Earnings Call: Q2 2021

Apr 30, 2021

Good afternoon, ladies and gentlemen, and welcome to our Q2 fiscal year presentation that corresponds to the January March quarter. Before we start, let me draw your attention to our disclaimer in Page 2. The annual release will be conducted by our CEO, Andreas Naven and our CFO, Beatriz Puente. We will finish with our Q and A session. We will take your question over the phone. And with this, let me hand over to our CEO, Andreas Navan. Andreas? Yeah. Good afternoon and good evening and thank you for joining this call at the slightly unusual time, Which is due to a Board meeting held earlier today and the content we discussed there. It is important for us that we share this with you in your time And hence, we decided to have the call tonight. We appreciate you dialing in, especially at this time, and we will, of course, endeavor not to delay your weekend plans any further, I'm joined, as Xavier said, by our CFO, Beatrice Fuente. And as always, she will provide you with an overview for the results for the Q2 of the fiscal year 2021, before we then give you the opportunity to ask any questions. The short summary of our quarter Our performance this quarter is pretty easy and straightforward. This quarter and hence the first half year has been positive for Siemens Gamesa with solid performance from offshore and in service particular, the restructuring process for onshore continues and we are surely Not done yet, but overall a good 1st 6 months of the year 2021. I would then like to draw your attention to Page 4 of our earnings release presentation, Which addresses the key points of Q2. The revenue is slightly above €2,300,000,000 with a Q2 EBIT margin of 4.8%. This performance is a continuation of a good quarter 1 And leads to an half year result of around €4,600,000,000 revenue and 5% EBIT for the first half year. These results were driven by a strong performance in offshore and in service. The EBIT performance in the first half year Has also benefited from a reduction of the offshore turbine failure rates and this effect we already explained to you in Q1. Q2 so the recent quarter was supported by an upfront loading of manufacturing activity in offshore prior to a very busy installation summer. So all in all for us a quite satisfying start to the year. Let me come now to the second and very important point of today's earnings release that is our guidance. Based on the good visibility we have now for the operational business for this year, we have narrowed our revenue guidance down to €10,200,000,000 to €10,500,000,000 This guidance is a result of order deferrals, especially onshore and project execution delays driven by a number of factors, included COVID impact in a few countries. The margin guidance of 3% to 5% is maintained. It is supported by the H1 EBIT performance, but we also see some headwinds in the second half. We expect performance to be impacted by a number of factors Such as higher supply cost and raw material costs and by a lower contribution from offshore as production shifts from the 8 megawatt turbine To the 11 megawatt turbine that ramps up in quarter 4. And then on the positive side, we have efficiency measures linked to the LEAP program, Key point number 3, with regards to onshore, the turnaround actions are progressing with the new organization and the LEAP acceleration program in place. But most important for us is that we progress with the implementation of our actions that we also shared with you at our Capital Market Day in August and one of them that we would consolidate our manufacturing capacity. So in this quarter, we closed 2 further factories in Spain. Beyond that, we have also seen fixed cost reduction in onshore, Thanks to a simplification of the business unit. One important point we mentioned more or less every quarter, But this quarter has gained further proof, we continue to see a strong momentum in renewables. And we at Siemens Gamesa can clearly benefit from this. This quarter, we can see again, season the order entry. The company has now a record order backlog of €33,000,000,000 And saw a record order intake of €5,500,000,000 in the 2nd quarter, and this will continue. Looking at the year as a whole, there are 46 gigawatts of expected auctions in the year 2021 and another 98 gigawatts further out over time, so clearly strong momentum that continues. If we then go to Page 5, and let's stay out a minute more on the order intake. All business units have helped us to hit a record order intake over the last quarter. In onshore, we sold close to 800 megawatts for the Siemenska Mesa 5X platform, taking total orders for the 5X to over 2.5 gigawatts, sales of this industry leading technology started very well initially in Brazil and Sweden, For offshore, the Q2 was a record quarter with 2.6 gigawatt of orders, taking the firm order backlog to 8 gigawatts Plus nearly 7.5 gigawatts of additional pipeline. And lastly, in service, we saw an extension as a good example Of the 600 Megawatt Gemini contract, this proves that also for existing wind farms, we can offer very competitive solutions to our customers. On Page 6, nothing special to report this quarter and our SG commitment is, of course, continuing. We see high ratings from rating agency in that in ESG, but nothing special to report. That brings me then to the commercial activity for the Q2. I highlighted already And we are now on Page 8. I highlighted already that we have a record order backlog of €33,700,000,000 This is about 18% higher year on year. This strong backlog provides now a 97% coverage Our midpoint of the guidance and 99 percent coverage of the low end of the revenue guidance. So very little left to cover this year and of course mostly this will be filled by service business. If you look at the second chart from the left where you can see the new orders worth €5,500,000,000 in Q2 compared with only €2,200,000,000 in Q2 'twenty. Performance year on year reflects again the standard volatility in the offshore market with a positive impact on Q2 order intake for offshore and service after we had quite a slow start in Q1, and of course, I remember quite a number of questions from you when we released our Q1 numbers. We clearly compensated for that start onto the year. Looking at the chart on the right, we can see that record order intake It was predominantly seen in the EMEA region, giving it a greater share of the overall order backlog. And this is driven by Sure mostly with French, Dutch and an English order on top of the onshore orders. If we then go to Page 9 and have a further look into Onshore. First, it is important to stress that we maintain our increased focus on profitability over volume also in the Q2. We did nevertheless register an order impact of 2.1 gigawatts that is around 30% higher than last year. The positive year on year growth reflects also a recovery following the very negative impact of COVID-nineteen in the same period last year and the sharp fall in commercial activity that we had in that period about a year ago. Onshore activity has mainly been driven by strong orders in the Americas and EMEA, whereas APAC, including India, contributed only a minor share. In particularly, Brazil with 21%, Spain 21%, Sweden and Peru were the largest contributors. We also can continue to see a strong uptake in the 4x and 5x orders. These are all our turbines larger than 4 megawatts with 76% of all orders at or above that size. In that segment, Q2 saw continued traction for the 5x platform with the 800 megawatts that I mentioned before. As