Earnings Call: Q2 2021

Aug 12, 2021

Good afternoon, ladies and gentlemen. I would like to welcome you to our analyst and investor call about the figures of the first half of 'twenty one. Our CEO, Jose Luis Blanco our CFO, Doctor. Eger Hartmann and our CSO, Patxi Landa, will guide you through our presentation, sharing the latest developments and financials with you. Afterwards, as you have heard, there will be a Q and A session. I would like to ask you to limit yourself up to two questions. And now I would like to hand over to our CEO, Jose Luis. Please go ahead. Thank you, Feliz. Thank you, everyone, for the participation, for your time and interest. Good afternoon. Welcome, as Feliz mentioned, here with Idea Harma, CFO Patxi Landa, CSO. Agenda that we have prepared for today is a standard one. We are going to spend a little bit more time in order to talk about the recent developments in the very successful resetting of the Nordex balance sheet structure and other than that standard agenda. So with that, let's start with the executive summary. Highlights of the first half of the year. First, our order intake momentum has remained positive in the first half with 2.8 gigawatts of orders. This is a 10% increase versus the same period of last year, mainly driven as we are used to by our Delta4000 series. Our order pipeline continues to be promising, and we feel quite confident around the future volumes based on our current order discussions. Second, in terms of financial performance, we delivered almost EUR 2,700,000,000.0 in sales with an EBITDA margin of 2.5% in the first half of twenty twenty one. This performance is in line with our expectations as we have mentioned during our Q1 call. And this reflects especially a good execution by our team despite the COVID-nineteen and especially the current logistical challenges that we are facing. However, let me reiterate again that the inflationary pressure and the logistical challenges are still very much here. And in fact, it seems to have increased compared to a few months ago. But let me cover this when we discuss outlook. Last, let me also share with you some important updates from July. First '1, our finance team led by Ilya was able to complete a comprehensive financing exercise, raising EUR $586,000,000 via rights issue, increasing our warranty facility by EUR 171,000,000 and extending its maturity by one year to 2024, all in one go. In addition, we have canceled our state backed revolving credit facility of €50,000,000 upon completion of that transaction. We believe this financing package provide us a really solid financial platform to secure our future profitable growth on the back of a strong balance sheet. Furthermore, second, within July, our sales team was able to secure our largest order ever of nine twenty three megawatts with the recently listed subsidiary of our main shareholder, Akceona Energy. This order is a testament to the potential of our new turbine, Varian, the 163 5.x and adds to our already good sales coverage for 2021 and 2022. Last, in July, we finalized as well a unique strategic partnership with TPI in Mexico, where they will run our blade plan and provide blades to Nordex exclusively and at a fixed price with customary adjustment over three years. This strategic partnership will allow us to derisk our ramp up in the coming years and to focus our resources on other critical ramp up activities worldwide, India among others. Finally, to conclude the executive summary, we would like to maintain our guidance for 2021 and more on that later. With this, I would like to hand over to Patxi to talk about markets, customers and orders. Thank you very much, Jose Luis, and good afternoon. Looking at the orders, we closed 2.8 gigawatts of new turbine contracts in the first half of the year, up 10% with respect to the same period last year. 71% of those orders were closed in Europe with the largest volumes coming from Finland, Germany and Spain, and 29% of the orders coming from Latin America, mainly from Brazil. We are pleased with this solid order performance in the period and we remain confident to keep the good order momentum for the rest of the year. 82% of the orders came with Delta4000 turbines, increasing further the margin quality of the backlog. ASP remained stable at €710,000 per megawatt compared to the same period last year. Next slide, please. Service sales amounted to 8% of group sales in the first half of the year with €217,000,000 and an EBIT margin of 16.6%. Fleet on the contract stands at 25 gigawatts with an average availability of 97.2%. Next slide, please. Turbine order backlog stood at €4,800,000,000 at the end of Q2, decreasing 10% with respect to the same period last year. And service order backlog grew 7% to €2,900,000,000 for a combined order backlog of EUR 7,700,000,000.0 at the end of Q2. And with this, I hand over to Ilya. Thanks, Patxi. Yes, so good afternoon also from my side. But before going into the financial of H1, '1 more time a summary on the recent capital increase, the rights issue mentioned by Jose Ruiz was a transaction on back of a full fledged perspective and registered with the German regulators. So a process that took us basically the better of three months earlier this year concluded in July. So in the making for some time and the result was close to 600,000,000 increase in in 200,000,000, so one third of that done by the conversion of a shareholder loan from the anchor shareholder, Aktionna, and just shy of CHF 400,000,000 done by the way of cash. For example, the second largest shareholder, the Scion, Clatton, Quant Group also participated in that capital increase and unlike Akceana, of course, like everyone else in cash. Important to note is it's a package deal. We've got an extension, let's say, an expansion of the bond line of EUR170 million with that deal. We also got a Nazzurri cash facility with it. That is important because it made possible what Jose Luis mentioned is the cancellation, the early cancellation of the state guaranteed loan RCF that was provided under the COVID umbrella by the German government last year. So that has now been undone. We, in the wake of the transaction afterwards, negotiated with the full club of the bond line banks, also an extension in time, so instead of maturing in April 23, the bond line now does mature in twenty four April. The numbers in the middle, of course, are important because the ratios of this company changed