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Edited Transcript of NDX1.DE earnings conference call or presentation 13-Nov-19 1:00pm GMT

Q3 2019 Nordex SE Earnings Call

Norderstedt Dec 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Nordex SE earnings conference call or presentation Wednesday, November 13, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christoph Burkhard

Nordex SE - CFO & Member of Management Board

* Felix Zander

Nordex SE - Head of IR

* Jose Luis Blanco Diéguez

Nordex SE - Chairman of Management Board & CEO

* Patxi Landa

Nordex SE - Chief Sales Officer & Member of Management Board

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Conference Call Participants

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* Anis Zgaya

ODDO BHF Corporate & Markets, Research Division - Analyst

* Douglas Lindahl

Kepler Cheuvreux, Research Division - Analyst

* Frans Hoyer

Handelsbanken Capital Markets AB, Research Division - Analyst

* Markus Schmitt

ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst

* Sean D. McLoughlin

HSBC, Research Division - Associate Director of Clean Technology

* Sebastian Growe

Commerzbank AG, Research Division - Team Head of Industrials

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Presentation

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Operator [1]

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Good day and welcome to the Nordex SE Report Q3 2019 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Felix Zander. Please go ahead, sir.

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Felix Zander, Nordex SE - Head of IR [2]

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Thank you very much for the introduction. Good afternoon, ladies and gentlemen. It was -- I would like to welcome you on behalf of Nordex to our analyst and investor call for the first 3 quarters 2019. Our CEO, José Luis Blanco; our CFO, Christoph Burkhard; and our CSO, Patxi Landa, will give a presentation sharing the latest developments and financials with you. Afterwards, we will open the floor for Q&A. (Operator Instructions) Now I would like to hand over to our CEO. José Luis, the floor is yours. Please go ahead.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [3]

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Thank you very much, Felix. Welcome, everybody, to the 9 months figure conference call. Thank you for your participation and interest. As usual, we are in Hamburg, the management board members of Nordex, Christoph Burkhard, as mentioned, Patxi Landa, myself, José Luis Blanco.

We have prepared for you a standard agenda, starting with an executive summary. Then we will talk about markets on Nordex with Patxi. We will review the financial figures of the company. We will talk about operations and technology, not much about technology this time, but especially about operations. And we will finalize with the guidance for 2019. As always, we will open the floor for Q&A. And after we finish Q&A, I will share with you in representation of Nordex the key takeaways. So with this, let's move to the first agenda point, executive summary.

So very much in summary, in the first 9 months of 2019, we deliver on the main financial KPIs. Sales of EUR 1,943 million; EBITDA margin, 3.1%; working capital, minus 5.2%. Important guidance for the full year 2019 confirm, worth to remark, Q3 '19 is another strong quarter, with order intake of 1.7 gigawatts compared to 974 megawatts same period 1 year ago. Approximately 50% of this very good order intake is coming from volume accounts for the latest generation turbine, Delta4000, that as was previously communicated, is a more profitable product. Next, Delta4000 product portfolio, meanwhile, as mentioned in the previous call, 5 different product versions, covering all the customers' requirements, not just of today, but the expected customer requirements in the next years. And last in this executive summary. On October '18, we successfully increased cash -- increased capital with a cash contribution out of EUR 99 million through a private placement with our anchor shareholder, the Acciona Group.

With this, I hand over to Patxi.

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [4]

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Thank you, José Luis. So looking at the markets. Order intake was 1.7 gigawatts in the third quarter, up 75% with respect of Q3 2018. And with this, year-to-date order intake stands at 4.7 gigawatts, up 54% when compared to the same period last year. So we are obviously very pleased with this growth. That is mainly driven by our main traditional markets in Europe and North America.

In Europe, we see a positive momentum with the exception of Germany. And with markets like Poland and Italy, expecting to hold auctions and to join this general positive momentum. Year-to-date, we sold double the volume in Europe as we sold in the first 9 months of 2018, and the majority of that growth is coming from our long-standing markets like France, Turkey, Spain or the Nordics. We are benefiting from the timely introduction of the Delta4000 platform that continues to win the trust of customers, and that represented already, as José Luis mentioned, 50% of the new orders in the quarter.

In the U.S., we sold 3 times as many megawatts year-to-date as we sold in the first 9 months of 2018. Also there, the contribution of the Delta4000 platform was close to 50% of the new orders, taking advantage of the rapid shift in the market towards 4- to 5-megawatt product platforms. We see this product trend actually accelerating towards next year and remain positive, both with the market volumes in the U.S. as well as with our product competitiveness.

As well, we were very glad to see that South Africa committed to deliver significant volumes for the next 10 years, which is great news for us given our market-leading position in that market.

ASP remained stable in the period, confirming the price stabilization seen in the last quarters.

So in summary, significant order intake growth so far in long-standing core markets in a stable pricing environment.

