Ladies and gentlemen, welcome to the annual report 2021 of Nordex SE. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by the zero on your telephone for operator assistance. May I now hand you over to Felix Zander, who will lead you through this meeting today. Please go ahead, sir.
Thank you very much for the introduction. Good afternoon, ladies and gentlemen. I would like to welcome you on behalf of Nordex to our analyst and investor call today. Our CEO, José Luis Blanco, our CFO, Dr. Ilya Hartmann, and our CSO, Patxi Landa, will guide you through the presentation, sharing information about 2021 and our expectations for 2022 with you. Afterwards, as you have heard, we will open the floor for Q&A. I would like to ask you to limit yourself up to three questions. Now, I would like to hand over to our CEO, José Luis. Please go ahead.
Thank you, Felix. Good afternoon, everyone. As usual, let me start with the key highlights of our last financial year, 2021. Our final results are in line with the preliminary results that we had published on March 9. We booked sales of approximately EUR 5.4 billion, which was about 4% higher than the top end of our revenue guidance. We were able to close the year with an EBITDA margin of 1%, in line with our revised guidance, and despite all macroeconomic headwinds impacting our sector and the wider market. Our working capital was -10%, again, much better than our guidance. Ilya will talk about this later in the presentation.
We booked a 32% higher order intake in 2021, with almost 8 GW of orders on the back of a very successful Delta4000 platform. Vast majority of our new orders are consistently for the Delta platform, which also helps with our margin profile and boost profitability. Our installations continue to rise in tandem with our sales and order book growth with an annual growth of 20%. Last year, our latest turbine, N163/5.X, was awarded with the gold medal by Windpower Monthly, which one more proof of our industry-leading onshore product portfolio and our strong capabilities in research and development. Finally, let me reiterate, recent events in the Ukraine have been extremely sad. We have a team of 20 people there. We are doing our best to help them in any possible way.
Unfortunately, the conflict has really shaken the world, and will have direct and indirect effects on everyone and many industries, including wind and us. Let me cover that later in the presentation when we discuss the strategy and outlook for 2022. If we move to the next slide. As you can see, Nordex has been consistently growing for the last three years, with market share growing from around 7% to around 14% now, based on the recent Wood Mackenzie report for installations between January and November 2021. We are placed number 2 in Europe region, which is very important because it's our main region, on top of that it's the region with the best improved outlook due to the recent events, and geopolitical situation around Ukraine, and number 4 in Americas.
Our strong momentum in order intake should ensure that we will continue to grow in 2022 and keep improving our market positioning. If we move to the next slide. In operations, let me provide you with a quick overview of our operational performance in 2021. We installed more than 1,600 turbines in the year, which is 6% higher than the previous year. As we move towards larger turbines every year, this translates to 20% more installations in terms of megawatts. This year, again, majority of our installations with 58% were in Europe, with North America accounting for 23%, and the LATAM region accounting for 10% of the total installations. Rest of the world with 9%.
During the year, our nacelle production improved by 16%, of which more than half produced in Germany, with Spain being a close second. Nacelle production in India is also ramping up nicely and should increase further this year. Our in-house blade production improved by 9% with two-thirds of blades being produced in Germany and in Spain. This might change going forward as part of our footprint reconfiguration plans. With that, let me hand over to Patxi.
Thank you very much, José Luis. We closed 7.9 GW of new turbine contracts in 2021, up 32% with respect to 2020. 68% of those orders came from Europe, 31% from North and South America, and 12% from Asia Pacific. We received orders from 22 different countries, and the largest markets were Brazil, Germany, Finland, Australia, and the USA. 83% of the orders came with the Delta4000 turbines in its 4 MW, 5MW, and 6 MW configurations. ASP increased to EUR 0.72 million per MW in full year 2021, and to EUR 0.74 million per MW in Q4, up from EUR 0.70 million per MW in the same period last year.
Service sales amounted to 8.6% of group sales during 2021, with EUR 468 million, an EBIT margin of 16.6%. Fleet on the contract stands at 27 GW, with an average availability of 91.1%. The turbine order backlog grew 20% to EUR 6.2 billion at the end of 2021. Service order backlog grew 8% to EUR 3 billion for a combined order backlog of EUR 9.2 billion at the end of 2021. With this, I hand over to Ilya to go through the financials.
Thank you, Patxi, and welcome also from my side. Now let me take us through the 2021 financials, and I start with the income statement. Our sales grew by 70% to EUR 5.4 billion, basically on the back of a high level of execution, as mentioned by José Luis, and in a very tough environment. We also said that this is slightly better than the upper range of our sales guidance that we gave originally for 2021 and later. Our gross margin stood at around 15% compared to 12% last year. Please keep in mind that our gross margins in 2020 include many COVID-related costs, while our gross margins in 2021 include the impact of the extreme cost inflation and increased logistic costs, especially in the fourth quarter.