substantially. I won't read you through and go through all the numbers. One may be the equity ratio of 27.3 is basically where you would see our peers as well. So that puts us right in that field. Important to note is the financial cost savings that we will have with that transaction. So that is also some tangible outcome of it. And to summarize, it is resetting from our perspective the balance sheet in one go by improving the ratios, get rid of, as I mentioned, of the RCF, of the state guaranteed loan, substantially reduce the shareholder loan, there is a remainder there, and expand our bond line in volume and time. So I think with this transaction completed, substantially reducing our interest costs, improving the liquidity, it should make us a stronger counterpart for all stakeholders, customers, suppliers, banks or, for example, rating agencies. So with that, now let's go to the financials, H1 on the next slide. Also summarizing that the first half went largely as we had expected. The same is true for the second quarter, which developed along the lines we had indicated to you in our Q1 call. COVID-nineteen impacts were less than twelve months ago, as we can see, but clearly, the effects of the pandemic are not over. Above all, in the supply chain, later on this from Jose Rizen more details. On the statements, some more details. So sales, 2,700,000,000.0 in H1, '6 '50 million above last year. EBITDA for the first half just shy of EUR 70,000,000. EBITDA margin 2.5% for the first half. Gross margin went up to 18% versus 40% compared to last year. And this the EBIT stood at minus 6% compared to minus 146% same period in the previous year. And that, of course, goes to the net profit, which then improved by, give or take, EUR 150,000,000 to last year and now stands at minus 64 for the first half. So the summary is profitability was impacted by some disruptions related to COVID and spillover effects in operations, project execution, but not more than expected. However, as Jose Luis mentioned, the cost situation overall remains pretty challenging and that clearly poses more of a risk to H2 than it had an impact in H1. On Q2, as an exception, we'll see the income statement because we're breaking here from our standards. We decided to include this time given the recent market environment and especially our transaction we just concluded. So quickly through that one, sales here stood at $1,450,000,000 compared to $1,100,000,000 last year same time. EBITDA for the quarter alone at roughly €60,000,000 after the €10,000,000 in Q1. So the EBITDA margin then developed from an 0.8% in the first quarter to 4% in Q2, which was in line with what we expected and indicated. Just as a comparison, Q2 of last year ended at minus 7.8%. Quickly, the EBITDA at €23,000,000 coming from minus 28,000,000 in Q1 and compared to the minus 123,000,000 in Q2 last year. So also unescence, in Q2 especially, profitability kicked into next year, a trend we expect to continue in the next quarters, but with all the risks that we already mentioned in the beginning and to which Jose Luis will speak in a few moments in more detail. With that, we're going to the balance sheet. With around EUR 500,000,000, we have achieved a decent cash position at the end of H1, especially when we look at the $334,000,000 last year. That, of course, is before the cash contribution of around €390,000,000 from the capital increase. That is not yet reflected because it was completed in July and will show in our Q3 financials only. We also, quick note, have been had already been improving our financing mix towards a more long term structure, non current versus our current liabilities. But again, after the capital transaction we just described, that has changed again and to better terms. Pre capital increase equity ratio was at 16.6%. And one more time, of course, that now is different going forward. With that, we jump to the net working capital. The ratio was at minus 6.5%. That is similar to the year end level, though it has gone up compared to Q1. Anyhow, it overall remains below our guided number for the current year of below minus 6%. And the key drivers was the high execution level leading to a corresponding decrease in our inventories, which then goes over and rolls over into the cash flow statement on the next slide. From operating activities, 58,000,000 at the end of the H1, increase of over last year's period that was at minus 68 And here are the key drivers were an improvement in working capital and the improved profitability in H1 this year versus last year. And I'd say the effect becomes even more visible when looking at our cash flow from operating activities before net working capital. It's been a positive €7,500,000 in H1. That number stood at actually positive €45,000,000 when looking only at Q2, while another token of the improving EBITDA trend as mentioned before. Not too much to say on cash flow for investing activities. So in summary, the free cash flow went slightly negative at the end of Q2, minus EUR10 million when compared to Q1, but that was basically driven by the slight increase in working capital Q on Q I just mentioned, and as shown on the previous slide, which is a typical trend we see during a given year. But of course, it's substantially better compared to the minus EUR137 million at the end of H1 twenty twenty. Finally, cash flow from financing activities was at around minus EUR265 million and is mainly a result of the repayments under the RCF and the EIB, because the Schuldschein, Dalian and the Schuldschein basically are leveling each other out. And also a reminder that the €390,000,000 cash portion of the capital increase is not yet reflected in this statement. This will again only happen in Q3. Investment statement, I think we can be quick, 75,000,000, nothing special to highlight. We're executing our investment program in the second quarter as planned or executed it as planned. Molds, tooling equipment, nothing special to mention there. Then the capital structure, pre capital increase, leverage ratio 0.3%, equity ratio 16.6%. But again, all these numbers now have changed with this change of the capital structure, and that is basically a bit of an outdated information, but of course, for the sake of completeness for H1. And with that, I would go back to you, Jose Luis. Thank you. Thank you very much, Gabriel. So talking about operations, I mean, outstanding performance of our team despite the COVID