Earnings Call: Q3 2021

Jul 30, 2021

Good morning, ladies and gentlemen, and thank you for joining our Q3 21 results presentation. Before we start, I would like to draw your attention to our forward looking statement in Page 2. And with this, let me hand over to our CEO, Andreas Nowen. Andreas? Yes. Good morning, and thank you for joining the call today. As you know, presented the preliminary results for the Q3 and the updated guidance for fiscal year 2021 already on July 14. Today, we will present the full results for Siemens Carmesa for that period and, of course, also for the 1st 9 months of fiscal year 2021. I'm joined as usual by our CFO, Beatrice Buente. We will provide you with an overview of the results for the Q3 of that year, and then we, of course, will be very happy to take your questions. As you know and we will explain now in detail, our Q3 results have been impacted by the significant increase in the price of raw materials and the higher than expected ramp up cost of our new Siemens Gamesa 5X platform. Nevertheless, onshore continues on its turnaround plan, while offshore has been affected by the market volatility in Q3 that also had an impact on service performance. I would suggest we start on Page 4 with the key points. For the Q3 and the 1st 9 months of financial year 2021. The revenue of about EUR 7,300,000,000 in the 1st 9 months with an EBIT margin of 1.1% versus minus 5.6% in Q3. As we explained already in the preliminary results call, Q3 was impacted by raw material price increases and the high ramp up cost of the 5x platform that has led to provisions for owners' contracts of nearly €230,000,000 We've already put in place different actions such as indexation to protect from raw material price volatility. We've also increased hedging and back to back coverage with suppliers, and we have also increased our efforts on cost out programs, aiming at reducing the impact of the material price hikes and ramp up costs, specifically in Brazil. Our LEAP program is progressing well and is also helping to improve our performance. Our new EBIT margin guidance of minus 1% to 0% with revenue of €10,200,000,000 includes the provision mentioned earlier. Also the pressure on supply cost, the ramp up of our 11 megawatt turbine in offshore and the service margin normalization will have an impact on Q4. Our order backlog of more than €32,000,000,000 shows we are well positioned to take advantage of the strong momentum in renewables with 17 gigawatts of offshore auctions in 2021 gigawatts in the coming years to come. On Page 5, I would like to address a few activities under the banner of 1SGRE that I mentioned also at the Capital Market Day that will help us to reach sustainable profitability. We have come with more than 500 ideas to reduce blade cost in an activity that we called business unit conventions or blade conventions with around 120 experts from different company departments, so from off and onshore, to see how we can reduce blade cost. Another activity to make sure that we harvest the knowledge that we have in Siemens Gamesa is also simplification of our quality and HSE organization with a clear focus on customer interfaces. We also continue to deliver strong in digitalization with improvements in areas like blade manufacturing or tower selection for onshore projects amongst other things. On Page 6, you can also see that in Q3, we had good examples of significant achievements in our commercial activity with regards to project execution and service as well. We've signed the first orders for our next generation turbine in India, the 3.4-145 that we already announced last year. It shows that we have success of this next generation wind turbine in an important country like India. In project execution, in offshore, we have continued to perform at excellent levels. We've completed the 6 100 Megawatt Krigasvlak installation in Denmark ahead of schedule. And also in service, we've signed 20 year service contracts for 5 different on and nearshore projects in Vietnam. On Page 7, you can see that the results of our strengthening of our ESG policies also pays off. We've as the 1st wind turbine manufacturer, we received an excellent rating from Standard and Poor's with a score of 84 out of 100. That is the highest ESG rating that any of us has ever achieved. We also continue to be in the top percentile of ESG rating agencies of Stainalytics or S and P's corporate sustainability assessments. On Page 9, We can have a look at the commercial activity for the Q3. We maintain a very high order backlog of more than EUR 32,000,000,000 3% higher year on year with an order intake of €1,500,000,000 of course impacted by offshore, which where we expect to get more orders in Q4. Thanks to this backlog, we have now reached 100% coverage of this financial year revenue guidance. And around 80% of this order backlog is related to markets where execution is strong and growth prospects are above average. The standard volatility in the offshore market has resulted in a small order intake for Q3 in offshore. But as I've already said, we expect more orders in Q4 to come. If we look at the chart on the right side where you see the regional distribution, we can see that the EMEA region consolidates its position as the main driver of the order backlog with a growth of more than €2,000,000,000 in Q3. As you can see on page 10, in onshore, we continues to focus on profitability of our volume in the 3rd quarter. Still, we see a 12% growth in the order intake in Q3, up from EUR 1.3 €35,000,000,000 Thanks to the recovery from the negative impact that COVID had on the same quarter last year. Americas and APAC are the main drivers of the onshore commercial activity in Q3, specifically with orders in Canada, in Japan and the Philippines. And I mentioned already the 300 megawatt order that we received in India, but this will be assigned to the Q4. Again, the trend to larger turbines continues and the 4 megawatt and bigger turbines account for 67% of all orders. The commercial activity for the 5x platform was stepped down in Q3 as a consequence of the measures to minimize the impact of commodity prices and the platform cost program. Still orders taken for the Siemens 5X Siemens Gamesa 5X platform since its launch totaled to 2.7 gigawatts, almost 2 gigawatts more than in the previous quarter. Pricing continues to be stable with variations on the average selling price. Increase in prices and the positive country contribution in APAC and EMEA regions were offset by the negative impact of smaller project scopes and a moderate currency effect amongst others. Quarter. On Page 11, you can see the current situation in the offshore market. In offshore, we maintain our leadership despite a decrease in order intake, But