you can see in the charts and at the bottom of the page, pricing has remained largely stable over the quarter And the average selling price variation reflects the impacts of FX as well as geographic and product mix And the diluted impact of larger platforms on the ASP. We've addressed that in our previous calls as well. So overall, A good order entry quarter for onshore despite of our profit over volume approach. On Page 10, I then would like to turn to offshore, clearly our flagship business. We have clearly maintained our market leadership position with now 8 gigawatts in order backlog and the pipeline of 7.4 gigawatts. Order intake in this quarter was 2.6 gigawatts resulting in 5.5 gigawatts over the last 12 months. As we can see in the map, the order backlog and our pipeline show a good global diversification across these 3 offshore main markets, the Americas, EMEA and Asia, and one thing is also as important is the reliable and good progress in pipeline conversion into firm orders. In Q2 2021, we converted 3 preferred supply agreements into firm orders: Davos Cosse in France Sofia in the UK And Aker in the Netherlands, for which both the conditional and the firm order was signed in the quarter. I would like also to stress again the importance of Sofia, the project that we originally expected in Q3. It is our first firm order for the Siemens Gamesa 14 Megawatt 2 22 Direct Drive Turbine. The total orders and the preferred supply agreements for that latest generation of our direct drive platform And lastly, to our service business unit, which continues to perform very well. First, the total picture, which you see in the service order backlog on the upper left side. There, you can see that nearly half of our order backlog of €33,000,000,000 comes from service. €16,500,000,000 is in the high margin sector of service. This is supported by a stable retention rate of close to 70%, which is very positive for us of course, but also for our customers. End of quarter saw particularly a strong order entry because of the close ties between offshore and service sales in that period. The book to bill ratio in the last 12 months has been nearly 3 and these are nice indicators for our service growth. I mentioned already in the key points that we have witnessed again huge commitments across the world towards decarbonization and green recovery programs, these continue to support the robust case for the company and the wind industry. A few highlights worth mentioning in this call. Renewable energy is key to these commitments, 46 gigawatts of auctions Slated just for 2021 and it's nearly 100 gigawatts beyond that. I think we all well know that the U. S. Has reassumed a leadership position as well in this regard. The Biden administration announced an economic recovery package focused on infrastructure and climate, and Biden also announced a 50% to 52% emission reduction target by 2,030. A final point from the U. S, a new target of 30 gigawatts for offshore by 2,030 and also the PTC and ITC to be extended and commitment to ease the permitting process, I think we could have hardly expected more from the new administration in such a short time. But also in Europe, we made progress. As well as tougher emission targets, the U. K. Industrial decarbonization strategy was published, Including an ETS system, supporting energy supply contracts with renewable energy plants. Also important for Germany, The European Union approved the support mechanism for offshore projects. So 10 gigawatts of auctions are now scheduled for 2020 And on top of all of that, we have China that announced a staggering wind and solar target of 1200 gigawatts by 2,030 and its plans advance towards a carbon neutral goal by 2,030. Before handing over to Beatrice, the last slide of my section shows the broad scale of auctions this year. I mentioned already a number of times the 46. You can see them spread all over the world from North America, A large majority of that in Europe to APAC and they are also spread out over onshore and offshore. So clearly, we see a lot of momentum across the whole world. With that, I would like to pass now to Beatrice to give you a closer look at our financials. Thank you, Andreas. Good morning to all and thank you for joining our Q2 results presentation. In the following pages of the presentation, I will cover the group key financial highlights in the second quarter and also for the first half of the year. If we go to Page 15 of the presentation, our top line, as Andrea has covered, has been impacted by order deferrals and some project execution delays and also by FX. While EBIT margin TBPA and before integration and restructuring cost was favored by the group performance in the offshore market and service activity in both Q2 with an EBIT margin of 4.8% and for the first half of the year, 5% margin. The key figures for the period are EUR 2,300,000,000 in revenues, that means an increase of 6% year on year in Q2 and euros 4,600,000,000 an increase of 10% year on year on the first half of the year, both supported by the offshore market and also the service activity with onshore price execution is still lagging but less than we compare with previous year. Onshore and service revenues are still impacted by strong FX Impact on mainly is driven by the U. S. Dollar and Brazilian real. We'll cover later on the impact. On the EBIT margin for PPA and before integration and restructuring cost of the 4.8% will imply a 3.3 a percentage point improvement when compared to Q2 last year and a margin of for the first half of 5%, an increase of 7.5 percentage points compared with the previous period of last year. Both Q2 and the first half margin evolution is driven by strong performance in service and also from a larger contribution from the offshore business to the WTG revenue. The group our profitability comparison also benefited from the final delivery of projects that hindered our performance last fiscal year, also with lower cost associated to the pandemic and also lower cost in our Indian operations, we'd compare it with last year. Integration and restructuring costs amounted to EUR 71,000,000 in Q2 on EUR 118,000,000 on the first half of the year. As we anticipated also in our Q1 earnings release, restructuring cost has increased in line with the progress in the restructuring exercise. In Q2, the increase is linked to the agreement reached for the announced closure of Somozas and Cuenca. Restructuring cost amounted to EUR 40,000,000 in the quarter and EUR 60,000,000 in the semester. Integration costs amounted to EUR 31,000,000 and EUR 58,000,000 in the semester. That includes the effort of the group on IT and also the improvement on the corporate processes and integration of Sembion and Bagos. Reported net income for the period of Q2 amounted to a loss of EUR 66,000,000, including the impact net of taxes of a PPPA and integration and restructuring cost, total amount amounted to €93,000,000 in the first half of the year, reported net income amounted to a loss of EUR 54,000,000 this is a significant improvement versus the 1st semester of last year. Moving to the balance sheet and the key metrics on cash flow, I will highlight that the group has invested EUR 149,000,000 in CapEx in the quarter and close to EUR 290,000,000 in the semester, the split is as follows. Product development EUR59,000,000 in Q2 €89,000,000 during the first half. Our manufacturing capacity tools and equipment, circa €99,000,000 in Q2 and close to €200,000,000 on the half year, that means roughly an split of 30% to 70% of the EUR 149 