Ladies and gentlemen, welcome to the Nordex SE Q2 2025 Results Conference Call. I am Mathilde, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing N1 on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast at this time. It's my pleasure to hand over to Anja Siehler, Head of Investor Relations. Please go ahead.
Thanks, Mathilde. Also, a very warm welcome from the Nordex team in Hamburg. Thank you for joining the Q2 2025 Nordex Conference Call. As always, we ask you to take notice of our safe harbor statements. With me are our CEO José Luis Blanco and our CFO Ilya Hartmann, who will lead you through the presentation. Afterwards, we will open the floor for your questions. Now I would like to hand over to our CEO José Luis. Please go ahead.
Thank you very much for the introduction. Anja, on behalf of the entire board, I would like to welcome you to our second quarter results of 2025, starting with the recap of the three months from April to June 25th. As the title of this slide suggests, we are staying the course and that course is one of a steady but consistent progress. Overall, the second quarter progressed as planned, delivering improved margins and another positive free cash flow. In detail, the second quarter we have seen strong momentum in our market resulting in a combined order book of more than EUR 14 billion. We recorded a turbine order intake of 2.3 GW in the second quarter, up 82%, which translates to an 83% year-on-year increase in euro value. Profitability continued to improve. Our EBITDA rose by 64% year-over-year and our EBITDA margin increased by around 220 basis points.
This translates into a 5.8% EBITDA margin and a positive net income of EUR 31 million. Looking at the service business, with an EBIT margin of 17.7% in the second quarter, we are on a steady path towards our previous normalized levels. Important to highlight, we continue to generate positive free cash flow since several quarters now. In the last quarter, we achieved a free cash flow of EUR 145 million driven by the operating business. For the remainder of the year, we remain confident to repeat our performance over the course of the first half of the year despite any provision-related outflows. Finally, we are seeing good momentum across our core markets and remain on track to deliver guidance for this year and also our EBITDA margin target of 8% in the medium term.
Let's now turn to the next slide where I walk you through the current market conditions in more detail. We continue to see solid demand across our growth regions, particularly in Europe where Nordex SE remains the market leader. The onshore installation forecast in our target market continues to show a steady growth trend of around 12% through 2028, with Europe consistently contributing a significant share. Our past order intake reflects this momentum. In first half of 2025, we secured 4.5 GW of new orders, with 95% of that coming from Europe. This underscores the strength of our position in key markets like Germany, Turkey, the Nordics, and Baltic States, among others. In North America, we maintain a strong presence in Canada, while our view on the U.S. remains unchanged. We believe that it continues to be a key market for wind energy in the long run. However, the outlook is uncertain.
In the short term, we are closely monitoring the impact of the executive orders on the Safe Harbor provision and order pipeline. On top of Europe and the U.S. market, we continue to be actively engaged in Canada, Australia, and Latin America with varying degrees of success. On the supply side, we continue to see a stable environment in both supply chain and costing. Aside from a few exceptions, we anticipate slightly stronger performance in the second half of the year. All in all, the fundamentals of our market remain solid and Nordex is well positioned to capture the opportunities ahead. Moving to the next slide, in the second quarter of 2024 we saw another strong order intake momentum. Nordex delivered 2.3 GW in Q2, making 82% growth and 83% increase in order intake compared to the same period of the previous year.
This translates to EUR 2.2 billion in value from orders across nine countries. Strongest individual markets were Germany, Turkey, and Latvia. Pricing remains stable and has been stable now for quite some quarters. As always, important to mention here, the changes in ASP are scope and regional mix effects. Moving to the next slide, order book driven by strong order intake in both segments, our total order book grew to EUR14.3 billion. The turbine order book increased by 28% to EUR 8.9 billion in 2Q2025, up from EUR 6.9 billion in second quarter of 2024. Most of these orders will be installed in Europe, followed by North America, Rest of the World, and Latin America. On the service side, our order book increased by 32% year -on -year, reaching EUR 5.5 billion by the end of the second quarter 2025.
This growth in service order book reflects the expansion of our turbine business over the past years across multiple regions now contributing to the service order book. Moving ahead, service margin in Q4 2025, I'm pleased to report that our service business continues its upward trajectory and is steadily progressing towards our target profitability level. Service revenues grew by 70% year-over-year, reaching EUR207 million in the second quarter of 2025, and the share of service sales now accounts for approximately 11% of total group sales. As we have outlined previously, EBIT margins are on a clear upward path. In Q2 our service EBIT margin reached 17.7%, continuing the steady improvement we've seen over the past quarters. Let me highlight a few key operational KPIs for the service operations activity.
Average availability of the fleet under service remained high at around 97%, and the average tenure of our service contract continues to be around 13 years, providing long-term visibility and recurring revenue. As mentioned in Q1, the margin recovery is not linear, but the trend is clearly visible, and we remain confident in our ability to return to our historical margin levels of 18%- 19% within the next 12 months. Let's move to the next slide. Installation and production figures: installations were up 5% year-on-year, reaching just around 2 GW in the second quarter of 2025. In the current quarter, we installed a total of 337 wind turbines, with the majority of installations occurring in Europe, followed by Latin America and North America. On the production side, we assembled around 1.6 GW of nacelles, corresponding to 281 turbines.
The decrease in production is only due to project scheduling and is generally in line with our internal planning. Blade production in units increased by 8%, with 1/3 in-house production. With this, I would like to hand over to Ilya to go through the financials.
