Nordex Se

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Q5Figures 2023 conference call of Nordex. Throughout today's recorded presentation, all participants will be listened on in mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press Start followed by 1 on your touchtone telephone. Please press the Start key followed by 0 for operator assistance. I would now like to turn the conference over to Felix Sanda. Please go ahead.

Thank you very much for the introduction. Good afternoon, ladies and gentlemen. Herewith, I would like to welcome you to our analyst and investor call this afternoon. Our CEO, José Luis Blanco, our CFO, Ilja Hartmann, and our CFO, Patrick Landa, will guide you through our slide deck. In the Q&A session, I would like to ask you to limit yourself up to three questions, please. And now I would like to hand over to our CEO, José Luis. Please go ahead.

Thank you very much for the introduction, Félix. I would like as well to welcome you on behalf of the entire board, Pachi Landa, Ilia Harmon here with me today, guiding you through our presentation and answering your questions later. For today, we have prepared our usual presentation deck. Going to the introduction as usual with the executive summary for the first quarters of 2023. Our project execution in the first quarter was sequentially better than the second quarter, but still slightly behind our internal expectations. We expect to catch up and complete even higher activity levels in the last quarter of the year, which should also support the improvement in our underlying margins. In the third quarter, we booked 2.3 GB of new orders, which was an increase of 58% compared to the third quarter of the year before, largely on the back of a strong performance in Europe and despite facing delays in non-European markets. The pricing and margins of these orders continue to be stable. In the first nine months, our order intake increased to 4.9 GB, exceeding the 4.5 GB of last year, with generally stable selling prices. Our order pipeline in Europe remains strong. However, let me also note that we continue to face delays in our international order pipeline, which could likely make our installation schedule next year more back-end loaded, like this year, which increases our general risk profile as you can imagine. We are also happy to report that the German market is developing well, although we see lots of early stage delays in not only project permitting, but also transportation permits. Going forward, this could impact project execution, but we hope that this will be addressed in time by relevant authorities and stakeholders. Our revenues rose from 3.9 billion euros by 15% to 4.5 billion euros by the end of September. At the same time, our gross margin also increased to 18.3% in the third quarter, leading to an improved gross margin for the first three quarters of 13.6%. We generally expect further positive developments of the gross margins with a higher share of revenues coming from better quality orders. Although, let me also point out that financial stability of some key suppliers in supply chain could also increase the overall cost, which is impacting margins and could also impact our margins in the future. Our EBITDA level improved as indicated in the last quarter, further in the third quarter to 48 million euros, representing an EBITDA margin of nearly 3%. Compared to our EBITDA margin of 9.4% in the first quarter and 0% in the second quarter, this is a step ahead. This was mainly possible due to higher volume and better underlying margins in the orders in the third quarters. Consequently, we now show an EBITDA margin of minus 1.5% in the first three quarters of the year and expect this continuing improvement in our underlying margins going forward. Outworking capital was stable at minus 10.2%. Our installations increase in the third quarter to 2.4 gigawatts, reaching five and a half gigawatts in the first three quarters of the year. And finally, I would like to confirm our guidance for 2023 and our midterm strategic EBITDA margin of 8%. And with this, I would like to hand over to Pachi for markets and ordering data.