million On more than I also want to mention that more than 50% of the total CapEx, roughly EUR 67,000,000 in the second quarter has been invested in offshore product development on manufacturing capacity, to make sure that we are able to tap the market growth. Also, as Andrea has mentioned and explained, we have signed 2.6 gigawatts orders in this quarter and most it more is coming from our most of that is coming from our pipeline of preferred supplier agreements. Working capital in the period amounted to negative EUR 1.6 Chilean euros was roughly 16.5 percent of the last 12 month revenues, and I will cover that with the explanation of the evolution of the net debt on the period. If we move to Page 16 of the presentation, total group revenues growth was 6% on the year in Q2, supported by offshore and service and was negatively impacted by currency. The growth in the semester amounted to 10%. At constant currency rates, the group revenue will have grown roughly 11% in the quarter to EUR 2,400,000,000 and 16% during the first half of the year. Most of the currency impact comes from the evolution of the dollar, U. S. Dollar and so the Brazilian real, followed also by the Mexican peso, this has been the higher impact on the group level. Moving to the left side Of the chart, if you see from the top, service revenue reached €434,000,000 That means an increase of 10% year on year, including the integration of the acquired European service operations of Senvion that is well on track. Also, the offshore revenues reached €748,000,000 That means an increase of 13% year on year, supported by a strong volume growth and also that imply roughly 37% growth in the period. In terms of our manufacturing activity, we are planning ahead to compensate for the ramp up of the manufacturing of the 11 megawatt turbine that is expected to be done on Q4. Also during the quarter, we have been manufacturing for specific projects like Hornsea 2 or just Formosa mainly. Our onshore revenues reached EUR 1,100,000,000 that means roughly flat year on year and it will have been an increase of 6% at constant currency. Beyond the negative impact of the currency of the FX, Onshore revenues were also impacted by geographical mix with lower revenues through EMEA and by lower erection activity with 1.3 gigawatts installed in the quarter versus 1.5 gigawatts installed in Q1 2020. Although onshore revenues is still lagging, there is a sequential improvement in the 2nd quarter with higher activity levels as we can see in the right hand chart, activity increased roughly 19% year on year to 1.9 gigawatts in Q2 2021, volume growth in Q21 was driven by APAC, with an increase of 40%, with activity in China and India and Americas up 16% with activity in U. S. And Brazil, we expect to continue to see continuous improvement in onshore revenues levels in the coming quarters, in line with our current top line guidance that has been narrow and given that our order backlog by the end of March already covers close to 90% of the low end of the guidance range. If we move to Slide 17, just to cover the profitability of the group, it's clear improvement in the group EBIT performance in Q2 and also on the first half, as I mentioned, supported by the service and also by the offshore performance within the WTE division. Looking on the left hand side of the page, our wind turbine division remained profitable for the 2nd quarter with an EBIT margin pre VPA and integration and restructuring cost of 1.3% in Q2 and 1.1% on the first half of the year, Significant improvement, we compare that with the performance of last year. Also, of course, the completion of the project that we faced significant challenges last year, are finalized. We also have lower cost in India And also lower impact from the pandemic, as I explained before. The WTG division margin performance does not reflect still, I will say any positive impact from the restructuring measures that has been taken on onshore and that continue. But we expect that that will be seen during 2022 and of course, mostly coming in 2023. Our service division continued to show a strong performance with a 20% margin in Q2 on a 22.8 percent year margin during the first half of the year. As we already anticipated in Q1, the service margin we'll progressively come down to our expected level circa 20% for the year. Moving down to the right hand side and also considering the key levels of profitability, I will highlight that pricing continues to be negative, but more than fully compensated by productivity gains linked mainly to our LEAP program, volume has had a positive impact on the quarter and the half, mainly driven by offshore and also the project mix and scope has affected us on a negative way. A lower contribution of EMEA on Onshore to the revenues versus APACAN America is one of the reasons also for the project mix and the scope, beyond the core levels of profitability, the first half of the year on EBIT margin performance has also benefited from, as we have already explained, the upward loading on the offshore manufacturing activity with due to the ahead of the ramp up of the 11 megawatt turbine that will take place and we'll penalize the performance on the second half and also has been a positive impact from the ordinary our release of provisions that we did on Q1 linked to the strong performance of our offshore turbines with lower failure rates and also strong efficiencies foreseen in the long term contract of service due to a new contract that has been signed with a third party. Alast also has been benefited from a positive contribution from reassessment of the marketability of WPG Inventories. And finally, as previously said, this 1st semester, we are not impacting by the challenges that we have last year and also we have lower impact from COVID-nineteen. Moving to Slide 18, which covers the net the debt position of the group, we closed the quarter at the end of March with a net financial debt position of EUR 771,000,000 the net debt increase is more related to both the evolution of the working capital and the increase on lease liabilities as per IFRS 16, the working capital performance of variation on the period is EUR349,000,000 that is mainly driven by the regularization of the trade payables on more normal levels during the first half of the year. And So as explained, the increase on the lease liability, roughly EUR 230,000,000 on the gross debt of the company amounted to EUR 841,000,000 on lease liability is mainly due to a new contract that has been signed for new vessels, roughly EUR 152,000,000 that has increased the gross debt of the company. Beyond the impact of the working capital and lease liabilities, the profitability improvement during the first half of the year let to roughly EUR 199,000,000 in gross operating cash flow. As I said before, we have invested EUR 289,000,000 in CapEx, most of that significant portion associated to offshore. And finally, a circa €35,000,000 in uses of Advent provisions as expected. The increase in gross debt of EUR 616,000,000 in the period was both due to the lease liability increase that I explained and also the full withdrawal of the EIB loan that was signed in January that also helped us to optimize the financing cost of the company. Moving to Page 19 of the presentation to finalize, I will highlight that the group has a very solid financial position. As we can see, we have EUR 4,500,000,000 in total available credit lines and loans, mainly 2 thirds of that are long term. We have drawn year to date EUR 1,500,000,000 and considering the cash in