Good morning, ladies and gentlemen, thank you for joining our Q3 2021 results presentation. Before we start, I would like to draw your attention to our forward-looking statement on page two. With this, let me hand over to our CEO, Andreas Nauen. Andreas?
Yeah. Good morning and thank you for joining the call today. As you know, we presented the preliminary results for the third quarter and the updated guidance for fiscal year 2021 already on July 14th. Today, we will present the full results for Siemens Gamesa for that period, and of course, also for the first 9 months of fiscal year 2021. I'm joined as usual by our CFO, Beatriz Puente. We will provide you with an overview of the results for the third quarter 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 5.X 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 four with the key points. For the third quarter and the first nine months of FY 2021. The revenue of about EUR 7.3 billion in the first nine months, with an EBIT margin of 1.1% versus -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 Siemens Gamesa 5.X platform that has led to provisions for onerous contracts of nearly EUR 230 million. 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. 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. Is also helping to improve our performance. Our new EBIT margin guidance of -1% to 0% with revenue of EUR 10.2 billion includes the provision mentioned earlier. The pressure on supply cost, the ramp-up of our 11-MW turbine in offshore, and the service margin normalization will have an impact on Q4. Our order backlog of more than EUR 32 billion shows we are well-positioned to take advantage of the strong momentum in renewables with 17 GW of offshore auctions in 2021 and 61 GW in the coming years to come.
On page five, I would like to address a few activities under the banner of One SGRE 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. 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 a 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 six, 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 continue to perform at excellent levels. We've completed the 600 MW Kriegers Flak installation in Denmark ahead of schedule. Also in service, we've signed 20-year service contracts for five different on and nearshore projects in Vietnam. On page seven, you can see that the results of our strengthening of our ESG policies also pays off. We've, as the first wind turbine manufacturer, received an excellent rating from Standard & 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 Sustainalytics or S&P's corporate sustainability assessments. On page nine, we can have a look at the commercial activity for the third quarter. We maintain a very high order backlog of more than EUR 32 billion, 3% higher year-on-year, with an order intake of EUR 1.5 billion, of course, impacted by offshore, 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 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 EMEAR region consolidates its position as the main driver of the order backlog, with a growth of more than EUR 2 billion in Q3. As you can see on page 10, in onshore, we continue to focus on profitability over volume in the third quarter. Still, we see a 12% growth in the order intake in Q3, up from EUR 1.35 billion, 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. I mentioned already the 300-MW order that we received in India, but this will be assigned to the fourth quarter. Again, the trend to larger turbines continues, and the 4 MW and bigger turbines account for 67% of all orders. The commercial activity for the 5.X 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 Gamesa 5.X platform since its launch total to 2.7 GW, almost 2 GW 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 EMEAR regions were offset by the negative impact of smaller project scopes and a moderate currency effect among others. 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, with 7.3 GW in order backlog and another 7.8 GW in the pipeline with projects in the U.S., in Europe, and in Asia, we see ourselves well-positioned. The low order intake in Q3 was also impacted, as I mentioned also during the Q2 results presentation, by the early signature of the Sofia project, a 1,400 MW project in the U.K. ahead of schedule. Also in Q3, we landed two preferred supply agreements in Taiwan for 230 MW for Hai Long B and 512 MW for Hai Long 3.
This, together with the original Hai Long A project, another 300 MW, we will have another 1,000 MW in Taiwan, and this project will be equipped with a 14-MW, 222 direct drive turbine. The total order intake and the pipeline for our latest turbine, the 14-MW, 222, now accounts for more than 5 GW. 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 EUR 16 billion. 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 nonprofit entities across the globe announcing plans to step up their 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 GW per year in 2030 in a sustainable development scenario.
The IEA increased that figure to nearly 400 GW in 2030 in the updated scenario that they issued a few months ago. Also in Q3, several countries stepped up their emission reduction goals. Europe, with the Fit for 55 package published two weeks ago, increased targets for renewables to 40% by 2030. Germany pulled forward the target year for climate neutrality to 2045 by five years. The U.K. stepped up its emission reduction targets to 78% for 2035 and 68% already by 2030. The U.S. also announced offshore targets to reach more than 38 GW and also a target reduction of 50%-52% by 2030 versus 2005 in emissions. Also Japan is the first country in Asia to legislate its decarbonization target for 2050 and already nearly 50% by 2030.