Yes, thank you, Jose Luis, and good afternoon, everyone. As always, I will start with our income statement. In the second quarter of 2025, sales totaled around EUR 1.9 billion, in line with our previous year's figure. We again were able to improve gross margins, reaching 24.8% compared to 19.3% in the same period of last year. As a result, we achieved an absolute EBITDA of EUR 108 million in Q2 compared to EUR 66 million in Q2 2024. This translates into a further improvement in EBITDA margin both year-on-year, so 3.5% in Q2 2024 and also sequentially 5.5% in the past quarter, reaching 5.8% in the second quarter. Going forward, and with the visibility we have as of today, we continue to expect solid improvement in both margin and in absolute EBITDA levels in the second half.
Given the overall solid performance in the second quarter, we closed Q2 with a positive net income of EUR 31 million after EUR 8 million in the first quarter. At the current run rate, we should be able to generate quite a healthy net profit for the full year, which may also be the right point in time to decide on other capital allocation topics. Hence, with the full year results, with this, let's move to the balance sheet. Looking at the balance sheet, the overall structure has not changed much, so very similar to year end 2024. We completed the second quarter of this year with a cash position of around EUR 1.2 billion. There, the working capital stood at -7.5%, on track and in line with our internal planning.
Equity ratio was 18% at the end of the quarter, with a slight increase compared to the previous year quarter, 17.6%, and the year end 2024, where it was at 17.7%. Now let's have a closer look at how other balance sheet KPIs have developed. Overall, all balance sheet KPIs reflect solid performance achieved in the second quarter. Strong operating business in the second quarter contributed to a further increase in net cash, which totaled EUR 942 million at the end of the quarter compared to EUR446 million in the same quarter of the previous year. The working capital ratio, as just mentioned, at the end of the quarter stood at -7.5% or in absolute numbers, EUR 539 million. The increase is mainly driven by preparing for higher expected activity levels in the second half of this year. With that, let's go to the cash flow and CapEx slide.
Cash flow from operating activities before net working capital stood at EUR232 million at the end of the second quarter and reflect again the solid operational performance. Working capital only saw some minor changes just mentioned, -EUR 54 million in the delta, so that we reached a cash flow from operating activities after working capital of EUR 179 million at the end of Q2, and this is a solid performance and even beyond the same period of last year. As a result, we generated a solid positive free cash flow of EUR 145 million in Q2 2025 despite working capital outflows in Q2. Although we don't guide for free cash flow, I am and we are confident that we will achieve a solid positive free cash flow for the full year 2025. CapEx spendings amounted to around EUR 39 million in the second quarter, slightly higher compared to the same quarter of last year.
However, overall we expect to catch up further in the second half of this year and we're sticking to our guidance of around EUR 200 million of CapEx for the full year. Our investment focus remained largely unchanged with investments primarily in blade and nacelle production facilities and tooling for installations and transport. With that I would like to hand back to José Luis for our guidance slide.
Thank you, Ilya, for working us through the financials. As mentioned earlier, the first half of 2025 has developed fully in line with our expectations both operationally and financially. This gives us continued confidence in our outlook for the remainder of the year. We expect 2025 to be another year of steady and meaningful improvement in profitability. With a solid order book and clear project timelines, we remain comfortable reaching the midpoint of our sales guidance range of EUR 7.4- EUR 7.9 billion. At the same time, we continue to anticipate a consistent step up in our EBITDA levels over the next two quarters, moving us closer to our medium-term target of 9%. While we are not providing formal guidance, we are confident in our ability to deliver another year of solid free cash flow, or in other words, repeating our first half performance despite expected provision-related outflows.
With this, handing over to Anja to open the Q&A.
Thank you both for leading us through this presentation. I would now like to hand over to the operator to open the Q&A session.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touch tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only headsets while asking a question. Anyone who has a question may press star and 1 at this time. The first question comes from the line of Constantin Hesse from Jefferies. Please go ahead.
Thank you very much for taking my questions everyone. I've got three questions. If we could start with Osselo, it's going to be over to you after the full year results. We had that breakfast where I think you hinted towards momentum. Overall you expected some growth in 2026 and then potentially an acceleration in 2027 and 2028. Now I'd just like to talk a little bit about this because looking at the share price performance, I mean this year has been extremely good from a valuation perspective. We're trading at relatively higher multiples at this point and I feel like some investors and there are some question marks around how much longer can this momentum really continue? I think when we talk about 2025 looking at German auctions it looks like that's pretty much in the bag.
You know we're looking at probably order intake is probably going to be above last year but going into 2026, maybe you could comment a little bit about, you know, where do you really see the market trending? What are the markets where you're seeing this momentum continuing? Surely Germany from an auctions perspective is probably peaking this year. Just wondering if you could comment a little bit on, you know, when you look at 2026, 2027, what are these growth catalysts?
No, thank you, Constantin. We remain optimistic about growing trajectory of the business and profitability improvement of the business. You know, we don't guide for the intake but we are optimistic that this year we could repeat or improve last year performance despite the uncertainties in the U.S., which for us, as we mentioned as well in that meeting and in several calls, is a safety net, but we don't need that to deliver our outcome. You name it, Germany is high level volume of permitting or options. Our market share in the order intake and in the execution in Germany is, we are happy, is, you know, we are one of the three, so name it 30%, 33% and we expect this to continue. We don't see any indicator that this might change.
Other than Germany, rest of Europe is strong, Canada is strong and we see opportunities in Australia. You saw that the backlog has increased a lot. It means that the processing of those orders is increasingly times and as a consequence, with the current backlog and expected order intake this year and next year, we think we can support a growing trajectory for 2026, 2027, 2028 is a little bit earlier, but definitely for sure for 2026 and 2027.
