Nordex Se

Ladies and gentlemen, welcome to the Nordex SA Q2 2025 results conference call. I am Matilde, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Anja Wieler, Head of Investor Relations. Please go ahead.

Thanks, Mathilde, and also a very warm welcome from the Nordics team in Hamburg. Thank you for joining the Q2 2025 Nordics conference call. As always, we ask you to take notice of our safe harbor statements. With me are our CEO, Jose Luis Blanco, and our CFO, Ilja Hartmann, who will lead you through the presentation. Afterwards, we will open the floor for your questions. And now I would like to hand over to our CEO, Jose Luis. Please go ahead.

Thank you very much for the introduction, Anja. On behalf of the entire board, I would like to welcome you to our second quarter resource of 2025. Starting with the recap of the three months from April to June 25. As the title of this slide suggests, we are staying the course. And that course is one of a steady but consistent progress. Overall, the second quarter progress as planned, delivering improved margins and another positive free cash flow. In detail, the second quarter, we have seen a strong momentum in our market, resulting in a combined order book of more than 14 billion euros. We recorded a turbine order intake of 2.3 gigawatts in the second quarter, up 82%, which translates to an 83% year-on-year increase in euro value. Profitability continued to improve. Our EBITDA rose by 64% year over year, and our EBITDA margin increased by around 220 basis points. This translates into a 5.8% EBITDA margin and a positive net income of 31 million euros. Looking at the service business, with an EBITDA margin of 17.7% in the second quarter, We are on a steady path towards our previous normalized levels. Important to highlight, we continue to generate positive free cash flow since several quarters now. In the last quarter, we achieved free cash flow of 145 million euros given by the operating business. For the remainder of the year, we remain confident to repeat our performance of the first half of the year, despite any provision-related outflows. And finally, we are seeing good momentum across our core markets and remain on track to deliver guidance for this year and also target of 8% in the medium term. Let's now turn to the next slide. where I'll walk you through the current market conditions in more detail. We continue to see solid demand across our core regions, particularly in Europe, where Nordest remains the market leader. The onshore installation forecast in our target market continues to show a steady growth trend, around 3% through 2028, with Europe consistently contributing a significant share. Our past order intake reflects this momentum. In the first half of 25, we secured 4.5 gigawatts of new orders, with 95% of that coming from Europe. This underscores the strength of our position in key markets like Germany, Turkey, the Nordics, and the Baltic states, among others. In North America, we maintain a strong presence in Canada, while our view on the U.S. remain unchanged. We believe that it continues to be a key market for wind energy in the long run. However, the outlook is uncertain in the short term. We are closely monitoring the impact of the executive orders on the safe harbor provision and order pipeline. On top of Europe and the U.S. market, we continue to be actively engaged in Canada, Australia, and Latin America with varying degrees of success. On the supply side, we continue to see a stable environment in both supply chain and costing, aside from fewer sections. For all, we anticipate slightly stronger performance in the second half of the year. All in all, the fundamentals of our market remain solid, and Nordex is well positioned to capture the opportunities ahead. Moving to the next slide, the second quarter of 2024, we saw another strong order intake momentum. NORDES delivered 2.3 gigawatts in Q2, making 82% growth and 83% increase in order intake compared to the same period of the previous year. This translates to 2.2 billion euros in value from orders across nine countries. Strongest individual markets were Germany, Turkey, and Latvia. Pricing remained stable and has been stable now for quite some quarters. As always, important to mention here, the changes in ASP are the scope and regional mix effects. Moving to the next slide, order book, driven by a strong order intake in both segments. Our total order book grew to 14.3 billion. The turbine order book increased by 28% to 8.9 billion euros in the second quarter of 2025, up from 6.9 billion euros in the second quarter of 24. Most of these orders will be installed in Europe, followed by North America, rest of the world, and Latin America. On the service side, our order book increased by 32% year-on-year, reaching 5.5 billion euros by the end of the second quarter 2025. This growth in service order book reflects the expansion of our turbine business over the past years across multiple regions. now contributing to the service order book. Moving ahead, service margin in Q4 2025. I'm pleased to report that our service business continues its upward trajectory and is steadily progressing towards our target profitability level. Service revenues grew by 17% year over year, reaching 207 million euros in the second quarter of 2025. And the share of service sales now accounts for approximately 11% of total group sales. As we have outlined previously, EBIT margins are on a clear upward path. In Q2, our service EBIT margin reached 17.7%. continuing the steady improvement we've seen over the past quarters. And let me highlight a few key operational KPIs for the services activity. Average availability of the fleet and the service remain high at around 97%, and the average tenure of our service contract continues to be around 13 years, providing long-term visibility and recurring revenue. As mentioned in Q1, the margin recovery is not linear, but the trend is clearly visible, and we remain confident in our ability to return to our historical margin levels of 18 to 19% within the next 12 months. Let's move to the next slide, installation and production figures. Installations were up 5% year on year, reaching just around two gigabytes in second quarter of 2025. In the current quarter, we installed a total of 337 turbines with the majority of installations occurring in Europe, followed by Latin America and North America. On the production side, we assemble around 1.6 gigawatts of mass cells corresponding to 281 turbines. The decrease in production is only due to project scheduling and generally in line with our internal plan. Blade production in units increased by 8% with one-third in-house production. And with this, I would like to hand over to Iria to go through the finances.