Service sales grew 11% year-to-date with respect to the previous year, with an EBIT margin of 17.6%. Service backlog increased to EUR 2.5 billion. Turbine order backlog stands now at EUR 5.6 billion, up 80% over September 2018. Almost half of it sits in the Americas, 43% in Europe and 13% in the rest of the world. So combined order backlog rose to EUR 8.1 billion at the end of September 2019.

And with this, I hand over to Christoph, who will lead you through the financials.

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [5]

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Thank you very much, Patxi. Good afternoon, ladies and gentlemen. Welcome also from my side. And I would like to guide you now through our Q3 2019 financials.

Q3 2019 went according to plan on an anticipated higher level compared to the previous 2 quarters. José Luis already showed initially very increased volumes.

And if we start with the income statement. The total sales of EUR 1.943 billion do show the back-end-loaded structure of this financial year. And the Q3 number of almost EUR 1 billion is already reflecting the steep increase towards year-end. And as communicated previously, we expect Q4 to be even stronger, obviously, in order to be within the guidance and to safely land within the sales guidance. So the sales growth is happening as communicated in our previous calls.

Also in line with our previous indications, gross profit margins further normalized. The margin has further come down in Q3 to 22% from 27% after Q2, leading to a combined 26.5% in Q3. And eventually, also, the EBITDA number of EUR 60.2 million, representing an EBITDA margin of 3.1%, is catching up as expected.

Now with this, going to the balance sheet. Also here, the effects of the preparation efforts for the high activity level continues to be clearly visible. Current assets, and here, specifically, inventories and receivables, have further increased compared to Q2, leading to a further temporary prolongation of the balance sheet, impacting the equity ratio. Net debt stood at EUR 201 million at the end of Q3, being slightly lower compared to EUR 204 million at the end of the first half 2019.

Now with this, going to the working capital development. Working capital continues to show a very positive development. With minus 5.2% at the end of Q3, it has further improved compared to the already decent ratio of 4 point -- minus 4.7% at the end of the first half year. Again, the contribution from high prepayments as a result from our strong order intake, in combination with our stringent working capital management, were the key reasons for this result.

Personally, I expect this to be a peak number in 2019 and to see a slight increase of working capital towards year-end. And maybe to anticipate your questions, obviously, we are pretty far away from the 2% guidance. And I think we can herewith also narrow the guidance down to negative working capital. I think that's absolutely feasible to do so.

So then maybe we have a look at the cash flow statement. The cash flow from changes in working capital were, as mentioned already, positively impacted by our strong order intake and the respective prepayments. Cash flow from investing activities is exactly following our CapEx plan for 2019. And the free cash flow at the end of Q3 stood at minus EUR 156 million, slightly improving compared to minus EUR 161 million at the end of H1. And last but not least, you can see the repayment of the Schuldscheindarlehen back in April, and that is reflected in the cash flow from financing activities.

With this, to the total investments. Also here, you see that we are catching up basically in accordance with expectations. Investments now in Q3 year-to-date amounting to EUR 101 million, and they are consisting largely of the investments in our blade facilities. In addition, of course, we have invested a lot in tooling equipment needed to support our increasing project activities and further investments in our production facilities in India. And as already communicated in our Q2 call, of course, we have revised our CapEx number outlook for 2019 up to EUR 160 million against the background of the continuous dynamic order intake momentum, and we still do see this number happening until year-end.

That brings me to the capital structure. We do see the leverage curve now also, as indicated last time, now slowly coming down from 2.5 to 2.2. And we do expect the leverage further reducing until year-end.

And then we have already touched upon factors influencing the equity ratio in Q3, mainly due to a prolonged balance sheet. Also here, we expect to see an improvement at year-end. And that, of course, not least triggered by the capital increase undertaken in October.

Now let me with that sum up our Q3 2019 financial results with 3 takeaways. Number one, Nordex numbers in Q3 2019 do show the expected pickup of sales volume and corresponding EBITDA, reflecting the communicated structural pattern in 2019. Number two, Nordex is prepared for the ongoing increase of project activities towards year-end and actually also beyond, which, amongst others, is well reflected in the working capital, as you see it, and also in our balance sheet. And number three, Nordex is confirming its guidance for 2019, but we cannot be more specific at this point in time due to the extraordinarily dense yen project activities.

And let me maybe reiterate in that context. When we defined the relatively broad guidance corridor for 2019, early 2019, we did this exactly against the background of the expected structural patterns for 2019. Please bear in mind that we have always a certain likelihood for short notice project delays, either caused by our customers or sub-suppliers or even ourselves, and all the weather, specifically in winter times, can lead to delays. And why I'm saying that, because we do look at a particularly heavy, actually, the biggest quarter ever, in our company. Again, we feel well prepared, but I think it is simply worthwhile to highlight that once more.