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 slide. The 17 GW 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. With that, I would like to hand over to you, Beatriz, to have a closer look at the financials.
Thank you, Andreas. 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 third quarter, that as you see, are in line with the pre-announcement that we did on July 14th. Revenues for the first nine months reached EUR 7.3 billion, up 11% year-on-year, with EUR 2.7 billion in the third 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 nine months EBIT pre PPA and integration restructuring cost amounted to EUR 81 million, up EUR 345 million compared with nine months last year. EBIT margin of 1.1% over revenue.
With the third quarter, as you have seen and we announced, negative EBIT of minus EUR 151 million. The third quarter and the nine months profitability had been heavily impacted by the provision that we allocate for the onerous contract, mainly in Brazil, amounted to EUR 229 million. This provision, as we explained in the pre-release communication, reflect mainly two impacts that has hit our profitability on our WTG order backlog. That is mainly related to the longer time and higher ramp-up cost that we have for the 5.X, as I said, especially in Brazil. 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 experience and we suffer 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 cost, the amount for the period year to date is EUR 149 million. The net interest spend has gone down in Q3 from EUR 11 million to EUR 9 million, and also in the nine-month period amounted to EUR 32 million, down 27%. Tax expense on the nine-month period amounted to EUR 91 million, EUR 71 million in the quarter. Despite the negative profitability, the tax calculation is impacted by the geographical business mix, and also that we have not proceeded with any capitalization of the net operating losses in some of the countries. Reported net income amounted to a loss of EUR 368 million in the first nine months, and a loss of EUR 314 million in the quarter.
Both after PPA and integration restructuring cost, net of taxes amounted to EUR 232 million in the first nine months of the year. Moving to the balance sheet and the key cash flow metrics. CapEx in the third quarter amounted to EUR 163 million, and a total for the nine-month period of EUR 452 million. It is important to highlight that more than 50% of the CapEx has been invested in offshore. Also for us, it is 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 equivalent in the period to negative 16% of the last 12 months, on a revenue basis, and remains a very effective level, despite the increase that we have seen at the beginning of the year.
I will cover the group net financial debt that we closed as of the end of June, roughly net financial position, net debt position, as we reported, EUR 838 million, 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 first nine months, supported by offshore and service. Also, as I mentioned, important to highlight the pickup in onshore activity and service in the period. At a constant FX rate, the group revenue will have grown 15% in the nine-month period to EUR 7.6 billion.
Most of the currency impact took place in the first six months of the year. As we highlighted, mainly due to the appreciation of the US 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 nine-month service revenue reached EUR 1.3 billion, 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 678%, while in Q1 and Q2, that rate was roughly in the same range, above 80%. All, as I said before, very strong performance in the service segment.
Regarding offshore, total revenue amounted to €2.4 billion during the first nine months of the period. That is roughly an increase of 23% year-on-year. The main driver has been a very strong growth also on the third quarter, its revenue slowed down to 6%, reaching €851 million. I will also highlight that, as Andreas has mentioned, the strong performance of some of the projects that we have, like the one in Denmark, where we installed and commissioned the project nearly one 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 11-200 turbine.
That also, of course, it will have some impact on the profitability of the WTG division in fourth quarter, as we announced in the previous quarter. Moving to onshore, the nine-month revenues reached EUR 3.5 billion, up 4% year-on-year, with the revenues in the quarter of EUR 1.3 billion. This is in line with the back end, as we highlighted, back end loaded activity, as also is driven by our customer request. In Q3, onshore becomes 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.
Moving to page 18, on the profitability side, EBIT pre-PPA and integration restructuring costs for the nine months, as we highlighted, are completely in line with the numbers that we announced on July 14th, and it was heavily impacted by the onerous provisions that we allocate of EUR 229 million. That's roughly 8.5% of the revenues of Q3. 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 impact of that hit, or allocation of the onerous provisions, were related to the increase in the ramp-up cost for the 5.X, mainly for these projects in Brazil, and also the fast increase in the raw materials, mainly especially steel and copper.