the balance that is roughly also EUR 1,500,000,000 we have EUR 4,500,000,000 in total available liquidity. If we move to the right hand side, we can see the maturity of the of the used lines and also the available unused funding. I will highlight that EUR 100,000,000 in the short term, debt to be repaid this year, EUR 258,000,000 due in EUR 20 2,000,000 EUR 740,000,000 due by the end of 2023. So as I said before, roughly 2 thirds are long term. The maturity of the current debt, the cash position of the group and the very strong liquidity The group also reinforces our competitive position, especially in offshore market, allowing the group to take the required investments to be a key leading player in the sector. So now let me hand over to Andreas to cover the outlook and guidance for the group. Thank you. Thank you very much, Beatrice. And I'll finish then first with a look at the overall wind market that you can see on page 21. And first a short look back in 2020, we saw an absolute record installation of Wind market with more than 110 gigawatts that was mostly driven by the Chinese and the U. S. Market. We then see a stabilization in 2021. And then especially interesting are, of course, the next 3 years 2022 to 2024, where you can see that offshore will double more or less in the installed capacity every year and onshore will stabilize maybe with a slight decline, But overall, a very stable market with a growing share of offshore. And then from 2025 onwards, we will then see Real growth offshore then getting maybe to 25 sorry, offshore getting to 24 gigawatts every year 25 to 27 And beyond that even above 30 gigawatts, but also onshore is expected to grow in that period after 2025 again. So clearly, we see that growth will come back into the wind industry and especially In the offshore segment where we at Siemens Gamesa are particularly strong. This is wind turbines or wind farms of classical the business only, on top of that, we can also see additional demand, which I'd like to highlight on Page 22, Coming from green hydrogen, of course, this will only become a major business in the second part of the decade, but nevertheless, It's important to mention that we from Siemens Gamesa already now are working on that and positioning the company in that vastly growing market. You can see on the right side a few highlights. We are developing an offshore turbine in order to produce The hydrogen directly at the turbine, we do this in partnership with Siemens Energy. We are working also on electrolyzer solutions Well, the electrolyzer is located at the substation level, which is that or closer to the consumer facilities. One example project of that is also a project that we do together with Siemens Energy in Chile. And On top of that, we are also developing our solution for brownfield applications, which is an electrolyzer integrated into an existing wind farm. I mentioned in previous presentations that we have already such a project light in Denmark where we test the technology, but also the business model and the business opportunities that this provides for the owners of the existing wind markets. I would like to finish the presentation then with a final look at our guidance. We have narrowed the revenue guidance, As mentioned before, from 10.2 to 10.5 reflecting the impact from order intake, but also slight delays in project execution driven by Sometimes clients planning or by the pandemic, the EBIT margin guidance range we maintain considering the various aspects that we already mentioned, the strong first half year performance, The ongoing efficiency measures that the LEAP program delivers, but also we see headwinds coming at us, Which is the 1st, the lower contribution of offshore, especially in the last quarter due to the change of turbines, But also the influence of raw material price increases and a slight volume reduction. But again, overall, I would say And a very good quarter for Siemens Gamesa. And with that, I would like to finish our presentation and hand back to you for questions. The first question we have from the phone lines today comes from Vivek Lidja from Citigroup. So Vivek, your line is now open. I have 2, if I may. Firstly, could I just get some more color around the composition of the revenue guidance cut? Is it only in onshore you've highlighted India and Brazil or is there also any in offshore perhaps to do with the offshore project launch Sorry, the offshore new product launch. And secondly, you've highlighted the cost inflation backdrop. Given that context, how confident are you still in your previously stated ambition to get the onshore business to breakeven by 2022? Thanks very much. So let me first address the revenue and the effect that we saw there. Maybe Beatrice can And address the second question. The revenue guidance is mostly affected by, as I said, late Order intake in onshore. In offshore, you know that we have normally an excellent coverage. So the delayed order intake in at the beginning of The year in certain markets did not allow us to produce and to install as many turbines This year as we had planned and this is mostly in onshore, we have also a very, very small effect from customer driven delays in off Sure. But this is only a very minor effect. So mostly the influence is coming from onshore. And Beatrice, do you want to have We'll ask regarding as we have highlighted the potential risk on raw materials that I think, of course, it's market driven and Still uncertainty about where the raw material prices will go by the end of this year and 2022. I just need to be seen assess what will be the impact at the group level and therefore on onshore. Of course, our aim, As it has been highlighted, it's to drive onshore to profitability and breakeven point. And it will be subject, as you said, one of the things that might impact that will be the raw material prices, saying that all the plans are ongoing on all initiatives linked to LEAP are well on track to get to that profitability. But as I said, we will update that base on the raw material impact. Okay. So just to be clear, I guess, we'll only know better when you have a bit more visibility perhaps So you give your product of full year guidance later in the year. Is that fair to assume? So that's idea. Of course, as you can tell, we are in the process of preparing the buyout and of course, that will be the idea to share that at due course. Okay, understand. Thank you very much. We now have the next Question from Gerald Bray from Deutsche Bank. Sir, Gerald, please go ahead. Thanks. Thank you very much for taking my questions. Good afternoon or good evening, everybody. I have a couple of questions, please. So the first one is really a follow-up on Vivek's Question, there was clearly a very strong contribution from Offshore to the margin performance this quarter, but I'm a little bit under the impression that the turnaround process of the onshore business is running a bit behind the original expectations and even before we start seeing some of the materials headwinds In the next few quarters, so I'd like to get your views on this. And secondly, given the the tension on the supply chains and the surge in steel cost and in freight, I was also a bit surprised that onshore prices We are still down year on year. So I'd like to get your thoughts on this as well and to better understand perhaps the competitive dynamics and the kind of customer resistance you might be facing. And if I may, just a quick one, a 3rd one, on the working capital move this quarter, not really positive given the big