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Edited Transcript of GAM.MC earnings conference call or presentation 6-May-20 7:00am GMT

Q2 2020 Siemens Gamesa Renewable Energy SA Earnings Call

Vitoria May 26, 2020 (Thomson StreetEvents) -- Edited Transcript of Siemens Gamesa Renewable Energy SA earnings conference call or presentation Wednesday, May 6, 2020 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Cristina Perea Sáenz de Buruaga

Siemens Gamesa Renewable Energy, S.A. - Director of Financial Markets at Gamesa Corporación Tecnológica SA

* Markus Tacke

Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director

* Thomas Spannring

Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director

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Conference Call Participants

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* Akash Gupta

JP Morgan Chase & Co, Research Division - Research Analyst

* Benjamin Michael Heelan

BofA Merrill Lynch, Research Division - Analyst

* Fernando Lafuente Seseña

Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst

* Javier Correonero

* Mark Freshney

Crédit Suisse AG, Research Division - Research Analyst

* Martin Wilkie

Citigroup Inc, Research Division - Director

* Sean D. McLoughlin

HSBC, Research Division - Associate Director of Clean Technology

* Sebastian Growe

Commerzbank AG, Research Division - Team Head of Industrials

* Supriya Subramanian

UBS Investment Bank, Research Division - Equity Research Analyst of Industrials

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Presentation

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Cristina Perea Sáenz de Buruaga, Siemens Gamesa Renewable Energy, S.A. - Director of Financial Markets at Gamesa Corporación Tecnológica SA [1]

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Good morning, ladies and gentlemen, and welcome to our Q2 fiscal year '20 presentation that corresponds to the January-March quarter.

Before we start, let me turn your attention to our disclaimer on Page 2. The earning release will be conducted by our CEO, Markus Tacke; and our CFO, Thomas Spannring. We'll finish with a Q&A session, and we will take your questions over the phone.

And with this, let me hand over to our CEO, Markus Tacke. Markus?

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [2]

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Thank you, Cristina, and good morning to everyone. Thank you for joining this call today with myself and the CFO, Thomas Spannring, especially during these exceptional times when most of us are dialing in from home. I do sincerely hope you and your families are well. The crisis is undoubtedly showing our ability to adapt to new circumstances and find sometimes creative solutions to ensure that our company keeps functioning.

First of all, I would like to thank all of our staff across the world to have made sure our operations have continued to work as normal as possible under these circumstances. Our priority has been, from the start of the crisis and will continue to be, to ensure safety of our staff across all of our operations, to minimize the impact on production and meeting our customers' needs.

Before addressing our results for the second quarter, I would like to briefly discuss sustainability. It is important for us to stress during these times that we remain committed to the highest ESG principles and continue to make progress in this regard. These issues will gain relevance as the world begins to exit the health crisis and focus turns how economic stimulus packages can provide a boost from an expected economic downturn. At Siemens Gamesa, we believe that renewable sector can play an important role in the economic recovery following the impact by COVID-19 and help work towards a sustainable energy transition. So when the health crisis is overcome, investments in green recovery must take center stage and promote a sustainable recovery that generates quality jobs.

We are clearly doing our part here. And in the last quarter, we communicated that the company is now carbon-neutral 5 years ahead of our plan. This has been achieved through a combination of actions such as applying energy reduction and efficiency measures, relying on electricity from renewable energy-based sources and developing a green mobility plan to reduce fleet emissions by offsetting non-avoidable emissions through compensation projects.

We understand there's still a way to go achieving carbon neutrality without relying on offsetting. However, we are confident that we will be able to realize this by, an example, implementing even more energy-efficient measures, increasing our share of renewable energy-based sources and working closer with our suppliers to reduce our emissions.

And very important, over the last quarter, we have received an MSCI ESG 'A' rating for our work in sustainability, an upgrade of 2 rating grades, a testament to progress we have made in this field in recent years. The rating adds to a growing number of ESG indices to which we belong. We are also awarded with a AENOR certification of our tax compliance management system in Spain in the second quarter.

Finally, I would like to mention the social commitment initiatives we have implemented to help combat the effects of COVID-19. I'm proud of our staff for taking the initiative with many of these. And as a company, we have also introduced a Red Cross donation campaign that will match the amount raised by staff for this international organization to fight the effects of the coronavirus. We have also made donations to medical equipment to the value of EUR 1 million that will be delivered to hospitals close to areas where we operate.

So let's turn now to our results for the second quarter for fiscal year '20. Firstly, we should stress that in such moments of severe market volatility and lack of visibility on how long and deep the crisis will be that it is difficult to predict when we will see a return to more normal market conditions. As you already know, this led us on April 21 to withdraw our financial guidance for the fiscal year '20.

What you see in the second quarter is a company with good long-term prospects, record order backlog and secured liquidity being impacted by short-term challenges. And the second quarter clearly shows a notable impact on our results with a direct EBIT impact from COVID-19 of EUR 56 million. During the second quarter, the pandemic mainly affected the Onshore business and its operations.

Siemens Gamesa also experienced further challenges both in the Indian market and in the Northern European pipeline. These challenges were compounded by disruptions caused by COVID-19 that has accelerated the slowdown in Indian market and complicated execution in the Northern European pipeline beyond what has been reported in the first quarter of financial year 2020.

Revenue in quarter 2 stood at EUR 2.205 million (sic) [EUR 2.204 billion], a fall of 8% year-over-year. The EBIT margin pre-PPA and before integration and restructuring costs was 1.4 -- 1.5% over sales. The company reported a loss of EUR 165 million compared with a profit of EUR 49 million in the same quarter a year ago. Despite this impact, we also managed to hit a record order backlog of EUR 28.6 billion, having integrated the assets acquired from Senvion, an increase of 21.4% year-over-year. The company's funding strategy provided the business with a long -- with a strong liquidity position which -- to face the current economic and market situation we close to EUR 4 billion in credit lines available -- with close to EUR 4 billion credit lines available and EUR 1.1 billion lines drawn down.