That's great, thanks. Maybe over to CapEx, if we could just comment a little bit on maintenance CapEx versus growth CapEx here going forward. I think you know, a level of EUR 150- EUR 200 million, is that kind of a level that we should continue to anticipate over the next two, three years or is there potentially.
Sorry?
Ballpark?
Yeah, yeah.
No, I would say ballpark, yes. Could be slightly higher because you know we are with a slightly higher activity than previously expected. CapEx to revenue, we think should be below 3%.
I guess if you take this $200 million as a proxy for a bit of a run rate going forward, I think you're well calibrated.
Fair enough.
So basically no plans for now to potentially develop a new platform, anything, at least until later in the decade.
Yeah.
Fair enough.
Last question, just on free cash flow, I was quite surprised, I think you mentioned that you expect a similar performance in free cash flow in the second half relative to the first half, which basically takes you to about EUR 300 million in free cash flow compared to, I think expectations are currently at EUR 180 million. Significantly ahead here. Can you just give us a bit of an indication? I know you don't guide us or give us a specific number for Nordex SE, but looking at these potential outflows, how should we think about it? How long are they going to last? Are they pretty substantial already from the beginning, or just to give us a little bit of an indication if there is a way.
Thanks.
Yep.
Very valid question and I think maybe the change to our previous calls in the full year and Q1 is that while we're already optimistic on a solid free cash flow for the year, if possible, we are even more optimistic than we were before. You're right, we're not guiding for that. I will not contradict the numbers you play to us here. In that realm, if it's for calibration, not for guidance, I think that is a good orientation. For the full year, that's clearly our expectation as it comes to the legacy issues. The legacy issues, we're not going to be specific on individual customers. However, in terms of outflows, this will, as we said for the full legacy issue, be a thing of two, two and a half years and maybe in some individual cases it goes a bit faster.
Outflows of course are happening already in H2. We'll see some more. All this is already contemplated in the calibration we're giving you.
Great, thank you so much.
The next question comes from the line of John Kim from Deutsche Bank. Please go ahead.
Hi, good afternoon everybody. Thanks for the opportunity. I wonder if we could focus back on the growth potential into 2026 and 2027, specifically where in greater EMEA you see pockets of opportunity to grow the order intake. Also, any color you can give us on the cadence of orders to revenue recognition would be helpful here. One follow up, if I may.
Yep. Hi John. The growth in 2026 expected is mainly driven by the growth in the order backlog. There is an effect here that the orders in Germany have a longer lead time for processing those. The order intake today doesn't mean revenue growth next year, but maybe the year after. This is why we are cautiously optimistic about the revenue growth trajectory for 2026 and as well 2027. The majority of revenue growth next year compared to this year is expected to be in region central, in Germany, that we are ramping up to install substantial more number of turbines compared to this year. Other than Germany, where we see first auctions, first permits, then auctions, then order intake, then two years later installation, the cycles in other geographies are slightly, slightly shorter and is very much order intake driven.
We expect the good order intake momentum to continue in the second half, especially in Germany, but not only Germany, rest of Europe, Canada, among others.
Okay, great. One follow up if I may. Any color on what you're seeing in Brazil right now?
That's a challenging market. We are executing projects, we are in negotiations with customers, but it's a challenging market. Electricity prices are quite low. There are grid issues to bring projects to the market. It looks like those grid issues are on the way to be resolved in one or two years. Electricity prices are improving, but at least for us, not sufficiently shorter. We remain committed with the market mid term and long term.
Okay, great. Thank you.
We now have a question from the line of Vivek Midha from Citi. Please go ahead. Mr. Midha, your line is now open. You may go ahead with your question. The connection with the questioner has been lost. We will proceed by taking the next question which comes from the line of Tore Fangmann from Bank of America. Please go ahead.
Thank you for taking my question. I've got two follow-ups here. Maybe I can follow up on the capital allocation priorities.
How do you think about balancing?
In CapEx, balance sheet and rewarding shareholders?
How do you think about.
Starting dividend payments versus potential share buybacks?
I take the second question afterwards. Thank you.
I'll take that first one. Thanks for asking it. We have been discussing it at least on the last call, if not for the last two calls, as I tried to indicate in my remarks on the presentation. We will come back on this comprehensively with the full year results. I said it could be as early as Q3. We want to see not only the result of this year but basically already having a solid budget for next year and the business plans for the year thereafter. These are questions you're also asking us, but we will come back to that then with a firm answer and basically also a proposal, if any, to shareholders. The guiding principle will be this company needs to be prepared and we are preparing it for a cyclical industry.
When this cycle goes into the next one, it needs to be one of the strongest in the sector. Whatever we do, we will always put the strength of the company first, obviously acknowledging the very valid needs or demands from our shareholders who have been very good with us in the difficult times. I think you get a balanced picture once we reach the full year results.
Okay.
If I may, compliment to Ilya, keep in mind the evolution of the order backlog, which is an early indicator of revenue growth. This is for us paramount, the risk in the revenue growth of the contract.
Okay, thank you.
My second question also follow up on your comment on the platforms, how do you think about the right time to, let's call it, pull the trigger on developing the next technology platform? Could you maybe comment on how is the current pace of new technologies in the general market for you and also your competitors? Thank you.
In the markets where we operate with the current products, we can deliver electricity below the grid parity in majority of the regions where we operate. We don't see the need to launch new platforms. Of course, this is a competitive dynamic. I mean, we are in a market if some of the competitors decide to do so. We don't want to be caught by surprise and we need to be prepared to react.