with 7.3 gigawatts in order backlog and another 7.8 gigawatts in the pipeline with projects in the U. S, in Europe and in Asia, during the Q2 results presentation, but the early signature of the Sofia project, a 1400 megawatt project in the UK ahead of schedule. But also in Q3, we landed 2 preferred supply agreements in Taiwan for 230 Megawatts for Hai Long B and 5 12 for Hai Long 3. And this together with the original Hai Long A project, another 300 megawatt, We will have another 1,000 Megawatt in Taiwan, and this project will be equipped with a 14 Megawatt 222 Direct Drive Turbine. The total order intake and the pipeline for our latest turbine, the 14 Megawatt 222 now accounts for more than 5 gigawatts. On Page 12, I would like to say a few words about our service business, which now accounts for about half of the total group backlog with more than €16,000,000,000 nearly 7.5% higher than a year ago, which is also thanks to the strength of our offshore order intake. We continue to have a very high retention rate of nearly 70% in Q3. The order intake was, of course, also affected by the offshore market volatility, but also the comparison to the previous year reflects a strong service activity in Q3 related to offshore orders. On Page 13, we can have a look at the overall market dynamics. In the last year, we've seen governments and companies and non profit entities across The globe announcing plans to step up the emission reduction targets. At the same time, measures aimed at mitigating climate change play a central role in the economic recovery over the short term and a sustainable growth in the long term. Renewable energy plays a key role in order to achieve those targets. As shown in this slide, wind installations would reach 145 gigawatt per year in 2,000 and 30 in a sustainable development scenario. The IEA increased that figure to nearly 400 gigawatts in 2,030 in the updated scenario that they issued a few months ago. And also in Q3, several countries stepped up their emission reduction goals. Europe with the FIT455 package published 2 weeks ago increased targets for renewables to 40% by 2,030. Germany pulled forward the target year for climate neutrality to 2,045 by 5 years. The UK step up its emission reduction targets to 78% for 2,035 68% already by 2,030. The U. S. Also announced offshore targets to reach more than 38 gigawatts and also a target reduction of 50% to 52% by 2,030 versus 2,005 in emissions. And also Japan is the 1st country in Asia to legislate its decarbonization target for 2,050 and already nearly 50% by 2,030. So overall and globally, we see a continued and ever rising momentum in our market. As you can see on Page 14, This translates into large auctions, which are a good example of the institutional support for the development of the wind power industry. This is clear in the offshore market as shown on the slides. The 17 gigawatt auctions expected this year and the additional 61 beyond that time support mid- and long term prospects for the wind industry, which are very positive diversification as we can see projects in Europe, Asia and the U. S. And with that, I would like to hand over to you, Beatrice, to have a closer look at the financials. Thank you, Andrea. Good morning, everyone, and thank you for joining our Q3 results today. On Page 16, we have the summary of the group financial performance on the 3rd quarter that as you see are in line with the pre announcement that we did on July 14. Revenues for the 1st 9 months reached EUR 7,300,000,000, up 11% year on year with EUR 2,700,000,000 in the 3rd quarter. Also roughly the increase is 12% versus last quarter. Revenue growth has been supported by both offshore and service, with onshore revenues picking up on Q3. We'll go on more detail on next slide. Moving to profitability. The 9 months EBIT pre VPA and integration restructuring cost amounted to €81,000,000, up €345,000,000 from compared with 9 months last year. EBIT margin of 1.1 percent over revenue. And now with the 3rd quarter, as you have seen, and we announced negative EBIT of minus €151,000,000 The 3rd quarter and the 9 months profitability had been heavily impacted by the provision that reallocate for the onerous contract mainly in Brazil amounted to €229,000,000 This provision, as we explained in the pre release communication, reflect mainly 2 impacts that has heated our profitability on our WTE order backlog. That is mainly related to the longer time and higher ramp up cost that we have for the 5x, as I said, especially in Brazil, and also the sharp increase that we have seen of raw material prices. Both events have been certainly compounded by the pandemic situation due to the supply chain shortfall and also execution related bottlenecks that we experienced and we suffered in Brazil. It's worth highlighting here that both our offshore and service activities continue to perform very strong despite the market conditions. Regarding integration and restructuring costs, the amount for the period year to date is €149,000,000 The net interest spend has gone down in Q3 from €11,000,000 to €9,000,000 and also in the 9 month period amounted to EUR 32,000,000 down 27%. Tax expense on the 9 month period amounted to €91,000,000 €71,000,000 in the quarter. Despite the negative profitability, the tax calculation is impacted by the geographical business mix and also that we have not proceed with any capitalization of the net operating losses inside of the countries. Reported net income amounted to a loss of EUR368,000,000 in the 1st 9 months and a loss of €314,000,000 in the quarter. Both after pre PPA and integration of restructuring cost, net of taxes amounted to EUR 232,000,000 in the 1st 9 months of the year. Moving to the balance sheet and the key cash flow metrics. CapEx in the 3rd quarter amounted to EUR163,000,000 on a total for the 9 month period of EUR452,000,000. It's important to highlight that more than 50% of the CapEx has been invested in offshore. And also for us, it's very important, as you saw, because it will give us great opportunities to tap the market growth and maintain our current market leadership. Working capital Q1 in the period to negative 16% of the last 12 months on a revenue basis and remains a very level despite the increase that we have seen at the beginning of the year. I will cover the group net financial debt that will close So as of the end of June, roughly net financial position net debt position, as we reported, euros 838,000,000 and I will cover later on the presentation the performance. Moving to Page 17 of the presentation, you have full breakdown of the group revenue, growth of 11% on the 1st 9 months, supported by offshore and service. And also, as I mentioned, important to highlight the pickup in onshore