While the full impact of the crisis is still hard to gauge, we remain confident in the long-term outlook of the sector and the industry. Siemens Gamesa is well positioned to take advantage of these growth perspectives, thanks to its geographical diversification and leadership in technology.

Let's look a little more at the impact of COVID-19 on our operations to date and how we have responded as a company. The first disruptions for us and the industry were seen in February on the Chinese supply chain, and then subsequently, in March and April, containment measures in Spain, and later India, forced to a temporary shutdown of our plants. While some supply chain issues remain by the end of the second quarter, our Chinese factories returned to normal operation and our plants in Spain are all operating again. We have seen some disruptions to our manufacturing lines, and this is not purely down to shutdowns in activity in some regions and some difficulties along the supply chain, but also having implemented the necessary health and safety protocols. Teams at the plants have been organized to ensure business continuity and minimize disruption, partially by leveraging the group's global footprint to recover capacity quickly.

The biggest financial impact comes from project execution, the extension of time lines because of late component deliveries. As I mentioned, we expect these issues to principally impact the Onshore business given its broader geographic scale and supply chain. We also see some delays to commercial activity with some orders postponed into the third quarter, and we expect to see a more normal pace of business to resume.

However, we have also taken considerable action to mitigate these challenges. Clearly, the health of our staff has taken priority. And as a company, we enacted strict health and safety protocols ahead of official guidelines. This goes for all of our operations, both in plants, offices and in the field. And through these times, we have also worked to find new solutions to assure operations to continue. We have included rerouting certain supply chains, optimizing our remote monitoring to guarantee our Service operations and in Offshore expanding periods to maintenance teams working at sea. As a CEO, I have been impressed by the commitment which has helped to complete major projects on time, such as the 714-megawatt East Anglia One facility where we recently installed turbine number 102. This has been only possible with a dedicated team committed to the performance of the company.

Besides controlling HSE protocols and assuring production, we have also managed to retain a strong liquidity position, having ample finance lines available and having reduced discretionary spending. This will all help to minimize business disruptions, even as the outlook for the second half of the year remains uncertain.

A volatile quarter has not been without its successes. This is certainly the case for our Onshore business where sales of our flagship 5.X platform continued to make traction. The business unit has been particularly successful in Sweden, where we achieved another contract for this platform. We will also -- we also have achieved the 312-megawatt deal for the most powerful onshore turbine in the market in Brazil. This confirms to us that the technology is flexible enough to operate and maximize energy production across many geographies and site conditions.

Meanwhile, we have also seen some significant progress for our market-leading Offshore business. One milestone was the commissioning of our 11-megawatt Flex platform, which has reached that normal power at testing and its development continues on schedule. We expect this platform to become a benchmark in a fast-evolving sector with a great growth perspective.

Our Service business delivered a strong result in the quarter. And the acquisition of Senvion assets took the unit order book to EUR 14.458 billion, which represents a total of 51% of the global order backlog. Service continues to offer higher margin and is growing at a rate of 28% year-over-year, confirming to us the strategy is the right -- and Senvion acquisition had been appropriate.

The fruits of the deal were also witnessed following the recent 20-year agreement in Australia to service a 135-megawatt installation of Senvion turbines, which were beyond the scope of this acquisition.

I will now hand over to Thomas to give us a more detailed review of our commercial activity and the second quarter results. Thomas, over to you.

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [3]

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Thank you, Markus. When we look on order intake in the second quarter, we can -- we have observed and are proud of reporting that the order intake in the last 12 months compared to last year's situation has significantly increased by 34%, up to order entry over the last 12 months to EUR 14.5 billion of order intake. That spreads equally over all the different business units of our company, Service in particular, but also in Offshore and Onshore as well.

When we look into the second quarter only and compare that one with the previous fiscal year, we can see that Service had a strong order entry, and we are happy to see that one. Service in that sense is exceeding our expectations. Offshore had a weak second quarter, but that was purely due to the normal volatility in that market and seasonality in the market and was expected. And we see a certain order entry in Onshore as well, what was partially burdened by some shifts into the third quarter by the corona crisis, but it's not significant.

Overall, we can report in our peak book-to-bill ratio of 1, and on the last 12 months, even of 1.5, orders strong. When we look into the order backlog, what was a major achievement and already mentioned by Markus Tacke, we have achieved a record order backlog in the second quarter of fiscal year 2020 of EUR 28.6 billion. That one equally stressed over our different business units. We have a strong increase in there of our Service business, now represented with EUR 14.4 billion. Including the Senvion acquisition, we see further significant growth in our order backlog in the WTG ON business in particular compared to previous fiscal year. And also, our Onshore business is further growing to expectation.

When we look into the different regions, APAC, Americas, EMEA, there as well, we can see a strong increase, in particular in APAC. But due to the spreading out of Offshore into other markets, in particular, we further see a strong increase and further growth in Americas. And we see a stable business in the EMEA compared to what we have seen a year before.

When we go to the next slide, please. Now specifically in the Onshore business, order entry in the second quarter compared to quarter last year was slightly down by 5.5%. And as already mentioned, this one was partially due to the corona crisis and by the shift of some order entries into the next quarter. Nevertheless, in the second quarter, it was favorably supported by order entries in Brazil, in Spain, in Poland and Vietnam. And what we can see as well that in our new platforms, in particular, the 5.X are significantly contributing to that order entry. And the 5.X represented there in this 22%, what is absolutely to our expectation and supports our long-term expectations and ambitions.

Onshore. When we look into that one specifically for the moment, also from a 12-month perspective, order entry has grown significantly by 12.9% to EUR 9.4 billion order entry, what is good. And the regional distribution between the different regions is balanced. We see, in particular, a strong increase in the region of APAC, what is supporting our diversification strategy in that area as well.