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 as Andreas Nauen has highlighted, we have taken actions, of course, to mitigate that impact and also in every single area, of course, in Brazil, are reinforcing the resources and also specific action plan to mitigate the risk that we have there and has driven this onerous provision, and also looking for opportunities on the execution of those projects. When we look at the profitability and the annual evolution, beyond the impact of the onerous provision that we have also on the third quarter 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 fourth quarter imply on our guidance, I will highlight also it's important that the service performance has been very strong on the ninth month of the period. It's front-ended, and that's the reason also of the higher margin that we see on that period. We foresee that service will finalize the year around 20% margin. 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 million, increased 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 million, which is mainly some of the leases are related to new vessels.
It's important to highlight that all the impact of the onerous 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 million of Adwen provisions. The increase on the gross debt of EUR 569 million are mainly related to what I explained, the increase in lease liabilities, and also we fully withdraw the EIB 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 retain a very solid funding position. It is very important. We have EUR 4.4 in credit lines and loans, nearly two-thirds are long-term.
We have drawn roughly EUR 1.4 billion, but also we have cash in the balance sheet of roughly the same amount. We maintain roughly EUR 4.4 billion in available liquidity. It is 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 billion of the liquidity is long-term available, and is available till 2026. Now, as I highlighted, with a very strong liquidity and a very strong balance sheet, that for us is a key competitive advantage to tap the growth of the market. Now let me pass on to Andreas, and then happy to answer any questions that you might have. Thank you.
Yeah. Thank you, Beatriz. 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 GW, was a peak year, mainly driven by the Chinese and the U.S. markets. The years 2021 to 2024 will be relatively stable if you look at the total installations. Nevertheless, there's, of course, the underlying growth in the offshore market, very important for us. You can see that from 2025 onwards, the market really excels. The growth of the global installations will resume in 2024 and 2025, and we will maintain that trend and even speed up that trend during the second half of the decade.
Offshore installations will go through a significant increase from 2025, we will reach 20 GW or even close to 40 GW by 2030. I would like to close off on page 23. As indicated earlier today and during the presentation of the preliminary results two weeks ago, our new revenue and EBIT guidance reflects the impact of provisions for onerous projects. Also, Beatriz 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 5.X, 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.
Also, as Beatriz mentioned, Q4 will be impacted by the ramp-up and switchover of the offshore production by increased procurement costs and the normalization of the profitability and service still always in the range where we expect it to be. As a result, our revenue for the fiscal year is expected to be at the low end of the range communicated in the Q2 results. Our EBIT margin now in a range between -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, enhanced procurement strategies, and also additional efforts in cost-out programs and new technical features to compensate for this effect.
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. Now we would like to take your questions.
Good morning, ladies and gentlemen. The Q&A session starts now. If you wish to ask a question, please press 0 one on your telephone keypad. We kindly request that you limit your questions to one per turn. Please be informed that in order to assure audio quality, we recommend that all questions will be asked from landlines. The first question comes from Arslan Obaidullah 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, any negative demand for onshore turbines coming from the rise of 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. Of course, it's obvious that this question is in the room, but we don't see that at the moment. Our order entry in onshore is exactly as we expect it to be. Since about a year ago, it fits to our plans. Even though here and there, of course, negotiations take a little longer because we raise prices, we pass on raw material, and I think the whole industry is doing that at the moment. Generally, we don't see that market slowing down. I think all the forecasts that we see and also that the analysts, the market experts like Wood Mackenzie, don't show that.
Thank you.
Next question.
Thank you. The next question comes from Vivek Midha from Citi. Please go ahead.
Thanks very much, everyone. Good morning. 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.
Thanks, Midha, for the question. Yes, we keep on raising prices, and it is driven by two effects. First, of course, the raw material effect that already as we explained in Q2, that we need to pass on, because we simply we cannot compensate for that. At the moment we raise prices, I would say on average in a range between 3%-5% in onshore. I think you assume that is where most of your question targets.
That's very helpful. Just to be clear, you see that as enough to maintain benchmark gross margins? Thank you.
Of course, 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 contract that also prevent that any further volatility in that hits us on top of the price increase. It's a combination of both.
Understood. Thank you.
Next question.
Thank you. The next question comes from Akash Gupta from JP Morgan. Please go ahead.
Yes. Hi, good morning, Andreas, and for your time. I start with the follow-up on ASP, how does this indexation mechanism work when it comes to the headline number? Clearly, your ASP of EUR 0.63, we were all expecting it to tick up sequentially, but it came in flat. 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. The second question I have is on offshore margins for the full year. Previously, you have been in the range of 8%-10%. Can you indicate how well you are likely to finish this year in this -1% to 0% group guidance? Thank you.