activity and service in the period. At constant FX rates. The group revenue will have grown 15% in the 9 month period to EUR 7,600,000,000 Most of the currency impact took place in the 1st 6 months of the year. And as we highlighted, mainly due to of the U. S. Dollar. And also, we were impacted by the Brazilian real, followed by other currencies with less impact as Indian rupee and the Russian ruble. Moving to the left hand of the chart, we can see the group revenue performance by activity. Starting with service, the 9 month service revenue reached EUR 1,300,000,000 up 11% year on year, including the integration of the acquired European service operations of Senvion. Service growth was supported by good performance in the fleet under maintenance that grew 8% year on year. During Q3 2021, the renewal rate reached 6 78%, while in Q1 and Q2, that rate was roughly on the same range above 80%. Call. As I said before, very strong performance in the service segment. Regarding offshore, total revenue amounted to EUR 2 point €4,000,000,000 during the 1st 9 months of the period. That is roughly an increase of 23% year on year. And the main driver of the has been a very strong growth on the also on the 3rd quarter is revenue slowed down to 6%, reaching €851,000,000 I will also highlight that as Andrea has I mentioned a strong performance of some of the projects that we have, like the one in Denmark, where we install and commission the project nearly 1 month in advance. In Q4, as we highlighted also in the previous quarter, we will see manufacturing activity in offshore slowing down year on year and, of course, quarter on quarter. Due to the ramp up of the manufacturing of the 11200 turbine, but also, of course, it will have some impact on the profitability of the WTG division in Q4 as we announced in the previous quarter. Moving to Onshore, the 9 month revenues reached €3,500,000,000 up 4% year on year with revenues in the quarter of EUR 1,300,000,000. This is in line with a back end as we highlighted, back end loaded activity as also is driven by also our customer request. In Q3, onshore becomes the The largest driver of the growth, if you see, in the period. The increasing contribution of the APAC region and also the negative impact of the FX explain also the difference between the onshore sales that grew less and the sales volume. I'll also move into Page 2018. On the profitability side, EBIT, pre EBITDA and integration restructuring costs for the 9 months, as we highlighted, are completely in line with the numbers that announced on July 14, and I was heavily impacted by the provision on those provisions that we allocate of EUR 229,000,000. That's roughly 8.5 percent of the revenues of Q3. Also, it's important that despite that impact, the strength of the service and the very good performance of the offshore segment for us. As I explained, the main impacts of that hit or allocation of the owners' provisions were related to the increase in the ramp up cost for the 5X, mainly for these projects in Brazil and also the fast increase in the raw materials, mainly especially steel and copper. Also, the requirement that we have in Brazil for the local content and also the issues that we faced on the supply chain shortfalls and execution has also, of course, compounded the effect. What is important to highlight, Sandrea has highlighted, we have taken actions, of course, to mitigate that impact and also in every single area, of course, in Brazil, reinforcing the resources and also specific action plan to mitigate the risks that we have there and has driven this owners provision and also looking for opportunities on the execution of those projects. When we look at the profitability and the annual evolution [SPEAKER CARLOS GOMES DA SILVA:] Beyond the impact of the owner's provision that we have also on the Q3 was concentrated, The underlying drivers of the profitability stays. Sales volume and productivity gains from LEAP also has had a positive impact and also the strength of the Offshore and Service Business. If we move to the balance sheet and also thinking about the Q4 imply on our guidance. I will highlight also it's important that the service unit performance has been very strong on the 9th month of the period. Is front ended, and that's the reason also of the higher margin that we see on that period. We foresee See that service will finalize the year around 20% margin. And also, as I mentioned, the Offshore segment will be affected by the ramp up and the change of the platform on Q4. Moving to Slide 19 and focusing on a key metric for us, which is the net debt of the group. I will highlight that we closed June with a net debt position of EUR 838,000,000 increase versus last year for the same period, mainly related to the effort that the group is making on the CapEx and, of course, investing for the future. As I mentioned, 50% of the CapEx is allocated to offshore. Also, the working capital figures are affected by also lower order intake and therefore lower down payments that we have on Q3. And also, as we highlight and disclose the increase on the lease and liabilities that has increased in the period compared to last year, EUR 211,000,000, which is mainly some of the leases are related to our new vessels. We Consider taking into account, it's important to highlight that all the impact of the owner's provisions as those are projects that are going to be installed in 2022 and 2023, That will have a cash impact on the coming year. Finally, also in the period, we have roughly used EUR 60,000,000 of Adwan provisions. And also the increase on the gross debt of EUR 569,000,000 Our mailing rate to what I explained, the increase in lease liabilities. And also, we fully withdraw the IB loan that we signed in February, which has helped us, as you have seen also, to optimize the financing cost. Moving to Slide 19, the only thing that I will add here is that the group retained a very solid funding position. It's very important. We have 4.4 percent in credit lines and loans. Nearly 2 thirds are long term, and we have drawn roughly EUR 1,400,000,000 but also we have cash in the balance sheet of roughly the same amount. So we maintain roughly EUR 4,400,000,000 in available liquidity. It's important to highlight, as I mentioned, the long tenure of that maturity that we don't face any significant maturities in the short term and also that roughly EUR 2,000,000,000 of the liquidity is long term available and is available till 26. So now, as I highlighted with a very strong liquidity and a very strong balance That is for us is a key competitive advantage to tap the growth of the market. And now let me pass on to Andreas, and then happy to answer any questions that you might have. Thank you, Beatrice. And if