contract wins in offshore. So are you seeing some pressure to a degree from your customers on prepayment terms now? Good. Maybe I you had 3 questions. Progress in onshore turnaround, pricing in onshore and then working capital And payment terms from customers, I'll address the first two. Progress in onshore turnaround, we are making the progress that we plan to make. We clearly, for example, addressed the issues in India that we had, that we changed our business model. We put the business in India all one of the measures and I mentioned that was the consolidation, which is actually the reduction of our onshore manufacturing capacity. We already closed one factory earlier and now we closed 2 further factories simply to adjust our capacity And thus bringing down the underutilization, to give you a third example also That was the development of the next generation turbine, which is the 5X. Also there, we are making good progress, the 2 proper types For the 5x155 and the 5x170, they are both installed and the serial production for the first project What's going on? So clearly, we are making the progress that we thought and that we planned. But as So Beatrice highlighted also in her previous answer, we also see headwind, for example, from the raw materials that we have to compensate, and that is what we are currently looking at, to address that issue as well. Then pricing in onshore. The pricing that you see and that is reflected in the last quarter is, of course, the result of Negotiations and proposals that we did over the last year. And what we are clearly pressing forward with now, especially In light of the fuel price increases and logistics to pass on more and more of that to our clients. We did not have these clauses in many contracts in the past. And but since we saw the hike Since year end, beginning of this year, we are putting that more and more into the market. But you, of course, cannot see that already in the Average selling price of the last quarter. And then on working capital and payment conditions, do you want to have a go at that, Beatrice? Thank you for the question. Answer straight to the question is no. We are not seeing any change on payment terms from our clients. And then the reason behind that kind of working capital performance is also due to the very good performance of year end as of last year. And now we had also some overflow of payments that come from the end of last year that is impacting also the Q1 and therefore the performance of the working capital that now we are more on the way to normalize those working capital levels, so you will be able to see through those advanced payments of offshore or the projects. Thank you. We now have a question from Akash Gupta of JPMorgan. Sir, Akash, please go ahead when you're ready. Yes. Hi, everybody. My first question is on offshore orders. So I think we have seen very strong performance in the quarter and you said you expect more to come. My question is on the phasing of these more orders to come. Should we expect something in Q3 or it could be more likely in Q4 given the lumpiness that We have seen in offshore orders and maybe a follow-up to that question is on your pipeline. Are there new projects out there which could lead to expanding this 7 gigawatt or 7.5 gigawatt offshore wind pipeline that you have right now? And then my second question is on guidance. I think this revenue guidance of €10,200,000,000 to €10,500,000,000 is in constant currency. And In Q2 alone, you had €99,000,000 of FX headwinds. So maybe if you use current exchange rates, then Is there any number that you can give for FX headwind for the whole year? Thank you. Good. Thanks for the question Akash. I'll address the offshore orders and the pipeline and maybe Beatrice Again, we almost slid to 1 and you take the last question. So the offshore orders in Q, You asked what further orders do we expect this year and for which quarter? Clearly, we had expected. I mentioned that Sofia Sphere would come in Q3 and we had another order than expected in Q4. And I think the we Preponed or the customer actually preponed the order for Sofia into this quarter and it remains to be seen whether the remaining orders that we expect to come in Q3 and Q4. Also as we saw with Sofia, sometimes things go a little faster. So difficult to say, but at least I'm very satisfied with the general flow of orders From the pipeline into firm orders. Then Akash, you asked about the pipeline, 7.5 gigawatts, whether there are more orders on the horizon that Could add to that pipeline, yes, of course, we are progressing with negotiations, further orders, firm bids in several countries and we expect also that pipeline to grow. The most Exciting and that is why I highlighted that of course so many times are the auctions and amongst the auctions then the CFD auction That will take place around year end in the U. K. That is nothing that will come anytime soon. And there's still 6 to 9 months to go. But this is clearly one of the most exciting markets at the moment, and we believe we are well positioned. If I look at the negotiations that we currently do, but that also remains to be seen only when the auction is over, you actually know. So that would then have a large influence on our pipeline in case we are successful there, which we of course hope. That is with regards to the pipeline and then on the revenue and the FX Influence on that. The impact of potential impact on the second half of FX, that's the reason we prefer to provide the guidance at cost and FX, because it's still to be seen on the first half, as you said, roughly EUR 100,000,000 Still to be seeing the performance of U. S. Dollar and Brazilian real in our case, But it might be bigger on the second half, so the expected impact of FX if, of course, our current forecast of currencies will be that, but I will go to more than double the impact on the second half for FX on revenues, of course. Thank you. We now have the next question from Cipriya Sapna Ramon from UBS. So, Sapna, please go ahead when you're ready. Yes. Hi, good evening. Thank you. Thank you for taking my question. I have 2, if I may. One is on the situation in India because the market the environment is quite challenging right now. Just wanted to check what's your thoughts on, 1, as a market? And 2, wanted to know if you use India is a potential manufacturing hub for exports and is that likely to be challenged as well? And my second one was on the revenue guidance. You also cited certain Execution delays, for those that are not related to, let's say, driven by the client, Is there any risk of any potential liquidated damages in projects, etcetera? Thank you. Now if I take them 1 by 1, of course, India, I start with India, the situation there and I assume we all follow that in the general And general news is, of course, dramatic and not easy with regards to COVID. And that, of course, influences also our business, even though not that dramatically as human sometimes thinks if you see the Pictures from there. If we go to the market in India, we anyway had already downgraded or reduced our expectations of the Indian market. That also led to a clear downscaling of our own activities. We closed the factory actually, we closed 2 factories there Because the expectations for the Indian market in the short and medium term were much lower than maybe a while back. What also we're going to progress there pretty well is the change of our platform. We changed from the 2 megawatt machines Where we still have ongoing projects, which we are about to complete or