And with that, I hand it back to José Luis.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [6]

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Thank you very much, Christoph. So what we show here is in physical figures what was mentioned before in the balance sheet.

Installations, we have installed in the first 9 months 476 turbine in 16 countries, 47%, Europe; 24%, Latin America; close to 30% in North America, 9% less than previous year, which means that still a big job to do in the remaining part of the year. As of today, as we speak, the number of installations has increased from 476 to 700, which tells you an idea in line with what Christoph mentioned of the high peak project activity expected in the last part of the year.

In preparation for this pickup of project activity in Q4, of course, the factories need to do their job in advance, and most of it is already done. So you see in turbine assembly, increased 78% compared to this same period of previous year. We assemble more than 3 gigawatts, 920 units: 348 in Germany; 357 in Spain; 46 in Brazil; 150 in India, picking up substantially compared to the previous year; and 19 units in Argentina.

In terms of blade production, we have produced as well in-house 69% more blades compared to the previous year, 1,093 blades: 328 in Germany; 561 in Spain; very important, 24 in Mexico, slightly delayed ramp up, but this is one of our biggest investment. And we can share with you that we are progressing quite okay now picking up in the ramp-up; and 180 units in India, which is already consolidated plan. The outsourced blade production in the same period is 1,695 units, so that gives you an idea of the proportion of make versus buy.

We can share with you that in the year, we will exceed the 4 gigawatt production for the main components. But as we speak, we are increasing as well the capacity in order to support the already secured order intake that needs to be delivered in 2020.

This is very much what we wanted to share today with you regarding operations and technology. Technology, there is no new products to be announced.

And just to conclude our Q3 presentation. Just to confirm, as was mentioned previously, the guidance for 2019, reiterating that sales between EUR 3.2 billion and EUR 3.5 billion; EBITDA margin in the range of 3% to 5%; as mentioned, working capital, minus 2% or 0; CapEx, in line with very much approximately EUR 160 million.

And with this, we will open the floor for Q&A.

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Felix Zander, Nordex SE - Head of IR [7]

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Yes. Thank you very much, gentlemen. Now I would give back to the operator and would like to ask you to open the lines for the Q&A, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from Sebastian Growe of Commerzbank.

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [2]

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First one is around the orders. The simple question is if we have seen peak orders within the 9-month period of 2019, or if you can share some thoughts around the pipeline. And also, Christoph talked around the payment terms. It seems really that working capital is obviously going quite well because of the prepayments. So it seems you have some leverage, leverage against customers, and it will be quite interesting to hear your thoughts around this one. And if I may then, when we just talk around market also ask around Germany. There's been a lot of noise now with this 1,000 meters distance, et cetera. Patxi, if you could just give us your high-level thoughts around what's going on in Germany. And if and when this might be released with these regulatory issues that the market is facing.

The second one is then around supply chain. If you could give us a bit of an insight into the potential shortages going into the next year. And if there's also been a change to terms and conditions asked for by your various suppliers. Or do you have the holes in order, if I may put it this way, to just deliver on what you have in terms of firm orders already in the order backlog?

And then the last one, and that brings us even more so to the volume part. I think on the last conference call, José Luis, you said that 5 gigawatts was an indication you provided for the 2 upcoming years, 2020, 2021. I found it quite interesting to see that the production output obviously was very strong at 1.3 gigawatts in the quarter 3. So obviously, if one was to annualize it, one goes even higher, and that is not giving full credit yet to India having certainly some headroom, Argentina having headroom. So anything you might share with us in terms of where the sort of physical limit from the current production setup is, that would be very much appreciated.

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Felix Zander, Nordex SE - Head of IR [3]

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Good. So let's just start with the market, Patxi?

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [4]

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Yes. I will start with that. So without guiding order intake, as we always do, what I can share with you is that we do see in the next quarters a similar momentum from an order intake perspective, so you can expect the good momentum to continue.

On Germany, Germany is -- let me put the question in context as well. So we never provide a specific guidance on specific markets. But I can share with you that in the orders that we saw that, as you saw, are significantly growing, Germany represents 3.2% of the orders. So today, what is happening in Germany, of course, is important to us, but it's materially affecting us very limitedly.

So having said that, to frame the question, we do see that, yes, there are some nice initiatives taking place with respect to real estate taxes, I mean, driven by the ministry, but as well some threats in how the initiatives are taking place. And namely, the 1,000-meter distance tool that you were alluding to. So I understand that there is work in progress, addressing definitions, and how all of that plays out will affect, but it's not we underestimated that potentially this could harm the addressable market. And as a consequence of that, the targets of the country would be under threat. And as a consequence of that, that the recovery of the market takes place even longer than had been anticipated. So we are on a wait and see mode because, still, we need to see the facts coming out of that. But potentially, yes, this could have an impact in -- on the German market.