we go to Page 22, we would like to share with you again the strong potential of wind energy in the coming years. And we believe that we are very well positioned to benefit from that steady market growth. As we can see, of course, 2020 with 116 gigawatts was a peak year, mainly driven by the Chinese and the U. S. Markets. And the years 2021 to 2024 will be relatively stable if you look at total installations. Nevertheless, there's, of course, the underlying growth in the offshore market, very important for us. And then you can see that from 2025 onwards, the market really excels. The growth of the as global installations will resume in 2024 2025, and we will maintain that trend and even speed up that trend during the second half of the decade. Offshore installations will grow will go through a significant increase from 2025, and we will reach 20 gigawatts or even close to 40 gigawatts by 2,030. I would like to close off on Page 23. And as indicated earlier today and during the presentation of the preliminary results 2 weeks ago, our new revenue and EBIT guidance reflects the impact of provisions for ONREZ projects. Also Beatrice mentioned that in her part. These projects have, of course, been affected by the well known raw material price increases and the increased estimates for the ramp up costs for the 5X, especially for a number of Brazilian projects. The impact of these elements has been exacerbated by the pandemic, especially in Brazil, where the company faces supply chain shortfalls and execution related bottlenecks. And also, as Beatrice mentioned, also Q4 will be impacted by the ramp up and switchover of the offshore production by increased procurement cost and the normalization of the profitability in service still always in the range where we expect it to be. As a result, our revenue for the fiscal year is Fit to be at the low end of the range communicated in the Q2 results. And our EBIT margin now in range between minus 1 and 0, as I also highlighted at the beginning. I believe we have taken a lot of necessary actions, including mechanisms to protect from the volatility of raw material prices, enhance procurement strategies and also additional efforts in cost out programs and new technical features to compensate for this effect. And also the LEAP program, which we started about a year ago, is continuously delivering positive results with the aim to achieve profitability in the onshore market again. We believe that these actions will let us reach our new guidance and also prepare for a better performance next year. We're also confident that we've taken all the necessary steps to get ready and benefit from the potential growth of renewables globally in the coming years. Many thanks for your attention. And now we would like to take your questions. Good morning, ladies and gentlemen. The Q and A session starts now. Q3. The first question comes from ArcelorM Obaidula from Deutsche Bank. Go ahead. Hi, good morning, everyone. Just quickly, I just wanted to understand whether you're seeing in terms of in the near term, sort of any negative demand for onshore turbines coming from the rises, Either raw material costs and accordingly turbine prices, as well as from the regulatory uncertainties in the U. S. Are you seeing anything there in the near term? Thank you for the question. And of course, it's Yes. That business question is in the room, but we don't see that at the moment. Our order entry in onshore is exactly as we expect To be since about a year ago, it fits to our plans. And even though here and there, of course, negotiations take little longer because we raised prices, we passed on raw material, and I think the whole industry is doing that at the moment. But generally, we don't see that market slowing down. I think all the forecasts that we see and also that the analysts and the market experts like Wood Mackenzie don't show that. Thank you. Next question. Thank you. The next question comes from Vivek Mehta from Citi. Please go ahead. Thanks very much, everyone. Good morning. So again on pricing, I just wanted to ask, You commented that you saw underlying like for like price increases in Q3. Could you maybe quantify that, if possible? Thank you. Yes. Thanks, Deepa, for the question. Yes, we keep on raising prices, and this is driven by 2 effects. First, of course, the raw material effect that we already as we explained in Q2 that we need to pass on because simply we cannot compensate it for that Cannot compensate for that. So at the moment, we raise prices, I would say, in average in a range between 3% to 5% In onshore. And I think we assume that is where most of your question targets. That's very helpful. And just to be clear, so you see Q3. You see that is enough to maintain benchmark gross margin. Thank you. But of It goes hand in hand and it's not the only measure. We raise prices, but at the same time, we introduce indexation clauses or raw material price clauses in the contracts that also prevent that any further volatility and that hits us top of the price increase. So it's a combination of both. Understood. Thank you. Next question? Thank you. The next question comes from Akash Gupta from JPMorgan. Please go ahead. Yes. Hi, good morning Andreas for your time. If I start with a follow-up on ASP, And how does this indexation mechanism work when it comes to the headline number? I mean, clearly, your ASP of 0.63%, you were all expecting it to tick up sequentially, but it came in flat. And I'm just wondering if you can explain if this is partly driven by indexation where Your realized ASP on sales could be higher than what you are booking in order entry. And then the second question I have is on offshore margins for the full year. Previously, you have been in the range of 8% to 10%. Can you indicate how well you are likely to finish this year in this minus 1% to 0% group guidance. Thank you. Yes. Thank you, Akash. First, This, of course, is very complicated, and I think we all know that to translate the current activities then into the ASP because the ASP is influenced by So many factors, let it be size of the turbine, regional distribution, scope. And what we clearly do, and that goes in line with what I said earlier. We currently pass through these raw material clauses, and they are different in nature. For example, one pass through clause is on tower steel. A lot of steel goes into every tower. We have a starting point for that escalation and then we lock that in only at either when we signed the contract or when we order the tower steel. So there are even different methods depending on the time frame of the project. But it doesn't translate at the moment already into an ASP as you would expect it. And nevertheless, I think I can clearly confirm what I said