When we look into the average selling prices for the WTG ON activities, we have seen a very strong second quarter of the current fiscal year of 0.78. This is particularly favored by the regional mix and project scope, what we normally see in development. And then we look into that one from a year-over-year perspective with the last 12 months' development, it is a slight decrease in average selling prices of 1%, what is absolutely according to our expectations and gives a good picture of a stable market.

When we go to the next slide, that is an insight on Offshore. In Offshore, we are further building out our competitive position in the business unit. We have, meanwhile, achieved an order backlog of 5.5 gigawatt. And that pipeline has been increased to 7 -- 10.7 gigawatt globally. We can see, when we look into the regional mix, that we are further spreading out into other regions according to our strategy. We are well represented, meanwhile, as well in the United States and in APAC. And also, in the second quarter, we have further added to our pipeline, in particular, with 2 new preferred supply agreements for Borkum Riffgrund 3 with 900 megawatt and Gode Wind 3 with 242 megawatts in the second quarter.

When we look into just a little bit of specifics, as already mentioned, order entry in the second quarter alone, that was according to expectation, was -- there was no order entry, but that was according to the normal seasonality compared to last year. But nevertheless, we see a strong commercial activity in order entry over the last 12 months, having achieved EUR 2.8 billion of order entry -- sorry, 2.8 megawatts of order entry, what is extremely strong. And as mentioned, meanwhile, we have a pipeline of 10.7 gigawatts as supplied -- preferred supply agreement.

When we go to the next slide with Service, please. As already mentioned, order backlog in service has further significantly increased, in particular, when we compare year-over-year. When we look into the details, average life of contracts in the order backlog is 8 years, what gives a huge visibility for future developments and stability in the order backlog. So the acquisition of Senvion has attributed another EUR 1.5 billion of order backlog to our order backlog, contributing significantly to our growth ambition in the EMEA region with 31% within that and -- of 31%. The Senvion backlog is, in particular, focused in the EMEA region, there of Northern Europe with 74% and Southern Europe with 26%.

The APAC order backlog is also growing, as you can see, and that is predominantly driven by the Offshore service contracts we have achieved in Taiwan. When we look into the Service order intake in the last 12 months and out there as well, you can see a strong increase by -- from last year's position of EUR 2.2 billion of order entry. And in the current fiscal year, we have achieved a level of 3-point -- or in the last 12 months, we have achieved a level of EUR 3.8 billion of order entry.

When we look into the quarter specifically, also that one shows a stable even further growing activity of 4% growth with an order entry of EUR 779 million.

We can go to the next slide, please. Markus?

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [4]

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Yes. Thank you, Thomas. To highlight some of the achievements we have realized in quarter 2, let me go through the 3 main regions as we report them. You're all well aware and Thomas just has explained about the situation in Americas. The market sees a downturn in Onshore business after the PTC spike, where we participate quite well in. At the same time, we could secure, in the meantime, 4.4 gigawatt of Offshore pipeline, giving us a good balance in that region to further develop our business.

I have mentioned another key country in the Americas region, Brazil, our order entry successes of our new 5.X pipeline -- new 5.X turbine with a 312-megawatt order entry in quarter 2, setting the milestone for future developments in the Brazilian wind energy sector.

Traditionally, EMEA always had been a stronghold of Siemens Gamesa. And in this region, we have 57% of our order backlog with a strong contribution from Service -- from Offshore, large Offshore projects.

In APAC, also here, we see the globalization of the Offshore business. We see growing contribution from Asia, also with a growing, stable Onshore market and the growing Offshore market in China, where we will participate with the established joint venture through Shanghai Electric also in that market.

Taiwan, order entry is secured in the meantime of 1.7 gigawatt order backlog and 0.3 gigawatt in the pipeline. And finally, India, where we have again confirmed our leading position as the #1 player, as confirmed recently by Bloomberg for the year 2019. Although in India, we see the recovery of the market after the downturn in 2018 is taking more time, compared to early expectations, the market projections had been adjusted in the recent weeks by relevant institutions. So we -- given the slower return to normality in India, we have taken the decision to restructure some of our business to adopt it to the different speed and different volumes in the Indian markets to be expected. You see the results of that also in our financial statements. Back to Thomas.

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [5]

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Group results from a consolidated perspective for the second quarter of fiscal year 2020. We have achieved, as already mentioned, group revenues of EUR 2.2 billion. For the half year, what we are reporting as well, it's EUR 4.2 billion of revenues. We have to report an EBIT pre-PPA, integration and restructuring costs of EUR 33 million in the quarter and for the half year of minus EUR 103 million.

When we look into the details of integration and restructuring costs, what is excluded from the KPI, in the second quarter, we had integration and restructuring costs of EUR 82 million. That was specifically burdened by a restructuring effort in India. We have taken a restructuring decision in India of noncash EUR 38 million to reflect the specific market dynamics and the specific situation we currently face there.

Net interest expenses, minus EUR 20 million in the quarter. Tax expenses, minus EUR 28 million in the quarter. That brings us to reported net income for SGRE and to our shareholders of minus EUR 165 million in the quarter and minus EUR 339 million for the half year.

CapEx is according to expectation in the quarter with EUR 109 million and completely in line with our investment strategy of 5% of our revenues. And when we look into the details of our working capital, that is quite a favorable development. We have a working capital in the quarter to report of minus EUR 865 million. That is a year-over-year improvement of more than EUR 1 billion and a slight decrease -- or slight decrease in working capital of EUR 74 million quarter-to-quarter, what was specifically due to the development by the corona crisis. And I will come to those details later on.