From a payment terms perspective?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [5]

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Well, Patxi, I guess we are seeing here payment terms topic is okay. I think the main theme these days is really availability of our new products. And I think that's the key topic for our customers. So I think we have been able to maintain okay payment terms. Let's put it like that, that's maybe not the super focus of the customers if we would say, yes? So that's good. Customers definitely have a focus on timing of the product these days.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [6]

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Thank you. So I will take the -- Sebastian, I will take the supply chain. So as to give a little bit context, 2019, we faced several supply chain constraints, starting with tower suppliers going insolvent due to the price pressure in Germany, and this has cost us money. And in this, everything has been factored in the guidance. And on top as well in 2019, we have had the U.S.-China tariff, that as well cost us money as well factor in the guidance numbers.

2020, with information we have in hand, we have the house in order, as you mentioned. But this has substantial growth in Delta4000 from, let's say, 100 units to 600, 700 units. So the risk is -- the risk associated with the supply chain growth in this product, so the typical ramp-up risk. We think we have everything properly planned, and we expect to deliver, but it could be unforeseen or unplanned issues that may affect or slightly delay the ramp-up. We don't think so. But it's always a risk.

Regarding capacity beyond 5 gigawatts. We can share with you that we have room to do more with limited CapEx. Unfortunately, not for 2020 deliveries. So our capacity for 2020 deliveries in the Delta4000 product is very much what we can do. But with very limited investments, if the market requires us to do so, we can do substantially more in 2021, for 2021 deliveries.

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [7]

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Okay. But you would then say that 5 gigawatts for now is sort of the physical limit that you are able to ship or produce when it comes to 2020? That's correctly understood?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [8]

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I would say, slightly more than that in 2020, slightly more than that, and substantially more possible in 2021, with very limited additional CapEx.

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [9]

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Okay. That is helpful. If I may just pick up one of your comments that you made around the towers at the end of H1 of the German suppliers. You recently issued a press release saying that you have produced 1,000 towers recently, and you want to increase that number to 2,000 within only a good year from here. Can you just walk us around simply what impact that does have on your ability to just be better off than eventually the one or the other supplier and wind turbine maker because of that very deep in-house value creation around towers in particular?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [10]

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I think this is a quite unique feature of Nordex. As you know, we have in-house concrete tower technology that was thought and designed to do larger-scale projects in local content markets or in a supply chain constrained markets. This is quite unique for us. It's a unique selling point, but very much, it's factoring. I mean we are doing great in Brazil, in part, thanks to that, among many other things, same in South Africa where we plan to leverage in the future, and Mexico, India. So we feel very comfortable with the ramp-up risk because all the tower factories are in full production mode. But the order intake momentum is already factoring having that in-house. That product is not a product for Europe. I mean we do have concrete technology as well in Europe, a different kind, and we are leveraging on the economies of scale. But definitely, yes, it's a fantastic product and organization that we have that help us to land deals in several countries.

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Operator [11]

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(Operator Instructions) We'll now take our next question from Sean McLoughlin of HSBC.

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Sean D. McLoughlin, HSBC, Research Division - Associate Director of Clean Technology [12]

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Firstly, just looking at Q4, I just wanted to understand your level of turnkey responsibility. You've outlined obviously the risks around higher volumes. I mean what kind of level of turnkey as a percentage of projects do you have among your Q4 deliveries? And what kind of liabilities might you face as a result of execution delays? That's my first question.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [13]

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Okay. So I think we have had -- or we have substantial EPC activities all over the world. Most of the projects went as expected. We are facing in one project some difficulties, with limited impact in 2019 and with potential impact in 2020. But it's one out of 10 projects that we are executing. The rest are well on track. And the eventual difficulty in one project is not going to affect the financial performance of 2019 to the best we can assess today.

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Sean D. McLoughlin, HSBC, Research Division - Associate Director of Clean Technology [14]

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That's clear. Looking at cash flow in Q4, just wanted to understand some of the moving parts. You're saying that you expect leveraging reducing by year-end. I'm just wondering if you could put a little bit more quantum around that. Are we going to stay at a similar level? Or do you expect a lot of cash inflow through Q4 as you recognize projects?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [15]

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Sean, it's Christoph here. Briefly, on the moving parts, usually, traditionally, I would have always said, of course, we expect kind of year-end cash being higher. That's the first feature that we usually see, and let's see how this will pan out. But usually, you can expect a year-end cash rally. Then, of course, we have the equity increase, which is not yet factored into the Q3 numbers because it happened on October 8. What are the parts moving in the other direction? We do see in Q4 higher than quarterly average outflows on the CapEx side. And I do expect that, as I've mentioned just before, working capital to go a bit up. So we do not expect to be able to keep that to below working capital level. And those are the moving parts. And doing what is possible today, best guess today, taking all pieces together, would lead to an overall positive development.