earlier. We passed that on. We include that now in every contract. We already did that in offshore since a long time. We introduced that when we saw the raw material prices increasing earlier this year, and we started with that in February, March. But latest since April, May, we have that now in every contract. It simply does not translate yet into an ASP due to all the other effects that you have there. Sorry, and then I didn't fully understand your second question, but maybe we'll freeze with you. Yes. Thank you. Regarding your second question, if I understood it, It's related to the offshore profitability throughout the year. And despite we are going to have, as we said, the change of the platform on Q4. And of course, that will trigger profitability down. The number that you said for Offshore sounds Reasonable to us. It's a very strong year for Offshore. Thank you. Next question? Thank you. The next question comes from Deepa Venkatesaran from Bernstein. Please go ahead. Thank you. I want to focus my question on the 5x. Sandra, if you can Basically, maybe tell us what is the timeline? I mean, where are you on the ramp up? And what are the milestones we should look forward to, for example, achieving serial production, etcetera, because I think you highlighted that there's 2.7 gigawatts of orders, 1 gigawatt has been taken under the onerous contract. So just for the health of the remaining contracts, so we can have some visibility. I was wondering if you can share some tangible details on your 5x turnaround. Thank you. I'm happy to do so. I would like Split that answer and also the ramp up into maybe 3 major activities. I start with the technical track that is ongoing. We have installed a prototype and the prototype will start operating in the next few weeks. We have installed the 155 and the 170 prototype. And this is then the final step of validating the technical side of that turbine. We are, of course, confident that we will get confirmed our expectations of the 5x. But nevertheless, that's always an important milestone, and we have to see How that goes, it also depends on the wind conditions of the prototype sites and so on. So that is the first track, QC. The prototype and technical verification. Then with regards to the serial ramp up that you were looking at or asking for, We have actually 2 separate ramp up activities at the moment. And one is for the let's call it the European version of the 5x, where we have signed a number of projects in Scandinavia, where we are already producing the first 0 series and then the serial machines that go into these projects. We've started that production and we will start shipping these turbines later this year. And then we have the separate ramp up. That is the one where most of the effect currently comes from. That's the Brazilian ramp up Because we decided at a very early stage to go in parallel into both markets. And here. The activities are now much better under control despite of the profit impact that we had, because we are now tracking extremely close. All the details of that ramp up, let it be contracts with sub suppliers, readiness of the factory, readiness of the bill of material and so on. And we will start serial production of that machine after The European one. So all the learnings that from the European serial production start up, they can translate it into the Brazilian one. So these are the 3 major activities that are going on in that space. Thank you. If I get it right, you've not tested the prototype, but you already started ramp up in Scandinavia. Is that how I interpret your second Q3. When you say ramp up, yes, it's correct. The prototype will start operating soon. But at the same time, we already started To produce the first machine, which is not completely unusual that you do the final technical validation. But nevertheless, and I think I highlighted Also during the preliminary results, we have an extremely ambitious time schedule with regards to the 5x in general. And therefore, we have these activities going on in parallel. Okay. So I suppose the update in November will give us It's a clear picture on where you are on the live access. Definitely, because then we will be further on the industrial ramp up as well as on the technical. Thank you. Next question? Thank you. The next question comes from Supriya Subramanian from UBS. Please go ahead. Yes, good morning and thank you for taking my questions. I have a question a little bit more on near term related to the charges taken. And if I do the math on what's implied on in your guidance for the full year, It seems that we expect about 4%, 4.5% of negative margins in the 4th quarter as well, which would imply and getting some further charges being booked in the Q4. So I just wanted to get your thoughts on, one, is that That's sort of correct. And do you expect if it's, let's say, the revaluation of the backlog, the exercise on the on the revaluation of the backlog complete and then beyond the Q4, we should not expect any further charges? Or what are the risks that could lead to for the targets being taken maybe into 2022 as well. Thank you. Thank you for your question. Regarding the Q4, there are two impacts that I highlights that we said before, despite the very strong performance of our service and offshore, the profitability of both are really front loaded throughout the year, and that's also impacting the Q4. Also when we announced the preliminary results. We really highlight the impact of both two things. Of course, we have the owner's provision trigger on Q3, But also the impact of the raw materials throughout the year, of course, has also the impact on Q1 just for the volume of 2021 that we foreseen in that implied guidance. If you ask me, have we considered additional owners provision as of today, we run the estimates sorry, the owner's provision based on our best estimate in each of the periods. And of course, we have covered some volatility that still is in the market. Regarding the risk for the coming years, as we highlighted, of course, is our role to strengthen the capabilities with, of course, strengthening processes, the quality of our resources and also to mitigate the risk that, as we said so, the Are going to be installed on 2022 and 2023. So of course, by nature, and being the 5x prototype, there are some risks that are open. And that's the reason, as we highlighted, we have strengthened processes, resources and also on the procurement side, our strategy with new index section clauses, mainly related on the onshore contracts to mitigate that risk On inflation and volatility of the raw materials, we also have strengthened kind of the back to back of flight change with our suppliers to make sure that we mitigate the trust risk. So and also on the