impacts, more in Q1, less in Q2 and the logistical challenges more in Q2 than in Q1, the company managed to increase 44% the megawatts installed in half year compared to the previous year, seven seventy five turbines installed in 21 countries versus six ten last year. Most contributors are Europe, 50 2 Percent in the risk area Europe, 19 Percent in Latin America, most of it in Brazil, a geography geography where we operate quite well, 14% North America, fifteen % Rest of the World. So execution is following up what we mentioned of derisking strategy and consolidating the activities in stable geographies during uncertainties during uncertain times. Talking about production, a 5% increase in turbines assembled, 3.1 gigawatts in the first half. Majority of those were produced in Europe, Germany and Spain. In Brazil, we produced 20 legacy products, but Brazil, as we speak, is starting to produce Delta4000 for the promising orders that we need to deliver. And very important, India, which is part of our India for Global strategy, already starting to produce Delta4000 nacelles. As we mentioned in the Q1 call, at that time, we were under lockdown. Now the situation in India is back in operation. So we are glad to see that India has already assembled Delta4000 nacelles. Talking about Blaze, eight nineteen units produced, an increase of 31% compared to the previous period of last year. Majority of this in Europe, but as well very important to and very remarkable close to 200 in Mexico in the factory that we are agreeing TPI to operate for us and very important as well to see 82 Delta4000 rotors already in India, So somehow supporting our India for Global strategy, which is crucial for the 2022 profitability. So with some delays, I'm happy to see India back in operation. Outsourced plate units, 1,200 in the first half. With this, we move to the next slide, moving to our guidance. We maintain our guidance for the year on the back of a good operational performance in Q2. As highlighted before, we were expecting a steady ramp up in our performance through the quarters in 2021, and performance in Q2 has been in line with that expectation. In addition, our overall order intake led by Delta4000 series has remained quite positive. Despite the market volatilities, we are also pleased to report that our comprehensive company program is progressing well. For the rest of the year, we are quite optimistic about the volumes, given our performance in the first half. Margins, however, are obviously under more pressures in the current environment. As we have mentioned before, and as it is apparent to everyone on the call, the industry is facing unusually high level of volatility and cost pressures amplified by COVID, and we are also not immune to this. We are part of the industry. Our assumptions, therefore, continue to be subject to greater uncertainties than usual, including certain layers of risk, which we don't know today how they will play out, but which could potentially affect our business performance. To highlight a few of those, there might be extraordinary volatility within commodity and logistic markets. We see commodities easing, but we see logistics still unstable. New waves of COVID causing further repercussions for commodity and logistics. We are glad to see India back in operation, but we start to see issues in other countries like Biknan that might if that continues, might affect us. So far, no. In case of such impacts causing delays, there could be a potential extra cost and as you know, LDs to be discussed with customers. These type of circumstances are not foreseen today, but are tangible profitability and so pose high risk, particularly in short term. We are taking steps to offset those developments to the extent we can, also by accelerating our comprehensive company program, reshaping supply chain to the extent we can. And eventually, the degree to which those risks materialize and how successful we are mitigation actions could be, we'll decide where our final profitability will land within the guidance within the guided range. The medium term, however, the industry will need to pass on those costs to customers and consumers. If and how this will work should become clearer in the next couple of months, but we remain positive given the very low cost of energy of wind onshore. So we don't think the size of the market will be impacted by the fact that the supply chain has higher cost and as a consequence turbine's higher prices. Moving to the last slide of this block, strategic targets. Same comments before essentially apply here to our strategic targets. We remain committed to our targets and continue to focus on our supply chain initiatives and looking to maintain our strong order intake momentum. And with this, I will hand over to Feliz for and to you for Q and A, and I will be back to you answering questions and for closing. Thank you very much. And now the floor is open for Q and A. Thank you. Then we will now begin the question and answer session. If you have a question for our speakers, please dial 01 on your telephone keypad now sent to the queue. Once your name has been announced, you can ask a question. If you find your question is answered before your turn to speak, you can dial 02 to answer your question. If you are using speaker equipment today, please lift your handset before making your selection. One moment, please, for the first question. We've received the first question. It is from Constantine Messer of Jefferies. The line is now open. Please go ahead. Hi there. Good afternoon. Can you hear me? Yes. We hear you, Constantin. Fantastic. Hi there. Good afternoon. Thank you very much for taking my questions, and congrats for the results today. Very quick question on the order intake and ASP. So ASP in q two actually came down. So I just wanted to understand the dynamics there a little bit in terms if you took any pure price or if you increased pure prices already in Q2 and what were kind of the main drivers behind the ASP decline? That's the first question. Santini, this is Patxi speaking. I will take this one. We have discussed over a number of quarters the variables that are impacting actually ASP as a KPI, geographical scope, turbine type, scope of the of the contract that can sometimes mislead if you follow the number per se. We had, specifically speaking, the same ASP in h one twenty twenty when compared to H1 twenty twenty one. However, the underlying facts