Thank you, Akash. First, this, of course, 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. What we clearly do, and that goes in line with what I said earlier, we currently pass through these raw material clauses, and they're 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 sign the contract or when we order the tower steel. They're even different methods dependent on the time frame of the project. It doesn't translate at the moment already into an ASP as you would expect it.
Nevertheless, I think I can clearly confirm what I said earlier. We pass 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. 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, then I didn't fully understand your second question.
Akash-
Maybe Beatriz, if you
Yes. Thank you. Regarding your second question, if I understood it, is related to the offshore profitability throughout the year. 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 Venkateswaran from Bernstein. Please go ahead.
Thank you. I want to focus my question on the 5.X. Andreas, if you can basically maybe tell us what is the timeline, where are you on the ramp-up, and what are the milestones we should look forward to, for example, achieving serial production, et cetera. Because I think you highlighted that there's 2.7 GW of orders. 1 GW has been taken under the onerous contract. Just for the health of the remaining contract so we can have some visibility. I was wondering if you can share some tangible details on your 5.X turnaround. Thank you.
I'm happy to do so. I would like to split that answer and also the ramp-up into maybe three major activities. I start with the technical track that is ongoing. We have installed the 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 5.X, 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. That is the first track, the prototype and technical verification.
With regards to the serial ramp-up that you were looking at or you were asking for, we have actually two separate ramp-up activities at the moment. One is for the, let's call it, the European version of the 5.X, where we have signed a number of projects in Scandinavia, where we are already producing the first zero 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. We have the separate ramp-up. That is the one where most of the effect currently comes from. That's the Brazilian ramp-up. We decided at a very early stage to go in parallel into both markets.
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 other bill of material, and so on. We will start serial production of that machine after the European one. All the learnings that from the European serial production start up, they can translate it into the Brazilian one. These are the three 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 statement?
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. Nevertheless, and I think I highlighted that also during the preliminary results, we have an extremely ambitious time schedule with regards to the 5.X in general, and therefore we have these activities going on in parallel.
Okay. I suppose the update in November will give us a clear picture on where we are on all that.
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, thank you for taking my question. I have a question a little bit more on near term, related to the charges taken. If I do the math on what's implied on in your guidance for the full year, it seems that we expect about 4.5% of negative margins in the fourth quarter as well, which would imply, I'm guessing, some further charges being booked in the fourth quarter. I just wanted to get your thoughts on, one, is that sort of correct? Let's say the revaluation of the backlog, the exercise on the revaluation of the backlog completes, and then beyond the fourth quarter, we should not expect any further charges, or what are the risks that could lead to further charges being taken maybe into 2022 as well? Thank you.
Thank you for your question. Regarding the fourth quarter, there are two impacts that I highlight 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. When we announced the preliminary results, we really highlight the impact of two things. We have the onerous 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 have foreseen in that implied guidance. If you ask me, have we considered additional onerous provision, as of today, we run the estimates, the onerous provision based on our best estimate in each of the periods. We have covered some volatility that still is in the market.
Regarding the risk for the coming years, as we highlighted, of course, it's our role to strengthen the execution capabilities with, of course, strengthen the processes, the quality of our resources, and also to mitigate the risk that, as we said so, the projects are going to be installed on 2022 and 2023. Of course, by nature and being the 5.X, a 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 indexation clauses, mainly raised on the onshore contracts to mitigate that risk on inflation and volatility of the raw materials.
We also have strengthened the back-to-back of the supply chains with our suppliers to make sure that we mitigate that risk. Also on the commercial side, to strengthen the link between procurement and of course our salespeople. 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 HSBC. 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. 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 is 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. The main impact that we have is mainly steel, and we have covered roughly 50% of the volume is already secure. The strategy that we follow in general is that volume and 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 enter in long-term supply agreements. 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 related to steel tower that were not maybe concerned in the past, to limit, of course, the risk of increasing volatile markets and the ongoing trade tensions that we have. As I said, on the steel, we have already covered 50% of the volume. We are working with the steel mills to secure 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.
Also, of course, we are working very hard on that front, closely monitoring the market, getting additional agreements with suppliers for also analyzing long-term suppliers and of course, leveraging on the partnership that we have with Siemens Energy to improve also our logistics capabilities. 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, Beatriz. That's super helpful. Can I just ask around offshore? 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. 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 steel clauses were already in place. What we are trying to improve is when the clause on that coverage, because, to try to mitigate, from the notice to proceed, to of course securing the volume on the steel and gain really no timing with no coverage. That's the back-to-back. Very important for any single new project that has been or is being analyzed by the group, is very important.
