Nordex Se

Thank you very much for the introduction. Good afternoon, ladies and gentlemen. A warm welcome on behalf of Nordics to our investor and analyst call for the full year 23. Our CEO, Jose Luis Blanco, our CFO, Elia Hartmann, and our CSO, Pachi Landa, will guide you through our slide deck, sharing all the relevant topics with you. After the presentation, our Q&A session takes place. Please limit yourself up to three questions, as already mentioned. And now I would like to hand over to our CEO, José Luis. Please go ahead, sir.

Thank you very much for the introduction, Félix. I would like as well to welcome you on behalf of the entire board, Hachilanda CSO, Ilya Harman CFO here with me today, guiding you through our presentation and taking your questions as usual. Moving to the executive summary. As usual, I would like to start our presentation with the executive summary of the last year, 2023. As in 2022, we continue with our strong order intake momentum in 2023. especially in EMEA, a market with yearly approximately 16 gigawatts installation. We have ranked number one consistently for two years in a row in terms of order intake. We booked at 2.5 gigawatts in the fourth quarter compared to 1.9 gigawatts last year. And our full year order intake increased from 6.3 GB last year to 7.4 GB this year. The prices and margins in our order book are improving as well as you can see. Regarding our financial performance, last year developed overall as expected with a soft start in the first quarter and then gradually improving throughout the year as more and more better quality orders started to flow through our financials. Our full year sales increased by 14% to 6.5 billion which exceeded the upper end of our guidance of 6.1 billion comfortably. Our EBITDA margin improved as well from minus 9.4% in the first quarter to 3.4% in the last quarter, reaching breakeven on full year basis as we had expected and indicated since our Q2 call. We also had a good year in terms of installations, with full-year installations growing by almost 40% compared to 2022. As a reminder, we had started the year with backlog of installations from 2022, and as you will remember, we had some further disruptions during the year coming from earthquake in Turkey, which causes delays resulting from partially destroyed power facilities. All those means we were required to install roughly 450 turbines in the last quarter, against which we could install only roughly 340. On the liquidity side, we ended the year with a positive free cash flow of 20 million euros on the back of a strong working capital of minus 11.5% and a EBITDA break even. During the first half of the year, we replaced high yield bonds with lower interest-bearing convertible bonds and also converted shareholder loans into equity. All of these initiatives helped us to end the year on a strong net cash position of 631 million euros. Finally, our guidance for 2024 shows a further revenue increase and a margin recovery. The pace of the recovery depends on how far we are impacted by near-term challenges, particularly disruptions in the Red Sea, recovering our installation delays from 2023, and further building our momentum outside Europe. Having said this, I believe that we have been gradually making a solid progress to reach our mid-term 8% profitability EBITDA target that we still confirm and maintain. Moving to the next slide, we are also pleased to note that our market share in terms of order intake improved to 17% in 2023 outside China. which makes Nordex a third-largest turbine player globally, as China, and right behind the second players. This is just one example showing that we have successfully scaled up the company to 7 gigabit-plus company on the back of our high-efficient and competitive product portfolio. In EMEA, we again maintain our first position with a strong contribution from Germany, where we increase our market share to approximately 30%. And we also slightly improve our market share outside Europe. This is quite an interesting time for us, the Nordest family, as we have successfully repositioned the Nordest brand over the last few years, and now we have a strong, solid platform for partner growth. With this, I would like to hand over to Pachi to guide you through markets and order intake.

Thank you, José Luis. As just mentioned, our order intake momentum continued to be strong in 2023. We grew our new turbine orders by 16% to 7.4 GW compared to 6.3 GW in 2022. The majority of the orders came from Europe with 86%, with largest markets being Germany, Sweden, Spain, France, and Turkey. 8% of the orders came from Latin America, and 4% came from North America. The growth of the order intake came with stable prices. The full-year ASP and also the ASP in Q4 stood at 0.84 million euros per megawatt, at the same level as in 2022. Moving on, the revenues in our service segment grew from 574 million euros by 18% to 679 million euros, with an EBIT margin close to 15% for the full year. Our service margins have gradually improved during the quarter since Q1-23, and as we have mentioned before, our margins are temporarily affected by inflation effects, settlement mix, and regional mix. We expect our margins to recover in future once the share of older turbine types and share of non-European service contracts go down in order of the book. The average availability of the fleet was around 97% with a total fleet of 35 gigawatts under service. Moving on, the turbine order backlog grew by 6% to 6.9 billion euro in 23. The service order backlog grew by 11% to €3.6 billion, leading to a combined order backlog of €10.5 billion at the end of the year. And now I would like to hand over to Ilya to go through the financials.

