Cadeler A/S (CDLR)(CADLR) Update & Outlook - Capital Link Presentation Series | 1.30.24

Welcome to Capital Link's company presentation series. Good day to everyone. I'm Marela Cara, Vice President of Capital Link, and welcome to the 2024 Capital Link Corporate Presentation Series. In this series, company management highlights the company's current operations, business development, growth prospects and sector outlook. We are pleased to have with us today the senior management team of Cadeler: Mr. Mikkel Glue, Chief Executive Officer, and Mr. Peter Bogard Hansen, Chief Financial Officer. Cadeler is a key supplier to the offshore wind industry for installation services, operation and maintenance work. It provides marine engineering operations to the offshore wind industry with a strong focus on safety and the environment. The company is listed on the New York Stock Exchange under the ticker symbol CADLR and on the Oslo Stock Exchange under the ticker symbol CADLR. In terms of logistics, we begin with a company presentation followed by Q&A. Please note that participants can submit their questions through the Q&A button on your screen during the webinar. Your questions will be answered during the Q&A session. Before we begin our webinar, kindly note that this discussion is strictly for informational and educational purposes only and should not be relied upon. The webinar does not constitute an offer to buy or sell securities or investment advice or advice of any kind, and Capital Link bears no responsibility for the content. Please make a note that Cadeler may be making forward-looking statements. At this point, let us now begin with our discussion as I would like now to pass the floor to Mr. Mikkel Glue. Thank you.