Thank you very much, Professor Luis. As mentioned, looking at the orders, we closed 2.3 GW of new turbine contracts in Q3 for a total of 4.9 GW of new contracts in the first nine months of the year, up 11% with respect to the same period in 2022. 83% of the orders came from Europe and 17% from the Americas. The largest orders in the quarter came from Turkey Chile, Germany, Canada, and Spain. ESP increased to 0.85 million euro per megawatt in the first nine months of the year, up from 0.82 million euro per megawatt in the same period last year. Service sales amounted to 8% of group sales in the first nine months, with 483 million euro, up 21% with respect to last year, and a margin of 13.9%. The fleet on the contract stands at 33 gigawatts with an average availability of 97%. Turbine Offer Backlog grew 2% to 6.7 billion euro at the end of September. And the Turbine Offer Backlog grew 14% to 3.6 billion euro for a combined Offer Backlog of 10.2 billion euro at the end of Q3. And with this, I give it back to you, Enia. Thanks, Tashi. Good afternoon also from my side, and I would now like to guide us through the latest financial figures, starting with the income statement. As mentioned before, we had a soft start into the year. However, in line with our previous calls, our sales performance has been consistently improving every quarter since. So as a result, we recorded total sales of around 4.5 billion compared to 3.9 billion at Q3 2022. Year on year, this is an increase of about 16%. key drivers with substantially higher installation levels. We were up 54% in the first nine months when compared to same period last year. So as also indicated in our H1 call, our gross margins improved again. And now in the third quarter as well, gross margin stood at 18.3% for the quarter compared to 10.7% at the end of H1 as the extra cost of delays from last year received. The improvement is also down to the fact that we have better priced orders now starting to flow through our financials. So as a result of this, we generated a positive EBITDA of 48 million euros in Q3 after reaching break-even EBITDA in Q2. And going forward, we continue to expect improvement in the underlying margins. So with this, let's move to the balance sheet. The overall structure of our balance sheet remains essentially unchanged with a liquidity level of 732 million euros at the end of last quarter. In a breakdown, cash stood at 642, and if we add to this, Our cash was fitted at around 90 million. That gets you to the total liquidity amount I mentioned. And at the end of Q3, our net cash provision stood at 344 million euros and the equity ratio at roughly 19%. Now to the working capital. Working capital ratio continues to be relatively tight at minus 10.2% at the end of Q3. In our suit numbers, that was minus 639. Working capital was driven by increasing tables reflecting of a high operational activities during the quarter. With this, the working capital ratio remains below our guided number, which is below 9%, below minus 9%, apologies, for the current year. So we continue to expect a tighter working capital also for the last quarter. That ties into the cash flow slide. As we see on the slide, cash flow from operating activities still reflect the softer margin levels we have seen in the first nine months. However, we can also see a substantial improvement compared to last year. This is driven by continuously improving margins, as mentioned, and again, an even tighter working capital management. Cash flow from investing activities stood at around minus 95 million euros. This is largely at the previous year level. And it reflects the conclusion of our investment program as we had planned for. Worth to mention probably that we nearly reached break-even free cash flow, roughly minus 2 million in the quarter. Again, resulting from the same operational performance improvements that were mentioned at the beginning of the call that was released. And then finally, the cash flow from financing activities, roughly 300 million Euro, are basically on the same level as we reported in our last call. Key source will be inflows from our green convertible bond in April this year. And that gets me to the investment slide. I mentioned it a few moments ago, total investments. are around 83 million euros in the first nine months of the year. That's below the nine-month period of last year, where we stood at around 125 million euros. However, the lower level we have spent in the first nine months is in line with our internal planning for such a back-loaded year, so we expect a catch-up in the CapEx rate in the last weeks of this year. And closing on this one, I get to my last slide, that is the capital structure. As also mentioned earlier, net cash level at the end of Q3 at around 344 million. And then again, the equity ratio around 90%. That is probably an appropriate moment to remind us that both the debt to equity swap as well as the convertible bond were a good and timely instrument to further strengthen our financial position in an environment that remains uncertain for another while. This, backed by significant improvement on the EBITDA level over the past four years, gives us confidence that we are financially well equipped for the challenges that lie ahead of us. And with this, I give it back to José Luis.

So let's discuss operational performance in the first three quarters of the year. As explained in our calls, our installation suffered last year due to several reasons so that our target was and still is to catch up. As you can see, we have been making consistent progress every quarter and this quarter is not different. Our installation increased to 2.4 gigawatts in the third quarter, a 40% improvement. And this means we managed to install around 5.5 gigawatts in the first nine months of the year, an improvement of probably 54%. This is still lower than what we have planned internally. But we expect to catch up and complete even higher level of installations in Q4, which naturally increases our cost and our risk profile higher than usual for the last quarter. We have erected 1,090 turbines in 24 countries in all, compared with 791 turbines in 17 countries. Last year, with the biggest share of 60% in Europe, followed by 25% in Latin America, 8% in North America, and the remaining 7% in the region and the rest of the world. Our Nersel production, we assembled 900 units. 79 turbines compared to 1,003 in the same period last year. Due to the higher main plate capacity, we reached 5 gigawatts, demonstrating a slight increase of 3%. Further increase in activity is expected in the current quarter in Q4. Overall, the number of blades produced was 3,358, exactly on the same level as last year. Thereof, we produced 802 in-house compared to 879 last year. This level of higher outsourcing of blades is likely to continue in the future. We want to keep our flexibility, but also to keep in-house knowledge. So now I'd like to show our guidance for the year, which we confirmed. Our overall performance has been so far in line with our expectations. In particular, we were able to increase our revenue by 15% in the first year. Nine months after having reached our EBITDA breakeven in the second quarter, we could increase EBITDA further in the third quarter, which led to almost breakeven free cash flow in the third quarter. The working capital ratio remains in the targeted corridor. CAPEX spending is likely to increase significantly in the fourth quarter, but should still stay under our guided figure. And finally, as I mentioned earlier, the operating environment has clearly improved, but is not yet fully stable. Some of the uncertainties that I highlighted earlier include inflationary pressures within Europe, supply chain reliability, order intake in the international markets, and finally, the bottlenecking of the permitting process in Germany, both for projects, but as well for transportation permits. Furthermore, after a very intense third quarter, we are facing another very high activity level in the fourth quarter, which comes with our own execution challenges in the winter period. But we believe that the overall trends are going in the right direction, setting the stage for achieving our strategic mid-term EBITDA margin of 8% in a stable macroeconomic environment. And with this, hand over to Felix to open the Q&A.