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Sean D. McLoughlin, HSBC, Research Division - Associate Director of Clean Technology [16]

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Understood. So looking at 2020, of your growing turbine backlog, can you specify how much is for delivery in 2020?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [17]

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I mean we are in the planning process. As was commented, we are planning to produce this year more than 4 gigawatts. Next year, more than 5 gigawatts. How much of that is going to translate into sales? We are still evaluating that.

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Sean D. McLoughlin, HSBC, Research Division - Associate Director of Clean Technology [18]

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Super. And lastly, just on blades. I see roughly a 2/3 outsourcing level. Can we expect that to grow in 2020? Would you grow outsourcing? Or are you looking at bringing with your blade investments, let's say, proportionately more blades in-house?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [19]

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We plan to keep the current suppliers we work with, third-party suppliers. The Mexican plant next year, obviously, is going to produce substantial, more substantial, more units. But we are ramping as well 2 out of the network of existing suppliers with Delta4000 blades. So I don't have the final -- I do have the numbers, but I haven't done the math. I can do that off-line for you if you are interested. But for the sake of that, let's assume that, more or less, there is no change in the strategy. It's a question of utilization of the current internal plans and internal third-party suppliers. We don't plan to develop more. We don't plan to phase out any of those.

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Sean D. McLoughlin, HSBC, Research Division - Associate Director of Clean Technology [20]

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Very good. So I suppose I'm thinking that should have a margin neutral impact in terms of how much you need to give away to your suppliers in order to increase volume.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [21]

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I mean there are several ways to see it in a ramp -- in a ramping up phase. Do utilize all the capacity because the bottleneck is delivering. Once you build the capacity, of course, if you have a stable demand, you can have a better allocation from the best competitive countries. So it's going to be a factor of demand. But usually, in our experience, even having high cost components, if the market pays for it, it's good for Nordex, either because they are well logistically placed or because the prices and the margins on the market are good enough to keep those supply chain operative.

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Operator [22]

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We'll now take our next question from Douglas Lindahl of Kepler Chevreux.

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Douglas Lindahl, Kepler Cheuvreux, Research Division - Analyst [23]

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I hope you can hear me. A few questions from my side as well. Starting off a question for Patxi. On Slide 5, I see that you keep sort of a positive outlook on Americas. I realize you had a similar wording in Q2. Just to clarify, with regards to volumes in the U.S., do you expect that to be down in 2021 compared to 2020? And has there been any change in the customers' behaviors from the U.S. market specifically?

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [24]

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Yes. Well, it's still speculative. I would answer yes. I mean probably 2021 is going to be a less volume year than 2020, but it's going to be a higher-than-expected year. We do see -- what I can see now is the pipeline of deal flow that is work in progress. And the estimation that we have looking at the experience that we have had in past years is that 2021 will still be a very good volume year. Probably, and this is pure speculation because it's too early, I mean, remember, we are in November 2019 speaking about '21, so many things are still moving parts. But we do see that probably '21 will be slightly lower than 2020, but still a very big volume year.

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Douglas Lindahl, Kepler Cheuvreux, Research Division - Analyst [25]

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Okay. Very clear. And I realize that someone else tried to ask a similar question, but I'll try to ask it in a different way. You have a pretty substantial turbine order backlog right now, EUR 5.7 billion. And based on your guidance, you're expected to execute roughly EUR 1.4 billion in Q4. And let's say, you get a similar amount of order intake in Q4. So by the end of the year, you're going to land at roughly EUR 5.7 billion, so at similar levels as of now. But would it be fair to say that those turbine orders typically will be executed over the next 12 to 15 months? And -- or it seems you sort of seem to point that, that could be far longer. And why has this changed in that case?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [26]

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A part of the -- I mean we are planning the 2020 and the capacity that we are going to produce in 2020. Remember, one thing is production, other thing is installation and revenue. But talking about production, which is what we have more firm view today, we are going to produce less megawatts than the order backlog. So it means that there are contract signs that do not require production in 2020, so because those are 2021 deliveries.

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Douglas Lindahl, Kepler Cheuvreux, Research Division - Analyst [27]

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Okay. And the final one for mine, for Christoph. On the financial costs, can you give some sort of indications on what net financials we should expect here on a normalized level going forward? Right now, it's quite a big portion of EBIT that is consumed by financial costs.

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [28]

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The financial costs going forward?

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Douglas Lindahl, Kepler Cheuvreux, Research Division - Analyst [29]

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Net financial, specifically. Yes, exactly. On a normalized levels, at what levels do you think that those should sort of end up at on a full year basis?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [30]

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I would give it, as an indication, around 50.