Going forward, we hope that these effects are mitigated and our gross margins will return to normalized levels in the next couple of years. We managed to achieve an EBITDA margin of around 1% in line with our revised guidance. However, as we have mentioned just a few moments ago, this was significantly impacted by the ongoing inflationary pressures and the supply chain disruptions. For comparison, let me point out that our EBITDA in the previous year included the profit on sale of our European project development pipeline to RWE, which is reflected in the other operating expense line item in 2020. Jumping to the next slide, the Q4 numbers. During that quarter, we recorded almost EUR 1.5 billion of sales, similar to the performance in Q4 2020.
However, our gross margins decreased in comparison, as we account for the extra costs, partly coming from provisions for the collapsed turbine in Germany and partly due to some cost inflation topics, as mentioned, and also LDs booked as a result of some delays. That brings me already to the balance sheet. We ended the year with a, I would say, healthy cash level of EUR 780 million. We now have a net cash position of just around EUR 420 million and an equity ratio of almost 26%. Thanks of course to the capital increase carried out in the middle of last year. As a result of this, our balance sheet is much stronger and in a much healthier state, especially when now tackling those ongoing volatilities in the sector and beyond.
During the last year, just to remind us, we reduced our current liabilities by more than EUR 600 million, repaying the Schuldscheindarlehen and canceling the state-backed RCF facility. Our immediate next payment is the high-yield bond of EUR 275 million, which is due in the first quarter next year. As I've mentioned before, in other occasions, we keep exploring our options, refinancing or repaying, subject to market conditions that can optimize our capital structure. That brings me to the working capital slide. Ratio continues to be quite tight, as José Luis mentioned, -10.2 compared to -6.3 at end of 2020. That improvement was mainly driven by reducing our inventories because of those high installations and better order intake compared to the previous year.
Overall, we have stayed clearly below our guided numbers for the current year, and we continue to expect a tighter working capital level in line with the past few years, but want to be on the side of caution. That working capital slide brings us right into the free cash flow calculation on the next slide. Those from operating activities stood at around EUR 130 million at the end of 2021, much higher than the previous year, and mainly driven, as you can see, by the further tightening of the working capital. Cash flow from investing activities, we see that later, was largely in line with our supply chain optimization program.
As a result of better working capital management and the growing operations, we ended the year with only a slightly negative free cash flow of give or take EUR 25 million compared to a negative 120 in the previous year. Finally, our cash flow from financing activities stood at around EUR 60 million, and that reflects again the aforementioned cash proceeds from the capital increase, offset by repayment of the RCF and the Schuldscheindarlehen loan/swap to equity of the shareholder loan. CapEx, next slide. Total investments, around EUR 170 million in 2021, which was similar to the spending in the last years, 2020-year period. The focus of our investments also remained pretty much the same on mostly blade production facilities in India, tooling equipment, covering our ongoing high installation activities. That brings me to our capital structure slide.
Of course, net debt ratio, EBITDA, and a net cash company is not all that purposeful, but the equity ratio is. Both of them, significant improvement also, again, because of the capital increased, and that is basically the token of the fortified balance sheet, now an equity ratio of 26%. When summarizing from a finance perspective, three messages. We finished the year largely in line with the revised guidance, and that was challenging enough. Second, we will continue to focus on risk management, margins, tighter working capital management, and preservation of cash during this year. Last but not least, we'll see this in a moment in a bit more detail, the recent unfortunate events in Ukraine have created another set of direct and indirect challenges.
We've set up a task force to identify and contain those risks, but the exact impact, and especially the indirect impacts, will be hard to ascertain today. It is another challenging year still ahead of us, and we can also expect to have a soft start into this year and a soft Q1. Much for the financials. Then there's two slides on sustainability, which plays an important role for us. It's anchored in our DNA as a wind turbine manufacturer, and of course our whole business model is based on that. We have adopted a new sustainability strategy 2025 based on a comprehensive materiality analysis and stakeholder engagement process. The core idea here is to have the topic more even more transparent, set high sustainability targets, and of course, pursue them.
Then one more slide on this, related to the EU Taxonomy, which is also, and has been a key topic for us. We are basically showing here the compliance with the new obligations under the EU Taxonomy regulation. That is basically it from my side, and I would give it back to you, José Luis.
Thank you, Ilya. We move on to the next part, strategy and outlook. As mentioned during the last quarter, the macro environment and the resultant political focus is providing the perfect background for a massive growth, the renewable sector over the medium term. We expect the long-term demand for wind onshore in the medium term if governments across the world are serious about the main two topics. First is ambition to achieve net zero status by 2050. For this to happen, the current wind market needs to be at least 3 or 4x larger than today. Second, energy security concerns. The recent, and unfortunately ongoing, war in the Ukraine puts the energy security topic right in the front and center of the European agenda. The recent paper published by EU called REPowerEU sets ambitious targets for wind.