are very different. Starting by the composition of the scope, we had a significant number of less turnkey projects in 'twenty one versus 2020. On the other side, we have a number of significant larger proportion of orders coming from Brazil, which inherently has a lesser ASP when compared to European countries or other markets. And importantly as well, the average rating of the turbines that we sold in 2021 versus 2020 was significantly higher, around 10% higher on average. So when you consider all of those factors, despite the ASP number being equal, the fact of the matter is that prices are increasing. And and and as a consequence, this is always a situation that happens when you are comparing ASP, as a KPI. On a like for like comparison, when you take same product in the with the same scope in the same market, prices are increasing with respect, to the previous quarters. Okay. Patchin, that's amazing. Can I just ask in terms of the magnitude of the increase, low single digit? This is it changes well, you have to take here a short term view or a midterm view. Short term, the discussions that we are having with the customers have less flexibility if you want it and are more complicated. And as a consequence, we are having increases that vary from contract to contract, from customer to customer, and from market to market. Mid term, there is more flexibility also for our customers to readjust and for the market to reset. And as a consequence, price is changing differently. But this is very much on a contract by contract, customer by customer driven. Okay. That's perfect. Thank you. And, second question, just in terms of visibility into '22, if you can update us there in terms of what was so I think that in q one, you said '24 you had about 25% visibility. What is the case today? It's increasing because we we did put 1.6 additional gigawatts with the the vast majority of those orders are 2022 p and l impact. And as a consequence, it's it's increasing, the number of the visibility of the backlog as as we see today for 2022 p and l. Yeah. So over 30%, closer to 40? Or Yes. Closer to 40%. But if I can if I can complement Pachi here, remember in the q one call that we announced that we were going to follow competitors and talking to customers to adjust the pricing to the cost. At that time, we were more uncertain if this could affect demand. One quarter later, we are optimistic because customers understand the situation, and we don't see any structural long term impact for our business. Of course, short term, we need to deal with it and we need to decide who takes part of the hit, customers, suppliers, ourselves. So short term adaptation, long term, no structural change in the market in our view to adjust pricing to the new costing situation of the market. Thank you very much. Can I just ask one third sorry, one last one very quickly? So just in terms of the dynamics in Q3 and Q4. So q three and q four tend to be stronger quarters for you. And, so just trying to figure out. So if the volumes go up, pricing is okay. In terms of the profitability, so to reach the midpoint of your guidance, you would have to deliver another about a hundred and 60,000,000 EBITDA. So let's just divide it by $280,000,000 or 70 to 80,000,000 to deliver that. So on higher volumes, that should I mean, it looks like it is realistic given that in given that in q two, you already delivered 60. But so maybe just in terms of the headwind here, so the logistics costs, are you expecting them to be much higher relative to q two? Let me elaborate here, we do together with Ilya. I think the profitability in the second half doesn't rely on order intake. I mean, very much, we are executing the backlog in the second half. And the cost the headwinds we have are mainly on the cost side. On the revenue side, we are more optimistic. But situations might change if circumstances change dramatically with hard lockdowns again. But on the revenue, we are confident by executing backlog on the profitability, as mentioned, additional headwinds and a lot of negotiations ongoing with customers about liquidated damages with suppliers. So we think we can land within the guidance, but subject to more uncertainties. But long history short, more pressure on the profitability than on the revenue because it's an execution challenge what we have in second half. It's not a market order intake driven dynamic. And maybe, Elias, you can complement here. Yes. So the rationale was given just to complement on the arithmetic. Konstantin, you're not off. Obviously, we've been saying in the Q1 call that we expect Q2 to be substantially better than Q1, and it was. We also said that for Q3, Q4, we expect that to continue closer to the striking distance of our next year's target. That has not structurally changed. Now we'll be as close to the striking distance we thought last time. That is difficult and maybe more challenging because of the reasons that, Josefis just described. But clearly, again, Q3 and Q4, we see stronger than the Q2. Yeah. Okay. That is perfect. So if everything goes right, the top end of the guidance is still well, maybe maybe not the top end, but mid to mid to top end is definitely still achievable? That's not our qualification. In the revenue, we see more than that more that. On the margin, we see, I mean, it's difficult to quantify, but we see more pressure from the cost side. Okay. So that might be more towards towards the the lower part. Okay, great. Thank you very much. Thank you. The next question is from Sebastian Grover, Commerzbank. Please go ahead. Your line is now open. Good afternoon. Thanks for taking my questions. Hi, everybody. First, I want also to be a bit around the guidance and more about the mix part. I think you elaborated on the point that there's a greater headwind from the logistics side in the second half compared to the first half. So I would be interested in what the current share of the Delta4000 is in terms of contribution. I think you had more than 50% in the first quarter. Where has that ended in the second quarter? And where see that going in the second half. So the background of the question clearly is, to simplify things a bit eventually, provided that the volume comes in as expected or they hoped for, so ideally even a bit better than the top end of the range, would be the higher Delta4000 tailwind ultimately offset the cost inflation in logistics? Is that a fair assumption in a way? So