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Douglas Lindahl, Kepler Cheuvreux, Research Division - Analyst [31]

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Okay. Yes. For this year, I understand that, that should be the number roughly. But going forward in the longer term, can you give some sort of visibility on what you expect that to be roughly? Or would that be the same number?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [32]

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That, of course, depends on certain assumptions around refinancing. I would probably differentiate between short-term and midterm view. Midterm view, if you take now the costs currently incurred by the high yield, I would expect to come this down. Short term, we are -- on the other hand, we are still enjoying fairly low financing costs on the promissory note, on the Schuldscheindarlehen. So I guess it somehow will probably level out. So I wouldn't expect too much changes. But let me maybe complement my view. We will see a higher utilization of our guarantee line, and that will also lead to higher overall financial costs due to the volume in terms of absolute numbers, obviously, because we are growing.

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Operator [33]

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We'll now take our next question from Anis Zgaya of ODDO.

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Anis Zgaya, ODDO BHF Corporate & Markets, Research Division - Analyst [34]

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Yes. I have 2 left question. First one, on taxes. You've paid EUR 17 million in Q3 on a negative pretax result. Could you please give us more details on that? And what is your expectations for end-year taxes for 2019?

My second question is on equity ratio. You said in the Q2 that you were expecting equity ratio to increase in half 2. But we see -- in spite of the capital increase, we see deterioration of your equity ratio in Q3. What is your expectations for Q4 and beyond?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [35]

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Yes. Let me maybe start with the equity ratio part. As I've mentioned before, I think that the trend that you see in Q3 will be reversed in Q4 for various reasons. One of the main reasons, obviously, the equity increase.

Secondly, we will certainly now work towards a positive net result over the next periods to come. So that will -- or makes us expecting a reversal of the equity ratio. And also, our -- the length of our balance sheet at the moment is probably coming to a peak. So those are the factors that make us believe that we will now look at the reversal of the trend with respect to the equity ratio.

With respect to taxes, to be very frank, that's a difficult one, and it's a complex one. Maybe my answer will not be fully satisfying. I acknowledge that, but I want to be very open here. You know we have been going through a very rapid globalization and global development, and we are still in the midst of creating a tax-optimized structure. And it will not be always possible basically to set off profits generated in one legislation with losses in another legislation. That's simply a matter of fact, and that's what you see reflected in the result. And that's not yet satisfying, I acknowledge, but that's what we're working on, and we will be seeing improvements. But I can't give you a sharp number as per today for year-end. It's too early.

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Operator [36]

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We'll now take our next question from [Nick Rope].

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Unidentified Analyst, [37]

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Very simple one for me. Your working capital ratio -- can you hear me? On the working capital ratio, you target kind of sub 2%. Obviously, if it went all the way to 2%, that's as a really big working capital outflow. Are you able to kind of narrow that range at all kind of from where we are today at minus, whatever it is, 5 point something to 2%?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [38]

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Yes. Absolutely. I try to indicate that. I mean we do -- I think already feel comfortable to confirm a negative working capital number. Again, we expect a slight increase in working capital compared to the minus 5.2% currently. But we should be well below the 0. That's how far I would get today.

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Unidentified Analyst, [39]

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Just to be clear, do you mean 0%? Or do you mean the balance sheet cash flow?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [40]

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0%. 0%.

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Unidentified Analyst, [41]

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You're going to be below 0% ratio?

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [42]

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Yes.

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Operator [43]

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We'll now take our next question from Markus Schmitt of ODDO.

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Markus Schmitt, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [44]

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One is concerning your sales per megawatt. When I compare this metric to your order intake ASP, I see that your sales per megawatt is higher over a longer period of time than your order intake ASP from 1 or 2 years ago. So it seems that the order intake is not reflecting its revenue and even not on a pro forma basis for the installation assembly. Is this simply the answer explaining the delta?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [45]

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I'm not sure if we get your question. Will you be so kind to repeat, please?

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Markus Schmitt, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [46]

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Of course, I'd try.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [47]

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Sorry.

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Markus Schmitt, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [48]

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No, it's okay. I mean you published an order intake ASP, right? I mean that is 700,000 or whatever per megawatt right now. You can calculate, one, if you take -- in terms of installations, when you take the project revenue divided by the installed -- by the installations in a certain period. And this figure is substantially higher than your order intake ASP. So my question is, what do you illustrate in the order intake ASP, which you -- which is -- or not illustrating in the order intake ASP, which is included in the projects revenue? And I get to the conclusion, it must be the assembly installation invoiced to the customer. So is this simply a matter of illustration, I guess?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [49]

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No, it's precisely that. I mean the scope is so different, 164-meter tower in Germany with installation; on DDP U.S., 80-meter tower without installation. So completely different scope with or without EPC. We give this KPI because everybody's asset is referencing, but you cannot take conclusions out of that KPI. The important thing is what Patxi mentioned, which is not an explanation of the KPI, is price stabilization in general and rational pricing behavior.

