Dear ladies and gentlemen, welcome to the conference call 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 the star key followed by zero on your telephone for operator assistance. May I hand you over to Felix Zander, who will start the meeting today. Please go ahead.
Thank you very much for the introduction. Good morning, ladies and gentlemen. I would like to welcome you on behalf of Nordex to our analyst and investor call this morning related to the news of yesterday evening. Our CEO, José Luis Blanco, and our CFO, Dr. Ilya Hartmann, will share additional information with you. After the presentation, we will open the floor as you have heard for Q&A. Please limit yourself up to two questions. Now I would like to hand over to you, José Luis. Please go ahead, sir.
Thank you very much, Felix. Thank you, everyone, for participating in the call. The idea of this call was twofold. First, to give you an update on the cybersecurity incident, and second, to update our guidance for this year based on the visibility that we have today on the emerging extra costs from the macro headwinds. Please keep in mind always that is based on our best estimates in current environment. Let me first start by giving you an update on the cybersecurity incident that we encountered in late March 2022. Thankfully, our IT team detected the intrusion in an early stage and shut down all the systems immediately as a precautionary measure. Since then, they have been working around the clock to cleanse the system and restore its full functionality.
This also had an impact on our accounting and controlling systems, where availability of data was limited, and since, as communicated earlier, we had to delay the issuance of our Q1 call. We expect to report our results by mid of June now. If we move to the next slide number three, talking about macro trends before going into impact in our business. I would say that in order to remind everyone that the impact we see in our business are also increasing like never before the importance for energy security. I would like to remind everyone that government policy and push for renewables is only getting stronger in light of securing energy security and energy independency in the markets where we operate.
I'm sure you all must be aware of the latest government's ambitions, but let me make two points here. First one, onshore demand in Europe needs to improve massively to hit those targets. Second, specifically in German market, German onshore market could double in the next year if government delivers on the ambition levels and on the target. Of course, this is all subject to permitting issues and other challenges, but government is pushing to set the stage for a solid recovery in late 2023 or 2024. Okay. If we move to next slide, as communicated earlier, we expect two cost impacts this year. First, impact from Ukraine, and second, cost of reconfiguring our production footprint.
On top of that, unfortunately, there were two more unforeseen events that will impact our margins this year. First, the continued lockdown in the Shanghai port, Shanghai City, by Chinese government, and potential costs associated with our cybersecurity attack incident. Let me provide you some more color on each of the topics. First, Ukraine. As mentioned before, the direct impact is relatively small and straightforward. We could lose revenue of around EUR 200 million or so, and the associated related margins, in addition to potential or possible write-downs of working capital in the country. All in all, that could have an impact of up to 1% this year. On the other hand, the indirect effects are more difficult to predict.
Our initial analysis suggests that the overall impact could be in the range between 2-2.5 of the year, and this is mainly driven by three topics. First one, longer transportation times and unexpected delays coupled with higher shipping costs. Second, availability of steel in Europe and its effects on components, especially towers. Third, risk for the smaller suppliers who are trying to reopen their fixed price contracts and try to survive rising and increasing price. We will have to digest a lot of those costs in the short term for orders already booked, but as you can imagine, we are adjusting our cost base and reflecting that in our current and future order discussions with our customers without losing traction in the marketplace.
Second, talking about footprint reconfiguration, let me note that we have already closed the nacelle plant in Spain, and we are well advanced in closing the blade plant in Germany. Unfortunately, this is likely to affect around 700 colleagues, 700 jobs, and likely to cost in the range of EUR 70 million in 2022. As commented before, we expect this one-off cost to be covered by savings within the next two to three years. Last, third, further headwinds. China imposed a strict lockdown in Shanghai following its zero-COVID policy. Unfortunately, this impacts the global supply chain again. Some of our sub-suppliers could also be at risk to halt the production due to delays in getting components out of China.