commercial side, and to strengthen the link between procurement and, of course, our salespeople. So that's what we are doing to try to mitigate any further impact on 2022. Great. Thank you very much. Thank you. Next question. Thank you. The next question comes from Sean McLoughlin from team. Please go ahead. Good morning. Thank you for taking my question. I wanted to dig into procurement. You're talking about an enhanced procurement strategy. So could you just give us a little bit of detail about what You're doing differently. And also how much of procurement you've already done for your 2022 deliveries? Thank you. Yes. The figures I signed with the last one, that, of course, it's the current view that we have. I mean, the current status that we have is roughly. We have covered 75% of the volume on financial hedges on copper. And the main impact of the half is mainly still, and we have covered roughly 50% of the volume is already secured. The strategy that I will follow in general is that polygon prices are secured really ahead roughly ahead of the start of the year. Currently, due to the peak prices that we have, the group is avoiding to entering in long term supply agreements. But at the same time, of course, we are trying to mitigate that with increased alignment and close cooperation with our strategic suppliers for the back to back coverage. Also looking for multiple sources, exploring also new materials that will substitute some of the raw materials that we are seeing high increase on price. Also on the commercial side, as Andrea has mentioned, we are included mainly on the onshore contract mitigation clauses, mainly right to a steel tower that we're not maybe concerned in the past to limit, of course, the risk for increasing volatile markets and ongoing trade tensions that we have. And As I said, on the steel, we have already covered 50% of the volume. We are working with the steel mills to volume and pricing with our key suppliers and on the copper is nearly done. On the also logistics is also another challenge for the industry. And also, of course, we are working very hard on that front, closely monitoring the market, gaining additional agreements with suppliers for also analyzing long term suppliers and, of course, leveraging on the partnership that we have with with Cement Energy to improve also our logistics capabilities. And so the combination of all that measures are the ones that has been put in place to mitigate the risk that, of course, we face as a sector. Thank you. Thank you, Vebsi. Sorry, it's super helpful. Can I just Ask around offshore, because I think you previously said that procurement was less of an issue with offshore? You had, let's say, indexation for much longer in offshore. But how should we think about procurement risks for offshore for 2022 and 2023, given the scale of input cost increases. As we said, of course, because of the nature of the projects, those steep clauses were already in place. What we are trying to improve even the close on that coverage because to try to mitigate from the notice to proceed to, of course, securing the volume on steel and gain really no timing with no coverage. So that's the back to back. Also very important for any single new project that has been [SPEAKER MARCO TRONCHETTI PROVERA:] Always being analyzed by the group is very important. Apart from having, of course, the proposal on the projects of the SBAs of those indexation clauses. As Andrea highlighted, we have strengthened the mechanism to make Whenever we analyze the profitability of a new project, we take into account all the new update cost [SPEAKER MARCO TRONCHETTI PROVERA:] In terms of where do we stand, as you asked me, on the steel coverage and prices, where do we stand on the copper to avoid as well double coverage, Because of course, you can if we have already covered or hedging that volume, there is no need for that extra mitigation. So all in is now that process in place. We have redrafted the policies within the company and, as I said, strengthened the mechanism to make sure that all the new projects that we will analyze and if we approve those is because the implied profitability take into account the cost others or you know we are half the back to back. So we are looking for the back to back with the client. We are looking for the back to back with our supplier. And of course, making sure that on the cost site. All the estimates are run with very, very updated information. Thank you. Thank you. Next question? Thank you. The next question comes from Rajesh Sengla from Societe Generale. Please go ahead. Hi. Thank you and good morning, everyone. So my question is on your average realized price in the onshore business. If my calculations are correct, then The price is around €500,000 per megawatt in this quarter, which seems to be at all time low level as compared to if I compare it with your order book price, which was around €700,000 per megawatt in your onshore business. So why there is a big gap between your average utilized price versus the order book price? I think it has been happening for many quarters. So just wanted to have a bit more understanding like what's going on there? Thank you for the question. Even though I have to admit it was a little hard to exactly follow your calculations because what we do and that is always what we share with you is as a main indicator, Even if that indicator is influenced by so many factors that the average selling price is stable. In my early answer, I already tried to That we raised our current offerings in various ways at the moment. At the same time, we are, of course, also working on additional measures, not only just simply raising prices or passing on raw material effects, But also additional technical measures like increased AEP and additional value add that we clearly can provide on quite a number of And that surely doesn't exactly answer your question, but it hopefully answers what activities we are taking. Basically, my question was on the average realized price, not on the average order price, but average realized price when you book on the sales, your sales revenue by megawatt what you sold during the quarter, basically in the revenue line. So that price there is a very big gap in the order book price and the realized price. Yes. That is the best explanation I can add that short note or come up with is Clearly, it's also a again, the mix that we are currently installing. We still have a number of Indian projects of the 2 megawatt that I'm sure will influence that because we are realizing these projects at the moment, but I don't have a better explanation right Without having the chance to look at it into it deeper. Sure. I will send you an e mail, so maybe you can have a look at it after