Thank you, Pachi, and good afternoon also from my side. As always, I will guide us through the latest financial figures and starting, as usual, with the income statement. In this case, for the full year 23. As we can see, last year Nordics achieved 6.5 billion euros in sales, which is a growth of around 14% compared to the previous year, and it's also around 5% above the upper end of our sales guidance range for 2023. Key were our continued good order intake momentum in Europe, as mentioned earlier by Jose Luis, and our higher installation levels compared to 2022. Gross margin improved as well, 15.2% compared to 8.5% at the end of the previous year. The improvement basically comes from better priced orders on stable costs flowing through our financials more and more. Result of the break even on EBITDA level, to be precise, EBITDA of plus 2 million. That is in line with our guidance and the indications we have made on our previous calls. With that, we will have a look at the income statement for Q4 standalone. As mentioned before, our sales have been steadily improving each quarter, with Q4 reaching around 2 billion euros, the strongest quarter we have seen in the past year. This is around 11% higher compared to Q4 2022. Cost margins stood at 18.6% for the quarter, coming back to more normal levels. That's a strong performance, arguably, particularly when compared to the cost margin of 2.6% in the same period of 2022. Of course, that quarter 2022 had to account for extra costs coming from installation delays and other project issues, which are far less this time around. As a result, our EBITDA margin in Q4 reached 3.4% versus minus 2.4% in Q4 2022, which is an increase of almost six percentage points. However, let me note that our margins also took some hit in the last quarter because of some extra costs coming from tackling the installation delays, which Josef mentioned in his comments already. This is also likely to impact somewhat our 2024 margins. We will cover that topic later. But the performance in Q4 gives us confidence to keep building on this momentum as we make good progress towards our mid-term target of 8% in EBITDA margins. With that, we move on to the balance sheet. Oval structure looks fairly robust. We ended the year with a record liquidity level of about €1 billion, and that includes the cash of €926 million and our cash facility of around €19 million. The strong cash position was mainly driven by a good operating performance in the last quarter and to tight working capital management, which I will comment in a few moments on the next slide. But in addition to those financials I mentioned in the last year, to remind us, we repaid the high-yield bonds. We converted the shareholder loans into equity. and we issued a green convertible bond at the beginning Q2 of 2023. So those measures have helped us. We mentioned it in the past, strength of the balance sheet in a timely manner and while also reducing our burden in cash interest. As announced, the working capital slide is next. The ratio stood in the last quarter at minus 11.5%. In absolute numbers, minus 746 million euros. That is even stronger at the end than at the end of Q3. The working capital was predominantly driven by order booking and project collections during that last quarter. Or in other words, working capital ratio did remain constantly stronger than our guided number of below minus 9% in all quarters of 2023. That brings me to the cash flow slide. Cash flow from operating activities was 161 million euros compared to minus 350 million at the end of 2022. This development was predominantly driven by continuously improving margins over the last quarters and an even tighter working capital management towards the year end. Cash flow from investing activities stood at around minus 141 million, lower than we had originally planned, and I will come back to this in a minute when we look at our CapEx slide. So, as a result, we ended the year with a positive free cash flow of 20 million euros when compared to minus 514 in 2022. Finally, the cash flow from financing activities totaled roughly 300 million euros, and that was essentially at the same level as we had already communicated in our Q3 call. The main driver were the inflows from our green convertible bond in the April of 2023. So with that to the investment slide, we can see that our CapEx rate went up in Q4. due to our backlog of activities in line with our expectations. However, our full CAPEX spending was lower than the usual level. Basic driver here is some CAPEX rollover, especially in execution equipment tooling, and the catch-up for that will happen this year. But the focus of our investments in 23 by content largely remained the same. This remained invested in blade production facilities and new molds, as well as in transport tooling equipment covering our installation levels. And that brings me to my last financial slide of the capital structure. So as you can see on the slide, our net cash level sharply increased to 631 million euros, coming from 244 million euros at the end of the previous year. And again, this positive development was mainly due to the shareholder loan conversion into equity and the repayment of a higher bond last year. And with that, I would switch to my sustainability section. In 2023, we have made good progress in implementing our so-called Sustainability Strategy 2025. So, let me just highlight a few targets. We have submitted science-based targets for reducing greenhouse gas emissions. They are currently still under validation, but we will publish them once that process is completed. As in the previous year, we have managed to achieve our goal of continuously reducing lost time injury frequency, that ratio LTIF of 1.2 for 2023. And regarding the supply chain, we've taken measures to ensure full compliance with the German Supply Chain Act and have established a human rights officer in our company. On the other topics, activities are ongoing. They're shown on the slide, and we will initiate further actions throughout this year again. That brings me to my second sustainability and total last slide. So we can see here our business activities show a high degree of eligibility and alignment with the EU taxonomy, contributing to the environmental objective climate change mitigation. We also managed to keep up our good scores in several renowned ESG ratings, to name one, Ecovades, we've achieved a gold medal now for the third year in a row. And with that, I hand it back to José Luis.