Some of our factories in Germany and in Europe have already seen some effects due to this, meaning delays in getting components, increased shipping price, losing capacity and so on. In addition, we were exposed, as commented to a cybersecurity incident and had to shut down our IT infrastructure. We are restoring our systems right now and confident of getting back to normal within this month. It does create some extra cost in IT and also indirect costs of delays and potential LDs and working capital spikes. Altogether, we believe the total impact of those topics could be limited to under 1% this year. In summary, we expect up to 3%-4% margin hit in the operations and another 1%-1.5% due to our internal footprint reconfiguration initiative.
With that, let me move to our updated guidance, slide number five. We now expect our sales within the range of EUR 5.2 billion-EUR 5.7 billion after adjusting for lost sales in Ukraine. We update our EBITDA range to EUR -4-EUR 0, which is now all inclusive and reflects the impact from the macro headwinds and also the impact of the footprint reconfiguration. Keep in mind, this is based on our best estimate today. Last, working capital ratio and CapEx guidance stays the same. With that, I will hand over to you, Felix, again to open the floor for Q&A.
Thank you very much, José Luis, for the presentation. I think a lot of valuable information for our audience. Now I'd like to hand over to our operator to start the Q&A. Please go ahead.
The first question comes from Vivek Midha, Citigroup. Please go ahead. Your line is now open.
Thanks very much, everyone, and good morning. I had two questions, please. The first is on free cash flow and net debt. EBITDA margin's negative this year typically would imply negative free cash flow. Could you give us any indication on where you expect your net cash position to be at year-end? Secondly, could you give us, you know, your latest indication on pricing and backlog margins? Do you see any improvements in industry price discipline? Thank you.
Okay. Let's start with the first question. Ilya?
Yeah. Happy to take the first one on the free cash flow. As always, not over-guiding, but I think with the new building blocks you can have quite a view depending on which you pick, because maybe for calibrating this a bit, let's just say that now with an adjustment and call this the all-in guidance, we would quantify that a rather conservative range, and given the uncertainties in the macro environment, saying that the range is a bit broader than usual. You can pick your building block.
When it comes to the cash position, let's kind of go back and remind that we started the cash position beginning of the year, ending of last year just short of EUR 800 million, and the RCF that was not long came on top of that. We don't report Q1 numbers unfortunately today, but also anticipating those results which are now planned for June 20th, to be more precise than in the intro, that was just shy of, say, EUR 700 million, again, plus that RCF. While we never predict or guide on free cash flow, I think that gives a good idea of where we are and what the building blocks are for the cash.
Onto the second question, you remember in our annual presentation we were very happy with a very successful order intake, Q4 last year that was landed on a very high-cost base at sustainable margin levels or strategic target margin levels. Unfortunately, the direct and indirect impact of Ukraine, this is gonna hit in around 3%, as we commented, which means that the backlog is gonna be deteriorated. As a consequence, the path to the strategic profitability will be delayed. This cost increase is now as we speak translated to new orders, and there is always the cost-to-market. Is the market gonna accept that? Are we gonna lose traction in the marketplace? The answer to that is no.
I think, of course, we have difficulties to renegotiate the ongoing contracts in execution, but we have a very good understanding and very good reception from customers for accepting higher price associated with higher costs for new orders. We are selling. We don't guide order intake, as you know, but we are optimistic about order intake for rest of the year, and we are optimistic about landing the order intake at sustainable margins with the cost base that we have today, which means a 3% hit on the backlog. Customers are very much accepting those cost increases, and we don't see order intake suffering from that.
Understood. Thanks very much.
The next question comes from Sean McLoughlin, HSBC. Please go ahead. Your line is now open.
Good morning. Thank you for color around the current headwinds. Two questions. Firstly, on your comment around your expectation that some of these effects could accompany you into 2023, could you talk a little bit more about that? What visibility do you have? What does that mean? Anything you can tell us, I suppose on that would be helpful. I just wanted to dig a little bit more into the pricing. I mean, should we expect to see ASP rising in Q1 on your order intake?