remaining projects to get signed and then We will now offer and are negotiating then the 3 Mega-one hundred and forty five machines for and this Good acceptance in the market also and the scope adjustment, which means no project development anymore, But just turbines and support, that works also very well with that machine. So generally, the market is Performing and is delivering what we expected and even though everything on a much lower level than it might have been a few years ago. Yes. And we will also use you asked the second question whether we'll use India as an export opportunity. Yes, we will do that. And One of the potential markets is, of course, the U. S. Market, where our factory in the south of India, Namango, would be an excellent opportunity. Then the second question was on the revenue guidance. And you asked whether there's any project delays that might cause LVs, clearly, we have seen some shifts. Some, as I mentioned, are customer related. Others are also Driven by COVID effects and what we will not see and this is I think the background of your question, Any effects like we have seen about a year ago on the Northern pipeline, we were running into severe delays And had to pay a lot of LVs, we have at this year much smaller projects and the effect of the project is very diverse, Also not always our fault and therefore the liquid damages if at all will be of limited nature. We now have another question from Sebastian Grau from Commerzbank. So Sebastian, please go ahead. Yes, hi, good evening. Thanks for taking my questions. First one is on the guidance. Quite frankly, I was a bit surprised to see when taking down the revenue guidance by €500,000,000 to €700,000,000 that this is only affecting the adjusted EBITA range by about €30,000,000 or so, the question that I have related to this is, would it be fair to say that if that hadn't happened, that you would have rather felt comfortable with the upper end of the guided range, I. E. Sort of in line simply with what you were able to achieve in the first half, I. E, the 5%. And then the second question is around offshore. And you mentioned the ramp up from the 8 to the 11 megawatts platform. Can you give us a sense of the rough time line for the very And when would you be expecting offshore to be back to normal from these phases? And if I may just really, really quickly because you talked around the ASP and your ambition to really pass on certain parts of the raw material headwind to customers. Obviously, you had a good order entry in the Q2. You have built an order book that is about 40% higher than eventually your annual sales in onshore. So demand is simply there. Can you just share with us the latest sort of developments, what it is going with clients, if you ask for it? Okay. And maybe this time we do the other round guidance and EBIT and comfortable with the The 5%, do you want to answer that, Beatrice? Yes. Your question Sebastian, if I understood that, if we will have maintained The EUR 11,200,000,000 of the top end of the range, if we will feel comfortable with the 5% as of today? Because you asked the question in a different way. I think the question that Sebastian asked was, if we haven't had the volume effect or the downturn of the revenue, Would we have felt comfortable with keeping the 5% or reaching the 5% upper end? And I think the That was the question on the left. The 5% that we achieved on the first half has benefited from things that are ordinary cost of business, Para is still higher than expected and concentrated on the first half as per the release of the provisions that we did because of the improvement on the Sale rates and also the re usage of some inventories that we have that also has benefited the 5%. So we will be comfortable with the same range that we have, 3% to 5%, which is, as we said, it has pluses, the good performance of the first half and also the ongoing LEAP initiatives will continue, but also we see some potential negatives that we have already covered and that's the reason we maintain always the revenue EBIT range. If you see if you ask us how comfortable we are with the range, we maintain the range, how comfortable we are with the midpoint of that range, quite comfortable. Good. And then I think Sebastian, you asked about the changeover of the turbine. The change was taking both next quarters in 2 ways. 1st, we changed the blade production to go from the current blade to the next, this is a sliding process. We do that in Aalborg and we do that mostly in Aalborg. And the changeover there also last time has Pretty seamless and that will take place over the next two quarters. The change of the nacelle production, we produce Nearly all nacelles in the winter in Kuxhaven is planned for the last quarter, also learning from the start of the 8 megawatt, Which coincided more or less also with the start of the production in Cooks Hartn in general, we opened the factory only 2018. We feel we are much better prepared this time, learning from last time, and we expect that the production is then back in full swing Early next year. Then you asked about the demand. I'm not exactly sure what element of the demand you're targeting. We clearly I would say a good demand across all markets. We are continuing to make proposals and firm Bits from Australia to the U. S, Northern Europe also, I mentioned India. We see a good interest in the next The platform that we are offering there, we also continue to negotiate a number of contracts in Brazil. So overall, I would say the demand side is stable and also we have the right offers in most markets. I'm not I hope that answers your question. Thank you. We now have a question from Rajesh Singhaler from Societe Generale. Thank you. Yes. Hi, good evening. Thanks for taking my question. Maybe if you can just elaborate a bit more on the pricing environment with respect to the raw The inflation, if I heard correctly, earlier you mentioned that you are incorporating the price inflation or cost inflation clauses in the new contracts which you are signing recently and can you please elaborate a bit more like whether customers Are happy in accepting a bit higher prices or they are comfortable in linking the contract prices with the raw for the next year, because I believe for this year, you are well covered as far as the costs are concerned. But for next year, like What kind of response you are getting from the customers? Yes. As you can imagine, the response, you used the word happy. Happiness is Probably not exactly what you see there, but because it's, of course, understandable. The customers have in some cases Participated in auctions have firm results from auctions and then go out and ask for turbines. But on the other hand, we have also to see that the effect that we see raw materials are increasing, logistics are increasing. And I think it's then a very normal reaction of the market that this burden gets shared amongst all players. Let it be us or let it be our customers. Of course, we see how best we do that. Also, it is always a question on when It's the installation, when is the signing, when asked notice to proceed. So generally, I would say it's not easy. But on the other hand, We find acceptance for that and I think that helps us also to mitigate that risk, even though I do not see that it That is received with and welcome, but that is, I think, a very expected reaction. Okay. Maybe a follow-up question on this. So we are targeting a substantial improvement in margins in 20222023 given our 2023 target, so do you see any major risk to those