Development in provisions of the quarter were according to expectations. And with our business development, nothing specific there. Net debt position, we have to report for the second quarter of minus, as a net debt, of EUR 295 million. What is an increase in our net debt position -- or let me say, a decrease in our net debt position of EUR 407 million (sic) [EUR 470 million] quarter-over-quarter. That is specifically due to normal seasonality in the business, and we come to the details later on, and by the Senvion acquisition as well.

When we go to the next slide, revenue by the business unit. As already mentioned, second quarter is EUR 2.2 billion. We have a slightly weak Onshore volume. We have a growth in Onshore in the Americas, but what is partially offset by execution delays in EMEA and APAC and also impacted by COVID-19. According to expectations, we had a, compared to last fiscal year, reduced revenue in Offshore to down to EUR 660 million. But this is according to execution plans we have for the Offshore projects. And we have Service revenue growth driven by growth of maintenance contracts and integration of the Senvion service assets as well. And that in itself gives an already picture that we see a huge -- a significant increase of activity in the second half of the fiscal year. What is represented here as back-end loaded activity plans, but this is predominantly according to seasonality of our business, in particular in Offshore.

When we look into the geographical distribution of our sales volume in megawatts, we see an increase in APAC according to our expectation. We see a significantly strong execution in the Americas. And it's relatively low in EMEA in the past quarter.

When we go to the next slide, please. The profitability in the second quarter, as already mentioned by Markus, is burdened by EUR 56 million by the direct impact of the coronavirus, COVID-19 impact. What is an impact in percentage points of 2.5 over revenue. When we look into the profitability, we report by the different segments. It is -- the group has achieved a profitability of 1.5% in the second quarter compared to 7.5% last fiscal year.

When we look into the profitability margin in the different segments, Service is perfectly performing to our expectations on a high level of 21.9%, on the same level as previous fiscal year. And as already mentioned by Markus, our Onshore business, in particular in the WTG business, is burdened by COVID-19, not only those, but predominantly. And we had to face execution delays and challenges -- further execution delays and challenges in the Northern pipeline. And we had to digest as well the impact and the market downturn in India, what was aggravated by the coronavirus crisis as well, what overall brought us in WTG to a profitability margin of minus 3%.

When we look into the EBIT development year-over-year, what are the main drivers for what we have seen? Pricing, as the first building block, is according to our expectations. Productivity, we are sticking to our plans and execute as promised and are overcompensating our pricing effects. Fixed costs are under control. Then certainly, in the second quarter, we can see that we are disfavored, and we have seen that already by certain volume defects. Our second quarter is lower in volume. We are certainly disfavored compared to previous fiscal year by mix and scope as Offshore, particularly last fiscal year, had a strong execution in the second quarter already. And others, and this is what I have to mention, these are the charges we have been faced in, first of all, by the coronavirus crisis; secondly, by the Northern pipeline developments and the developments in India; but also are favored there by the settlement we have achieved with Areva and what we have disclosed in this quarter.

When we go to the next slide, please. When we look into the details of our working capital development, first, quarter-over-quarter, I guess, the headline is correct. We had a working capital in the first quarter of fiscal year 2020 of minus EUR 939 million. We end the quarter 2 with a minus of EUR 865 million. Main developments are, we have improved further our position with trade receivables. We had a slight increase in inventories, predominantly due to the delays we have in our factories by the corona crisis. We have further improved our position in trade payables by strict management there. We are burdened here as well by net contract assets and liabilities, also predominantly due to the corona crisis, what led to a slightly increased working capital to minus EUR 865 million.

When we compare that one to the year-over-year development, quarter 2 fiscal year '19 to quarter 2 fiscal year '20, we can see a similar pattern. Trade receivables, we have improved. Inventories, slightly up. As already mentioned, trade payables, we have improved. And then this is the strongest development, we have worked specifically on our net contract assets and liabilities. What net brought us to a significant improvement year-over-year, over EUR 1 billion in working capital improvement.

When we, on the next slide, analyze for a second our net cash position, how this one has developed since December. First of all, income before taxes, as already reported, then depreciation and amortization, nothing specific to report there. Eliminated provision charges and use of provisions were absolutely in line with our expectation and reflect the normal course of business. Nothing specific there, tax payments. Then we had a slight charge in working capital as already mentioned. Then CapEx, as already mentioned as well, this is going according to our expectation and to support our long-term growth plan, in particular, in Offshore. Adwen-related provision usage, those are absolutely according to expectations. And then, as already mentioned as well, we were happy to report the business acquisition of Senvion, at least the first half, was recorded in the second quarter. And then others, and that brought us a net cash position of minus EUR 295 million.

When we compare that number to the situation a year ago, and eliminated -- eliminate the IFRS 16 effect that we had by the conversion end of last fiscal year. We even improved our net cash position of EUR 420 million year-over-year.

Having said that, I would hand back to Markus.

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [6]

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Thank you, Thomas. Let me now give you an outlook and conclusion of today's presentation. Without a doubt, these are unprecedented times that we are living through, both personally and as a business. There's no way yet to see the full impact that the coronavirus crisis will have on the industry and on our business. But looking beyond the crisis, we still firmly believe in the fundamentals of the sector. Forecasts for installations growth this year have been reduced, but still remains strong in the circumstances. Wood Mackenzie forecasts 73 gigawatt of installations that will compare with the 60.4 gigawatt that the Global Wind Energy Council reported in 2019.

And right now, there's much momentum to position renewable energy at the core of any economic recovery package that may be drawn up. We are convinced, along with many others that have signed up for key global initiatives in these times, that renewable energy must be a key in supporting development of a new sustainable energy system and a global shift towards decarbonization. As a company, we have seen the first warnings the impact of COVID-19 in our results, which has obliged us to withdraw financial guidance for the year. Challenges still remain, but we have taken far-reaching measures to ensure, first and foremost, the safety of our workers and also that our plants are functioning, that we continue to install and service turbines to ensure clean energy reaches customers. Business continuity is at the core of our initiatives.