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Markus Schmitt, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [50]

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Okay. But I think I understood correctly that there is no assembly service in the U.S. primarily. So in the U.S. market, given your strong order intake there, I would assume that my metric I just tried to explain the revenue per installed megawatt just would come down then, yes? I mean that is, I think, true for the U.S. market if I'm not wrong.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [51]

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It's true. But even within the U.S., even the same product, if the project is in Texas or if the project is in Dakota, the impact per megawatt could easily be 50 to 100 to 100,000 per megawatt. So even same products, same country, logistic, which is, in most of the cases or almost in all the cases, part of our scope, is so different region to region.

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Markus Schmitt, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [52]

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Okay. Good. Understood. And then another question on your cash flow, so maybe for Christoph. There's quite a large amount flowing out in terms of provisions year-to-date. I mean the swing is about EUR 100 million, and I think that is due to the decline of other provisions for individual guarantees and warranties. Could you confirm this, please? And maybe explain what turbines and models are affected here? And which markets? And if you expect further outflows? And if so, at what magnitude in 2020? I believe the delta for sales does not concern you, but maybe you could explain what kind of turbines and models are affected here.

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [53]

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We have -- I think we have discussed it already last time. It is, of course, a mixture of the reversal of provisions for legacy products, plus what we always do also when we develop a new technology, of course, we, for certain, and those are mostly milestone-related risks, we are building provisions and then also basically releasing them. For 2019, I'm not in a position really to give that -- to give you the breakdown over turbines and even regions. This is really a big variety of topics and it's very dynamic, yes? It's in and out. So I can't go into the specifics. And also, 2020 would be simply -- would be really too early to comment. I can't go -- I can't be more specific here.

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Markus Schmitt, ODDO BHF Corporate & Markets, Research Division - Fixed Income Analyst [54]

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Okay. Just to be clear, will you probably extend the guarantee facility during 2019? Or will it be rather seen next year? And a follow-up -- or in this context. And do you consider to call your bond early next year since the yield is much lower than the coupon now, which would actually help you to compensate maybe the increase of interest rates on your promissory notes? So maybe you could answer those, please.

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [55]

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If I may start with the latter, I mean, all considerations about refinancing next year, again, too early. I would not like to comment that because also, from our point of view, this is not yet decided. We will make that dependent on the specific market environment then when we are moving into next year. Could be an opportunity, but absolutely nothing decided yet. On the guarantee line, we are in the middle of ongoing negotiations, very constructive negotiations. And we'll see when we get the signature in due course. I can't comment on that more.

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Operator [56]

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We'll now take our next question from Frans Hoyer of Handelsbanken.

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Frans Hoyer, Handelsbanken Capital Markets AB, Research Division - Analyst [57]

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It's a question about cost pressures, whether you could talk about trends in various input materials, prices and costs now and maybe looking ahead a little bit.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [58]

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Yes. I mean we mentioned before, the main cost deterioration drivers in 2019 were duties mainly, China, U.S. import duties, where towers increasing in cost was fuel, and to a certain extent, some Chinese products, castings and so on. As of today, it looks like our needs for 2020 are, to a big degree, costs are locked, but we are always subject to either suppliers failing or either changes in the import duties regime. And this short term -- I mean this long term, you can reshape the supply chain, but unfortunately, in our case, in the case of our industry, it takes time. So if you have an unexpected different import duties regime between the geographies that you operate, that will impact your cost structure. Nothing that we can foresee today, but this is obviously always an open risk in our industry, that in the short term, you have limited levers to compensate that. In the long term, you do because you reconfigure your supply chain.

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Frans Hoyer, Handelsbanken Capital Markets AB, Research Division - Analyst [59]

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Yes. Got it. And you mentioned the ASPs being stable. And I was wondering whether that is a -- well, it is an average, and so there might be different trends going on in different segments. I'm thinking about the more mature products, whether they are seeing a different price trends than the -- than for the whole of your assortments.

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [60]

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They do. As you mentioned, there are very different variables that configure the ASP figure. And it's true that product configurations you were mentioning, there is different dynamics there. And of course, legacy products that do not deliver as competitive LCOE, they deliver less value, and as a consequence of that, have a different pricing dynamics. In contrast to that, newest product is just the opposite of that. And then -- that from a product perspective, and on top of that, there is markets and a number of different variables that configure the figure.

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Frans Hoyer, Handelsbanken Capital Markets AB, Research Division - Analyst [61]

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Does that then have a bearing on your margins on the legacy products? Or are you able to offset that pressure as you -- I guess, the marginal cost of the last product that produced might be lower than for the initial products? So are you able to sort of more or less maintain your margins on those legacy products despite the price pressure?

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [62]

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Well, what I would say is that what we have shared with you in previous calls as well, that the product mix evolution, the great rate is the penetration of newest products will have an impact on overall profitability.