medium term targets coming from raw material inflation or we believe that raw material inflation would be manageable And we would still be able to reach our medium term targets of 2023. Maybe I start to say that the vision that we have that we get the profitability of Siemens Gamesa Between 8% to 10%, that remains unchanged. And what we are currently doing is, of course, analyzing what the raw material and what that effect has, we also see a different mix of our order book going to the larger turbines And we are analyzing that as we speak. We as Beatrice also mentioned, we are going through the budget and business planning for the next 3 years, when we will look at that effect much deeper and we will share the outcome of that as mentioned already earlier in the call then in our outlook that we will share with you, I think it's November this year. Thank you. We now have a question from Ben Heelan from Bank of America. Sir, please go ahead when you're ready, Ben. Yes, evening. Thanks for taking the question. It's a follow on from the last question because on the call in Q1, it was highlighted Around this question around raw materials, you were relatively well protected against the impact of steel. And now for the second half of the year, you're flagging it So I'm kind of a bit confused about what has actually changed. And could you maybe size a little bit what the actual size of the impact is from the raw material headwinds that you're seeing in the second half of the year. And then another follow on from that question is Around hedging, can you just explain to us a little bit of actually how you hedge? So if you do win an order in offshore or sorry, onshore, Do you immediately go out and hedge that exposure? Or do you hedge on a monthly rolling basis? Just so we can kind of try to understand how to think about the impact. Thank you. Thank you, Ben, for your call, Anna. Let me rephrase a bit what you said. Yes, what we said on Q1, of course, was based on the visibility that we have at that time. From that onwards, the market has moved significantly. And also, it's not only the usual suspects, steel and copper. We have seen also significant cost on the supply of other raw materials like resins and of course, we have contracts, but that also has impacted us or is going to impact us in the coming months. What we have Tana, we started early in the year, of course, with the strategy that Andreas mentioned, trying to negotiate with clients, how much we pass on and how we make sure that we mitigate future impact on that and it's quite different, of course, onshore from offshore for that mitigation strategy, and of course, 2021 is not sometimes it's not possible to cover the full volume because of the reasons I mentioned. Regarding the hedging strategy, of course, we start with the volumes and there has been for the last month coordination plan with procurement with the onshore team and of course, offshore team to make sure that we finalize the analysis on what the volumes will be because of course, by still based on volume you pay segments or specific platforms or specific components, and that's what the team has been doing for the last month to make sure that we reassess the volume that we need, and we are hedging as much as we can. Sometimes you cannot hedge long term volumes. So the team is doing that, of course, with a view where the raw material prices will be in the coming months because if you hedge Earlier, you know also we can have a significant impact in the coming months. I will say that the hedging strategy of the group has paid back in the past and of course, has provided us with significant benefits and we foresee that will be the case in the coming months. That is Again, the team will do as they have done a great job on the hedging strategy and help us to mitigate a portion of that impact, but as I said, we don't have 100 coverage. And that's the reason we have highlighted potential risk on the second half for that reason. Thank you. We now have a question from Sean McLaren from HSBC. Sir, please go ahead. Sean, your line is open. Good afternoon and thank you for taking my question. On profitability levels in offshore orders, I mean, the AFP, I see it dilutive if I compare that to the back of the previous installations. I guess that's partly explained by about the higher rating of the turbine. And again, we know that ASD particularly in offshore is maybe not a good indicator. I just wanted to understand a little bit about the pricing environment in offshore. Are you seeing, obviously, on one side, a lot of demand, are you seeing maybe more competition now in the 13 to 15 megawatt Class 4 turbines? Thank you. Yes. Thank you, Sean, for the question. And I think that is, of course, a reoccurring question. Indeed, we see that There is, of course, competition because we have now 3 large players that is Vestas after now the full integration of the former joint venture. And we have GE and we have us as market leader. I think last year we installed around 60% of our turbines. But clearly, the projects That are coming up now for the mid-20s and Sofia is already a sign of that. It's It's extremely interesting for all 3 players. And we continue and Sofia has been also proved to that. We continue to develop our turbines and technology to be to make sure that we continue to be the most competitive offer in that time period. I think to say there's no competition between 3 companies of that size and of that ambition Would be, of course, not right. On the other hand, I'm confident also with the scale that we have, also with the cost out results and successes that we had in the That we had in the past with the technology developments that we have that we can compensate and keep our target, which has always been Market share of above 50% also in that competitive environment. Thank you. Thank you. We now have a question from Deepa Van Catesworn from Bernstein. So Deepa, please go ahead. Thank you so much for taking my questions. I just wanted to check on the deferral of onshore wind orders. Do you believe that that's driven by customers also wanting to take the rain check on the commodity prices? Or is there anything Structural, I mean, is it just a delay? Or do you see anything else going on here on onshore? Thank you. I don't think there's anything special going on in onshore. The orders that we signed Developed and negotiated and over the last 12 months and yes, you can also See the global distribution, I mentioned the countries from South America with Brazil to Peru. Then we have European orders. I don't think there's anything structurally going on in the onshore market. Of Of course, you have a country like India, for example, we talked about that it's heavily affected by the pandemic And also the complete change of the market, there you might have regional structural effects, but otherwise I don't think there's anything special. Thank you. We now have a question from Marc Freshney of with Credit Suisse. So Mark, please go ahead when you're ready. Hello. Thank you for taking my question. Most of my questions have been answered, but one that stood out for clarification is just on the constant currency Impact, do you mean that the new guidance includes the adverse €100,000,000 Revenue impact in the first half and the doubling of that €200,000,000 in the second half. So my question is, Does the new guidance of EUR 10,200,000,000 to EUR 10,500,000,000 include adverse currency? Or should we also Take currency from the first half and the second half off of that to get to the outturn