Thank you. Thank you very much, Iria. So now let's move to the operational performance in full year 23. As you can see on the slide, we managed to increase our installation run rate in every single quarter compared to 2022 however we were still short by around 100 turbines in q4 as i mentioned earlier the additional installation during the winter quarter and subsequent delays have impacted our margins in q4 and will have some impact on our margins in 24 as well In summary, we erected 1,429 turbines, so 300 more in 24 countries, with around 7.3 gigawatts, again the majority in Europe. We assembled 1,520 turbines, slightly more than last year, but in terms of megawatts, that means around 7% growth year over year. Similarly, we produced roughly 4,600 blades, a bit less than the previous year. Around 25% were produced in-house, nearly the same level than last year. Finally, let me also note that we keep working on optimization of our production and supply chain in order to optimize our cost structure. Which brings me to the guidance, and as I mentioned earlier, and we have confirmed our guidance for 2023, the outburst release with the preliminary figures released on February the 12th. Our performance was overall in line with the expectations and with the guidance. Now, I would like to share with you where we are on our path to the strategic margin target level of 8%, which I herewith would like to confirm. In early 2022, we had provided our plan towards the mid-term profitability target. And as expected, after managing the very volatile years of 2021 and 2022 with the war in the Ukraine, supply chain disruptions, extreme price increases and logistic challenges, we are now in the middle of the stabilization period. In 2023, our margin improved each quarter on the back of increasing turbine prices and stabilizing the coast environment. And in 2024 and beyond, we expect harder margin recovery to materialize. In the next few years, we believe three key levers will continue to support this margin recovery, assuming a stable supply chain and assuming that the recent disruptions in the Red Sea and the geopolitical events are contained. First lever is volume growth, based on continued growth in our key markets, Europe. Second lever, improving order book quality. And third lever, a growing service business with improving margins. In summary, we feel we are on track of the roadmap that we share in early 2022. And let me give you some more details in the next slides. So you know the onshore wind market size ex-China is likely to grow by around 14% for the next five years, and growth in Europe will be a substantial part of it. Europe aims for 500 gigawatts of wind capacity by 2030. Of that, around 389 gigawatts needs to come from onshore wind. Despite this growth outlook, Europe is likely to fall short of this target by a decent margin. We believe that ongoing political support, policy changing, especially easing of permitting processes across Europe, could further fuel this growth outlook in the mid-term. And with our leading market position and product portfolio, we could really benefit from it. The development in the European market is also benefiting from the recovery in our home market, Germany. Again, like Europe, Germany is likely to fall materially short of its targets despite a very solid growth outlook of close to 15%. As you are aware, we have a strong position in Germany with around 30% market share. In 2023, we increased our order intake by 36% and our market share in the completed options in 2023. Beyond Europe, the U.S. is an important market for us. While we had decent traction in Canada and Latin America in 2023, we did not really make much progress in U.S. However, we intend to change this in the future, given our success in Europe. Let's move to the next slide and let's talk about the next two levers, which are internal levers and that are on track. As we have stated before, we have been successfully increasing turbine prices to lift margins in our order book. As you can see, our margins have increased by around 4% to 5% in the last couple of years on the back of a robust order intake in Europe. We still have some old legacy orders left in our order book, which will impact our margins in 2024. However, we expect to complete those orders largely within this year. In addition, we expect some temporary pressures on our margins due to the current geopolitical disruptions, installation delays from 2023, and a slightly higher execution cost in Germany due to a slow transportation purchase. And the last lever to our profitability comes from our consistently growing service business. In addition to the operating leverage from growing sales, we expect the margins in service to revert to our normal levels over the medium term as the older turbine contracts run out and the share of more profitable Delta 4000 current contracts are starting to flow and to grow. And this brings me to one of the last slides, which against this background, I would like to guide you through the guidance for 2024. We see 2024 as a year in which we make further progress in our profitability. We assume generally a similar pattern as in the last year, starting slowly and then building up gradually each quarter on activity and profitability. We expect our order revenues to be between 7 and 7.7 billion, driven by our order book and the expected order intake. We expect our EBITDA margin in the range of 2 to 4%. We keep our working capital guidance on the same level, below minus 9%, despite a good performance in 2023. And we expect our capex around our usual level of 175 million. However, also, please note that this doesn't include any material growth capex in the US, which is gonna depend on the order intake visibility. Moving to the last slide before the Q&A. I would like to give you an update of where we are in our new initiatives in the green hydrogen sector. Remember, we started to join ventures in the project development business and the electrolysis manufacturing. Let me reiterate that we see a huge potential in the demand of green hydrogen, and our strategy allows us to benefit from this growth while keeping our capital commitment risk very low. On the project development side, I'm happy to confirm that the new JV company has been formed with Acciona, and the new entity has a pipeline of over 50 gigawatts across US, Latin America, and North Africa. On the electrolysis side, a new JV company was as well formed with Sodena. 50-kilowatt prototype is already in testing. and good promising results, and the development of the final 500 kilowatt stack prototype is on track in the next months. In summary, I will say that we are on track, but it will take some time until we see results impacting our DNA. And with this, I would like to hand over to Félix to open Q&A.