I don't think we are going to be the ones starting to launch new platforms in the markets where we operate because current platforms deliver value to society and to different countries. I don't think there is the need to be in a rush there. It's better to focus in reliability, in product performance, in managing existing supply chain with good quality, with good utilization instead of ramping up another new platform. Market dynamic will tell.
Okay, thank you.
The next question comes from the line of Sebastian Growe from Exane BNP Paribas. Please go ahead.
Hi, José Luis. Hi, Anja. Two questions left for me. The first one would be, surprise, surprise, also around the order backlog and the related timing. From what I can tell, I think it's around 10 GW now. I was just curious if you would be willing to share how we should think about the timing around those very 10 GW. That would be the first one, and the other question is more on services. In the meantime, you have 46 GW under services.
It appears that the capture rate has meaningfully improved year to date. In my calculations, it's close to a high 70% level.
I guess my question here is whether you can share what the capture rate in Germany is compared to the rest of Europe, and equally how terms and conditions might differ between Germany and the rest of Europe.
Thank you.
Yeah, that's precise. I don't know the second one, but I will try to give you some color regarding the timing of the 10 GW. It changes country to country and of course project to project, but from 18- 24 months to 24 months. The German portion more towards 24 months and the rest more to 18 months. What portion is Germany and what portion is others? On the backlog around 40% could be Germany or a little bit more. With that you can do your early indication of expected revenue growth regarding services. Germany is definitely a longer tenor than the average, substantial longer tenor. The capture rate for long term service 1M in Germany is, is almost, I would say close to 100%. The profitability in the German service business activities is good.
I mean, of course it's a quite developed region with a lot of service centers. You are more close to the turbines and to the customers. You can deliver a better, a better service because of the geographical distribution of your presence in the marketplace and the size of the marketplace as well.
That sounds truly good. May I just quickly throw in one other question around the provision debate that we had before? Ilya, if you would be in position to share a number of how much one might expect in the second half in terms of provision related outflows.
You're talking again about the outflows? No, Sebastian?
That's correct.
Yeah.
As mentioned before, the spread of those provisions which were specifically geared towards those legacy issues, which is a campaign of repair and replace, is ongoing already. There are outflows happening already because we're doing that campaign and we'll continue. I would repeat, best guess, two and a half years, something like that, when we would put the start at the beginning of this year, and the earlier it is, the more of those outflows. It is going to be a declining outflow because the campaigns are going to be finished. I wouldn't like to be more specific than that, but again, it is already happening as we have done agreements with customers, and it is all contemplated in the free cash flow orientation we're giving you for this year.
That's well answered.
Okay, thank you.
We now have a question from the line of Kulwinder Rajpal from AlphaValue. Please go ahead.
Good afternoon everyone. I just wanted to get your comments on the U.S. market.
Have you had any discussions with the customers following the earlier phase out?
The credits and what has your feedback been on that so far?
In the context of that,
How do you now think about ramping up the capacity or the mothball facility in the U.S. now?
Thank you for the question. Yes, we are in close discussions with customers. How can I summarize it? Too early to say. I think we are. Customers are evaluating what is the scenario on tariffs and what is the practical scenario of the big beautiful wheel and the executive order to qualify for continuous construction. More clarity will be given around mid-August. I think it's August 18, and until then there is not much we can say. We think U.S. long term is a good market to be in and we are committed with the market long term regardless, and despite the final assessment of the bill on August 18. Regarding ramp up in Iowa, as we speak, we are doing so to qualify turbines for continuous construction if legislation allows that.
Until new information is frozen in stone to reassess the situation, we keep committed with our plans. Right. Just to clarify, is it more of an uncertainty kind of question that is facing the customers or is it more like without the credit the demand won't be the same? Very much so. I think there is a timing effect always. With or without tariff there is a CapEx impact that needs to be translated to PPAs. This has a timing for that and the same applies for the tax credits. The size of the market might slightly change depending on that. Continuous construction will determine if we are going to be in a peak of demand of one year or in a peak of demand of two or three years as far as we can say today.
Okay. Secondly, just to quickly follow up on the service, obviously good to see the margins expanding.
Should we expect similar developments for the margin in the second half?
Yes, you know, without going into quarter to quarter because you saw certain peaks in certain quarters, but the trend is expected to continue. Yes, eventually in one year from now we should be in the 18% - 19% EBIT market. The growth should not be expected as steep as the 17%. It is more low tens and profitability improvement, yes.
Okay, thank you.
The next question comes from the line of William Mackey from Kepler Cheuvreux. Please go ahead.
Good afternoon, José Luis, everybody. Thanks for the time. Three, possibly four questions, if I may. The first one, it comes back to the way in which you or the board are thinking or planning your capacity development in terms of. If I look at on a rolling last 12 month basis, your order intake is running at about 9.5 GW and your installation rates are running at about 6.5 GW. You've mentioned earlier that the time to complete or the book to bill period is extending out towards 24 months in some cases. How are you balancing that natural pressure between your customers wanting to complete and commission projects and therefore pushing you for deliveries and you holding back or developing your capacity expansion and your willingness to deliver faster?
I'm thinking really the question is how should we expect you to develop your capacity and installation rates and what bottlenecks are there? Whether it's logistics or blades or nacelle completion which might hold back rate?