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Operator [63]

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We'll take a last question from Sebastian Growe of Commerzbank.

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [64]

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So the first one is around the mix for 2020. If you look at the order backlog, the first part of the question is, is there any legacy projects in there still? Or would you say it's sort of clean, so no spillovers from the period H2 '17, H1 '18? And then around the Delta4000, José Luis, you said and hinted to, I think, 600 to 700 units eventually in the year 2020. So in a simple math and supplying 4-megawatt per turbine could obviously also be higher with a variance of 4.5, that takes me to 2.5 gigawatt and a higher 2 gigawatt number. So effectively, the contribution could be well north of the previously indicated 30% contribution of Delta4000. So maybe you can just give me some color on that one.

And then one more on markets for Patxi, and that is for the U.S. I think there's been recently some noise and discussions around potential EPC prolongation, sort of a harmonization with the investment tax credit for solar. Can you just share with us if you have heard anything similar?

And the last one then for Christoph, around the CapEx and the confirmed guidance. Obviously, that means you will have substantial step-up in the quarter 4 of around almost EUR 70 million then. My question simply is, how long does it take from investing the money into the real ramp-up of the primary blades were behind the number? I guess, i.e., should we expect a rather back-end-loaded pattern for the Delta4000 contribution in 2020? Or would that be a false assumption?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [65]

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Let's just start with the production. We mentioned share of the order backlog Delta4000, let's say, 1/3 of the backlog. With the information we have today, we wish to be more specific, but unfortunately, we can't. We can tell you that production contribution 2020 is going to be substantially more than 30%. Sales is going to be less than 30%. So that gives you an idea of how this can translate into the quality of the revenue and the margin.

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Patxi Landa, Nordex SE - Chief Sales Officer & Member of Management Board [66]

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With respect to the U.S., yes, it's true that there is noise into that direction, but really too early days. So I wouldn't draw any conclusion out of that noise today in the market.

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Christoph Burkhard, Nordex SE - CFO & Member of Management Board [67]

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Sebastian, and then on the investment, just to be clear, the time, basically, you would see from showing the investment until implementation or until realization or what's exactly the question?

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [68]

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Yes. You take some money into the hands, invest them to this mold, and then it takes obviously some time to just get production going and have a debottlenecking, et cetera, and production. So my suspicion was simply that from these incremental and very, very late end investments in quarter 4 '19, it might take some time to really get the increase in the blades in-house produced from those very CapEx spends. That was basically the idea. And I just want to have some color from your end around it.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [69]

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Yes, that's one way to see it. I mean, usually, what we did, we took the money from the customer. We invest it in molds. Now the molds get to the factories. We need to pay the molds. We have a ramp-up period, usually one quarter or so. So those molds that hit the factories in the last quarter should be in production in -- definitely in the first half, more towards the end of Q1, beginning of Q2 next year.

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [70]

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Okay. That is clear. And I think the very initial question I asked was around the legacy part. Is there any legacy still in the order book? Or is that all done?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [71]

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Yes, yes. Sure, sure, sure. I mean 70% of the backlog is, I would say, all products or...

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Sebastian Growe, Commerzbank AG, Research Division - Team Head of Industrials [72]

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Sorry. Then I was eventually not precise enough with my question. With legacy, I was referring not to the product, but rather to the projects, what can I say, quality. So there has been significant price declines, and this is all done and over? Or is there still some spillover?

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [73]

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No. It's still -- I mean most of it is done, but still some spillover of projects that were landed in the toughest moments of the price work 2 years ago. So we are digesting those as we speak, and some small tails still in the next year. This is regarding projects. And regarding products, the share is what we mentioned before, between 5-megawatt platform, 4- to 5-megawatt platform and less than 4-megawatt platform.

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Operator [74]

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Ladies and gentlemen, there are no further questions at this time. And I'd like to turn the conference back over to Mr. Felix Zander for any additional or closing remarks.

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Felix Zander, Nordex SE - Head of IR [75]

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Yes. Thank you very much. Thank you for participating in our call and all the questions today. Yes, we will hear over the next time and so far even we have only a remaining year. I wish you Merry Christmas, and talk to you soon. And now I would like to give over to our CEO, José Luis, for his final remarks. Thank you very much.

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Jose Luis Blanco Diéguez, Nordex SE - Chairman of Management Board & CEO [76]

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Thank you very much for all the questions and the interest. So key takeaways from Nordex is full year '19 with a strong seasonal pattern is developing as anticipated. Back-end-load year showing high activity levels in the fourth quarter. You saw that in the production and the expected level of project activity in the fourth quarter. Again, order intake remain on a good level, driven by further demand for our newest and most profitable product, Delta4000. And last but not least, reiterate the guidance for 2019.

Thank you very much, and wish you wonderful day.

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Operator [77]

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Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.