480 GW by 2030 will mean at least 48 GW every year from the current 20 GW market today. Of course, this cannot be achieved without easing the permitting process and supporting and strengthening the local supply chain for true energy independence. However, it's a step, great step in the right direction. The effect of the two factors are already visible in a variety of forms, maturing EPC markets, repowering support from green hydrogen, EU Green Deal, et cetera. Even if these ambitious targets are half achieved, we could witness significant demand growth for the wind sector. If we move to the next slide. While the long-term outlook is great, we continue, as mentioned, to face multiple short-term challenges. First was COVID. COVID disrupted the world supply chain in 2020.
This was followed by high inflation and shipping challenges in 2021, partially as the supply chain across the world struggled to ramp up post-COVID demand slump. Unfortunately then, when things were about to be stable on a high cost level and price level, but stable, Russia invaded Ukraine last month, which has destabilized specific commodities and political agendas, especially within the European Union. As the war is still ongoing, it is difficult for us to estimate its full effect on our operations today. Nevertheless, we will try to provide you some color for your benefit. I think it might be useful to divide the impact on Nordex into two main blocks, direct impacts and indirect impacts. Let's talk first about the direct impacts. Let me note that our direct exposure to Ukraine is small.
We have a plan for roughly 280 MW of projects for revenue recognition in 2022 in Ukraine. This might not happen now, and we might lose the related margins if we are not able to replace with any other project in the region. There is very little service revenue in Ukraine, so minimum risk for our service revenue. The impact on working capital and cash balances is also small, but any write-off could affect our margins in the year. Let's talk about Russia. Russia, on the other hand, we have no direct sales, working capital or cash exposure. However, we might experience some disruption in the shipping sector as some of the Russian ships or Russian chartering agencies become unavailable and this could add cost to replace.
We also have few steel suppliers in Ukraine, which we will need to replace. This is manageable, but can lead to higher costs. Now, let us talk about the indirect impacts. What we are more concerned is in the other indirect impacts that might not be clear today. For example, general slowdown in order intake as we are facing in Q1. Further supply chain disruption, if any of our suppliers is impacted by the war directly or indirectly, this subsequently is gonna impact us. Possible delays and cancellation, but hard to estimate today. Very important, high volatility in some commodities again. Let me park this and explain this in more detail in a minute. In the end, we can only control our response to this situation.
We have immediately set up a crisis team to monitor and identify the risk and plan mitigation actions wherever possible. We are also constantly evaluating the full impact on our internal budgets and look for ways to offset these challenges. As mentioned, it's too early to comment beyond that today. With that, let me move to the next slide. Let me first note that the market has been less volatile since we reported our Q3 results. However, the situation changed since the war started. Some commodities are now showing a massive increase in pricing again. For example, steel and bunker fuel are up 20%-30% in a matter of weeks. It certainly affects everyone in the industry, and we hope that this is temporary.
Keeping this in mind, we need to wait and see where these prices settle, eventually in the long term. In the meantime, we continue to reduce our risk, wherever possible, via escalation clauses, leaner scope, back-to-back, passing on extra costs. Let me stress again that such a fast change are difficult to hedge against in the short term. Moving to the next slide and approaching the end. While we cannot control the external environment we're operating in, we certainly can control our internal environment. We are constantly evaluating our supply chain setup to ensure that it stays competitive. As part of this footprint, we have decided to discontinue our production in blade facility in Germany and nacelle facility in Spain.
This will have some impact on our margins in this year, which will be offset with potential savings over the next two to three years. With that, let me move to the guidance slide. We expect to record sales of EUR 5.4 billion-EUR 6 billion, with an EBITDA margin in the range of 1%-3.5%. As mentioned on our last call, we expect a slightly better performance than 2021, despite the cost pressures. However, our performance will be more back-ended loaded compared to last year, partially due to the back-ended loaded revenue profile and front-loaded inflationary costs and lower margin orders. We improve our working capital target slightly to -7% compared to our last year target of -6%, and we maintain the same level of CapEx guidance of EUR 180 million.
However, as mentioned this year, our guidance is subject to two topics. First, our guidance does not include any costs related to footprint reconfiguration, which I have just mentioned. As we are in discussions with works council and workers' representatives at this moment, we cannot provide an exact estimate of the cost and time for that. Second, our guidance does not include any impact from the ongoing war in Ukraine. While we do have a preliminary view on the direct impact on our sales today, we have limited view of its impact on our margins, especially any indirect impacts. We will continue to report on it and provide you with more analysis on every quarter. Moving to the last slide of the presentation.