Yes, thank you, and good afternoon, everyone. And as always, I will start with our income statement. In the second quarter of 2025, sales totaled around 1.9 billion euros in line with our previous year's figure. We then were able to improve gross margins, reaching 24.8% compared to the 19.3% in the same period of last year. As a result, we achieved an absolute EBITDA of 108 million euros in Q2 compared to 66 million euros in the second quarter of 24. This translates into a further improvement in EBITDA margin both year on year, so 3.5% in Q2, 24, and also sequentially 5.5% in the past quarter, reaching 5.8% in the second quarter. Going forward and with the visibility we have as of today, we continue to expect solid improvement in both margin and in absolute EBITDA levels in the second half. And given the overall solid performance in the second quarter, we closed Q2 with a positive net income of €31 million after €8 million in the first quarter. At the current run rate, we should be able to generate quite a healthy net profit for the full year, which may also be the right point in time to decide on other capital allocation topics, hence with the full year results. With this, let's move to the balance sheet. Looking at the balance sheet, the overall structure has not changed much, so very similar to year end 2024. We completed the second quarter of this year with a cash position of around 1.2 billion euros. There, the working capital stood at minus 7.5%, on track and in line with our internal planning. Equity ratio was 18% at the end of the quarter, with a slight increase compared to the previous year quarter, 17.6%, and the year into 2024, where it was at 17.7%. And now let's have a closer look how other balance sheet KPIs have developed. Overall, all balance sheet KPIs reflect solid performance achieved in the second quarter. Strong operating business in the second quarter contributed to a further increase in net cash, which totaled €942 million at the end of the quarter compared to €446 million in the same quarter of the previous year. The working capital ratio, as just mentioned, at the end of the quarter stood at minus 7.5, or in absolute numbers, 539 million euros. The increase is mainly driven by preparing for higher expected activity levels in the second half of this year. And with that, let's go to the cash flow and CAPEX slide. Cash flow from operating activities before net working capital stood at 232 million euros. at the end of the second quarter and reflect again the solid operational performance. Working capital only saw some minor changes, just mentioned, minus 54 in the Delta, so that we reached a cash flow from operating activities after working capital of 179 million euros at the end of Q2. And this is a solid performance of even beyond the same period of last year. As a result, we generated a solid positive free cash flow of 145 million euros in the second quarter of 25, despite working capital outflows in Q2. Although we don't die for free cash flow, I am and we are confident that we will achieve a solid positive free cash flow for the full year 2025. CapEx spendings amounted to around 39 million in the second quarter, slightly higher compared to the same quarter of last year. However, overall, we expect to catch up further in the second half of this year, and we're sticking to our guidance of around 200 million of capex for the full year. Our investment focus remained largely unchanged with investments primarily in blade and nacelle production facilities and tooling for installations and transport. And with that, I would like to hand back to Jose Luis for our guidance slide.

Thank you, Ilya. for working us through the financials. As mentioned earlier, the first half of 2025 has developed fully in line with our expectations, both operationally and financially. This gives us continued confidence in our outlook for the remaining of the year. We expect 2025 to be another year of steady and meaningful improvement in profitability. With a solid order book and clear project timelines, we remain comfortable reaching the midpoint of our sales guidance range of 7.4 to 7.9 billion euros. At the same time, we continue to anticipate a consistent step up in our EBITDA levels over the next two quarters, moving us closer to our medium-term target of an 8% margin. While we are not providing formal guidance, we are confident in our ability to deliver another year of solid free cash flow, or in other words, repeating our first half performance despite expected provision-related outflows. And with this, handing over to Anja to open the Q&A.

Yeah. Thank you both for leading us through this presentation. I would now like to hand over to the operator to open the Q&A session.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the 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 two. Participants are requested to use only headsets while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Konstantin Hesse from Jefferies. Please go ahead.

Thank you very much for taking my questions. Everyone, okay, so I've got three questions. If we could start with, so it's going to be over to you. After the full year results, we had that breakfast where, I think you hinted towards momentum overall. You expected some growth in 26 and then potentially an acceleration in 27 and 28. Now, I'd just like to talk a little bit about this because looking at the share price performance, I mean, this year has been extremely good from an evaluation perspective. You know, we're trading at relatively higher multiples at this point. And I feel like some investors and, you know, there are some question marks around how much longer can this momentum really continue? I think when we talk about 25, looking at German auctions, it looks like that's pretty much in the bag. So we're looking at probably order intake is probably going to be above last year. But going into 26, maybe you could comment a little bit about where do you really see the market trending? What are the markets where you're seeing this momentum continuing? Because surely Germany, from an auctions perspective, is probably peaking this year. So just wondering if you could comment a little bit on that. You know, when you look at 26, 27, what are these growth catalysts?

Okay. Thank you, Konstantin. We remain optimistic about growing trajectory of the business and profitability improvement of the business. You know, we don't like for order intake, but we are optimistic that this year we could repeat or improve last year's performance despite the uncertainties in the U.S., which for us is, we mentioned as well in that meeting and in several courses is a safety net. But we are not, we don't need that to deliver our plan. You name it, Germany is high level volume of permitting or options of market share in the order intake and in the execution in Germany is we are happy is, you know, we are one of the three. So, name it, 30, 33%, and we expect this to continue. We don't see any. any indicator that this might change. But other than Germany, rest of Europe is strong. Canada is strong. And we see opportunities in Australia. So the, you know, you saw that the backlog has increased a lot. It means that the processing of those orders is increasing lead times. And as a consequence, with the current backlog and the expected order intake this year and next year, we think we can support a growing trajectory for 26, 27. 28 is a little bit earlier, but definitely for sure for 26 and 27. That's great.

And then maybe over to CAPEX, if we could just comment a little bit maintenance capex versus growth capex here going forward? I think, you know, a level of 150 to 200 million euros, is that kind of a level that we should continue to anticipate over the next two, three years? Or is there potentially, sorry?