Yeah, I think this is a very good observation. Installation this year we plan to do slightly higher than that, but definitely less than the order intake. The biggest bottleneck at this point is not blade capacity, nacelle capacity, or logistics; it is customer permits and civil work readiness. It is very much that we are preparing to fulfill our contractual schedules, and factually we do not pay almost any liquidated damages for being late to the projects. This poses different problematics because we need to store the components somewhere since the projects are not ready, and there are certain cost increase discussions with the customers because of those delays. It is very much driven by civil works and availability of permits to get into the site. This is what is driving the different pace of order intake, the different pace of production, and the different pace of installation.
Without underestimating the challenge ahead of us, we see substantial growth, especially in Central Europe and in Germany, but we are prepared and we do not see any major issue from our side to deliver the expected increase in activity next year.
Thank you. Thank you. The second question really draws on your privileged position and insight on the end markets and how they might behave, I guess. Would you be willing to share a view on perhaps how if the Treasury adopt a very strict interpretation of the OBBA in the U.S. and we see perhaps the safe harbor statements go away, or at least the safe harbor system go away, what sort of impact could that have on market dynamics? In a similar vein in Germany, do you have any initial thoughts or indications about how the German government may interpret or stand with regard to their willingness to commit to renewables in the medium term.
Let's go, if you allow us, prefer not to speculate. Let's see what the legislation says. For us, you know, that position is easier because for us, U.S. is a safety net. We are prepared for a rush if a rush is needed, but we are not counting with that in our internal planning. For us it's more an upside than anything else. Let's wait to see what the interpretation of the law is and react accordingly. Regarding Germany, we see, you know, we saw massive improvement in permits in auctions this year. Another two auctions are expected to land with good volumes expected. We don't have any indication about the future. We are optimistic that Germany is committed to reduce the dependency from foreign resources and we need delivering value to society.
How big the volume is going to be or the sustainable volume in Germany is to be seen. Germany is the biggest economy by far in Europe. Contrary to other European markets, the subject of energy is not that straightforward because there are no natural resources and the electricity price is high due to limited interconnections across Europe, especially with Nordics and with other geographies. The best way for the German government to reduce the energy bill is to install as much as you can. I mean, it's a supply and demand. The more you install variable sources of electricity, the more you reduce the pool price of central Europe. Difficult to assess or at least we don't have any indication what the thoughts are in the German government. I don't know, Ilya, if you want to complement here?
Not much.
I think the rationale that you gave for what to consider in those conclusions were all given by you. I think there is a bit of a formal view on this that the government announced, and I think we mentioned it in the Q1 call shortly after taking office, that it will launch a so-called monitoring period means that they want to reassess electricity demand for the years to come versus the grid capabilities and the mix of generation. That is underway. If my timing is not wrong, those six months would probably put us somewhere at the end of October or beginning of November, let's say in the fall, late fall. I think that we will get a more formal position from the German government as well.
Super, thank you very much. That's insightful. The last area I just wanted to touch back on, it's been asked a bit, but when we think about provisions and particularly warranty use, the warranty use in Q2 has jumped to the highest level we've seen in years, almost in fact, if not the highest level ever. $85 million if my numbers are correct. How should we expect that to, when you talk about two and a half years of provision use, is that the sort of rate of provision use on a quarterly level we should anticipate now well into 2027?
Go ahead.
Sorry. I mean, what does the warranty use relate to? Is it more of the legacy Acciona turbines or something else?
Very valid question. The short answer is no, that is not representative of a quarterly usage range of the provisions in that specific case without going to specific customers. This is something where we have now reached all the final agreements, final, final agreements with everyone. In that case, basically we've moved already part of those provisions for specific cluster deal into the liabilities as a firm liability of the company. That usage is basically a booking change, but nothing in nature. There are no additions or anything else. It is basically that we now will recognize or have recognized these obligations as firm ones already in the book. In substance, there is no difference. Second, no, that is not going to repeat itself. It is a more steady outflow, again, more at the beginning than decreasing, but nothing near what we were just talking about.
Thank you very much.
We now have a question from the line of Ajay Patel from Goldman Sachs. Please go ahead.
Good afternoon and thank you for the presentation. I really want to tackle two areas. I'm going to start with the first, not just cash flow like bigger picture here, right? I looked at the Reuters consensus for next year and we have EUR 990 million in net cash compared to the EUR 942 million that you delivered in the first half.
If I look, Basically, no cash generation relative to that number, and you start thinking, second half of the year you probably have 60% of your revenues. Margins will probably be better because of operational leverage. Admittedly, investments will be higher in the second half of the year, first to make up the $200 million that you've guided for the full year. It points to a sizable amount of cash flow generation. I just want to know, is there anything else that we should be adjusting off that, and why has the picture changed so much? When we were talking at the full year results, that EUR 180 million number, which is where consensus is for this year, seemed about right. Obviously, we have outperformed on this side.
Can you maybe scratch that a little bit more and give us a little bit more detail, just because I feel like this has implications to pretty much every year in the forecast. Maybe some color there first. I have one further question to follow up on.
I guess I'll take the first one. Maybe you get some business background from the CEO as well. Basically, we stick to the message that we want to calibrate you around the midpoint of the guidance in terms of EBITDA margin. We will say that if we were confident already in the full year call and in the Q1 call, if at all possible, we're more confident about that than we have been before. What I'm trying to say is probably there if there's any downside to that, we clearly see only upside to that position. That basically is where we want to steer you towards.
Given that the 60%, 55% as you indicate of activity is still lying ahead of us and we have seen certain hiccups at least on paper, between tariffs, permanent magnets and the likes, we would continue to be cautious to go beyond anything we've mentioned on the call today in terms of the guidance for the cash flow, which is not a guidance to repeat that, and for the profitability. I think that matches at least how we see business, don't we?