Thank you very much for the detailed presentation and now I would open the floor for the Q&A and I'd like to ask the operator to open the floor.

Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only handsets while asking a question. In the interest of time, please limit yourself to three questions. Anyone who has a question may press star and one at this time. The first question is from John Kim, Deutsche Bank. Please go ahead.

Hi. Good afternoon, everybody. Thanks for the opportunity. Three unrelated questions. On Brazil, can you help characterize for us this year and possibly next what you think the market outlook, how the market outlook will change from 23 levels? If you could speak to what you're seeing on weather patterns and competition from Chinese OEMs, that would be helpful. Second question. On the U.S., you mentioned this as a priority market in 24. What initiatives or what sort of activity levels, lead indicators can we look at to see if or when Nordics will start to win orders in that space or in that market? And then last question on cost structure. Can you speak to us a bit about your outlook for wage inflation and logistics costs given what's happening with global supply chains and shipping costs? Thank you.

Okay, so let's go with the first question. Let me take the first one. With Brazil, the situation is the market continues to be low from a contracting perspective. Combination of low electricity prices, high interest costs, high capex is making that the market is going to continue. However, pipelines of projects are very developed, there is a substantial amount of customers lined up and measuring when the conditions in the market are going to be changing, reaching the required returns and the required PBA prices that will enable the projects to to fly. We don't see that happening in the next few quarters. I would say, cautiously, I would say two to three quarters, but it's going in the right direction. It's moving in the right direction, and we can expect the Brazilian market to come back. Unknown at this point in time when this will happen, but we do see the usual players lined up with mature projects waiting for the conditions of the market to to be back under one level. So with this, I would say that expectations for next year are low, and eventually expectations for next year remains to be seen, but are going in the right direction.

Regarding U.S., it's a key market for us. It's the biggest market worldwide, ex-China. We used to have a market share there from 10% to 15%. We had a plan to develop this market and to be part of that market. Our competitors launched specific high net capacity factor products for mainstream US. We thought we had a business proposal, but in reality we need to reassess and react and develop a similar product. On the contrary, our product portfolio is very successful in land-constrained markets. And as a proof of that is the market share in Europe. We are going to take that competitiveness into account in order to reach in Canada and in land-constrained parts of the markets in U.S. in the interim. So with both combines, we still plan to sell sizable volume in North America. At the same time, we are reacting to our competitors' products and basically, long history short, developing a high net capacity factor machine similar to our competitors to target the U.S. market. It's a minor modification. a bigger blade for for certain turbulence intensity class that you put in in existing platform and we are doing that as we speak so once the product is back in competition for this very specific site conditions in us we will expect to to get our share on the on the marketplace and for the time being Focusing in parts of the American market that demands high nameplate capacity factor machines. And regarding inflation... Let's do this together. But very much wages inflation is true. We see that in Europe. We see that in North America. It's part of our guidance. It's part of our cost structure. So far we have been able to pass through this inflation to customers. That is true that in certain areas of the business it has a temporary effect, like in services, because the inflation hits you today in the cost and you recover the revenue in the future. So there is a timing effect. on the margin profitability in services, not long-term, but temporary, and other than that, I would say part of the guidance, yeah.

Yeah, so maybe you want to give one or two sentences on the Red Sea and the Suez thing, but before that, probably use the occasion that I think we have not seen the supply chain and the operations as stable as last year for years. So, of course, this is a project business and it remains a fragile element, but the stability we're experiencing, I think also the industry, not only Nordex, is very good. And that's also true for the costs. There is always a new piece, José Luis. I think this one we think is a handleable one. But the Red Sea, do you want to say two or three words on that? Well, very much.

Red Sea impacts are impacting our profitability because you need more time. More time means more cost. I mean, not delaying this because I think we are good on that. But if the project lasts longer you have more running costs and less profitability on the project. So we expect this to ease and it's part of the guidance. We expect this to ease in the second half. If that is not the case, you know, we might, you know, go a little bit upper or lower the median range of the guidance. For 2025 we are not very concerned because we are already selling with two options, with and without. And a majority of the customer are accepting that.

Great. Thanks so much.

The next question from Vivek Mehta, CT. Please go ahead.

Thanks very much, everyone. I have a couple of questions. I'll go one at a time. On cash flow, firstly, so CapEx came in below your guidance for 2023. And while your guiding for CAPEX to be up in 2024 is still below the original 2023 guidance, so why are we not seeing a stronger catch-up effect in 2024? Thank you.

I think this is, well, first is cash flow management and rigorous management of the CAPEX investment. to the absolute required in order to protect the free cash flow. I think this is the utmost priority for the management of the company. Second is a timing effect, a temporary timing effect. And you don't see that recovery in 2024, because I mentioned before in the call, this is all dependent on the cap as needed for the US, the ramping up of the Iowa facility. I think we can do. We can normalize CAPEX, but the new blades that we need to design and produce might kick in in 2024 or 2025. And that's very much the explanation.