We also have the healthiest pipeline in order backlog since 3 years from the merger, which provides significant visibility. In addition, we have retained a robust balance sheet for these times, and our long-term financing is secured. I'm confident that out of these circumstances, our business will be more focused than ever to continue on a solid long-term growth path. While this period will be extremely challenging, working together, we'll overcome, learn and grow in a more sustainable way after the crisis.

I thank you for your time, and both myself and Thomas will be now happy to receive your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Supriya Subramanian from UBS.

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Supriya Subramanian, UBS Investment Bank, Research Division - Equity Research Analyst of Industrials [2]

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I just had a quick question on the current situation. And while I appreciate that it's still very fluid and there's a lot of uncertainties, if you could just give some indication on what you're seeing in the latest developments in terms of closures and supply chain issues by region, especially, I guess, more so on the Onshore business.

And maybe as a follow-up to that is also in the projects that are getting delayed. Are you seeing a risk of any liquidated damages for these delays? Or how are the conversations going with customers in those particular projects as well?

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [3]

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Thank you. Thank you for the question. Certainly, the question is at the heart of our current activities. As I've said, the crisis became for us visible when our Chinese factories had been impacted and closed down quite early on the crisis, and not only our Chinese factories, but also supplies we have from China to our other global factories in Americas and Europe. These early lockdowns all have been mitigated in the meantime. So our Chinese factories are up at running at full capacity. And also, we did some supply chain rerouting and supply chain optimization. Those early implications that we had from an operation point of view and also from a supply chain point of view have been under control in the meantime. So that is stabilizing and in good control.

What has happened afterwards is the situation has evolved into Europe. We have a number of suppliers in Italy. We have our factories in Spain that had been closed down by the government's instruction. We had a disruption in the U.K. where we needed some time to implement protocols that were requested by the government to assure a healthy continuing of operations. Also, these factories are up and running again. We have implemented the protocols. Of course, it has an implication, all these measures, on what I call indirect impacts. The number we have disclosed, the EUR 56 million is direct impact, which is traceable. Very clearly, the safety measures and health and safety measures are not helping productivity. Those indirect impacts have not been quantified. And they are very, very hard to quantify in the circumstances.

We continue our Indian operations. You probably heard that Indian government just have decided to extend the lockdown for additional 2 weeks. So our Indian operations are still being closed. We used India also as an export hub for some components into other regions that is impacted. And we see now some challenges with suppliers from Mexico where also factories, blade factories in Mexico have been closed down for some time. So in a nutshell, the early implications have been managed in the meantime. However, the spread of the virus around the globe still affects operations at other regions. Currently in focus is certainly Latin America and India.

Having said that, we had been well prepared going into crisis. Our office staff works basically from home. We have around 11,000 people right now in home office with a strong IT backbone that secures us. We had prepared that as a company, driving work-from-home initiative to give people flexibility in organizing their life. That has been quite a useful investment in that circumstances. So we have, from the office staff, certainly implications, but no major disruptions because most of the people are able to work from home and we can avoid people going to the offices. So we have managed no any major incident through the corona crisis in our facilities, neither factories nor offices.

Having said that, there's still some short supplies that might be short. You might have heard about the balsa wood topic in Ecuador has been shut down for some time, which is a key supplier for balsa wood which is used in our blades. Ecuador is now getting back to normal, but because there was a disruption in supplies, mainly processing balsa wood and make it available to the global supply chains. So there's a number of individual elements that are still very dynamic and not fully under control, like the balsa wood topic or the Mexican supplier topic. However, we have very early installed a task force focusing on a daily basis on optimizing our operations to minimize the impact.

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Supriya Subramanian, UBS Investment Bank, Research Division - Equity Research Analyst of Industrials [4]

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Great. And any color on the potential liquidated damages or conversation with customers?

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [5]

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I can say something on that one. We have diligently analyzed our portfolio. We have fully controlled -- under control what the contractual situation is. And we are in active dialogue with our customers how to contain the situation.

And maybe just to refer what Markus has said as well in our COVID-19 number, we only report the direct COVID-19 impact. Indirect effects and knock-on effects like volatility in the FX market, what we have seen, for example, in Mexico, with 25% down of the Mexican peso compared to the euro just within 3 days, I've not reported in that number, but certainly can be seen and should be understood in that context.

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Operator [6]

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The next question comes from Akash Gupta from JPMorgan.

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Akash Gupta, JP Morgan Chase & Co, Research Division - Research Analyst [7]

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My question is regarding orders. And in Onshore, you said you expect to sign some orders in Q3 that was expected in Q2. Just curious, have you signed those orders already? Or do you expect to sign in the remaining period in the quarter? And also on the same topic, do you expect some orders that was originally expected for Q3 to be potentially slipping in Q4 and beyond?

And maybe a follow-up on EUR 56 million direct impact to COVID-19. Given the lockdown continued in early Q2, is it fair to expect that for the full year, we should be looking towards something around triple-digit figure for COVID impact for the company?

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [8]

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Thanks, Akash, for your question. Certainly, Onshore is more affected than Offshore or Service. And the reason to understand that is Onshore, the main impact, as I've said, comes from project installations. And project installations is installation teams, commissioning teams that are global teams that move around the globe. And the free movement of these teams have been hampered significantly in that time. In Service also, we have teams but these teams are more local. They service the wind farms in a more local sense. So the impact on those Service teams have been significantly lower. So this is why the biggest impact in Onshore is on project execution, prolongation cost. If you have an extension of a project by 4 weeks, you need to pay additional costs for the crane or at least partially those elements.