Yeah, yeah. No, I would say ballpark, yes, could be slightly higher because, you know, we are, with slightly higher activity than previously expected. But cap extra revenue, we think, should be below 3%.

In total, I'm sorry, for chiming in. I guess if you take this 200 million as a proxy for a bit of a runway going forward, I think you're well calibrated.

Fair enough. So basically, no plans for now to potentially develop a new platform, anything, at least until later in the decade?

Yeah.

Fair enough. Last question, just on free cash flow. So I was quite surprised. I think you mentioned that you expect a similar performance in free cash flow in the second half relative to the first half, which basically takes you to about $300 million in free cash flow compared to I think expectations are currently at 180, so significantly ahead here. Can you just give us a bit of an indication? I know you don't guide us or give us a specific number for NG, but looking at these potential outflows, how should we think about it? How long are they going to last? Are they pretty substantial already from the beginning? Or just to give us a little bit of an indication if there is a way.

Thank you. Very valid question, and I think maybe the change to our previous calls in the full year and through one is that while we're already optimistic on a solid free cash flow for the year, if possible, we're even more optimistic than we were before. And you're right, we're not guiding for that, but I will not contradict the numbers you play to us here. So in that realm, if it's for calibration, not for guidance, I think that is a good orientation. So for the full year, that's clearly our expectation. As it comes to the legacy issues, the legacy issues, we're not going to be specific on individual customers. However, in terms of outflows, this will, as we said, for the full legacy should be a thing of two, two and a half years. And maybe in some individual cases, it goes a bit faster. So, outflows, of course, are happening already. In H2, we'll see some more. But all this is already contemplated in the calibration we're giving you.

Great. Thank you so much.

The next question comes from the line of John Kim from Deutsche Bank. Please go ahead.

Hi, good afternoon, everybody. Thanks for the opportunity. I wonder if we could focus back on the growth potential into 26 and 27. Specifically, where in greater EMEA you see pockets of opportunity to grow the order intake. Also, any color you can give us on the cadence of orders to revenue recognition would be helpful here. And one follow-up, if I may.

Yep. Hi, John. So the growth in 26 expected is mainly driven by the growth in the order backlog. There is an effect here that the orders in Germany have a longer lead time. for processing those. So those, the order intake today doesn't mean revenue growth next year, but maybe the year after. And this is why we are cautiously optimistic about revenue growth trajectory for 26 and as well, 2027. Majority of revenue growth next year compared to this year is expected to be region central in Germany, and we are ramping up to install substantial more number of turbines compared to this year. And other than Germany, where we see first auctions, first permits and auctions, then order intake, Then two years later installation, other than Germany, the cycles in other geographies are slightly shorter, and it's very much order intake driven. So we expect the good order intake momentum to continue in the second half, especially in Germany, but not only Germany, rest of Europe, Canada, among others.

Okay, great. And one follow-up, if I may. Any color on what you're seeing in Brazil right now?

That's challenging market. We are executing projects. We are in negotiations with customers, but it's a challenging market. Electricity prices are quite low. There are great issues to bring projects to the market. It looks like those grid issues are on the way to be resolved in one or two years. Electricity prices are improving, but at least for us, not sufficiently shorter. But we remain committed with the market mid-term and long-term. Okay, great. Thank you.

We now have a question from the line of Vivek Mehta from Citi. Please go ahead. Mr. Vida, your line is now open. You may go ahead with your question. The connection with the questioner has been lost. We will proceed by taking the next question, which comes from the line of Tore Zankman from Bank of America. Please go ahead.

Thank you for taking my question. I've got two follow ups here. Maybe I can follow up on the capital allocation priorities and how do you think about balancing CapEx balance sheet and rewarding shareholders? And then how do you think about starting dividend payments versus potential share buybacks? I take the second question afterwards. Thank you.

I'll take that first one. Thanks for asking it. And we have been discussing it at least on the last call, if not for the last two calls. As I tried to indicate in my remarks on the presentation, we will come back on this comprehensively with a full year result. I said it could be as early as Q3, but we want to see not only the result of this year, but basically all we already have in a solid budget for next year and the business plans for the year thereafter, questions you're also asking us, but we will come back to that then with a firm answer and basically also a proposal, if any, to shareholders. The guiding principle will be this company needs to be prepared and we are preparing it for a cyclical industry. And when this cycle goes into the next one, it needs to be one of the strongest in the sector. So whatever we do, we'll always put the strength of the company first, obviously, acknowledging the very valid needs or demands from our shareholders who have been very good with us in the difficult times. So I think you get a balanced picture once we reach the full results.

Okay. And if I just complement to Ilya, keep in mind the evolution of the order backlog, which is an early indicator of revenue growth. And this is for us paramount, the risk in the revenue growth of the contract.

Okay, thank you. My second question, also follow up on your comment on the platforms. How do you think about the right time to, let's call it, pull the trigger on developing the next technology platform? And could you maybe comment on how is the current pace of new technologies in the general market for you and also your competitors? Thank you.

In the markets where we operate with the current products, we can deliver electricity below the grid parity in majority of the regions where we operate. So we don't see the need to launch new platforms. Of course, this is a competitive dynamic. We are in a market with some of the competitors uh decide to do so we we don't want to be caught by surprise and we need to be prepared to react but i don't think we are going to be the ones starting to launch new platforms in the markets where where we where we operate because current platforms deliver value to society and to different countries So I don't think there is the need to be in a rush there. It's better to focus in reliability, in product performance, in managing existing supply chain with good quality, with good utilization, instead of ramping up another new platform. But market dynamic will tell.