Understood. My second question was just a follow-up on the margins. You commented that there's likely to be a slow start to the year. Is it possible at all to quantify how slow the start to the year is? Presumably Q1 last year was particularly weak, but should we consider the first half as likely to be loss-making? Thank you.

I mean, you know, we don't like quarters, but that's not our assumption. Our assumption is improving quarter on quarter, but starting from positive.

Perfect. Thank you very much. Thank you very much.

The next question is from Sebastian Groh, BNP Paribas.

Please go ahead. So Groh, your line is open. You can ask your question.

We will take then the next question from Sean McLaughlin, HSBC. Please go ahead.

Good morning. Can you hear me? Yes. Super. Thank you for taking my question. Can we just look at the competitive environment on order intake just to understand in a little bit more detail how the exit of one of the competitors has changed the competitive dynamics? I understand it's clearly, you know, both you and Beth have had a very strong relationship order intake. I mean, how meaningful has that already become in Q4 and what kind of support, if you like, can it give to higher order intake? through 2024 or a year on your basis?

Yes, not to underestimate the effect of having one large player in the market having not zero because they have continued to sell, but of course they have not been selling at their levels. Is a speculative to see, because they have clearly publicly announced that we will be back in the market. So I would not dare to speculate when or how this will happen. What I can confirm is that for a short period of time, we are benefiting from a competitive intensity, especially in Europe, where We are market leaders, but also other competitors are having a strong position, but we can clearly see that having one player less is improving the intensity of the competition. These are different dynamics in other markets where Chinese players have a position, especially in Latin America and also South Africa and other markets, and a totally different dynamic also. in the US and Canada. But specifically to your comment, I would say that we are clearly sending this in the European markets where essentially other competitors are at this point in time taking the most part in the market.

Which helps the pricing and the marketing.

Understood. And just with regards to the slide 27 where you showed that improving order margin, I mean, what is the scope, in fact, Given the current environment and the fact that you benefit, I mean, do you expect this to be a margin positive environment compared to your current backlog?

27, you mentioned.

Yeah, that's where we show the order improvement for that legacy water sound and the other ones go off.

So that is, yes, is from, I think, 27, what the competitive environment, as I said before, speculative on when and how competitors are going to be back in the market. And again, they have probably been stated that they will. So with the current information that we have is how we have built the scenarios. And of course, we'll have to raise those if the situation materially changes.

yeah but we expect we expect i mean basically the the market should grow and should that absorb even the new competitor coming to the to the market when that when that when that comes if that comes when that comes thank you very clear and another question on on free cash flow you know

positive free cash flow for 2023 the balance sheet issues have been fixed a good net cash position coming out of 23 clearly margins improving on higher volume is there any reason for us to assume that you you shouldn't be free cash flow positive going forward

Yeah, I'll take that one for the current year we're in and then maybe between you and me for the following words. I think the short answer is no. If you take the building blocks of the guidance we've been providing and you go through, take midpoint, then of course from an operational perspective, working capital being equal, you would probably come to, for this year, a neutral, slightly negative cash flow. If we do even better on working capital, then that reverts. I guess not guiding, not daring a real group, but 25, again, we believe, is going to be stronger again than 24. So if this is a neutral, minimally negative or positive free cash flow, that is only to improve. So I repeat the short answer. No, there's no reason that you should think that.

No, I think the important message is stability. and it's step by step improving. And then a quarter more, a quarter less, I think it's not that relevant in the journey. The important is the journey that we are in, that we expect the same trend to continue in 24, 25, 26, 26 of courses. Long term, but 25, we start to see some visibility about that.

Understood. Thank you.

Thank you. You're welcome. Thank you very much.

The next question is from Konstantin Hesse. Jeffries, please go ahead.

Hi there. Thank you very much for taking my question. My first one would be a follow-up from Vivek, which is basically the margin ladder here. But instead of starting off, I'd like to have a discussion on potentially where it ends this year. I mean, given the current legacy backlog, you have about 1.5 gigawatts, and you're obviously delivering a lot, well, most of it this year. What kind of led me – we obviously had a big swing this year from minus 900 basis points to plus 3 – So could we be ending up this year towards the mid-single digits of 5%, 6%? And then is there a reason to believe why you shouldn't be at 8% already in potentially Q1 or Q2 next year? That would be my first question.

No, thank you for the question. I mean... We don't disagree with Joe conceptually because, you know, we have legacy orders, 1.5 gigabit. This is draining profitability. We expect extra volume in the future with Europe growing. You know, U.S., we need to succeed. Eventually, Latam will recover, so this extra volume for next year should give, as well, a profitability jump, substantially. Then we mentioned that out 2023 is impacted by temporary topics, like the 100 turbines delay from 2023 to 2024. like the temporary impacts of the Suez Canal, higher costs to execute in Germany. Hopefully, those issues will not repeat next year, and this is another profitability lift. And the fourth lift is the normalization of the service margins. Not sure if 25 or middle 25. We expect medium-term. This will contribute as well to lift the profitability towards the mid-term 8% target. So those are the four building blocks. That's going to be Q1 2025. I don't think so, because Q1 2025, we are going to have always a dip in volume and high-end utilization. But we expect 2025, another substantial jump in average profitability versus 2024 in a full year.