The mid-term strategic targets, given our consistent growth in the last three years, despite the challenges, we have been able to cross our targets of reaching and maintaining sales above EUR 5 billion and capacity above 6 GW. Unfortunately, our margins have been severely impacted due to a very difficult macro environment. The war in Ukraine adds risk to our margins in the short term, but also accelerates the requirements to shift to wind energy quickly in the medium term as the solution to the energy supply risk and to reduce inflation. This has the potential to add additional momentum behind onshore wind over midterm. We believe that we can reach a normalized EBITDA margin of 8% once the macro environment has stabilized with good demand momentum and successful cost pass-through to the end customers.
With this, I will hand over to Felix for Q&A.
Thank you very much. Thank you very much, José Luis. Operator, please be so kind and open the floor for the Q&A.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial zero and one on your keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. Finally, as a matter of courtesy to the other participants, I would like to ask you to limit your number of questions to three each. Thank you, and one moment please for the first question. We have a first question. It's from Vivek Midha of Citi. The line is now open for you.
Thanks very much, everyone. Good afternoon. I had a couple of questions, just understanding the path of margins over the course of the year. Your Q4 EBITDA margins are negative, and you mentioned the provisions from turbine collapse, among other things. Could you give us as much color as you can on one-off costs in Q4 and this year, such as the burden from the turbine collapse, but also liquidated damages? Secondly, in order to understand the back-end loading that you mentioned, could you maybe quantify how burdened the EBITDA margins are likely to be in the first half? Are you likely to be breaking even on EBITDA? Thank you very much.
I'll probably take both of those. First on the Q4 EBITDA margins, Vivek, thanks for the question. The German incident on the turbine is one of the drivers, one out of three. It's LDs you mentioned, and of course, in Q4, one of the hits or a substantial one was the costs and the cost inflation that we had mentioned in our call in the fall. That was one of the key drivers for the Q4 numbers too. In terms of specific numbers, around the turbine incident, we would prefer not to be very specific here on the call because we're in ongoing negotiations with basically three entities, customers, supplier, and insurance companies in that environment.
I would say to give an idea between the cost impact or the cost increase impact on one side and the LD and the incident provisions, if you distribute this like 50/50, I think you get a good idea how Q4 was impacted. To the other questions. The other question on the profile of the year to come or this year. Yes, as José Luis mentioned, it's back end loaded. We don't guide quarters, but I think for understanding how that guidance came about, it is fair to say that Q1 and Q2 are basically, let me call it, in the family or in the same box as Q4.
Not that much because we don't have the one-off effects. We have a tick up, but basically to digest in the P&L of 2020, those orders that came into our books last Q3 or before, they will run mainly through the P&L in the first quarters of this year. Then we should see an uptick because of those two effects. One being that then again, Q4, José's talked about the price increases, healthier orders will go through the P&L. Secondly, on absolute terms, we'll also tick up unlike 2021, this year sees a more stacking up approach also in the top line. Last year, the quarters were relatively even.
This year, the expectations are a bit different, so that also will pull up, should pull up a bit in the second half of the year. Again, the start will be softer.
Understood. Thank you very much. Talk again.
The next question is by Ajay Patel of Goldman Sachs. The line is now open for you.
Good afternoon, and thank you for the presentation and taking my questions. My first question is around assumptions. We have a guidance for this year. It's still a little bit unclear to me, given how much volatility we're seeing in things, what are you assuming in terms of raw material costs within that guidance? Would it be where the situation was prior to the escalation of geopolitical risks, or is it somewhere in between? Just to give us a bit of color there. What are you expecting in regards to transport and logistics costs, and then the supply disruptions we're having assuming some normalization in the second half of the year or the current conditions staying exactly the same for the whole year?
Just trying to get a sense of where we are relative to where the world is at the moment. Then on the second part, if you could give us a bit of clarity. I noticed that when you set your objectives and targets, and then you took your medium-term targets, you used a revenue number around EUR 5 billion. I'm just wondering with the comments you made about security of supply, the scope of additional orders that could come in from Europe, why would you have a decline in revenue or decline in deliveries over the medium term? Just if you could put that context for us.
Just to slightly understand, maybe I missed the answer to this, but I know that you couldn't be specific to the incident issue cost for Q4, but just what was the one-off in its entirety for Q4 2021, so that I can think about the Q1 and Q2 picture, which you referenced quite nicely in the answer to the last question. Thank you.
Thank you for the questions. José speaking. I will take the first two questions, and then Ilya, the third one. Regarding the first question, yes, you are right. Somehow, generally speaking, we have costs of the company blocked, let's say, for the next three quarters. We always have a risk that some suppliers might not be capable to carry on, and you need to rescue. We are exposed to the volatility in order to secure capacity for Q4, which may or may not have an impact, depending if situation is gonna normalize to pre-war levels, which is the assumption of the costing of the company for Q4.
Regarding this volatility and how to deal with that in project execution, of course, is challenging, although we are entertaining discussion with customers for order intake as well. We are discussing if there are different pricing margin in order to deal with the risk, limiting the scope, giving open certain cost items and working at co-cost plus basis until we see more stability on the costing side. Regarding the strategic targets, I mean, you are right. I mean, we have exceeded two out of the three strategic targets, and we expect the volume in Europe, especially in Germany, to increase substantially versus the previous targets.