Okay. Thank you.

The next question comes from the line of Sebastian Grose from BMP Paribas Exane. Please go ahead.

Hi, Jose Luis. Hi, Ilja. Hi, Anja. Two questions left for me. The first one would be, surprise, surprise, also around the order backlog and the related timing. So from what I can tell, I think it's around 10 gigawatts now. And I was just curious if you would be willing to share how we should think about the timing around those very 10 gigawatts. So that would be the first one. And then the other question is more on services. So in the meantime, you have 46 gigawatts on the services. It appears that the capture rate has meaningfully improved here to date. So on my calculations, it's close to a high 70% level. So I guess my question here is whether you can share what the capture rate in Germany is compared to the rest of Europe. equally how terms and conditions might differ between Germany and the rest of Europe. Thank you.

Yeah, that's precise. I don't know the second one, but I will try to give you some color. Regarding the timing of the 10 gigawatts, it changes country to country and, of course, project to project. but from 18 to 24 months. So the German portion more towards 24 months and the rest more to 18 months. What portion is Germany and what portion is others from the backlog? Around 40% could be Germany or a little bit more. With that, you can do your, early indication of expected revenue growth. Regarding services, Germany is definitely a longer tenor than the others, substantially longer tenor. And the capture rate for long-term service 1M in Germany is almost, I would say, close to 100%. So, and the profitability in the German service business activities is good. I mean, of course, it's a quite developed region with a lot of service centers. So you are more close to the turbines and to the customers so you can deliver a better service because of the geographical distribution of your presence in the marketplace and the size of the marketplace as well.

Sounds truly good. And may I just quickly throw in one other question around the provision debate that we had before. Ilya, if you would be in position to share a number of how much one might expect in the second half of the year in terms of provision-related outflows?

You're talking again about the outflows, no, Sebastian? That's correct, yes. Yeah. As mentioned before, the spread of those provisions which were specifically geared towards those legacy issues, which is a campaign of repair and replace, is ongoing already. So, there is outflows happening already. Because we're doing that campaign and we'll continue. And I would repeat, best guess, two and a half years, something like that, where we would put the start at the beginning of this year. And the earlier it is, the more of those outflows. So it's going to be a declining outflow because the campaigns are going to be finished. I wouldn't like to be more specific than that. But again, it is already happening as we have planned. done agreements with customers, and it is all contemplated in the free cash flow orientation we're giving you for this year.

That's well answered. Okay. Thank you.

We now have a question from the line of Coolwinder Raipal from Alpha Value. Please go ahead.

yeah good afternoon everyone so just wanted to get your comments on the us market have you had any discussions with the customers following the earlier phase out of the credits and what has your feedback been on that so far and then in the context of that how do you now think about ramping up the capacity or the motherboard facility in the us now so thank you for the question yes we are

in close discussions with customers. How can I summarize it? Too early to say. I think we are, customers are evaluating what is the scenario of on-targets and what is the practical scenario of the big, beautiful wheel. and the executive order to qualify for continuous construction. More clarity will be given around mid-August. I think it's August 18th. And until there, there is not much we can say. We think U.S. long-term is a good market to be, and we are committed with the market long-term regardless and despite the final assessment of the deal on August 18th. And regarding ramp up in Iowa, as we speak, we are doing so to qualify turbines for continuous construction if legislation allows that. and until new information is frozen in stone to reassess the situation, we keep committed with our plans.

Right, and just to clarify, is it more of an uncertainty kind of question that is facing the customers or is it more like without the credit, the demand won't be the same?

It's, I mean, very much. I think there is a timing effect always. I mean, with or without tariff, there is a capex impact that needs to be translated to PTAs, and this has a timing for that. And the same applies for the tax credits. So the size of the market might slightly change depending depending that and continuous construction will determine if we are going to be in a peak of demand of, you know, one year or in a peak of demand of two or three years. But as far as we can say today.

Okay. And secondly, just to quickly follow up on the service, obviously good to see the margins expanding. So, I mean, should we expect similar developments for the margin in the second half?

Yes. You know, without going into quarter to quarter, because you saw certain peaks in certain quarters, but the trend is expected to continue, yes, and eventually in one year from now, we should be in the 18 to 19 EBIT market. Okay, thank you. The growth should not be expected as steep as the 17%. It's more low tense and profitability growing, yes.

Okay. Thank you.

The next question comes from the line of William Mackey from Kepler-Chevreux. Please go ahead.

Good afternoon, Jose Luis, everybody. Thanks for the time. Three, possibly four questions, if I may. The first one, it comes back to the way in which you or the board are thinking or planning your capacity development in terms of If I look at on a rolling last 12-month basis, your order intake is running at about 9.5 gigawatts and your installation rates are running at about 6.5. You've mentioned earlier that the time to complete or the book to bill period is extending out towards 24 months in some cases. But how are you balancing that natural pressure between your customers wanting to complete and commission projects and therefore pushing you for deliveries, and you holding back or developing your capacity expansion and your willingness to deliver faster. So I'm thinking really the question is, how should we expect you to develop your capacity and installation rates and what bottlenecks are there, whether it's logistics or blades or nacelle completion, which might hold back that installation rate?