the call. And Happy to, of course, respond. Cristina will also support that and to make sure that we really answer the question you asked. I'm sorry that I can't do that immediately. Sure, sure. No problem. And my question another question would be on the Brazilian project. So you have booked a very large provision for these projects. So what kind of margin we can expect from these projects going into 2022, 'twenty three? The reason of the provision is as we follow IAS 37, of course, is we have run the profitability of calculation for those spreads. And that's why we have allocate that provision on Q3. Of course, our aim, as we said, as those projects are going to be stalled on 2022 and 2023. So just to answer your question, those projects are loss making. That's the reason of the onerous provision with the estimate that we have as of today. As we said so, what is important for us is that we have taken all the actions to mitigate the coming risk of of those spreads, understanding risk of those spreads to be stalled on 2022 and 2023 and also working hard with the team for looking for opportunities to mitigate those risks. But as of today, those spreads in our books, as per we have the earnings provision, they stand at 0% euro margin. 0% to 0%. Okay. Thank you very much. Thank you. Next question? Thank you. The next question comes from Mark Freshney from Credit Suisse. Please go ahead. Hey, thank you for taking my questions. I have two questions. Firstly, to clarify on Q4, You made the comment in the call 2 weeks ago that without the provision, without the issue with the G5X, You would be at the bottom of the margin guidance range, the old one of 3% to 5%. So That would seem to imply that there's another charge related to the T5X in Q4. Can you Just confirm why the business will be loss making in Q4. And secondly, I mean, regarding the 3 year plan that Gemessa laid out a year ago. Clearly, You alluded on the call a couple of weeks ago to that plan potentially being pushed out a year. Clearly, the low profitability on G5X Brazil, as the previous question alluded to, will be low in the next couple of years. Do we get a new plan at some point. Thank you. Yes, Marc, thanks for both questions. First, let me try to answer your Q4 question. And you asking whether we see additional charges. We always and I think we did that already extensively also around Q2. We always said that The second half year would be impacted by a number of other effects, like the changeover in offshore that simply reduces the utilization in offshore and therefore reduces the offshore margin in the last quarter. Also, we had, I think, excellent results service in the first half year that we cannot repeat. We mentioned that and call that normalization of the service. So the positive effect that we had in the first half year do not repeat themselves in the second half. Whether we expect additional charges, as Beatrice said, we, of course, did the calculation of the onerous loss contracts with all the knowledge that we have currently. And that is also the mechanism that you have to apply. You have to put in everything and Goodbye by other means. Then with regards to the 3 year plan, the success of And the long term profitability of Siemens Gamesa in total is, of course, heavily determined by service and offshore. And I think We continue to highlight we are on track in both areas. But of course, we need onshore to turnaround. That turnaround plan is now delayed. We had expected to be breakeven next year in 2022 That we will not achieve anymore due to the effects that we now described extensively, but it remains, of course, our plan to turn that around. And we are currently working on the new 3 year plan. But with all the volatility that we currently see, whether it's raw materials, Whether that's the 5x ramp up and other effects, I think it's too early to already present that plan. We will, of course, as soon as we have one, we will do that in due course. Thank you. Next question? Thank you. The next question comes from Fernando La Fuente from Alantra Equity. Please go ahead. Hello, good morning. Two quick ones for me, please. The first one, I'm not sure if you could give us just number. Beatriz Bara, I was wondering how what is the proportion of the sales that you have for next year, 20 That has been already closed so that you have no margin to modify them To reflect the cost of the increase in cost of raw materials. And the second question, it's on the ramp up again in both of the 5x and And the Le Penang. It's more a qualitative question. I wanted to understand when you say extra cost or higher costs, What are the deviation? What are the nature of the deviations for this in these ramp ups? Thank you. Thank you, Fernando. Regarding the first question, we can say and that's very important that we have a very strong backlog and we have a very strong coverage of the sales of next year. I will highlight that as offshore is nearly done, very important for us, of course. Onshore. We foresee that by the end of the year, we'll be close to 90% share of the business. We stand on roughly 70% roughly coverage because also, of course, we rely on other revenues coming to Q3 profitability of service all in based on coverage of next year sales. Sorry, Beatrice, a follow-up. So I understand that for Offshore, there is actually no risk of impact on the increase in raw materials, as I understand Your comments that they have disclosed or they are more indexed to the potential variations. Services, I understand that it's Pretty much the same. And the impact would come from onshore, right, or these potential increases. Yes. Let me explain how we of course, what we've I mean, start running the estimate space, of course, on the open exposure that we have. Your estimate is quite right, but I will say that, of course, offshore, what has been a standard in the industry is, of course, to cover half the coverage on the steel tower. And that's fully covered, no impact on the backlog that we have. We are trying to mitigate all the impacts that, of course, is in the nature of the business that are not much great to the steel tower, but also working with the clients on other meeting coverage on other raw material impact. And also, of course, the logistics It's very difficult to have the back to back. So that's why I meant that we are working on other mechanism to also mitigate that exposure. So we'll be, of course, more exposure on the onshore, but of the offshore because of the reason that I said. Also, there is an open exposure that is Very much linked to the business. And that's the reason for all the action panels we put in place. Next question. Thank you. The next question comes from Vivek Mitra from Citi. Please go ahead. Hi, everyone. Thanks