Thank you. So, we will be quickly running through the slides here, and thanks to everybody who is listening in, by the way. We will quickly run through the slides and then we will be having lots of time for Q&A from the audience on the call. We are a pure play company that works as a T&I contractor in offshore wind, and we have recently completed a merger with Eneti, really forming the leading company in the offshore wind industry. We currently have four state-of-the-art turbine installation vessels on the water, and we are expanding with six new builds. We have been accelerating growth via M&A, and the merger, as I said, has really crafted the world's largest and most versatile fleet of offshore wind turbine installation vessels. Next slide, please. At a glance, you can say as a company we have installed more than 11.5 gigawatts of offshore wind. We have 10 vessels, four on the water, six in construction. If we looked at our revenues, then we would have been at 199 million in the combined setting excluding the vessels we have sold, but including the combination. We have a combined backlog of work of 1.7 billion euros and a market cap of around 1.3 billion euros. We have done more than 850 foundations and more than 1,300 turbines, and in total, including seafarers, we are more than 550 employees. Next slide, please. In terms of what is out there for us and what we are looking at as a company, we are looking at a very, very steep ramp-up of projects that have to be installed in order to meet the targets that the various governments and states around the world have set for themselves in terms of renewable energy and offshore wind power. We ourselves have a version of the truth that we believe in what can be done with the supply chains we have today and the outbuild of the supply chains that can happen for the various states. As you will see from the left side of the chart here, we are discounting a number of the projects that are planned for installation by 2030 because we think that even to reach this target that we are pointing towards here will be a pretty hefty journey that we will go through as an industry. Obviously, there are different levels of installations in different regions, but we do believe that both Europe, Asia and the US will see installations in this decade and also an increased amount of installations leading to an ambitious target of 2030. At the same time, we also see, if you look at the supply and demand balance in the industry on the various turbine platforms and with O&M included, that we are at a capacity constraint in the industry, and we need to ensure that the right vessel goes on the right project and that we use our vessels optimally to not have any suboptimal utilization of the assets in order to meet the targets on the left side of the chart. Next slide, please. We are aware that last year in 2023 there has been some headwinds in the industry. There has been some news around projects that are being paused, projects that are being canceled for many different reasons. The majority of cancellations of projects were around the US market, but we are seeing that these projects are coming back on track again. If we go to the next slide, I think we can already see that there is a fresh breeze in the industry, and I would say that the last quarter of last year and how we have started 2024 certainly gives a more optimistic outlook on what is coming ahead of us because we are seeing a lot of projects coming up for tender, a lot of developers looking at finalizing their projects, and we are seeing that projects are shifting owners, but with shifting ownerships also an accelerated timeline for the project. We are of the opinion that 2024 will be a very, very interesting year for the offshore wind industry. Just for ourselves, I think at the bottom left of the slide here you see that Orsted took final investment decision on Hornsea 3 at the end of last year, which was, of course, a very important point for us because it was one of the projects in our backlog. But I would also like to add we never doubted that FID on that project, and we are, of course, very, very happy that we have now seen it coming into fruition. Next slide, please. I think that if we look at the industry, then of course a lot of the things that are coming lie ahead of us here in terms of our own company development. We are delivering six vessels, we are putting new cranes on the vessels as we speak down in the Netherlands where the two O-class vessels from Cadeler are receiving new cranes to enable them to do the turbines of the future. But I think also it gives a clear picture of the industry and where we are: that in fully delivered mode, Cadeler will be operating 10 of the leading jack-ups in the industry, really putting us in a very, very solid position to support our clients and the industry as a whole going forward with ensuring that we install the targets that we have just been talking about. I think that if you look at it, one of the inherent risks for the developers is that there is another supply chain restriction that leads to a delay on their projects. There I think it is good to be with the leading company because we will have the best abilities to support any delay on projects if we can shift the vessel or something like that. We do see that from the client's point of view, this is something that carries a value, and also one of the contributing factors to a lot of the discussions we are in with clients at the moment: that size really matters in our industry, and the fact that we will be able to support them on many different levels with many different assets is a benefit. I think we look into a fleet on our side where we have capacity, we have open capacity as well for challenges that are in the industry but also for projects coming out there. We are seeing that 2024 has started very, very busy with new projects and projects in tender. I think we have said also that we believe that the fleet diversity that we have on our side with the integration of the vessels from Eneti, that we have a good diversity on the fleet that will allow us to always right-size the right project with the right vessel and really ensure that we have optimal utilization going forward, which is also one of the synergies we have pointed to pre-closing the deal. Next slide, please. If we look at the capex project, we have said it in the past, but we are fully funded on the capex project that we have embarked on with the new vessels and the new cranes, and we do not have a need for issuing new equity on current plans. I think that has been a fundamental position we wanted to put ourselves in pre-closing the merger. Next slide, please. In terms of the synergies I just mentioned quickly before, we have pointed towards annual synergies of 106 million euros that can be realized in the merger. We have already realized a chunk of these synergies by reducing corporate cost, management cost, and also optimizing hiring plans on both sides, and also improving the financial financing terms for the joint company. We have refinanced the existing vessels on the water at a better rate than what was jointly financed before. On top of this, we are looking at operational synergies. We will come back to that later in the presentation, but we are looking at operational synergies of around 37 million, and this is really around cross utilization of installation equipment, sea fastening and tooling, procurement, but also the execution capabilities on each side that will be better in the combined scenario. We think that all in all we are looking at around 37 million, and from what we can see already now, we will be able to realize some of those. We can see with the combined fleet diagram now that