let's start there, please. Thank you, Sebastian, for the question. I mean, the share of Delta4000 was the plan. So we were planning a year on a quarterly distribution that we haven't commented, but we were planning profitability improvement quarter on quarter in 2021, driven by a bigger share of more profitable backlog driven by Delta4000, less legacy products, less infancy mistakes in Delta 4,000, let's say, launching products. So that was the planning, and nothing has changed. In the second half, we are executing to that plan. Of course, the majority is Delta4000, very few legacy products. And the projects that were problematic are very much approaching to an end. On top of this previous planning, what we are facing now is unexpected additional headwinds driven by commodity spikes and especially logistic extra cost. The commodities looks like somehow are stabilizing. The logistic is still uncertain. In parallel, we are discussing with customers adjusting the price, but this is more for future business for new order intake for 2022 P and L. So the adjustment from the pricing point of view to the execution in the second half is very limited. And we need to contract these extra cost increases by negotiating with customers, let's say, force majeure claims and putting more pressure on the company transformation program to bring us more savings to land the year within the guidance. I don't know if this answered your question, Sebastian. To the most part, it does. Clearly, we have seen already 80% of Delta4000, the order intake in the year 2020. We have now reached, it seems like a top at about 80%. My question would simply be where might we land? So are we talking 67% contribution overall in 2021 and then 80% is what might be then on the cards for 2022 or so? Or how should we think about that? Slightly more than 60% and moving towards the 80%, which is the share of the order intake for next year. Which, if I may complement, clearly shows the trend we're seeing on improving margins, but not going as far as a foregone conclusion offsetting all the other effects that Josefis was mentioning before. So there is not a direct relation to that because one effect is coming as a headwind, the other one is that the trend is going as we expected when it comes to the better margin projects from newer technology. Yeah. Okay. Makes sense. Then let's shift quickly to operations and talk about Brazil. One of your competitors is obviously struggling heavily in the country and irrespective of initially what has been a too low pricing when going into that market with the new turbine? How do you view the situation related to the raw materials, in particular, in Brazil? And yes, I'm asking the question, obviously, because it's about 10% or so of your total deliveries. So that would be interesting. Well, thank you, Sebastian. We are facing inflationary pressure on Brazil. I think we just finished a couple of months ago one of the largest projects in Latin America The Americas or I would say even in The Americas, close to one gigawatt in two phases with concrete tower technology. So we have execution capability in that country, and we have a robust execution capability with concrete tower technology, which somehow has a completely different advantage in this case of inflationary still cost pressure worldwide and especially in Brazil. So to your question, yes, there are cost increases in Brazil, not only steel. We are confident to execute our backlog profitably in Brazil, and we are confident to operate in that market. And we plan to sell because we have a temporary competitive advantage in concrete tower markets. Brazil is one example. South Africa could be another example compared to steel, and we need to take advantage of that to profitably gain market share in those markets. Okay. Sounds encouraging. And the last one is for me on The U. S. Market and a bit around the outlook. We haven't seen any orders coming through in the first half. I think every customer is eagerly waiting for more clarity around potential PTC design under the Biden administration. What's your thoughts around that? What are you seeing? What is really holding customers back? And then related to it and going also back to the capital raise, I think you mentioned around the capital increase that you were seeing the greatest potential going forward in The U. Market. For that reason, yes, it would be super helpful, I think, to just get some high level thoughts around what you are attaching in terms of expectations to that very market and what they are based on in terms of specific customer discussions, etcetera? Thanks, Sebastian. This is Patxi speaking. It's precisely as I said, short term situation is on wait and see mode. When regulation gets some clarity, I believe that decisions investment decisions will be taken and the rhythm in the market will come back. We see a market that is in a wait and see mode. This will affect as well. The U. S. Was our biggest single market over the last two years, and it will not be this year. But despite that, it's not affecting the overall performance. And despite these slower than relatively speaking, performance in The U. S, we see overall that the order momentum will continue with better performance than expected in other markets. And then to your to the second part of your question, certainly, when the market comes back, the potential for us in the new setup of the company is there for us to increase the market share in The U. S, relatively speaking to competitors. The setup of the supply chain with very competitive blade production in Mexico and a very competitive product setting for The U. S. Market conditions makes us believe that we will have an edge. And given that situation and with the new reinforced balance sheet, we believe and the target is to gain a market share, relatively speaking, in that market. Yes. And very quick follow-up on this one. The 10% share that you had there in the market, where do you think that can realistically go to? That is, of course, we will ambition a greater than that. That is relatively to be seen when the new regulation kicks in place. We understand the size of the volume. We understand the relative dynamics. But for sure, we are targeting higher than that market share for The U. S. Market. Maybe you can sorry, Sebastian, I cut you off. No, no, sorry. You first. I mean that was, as you mentioned, a critical part of the thought process to completely reset