Thank you very much for guiding us through the presentation. And now I would give back to you, operator, to open the Q&A. Thank you.

Ladies and gentlemen, this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. In the interest of time, please limit yourself to two questions only. The first question comes from the line of King John with Deutsche Bank. Please go ahead.

Hi, good afternoon. It's John from Deutsche. First question, can you help us unpack the evolution in the sales ASP? I know it's a term you don't like to use, but if you look at the Euros, sorry, Q3 revenue in Euro millions versus megawatts delivered, can you help us unpack mix effects or any sort of adjustments we should be thinking about? Also, with this in mind, should we have the same sort of considerations for the Q4 numbers, excuse me, The reason I ask is you're looking for higher activity levels in Q4, but if you look at your rev guide, you're probably from the midpoint of the range to the high end looking for about 1.4 to 1.8 billion in revenue. I'm just trying to square the circle on this. Thanks.

Okay. So, Patsy, I'm going to take it first, and then you complement.

Yes. With respect to ASP, we continue to be very, when booking orders for the Main thing is that the margins with which we are booking those orders, the underlying margin sales margin support, the mid-term profitability target of the company. It's true that ASP in the quarter has been affected by some effects, so reduce the scope deals as well as A particular product mix configuration and market mix configuration that have made that the number is around 0.8 million euros per megawatt. But the important thing, as I said, is that the underlying margins with which we are booking the orders continue to support the next-gen profitability. And to maybe support the point from Patrick, I think John is also getting not only at the order intake ASP, so to speak, but also at the performance when it comes to execution and that ratio coming down. I think what we always have to bear in mind, and then we come to Q4, is that... We have two types of projects. One is what we do as a cost-to-cost recognition. So largely, we recognize the revenues and the margin when we do the manufacturing. So production plays a huge role in how that is driven. And then, of course, we have also the milestone projects, as we call them, when effortlessly we book revenues and margin with installation or other milestones physically in the field. And the mix between the two can be very different, quarter and quarter, especially if you compare one year's quarter to another year's quarter. So the ratio just, unfortunately, just between the installations and the sales, the top line number is not really perfect to be reconciled. And then for the reason maybe together with you, but to calibrate John here and the others, I think now with a bit of less... performance in the Q3 than we thought, some of that slips into Q4, and so it will depend whether we can deliver on those installations and manufacturing.

Yeah.

Okay, just a quick follow-up on that. The revenue mix on your Q4 deliveries, is it similar to Q3 or is it different?

very similar in that if you compare basically the mix between a cost-to-cost and a milestone project between these two quarters, there will be differences, but they will be way more similar than this year's quarter to last year's quarter.

Okay. Thanks very much.

The next question comes from the line of Mida Vivek, Blitz City. Please go ahead.

Thank you very much, everyone, and good afternoon. I was wondering if you might be able Elaborate on your midterm margin and the order intake. So it seems like you've got a strong order intake for this year, possibly seven gigawatts might be feasible. And you've commented in the past that seven gigawatts plus order intake would be a requirement for reaching your midterm margin. So how has your confidence in reaching the 8% margin level in 2025 changed over the last three to six months? Thank you.

I think, as Pachi commented, we are not making compromises, but it's true that our order intake in international markets is not to the expectations, which trigger underutilization costs on the activity we have there. Order intake in Europe is good. but delayed, which means the activity of the company in the first quarter and the second quarter of next year is going to be low, similar profile than this year. We are still planning to execute close to one and a half gigawatts of below average profitability during next year. So all these effects are going to impact a little bit, delaying a little bit achieving the net profitability target. But the target is still there. We still think that the boundary conditions are there to achieve. And we don't change our view. is selling in this range seven to eight gigawatts at the margin that we are selling. Selling those on time, which so far is not 100% the case. Selling those balanced in the geographies we have the operations, which is not the case. And this might trigger some adjustment in the cost base of the company, if the ordering date doesn't come. But long history short, we are still in the company towards that mid-term target.

That's helpful. Thank you. And then my second question is a follow-up on that. You highlighted the delays in the international market. Is that just the U.S. comments? Could you maybe elaborate on where you're seeing those delays? Thank you.

I think it's U.S. definitely, and reasons Patrick can elaborate, and it's especially Latam and Brazil where we are executing a substantial volume this year as we speak. which unfortunately the market is temporary very low. So we are not losing market share is that the market is not contracting much, which trigger underutilization cost temporary in the next year. So we hope that the market will recover. There is no structural reasons for the market not recovering. And regarding US, I think it's a temporary effect.

The pipelines need to be rebuilt. The effect of IRA, the loss of visibility in the market is making that the market is for the most part in a wait-and-see mode. And the activity that we are seeing is mainly on repowering of projects. So we see the normal activity beginning towards next year for a normal year in 2025. That is our expectation.

Helpful. Thank you very much. Thank you very much.