That's understood. So maybe just a little bit of color on the volume side of things. And Pachi, maybe over to you. on the order intake momentum you're seeing in Q1 as well as the pricing discipline. Are we seeing a better momentum this year compared to the start of last year? And if you could comment on the pricing discipline, that would be great as well. Thanks.

Yes, we expect, we are, of course, in the two-thirds of the quarter already, so still, and this is a great business, but how I see the quarter is going to end well and certainly above last year's result as well. The good order momentum continues. So the first half of the year, we see also the momentum continuing. And from a pricing perspective, as you mentioned, we see also competitors behaving well in that sense, being disciplined, same as we are, trying to maximize both prices and margins of the orders that we take. So good momentum continues.

Understood. Okay. And then lastly, third question would be on warranties and provisions. I mean, just to get any color that you can give this NG announcement, I understand that all of that is already included in your guidance. Is there any downside risk here and any color on the more material warranty provisions that you booked this year on the $109 million?

Let's do it together with Pili. I think the NG announcement is a little bit of a surprise to us because we are under non-disclosed agreement. What we can comment there is that it's a very important and valuable customer for many years and that we did several projects in Europe and U.S. and we are currently working with them in other projects in Europe. All the effects are already included into the 2023 figures and into the 2024 guidance. We don't expect further deterioration coming from this discussion. and it's very i would like to re-emphasize that this is not affecting current products it's not affecting delta 4000 it's a discrepancy in all product despite technology of an special two by type of only few smaller numbers have been have been solved and Unfortunately, we are negotiating the outcome, but we don't expect this to impact our 2024 guided figures.

Sorry, do you mean then, José Luis, that we could see a 25 figure, a negative impact in 25 from this still?

No, no, no. All the forecasted impacts we have already in our balance sheet.

Understood. Thank you.

The next question from Ben Hillen, Bank of America. Please go ahead.

Yes. Good afternoon, guys. Thank you for taking the question. I just wanted first to ask a clarification. I just wanted to understand in terms of the poorly performing contracts, so will they be largely completed by the time you get through the end of 24? That's the first one. Secondly, we'd heard from some peers that the environment in Germany has gotten a lot better in terms of the auction process and the outlook there. Could you maybe comment on that a little bit. And then into 2024, the revenue growth that you've guided for was definitely stronger than what I was anticipating. Can you talk a little bit about the breakdown there between the services and the installations of turbines, et cetera? Thank you.

Okay, the first one is very simple. Yes, that is the assumption. We expect that 90 plus percent of the low profitability orders will go to the P&L within this year, and that's part of considering the guidance. Yes, for Germany, I would agree with the statement.

We also see that the conditions are improving from a permitting perspective. North of 70 watts of permits were awarded last year. We expect north of 10, easily north of 10 watts of PBAs option this year. In combination, available volumes and available orders to be awarded are going to be significantly increasing. And as a market leading position, we expect to harvest that growth and hence improve also our results versus previous years. So yes, situation in Germany is improving.

Regarding projects and service, I mean, generally speaking, the service business should grow around low double digits, high single digits on a year-on-year basis. I don't think we have here the total breakdown of the revenue growth in projects and services.

You know what I think? Ben is asking for the calibration between project and services. If you plug in a service number for 24 revenues of some $750 million and you have the rest, then you get a good picture of how the distribution is.

Very clear. Thank you, guys.

The next question from Ajay Patel, Goldman Sachs. Please go ahead.

Good morning. I wanted to ask, is there any LDs with the capacity that rolls over into 2024? And is there any sense of the downward impact that legacy projects has had for 24? And then lastly, do we have any sense of what percentage of the backlog is legacy versus ones that are consistent with your 8% margin targets?

I think at least we still have some in our guidance and forecast. Nothing compared to last year. Last year was heavily impacted by delays. This year, we still have some, but I don't know. I don't have the full detail with me here, but in the range of less than 1% of revenue, I think, in that little bit even less than that. And regarding the backlog of low profitability, it's 1.5 gigawatts. that we plan to execute this year.

Thank you. Thank you.

The next question from Sebastian Groh, BNP Paribas. Please go ahead.

Yeah, hi, good afternoon, everybody. I hope now you can hear me. The first one would be on the order intake funnel. I heard your comments around specific markets. I would just like to touch on the sort of bigger picture here, what you would see for 24. We had obviously a pretty strong 23 order intake. And the question simply is, in wake of the positives being, I think, especially the German market share that you singled out a couple of times now, This should be a pretty material catch-up, I think, for you guys in this year 24. So would it be a fair assumption that all the entries should be up from what we see over 23? If we could stop there.