The company enjoys a healthy top two position in Europe with competitive products, very good teams, capillarity in the marketplace. If the market grows in Europe, we should grow with the market. On the other side, compared to the targets, we were counting on big volume in the U.S. that might come, but today there is no policy in place for that. Regarding strategic targets, we are, I would say, more cautious about the profitability and when we will get there.
I think once the market stabilizes. Following what the competitors are doing, there is no reason we should not be there if the competitors improve to similar to their mid-term targets on the revenue and on the capacity. I think we are very much sure that we will exceed those figures. Profitability, we will go with the market very much. I don't think there's a reason why the market should not accept higher prices and margins. I mean, it's somehow difficult to understand that a sector where from the supply side, you see shipping companies, steel companies record high profits. On the customer side, better outlook in the energy prices, and we in the middle as a sector in losses. That's not healthy, not sustainable, even from a political environment.
It should be a matter of concern if we want to decarbonize the economy and get to net zero. The society needs healthy companies for that mission. Ilya?
On the follow-up to the turbine incident, let me try to be helpful without needing to be too specific here in a public or different forum differently. I think three comments there. José is looking at you also. I think the RCA of the incident continues to progress, and I would think that we are more optimistic than maybe we were at the beginning of the incident, how the solutions might work. Secondly, to steer a bit more, we believe that with those provisions and against that first comment I made, that with the provisions we have put all together for this incident, we feel as of today and as we sit here quite comfortable.
We wouldn't today expect way more surprises that we'd have to take into the P&L this year. That's today's status. Then to give you at least a range, Ajay, on that question, let's say if you're between the LDs in that incident, think about a low- to mid-double-digit number as a package. I think that gives you an orientation.
Okay. That was really helpful on the last comment. Just make sure I understood what one comment that was made, is it that within the guidance for this year, we are assuming a normalization at least to pre-war levels, in what's driving that guidance? If the world is different to that, we have to adjust. That is at least the starting point the guidance is based off. Is that? That's clear.
Yeah.
I did get that right, yes?
Yeah. High level, let's say, I mean, without being very precise, but high level, let's say that we have secured the cost base of the company for three quarters, and the last quarter is exposed to steel prices and to shipment costs. If steel prices and shipment costs at the moment that we need to secure those contracts to deliver in the last quarter are the pre-war levels, then the guidance would not be affected. If we have a certain hit, we might put a little bit pressure towards the lower end.
Okay. Very, very clear. Thank you very much for that.
The next question is by Constantin Hesse of Jefferies. The line is now open for you.
Good afternoon, everyone. Thank you very much for taking my questions as well. My first one would be on pricing. Can you just elaborate a little bit on the price increases that you've taken? I mean, comparing that to your competition, I know that there is also a mix impact there, but if I look at Vestas, for example, year-on-year, there was an almost 20% increase, 11% for Gamesa, and you was only about 6%, and that is of course including the Australia project. Maybe if you could elaborate on that a little bit. Have you taken pricing that was actually similar to your competition or below? And is the pricing that you've taken still enough to reach the 8% EBITDA margin, assuming no change to the cost base?
That would be the first question. Thanks.
Okay. I will elaborate on the second part, and then I will hand over to Patxi for the first part. The pricing level for the 8% that is always the target. That was the case in the order intake of the last quarter of last year landed a very high cost level and with the associated price level to deliver the mid-term profitability target. This might or might not be a reality now, depending on the war impact and when and how things settling, this might or might not impact the cost. Regarding the pricing, maybe, Patxi, you can elaborate more in detail, please.
Yes, I can. It's very difficult to compare ASPs from competitor to competitor even at relative basis, you know. I come back to what we always say, you know, that the metric implies so many different variables that in absolute terms and even in relative terms, it's very difficult to extract any substance of it, you know. You mentioned the large Australian deal. That deal, which in substance is a very significant part, is almost above 10% of the total order intake of a year, so has a significant relative weight in the mix. This goes with a reduced scope. The deal we landed with the customer is that they will be taking a significant part of the scope on the construction side.
Automatically the ASP of the deal gets reduced. Automatically, given also the size, the relative size, it brings down the overall ASP of the year. Relatively speaking, with the previous year, you cannot extract many consequences. What I can say, and the important part of this is that the gross margin of the deals we sell was improving throughout 2021 and especially in Q4 2021. We had gross margin of the deals that we took improving because we continue to be very, very disciplined with the pricing. The pricing increases are similar to competitors. We are by no means taking lower increases. As a consequence, the profitability of the deals that we book is also very disciplined in that respect.