The next question from the line of AG Patel with Coleman Sachs. Please go ahead.

Thank you very much for the presentation. I have two questions, please. Firstly, just on the guidance, you reiterated guidance today. You're already through nine months of the year and if you take the midpoint, it almost implies a 7% margin on EBITDA for Q4. I'm just wondering why leave the guidance so wide? Why would the uncertainties be that big? And does that midpoint very much sort of where you're expecting to be? And if that's the case, how should we think about that margin going into next year? I believe consensus is at 4.5%. So just get a little bit of an understanding there. And then secondly, on legacy projects, I think I just wanted to understand, I think you confirmed that 1.5 gigawatts would be below average profitability next year. Is that all of the legacy projects finished, i.e. there isn't anything going into 25 onwards, or is there still an element that that will weigh on results? And then on just the backlog, last question, you have flat order backlog in billions terms at the nine-month stage. You're calling for a sizable, well, similarish revenue to Q3. Is it possible that we end up with relatively flat order backlog at the year end going into next year, which would imply revenues being flattish going into next year rather than having substantial growth? Any sort of even qualitative comments around that would really be helpful.

So let's start with your second and third question because that maybe helps Ilya to take the first one. Regarding the backlog 1.5 gigawatts that were contracted in earlier times is what we are planning to process. These are with lower profitability than the average profitability where we are selling. You are right. And that's very much majority of it. Maybe there is a small tail of 200 megabytes still for 2025, but I don't think the figure is bigger than that. Jura sanction is very much our sanction, although we don't guide order intake. We expect a high level of activity in Q4. Jura sanction stands, let's put it that way. Yes, we plan a reasonable level of order intake in Q4. to support the activities for next year and regarding the guidance

There's one question open from AJ is about how we dilute the so-called legacy projects beyond 2024. And I think AJ to that, there might be lingering some of them, but basically once getting through to 2024, that mix of the newer battery projects margin-wise and the other ones should be almost completed. Again, outliers of long lead time projects might be there, but that should be the exception. And then the question on the guidance, let's take that together is, and then the next question, that's a fair question on the guidance. I think what the message from us is that we want to confirm our views from the previous call and the call before. We don't see things changed altogether since the last time we spoke. When we're calibrating everyone around the midpoint of the guidance, However, I think what we're doing is that the risks to reaching that midpoint have not decreased, because by that good Q3, but not as good as we would have expected, the burden on Q4, especially in the field, is higher than before. So there is a slightly increased risk to that midpoint calibration. And I think what we're talking about next year is a bit earlier. I mean, probably it's very sad to say, even before the budget is lined up at least, it will be better than this year. But I'm not sure you want to add something.

No, we are just in the process of planning and budgeting next year. It's early to say. We will see effects. of underutilization of certain capacity. We will see the effects of this 1.5 gigabas. We will see effects of the timing of the order intake, of the delay order intake that we had this year. As you remember, the order intake this year was very bad loaded, and this has impact in this year's profitability, but as well in the year after profitability. but too early to guide the year. Our view today is that it's a step ahead, and a step ahead to the mid-term targets that we are still into.

May I just make sure I got this clear in my mind? So effectively what you're saying is that clearly challenges for the Q4, but consistent with mid-point of your targets, 2024, we'll have one and a half gigawatts of legacy projects to work through. Activity levels in some areas are a little bit weaker. So, you know, maybe profile of revenue into next year could be more flattish in nature. And then when we look beyond 24, you know, there isn't really anything that holds you back from your midterm targets. in regards to as long as the international projects start to pick up, there isn't any legacy that would be a drag on performance. Are all of those comments correct? I just want to make sure I understood what you said.

Very much. I think a little bit Ilya mentioned regarding Q4. I remember in the previous call we said we were expecting high level of activity in Q3, high level of production in Q4. The high level of activity in installation in Q3 was true, but was not yet there. I gave a number, 500 and 400. We didn't do 500, we did 450. So, catching up 50 units in Q4, it costs you money and maybe some extra cost. Nothing substantially different, but that's the reality. And production as well is slightly behind that we need to catch up. So that's regarding this year. Regarding next year, your view is spot on. I think maybe I will add a little bit some difficulties in some suppliers that might cost some money, temporarily, until you adjust. And regarding 2025, we share the same view.

Fantastic. That's very clear. Thank you for your help.

The next question is from Sean McLaughlin from HSBC. Please go ahead.

Thank you. I just wanted to build on the previous questions to understand a little bit more about the increased risks that you're seeing. If I've understood correctly, the increased risks are a result of production shortages rather than delivery shortages. Is that correct?

...with instability in the supply chain, certain logistic issues in transportation, especially in Germany, and this is affecting the revenue profile and the margin profile, and consequently the installation. So installation is deviating out in the majority of the cases is customer but regardless this customer delay affects our P&L because we have a certain percentage of POC that we don't execute and that's very much it. So it's both, it's production, it's customer, it's logistics. Thank you.