number. Thank you, Marc. Can you repeat? No. We have provided always guidance on revenue on cost and FX to make everyone consistent and not to avoid any confusion, so current guidance is cost and FX. Thank you. We now have a question from Katie South of Morgan Stanley. Sir, please go ahead, Katie. Your line is open. Hi, good afternoon or good evening. Thanks for taking my question. Most of mine have been asked now as well. But I think Andreas, maybe just a bigger A picture question for you, when we're thinking about the future of the offshore industry and some of the developments that we've seen in auctions early this year. And I'm thinking about particularly in the U. K, right, where we've had kind of new market entrants on the developer side coming in and generating at perhaps unusual prices. Can you discuss how you kind of see that going forward? What impact do you think that has on the supply chain? Thank you, Kathy, for the question. And you are of course referring to the new entrants, which is mostly seen on the lease auction that we saw in the U. K. With The highly competitive offerings that people made to secure leases. I see this I think I recently used the word with a laughing and with 1 with 2 different eyes. On the one hand, I'm of course extremely happy that additional entries come into offshore. Offshore is a large player business. Additional investors are welcome and therefore that will be driving the industry forward. And also additional competition will drive down the or will increase the competitiveness of the industry and then make it even larger scale. On the other hand, the high lease prices or lease fees that have now been committed to Will of course have an effect. On the other hand, these projects are not short term or mid term projects. The projects that we are talking about We'll come online maybe around 2029, 2030. So that is in 8 to 10 years from now, maybe orders than in 6 Yes. So there's a lot of time for us available to deal with them to develop even more efficient turbines to bring the cost So it has positive as well as effects that will put us under pressure, But we have quite some time to deal with that. Thank you. Our final question from the phone line comes from Ajay Patel from Goldman Sachs. So Ajay, your line is now open. Hi, there. Jay, could you just check that your line isn't muted locally? Hi, thank you. Good afternoon and thank you for taking my questions. Similar to others, but most of the questions have been answered, I just want to double check on the net debt. Would you be basically indicating that the Working debt working capital benefits that you achieved last year, some of that reversed over the course of this year when looking to the full year. And There was a step up, I think about €230,000,000 in the leases. Is that the full extent of it? Or would we be expecting more towards the end of the year? I'm just trying to get I'm just thinking in terms of visibility, as in huge amounts of orders Coming next year, when how much of like if we were to take a little bit of a longer term view, how much visibility do we now have as in How much of, say, 2025 orders do you already know? Just trying to understand this that by the end of this the process of this year with the significant auctions that we have, were we actually able to get to a stage where that year will be actually more visible to us? And would you able to give us more indications on that? Thank you. Beatrice, do you take The first one, Julien. On the operating leases, what we highlighted is the evolution of the gross debt on the period, mainly relate to 2 factors. As you said, one is the increase of the paid in leases, euros 230,000,000 out of which roughly EUR 150,000,000 comes from new contract rate to vessels that has been signed. The strategy of The group, of course, will be always based on financial metrics. So if we foresee that there is a benefit for the group on signing new leases, we'll do so with one yet, of course, we know that that operating leases will increase our gross debt, and we also know how important it is the gross debt ratio for rating agency purposes, so we will always find a balance to make sure that we find a good lease from financial terms, but also we maintain the close level of the company within the range that is reasonable for the group. Regarding and then therefore, we don't foresee significant increase on operating leases on the second half, but a few more contracts will be signed. And then regarding the working capital, what we meant is the performance of last year was Extraordinary and very good for the group. Of course, it is difficult to maintain that level going forward. And we have And trade liabilities that we have paid on the Q1, so nothing else. There was nothing like we unfold the benefit of the 2020 2 performance this year. And I think the second question was around visibility and that is It's completely different whether you look into onshore and offshore. And to onshore, the project that we're currently signing will mostly be for production So next year and then make installation latest in 2023. So and sometimes even in 2022. About the best visibility or the let's say, how do I say that? The latest visibility would be 2023 at the moment. In offshore, that is completely different. With the signed orders, but even more so with the pipeline that we have, We have already now a few projects in sight that would be 2025, 2024, 2025. And one interesting addition is what I mentioned earlier would be the CFD next year in the UK. And then I think we would have an excellent visibility already for the years 2024, 2025 and maybe even 2016. To give you an example of one of our rather late projects that is for example the preferred bidder agreement we have for 2.5 gigawatts for Dominion The U. S, they will be for that installation is expected in the mid-20s. I don't know exactly the years now by heart. And we will add projects to that, but no firm order yet for that Period. But with the reliable transfer from preferred bidder into orders, and I think we have that. But if you do the other way around, 8 IGA was already now clear, 7.5 percent more to come. The visibility in offshore is of course Excellent and a longer reach than an onshore. Good. I Assume that was the last question, if I understand it right. So more questions, please? I think we can perhaps conclude the call. Andreas, if you want to conclude. Yes, yes. Okay, then I thank you. Yes, and first, I would like to thank everyone and For attending our call also at this unusual time. And also, as the questions show, There was of course a higher interest also in the areas where we expected it and where it was naturally to get the questions that was raw material and guidance. That was clear to us and that is also why we immediately said that already when planning that we would like to share that with you immediately. Overall, I think it was, as I said at the beginning and as we also explained, a good quarter for Siemens Gamesa. Also the other entry, the outlook, the growth that we can currently see is confirming that we are on the right track, Notwithstanding that the onshore turnaround will still take time. There's still a lot of work to be done. But on the other hand, I believe we made progress and I hope we can also show that to you and you can see that in our numbers. So from that point of view, I hope it was worthwhile for all of you to attend, and I wish you a nice weekend. And I'm sure with many of you, we will talk in the upcoming roadshow. So many thanks, and have a good weekend.