especially having eight vessels with the same frame spacing is very, very important because every piece of equipment that we own as a company that can be used on a project will have a much higher utilization degree, and it really is a cost saving to us on the projects we execute and hence a better margin on the projects. In terms of utilization and commercial synergies, this is what I think Cadeler has been really, really good at historically and what we will be able to even more refine going forward, because utilization is the key driver in our industry. If the vessels are working a lot, then we are also not the ones paying when the vessels are not working, and the vessels are expensive when they are not working. So having a very high utilization has always been a target, and in the combined setting we very, very clearly see that we will be having scopes of work ourselves that we can execute with own fleet, but also we will be able to speed up projects by having two vessels on a project at one point of time, or slow down if the project is not having their advancement from other parts of the supply chain that we expected by removing a vessel or having a less capable vessel on the project. This is really where we will see a lot of the synergies coming from going forward, and I would say especially towards the second half of this decade there will be a lot of synergies in that space. Next slide, please. We have just shown here some examples of how you can optimize the execution of a project by either having the standard with one vessel, a vessel exchange with another vessel, having two vessels where you can speed up, or if you have a late start on a project because, for example, the turbines are not ready or the foundations are not ready, then we can still meet the same end date but we can have two vessels for a shorter period of time on a project. These are just examples of how we will be delivering that commercial synergy, which is of course the bulk of the synergies. But I would like to say that since the combination, our confidence in delivering commercial synergies has only increased because we can really see that it makes a difference when we look at the diagrams in front of us. Next slide, please. Looking at the cost and the utilization again, here we are looking at the mobilization and demobilization. We will be able at a much higher rate to have vessels mobilized for various scopes of work and also try to eliminate these mob/demob scopes to an absolute minimum, which will improve the utilization of the asset, the efficiency of the asset, and really also drive down cost for us because we will have much more efficient installation days in a year rather than having these breakups in between all the projects where we either are mobilizing or demobilizing projects for next projects. This is something we will be constantly trying to refine because we believe there is a lot of added value for both us as a company but also for our clients in doing this the right way. Also, a very strong added benefit for a company in renewable energy: if the vessel does not have to always demobilize and remobilize, that will also be a very significant benefit to the environment as our carbon footprint is reduced significantly. Just as a number for everybody to understand, the sea fastening represents around 20% of the carbon footprint that we bring to a project. So if we can work with this sea fastening in an efficient manner, then we will be able to drive down the carbon footprint of our part of the project. Next slide, please. In terms of the Cadeler journey, I think when we listed the company, we were a company with two vessels, two office locations, a very small presence in Taiwan and Taipei, headquarters in Denmark, and 47 people in the office and 158 seafarers. We then listed on the Oslo Stock Exchange. This was really the start, end of November 2020. If you go to the next slide and see where we are today, now three years in, we are a company of four vessels on the water, so we have significantly de-risked the operational risk of the company by having four vessels on the water today and six coming — six new builds ordered. We have six office locations in all major offshore wind regions in the world. We have 233 office-based employees, we have 363 seafarers, and we are present where we need to be present. We are also actively at the moment evaluating the South American region, which we think will be very, very interesting, also deemed by what they did in the onshore wind market — a lot of positive trends to be taken away from that. We think that also the fact that we see all the big developers now entering that market is a sign that we will see some significant developments from that market towards the end of this decade and the beginning of the next one. That is certainly a market where we would like to play a role. But certainly a very, very strong track record, both in terms of what we have done and also a very strong backlog of work that we will do. We certainly have a very strong backlog of very exciting projects, and as I have said to many investors in the course of the last half year, it is always very important to evaluate the quality of the backlog, and we believe that our quality of backlog is very, very strong and have not been affected by these blips that we experienced last year. Next slide, please. In terms of us as a company, what can an investor expect from us? We are currently working on turbine transport and installation scope for turbines, for foundations, and we are also working in the maintenance and service segment. We are constantly looking for value-creating vertical and horizontal expansion. We are open to both organic and non-organic growth, and also in terms of regional expansion, as I just quickly talked a little bit about. We are a company that focuses on relationships, so we are also looking for further strategic partnerships in the regions that we are working in, which can be both in the US and in Asia, but also in Europe for that matter. We are looking at delivering an increased portfolio of services. So what we always do when we are in a business area: we look at what are the associated synergies with this business area, and that is also how we are moving ahead, both in the new regions but also now as a bigger company. Then we are also looking at floating wind. We oftentimes get the question: what do you think about floating wind, is that a threat? We see it as an opportunity because we say it is the same equipment, it happens offshore, it is the same clients. It is just a different installation method that is needed. But a lot of innovation has to go into this because we do not believe that pulling the turbines back and forth to port is the right strategy for, for example, O&M. So new procedures, new strategies, new innovation is needed in order to make floating wind an economically viable market to outbuild the industry further. In summary, we are working within the dotted red line — everything that is complicated basically on the contractor side — with a focus on the transport installation but also on the operations and maintenance. We believe that operations and maintenance is a very attractive market. It is also a market that is growing significantly at the moment with a bigger installed base, and also where we see that there is a significant undersupply of capable assets in that space. So also a place where we with current capabilities easily can play a role, and we will be playing a role in that space. Next slide, please. With that said, happy to start the Q&A session. I think I kept it within the 20 minutes that we agreed with the team at Capital Link before starting, so now looking forward to take all your questions.