If I can just dig also a little bit into Germany's there's been a clear uptick in permitting volumes and so I think there's greater visibility on market growth, but you're suggesting that there's a transportation permit issue and other potential bottlenecks. I mean, what in your view actually needs to happen for this not to become an issue for market growth in Germany?

Yes, I think that's a very good question. I think from the market perspective, we are very happy to see that the option volume increased from 4.6 to 7.7 expected subject to the last quarter but in the last 12 months substantial increase we are happy with our 30% on the permit share in Germany we are happy with the pricing of the German market and we are slightly concerned about the execution which is driven by several factors. One is a country factor that we are working together with the association, with customers, politicians, suppliers to the permitting issue because this is affecting us today, but it's affecting the ability of the country to deliver to the targets in the future. I think that if the government, together with the TSA holder, was able to accelerate substantially the permitting, because this is critical to national security, to energy supply, to, I mean, the country cannot afford that permits and roads are gonna be the bottleneck. So we are working collaboratively with the government, and hopefully this is a temporary impact.

Thank you. The next question from the line of Sebastian Rose with BNP Paribas. Please go ahead.

Yeah, thanks for taking my questions. Good afternoon, everybody. The first one would be on the margins. You made the comment around the quarter three development being behind your internal planning. So I would be interested in getting the sort of magnitude of what you would have thought would be possible. So if we could start there and also then the likelihood to catch up with that in quarter four. I think you said it in your prepared remarks, but if you could put a number behind it, that would be much appreciated.

Maybe, yeah, I mean, starting with your point, Jose, you said it, although it's the expectation that they install fire from the turbos, then you do fire 460.

Yeah, and production is less production, so our internal planning was a better idea. better revenue and better money on other revenue. Unless we were not planning certain margin deterioration we have with the issues mentioned before with certain suppliers, with certain temporary permitting issues. So maybe you can be slightly more precise.

But I think when we track it back to the activity, those, let's roughly say, 450 versus 500 envelope will not really go too much into detail on a public call. I think that gives you an order of magnitude. I think what Sebastian is after, I guess, is was that a stark deviation or just a slight shortfall? And my answer to that would be, as you said in the last call, Q3 we needed to deliver a pitch perfect quarter to make the numbers and that didn't happen. Shall we qualify there somewhere in a 10%, 10-15% delta to the plan? I think that calibrates people at least one misleading use of us there.

Okay, that's helpful. We can then move on to the pipeline. It's more follow-on questions. So you mentioned in a side comment that the U.S. is definitely behind that shortfall in the international order pipeline. So if one thinks of what happens in the U.S. so far, and it's mostly repowering business with an installed base, obviously that's not so much in your hands, but rather in other OEMs' hands. So I think it's intuitively understandable why you have sort of been missing out so far on the U.S. But if you just look ahead, and Pachi, it would be interesting to pick your brain on this one. What are you seeing really in the pipeline? When is the market really moving from repowering to sort of new builds? And what's your sort of positioning there? And against that, clearly also, how do you think currently about the Iowa plant?

I mentioned that before, so it's precisely as you mentioned, that repowering is actually the bulk of the activity that we're seeing in the market. We are not positioning ourselves as a company in that segment. And the normal activity will be picking up throughout next year. Also in the context of very long-term visibility for the first time in many years in the U.S. in pipelines of trades that need to get revealed. So there has been a significant amount of focus on BD that has to be reshifted So it's taking some time and those delays we are seeing in the normal that market that we are addressing. So it's my earlier statement. We see also 2024 a transition year from respect to orders in the US and we see a much more normal year 2025 for ourselves or for our company.

rather flattish development from today's point of view, really in the US in particular with no pickup, the real pickup before 2025. That's basically the thinking and sort of planning currently.

That would be guiding the year in the US, but yes, we see a transition year in 2024 and much more normal in 2025.

Okay. And the last one, sorry for leaving the point again. Obviously not so easy to make sense of on the one side you're showing, but obviously the delivery capabilities are to the tune of nine gigawatt annualized. If I look at the 2.4 that was printed in the third quarter. Against that, obviously you have been the order intake run rate as was discussed before that seven gigawatts. And then also your comment before Jose Luis that you might contemplate eventually some capacity cuts. So how should we think about the sequence of events If there is no sort of order pickup within the next two quarters, then you would have to sort of idle more capacity or what is sort of the kind of thinking here at this point, if I may ask that.

That's a very good point. I think this point is definitely Brazilian factories is suffering because lack of load. So I think we need to address that knowing that that was the dynamic of the market in the past and knowing that Brazil this year is one of the best contributors for the company. So we should not take longer decisions based on shorter time. So we need to be a little bit more patient there. The same happens in other regions. And then the other questions, you name it, is yes, we are running on a structural overcapacity that has a cost associated with that, that deteriorates the profitability target. But as well, there is always a trade off between working capital and capacity because you cannot prefer the company for an 8 gigabyte capacity and sell a gigabyte capacity because the orders are not coming in that sequence. The needs are not coming in that sequence and to produce an stable volume with an unstable unviable demand drives massive working capital investments that we cannot afford in the current balance sheet capabilities and free cash flow of the company. But we take care of those points daily in our strategic discussions for what volume prepare the company.