Yeah, I think you name it. I think 60% of the volume we need to execute, 55%, 50% in terms of production, installation, so on and so forth. I mean there is very little to no order intake risk for delivering this year number, but one thing is order intake risk. There is the execution itself that you know there are risks and chances. Today we see slightly more chances than risks, at least half a year ahead of us to execute.
Really the big variable here is you execute like you have over H1 and H2. I think earlier in the call someone was inferring $300 million of cash flow. It isn't that is an impossible number. It's just a case of you need to get through it, you need to get through the court. That's the last, sorry. Okay, that makes sense.
It almost leads to the second part question on slide 21. You're very kind in giving us a bridge, the 4.1% to the 8% margin target. You look at those variables and you go better execution, growing service, additional volumes. The service margins have seen sizable improvement. You're highlighting that Germany has a good intake path ahead of it, and I think that we'll have to see with the U.S., but there's a possibility on that side. You're executing very well over this half. The hope is that it comes continual momentum going forward. What's effectively holding you back from that 8% margin target next year? Is it purely just the reason that when we ask this question, is it possible to hit the 8% margin next year? Is it that you just want to be conservative on the execution until you get everything perfectly humming correctly?
I think your order intake in the first half is what, four and a half gigs? Is 9 GW unrealistic this year? Or is there some timing in the order intake that we need to take into account? Obviously you have more visibility to your pipeline than we do.
Yeah. How can I say it without guiding you? I think all things being equal, if we improve the order intake of last year, which we think can be done, then the additional volume that is needed in this bridge might come next year. If the other three building blocks remain true, which is no hiccups or massive disruptions, your assumption or your math might be doable. We are in July, the budget we are after summer break, we will start planning for next year. Budget will be approved in December and guidance for next year will be issued in February.
I mean we still have a journey to go, but everything looks good.
Okay. Thank you very much, fellas.
The next question comes from the line of Sean McLoughlin from HSBC. Please go ahead.
Thank you.
Good afternoon. My first question is on the gross margin. Just thinking about the 500 basis points, year-on-year gap.
Can you talk about effectively what is driving that? Is that execution, mix, all of the above, and maybe thinking about the second half, any reason why this gross margin strength should not continue? Maybe any puts and takes you expect on the gross margin in the second half.
That's my first question.
Yeah, I mean, let's do this together. I think gross margin is of course a very relevant KPI, but it doesn't reflect the profitability of the project because, you know, it changes a lot depending on your make or buy strategy, your project portfolio, location, and so on. Basically, the make or buy might affect your peaks or valleys in gross margin, but the trend is an indicator. If you take a last 12 months trend and you combine it a little bit with the last 12 months make or buy strategy, especially in blade, then you can forecast as well the profitability. Reconcile that with the profitability improvement. Taking the service business aside, those are the building blocks.
I think you describe also the imperfections of that KPI, which is why we keep going back to the EBITDA as a portability measure. I would repeat our message: slowly but steadily increase in both Qo Q in absolute numbers of EBITDA and gross margin percentage on the EBITDA level. I think that is the more accurate one. Of course, that profit goes in line with it. If it's a wider commercial question, I would subscribe to José Luis. It's a trend that we will see to continue, especially when we look at the EBITDA level.
That's very clear. Thank you. I just wanted to dig in also to a point you made about Latin America. You're talking about varying degrees of success across markets. I mean, how much of this is due to competition from China and how much is potentially company or country specific? Thank you.
I would say we respect a lot our Chinese competitors, of course, great companies. I think there are, and the rest of our competitors, of course. I think the company in Germany and in Europe in general has a very good positioning in the marketplace. Reliable products, reliable execution, quality under control. We are very, very competitive. In Canada and the U.S., unfortunately we are not in that situation because it took us some time to solve our legacy issues there. We might be slightly late compared to the market leader and the other market leader in the market, a market participant. Latin America is very difficult because of the low electricity prices. We suffer more in Latin America because it's more easy to change permits, it's easier to execute. You don't have the restriction of roads, permits, noise, high sophisticated machines that are needed to play a role.
In Europe you have more big utilities that do balance sheet that do not require project finance. Project finance, of course, we need to have a service solution for 20, 25 years, proven track record in the marketplace. I would say Europe is more difficult to lose that market position compared to other geographies. Perfectly.
Thank you.
We now have a question from the line of Vivek Midha from Citigroup. Please go ahead.
Thank you very much. Good afternoon, can you hear me now?
Yes.
Fantastic.
Many apologies for the technical issues earlier. My first question is just for some follow up or clarification on some of the questions again around the legacy warranty issues. You mentioned there was a movement from provisions into liabilities. Just to check, was there any additional warranty provisions taken in the quarter? I saw in the notes, I think there's EUR 54 million of compensation taken in the quarter. Just to check, were there any additional legacy warranty provisions taken.
Thank you.
Yes, I'll take the first one. The answer to that one is yes, because the final deal with one of the large customers required us to, in that specific project, make one last step towards the customer. Despite we had seen before that was it in all provision for, we had to make this last step because that customer, again being a large global player, has, as is not unusual in the business, basically in return giving us some additional business in multiple other geographies. It's a package deal where, in this specific project, it increases but overall enhances the business. Yes, that would be reflected in that figure.