Indeed, thank you Mikkel. And with that introduction, I would like now to open the floor for questions. So the first question we have here: Are your vessels qualified to operate in US waters under the Jones Act?

You can say yes and no. No, because they are not Jones Act compliant. In order to be Jones Act compliant, they have to be built, operated and owned in the US to certain percentages. So no in that respect. But there are certain circumvention methods on the Jones Act that have been operated with in the US for many decades, for example in the Mexican Gulf on oil, where the BVS and feeder methods have been prevailing. So that is also one method to use in the US market. It is a fact that if we do not circumvent the Jones Act, the offshore wind market in the US will not happen because so far there is only one vessel being constructed at the moment, which is the Dominion vessel currently under construction. So we will actually be working in the US already from this year, but it will be with a foreign flag vessel, and then complying with the Jones Act on this BVS and feedering method.

Moving on, the second question to answer would be: Do you have any strategic plans for installations of your future assets in Western Canada areas, such as Pacific region, over the coming eight or nine years?

I am not sure I understand the question, but yes, we are having strategic plans for how we will deploy the assets, if that is the question. And of course we are looking at all markets that are opening. What we are focusing on as a company is building up a pipeline. We are not coming anywhere to build 20 turbines in a remote location and then sailing back again, because firstly it is not sustainable to move these vessels around the world just for 20 turbines, but secondly, as I said in my presentation, utilization is a key driver in this industry. The vessels are costing around 0,000 a day when they are not working, and we need to ensure that there is always a client who needs the vessel so they are paying for the opex cost of the asset as well. I do not know whether that answered the question. I did not understand the question 100%. It is a little bit obscure. Well, let us move on to the next question, which is funding related. So I can see: for the addition of the six vessels or the crane installations, are they fully funded, would you say?

Yeah, we would say that it goes both for the newbuildings that we have on order, four in China and two in Korea, and also for the crane upgrades that are being installed at the moment on the O-class vessels. So for both, we are fully funded.

Okay. And let us dive into capital allocation strategy. Can you provide some color? Where is Cadeler heading?

That is also a very broad question, but I can elaborate a little bit on how we look at it. We allocate the capital, of course, to the projects or the business with the highest return on capital. We are looking at our threshold as a 15% return on the invested capital. At the moment, that has been done into only wind turbine installation vessels and foundation installation vessels, but it could also in the future be into cable laying or other adjacent businesses. That is something we evaluate on an ongoing basis. And then often it also spills into what is the dividend policy. What we can say there is, of course, we are building up now the business, and when we have a fully delivered fleet of 10 vessels in '26, then subsequently there will be a significantly higher cash inflow from operations and also more than to serve the debt that we have in the company and repayment of that. So we will be starting to look at also distributing dividends to the shareholders, in a combination with investment in attractive investments.

Okay, yeah. And I think that links to the last question that was just added here, because that is certainly one of our ambitions: to return cash to shareholders in dividends. But I think it will be a combination going forward between growing with the industry, also when it is pacing itself a little bit more, and then, of course, dividend policy. I think that was a question around also whether there is any chance that the US Jones Act will be waived to speed up the installation of US offshore wind.