Yes. Let's just start with the ASP. As our colleague, Patty, always comment, I mean, it's an indicator. It doesn't reflect, so there are scope, there are geographies. We definitely see it in a like for like, of course, we see cost increase, and we see price increases, for that, and I expect to see ASP increases, as well. The positive message is that, after the cost spike, and provided that the cost doesn't deteriorate further, so the oil, the steel, and so on, stays at this level. At this stage, we are selling at sustainable margins at that very high cost level.
We don't know if costs are gonna keep increasing, which should be a further deterioration. If costs decrease could be a potential improvement. Regarding 2023, it's gonna be a compound of backlog deterioration and new orders sold at sustainable margin levels. As you can imagine, a big portion of 2023 is coming from the backlog. The backlog was historically built with a profitability improvement profile driven by more Delta4000 and better prices and margins over time. All in all, we should see a better 2023 because the backlog improvement has hit, of course. This 3% is gonna affect the backlog for 2022 as well as the backlog for 2023.
The quality of the backlog to be delivered in 2023 is better than the quality of the backlog to be delivered in 2022. On top, we are still selling for 2023, and we are doing so at sustainable margin levels. I hope that this gives you color. Really we don't have more information because, you know, we will start after the summer the planning process for the budget, and by that time we will have more information. Conceptually, this is the picture.
Thank you.
The next question comes from Ajay Patel, Goldman Sachs. Please go ahead. Your line is now open.
Good morning, and thank you for the presentation. My question is just around liquidated damages. What is assumed in this guidance? Also in regards to the lockdown in China and the supply disruptions and these numbers, how fast are you expecting these issues to subside? Just to get a sense of, you know, what we're comparing with so that as events unfold, we can get a better understanding of the direction that your numbers are going.
I think the liquidated damages we are in the middle of discussions with customers. We think that majority of those we have grounds to call for force majeure to try to avoid penalties for that because those are unforeseen events and most of them are work-related to qualify as force majeure. We are optimistic to keep that under control. Customers understand and accept that, and we have constructive discussions. I'm optimistic that this is not going to be a big issue for us. Nonetheless, we will have limited impact.
Talking about China, we have forecasted what we know today. Situation in Shanghai is improving. Shanghai is opening. We start to see shipments out of Shanghai, through suppliers, through components that we do there. We are starting to see issues in Tianjin. This is very much out of our control. We hope. I mean, we haven't forecasted any Tianjin lockdown like the Shanghai one. We have forecasted what we know from Shanghai, and Shanghai is very much reopening and our activity back to close to normality related to Shanghai. We have limited exposure to Tianjin, but some of our suppliers do have activities there.
They are in cooperation with us, talking to the government, to have a soft lockdown, so allowing them to ship the Tianjin components to our Shanghai sub-assembly facilities. We are, I mean, with all the caveats and with all the precautions, moderately optimistic that we can deal better with the Tianjin lockdown as with the Shanghai lockdown. It's out of our control.
May I just follow up with a second question, which is on balance sheet again. Is that, it's not too much of a stretch to take the EBITDA guidance that you have today, which is now negative, and to take a - 7% working capital ratio that you highlighted in the guidance versus I think it was - 10% last year, and end up with a situation where your net debt is positive, are you no longer net cash? Do you need more equity in this business, either to strengthen credit ratios so that you can access the U.S. market properly as you were highlighting previously, or to kind of mitigate against potential additional rises that may come from a tougher market, either through a recession or ongoing issues from China and COVID or the supply disruptions persisting for longer?
Let me first elaborate, and then I will hand over to my colleague. Our exact capability to go to detailed numbers is limited because we are reopening the IT system, and this is the reason why we delayed the Q1 results. Nonetheless, we are fulfilling our duties to share with you impacts that we know we are gonna see within the year. With that being said, the revised guidance, let's qualify it as slightly conservative. You know, our visibility is limited. We decided to go for a slight conservative guidance. With this, I will hand over to Ilya to go more in detail about what does it mean for the questions that you raised.