Understood, because I guess that leads into my next question, which is that that presumably would have had a P&L impact as well. There may have been some other one-off, one-time issues in the quarter, and I understand that within a project business the line between what is a one-off cost and what isn't is very blurry. It does imply that the underlying margin momentum within your performance is very good right now. Really, just from that, could you maybe clarify your comments regarding getting towards the midterm target? As we improve through the year on the margin, could we potentially be at the 8% by Q4?
Thank you.
It's too early, I would say, regarding your assessment of provisions, totally right. This is project business, but I don't expect, or we don't expect, IDI correctness. If I don't have the right understanding that those provisions or moving provisions to obligations, I don't expect more P&L impact coming from that in the future. This is done and dusted and is provided for in the numbers and in the guidance for the year. Regarding the guidance for the year, this is as far as we can go. I think we have 60% of the activity to go with risk and opportunities. We see more opportunities than risk, but 60% needs to be executed. Let's wait a little bit and see how things go in this quarter because it's a high activity quarter, and last quarter as well. This quarter is high activity in installation mainly.
Last quarter is as well, high installation, not as big as this quarter, but high activity in production. We need to see how the execution goes. With the information we have today, we see more opportunities than risk to execute the remaining of the year. Very clear.
Thank you. My final question is on working capital. The follow-up there, you have the busiest second half of the year. When I look at the balance sheet, inventories look relatively flat relative to the end of last year. If I look at contract assets from project, that looks slightly down relative to the end of last year. In terms of the ramp up of activity going into the second half of the year, perhaps those look a little bit surprising. Maybe could you just talk towards the path towards going back to the -9% of sales as we go through the second half.
Thank you.
Yeah, I think there's two things to say to that. One, when we talk about that bump up of activity, of course we're not only talking about the manufacturing, the production, or any inventory we're building up, but all the toolings, all the preparations that we need to do. I think the more relevant, I guess, response to that is that when we look at our forecasts, we clearly see that we will be returning to those - 9% or lower in the working capital ratio. We're not changing anything there. In the past, we have done consistently better than what we were saying in that guidance. This year, probably again, maybe again, but for sure we are sure that we're going to hit that number by the end of the year.
Understood. Thank you very much for your time.
The next question comes from the line of Christian Bruns from Montega AG. Please go ahead.
Yes, hello. Thank you for taking my question. I have only one left. This is on your capital allocation. You have a stronger finance profile and you said that you prefer to strengthen your business if I understood that correctly. I would like to know which part of the value chain of your business would you prioritize or prefer to strengthen, so the product production or R&D or the customer service?
The first thing is we expect growth in the business and growth means more bonds, eventually more liquidity needs in case you are achieving bond limits or so on. We don't want to be in a position to lose orders because of that. We see an important order intake momentum ahead of us, harvest that, that's foremost our first priority.
Second, we don't want to be short on cash, which, given the amount of cash we have, doesn't look that is the case in terms of CapEx needed to execute the growth expected, and those are the two main priorities that need to be dusted before and with sufficient buffers before talking about any other thing.
I think that my answer would have been all of the above with exactly two coming back to the question. Those two key items were highlighted by you, of course, acknowledging that I repeat myself, that shareholders have trusted and helped us in the past. When it comes to make those decisions, we of course take that into consideration. The core items are the two ones just mentioned, de-risking as much as we can, the full supply chain from manufacturing to execution.
And the order intake. That's the key.
Okay, thank you.
We now have a question from the line of Xin Wang from Barclays. Please go ahead.
Hi there. Thank you for taking my questions. My first one is order ASP. This has been stable despite the regional mix. Is it fair to say underlying pricing has actually worsened?
No, it's not. I think the aspect as we talk always is an indicator that the market demands from us, but doesn't reflect the profitability of the business. The profitability of the order intake is slightly improving.
Okay, do you still think the European orders, for example, are better priced than the rest of the market?
It's mainly driven by tower heights. This quarter we had a lot of order intake from Turkey where the tower is a very short tower, so ASP is lower, but profitability is super good. If you do super high towers, then the ASP goes up. This doesn't tell you what is the profitability of the project. It tells you what your TSA divided by the number of megawatts of the machine is, and this can go from 0.7 MW to 1.2 MW.
Okay, thanks very much. My next question is on interest expenses. Both P&L charge and cash payment continue to increase year-on-year and look very outsized against the size of borrowing you have on balance sheet. I think you renewed your guarantee facility in April. Should we or when can we expect lower interest expenses and payments?
Very fair question. Maybe I take 90 seconds on that one because it goes in three steps. Yes, we renewed that existing facility, and I think we've mentioned it before, it is the syndicated bond facility with a club of banks. The renewal is part of a phase out. Basically, now over the last 15- 18 months we've already started and are far advanced with the wind down of that facility. There was a remainder open under that facility. We extended it for another year, but hopefully by April or May next year we'll be done with that. In parallel, also mentioned on past calls, Acciona has in the same period come up with support for Nordex with its own bond line.
It's very similar.
Of course it's not a syndicated one, but it's very similar in terms and conditions and pricing. That is being utilized because the business continues to grow. In parallel, we're now basically partially refinancing that bond line in the market. Standalone Nordics in a bit of a different structure. The good thing about that is that now the interest costs for those bonds are substantially lower than the ones we have to pay under the previous two ones. That might not show until next year because of course these bonds then need to get into the field and it will take a bit of time. Given the profile of the company and the risk profile, those costs are coming down substantially. Now in total numbers it is going to be a bit more difficult to tell because the business is growing.
While per bond we're going to pay significantly less than we have in the past years, depending on the additional volume we need, in total numbers that might still be a higher number. Of course it would sustain a much larger volume as José Luis and others have been discussing on the call. That's the picture on the interests.