Yeah, I think this is a very good observation. Installation this year, we plan to do slightly higher than that, but less than, definitely less than the other intake. The biggest bottleneck is, at this point, is not lake capacity, nacelle capacity, logistic, it's customer permits and civil war rate. So it's very much we are, preparing to fulfill our contractual schedules. And factually, is that we don't pay almost liquidated damage for being late to the projects. Poses different problematics because we need to store the components somewhere because the projects are not ready. And there are certain cost increase discussions with the customers because of those delays. that is very much driven by civil works and availability of permits to get into the site. This is why what is driven, the different pace of order intake, the different pace of production, and the different pace of installation. But without, you know, underestimating the challenge ahead of us that we see substantial growth especially in central and in Germany, but we are prepared. We don't see any major issue from outside to deliver the expected increase in activity next year.

Thank you. Thank you. The second question really draws on your privileged position and insight on the end markets and how they might behave. Would you be willing to share a view on perhaps how, if the treasury adopt a very strict interpretation of the OBBA in the US and we see perhaps the safe harbor statements go away or at least the safe harbor system go away, what sort of impact could that have on market dynamics? And then in a similar vein in Germany, Do you have any initial thoughts or indications about how the German government may interpret or stand with regard to their willingness to commit to renewables in the medium term?

Let's go. US, if you allow us, prefer not to speculate. Let's see what the legislation says for us. you know, that position is easier because for us, U.S. is a safety net. We are prepared for a rush if a rush is needed, but we are not counting with that in our internal planning. So for us, it's more an upside than anything else. But let's wait to see what the interpretation of the law is and react. Regarding Germany, we see, you know, we saw massive improvement in permits, in options. This year, you know, another two options are expected to land with good volumes expected. We don't have any indication about the future. We are optimistic. that Germany is committed to reduce the dependency from foreign resources and we need delivering value to society. How big the volume is going to be or the sustainable volume in Germany to be seen, but Germany is the biggest economy by far in Europe. and contrary to other European markets, the subject of energy is not that straightforward because there is no natural resources and the electricity price is high due to limited interconnections across Europe, especially with Nordics and with other geographies. And the best way for the German government to reduce the energy bill is to install as much as you can. I mean, it's a supply and demand. The more you install variable sources of electricity, the more you reduce the pool price of Central Europe. That difficult to assess, or at least we don't have any indication what the thoughts are in the general world. I don't know if you want to compliment here.

Not much. I think the rationale that you gave for what to consider in those conclusions were all given by you. I think there is a bit of a formal view on this that the government announced, and I think we mentioned it in the Q1 call shortly after taking office, that it will launch a so-called monitoring period. So that means that they want to reassess some electricity demand for the years to come versus the grid capabilities, the mix of generation. So that is underway. And if my timing is not wrong, those six months would probably put us somewhere in the end of October, beginning of November. Well, let's say in the fall, late fall. And I think that we will get a more formal position from the German government as well.

Super. Thank you very much. That's insightful. The last area I just wanted to touch back on, it's been asked a bit. But when we think about provisions, and particularly warranty use, the warranty use in Q2 has jumped to the highest level we've seen in years almost. In fact, it's not the highest level ever, 85 million if my numbers are correct. How should we expect that to develop? When you talk about two and a half years of provision use, is that the sort of rate of provision use on a quarterly level we should anticipate now well into 2027? And what does the warranty use relate to? Is it more of the legacy Axiona turbines or something else?

Very valid question. The short answer is no, that is not representative of a quarterly usage range of the provisions. In that specific case, without going to specific customers, this is something that where we have now reached all the final agreements, final final agreements with everyone. And in that case, basically, we've moved already part of those provisions for specific cluster deal into the liabilities as a firm liability of the company. So that usage is basically a booking change with nothing in nature. So there is no... no additions or anything else. It is basically that we now will recognize or have recognized these obligations as firm ones already in the book. So in the substance, there is no difference. And second, no, that is not going to repeat itself. It's a more steady outflow, again, more at the beginning, then decreasing, but nothing near what we were just talking about.

Thank you very much.

We now have a question from the line of Ajay Patel from Goldman Sachs. Please go ahead.

Good afternoon, and thank you for the presentation. I really want to tackle two areas. I'm going to start with the first one, which is cash flow. Like, bigger picture here, right? I looked at the voice of consensus for next year, and we have 990 million in that cash compared to the 942 that you delivered in the first half. And if I look... basically no cash generation relative to that number. And you start thinking, well, second half of the year, you're going to probably have 60% of your revenues. Margins will probably be better because of operational leverage. Admittedly, investments will be higher in the second half of the year than the first to make up the $200 million that you've got for the full year. But it points to a sizable amount of cash flow generation. And I just want to know, is there anything else that we should be adjusting to? And why has the picture changed so much? Because when we were talking about the four-year results, that 180 number, which is where consensus is for this year, seems about right. And obviously, we have outperformed on this side. Can you really maybe scratch that a little bit more and give us a little bit more detail? Just because I feel like this has implications to pretty much every year in the forecast. maybe some color there first, and then I have one further question to follow up on.

Yeah. I guess I'll take the first one. Maybe you get some business background from the CEO as well. But basically, A, we speak to the message that we want to calibrate you around the point of the guidance in terms of the guitar arches. that if we were confident already in the full year call and in the Q1 call, if at all possible, we're more confident about that than we have been before. What I'm trying to say is probably, if there's any down upside to that, we clearly see only upside to that position. So that basically is where we wanna steer you towards. But given that the 60%, 55%, as you indicated, activity is still lying ahead of us, and we have seen certain hiccups, at least on paper, between tariffs, permanent magnets and the likes, we would continue to be cautious to go beyond anything that we've mentioned on the call today in terms of the guidance for the cash flow, which is not a guidance, to repeat that, and for the profitability. And I think that matches fully how we see business, don't we? Yeah.