That would essentially be guiding, which as you know, we never do, but I can reiterate my comments that I see the good momentum continuing, strong you want you to, and yes, and I think that would be enough for you to have a feel of how others may be better.

Okay. And that wouldn't be sort of undermined by the fact that we still have lower power prices and potential return of one competitor later this year that has temporarily ceased the selling of its five megawatt turbine. So that wouldn't sort of provoke any sleepless nights at your end. Yeah.

We don't see, I mean power prices are delaying order intake in Latin America, that is true, and in Brazil. In Europe it's true that power prices are decreasing. But we don't see projects being postponed so far, and hopefully this trend continues. But so far, we see zero delays in project execution due to power price temporary decline.

Okay, and then quickly on regional markets. So you made some comments around the U.S. and Canada. You have not, I think, mentioned Australia at this juncture, so could you just comment on what you're seeing there and if there's a good likelihood to eventually score the project somewhere during 2024?

Yes, Australia is a very attractive market with good volumes that will continue in the mid-term, at least that is our view. under-crowded from an OEM perspective, so hence the competitive intensity lower as well, with some barriers of entry, essentially with break codes, with some cycles from our selling cycle, which is longer than average. So we are actively working in the Australian market. We will see the results more towards the mid-term rather than the short-term, but yes, it's a capital market for us, and we are actively there, and we can expect results, probably more towards the mid-term rather than the short-term.

A big, I would say, game changer for the perception of the brand in Australia was receiving their proof to interconnect McIntyre, which is a gigascale wind farm, and where Nordex performed amazingly well with the technical capabilities, and this has somehow brought high interest from many other customers that are very interested to cooperate with us to eventually replicate that success. And Canada, I would say Canada, there is very good momentum. Our turbine fits perfectly. Very good momentum as well, but we missed temporarily the turbine for mainstream high-capacity factor sites that we are trying to catch up rapidly and concentrating more on areas where land-constrained turbines are needed.

And then we can expect very good outcomes also in the short term. I think this year we expect to see significant volumes in the Canadian market.

Okay, sounds good. And then the very last one for me is just on the margin guidance. I think you sounded very, very optimistic on earlier calls with regard to the 8% EBITDA margin target, now the midpoint of the 24. Guidance range is 500 bps short of that. Obviously, I think it was a very positive surprise around the revenues that you are having online now for 24. So the question that I simply have is what is sort of baked in the bridge when it comes to the legacy projects, you mentioned the 1.5 gigs, but maybe you could also give us a bit of an idea how zero or negative they are. And the second then around then the Red Sea issues that you have eventually factored into that guidance, because I cannot escape the impression that at least the midpoint would be very much an attempt to play it as safe as you possibly can at this juncture.

Let's start with the second. I think the assumption for Red Sea are included in the midpoint of the guidance provided the situation improves in the second half. If the situation does improve, we will deteriorate a little bit in the second half. I don't know. It's a double digit number and not close to the three digit. The potential worst case deterioration that we see if situation doesn't improve in the second half. And in 2025, we don't expect an impact. because we are already quoting with the option with Red Sea and around Africa. So 2025 should not be impacted. The legacy orders, you know, 1.5 gigawatts, I mean, those orders are not at zero margin, let's put it that way. Those are positive contribution margin, but not not to the 18% or to the 8%. So are those at zero positive contribution margin for sure? You know, how much this is dragging profitability, you know, cannot be very specific here, but substantial money. I mean, high double digits could be, let's put it that way. Extra volume is the biggest lever. I think we have a substantial available capacity and if we manage to sell more and to use this capacity, this could substantially improve profitability. The extra cost in 2024 coming from the delays in 21 and the temporary issues in Germany, again, let's say mid-double-digit, plus-minus, normalized service margin, you can do the math.

Okay, thank you.

As a reminder, if you wish to register for questions, please press star and 1 on your telephone. The next question from William Mackey, Kepler. Please go ahead.

Good afternoon, gentlemen. Yeah, three questions. The first one, just to pick up on your comments about available capacity, you produced more turbines than you installed last year. Can you maybe describe what your central case thinking is for the volume of installations that you can achieve in 24 and the sort of impact that we will see as the mix shifts to Europe and away from Latin America? And when we think about the capacity, just, you know, you have capacity, but to what extent in Europe do you think there's available capacity in the logistics value chains downstream because not just you but the whole industry is going to be chasing the movement logistics and installation services of many of your suppliers.

Indeed, and this is why in Europe we are facing inflation and certain temporary adaptations to move goods to the side. You know, Germany is a good example. I think we are working together with our competitors and the industry and the government to remove those roadblocks. The government, of course, is fully supportive. But temporarily, transportation is not 100% flowing. Other than transportation in Germany at this point, from a product availability perspective, I don't see shortages of capacity for a growing market. Level of utilization of Nacelle plants is is very low because unfortunately we have low level of activity in the first half coming from a very back-loaded end in order intake so you start to ramp up rapidly in the second half and you need to produce in the second half at a pace of i don't know 12 gigawatts a year So if we manage to sell more evenly within the year and to produce more evenly within the year, we have a free capacity available that not just generates margin but avoids underutilization costs. Latin America, as you know, is in a slow-down mode. We expect this to recover, and we have available capacity there. But we have plenty of available capacity, let's put it that way.