On the commercial activities, a shift of orders, there had been impact on commercial activities. I've seen -- to give you some examples. I've seen in Europe a case where we wanted to finally NTP a contract in Italy, and it was simply end of March, not possible to get the right contacts in place in Italy to close the financial -- do the financial closing of this contract. So there's clearly a shift from quarter 2 and quarter 3.

Another example I was personally involved. I was planned to go to India mid of March to close a large Indian order. And then India closed down, the travel was restricted, so the meeting was postponed. Those orders are not lost. However, they have -- could not have been recognized in quarter 2. Just to give you 2 practical examples out of order shifting from quarter 2 to quarter 3, quarter 4. Overall, commercial activity is still high, as Thomas has said. We have a book-to-bill of 1, giving the seasonality of Offshore order entry, which has practically 0 in quarter 2 plants. There was no order entry expectation given the lumpiness of these orders. So overall, we see shifts. Still, we have a book-to-bill in quarter 2, including the seasonality of Offshore of 1.

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Operator [9]

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The next question comes from Sebastian Growe from Commerzbank.

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [10]

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The first one would be around Onshore and the introduction of launch of the 5-megawatt platform and also the indicated commercial success that is around 40% or so of H1 orders. Can you share with us your expectations regarding the ramp-up costs for the new platform? Because we have that your competitors sort of double costing when you have the old turbine platform plus then also the new one and that's taking a toll on the cost side of things. And related to it, how should we think about warranty provisions as a result of the higher contribution in execution that should be expected from, say, H2 onwards?

And if I may, just very briefly as a follow-up to Akash's question around the corona impact. And clearly, I appreciate that you cannot really put a number behind the full year expectation level. But could you at least provide us with an update, what you have seen as direct cost burden in the month of April? I would hope at least that you have some early numbers put together in this regard.

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [11]

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Yes. Thank you. Let me start with the 5.X market introduction, which actually has -- went quite well for us. We have seen -- you have seen the first order entry in Sweden. And now we have a second order in Sweden and I think very relevant for us. Also in Brazil, as I mentioned, significant order entry in Brazil. So the pipeline is attracting significant interest in the market. The turbine, the platform is attracting a significant interest in the market. So we have resulting of 570 megawatt of orders in this year, secured in this year. So it is -- the order entry is basically according to the plan that we had part of our market introduction. And also, the key markets like Brazil, very typical market, and the northern areas of Sweden are good places to start this turbine. And the turbine as such attracts interest, then you will see more order entry on that platform soon to come.

In terms of start-up costs, what we have is we have the 4.X platform developed that has been industrialized now. You've seen in order entry a significant portion from the order entry is from the 4.X and 5.X platforms. So we are shifting the 25% of these new platforms of our order entry and the 22% contribution of the 5.X platform. So having said that, the development expense, the market introduction expense is now shifting from the 4.X to the 5.X. So that is in line with our R&D and CapEx projections as planned. So they are -- it's covered in the normal R&D. You will not see out of that a specific spike. It's a revolving exchange of platforms going through that.

On the warranty topic, I would hand over to Thomas, please.

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [12]

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Yes. I can say something on that one. Yes, we do expect also going forward a further increase in our warranty provision portfolio. It's simply due, as you rightfully say, due to growth. Simply by the POC methodology, we apply for accounting. Those provisions are slowly and steadily built up over time and then booked as provisions as commercial operation date or commissioning date happens in the project. We expect some of those handovers into the service phase of the project in the course of the year as well. When we look into the underlying simply by the risk management and by the improvements in our product quality -- by further quality, when you would try to translate that one in euros per megawatt we have in our warranty provision, we even become better. But nevertheless, we will have an increase on that one.

And your second question was with regard to what we may expect in the remainder of the year with regards to COVID-19. As Markus already said, the impact exception is India. The impact in the factories themselves is, meanwhile, under control. And our factories are up and running. Certainly also in the remainder of the fiscal year, simply due to the execution, we see the further effects. Well, we expect further effects to burden our results. But the bulk or the main triggers by -- the bulky triggers by the manufacturing is already digested. That will address the question, hopefully.

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Operator [13]

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The next question comes from Mark Freshney from Crédit Suisse.

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Mark Freshney, Crédit Suisse AG, Research Division - Research Analyst [14]

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Can I please ask a question on product development? I mean given that there's a margin hit, given that potentially customers may be slower to sign up to new orders, given there have been some delays in Offshore, surely, it would make sense to slow down development of some of the newer marks of turbines. Is that something that you're considering?

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [15]

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The -- looking at -- let me have a different view on Onshore and Offshore. In Onshore, we have managed the 5.X platform, 155 and 170, to bring a new leading platform. We're focusing on bringing up the prototype as soon as possible later this year. And this is the key focus, first, to bring up the prototype to certify it and then bring it to the market in a fast and controlled manner. That is the focus, and we will focus on this one. We are careful at looking at the next stage of development. Now we are focusing on our cost productivity on the existing platforms and a fast and controlled market introduction of the 5.X.

In Offshore, the situation is somewhat different, the projects. We are winning, and we will be winning the preferred supply agreements where we have the 10.7 gigawatt is with products. That is the next generation or even the next -- after the next generation. So there's -- winning products -- projects today that have been executed in 3 to 4 years. You need to be at the upfront of the development in order to drive -- help our customers drive LCOE further down. So they're clearly having a very healthy business. We will continue to push our technology developments to keep -- to remain the spearhead of that industry. So overall, of course, we are cautious in terms of company spend. As I said, we are looking at many areas where we can save money, discretionary spending and other expenditures. However, I believe in the future of this industry. That is a short-term impact we are seeing now. The long-term perspective will be there. Discussions I had, for instance, with members of European Union are clearly indicating that the potential recovery plan of the European Union and also recovery plan outside of European Union could potentially include investments in renewables. So I see good prospects there. That will -- so we will continue to focus on vast and reliable development of our technology.