I think, yeah, you name it, I think 60% of the volume we need to execute, 55-50% in terms of production, installations, so on and so forth. I mean, there is very little to non-order intake risk for delivering this year number. But one thing is order intake risk, other is the execution itself that, you know, there are risk and chances. Today, we see slightly more chances than risks, at least half a year ahead of us to execute.

Really, the big variable here is you execute like you have over H1 and H2, then I think earlier in the call, someone was inferring 300 million in cash flow. That isn't an impossible number. It's just a case of you need to get through it. You need to get through the course. That's a loss, sorry. Okay. That makes sense, and it almost leads to the second part of this question. On slide 21, you vary finding giving as a bridge, the 4.1% to the 8% margin target. And you look at those variables, and you go better execution, growing service, additional volumes. Well, the service margins have seen sizable improvement. You're highlighting that Germany has a good intake path ahead of it, And I think that we'll have to see with the US that there's a possibility on that side. And you're executing very well over this half. The hope is that it comes continue momentum going forward. What's effectively holding you back from that 8% margin target next year? What is, is it purely just the reason that you, when we ask this question, you know, is it possible to hit the 8% margin next year? Is it that you just want to be conservative on the execution until you get everything perfectly humming correctly? And I think your order intake in the first half is about four and a half gigs. Is nine gigawatts unrealistic this year? Or is there some timing in the order intake that we need to take into account? Because obviously, you have more visibility to your pipeline than we do.

Yeah, let's, how can I say it without guiding you? I think all things being equal, if we improve the order intake of last year, which we think can be done, then the additional volume that is needed in this bridge might come next year. So if the other three building blocks remains true, which is no hiccups or massive disruptions, your reception or your math might be, might be doable, but we are in July. The budget, we are after summer break, we will start planning for next year. Budget will be approved in December, and guidance for next year will be issued in February. So, I mean, we still have a journey to go, but everything looks good.

Okay. Okay. Thank you very much, Vinicius.

The next question comes from the line of Sean McLaughlin from HSBC. Please go ahead.

Thank you. Good afternoon. My first question is on the margin. Just thinking about the 500 basis point year-on-year gap, can you talk about kind of effectively what is driving that? Is that execution mix, all of the above? And maybe thinking about the second half, any reason why this gross margin strength should not continue? Maybe any puts and takes you expect on the gross margin in the second half? That's my first question.

Yeah, I mean, let's do this together. I think gross margin is, of course, a very relevant KPI, but doesn't reflect the profitability of the project. You know, it changes a lot depending your make or buy strategy, your project portfolio location, so on. But basically, the make or buy might affect your, you know, peaks or valleys in gross margin. But the trend is an indicator, no? if you take last 12 months trend and you combine a little bit with the last 12 months make or buy strategy, especially in place, then you can forecast as well the profitability, reconcile that with the profitability improvement, taking the service business aside. Those are the building blocks.

I think you're describing also the imperfections of that KPI, which is why we keep going back to the EBITDA as a probability measure and he would repeat our message. but steadily increase in both Q and Q in absolute numbers of EBITDA and, of course, margin percentage on the EBITDA level. So I think that is the more accurate one. And, of course, then that profit goes through the line with it. But if it's a wider commercial question, I would subscribe to Jose Luis. It's a trend that we will see to continue, especially when we look at the EBITDA level.

That's very clear. Thank you. I just wanted to dig in also to a point you made about LATAM. You were talking about varying degrees of success across markets. I mean, how much of this is due to competition from China and how much is potentially company or country specific? Thank you.

I would say that we respect a lot of Chinese competitors, of course, great companies. and the rest of our competitors, of course. So I think the company in Germany and in Europe in general has a very good positioning in the marketplace. Reliable products, reliable execution, quality under control. and competitive, so we are very competitive. Same is Canada, US. Unfortunately, we are not in that situation because it took us some time to solve our legacy issues there. We might be slightly late compared to the market leader and the other market leader in the market and market participant. Latin America is very difficult because of the low electricity prices. So, of course, we suffer more in Latin America because it's more easy to change permits. It's easier to execute. You don't have the restriction of roads, permits, noise, high sophisticated machines that are needed to play a role in Europe. You have more big utilities that do balance sheet, that do not require project finance. Project finance, of course, we need to have a service solution for 20, 25 years, proven track record in the marketplace. So I would say Europe is more difficult to lose that market position compared to other geographies.

That's very clear. Thank you.

We now have a question from the line of Vivek Mehta from Citi. Please go ahead.

Thank you very much. Good afternoon. Can you hear me now? Yes. Fantastic. Many apologies for the technical issues earlier. So my first question is just a follow-up or clarification on some of the questions, again, around the legacy warranty issues. You mentioned there was a movement from provisions into liabilities. But just to check, were there any additional warranty provisions taken in the quarter? I saw in the notes, I think there's 54 million euros of compensation taken in the quarter. So just to check, were there any additional legacy warranty provisions taken? Thank you.

Yes, I'll take the first one. The answer to that one is yes, because the final deal with one of the large customers required us to, in that specific project, make one last step towards the customer. So, just like we had seen before, that that was it and all provisioned for. We had to make this last step because that customer, again, being a large global player, has, as is not unusual in the business, basically, in return giving us some additional business in multiple other geographies. So it's a package deal where in the specific project it increases but overall enhances the business. So yes, that would be reflected in that figure.