Thanks very much for the addition of color. My next question, I'm not sure if you can comment on this, but on Australia, is your comments on the market or your own pipeline. Do you expect orders from other than Acciona from the Australian market?
We do. Maybe not this year, but market definitely meter. We are fully committed in that market and optimistic about that market.
Thanks very much. That's all my questions.
Thank you.
We have a follow-up question from the line of William Mackey from Kepler Cheuvreux. Please go ahead.
Good afternoon. Thank you for taking the question again. I think perhaps this is a little unfair because it relates to external advisors' numbers, but I just wanted to touch on slide 5 and your market projections. At the end of last year in Q4, you presented a series of market projections which were aggregated from third party suppliers, and now you presented another set of projections over the next four years. If I strip out the obvious changes in the North American projections, there's still a 10% decline in 2025 and a 17% decline in 2026 in the installation forecasts for 2025 and 2026 in the six month period, which is a little counterintuitive given some of the optimistic stance we have on installations in Europe.
I guess the question is, do you recognize that that's changed in the data and what do you think has changed from third party expectations? Maybe the add on to that is when we look at the projections on that slide, the expected growth in Europe in 2028 over 2027 is like 24%, which is a big change in trend. I'm just wondering how you see that evolving and what would drive that big step up. Is it all relying on Germany?
Thank you.
Very good. I think we took external information to give you the view that the company is market leader in Europe and Europe has a growing trajectory. Without going much into the detail of the granularity of Europe, of course we saw auction volume in Germany high in 2024, in 2025 which supports installation growth in 2026 and 2027. Eventually the trend continues because Germany will not go bust, you know, will be the, I hope, will be the key European market. This will support installations as well in 2028. On top of Germany, U.K. is expected to have substantial growth. Turkey, where the company is market leader, is committing to long term ECAs. Mediterranean is delivering substantial volume. Eastern Europe, Baltics is delivering more than for us, very big volume, I mean close to the gigawatt range.
Nordics depending a lot, ups and downs, but long term is very good wind. There is land, a little bit of interconnection issues, but it's a market, you know, without entering into a specific granularity of the analysis. What we wanted to show you here is this is what external parties, how external parties see the volumes coming. We have similar view, maybe not year-on-year because we see more activity in 2026 and 2025 and as well 2027, but that details, I mean from quarter to quarter the view of these external consultants change and adapt. Spain is a good example. They were more bullish than they are now due to several court cases and grid issues. Other than that, U.S. has reduced, I mean reasons being what was commented in this call, and Italy as well and a slight reduction.
Other than that, important from our view is the trend and we see the similar trend as they see that. I mean 2028 is a little bit uncertain. We don't have such a long term view. 2026 and 2027 we see Nordex growing and it's difficult to grow increasing market share when you have the market share that we have in those markets. It means that if we see growth it's because the market is growing.
Thank you very much for the additional color, helpful.
We now have a follow-up question from the line of Anis Zgaya from ODDO BHF. Please go ahead.
Yes, thank you very much. Good afternoon.
I have only one question left.
Could you help me understand, please, why operating cash flow before working capital are significantly above EBITDA?
What are the main non-cash elements impacting EBITDA and not the operating cash flow? Thank you.
I think the question indicates that.
It's the improved operating performance of the company is the largest driver for that. Of course, some of the other elements are non-cash relevant, but the key driver for that, besides working capital. Again, I stand behind my statement that we will go back to the - 9% or lower levels. That's the key driver.
We have a follow-up question from the line of Constantin Hesse from Jefferies, please go ahead.
Sorry guys, very quick one. Call has been obviously very long, but very quick one. Just a homework question on the competition front. Anything from Siemens Gamesa or anything from any of the Chinese OEMs in Europe that you've seen, that you're currently keeping an eye on? I think Siemens Gamesa, they celebrated their first order in a long time a few months ago. Anything else that you've seen there?
No, I think, respect for, of course, our competitors. With that taking into account, we think we can improve the order intake of the previous year. I don't think we are going to, I mean, knock on wood, I don't think we are going to lose substantial market share in Europe this year compared to the previous year.
Okay, that's perfect. Lastly, on service, if you continue to install, say, 8 GW- 9GW, let's call it 8 GW first, gigawatts a year, let's say the next three years, maybe you stay stable, maybe you accelerate. Is there anything that is currently holding back the service business from being a EUR 1.5 billion top line business by the end of the decade, given the current installation rate that you're running on?
End of the decade? Maybe. Maybe slightly optimistic, but if we keep that level of installation and the renewal rate, maybe slightly aggressive, but not far away.
Yes, thank you so much.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Anja Siehler, Head of Investor Relations, for any closing remarks.
Thank you, Mathilde. Thank you everyone. As usual, I would like to hand over to José Luis for his final remarks.
Thank you very much for your time, your participation, and the questions. Let me outline our key takeaway for this quarter. First and foremost, we delivered another strong quarter in terms of order intake, and we are confident of achieving another good year with total order intake expected to be above last year's level without guiding a specific number. Second, our focus on continuing to improve our profitability levels and delivering a positive and strong sustainable free cash flow. That's the key, focusing in free cash flow. Last, not least, we are on track to achieve our guidance to deliver margin improvements, reiterating our medium term margin targets of 8%. Now looks like more close and with this. Thank you very much. Wish you wonderful rest of the day.
Ladies and gentlemen, the conference is now over. Thank you for choosing Corsco and thank you for participating in the conference. You may now disconnect your lines. Goodbye.