Message from CEO

Message from CEO Fred van Beers

Full-year outlook confirmed, Satisfying margin development, Sound order book, Bright tender funnel.

"It looks like the human tragedy related to the war in Ukraine will continue for a longer period. Whatever the outcome will be, it demonstrates, amongst many other things, the importance of energy independence and security, placing the urgency of energy transition at the top of national agendas across the globe. More than short term revitalizations of oil and gas fields, renewable energy sources are key in this. For the past 20 years, offshore wind as one of the sources for transition, developed from a few countries around the North Sea, the western part of the Baltic Sea and China into many new areas in Europe, the United States of America and Asia.

For the Asia region we have entered into a strategic partnership with GS Entec from Korea to initially convert and in a later stage set-up a monopile factory in Ulsan or elsewhere in that region. It is our intention to grant GS Entec a 10-year mutual exclusive license for the Asian region to use technology developed and applied by Sif, for the purpose of manufacturing monopiles foundations and transition pieces.

For the USA region, discussions with a specific potential partner are ongoing. The recently approved massive federal budget for investment in renewable energy in the USA is an important step to further boost the transition process in the USA. Offshore wind will form an important part of this transition and Sif aims to play a role in that process when a strong partnership with an experienced well established local party can be agreed.

Client demand for climate change adaption solutions is high and increasing which is driving our production increase investment plans. Sifs order book for the period until 2024 is filled with sound projects for amongst others Hollandse Kust Noord, Dogger Bank B, Dogger Bank C and He Dreiht and with some smaller diameter offshore wind projects that partly fill our production lines for pin piles and smaller tubulars. Our capacity for 2023 is fully booked and we aim for a production output of at least 200 Kton. Tendering activity for projects in 2024 remains high including projects for our planned production expansion.

With 89 Kton output in the first half of 2022, we participate in projects resulting in 803 MW renewable energy capacity (576 MW first half 2021). Production was almost equal to the same period last year (88 Kton) and total output for the full year 2022 with 174 Kton is expected to end slightly ahead of 2021s output of 170 Kton. The war in Ukraine resulted in pricing and availability uncertainties around mainly steel and energy. Where increasing energy prices put pressure on our financial results, steel is a pass-through cost. Looking at our main financial and non-financial performance indicators, we expect to generate a slightly higher EBITDA on an adjusted basis compared to 2021. This confirms our guidance at the beginning of the year.

With the replacement of gas pre-heating by electrical pre-heating project well on its way, our ambitions for reduction of our CO2 footprint are on schedule. The combination of increasing product dimensions, relatively inexperienced new employees and production facilities that are reaching the boundaries of what we can handle, we see the injury risk increasing as reflected in our safety KPIs. The lost time incidents (LTI) increased to five compared to one in the first half of 2021, resulting in a lost time incidents frequency (LTIF) of 8.97 (2.63 in first half 2021). Not only have we sharpened our safety policies and instructions, we have also further invested in an open safety culture and continue to invest in safety improving tools and systems.

Higher sickness-leave, tight labor markets and consequential replacement by temporary or less experienced workforce puts pressure on production output, reflected in the forecast production for the full year. Post-closing, we faced a gas explosion in our Roermond-factory. Luckily there were no physical personal injuries but the mental impact on our colleagues was big. Trauma support is provided and one employee was taken to hospital for a two days observation. All gas and electrical circuits and devices were checked following the incident and preventative measures like extra gas detection devices were implemented to avoid a similar situation to happen again. A thorough root cause analyses is being executed and upgraded training and instruction procedures are put in place to manage the human factor related to this event.

Ever increasing product sizes is a trend we have been discussing for the past years; products increase in diameter, length and weight. The handling of these products in our existing facilities has reached its limits. The monopiles for Dogger Bank are the largest we have ever manufactured. Their diameters and weights measure close to nine meter and between one and 1.4 Kton respectively. This reflects what is assumed to be the lower end of the standard going forward. More than 80% of the offshore wind foundations in 2025 and beyond will measure diameters between nine and 11.5 meters. This will require different manufacturing facilities and production methods, but will also require different skillsets of our production colleagues. We have been studying different manufacturing options and resulting business scenarios during the past two years and have projected a preferred set-up for which we are seeking a committed financing solution. We made substantial progress and are well aware that by the start of 2025 this set-up needs to be operational to service our clients, amongst whom our launching customers that intend to commit to 400 Kton launching production capacity subject to timely FID for the expansion plans. In the meantime, we notice that various other main offshore wind supply chain companies have challenges in realizing a decent return on the capital invested as economical depreciation periods are often too short. For our investment case we therefore set the earn back period on three to maximum four years. We have shared our plans with clients and other value chain participants and their feedback has confirmed the robustness of our strategic ambitions for 2025 and beyond. All actions are geared towards an FID as soon as possible, aiming for completion of the expansion in the second half of 2024 to be fully operational by early 2025."