Understood. Because I guess that leads into my next question, which is that that presumably would have had a P&L impact as well. There may have been some other one-off, one-time issues in the quarter. And I understand that the within a project business, the line between what is a one-off cost and what isn't is very blurry, but it does imply that the underlying margin momentum within your performance is very good right now. So really just from that, could you maybe clarify your comments regarding getting towards the mid-term targets as we improve through the year on the margin? Could we potentially be at the 8% by Q4? Thank you.

It's too early. I would say regarding your assessment of provisions, totally right. This is project business and But I don't expect or we don't expect if I don't have the right understanding that those provisions or moving provisions to obligations, I don't expect more P&L impact coming from that in the future. This is done and tested and is provided for in the numbers and in the guidance for the year. And regarding the guidance from the year, this is as far as we can go. I think we have 60% of the activity to go. With risk and opportunities, we see more opportunities than risk. But 60% needs to be executed. So let's wait a little bit and see how things go in this quarter because it's a high activity quarter. And in last quarter as well, this quarter is high activity in installation mainly. Last quarter is as well, high installation, not as big as this quarter, but high activity in production. So we need to see how the execution goes. But with the information we have today, we see more opportunities than risk to execute the remaining of the year.

Very clear. Thank you. My final question is on working capital, the follow-up there. You know, you have the busiest second half of the year, but just when I look at the balance sheet, you know, inventories look relatively flat relative to the end of last year. If I look at contract assets from projects, that looks slightly down relative to the end of last year. So just in terms of the ramp up of activity, going into the second half of the year, perhaps those look a little bit surprising. So maybe could you just talk about the path towards going back to the minus 9% of sales as we go through the second half? Thank you.

Yeah, I think there's two things to say that. So one, when we talk about that bump up of activity, of course, we're not only talking about the manufacturing, the production, or any inventory we're building up, but all the toolings, all the preparations that we do that we need to do, but I think the more relevant, I guess, response to that is that when we look at our forecasts, we clearly see that we will be returning to those minus 9% or lower in the working capital ratio, so we're not changing anything there. In the past, we have done consistently better than what we were saying you in that guidance this year, probably again, maybe again, but for sure we are We are sure that we're going to hit that number by the end of the year.

Understood. Thank you very much for your time.

The next question comes from the line of Christian Brun from Montega AG. Please go ahead.

Yes, hello. Thank you for taking my question. I have only one left and this is On capital allocation, you have a stronger finance profile, and you said that you prefer to strengthen your business, if I understood that correctly. But I would like to know which part of the value chain of your business would you prioritize or prefer to strengthen? So the production or RMD or the customer service?

Well, the first thing is we expect growth in the business, and growth means more bonds, eventually more liquidity needs in case, you know, you are achieving bond limits or so on, and we don't want to be in a position to lose orders because of that. as we see an important order intake momentum ahead of us, let's harvest that. That's foremost our first priority. Second, we don't want to be short on cash, which, you know, given the amount of cash we have, that is the case in terms of CAPEX needed to execute the growth expected. And those are the two main priorities that need to be dusted before and with sufficient buffers before talking about any other thing.

I think that, so my answer would have been all of the above with exactly two, coming back to the question, but then those two key items are highlighted by you. Of course, acknowledging that, I repeat myself, have trusted and helped us in the past. So when it comes to make those decisions, we, of course, take that into consideration. But the core items are the two ones that Rodrigues just mentioned. De-risking as much as we can the full supply chain from manufacturing to execution and the order intake.

That's the key. Okay, thank you.

We now have a question from the line of Xin Wong from Barclays. Please go ahead.

Hi there. Thank you for taking my questions. So my first one is on older ASP. This has been stable despite the regional mix. Is it fair to say underlying pricing has actually worsened?

No, it's not. I think the ASP is, as we talk always, is an indicator that the market demands from us and doesn't reflect the profitability of the business. The profitability of the order intake is slightly improving.

Okay, but do you still think the European orders, for example, are better priced than the rest of the market?

It's mainly driven by tower heights. This quarter, we had a lot of ordering data from Turkey, where the tower is a very short tower. So the ESP is lower, but profitability is super good. If you do super high towers, then the goes up. And this doesn't tell you what is the profitability of the project. It tells you what your TSA divided by the number of megawatts of the machine. And this can go from 0.7 to 1.2.

Okay. Thanks very much. And then my next question is interest expenses. So both P&L charge and cash payment continue to increase earlier and look very outsized against the size of borrowing you have on balance sheets. I think you renewed your guarantee facility in April. Should we or when can we expect lower interest expenses and payments?

Very fair question. Maybe I take 90 seconds on that one because it goes in three steps. So yes, we renewed that existing facility, but in, and I think we've mentioned it before, it is the syndicated bond facility with a club of banks. The renewal is part of a phase out. So basically now over the last 15 to 18 months, we've already started and I'm far advanced with the wind down of that facility. There was a remainder open under that facility. So we extended it for another year, but hopefully by April, May next year, we'll be done with that. In parallel, also mentioned on past calls, Acciona has in the same period come up with support for Nordics with its own bond line. It's very similar, of course, it's not a syndicated one, but it's very similar in terms and conditions and pricing. So that is being utilized because the business continues to grow. And in parallel, we're now basically partially refinancing that bond line in the market standalone Nordics in a bit of a different structure. But the good thing about that is that now the interest costs for those bonds are substantially lower than the ones we have to pay under the previous two bonds. That might not show until next year because, of course, these bonds then need to get into the field and it will take a bit of time, but given the profile of the company and the risk profile, those costs are coming down substantially. Now, in total numbers, it is going to be a bit more difficult to tell because the business is growing. So, while per bond we're going to pay significantly less than we have in the past years, depending on the additional volume we need in total numbers, that might still be a higher number. But, of course, it would sustain a much larger volume, as José Luis and others have been discussing on the call. So, that's the picture on the interests.