Okay, understood. And the very last one, if I may, just on that point of potential capacity cut in Brazil, can you give us a sort of magnitude of when something was happening? So what is the kind of affected staff number? We're talking a couple of hundreds. Really difficult to get a better sense simply of what that could mean on the financial end.

There is not much we can share at this point. I think we need to wait to the next call or to the guidance of next year to give you more color of how we plan next year. At that time we will have a better visibility as well.

Thank you.

The next question is from Konstantin Hester with Jefferies. Please go ahead.

Thank you very much for taking my questions. Unfortunately, all of them have actually been asked, but I'll quickly pull a couple in there. Let's see very quickly on the U.S. markets. Historically, you've always done deals with European companies there, so just wondering if there are conversations ongoing with local utilities, local developers, so basically building a relationship for potential future order intake there, or is that still very much going to be geared towards European developers? And then second of all, if you could maybe share your view on the wind power package that was announced a few weeks ago, and, you know, could we expect any kind of tangible implementation in the coming weeks? Thanks.

For the first one, we screwed up the propellant customers from the last five to six years has been geared towards large European utilities with activities in the US but not only and we have had also local customers and we are amazing so we are addressing the whole market to your question so that is the position that we have and the position that we will have in the next years as well.

Regarding the wind power packets, I think this is somehow encouraging. I mean considering wind of superior public interest. It's encouraging in that the Commission and the member states are addressing the market reform. They are addressing the acceleration of permits. They finally view the value of a resilient supply chain European base, which they want to prefer. and protect. So I see very positive signals from many different angles. Of course, the new power package needs to be translated to national legislation in the different countries where we operate to make this a reality. But definitely the North Star sets the right direction of the political priorities.

All right, thank you very much.

We have a follow-up question from Kim John with Deutsche Bank.

Please go ahead. Hi, thanks, everybody. Can we spend a little bit of time talking about CapEx build-out and capacity? So it would be helpful for us to get a steer on where the 180 million is going this year. Is there a regional focus? Is there a particular aspect? of your production capability or footprint that you're looking to augment. And a clarification question, please. We spoke about units earlier. Originally talking about 500 units and Q3 450 delivered. Are you speaking about completed turbines? Are we talking nacelles, blades? What are we speaking to here?

We installed units. We were planning previously to install more or less 500 in Q3, 400 in Q4. Unfortunately, we couldn't do that. So it was a good step up, but 450 instead of 500, which is a substantial deviation that we plan to catch up, but catching up in winter costs money and increases risk. Regarding the CAPEX is, you know, apart from the engineering capitalization of new variants and developments, majority of the CAPEX goes for transportation and installation equipment because we are doing substantial more activity and this requires more vessels, more trucks, more everything that uses transportation and installation fixtures. and it's as well related to blade modes. Blade modes to set up new blade lines to support the current volume and the expected volume for next year. Those are the biggest. Those are the biggest CAPEX items. So it's on-work capitalized, transportation and installation tools for higher level of activity, new modes for the pipeline of projects and for the supply chain strategy that we're implementing. Great.

Thank you. As a reminder, if you wish to register for a question, please press star 1 on your telephone. The next question is from Anis Zaya with Oddo. Please go ahead.

Yes, thank you. Thank you. Good evening. Thank you for taking my question. I have two questions. So first one is on the European Wind Act. in your view, what is the measure that could protect European manufacturers from Chinese competitions? And my second question is on LATAM. We see two big orders in Q3 coming from Brazil and Chile. So why... And you are indicating that those markets are in a standby mode. And you succeed to record two big orders in Q3. So could we have, why are you so cautious on those markets while you are succeeding to book orders? Thank you.

Regarding your first question, there are several points. I think among the principal in my view is the pre-qualification criteria to participate in the auctions, eventually to install wind turbines in Europe, cyber security, data residence, and control of those students is another factor. So I think that is perceived as European public interest to somehow be in control of that. And I think those factors can play a role. Regarding LATAM, Yes, in Q3 the ordering taking there was good, but that was the first quarter. So we were expecting not to sell in Q3 this year, but to sell in Q4 last year. So we waited three quarters without almost selling anything in that geography. So it's substantially less than one year earlier. And it's essentially less than initial expectations. And I'm fair to say as well that those orders came with certain margin compromises that were offset by above than average margin in certain European geographies. And this is why our view is temporary, not too optimistic. It's not that we are losing market share, it's that the market is not contracting because economies are not growing. There is a very high for a lot of water in the reservoirs and the electricity price is depressed. CapEx increased 30, 40% year on year. Capital costs, 300 points. And our customer just in these current circumstances, they postpone the investment decisions waiting for the right CPA. We start to see some light at the end of the tunnel, but it's very, very early to change our cautious view that the region is going to be temporarily in a sort of downtime. Thank you.