Sorry, two things I didn't pick up. The first was the installation units that you might achieve compared to the 1429 in 23 and also I think you made a comment just then about second half production rates implying I think you mentioned the equivalent of 12 gigawatt annualized capacity output was was that correct sorry I would say installations we didn't go into that detail I think the profile will be similar than last year and without guiding without guiding numbers the numbers

Should be in the range. Of course, with higher nameplate turbines, but we don't expect a big increase in numbers of installations. When we talk about blade production, the blade production is quite stable over the year, because it's driven by the mold. And when you talk about Nacelle production, it is driven by working capital management. So you try to produce in the last minute that is required for the project in order to optimize the working capital management. As a sequence of orders in the north part of the world, during winters the activity is low. There are two effects. During winters the activity is very low compared to the spring, summer, and fall. And if you analyze our order intake evolution over the year, there is always a big jump in July. before the summer break or around the summer break, and another big jump before Christmas, which triggers that the activity to assemble those nacelles is always substantially higher in the second half than in the first half. As the activity is low in the first half, you have low revenue, Low margin, high underutilization cost. And in the second half, we have high volume, high margin, and very good and low underutilization cost, or very low underutilization cost. Those are very much the levers that move the P&L evolution quarter on quarter.

That's great. Thank you for the question, for the color on that. The second question relates to... the US or North America more generally on two points. Firstly, you've mentioned the need to prepare a new machine and then the board will assess the reopening of the factory dependent on order flows. I mean, what sort of level of investments are you starting to think about that you might need to make in non-recurring development expense and non-recurring capital expense in Jigs Tools fixtures to be ready for to go into the market? And then more specifically on the blade side, what are you thinking about your relationship with TPI on the outsourced blades for the region from Mexico, which I think comes up for renewal later in the summer?

Yes, I would say you are right. I think regarding our initial plan was to serve U.S. market with existing products and reopening the Iowa facility. That capex was, I think we could deal with that within the 2% to 3% capex on revenue. If new modes are required, an extra capex is going to be required. We haven't assessed that yet, although what we expect to do is a similar thing that our competitors did, which is a minor enhancement of existing machines, of all proven track record machines. So it's not developing a new machine. is developing a new blade for an existing machine. Nonetheless, not to underestimate the capacity in molds, in transportation tools, and so on and so forth. At this point, we don't have the detailed analysis. It's something that we think the balance sheet of the company can deal with, but we don't have the detailed analysis. Regarding PPI, is a very good supplier and the Mexican factory to be decided what we are going to do with that we don't have yet made a decision what we have done is extended contrast with them in Turkey and in India and we are very happy with those two TPI factories

The very last question area relates again to the provisions. I mean, if I strip out the 109 that you took exceptional on legacy technology Q4, your underlying provision rate is still 3.8% and on an annualized basis against sales. And on an annualized basis, it's still much lower than your peers. You know, how should we think about provision development going into 24 and 25 and And how are you providing against your Delta 4000 and new related technologies or relatively new?

I think maybe Egea goes into the details on the concept. We are... not happy with that non-quality cost and provision level. I think the industry needs to go back to the previous times, and our quality program calls for reducing the non-quality cost over time, in the next few years. So 3.6 is slightly less than some other market participants. But for me, it's not good enough long term. I think if the sector keeps the mindset on focusing in existing platforms, reinforcing the quality, the quality programs, the reliability and so on, that should be possible. In the case that the sector goes to another race to the bottom in technology, that has You know, because you're selling mature products. But if we keep selling mature products, focusing in the quality enhancing programs, solving the legacy issues that we have here and there, this in the long term should be part of the profitability recovery of the company.

Best of luck for the year. Thank you.

Okay, thank you very much. Now this closes our Q&A session, and I'd like to say goodbye, but the last word is for our CEO, José Luis, for the final comments. Please go ahead. Thank you very much.

So let me outline the takeaways from this year. The first one, very important, policy momentum remains strong across Europe, U.S., and our home market, Germany, which are supporting our expectations of continuous sales growth. 2023 was performed as we expected, with improving sales and margins. At the same time, we started the year with healthy balance sheet and cash levels. Our margin outlook for 2022 for improves as we build on 2023 in line with our roadmap, despite some temporary challenges in the form of geopolitical risk, installation delays, and higher project costs in Germany. And last but not least, we see a clear path to our mid-term target on the back of volume growth, margin improving, growing service business, and as last mentioned, quality improvement longer. So thank you very much for your participation in the call. Wish you a nice afternoon and see some of you hopefully at the Green Europe Fair in Bilbao. Goodbye.