That is very helpful. Thank you very much. My second question is on the margins and basically on the guidance that you've given. You say that this is before any cost related to the footprint reconfiguration. I mean, obviously geopolitical events, who knows what might happen there, but you obviously already have kind of an idea that, the footprint reconfiguration will have an impact there. I mean, if you can't share the number, at least an estimate, can you at least give us some visibility in terms of when you might expect to have a figure?
Yeah, of course. Coming to the inevitable question and you also anticipate that there's a limit to the answer, but let me try to shine as much color as I can on this. All right. It is about the announced closure that José Luis mentioned of two factories, medium-sized steel factory in the southeast of Spain and a fairly large blade factory in the north of Germany in our Rostock hub. In the first case, we're talking about 120 employees, more or less, and in the second, direct labor of 600-650 people. That I think gives us an order of magnitude because we won't be able today to share specific numbers. Of course, we have planned for them because it's a planned event.
The number of employees involved, I think gives it a bit of an understanding how much that can be that we have to incur here in 2022, because both of them we plan to execute the closure in this year. It is always a question of perspective, but that is substantial money. If you ask me for a timeline when we can be sharing this, well, we don't want to put anybody under pressure, but it's going to take a few more weeks, maybe a few months. As soon as those concluded, we're more than happy to share the actual numbers. Don't put me under the gun for that response.
Let's say if we talk about 2-3 months having those final numbers, I think that's a good guess.
That is very helpful. Thank you very much. Then, maybe one question on obviously, the Russia-Ukraine war has led to conversations around the acceleration of the energy transition. I mean, let's just, you know, assume that if we assume that bureaucratic hurdles, such as permitting, for example, get sorted, how likely is it that we could see an acceleration in installations in the short term, given current supply chain disruptions?
I would say the sector in our assessment is running with overcapacity, and that's in our assessment one of the reasons for the low profitability of the sector. I assume that capacity is not going to be a bottleneck nor an issue. It's gonna be more permitting. If permitting gets accelerated, we as a sector, in my humble opinion, we need to be very careful to not rush in creating capacity before the demand is there, because the end result is always the same, low profits. Let's see the demand. Let's deal with the demand with the capacity available we have. Let's see if there is a good visibility to increase capacity without destroying the prices and the margins. That's our view.
José Luis, you're saying there are enough components out there to increase capacity, to increase production if we see an acceleration?
I think so.
Okay.
No, I think so. I think I mean two things which we are advocating for. We call it energy supply chain independence to support energy independence. European supply chain is relying heavily on Asia. Components are available, but supply chain is exposed to geopolitical events. Let's see if there is a European policy to value the made in Europe in order to de-risk the supply chain.
Of course, if you want to do the volume with full European supply chain, no, European supply chain is not ready because that was somehow moved to Asia during the last 15 years. In a global environment, yes, there is capacity. I don't see capacity as a risk. Although if all things materialize, it might be the case because, I mean, you have the very ambitious plans of China, you have the very ambitious plans of Europe. On top, you have the green hydrogen expected boom in demand. But all in, you know, I don't think that we should rush in creating capacity too early in advance of the demand.
Let's see the demand and let's see the prices and the margins, and then let's see how to pick up capacity.
Very helpful. Thank you very much.
The next question is by William Mackie of Kepler Cheuvreux. The line is now open for you.
Good afternoon, gentlemen, everyone. Two questions, please. The first relates to the cost inflation you're seeing across the bill of materials. Can you just scope out within the project business what proportion of your costs you see high confidence of pass-through with escalation and incorporated risk-sharing in the T's and C's? And what proportion of the cost structure, you know, you're exposed to in terms of the price inflation? That's the first question. And the second, perhaps a little more theoretical, but relating to the market conditions and the willingness of different customer groups to accept prices and changes in contract scope.
To what extent would you need to theoretically raise prices to achieve your target gross margins based on what you can see as input costs across the various key elements, either the raw materials or the towers and blades?
Two very good questions. The first one I will take, second Patxi, you help me there, or we do together. Regarding cost inflation in the bill of materials for the project business, I mean, you have, I would say three factors that, subject to discussion, are always manageable, which is general inflation, especially in some traditional inflationary markets like Brazil. That's part of the contract of the contractual arrangements. That might or might not be part of the contractual arrangements in western world, depending how outlook for inflation might be in the future and the lead times for delivering the projects. Second is bunker oil for logistics. Is indexable, clearly indexable. Steel price, more tricky, but I could even accept that could be indexable.
Very tricky because the cost structure cannot be fully replicated with the index because your cost structure depends from the price of the steel plates on a given mill and the price of processing the steel plate on a given tower processor. And those assumptions might or might not be available at the moment that you need to contract. There are several cost factors which are very difficult to index. The way to deal with those is open discussions and adjust the margin expectations to the risk that the sector is carrying. I mean, the price of a container, very difficult to index, but substantial cost impact and profitability deterioration for our industry.