I do not think that will be waived, but I think there might be some exceptions, especially around the foundations, where we do see at the moment that there is a discussion around whether a foundation is part of the Jones Act or not, or whether it becomes Jones Act when the foundation has been installed. So that is something we are seeing. I think that the US market is also finding its legs at the moment in terms of what is actually in the Jones Act and not.

Thank you for the clarification. The next question is: Where do you see the order book of your sector currently?

I think it depends on how you measure, because of course if you look at the order book of the developers, every wind project is several billion dollars. So I think it depends on how you measure. But I think we are in a very solid position where we are. We do not do EPCI, and that also means that we do not count equipment in our order book, because we do not deliver any equipment. We are very firm on not doing that. But if you compare us to the EPCI companies, for example, if you look at their order book, it looks much bigger, but they also, for example, deliver the foundations, they produce and deliver the foundations, and of course that boosts the order book. But if you look in terms of margin, our margin in terms of percentage is much more attractive than theirs because in many cases, when they deliver equipment, the margin is much slimmer.

Okay, let us switch gears here. The next question is: Despite the headwinds anticipated mainly due to supply chain issues in the offshore wind industry ex-China, you seem optimistic about 2024. Could you elaborate?

Yeah, I think that '23 was a year where the industry basically paused. It was almost like we hit a bad wave and the vessel stopped its motion forward. That has caused that all the projects that were not approved in '23 are now coming for approval in '24. If you are building towards the same end date, which we still are, but you have to do more in shorter time, then the steepness of the curve just increases. We can see that already now, so this is where the optimism is coming from. If you compare, in Europe, for example, auction round five in the UK there was no bids at 44 pounds per megawatt hour, but now the subsidy level has gone up 60 plus percent. We are seeing that in auction round six coming this summer, all the round five projects will be bidding along with all the round six projects. So we will have much more projects fighting for the same supply chain, subsidy, and all of that. We can certainly see already now that it will be very, very busy. I see more questions coming in. Perhaps Peter, you might want to address the next one: talk about the benefit of a larger fleet following the merger.

I fully agree with that. And from an operational standpoint, as I said, for the clients to go with a company that has 10 vessels rather than a company that has two vessels, it is fundamentally different, and that is creating a very large operation synergy that is also creating a strong financial synergy because it should be evaluated in the annual numbers then going forward. For those who are not familiar with your business model, can you provide any guidance as to your model and future cash and the deployment of future cash? Perhaps that is one question.

Okay, the questions keep pouring in. I do not want to repeat the same. Admittedly, the offshore wind industry can be challenging. So how do you see the regulation side of the business? What do you think, are you perhaps going to encounter new regulations in the near future?

I think there will be regulations in offshore wind like in any other place, and we are compliant. We are living by the highest standards in the industry, and we have absolutely no problem with any regulation that makes offshore wind safer and a better place to be. We are behind that.

Okay, very good. Can you also offer some insight as to your chartering strategy?

We are not a chartering company. I want to make that very clear. Chartering is something you do with tankers and bulk carriers. In our world, we do project quotes. So we are executing a solution on behalf of the client with their equipment. For us, it is also a fixed price contract in many cases that we embark on, where we deliver a product to the client at a fixed price. Of course, this price can then vary if the client has variations to the contract that we signed. But it is really not a chartering strategy. But fundamentally, we are looking at how much do we want these vessels to be busy versus keeping a little bit free so we can help clients and take opportunities if they arise. We do have a strategy behind that, but we do not want to disclose a number in terms of how we want to do it because it also becomes a little bit commercially sensitive. We will be in a position where we can say okay, this part of the fleet will be locked down on contracts, so we know that the fundamentals are in place, and then, of course, keeping something for the upside as well. That is fundamentally how we think about it if that is the question.

Thank you. Another interesting question is: Do you expect to see further consolidation in this industry?

Further consolidation, yes. I think there are certainly room for further consolidation in the industry. The question is whether it happens or not. There can be many reasons for doing consolidation, but also many reasons for not doing it. At the end of the day, it depends a little bit on the companies that are out there, whether they want it enough to give up control. There are many different things. But I think the industry is still pretty fragmented, and there is room for further consolidation, yes.