Thanks very much for the additional color. My next question, I'm not sure if you can comment on this, but on Australia, is your comments on the markets or your own pipeline, do you expect all this from other than ASEANA from the Australian market?

We do. Maybe not this year, but definitely we are fully committed in that market and optimistic about that market.

Thanks very much. That's all my questions.

Thank you.

We have a follow-up question from the line of William Mackey from Kepler-Chevreux. Please go ahead.

Good afternoon. Thank you for taking the question again. I think perhaps this is a little unfair because it relates to external advisors' numbers, but I just wanted to touch on slide five and your market projections. At the end of last year in Q4, you presented a series of market predictions which were aggregated from third-party suppliers, and now you've presented another set of projections over the next four years. If I strip out the obvious changes in the North American projections, there's still a 10% decline in 2025 and a 17% decline in 2026 in the installation forecasts for 2025 and 2026 in the six-month period, which is a little counterintuitive given some of the optimistic stance we have on installations in Europe. So I guess the question is, Do you recognize that that's changed in the data, and what do you think has changed from third-party expectations? And then maybe the add-on to that is when we look at the projections on that slide, the expected growth in Europe in 28 over 27 is like 24%, which is a big change in trend. I'm just wondering how you see that evolving and what would drive that big step up. Is it all relying on Germany? Thank you.

No, very good. I think we took external information to give you the view that the company is market leader in Europe and Europe has a growing trajectory without going much into the detail of the granularity of Europe. Of course, we saw auction volume in Germany high in 24, in 25, which supports installation growth in 26 and 27. Eventually, the trend continues because Germany will not go bust, you know, will be the, I hope, will be the European market. So, this will support installations as well in 2028. On top of Germany, UK is expected to have a substantial growth. Turkey, where the company is market leader, is committing to long-term . Mediterranean is delivering substantial volume. And Baltics is delivering more than, for us, very big volume, close to the gigawatt range. Nordics, depending a lot, ups and downs, but long-term is very good wind. There is land, a little bit of interconnection issues. that is a market, you know, without entering into any specific granularity of the analysis, what we wanted to show you here is this is what external parties, how external parties see the volumes coming. We have similar view, maybe not, year on year because we see more activity in 26 than 25 and as well 27. But that details, I mean, from quarter to quarter, the view of these external consultants change and adapt. Spain is a good example that they were more bullish than they are now. due to several court cases and great issues. Other than that, US has reduced, I mean, reasons being what was commented in this call, and Italy as well, and a slight reduction. But other than that, important from our view is the trend. And we see the similar trend as they see that. And in 28, it's a little bit uncertain. We don't have such a long-term view. But 26 and 27, we see Nord-West growing. And it's difficult to grow increasing market share when you have the market share that we have in those markets. So it means that if we see growth, it's because the market is growing.

Thank you very much for the additional color helpful.

We now have a follow-up question from the line of Anis Zgaya from OdoBHF. Please go ahead.

Yes, thank you very much. Good afternoon. I have only one left question. So, could you help me understand, please, why operating cash flow before working capital are significantly above EBITDA? What are the main non-cash elements impacting EBITDA and not the operating cash flow? Thank you.

You know, I think the question indicates that the reason It's the improved operating performance of the company. That's the largest driver for that. And then, of course, some of the other elements are non-cash relevant, but the key driver for that, besides working capital, again, I stand by my statement that we will go back to the minus 9% or lower levels. That's the key driver.

We have a follow-up question from the line of Konstantin Hesse from Jefferies. Please go ahead.

Sorry, guys. Very quick one. The call has been obviously very long, but very quick one. Just a homework question on the competition front. Anything from Siemens Gamesa or anything from any of the Chinese OEMs in Europe that you've seen that you're currently keeping an eye on? I think Siemens Gamesa. they celebrated their first order in a long time, a few months ago, but anything else that you've seen there?

No, I think respect for, of course, for our competitors, but without, with that taken into account, we think we can improve the order intake of the previous year. I don't think we are going to, I mean, I don't think we are going to lose substantial market share in Europe this year compared to the previous year.

Okay. That's perfect. And then just lastly on service, I mean, if you continue to install, say, eight, nine, let's call it eight first Jigawas a year, let's say, over the next three years, Maybe you stay stable, maybe you accelerate, but I mean, is there anything that is currently holding back the service business of being a 1.5 billion Euro top line business by the end of the decade, given the current installation rate that you're running on?

End of the decade? Maybe. Maybe it's slightly optimistic. But if we keep that level of installation and the renewal rate, maybe slightly aggressive, but not far away. Not the decade, 2030, yes. Thank you so much.

You're welcome. Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Angel Vila, Head of Investor Relations, for any closing remarks.

Thank you, Mathias. Thank you, everyone. As usual, I would like to hand over to Jose Luis for his final remarks.

Well, again, thank you very much for your time, your participation, and the questions. Let me outline our key takeaway for this quarter. First and foremost, we deliver another strong quarter in terms of order intake, and we are confident of achieving another good year with total order intake expected to be above last year's level without diving in a specific number. Second, our focus, you know, is on continuing to improve our profitability levels and delivering a positive and sustainable free cash flow. That's the key, focusing in free cash flow. And last and not least, we are on track to achieve our guidance to deliver margin improvements, reiterating our medium-term margin targets of 8% now looks like more close. And with this, thank you very much. We wish you a wonderful rest of the day.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscall and thank you for participating in the conference. You may now disconnect your lines. Goodbye.