Ammonia now impacted due to the Ukraine, you know, might not impact us directly, but might impact amines and other components that we need to produce resins. Competitors or, let's say, suppliers facing difficulties and threatening the system that might impact our ability to deliver, and we might need to rescue them, difficult to index. This is regarding your first question. Exact proportions, difficult to assess. You know, I cannot even give you a high level. Could be 50-50, you know, but I don't have. We can run an analysis and get back to you either directly or on our next call.
Regarding market conditions, I mean, before handing over to Patxi, the pricing of the sector is a function of a competitive dynamic among four market participants. There are price makers and price takers. In my view, the size of the market is not impacted by the price of the turbines. I mean, the forward prices for electricity post-Ukraine and pre-Ukraine, ten-year forward is a substantial increase, so there is substantial profitability there to pay the extra cost and to pay sustainable margins. If we are gonna get there and when, is a function of the commercial behavior of the four global players. Patxi, you can give more color there.
That is a very good summary because that is precisely the point that energy prices allow for increased CapEx in terms of higher turbine pricing without too much affecting demand. It's pretty inelastic in our view. With this volatility in input costs, what we are doing is a pricing strategy that takes us to the midterm profitability. This is a moving picture as also the costing base is a moving picture, and also a factor of competitors' behavior.
What we are doing on our side is what we believe is doing the right thing and keeping a very strict discipline in the pricing policy with a pass-through of the volatile costs, with the margins, on the deals that we need to get, to the midterm profitability.
I guess if there's a follow-up, I guess the question would be really, yes, of course, in the open markets, in the merchant markets, selling electricity at this price with a classic levelized cost of energy is extremely profitable. Even if we look at PPA markets, the forward prices on three year are up, you know, double. You know, customers like that can use their balance sheets, integrated utilities are able to take that opportunity and pay a higher capital cost and accept a higher levelized cost of energy. I guess my question is, which customers are really pushing back? Is it really, you know, independent project financiers or smaller projects in riskier markets? Why is there a delay in order intake? Why is the customer base deferring their order decisions?
Is it purely time delay on recalculation of internalized unlevered costs of returns? Or is it something else, such as hope that they will get a better price in the future?
On the contrary. For the most part, that is precisely that timing effect. I say on the contrary, because we even see some sophisticated players out there that are not foreseeing a drop in pricing in the coming quarters. This is not the exception, it's not the rule, but they're actually anticipating their investment decisions. We see different behaviors there. For the most part, it's a delay in the orders as we explained before, and due to that, a timing effect of recalibrating the market.
Thank you.
The next question is by Sean McLoughlin of HSBC. The line is now open for you.
Thank you. Good afternoon. A couple questions from me. Looking at India, your production levels still quite low in 2021, I assume ramping up. What are your production expectations in 2022? I mean, what kind of proportion of your deliveries will be produced in India? What impact will that have on your cost base as you go through 2022? That's my first question.
In India last year was a ramp-up year. This year is very much close to nominal speed in India. I will say out of Delta4000 we have 8 production lines in there out of let's say round about 20. That's a substantial contribution in competitive plants. The plants are progressing well. I mean, there are 50% of the molds at nominal speed as we speak. The other 4 are approaching nominal speed shortly. The cost advantage of delivering those to Europe, which is scrutinized again and again, and even after the logistics cost increases, shows advantages, of course.
Not the massive advantages we saw before, but substantial advantages, and those are factored in the guidance for this year. In terms of nacelles, we are as well ramping up, but the Indian proportion in the global proportion is lower. The cost benefits are as well important when delivering to the U.S. and to non-European markets. Delivering to Europe, there are as well some minor cost advantages. Of course not as before because of the currencies and because of the logistics increase. Nonetheless, important contribution in our bridge to the sustainable profitability.
The two messages are that the cost improvements of India and the capacity ramp up are already factored in the guidance. The numbers are checked every month, every quarter, in our allocation of capacity to factories. This is an ongoing project. We see a good contribution for blades globally, and good contribution for nacelles to U.S. and non-European markets, and some contribution as well for nacelles into European markets.
Thank you. I'm assuming that capacity ramp is complete or certainly it's included within 2022.
Yes.
Yeah.
Yes. Yes.
The, uh-
Even after the decision to close one of the European nacelle assembly plants, I mean, we plan to do in Europe more than 50% of the volume. Very much the majority of the European demand is gonna be served with European capacity in nacelles. In blades, different story because producing blades in Europe in the current political environment is very challenging.
Yeah. Can I ask a follow-up as well? Thinking about your production footprint, the two adjustments that you're making, one in Germany and one in Spain, does that effectively set you up now for reaching your midterm target?
Yes. I think with the remaining capacity after that, I would say that we still have spare capacity. I mean, the remaining capacity, you know, we're producing more than 7 GW last year. We plan to keep similar levels this year without the contribution of those plants during half a year. In a full year, the company has still capacity for this 7 GW targets.