the balance sheet of the company. We were very successful in market share order intake in Europe, thanks to good customers, good capillarity in the sales force, very good product fit and supply chain configuration for that product fit. We prepare the supply chain configuration for being in that very same position in The U. S. But if you analyze our market share on order intake in U. S. And Europe, you see the potential gap. So where we should be landing to be seen. But if the product is good in Europe, the product is good in The U. S, our customers are really, really interested in our product. Our supply chain configuration is at par with best in class to be competitive in certain areas of The U. S. Market, in the areas with bigger expected volume. And it was always a risk factor, our balance sheet structure, which now we completely reset. So we should do better there. Sounds good. There. The next question is from George Pedersen, Bank of America. Hi. Good afternoon, and thanks for taking my questions. My first one would be that in the pricing conversations you're having with customers, do you feel the relative competitiveness of the Delta 4,000 turbine is helping you gain traction on on price? Yes. Generally speaking, yes. Tough conversation short term, as I was saying before, on a case by case basis, but certainly, Delta four thousand competitiveness helps relatively speaking in those conversations. Yes. Okay. Great. And then, just coming back to the cost inflation you've talked about. Firstly, could you help us understand exactly what has got worse in q one? It sounds, based on what you said already, it's more logistics than raw materials anyway. And then also related to this, I know Jose Luis just touched upon this on the concrete towers messaging, but it sounds as though the impact in general from raw material inflation on Nordex has been a lot better than it has been peers. So I'd just like to try and understand exactly why that might be and whether or not there's anything different that you're doing to mitigate the impact. I will say we suffer. I mean, at the end, the steel index is public. You see it in the London Exchange. I mean, it has increased copper when to a rally, aluminum, resins. So we suffer cost from the product cost. Regarding about product cost, I mean, is a natural, let's say, contract in place at certain contract price. And when the new costs kick in and the new price associated with the new costs kick in, then is where you might have a timing gap to adjust. Concrete was important because it's a big part of the portfolio of what we do, and that has is less sensitive to steel price increase. And that help us to eventually safeguard profitability and eventually improve market share. And logistics has been quite unpredictable and quite volatile. For us, it looks like it's for the whole industry. So we are in continuous negotiations and discussions with customers, suppliers. We think that the current situation structurally should not be sustainable because such kind of cost increases should attract more investment to the sector, to new vessels. And in parallel, we are discussing with customers midterm to pass those cost increases to the customers. So very much the same dynamic we heard that some of our competitors mentioned, to which extent we are more or less affected. I mean, it very much depends where your supply chain is located, where your markets are located and where you are hitting hard. I cannot comment on our competitors, but the recent call, I mean, is relevant, of course, but I mean, it's not a new business. I mean, it's a business with temporary impacts in logistics, similar to the ones we are facing. That's super helpful. One final one for me then, if possible. On the Service business, the growth in orders and revenues seems to be lagging peers. It's a little bit surprising given the turbine installation growth that you've had over the last twelve months. Can you help us understand why this is the case? And what the outlook is for the Service business that you've embedded in both the 2021 guide and the 2022 targets? The outlook is to go from a growth perspective is to be in a low double digits or under 10%. It's true that we are lagging over the last two quarters. It was close to 9% and now close to 8%, but the outlook is so what we're aiming for is a 10 increase. And this has to do with some of rates as well from some of the contracts or large contracts that have expired in a quarter or not. So the aspiration is go back to low double digit growth for that segment. Okay, great. Thank you very much. Thank you. The next question is from Vivek Mehta, Citi. Please go ahead. Thanks very much, everyone. Thanks very for taking my questions. So can I just firstly, quickly follow-up on the questions on pricing? You said that customers understand the need to pass on prices. How do you judge competitive dynamics in terms of raising prices? Are you comfortable with the pass through of costs you're seeing from competitors as well? And secondly, if you could just help us on your hedging policy on steel costs, maybe how much of your backlog for 2022 delivery that you see you hedged for the ones which do have the steel towers, for example, or your 2022 expected volumes? Thank you. With respect to the first question, as I said, the variety of cases, the shorter term, the more limitations and the and the more inflexibility there is for absorbing the the impact, the cost impact, midterm to long term, we see much better chances to pass through the cost. So as I said before, very different situation from customer to customer and from contract to contract. Regarding the hedging, elaborate together with Ilya. I mean, our way to work is in the moment we receive the notice to proceed from the customer, try to lock and buy the steel towers. And this is very much the case. There are other portions because we don't want to bank still in advance and compromise working capital versus profitability, although we are having those discussions. We have index clause in some contracts to protect these cost increases, but we need to manage that very carefully because that might be counterproductive because it's very difficult cost that doesn't necessarily replicate an index. Unfortunately, are certain areas of the scope that you cannot hedge short term. I mean, you cannot hedge today the logistic cost of a vessel one year from now. So there is an exposure part of that of