Well, pretty much you've given the rationale already, José, to answer this question because some more building blocks need to come together. Let's remind us that we're focusing, as we said in earlier calls now, on which is the best option to refinance the high yield. Whether or not any other things are necessary or required, we'll see once we have a clearer picture. You mentioned the working capital. Of course, that Q2 was hampered by that cybersecurity attack in the way that we had as sort of explained some disruptions even in factories. There are plans to recover this in the year. I guess the larger picture will only become clearer through the year.
For now, let's repeat what we just said together is, A, coming from a healthy cash level at the beginning, and still not having the full picture for the Q1. Being a bit more conservative, I think it's too early to talk about these things.
Thank you very much.
The next question comes from Constantin Hesse, Jefferies. Please go ahead. Your line is now open.
Hi there. Good morning, everyone. Thank you very much for taking my questions. I've got a couple. One of them, can I just push a little bit further on the balance sheet area? Because I mean, assuming you deliver the midpoint of this guidance at EBITDA level, I mean, the free cash flow could potentially be -EUR 400 million outflow, which is quite a significant amount. I mean, last time you guys did a capital raise was obviously with a much higher debt position, but you had, I think, around EUR 500 million cash in the first half of 2021. You know, do you see the risk of having to take on additional financing in any form? The second question would be, what needs to happen basically for the lower end of that guidance to be achieved and potentially even lead to another downgrade?
Because from what I understand, the visibility is still relatively low in terms of, the LDs as well as, you know, interestingly, I didn't know about Tianjin, now you just mentioned that. Any color on that would be great. Thanks.
Maybe we tackle the second question first together, José Luis and myself. I think let's not overestimate that lack of visibility. This is why we're coming out with the guidance. As we said in the first call, Q1, we will confirm when the numbers come out, we told everyone to expect a softer start into the year. Now, the shape of the year should be clearly different once we go into H2. That is already all the systems were down. There's quite some visibility now, José Luis, in that supply chain for H2.
I will say, I mean, to make our numbers this year very much, we have almost no order intake risk, so the majority of the orders are either booked or about to be booked, well above 90% coverage on the order intake, which is a remarkable position. Second, our factories, you know, have a production plan to be delivered the rest of the year to deliver the full system, the customer orders. Shanghai is very much open to deliver parts to our factories. This is the biggest contribution for the
For making the numbers because projects are contribution margin positive, cash flow positive, so the activity is what drives very much everything. LDs, I'm not concerned about that because our case is very strong. I mean, you know, of course, it will trigger discussions, but we have a very clear case for that. So the biggest challenge we have is to fulfill our production planning the rest of the year, orders we have. Parts, we are now open in Shanghai, which is the biggest source of parts for the wind onshore industry. So to the best of our knowledge, we are in the steering wheel of that.
Back to the first part, I like repeating ourselves saying that, a focusing on an instrument for the high yield that comes due in February of next year, and then also kind of looking at the track record of Nordex working capital. While we maintain our guidance here, and depending on a bit how the recovery from those two major disruptions will be, I think in the past, Nordex had a track record of doing better than what we guide in terms of working capital too. All in all those building blocks then would change that number that you just mentioned for the income statement.
That's great. Thank you.
Okay. This is Felix speaking. We do not have any more questions on the line. I would like to thank you for participating, sharing your questions with us. I wanna say goodbye. Before doing that, I would like to hand over to you, José Luis, for your final remarks. Thank you.
Thank you very much, Felix. Thank you for your participation, your questions. As a summary of this call, I would say that war related impacts on prices, steel prices, shipment costs, shipment availability, commodity prices, electricity prices, are impacting our short-term cost base and profitability, but at the same time are boosting like never before the macro trends for our industry. Energy independence, energy security, and energy cost reduction are highest and never before in the political agenda. Nordex as a top three global onshore player with a top two position in Europe, which is the region more affected by that, should be well positioned to harvest that opportunity. Thank you very much for your time. Wish you a wonderful day.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.