clients can fairly expect from a Cadeler vessel. In highlight, those are the upgrades we are looking at.

Jamie Franklin, Analyst

That's great. And then the final question then with regards to Wind Keeper, were you actually sort of actively looking for an O&M vessel? Or was this basically just an opportunity that came up at a good price and you went for it? And have you seen sort of other similar vessels in the market in Asia?

Mikkel Gleerup, CEO

Last question first. We don't see similar vessels. The Wind Keeper is pretty unique in terms of how it's been built. It's been built with a lot of international components. So there’s a lot of, let's say, read across to other spare parts in the Cadeler fleet, for example, on the Husbank crane and so on and so forth. We looked at other Chinese assets mainly due to the questions from investors about what if these Chinese vessels suddenly came to Europe and began to compete. That made us look into all these vessels and we had to assess how it could be done and what would need to happen to them if they had to be upgraded. The conclusion was clear: it's very, very hard to upgrade the vessels that have been built particularly for the domestic market in China because they are built for a different installation methodology, that almost would make it easier just to build a new vessel rather than try to retrofit one of these assets. The exception was Keeper, but it has been offered to us for a long while, more than 2 years, and the price initially started in a different area. I think that our interest in Keeper started when we were contacted by the lenders of the vessel. We could see that we could acquire the vessel at a price point where we could also build an O&M business case on the vessel. At the same time, we had a dialogue with a couple of clients in need of that O&M supply starting next year. Since there is limited availability this year and next year in the market, we had conversations with some clients and presented this as an option. That led to the decision. I believe I've shared transparently how the decision was made.

Operator, Operator

Our next question will come from Roald Hartvigsen with Clarkson.

Roald Hartvigsen, Analyst

Congratulations on another strong quarter. First, just to follow up on the first question regarding Revolution and Scylla. I know it's still early, so probably no firm plans yet, as you alluded to, but do you see the potential for alternative work scopes for the vessel amid the stop order? I guess, more specifically, Sunrise Wind is in the same area still progressing. Do you think there is a scenario where Scylla moves over to help out with work there while awaiting clarity on the stop order? Or are there roadblocks making that prohibitively challenging?

Mikkel Gleerup, CEO

I think, first and foremost, our clients don't wish that. The vessel is mobilized for the installation of Revolution and Sunrise. If we work on something else, we have to demobilize from these projects because we are working with a Jones Act-compliant box that is landing the equipment on the jack-up, and we install from the jack-up. So it is not easy to just go and work somewhere else. I believe it's fair to say that our clients don't wish us to go and work elsewhere now. However, that is certainly something we would have considered if it were possible to minimize the impact for our client. After this news came out on Friday, some clients reached out to inquire whether that vessel then becomes available because there is currently a shortage in the market on capacity in projects, including installations in Europe. If the vessel comes free, which I don't believe or hope today, I would like to make that clear, then I think that it could be repurposed to another project.

Roald Hartvigsen, Analyst

Furthermore, we have, over the last year or so seen a number of contract terminations for turbine installation vessels where the turbine installation vessel operators have benefited significantly from large termination fees. Many would also categorize you in that category. In that context, do you see more pushback from developers to lower termination fees on contracts being signed and negotiated now and in the time ahead? Or do you still believe that the levels for termination fees in the contracts remain fairly stable from contracts signed 1, 2, or 3 years ago?

Mikkel Gleerup, CEO

I don't see that at the moment, but I would also say that the backdrop is very short still. If it's coming, we probably have not seen it yet. However, the flip side to that coin is also that, for us as a vessel provider to lock in the vessel and not being able to do anything else with the vessel comes with a cost. It's an option, and an option has a price. You can calculate the value of an option. I think that is how we are looking at it, as well, because we can also tell our clients that projects have been delayed and hence we need to protect ourselves if that happens. We cannot just sit with nothing if it happens because then we've become the losers in the grand play, so to speak. There are fruitful dialogues on this, and it's a two-sided sword almost. One thing is, of course, to have the protection and the termination fee. The other side is to try to really bet on the projects you believe in. There is work on our side to be rightly placed for the right projects while ensuring we are not always looking for the last dollar, but also looking for the right conditions and contracts. That is still working fairly well for all parties in the industry. As I mentioned, as a contractor, you are happy that termination fees are there, but you really don't want to have them; you would prefer to do the project instead. The same goes for Hornsea 4. We would have loved to do Hornsea 4, and will still love to do Hornsea 4 when it comes back.

Roald Hartvigsen, Analyst

Yes, makes sense.

Operator, Operator

We have no further questions at this time. Thank you for your participation. I will now hand the floor back to Mikkel Gleerup for any closing remarks.

Mikkel Gleerup, CEO

Thank you to everybody listening in. Good to speak to you again and reach out to us separately, Alexander, Peter, and myself, if there are any additional questions. I'm sorry we cannot give you more detail on Revolution, but I think everybody can understand that it's very new for everyone and we are working with our clients as much as we can in this sad situation that our client is currently in. We will update you as soon as we know something we can share. Thanks for listening in now, and have a good day ahead.