the 2022. What we are following that is taking some cost reserves in our project cost calculation, in some cases discussing with customers eliminating the logistic scope as we have managed in several part of backlog is without that logistic scope, which is great for us in these circumstances. And those discussions we entertain in a daily, in a daily basis with our, customers. So it's a combination of everything. Somebody from something from the pricing, something from the cost, something from the scope, and some parties on hedge. And That's helpful. Can I just Go ahead? To to clarify. Thank you. So you said you try and lock in, buy steel towers. So in terms of, say, like, a residual on on the steel, which you you can't hedge or, you know, it's too expensive to hedge, is there anything material on that that you're saying? Not that I know of. I mean, materially, things I think what concern us most now is how long it's gonna take for the logistic to stabilize, how long it's gonna take for us to adjust the logistic cost to the new contracts, how long it's going to take the market to build more capacity because the prices on the logistic now are very looks like are quite very profitable now looking at the logistic company profitability. So if capital is work, capacity should increase and the cost increases with customers are ongoing. So structurally, I don't see a risk. I mean, I see a temporary adaptation, new price to the new cost, and I see capacity in the making, in the seeking of high profitability logistic business today. So structurally, I don't see a threat for our business. That's helpful. Thank you very much. Thank you. The next question is from Sean McLaughlin, HSBC. Please go ahead. Your line is now open. Thank you. I had a question around Aciona and Yoshiya. Can you talk through how your relationship is different now that it is an independently listed company? What share of their wind projects are you targeting, and what kind of level of volumes would you expect from Axione going forward? I think I mean, we can comment what they commented in the IPO. I think Axione Energia, we do business in hour's length, pure competitive basis in the past and now and in the future. So from that standpoint of view, nothing has changed. So far, we managed to supply turbines 100% of the wind projects that they did the last, I would say, close to ten years, if I'm not mistaken, roundabout, at least since I'm first with wind power now with Nordisk, to my knowledge, they procure all the turbines from us because we managed to give them competitive market solutions. Our wish and hope is to remain being a competitive solution for them as well as for many other customers. And our wish is that after their equity increase, they announced that they plan accelerated growth. So that will translate for potential more orders for us. And in fact, this big deal in McIntyre is a good testament of that. Regarding the weight of ACCIONA Energy in the portfolio of customers, it's not the main customers. It's among it can change from being top five to being in the top 10. So it's a very, very relevant key account on top of being a very loyal and stable long term shareholder for the company. But from a customer point of view, relevant customer, I will say I will qualify less than 10% on the last twelve average, less last ten five years, less than ten percent of the market share, for sure. That's really helpful. A follow-up just on a previous question regarding logistics, because I understand the McIntyre project as well is also ex logistics. Could you talk maybe about the profitability of leaving out logistics? Are you actually seeing potentially better margins on, let's say, supply only contracts? No. No. It's similar profitability with logistics and without logistics. So I mean, we lose a lot of ASP, which is always difficult to explain to you. But of course, the customer that is willing to take that scope, they need to take some margin out of the scope as well. So our profitability doesn't change regardless the scope. Thank you. The next question is from Rajesh Singhla, Societe Generale. Your line is now open. Please go ahead. Yes. Hi. Thanks for taking my question. Just one question on your discussion. Earlier, you mentioned that you are in discussion with customers on liquidity damages. So can you please elaborate a bit more on that? Like what exactly what kind of liquidated damages you are seeing, which might hit P and L in the second half? And whether those charges are already in your guidance or not? First, we have something in the forecast, yes, in the guidance, what our view is of how the liquidated damages might look like. And this is one of the reasons why broad range being in August. The kind of liquidated damages is very much delayed, delayed delivery liquidated damages. We are claiming force majeure in several COVID related events, lockdowns in several factories, lockdowns in ports. To the extent we succeed or not or customers are willing to accept those claims, we will land more to the right or more to the left in the profitability. Okay. Thank you very much. Thank you very And we cannot be more precise because these discussions are ongoing. I mean and I fear those discussions are going to be ongoing until the closure of the projects, more than likely close to the end of the year. And even in some cases, projects might contractual negotiations of those projects might very well extend to the beginning of next year. So those damages are already, as you mentioned, so they are already in the guidance range. And also, can you please let me know that whether you how much so you will pay those damages? Or do you receive as well some of these damages from your vendors? Because they might also be facing some delays. And what kind of size of these damages would be which are already there in your guidance and what could be outside your guidance? Mhmm. I mean, like the abnormal process, we have risk and chances in our revenue and our cost, as a consequence, in our profitability. So we have risk and chances regarding the damages that we are paying to the customers. We have formed our view, and we have considered our view in the guidance. And the same applies to suppliers. The contract claim to suppliers are as well considered in the guidance. Of course, the magnitude of the contract claim to the suppliers are by far less than the claims in discussion with the customers. But our current view from