And Peter, perhaps you can answer this question with your finance side: What is Cadeler's view on transitioning into a turnkey EPCI provider for construction or a life cycle service provider for O&M operations?

I think the best answer is by I can take that question. Thank you, Peter. I think we do not have an ambition of being an EPCI contractor. I think historically in the industry, there are a lot of companies that have burned their fingers on EPCI. As I said before, you need to deliver components to the industry. Then you need to either design and build the foundation and deliver that as part of the package, and that holds the challenge that you not only have to do fit-for-purpose clauses in your contracts, but you also have to give warranties on the products you deliver. Those are things that we are steering very, very clear away from. We want to make it a simpler business model where it is really our services that we sell to the clients. You can think about us as a construction company that uses these complicated vessels as our tools in the toolbox, but we are building things. That is our key capability, and this is where our know-how is at its best. In terms of the O&M part, the second part of the question, this is something we are working on at the moment to find out exactly where it is that we want to play a role in the O&M space. It is not so simple because you can decide just to go full speed ahead on everything, but that might put you in a situation where you become a competitor to some of your clients because obviously the turbine OEMs also like to do part of this work. On the other hand, the developers would like to have more suppliers outside the OEMs in this space. So for us it is a balancing act where we want to play a role. Ideally, we want to do more full scope O&M services. We believe it is a very interesting market both from a financial point of view but also from a capability point of view. We have the right tools for doing it the right way, the right assets and tools in one box basically, but also the right capabilities. So it is a place where I think it is fair to say that Cadeler will be playing a role more. We have played a role historically, and we are playing a role more as a gap filler today, but to make it a real business, one has to focus on it a lot. I think we are looking at how to be a contributor and a real industry player in that space and segment as well.

Very well. Another question that just came in: How close to shore should offshore wind projects be?

That depends from place to place. In Denmark, we have a project called Danish Nearshore, indicating that it is pretty close to the shore. There is always this NIMBY effect: nobody wants it in their backyard. In my opinion, it is easier to get permitting if you are further away and nobody can see it. With that said, actually in Denmark and in Europe in general, offshore wind turbines are tourist attractions. People travel out to see them on ferries. So I cannot give an intelligent answer to that question. Where they are allowed to be built, they should be built.

Thank you. And lastly, I think I am going to sum up the presentation with this question: How would you envisage the future of Cadeler in the years ahead?

I think this question could be answered both by Peter and myself. I think this is where we agree. I will leave the capital side to Peter, but I think he will be talking about prudence and ensuring that investors get capital return to them. But from a company point of view, we want to follow our clients. We want to be the place that our clients call when they need offshore installation services, but also the place they call if something goes wrong or if they need to fix something offshore. We have been on a journey and we have come far on that journey to be that company, but we also need to focus on maintaining that position now, and to give our clients that feeling that when you deal with Cadeler, then we also inherit their values and their targets to ensure that we build many, many successful offshore wind projects. This is what the industry needs. If we can show that we can do this successfully, on budget and on time, then the projects will come naturally. That is what we aim to do. So really working together with our clients, being a listed company, ensuring that our investors have sound investments in the company. That is what we foresee for the future.

Yes, very much agree with that.

Are we missing anything? Would you like to add any remarks here at this point?

No, I am just saying again thanks to all the shareholder support we saw in the merger. I think that we cannot say that enough. The support we met from the existing Eneti shareholders was absolutely phenomenal, and we will go to work every day and work bloody hard to deliver back on that confidence we saw from the shareholders. That is certainly a promise that we are happy to give. We are ambitious, we have plans for the company, and we were very humbled by the support we got from the shareholders.

And with that, I would like to say that today's presentation concludes. Thank you both, and thank you to everyone for taking the time to join us today. The presentation will be available later today on our website, and you may now disconnect. Thank you. Thank you. Thank you.