Apart from having, of course, the proposal on the project of the TSAs of those indexation clauses, as Andreas Nauen highlighted, we have strengthened the mechanism to make sure that whenever we analyze the profitability of a new project, we take into account all the new update cost in terms of where do we stand as you ask me on the steel coverage and prices, where do we stand on the copper, to avoid as well a double coverage. Because of course if we have already covered or hedged 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 adders or we have the back-to-back. We are looking for the back-to-back with the client. We are looking for the back-to-back with the supplier, and of course making sure that on the cost side, all the estimates are run with very updated information.
Thank you.
Next question.
Thank you. The next question comes from Rajesh Singla from Societe Generale. Please go ahead.
Hi. Thank you, good morning, everyone. My question is on your average realized price in the onshore business. If my calculations are correct, then the price is around EUR 0.55 million/MW in this quarter, which seems to be at all-time low level. If I compare it with your order book price, which was around EUR 0.7 million/MW in your onshore business. Why there is a big gap between your average realized 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 also what we share with you as a main indicator, even if that indicator is influenced by so many factors, that the average selling price is stable. In my earlier answer, I already tried to explain that we raise our current offerings in various ways at the moment. At the same time, we, 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 projects. That surely doesn't exactly answer your question, it hopefully answers what activities we are taking.
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. That price, there is a very big gap in the order book price and the realized price.
The best explanation I can at that short note come up with is, clearly, it's also, again, the mix that we're currently installing. We still have a number of Indian projects of the 2 MW that I'm sure will influence that, because we are realizing these projects at the moment. I don't have a better explanation right now without having the chance to look at it into it deeper.
Sure. I will send you an email, so maybe you can have a look at it after the call.
Happy to, of course, respond. Cristina will also support that to make sure that we really answer the question you ask. Sorry that I can't do that immediately.
Sure. No problem. Another question would be on the Brazilian project. You have booked a very large provision for these projects. What kind of margin we can expect from these projects going into 2022, 2023?
The reason of the provision is, as we follow IAS 37, of course, is we have run on the profitability of calculation for those projects. That's why we have allocate that provision on Q3. Of course, our aim, as we said, as those projects are going to be installed on 2022 and 2023. 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, what is important for us is that we have taken all the actions to mitigate the coming risk of those projects or the standing risk of those projects to be installed on 2022 and 2023. Also working hard with the team for looking for opportunities to mitigate those risks. As of today, those projects in our books, as per we have the onerous provision, they stand at 0% unit margin.
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 two 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%-5%. That would seem to imply that there's another charge related to the G5X in Q4. Can you just confirm why the business would be loss-making in Q4? Secondly, regarding the three-year plan that Gamesa 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 three-year plan at some point? Thank you.
Yeah, Mark, thanks for both questions. First, let me try to answer your Q4 question. You were 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 in service in the first half year that we cannot repeat. We mentioned that and call that normalization of the service. The positive effects that we had in the first half year do not repeat themselves in the second half.
Whether we expect additional charges, as Beatriz 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 that you know into these charges, and therefore they hit Q3. The Q4 is impacted by other means. With regards to the three-year plan
The success and the long-term profitability of Siemens Gamesa in total is, of course, heavily determined by service and offshore. I think we continue to highlight we are on track in both areas. Of course, we need onshore to turn around. That turnaround plan is now delayed. We had expected to be break even next year, in 2022. That we will not achieve anymore due to the effects that we now described extensively. It remains, of course, our plan to turn that around. We are currently working on the new three-year plan. With all the volatility that we currently see, whether it's raw materials, whether that's the 5.X 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 Lafuente from Alantra Equities. Please go ahead.
Hello, good morning. Two quick ones for me, please. The first one, not sure if you could give us just a number, Beatriz. I was wondering, what is the proportion of the sales that you have for next year, 2022, that have been already closed, so that you have no margin to modify them to reflect the increasing cost of raw materials? The second question, it's on the ramp up again, in both of the 5.X and the 11.X. It's more a qualitative question. I wanted to understand when you say extra cost or higher costs, where are these deviation? What are the nature of the deviations 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 will be close to 90%, 90-ish. Service, because of the nature of the business, we stand on roughly 70% coverage because also, of course, we rely on other revenues coming to strengthen the profitability of service. All in, very sound coverage of next year sales.