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Operator [16]

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The next question comes from Javier Correonero from Morningstar.

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Javier Correonero, [17]

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This is Javier Correonero from Morningstar. I wanted to ask on logistics. So what is the environment that you are seeing there? Like, could you give us a sense, for example, what are the increased costs from logistics? For example, one of your competitors commented that they had to rely on an air transportation. So was wondering if that is the case for you, too. And then I would have a follow-up.

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [18]

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Maybe with regard to logistic costs. In the normal course of our business, we do not see any specific impacts on that one and do not expect them for the moment because we have a solid and sound contractual basis with all of our suppliers. But as already mentioned, our coronavirus impacts we are reporting and are going to expect in the coming quarters are partially logistic cost as well because simply and purely by project extensions and then having cranes not in place at the right point in time or to an extended period of time that one increases our logistic costs as well for delivery slots on ships and vessels. And that is a certain development, but this is predominantly summarized on the COVID-19.

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Javier Correonero, [19]

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Okay. And then the follow-up regarding the pricing environment. In the past, you have commented that you were seeing some players behaving irrationally. So I was wondering if you could comment a bit more on this environment? And if you continue to see that kind of behavior right now? Or it has normalized.

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [20]

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If you look at the order entry page from the Onshore order entry and look at the ASP, we see 0.78 for quarter 2 '20. And then we always explained that you need to normalize some special effects, explaining some positive and negative spikes against the normal. If you do that same exercise, as we have done last quarter with the 0.63 and with the 0.78 percent, you end up in the area of 0.71, 0.72. So overall, the ASP, I consider, over the last couple of quarters, having stabilized around the 0.7 number in our case. And I see -- certainly, there's competition in the market. But overall, the irrational behavior, I think, has ceased somewhat in that market.

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Operator [21]

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The next question comes from Martin Wilkie from Citi.

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Martin Wilkie, Citigroup Inc, Research Division - Director [22]

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It's Martin Wilkie from Citi. Just a question on some of your longer-term cost savings. You obviously had your synergies and productivity plans for 2020. And also, when Siemens acquired the Iberdrola stake, you talked about increased cooperation between Siemens Gamesa and Siemens that would have some cost savings as well. Just to understand, are those cost savings effectively on hold while you deal with the urgency of the coronavirus crisis? Or is there opportunity to bring forward some of those cost savings? Just to understand how we should think about those.

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [23]

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Thanks for the question. Certainly, not on hold. Productivity is one of the key DNAs of our industry and our company, driving our way forward. The number we have disclosed to the market was the EUR 2 billion program initiated for the 3 years. We are EUR 400 million of synergies. We are in plan with both numbers as well as the overall EUR 2 billion number as well as the synergy number and expect -- we said we disclosed these numbers, giving a full year completion, and expect, when we start to report the outcome of these projects, that we will be in line or above these plans. However, having said that, we know that 2020 in terms -- in that term is we need to think about beyond 2020. So we are currently certainly setting up programs to make sure we continue our efforts towards '21 and '22. And I don't see a slowdown in those activities, quite the opposite. We use that time also to resharpen some of the efforts we have been taking in order to get out of the crisis at full speed.

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Martin Wilkie, Citigroup Inc, Research Division - Director [24]

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And in terms of -- when Siemens talked about the ability to unwind the previous shareholder agreement and get some increased cooperation, and obviously, that announcement was only made back in February, I mean, have you been able to quantify how big those savings could be for Siemens Gamesa's P&L? And when we might be able to see some of those savings?

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [25]

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Yes. We will disclose that to the market at a later point in time. The EUR 100 million, you're addressing the EUR 100 million of potential additional savings out of additional cooperation between Siemens, Siemens Energy and Siemens Gamesa, all at arm's length, of course. We have identified in the meantime, or we were quite true at that point, we have identified in the meantime how to actually execute these savings in terms of larger closer cooperation. So the number is certainly in focus and that we're working on achieving these numbers. Keep in mind, it was a number to be built up until 2022. So when we talk about 2022, we will certainly see a contribution out of that additional savings coming through in our numbers there. We are putting it together. If you remember, the program was set to be up to deliver the expected EUR 100 million in the year '22. And that is what we're working on, and I'm comfortable we will get there.

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Operator [26]

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The next question comes from Ben Heelan from Bank of America.

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Benjamin Michael Heelan, BofA Merrill Lynch, Research Division - Analyst [27]

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I wanted to touch on the execution issues that you've continued to have in Northern Europe. Obviously, there continued to be a drag. Could you help us understand why they continue to be a drag in Q2 and how you think about the path forward to improvement?

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [28]

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Let me give you 2 practical examples. What is happening in all these projects have been challenged and we reported extensively in quarter 1. We have rebased the execution. What has happened -- to give you an example now in corona time, you probably have heard that Norway was limiting the access of people entering the country. And if people were coming from different locations, they needed to be quarantined for 2 weeks. That's all hindering teams to work efficiently and effectively. So we have certainly seen some of the issues that were, and that's how Thomas also had phrased it, that were compounding the difficulties that are in these projects. And now the team's accessibility of the erection teams, the commission teams is hampered by additional regulations we need to comply with, and we do comply with, that is not helping the project progress. And that is what I would call indirect implications. Can you directly account for it? It's probably not possible. But indirectly, we see those challenges in the pipeline that has the potential to bring further delays by simply not being as speedy as planned to bring the appropriate teams to the sites.

In addition, there's -- and there has been -- the question had been there earlier, what about LDs? What about claims going back and forth in that situation? Also here, the situation has been complicated by corona 19 (sic) [COVID-19]. And so we have taken some assumptions that successes in these claims will less likely happen in fiscal year '20. They might happen in fiscal year '21. So also there, we have taken adjustments on project forecast. So all that is indirect implications from corona, which is hindering the execution already -- of projects that have already been challenged.