Thank you very much. Thank you very much.

The next question comes from the line of Christian Browns with Montiga. Please go ahead. So, Brans, your line is open. The next question is from Kulvinder Rajpal with Alpha Value. Please go ahead.

Yeah, good afternoon, gentlemen. So, two questions for me, please. First, if we zoom in a little bit on the wind action plan that was announced last month, It mentions considerable overhaul to the grid infrastructure in Europe. So do you think those measures are adequate? Because let's say even if the wind orders start coming through, we need a lot of capacity. We need a lot of investments on grids for this capacity to reach to the consumers. So what are your thoughts on that? And secondly, just a quick question on service margins. So service margins seem to be back above 15% in Q3, if my math is correct. So how should we expect them to trend in the subsequent quarters, mostly going into 24 and 25? Thank you.

Starting with the second question, thank you for the questions. Starting with the second question, I think we mentioned in the previous call that the service recovery in margins is going to be a two to three years journey. Because we suffer from effects, temporary inflationary effects, as well geographical footprint effect. nothing concerned, but temporary is going to impact. Although long-term, we are quite confident that we can come back to the previous reported So, and it's gonna be a step on step in the quarters ahead. Regarding grid, indeed, I mean, grid is a critical factor. I mean, for the substantial growth, expected i mean if the if the european economy is going to work carbon free so the first thing you need to do is electrify even more the economy and then decarbonize the part of the economy that cannot be electrified and for that you need grid as a key enabler for this mid to long-term strategy to be deployed. I agree with you, it's a key enabler. I don't think it's a massive challenge short-term, but indeed, if the grid doesn't deploy at the speed of the volume, yes, this might become bottleneck.

Okay thank you and just to clarify on service so the margins that we saw before 17% we will not see them again for 2-3 years that's what you said right?

Yes I would say yes towards 25.

Okay thank you so much.

The next question is from Mackie William with Kepler Chevrolet. Please go ahead.

Hi, good afternoon. Thanks for getting me in there at the end. Some questions. Firstly, on the supply side, given the growing importance of cost to cost and looking over the last three years, I mean, can you give us a sense of what you expect in terms of the operational side or the build rate production side of the business, how you see it running in Q4? I mean, should you be at your normal sort of level of nacelles of around 1,500 for the full year? And then just with respect to your supply chain, could you put a bit of color on perhaps the changing pattern of your sourcing and production around nacelles? There seems to be somewhat of a shift towards China. And also with regard to blades, a number of your key outsource suppliers are in perhaps weak financial positions. And how do you see that affecting your ability to source?

Thank you for the question. Your first comment, wow, spot on. The 1,500 is very much what we planned for the year in a cell, in a cell production. So let's see, because it's a substantial risk, because we did so far 1,000. So it means that we need to do 500 in a quarter, which is not a minor thing. regarding supply chain is very much our strategy is risk management so we want to keep certain capacity with the associated overcapacity cost in Europe at the same time we are ramping up So we want to have a diversified supply chain and see how policy plays out to accelerate going to the right or going to the left. This might impact as well temporary profitability, but we don't want to take any, let's say irreversible measure at this point in time without sufficient clarity in the policy front. So we need to be cautious, let's see, and then we have all cards open to go far, left or right, on a different speed. Regarding plates, I think we don't comment much on other companies. we mentioned that suppliers in general, suppliers profitability is something that is concerned to us because we are suffering a lot in many locations due to this situation. Regarding Blaze, we are taking the, our strategy is unchanged. and we are diversifying our supply chain. And hopefully this situation will be turned around with more volume for our suppliers. But at this point is something that of course, we are on top of that. But we don't think this is going to be that critical for our company. Yes, it might cost us some money here and there, temporarily, until things stabilize. But I don't think it's... I wouldn't expect any of the blade suppliers, let's put it that way, not to stay in business, which could be an issue for us. We don't expect that.

Thank you. And just two follow-ups. Thinking about the... produce capacity in terms of megawatts. I mean, should we factor in a continued increase in your average nacelle sizes? I mean, you're now running nearly at six megawatts per nacelle in terms of production. Is that sort of where you see the operations now? The output is boosted by the average size of the nacelle increasing as well. That's the first follow-up. And the second relates to you know, your underperforming business or the contracts from a previous era. I mean, you talked about the 1.5 gigawatt of business to be processed or installed in 24. But just to give a kind of reference or a baseline, what volume would you describe of the installed installations this year that would have been associated with low margin or contracts from a previous era. Thank you.