Sorry, Beatriz, a follow-up. I understand that for offshore, there is actually no risk of impact on the increasing raw materials, as I understand from your comments that they have these clauses, or they are more indexed to the potential variations. Services, I understand that it's pretty much the same, the impact would come from onshore, right, of these potential increases in material?
Yeah, let me explain how we, I mean, start running the estimate based, of course, on the open exposure that we have. Your statement is quite right. I would say that, of course, offshore, what it 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 other impacts that, of course, is in the nature of the business that are not that much related to the steel tower, but also working with the clients on other coverage on other raw material impact. Also, of course, the logistics is very difficult to have the back-to-back. That's why I meant that we are working on other mechanism to also mitigate that exposure.
Will 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. That's the reason for all the action plan that we put in place.
Understood.
Next question.
Thank you. The next question comes from Vivek Midha from Citi. Please go ahead.
Hi, everyone. Thanks very much for taking my follow-up. I know it's early in the year that 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. As I said, that we expected that onshore will turn around next year, in light of the impact in raw materials, the ramp-up, and all the effects that we discussed now 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, this quarter is a severe setback, but on the other hand, we continue to work on that. I stressed also that the LEAP program with huge productivity gains, unfortunately compensated by the effects that we now saw. Otherwise, we stay committed to onshore. We also stay committed to the long-term vision of our business.
With a target margin of 8%-10%. Overall, I believe we have a setback, but on the other end, we have taken so many actions, including industry-wide actions, that we stay committed and confirm that.
Andreas, thank you.
Thank you, Andreas. We are running out of time, but we are going to take one last question.
Thank you. The next question comes from Sebastian Growe from Commerzbank. Please go ahead.
Yeah. 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 three cost overrun and the onerous contract. I would be really interested in what you are changing with regard to the risk management in the firm and onshore in particular, obviously. I'm stressing this point as we have seen the cost overrun from Scandinavia last year, which came as a result of rather thin margins versus accepting apparently too high risk. Now we are seeing these onerous contract provisions. I think overall similar values, about EUR 800 billion revenues eventually to EUR 100 million-EUR 150 million of the cost overruns. The root cause seems to be sort of the same.
It's again, thin margin, an ambitious ramp-up schedule comes on top, and that's what you stated yourself on the call around the pre-release. While I understand the quotations really, that those took place under the prior management, I am 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. That's barely acceptable, to be honest. I'll leave it there, and I'm really curious to hear your thoughts on that.
Yeah. Thank you, Sebastian, for the question, and of course, I understand your reaction. Nevertheless, I would like to highlight that clearly we are much more careful in taking on projects. Of course, the current hit 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 have to have in Brazil, the extremely fast development schedule we had for the 5.X, 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 are currently going much more, and much deeper, and much more careful into each and every contract. 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? We are much more careful, and we also taking actions in various ways. I talked about price hikes, additional risk margin into all the projects. I think we do a lot. 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? Leaving really all Wood Mackenzie aside, but obviously you're coming from an 8 GW run rate. It apparently seems you are rather, I don't know, shrinking the business to about 6 GW or so. What is sort of the kind of comfort level to then have a sort of clean sheet, and from there we can eventually return to growth in that business?
Yeah, that is what we already said last year on 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 the business, and unfortunately, the last quarter confirms that further stabilization activities are needed. 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 of areas of the onshore turnaround. That simply needs to continue and needs also to cover the complete onshore business.
Once we fully stabilize that along the volumes that you also said, 6 GW, 7 GW per year, I think then we expect to be ready for the ramp-up that is expected after 2024.
Okay. It is going to be obviously a tough one, I think. Obviously, other competitors are catching up, and they are really on the fast track, obviously. That's the nucleus of the question at the end of the day, to what extent it is then wise to just rightsize and try to hope for the best that can come after. I see the point, but at the same time, obviously, this environment is very dynamic.
Okay. Yeah, first, hope is 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, strengthen again. Now after we see this impact, we have to stabilize the 5.X. The 5.X will be our major contributor. We reduce our complexity. We've 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.
Thank you very much for attending the call, of course, happy to follow up with any questions that you may have. Thank you, everyone.