both sides, from customers, our suppliers are considering the guidance. And to the extent we succeed, in our view, we will deliver a little bit more central or more towards the lower end of the profitability. On the revenue, we are more comfortable. Okay. Maybe a follow-up question on your guidance. So it seems like you are sounding a bit more comfortable with the with the lower end or between the lower end or the mid midrange of your margin guidance. There is it you sound you're sounding more comfortable in that particular area. So any any other risk which you think can push your profitability outside of your guidance range, like below the low end of your guidance range? To you know, this is improvising a little bit. The only thing I can think of is something unpredictable today. I mean, today, the the world is in the vaccination campaign. Sites are operating. Factories are operating. We don't see any we don't see any hard lockdown in any of the geographies that we operate. If that situation changes, of course, we need to reassess and properly deal with that. What we know today is discussion about LDs. We are counting on our outstanding operational performance in the second half, same way we did in the second quarter. This might be affected by a new COVID outbreak, which we are not planning. The LD discussions, the logistical interruption in ports that are somehow unpredictable. So I will say outside that, major interruption in ports or major outbreaks, major lockdowns due to COVID outbreaks is what somehow could could but as I mentioned, hard to hard to be more precise in in this current environment. But then to complement that, let's after all, with all these special facts, let's not forget that we are in the project business. Yes. I mean, this is the nature of this business, executing large projects, and things can happen. So there's always that like in any other year as well. So that's an unknown built in into what we do for a living. Right. So so maybe just to just to clarify on that. So assuming whatever visibility you have or whatever the known factors you know today, you you are comfortable with the midpoint of the guidance range or maybe a little bit lower than the midpoint of your margin guidance range for 2021? And will there be any spillover effect on 2022 strategic goal as well where we are looking for a big jump in your EBITDA margin to 8%? I think the contribution to the EBITDA margin 2022 is mainly driven by the impact of India for Global, so having or Asia for Global, having more competitive supply chain to deliver the volume. This project, I'm glad that it's back running at least with delays because we were facing outbreaks in India. We were stopped for several time. As well, the 2022 profitability had certain assumptions in profitability of the order intake. And as Patsy mentioned, good discussions with customers, but eventually some temporary impacts in the price adaptation to the new cost situation. But our current view on that, and we will be more I will say, we will be more firm in the next analyst call because we are in the middle of a bottom up planning for the budget. But our view today is that we are not discussing the if, we are discussing eventually the when to land that profitability. So it might be delayed in a couple of months, but we don't see any structural change why the company should not deliver meter that profitability. Okay. Thank you. Thank you very much, sir. Okay. Thank you. Felix speaking. I think this closes our Q and A session. Thank you very much for participating in the call. And as you all know, I'd like to hand over for the final remarks to our CEO, Jose Luis, and I wish you a wonderful afternoon. Thank you. Thank you very much, Felix. This meeting was a little bit atypical. So I'm going to put the lights now onto the financial team and onto the CEO before the final remarks, so they can share with you a last, let's say, key takeaways of the outstanding job that our financial team has done in the last quarter to reset and reposition the company. Yes. Thank you, Jose Luis, and I think you're saying it. I mean, this goes to the team because there's always a lot of very knowledgeable and proficient people that really doing the heavy lifting on those transactions, and it's just for me here to represent it. Maybe three things come to mind then. On the risk of repeating myself, I think first that this first half year has developed as expected, which is good, the second quarter showing improved business development and is reflected in both in strong sales and increased margins. However, the pandemic is not over. So for us the direct effects today such as site closures have been decreasing. But as we said several times, the overall cost situation remains challenging, commodity sharp shipping, port situation. So I think we've talked about that. That's how we would see the business. So second for now after the transaction is before getting into the nuts and bolts of what we do, which is focus on strict budget discipline in all areas of the business and again accelerate our comprehensive company program. This program is working well so far and has given us optimism, but delivering on it is going to be crucial for our overall delivery. And then to your point quickly, yes, we believe that with the help of the capital increase we have fortified the capital structure, secure and further improve the volumes and revenues with our partners, three sixty, and just taking the opportunity to thank our investors for their trust in us during that transaction. Great. So thank you very much, Ilya. So to finalize key takeaways on behalf of myself and my colleagues. So EBITA margin expected to improve further in the second half, in line with positive business development. Order intake expected to remain strong with continuously high share of Delta4000 product variants of the series. Mentioned during the call, volatility and inflation in commodities and logistic costs getting more challenging compared to the first quarter of the year. Consequently, working on price improvements with some first successful steps to support 2021 and 2022 performance, mostly 2022 from the pricing side. Situation in India, as mentioned, is under control despite some delays due to the previously commented COVID disruption. And last, guidance for the financial year, maintain. So thank you very much for your time, and wish you a wonderful rest of the day. Thank you. Thank you.