very much for taking my follow-up. I know it's early in the year. You haven't given 2022 guidance. But based on what you're seeing this year. Could you give us any comments as to how you see the absolute level of onshore EBIT developing going into next year relative to this year, particularly taking out the provisions you booked in Q3. Thank you. Thank you, Vivek, for the question. But as I said, we expected that Onshore will turn around next year. In light of the impact that we in raw materials, the ramp up and all the effects that we discussion many times. That will be delayed. We would not like to comment on the profitability of onshore as a separate business for 2022. We, of course, committed and convinced That onshore is an integral part of SGRE. We need to make onshore profitable, and we are working on numerous plans. I believe also we make progress in many areas. Of course, the this quarter is a severe setback. But on the other hand, we continue to work on that. I stress also that the LEAP program with huge productivity gains unfortunately compensated by the effects that we now saw. But otherwise, we stay committed to Onshore. We also stay committed to the long term vision of our business with a target margin of 8% to 10%. So overall, I believe we have a setback, but on the other hand, we have Taken so many actions, including industry wide actions that we stay committed and confirm that. Understood. Thank you. Thank you, Andres. We are running out of time, but we are going to take one last question. Thank you. The next question comes from Sebastian Golda from Commerzbank. Please go ahead. Yes. Thanks for taking my question. It's more on a higher level view, to be honest. I'm still a bit puzzled with everything that we heard with the quarter 3 cost overrun and the owner's contract. So I would be really interested in what you are changing with regard to the risk management in the firm and onshore in particular, obviously. And I'm stressing this point as we have seen the cost overrun from Scandinavia last year, which came as a result of rather slim margin, but we're accepting apparently too high risk. Now we are seeing these onerous contract provisions, I think overall similar values, so about €800,000,000,000 revenues eventually to €200,000,000 to €250,000,000 of cost overruns. And the root cause seems to be sort of the same. It's again, still margin, ambitious ramp up schedule comes on top. That's what you stated yourself on the call around the pre release. So while I understand the quotations really that those took place under the prior management, I'm quite frankly really puzzled that after the management change mid and end 2020, that there hasn't been a proper review of any eventual project risks That are related to the onshore business. So that's very acceptable, to be honest. And I'll leave it there, and I'm really curious to hear your thoughts on that. Yes. Thank you, Sebastian, for the question. And of course, I understand your reaction on the but nevertheless, I would like To highlight that, clearly, we are much more careful in taking on projects. Of course, the current hit Counter counters my argument, but we are much more stringent in reviewing projects. In Brazil, I think it's the combination of several effects that hit us there. The complex localization structure that you After having Brazil the extremely fast development schedule we had for the 5x and then raw material price hikes that came at the same time. Indeed, we did not catch that as we would have liked to do that. On the other hand, we also Currently going much more and much deeper and much more careful into each and every contract. And I get always last time I got the question, and I'm sure that will come this time as well, why is your onshore order entry not higher because we are much more And we also taking actions in various ways. I talked about price hikes, additional risk margin into all the projects. So I think we do a lot. And over time, I expect also that this pays off. As a quick follow-up to this one, can I just ask how we should think structurally about the onshore business? So leaving really all Wood Mackenzie Obviously, you're coming from an 8 gigawatt run rate. It apparently seems you are rather, I don't know, shrinking the business to about 6 gigawatts or so. So what is sort of the kind of the comfort level to then have a sort of clean sheet and from there we can eventually return to growth in that business? Yes. But that is what we already said last year in the Capital Market Day. We would not like to continue with what we did beforehand that we scale ourselves or volume ourselves out of the situation. We first need to stabilize business. And unfortunately, the last quarter confirms that the further stabilization activities are needed. And from that point of view, that we have a relatively stable or flat onshore market for the next few years. We also, I think, take a country like India, where we had a severe ramp down. We completely changed our business model there. We introduced a new turbine. So we're also making progress in a number areas of the onshore turnaround. But on that simply needs to continue and needs also to cover then the complete onshore business. Once we fully stabilize that along the volumes that you also said, 6, 7 gigawatts per year, I think then we expect to be ready for the ramp up that expected is expected after 2024. Okay. It's going to be obviously a tough one, I think. Obviously, other competitors are catching up, and they are really on the fast track, obviously. So That's the Lucas of the question at the end of the day. To what extent it's then wise to just right size and try to hope for the best that can come up. I see the point, but at the same time, see this environment is very dynamic. Okay. Yes. But first, I hope it's not a plan, And we are clearly doing more than just hoping. We have the various plans in place, and it goes exactly along the structure that we described. We have to be even more careful in taking on contracts, which we, I think, strengthened again. Now after we see this impact, we have to stabilize the 5x. The 5x will be our major contributor. We reduced our complexity. We have reorganized onshore exactly as we said. We are progressing with that. We are also adjusting our scale to a smaller scale to be ready for the ramp up. I think we follow all of these plans as we started them about a year ago. And we need to see that they, of course, come to full fruition. But it's more than hope. All right. Thank you. Thank you, Andreas. Thank you, everybody. I think with this, we are going to conclude the call. Thank you very much for attending the call and of course happy to follow-up with any questions that you might have. Thank you, everyone.