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [29]

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And what we can say and have to say is, certainly, we have our arms and minds around those projects specifically, nevertheless, and you know that certainly when you put the POC accounting and you had project charges as we had to report them in the first quarter. More or less going forward, any deviation has a direct finale impact, positive or negative.

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Operator [30]

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The next question comes from Sean McLoughlin from HSBC.

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Sean D. McLoughlin, HSBC, Research Division - Associate Director of Clean Technology [31]

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A couple of questions from me. Firstly, the agreement between Adwen and Areva, which you said was a positive impact in Q2, could you quantify this? Could you also talk about what the end of disputes might mean and what impact that might have on your provisions relating to Adwen? That's the first question.

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [32]

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I can quantify that one. The effect on the P&L is EUR 60 million. And on provision, that one has no impact.

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Sean D. McLoughlin, HSBC, Research Division - Associate Director of Clean Technology [33]

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And secondly, just building on a couple of previous questions, specifically looking at the shape of the impact of COVID-19 in Offshore, particularly looking at your second half schedule, are there any delivery or installation issues or delays in the key spring/summer installation window for Offshore? And what might longer-term impact in Offshore be in '21 and '22?

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [34]

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Offshore is certainly less impacted by corona crisis for 2 distinct reasons: one, the supply chains are significantly more long term. So we premanufacture and then -- turbines and then install in batches during summer campaign. So a short disruption of a blade plant, like I explained in Hull, might not lead to a delay on the project as we then accumulate the blades and install in batches in summer. So that's one reason and -- we need to look at. And the second one is, what did I say, the supply chain is less impacted. And also, the teams are much more local. So we had -- an example, when putting the teams together to go on a vessel, what we did is we did all -- test all the staff on the vessel on corona and quarantine them until test results were out, if the teams were all positive. We were secure that we had an unaffected team on the vessel. And then we extended the normal time at sea is 2 weeks. We extended this time to 4 weeks. So there's a number of measures that are rather easily implemented with the -- of course, with the strong support of the people, to be willingness to go Offshore for 4 weeks instead of 2, we did so and so there was less interruption in that one because you can avoid all the border crossing topics you have with Onshore teams. So overall, I see Offshore significantly less impacted. There is still some uncertainties from supplies, for instance, from Italy. There's uncertainty around the balsa wood topic. But we are very closely following up on that situation. There is still some work to be done. But overall, I see significantly less impact in Offshore also going forward through the summer campaign.

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Operator [35]

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The next question comes from Fernando Lafuente from Alantra Equity.

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Fernando Lafuente Seseña, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [36]

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A quick follow-up on this Areva agreement. I understood that this has had an impact of EUR 60 million in this quarter. Can you confirm that? And if so...

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [37]

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EUR 62 million. Yes, contract, EUR 62 million to be precise.

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Fernando Lafuente Seseña, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [38]

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EUR 62 million, 6-2, okay. Perfect. And this is included -- is this included in the EBIT figure that you have reported? Or it's...

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [39]

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It is included in EBIT.

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Fernando Lafuente Seseña, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [40]

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Okay. So excluding this Areva and basically more or less the impact of COVID, the recurrent EBIT would be something in the region of, say, EUR 25 million to EUR 30 million right?

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [41]

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Yes. Perfect.

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Fernando Lafuente Seseña, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [42]

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Perfect. And this is a cash issue? I mean, this contract will give you some cash and -- sorry?

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [43]

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The Areva contract will give us cash, but over time.

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Fernando Lafuente Seseña, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [44]

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Okay. So it is not in this year or...

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [45]

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Not -- partially in -- the arrangement with Areva is partially within this year, but total in the next year, according to a certain payment term.

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Fernando Lafuente Seseña, Alantra Equities Sociedad de Valores, S.A., Research Division - Research Analyst [46]

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And my last question on liquidity and balance sheet. What is your view on the potential impact of this COVID crisis on the, I guess, working capital and collections from clients, payment from suppliers, this balance between one and the other? And how do you see your liquidity ahead of the remainder of the year? If you are comfortable with now with the current liquidity? Do you think you should need to tap into the capital markets? What are your views on this side, please?

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Thomas Spannring, Siemens Gamesa Renewable Energy, S.A. - Interim CFO, Accounting, Reporting & Controlling Director [47]

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As on the liquidity side, we currently see we are slightly impacted by COVID-19. You see that one already by the inventory increase and a little bit in the contract assets. That is a certain charge on our liquidity. But as already mentioned, simply by the lines we have available, we are well prepared for anything what might be ahead of us.

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [48]

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Let me add a short comment on that situation. If I look at the -- and I think it's a key question you raised here. If I look at the profitability of the company, we disclosed the 1.5%. If you add then the direct impact on COVID, the EUR 56 million, it represents around 2.5%. So overall, the direct impact, I see a 4% performance there. And then if you ask that, I think it's a very relevant question on the Areva settlement. In my view, we've seen the indirect impact from corona, which I mentioned, which are very hard to quantify. But I would not be surprised that it's somehow leveling the upside, certainly, we have achieved from Areva. So that is my more holistic view on the situation. If you look at the company, it's kind of 4% without corona. And the special effects on one side of indirect from corona, which have not been quantified for and the special effects of the settlement, somewhat are being balanced out. And I think that is a view that would be adequate to look at the entire situation.

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Operator [49]

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Ladies and gentlemen, there are no further questions in the conference call. I will now give back the floor to the company. Thank you.

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Markus Tacke, Siemens Gamesa Renewable Energy, S.A. - CEO & Executive Director [50]

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So thank you very much to all of you to participate in this earnings release in difficult times. I'm convinced there will be better times. We will work through that. The team is highly committed, as you've seen the examples of personal commitment to keep the business running and get over as quickly as possible. Thanks to you. Have a good day, and stay healthy.