Regarding the average nacelle, yes, the market for us, The average megawatt is increasing and we see higher shares on the 6 megawatt platform. It's one of the reasons of the ASP because the bigger is the machine, the lower is the ASP at a stable margin. So you still sell at a stable sustainability margin. a bigger machine with lower euros per megawatt. And this is the trend for us because the majority of the European market require bigger machines. The second question is very hard to answer. The next year we know it because we are precisely on the planning for the budget and we know even the name of the project and geographies and so on and so forth. I don't have that data. I'm sorry. For that, we can look at it.

Obviously, it's higher than this year's. I mean, it's higher than this one. Yeah, sure. Because we have that receiving effect now. Such an important question not to mislead anybody on a public call, but if you, and that really, with a lot of caveats before looking them up and always be careful, take from the institution this year something to the tune of 30% or so, but that we have to deliver the exact numbers, I think that would not be misleading. But really, a lot of caveats, just to calibrate it this year versus next year.

Great. Thank you very much.

The last question is a follow-up from Sebastian Groovy with BNP Priva. Please go ahead.

Thanks, guys. Thanks for taking my follow-up. It's going back to your earlier comment that you made. So I'm a bit confused, to be perfectly honest, and I guess that's also what other people on the call will feel. And it's on the comment that you made with regard to next year, and I know how delicate and difficult it is to talk about that openly, but obviously there's Different buckets, obviously, that would help us understand better where 24 might settle. And that is volume. I think that is what you relatively clearly answered in the sense it's rather volume than up or down. So rather flat, sorry, the volume than up and down. I think you haven't really commented much on price. Still, the order intake is year on year 3% higher. It was obviously materially higher on the 22 order intake. So we could give us a bit of a handle of things there and should think there and then also on services, what sort of a growth rate from here might be going into 24 or on a more structural trend. And more importantly, even that's adding to the confusion, it's really that on the one side, Pachi has been saying that the overall pricing for product scope, whatever reasons might be trending down, but still the gross margin At the same time, we said that you had some compromise in Brazil. You also then on the contrary of the spectrum mentioned that Germany is going very well from a pricing perspective. So if you could give us a bit of a hearing when it comes to the cost profit margin going into 24 based on anything that you can see right now, that would be much appreciated.

Thank you. And let's be clear. order intake and the order backlog that we landed yesterday delivers the mid-term target profitability. And of course, there are certain markets with slightly above average and certain markets with below average. And there are markets with more scope and markets with less scope. But in all, we are delivering the mid-term profitability. And regarding next year, we just wanted to give you some color, but you need to understand as well, Sebastian, that we are in the planning process for the budget and we cannot comment much on next year at this point in time. We need to wait to the regular calendar of the company. We know that there are certain effects that might affect like the backloaded gear, like the 1.5 gigawatts of let's say legacy backlog, like the overcapacity in certain factories, like the stress in certain areas of the supply chain that might impact. But all in all, to the best of our knowledge today, next year we see a better year than this year. Do we see an 8% meter profitability target next year? No, we don't. But if we keep selling the quantities that we are selling at the gross margin that we are selling, the supply chain stabilizes a little bit and we keep deteriorating margin there. If the permits in Germany are solved, if the margin in service improves as expected, we see that towards 25. And this is what our view is with the limited information we have today and with a long period of looking ahead.

Okay, that's helpful, Carla. And then the very last one for me is just on the topic of Yeah, the more recent weeks have been totally guaranteed. So if and when volumes were to increase, and let's assume volumes were to shoot for eight, nine gigs, whatever, then the right figure might be over time. Would you think that currently the support on the side of the banks, et cetera, would be definitely sufficient to get there? Or how should we think about that?

That's a very good question, Sebastian. Let me take this one because it's earlier. look more than the total volume which is as described in the last year, this year, next year without going too much into it It is more the mix of projects and the mix of countries and where you have more bottom sheet, more project finance customers. So these things play a role. It's not just the total volume that you sell, but where and to which customer. But all that being said, as we're now very advanced already in in refinancing the existing bond line. We see from that end no concern.

That's helpful. Thank you, Ben.

Okay, thank you very much for all the questions. And now I'd like to close our Q&A session for today. And I'd like to hand over for your final remarks, José Luis, please go ahead.

Okay, so as usual, I would like to close our presentation today with our key takeaways. The order intake momentum has improved throughout the year, now being at a very reasonable level. The order pipeline remains robust, providing good visibility for the future. As expected and communicated, Evita improved further in the third quarter, benefiting from an increased share of better price orders being now reflected in the financials. Our financial position is overall healthy, providing us with enough flexibility on the back of a strong working capital level, improving cash flow profile and the issuance of the convertible bond. Finally, we confirm our guidance and feel comfortable with our mid-term strategic target. Moreover, we hope that the encouraging policy ambition and measures in our core markets will pay out soon. Thank you very much for your participation in the call and I wish you a nice afternoon. Thank you.

Ladies and gentlemen, the conference is now concluded and you may now disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.