Thank you.
As a reminder, if you want to ask a question, please press zero and one. Our next question is by Anis Zgaya of ODDO BHF. The line is now open for you.
Yes. Thank you. Good afternoon. I have mainly follow-up questions. Regarding guidance, my first question, if I understand correctly, the main risk factor on your current guidance is mainly Q4. Why is it a so wide guidance, if the main risk is only Q4? Why didn't you secure Q4 right away? My second question is on factory closing in Spain and Germany. Could you please just repeat the number of employees and the expected impact, because sorry, I didn't catch very well your answer. That's all for me, because my third question was already-
Yeah.
Thank you.
Maybe, Ilya, I'll take the first one, the guidance. I mean, the first part regarding the range, I think we are living in uncertain times. If we, if all the remaining order intake lands in time and we produce in schedule and in cost, we will deliver the upper part of the guidance. If that's not happening and we have pressure on volume or pressure on cost for the non-secure part, or pressure on cost in the secure part because the suppliers do not deliver, then this might affect the volume and the profitability. Why we didn't secure Q4? Because it was quite difficult, so the option was not in the marketplace for us other than procure the steel.
The only way that we had to de-risk the steel was buying the steel and storing the steel until the moment that the steel is needed. That had a working capital impact for us and had as well cost impact because we needed to pay for the storage costs and so on. We decided to wait to place the orders until the moment that the schedule of the projects require the orders to be put in place. That's very much the main reason.
Mm-hmm.
Regarding the other question, Ilya, please.
I'll take it. Maybe just an addition to the guidance range that, so it doesn't matter much, but I think when we compare to similar setups of competitors, I think the range we're giving is probably not wider, but to the contrary. I think the circumstances are also reflected in the ranges by the others for the reasons that José Luis gave. On your factory closing question, so what I did say is that today, unfortunately we will not be able to give a specific number. That's why I mentioned again the number of employees, to give a sense for the order of magnitude because we're negotiating on both ends, in Spain and in Germany as we speak, with the employees' representatives.
Because unfortunately, for these people, that means that their jobs in those factories end and there will be severance packages. There are negotiations. We're more than happy to share the numbers once we're done with that. I was saying that, again, we're not trying to put pressure on our counterparties. I think an estimate to in the next three months have that concluded. I think is a fair guess. Then of course, we share the specifics.
Okay. Thank you. How many employees did you just fire? I think that you mentioned the number.
Let me repeat this, give or take approximate numbers in the Spanish Nacelle plant that José Luis mentioned, 120 colleagues-
Mm-hmm.
Unfortunately affected. In Rostock, we're talking about direct labor colleagues of 600-650 people.
Okay. Thank you very much.
The next question is by William Mackie of Kepler Cheuvreux. The line is now open for you.
Thank you. Two quick follow-ups. Firstly, I guess my question is, to what extent do you think you will be able to enforce force majeure due to the Ukraine conflict to limit the impact of liquidated damages in 2022? The other follow-up relates to the U.S. market. Can you just touch on how you see the U.S. market order flow developing this year against the absence of governmental incentives?
Thank you for the questions. Patxi, you take the market, I take the force majeure. The force majeure, I think we are notifying customers that we think in our view that this is force majeure event, impossible to predict. Somehow we will further communicate with our customers the impact and entertain conversations regarding precisely that. The liquidated damages if this triggers late delivery or in some cases extra cost. Those discussions are ongoing as we speak with customers. Regarding U.S., Patxi, please.
Yes. For the most part, customers are on a wait and see mode. The expectation of the new regulation that the value provides is making them sitting in the projects for the most part. There are some activity and some deals that we are chasing and working and securing, but at a much more limited amount that we have seen in the previous years. We expect as soon as the new regulation passes, hopefully, that this situation will change. For the most part today, on a wait and see mode.
Thank you very much.
There are no further questions for the moment, and so I hand back to you.
Yeah. Thank you very much and for all the questions and the discussion. I would like to say goodbye, but before do that, I would like to hand over to José Luis Blanco for your last and final comments. The floor is yours.
Thank you very much. Thank you very much for your time, your interest, your questions. Before concluding the call, let me reiterate the key takeaways of this call. First, the ongoing war in Ukraine brings the energy security topic right at the top of the political agenda. Combined with one of the lowest cost of energy, demand for wind could experience significant tailwinds on top of the previous momentum. The market environment in the short term continues to be challenging, and within this context, Nordex is making a steady progress, as is visible from its growing market shares and growing order intake momentum, and as well, ability of the company to execute in very challenging environment. The immediate key task for us is to navigate this risk and bridge this transition period.
Over the medium term, the increased electricity prices and the potential demand improvement will help us with passing on the cost to customers and also help us to achieve our mid-term target of 8% margin in the process. Thank you very much for your time. Wish you a wonderful rest of the day.
Thank you. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.